Old Mutual Misses Profit Goal as South African Economy Wilts

(Bloomberg) -- Old Mutual Ltd. said earnings fell as a weak South African economy and sliding asset prices caused the insurer to miss one of its key operational goals.

Full-year adjusted profit earnings declined to 11.51 billion rand ($798 million) from 12.95 billion rand a year earlier, the Johannesburg-based company said in a statement.

“Persistently high unemployment rates, a value added tax-rate increase and fuel hikes contributed to lower real disposable incomes for our retail customers in South Africa,” it said. “This adversely affected our customer acquisition and persistency, especially in the middle-income market.”

Key Insights

  • The insurer didn’t meet its target for its operating results to grow 2 percentage points more than gross domestic product, with the measure declining 4 percent in 2018. Achieving the goal will be difficult “because we are starting 2019 in a position where we are behind where we thought,” Chief Executive Officer Peter Moyo said by phone.
  • The operating results were hurt by changes in its net reserves, mortality and morbidity losses in its personal finance business and write-offs related to Zimbabwe, which is facing a foreign-exchange crisis.
  • “We had more people dying than we expected and, in some instances, the amount that we paid on average was much higher than we expected,” Moyo said, adding that the company is looking at whether its book is properly priced.
  • The 174-year-old insurer is reporting its maiden annual results since the company’s homecoming to South Africa after a foray into London that culminated with Old Mutual selling off it U.S. asset-management division, hiving off its U.K. wealth unit and some of its shares in Nedbank Group Ltd. Its remaining African businesses started trading in June.
  • While Moyo said there have been positive signs from President Cyril Ramaphosa’s efforts to restore growth and clamp down on rampant corruption, his administration must push more accountability for civil servants.

Market Reaction

  • The stock fell as much as 4 percent in Johannesburg trading and was down 2.5 percent as of 10:46 a.m. That compares with a drop of 1.9 percent by the five-member FTSE/JSE Africa Life Assurance Index.

Get More

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