Please note that this call is being recorded. I would now like to turn the conference over to Langa Manqele. Please go ahead.
Thank you, Erin, and good afternoon to everyone. Thank you for joining our third quarter voluntary operational update 2024. Our CEO, Iain Williamson, will be hosting this call. He's joined by our CFO, Casper Troskie, our Head of Group Reporting and Insights, Ranen Thakoordeen, Nico van der Colff, who is our Group Chief Actuary, is also on the call, and I'm Langa Manqele, the Head of Investor Relations. That's all from me for now. I will now turn over the call to Iain. Thank you.
Thanks, Langa. Good afternoon, everyone. I'm going to assume that you've all had a chance to read the same announcement we put out yesterday with the operating update, but I'll just take you through some of the key points. We've had good continuation of sales momentum into the third quarter, with double-digit growth in gross flows, supporting an improvement in our net client cash flow. And we think that this can be attributed to the strength of our diversified distribution strategy. Operating performance was achieved against a challenging environment marked by continuing geopolitical risk and uncertainty, particularly around China's economic growth prospects, and I think the potential for weaker emerging market currencies, driven partly by the U.S. election outcome.
The formation of the Government of National Unity and the interest rate cut we saw at the end of September has had a positive impact on investor and customer sentiment, but consumer disposable income still remains constrained despite falling inflation. In our Africa Regions business, we've seen elevated inflation and currency depreciation continue to affect some of the markets. Just moving into some detail around some of the numbers, we've got Life APE sales increasing by 6% and now sitting at ZAR 10.4 billion, with risk sales in our Mass and Foundation Cluster up 11%, and Personal Finance recording higher growth, driven by 12% growth in guaranteed annuity sales. Wealth reported a 13% growth in sales, driven by flows in tax-free savings as well as wealth life and investment funds.
This is partially offset by lower sales in Old Mutual Corporate single premium annuities and the impact of currency depreciation in Malawi in our African regions. In gross flows, we've seen double-digit growth of 19% to R170 billion, driven by significant growth of 46% from our Wealth Management business. We've seen strong inflows into equity and multi-asset capabilities of 12%, and we've seen 44% growth in flows in our alternatives asset management business. Flows in Old Mutual Investments further contributed to the growth in gross flows. We've seen an improvement in agency productivity and the launch of a dollar unit trust fund in East Africa, bolstering our unit trust flows there. Net client cash flow remains marginally negative but did improve materially in the quarter, benefiting from robust inflows as well as a reduced level of outflows in our Wealth Management business.
That was partially offset by increased outflows in Old Mutual Investments in low-margin fixed income money market and multi-manager outflows from Futuregrowth, and in outflows from corporate in retirement in our retirement funds through retrenchment, withdrawal, and termination outflows. We expect a negative impact on net client cash flow at year-end from the higher Two-Pot withdrawals, as well as further low-margin institutional customer outflows. From a property and casualty perspective, we've seen our GWP up 7%, driven by continuing strong new business and rate increases in Old Mutual Insure, particularly in our cell captive and specialty businesses. On the banking and lending side, loans and advances were in line with the prior period. In Africa regions, they were higher due to currency impacts in Kenya. In constant currency, though, the loan book reduced due to lower disbursements in line with strict lending criteria in a constrained environment.
In Mass and Foundation Cluster, loans and advances were marginally lower than the prior period, aligned with our cautious lending strategy. And then from a capital perspective, our regulatory solvency ratio in OMLACA marginally reduced to 198%, but it remains solidly within our target range. Our discretionary capital balance further increased to ZAR 1.6 billion from the ZAR 1.4 billion reported at the end of June, principally as a result of dividends received from the Africa region's business of ZAR 650 million, offset by further capital allocation to the Bank build of ZAR 351 million. We have now received approval from the Prudential Authority for the OMLACSA special dividend of ZAR 2 billion, as well as for the Old Mutual share buyback of ZAR 1 billion.
The special dividend from OMLACSA will increase discretionary capital by ZAR 2 billion when it's received this quarter, and obviously the share buyback will have a corresponding reduction in discretionary capital by ZAR 1 billion as we execute the repurchase. Our remaining discretionary capital remains available for investment into growth or return to shareholders, and we'll provide further detail at our full-year results announcement. Finally, just an update on the Two-pot situation. At the end of October, we paid 93% of some 240,000 claims submitted, amounting to ZAR 2.4 billion. Most of these claims have been paid in October rather than in September, so our Q3 numbers would not include those flows. In a continued focus to encourage digital adoption, 99.7% of these claims were submitted by customers via WhatsApp.
Over the medium to long term, we expect these outflows to be offset by higher assets under management retained as a result of compulsory preservation of the accumulated contributions in a non-accessible retirement savings pot. And from an administrative and operational perspective, we remain well positioned to manage the impact of the increase in the claims volumes. So I'll stop there and open up to questions. Please do indicate if you'd like to ask a question, and I'll either answer it or ask one of my colleagues to assist me. Thanks.
Thank you. Ladies and gentlemen, if anyone would like to ask a question, you're welcome to press star and then 1 on your touch-tone phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. If you wish to withdraw your question, you may press star and then 2 to remove yourself from the question queue. Once again, if you would like to ask a question, you may press star and then 1. The first question we have is from Michael Christelis of UBS. Please go ahead.
Hi guys, thanks so much for the update and for the time. I've got quite a few questions, so let me try with the first three and then I'll come back later if there's time later. Can you talk a little bit about lapse experience in MFC in the third quarter and how that's trending? I think you highlighted the risks that we may see some sort of assumption change at the end of the year, so just an update on that, please. Secondly, on Old Mutual Insure, can you talk a little bit about the underwriting performance for quarter three? Some of your peers have shown some pretty good numbers, so just trying to get a sense of how things have trended versus the first six months.
And then I think if we can just talk a little bit about the capital release from AMLAXA, the ZAR 2 billion, how much more is there in your mind that you've identified that you can hopefully release out of the AMLAXA balance sheet over the next, say, I don't know, three to five years? I'm not looking for sort of hard sort of guidance, but just something about, you know, is there still a lot of excess capital in there that could come out in the medium term? Thank you.
Okay, thanks, Michael. I'll briefly comment on the first two and then ask Casper and the team to comment further on those as well as to talk about the capital position. On MFC persistency experience, we have seen a little bit of improvement over the course of this year, but not to the extent that we would have liked. So it is something we will continue to review, and obviously we'll make decisions in quarter four around what we do about that at the end of the year. On Old Mutual Insure, I think it's safe to say underwriting performances remained excellent in the third quarter, so very, very happy with where that is sitting at the moment. But, you know, always bearing in mind that quarter four is weather season from that perspective, so we will keep an eye on it.
Casper, do you want to talk about the capital release or say anything else about those other two?
Yes, Michael. So as we've said consistently before, we've targeted a number of opportunities across the whole group balance sheet that we're looking to unlock in the next 18 months to three years. We are expecting some optimizations from the OMLACSA balance sheet to further unlock capital in OMLACSA. We haven't sort of quantified that fully, but we are expecting further optimizations, and then we are targeting further optimizations in our Africa business, our insure business, and in our investments business. Some of these are longer term and more difficult to realize. So, for example, we've spoken about the properties that we're holding in the Africa balance sheet that are not efficient for us to hold, but it's proven quite difficult to liquidate those. So, but we are continuing to see continued traction on extracting additional capital, and we'll give you a full update.
And we expect that for 2024, we expect to further have additional capital being extracted in 2025, and we'll give you an update on, you know, what we've achieved at the end. The other point to note is that our dividend policy generally results in a payout of between 50% and 67% of adjusted headline earnings to the extent that we are generating better capital, you know, normal cash generation. And you'll have seen that our cash generation has been a lot higher than that in the last few years. That adds to, obviously, ultimately the discretionary capital that we have available at the group, and that percentage that we normally quite, that's after taking into account, you know, additional capital required for the business because of business growth.
So we should see, as a matter of course, you know, additional cash being generated above the sort of normal dividend policy over time.
Great, thank you.
Ladies and gentlemen, just another reminder, if you would like to ask a question, you may press Star and then 1. The next question we have is from Warwick Bam of RMB Morgan Stanley. Please go ahead.
Good afternoon, everyone, and thanks for the time. First, just on mortality experience in Personal Finance, you had a negative experience in the first half. Can you just comment on how that progressed into the third quarter? Just remind us on how you calculate Net Client Cash Flow. I mean, does it relate to all lines of business, including life insurance claims? And do you have any internal targets relating to Net Client Cash Flow? And then lastly, just give us an update on the bank and I guess when you're expecting to launch. Thanks.
Thanks, Warwick. I'll talk about the first and the third, and I'll ask Casper and Ranen to talk about NCCF, so on PF mortality, you recall that the issue in the first half of the year was around large claims above ZAR 10 million, where we essentially had roughly double the volume that we normally expect in terms of numbers. Although it's small numbers, the double is, say, 20 extra claims at that ZAR 10 million plus level. Pleased to say that in both Q3 and year-to-date, we've seen a normalization to trend on those numbers, and if anything, probably a bit better than trend on the large claims in quarter three and quarter four, so that piece is not too much of a concern. We genuinely think it was statistical variability. Couldn't detect any pattern by date of entry, etc.
The only slightly unusual feature in those claims in the first quarter was there were three suicides, if I remember correctly, out of that grouping where we might normally expect one. But beyond that, nothing out of the ordinary. So I think we're comfortable that it seems to revert to mean from that perspective. We're still monitoring the broader mortality basis around just generally the COVID normalization, as it outstanding items are regarding the conditions on our license or regarding the composition of the executive team and the bank board. We've submitted most of the docume were, but that's not the, that wasn't the most material issue in H1. From a bank perspective, we remain on track to, as I think we've said before, to launch early next year. The docume ntation, the BA020 forms, as they're called for each of the individuals to the regulator.
We're busy with the process of getting their sort of almost informal feedback. Once we've got that and they've indicated they're comfortable, then we need to formally submit. The bank board needs to meet and formally resolve to submit an application to have the license declared unconditional. And we expect to do that early in the new year, and then, you know, once we have that feedback, we'll open our doors. So that's essentially the process. I should say that we are taking a fairly cautious approach to the initial opening, and our business case includes an incremental build-up in the first nine months or so of operations of the bank, as opposed to a, you know, a fully fledged massive marketing effort from the beginning.
So don't expect to see, you know, a flurry of activity initially, but we do, we remain on track to open as planned, and we will then incrementally open up as we go. Thanks. And so, sorry, over to Casper Troskie on the NCCF question.
On the net client cash flows, it's really the difference between gross flows, gross inflows, and gross outflows. On the gross outflow side, we include all our mortality claims, our morbidity claims, surrenders, annuities, retirement payouts, maturities, and disinvestments. It's really comprehensive. For example, in our corporate business, because that's a large, effectively a very large pension fund, you would expect to see payouts, net payouts, because you've got a built-up book that's been built up over time, and you're paying annuity payments on those. Structurally, that book would always give you a net outflow, unless you have a very big inflow in a particular year. I hope that clarifies the question.
Thanks.
Ladies and gentlemen, just a final reminder, if you would like to ask a question, you may press Star and then 1. We have a question from Royce Long of Obsidian Capital. Please go ahead.
Hi there, guys. If I could just follow on from the previous question with the comments around the bank being launched in Q1 next year, could you reference the spend to date, the current sort of glide path, and if you could reference that back to what was expensed in FY 2023 and H1 2024, that would be useful if possible. Thanks.
I'll give you an approximate position, and then ask Casper Troskie to comment on a bit more detail. We've spent approximately ZAR 2.5 billion to get the bank to where it's at. I forgot what that number is, of which a smallish portion has been capitalized onto the bank balance sheet, and the rest has been expensed. And then obviously there's a regulatory capital on the bank balance sheet as well. So there's a small asset capitalized, a couple of hundred million. There's an amount of regulatory capital sitting on the bank balance sheet, and the balance has been expensed. It's essentially the position. The spend remains completely within guidance and budget, etc., as to what we've communicated to date. Ranen and Casper.
Yeah, if you look at the half-year expense, the bank was just put out ZAR 500 million. We're expecting that to grow to about ZAR 1.1 billion for the full year, and that's within our plans. For next year, we're expecting that to increase slightly to around ZAR 1.2 billion, and that will be the running costs as well as some of the variable costs that come in, that comes in for new clients or set by variable revenues. So that's the outlook for the bank. And then, as we've communicated before, we said we're looking to get a monthly break-even three years after launch. So you should see that, you should expect to see that, you know, that gross costs reduce quite significantly in the next three years.
Great, thank you.
We have a follow-up question from Michael Christelis of UBS. Please go ahead.
Hi guys, two more from me, if I can. Maybe sort of any guidance you can give us on RFO, either the run rate up to the nine months or some sort of guidance for the full year, obviously excluding any impacts of assumption changes, that would be quite useful, and then, you know, clearly given the news flow yesterday, you're now standing out, I guess, as the only large insurer left with its own asset management business and an active asset manager. You know, is that, is there any sort of thoughts around the strategy there of possibly outsourcing or changing or anything like that? I mean, is there, is it even a discussion point at the board level?
I said, do you want to pick up the first one and I'll talk about it?
Yeah, on the RFO, we don't normally provide guidance at, you know, the quarter ends. We've found in the past that, you know, given what markets can do, you could have quite a lot of variability from where we're sitting now to the end. So, you know, giving guidance was always misleading, given the size of our life book and how markets could move that in the next few months. So, I think we have to stick with what we saw in at the half-year. We have though seen that investment markets have improved in the second half. So that should be supportive of earnings. I think those are the sort of comments. And then you, I mean, all we can say is you can read through from the flows, you know, how the rest of the business is doing.
But, yeah, unfortunately, I can't give you any more guidance than that at this point.
Regarding the asset manager, no, we haven't had any conversations along the lines of a very different path at board. You know, I think we have been on a path for quite some time of maintaining our shareholding in the asset manager, but setting it up to operate very much independently and to compete on an arm's length basis with the market. That continues to pretty much be our approach. Thanks.
Thanks, guys.
We have a follow-up question from Warwick Bam of RMB Morgan Stanley. Please go ahead.
Thanks. Just on your expenses, maybe you've spoken about the bank and the additional costs there. Can you talk elsewhere, especially around central costs and just how that trends and changes into next year?
So the update that we gave at the half-year remains intact in that we are going to see elevated expenses this year and next year with the central costs then reducing to 2022 costs plus inflation as the sort of maximum we're expecting. So that central cost profile will remain higher this year and next year, but then expected to reduce quite significantly in 2026.
Thanks.
All the reasons that we mentioned before, including, you know, the double run costs that we've spoken of before, some elevated project costs, the fact that we're transitioning our main insurance platforms from largely very old systems to a very new platform, and that will be completed largely at the end of next year for most of our products that we provide, you know, as the life business, so that includes risks, savings, and income, and then in 2026, what will remain is just the transitioning of the savings and income historical book onto the new platform, so it's quite a large transition that we're going through, which is why we're having this elevated cost for a period of time.
At this time, we have no further questions on the call, and I would like to hand back to Iain Williamson for any closing remarks.
Guys, thanks very much for your time, everybody. I hope that provides a little bit more clarity and a little bit more color to the trading update we released, and look forward to talking to you again when we issue the next one just before our full year results, and yeah, all the best for the rest of the year.
That concludes today's conference call. Thank you for joining us. You may now disconnect your lines.