MMI and Santam eye higher returns
Insurers MMI and Santam expect to report higher earnings for the period to the end of December 2017, lifted by strong investment performance as markets staged a recovery from 2016’s post-Nenegate hangover. On Wednesday, MMI said that it expected headline earnings per share to be 20%-30% higher for the six months to December versus 64c previously.
Insurers MMI and Santam expect to report higher earnings for the period to the end of December 2017, lifted by strong investment performances as markets staged a recovery from 2016’s post-Nenegate hangover.
On Wednesday, MMI said it anticipates headline earnings per share between 20% and 30% higher for the six months to December, compared with 64c previously, as it benefited from more favourable fair value gains on its shareholder funds and positive investment variances.
Santam’s story was pretty much the same, with the insurer reporting that it expects headline earnings per share between 29% and 34% higher, or up to R14.55, for the year to December. This was driven by improved investment results and the foreign currency gains from winding up Santam International.
The all share index delivered an 18% total return in 2017, outclassing its performance in 2016 when it could only muster 3%.
Steinhoff International’s collapse, which resulted in the retailer shedding more than 90% of its market value, did not do much to detract from the market’s overall performance.
“Despite Steinhoff’s massive price fall in December, the overall equity market was still up by about 18% in 2017, driven by exceptional performances of shares like Kumba, Exxaro, and Naspers,” said Adrian Cloete, portfolio manager at PSG Wealth. Both insurers had investments in Steinhoff.
“No company — like no particular person — is so important that life does not go on without them,” said Rahima Cassim, portfolio manager at Ashburton Investments. “Steinhoff isn’t in the same sector and doesn’t have the same drivers. It also had its own legacy issues the market was or should have been aware of as potential risks.”
Cassim said while the insurers’ investment returns were a key earnings driver, operational earnings were important. “While Santam had a boost from investment returns and forex gains, the true measure of performance — the underwriting margin — is close to the midpoint of the 4-8% targeted range.
“While not the main driver of the strong earnings growth close to the midpoint, it is a resilient number given the catastrophe events that they faced,” Cassim said.
During 2017, Santam’s customers claimed R800m for damage caused by wildfires in Knysna and freak storms in Cape Town. This was described as the “worst catastrophe event in South African insurance history”. Santam was still to quantify damages in Gauteng and KwaZulu-Natal.
“MMI’s [diluted core headline earnings] range of 0-5% down is negative, especially if investment returns would have helped to stem a more negative number,” said Cassim. “We can only hope the new CEO [Hillie Meyer] can turn the business around.”