Old Mutual Balances Pandemic Caution With Need to Pay Dividends
(Bloomberg) -- Old Mutual Ltd. will keep a cautious eye on the path of the Covid-19 pandemic and the roll out of vaccines in its main market of South Africa as the insurer plots a course for keeping dividends flowing to investors.
The 176-year-old company raised additional provisions against a potential resurgence of viral infections in the country on Tuesday, though still managed to pay a final dividend of 35 rand cents for 2020. That was after scrapping a half-year award, in line with regulatory guidance to preserve capital during the early months of the outbreak.
“We opted to be prudent on the dividend this time around,” Chief Executive Officer Iain Williamson said by phone. “There are still some significant risks out there around the size of the potential third wave and the timing of the vaccine roll out.”
The firm could become “a bit more aggressive in looking to return further capital to shareholders” if risk levels ease, he added.
Old Mutual is plotting a strategy for an uncertain future after adjusted headline earnings fell 75% to 2.5 billion rand ($169 million) in 2020, according to a statement. The decline was driven in part by lower shareholder investment returns and a decline in earnings from lender Nedbank Group Ltd., in which it owns a minority stake.
The Cape Town-based financial-services firm is contending with the economic fallout of South African measures to contain the spread of the coronavirus, a spike in insurance claims and tumultuous global capital markets. It has responded by digitizing channels to help drive new business volumes and guard its customer base against competitors such as Sanlam Ltd. and Standard Bank Group Ltd., which are all fighting for limited market share.
Old Mutual, which makes around 80% of its profit in Africa’s most industrialized nation, is forecasting a third wave of South African infections at a similar rate to the first major surge in July, Williamson said. That was far outstripped by a second wave that hit around the turn of the year.
The shares fell 3.9% by 10:02 a.m. in Johannesburg, the biggest drop in the five-member FTSE/JSE Life Insurance Index. The stock is little changed in the year to date.
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