It’s hard to get wildly excited about an insurance company. Until you realise that company’s shares have trounced most others on the JSE in the past year.
Momentum Metropolitan stock has gained almost 70% over the past 12 months, dramatically besting its two bigger peers: Old Mutual (up 10.6%) and Sanlam (up 25%). That’s no mean feat, particularly when your products are seen as a grudge purchase, in an economy going nowhere.
For a very long time Momentum was the “ugly sister”, says Sasfin’s David Shapiro. Not any more.
“I’m not accrediting it to me but when [former CEO] Hillie Meyer and I returned to this group in 2018, we chipped away; fixing, doing the right things. It was a slow return to be liked and respected and for the last year or two we’ve been riding the wave,” says Jeanette Marais, two years into the role as group CEO.
In market-cap terms, Momentum now stands at R48bn, close in value to Old Mutual’s R55bn – where Old Mutual was once four times its size.
Momentum shares took another leg up this week on the promises it made at a capital markets day presentation to investors: R7bn in earnings, at a 2% margin on new business, with a 20% return on equity, by 2027. Or sooner.
Yet that’s not a gimme when much of your growth involves wrestling market share away from others trying to do the same to you, in an economy expanding at all of 0.1%.
Asked about this market share merry-go-round, Marais says: “We will always try and be better and smarter and have better service and better products, but what none of us can afford is a race to the bottom.”
“We’ve got to make sure that what we do and how we do it is responsible, and can still pay the bills and can still reward our shareholders for being invested in us.”
Part of this is being extremely cost conscious; the lavish days of well-stocked board meetings, for example, are over. “We are deeply aware of every cent we spend. It’s a good thing because this low growth can prolong for a long time – so you’ve got to make sure there’s no wastage,” she says.
Indeed: Momentum CFO Risto Ketola warned investors during the insurer’s presentation that “due to book shrinkage, we cannot afford to increase expenses by more than 3%-4% per year.”
Surely, though, there’s a point at which there’s no more cost to be cut? As Marais says: “No-one can shrink their way to greatness.”
“That is a conundrum and something we all worry about. But we are in the fortunate position that we have some mature businesses where if we grow by the current 5%-6% per annum, that is great; but then we have growth opportunity businesses where the upside is massive,” she tells Currency.
Growth opportunities
Those businesses include Aditya Birla, the Indian health insurer in which Momentum has a 44% stake, which recently hit breakeven; Momentum Insure and Guardrisk – the poorly-understood firm that Momentum bought from Alex Forbes in 2014.
“Guardrisk still has massive upside,” she says, “because there’s a trend in the industry where more companies want to self-insure their book, like retailers.”
What Guardrisk does is provide a licence to a retailer like Mr Price which wants to on-sell credit insurance, or life insurance. These retailers don’t necessarily have or want a life licence – an extremely onerous process. That’s where Guardrisk comes in: by providing its licence and administration skills for others. A good example is the relationship the company has with Capitec – where the bank’s entire insurance book was built on the back of Guardrisk’s licence. The bank has now obtained its own licence and is moving off Momentum’s book.
While Guardrisk already has about 60% of the market, Momentum believes there’s still plenty of demand for its services.
“We’ve got smart businesses where there are opportunities we are opening up for ourselves,” says Marais.
For example, Momentum corporate has developed a pension fund product for small businesses. “In the last six months we’ve gained 154 small businesses. That’s a growth opportunity because no-one plays in that market,” she argues.
Then there’s Momentum’s Indian venture, into which it has ploughed about R3bn over the past few years. “It’s uncorrelated to the South African economy; it’s a fast-growing market and it’s now breakeven, which is a pivotal point,” she says.
As for Momentum Insure, Marais describes it as a “fledgling” business in terms of its size relative to players like Santam and Outsurance.
“The upside for us is enormous. Now there you have to steal market share but there are different ways in which to do it – there’s a direct client market, there’s an advice market, having your own agents and all of those are growth opportunities.”
Finally, there’s Momentum’s “absolute conviction” that humans will win the day, even more so in an era of AI-chatbots.
“The more digital things become the more clients will need an adviser. The more clients start to move into a more affluent space, the more complex their lives are and the bigger their need to have an adviser,” argues Marais.
Momentum’s agency force is about 400 people compared to its bigger peers like Old Mutual and Sanlam, which have thousands of agents. “It’s never been in our DNA to have a big agency force,” says Marais, “but we are committed to it. We’ve got fantastic products, we’ve got a great brand, and that is something where we’ve put aside quite a lot of capital.”
No existential crisis
Part of Momentum’s conviction generally is just how under-insured South Africans are. According to industry stats, only 6.2-million people contributed to a pension or retirement product in 2023. That’s only a quarter of South Africa’s labour force.
Momentum’s own estimates indicate that roughly 750,000 households who earn more than R30,000 a month (gross) don’t have any retirement products.
“That’s not a market-share thing, it’s the fact that so many people just do not have access to an adviser,” says Marais. Momentum argues that to serve those 750,000 households, it would need about 4,000 more financial advisers at hand.
Momentum is surely not alone in eyeing this potential, however.
Asked whether South Africa’s economic stagnation may prove an existential crisis for insurance businesses here, Marais says: “We are very, very far from an existential crisis and the reason for that is: every single client we have on the books pays a premium every single month. Life insurance businesses are highly cash generative. It’s far more related to the existing millions of clients we have who keep on paying their premiums and who keep on having premium increases every year.”
But back to its own growth plans. When Momentum first pitched its profit ambition to the market last year, says Marais, investors “completely discounted it”.
“They said: ‘You’re way too ambitious, it’s not possible,’” and that R6.3bn by 2027 would be more realistic. She says Momentum will “get close” to R6.3bn in earnings this year already. “Now, nine months later the market is saying: ‘Okay, R7bn is not that ambitious are you going to adjust that?’”
It’s easy to be swept up by Marais’ enthusiasm; the Momentum CEO is a class communicator.
“The market loves transparency: when you are honest about the good and the bad. That for me is so important – to openly communicate with your shareholders. They keep you accountable and it makes your life a little bit harder but while you have trust that the team will be delivering, why not? That is the way I manage this business.”
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