A botched hedging strategy has left Old Mutual nursing losses of £107 million, the London-listed life assurer revealed today.

The FTSE 100 company admitted that it had failed to hedge properly against falls in Asian stock markets, leaving it badly exposed on investment products that had promised customers a guaranteed minimum return.

It could lose a further £10 million to £15 million in the second half if markets stay at their current levels, the company cautioned.

Old Mutual has injected £150 million into the problem business, US Life, to strengthen its reserves. Shares in the company fell as much as 9 per cent in early trading. Later they were 6.6 per cent lower at 99.3p.

It is the second setback for Old Mutual in recent months after one of its investment boutiques, Barrow, Hanley, Mewhinney & Strauss, took a bath on a $1 billion investment in Bear Stearns, the Wall Street securities firm now in the hands of JP Morgan.

Jim Sutcliffe, chief executive at Old Mutual, said the most recent problem had been the result of a combination of flawed product design and huge volatility in Asian markets.

Old Mutual had been only 60 per cent covered against exceptional market falls, he said.

The chief operating officer at US Life had been sacked. Management has been strengthened with a new US Life chief executive, Bruce Parker, and remedial action put in place.

"We are talking about up to $212 million here; I don't take kindly to someone losing us $212 million," Mr Sutcliffe said, adding that he was determined to resolve the difficulties and return the US Life business to a "proper level of profitability".

No legal action is planned against former employees. "I don't think anybody defrauded us, they just didn't do their job properly," Mr Sutcliffe said.

Old Mutual, which withdrew the problem product lines in May, said it was now planning to withdraw other product lines where hedging had proved ineffective.

Old Mutual first admitted to problems with the product lines, known as offshore variable annuity products, on June 25, but adverse market movements since then had made the losses substantially bigger.

Mr Sutcliffe expressed frustration at the setback, its second so far this year after one of its American boutiques lost money on a big investment in Bear Stearns, the Wall Street securities firm now owned by JP Morgan.

"Seven out of eight businesses are doing alright. In one business, we've got a problem," Mr Sutcliffe said.

Old Mutual, which is headquartered in South Africa, reported a 2 per cent fall in pre-tax profits from continuing operations to £835 million. It lifted the interim dividend 6.5 per cent to 2.45p.

Despite a fall in UK new business sales during the first half, Mr Sutcliffe said Old Mutual's operations in the country were "still growing quite strongly".

He acknowledged that falling consumer confidence in the UK was having an affect on investment practices and urged worried consumers to ensure they take financial advice.

"Equity is still going to be the best returning asset class over the next 10 years. But it depends what you are looking for. If you are looking for a quick return over the next year then don't buy equities. If you are 30, 40 or even 50 and saving for your retirement then equities might be right for you," Mr Sutcliffe said.

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