| Wed 11 Nov 2009, 10:00 | | MET - Metropolitan Holdings Ltd - Trading Update for the Nine Months Ended |
|
MET
MET
MET - Metropolitan Holdings Ltd - Trading Update for the Nine Months Ended
30 September 2009
METROPOLITAN HOLDINGS LTD
(Incorporated in the Republic of South Africa)
Registration number: 2000/031756/06
ISIN: ZAE000050456
JSE Share Code: MET
NSX Share Code: MTD
("Metropolitan")
Trading update for the nine months ended 30 September 2009
Group overview
- During the course of the past twelve months South Africa has
experienced periods of extreme investment market reduction and
volatility. Metropolitan has managed to navigate its way through the
turmoil successfully, with its healthy capital position intact.
- During this time of economic downturn, the persistency of the group`s
policyholder base has remained surprisingly resilient and overall the
number of lives under administration on the active insurance books has
continued to grow.
- Expense management has remained top-of-mind, with a balance being
sought between investing in the future (staff and systems) and
continuing to manage the overall expense base.
- The various sub-sets of the South African and African economies have
experienced the economic downturn differently. Clients in the emerging
sectors have remained resilient while those exposed to the stock
markets, interest-rate leverage and higher levels of variable income
have been under severe pressure. Metropolitan remains focused on
servicing and assisting its traditional emerging markets, which are
expected to continue growing over time. The current extent of job
losses remains a concern.
- Management is confident that the group`s stated market positioning,
together with its diversified income streams and sound business
processes, will enable it to continue generating good operating results
for the foreseeable future.
Operational highlights
- Recurring premium income for the nine-month period increased by 5% in
extremely difficult operating conditions.
- The 2% increase in the group`s recurring premium new insurance business
over the period reflects both the product line changes made within the
businesses and the state of the underlying economy.
- The insurance businesses are taking the opportunity of the downturn to
focus on the quality of new business as opposed to the quantity.
- The new business persistency levels within the retail business
continued at satisfactory levels while expenses remained under control,
which was particularly satisfying.
- The corporate business secured a number of profitable risk and
administration contracts through innovative solutions and its new
umbrella fund product.
- Metropolitan International continued to make good progress in its
African operations.
- Metropolitan Health Group (MHG) further increased its number of members
under administration while maintaining service levels above the
contracted levels. The managed care business, Qualsa, was successful in
tendering for another Government Employees Medical Scheme (GEMS)
contract.
- The group`s capital management activities are ongoing, with an overall
strengthening on all capital measurements.
- Net cash received from clients to date was R3.3 billion and we expect
to end the year in a positive position.
Retail business
9 months 9 months to Change 9 months to Change
to
30-Sept-07 30-Sept-08 30-Sept-09
Rm Rm % Rm %
New business
Recurring premiums 578 669 16 660 (1)
Single premiums 1 853 2 479 34 1 596 (36)
Annual premium 763 917 20 813 (11)
equivalent (APE)
Present value of 4 424 5 365 21 3 868 (28)
premiums (PVP)
Cashflow
Recurring premiums 3 126 3 396 9 3 567 5
Single premiums 1 853 2 351 27 1 596 (32)
Claims paid 2 988 3 501 18 3 761 7
Net cashflow 1 991 2 246 13 1 402 (38)
New business
- New business sales were impacted by a number of negative factors during
the first nine months of 2009, including the economic downturn,
increased employee strike action within our target markets, changes to
the commission payment rules, the closure of certain product lines and
additional FAIS training. The last three factors together have laid a
good foundation for the future of this business.
- New recurring premium income for the period, at R660 million, was
pleasing, only 1% down on 2008.
- New single premium income written amounted to R1 594 million.
- A change in the mix of new business sold (more risk, less savings and
single premiums) resulted in a decrease in the present value of
premiums (PVP).
- New business decreased in both the wholesale and broker distribution
channels, mainly as a result of restrictions on certain unprofitable
product lines.
- Despite the ongoing demands on customers` disposable income,
persistency across all lines of business continued to hold up very
well. This is primarily thanks to focused attention on business
conservation.
- The persistency filter "PREDICT", first introduced in 2001, has
continued to perform well, ensuring that the quality of business
accepted exceeds the stipulated criteria. This intervention, while
initially resisted by the sales force, has since become a way of life
and is one of the reasons for the good persistency during these
difficult times.
- Overall, the existing life insurance book has performed well during the
recent economic downturn, with growth continuing to be recorded in the
active books.
Cashflow
- Recurring premium income increased by 5%, confirming the resilience of
the target market.
- Claims paid during the year were 7% up, while overall experience
remained in line with expectations.
- This resulted in R1.4 billion net cash received in the retail business.
Challenges and opportunities
- The new commission structure together with intermediary training
(FAIS), continues to place strain on the distribution channels.
- Disposable income of South African consumers remains under pressure;
however, saving for the future has become even more of a necessity.
- The new business recorded during the last two quarters of 2008 was the
best in Metropolitan`s history: retail recurring premium new business
for the full year is expected to be below that achieved during 2008.
- While expense management is always important and expenses continue to
be contained below inflation levels in 2009, the current economic
environment has necessitated a review and re-prioritisation of ongoing
business initiatives.
- This business is well positioned for the year ahead and the necessary
building blocks are in place for long-term growth and a consistent
increase in market share.
Corporate business
9 months to 9 months to Change 9 months to Change
30-Sept-07 30-Sept-08 30-Sept-09
Rm Rm % Rm %
New business (on balance
sheet)
Recurring premiums 165 130 (21) 151 16
Single premiums 1 655 735 (56) 608 (17)
Annual premium equivalent 331 204 (38) 212 4
(APE)
Present value of premiums 2 731 1 568 (43) 1 679 7
(PVP)
New business (off balance
sheet)
Recurring premiums - 8 - 67 -
Cashflow
Recurring premiums 1 357 1 421 5 1 358 (4)
Single premiums 1 655 735 (56) 608 (17)
Off balance sheet - 5 - 48 -
Claims paid 2 211 3 172 43 4 324 36
Net cashflow 801 (1 011) - (2 310) 128
New business
- Securing new business in the current employee benefits (EB) market
remains challenging and will continue to be so for a while.
- Recurring new business premium income (on balance sheet) for the first
nine months of 2009 was 16% higher than 2008, boosted by risk
contracts.
- New administration business on the Neon platform grew significantly,
with total new recurring annual premiums at R67 million for the period,
compared to R8 million for the same period in 2008.
- New single premium income ended slightly lower as a result of tighter
investment market conditions during 2009 and an aversion by fund
trustees to move underfunded smoothed bonus investments.
- Overall, on balance sheet PVP ended 7% higher. This, together with the
off balance sheet business, confirms Metropolitan`s strong standing in
the retirement fund market.
- Metropolitan Retirement Administrators (MRA) has continued to grow its
members under administration, and is currently administering 226 000
members on the Benchmark system.
Cashflow
- Despite the market conditions and client preferences for off balance
sheet administration and asset solutions, recurring premium income
declined only marginally over 2008, confirming the stability introduced
into the EB book over the last few years. The increase in risk premiums
almost made up for the reductions in on balance sheet administration
and investment premiums.
- Significant outflows are being experienced in the business, partly as a
result of the recessionary conditions but also because of client
portfolio rebalancing.
- Claims paid increased by 36% during the period. This upward trend is a
result of growing numbers of disinvestments and terminations.
- Disinvestments reflect the current economic environment as they are
used to finance benefit payments out of the underlying funds when
distressed members need to gain access to their accumulated savings.
- Terminations from the lower margin Absolute Return Fund made up 16% of
the total claims paid.
- Metropolitan Employee Benefits (MetEB) is expected to end the year in a
net outflow position.
Challenges and opportunities
- MetEB`s risk solutions team won the POA (Principal Officers`
Association) "Imbasa Yegolide" (Golden Trophy) award for the Risk
Manager / Underwriter of the Year in 2009.
- The administration team was also instrumental in assisting the Tourism,
Hospitality and Catering Pension Fund (THACSA) earn a special
recognition award from the Institute of Retirement Fund (IRF) for best
practice in training and engagement with organised labour.
- The administration product range, Neon (for small to medium funds) and
Benchmark (for mega funds), has been favourably received by the market
and is generating new business inflows.
International business
9 months to 9 months to Change 9 months to Change
30-Sept-07 30-Sept-08 30-Sept-09
Rm Rm % Rm %
New business
Recurring premiums 85 98 15 105 7
Individual life 80 88 10 92 5
Employee benefits 5 10 100 13 30
Single premiums (incl EB) 77 86 12 96 12
Annual premium equivalent 93 107 15 115 7
(APE)
Present value of premiums 356 403 13 470 17
(PVP)
Cashflow
Recurring premiums 614 662 8 760 15
Single premiums 93 99 6 139 40
Claims paid 510 477 (7) 498 4
Net cashflow 197 284 44 401 41
New business includes Metropolitan`s share of new business written by all
international subsidiaries.
Premiums and claims include Nigeria (excluded prior to 2009), as it is no
longer accounted for as a joint venture.
New business
- Recurring new business was boosted by growth in both individual life
and employee benefits business in the Nigeria and Ghana operations.
- Good single premium growth was recorded in Namibia, Nigeria and
Swaziland.
- New business conditions in Botswana and Kenya were still challenging.
- Overall, the businesses in Namibia, Lesotho and Nigeria performed well
during the period.
Cashflow
- Both recurring and single premium income were substantially higher than
in 2008.
- As a result, the net cashflow position increased significantly over the
prior year comparison.
Challenges and opportunities
- The impact of the global economic and stock market meltdown appears to
have been experienced by the countries in which we operate later than
it was in the rest of the world. As such, any investment market
recovery is also expected to lag behind in these countries.
- The newer operations are starting to contribute to the overall
sustainability of the business while the established enterprises
continue to deliver solid results.
- Higher inflation and fluctuating local exchange rates present a
challenge to support fees. A determined effort is being made to
outsource support functions to the various operations.
- The administration system has stabilised and updates are being
implemented without any problems.
- Upgrading the skills within the operations remains a key focus area.
Asset management business
9 months to 9 months to Change 9 months to Change
30-Sept-07 30-Sept-08 30-Sept-09
Rm Rm % Rm %
Cashflow
Third party mandates - 240 1 401 484 (811) (158)
net
Collective investments 5 066 2 728 (46) 2 803 3
- net
- Year to date equity performance is good, while fixed interest has
maintained its longer-term track record.
- MetAm experienced outflows during the quarter mainly relating to the
absolute return and international funds.
- Net inflows into collective investments continued to be positive,
exceeding the levels recorded during 2008 by 3%.
- It is anticipated that this trend will reverse over the next twelve
months, with net outflows expected during 2010, particularly relating
to white label funds.
- While the outlook for the asset management operations remains positive,
earnings will continue to be significantly impacted in the short term
by investment market and asset level volatility.
Health business
- Total membership numbers continued to grow, with the main driver being
the highly successful Government Employees Medical Scheme (GEMS).
- At 30 September 2009 GEMS had close to 400 000 registered, fee-paying
members, with membership continuing to increase month on month at about
500 members per day.
- MHG`s total principal members under administration, including franchise
members, stood at 830 000 (2.1 million lives) (2008: 760 000 members;
1.9 million lives).
- Performance levels across the board are in line with contracted service
level agreements.
- During October 2009 MHG, through its managed care business Qualsa, was
successful in tendering for another GEMS contract - providing strategic
managed healthcare services to all registered benefit options in the
scheme.
- As a differentiated fee income based business, MHG is relatively
isolated from the current economic turmoil and the outlook remains
good.
Group perspective
Capital management
- As part of the 2009 interim results communication, we informed the
market that, due to economic and investment market uncertainty, we had
reduced our exposure to equities.
- The two main reasons, being financial security and equity market
uncertainty, are currently still applicable.
- The group continues to actively monitor the capital position throughout
its operations with a view to protecting shareholder capital and
preserving policyholder assets during these volatile investment market
conditions.
- Dynamic asset allocation, equity 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.
- All capital positions have improved since June 2009, and the group
remains appropriately capitalised.
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, while increasing, have remained
significantly below the 2008 levels.
- 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.
- Any change in the absolute level of and income on 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.
Curatorship of Ovation
- The court delivered judgement during October 2009. The decision given
was as expected and the settlement is being implemented. There are no
further financial implications for the group.
Empowerment
- Metropolitan was awarded the inaugural employment equity award by BEE
SA Group in October 2009. This award is based on the DTI codes.
Comments / qualifications
- All figures are provisional and unaudited.
- 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.
Cape Town
11 November 2009
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
TYRREL MURRAY
GENERAL MANAGER: GROUP FINANCE
METROPOLITAN HOLDINGS LIMITED
TEL 021 940 5083 OR 082 889 2167
Sponsor
Merrill Lynch South Africa (Pty) Limited
Date: 11/11/2009 10:00:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
