Old Mutual raises provisions for Covid-19 death claims by R2bn

Old Mutual became the latest insurer on Wednesday to top up its Covid-19 provisions, setting aside another R2bn to cover potential death claims arising from the third wave.

Life insurers have been forced to stockpile billions of rand in reserves to absorb death claims from the Covid-19 pandemic ripping through the country and killing nearly 80,000 people.

Old Mutual joins Momentum Metropolitan and Liberty Holdings in beefing up reserves in the latest reporting cycle, as insurers brace themselves for more pain amid a stuttering vaccination drive.

Momentum said on Tuesday it had set aside R1.6bn more to cover mortality claims, while Liberty is budgeting for at least R1.2bn in Covid-related life insurance claims over the next six to nine months.

Just more than 7% of the SA population is fully inoculated, much less than the government’s target of getting at least 70% of the population fully vaccinated by December, raising fears about a fourth wave of the pandemic and prompting insurers to line up cash reserves.

Salim Abdool Karim, former chair of the government’s ministerial advisory committee on Covid-19, has predicted that SA could encounter another surge in cases in early December that could last two-and-a-half months, Bloomberg News has reported. In that case, life insurance companies would have to trawl their coffers to navigate the next wave of death claims.

After acknowledging this week that the vaccination rollout had lost momentum, the government is scrambling to boost demand and avoid another growth-throttling lockdown in the coming months.

The market reaction to trading updates by Old Mutual and Momentum Metropolitan has been sanguine, suggesting that investors think the companies will come out of the Covid-19 storm intact, given their strong balance sheets.

After a technical glitch, which delayed the start of JSE trading by five hours, Old Mutual shares jumped the most in about two weeks to trade 4% higher at R14.27, giving it a market valuation of R67.1bn.

“The mortality claims paid relating to Covid-19 in our life businesses are driving negative net client cash flows.

“However, this is offset by inflows in our asset management and wealth businesses,” Old Mutual said on Wednesday.

Net client cash flows refer to the difference between money received from customers — from premiums, deposits and investments — and money given back to them via claims, surrenders and maturities.

The performance of its non-life businesses in the six months to end-June softened the blow of the pandemic.

Headline earnings per share, the main profit measure in SA that excludes exceptional items, are expected to drop 21%-31% in the six months to end-June.

Momentum shares were up a modest 0.45% to R19.96. Sanlam was up 2.38% to R64.50.

mahlangua@businesslive.co.za