Wrap Text
Operational Update for nine months ended 31 March 2018
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 nine months ended 31 March 2018
We communicated at the interim results that more focus would be placed on
the core South African businesses in the group. The leadership of MMI are
clear that the business also requires a much sharper emphasis on operations.
This includes investment into our various distribution capabilities,
efficiency in our operating model, a more measured approach to new
initiatives, a sharper focus on delivery of desired outcomes and exiting
marginal operations outside of South Africa. The execution on these
priorities is a pre-requisite for sustained earnings growth and future value
creation.
Diluted core headline earnings for the nine months are down 5% on the prior
period. This decline includes increased spending on new initiatives such as
aYo, India, Money Management and MMI Lending. Adjusting for these four
initiatives, diluted core headline earnings would have been flat for the
period. We are pleased about solid performance in some segments and product
lines.
Earnings growth has been hampered by weak growth in average assets under
management, poor persistency in Metropolitan Retail and increased investment
in new initiatives aimed at ensuring sustained future profitability. While
overall underwriting results across the group remain well ahead of the prior
period, the claims experience in Momentum Corporate was weaker in 3Q than in
the first six months of the financial year.
Headline earnings, which include the full impact of market-related gains on
our earnings, are flat versus the prior year. The higher year-on-year
headline earnings for December have reversed largely due to the low
investment market returns and a reduction in the yield curve over the last
three months.
Retail new business volumes are up 6% for the period. In Corporate we have
maintained pricing discipline and continue to focus on the quality of
business written which has resulted in a 4% decline in Corporate new business.
Overall this leaves new business volumes marginally up year-on-year. Value
of new business (VNB) for the nine months was R331m, representing a new
business margin of 1.1%.
Our capital position is broadly unchanged from 31 December 2017 under both
the current statutory basis and the upcoming Solvency Assessment and
Management (SAM) regime. Our EV was R27.07 per share as at 31 March 2018. We
started our share repurchase programme, according to which we plan to buy
back shares to the value of R2bn, on 7 March 2018. Up to 31 March 2018 we
acquired 12.8m shares for a total cost of R281m.
Momentum Retail
Momentum Retail new business volumes are up 5% year-on-year when measured as
present value of new business premiums (PVNBP). In single premiums we have
seen large increases in volumes into our offshore products. The new
Guaranteed Return Option product launched in October 2017 also continues to
have a positive impact on single premium volumes. We saw good volumes on
recurring premium savings business, which was further supported by the
increase in the average monthly premium. New recurring premium business
volumes increased by 4% and single premium new business volumes were up 3%.
Despite the positive volume growth VNB declined to R102m, which represents
a PVNBP margin of 0.6% (vs 0.7% in 3Q17). This was mainly due to initial
expenses increasing at a faster rate than volume growth. This included
investment into initiatives aimed at improving client and intermediary
experience during the new business process. More competitive pricing
introduced on our Momentum Wealth platform in April 2017 also negatively
affected new business profits. We believe that both the new platform pricing
and the improved user experience will have a positive impact on future sales
volumes.
Rm 3Q18 3Q17 Change%
Recurring premiums 837 802 4
Single premiums 12 447 12 063 3
PVNBP 17 206 16 316 5
Value of new business 102 119 -14
New business margin 0.6% 0.7% -0.1%
Momentum Retail’s covered earnings are significantly down year-on-year. This
reflects the higher investment into our client engagement activities and
technology. The level of Multiply discounts is also higher than in the prior
period. These discounts are complementary to the strong mortality and premium
alteration experience on this subset of clients, which partly offsets the
impact of the premium discounts. Earnings were also negatively impacted by
a reinsurance correction for a historical underpayment that was corrected
during 2Q18. In addition to this, weak investment market returns has led to
weaker than expected asset-based fee income.
Non-covered earnings improved in Momentum Retail, mainly due to the
improvement in Momentum Short-term Insurance (MSTI) and the Health business.
MSTI is performing well with 3Q18 showing a profit for the quarter. Net
earned premiums for the nine months are nearly 20% higher than the prior
period. Despite some adverse weather during the quarter, the claims ratio
continued to improve across all portfolios and reduced below 70% year-to-
date. The business remains on track to achieve its financial objective of
reaching a cash-flow positive position in F2019. The Health open scheme
showed improved results due to increased membership and good expense control.
Metropolitan Retail
Metropolitan Retail increased new business volumes by 9%. Recurring premium
volumes are up 2% while single premium volumes increased by 31%. New business
margin increased to 3.4% for the quarter (vs 3.1% for 3Q17). The new business
margin benefited from lower commission expenses following a recalibration in
some parts of our remuneration models used for sales staff. The adoption of
the yield curve methodology, as well as favourable economic assumption
changes, has also contributed positively to VNB year-on-year.
Rm 3Q18 3Q17 Change%
Recurring premiums 946 928 2
Single premiums 1 101 842 31
PVNBP 4 203 3 862 9
Value of new business 141 118 19
New business margin 3.4% 3.1% 0.3%
Metropolitan Retail’s earnings are down year-on-year. This is driven by
investments into the African Bank joint venture and increased spending on
new initiatives, including Metropolitan’s share of the Money Management and
Lending initiatives. Our mortality variance was strong during the period and
this, along with strong investment variance, offset some of the negative
persistency variance, which is concentrated mainly in early durations and
funeral product lines.
Momentum Corporate
New business volumes for Momentum Corporate are down 4% year-on-year. Single
premium new business improved by 2% compared to 3Q17 due to strong growth in
our umbrella fund product (FundsAtWork). Recurring premium new business was
down 14% with the stricter group risk pricing affecting sales. Given the
competitive nature of the group insurance market, we are focussing on
achieving a balance between new business volumes and profitability. We are
making good progress in this regard and, considering the lumpy nature of
this business, we do not believe the negative trend in volumes to be
indicative of the potential volume growth going forward.
New business margins improved to 0.6% from 0.3% in the prior period. The
improved VNB result reflects the continued effort within the business to
rebuild distribution channels, success in sourcing more profitable investment
business (FundsAtWork), and the continued impact of adhering to a strict
pricing framework within the group insurance environment.
Rm 3Q18 3Q17 Change%
Recurring premiums 470 548 -14
Single premiums 2 682 2 625 2
PVNBP 7 466 7 801 -4
Value of new business 45 22 105
New business margin 0.6% 0.3% 0.3%
Momentum Corporate’s earnings has improved compared to the prior period,
albeit at a slower rate than seen through the first six months of the current
financial year. The increase in year-to-date profits is mainly driven by an
improvement in covered underwriting performance, specifically on group
disability risks. This together with good annuity earnings for the nine
months has resulted in overall life insurance earnings improving relative to
the prior period.
Guardrisk again performed strongly and contributed significantly to growth
in core headline earnings. This was supported mainly by an improvement in
underwriting results. Our health administration business also continues to
post strong profits.
International
International’s new business volumes are down 6% year-on-year. Single premium
volumes are up sharply but the 2% decline in recurring premium new business
offsets this at the PVNBP level. Namibia, the largest contributor to our
life insurance operations outside of SA, recorded lower sales year-on-year.
Value of new business is down 30% to R43m. Margins in Namibia and Botswana
were down mainly due to lower volumes and higher initial expenses in both
countries. This was partly offset by higher VNB in Lesotho, which showed the
positive impact of a change in mix towards higher-margin credit life
business.
Rm 3Q18 3Q17 Change%
Recurring premiums 324 332 -2
Single premiums 319 262 22
PVNBP 1 836 1 944 -6
Value of new business 43 61 -30
New business margin 2.3% 3.1% -0.8%
Core headline earnings at International improved materially. Results improved
mainly due to better group disability claims experience in Namibia, a decline
in support costs in SA, and strong profits from our UK asset management
business. These positives were offset to some extent by increased losses
incurred in our start-up initiative aYo and the health insurance JV in India.
Although the loss for India has increased, it is in line with the original
business plan and we are pleased with the top-line growth for the India JV.
We now have in excess of a million insured lives covered by our India
business.
We are making meaningful progress on exiting various African countries and
central costs supporting the African operations have been reduced.
Shareholder Capital
The Shareholder Capital segment reflects investment income on capital held
to support operations, earnings from start-up ventures not yet incorporated
into other segments, and some costs not allocated to operating segments (e.g.
certain holding company expenses).
Although the earnings contribution from Shareholder Capital is down for the
period, the third quarter delivered a materially stronger result than those
seen in the first six months. The year-to-date result is down, mainly driven
by a decline in average money market yields and the sale of a high-yielding
property that was held in the shareholder portfolio during F2017, the
proceeds of which are now invested in lower-yielding development property.
Finance costs on subordinated debt also increased because of R750m of new
debt being issued during the period.
Outlook
The operating environment remains challenging and we do not expect a
significant improvement in the near term. In our case, we are also dealing
with the need to prioritise some core focus areas in the group. While we are
confident that these changes are necessary to ensure sustainable future
success, the positive results of these activities will take some time to
emerge. As such, we do not expect financial results to improve meaningfully
from current levels for the full year.
24 May 2018
CENTURION
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 on 24 May 2018.
We kindly request callers to pre-register using the following link
https://goo.gl/gHVaJb. A passcode and pin will be generated following
registration. We advise callers to dial in 5 minutes before the conference
call starts at 13h00.
Access numbers for participants dialling live from their country:
South Africa 011 535 3500
UK 0 333 300 1417
USA and Canada 1 508 924 4325
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 010 500 4108
UK 0 203 608 8021
USA and Canada 1 412 317 0088
Other Countries +27 10 500 4108
Access code for recorded playback: 13259#
JSE Sponsor:
Merrill Lynch South Africa (Pty) Limited
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