Old Mutual has booked a number of impairments in anticipation of rising death claims and the impact of Covid-19 on the economy and its business.
Old Mutual says it will report a basic loss for the first half of its financial year after raising its short-term provisions due to Covid-19. While headline earnings will still be positive, they will be a lot lower due to the impact of the pandemic on its business.
In a trading statement, the insurance group said new business volumes were negatively affected in the six months to end-June as most of its tied advisers were unable to sell policies during the lockdown due to the partial closure of its branch network and the lack of access to customers’ homes and workplaces. Even with the easing of lockdown restrictions, it said sales levels remained below prior year levels. Its Old Mutual Insure operation had received an increase in business interruption claims during the second quarter of the year and it also offered commercial settlements to some qualifying SMME clients to enable them to continue operating.
The group said it would also recognise material impairments on the carrying value of its investments in Nedbank and Old Mutual Finance. However, it said its solvency capital remained strong, with a ratio of 182% for the group at the end of June and 208% for Old Mutual Life Assurance Company SA.
The significant deterioration in the operating environment compared to the comparative period has however negatively impacted our earnings,” Old Mutual said. “While there is still much uncertainty around the pandemic and the impact that it will have on experience, we have raised short term provisions in anticipation of worsening mortality, morbidity and persistency (lapse rates) experience in the second half of 2020.”
For the period, it expects to report a decrease in its result from operations of between 61% and 71% from last year’s R4.51 billion, while adjusted headline earnings per share will be 60-70% below the 109.1c reported last year. It’s likely to report an after tax loss of as much at R6.75 billion and a basic loss of between 128.5c and 154.2c per share, down from earnings of 127.3c last year.