Peter Moyo, the new chief executive of Old Mutual Emerging Markets’ (OMEM), delivered fighting talk as the largely-South African unit prepares to run as an independent business.
Old Mutual, currently undergoing a managed separation, plans to list two businesses Old Mutual Limited (OML) and Old Mutual Wealth (OMW) in Johannesburg and London in 2018. OML, which Moyo will lead, is to be made up of OMEM as well as an undetermined portion of Nedbank.
Moyo, who took the helm in June, said OMEM would “play to its strengths and fight for every inch of ground in delivering value for shareholders”.
Presenting OMEM financial results for the six months to June 30, he outlined key focus areas, termed “battlegrounds”.
- Defend SA’s share in Mass & Corporate;
- Defend and grow in the SA Personal Finance market;
- Improve competitiveness of the Wealth & Investment Cluster;
- Turnaround Old Mutual Insure;
- Turnaround East Africa business and improve ROEs across the rest of Africa;
- Win the war for talent;
- Refresh technology offering;
- Cost efficiency leadership.
OMEM is widely considered a leader in the domestic mass insurance market. Being mindful of the price sensitive nature of the market, Moyo stressed the importance of defending and growing its market share by adding real value to policyholders. He said it would use technology to enhance its premium collection and financial advisor networks, and would also look to boost its persistency at an individual advisor level. It also sees opportunities to grow its lending business, while aggressively managing risk, amid the trying consumer environment.
To gain ground in the competitive high-income market, it would integrate its approach toward its insurance and investment offerings, and look to drive better investment performance.
An improvement in Old Mutual Insure, the rebranded Mutual & Federal business, was evident in the interim period. The business is said to have displayed similar “false starts” in the past but Moyo said the latest improvement is sustainable. “It is sustainable because it is based on deliberate management actions taken. It is not based on luck [and] it is not an act of god.” Such actions include remediating the unit’s book, being stricter on the quality of the book as well as actively managing the underwriting and claims processes.
OMEM is to focus on building a high-quality property and casualty book in Kenya. It will also look to drive cost-efficiencies by taking advantage of its scale across the markets in which it operates.
OMEM reported a 37% increase in its interim adjusted operating profit to £362 million. Parent company, Old Mutual’s pre-tax adjusted operating profit rose 34% to £989 million. Its performance was buoyed by a 25% decline in the average sterling/rand exchange rate and a reduction in debt as it prepares to breakup. It increased its dividend by 32% to 3.53 pence per share.
Each of the businesses to be spun out of the group, are expected to deliver higher returns to shareholders partly as the annual £95 million cost associated with running a central head office fall away.
Adrian Cloete, a portfolio manager at PSG Wealth, said Old Mutual is currently trading at a discount of around 10% to its net asset value of 220.1 pence per share. Its South African competitors Sanlam and Discovery, whose businesses are also proving resilient amid challenging conditions, are currently at premiums of 27% and 75% to respective embedded values.
Unlike Old Mutual, both Sanlam and Discovery declare their embedded value, which is a measure of a life insurer’s present value of future profits and adjusted net asset value. “OMEM is a very good business with good exposure to the low-income market, it is also a highly cash generative business. OML [when listed], should trade at quite an attractive valuation, it should trade at above embedded value but not to the same extent as Sanlam initially,” he said.
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