Increase in claims knocks Liberty’s profits
Liberty reported an 8% drop in profits on Friday as low economic growth and a rise in SA’s unemployment put pressure on consumer disposable income.
|||Johannesburg - Liberty Holdings reported an 8 percent drop in profits on Friday as low economic growth and a rise in South Africa’s unemployment put pressure on consumer disposable income for the six months to the end of June.
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Chief executive Thabo Dloti said: “With the tough economic environment - volatile markets and unemployment - we are starting to see a strong increase in claims so that is impacting the consumer directly.”
The group reported a 6.79 percent decline in headline earnings to R1.99 billion, down from R2.14bn reported in 2015. However, the South African retails operations declined the most - down by 18 percent to R718 million.
Focusing on the entire business, the group said increased new business strain, worsening investment and early duration risk persistency together with lower positive risk variances were the primary contributors to this result.
Negative effect
“In addition, modelling changes were made to utilise a term structure of interest rates to value the risk business. This facilitates improved future risk management but had a negative once-off earnings effect,” the group said. The interim results for South Africa's fourth-largest insurer did not surprise the market as investors responded negatively to its quarterly update towards the end of May. The update showed a deterioration on several fronts.
The retail operations, which make up about two thirds of operating earnings, posted a weak performance, particularly the single premium category, which showed a decline in new business growth.
Liberty managed to increase total assets under management slightly. They increased moderately to R679bn for the period, up from R668bn when compared to 2015.
Its other division Stanlib asset management continued experiencing market volatility and lower than anticipated market growth.
“This resulted in Stanlib’s headline earnings of R267m being 11 percent lower than the prior period. First half earnings were impacted by once-off costs relating to the shared services outsourcing programme. Total assets under management by Stanlib increased by 1 percent to R584bn, marginally up from R579bn in 2015, as a result of incremental growth from investment market returns and net cash outflows,” the group said.
For the rest of Africa, Liberty said higher claims experience and investment in capacity to support expansion negatively impacted earnings which, at R11m, were lower than the prior period. “Economic conditions across the continent have deteriorated and placed pressure on pricing and new business flows,” the group said.
Liberty declared an interim dividend in line with the group’s interim dividend policy of paying 40 percent of the prior full year dividend. The board approved and declared a gross interim dividend of 276c per ordinary share.
“Operating conditions are expected to remain tough and the ongoing pressure on consumer disposable income is likely to continue in the short term. However, we are resolute in developing competitive value propositions for our customers, managing risk appropriately, deploying capital effectively and pursuing profitable growth opportunities over the long term,” the group said.
The share price was down 6.66 percent to R122.50 on the JSE on Friday.
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