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- Financial services group Momentum Metropolitan has achieved record earnings in its year to end-June, helped by the receding threat of Covid-19, and rising interest rates.
- The group upped its dividend by a fifth for 2023, and has approved another R500 million in share buybacks.
- But it is feeling the pressure on SA's consumers, with the value of new business falling, in part due to clients shifting to lower-margin products.
- For more financial news, go to the News24 Business front page.
Insurer Momentum Metropolitan Holdings (MMH) has delivered double-digit profit growth thanks to a continued drop in Covid-19 mortality claims and the positive effect of higher interest rates on the cash reserves.
The Centurion-headquartered insurance and investment group reported a more than 16% rise in attributable profit to R4.4 billion in the year to end-June on Wednesday, with the group upping its total dividend a fifth to 120c per share.
"I am proud of the solid earnings we achieved," outgoing group CEO, Hillie Meyer, who retires at the end of this month, said in a statement.
"Our business model of empowered, accountable business units has demonstrated its resilience and agility, assisting the group in coping with the multiple headwinds South Africa faced in the last year."
The group, valued at about R28 billion on the JSE, said its financial results were supported by an improved mortality experience driven by what it termed "modest" Covid-19-related mortality claims. The group also booked a positive investment variance of R1.1 billion, up from R353 million the previous financial year, driven by rising interest rates in SA.
Rowan Burger, head of strategic finance at MMH, told News24 the positive investment variance was due to the favourable returns on its invested cash reserves, which are typically held in government bonds. Higher expected long-term interest rates, which drove up yields on fixed income securities, helped reduce the present value of the group’s long-term insurance liabilities.
"Because the group is very sensitive to interest rate changes, we have a prudent hedging programme in place to protect solvency levels in the event of adverse moves in the yield curves over time, which can impact the returns on invested cash reserves," said Burger. "We try to make sure that cash reserves and our cash flow profile matches our long-term liabilities as long-term insurance policies mature."
Despite MMH’s solid financial results it still experienced a drop in the value of new business (VNB) which fell by 4% to R600 million driven by lower new business volumes, higher distribution costs, and a shift towards lower margin products across many of its business units.
Momentum Life - which focuses on protection and savings products for the middle and affluent clients - accounted for 37% of the group’s normalised headline earnings, which reached an historic peak of almost R5.1 billion in the year.
That was followed by Momentum Corporate, which accounted for 26%, and provides products such as pensions and group savings. Momentum Investments made an 18% contribution. Momentum Metropolitan Africa contributed 12% of normalised headline earnings followed by Metropolitan Life (6%), which focuses on the lower- and middle-income retail market with a range of protection, savings and annuity products.
Outlook
MMH reiterated previous concerns voiced by Meyer that poor economic growth and consequent pressure on disposable income in SA was a concern for the group that was likely to negatively impact new business volumes, particularly on long-term savings and protection business. The group’s investment business is also exposed to weak confidence in SA asset classes and a growing penchant among consumers to keep their assets in liquid, low-risk investments.
Despite this, the group said would continue to pay a dividend in line with its policy, while it has approved another R500 million in share buybacks.
By end-May MMH had also completed the initial share buyback programme it announced in its interim results with the group buying back an initial 27.9 million shares for R500 million at an average price of R17.87 per share, representing a 43% to its embedded value per share as of the end of December.
Incoming group CEO, Jeanette Marais, said that the group’s next financial results were unlikely to enjoy the same benefit from the release of Covid reserves and favourable investment variances to the extent they have this year.
"Our view is that the underlying run rate of earnings is approximately R4 billion per year," said Marais.
"The normalisation of mortality experience, combined with the disciplined execution of our strategy and ongoing focus on efficiency, means that we expect our earnings to remain robust,” said Marais.
"We remain focused on driving sales volumes and a profitable sales mix to improve market share growth."
In late morning trade Momentum's shares had fallen almost 2%, but are still up almost 17% on a one-year basis.
