Old Mutual chair sets out future

How much executives get paid at financial services companies will fall under increased scrutiny in 2010 amid legislation aimed at improving provisioning for bad debts in the sector.

This is according to Patrick O'Sullivan, the new chairperson of Old Mutual, a R70bn life assurance business listed in London and Johannesburg. O'Sullivan took over Old Mutual's board in January from former chairperson Chris Collins.

"It is likely that there will be greater scrutiny of remuneration across the financial services sector generally," said O'Sullivan in an interview.

There has been a regulatory backlash against financial services firms, which have been blamed for the excesses which led to the fallout in global markets in 2008 and 2009.

Until now the spotlight on salaries was restricted to banks, particularly those that had relied on the Bank of England for support, said O'Sullivan. Yet interest in pay would broaden as the full impact of Solvency II, the new legislation, was felt, he said.

"The UK insurers have not had to rely on, or raise, any emergency funding, a point relevant to the discussion on Solvency II," said O'Sullivan.

Unlike many of their counterparts, neither Old Mutual nor Investec had tapped UK regulators for emergency capital.

Legal clampdown

However, it has still been a bumpy ride for Old Mutual shareholders who have seen the share slump from a high of 1 936c in early January to an all-time low of 467c in March 2009 before rebounding to above 1 200c a share.

Solvency II is a new set of regulations aimed at the insurance sector in the European Union (EU). It aims to increase the amount of capital insurers need to set aside to deal with weak equity markets and increased policy withdrawals, or policy lapses.

EU legislation is being echoed in the US, which is clamping down on the entire financial sector. President Barack Obama wants to enforce tough new proposals to halt proprietary trading by banks, estimated to cost the sector $13bn in revenue.

O'Sullivan said that although Old Mutual had been on a cost-cutting drive led by restructuring, the group nonetheless faced "a very demanding and challenging phase in its development".

Whether 2010 could be any more difficult than the previous two years is a moot point for Old Mutual, which in that time saw new CEO Julian Roberts consolidate and streamline the business.

This culminated in last week's announcement that it had completed an offer to minority shareholders in Mutual & Federal.

Another strategic move has been to build a savings business. Old Mutual South Africa CEO Paul Hanratty was appointed to drive it from the UK.

Asked about the group's direction, O'Sullivan told Fin24.com: "We have been open about our approach to streamlining the group over time, but will be updating the market on strategy in our preliminary results on March 11."

O'Sullivan downplayed the perception that Old Mutual had lost ground in the lucrative Asian market targeted by a number of its competitors, including Sanlam and Discovery Group.

"While we closed our regional office in Hong Kong in line with our approach of streamlining the portfolio of businesses, we have excellent established businesses in India and China within our long-term savings division," said O'Sullivan.
fin24

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