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RMI sees earnings pressure after low claims lift 2018 profit

RMI warns investors not to expect a repeat of the unusually low claims that boosted 2018 profit.

Rand Merchant Investment, which owns stakes in insurers operating across the UK, Australia and South Africa, is warning investors not to expect a repeat of the unusually low claims that boosted 2018 profit.

The Johannesburg-based investor on Tuesday reported a 15% increase in adjusted earnings in the 12 months through June even as economic growth in its main markets stuttered. South Africa tipped into its first recession since 2009 in the second quarter, Britain’s gross domestic product growth has been sluggish, while political turmoil in Australia has caused business confidence to slump to a two-year low.

“We would’ve liked to say that the macroeconomic environment in South Africa and in the UK was going to be a deterrent or negative for growth, but it’s slightly more complicated than that,” RMI Chief Executive Officer Herman Bosman said. “The loss ratios are very low when you compare them to previous decades. It’s almost unprecedented. It’s difficult to grow the numbers when you’re so dependent on a low loss ratio as a profitability guidance.”

RMI’s Main Investments OUTsurance 88.6%, Discovery 25%, MMI Holdings 26.2%, Hastings 29.9%, RMI Investment Managers 100%, Alpha Code 100%.

A drop in motor-related claims and favourable weather conditions helped boost profit from OUTsurance, which will also pay a special dividend of R236 million ($16 million) to RMI, the company said in a statement. The unit’s Australian division Youi also paid its first dividend.

New initiatives, such as Discovery’s plans to start a bank by the end of the year, may also put a “strain” on earnings, the insurer said. MMI Holdings’s plans to boost profit “will probably take a bit more time,” Bosman said.

RMI’s stock gained 2.2% to close at R39.75 in Johannesburg, paring losses this year to 13% and giving the company a market value of R61 billion. The Johannesburg Stock Exchange’s main all-share index declined 1% for a drop of almost 6% in 2018.

© 2018 Bloomberg L.P

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