Good day, ladies and gentlemen, and welcome to the Momentum Group Limited Q1 2025 update. All participants will be 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 and then zero. Please note that this call is being recorded. I would now like to turn the conference over to the CEO, Jeanette Marais. Please go ahead.
Thank you. Morning, everyone, and welcome to all our shareholders and our key stakeholders to our operating update for quarter three of F 2024, which is also our first quarter, obviously, of F 2025. Oh, that's weird. I'm sorry. That was a typo. So, quarter one, F 2025. I'm joined on this call by our Group Finance Director, Risto Ketola, and Dikela Moloisi from the investor relations team. So I have them here with me to also help to answer some questions. So maybe I'll just start by talking a little bit about our general intro on our impact strategy and it's the first quarter and linking it back to the impact strategy.
Really, if I look back at the impact strategy, it really is there to aim to set us apart as a financial services company that excels at advice case for our clients through our simple products and services, is enabled by technology, and has excellent vertically integrated product and asset management capabilities. I will only highlight progress we made on key initiatives that we started as part of the impact strategy. We continue taking progress with Metropolitan Life and Momentum Insure's turnaround strategies. We can report that in Metropolitan Life, product commerciality and quality of new business have improved. In Momentum Insure, our claims ratio has improved to well below the business long-term target range, which is 58%-62%. In fact, I can say that we've dramatically improved the claims ratio.
And this is due to disciplined management of underwriting supported by a favorable claims environment. Weather has been playing along, and we've had no hail or any kind of bad weather events. But also to add to that, our combined ratio is relatively materially better. In fact, it's more than double that of our competitors. I just came out of a Momentum Insure board meeting, so actually, the numbers there look really well. Our focus on value of new business has started to pay off, and we've seen an improvement from the prior period. The group's value of new business improved from the prior period, supported by a shift in new business volumes towards higher margin products across many of the business units. Our focus is being on VNB, and I'm confident that we're going to have good numbers in the first half of the year.
And we're also seeing improving VNB margins, so our efforts are definitely starting to pay off. We launched Curate Investments in the last two weeks, our new outsourced asset management business, which offers a range of local and global unit trusts from excellent local and offshore asset management partners. I'm also sure you're well aware of some interesting moves in the asset management industry today with an announcement that just came through an hour or so ago. But in our space, we now have an attractive fund offering for financial advisors and discretion fund managers that provides access to a range of carefully selected portfolios and funds tailored to meet diverse investor needs across risk profiles and financial goals, which we can use for vertically integrated advice solutions across our advice channels.
Our partnership in India, Aditya Birla Health Insurance, continues to grow strongly with increased attention on improving the combined ratio. Core to our strategy are plans to reduce our controllable cost base through our cost optimization strategic objective. In the first quarter, we focused on identifying targeted interventions to achieve cost savings and improve operations through streamlined processes and some innovation. Going forward, the focus will be on disciplined execution to achieve these identified savings. Then, more generally on our group performance, we are happy that we started the new strategic cycle with steady performance, continuing the positive direction we shared at our year-end results. We had satisfactory new business and earnings performance of most business units. Sales across the group, as measured by the present value of new business premiums, increased by 5% to ZAR 20.7 billion on a year-on-year basis.
And this was supported by continued growth in life annuities new business volumes from Momentum Investments, so that positive trend is continuing. Africa's present value of new business premiums improved by 25%, following good retail sales growth in Namibia and Botswana and higher corporate sales in the country. Momentum Retail sales volumes increased by 1%, resulting from an 11% growth in Myriad protection new business, but dampened by a 5% decline in long-term savings new business. You can clearly see from there the shift between higher margin to from lower margin to higher margin sales. Its new business mix shifted towards the higher margin protection products in Myriad. There was a marginal decline in Metropolitan Life sales volumes, and Momentum Corporate experienced lower single premium sales volumes over the quarter.
Then before I end off, I saw that our competitors spend quite a bit of time on it, so I thought I'll just give you an update on our two-pot withdrawals. By 14 November, what is that, about a week ago, we had received almost 200,000, in fact, 197,000 valid claims to the total value of ZAR 3.5 billion, of which we paid about 94%, just over ZAR 3.27 billion. This is just below 1% of our total retirement assets under management, which is actually quite a lot lower than our expectations. We think withdrawals have been lower than expected due to sources of aggressive collection of tax. In fact, we experienced that clients received quotes and advice on their two-pot withdrawals, but the moment they became aware of the tax implications, they actually never activated.
Financial advisors also had a significant positive impact, and we could see that clients with financial advisors had far lower withdrawal rates. We even saw that some of our clients reactivated dormant policies or invested in new retirement annuities. The pace of claims received and paid decreased strongly from just under 148,000 claims received in September, and you will recall that we were actually ready on the 2nd of September to take two-pot withdrawals, and that then declined to 41,000 claims in October and only 8,600 in the first two weeks of November, so a marked decline in the number of requests. In November, about 12% of the number of claims that we saw in September. Maybe to end off, we are encouraged by our new business sales performance, very positive. Our operating environment, of course, remains under pressure from weak economic growth and an increasingly competitive landscape.
However, we are seeing early indications of economic recovery in South Africa, with inflation easing in the start of the interest rate reduction cycle, alleviating the pressure on disposable income. We're committed to maintaining our competitive attractiveness to our clients and will continue our focus on driving sales volumes and providing innovative solutions to improve our VNB outcomes. We're in a solid financial footing, and we are well-positioned to meet the evolving needs of our clients. I will hand over to Risto now for a few comments as well.
Okay. Thanks, Jeanette. I'll just try to add a little bit of color where maybe it will add value to the listeners. So firstly, you'll see there's very little commentary on earnings in the operational update. And it's because we didn't do a full consolidated set of results for the group this quarter. With IFRS 17, our number of production time basically increased by two weeks. You would have noted our year-end results were two weeks later. So we spent this quarter really testing some new processes and improvements. Reporting, let's call it production. The idea is that we eventually get back to the same timelines that we used to have under IFRS 4. Now, that said, obviously, I've seen the results for all the business units, not on a consolidated basis, but I've seen them all. Obviously, for regulatory reasons, we do some reporting as well.
I can confirm what you may be getting by reading between the lines in the operating update. The earnings were good in the quarter. Now, firstly, we had quite substantial investment variances, positive. At year-end, we spoke to many of you about the fact that we're backing our CSM with bond assets. So we basically got more than ZAR 10 billion of bonds backing our notional CSM liability. So those bond-related investment variances were substantial in the first quarter. Secondly, and they're stable in the second quarter. Secondly, when I read some of the analyst reports, I got the vibe that the guys thought mortality wasn't great. Now, I would say it was like average in retail, but in corporate, it was still good. I mean, we were coming off very high levels of mortality variances. So it's moderating, but there's still very strong risk results.
So I would still characterize risk results as good on the life side, maybe better than good. And then, as Jeanette mentioned, Insure had a very good quarter, and Guardrisk also had a very good quarter. So caveat of not having done intercompany consolidations in my head, I would estimate that our quarterly earnings were probably like ZAR 1.3 billion-ZAR 1.4 billion versus last year's run rate of ZAR 1.1 billion. So it was a really good start to the year. I hope it continues. Then, in terms of capital, our life company capital ratio, I think, was 1.99 at the end of the quarter.
Now, we issued some Tier 2 instruments two weeks ago at very good spreads. Now, first of all, it reduces our cost of funding compared to the previous. I mean, we raised the stake at much lower levels than the funds we redeemed before in the quarter.
But it also brings our life insurance capital ratio back to just over 2.0. Beyond the life business, Guardrisk, both the life and the insurance license are also above the capital target. And insurance capital ratio is also now at quite a high level. So across the group, we're sitting on a very strong capital and solvency position. We have commenced some work looking at our dividend policy and so on going forward. These are all nice problems to have, much better than the other way around. Also, on the buybacks, we only got the Prudential Authority approval quite recently. And in fact, we haven't bought one share yet. I mean, we're starting to buy shares, I think tomorrow is probably the day we're going to start. So the buyback program hasn't really been in the market for the last two months.
Obviously, looking at the balance sheet now, we might have to then talk a bit more about that in March when we get our results. What do we do beyond there? Then just coming on VNB. And here, I must thank Mike. I see Mike's already ready for a question. Mike, I read your note this morning, and I thought you were not that excited about the VNB. So I went to look at our results announcement, and I wondered how you got to the number you did. There was a typo, apologies for that. A typo for the investments VNB. It's ZAR 198 million, not ZAR 158 million. So if you do the math, you'll see that our group VNB is actually closer to ZAR 200 million than it is ZAR 150 million.
So again, VNB trends are a lot more like second half last year than first half last year. So we're actually quite happy with the VNB improvements we have seen. I mean, if I've gone on to say anything negative about VNB, we are still a little bit early depending on the news. But we have seen improvements on protection, retail protection, VNB and stuff. More work to be done with the trends on the day. Okay. Beyond that, I think that is all I can say at this stage. I just been confident that there's updated sentences just went out. That's what the typo corrected for the VNB on investments. Okay. I think I'm happy to open up for questions now.
Thank you. Ladies and gentlemen, if anyone would like to ask a question, you're welcome to press star and then one on your touchscreen phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. If you wish to withdraw your question, you may press star and then two to remove yourself from the question queue. Once again, if you would like to ask a question, you may press star and then one. The first question we have is from Michael Christelis of UBS. Please go ahead.
Hi guys, can you hear me?
Yes, we can.
Hello. Yep. Thanks so much for the time, and thanks, Risto, for that correction. It makes a lot more sense now. But maybe if we can start on VNB. When I look at Africa, for example, you've got massive growth, and it looks like all recurring growth, which is generally VNB accretive. Why are we still seeing a negative VNB there? And maybe you can just talk about the outlook for VNB for some of those negative units heading into the rest of the financial year.
Okay. I'll make one or two comments. You normally ask three questions, and now you've cut me off.
I've got a few more. Do you want me to ask the question first?
No, it's fine. I'll start with you. I mean, Africa VNB, obviously, we've been disappointed for a long time. The first thing I'll say is we're just only exposed to savings business in Africa. Like in Botswana, 80%-90% of our business is recurring savings. In Lesotho only, there was like 50/50 or so. Now, just like in South Africa, in these markets, especially as value for money for clients improves, it's becoming very difficult. I won't say impossible yet, but it's become very difficult to sell recurring savings. So we're going to have to get this tilted to significantly towards retail risk and then maybe more corporate business as well. I would also say that we are running a little bit of higher expenses than we would like.
We are doing quite a few system implementations in Africa, which will then improve the situation quite a bit once implemented. But it will not be enough. We have to get mixed tilted heavily towards protection. Otherwise, these margins will remain quite disappointing.
Mike, what I will add to that is that in Africa, part of the system's delivery is also a better, more modernized risk product for the retail market for Africa. So at the moment, unfortunately, the product that we have out there is not ideal. And it's going to take a few more months in order to launch the product that the Africa guys have been kind of waiting for for quite some time. On top of that, I've started to actually also get quite involved in the Africa operating model, which is what Risto linked to in terms of the cost of running that business. And we plan to actually make some quite drastic changes to the way in which the Africa business is run, Africa business is supported to actually bring that cost base down quite considerably. So I think it's a combination.
The first thing that I started to focus on with that team is actually how we distribute, what we distribute, and a focus on the distribution model there, which I believe will actually help us quite a lot in addressing the VNB problem.
Risto, thank you. Maybe then the next question, just obviously, annuities has been sort of spectacular volumes over the last year at least, if not more. Can you talk a little bit about what the sort of run rate has done since yields have come up quite sharply from around about the middle of June? I mean, is this still kind of the sort of tailwind of business that was maybe secured before quarter end, heading into quarter one, and maybe things slow down from here? Or do you think this sort of run rate is sustainable?
Yeah. Obviously, in the quarter, we saw that sales up year on year. I can confirm that I think September was weaker than the previous two months, but I'm a bit reluctant to make too many conclusions yet based on a time series of three months, Mike. So I'll ask you the next question. I'm going to have a look if I can find the latest sales just to see if there's anything to say there. But yeah, September was lower than the previous two months, but let's not jump to conclusions.
Okay. And then India, I'm a little bit perplexed about your commentary. You talk about a pivot towards corporate business because of the more expensive cost ratio sitting in retail. If I look at Aditya Birla's quarter two numbers that were released recently, they show much stronger GWP growth in retail than in group, sort of roughly 50% versus 30%. I mean, can you just talk how do I sort of close that circle?
Yeah. I think you close the circle by maybe not taking the comment too literally. And what I mean by that is I think that's a commentary on the higher strategy of the last couple of years. Now, you might recall, well, you know very well that in India, you've got that expense management target of 35% you need to meet in a year and a half from now, a year from now. And there was a heavy tilt a couple of quarters away, more than a year away. We tilted towards selling more corporate to get to the 35%. As we're getting closer to the 35%, which we are, now they can start tilting back towards retail a little bit. So I think that comment is a high-level comment of like a year or two, not the quarter.
But I think what you will see is the more confident we become in meeting the 35%, the more we can afford to tilt back towards retail where the long-term profits are. We have to manage those two levers as we get to the 35%.
Yeah. And especially in light of the claims ratio, because I think that's, it's kind of the cost on the one side and the claims ratio on the other. But we're definitely keeping a very close eye on both.
Awesome. Thanks very much, guys.
Risto is searching for the September annuity.
Sorry, the October ones.
Sorry, the October numbers that we could maybe just tell you whether it's a two-month trend or one-month, but I think we can go to the next question, and then we can answer it the moment we get it.
Thank you. The next question we have is from Marius Strydom of Austin Lawrence Gidden. Please go ahead.
Hi, Risto and Jeanette. I assume you can hear me. Thank you very much for this update, which really gives us the first clean look at the quarter from June to September for the industry as a whole. And obviously, certainly from our point of view, we're looking for green shoots following the election and declines in inflation, higher or lower bond yields, stronger markets, and the start of the easing cycle. It's very promising to see, in particular, your growth in recurring premiums over the period. My question relates to the profitability of these recurring premiums and obviously the combined premium set, because obviously prior to 30 June, there were negative impacts from bond yields and lapses and the like.
So could you give some insights on whether the quality of the business written in the quarter would have improved considering, firstly, the lapses, but firstly, the bond yields, but also whether you are seeing green shoots from your lapse experience?
Okay. I mean, the bond yields have a mechanical impact on VNB, which is beneficial from the risk versus protection business, less beneficial, well, actually negative for the savings business, and then quite neutral for annuities. So when I mentioned earlier that we've seen a bit of an improvement in retail protection VNB, part of that would have been the yields versus what you saw in the savings product. So you're right about that. I think the overall impact on VNB is not humongous because annuities, which are quite neutral to the yield curve, is such a big part of VNB at the moment. The lapses is a nice question because we're definitely seeing improvements in the policy. Now, remember, we incur losses on lapses in a few ways.
One thing is the obvious wasted effort of actually going through the issuing process and everything else and policy and so on, and obviously, salesman time is also wasted, so you have other heads of management distribution, and we're getting our NTU rates down quite a bit, so a number of people taking out policies where we never get a premium. Let's call them totally wasted time policies. Those are down heavily, and that's great. The other area we lose money on lapses is when we pay commissions and then the salesman is no longer with us when we try to recover the commission. That trend, unfortunately, remains quite high, so we're still losing too much money on what people call sort of clawbacks that are not recovered or executed, so yeah, NTUs are looking better, so that's helping. Outcomes on business that has lapsed.
That's specific to Metropolitan. Do you want to comment on Myriad around lapses?
Yeah. So obviously, Myriad, the direct-to-consumer business has become a bigger part of Myriad over the last few years. And there, the lapse rate is higher than the intermediary business. I mean, we've always been fans of intermediary. And yet again, you see the collections are much better on business sales through intermediaries than direct. But the improvement on the lapses in Myriad, particularly in new business, was actually with direct-to-consumer. We're starting to see those lapse rates. They're higher. They're definitely higher, much higher than intermediary. But they're starting to be very close to our assumptions, which is obviously important for sustainability of the direct-to-consumer business. So yeah, generally, I would say lapses is a good story for us. Yeah.
Thank you.
Okay, carry on. Yeah.
Thank you. And then also, it is certainly our sense that you have either maintained or even grown market share a little bit over the quarter. Can you confirm or deny that?
Marius, unfortunately, we don't have those numbers for this quarter specifically. You remember we spent quite a bit of time on that and our year-end results. So I think the work we haven't done is to actually kind of go in detail through our competitor reports to see whether we could glean anything. But the specific market share measurements that we normally use, we actually haven't obtained a very recent update on that.
Thank you.
I do recall that the NMG numbers that we often use for Myriad, we actually are back in the number one position. But my worry is whether it was actually updated for this quarter or whether it's maybe lagging a quarter. So I'd rather comment on that specifically for this quarter because the information I have might actually lag a quarter.
Thank you very much, and good luck for the rest of the year.
Thank you. I think Risto is ready to answer.
Yeah. So October annuity sales were better than September, but lower than July and August. So let's put it somewhere in between. But still, I mean, overall run rate is not that different to last year. I mean, we've spoken about this a lot internally. Even if we can keep the current annuity volumes, the amount of business we're adding in terms of CSM and the annuity book itself because of inflows versus outflows, we're very happy. Yeah. I think overall, October sales are as good or better than the first three months if I look at across all the business units.
The next question we have is from Jarred Houston of All Weather Capital. Please go ahead.
Morning, Jeanette. Morning, Risto. Just a clarification, Risto, on your comments about your estimate of earnings for the quarter, the ZAR 1.3 billion-ZAR 1.4 billion. Just the guidance that you gave in the statement about the cost savings suggests you haven't really realized cost savings yet as the execution's going to be in the next quarter. Is it fair to say the gain in earnings is ex the benefit of cost savings?
Yeah. Definitely. I expect the guy who's running the program is in the process for me. I think we've got.
He's gone gray since the quarter ago.
Yeah. I think we've got like savings today out of like a billion we're targeting. So it's very early days. But we do have probably three-quarters of the savings target is already sort of captured up and running. We have business plans, tracking, work is started. The number we often talk about is the run rate. I think by end of the year, where do we want the run rate to be? 300, 400. Okay, closer to 500. So by end of the year, this financial year, we want to be able to claim that the annual forward-looking savings is 500. So if you're looking at the timing, we may going to look like 150 or 200 over this year next.
But it will be nice to come into the end saying, "Guys, it's already implemented," and next year you're going to see a big part of that saving coming through.
Sure. Perfect. Thank you.
Later.
Ladies and gentlemen, apologies.
Sorry, I was going to tell Jarred, remember there's a pre-tax numbers before you update your model.
Thank you. Ladies and gentlemen, just a final reminder, if you would like to ask a question, you may press star and then one. We will pause a moment to see if we have any further questions. It seems we have no further questions at this time. Apologies. We do have a follow-up question from Michael Christelis of UBS. Please go ahead.
Hi guys. Sorry, if nobody else is going to ask, maybe just a question on where mortality pricing is at the moment in corporate. Obviously, we've seen you make the comment about competitive sort of dynamics. I mean, it's hard to gauge, but I mean, are we going to see mortality profits come off considerably, do you think, over the next 12- 18 months, or do you think you can still hold on to some of these profits where they are?
Yeah, that's a very well, it literally is a billion rand question. Again, the first quarter surprised us. So we're always nervous. We're always nervous of these things coming down. And it's always negotiations. And there's no doubt given back to the clients. Now, at the same time, we're obviously trying to improve our own processes and our own claims management. So while we're giving away premium, we're also trying to improve in terms of expenses and claims management and everything else. But I would say it's very, very likely that profits are going to go backwards on group risk. It's just about managing how far it goes backwards and how quickly. And it's also different in different parts of the book.
I mean, I'm not going to get into too much specifics, but some of the subsegments are easier to hold on to, whereas some of them tend to reprice very quickly. But yeah, Mike, I mean, in our internal projections, we're expecting the profits to go backwards somewhat. Some people think it could halve. Some people say it could be 20%. But so far, so good. Every quarter, I'm relieved that the pace of repricing is a little bit slower than we always fear. So clearly, the corporate guys are doing their best to hold on to the model.
Awesome. Thank you.
It seems we have no further questions at this time, and I would like to hand back to Jeanette for any closing remarks.
Yeah. No, I just wanted to say thank you very much. It's interesting times. Competitors are busy. We're very busy. There's great energy in the business. We've actually kicked off a kind of a culture program to align with our impact strategy and with our purpose that we've spoken about before. It's really a great positive energy, especially for this time of the year. It feels like people are still very focused. We internally are busy finalizing and passing on the breakdown of our ZAR 7 billion earnings target to our different business units to make sure that they're completely aligned with what they need to reach on an annual basis in order to get there. My and Risto's biggest fear is to not jay curve towards the end, but make sure we start to bank that as early as possible. Some great conversations happening around that.
But from our side, thank you very much. You know where to find us if you have more questions. And yeah, I just also, yeah, wish you all a good break in December. I think we all deserve it. Thank you very much for joining us.
Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your line.