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21 May 2020 | 5 - 8 min read
Momentum Metropolitan showed good operational performance during the third quarter of their financial year (January to March 2020), slightly better than the previous two quarters. Excluding the impact of market-related items in March, earnings from operations for the quarter were R947 million.
However, the negative impact of investment markets nullified the good operational performance and moved the Group’s normalised headline earnings for the quarter into a loss of R284 million. This resulted in year-to-date normalised headline earnings of R1 488 million, a reduction of 39% relative to the prior year.
The disruptive impact of Covid-19 was evident only in the last two weeks of the quarter ending 31 March 2020. In line with global financial markets, the South African markets reacted sharply with the JSE falling by 22% and liquidity coming under severe strain in various funding markets. The impact of Covid-19 on operations, however, was muted. “We had business continuity plans in place for dealing with the crisis before the pandemic broke out, and the activation of these plans led to minimal disruption,” explained Hillie Meyer, Group CEO. “More than 90% of our employees were fully enabled to continue serving our clients from home during Level 5 of the lockdown.”
Risto Ketola, Momentum Metropolitan Finance Director added that the Group’s high standards of risk management and its prudent approach to solvency management have proven to be an advantage in preserving the value created for stakeholders. “At the height of the drop in investment markets, we remained well capitalised within our stated solvency targets. We ended the quarter with solvency cover of 2.0 times the Solvency Capital Requirement at 31 March 2020. This is a strong capital position,” Ketola said. “We have a robust liquidity management process in place for unexpected events and we have sufficient liquidity buffers to fund cash calls under even more extreme scenarios. This enabled us to navigate through the market crisis in March without concerns,” Ketola concluded.
Well-performing business units in the Group include Momentum Corporate, which saw a significant improvement in its underwriting result compared to the previous year. Momentum Metropolitan’s health administration business (reported within Momentum Corporate) also delivered good quarterly earnings growth due to increased membership in the public sector and efficiency gains.
The Momentum Wealth investment platform within Momentum Investments delivered good growth following strong new business volumes and lower outflows. Non-life Insurance results were boosted by solid earnings from Guardrisk and a maiden contribution from recently acquired Alexander Forbes Insurance.
New business volumes were only impacted marginally by the Covid-19 pandemic during this quarter, given that social distancing and lockdown were only implemented late in March. In the South African retail operations, the present value of new business premiums (PVNBP) increased by 14% year-on-year, mainly due to strong inflows into Momentum Investments. Metropolitan Life also delivered year-on-year growth in PVNBP over the three months. The Group’s South African retail operations experienced 40% year-on-year growth in value of new business (VNB). In addition to positive new business volume growth in South African retail operations, the VNB was further supported by good expense management across the Group. Metropolitan Life’s improved VNB also reflected the steady shift towards business where premiums are collected via payroll deduction. The total VNB for the Group was down compared to the previous period, due to the impact of the R5 billion single premium with-profit annuity transaction that was recorded in Momentum Corporate in the prior period.
Meyer said that the impact of Covid-19 on the economy and the financial services industry will be severe, but it is too early to arrive at any final conclusions given the uncertainty that remains. “The long-term impact will largely depend on the country’s ability to limit the depth of the economic recession. We do not foresee a rapid economic recovery and we expect this to cause lower new business volumes and weaker persistency over the next twelve to eighteen months, perhaps even longer. As a result of the wide-ranging impact of Covid-19, I no longer expect Momentum Metropolitan to achieve our Reset and Grow target for F2021, namely to deliver normalised headline earnings of between R3.6 billion and R4.0 billion. Instead, F2021 will have to be a period during which we adapt to a new reality in our operating environment. During this time, we will continue to keep the best interests of our employees, our clients, and society in mind as we navigate this new territory. We will continue to leverage off our decentralised operating model and entrepreneurial culture to pro-actively look for opportunities to improve our offerings to our clients and to make them relevant in these unusual times. We believe that the lasting impact of the pandemic will bring further opportunities to improvise and to innovate to the benefit of our clients.”
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