Liberty Life Presentation to Investment Analysts

1
Liberty LifePresentation toInvestment
Analysts Societyof Southern Africa

• 2 March 2005
• www.liberty.co.za

2
Agenda
What we said
What weve done
Operating climate
Operations
Financial results
Focus areas for next twelve months
Questions
3
What we said 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

4
What weve done people

• Executive management committee

RoyAndersen
HyltonAppelbaum
MarkBloom
AndrewLonmon-Davis
IanMaron
MikeJackson
Deonde Klerk
LeanneDewey
ThembaGamedze
JimMcLean
RonMitchell
DavidNohr
MikeGarbutt
LeeIzikowitz
CraigLawrence
DanPienaar
MartinSmale
AlanWoolfson
5
What weve done people

• Executive management committee

RoyAndersen
HyltonAppelbaum
MarkBloom
AndrewLonmon-Davis
IanMaron
MikeJackson
Deonde Klerk
LeanneDewey
ThembaGamedze
JimMcLean
RonMitchell
DavidNohr
MikeGarbutt
LeeIzikowitz
CraigLawrence
DanPienaar
MartinSmale
AlanWoolfson
6
What weve done people

• Executive management

Previous New
Roy Andersen Myles Ruck
Mark Bloom Deon de Klerk
Dave Nohr Andrew Lonmon-Davis
Ron Mitchell Ian Cadby
Jim McLean Roger Corlett
Craig Lawrence Audrey Mothupi
Peter Laburn Not replaced
Mike Jackson Not replaced
Themba Gamedze Not replaced
Dan Pienaar Not replaced
Rex Tomlinson
Bruce Hemphill
Bobby Malabie
Mohale Ralebitso
7
What weve done people

• More new names

John Sturgeon Divisional director Corporate finance
Christo Landman Divisional director Tax
Caswell Rampheri Divisional director Properties
Jeff Hubbard Divisional director Financial accounting
Craig Pilgrim Divisional director Internal audit
Stewart Rider Group executive Investor relations and strategic analysis
David Jewell Divisional director Group actuarial
8
What weve done people

• 251 people taken on in October 2003 as part of
  IEB acquisition
• IT outsourcing - reduction of 70 people
• HR restructuring - reduction of 25 people
• 16 Graduates employed under new scheme

3472
3353
3320
3221
3069
Dec 02
Mar 03
Jun 03
Sep 03
Dec 03
Mar 04
Jun 04
Sep 04
Dec 04
Liberty excluding IEB
Liberty including IEB
9
What weve done customer service

• Customer service campaign
• Internal ombudsman and MD of customer service
• Internal campaign to staff
• Noticeable improvement, but a long way to go

10
What weve done business structure and
efficiency

• Implemented during 2004 - benefits not yet fully
  realised
• Group HR
• IT
• Group Finance
• Central Group product development unit formed
• Central Group customer service unit formed
• Implemented in 2003 - benefits evident in 2004
• Liberty Healthcare rationalised into LPB
• STANLIB restructure

11
What weve done capital management

• Capital management committee
• Long-term shareholder portfolio established
• Successful Liblife B.V. bond redemption
• Application to the FSB to issue debt
• Conditional approval received
• BEE transaction successfully implemented
• Offer made for Capital Alliance
• Dividend policy introduced

12
What weve done FinancialSector Charter
implementation

• Board transformation sub-committee established
• Favourable progress against scorecard
• Need more black senior managers
• Black managers ownership scheme should help
• SizweNtsaluba VSP appointed
• FSC auditors
• STANLIB entities more to follow

13
What weve done domestic operations, other
market segments and Africa

• Repositioning of Charter Life (now Liberty
  Active)
• Bobby Malabie and team developed project Khula
  during 2004
• A build strategy (as opposed to buy) has been
  developed
• Expected R50m to R100m investment in the next 18
  to 24 months
• We have some time to get the model right

14
What weve done domestic operations, other
market segments and Africa

• Namibian operation small, but profitable
• Investigating opportunities in Uganda and Kenya
• Liberty Life offshore model discontinued
• Capital Alliance closed book offshore model will
  be considered in due course

15
What weve done distribution channels

• Continued focus on broker relationships
• Were working on it campaign
• Regional head office in Cape Town being
  established
• Individual life bancassurance model continues to
  deliver
• Restructured corporate benefits bancassurance
  model implemented
• Focused on productivity of agency and franchise
  in 2004 - will recruit and develop in 2005
• Well established, stable agency force

16
What weve done BEE transaction

• Implemented on 8 November 2004
• Community/educational trust to be finalised in
  2005
• Black management allocations done
• General staff scheme in place
• Timing was good R1 251m nowR1 677m
• Capital repayments could commence in 18 months

17
Operating climate

• Increasingly weve been dealing with
• More compliance and regulatory requirements
• Low interest rate/low inflation environment
• Strengthening of the Rand
• Volatile investment markets
• Risk averse investors
• Poor perception of industry (media and consumers)

18
Operating climate (continued)

• Some positives are emerging
• Industry has started recognising its shortcomings
• Emerging middle class - a reality, but net
  spenders
• South African economy - a success story
• Investors becoming more bullish
• Good local investment returns
• Cash being accumulated by investors opportunity

19
Deon de Klerk
20
Operational features 2004/2003
Rm 2004 2003
Total new business 13 440 11 667 15
Indexed new business 4 186 3 808 10
Indexed new business excl contractual increases 3 340 3 060 9
Value of new business 815 609 34
New business margin 24 20
Net cash inflows from insurance operations 3 640 4 497 -19
Maturity of R2 090m in respect of one large
client.Excludes STANLIB and Ermitage net cash
inflows.
21
Life insurance operations

• New business premiums
• Total 15 to R13 440m
• Individual life 22 to R11 374m
• Corporate benefits -12 to R2 066m

• Indexed new business premiums
• Total 10 to R4 186m
• Individual life 11 to R3 544m
• Corporate benefits 3 to R642m

22
11
-12
3
Individual life
Corporate benefits
22
Life insurance operations

• Embedded value of new business
• Total 34 to R815m
• Individual life 43 to R819m
• Corporate benefits -110 to -R4m

• New business EV margins
• Total 24
• Individual life 28
• Corporate benefits -1

28
R819m
-1
-R4m
2001
2002
2003
2001
2002
2003
2004
2004
Rm
Rm
Individual life
Corporate benefits
23
Life insurance operations

• Net cash inflows from insurance operations
• Total -19 to R3 640m
• Individual life 76 to R5 492m
• Corporate benefits -234 to -R1 852m

R5 492m
-R1 852m
2003
2001
2004
2002
Rm
Net cash inflows from individual life business
Net cash inflows from corporate benefits business
24
Life insurance operations

• New individual business market share (including
  Liberty Active)

27
26
25
25
24
23
20
20
17
15
Single individual
Recurring individual
Year ended 31 December 2000
Year ended 31 December 2001
Source LOA market share statistics for all life
offices
Year ended 31 December 2002
Year ended 31 December 2003
Nine months ended 30 September 2004
25
Other operations

• STANLIB assets under management and funds under
  administration

Rbn 2004 2003
Life funds 72 59 22
Segregated funds 66 55 20
Unit trusts 51 40 28
Structured products and other 34 24 42
Total AUM and FUA 223 178 25
Money market as of total 16 14

• Net cash inflows of R15,3 billion
• Normalised earnings after tax of R192m up 62

26
Other operations

• STANLIB net cash inflows

2004 2003
Money market and flexi-cash 62 72
Fixed interest funds 8 18
Equity 29 16
Other 1 -6
Total 100 100
27
Other operations

• Ermitage assets under management

USm 2004 2003
Hedge funds 1 500 1 131 33
Long-only funds 1 382 1 060 30
Money funds 762 600 27
Total AUM 3 644 2 791 31
Third party funds as of total funds 41 39

• Net cash inflows of US572m 160 (R3 681m)
• Headline earnings of 4m 11 (R46m)

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Financial results 2004/2003
Rm 2004 2003
Headline earnings per share (cents) 460,4 346,4 33
Embedded value per share (Rand) 67,25 57,58 17
Capital adequacy requirement(times covered) 2,1 2,6
Final dividend per share (cents) 153 116 32
Total dividend per share (cents) 315 278 13
BEE normalised embedded value per share
R65,69 up 14
29
Headline earnings
Rm 2004 2003
Operating profit from insurance operations net of tax 929 720 29
Operating profit from shareholders funds 323 230 40
Headline earnings 1 252 950 32
Headline eps (cents) 460,4 346,4 33
30
Operating profit from life insurance operations
major influencing factors

• Shareholders 10 participation and higher asset
  base
• Investment guarantee reserve
• Expenses
• Costs per policy
• Non-recurring expenses
• Liberty Corporate Benefits

31
Gross investment returns
22,7
12,5
Year-to-date return 2003
Year-to-date return 2004
Actuarial assumption 2004
32
Main factors affecting the guarantee reserves
Rm Change in reserve
Economic basis change 313
Better than expected overall investment performance in 2004 (44)
269
Volatility basis change (set up as a second-tier
margin) R148m
33
Expenses
Rm 2004 2003
Total group expenses per AFS 2 036 1 860 9
IEB expenses incurred since October 2003 (93) (32)
BEE transaction expenses (before tax) (15)
Total group expenses 1 928 1 828 5
Including non-recurring expenses
34
Non-recurring expenses

• Non-recurring expenses of R137m in 2004 (2003
  R111m)

Rm 2004 2003
Retrenchment costs 35 11
Pension contribution shortfall 2 30
Non-capitalised renovation costs 13 10
Systems impairments 37 15
BEE transaction 15 -
Discontinued salaries (50) 14 15
Various other 21 30
137 111
Policyholders non-recurring R116m (2003
R84m) Shareholders non-recurring R21m (2003
R27m)
35
Expenses

• Costs per policy

2004 2003 Assumption
Individual maintenance costs per policy Individual maintenance costs per policy Individual maintenance costs per policy Individual maintenance costs per policy Individual maintenance costs per policy
Liberty Life R 248 R 240 3,5 5,5
Liberty Active R 154 R 162 -4,9 5,5
R74m after tax release to profit
36
Operating profit from shareholders funds
Rm 2004 2003
Financial services operations 265 200 33
Listed investments 81 33 145
Other (23) (3) gt100
323 230 40
37
Embedded value
Rm 2004 2003
Shareholders funds 8 494 8 782 -3
Net value of life business in-force 7 607 6 494 17
Fair value adjustment 766 541 42
Total 16 867 15 817 7
Embedded value per share (Rand) 67,25 57,58 17
BEE normalised embedded value per share R65,69
up 14
38
Financial services subsidiariesfair value
adjustment
Rm 2004 2003
Liberty Group Properties 240 216
Liberty Ermitage Jersey 290 140
STANLIB 345 307
Carrying value of in-force business acquired from IEB (109) (122)
766 541
39
Capital adequacy cover
2004 2003
Capital adequacy requirement (Rm) 3 954 3 403
Times covered 2,1 2,6
Times covered without BEE impairment 2,5
40
Dividend policy

• Objectives
• Predictable growth
• Less volatility
• Leave room for new business growth
• Strong capital adequacy

41
Dividend policy

• Policy
• Yield on EV per share of approximately 4,75
• Going forward aligned to medium term growth of
  EV
• Taking into account
• economic conditions and
• CAR cover gt1,5
• Interim dividend at 40 of previous full year

42
Dividend
Cents per share 2004 2003
Interim 162 162 -
Final 153 116 32
315 278 13
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Conclusion
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Focus areas for next twelve months

• Exciting opportunities
• Operational restructuring opportunities
• Capital Alliance
• new business
• efficiency
• Products
• Capital structuring
• Liberty Activeand, as always ... people ...
  service costs

45
Focus areas for next twelve months

• Libertys business is conceptually simple and
  generic
• We develop products
• We sell products
• We receive money
• We invest the money according to product
  specification
• We administer according to product specification
• We pay benefits

46
Focus areas for next twelve months

• Exciting opportunities
• Operational restructuring opportunities
• Capital Alliance
• new business
• efficiency
• Products
• Capital structuring
• Liberty Activeand, as always ... people ...
  service costs

47
Questions

• Panel

Myles Ruck Chief Executive
Andrew Lonmon-Davis Statutory Actuary
Deon de Klerk Chief Financial Officer
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Liberty LifePresentation toInvestment
Analysts Societyof Southern Africa

• 2 March 2005
• www.liberty.co.za