Liberty Holdings said it is confident the narrowing of its focus to the local retail market and correct product pricing will help arrest the weakness of its shares, which have traded at a 40% discount to its underlying value.
SA’s third largest life insurer, which has a market capitalisation of about R30.9bn, has been on a renewal journey, offloading its medical scheme business and is in the process of exiting some African operations to focus more on the SA retail market.
“We’ve fixed the business from where it used to be. There are no major cracks anymore. We are now into horizon two where we want to take the share price to the level where the value of Liberty is reflected for what it is,” said Liberty’s managing executive for customer and adviser experience, Johan Minnie.
Speaking at the company’s intermediary conference on Thursday, Minnie said the insurer acknowledged that people were concerned about its performance, particularly the share price movement. It also did not help Liberty that it under-performed the life insurance index by 10% in 2018, although the index’s aggregate performance was largely attributable to the unbundling of Old Mutual and the special dividend that accompanied it.
As part of the phase of this renewal strategy, Minnie said Liberty planned to show the market that its cost-to-income ratio would be steady in future and it was selling its products at the right margin.
At one point, Liberty was virtually giving away its insurance business. Just in 2015, its retail margin stood at 0.5% although the insurer managed to increase it to 0.8% in the 2018 financial year after tighter cost management and repricing of some products. In contrast, the new business margin of competitors such as Sanlam was above 3%.
“We’ve made some inroads. We are writing the right products, to the right market at the right margin,” said Minnie.
“We know we are trading at a discount of about 40% but once we get a few things right, it’s going to go up and I don’t know what critics are going to say.”
He said the fact that Liberty managed to increase its operating earnings by 42% in 2018 — although a decline in investment returns as a result of JSE losses caused net profit to decline 17% — showed that Liberty was “a business on the up”.
One of the offerings Liberty is hoping it will get right is short-term insurance. In its 40-year history, Liberty has focused on the long-term insurance and investment sector, leaving the short-term business to its parent company, Standard Bank.
On Thursday, the insurer said it would now offer insurance for motor vehicles, buildings, home contents and other valuables to its clients in partnership with Standard Bank.
“Standard Bank’s capability is mainly in the home loan space, doing building and home contents insurance. We are adjusting it for our client base. I think it’s possible for us to have a bigger uptick than the rest because we have the client base already,” said Minnie.
He said it was important for Liberty to be a one-stop-shop for its clients in order to regain lost market share. The insurer’s market share shrunk from 29% to 25% between 2005 and 2017.
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