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FM Edition:

It’s been a long six weeks and the life offices have finally ended their mid year reporting season. Like those of all the major banks, the share prices of the life insurers are all down year on year, with two exceptions: Sanlam and Rand Merchant Investment (RMI) Holdings were both up 2%.

Otherwise the share price declines went from 6.2% for MMI up to 14.6% for Discovery. Both these businesses are key investments for RMI, but unlisted Outsurance gave it the edge. The direct insurer had a 43% increase in earnings and RMI’s portion was R1.66bn, about half of the parent’s normalised earnings.

MMI might not have come under the same share price pressure as Discovery, but it has its share of fires to fight.

In its African operations there was an 82% decline in headline earnings to R28m. And, unlike every other SA life office and banking group, it was not brought down by Nigeria but by Kenya, through short-term insurer Cannon.

MMI CEO Nicolaas Kruger says the group is looking to focus on the most promising businesses. One of these, he hopes, will be the aYo mobile insurance joint venture with MTN in Uganda, which will be rolled out to other countries.

Domestically, MMI did well in what it calls the corporate and public-sector segment.

Under the leadership of former Guardrisk boss Herman Schoeman, new business almost doubled to R34.7bn. But Kruger says that a spike in group disability claims was the main reason for a R379m loss from MMI’s life underwriting.

There have been savings of R522m since the merger of Momentum and Metropolitan to create MMI. Metropolitan still battles to grow at the bottom of the market, with sales down 3% to R5bn, when main rival Old Mutual group schemes enjoyed 9% growth. Kruger says Metropolitan was re-engineering its agency force, which troughed at 3,400 in September 2015 but increased to 4,800 at the June year-end. But it remains little more than a third of the size of the Momentum Retail business.

With R25.9bn of new business, Momentum continues to enjoy a high market share in the retail affluent market. In common with the RMI policy to encourage internal competition, Discovery also competes in this sector. It now has the largest new business market share for risk business, with a share of almost 29%.

Discovery has very different dynamics from the rest of the life sector. Sentiment about the share price is not, or even mainly, driven by local life insurance.

CEO Adrian Gore is most closely associated with the health sector, and between the Discovery Health Medical Scheme and the closed schemes the group runs, such as Bankmed, it has a 38% share of the private-sector health insurance market.

And against many predictions the business continues to grow, with Discovery Health operating profit up 12% to R2.3bn. This is still some way behind the R3.4bn for Discovery Life.

Discovery is becoming more of a rand hedge, with about 12% of its earnings from its two UK businesses, Vitality Life and Vitality Health, and probably some earnings from China within two years.

Sanlam has ruled out joining the rush into banking, and CEO Ian Kirk has said it will not buy back the 19% it used to hold in Absa even if that were on offer.

The company is ploughing ahead with its Africa strategy.

Sanlam has the problem of a mature book in the SA middle market. It had net outflows of R2.6bn in the six months to June, but the business is embarrassingly profitable, generating operating profit of R1.85bn.

Sanlam’s Glacier, which also manages a large asset pool, most of which is in low-margin retirement and linked annuities, made a R249m return, which was 19% up on the year, and still a good return as it is a light capital business. Short-term insurer Santam might have had a weaker first half, but it remains one of the differentiators for Sanlam. Only RMI’s interest in Outsurance is in any way comparable, though Discovery Insure might come into profitability within 12 months.

It is probably best not to dwell on the problems of Mutual & Federal, still Santam’s biggest rival. Its R44m loss pales into insignificance next to the R1.47bn profit from Old Mutual group schemes — more than its two largest competitors, Sanlam Sky and Metropolitan, combined. Group schemes increased sales by 9%. Many investors are looking forward to a cleaner listed Old Mutual Emerging Markets headed by Ralph Mupita instead of the four-legged donkey that makes up Old Mutual Plc today. But the "new" Old Mutual is still a conglomerate and shareholders might question what the point is of the Asian and Latin American businesses, as they contribute barely 5% of operating profit.

Liberty is the ugly duckling of the sector on a p:e of less than eight. That is an unfair rating, even for an investor who sees the group as a mature cash cow with no growth prospects.

But CEO Thabo Dloti has a number of irons in the fire. There are the alternative investment businesses at asset manager Stanlib, and even the possibility of a revival of Stanlib’s legacy equity and balanced business. Unlike MMI, Liberty enjoys distribution support from its parent, Standard Bank.

And if the profit contribution of Liberty Corporate can grow to only half that of Old Mutual Corporate, it would be a major turnaround in profitability.