Third wave may force provisions on Momentum Metropolitan again

Momentum Metropolitan Holdings is bracing for a third wave of Covid-19 infections this winter, saying it may need to increase provisions again if a third spike in infections exceeds its expectations or if a fourth wave hits SA in its next fiscal year.

The insurance and financial services group increased Covid19 provisions by R655m net of tax for the six months to endDecember, adding to the R983m in provisions announced in its results for the 12 months to endJune 2020. The combined R1.638bn should be sufficient to cover it for “three waves”, provided the third expected spike in infections and deaths does not exceed the levels of the first wave, Momentum Metropolitan CEO Hillie Meyer said.

“Our provisioning will weather a [third] wave if it’s in line with the first wave,” Meyer told Business Day in an interview. “If it’s another wave with about 50,000 deaths, then we’re provided. If the third wave is in line with the second wave, then we will need more provisioning.”

Meyer said total excess deaths for SA since the start of the Covid-19 pandemic stood at about 140,000, of which about 50,000 were attributable to the first wave of infections that started in March 2020 and subsided towards the end of July. That suggests total excess deaths from the second wave were about 90,000, which would require increased provisions if repeated during an expected third wave, Meyer said.

Even so, he would be “very surprised if the third wave is as severe as the second one”, given indications that large swathes of the population may have already been infected by the virus. Discovery Health said in February, based on its analysis of excess death data, it estimated up to half of SA’s population may have been infected already.

A study by the National Blood Service published on February 12 showed that up to 63% of people in the Eastern Cape and 52% of those in KwaZulu-Natal have been infected by Covid-19 since the onset of the pandemic. The study, which tested for antibodies to the virus, found lower apparent infection rates in the Free State (46%) and the Northern Cape (32%).

Momentum Metropolitan’s normalised headline earnings dropped 43% to R1.012bn in the six months to end-December as it grappled with increased claims due to the pandemic, the company said on Thursday. Excluding the additional Covid19 provisions of R655m, normalised headline earnings would have been 6% lower. The additional provisions cover mortality claims across Momentum Life, Metropolitan Life and Momentum Corporate, and additional expenses related to reinsurance cover for business interruption in Guardrisk, and for additional persistency losses in Momentum Metropolitan Africa.

The group’s corporate business, which largely provides group pension and life schemes to SA companies, reported a R212m loss in the interim period after it experienced 35% more claims than normal while average claims were also 20% higher than in a typical year.

“The second wave hit us very hard in our corporate business,” Meyer said. Working-age people were particularly hard hit during the second spike in infections. “There were lots of claims from the medical professions sadly.”

The effect of Momentum Metropolitan’s corporate business on overall results was compounded by its near 20% market share for group schemes compared with the firm’s overall market share of between 10% and 12%, Meyer said.

“The numbers don’t look pretty,” Meyer said of Momentum Metropolitan’s, but added that the group’s balance sheet is strong.

Momentum Metropolitan declared an ordinary interim dividend of 25c a share. The group’s shares were little changed at R17.18.