David Munro, CEO of Liberty Holdings. Picture: FREDDY MAVUNDA
David Munro, CEO of Liberty Holdings. Picture: FREDDY MAVUNDA

Financial services group Liberty Life has joined a number of SA companies warning of a big hit to earnings as the impact of the coronavirus pandemic and lockdown hits the economy.

The insurer released a trading update earlier in May and explained that the weakening economy and exchange rate, lower investment returns, increased mortality and declining rental income in its property arm were expected to dent its income.

Liberty said on Friday it is expecting profits to drop by more than 20%, both when it reports its six-month financials to end June and full-year results to end December 2020.

The warning was given a day after insurer Old Mutual issued guidance that its headline earning per share for the six months to June 2020 was expected to be 20% lower than the 2019 period.

A JSE rule requires listed companies to issue an update once they become aware their results are expected to be materially higher or lower than previous periods.

Old Mutual said it had seen an increase in claims for business interruption incidents in April and May, during the lockdown periods. However, it said it expected to rely on reinsurance to pay such claims.

Both Liberty and Old Mutual said returns on investments, used to pay claims, were expected to be lower.

Liberty, founded by Donald Gordon in 1957, said the solvency capital requirement cover of Liberty Group, the group’s main long-term insurance licence, remained strong at 1.9 times at the end of March.

The group’s total assets under management were R668bn in March compared to R738bn at December 31 2019.

It said the decrease was driven by “negative investment market returns during the quarter and transfers to other external managers in respect of the discontinuation of Kenyan and Ugandan segregated mandates in the Stanlib Africa operations.”

Liberty, an insurer and asset manager, has also withdrawn its 2020 profit guidance, stating that the coronavirus pandemic has “generated an unprecedented health, economic and financial crisis, causing high levels of anxiety and uncertainty for our clients, advisers and staff”.

The insurers are not alone in expecting a huge fall in profits as consumers struggle with higher debt and lower income.

Capitec Bank on Friday said its headline earnings per share for the six months ending on August 31 would with “a reasonable degree of certainty” decline by more than 20% or more than 509c and 510c respectively, compared to the headline earnings per share of 2,545c and earnings per share of 2,549c for August 2019.

Capitec said many clients had applied for payment holidays and it expected debt to increase.

During the Covid-19 lockdown, funeral policies and credit sales were lower as were cash withdrawals and purchases using Capitec cards, decreasing the bank's income.

It added the disclaimer that its liquidity was strong and its deposit base increased further because clients' normal spending habits were curtailed due to the national lockdown.