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MMI - MMI Holdings Limited - Trading update for the three months ended 30
September 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")
Trading update for the three months ended 30 September 2011
Focused strategy
The group`s vision to be a leader in meeting financial services needs is based
on the four strategic pillars of:
* in-depth market knowledge
* innovative solutions
* effective distribution
* entrepreneurial culture.
Group overview and operational highlights
* Consumer spending remained under pressure, with a national unemployment
level of 25%.
* Equity markets contracted significantly during the period under review,
compounded by a general European debt crisis.
* The strong recovery in October is welcomed; however, the market volatility
and uncertainty continues to have an impact on a number of areas of the
business.
* The strategies and operational objectives for 2012 have all been finalised
and management`s focus is now on the implementation and delivery thereof.
* Expense management remains a top priority across the group as evidenced by
further head-count reductions in almost all divisions as well as through
streamlining of systems and processes.
* All merger and integration projects remain on track.
* Overall the group is managing the various environmental challenges, with
further details set out per division.
Balance sheet management
The group is in the process of reviewing its approach towards the investment of
MMI`s capital. The investment approach impacts significantly on the risk
profile and therefore required capital level. In MMI`s view, the capital of a
life insurance company serves to protect the financial soundness of the company
against unexpected adverse experience. This principle underpins the decision to
invest the discretionary capital resources of MMI`s life insurance subsidiaries
in cash or near-cash instruments that retain value and liquidity during adverse
market conditions. The amended investment mandate for the life insurance
companies is in the process of being implemented and is expected to be
materially completed by 31 December 2011. The implementation of the revised
investment mandate will reduce the equity exposure, and therefore the potential
downside exposure to market risk of shareholders, but will increase the
opportunity cost of capital allowed for in the embedded value.
The investment mandate for the capital buffer in the holding company, however,
still includes a material exposure to equities.
Momentum Retail
3 months to 30 3 months to 30 Change vs
Sept 2011 Sept 2010 2010
Rm Rm %
New business
Recurring premiums 257 268 (4)
Single premiums 5 656 5 359 6
Annual premium equivalent (APE) 823 804 2
Present value of premiums (PVP) 6 884 6 738 2
* Includes Odyssey but excludes new markets and FNB Life.
* Trading conditions proved to be tough during the first quarter.
* Recurring premium new business is marginally down on the prior period,
while single premium business showed a moderate 6% growth resulting in
growth in both APE and PVP.
* The overall new business margin remains in line with the previous financial
year as a result of the product mix continuing to favour lower margin
investment and savings products.
* The integration of the Odyssey book into the Momentum Retail business
remains on track.
* Early terminations (surrenders and lapses) continued to reduce, resulting
in a further improvement in persistency.
* Service levels remain at very satisfactory levels.
Metropolitan Retail
3 months to 30 3 months to 30 Change vs
Sept 2011 Sept 2010 2010
Rm Rm %
New business
Recurring premiums 343 224 53
Single premiums 401 624 (36)
Annual premium equivalent (APE) 383 287 34
Present value of premiums (PVP) 1 682 1 481 14
*Includes new markets and 10% of FNB Life but excludes Odyssey.
* New business APE and PVP ended 34% and 14% higher respectively, driven by
good production of risk products in the traditional agency distribution
channels.
* The reduction in single premium new business was as a result of changes in
the distribution channels following the merger: single premium production
through the remaining Metropolitan Retail channels exceeded that of the
prior year.
* Persistency across all lines of business continued to hold up very well.
* The Future Choice Protection Plan product has been re-priced as from
October 2011 and, despite increased premium rates, remains competitively
priced in the market.
* Ongoing focus in conjunction with customer affordability of automatic
inflation management (AIM) take-up at new business stage is paying
dividends. The focus on increasing the proportion of policies with
automatic inflation management is yielding increased benefits to customers
while improving the profitability of the business.
* Metropolitan Retail was rated second in the life insurance category of
customer service leaders in the authoritative 2011 Ask Africa Orange Index,
a rating that confirms the division`s focus on customers as the driving
force of its business.
* Claims paid during the period under review were in line with expectations.
* Expense management remains a critical focus area and remained on par with
the prior period.
Momentum Employee Benefits
3 months to 30 3 months to 30 Change vs
Sept 2011 Sept 2010 2010
Rm Rm %
New business
Recurring premiums 116 211 (45)
Single premiums 403 954 (58)
Annual premium equivalent (APE) 158 307 (49)
Present value of premiums (PVP) 1 255 2 331 (46)
* New business volumes came under pressure during the first quarter.
Effective management interventions and a strong pipeline of new business
should, however, result in an improved performance towards the end of the
second quarter.
* Securing new business in the group insurance, investment and administration
markets remains highly competitive, resulting in pressure on new business
margins.
* Containing expenses remains a key focus area and good progress has been
made in the areas committed to as part of its operational plan.
* The division continues to focus on creating sustainable partnerships with
clients, strategic distribution partnerships, product innovation, improved
operational efficiencies and satisfactory service levels.
Metropolitan International
3 months to 30 3 months to 30 Change vs
Sept 2011 Sept 2010 2010
Rm Rm %
New business
Recurring premiums 64 46 37
Single premiums (including EB) 53 46 15
Annual premium equivalent (APE) 69 51 35
Present value of premiums (PVP) 331 261 27
* New business includes MMI`s share of life insurance new business written by
all international life insurance subsidiaries.
* New business APE and PVP ended a healthy 35% and 27% higher respectively.
* Botswana, Ghana and Nigeria recorded good new life insurance business
growth. New business volumes across the African insurance businesses showed
a modest increase relative to the prior period.
* Lives under administration in the health business increased to 126 000,
with many of the health businesses in Africa making a net positive cash
contribution for the first quarter.
* Administration expenses were contained within budget.
Momentum Investments
* Overall asset levels were impacted by market volatility.
* The Momentum Investments brand was successfully launched on 1 September
2011.
* Net new business flows:
* Higher than expected net benefit withdrawals in the asset management
business unit were offset by positive inflows into fixed interest and
specialist equity mandates.
* The collective investment business unit`s net flows were ahead of
expectations.
* There were positive inflows into the new product range of the manager
of manager business unit, but net flows remained negative mainly due
to outflows to external umbrella funds.
* The alternative investments business unit`s flows were in line with
budget.
* The migration of the Metropolitan International assets to the
international business unit is progressing in line with internal
timelines.
* Investment performance
* The portfolio transition within Momentum Asset Management to align
with the revised house view has been completed and the consolidated
investment process will be measured against its new benchmark from 1
December 2011. The performance of fixed interest and specific equity
mandates remains positive.
* The international business unit`s short-term performance was impacted
by market volatility and the asset allocation strategy. However, we
remain comfortable with the investment process.
* The investment performance of all the other business units remains
satisfactory.
* Post the implementation of the merger, the division has access to a wider
distribution network that is starting to yield positive results. In
addition, MMI divisional and inter business unit collaborations have
resulted in unbudgeted net positive business flows.
Metropolitan Health
* The business was successful in bids for the Member & Claims and Clearing
House contracts in the Government Employees Medical Scheme (GEMS) tenders.
The outcome of the tender process means that Metropolitan Health will
continue to perform the majority (80%) of administration services that the
scheme procures.
* The number of members under administration of the highly successful GEMS
experienced steady growth of approximately 350 to 400 new member
applications per day.
* At 30 September 2011 GEMS had in excess of 592 000 registered members.
* The total principal members under administration for this division stood at
1.17 million (3 million lives) as at 30 September 2011, making it the
country`s largest administrator.
* The Momentum Health open scheme experienced a slight growth in membership
to 94 878 at 30 September 2011.
* Performance levels across the board were in line with or exceeded
contracted service level agreements.
New Momentum Retail CEO appointed
Mark van der Watt has been appointed as the new CEO of Momentum Retail,
effective 1 January 2012. This appointment came after the current CEO, Johann
le Roux, decided to take a one year sabbatical.
Mark has been with Momentum for 17 years and knows the business intimately,
having played various leadership roles, including, most recently, CEO of the
insurance business in Momentum Retail.
Opportunities and challenges
* Growth in new business volumes remains dependent on the economic
environment, including a recovery in employment and further increases in
disposable income levels.
* Africa, although a complex market, is still largely untapped and provides a
number of opportunities for the group throughout its footprint in 12
countries outside of South Africa.
* All business units face opportunities and threats posed by ongoing changes
in the highly regulated environments in which they operate, including the
regulatory exams, the national health insurance and national social
security reform proposals.
Comments / qualifications
* All figures are provisional and unaudited.
* All figures are for the period 1 July to 30 September as presented in the
current internal management accounts, and not from the effective date of
the merger (1 December 2010).
* All figures for 2010 have been presented on the same basis as those for
2011, taking into account the current operational structure.
* The basis on which the new business figures have been calculated is the
same as that used for embedded value purposes. Premium income is included
from the date on which policies come into force as opposed to the date on
which they are accepted. (Figures calculated on the latter basis are
normally referred to as production figures). It should be noted that there
can be a delay of up to three months between these two dates.
* The new business figures are all net of outside shareholder interests.
End
Cape Town
23 November 2011
Queries
NICOLAAS KRUGER PRESTON SPECKMANN TYRREL MURRAY
GROUP CHIEF GROUP FINANCE DIRECTOR GROUP FINANCE &
EXECUTIVE INVESTOR RELATIONS
MMI HOLDINGS MMI HOLDINGS LIMITED MMI HOLDINGS LIMITED
LIMITED
TEL 012 673 7438 TEL 012 673 7446 TEL 021 940 5083 OR
082 889 2167
Sponsor in South Africa
Merrill Lynch South Africa (Pty) Limited
Sponsor in Namibia
Simonis Storm Securities (Pty) Limited
Date: 23/11/2011 14:30:05 Supplied by www.sharenet.co.za
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