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RMI sees a 36% increase in earnings

RMI cuts its interim dividend by 26% as a result of MMI’s decision not to pay an interim dividend – CEO Herman Bosman.

NASTASSIA ARENDSE:  I had a conversation with Herman Bosman, who is the CEO of Rand Merchant Investment Holdings, RMI, because the company published its half-year numbers and decided to cut its interim dividend by 26% as a result of the knock-on effect of MMI’s decision not to pay an interim dividend.

This is the chat I had with RMI’s CEO Herman Bosman.

HERMAN BOSMAN:  I think we are very happy with the most outstanding results – an earnings increase of 36% is something we are very proud of. I guess it reflects what we think is operational robustness and efficiency across the portfolio.

Having said that, I think it’s fait to comment that on the turnover line, on the top line of the South African businesses as well as the UK business Hastings, you can see a bit of pressure from I guess the macro economics, as well as Brexit uncertainty. But with the confidence recovery that we’ve had in South Africa we certainly hope that that trend would also be reversed and that the businesses are poised for some great growth in the short term.

NASTASSIA ARENDSE:  Looking at the individual investments that you have within your portfolio, you’ve got Discovery, Hastings as you mentioned, and MMI. Which were the standout performers? Then we’ll look at the unlisted parts of that portfolio.

HERMAN BOSMAN:  I guess on a numerical basis Discovery showed the biggest increase in earnings. I think it’s very comforting to see that the balance of that portfolio – to the extent that they are able to take some of the emerging businesses and bring them through into what is cash-generating and call it incumbent businesses – that’s the first very important sign that we saw there. And then also to the extent that VitalityHealth in UK turned around quite well there in that stable. So we’re very happy with the Discovery stable.

I guess the Hastings investment performed very much in line with what they’ve been doing over the last six or seven quarters, growing at between 20 and 25% of earnings. That continues. But there it’s definitely going into a softer premium environment and, as I mentioned, an orderly Brexit will also help the confidence in the UK to recover somewhat.

And then OUTsurance gave a very, very good operational performance. Great expense ratio, close to 20% in South Africa and close to 30% in Australia. Both the jurisdictions had a very positive claims experience. In South Africa our claims ratio was under 50% and in Australia it was in the mid-50s. So both of those were very good trading conditions for us.

I guess as these portfolios go you do get a nice balance between the four big operating entities.

NASTASSIA ARENDSE:  Let’s talk about the insurance market. When you look at the UK, South Africa and Australia, what synergies are you getting out of those markets that you like the most?

HERMAN BOSMAN:  If you talk specifically about the personal lines, auto and household, we’ve obviously built the Australian business very much along the lines that we’ve done in South Africa, which is a very big discipline around risk underwriting. We never changed market share per se, but rather want the right business, and that’s the same that we’ve done in Australia. A lot of focus on service excellence and add a bit of a cheeky brand, especially in South Africa. [Stuttering phone line] …the businesses focuses on the aggregator market. It’s a highly…business, a huge market in the UK. But similarly the discipline of the underwriting is something that…to that business.

So what we learn between the businesses – I think each has its own strength. We have opened a call centre for Hastings in Centurion, where OUTsurance is based, and we have 150 call-centre agents there, which is working very well so far.

The big lessons I guess that we can share would be around service from OUTsurance’s side, and then specifically on the data and the fraud management from Hastings. So there are a lot of discussions on how to improve the respective businesses.

NASTASSIA ARENDSE:  On the side of AlphaCode, one of the reasons I like the business is that you are involved in what I discover is the fintech of future fintech platforms, where you have digital currencies – which are a big talk of the town, especially in South Africa and the US. What’s happening there that people can look our for and that’s exciting from your perspective?

HERMAN BOSMAN:  It is certainly exciting, these small and fast-growing businesses, which are redefining the market that they are in. I guess from a pure investment or investor point of view I would have caution. These are tiny businesses making up less than 0.5% of our portfolio. But these are the seeds that we want to sow now to hopefully uncover the next OUTsurance or Discovery. So it’s very exciting to be involved in them, and they are obviously in spaces such as cryptocurrency and global MBA student financing. These are very interesting things which are driven by things such as the data analytic and our ability to have a digital experience in financial services.

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