Old Mutual triples its Covid-19 provisions

Old Mutual has bumped up its cash stockpile for new Covid-19 claims more than threefold after actual claims outstripped initial provisions as it joined rivals in preparing for a possible third wave of coronavirus infections.

The financial services group, which had lined up more than R1.3bn in provisions at the end of June 2020, has set aside R4bn to navigate an expected burst of claims in the six months to end-December when coronavirus infections returned with a vengeance. It logged R1.9bn of Covid-19-related mortality claims in the first two months of this year.

Covid-19 fallout has reverberated across the insurance space, with Momentum Metropolitan and Liberty raising provisions amid mounting worries about the next spike in infections before winter and the coming public holidays.

“There are also emerging expectations of a third wave given evidence of virus mutation, the slow pace of the vaccination rollout and upcoming public holidays and the winter season,” Old Mutual said in a

profit warning. “In the light of this, we have increased our short-term provision.”

SA faces a vaccine supply crunch between April and June, raising the prospect of many of the most vulnerable people not being covered before the next surge, which many experts expect as soon as May.

Policyholders and beneficiaries received claims and benefit payments worth R522.7bn from SA life insurers in 2020, data from an industry body, the Association for Savings and Investment SA, showed on Monday.

This is an increase of R31.7bn from 2019. Old Mutual has also more than doubled net reserves for business-interruption claims to R300m, from an earlier estimate of R140m, it said on Monday in a trading update.

It flagged a drop of as much as 60% in annual headline earnings per share, the main profit measure in SA that excludes exceptional items.

The market reacted negatively to the trading update. The share price had its worst drop in four weeks, down 3.18% to R13.40, giving Old Mutual a market valuation of R63.1bn.

Apart from Covid-19-related provisions, the company said it had a good recovery in sales and productivity levels during the second half of 2020 after a significant fall in volumes in the second quarter when the government imposed tough measures to control the spread of the coronavirus.

“The gradual reopening of worksites and branches and the digital enablement of advisers to sell remotely supported the recovery of productivity levels, with the fourth quarter trending towards historic levels,” the group said.