Higher mortality claims knocked Momentum Metropolitan’s operating profit in the six months to the end of December, declining by 12% to R785 million compared to the first six months of the 2021 financial year. However, investment returns jumped by more than 500%, from R122m to R740m.
The significant increase in investment returns resulted from the general recovery of investment markets, fair value gains from the revaluation of the group’s investment in venture capital funds, and foreign exchange gains on foreign currency-based assets.
The group’s normalised headline earnings (NHE) rose 51% to R1.53bn in the first half of its 2022 financial year.
Headline earnings per share increased by 64% to 91.4 cents, but earnings per share declined by 23% to 48.4c, which the group attributed to a partial write-off of the goodwill recognised on the acquisition of Alexander Forbes’s short-term insurance business.
The group recorded mortality losses of R378m (net of reinsurance and tax) following the release of R1.11bn of its provisions of R2bn at 30 June last year. The provisions will be reassessed in June 2022.
In the first quarter of the 2022 financial year, MM’s South African life insurance businesses paid R4.6bn in mortality claims (gross of reinsurance and tax), representing three times the pre-pandemic quarterly average. The net mortality loss was R327m. In the second quarter, its South African life insurance businesses paid R2.4bn, resulting in a net mortality loss of R51m.
Sales increased 23% to almost R37bn from just below R30bn in 2020 and from R26bn in pre-Covid 2019. The value of new business increased 20% to R400m from R334m in 2020 and from R160m in the period to December 2019. It attributed this to strong new business volumes and expense management.
Despite the increased sales, the new business margin remained flat at 1.1%. Group financial director Risto Ketola said this was because many of the group’s investments in IT-related projects were in the new business area.
Chief executive Hillie Meyer said an area of concern was Momentum Life’s Myriad business. On a present value of new business basis, its volumes were 25% of its pre-Covid numbers, and it has lost about 10% of market share. The group has not pinpointed why Myriad was struggling, but the business will receive “a lot of attention”, he said.
Momentum Life was the business unit hardest hit by mortality claims, with NHE plunging 91%, from R332m to R30m. It went from an operating profit of R274m to a loss of R44m.
A tale of two short-term insurers
NHE from the group’s non-life business rose 17%, from R258m to R303m, most of which was due to Guardrisk, whose earnings soared by 73% to R295m.
Meyer said a key factor in Guardrisk’s performance has been the decision to underwrite short-term business directly, with underwriting contributing 30% to revenue.
But it was a different story at Momentum Insure, where NHE tanked 91%, from R87m to R8m, which Ketola attributed to claims for severe weather-related events in the second quarter.
The group said the weaker economy and the complexities with integrating the different sales channels resulted in new business volumes across all channels not achieving the targets expected.
“Future new business is not expected to fully recover the gap created, which has necessitated a R708m downward adjustment to the goodwill recognised as part of the acquisition of the Alexander Forbes short-term insurance business.”
Business interruption claims
By the end of December, Guardrisk had settled most of its business interruption claims, with only 52 claims outstanding that have an estimated gross value of R152m, while Momentum Insure had 35 BI claims with an estimated gross value of R33m outstanding.
In both Guardrisk and Momentum Insure, many of these claims have indemnity periods that have not yet run their course.
The group believed the remaining provision against BI claims was sufficient to absorb the impact of the outstanding claims.
Performance of other business units
Momentum Investments’ NHE improved by 11%, from R440m to R489m, due to rising equity markets and higher client inflows.
The 5% decline in operating profit to R438m was mainly due to replacing Momentum Wealth’s investment platform.
Operating profits from annuities and structured products declined marginally due to lower credit spreads and the impact of yield curve movements.
The value of new business increased significantly, from R144m to R232m, on the back of good annuity sales.
Metropolitan Life’s NHE fell 18%, from R328m to R268m, and operating profit declined by 22% to R232m, mainly impacted by a negative investment variance and R69m deterioration in persistency.
Ketola said the decline in persistency was not because of lower collections but because of teething problems with migrating to a new administration system.
However, the value of new business premiums increased by 39% to R3.6bn.
Momentum Corporate saw in a huge turnaround in NHE, from a loss of R212m to a R370m profit.
The swing from an operating loss of R236m to a profit of R302m was supported by strong earnings growth in the disability business, where, after experiencing heavy losses, the group has repriced over the past three years.
Ketola said another factor was that the with-profit annuity business benefited from rising markets.
Mortality claims improved from a loss of R102m in the prior period to a loss of R37m after the release of R439m (net of tax) of the Covid-19 provision.
New business volumes increased by 37%, from R3.5bn to R4.9bn. The group said this largely due to a 94% growth in recurring premium volumes on group risk products. Single-premium volumes increased by 17%, driven by improved annuity sales.
However, the value of new business declined from R19m to R6m, because the new business mix was weighted towards lower-margin products and smaller FundsAtWork schemes that carry relatively higher expenses, the group said.
Momentum Metropolitan Health’s NHE of R94m were 9% higher, mainly driven by fee income generated from continued growth in its low-cost Health4Me product and public sector membership, as well as lower Health4Me claims and prudent expense management.
Momentum Metropolitan Africa’s NHE fell 98% from R304m to R7m, which Ketola said was mainly related to the severity of the third wave in neighbouring countries.
Net mortality losses amounted to R89m (net of reinsurance and tax) after releasing Covid-19 provisions of R39m.
Venture capital investments
Investments in venture capital funds paid off handsomely for the group’s Shareholders segment, which swung from a loss of R267m to a profit of R263m.
The investment return moved from a loss of R98m to positive earnings of R292m. This was driven by a fair value gain of R228m from the revaluation of the group’s investment in venture capital funds and R72m of foreign currency gains on venture capital investments.
The operating loss improved from R169m to R29 million, mainly because of foreign exchange gains in the UK holding entity and the restructuring of leases on the group’s properties.
However, the group’s New Initiatives segment recorded another year of losses, which widened from R257m to R299m.
Aditya Birla Health Insurance, the group’s joint venture with Aditya Birla Capital in India, saw a 30% increase in gross written premiums to R1.6bn. But, as a result of the severity of the second wave in India, it was hit by excess claims of R100m, said Ketola. This contributed to its losses increasing from R145m to R240m.