Dineo Faku
Old Mutual, the JSE-listed investment, savings and insurance group, on Tuesday increased its Covid-19 provisions by R2 billion in anticipation of the third and fourth waves of the pandemic, and has raised its medium-term targets for 2023 after returning to profitability in the six months to June.
Chief executive Ian Williamson said the 176-year-old company’s mortality experience had been worse than anticipated, with the impact on profits mitigated by a partial release of provisions raised at the end of last year.
“Our segments had worse mortality claims experience than anticipated during the first half of the year. We continue to monitor our mortality claims experience closely. Based on current expectations, and with the information currently on hand, we expect that our pandemic provisions will be sufficient to cover the expected future costs of the pandemic,” he said.
Wiliamson said Covid-19 provisions had been increased by R2bn as at June 30, to take into account the emerging expectations of waves three and four, as well as potential future waves.
“Further provisions of R1.977bn have been established for the expected impact of remaining claims from wave three and future waves, taking into account the government vaccination roll-out plan and an allowance for management actions,” said Williamson.
The group said it paid R10bn in mortality claims during the period.
Old Mutual is the latest company to establish additional Covid-19 provisions after Discovery Life, a unit of Discovery, on Friday announced it had set up a R2bn provision for retail claims in anticipation of claims arising from the fourth wave of Covid-19.
Old Mutual benefited from higher sales, with basic earnings a share jumping to 67.8 cents a share from a loss of 128.5c a share in the previous year. Headline earnings a share were 71.7c a share compared to 96.3c a share a year earlier.
The interim dividend was 25c per share, in line with the dividend policy, which is set at 40 percent of adjusted headline earnings.
Williamson said the group had raised its 2023 targets after seeing a significant improvement in most of its key performance indicators and momentum from its strategic initiatives in the first half of the year.
The group raised results from operations — its measure of profitability — to between 5 percent and 10 percent growth on 2019 levels by the end of 2023.
The group is striving to achieve a return on net asset value of between cost of equity plus 2 percent and cost of equity plus 4 percent.
“We expect cost savings to be delivered from our South African insurance and savings businesses, allowing us to further our investment in innovation and other initiatives. We have tightened the range on our value of new business margin to between 2 percent and 3 percent. Our solvency and dividend cover targets remain unchanged,” said Williamson.
The group said its diversified business model and strong balance sheet had enabled it consistently to demonstrate resilience in the face of great adversity and “keep our promise of being a certain friend in uncertain times”.
BUSINESS REPORT ONLINE