It was like a tale from classical literature, when a legendary general is recalled from his farm to save Rome. So it was with Hillie Meyer who, in 2018, was recalled to save insurance company Momentum, where he had worked from 1988 to 2005, the last eight of those years as CEO.
Meyer, of course, wasn’t literally taken back from the plough. While he has interests in two wine brands, Luddite and Ataraxia, he was still in the financial services industry, at the modest private equity firm Nodus. There, he kept a low profile; if he did appear on the Sandton cocktail circuit it was in his role as a nonexecutive director of Alexander Forbes.
Then, less than two years before his 60th birthday, he was persuaded to return to what had become MMI Holdings, to revive its flagging fortunes. Since then, his initial two-year contract has been extended until 2024.
Meyer knew what was at stake.
After all, with a market capitalisation of R30.2bn, the company that’s now Momentum Metropolitan Holdings (MMH) is the fourth-largest listed life assurer behind Sanlam (R138bn), Discovery (R85.6bn) and Old Mutual (R64.5bn.)
But, more critically, with 2.5-million retail clients — mainly through the Momentum Life and Metropolitan Life product ranges — it manages R550bn in SA’s savings and investments. In its corporate business, it looks after 1.6-million employees from 6,600 employers.
The company plays a vital role in SA’s social safety net too, paying out R16.1bn in claims over the past year, including R7.4bn in death claims. And it’s the largest supplier of death and disability cover to SA’s pension funds, with a 23% share of the market.
In an interview with the FM, Meyer says he came back to a business in which top management seemed have lost touch with their people. "I was astonished how grateful staff were when I came to visit them, which I would do almost every day in my first stint," he says.
Given Standard Bank’s decision last year to buy out minority shareholders in Liberty and take complete control, he says "it’s important to have a strong, entrepreneurial competitor in the industry to keep Old Mutual and Sanlam honest".
But MMH, he says, has a different approach to its rivals. "We’re more unassuming and transparent — focusing on detailed disclosure — and our culture is more entrepreneurial," he says.
Investors were relieved. In January 2018, after MMI said Meyer would return, the stock bounced, rising 15% to R23.87.
This was a welcome respite, as the share price had been listless, rising just 25% to R20.25 in the seven years after Momentum and Metropolitan merged in December 2010.
While MMH’s share price has, like those of all insurers, taken a whack from Covid, it has done better than all its rivals in the past year, rising 24.5% — far more than Discovery (8.5%), Old Mutual (10.1%) or Sanlam (6.5%).
The group’s share price has been boosted by fund manager Coronation’s decision to buy up shares aggressively. It now owns 22.3% of equity — a shareholding second only to Rand Merchant Investments (RMI).
This would appear to be a vindication of Meyer’s "reset and grow" strategy, which he introduced when he rejoined to "get the company’s mojo back".
"We made our intentions clear — we have a more commercial approach and we will be focusing on the bottom line and returning value to shareholders," he says. "With an ambitious return on equity target of 20%, we are certainly committed to looking after our shareholders."
For a start, the "reset and grow" plan had an ambitious target of reaching R5bn in headline earnings by 2024 — nearly double the R2.8bn of 2017.
The thinking was that MMH would do this by rebuilding the digital capabilities, using data and better insights to improve the sales process — an area where it has badly lagged Discovery. This would allow it to underwrite policies in a more flexible way.
Meyer’s plan was all about bringing accountability back to the nine main business units, slashing central costs and getting enough sales people on the ground.
In December, MMH reached its target of having a force of 2,000 independent financial advisers selling Momentum’s retail products and wrappers.
And these independent brokers are helping to boost revenue. At the same time, Metropolitan’s sales per agent per week have increased from one to three. And, in the six months to December, Momentum’s single-premium sales increased by 28% to R21.6bn.
This was a crucial intervention, since its investment products, living annuities and guaranteed annuities have always been the heart of the Momentum business.
The new business margin has more than doubled to 1.1%. For context, Liberty on August 4 reported a 0.2% new business margin for the six months to June.
This will be good news for RMI, which still holds 27% of MMH. In recent years, MMH became the poor relation to the other high-performing investments in the stable, Discovery and Outsurance.
RMI CEO Herman Bosman tells the FM that each of those businesses makes a distinct contribution to the group.
"Discovery has kept growing organically, sometimes in unexpected directions ... But [MMH] has successfully absorbed life books to build scale, and it has paid out generously to shareholders — at least when it is well managed and not hit by crises such as Covid," he says.
One of Meyer’s first decisions when he rejoined was to cancel the move of the head office from Centurion to a new pineapple-shaped ivory tower at The Marc in Sandton.
The Marc was supposed to be the base for MMH’s pan-African ambitions. But Meyer, never one for frills, torpedoed this plan. Little is left of MMH’s African expansion, other than in neighbouring Namibia, Lesotho and Botswana.
Laurie Dippenaar, a past chair of Momentum, says Meyer once harboured ambitions to become an architect, and the Centurion head office is influenced by his beliefs around open-plan spaces fostering open communication. Meyer was never the kind of CEO to offer an appointment in two weeks’ time, he says.
Less pompous, more commercial
Analysts believe Meyer is delivering on his rejuvenation plan.
"Meyer undoubtedly brought back a more commercial approach, and he has built a stable management team around him," says Nic Stein, manager of the Coronation Top 20 Fund.
Veteran fund manager Wayne McCurrie of FNB Wealth says Meyer’s predecessors, Nicolaas Kruger and EB Nieuwoudt, were competent executives, "but neither understood that you only need to get one thing right to make a success of life insurance, and that’s sales".
Kruger had introduced a complex matrix, which separated the business between "centres of excellence" and product channels. The risk centre of excellence, for example, would design death and disability products for the retail and corporate distribution channels.
In Meyer’s view, this diluted the model, in which each business unit should have ownership of its bottom line. As it was, the centres of excellence didn’t make cash profits but received notional compensation for their work.
"Centres of excellence" was a pompous term too — a fact that wasn’t lost on the market. A life insurer is, after all, a business, not a university.
One of the first things Meyer’s team did was to slash the group’s bloated central costs, which accounted for the bulk of cost savings of R900m in the three years to March 2021.
Avior analyst Warwick Bam reckons the improvements in recent years "appear sustainable — especially the new business volumes". He says this is why the MMH share price has outperformed direct peers such as Sanlam and Old Mutual. This "reflects the market’s confidence in the MMH leadership team and strategy", he says.
One of the ways that Meyer has changed things is that he’s built a top-class team around him.
Of course, he was lucky to find a seasoned deputy group CEO in Jeanette Marais.
After being part of the team that developed Momentum Administration Services, the first financial supermarket formed from a life company, Marais went to Allan Gray in 1999, but yearned to come home to the more complex world of the life industry.
With Marais’ return, many of the brokers who had followed her to Allan Gray also came back to Momentum. This is partly why, over the past two years, sales from independent brokers have increased by 50%.
The group has also become the largest independent player when it comes to risk protection products, with its Myriad brand claiming a 17.4% share of the market. Momentum Wealth hasn’t quite got back to the top four — but it has gained more than three percentage points of market share in two years, to 12%.
Marais says Momentum still makes a disproportionate share of its sales from independent brokers, but the number of internal brokers has more than doubled in seven years to 400.
Unfortunately, its agents are still burdened with Momentum Financial Planning — an unappealing brand — but at least they sell Momentum products exclusively. Momentum Consult agents are merely "nudged" towards Momentum products, but obediently place 43% of their book with their parent. Consult’s share of sales has increased from 1% to 9% of sales.
The third key member of MMH’s management team is finance director Risto Ketola, previously an analyst at Deutsche Bank and Standard Bank.
Ketola has maintained MMH’s conservative balance sheet, which aims to reduce volatility by holding shareholder funds primarily in cash and low-duration bonds. Its property portfolio, however, has taken a hit from reduced demand from office space and the looting in KwaZulu-Natal and Gauteng.
Still, the trajectory shows that the mojo is indeed returning.
The Covid hiccup
Meyer’s ambitions were inevitably sidetracked by Covid.
For the year to June, the target was for MMH to hit R3.6bn in earnings. But in a few weeks, the company will announce earnings of about R2.1bn for that period.
This illustrates just how badly Covid has affected insurance companies. Last year, for example, MMH set aside R983m as a provision for expected higher claims, and it added a further R1.6bn for the full year to June 2021.
The provisions aren’t just to cover more deaths; there are also higher reinsurance costs, business interruption cover from the company’s Guardrisk unit, and the expectation that more people will surrender their policies or let them lapse.
This illustrates that as much as Meyer has captured some early victories, there’s still a great deal to do to persuade the market that Momentum is back on a growth path. The share is trading at R19.87, a 20% discount to embedded value — which does not build in any value for future growth.
Nonetheless, Coronation’s Stein says his fund is happy to keep its MMH shares. "[The company] has many more growth engines than, say, Old Mutual, which seems doomed to keep losing market share. Yet the valuations aren’t that different," he says.
Matt Pouncett of Laurium Capital (which also owns MMH shares) says there is lots of value in the JSE’s life insurance sector. He adds that it has lagged behind "the recovery we have seen in [the] broader market".
One of the reasons Pouncett likes the sector is that the number of lapsed policies is surprisingly low, and the companies are overcapitalised — which means there’s a greater chance they’ll pay higher dividends in future.
And within the sector, MMH seems to have brighter prospects than most.
Ketola tells the FM it’s realistic to expect MMH’s headline earnings to hit that R5bn target by June 2024. Of that, general insurers Momentum Insure and Guardrisk would be expected to be 50% higher, at R900m.
And MMH’s new initiatives, led by the Indian joint venture, should turn from a R400m loss to a R150m profit. But Ketola believes the contribution from the core life businesses will also increase: Momentum Life by 26% to R1.2bn and Metropolitan Life by 15% to R750m.
Meyer’s return-on-equity goal of 20% by 2024 is also substantially higher than the 15% of 2019, the last full year before Covid hit.
This suggests that MMI’s team still see much opportunity for growth.
A marriage of equals, but opposites
If anything, this trajectory illustrates how weak the company had become before Meyer returned in 2018.
Within this, Metropolitan, which has a long history in the "mass market", was even weaker than Momentum.
Metropolitan dates back 124 years, when, as the African Homes Trust, it collected premiums in notes and coins.
For decades after that, the old Metropolitan business was owned by Sanlam.
But in 1993, Sanlam sold control to the empowerment consortium New Africa Capital, in what was considered the first true BEE deal.
Johan van Zyl, Sanlam’s former CEO, believes the Bellville behemoth should never have sold control of Metropolitan. "We sold the future," he tells the FM.
In recent times, Metropolitan depended almost entirely on brokers selling funeral policies, mainly through presentations at offices, but sometimes door-to-door. It tried to sell through a joint venture with African Bank, but this was nowhere near as successful as the joint venture between Sanlam and Capitec, which sold more than a million policies.
Today, says Metropolitan CEO Peter Tshiguvho, the business has a wide range of life cover, discretionary savings, retirement savings, annuities and hospital plans — all designed for its mass market clients (even though it prefers the term "middle market").
With 18%, Metropolitan is the number three player in the mass market, behind Sanlam Sky (36%, including the Capitec joint venture) and Old Mutual Mass (32%).
It’s not a small business. Metropolitan has 2-million clients and boasts strong relations with the unions. There is very little overlap, if any, with the Momentum market, which is dominated by the more affluent R1m-plus single-premium policies.
When Momentum and Metropolitan were brought together in 2011, the two CEOs at the time, Kruger and Wilhelm van Zyl, were at pains to say that the corporate colour would be neither Momentum red, nor Metropolitan blue, but both.
The bland name of the holding company, MMI, was also deliberately vague — neither name officially preceded the other.
Bosman says it was different from the many other transactions, in which Momentum simply bought up other life companies. Momentum had successfully absorbed much larger business Lifegro in 1989, similarly sized Southern Life in 1998, and Sage in 2005, in addition to a whole fleet of them in the 1960s and 1970s.
But Metropolitan was different — not least because this was effectively a reverse listing. Metropolitan was already on the JSE, and Momentum was being unbundled from FirstRand.
While Momentum was already strong in wealthy areas, it would have taken decades to build up a mass-market business organically. Liberty, for example, has tried several times and failed.
The merger wasn’t plain sailing. It took more than a decade to integrate systems, and Metropolitan funeral policies were only moving onto the main group IT architecture this year.
The jury is out on whether the merger was beneficial.
Bam reckons it added complexity and created staff insecurity where there were areas of overlap in the two businesses. "Quantifying the synergies from the merger is difficult, but both Metropolitan and Momentum have refined their value proposition in the past three years," he says.
A different Momentum
But if Metropolitan isn’t the same business as it was a decade ago, Momentum has also changed dramatically since Meyer first left the business 13 years back.
Perhaps the most obvious difference is that when he left Momentum, it was still part of FirstRand, as it had been since 1992, when the founders Dippenaar, Paul Harris and GT Ferreira decided they wanted to buy it.
Dippenaar tells the FM the attraction was clear: while investment banking earnings are lumpy, life insurance earnings are far more consistent, as their profits are smoothed out by policies sold in previous years.
RMB rapidly changed Momentum’s culture, from a grey-shoes affair in which status was determined by titles and size of the office, to a modern financial business.
"First of all, we insisted that top management had skin in the game. We asked them to mortgage their houses to buy shares in the business," says Dippenaar. "We then got rid of reserved parking spaces for senior management."
Even Dippenaar, who commuted between the RMB offices in Sandton and Momentum in Centurion, often had to park some distance from the entrance.
And there was a graffiti wall in which staff were encouraged to let out their frustrations about the executives.
By 1998, once Meyer had been installed as Momentum CEO, the group felt bold enough to bid for Southern Life, a pantomime horse of a business that combined the previous mutual bank Southern Life with Anglo American Life.
"We went for lunch at Anglo’s head office in 44 Main Street, complete with portraits of Cecil John Rhodes and white-gloved waiters," says Meyer.
Senior Anglo executive Mike King said he would support the bid on one condition: that Momentum/RMB would buy First National Bank too.
Dippenaar says there was some resistance to taking what was then a rather undistinguished retail bank into the group. But the acquisition of FNB would prove to be a masterstroke for the three RMB musketeers — Dippenaar, Harris and Ferreira.
It would also change Momentum’s growth trajectory, as it brought in two important distribution channels: FNB’s own bank brokers and, in time, bancassurance (essentially, sales of products such as credit life, bundled with FNB loans, and funeral policies).
This coincided with Meyer’s first major strategic innovation, when Momentum, ambitiously, set about trying to disrupt the lump-sum savings industry.
In 1995, it launched its own range of "linked products", which weren’t life insurance products as such, but simply a basket f unit trusts, with an underlying guarantee.
It was a controversial move, and Liberty founder Donald Gordon dismissed this innovation in one of his turgid annual letters as a way to offer investments that look like life products outside the regulatory framework.
But the products sold like hot cakes. The transparency (of the fees and the flexibility) was way ahead of traditional endowments.
The real secret weapon, however, was the "incentives" which Momentum provided to the brokers who sold them. Brokers placed business with Momentum, which rewarded them with cruises or skiing holidays. These brokers, it seemed, were less concerned about the interests of the clients buying those policies.
Whatever the ethics, it brought energy and excitement to the group — something that was sorely lacking by the time of Meyer’s return.
Today, it’s a vastly different group. Not only have these sorts of sales tactics been outlawed, but the bancassurance deal with FNB has since been unwound too, as the bank now sells its own FNB Life policies.
Marais tells the FM that MMH’s priorities have changed completely since those days of offering sales junkets. "In those days we were adviser-led. We did not know much about the end customer and produced the products [that] we thought would attract the advisers," she says.
"Our new advice-led philosophy is quite different. It is targeted on the end-client, which is far easier for the product houses to achieve with digital technology."
So can MMH again become a disruptor in the traditional world of insurance and financial planning?
Meyer will be desperately keen that, by the time he leaves in 2024, that disruptive culture has again been ingrained.
His successor — talk is that the front runners include Marais, Tshiguvho and Momentum Corporate head Dumo Mbethe — will need to ensure that the company doesn’t go off the rails again.
But the remarkable share price rise in the past year suggests that investors believe that Meyer’s overhaul, and his legacy, will remain long after he has walked out the door of the Centurion head office for the last time.
Let’s hope that, this time, it sticks.
Meyer will want to ensure that a disruptive culture has again been ingrained in the group by the time he leaves in 2024
— What it means:
The swing factor
Momentum Metropolitan Holdings (MMH) has been cautious with its international expansion. It is reducing its African footprint, for example, by selling its Eswatini life office to Vunani Holdings and winding up aYo, a joint venture with MTN that sold insurance products through cellphones. (Sanlam is filling the void, setting up a $100m joint venture with the cellphone giant.)
An exception to this reluctance to expand is MMH’s ambitions in India, where it has Aditya Birla Health Insurance (ABHI), a joint venture with Aditya Birla Financial Services. It may, in fact, prove to be the lasting contribution of former group CEO Nicolaas Kruger.
India, with a population greater than all of Africa, cannot be treated as a single market, says MMH finance director Risto Ketola. For that reason, the group "needed a partner which operated nationally".
It helps, he says, that Aditya Birla "is a group which follows through and gets things done".
Asokan Naidu, head of MMH’s Indian operations, says Aditya Birla is a first-tier conglomerate that’s comparable with groups such as Reliance and Tata.
"We believe it is in a different league from the second-and third-tier companies which partnered our competitors in India [such as Shriram group with Sanlam, for example, and Kotak Mahindra with Old Mutual]," he says. "Birla is the world’s largest producer of carbon black, a major force in cement, as well as in retail and apparel. It has enabled ABHI to get contracts to sell policies through major banks such as HDFC and Axis."
Naidu says Birla was initially attracted by MMH’s experience running the Multiply wellness programme, but the pandemic has meant its underwriting experience has proved invaluable.
Given the severity of Covid in India, an investment of this sort is bound to be unsettling shareholders. But Ketola says additional losses for the venture in the year to June 2021 will be in the tens of millions of rands, not the hundreds of millions, as different policies impose different cover limits. (He can’t say more until the year-end results are published on September 7.)
In the 2020 calendar year, MMH’s share of losses in ABHI fell from R263m to R203m, and gross written premium increased by 43% to R2.7bn.
Unlike an SA medical aid, ABHI can underwrite, loading premiums on the highest risks, says Ketola. The client base also has a younger profile than the general population.
But there are restrictions to protect the policyholder, says Naidu. Premiums, for example, cannot be adjusted for three years.
Matthew Pouncett, financials analyst at Laurium Capital, a large MMH shareholder, says ABHI remains the greatest swing factor in the group. "This business continues to show dramatic top-line growth. Revenues are now more than 2½ times greater than they were in the June 2019 financial year."
With more than 13.5-million clients already, the aim of reaching breakeven by the 2023 financial year looks achievable, says Pouncett. "But health insurance regulation is highly sensitive, and is a wild card in any jurisdiction."
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