Jurie Strydom has been CEO of Old Mutual, perhaps South Africa’s most austere and blue-blooded corporate institution, for 15 months. It is somewhat surprising that he still considers himself something of an entrepreneur.
This is how, for instance, he reconciles the fact that even during a long-planned three-week trip to New Zealand last December, travelling around in campervans with his family, he was perpetually knee-deep in attending to Old Mutual.
“On New Year’s Eve, I was still on the phone until the last minute, trying to finalise things for the year-end. I could never have done that if it was just a job; I did it because it’s my business,” he tells the FM. “Entrepreneurs don’t exactly have work-life balance; you’re not going to wait for Monday morning. But that’s the way I want to do this job.”
And some job that is. Strydom’s mission is nothing less ambitious than reviving the country’s oldest financial institution, Old Mutual, which began 181 years ago in the Cape.
It was so influential that by 1992, Old Mutual owned 14% of all the stock on the JSE, not just through its controlling stakes in Nedbank and Mutual & Federal, but through chunky stakes in firms like Barlows and SA Breweries.
But an ill-fated sojourn to the UK followed, which saw a series of value-destroying deals, including buying the Scandinavian insurer Skandia for $6bn in 2005, which it sold six years later for $3.2bn.
Tail between its legs, Old Mutual came back home in 2018, unbundling its UK wealth business Quilter to shareholders, as well as most of its stake in Nedbank. Today Old Mutual is worth R60bn, which is still sizeable, but it’s less than half what it was a decade ago.
Strydom’s unenviable task in his new role, then, is to Make Old Mutual Great Again. Green cap optional. It’s an enormous ask, but it wasn’t something he felt he could turn down.
“It wasn’t planned. I was a nonexecutive director on Old Mutual’s board for 18 months, but I’d been doing other things, and then the opportunity came up. And it’s hard to turn down an opportunity to lead an organisation like this,” he says.
Critically, there is much to work with. Old Mutual remains, for instance, the country’s largest insurer and one of the most recognisable brands, even if there’s a distinct sense that it has largely failed to capitalise on its enviable market position.
Strydom, an actuary with an MBA from the Massachusetts Institute of Technology, stands a better chance than most of changing the trajectory. And it’s no exaggeration to say that much rides on this for South Africa, since Old Mutual paid R17.4bn to the fiscus last year in corporate tax, policyholder tax and payroll taxes on behalf of its 27,000 employees.
In an extensive interview with the FM, Strydom describes the Old Mutual role as “properly demanding” — which says something, given that he is someone routinely acclimatised to working until midnight most days.
“My son is 12, and I asked him how things are going since I started this job, and he said: ‘It’s fine, Dad, but it’d be nice if you didn’t work on Saturdays.’ So I need to figure out how to get better at that. But the first part of the job required this attention,” he says.
From the outset, it was clear that Strydom was quite different from his predecessors.
He is, for instance, an outsider — unlike Iain Williamson, who retired as CEO last year after working his way up the ladder over 32 years, or Mike Levett, who joined in 1958 as a clerk and left 47 years later as its chair.
Strydom, by contrast, has worked at most insurers around town, including stints as CEO of Alexander Forbes Life and Regent Insurance and a spell as CEO of Sanlam’s personal finance arm. Ironically, given that he now runs Sanlam’s biggest rival, it was the Bellville-based firm that paid for his actuarial studies at the University of Cape Town.
“That is the one thing that is a little bit different for me,” says Strydom. “I stepped out of corporate life and had some portfolio interests and a fintech company. So coming back into Old Mutual, I wanted to think like a shareholder and not a manager.”
For this reason, shortly after he took the job, he used R10m of his own money to buy 753,400 shares in Old Mutual. “That was from my side,” he says. “I thought it was important that I operate as a shareholder and not simply accumulate shares through bonuses and incentive plans.”
It’s a manifest sign of his belief — but is this money well spent?
Make no mistake, Old Mutual has had a hard few years. Its share price is down 18.2% over five years, in stark contrast to Sanlam (up 35%), Momentum Metropolitan (up 74%) or Discovery (up 97%).
Vincent Anthonyrajah, CEO of Differential Capital, knows Old Mutual better than most and has watched its trajectory over the past 20 years with concern.
“My father had policies with them in the 1990s and when it demutualised in 1999, he got given shares. So this was the first time I seriously set about analysing a company,” he says.
He is unconvinced it has changed enough to seriously compete, with every other financial institution trying to eat into its market share. For instance, banking group Capitec, which was never a competitor 20 years ago, now has 3.8-million funeral policies on its books and made R2.5bn from insurance last year.
“Old Mutual has a great brand and footprint, but it seems to have an analogue business model in a digital world. Jurie is saying all the right things, but it’s unclear if it can actually execute on this,” he says.
Asief Mohamed, CEO of Aeon Investment Management, says it hasn’t helped that Old Mutual has spent the better part of a decade recovering from the “absolute mess” that was its decision to venture into the UK and buy businesses such as Skandia.
“They were overconfident and assumed that just because they were a success in South Africa, they could do it overseas. Then they overpaid for various assets, and it ended up as a disaster they’d probably want to forget,” he says.
But even after it quit London and came back home, more horrors awaited it.
A reputation-sullying fallout between then CEO Peter Moyo and Old Mutual chair Trevor Manuel led to a four-year legal battle that paraded its dirty laundry for all to see. This entrenched the idea of a company more seized with internal politics than one eager to scrum it out in the marketplace.
Mohamed says it’s no easy task turning all of this around.
“Old Mutual is a legacy life assurer in a really tough market and economy,” he says. “Jurie’s big bet is on building a new bank, but even in this realm, Capitec has first-mover advantage and it won’t be easy to steal those clients.”
Throw in a reputation for being too hard-wired into its own bureaucracy to compete with the flashier new insurance businesses like Discovery or Outsurance, and the odds would seem to be stacked against it.
Rebuilding credibility
Strydom concedes that there’s a lot to fix.
“For a number of years, we weren’t famous for doing what we said we’d do, and this cost us credibility in the market,” he says. “We weren’t good at saying: yes, this is the strategy, but how does it get done? Who is accountable? Teams were waiting for some committee somewhere to make that decision.”
But, he points out, he wouldn’t have taken the job last July unless he believed he could change that. He points out that what Old Mutual does have is 14-million clients across Africa who have bought at least one of its products — a funeral policy, investment product or insurance. And it has 11,700 brokers all out there on the streets, selling its brand every day.
Critically, in the 15 months since he took charge, there have been distinct signs that his turnaround has gained traction. The clearest indication was Old Mutual’s results for the six months to June — the first full period under Strydom’s leadership.
New sales of life insurance rose 21% in those six months while operating profit per share grew 11%.
Most pleasingly, its return on group equity value — which shows the improvement in value including future profits from policies already sold — spiked from 4.1% to 12.7%. This was the first time in ages that this exceeded Old Mutual’s cost of capital of 12.5%.
This was so important because this suggests the big green juggernaut has turned the corner and is actually beginning to create value, not destroy it.
For Strydom, this trajectory is vital to rebuilding Old Mutual’s credibility. As a result, he says, investors are finally beginning to warm to the group again.
“People are rooted in their views, and it takes time to shift that. But what I will say is that today, we are having meetings we haven’t had before. There’s been a shift in conviction from people who were simply not talking to us a year ago,” he says.
Many of these investors buy into his vision, he says, but they are wary of committing to invest until they see “proof points” that show the ship has turned.
So what are these proof points exactly?
First, says Strydom, it is getting its return on group equity value above 14%, and its return on NAV (now at 12.6%) north of 15%.
“That allows you to get to a point where people value the business appropriately, near its intrinsic value. And a lot of that is about efficient use of capital, so there’s a real focus on that in the group right now, and an urgency to do that,” he says.
Or put simply, once Old Mutual does what it says it will, the gulf between its share price, now R13.35, and its equity vale, now R20.66, should shrink.
As an illustration of how serious he is about getting this right, Strydom says he spends about 30% of his time focusing on how Old Mutual allocates its capital.
The second proof point, he says, is reasserting Old Mutual’s basic execution and competitiveness. “That is all about becoming a business that is disciplined, and famous for doing what it says it will.”
Here the goal is to shore up its leadership in the life insurance sector, arresting any market share losses, while making sure its profit margins are improving.
The third point, he says, is demonstrating that the business can still grow. And this is where Old Mutual’s new bank comes in.
Another time, another bank
It does seem somewhat arse about face that, for years, Old Mutual had 54% of one of the top four banks in the country, Nedbank, which it largely handed back to shareholders a few years ago. And yet here it is now, starting another bank — and spending R5bn to do it.
As you can imagine, there is no shortage of sceptics, who will ask, first, whether the new bank is not just one giant distraction, and second, whether there is even room for it in a country crammed full of new banks, including Bank Zero, GoTyme and Discovery Bank.
But Strydom says this is the right move for Old Mutual’s integration strategy.
“With Nedbank, the problem is that it’s not easy to integrate the bank in the way you want, to benefit the whole wider business when you have minority shareholders. So, for the ecosystem strategy we’re pursuing now, I’m pleased we own the bank outright,” he says.
The new OM Bank will also be a completely different beast to Nedbank.
For one thing, it is focusing on the mass market, of which a large portion already have loans or policies with Old Mutual. Second, there are already 3.4-million people on its rewards programme, which it plans to convert to banking clients.
Seen from another perspective, OM Bank can, fingers crossed, be the mass-market equivalent of Discovery Bank, which has had huge success with wealthier customers, in part thanks to its Vitality rewards programme.
Though the idea for the bank predates Strydom’s arrival, he says the idea is solid.
“It’s less a question of strategy than it is a question of execution. We had all these lending and finance operations anyway, so it’s an obvious move to fold them all into one proposition,” he says. “We have already established that we have a right to play in this market; now we’re moving to properly contesting the banking profit pool.”
In October the bank signed up its millionth client, the first step to reaching its goal of 2.5-million customers by 2028, by which time it hopes to have deposits of between R8bn and R10bn.
To be fair, not all of these clients are entirely “new”. Some came from the Bidvest Bank partnership, where Old Mutual had provided a deposit account for a number of years, while another group already had “personal loans” with Old Mutual, worth a total of R15bn.
Nonetheless, a customer base of 1-million people isn’t to be sniffed at in your first two years of business. The trick is now to get them using the account frequently.
“For our breakeven [point] in our modelling, we’re working on a 35%–38% activity rate, and we’re just below that now,” says Strydom.
So can this new bank work?
In a broker report, UBS seems convinced it can.
“We believe the bank will attract sufficient customers to achieve breakeven in the short to medium term,” it says. Customers are signing up at a rapid rate — more than 70,000 a month, largely thanks to its strong brand in the entry-level market, its huge broker network and its rewards programme.
“Its branch infrastructure and transactional banking and lending products in the entry-level market are key competitive advantages over its traditional insurance peers, while its brand strength in this market also helps defend its position against banking peers.”
But as UBS and the other analysts point out, “investor caution” over the new bank has acted as a dampener on the share price, since no-one is quite sure how it’ll play out.
For some analysts, the question is what Old Mutual can do differently to really succeed in a market already sewn up by Capitec, which has partnered with Sanlam.
Radebe Sipamla, portfolio manager at Mergence Investment Managers, tells the FM there is “still profit for new entrants — but the jury is out about whether Old Mutual has a compelling enough proposition to make people switch”.
It is a point echoed by Bank of America Securities, which, in a research report last month, is equally sceptical.
“We struggle to see a sufficiently compelling value proposition to persuade satisfied customers to switch from established banks such as Capitec. While [its] rewards proposition is somewhat differentiated, Capitec’s credit card cashback and partner discounts set a high competitive bar,” it says.
Anthonyrajah isn’t even convinced it should be trying this. “Banking isn’t a high return-on-equity business compared to insurance, so I’m not sure if they wouldn’t get better returns if they just improved their core insurance business,” he says.
But for Strydom, if this is executed properly, there is no doubt it can be a resounding success. “It’s one thing to have a banking licence, but you’ve got to make it work by leveraging the rest of your business,” he says.
Strydom will need all his experience as an entrepreneur, mostly gained from his fintech insurance start-up named FSPhub, to stay cool, calm and composed during the turbulent early years.
Jarred Houston, a portfolio manager at All Weather Capital, tells the FM that the bank doesn’t even need to make spectacular returns.
“No-one is saying this will be the next Capitec, but if the bank can serve as an engagement tool for the wider insurance business — if it can get people to use its rewards system, if it can keep clients engaged and sell them products — it will go down as a success.”
Rebuilding trust
If much of Strydom’s task is producing the hard numbers, there’s a more intangible element too: recalibrating a culture that had been dented by various own goals, including the failed overseas foray and the Moyo debacle.
“Those knocks we took meant we lost a little bit of chutzpah, and that’s a pity because there are excellent people in the business who are real experts in what they do.”
Strydom says there has been little resistance to his appointment. In the first year, he held three conferences with the top 150 leaders in the organisation.
“We had a lot of really honest conversations, to say: ‘OK guys, let’s own up — what are the things that aren’t working?’ I found people to be very receptive to the fact that things need to be different,” he says.
One of the differences is that Old Mutual is no longer controlled as tightly from the centre. In the past, says Strydom, “we did not empower people enough to actually get on with what they needed to do”.
It meant that decisions took forever, held up in a purgatory of a thousand committees and approvals. This sense of disempowerment was evident in one of Old Mutual’s most embarrassing incidents in recent years.
In November 2019, in Stanger, north of Durban, the family of Sifiso Mtshali took his body to the Old Mutual offices after the insurer dragged its heels for nearly two weeks when it came to paying out a R30,000 funeral policy.
Images of the startling scene went viral, leading to a fierce reckoning on social media for Old Mutual. It was hugely galling for the company, which immediately paid over the cash, and then described the incident as “regrettable”.
It did its reputation no favours, shining an unhelpful spotlight on the extent of the bureaucracy within the organisation.
Strydom is clear, however, that the era of rule-by-committee has ended.
Wendy Tlou, Old Mutual’s reputation and communications officer, says the company is shifting its focus to being “externally, rather than inwardly, focused”, which she believes will help to build public trust.
“For some years, the brand got to a stage where it lacked an immediate, visible and tangible emotional connection with consumers, and that’s what we’re changing,” she says.
Finding the catalyst
For investors, the question is simple: when will the fruits of Strydom’s plans become evident in the share price? If Old Mutual is a buy, as most analysts believe, when will the stock begin to move upwards?
One thing is clear: he is heavily incentivised to make it happen. When Strydom was appointed, the share price was R10.87. Under a new incentive plan, if the share price can hit R21.74 by May 2030, he would qualify for R300m in “share appreciation rights”.
Now, R300m is some windfall, and it would be paid only if the stock pretty much doubled. And yet, not all shareholders were convinced about this plan.
At Old Mutual’s AGM in July, 31.6% voted against the remuneration policy, short of the 75% needed to ensure the company didn’t have to set up meetings to discuss this with those dissatisfied shareholders.
Astoundingly, even Old Mutual Investments, which owns shares in its parent, argued against the remuneration implementation report.
“Our concern simply is the structure of the CEO’s outperformance plan,” it said. “The share price of a company [is] mostly outside management control and impacted by external events, and it may create the incentive to take short-term decisions to drive up the share price closer to vesting dates.”
But the investment company conceded, rightly, that should the share price double by 2030, this “will create significant value for shareholders”.
Strydom says he wasn’t bothered that nearly a third of shareholders voted against this incentive plan. “I wasn’t uncomfortable, no. These remuneration votes routinely draw reservations like this; it’s part of the process of scrutiny and good governance,” he says.
So what are the odds of the share price hitting that R21.74 mark?
Most analysts reckon the company is on the right path, and that an investment in Old Mutual at this point will reap rich rewards.
UBS has a one-year target price of R20.20 on the share — about 50% above its current level. “Old Mutual has significant room for a rerating relative to the rest of the South African insurance sector,” it says.
The brokerage expects operational growth this year of 9.3%, followed by 14% next year and 11% the year after. There are sound reasons to be positive, UBS says.
“We expect the underpenetrated low-income market to drive growth in the industry,” it says. And Old Mutual, as the country’s largest life insurer, which also happens to be heavily exposed to that low-income market, should do well.
SBG Securities is just as enthusiastic, expecting its share price to hit R18.48 within the next year. “However, due to limited short-term catalysts, we think the value lies beyond the next 12 months,” it says.
Bank of America Securities is less gung-ho. Its analysts argue that the recent growth in profit is due largely to the company buying back its own shares, cutting costs and narrowing its banking losses.
“We expect the share to remain cheap until Old Mutual delivers stronger underlying growth,” it says. Nonetheless, it concedes an “improving operational trend, supported mainly by cost cutting”.
JPMorgan, which has a one-year price target that is 35% above Old Mutual’s current level, believes it has an “attractive valuation, trading at a significant discount to its peers”, held back only by the “overly negative sentiment”.
Yet Strydom, the actuary mandated to make sure it can shed this cloud of mistrust, says he has never been more convinced that Old Mutual can be great again.
“I personally feel a different level of clarity and conviction than I had a year ago, because I’ve had time now to dig into some of the things that we needed to get through,” says Strydom.
It is inevitable, he says, that some people will take time to “come around to what we’re doing”, but once Old Mutual begins hitting its targets consistently, this will change.
“I’ve heard people say to me, the sceptics are going to capitulate, everyone is going to capitulate at some point, because you guys are going to deliver,” he says. “The reality is people want Old Mutual to succeed.”
