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Momentum braces for third spike in infections; may need to up provisions

‘January and February had very high Covid claims’ – Risto Ketola, group finance director at Momentum Metropolitan Holdings.

NOMPU SIZIBA: Insurance company Momentum Metropolitan Holdings released half-year results today. For the six months ended December 2020, the company reported new insurance business written up by 14% at R30 billion. However, they reported normalised headline earnings down 43% at just over R1 billion on the prior year. They attributed this to the impact of the Covid-19 pandemic on the economy. Despite this, shareholders are set to get an interim dividend of 25 cents/share.

Well, to take us through the company’s performance and how they see this year panning out, I’m joined on the line by Risto Ketola, the group finance director at Momentum Metropolitan Holdings. Thanks very much, Risto, for joining us. Now, you note that the business saw the best sales performance since the merger of Momentum and Metropolitan in 2010. What do you think drove this latest performance?

RISTO KETOLA: I think there are  a number of things on the sales front. If we start with the business which did the best, which is the Momentum Investments and Momentum Wealth business, then we are working very hard to increase the number of intermediaries, IFAs, who use us regularly as their main product provider. So we have a measure of what we call a supporting broker, and that measure has gone going from 1 600 to over 2000. So we had about a 20% increase in brokers, who sort of use us as their main provider, so that’s led to good sales growth there.

Also we have always been very competitive in traditional annuities, where we sort of pay a fixed monthly amount, and those products have become very popular in the current uncertain environment. So we had a sort of 40/50% increase in the sales of those products. If you look in other parts of the market, Metropolitan is obviously a very different market, more low-income segment, there we have grown our agency force a little bit, but we have implemented much better management and activity management of that sales force. So we’re getting about three policies sold per week per agent, compared to less than two just a year-and-a-half ago.

So in different market segments it has been different little tools, but what is nice is that in every area we are getting better support from intermediaries and our own agents.

NOMPU SIZIBA: Your earnings were knocked by over 40%. What were some of the drivers behind that and how much Covid-19 related provisioning did you have to make for that period?

RISTO KETOLA: Our earnings were about R1 billion for the six months and last year they were about R1.8 billion. So that’s the 40% you spoke about. The additional Covid provision was about R650 million. If we add that back, then we are pretty close to last year.

But, besides the additional Covid provisions, you must remember that for the six months we also had quite high claims. So if you combine the excess claims with the additional provisions, it basically explains all of the decline. Our earnings would have been flat had it not been for the Covid claims plus the Covid reserving.

NOMPU SIZIBA: So what was the quantum of claims in the period? And was there a significant pickup in life-insurance claims, obviously due to the pandemic?

RISTO KETOLA: Yes, a significant increase. We probably paid just over a billion more claims than we would normally pay. Obviously some of that is reinsured, and then there’s a bit of tax relief. So we ended up paying about R500 million more after reinsurance and after tax than what we would normally plan.

Now, to put that into quantum, that probably means we paid about 5 000 more claims over the six months than normally. But what is quite important is that the claims in January and February are actually quite a bit higher than they were in July/August. The second wave has actually be more material than the first wave, and that is the reason why we felt the need to increase our provisions further at year-end.

NOMPU SIZIBA: Makes sense. And what about the issue of Covid-19-related contingent business-interruption insurance? To what extent have you been affected by claims of that nature, and where do you guys now stand in terms of your legal liability to pay out on these kinds of claims relating to loss of business revenue due to the lockdown?

RISTO KETOLA: We are active in that market through Guardrisk, which is a part of the Momentum Metropolitan stable. We have paid just under R400 million of claims on business interruption. That amount will probably end up in a bit over a R400 million in the end. We have had a couple of court cases.

But, as we sit here today, I think we have reached a reasonably firm conclusion of where we stand, and it’s aligned with what our intermediaries and clients want. So we are busy settling the remaining claims that we have in place. It’s not like we were ecstatic about the legal rulings, but we’ll abide by them and we are making sure we’re getting cash back into the clients’ hands as quickly as possible.

NOMPU SIZIBA: Fair enough. You touched on Momentum Investments – just give us a sense of how they performed. We know that markets were shaky last year, but ultimately valuations rose by the end of the year.

RISTO KETOLA: Momentum Investments includes our asset management business and it includes our Momentum Wealth platform, our list. What I was speaking about earlier is we are on the Momentum Wealth side, the list side, and we had very strong inflows. As I mentioned, there’s been good demand for products with guarantees, but there’s also been big demand for products that have offshore exposure. And that has really driven a lot of the inflows. Our asset management business also did better.

Now, investment performance obviously waxes and wanes, and we went through a period where our performance was a little bit bent by, for example, by our above-average property exposure. But the recent performance has been improving a little bit.

We’re also quite happy with the asset management side of the business. I would say the wealth side, the platform side, was the real star within that cluster.

NOMPU SIZIBA: Just to come back to the performance in terms of your new insurance business written, which was up 14%, obviously this happened during a period where we’ve been experiencing lockdown, social distancing and all of that. So how pivotal has your digital platform been in terms of engaging with clients?

RISTO KETOLA: It’s been really important, but probably in a different way from what most people think. We do very little sales directly on digital platforms and channels; but where digital has been very important for us is to enable our advisors and sales people and service people to interact with clients. I think people really need a financial advisor of some form to make them fully comfortable to commit large sums of money and time. That is very important.

So our digital efforts have really been focused not so much on selling to people, but on how we make our existing salespeople and service people increasingly productive in the current environment. For example, in Metropolitan Life, which is a bit more of a low-income segment, then we had a massive adoption of digital tools by salespeople. They’ve been there for a year, year-and-a-half, but they were  very reluctant to move away from the old way of working. Now they were forced. So it’s interesting how we’ve gone from less than half the sales people using the digital tools available to more than 90% using them now. So the lockdown almost forced people to adopt some new technologies and tools available for that.

NOMPU SIZIBA: Now 2021 still remains fairly uncertain. We don’t know whether we’re going to get that third wave of infections and, associated with that, harsher lockdowns going forward. So what’s your outlook for the year?

RISTO KETOLA: Like you say, it’s a very hard one to make. We did make it pretty clear today that January and February had very high Covid claims. So from a pure claims perspective this year started out as difficult as last year was. We do think there will be a third wave. We are hoping that it’s a bit more modest than the second wave. There’s no doubt that the second wave surprised us in how much more severe it was than the first wave. At the same time we don’t think the vaccination programme will be rolled out fast enough to avoid a third wave. So mentally we are sort of fully prepared for a third wave, and we are hoping that the impact is less severe than wave two.

We obviously are going to work with the government and everybody else to try and accelerate the vaccine rollout as quickly as possible, to make sure that we minimise or avoid a fourth and a fifth wave down the line.

In terms of the economy, it’s going to be a slow recovery. Our financial markets are interesting because they’re always forward looking. Financial markets have already recovered quite nicely. But, if you had to put me on the spot, I would say that our earnings will remain below potential until such a time that the Covid excess deaths are out of the system, which might be a year away [depending on] the vaccination programme.

NOMPU SIZIBA: It was Risto Ketola, the group finance director at Momentum Metropolitan Holdings.

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A third wave? Eish! Is mask wearing part of our future now?

Alabama, Mississippi, Texas, Montana and Iowa are dropping mask mandates and are 100% open for business. Some Swedish towns are banning masks.

End of comments.





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