Exclusive interview with MMI chief executive officer, Nicolaas Kruger

Born from the merger of Metropolitan and Momentum, powerhouse insurance company, MMI Holdings – listed on the Johannesburg Stock Exchange at the end of 2010 – is showing no ill-effects from the union. It is boasting above-inflationary results, with the group’s value of new business up by 35% to R632 million, while its new business annual premium equivalent was 15% higher at R5.8 billion, and core headline earnings increased by 12% to R2.6bn.

 

The smooth transition was facilitated in no small part by the astute leadership of chief executive officer Nicolaas Kruger, who deployed his fine-tuned interpersonal skills to make the transition as smooth as possible for nervous employees and shareholders on both sides.

He joined Momentum 20 years ago as an actuary, working his way up the ranks to chief actuary, before moving into management – ranging from chief financial officer and then the top job of CEO. As a result, the burly Kruger is well-versed in many facets of the business, which has turned him into somewhat of an all-rounder at an executive level.

When he joined Momentum in 1991, it was a small insurance company with around 200 employees, before Rand Merchant Bank acquired an interest therein – which marked the start of a phenomenal growth rate.

The enlargement continued for Momentum, with a merger with Southern Life in 1998, before further expansion through the acquisition of Sage in 2005.

In addition, assets under management grew phenomenally over these periods.

With the merger of Metropolitan and Momentum, MMI now boasts 15 650 employees and assets under management of more than R440bn – giving it massive scale as a combined entity. It now has six operating divisions, offering a wide range of financial products and services to all market segments in South Africa, as well as chosen African and other selected international markets.

Blue Chip was able to catch up with Kruger, one of the heavy hitters in South African business circles, for an exclusive interview at Metropolitan’s plush Cape Town offices.

 

From where did the push for a merger originate?

Momentum was bigger value-wise: it was about R18bn in terms of embedded value; and Metropolitan was about R12bn – so Momentum made roughly about 60% of the total – but, obviously, each company contributed something different.

It’s always difficult to say exactly when the idea for the transaction was voiced the first time. Shareholders naturally have an interest, as does management.

When the two CEOs of Metropolitan and Momentum started discussing the merits of putting the business together, they immediately realised that the businesses complement each other fantastically.

One obvious example is that Momentum having a strong footprint at the upper end of the market, and a great presence there, but a very small presence at the lower. Metropolitan, at the lower end, is important the other way round – a very strong presence in the lower income market. Metropolitan wanted to go into the upper end, but found it quite difficult to compete with Momentum and other players.

By joining forces, we realised that we would be covering the whole market – and effectively address the different dynamics of the upper and lower ends of the market.

 

What do you think has brought about your favourable post-merger figures?

One of the focus areas when we started out was to say: let’s not tamper with the distribution and sales channels; let’s identify where we have a strong distribution footprint, and not disrupt those areas – rather focus on integrating back offices and management structures.
This strategy helped us tremendously.

Plus, as I mentioned, we refocused the Momentum business on the upper end, and refocused the Metropolitan retail business exclusively on the lower end.

Our wide product range enabled us to grow by 15% overall in new business in one year, which is quite good in a difficult environment and throughout a merger integration process. You’d expect quite a bit of disruption, but we’ve learnt some lessons in the past – distribution is one area that you don’t tamper with.

 

Feedback from customers?

Generally a good response. Our message to customers would be ‘business as usual’, and we decided to retain the two client-facing brands. Clients thus continued to either have a Momentum contract or a Metropolitan contract. These contracts will remain in place, and over time clients will experience a variety of benefits from the merger.

A key benefit for clients is improved financial security – MMI is a much bigger and stronger entity. Especially now, given the volatile market conditions, it’s an important added benefit; but also in terms of product choice, we can now offer a much wider product range to the benefit of our clients.

In some respects, clients have not been affected directly. As we extract some of the benefits in cost savings, not all will go to shareholders: some of the savings will be ploughed back into our products to improve value for money. As we unlock these benefits, we believe MMI’s share price will reflect the cost savings and other merger benefits over time.

 

How would you rate your employee satisfaction level?

During an integration phase, there are many uncertainties. However, I believe our staff morale is now much improved. During the first few months of the integration, people are uncertain at a personal level; but as soon as you give them certainty and show them where the organisation is going – and we’ve done that for most of the employees now – the morale picked up. It’s something that we work on all the time.

 

What sort of relationship do you have with the government, particularly with new national healthcare policies on the cards?

The government is clearly a very important stakeholder for us, and we have a variety of touchpoints with the government.

The Financial Services Board is responsible for the market conduct of insurers, and the Reserve Bank in future will become involved from a solvency perspective.

Various government departments are also clients, the most prominent being the Government Employees Medical Scheme (GEMS). This medical scheme is administered by Metropolitan Health. GEMS currently has a client base of more than 500 000 families – making it a very big medical scheme in the country, and a tremendous success story.

GEMS has grown rapidly, with very good service levels. We have just gone through a tender process in respect of GEMS, and the majority of the services have been reallocated to Metropolitan.

There are naturally a couple of reforms such as the government’s National Health Insurance framework, but these things take time to develop and implement. You’ll get more certainty as plans unfold, but we’re active participants in industry discussions and we want to position our group as a strong player to participate on a partnership basis.

One of the benefits of the merger is size and scale, which enables us to be a low-cost administrator.

 

Is there irritation around the red tape that executives experience at board level?

It is important to get governance and compliance pitched at the right level. We want to be a responsible corporate citizen, and investors want to see strong and appropriate governance.

In countries where there is uncertainty around corporate governance and compliance, for example Nigeria, It’s sometimes quite negative for potential investors. However, you have to get the balance right to empower your businesses to grow and make their own decisions.

We worked extremely hard the first few months when we put the business together, to implement an appropriate level of governance. In terms of balance, we did not want to overregulate, and avoided a situation where you start talking about the same issues in (for example) four different forums.

 

The keys to growing the new business sector, particularly retail?

MMI’s combined and strong distribution footprint is key to growth in the retail sector. Especially on the Metropolitan side we’ve seen more rapid growth at the lower end of the market, although it’s grown across the board.

It’s a reflection of the successful Metropolitan distribution channel with about 4 000 agents that give us a very wide footprint in more than 100 offices across the country.

 

On the way forward for South Africa: is the country financially on the right track, policy-wise?

The one concern is the global economic environment and especially the issues faced by the eurozone. Everyone is watching that space, and hopefully they will come with a solution. The United States has had its own problems.

Unfortunately, South Africa will be impacted indirectly. Although, if you go back to 2008, South Africa has been extremely resilient through the financial crisis, which is an encouraging base to start from. Our financial services sector is very strong and very highly respected – very resilient.

Nevertheless, our growth prospects are lower in the light of the global environment. We are not necessarily talking about a recession – just lower growth, but probably still much better compared to some other European countries or even the whole eurozone.

 

The proposed tax on dividends is another contentious issue. How do you see that playing out for shareholders?

From April next year, there will be 10% tax on dividends. I think the impact on investors will be largely neutral: they’ll pay the tax in their own hands whereas, previously, companies paid on their behalf. We don’t see it as a very big change.

Hopefully, some companies will pay a slightly higher dividend to compensate the investors for the tax they now have to pay, but we’ll have to see what the market does.

 

How wide is your footprint in Africa? Are you exploring the other BRICS countries (Brazil, Russia, India, China) as potential growth areas?

Our first focus area is Africa where the MMI Group has a footprint in 12 countries outside South Africa, and there are many growth opportunities to explore.

We also have representatives in Mumbai (India) who are investigating opportunities. It’s still early days in India – we’re just in an exploratory phase. Many of the African countries are already profitable, with others in the early stages of development.

We need to grow the insurance market in Africa, which is still quite small, but with high potential. The potential is clear if you look at the size of the populations, and gross domestic product growth.

We have a presence in Nigeria, for example, a growth market everyone seems to be talking about. Nigeria is a massive market with very good prospects. If you look at figures for the expected growth rates in Africa, it is certainly much higher than South Africa’s growth.

 

What leadership qualities are important for being a successful CEO?

In an environment such as ours, where we are bringing two companies together, there are many qualities that are important. It includes focus, such as always working together as a team toward common goals. We work together constructively, which results in the whole being greater than the sum of the parts.

It’s a challenge at a senior level to manage across different cultures, to engage proactively with people and to communicate all the time. People, especially in uncertain periods, want feedback, and you need to show direction. We therefore spend much time as a combined management team to clarify the vision of where the organisation is going.

But at an individual level, people want to understand where they fit in. They say: “Okay, we understand the big picture, but what’s my role?” As soon as you can make that link and say this is where you fit in and this is where the organisation is going, you’re working for a great group – one that has much potential. This is your contribution: if you can make that link, it provides an excellent start.

 

Finally, who do you admire from the world of business?

Everyone now is writing about the late Steve Jobs and what he’s achieved. He’s made a tremendous mark in terms of innovation and in transforming his business.

Take the cellphone as an example: it was initially a single-purpose product, but now everyone wants an iPhone (especially youngsters), perhaps more so for all its additional features and capabilities than to make phone calls.

Then someone like Bill Gates is also very impressive, perhaps more so lately in respect of what he is now giving back to society through his foundation and its objectives to uplift society.

 

Richard Fraser