Wrap Text
Trading Update for the Nine Months Ended 31 March 2016
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 nine months ended 31 March 2016
- Growth: The group continues to invest in growth initiatives in
line with the stated long-term goals.
- Client centricity: The implementation of the client-centric
strategy has improved MMI’s understanding of clients’ needs and
enabled the development of relevant client solutions. The
solutions are distributed on an omni-channel basis and strongly
supported new business volumes during the nine months.
- Excellence: The expense reduction project is progressing well
and the group is confident that the targeted annual reduction of
R750 million will be achieved by the end of the 2019 financial
year.
Operational overview
- Despite a difficult operating and economic environment exerting
increasing pressure on disposable income and company profits,
MMI recorded a pleasing growth in new business flows of 13%, on
the present value of premiums (PVP) basis.
- Total expense growth for the group has been well managed and is
below the current inflation rate.
- Recurring premium new business increased by 14% when compared
with the same period of the prior year boosted by strong flows
in the Corporate and Public Sector together with the anticipated
recovery in the Metropolitan Retail segment and a strong
performance from the International companies.
- Single premium inflows ended 2% higher than the strong
comparative nine-months of the prior year.
- The value of new business, and resulting margins, have been
reduced by higher interest rates and a move by consumers to
lower-margin solutions.
- Client retention across the group remained satisfactory, but
continues to be under pressure going forward.
- Underwriting experience in the retail segments improved compared
to the first half of the financial year but remains below the
strong 2015 performance.
- Disability claims, largely linked to the current unfavourable
economic conditions, remained above the targeted range putting
further downward pressure on group earnings.
- Momentum Short-term Insurance increased premium income 18%
compared with the prior year. The claims ratio improved from
102% for the quarter to June 2015 to 77% for the most recent
quarter.
- Progress is being made in consolidating the health businesses
across the group and adapting them to the new operating model.
Work is underway to reposition the Health administration
business to ensure profitability.
- The Investments and Savings Centre of Excellence has made
progress in the key projects that will simplify and bring
efficiencies in the investment administration processes.
- In May 2016 the South African Customer Satisfaction Index, as
compiled by Consulta, ranked Metropolitan and Momentum first and
second out of the South African life insurance companies, early
indications that our client-centric strategy is gaining
traction.
- The growth in the market value of investment assets has been
curtailed by the performance of markets as a whole, resulting
in pressure on top-line asset-based fee income in the current
year.
- MMI has continued to invest in a number of growth and
diversification initiatives that are impacting the results in
the shorter-term.
- The earnings for the full year will be impacted by the level of
the investment assets, new business volumes, underwriting and
claims experience, persistency, expense management and the
investments made into new initiatives.
Momentum Retail
9 months 9 months
to to Change
31- 31- vs
March-15 March-16 2015
Rm Rm %
New business
Recurring premiums 898 923 3%
Single premiums 11 966 13 479 13%
Annual premium equivalent
(APE) 2 095 2 271 8%
Present value of premiums
(PVP) 17 752 18 802 6%
- Recurring premium sales for the quarter were 10% higher than
that of the same quarter of the prior year, a strong improvement
on the performance in the first half of the year.
- Encouraging single premium new business growth was recorded,
being 13% above the prior year, boosted by strong guaranteed
endowment sales.
- Total new business volume (PVP) is 6% higher than that recorded
in the prior year.
- Off-balance sheet new business increased 10% with strong flows
from Momentum Wealth International.
- Good progress is being made in establishing alternative
distribution channels including direct channels.
- Mortality experience has improved from the high claims
experienced in the first half-year, however profitability
remains below the longer-term average range.
Metropolitan Retail
9 months 9 months
to to
31- 31- Change
March-15 March-16 vs 2015
Rm Rm %
New business
Recurring premiums 812 795 (2)%
Single premiums 966 961 (1)%
Annual premium equivalent
(APE) 909 891 (2)%
Present value of premiums
(PVP) 3 925 3 685 (6)%
- The large scale changes made within the Metropolitan Retail
distribution channels in January 2015 had a negative impact on
the volumes of new business sold over the past year.
- Overall the distribution model changes have had a positive
impact on the business with improved productivity per agent and
a recovery in the number of agents employed to almost 5 000.
Further improvements in new business volumes are expected over
the rest of the year.
- The recovery in recurring premium new business remained on track
with the third quarter ending 15% above the March 2015 quarter,
despite the pressure clients are experiencing.
- Total recurring premium new business for the nine months ended
2% below the prior year, a substantial improvement on the 9%
decline recorded at the half-year stage.
- More savings solutions with a lower margin were recorded,
thereby impacting the mix of recurring new business.
- Strong single premium income was written during the quarter,
however, as expected, it could not match the exceptional
performance of the same period in the previous year.
- Client retention remains well managed, resulting in an
improvement compared with the third quarter of the prior year,
despite prevailing economic conditions. We continue to monitor
persistency closely.
Corporate and Public Sector
9 months 9 months
to to
31-March- 31-March- Change
15 16 vs 2015
Rm Rm %
New business
Recurring premiums 628 918 46%
Single premiums 4 882 3 570 (27)%
Annual premium equivalent
(APE) 1 116 1 275 14%
Present value of premiums
(PVP) 10 539 13 612 29%
- Guardrisk continued to make a strong contribution to recurring
premium new business recorded in the current year.
- The relatively high level of low-margin contracts secured
through the Guardrisk cell-captive business, impacts on the
overall mix of recurring premium business.
- Single premium levels remained solid, with retirement funds and
investments doing well when compared against an excellent prior
period. These flows are traditionally lumpy in nature.
- Securing new business in the group insurance and investment
markets remains difficult in this highly competitive market. The
business is actively pursuing new business opportunities.
- Client retention remains at acceptable levels without
compromising sound underwriting principles.
- The underwriting margins recorded are below the longer-term
trends with disability claims in particular remaining above the
targeted range, largely due to the impact of the current tough
economic conditions. We are actively monitoring the disability
claims experience and responding accordingly.
- The business continued to make good progress in unlocking
synergies that arose from aligning Guardrisk with MMI, and to
enhance the client-value proposition.
- The restructuring of the Health administration schemes for
closed schemes is underway with plans to restore profitability
of the business.
- The Momentum Health open scheme continues to show good growth.
International
9 months 9 months
to to Change
31-March- 31-March- vs
15 16 2015
Rm Rm %
New business
Recurring premiums 278 341 23%
Single premiums 166 321 93%
Annual premium
equivalent (APE) 294 373 27%
Present value of
premiums (PVP) 1 456 2 007 38%
Membership (health)
(‘000) 432 468 8%
- The Namibia, Lesotho and Botswana businesses all recorded strong
growth in life insurance new business.
- Good growth was also recorded in health membership, particularly
in Namibia.
- The medical and short-term insurance claims ratios remained
above the targeted levels. The actions to address the issues
being experienced are currently underway.
- Regional leadership changes have been implemented and further
operational restructuring is underway to reduce the cost base.
- During May 2016, MMI bought out its local partner in Nigeria and
will now own 100% of the business.
Credit rating
On 27 May 2016, Moody’s assigned an Aaa.za national scale
insurance financial strength (IFS) rating to MMI Group Limited
(MMIGL). Moody’s also assigned an Aa2.za rating to MMIGL’s
unsecured subordinated notes on the national scale.
Kagiso Tiso Holdings (KTH) / MMI preference shares
- We are pleased that KTH requested that a further 891 064 of the
A3 preference shares be converted into ordinary shares. These
converted shares were listed on 5 April 2016.
Executive and Board Committee changes
Changes were made to executive responsibilities and Board
Committees as disclosed on SENS on 3 May 2016.
Following that announcement, Innocent Dutiro has subsequently been
appointed as the new CEO for MMI’s Africa and Southeast Asia
business with effect from 1 July 2016. He joins MMI with a wealth
of experience having been a partner at Bain & Company in
Johannesburg and before that he worked for Deloitte Consulting in
South Africa.
Comments / qualifications
- All figures contained in this trading update are provisional,
have not been reviewed or reported on by the Company’s auditors
and are for the period 1 July to 31 March for each year 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
2 June 2016
Centurion
Queries
NICOLAAS KRUGER MARY VILAKAZI TYRREL MURRAY
GROUP CHIEF GROUP FINANCE GROUP FINANCE: INVESTOR RELATIONS
EXECUTIVE DIRECTOR
MMI Holdings MMI Holdings MMI Holdings
TEL 012 673 7438 TEL 012 673 7443 TEL 021 940 5083 OR 082 889 2167
Sponsor
Merrill Lynch South Africa (Pty) Ltd
6
Date: 02/06/2016 09:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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