Old Mutt: Dynamic, modern, thrusting ... oh, wait a sec
Old Mutual sometimes seems to do well in spite of itself
If you were to choose words that least describe dynamism and modernity it would have to be “old” and “mutual”. And given the Old Mutual group’s problems overseas you might have expected them to change the name of business to, say, Den Anker, which reflects its anchor logo but also a congenial watering hole in Cape Town’s V&A Waterfront. Yet, amazingly, Old Mutual pulled off the change of primary listing of the much reduced group as a “homecoming” rather than a retreat.
Old Mutual sometimes seems to do well in spite of itself. Its main factory in Pinelands was fit for purpose in 1965, when client files were stored in a huge basement and fetched by employees on roller skates. I have often asked the way between departments at Pinelands only to find the staff member just as lost as me. It used to expect clients to come to its premises, even if it meant flying down from Johannesburg, and eat terrible school food in the private dining rooms.
CEO Peter Moyo has none of the aloofness of predecessors such as Mike Levett and Jan van der Horst. And wisely, a decade ago the top management and key client service staff moved up to Johannesburg. Moyo has made use of the larger skills pool in Johannesburg, recruiting Casper Troskie from Liberty as finance director and Garth Napier from Edcon as head of Old Mutual Insure. The grandiosity of the old business, which at its peak had a 40% market share of many lines of business, has been tempered.
Most fund managers have accumulated Old Mutual shares expecting a much more significant unlock in value from its “managed separation”. Yet the current Old Mutual is on a six-month low. Zimbabwe, which was a star performer last year on strong capital gains on the stock market, had to be written down. Not for the first time Mutual is unable to take any money out and it must be painful for Moyo, as it is his home country. Old Mutual’s pretensions to being a pan-African business seem hollow compared with Sanlam, which operates in obscure markets such as Burkino Fasso and Madagascar.
Old Mutual Southern Africa is well-established from colonial times, when the life office opened in South West Africa, Southern Rhodesia and Nyasaland. Botswana was bypassed, though ironically it is the most successful country in the region today. But even with the Zimbabwe write-offs, Old Mutual still made R1.6bn. The business is probably even stronger in Zimbabwe than in SA. The Old Mutual share price has for many years been used as a way to calculate the true value of the currency, and it also owns Cabs, a well regarded bank.
In East Africa Old Mutual has a well established general insurer, and a strong Kenyan microlender in Faulu. But it has made some bizarre decisions, offering products such as life and casualty in South Sudan. Can this be the best use of policyholder funds?
At least there was a modest profit in the region, helped by property rental income. In West Africa we were assured the bancassurance relationship with Ecobank would be the silver bullet. But Ecobank management has been far too busy digging itself out of the hole it fell into in 2017 to worry about Old Mutual. Credit life sales fell materially. Losses in West Africa increased by 40% to R255m, with general insurance the main candidate.
It remains to be seen if Napier, fresh from the traumas of Edcon, can impose more sophisticated underwriting in the African markets. One sure bet is that it won’t compare with Santam’s actions.
No bank or life office is as trusted as it claims to be. Old Mutual was always trusted in the sense that your money wouldn’t disappear, though there have been examples of incompetence. But it was the first large life assurer to build a strong presence in the SA mass market. This is a saving grace of the business. Its core middle market franchise, now called Personal Finance, has battled to stay relevant. Its profit was down 36%. It was the last business in its sector to launch a rewards programme and its death and disability programme, Greenlight, is no more than a shameless ripoff of Discovery Life. It is only just diversifying its distribution base, which is still overly dependent on brokers and agents earning high upfront commissions. At least there is now the alternative of buying products at the Old Mutual Finance branches without the old school upfronts.
The mass market is quite different. It also incorporates the “foundation” sector but has struggled to service this very poor market economically. Civil servants paying through stop orders are the core market. Mutual has launched a money account that is well suited to the market, which has a million clients. Banking now accounts for 13% of profit. The cluster has net client cash flows of R6.5bn, the moribund Personal Finance saw outflows of R3.6bn.
Whether it sells through worksite marketing or through its branches (of what is technically not a bank), or even through third-party distribution, mass and foundation executes well. Formerly known as Group Schemes, nobody could have envisaged that it would eventually account for almost a third of group earnings.
Moyo believes Old Mutual’s employee benefits business is a market leader – he used to run it, after all. But it is overly dependent on the income it derives from offering guarantees of debatable value. It got a stay of execution when the authorities allowed it to use its high margin smoothed bonus portfolio as the default, or trustee’s choice for pension funds. But with its giant Super (umbrella) Fund it would still have played a significant role in pension administration.