Nicolaas Kruger, CEO of the Momentum Group,
Momentum Group Limited, a wholly owned subsidiary of the FirstRand Group, showed resilience in the adverse economic climate in its annual results to June 2009.
Nicolaas Kruger, CEO of the Momentum Group, says despite the challenging economic conditions, Momentum’s diversified business model contributed towards a positive operational performance with businesses in the emerging markets and employee benefits reporting excellent new business growth.
‘The focus for Momentum has been to diversify its business model through our products, distribution channels, market segments and geographical areas. Whilst some business units are adversely affected by the economic environment, others show growth and positive results,’ says Kruger.
Overall recurring premium new business (retail, employee benefits and FNB insurance) increased by 9%. Retail recurring new business (risk, retirement annuities and endowment policies) showed a 5% overall decline. ‘This was due to increased pressure on disposable income as well as the new commission regulations implemented on 1 January 2009,’ says Kruger. Retail risk business bucked the trend with an increase of 13%. The penetration into the mass market client base (through FNB Insurance) has grown, with new business increasing by 37%. Momentum Short Term Insurance also achieved its maiden profit during the year.
Momentum’s channel diversification strategy paid dividends during the period under review. Sales generated by Momentum agents comprised 21% of total sales for the year to June 2009, up from the previous year’s number of 18%. Sales through FNB brokers comprised 15% of total sales with the remaining 64% being contributed by bank and other independent brokers. Kruger says ‘Momentum is very proud and remains committed to its relationship with the broker community and its broker infrastructure. Our internal FNB channel continues to give us increasing access to the fast growing emerging market’.
Momentum’s group business includes employee benefits and healthcare administration businesses. Employee benefits’ recurring new business increased by 27%. ‘This growth was mainly due to the strong growth in group risk business, supported by continued growth in umbrella fund business through the Momentum broker sales infrastructure,’ says Kruger.
The Momentum Medical Scheme Administrators (MMSA) business is well positioned for future growth with the centralisation of MMSA’s administration business in Durban, and the take-on of a large restricted scheme during the year. Total lives under administration increased by 16% to 553 200 at 30 June 2009.
Kruger says geographical diversification, specifically expansion into Africa, is one of the focus areas for Momentum. Sub-Saharan Africa is expected to be one of the best performing growth regions in the world over the next few years and Momentum is geared to becoming a significant player. ‘We already have a presence in 11 of the sub Saharan countries of which five are already profitable.
Momentum managed or administered total assets of R301.4 billion at 30June2009. The impact of the economic environment was felt most in asset management with new business decreasing by 15%. ‘The focus for most of the year was on the communication with and retention of existing clients through this time of market uncertainty’, Kruger says.
On the other hand, Momentum’s defensive capital management strategy contributed to a strengthening of its capital base, an increase in Capital Adequacy Requirement (CAR) cover ratio and a strong Return on Equity of 23%. The increase in CAR cover ratio to 1,8 times at 30 June 2009 in particular is an improvement against the background of the earlier reduction in the CAR cover ratio at 31 December 2008.
Kruger concludes that although many commentators predict that the worst of the cycle is behind us, economic conditions are likely to remain difficult for some time. ‘We are confident that Momentum’s inherently defensive business model will sustain us through the cycle, but also believe that we are well positioned to benefit from the eventual recovery’ says Kruger.
‘Further product, channel, segment and geographical diversification will not only provide some downside protection, but should position Momentum to capitalise on the opportunities that are bound to emerge when the cycle turns,’ says Kruger.
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