Samuel Johnson used to say he was never prepared to compare a flea with a louse. I get a similar reaction when I ask analysts to compare Liberty and MMI — which will soon be renamed Momentum Metropolitan.
Both businesses have seen better days. Their business models were built on wining and dining intermediaries, not just locally but on ski slopes and cruise ships. Since these practices have been stopped, both life offices have found it tough to retain business. Life insurance is a sales-driven business. It may have some superficial similarities with banking: it is about collecting premiums (deposits) and paying claims (analogous to providing loans). But bankers rarely understand the long-term nature of life insurance liabilities and sometimes try to sterilise the market risk in shareholders’ funds through hedging.
About R1bn went down the drain when the Liberty portfolio was hedged right at the bottom of the market by a confirmed banker. Liberty’s main shareholder, Standard Bank, keeps appointing bankers to run Liberty. Myles Ruck, a school chum of then Standard Bank CEO Jacko Maree, was the first of these in 2003, followed immediately by Bruce Hemphill. Then, after a short interregnum with ex-Old Mutual executive Thabo Dloti, David Munro was appointed. Ruck and Munro ran the merchant bank with limited knowledge of retail banking, let alone retail insurance.
At least Hemphill had exposure to asset management and stockbroking.
But it is hard not to think of the opportunity cost of appointing Hemphill in 2006 in preference to then deputy CEO Ian Kirk. Kirk went to Santam, which today has a substantially higher market capitalisation than Liberty, and now Sanlam. Liberty executives used to laugh about how unprofitable and unbusinesslike Sanlam used to be.
Yet in 2018 Sanlam’s value of new business was R2bn and the new business margin 2.7%. Liberty is patting itself on the back for increasing its new business margin to 0.9% and the value of new business to R371m.
Vanity projects dropped
To be fair to Munro, though retail cash flows fell by 27%, he is squeezing the lemon more, with earnings up 31% to R1.58bn. I always wonder why Liberty bothers to operate in the corporate market, which accounts for barely 2% of earnings. And it is good to see Munro drop many of the vanity projects such as Stanlib Africa and Liberty Health.
The short-term insurer has been sold to Standard Bank. Liberty will still earn fees on business it sells, but it will no longer underwrite general insurance.
While Liberty’s relationship with Standard Bank gets more claustrophobic every year, MMI no longer supplies product to its former parent, FirstRand.
I would probably choose the MMI flea in preference to the Liberty louse because of the quality of its top team. CEO Hillie Meyer is a consummate commercial life man. There is also deputy CEO Jeanette Marais, one of the pioneers of linked products.
FirstRand didn’t do Momentum any favours when Meyer left in 2005, replacing him with a merchant banker and then an actuary — though, alas, not the marketing kind.
MMI’s results for the six months to December were decent. Momentum Life’s earnings were up 35% to R462m but mass-market business Metropolitan saw a 9% fall to R333m. MMI makes about six times as much money in the corporate market as Liberty. Both MMI and Liberty have struggled in Africa, where even Old Mutual has battled outside its citadel in Zimbabwe.
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