Good afternoon, ladies and gentlemen, welcome to the Momentum Metropolitan fourth quarter update. All participants are currently in listen only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star then zero. Please note that this call is being recorded. I would now like to turn the conference over to Hillie Meyer. Please go ahead, sir.
Good afternoon, everybody. Thank you for joining us, and for your interest in our trading update. We have, you know, I'll give a brief introduction as we normally do, and then Risto will highlight a few more things, before we, you know, open the opportunity for questions. We also have in the room today sitting with me and Risto, Rowan Burger, who's will be getting involved in the investor relations going forward. You'll probably see a lot more of him going forward. Okay, I'll kick off. I think, we're pleased with the earnings number. I think it's pretty obvious that the insurance businesses have largely recovered from the impact of COVID on earnings. It's not, you know, in the latest periods.
I mean, it's not back to mortality, where mortality used to be. Also, I mean, if we look, for example, into PRIDA and so forth, I think things will improve a little bit further. Yeah, I think we're sort of slowly but surely getting to a point where COVID is endemic, you know, and we have to get to grips with maybe the longer term impact, which will need a bit more time. I think all the businesses performed credibly, with the exception of Momentum Insure. Obviously, you know, difficult period in terms of underwriting results. Also, you know, I think just the pace at which we are putting through premium increases to compensate for inflationary impact and so forth, we playing a bit of catch up there.
You know, we were hit by that. I think that, you know, should hopefully improve. Although, you know, we entering the rainy season, so we're not gonna get too optimistic over the short term. I think in summary, the ZAR 1.2 billion earnings is a, is a solid performance and certainly, in line with what we, you know, consider a very good couple of years of. You know, there are not that too many, any significant once offs, in there. I think it's probably worth just briefly referring to the value of new business, which remains disappointing. I think we, you know, like to believe that we're probably at or very close to the bottom in terms of VNB, because there are a number of initiatives underway that will improve VNB going forward.
Both in Marriott and in Metropolitan, we, you know, I think the VNB numbers are most disappointing. Very happy with Momentum Investments, as you would see from the detail that we've made available. I think I will just also make the point that VNB and monitoring all our plans is actually under the spotlight right now, so it's receiving a fair bit of management attention. I'm not gonna say much about the strategic initiatives, you know, but, you know, we mentioned at the, not very sure, fairly recently when we discussed our earnings results and at the roadshow that Marriott was relaunching a new sort of version of the product and a streamlined very digital onboarding process. That launched very, very well. The adoption is fine.
I think we'll see the real impact, you know, you know, in future. There's been a pleasant uptick in Metropolitan business. You know, I think that's not a function of the launch. We still need to, I think, more time to see the impact of the launch. The Multiply changes that we implemented over the last two months were announced. I think they were well received by advisors and clients so far. That was really pleasing. Then there are a number of other projects that I'm not gonna go into the detail. There is IT projects and so forth, but things are, you know, going according to plan. There's nothing that I think I need to update you on because it's, you know, falling behind or maybe, you know, not in line with what we communicated the last time. I think that's all from me. Risto?
Yeah. Thanks, Hillie. I'll try not to repeat too many things. Just a couple of comments from me. I mean, there was very few one-offs in these earnings of ZAR 1.2 billion. It does seem the underlying earnings have been ticking up a little bit in between all the volatility. You know, the range we've been giving, we probably need to move towards the upper end of that. You know, I think earnings are sort of run rate to ZAR 4 billion is not a bad guidance now versus maybe ZAR 3.6 billion a while ago. I think what you're seeing in the earnings is the benefit of significant cost discipline over the last five years coming through.
Now, a lot of that cost savings was from, you could say, almost the more obvious areas like group wide services. Now those costs are mainly against renewal expenses and shareholders and non-credit operations. It comes through in earnings and not so much in VNB. These various IT projects and sort of new business related projects, they are scheduled to start coming through in the year or two. We should see VNB recovery as well. With a bit of a delay compared to the earnings. I thought I just mentioned that about it. There seems to be this disconnect between stronger earnings and the VNB not really picking up yet. It's just that the cost cutting has been in different places at different times. The second point is what Hillie already alluded to.
Mortality is normalizing quite quickly. During the first quarter itself, mortality claims were still probably 105%-110% of pre-COVID. In October we had our first sort of like a 100% normal month that we had since the start of the pandemic. It's gonna be quite an interesting discussion within internally, you know, to now have this view. Is mortality gonna go fully back to normal, or is it gonna remain a little bit above normal? You know, I think our view has been that it will be a little bit above normal. Obviously we've got further numbers will lead to some interesting discussion. Either way, it's good news. Obviously a lower mortality for our business.
The other thing to mention is that we've been saying for a while that we expect annuity sales, your sort of conventional annuity sales to drop off. We haven't seen that. Those have actually increased quite a bit. We've seen ongoing very strong demand for these sort of guaranteed monthly income products. We have a strong market share in that, so it works in our favor. I also wanna mention that we're pricing these products quite conservatively at the moment because there's very little good quality credit assets out there. We're making very conservative views on the reinvestment assumptions. This VNB republishing on annuities, there's probably more upside than downside if we can reinvest in due course at better credit spreads.
Very pleased with the annuity sales and the VNB, based on our conservative assumptions. Non-life, I mean, Hillie mentioned the strong results regardless, weaker in Momentum Insure. I agree with Hillie. We're entering the wet weather period now. Combine that with the fact that we prefer to make increases on policy anniversaries rather than during the year. It means a bit of a delay with some of the premium increases coming through on gross written premium. I think second quarter marks will be quite tough and then things should improve beyond that. In the trading update, we sort of alluded that it was a more normal quarter for the venture capital funds.
I think I can probably make it a bit narrowly range relevant and say it was close to a zero result I think in terms of VC fund contribution for the quarter. We had one large gain on a particular investment, but then we also implemented a portfolio level adjustment to allow for the fact that the FinTech market conditions seem to be a bit under pressure. You know, we had one big gain and then a portfolio level adjustment roughly offset that. So VC didn't play a big role in the, in the portfolio results. In buyback, we mentioned there that we completed the buyback. We are subsequently applied to the Prudential Authority to extend the program beyond the ZAR 715 million that we announced at the interims. We will give you more details in terms of what.
Hopefully, we get the approval by then. I'm pretty sure we will. By the interim results, we will be in a position to give you an update in terms of the size and the scope of the plan for the second leg of the buyback. That is still on the cards. Also I noticed in the new business we talk a lot about life business. We did not talk about Old Mutual. Just to give you an idea, in the three-month period we're measuring here, the gross written premium growth in Old Mutual was approximately 50% year-on-year in INR. In ZAR, maybe marginally lower, but still very strong growth.
I thought I'd mention that because part of the capital raise via the, via the into the new sharehold was to accelerate growth. Growth has accelerated, so we're seeing a improved level of top line growth in India. Then this last comment on embedded value. To my knowledge for the first time ever, it's above ZAR 50 per share. The share price has been above 50, but on a slightly different rating to the current one. That EV itself, very solid. In the current quarter, a lot of the EV growth was driven like a buyback would have helped, but there was also quite good life variances coming through.
The one negative maybe just to remind you is obviously the long bond yields went up, which is good for the life profits, but erodes the valuation of the non-covered businesses. That sort of dented EV growth a little bit. Overall, you know, also because of the buyback, I think it's important to mention that we think the ZAR 50 EV is a very solid EV number. We feel comfortable using that as a yardstick of some sort to make decisions around buybacks. Okay, I'll leave it at that. I think we can open for questions.
Thank you, Risto . Ladies and gentlemen, if you would like to ask a question, please press star and then one now. If you decide to withdraw your question, please press star and then two. Again, if you would like to ask a question, please press star and then one now. The first question we have is from Michael Christelis from UBS. Please go ahead.
Hi, guys. Can you hear me?
Yes.
Hello, can you hear me?
Yes, we can hear you, Michael.
Sorry, it's just very, very faint. Thanks for the time. I'll try and make it a bit louder in case you can't hear me. Two questions on earnings, please, and then two others. Firstly, can you give me an indication on how big the investment variances were? Particularly, and if you can give that by business unit, you know, the four sort of big life businesses, that would be quite useful just to get a sense of, you know, what the size of that one-off is. Similarly on Momentum Corporate, I mean, you mentioned very strong underwriting and mortality variances. Presumably that's, you know, a double positive idea of some mortality. Can you give us a sense of how big those variances were? I'm just trying to get a more normalized number, you know, normalizing maybe one-offs.
Two other questions then, if you can. What's driving the Metropolitan Life margin so low? I mean, it's back down to 2%. It really looked like you had kind of turned the corner here, you know, a little over a year or two ago that we were back to the mid-single digits, it seems to have gone back considerably. Is there any sort of visibility of sort of getting back to those mid-single digit levels? Lastly, any comment or update you can give us on the asset management deal that was proposed between yourselves and RMI? If you could just comment on that. Thanks very much.
Okay. Maybe I'll take the first two questions on variances, and then Hillie can take the MetLife margin and the RMI one. Okay? Or you take the RMI one. Okay. In terms of variances, they were just over ZAR 100 million for the quarter, so they're not massive. Maybe that takes you back to 1.1. Last year was negative. You know what I mean? The year-on-year delta was big. Probably double that to around, like, ZAR 200 million-ZAR 250 million at year-on-year delta. Majority of that would've been non-life because that's where the long duration myriad books sit. A smaller component would've been both MetLife and Africa. Okay. T hat's on the variances. Happy with that, Mark?
Yeah. Thank you.
Okay. Like you said, the line is not great, but you asked about the corporate underlying results. They were strong, and it was not only mortality. We also saw good disability results in Momentum Corporate. Y ou can probably assume ZAR 50 million-ZAR 100 million positive variance on each.
Yeah. That's great. Thank you.
Is that enough, or was there anything further to your question?
No, that's all on those two. Thank you.
Okay.
Okay, Michael, as far as the asset management deal is concerned, I think good progress is being made. In fact, you know, we basically, I'd say 99.9% complete. Everything's basically been agreed. There's only a few, you know, I would say detail commercial matters that are receiving attention. You know, I think it's imminent.
Yeah. MetLife margin, I mean, Mark, that's a good question because that's probably one of the items that bothers us most in the results as well is. Now, there's a number of factors. I'll give you some of them and hopefully they will explain. I don't know if it justifies it, but it explains. First of all, we reduced our fees on our savings products about a year or so ago. At the time, we said that that will have a negative impact on the margin of savings products, but obviously better customer value for money. Subsequently, I think the business mix has gone more towards savings than we. You know, we would prefer to sell more funeral than we do at the moment. There's a mix effect.
Within the mix effect, there's some pricing on the savings product itself. The other one is that we had quite high NTUs not taken up during the quarter. Obviously, as you know, those are the policies where we incur mostly initial costs, but we don't get a premium. Those are the biggest losses in terms of VNB. So that's a factor. I suppose general e-economy as well is that in relation to the NTU, the quality of business is not at the level we want it to be. The last thing I would mention also is in our risk side, we sold a bit more of our underwritten product, partially underwritten product than the funeral plan. That also has a bit of a mix effect. That will give you some of the items that explain the margin. I would agree that 2% for this business is not. Yeah, I mean, you know, in this business segment it should be, very different.
Yeah. Maybe just touching on the NTU comment. Do you think this is affordability macro driven, or do you think it's possibly more around issues in the sales channel itself that needs to be addressed from an MMI perspective?
Yeah, I think it's both, hey. I think we've seen most people in the segment struggle a bit because of the economy. You didn't ask about the lapses, but we also seen more lapses on the older policies. You know what I mean? That's normally very economic. At the same time, anytime you dig into this, you do pick up that there's some things in the channel you could do better. You know? There are some things we can improve ourselves. You know, I would probably split the blame between internal and external factors.
Okay. Is there a specific channel that's worrying you? Is it call centers? It's agency where you struggle on NTUs?
If I'm being honest, obviously the call center and the, and the face-to-face is very different. The call center hasn't, m ost of the change has been in the agents rather than the call center.
Okay. Awesome. Thanks very much, guys.
Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. The next question we have is from Warwick Bam from Avior Capital Markets. Please go ahead.
Hi, Hillie and Risto. Thanks for the time. Three short questions from my side. Just how do you think about the margins in Corporate, given that you've doubled new business volumes, but the margin is still just marginally positive? How does load shedding affect your advisors, especially their ability to basically DebiCheck and sign people up? Is that not having an impact on your NTU and lapse rates? Can you comment around that? Just come back to the cyclicality of your earnings on a quarterly basis. You, you mentioned the fact that you're on a, probably more of a ZAR 4 billion run rate for the full year. Just explain, I guess, you know, if we maximize quarter by quarter, why can't we do that? What are some of the cyclicality items and how confident are you in that ZAR 4 billion number? Thanks.
Yeah. Maybe I'll take the last one. I mean, yeah, maybe I regret putting the numbers. I think the point I'm just saying is that I think the underlying earnings are ticking up because of efficiency gains. How confident am I in the ZAR 4 billion? I suppose if the market don't fall, reasonably confident. I mean, you know, it's quite a volatile business. If yields move significantly or markets move significantly, you know. It's a good question. I think the point is that maybe ZAR 4 billion is the normalized number. I can't guarantee it to you, but if, yeah, if I had to put a multiple on something, I'd probably put it on that. I mean, Warwick, I can't answer it better than that.
I wonder, Warwick, it was a little faint a line, but I seem to pick up that you linked your question to the fact that we don't do as much analysis of the URL of all of the results and the variances or whatever. Which, I mean, that wouldn't have any bearing on the earnings number. I mean, that number, we very confident about the calculation, but I'm not sure whether that was your question?
That's very helpful. Apologies about the faint line. I guess my point was just really around what is the significant driver of the volatility? I think you pointed to it in terms of yields, so that's quite, t hat's quite helpful.
Yeah. Okay. Yeah. I think as far as better margins on corporate business and uptick in volumes, I don't think that, you know, margins played a role here. There is some pressure on, you know, Life Cover, specifically, less so at this stage on PHI. You know, I mean, PHI, you know, COVID didn't have, you know, same impact. There's a bit of pressure on Life Cover. I don't, you know, I don't think that there's any link between our margins and the new business volumes. I mean, I think we're writing volumes at premium levels we very comfortable with.
Yeah, there's also a couple of large deals in here where obviously the margin can be quite tight. It's also based on the VNB assumptions you make. I think we also try to be careful not to be overly optimistic on some of these corporate deals in terms of the duration and the long-term margin. That margin is, I mean, Warwick, you're right. Again, it's a bit below what we would like to be the long-term margin. At the same time, if the guys write very low margin business in huge size based on conservative assumptions, we'll take it. You know what I mean? The probability is in your favor, right? Now, load shedding, that's an interesting question. I never had that one before, but internally it is quite important. You also mentioned DebiCheck.
We actually launched improvements to DebiCheck, particularly in Metropolitan. You know, one of the reasons why it's also quite disappointing that the launches are not so great. Without the load shedding, I would say like on DebiCheck, we make quite good progress. How do you deal with the load shedding now? Obviously, our branches, particularly where we own the physical properties, we install backup generators, UPS solutions. We try to give the agents at least a office to work, where they have connectivity and they can charge their equipment and things like that. Problem is when it's in a mall, we don't own the properties. Then the mall owner might say, "I'm not gonna spend money on a backup thing," and so on. Then you're a little bit stuck.
Our main offices now, if you wanna think about like a total disaster as long-term, sort of a electricity supply problem, we have upgraded all our main buildings, which is in Turian, Cape Town, and the Martin Center, where we can run the buildings for like up to two weeks without too much problem. Yeah. The guys out in the field, like I said, we give them branches that they can operate from when they have no other option.
Thanks.
Thank you. The next question we have is from Jarred Houston from All Weather Capital. Please go ahead.
Hi. Afternoon, guys. Just checking you can hear me.
Yes. Thank you.
Perfect. Thanks, Hillie. Thanks, Risto. Well done on what looks like another good quarter results. A couple of questions from me. Just reading the outlook statement, it reads particularly bearish, particularly in terms of the macro pressure and then persistency challenges. Am I right into reading into that it's getting tougher period on period here?
I think it is. I think to some extent, you know, I mean, it's difficult to gauge exactly, but, you know, during COVID and the immediate aftermath, there were so many almost programs that of assistance, you know. I mean, we know when lots of, you know, billions of claims were paid out, these things should, you know, flow back into the economy. You know, so I think those things somehow mitigated, I think, for the economic impact to some extent. I think those things are now, you know, getting less and less. I think the real economy is hitting now. You know, the lack of growth, the unemployment. Lots of good stuff.
Yeah. No, and I agree with Hillie that I remember the 2018 strategy, the Reset and Grow strategy. We assumed like GDP growth was like only 1% above inflation and we thought we were smart being conservative, ended up being probably even tougher. Same with this strategy. We've seen quite low growth. To be honest, I think all our business planning is gonna be for like almost a totally exposed economy in our short term planning. Yeah, generally, we are sort of getting ready for a very tough environment, and that will sort of also affect how to set our priorities.
Thank you. Maybe just a second question. Has there been any update with regards to the ComCom investigation or any communication that's been had between the parties?
Nothing whatsoever. In fact, look, the first thing that we expecting to hear from the ComCom would be when they tell us that they're ready, you know, to open all the boxes and documents and stuff that they've actually taken from our offices, which they will have to do, you know, with our legal teams present. That hasn't taken place yet.
Perfect. Thanks very much, guys.
Thank you, sir.
Thank you.
Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. We'll pause a moment to see if we have any further questions. Gentlemen, at this stage there seems to be no further questions. Do you have any closing remarks?
No, I think, you know, the pursuit for trading update is not really. I think, it's everything in the results. We thank you for your interest. Good afternoon.
Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.