Ratings agency Moody’s has noted Momentum’s ability to maintain its top-tier market position in South Africa, as well as its solid capital position and loss-absorbing product features, as key to the group shielding itself from the effect of potential sovereign stresses.
However, the ratings agency said in a note one of the factors that might cause an upgrade of the group’s ratings is if it diversifies group’s revenues, earnings and assets to meaningfully reduce its concentration towards South Africa.
“The group has taken a number of steps to improve performance over the recent years, including simplifying its operating model, increasing line of business accountability and focusing the group on its core business in South Africa,” Moody’s said.
“As part of its new Impact strategy the group hopes to achieve 20% return on equity, 2% VNB [value of new business] margin and R7bn of earnings in 2027.”
As part of its new strategy Momentum in 2024 indicated that work was under way to beef up Guardrisk with acquisitions and possible international expansion. It is part of the group’s growth blueprint, which aims to push up its earnings to R7bn by 2027.
The group has taken a number of steps to improve performance over the recent years, including simplifying its operating model, increasing line of business accountability and focusing the group on its core business in South Africa.
— Moody’s
Momentum bought Guardrisk for R1.6bn from Alexforbes a decade ago. It has identified South Africa’s largest cell captive insurer as crucial in its strategy to unlock value for shareholders in the next three years.
Momentum has set a target of achieving return on equity by 2027 and has pledged to pay dividends of about R6bn over the next three years.
Productivity target
The group has largely retreated from the rest of Africa portfolio, having exited several unprofitable markets, with its exposure on the continent now reduced to a presence in Ghana, Botswana, Mozambique, Lesotho and Namibia. Some of the markets the company exited in the past few years include Nigeria, Tanzania and Kenya.
The company has set a target of improving its productivity to 1.2 policies per adviser per week in its Africa portfolio.
The group expects Guardrisk to lift its earnings from the present R700m to R1bn in the next three years, while Momentum Investments is expected to grow earnings by R400m in the period, with Momentum Corporate pencilled in to contribute R1bn.
Moody’s said Guardrisk’s profitability is strong, benefiting from meaningful operational leverage given the extent of premium volume handled by its cells relative to its own capital, excluding capital attributable to cell owners.
“Guardrisk maintains a conservative investment strategy by asset class, with the objectives of preserving capital and liquidity. Guardrisk mostly invests in liquid domestic assets including bank deposits, money market funds and corporate and government debt,” Moody’s said.
“While its investments are high quality in the South African context, their correlation with the sovereign credit profile means we view asset quality as being constrained at the Ba level of the sovereign.
“Guardrisk makes extensive use of reinsurance, at individual cell level and for retained insurance risk, which is generally placed with high-quality counterparties.”
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