Operational Update for three months ended 30 September 2018
MMI Holdings Limited
Incorporated in the Republic of South Africa
Registration Number: 2000/031756/06
JSE code: MMI NSX code: MIM
("MMI" or "the group")
MMI GROUP LIMITED
Incorporated in the Republic of South Africa)
Registration No. 1904/002186/06)
Company code: MMIG
23 November 2018
For three months ended 30 September 2018
Over the past few months, the MMI Holdings leadership has communicated our
Reset and Grow strategy to the market. This strategy outlined a reset of
priorities in order to improve performance in the short-term and to set up
the organisation for future growth. Through renewed focus on our core South
African operations, and a more disciplined approach to investing in new
initiatives, we are targeting to grow our normalised headline earnings to
between R3.6 billion and R4.0 billion by F2021.
The actions put in place to execute on this strategy are beginning to bear
fruit, including pleasing new business growth in certain areas. Our main
South African business units are tracking largely in line with our
We communicated at our last annual results announcement that we will change
our primary earnings metric from core headline earnings to normalised
headline earnings. This metric is more comparable to that of our peers and
includes the impact of investment variances, actuarial basis changes and
other one-off items.
Our normalised headline earnings for the quarter increased marginally
compared to prior year. This included a strong performance in most of our
South African businesses, including good retail mortality and disability
experience. It was however largely offset by lower than expected investment
returns, slightly weaker Corporate underwriting experience and a widening
loss in some of the African countries earmarked for exit.
For comparison purposes, our historic core headline earnings metric increased
We have also aligned our reporting segments with our updated internal
operating structure. This enables us to report more meaningfully on the
underlying drivers of earnings and growth.
The historic segment of Momentum Retail will be split into Momentum Life
(includes protection, savings and traditional products focussed on the middle
and affluent client segments) and Momentum Investments (consisting of
Momentum Wealth platform business, local and offshore asset management
operations, retail annuities and guaranteed investments, as well as Eris
Properties). All Momentum Wealth products are now reported as covered
business, and prior year value of new business (VNB) and present value of
new business premiums (PVNBP) were restated accordingly.
There are no material changes to the Metropolitan Retail reporting segment,
while all MMI Health entities are now included under Momentum Corporate.
Short-term Insurance is a new reporting segment, comprising of our retail
general insurance offering, Momentum Short-term Insurance (MSTI) and our cell
captive insurer, Guardrisk.
Africa will be shown separately, with India and aYo now reported under New
Initiatives, alongside our Money Management initiative and other smaller
The prior year numbers are restated to provide meaningful comparisons for
these new reporting segments.
New business performance
The PVNBP increased by 47% against prior year. This included exceptional
growth by Momentum Corporate with strong growth in both recurring and single
premium business, including a multi-billion rand annuity transaction.
Momentum Life delivered double-digit growth, while Momentum Investments
increased marginally. PVNBP for Metropolitan Retail and Africa declined
from the previous year.
VNB for the three months was R189m, up 49% from prior year, representing a
new business margin of 1.1%.
Rm 1Q19 1Q18 Change%
PVNBP 17 113 11 649 47
VNB 189 127 49
New business margin 1.1% 1.1% 0.0%
Solvency and capital update
The Insurance Act 18 of 2017 (Insurance Act) became effective on 1 July 2018
and requires that solvency reporting after this date be based on the Solvency
Assessment and Management (SAM) regulatory regime. MMI Holdings will report
on this basis for the half-year ending 31 December 2018. As at the end of
September 2018 our SAM capital position for the life insurance business was
strong at 1.9x SCR.
Our Embedded Value (EV) per share was 5.5% higher than at 30 June 2018. This
was aided by the strong VNB results, experience variances, the impact of
our share repurchase program and a change in the cost of capital allowance
to reflect SAM capital rather than the legacy CAR capital.
Our share repurchase programme continued during the quarter and up to the
end of September 2018 we had acquired 68.7m shares at a total cost of R1.3bn.
This equates to an average cost of R19.56 per share, compared to our EV per
share of R26.83 at the end of the quarter.
The following sections provide more detail on the performance of the
individual reporting segments, as outlined above.
Momentum Life PVNBP increased by 16%. We saw good volumes on both recurring
and single premium savings business, specifically in our Investo product
VNB increased to R9m compared to a restated number of -R5m as at 1Q18, mainly
as a result of increased volumes. This represents a PVNBP margin of 0.4%, up
from -0.3% in the prior year.
Rm 1Q19 1Q18 Change%
Recurring premiums 242 227 7
Single premiums 525 404 30
PVNBP 2 027 1 743 16
VNB 9 -5 >100
New business margin 0.4% -0.3% 0.7%
Momentum Life’s covered earnings improved against prior period, reflecting
satisfactory mortality and disability experience as well as good expense
management during the period. Non-covered earnings, which consists of
Multiply and Momentum Trust, improved due to lower losses in Multiply.
PVNBP for Momentum Investments includes the Momentum Wealth platform
business, retail annuities, and guaranteed investments. PVNBP was
effectively flat year-on-year. The Guaranteed Return Option (GRO) product
sales continued to perform strongly and were up on prior year, but there was
a decrease in Momentum Wealth sales.
VNB decreased to R4m, down from the restated amount of R40m in 1Q18. This
represents a PVNBP margin of 0.1% (0.7% in 1Q18). The decline was mainly due
to higher assumed renewal expenses and the effect of repricing platform fees
Rm 1Q19 1Q18 Change%
Recurring premiums 42 37 14
Single premiums 5 394 5 403 0
PVNBP 5 557 5 552 0
VNB 4 40 -90
New business margin 0.1% 0.7% -0.6%
Momentum Investments covered earnings increased year-on-year. This was driven
by a reduction in funding strain on the GRO product, higher asset based fee
income from the local platform business and positive FX impact on United
Kingdom (UK) earnings.
Non-covered earnings in Momentum Investments improved, mainly due to the
prior year including losses from a UK operation that was subsequently sold,
as well as growth in the UK non-covered business. This was partly offset by
lower asset management results due to assets under management (AUM) declining
by 2%. The AUM decline was caused by the final closure of Metropolitan
Collective Investments during F2018. Without the closure of these funds
total assets under management would have increased.
Metropolitan Retail PVNBP decreased by 8%, driven by lower recurring premium
protection, lower discretionary savings business volumes, and the impact of
the new termination assumptions. This was partly offset by single premium
volumes increasing by 11% on the back of increased living annuity sales.
These factors resulted in VNB of R37m, down 48% on the prior year. The new
business margin decreased to 2.8% for the quarter (5.0% in 1Q18).
Rm 1Q19 1Q18 Change%
Recurring premiums 329 338 -3
Single premiums 315 284 11
PVNBP 1 302 1 422 -8
VNB 37 71 -48
New business margin 2.8% 5.0% -2.2%
Metropolitan Retail’s earnings were slightly down year-on-year, due in part
to the impact of a positive one-off tax assumption change that was included
in the prior year. Underlying operational result was pleasing on the back of
strong mortality and morbidity experience.
PVNBP for Momentum Corporate more than tripled compared to the previous
period. Single premium new business improved markedly (>100%) due to a
multibillion rand annuity transaction concluded with a large corporate
client. Recurring premiums also improved significantly by 77%, driven by
strong group insurance new business growth from large corporate clients.
New business margins improved to 2.0% from 0.5% in the prior period. The
improved VNB result reflects the progress on the continued effort within the
business to rebuild distribution channels. The continued impact of adhering
to a strict pricing framework within the group insurance environment and
active expense management also contributed to the positive VNB result.
Rm 1Q19 1Q18 Change%
Recurring premiums 288 163 77
Single premiums 5 462 626 >100
PVNBP 7 720 2 291 >100
VNB 152 11 >100
New business margin 2.0% 0.5% 1.5%
Momentum Corporate’s covered earnings were lower than prior year (which was
particularly strong), but in line with the quarterly average of the past
four periods. Most product lines were up on prior year, with the exception
of group insurance which was down.
Momentum Corporate non-covered business comprises the MMI Health businesses,
including the Momentum Health open scheme, Public Sector business (including
GEMS), Mining Sector and Corporate Health administration business. Non-
covered earnings in Momentum Corporate improved against the prior period due
to an improvement in administration income and capitation margins as well as
savings in expenses. The open scheme and low cost products continue to
increase membership in a challenging market.
Africa’s PVNBP was down 21% year-on-year. Single premium volumes increased
by 22% but recurring premium new business declined by 19%. Namibia, the
largest contributor to our life insurance operations outside of South Africa,
recorded lower sales year-on-year in an extremely challenging environment.
The value of new business is down significantly for the period to -R13m
(+R10m in 1Q2018). The decline can be ascribed to the combination of lower
volumes, modelling changes on sales related expenses and an increase in
Rm 1Q19 1Q18 Change%
Recurring premiums 87 108 -19
Single premiums 131 107 22
PVNBP 507 641 -21
VNB -13 10 >-100
New business margin -2.6% 1.6% -4.2%
Normalised headline earnings for Africa deteriorated largely due to lower
investment variances and a widening loss in some of the African countries
earmarked for exit. The deterioration was partly offset by a general
reduction in central support costs as we exit from some African countries.
This includes MSTI, our retail general insurance offering, as well as
Guardrisk. MSTI’s results improved meaningfully compared to the prior period.
This can be ascribed to a significant improvement in the claims ratio as
well as strong growth of 18% in net earned premiums. Guardrisk continues to
perform well with a significant improvement in underwriting experience being
a key growth driver.
The India joint venture with Aditya Birla is the largest of the new
initiatives and continues to perform well with volumes and losses tracking
business plan. We have secured over 1.2 million lives and the ratio of retail
to corporate business continues to improve.
The Shareholder segment reflects investment income on capital held to support
operations and costs not allocated to operating business units (e.g. certain
holding company expenses).
The earnings contribution from the Shareholder segment is down for the
period, driven by the higher finance cost on the new subordinated debt of
R750m issued in 2Q2018, as well as additional funding provided for the
completion of one of our shareholder properties. It should also be noted
that the ongoing investments into new initiatives have a negative impact on
the size of the shareholder asset base which is earning investment income.
We remain confident of achieving our three year growth targets, even though
the operating environment is expected to remain challenging. Many of the
actions to execute on our Reset and Grow strategy are expected to take time
to reflect meaningfully in earnings. Expenses are the area that we have most
control over and we are on track to meet expense targets for the current
We continue to improve our distribution and client service capabilities and
have implemented a more disciplined governance framework.
We are encouraged by the good new business results in most of our core South
African operations. However, the good results included favourable single
premium growth which is not expected to repeat every quarter. As previously
communicated, we expect only modest earnings growth during the current
23 November 2018
The information in this operational update has not been reviewed and reported
on by MMI’s external auditors.
The executive management of MMI will be hosting a conference call for
shareholders, investors and analysts on 23 November 2018.
We kindly request callers to pre-register using the following link
http://www.diamondpass.net/1808556. 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
Australia 073 911 1378
Other Countries +27 10 500 4108
Access code for recorded playback: 18935
Merrill Lynch South Africa (Pty) Limited
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