Metropolitan has 'competitive edge'

However, investment market turbulence, with sharply dropping equity and bond values, impacted negatively on Metropolitan's diluted earnings and diluted headline earnings per share, which fell from 124.15c in both instances to 40.80c (67% down) and 45.25c (64% down) respectively.

The group says diluted core HEPS is the best measure of operating profit because items of both a once-off and an inherently volatile nature - such as changes to the valuation basis and capital appreciation/depreciation - have been stripped out.

Net funds received from clients amounted to R5.6bn, with most group businesses recording net inflows. In view of the difficult market conditions, the 19% increase in inflows into the retail business was remarkable, the group said.

Retail new business premiums grew by 21% and international new business premiums were up 17%. Operating profit was up 4% at R357m.

'Testing times'

The group said the results "reflect a noteworthy operational performance in tough economic times."

Most group businesses increased their contribution to operating profit. The 34% growth year-on-year in the contribution from the health cluster was "highly commendable in these testing times," it said.

"It is strategically significant that our core profits came from different areas across the group. The fact that retail managed to maintain persistency levels despite increasing pressure on personal disposable income due to higher food and fuel prices was also a first-rate achievement," said group chief executive Wilhelm van Zyl.

Metropolitan's total new recurring premium income, the lifeblood of any life insurance company, was 6% up on the corresponding period in 2007.

In addition to a 39% increase in single premium income, the retail cluster recorded growth in new recurring premium income of 15%, resulting in a 21% increase in annual premium equivalent (APE).

APE is a measure representing 100% of recurring premium income but only 10% of single premium income, given that the latter is far more volatile by nature.

Another pleasing aspect of group performance was the 17% rise in the APE of the established businesses in the international cluster, he added.

Thanks to its proven large-scale retirement fund administration expertise, Metropolitan Retirement Administrators has secured the administration of a 10 000 member retirement fund as from October.

Scope for improvement

New business secured by the health operations continued to add significant value, boosted by substantial growth in membership of the Government Employees Medical Scheme (Gems). MHG has recently been awarded the GEMS administration contract for a second three-year term from 2009.

While Van Zyl is pleased with the way Metropolitan has continued to lift its operational performance "irrespective of the uncertain times", he acknowledges that there is scope for further improvement in terms of efficiencies and even tighter expense controls.

"In line with our stated intention, we have begun securing new third party investment mandates. Sustained growth in this area will help to boost our performance materially. The value of new asset management business has already shown a 38% improvement year-on-year, and our improving investment performance record should also start assisting in this regard."

With total assets under management passing the R106bn mark, Metropolitan remains firmly positioned as a player of substance in the financial services sector, he added.

Turning to embedded value - a key life industry measure - the fact that the group's embedded value per share showed only a slight reduction from 1 857c to 1 838c over the interim period (aided by share buy-backs and despite a final dividend payout of 59c per share in April) was a laudable achievement in the current volatile economic environment, bearing testimony to Metropolitan's ability to withstand market turbulence, Van Zyl added.

An interim dividend of 40c per share was declared for 2008, 11% higher than in 2007, indicative of the directors continuing confidence in the group's medium-term growth potential.

"Although our dividend policy remains unchanged, we have adjusted the declaration rate to take into account current economic conditions," says Van Zyl.

Looking ahead, Van Zyl commented that "Metropolitan's entrenched position in the low and middle income markets continues to give us a competitive edge.

"Our efforts to enhance our stakeholder value proposition are ongoing, regardless of the tough times that both the company and its clients are experiencing at present, and our interim results for the most part demonstrate continuing success in this respect."

- I-Net Bridge