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Momentum reports highest rate of death claims

‘Sales were fantastic, but the financial results ended up being quite poor for the year’: Risto Ketola – group finance director.

DUDU RAMELA: Momentum Metropolitan Holdings released its financial results for the year ending June 30, 2021. Operating profit was boosted by an increase in investment return of 80%, and an increase of 31% in total new business – at the same time recording high death claims, though. Normalised headline earnings were down 34%. Momentum declared a final ordinary dividend of 15 cents per ordinary share.

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Risto Ketola, group finance director at Momentum Metropolitan, joins us at this evening for more on the results. Thank you very much for your time this evening. Are you satisfied with the performance?

RISTO KETOLA: Thank you. Satisfied? Probably. I think from a new-business perspective, in terms of selling, in terms of operations, in terms of managing high claims and client queries, I think we did what we needed to do.

Sales were fantastic, but the claims were exceptionally high, so the financial results ended up being quite poor for the year.

DUDU RAMELA: That’s just it. So the group performed quite well operationally, with the highlight being new business performance. What did we see there?

RISTO KETOLA: New business – that 31% growth is really driven by two major themes. In the very affluent market where we operate Momentum Wealth, their sales are up over 50%. I think we had very good success in selling offshore savings products, also annuities – basically fixed-income products. And also, quite importantly, we are seeing more and more IFAs (independent financial advisors) starting to support us. So we are gaining market share in the independent channels.

Then the other theme was substantial growth in Metropolitan, which is obviously the totally the other side of the market. In the funeral-cover market we have made a big comeback in the last few years and we had exceptional growth there again in the last year.

DUDU RAMELA: You touched on this briefly. South African life insurance businesses paid R10.7 billion in death claims during the year. That’s compared to an average of R5.6 billion per year over the three years before the pandemic. Just how much has the business been hit by Covid?

RISTO KETOLA: You mentioned the claims. We paid about R5 billion more claims in the last year than normal. Obviously we have reinsurance, and there’s a bit of tax relief on the losses. So the hit on our earnings from Covid – direct mortality hit – was about R2.8 billion.

If you compare it to the R1 billion profit we made in the end, it’s literally 70% of earnings for the normal year went into Covid claims.

Besides the direct financial impact, obviously there’s been a massive amount of work in terms of work from home, having to change our servicing model, having to run our office space differently. So (that’s) the one impact with the big claims. The other one is significant operational challenges that we had to solve.

DUDU RAMELA: You did see an improvement, though, in Momentum Investments. Tell us a little bit more about that.

RISTO KETOLA: Momentum Investments is the business that includes Momentum Wealth list platform. As I mentioned, we had fantastic sales on that platform. We also had some fantastic sales of other low-risk type of investment products that are part of Momentum Investments. So earnings there went from normal R400/500 million to R1 billion during the year.

In fact, most of our profits, almost all our profits, came from Momentum Investments. The Life division actually made a small loss during the year because of the high claims.

DUDU RAMELA: I’m just curious – if it wasn’t for Covid, and that’s a question that a lot of companies and even people on the ground just ask themselves – how would the company have performed, do you think?

RISTO KETOLA: We showed in our presentation that we estimate that our earnings for the year in the absence of Covid would’ve been about R3.5 billion profit versus the R1 billion profit we showed.

DUDU RAMELA: And the outlook for Momentum?

RISTO KETOLA: Well, I think we, Momentum, continue to do well. So in terms of market share, new business activity, I think we are on the right track. I think if there’s something we are really good at, it is at selling. So we continually get very good inflows.

In terms of Covid, the third wave was bad. So in July and August we will use a lot of the provisions we set up at year-end, just assuming another wave.

But the speed of recovery in our results is a function of how quickly mortality normalises, and that’s probably a function of the vaccination rollout. So we think earnings will recover quite a bit in the coming year or two, but it could take two or three years to get back to the full pre-Covid-19 type of profits.

DUDU RAMELA: Thank you very much for your time this evening. Risto Ketola is the group finance director at Momentum Metropolitan.

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