The CEO of one of the country’s largest insurance investment holding companies, which has stakes in household names Discovery and Outsurance, says mortality claims relating to the pandemic are still trending below actuarial projections but the economic fallout associated with lockdowns are being keenly felt.
The pandemic has had a mixed effect on insurance companies with higher life insurance and retrenchment claims negatively affecting profitability while lower motor vehicle usage and overall medical claims has relieved balance sheets.
Rand Merchant Investment Holdings (RMI) holds large stakes in a number of insurance companies, including Discovery (25%) and Momentum Metropolitan (27.3%) that are both listed, as well as an 89% stake in privately held Outsurance and a 30% stake in British short-term insurer Hastings.
“So far provisions have proven to be sufficient. Mortality is lower than originally expected taking into account the second and third wave and the efficacy of vaccines, but we are still cautiously monitoring things. Subsequent waves might be more infectious but less lethal,” said RMI CEO Herman Bosman in an interview with Business Day last week.
His statement could be interpreted as a nod to the way in which the country’s health authorities have approached the response to the pandemic.
Bosman noted the “contradiction” created by the collision of the health consequences of the pandemic with the much weaker economy as a result of the lockdowns.
“The propensity to wanting to be insured has increased, but the difficulty is that consumers are grappling with affordability. So, while lapse rates [the rate at which consumers fail to renew insurance policies] have been quite positive [declining] consumers have been buying down and pressure is expected on new business volumes,” he says.
Outside SA, the group has exposure to the Australian economy through short-term insurer Youi (owned through Outsurance), and the British economy through its stake in Hastings which it owns alongside Finnish insurance conglomerate Sampo.
Commenting on the car insurance market, Bosman estimates that activity levels by private vehicle owners has returned to about 70% of pre-pandemic levels, but the state of the economy is changing preferences.
“We are seeing people starting to trade down in terms of vehicle size and value, and there is a much greater preference to purchase second-hand cars. Consumers are also opting for lower cover and higher excesses which is a sign of the economic pressure they are under, especially in SA,” Bosman said.
With favourable trends from the second wave emerging in all three of its main markets as far as infections and number of deaths is concerned, attention is now turning to overcoming the economic damage wrought by the pandemic.
“The UK and Australia entered the crisis in a much stronger financial position and could therefore make more meaningful economic interventions, so I think the outcome will be commensurate with the starting points. We are more concerned about the medium-term expectations for the local economy,” says Bosman.
The recovery of the British economy will be conducive for the nearly £500m (R10.2bn) stake RMI holds in Hastings, which together with Sampo it delisted from the London Stock Exchange (LSE) in November last year.
Bosman says much of the philosophical and cultural underpinnings to the way RMI approaches business are shared by Sampo, which makes the two “kindred spirits” and therefore a natural partner for the co-ownership of one of Britain's largest short-term (referred to as property and casualty) insurers.
Both companies felt Hastings would benefit from being taken private and being given the freedom to take a longer-term approach to growing the business, as opposed to the myopic focus on quarterly earnings and dividends that a public listing dictates.
RMI introduced Outsurance into the ownership structure, and the two have the option until May 2022 to increase their collective stake to 40%.
Outsurance already operates a 600 strong call centre in Centurion that is managing both claims and sales for Hastings.
“The intention with getting Outsurance into the ownership structure is to get the two companies to work together and cultivate best practice and learning from one another. We think it is a great alignment of interests,” says Bosman.
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