Old Mutual moves in on Latin America

Aiva provides services to intermediaries in 20 countries across Latin America, serving about 38,000 clients with assets under administration worth about US$800m.

The deal, which was announced last week, marks yet another step by the UK-based group to increase its exposure to fast-growing emerging markets while de-risking from depressed developed economies.

Paul Hanratty, chief executive of Old Mutual's long-term savings business, says the deal provides a firm base from which to capitalise on opportunities in fast-developing investment markets in Latin America "in an efficient and low-capital manner".

Although the purchase price of Aiva was not disclosed, SBG Securities estimates it was worth less than US$100m.

Old Mutual's investment in Aiva is not surprising. The insurer has told investors it sees future revenue coming from emerging markets, led by its key South African unit.

This is why the group is selling non-core assets and de-risking its balance sheet.

The group, which has access to cash and facilities of up to £1.5bn to fund growth, has already sold its Nordic businesses and the US Life assurance unit.

Analysts say Old Mutual's healthy balance sheet provides it with the financial muscle to make more acquisitions, particularly in Africa and Asia.

It is still finalising the acquisition of Oceanic Life, a Nigerian assurer being bought from Oceanic Bank for US$20m.

SBG Securities says Old Mutual is making progress diversifying its geographic exposure to focus on emerging markets.

It says transactions such as the Aiva deal support the argument that Old Mutual is seen more as an emerging markets' insurer than as one heavily exposed to developed markets.

SBG Securities argues the low ratings attached to Old Mutual could be because investors have yet to appreciate how much its operational mix has shifted towards emerging markets.

"With the disposal of US Life and Nordic operations the exposure to developed markets has probably roughly halved within the group context," SBG Securities says.

"We expect Old Mutual to continue to invest in Latin America and Africa and hopefully, subject to delivery in these regions, the rating should also eventually recover to being somewhere closer to its (South African) peer group," it says.

SBG Securities says Old Mutual's decision to take a majority stake in Aiva will enable it to expand its geographical presence in the region.

"Latin America has actually been the fastest-growing region for life assurance over the past decade.

"Life assurance premiums in the region have shown 15% annual compound growth in dollar terms over the past decade, which is significantly better than the 10% growth rate in Africa or the 7% growth rate in Asia," SBG Securities says.

"The three main life assurance markets in Latin America are Brazil (similar in size to South Africa's life assurance market), Mexico (25% of its size) and Chile (roughly 15% of South Africa's size).

Old Mutual is active in Colombia where it is the largest asset manager.

SBG Securities also says exposure to Uruguay provides Old Mutual with the platform it needs to expand life assurance business in a country where Aiva generates annual life assurance premiums of about US$200m.

"While the growth rate in Uruguay is fast (with life asssurance premiums having grown at 11% annually in dollar terms for the past decade we believe the main attraction of Uruguay for Old Mutual is its geographic location and the quality of its labour force," says SBG Securities.

"In terms of geography it is noteworthy that Uruguay borders two of the more attractive markets in Latin America; Brazil and Argentina.

"In terms of quality of the labour force and infrastructure, we can point out that Uruguay has one of the highest literacy rates in South America (98%) and it also ranks third in Latin America (after Chile and Argentina) in UN's Human Development index data set," it says.

Source: Business Day via I-Net Bridge