In a more buoyant market for financial shares, particularly banks, the life assurers have been an orphan sector. While the banks enjoyed an 18% capital appreciation last year, the life offices were flat. In part, this reflects the sluggish growth - and, in some cases, a decline - in sales of life insurance products.
Paradoxically, the groups that continue to increase market share, Liberty and Momentum, operate mostly in the mature, top end of the market, where most of the clients are white.
Momentum CEO Hillie Meyer aims to increase market share even further through a tied agency force, which will also operate in the top end of the market, leaving FNB Life as FirstRand's sales channel into the middle market.
It's not possible to invest directly in Momentum any more as it is part of FirstRand. And the other options in the sector are somewhat lacklustre. Old Mutual, the largest counter in the sector, with a market capitalisation of R44,2bn, was trading at R11,10 in mid-May. This was below the R11,50 at which it listed in July 1999. Old Mutual's international expansion has, so far at least, proved to destroy shareholder value - particularly the huge US$2bn price tag for United Asset Management in September 2000.
At the time Pilgrim Baxter, with its high-profile PBHG brand, was considered the crown jewel. It turned out to be one of the weak points, particularly when the founders were indicted by the Securities & Exchange Commission.
In the long term, however, the internationalisation may be vindicated. Old Mutual has disposed of noncore businesses. And in spite of the PBHG shenanigans, there was a net inflow of $2,3bn into the asset management business as a whole, of which about $700m came from sister company Fidelity & Guaranty Life.
Old Mutual's fortunes over the past year were dominated by the problems at Nedcor, which normally provides a quarter of Mutual's earnings but last year gave its parent a R1,6bn loss.
Old Mutual's domestic life business, under Roddy Sparks, remains a quality franchise. Sparks recognised that its retail business was becoming cluttered and complex. Mutual abandoned the clumsy retail segmentation strategy, in which there were in effect three different companies for the top, middle and low income markets, and recentralised.
Paul Hanratty, who ran the middle-market Personal Finance business, took over the whole retail business from Peter de Beyer, who now sources third-party administration from overseas.
By contrast, Sanlam is decentralising. CE Johan van Zyl has given Sanlam Employee Benefits independence from Sanlam Life. But the linked-product business, Innofin, has been moved from the investment cluster into Sanlam Life.
Van Zyl has recognised that it is wrong to look at unit trust-linked products and life products as separate industries - they both deliver savings.
Sanlam listed in November 1998 at 600c and the share now trades at 845c. Not a great return, but it indicates that the market prefers Sanlam's more cautious expansion strategy.
Van Zyl has chalked up two important achievements over the past year. One was the memorandum of understanding with Absa, in which Sanlam is the largest shareholder with a 21% stake. This ended years of antagonism between the two management teams. The other was the agreement with the Ubuntu-Botho empowerment consortium to take a 10% holding in Sanlam.
The only other life company to announce an empowerment deal was African Life, which in May announced that a consortium led by Mvelaphanda had acquired voting rights equal to 10% of the equity.
As Aflife's client base is more than 95% black, empowerment is even more of a business imperative than for its competitors. There were inevitable groans that Mvelaphanda was the consortium leader but CE Jeremy Rowse says it has prestige: "I would rather star in my first movie with Charlize Theron than with Arnold Vosloo." And a consortium of Aflife's black brokers and other business partners is buying a 35% stake in Newco.
Newco shareholders have the right to exchange their preference shares for ordinary shares at a strike price of R18 after three years and before five years have elapsed. This is generous, as R18 is a discount to Aflife's net asset value. But Rowse says it is a fair balance between making the deal sustainable and diluting shareholder interests.
Aflife has stolen a march on its main rival, Metropolitan, which still has negligible direct black holding. But Metropolitan CEO Peter Doyle says it scores well on the balanced scorecard of the financial sector charter. Metropolitan was the best performer among the major life offices in a poor 2003, with 20% growth in premium income, and it increased its new-business margin to 12,5% by the end of the year. Aflife's premium income was flat, though its margin was better at 16%.
