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Mutual & Federal grows retail market share as profits improve

Maintains close relationship with Old Mutual, Nedbank following split.

JOHANNESBURG – Mutual & Federal, the short-term insurance arm of Old Mutual, has managed to claw back market share following growth in policyholder numbers, says CEO, Raimund Snyders.

“Our market share now sits above 11%, reflecting around a 2% claw back of market share,” Snyders said, noting that growth has come mostly from the retail market through broker sales.

In South Africa, M&F grew gross written premiums (GWP) 8% to R11.7 billion for the 12 months to December 2015. Including the rest of Africa business, GWP climbed 17% to R14.3 billion.

Following the announcement that Old Mutual plc plans to split into four standalone businesses over the next two years – with the effect that Old Mutual Emerging Markets (OMEM), which includes M&F, and Nedbank become separate businesses – it will be largely business as usual for the property and casualty insurer, Snyders said.

“We will continue working closely with Old Mutual, that’s the mandate,” he commented, adding that M&F will be made a “core part of Old Mutual’s proposition to customers”.

At December 2015, OMEM – which includes Old Mutual’s South Africa and rest of Africa businesses – had 10.7 million customers, representing a significant opportunity for M&F to cross-sell into this customer base.

Last year, OMEM hired three Telesure executives to launch a direct short-term insurance business into the rest of Africa and revamp its iWYZE business.

iWYZE, launched in 2010 as a joint venture between Old Mutual and M&F, has underperformed and struggled to compete with the likes of OUTsurance and MiWay, which grew GWP to R1.8 billion in 2015, contributing R219 million in profits to parent Santam’s personal lines business.

“That’s something we’ve got to fix and we’re putting more money in to grow,” Snyders said.

M&F this year bought the remaining shares in Credit Guarantee Insurance Corporation (CGIC), which offers trade credit insurance to clients, covering them against payment default by debtors.

The plan is to grow this business as a specialist line within Old Mutual, using the group’s footprint to expand into new markets.

Around 15% of trade credit in South Africa is insured, according to Snyders, presenting a significant opportunity for CGIC as SA multi-nationals expand, and trade and commerce on the continent grows.

Collectively, insurance premiums in sub-Saharan Africa are less than 3% of GDP, according to EY, with obvious potential to increase penetration.

CGIC accounts for roughly 50% of M&F’s profits, contributing to the insurer’s underwriting result and diversification, Snyders said. It will work closely with Nedbank, which finances a lot of trade, he said.

For the 12 months to December 2015, M&F improved its underwriting ratio to 3.1% (2014: 0.9%).

Following a number of years of poor underwriting results – a function of extreme weather, a poor claims experience and ill-disciplined underwriting – a turnaround by management has brought the insurer closer to its desired underwriting ratio of 4%-7%.

An underwriting ratio, or margin, refers to the profit or losses that an insurance company makes after collecting premiums and paying claims (and claims-related expenses). Anything above 0 reflects an underwriting profit.

“Net underwriting profit of R273 million was significantly up (2014: R79 million) due to an improved claims ratio of 58.1%,” Old Mutual said in its results statement.

The biggest threat to short-term insurers is the economic climate and customers’ ability to manage risk and uncertainty, Snyders said, with downward pressures on disposable income. Economic growth in the rest of Africa is also a concern, he said.

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