2005 results presentation to the investment analysts’ society of southern africa

1

2005 Results Presentation to the Investment Analysts’ Society of Southern Africa

2 March 2006www.liberty.co.za

2

Agenda

What we said

What we’ve done

Financial and operating results

Focus areas

Questions

3

What we said …

• Capital management continues

• Compliance, IFRS …

• Address PFA issues

• ... people ... service … costs

4

What we said …

• Operational restructuring and CAHL integration continues

• Marketing and Distribution restructuring

Products

Channels

Project Khula continues

• Group professional services restructuring and integration

• … Hug our customers!

5

What we’ve done … Capital management

• Bought CAHL utilising some excess capital

• First life company in SA to issue capital qualifying bond

• Sold significant portion of SAB - no remaining concentration risks

• Sale of Prefsure and Hightree

• Ermitage sale in progress

• New dividend policy implemented

• Capital reduction

6

What we’ve done … PFA issues

• Statement of Intent signed with National Treasury

• What the industry agreed to

Minimum standards applied to early termination values

Retrospective and prospective

• Treasury’s promises

New commission regulations

Jurisdictional clarity (PFA, FSOS Ombudsman, LTI Ombudsman)

Recognition of application of Long-Term Insurance Act to RA policies

Resolution of other regulatory matters

7

What we’ve done … PFA issues

• All business with savings as the primary purpose, is included

RA’s (with and without life cover)

Endowments

Whole of life (where savings is primary purpose)

Reversionary bonus business

• Policies intended primarily to provide risk benefits, are excluded

Pure risk products (eg Lifestyle Protector)

Whole life business not included

• A number of outstanding practicalities still to be finalised

• Full provision for Statement of Intent (SOI) made at 31 December 2005

8

What we’ve done … Operational restructuring

• Overview of new structure given at the interim results

• Updated restructuring and integration progress given in November 2005

Marketing and Distribution

Operations

Group Professional Services

Asset Management (Stanlib and Properties)

9

What we’ve done … Operational restructuring

• Choice of IT platform finalised and project started

• Life licenses under review

• Recap of numbers

Restructuring and integration costs of R500m over 3-4 years

Anticipated cost reduction of R300m pa by 2008

Estimated after tax net benefit of approximately R1bn

• Restructuring and integration on track

10

What we’ve done … Products

• New risk product (Lifestyle Protector) performing well

• Sought more clarity on PFA rulings before launching new savings products

• New long term savings product launch planned for later this month

Policyholder value proposition

Internal culture ‘we should only sell a product that we would be happy to sell to our mothers!’

• Increased advertising awareness of real benefits of RA’s

11

What we’ve done … Distribution

• Agency restructured

• Continued focus on broker relationships

• Entry level market

Khula performance

CAHL Commercial/Khula agents consolidated (Liberty@Work)

• Individual life bancassurance model still delivering

• Awaiting finalisation of the commission proposal

• SAFSIA Awards

12

Deon de Klerk

13

Operational features – 2005/2004

Rm 20051 20042 %

Total new business 16 673 13 748 +21

Indexed new business 4 870 4 336 +12

Value of new business pre SOI costs 882 815 +8

New business margin pre SOI costs 23% 24% -1

Net cash inflows from insurance operations3 5 726 3 186 +80

1. Includes CAHL numbers for 9 months since acquisition

2. Includes CAHL numbers for 9 months for comparability where appropriate

3. Excludes STANLIB and Ermitage net cash inflows

14

Impact of SOI

• Value of new business margins reduced to 20%

Rm

Net asset value (406)

Headline earnings (321)

Goodwill impairment (85)

Value of in-force (193)

Embedded value (599)

15

Life insurance operations

New business premiums• Total R16 673m (+21%)• Individual life R13 721m (+18%)• Corporate benefits R2 952m (+39%)

Indexed new business premiums• Total R4 870m (+12%)• Individual life R4 004m (+10%)• Corporate benefits R866m (+26%)

CorporateIndividual

2002 2003 2004Inc CAHL

2005Inc CAHL

2002 2003 2004Inc CAHL

2005Inc CAHL

Rm0

2 500

5 000

7 500

10 000

12 500

15 000

0

1 000

2 000

3 000

4 000

5 000

Rm

16


Embedded value of new business*• Total R882m (+8%)• Individual life R845m (+3%)• Corporate benefits increased from -R4m

to +R37m

New business EV margins• Total = 23%* → 20% after SOI• Individual life = 25%* → 23% after SOI• Corporate benefits = 6%* → 6% unchanged

* Before SOI impact

CorporateIndividual

600

800

1 000

Rm

400

200

02002 2003 2004 2005

Inc CAHL2002 2003 2004 2005

Inc CAHL

-5%

0%

5%

10%

15%

20%

25%

30%

17

New business EV margins – PV of premiums basis

RmAfter SOI

2005Before SOI

2005 2004

Value of new business 777 882 815*

PV of future expected premiums 26 216 26 902 24 030

Value of new business as a % of PV of future expected premiums

3,0% 3,3% 3,4%

* As reported

18


Net cash flows from insurance operations (excluding Stanlib & Ermitage)• Total R5 726m (+80%)• Individual life R4 948m (+4%)• Corporate benefits R778m (+149%)

2002 2003 Inc CAHL 2004 Inc CAHL 2005-2 000

0

2 000

4 000

6 000

Rm

CorporateIndividual

19Source: LOA


New business market share

Year ended 31 December 2003

Year ended 31 December 2000 Year ended 31 December 2002



9 months ended 30 September 2005

Recurring Individual Single Individual0%

5%

10%

15%

20%

25%

30%

35%

19,6%

22,8% 23,6%25,3% 26,0% 25,4%

15,5%16,5%

20,3%

24,5%

27,2%

30,6%

20

Net cash inflows of R13,3bn (R15,3bn in 2004)

Earnings before tax of R407m up 46%

Other operations

STANLIB: assets under management and funds under administration

Rbn 2005 2004 %

Life funds 90 72 +25

Segregated funds 83 66 +26

Unit trusts 53 51 +4

Structured products and other 50 34 +47

Total AUM and FUA 276 223 +24

Money market as % of total 12% 16%

21

Financial results – 2005/2004

Rm 2005Restated

2004 %

BEE normalised headline earnings per share before IFRS & SOI (cents)

665,4 465,3 +43

BEE normalised embedded value per share before SOI (Rand)

75,56 63,72 +19

Statutory capital adequacy requirement(times covered)

2,0 2,5

22

BEE normalised headline earnings before IFRS and SOI

Rm 2005Restated

2004 %

Insurance operations 1 308 827 +58

Per financial statements 942 841 +12

IFRS adjustments 45 (14) >100

SOI provisions 321 - n/a

Shareholders’ funds 451 425 +6

Per financial statements 899 409 >100

IFRS adjustments (448) 16 <100

BEE funding 88 31 >100

BEE normalised earnings before IFRS & SOI

1 847 1 283 +44

Per share (cents) 665,4 465,3 +43

23

Operating profit from life insurance operations– major influencing factors

• Inclusion of CAHL for 9 months

• Shareholders’ 10% participation and higher asset base

• Risk profits

• Investment guarantee reserve

• Expenses

Costs per policy

Non-recurring expenses

24

Year-to-date return 2004

Gross investment returns

Year-to-date return 2005 Actuarial assumption 2005

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0%

5%

10%

15%

20%

25%

30%

35%

9,7%

25

Expenses

Rm 2005*Restated

2004* %

Total Liberty Group expenses 3 612 3 370 +7

IFRS 2 adjustments – share based payments

(40) (14) >100

Mutual funds on consolidation (137) (116) +18

Project Khula costs (27) (6) >100

VIF amortisation (120) (18) >100

Restructuring, integration and other non-recurring costs

(199) (137) +45

Normalised group expenses 3 089 3 079 0

* CAHL costs included for 9 months in 2004 and 2005

26

Restructuring, integration and other non-recurring expenses

Rm

Actual Estimated

2005 2005 2006 2007 Total

Retrenchments and other staff costs 80 50 20 - 70

Systems and process costs 32 100 150 70 320

Infrastructure and office relocation costs 70 50 20 - 70

Consolidation of Marketing & Distribution integration

2 20 20 - 40

Total 184 220 210 70 500

Incurred to date (184)

Expenses still to be incurred 316

Other non-recurring expenses of R36m

27

Maintenance costs per policy

2005 2004 % Assumption

Individual annual maintenance costs per policy

Liberty Life R258 R248 +4,0 +4,25

Liberty Active R139 R154 -9,7 +4,25

CAHL Complex R221 R2171 +2,52 +4,25

CAHL Simple3 R98 R801 +30,02 +4,25

1. For the year ended 31 March 2005

2. Annualised

3. Consolidation of 63 000 policies into 1 policy during 2005 impacted per policy statistics

28

Embedded value

Rm 2005Restated

2004 %

Shareholders’ funds – statutory basis 8 198 8 200 0

Fair value adjustments 326 766 -57

Fair value of share options (245) (191) -28

Net value of in-force business 10 874 7 544 +44

Embedded value 19 153 16 319 +17

Embedded value per share (Rand) 75,96 65,07 +17

BEE normalised embedded value per share before SOI (Rand)

75,56 63,72 +19

29

Capital adequacy cover

2005Restated

2004

Statutory capital adequacy requirement (Rm) 3 782 3 013

Statutory capital (Rm) 7 734 7 417

Times covered 2,0 2,5

Times covered without BEE impairment 2,4 2,9

30

Capital reduction

• Target CAR cover of 1,7 times

• Excess capital of approximately R1bn

• Capital reduction of R1bn or 360 cents per share

• Subject to shareholder and regulatory approval

31

• At 2004 year end new dividend policy established

• Dividend growth in line with current estimated medium term growth in embedded value(after normal dividends)

Dividend

Cents per share 2005 2004 %

Interim 126 162 -22

Final 224 153 +46

Total 350 315 +11

Annual 350

Base for future dividend declarations 325

Capital reduction impact 25

32

Bruce Hemphill

33

Addressing market concerns …

• Insurance skills

• Integration and restructuring

Good progress made in 2005

CAHL staff relocated to Liberty

One team, good mix of CAHL and Liberty

• Continuity

Group Executive

Rex Tomlinson/Bruce Hemphill on Exco for 24 months

34

Liberty priorities for the next 12 months

Customers

• Customer service

• Moral high ground

• Leading product innovators

• Real value to policyholders

35


Systems and processes

• Single IT platform

• Efficient business model

• Scalable

36


People

• Our people are the critical ingredient

• Positive energy

• Team environment

• Enjoyable workplace

37

Questions

Panel

Myles Ruck Chief Executive

Bruce Hemphill Chief Executive Designate

Andrew Lonmon-Davis Statutory Actuary

Deon de Klerk Chief Financial Officer

38

Appendices

39

Operating profit from shareholders’ funds

Rm 2005 Restated 2004 %

Financial services operations 149 172 -13

Listed investments 62 94 -34

Disposal groups held for sale 77 46 +67

Other investments 319 319 0

Shareholders’ management expenses (163) (128) +27

Shareholders’ tax (36) (94) -62

Investment gains net of CGT 491 - n/a

Operating profit post IFRS adjustments 899 409 +120

40

Embedded value (EV) reconciliation and ROEV build up

2005 YrRm

2005 ROEVBuild Up (%)

Investment return on shareholders funds* 1 416 8,9

Expected return on life business 938 5,9

Investment experience 1 292 8,2

Other experience (23) -0,1

Operating assumption changes 60 0,4

Changes in economic assumptions 457 2,9

Value of in-force acquired 167 1,1

Change in modeling (603) -3,8

New business 882 5,6

Exchange rate movements 46 0,3

EV Profit before Abnormal items 4 632 29,4

Less Abnormal

Implementation of minimum values for savings products (599) -3,8

Future non-recurring costs (216) -1,4

Change in company tax rate 118 +0,8

Write off of CAHL goodwill (397) -2,5

EV Profit 3 538 22,5

* Net of allowance for fair value of options of -R54m

41

Embedded value (EV) reconciliation – 1H05 vs 2H05

2H05Rm

1H05Rm

2005 YrRm

Investment return on shareholders funds* 729 687 1 416

Expected return on life business 502 436 938

Investment experience 906 386 1 292

Other experience 126 (149) (23)

Operating assumption changes 311 (251) 60

Changes in economic assumptions 448 9 457

Value of in-force acquired 167 - 167

Change in modeling (587) (16) (603)

New business 512 370 882

Exchange rate movements 46 - 46

EV Profit before Abnormal items 3 160 1 472 4 632

Less Abnormal

Implementation of minimum values for savings products (599) - (599)

Future non-recurring expenses (216) - (216)

Change in company tax rate - 118 118

Write off of CAHL goodwill (85) (312) (397)

EV Profit 2 260 1 278 3 538

* Net of allowance for fair value of options of –R101m in 2H05 (1H05 R47m)

• Annualised ROEV for 2H05 is 28% (1H05 16%)

42

IFRS NAV vs Statutory NAV

Rm 2005 Restated 2004

Shareholders’ funds – published basis 9 434 8 526

CAR requirements of subsidiaries (1 212) (376)

Debt and preference shares 2 200 -

Differences between statutory and published valuation methodologies (1 429) (430)

IFRS adjustments - (32)

Inadmissible assets (1 259) (271)

Shareholders’ funds – statutory basis 7 734 7 417

43

Stanlib detailed earnings analysis

Rm 2005 2004 % Change

Net fee income 753 630 +20

Investment and other income 67 67 -

Total income 820 697 +18

Operating expenses 413 419 -1

Income before tax 407 278 +46

Normal tax 142 97 +46

Income after tax 265 181 +46

Preference dividends 62 65 -5

Earnings 203 116 +75

Cost to income ratio 55% 64%

44

• Net cash inflows of US$69m

• Headline earnings of £6,67m (R77m) up 138%

Ermitage - assets under management

US$m 2005 2004 %

Hedge funds 1 789 1 500 +19

Long-only funds 1 329 1 382 -4

Money funds 646 762 -15

Total AUM 3 764 3 644 +3

Third party funds as % of total funds 41% 41%

45

Financial services and subsidiaries

* The value of the IEB & CAHL business is included in the group's estimates of the VIF

** Restated for IFRS

Rm December 2005 December 2004**

Fair Value Adjustment Tangible

NAV

Goodwill net of

amortis-ation

Fair Value Uplift

Total Carrying

value in EV excl VIF

% Change Tangible

NAV

Goodwill net of

amortis-ation

Fair Value Uplift

Total Carrying

value in EV excl VIF

Liberty Group Properties 11 0 300 311 +27 4 0 240 244

Liberty Ermitage Jersey 546 81 305 932 +14 456 69 290 815

Stanlib 406 0 710 1 116 +48 407 0 345 752

Prefsure 400 0 30 430 - - - - -

Carrying value of VIF business acquired from IEB

96 0 (96) 0* n/a 109 0 (109) 0*

Carrying value of VIF business acquired from CAHL

923 (923) 0* n/a - - - -

2 382 81 326 2 789 +54 976 69 766 1 811

46

New business excluding contractual increases - ex CAHL

Recurring Premiums Single Premiums Total Premiums

Rm 2005 2004 2005 2004 2005 2004 % Change

Individual 2 142 2 064 10 485 8 700 12 627 10 764 +17

Corporate 288 248 2 311 1 582 2 599 1 830 +42

Total new business 2 430 2 312 12 796 10 282 15 226 12 594 +21

% Change +5 +24 +21

Indexed new business 3 710 3 340 +11

Indexed Individual new business 3 191 2 934 +9

Indexed Corporate new business 519 406 +28

47

Total premiums


RmInc CAHL

2005Inc CAHL

2004Inc CAHL

2005Inc CAHL

2004Inc CAHL

2005Inc CAHL

2004% Change

Individual 9 762 8 746 11 030 8 918 20 792 17 664 +18

Corporate 4 134 2 941 2 365 1 759 6 499 4 700 +39

Total premiums 13 896 11 687 13 395 10 677 27 291 22 364 +22

% Change +19 +25 +22

Indexed total business 15 236 12 755 +19

Indexed Individual total business 10 865 9 652 +13

Indexed Corporate total business 4 371 3 103 +41

48

New business EV analysis - ex CAHL

• Indexed new business of CAHL for EV purposes R201m (Recurring R170m, single R31m)

• CAHL NB embedded value of R69m

• CAHL NB embedded value and volumes for 9 months only

Rm 2005 (After SOI) 2005 (Before SOI) 2004 % Change

Indexed Individual new business 3 191 3 191 2 934 +9

Indexed Group new business 519 519 406 +28

Indexed new business 3 710 3 710 3 340 +12

Individual NB EV 701 806 819 -2

Group NB EV 7 7 -4 >100

Total NB EV 708 813 815 -0,2

NB Individual Margin 22% 25% 28% -3

NB Group Margin 1% 1% -1% +2

Total Margin 19% 22% 24% -2

49

Effect of the BEE transaction on headline earnings

Rm 2005 2004 % Change

Earnings before IFRS 1 438 1 252 +15

Costs of transaction included in headline earnings net of tax - 18

Preference shares accrued1 88 13

Headline earnings including preference dividends before IFRS 1 526 1 283 +19

Weighted average number of shares in issue (millions) 251,8 271,9

Reinstatement of weighted average number of shares reduced for BEE transaction (millions)2

25,8 3,78

Weighted average number of shares after reinstatement of the transaction shares (millions)

277,6 275,7

BEE normalised headline earnings per share (cents) 549,8 465,3 +18

1. 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

2. 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 25,8million shares. The transaction was implemented on 8 November 2004

50

Effect of the BEE transaction on EV per share

1. 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 total number of shares has been reduced by 25 796 143 shares at 31 December 2005 and 31 December 2004

Rm 2005 2004 % Change

EV per EV statement 19 153 16 319 +17

Costs of transaction included in headline earnings net of tax & debited against reserves1

- 40

Reinstatement of impaired empowerment preference shares 1 251 1 251

Preference dividends accrued - 13

Embedded value before impairment 20 404 17 623 +16

Total number of shares in issue (millions) 252,1 250,8

Reinstatement of number of shares reduced for BEE transaction (millions)1

25,8 25,8

Total number of shares after reinstatement of the transaction shares (millions)

277,9 276,6

BEE normalised EV per share (Rand) 73,41 63,72 +15

51

Claims & policyholder benefits - Liberty ex CAHL

Group

Rm 2005 2004 % Change

Individual 13 240 10 867 +22

Death & disability 2 165 1 895 +14

Policy maturity claims 3 548 3 427 +4

Policy surrender claims 5 873 4 005 +47

Annuity payments 1 654 1 540 +7

Group 4 921 6 047 -19

Death & disability 543 489 +11

Scheme terminations 258 276 -7

Scheme member withdrawals 1 884 1 448 +30

Annuity payments 269 251 +7

Investment only terminations and withdrawals 1 967 3 583 -45

Total claims & policyholder benefits 18 161 16 914 +7

52

New business detailed analysis - Rm

New Business Recurring Premiums Single Premiums Total Premiums Total % Change

2005 2004 2005 2004 2005 2004 2005 2005

Inc CAHL Inc CAHL Inc CAHL Inc CAHL Inc CAHL Inc CAHL Inc CAHL Ex CAHL

Individual 2 924 2 759 10 797 8 870 13 721 11 629 18% 17%

Corporate 635 531 2 317 1 588 2 952 2 119 39% 38%

Total 3 559 3 290 13 114 10 458 16 673 13 748 21% 20%

% Change 8% 25% 21%

% Change Ex CAHL 13% 28% 24%

Indexed new business 4 870 4 336

• Includes premium escalations

53

Net cash flows detailed analysis - Rm

Net cash flows Individual business Corporate business Total Premiums Total % Change

2005 2004 2005 2004 2005 2004 2005 2005

Inc CAHL Inc CAHL Inc CAHL Inc CAHL Inc CAHL Inc CAHL Inc CAHL Ex CAHL

Net Premiums 20 792 17 664 6 499 4 700 27 291 22 364 22% 20%

Net claims and benefits 15 844 12 892 5 721 6 286 21 565 19 178 12% 7%

Net cash flows 4 948 4 772 778 (1 586) 5 726 3 186 80% 77%

% Change 11% 149% 80%

% Change Ex CAHL 9% 125% 77%

54

New business by distribution channel


Rm 2005 2004 2005 2004 2005 2004

Individual 2 924 2 759 10 797 8 870 13 721 11 629

Broker 1 025 979 4 234 3 365 5 259 4 344

Bancassurance 927 862 3 545 2 694 4 472 3 557

Agency 578 556 1 856 1 760 2 434 2 316

Franchise & other 394 362 1 162 1 061 1 556 1 413

Corporate 635 531 2 317 1 588 2 952 2 119

Broker 341 255 847 407 1 188 662

Bancassurance 29 16 12 36 41 52

Agency 149 171 254 224 403 395

Franchise & other 116 89 1 204 921 1 320 1 010

Total new business 3 559 3 290 13 114 10 458 16 673 13 748

55

CAR Cover - Historical analysis

2001 2002 2003 2004 2005

0

1,0

2,0

3,0

4,0

0,5

1,5

2,5

3,5

• Since December 2004, CAR cover is shown as statutory CAR cover

Times covered Incl BEETimes covered

56• After the capital reduction (ACR) 60% of the group’s EV will be represented by the value of in-force

EV - Historical analysis

VIFNAV

Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2005 (ACR)

0

10

20

30

40

50

60

70

80

90

100

57

Headcount analysis

• 61 administration staff at project Khula at 30 March 2005

• CAHL administration staff of 636 included at 30 June 2005

Liberty Incl CAHLLiberty excl CAHL

IEB

Dec 2003 Mar 2004 Jun 20004 Sep 2004 Dec 2004 Mar 2005 Jun 2005 Sep 2005 Dec 2005

2 800

3 000

3 200

3 400

3 600

3 800

4 000

58

2005 Results Presentation to the Investment Analysts’ Society of Southern Africa

2 March 2006www.liberty.co.za

2005 results presentation to the investment analysts’ society of southern africa

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