Positive trends to aid consumers: Old Mutual

Positive trends in the economy outweigh the negative and more relief for consumers under pressure is on the way, Old Mutual CEO Iain Williamson told Business Times at the insurer’s 2024 interim results presentation in Cape Town on Thursday.

Williamson said while economic growth remained modest and consumers faced the risk of a double-digit electricity tariff hike, positive developments such as the strengthening of the rand, last week’s repo rate cut and improvements in power supply were positive signs.

"There could well be a one-off thing [or disruption] like that can come along and

almost sideswipe the continuing improvement in general consumer health, but I don’t underestimate the amount of stimulus that will come.

"Let’s say top-to-bottom, the rate-cutting cycle ends up being 1.5%. So that’s very

material. That would probably swamp most other things that come along in the meantime. The rand is also strengthening ... fuel prices are going to come down even more, which is likely to put inflation on a more downward trajectory. I think the positives outweigh the negatives."

He said the economy bottomed out in quarter two of last year, in general terms, and had been rising gradually over time.

On Old Mutual’s second phase of its two-pot system withdrawal process — which

allows customers to submit withdrawal

applications via WhatsApp — he said the

reform in the retirement fund industry was a net positive as it would eventually result in sound financial decisions when members consider the tax implications of drawing from their life savings.

Another benefit that came with the introduction of the two-pot system was that

retirement fund members did not have their life savings exposed, as in the previous system’s allowance of a withdrawal of a member’s entire savings, when they resign from a job and change funds.

The two-pot system introduced reforms that transferred contributors’ funds to a vested pot, a savings pot and a retirement pot. It allows members to withdraw a minimum

of R2,000 from the savings pot each year

before retirement, but the retirement pot

remains untouched until they retire.

Old Mutual CFO Casper Troskie said while economic indicators were trending in a positive direction, the company was aware that customers remained under pressure.

"While we expect lower inflation to reduce rates to improve disposable income in the coming months, our customers remain under financial pressure."

According to this week’s Reserve Bank quarterly report, household debt as a percentage of nominal disposable income edged lower from 63.0% in the first quarter of 2024 to 62.2% in the second quarter as the increase in disposable income slightly exceeded the uptick in household debt.

"Households’ cost of servicing debt relative to disposable income decreased marginally from 9.2% to 9.1% over this period,

reflecting the slower pace of increase in the stock of debt, while the prime lending rate remained unchanged."

The report said domestic inflationary pressures eased somewhat in the first

seven months of 2024 as both headline consumer inflation and producer price inflation decelerated.

"Consumer price inflation moderated to below the 4.5% midpoint of the inflation target range for the first time in 40 months in August 2024 due to an easing in food and fuel price inflation. Both goods and, to a lesser extent, services price inflation moderated over this period, with the slower goods price inflation driven by a broad-based moderation in the prices of all durability categories."

Old Mutual announced at the presentation that its plans to set up its own bank — OM Bank — were gaining traction, with a planned launch in the first quarter of 2025 pending regulatory approvals.

Williamson told Business Times the group had put R2.5bn into the formation of OM Bank so far. He said that when Old

Mutual Finance was established in 2008 it was set up primarily to compete with Capitec ahead of time and this equipped OM Bank with a R16.5bn lending book and an extensive database.

"We think we’ve built something ... very, very compelling. It’s built in such a way that it can compete very strongly from a cost-to-serve perspective. But importantly, it’s been thought about in a way where we think of how to partner with customers to get them to a financially better place."

The group reported a solid performance at the halfway stage of its financial year,

increasing life sales 6% and gross written premiums by 9%.

Adjusted headline earnings per share

increased 7% to 73.5c, bolstered by a R1.5bn share buyback in 2023, the group said in a statement. A further R1bn share buyback

is proposed for 2024, subject to regulatory approval.

Adjusted headline earnings for the six months rose 3% to R3.27bn, supported by

a 14% increase in shareholder investment returns due to an improved performance by South African equities.

Headline earnings were up 34% at R5.825bn and an interim dividend of 34c per share was declared.