Old Mutual in UK post-crisis ‘sweet spot’

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Bloomberg

Pedestrians pass Old Mutual's headquarters in London. For the first time since the global financial crisis of 2008, the dual-listed insurer is upbeat about its UK business. Photo: Bloomberg

Johannesburg - For the first time since the global financial crisis wrecked Old Mutual’s UK business, prompting analysts to label the insurer’s decision to list on the London Stock Exchange as its biggest mistake, the company is more upbeat about the UK.

“I am positive about the business. Five years ago the financial crisis hit us and we had some significant challenges. Our capital, our cash are much stronger than they [were] in that period of time,” Old Mutual group chief executive Julian Roberts said during the company’s investor showcase in Cape Town yesterday.

Old Mutual said the regulatory changes in the UK financial services industry had turned its fortunes around in that market. And simplifying its business, which included getting rid of a number of investments, turned the company into the darling of customers.

“The market in the UK is changing dramatically and all I will say is [that] we are in the sweet spot. The market is changing in favour of the capabilities that we have got in our business… We believe we can build a significant scale in Europe and have our prime position,” Roberts said.

Philip Broadley, the financial director, said that when the regulatory changes that forced all financial institutions to offer restricted advice when selling their products were effected in the UK, customers and institutional investors narrowed down the companies they wanted to work with.

The changes to regulations were put in place to ensure that advice was not driven by the desire to earn commissions.

Customers “choose a small number of firms that they want. They want to work with us because we have a technology platform that is robust and reliable… and they have access through us to a range of funds,” Broadley said.

The insurer was planning to introduce a new unit trust called Old Mutual Select Fund to broaden choice for its UK customers next year.

Being in a “sweet spot” prompted the insurer to challenge itself by setting a target of doubling profit from the UK operations to £300 million (R5.1 billion) by 2015.

In the first half of this year, Old Mutual’s international businesses in the UK and the rest of Europe contributed 15 percent to the group’s profit and Roberts is determined to see that share grow.

Africa is the other area of focus. Roberts envisioned the firm becoming “the African financial services champion”.

“We want to cover the whole of sub-Saharan Africa,” he said.

Old Mutual has set aside £5bn for expansion on the continent and it said yesterday that less than £1bn of that had been spent to date. Its aim was to spend all the money in the next two years.

Roberts said the first part of Old Mutual’s strategy for the continent was to carry on expanding in the growth markets of the South African business. Old Mutual’s mass foundation cluster was introducing new products not only for the foundation market but for the middle market too.

The second part of the strategy was to expand Old Mutual’s presence beyond the countries in which it had now operations. The three countries of immediate focus were Nigeria, where it already has a presence through Ecobank; Ghana, where it recently bought Provident Life; and Kenya, where it extended its footprint in July by buying a controlling stake in microfinance company Faulu.

The expansion plans were not focused only on the savings, wealth and life business but on banking – through Nedbank, in which it holds 52 percent.

While Nedbank was still waiting for regulatory approval for the acquisition of Mozambican bank Banco Unico, there was an option for Nedbank to buy a controlling stake, he said.

The decision on whether Nedbank would buy a further 20 percent stake in Ecobank would be made next year.

Old Mutual rose 1.1 percent to R32.25 on the JSE yesterday. - Business Report


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