Renée Bonorchis
7 November 2008
Johannesburg — OLD Mutual suffered another management casualty yesterday when group chief financial officer Jonathan Nicholls quit amid stock losses and write-offs at the US Life business, which caused unrealised losses to double to $2,3bn in the third quarter.
Nicholls, the right-hand man of former CE Jim Sutcliffe, will be replaced by Philip Broadley.
Sutcliffe fell on his sword in September after Old Mutual's US business continued to disappoint investors. Old Mutual CE Julian Roberts said that Nicholls' departure, after just two years, was not related to Old Mutual's troubled performance of late.
Roberts said Nicholls had an industrial background, and "found that the world of embedded values was something that he wanted to move on from".
The departure was amicable, Roberts said. But Old Mutual's already battered share price, which has made it the worst-performing European insurance stock this year, fell further yesterday morning when the group said life sales had fallen 4%, funds under management had shrunk 9%, and the value of new business had dropped 10%.
The group had calculated that 3,5% of US Life's general account portfolio of $20bn had direct exposure to subprime mortgage collateral.
A number of capital injections had been made.
Roberts said his first two months at the helm of Old Mutual were taken up with the market turmoil and sorting out issues at US Life and in the Bermuda office. He said that the group remained well capitalised, and it was reassuring that governments worldwide had been supporting financial institutions.
"So we're in a better position with stability and working through the issues, which is not to say the market couldn't get worse again," Roberts said.
Old Mutual made an offer this week to clients holding its variable annuities with guarantees attached, sold from operations in Bermuda or Asia. The group offered to pay out an immediate top-up to a client's account for up to 85% of the account value and thereafter terminate all guarantees and related fees.
The Nordic and South African businesses showed growth in the insurer's figures.
Roberts conceded that the company's South African peers that did not move their primary listings offshore had performed better on the stock market, but he said that Old Mutual had been in the UK for only nine years, which was not long "in the scheme of things".
Old Mutual took a knock on Wednesday when Morgan Stanley downgraded the stock.
Analysts at Morgan Stanley said that their modelling suggested a further capital injection of up to £330m might be required in the US and Bermuda units to replenish credit losses and strengthen guarantee reserves.
But apart from the planned sale of South African short-term insurer Mutual & Federal, Old Mutual did not announce any other asset sales yesterday, nor did it announce staff layoffs or freezes.
The company said there was a short list of bidders for Mutual & Federal, and that the sale might go through before the end of the year.
Roberts said any serious changes in strategy would be announced at the next results update in March.
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