LONDON (Bloomberg) — British insurer Old Mutual said it will take a half-billion-dollar charge because of "mistakes" made at its Bermuda unit.

The London-listed company saw its share price fall 11.4 percent yesterday after it announced the charge in its half-year earnings statement.

The company has sent its group treasurer Don Hope to take charge of the Bermuda operation.

Old Mutual said it would take the $502 million charge because its Bermuda-based annuities unit guaranteed clients' investment returns without properly hedging its risks.

The unit may take at least £15 million (nearly $30 million) in additional charges unless stock markets recover, Old Mutual said.

"The company seems to have an ability to bring unfortunate rabbits out of the hat,'' said Julian Chillingworth, chief investment officer at Rathbone Brothers Plc. Chief executive officer Jim Sutcliffe said he has removed the chief operating officer in the US insurance unit and withdrawn investment products in response to the "major disappointment,'' which overshadowed an "otherwise robust performance".

Net income increased 14 percent for the six months ended June 30 to £549 million, or 10.5 pence a share, the company said.

The Bermuda-based unit, which Old Mutual bought in 2003, "made mistakes'' in hedging guarantees on Asia equity products sold to customers, Sutcliffe, 52, told reporters.

US sales will fall as much as 20 percent this year as the company stops selling certain variable annuities that guarantee returns.

Old Mutual also changed US management, removing John Clifford as chief operating officer. Sutcliffe appointed finance director Jonathan Nicholls to oversee a six-month review of the unit and said the company has adequately hedged against losses on guaranteed annuities in the UK, France and Germany.

"I have set up a far reaching exercise which is already under way to ensure we deal with the issue once and for all,'' Sutcliffe said.

"US Life is an important part of our group and I am determined that we take all the necessary steps to restore it to a proper level of profitability.''

The company also took a $149 million impairment charge in its US life business.

The unit also has unrealised losses of $1.2 billion in its bond holdings. Credit conditions are deteriorating, and the company may have more losses later this year, Sutcliffe said.

Old Mutual reiterated yesterday that it won't meet a target to have £300 billion under management by the end of the year. Funds fell seven percent to £259.4 billion from £278.9 billion in December.

The stock is down 41 percent this year in London trading on concern about reliance on South Africa and investment writedowns. It's the second-worst performing stock in the 31-member Bloomberg Europe 500 Insurance Index, which has lost 23 percent.

First-half operating profit, the figure most closely followed by analysts, rose 3.3 percent to £745 million, helped by growth in South Africa, Old Mutual said in the statement. That beat the £730 million average estimate of 10 analysts surveyed by the company.