Old Mutual says death claims were higher than expected, despite setting aside an additional R2 billion in the first half of 2021 in anticipation of more waves of Covid-19.
The insurer published a short trading statement on Wednesday where it told shareholders that its Personal Finance and Old Mutual Corporate businesses recorded higher claims than the group provided for.
Old Mutual will publish the full results on 15 March, where it will detail the extent to which claims in these businesses exceeded its provisions.
But halfway through the second half of 2021, Old Mutual said the rate of vaccine hesitancy in South Africa was higher than the company anticipated, resulting in higher levels of claims. It also experienced a higher level of claims in its Namibian life business than expected by the end of the third quarter of 2021.
This saw Old Mutual’s life insurance operations record excess deaths that impacted profits by approximately R6.6 billion by 30 September. And all that happened before the Omicron wave.
It remains to be seen what Old Mutual’s mortality experience was under the Omicron wave. But the National Institute for Communicable Diseases’ study published in January showed that the variant was less severe than Delta, with a lesser risk of hospitalisation or death. The death rate in those infected with Omicron peaked at 14% to 15% of the rate seen under Delta.
Old Mutual said it has reserved money for the impact of the Omicron variant and for expected future Covid-19 claims. But only time will tell if that’s enough.
“Should a new variant emerge that is more transmissible or result in higher mortality post-infection, we would have to reassess the provisions held as new facts emerge,” the insurer said in the trading update.
A return to profits
On the bright side, Old Mutual said most of its businesses have strongly recovered from the Covid-19 lows experienced in 2020. Sales in its second-biggest business, Personal Finance, were above 2019 levels in 2021.
“The relaxation of lockdown restrictions in the current period supported the considerable growth in productivity levels across the group despite a challenging operating environment in all our markets,” said the insurer.
It added that, in fact, all retail businesses in SA – the Mass and Foundation Cluster, Personal Finance and Wealth Management – continue to do much better than in 2020.
As a result, Old Mutual has returned to profit after recording a R5.1 billion International Financial Reporting Standards (IFRS) loss and a 75% decline in its adjusted headline earnings in 2020.
For 2021, Old Mutual’s IFRS profit is estimated at between R6.5 billion and R7 billion. The group also expects its adjusted headline earnings to be between R5.39 billion and R5.64 billion, which will be more than 100% above the R2.48 billion reported for the 2020 financial year.-fin24
