Momentum Metropolitan Holdings, one of SA’s largest insurers, is experiencing a “worrying” rise in clients’ lapse rate and non-taken-up policies at a business unit that caters to the lower-income segment of the market.
“This rate is normally around 20%, but we’ve seen it deteriorate to about 30%, which is worrying for us. Particularly the lower-income groups are under severe financial pressure,” said Jeanette Marais, who started her role as the first female CEO of a large, publicly traded insurance company last month.
Marais, who was speaking to Business Day shortly after the company issued its annual earnings report, was referring to the percentage of policies that are cancelled and policies that are sold but not activated due to nonpayment of the first premium.
Her comments reflect hardship among budget-conscious consumers battling power cuts that have shifted disposable incomes to backup power and pricier basics such as food and petrol affected by inflationary pressures.
Last week, the FNB/BER consumer price index — a measure of how people view their job security, pay raises, bonuses and economic prospects — rebounded from the second-lowest reading on record since 1994, but remained well below the long-term average.
Marais, who rejoined the company as deputy CEO in 2018 after stints at Stanlib, Old Mutual and Allan Gray, added that out of 100 clients Momentum signed up the company would lose 20% in the first year. To address this challenge, she said the company was conducting thorough debit checks and paying commission only after verifying the affordability of the premium.
“We also introduced dynamic pricing — benefits such as premium skip — which allows clients to skip one payment without the danger of having their product cancelled within the first five years [that the] premium skip applies,” she said.
Marais noted that the lapse rate was relatively low at Momentum Life Insurance, which targets more affluent customers. The rate at this business unit was about 6%, which has not increased despite the challenging economic environment.
Momentum Insure, which provides short-term insurance products, also had a stable lapse rate of 15%-20% per year, she said.
The R25bn company, which competes with Old Mutual, Sanlam, and Discovery, reported a 5% drop to R69bn in the present value of new business premiums — or the present value of total sales confirmed to receive from present to future.
The value of new business — or premiums generated by new policies — declined by 4% to R600m, driven by higher distribution costs, a general change in its new business mix towards lower-margin products across many of the business units, and the negative impact of the yield curve-related economic assumption changes.
“Disposable income remains under pressure due to rising interest rates and high inflation, as well as the lack of economic growth in SA. This is likely to put ongoing affordability pressure on new business volumes, particularly on long-term savings and on protection business,” the company said.
Still, Momentum posted a 16% rise to R5bn in normalised headline earnings, adding it believed that the “underlying run rate of earnings is approximately R4bn per annum”.
“If we can fix the problems we experienced in Momentum Insure and Metropolitan, particularly the value of new business, we believe we will be able to surprise the market and achieve R4.5bn in earnings,” Marais said. “We hope that we could even reach our target of normalised headline earnings of at least R4.6bn in F2024 as per our original Reinvent and Grow objectives.”
Momentum, which paid out R38bn in claims in the year under review returned R2.3bn to shareholders via dividend payouts and the share buyback programme.
Its board has approved a further R500m share buyback programme, in line with the company’s capital management framework and to reflect its strong capital and liquidity position.
“We have a healthy, strong financial position to continue paying out claims and dividends to shareholders for the next 100 years,” Marais said. /With Tiisetso Motsoeneng
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