Looking at the final results posted by Metropolitan Holdings on Wednesday, the group’s strong new life-business growth in most segments shows that it is continuing to gain market share from most of its competitors, particularly in the area of employee benefits, according to Metropolitan CEO Peter Doyle.
Earlier, Metropolitan reported a 49% rise in its core headline earnings per share for the year to the end of December 2004 to 89 cents, from 60 cents a year earlier.
The group’s embedded value per share rose by 24% to 1 325 cents, from 1 068 cents (before a 100-cent capital reduction), and Metropolitan declared a final dividend of 31,5 cents per share, for a total dividend for the year of 52 cents, representing a 21% improvement on the 43 cents declared in 2003.
The results beat market expectations — a consensus of six investment analysts surveyed by I-Net Bridge had expected the company to report earnings per share of 76 cents and a dividend of 48,5 cents per share.
Metropolitan’s 38% growth in new life business annual premium equivalent in 2004 compares with those recently reported by Old Mutual with a decline of 12%, Liberty Group with 9% growth and Sanlam showing a 7% increase.
Within this total, Metropolitan’s retail new business premiums grew 25%, compared with a 12% increase for Liberty, a 1% rise for Sanlam and a 1% fall for Old Mutual. In employee benefits, Metropolitan’s new business grew an impressive 74%, versus a 4% rise for Sanlam, a 7% fall for Liberty and a 48% drop for Old Mutual.
“We have undoubtedly outperformed the market and so have gained market share, although the exact levels are difficult to determine,” Doyle said. “And this is despite both the employee benefits and the retail life markets verall remaining fairly stagnant. I believe it will take a while before new investment business filters back to life companies.”
He noted that even if investment is coming through companies’ asset management arms and linked product businesses, this is done at lower margins than through the life business, which has further implications for profitability.
Metropolitan had R4,7-billion in free capital at year-end, Doyle confirmed, for which it is investigating a number of uses. The group will consider further share buy-backs (although this will depend on the share price), is looking at a stronger dividend policy and will also ask for shareholder approval at its upcoming annual general meeting for authority for another possible capital distribution in 2005, he noted.
This follows the 100 cents per share distribution declared in 2004, and a 21% rise in the group’s 2004 dividend.
Company growth
However, the CEO also said Metropolitan has earmarked some funds for company growth, including R54-million for a new African life operation (probably in Kenya) and a group strategic project to improve business practices.
“We are definitely looking at more offshore expansion in 2005,” he noted. “We have developed a free-standing administration platform that we can now take offshore anywhere, which we’re putting in place in Namibia and looking elsewhere in sub-Saharan Africa, especially Tanzania and Kenya. But these offshore investments do take two to three years before becoming profitable.”
Metropolitan is the largest life insurer in Lesotho, the second largest in Botswana (behind Botswana Life) and, following its recent acquisition of Channel Life Namibia from PSG, the largest in Namibia in terms of new business premium income.
Contributions to its headline earnings from its operations outside South Africa rose to R52-million in 2004, from only R3-million in 2003.
“For our size, a smaller company like Channel Life is ideal for expansion, while the larger companies wouldn’t even bother with it,” commented Doyle. Metropolitan will be looking at similar opportunities, should they arise.
Looking ahead, Doyle said he expects “more of the same” going ahead.
“The rate of growth for 2005 won’t be as high as 2004, but our employee benefits business is well positioned, the retail life side continues to perform well and health is doing exceptionally well, with 400 000 lives now under administration,” he elaborated.
After actual cost reductions of 3% in 2004, the group is targeting a 7% increase in costs for 2005 due to the planned new spending in Africa and on investment in group practice improvements, he noted. Of this, only a 1% cost increase is budgeted for ongoing operations.
“The key variable for 2005, as usual, will be the investment market. Unusually, we had good investment returns on our shareholders’ funds in 2004, but our unit trust performance was terrible and our survey funds — particularly our large manager watch funds — have been bad.
“Our investment process on the asset management side should also improve now that we have brought in Liston Menjties as our new chief investment officer,” he concluded. — I-Net Bridge