Liberty Sees Wider Profit Margins as CEO Munro Overhauls Insurer

(Bloomberg) -- Liberty Holdings Ltd. expects profit margins to widen as Chief Executive Officer David Munro pushes ahead with an overhaul of the South African insurer.

The company is aiming for new-business margins of between 1 percent and 1.5 percent over the next two years, after the gap shrank to 0.4 percent in the 12 months through December, Munro said in a phone interview Friday. It’s also targeting a return on equity of 15 percent to 18 percent, up from 11.7 percent.

Since becoming CEO in May, the former investment banker from Liberty’s controlling shareholder Standard Bank Group Ltd. has introduced measures to stem a decline in earnings, improve returns from its asset-management business and retain clients at its retail-insurance unit. Munro started by ensuring Liberty gets the basics right: improving customer service, such as revamping the company’s call center to make it simpler for clients to get help, and better supporting the 3,000 agents that sell its products.

“We are focused on turning around the business, but also building it sustainably for the future,” he said. The Johannesburg-based insurer is also working on dismantling complex products, processes and systems accumulated over its 60-year history that have never been “retired,” Munro said.

Liberty has also introduced risk-management controls to avoid “unacceptable” one-off charges and revamped the leadership of its asset-management business, Stanlib, while holding off on non-critical new hires, the CEO said.

‘Take Action’

“We need to take action to make sure we deliver on that margin range,” he said. “If we can get the margins up, we can lift the value of new business and we lift the earnings of the organization. There is an absolute focus on the costs in our insurance business, the volumes and the mix of products in the business so that we can restore those margins.”

Liberty will continue to focus on its bancassurance agreement with Standard Bank, Africa’s largest lender, to benefit from the lender’s plan to offer a full range of services from transactional banking and lending to funeral policies and mutual funds, Munro said. Total indexed new business premiums sold under the agreement increased by 7 percent to 3.3 billion rand ($278 million) last year, compared with a 2 percent increase in overall new sales for the entire Liberty group of 8 billion rand.

The insurer declared a final dividend of 4.15 rand, in line with a year ago. “Keeping the dividend flat was a strong signal that we are confident in restoring the health of Liberty,” Munro said. Adjusted earnings before one-time items increased 8 percent to 2.7 billion rand in 2017.

The stock has gained 8.4 percent this year, compared with a 6.3 percent rise in the six-member FTSE/JSE Africa Life Assurance Index.

©2018 Bloomberg L.P.