OM Business_review 2010

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44 Old Mutual plcAnnual Repor t and Accounts 2010

KEY FINANCIAL HIGHLIGHTS

Return on equity (RoE)%

18.52010

14.82009

4.7

2010

2.62009

Net Client Cash Flow (NCCF)/Funds Under

Management (FUM) %

2010

2009

2010 4,507

Value added (VNB + Experience Variance)/MCEV %

4,507

1.3

2009

EmergingMarkets

3,668

2,765

2010

2009

WealthManagement

2010

2009

23

24

3,210

2010 4.1

4.12009

Nordic393

581

2009

2010

Retail Europe

Unit trust sales (m)

EmergingMarkets

4872010

2009

2010

2009

2010

2009

2010

2009

Nordic

393

WealthManagement

235

69

67

617

CEV (m)

2010

2009

734

201

EmergingMarkets

3,953

2010

2009

2010

2009

2010

2009

2,148

1,996

Nordic

Retail Europe

2,971

WealthManagement

1,548

637

543

617

734

1,836

Retail Europe

PE sales (m)

BUSINESS REVIEW

LONG-TERM SAVINGS

Adjusted operating profit (pre-tax)

897m2009: 636m

Funds under management

131.8bn2009: 105.5bn

Number of employees

24,0442009: 22,269

Some of our brands

LTS EXECUTIVE COMMITTEE1

Kuseni Dlamini CEOOMSA & Emerging Markets

Mrten Andersson CEONordic

Richard BoynettCIO Long-Term Savings

Jonas Jonsson CEORetail Europe

Steven LevinDirector Group Product

Bob Head CEOWealth Management

Rose KeanlyManaging Director OMSTAand Head of LEAN, LTS

Mike HarperManaging Director CustomerSolutions

1 Andrew Birrell, Don Hope and Don Schneider, members of the Group Executive Committee, are also on the LTS Executive Committee.


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Old Mutual plc 45Annual Report and Accounts 2010

The Long-Term Savings (LTS) division offerslife assurance, pensions and investmentproducts and operates through four mainbusiness units: Emerging Markets, Nordic,Retail Europe and Wealth Management.

OverviewIn each of these markets our vision is to be ourcustomers most trusted partner, passionate abouthelping them achieve their lifetime financial goals.Our strategy to achieve this vision is to build acohesive long-term savings, protection andinvestment division through leveraging the strengthof our people and capabilities both in South Africaand around the world.

Business units:

Emerging Markets: Old Mutual South Africa(OMSA) is one of the largest and longest-established financial services provider in SouthAfrica, providing individuals, businesses, corporatesand institutions with long-term savings, protectionand investment solutions. Because we are nowleveraging the business into other high growtheconomies, we have combined it with our LatinAmerican, Asian and African businesses.

Nordic: Operating in Sweden, Norway andDenmark under the Skandia brand, we offerbanking and insurance services for individuals andcorporates.

Retail Europe: Operating in Austria, Germany,Poland and Switzerland under the Skandia brand, weare one of the leading unit-linked providers offeringinnovative and flexible products and stronginvestment knowledge.

Wealth Management:Operating mainly under the

Skandia brand with businesses in the UK, Italy, Franceand in our offshore International bases. Our offer is basedon open and guided architecture accessed throughunit-linked life insurance, pensions and mutual funds.

StrategyWithin LTS we have three different types ofbusinesses which together provide high returnscombined with high growth:

High returns on equity (RoE) and high cash

generation businesses

High revenue growth potential businesses

but which are not operationally efficient at thisstage. Because of their product design andstructure these businesses are very capital-efficient and new business is self-financing

Businesses in emerging markets, which wehave the opportunity to grow. These willrequire funding for a number of years but inthe long run will produce growth and valuefor shareholders.

The funding needs of the latter two business typesare modest in relation to the rest of the portfolio,so in combination the three different categoriesprovide an excellent mixture of high RoE andgood growth potential, in both the medium andlonger term.

Our strategy aims to: complement our strong, highly profitable and

mature OMSA business by leveraging our SouthAfrican capabil ities to grow and develop ourbusinesses in selected African, Latin Americanand Asian markets

operate capital-efficient, fast-growth businesses

in selected UK andEuropean markets

exploite capital, cost and revenue synergiesbetween the various businesses.

The strategy is underpinned by building a culture ofcustomer focus and value creation internationally.

Our key strengths are our knowledge ofmanaging distribution, product designand controls and efficient administration.

Our challenge is to develop this acrossall of our LTS businesses.

Paul HanrattyCEO Long-Term Savings andChaiman, Old MutualSouth Africa

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High RoE/High cash generation

Slow growthLarge market shareGenerate high cash returns that

fund new business, allow for acqui-sitions and Group dividend

High revenue growth potential

Low profit generation relativeto enterprise value

High cost basesPotential for rapid profit growth

on restructuring / efficiency gainsLargely self funding in terms of new

business and growthNew business tends to be cash

demanding

Opportunity to grow

Require funding of businessat least until breakeven

Rapid growth of salesNew business tends to be

capital intensivePotential to grow embedded /

enterprise value rapidlyCash generation is far out

OMSANamibiaColombia

Wealth ManagementNordic

Retail EuropeAfricaAsiaMexico

The LTS portfolio provides high returns combined with high growth

BUSINESS REVIEW

LONG-TERM SAVINGSCONTINUED

By identifying where customer needs are not beingmet, we are able to exploit synergies across LTS,for example by taking proven retail products fromOMSAs mass foundation cluster to other marketswhere product penetration levels are low andwhere economic growth will happen over time. Weare applying strong risk capital management andperformance management frameworks with stronglocal management teams. In addition we havedeveloped LTS-wide roles to ensure we exploitsynergies and establish centres of excellence.These roles covering IT, product, LEANmethodology and distribution will help us to gain

competitive advantage by delivering appropriateproducts and services efficiently.

In South Africa we already have scale andexceptional levels of quality, straight-throughprocessing and low unit costs. We are experiencedin developing products for sophisticated marketsas well as in developing simple products formiddle-income markets and we have experience inpricing diverse risks. We run multiple distributionchannels and have a comprehensiveunderstanding of different types of distribution. Wealready have experience in leveraging thesecapabilities into high-growth markets such as

India. Our approach to leveraging our skillset inSouth Africa to the rest of Emerging Markets isbased on sharing product experience, people andprofessional skills, systems and processes, anddistribution knowledge.

Through our Skandia businesses we have builtexcellent market positions as capital-efficientbusinesses in Europe and in the UK. These have ahistory of innovation and are very well positionedbecause of the customer value that they deliver,exploiting opportunities to take market share frommore traditional, less customer-orientatedcompetitors. We aim to grow their revenues while

constraining costs and ultimately driving up operatingperformance by adopting LEAN methodology.

While we are primarily focused on leveraging ourcapabilities in South Africa into emerging marketsand improving the operational performance of ourEuropean businesses, there are also opportunitiesto achieve synergies between them. Ourbusinesses connect at a capital level and are wellresourced for future growth. At the same time,there are opportunities for cost and revenuesynergies. The cost synergies lie primarily in the ITarea and in outsourcing some work to SouthAfrica. The revenue oppor tunities lie in shar ingproduct knowledge and ideas as well as what weknow about building distribution channels.

The recent financial crisis highlighted the need forthe financial industry to operate more efficientbusinesses in order to compete for market shareamong more financially-conscious customers. Wehave introduced a number of efficiencyprogrammes in four basic categories:

1. Transforming Wealth Management:implementing shared services models toreduce costs by taking out expensive layersof overhead and management and producingsimplified management information.

2. Transferring Retail Europe back-office to

South Africa: outsourcing to lower-costgeographies, where we can achieve processefficiencies and scale.

3 Reviewing Wealth Management andNordics: driving LEAN methodology thinkingacross the businesses.

4. Transforming IT: we are optimisingoutsourcing, shared computing and IT sharingapplications. We are enabling businessefficiency and innovation for both local andinternational competitive advantage throughone IT partnership.


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Driving revenue growth

Implementation

Exploit growth opportunities inemerging markets

Position for sweet spot in Europe

Specific efficiency programmes ineach business

Reducing cost

Adopt LEAN methodology across

all businessesPotential IT synergies, particularly in

outsourcingProduct lines extended to

other markets

Synergies

Measures

(VNB + Exp Var) / MCEVNCCF / FUM

Administration expenses

ExpensesAPE

Capital efficiency

Focus on capital light productsDiversification benefits

Equity (E)

Achieving our LTS targets

Personal financial services

Med

ium

High

SA

SA

Regular premium

Risk productsAgency distribution

Single premium

Guided investment platform

IFA

Self service

Customer proposition

Wealth

(GDP/capita)

Wealth management

Putting the customer at the centre

Achieving our LTS targetsWe are focusing on four main areas to createshareholder value. Each has associated measuresto track the result. These are set out in thetable above.

We are gradually rolling out a common approachto creating shareholder value across all ourbusiness units. This focuses on the creation ofeconomic profit generating profits that exceedthe risk-adjusted cost of the capital that thesebusinesses absorb. The economic profit frameworkis beginning to shape all our capital allocationdecisions and we are extending it to assess businessperformance and determine management reward.

We recognise that many of our investors favourembedded value as a measure of enterprise value. Sowe monitor very closely the value added bymanagement, through the sale of profitable newbusiness and the control of experience relative toassumptions, in adding to embedded value returns (ie(VNB +experience variance)/MCEV)). We have a largeand growing part of our non-life or non-covered

business and we apply these measures equally to both.

Current products and product development

We are creating long-term, sustainable competitiveadvantage by putting the customer at the centre ofeverything we do. As shown in the table below, wework in two different kinds of markets: developedcountries and emerging markets. Emerging marketcountries generally enjoy fast GDP growth but havelow average GDP per capita, whereas more maturemarkets such as Sweden, Germany, the UK andFrance offer opportunities to penetrate into wealthier

customer segments. The improving demographicsof the emerging market economies are likely tosupport economic growth through for example,larger pools of labour. As emerging economiesmanufacturing exports grow, we expectcorresponding growth in their labour markets andevolution of their consumer segments. By contrast,we do not anticipate such shifts in the existingwealth of the UK and European economies. Ourofferings in the South African market span acrossthe wealth divide.

In Emerging Markets we have developed a widerproduct set. This applies also to our business inGermany, Austria and Poland. We focus on regularpremiums and delivering product value tocustomers making sure that our products aretransparent, that fees are clear and that customersreceive the solution that best meets their needs.


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Product development structure decisions

GlobalControl

Global Capability Leverage

Risk Managed Model Leveraged Model

TacticalFederal Model

OM: Past

OM: Current OM: Aspiration

Source: NMG Consulting, Old Mutual.

BUSINESS REVIEW


Our LTS product offering aims to meet customersneeds for savings, investments, pensions andannuities as well as protection. In some of ourbusinesses we also address their healthcare andtransactional needs. While local market differencesexist, the solutions our customers require indifferent regions are, in our experience, verysimilar. Essentially, customers everywhere have thesame basic financial needs. What is more,products are distributed via the same distributionchannels and regulatory regimes are increasinglyconvergent. As a result we believe we have anincreasing opportunity to leverage our productknowledge and expertise across the different

markets in which we operate.

Before the creation of LTS, Old Mutual andSkandia businesses around the world operatedindependently in a federal model within the Group.Group control was insufficient and few synergieswere realised between regions. After the globalfinancial crisis and the operational losses weincurred in Old Mutual Bermuda, we implementedstronger Group controls and risk management.As can be seen in the chart above, we are nowdriving an LTS product view across all our marketsand we are actively leveraging capabilities fromone market to another to exploit synergies.

Old Mutual and Skandias products andpropositions are generally regarded by customers,intermediaries and competitors as market-leading.Our businesses have recognised track records ofinnovation and we have won numerous awards inseveral markets for the quality of our productoffering, the fund ranges we offer on our platforms,our tools for advisers and our interactive websites.

We are determined to maintain leadership inproduct innovation and we are implementing newtechniques and processes that have successfullystimulated innovation in other industries.

In OMSA and Nordic, our product ranges areextremely comprehensive, covering almost all the

financial needs of our customers. By contrast, insome of our other markets our current productoffering addresses a relatively narrow spectrum ofcustomer needs: our Wealth Managementbusiness, for example, has market-leading platformofferings but a very limited offering in thedecumulation (annuity) and protection markets.Similarly, in our Retail Europe business we havegood regular savings products but no meaningfuldecumulation, protection or lump-sum offerings.We therefore see great opportunities to expand ourproduct offering in these and other markets byleveraging our product expertise, designs andstructures and our IT platforms from markets such

as South Africa and Sweden. We have alreadybegun executing projects to do this.

In the developed countries served by our UK,French, Italian, Nordic and Internationalbusinesses, we are focused mainly on the massaffluent segment. Our proposition, includingproducts, distribution and processes, is builtaround that segment and is orientated to customerneeds. The flexibility and transparency of ourproducts, and the value that we deliver, place us ina good position in those markets. South Africa alsohas a vibrant wealth management industry, so wepresent a very similar offering there to the mass

affluent market. Notwithstanding the platformbusiness in the UK operates a version of thetechnology we developed in South Africa for theSouth African market.

Above and beyond the continuous enhancementswe make to our product ranges every year, we willpay particular attention over the next few years to:

Expanding our protection offering into emergingmarkets outside South Africa, and into ourEuropean businesses

Enhancing the range of downside-protected,structured products or guaranteed investmentofferings available on our investment platforms

across most of our markets Developing appropriate decumulation offerings

to capture the investment proceeds ofcustomers reaching retirement age.


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South Africa

Nordic1

EmergingMarkets

WealthManagementUK

WealthManagementNon-UK

Retail Europe

Customerneeds:

Products:

PensionsSavings and Investments

Life Wrapped Non-LifeWrapped

Accumulation Decumulation

Protection Healthcare Transactionaland Lending

Development of distribution strategyDistribution in Emerging Markets is affected byboth financial and non-financial drivers. Financialdrivers such as relative wealth, money transmissionmechanisms and the availability of state socialsupport influence the types and distribution ofproducts. Non-financial drivers such as literacy, lifeexpectancy and respect for legal title affect pricing,product complexity, and communicationtechniques and content. Countries with loweraverage customer income need simple, cost-effective products. Here, the educational aspect ofselling the product is critical.

The mature markets allow for more effectiveleveraging of existing relationships and capabilities,and development of new distribution channels suchas the internet. Skandiabanken is an example ofinnovative distribution using the internet as a gateway.

The factors outlined above influence the way wethink about the retail consumer in our variousmarkets. We are carrying out detailed work tounderstand the evolution of customer segmentationin the new retail markets that we are targeting. Andwe maintain ongoing research on the framework

within which customers buy or get access tofinancial services in their particular markets.

In bringing together the LTS division, Old Mutual ismanaging distribution channels across its lifemarkets more strategically. We are intent onunderstanding how and what organic growthopportunities can be better leveraged to achievegrowth in our various markets and in particularon leveraging our achievements in South Africa,Namibia, Sweden, the UK and Colombia. Wemanage distribution country by country, using localmarket experts resident in those countries.

LTS will invest in the channels that are most likely

to increase effective distribution. Channels aremost effective where they are directed to theappropriate consumer segment and offer us thegreatest control. The principal detractors fromchannel performance are poor persistency andpoor agent productivity. Using our own agents(employed advisers) can be more expensive, butthere are long-term benefits: their closeness to thecustomer enhances loyalty and customer retention.

The current size and projected growth of theemerging market countries where LTS operatessuggest that more investment is needed indistribution to capture the growth opportunities.

1 Certain products are packaged jointly with Skandia Liv, who provide the guarantees.


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EMPLOYEE WELLNESS WEEK AT

OUR PROPERTY BUSINESS

BUSINESS REVIEW


Our current approach to enhancing distributionhas four broad aspects:

1. Growing advisers organically.Tied agencyforces are critical particularly in EmergingMarkets, where they remain the dominant formof distribution.

2. Strengthening efficiencies.An inefficientsales force incurs large overhead costswhich may lead to acquiring poor-qualitycustomers and delivering poor-qualityadvice to customers.

3. Strengthening bancassurance. Severalof our retail markets have large, dominantretail banks.

4. Adding new channels selectively in relevantmarkets such as Retail Europe, Latin Americaand Asia.

Total contribution to APE by business,

split by distribution channel (%)Emerging

Markets

Wealth

Management

Nordic

Retail

Europe

66

93

96

23

7

3

1

1

70 15

19 10 41

Own advisers IFAs Bank Direct Other

Our distribution channels and their mix differ bymarket maturity and by country. The chart aboveshows the mix by business across all LTS markets.Tied or employed agency forces (own advisers) aredominant in Emerging Markets while independentfinancial advisers (IFAs) are the main distributionchannel for us in Europe and the UK. Thedifferences in distribution mix between EmergingMarkets, Europe and the UK are mainly due tofactors such as financial services sectordevelopment and maturity, and the relativeexpense of having own sales force versus the use

of independent financial advisers.

There are some differences in the terminologyused internationally to describe distributionchannels. We use the term tied agency fordistribution channels contractually tied to theproduct provider or employed agents, or worksitemarketing. The term IFA is used more broadlyhere to include independent brokers andindependent insurance advisers. Tied agencydistribution gives us more control and can betargeted more accurately at the relevant consumersegments. In mature markets life companies haveaccess to and can use independent advisers orbrokers as well as retail bank or bancassuranceadvisers. In some mature markets, and in Asia, thefast-developing internet model offers a completely

new means of accessing consumers. While weacknowledge its potential, we believe the internetsrole as an effective distribution channel within acountry is largely dependent on the developmentand widespread roll-out of broadband technologyas, for example, in the Nordics.

Old Mutual has a long history in southern Africaof establishing and growing new distributionchannels. OMSA established independentinsurance brokers or IFAs in the late 1970sand established mass market worksites shortlythereafter. Skandia has been effective atestablishing IFA networks and channels. Tiedagency and worksite marketing is very effectivein reaching the mass market and middle marketconsumers, while IFAs are very effective atpenetrating and developing the wealth marketsof UK, Europe, China and southern Africa.

Regulatory DevelopmentsThe range of regulatory issues affecting distributiondesign and control is fairly consistent across our LTSdivision countries. Regulators in all our LTS marketshave become more effective and consistent indealing with market abuse and tightening up theapproach to regulation. Regulatory enhancementsare good for consumers and new regulation createsopportunities for life companies to build better, moremature, high quality sales forces and face-to-faceadvisory businesses.

This year, to coincide with AidsAwareness Day on 1 December, weheld a hugely successul EmployeeWellness Week to get us all thinkingabout our health. Proessional

nurses visited our head ofce andour main regional ofces in SouthArica to invite employees to have

their blood pressure, cholesterol,glucose levels and body mass indexchecked. Over 250 employees tookpart. The nurses also answeredemployees health questions and

raised awareness o the supportthat the company oers to peoplewith disabilities.

It was a great success. Very well attended

and well received, especially by the youngermembers of staff who were not aware thatthey faced certain health risks. It alsodemonstrated our concern for the wellbeingof our staff, and we received veryappreciative feedback.

Adelah Malick, Human Resources Manager (OMIGPI)


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LEAN administration and ITEach LTS regional organisation currently has itsown administration and IT structure, but theseshare many common products, processes, ITplatforms and customer/intermediary interfaces.Our strategy is to actively seek cost synergies,drive LEAN methodology and achieve a qualityservice culture across all our IT provision.

LEAN administrationOur OMSA business has run its LEAN programmefor four years. LEAN is about building anorganisation culture that starts with the customer,identifies duplication or over-engineering of

procedures across processes and thenstreamlines those processes using extensivestandardisation and simplification. By doing thissustainably and continually, we reduce unit costsand improve customer service quality. In OMSAwe have driven down unit costs year-on-yearacross our retail and corporate products and willcontinue to do so.

OMSAs unit costs compare favourably with thoseof our South African competitors, due mainly toour scale in South Africa and the extent to whichwe have used LEAN. OMSAs unit costs are alsosignificantly lower than those of other businessesin LTS because of scale, LEAN and labourarbitrage within the business which offerssome opportunities for LTS.

LEAN methodology is allowing us to combinelower unit costs with improved service. Researchshows that we have improved our customer andintermediary service year-on-year; and we havewon our industrys national Best Provider ofCustomer Service award in South Africa threeyears running.

We see a number of opportunities to enhanceadministration across LTS:

Potential to move administration from otherparts of LTS to South Africa, using the capabilityand scale we have there to improve capabilitiesand unit costs. We are currently moving processesand IT from Retail Europe (Germany, Polandand Austria) to South Africa, which will give usa capability that we can exploit further in LTS

In businesses where it does not make senseto move administration to South Africa,we will apply LEAN principles to streamlineprocesses, reduce unit costs, improve ourservice and provide a very strong foundationfor future growth

Applying LEAN principles beyond the servicingand operations area to reduce businessesoverheads, streamline IT and even improvesales processes.

As the chart shows, we have an establ ishedhistory of driving down unit costs and improvingservice in OMSA with LEAN. We are now sharingthis expertise across the LTS division.

50

60

70

80

90

100

Index

2006 2007 2008 2009 2010 2011 2012 2013

Forecast

ITOur IT mission is to enable business efficiencyand innovation for both local and internationalcompetitive advantage, through one world-classIT partnership. These potentially contradictory

aims form the core strategy for running IT acrossLTS. IT needs to be an efficient, well-governed,common function without sacrificing the speed-to-market and innovation needed in our local markets.

LTS IT will now provide all IT services, to LTSand to the local businesses. The IT front-office the LTS-run local IT departments will continue tomanage projects and generate requirements forthe local business. Free of managing IT commoditywork, the local IT department will improve theirfocus delivering the technology that underpinsthe local business needs and strategy. Theseteams have the greatest opportunity to drive

business results through harnessing the innovativeuse of technology.

The LTS IT back-office is focused on two goals: theGlobal Delivery Centres for Infrastructure andApplications will leverage the economies of scaleacross LTS to deliver IT more cost-effectivelyand more consistently across the division.The Governance and Architecture functionswithin the LTS IT back-office are then responsiblefor ensuring that LTS is well governed from anarchitectural, financial, risk and control perspective.

This hybrid operating model for LTS IT will comply

with regulatory requirements, ensuring localaccountability and control, but leveraging commongovernance, efficiencies and economies of scalefrom a modern IT function in a global business.


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Front-office of LTS IT focuses on local business to improve competitive advantage

Back-office of LTS IT focuses on improving IT efficiencies and effectiveness

Efficiency through Global Delivery Centres

Global

Local

Improve competitive advantage

Improved effectiveness from global governance

ArchitectureInfrastructureGovernance

Application Development& Maintenance

EmergingMarkets

IT Innovation

NordicWealthManagement

Retail Europe

Locally-based IT Departments

BUSINESS REVIEW


In transforming LTS IT, we see a number of synergyopportunities across LTS to help reduce cost,support the business strategy and drive innovation.These fall into three categories:

Reviewing the existing LTS IT environmentEach business or geography currently has itsown set of data centres, networks and bespokesystems. To a large degree, we can consolidatethese so that we can reduce costs while alsoimproving disaster recovery and businesscontinuity, and enabling significant businesschange. We have world-class platforms in someareas of LTS. Working closely with our localbusinesses we are aiming to share and extendthe capability across the division. We areleveraging our scale and our willingness topartner with the best companies in the industryto create a lower, total cost of IT.

Internal partnerships with our back-office

business functions.This involves workingtogether to get value from LEAN processes toreduce errors as well as complexity and ITsupport costs.

Working cohesively across LTS as well as

working in close partnership with our local

businesses.This means creating economies ofscale and improved delivery of IT solutionsthrough a common IT back-office function andmutually beneficial external partnerships. Thisincludes a consistent governance frameworkthat will ensure correct management of ITfinances, project control and improved controlof IT-related risk, security and audit items. If it ispossible to do that in one place, we will be moreeffective and efficient. More importantly, ourpartnerships with the local businesses improves

our ability to use technology to create solutionsand capability that enable new and innovativebusiness strategies.

Review of Results 2010LTS AOP earnings benefited from higher feesgenerated from positive net client cash flowsparticularly in Wealth Management, rising fundsunder management and the strengthening of therand and Swedish krona against sterling. On aconstant currency basis, earnings were up 26%.

The Emerging Markets business accounts for 60%of the LTS IFRS AOP earnings, 43% of LTS FUM,and 33% of LTS APE sales. This compares to 70%of restated AOP, 41% of FUM, and 30% of APEsales in 2009.

APE sales increased by 14% for the LTS divisionas a whole, with the growth coming largely fromthe regular premium products in the Retailbusinesses of Emerging Markets, and WealthManagement single premium products, notably inthe UK and Italy. A managed shift in business mixin Nordic was executed with sales decreasing fromprior year levels. There was encouraging growth in

both single and recurring premiums in RetailEurope. Sales for the second half of 2010 wereahead of the first half for Emerging Markets andRetail Europe, and evenly spread across the yearin Nordic. Wealth Management sales were slightlyhigher in the first half of the year than the secondgiven the usual seasonal weighting to the firstquarter of the year, and the benefit of the short-term Italian tax shield.

Mutual fund sales were up by 2,387 million, withstrong performance in Wealth Management andEmerging Markets particularly in the second halfof the year.


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Long-Term Savings

Key performance statistics for the LTS division are as follows:

m

2010Emerging

Markets NordicRetail

EuropeWealth

Management Total

Life assurance sales (APE) 487 201 69 734 1,491PVNBP 3,269 1,104 513 6,380 11,266Value of new business 86 41 7 66 200Unit trust/mutual fund sales 3,668 581 23 4,507 8,779NCCF (bn) 0.7 0.4 3.9 5.0FUM (bn) 57 14 5 56 132Adjusted operating profit (IFRS basis, pre-tax) 539 110 51 197 897Operating MCEV earnings (covered

business, post-tax) 344 45 66 112 567(VNB + Exp Var)/MCEV (covered business) 4.7% 4.7% 2.2% 3.1% 4.1%

m

2009 (as reported1)Emerging

Markets Nordic Retail EuropeWealth

Management Total

Life assurance sales (APE) 393 235 67 617 1,312

PVNBP 2,834 1,150 537 5,042 9,563

Value of new business 65 44 (5) 49 153

Unit trust/mutual fund sales 2,765 393 24 3,210 6,392

NCCF (bn) (1.6) 1.0 0.5 2.5 2.4

FUM (bn) 44 11 4 47 106

Adjusted operating profit (IFRS basis, pre-tax) 446 62 22 106 636

Operating MCEV earnings (covered

business, post-tax) 212 81 (44) (4) 245(VNB + Exp Var)/MCEV (covered business) 0.5% 7.5% (5.1%) 0.6% 1.3%

1 The year ended 31 December 2009 has been restated to reflect US Life as discontinued

Across LTS as a whole, new business APE marginsimproved to 13% for 2010 (2009: 12%). This reflectsthe focus on selling more profitable products withbetter margins, notably in Nordic, and increasedsales of a higher margin product in the first halfof the year in Emerging Markets. The APE marginin Emerging Markets increased from 16% to 18%.In Nordic, the APE margin has increased from 19%to 21%, benefiting from the managed reductionof low margin product sales such as Link regular.

In Retail Europe, the APE margin has improvedconsiderably to 11% from a negative position in thecomparative period. Across Wealth Management,the APE margin increased from 8% to 9%, withthe UK increasing from 2% to 3%, and Internationalfrom 18% to 19%. The most significant increasein APE margin was in respect of the ContinentalEuropean markets, which increased from 3% to8% as result of the increase in volumes in Italy.Sales of mutual funds, which make up the bulkof Wealth Managements sales, are not includedin the APE margin. The IFRS operating margin roseto 38bps from 25bps for Wealth Management asa whole. For LTS as a whole the PVNBP margin

improved to 1.8% (2009: 1.6%).

The market-consistent value of new business(VNB) improved for all of our LTS businesses,with the exception of Nordic, where although

the underlying margins of the business improved,the absolute value of new business fell as a resultof the decline in new business volumes (due tothe cessation of sales of an unprofitable recurringpremium product) and changes in assumptions.

The LTS net client cash flows more than doubledas improvements in Wealth Management andEmerging Markets more than outweighed thelower net flows in Nordic given lower sales

volumes. Funds under management for LTS at 31December 2010 increased by 25% to 131.8 bill ion(31 December 2009: 105.5 billion) although therewere periods of substantial market movementsduring the year, with notable falls in the secondquarter and increases towards the end of the year.

The rand started the year at 11.92 against sterling,strengthening to 11.45 at 30 June 2010, andto 10.28 by 31 December 2010. The US dollarand Swedish krona also strengthened, althoughto a lesser degree, appreciating 4% and 10%respectively in the year. The average exchangerates to sterling over the year were 11.31 (2009:

13.17), 1.55 (2009: 1.57) and 11.14 (2009: 11.97)for the rand, US dollar and Swedish kronarespectively. The cumulative effect of foreignexchange movements for LTS was an increaseof 77 million on IFRS profitability.


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Emerging Markets

Old Mutual South Africa(OMSA)

Corporate Latin America(Colombia, Mexico)

Mass Foundation Joint Ventures inChina and India(Old Mutual-Guodianand Kotak Mahindra)Retail Affluent

Old MutualInvestment Group(OMIGSA)

New Markets Rest of Africa (Namibia,Kenya, Malawi,Swaziland, Zimbabwe)

Emerging MarketsKuseni Dlamini

BUSINESS REVIEW


Good results combined with strong growth in regular premium salesHighlights (Rm, unless otherwise stated) 2010 2009 % Change

Adjusted operating profit (IFRS basis, pre-tax) 6,099 5,879 4%

Return on local equity 25% 25%

Return on allocated capital (OMSA only) 25% 26%

Life assurance sales (APE) 5,505 5,178 6%Unit trust/mutual fund sales 41,488 36,421 14%

PVNBP 36,975 37,339 (1%)

Value of new business 972 853 14%

APE margin 18% 16%

PVNBP margin 2.6% 2.3%

Operating MCEV earnings (covered business, post-tax) 3,877 2,794 39%

Return on embedded value (covered business, post-tax) 13.2% 9.8%

Net client cash flows (Rbn) 0.2 (20.5) 101%

Funds under management (Rbn) 585.7 518.4 13%

EMERGING MARKETS

OverviewEquity markets in the Emerging Markets haveenjoyed a strong year, with the JSE increasing

by 16%. The South African rand appreciated13% against the US dol lar and 14% againststerling. Low inflation contributed to interestrate cuts in South Africa from 10.5% to 9%.

We continue to focus on innovation and productimprovements which will benefit our customers.In South Africa we developed and launched anew direct short-term insurance product, iWYZE,in conjunction with Mutual & Federal and itssuccess has exceeded expectations. Old MutualCorporate launched Old Mutual SuperFund, thelargest multi-employer or umbrella fund in SouthAfrica with over 300,000 members, to provide a

simple, affordable and strictly-governed platformenabling employees to save for their retirement.We launched the Futuregrowth Agri-Fundin March

2010, focusing on responsible equity investmentsin agricultural land, agri-businesses and farminginfrastructure. As a Socially Responsible

Investment fund, it seeks long-term returnsand tangible social and developmental impacts.

We are integrating social, environmental andeconomic principles into our core business.OMSA achieved Level 2 Broad-Based BlackEconomic Empowerment (BBBEE) status inOctober 2010. Furthermore, OMIGSA attractedmore than R8 billion from institutional investorsinto social infrastructure investment.

Our sales improved in the year, notably in the secondhalf. This resulted in a 6% increase in APE salescompared to 2009, and we benefited from improved

persistency. Our NCCF improved significantly, andwe saw increasing contributions from new markets,with non-South African NCCF higher than SouthAfrican NCCF (excluding flows relating to the PublicInvestment Corporation of South Africa).


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PROTECTING CONSUMERS IN

SOUTH AFRICA AGAINST FRAUD

IFRS AOP resultsIFRS AOP (pre-tax) increased by 4% from R5,879million to R6,099 million, with strong assetmanagement profits (up 62% to R1,550 million),partially offset by lower long-term investment return(R1,221 million compared to R1,658 million in 2009).

Rm 2010 2009 % Change

Long-termbusiness AOP 3,328 3,263 2%

AssetmanagementAOP 1,550 958 62%

Long-terminvestment

return (LTIR) 1,221 1,658 (26%)

AOP (IFRSbasis,pre-tax) 6,099 5,879 4%

The growth in long-term business profits is mainlydue to the significant improvement in Retailpersistency in 2010 following the significantstrengthening of the basis in 2009 as well ascontinued business effort to improve retentionexperience. Good investment performance in theannuity and permanent health insurance (PHI)portfolios and increased asset-based fees due tohigher equity market levels also contributed toprofit growth. The comparable 2009 life profitsbenefited from a number of large non-recurringitems, including the impact of assumption changesand profits from the Nedbank joint ventures in thefirst five months of 2009. Excluding these items,underlying life profits increased by 37% over thecomparative period.

Asset management profits grew significantlyas a result of higher fees being earned fromhigher FUM, stronger performance fees inOMIGSA, a first full-year contribution from ACSIS(acquired in the second half of 2009), a highercontribution from OMF due to growth in thebusiness, and mark-to-market profits in Old MutualSpecialised Finance (OMSFIN). These werepartially offset by lower transactional income.

The LTIR decreased by 26% to R1,221 millionin 2010 reflecting the reduced rate applied toOMLAC(SA) assets due to the implementationof a higher ratio of cash to equity in the assetportfolio backing the Capital Adequacy Requirement.

Life APE sales summaryAPE sales increased by 6% from R5,178 million toR5,505 million, driven largely by strong growth inregular premium sales across the majority of ourEmerging Markets businesses.

This year we initiated an anti-raudcampaign that was taken up by theSouth Arican lie insuranceindustry. The campaign aimed to

educate consumers about how toprotect themselves against fctitiousinsurance policies.

It included adverts in dailynewspapers providing detailedexplanations o what a fctitiouspolicy is, where they originate rom,

why customers might be targetedand practical tips on preventingraud.

It was a groundbreaking campaign and an

extremely important step towards creating amore informed public. Were very pleased tosee this Old Mutual initiative beingsupported by other major life insurers, whichdemonstrates the industrys commitment toeducating consumers.

Kurt Magnet Senior Forensic Services Manager

(Old Mutual South Africa)


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BUSINESS REVIEW


By Cluster: Gross single premiums Gross regular premiums Total APE Total PVNBP

New business (Rm) 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-%

OMSA

Mass Foundation1 14 16 (13%) 1,571 1,452 8% 1,572 1,454 8% 6,994 6,767 3%

Retail Affluent 9,620 8,751 10% 1,381 1,213 14% 2,343 2,088 12% 16,345 15,413 6%

Institutional2 7,892 9,205 (14%) 454 360 26% 1,244 1,281 (3%) 11,788 12,831 (8%)

Total OMSA 17,526 17,972 (2%) 3,406 3,025 13% 5,159 4,823 7% 35,127 35,011 0%

Rest of Africa3 475 528 (10%) 196 195 1% 244 247 (1%) 1,363 1,653 (18%)

Total NewMarkets4 231 432 (47%) 79 64 23% 102 108 (6%) 485 675 (28%)

Total EmergingMarkets 18,232 18,932 (4%) 3,681 3,284 12% 5,505 5,178 6% 36,975 37,339 (1%)

By Product:

New business (Rm) 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-%

OMSA

Savings 14,062 13,874 1% 1,654 1,390 19% 3,060 2,773 10% 22,441 21,785 3%

Protection 6 2 1,752 1,635 7% 1,753 1,639 7% 9,228 9,132 1%

Annuity 3,458 4,096 (16%) 346 411 (16%) 3,458 4,094 (16%)

Total OMSA 17,526 17,972 (2%) 3,406 3,025 13% 5,159 4,823 7% 35,127 35,011 0%

Rest of Africa3 475 528 (10%) 196 195 1% 244 247 (1%) 1,363 1,653 (18%)

Total NewMarkets4 231 432 (47%) 79 64 23% 102 108 (6%) 485 675 (28%)

Total EmergingMarkets 18,232 18,932 (4%) 3,681 3,284 12% 5,505 5,178 6% 36,975 37,339 (1%)

1 Previously described as Retail Mass2 Institutiona l sales include Corporate and OMIGSA life sales3 Rest of Africa represents Namibia only4 New Markets represents Latin America only

OMSARegular premium salesRegular premium sales grew by 13% comparedto 2009 and by 25% in the second half of 2010compared to the first half, with particularly stronggrowth in savings sales in the second half in the MassFoundation Cluster which benefited from lower overallcancellation rates, higher average premiums, improvedadviser productivity and significant improvement in the

direct channel sales performance.

Retail Affluent sales growth was driven by MaxInvestments savings products, experiencing21% and 31% growth for Life and LISP wrappersrespectively in 2010, following the stabilisationof the economic outlook. Greenlight experienceda lower than expected growth of 6% over 2009in some measure due to increased turnover ofthe Retail Affluent sales force. Corporate salesincreased by 26% in 2010 driven primarily bysavings sales in the umbrella market, where theEvergreen umbrella fund grew its membershipby two thirds to just over 56,000. Corporate risk

sales grew strongly due to our success in sellinga number of new policies to large schemes in thishighly competitive market. Corporate sales havemore than doubled since 2008 due to innovativeproduct introductions.

Single premium salesSingle premium sales decreased by 2% relativeto 2009, due mainly to lower institutional flows.Retail Affluent achieved strong InvestmentFrontiers Fixed Bondsales in the first half andan increase in new contracts issued to clientswith unclaimed maturities. Annuity sales declinedby 16%, driven by lower CPI-linked annuity salesin the Corporate segment as very few annuity

tenders floated in 2010 were concluded. With-profitannuity sales did show a marked improvement,increasing by 48% as we continued to lead inthis market segment. Retail Affluent annuitysales stabilised in the fourth quarter, followingimprovements in annuity rates, to end marginallybelow the 2009 level.

Rest of Emerging MarketsNamibian regular premium sales in the Retail Massand Retail Affluent segments increased by 6% and5% respectively, mainly as a result of solid salesgrowth from tied agents despite difficult economicconditions. Corporate segment regular premium

sales decreased by 14% due to lower Orion salesvolumes. Single premium sales decreased by 10%,with lower new business inflows from both RetailAffluent and Corporate businesses.


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Sales growth of 36% in Mexico was largely drivenby the introduction of a minimum premium for theregular premium savings product in the first halfof 2010, implemented as a consequence ofworking closely with South Africa. We introduceda Retail Mass distribution team in December.We will continue to grow this team in the comingmonths and its pipeline is very promising. Includedin the 2009 comparative is R28 million APE relatingto the Chilean business which was sold in 2009.

APE sales in China increased by 77% from CNY92million in 2009 to CNY163 million in 2010, despitepoor sales during the first half. The significantimprovement in the second half is mainly due toincreased management focus on sales, supportedby execution of our joint ventures product andchannel diversification strategy (new bank, brokerand telemarketing products were launched duringthe second half). The reopening of the Bank ofChina distribution channel in Beijing (with theassistance of our JV partner), following a three-month suspension of sales during the first halfof 2010, further contributed to this improvement.Sales at our Indian joint venture, Kotak MahindraOld Mutual Life Insurance, increased by 6%compared to 2009.

A more detailed analysis of sales by segment is

included in the Financial Disclosure Supplement,available at www.oldmutual.com.

Unit trust / mutual fund sales summary

Rm 2010 2009 +/-%

OMSA 21,452 18,384 17%

Rest of Africa 5,360 4,546 18%

New Markets 14,676 13,491 9%

Total EmergingMarkets 41,488 36,421 14%

In South Africa, unit trust sales recovered in thesecond half of 2010 following a weak first half.We achieved growth of 17% from the 2009 level,mainly due to significant flows into Old Mutual UnitTrust money market funds during the third quarterand improved flows into OMIGSAs Marriott affiliatefollowing revised asset allocations.

We have made progress towards our goal ofbecoming our customers most trusted partner,evidenced by the number of awards receivedduring the year including our third Ask AfrikaOrange Index award for service excellence in thelong-term insurance business category, and thenumber one position in South Africas 500 bestmanaged companies.

In the rest of Emerging Markets, unit trust salesalso performed well. Namibian sales increased by18% to R5.4 billion following strong inflows from

institutional and corporate clients as a result ofmore competitive investment returns. Unit trustsales in Mexico and Colombia (COLMEX) were9% ahead of the prior year in rand (25% in USdollars), with strong growth in Colombia resultingfrom a successful marketing campaign andstronger relationships with corporate andinstitutional customers. We increased productivity,with greater sales from fewer advisers. Mexicobenefited from a large scheme acquired inSeptember 2010 and improved performancein both fixed income and equity portfolios.

Value of new business and marginsThe value of new business increased by 14% toR972 million, with a strengthening performanceduring the course of the year. The APE marginincreased from 16% to 18% due to a higherproportion of sales of higher-margin smoothed-bonus and with-profit annuities in OMSAsCorporate business and Investment FrontierFixed Bonds in Retail Affluent.

MCEV resultsOperating MCEV earnings (post-tax) increasedby 39% from the 2009 level. This was mainly dueto positive experience variances and operatingassumption changes in 2010, compared tonegative variances in 2009. The improvement

in experience variances is mainly due to animprovement in persistency, partly due to the2009 assumption changes, and partly becausemanagement actions improved persistency.These were partial ly offset by a significantdecrease in the expected existing businesscontribution due to the reduction in one year swapyields during 2009.

In addition to the effects above, other significantmovements affecting the closing MCEV include alarge positive impact from economic variances dueto a combination of better than assumed equityreturns and the effect of the changes in the shape

of the swap yield curve. This was partially offsetby modelling enhancements to the economicscenario generator used to calculate theinvestment guarantee reserve, which causeda decrease in the margin (buffer) held to protectagainst future market volatility, resulting in lessvalue being released as profits in the future.The net impact of these resulted in a growthin MCEV of 16% over 2010.

We made good progress towards implementationof Solvency II as part of the overall Groupprogramme, and also in respect of the SouthAfrican equivalent framework known as SAM

(Solvency Assessment and Management),launched in 2010 by the South African regulator.


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BUSINESS REVIEW


Net client cash flowNCCF for the year was R0.2 billion, a significantimprovement on 2009 outflows of R20.5 billion.

South African NCCF benefited from significantlylower PIC outflows of R5.1 billion (R16.2 billionin 2009), improved inflows across a numberof OMIGSA boutiques (mainly Electus andFuturegrowth), improved net flows in retailbusinesses and lower outflows in Corporate.Excluding PIC outflows, OMSAs NCCF for thesecond half of 2010 was positive R1.8 billioncompared to negative R6.3 billion in the secondhalf of 2009. Further PIC outflows are expectedin 2011.

The rest of our Emerging Markets businessdelivered R7.6 billion in NCCF. In Colombia andMexico NCCF increased by 12% from R4.3 billionin 2009 to R4.8 billion in 2010. The Colombianbusiness attracted new customers within targetedsegments, experiencing lower surrenders on coreproducts and improved sales of Retail voluntaryproducts. In Namibia, NCCF increased byR1.0 billion to R1.4 billion due to improved unittrust inflows and R672 million inflows from therebalancing of the Government InstitutionsPension Fund portfolios.

Funds under managementFUM increased by 13% to R586 billion as a resultof higher market levels and overall neutral NCCFfor the year. Of the total, R498 billion (2009:R449 billion) is in South Africa.

Overall, OMIGSA investment performance(over three years) was average, with satisfactoryperformance in specialist areas contrasted againstmixed performance in our balanced capabilities.

OutlookWe have confidence in the underlying performanceof the business, despite the low investment return

assumptions in 2011 and mark-to-market gainsrecorded in the asset management results in 2010.We will continue to strive for a balance thatcombines strong risk management andgovernance with a culture that encouragesinnovation, across our four main strategic themes:

Continuing to invest in our Emerging Marketbusiness

Improving OMIGSAs investment performanceand value creation for customers

Putting the customer at the centre of ourbusiness

Enhancing our high-performance culture and

further developing our Emerging Marketsmanagement team.

Growing our sales force remains a priority, as doespromoting a savings culture in Emerging Markets,designing and adapting products that are relevant

to a wide range of customers, and providing easieraccess to financial services for our customersacross our businesses.

With these strategies in place we are wellpositioned to optimise business opportunities in2011 and further strengthen a highly successfulEmerging Markets business.

DREAMFIELDS

We understand sport has a greatpotential to transorm the lives oyoung people. Thats why were aFounding Partner o Dreamfelds a groundbreaking sport ordevelopment charity in SouthArica. This year weve continued

our support by unding thedevelopment o sports felds,donating DreamBags o sports kit toschools, supporting events, andwatching the improving confdence,lie skills and sense o unity amongthe young people taking part.

Our partnership withDreamfields is aboutmaking a difference in theeveryday lives of ordinarySouth Africans

Kuseni Dlamini, CEO

OMSA & Emerging Markets


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Nordic

Sweden Norway Denmark

NordicMrten Andersson

NORDIC

Improved profitability, higher funds under management and strong APE marginHighlights (SEKm, unless otherwise stated) 2010 2009 % Change

Adjusted operating profit (IFRS basis, pre-tax) 1,227 737 66%

Return on local equity1 11% 12%

Life assurance sales (APE) 2,238 2,819 (21%)

Unit trust/mutual fund sales 6,466 4,708 37%

PVNBP 12,292 13,774 (11%)

Value of new business 460 526 (13%)

APE margin 21% 19%


Operating MCEV earnings (covered business, post-tax) 503 965 (48%)

Return on embedded value (covered business, post-tax) 3.3% 8.1%

Net client cash flows (SEKbn) 7.4 11.6 (36%)Funds under management (SEKbn) 145.4 127.2 14%

1 Return on local equity is IFRS AOP (post-tax) divided by average shareholders equity, excluding goodwill, PVIF and otheracquired intangibles

OverviewThe economies in the Nordic countriesexperienced a strong recovery in 2010, withpositive GDP growth (estimated at 5.6% inSweden, 2.0% in Denmark and 2.2% in Norway).The Swedish equity market grew by 23% in 2010.The Nordic business delivered a strong IFRS AOPresult in 2010. With changes in the managementteam, including a new CEO Mrten Andersson, we

are delivering on our key priorities of strengtheningdistribution power and product offerings,stimulating future NCCF growth, increasingoperational efficiency to secure profitable growth,and optimising structures and risk frameworks tounlock value. However, we face a challenging year

of change for the business in delivering our 2011operating sales, efficiency and profitability targetsin a rapidly changing business environment.

Life sales summaryAPE sales at SEK2,238 million were down by 21%compared to 2009, following management actionin the Swedish Retail segment to close theunprofitable Link Regularproduct in late 2009.

The APE of the Corporate business decreasedby 14%, mainly due to slower sales of the highlycompetitive TPS Regularproduct. Denmarkperformed strongly, with product success in theunit-linked and healthcare markets. APE grewby 22% to SEK514 million.

Gross single premiums Gross regular premiums Total APE Total PVNBP

New business (SEKm) 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-%

Sweden

Corporate 1,429 1,471 (3%) 1,033 1,221 (15%) 1,176 1,368 (14%)

Retail 3,672 4,288 (14%) 181 601 (70%) 548 1,030 (47%)

Total Sweden 5,101 5,759 (11%) 1,214 1,822 (33%) 1,724 2,398 (28%) 9,001 11,260 (20%)

Denmark

Total Denmark 1,280 547 134% 386 366 5% 514 421 22% 3,291 2,514 31%

Total Nordic 6,381 6,306 1% 1,600 2,188 (27%) 2,238 2,819 (21%) 12,292 13,774 (11%)


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Unit trust / mutual fund sales summaryMutual fund sales of SEK6,466 million were up37% on 2009. This was driven by improved retailinvestment activity spurred by rising global equitymarkets. However, fourth quarter sales showed adecrease compared to the same period in 2009due to changing product demand and customerbehaviour in Skandiabanken.

SEKm 2010 2009 +/-%

Skandiafonder 2,431 1,510 61%

Skandiabanken 4,035 3,198 26%

Total Nordic 6,466 4,708 37%

IFRS AOP resultsThe IFRS AOP (pre-tax) increased by 66% toSEK1,227 million compared to 2009. The key driverbehind the improvement was higher client funds,which increased fund-based fees and rebates in thelong-term business. In particular the unit-linkedbusiness performed strongly in the second half. A gainrealised from divestment of a private equity holding inthe first half contributed profit of SEK126 million.

SEKm 2010 2009%

Change

Long-term businessAOP 1,016 502 102%

Banking business AOP 181 193 (6%)

Asset management AOP 30 42 (29%)AOP (IFRS basis,

pre-tax) 1,227 737 66%

The Healthcare business showed a strongturnaround in 2010 as pricing and productchanges and underwriting discipline helpedstabilise claims costs in the Lifeline business which delivered AOP of SEK26 million comparedto a negative SEK42 million in 2009. The 2010figure includes divestment costs of SEK20 millionfor the Lifeline branch in Norway.

Skandiabankens results were below 2009 levels,due mainly to lower net interest income andincreased development costs. SkandiabankenSweden suffered from the exceptionally low baseinterest rate during the first half, although thisincreased towards the end of the year. Credit lossesremained very low (0.09% in 2010 compared to0.14% in 2009), reflecting the traditionally low-risknature of our lending business. SkandiabankenNorway grew its profits, due mainly to higher netinterest income.

Value of new business and marginsThe value of new business decreased compared to2009, driven by lower new sales, negative operatingassumption changes for anticipated price pressure

in the Corporate segment, and expectations ofmore adverse persistency in the future. The APEmargin increased from 19% to 21% due to a moreprofitable business mix resulting from a higherproportion of TPS business sales in Sweden andMatch product sales in Denmark.

MCEV resultsOperating MCEV earnings after tax declined toSEK503 million, due to the negative assumptionchanges driving the decline in the value of newbusiness. However, total MCEV increased over theyear, due mainly to positive client fund performance.

The Nordic business is making good progresstowards the implementation of Solvency II, as acomponent of the overall Group Solvency II initiative.

Net client cash flowNCCF for the year was SEK7.4 billion, a decreaseof 36% compared to 2009. This was driven by

a combination of higher surrenders (becauseof higher fund value and an increase in partialsurrenders), lower single premium sales and higherpaid-ups in the occupational pension business.

Funds under managementFUM were SEK145.4 billion at 31 December 2010,up 14% from the previous year. The increase is mainlydue to the positive movement of equity markets.

The investment performance in the Swedish unit-linked portfolio was good in the fourth quarter, and ouraverage client enjoyed investment performance of6.2% for the quarter and 10.9% for the year. Clientshave generally increased their risk exposure, with themajority of all net investments being allocated toSwedish, Asian and Emerging Markets equity funds.Fund performance has been strong over the 12-monthperiod, with 63% of our funds performing aboveaverage compared to their peers.

OutlookThe economic outlook for 2011 is positive, withforecast GDP growth of over 3% in Sweden andNorway and around 2% in Denmark, and publicspending is under control. We believe householdincomes will increase, that the debate over creditexpansion is turning the emphasis towardssavings, and increased activity in the equity marketis attracting inflows. As a result of this, the Nordicsavings market is expected to grow despite someongoing concerns around the continued high levelof unemployment. The competitive environmentwill continue to be challenging, with competitionpushing down fee levels. The market is headingtowards further fragmentation into two mainsegments: the advised market, with high levels ofadded value from financial advisers, and theself-service market.

Management action continues to focus onimproved sales, healthy margins over the long-term, reductions in the cost base, and

improvement of the distribution and productofferings to enhance NCCF. We delivered costsavings of 2.5 million in 2010. In 2011, costreduction activity will increase and we estimaterestructuring costs of 30 million in the year.


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Retail Europe

Austria Germany Poland Switzerland

Retail EuropeJonas Jonsson

RETAIL EUROPE

Foundations laid for further development of the businessHighlights (m, unless otherwise stated) 2010 2009 % Change

Adjusted operating profit (IFRS basis) (pre-tax) 60 25 140%


Life assurance sales (APE) 80 75 7%

Unit trust/mutual fund sales 27 27

PVNBP 597 603 (1%)

Value of new business 9 (6) 150%

APE margin 11% (8%)

PVNBP margin 1.4% (1.0%)

Operating MCEV earnings (covered business, post-tax) 77 (49) 157%

Return on embedded value (covered business, post-tax) 12.8% (7.9%)Net client cash flows (bn) 0.5 0.6 (17%)Funds under management (bn) 5.8 4.7 23%


OverviewGDP growth improved in all our marketsthroughout 2010 following government stimuluspackages and better conditions in export markets.Although labour markets improved in Germany andSwitzerland, unemployment in Austria and Polandincreased slightly. Equity markets reboundedfrom their 2009 lows, with the German DAX index

posting a 2010 gain of 16%. Our customerscontinued to demand primarily guaranteedproducts and IFAs still view unit-linked policieswith caution, preferring traditional life policies.

In the light of these challenges, Retail Europesperformance in 2010 has been very positive.Our sales improved on 2009 levels, primarilydriven by Germany and Poland, we continuedthe formation of the Retail Europe organisation,and we reduced operating costs.

In addition to our sales and marketing activities,which were focused on the end customer, we

also developed initiatives to maintain and growrelationships with our existing distribution partners.These initiatives, underpinned by strong cost

containment, ensured significant improvement inour IFRS, MCEV and value of new business, withIFRS profits more than doubling. The transfer ofour IT and client administration functions to SouthAfrica continues, and our office in South Africa wasofficially opened in December 2010.

Life sales summary

APE sales reached 80 mil lion, an increase of7% compared to 2009. Sales in Poland increasedmarkedly, while Austria and Switzerland showeda slight decline. Although the unit-linked marketin Germany has declined slightly, we increased ourshare of this market from 1.9% in the fourth quarterof 2009 to 2.2% in the fourth quarter of 2010.


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Gross Single Premiums Gross Regular Premiums Total APE Total PVNBPNew business (m) 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-%

Germany 31 24 29% 29 27 7% 32 30 7% 278 260 7%

Poland 21 14 50% 18 12 50% 20 14 43% 114 87 31%

Austria 7 6 17% 17 19 (11%) 18 19 (5%) 109 142 (23%)

Switzerland 14 15 (7%) 9 11 (18%) 10 12 (17%) 96 114 (16%)

Total Retail Europe 73 59 24% 73 69 6% 80 75 7% 597 603 (1%)

The main driver of increased sales was newproduct launches. In Germany we launchedthe new single premium Investmentpolice producttowards the end of the year, combining thetax benefits of a unit-linked contract with thetransparency of a pure investment contract.In Poland we launched a new regular premiumproduct, and in Switzerland we launched EasyCombi. All these launches were successful andwe expect their impact to continue in 2011.We also made concerted efforts to improveour distributor relationships through marketingcampaigns designed to support our partnersduring these difficult times.

IFRS AOP resultsIFRS AOP has increased significantly to 60million, due to improved results in all countries.The main factors were lower administrationexpenses and higher fees driven by higher

fund-based fees resulting from improvedequity markets.

Net client cash flowNCCF was 465 million for the year. The declineof 86 million on 2009 reflected the increase infund values of surrenders due to positive equitymarkets, although persistency levels were broadlystable year-on-year.

Funds under managementFUM of 5.8 billion at 31 December 2010 reflecteda rise of 23% compared to 2009, largely driven bypositive stock market performance.

Value of new business and marginsThe value of new business increased by 15 millionto 9 million, with a PVNBP margin for the yearof 1.4% and an APE margin of 11%. The mainreasons for the improvement were higher newsales and successful expense management.

MCEV resultsThe operating MCEV earnings after tax increasedby over 100 million to 77 million comparedto 2009, driven by positive experience variancesand positive assumption changes for rebatesand persistency.

Although the Retai l Europe business expects tobe a Standard Formula entity under Solvency II,we have made excellent progress as part of theGroup iCRaFT programme in ensuring that allof our processes and governance structures willbe Solvency II compliant.

OutlookWe anticipate that macro-economic factorswill continue to have a significant impact onour markets in 2011. The development of equityand bond markets will continue to be the key torestoring consumer confidence after the financialcrisis. Our customers will also be impacted byunemployment levels and their own sense of jobsecurity. Ongoing Solvency II developments andthe low interest rate environment will also providechallenges for traditional insurers. While this shouldbe positive for the unit-linked market, it mayintensify competition.

Our focus in 2011 is to extend our product rangeand distribution through growth initiatives inGermany and Poland. At the same time we willmaintain our focus on capital efficiency and costcontainment through our consolidated base inBerlin and our operations in South Africa. We will

incur further implementation costs for outsourcingthe administration and IT support teams to SouthAfrica but will gain scope for operational leveragein due course.


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Wealth Management

Skandia UK Skandia International France, Italy Skandia InvestmentGroup

Wealth ManagementBob Head

A very positive year for Wealth ManagementHighlights (m, unless otherwise stated) 2010 2009 % Change

Adjusted operating profit (IFRS basis, pre-tax) 197 106 86%


Life assurance sales (APE) 734 617 19%

Unit trust/mutual fund sales 4,507 3,210 40%

PVNBP 6,380 5,042 27%

Value of new business (post-tax) 66 49 35%

APE margin 9% 8%


Operating MCEV earnings (covered business, post-tax) 112 (4)

Return on embedded value (covered business, post-tax) 6.1% (0.3%)Net client cash flows (bn) 3.9 2.5 56%

Funds under management (bn) 55.9 46.9 19%


WEALTH MANAGEMENT

OverviewWealth Management enjoyed a very positive yearin 2010. We achieved significant year-on-yearsales growth, margins improved and the costreduction programme delivered 35 million ofrun-rate savings which contributed to improvedprofitability. The FTSE100 grew by 9% during theyear, contributing to continued positive investor

sentiment which in turn led to strong growthin FUM across our markets.

Sales grew across the business, particularly inthe UK and Continental Europe. We continue tosee a rapid shift in the UK towards both platformbusiness with an insurance wrapper and mutualfund products. Although we do not target growthin market share as a KPI, Skandia UKs marketshare continued to grow in the third quarter of2010, to 7.4% across all industry channelscompared to 6.4% in the fourth quarter of 2009,suggesting the increased importance of theplatform model. This is a record for Skandia in the

UK and compares to a range of 3.5% to 5.5% over2001-2007. The scale of our UK Platform, and ourinvestment to deliver reliability and flexibility,

position us ideally to lead and benefit from thisindustry shift; we are actively looking at howto further enhance our platform offering andrationalise our suite of products over the comingyear. We are making good progress in buildingthe Wealth Management operations and systemson a single operating model.

Throughout 2010, Skandia Investment Groups(SIGs) highly successful Spectrum range ofrisk-targeted funds has been launchedon all the UKs major financial adviser platforms.The FUM ofSpectrum exceeded the 750 millionmark, and this range has now been successfullyexported to Sweden as the Skala range.

Life covered sales summaryAPE sales were 734 million, a 19% increase on2009. This is mainly attributable to sales in the UKand in Continental Europe, which improved by 28%(76 million) and 50% (52 million) respectivelycompared to 2009.


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BUSINESS REVIEW


Gross single premiums Gross regular premiums Total APE Total PVNBPNew business (m) 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-% 2010 2009 +/-%

UK

Pensions 2,021 1,452 39% 71 70 1% 273 216 26%

Bonds 597 473 26% 60 47 28%

Protection 10 8 25% 10 8 25%

Savings 9 5 80% 9 5 80%

Total UK 2,618 1,925 36% 90 83 8% 352 276 28% 3,023 2,289 32%

International

Unit-linked 324 190 71% 44 63 (30%) 77 83 (7%)

Bonds 1,253 1,154 9% 23 39 (41%) 148 153 (3%)

Total International 1,577 1,344 17% 67 102 (34%) 225 236 (5%) 1,826 1,741 5%

Continental Europe

Unit-linked 1,490 971 53% 9 6 50% 157 105 50% 1,531 1,012 51%Total Wealth

Management 5,685 4,240 34% 166 191 (13%) 734 617 19% 6,380 5,042 27%

Unit trust / mutual fund sales summarym 2010 2009 +/-%

UK 3,256 2,090 56%

International 1,228 1,100 12%

Continental Europe 23 20 15%

Total WealthManagement 4,507 3,210 40%

The strong UK platform performance reflectsthe continued conversion of IFAs to platformbusiness and particularly strong sales during thefirst half in the lead-up to the end of the tax year.APE sales of 239 million were up 100 million on2009. Second half volume growth decreased, withre-registering activity slowing and a greater impactfrom the UK holiday season. The majority of themutual fund sales growth was from the platform,where buoyant markets and increased ISAallowances made positive contributions in 2010and late 2009. Gross inflows onto the platformwere 5.2 billion in 2010 (2009:3.3 billion) an indicator of our propositions success.

Continental Europe APE sales volumes of 157

million were strongly ahead of 2009s 105 million.Italy has been the main contributor to increasedEurope sales, with very high sales earlier in theyear partially driven by changes in tax legislation.The period covered by these tax changes hasnow expired, and volume growth has returned tonormal levels as we continue to make progressthrough good distributor relationships.

APE sales volumes of 225 million in the offshoreInternational market were 5% lower than the 236million achieved in 2009, impacted by a manageddecline in regular premium sales in Finland asa result of legislation changes in 2009.

The UK Legacy business APE sales volumes of113 million were down by 24 million comparedto 2009, due to a shift in market sentiment towardsplatform offers. Following a review of the legacyproducts, we decided to close some legacyproducts to new business.

IFRS AOP resultsIFRS AOP (pre-tax) increased by 86% to 197million, primarily due to higher FUM, which

provided a healthy boost to returns on equitybecause of the operating leverage in the business.FUM growth remains strongly positive, drivenby NCCF and market growth.

As previously repor ted, the prior year AOP resultsbenefited from the structural tax efficiencyapplicable to UK companies writing unit-linkedbusiness in the UK, together with the smoothingof previous years deferred tax assets. Theseassets arose during the significant market volatilityof the preceding two years where falls in the valueof policyholder assets resulted in the recognitionof significant deferred tax assets in the IFRS

income statement, which were spread forwardunder AOP. The pre-tax smoothing for 2010 gaverise to a profit of 71 million, a similar amount to2009. For 2011, the pre-tax impact will be a profitof 27 million, falling to nil thereafter. Within theMCEV earnings, these profits are recognised asthey arise as investment variances.

With continued equity and bond market growth,the UK Life Companies have moved into a fullXSI tax position. This raises the ef fective taxrate because it means that only a relatively smallproportion of the Life dividend income is treatedas belonging to the shareholder. This has

increased the overall effective tax rate for WealthManagement to 22% in 2010 (2009: 19%).


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Value of new business and marginsThe value of new business increased by 17 millionto 66 million due to strong sales in UK platformand Continental Europe combined with operatingassumption changes at year-end 2010 across allmarkets in Wealth Management. This was partiallyoffset by economic assumption changes in UKand Continental Europe (as a result of decreasedassumed growth rates and increased futureinflation) and the shift from UK Legacy to UKPlatform offerings.

2010 PVNBP margin was level with 2009 at 1.0%,as growth in volumes and cost reductions werefully offset by the shift to the UK platform offering,the decline in regular premium business sales andhigher acquisition expenses in International.

MCEV resultsCovered business adjusted operating MCEVpost-tax earnings increased by 116 million to112 million. 2009 was significantly impacted byoperating assumption changes reflecting surrenderexperience in International and UK Legacy.In 2010 VNB was higher and overall we saw asignificant improvement in experience effects,especially persistency and rebates. However,persistency has worsened on the UK Legacypension business as the market anticipates theimplementation of the Retail Distribution Review.This has resulted in some product closures and

consequently the MCEV assumptions have beenstrengthened. Planned return on MCEV was lowerthan in 2009 as a result of the reduction in theone-year yield on risk-free investments.

We have made excellent progress in implementingour Solvency II readiness programme, inconjunction with the Group-led iCRaFT initiative.

Net client cash flowNCCF for the year was 3.9 billion, up 56%on 2009, driven by strong contributions fromthe UK platform and Italy, which outweighedsurrenders in the UK Legacy book.

Funds under managementFUM grew 19% to 55.9 billion, driven by strongNCCF and the positive market movements.

OutlookOur outlook for 2011 is optimistic, based oncontinuing positive investor sentiment. So far 2011sales are in line with our expectations but belowthose of the prior year which included the one-offpositive impact of the Italian tax shield andparticularly significant UK platform sales in thebuild up to the 2010 tax year-end. These werehelped by April 2010 changes in pension rulescoupled with rising investor confidence at the timeof the 2010 ISA season.

We anticipate continued strong support for theplatform model in all our markets and the shift inthe UK market towards a simplified investmentand pension product suite. Following the closureof a number of our UK Legacy products during2010, we have put retention strategies in place forthis part of the business anticipating that we willcontinue to see net client outflows from this bookof business in the build-up to implementation in2013 of the changes resulting from the RetailDistribution Review (RDR). We expect finalclarification of the review in a Policy Statementduring the first half of 2011. We believe that we arewell-placed for the RDR changes since a largeproportion of our new business is already writtenon the basis of client-agreed adviser remuneration.In addition, we are considering plans to introducea fully unbundled charging structure, under whichwe will pass on rebates to the customer in advanceof December 2012.

Our focus on cost reduction will continue and weremain confident that we will meet our 2012expense and RoE targets.

6 billionSkandia UKs gross salesreached 6 billion in 2010

SKANDIA UK: GETTING THE FACTS

TO OUR CUSTOMERS

As research shows the growingimportance o the internet tocustomers or accessing fnancialinormation, Skandia UK haslaunched a brand new website as ahub or all online activity. We carriedout customer research to ensurethat the structure, navigation and

unctionality o the new websitewould be as user-riendly andengaging as possible, and we havelinked the site to our existingsystems to enable rapid updates tonews and data getting the acts toour customers aster.

Increasingly the web is becoming the criticalmedium for any business and its essential weembrace it. The new Skandia website providesa vital channel for communication with ourend customers and financial advisers.

Jeremy Mugridge, Platform Specialist, Skandia UK


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KEY FACTS

11.82010

11.82009

10.12010

9.92009

1,4682010

1,2382009

2010

2009

2010

2009

2010

2009

3.352010

3.392009

2010

2009

BUSINESS REVIEW

BANKING

Nedbank Group is South Africas fourth largestbanking group measured by assets, with a strongdeposit franchise and the second largest retaildeposit base. Old Mutual owned on average54% of Nedbank Group during 2010. Nedbank

is listed on the Johannesburg and NamibianStock Exchanges. As at 31 December 2010,its market capitalisation was 6.2bn.

Adjusted operating profit (pre-tax and minorit ies)

601m2009: 470m

Total Assets

58.9bn2009: 47.7bn

Number of employees

27,5252009: 27,047

Some of our brands


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Nedbank Capital

NedbankCorporate

NedbankBusiness Banking

Business profile

Nedbank Retail

Nedbank Wealth

Provides commercial bankingsolutions to small- to medium-sizedbusinesses with an annual turnoverof between R7.5 million and R400

million.

The cluster comprises:Four geographically decentralised

client-facing business unitsA strategic business unit, including

Specialised Finance, Debtor Managementand Client Value Propositions

Specialist services, including InvestmentManagement, Transactional Banking Sales,Finance and Business Intelligence/Client

Value Management.

Serves the financial needs ofindividuals and small businesses withup to R7.5 million in annual turnover.Provides transactional, card, lendingand investment products andservices. The Nedbank Retail Clusteralso services merchants and largecorporates in respect ofcard-acquiring services.

The cluster comprises:Secured Lending, including mortgages

and motor financeRetail Relationship Banking, which

combines Private Banking and Small-Business Services and offers productsin a client-centric value proposition

Consumer Banking, which consistsof channels, personal loans, deposits,

transactional banking, client valuemanagement and mass tailored offeringsbased on client insights

Card Issuing and Acquiring.

Comprises three divisions, namelyInsurance, Asset Management andWealth Management, with offices inSouth Africa and London and on theIsle of Man, Jersey and Guernsey.

The cluster comprises:Insurance includes short-term

insurance, life insurance and insurancebroking

Asset Management offers a rangeof local and international best ofbreed unit trusts, private client assetmanagement and multimanagementsolutions

Wealth Management includes privatebanking and fiduciary services locally

and internationally as well as stockbrokingand financial planning.

Provides full-service corporate bankingto large corporates with an annual turnover inexcess of R400 million, including commercial,industrial, retail and residential propertyfinance solutions, and Nedbank Africa,comprising operations servicing both retailand corporate market segments in Lesotho,Malawi, Namibia, Swaziland and Zimbabwe.

The cluster comprises:Corporate BankingProperty FinanceNedbank AfricaTransactional BankingCorporate Shared Services.

Provides comprehensive investmentbanking solutions to institutional

and corporate clients. Has offices inSouth Africa and London and arepresentative office in Angola.

The cluster comprises:Investment Banking

Global MarketsTreasury.

OverviewNedbank Group provides a wide range ofwholesale and retail banking services and agrowing insurance, asset management and wealthmanagement offering through five main businessclusters, namely Nedbank Capital, NedbankCorporate, Nedbank Business Banking, NedbankRetail and Nedbank Wealth.

Focused on southern Africa, but with an aspirationto grow its business reach across the whole of theAfrican continent, Nedbank Group is positioned asa bank for all from both a retail and a wholesalebanking perspective.

Acknowledged for its sustainabil ity leadership,Nedbank Group is the first and only carbon-neutralfinancial services organisation in Africa.

Mike BrownChief Executive, Nedbank


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BUSINESS REVIEW

BANKINGCONTINUED

Nedbank Groups headquarters are in Sandton,Johannesburg, while it has large operationalcentres in Durban and Cape Town, complementedby a regional branch network throughout SouthAfrica and facilities in other southern Africancountries. These facilities are operated throughNedbank Groups eight affiliated banks andsubsidiaries, as well as through branches andrepresentative offices in certain key global financialcentres that serve to meet international bankingrequirements of Nedbank Groups South Africa-based multinational clients.

Nedbank Group assessment of strategic operating environment

Identified trend Nedbank Group will

Bank returns are structural ly decl in ing. ... respond through active portfo lio management andtilting of its portfolio of businesses to optimisesustainable profitability, utilise capital and liquidityjudiciously, invest to exploit new growth opportunities,and build a lean operating model.

The SA financial services economic profit pool is

large, but higher growth is expected in the rest ofAfrica in the longer term.

... focus domestically, but continue to explore

expansion opportunities in Africa.

SA prospects continue to be driven by infrastructuralinvestment (mostly government) and a wealthierconsumer.

... ensure that it

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