Old Mutual is poised to sell its troubled US Life division to the American hedge fund Harbinger Capital for $350 million as it presses ahead with plans to streamline its operations.
Harbinger struck a definitive agreement to buy the unit from the Anglo-South African insurer at the beginning of the week and it hopes to complete the deal by the end of March. The sale was agreed last year but has faced months of delays in gaining regulatory approval. Old Mutual will book a $713 million (£440 million) accounting charge on the sale.
The insurer first ran into difficulties with US Life more than two years ago. It was forced to inject hundreds of millions of dollars into the division after it discovered botched hedging arrangements for guaranteed-annuity policies. The fiasco cost Old Mutual’s previous chief executive Jim Sutcliffe his job and prompted a review into the group’s operations in America.
Mr Sutcliffe’s replacement, Julian Roberts, promised to reshape the sprawling insurance, banking and asset management conglomerate. As he unveiled a forecast-beating 14 per cent increase in annual operating profits to £1.48 billion yesterday, he said that Old Mutual would press ahead with plans to list its American asset management division on the stock market by the end of next year.
The proceeds of both sales should help Old Mutual to meet its target of cutting its debt by £1.5 billion. Its profits were driven by a sharp increase in the sales of long-term savings and wealth management products, including in Britain, where the group operates the Skandia investments brand. Net flows of long-term savings doubled to £5 billion and it cheered investors with a 2.9p final dividend, taking the total payout to 4p, almost three times last year’s 1.5p.
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Old Mutual’s shares rose 3.3 per cent, or 4.4p, to 137.7p yesterday as investors reacted well to a likely uplift in the long-term value of its insurance policies as a result of the US Life sale.