Momentum Metropolitan Holdings says its operating performance has continued to improve. However, it reported a sharp decline in first-half earnings after it increased its Covid-19 reserves.
The insurance group said it made additional Covid-19 provisions of R655 million net of tax for the period. On top of that, it paid R6 billion in claims for the six months to end-December, as much as it would normally pay in an entire year.
Momentum Metropolitan said new business growth for the period was impressive, signalling good progress with a turnaround strategy it embarked on three years ago. New business volumes increased by 14% to R30 billion, with the value of new business more than doubling to R334 million. However, operating profit fell 31% to R890 million. Normalised headline earnings fell 43% to R1.01 billion due to the impact of the second wave of the Covid-19 pandemic, Still, it said this was a significant recovery from the R251 million loss it booked for the second half of its previous financial year, which included last April’s hard lockdown. It declared a dividend of 25c per share, down 38%. Its embedded value per share increased by 6.6% to R27.39.
Stripping out the additional Covid-19 provision, as well as the adverse mortality due to the pandemic, it said operating profit would have been 31% higher while normalised headline earnings would have been in line with the previous period.We are in the business of paying claims, and we hope this amount would have brought some relief to the economy, our clients and their families,” CEO Hillie Meyer said. “I am especially pleased that for both our retail businesses, Momentum and Metropolitan, the performance during this difficult period represents record sales – the best performance since the merger between Momentum and Metropolitan in 2010.”
Normalised headline earnings were also impacted by a R364 million decrease in investment return – a year-on-year decline of 75%. It attributed this to a number of factors, including lower yields on secure short-dated assets into which its invests the majority of its R13.5 billion shareholder investment portfolio, and a lower investable shareholder asset base following the R2 billion acquisition of Alexander Forbes Insurance a year ago. Finance director Risto Ketola said the good operating performance had, to a large extent, compensated for the decrease in investment return.
Momentum Corporate was the only business unit that made a loss during the period as it was particularly hard hit by death claims resulting from the pandemic. Not only did this business experience 35% more claims than normal, the claims were on average also 20% higher than normal.
The group said it remained cautious about the secondary impact of the pandemic on the economy as disposable income would remain under pressure, which in turn could dampen new business flows or increase contract terminations.The Group is on a solid financial footing and is well positioned to adapt to the evolving environment and the changing needs of our clients,” Meyer said. “We are navigating through this challenging period with a strong solvency position and sufficient liquidity to withstand impacts from the ever-changing landscape.”
Momentum Metropolitan’s shares rose 1.4% to R17.43 yesterday.
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