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MMI HOLDINGS LIMITED - Operational Update for nine months ended 31 March 2019

Release Date: 21/05/2019 07:05
Code(s): MMI MMIG02 MMIG04 MMIG05 MMIG03 MMIG07 MMIG06     PDF:  
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Operational Update for nine months ended 31 March 2019

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

Incorporated in the
Republic of South Africa
(Registration No.

For nine months ended 31 March 2019

Company code: MMIG
The third quarter financial results for MMI Holdings (MMI) reflect pleasing
performance and good progress with the Reset and Grow strategy that MMI
announced in September 2018. Diluted normalised headline earnings(1) per share
increased by 26% relative to the prior period, marginally better than
expectations. This increase should be viewed in the context of poor results
for the comparative prior period, but would not have been possible without
efficiency improvements as well as appropriate investments in strategies for
future growth. MMI remains cautiously confident that the group is on track
to achieve the three-year financial targets set for 2021, namely to deliver
normalised headline earnings between R3.6 billion and R4.0 billion.

In line with the financial results published in 1Q2019 and 1H2019, the prior
period numbers are restated to provide meaningful comparisons for the
operating segments that were implemented under the Reset and Grow strategy.

Group financial performance
Shareholders are advised that the diluted normalised headline earnings, the
group's main earnings measure, increased by 19% to R 2.4 billon for the nine
months relative to the prior period. Diluted normalised headline earnings
per share increased by 26%, reflecting the impact of the share buy-back
programme that was completed earlier in the 2019 financial year.

Diluted normalised headline earnings improved during the nine months mainly
as a result of solid profitability in Momentum Life, the contribution from
large corporate deals and improved group risk underwriting secured in
Momentum Corporate, as well as strong underwriting profits in Non-life
Insurance. This was partly offset by lower than expected asset-based fee
income in Momentum Investments, a decline in profitability at Metropolitan
Retail, and an increase in MMI’s share of losses on new initiatives – albeit
in line with business plans. The plans to exit certain countries in Africa
are progressing according to plan.

Group embedded value per share was R27.41 on 31 March 2019. The individual
solvency cover ratio for MMI Group Limited remained at 2.0 times under the
new regulatory framework for solvency, which became effective on 1 July 2018.

Group new business performance
The present value of new business premiums (PVNBP) for the nine months was
R40.6 billion, an increase of 11% from the prior period. Momentum Corporate
delivered outstanding growth of 62% with both single and recurring premium
business contributing to the growth. Momentum Life PVNBP increased by 6%,
partly due to good sales in the long-term savings business. Africa had a
much improved third quarter and grew new business by 1% over the nine months,
a significant improvement from the decline evident in the first two quarters.
PVNBP for Momentum Investments was marginally down, while for Metropolitan
Retail it declined by 14%.

Value of new business (VNB) for the nine months was R417 million, which
represents an increase of 10% from the prior period, maintaining the new
business margin at 1%.

1) Normalised headline earnings adjust the standard JSE definition of headline earnings for the impact of treasury
shares and the amortisation of intangible assets arising from corporate activity. MMI is of the opinion that these
adjustments present a more realistic picture of underlying performance and remove distortions that might arise
from elimination of treasury shares (potential distortions that are peculiar to financial institutions that invest in their
own securities on behalf of clients).

 Rm                             3Q19       Restated        Change%
 Recurring premiums            2 734          2 617              4
 Single premiums              25 877         22 123             17
 PVNBP                        40 578         36 410             11
 VNB                             417            379             10
 New business margin            1.0%           1.0%           0.0%

Segmental performance

The following sections provide more detail on the performance of the
individual operating segments.

Momentum Life
Momentum Life PVNBP increased by 6%. This was due to good volumes from
recurring premium savings business, specifically retirement savings products
resulting from the good take-up of the recently launched Investo Retirement
Annuity product. Protection business volumes remained under pressure and were
relatively flat compared to the prior period.

VNB increased significantly to R65 million from R21 million achieved in the
prior period. This was supported by good expense management and updated
product pricing.

The new business margin increased to 1.1%.

 Rm                             3Q19     Restated                 ?%
 Recurring premiums              756           733                 3
 Single premiums               1 480         1 458                 2
 PVNBP                         6 079         5 754                 6
 VNB                              65            21              >100
 New business margin            1.1%          0.4%              0.7%

Momentum Life’s normalised headline earnings improved strongly compared to
the prior period. This was on the back of poor performance in the prior
period, but also reflects good expense management, a positive new business
contribution and the improvement in margins resulting from updated product

Momentum Investments
PVNBP for Momentum Investments of R16 962 million was down marginally by 1%,
mainly due to subdued new business volumes on the Wealth platform. This was
largely offset by strong sales growth in guaranteed investments and

The decline in VNB to R61 million can be attributed to lower new business
volumes on the local and offshore Wealth platforms and strengthening of
renewal expense assumptions at the start of the financial year. These
contributed significantly to the decline in the new business margin to 0.4%.

 Rm                             3Q19       Restated    Change%
 Recurring premiums              138            144         -4
 Single premiums              16 436         16 563         -1
 PVNBP                        16 962         17 151         -1
 VNB                              61            129        -53
 New business margin            0.4%           0.8%      -0.4%

Notwithstanding the difficult economic environment, Momentum Investments
delivered good normalised headline earnings growth relative to the prior
period. This was mainly due to a significant reduction in the funding strain
on guaranteed products, active credit portfolio management and strict cost
discipline. The weakening of the Rand exchange rate supported the overall
results of the offshore asset management business.

As markets recovered moderately in the latter half of 2018, average assets
under management increased, with noticeable growth of assets managed on
behalf of local and offshore retail clients.

Metropolitan Retail
Metropolitan Retail PVNBP of R3 620 million has declined by 14% from the
prior period. Recurring premiums reduced by 3%, with the call centres and
broker distribution channels the main contributors to the decline.
Metropolitan Retail’s tied agency force saw a pleasing increase in
productivity per agent compared to the prior period; however total sales
were flat year-on-year due to the lower number of agents. It is encouraging
that the proportion of new business for which premiums are collected via
salary deduction has improved – this bodes well for future persistency.

The decline of 55% in VNB was driven by a reduction in new business volumes
and an increase in per policy expenses. These factors are partly offset by
an increase in the take-up rates of policies for which premiums are collected
via salary deduction. The new business margin declined to 1.7%.

 Rm                             3Q19        Restated      Change%
 Recurring premiums              916             946           -3
 Single premiums                 811           1 101          -26
 PVNBP                         3 620           4 203          -14
 VNB                              63             141          -55
 New business margin            1.7%            3.4%        -1.7%

Normalised headline earnings were down on the prior period, and continued to
be negatively impacted by the increased costs related to upgrading the branch
infrastructure and the change to more conservative capitalisation of systems
development costs.

Momentum Corporate
Momentum Corporate PVNBP of R12 068 million increased by 62% from prior
period. This result was supported by the substantial single premium with-
profit annuity transaction in 1Q2019, as well as strong growth of 36% on
recurring premium volumes. This was driven by group risk new business from
a variety of large corporate clients.

VNB of R216 million was significantly better (>100%) than the previous
period, reflecting the improvement in volumes. The increased focus on the
quality of new business contributed to the improved new business margin to

 Rm                             3Q19         Restated     Change%
 Recurring premiums              637              470          36
 Single premiums               6 762            2 682        >100
 PVNBP                        12 068            7 466          62
 VNB                             216               45        >100
 New business margin            1.8%             0.6%        1.2%

For   Momentum  Corporate   the  normalised   headline  earnings   improved
significantly on the back of positive underwriting experience on the group
life book, strong persistency within the FundsAtWork umbrella fund, as well
as higher than expected investment fee income arising from new business
written during the nine months.

MMI Health delivered another strong set of results. The business continued
to grow its membership, supported by steady growth from the public sector
and further growth in low cost products. Stringent cost management further
supported the improved profitability within Health.

PVNBP for Africa was R1 849 million, up by 1% from the previous period. This
reflects a strong third quarter, and is an improvement on lower sales that
were reported at the half-year results. Lesotho delivered strong single
premium business from annuities, while Namibia has shown increased recurring
premium risk business from corporate clients.

Although VNB declined from the prior period, it is the first quarter in
financial year 2019 that the VNB is positive. The decline from prior period
was driven by lower sales volumes in several countries, as well as the new
business mix tilting towards lower margin long-term savings products. This
led to the decline in new business margin.

 Rm                             3Q19        Restated     Change%
 Recurring premiums              287             324         -11
 Single premiums                 388             319          22
 PVNBP                         1 849           1 836           1
 VNB                              12              43         -72
 New business margin            0.6%            2.3%       -1.7%

The Africa covered normalised headline earnings were down on prior period,
largely due to lower investment returns in Namibia and Botswana.

The business is pleased with the performance from the non-covered business
in Africa. The Health operations produced particularly strong results for
the nine months.

Non-life Insurance
Guardrisk continued on its growth trajectory through organic growth and
strong new business in the mining rehabilitation and underwriting manager
divisions. Improved underwriting results also made a strong contribution to
the growth.

Momentum Short-term Insurance delivered an improved claims ratio and 18%
growth in net earned premiums compared to the prior period.

New Initiatives
The India joint venture (JV), in partnership with Aditya Birla, is performing
in line with expectations. The India JV continued its focus on growing retail
business through channel expansion and productivity, resulting in excellent
growth of the retail business. Share of losses was negatively impacted by
the Rand depreciation; however, it remains largely in line with the business

The spending on other new initiatives also remained in line with our business

Normalised headline earnings growth for the nine months was supported by
fair value gains, following revaluations of some of the underlying
investments in our venture capital investment held through Exponential
Ventures. Investment income on the shareholder portfolio declined following
the successful completion of the share buy-back programme which resulted in
a decline in the average balance of income earning assets.

MMI believes that its current emphasis on financial discipline and on
improving client service is starting to have a positive impact. Good progress
has been made with the Reset component of its Reset and Grow strategy, and
the focus will increasingly shift towards the Grow component.

The operating environment remains difficult in both South Africa and in the
rest of Africa. Although the normalised headline earnings for the final
quarter are expected to be lower than the run-rate as seen in the first nine
months, MMI is confident that normalised headline earnings will be in line
with the Reset and Grow targets for 2019. MMI also expects new business
volumes to be broadly similar as those seen for the first nine months, once
adjusted for the single large annuity contract written in 1Q2019.

21 May 2019

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 21 May 2019.
We kindly request callers to pre-register using the following link

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 (Neotel)
                              010 201 6700 (Telkom)
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: 25026

JSE Sponsor:
Merrill Lynch South Africa (Pty) Limited

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