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MMI HOLDINGS LIMITED - Trading update for the three months ended 30 September 2014

Release Date: 26/11/2014 09:00
Code(s): MMI     PDF:  
Wrap Text
Trading update for the three months ended 30 September 2014

MMI Holdings Limited
Incorporated in the Republic of South Africa
Registration Number: 2000/031756/06
JSE share code: MMI
NSX share code: MIM
ISIN: ZAE000149902
("MMI" or "the group")

Trading update for the three months ended 30 September 2014

Operational highlights

-   The MMI group had a good quarter from a new business perspective, with
    the total present value of premiums (PVP) increasing 30% on the prior
    year, primarily on the back of continued good employee benefits
    production.
-   Strong single premium inflows continued, ending 30% higher than the
    strong prior year comparative quarter.
-   New business recurring premiums increased 22% compared to the same
    quarter of 2013, mainly due to good growth in employee benefits.
-   Overall, satisfactory client retention was experienced across the
    group.
-   This growth in a very difficult operating environment reflects the
    strength of the diverse distribution channels and the alignment of the
    comprehensive product offerings in the group with their respective
    target markets.
-   Good progress has been made in implementing the client-centric
    operating model and the group will continue to invest in the
    initiatives required to achieve its long-term strategic goals.

Group overview and operating environment

-   Growth in the South African economy slowed significantly and this will
    put pressure on the disposable income of our clients.
-   During this quarter the investment market volatility continued with
    the JSE all-share index falling about 4%. The absolute levels,
    however, remained higher than the previous year.
-   The appropriateness of MMI’s new client-centricity strategy has been
    confirmed by developments in the operating environment, including
    challenging economic conditions, regulatory changes and changing
    client behaviour.

Growth initiatives

-   Progress has been made with the strategic initiatives to diversify the
    group’s earnings streams.
-   The acquisitions of Cannon Assurance in Kenya and Carecross have
    become unconditional.
-   During October MMI announced that it had entered into a Memorandum of
    Understanding with Aditya Birla Financial Services Group (‘ABFSG’),
    the financial services arm of India's leading conglomerate, Aditya
    Birla Group (‘ABG’). MMI and ABFSG intend setting up a joint venture,
    which will enter the health insurance market in India.
-   MMI is investing in a number of growth initiatives across the group,
    including the middle market and Momentum Short-term Insurance
    businesses.
                                                                                 1
Momentum Retail *

                                                3 months     3 months
                               3 months to                               Change
                                                      to           to
                                30-Sept-12    30-Sept-13   30-Sept-14   vs 2013
                                        Rm            Rm           Rm         %
New business
Recurring premiums                      247          268          254     (5)%
Single premiums                       2 667        3 862        4 011       4%
Annual premium equivalent
                                        514          654          655       -
(APE)
Present value of premiums
                                      4 054        5 338        5 415        1%
(PVP)

* Covered business includes on-balance sheet business only.

-   Risk sales matched the comparative period’s performance; however less
    recurring savings premiums were recorded.
-   Strong single premium new business growth continued, ending 4% above
    the exceptional prior quarter’s total and well ahead of the 2012
    number.
-   New business volumes (PVP) for the quarter similarly ended marginally
    higher than those recorded in the prior year and well up on the 2012
    total.
-   The mix of new business continues to favour single premium
    investments.
-   There has been good growth in the new business written by Momentum
    Short-term Insurance; however the recent claims ratio has increased
    slightly to above the long-term target.
-   Steady progress is being made with the middle market initiative and
    new business has been written with effect from August 2014.
-   Client service remained at satisfactory levels.

Metropolitan Retail @

                                                           3 months
                               3 months to 3 months to               Change
                                                                 to
                                30-Sept-12    30-Sept-13 30-Sept-14 vs 2013
                                        Rm            Rm         Rm       %
New business
Recurring premiums                     235           279          293       5%
Single premiums #                      202           253          283      12%
Annual premium equivalent
                                       255           305          321       5%
(APE)
Present value of premiums
                                     1 220         1 339        1 316     (2)%
(PVP)

# Single premium income and maturity claims now exclude retirement annuity lump
 sum contributions received that mature immediately for purposes of
 reinvestment. New business single premiums, APE and PVP comparatives have been
 restated accordingly. The value of new business is not affected.
@ All figures exclude FNB Life.

-   Steady recurring premium new business was recorded, ending slightly
    above the September 2013 total, despite the economic pressure clients
    are experiencing and changes being made within the Metropolitan
    distribution channels.
                                                                                  2
-   Single premium income continued to perform very well.
-   In light of challenging economic conditions, persistency continues to
    be monitored closely.

Corporate and Public Sector
Employee benefits

                                3 months
                                         3 months to 3 months to      Change
                                      to
                              30-Sept-12 30-Sept-13 30-Sept-14       vs 2013
                                      Rm          Rm          Rm           %
New business
Recurring premiums                  112          235          413        76%
Single premiums                   1 919        1 252        2 666       113%
Annual premium equivalent
                                    304          360          680        89%
(APE)
Present value of premiums
                                  2 771        3 426        6 481        89%
(PVP)

-   Good recurring premium new business was recorded in the first quarter,
    particularly in the FundsAtWork umbrella fund space, resulting in
    recurring premium new business of almost twice the level recorded in
    the prior comparative for the business unit as a whole.
-   Single premium levels remained high, with single premium annuities in
    particular doing well in this quarter.
-   Securing new business in the group insurance and investment markets
    remains highly competitive.
-   Client retention remains at good levels.

Guardrisk
- Good progress was made to further align Guardrisk within MMI to
   enhance the client-value proposition and extract business synergies.

Investments
- Focus on investment excellence is starting to pay off, with equity
   and balanced fund performance showing satisfactory improvement.
- The longer-term outlook for the investment management business
   remains positive as the alignment within the group is strengthened.

Health
- Total members under administration remain steady at 1.2 million
   principal members.
- The administration contract with the Government Employees Medical
   Scheme (GEMS) was renewed.
- Good progress has been made with the further roll-out of the Multiply
   rewards programme.

International §

                               3 months   3 months     3 months
                                                                     Change
                                     to         to           to
                               30-Sept-   30-Sept-     30-Sept-
                                                                    vs 2013
                                     12         13           14
                                     Rm         Rm           Rm           %
New business
Recurring premiums                   71         73          85         16%

                                                                                 3
Single premiums                        35           49          78         59%
Annual premium equivalent
                                       74           78          93         19%
(APE)
Present value of premiums
                                      399          420         449          7%
(PVP)

Health (lives) (‘000)#                381          390         418          7%

§ New business includes MMI’s share of life insurance new business written by
all Metropolitan International subsidiaries.
# Health includes Namibia.

-   Good recurring and single premium new business volumes were recorded
    in Namibia, Botswana and Lesotho during the period under review.
-   Strong growth was experienced in Namibia through the FundsAtWork
    umbrella fund offering, while up-selling contributed to the increase
    in Botswana.
-   The medical claims ratio has remained at satisfactory levels.

Kagiso Tiso Holdings (KTH) / MMI preference shares

-   During 2004 and 2005 MMI issued 75 million A1 preferences shares, 13
    million A2 preference shares and 34 million A3 preference shares to
    KTH at the listed ordinary share price at the date of issue.
-   These shares were fully paid for by KTH, have full voting rights and
    are redeemable by MMI if they are not converted into ordinary shares
    within an agreed period of time.
-   In June 2012 KTH requested the conversion of all of the A1 and A2
    preference shares.
-   KTH have requested that 1.1 million of the A3 preference shares be
    converted into ordinary shares. These converted shares were listed on
    13 November 2014.
-   The KTH / MMI relationship has recently celebrated its ten year
    anniversary. It is gratifying to note that 73% of the original
    preference shares have now been converted into ordinary shares.

MMI subordinated debt

-   MMI issued R500 million of subordinated debt in December 2006.
-   This debt has a first-call date of December 2014.
-   In line with the original intention and timeline MMI is redeeming this
    debt and at the same time MMI is issuing another R500 million of
    subordinated debt.

AGM

-   The MMI AGM was held on 18 November 2014 and all resolutions tabled
    were passed with the required majority of votes.

Opportunities and challenges

-   MMI has achieved scale in its main established operations, creating an
    excellent base for future growth.
-   Cross-selling and other new business opportunities are being pursued
    across the group.

                                                                                 4
-   Growth in new business volumes will, however, remain dependent on the
    economic environment, including a recovery in employment and stronger
    disposable income levels.

Comments / qualifications

-   All figures are provisional and unaudited, and are for the period 1
    July to 30 September 2014 as presented in the current internal
    management accounts.
-   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 2014

Queries

NICOLAAS KRUGER        PRESTON SPECKMANN    TYRREL MURRAY
GROUP CHIEF            GROUP FINANCE        GROUP FINANCE & INVESTOR
EXECUTIVE              DIRECTOR             RELATIONS
MMI Holdings           MMI Holdings         MMI Holdings
                                            TEL 021 940 5083 OR 082 889
TEL 012 673 7438       TEL 012 673 7446
                                            2167

Sponsor
Merrill Lynch South Africa (Pty) Ltd




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