Investor’s Notebook: Next stage in PPS evolution

IAN Kirk was the best CE Liberty never had. But Mike Jackson comes a close second. He revived Liberty’s moribund subsidiary, Charter Life. He later ran Liberty’s day-to-day business in the days of Roy Andersen, leaving the brigadier to focus on the big picture. Jackson certainly looks the part of the top man with his immaculately tailored suits. But, inexplicably, Standard Bank CE Jacko Maree passed Jackson over in favour of Maree’s former schoolmate Myles Ruck, a merchant banker with no insurance experience.

Jackson soon landed on his feet when he was given the chance to run PPS Insurance, a mutual insurer focused on professionals such as doctors, lawyers and accountants. PPS started as a benefit fund, providing income protection in cases of sickness. It converted to a fully fledged insurance company just before Jackson joined it in 2003. It now has most of the products and subsidiaries you would expect from an insurance business. PPS has its own retirement annuity, a range of life products, as well as unit trusts under the PPS Investments unit.

Jackson also recruited some talented staff from Liberty. They included actuary Chris de Klerk and sales wiz John Marsden. Later Gerhard Joubert, the former head of the Life Offices Association, came in to professionalise the marketing and stakeholder relations.

The team is certainly ambitious. This week, in its five green star offices in Centurion, PPS announced the next stage in its evolution. It wasn’t too difficult to work out that when PPS recruited Nazeer Hoosen, the former head of Regent Insurance, it would expand into short-term insurance. PPS has operated a brokerage for the past seven years but it could only go so far placing business with other companies. It can now develop products tailored to PPS members. PPS Short-Term Insurance has Santam as a 49% shareholder. The boys and girls in yellow will help PPS develop systems required to operate as a short-term insurer and will provide claims administration services. Santam’s involvement will help PPS short-term to hit the ground running. The new business will cannibalise the Santam base and I would expect the partnership to dissolve once PPS Short-Term is established, much as the joint venture between Hollard and Discovery Insure ended.

But the boldest move has been to try to build a PPS clone in Australia, known as PPS Mutual. It is no accident that the PPS name has been used; the low-hanging fruit for the business will be SA professionals who now live Down Under. A fair chunk of the sales channel is made up of former SA agents and brokers. And PPS Mutual will also adopt a mutual structure, in which all the equity belongs to the members. It will not be raising shareholder capital. The business will be funded by loans from the parent PPS on a market-related basis. The members will earn interest on these loans as well as royalties and administration fees. And this is likely to keep growing in SA currency as the rand has depreciated by 8%/year against the Aussie dollar over the past 10 years. There is a long-term approach to profit. All its operating profits and investment returns are allocated to members annually in their profit-share accounts but these lump sums cannot usually be accessed before retirement. Jackson says there are very few mutuals left in Australia. Almost all of them, as in the UK and SA, demutualised in the 1980s and 1990s, often with the incentive of free shares as members received a one-off payout.

Many now regret the easy surrender of their rights and are welcoming a new mutual on their landscape.

February 18, 2016