Exciting times ahead

Herman Schoeman

On 25 July, Momentum Metropolitan announced that it had purchased the short term insurance portion of Alexander Forbes in what was one of the biggest industry acquisitions in the history of the financial services industry.

The acquisition is an indication about how important brand positioning is in the industry and how a strong brand like Momentum Metropolitan not only saw the commercial value in the acquisition, but the reputational value that came with the acquisition. 

In an exclusive interview with FAnews, Herman Schoeman, CEO: Guardrisk Group & Non-Life Insurance Momentum Metropolitan, provided some insights into the acquisition. 

Why do you believe that this acquisition was a good fit?

We believe that this is a high-quality asset that will generate returns in line with, or slightly in excess of, our cost of capital on the R1.95bn in its current shape and form. 

Given the synergies that can be unlocked by the acquisition, we are confident that the transaction will deliver more than acceptable shareholder returns over the long term. 

Value will be unlocked as follows:

-           We plan to integrate the business into our existing short term insurance operations over time which will improve the profits generated by both the short term insurance portion of Alexander Forbes and the existing Momentum Short term Insurance (MSTI) business;

-           We also believe that under our ownership, improvements in the reinsurance programme and the capital structure will optimise returns; and

-           We also have various ideas on how to grow the combined business into a major player in the South African non-life insurance market. 

It is very similar to when Momentum Metropolitan bought Guardrisk; paying full price for a business, but a worthwhile acquisition if we can get the revenue and cost synergies and efficiencies that we are targeting. 

If the integration of the short term insurance portion of Alexander Forbes ends up being as successful as what it was with Guardrisk, then the R1.95bn will look inexpensive five years from now. 

What happens to the brokers who sold Alexander Forbes short term policies?

All independent brokers who sold Alexander Forbes short term policies will continue to do so as per their current arrangements. 

For the foreseeable future, all current Alexander Forbes short term product brands will stay intact. The long-term plan will be to integrate the two businesses to form an integrated retail short term insurance unit with a differentiated value proposition on one insurance licence under one brand. We will communicate with all stakeholders, including brokers, during this process. 

The integration of the two businesses will be undertaken in a phased approach, and the interests of existing clients, brokers and employees of both MSTI and Alexander Forbes short term policies will be carefully looked after. 

Most of the business was generated by Alexander Forbes tied agency force with independent brokers also playing an important part in the business’s distribution strategy. This will not change, in fact, the Alexander Forbes short term brokers will now be exposed to the wider range of products and services from the Momentum Metropolitan group. 

The tied agency force is an important feature and distinctive asset of Alexander Forbes and this will also be kept as is as far as possible. We are excited about the prospect of exposing independent brokers who support MSTI, to the Alexander Forbes short term value proposition. 

The focus will be on settling and growing distribution, enabling the growth strategy of that business. Our outmost focus is the interests of employees from both MSTI and Alexander Forbes. We are confident that this will have minimal disruption on the workforce of both businesses.   

Does Momentum have any plans to change, adapt or scrap any of the products that were offered by Alexander Forbes?

We are of the opinion that Alexander Forbes has a good range and variety of products that cater for the short term insurance needs of different customer segments and profiles. We view these products as complementary to the current MSTI product range. 

During the integration process, we will be looking at enhancements and improvements that will further differentiate the product and service offering to customers. Given the overlap between the product ranges of the two businesses, this may result in some changes to certain products. Should there be changes, these will be made with the intention of creating greater value for clients and their intermediaries. 

Refocus
FAnews also spoke to Alexander Forbes CEO Dawie de Villiers about the acquisition. 

“The decision to exit the short term insurance business was based on the outcome of a strategic review Alexander Forbes announced on 26 March 2019. This resulted in a new business and operating model designed to achieve specific key deliverables to sustain the company’s growth vision. The company aims to provide the best possible advice to clients. Across global markets, corporates have identified employee benefits as a key strategic tool to attract and retain talent. In the current environment, Alexander Forbes sees an increasing demand in advising clients to implement holistic employee benefit programmes successfully and importantly, educating individual members on the importance of saving and investing for retirement,” said De Villiers. 

Another area that is important for the Alexander Forbes growth strategy is measurable client benefits. “Financial well-being through the life cycle is interpreted differently across our member base. Our clients rely on our promise that our advice is in their best interests and will generate measurable benefits,” said De Villiers.

Editor’s Thoughts:
Schoeman is adamant that the acquisition is about value. Momentum Metropolitan wants to be a significant player in the short term insurance industry but wants to be a company that values its customers and its products over volume. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.