Old Mutual cautions over ’emerging expectations’ of a third wave of Covid-19 in South Africa
Old Mutual said on Monday in a trading statement for the year ended December 2020, that it expects adjusted headline earnings per share to be between 69% and 79% lower than a year ago, as a result of the impact of the recessionary environment on customer disposable income and the significant impact of Covid-19 on claims and reserving.
Adjusted headline earnings, it said, is expected to be 70% to 80% down on a year ago.
“We have observed 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,” it said.
Old Mutual said that it raised a short term provision of R1.34 billion for the anticipated impacts of worsening mortality, morbidity and persistency related to Covid-19 in H1 2020.
In South Africa, actual claims in the second half of the year were higher than the provision raised in H1 2020, with an acceleration in infection and excess mortality rates at the end of the fourth quarter.
“This acceleration was consistent with early patterns of second waves noted in other countries. Since the start of 2021 we have continued to monitor the excess mortality and infection data released weekly by the South African Medical Research Council, our own claims experience and other observable sources.”
This data confirmed that the second wave experience was significantly worse than the first, it said.
“There are also emerging expectations of a third wave given evidence of virus mutation, the slow pace of the vaccination rollout and upcoming public holidays and the winter season. In light of this, we have increased our short term provision by R3,962 million,” Old Mutual said.
The impact of this has been in part mitigated by the release of discretionary reserves of R1.112 billion related to mortality experience in the Mass and Foundation Cluster.
“We continue to closely monitor claims experience in 2021 and have recorded approximately R1.9 billion of Covid-19 related mortality claims for January and February of 2021.
“Taking into account the release of the H1 provision, there is approximately R2 billion of the pandemic reserve remaining for mortality risk related to Covid-19 that may arise,” Old Mutual said.
Read: Old Mutual scraps dividend amid recovery uncertainty
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