Alexander Forbes axes MMI as preferred service provider

Alexander Forbes Group Risk has removed Momentum from its panel of preferred service providers, a move insiders say could be a devastating blow to the corporate and public sector division of JSE-listed MMI, which is already haemorrhaging business.

In an e-mail sent to Momentum sales team members, Belinda Sullivan, chairwoman of the Alexander Forbes riskbenefit committee for institutional insurance business, said that the underwriter “will not be included in any rebroking exercise from October 1 2017”.

Alexander Forbes’s broker network is the largest distribution offering in the local grouprisk space and it consults to companies on employee benefits and looks after their pension funds, investments and group risk, such as disability cover.

Insurers such as MMI, Old Mutual and Sanlam are the market leaders in underwriting the cluster of group-risk products across various distribution networks in SA. According to the most recent annual Swiss Re Group Volume Survey, the three companies represent 75% of the market, with MMI holding 28%.

MMI has held a significant part of the Alexander Forbes book for years, but Sullivan stated in the e-mail that growing problems with distribution and a significant increase in rates over the past 18 months had seen an outflow of business from Momentum to other insurers.

“The significant changes in rates have resulted in additional work outside our service-level agreements with clients, creating additional expense in managing this [Momentum] book of business. Based on this, and the timing of the significant rate increases, which questions the sustainability of their pricing over the years, it is agreed they be removed from the panel.”

Alexander Forbes will no longer be inviting Momentum to tender for certain corporate schemes and it will have to compete for smaller market scraps. Company insiders at Momentum, who did not want to be named, said the lack of consistency in annual increases had made clients very uneasy.

“One year it goes up 10%, the next a massive leap of 40%, only to be cut the next year by 30% because we were losing clients,” the source said.

The CEO of the corporate and public sector division at MMI, Thinus Alsworth-Elvey, could not be reached for comment, but MMI’s chief financial officer, Risto Ketola, said the business could not continue to sell its products at a loss indefinitely.

As far as price increases were concerned, he said that he trusted his team in making the right decisions. On the Alexander Forbes matter, Ketola said the company had not yet “given up the fight”.

The loss of a big contract such as Alexander Forbes will add significant costs to running the MMI business. If volumes decrease, the cost of administrating every policy goes up.

New business in the corporate and public sector division, under which employee benefits fall, was down 16% in the financial year to June.

“New business volumes were materially lower in grouprisk business where the competitive market pricing is putting conversion rates under pressure,” the company said in posting annual results.

New business margins declined from 1.5% to 0.6% of premiums.

PSG portfolio manager Adrian Cloete said the grouprisk market was competitive and many life companies had cut their prices to the bone to keep clients. But when the economy faltered, life companies realised they could no longer cover the increase in claims and decrease in contributions.

“In an economic downturn as people lose their jobs, less people contribute to the group-risk pool, not to mention that the number of claims usually go up in times of financial stress.”