Liberty's Covid-19 reserve spooks market
DURBAN - JSE-listed financial services group Liberty Holdings’ share price fell by almost 3percent yesterday after it reported that it had set aside a R3billion pandemic reserve to deal with the effect of the Covid-19 outbreak.
This reserve had been calculated to estimate the future effects of the pandemic by estimating excess mortality, excess withdrawals and policy lapses and expenditure directly attributable to the Covid-19 pandemic, Liberty said.
“The pandemic reserve ensures that we have set aside financial resources to meet the needs of our clients in these extreme times.
“Having taken this action, Liberty remains financially strong and well capitalised, enabled to continue to service its clients and advisers while investing in the achievement of its longer- term strategic objectives,” the group said.
Liberty said the creation of the pandemic reserve was to cover the expected increase in mortality and retrenchment claims together with reduced persistency and increased expenses directly attributable to the Covid-19 pandemic.
Liberty expected to report a normalised headline loss of between R2bn and R2.40bn for the six months to end June.
The share price declined to R68.01 a share after it released the trading update, down from Friday’s closing price of R70. It closed 2.57 percent lower at R68.20.
Liberty also expected to report a normalised headline loss of between 738.7cents a share and 886.4c for the six months to end June, compared with normalised headline earnings per ordinary share (Nheps) of 735.8c last year, with the group stating that it was impacted by a number of factors related to the Covid-19 pandemic and the weakening South African economy.
The group also expected to report a headline loss of between 787.2c and 944.6c compared with headline earnings per share (Heps) of 746.6 and a basic loss of between 830.7c and 996.7c compared with basic earnings per ordinary share (Eps) of 699.9c last year.
Liberty said this would represent a fall of more than 100 percent in Nheps, Heps and Eps compared with a year ago.
Global and local financial markets were heavily impacted during the early weeks of the Covid-19 crisis with significant declines in returns from most asset classes in the three months to end March. However, the group said this was offset to some extent by weakness in the rand.
“Markets recovered during the second quarter of 2020, benefiting from central banks injecting significant amounts of liquidity into financial systems to counter the economic fallout expected from the pandemic,” Liberty said.
The financial market volatility was evident in its lower investment returns from the Shareholder Investment Portfolio and LibFin markets asset liability management portfolio. It expects to release its half-year results on August 5.