South Africa's Old Mutual warns of full-year loss
(Reuters) — South African insurer Old Mutual Ltd. warned Monday of a full-year loss, saying it had been forced to increase provisions and reserves related to the COVID-19 pandemic, sending its shares down more than 3%.
It forecast a basic loss per share of between 97.9 cents and 139.5 cents and an after-tax loss of up to 6.2 billion rand ($404 million).
Old Mutual, South Africa's second-largest insurance company, increased provisions by almost 3.4 billion rand as claims outstripped the funds it set aside in the first half amid a second, more severe wave of COVID-19 in South Africa.
It also more than doubled a previous estimate for an increase in reserves for business interruption and business rescue to about 300 million rand from up to 140 million rand.
“We exercised tight cost control across the business to part mitigate negative earnings impacts,” Old Mutual said, adding it had also seen a recovery in sales and productivity in the second half.
Not all South African insurers had to jack up provisions, but they have all faced challenges during the pandemic, including changes to their usual distribution channels cause by lockdowns.
They also face the threat of policy lapses as cash-strapped customers cut back on spending, with insurance often among the first things to go.
Old Mutual said its adjusted headline earnings per share (HEPS) would remain positive, but decline by up to 79% to sit between 44 cents and 69.4 cents.
HEPS is the main profit measure in South Africa, but strips out certain one-off items that hurt Old Mutual's performance last year.
Its shares had fallen 3.4% by 0724 GMT.
More insurance and risk management news on the coronavirus crisis here.
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