The past financial year was never going to be easy for life insurers. Tough economic times had already led to a spike in disability claims. Increases in lapsed and surrendered policies had a devastating effect not just on earnings, but also on actuarial valuations. Ultimately, it is these valuations that drive their share prices.
But at least, shareholders thought, there hadn’t been any profit warnings.
Then last week, Liberty Holdings revealed its dire straits, warning that headline earnings for 2016 would be between 40% and 60% lower than 2015.
Liberty, it seems, is in a worse position than its peers, none of which has released a profit warning. Not all of it is Liberty’s fault: technically, for example, any increased premium in the value of its property share Liberty Two Degrees is treated as a loss, which is absurd.
But Liberty’s biggest problem is its lack of diversity. Its client base and sales force remain largely white. While it sold many policies before the 2008 financial crisis, many clients have since emigrated.
It seems to be losing ground to Discovery Life and it has not yet set up a business focused on the emerging middle class — a slice of the market that drives growth at Old Mutual, Sanlam and MMI.
The silver lining is that CEO Thabo Dloti has a roadmap to diversify Liberty. So shareholders shouldn’t give up.