Momentum Metropolitan's Reset and Grow strategy was "the right strategy at the right time"
CFO Risto Ketola: The strategy put us in a better position to handle the impact of the Covid-19 pandemic.
Momentum Metropolitan Holdings remained on track to deliver on its “Reset and Grow” target of normalised headline earnings until Covid-19 started to impact South Africa in early March.
“It is pleasing that the initial focus and success on the Reset objectives enabled us to start making progress on the Grow objectives,” says Momentum Metropolitan CFO Risto Ketola. “The Reset and Grow strategy was the right strategy at the right time, as it certainly put us in a better position to handle the impact of the pandemic, and it contributed to good operational results in the 2020 financial year, despite the Covid-19 related turmoil in the second half of the financial year.”
In the company’s financial statement for the year ended 30 June, Risto says that the group was and continues to be impacted by the expected worsening in claims experience, lower new business volumes, increased risk of policy lapses or withdrawals, lower investment returns, and additional expenses related to operational and risk management initiatives to effectively deal with the crisis.
Momentum Metropolitan delivered normalised headline earnings of R1.521 billion for the 12 months, which included a loss of R251 million for the second half of the year. “This loss was largely due to additional provisions that were raised, with a net negative impact of R983 million for potential adverse claims experience and policyholder lapses and withdrawals related to the Covid-19 pandemic,” Risto says.
He adds that the partial recovery of investment markets during the last quarter did not fully offset the impact of severe market related losses reported in the third quarter of the year. “Covid-19 therefore significantly impacted our results for the 2020 financial year.”
Excluding the impact of these two items, Risto says that earnings from operational activities of R3.479 billion demonstrate a continuation of Momentum Metropolitan’s pre-Covid momentum and robustness of our underlying results.”
According to the results, Momentum Investments continued its growth trajectory and saw good new business and investment flows throughout the year. In Metropolitan Life the sustained operational focus to improve the quality of business resulted in improved new business margins despite lockdown-related costs in its agency force. The Non-life Insurance operations continued to deliver good growth, further supported by the acquisition and integration of Momentum Insurance (formerly Alexander Forbes Insurance).
“We maintained our stringent focus on efficiency initiatives and the controllable administration expenses increased by 2 percent, well below inflation,” Risto says. “Increases in expenses to accelerate developments of our digital capabilities and servicing platforms, as well as cost to enable working form home, were offset by tight control on headcount and a reduction in items such as travel and entertainment – this partially due to the lockdown restrictions.”
Risto says that he is satisfied with Momentum Metropolitan’s resilient performance during the Covid-19 pandemic and that he is optimistic about the company’s ability to effectively manage the demands of a post-Covid-19 environment. “However, the uncertainty about the path of the pandemic and the expected long-term negative impact on the economy will probably lead to weaker investment returns and lower new business and persistency levels in the medium term.”
He adds that, as a result of the Covid-19 pandemic, Momentum Metropolitan will most likely not achieve the Reset and Grow target of normalised headline earnings between R3.6 billion to R4 billion in the 2020 financial year. “Given the uncertainty of the current situation, it will be speculative to provide firm guidance on our financial results over the next year, however, we will be disappointed if the group does not improve materially on the current year’s results.”
Despite the trying environment, Risto says that many of the Grow initiatives within the strategy are still relevant. “We continue to work on delivering on these initiatives that largely revolve around sales and services, product improvements, advancement of digital capabilities, and greater cost efficiencies.”
He explains that, even before the start of the pandemic, Momentum Metropolitan had initiated a process to assess and redefine its strategic goals beyond the 2021 financial year. “The changing environment brought about by Covid-19 has been incorporated into this planning work. We will continue to build on our strengths and successes to date.”