SA’s third-biggest insurer by market value, Old Mutual, is targeting 300,000 daily commuters through its newly formed partnership with minibus taxi financier Bridge Taxi Finance.
The transaction will enable Old Mutual to market its financial services products to the lower end of the market, potentially fending off competition from relatively new players such as Capitec, which has been making inroads in the space through its provision of funeral insurance.
“We intend to provide free Wi-Fi in the taxis to help us gain customer insights and to provide a channel for some of our solutions that are suitable for digital distribution. From a group perspective, it will also provide an incremental R130m of gross written premium to Old Mutual Insure,” CEO Iain Williamson said on Tuesday.
“I think this transaction gives you a sense of how we are thinking about partnerships and trying to approach them from an enterprise perspective, with multiple businesses benefiting from the relationship.”
Old Mutual will provide financing to Bridge Taxi Finance, which will then purchase taxis to be operated on a lease basis. As part of the deal, Old Mutual Insure will also generate premium income on those taxis on short-term contracts.
The strategy to catch a slice of the lower-income market falls under the company’s mass and foundation cluster, whose results from operations rose 26% to R1.5bn in the six months to end-June.
At a group level, results from operations were up 87% to R4.1bn, boosted by the receding effect of Covid-19. But the group value of new business declined 4% to R708m during the review period while net client cash flows deteriorated 27% to R4.3bn as a result of a decrease in gross flows, the company said.
“The detail was comforting as Covid provisions have not been released to boost profitability,” Bank of America Securities analysts said in a note to clients.
“Only R292m of Old Mutual’s R2.86bn provision was utilised in [the first half], with the remaining R2.572bn being retained at this stage. We think this provision looks increasingly prudent and its release could support future results, but retaining the provision is a sensible move in a challenging backdrop.”
The insurance and investment firm declared an interim dividend in its first set of results “not defined by the effect of Covid-19”, Williamson said.
“It is also the first set of results which excludes the income associated with our strategic investment in Nedbank, which was unbundled in November 2021.”
The company declared an interim dividend of 25c per share while life sales on an annual premium equivalent basis increased by 15% to R6.2bn. Results from operations close to doubled to R4.1bn and gross written premiums were up 9% to R10.9bn.
Adjusted headline earnings fell 19% to R2.7bn while funds under management fell 7% because of lower market levels in SA and globally.
The effect of Russia’s invasion of Ukraine dominated the first half of the year in global markets, pushing up food and energy prices, while central banks hiked interest rates to battle inflation. This put pressure on consumer and business spending and confidence, leading to lower growth expectations.
In SA, the last quarter of 2021 saw a rebound in economic growth that spilt over to the first quarter of 2022. Global factors, such as the Ukraine invasion, Covid-19 lockdowns in China and supply chain constraints, subdued this in the second quarter, worsened by the devastating floods in KwaZulu-Natal and power cuts.
Consumer inflation hit a 13-year high of 7.4% in June, partly because of higher fuel and food prices. This led to the Reserve Bank hiking interest rates by 100 basis points in the first half of the year. Meanwhile, higher inflation is eroding real GDP growth on the rest of the continent and depreciating currencies.
“The conflict in Ukraine has resulted in imported inflation due to disruptions in the supply of grains and energy products. Sociopolitical risk continues to heighten in several countries, due to pending elections in Zimbabwe and Nigeria,” the Cape Town-headquartered company said.
Update: August 30 2022
This story has been updated with additional information.
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