Good day, ladies and gentlemen, and welcome to the Momentum Group operating update for the nine months to March 2025. 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 Jeanette Marais, the CEO. Please go ahead.
Thank you very much, and good afternoon, everybody. A real great warm welcome to all of you. Thank you for joining us to our operating update for Quarter Three of F2025. In the room with me are our Group Finance Director, Risto Ketola, Tekela Moyane, and Rowan Berger from our Investor Relations team. We value the opportunity to share our nine-month progress with you. Today is about looking back over the first nine months of our impact strategy. As most of you are aware, tomorrow you will have the opportunity to listen to each business unit's progress, looking forward in detail at our Capital Markets Day. I would like to take this opportunity to focus on some of the highlights of our numbers, and after that, I will hand over to Risto for some more detail.
You would have seen in the SEMS announcement this morning that we continued the positive trajectory we established at our interim results, delivering normalized headline earnings of R 4.8 billion for the nine months ended 31 March 2025. I do believe that this is quite a remarkable outcome. The earliest run rate in the third quarter was in line with the first two quarters if we exclude the substantial positive market-related variances of approximately R 500 million that occurred in the first six months. The key message here is that all our business units are operating strongly, and I'm very proud of the continued progress we've made. Our focus on value of new business is also paying off.
Although at a slower pace than in the first half of the year, VNB continued to grow in the third quarter due to a shift in the new business mix toward more profitable lines and specifically improved performance from Metropolitan Life. I think if we take into account that Metropolitan faces a similar drop-off in annuity sales as to what Momentum Investments has seen, Metropolitan has actually improved quite a lot, and it is quite a solid performance. VNB remains a key focus for us, and we will elaborate more tomorrow on the steps we are taking to address this in all of our different business units. Other good news is that we have made significant progress with the two most urgent turnaround plans. Momentum Insure successfully executed their turnaround strategy, and they have now achieved sustainable profitability.
Even when you see through the favorable underwriting conditions over this period, there has been strong delivery from the insurer business. We also stabilized the Metropolitan business through its five-point plan. Some work still remains, particularly on sales force management, but Metropolitan is also now well-positioned for growth. The next one on our radar is the review of the Africa operating model, which is progressing well, and I'm choosing not to steal Lilama's thunder. She will expand on this tomorrow. Maybe just sharing some other numbers. Recurring premiums were up 5%, but single premiums decreased by 7%. Sales across the group, as measured by the present value of new business premiums, were down 4% on a year-on-year basis to ZAR 58 billion. Health members and administration increased by 4%. These are not exciting numbers, but they are in line with what our peers have also been reporting.
It therefore seems to be a function of the environment we're operating in, which is also why we place such a significant focus on cost and efficiencies. We have had a lot of positive feedback regarding our new marketing campaign, which focuses on the value of advice, and I believe this will also bear fruit in the near future. We are encouraged by the progress we continue to make, particularly on normalized headline earnings, the value of new business, and on the continued disciplined execution across all our business units. We remain aware of the potential risks from local and global headwinds, but our robust financial position and diversified product offering position us well to achieve sustainable earnings, sales growth, and create long-term value to the mutual benefit of both our policyholders and shareholders.
Shortly after the third quarter closed, we experienced significant market volatility, which was driven by tariff-related market shocks at the start of April. These have largely reversed. This shows the resilience of our investment portfolio and the robustness of our balance sheet from both a solvency and liquidity perspective. We exist to build and protect our clients' financial dreams, and we reaffirm our commitment to deliver value to our clients. We will continue our focus on driving sales, sales volumes, and providing innovative solutions, improving our BNB outcomes. We are on a solid financial footing that positions us well to achieve the impact strategy we have set for 2027. To remind you, that is normalized headline earnings of ZAR 7 billion, a return on equity of 20%, and new business margin of between 1-2%.
I want to thank investors and advisors for their support and our employees for their hard work to build and protect our clients' financial dreams. On this note, I'm going to hand over to Risto to share his insights and a bit more detail on the numbers.
Thanks, Jeanette. As per usual, I'll just try and add a handful of additional points that may be valuable to investors. Now, in the third quarter, our investment variances were a small negative, talking about like ZAR 10 million, ZAR 20 million negative. Obviously, first half, we had substantial sort of ZAR 500 million profit over six months. Now we had a minus ZAR 20-something for three months. What's maybe more interesting for investors is you might remember President Trump's Liberation Day. That took place in the first week of April, and we saw substantial volatility in April. I received the April ALM report a couple of weeks ago, and we actually ended up making about a ZAR 30 million profit in April. Okay, all that market volatility, we actually saw it recover through most of April. I haven't got the main report yet.
I mean, we're not that efficient the second of June, but, unless something dramatic happens in the last month, we're probably going to end up with a relatively neutral investment variance for the second half of the year, which means that there's no reason why earnings shouldn't track broadly at the current levels, particularly if you look at the underlying earnings. If you read the announcement, you'll see our capital ratio fell from R 2.15 to R 2.02. Quite important to remind people that we quote that number pre-dividend. The decline just reflects a big dividend paid from the life company to Holco. This is the life company capital ratio, not the Holco, to Holco to fund the buyback. Okay, so there's nothing beyond just the dividend flows from life company to Holco.
In terms of buybacks, we started that buyback program in May, maybe a little bit later than some investors would have expected. We're doing a structured buyback program, which meant we had to get some legal contracts in place before we started that, so that took a little bit of time. In terms of business units, we haven't given business unit earnings. I think we have given you some hints in the direction they're going. I can confirm that Momentum Insure continues to do very well. The favorable conditions in short-term insurance continue. Our health business is also doing quite well. They got their fee increases on 1 January, so then you normally see quite a nice jump in that first quarter of the calendar year. I can also confirm that Metropolitan Life continues to do well and Guardrisk.
Their run rate is very similar to first half of the year. The two business units where we may be seeing the biggest slowdown in the third quarter versus first half, one is corporate, where we continue to see some normalization in profits. Then Momentum Investments, they had very favorable variances on the annuity book in the first six months. If you think of the area where the investment variance has most normalized, it is on the annuity book, and that sort of impacts investments more than others. In terms of VNB, I think we, I would describe it as okay. Now, it probably remains the area with most work to be done still.
We have been warning investors for quite a while that as a new, if annuity sales decline, you know, it's going to make quite a big dent on our VNB, and, and obviously annuity sales have declined, which in a way is a pity because it's hiding some of the good improvements we're seeing in one or two other areas, you know, I think in Metropolitan Life, Investo, all the Metropolitan Life products. We have seen quite good improvements, but declining annuity sales is having a big offsetting impact, which is making the VNB growth a little bit less exciting. Okay, I think I'll leave it at that and then open up for questions. Obviously, tomorrow we'll give you a little bit of additional detail, particularly around some of the capital management initiatives.
Thank you. Ladies and gentlemen, if you would like to ask a question, you may press star and then one on your touchstone phone or on the keypad on your screen. If, however, you wish to withdraw the 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. You will hear a confirmation tone that you have joined the queue. Ladies and gentlemen, if anyone would like to ask a question, please press star and then one. We will pause a moment to see if we have any questions. We have a question from Marius Streda of Austin Lawrence. Please go ahead.
Hi, Risto and Jeanette and team. My question is related to your Indian healthcare operation. We've seen a bit of a pickup in the peer group loss ratio in the March results that were released, Star Health in particular. Can you speak at all to your loss ratio trends? Because it is trending, I think, ahead of where you would like to see it for a break even. If you can also give us an update on when you expect that break even to occur.
Yeah, I'm Marius. Please, please be there tomorrow. Moyane has flown all the way from India just to answer your question, so come to the investor day tomorrow. Now, I can confirm that Altibula Health Insurance broke even under the India GAAP for the 12 months. We obviously have to do the F17 numbers, but I think directionally we can argue it will be close to break even, other small negatives, small positives. Break even is a big event for them. I'm sure it will feature in tomorrow's presentation, and they would say that they were the quickest health insurer ever to break even after a certain number of years, so that's very positive. Our loss ratio is not looking too bad. I'm thinking of the quarter-by-quarter features.
The one thing that could maybe explain the industry widening, there were some regulatory changes a while ago, maybe six, nine months ago, that made it harder, for example, to repudiate claims. There is sort of consumer-centric legislation coming out in India, which is quite normal in most markets. You know, for example, if somebody submits incomplete documentation, we can't just tell them, "Oh, two months, two weeks later, sorry, you're too late." We basically need to give people reasonable time to submit additional documentation. I think those sort of protections from the regulator might increase claims, at least in the short term. Obviously, if it's a permanent increase in claims, we will have to adjust for it in our prices. I must say, I didn't see our fourth quarter being abnormally bad. Yeah, I can't comment further than that.
Okay. The valuation methodology that you use to value the Indian business, will that change? Will the valuation methodology change when the business breaks even?
Yeah, good question. We always state that we'll move to a discounted cash flow basis, once we are at a more mature stage. Now, I think they published a profit of, I don't know, was it R 15 million or something? It's a small profit for the year. I mean, I wouldn't say it is mature yet, even though it's profitable. We do track our own DCF, versus historical value. As you can hear from our answer, there's no plans to move to a full EV in June this year, but it's something we'll track over the next year. You know, June next year might be a more realistic time to think about introducing a full DCF for the valuation.
Thank you. That is likely to result in a much higher valuation, one would assume.
Yeah, I don't want to, I don't want to be as sarcastic as usual, but Marius, I would say we'll only introduce DCF. No, I'm joking. That is a joke. Yeah, obviously the business has grown substantially. I think we have a number of people value this business stock over the years, investment banks, analysts. I mean, people tend to come up with multiples of their historical costs. I think your assumption is pretty accurate. The degree of it.
It wasn't Abu Dhabi bought in.
Yeah.
There was a full valuation done, which was.
That's right. Yeah. I can't tell you if it's one and a half times, two times, but I'm yet to see a DCF that's lower than the historical cost.
Perfect. Thank you very much.
The next question we have is from Sol Miller of Truffle Asset Management. Please go ahead.
Hi there. Just a quick one. How seasonal should I expect the covered business to be, H2 versus H1, if you exclude the R 500 million investment variance?
Not a huge amount of seasonality. Now, sometimes your short-term insurance claims can be high in January, February with rainfall. I mean, I can confirm this year they're not. On the life insurance side, we do see a bit of seasonality in South Africa where winter months are a little bit higher. Obviously you have one winter quarter in the first half, one winter quarter in the second half. Seasonality should be quite limited. I mean, I thought we were pretty clear in the operating update when we said if you take ZAR 3.4 billion at mid-year, you knock off ZAR 500 million, divide by two, you bang on the run rate. I would think that we bang on the run rate for the year as well. I would expect very similar results off and off ex-investment variances.
Sol, you're not happy with that? You're quiet.
No, I am. I am. No, I am. That's perfect. Thanks.
The next question we have is from Morag Bam of RMB Morgan Stanley. Please go ahead.
Good afternoon, everyone, and thanks very much for the opportunity. Just one question on yield curve movements. I mean, they've historically been quite influential for earnings. With the South African Reserve Bank's discussion around moving the target to 3% or at least targeting the lower end of the band, how do you think that might impact the shape of the yield curve and potentially, the income statement as well as the embedded value statement? Thanks.
Yeah. Now, that's quite a technical question because your question has the answer, which is it depends on what impact it has on the yield curve. You know, just changing the inflation target, I think necessarily the impact on yield curve is a bit of a function of to how the market expects the Reserve Bank to achieve it. Now, if we think long-term, it results in a reduction in our yields. You know, on average, it will obviously be EV positive. In terms of account difference earnings, it depends a bit by business unit. I would say on average a small positive. I wouldn't, I mean, the volatility is nowhere near where it used to be on pre-2017 basis.
I think what, what's maybe a bit fairer is, you know, next time we meet, I mean, maybe give your own view on how the yield curve changes, and then I can tell you which business units are affected in what way. It's, it's, yeah, I wasn't prepared for this question because I think, yeah, the yield curve could react in a few ways depending on what sort of policy and tools the SOB uses. What is your view on the yield curve, Laurie? Let's hear that.
No, I suppose in the short run, it's obviously going to keep the short end high and reduce the long end. In that example, how does it affect, you know, is there anything obvious? I guess maybe if there's anything you can point to that is of significance in the shape of earnings relative to that kind of yield curve.
Yeah. I mean, obviously inverted yield curve might be a little bit negative on UT sales. You know, obviously money market rates will be more attractive compared to long-term rates. There could be that sort of a small sales impact. Obviously high short-term rate is good for our working capital profits. And working capital profits are quite big in, for example, corporate, where they have a large float using that terminology. You know, higher yields at, let's say, five, six-year point might be a bit of a negative for a business like Metropolitan, but then much lower long-term yields might be positive for longer duration business, particularly if there's escalating premiums. Yeah, again, if that's your scenario, you're talking maybe ZAR 200 million improvement. Again, on a big basis, not a huge number.
Now, if you tell me the yields are going up 4% in the short end, I mean, that's a big move. Okay. I'm thinking in my head like a 50 basis points, 100 basis points movement.
I know it's a complicated answer, hence I'm asking you. But,
Yeah, I know.
I think that's very helpful.
Marius, thanks for not asking me to buy now.
No, no worry. Don't worry. Now, now you're a better answer. I'll practice over the next week. How's that?
You're going to talk to my mom.
Yeah.
Thank you. All right. That's all from me. Thanks.
Thank you. At this time, we have no further questions, and I would like to hand back over to Jeanette for any closing remarks.
No, not much to add. I mean, I really just wanted to say thank you very much. I know that one of our competitors just had their call. Hopefully you gave them a bit more of a tough time than you gave us. We are ready for you for tomorrow, and it would be great to welcome you all to our Capital Markets Day tomorrow. Tomorrow obviously is less on kind of numbers looking back. It is far more on looking forward on the strategy, on the delivery of the strategy. We really look forward to it. Thanks for joining now, and hopefully we see quite a lot of you tomorrow. Thank you.
Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.