More increases in short-term insurance rates might be necessary in 2003 because reinsurance and other inflation-related costs continued to escalate, Ken Saggers, the chairman of Mutual & Federal Insurance Company, said this week.

In the latest annual report of the group, which is owned by Old Mutual, Saggers said the recent improvement of the rand against other leading currencies, if sustained, would lead to a reduction on claims cost. Additional savings were expected from management initiatives to better control the claims process and improve the underwriting performance.

The erosion of worldwide reinsurance capacity and the consequent hardening of premium rates in global reinsurance markets was expected to continue. Political uncertainty in some regions of the world would also impact on continued upward pressure on rates in the local insurance market.

"Market conditions in the industry are conducive to continued profitability, but the prospects for investment earnings in 2003 remain uncertain," said Saggers.

In 2002 the general insurance result increased 26 percent to R311 million, but net taxed income came to a loss of R104 million following unrealised investment losses of R700 million.

Saggers said the investment losses were in line with the general decline in the local equity market in the year to December 2002.

The integration of Fedsure General Insurance Namibia and the rationalisation of Sentrasure were completed last year. The corporate business division expected to report improved results this year.

The personal division, which makes up 42 percent of group premiums, performed well last year.

The Group Schemes portfolio, representing nearly half the premiums of the personal division and which made an underwriting deficit of R8 million last year, performed better in the second half because of tighter control over databases and underwriting standards.

The commercial division, comprising 40 percent of group premiums, was in a strong position to continue growth and profitability in 2003 after corrective measures were implemented in 2002.

The emergence of large-scale computer theft by crime syndicates had changed the profile of the accident account. The property portfolio produced a positive result despite escalating vehicle repair costs and the high incidence of accidents.