9-Feb-2012 - Is this the age of the mathematician?

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Nicolaas Kruger, CEO of MMI Holdings, explains why he wanted to become an actuary. ALEC HOGG: Upper Echelon is brought to you by Deloitte for innovative thinking and thorough strategic planning. Nicolaas Kruger is the chief executive of MMI Holdings, and an actuary. I was looking through my records and in the past actuaries were a very popular choice for chief executives of life offices but it seems to have gone out of favour.  Now you have accountants, even marketing people.  buy NFL Jerseys Do you feel a bit alone? NICOLAAS KRUGER: In some ways I feel a bit alone. A job of CEO is anyway a bit of a lonely job but I guess at some point in your actuarial career you have to make the decision, do I go on with the technical matters or do I go into a leadership role where it helps to be an actuary but it is just a little bit of what you need as CEO.  You need much more. ALEC HOGG: You are from Pretoria, obviously Afrikaans, from an Afrikaans background. In the past that used to be a straight line into the public service.  Did you ever think of it? NICOLAAS KRUGER: I must say in high school I considered engineering maybe as a career and then in matric it was either actuarial science or chartered accountant. So I knew either of the two would take me into the business world and then obviously I wanted something with a challenging mathematics and I was pointed towards actuarial science. In fact I had the privilege to have an interview with Marinus Dahling at Sanlam when I was in matric to ask for his advice and he strongly recommended actuarial science as a platform for a business career.  ALEC HOGG: That’s extraordinary.  How did you crack that? NICOLAAS KRUGER: Ja, we knew some people who knew Marinus Dahling at the time and it was actually fantastic and I really made up my mind to become an actuary after that discussion with him. I sat in his office here in Sandton for an hour and after that I knew that was the only thing I wanted to become an actuary and the rest is history. ALEC HOGG:  I am so glad to hear that.  I obviously also knew Marinus Dahling through the work that I did and had great admiration for the man.  Quite often I talk also to young people who like to come around but I’ve got a lot more time than his has and certainly you.  Do you do that too? NICOLAAS KRUGER:  Yes, in fact I get a lot of satisfaction from investments into some of these youngsters. So from time to time they ask for my advice and then I arrange discussion with other actuaries and actuarial students so that they get the views from different levels but my diary is also open for these youngsters. And in fact as a group just we have just given a bursary to a black student who got five distinctions in matric and he grew up in very poor circumstances and in fact he couldn’t get a bursary. So there was this article in the press, so when we saw that we arranged discussions with him and I also saw him in my office and he was overwhelmed to see the CEO as well and we gave him a bursary for first year actuarial science.  That’s an example of an investment to the future. ALEC HOGG: And also from a perspective of how to invest your own time.  Sometimes chief executives think that they have to spend 99.9% of their just running the business but there is another side to life which I see in your case includes buffaloes, the biggest bubble in South African history.  NICOLAAS KRUGER: I wouldn’t say that’s a bubble but at least that’s a sideline. I am not dependent on it but in fact we’ve got a very interesting farm in the Karoo.  We started with sheep and then Nguni cattle and then at some point said, maybe we should go into roan and sable and buffalo.  These scarce spies, it’s a lot more exciting and a lot more interesting.  It is a bit more risky.  You are right, the prices go up and then they go down again, but somehow it’s as a business very sustainable but obviously satisfaction is more the interaction with nature and to have something totally different from the business world.  ALEC HOGG: That’s interesting.  You say the prices go down.  I haven’t seen the buffalo prices … I have a very good friend who farms buffaloes as well and he says he’s making as much money as he can while the bubble lasts but he has no doubt that it isn’t going to continue indefinitely.  You don’t think we’ve got to saturation point there? NICOLAAS KRUGER: I don’t think so, the demand from a hunting point of view is still there from foreigners and that underpins the market but I must say I agree, some of the prices that we buffalo bulls, these R15 million and R18 million numbers that have been thrown around, I agree that sounds like a bubble. But if we take the price per roan as an example, that’s gone from R90 000 per roan up to R200 000 and back to R90 000 and now it’s up again at R150 000 - as an example, over a 10-year period - it’s volatile but at the end of the day farming is risky but it’s a lot more about the overall experience than the business case necessarily. ALEC HOGG: And were those animals indigenous to the area that you are farming them in? NICOLAAS KRUGER: Yes, in fact we’ve done quite a bit of homework and long ago those animals used to exist there. In fact I have to add that if you do this right it can be a very profitable business too.  I don’t want to give the perception that … in fact you’ve got a bigger proportion of your capital working for you if the animals are more expensive compared to the land.  That’s the rationale.  ALEC HOGG:  It’s very interesting - that side of it. South Africa almost returning to the way it used to be 150 years ago but that’s not what you are looking at.  Day-to-day you still use your maths I’m sure to a large degree. We do hear that this is the age of the mathematician.  Do you think it gives you an advantage having that background? NICOLAAS KRUGER: I would certainly say being an actuary in the insurance industry helps a lot. To understand that technicalities but obviously a lot of the things that you do day-to-day is more managerial leadership to give the vision, to communicate and so-forth.  Really the interaction with stakeholders, I spend a big percentage of my day doing that but it helps a lot to have that background when the technical valuation reports are discussed at forums or when our profits are discussed, to me it’s not a black box but to many others a black box. So it’s a very good foundation.  ALEC HOGG:  Do you read business books? Nicolaas kruger: Yes, I really enjoy a business book. Given the time constraints I focus more on almost financial press.  Reading various financial articles where I get the summary but from time to time on holiday and so forth ... I’ve just bought Jim Collins’ new book - obviously “Good to Great” was a great book. ALEC HOGG:  “Good to Great” almost describes you. One company man, low profile, you know the business from the bottom up.  Quite often people lose sight of people like you in leadership positions and yet usually they are the most successful.  NICOLAAS KRUGER: Yes MLB jerseys sometimes people ask me am I bit old fashioned because the youngsters nowadays want variety quickly. Their ambition is almost bigger than their contribution.  They want to move around but I guess I am part of the previous generation where you started in one place and you almost want to make a contribution, but having said that part of the reason that I’ve been around in the same group is because it’s been a very dynamic group.  I started in 1991 at Momentum and then in 1992 RMB acquired Momentum, introduced a whole new culture.  In fact we started to grow phenomenally from that point onwards.    ALEC HOGG: Is that where you met Laurie Dippenaar? NICOLAAS KRUGER: Yes and I had the privilege to be exposed to the three founders but to put it into perspective MMI Holdings Group today … it takes us two and a half days to make the profit that Momentum made in a whole year when I joined, just to put the growth over the years in perspective. So because the group has been so dynamic and been growing fast and did various transactions over the years it’s not the same group but the roots are obviously the same.  ALEC HOGG:  It’s an extraordinary story.  Along the way you made a number of acquisitions.  Now business school text books will tell you that 80% of acquisitions fail.  Have 80% of yours? NICOLAAS KRUGER: I think we are certainly sure that we are part of the 20% that make it. I think there are various reasons why mergers fail and obviously there are a lot of articles written about it but the first very big hurdle is how strong is the business case? Is it driving somebody’s ego?  Do you want to become bigger or will it make both organisations stronger?  Is the one plus one equals three?  Is it true?  I must say if you look at Momentum and Metropolitan it’s almost astounding if you compare it business line by business line how the two organisations complement each other. The most simple example is obviously on the retail side where Momentum used to operate at the upper end, Metropolitan at the lower end and by combining the two retail businesses now we offer retail products across the whole market so very complementary and not really competing but in our case we are definitely much stronger and we’ve got significant more scale benefits to be a much more formidable competitor. We are now the third biggest on scale in South Africa.  ALEC HOGG:  I’m sure you see the irony in that?  Marinus Dahling who brought you into this industry was also the man who spun off or was involved in the spinning off of Metropolitan as a separate entity from Sanlam and now it’s that young man who had a conversation with him is running the enlarged group. NICOLAAS KRUGER:  Ja I sometimes wonder in reflection how he would feel about Metropolitan as a stand alone but I think in a way that was also forward looking by focussing Metropolitan on the black market and really growing that business almost well ahead of its time, before it almost became politically the right thing to do. So really established an excellent business there that flourished on its own for a very long time and more recently it made sense for Metropolitan to tie up with Momentum to be part of a bigger group. What’s great is that we will continue using the Momentum brand in various markets and then the Metroplitan’s brand, so both legacies of both groups will continue although both are part of a bigger group in MMI Holdings.  ALEC HOGG:  You know all about branding given the FirstRand that you came out of.  Was it a bit of wrench to leave the FirstRand Group for instance particularly in your case because as a member of the executive committee you were running the group as a whole, although responsible clearly for your operation.  You had a lot to say no doubt about other issues. NICOLAAS KRUGER: Yes that was definitely a big mind shift to operate on our own but I think the timing was right. There were various reasons why it made sense for FirstRand to focus more on banking and then to really facilitate the transaction.  This new insurance group had to be listed on its own.  It almost became too big and as a R30 billion market cap organisation as MMI Holdings we had to almost list on our own. Having said that, there’s still a very strong relationship; a strategic relationship between the groups and at the personal level between various individuals. I must say I learnt a lot from the founders of the RMB group but also the senior executive in FirstRand, from a values point of view, a business case point of view - it was just so valuable for what we’re doing today. ALEC NHL jerseys HOGG: And Discovery, they were in the same group, they were unbundled earlier than yourselves, but you still both part of Laurie, JT Ferreira and Paul Harris’ operations in RMB Holdings. What’s that relationship like? NICOLAAS KRUGER: Yes I think it’s fair to say there’s a common shareholder between Outsurance, Discovery and MMI Holdings but it’s important to acknowledge that as shareholders they don’t get involved in the operational matters. So operationally MMI and Discovery are competing head on with each other. ALEC HOGG:  Do you go for the same markets? NICOLAAS KRUGER: In some respects we go for the same markets. Fortunately MMI for example see Africa as a very big growth opportunity and Discovery have decided not to focus on Africa. ALEC HOGG: They’ve gone to China and India and the UK. Nicolaas kruger: They are focussing on different markets. So Discovery has just got one of our competitors. ALEC HOGG:  What about healthcare?  That is something that you have looked at, invested in, are building?  Are you starting to hit heads there? NICOLAAS KRUGER: Again the MMI’s healthcare position is quite different. We for example are the administrator of the GEMS (Government Employees Medical Scheme) and currently have more than 500 000 families there that we administer and that’s really low cost administration, efficiency and scale and so forth.  We do have a Momentum Health Open Scheme which I guess would compete with the Discovery Open Scheme.  But the difference between us and them is that we have a variety of restricted schemes, whereas the open scheme is just one of our building blocks - whereas in the Discovery case it’s the biggest building block in their stable.  ALEC HOGG: A lot of people like your business.  They like you as a CEO, they like the team that you’ve got around you but the question mark from an investments perspective is every single merger does go through teething problems.  When do you think you’re going to put everything to bed and then be able to start performing and reaching the potential that no doubt you’d like to see in the share price? NICOLAAS KRUGER: Yes that’s a very good question. I think it’s very important for us to achieve our merger integration objectives.  We’ve set ourselves an expense saving target of R500 million and we said to the market that that would take about three years to extract that.  So I think we are realistic.  We can’t complete a merger in one year.  But that’s just a small part of what we try to achieve.  It’s really to become a bit more efficient but at the same time this year we’ve said to ourselves this is a year of delivery.  Last year we made great plans, we put structures in place, and we communicated those plans. This year we need to deliver on those.  So 2012 is the year of delivery for us and clearly we need to make sure that we become more externally focussed - keeping one eye on integration - we’ve got teams there but we need to look out for the growth opportunities. Three, five, ten years from now.  It’s with that hat on that we’ve also put two people in India now to look for opportunities there and that we focus on the 12 countries in Africa where we’ve established a presence.

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