Old Mutual PLC Interim Results 2014 - Part 3

RNS Number : 4760O

Old Mutual PLC

07 August 2014

 



MCEV Information

At 30 June 2014

MCEV reporting

At the February 2014 preliminary results announcement, we indicated that the Group will not be publishing detailed MCEV information in future, other than for the Emerging Markets covered business.‎

The decision reflects the changes in the Group's activities over the past three years that have reduced the prevalence of life insurance business in the Group. These include the sale of the US Life and Nordic operations and the significant run-off of business in Old Mutual Bermuda. In addition, the change in strategic direction of the Old Mutual Wealth business has led to a shift in business activity towards asset management. The change in mix of business will be more pronounced in 2014 following the completed and proposed sales of life insurance businesses in Europe. This means that MCEV information is less relevant to our Group.

Valuation of Old Mutual Wealth at IFRS net asset value

The information that follows restates the adjusted Group MCEV by including Old Mutual Wealth at IFRS net asset value. This results in an adjusted Group value of £9.7 billion or 198.1 pence per share, compared with £10.1 billion or 205.4 pence per share as it would previously have been stated on an adjusted Group MCEV basis, a difference of 7.3 pence per share or 3.6%.

Using this approach, Emerging Markets life insurance business is valued on an MCEV basis. The other components of the business are included as follows:

§  Emerging Markets asset management, property & casualty and banking business valued at IFRS net asset value;

§  Old Mutual Wealth valued at IFRS net asset value;

§  Old Mutual Bermuda valued using IFRS net asset value with guarantee liabilities restated to a reflect an MCEV approach;

§  Institutional asset management valued at IFRS net asset value;

§  Group listed subsidiaries (currently only Nedbank) valued at the market value of shares held;

§  Black Economic Empowerment (BEE) arrangements in South Africa valued on a discounted cash flow basis;

§  Employee Share Ownership Plan (ESOP) schemes valued at the market value of excess own shares; and

§  Subordinated debt and perpetual preferred callable securities valued at market value.

The majority of the Group is not valued on an MCEV basis. We believe that it is more appropriate to value the Old Mutual Group businesses on a 'sum of the parts' basis, using valuation models relevant to each line of business and have provided supplementary information to assist with such an approach.

MCEV Information
At 30 June 2014
The table below indicates the value attributable to each line of business and provides the adjusted Group MCEV, where Old Mutual Wealth is restated to an MCEV basis.
					£m
			At	At	At
		Notes	30 June 2014	30 June 2013	31 December 2013
Emerging Markets			3,562	3,967	3,559
Life insurance business			2,894	3,245	2,953
Asset management and other business			419	456	364
Property & Casualty			162	209	183
Banking business			87	57	59
Old Mutual Wealth		A1	2,219	2,069	2,243
Old Mutual Bermuda			376	713	365
Nedbank			3,257	2,997	3,113
Institutional asset management			895	1,153	1,058
Net other business1			573	381	610
Adjustment for present value of BEE scheme deferred consideration			183	219	201
Adjustment for value of own shares in ESOP schemes			116	120	123
Perpetual preferred callable securities			(596)	(708)	(582)
Subordinated debt			(868)	(861)	(838)
Adjusted Group value			9,717	10,050	9,852
Old Mutual Wealth MCEV basis adjustments		A2	356	215	310
Adjusted Group MCEV			10,073	10,265	10,162
Adjusted Group value per share (pence)			198.1	205.3	201.2
Adjusted Group MCEV per share (pence)			205.4	209.7	207.5
Number of shares in issue at the end of the financial period less treasury shares - millions			4,905	4,896	4,897
1   Net other business is the aggregate of other Group assets and liabilities not included elsewhere, including net inter-segment funding adjustments (except for Old Mutual Wealth) and holding company cash. Old Mutual Wealth inter-segment funding was £192 million (June 2013: £533 million; December 2013: £244 million).

MCEV Information
At 30 June 2014
A1: Analysis of Old Mutual Wealth IFRS net asset value between covered and non-covered
The table below provides an analysis of IFRS net asset value between covered and non-covered business for Old Mutual Wealth.
				£m
Old Mutual Wealth		At 30 June 2014	At 30 June 2013	At 31 December 2013
IFRS net asset value of covered business		2,066	1,979	2,129
IFRS net asset value of non-covered business		153	90	114
IFRS net asset value		2,219	2,069	2,243

	A2: Old Mutual Wealth MCEV information
	The IFRS net asset value for Old Mutual Wealth covered business is £2,066 million at 30 June 2014. Including the MCEV basis adjustments of £356 million gives an MCEV value for Old Mutual Wealth covered business of £2,422 million. The differences between IFRS net asset value and MCEV for Old Mutual Wealth are summarised below.
									£m
	Old Mutual Wealth				At 30 June  2014		At 30 June  2013		At 31 December 2013
	Adjustments to adjusted net worth				(1,463)		(1,765)		(1,664)
	Adjustment to include long-term business on a statutory solvency basis				(797)		(1,006)		(917)
	Goodwill				(674)		(767)		(761)
	Inclusion of Group equity and debt instruments held in life funds				8		8		14
	Value of in-force business				1,819		1,980		1,974
	Total adjustments				356		215		310
A3: Emerging Markets MCEV information
Embedded value information continues to be relevant for Emerging Markets and we would expect it to be a central part of appraising the valuation and performance of this business. As such we have prepared MCEV disclosures for the covered business in Emerging Markets for the six months ended 30 June 2014 on a consistent basis to those historically presented. These can be found on the Old Mutual website (http://www.oldmutual.com/media/reporting-centre.jsp). We continue to assess the basis of preparation of embedded value information for Emerging Markets in view of changes in the composition of that business and information reported by our South African peer group. We anticipate that South African peer group reporting practices are likely to change following the introduction of the Solvency Assessment and Management (SAM) regime. In view of changes in the mix of business, including the growth of lending, wealth management and property & casualty businesses, we may provide additional information to assist with developing more appropriate valuations in future according to the 'sum of the parts' approach.
Analysis of Emerging Markets IFRS net asset value between covered and non-covered
The table below provides an analysis of IFRS net asset value between covered and non-covered business for Emerging Markets.
								£m
				At		At		At
Emerging Markets				30 June 2014		30 June 2013		31 December 2013
IFRS net asset value of covered business				1,237		1,353		1,212
IFRS net asset value of non-covered business				668		722		606
Adjustments to include debt				(165)		(199)		(172)
Adjustments for inter-segment capital funding and minority interests1				7		16		8
IFRS net asset value				1,747		1,892		1,654
1   The minority interest adjustment relates to the Zimbabwe non-covered business in December 2013 and June 2014.

 

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