something to watch, page-50

Hi

From 30-Jun report:

* Increased cat-cover cost - no surprise.
* Decreased investment income
* GWP growth slower than expected
* EPS 1.05 cents/share (down from 1.54)
* Operating margins not overly impressive

Couple of key points -

* CIX investment income is very disappointing. When you look at the break-up of their current v non current assets, they appear to have lengthened duration at the wrong time - shortened it going into H2/08, and lengthened into H1/09. My advice to CIX - sack your investment manager: they are not actively matching the duration of your insurance liabilities, else your valuations would reflect this.

* CIX investment income - when you overlay a yield curve against their investments (the risk free curve) it is obvious that their investment income was reduced by changes in the credit curve. One wonders if they are actually aware what their credit curve delta is??!

* The "excuse" for the low GWP growth is, in my book, unacceptable. I would suggest that anyone calling in at 3pm today (to the teleconference) ask more questions about this. I am guessing that it is a case of more chiefs than indians, and the core ground work is not being covered. Additional to this, the merger costs (of AUGIL) seem too rubbery to me. Time for CIX to come clean.

CIX, at acquisition or break-up value, is cheap at 33 cents (or thereabouts), but shouldn't rely on this as a model for success. I am guessing that Kirk is not happy with these results, but will nonetheless defend them.

A good buy around 30-32 cents, but I think some changes at the top are now needed. Kirk should be questioned as to why the AUGIL integration has not gone perfectly to plan, and as to why he seems to have lost total control of his investments. Some bad calls are being made imo.

Best regards
Kit