Old Mutual trading in line with expectations

Posted On Friday, 14 May 2004 02:00 Published by
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UK- and South Africa-listed Old Mutual plc's (OML) trading in the first quarter of 2004 has been in line with management expectations

UK- and South Africa-listed Old Mutual plc's (OML) trading in the first quarter of 2004 has been in line with management expectations, with profitability at an improved run-rate from the full year 2003, the group said.

In a trading statement covering the first quarter of 2004, Old Mutual said the continued comparative strength of the rand over the quarter had boosted the sterling value of the group's South African results, offsetting the negative effect of dollar weakness on the results from its US businesses.

Embedded value (EV) per share, at approximately 109 pence per share at 13 May 2004, had improved from 107 pence at the beginning of the year.

Life assurance sales in the US at an Annual Premium Equivalent (APE) were

$103 million, up from $99 million a year earlier, but the promising start to the year in South Africa had not been sustained, with total APE at 655 million rand, down on the 803 million rand recorded in the year-earlier period. In South Africa, individual recurring premium sales were up by 7% for the quarter, although total single premium sales fell by 29%.

Net cash flow was healthy around the world, the group added, with $2.3 billion in the US, 1.1 billion rand at Old Mutual South Africa and sterling 110 million in the UK.

Commenting on South African banking subsidiary Nedcor (NED), it said Nedcor had completed its rights issue and its three-year recovery programme was on track, but with "a long way to go".

It had announced headcount reductions of 1,742 since the beginning of the year, and had also continued the process of de-risking its balance sheet through the repatriation of dollar assets. The migration of BoE's business banking clients on to Nedcor's platforms had been completed, with minimal loss of clients.

The underwriting results of short-term insurance subsidiary Mutual & Federal Insurance Company (MAF) remained at the cyclical highs seen in 2003, thanks to low levels of claims. The group's overall stake in Mutual & Federal was now 88.1% following Old Mutual's purchase of Royal & Sun Alliance's 37% stake.

The Group had renewed its bank facilities by negotiating a sterling 1.1 billion syndicated revolving credit facility, strongly supported by its core relationship banks.

Commenting on the outlook, Old Mutual said it expected to progress steadily over the coming months, although its results would be affected, as usual, by currency and market levels. Nedcor would progress its recovery plan and drive it into all parts of the business.

The group revealed it was also taking action to bolster its South African life sales position. In the US it anticipated continued growth in assets under management at both of its businesses, subject to market conditions remaining favourable. In the UK its start-up businesses were continuing to develop according to plan.

Old Mutual plc expected to announce its interim results for the six months ending June 30, 2004, on August 5.

In the company's South African Life Assurance and Asset Management operations, funds under management at March 31 2004, totalled 302 billion rand, an increase of 4% over the position at December 31 2003. Aggregate net client cash flows across the life and asset management businesses had been positive for the period at 1.1 billion rand (up from 0.5 billion rand in the

year- earlier period), although the life business experienced negative net policyholder cash flows.

Individual and group business annual premium equivalent (APE) for the first three months of the year were 5% higher and 76% lower, respectively, than in the equivalent period in 2003. While individual recurring premium sales were 7% higher than those in the equivalent period of 2003, sales of individual single premium products remained at the same depressed levels.

The new Financial Advisory and Intermediary Services (FAIS) licensing accreditation system adversely impacted sales force productivity and contributed towards the relatively weak sales performance in the first quarter of 2004. Meanwhile, group single premiums were 67% lower than in the equivalent period last year.

The value of new business for the first three months of the year of 87 million rand, at a margin of 13.3%, was 71% of that achieved in the equivalent period in 2003. The reductions in value and margin were due to the impact of lower single premium sales, particularly in group business.

At Mutual & Federal, the group had experienced growth in gross premium income of 18% for the first three months of 2004. Premium growth had been achieved in all classes of business.

With claims costs continuing to be lower than expected, a strong underwriting result had been achieved, Old Mutual said.

In the US, Old Mutual's life assurance operations on a funds flow basis had attracted $0.7 billion in net policyholder cash inflow for the first quarter of 2004. Funds under management at March 31 2004 totalled $14.9 billion, up from

$13.3 billion at 31 December 2003.

Total sales were $103 million on an APE basis, an increase of 5% from the equivalent period in 2003. The value of new business for the first three months of 2004 of $16 million, at a margin of 15.8%, had increased by 143%.

Product focus continued to favour equity-indexed and immediate annuity sales, as well as term-life sales, where the US life business maintained its top-ten position in the market.

International sales of US-style products including variable annuities through OMNIA (Bermuda) continued to grow strongly.

For the group's US asset management businesses, funds increased 3.9% during the quarter, from $154.1 billion on 31 December 2003 to $160.0 billion at 31 March 2004. Net inflows of client funds contributed $2.3 billion, or 1.5% of the increase over funds under management at the beginning of the period, while investment performance at member firms accounted for the remaining 2.4% increase for the quarter, in line with major benchmark indices.

The outstanding legal and regulatory issues at one of the group's asset management subsidiaries, Pilgrim Baxter & Associates, remained unresolved.

Old Mutual is currently negotiating with US regulators and the New York Attorney General's office surrounding charges of inappropriate trading practices by founders Gary Pilgrim and Howard Baxter.

Old Mutual said it remained committed to a retail distribution strategy in the US, and expected to announce details of this in the second half of the year. The strategy of broadening product and distribution offerings continued with the launch of the first closed-end fund in April. This fund was a joint venture between Thompson, Siegel & Walmsley (TSW) and Claymore Advisors, and raised $175 million in managed assets for TSW. The company anticipated that further launches would occur during the year and that these would continue the growth and innovation of the US asset management businesses.

In the UK, both Selestia and Old Mutual Asset Managers (UK) (OMAM (UK)) saw positive external fund inflows of sterling 98 million and sterling 25 million, respectively, during the first quarter.

OMAM (UK)'s sales remained strong and Selestia's sales were up 200% on the equivalent period in 2003, at sterling 105 million.

I-Net Bridge 14 May 2004


Publisher: Inet Bridge
Source: Business Day

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