8th Mar 2021 07:01
(Alliance News) - Old Mutual Ltd expects its headline earnings to halve as significant Covid-19 claims look set to cast a shadow on its 2020 financial results.
In a trading statement, the Cape Town-based financial services group said on Monday it expected its headline earnings per share for the full year to December 31 to drop by between 40% and 60%, down from 236.1 rand cents in a similar period in 2019.
Basic loss per share is expected within a range of 139.5 cents to 97.9 cents, swinging from basic earnings per share of 208.3 cents previously.
"Although stimulus measures and vaccine breakthroughs led to a recovery in local and global equity markets in the second half of the year, the impact of the recessionary environment on our customers' disposable income and the significant impact of Covid-19 on claims and reserving has adversely affected our earnings," Old Mutual said.
It warned that expectations of a third wave, the slow pace of the vaccination rollout in South Africa, and upcoming public holidays and the winter season could weigh heavily on its earnings.
Short term provision increased by ZAR3.9 billion, in addition to ZAR1.3 billion set aside in the first half of 2020.
Old Mutual said it continued to closely monitor claims experience in 2021 and has recorded about ZAR1.9 billion of Covid-19 related mortality claims for January and February of 2021.
Taking into account the release of the first-half provision, there is around ZAR2 billion of the pandemic reserve remaining for mortality risk related to Covid-19 that may arise.
In South Africa, actual claims in the second half of the year were higher than the provision raised in the first half 2020, with an acceleration in infection and excess mortality rates at the end of the fourth quarter.
Old Mutual said it saw a "good recovery" in sales and productivity levels during the second half of 2020, after a significant decline in volumes in the second quarter when the national lockdown was most restrictive.
"The gradual reopening of worksites and branches and the digital enablement of advisers to sell remotely supported the recovery of productivity levels, with the fourth quarter trending towards historic levels. The majority of premium relief initiatives offered to our customers ended in the fourth quarter and reinstatement rates are encouraging, with a continued strong focus across the business on retention and customer loyalty activities," it said.
The group also noted that it remained well-capitalised despite some material one off negative items impacting 2020 earnings.
By Artwell Dlamini; artwelldlamini@alliancenews.com
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