Liberty Holdings, the insurer and asset manager that plans to delist and merge with its parent Standard Bank, is budgeting for at least R1.2bn in Covid-19-related life insurance claims over the next six to nine months.
SA is still grappling with a third wave of infections from Covid-19 that has so far claimed almost 73,000 lives and cost insurers billions of rand in mortality and business interruption claims. While Liberty is bracing for a fourth wave of infections, it expects the impact to be lower than the devastating third wave as SA’s vaccination programme continues to gain momentum.
“Vaccination massively limits the severity and the potential for hospitalisation and therefore mortality consequences,” Liberty CEO David Munro told Business Day on Wednesday, citing the UK where vaccination has significantly reduced Covid-19 deaths even as that country continues to battle infections spurred by new variants of the virus.
Liberty has spent about R2.57bn of the initial R3.1bn in reserves it set aside in 2020 to help it deal with the expected effect of Covid-19 on its business. After topping up the remaining R530m from its 2020 pandemic reserves with a further R1.022bn at end-June 2021, it was left with R1.552bn to deal with pandemic-related claims from the third and fourth waves.
“We’ve set aside R1.2bn of the R1.552bn that we’ve earmarked now in June for mortality,” said Yuresh Maharaj, Liberty’s group financial director. “With the rollout of the vaccine programme …we expect a less pronounced fourth wave.”
Like most insurers, Liberty is still grappling with the effect of the pandemic, which saw it post a R465m normalised operating loss in the six months to end-June 2021 in its half-year results published on Wednesday.
But while Liberty pins its hopes on SA’s vaccine drive to curb Covid-19 mortality, it must also press ahead with its planned integration into Standard Bank, which already has a 53.6% stake in the insurer. Standard Bank plans to take full control of Liberty in an R11bn deal that was announced in July.
While Liberty’s shares have rallied since the deal was announced, some critics have questioned the viability of the so-called bank-assurance model at a time when more digital financial services rivals are challenging traditional players. FirstRand and Old Mutual have separated their banking and insurance businesses in recent years, casting further doubt on the merits of the Standard Bank-Liberty deal.
But Munro, who previously led Standard Bank’s corporate and investment banking unit, says the transaction won’t undermine Liberty’s independence. Once the transaction is completed, he says Liberty will continue to operate as a stand-alone unit under its parent’s group structure with integration happening at the product level rather than at the operational level.
“Liberty is an entity with a licence and responsibilities. That doesn’t change because we do a transaction with Standard Bank,” Munro says. “What is going to happen is a much more integrated product offering with no breaks in the value chains as to how those products get manufactured and delivered to the client.”
Munro says Liberty will continue to change from being a legacy insurer focused on products and transactions to a more digitised outfit that sees itself as a long-term client relationship builder. The group’s new digital engagement platform, built in conjunction with US cloud-based software firm Salesforce, will augment this by providing a better product experience for both Liberty and Standard Bank clients.
“It’s not about selling more, it’s about providing a much more vibrant suite of offerings to our client base that becomes a common client base,” Munro says. “That’s where the power of this transaction lies.”
Munro argues that new digital bank and insurance rivals who are challenging traditional insurers are still heavily focused on closing transactions rather than client relationships. This is where he believes Liberty has a competitive advantage due to the long-term nature of its life insurance and asset management product suite.
“Our business is built on the concept of long-term relationships. You don’t buy life insurance overnight, you buy it for the next 40 years,” he says. “You’ve got to augment that human relationship with all the power of digital.”
Update: August 4 2021
This story has been updated with additional information.
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