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09 September 2020 | 5 - 8 min read
Results demonstrate robustness of Group’s performance
Following good progress with its Reset and Grow strategy announced in 2018, Momentum Metropolitan remains optimistic about the future despite the severe impact Covid-19 will continue to have on the economy. Sharing the company’s annual financial results for the year ended June 2020, the Group’s CEO, Hillie Meyer, said that the turnaround strategy the Group embarked on was the right strategy at the right time: “There is not a single objective in our Reset and Grow strategy that has lost its relevance. In fact, it has certainly placed us in a better position to manage the impact of the pandemic, now and going forward. I believe our federated empowered business units and our entrepreneurial culture are key reasons why we were able to adapt quickly to the circumstances.
“Most pleasingly, we were able to effectively respond to the needs and concerns of our clients, without compromising employee safety, during this period of uncertainty. We provided relief measures to our clients and South Africans to the value of more than R500 million. We have also set aside provisions of R983 million for potential adverse claims experience and policyholder lapses and withdrawals resulting from the pandemic. We continued to provide financial support to our distribution force, whose income is linked to sales, and we are not planning any mass staff retrenchments because of the pandemic,” Meyer added.
The Group delivered normalised headline earnings of R1 521 million for the 12 months, which includes a loss of R251 million for the second half of the year. This loss was due to additional provisions for Covid-19 of R983 million and the impact of investment market losses that amounted to R975 million. Excluding the impact of these two items, earnings from operational activities of R3 479 million demonstrate a continuation of the Group’s pre-Covid-19 momentum and robustness of their underlying results.
Momentum Metropolitan’s new business volumes, as measured by the present value of new business premiums (PVNBP), declined by 10% to R50.5 billion. Risto Ketola, Group Finance Director, highlighted that excluding the impact of a R5 billion single premium with-profit annuity transaction in the prior year, the PVNBP remained flat year-on-year. “This is a commendable achievement, considering the impact of the national lockdown and the slowdown in economic activity during the fourth quarter.” The value of new business (VNB) declined by 48% to R280 million, illustrating the extent to which VNB is sensitive to new business volumes due to fixed costs in the distribution channels.
Ketola continued: “We maintained our strict focus on efficiency initiatives. Our controllable administration expenses increased by 2%, well below inflation. Increases in expenses to accelerate developments of our digital capabilities and service platforms, as well as the cost to enable our staff to work from home, were offset by tight control on headcount and a reduction in items such as travel and entertainment – partially due to the lockdown restrictions”.
Despite the trying environment, Momentum Investments continued its growth trajectory and saw good new business and investment flows throughout the year. In Metropolitan Life, the sustained operational focus to improve the quality of business resulted in improved new business margins despite lockdown-related costs in its agency force. The Non-life Insurance operations continued to deliver good growth, further supported by the acquisition and integration of Momentum Insurance (formerly Alexander Forbes Insurance). The businesses in other African countries contributed with positive earnings growth year-on-year.
The Group’s headline earnings per share declined by 58% to 71.3 cents and earnings per share declined by 92% to 12.3 cents. No final ordinary dividend was declared.
Largely driven by declining investment markets and additional provisions against the impact of the pandemic, the return on embedded value (ROEV) declined from 8.0% in F2019 to -3.7% and the regulatory solvency position of Momentum Metropolitan Life, the Group’s main life insurance entity, decreased from 2.08 times the Solvency Capital Requirement (SCR) at 30 June 2019 to 1.85 times SCR at 30 June 2020, which remains close to the midpoint of our target range of 1.7 to 2.1 times the SCR. The Group continues to be well capitalised with a strong balance sheet.
Meyer added that the Group is working hard to minimise the impact of the pandemic – not just on the company, but also on the economy and the country: “The pandemic will have a long-term negative impact on the economy. We expect to see weaker investment returns, lower new business, and weaker persistency levels in the medium term. However, we will continue to focus on matters under our control and build on our strengths and successes to date. We are determined to emerge from the current difficult situation in an improved relative position – in terms of market share, operational excellence, and use of evolving technology”.
In terms of financial outlook, Meyer concluded: “It will be speculative to provide firm guidance on our financial results for the next year, however, we will be disappointed if the Group does not improve materially on the current year’s results”.
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