Old Mutual Limited (OMU) Earnings Call Transcript & Summary

Good day, and welcome to the Old Mutual Q1 Voluntary Update. [Operator Instructions] Please note that this event is being recorded. I would now like to hand you over to your host, who's Head of Investor Relations, Langa, please go ahead.

Thank you very much, Judith, and good day to everyone who's joined us on the call. My name is Langa Manqele, as introduced, I'm Head of Investor Relations. We issued our SENS on the 29th. So hopefully, you had the time to digest it. I would like to just quickly introduce you on who is on the call. We have on the call Jurie Strydom. You will all recall, Jurie Strydom is -- his first day. We are excited to have Jurie at the helm of the group. So he's joined us. Formally, he is on the driving seat. You all know Casper, is on the call, our Chief Executive Officer -- CFO, rather. Also on the call joining us today is Ranen Thakurdin. Ranen has transitioned from the Head of Group Reporting and Insight and is now our Chief Accountant and as part of this portfolio, he still overseas Group Reporting and Insights. I would like to hand over to Jurie to say a few words and you may kindly hand over to Casper shortly thereafter.

Thanks, Langa. Afternoon, everybody. As Langa said, this is day 1 -- actually the afternoon of day 1. So a good way to start with the voluntary update and investor call. Yes, so I'm obviously delighted to be -- yes, leading this group from today onwards. I think I'm pleased to have been on the board for 18 months or so, just over. And I think that's given me is a sense of orientation around the major issues and obviously the people and the organization itself. So I think, feeling like I can hit the road running with the team. I think, as I'm sure you'll appreciate the process of getting in and getting feet under the desk and driving forward some of the initiatives with the team. So I'm going to hand over to Casper to, I think, cover the voluntary update, and then I'm happy to jump into Q&A later.

Thanks, Jurie. From an operating environment perspective, the global economy remains uncertain, and we've seen growth forecasts costs being reduced during the year. In South Africa, market sentiment has been affected by political uncertainty around the GNU and the impact of U.S. tariffs. Inflation slowed to 2.7% year-on-year in March. But high interest rates continue to pressure consumer affordability and persistency. We did however see that small rate reduction last week, which should hopefully help going forward. In Africa regions, we experienced mixed performance in quarter 1, 2025, influenced by tariffs, donor funding withdrawals, inflationary pressures and currency volatility. In terms of life savings and asset management, our Life APE sales decreased by 2% to ZAR 3.1 billion, mainly due to a 39% decrease in guaranteed annuity sales in personal finance, in line with a market-wide decline due to reduced yields. The high base in the prior year from the non-repeat of savings sales contributed to a 38% decrease in Old Mutual Corporate Life APE. Mass and Foundation Cluster was up 7% due to good risk sales. In our African regions, APE was up 12%, driven by strong corporate sales particularly in Namibia and Malawi. Gross flows increased by 6% to ZAR 53.2 billion from the prior year, driven by a 28% increase in wealth management due to inflows across both local and offshore platforms, and in particular, private clients and cash liquidity solutions and the 12% increase in our Old Mutual Africa regions from higher asset management inflows in Namibia. This was partially offset by a reduction in Old Mutual investments and Old Mutual Corporate. Our net client cash flow was negative at ZAR 4.8 billion despite 6% gross flows. This was mainly impacted by lower margin [ indexed ] outflow of ZAR 6.4 billion from a large offshore mandate within Old Mutual investments and terminations of ZAR 3.6 billion in Old Mutual Corporate in respect of the exit of the unprofitable business that we made during course of this year. We have not seen an improvement in Mass and Foundation Cluster persistency. Though we continue to closely monitor the impact of the economic recovery reserves and reassess the need to strengthen our persistency basis at 30 June. We will only be completing our work late as possible in terms of the half year process, but we can have the most up-to-date view when we come to market in September. The regulatory solvency ratio for OMLACSA remains strong at the upper end of our target range, while group shareholder solvency ratio remains within target range. Gross written premiums grew by 7% to ZAR 7.4 billion, driven by 12% growth written premium growth in Old Mutual Insure, supported by strong management actions and pricing adjustments especially as well as the benign with [indiscernible] coupled with strong investment performance. The growing diversity of the Old Mutual insurance revenue in Old Mutual Insure makes it increasingly resilient to claims correlated to climate change. This was offset by a 5% decrease in growth written premiums in the Old Mutual Africa regions. Personal advances of ZAR 18.7 billion were flat from the prior year, in line with our cautious lending approach. The launch of our own bank remains on track for public rollout later this year. I'll stop here there and actually we can get to questions and then if anyone wants to add any [indiscernible]

Thanks, Casper. We're accountable to Head of State for questions. At this point, I would like to ask Judith to just remind all the participants on the procedure to put through their questions. Over to you, Judith.

[Operator Instructions]

I do not see any hands at this point, Judith, on my end. So happy for those who are able to put through their questions.

In fact, sir, we do have a question that has just come through from Francois Du Toit of Anchor Stockbrokers.

Maybe, Jurie, if you can comment on immediate plans you've got maybe more in relation to current strategies of the executive, especially maybe in relation to buybacks. Do you think in the short term that will continue. I think there's been approval granted for the buybacks. So that's the first question. Is it possible for you to give us a bit of color on new business value? I know the new business value would be quite sensitive to interest rates as well, which I think moved nicely in your favor because you use the year-end interest rates right for your new business value calculations. And to what degree does the lower interest rates offset the reduction in guaranteed annuities, trying to get a sense of the new business margins in the period. And maybe if you can comment on persistency for us. and your view about the potential -- or maybe if we can sort of have a rule of some impact on the EV of persistency changes that would get rid of all of the negative variances in the absence of any operational or in the absence of any environmental changes. So what would you need to do to actual assumptions to fix the lapse risk. So let's say there's ZAR billion negative variance, would you need to have ZAR 7 billion. So what sort of multiple, what's sort of capitalization factors, what sort of PE ratio would need to be applied to fix the actual assumptions completely to provide sufficiently for that in the absence of any operational changes, any environmental changes. You can also just comment about what operational interventions you think we can have and the impact that is likely to have.

Francois. Can I go, Langa? Yes, I mean -- I suppose maybe just -- as I said, it is day 1, but what I can do is give you a flavor a little bit for what the priorities are that we've got as a team. We have a process now obviously coming as a new CEO, there's a there's some strategic work of kind of reviewing where we are with our strategies, much of which is to do with the implementation, execution rather than a complete strategic overhaul. But there is a process that we'll go through as a team and with our Board over the next couple of months. And then I think the next real stop for us is at the interims, where we will be able to communicate much more clearly around some of the things you've raised. And then after that, more broader market engagement. I mean what I would say to you at this stage is I think the priorities are obvious and we'll be familiar to you. For me, I think, getting to grips with some of the -- getting to grips where the persistency experience is. And I think we've alluded to the fact that we did allude to what's happened, what we've observed this quarter that we've not seen an improvement. It hasn't deteriorated from last year, but we've not seen an improvement as we expected. I think there are operational interventions around collections. There's also some product and distribution and competitive-related aspects there that will be -- that the team has been looking at and that are significantly up to speed on it and we'll be looking at in greater detail. I think in the PF space, there will also be work done there around the competitiveness of our offering there and how we stack up and the experience of intermediaries in that market. And then I said the third sort of big operational areas, of course, the readiness of our launch for our bank. And I think we've alluded to the fact that we're comfortable with where we're tracking there. So those are kind of the 3 for -- in a comfortable for planned public rollout towards the end of the year. So I think those are the areas that I'm going to be getting into initially as group CEO as a priority with the team. Also mindful of some of what we've said to you before around costs and expenses and the role that plays ultimately in margins and returns. So that's certainly a very live issue for us as well. I would comment that I think -- if you look at the performance of the businesses, I do think we must also acknowledge and we're pleased with the turnaround that we see in OMI both in the business overall, but in particular, margin and also that performs the wealth business, I think, continues to be something that's a positive. Casper, I think I'm going to ask you to comment on maybe 1 or 2 of the more specific questions that I expect we're not in a position to get clarity on yet.

So Francois, so I think to give you detailed clarity on your question at this point would be difficult when we haven't completed the work. And we obviously want to see -- watch how much of the -- the persistency issue, we can deal with by management actions and how the rest is expected to run off. So we will be able to give you more detailed update at the half year around what that looks like. So in the meantime, the only publicly available information you would have would be the sensitivities we've published in our financials. So you can have a look at that. We've also given you a sense of how long these provisions have been set aside for and generally we're expecting to get from the end of 2024. We were expecting to get back sort of a normalized position by the end of 2026, maybe a little bit into 2027. So you can look [indiscernible] that was not to come back. You can try and gauge the size of the adjustment required from that. That's also publicly available information, the sake of that period. So -- and then on the buybacks, I think what you said -- sorry, we gave an update at the AGM, what we said on Friday was that we'll update you on the work we've been doing with capital optimization, our discretionary capital position and our views on capital going forward at the half year. So -- and we'll be able to give you the comprehensive updates at that point.

Maybe also a quick one on your short-term insurance premiums, gross written premium growth accelerating very strong compared with peers as well. Can you maybe give a bit color, I think you mentioned it comes from specialist lines, largely the increase [ now ]. Are we seeing that pricing is reducing or not growing as fast anymore in the motor books and that it's -- there's still scope for premium increases elsewhere. Am I reading too much into that? And maybe if you can also just give us the gross -- sorry, the net earned premium growth rate for the period.

Thanks. Francois, we haven't disclosed that net earned premium growth rate. So unfortunately, we won't be able to give you that for the period. But the -- just to comment on the gross written premium growth of 12%. That is linked to a number of pricing actions, it is also linked to the improvements in almost order books, we've been able to put the business on a new on the new footing, and also talks to be more successful in our specialty business, which has been a problem in the past. So -- but it's a broad-based improvements across most of our books. And then obviously, we with the [indiscernible] portfolio, we continue to see that portfolio performing well, which is off a very low base.

[Operator Instructions] We have a question from [ Marius Strydom ] of Austin, Lawrence Gidon.

Jurie, my first question to you is insofar as Old Mutual strategy goes, are there any sacred cows from your perspective? And number two, Casper, the time you are taking over the buyback -- should we read anything into your outlook for earnings and the ability to build your discretionary capital -- those are my questions.

Thanks. I think on the second cow question, I mean I think the correct answer is, of course, coming in and I come in with a fresh pair of eyes to a degree. So of course, we'll be looking at all aspects of the strategy. But I will say the emphasis, I think we've got a lot going on and lots of things that have been in the pipeline, including our own bank, but also a number of other things that have been -- that you'll know to -- from a technology point of view and so on to improve the competitiveness of our businesses. And that's -- so that's a lot more about execution than it is about change in strategy. So that's on the one hand. I think on the other hand, we will be determined also to make sure that we put -- that we demonstrate the kind of good capital stewardship. And so capital allocation is going to be an important theme for us going forward to make sure that as we allocate the capital from the group that, that gets done appropriately and in a value-creating way. And so that certainly is going to be a big focus at the group strategy level. Just segue signal to you on that.

No, [ Marius ] look, I've said we'll give you updates as we said on Friday [indiscernible] to actually to try and get the road map up. So we're working very hard to optimize balance sheet and make sure we can free up further efficiencies on a forward-looking basis. So basically, no, we are continuing to work on our long-term projects of getting the road map into a region where it's accessible to our investors.

And if I may ask a quick other question about OM Bank. You gave us guidance. I think it was start-up losses of ZAR 1.2 billion to ZAR 1.3 billion per annum. I'd just like to know if those costs would include client acquisition costs once the bank is actually launched.

Yes. Those would include client acquisition costs. And we -- the guidance we gave was a run rate for -- that was similar to 2024, for 2025, maybe a little bit higher. And then reducing to a breakeven to F 2028, breakeven on the monthly position during F 2028. So that would include any revenues and any acquisition costs for clients in the bank.

Our next question comes from Jarred Houston from All Weather Capital.

Can I just ask, obviously, a lot of time has elapsed [Technical Difficulty]

Ladies and gentlemen, apologies...

[indiscernible] participant on the call. Yes, I'll get Jarred and then respond off e-mail. Apologies for that. I have no idea what happened there technically. I'll check up with the Chorus Call team. Thank you.

Thank you. Ladies and gentlemen, it appears we have no further questions on the telephone lines. I will now hand back for closing remarks.

Judith, we had lost conduct with you for the past 5 minutes or so. So we had Jarred online asking a call. Could you just please check if he's still available, so we can close on that call and then wrap up the call. We've lost quite a number of participants.

[Operator Instructions] Jarred is connected. I'm going to go directly to his line.

Can you guys hear me now?

Yes, we can.

Perfect. Sorry about that. Line dropped completely on my side. My question was just given how much time has elapsed since the March end, we've had a full 2 months here. You were able to give us some color in terms of either sales or persistency trends post the March period. And then also if you can give some comments on how different parts of the business have held up in the volatility within the market in April, in particular, if there are any dislocations or anything to note just given how volatile the period it's been.

Look, we haven't given you any commentary on the period post-March. So I think it would be inappropriate to give you comment now. What I would say is, yes, we did see some disturbance in the March levels, beginning of April. But that's largely been restored. So we haven't seen any material impact on our solvency ratios in our risk positions or anything like that. So balance sheet remains very strong. And we've obviously monitored what's happened post 31 March from a risk perspective. So comfortable with that. And we'll be able to give you an update on the trends post-March as soon as we come to market and as soon as we do the next update to the market, which isn't about, will be during July and August. Thanks. Is there anything -- sorry, we just not in a position to comment on [indiscernible]

Thanks, Jarred. There are no further people queuing up for Q&A on my. Judith, happy for you to double check and then let's wrap up the call.

Ladies and gentlemen. At this point, we have no further questions from the lines. I will now hand back for closing remarks.

Thank you. Over to you, Casper, for the closing remarks.

Yes. Thank you, everyone, for joining us today. Yes, once again, to reiterate that it was a difficult trading period. As you saw lots of volatility in the markets. We did we were able to grow gross flows, and we were able to steady the ship in terms of Life APE sales despite some one-offs in the prior year. We continue to work on trying to widen the draws, i.e., improved revenues more than costs. And we have a very strong focus on managing our costs during this period. And we continue to work on our balance sheet and the balance sheet optimization initiatives. And as we said before, we'll come back with more detail at our half year results. Thanks.

Thank you. Bye.

Ladies and gentlemen, thank you for joining us for this event. You may now disconnect your lines.