Slow Recovery ‘Could Hinder Momentum Growth’

Johannesburg, Sep 17, 2010 (Business Day/All Africa Global Media via COMTEX) -- INSURER Momentum yesterday reported a 10% increase in normalised earnings in the year to June, but warned that sluggish economic recovery could slow further growth in new business.

CEO Nicolaas Kruger said while he was happy with the performance, slow economic recovery meant new business growth would also continue to be under strain. Although Momentum's core market was in the middle- to upper-income bracket, he said there was no comfort that its clients would easily find discretionary income to invest.

"Although the recent cut in interest rates will be supportive of the recovery of the economy, we however expect it to be a gradual one," Mr Kruger told Business Day. "We do not expect job creation to improve significantly and consumer debt levels are still quite high.

"Many people have to improve their (personal) balance sheets to more manageable levels to be able to invest in savings," he said.

Despite the subdued outlook, Mr Kruger said Momentum's year-end performance underlined efforts to grow the business in a tough climate.

In particular, the lapse rate had improved, showing that despite clients being forced to slash budgets to survive, they had not cancelled or stopped paying their premiums.

Rivals such as Metropolitan, Sanlam and Liberty recently reported a similar trend, saying that fewer clients had cancelled their policies.

Mr Kruger said he was particularly pleased with the 25% increase in single premium retail business - including unit trusts and local and offshore linked products - to almost R33bn and with managing to keep expenses growth to just 3% to R3,5bn.

The increase in single premium business could be that some of its wealthier clients were exiting formal retirement schemes and re-investing their money with Momentum.

"It is a vote of confidence for Momentum and we are quite pleased," said Mr Kruger.

Equally welcome was the partnership with FNB Life, where new recurring premiums reached R487m. The CEO of FNB, Michael Jordaan, said this week that Momentum earned a flat commission of about 10% of life insurance products sold within the FNB channels.

Retail net inflows more than doubled to R10,5bn, while the value of new business written for the year went up marginally by 1% to R549m.

Mr Kruger said the planned merger with Metropolitan Holdings would represent a "quantum leap" for Momentum, as it would be combining with a larger listed entity.

The two organisations are being merged under an umbrella organisation to be branded MMI Holdings, in which diversified financial services group RMB Holdings would be the dominant shareholder.

But they would continue to sell their respective products under their respective brand names because these had a "legacy" in the market, said Mr Kruger.