Momentum more than doubles dividend, as earnings fly


FIFI PETERS: Well, as we heard from [market watcher] Wayne McCurrie, the market’s certainly gave Momentum Metropolitan a thumbs-up in today’s session. The share price of that company was flying, closing over 3% higher on a day when the market finished lower. It released its full-year results, having more than doubled its dividend following strong profit growth in the year.

Hillie Meyer, CEO of Momentum Metropolitan Holdings, joins us for more on the numbers. Hillie, I just looked at your numbers and I wonder if they suggest that the worst is over from a Covid-19 perspective. We saw what happened to your industry. Insurance companies had to take out all those provisions, arm themselves with a war chest, as it were, to deal with all the claims related to the fatalities from the pandemic. But this hasn’t happened this time around. How would you describe the year under review?

HILLIE MEYER: I would agree with that, Fifi. I think in the past year, as Wayne also indicated earlier, we to some extent over-provided for Covid because of the uncertainty. So we had more reserves than we needed, and we could at year-end release some of those reserves.

Also, I think Covid is now into a more endemic state, and Covid is now manageable. We can now price for Covid. The claims still seem to be a little higher than pre-Covid levels, mortalities a little bit higher than [they were]. That might come down a little more, not too sure, but at least they are manageable levels, whereas during Covid those spikes that we had were quite horrific. They were obviously extraordinary times, and [would not] really be insurable over the long term if those sort of levels of mortality rates were sustained.

FIFI PETERS: I suppose you’re glad that that chapter is looking like it’s behind you at this moment. But you mentioned that you over-provided, and now a lot of those excess provisions are coming back into the business. I’d like to understand how much of the strong profit growth you reported this time around – which enabled you to more than double your dividend – is as a result of those provisions coming in, and how much is as a result of growth in your sector?

HILLIE MEYER: The direct impact of the reserve releases is relatively modest. We released about R350 million of reserves that we didn’t use. So that’s not the big kicker.

I think the more important factor is that in the previous year our results were really hit very, very hard by Covid – both the Covid experience in that year, plus the fact that we created those provisions last year. We reduced our earnings in order to create the provisions, so it’s more a matter of last year’s earnings were really depressed because we had to cater for Covid. We over-provided to some extent. This year, of the R4.4 billion, maybe R350 million of that is because of over-provision for Covid. We in total made a very, very small mortality profit.

But for the rest there’s another, I think, windfall profit and that is that a venture-capital fund in which we invested had a write up. So that contributed R500 million.

Our FD’s on record as saying that the underlying profit, if you adjust for the once-offs, would’ve been R3.5 billion to R3.6 billion. I think that would be a fair number to take as a number from which we can show positive growth going forward.

FIFI PETERS: All right. The pandemic, though – has it had a material or a permanent change in the way that consumers think about insurance and behave towards insurance cover, in your view?

HILLIE MEYER: An interesting question. I think it has. I would say initially it was pretty clear that there was almost like a ‘flight towards insurance’ because everybody just realised their own mortality. We also know that during those Covid spikes all the insurance policies stayed on the books; the lapse rates were very, very low.

Human beings are interesting. You get used to things very quickly. I don’t know whether things will return to normality. I don’t know whether people will place more value on insurance these days. I think they should. I think the more important impact of Covid is probably more on the social side – the way people work, the way people interact. Also it has longer-term health implications, mental health, but also other health issues. We will just have to wait and see whether there are some other secondary impacts that we need to cope with after Covid.

FIFI PETERS: Yes. I see that this time around the value of the new business that came in was lower, and I’d like to know if that is a function, maybe, of some of the ripple effects of the pandemic, being the pressure put on consumers, the economy – and whether this is a function of some of your customers’ cost-cutting.

HILLIE MEYER: No, look, we actually did more. Our new-business volumes increased. So you would’ve expected the value of new business either to increase marginally, or to stay flat. There are these specific reasons why in our case it didn’t happen. It is probably the only disappointing aspect of our results.

In our case, in Metropolitan for example, there were quality issues and higher than normal lapses – and that impacted new-business volumes negatively.

Also, we write a lot of annuity business and we changed the way in which we value the assets in which we invest. In other words, we more conservatively valued our new business because we were projecting lower investment returns on the assets. So there are some technical reasons why our value of new business came down. It has nothing to do with Covid or the behaviour of clients, really.

FIFI PETERS: All right. How’s inflation panning out in your business? We have seen the cost of everything going higher and I’d like to understand what this has meant for premiums, given that pricing pressures are quite high right now.

HILLIE MEYER: Yes. I think higher inflation will eventually come through in premiums. I think the area where we will probably see it first would be in short-term insurance, especially personal lines. Then we know that the price pressure on motorcar parts and so forth really skyrocketed. So that’s something that will have to come through in the higher premiums – just the car parts because of the weakening of the rand have become very, very expensive. So there’s a lot of inflation pressure on the short-term industry in particular. It’ll take a little bit longer, but it’ll eventually also impact long-term insurance.

FIFI PETERS: Just finally, we have seen the Competition Commission cracking its whip on insurance companies, long-term insurance companies. It did a couple of raids. I wanted to know, for clarity, were you raided by the Competition Commission?

Read: CompCom raids eight major insurance companies

HILLIE MEYER: Yes, we were. It was totally unexpected. It was a dawn raid. So very early one morning they arrived at our offices, 30 people from the Competition Commission, with a search warrant that basically gave them the right to search our offices. They asked for information, especially [from] people working with product development and so forth. We were on a list of people all of whose electronic records and so forth [were copied], and so forth. They were on an information-gathering exercise. That’s what they did with the search warrant. I understand that they visited a whole number of offices. They will now have to work through the data that they acquired. There are sort of protocols and processes and protections around what they can do with the data and what not.

But be that as it may, it’s going to take the Competition Commission authorities a while to work through all the data that they’ve now gathered.

More detail than that we don’t have at this stage.

FIFI PETERS: But do your shareholders or even your customers have anything to worry about? They’re talking about long-term insurance companies [charging] more than they should on funeral cover, medical cover, retirement annuities. Are they going to find anything?

HILLIE MEYER: I’m not aware of anything. I’m a veteran in this industry. I’ve worked in all departments. I’ve never in my career even heard of colleagues, or even colleagues with other companies, doing price fixing. So I don’t know. I would be surprised. But who knows? They must have something, otherwise they wouldn’t have done the raid, I imagine.

FIFI PETERS: Well, we’ll have to wait and see, and you’ve given us an indication it’s going to be a long wait. They’ve a lot of documents to get through on your part.

But Hillie, thanks so much for joining the Market Update. Hillie Meyer is CEO of Momentum Metropolitan Holdings.

Source link

Related Articles