something to watch

Good morning all.

Whilst I am convinced that the 2008 actuariarial valuations and investment results will deliver an above expectations result for Calliden (something in the order of $6-$7 million pretax profit is my guess) and deliver a 1.5cent/share ex-tax dividend to shareholders; I am a tad worried about CIX exposure to some of the post-balance events that have taken place recently. Some of these will likely need to be qualified in the statements.

CIX's exposure to rural property increased markedly over the past year, following the purchase of the remaining 50% of Farmers Mutual Group. This, alongside the Australian Unity pick-ups of 2007, substantially increased the CIX exposure to Victoria, particularly in non-urban areas. Whilst the majority of this is likely to be commercial, a large portion will be household and motor - both of which will take a battering over the next few weeks as the fallout from the fires is counted.

CIX recently launched a somewhat "token" buyback, in an attempt to put a floor under the share price and signal to the market that current prudential capital exceeded required capital (current plus planned). Whilst this has been mildly successful, the valuation of intangibles is likely to fall over the coming months as new reserves are taken into account and the reality that actuarial valuations may be reversed (somewhat) in 2009 due to the falling fixed interest market (unless of course CIX is running a long-duration book - over an above the fixed liability profile - which I somehow doubt they will).

My gut feeling on CIX is that it may struggle a bit in the coming months, despite the good intentions of the buyback and good 2008 result. Insurer's are likely to suffer bad press in the coming weeks (as they always do in times of natural disaster) and this minnow may need to rethink its capital planning (and mismatch planning) if it is to stay ahead of the game.

Not pointing the finger of death at this year - just thought it was something worth pointing out. Tread with caution until we see some clarity from Kirk as to the impacts of what is happening in Victoria, and some guidance on captial management (sorely lacking in my book).

Regards to all.

NB: a good trader does not become emotionally attached to a stock; else their perspective can become blurred.

Kit