Annual Financial Report 2011 and AGM 2012

RNS Number : 3722A

Old Mutual PLC

29 March 2012

 



Ref 25/12

29 March 2012

OLD MUTUAL PLC - ANNUAL FINANCIAL REPORT 2011 AND ANNUAL GENERAL MEETING 2012

Old Mutual plc ("Old Mutual" or the "Company") has today published its Annual Financial Report for 2011. A copy of the Annual Financial Report, the Annual Review and Summary Financial Statements for 2011, the Notice of the 2012 Annual General Meeting and the Form of Proxy have been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do

Copies of the Annual Financial Report may also be obtained from Investor Relations, Old Mutual plc, 5th Floor, Old Mutual Place, 2 Lambeth Hill, London EC4V 4GG or Old Mutual Square, Isibaya Building, 2nd Floor, 93 Grayston Drive, Sandton 2196, South Africa.

The 2012 Annual General Meeting will be held in the Presentation Suite, 2^nd Floor, Old Mutual Place, 2 Lambeth Hill, London EC4V 4GG on 10 May 2012 at 11.00 a.m. (UK time).

The Company is arranging this year for the Annual General Meeting to be webcast so that shareholders who cannot readily attend the meeting in London can, if they have access to a computer, observe the proceedings.  A link to the webcast will be available on the Company's website at www.oldmutual.com on Thursday, 10 May 2012 from 10.45 a.m. (UK time).

The circular relating to the Annual General Meeting will be sent to shareholders with the Annual Financial Report or the Annual Review and Summary Financial Statements.

In compliance with the Company's obligations under DTR 6.3.5, additional information is set out below which has been extracted in full unedited text from the Annual Financial Report.  Accordingly, page references and section numbers in the text below refer to page numbers and section numbers in the Annual Financial Report.  This information consists of a description of the risk factors and uncertainties affecting the Company and details of related party transactions and should be read in conjunction with the Company's preliminary results announcement on 9 March 2012.  The Annual Financial Report and the preliminary results announcement are available on Old Mutual's website at www.oldmutual.com

Understanding and identifying significant risks to Old Mutual

Our business is affected by numerous uncertainties, some of which are potential threats but can also be seen as opportunities if we make the right value-enhancing decisions. The section below defines the major risk types and summarises the actions we adopt to mitigate the risks and optimise the opportunities that they present.

Risk type and potential threat or uncertainty	Group mitigating actions and opportunities	Business unit management actions and opportunities
Business risk The main business risk the Group is exposed to is the risk of poor persistency or retention of customers, resulting in income not covering the expense base that was assumed at the time of writing the business. High lapse rates and upfront costs are key risk drivers in this category. This risk category also incorporates the risk of unsatisfactory new business margins, driven by volume and business mix; persistency experience losses driven by regulatory changes; poor client administrative service; or economic- driven client behaviours. The June 2011 business risk economic capital split allows for diversification both within business risk and between business risk and other risk categories.	·   Quarterly Group-led reviews with each business unit ensuring regular dialogue and oversight of business performance ·   Business risk is monitored against market consistent embedded value (MCEV) experience variances and, where appropriate, actions are agreed to mitigate negative trends ·   Lapse rates and persistency information are monitored through experience investigations ·   Within the Group, we examine the impact on earnings and capital by stress testing both increased and decreased new business volumes to understand these impacts ·   Old Mutual is well diversified across geographies and product lines, minimising the impact of sector- or territory-specific economic downturns ·   The key mitigation for product design and approval is the review process conducted by the LTS product teams and by the Group Actuarial team.	Product design in the LTS businesses ensures technically sound pricing and structures whilst positioning the product correctly in difficult market conditions. Risk-adjusted profit signatures and improved persistency are key features of the product strategy. Business risk is a significant risk on unit-linked and asset management business which is materially exposed to market, credit or insurance risk: ·   Wealth Management, Nordic and Retail Europe manage significant unit-linked portfolios. While these risks are important in Emerging Markets, they represent a lower proportion of overall risk ·   Nedbank Group actively manages business risk through its management structures and an earnings-at-risk methodology similar to the Group's risk appetite metrics.
Market (Policyholder) risk The impact of market movements on policyholder assets and liabilities covers mismatches of assets relative to liabilities. Also the impact of a change in fund-related management fees earned from client portfolios as a consequence of movements in asset markets. The June 2011 market (policyholder) risk economic capital split allows for diversification both within market risk and between market risk and other risk categories.	·   Business units exposed to downside market risk are required to take account of the structure of their asset and liability portfolios, the local regulatory environment and Group policies ·   Risk management strategies designed to mitigate market risk are tailored to the type of contracts sold. Where contracts are related purely to longevity, mortality and morbidity risk, there is typically no sharing of better-than-expected or required investment returns. Under unit-linked and/or market-linked contracts, policyholders receive the full investment return on the underlying assets, less any applicable fees, and the only residual market risk relates to variation in asset-based fees as a result of fluctuations in the underlying assets ·   In most other classes of investment-related contracts, investment returns are attributed to, or shared with, policyholders in the form of vesting and/or non-vesting bonuses. Non-vesting bonuses offer an option for management action, as they can be withheld in adverse circumstances ·   The Bermuda business, in run-off, is subject to substantial market risk due to the nature of the guarantees in the products. The risks are monitored on a daily basis and we are subject to a dynamic hedging programme which is governed by the Group Oversight Committee, comprising Group and Bermuda Board members.	·   Some of our life assurance products contain investment guarantees and options. A reduction in interest rates and equity markets can cause options to be in-the-money, with a potentially adverse impact on profit ·   We manage market (policyholder) risk through asset-liability matching, interest rate swaps and hedges, equity hedges, and currency swaps, borrowings and forward foreign exchange contracts to mitigate currency risk ·   Smooth bonus products constitute a significant proportion of the South African business. We pay particular attention to declaring bonuses in a responsible manner, to meet our promise to clients that returns will be less volatile over time than purely market-linked returns. Net investment returns not distributed are credited to bonus-smoothing reserves to support consistent bonus declarations when markets are low ·   When investing shareholders' funds, we address equity price risks through investment policies which tightly limit the extent of investment in equities or equity funds. As a result, the shareholder assets invested to back the statutory capital requirements of each legal entity in the Group are predominantly invested in sovereign bonds and cash, hence exposure of shareholder assets to market risk is relatively small overall. Other practices include: ·   Our Principles and Practices of Financial Management govern the management of discretionary participating contracts in South Africa, including bonus-sharing rules and management actions to be taken in adverse conditions ·   Stock selection and investment analysis are supported by a well-developed research function ·   In our investment guidelines asset-liability duration matching is used for fixed annuities, especially where specific guarantees apply. Other non-profit policies are also suitably matched ·   Market risk on with-profit policies, where investment risk is shared with investors, is mitigated by appropriate bonus declaration practices and hedging ·   Interest rate and equity hedging are used where movements can lead to an increase in the value of investment guarantees/options, causing a reduction in earnings and shareholder capital. We have implemented an Internal Economic Scenario Generator in South Africa, which allows us to dynamically hedge our interest rate and equity exposures.
Credit risk The Group is exposed to the risk of credit defaults. This includes counterparty risk where an asset is not repaid in accordance with the terms of the contract. Credit risk also encompasses lending risk (for instance in our banking businesses), where a borrower becomes unable to repay outstanding balances. Client defaults on financial guarantee obligations are also an element of credit risk.	The Group's credit risk policy, limits and reporting systems have recently been reviewed. ·   We have introduced improvements to allow us to adopt a more dynamic and timely approach to identifying and managing credit risk exposures ·   The Group only deals with approved counterparties and, where appropriate, obtains sufficient collateral as a means of mitigating the financial loss from defaults. We continuously monitor the credit ratings of counterparties. The Group's exposure to the European peripheral economies is not deemed significant and is primarily to highly-rated institutions. At the time of writing this report, the Group has less than £2 million exposure to the sovereign debt of European peripheral economies; the exposure has been reduced over the course of the last year from £10 million. We intend to maintain our exposures at low levels and to continue monitoring developments in this region. Credit exposure was reduced by £11.5 billion as a result of the sale of US Life. As our primary banking business, Nedbank carries the majority of our credit risk through its lending and other financing activities. Nedbank's financing activities contribute to its significant credit risk exposure. We expect impairment levels to remain stable or even start to reduce during 2012. This is due to a number of factors including a slowdown in lending, the introduction of tighter lending criteria and the stabilisation of economic conditions.	The Group Credit Risk Policy sets out the principles and mandatory minimum standards for the management of credit and counterparty risk across the Old Mutual Group, which include: ·   The credit risk the business is willing to accept ·   The current credit risk profile and exposure to credit risk concentrations ·   The future target credit risk profile and credit risk limits that comply with the business risk appetite. Increasing activity in the unsecured personal loans within Old Mutual Emerging Markets, from the Mass Foundation Cluster, is subject to Group standards and risk assessment. With the consolidation in 2011 of the Zimbabwean businesses into Old Mutual Emerging Markets, came the local banking business called CABS. This business will also be subject to complying and rolling out Group standards and policies within 2012. Nedbank manages credit risk exposures through its credit risk management framework, which encompasses comprehensive credit policies, limits, governance structures and internal risk models that are fully Basel II compliant and in line with Group policies and practices. To address the changing conditions impacting on credit risk this year, Nedbank has: ·   Closely monitored credit risk loss ratios and other key indicators through its credit risk monitoring committees ·   Tightened credit granting criteria - for example, on home loans it has tightened loan-to-value criteria, increased acceptance standards and where appropriate, restructured credit risk agreements ·   Tightened controls over large payments to and from global banks ·   Increased staff to administer collections.
Liability risk The Group assumes liability risk by issuing insurance contracts under which it agrees to compensate the policyholder or other beneficiary if a specified uncertain future event affecting the policyholder occurs. This risk includes mortality and morbidity risk in the LTS business units and a risk of loss from events such as fire or accident in Mutual & Federal (M&F), our general insurance business unit. The June 2011 liability risk diversified economic capital allows for diversification both within liability risk and between liability risk and other risk categories.	We manage liability risk by: ·   Writing a mix of business over multiple insurance classes and geographical segments. Business that is weakly correlated with liability risk (e.g. unit-linked business) provides a hedge against liability risk due to a diversification effect ·   Using sophisticated management information systems which provide current data on the risks to which we are exposed ·   Calculating premiums and monitoring claims patterns using actuarial models based on past experience and statistical methods ·   In our underwriting policy, we specify Group requirements for concluding insurance contracts and assuming liability risks ·   Using reinsurance to limit exposure to large single claims and catastrophes and increase our insurance capacity ·   Building an effective mix of assets that back insurance liabilities based on the nature and term of those liabilities.	Incorrect pricing bases give rise to underwriting risk. The business units with significant liability risk are Emerging Markets and M&F. ·   In Emerging Markets the relatively weak correlation of liability risk with our other risk types reduces our exposure after diversification over several insurance classes and a number of geographical segments ·   Maintenance and use of sophisticated management information systems which provide current data on the risks to which we are exposed ·   Use of actuarial models to calculate premiums and monitor claims patterns using past experience and statistical methods ·   Guidelines for concluding insurance contracts and assuming liability risks, such as underwriting principles and product pricing procedures ·   Reinsurance to limit our exposure to large single claims and catastrophes ·   An effective mix of assets that back insurance liabilities based on those liabilities' nature and term ·   A key change project for M&F in 2011 has been to implement new, best-practice underwriting standards and processes in the underwriting division, which will enhance deal approval processes and risk-based pricing methodology ·   Reinsurance plays an extremely important role in the management of liability risk and exposure at M&F.
Operational risk The risk arising from operational activities, for example a failure of a major systems, or losses incurred as a consequence of people and or process failures, including external events. Specific examples include our ability to attract and retain key staff with the necessary skills to help the Group meet its objectives, and adequate protection of people, premises and data (including IT sustainability and infrastructure).	Operational loss is inherent to our business and difficult to eliminate entirely. However, by using sensitive indicative triggers we can respond to events before they occur. ·   Operational risk is one of the driving metrics in our risk appetite framework. Our appetite for operational risk is to continually reduce exposure from events that we are able to manage and control ·   We continue to focus on areas where we can add value for shareholders - reducing operational risk losses that directly impact profits, refining our risk categorisation model to enable more accurate and consistent reporting of events across the Group, and using more advanced mathematical concepts to translate data inputs into capital amounts ·   Both Risk and Control Self Assessment (RCSA) and internal risk events are used to validate the accuracy of scenarios used in our Advanced Management Approach to operational risk capital modelling ·   OpenPages, our risk management tool, is widely used throughout the Group - helping businesses to understand operational risk better, ensure there are no repeatedly occurring inherent weaknesses, and enhance the control framework. The table on next page gives a breakdown of the Group's principal operational risks.	·   We developed the RCSA process significantly during 2011, and the increased quality and quantity of data has enabled more granular review of operational risk across the Group ·   Following appropriate training and strengthening local risk teams across the Group, we are beginning to realise the benefits of a consistent, Group-wide RCSA process. The data has enhanced our Board risk reports and supports a more effective capital model.

The principal operational risks we face are listed below.

Risk description	2011 commentary	Key mitigations
Regulatory and tax risk Regulatory requirements continue to evolve, with a range of new prudential and business conduct regulations coming to fruition over the next couple of years. Business conduct regulation continues to evolve with a greater focus on customer protection, and compliance with all aspects of tax legislation is becoming increasingly complex as the system of taxation continues to change. Solvency II and its South African equivalent, SAM, are both currently planned to come into effect at the start of 2014. Additional risk also arises in relation to responsibilities for reporting routine customer, employee and other transactions to the tax authorities and adherence to processing risk procedures is important. We need to correctly assess the impact of these changes and respond to them in a timely manner to efficiently manage regulatory required capital. This could translate into lower returns to shareholders or being unable to provide customers with products at a price which is acceptable to them, thereby restricting our business opportunities. In addition to the risk of a fine, penalty or regulatory censure, non-compliance carries a growing risk of regulatory intervention that could impact on our ability to operate.	In the wake of the deepening financial crisis, global regulators have continued to issue a raft of new regulation. While much of the detail is still evolving, the direction is towards an intensifying regulatory environment with even tighter controls on banking and asset management. Structural reform has led a number of global regulators to adopt a 'twin peaks' regulatory model, which is expected to result in an increased focus on business conduct activities. Customer protection in developing markets and information security and privacy are also regulatory hotspots. Solvency II and SAM in South Africa will create step changes in insurance prudential regulation, with focus on internal risk and capital management and the more proactive nature of Group supervision under the Group internal model approval process. Governments continue to impose greater burdens on taxpayers as they seek to enhance revenue yield and transfer more of the cost of tax compliance to taxpayers. The risk for the Group is amplified by its broad geographical spread, which requires it to manage a diversity of changing tax requirements and regulations.	Old Mutual is well positioned to meet increased regulatory expectations since we scan the regulatory environment on a global basis. Dedicated Group and business unit compliance teams closely monitor new and changing regulatory developments and liaise regularly with local regulators and trade bodies to influence outcomes positively. The Group provides a co-ordination role in relation to the FSA, which is the lead authority for Old Mutual plc under the Financial Groups Directive and for approval of our internal model application under Solvency II. The iCRaFT project is designed to deliver all Solvency II and SAM requirements, as a minimum. It made good progress in 2011 and project deliverables are on target as we transition into business as usual. All major business units have dedicated in-house tax resources who assess and monitor new developments. For example the changes introduced by the SA budget in February 2012 are already being considered when pricing our policyholder products, and actions are being taken to: ·   Update systems to enable Old Mutual to pay the right amount of tax to the authorities ·   Review product pricing structures and design value-enhancing features. We have adopted a Group-wide tax risk management policy which requires tax review of major strategic initiatives and product developments before implementation.

Risk description	2011 commentary	Key mitigations
IT and data security Poor IT infrastructure and resilience could result in disruption to our businesses with adverse consequences on customer service, loss of customer data and failure to manage the business effectively.	Across the LTS businesses the operating model was changed during 2011, providing greater centralised control for IT infrastructure whilst enhancing the seniority and experience of the Chief Information Officers in the business. Physical security and information security are areas of increasing risk and regulatory focus - particularly in relation to information security, where the UK and Europe have seen increasing enforcement activity and fines. New privacy and consumer protection laws have also been introduced in South Africa, although the practical regulatory enforcement bodies are still evolving.	We developed a new Group policy for information security and privacy in 2011, which will be rolled out and embedded within the different business units during 2012. The roll-out of the policy will also ensure that information security is included in the LTS IT strategy and that key risks and appropriate control frameworks are in place. Q2 2012 will see a refresh of our periodic information security benchmarking exercise, to measure how well embedded the Group policy is in the different IT processes and practices across the Group. Group information security standards are based on good practice and data privacy obligations.
People risk Delivery of the business strategy requires significant change. Without the right culture, leadership behaviours and management practices we will be unable to attract, retain and motivate the talent we need to deliver the business strategy.	There were a number of new appointments to senior roles and leadership team reorganisations to strengthen our senior talent which could have destabilised teams. Selection and appointment needed to be rigorous to ensure that we upgraded our leadership capability. The year saw further developments in regulatory requirements on executive remuneration and its alignment with risk-based measures.	Our first-ever Group culture survey had a very high response rate. Employee-led action plans to achieve the desired culture shift have been developed and are being implemented. We have continued to develop our leadership and emerging talent by enhancing development opportunities through mobility and targeted structured programmes. Each appointment into a senior role, whether internal or external, includes independent external assessment. We introduced a new performance management system, which provides for the assessment of both business results and behaviours for the 2011 performance review. We also broadened the use of incentive pools determined by measures including economic profit.

Risk type and potential threat or uncertainty	Group mitigating actions and opportunities	Business unit management actions and opportunities
Market (Shareholder) risk The impact on shareholder assets due to changes in the value of financial assets or liabilities arising from changes in equity, bond and real estate prices, interest rates and foreign exchange rates. Our greatest exposure is to equity risk. Market risk arises differently in the business units, depending on the types of assets and liabilities held. Most of our shareholder assets are invested in sovereign bonds which is included within the credit section of the risk profile. The analysis here represents just that part of shareholder funds subject to market risk. The June 2011 market (shareholder) risk economic capital split allows for diversification both within market risk and between market risk and other risk categories.	The Group monitors market risk as part of the risk appetite framework. ·   The impact of changes in market risk is monitored and managed using sensitivity analyses, through the business units' own regulatory processes, with reference to the Group's risk appetite framework, and by other means. This work is complemented by the Group's capital modelling and embedded value reporting processes, which include assessments of the sensitivity of our capital position and embedded value to various market changes ·   The upside presented by market risk is evident when equity values rise or interest rates move favourably.	The Group market (shareholder) risk policy sets out the principles and mandatory standards for the management of market (shareholder) risk across the Old Mutual Group. ·   Business units are required to have a written strategy for managing market risk which should reflect the Group strategy. The business unit strategy must cover: ·   The approach to measuring and managing market risk ·   Market risk return preferences ·   The current market risk profile ·   Exposure concentrations ·   The future target market risk profile ·   Limits that comply with the business risk appetite, and risk mitigation techniques.
Currency risk Currency risk is firstly the risk at Group level that net assets in business units invested in currencies other than sterling depreciate relative to sterling, leading to a fall in Group net asset values (currency translation risk). Secondly, there is an allowance at business unit level for currency risk associated with direct revenue streams from subsidiaries and related companies.	·   We manage currency risk to ensure that Financial Groups Directive (FGD) capital remains adequate and does not attract unwelcome regulatory attention. We arrange our assets and liabilities to ensure that FGD remains at suitable levels in stress scenarios ·   We manage currency risk associated with known flows of currencies from business units to Group and vice versa if appropriate, such as future dividends and proceeds arising from disposals ·   We test the devaluation of other currencies relative to sterling, and seek to match currency liabilities to assets in the Group's consolidated balance sheet, e.g. by issuing debt in specific currencies, and/or via the use of swaps.	·   Intra-Group currency exposures are not typically hedged ·   There is an allowance at business unit level for currency risk associated with direct revenue streams from subsidiaries and related companies.
Strategic and change risk The risk of failing to implement the business strategy and the management of associated changes to the business.	Key risks that could adversely affect our ability to deliver the stated strategy include: ·   Unanticipated external changes arising from competitors, regulators and government bodies ·   Failure to clearly communicate Old Mutual's strategy, both internally and externally ·   Unexpected performance shocks in the Group's underlying businesses ·   Failure to clearly define, prioritise and monitor delivery of the most critical Group-wide and local strategic programmes ·   Decreasing staff engagement due to the uncertainties associated with organisational changes.	A rigorous annual strategy review and tracking process mitigates the risks in the following ways: ·   To ensure ongoing ownership and commitment, the Old Mutual Board and top leaders are actively involved in the annual review of the Group strategy ·   The Group strategy is communicated externally and simultaneously internally, to provide guidance to all Old Mutual's employees ·   The Group strategy clearly sets out the strategic priorities for the Group and provides context for business unit planning ·   Competitor activity and anticipated regulatory changes are monitored locally and included in business units' annual plans ·   Progress against business plans is reported at four quarterly review meetings and remedial actions taken where necessary. In addition, the key Group-wide strategic programmes are developed, tracked and reported on by the Strategic Implementation Office and the Group Strategy and Strategic Implementation teams work with the business leaders to define the activities that will support the strategy and track the progress of these activities ·   The business units within the Group have taken steps to establish Change teams with Change Directors to provide accountability for the delivery of key programmes ·   The Strategic Implementation team have worked to provide a framework for change that is monitored through the change risk policy. This ensures that the risks of programme failure are reduced and the deliveries provide value for money for the investment in change.
Liquidity risk Liquidity risk is the risk that the Group is unable to meet its obligations as they fall due, for example if counterparties providing short-term funding were to withdraw or not roll over funding. It also includes the risk of being unable to sell assets in an illiquid market, or not being able to raise more capital, leading to asset-liability matching problems and a threat to capital cover ratios. Extreme market volatility may result in unexpected capital calls and stressed liquidity positions.	Our liquidity position is prudently managed at both Group and business unit level. ·   The Group-wide liquidity policy sets out parameters within which all business units must operate to identify, measure and manage liquidity risk ·   The Group Capital Management Committee reviews capital and liquidity positions, with the Group Executive Risk Committee providing additional oversight and challenge ·   Liquidity headroom is one of our key risk indicators. It ensures we have sufficient liquidity to cover both asset liquidity risk and funding liquidity risk ·   The Group has rolled out a new liquidity policy in 2011, which is being embedded within business units. The Group has a new documented Contingency Funding and Capital Strategy which is continuing to evolve into 2012, with business units also developing local contingency plans ·   The Basel Committee on Banking Supervision issued new liquidity standards on 16 December 2010. Many of the key principles are already encapsulated in Nedbank's Liquidity Risk Management Framework. However, in order to meet the requirements of the liquidity coverage ratio by 2015 and the net stable funding ratio by 2018, Nedbank and the other South African banks are working closely with the South African Reserve Bank (SARB) and National Treasury to address the structural challenges of compliance for the local banking industry, while at the same time considering the unintended economic consequences which may arise from the proposed liquidity standards.	The Group liquidity risk policy sets out the principles and mandatory minimum standards for the management of liquidity risk across the Old Mutual Group: ·   Business units are required to assess their liquidity risk, by conducting a review of their funding profile against the nature of risk inherent within the business ·   Business units must define their liquidity risk appetite and propose measures for managing this which are appropriate and proportionate to the risk ·   The liquidity risk appetite must determine the level of liquidity risk exposure the business is willing to accept in order to meet objectives and optimise returns against capital ·   The policy sets out the minimum frequency with which the reports must be prepared, the escalation process and also contingency plans ·   The requirement for business unit specific liquidity contingency plans. Liquidity risk management is a particular focus in the Nedbank Group. ·   A portfolio of marketable and highly liquid assets to meet unforeseen funding requirements is maintained ·   Market liquidity by asset type (and for a continuum of plausible stress scenarios) is part of the internal stress testing and scenario analysis process ·   The quantum of unencumbered assets available as collateral for stress funding is measured and monitored on an ongoing basis.

Related parties

The Group provides certain pension fund, insurance, banking and financial services to related parties. These are conducted on an arm's length basis and are not material to the Group's results.

(a) Transactions with key management personnel, remuneration and other compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. Details of the compensation paid to the Board of directors as well as their shareholdings in the Company are disclosed in the Remuneration Report on page 119 and Corporate Governance report on page 100 respectively.

(b) Key management personnel remuneration and other compensation

	Year ended 31 December 2011		Year ended 31 December 2010
	Number of personnel	Value £000s	Number of personnel	Value  £000s
Directors' fees	12	1,638	12	1,510
Remuneration		25,176		22,819
Cash remuneration	17	5,969	18	6,675
Short-term employee benefits	17	8,751	18	7,660
Post-employment benefits	14	1,296	10	451
Other long-term benefits	5	12	7	14
Share-based payments	13	9,148	17	8,019
		26,814		24,329

		Year ended 31 December 2011		Year ended 31 December 2010
Share options	Number of personnel		Number of options/ shares '000s	Number of personnel	Number of options/ shares '000s
Outstanding at beginning of the year		13	14,499	11	15,613
Leavers		1	(70)	2	(482)
New appointments		1	274	4	704
Granted during the year			193		425
Exercised during the year			(2,079)		(966)
Lapsed during the year			(1,335)		(795)
Outstanding at end of the year		11	11,482	13	14,499

	Year ended 31 December 2011		Year ended 31 December 2010
Restricted shares	Number of personnel	Number of options/ shares  '000s	Number of personnel	Number of options/ shares '000s
Outstanding at beginning of the year	14	19,142	10	7,832
Leavers	1	(641)	2	(1,565)
New appointments	2	1,580	6	1,314
Granted during the year		7,111		12,282
Lapsed during the year		(2,270)		(151)
Released during the year		(3,270)		(570)
Outstanding at end of the year	14	21,652	14	19,142

(c) Key management personnel transactions

Key management personnel and members of their close family have undertaken transactions with Old Mutual plc and its subsidiaries, jointly controlled entities and associated undertakings in the normal course of business, details of which are given below. For current accounts positive values indicate assets of the individual whilst for credit cards and mortgages positive values indicate liabilities of the individual.

	Year ended 31 December 2011		Year ended 31 December 2010
	Number of personnel	Value £000s	Number of personnel	Value  £000s
Current accounts
Balance at beginning of the year	8	672	7	265
Net movement during the year		(348)		407
Balance at end of the year	5	324	8	672
Credit cards
Balance at beginning of the year	5	29	4	22
Net movement during the year		(3)		7
Balance at end of the year	5	26	5	29
Mortgages
Balance at beginning of the year	5	1,791	5	3,028
Net movement during the year		(627)		(1,125)
Interest charged		49		86
Less repayments		(778)		(334)
Foreign exchange movements		186		136
Balance at end of the year	4	621	5	1,791
General insurance contracts
Total premium paid during the year	3	15	3	18
Claims paid during the year	1	1	1	1
Life insurance products
Total sum assured/value of investment at end of the year	10	16,029	13	23,501
Pensions, termination benefits paid
Value of pension plan as at end of the year	10	5,700	13	6,714

Various members of key management personnel hold, and/or have at various times during the year held, investments managed by asset management businesses of the Group. These include unit trusts, mutual funds and hedge funds. None of the amounts concerned are material in the context of the funds managed by the Group business concerned, and all of the investments have been made by the individuals concerned either on terms which are the same as those available to external clients generally or, where that is not the case, on the same preferential terms as were available to employees of the business generally.

(d) Skandia Liv

Livförsäkringsaktiebolaget Skandia (publ) (Skandia Liv), is a related party to the Old Mutual Group. Skandia Liv is a wholly owned subsidiary of Skandia and its business is conducted on a mutual basis. For the reasons given in the accounting policies Skandia Liv's result is not consolidated in these financial statements.

Material transactions between the Group and the Skandia Liv group in the year ended 31 December 2011 were as follows:

·       Agreement in principle and framework agreement on co-operation covering market related functions and certain staff functions - this involves distribution and distribution support, customer service, market communication, administration of group insurance products, and staff and service functions. Skandia Liv paid £90 million (2010: £88 million) for services rendered under this agreement.

·       Premises - the Group rented office premises from Skandia Liv. The Group paid market rents of £1 million (2010: £16 million) for these premises.

·       Occupational pensions - Skandia Liv provides occupational pensions for the employees of the Group, for which the Group paid £17 million (2010: £15 million).

·       Agreement on IT services - the Group provides IT services to Skandia Liv. The amount charged to Skandia Liv was £7 million (2010: £7 million).

·       Settlement with Skandia Liv regarding the arbitration settlement - in a ruling issue on 2 October 2008, the arbitration board ruled that the going rate level of compensation in the market pursuant to the 2002 Asset Management Agreement is a maximum of ten basis points including value added tax, and that Skandia - for the time from 1 July 2008 and onward - is obligated to pay an amount to Skandia Liv that corresponds to the share of asset management fees received that exceed ten basis points including value added tax. A reserve to cover asset management fees for the time after 1 July 2008 was charged to the income statement. On 21 July 2009, an agreement was reached between Skandia and Skandia Liv, under which Skandia will pay a fixed amount per quarter until the end of 2013. The total remaining amount to be paid to Skandia Liv is less than the reserve provision booked as per July 2009 with the difference resolved in 2009. The remaining provision of £10 million is shown as a liability to Skandia Liv in the statement of financial position.

·       Currency derivatives - Skandia Liv hedge their currency position with forward contracts with Skandia Group at the prices prevailing on the foreign exchange market. Skandia Liv paid £7 million (2010: £27 million) for forward contracts during the year.

·       Capital Contribution - during the year, Skandia Liv made a group contribution of £154 million to the Skandia Group. Unrelieved tax losses have been used to offset the entire tax charge on this transaction. Simultaneously, the Skandia Group made a capital injection of £110 million back to Skandia Liv, corresponding to the group contribution net of tax relief.

·       On 15 December 2011 it was announced that the Group has agreed to sell the Nordic business unit to Skandia Liv.  Further detail has been provided in note A2.

The balance outstanding at 31 December 2011 due from Skandia Liv was £17 million (2010: £13 million).

Various other arrangements exist between the Group and Skandia Liv, principally in respect of provision of accounting, legal and treasury functions, all of which are transacted on an arm's length basis.

Enquiries

External Communications/Investor Relations
Patrick Bowes Kelly de Kock		[phone] [phone]
Media
William Baldwin-Charles		[phone]

Notes to Editors

Old Mutual

Old Mutual plc is an international long-term savings, protection and investment Group.  Originating in South Africa in 1845, the Group provides life assurance, asset management, banking and general insurance to more than 15 million customers in Europe, the Americas, Africa and Asia.  Old Mutual plc is listed on the London Stock Exchange and the Johannesburg Stock Exchange, since 1999.

In the year ended 31 December 2011, the Group reported adjusted operating profit before tax of £1.5 billion (on an IFRS basis) and had £267 billion of funds under management, from core operations. 

For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com 

 

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