Momentum Employee Benefits Investments – With profit annuities training for Financial Advisors

1. Momentum Employee Benefits Investments – With profit annuities training for Financial Advisors Presenters: Linda Ritchie 4 November 2012

2. Agenda Background Golden Income With-Profit Annuity Annuity Retailisation Conclusion

3. Background

4. What happens at retirement? Often the largest accumulation of wealth in an individual’s life Financial Goals Continuity of income and maintain standard of living Leaving money as bequest Very stressful period Due to changes in life, maintain self worth and health No longer fall under “wing” of employer Important (sometimes daunting) decisions to be made Individual often requires impartial/unbiased guidance or financial advice

5. What is there to choose from in the market? Take benefit in cash Choose guaranteed annuity from insurer Guaranteed to pay for life Guarantees current level of pension (Level annuities); Provide for future increases (With-profit annuities or fixed escalating); Guarantees inflation increases (Inflation-linked annuities) Buy a living annuity Provides no guarantees If money is depleted – no further income If money is not depleted at death – remaining money reverts to estate Combination of guaranteed and living annuity

6. The market But...

7. Financial Advice Individual requires unbiased advice to choose the correct solution Advisors need to provide “best advice” for retirees Remuneration from selling living annuities greater than other annuities – living annuities are not always appropriate for all clients

8. Landscape Retirement Reform process Preservation Purchase annuities Emphasis on low cost solutions Fund Trustees and Advisors are realising members left out in the cold at retirement date

9. The Solution Selection of an appropriate annuity product to suit the needs of most members – still on voluntary basis Obtain quotes from the various provider/s Present the quote to retiree and the benefits of selecting the chosen product Low cost option aligned with proposals for retirement reform Can be implemented on a default annuity selection, no advice, no commission basis Best product in the market in terms of increases

10. Golden Income With-Profit AnnuityProduct features

11. Product features Description – Provides regular pension for life as well as the opportunity to participate in investment and mortality profits via an annual pension increase. Objective – To provide minimum guaranteed pension for life, aim to: Declare competitive pension increases; Avoid declaring zero pension increases; and, Declare pension increases that keep pace with inflation over the long-term. Risk profile – Moderate. Future increases are linked to the performance of the assets. Our guarantee – Pension will never decrease. Each time an increase is awarded, the new higher amount is guaranteed for life.

12. Golden Growth’s unique features Uses dynamic hedging to accurately price and manage the product All embedded investment guarantees priced accurately up front and no clawbacks from future bonuses Funding level maintained at 100% due to dynamic hedging No entry time dependence – no funding level cross subsidy at entry Lower charges, including capital charge Transparent pension increase formula based on weighted average of 6 years underlying asset performance Greater exposure to growth assets and these are actively managed Built in future increases Leading to significantly enhanced expected bonuses

13. Long term asset allocation in reference portfolio Asset allocation drives bonuses Aggressive allocation to equities Total equity exposure of 60% Bonds split between inflation-linked and conventional High equity exposure improves the increase expectations over the longer term

14. Drivers of future increases Future increases depend on Return on underlying investments (1) Explicit charges (2) Implicit charges (3) Chosen PRI (4) Mortality profits (5) Distribution of built-in increases (6) Future increases ≈ (1) - (2) - (3) - (4) ± (5) + (6) Typically only the price and 4 are used to compare WPA’s

15. Drivers of future increasesWhat differentiates GGWPA Future increases depend on Return on underlying investments (1) (Expected to be 0.64% higher than competitors) Explicit charges (2) (0.7% lower than competitors) Implicit charges (3) (generates 1.35% higher expected increases) Chosen PRI (4) Mortality profits (5) Distribution of built-in increases (6) (0.96% higher expected increases) Future increases ≈ (1) - (2) - (3) - (4) ± (5) + (6) = 3.65% Typically only the price and 4 are used to compare WPA’s

16. How traditional market offerings claw back adverse performance from policyholder increases

17. Increase comparison (Annual increases) Pension increase history compares well to competitors Increases based on a 3.5% PRI

18. Increase comparison (Cumulative)

19. Dynamic Hedging If you have a known set of cash flows and If increases are explicitly based on some reference asset and If we have information about the riskiness of the reference asset Then you can accurately determine a market value of the cash flows and increases Dynamic Hedging used to price and manage risks Different from an expected value approach to pricing and managing risk

20. Dynamic Hedging Risk neutral pricing determines an accurate market price of guarantees Prices the cost of non-negative increases up front Allows more exposure to growth assets in the reference portfolio Transparent No inter generation smoothing i.e. no cross-subsidy at inception No conflict of interest between shareholders and policyholders Reduced capital requirement means lower charges to policyholders Metropolitan were the first to introduce this pricing technology in 2007

21. How dynamic hedging works

22. 6. Built-in increases Smoothing formula • Momentum’s smoothing formula is fully transparent • The weighted average of the past 6 years returns on underlying assets * * The 2011 return is YTD to July • To compare Momentum’s level of built-in increases with a traditional competitor that has a bonus stabilisation reserve of zero after 6 years, you need to assume future returns will equal the PRI% p.a.

23. Bonus & Increase for 2012 2012 Bonus is 9.5% 2012 increases for the various PRI’s

24. Benefit options Spouses pension: Spouses pension reversion chosen by the pensioner at retirement and in case of multiple spouses the pension will be divided amongst all the surviving spouses Guarantee period: Maximum of 15 years Children's pension: Provide children's pension up to the age of 18 - can be extended to 25 with proof of study Lump sum death benefit Bonus pension (13th cheque)

25. Post Retirement Interest Rate Maximum PRI is 3.5% Consider it the minimum net investment return required to maintain a pensioners current level of income The PRI is the level of investment guarantee provided by the insurer. PRI (%) is CHOSEN by the pensioner to meet their needs- once the PRI is chosen it can’t be changed later on Based on the PRI selected a guaranteed regular pension amount FOR LIFE is calculated e.g. High PRI = high initial pension & low increases Low PRI = low initial pension & high increases

26. Product Fees Initial Administration Fee: 1% plus R174 during 2012 increasing by CPI every year. Monthly Administration Fee: An amount of R52.50 per pensioner per month, during 2012 increasing by CPI every year. The monthly fee is in respect of ongoing administration functions. Annual Fee: 1% p.a. and increases by 0.05% for every 0.5% of PRI above 2.5%. For example, for a 3.5% PRI the fee is 1.10%. This covers the capital charge, expense charge and asset management fee.

27. Annuity Retailisation

28. What is Retailisation? ABSA Consultants and Actuaries partners with an insurer to provide a selected annuity product to retiring members on retirement Selection of an annuity product that is appropriate for most members at retirement Retiring members have a good starting point for securing their retirement income Cost effective solution for enable retiring member to achieve financial goals in retirement The quotes and subsequent processes are streamlined between the insurer and, typically, the Fund administrator

29. How can Momentum EBI assist? We are experienced in the annuity retailisation process Transnet and Alexander Forbes are some of our successes We have a range of products to choose from With-Profit Annuities Inflation-Linked Annuities Flexibility in methods for obtaining quotes If preference for individual advice to members, remuneration can be fee-based or commission-based

30. What is required to implement retailisation? Choose the appropriate annuity product and quotation specifications i.e. The financial planners/advisors Discuss and implement the various processes Quotation and initial communication New business submission process

31. Example: Fund’s preselected quotation specifications * Specifications have been selected as a default. Members may request some changes and we can quote based on their individual requirements.

32. Information needed from the Fund’s administration team for quotations Pre-selected default quote specifications The additional information needed is (can be supplied in an excel form): Member’s name and surname Gender Date of birth Date of retirement Spouse date of birth Capital Purchase amount

33. Requesting quotes There are three ways that quotes can be supplied The options are: Quotation requests can be e-mailed to Momentum's quotes team, who will respond in one working day web-based quotation system Fund administrator login to Automated interface - Build IT Webserver interface where Fund’s administration system seamlessly requests quotation from Momentum’s quotation system The option selected is driven by expected quotation volumes, Fund administration system capabilities, administration resources available etc

34. Momentum Annuity Quotation

35. Cover letter Fund and Advisor will need to decide on the detail in the letter to be sent out with the annuity quote to the member

36. Once client has accepted quotation Take on requirements • Momentum requires the following information for all new pensioners in order to comply with the latest requirements from SARS. This is a legal requirement without which Momentum will be unable to process new business applications. 1. Initials, first two names and surname; 2. ID Number; (spouse’s ID number where applicable) 3. Passport number and country of issue (where no SA ID is available); 4. Date of Birth; 5. Spouse’s Date of Birth; 6. Income tax reference number; 7. E-mail address (where available); 8. Business, cell, home telephone and/or fax numbers; 9. Physical business, postal and residential address; 10. Directive numbers (where applicable); 11. Bank account details, including: a. Bank account type; b. Bank account number (into which the salary, pension or annuity is paid); c. Bank Name; d. Branch name and number; e. Account holder name; and f. Account holder relationship (either own, joint or third party). • The Fund will need to submit to Momentum’s quotes team: • Signed quotation; • Signed and completed application form; • Proof of payment of purchase amount; • Member’s take on requirements

37. Retail annuity timeline* * Fund needs to decide on the timeline to following

38. Process flow chart * Forward client’s signed quote, proof of payment, application with take on requirements 5 Request member quotes Receive signed quote, application with take on requirements 1 4 Momentum’s annuity quotes team Fund’s administration team Retiring member Send quote 1 working day 2 Attach letter & quote & mail to client 3 Send acceptance letter & contract document 6 * Refer to the retail annuity timeline for timings

39. Service Level Agreement To be entered into between ABSA C & A and Momentum Clarifies responsibilities and service standards

40. EB Annuities Quotes Team Contact Details Quotes, queries and assistance. E-mail: ebannuities@momentum.co.za Tel: 021 917-3010

41. Annuity payment process • Once application form with supporting documents are submitted and purchase consideration paid • Annuity payment commences

42. Communication to annuitants • Welcome letter and contract at inception • Monthly remuneration advice • Annual tax certificates and annual pension increase letters • With-Profit Annuity – Feedback Reports twice a year • Support by a dedicated administration team

43. Conclusion

44. Conclusion • Significant value add to retiring member in securing retirement income • Low cost option • Comfort regarding welfare of retiring members-pursuit of best advice for financial planners

45. Disclaimer This presentation  should not be  regarded  as  advice.  Whilst all reasonable  care  has   been  taken  in  the  preparation  thereof, MMI Holdings Limited, its subsidiaries, including Momentum Group Limited and Metropolitan Life Limited, and its employees shall not be liable  for any loss, damage (whether direct or consequential) or expense of any nature which may be suffered as a result of or which may be attributable , directly or indirectly , to the use of or reliance upon it. We suggest that you consult your financial advisor  before taking any decision based on this presentation.