JOHANNESBURG – Insurance giant Old Mutual on Monday flagged that it expected its earnings to plunge up to 72 percent during the six months to June on a fall in business volumes and impairments due to the Covid-19 pandemic.
The 175 year-old group told investors that the significant deterioration in the operating environment during the six months to June compared to a year earlier had hurt its earnings.
Adjusted headline earnings for the six months ended June would likely plummet by as much as 72 percent to between R1.4 billion and R1.98bn from R5.21bn a year earlier.
“The notable decrease in the gross domestic product growth for South Africa and increased uncertainty around future cash flow projections is expected to result in the recognition of material impairments in respect of the carrying value of our investment in Nedbank and the goodwill related to our investment in Old Mutual Finance,” said the group.
Chief executive Iain Williamson said new business sales volumes had taken a knock as most of its tied advisers were unable to sell during the lockdown period due to the partial closure of the branch network and lack of access to customers’ homes, work sites and branches.
“Although lockdown restrictions have been eased, and economic activity has somewhat resumed, sales levels remain below prior-year levels. This impact was most severe in the Mass and Foundation Cluster, where sales volumes were too low to cover the largely fixed initial expenses and this resulted in negative Value of New Business for the first half of 2020 for this segment,” said Williamson. He said there had been a spike in business interruption claims in Old Mutual Insure during the second quarter. “We also made a decision to offer commercial settlements to certain qualifying small, medium and micro enterprise customers,” said Williamson.
Last month, Old Mutual competitor Santam, South Africa’s biggest short-term insurer, said it would pay up to R1bn in urgent relief to policyholders in the hospitality, leisure and non-essential retail services industries who had the Contingent Business Interruption extension in their policy coverage with the company. The relief payments, which were as a result of Santam’s proposal to the regulators, aimed at finding a way of assisting policyholders in these tough times.
Santam faced a litany of urgent court applications for flouting the regulator’s warning and refusing to pay out valid Covid-19 business interruption claims.
Williamson said while uncertainty around the Covid-19 pandemic remained, Old Mutual had raised short-term provisions in anticipation of worsening mortality, morbidity and persistency experience in the second half of 2020. “These reserves are intended to allow for expected short-term variances to our long-term assumptions,” said Williamson. The group expects to release its results on Tuesday (September 1).
Old Mutual shares closed 1.82 percent higher at R12.87 on the JSE on Monday.