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MET - Metropolitan Holdings - Trading update for the nine months ended
30 September 2008
Metropolitan Holdings Limited
Incorporated in the Republic of South Africa
Registration Number: 2000/031756/06
JSE share code: MET
NSX share code: MTD
ISIN: ZAE000050456
("Metropolitan" or "the company")
Trading update for the nine months ended 30 September 2008
Group overview
South Africa`s dual economy is experiencing the current economic environment
in different ways - the emerging economy is growing while those exposed to the
stock markets and interest-rate leverage are under pressure; Metropolitan
remains focused on servicing its traditional emerging market.
Economic, investment and financial markets, local and global, remain
challenging.
Management is confident that the group`s entrenched market positioning,
together with its diversified income streams, will enable it to grow its
operations for the foreseeable future.
The 21% growth in the present value of premiums (PVP) of retail new business
over the nine months, in conjunction with sustained persistency levels, was
particularly satisfying.
The corporate business secured a number of profitable contracts through
innovative solutions and its new umbrella fund product. In a PMR survey, it
was rated as the best pension fund administrator in South Africa in the
category for administrators with more than 100 000 lives under administration.
Metropolitan International made good progress in growing its businesses in
Africa.
Metropolitan Health Group (MHG) continued to increase its number of members
under administration through the successful take-on of new Government
Employees Medical Scheme (GEMS) members.
The group`s capital management activities are ongoing, with a specific focus
on maintaining a sound balance sheet in these volatile markets.
Net cash received from clients, including all Metropolitan businesses, was
R6.7 billion.
Retail business
9 months to 9 months to Change 9 months to Change
30-Sept-06 30-Sept-07 30-Sept-08
Rm Rm % Rm %
New business
Recurring premiums 587 578 (2) 669 16
Single premiums 1 402 1 853 32 2 479 34
APE 727 763 5 917 20
PVP 3 296 4 424 34 5 365 21
Cashflow
Recurring premiums 2 847 3 126 10 3 443 10
Single premiums 1 402 1 853 32 2 349 27
Claims paid 2 955 2 988 1 3 523 18
Net inflow from 1 294 1 991 54 2 269 14
clients
New business
New recurring premium income for the last quarter, at R253 million (a new
record for any quarter), was 17% up on 2007.
New single premium income of R1 billion was recorded during the third quarter
- another record - giving a year-to-date increase of 34% over 2007.
New business volumes improved across most of the distribution channels, with
direct writers, group schemes and the general intermediary channel (GIC) doing
particularly well with recurring premiums, and all broker channels
contributing positively on the single premium side.
While direct marketing and broker recurring new business remained fairly flat
for the nine months, there was a slight improvement during the last quarter.
Despite the greater demands on our customers` disposable income, persistency
across all lines of business continued to hold up very well. This is primarily
thanks to focused attention from Retail on business conservation.
Overall, the life insurance book continued to grow in size.
Cashflow
Total premium income increased by 16%, enhanced by the growth in single
premiums.
Claims paid during the year were 18% up, boosted by higher maturity values per
case while overall experience remained in line with expectations.
The net result was an impressive 14% increase in net cash received.
Challenges and opportunities
The new commission structure has been finalised and the necessary changes are
being actively rolled out across all distribution channels.
Disposable income of South African consumers remains under pressure; however,
saving for the future has become even more of a necessity.
Growth in excess of 10% in retail recurring premium new business for the full
year remains attainable.
While expense management is always important and expenses continue to be
contained at below inflation levels in 2008, the current economic environment
demands the regular review and re-prioritisation of business plans.
The reduced levels of the investment markets will have a direct impact on any
market-value linked fees received by Retail.
This business is well positioned for the year ahead and management is
cautiously optimistic that the necessary building blocks are in place for
growth and an increase in market share.
Corporate business
9 months to 9 months to Change 9 months to Change
30-Sept-06 30-Sept-07 30-Sept-08
Rm Rm % Rm %
New business
Recurring 68 165 143 130 (21)
premiums
Single premiums 2 583 1 655 (36) 735 (56)
APE 326 331 2 204 (38)
PVP 3 005 2 731 (9) 1 568 (43)
Cashflow
Recurring 1 171 1 357 16 1 421 5
premiums
Single premiums 2 583 1 655 (36) 735 (56)
Off-balance 321 - 5 -
sheet
Claims paid 2 088 2 211 6 3 172 43
Net inflow from 1 987 801 (60) (1 011) -
clients
New business
Securing new business in the current employee benefits market remains
challenging and will continue to be so for a while.
Recurring premium new business was unable to match the performance of 2007;
however, over the longer term the business is growing steadily (new business
for 2005 to September was R35m). The fourth quarter so far is indicating
better than average performance, with a full year expectation for new business
recurring premiums of around R180m.
Targeting smaller single premium transactions to supplement the erratic large
contracts secured from time to time remains a business objective.
Metropolitan Retirement Administrators (MRA) commenced the administration of a
10 000 member fund for the paper and printing industry. This bodes well for
the future positioning of this business.
Cashflow
Recurring premium income increased over 2007, confirming the stability
introduced into the EB book over the last few years.
Claims paid increased by 43% during the period. This upward trend was mainly
distorted by growing disinvestments, a reflection of the current economic
environment, for purposes of paying fund benefits.
Another factor was the continued increase in death and disability claims.
Metropolitan Employee Benefits (MetEB) is expected to end the year in a net
outflow position.
Challenges and opportunities
MetEB received the Diamond Arrow Award for attaining the highest rating for
pension funds that administer more than 100 000 members in a recent survey
undertaken by Professional Management Review Africa (PMR).
Its new administration products, Neon, for small to medium funds, and
Benchmark for mega funds have been favourably received by the market and are
starting to generate new business inflows.
A significant component of employee benefits` business revenue is directly
linked to the market value of the underlying investments. All other things
being equal, full-year profits will be negatively affected by the severe
reductions in markets experienced during 2008.
International business
9 months to 9 months Change 9 months to Change
to
30-Sept-06 30-Sept-07 30-Sept-08
Rm Rm % Rm %
New business
Recurring premiums 70 85 21 98 15
Individual life 55 80 45 88 10
Employee 15 5 (67) 10 100
benefits
Single premiums 147 77 (48) 86 12
(incl EB)
APE 85 93 9 107 15
PVP 379 356 (6) 403 13
Cashflow
Recurring premiums 585 614 5 662 8
Single premiums 185 93 (50) 99 6
Claims paid 452 510 13 477 (7)
Net inflow from 318 197 (38) 284 44
clients
New business includes Metropolitan`s share of new business written by all
international subsidiaries.
Premiums and claims exclude Nigeria, as it is accounted for as a joint
venture.
New business
New business was boosted by growth in the newer operations.
Conditions in Namibia, Botswana and Kenya were still challenging.
The businesses in Lesotho and Ghana performed well during the period.
Cashflow
Both recurring and single premium income were marginally higher than in 2007
The Namibian business was the main contributor to the reduction in benefits
paid to policyholders.
As a result, the net cashflow position remained positive, increasing
significantly over the prior year.
Challenges and opportunities
The International operations have, to a large extent, been less affected by
the global economic and stock market melt-down.
The newer operations are starting to contribute to the overall sustainability
of the business.
Asset management business
9 months to 9 months Change 9 months to Change
to
30-Sept-06 30-Sept-07 30-Sept-08
Rm Rm % Rm %
Net inflow from
clients
Third party mandates (3 472) 240 - 1 401 -
- net
Collective 3 003 5 066 69 2 728 -
investments - net
MetAm was successful in securing further third party mandates during the
quarter.
As expected, flows into collective investments started to slow down.
While the outlook for the asset management operations remains positive,
earnings will be significantly impacted in the short term by the investment
market volatility.
Health business
Total membership numbers continued to grow, with the main driver being the
highly successful GEMS scheme.
At 30 September 2008 GEMS had close to 300 000 registered, fee-paying members,
with membership continuing to increase month on month at about 400 members per
day.
MHG`s total principal members under administration, including franchise
members, stood at 760 000 (1.9 million lives).
Performance levels across the board are in line with contracted service level
agreements with the various schemes under administration.
As a differentiated fee income based business MHG is largely isolated from the
current economic turmoil and the outlook remains good.
Group perspective
Capital management
As part of the 2008 interim results communication, we informed the market
that, due to the economic and investment market uncertainty, we had decided to
retain more free capital than we may previously have done. The two main
reasons given were financial security and positioning for growth.
The significant fall in equity market valuations and increase in volatilities
since June 2008 will have impacted on the group`s capital in that (a) the
capital adequacy requirement will have been increased by the reduction in the
funding levels of policyholder portfolios and (b) the value of shareholder
assets will have decreased in line with the investment markets.
However, the group continues to actively monitor the capital position
throughout its operations with a view to protecting shareholder capital and
policyholder assets during these volatile investment market conditions.
Dynamic asset allocation, capital protection and other strategies are applied
to both shareholder and policyholder investments, when deemed appropriate, in
order to ensure that the group maintains adequate capital.
The group remains financially sound.
Earnings
Metropolitan does not provide earnings forecasts or guidance; however, in
order to assist investors in these volatile times, we would like to highlight
the following drivers of group profits:
Investment asset values have fallen significantly during 2008. Any change in
shareholder investments has a direct impact on earnings for the year.
The earnings of life companies are calculated with reference to the discounted
value of all future profit charges. Any change in the underlying discount rate
affects the earnings of a life company.
To the extent that we charge asset-based fees, any change in average asset
levels affects the operating profits of businesses such as asset management
and, to a lesser extent, corporate and retail.
Cover2Go
Cover2Go launched an innovative product, Cashback, through Shoprite during the
period. The product is a funeral policy that pays back all premiums paid at
maturity.
Early indications are that consumers are reacting positively to this
innovative way of distributing life insurance products.
Curatorship of Ovation
Discussions with the curators are ongoing with a view to resolving the
curatorship and re-launching the living annuity product range as soon as
possible.
Comments / qualifications
All figures are provisional and unaudited. Any statement or information that
could be considered as being forecasted financial information has not been
reviewed and reported on by the auditors of Metropolitan either in accordance
with ISAE 3400 or ISAE 3000 (Revised).
The basis on which the new business figures have been calculated is the same
as that used for embedded value purposes. Premium income is included from the
date on which policies come into force as opposed to the date on which they
are accepted. (Figures calculated on the latter basis are normally referred to
as production figures.) It should be noted that there can be a delay of up to
three months between these two dates.
The new business figures are all net of outside shareholder interests.
End
ISSUED BY NICO OOSTHUIZEN
MANAGER: INVESTOR RELATIONS
METROPOLITAN HOLDINGS LIMITED
TEL 021 940 6111 OR 083 285 7092
DATE 12 NOVEMBER 2008
QUERIES WILHELM VAN ZYL
GROUP CHIEF EXECUTIVE
METROPOLITAN HOLDINGS LIMITED
TEL 021 940 6637
PRESTON SPECKMANN
GROUP FINANCE DIRECTOR
METROPOLITAN HOLDINGS LIMITED
TEL 021 940 6634 OR 083 285 6454
TYRREL MURRAY
GENERAL MANAGER: GROUP FINANCE
METROPOLITAN HOLDINGS LIMITED
TEL 021 940 5083 OR 082 889 2167
Sponsor
Merrill Lynch South Africa (Proprietary) Limited
Date: 12/11/2008 14:00:02 Produced by the JSE SENS Department.
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