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MMI HOLDINGS LIMITED - Trading update for the three months ended 30 September 2012

Release Date: 26/11/2012 14:00
Code(s): MMI     PDF:  
Wrap Text
Trading update for the three months ended 30 September 2012

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")


Trading update for the three months ended 30 September 2012

Group overview and operational highlights
• The current economic environment in which the group operates
   remained difficult.
• Total new business APE increased by 13% compared with the same
   quarter in the prior year, reflecting the strength of the
   diverse distribution channels and the comprehensive product
   offerings in the group.
• Increased competitive forces and the mix of new business
   continue to dampen the overall new business margins.
• Investment markets, while still volatile, remained strong for
   the quarter under review.
• Good progress has been made with the Solvency Assessment and
   Management project (SAM).
• The group has strengthened the internal resources and is
   building new system capabilities in the short-term insurance
   operation.
• Expense management and merger efficiencies remain one of the top
   priorities over the short-to-medium term.
• The integration is on schedule and merger-related expense-
   savings are being realised.

Momentum Retail *
                                    3 months to 3 months to            Change
                                     30-Sept-11 30-Sept-12            vs 2011
                                             Rm          Rm                 %
New business
Recurring premiums                           257            247            (4)
Single premiums                            2 305          2 667            16
Annual premium equivalent
(APE)                                        488            514             5

Present value of premiums
(PVP)                                       3 681          4 054            10


* Momentum Retail includes Odyssey but excludes new markets and FNB Life.
* Covered business includes on-balance sheet business only, as disclosed at year
end.

•   The operating environment in the upper-income market remained
    very competitive.
•   New business volumes (APE) for the quarter were 5% better than
    those recorded in the prior year.
                                                                                 
•   The mix of new business continues to favour single premium
    investments with lower inherent margins; therefore the overall
    new business margin remains below the medium-term target.
•   Client service remained at very satisfactory levels.
•   Business efficiency initiatives have progressed; however, the
    benefits will only emerge fully in later reporting periods.

Metropolitan Retail #
                                     3 months to 3 months to        Change
                                      30-Sept-11  30-Sept-12       vs 2011
                                              Rm          Rm             %
New business
Recurring premiums                            285            255       (11)
Single premiums                               401            299       (25)
Annual premium equivalent (APE)               325            285       (12)
Present value of premiums (PVP)             1 445          1 350        (7)

# Metropolitan Retail includes new markets and FNB Life, but excludes Odyssey.

•   Recurring premium new business was below that of the comparative
    period, dampened by lower production in the traditional agency
    channels.
•   Metropolitan   Retail   also   re-priced   certain  unprofitable
    products, implemented stricter quality controls over group
    scheme activities and introduced new anti-fraud measures – all
    of which had a dampening impact on the volume of new business
    written during the quarter.
•   Increased sales were recorded in the expanding call centre
    business.
•   Time committed to the regulatory exams for financial advisers
    had a further negative impact on production.
•   Stronger new business sales have been recorded since the cut-off
    for this quarter.
•   Recurring premium figures for 2011 have been restated for errors
    picked up and corrected during the 2012 financial year.
•   The reduction in single premium income was the result of certain
    distribution channels being discontinued; good growth has
    continued in the remaining channels.
•   Early duration persistency across most lines of business, while
    marginally lower than the prior period, remained within the
    pricing assumptions.
•   The process and systems renewal projects are proceeding as
    planned.
•   Expenses were well managed during the period under review.

Momentum Employee Benefits
                                       3 months       3 months
                                                                       Change
                                             to             to
                                     30-Sept-11     30-Sept-12        vs 2011
                                             Rm             Rm              %
New business
Recurring premiums                            116           112            (3)
                                                                                 
Single premiums                               403         1 919          >100
Annual premium equivalent
(APE)                                         156           304            95

Present value of premiums
(PVP)                                        1 255         2 771           >100



•   Group risk profits for the first quarter were satisfactory and
    in line with expectations
•   Excellent single premium production was recorded during the
    quarter boosted by a large pensioner outsourcing annuity
    contract.
•   Securing new business in the group insurance and investment
    markets remains highly competitive; however, the overall new
    business pipeline is encouraging.
•   Client retention remains at satisfactory levels.
•   The migration of the risk and umbrella business to a single
    platform remains on track.
•   Expense   efficiency    initiatives   are    continually being
    investigated and implemented.

Metropolitan International §
                                        3 months       3 months
                                                                      Change
                                              to             to
                                      30-Sept-11     30-Sept-12      vs 2011
                                              Rm             Rm            %
New business
Recurring premiums                             64             71           11
Single premiums (incl EB)                      53             35          (34)
Annual premium equivalent
(APE)                                          69             74            7

Present value of premiums
(PVP)                                         331            399           21

Health membership (‘000)                      126            381         >100
§ New business includes MMI’s share of life insurance new business written by
all Metropolitan International subsidiaries.

•   Strong new business volumes were recorded in Namibia and Lesotho
    during the period under review.
•   Slower single premium production was experienced in Botswana.
•   New life insurance operations are being established in Zambia
    and Tanzania as part of the strategy to make more products
    available throughout the operating footprint.
•   The medical claims ratio has improved as a result of appropriate
    re-pricing and improved claims controls.
•   The increase in the health membership arose largely as a result
    of the acquisition of a majority interest in Metropolitan Health
    Namibia.

Momentum Investments
• Net flows for the business are positive overall.                                                                          
•   Positive contributors to net flows include the Momentum Manager
    of Managers business, as well as the Momentum Collective
    Investments business.    Net flows into the asset management
    business were positive.
•   On the back of positive inflows, increased market levels,
    performance fees and controlled costs, the Momentum Investment
    division’s cost-to-income ratios improved for the quarter.
•   The Momentum unconstrained strategies team has settled into the
    business and is actively marketing its capability.
•   Building competitive investment management capabilities for the
    MMI group as well as third parties remain core to the growth
    strategy.
•   Relative to peers, institutional and retail equity performance
    in the asset manager business is performing well and although
    the local and global balanced funds did not perform to
    expectation their performance has improved for the quarter.
•   Good progress is being made with the integration of Momentum
    Properties into ERIS.

Metropolitan Health
• Members under administration increased by 6% to 1.2 million
   principal members (3.1 million lives) over the year to September
   2012.
•   Strong growth was recorded in the Government Employees Medical
   Scheme.
•   The Momentum Health open scheme continues to provide an
   attractive offering to clients, increasing membership over the
   period while strengthening the reserves in the scheme.
• The business is confident that key administration and managed
   care contracts will be successfully renewed.
• Good progress has been made with the strategic repositioning of
   the health risk management business.
• Business efficiency initiatives remain on track.
• The business continues to position itself for national health
   insurance (NHI).

Consolidation of MMI Holdings Limited’s largest long-term
insurance subsidiaries
Holders of the listed, unsecured, subordinated, callable notes
(“the callable notes”) issued by Momentum Group Limited (MGL01)
and Metropolitan Life Limited (MET01) are notified that these two
subsidiaries of MMI Holdings Limited are in the process of
consolidating the business of Metropolitan Life Limited (including
the MET01 callable notes) with the business of Momentum Group
Limited (to be renamed MMI Group Limited). The consolidation will
be done in terms of Section 38 of the Long-term Insurance Act of
1998.     The   two  note-issuers   envisage   that  the   intended
consolidation will be heard by the High Court in May or June 2013.

If the consolidation of the two note-issuers is approved by the
High Court, the obligations under the MET01 callable note will be
transferred to Momentum Group Limited (to be renamed MMI Group
Limited). No action is therefore required from the holders of the
two callable notes.

Opportunities and challenges
• MMI is a well diversified life insurance group with scale in all
   the established operations.
• Merger synergies will continue to emerge as projects are
   completed.
• Growth in new business volumes will, however, remain dependent
   on the economic environment, including a recovery in employment
   and stronger disposable income levels in a highly competitive
   sector.

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.
• All figures for 2011 have been presented on the same basis as
   those for 2012, 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.
• The new business figures are all net of outside shareholder
   interests.

End

Date
26 November 2012

Queries
NICOLAAS KRUGER
GROUP CHIEF EXECUTIVE
MMI Holdings
TEL 012 673 7438

PRESTON SPECKMANN
GROUP FINANCE DIRECTOR
MMI Holdings
TEL 012 673 7446

Sponsor
Merrill Lynch South Africa Proprietary Limited




                                                                 

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