Wrap Text
Operational update for the nine months ended 31 March 2023
MOMENTUM METROPOLITAN HOLDINGS LIMITED
Incorporated in the Republic of South Africa
Registration number: 2000/031756/06
JSE share code: MTM
A2X share code: MTM
NSX share code: MMT
ISIN code: ZAE000269890
(Momentum Metropolitan or the Group)
MOMENTUM METROPOLITAN LIFE LIMITED
Incorporated in the Republic of South Africa
Registration number: 1904/002186/06
LEI: 378900E0A78B7549C212
Company code: MMIG
(Momentum Metropolitan Life)
Operational update for the nine months ended 31 March 2023
Summary of key metrics
Key metrics 3QF2023 3QF2022 Change %
Earnings per share (cents)1 243.9 116.2 >100%
Headline earnings per share (cents)1 205.9 160.0 29%
Normalised headline earnings per share (cents)1 224.4 169.6 32%
Normalised headline earnings (R million)2 3 351 2 588 29%
Operating profit (R million)3 2 951 1 736 70%
Investment return (R million) 400 852 (53)%
New business volumes (PVNBP, R million) 50 087 54 513 (8)%
Value of new business (VNB, R million) 388 423 (8)%
New business margin 0.8% 0.8%
Diluted embedded value per share (Rand) 32.01 28.77 11.2%
Return on embedded value per share 15.2% 10.8%
Return on equity4 18.0% 18.2%
1 3QF2022 has been restated for a correction in the calculation of the weighted average number of shares.
2 Normalised headline earnings adjust the JSE definition of headline earnings for the dilutive impact of finance costs related to preference shares
that can be converted into ordinary shares of the Group, the impact of treasury shares held by policyholder funds and the iSabelo Trust, the amortisation
of intangible assets arising from business combinations, B-BBEE costs and the amortisation of the discount at which the iSabelo Trust acquired the Momentum
Metropolitan treasury shares.
3 Operating profit represents the profits (net of tax) that are generated from the Group’s operational activities and reflects normalised headline earnings
excluding the investment return on shareholder funds.
4 Return on equity expresses normalised headline earnings as a percentage of start-of-year net asset value, adjusted for the items outlined in footnote 1,
nas well as the adjusting items to determine headline earnings.
Momentum Metropolitan delivers steady earnings performance
Momentum Metropolitan recorded solid growth in normalised headline earnings despite the challenging economic environment. The Group delivered R3 351 million
of normalised headline earnings for the nine months ended 31 March 2023, 29% higher than the comparative period. Normalised headline earnings per share
increased from 169.6 cents to 224.4 cents. This growth in earnings was supported by the improved mortality experience in the life businesses, benefiting
from the less severe impact of Covid-19 (net of release of Covid-19 reserves) in the current period.
The Group's present value of new business premiums (PVNBP) declined by 8% compared to the prior period to R50.1 billion. This was mainly due to lower new
business volumes in Momentum Investments and Momentum Metropolitan Africa, offset to some extent by improved new business volumes in Momentum Life and
Metropolitan Life. The Group's value of new business (VNB) declined by 8% compared to the prior period to R388 million, mainly because of a decline in
Metropolitan Life and Momentum Metropolitan Africa's VNB. The new business margin of 0.8%, albeit in line with the prior period, is below our long-term
targets.
The share repurchase programme of up to R500 million, communicated to investors at the interim results announcement is still in process. As at 29 May 2023,
the Group has bought back 26 million shares, of which 22 million have been cancelled, for a total consideration of R463 million.
Group embedded value per share was R32.01 on 31 March 2023. The return on embedded value per share was enhanced by our share buyback programme, ultimately
reflecting a 15.2% annualised return for the period. The Group achieved an annualised ROE of 18.0% for the nine-month period, this is within our target
range of 18% to 20%.
In Momentum Metropolitan Life, the Group's main life insurance entity, the Solvency Capital Requirement (SCR) cover was largely maintained at 1.97 times
SCR compared to 1.98 times SCR at 31 December 2022. Excluding the impact of the dividend payment during the quarter and the share buyback programme, the SCR
cover would have improved. In addition, the SCR requirement increased mainly due to the increase in nominal yields, particularly at longer durations, which
increased the interest rate risk and lapse risk SCR exposures.
Consolidated Group normalised headline earnings
The normalised headline earnings (NHE) of the Group increased by 29% to R3 351 million. This includes good growth in operating profit, offset by a decline
in investment returns mainly impacted by fair value losses on the revaluation of the Group's investment in venture capital (VC) funds, whereas the prior
period included significant fair value gains.
3QF2023 3QF2022 Change %
Normalised Normalised Normalised
R million Operating Investment headline Operating Investment headline Operating Investment headline
profit/(loss) return earnings profit/(loss) return earnings profit return earnings
Momentum Life 1 032 77 1 109 241 97 338 >100% (21)% >100%
Momentum Investments 599 106 705 683 29 712 (12)% >100% (1)%
Metropolitan Life 342 47 389 347 48 395 (1)% (2)% (2)%
Momentum Corporate 780 97 877 527 90 617 48% 8% 42%
Momentum Metropolitan Health 232 2 234 162 (1) 161 43% >100% 45%
Non-life Insurance 230 42 272 313 58 371 (27)% (28)% (27)%
Momentum Metropolitan Africa 84 38 122 (6) 71 65 >100% (46)% 88%
Normalised headline earnings from operating business units 3 299 409 3 708 2 267 392 2 659 46% 4% 39%
New Initiatives (335) 7 (328) (405) 2 (403) 17% >100% 19%
Shareholders (13) (16) (29) (126) 458 332 90% <(100)% <(100)%
Normalised headline earnings 2 951 400 3 351 1 736 852 2 588 70% (53)% 29%
Operating profit improved by 70% to R2 951 million, underpinned by the recovery in mortality experience variance in Momentum Life, Momentum Corporate and
Momentum Metropolitan Africa and good fee income growth in Momentum Metropolitan Health. Guardrisk delivered a positive earnings contribution leveraging off
their industry and product diversification across cells. Momentum Insure continued the industry trend seen over the recent period, reporting an underwriting
loss mainly due to average claims cost increasing by significantly more than inflation, adversely impacting the claim ratio. Investment return declined by
53% from R852 million in the prior period to R400 million. This includes a decline in investment return in the Shareholders' segment where investment
returns on VC funds were negative in the current period, as well as the non-repeat of fair value gains of a cell acquired by Guardrisk during the first
quarter of F2022.
The Group is progressing in line with plans for the implementation of IFRS 17 - Insurance contracts. In shifting our focus to this new reporting standard,
the segmental reporting that follows in the next section, which is reported on the current IFRS 4 basis, is provided with less granularity than previously.
Segmental performance in normalised headline earnings
Momentum Life's normalised headline earnings showed a strong improvement from R338 million in the prior period to R1.1 billion. Earnings in the prior period
were dampened by the negative impact of the third wave of Covid-19 infections which resulted in a large negative mortality variance. In the current period,
the normalisation of mortality claims experience contributed positively. Also included in NHE is a favourable movement in investment variances as a result
of advantageous shifts in yield curves, that reduced protection and traditional liabilities at longer durations.
Momentum Investments' normalised headline earnings decreased by 1% to R705 million. This includes a 12% decline in operating profit, offset by strong growth
in investment return resulting mainly from currency translation gains and higher interest rates. Operating profit was mainly impacted by lower new business
sales and higher outflows on the Momentum Wealth platform, offset to some extent by lower expenses. The decline in operating profit was further impacted by
reduced earnings from the structured business mainly attributable to lower mortality profits on annuities compared to the prior period. Assets under
management on both the local and offshore Momentum Wealth investment platform improved by 8% to R232 billion aided by favourable market performance and
positive net inflows. Institutional and retail assets under management improved by 1% to R524 billion, while structured and annuities assets under
management improved by 10% to R34 billion resulting from higher flows compared to the prior period.
Metropolitan Life's normalised headline earnings decreased by 2% to R389 million, mainly impacted by weak persistency experience which was primarily driven
by a continued deterioration in lapse experience on the protection business. The current economic conditions are placing pressure on this segment's customer
base and lapse experience is expected to remain under pressure. The decline in earnings was offset by an improvement in mortality experience and a positive
investment variance, compared to a negative investment variance in the prior period.
Normalised headline earnings in Momentum Corporate showed strong growth of 42% on the prior period to R877 million, bolstered by a further improvement in
underwriting results in group risk products. This was aided by improved mortality claims experience, Covid-19 reserve releases, a continued improvement in
disability experience as well as higher interest earned on assets backing liabilities.
Momentum Metropolitan Health's contribution to normalised headline earnings improved by 45% to R234 million from R161 million in the prior period. This
includes growth in fee income generated from membership growth, annual fee increases and an increase in interest income. The overall membership growth of
3%, despite the challenging economic environment, is largely due to growth in the public sector and Health4Me membership.
Guardrisk's normalised headline earnings increased by 8% to R417 million from R385 million in the prior period. This result is supported by a 16% increase
in Guardrisk General Insurance underwriting profits, solid growth in management fee income in Guardrisk Life and a recovery in the volume and affinity
business of Guardrisk Insurance.
Momentum Insure reported a loss of R145 million for the nine-months, largely due to a high claim ratio of 78% compared to 69% in the prior period. The
impact of prolonged inflationary pressures on the cost of claims, increased frequency of incidents due to power surges (exacerbated by load shedding),
higher motor accident and theft claim frequency, a continuation of adverse weather-related events, and a lag in premium increases following the policy
renewal cycle contributed to the higher-than-expected claim ratio. An extraordinary proportion of claims that occurred during December were reported late,
leading to the relative result of the third quarter being significantly worse than the second quarter and our expectations. The impact of the premium
renewal process on offsetting claims inflation and other underwriting actions to address higher claims frequencies is expected to be more pronounced as we
move into F2024. Gross written premiums increased by 7% to R2 309 million. Persistency experience worsened marginally due to the corrective actions
implemented to address the high claim ratio but remained within expectation.
Momentum Metropolitan Africa's normalised headline earnings improved by 88% to R122 million from R65 million in the prior period. This includes strong
growth in operating profit primarily due to improved mortality experience in Namibia and Botswana following the significant negative impact of Covid-19 in
the prior period. Investment return declined 46% to R38 million, mainly due to capital losses on government bonds as a result of the sovereign debt crisis
in Ghana.
Included in New Initiatives5 is a normalised headline earnings loss of R221 million for Aditya Birla Health Insurance6 (ABHI). This is an improvement from the
R301 million loss reported in the prior period, due to good growth in gross written premium and the prior period being significantly impacted by Covid-19.
Although Covid-19 related claims have subsided relative to the prior period, the claim ratio was negatively impacted by an increase in the number and
average size of claims due to delayed diagnostic and preventative medical procedures. ABHI is focused on a drive to increase volumes and market share.
Momentum Money reported a loss of R59 million compared to a loss of R51 million in the prior period.
The Shareholders segment reported a normalised headline earnings loss of R29 million, compared to a profit of R332 million reported in the prior period.
This was predominately due to a decline in investment return as a result of fair value losses on the revaluation of the Group's investment in VC funds
whereas the prior period included significant fair value gains.
5 New Initiatives includes Aditya Birla Health Insurance (a joint venture with Aditya Birla Capital in India), Momentum Money (a bundled transactional
banking and savings solution rebranded from Multiply Money), Consult by Momentum, the operating expenses of Exponential Ventures, as well as other
smaller local start-up operations.
6 Results for the India investment are reported with a three-month lag, the dilution of the 49% stake in ABHI to 44.1% was concluded during October 2022.
The results for 3QF2023 reflect MMH’s stake of 44.1%, while 3QF2022 is based on MMH’s stake of 49%. Results include support costs incurred by Momentum
Metropolitan outside of the joint venture.
Consolidated Group new business performance
3QF2023 3QF2022 Change %
New New
business business
R million PVNBP VNB margin (%) PVNBP VNB margin (%) PVNBP VNB
Momentum Life 5 580 (31) (0.6)% 5 328 (23) (0.4)% 5% (35)%
Momentum Investments 29 265 294 1.0% 33 290 286 0.9% (12)% 3%
Metropolitan Life 5 359 81 1.5% 5 264 156 3.0% 2% (48)%
Momentum Corporate 7 657 64 0.8% 7 762 2 0.0% (1)% >100%
Momentum Metropolitan Africa 2 226 (20) (0.9)% 2 869 2 0.1% (22)% <(100)%
Total 50 087 388 0.8% 54 513 423 0.8% (8)% (8)%
R million Recurring premiums Single premiums Recurring premiums Single premiums Recurring premiums Single premiums
Momentum Life 801 1 811 751 1 663 7% 9%
Momentum Investments 154 28 642 163 32 628 (6)% (12)%
Metropolitan Life 1 283 1 421 1 263 1 319 2% 8%
Momentum Corporate 877 3 013 832 2 772 5% 9%
Momentum Metropolitan Africa 350 685 333 1 345 5% (49)%
Total 3 465 35 572 3 342 39 727 4% (10)%
PVNBP for the Group declined by 8%, mainly due to a decline of 12% reported by Momentum Investments, albeit from a high base in the prior period.
This was partly offset by higher PVNBP in Momentum Life and Metropolitan Life.
VNB declined by 8%, with all business units except Momentum Corporate and Momentum Investments experiencing lower VNB. The turnaround in Momentum
Corporate's VNB was supported by the solid growth in higher margin annuity business.
Segmental new business performance
Momentum Life's PVNBP improved by 5% to R5.6 billion, bolstered by an 11% growth in long-term savings business, offset by a 4% decline in protection
business. Protection new business volumes on an APE basis grew by 4% year-on-year, despite the challenges experienced in the risk market. However, the
negative impact of adverse movements in yield curves more than offset improved volumes. Over the past quarter, 55% of all Myriad policies were submitted on
the new Myriad underwriting solution. Our long-term savings business exhibited strong growth, specifically on the more profitable retirement savings product
lines. VNB declined 35% to a loss of R31 million. This decline was largely driven by revenue not growing sufficiently to fully offset the increased
acquisition expenses and an increase in the cost of capital. This translated to a new business margin of -0.6% for the period.
Momentum Investments' PVNBP declined by 12% to R29.3 billion, which was largely due to new business volumes on the local and offshore Momentum Wealth
investment platforms reducing by 16% and 13%, respectively. This was somewhat offset by an 8% increase in annuity new business volumes. VNB improved by 3%
to R294 million from R286 million in the prior period. This is mainly attributable to an increase in higher margin annuity new business sales, partially
offset by lower platform new business volumes and a reduction in the future credit spread assumptions. The growth in annuity sales improved the new business
margin to 1.0% from 0.9% in the prior period.
Metropolitan Life's PVNBP increased by 2% to R5.4 billion, mainly due to good growth in single premium guaranteed annuities business and a moderate
improvement in recurring premium long-term savings business. VNB declined 48% which was largely attributable to an increase in policies that lapsed before
the first premium was paid, coupled with higher adviser churn resulting in distribution expenses that were irrecoverable. VNB was further impacted by the
growth in expenses exceeding volume growth. VNB is likely to improve towards the end of F2023 following management actions to improve the quality of
business and the repricing on funeral business. The new business margin was 1.5% for the period.
Momentum Corporate's PVNBP showed a slight decline of 1% to R7.7 billion, largely attributable to lower new business volumes on group risk products. The
current economic conditions are increasing competitive pressure for group risk business. VNB improved significantly to R64 million from R2 million in the
prior period. This was mainly attributable to strong growth in higher margin structured investment, annuity and protection business. The new business margin
was 0.8% for the period.
Momentum Metropolitan Africa's PVNBP declined by 22% to R2.2 billion, mainly due to the non-repeat of large corporate deals in both Lesotho and Namibia, and
lower retail new business volumes in Namibia and Botswana. VNB declined to negative R20 million from positive R2 million in the prior period. This was
largely as a result of a further deteriorating negative VNB contribution from Namibia, mainly driven by lower retail and corporate new business volumes
coupled with higher assumed renewal business expenses on the protection business. This was partially offset by improved protection new business volumes in
Botswana and Lesotho coupled with an uplift in the margins of the annuities business in Lesotho. The new business margin was -0.9% for the period.
Announcement of Group CEO succession
Momentum Metropolitan has appointed Jeanette Marais as Group CEO effective 1 August 2023, making her the first female CEO of a large, listed life insurance
and asset management group in South Africa. Jeanette will succeed Hillie Meyer, who was appointed as Group CEO for a fixed term of five years in February 2018.
Having served the Group for a little more than five years, Hillie will retire on 30 September after a brief handover period.
Jeanette is an executive leader with an excellent track record and extensive experience in the financial services industry. The Board is confident that
Jeanette has vast knowledge and understanding of the Group’s business, strategy and culture, having been a key member of the executive team over the past few
critical years in the business’s evolution. Having completed a rigorous, robust and thorough search and selection process that started over a year ago, the
Board has no doubt that Jeanette will lead the Group with distinction.
Outlook
We are encouraged by the steady earnings performance achieved by the Group amid the ongoing economic challenges in our operating environment.
Economic activity continues to be hampered by rising interest rates, high inflation and loadshedding. We are concerned about the pace of any potential
economic recovery and the impact this will have on disposable income. This is likely to place ongoing affordability pressure on new business volumes,
particularly on long-term savings and on protection business, where we have already seen a decline in demand. Investment business is negatively affected by
other factors, such as low confidence in SA asset classes and by consumer preference to maintain their assets in liquid low-risk investments.
Over the last five years we have established a trend of success despite the pandemic and tough economic conditions. We will continue to focus on what is
under our control to add value to our clients and stakeholders and contribute positively towards building a better South Africa for all.
Board and committee changes
In compliance with paragraph 3.59 of the JSE Limited (JSE) Listings Requirements and paragraph 6.39 of the JSE Debt Listings Requirements, the Group would
like to inform the shareholders and noteholders of the following changes to the Group Boards and Committees:
Resignation of Ms Lisa Masozi Chiume
Shareholders and noteholders are further advised that Ms Lisa Masozi Chiume has resigned as an independent non-executive director on the boards of MMH and
MML, effective 31 May 2023, in order to pursue other interests.
Ms Chiume has also resigned as a member of the Group's Audit, Fair Practices, Investments and Remuneration committees, effective 31 May 2023.
30 May 2023
CENTURION
The information in this commentary, including the financial information on which the outlook is based, has not been reviewed and reported on by Momentum
Metropolitan's external auditors.
Conference call
The executive management of Momentum Metropolitan will be hosting a conference call for shareholders, investors and analysts on 30 May 2023.
We kindly request callers to pre-register using the following link
https://www.diamondpass.net/2241362
A passcode and pin will be generated following registration. We advise callers to dial in 5 minutes before the conference call starts at 15:30.
The recorded playback will be available for three days after the conference call.
Access Numbers for Recorded Playback:
South Africa 010 500 4108
UK 0 203 608 8021
USA and Canada 1 412 317 0088
Australia 073 911 1378
Other Countries +27 10 500 4108
Access code for recorded playback: 44336
Equity sponsor:
Merrill Lynch South Africa (Pty) Limited t/a BofA Securities
Sponsor in Namibia
Simonis Storm Securities (Pty) Limited
Debt Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)
Date: 30-05-2023 07:30:00
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