Jim Sutcliffe: It takes an old hand to run a life company when HIV rates are touching 30 per cent

Old Mutual's boss talks to Jason Nissé about the special problems the group is facing in South Africa, and his plans to raise its profile in the UK
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The Independent Online

Behind the meeting rooms on the top floor of Old Mutual's City headquarters, across the "wobbly bridge" from the Tate Modern gallery, is what appears to be a beach. There are rattan chairs next to an area of sand and shale, which is framed by a group of elongated sculptures of spears. It's like a little bit of South Africa in the middle of London and encapsulates the dual personality of the life assurer.

Behind the meeting rooms on the top floor of Old Mutual's City headquarters, across the "wobbly bridge" from the Tate Modern gallery, is what appears to be a beach. There are rattan chairs next to an area of sand and shale, which is framed by a group of elongated sculptures of spears. It's like a little bit of South Africa in the middle of London and encapsulates the dual personality of the life assurer.

"Sometimes it's easier to describe what Old Mutual isn't any more rather than what it is," says one financial analyst. "It used to be mutual but now it's a public company. It used to be South African but now it's a London listed company. At least it's still in life insurance, or it was last time I checked."

Old Mutual's chief executive, Jim Sutcliffe, is a similar hybrid. Though born and educated in South Africa, he spent 24 years working for a British company, the Prudential. "I worked for six months at a mutual," he laughs. "That was back in 1973."

At the Pru he ran the US business, Jackson National, and later the UK insurance business, before being ousted by the then Pru boss Sir Peter Davis. The "genial giant", as many at the Pru remember the 6ft 8in Sutcliffe, went back to his native land to find a new job. He arrived at Old Mutual shortly after it had demutualised and listed on the London Stock Exchange in 1999.

"The first road show I did at Old Mutual - it must have been in March 2000 - there must have been 100 hours of talking to investors," he recalls. "About 50 hours of this was spent talking about South Africa, about the country, the economy, stability, and only about 20 hours were spent talking about Old Mutual. These days it's the other way round. There's not a lot of talking about South Africa because people feel more comfortable ... What has happened in countries like South Africa is that you have stable governments and strong finance ministries, so it becomes much less risky to invest there."

Although Old Mutual is officially British, South Africa is still at the core of the group. This means Old Mutual is in the less than ideal position of selling life insurance products in a country where up to 30 per cent of the population are HIV positive. As Sutcliffe admits, this is not an easy proposition, not least because many hundreds of the group's own staff have the disease. However, from a business point of view, it is, he says, a "manageable" situation.

"We have a business in Zimbabwe, and while it's not worth very much, it helps us with the statistical modelling of what happens, because the disease is far more advanced there than in South Africa," Sutcliffe explains. For example, Old Mutual's research has found that when the percentage of a particular segment of the population that is HIV positive reaches 30 per cent, the spread of the disease slows down.

This may help to predict what future liabilities might be coming Old Mutual's way, but to continue to grow, the business needs a different way of thinking. "Individuals are very highly aware of being HIV positive," says Sutcliffe. "In South Africa there is no state funeral provision, so demand for funeral insurance is high." As one of the few major providers, Old Mutual has found this a profitable market. Deflecting accusations that it is making money from misery, Sutcliffe points out: "If you go back 100 years, this was massive in the UK. It was a cornerstone of the Pru's business."

A more immediate issue for Old Mutual in South Africa has been the weakness of Nedcor, the banking group of which it is the controlling shareholder. Earlier this year, Nedcor was forced to raise R5bn (£440m) to shore up its balance sheet, with Old Mutual underwriting 76 per cent of the issue. Though he would have preferred it if Old Mutual had not had to pump more money into Nedcor, Sutcliffe denies the bank has been such a drag that it has prevented its parent from pursuing its ambitions outside South Africa. Nor is Old Mutual wanting rid of its troublesome business. "Nedcor is not for sale," he says, repeating the comment under close questioning.

The past year has been a difficult one for Old Mutual. In the US it was forced to pay $100m (£55m) in fines and reimbursements to customers of its mutual funds business, Pilgrim Baxter, after the operation was caught up in a pricing scandal. Sutcliffe says this has drawn a line under the matter, and points out that Morningstar, the US funds rating agency, has put Pilgrim Baxter products back on its buy list.

The Pilgrim Baxter troubles seem not to have affected the US fund management business, which has just reported a gain in money managed to $163bn. This is a specialist operation, with a heavy emphasis on fixed-interest products and, along with a growing life business, means Old Mutual has a strong presence in the US, as it will show when it unveils half-year figures this week.

The hole in the middle of the group's strategy is the UK. Sutcliffe admits that Old Mutual has been searching for a UK acquisition in the life and pensions sector for some time without any luck. "There are all sorts of internal and market reasons for making an acquisition," he argues.

Apart from the many opportunities presented by a healthy UK economy with a large part of the population saving for retirement, Old Mutual has a number of more specific reasons for wanting a British deal. The cost of running a London head office means the group could shelter from tax quite a bit of profit from any purchase. Sutcliffe reckons any UK business could be run off Old Mutual's South African IT infrastructure, so cutting costs substantially. Also, Old Mutual has developed a funds distribution business, Selestia, which distributes other people's products and is doubling in size every year; it could be set to work on funds from anyone Old Mutual bought.

Sutcliffe, though, is a little wary of the increased regulation in the UK and would not want to get into mass market products - such as stakeholder pensions, for example. "If the regulator regulates the price, it makes the business unattractive."

That aside, Sutcliffe has been in talks about two or three potential acquisitions. What happened? "Price," he admits. "Our view of the appropriate value and the seller's did not meet."

Old Mutual has just sponsored this year's City of London festival of arts and music. On the 10th anniversary of democracy in South Africa, there was a strong South African theme to the events. It was also the fifth anniversary of Old Mutual's demutualisation. "We are the new kids on the block," Sutcliffe smiles. "We want people who make the decisions to get to know us."

BIOGRAPHY: Jim Sutcliffe

Born: April 1956

Education: University of Cape Town; fellow of the Institute of Actuaries

Career

1976: Joined Prudential

1980-82: Group pensions actuary, Prudential, Montreal

1982-85: Overseas actuary, Prudential, London

1985-1988: General manager, Prudential International, London

1989-91: Chief operating officer, Jackson National Life, Michigan

1992-95: Deputy managing director, then managing director, Prudential Home Service Division

1995-97: Chief executive, Prudential UK

1998-99: Deputy chairman, Liberty International Property and Financial Services

2000: Joined Old Mutual

2001: Chief executive, Old Mutual

Hobbies: Golf, bridge, cricket, travelling

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