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Good results combined with strong growth in regular premium sales

Overview

Equity markets in the Emerging Markets have enjoyed a strong year, with the JSE increasing by 16%. The South African rand appreciated 13% against the US dollar and 14% against sterling. Low inflation contributed to interest rate cuts in South Africa from 10.5% to 9%.

We continue to focus on innovation and product improvements which will benefit our customers. In South Africa we developed and launched a new direct short-term insurance product, iWYZE, in conjunction with Mutual & Federal - and its success has exceeded expectations. Old Mutual Corporate launched Old Mutual SuperFund, the largest multi-employer or umbrella fund in South Africa with over 300,000 members, to provide a simple, affordable and strictly-governed platform enabling employees to save for their retirement. We launched the Futuregrowth Agri-Fund in March 2010, focusing on responsible equity investments in agricultural land, agri-businesses and farming infrastructure. As a Socially Responsible Investment fund, it seeks long-term returns and tangible social and developmental impacts.

We are integrating social, environmental and economic principles into our core business. OMSA achieved Level 2 Broad-Based Black Economic Empowerment (BBBEE) status in October 2010. Furthermore, OMIGSA attracted more than R8 billion from institutional investors into social infrastructure investment.

Our sales improved in the year, notably in the second half. This resulted in a 6% increase in APE sales compared to 2009, and we benefited from improved persistency. Our NCCF improved significantly, and we saw increasing contributions from new markets, with non-South African NCCF higher than South African NCCF (excluding flows relating to the Public Investment Corporation of South Africa).

IFRS AOP results

IFRS AOP (pre-tax) increased by 4% from R5,879 million to R6,099 million, with strong asset management profits (up 62% to R1,550 million), partially offset by lower long-term investment return (R1,221 million compared to R1,658 million in 2009).

The growth in long-term business profits is mainly due to the significant improvement in Retail persistency in 2010 following the significant strengthening of the basis in 2009 as well as continued business effort to improve retention experience. Good investment performance in the annuity and permanent health insurance (PHI) portfolios and increased asset-based fees due to higher equity market levels also contributed to profit growth. The comparable 2009 life profits benefited from a number of large non-recurring items, including the impact of assumption changes and profits from the Nedbank joint ventures in the first five months of 2009. Excluding these items, underlying life profits increased by 37% over the comparative period.

Asset management profits grew significantly as a result of higher fees being earned from higher FUM, stronger performance fees in OMIGSA, a first full-year contribution from ACSIS (acquired in the second half of 2009), a higher contribution from OMF due to growth in the business, and mark-to-market profits in Old Mutual Specialised Finance (OMSFIN). These were partially offset by lower transactional income.

The LTIR decreased by 26% to R1,221 million in 2010 reflecting the reduced rate applied to OMLAC(SA) assets due to the implementation of a higher ratio of cash to equity in the asset portfolio backing the Capital Adequacy Requirement.