Rand Merchant Investment feels the heat of the Australian bushfires

Rand Merchant Investment (RMI), on Thursday (12 March) reported a 14% drop in consolidated normalised earnings for the six months ended December 2019, citing a significant increase in spend on new strategic initiatives at Discovery, and the recent bushfires in Australia.

RMI is a strategic, active manager of a R47 billion financial services portfolio with shareholding in:

  • Discovery – 25.0%
  • Hastings (UK-listed short-term insurer) – 29.8%
  • Momentum Metropolitan – 27.3%
  • OUTsurance – 89.1%
  • RMI Investment Managers – 100%
  • AlphaCode – 100%

Normalised earnings fell 14% to R1.8 billion, and 14% to 117.8 cents per share, it said.

“This result is mainly attributable to the significant increase in spend on new strategic initiatives at Discovery and OUTsurance and an increase in the claims ratio of the short-term insurance operations at OUTsurance following the Australian bushfires and also at Hastings,” RMI said.

It pointed to a compound shareholders’ return since listing in 2011 of 16.9% per annum, and said that its dividend for the period remains unchanged at 45 cents per share.

Discovery’s normalised earnings decreased by 11% for the six months ended 31 December 2019. “All of Discovery’s established and emerging businesses, with the exception of VitalityLife, produced robust operating results, RMI said.

VitalityLife’s earnings were negatively impacted by the strategic decision to mitigate its exposure to further interest rate declines in the UK. In addition, the group invested R1 billion in new initiatives, an increase of 81% over the prior period. Of this spend, 53% was dedicated to Discovery Bank, which is expected to remain the dominant investment going forward, it said.

RMI included normalised earnings of R170 million from Hastings for the six months to 31 December 2019, 51% lower than the R348 million in the comparative period. Hastings announced its 31 December 2019 year-end results on 27 February 2020, which reflected a 52% decline in normalised earnings in Sterling terms.

Momentum Metropolitan, however, recorded a 10% increase in diluted normalised earnings to R1.8 billion for the six-month period under review and a 12% increase in diluted normalised earnings per share, reflecting the positive impact of the R2 billion share buy-back programme that was completed in November 2018.

“This growth was supported by a resilient performance in the core South African life insurance businesses, underpinned by disciplined expense management and steady underwriting results.

“Guardrisk delivered an excellent performance which, together with the sale of loss-making operations in the rest of Africa, contributed to the overall growth in normalised earnings, RMI said.

The highlights at OUTsurance for the six-month period were the continued growth recovery at Australian insurer, Youi, the successful continuation of the expansion of OUTsurance Business and strong OUTsurance Personal growth within a difficult economic climate, it said.

RMI warned in January that Youi expected gross losses related to the Australian bushfires of between A$25 million and A$40 million.

Overall group gross written premiums increased by 6% to R8.6 billion and annualised new premium written increased by 15% to R2.1 billion.

 

Looking ahead, RMI said that Discovery is well positioned for growth over its planning horizon to 2023, with the capital plan intact.

Key priority areas are:

  • Execute on VitalityLife’s stated plans to manage in the low interest rate environment, stabilise experience variances and return to robust profit in the 2021 financial year;
  • Achieve significant traction in new initiatives, most notably Discovery Bank, and ensure short-term new business thresholds are achieved for each initiative;
  • Ensure the established businesses retain their insurgency; and
  • Capitalise on emerging businesses’ unique attributes and positioning to achieve scale and materiality.

RMI said that the board and management of Hastings are confident in the group’s profitable growth opportunities and its ability to deliver on its vision to become the best and biggest digital insurance provider, with growth in the right market conditions.

For Momentum Metropolitan, consumers are under strain from the continued slow growth in disposable income and uncertain economic environment.

“This could have a moderating impact on the group’s operational performance in the second half of the 2020 financial year,” RMI said.

OUTsurance’s medium-term strategic focus is to expand its insurance product range and widen the distribution footprint to include multiple sales and service channels. During the six months under review, it continued to expand the size and capability of its tied-agency force.

OUTsurance entered into a partnership arrangement with Shoprite for the distribution of long-term and short-term insurance products to the various client bases of the Shoprite group’s operating brands, and will commence with the distribution of a funeral insurance product during the second quarter of 2020, RMI said.

During the six months under review, both OUTsurance and Youi continued to roll out innovative digital service features, in line with the group’s strategic priority of digitising service delivery, it said.


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Rand Merchant Investment feels the heat of the Australian bushfires