Momentum expects profits to tank by up to 70%
Johannesburg - Momentum Metropolitan today stated that it is in the process of finalising its results for the 12 months ended 30 June 2021 and expects its profits to dip by between 50% and 70%. In its Trading Statement issued by the insurer today, Momentum Metropolitan advised its shareholders that the Group's earnings per share, headline earnings per share and diluted normalised headline earnings per share are expected to fall by up to 70%.
When Momentum Metropolitan reported results for the nine months to 31 March 2021, it was noted that the full-year F2021 results could be affected by the severity of the third wave of Covid-19 infections in South Africa. The insurer said, “in line with the steep increase in national experience, our mortality claims over the course of the pandemic to date have been more severe than what was initially expected. At 30 June 2021, the Group will increase its provision against Covid-19 related mortality and disability claims experience by approximately R1.6 billion (net of tax).
“This is in addition to the increases in the Covid-19 provision totalling R0.7 billion (net of tax), which were reported for the six months ending 31 December 2020 and for the nine months ending 31 March 2021.” It further said that for the full year F2021, the Group has experienced net mortality losses of R2.8 billion, consisting of the increase in the Covid-19 mortality provision of R2.1 billion and net negative mortality experience variance of R0.7 billion, after allowing for positive impacts from annuity products and the release of existing Covid-19 provisions. The Group’s South African life insurance businesses paid close to R11 billion in mortality claims (gross of reinsurance and tax) in F2021, compared to an average of around R6 billion p.a. over the three years preceding the pandemic.
The Group said its Momentum Life business was severely impacted and since the start of the pandemic until the end of July 2021, the Myriad protection product paid R1.8 billion in gross mortality claims where Covid-19 was reported as the cause of death. It said Momentum Life’s exposure is concentrated around Gauteng, Western Cape and KwaZulu-Natal, and claims are mirroring the national experience that reported a substantial increase in claims during the second and third wave of Covid-19 infections in these provinces. However, the third wave is ongoing and claims continue to be reported.
It reported that Momentum Corporate experienced an increase in mortality claims at all ages, and saw more claims from members who are at higher salary levels and from members who are insured at higher multiples of salary. “This resulted in the average claim sizes increasing 33% from F2020 to F2021. The average monthly claims in F2021 were nearly double the three-year pre-pandemic monthly average”.
During F2021, Metropolitan Life experienced approximately 20,000 more deaths than expected, representing 70% more deaths than expected. The average monthly claims in F2021 were also 70% higher than the three-year pre-pandemic monthly average.
Largely because of the increase in the Covid-19 provision, the Group said its full year results are therefore expected to reflect a decline in headline earnings per share and normalised headline earnings per share, as outlined in the table above.
“Excluding the additional Covid-19 provision and net negative mortality experience variance, the Group’s underlying performance during the last quarter of F2021 remained resilient with earnings in Momentum Investments, Metropolitan Life and Momentum Metropolitan Health benefiting from strong new business revenue, further supported by good growth from the Non-life Insurance business, and strong investment returns on the shareholder investment portfolio,” the Group said.
Momentum Metropolitan however reiterated that it remained well capitalised, with the regulatory solvency cover of Momentum Metropolitan Life, the Group’s main life insurance entity, as well as the group solvency for Momentum Metropolitan Holdings, remaining within the target range after taking into account the additional Covid-19 provision and net negative mortality experience variance.