As Jeanette Marais approaches her second anniversary as CEO of Momentum, the discount to embedded value has narrowed from 40% a year ago to about 15% today.
This is the key measure of life insurers as it adds the present value of the life book to NAV. Old Mutual, for example, is still valued at a 40% discount, indicating that the market has little faith in its strategy and considers it to be an ex-growth business.
Momentum was a sister company to Discovery in the FirstRand group. And Discovery founder and CEO Adrian Gore has consistently described Momentum as a well-managed business, often showing more faith in the group than most analysts.
Momentum lost its way after the merger with Metropolitan in 2010 until Hillie Meyer returned as CEO in 2018. His predecessor, Nicolaas Kruger, previously CFO, introduced a complex matrix of businesses, and the sales-driven culture was diluted.
The core of Momentum’s DNA at the turn of the millennium was that it had strong relationships with independent financial advisers (IFAs). Discovery, which initially did not have its distribution set up, built its business on the back of Momentum Distribution Services, which identified the importance of IFAs at a time when Liberty, Old Mutual and Sanlam still primarily relied on their tied agents.
From 2018, Meyer, with fellow Momentum returnee Marais by his side, rebuilt the group’s client-centric culture. In the six months to December 2024, the affluent life insurance products sold under the Myriad brand continued to strengthen. In a poor economy, there was a 9% increase in sales volumes, and the margin increased exponentially, from 0.2% in the comparable period in 2024 to 3.6%. Factors such as cost control, a lower cost of capital, and technological innovation also helped.
Though Momentum remains a predominantly intermediated business, its digital Myriad sales are increasing. Direct-to-client now accounts for a quarter of applications and 10% of sales.
In the mass market, Metropolitan is going through a five-point plan to strengthen its presence in a competitive market, with Old Mutual, Sanlam and Capitec all strong players. It has achieved R40m in cost savings and expects to achieve R20m more as it switches off legacy savings.
Metropolitan has seen an improvement in the retention of risk (protection as opposed to savings) business as it retains agents who write quality business and lets go of those who write poor-quality business.
Momentum has also become a larger player in the umbrella pension fund market. More and more, pension funds decide that self-administration is too complex and needs to be outsourced. Its Funds@Work umbrella scheme now has 376,000 members with assets of R94bn. It’s a sticky business: once pension funds move to an umbrella fund, it is rare for them to switch administrators.
Momentum has also become a larger player in the umbrella pension fund market
In headline earnings terms, Momentum Corporate was the largest contributor to the group, with its contribution up 38% to R857m. Another highlight was Momentum Investments, in which earnings increased by 71% to R475m.
Guardrisk is often considered a jewel in the Momentum crown. It was sold by then Alexforbes CEO Edward Kieswetter at a fire-sale price just before the consulting and multimanagement business relisted. It is a capital-lite cell captive business, though it uses the Momentum balance sheet on a selective basis.
Guardrisk’s earnings were up 33% to R380m. The only area in which there was a decline in earnings was in the patchwork of African businesses, in which the contribution fell 18% to R238m. Losses in the Indian health insurance joint venture fell by 59% to R48m. In due course, this business will be listed, and Momentum will harvest part of its investment.
Momentum has an also-ran business in Momentum Insure, which started life as, in effect, the Outsurance broker division, but it is now separate. It barely features in the group’s core broker market: growth in the IFA market was a tepid 4% on a like-for-like basis, while its growth in the direct market was 36%, and it had 29% from tied agents, who have a limited choice in any case.
But the unit is washing its face — its R230m of earnings was the best yet in any half-year. The claims ratio has fallen from a peak of 80% in the six months to June 2023 to 52% in the past interim period.
Momentum has been optimising its balance sheet. It has already bought back R3.2bn in shares, and it has the authority to buy back a further R1bn. It pays out more than a third of its earnings in ordinary dividends as well.
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