Old Mutual sees profit drop due to lower investment returns

Financial services group Old Mutual is anticipating a plunge of up to one-third in adjusted headline earnings for the half year to June end.

This decline is attributed to decreased returns on investments, which the group linked to heightened risk aversion, stemming from ongoing geopolitical conflicts in the Middle East.

Adjusted headline earnings, the group’s primary profit metric, will drop between 35% to 25 percent to equal an estimated R2.7 to R3.2 billion. But its gross inflows were up by 21%, reaching R128.9 billion.

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Old Mutual reported positive sales growth across its African operations, including Zimbabwe, with Life annual premium equivalent sales rising 21%. The increase was driven by stronger sales to employers, alongside significant growth in new business and operating earnings despite market volatility.

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New business from Old Mutual Corporate rose 32% to R569 million, from R432 million. However, the group said this level of growth is not expected to be repeated.

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It said gross inflows were boosted by strong demand in its Wealth Management division, which provides financial planning and investment management services to middle- and high-income earners.

Inflows also benefited from the addition of South African asset manager 10X Investments, which specialises in rules-based passive investing and is now majority-owned by Old Mutual.

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Old Mutual Investments also saw increased inflows thanks to better client activity. In Old Mutual Africa, growth was fuelled by strong money market inflows in Malawi and improved unit trust sales in East Africa.

Its key performance highlights include:

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Life APE sales increased by 21% to R7.9 billion; 
Gross flows increased by 21% compared to R106.8 billion in the previous year; 
Net client cash flow improved significantly, with outflows decreasing from R10.1 billion to R3.1 billion, a 69% reduction; 
Gross written premiums rose 3% to R14.9 billion from R14.5 billion; 
The value of new business margin was up marginally to 1.4% from 1.3%; and 
Old Mutual Insure’s net underwriting margin declined to 7.6%, from 9.7%.

The value and margin of new business improved due to higher sales volumes and a better mix of profitable products across Wealth Management, Old Mutual Corporate, and Old Mutual Africa.

This was partly offset by lower sales of guaranteed annuities in Personal Finance.

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Even with significant catastrophe losses during the period, Old Mutual Insure maintained a net underwriting margin at the higher end of its target range of 5%-8%, supported by careful underwriting practices, effective claims management and a diverse portfolio.

Old Mutual is due to announce its half-year results on 8 September.

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