Listed financial services group Metropolitan Holdings expects to return some amount of excess capital to shareholders in its new 2004 financial year, probably via some combination of a share buy-back programme, special dividend and strong dividend policy, according to CEO Peter Doyle.
Metropolitan is one of South Africa’s top four insurers, focusing on the middle- and lower-income market segments.
In an interview following the release of Metropolitan’s final results for the year to the end of December 2003, Doyle said the company had almost R3,9-billion in cash or cash-equivalents at year-end.
“We plan to grow our business in one or two new areas that will require capital in 2004, and the regulator is considering changing the capital adequacy requirement [CAR] ratios for insurers, but once we have decided how much capital we need to keep for these purposes, we plan to announce how any excess capital will be used. We will be considering a share buy-back, a special dividend and maintaining a strong dividend policy, but it will probably be a combination of all of three.”
New areas into which the group will be expanding in 2004, Doyle said, include building a new life-assurance operation in Kenya, where Metropolitan already has a health-care business.
“Besides Kenya we are also exploring one or two other African countries, and we are also looking at providing special offshore funds via Metropolitan International, where we would team up with other companies distributing these type of products so individuals could make use of their R750 000 rand offshore allowances.”
The company also expects to expand into new types of health-care products in the local market, focused on administration, franchising and managed care, the CEO revealed.
While Metropolitan has already succeed in reducing its costs considerably over the past two years in the wake of the restructuring of Persal, the government employee payment and deductions system, further cost savings are planned in 2004.
“Unlike some other South African insurance companies, our volumes have still been rising as our costs have been falling,” observed Doyle. “In 2004 our costs will be lower than 2003 in absolute terms, and further savings will depend on how we opt to invest in our new businesses.
“We have shed 400 jobs in the past two years, from a 2001 peak of 3 800 to 3 400 staff currently, which is quite a lot of jobs lost through a combination of retrenchments, restructuring and freezes. At the same time, we have added 700 more distribution staff to stand at 2 800 at the end of December, from 2 100 in 2001, which is one reason why we are selling more products. As they are commission-driven, this is seen as a variable cost.”
One area to be focused on for improvement in 2004 will be Metropolitan’s lapse rate, Doyle said, currently at 18% versus 22% a year ago and a peak of 30% post the Persal restructuring. While this has been improving on a monthly basis, the company’s goal is to reduce it to 12%, about the same level as the group’s long-term pricing assumption of 12,5%.
“It is moving in the right direction, and further progress requires more management discipline and quality checking,” observed Doyle.
And while the management is pleased with the improvement seen in the company’s investment performance in 2003, with investment returns up 21% from 2002 levels, it needs to try to improve the consistency of returns across all of its funds, the CEO said.
With its focus on the middle- and lower-income market segments, Metropolitan’s core offering comprises more guaranteed and smoothed-bonus products than other South African insurers, and therefore its investment performance is less heavily linked to equity market returns. As a result, 2003 sales were less dented than those of its competitors by investor dissatisfaction with investment returns.
For 2004, the company expects the good growth it experienced in new business in 2003 to continue, Doyle confirmed.
“We do see good growth in our core business of the middle- and lower-income segments continuing,” he said. “While other companies may not have been meeting investor expectations and thus new business has been suffering, we are in a different market sector and have not really experienced the same difficulties.”
Metropolitan shares reacted well to the group’s results, rising 1,3% or 10 cents in early Wednesday trade to last be quoted on the JSE Securities Exchange at R7,85, with 80 000 shares having changed hands in three transactions.
This compares with a 0,42% fall in the FTSE-JSE insurers index so far on the day. — I-Net Bridge