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Rand Merchant Insurance Holdings Results

12 September 2013 Rand Merchant Insurance Holdings

Rand Merchant Insurance Holdings owns strategic investments in some of SA’s premier insurance brands:

* health and life assurer Discovery(25%)
*
life insurer MMI Holdings(25%)
*
personal lines insurer OUTsurance(83%) and
*
specialist insurer RMBSI(76%)

EARNINGS OUTCOME

For all our investments, operating conditions remained challenging and highly competitive. Overall consumer confidence remained fragile. Particularly violent hailstorms in Gauteng during the last quarter of 2012 resulted in our short-term insurance businesses experiencing the most severe weather related catastrophes in their history.

Notwithstanding such a challenging background, all of the businesses in which RMI is invested produced satisfying results. In particular:

· Strong growth in normalised earnings was recorded by Discovery, driven largely by the performance of its UK operations; and

· Youi, OUTsurance’s start up in Australia, achieved sufficient scale to trade profitably for the second half of the financial year.

Peter Cooper commented “ What is not immediately obvious from the full year results, is the improvement in the outcome in the second half relative to the first half. This is particularly so in the case of OUTsurance, which was not only burdened by the hail storms in the first half, but in the second half also had the benefit of Youi recording its maiden half year profit.”

ORDINARY DIVIDEND PAYMENT

RMI pays out to shareholders’ dividends received from underlying investments after servicing any funding commitments that RMI may have at the centre.

The final dividend for the year amounts to 55.0 cents per share.

Such final dividend, together with the interim dividend of 40.0 cents, brings the total dividend for 2013 to 95.0 cents per share (2012: 80.0 cents), a year-on-year increase of 19%. The dividend is covered 1.8 times by the normalised earnings of 169.9 cents per share.

The apparent divergence in the growth in dividends relative to the growth in underlying earnings is due to OUTsurance (having accessed the cash earnings generated relative to its re-investment requirements) paying out a larger than normal dividend.

OUTLOOK

The difficult economic environment is expected to continue in the current financial year. Growth in insurance new business volumes will remain largely dependent upon the economic environment, including a recovery in employment and stronger disposable income levels.

Notwithstanding these challenges, RMI expects to produce good organic growth during the coming year. In particular:

· The progress made by Discovery over the past financial year positions it strongly for continued growth and profitability in the future; while

· MMI’s strategic focus has shifted from integration to outward looking growth initiatives with innovative strategies to unlock value; and

· OUTsurance expects its life insurance offering to gain further traction in SA and it is excited about the growth prospects of Youi.

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