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Insurance group Liberty, which is partly owned by Standard Bank, says it has passed the turnaround phase and is now chasing growth after posting a 42% increase in headline earnings for the 2019 financial year.
The group, SA’s fourth-largest insurer by market capitalisation, embarked on a turnaround strategy in 2017 at a time when it was losing market to competitors like Sanlam and Discovery. It adopted what it termed a "refocus" on its South African operations when David Munro was appointed as CEO that year.
On Thursday, Munro said Liberty has now entered a growth phase which would hopefully reward the shareholders who stuck with it. The group's share price has fallen from a high of over R170 five years ago to around R100 currently.
"We are no longer talking about the turnaround of Liberty or restoring [it]. We are growing. We are preparing this company for the future. We are building things that will help us be competitive in a five to 10-year horizon. We are out the corner [sic], we are going," he said.
In its financial results for the year ended December 2019, Liberty’s said its profits had benefited from a generous R1 billion return from the shareholder capital that it invests. Its day-to-day operations delivered a 10% increase in operating earnings.
In 2018, Liberty's operating earnings had risen by 42%.
'A good number'
Liberty attributed the slower growth in 2019 to lapses in risk policies and muted growth in new sales volumes in its SA Retail business, as well as withdrawals in umbrella funds as more companies retrench.
"I think in the context of all that we were faced with, a 10% growth in the business that we run, is a good number," said Munro.
Liberty's CFO, Yiresh Maharaj, said the group's SA Retail business which sells insurance, investments and retirement products to individuals had recorded a high number of early lapses - policies that are cancelled within 12 months of purchase. These lapses were predominantly in risk policies like life and disability insurance where consumers pay premiums monthly. Single premium investments were not affected.
"There’s a real need for risk insurance. But then comes the factor of prioritisation when it gets to disposable income pressures two or three months down the line. That’s the challenge," said Maharaj.
While the SA Retail business struggled to raise sales volumes, which increased by only 1%, Munro pointed out that the rest of the operations remained resilient, boosting new business volumes at group level by 10%.
The group’s asset management business Stanlib, which in the past also underwent a rigorous strategy reset, was one of Liberty's stellar performers, increasing its headline earnings by 30% after attracting 7% more assets under management and gaining R1.7 billion in net fee income, 5% higher than in 2018.
Warwick Bam, head of research at Avior Capital Markets, said Liberty’s management deserve credit for "an excellent set of results".
"The lapses in retail and terminations in corporate are a direct function of the economy and to be expected at this stage. Liberty’s cost management and internal commitment to improved service levels will assist profit and new business growth."
But Bam added that 2019’s higher growth base would make a repeat performance more challenging for in 2020.
