Momentum Group Limited (MTM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Momentum Metropolitan's Third Quarter of 2020 Update. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Hillie Meyer. Please go ahead, sir.

Good afternoon, everybody, and welcome, and thank you for joining us this afternoon. I'm just going to introduce -- by way of introduction, say a few things. I think, first of all, in terms of the disclosure, given the disruptive impact of COVID-19, we thought it appropriate to disclose the results with sufficient detail to enable the market to fully understand our quarter 3 results. We wouldn't normally, on this sort of -- on a quarter 3, disclose to this extent. I think the uncertain future make it difficult enough for all of us to work out how it will impact results going forward. So we hope that a solid understanding of the impact to date will be helpful to everybody that's really interested. I think you would have seen from the announcement that we're very pleased with operational performance. And from operational performance, we remained, up to the end of March, very well on track to achieve our reset and growth targets. I mean some of the important elements which were still evident in the third quarter was the growth in broker support, which we still believe came through in the third quarter. Metropolitan's productivity held up and improved slightly. And then the quality improvements were also very good still in the third quarter. On the short-term side, I think both Guardrisk and MSTI continued with a good growth. And I mean the Alexander Forbes acquisition was also -- and it still is, in fact, beginning to make a positive contribution. I think we saw some very positive results from the disciplined pricing on the corporate side. So our risk profits showed a very pleasing improving trend in the third quarter. New initiatives remain on track, including India, which is probably the most important of the new initiatives. Our cost containment remained in place, I think very good discipline even in the first -- the third quarter on the cost side. And then also, maybe not something we've talked about a lot in the past, but digital rollout in pursuit of ease of business with distribution partners, in particular, continued. And in fact, I think it sort of helped quite a lot when the impact of lockdown hit us. So operationally, yes, I think a very pleasing quarter. But obviously, if you look at the quarterly results in totality, this quarter took a full brunt of the market impact. And I mean that point worth making is that it was obviously quite a severe market correction, whether it's a one in 10- or a one in 20-year event, I mean, time will probably tell. But it was not sort of something that happens sort of that regularly. But I think we mentioned in the announcement that the knock-on impact, sort of secondary impact is probably still to come in the future. For example, on the asset side, we haven't allowed for credit defaults. Our own property valuations haven't been updated necessarily. We've got to venture capital assets. So I think even though we've seen some recovery since the end of March, not all asset classes were immediately impacted. So I think we will just keep that in mind going forward. And then also, we make the point that, from an experience point of view, we haven't seen the impact of, let's say, higher death rate mortality and so on, on the results. Also, withdrawals might increase. We're going to see shrinking payrolls that might impact health and corporate business. Obviously, new business volumes will be impacted going forward. And I think that all those things combined led us to the conclusion that we will not achieve the ZAR 3.64 billion normalized, the headline earnings target that we set for 2021. Also, maybe just worth mentioning is that the impact on VNB will be quite severe going forward. Just in conclusion, I think we're determined to continue to improve our relative position. I mean, obviously, all the competitors are equally impacted by -- maybe not equally, but we're all impacted by COVID-19. I think you would have seen from how we coped with the more immediate sort of aspects that we were well prepared to deal with the crisis of this sort. We showed excellent results and I think we remain resilient. Our solvency and financial stability remain very strong. We are supporting our clients with various client relief measures. We're constructively involved in industry and societal initiatives to alleviate the impact of the pandemic, and we obviously [ take our first care ] when it comes to the safety of our staff. And we will continue to look for opportunities to improve our products and services and to do so efficiently. I think the structural shifts that are now inevitable and the continued uncertainty will certainly provide opportunities for the flexible and the nimble. I think that is all from me at this point. I don't know, Risto, anything from you?

Yes. No, Hillie. That's quite comprehensive. Maybe just 2 things. I mean could have maybe been included in the operational update, but there's maybe an oversight. But I think the first one is embedded value. Now we do usually disclose it in the quarterly update. There's no good reason why we didn't disclose it except for our omission. But the embedded value per share at the end of March was ZAR 25.46. That is down from ZAR 28.56 in December. Now that obviously includes all the market movements and it includes revaluation of some of the big subsidiaries like Guardrisk. But as Hillie said, we haven't done a full valuation of the property portfolio, for example. Now that is a ZAR 4.5 billion decline since December. Now there was a dividend paid, so maybe you can say it's a ZAR 4 billion decline, if you add the dividend back. So that's on embedded value per share. The second point is, now we have a very formal risk appetite process in the group. And I don't think we disclosed it or discussed it in maybe enough detail in the annual report or in the current report. But internally, we manage the business to be profitable even under a severe but plausible scenario. So in other words, the risk guys construct a...

Annual basis.

Yes, on an annual basis, obviously. So the guys construct quite as severe scenario, yet it's not impossible. And under that scenario, we shouldn't see more than a ZAR 3 billion loss roughly. And of that ZAR 3 billion, about ZAR 2 billion is allowed for in the market risk. So the quarterly movement in the investment variances of, let's say, ZAR 1 billion, ZAR 1.2 billion is within our risk appetite. I mean I think the point is that we often talk about these things theoretically, but we've been through it now. And in lot of ways, our market risk behaved exactly as we thought under this scenario. So one can either take comfort of that or not. I personally think that it's quite comforting that we go through a month like March, which weren't just equity markets, it was the credit markets as well, money markets, everything. And we sort of effectively lost 1 quarter, 4 months of earnings. But we still remain, obviously, very healthy from an annual earnings perspective and from a solvency perspective. Okay. I think I'll open up to questions.

[Operator Instructions] The first question comes from Michael Christelis of UBS.

Just a couple of questions, if I can. Firstly, when you look at this IGR adjustment that you've made for this year, and the numbers certainly appeared a lot bigger than what I would have expected, can you give us some sort of steer upon the sensitivity of the IGR to equity market volatilities and market levels? I'm just trying to sort of be able to assess, when we get to the end of June, from my modeling, as to how to think about the direction of the recovery, if there is any. That's the first question. The second question is net retail margins look like they've deteriorated a bit. But you haven't given us, I guess, like-for-like margins in terms of interest rate assumptions, et cetera? And maybe just talk a little bit about what you saw in the margin for net retail for quarter 3 specifically. And then related to that, what proportion of the net retail book is work site based. So just trying to assess the impact of the lockdown and how long lockdown comes through as to the new business number. And then just to clarify, I think you said the property portfolio hasn't been revalued. So what is the basis for which you would revalue that portfolio given the large unlisted property in there? What -- how do you value that in the context of what listed property, for example, in South Africa has done?

Yes. Okay. Let me have a go first and then Hillie can fill in. So the investment guarantee reserves, that largely deals with our smoothed bonus fund, okay, so we have very little, almost none, linked business with maturity guarantee, so it's really just a smooth bonus fund. And that obviously moves in a nonlinear fashion because you have this guaranteed amount on the smoothed bonus policies. And as you move closer to the guarantee, obviously, the reserve goes up like a pull-up in price would. So if you look at the sensitivity in the embedded value statement, that's sort of a 10% move, I think. And we had a closer to a 20% move during this period. The other one is that the sensitivity is only for listed equities, but we also have the one selling off as well. So I think in that sensitivity, you're probably stress-testing for 60% of the portfolio whereas most of the portfolio declined in value quite seriously during the period. And the last point on the guarantee reserve is obviously that it is quite sensitive, the impact of volatility assumptions where a lot of the guarantees actually start [ biting ] quite far down the line under the stress scenarios. And you don't really have good market data on [ 30-year ] options. So you sort of start with what you can see in the short-dated options market. And those impact -- volatilities went up by a lot. I mean I think we did disclose that the earnings impact of the IGR was about ZAR 350 million, ZAR 400 million in the announcement. So that will give you some idea of the size of the move in the last quarter.

That was just for volatility though. That wasn't -- because you gave 2 numbers [indiscernible]

Okay, okay. No, you're right. Okay. That was volatility. The equity number we gave you, you could probably say that nearly half of that was also IGR related. So the guarantee reserve actually increased in multiples rather than percentages. And then the second question was net retail. Now I also noticed that the margin looks a bit weaker now. So I asked the business unit, and as you say that there's some economic basis changes, but it's also the fact that January typically is a very slow month, as is December. Because remember, in this market, the business often comes in force a month or 6 weeks after the application is submitted. So this quarter often captures the December and January lull in new business, but your costs are pretty much constant through the year. So there's a little bit of seasonality. I mean the guys are saying that they're quite happy with the volumes and mix of business for the quarter.

Well -- so on the mix, we did relatively more savings business and lease risk, which is lease margin.

Yes. That would have an impact as well. Now in terms of work sites, we get into a situation where sort of 40% to 50% of business is written through work site marketing. And then your last question was on property valuations. Yes. So obviously, our big and listed property holdings are the head office here in Centurion, where the valuation, I think, is pretty modest. And obviously, it's in full use. Well, we're paying for rental, but there's not many people here. So that's fine. It's the case on office buildings, which are also fully utilized. There's a building in Durban that our health business uses. That is about 80% full. And then we have the 2 big buildings in Sandton, which -- one is full and the other one is empty. Yes. So we will sort of not look at only the listed properties. I mean we have an external valuator that values these buildings. And that will take into account the reality of the current [ sentiment in the ] rent market. So yes, I mean I don't want to preempt it, but I will be surprised if the revaluations aren't done with in the current environment.

Okay. You didn't take a revaluation at all in this quarter?

Not on the properties, no. I mean like I said in the EV, we revalued some of our [ unlisted ] investments like Guardrisk. We revalued some of our fintech investments. But the properties, we have quite a formal process where we have an external valuator doing it. So we'll wait for that.

The next question comes from Pravarshan Murugasen of Foord Asset Management.

Just want to know a bit about the comments around persistency. So I mean if you've given full-month payment holidays in the likes of funeral policies, you're less likely to see lapses there. Agents can't sell or churn too much as well. So just could you give me a bit of sense about how you're thinking about lapses, the higher lapses that you alluded to? And especially going into year-end, where you're going to be making these -- potentially making assumption changes, we might not see the full extent of being locked down or anything like that yet. And maybe please touch on Momentum and Life separately.

Look, I'll start and then Risto will, I think, detail -- give you some more detail. But I think one of the things that -- and it's current thinking. Keep in mind that as we learn more, we will obviously adjust and adapt and so forth. But the current thinking is to -- is that things like withdrawals and so forth could spike for maybe a year, maybe 18 months. So we're not at the point yet where we're going to make long-term assumption changes, but we obviously will anticipate some deterioration over a limited sort of a period. Risto?

No. I mean Hillie used to be a statutory actuary once upon a time, so that's a very good answer. I think our plan at the moment is that, by June, we probably want to have enough info to do a proper statistical analysis. But we have already decided that we will probably increase our lapse provisions on a 12- or 24-month view. And I mean, so yes, we think it will be very surprising if we don't see some deterioration in lapses eventually. I mean to date -- I mean you're right. I mean some of it might be that you're sort of kicking the can down the road by giving premium holidays. But even on the premiums, we are collecting, the [ dividend obviously ] looks okay. I mean like one of our books in [ that end market in ] Momentum. Normally, we collect about [ 98 ] from 4% of the debit orders now. I think last month, it was like [ 97 ] from a 6%. So there's some deterioration, but it's early. It's way too early to tell. But the plan is to hold something extra in reserves at year-end.

[Operator Instructions] The next question comes from Warwick Bam of Avior Capital Markets.

Sort of 4 questions from my side. What's the shareholders' exposure to corporate credit risk? That's the first. The second is in terms of the potential rise in deficits in the Guardrisk sales, have you seen any change there? And could there be potential bad debts to consider at year-end? Question 3, what's the size of your nonparticipating annuity book? So if we look at mortality risk, have you assessed the potential benefit might be on the longevity side? And then in terms of your income protection policies, do you have a material exposure to income protection policies? And under what conditions do the majority of those policies pay out?

Yes. Okay. So shareholder exposure to corporate credit. Warwick, I think I'll combine the first and the third question because the vast majority of our credit exposure is on our annuity book. So if you look at our shareholder funds only, the ZAR 13 billion of tangible risk capital we hold at the center, there's a little bit of trade risk exposure, but it's not material. I think we are extremely high quality. But our annuity book, which in total, is probably close to ZAR 50 billion if you combine it with the corporate annuity book, not with profit but just CPI-linked and fixed annuities. I would say it's backed roughly by government bonds and half by credit bond -- corporate bonds. Now obviously, no single -- I mean some of the big banks are quite big, but most of the issuers are the ZAR 300 million, ZAR 400 million a piece. So we do -- I mean we normally assume the net book will have about ZAR 100 million of default losses a year in our annuity book. I think next year will probably be a bit more. It's good that way. That's part of the reason why we're giving you a bit of a conservative view for next year's earnings. It will be quite surprising if we don't see some credit events happening. So that answers those 2 questions. So the annuity book, we've actually been #1 in market share for the last few years in annuities. And it means our annuity book is quite similar sized to our bigger competitors. Guardrisk deficits, obviously, it's very closely tracked. We just had Guardrisk Audit Committee this week. There's been no real new names popping up on the deficit list. Might change over time, but we're obviously very aware of that and we are doing it very conservatively. Our clients are exposed to some of the product lines like credit life. On those clients, we're obviously adopting very prudent reserving as well to make sure that we don't pay dividend that we then regret later paying them out. So Guardrisk, at this stage, the risk is, I would say, limited or unchanged. The biggest deficit is still the sale that was in deficit last year. And then income protection, we obviously sell a lot in the corporate space. We're probably #1 in the market on -- but these are -- when we talk about income protection, we're talking about -- we talk about disability income protection. You probably -- somewhat a change in cover. And that, we don't really have any exposure to. I mean Guardrisk clients have exposure, but it's on the client account, not our account. So maybe, Warwick, you can clarify. On the income protection, are you talking about income protection against disability or against retrenchment?

I was talking about income protection against morbidities, I guess capability slightly, but more on along the lines of if somebody is quarantined and unable to work.

Yes. Okay. So we're obviously a material market player there, I don't know, [indiscernible] market share maybe. And we have paid out claims. So most of our policies have a waiting period that is longer than your quarantine period. But where there's a short period, we have paid out some claims for like 7 days or 10 days when people are -- have tested positive and have to be away from work.

If I can just have a follow-up question on your response to the Guardrisk sales. So in terms of the sales that have credit life exposure and potentially some of the sales that are managing health risks. Has there been any change on the reinsurance side, reinsurance agreements that might have renewed? And what is the reinsurers' stance towards repricing?

Yes. I mean vast majority of these sales are reinsured in different structures. Now we can't talk about each individual client. But I mean not surprisingly, the reinsurers are taking a lot tougher stance. So I think the cost of reinsuring credit life has definitely gone up.

Okay. There's still an appetite to reinsure, it's just that the price has gone up.

Yes. But I suppose you must also -- remember, a lot of the clients who own these credit life books are very big companies themselves. So if the reinsurance rates double or triple, it doesn't mean that they just continue with the programs it used to be. Maybe the guys retain some on their own book, maybe they'll ask higher attachment points, whatever. So it's an annual negotiation. We advise on that. But in the end, it is really the client's choice of which reinsurer, how much reinsurance, does it make sense financially.

Only we -- we understand where reinsurers were not prepared to renew us on -- is the short-term site profit protection, what you call...

Business continuity -- business interruption.

Business interruption. I mean, there, the market has really suffered and have specific exclusions and some reinsurers are not prepared to offer any terms that cover pandemics and so on. But that -- I mean that issue has been covered in the press quite extensively.

The next question comes from Grant Davids of Absa Capital.

Can you hear me? Is that better?

Yes.

Actually, more detail. So just a question on the group life insurance book. The policies that were just -- trying to analyze the results. I just wanted to get a sense of how sustainable you think that result is, especially given the economic environment [indiscernible] impact significantly post this update.

Yes. Okay. I'll have a go. Really, I'm sort of thinking how to answer this. But I mean the big improvement in the last 6, 9 months has been exactly in the part of the book that's been problematic in the past, which is the...

The insurance.

The permanent health insurance basically, temporary disability book. That has shown a significant improvement. But as you correctly say, a weak economy normally leads to larger amounts of claims on that book. Now for that reason, again, in our budgeting, we're sort of assuming that maybe this recent recovery in PHI dissipates a bit. At the same time, the rates are lot firmer than they were 3, 4 years ago. So hopefully, we don't go back to at least the level of losses we've seen before. But you are right. I mean the economy could erode some of the benefits of repricing we're seeing. Yes. I mean, Grant, just by your knowledge is that book is about -- the PHI book is about ZAR 1.2 billion in premiums. So you're normally talking of swings ZAR 200 million or ZAR 300 million a year, just to give you an idea of the earnings sensitivity.

The next question comes from Francois Du Toit of Renaissance Capital. Unfortunately, we're not getting any response from Francois' line. [Operator Instructions] We have a follow-up question from Pravarshan Murugasen of Foord Asset Management.

Sorry, just to circle back to the business interruption insurance, particularly with the Alex Forbes book coming in. What's your exposure like on that front? Is there any immaterial -- sorry, any material exposure that you may have?

Yes. I mean, again, in Guardrisk, we have a couple of clients, [ sell owners ] or underwriting managers that specialize ensuring, let's say, hospitality groups and so on. Again, we're in partnership with people in these businesses, so it's a bit hard for me to say too much. But at group level, the exposure is very manageable, under ZAR 100 million, let's put it that way. So for that particular underwriting manager, I'm sure, ZAR 10 million, ZAR 20 million is a lot of money. But at group level, the exposures are very manageable. The Forbes and the Momentum short-term book actually had very limited exposure to this.

[Operator Instructions] The next question gives us follow up from Michael Christelis of UBS.

Just one more. On the Indian operation, and I appreciate you're probably fairly limited to what you can and can't say there. But we have seen last insurance premiums in India down like 40%, if I remember correctly for March and even more severely for April. Just trying to understand what impact does new business, or say, a couple of months lack of new business have on that business' trajectory to breakeven? I mean to what extent are you reliant on new business coming in to achieve breakeven in 2 or 3 years' time as per projection?

Yes. I mean we're very dependent because we're sort of expecting that business to grow at 60%, 80% per year growth rate. You're not going to do that without doubling your new business every year. We'll probably take another 3, 4 years until the renewal business is sort of the key driver rather than new business. Now as you were correctly saying, March was a bit weaker. Now remember, March is the tax year in India. So March is quite a critical month. So it was a bit disappointing that we were sort of out of the market maybe in the last week of March. However, again, our partner is listed, so you're right. I have to be careful what I say. But in April, they have managed to get a bit of a recovery. So they have found ways to reinvigorate some sales. So there's no doubt that the lockdown is having an effect, but April is actually a little bit more encouraging than late March in terms of what the guys have been able to do.

And some of the channels actually are holding up better than others. For example, I mean, telesales and also the bank insurance side are doing better than direct. And also keep in mind, they've signed up even new bank relationships last year. And some of them off a low base are now sort of kicking in. So it is supporting the business a little bit. So we don't see a drop in volumes, but we're just not seeing the growth that they budgeted for. Again, to come back to your question, I mean, if COVID-19 impacts India, 6, 9, 12 months or whatever then, maybe it will delay the breakeven by a year. It -- I would be surprised if it delays it by more than that. Because I think they'll pick up where they were. So...

Also the corporate renewals were quite good.

Yes.

We have been rejoined by Francois Du Toit of Renaissance Capital. [Technical Difficulty] Unfortunately we're still not getting audio coming from your line, sir. [Operator Instructions] We have a question from Musa Malwandla of Differential Capital.

Can you guys hear me?

Yes.

So 2 quick questions. The first is just a follow-up on the stuff you were saying on Guardrisk on credit life. How much of the risk do you assume your cells is? I mean, how much do you reinsure of the cell capital risk? And then maybe just a bit of color on the short-term insurance experience, both from lapses and particularly interested in the claims experience over the past 2 months. And just, I guess, in terms of competition. So we saw a lot of your peers cutting premiums for the first few months. So yes, those are my questions.

Okay. I'll take Guardrisk, you can take the short term business. Yes, our Guardrisk credit life, I mean, by its nature, the big sellers of credit life are banks, retailers and telecommunication companies. So the cell owners tend to be companies of substance. And we actually don't underwrite them at all. And we stopped writing -- we stopped underwriting retrenchment cover about 2, 3 years ago. And since then, we have only acted as an adviser and effectively a reinsurance broker. The different clients have different stances. A lot of these clients are 100% reinsured. Some clients are 100% on their own book. Now obviously, we make sure that we're not going to have a small company come and write a couple of billion of credit life with no reinsurance. But if it's a company of substance, we're happy. We're comfortable with the client. So the short answer to you is we have 0 exposure to credit life directly on balance sheet.

As far as the personal lines businesses, MSTI and Alexander Forbes insurance are concerned, I think so far, we've been quite pleased with withdrawal rates. It's a little bit higher, but it's held up quite well. We don't actually expect that to continue because, I mean, as the economic impact starts to bite, one would expect to see some higher withdrawal rates or lower renewal rates and so forth. We've also offered premium rebates to all our clients. So I mean, I think where we -- we did -- most of the competitors did. We're also quite sort of flexible in terms of cover reductions. So we -- I think it's -- we just see this as -- it's in everybody's interest. If somebody wants to basically reduce cover for a limited period with the intention to increase it again when things are looking better, then obviously, we'll try and accommodate that better than losing that client. And then as far as claims experience, yes, I mean, in March already, claims experience was actually quite favorable. April, even more so. So yes, very favorable. I mean there might be a bit of an IBNR issue there, so we're not like counting our chickens before they've hatched. But yes, very good experience during the lockdown.

[Operator Instructions] We've been rejoined by Francois Du Toit of Renaissance Capital.

I'm sorry for the delay and for my technological challenges. Just quickly on the -- I think the experience in Momentum Life, if you exclude markets, was a bit challenged compared to the previous 2 good quarters. Maybe if you can give a bit of color on the underwriting performance there and what's given rise to the lower earnings levels or is it 1 or 2 large claims? So is it more systemic concerns there? And then also in the same business. Also, risk sales obviously will be impacted by the inability to medically underwrite. If you can maybe give us a sense of how much of the business requires medical underwriting in that space? And then the third question, also probably related to that space. You have offered client assistance. Can you give us a sense of the take up? And maybe more importantly, the cost you expect from the ex gratia cover that you are offering for 3 months. And just on a quick list here, I think I had one more question. You mentioned, in response to a question, [ why you had ] that you've got a large part of the annuity market, a large market share there. Does that assessment include the large corporate with profit annuity that you won last year? In other words, what does the market share look like if you exclude that?

Yes. Okay. I'll do the experience, and then you can talk about the risk sales. I did have a call with [indiscernible] this morning, I might add something there. So on the experience, you're right. I mean the third quarter, our risk experience was [ growth ]. And that's quite similar to the first quarter. So remember, in the first quarter, we had quite weak mortality claims. Then in the second quarter, things recovered to be quite good. And now they're quite weak again. The mortality variance was slightly negative. So maybe not quite as bad as the first quarter, but slightly negative. We had quite a few large lump sum disability claims in the quarter. So about ZAR 20 million to ZAR 50 million of the swing is really on lump sum disability. And then on critical illness, we also took a slightly more prudent view on critical illness. Let's call it claims reserve thing. So the short answer is disability and critical illness did have a bad quarter, one, because of paid claims and one, because of expected claims.

Yes. And then as far as sales and underwriting is concerned, yes, I think underwriting is key. Our guys were quite proactive with tele underwriting, which I think, especially in the sort of intermediated market where the financial advisers are quite proactive, I think helped a lot. But we today started activating our mobile underwriting service again, under very, very strict protocols, and we've produced the act and so forth. And I think we're doing everything according to the book. I understand there is bit of a market reaction. Some of our competitors don't like it. But I mean, I think we believe that we are doing everything according to the book. So that we start, implemented, I think, as from today, if I'm not mistaken. Interesting, yes, look, I mean, we always expected the risk business to be lower this year than it was the year before. I'm talking this financial year, and that proved to be the case for the first 3 quarters, in fact. I don't know, I mean, time will tell what happens going forward. Risto, I'm not too sure what percentage of our business requires underwriting, but it's probably at least 50%.

Yes, at least. I mean we tend to have quite strict underwriting requirements compared to a lot of our peers, which maybe explains why our market share tends to be better in the high funds assured than in the medium funds assured. Also depends on what you define as underwriting. I mean the percentage of people we think for proper medical to a doctor is very small. But the number of people we have a nurse take you up in terms of taking parts and stuff, that's very high. Okay. So maybe we'll leave it with that. I was going to say that, but the same thing with the nurses are back on the road today. So you clearly head off the curve but I only find out this morning. In terms of assistance to clients, before I go there, maybe one thing we could add, I'm surprised nobody's asked about it, which is how we're managing the sell under the lockdown. Maybe just to give you some broad numbers. Risk sales and recurring premium sales, those are down quite a bit, let's say, 1/3 or 30% compared to a normal month. However, the single premium market is -- continues to do quite well. So single premium market will continue to sort of be at about close the budget. I want to mention that because you're quite right that lack on risk business, there's quite a complex underwriting process. Whereas what I've been amazed about is in the investments market, your more experienced advisers and brokers, they continue to have very good relationship with their clients because they've known the client for 10, 20 years. So they can find the guy, they can send the guy, what's up. So the single premium market hasn't really slowed. It's your recurring premium market where a lot of it's first time meetings, calling leads, following up. That's a market that has seen a big slowdown.

Yes, and it's because of that also, I mean, look, I mean, it might be demographics as well, but I think the impact on Metropolitan is more severe than it is on the Momentum retail side. The other interesting thing is in corporate. I mean, companies are not making decisions, so there's a real slowdown there.

Yes. But on corporate, there's a lag time. So we're closing some deals that we did like 4 months ago there.

Yes. But there's nothing in the pipeline.

The pipeline is dead, yes. Okay. That's right. Okay. Then assistance to clients. We have about 300,000 clients in Investo recurring premium savings and about 10% have asked to skip premiums, premium holidays. On the risk side, where we're giving the ex gratia type of cover, it's been a lot less. It's been probably 3% of the book, 4% of the book. I don't have the last time buffer this week. So on the risk side, I think people are more willing to pay the premium than take the reduction in cover. Because remember that the pause option means your cover gets cut a lot. I mean, it doesn't get cut to 0, but it gets cut a lot. So most people are preferring to continue paying the premiums. On savings, that's where more people are saying, you know what, I could rather do with the ZAR 10,000 in our pocket.

Yes, which you can understand. Also on the myriad side front, we offer the ex gratia cover. Remember, it's kept at -- Risto, what's it kept at?

ZAR 2 million.

That was recent. But anyway, it is kept.

Percentage of your sub assured, but up to a year. Yes.

No. But I think sort of some of our reasoning is that any high-risk categories would be very reluctant to actually ask for a bit of a premium holiday within a lower sub assured for 2 or 3 months. So we hope -- I mean, the guys have done their numbers, but we don't expect the claims to be sort of to move the needle.

Yes. No, you're right because if you got 300,000 clients, you will get what, 1,500 claims a year, death claims? And like I said, the vast majority of people are continuing to pay the premiums.

[indiscernible] disappeared.

Yes. Yes. So I'm not -- you're talking about millions or in tens of millions, let's put it that way. And then the last question was on annuities. The market share specifically referred to retail annuities. So obviously, on the corporate annuities, there's one competitor that is much bigger than everybody else. But on the retail annuities, that's where we'll be #1 in the market for 3 years running. And our book is very similar-sized to our 2 bigger listed competitors, the in-force book.

[Operator Instructions] The next question comes from [ Serena Barnard of Ninety One ].

Can you hear me?

Yes.

Great. I just wanted to ask, can you now talk a bit about variable versus fixed component of new business strain? How we should think about that in an environment of lowering your business? And then you mentioned on the med side that about 50% of the business comes from [ works of ] marketing. So are you -- I mean, obviously, the new business being actually under severe pressure, are you seeing an improvement in retention? And then how are you supporting those agents that obviously are also in financial difficulty at the moment? If you can [indiscernible]

Okay. Risto is pointing at me. So I'll...

It's the agents. The agents are going to have [indiscernible]

Okay. Risto, I'll do the first question. I was thinking about the answer to the second question. So I'll deal with the new business strength. Look, we did some numbers. It's not an exact size because I mean, in new business, you would think that a lot of -- you would sort of, intuitively, you might assume a bigger proportion of that is actually variable. But there's a fair fixed component. I mean, obviously, it's variable over time. But I think it's sort of a rough rule of thumb from some analysis that we did recently, and I'm talking on the retail side. But if new business volumes drop by about 20% and you don't cut some of your fixed costs, then it will wipe out, yes, your embedded value of new business. That could be around somewhere between 15% and 20% drop in new business volumes. That's our view, [ Saveen ].

Go ahead. You are [indiscernible]

Okay. So I didn't hear that the easy question.

The easy question was what we're doing to support the agent? Yes. So we -- in different parts of our business, we're offering slightly different support to the agents. We'll start with Metropolitan Life, which is probably the most affected. In Metropolitan Life, we, in the first month, we paid the guys pretty much the average commission for the previous 3 months. Now we fully can't afford to keep paying the guys full commissions forever. So there's a bit of a plan to dampen that over time. But at the same time, what I found quite fascinating is the agents who were very productive before the lockdown, they continue to be very productive. Whereas the guys who are not so productive, their sales are falling near to 0. So in lots of ways you're separating the weak from the tough more now than ever. So you have to be a bit careful about sort of incorrect incentives by continuing to pay 100%. In the Momentum market where the guys do a little bit more, there, we're offering about 60%, 70% of their 3-month averages and -- or their 6-month averages, but averages for the last few months. And that also applies to like [indiscernible] consultants. All the people who have variable comp, they're getting some degree of minimum guarantees. Again, across there, you're looking at -- and in Africa, we're doing the same in Namibia, for example. I mean that cost to us is sort of less than ZAR 20 million a month. And we think it's quite important that we keep our sales force intact. So...

Sorry. [indiscernible] a combination of Momentum and Metlife, the ZAR 20 million a month?

In Africa. Yes.

Yes. So our total support across the group.

I think it's manageable. And like I say, quite a few of them are actually selling more than the guarantee we're giving them. So the cost is really on the people who are not meeting the guaranteed level of production, which is maybe, I don't know, 2/3 of the agents.

Okay, correct. And on the retention side of it? The retention question. Are you seeing an improvement in retention? Because obviously, the agents are less active in terms of...

Yes. I mean where they're going to go. Yes. Yes, we are seeing a bit of an improvement in retention. I also want to answer the question Francois asked earlier. I'll just going to feed back to [indiscernible] . He said the maximum is ZAR 3 million. So if you got ZAR 15 million cover, we'll pay you ZAR 3 million if you take a premium over that in 3 months.

What was the percentage?

20%.

20% maximum of ZAR 3 million?

Yes. And he was kind enough to add here, since then, X, Y and Z have copied us. Yes. Okay.

[Operator Instructions] We have a follow-up question from [ Serena Barnard of Ninety One ].

Please just remind me what percentage of your net book is government employees, and what level is the stock order business as now?

Yes. In mix, I would say, 2 streams of our clients are public service of some type, teachers [indiscernible] I think it is because new business is less, but they have better persistency. I'll be surprised of [ 150 ]. I would have forgotten it.

No, it's [ 150 ].

Yes, I would thought 60%, 65%. Okay. And Etienne le Roux, the CFO, is obviously listening to us. He just WhatsApp me saying, 55% of the book is stock order collection, payroll deduction. Etienne, if you're listening, why don't you WhatsApp me how much is the public sector? Okay. So he heard me. So 55% of the book is salary deduction. And of that 55%, 90% is government. So at the minimum, 50% is government workers.

[Foreign Language]

[Foreign Language] Some government actually debit orders. So I'm going to go with 60%. But anyway, let's say minimum 50%, absolute minimum 50%, which is the payroll deduction from government.

Gentlemen, we don't have any further questions from the line.

If we don't, Risto will just say 1 or 2 things in closing.

Yes. Thanks. Thanks for the interest. A lot of people on the call and all the questions. I really did say in the beginning, we decided that we're going to put a bit more effort into this quarterly update because we knew we're going to be the first insurer probably to disclose in detail everything that happened during March. Offline, we can maybe discuss it even more, a lot of interesting. We learned a lot about market risk management and everything else during the quarter. I would just like to also say that this pandemic is really just starting, okay, and the effect of it. So I often put it into 3 phases. The first phase was the market in March. So the markets are forward-looking, and they did hammer us in terms of expectations. And we managed to get through that with what I thought was within risk appetite type of -- and revised losses. Then we're in the second phase right now, which is how do we operate under lockdown and under social distancing. And Hillie sort of alluded to the fact that we think we've done quite well in enabling our people to work from home, enabling our sales force to service clients remotely. I think we have found a lot of ways to keep going, like, for example, gain the nurses back out there now. So you never know what other guys are doing, but I can tell you now we're quite happy and proud of what we achieved in terms of what we've been able to continue our service centers and remain high. And then the third phase is going to happen over the next 2 years, which is the weak economy. And that's probably the primary reason why we're giving you quite sort of a guidance in terms of what we expect because we do expect the economy to remain tough for the next 2 years, at least, which means that we do expect premium collections to get weaker in the next year or 2. We do expect some defaults on our corporate bonds. Obviously, as insurance companies, we are big providers of funding to the corporate South Africa, and some of that will come home to [indiscernible] . New business volumes are going to be moderated because we're doing well, but you can't get around the fact that this business is built on trust and relationships and building that in digital world is hard compared to traditional face-to-face. And -- but we are definitely well enough capitalized to survive almost anything that the market can throw at us. So we're going to continue to try and build the business then we'll come out stronger eventually when the economy turns. Yes. So we are a little bit nervous about the economy, but we're confident about our own ability to get through everything and to come out stronger at the other side. I think I'll leave it at that, Hillie, unless you want to say anything?

Thank you very much.

Thank you very much.

Thank you, gentlemen. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.