Despite low economic growth environment across most markets, Rand Merchant Investment (RMI) delivered a 14% increase in normalised earnings from continuing operations for the year ended 30 June 2018.
RMI’s investments include Discovery (25%), MMI Holdings (26.2%), Outsurance (88.6%), Hastings (29.9%), and its fintech arm, AlphaCode with its next-generation investments in Entersekt and bitcoin company Luno.
It reported profit for the year from continuing operations of R4.27 billion, up 14%, with diluted headline earnings per share of 265 cents per share, up 15%.
The RMI board resolved to declare a final dividend of 65 cents (2017: 65 cents) per ordinary share.
Discovery, RMI noted, delivered a strong performance, with normalised earnings increasing by 16% to R5.4 billion. MMI’s results however, disappointed, down 12% in normalised earnings to R2.8 billion.
RMI included normalised earnings of R778 million from UK insurance firm Hastings for the year ended June 2018. Hastings announced its interim results for the six months ended 30 June 2018 on 8 August 2018. The claims ratio of 73.8% was better than the target range of 75% to 79%, despite the impact of adverse weather conditions experienced in the first quarter of the calendar year.
The claims ratio is the percentage of claims costs incurred in relation to the premiums earned.
Hastings recorded a sustained increase in clients, with live client policies increasing by 6% to 2.7 million and market share growing to 7.5% of the UK private car insurance market. Hastings declared an interim dividend of 4.5 pence per share, an increase of 10% on the interim dividend in the prior year of 4.1 pence per share.
Normalised earnings from Outsurance, including its shareholding in Hastings, increased by 22% to R3 billion, mainly due to favourable claims conditions throughout all major operations and higher associate earnings from its indirect interest in Hastings, RMI said.
Excluding Hastings, normalised earnings increased by 7% to R2.6 billion.
The cost-to-income ratio improved from 25.8% to 25.6%, primarily attributable to cost-efficiency in Youi (You Insured), which is also based in Australia and New Zealand.
Outsurance achieved a normalised return on equity of 31.4% and a claims ratio of 49.8%. The claims ratio benefitted from lower motor claims and favourable weather conditions, RMI said.
Outsurance increased its final dividend by 45% to 33 cents per share, mainly due to Youi paying its maiden dividend in Australia. RMI will also receive a further R236 million special dividend from Outsurance, being surplus capital arising from the implementation of the SAM regime.
Looking ahead, RMI said that Outsurance will focus on growing its market share and product range in Australia. It will also enhancing digital capabilities and infrastructure.
“Outsurance has materially increased its investment in the group’s technological capability and digital skills as it aims to more rapidly digitise its client experience across all products,” RMI said.
It said that it will aim to grow the product footprint of Outsurance Life. “Outsurance has recently entered the South African funeral insurance market, which is large, competitive and profitable. The team is also working to refocus the underwritten life operation to ensure its competitiveness and strength of its client proposition.”
RMI added that it will look to earnings diversification.
“The disruptive threat of autonomous vehicles, ride-sharing and continuous improvements in vehicle safety is material to the size of the vehicle insurance profit pool. Although this threat is of a long-term nature, it is important that the group’s future dependency on motor insurance is reduced,” it said.
In addition to optimising its existing portfolio, RMI plans to diversify and modernise its investment portfolio through opportunities across a wide spectrum of scale and lifecycles of financial services businesses, the group said.