Currency movements took the wind out of the sails of South African insurance group Old Mutual in the first half of 2012, but the group said its focus on emerging markets will stand it in good stead in the long run.
Adjusted Market Consistent Embedded Value (MCEV) at the end of June stood at £10.7bn or 218.1p per share, versus £10.8bn a year earlier (194.1p per share). Just over two-thirds of 67% of the adjusted group MCEV (pre-debt and net other business) at 30th June 2012 was in the emerging markets (including its Nedbank and Mutual & Federal associates) with 23% in Europe and 10% in the US.
"We are seeing real benefits from the change programme at Mutual & Federal through improved service levels, which, over time, should lead to improved performance. In South Africa, there is evidence of a marked softening in premium rates, which will have an impact on margins at this stage of the underwriting cycle. We are increasing our penetration in the mass market through our investment in iWyze," the group revealed.
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Profit before tax in the six months to the end of June fell to £733m from £909m in 2011. Adjusted operating profit on an international financial reporting standards (IFRS) basis rose 1% to £791m from £785m the year before, but was up 12% on a constant exchange rates (CER) basis.
Adjusted operating earnings per share on an IFRS basis fell 7% to 8.7p from 9.4p the year before, but were up 2% on a CER basis.
Total revenues on an IFRS basis surged to £8,442m from £6,512m in the first half of 2011, largely as a result of a sharply improved investment return of £3,353m from the non-banking interests, up from £1,221m the year before.
Gross earned premiums eased to £1,774m from £1,879m the year before. Life assurance sales declined 12% to an annualised premiums equivalent (APE) figure of £561m from £637m a year earlier, and were down 8% on a CER basis.
Funds under management at the end of June stood at £260.7bn, down 2% from £267.2bn a year earlier and from £284.2bn at the end of the first quarter of 2012, but funds under management at continuing businesses rose 65 in the first half of the year.
The Retail Distribution Review (RDR) in the UK is set to change the relationship between independent financial advisers and insurance companies, and getting the Long Term Savings (LTS) Wealth Management strategy and governance ready for RDR remains a top priority for Old Mutual, although there are indications that part of the regulatory changes may be delayed until 2014.
Old Mutual will launch its new flexible adviser charging structure in the fourth quarter of 2012, which will see the introduction of a new "unbundled" charging structure for clients, subject to final Financial Services Authority rules on rebates.
Debt, net of cash held by the Old Mutual holding company, was £938m at the end of June, a sharp improvement on debt of £2,002m at the beginning of the reporting period. The group set itself a target of repaying £1.5bn of debt and has less than £450m of repayments to go to hit that target, which should be met in the second half of 2012.
The group's regulatory capital surplus, calculated under the EU Financial Groups Directive (FGD), at 30th June 2012 was £2.3bn, up from a surplus of £2.0bn at the end of 2011. The £2.3bn FGD surplus represented a coverage ratio of 168%, compared to 154% at 31st December 2011.
"We continue to see good prospects to grow our businesses in South Africa and the rest of the emerging markets, however we remain cautious about the outlook, in particular given slower GDP [gross domestic product] growth and lower long-term government bond yields in South Africa and the risk of the Eurozone crisis transmitting into Emerging Markets," the group said.
The interim dividend has been lifted to 1.75p from 1.50p in 2011.
JH
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