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MMI - MMI Holdings Limited - Audited group results for the year ended 30 June
2011
MMI HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 2000/031756/06
ISIN Code: ZAE000149902
JSE Share Code: MMI
NSX Share Code: MIM
("MMI" or the "company" or the "group")
MMI Holdings Limited
Audited group results for the year ended 30 June 2011
HIGHLIGHTS
- Merger of Metropolitan and Momentum
- Group strategy confirmed
- Integration progressing well
- Synergies identified to achieve ultimate expense savings of R500 million
- Core headline earnings per segmental report up 12% to R2 588 million
- New business APE up 15% to R6 billion
- Group value of new business up 35% to R632 million
NATURE OF ACTIVITIES
MMI Holdings is a South African based financial services group that provides
a wide range of products and services to clients locally and in selected
other African countries.
OPERATING ENVIRONMENT
Overall, consumer confidence remained fragile; household disposable income
appeared to increase but employment levels remain under pressure. Conflicting
economic news from across the world meant that local operating conditions
remain difficult. Equity markets recovered strongly during the latter half of
2010; however, uncertainty returned during 2011 and all markets were
extremely volatile.
OVERVIEW OF OPERATIONS AND PROSPECTS
Momentum Retail
- New business volume on an APE (annual premium equivalent) basis was 12%
higher than in 2010, driven mainly by savings and investment products.
- New business sourced through the agency force continued to grow strongly
and represented 30% of new recurring premiums sold during the year.
- Client retention initiatives had a positive impact on the lapse and
surrender experience.
- Excellent client service levels were maintained.
- Positive mortality experience contributed to the increase in profits.
- The value of new business increased by 16% to R288 million, however, the
margin of 1.0% on the present value of premiums basis (PVP) remains below the
longer-term target mainly due to the sales mix.
- Significant internal restructuring, including the integration of Odyssey,
has been implemented and new growth strategies are being pursued.
- Operating profit increased 17% to R699 million.
Metropolitan Retail
- New business on an APE (annual premium equivalent) basis showed an
excellent performance and ended 24% higher, driven by good production in the
traditional agency channels and a move to better quality lines of business.
- Combined with the removal of underperforming products, good expense
management coupled with satisfactory persistency, these strong new business
flows contributed to an increase in the new business margin, generating a
very satisfactory 4.5% on the PVP basis, exceeding the upper end of the
targeted range.
- The mix of new recurring premium business sold continued to shift towards
risk policies with higher profit margins.
- Active management resulted in improved group scheme and direct marketing
profitability.
- In general, the difficult economic conditions experienced in the low to
middle-income market segment continued, but an ongoing focus on the quality
of new business and the retention of existing business ensured satisfactory
overall persistency during the year.
- Sales activities by agents have been negatively impacted to some extent by
preparation for the regulatory exams in the latter part of the year.
- Increased average asset levels, combined with the factors mentioned above,
resulted in a 7% increase in operating profit to R394 million.
Momentum Employee Benefits
- New business volumes increased by 15% on an APE basis with strong new
business growth in both the umbrella fund and the standalone risk businesses.
- The resulting change in new business mix reduced the overall new business
margin to 0.7% on the PVP basis.
- Risk experience was better than the prior year, mainly as a result of a
significant improvement in claims experience under the income replacement
disability product.
- Increased expenses dampened the impact of higher asset-based fees and
improved risk experience on both the disability and mortality books.
- Once-off profits in the prior period and an increase in production expenses
impacted negatively, resulting in a reduction of 8% in operating profit to
R187 million.
Metropolitan International
- New business premiums (APE) ended 28% stronger than in 2010, with the
markets in Lesotho, Namibia, Ghana and Nigeria delivering good results.
- Operating profit from insurance was slightly below the 2010 level,
reflecting the slower growth of the established businesses and tough
operating conditions across all markets. Start-up losses in the newer West
African markets reduced.
- Members under administration in the health business increased by 7% from
117 000 lives at 30 June 2010 to 125 000 lives at 30 June 2011.
- The operating loss from the international health business increased as a
result of the strong rand and higher claims ratios experienced in certain
countries. Corrective measures have been introduced to improve these claims
ratios to the targeted levels.
- Integration of the businesses is progressing according to plan in respect
of countries where there are overlaps and in complementary lines of business.
- Support centre costs are relatively high mainly due to increased
expenditure on IT systems; however, these costs are expected to reduce as
decentralisation of operations to countries takes place and a single support
centre is established over the next two years.
- Operating profit for the division reduced by 58% to R32 million.
Momentum Investments
- The management structures of all the post-merger business units have been
finalised.
- Management is focused on implementing and delivering the strategic road map
for growing both in-house and third party business.
- Integration and enhancements of administration and business enabling
platforms continue and remain on target.
- Asset management investment performance
- Continued net outflows and the performance of the equity and balanced
mandates are still cause for concern and remain a critical strategic focus
area.
- Fixed income and specialist equity performance, however, remains strong and
attracted some inflows.
- The integration of the investment teams has been completed successfully.
- The performance of the other business units is in line with expectations.
- The sale of the Managed Account Platform (hedge fund risk management
platform) to the JSE was successfully concluded.
- Operating profit declined by 21% to R131 million and was impacted by:
- Non-recurrence of performance fees.
- Impact of outflows on asset-based fees.
- Margin compression on existing mandates from higher costs.
Metropolitan Health
- The business experienced good growth in overall membership. Total principal
members under administration at the year-end were 1 197 932 (2009: 1 098
255), representing over 3 million lives, confirming Metropolitan Health`s
status as one of South Africa`s largest administrators of medical schemes.
- As part of the normal three-year tender cycle, the Government Employees
Medical Scheme (GEMS) has asked for tenders for the administration business.
Metropolitan Health is participating in this tender process which is still
underway.
- The rationalisation of administration systems, along with initiatives to
reduce the overall cost base are on track.
- Momentum medical scheme members under administration increased by 3%
compared with the prior year.
- National Health Insurance (NHI) continues to receive attention and
Metropolitan Health is following the developments closely.
- Operating profit for the year ended 18% higher at R114 million, with
increased revenue exceeding higher operational expenses.
Shareholder capital
- Investment income, impacted by lower yields, was boosted by interest
received on an income tax refund.
- Diluted core headline earnings increased by 29% to R1 031 million.
CAPITAL MANAGEMENT
- The group actively manages its capital resources within a defined risk
appetite and balances the interests of all stakeholders to protect and
enhance shareholder wealth.
- Capital is regarded as a scarce resource and a significant driver of
shareholder returns.
- Capital management focuses on the investment, level and allocation of
capital.
- The capital investment mandates are under review; changes to the investment
of shareholder capital may impact future earnings, embedded value and
economic capital requirements.
- The CAR cover of the group`s two largest SA life companies, Metropolitan
Life Limited and Momentum Group Limited at 2.3 times each, confirms their
financial strength and stability. Equal emphasis is placed on qualitative
measures to ensure continued financial security.
- The group is comfortable that the capital level is appropriate in the
current environment; this position is being evaluated on an ongoing basis.
- MMI Holdings plays an active role in the FSB`s solvency assessment and
management (SAM) project. The intention of this project is to introduce a new
solvency regime for SA insurance companies that will attain 3rd country
equivalence to Solvency II. This project is changing the way economic capital
is determined, and may impact the level of economic capital required in
future.
INTEGRATION
The creation of MMI Holdings through the merger of Metropolitan and Momentum
has generated new energy and opportunities. The integration process is
progressing well, with the operations combined into six unique divisions,
each with distinct focus areas.
- The overarching objective of the project, overseen by a dedicated chief
integration officer, is to incorporate "the best of both", while ensuring
that:
- divisions implement their own integration process, strategies and
structures.
- the sales units remain largely unaffected with an external focus.
- group service functions are shared.
- All divisional executive appointments have been made.
- There is strong collaboration between divisions to harness the benefits of
emerging synergies.
- A chief technology officer has been appointed and an IT steering committee
is overseeing all IT integration projects.
- Group and divisional strategies have been embedded and expense synergies of
R500 million have been identified and should emerge over the next three
years.
PROSPECTS
- Each division is implementing strategic plans and integration processes to
identify and optimise structures, operations, target markets, distribution
channels and product offerings. A number of opportunities have been
identified during the integration process.
- The group reported satisfactory increases in both the volume and the value
of new business written during the year. This demonstrates the group`s strong
distribution capability and augurs well for future new business growth
prospects.
- Growth in new business volumes will, however, remain dependent on the
economic environment, including a recovery in employment and stronger
disposable income levels.
- All divisions face opportunities and threats posed by ongoing changes in
the highly regulated environments in which they operate, including the
national health insurance and national social security reform proposals.
- Considering the fragile global economic environment, the prospects are
subject to no unforeseen global economic events.
- The board of MMI Holdings believes that the group has begun implementing
the appropriate strategies to unlock value and generate a satisfactory return
on capital for shareholders over time.
DIRECTORS` STATEMENT
The directors take pleasure in presenting the audited results of the MMI
Holdings financial services group for the year ended 30 June 2011. The
preparation of the MMI group`s condensed consolidated, audited results was
supervised by the group finance director, Preston Speckmann, BCompt (Hons),
CA(SA).
Metropolitan/Momentum merger
MMI Holdings Limited (previously Metropolitan Holdings Limited) acquired all
the ordinary shares in Momentum Group Limited (Momentum) from FirstRand Bank
Limited (FirstRand) during 2010 and issued 951 million shares to FirstRand as
consideration. For accounting purposes, the acquisition is accounted for as a
reverse acquisition in terms of IFRS 3 (Revised) - Business combinations,
with Momentum being treated as the acquirer and Metropolitan Holdings Limited
(Metropolitan) as the acquiree. The relevant approvals for the transaction
were received on 12 November 2010 (transaction unconditional), the
consideration shares were issued on 1 December 2010 and the new MMI Holdings
Limited board was reconstituted on the latter date.
Presentation of financial information
The group has adopted a June year-end, being the year-end of Momentum. The
statutory results presented for the current period comprise Momentum results
for the 12 months ended 30 June 2011 and Metropolitan results for the seven
months ended June 2011, while the comparative results are the 12 months ended
30 June 2010 for Momentum only (restated for accounting policy changes noted
below).
Segmental information
The group operates through the following divisions:
- Momentum Retail: Existing Momentum Retail business including Momentum
Wealth and Metropolitan Odyssey in the middle to upper income markets;
- Metropolitan Retail: Existing Metropolitan Retail business, Momentum`s New
Markets initiative and 10% of FNB Life in the entry level market;
- Momentum Employee Benefits: Momentum and Metropolitan`s employee benefits
businesses including Metropolitan Retirement Administrators;
- Metropolitan International: Metropolitan and Momentum`s life assurance and
health businesses in Africa;
- Momentum Investments: Momentum`s asset management businesses including its
United Kingdom operations and Metropolitan`s asset management businesses;
- Metropolitan Health: Metropolitan and Momentum`s South African health
businesses;
- Shareholder capital: Holding company related activities and the management
of MMI`s capital and shareholder balance sheet risks, such as market risk and
credit risk; includes the run-off of corporate policy business and
operational items managed centrally by the group.
Management information presented to the executive committee (chief operating
decision maker) assumes that the merger occurred on 1 July 2009 and therefore
all segmental information, in terms of IFRS 8 - Operating segments - has been
disclosed on this basis. The operational reviews are based on this segmental
information. More details are available in the tables, on SENS and on the
company`s website.
The comparative information has been restated to be consistent with the new
structure of the group.
The segmental information also assumes that the reinsurance agreement with
the cell captive owned by FirstRand was effective from 1 July 2009. The
segmental information for the current and comparative period therefore only
includes 10% of FNB Life`s results.
Basis of presentation of financial information
These results have been prepared in accordance with International Accounting
Standard 34 (IAS 34) - Interim financial reporting; the South African
Companies Act of 2008; and the Listings Requirements of the JSE Limited
(JSE). The accounting policies of the group are in terms of International
Financial Reporting Standards (IFRS) and have been applied consistently to
all the periods presented and the previous reporting period (except for those
noted below). The comparatives have been restated for the changes in
accounting policies. The preparation of financial statements is in accordance
with and contains the information required by IFRS and the AC 500 standards,
as issued by the Accounting Practices Board, which requires the use of
certain critical accounting estimates as well as the exercise of managerial
judgement in the application of the group`s accounting policies. Such
critical judgements and accounting estimates are disclosed in detail in the
Momentum financial statements at 30 June 2010 (31 December 2009 for
Metropolitan).
Change in accounting policies and reclassifications
The group has chosen to early adopt IAS 12 - Income taxes and now accounts
for deferred tax on investment property at the capital gains tax rate instead
of the corporate rate.
Certain accounting policies or disclosure practices have been amended to
align the historic accounting policies and disclosure of Momentum and
Metropolitan. Owner-occupied properties are carried at fair value instead of
cost less accumulated depreciation; actuarial gains and losses on employee
benefit assets are recognised immediately instead of over the service lives
of employees; investment contracts with discretionary participation features
are accounted for as insurance contracts with premiums and claims recorded in
the income statement instead of applying deposit accounting. The MMI group
aligned the presentation of the financial statement items of Metropolitan and
Momentum for consistency purposes, resulting in certain reclassifications.
None of these amendments has had any material impact on earnings for the
current reporting period.
More information is available on the company website.
CORPORATE GOVERNANCE
The board has satisfied itself that appropriate principles of corporate
governance were applied throughout the year under review.
DIRECTORATE CHANGES AND DIRECTORS` SHAREHOLDING
Following the implementation of the merger between Momentum and Metropolitan
the board of directors was reconstituted as set out in the circular to
shareholders, and the current board members are listed below. All
transactions in listed shares of the company involving directors were
disclosed on SENS as required.
CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
The group had no material capital commitments or contingent liabilities at 30
June 2011. The group is party to legal proceedings in the normal course of
business, and appropriate provisions are made when losses are expected to
materialise.
EVENTS AFTER THE REPORTING PERIOD
No material events occurred between the reporting date and the date of
approval of the annual financial statements.
DIVIDEND DECLARATION
Ordinary listed shares
The dividend policy for ordinary listed shares, approved by the directors, is
to provide shareholders with a stable dividend, increasing to reflect the
board`s long-term view on the expected underlying basic core headline
earnings growth. Exceptions will be made from time-to-time, in order to
account for, inter alia, volatile investment markets, capital requirements
and changes in legislation.
On 13 September 2011 a final dividend of 63 cents per ordinary share was
declared that resulted in a normalised annual dividend of 105 cents per
share. This final dividend is payable to the holders of ordinary shares
recorded in the register of the company at the close of business on Friday, 7
October 2011 and will be paid on Monday, 10 October 2011. The last day to
trade "cum" dividend will be Friday, 30 September 2011. The shares will trade
"ex" dividend from the start of business on Monday, 3 October 2011. Share
certificates may not be dematerialised or rematerialised between Monday, 3
October and Friday, 7 October 2011, both days inclusive.
Where applicable, dividends in respect of certificated shareholders will be
transferred electronically to shareholders` bank accounts on payment date. In
the absence of specific mandates, dividend cheques will be posted to
certificated shareholders on or about payment date. Shareholders who hold
dematerialised shares will have their accounts with their CSDP or broker
credited on Monday, 10 October 2011.
Preference share dividend
Dividends of R10 million (7.7% p.a.), R5 million (7.7% p.a.), and R30 million
(19.1% p.a.) were declared on 13 September 2011 on the unlisted A1, A2 and A3
MMI preference shares respectively, and are payable on 30 September 2011.
The declaration rate was determined as set out in the company`s articles. MMI
preference share dividends are included under finance costs in these results.
AUDIT OPINION
The auditors, PricewaterhouseCoopers Inc, have issued their opinion on the
group financial statements for the year ended 30 June 2011. A copy of their
unqualified report is available for inspection at the company`s registered
office.
INDEPENDENT ACTUARIAL REVIEW
The statement of assets and liabilities, embedded value and value of new
business results have been independently reviewed by Deloitte. A copy of
their report is available for inspection at the company`s registered office.
Signed on behalf of the board
Laurie Dippenaar Chairman
Nicolaas Kruger Group chief executive officer
Centurion
14 September 2011
Directors: LL Dippenaar (chairman), MJN Njeke (deputy chairman), NAS Kruger
(group chief executive officer), FW van Zyl (deputy group chief executive
officer), M Mthombeni (executive), PE Speckmann (group finance director), JP
Burger, F Jakoet, RB Gouws, PK Harris, KL Matseke, PJ Moleketi, SA Muller, NE
Newbury, SE Nxasana, KC Shubane, FJC Truter, BJ van der Ross, JC van Reenen,
M Vilakazi
Secretary: FD Jooste
Transfer secretaries: Link Market Services SA (Pty) Ltd (Registration Number
2000/007239/07)
Rennie House, 13th floor, 19 Ameshoff Street, Braamfontein 2001
PO Box 4844, Johannesburg, 2000 Telephone: +27 11 7130800
E-mail: info@linkmarketservices.co.za
Sponsor: Merrill Lynch South Africa (Registration number: 2000/031756/06)
Registered office: 268 West Avenue, Centurion
JSE code: MMI
NSX code: MIM
ISIN NO. ZAE0001149902
MMI HOLDINGS LIMITED GROUP
Metropolitan/ Momentum merger
MMI Holdings Limited (previously Metropolitan Holdings Limited) acquired all
the ordinary shares in Momentum Group Limited (Momentum) from FirstRand
Limited (FirstRand) during 2010 and issued 951 million shares to FirstRand as
consideration (the "Merger"). For accounting purposes, the acquisition is
accounted for as a reverse acquisition in terms of IFRS 3 (Revised) -
Business combinations, Momentum is treated as the acquirer and Metropolitan
Holding Limited (Metropolitan) the acquiree. The relevant approvals for the
transaction were received on 12 November 2010 (transaction unconditional),
the consideration shares were issued on 1 December 2010 and the MMI Holdings
Limited (MMI) Board was reconstituted on the latter date.
Further details relating to the merger are provided below.
IFRS financial information
Momentum is considered to be the acquirer for accounting purposes and
therefore:
- the audited results presented for the current period comprise Momentum
results for the 12 months ended 30 June 2011 and Metropolitan results for the
seven months ended 30 June 2011; and
- the comparatives comprise the Momentum results for the 12 months ended 30
June 2010 (restated for accounting policy changes and reclassifications noted
below).
A third balance sheet as at 1 July 2009 has also been prepared as a result of
the change in accounting policies and reclassifications noted below.
Effective 1 December 2010 the group entered into a reinsurance agreement with
a cell captive owned by FirstRand whereby 90% of the FNB Life business is
reinsured to the cell captive owned by FirstRand. The IFRS results for the
current period therefore include 100% of the FNB Life profits for the five
months ended 30 November 2010 and 10% of FNB Life`s results for the seven
months ended 30 June 2011.
Segmental information
Since the merger between Momentum and Metropolitan, the group`s activities
have been reorganised into six divisions and a shareholder capital segment.
Management has determined the operating segments based on the way the
business has been managed since the merger. Management information presented
to the executive committee (the chief operating decision-makers in terms of
IFRS 8 - Operating segments) assumes that the merger occurred on 1 July 2009
and is therefore prepared with both the current and prior period information
being reported as though Momentum and Metropolitan were always merged. This
enables comparability for management purposes. IFRS 8 requires the segmental
information to be prepared on the basis that the chief operating decision-
makers review it, the segmental information has therefore been prepared on
this basis. Consequently, the comparative information has been restated to be
consistent with the reorganised structure of the group.
The segmental information also assumes that the reinsurance agreement with a
cell captive owned by FirstRand was effective from 1 July 2009. The segmental
information for the current and comparative period therefore only includes
10% of FNB Life`s profit.
Since the December 2010 MMI interim results were released, the new group made
the following changes relating to the segmental information:
- FNB Life (10%) has been reallocated from Momentum Retail to the
Metropolitan Retail segment
- Momentum previously had certain central costs that were included in the
capital centre - the majority of these costs have been allocated across the
relevant divisions
- Metropolitan previously had certain central costs that were only allocated
across Metropolitan Retail and Employee Benefits - these costs have been
allocated across all the relevant divisions.
MMI HOLDINGS LIMITED GROUP
The group has been reorganised into the following divisions:
- Momentum Retail: existing Momentum Retail business, including Momentum
Wealth and Metropolitan Odyssey - development, distribution and
administration of individual life wealth creation and preservation, risk
(insurance) and savings (income) products for the middle to upper income
markets in South Africa;
- Metropolitan Retail: existing Metropolitan Retail business, including
Momentum New Markets and FNB Life (representing 10% of FNB Life`s results) -
development, distribution and administration of individual life savings,
income generation (investment) and income protection (risk) products for the
entry level market in South Africa;
- Momentum Employee Benefits: Momentum and Metropolitan employee benefits
business, including Metropolitan Retirement Administrators - provision of
administration, insurance and investment solutions for employers and
retirement funds in the large corporate and small, medium and micro
enterprise market segments in South Africa;
- Metropolitan International: Metropolitan`s life assurance businesses and
Momentum`s life assurance and health businesses in Africa - representing
businesses in Botswana, Ghana, Kenya, Lesotho, Malawi, Mauritius, Mozambique,
Namibia, Nigeria, Swaziland, Tanzania and Zambia - development, distribution
and administration of individual life investment, risk and savings products,
retirement fund administration, health insurance and administration, and
short-term insurance in other African countries;
- Momentum Investments: Momentum asset management businesses, including
United Kingdom operations, and Metropolitan asset management businesses - all
aspects of active and passive asset management (local and international),
multi-management, alternative investment management, collective investment
management and property investment management;
- Metropolitan Health: Momentum`s and Metropolitan`s South African health
businesses - provision of healthcare administration, health risk management
and supplementary healthcare products in South Africa;
- Shareholder capital: holding company activities and the management of MMI`s
capital and shareholder balance sheet risks, such as market risk and credit
risk; includes the run-off of Momentum Group Ltd`s closed corporate policy
business and operational items managed centrally by the group.
Embedded value and statement of assets and liabilities on the reporting basis
The embedded value as at 30 June 2010 assumes that Momentum and Metropolitan
were already merged and only includes 10% of FNB life`s embedded value on
that date. The analysis of embedded value earnings reported for the current
period reconciles this restated opening embedded value to the current closing
embedded value.
The long-term insurance business excess on the statement of assets and
liabilities on the reporting basis also assumes that Momentum and
Metropolitan were already merged on 30 June 2010 and therefore the analysis
of surplus for the current period represents the surplus for the 12 months
ended 30 June 2011.
MMI HOLDINGS LIMITED GROUP
Basis of presentation of financial information
These results have been prepared in accordance with International Accounting
Standard 34 (IAS34) - Interim financial reporting; the South African
Companies Act of 2008; and the Listings Requirements of the JSE Limited
(JSE). The accounting policies of the group are in terms of International
Financial Reporting Standards (IFRS) and have been applied consistently to
all the periods presented and the previous reporting period (except for those
noted below). The comparatives have been restated for the changes in
accounting policies noted below. The preparation of financial statements is
in accordance with and contains the information required by IFRS and the AC
500 standards, as issued by the Accounting Practices Board or its successor,
which requires the use of certain critical accounting estimates as well as
the exercise of managerial judgement in the application of the group`s
accounting policies. Such critical judgements and accounting estimates are
disclosed in detail in the Momentum financial statements at 30 June 2010 (31
December 2009 for Metropolitan) including changes in estimates which are an
integral part of the insurance business. The group is exposed to financial
and insurance risks - details will be provided in the MMI group financial
statements for June 2011 which will be available on the company website:
www.mmiholdings.com.
The preparation of the MMI Group`s condensed consolidated, audited results
was supervised by the Group Finance Director, Preston Speckmann, Bcompt
(Hons), CA (SA).
Change in accounting policies
Early adoption of accounting standard
The International Accounting Standards Board amended IAS12 - Income taxes in
December 2010. The amendments introduce a presumption that the carrying value
of an investment property is recovered entirely through sale. The MMI group
chose to early adopt the amendment as this new accounting policy provides
more reliable and relevant information for users as it represents more
realistic tax consequences relating to investment properties and is in line
with the accounting policies applied by the insurance industry. The
restatement resulted in an increase of policyholder liabilities under
insurance contracts of R126 million as at 1 July 2009 and a decrease of the
deferred income tax liability of R126 million, representing the cumulative
effect up to that date. The decrease in the deferred income tax charge for
the year ended 30 June 2010 was R15 million.
Alignment of accounting policies
The MMI group aligned the historic accounting policies of Momentum and
Metropolitan for consistency purposes resulting in the following accounting
policy changes for Momentum:
- Owner-occupied properties were previously carried using the cost model. The
policy for the group has now changed to the fair value model and as a result
the value of owner-occupied properties at 30 June 2010 was increased by R497
million (1 July 2009: 445 million) and a deferred tax liability of R56
million (1 July 2009: R50 million) was raised. The owner occupied property
revaluation reserve was increased by R441 million (1 July 2009: R395 million)
and additional depreciation of R12 million was expensed for the year ended 30
June 2010.
- Actuarial gains and losses relating to employee benefit funds were
previously recognised using the corridor method. The corridor method defers
actuarial gains and losses and recognises it over the service lives of
employees. The policy of the group has now changed to recognising these
actuarial gains and losses immediately in the income statement. This had no
impact on the 30 June 2010 statement of financial position and resulted in an
increase in the employee benefit fund asset of R45 million, an increase in
the deferred tax liability of R13 million and an increase in retained
earnings of R32 million as at 1 July 2009. Fair value gains decreased by R45
million and the related deferred tax reduction in the income statement
amounted to R13 million for the year ended 30 June 2010.
Investment with discretionary participation features (DPF) contracts were
previously accounted for as investment business with deposit accounting being
applied. The policy for the group has changed to account for investment with
DPF contracts as insurance business with premiums and claims being recorded
in the income statement. This resulted in premiums and claims increasing by
R1 895 million and R2 805 million respectively for the year ended 30 June
2010. Fair value adjustments on investment contract liabilities reduced by
R281 million, fee income reduced by R177 million and the transfer from
investment contract with DPF amounted to R806 million for the year ended 30
June 2010. The change had no impact on retained earnings and the carrying
value of investment with DPF contract liabilities.
Reclassifications
The MMI group aligned the presentation of financial statement line items of
Momentum and Metropolitan for consistency purposes resulting in the following
reclassifications to the Momentum financial statements.
- Direct property expenses of R154 million and asset management fee expenses
of R174 million were previously set off against investment income and fee
income respectively. These expenses have now been separately disclosed under
other expenses for the year ended 30 June 2010.
- All holdings below 50% in collective investment schemes where the group
controlled the management company were previously disclosed under investments
in associates. This treatment was aligned in the MMI group, with holdings in
collective investments schemes between 20% and 50% being disclosed as
investments in associates, and holdings below 20% being disclosed as
financial instrument assets designated at fair value through income. This
resulted in a reclassification at 30 June 2010 of R1 145 million (1 July
2009: R442 million) from investments in associates to financial instrument
assets designated at fair value through income.
- The classification of certain equity, credit, index and commodity linked
notes was aligned, resulting in a reclassification from derivative financial
instruments to assets designated at fair value through income of R5 293
million as at 30 June 2010 (1 July 2009: R7 420 million).
- The classification between loans and receivables disclosed under financial
instrument assets, insurance and other receivables and policy loans was
aligned, resulting in a reclassification from insurance and other receivables
at 30 June 2010 of R1 295 million (1 July 2009: R5 727 million) and policy
loans of R643 million (1 July 2009: R604 million) to loans and receivables of
R1 938 million (1 July 2009: R6 331 million).
- The classification between cash and cash equivalents and financial
instrument assets was aligned, resulting in a reclassification from cash and
cash equivalents of R7 089 million (1 July 2009: R4 632 million) and loans
and receivables of R40 million (1 July 2009: nil) to assets designated at
fair value through income of R7 129 million as at 30 June 2010 (1 July 2009:
R4 632 million).
- The group aligned its treatment of deferred tax assets and liabilities,
resulting in a deferred tax asset of R884 million being set off against the
deferred tax liability at 30 June 2010 (1 July 2009: R919 million).
Standards and interpretations of published standards effective for the year
ended 30 June 2011 and relevant to the group
- The following amendments to standards became effective for the first time
in the current year and had no significant impact on the group`s earnings:
IFRS 2 - Share based payment - group cash-settled share based payment
transactions, IAS 27 (Revised) - Consolidated and separate financial
statements. The conceptual framework for financial reporting 2010 was also
effective from September 2010.
- IFRS 3 (Revised) - Business combinations was applied to the merger between
Momentum and Metropolitan and the most significant impact on the group`s
current period earnings was that transaction costs of R38 million which would
previously have been capitalised, were expensed.
- The International Accounting Standards Board (IASB) made amendments to
various standards as part of their annual improvements project. These
amendments had no impact on the group`s earnings.
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF Restated Restated
FINANCIAL POSITION 30.06.2011 30.06.2010 01.07.2009
Rm Rm Rm
ASSETS
Intangible assets 12 257 3 127 3 102
Owner-occupied properties 1 416 947 872
Property and equipment 301 108 105
Investment properties 5 982 2 276 2 156
Investment in associates 7 797 6 804 7 636
Employee benefit assets 381 113 83
Financial instrument assets (1) 234 067 156 983 137 856
Insurance and other receivables 2 296 454 658
Deferred income tax 108 48 50
Reinsurance contracts 1 148 628 8 143
Current income tax assets 174 36 40
Cash and cash equivalents 19 770 15 522 26 506
Non-current assets held for sale 6 854 11 434 58
Total assets 292 551 198 480 187 265
EQUITY
Equity attributable to owners of the 22 341 8 676 7 722
parent
Preference shares 500 500 500
22 841 9 176 8 222
Non-controlling interests 298 (4) (9)
Total equity 23 139 9 172 8 213
LIABILITIES
Insurance contract liabilities
Long-term insurance contracts 82 835 41 037 39 195
Financial instrument liabilities
Investment contracts 146 045 112 141 110 227
- with discretionary participation 24 280 12 459 13 264
features
- designated at fair value through 121 765 99 682 96 963
income
Other financial instrument 16 730 15 569 15 428
liabilities (2)
Deferred income tax 4 042 750 588
Employee benefit obligations 874 361 204
Other payables 12 887 8 805 13 132
Provisions 109 140 207
Current income tax liabilities 38 43 71
Non-current liabilities held for sale 5 852 10 462 -
Total liabilities 269 412 189 308 179 052
Total equity and liabilities 292 551 198 480 187 265
1. Financial instrument assets consist of the following:
Assets designated at fair value through income assets: R223 990 million
(30.06.2010: R150 907 million; 01.07.2009: R126 647 million)
Derivative financial instruments: R2 207 million (30.06.2010: R1 228 million;
01.07.2009: R2 035 million)
Held-to-maturity assets: R14 million (30.06.2010: R46 million; 01.07.2009:
R56 million)
Available-for-sale assets: R4 709 million (30.06.2010: R2 887 million;
01.07.2009: R2 766 million)
Loans and receivables: R3 147 million (30.06.2010: R1 915 million;
01.07.2009: R6 352 million)
2. Other financial instrument liabilities consist of the following:
Liabilities designated at fair value through income: R14 096 million
(30.06.2010: R14 370 million; 01.07.2009: R13 634 million)
Derivative financial instruments: R1 235 million (30.06.2010: R956 million;
01.07.2009: R1 593 million)
Liabilities at amortised cost: R1 399 million (30.06.2010: R243 million;
01.07.2009: R201 million)
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
CONDENSED CONSOLIDATED INCOME STATEMENT Restated
12 mths to 12 mths to
30.06.2011 30.06.2010
Rm Rm
Net insurance premiums received 15 029 9 309
Fee income (1) 4 232 2 982
Investment income 11 711 9 571
Net realised and fair value gains 13 846 9 730
Net income 44 818 31 592
Net insurance benefits and claims 15 898 9 341
Change in liabilities 2 265 983
Change in insurance contract liabilities 2 899 1 841
Change in investment contracts with DPF (389) (805)
liabilities
Change in reinsurance provision (245) (53)
Fair value adjustments on investment 12 106 11 508
contract liabilities
Fair value adjustments on collective 1 506 744
investment scheme liabilities
Depreciation, amortisation and 676 249
impairment expenses
Employee benefit expenses 3 202 2 037
Sales remuneration 2 697 1 587
Other expenses 2 783 1 546
Expenses 41 133 27 995
Results of operations 3 685 3 597
Share of profit of associates 44 32
Finance costs (2) (1 147) (1 122)
Profit before tax 2 582 2 507
Income tax expenses (919) (830)
Earnings 1 663 1 677
Attributable to:
Owners of the parent 1 612 1 640
Non-controlling interests 18 (1)
Momentum preference shares 33 38
1 663 1 677
Basic earnings per share (cents) 128 172
Diluted earnings per share (cents) 126 172
1. Fee income consists of the following:
Investment contracts: R1 340 million (30.06.2010: R1 267 million)
Trust and fiduciary services: R1 386 million (30.06.2010: R1 088 million)
Health administration services: R1 239 million (30.06.2010: R505 million)
Other fee income: R267 million (30.06.2010: R122 million)
2. Finance costs consist of the following:
Preference shares issued by MMI Holdings Ltd: R52 million (30.06.2010: Rnil)
Subordinated redeemable debt: R98 million (30.06.2010: R84 million)
Cost of carry and interest rate swaps: R891 million (30.06.2010: R871
million)
Other: R106 million (30.06.2010: R167 million)
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
RECONCILIATION OF Basic earnings Diluted earnings
HEADLINE EARNINGS
attributable to owners
of the parent
12 mths to 12 mths to 12 mths to 12 mths to
30.06.2011 30.06.2010 30.06.2011 30.06.2010
Rm Rm Rm Rm
Earnings 1 612 1 640 1 612 1 640
Finance costs - 52 -
convertible preference
shares
Diluted earnings 1 664 1 640
Intangible asset 28 83 28 83
impairments
Impairment/loss on step- 18 - 18 -
up of associate
Profit on sale of (27) - (27) -
business
Tax effect on profit on 3 - 3 -
sale of business
Headline earnings (1) 1 634 1 723 1 686 1 723
Net realised and fair (43) (25) (43) (25)
value gains on excess
Basis and other changes 193 (61) 193 (61)
and investment variances
FNB Life (90%) (2) (174) (416) (174) (416)
Amortisation of 318 55 318 55
intangible assets
relating to business
combinations
Secondary Tax on 90 - 90 -
Companies (STC)
Merger transaction costs 29 - 29 -
Dilutory effect of - - (6) -
subsidiaries (3)
Investment income on - - 6 -
treasury shares -
contract holders
Core headline earnings 2 047 1 276 2 099 1 276
(4)
Metropolitan pre-merger 489 1 035
Core headline earnings 2 588 2 311
as per segmental
information (5)
1. Headline earnings consist of operating profit, investment income, net
realised and fair value gains, investment variances and basis and other
changes.
2. This represents the 90% of FNB Life`s results for the five months ended 30
November 2010 which has been excluded as it is non-recurring.
3. Metropolitan Health and Metropolitan Kenya are consolidated at 100% in the
results. For the purposes of diluted core headline earnings, non-controlling
interests and investment returns are reinstated.
4. Core headline earnings disclosed comprise operating profit and investment
income on shareholder assets. It excludes net realised and fair value gains
on investment assets, investment variances and basis and other changes which
can be volatile, STC, certain non-recurring items, as well the amortisation
of intangible assets relating to business combinations as this is part of the
cost of acquiring the business. STC has been added back as it will fall away
and be replaced by the new dividends withholding tax effective 1 April 2012.
5. Core headline earnings as per segmental information represent the core
headline earnings of the group as though the merger was effective from 1 July
2009.
EARNINGS PER SHARE (cents) 12 mths to 12 mths to
attributable to owners of the parent 30.06.2011 30.06.2010
Basic
Core headline earnings 163 134
Headline earnings 130 181
Earnings 128 172
Weighted average number of shares 1 259 951
(million) (1)
Diluted
Core headline earnings (2) 158 134
Weighted average number of shares 1 329 951
(million) (1, 2)
Headline earnings 128 181
Earnings 126 172
Weighted average number of shares 1 317 951
(million) (1)
Diluted core headline earnings as per 161 144
segmental information
Weighted average number of shares 1 605 1 605
(million) for purposes of segmental
information (3)
1. The weighted average number of shares for the comparative figures relates
to the 951 million shares issued to FirstRand in exchange for Momentum.
2. For diluted core headline earnings per share, treasury shares held on
behalf of contract holders are deemed to be issued. For diluted earnings and
headline earnings per share, these shares are deemed to be cancelled.
3. The weighted average number of shares for purposes of segmental
information assumes that the merger was effective from 1 July 2009 in line
with the diluted core headline earnings as per the segmental information.
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
DIVIDENDS 2011 2011
Normal Other
Ordinary listed MMI Holdings Limited shares
(cents per share)
Interim - September 2010 - 42
Interim - March 2011 42 -
Special - March 2011 - 21
Final - September 2011 63 -
Total 105 63
Ordinary unlisted Momentum shares
Momentum declared a total dividend of 422 cents per share to
FirstRand in respect of the 12 months ended 30 June 2010. A dividend
of 188 cents per share was declared in respect of the current period
(pre-merger).
DIVIDENDS
MMI Holdings convertible redeemable A1 A2 A3
preference shares (issued to Kagiso
Tiso Holdings (KTH))
Redemption value (per R 5.12 9.18 9.18
share)
Paid - 30 September 2010 Rate 8.5% 8.5% 17.1%
Rm 12 5 27
Paid - 31 March 2011 Rate 7.7% 7.7% 18.0%
Rm 11 5 29
Payable - 30 September 2011 Rate 7.7% 7.7% 19.1%
Rm 10 5 30
Redemption date Oct - 2012 Dec - 2012 Dec - 2011
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF Restated
COMPREHENSIVE INCOME 12 mths to 12 mths to
30.06.2011 30.06.2010
Rm Rm
Earnings 1 663 1 677
Other comprehensive income for the year, net 35 108
of tax
Exchange differences on translating foreign (29) (16)
operations
Available-for-sale financial assets 11 68
Land and buildings revaluation 105 66
Share of other comprehensive income of (2) -
associates
Change in non-distributable reserves - (1)
Income tax relating to components of other (50) (9)
comprehensive income
Total comprehensive income for the year 1 698 1 785
Total comprehensive income attributable to:
Owners of the parent 1 651 1 748
Non-controlling interests 14 (1)
Momentum preference shares 33 38
1 698 1 785
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES Restated
IN EQUITY 12 mths to 12 mths to
30.06.2011 30.06.2010
Rm Rm
Changes in share capital
Balance at beginning (1) 1 041 1 041
Staff share scheme shares released 2 -
Treasury shares held on behalf of contract (204) -
holders
Shares issued (2) 12 582 -
Balance at end 13 421 1 041
Changes in other reserves
Balance at beginning 1 140 648
Change in accounting policy - 395
Total comprehensive income 42 108
Fair value adjustment for preference shares 940 -
issued by MMI (3)
Transfer to retained earnings (5) (11)
Balance at end (4) 2 117 1 140
Changes in retained earnings
Balance at beginning 6 495 5 606
Change in accounting policy - 32
Total comprehensive income 1 609 1 640
Dividend paid (1 302) (801)
Employee share scheme (9) 7
Transactions with minorities 5 -
Transfer from other reserves 5 11
Balance at end 6 803 6 495
Equity attributable to owners of the parent 22 341 8 676
Momentum preference shares
Balance at beginning 500 500
Total comprehensive income 33 38
Dividend paid (33) (38)
Balance at end 500 500
Changes in non-controlling interests
Balance at beginning (4) (9)
Total comprehensive income 14 (1)
Dividends paid (35) -
Transactions with owners 69 6
Business combinations 263 -
Other (9) -
Balance at end 298 (4)
Total equity 23 139 9 172
1. The opening share capital and share premium represents the issued equity
interests of Momentum Group Limited, however the number and type of shares in
issue reflects the equity structure of MMI Holdings Limited. This is due to
the reverse acquisition for accounting purposes.
2. The shares issued represent the fair value of the consideration relating
to the reverse acquisition of Metropolitan.
3. This represents the write up of the carrying value of the preference
shares issued by MMI Holdings Limited to Kagiso Tiso Holdings to fair value
as part of the fair value exercise performed as a result of the merger.
4. Other reserves consist of the following:
Land and buildings revaluation reserve: R491 million (30.06.2010: R441
million)
Foreign currency translation reserve: R11 million (30.06.2010: R35 million)
Fair value adjustment for preference shares issued by MMI: R940 million
(30.06.2010: nil)
Fair value reserve: R666 million (30.06.2010: R658 million)
Non-distributable reserve: R9 million (30.06.2010: R6 million)
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF CASH Restated
FLOWS 12 mths to 12 mths to
30.06.2011 30.06.2010
Rm Rm
Net cash outflow from operating activities (1 570) (10 743)
Net cash inflow/(outflow) from investing 7 067 (210)
activities
Net cash (outflow)/inflow from financing (1 316) 937
activities
Net cash flow 4 181 (10 016)
Cash resources and funds on deposit at 16 490 26 506
beginning
Cash resources and funds on deposit at end 20 671 16 490
Made up as follows:
Cash and cash equivalents as per statement of 19 770 15 522
financial position
Cash and cash equivalents held for sale 901 968
20 671 16 490
PRINCIPAL ASSUMPTIONS (South Africa) (1) 30.06.2011 30.06.2010
% %
Pre-tax investment return
Equities 12.3 12.8
Properties 9.8 10.3
Government stock 8.8 9.3
Other fixed interest stocks 9.3 9.8
Cash 7.8 8.3
Risk free return 8.8 9.3
Risk discount rate (RDR) 11.1 11.6
Investment return (before tax) - smoothed 11.0 11.5
bonus
Expense inflation rate
Momentum 7.2 7.3
Metropolitan 6.7 6.0
1. The principal assumptions relate only to the South African life insurance
business. Assumptions relating to international life insurance businesses
are based on local requirements and can differ from the South African
assumptions.
NON-CONTROLLING INTERESTS 30.06.2011 30.06.2010
% %
Metropolitan
Metropolitan Health Group 17.6
Metropolitan Namibia 18.0
Metropolitan Botswana 24.2
Metropolitan Kenya 33.7
Metropolitan Ghana 7.8
Metropolitan Nigeria 50.0
Metropolitan Swaziland 33.0
Momentum
Momentum Mozambique 25.0 25.0
Momentum Tanzania 33.0 33.0
Momentum Zambia 35.0 5.0
Momentum Health Ghana 33.0 10.0
Momentum Health Mauritius 5.0 5.0
Momentum Health Botswana 28.0 18.0
Advantage Asset Managers - 15.0
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
FINANCIAL INSTRUMENT ASSETS 30.06.2011 30.06.2010
Rm Rm
Equity securities 82 864 49 759
Debt securities 71 521 53 959
Funds on deposit and other money market 10 908 10 594
instruments
Unit-linked investments 63 420 39 528
Derivative financial instruments 2 207 1 228
Loans and receivables 3 147 1 915
Total financial instrument assets 234 067 156 983
ANALYSIS OF ASSETS UNDER MANAGEMENT 30.06.2011 30.06.2010
Rm Rm
On-balance sheet assets
Managed and/or administered by Momentum 165 910 99 173
Investments
Investment assets 117 090 62 967
Collective investment schemes 41 423 32 983
Properties 7 397 3 223
Linked product assets under administration 41 824 35 495
Managed by external managers 35 518 21 421
Other assets 49 299 42 391
292 551 198 480
Off-balance sheet assets
Managed and/or administered by Momentum 109 289 90 755
Investments
Collective investment schemes 51 633 26 580
Segregated assets 57 656 64 175
Momentum Employee Benefits - segregated assets 151 -
Metropolitan Health 10 166 3 804
Linked product assets under administration 30 383 23 169
Total assets under management 442 540 316 208
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
ANALYSIS OF ASSETS BACKING 30.06.2011 30.06.2010
SHAREHOLDER EXCESS
Rm % Rm %
Equity securities 2 889 12.6 41 0.4
Preference shares 2 155 9.4 2 640 28.8
Collective investment schemes 1 392 6.1 - -
Debt securities 2 869 12.6 - -
Properties 1 819 8.0 780 8.5
Owner-occupied properties 1 202 5.3 780 8.5
Investment properties 617 2.7 - -
Cash and cash equivalents 6 070 26.6 5 446 59.4
Intangible assets 7 826 34.3 1 268 13.8
Other net assets/(liabilities) 48 0.2 (46) (0.5)
25 068 109.8 10 129 110.4
Redeemable preference shares (711) (3.1) - -
Subordinated redeemable debt (1 516) (6.7) (953) (10.4)
Shareholder excess per reporting 22 841 100.0 9 176 100.0
basis
GROUP SHAREHOLDER EXCESS - TOP 10 EQUITY 30.06.2011
HOLDINGS
Rm %
MTN Group Ltd 197 6.8
Sasol Ltd 157 5.4
Anglo American Plc 140 4.8
Billiton Plc 129 4.5
FirstRand Ltd 120 4.2
Standard Bank Group Ltd 114 3.9
SABMiller Plc 99 3.4
Naspers Ltd 99 3.4
Compagnie Financiere Richemont 89 3.1
Impala Platinum Holdings Ltd 86 3.0
1 230 42.5
Total equities backing shareholder excess 2 889
- As the comparatives only included R41 million of equities no analysis of
the top 10 equity holdings has been provided.
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
Business combinations
Metropolitan/Momentum merger
MMI Holdings Limited (previously Metropolitan Holdings Limited) acquired all
the ordinary shares in Momentum from FirstRand and issued 951 million shares
to FirstRand in exchange therefore. The relevant approvals for the merger
became unconditional on 12 November 2010, the consideration shares were
issued on 1 December 2010 and the MMI Holdings Limited board was
reconstituted on the latter date. The purpose of the merger was to unlock
value for all Momentum and Metropolitan stakeholders.
The merger has been accounted for as a reverse acquisition under IFRS 3
(revised) - Business combinations on the basis that the Momentum shareholders
(ie FirstRand shareholders) owned a greater portion, being 59.3%, of MMI`s
issued shares subsequent to the merger. Momentum is therefore the accounting
acquirer and Metropolitan the accounting acquiree for IFRS 3 purposes.
Consequently, for consolidation purposes, a fair value exercise was performed
on Metropolitan.
The acquisition date fair value of the total consideration was R12 582
million, based on the embedded value of Metropolitan as at 12 November 2010.
Goodwill of R170 million has arisen as a result of the merger, attributable
to certain anticipated operating synergies from the merger. Goodwill is not
deductible for tax purposes. The non-controlling interest of R222 million
represents the proportionate share of the net assets recognised relating to
the insurance companies in Metropolitan that have minority shareholders.
Acquisition costs incurred by Momentum, relating to the merger, of R40
million (R29 million net of tax) have been expensed during the current period
and are included in other expenses in the income statement.
Metropolitan Health Namibia Administrators (MHNA)
In January 2011 the group acquired an additional 5% in the ordinary share
capital of MHNA, taking the holding to 51%. The additional shares were
acquired for R6 million.
Impact of business combinations
The net premium income and earnings of Metropolitan and MHNA included in the
MMI results since the acquisition date are R6 227 million and R368 million
respectively. The net premium income and earnings of MMI for the 12 months
ended 30 June 2011 would have been R19 371 million and R2 080 million
respectively, assuming the acquisition occurred at the beginning of the
period. These figures include net income and earnings of R309 million and
R174 million respectively, representing 90% of FNB Life`s results for the
five months ended 30 November 2010.
MMI HOLDINGS - IFRS FINANCIAL INFORMATION
Details of the purchase consideration, the net assets acquired and the
goodwill are as follows:
Metro-
politan MHNA
merger 01.01.2011 Total
30.11.2010 Rm Rm
Rm
Purchase consideration 12 582 6 12 588
Fair value of net assets:
Intangible assets 9 444 111 9 555
Value of in-force acquired 5 249 - 5 249
Customer relations 2 736 110 2 846
Brand 1 078 - 1 078
Computer software 246 1 247
Broker network 135 - 135
Owner-occupied properties 717 - 717
Property and equipment 182 5 187
Investment properties 3 270 - 3 270
Investment in associates 710 - 710
Employee benefit assets 227 - 227
Financial instrument assets 61 071 5 61 076
Insurance and other receivables 1 719 - 1 719
Deferred income tax 23 - 23
Reinsurance contracts 276 - 276
Current income tax assets 11 - 11
Cash and cash equivalents 7 132 12 7 144
Insurance contract liabilities (38 921) - (38 921)
Financial instrument liabilities
Investment contract liabilities (23 468) - (23 468)
Other financial instrument (2 302) - (2 302)
liabilities
Deferred income tax (2 959) (39) (2 998)
Employee benefit obligations (451) - (451)
Other payables (2 876) (4) (2 880)
Current income tax liabilities (231) (5) (236)
Net identifiable assets acquired 13 574 85 13 659
Fair value adjustment on preference (940) - (940)
shares issued by Metropolitan (1)
Non-controlling interest (222) (41) (263)
Derecognise investment in associate - (39) (39)
Goodwill 170 1 171
12 582 6 12 588
1. This represents the fair value of the equity component of the convertible
preference shares issued by MMI Holdings Limited and is recorded in equity in
these results.
MMI HOLDINGS - SEGMENTAL INFORMATION
12 mths to 30.06.2011 (1) Mo- Met- Mo- Metro-
mentum ropo- mentum polita
Retail litan Em- n
Retai ployee Inter-
l bene- natio-
fits nal
Rm Rm Rm Rm
Revenue
Net insurance premiums 16 595 6 393 8 171 1 637
Recurring premiums 7 133 4 489 5 300 1 383
Single premiums 9 462 1 904 2 871 254
Fee income 1 349 117 648 85
External fee income 1 349 117 648 85
Inter-segment fee income - - - -
Expenses
Net payments to contract holders 15 277 4 440 10 886 983
Other expenses 3 540 1 777 1 005 777
Sales remuneration 1 830 725 164 231
Administration expenses 1 710 1 052 841 546
Direct property and asset management - - - -
expenses
Holding company expenses - - - -
Inter-segment expenses - - - -
Diluted core headline earnings 699 394 187 32
Operating profit 995 517 257 37
Tax on operating profit (296) (123) (70) (5)
Investment income - - - -
Tax on investment income - - - -
Diluted weighted average number of
shares in issue (millions)
Diluted core headline earnings per
shares (cents)
12 mths to 30.06.2011 (1) Mo- Metro- Share- Segmen-
mentum politan holder tal
Invest- Health capital total
ments
Rm Rm Rm Rm
Revenue
Net insurance premiums 8 846 26 36 41 704
Recurring premiums - 26 - 18 331
Single premiums 8 846 - 36 23 373
Fee income 935 1 651 448 5 233
External fee income 935 1 651 448 5 233
Inter-segment fee income - - - -
Expenses
Net payments to contract holders 8 267 21 214 40 088
Other expenses 842 1 541 402 9 884
Sales remuneration 2 - - 2 952
Administration expenses 840 1 541 210 6 740
Direct property and asset - - - -
management expenses
Holding company expenses - - 192 192
Inter-segment expenses - - - -
Diluted core headline earnings 131 114 1 031 2 588
Operating profit 174 157 326 2 463
Tax on operating profit (43) (43) 34 (546)
Investment income - - 788 788
Tax on investment income - - (117) (117)
Diluted weighted average number of 1 605
shares in issue (millions)
Diluted core headline earnings per 161
shares (cents)
12 mths to 30.06.2011 (1) Other Metropo IFRS
Reconci litan total
ling Pre-
Items merger
(2)
Rm Rm Rm
Revenue
Net insurance premiums (21 (4 739) 15 029
936)
Recurring premiums (3 273) (3 186) 11 872
Single premiums (18 (1 553) 3 157
663)
Fee income (346) (655) 4 232
External fee income - (655) 4 578
Inter-segment fee income (346) - (346)
Expenses
Net payments to contract holders (19 (4 698) 15 898
492)
Other expenses 1 113 (1 639) 9 358
Sales remuneration 140 (395) 2 697
Administration expenses 462 (1 186) 6 016
Direct property and asset management 792 - 792
expenses
Holding company expenses - (58) 134
Inter-segment expenses (281) - (281)
Diluted core headline earnings - (489) 2 099
Operating profit - (380) 2 083
Tax on operating profit - 80 (466)
Investment income - (235) 553
Tax on investment income - 46 (71)
Diluted weighted average number of shares - (276) 1 329
in issue (millions)
Diluted core headline earnings per shares - (3) 158
(cents)
1. The table above assumes that Metropolitan and Momentum were merged from 1
July 2010. The `Metropolitan pre-merger` column represents the segmental
information for Metropolitan for the 5 months before the merger.
2. The `other reconciling items` column includes: an adjustment to reverse
investment contract premiums (R22 350 million) and claims (R19 576 million);
FNB Life adjustments reconciling the 10% of FNB Life included in each of the
relevant lines to the accounting treatment of the reinsurance arrangement
(Premiums R414 million; claims R84 million and expenses R233 million); direct
property and asset management fees (R792 million) for the life companies that
are set off against investment income and fee income, respectively for
management reporting purposes but shown as an expense for accounting
purposes; the amortisation of the intangibles of R352 million relating to the
merger; and other minor adjustments to expenses of R17 million.
MMI HOLDINGS - SEGMENTAL INFORMATION
12 mths to 30.06.2010 (1) Mo- Met- Mo- Metro-
mentum ropo- mentum politan
Retail litan Em- Inter-
Retail ployee natio-
bene- nal
fits
Rm Rm Rm Rm
Revenue
Net insurance premiums 16 656 5 806 8 510 1 402
Recurring premiums 6 912 4 275 4 981 1 284
Single premiums 9 744 1 531 3 529 118
Fee income 1 043 85 760 24
External fee income 1 043 85 760 24
Inter-segment fee income - - - -
Expenses
Net payments to contract holders 14 744 4 456 10 435 767
Other expenses 2 981 1 717 986 615
Sales remuneration 1 506 670 140 173
Administration expenses 1 475 1 047 846 442
Direct property and asset - - - -
management expenses
Holding company expenses (3) - - - -
Inter-segment expenses - - - -
Diluted core headline earnings 600 367 204 77
Operating profit 810 487 281 86
Tax on operating profit (210) (120) (77) (9)
Investment income - - - -
Tax on investment income - - - -
Diluted weighted average number
of shares in issue (millions)
Diluted core headline earnings
per shares (cents)
12 mths to 30.06.2010 (1) Mo- Metro- Share- Segmen-
mentum politan holder tal
Invest- Health capita total
ments l
Rm Rm Rm Rm
Revenue
Net insurance premiums 10 032 18 - 42 424
Recurring premiums - 18 - 17 470
Single premiums 10 032 - - 24 954
Fee income 1 303 1 552 172 4 939
External fee income 1 303 1 552 172 4 939
Inter-segment fee income - - - -
Expenses
Net payments to contract holders 19 842 19 1 410 51 673
Other expenses 925 1 446 388 9 058
Sales remuneration 3 - - 2 492
Administration expenses 922 1 446 287 6 465
Direct property and asset - - - -
management expenses
Holding company expenses (3) - - 101 101
Inter-segment expenses - - - -
Diluted core headline earnings 165 97 801 2 311
Operating profit 244 143 391 2 442
Tax on operating profit (79) (46) (123) (664)
Investment income - - 652 652
Tax on investment income - - (119) (119)
Diluted weighted average number of 1 605
shares in issue (millions)
Diluted core headline earnings per 144
shares (cents)
12 mths to 30.06.2010 (1) Other Metro- IFRS
recon- politan total
ciling pre-
items merger
(2)
Rm Rm Rm
Revenue
Net insurance premiums (21 987) (11 128) 9 309
Recurring premiums (2 762) (7 851) 6 857
Single premiums (19 225) (3 277) 2 452
Fee income (403) (1 554) 2 982
External fee income 7 (1 554) 3 392
Inter-segment fee income (410) - (410)
Expenses
Net payments to contract holders (29 369) (12 963) 9 341
Other expenses 164 (3 803) 5 419
Sales remuneration 65 (970) 1 587
Administration expenses 61 (2 732) 3 794
Direct property and asset management 328 - 328
expenses
Holding company expenses (3) - (101) -
Inter-segment expenses (290) - (290)
Diluted core headline earnings - (1 035) 1 276
Operating profit - (1 028) 1 414
Tax on operating profit - 282 (382)
Investment income - (387) 265
Tax on investment income - 98 (21)
Diluted weighted average number of - (654) 951
shares in issue (millions)
Diluted core headline earnings per - (10) 134
shares (cents)
1. The table above assumes that Metropolitan and Momentum were merged from 1
July 2009. The `Metropolitan pre-merger` column represents the segmental
information for Metropolitan for the 12 months ended 30 June 2010.
2. The `other reconciling items` column includes: an adjustment to reverse
investment contract premiums (R22 837 million) and claims (R29 558 million);
FNB Life adjustments reconciling the 10% of FNB Life included in each of the
relevant lines to the accounting treatment of the reinsurance arrangement
(Premiums R850 million; Fee income R7 million; claims R189 million; expenses
R126 million); direct property and asset management fees (R328 million) for
the life companies that are set off against investment income and fee income,
respectively for management reporting purposes but shown as an administration
expense for accounting purposes.
3. Holding company expenses includes R24 million relating to the Metropolitan
merger costs.
MMI HOLDINGS - SEGMENTAL INFORMATION
PAYMENTS TO CONTRACT HOLDERS (1) 12 mths to 12 mths to
30.06.2011 30.06.2010
Rm Rm
Momentum Retail 15 277 14 744
Death and disability claims 2 634 2 219
Maturity claims 4 059 3 868
Annuities 3 249 2 036
Surrenders 6 372 7 374
Re-insurance recoveries (1 037) (753)
Metropolitan Retail 4 440 4 456
Death and disability claims 1 132 954
Maturity claims 1 258 1 370
Annuities 755 681
Withdrawal benefits 45 87
Surrenders 1 409 1 402
Re-insurance recoveries (159) (38)
Momentum Employee Benefits 10 886 10 435
Death and disability claims 2 455 2 382
Maturity claims 411 315
Annuities 886 838
Withdrawals and surrenders 3 764 2 226
Terminations 879 3 250
Disinvestments 2 737 1 684
Re-insurance recoveries (246) (260)
Metropolitan International 983 767
Death and disability claims 341 295
Maturity claims 160 135
Annuities 41 39
Withdrawal benefits 67 47
Surrenders 239 197
Terminations 52 4
Disinvestments 101 71
Re-insurance recoveries (18) (21)
Momentum Investments
Withdrawals 8 267 19 842
Metropolitan Health
Claims 21 19
Shareholder capital
Claims 214 1 410
Total payments to contract holders 40 088 51 673
Adjustment for payments to investment contract (23 082) (34 368)
holders
Transfers between insurance, investment and 3 506 4 810
investment with DPF contracts
FNB Life adjustment 84 189
Metropolitan pre-merger (2) (4 698) (12 963)
Net insurance benefits and claims per income 15 898 9 341
statement
1. The total payments to contract holders assume that Metropolitan and
Momentum were merged from 1 July 2009.
2. The Metropolitan pre-merger line represents the segmental claims for
Metropolitan for the 5 months ended 30 November 2010 before the merger (12
months ended 30 June 2010 for the comparatives).
MMI HOLDINGS - SEGMENTAL INFORMATION
NET FUNDS RECEIVED FROM 12 mths to 12 mths to
CLIENTS 30.06.2011 30.06.2010
Gross Gross Net Net
inflow outflow inflow/ inflow/
Rm Rm (outflow) (outflow)
Rm Rm
Momentum Retail 16 595 (15 277) 1 318 1 912
Metropolitan Retail 6 393 (4 440) 1 953 1 350
Momentum Employee Benefits 8 171 (10 886) (2 715) (1 925)
Metropolitan International 1 637 (983) 654 635
Momentum Investments 8 846 (8 267) 579 (9 810)
Shareholder capital 36 (214) (178) (1 410)
Long-term insurance 41 678 (40 067) 1 611 (9 248)
business cash flows
Momentum Retail 11 715 (5 035) 6 680 4 219
Momentum Employee Benefits 16 (692) (676) 75
Metropolitan International 55 (55) - 54
Momentum Investments 38 133 (54 579) (16 446) (16 914)
Metropolitan Health 32 287 (28 905) 3 382 4 548
Total net funds received 123 884 (129 333) (5 449) (17 266)
from clients
- The table above assumes that Metropolitan and Momentum were merged from 1
July 2009.
NUMBER OF EMPLOYEES 30.06.2011 30.06.2010
Indoor staff 10 058 10 410
Momentum Retail 1 932 1 891
Metropolitan Retail 1 471 1 484
Momentum Employee Benefits 1 147 1 372
Metropolitan International 716 722
Momentum Investments 532 524
Metropolitan Health 3 266 3 472
Balance sheet management 50 25
Group services 944 920
Field staff 5 586 4 683
Momentum Retail 494 505
Metropolitan Retail 3 813 3 035
Metropolitan International 1 279 1 143
Total 15 644 15 093
- The table above assumes that Metropolitan and Momentum were merged from 1
July 2009.
MMI HOLDINGS - STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF ASSETS AND LIABILITIES ON 30.06.2011 30.06.2010(1)
REPORTING BASIS Rm Rm
Total assets 292 551 277 996
Actuarial value of policy liabilities (228 880) (211 925)
Other liabilities (40 532) (44 059)
Non-controlling interests (298) (178)
Group excess per reporting basis 22 841 21 834
Net assets - other businesses (934) (927)
Fair value adjustments on Metropolitan (6 100) (6 031)
acquisition and other consolidation
adjustments
Excess - long-term insurance business, net 15 807 14 876
of non-controlling interests (1,2)
RECONCILIATION OF CHANGE IN LONG-TERM
INSURANCE EXCESS TO THE INCOME STATEMENT
Change in excess of long-term insurance 931
business (2)
Increase in share capital (84)
Change in other reserves 6
Dividend paid - ordinary shares 1 722
Total surplus arising, net of non- 2 575
controlling interests (including 90% of FNB
Life)
FNB Life 90% (174)
Total surplus arising, net of non- 2 401
controlling interests (excluding 90% of FNB
Life)
Operating profit 1 803
Investment income on excess 610
Net realised and fair value gains on excess 418
Investment variances 151
Basis and other changes (581)
Consolidation adjustments (3)
Profit after tax and non-controlling 2 398
interest of long-term insurance business
FNB Life 90% 174
Profit after tax and non-controlling (380)
interests of other group businesses and
consolidation adjustments
Earnings attributable to owners of the 2 192
parent
Metropolitan pre-merger (580)
Earnings attributable to owners of the 1 612
parent as per income statement
1. The long-term insurance business excess at 30 June 2010 above has been
restated to assume that the Momentum and Metropolitan were merged as at 30
June 2010. The total surplus arising therefore represents the surplus (for
the 12 months ended 30 June 2011) that would have arisen had Momentum and
Metropolitan merged at the beginning of the current period.
2. The long-term insurance business includes both insurance and investment
contract business and is the simple aggregate of all the life insurance
companies in the group, including life insurance companies in Africa. It is
after non-controlling interests but excludes other items which are eliminated
on consolidation. It also excludes non-insurance business.
MMI HOLDINGS - STATEMENT OF ASSETS AND LIABILITIES
RECONCILIATION OF REPORTING EXCESS TO 30.06.2011 30.06.2010(1)
STATUTORY EXCESS Rm Rm
Reporting excess - long-term insurance 15 807 14 876
business (2)
Disregarded assets (3) (1 205) (1 201)
Difference between statutory and published (263) (275)
valuation methods
Write down of subsidiaries and associates (715) (625)
for statutory purposes
Unsecured subordinated debt 1 507 1 454
Consolidation adjustments (65) (32)
Change in accounting policies (4) - (364)
Statutory excess - long-term insurance 15 066 13 833
business
Capital adequacy requirement (CAR) (Rm) (5) 6 485 6 384
Ratio of long-term insurance business 2.3 2.2
excess to CAR (times)
Discretionary margins 9 999 9 588
1. The long-term insurance business excess at 30 June 2010 above has been
restated to assume that the Momentum and Metropolitan were merged as at 30
June 2010.
2. The long-term insurance business includes both insurance and investment
contract business and is the simple aggregate of all the life insurance
companies in the group, including life insurance companies in Africa. It is
after non-controlling interests but excludes other items which are eliminated
on consolidation. It also excludes non-insurance business.
3. Disregarded assets are those as defined in the South African Long Term
Insurance Act and are only applicable to South African Long Term insurance
companies. Adjustments are also made for the international insurance
companies from reporting excess to statutory excess as required by their
regulators. It includes Sage intangible assets of R618 million (2010: R647
million).
4. Change in accounting policies: The statutory excess has not been restated
as a result of the changes in the accounting policies.
5. Aggregation of separate company CAR`s, with no assumption of
diversification benefits.
MMI HOLDINGS - EMBEDDED VALUE INFORMATION
EMBEDDED VALUE RESULTS AS AT 30.06.2011 30.06.2010(1)
Rm Rm
Covered business
Reporting excess - long-term 15 807 14 876
insurance business
Reclassification to non-covered (814) (1 080)
business
14 993 13 796
Disregarded assets (2) (821) (828)
Difference between statutory and (263) (275)
published valuation methods
Dilutory effect of subsidiaries (3,6) (5) (7)
Consolidation adjustments (4) (108) (92)
Momentum Namibia adjustment (5) (42) -
Value of Momentum preference shares (480) (475)
issued
Diluted adjusted net worth - covered 13 274 12 119
business
Net value of in-force business 14 083 11 954
Diluted embedded value - covered 27 357 24 073
business
Non-covered business
Net assets - non-covered subsidiaries 814 1 080
of life insurance companies
Net assets - non-covered subsidiaries 934 927
of the holding company
Consolidation adjustments (4) (303) (278)
Adjustments for dilution (6) 1 009 962
Diluted adjusted net worth - non- 2 454 2 691
covered business
Write up to directors` value 880 2 208
Non-covered businesses 1 944 2 548
Holding company expenses (7) (797) (340)
International holding company (117) -
expenses (7)
Secondary Tax on Companies (150) -
allowance
Diluted embedded value - non-covered 3 334 4 899
business
Diluted adjusted net worth 15 728 14 810
Net value of in-force business 14 083 11 954
Write up to directors` value 880 2 208
Diluted embedded value 30 691 28 972
EMBEDDED VALUE RESULTS AS AT 30.06.2011 30.06.2010(1)
Rm Rm
Required capital - covered business 8 401 8 105
(adjusted for qualifying debt and
preference shares)
Surplus capital - covered business 4 873 4 014
Diluted embedded value per share 1 912 1 805
(cents)
Diluted net asset value per share 980 923
(cents)
Diluted number of shares in issue 1 605 1 605
(million) (8)
1. The embedded value as at 30 June 2010 above has been restated to assume
that the Momentum and Metropolitan were merged as at 30 June 2010.
2. Disregarded assets include the Sage intangible asset of R618 million
(2010: R647 million).
3. For accounting purposes, Metropolitan Health and Metropolitan Kenya have
been consolidated at 100% in the statement of financial position. For
diluted embedded value purposes the non-controlling interests and related
funding have been reinstated.
4. Consolidation adjustments include mainly goodwill and intangibles in
subsidiaries that are eliminated.
5. The carrying value of Momentum Namibia included in the reporting excess is
written down to 49% of the company`s net asset value.
6. Adjustments for dilution are made up as follows:
Dilutory effect of subsidiaries (note 3): R70 million (30.06.2010: R79
million)
Staff share scheme loans: R3 million (30.06.2010: R23 million)
Treasury shares held on behalf of contract holders: R225 million (30.06.2010:
R150 million)
Liability - MMI convertible preference shares issued to KTH: R711 million
(30.06.2010: R710 million)
7. The holding company expenses reflect the present value of projected
recurring head office expenses. The International holding company expenses
reflect the allowance for support to the international life assurance and
health businesses.
8. The diluted number of shares in issue takes into account all issued
shares, assuming conversion of the convertible redeemable preference shares
and the release of staff share scheme shares, and includes the treasury
shares held on behalf of contract holders. The comparatives assume that
Metropolitan and Momentum were merged as at 30 June 2010.
MMI HOLDINGS - EMBEDDED VALUE INFORMATION
ANALYSIS OF NET VALUE OF IN-FORCE 30.06.2011 30.06.2010
BUSINESS PER DIVISION Rm Rm
Momentum Retail 7 449 6 279
Gross value of in-force business 8 960 7 694
Less cost of required capital (1 511) (1 415)
Metropolitan Retail 3 206 2 651
Gross value of in-force business 3 579 2 983
Less cost of required capital (373) (332)
Momentum Employee Benefits 1 500 1 406
Gross value of in-force business 1 980 1 901
Less cost of required capital (480) (495)
Metropolitan International 860 623
Gross value of in-force business 883 626
Less cost of required capital (23) (3)
Shareholder capital 1 068 995
Gross value of in-force business 1 096 1 030
Less cost of required capital (28) (35)
Net value of in-force business 14 083 11 954
- Analysis of net value of in-force business as at 30 June 2010 above has
been restated to assume that the Momentum and Metropolitan were merged as at
30 June 2010.
- The value of in-force in the shareholder capital represents discretionary
margins not allocated to specific divisions.
MMI HOLDINGS - EMBEDDED VALUE INFORMATION
EMBEDDED VALUE Adjus- Net value 30.06.2011 30.06.2010
ted net of (1)
worth in-force Rm Rm
Rm Rm
Covered business
Momentum Group Ltd 7 163 9 262 16 425 14 332
Metropolitan Life Ltd 5 172 3 962 9 134 8 506
Metropolitan Odyssey Ltd 44 - 44 44
Metropolitan 895 859 1 754 1 191
International
Metropolitan Life 81 - 81 69
International
Metropolitan Namibia 168 328 496 461
Metropolitan Botswana 119 67 186 175
Metropolitan Lesotho 183 256 439 375
Metropolitan Kenya 11 - 11 17
Metropolitan Ghana 28 15 43 39
Metropolitan Swaziland 20 - 20 26
Metropolitan Nigeria 53 5 58 29
Momentum International 232 188 420 -
businesses (2)
Total covered business 13 274 14 083 27 357 24 073
Write up
Adjuste to
d net directors` 30.06.2011 30.06.2010
worth value Rm Rm
Rm Rm
Non-covered business
Momentum Investments (3) 734 801 1 535 2 226
Metropolitan Health (4) 294 1 122 1 416 1 268
Momentum Retail (short- 62 21 83 71
term insurance)
Metropolitan - (117) (117) 398
International Holdings
(5)
MMI Holdings (after 1 364 (797) 567 936
consolidation
adjustments) (5)
Secondary Tax on - (150) (150) -
Companies allowance
Total non-covered 2 454 880 3 334 4 899
business
Total embedded value 15 728 14 963 30 691 28 972
Diluted net asset value - (2 454)
non-covered business
Adjustments to covered 2 533
business - adjusted net
worth
Reporting excess - long- 15 807
term insurance business
1. The embedded value as at 30 June 2010 above has been restated to assume
that Momentum and Metropolitan were merged as at 30 June 2010.
2. The Momentum International businesses were transferred from non-covered to
covered business.
3. Momentum Investments subsidiaries are valued using forward Price Earnings
multiples applied to the relevant sustainable earnings bases. Metropolitan
Asset management subsidiaries were valued using Embedded Value methodology
for June 2010.
4. Metropolitan Health subsidiaries have been valued using Embedded Value
methodology.
5. The holding company expenses reflect the present value of projected
recurring head office expenses. The International holding company expenses
reflect the allowance for support to the international life assurance and
health businesses.
MMI HOLDINGS - EMBEDDED VALUE INFORMATION
ANALYSIS OF CHANGES IN Covered business 12 mths to 30.06.2011
GROUP EMBEDDED VALUE
Not Adjus- Gross Cost Total FNB Total
es ted net Value of EV Life EV
worth of in- CAR exclu- 90% inclu-
(ANW) force ding ding
(VIF) FNB FNB
Life Life
90% 90%
Rm Rm Rm Rm Rm Rm
Profit from new (1 326) 2 143 (90) 727 - 727
business
Embedded value from A (1 326) 2 048 (90) 632 - 632
new business
Expected return to end B - 95 - 95 - 95
of period
Profit from existing 2 691 (434) (28) 2 229 - 2 229
business
Expected return - B - 1 665 (288) 1 377 - 1 377
unwinding of RDR
Release from the cost C - - 366 366 - 366
of required capital
Expected (or actual) D 2 402 (2 402) - - - -
net of tax profit
transfer to net worth
Operating experience E 613 83 16 712 - 712
variances
Operating assumption F (324) 220 (122) (226) - (226)
changes
Embedded value - - - - 102 102
earnings 90% of FNB
Life until date of
unbundling
Allowance for service - 128 - 128 - 128
level agreement
between RMBUT and
Momentum
Embedded value profit 1 365 1 837 (118) 3 084 102 3 186
from operations
ANALYSIS OF CHANGES IN Covered business 12 mths to 30.06.2011
GROUP EMBEDDED VALUE
Not Adjus- Gross Cost Total FNB Total
es ted net Value of EV Life EV
worth of in- CAR exclu- 90% inclu-
(ANW) force ding ding
(VIF) FNB FNB
Life Life
90% 90%
Rm Rm Rm Rm Rm Rm
Investment return on G 1 057 - - 1 057 - 1 057
adjusted net worth
Investment variances H 189 4 22 215 - 215
Economic assumption I (268) 213 (10) (65) - (65)
changes
Exchange rate (16) 6 - (10) - (10)
movements
Embedded value profit 2 327 2 060 (106) 4 281 102 4 383
- covered business
Effect of exclusion of - - - - (574) (574)
90% of FNB Life due to
unbundling at
effective date
Transfer of business 232 204 (16) 420 - 420
from non-covered
business
Capital transferred to - - - - - -
non-covered business
Changes in share 139 - - 139 - 139
capital
Dividend paid (1 717) - - (1 717) - (1 717)
Opening restatement 174 - (13) 161 (161) -
for FNB Life (EV
statement shown after
restatement)
Change in embedded 1 155 2 264 (135) 3 284 (633) 2 651
value - covered
business
ANALYSIS OF CHANGES IN Covered business 12 mths to 30.06.2011
GROUP EMBEDDED VALUE
Not Adjus- Gross Cost Total FNB Total
es ted net Value of EV Life EV
worth of in- CAR exclu- 90% inclu-
(ANW) force ding ding
(VIF) FNB FNB
Life Life
90% 90%
Rm Rm Rm Rm Rm Rm
Non-covered business
Change in directors` (82) - (82)
valuation and earnings
Allowance for service (288) - (288)
level agreement
between RMBUT and
Momentum
Holding company (574) - (574)
expenses
Secondary Tax on (150) - (150)
Companies allowance
Embedded value profit (1 094) - (1 094)
- non-covered business
Changes in share (139) - (139)
capital
Dividend paid 176 176
Finance costs - (88) (88)
preference shares
Transfer of business (420) (420)
to covered business
Change in embedded (1 565) - (1 565)
value - non-covered
business
Total change in group 1 719 (633) 1 086
embedded value
Total embedded value 3 187 102 3 289
profit
Return on embedded value (%) - internal rate of 11.0% 11.4%
return
- The analysis of changes in embedded value above assumes that Momentum and
Metropolitan were merged for the 12 months ended 30 June 2011.
A. Value of new business
12 months to 30.06.2011 Momentu Metro- Momentu Metro- Segmen-
m politan m politan tal
Retail Retail Employe Internat total
e ional
Benefit
s
Rm Rm Rm Rm Rm
Value of new business 288 257 62 25 632
Gross 338 262 97 25 722
Less cost of required (50) (5) (35) - (90)
capital
New business premiums 23 910 2 822 3 531 320 30 583
Recurring premiums 1 237 921 753 190 3 101
Single premiums 22 673 1 901 2 778 130 27 482
New business premiums 3 504 1 111 1 030 203 5 848
(APE)
New business premiums 28 758 5 698 8 300 967 43 723
(PVP)
Profitability of new 8.2 23.1 6.0 12.3 10.8
business as a % of APE
Profitability of new 1.0 4.5 0.7 2.6 1.4
business as a % of PVP
12 mths to 30.06.2010
Value of new business 248 116 91 14 469
Gross 301 119 133 14 567
Less cost of required (53) (3) (42) - (98)
capital
New business premiums 20 998 1 978 4 042 240 27 258
Recurring premiums 1 152 773 546 155 2 626
Single premiums 19 846 1 205 3 496 85 24 632
New business premiums 3 137 893 896 159 5 085
(APE)
New business premiums 25 840 4 095 7 072 696 37 703
(PVP)
Profitability of new 7.9 13.0 10.2 8.8 9.2
business as a % of APE
Profitability of new 1.0 2.8 1.3 2.0 1.2
business as a % of PVP
- The above table forms part of the IFRS segmental information and assumes
that Momentum and Metropolitan merged on 1 July 2009.
- Value of new business and new business premiums are net of non-controlling
interests.
- Due to rounding, the cost of capital for the international business is less
than R1 million.
- The value of new business has been calculated on closing assumptions.
Investment yields at the point of sale have been used for fixed annuity and
guaranteed endowment business, for other business the investment yields at
the end of the year have been used.
MMI HOLDINGS - EMBEDDED VALUE INFORMATION
RECONCILIATION OF LUMP SUM INFLOWS 12 mths to 12 mths to
30.06.2011 30.06.2010
Rm Rm
Total lump sum inflows 59 177 58 036
Inflows not included in value of new business (33 170) (34 696)
Momentum Retail
Policy alterations and other retail items (130) (8)
Linked products (12) (138)
Unit trusts (12 575) (14 827)
Momentum Employee Benefits (93) (42)
Momentum Investments
On-balance sheet inflows (8 846) (10 032)
Off-balance sheet inflows (11 514) (9 649)
Term extensions on maturing policies 817 735
Retirement annuity proceeds invested in 715 539
living annuities
Non-controlling interests and other (57) 18
adjustments
Single premiums included in value of new 27 482 24 632
business
- The above table has assumes that Momentum and Metropolitan merged for both
periods.
B. Expected return
The expected return is determined by applying the risk discount rate
applicable at the beginning of the reporting period to the present value of
in-force covered business at the beginning of the reporting period and adding
the expected return on new business, which is determined by applying the
current risk discount rate to the value of new business from the point of
sale to the end of the period.
C. Release from the cost of required capital
The release from the cost of required capital represents the difference
between the risk discount rate and the expected after tax investment return
on the assets backing the required capital over the year.
D. Expected (or actual) net of tax profit transfer to net worth
The expected profit transfer from the present value of in-force covered
business to the adjusted net worth is calculated on the statutory valuation
method.
E. OPERATING EXPERIENCE VARIATIONS
12 mths to 30.06.2011
OPERATING EXPERIENCE VARIATIONS Notes ANW Embedded
Rm Net VIF value
Rm Rm
Momentum Retail 138 84 222
Mortality and morbidity 1 187 8 195
Terminations, premium 2 (61) 55 (6)
cessations and policy
alterations
Expense variation 5 - 5
Other 7 21 28
Metropolitan Retail 104 2 106
Mortality and morbidity 1 109 23 132
Terminations, premium 3 (22) (34) (56)
cessations and policy
alterations
Expense variation 3 5 8
Other 14 8 22
Momentum Employee Benefits 64 (83) (19)
Mortality and morbidity 1 42 23 65
Terminations 4 - (80) (80)
Expenses (15) - (15)
Other 37 (26) 11
Metropolitan International (31) 97 66
Mortality and morbidity 1 61 33 94
Terminations, premium (24) 35 11
cessations and policy
alterations
Expense variation 5 (58) (1) (59)
Other (10) 30 20
Shareholder capital 6 338 (18) 320
Opportunity cost of required - 17 17
capital
Total operating experience 613 99 712
variations
- The above table assumes that Momentum and Metropolitan were merged from 1
July 2010.
Notes
1. All businesses achieved favourable underwriting experiences over the year,
compared to what was allowed for in the valuation basis.
2. Favourable termination experience observed on savings products improved
the value of in force. For risk products, worse than expected experience over
the year impacted earnings negatively.
3. Lower than expected expense recoveries on withdrawals.
4. Outflows in excess of long term assumptions were experienced on Umbrella
funds.
5. Expense under recoveries are being experienced in mainly the start-up life
and health operations.
6. The income recorded in respect of Shareholder capital relates mostly to
earnings from holding company activities and the management of MMI`s capital
and shareholder balance sheet risks. Other sources of earnings such as
variations in actual tax and corporate expenses not allocated to underlying
business units are also included here.
F. OPERATING ASSUMPTION CHANGES
12 mths to 30.06.2011
OPERATING ASSUMPTION CHANGES ANW Embedded
Rm Net VIF value
Rm Rm
Momentum Retail (177) (67) (244)
Mortality and morbidity 1 144 - 144
assumptions
Renewal expense assumptions 2 (168) (7) (175)
Termination assumptions 3 54 (133) (79)
Methodology changes 4 (208) 76 (132)
Other 1 (3) (2)
Metropolitan Retail (79) (62) (141)
Mortality and morbidity 9 10 19
assumptions
Renewal expense assumptions 15 (30) (15)
Termination assumptions 3 10 13
Discretionary margins - 14 14
Methodology changes 5 (95) (25) (120)
Other 6 (11) (41) (52)
Momentum Employee Benefits (36) (211) (247)
Termination assumptions - (8) (8)
Renewal expense assumptions 2 11 (109) (98)
Other methodology changes 7 (51) (87) (138)
Assumption reviews 4 3 7
Other - (10) (10)
Metropolitan International (32) (32) (64)
Mortality and morbidity (1) (9) (10)
assumptions
Renewal expense assumptions (16) (30) (46)
Termination assumptions 3 3 6
Modelling changes (34) 8 (26)
Methodology changes 15 14 29
Other 1 (18) (17)
Methodology change: cost of - (85) (85)
required capital
Secondary Tax on Companies 8 - 555 555
Total operating assumption (324) 98 (226)
changes
- The above table assumes that Momentum and Metropolitan were merged from 1
July 2010.
Notes
1. The mortality basis on risk products have been revised after observing
actual experience being consistently better than expected.
2. Renewal expense assumptions have been revised based on managements`
budgeted expenses for the year ending 30 June 2012.
3. Termination assumptions for the risk products have been adjusted in line
with long-term experience (after allowing for estimated cyclical effects)
resulting in a negative embedded value impact. On the older Universal Life
books, the changes in the termination basis have resulted in a release of
reserves but with an offsetting decrease in the value of in-force business.
Overall, the embedded value of the Universal Life books decreased as a result
of the change in basis.
4. The changes in methodology relates to refinements in the methodology used
to determine the embedded value. The main negative changes relate to premium
reviews on products offering capital guarantees and also improved modelling
for paid-up policies.
5. Improvements were made to the valuation methods and assumption on newer
lines of business, based on experience gained in the past year.
6. The calculation method for frictional costs was changed to align to the
traditional embedded value approach followed by Momentum.
7. Various individually small valuation method changes were made, also
securing alignment within the new business unit.
8. The allowance for STC in the value of in-force has been released as STC
will fall away and be replaced by the new dividends withholding tax effective
1 April 2012. A negative adjustment of R 150m has however been made to the
embedded value of non-covered business in respect of STC expected to be paid
over the period 1 July 2011 to 31 March 2010. Therefore the net increase in
embedded value due to the STC change amounts to R405 million.
G. INVESTMENT RETURN ON ADJUSTED NET WORTH
INVESTMENT RETURN ON ADJUSTED NET WORTH 12 mths to
30.06.2011
Rm
Investment income 614
Capital appreciation 475
Change in fair value of properties (38)
Preference share dividends paid and change in fair value 6
of preference shares
Investment return on adjusted net worth 1 057
- The above table assumes that Momentum and Metropolitan were merged from 1
July 2010.
H. Investment variances
Investment variances represent the impact of higher/lower than assumed
investment returns on current and expected future after tax profits from in-
force business.
I. Economic assumption changes
The economic assumption changes include the effect of the change in assumed
rate of investment return, expense inflation rate and risk discount rate in
respect of local and offshore business.
MMI HOLDINGS - EMBEDDED VALUE INFORMATION
COVERED Net In-force business New business
BUSINESS: worth written
SENSITIVITIES -
30.06.2011
Net Gross Cost of Net Gross Cost
value value CAR value value of
CAR
Rm Rm Rm Rm Rm Rm Rm
Base value 13 274 14 083 16 498 (2 415) 632 722 (90)
1% increase in 12 706 15 636 (2 930) 495 601 (106)
risk
discount
rate
% change (10) (5) 21 (22) (17) 18
1% reduction 15 716 17 550 (1 834) 779 853 (74)
in risk
discount
rate
% change 12 6 (24) 23 18 (18)
10% decrease in 14 987 17 394 (2 407) 740 828 (88)
future
expenses
% change 6 5 - 17 15 (2)
(1)
10% decrease in 14 511 17 043 (2 532) 768 858 (90)
lapse, paid-
up and
surrender
rates
% change 3 3 5 22 19 -
5% decrease in 15 024 17 443 (2 419) 759 848 (89)
mortality
and
morbidity
for
assurance
business
% change 7 6 - 20 17 (1)
5% decrease in 13 901 16 337 (2 436) 617 707 (90)
mortality
for annuity
business
% change (1) (1) 1 (2) (2) -
COVERED BUSINESS: Net In-force business New business
SENSITIVITIES - worth written
30.06.2011
Net Gross Cost of Net Gross Cost
value value CAR value value of
CAR
Rm Rm Rm Rm Rm Rm Rm
Base value 13 274 14 083 16 498 (2 415) 632 722 (90)
1% reduction in 13 363 13 893 16 392 (2 499) 713 806 (93)
gross
investment
return,
inflation
rate and risk
discount rate
% change (2) 1 (1) (1) 3 13 12 3
1% reduction in 13 418 14 103 16 519 (2 416) 673 763 (90)
inflation
rate
% change 1 - - - 6 6 -
10% fall in 12 803 13 091 15 627 (2 536)
market value
of equities
and
properties
% change (4) (7) (5) 5
10% reduction in 13 768 16 184 (2 416) 586 676 (90)
premium
indexation
take-up rate
% change (2) (2) - (7) (6) -
10% decrease in 737 826 (89)
non-
commission
related
acquisition
expenses
% change 17 14 (1)
1% Increase in 14 444 16 860 (2 416) 652 742 (90)
equity/
property risk
premium
% change 3 2 - 3 3 -
1. No corresponding changes in variable policy charges are assumed, although
in practice it is likely that these will be modified according to
circumstances.
2. Bonus rates are assumed to change commensurately.
3. The change in the value of cost of required capital is disclosed as nil
where the sensitivity test results in an insignificant change in the value.
MMI HOLDINGS - STOCK EXCHANGE PERFORMANCE
STOCK EXCHANGE PERFORMANCE 30.06.2011 30.06.2010
12 month period
Value of listed shares traded (rand million) 12 269 5 195
Volume of listed shares traded (million) 736 368
Shares traded (% of average listed shares in 66 68
issue)
Value of shares traded - life insurance (J857 103 103
- Rbn)
Value of shares traded - top 40 index (J200 - 2 475 2 363
Rbn)
Trade prices
Highest (cents per share) 1 776 1 731
Lowest (cents per share) 1 505 1 140
Last sale of period (cents per share) 1 699 1 606
Percentage (%) change during period 5.8 37.9
Percentage (%) change - life insurance sector 17.3 25.5
(J857)
Percentage (%) change - top 40 index (J200) 22.6 17.5
30 June
Price/diluted core headline earnings 10.6 11.2
(segmental) ratio
Dividend yield % (dividend on listed shares) 6.2 6.4
Dividend yield % - top 40 index (J200) 2.4 2.2
Total shares issued (million)
Listed on JSE 1 504 553
Ordinary shares 1 504 549
Share incentive scheme - 4
Unlisted - share purchase scheme 1 10
Total ordinary shares in issue 1 505 563
Treasury shares held on behalf of contract (14) (1)
holders
Adjustment to staff share scheme shares (1) (12)
Share incentive scheme - (2)
Share purchase scheme (1) (10)
Basic number of shares in issue 1 490 550
Adjustment to staff share scheme shares 1 2
Treasury shares held on behalf of contract 14 1
holders
Convertible redeemable preference shares 100 100
Diluted number of shares in issue (1) 1 605 653
Market capitalisation at end (Rbn) (2) 27.3 10.7
Percentage (%) of life insurance sector 14.5 7.3
1. The diluted number of shares in issue takes into account all issued
shares, assuming conversion of the convertible redeemable preference shares
and the release of staff share scheme shares, and includes the treasury
shares held on behalf of contract holders.
2. The market capitalisation is calculated on the fully diluted number of
shares in issue.
3. Comparatives relate to the listed entity, MMI Holdings Ltd (previously
Metropolitan Holdings Ltd).
Date: 14/09/2011 07:05:13 Supplied by www.sharenet.co.za
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