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JIMMY MOYAHA: Old Mutual Limited reported full-year results for the financial year ended 31 December 2023. I’m joined on the line by the company’s chief financial officer, Casper Troskie, to take a look at these numbers and try to make sense of old Mutual’s performance.
Good evening, Casper. Thanks so much for taking the time. As you reflect on the year that was, was it a good year? Was it an okay year? How is the management team feeling about the performance of the business?
CASPER TROSKIE: Thanks for that question, Jimmy. I think we are actually feeling very pleased about the performance and the reason is that we’ve seen strong growth in profitability. We’ve been able to grow our sales and our value of new business.
And value of new business was up by 37%, which is a very big indication of future profitability.
But it goes up at a high margin, so what that tells you is that we are able to grow our business while generating good margins on that new business. That’s very pleasing for us.
In most of our businesses, we’ve actually taken market share from our competition. So yes, we are very pleased as a management team with the results we had this year.
JIMMY MOYAHA: Casper, the operating environment for some of the businesses was rather challenging. If we look at things like the insurance business, there were a lot more natural disasters that we saw in the last 12, maybe 18 months than we’ve seen in quite some time. How has the business been reacting to those external factors beyond your control? And has that informed any different sort of strategic thinking from the business?
CASPER TROSKIE: Yes, I think in Old Mutual Insure that was probably the one business where we did see a decline in our profits. We’ve seen much higher reinsurance costs, and I’ll explain why that’s important. We’ve seen much higher weather-related claims and we had some once-off write-offs in that business that also hit our profits.
Read/listen: The impact of climate change on insurers
But what’s important then, with a much higher reinsurance cost, we have to look carefully at what types of risks we can actually underwrite going forward, and then what mitigation we put in place for those types of risks.
So, for example, a mitigation would be that we would require clients to have higher excesses on, for example, household equipment because of load shedding, that being one of the reasons that we had much higher claims.
We also then have to look carefully at climate-change analysis. We’ve done a lot of modelling on this to see where we are seeing recurring big claims.
Flooding on the East Coast is really a big problem, and what sort of precautions do we then put in place in our underwriting processes, which changes the way we do business going forward?
JIMMY MOYAHA: Casper, can we look at the asset management or the wealth management business? We saw net outflows there to the tune of some R7.5 billion, but that is an improvement from the prior year. Obviously clients are still having to make different kinds of investment decisions and savings decisions with the economic environment that we find ourselves in at the moment. But the business is still experiencing good inflows there.
How do you assess that business and how do you see that in the current environment? We just heard today that interest rates are not coming down anytime soon. Consumers are going to be in this predicament for quite some time, but clearly wealth and investments and savings are still a priority for them.
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CASPER TROSKIE: Yes. Let’s distinguish between wealth and investments. So I’ll talk about Old Mutual Investments first.
In Old Mutual Investments we’ve got a number of businesses. We’ve got our private markets business, which focuses on long-term investments into infrastructure, private equity, and that business is where we invest into infrastructure. We are probably one of the biggest players in the country in that space. There we were able to raise new capital of R14.7 billion during the year.
Where we’ve seen pressure on cash flows in Old Mutual Investments is in our traditional sort of listed equity business, OMIG, where we’ve seen large clients internationally change their investment strategy, and we’ve seen client outflows because of that – but at very low margins. So we did see pressure on client cash flows in that business.
We’ve also seen, because of the more difficult conditions, corporates taking cash out of their working capital accounts, and that would have reduced assets under management in that business.
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In our wealth business, we’ve seen very strong growth in parts of that business. So in our Private Clients business, we saw our assets under management grow by about 30% year on year. So you have to look at the sector and the actual offering that you’re providing to see whether there’s an inflow or an outflow.
JIMMY MOYAHA: Casper, can we look forward to 2024 for a second? How’s the business assessing the landscape or the operating environment that is 2024? Is there any particular risk you guys are flagging? I know in 2023 there was a concerted effort to return value to shareholders, and that’s come from as far back as 2018. Just last year it was I think to the tune of R1.5 billion in share buybacks that went through. How are you seeing 2024 and the outlook going forward? What risks are you flagging as a business at the moment?
CASPER TROSKIE: Well, the operating environment remains difficult. GDP growth remains low, and our business is sensitive to GDP growth in two areas.
In our insurance business where we have low levels of GDP growth there’s pressure on persistency, so we see more policies lapsing. And in our credit businesses, we see higher impairments.
So to the extent that we don’t see GDP recovery, the top-line growth in the business will remain under pressure.
But what’s encouraging for us is that we have a very strong balance sheet. As you said, we returned capital to shareholders. We continue to optimise our balance sheet and think there’s still more value that we can extract [there] in the medium term. And then we are seeing very good traction in most of our businesses from a sales and proposition perspective.
As I said, we’ve been able to take market share from our competitors and we expect that to continue. So actually we are feeling quite optimistic about the next 12 to 18 months as a business.
JIMMY MOYAHA: Casper, Old Mutual intends to finalise its banking offering this year as part of its strategy and its expansion. Can you shed some light around that – what that looks like, what we can expect from that, and if there are any timelines around that?
CASPER TROSKIE: Yes. Where we are at the moment is that we’ve completed our Section 16 application, and that’s now sitting with the Prudential Authority.
They’ve told that us that they’re happy with the submission, but it now has to go through the process of approval, and we are expecting that approval in due course.
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What happens post that is we then have to give notice for industry testing, where we test our integration into the payment system in South Africa. That whole process from start of the notice period to completing that process, if successful, will take about six months.
Once we get feedback from the regulator, they will give us a Section 17 approval, which is a temporary banking licence.
Once we’ve got the temporary banking licence, we can go into industry testing. As I said, to finish that process will take about six months, and we call this the transition period.
Once we’ve passed that industry testing, we then move into getting approval from the regulator, which allows us to then do a ‘friends and family’ launch towards the end of this year. So we are looking, all things going well, to actually soft launch the bank by the end of this year, with obviously scaling that up once we’re happy with the results of our soft launch.
JIMMY MOYAHA: Exciting times ahead. We wish you all the best of luck with that, Casper. We’ll leave it at that. Thanks once again for the time and for the insights. That was Casper Troskie, group chief financial officer of the Old Mutual Group, reflecting on the company’s year-end performance.
