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Metropolitan posts strong half year

14 September 2007 Gareth Stokes

Earlier this week Metropolitan released interim results for the half year to 30 June 2007. The group has been rewarded for its aggressive diversification strategy with a fourth consecutive period of sustained growth. Highlights from the results included a

The group has achieved a 59% annual compound growth rate in net funds received since the half-year interims in June 2003. On top of that, performances across all sectors of the business have impressed. New business in the health division nearly trebled and new business in the corporate division posted a 267% rise.

Total assets under management at Metropolitan now top R95 billion and the group has firmly entrenched itself as a top financial services company in the domestic market.

Product and market diversification pay dividends

Metropolitan is reaping the benefits of an expanded product offering. The group has added credit cards and health operations to its life insurance core. Expansion in Africa is well on track with the groups operations in Kenya, Botswana, Ghana, Mauritius, Namibia and Lesotho bedding down nicely.

The group's health operations also contributed significantly with a R32 million slice of profit. This improvement is attributed to the exponential growth in members of governments GEMS medical aid scheme. Metropolitan won the tender to administer GEMS and should reap further benefit as government actively campaigns to add all public sector staff to the scheme. It is quite possible that GEMS will eventually top the two million lives covered by the current dominant player in the industry!

Diversification cannot work without buy-in from customers. To this end, says Doyle, "our efforts to enhance the value proposition offered to each and every customer are ongoing regardless of how far and how fast we diversify." Customer centric solutions remain essential to companies vying for greater shares of a hotly contested market. Such solutions form the basis of any competitive advantage in todays financial services environment.

We were impressed that Metropolitan had not sacrificed its life insurance business in pursuit of product diversification. Doyle points out that "core individual life business is continuing to grow along with the newer businesses." Total premium income increased by 40% over the previous six month period while "life businesses registered overall growth of 68% in the present value of new premium income (PVP)."

Inflationary pressures begin to bite

There are a number of challenges facing companies in the life insurance industry. At present, Metropolitan is most concerned with the impact of rising inflation on the disposable income of its target market. Rising fuel and transportation costs impact on the low and middle income earners who account for the bulk of Metropolitan's sales. Many consumers view insurance purchases as non-essential, and as such, these products are often the first to be cut from cash strapped household budgets.

This challenge is not unique to Metropolitan and will have to be managed by all companies active in the financial services industry. The company that best adapts its product range and distribution channels too meet this challenge head on will prosper. Analysts and business executives will pay close attention to lapse rates in coming months to determine the full impact of domestic price inflation and interest rate hikes on consumers.

Another area of concern raised by Doyle is with group performance in the second half of 2007. He echoes the sentiments of many of the other insurance companies regarding the tougher position on global and domestic equity markets in the second half of the year. This will put pressure on investment income and the investment results of insurance companies across all sectors are likely to be adversely affected.

Ten million customers to feed off

"Metropolitan's entrenched position in the low and middle income markets (we have one of the largest customer bases in the industry with some 10 million customers on the books across our business) continues to give us the competitive edge," says Doyle. It is this competitive edge that will carry the business forward in the coming years as more South Africans enter the market for insurance, health and financial services products.

While Metropolitan enjoys a strong position in the low and middle income demographic today, it should take note that other players in the financial services industry are aggressively wooing that segment of the market.

Editor's thoughts:
Much has been written about the importance of securing business from the low income sectors. Banks have been quick to come on board with their Mzanzi accounts and insurers have followed suit. Is Metropolitan better positioned than its competitors to benefit from the low and middle income markets? Send your comments to




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