/ 2 September 2009

Metropolitan sees inflation threat

South African insurer Metropolitan Holdings warned a further deterioration in food and transport inflation could curtail new business after on Wednesday posting a drop in first-half profit.

The insurer, heavily exposed to the lower end of the retail market which is sensitive to changes in the cost of basic items, said rising food and transport prices as well as increasing unemployment remained its biggest challenges as Africa’s largest economy grapples with recession.

Metropolitan said diluted core headline earnings per share for the six months to end June fell 12% to 61,54 cents as more consumers stopped paying for or cancelled life insurance policies.

The value of the group’s new business fell 7% to R104-million, while total new business recurring premiums rose 11% to R628-million.

”New business numbers were disappointing, particularly the new business margin, [which] looks very low on the retail side … [the] key growth driver being the health business in the core earnings side, coming in line with what we had,” said one Johannesburg-based insurance analyst.

”It looks like they have got slightly better investment returns on their shareholders’ capital than what I had in the model, but otherwise everything [is] looking largely in line with what we had estimated.”

Operating profit before tax at Metropolitan’s health unit rose to R77-million from R61-million, while operating profit at its international business rose to R51-million from R49-million, boosted by relatively robust markets in Botswana, Namibia and Nigeria.

South African insurers’ profits have taken a hit from the global slide in equity markets, as well as a reduction in consumer demand due to relatively high interest rates, inflation and rising personal debt.

Metropolitan’s peer Santam posted a drop in first-half earnings last month while insurer Liberty said it had swung to a first-half loss.

After helping drive inflation to a peak close to 14%, food inflation slowed to 8,3% in July and is expected to decline further.

Metropolitan said it would maintain its interim dividend at 40 cents per share. – Reuters