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Operational Update for the three months ended 30 September 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")
OPERATIONAL UPDATE
For three months ended 30 September 2016
The tough economic conditions, and weak returns from equity markets, have
continued to be a headwind on MMI Holdings’ financial performance in the
three months to 30 September 2016. Recurring premium new business was up
18% over the quarter while single premium new business was down 23% against
a relatively demanding comparative for 1Q16. Overall new business volumes
are down 7% on a PVNBP basis. Value of new business (on consistent basis)
is up 24%, largely due to much improved new business volumes and margins
from Metropolitan Retail. Core earnings are running slightly ahead of the
prior year for the period. Underwriting results, with the exception of
group disability experience, have improved relative to the comparative
period. Expense management continues to be excellent across all business
units.
While external factors are putting some pressure on reported financial
results, the group continues to make good progress with its new client
centric operating model. We are particularly pleased with the traction
around our Financial Wellness consumer engagement strategy. Group’s surplus
capital position is largely unchanged from the amounts published for 30
June 2016.
Momentum Retail
Momentum Retail new business volumes are down 6% year-on-year, mainly due
to a 14% decline in single premium volumes. Sales of annuity products (both
life and living annuities) are ahead of prior year, but weaker sales of
guaranteed endowments and wealth investment products have resulted in a
relatively weak quarter for single premiums. Recurring premium new business
is up 7% against 1Q16 with protection business showing 4% growth while
savings and RA product sales are up 9% against the prior year. The
beneficial change in new business mix towards protection products means
that value of new business is unchanged at R55m for the quarter.
Rm 1Q17 1Q16 Change %
Recurring premiums 331 309 7
Single premiums 4 129 4 812 -14
PVNBP 6 241 6 649 -6
Value of new business 55 55 0
New business margin 0.9% 0.8% 0.1%
Momentum Retail’s earnings are running ahead of the prior year for the
three months. Note that Momentum Retail had poor mortality experience in
1Q16 whereas 1Q17 mortality experience was in line with longer-term norms.
Momentum Short-Term Insurance loss ratio for 1Q17 was 78% which is an
improvement on the >80% loss ratio in 1Q16.
Metropolitan Retail
Metropolitan Retail continues to show the benefits arising from its
distribution channel restructuring. Recurring premium new business is up
27% against 1Q16, with protection business showing 33% growth. Recurring
premium savings product sales are up 18% for the period. Single premium new
business is down 15% against the high base of the previous year. The new
business mix effect is favourable for new business margins and as a result
value of new business has more than doubled relative to 1Q16.
Rm 1Q17 1Q16 Change %
Recurring premiums 327 258 27
Single premiums 294 346 -15
PVNBP 1 406 1 250 12
Value of new business 58 23 152
New business margin 4.1% 1.8% 2.3%
Metropolitan Retail’s earnings are running ahead of the prior year through
the first three months of the financial year. This is mainly a function of
better risk underwriting experience and tight management of expenses.
Corporate and Public Sector
New business for Corporate and Public Sector segment (CPS) is down 21%
relative to 1Q16. Single premium new business is down 44% with broadly
similar declines in annuity and in investment product volumes. Management
is confident about the pipeline and is hopeful of improved flows for rest
of the year. While recurring premium new business is up 24% year-on-year,
the absolute level of new business remains muted. Group risk market pricing
remains competitive and this is leading to low conversion rates for
recurring premium new business. New business margins are down on prior
year, mainly as a result of weaker fixed cost coverage on the back of low
new business volumes over the quarter. Note that Guardrisk Life has been
reclassified as non-covered business with effect from 1Q17 and comparatives
have been restated accordingly.
Rm 1Q17 1Q16 change %
Recurring premiums 114 92 24
Single premiums 1 100 1 979 -44
PVNBP 2 197 2 775 -21
Value of new business 12 24 -50
New business margin 0.5% 0.9% -0.4%
Earnings from CPS are below those achieved in the prior period. The full
effect of losing two large health administration clients during the prior
year is now reflected in revenues, while the recent rightsizing activities
will only be visible in expenses from 3Q17 onwards. The business has made
major strides in repricing the loss making group disability book and
underwriting results are showing some improvement against late-F2016,
however, underwriting losses on disability were still worse than those
experienced in 1Q16. Besides the premium rate adjustments, we have also
made improvements in our claims handling processes and we are also
reviewing potential changes to our reinsurance strategy.
International
International’s new business is up 1% year-on-year. Recurring premium new
business is up 21% whereas single premium new business is down 73%. Value
of new business is up around a third to R20m. Lesotho had a particularly
good start to year whereas Swaziland and Namibia also contributed
positively to new business. Botswana showed a decline in new business
volumes. Note that we have changed our classification of covered business
in International to basically only include the more developed operations
(Namibia, Lesotho, Botswana, and Swaziland) as covered business. 1Q16
numbers have been restated accordingly. These changes have minimal effect
on VNB as the smaller countries made zero overall contribution to new
business profits.
Rm 1Q17 1Q16 change %
Recurring premiums 123 102 21
Single premiums 31 114 -73
PVNBP 666 657 1
Value of new business 20 15 33
New business margin 3.0% 2.3% 0.7%
Earnings at International are lower than in the previous year. Our business
in Kenya continues to show underwriting losses on non-life insurance lines.
We continue to take various actions in Kenya to reduce losses in that
business as a matter of urgency. Profitability from our more established
businesses was also somewhat lower in the period due to unfavourable
underwriting experience on group risk business in Namibia. Health insurance
operations in Africa are showing improvement in their claims ratios. We
continue to make progress with rationalizing the Africa portfolio in order
to focus on more promising markets.
Shareholder Capital
Shareholder Capital segment reflects investment income on capital held to
support operations, earnings from start-up ventures not yet allocated to
other segments, and certain costs not allocated to operating segments (e.g.
certain holding company expenses). Earnings contribution from Shareholder
Capital is lower than in the prior period. This is mainly because
investment income is lower than in the prior period due to a combination of
marginally lower average investible asset base and due to slightly lower
return earned on the portfolio. The two primary new ventures being
incubated within Shareholder Capital are our India health insurance and
wellness initiative, and our Ayo insurance JV (in conjunction with MTN).
Both of these businesses were successfully launched during November 2016.
Outlook
Operating environment remains difficult in South Africa and in most of the
emerging markets where we operate. We are balancing the financial
implications of the environment by managing our expenses tightly while not
neglecting to invest in initiatives that we see as critical for longer term
success. These include investments into distribution channels, client
engagement solutions, and in certain emerging market opportunities (e.g.
India).
The information in this operational update has not been reviewed and
reported on by MMI’s external auditors.
Conference call
The executive management of MMI will be hosting a conference call for
shareholders, investors and analysts. The details of the conference call
are as follows:
Audio dial-in facility
A toll free dial-in facility will be available. We kindly advise callers to
dial in 5 minutes before the conference call starts at 11h00.
Access numbers for participants dialing live from their country:
South Africa 011 535 3500
UK 0 808 143 3720
Other Countries +27 11 535 3500
Recorded playback will be available for three days after the conference
call.
Access Numbers for Recorded Playback:
South Africa 011 305 2030
UK 0 808 234 6771
Other Countries +27 11 305 2030
Access code for recorded playback: 54528#
End
2 December 2016
CENTURION
JSE Sponsor:
Merrill Lynch South Africa (Pty) Limited
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