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MOMENTUM METROPOLITAN HOLDINGS LIMITED - Operational Update for the three months ended 30 September 2023

Release Date: 21/11/2023 08:00
Code(s): MTM MML04 MML02 MMIG04 MML06 MML07 MML01 MML03 MMIG07 MML05     PDF:  
Wrap Text
Operational Update for the three months ended 30 September 2023

Incorporated in the Republic of South Africa
Registration number: 2000/031756/06
JSE share code: MTM
A2X share code: MTM
NSX share code: MMT
ISIN code: ZAE000269890
(Momentum Metropolitan or the Group)

Incorporated in the Republic of South Africa
Registration number: 1904/002186/06
LEI: 378900E0A78B7549C212
Company code: MMIG
(Momentum Metropolitan Life)

Operational update for the three months ended 30 September 2023

Momentum Metropolitan records a satisfactory performance
The Group continued the positive trajectory highlighted in the previous results despite the unfavourable trading conditions marked by socio-political
uncertainty, low economic growth, high interest rates and low consumer disposable income.

While we transition to the new accounting standard, IFRS 17 - Insurance contracts, this operating update serves to inform stakeholders about the 
Group's operational performance against the key measures such as sales volumes and provides guidance and commentary on key factors influencing the 
Group's earnings, for the three months ended 30 September 2023.

The Group's present value of new business premiums (PVNBP) increased by 18% compared to the prior period to R19.7 billion. This was largely aided by 
a change in the discount rate used to calculate the present value of premiums to align with the "market consistent methodology" used for IFRS 17. 
New business sales volumes in Momentum Investments continued to benefit from the strong growth in annuities. Also worth noting is the significant 
volume of single premium business received by Momentum Corporate. This sales growth was however partially offset by a decline in recurring premiums 
given a large recurring premium annuity deal written in the prior period.

Underwriting performance in both the Non-life and Life insurance operations followed expected experience.

Expense growth across the Group was slightly above inflation as a result of investments into capabilities and improvements to both client and adviser

Key highlights from our management focus areas include:
- In Momentum Insure, while it is a short measurement period, we observed a positive trend in the claim ratio, which decreased to 66% compared to 70% 
  in the prior period. This reflects the positive impact of underwriting measures Momentum Insure management took to address weak underwriting 
  outcomes over the prior 12 months.
- Despite the decrease in the size of the Metropolitan Life tied agency force, the number of more experienced advisers (advisers with tenure of more 
  than 12 months) remained stable. This positively influenced the quality of business written with early duration lapses improving. In the upcoming 
  12 to 18 months, Metropolitan Life aims to attain a new business margin of 5% and normalised headline earnings (IFRS 17) of R600 million. This 
  objective will be pursued through a purposeful emphasis on a comprehensive five-point plan, involving enhancing product commerciality, efficiently 
  managing the channel workforce, improving business quality, aligning the cost base to revenue, and implementing migration and automation measures.
- Life annuity sales remained strong. We continue to focus on ensuring the sustainability of these volumes by enhancing the client and adviser 
  experience and enabling product and propositional enhancements that will differentiate us in the market.
- The digital underwriting process in Momentum Life gained strong adoption with 80% of all Myriad policies being submitted on the new LifeReturns 
- The normalised headline earnings loss in Aditya Birla Health Insurance (ABHI), our health insurance associate in India, reduced from R80 million to 
  R63 million and net earned premiums increased 43% from the prior period.
- Both Guardrisk and Momentum Corporate continued to deliver value.

The share repurchase programme communicated to investors at the full-year results announcement is still in process. As at 20 November 2023, the Group 
had bought back 24 million shares, of which 16.5 million have been cancelled, for a total consideration of R498 million. From 1 July 2023 to 
30 September 2023, the shares have been repurchased at an average price of R20.69 per share representing a 38.7% discount to the Embedded Value of 
R33.75 per share on 30 June 2023.

The Group remains well capitalised. The regulatory solvency positions of most of the Group's regulated entities remain toward or above the upper end 
of their target solvency ranges. For Momentum Metropolitan Life (MML), the Group's main life insurance entity, the Solvency Capital Requirement (SCR) 
cover remained stable at 2.07 times SCR from 30 June 2023 to 30 September 2023. This is above the upper end of MML's target range of 1.6 to 2.0 times 

Overview of key metrics
The table below sets out certain key metrics for the quarter ended 30 September 2023:
Key metrics                                                  1QF2024     1QF2023    Change %
Recurring premiums (R million)                                   995       1 327       (25)%
Single premiums (R million)                                   15 205      11 589         31%
New business volumes (PVNBP, R million)                       19 683      16 739         18%
Total direct expenses (R million)                              2 985       2 745          9%
AUM on Momentum Wealth investment platform (R billion)           240         210         14%
Health members under administration ('000)                     1 259       1 208          4%
Momentum Insure claim ratio                                    65.9%       69.8%

Segmental performance
The table below shows the PVNBP by business unit for the period:
R million                                                    1QF2024     1QF2023    Change %
Momentum Life                                                  2 138       1 856         15%
Momentum Investments                                          10 821       8 988         20%
Metropolitan Life                                              1 803       1 757          3%
Momentum Corporate                                             4 223       3 572         18%
Momentum Metropolitan Africa                                     698         566         23%
Total PVNBP                                                   19 683      16 739         18%

                                                                   1QF2024                 1QF2023               Change %
                                                           Recurring      Single   Recurring      Single   Recurring      Single
R million                                                   premiums    premiums    premiums    premiums    premiums    premiums
Momentum Life                                                    266         688         267         544        (1)%         26%
Momentum Investments                                              67      10 541          49       8 793         37%         20%
Metropolitan Life                                                426         492         434         434        (2)%         13%
Momentum Corporate                                               134       3 233         496       1 590       (73)%       >100%
Momentum Metropolitan Africa                                     102         251          81         228         26%         10%
Total                                                            995      15 205       1 327      11 589       (25)%         31%

Momentum Life
Momentum Life's mortality experience was in line with the experience seen in the prior comparative period. Earnings are expected to be negatively 
impacted by a reduction in long-term interest rates.

Momentum Life saw a good improvement in new business volumes (PVNBP), this reflects year-on-year growth in both the long-term savings (up 20%) and 
the protection (up 9%) new business. Our value of new business (VNB) is expected to remain in line with the prior period following depressed 
protection sales in this period.

Myriad's key focus remains the entrenchment of our new LifeReturns proposition, a sophisticated point-of-sale risk selection and discount mechanism, 
and digitally transforming and improving the onboarding experience by mobile-driven underwriting solutions and a paperless capturing capability. 
Over the past quarter, 80% of all Myriad policies were submitted on the new Myriad underwriting solution.

Momentum Investments
Momentum Investments' earnings benefited from an increase in assets under management, higher mortality profits and continued strong growth in annuity 
sales. Earnings are expected to be negatively impacted by a decline in investment variances due to changes in the shape of the yield curve and basis 
spread (bonds weakening more than swaps).

Assets under management of R240 billion on the Momentum Wealth investment platform improved by 14%. This includes the positive impact of net flows on 
the local and offshore platform business, which was aided by the positive market performance since the prior period. Institutional and retail assets 
under management improved by a strong 22% to R580 billion, largely due to the acquisition of Crown Agents Investment Management, a fixed income and 
multi asset manager in the UK, in April 2023 and also reflecting higher flows and favourable market performance. Momentum Investments' new business 
sales volumes continued to benefit from strong growth in annuity new business volumes, offset to some extent by lower new business volumes on the 
offshore platform. The business continues to invest in automation, particularly in re-platforming.

Metropolitan Life
Although Metropolitan Life's customer base continues to be constrained by the current economic conditions, lapse experience in the protection 
business has improved year-on-year. Metropolitan Life also saw an improvement in mortality experience compared to the prior period.

New business volumes showed modest year-on-year growth (on a PVNBP basis). While there was good growth on single premiums, recurring premiums from
protection and long-term savings business increased only marginally. New business mix remained weighted towards lower margin savings products and 
protection products with limited underwriting, which is expected to negatively impact VNB. There has been an encouraging improvement in the quality 
of business, as evidenced by improvements in early duration lapses, reflecting the positive impact of management actions. In line with the decision 
made, there has been a reduction in the number of tied agents. The productivity per agent has deteriorated marginally from 3.0 to 2.9 policies a week.

Momentum Corporate
Momentum Corporate expects its earnings to decline relative to the comparative prior period. This is, however, largely expected and is mainly due to 
the normalisation of the underwriting experience on group risk products, the impact of yield curve movements on the annuity book, and the non-repeat 
of the Covid-19 reserve release in the prior period.

Momentum Corporate's new business volumes (PVNBP) grew, boosted by significant single premium structured investment flows. Recurring premiums declined
following the non-repeat of a large recurring premium annuity deal written in the prior period. The business continues to experience increased 
competitive pressure arising from a diverging market outlook around future mortality and morbidity experience. VNB is expected to decline slightly, 
largely due to the business mix being weighted towards lower margin investment business during the past three months.

Momentum Metropolitan Health
Momentum Metropolitan Health's earnings improved following growth in fee income generated from membership growth and an increase in interest income. 
Despite the tough economic environment, overall membership growth of 4% was achieved. This is largely due to the continued growth in the public sector 
(5%) and Health4Me membership (19%). Membership in the Momentum Medical scheme and corporate market segment declined, indicative of economic 
conditions placing pressure on employment numbers within the corporate client base.

Guardrisk benefited from its industry and product diversification, offsetting the impact of the tough trading conditions. Earnings improved marginally,
aided by solid growth in management fee income in Guardrisk Life, good growth in the core revenue lines of Guardrisk Insurance Cell Captive business,
partially offset by a 5% year-on-year decline in Guardrisk General Insurance underwriting profits. Revenue was supported by investment income 
benefiting from the current high interest rate climate. Expenses increased above inflation, primarily because of higher personnel costs incurred to 
build capacity for reporting requirements and future growth.

Momentum Insure
Momentum Insure reported a profitable quarter, benefiting from the positive impact of premium increases in excess of claims inflation, other 
underwriting actions to address higher claims frequencies, and more favourable weather conditions. Gross written premiums showed encouraging growth of 
9% to R824 million despite subdued new business volumes and marginally worse persistency experience partly due to the intentional reduction in cover 
for cohorts of loss-making product groupings. Notably, persistency experience remained well within appetite despite the claim ratio corrective actions 
taken. The claim ratio showed a positive trend, decreasing to 65.9% compared to 69.8% in the prior period.

Momentum Metropolitan Africa
Momentum Metropolitan Africa continued to see death and disability claims in line with expectations for most countries except Botswana where mortality
experience remains somewhat elevated. Earnings were, however, impacted by weaker persistency experience as lapses and surrenders increased.

PVNBP was 23% higher than the comparative period. New business volumes were supported by good growth in retail risk business following a focus to 
shift the new business mix towards higher margin risk business, particularly in Namibia. Health premium income improved strongly, mainly driven by 
solid contributions from Botswana and Lesotho. Ghana has shown some recovery following the negative macro-economic impacts in the prior period.

New initiatives
Included in New Initiatives1 is a loss of R63 million for Aditya Birla Health Insurance2 (ABHI). This is an improvement from the R80 million loss 
reported in the prior period, mainly due to a 23% growth in gross written premium, with robust growth in both retail and group business. The claim 
ratio increased year-on-year and was negatively impacted by greater benefit utilisation, the increased cost of healthcare provision in India and group 
business growing faster than retail. Management has initiated numerous measures to address the higher claim ratio. These actions include a focus on 
product pricing, new business sourcing, underwriting and provider fraud, waste and abuse.

1 New Initiatives includes Aditya Birla Health Insurance (a health insurance associate in India), Momentum Money (a bundled transactional banking and 
  savings solution), the operating expenses of Exponential Integration, as well as other local start-up operations.
2 Results for the India investment are reported with a three-month lag, The dilution of the 49.0% stake in ABHI to 44.1% was concluded during October 
  2022. Results include support costs incurred by Momentum Metropolitan outside of the associate. 

We are pleased by the growth in new business volumes despite the ongoing economic challenges in our operating environment.

We remain concerned about the impact of the slow pace of economic recovery and higher interest rates on disposable income. This is likely to put 
pressure on new business volumes and persistency, particularly in Metropolitan Life. We remain focused on driving sales volumes and on improving the 
sales mix to increase VNB outcomes. We remain committed to achieving the Reinvent and Grow business targets for F2024rategic plans for the period beyond 
Reinvent and Grow. The various strategies focus on improving our competitive position to generate growth in our key markets. We look forward to sharing 
these plans with investors in due course.

While the impact of IFRS 17 on the Group's financial reporting process and results is significant, solvency measures and thus free cash flow is 
unaffected. No immediate changes to business models are anticipated, but the additional granularity and aspects of financial performance provided by 
IFRS 17 may be used to enhance decision making. The Group will provide further details on the impact of IFRS 17 when it releases its interim results 
in March 2024.

21 November 2023


The information in this commentary, including the financial information on which the outlook is based, has not been reviewed and reported on by 
Momentum Metropolitan's external auditors.

Conference call
The executive management of Momentum Metropolitan will be hosting a conference call for shareholders, investors and analysts on 21 November 2023.

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 13:00.

The 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:     45545

Equity sponsor:
Merrill Lynch South Africa (Pty) Limited t/a BofA Securities

Sponsor in Namibia
Simonis Storm Securities (Pty) Limited

Debt Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)

Date: 21-11-2023 08:00:00
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