Clientèle Life: under the radar and sputtering

It used to be best known for its long infomercials, which fill dead time on TV networks, and for the gloomy names of its policies, such as the Lasting Dignity Plan. Clientèle is the "other", often neglected, company on the life insurance board, and has a market capitalisation of just R5bn. But it presents a rare opportunity to invest in a firm in the Yellowwoods stable, which is controlled by the Enthoven family, alongside Hollard, Telesure and Nando’s.

Still, its year to June was a tough one, and Clientèle appears to be the hardest hit in the insurance sector as far as policy lapses go.

In a normal year it has a higher value of new business than the far larger Liberty Life. This year it fell behind, with new business of R300m compared with Liberty’s annualised R342m in the first half. And a surge in "adverse withdrawals" clearly took management by surprise, along with unpaid premiums amounting to R225.6m in the year compared with R81.6m in 2018. In its results commentary Clientèle says the withdrawals "are the subject of intense focus by management in order to improve this aspect of the business".

Neil Brown of Electus Fund Managers says Old Mutual and Sanlam primarily serve the public sector and enjoy the security of deductions being made from the Persal payroll system that is used by government departments. Clientèle, on the other hand, is almost entirely dependent on debit-order business from the private sector, where there is a higher lapse rate.

"But the company definitely understands its target market," says Brown.

Clientèle also does not sit on a large equity portfolio, which cushioned some of its competitors’ results, and its headline EPS fell 18% to 120c.

But the key measure of embedded value — which is NAV plus the present value of the life book — shows that Clientèle has grown 5% to R6.6bn. It lifted its dividend by 5%, to 131c a share.

Group MD Basil Reekie says that over the past 10 years the insurer has diversified from the infomercial model into a mix of 40% funeral policies, 25% legal policies and 15% health insurance — which used to be called hospital cash plans until the regulator stopped that.

Clientèle also makes 20% of sales from a low-equity savings product, unexpectedly managed by Melville Douglas, a specialist in investment portfolios for high net worth customers.

"Only 2% of our sales now come from direct response to our infomercials," says Reekie, "and no more than 20% from our TV campaigns as a whole. But there is a halo effect." Many clients have been alerted to Clientèle Legal, for example, through its commercials, which are fronted by comedian Desmond Dube.

Clientèle’s most distinctive distribution channel is called IFA, which stands for independent field agents. They work on a multilevel ("Tupperware") system and market the Clientèle line to clients brought in by introducers. Commission, at the regulated rate, is shared between the introducers, who bring potential clients to the presentation, and the presenters, who are there to explain the products and close the sale.

Clientèle’s most complex product is its premium life policy, the only underwritten product in the stable — though even this does not require a full medical, just an HIV test. But Clientèle does add some bells and whistles. In its health insurance policies, for example, it gives the option of clients receiving half the premium back at age 65.

And over the past three years, Clientèle has been building a tied-agency model, which is now 2,500 strong, though it still falls behind the IFAs in production. Most recently it has opened up its product range to independent brokers operating in the mass market.

Clientèle’s model is low cost, partly because it has a focus on standardised products that suit the mass market, and much of its costs are absorbed by variable commissions.

Reekie says the current focus for the group, besides withdrawals, is its rewards programme, which gives a range of discounts from providers such as Shoprite, Edcon, Dis-Chem and Greyhound and Citiliner coach lines. "We were latecomers to rewards and apps, but we had to be confident that there was a sufficient penetration of smartphones into our market. These programmes don’t work with communication by post or even by SMS. But it does mean we can leapfrog our competitors by installing the latest software and systems."

At times, Clientèle is subject to a cautionary. This is usually when the Enthovens consider delisting the share. The free float is limited; more than 80% is held by the controlling shareholders. Brown says he would be sad to see Clientèle delist, as he has been invested in the share for 20 years. "But I can see the logic in a closer relationship between Hollard and Clientèle, providing each company’s clients with access to a wider product range."