LONDON (Bloomberg) — Old Mutual Plc said it ended attempts to sell Mutual & Federal Insurance Co., South Africa's second-largest property insurer, as the global financial crisis deters potential buyers.

It's the second time Old Mutual, the worst-performing European insurance stock this year, failed to dispose of the Johannesburg-based unit. The company rejected an offer in March that was more than two-thirds higher than Mutual & Federal's current market value of 4.6 billion rand ($470 million).

"It was a bad decision to reject that first offer," said Rajay Ambekar, who helps manage 48 billion rand at Cadiz African Harvest Asset Managers in Cape Town. "Old Mutual had a price in mind and bidders weren't meeting this. It's not a good time to be selling."

This year Old Mutual was hit by losses of $474 million from its Bermuda division, where it failed to hedge guarantees on investment products. The company has hedged about 90 percent of its risks in Bermuda while the insurer hasn't hedged against market volatility, finance director Jonathan Nicholls said. It has injected $425 million into the business.

Old Mutual is the latest company to pull a deal as the credit crunch erodes cash available for takeovers. BHP Billiton Ltd. abandoned its record offer for Rio Tinto Group on November 25, cutting the value of transactions announced this year to $2.4 trillion, 37 percent lower than in the same period last year, data compiled by Bloomberg show. Travelers Cos. chief executive officer Jay Fishman said on the same day the number of insurance businesses for sale far exceeds demand in the current market.

While the "process had reached an advanced stage, it was materially impacted by the increasingly difficult economic conditions", London-based Old Mutual said in a statement yesterday. "Following discussions with the short-listed bidders, the sale process has now been terminated."

Old Mutual was unchanged at 7.84 rand as of 12:05 p.m. in Johannesburg. It has dropped 66 percent this year for a market value of 41 billion rand. Mutual & Federal fell 1.8 percent to 14.50 rand, extending the decline this year to 43 percent.

Royal Bafokeng Holdings Ltd. had offered Old Mutual 25.30 rand a share for Mutual & Federal. The property and casualty insurer this year cut more than 600 jobs, a fifth of its staff, to help restore profit after claims rose and declining stock markets reduced the value of its investments.

"Old Mutual has assured us that it will be business as usual at Mutual & Federal and that any further exploration of a sale has been terminated," Mutual & Federal CEO Keith Kennedy said in a statement. "We are pleased that we can now remove this uncertainty and move ahead."

Old Mutual three weeks ago said the sale was "progressing well" and that it would complete the sale process by the end of the year. The company is "confident" it can manage the drop in markets and won't need to raise capital even after its surplus capital fell by half, CEO Julian Roberts said on November 6.

"It's the right decision not to sell an asset cheaply just because the market is down," said Wayne McCurrie of RMB Asset Management, which has 180 billion rand under management. "The problem is Old Mutual needs capital."

As well as its Bermuda division losses, the insurer has taken write-downs of $531 million in its US life business this year, which included $381 million in the third quarter tied to losses on investments in American International Group Inc., Lehman Brothers Holdings Inc. and Washington Mutual Inc. It injected an additional $100 million of capital into the US unit.

Still, the decline in the stock price is a good opportunity to buy Old Mutual shares that are "dirt cheap" because it's trading at a dividend yield of 15, said RMB's McCurrie. "The market is pricing in an absolute disaster at Old Mutual, which is not going to happen."