| Tue 1 Mar 2005, 11:51 | | Empowerment handicap hurts Old Mutual’s SA results |
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Empowerment handicap hurts Old Mutual’s SA results
Stephen Gunnion
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Financial Services Editor
OLD Mutual has posted results for its 2004 financial year at the top end of analysts’ expectations. However, the lack of an empowerment partner is hampering the group’s ability to attract and retain business at its South African life insurance operations.
Although operating profit at its South African life business grew 15% last year, to R3,7bn, this was assisted by a 52% increase in unit trust sales. Group life new business fell 48%, to R442m, while individual life business sales were slightly higher at R2,66bn.
“I think … the net life cash outflows on the employee benefits side is a concern,” said one analyst. “This has been going on for quite a while now and over the longer term could have an impact on margins.”
He said an empowerment deal would help address the outflows. While other insurers already had empowerment partners in place, Old Mutual was at a disadvantage.
“It’s not a competitive advantage anymore; it’s a must-have in order to compete.”
Old Mutual SA MD Roddy Sparks agreed that the absence of an empowerment deal might have hurt its employee benefits business. “We have lost some new business because we didn’t have the credentials,” he said. “There were also one or two terminations because credentials were not in place.”
Apart from an empowerment deal, which Old Mutual said would be tied up shortly, Sparks said other measures had been put in place to grow its new life business, including innovative new products, strengthening its broker force and bancassurance sales. He said sales through Nedcor, in which the group has a 53% stake, had grown 57% last year, off a low base.
Overall operating profit at Old Mutual grew 47%, to £956m, assisted by a positive turnaround in Nedcor’s profitability, good growth at short-term insurance subsidiary Mutual & Federal, and strong showings from the group’s life and asset management operations in the US and the UK. The group’s return on average equity has risen from 14,4% to 19,1%, while its embedded value a share is 33% higher at 139,1p.
While the group would like to further diversify earnings away from SA as part of its strategy to have an even split between SA, the US and the UK, any acquisition in the UK, which represented its smallest earnings stream, would be made carefully, said group finance director Julian Roberts.
