Mutual & Federal, the general insurance business of Old Mutual, suffered one of its worst claims periods earlier this year when its home market in South Africa was hit by record floods.

Despite this setback, Mutual & Federal which is 51% owned by FTSE 100-listed Old Mutual, managed to halve its £6m underwriting loss in the first six months of 1999 to just £3m for the same period this year.

This was achieved by a mix of higher premium income (up 2% to £134m) and more effective reinsurance. The insurer hopes to produce a small underwriting profit by December 2000.

Old Mutual chairman and chief executive Mike Levett said Mutual & Federal has almost completed its acquisition of CGU's South African interests for £115m.

He said the purchase will extend Mutual & Federal's reach in its domestic market and improve its cost structures as the two groups are synergised.

Mutual & Federal's overall value however fell from £5.4m to £5.2m following a 5% decline in the Rand's exchange rate to Sterling.

Old Mutual, the parent group, posted a 61% increase in operating profits to £457m for the period to June 30, 2000.