Economy Insurance

RMI sees earnings pressure after low claims lift 2018 profit

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Wednesday 12, September 2018

(Bloomberg)--Rand Merchant Investment Holdings Ltd., which owns stakes in insurers operating across the UK, Australia and South Africa, is warning investors not to expect a repeat of the unusually low claims that boosted 2018 profit.

The Johannesburg-based investor on Tuesday reported a 15 per cent increase in adjusted earnings in the 12 months through June even as economic growth in its main markets stuttered. South Africa tipped into its first recession since 2009 in the second quarter, Britain’s gross domestic product growth has been sluggish, while political turmoil in Australia has caused business confidence to slump to a two-year low.

“We would’ve liked to say that the macroeconomic environment in South Africa and in the UK was going to be a deterrent or negative for growth, but it’s slightly more complicated than that,” RMI Chief Executive Officer Herman Bosman said. “The loss ratios are very low when you compare them to previous decades. It’s almost unprecedented. It’s difficult to grow the numbers when you’re so dependent on a low loss ratio as a profitability guidance.”

A drop in motor-related claims and favourable weather conditions helped boost profit from OUTsurance, which will also pay a special dividend of ZAR 236 million ($16 million) to RMI, the company said in a statement. The unit’s Australian division Youi also paid its first dividend.

New initiatives, such as Discovery Ltd.’s plans to start a bank by the end of the year, may also put a “strain” on earnings, the insurer said. MMI Holdings Ltd.’s plans to boost profit “will probably take a bit more time,” Bosman said.

RMI’s stock gained 2.2 per cent to close at ZAR 39.75 in Johannesburg, paring losses this year to 13 per cent and giving the company a market value of ZAR 61 billion. The Johannesburg Stock Exchange’s main all-share index declined one per cent for a drop of almost six per cent in 2018.

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