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Liberty Life Interim Results Presentation

Liberty Life Interim Results Presentation. 11 August 2005 www.liberty.co.za. Agenda. What we said. What we’ve done. Operating climate. Financial and operating results. Focus areas for remainder of the year. Questions. What we said…. Operational restructuring opportunities

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Liberty Life Interim Results Presentation

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  1. Liberty Life Interim Results Presentation 11 August 2005 www.liberty.co.za

  2. Agenda What we said What we’ve done Operating climate Financial and operating results Focus areas for remainder of the year Questions

  3. What we said… • Operational restructuring opportunities • Capital Alliance (CAHL) • new business • efficiency • Products • Capital structuring • Liberty Activeand, as always ... people ... service … costs

  4. What we’ve done …operational restructuring Liberty Properties LCB Individual Life Individual Life Liberty Ermitage LPB Bancassurance Group Life Liberty Healthcare Consultancy Project Khula Distribution Support Services Support Services Support Services • The past Insurance operations Other operations Liberty Group Limited Liberty Active CAHL

  5. What we’ve done …operational restructuring • Shortcomings of the old structure • Processes evolved differently leading to inefficiency • Many different products and services • Slow customer response times • Duplication of structures leading to additional costs • Varying and different customer contact points • Potentially higher operational risk environment

  6. What we’ve done …operational restructuring • The present Assetmanagement Marketingand distribution Operations Group support services

  7. What we’ve done …Capital Alliance Implement acquisition Implementnew structure Plan phase I Integration and methodology – phase I – start with Liberty Active Plan phase II Integration phase II 2005 2006 2007 … people … service … costs …

  8. What we’ve done … products and distribution channels • Continued focus on broker relationships • Regional head office in Cape Town being established • Individual life bancassurance model continues to deliver • Recruitment in agency and franchise progressing well

  9. What we’ve done … products and distribution channels • Productivity of sales force remains a focus • Launch of AddLib loyalty program • Introduction of new risk product options • Continue advertising campaign - ‘let’s keep working on it’

  10. What we’ve done …capital management • Approval by FSB to issue bond of up to R2bn • Took cautious approach post PFA rulings • Still committed to issuing debt, but at the right time • Bought CAHL, with statutory CAR cover now at 1,78x (our range 1,5-1,7x) • Sold significant portion of SAB • Liquidated trading portfolio

  11. What we’ve done … Liberty Active • Early days • Sales management 61 with 245 tied agents • 22 branches have been opened-mainly new areas • 7 broker networks in the Eastern Cape • “Active Series” of six products has been launched • Sales of 12 335 Active Series policies (API R24m)

  12. What we’ve done …Liberty Active • Keeping a watchful eye • Premium collection is difficult in this market as expected • Management of persistency is critical • Steering committee meets monthly ensuring tight management • Reiterate that we would rather focus on build, not buy strategy • This ‘investment’ should not be more than R50–R100m

  13. Operating climate • It’s getting even tougher • PFA rulings have negatively impacted sentiment • Compliance and regulatory requirements continue • IFRS • Low interest rate/low inflation environment • Investors remain risk averse • Poor perception of industry (media and consumers)

  14. Operating climate (continued) • PFA rulings have cast the industry in a very poor light • Liberty’s Lifestyle Retirement Annuity Fund has had 4 rulings against it • Total rulings to date <R0,3m • We are taking it very seriously • The industry is introducing new flexible products • We need to resolve both the past and the future • There is still uncertainty • Working with the industry to resolve the issues

  15. Operating climate (continued) • But… • South African economy - the success story continues • Strong local investment returns • Weakness in the rand has helped, but offshore product demand still poor • Cash still being accumulated by investors = opportunity • We welcome the move to greater transparency

  16. Deon De Klerk

  17. Operational features – 2005/2004 with no CAHL comparatives 1 Includes CAHL numbers for 3 months since acquisition with no comparatives in 2004 2 Excludes STANLIB and Ermitage net cash inflows

  18. Life insurance operations 8000 7000 6000 5000 4000 3000 2000 1000 0 2002 2004 2003 2005 Corporate benefits Individual life • New business premiums (6 months to June) • Total +22% to R7 744m • Individual life +22% to R6 564m • Corporate benefits +20% to R1 180m +22% +21%(ex CAHL) +20% +16%(ex CAHL) Rm

  19. Life insurance operations 2000 1500 1000 500 0 2002 2004 2003 2005 Rm Corporate benefits Individual life • Indexed new business premiums (6 months to June) • Total +15% to R2 257m • Individual life +11% to R1 860m • Corporate benefits +35% to R397m +11% +9%(ex CAHL) +35% +22%(ex CAHL)

  20. Life insurance operations 400 300 200 100 0 2002 2004 2003 2005 Rm Group benefits CAHL Individual life • Embedded value of new business (6 months to June) • Total +12% to R370m • Individual life ex CAHL +8% to R344m • Corporate benefits ex CAHL = R3m +12% +26%

  21. Life insurance operations 35% 30% 25% 20% 15% 10% 5% 0% -5% Jun 2003 6 months Jun 2004 6 months Dec 2003 12 months Dec 2004 12 months Jun 2005 6 months Group benefits Individual life • New business EV margins • Total = 20% (June 2004: 21%) • Individual life ex CAHL = 22% (June 2004: 23%) • Corporate benefits ex CAHL = 1% (June 2004: 6%)

  22. Life insurance operations 3000 2000 1000 0 -1000 2002 2004 2003 2005 Rm Group benefits Individual life • Net cash flows from insurance operations (6 months to June) • Total +12% to R2 669m • Individual life +21% to R2 828 • Corporate benefits -R159m vs +R51m R2828m -R159m

  23. Life insurance operations 35% 32.0% 30% 27.2% 26.0% 25.3% 25.3% 24.5% 23.6% 25% 22.8% 20.3% 19.6% 20% 16.5% 15.5% 15% 10% 5% 0% Recurring Individual Single Individual Year ended 31 December 2000 Year ended 31 December 2001 Year ended 31 December 2002 Year ended 31 December 2003 Year ended 31 December 2004 Three months ended 31 March 2005 • New business market share Source: LOA market share statistics for all life offices

  24. Other operations • STANLIB: assets under management and funds under administration • Net cash inflows of R6,4 billion (R5,8bn in June 2004) • Earnings before tax of R197 million up 65%

  25. Other operations • Ermitage: assets under management • Net cash inflows of US$120m vs US$379m • Headline earnings of £2,8m +64% (R33m)

  26. Financial results – 2005/2004 * Refers to adjusted Dec 2004

  27. Headline earnings

  28. Headline earnings (continued) 1 Now included in headline earnings with no restatement of the comparative

  29. Operating profit from life insurance operations – major influencing factors • Inclusion of CAHL for 3 months • Shareholders’ 10% participation and higher asset base • Investment guarantee reserve • Expenses • Costs per policy • Non-recurring expenses

  30. Inclusion of CAHL for 3 months 1 Revenue earnings on R3,1 billion for the period up to implementation date – 26 April 2005 2 Revenue earnings on R3,1 billion for the six months ended 30 June 2004

  31. Gross investment returns Year-to-date return 2005 Year-to-date return 2004 Actuarial assumption 2005 30% 25% 22.7% 20% 15% 11.5% 10% 9.7% 5% 0.2% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Release from guarantee reserves of R91 million after tax mainly due to better than expected investment performance (2004: increase in reserves of R29 million after tax)

  32. Expenses

  33. Restructuring, integrationand other non-recurring expenses Policyholders’ non-recurring: R106 million (2004: R39 million) Shareholders’ non-recurring: R29 million (2004: R11 million)

  34. Maintenance costs per policy 1 For the year ended 31 March 2005

  35. Operating profit from shareholders’ funds

  36. Embedded value

  37. Capital adequacy cover

  38. Dividend • At 2004 year end new dividend policy established • Interim dividend set at 40% of previous year’s full annual dividend

  39. Conclusion

  40. Focus areas for remainder of the year and beyond, much the same • Capital management continues • Compliance, IFRS … • Address PFA issues • ... people ... service … costs

  41. Focus areas for remainder of the year and beyond, much the same • Operational restructuring and CAHL integration continues • Marketing and distribution restructuring • Products • Channels • Project Khula continues • Group support service restructuring and integration • … Hug our customers!

  42. Questions • Panel

  43. Appendices

  44. Operational features –2005/2004 with CAHL comparatives 1 Includes CAHL numbers for 3 months, both in 2005 and 2004 2 Excludes STANLIB and Ermitage net cash inflows

  45. Embedded value (EV) reconciliation and ROEV build up

  46. Stanlib Detailed Earnings Analysis

  47. Financial services and subsidiaries * The value of the IEB & CAHL business is included in the group's estimates of the VIF

  48. New business excluding contractual increases ex CAHL

  49. New business EV Analysis-ex CAHL • Indexed new business of CAHL for EV purposes R75m (Recurring R69m, single R64m) • NB embedded value of R23m • CAHL NB embedded value and volumes for 3 months only

  50. Effect of the BEE transaction on headline earnings • As a consequence of utilising Liberty Life’s own cash flows (in the form of ordinary dividends paid) to service the empowerment transaction financing structure (in the form of dividends on preference shares), the dividends received on the empowerment preference shares will be accounted for directly in reserves, thereby offsetting the dividends so received against the ordinary dividends paid by the company • Due to the fact that the Black Economic Empowerment transaction is effectively accounted for as a share buy back (until such time that all funding is repaid), the weighted average number of shares in issue for 2004 has been reduced by 25.8m shares. The transaction was implemented on 8 November 2004

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