Old Mutual Limited (OMU) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Old Mutual Quarter 1 of 2024 Voluntary Update. [Operator Instructions] Please note that this conference is being recorded. I will now hand you over to Langa. Please go ahead, sir.

Thank you, operator, and good afternoon to everyone who's joined us. This is our Q1 2024 Voluntary Operational Update. I know it's been a very eventful day already in our capital markets today, a lot of information with the election sentiment, the SARB's rate decision. So we will jump right straight into it without further ado. The call will be hosted by our group CEO, Iain Williamson. He's joined by the group CFO, Casparus Troskie. They are also joined by Ranen Thakurdin, who is our Head of Group Reporting and Insights as well as Nico van der Colff, who is our Group Actuary to assist during the Q&A. I'll now turn over the call to Iain. Over to Iain.

Thanks, Langa, and good afternoon, everyone, and thanks for your time. So just briefly, you've seen the announcement we put out about lunchtime today. I'm just going to very quickly go through the highlights of that, and we will leave most of the time for questions. So starting with the macro, I think we all know that the global economy has remained resilient, although I think a little bit of a concern that conflict continues to escalate both the ongoing Ukraine crisis and in the Middle East. China's economic growth was certainly stronger than expected in quarter 1 at 5.3%. And likely, we think that will likely continue with incremental policy change to achieve a stated 5% growth target this year. Central banks globally though appear to be cautious of the impact of inflation and interest rates are likely to remain higher for longer than we previously thought. And we all know -- we all now know that the SARB kept the rate locally unchanged at the MPC meeting today. I think that was not unexpected. I would -- I'm cautiously optimistic we might see a cut in July. Economic conditions continue to impact customers' disposable income negatively, particularly in the Retail segment. Overall, we expect our business and its diversification to remain well positioned for growth. We delivered double-digit sales growth across our business for the quarter ended 31 March. Just to update on the top line metrics across the board. The Life APE sales showed robust growth of 10% to ZAR 3.17 billion on a year ago. Within that, the Mass and Foundation Cluster was up 22% to ZAR 1.108 billion, that's supported by higher risk sales, reflecting better head count in the channels, a reduction in NTU rates and the inclusion of Two Mountains, which was not in the base. In the PF and Wealth business, we were up 7% to ZAR 1.16 billion. That was driven by a higher guaranteed annuity sales, strong recurring premium savings and funeral sales, but partially offset by lower risk sales, excluding the funeral piece. From a gross flows perspective, up 4% to ZAR 51.1 billion. We saw higher inflows in the Offshore business, with Wealth up 22% and strong inflows in our Africa Regions business with new mandates in Malawi and higher unit trust sales in East Africa, but that was offset by lower inflows in Old Mutual Investments, particularly into fixed income and community property for Futuregrowth growth and lower flows in Alternatives. Net client cash flow while positive remains under pressure, Wealth recorded growth in net client cash flow of over 100%, driven by a strong inflows and better retention in the Offshore business. But PF experienced higher disinvestments, thanks to annuity payments as well as higher risk claims compared to the prior period. And NCCF and Old Mutual investments was negative due to net outflows in fixed income and money market funds in Futuregrowth. So we continue to see corporate counterparty seeking liquidity. On the short-term side, gross written premiums were up 7% to ZAR 6.9 billion, with Old Mutual Insure recording a strong 10% growth in sales driven by Retail and Specialty with strong new business growth. Africa Regions was flat in rand terms, but did appreciate in constant currency terms. Loans and advances were muted and higher by 3% to ZAR 20 billion -- just over ZAR 20 billion, with Mass and Foundation Cluster growing their book by 2% and in line with a cautious ongoing lending strategy in South Africa. Africa Regions increased the book there by 12%, supported mostly actually by the depreciation of the rand against the Kenyan shilling rather than in a constant currency basis. Turning in to strategic delivery. I think I just want to highlight a few main points. The first is that the group's perimeter review is on track with the announcement of the exits of both our general insurance business in Tanzania, following the exit of our general and life businesses in Nigeria. Both of those transactions are pending final regulatory approvals, and they followed a thorough strategic review in line with a disciplined approach to capital allocation and in support of strengthening our return on net asset value. We announced in April that the Prudential Authority had granted the group Section 17 approval to establish OM Bank, subject to certain license conditions. We started the process of testing with partner banks just over 2 weeks ago -- 2.5 weeks ago now. And there's been substantive progress on both -- with that testing, it's going well. Substantive progress on both the perimeter review and the bank build our concrete proof points of focus on strategic execution to accelerate value creation. So I'm pleased with the progress we made in the first quarter. I think we've moved forward materially, both strategically and operationally. And with that, I'm happy to open up for questions that anyone may have. Thanks, Langa.

[Operator Instructions] The first questions come from Michael Christelis of UBS.

I'll use up all 3 questions, if I can. Firstly, can you give us any update on the special dividend that you announced at full year from OMLACSA to the group, the ZAR 2 billion, whether that's been approved yet and if you can update us on any plans for that ZAR 2 billion? The second one, just around persistency and the trends you're seeing. You mentioned, I think, a reduction in NTUs in your opening comments, but maybe just some commentary around just what the various levels of persistency are looking like across the different business units, including sort of short and longer duration? And then lastly, Two mountains. Can you just give us a sense of how large the Two Mountains Group sales were for, say, 2023, just to give us an idea of what we should be thinking about in our models for the uplift for this year?

Okay. Thanks, Michael. Casper, I'll ask you to deal with the special and then I'll comment on persistency in Two Mountains and maybe ask Nico or Ranen to add?

Yes, Mike, in the regulatory process, they've asked -- they've asked the auditors just to do a bit of work for them. So the auditors are busy with that, and hopefully, we'll hear after that. So that's in process. That's all I can say. And then we'll obviously -- once we've got the answer, I think we can give you an update at the half year as to what we're going to be doing with that. But we've said previously that will either earmarked some of it for growth or return to shareholders. We'll be able to update that you at the half year.

Thanks, Casper. And then on persistency, nothing material to comment on NPF that I can recall from in terms of any particular deviations. On the MFC side, the economic recovery based on my commentary is lagging a little bit, I think, relative to what we might have expected in November last year, given the rate cutting cycle likely be a bit later. And consequently, I think there is a little bit of pressure there. Having said that, it's a slightly difficult one to judge at this stage because the quarter 1 persistency numbers under a little bit of pressure. But having said that, we had a very good collections month, probably our best collections month for quite a while in April. So it's a little bit of a -- maybe too early to tell where it's going to land for the half year at this point. Nico, anything to add to that?

No, that's spot on. We started the year with a bit of pressure. It's not clear whether it recovers by June, and it's pretty clear we're not yet in a position where we would have expected any of that to flow through into a concern about the longer-term reserving yet. It feels more like a variance to date conversation if there's something.

Thanks, Nico. And then finally, Michael, on Two Mountains, just to give you a sense, off the top of my head, I don't have last year's number, but I'll give you the quarter 1 contribution. The quarter 1 contribution to sales was relatively modest at ZAR 9 million from Two Mountains to the MFC sales. So we would like to think that we'll have more than 4x that by the end of the year, but you can get a sense of the order of magnitude at this stage.

Our next question comes from Warwick Bam of Morgan Stanley.

There's 3 short questions to start. Can you talk to mortality and morbidity experience for the period? How have you found trading conditions post this period, say, post 31 March? And can you talk to underwriting experience in general insurance?

Okay. Thank you. Nico, do you want to go on the mortality and then I'll talk to the other two questions.

Yes, sure. Holding up reasonably on the retail books. So no material new concerns on those. A couple of large claims in PF created a bit of a flatter. We'll have to see what that picture looks like by entrants, but some random fluctuation is expected in that world and sometimes it will go against you. On the corporate segment book, typically, the summary would be a little bit better than probably expected. And some of the good news from last year is still holding up.

Thanks, Nico. And then on GI, Warwick, we're extremely good first quarter with the benign weather patterns in the first quarter assisting that position. As I think I've previously communicated to everybody, we're pretty comfortable with the quality and the pricing across sort of specialty, retail, CGIC, et cetera. The only concerning book has been the premier book, and we are -- remediation of that remains in progress, but quarter 1 was a good -- a very good quarter with sort of bank it and run for now because that's normally has the potential to be one of the bad weather quarters. And so we've got some sort of -- I guess, we've got some in the kitty for quarter 4 if we have bad weather in quarter 4. Trading conditions post in the March, I wouldn't say noticeably different to the first quarter in a sense, just sort of very much business as usual. So I think nothing material to sort of say that would indicate that it was particularly different to the first quarter in that sense. Operator, maybe take the next set of questions.

[Operator Instructions] The next question comes from the Larissa Van Deventer of Barclays.