Solid show from insurers

Johannesburg - JSE-listed insurers have delivered improved operating performances during the latest results reporting period and announced handy dividends - a sign that the SA economy is quietly ticking along.
 
Financial services groups Metropolitan Holdings [JSE:MET] and Discovery Holdings [JSE:DSY] were the stars of the week, delivering sharp increases in new business volumes. Both companies also indicated they had plans to expand their operations, with Metropolitan targeting Africa and Discovery eyeing China, the US and the UK.
 
Short-term insurer Santam [JSE:SNT] reported an 80% rise in headline earnings and a 500c special dividend to boot, while the thinly-traded Zurich Insurance Company South Africa [JSE:ZSA] also quietly got its results in under the radar.
 
Zurich returned to profitability but was the black sheep of the bunch, cutting its dividend. However, savvy investors would do well to remember that empowerment group Royal Bafokeng upped its stake in Zurich to 25.1% and indicated it would be actively trying to turn this business around.
 
With R1.4bn in free cash and the decision taken not to pay a dividend, this could be a sign of corporate action on the way.
 
Stockbrokerage Barnard Jacobs Mellet (BJM) gave the thumbs-up to both Discovery and Metropolitan, advising clients it was considering placing Discovery into its core equity portfolio and retaining Metropolitan in its high dividend yield portfolio. However, it said the counter was under review pending the merger with competitor Momentum.
 
"[Discovery is] regarded as good value at current levels and remains our preferred exposure within this sector," the firm said.

All eyes on Momentum
 
On Metropolitan, BJM praised its high dividend yield, but warned the company had seen outflows from its asset management business and continued to take strain in corporate life insurance operations.
 
Stockbrokerage Imara SP Reid maintained its "add" recommendation on Metropolitan, saying: "The improved performance in retail despite declining volumes is a strong showing, and if the rest of the business follows suit in terms of thinking applied successfully in this segment around removing loss-making initiatives and moving to a more profitable product mix, then it should continue to perform well."
 
The firm said all eyes now turn to Momentum results, due out when FirstRand reports shortly.
 
New statistics from the Association for Savings and Investment South Africa (Asisa) indicated that South African consumers are getting their heads around the financial woes of 2009, and that there have been fewer lapses in life insurance policies.
 
The value of surrendered individual policies decreased from R18.7bn in the second half of last year to R17.2bn in the first half of this year – a reduction of 8%.
 
This has been reflected in the guidance from Liberty Holdings, Discovery and Metropolitan which have all emphasised a focus on writing better quality business over quantity, in an attempt to reduce the lapse rates.
 
"We have also seen a reduction in call centres selling policies directly to consumers. At the same time, call centres still in business have improved the quality of new business written," said Peter Dempsey, deputy CEO of Asisa.
 
 - Fin24.com