Life offices have much to sort out

Liberty is well covered, with a 2.92 capital adequacy ratio, but MMI is in better health

Both Liberty and MMI are paying lip service to the back-to-basics approach.

Liberty CEO David Munro, who was parachuted in by controlling shareholder Standard Bank last June, says there will be no acquisitions on his watch, at least for another couple of years. He has pulled the plug on the ambitious Nigerian life insurance acquisition, where negotiations have been taking place for three years. This, he says, was driven as much by the need to keep management time focused on local needs as by the cost.

The capital involved was just another consideration. Liberty is certainly well covered with a 2.92 capital adequacy ratio, or almost three times the minimum required capital.

It will probably be the easiest of Munro’s tasks to maintain this, especially with the freeze on acquisitions. But Liberty is not prepared to follow the example of new MMI CEO Hillie Meyer, who plans to buy R2bn of shares instead of paying dividends.

Both life offices trade at a 20%-25% discount to embedded value (net asset value plus the present value of the life book), and it makes sense to buy back shares at these levels.

But Standard Bank clearly wants its dividend from Liberty and would take a long-term view on reducing the embedded-value discount.

Munro says there were too many new ventures, adding complexity, which distracted the business from the basic task of delivering life insurance and investments to affluent clients.

Poor investment performance from Stanlib has not helped the competitiveness of the product range. Many of Liberty’s legacy products are uncompetitive as they are much more expensive than the other products to run — and for clients to buy.

Liberty’s margin of its value of new business