Picture: 123RF/adiruch
Picture: 123RF/adiruch

Rand Merchant Investment Holdings (RMI), which owns Outsurance and has stakes in Discovery and MMI, has become the latest victim of a spike in insurance claims.

The increase in claims ate into its profit, causing a 7% fall in its headline earnings to R3.8bn.

RMI owns 25% of Discovery, whose normalised headline earnings also decreased by 7% for the year ended June, due to a spike in life insurance claims. It owns 29.9% of UK-listed general insurer Hastings, 27.3% of MMI and 89.1% of Outsurance. RMI is the largest shareholder in all of these companies.

The company said that over and above Discovery’s unexpected spike in life claims, there was an increase in the claims ratio on the short-term insurance operations as well. RMI’s short-term insurance operations include Outsurance and Hastings. Momentum and Discovery also have short-term insurance divisions.

RMI said the claims ratio at Hastings rose to 81.1% and payouts inflation continued to be ahead of premium increases in that business. At Outsurance, the claims ratio increased from 49.8% to 51.1%, driven by weather-related claims and some specific pricing changes. The claims ratio indicates how much of the premiums the insurer collected were paid out in claims. The higher the ratio, the lower the profits the insurer is able to make.

RMI said Outsurance’s sister car insurer in Australia, Youi, experienced notably higher weather-related claims in the first months of 2019. Outsurance also said in its annual report for the year ended June that it anticipated home insurance to be subject to higher inflationary increases, presumably in both premiums and payouts, due to these observed changes in weather patterns and an increase in technology that is being embedded in households.

RMI joins companies like Santam and Discovery in flagging a spike in claims volumes in the first six months of 2019. Earlier this month, Santam attributed the 3% decline in its headline earnings to the 8% increase in gross claims paid out as a result of weather-related catastrophes.

Notwithstanding this and other macroeconomic challenges, RMI said it has a high degree of confidence in its portfolio companies. It said its new investments in future will be predominantly focused on SA, the UK and Australia, with a bias towards unlisted, emerging markets and property and casualty insurance investments.

The group noted that the past year has been challenging for the SA investment market and asset management. Though the JSE all-share had ended its financial period up 4.42%, its performance had lagged cash and bonds, which delivered returns of 7.27% and 11.5%, respectively.

The market value of RMI’s listed investments fell 2% to R38.7bn to end-June, and its market capitalisation 9% to R52bn.