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Liberty Life Interim Results Presentation

Liberty Life Interim Results Presentation. 11 August 2004 www.liberty.co.za. Operating climate Operations Financial results What we said What we have done Focus areas for next six months Questions. Agenda. Operating climate. Increasing compliance and regulatory requirements

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Liberty Life Interim Results Presentation

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  1. Liberty LifeInterim Results Presentation 11 August 2004 www.liberty.co.za

  2. Operating climate Operations Financial results What we said What we have done Focus areas for next six months Questions Agenda

  3. Operating climate • Increasing compliance and regulatory requirements • Low interest rate/low inflation environment • Strengthening of the Rand • Volatile investment markets • Risk averse investors • Perception of industry

  4. Operations

  5. Liberty Personal Benefits • Strong Excelsior single premium investment sales • Property, risk profiled and absolute returns popular • Recurring premiums flat • Lifestyle Protector sales of R187 million YTD • Medical Lifestyle and Medical Lifestyle Plus closed -existing book and policyholder rights protected • Continued focus on cost containment • Customer service drive across the business • FICA II and preparation for FAIS legislation

  6. Individual Business –average recurring premiums 3 months 31 Mar 2004 R 3 months 31 Mar 2003 R All offices Large offices Liberty Personal Benefits LPB as % of all offices LPB as % of large offices % Change 2 339 3 137 7 254 310,1% 231,3% 2 611 3 843 6 341 242,9% 165,0% (10 (18 14 ) ) Source: LOA market share statistics for all life offices

  7. Charter Life On the downside • High proportion of offshore guarantees on in-force book • Guarantees in respect of offshore business give rise to the majority of the investment guarantee reserve On the upside • Strong sales off a low base • Recurring premium new business up 57% (credit life) • New business model completed

  8. Liberty Corporate Benefits On the downside • Lower new business volumes and margin than in 2003 • Terminating schemes amounting to R2 billion to be paid out over next six months • Standard Bank cross selling disappointing

  9. Liberty Corporate Benefits(continued) On the upside • 3% YTD reduction in headcount • Risk margins maintained • Focusing on service delivery • Back-office conversions onto a single platform progressing to plan • IEB integration progressing to plan

  10. ConsultancyNew individual single premium business by channel Channel 30 June 2004 % 30 June 2003 % Broker SBFC Agency Other Franchise 44 22 23 7 4 43 18 26 7 6 Excludes STANLIB administered SBFC sales and Charter Life

  11. ConsultancyAsset classes – new single premium Portfolio 30 June 2004 % 30 June 2003 % CPI Plus Excelsior Risk Profiled Property Excelsior Income Other Liberty Portfolios Guaranteed Bond Offshore Investments External Investment Managers 11 6 36 5 24 5 10 3 22 18 18 7 22 3 2 8

  12. ConsultancyNew individual recurring premium business by channel Channel 30 June 2004 % 30 June 2003 % Broker SBFC Agency Other Franchise 45 13 27 1 14 45 14 26 2 13

  13. ConsultancyAsset classes – new recurring premiums Portfolio June 2004 % June 2003 % Property Other Liberty Portfolios CPI Plus Excelsior Risk Profiled Offshore Investments External Investment Managers Excelsior Income 24 23 9 6 34 3 1 18 42 10 9 15 5 1

  14. STANLIBTotal assets under management June 2004 Rbn Dec 2003 Rbn June 2003 Rbn Life funds Segregated funds Unit trusts Total STANLIB Asset Management STANLIB Wealth Management Total STANLIB 60,0 55,5 38,8 154,3 30,5 184,8 58,9 56,0 37,7 152,6 24,9 177,5 53,1 49,2 29,5 131,8 24,8 156,6  Net cash inflows of R6 billion  AUM up 18% on year ago  Normalised earnings after tax of R79,2m up 43%

  15. Life fund investment performance % % % % % % % Source: Alexander Forbes Global Manager Watch Best Investment View – 30 June 2004

  16. ErmitageAssets under management % Change 2004 US$m 2003* US$m Hedge funds Long-only funds Money funds Third party funds as % of total funds 1 401 1 113 659 3 173 41% 1 131 1 060 600 2 791 39% 24 5 10 14 *31 December 2003 excluding common assets Headline earnings of£1,7 million up 43%

  17. Financial results

  18. Features – 2004/2003 30 June 2003 Rm 30 June 2004 Rm % Change • Total new business • Individual • Corporate • Indexed new business • Value of new business • Net cash inflows from insurance operations • New business margin 6 341,9 5 360,5 981,4 1 968,3 330,2 2 381,8 20,9% 5 437,0 4 185,7 1 251,3 1 779,0 261,7 1 730,2 18,4% 17 28 (22 11 26 38 )

  19. Features – 2004/2003(continued) 30 June 2004 30 June 2003 % Change • Headline earnings per share (cents) • Interim dividend per share (cents) • Embedded value per share: (Rand)* • Capital adequacy requirement (times covered) • 130,0 • 162,0 • 53,42 • 2,63 • 167,2 • 162,0 • 57,59 • 2,55 29 - 8 *Embedded value per share at 31 December 2003 of R57,58

  20. Headline earnings % Change 30 June 2004 Rm 30 June 2003 Rm Operating profit from insurance operations net of tax Revenue earnings – shareholders’ funds Preference dividend Headline earnings Headline eps (cents) 335,0 166,0 (40,6 460,4 167,2 252,7 148,2 (45,0 355,9 130,0 33 12 (10 29 29 ) ) )

  21. Operating profit from life insurance operations • Lower than expected shareholders’ 10% participation – but better than first six months of 2003 • Strain in respect of investment guarantee reserve • Small contribution to operating profit in respect of: • Lower than expected expenses • Basis changes (realignment of assumptions)

  22. Investment returns(Weighted average of equity, managed and foreign assets portfolios) % +11% +0,2% -3,6%

  23. Expenses 30 June 2004 30 June 2003 % Change Total group expenses Subsidiaries Company expenses Insurance expenses 926,5 (195,7 730,8 639,1 * 889,8 (177,8 712,0 627,6 4 10 3 2 ) ) * * *Excludes IEB costs of R40,3 million in 2004

  24. Expenses – cost per policy 30 June 2004 % 30 June 2003 % Renewal cost per policy increased by Acquisition cost per policy increased by 4,1 6,9 7,6 9,3 Small expense profit included in operating profit for 2004

  25. Non-recurring expenses • Non-recurring expenses of R50 million for six months ended 30 June 2004 • Retrenchment costs • Pension fund provision • Post-retirement medical liability increase • Non-capitalised renovation costs • Impairments and other provisions

  26. Dynamics of the investment guarantee reserve Change in reserve Rm Changes of basis (offshore portfolios, volatility and charges) Higher future investment return offsetting lower than expectedactual return in six months Net effect 58 (17 41 )

  27. Revenue earnings – shareholders’ funds 30 June 2004 Rm 30 June 2003 Rm Financial services operations Listed investments Other % Change 92,5 25,1 48,4 166,0 72,3 24,6 51,3 148,2 28 2 (6 12 )

  28. Embedded value 30 June 2004 Rm 31 Dec 2003 Rm 30 Jun 2003 Rm Shareholders’ funds Net value of life businessin-force Fair value adjustment Total Embedded value per share(Rand) 8 922,4 6 279,1 685,6 15 887,1 57,59 8 782,2 6 493,8 540,9 15 816,9 57,58 8 265,7 5 645,6 711,2 14 622,5 53,42

  29. Financial services subsidiariesfair value adjustment 30 June 2004 Rm 30 June 2003 Rm Liberty Group Properties Liberty Ermitage Jersey STANLIB Carrying value of in-force business acquired from IEB 233,0 125,0 353,2 - 711,2 230,0 184,0 387,2 (115,6 685,6 )

  30. Capital adequacy cover 31 Dec 2003 30 June 2004 Capital adequacy requirement (Rm) Times covered 3 501,9 2,55 3 402,7 2,58

  31. Dividend 2004 cents per share 2003 cents per share Interim Final 162 162 116 278

  32. New business – percentage increase Corporate Business % Total % Individual Business % Recurring Single Total Index 10 35 28 15 (2 (26 (22 (10 ) 8 20 17 11 ) ) )

  33. Individual Business -market share (including Charter) % % % % % % % % % % % Source: LOA market share statistics for all life offices

  34. Value of new business 30 June 2004 30 June 2003 % Change Value of new business (Rm) New business margin (%) Individual (%) Corporate (%) 330,2 20,9 22,9 5,7 261,7 18,4 19,9 10,1 26

  35. Net cash inflowsfrom insurance operations 30 June 2004 Rm 30 June 2003 Rm % Change Total premiums and inflowsunder investment contracts Claims, policyholder benefits andpayments under investmentcontracts Net fund inflows STANLIB net inflows Ermitage net inflows • 9 723,2 • 7 341,4 • 2 381,8 • 6 072,9 • 3 404,4 • 8 004,1 • 6 273,9 • 1 730,2 • 5 485,0 • 1 013,3 22 17 38 11% 236% R2 billion Liberty Corporate Benefits outflow 2H04

  36. What we said- nothing complicated • Improve service levels • Emphasis on cost reduction • Domestic operations/other market segments and Africa • Renewed emphasis on people • Monitor capital position • Implement Financial Sector Charter • Reposition brand • Focus on product development i.e. back to basics

  37. What we have done - improve service levels • Tracking system implemented • Internal Ombudsman office established • Customer service campaign and competition launched • Answer calls within 24 hours • Respond to e-mails within 24 hours • Reply to other mail within three days THE EXTRA MILE… WE’RE WORKING ON IT.

  38. What we have done- emphasis on cost reduction • Year-on-year cost increase well within target • Reduced net headcount since June 2003 by 190* • IT outsourcing to Standard Bank • Reduction in headcount of 74 • Reduction in expenses of + R30 million per annum • Memorandum of understanding being finalised • Liberty Healthcare and Liberty Personal Benefits rationalised • London listing (secondary) to be terminated *Excluding IEB

  39. What we have done- focus on domestic operations/other market segments and Africa Charter Life • Comprehensive business plan covering all aspects of Charter Life re-positioning program completed • Executive ratification and final approval to be obtained • Market launch planned for Q1 2005

  40. What we have done- focus on domestic operations/other market segments and Africa(continued) Namibia • Charter Life Namibia officially launched 5 May 2004 • Currently only selling funeral and credit life products • Premium income N$1,3 million to 30 June 2004 • Broke even by 30 June 2004

  41. What we have done- focus on domestic operations/other market segments and Africa(continued) Uganda • Most significant country outside of RSA for Standard Bank in terms of branch network and reach • Currently applying for a life licence Kenya • Investigating possibilities and potential

  42. What we have done- emphasis on people • BEE transaction to benefit current and future black management and other staff • Graduate development programme initiated • Cost saving incentive to benefit “non-incentivised” staff repeated in 2004 • New ad campaign internalised • Further departures of senior management • New senior management appointments

  43. What we have done- monitor capital position • BEE transaction to utilise R1,3 billion of shareholders’ funds • Substantial cash planning and accumulation in 2004 • Liblife B.V. bond to be redeemed on 30 September 2004 • Working capital under scrutiny • 11 “unnecessary” subsidiary companies being rationalised and liquidated • Second phase of capital planning underway (remaining level and mix) • Dividend policy to be reviewed at November Board meeting

  44. What we have done- Financial Sector Charter implemention • Portfolios allocated to Exco members • Sub-committee of the Board appointed • On track: • Human resources • Procurement • Corporate social investments • Direct ownership and empowerment financing • To be progressed: • Access • Targeted investments

  45. Reposition brand • Life back into Liberty • New advertising campaign launched in June - • TV commercials, billboards, radio • Country-wide roadshows to staff and agency force • Public commitment to customer service • Aimed at staff, intermediaries and policyholders …WE’RE WORKING ON IT!

  46. Focus on product development • Product development team established to identify profitable new product opportunities and enhancements to existing products • Currently provides a focused service to Personal Benefits, Corporate Benefits and Charter Life • Experienced team members with a mix of actuarial, legal, tax and marketing backgrounds • Steering committee chaired by Chief Executive • Numerous focus group meetings held with intermediaries

  47. Focus areas for next six months- more of the same • People • Customer service • Business structure and efficiency • Capital management • Product development • Financial Sector Charter implementation • Domestic operations/other market segments and Africa • Distribution channels • Implement BEE transaction

  48. Panel Myles Ruck Chief Executive Andrew Lonmon-Davis Statutory Actuary Deon de Klerk Chief Financial Officer

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