MMI posts solid results despite economic turmoil
Diversified financial services group MMI Holdings posted solid results for the year-ended 30 June 2012 – a period which saw group embedded value grow to R32.5 billion! Its core headline earnings increased by 12% to R2.96 billion thanks to impressive opera
Nicolaas Kruger, CEO of MMI Holdings, is pleased with the overall performance given the global economic conditions, uncertain markets, and economic indicators that show consumers remain under pressure. “From an MMI group perspective, these solid results were achieved during an integration period, where we have made significant progress to bed down the merger of Metropolitan and Momentum,” he said. “We are almost two years into the merger process and have already achieved tangible and sustainable synergies”.
Cost savings contribute nicely to the bottom line
The Competitions Tribunal attached tough conditions to the 1 December 2010 (announced March of the same year) merger of Momentum and Metropolitan, including that job cuts be limited to senior managers in the first two years post-merger. Despite these conditions MMI Holdings achieved “savings” of some R201 million over FY2012 as a direct result of the integration process. Kruger said that the group was on track to meet its target of recurring cost savings of R500 million per annum. These efficiencies were achieved without impacting group operations.
MMI increased its total new business – measured on an annual premium equivalent (APE) basis – by 3% (to R6 billion) and maintained its value of new business at R633 million with an overall margin of 1.4%. ‘We managed to maintain volumes and margins despite the difficult operating environment [which once again] demonstrates the benefits of our diversified business portfolio,” said Kruger. Metropolitan Retail’s value of new business increased marginally to R262 million while a change in business mix contributed to a 28% reduction in the value of new business at Momentum Retail, to just R207 million. MMI Holdings’ return on embedded value (EV) – which provides an overall picture of how the diversified financial services company is growing value – was 11.3%.
One of the big challenges for the country’s insurers is the pending implementation of the Solvency Assessment and Management (SAM) regime. MMI has a healthy R3.3 billion capital buffer (at 30 June 2012) to accommodate any changes to risk capital requirements. Aside from the R2.8 billion spent on dividends over the past 12 months the group has also diverted capital to various strategic investments. During 2011 MMI Holdings acquired the remaining 50% of Momentum Short-term Insurance for not more than R150 million, purchased a controlling stake in Eris Properties, bought out FNB Namibia’s stake in its Namibian operations for R350 million, and set aside R500 million to take advantage of expansion opportunities in Africa.
Health, employee benefits and international operations soften lacklustre investment performance
A 5% decline in operating profit at Momentum Investments (to R125 million) was more than offset by improvements at Momentum Employee Benefits (EB), Metropolitan Healthcare and Metropolitan International. The EB business delivered BREAK stellar results and posted a 33% increase in operating profit to R249 million. It also more than doubled the value of new business to R130 million.
Metropolitan International, which houses the group’s Africa operations, is on a strong growth trajectory, albeit off a low base. The value of new business from the unit surged 36% to R34 million and operating profit increased by 78% to R57 million. Metropolitan Health increased total lives under administration by 6% to 3.2 million, cementing its position as a significant healthcare administrator in South Africa. Its operating profit increased by 17% to R133 million.
Fine-tuning products and markets for the future
Each of MMI Holdings’ divisions will identify and optimise distribution channels and product offerings to ensure sustainable long-term new business growth. That said, there is little doubt that external factors such as economic growth and employment – both domestically and abroad – will impact on the volumes of new business going forward. Regulatory changes such as SAM (from an insurer perspective) and National Health Insurance (from a consumer perspective) will also impact on business through the remainder of 2012 and next year.
Against this backdrop there is no surprise the group has set aside R500 million for expansion into Africa. Metropolitan International is already delivering solid growth from its activities in Lesotho, Namibia and Ghana. “Looking to the future, further diversification into new products, segments, geographies and channels will remain a key component of our growth strategy,” said Kruger. “In South Africa, for example, we aim to increase our penetration of the South African middle market. We also aim to focus on cross-selling within the group to provide our clients with holistic financial solutions that meet their needs”.
Editor’s thoughts: Insurers and asset managers are in for hard times as the global economy splutters through the current financial malaise. And the prospect of lower investment returns and near-zero interest rates loom large for as long as GDP growth is struck below 3%. Will the bulk of diversified financial services’ new business growth stem from greater penetration of domestic markets – by extending reach in the so-called mid-income category – or by expansion into Africa? Please add your comment below, or send it to [email protected]
