MMI Holdings brokers smart insurance deal
A TIE-UP between MMI and African Bank will result in the insurance group selling its full suite of products to the bank’s 1.2-million customers, while using African Bank’s banking licence to offer its own clients unsecured loans of up to R200 000.
The decision to enter banking was driven by a belief that to maximise financial wellness, MMI needed sight of client spending patterns, said head of investor relations Risto Ketola.
“It is also a strategic defensive move and there is scope to make some additional revenue from this,” he said.
MMI has come under strain, reporting a 5% fall in core headline earnings to R1.6-billion for the six months to December. The group reported its lowest return on embedded value in five years at 4.5%, down from 20% for the matching period in 2013. Embedded value is a measure of the present value of future profit in insurance companies.
The insurance group is following rivals Sanlam and Old Mutual in extending personal loans to customers. These loans will be reported under Metropolitan Retail.
The move also comes as banks and insurers increasingly encroach on each other’s territory – Discovery will launch its retail bank in 2018, while FNB is offering insurance and investment products to customers.
MMI and African Bank will own 51% and 49% of the joint venture, respectively. Profit will be shared equally.
African Bank will provide credit-risk management and debt collections for the loans business, with MMI providing underwriting, distribution, product design and financial advisers for the insurance business.
MMI would initially target Metropolitan’s existing retail client base, Ketola said. It would offer loans of up to R200 000 over 72 months. The plan is to build a loan book exceeding R10-billion in five years, which will contribute pretax profit of more than R500-million a year.
“In the immediate future, the focus is on launching a Multiplydebit card, which will allow [health savings] account holders to access their funds in real time at healthcare providers and pharmacies.”
There were about 58 000 customers with a HealthSaver account, Ketola said. The card would be extended to other MMI customers over time. Multiply, MMI’s rewards programme, would be integrated into the lending solution, rewarding positive borrowing behaviour with cash back.
Once African Bank launches its transactional banking platform in early 2018, MMI will be able to piggyback on this to offer transactional banking products to its customers.
“Metropolitan’s full range of insurance products will be made available to African Bank clients on an exclusive basis. Over time, Metropolitan will have agents in all of African Bank’s nearly 400 branches.”
Through the joint venture, African Bank would gain access to a customer base of about four million, a spokesman said. MMI, meanwhile, would be able to sell its insurance products via a new distribution channel.
The tie-up would give MMI a complete picture of their clients, many who already had unsecured loans with other financial institutions, said Adrian Cloete, a PSG Wealth portfolio manager.
The transaction is subject to regulatory approval. — BDLive