Casualty, property claims hit Old Mutual
But strong life assurance sales prop up emerging markets unit
OLD Mutual Emerging Markets (OMEM) is relying on long-term growth in the markets in which it operates to turn around its 5% dip in adjusted operating profit for the six months to June.
The biggest drag came from a 32% decline in OMEM’s property and casualty business unit, which was hit by a R44-million underwriting loss, a drastic change from last year’s R147million profit in the same reporting period.
“The incidence of death claims was in line with expectations, but the value of the claims was higher. We also experienced a higher level of disability claims within our South African corporate business,” said OMEM CEO Ralph Mupita on Thursday.
Profits across the rest of the continent took a 4% knock — also attributable to the property and casualty business.
In Malawi, higher finance costs hit OMEM’s property management business. In Kenya it was hit by higher claims, and the Nigerian business also reported an increase in corporate business claims.
However, OMEM’s life assurance cluster showed some improvement.
“The growth in emerging markets life business is one positive to take from the emerging markets segment,” said PSG portfolio manager Adrian Cloete.
OMEM’s emerging markets life business reported 25% growth across markets, with its Latin American business surging 69% due to the inclusion of Colombia’s life sales.
“We had strong life sales in our mass foundation cluster,” said OMEM finance director IainWilliamson.
“Nine percent growth in the current market conditions is really great.”
Adviser productivity also contributed to the growth of the life business in Asia. Sales in India were up 55% compared to the prior year.
“The sales were also driven by the increased distribution footprint from Kotak bank, now that they’re merged with ING Vysya,” said Mupita.
OMEM owns a 26% stake in Kotak Mahindra Bank in India, which merged with ING Vysya Bank in April last year.
Despite the effect of the higher claims and the macroeconomic outlook, Mupita remained upbeat.
“We understand that we need an operating model that is resilient,” he said.
OMEM’s focus would remain on its existing markets.
“Despite the low growth projections, we still see significant growth in South Africa. The level of financial inclusion in South Africa creates a lot of opportunity for us.”
Mupita said OMEM’s business in South Sudan was operational, although a close eye was being kept on political developments there.
Chris Steward, head of financials at Investec Asset Management, said: “OMEM is reasonably positioned to do well. If you look at what Sanlam has done with their acquisition of Saham life in Morocco, they’ve taken a substantial bet in increasing their footprint across the continent.”.
Both Steward and Mupita identified underpenetration in the African market as an opportunity, despite sociopolitical and economic issues.
Steward said underpenetration across the continent could offer superior long-term growth opportunities for financial services providers, particularly in the short-term and life assurance businesses and for banks.
OMEM’s results come on the back of Old Mutual’s plans to unbundle it and three other structures — Old Mutual Wealth, Old Mutual Asset Management and Nedbank.
The sequence of events requires that the 66% stake in Old Mutual Asset Management is reduced first. Once that has been finalised, the group will create two separate entities, Old Mutual Wealth and OMEM.
Once OMEM is established as an independent company, it will become a holding company that will list on the Johannesburg and London stock exchanges.
The next step for the listed holding company would be to reduce its 54% shareholding in Nedbank, retaining a minority stake.
“We’re going to distribute a share [instead of a dividend] to our shareholders which means they will become primary owners
Nine percent growth in the current market conditions is really great
of Nedbank as opposed to owning it via Old Mutual,” said Ingrid Johnson, the chief financial officer of Old Mutual plc.
Unlike the situation at Barclays Africa, Nedbank will not be looking for external shareholders. Instead, shares will be distributed to the bank’s existing shareholders.