Results: Channel life

Highlights * Headline earnings increased to R39m * Gross premium income grew 40% * CAR was confirmed at 231% * Return on shareholders funds increased to 24%

Channel Life CEO René Otto says that the quality of earnings had improved consistently over the last five years.

The headline earnings result of R39m includes a deferred tax asset of R9.8m. “The percentage increase, even if that asset is excluded, is an extremely healthy 45%.”

Otto explained that the sale of the Namibian business and the disposal of Channel Consulting had bolstered the group’s cash resources by R90m, a portion of which would be returned to shareholders.

“While some of the cash was returned to shareholders, the cash that remains allows us to pursue several interesting strategic acquisitions.”

Channel Life had a good year in terms of new business written, showing 25% growth in recurring premiums, 37% growth in single premiums and a 381% jump in group premiums. Added to which the asset base grew by 63%, to R2.1bn.

“The recurring business increase is satisfying. The important aspect here is that the deal only has to be done once. A high level of client service in the following renewal periods is the crux of the continued relationship.”

Channel Life also performed well above the industry norm in terms of gross premium growth, jumping from R825m for the last financial reporting period, to R1.151m for this period – a substantial 40% increase.

Otto says that the investment business grew by 18%. “This business shows consistent growth and is supported by a team who understands the implications of the regulatory and tax environments well, which means that we can develop and market competitive products for retail and institutional investment clients.”

In terms of policy terminations, or lapse rates, Otto says that their clear client retention strategy and product development work has led to a steady decrease in lapses, which has come down to 11%, from 26% some four years ago.

“This is fairly impressive if one considers that our client base has increased substantially over the period,” explains Otto.

Looking forward, Otto says that there are a number of themes, which were introduced and are starting to bare fruits.

“We have clearly identified that we need to ‘Africanise’ our products and distribution channels as our niche market is black. The early indications are that we are definitely on the right track.”

One of the main drivers of the groups’ success during the reporting period has been the activity brought by the investment in Channel Life by Arch Equity earlier last year.

On the question of recurring premiums, Otto says that the implementation of the multi-channel distribution strategy is working.

“We want to be regarded as a top ten life office measured by gross assets, grow our total assets to over R10bn, double our 2004 EV by February 2007, and achieve headline earnings of R50m. Added to which we are still on track to list the company in 2007.

“I’m very excited about the future. In fact a lot of results of our labour are becoming evident in the months following the reporting period.”