MMI’s condition was pre-existing
Momentum PR fiasco comes on top of tough few years for group
● It’s been a tough year for struggling insurer MMI Holdings as it grapples to make a success of the merger it embarked on eight years ago, exits its operations outside SA and fights a major public relations nightmare on its home base.
The latest in the list of woes MMI has faced is the public outrage this week after its subsidiary Momentum refused to pay Denise Ganas’s R2.4m death benefit claim following her husband’s death last year.
MMI’s issues began in 2010 when Momentum and Metropolitan merged, becoming MMI Holdings. The merger made MMI the third-largest insurer in SA, with an embedded value of about R30bn at the time.
However, the merger has failed to deliver on its promise and the company’s performance since has been dismal, dragging its share price down and making it the worst performer among SA’s big four insurance groups.
Over the past five years MMI Holdings’s share price has dropped 25.32%, followed by Liberty’s 16.20% decline, while Sanlam is up 43.67% and Discovery gained 97.33%.
Liberty said on Friday in an operatonal update that it expected the challenging consumer environment and pressure on sales volumes to continue in 2019.
We think the new team’s strategy to fix the basics around service, its distribution infrastructure and product offering … is positive
Herman Bosman
CEO of RMI
For Momentum it is a case of pinning its hopes for recovery on new leadership.
Hillie Meyer, who retired as Momentum’s MD in 2005, was brought back to the group as CEO in February in an effort to turn it around.
On Friday, in an operational update for the three months ended September, MMI said it was confident it would meet its goal to grow its normalised headline earnings to between R3.6bn and R4bn by 2021.
In the past three months, the group’s normalised headline earnings increased marginally on the performance of the African operations it is exiting. It also reported that the value of its new business rose 49%, compared to the same period last year.
In the year ended June, MMI reported its worst performance since the merger, with the value of its new business down by 45%.
The group is in the process of exiting its operations in Mauritius, Mozambique, Tanzania, Zambia and Swaziland. It said it would continue to run its operations in Namibia, Botswana, Lesotho, India, Ghana, Nigeria and Kenya.
MMI’s biggest investor, Rand Merchant Investment Holdings (RMI), which owns 26% of MMI’s shares, supports the new management’s strategy to reset its operations.
Herman Bosman, CEO of RMI, said: “We think that the new management team’s strategy to fix the basics around service, its distribution infrastructure and product offering, as well as strengthen the MMI balance sheet, is positive.” Bosman said the fact that MMI is reinstating cash dividends in 2019 is another positive.
Spread too thin
Jean Pierre Verster, a portfolio manager at investment management company Fairtree, said MMI tried to do too many things at once which resulted in less focus and losing market share.
“When you do too many things at once, you quite often don’t do any of them well and they took their eye off the ball. So they didn’t do the new things well, they did the old things worse and that in broad terms is what went wrong,” he said.
However, Verster said, he believed Meyer was the right person to turn MMI around, given his background at Momentum, which had given him intimate knowledge of the business.
Asked about the dispute between Momentum and Denise Ganas over the company’s initial refusal to pay out the life claim of her husband, Nathan, Bosman said RMI had engaged with Momentum but the conversation was confidential.
The dispute between Ganas and Momentum arose after Nathan was shot dead in a hijacking, and Momentum refused to pay his death benefit, saying he had failed to disclose he had high blood-sugar levels when he signed the contract in 2014.
As public outrage grew, Momentum’s share price fell 3.24% to R17.90 on Thursday.
Meyer initially stuck to his guns, with the backing of SA’s long-term insurance ombudsman, which found that Momentum was within its rights to refuse to pay the claim.
On Tuesday Momentum said it would make the payment after all and that it would pay an amount equal to the death benefit for all policyholders if they died in a violent crime, regardless of their medical history.
Johann le Roux, Momentum Life’s CEO, said the insurer had not seen a material increase in policy cancellations by Thursday.
However, he said, many Momentum clients had disclosed information they had previously neglected to provide.
Verster said it may seem unfair to the public but Momentum had technically been justified in refusing to pay out Ganas’s claim but they should have shown more sympathy.
Momentum had made a reasonably good job of addressing the issue by paying out Ganas from shareholder funds and also introducing the new solution for deaths caused by violent crime, he said.