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OLOML
OML - Old Mutual Plc - Annual financial report 2011 and Annual General Meeting
2012
OLD MUTUAL PLC
ISIN: GB0007389926
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSUER CODE: OLOML
Ref 25/12
29 March 2012
OLD MUTUAL PLC - ANNUAL FINANCIAL REPORT 2011 AND ANNUAL GENERAL MEETING 2012
Old Mutual plc ("Old Mutual" or the "Company") has today published its Annual
Financial Report for 2011. A copy of the Annual Financial Report, the Annual
Review and Summary Financial Statements for 2011, the Notice of the 2012 Annual
General Meeting and the Form of Proxy have been submitted to the National
Storage Mechanism and will shortly be available for inspection at:
www.hemscott.com/nsm.do
Copies of the Annual Financial Report may also be obtained from Investor
Relations, Old Mutual plc, 5th Floor, Old Mutual Place, 2 Lambeth Hill, London
EC4V 4GG or Old Mutual Square, Isibaya Building, 2nd Floor, 93 Grayston Drive,
Sandton 2196, South Africa.
The 2012 Annual General Meeting will be held in the Presentation Suite, 2nd
Floor, Old Mutual Place, 2 Lambeth Hill, London EC4V 4GG on 10 May 2012 at 11.00
a.m. (UK time).
The Company is arranging this year for the Annual General Meeting to be webcast
so that shareholders who cannot readily attend the meeting in London can, if
they have access to a computer, observe the proceedings. A link to the webcast
will be available on the Company`s website at www.oldmutual.com on Thursday, 10
May 2012 from 10.45 a.m. (UK time).
The circular relating to the Annual General Meeting will be sent to shareholders
with the Annual Financial Report or the Annual Review and Summary Financial
Statements.
In compliance with the Company`s obligations under DTR 6.3.5, additional
information is set out below which has been extracted in full unedited text from
the Annual Financial Report. Accordingly, page references and section numbers
in the text below refer to page numbers and section numbers in the Annual
Financial Report. This information consists of a description of the risk
factors and uncertainties affecting the Company and details of related party
transactions and should be read in conjunction with the Company`s preliminary
results announcement on 9 March 2012. The Annual Financial Report and the
preliminary results announcement are available on Old Mutual`s website at
www.oldmutual.com
Understanding and identifying significant risks to Old Mutual
Our business is affected by numerous uncertainties, some of which are potential
threats but can also be seen as opportunities if we make the right value-
enhancing decisions. The section below defines the major risk types and
summarises the actions we adopt to mitigate the risks and optimise the
opportunities that they present.
Risk type and potential Group mitigating actions Business unit management
threat or uncertainty and opportunities actions and opportunities
Business risk Quarterly Group-led Product design in the LTS
The main business risk reviews with each businesses ensures technically
the Group is exposed to business unit ensuring sound pricing and structures
is the risk of poor regular dialogue and whilst positioning the product
persistency or retention oversight of business correctly in difficult market
of customers, resulting performance conditions. Risk-adjusted
in income not covering Business risk is profit signatures and improved
the expense base that monitored against market persistency are key features
was assumed at the time consistent embedded of the product strategy.
of writing the business. value (MCEV) experience Business risk is a significant
High lapse rates and variances and, where risk on unit-linked and asset
upfront costs are key appropriate, actions are management business which is
risk drivers in this agreed to mitigate materially exposed to market,
category. negative trends credit or insurance risk:
This risk category also Lapse rates and Wealth Management, Nordic and
incorporates the risk of persistency information Retail Europe manage
unsatisfactory new are monitored through significant unit-linked
business margins, driven experience portfolios. While these risks
by volume and business investigations are important in Emerging
mix; persistency Within the Group, we Markets, they represent a
experience losses driven examine the impact on lower proportion of overall
by regulatory changes; earnings and capital by risk
poor client stress testing both Nedbank Group actively manages
administrative service; increased and decreased business risk through its
or economic- driven new business volumes to management structures and an
client behaviours. understand these impacts earnings-at-risk methodology
The June 2011 business Old Mutual is well similar to the Group`s risk
risk economic capital diversified across appetite metrics.
split allows for geographies and product
diversification both lines, minimising the
within business risk and impact of sector- or
between business risk territory-specific
and other risk economic downturns
categories. The key mitigation for
product design and
approval is the review
process conducted by the
LTS product teams and by
the Group Actuarial
team.
Market (Policyholder) Business units exposed Some of our life assurance
risk to downside market risk products contain investment
The impact of market are required to take guarantees and options. A
movements on account of the structure reduction in interest rates
policyholder assets and of their asset and and equity markets can cause
liabilities covers liability portfolios, options to be in-the-money,
mismatches of assets the local regulatory with a potentially adverse
relative to liabilities. environment and Group impact on profit
Also the impact of a policies We manage market
change in fund-related Risk management (policyholder) risk through
management fees earned strategies designed to asset-liability matching,
from client portfolios mitigate market risk are interest rate swaps and
as a consequence of tailored to the type of hedges, equity hedges, and
movements in asset contracts sold. Where currency swaps, borrowings and
markets. contracts are related forward foreign exchange
The June 2011 market purely to longevity, contracts to mitigate currency
(policyholder) risk mortality and morbidity risk
economic capital split risk, there is typically Smooth bonus products
allows for no sharing of better- constitute a significant
diversification both than-expected or proportion of the South
within market risk and required investment African business. We pay
between market risk and returns. Under unit- particular attention to
other risk categories. linked and/or market- declaring bonuses in a
linked contracts, responsible manner, to meet
policyholders receive our promise to clients that
the full investment returns will be less volatile
return on the underlying over time than purely market-
assets, less any linked returns. Net investment
applicable fees, and the returns not distributed are
only residual market credited to bonus-smoothing
risk relates to reserves to support consistent
variation in asset-based bonus declarations when
fees as a result of markets are low
fluctuations in the When investing shareholders`
underlying assets funds, we address equity price
In most other classes of risks through investment
investment-related policies which tightly limit
contracts, investment the extent of investment in
returns are attributed equities or equity funds. As a
to, or shared with, result, the shareholder assets
policyholders in the invested to back the statutory
form of vesting and/or capital requirements of each
non-vesting bonuses. Non-legal entity in the Group are
vesting bonuses offer an predominantly invested in
option for management sovereign bonds and cash,
action, as they can be hence exposure of shareholder
withheld in adverse assets to market risk is
circumstances relatively small overall.
The Bermuda business, in Other practices include:
run-off, is subject to Our Principles and Practices
substantial market risk of Financial Management govern
due to the nature of the the management of
guarantees in the discretionary participating
products. The risks are contracts in South Africa,
monitored on a daily including bonus-sharing rules
basis and we are subject and management actions to be
to a dynamic hedging taken in adverse conditions
programme which is Stock selection and investment
governed by the Group analysis are supported by a
Oversight Committee, well-developed research
comprising Group and function
Bermuda Board members. In our investment guidelines
asset-liability duration
matching is used for fixed
annuities, especially where
specific guarantees apply.
Other non-profit policies are
also suitably matched
Market risk on with-profit
policies, where investment
risk is shared with investors,
is mitigated by appropriate
bonus declaration practices
and hedging
Interest rate and equity
hedging are used where
movements can lead to an
increase in the value of
investment guarantees/options,
causing a reduction in
earnings and shareholder
capital. We have implemented
an Internal Economic Scenario
Generator in South Africa,
which allows us to dynamically
hedge our interest rate and
equity exposures.
Credit risk The Group`s credit risk The Group Credit Risk Policy
The Group is exposed to policy, limits and sets out the principles and
the risk of credit reporting systems have mandatory minimum standards
defaults. This includes recently been reviewed. for the management of credit
counterparty risk where We have introduced and counterparty risk across
an asset is not repaid improvements to allow us the Old Mutual Group, which
in accordance with the to adopt a more dynamic include:
terms of the contract. and timely approach to The credit risk the business
Credit risk also identifying and managing is willing to accept
encompasses lending risk credit risk exposures The current credit risk
(for instance in our The Group only deals profile and exposure to credit
banking businesses), with approved risk concentrations
where a borrower becomes counterparties and, The future target credit risk
unable to repay where appropriate, profile and credit risk limits
outstanding balances. obtains sufficient that comply with the business
Client defaults on collateral as a means of risk appetite.
financial guarantee mitigating the financial Increasing activity in the
obligations are also an loss from defaults. We unsecured personal loans
element of credit risk. continuously monitor the within Old Mutual Emerging
credit ratings of Markets, from the Mass
counterparties. Foundation Cluster, is subject
The Group`s exposure to to Group standards and risk
the European peripheral assessment.
economies is not deemed With the consolidation in 2011
significant and is of the Zimbabwean businesses
primarily to highly- into Old Mutual Emerging
rated institutions. At Markets, came the local
the time of writing this banking business called CABS.
report, the Group has This business will also be
less than GBP2 million subject to complying and
exposure to the rolling out Group standards
sovereign debt of and policies within 2012.
European peripheral Nedbank manages credit risk
economies; the exposure exposures through its credit
has been reduced over risk management framework,
the course of the last which encompasses
year from GBP10 million. comprehensive credit policies,
We intend to maintain limits, governance structures
our exposures at low and internal risk models that
levels and to continue are fully Basel II compliant
monitoring developments and in line with Group
in this region. policies and practices. To
Credit exposure was address the changing
reduced by GBP11.5 conditions impacting on credit
billion as a result of risk this year, Nedbank has:
the sale of US Life. Closely monitored credit risk
As our primary banking loss ratios and other key
business, Nedbank indicators through its credit
carries the majority of risk monitoring committees
our credit risk through Tightened credit granting
its lending and other criteria - for example, on
financing activities. home loans it has tightened
Nedbank`s financing loan-to-value criteria,
activities contribute to increased acceptance standards
its significant credit and where appropriate,
risk exposure. We expect restructured credit risk
impairment levels to agreements
remain stable or even Tightened controls over large
start to reduce during payments to and from global
2012. This is due to a banks
number of factors Increased staff to administer
including a slowdown in collections.
lending, the
introduction of tighter
lending criteria and the
stabilisation of
economic conditions.
Liability risk We manage liability risk Incorrect pricing bases give
The Group assumes by: rise to underwriting risk. The
liability risk by Writing a mix of business units with
issuing insurance business over multiple significant liability risk are
contracts under which it insurance classes and Emerging Markets and M&F.
agrees to compensate the geographical segments. In Emerging Markets the
policyholder or other Business that is weakly relatively weak correlation of
beneficiary if a correlated with liability risk with our other
specified uncertain liability risk (e.g. risk types reduces our
future event affecting unit-linked business) exposure after diversification
the policyholder occurs. provides a hedge against over several insurance classes
This risk includes liability risk due to a and a number of geographical
mortality and morbidity diversification effect segments
risk in the LTS business Using sophisticated Maintenance and use of
units and a risk of loss management information sophisticated management
from events such as fire systems which provide information systems which
or accident in Mutual & current data on the provide current data on the
Federal (M&F), our risks to which we are risks to which we are exposed
general insurance exposed Use of actuarial models to
business unit. Calculating premiums and calculate premiums and monitor
The June 2011 liability monitoring claims claims patterns using past
risk diversified patterns using actuarial experience and statistical
economic capital allows models based on past methods
for diversification both experience and Guidelines for concluding
within liability risk statistical methods insurance contracts and
and between liability In our underwriting assuming liability risks, such
risk and other risk policy, we specify Group as underwriting principles and
categories. requirements for product pricing procedures
concluding insurance Reinsurance to limit our
contracts and assuming exposure to large single
liability risks claims and catastrophes
Using reinsurance to An effective mix of assets
limit exposure to large that back insurance
single claims and liabilities based on those
catastrophes and liabilities` nature and term
increase our insurance A key change project for M&F
capacity in 2011 has been to implement
Building an effective new, best-practice
mix of assets that back underwriting standards and
insurance liabilities processes in the underwriting
based on the nature and division, which will enhance
term of those deal approval processes and
liabilities. risk-based pricing methodology
Reinsurance plays an extremely
important role in the
management of liability risk
and exposure at M&F.
Operational risk Operational loss is We developed the RCSA process
The risk arising from inherent to our business significantly during 2011, and
operational activities, and difficult to the increased quality and
for example a failure of eliminate entirely. quantity of data has enabled
a major systems, or However, by using more granular review of
losses incurred as a sensitive indicative operational risk across the
consequence of people triggers we can respond Group
and or process failures, to events before they Following appropriate training
including external occur. and strengthening local risk
events. Specific Operational risk is one teams across the Group, we are
examples include our of the driving metrics beginning to realise the
ability to attract and in our risk appetite benefits of a consistent,
retain key staff with framework. Our appetite Group-wide RCSA process. The
the necessary skills to for operational risk is data has enhanced our Board
help the Group meet its to continually reduce risk reports and supports a
objectives, and adequate exposure from events more effective capital model.
protection of people, that we are able to
premises and data manage and control
(including IT We continue to focus on
sustainability and areas where we can add
infrastructure). value for shareholders -
reducing operational
risk losses that
directly impact profits,
refining our risk
categorisation model to
enable more accurate and
consistent reporting of
events across the Group,
and using more advanced
mathematical concepts to
translate data inputs
into capital amounts
Both Risk and Control
Self Assessment (RCSA)
and internal risk events
are used to validate the
accuracy of scenarios
used in our Advanced
Management Approach to
operational risk capital
modelling
OpenPages, our risk
management tool, is
widely used throughout
the Group - helping
businesses to understand
operational risk better,
ensure there are no
repeatedly occurring
inherent weaknesses, and
enhance the control
framework.
The table on next page
gives a breakdown of the
Group`s principal
operational risks.
The principal operational risks we face are listed below.
Risk description 2011 commentary Key mitigations
Regulatory and tax risk In the wake of the Old Mutual is well positioned
Regulatory requirements deepening financial to meet increased regulatory
continue to evolve, with crisis, global expectations since we scan
a range of new regulators have the regulatory environment on
prudential and business continued to issue a a global basis.
conduct regulations raft of new regulation. Dedicated Group and business
coming to fruition over While much of the detail unit compliance teams closely
the next couple of is still evolving, the monitor new and changing
years. Business conduct direction is towards an regulatory developments and
regulation continues to intensifying regulatory liaise regularly with local
evolve with a greater environment with even regulators and trade bodies
focus on customer tighter controls on to influence outcomes
protection, and banking and asset positively.
compliance with all management. Structural The Group provides a co-
aspects of tax reform has led a number ordination role in relation
legislation is becoming of global regulators to to the FSA, which is the lead
increasingly complex as adopt a `twin peaks` authority for Old Mutual plc
the system of taxation regulatory model, which under the Financial Groups
continues to change. is expected to result in Directive and for approval of
Solvency II and its an increased focus on our internal model
South African business conduct application under Solvency
equivalent, SAM, are activities. Customer II.
both currently planned protection in developing The iCRaFT project is
to come into effect at markets and information designed to deliver all
the start of 2014. security and privacy are Solvency II and SAM
Additional risk also also regulatory requirements, as a minimum.
arises in relation to hotspots. It made good progress in 2011
responsibilities for Solvency II and SAM in and project deliverables are
reporting routine South Africa will create on target as we transition
customer, employee and step changes in into business as usual.
other transactions to insurance prudential All major business units have
the tax authorities and regulation, with focus dedicated in-house tax
adherence to processing on internal risk and resources who assess and
risk procedures is capital management and monitor new developments. For
important. the more proactive example the changes
We need to correctly nature of Group introduced by the SA budget
assess the impact of supervision under the in February 2012 are already
these changes and Group internal model being considered when pricing
respond to them in a approval process. our policyholder products,
timely manner to Governments continue to and actions are being taken
efficiently manage impose greater burdens to:
regulatory required on taxpayers as they Update systems to enable Old
capital. seek to enhance revenue Mutual to pay the right
This could translate yield and transfer more amount of tax to the
into lower returns to of the cost of tax authorities
shareholders or being compliance to taxpayers. Review product pricing
unable to provide The risk for the Group structures and design value-
customers with products is amplified by its enhancing features.
at a price which is broad geographical We have adopted a Group-wide
acceptable to them, spread, which requires tax risk management policy
thereby restricting our it to manage a diversity which requires tax review of
business opportunities. of changing tax major strategic initiatives
In addition to the risk requirements and and product developments
of a fine, penalty or regulations. before implementation.
regulatory censure, non-
compliance carries a
growing risk of
regulatory intervention
that could impact on our
ability to operate.
Risk description 2011 commentary Key mitigations
IT and data security Across the LTS We developed a new Group
Poor IT infrastructure businesses the operating policy for information
and resilience could model was changed during security and privacy in
result in disruption to 2011, providing greater 2011, which will be
our businesses with centralised control for rolled out and embedded
adverse consequences on IT infrastructure whilst within the different
customer service, loss enhancing the seniority business units during
of customer data and and experience of the 2012. The roll-out of
failure to manage the Chief Information the policy will also
business effectively. Officers in the ensure that information
business. security is included in
Physical security and the LTS IT strategy and
information security are that key risks and
areas of increasing risk appropriate control
and regulatory focus - frameworks are in place.
particularly in relation Q2 2012 will see a
to information security, refresh of our periodic
where the UK and Europe information security
have seen increasing benchmarking exercise,
enforcement activity and to measure how well
fines. embedded the Group
New privacy and consumer policy is in the
protection laws have different IT processes
also been introduced in and practices across the
South Africa, although Group.
the practical regulatory Group information
enforcement bodies are security standards are
still evolving. based on good practice
and data privacy
obligations.
People risk There were a number of Our first-ever Group
Delivery of the business new appointments to culture survey had a
strategy requires senior roles and very high response rate.
significant change. leadership team Employee-led action
Without the right reorganisations to plans to achieve the
culture, leadership strengthen our senior desired culture shift
behaviours and talent which could have have been developed and
management practices we destabilised teams. are being implemented.
will be unable to Selection and We have continued to
attract, retain and appointment needed to be develop our leadership
motivate the talent we rigorous to ensure that and emerging talent by
need to deliver the we upgraded our enhancing development
business strategy. leadership capability. opportunities through
The year saw further mobility and targeted
developments in structured programmes.
regulatory requirements Each appointment into a
on executive senior role, whether
remuneration and its internal or external,
alignment with risk- includes independent
based measures. external assessment.
We introduced a new
performance management
system, which provides
for the assessment of
both business results
and behaviours for the
2011 performance review.
We also broadened the
use of incentive pools
determined by measures
including economic
profit.
Risk type and potential Group mitigating actions Business unit management
threat or uncertainty and opportunities actions and opportunities
Market (Shareholder) The Group monitors The Group market (shareholder)
risk market risk as part of risk policy sets out the
The impact on the risk appetite principles and mandatory
shareholder assets due framework. standards for the management
to changes in the value The impact of changes in of market (shareholder) risk
of financial assets or market risk is monitored across the Old Mutual Group.
liabilities arising from and managed using Business units are required to
changes in equity, bond sensitivity analyses, have a written strategy for
and real estate prices, through the business managing market risk which
interest rates and units` own regulatory should reflect the Group
foreign exchange rates. processes, with strategy.
Our greatest exposure is reference to the Group`s The business unit strategy
to equity risk. Market risk appetite framework, must cover:
risk arises differently and by other means. This The approach to measuring and
in the business units, work is complemented by managing market risk
depending on the types the Group`s capital Market risk return preferences
of assets and modelling and embedded The current market risk
liabilities held. Most value reporting profile
of our shareholder processes, which include Exposure concentrations
assets are invested in assessments of the The future target market risk
sovereign bonds which is sensitivity of our profile
included within the capital position and Limits that comply with the
credit section of the embedded value to business risk appetite, and
risk profile. The various market changes risk mitigation techniques.
analysis here represents The upside presented by
just that part of market risk is evident
shareholder funds when equity values rise
subject to market risk. or interest rates move
The June 2011 market favourably.
(shareholder) risk
economic capital split
allows for
diversification both
within market risk and
between market risk and
other risk categories.
Currency risk We manage currency risk Intra-Group currency exposures
Currency risk is firstly to ensure that Financial are not typically hedged
the risk at Group level Groups Directive (FGD) There is an allowance at
that net assets in capital remains adequate business unit level for
business units invested and does not attract currency risk associated with
in currencies other than unwelcome regulatory direct revenue streams from
sterling depreciate attention. We arrange subsidiaries and related
relative to sterling, our assets and companies.
leading to a fall in liabilities to ensure
Group net asset values that FGD remains at
(currency translation suitable levels in
risk). stress scenarios
Secondly, there is an We manage currency risk
allowance at business associated with known
unit level for currency flows of currencies from
risk associated with business units to Group
direct revenue streams and vice versa if
from subsidiaries and appropriate, such as
related companies. future dividends and
proceeds arising from
disposals
We test the devaluation
of other currencies
relative to sterling,
and seek to match
currency liabilities to
assets in the Group`s
consolidated balance
sheet, e.g. by issuing
debt in specific
currencies, and/or via
the use of swaps.
Strategic and change Key risks that could A rigorous annual strategy
risk adversely affect our review and tracking process
The risk of failing to ability to deliver the mitigates the risks in the
implement the business stated strategy include: following ways:
strategy and the Unanticipated external To ensure ongoing ownership
management of associated changes arising from and commitment, the Old Mutual
changes to the business. competitors, regulators Board and top leaders are
and government bodies actively involved in the
Failure to clearly annual review of the Group
communicate Old Mutual`s strategy
strategy, both The Group strategy is
internally and communicated externally and
externally simultaneously internally, to
Unexpected performance provide guidance to all Old
shocks in the Group`s Mutual`s employees
underlying businesses The Group strategy clearly
Failure to clearly sets out the strategic
define, prioritise and priorities for the Group and
monitor delivery of the provides context for business
most critical Group-wide unit planning
and local strategic Competitor activity and
programmes anticipated regulatory changes
Decreasing staff are monitored locally and
engagement due to the included in business units`
uncertainties associated annual plans
with organisational Progress against business
changes. plans is reported at four
quarterly review meetings and
remedial actions taken where
necessary. In addition, the
key Group-wide strategic
programmes are developed,
tracked and reported on by the
Strategic Implementation
Office and the Group Strategy
and Strategic Implementation
teams work with the business
leaders to define the
activities that will support
the strategy and track the
progress of these activities
The business units within the
Group have taken steps to
establish Change teams with
Change Directors to provide
accountability for the
delivery of key programmes
The Strategic Implementation
team have worked to provide a
framework for change that is
monitored through the change
risk policy. This ensures that
the risks of programme failure
are reduced and the deliveries
provide value for money for
the investment in change.
Liquidity risk Our liquidity position The Group liquidity risk
Liquidity risk is the is prudently managed at policy sets out the principles
risk that the Group is both Group and business and mandatory minimum
unable to meet its unit level. standards for the management
obligations as they fall The Group-wide liquidity of liquidity risk across the
due, for example if policy sets out Old Mutual Group:
counterparties providing parameters within which Business units are required to
short-term funding were all business units must assess their liquidity risk,
to withdraw or not roll operate to identify, by conducting a review of
over funding. measure and manage their funding profile against
It also includes the liquidity risk the nature of risk inherent
risk of being unable to The Group Capital within the business
sell assets in an Management Committee Business units must define
illiquid market, or not reviews capital and their liquidity risk appetite
being able to raise more liquidity positions, and propose measures for
capital, leading to with the Group Executive managing this which are
asset-liability matching Risk Committee providing appropriate and proportionate
problems and a threat to additional oversight and to the risk
capital cover ratios. challenge The liquidity risk appetite
Extreme market Liquidity headroom is must determine the level of
volatility may result in one of our key risk liquidity risk exposure the
unexpected capital calls indicators. It ensures business is willing to accept
and stressed liquidity we have sufficient in order to meet objectives
positions. liquidity to cover both and optimise returns against
asset liquidity risk and capital
funding liquidity risk The policy sets out the
The Group has rolled out minimum frequency with which
a new liquidity policy the reports must be prepared,
in 2011, which is being the escalation process and
embedded within business also contingency plans
units. The Group has a The requirement for business
new documented unit specific liquidity
Contingency Funding and contingency plans.
Capital Strategy which Liquidity risk management is a
is continuing to evolve particular focus in the
into 2012, with business Nedbank Group.
units also developing A portfolio of marketable and
local contingency plans highly liquid assets to meet
The Basel Committee on unforeseen funding
Banking Supervision requirements is maintained
issued new liquidity Market liquidity by asset type
standards on 16 December (and for a continuum of
2010. Many of the key plausible stress scenarios) is
principles are already part of the internal stress
encapsulated in testing and scenario analysis
Nedbank`s Liquidity Risk process
Management Framework. The quantum of unencumbered
However, in order to assets available as collateral
meet the requirements of for stress funding is measured
the liquidity coverage and monitored on an ongoing
ratio by 2015 and the basis.
net stable funding ratio
by 2018, Nedbank and the
other South African
banks are working
closely with the South
African Reserve Bank
(SARB) and National
Treasury to address the
structural challenges of
compliance for the local
banking industry, while
at the same time
considering the
unintended economic
consequences which may
arise from the proposed
liquidity standards.
Related parties
The Group provides certain pension fund, insurance, banking and financial
services to related parties. These are conducted on an arm`s length basis and
are not material to the Group`s results.
(a) Transactions with key management personnel, remuneration and other
compensation
Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the Group, directly or
indirectly, including any director (whether executive or otherwise) of the
Group. Details of the compensation paid to the Board of directors as well as
their shareholdings in the Company are disclosed in the Remuneration Report on
page 119 and Corporate Governance report on page 100 respectively.
(b) Key management personnel remuneration and other compensation
Year ended 31 Year ended 31 December
December 2011 2010
Number Value Number Value GBP000s
ofpersonne GBP000s ofpersonn
l el
Directors` fees 12 1,638 12 1,510
Remuneration 25,176 22,819
Cash remuneration 17 5,969 18 6,675
Short-term employee benefits 17 8,751 18 7,660
Post-employment benefits 14 1,296 10 451
Other long-term benefits 5 12 7 14
Share-based payments 13 9,148 17 8,019
26,814 24,329
Year ended 31 Year ended 31 December
December 2011 2010
Share options Number Number Number of Number of
ofpersonne ofoption personnel options/
l s/ shares `000s
shares
`000s
Outstanding at beginning of the 13 14,499 11 15,613
year
Leavers 1 (70) 2 (482)
New appointments 1 274 4 704
Granted during the year 193 425
Exercised during the year (2,079) (966)
Lapsed during the year (1,335) (795)
Outstanding at end of the year 11 11,482 13 14,499
Year ended 31 Year ended 31 December
December 2011 2010
Restricted shares Number of Number Number of Number of
personnel of personnel options/
options/ shares `000s
shares
`000s
Outstanding at beginning of the 14 19,142 10 7,832
year
Leavers 1 (641) 2 (1,565)
New appointments 2 1,580 6 1,314
Granted during the year 7,111 12,282
Lapsed during the year (2,270) (151)
Released during the year (3,270) (570)
Outstanding at end of the year 14 21,652 14 19,142
(c) Key management personnel transactions
Key management personnel and members of their close family have undertaken
transactions with Old Mutual plc and its subsidiaries, jointly controlled
entities and associated undertakings in the normal course of business, details
of which are given below. For current accounts positive values indicate assets
of the individual whilst for credit cards and mortgages positive values indicate
liabilities of the individual.
Year ended 31 Year ended 31 December
December 2011 2010
Number of Value Number of Value GBP000s
personnel GBP000s personnel
Current accounts
Balance at beginning of the year 8 672 7 265
Net movement during the year (348) 407
Balance at end of the year 5 324 8 672
Credit cards
Balance at beginning of the year 5 29 4 22
Net movement during the year (3) 7
Balance at end of the year 5 26 5 29
Mortgages
Balance at beginning of the year 5 1,791 5 3,028
Net movement during the year (627) (1,125)
Interest charged 49 86
Less repayments (778) (334)
Foreign exchange movements 186 136
Balance at end of the year 4 621 5 1,791
General insurance contracts
Total premium paid during the 3 15 3 18
year
Claims paid during the year 1 1 1 1
Life insurance products
Total sum assured/value of 10 16,029 13 23,501
investment at end of the year
Pensions, termination benefits
paid
Value of pension plan as at end 10 5,700 13 6,714
of the year
Various members of key management personnel hold, and/or have at various times
during the year held, investments managed by asset management businesses of the
Group. These include unit trusts, mutual funds and hedge funds. None of the
amounts concerned are material in the context of the funds managed by the Group
business concerned, and all of the investments have been made by the individuals
concerned either on terms which are the same as those available to external
clients generally or, where that is not the case, on the same preferential terms
as were available to employees of the business generally.
(d) Skandia Liv
Livforsakringsaktiebolaget Skandia (publ) (Skandia Liv), is a related party to
the Old Mutual Group. Skandia Liv is a wholly owned subsidiary of Skandia and
its business is conducted on a mutual basis. For the reasons given in the
accounting policies Skandia Liv`s result is not consolidated in these financial
statements.
Material transactions between the Group and the Skandia Liv group in the year
ended 31 December 2011 were as follows:
Agreement in principle and framework agreement on co-operation covering market
related functions and certain staff functions - this involves distribution and
distribution support, customer service, market communication, administration of
group insurance products, and staff and service functions. Skandia Liv paid
GBP90 million (2010: GBP88 million) for services rendered under this agreement.
Premises - the Group rented office premises from Skandia Liv. The Group paid
market rents of GBP1 million (2010: GBP16 million) for these premises.
Occupational pensions - Skandia Liv provides occupational pensions for the
employees of the Group, for which the Group paid GBP17 million (2010: GBP15
million).
Agreement on IT services - the Group provides IT services to Skandia Liv. The
amount charged to Skandia Liv was GBP7 million (2010: GBP7 million).
Settlement with Skandia Liv regarding the arbitration settlement - in a ruling
issue on 2 October 2008, the arbitration board ruled that the going rate level
of compensation in the market pursuant to the 2002 Asset Management Agreement is
a maximum of ten basis points including value added tax, and that Skandia - for
the time from 1 July 2008 and onward - is obligated to pay an amount to Skandia
Liv that corresponds to the share of asset management fees received that exceed
ten basis points including value added tax. A reserve to cover asset management
fees for the time after 1 July 2008 was charged to the income statement. On 21
July 2009, an agreement was reached between Skandia and Skandia Liv, under which
Skandia will pay a fixed amount per quarter until the end of 2013. The total
remaining amount to be paid to Skandia Liv is less than the reserve provision
booked as per July 2009 with the difference resolved in 2009. The remaining
provision of GBP10 million is shown as a liability to Skandia Liv in the
statement of financial position.
Currency derivatives - Skandia Liv hedge their currency position with forward
contracts with Skandia Group at the prices prevailing on the foreign exchange
market. Skandia Liv paid GBP7 million (2010: GBP27 million) for forward
contracts during the year.
Capital Contribution - during the year, Skandia Liv made a group contribution of
GBP154 million to the Skandia Group. Unrelieved tax losses have been used to
offset the entire tax charge on this transaction. Simultaneously, the Skandia
Group made a capital injection of GBP110 million back to Skandia Liv,
corresponding to the group contribution net of tax relief.
On 15 December 2011 it was announced that the Group has agreed to sell the
Nordic business unit to Skandia Liv. Further detail has been provided in note
A2.
The balance outstanding at 31 December 2011 due from Skandia Liv was GBP17
million (2010: GBP13 million).
Various other arrangements exist between the Group and Skandia Liv, principally
in respect of provision of accounting, legal and treasury functions, all of
which are transacted on an arm`s length basis.
Enquiries
External Communications/Investor
Relations
Patrick Bowes +44 (0)20 7002 7440
Kelly de Kock +27 (0)21 509 8709
Media
William Baldwin-Charles +44 (0)20 7002 7133
29 March 2012
Sponsor:
Merrill Lynch SA (Pty) Ltd
Notes to Editors
Old Mutual
Old Mutual plc is an international long-term savings, protection and investment
Group. Originating in South Africa in 1845, the Group provides life assurance,
asset management, banking and general insurance to more than 15 million
customers in Europe, the Americas, Africa and Asia. Old Mutual plc is listed on
the London Stock Exchange and the Johannesburg Stock Exchange, since 1999.
In the year ended 31 December 2011, the Group reported adjusted operating profit
before tax of GBP1.5 billion (on an IFRS basis) and had GBP267 billion of funds
under management, from core operations.
For further information on Old Mutual plc, please visit the corporate website at
www.oldmutual.com
Date: 29/03/2012 15:00:04 Produced by the JSE SENS Department.
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