UK insurer Hastings is fast becoming as important to the fortunes of Rand Merchant Investment Holdings (RMI) as MMI, underscoring how SA’s financial services companies are outgrowing their home market and making their mark abroad.
RMI’s 30% stake in Hastings contributed R382m to the group’s earnings for the six months to December. This compares with MMI’s R396m contribution. Hastings is worth R10.5bn to RMI, while its interest in MMI, in which it holds a 25.5% stake, is worth just R8.4bn.
The geographic tilt in RMI’s portfolio comes as FirstRand looks to launch a transactional bank in the UK through subsidiary Aldermore.
Discovery, in which RMI has a 25% share, has a considerable presence in UK health and life-insurance markets, Sanlam, once an Afrikaans middle-market insurance company, will soon have a footprint across 33 African countries following its purchase of the remainder of Saham Finances.
RMI, which holds an 87.7% stake in Outsurance, will be pleased with Hastings’s 2017 performance. Outsurance’s gross written premium (GWP) inched up 1.3% to R7.8bn over the six months to December. Hastings grew GWP 21% in 2017 to £930.8m.
While Outsurance’s premium growth looked "pedestrian", RMI expected stronger growth on an improvement in consumer confidence and new car sales, said CEO Herman Bosman. Outsurance had reduced premium pricing in an environment of benign claims and lower inflation, he said.
Outsurance’s claims ratio was well below the industry average, indicative of its ability to better price and select risk, said Renier de Bruyn, an analyst at Sanlam Private Wealth.
Outsurance grew operating profit 14% to R1.7bn on a 59.5% jump in profit at its Australian unit, Youi, which experienced lower claims. To repay some of the debt it used to fund the Hastings deal, RMI has for the second time given shareholders the option to accept discounted scrip in lieu of a cash dividend.
Remgro — which holds about 30% of RMI — had indicated that it would take shares, said Bosman.
The group’s dividend payout slipped 26% on the prior interim period to 39c per share, after it lost about R350m in dividends from MMI, which elected to cancel its interim dividend in favour of a share buy-back.
While that decision was "a bit disappointing" after years of a "great cash yield", RMI understood the rationale and was hopeful that it would replace the MMI dividend over time with contributions from other investee companies, said Bosman. "As MMI noted, they may in a year or two resume a cash dividend."
RMI announced the retirement of chairman GT Ferreira. Deputy chairman Jannie Durand will replace Ferreira on the boards of RMI and Rand Merchant Bank Holdings.