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OML
OLOML
OML - Old Mutual Plc - Old Mutual plc Interim Management Statement for
the three months ended 30 September 2011
OLD MUTUAL PLC
ISIN CODE: GB0007389926
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSUER CODE: OLOML
3 November 2011
Old Mutual plc Interim Management Statement for the three months ended
30 September 2011
Strong operational performance
(Core operations only. Unless otherwise stated all percentage movements
are quoted in constant currency versus Q3 2010, except Nedbank which are
quoted in constant currency on a Q3 2011 year to date versus Q3 2010
year to date basis.)
* LTS Net Client Cash Flow GBP1.4 billion, up GBP0.2 billion
* LTS APE growth of 8%
- Emerging Markets Mass Foundation up 30%
- Wealth Management Platform gross sales up 7%
* LTS unit trust sales up 1%
* Strong performance from Nedbank - non-interest revenues up 16%
* USAM: continuing outflows but improving investment performance
* Funds under management at 30 September 2011 were GBP272.6
billion
Julian Roberts, Group Chief Executive, commented:
"Despite very turbulent market conditions, this has been another quarter
of strong operational performance by Old Mutual, with sales growth
driven primarily by our Emerging Markets business.
"This is a continuation of the same trend that we have seen over the
past three years - the need for our customers to protect and grow their
wealth remains unchanged despite continuing market volatility and
uncertainty over macro-economic events.
"During this period we have maintained our focus on providing our
customers with the products they need to meet their financial goals. In
the three years to 30 September 2011 we have sold more than
2 million policies to our mass foundation customers in South Africa and
more than doubled the assets under management on our platform in the UK.
"We are confident that as we continue to meet our customers` needs we
will be well placed to create sustainable, long-term shareholder value."
GROUP RESULTS
Group highlights for the three Q3 Q3 2010 % of Q3 2010
months to 30 September 2011 2011 (consta open (as
(GBPbn) nt ing reporte
currenc FUM1 d)
y
basis)
Net client cash flow (NCCF)
Long-Term Savings 1.4 1.2 1% 1.2
Nedbank 0.2 0.2 1% 0.2
US Asset Long-term2 (2.2) (2.1) (2%) (2.2)
Management
Short-term2 (4.7) (0.1) (18% (0.1)
)
Group highlights at 30- 30-Jun- %1 30-Jun- %
30 September 2011 (GBPbn) Sept- 2011 chan 2011 chan
11 (consta ge (as ge
nt reporte
currenc d)
y
basis)
Funds under management
(FUM)
Long-Term Savings 116.1 122.2 (5%) 130.5 (11%
)
Nedbank 9.1 9.1 - 10.5 (13%
)
Mutual & Federal 0.2 0.2 - 0.2 -
US Asset Management 145.0 165.9 (13% 161.6 (10%
) )
FUM 270.4 297.4 (9%) 302.8 (11%
)
Bermuda - non core 2.2 2.6 (15% 2.5 (12%
operations ) )
Total FUM3 272.6 300.0 (9%) 305.3 (11%
)
Group highlights for the three Q3 Q3 2010 %1 Q3 2010 %
months to 2011 (consta chan (as chan
30 September 2011 (GBPm) nt ge reporte ge
currenc d)
y
basis)
LTS life assurance sales
(APE)
Emerging Markets 142 122 18% 121 17%
Nordic 50 43 20% 40 25%
Retail Europe 18 16 17% 15 20%
Wealth Management 148 150 (1%) 150 (1%)
LTS life assurance sales 358 331 8% 326 10%
(APE)
Non-covered sales 4
Emerging Markets 2,224 2,001 13% 1,971 13%
Nordic 168 101 68% 92 83%
Retail Europe 5 4 20% 5 -
Wealth Management 1,043 1,287 (19% 1,287 (19%
) )
Long-Term Savings 3,440 3,393 1% 3,355 3%
US Asset Management 362 408 (12% 426 (15%
) )
Non-covered sales 3,802 3,801 - 3,781 1%
Note percentage movements on reported figures in the above table are
based on rounded sterling numbers.
1. Business units` percentages are calculated on a local currency basis.
2. Short-term consists of stable value and cash funds, long term
consists of all other funds.
3. During October the positive impact of investment market movements on
FUM was estimated to be GBP12bn.
4. Non-covered sales includes mutual funds, unit trust and other sales.
Overview
Unless otherwise stated, the figures given throughout this document are
for the three months to 30 September 2011 (the "period") and comparative
figures are for the same period in 2010 (the "comparative period").
Comparative figures presented in GBP are on a constant currency basis.
More detailed discussion by Business Unit is included in the Appendix.
Long-term savings
Funds under management and net client cash flow
Funds under management ("FUM") decreased by 5% from 30 June 2011 to
GBP116.1 billion at 30 September 2011. Equity markets ended the period
down over 15% and were volatile due to continued concerns over European
sovereign debt and European bank capital levels.
Our Long-Term Savings division ("LTS") achieved positive net client cash
flow ("NCCF") of GBP1.4 billion, driven by strong retail flows and flows
in our non-South African Emerging Markets businesses.
Sales
Group sales on an Annual Premium Equivalent ("APE") basis increased by
8% to GBP358 million. Unit trust sales increased by 1% to GBP3,440
million.
APE sales in Emerging Markets increased by 18% to GBP142 million driven
by growth of 30% in the Mass Foundation Cluster ("MFC"). Non-covered
sales in Emerging Markets were up 13% driven by improved Colombian
sales.
In Nordic APE sales were up 20%, driven by the successful development of
our tied agency force in Denmark and strong Swedish retail sales.
Wealth Management APE sales decreased by 1% to GBP148 million,
reflecting the curtailment of UK legacy products offset by improved
International offshore sales. The UK Platform continued to grow, with
gross sales of GBP1,176 million, up 7% on the comparative period.
US Asset Management
NCCF of long-term funds was an outflow of GBP2.2 billion. NCCF of short-
term funds was an outflow of GBP4.7 billion. The short-term outflows
were largely of low margin funds, which have an immaterial impact on
revenues. FUM was 13% down to GBP145.0 billion. Investment performance
has continued to be good. During the period we entered into an agreement
to sell parts of our OMCAP retail distribution business and our Canadian
affiliate, Lincluden, as they did not fit into our strategy for the
business. The new management team is now complete and is focused on
achieving positive net flows in the future as a key driver of USAM`s
ability to improve operating margins and grow operating profits.
Nedbank
Nedbank maintained the momentum established in the first half of 2011.
Net interest income grew by 9% to R13.3 billion and non-interest revenue
increased 16% to R10.9 billion for the nine months ended 30 September
2011. The credit loss ratio from impairments improved from 1.36% in the
comparative period to 1.13%. Nedbank`s capital ratios remained well
above current and expected Basel III regulatory minima and continued to
increase, reaching a Core Tier 1 ratio of 10.8% at 30 September 2011.
Mutual & Federal
At Mutual & Federal gross written premiums for the period increased by
5% to R2.3 billion. Underwriting conditions were stable, but the trading
environment was highly competitive.
Capital and liquidity
The pro-forma Financial Groups Directive ("FGD") surplus was GBP1.9
billion at 30 September 2011 compared to GBP2.0 billion at 30 June 2011.
The movement was primarily due to the decline in the Rand against
Sterling in the period. Due to the nature of our insurance business the
FGD surplus has little sensitivity to movements in interest rates. All
our businesses remained well capitalised throughout the period.
At 30 September 2011, the holding company had total liquidity headroom
of GBP1.3 billion (30 June 2011: GBP1.7 billion). At the end of October
2011 the Group`s liquidity headroom increased to GBP1.5 billion,
including GBP0.4 billion of cash.
Harbinger announced in August 2011 that it had entered into a
reinsurance agreement with Wilton Re that would result in the
replacement of the third party $535 million XXX and AXXX redundant
reserve financing that Old Mutual stood behind. This agreement was
executed in October, resulting in the removal of Old Mutual`s residual
exposure in respect of this financing and a release of GBP70 million of
cash. At 31 October 2011, the remaining CARVM reserve financing had
decreased to $240 million and is expected to reduce further over time as
the book to which it relates runs off. Further releases of cash from OM
Re of GBP60 million were also made meaning that the final GBP130 million
of cashflow, following the sale of US Life, anticipated at the interim
results has been achieved.
As previously reported, the Group repaid Euro550 million of a Euro750
million tier 2 debt in July. A further $50 million of senior debt was
repaid in September, continuing the progress toward the Group debt
reduction target.
Our shareholder exposure to debt of the Euro peripheral sovereign
nations - collectively known as "PIIGS" - is less than GBP5 million. We
have GBP7 million exposure to French Government debt.
We have managed the allocation of holding company cash prudently,
spreading the deposits over our banking relationships with a minimum A
rating and highly rated money market funds.
Material events and transactions
Progress has continued to be made on the proposed transfers of the non-
South African Emerging Markets` businesses and on other cash-generating
initiatives that form part of our GBP1.5 billion debt reduction
programme.
Run-off businesses
Our Bermuda business, Old Mutual Bermuda ("OMB"), continued to deliver
against its run-off strategy, reducing risk and managing for value.
OMB maintained adequate investment portfolio assets and capital in the
business notwithstanding the lower equity market levels and lower
interest rates.
At 26 October 2011, the gross cash cost of meeting fifth anniversary
guarantees to policyholders over the next two years was estimated at
approximately $620 million (30 September 2011: $700 million; 30 June
2011: $300 million). The actual cash cost will be affected by any
changes in policyholders` account values until the fifth anniversary
date of each policy, offset by related hedge asset movements. Fifth
anniversary payments are expected to peak between 1 October 2012 and 31
January 2013 and are expected to be met from OMB`s own resources, which
include the fixed income general account portfolio, in addition to OMB
reserves held and hedging gains. Current hedged levels at 31 October
2011 are 63% over equities, 54% over foreign exchange and nil on
interest rates. At the current level of hedging, a 1% fall in equity
market levels increases the net cash cost of meeting policyholder
guarantees by approximately $8 million. The business continues to
monitor daily liability positions and adjust hedge positions to manage
risk, liquidity and capital.
The run-off of the Retail Europe business in Switzerland has now
commenced, with cash flows anticipated in 2012.
Enquiries
External communications
Patrick Bowes UK +44 (0)20 7002 7440
Investor relations
Kelly de Kock SA +27 (0)21 509 8709
Media
William Baldwin-Charles +44 (0)20 7002 7133
+44 (0)7834 524 833
Sponsor:
Merrill Lynch SA (Pty) limited
Notes to Editors:
A conference call for analysts and investors will take place at 08.30
(UK time), 09.30 (Central European time) and 10.30 (South African time)
today. Analysts and investors who wish to participate in the call should
dial the following numbers quoting conference ID 610147:
UK +44 (0)20 3140 0668
South Africa +27 (0)11 019 7051
Sweden +46 (0) 8 5661 9353
US +1 631 510 7490
International participants (outside the above regions) +44 (0) 20 3140
0668
Please dial in 10 minutes before the scheduled start time of the call to
avoid excess holding.
A replay facility will be available until midnight on 17 November 2011
on the following numbers, quoting access code 380223#:
UK / standard international +44 (0)20 3140 0698
US +1 877 846 3918
Copies of this update, together with high-resolution images and
biographical details of the Executive Directors of Old Mutual plc, are
available in electronic format to download from the Company`s website at
http://www.oldmutual.com.
This Interim Management Statement has been prepared in accordance with
section 4.3 of the Disclosure and Transparency Rules (DTR) and covers
the period 1 July 2011 to 3 November 2011. The business update is
included in this Interim Management Statement. A Disclosure Supplement
relating to the Company`s business update can be found on our website.
This contains key financial data for the three months ended 30 September
2011.
Life assurance APE sales are calculated as the sum of (annualised) new
regular premiums and 10% of the new single premiums written in an annual
reporting period. Our joint ventures in India and China are not
consolidated for APE purposes. The Rest of Africa currently represents
Namibia only; Zimbabwe, Kenya, Malawi and Swaziland are not
consolidated.
Foreign exchange rates used for constant currency calculations
Q3 2011 Q3 2010 Appreciation / FY 2010 Appreciation /
(depreciation) (depreciation)
of local of local
currency currency
Rand Average 11.27 11.44 1% 11.31 -
Rate
Closing 12.58 10.98 (15%) 10.28 (22%)
Rate
USD Average 1.61 1.53 (5%) 1.55 (4%)
Rate
Closing 1.56 1.57 1% 1.55 (1%)
Rate
SEK Average 10.35 11.27 8% 11.14 7%
Rate
Closing 10.67 10.61 (1%) 10.42 (2%)
Rate
Euro Average 1.15 1.17 2% 1.16 1%
Rate
Closing 1.16 1.15 (1%) 1.16 -
Rate
As announced with the Company`s interim results, an interim dividend of
1.5p (or its equivalent in other applicable currencies) for the six
months ended 30 June 2011 will be paid on 30 November 2011. The record
date for this dividend payment was the close of business on 14 October
2011 for all the exchanges where the Company`s shares are listed, and
the shares are now trading ex-dividend on all exchanges. Further
information about the interim dividend was included in the Company`s
announcements, Ref 76/11 and 142/11, dated 5 August 2011 and 30
September 2011. The scrip dividend election price was set at 106.72p and
R13.193. The deadline for election for the scrip dividend was 12 noon
on 1 November 2011 for shareholders on the principal UK share register
and 12 noon on 14 October 2011 for eligible shareholders on the South
African and other registers.
Cautionary statement
This announcement has been prepared solely to provide additional
information to shareholders to assess the Group`s strategies and the
potential for those strategies to succeed. It should not be relied on by
any other party or for any other purpose.
This announcement contains forward-looking statements with respect to
certain of Old Mutual plc`s and its subsidiaries` plans and its current
goals and expectations relating to its future financial condition,
performance and results. By their nature, all forward-looking statements
involve risk and uncertainty because they relate to future events and
circumstances that are beyond Old Mutual plc`s control, - including,
among other things, UK domestic and global economic and business
conditions, market-related risks such as fluctuations in interest rates
and exchange rates, policies and actions of regulatory authorities, the
impact of competition, inflation, deflation, the timing and impact of
other uncertainties or of future acquisitions or combinations within
relevant industries, as well as the impact of tax and other legislation
and other regulations in territories where Old Mutual plc or its
subsidiaries operate.
As a result, Old Mutual plc`s actual future financial condition,
performance and results may differ materially from the plans, goals and
expectations set forth in Old Mutual plc`s forward-looking statements.
Old Mutual plc undertakes no obligation to update any forward-looking
statements contained in this announcement or any other forward-looking
statements that it may make.
LONG-TERM SAVINGS: Emerging Markets
Strong growth momentum in regular premium sales and excellent turn-
around in net client cash flows
Net client cash flow
NCCF for the third quarter improved significantly by R4.1 billion to
R5.7 billion.
In South Africa, the Retail businesses continued to deliver positive
NCCF as a result of higher sales volumes and new deals won by acsis, our
asset consulting and financial planning business. Corporate net client
cash outflows were R1.2 billion higher due to a single pension scheme
withdrawal. OMIGSA had NCCF of R1.7 billion (Q3 2010: R0.6 billion net
outflow), due to improved flows at its index tracking and private equity
boutiques.
NCCF in Namibia declined by R0.3 billion mainly due to strong
institutional non-life sales in the comparative period which were not
repeated.
Asia & Latin America produced NCCF of R5.3 billion, an improvement of
R3.6 billion relative to the comparative period, due to substantially
improved Colombian unit trust sales.
Funds under management
Funds under management at 30 September 2011 of R585 billion were
marginally above the level at 30 June 2011 of R582 billion, with good
net client cash flow being largely offset by negative market movements
experienced during the period.
Life APE sales
Life APE sales improved by 18% to R1.6 billion, with Mass Foundation
Cluster ("MFC") sales up 30% and Retail Affluent sales up 6%. Excellent
growth in regular premium sales continued across the Emerging Markets
businesses, in particular MFC, while single premium sales were only
marginally higher than prior year levels largely due to less attractive
savings conditions.
South Africa - Regular premium sales
Regular premium sales increased by 25% to R1.1 billion. An increased
number of advisers and focused initiatives for Greenlight resulted in an
overall increase in protection product sales of 43%.
MFC continued to achieve strong growth benefiting from an increased
number of advisors, improved advisor productivity and lower cancellation
rates resulting from improved debit order premium collection.
Corporate produced excellent risk sales and secured new schemes, which
resulted in an increase in sales of 68%.
South Africa - Single premium sales
Single premium sales for the third quarter fell by 2% to R369 million
following substantially lower traditional annuity sales.
Retail Affluent sales increased by 4% reversing the trend of H1 2011.
This was offset by a 35% decrease in Corporate sales, driven by lower
annuity sales, with clients seeking alternative investment options in
the low interest rate environment.
Other Emerging Markets
Regular premium sales in Namibia increased by 26% for the third quarter
to R73 million, due to strong sales by the Mass traditional channel and
broker distribution in the Affluent market. Single premium sales of R29
million were boosted by the successful implementation of a Corporate
growth strategy and new Corporate deals being secured.
Third quarter sales in Mexico grew 17% to R28 million with strong
regular premium flows driven by increased third party and new product
sales such as Skandia Vive.
Non-covered sales
Total unit trust sales in the third quarter of R14.2 billion are 12%
ahead of the comparative period driven primarily by a large transaction
concluded in Colombia. New clients, higher platform sales, reinvested
distributions and increased marketing activity provided a further boost
to sales.
In South Africa, unit trust sales declined by 27% mainly due to large
one-off money market flows in 2010 that did not recur in 2011. Namibian
unit trust sales decreased by 27% over the same period due to an
increasingly competitive market.
Other non-covered sales (other than unit trust / mutual fund sales)
increased by 14% to R11.2 billion, largely driven by strong growth in
acsis sales.
OMIGSA investment performance
The third quarter was marked by significant volatility, with the
FTSE/JSE Shareholder Weighted All Share Index (SWIX) down by 4.3%, as
risk aversion dominated the market and investors favoured defensive
stocks. This resulted in both the 12-month and 3-year positioning of
OMIGSA`s funds giving up some of the recent gains relative to peers and
performance targets. Within the fast-growing multi-asset class retail
space our funds continue to perform well, with both Macro Strategy`s OM
Real Income and the Symmetry Balanced unit trust funds in the first
quartile for the 12 months and three years to September 2011, with most
retail balanced offerings remaining ahead of the median over three
years. Futuregrowth continued to perform strongly relative to both peers
and benchmarks over 12 months and 3 years on their range of money
market, income and bond funds. Notably amongst OMIGSA`s affiliates,
Marriott`s Dividend Growth and Global Income Fund were in the first
quartile over three years and the Value Equity`s High Yield Opportunity
Fund remained in the first quartile over three years.
Outlook
Old Mutual received the 2011 Ask Afrika award for the best customer
service organisation in the long-term insurance sector in South Africa
for the fourth consecutive year, and improved to 11th position in all
service industries.
We continue our focus on promoting a savings culture in the emerging
markets in which we operate supported by a broadening product portfolio.
We believe that we can maintain the strong sales performance for the
remainder of 2011 in anticipation that the full potential impacts of the
FAIS regulatory exams in South Africa will only emerge in 2012 due to
the extension of the regulatory deadline to 30 June 2012. However, we
remain focused on managing the impact of these regulatory exams on our
South African sales force. Despite facing tough economic conditions, we
continue to seek growth opportunities by leveraging the core
competencies of the wider Group.
OMIGSA`s Electus boutique launched the Global Emerging Markets ("GEM")
Fund in September that invests predominantly in shares of companies
listed on emerging market stock exchanges.
The results for Rest of Africa currently represent Namibia only, but we
intend to consolidate the other African countries (Zimbabwe, Kenya,
Malawi, and Swaziland) into our results for the calendar year 2011. Year
to date Life APE sales for the other African countries were R122 million
and FUM was R17.5 billion at 30 September 2011.
LONG-TERM SAVINGS: Wealth Management
Another quarter of progress in the UK and International off-shore
markets
Net client cash flow
NCCF for Wealth Management remained positive at GBP0.7 billion,
reflecting strong platform sales partially offset by the withdrawal of
non-RDR-compliant bond products in the UK. The market turmoil in the
period, coupled with the European holiday season, resulted in reduced
NCCF compared to the first two quarters of 2011. Throughout Wealth
Management, client centric retention activities across our markets have
resulted in surrender rates continuing at the lower end of our
expectations.
UK platform inflows have continued at approximately the same levels as
the prior year despite the market turmoil. The UK platform has now
recorded eight sequential quarters of NCCF over GBP0.7 billion and we
believe we have strengthened our market position in capturing NCCF in
the quarter. We expect IFA-sourced corporate business to replace much
of the GBP0.7 billion of institutional funds which we expect to leave
our Legacy business in Q4 2011.
In the International off-shore markets we have recorded our highest net
client inflows for four quarters.
Funds under management
FUM was GBP52.9 billion at 30 September 2011, a fall of 8% from the end
of Q2 2011 driven by significant equity market falls partially offset by
NCCF. Market surveys and our own data indicate a move by retail
customers towards more defensive positioning of portfolios and fund
choices, but critically the funds are generally still retained on our
platforms. FUM for the UK platform was GBP17.6 billion at 30 September
2011 (30 June 2011: GBP18.7 billion).
Sales
Gross sales for the period were GBP2,410 million (Q3 2010: GBP2,659
million), of which mutual fund and unit trust sales were GBP1,043
million (Q3 2010: GBP1,287 million). UK platform gross sales of
GBP1,176 million were 7% higher than Q3 2010 reflecting continued good
pension sales. Platform mutual fund sales were GBP673 million, up 4% on
Q3 2010. Total mutual fund sales for Wealth Management have declined as
a consequence of reduced gross sales of funds within Skandia Investment
Group ("SIG") and a reduction in UK Legacy sales. The decrease in SIG
sales was due to market volatility, coupled with certain funds in the
Far East reaching capacity and being `soft` closed to new business.
As previously announced, during the latter part of 2010 we closed a
significant proportion of non-RDR-compliant product lines in the UK.
Sales of such products have consequently reduced when compared to the
prior year period. This management action allows us to focus on
capturing assets through those IFAs who are already moving towards a fee-
based relationship with their customers.
Life APE sales were GBP148 million (Q3 2010: GBP150 million). APE sales
of International offshore products were GBP59 million, 20% higher than
Q3 2010, driven by ongoing momentum from Europe and Asia. APE sales in
our onshore Continental European business were 27% lower at GBP16
million (Q3 2010: GBP22 million) due to volatility in the markets and
the residual impact of the 2010 Italian tax shield.
Outlook
We continue to monitor sales patterns, given the continued volatility in
equity markets and the possibility of moderating sales growth. It is
still too early to determine how long the defensive asset allocations
will be maintained and we expect that more certainty over the
implementation of the EU`s proposals to resolve the European Bank and
Government debt crises will be required before any pronounced
improvement in inflows occurs.
LONG-TERM SAVINGS: Nordic
Sales increase driven by strong performance in Denmark
Net client cash flow
NCCF during the period was SEK1.2 billion, an increase of 9% against the
comparative period. This was driven by strong sales in Denmark and the
Swedish retail market, partially offset by customer transfers to
Skandiabanken`s retail deposits from mutual funds as a consequence of a
more defensive asset positioning in the current market conditions.
Funds under management
FUM was SEK128.1 billion at 30 September 2011, a 10% decline compared to
that of 30 June 2011, despite the positive NCCF in the period. The bulk
of the reduction was due to the sharp decline in markets, with the
Swedish equity markets down 20% in the quarter compared to 30 June 2011
and 23% down compared to 31 December 2010.
Investment performance in the Swedish unit-linked portfolio was weak
during the period. Clients have reduced their risk exposure and have
increased their portfolio allocation to fixed income or mixed funds to
54% in September 2011 from 47% at 30 June 2011 and 35% at 31 December
2010.
Sales
APE sales at SEK531 million were up 20% compared to Q3 2010, driven by
continuing strong sales performance in Denmark and single premium growth
in the Swedish retail market. The Skandia endowment insurance product
(Depa) accounted for the majority of the sales increase. This product
offers clients a broad range of investment alternatives and is
particularly well suited to volatile market conditions.
Single premium retail sales in Sweden were higher, driven by strong
sales of the Depa-product. Corporate business sales were flat in advance
of new product development and a continued shift towards commoditised
group scheme business, as the pensions business for this market
continued to contract. Corporate single premium sales grew strongly on
high levels of top-ups on existing policies.
Danish distribution by tied agents has become more significant in 2011.
Denmark provided 31% of Nordic sales YTD (2010 YTD: 22%).
Mutual fund sales of SEK1,749 million were up 68% on the comparative
period. Skandia Fonder saw switches out of equities and towards fixed
income funds as well as strong growth in new sales, reflecting an
improved product suite and weak sales in the comparative period.
Skandiabanken had lower growth as a result of changes in client asset
allocation towards safer investment alternatives, such as savings
accounts in Skandiabanken, which saw a significant increase during the
period.
Outlook
In 2011, the business has improved its customer proposition with a
number of innovative products that have captured market share. We will
continue to introduce further products in the remainder of 2011 and
2012. Cost reduction activity is continuing and we now estimate
restructuring costs of approximately SEK170 million (GBP17 million) in
the year. During Q3 clients decreased their risk exposure in equity
funds and shifted towards fixed income funds and cash, however, the
range of our products has proven effective in maintaining client assets.
We expect continued market volatility to affect our clients` asset
allocations. In the meantime, poor equity returns have had an impact on
the capital strength of certain competitors and this provides us with
potentially attractive profitable opportunities to build distribution
strength and market share.
LONG-TERM SAVINGS: Retail Europe
Increasing sales driven by sales growth in Poland
Net client cash flow
NCCF was Euro0.1 billion in the period. Higher outflows were experienced
mainly due to an increase in the value of surrenders, resulting from
fund growth in prior periods, and a moderate increase in maturities in
the period.
Funds under management
Total FUM closed at Euro5.5 billion, a decrease of 4% compared to that
of 30 June 2011, driven by market movements in the period partially
offset by the positive NCCF. Funds under management were slightly down
on 2010 year-end levels and slightly up compared to the end of the
comparative period. Polish funds under management showed the largest
reduction as the local equity market declines were more pronounced than
other Retail Europe equity markets.
Sales
APE sales in the period increased by 17% to Euro21 million, driven by a
75% increase in sales in Poland.
Outlook
We have commenced several additional organic strategic growth
initiatives to leverage further our Skandia administrative branch in
South Africa, while maintaining rigorous cost and capital management
controls. In Poland, ongoing discussions regarding changes in the
retirement system and government plans to support retirement savings
represent a significant future opportunity. Various marketing and other
initiatives are in place to continue to manage surrender levels and
widen distribution channels in Germany and Austria.
Nedbank Group (Nedbank)
The full text of Nedbank`s third quarter 2011 trading update, released
on 2 November 2011 and also announced by Old Mutual plc on the same day,
can be accessed on Nedbank`s website at:
http://www.nedbankgroup.co.za/financialQuaterlyResults.asp
Mutual & Federal
Consistent profitable premium growth
Gross written premiums increased by 5% to R2.3 billion.
The business has focused on marketing and service delivery and this has
led to increases in policy numbers on a number of portfolios. The joint
iWyze product initiative with the Emerging Markets Mass Foundation
distribution team continues to exceed growth expectations. Ongoing
competition for market share is expected during the final quarter
following an extended period of stable underwriting results for the
industry.
A lower risk investment portfolio and risk-based capital allocation
model continued to be applied in the period. The business is now being
managed at an international solvency ratio of between 50% and 60%.
US Asset Management
Investment performance remains solid despite Q3 market weakness
Funds under management and net client cash flow (1)
FUM was $226.8 billion at 30 September 2011, representing a 12.6% or
$32.8 billion decrease from 30 June 2011. $21.7 billion of the
reduction was due to market movements during the quarter.
Net client cash outflows for the quarter were $11.1 billion, with net
cash outflows from long-term strategies totalling $3.5 billion (Q3 2010:
$3.3 billion outflow). Net cash outflows from short-term products
totalled $7.6 billion for the quarter (2010: $0.2 billion outflow),
largely low margin funds with an immaterial impact on revenue.
Gross inflows from long-term strategies during the quarter totalled $5.7
billion (2010: $7.1 billion), while gross outflows totalled $9.2 billion
(2010: $10.4 billion). Gross inflows from short-term products totalled
$0.9 billion (2010: $1.1 billion), with gross outflows totalling $8.5
billion for the quarter (2010: $1.3 billion), primarily relating to low
fee stable value funds. $0.5 billion of total gross inflows came from
new client accounts during the quarter.
Funds under management and net cash flow are depicted on an end-manager
basis for USAM.
Investment performance
Investment performance across long-term products remained solid despite
market volatility during the quarter. Three-year and five-year long-
term investment performance showed continued improvement over the
comparative period. For the one-, three-, and five-year periods ended
30 September 2011, 65%, 59% and 58% of long-term assets outperformed
benchmarks, compared to 73%, 41% and 47% at 30 September 2010.
Corporate developments
USAM announced during the quarter it would be transferring ownership of
its Canadian-based affiliate and institutional manager, Lincluden
Management Limited to the firm`s management team. The transaction is
expected to close later this year.
In October 2011, Julian Ide was appointed as Head of Global
Distribution. Julian will lead our distribution efforts in Europe, Asia
and the Middle East and will also oversee Old Mutual Asset Managers
(UK)`s investment teams, product offerings and retail and institutional
distribution efforts. This appointment completes the new executive team
at USAM and supports an ongoing initiative to refine and focus our
global distribution strategy, particularly with respect to non-U.S.
markets.
We also recently announced that Touchstone Advisors, Inc. had entered
into a definitive agreement to acquire selected assets of our US mutual
fund business, owned by our affiliate Old Mutual Capital, Inc. (OMCAP).
The transaction is subject to certain conditions and approvals but is
expected to be completed early in the second quarter of 2012. Upon
completion, 17 Old Mutual Funds will be reorganised into Touchstone
Funds, with OMAM`s affiliated investment managers continuing as sub-
advisors to a majority of those funds. As a result of this transaction,
we expect operating profit to improve by $8-10 million per year on a run-
rate basis.
Outlook
The performance of USAM`s long-term assets is an important indicator of
future positive net client cash flows. USAM continues to face the
challenge of net outflows which tend to lag improvements in investment
performance. USAM continues to focus on institutionally-sourced long-
term assets where active investment management can deliver positive
alpha to clients. We are encouraged by the interest and level of funded
new business in "managed volatilities" and fixed income strategies.
Achievement of net inflows as well as market appreciation are key
drivers of USAM`s ability to improve operating margins and grow
operating profits.
Bermuda
Reserve development
In accordance with the Group`s accounting policies and its use of market
consistent valuation methodologies for both actuarial and accounting
reserves, movements in interest rates as well as foreign exchange and
equities are reflected in the reserves periodically reported. Given that
the business is recorded as non-core, the profit and loss impact of
changes are excluded from AOP except for intercompany interest payable
to Bermuda by the core businesses, which is charged to AOP. The reserve
with respect to Guaranteed Minimum Accumulation Benefits ("GMAB")
liabilities increased by $323 million during the period to 31 October
2011 to $959 million (30 June 2011: $636 million). As of 30 September
2011 the reserve was $1,177 million. While the reserve increase was
mostly attributable to poor equity market performance over the quarter,
lower interest rates caused the reserve valuation to increase by almost
$77 million during the three month period to 30 September 2011. US swap
rates are used to value the reserve by discounting future expected cash
flows even though the underlying assets supporting reserves earn a
higher yield (30 September 2011: 4%)
Surrender development
Total surrender activity was higher than the comparative period,
amounting to 4% and bringing total surrenders to 13% for the year to
date measured against the 2010 year-end book. Future surrender
behaviour is expected to be influenced by the extent to which the
underlying fund values of the policy holders are close to the level of
the guarantee. Supported by de-risking initiatives, almost 500
guaranteed policies (Universal Guarantee Option ("UGO") contracts) were
surrendered over the quarter (compared to 253 in Q3 2010) totalling
around 2,500 on a year-to-date basis. The year-to-date figures represent
about 9% in terms of count of the total UGO book. UGO account values
were approximately $2.4 billion at the end of September 2011 (30 June
2011: $2.9 billion).
Risk management and investment portfolio update
There have been no investment losses in the quarter and no impairments
or credit defaults. The portfolio has a current average rating of A3
(Moody`s rating scale). The $591 million bond portfolio (market value
$615 million at 30 September 2011) which forms part of shareholder
assets is invested to match the duration of obligations to policyholders
and has a running yield of 6%, higher than the interest credited to
certain policyholders of 4%. At 30 September 2011 the portfolio had
unrealised gains of $24 million.
At 30 September 2011, the gross cash cost of meeting fifth anniversary
guarantees to policyholders over the next two years was estimated at
approximately $700 million (30 June 2011: $300 million). The actual
cash cost will be affected by any changes in policy holders account
values up until the fifth anniversary offset by related hedge asset
movements. At 26 October 2011, the gross cash cost had reduced to $620
million. The bulk of these anniversary payments will be made between 1
October 2012 and 31 January 2013 and are expected to be met from Old
Mutual Bermuda`s ("OMB") own resources, which include the fixed income
general account portfolio, in addition to OMB reserves held and hedging
gains. No further capital injection is anticipated other than in
extremely adverse scenarios.
The hedge asset portfolio was actively managed over the Q3 2011 period
and at 30 September 2011 hedge coverage over equities was 60% (31
December 2010: 58%; 30 June 2011: 55%), 55% over foreign exchange (31
December 2010: 39%; 30 June 2011: 22%) and nil on interest rates (31
December 2010: nil; 30 June 2011: nil). Current hedged levels at 31
October 2011 are 63% over equities, 54% over foreign exchange and nil on
interest rates. At the current level of hedging, a 1% fall in equity
market levels increases the net cash cost of meeting policyholder
guarantees by approximately $8 million. The business continues to
monitor daily liability positions and adjust hedge positions to manage
risk, liquidity and capital.
Notwithstanding the hedging programme, given current market conditions
the business continues to expect volatility in earnings in the medium
term.
Group data - year to date
Group highlights for the nine YTD YTD Annual YTD
months to 2010 ised % 2010
30 September 2011 (GBPbn) (const of (as
ant openin repor
curren g FUM1 ted)
cy
basis)
Net client cash flow (NCCF)
Long-Term Savings 3.8 4.1 4% 3.9
Nedbank 0.6 0.7 6% 0.7
US Asset Management (13.3) (7.1) (11%) (7.5)
Group highlights for the nine YTD YTD % YTD %
months to 2010 change 2010 chang
30 September 2011 (GBPm) (const 1 (as e
ant repor
curren ted)
cy
basis)
LTS life assurance sales
(APE)
Emerging Markets 397 349 14% 344 15%
Nordic 176 154 14% 142 24%
Retail Europe 54 48 13% 47 15%
Wealth Management 494 562 (12%) 562 (12%)
LTS life assurance sales 1,121 1,113 1% 1,095 2%
(APE)
Non-covered sales2
Emerging Markets 5,382 4,783 13% 4,700 15%
Nordic 473 453 4% 416 14%
Retail Europe 16 16 - 17 (6%)
Wealth Management 3,497 3,494 - 3,494 -
Long-Term Savings 9,368 8,746 7% 8,627 9%
US Asset Management 1,240 970 28% 1,019 22%
Non-covered sales 10,608 9,716 9% 9,646 10%
Note percentage movements on reported figures in the above table are
based on rounded sterling numbers.
1. Business units` percentages are calculated on a local currency basis.
2. Non-covered sales includes mutual funds, unit trust and other sales.
LONG-TERM SAVINGS - Emerging Markets
Rm
Q3 2011 Q3 2010 %
NCCF (Rbn) 5.7 1.6 256%
Unit Trust Sales 14,236 12,660 12%
Other non-life sales 11,230 9,886 14%
Life APE sales 1,624 1,372 18%
Recurring premium 1,219 980 24%
Single premium 405 392 3%
APE Sales
Rm
By Cluster: Single premium Gross regular Total APE
APE premiums
Q3 Q3 % Q3 Q3 % Q3 Q3 %
2011 2010 2011 2010 2011 2010
South Africa
Mass Foundation 1 - - 561 433 30% 562 433 30%
Cluster
Retail Affluent 216 207 4% 396 370 7% 612 577 6%
Corporate 75 116 (35%) 168 100 68% 243 216 13%
OMIGSA 77 54 43% - - - 77 54 43%
Total South Africa 369 377 (2%) 1,125 903 25% 1,494 1,280 17%
Rest of Africa 29 10 190% 73 58 26% 102 68 50%
Asia & Latin 7 5 40% 21 19 11% 28 24 17%
America
Total Emerging 405 392 3% 1,219 980 24% 1,624 1,372 18%
Markets
Rm
By Product: Single premium Gross regular Total APE
APE premiums
Q3 Q3 % Q3 Q3 % Q3 Q3 %
2011 2010 2011 2010 2011 2010
South Africa
Savings 320 299 7% 472 445 6% 792 744 6%
Protection - - n/a 653 458 43% 653 458 43%
Annuity 49 78 (37%) - - n/a 49 78 (37%)
Total South Africa 369 377 (2%) 1,125 903 25% 1,494 1,280 17%
Rest of Africa 29 10 190% 73 58 26% 102 68 50%
Asia & Latin 7 5 40% 21 19 11% 28 24 17%
America
Total Emerging 405 392 3% 1,219 980 24% 1,624 1,372 18%
Markets
Unit trust / mutual fund sales and other non-covered sales
Rm
Unit trust/ Other non-life Non-life sales
mutual fund sales sales
Q3 Q3 % Q3 Q3 % Q3 Q3 %
2011 2010 2011 2010 2011 2010
South Africa 5,031 6,924 (27% 11,17 9,67 15% 16,20 16,60 (2%)
) 7 8 8 2
Rest of Africa 1,219 1,662 (27% 53 208 (75% 1,272 1,870 (32%
) ) )
Asia & Latin 7,986 4,074 96% - - n/a 7,986 4,074 96%
America
Emerging markets 14,23 12,66 12% 11,23 9,88 14% 25,46 22,54 13%
6 0 0 6 6 6
LONG TERM SAVINGS - Wealth Management
APE Sales
GBPm
Gross single Gross regular Total APE
premiums premiums
Life new business Q3 Q3 % Q3 Q3 % Q3 Q3 %
2011 2010 2011 2010 2011 2010
UK market
Pensions 427 416 3% 15 17 (12%) 60 58 4%
Bonds 110 163 (33%) - - - 10 16 (38%)
Protection - - - 3 3 - 2 3 (33%)
Savings - - - 1 1 - 1 2 (50%)
Total UK 537 579 (7%) 19 21 (10%) 73 79 (8%)
Of which UK platform 483 438 10% 9 8 13% 57 52 10%
International markets
Unit-linked 42 82 (49%) 7 9 (22%) 12 17 (29%)
Bonds 425 274 55% 6 5 20% 47 32 47%
Total International 467 356 31% 13 14 (7%) 59 49 20%
Continental Europe
markets
Unit-linked 150 214 (30%) 1 2 (50%) 16 22 (27%)
Total Wealth 1,154 1,149 - 33 37 (11%) 148 150 (1%)
Management
Unit trust / mutual fund sales
GBPm
Mutual fund new Q3 Q3 %
business 2011 2010
UK market 769 856 (10%)
International markets 263 427 (38%)
Continental Europe 11 4 175%
markets
Total Wealth Management 1,043 1,287 (19%)
Of which UK platform 673 645 4%
LONG TERM SAVINGS - Nordic
APE Sales
SEKm
Gross single premiums Gross regular premiums Total APE
New Q3 2011 Q3 2010 % Q3 2011 Q3 2010 % Q3 2011 Q3 2010 %
business
Sweden
Corporate 525 396 33% 178 193 (8%) 231 233 (1%
)
Retail 509 425 20% 39 36 8% 90 78 15%
Total 1,034 821 26% 217 229 (5%) 321 311 3%
Sweden
Denmark
Total 663 323 105% 144 97 48% 210 130 62%
Denmark
Total 1,697 1,144 48% 361 326 11% 531 441 20%
Nordic
Unit trust / mutual fund sales
SEKm
New business Q3 2011 Q3 2010 %
Skandia fonder 911 296 207%
Skandiabanken 838 743 13%
Total Nordic 1,749 1,040 68%
Date: 03/11/2011 09:00:01 Produced by the JSE SENS Department.
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