Financial services

Profile:

RMI takes stakes in emerging and established financial services businesses, becoming long-term partners who allow management teams the individuality to operate their businesses as owners.

Rand Merchant Investment Holdings Limited (RMI)

RMI’s contribution to Remgro’s headline earnings increased by 49.9% to R898 million (2020: R599 million).

The underlying investments of RMI (with percentage interest in brackets) include Discovery (24.8%), Momentum Metropolitan (26.8%), OUTsurance (89.1%), Hastings (30.0%), RMI Investment Managers (100%) and AlphaCode (100%).

Discovery is a South African-founded diversified financial services organisation that operates in health insurance, life insurance, long-term savings and investments, short-term and commercial insurance, banking, and behaviour-change programmes. Since inception more than two decades ago, it has been guided by their core purpose, which has manifested in a globally recognised shared value insurance model underpinned by a leading behaviour-change platform, Vitality, which has been exported to 22 countries, reaching more than 46 million lives.

Momentum Metropolitan Holdings Limited (Momentum Metropolitan) is a South Africa-based financial services group listed on the Johannesburg and Namibian Stock Exchanges. Momentum Metropolitan conducts its business through operating brands Metropolitan, Momentum, Guardrisk and Eris Properties. Momentum Metropolitan offers the following products and services for both individuals and companies (including institutions and organisations): Long and short- term insurance, employee benefits including healthcare and retirement provision, asset management, property management, investments and savings, healthcare administration and health risk management, client engagement solutions, including the Momentum Multiply wellness and rewards programme.

OUTsurance underwrites short-term insurance products in South Africa, Australia and Namibia. OUTsurance Life and OUTvest offer life and investment products to the South African market. OUTsurance’s core purpose is to offer their customers value-for-money products backed by leading customer service and underpinned by trust. This purpose is enabled by a focus on operational excellence, technology and a unique entrepreneurial business culture. OUTsurance holds a significant interest in Hastings Group Holdings Limited, a United Kingdom based motor insurer. Hastings Group is an agile, data and digitally focused general insurance provider to the UK car, van, bike and home insurance markets.

RMI Investment Managers’ affiliate model enables the company to access a differentiated part of the investment management industry by investing in and partnering with independent investment managers, as well as specialist investment teams.

RMI’s operating environment during the 2021 financial year was once again dominated by the Covid-19 pandemic, with elevated mortality experience impacting materially on the group’s life insurance operations. Notwithstanding the adverse impact of Covid-19, the group delivered a strong overall operational performance, with pleasing growth in normalised earnings being achieved by OUTsurance and Hastings, its two large short-term insurance investments. This, together with the positive impact of the lower interest rate environment on the group’s funding costs and excellent performance by RMI Investment Managers, enabled the group to deliver a 15% increase in normalised earnings to R3 545 million (2020: R3 086 million).

RMI believes that normalised earnings more accurately reflect operational performance, and therefore headline earnings are adjusted to take into account non-recurring items and accounting anomalies.

RMI’s normalised earnings increase was mainly due to Hastings’ earnings increasing by 20% from R486 million to R585 million, OUTsurance’s earnings increasing from R2 008 million to R2 296 million and RMI Investment Managers and AlphaCode investments from a loss of R10 million to a profit of R142 million. Lower normalised earnings were earned by Discovery R850 million (2020: R993 million) and Momentum Metropolitan R269 million (2020: R407 million).

Discovery’s normalised earnings decreased by 9% to R3.4 billion for the year ended 30 June 2021, mainly due to a negative R2.4 billion Covid-19-related impact on Discovery Life and pre-tax foreign currency losses of R389 million compared to pre-tax foreign currency gains of R578 million included in the comparative year.

Normalised earnings from Hastings increased by 20% to R2.1 billion for the year ended 30 June 2021. The claims ratio for the six months ended 30 June 2021 was 63.4%, compared to 75.6% in the comparative period. Claims frequencies increased from the lows in 2020 but remain below 2019 levels as a result of the ongoing pandemic. Live customer policies increased by 4% year on year to 3.1 million policies with continued strong retention ratios and stable retail income. Home insurance policies increased by 27% to 300 000 in-force policies.

Momentum Metropolitan recorded a 34% decrease in diluted normalised earnings to R1.0 billion for the year under review. This was largely attributable to the prolonged negative impact that Covid-19 had on mortality claims experience, including the anticipated impact of the ongoing third and possible fourth wave in the 2022 financial year. The group increased its Covid-19 provision by R2.2 billion in the 2021 financial year, of which R2.1 billion related to mortality. Together with a R702 million negative mortality variance, total mortality losses amounted to R2.8 billion.

OUTsurance’s normalised earnings increased by 14% to R2.5 billion, driven by strong equity market returns and an excellent 18% increase in gross written premiums to R20.6 billion. Youi contributed most to the gross written premium growth due to good organic growth in the direct personal lines operation coupled with the positive contributions from the Youi CTP and Youi BZI initiatives. Premium growth at OUTsurance Life was aided by the Shoprite partnership which commenced in May 2020.

RMI Investment Managers is in its fifth year of partnering a select group of independent South African boutique asset management firms. Despite the extremely difficult operating environment, the affiliates managed to remain resilient during these turbulent times. Pleasingly, the diversified nature of the affiliate portfolio and asset classes represented, demonstrated its value and resulted in better than expected financial performance on the back of good assets under management (AUM) growth and strong performance fee earnings. Assets under management increased by 24% over the 2021 financial year due to the strong bull market in SA equities (+25.1%), global equities (+16.5%) and SA bonds (+13.7%). Total net inflows across the portfolio amounted to R5 billion for the year, resulting in a total increase of 37% in retail AUM (R51 billion at the end of the reporting period), whereas alternative strategies (hedge fund and private equity) increased by 38% as at 30 June 2021 with R35 billion under management.