Johannesburg — HAVING worked for several years for SA Eagle Insurance - which is now known as the Zurich Insurance Company of SA (Zurich-SA) - and having been a shareholder in the company for some time, I still take a personal interest in its progress over the years.

The company was listed in 1968 during the market boom that began in the mid-1960s.

As a relatively junior employee, I had a small preferential allocation of shares and, as I recall, I bought my shares at R3 each.

I sold them in 1969 before the market crashed.

My database on the company's share price, going back only to 1985, shows that the price then was R4,41. After that the share price began to lift and following the report last month on its loss for the financial year ended December 31 the price closed at R180 on Monday.

The loss was mostly the result of nonrecurring items of R403m (R290m after tax) including the cost of a data-loss incident, "the write-off of irrecoverable reinsurance and other balances, and large losses arising from the breach of underwriting mandates by a third-party underwriting manager". The share price was not dented by the updates and the report -- mainly because the free float on the market is less than 15% of the issued shares.

In any case, the published report includes a supplementary income statement of "normalised income". This shows what income could have been for the year without the dents.

In looking forward, shareholders and potential investors probably use this normalised income as the starting point to make a forward view of the financial year 2010.

In 2008, headline earnings were R11,61 per share. Assuming earnings are much the same this year, at a share price of R180 the forward price-earnings ratio is 15,5. The shares seems to me overpriced, but I have to concede that 2008 was not a good year for the company. Thus, the base for making a forward view should possibly be much higher.

Over time, as often observed in previous columns, the share price of a company will have a close correlation with its earnings growth. If I had held my shares, which I bought at R3 each, the shares would now be worth R180 each. My calculator tells me that the share price would have produced an average annual compound growth of 10%.

This return was, of course, after tax, and almost certainly exceeded the average annual compound rate of inflation.

You might conclude that with less anxiety and risk, you could have enjoyed a comparable return on investment by buying long-term government bonds.

You would be wrong. If I had held my 300 shares, which cost R900, until now, they would be worth R54000.

An investment of R900 in gilts, if sold now, would realise R900. Worse still, the interest income would have been taxed, while the dividend income would have been lightly taxed for some years and tax-free thereafter.

If the correlation between Zurich-SA's share price and its earnings growth is right, this exercise, I hope, illustrates why I don't sleep uneasily -- even though most of the Private Investor portfolio's counters' bottom-line earnings per share have fallen recently.