Wrap Text
Operational update for the three months ended 30 September 2019
Momentum Metropolitan Holdings Limited
(formerly MMI Holdings Limited)
Incorporated in the Republic of South Africa
Registration number: 2000/031756/06
JSE share code: MTM
NSX share code: MMT
ISIN code: ZAE000269890
(“Momentum Metropolitan” or “the Group”)
Momentum Metropolitan Life Limited
(formerly MMI Group Limited)
Incorporated in the Republic of South Africa
Registration number: 1904/002186/06
Company code: MMIG
Operational update for the three months ended 30 September 2019
Momentum Metropolitan delivered a pleasing set of results for the first quarter of the F2020 financial
year. Diluted normalised headline earnings1 per share, increased by 13% year-on-year. It is worth
noting that results for a single quarter can be quite volatile, and one should thus be cautious not to
annualise these quarterly results. Most business units were able to grow earnings year-on-year. Star
performers for the period were Guardrisk, the Health operations, and Momentum Investments.
New business volumes were down 24% relative to 1Q2019, but that can be explained by the
exceptional new business volumes recorded by Momentum Corporate in 1Q2019. If we exclude
Momentum Corporate, new business volumes were up 12% across the other business units. We
believe that the 12% growth rate is indicative of the progress we are making in the various retail
segments.
Overall, we are satisfied with the results, which are in line with our three-year turnaround plan. The
plan is to continue focusing on bolstering our product and distribution capabilities, as well as on
enhancing our client service and value proposition.
1
Diluted normalised headline earnings adjust the standard JSE definition of headline earnings for the impact
of treasury shares, the amortisation of intangible assets arising from business combinations and BEE costs.
Momentum Metropolitan is of the opinion that these adjustments present a more realistic picture of the
underlying performance of the Group and remove distortions that might arise from elimination of treasury
shares (potential distortions that are peculiar to financial institutions that invest in own securities on behalf of
clients). The definition of diluted normalised headline earnings remains unchanged.
Group financial performance
The diluted normalised headline earnings, the Group’s primary earnings metric, increased by 9% to
R0.9 billion for the first quarter. The contribution from operating divisions, i.e. before investment
returns on the shareholder investment portfolio, before investment into New Initiatives, and before
unallocated head office expenses, increased by 16%. Our share of losses on New Initiatives increased slightly as per business plan. Investment returns on the shareholder investment portfolio
were in line with expectations but lower than in 1Q2019, as we did not see a repeat of the
revaluations of our venture capital investments.
Group embedded value per share was R27.90 on 30 September 2019. Annualised return on
embedded value per share was 11.6% for the quarter. The Group remains well capitalised with the
solvency cover ratio for Momentum Metropolitan Life Limited at 2.07 times on the regulatory basis
at quarter end. This remains close to the upper end of our target range of 1.7 times to 2.1 times.
Group new business performance
The present value of new business premiums (“PVNBP”) for the first quarter was R13.0 billion, which
is 24% lower than in the comparative period. This decline is fully explained by the strong new
business in Momentum Corporate in 1Q2019, including a R5 billion with-profit annuity transaction.
Momentum Investments delivered strong new business growth of 20%, mainly from offshore wealth
products and from life annuities. Momentum Life delivered growth in long-term savings products,
which was offset by lower protection new business.
While PVNBP for Metropolitan Retail remained largely flat, productivity per agent is up on prior year
which had a positive impact on new business profitability. Momentum Metropolitan Africa improved
PVNBP by 9%.
Value of new business for the three months was R100 million compared to R189 million in the prior
period. This translated to a new business margin of 0.8%. Again, if we adjust for Momentum
Corporate, the remaining operations more than doubled their combined value of new business.
R million 1Q2020 1Q2019 % change
Recurring premiums 899 988 -9
Single premiums 8 392 11 827 -29
New business volumes (PVNBP) 12 978 17 113 -24
Value of new business 100 189 -47
New business margin 0.8% 1.1% -0.3%
Segmental performance
The following sections provide more detail on the performance of the individual operating business
units.
Momentum Life
R million 1Q2020 1Q2019 % change
Recurring premiums 269 242 11
Single premiums 488 525 -7
New business volumes (PVNBP) 2 013 2 027 -1
Value of new business 26 9 >100
New business margin 1.3% 0.4% 0.8%
PVNBP for Momentum Life of R2 013 million declined marginally, mainly due to the impact of basis
changes implemented at 30 June 2019. New business volumes improved on the on the long-term
savings business, which was offset by lower protection business new business volumes. The Investo
Retirement Annuity product launched in F2019 sold particularly well.
Value of new business increased to R26 million, which represents a new business margin of 1.3%.
The improvement was mainly driven by well managed expenses.
Normalised headline earnings improved marginally compared to the prior period. This was largely
driven by well-managed expenses, offset by somewhat weaker underwriting experience. Earnings
were also aided by better than expected level of voluntary premium increases on existing policies.
Momentum Investments
R million 1Q2020 1Q2019 % change
Recurring premiums 29 42 -31
Single premiums 6 568 5 394 22
New business volumes (PVNBP) 6 679 5 557 20
Value of new business 30 4 >100
New business margin 0.4% 0.1% 0.4%
PVNBP for Momentum Investments increased by 20% to R6.7 billion. Single premium sales
achieved strong growth on the local and offshore Wealth platform as well as on life annuities.
Value of new business improved from R4 million to R30 million mainly due to solid growth in new
business volumes and an improved business mix, coupled with good expense management. These
contributed to the improvement in new business margin to 0.4%.
Normalised headline earnings were up year-on-year, driven by earnings on guaranteed products
and on annuities. Wealth platform asset-based fee income was bolstered by the strong volume
growth. Positive net flows onto Momentum Wealth’s offshore platform was particularly pleasing. This
was partly offset by lower asset-based fee income from investment management businesses in
weaker market conditions.
Metropolitan Retail
R million 1Q2020 1Q2019 % change
Recurring premiums 312 329 -5
Single premiums 286 315 -9
New business volumes (PVNBP) 1 292 1 302 -1
Value of new business 39 37 5
New business margin 3.0% 2.8% 0.2%
Metropolitan Retail’s PVNBP of R1 292 million was 1% lower than in the prior period. However, the
tied agency sales force headcount was approximately 20% smaller than during the prior period. We
have seen an improvement in both the adviser productivity and early duration premium collection
rates compared to the prior period.
We are pleased with the observed improvement in the proportion of policies where premiums are
collected via payroll deduction. This, coupled by an improved mix of funeral business contributed to
the 5% improvement in VNB.
Normalised headline earnings declined slightly through a combined impact from lower new business
volumes, reduced credit risk variance, and weaker underwriting experience.
Momentum Corporate and Health
R million 1Q2020 1Q2019 % change
Recurring premiums 197 288 -32
Single premiums 893 5 462 -84
New business volumes (PVNBP) 2 442 7 720 -68
Value of new business 0 152 -100
New business margin 0.0% 2.0% -2.0%
Momentum Corporate’s PVNBP declined by 68% to R2.4 billion. Although some large clients were
secured by Group Insurance and by FundsAtWork during the quarter, the R5 billion single premium
with-profit annuity transaction recorded in the prior period resulted in significantly lower total volumes
relative to the prior period.
The value of new business reduced to zero from R152 million in the prior period. This is the net
outcome of positive value of new business from FundsAtWork umbrella fund products and a negative
contribution from products targeted at stand-alone funds. In the market segment that focuses on
larger schemes, new business flows tend to be lumpy which means that the value of new business
fluctuates significant from quarter to quarter.
Momentum Corporate’s normalised headline earnings improved year-on-year with most product
lines delivering growth. Although disability underwriting results remain disappointing, and reduced
somewhat from the prior period, the overall earnings from the Group Insurance business improved
year-on-year on the back of solid mortality profits.
Normalised headline earnings for Momentum Metropolitan’s health business improved against the
prior period mainly due to an improvement in administration income and good expense
management. Health membership numbers increased by 3% year-on-year – we believe this was a
credible result in the current environment.
Non-life Insurance
Guardrisk delivered double-digit new business growth, with strong contributions from the mining
rehabilitation and underwriting managers divisions. Earnings are up materially from 1Q2019 on the
back of double-digit revenue growth and improving operating margins. There has been a strategic
focus at Guardrisk to grow their own underwriting activities (rather than just administering client
business) and this is reflected in 17% growth in underwriting profits earned by Guardrisk.
At Momentum Short-term Insurance, net earned premiums grew by 17%, continuing the positive
trend observed over recent quarters. Expense management was another positive feature of MSTI
results. Normalised headline earnings, however, declined marginally due to a 3% increase in the
claims ratio relative to that experienced in 1Q2019 (62% vs 59%). The claims ratio was negatively
affected by weather-related claims in the Western Cape in July 2019.
Momentum Metropolitan Africa
R million 1Q2020 1Q2019 % change
Recurring premiums 92 87 6
Single premiums 157 131 20
New business volumes (PVNBP) 552 507 9
Value of new business 5 -13 >100
New business margin 0.9% -2.6% 3.5
PVNBP from Momentum Metropolitan Africa increased by 9% year-on-year. We saw good growth
in savings business in Namibia and Botswana, while Botswana and Lesotho showed solid growth
on recurring premium protection business. Single premium business in Lesotho continued its growth
trend from the latter half of the previous financial year.
Value of new business of R5 million for the quarter is a significant improvement on the negative
value of new business reported in the prior period. This growth was driven by improved business
mix in Botswana and Lesotho, and better sales volumes overall. This outcome resulted in new
business margin of 0.9%.
Normalised headline earnings from the countries where we will continue to remain, were higher than
the prior period reflecting revenue growth and good expense management.
During the first quarter of F2020 we concluded a transaction to dispose of our entire stake in our
business in Nigeria.
New Initiatives
The India joint venture, in partnership with Aditya Birla, continues to deliver results in line with our
expectations. As at 30 June 2019 we have signed-up over 3.8 million lives and the ratio of retail to
corporate business continues to improve.
aYo, our joint venture with MTN, reached its 5 million enrolment mark in October 2019. Compared
to the prior period, our share of the costs to support the business has increased, in line with the
business plan.
Shareholders
Normalised headline earnings from the Shareholder segment declined compared to the prior period.
Higher investment income earned on shareholder assets was offset by lower fair value gains in our
venture capital investments, where we did not see a repeat of the large revaluations of some of our
underlying investments held through Exponential Ventures that occurred in the prior period. Head
office expenses also increased year-on-year. This increase was driven by costs incurred with the
Momentum digital platform, advisory fees on mergers and acquisitions, and higher employee costs.
Credit ratings
Moody’s Investors Service (“Moody’s”) affirmed the Insurer Financial Strength rating of Momentum
Metropolitan Life Limited (Baa2) and Guardrisk Insurance Company Limited (Baa3), Guardrisk Life
Insurance Company Limited (Baa3) and Guardrisk International Limited (Baa3) on
5 November 2019. The outlook for the South African sovereign credit rating has been changed to
negative; consequentially the outlook for the entities listed above was also changed.
Outlook
The operating environment in South Africa remains challenging, with low levels of business and
consumer confidence, sluggish economic growth and high levels of unemployment, which all
continues to put pressure on our clients. This understandably has a moderating effect on our
business activity and on our financial results.
Despite the difficult external environment, we remain focused on delivering on the Reset and Grow
strategy objectives articulated previously. Delivery on Reset and Grow initiatives will place us in a
stronger competitive position for the longer-term. We remain cautiously confident that we will achieve
our three-year Reset and Grow target of between R3.6 billion and R4.0 billion normalised headline
earnings in F2021.
21 November 2019
CENTURION
The financial information on which this trading update has been based has not yet been audited or
reviewed by the Group's auditors.
Conference call
The executive management of Momentum Metropolitan will be hosting a conference call for
shareholders, investors and analysts on 21 November 2019.
We kindly request callers to pre-register using the following link www.diamondpass.net/2916187.
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: 29383
JSE Sponsor:
Merrill Lynch South Africa (Pty) Limited
Date: 21/11/2019 07:05:00
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