together we can create prosperity for africa’s people

METROPOLITAN

create prosperityfor Africa’s people

Together we can

ANNUAL REPORT 2008

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WWW.METROPOLITAN.CO.ZA

International new business present value of premiums (PVP)

18%

Shareholders receive dividend per share of

95 centsANNUAL REPORT 2008

Group CAR cover

3.1 times

highlights 1what we stand for 2at a glance 4

history and highlights 6this is metropolitan 8fi nancial results overview 10

board of directors 16executive committee 20chairman’s letter to shareholders 22group chief executive’s overview 26group fi nance director’s review 32investor relations report 39organisational structure 42operational review

retail cluster 44corporate cluster 48asset management 52international cluster 56health cluster 59

corporate governance report 64empowerment report 74hiv and aids report 80fi nancial statements 86shareholder profi le 211stock exchange performance 212shareholder diary 213notice to members of annual general meeting 214administration 216form of proxy

CONTENTS

HIGHLIGHTS

Financial year overview

Net infl ow

Rbn

Investment

assets

Rbn

Embedded

value

Rbn

Diluted core headline earnings

Rm

% %

Business growth contribution

Retail 2.9 35.5 3.048 448 (3) 44

Corporate (1.2) 28.3 0.599 153 (13) 15

Asset management 4.3 22.2 0.377 65 (7) 7

International 0.3 4.7 1.108 94 (15) 9

Health 2.0 5.0 0.923 100 56 10

Shareholder assets 0.0 2.0 5.275 151 23 15

Total 8.3 97.70 11.330 1 011 1 100

Funds received from clients12 mths to 12 mths to

31/12/2008 31/12/2007

Gross inflow Gross outflow Net inflow Net inflow

Rm Rm Rm Rm

Retail business 7 931 (5 011) 2 920 2 546

Corporate business 2 899 (4 142) (1 243) 1 235

International business 1 006 (624) 382 309

Long-term insurance business cash flows 11 836 (9 777) 2 059 4 090

Health business 14 494 (12 657) 1 837 1 364

Asset administration business 21 074 (17 753) 3 321 6 708

Asset management business 1 722 (763) 959 222

Corporate business 159 – 159 78

Total funds received from clients 49 285 (40 950) 8 335 12 462

Net funds received from clients R8bn

Retail new business present value of premiums (PVP)

23%Dividend yield

8.8%

Value of new insurance business

38%

METROPOLITAN | HIGHLIGHTS | 1

Health administration profits

56%

OUR VISION

creating prosperity for Africa’s

people

Zelphinia Mvula, group empowerment & corporate affairs

2 | WHAT WE STAND FOR | METROPOLITAN

WHAT WE STAND FOR

OUR MISSION

Serving Africa’s people through affordable fi nancial solutions that create fi nancial growth and security

METROPOLITAN | WHAT WE STAND FOR | 3

OUR CORE VALUES

People, trust and performance

OUR CODE OF ETHICS

It provides guidance regarding:

> commitment procedures for dealing

with stakeholders

> decision-making guidelines

> confi dentiality

> unethical payments

> confl icts of interest

> reporting fraud

OUR CORE ETHICS

Accountability, integrity and respect

THE GROUP

The Metropolitan group comprises six independent operating business clusters, each

with clearly defined areas of focus, performance and profit objectives.

* Part of Metropolitan Life Ltd 100%

Retail

Metropolitan Retail*

Union Life Ltd 50%

International

Metropolitan Life of Botswana Ltd 76%

Metropolitan Life Insurance Ghana Ltd 60%

Metropolitan Life International Ltd 100%

Metropolitan Life Insurance Kenya Ltd 66.7%

Metropolitan Lesotho Ltd 100%

Metropolitan Life (Namibia) Ltd 82%

Metropolitan Life Swaziland Ltd 100%

UBA Metropolitan Life Insurance Ltd 50%

Health

Metropolitan Health Corporate (Pty) Ltd 82.4%

Metropolitan Health Holdings (Pty) Ltd 100%

Qualsa Healthcare (Pty) Ltd 79.5%

Corporate

Metropolitan Employee Benefi ts*

Metropolitan Retirement

Administrators

(Pty) Ltd 80%

Asset management

Metropolitan Asset Managers Ltd 100%

Metropolitan Collective Investments Ltd 100%

Metropolitan Property Services (Pty) Ltd 100%

Strategic ventures

Cover2Go 100%

Metropolitan Capital (Pty) Ltd 100%

Metropolitan Card Operations (Pty) Ltd 100%

AT A GLANCE

The character of Metropolitan

4 | AT A GLANCE | METROPOLITAN

WE ARE A TRULY AFRICAN BUSINESS

We are a well-established, truly Africa-based business providing

aspirational individuals, and the people who represent them, with

customised financial services packages that protect and enhance

their assets.

Metropolitan has been providing need-specific financial

services in the lower to middle income market for over

a hundred years. The majority of existing policyholders

(in excess of 80%) are black.

METROPOLITAN | AT A GLANCE | 5


AT A GLANCE

This is Metropolitan

WHO WE ARE

Metropolitan is the largest listed fi nancial services

group on the JSE focusing primarily on the needs of

low and middle-income earners.

WHAT WE DO

We have been providing specialised and affordable

medium to long-term insurance, administration,

investment and health solutions for 111 years. In

terms of client numbers, we are one of the top three

life insurance groups in southern Africa.

Our group comprises six independent operating

business clusters, each with clearly defi ned areas of

focus, performance and profi t objectives. They are:

Retail

Corporate

Asset management

International

Health

Strategic ventures

Our products range from life insurance for

individuals, including retirement annuities and

credit life cover, medical scheme administration,

managed healthcare, asset management services

and collective investment schemes, to employee

benefi ts packages for large and small organisations.

WHERE TO FIND US

Our head offi ce, Parc du Cap, is situated in Bellville,

Cape Town, South Africa. We have branch offi ces

throughout South Africa and subsidiary companies

in Botswana, Ghana, Kenya, Lesotho, Namibia,

Nigeria and Swaziland. We provide employment to

approximately 9 000 people.

WHY WE DO WHAT WE DO

As we continue to grow the wealth and support the

health of Africa’s people, we do so in the knowledge

that we are continuing a legacy: as a well-established,

Africa-based business adding meaningful and lasting

value to people’s lives.

HOW WE GOT TO TODAY

African Homes Trust (forerunner to Metropolitan) is established as an informal association to help poor families to build homes

First branch opens in Paarl

Increasingly, women are appointed as “temporary clerks” to fi ll the positions of men signing up for WWI

The fi rst computer is purchased

1897 1914 – 18


Homes Trust, Metropolitan Life, SAFAS and Dove merge to form Metropolitan Homes Trust Life

The company is renamed Metropolitan Life Limited or Metlife

Metlife lists on the Johannesburg Stock Exchange

1979 1985 1986

AS A LEADING BEE COMPANY IN SOUTH AFRICA WE STRIVE TO:

> implement policies and practices aimed at

redressing past imbalances

> create a diverse workforce

> support the development and advancement of

black employees

> eradicate unfair discrimination in the workplace

> contribute to the advancement of black

businesses

> uplift and empower disadvantaged

communities

MAKING HISTORY

Empowerment before its timeWe have consistently maintained our ranking as

one of the most empowered fi nancial services

companies in South Africa. In acknowledgment of

this achievement, we were rated as one of the

Top 10 empowered companies in the independent

Financial Mail/Empowerdex Top Empowerment

Companies survey in March 2008.

WHAT YOU CAN FIND ONLINE

All the information contained in our annual

and sustainability reports is on our website at

www. metropolitan.co.za. You can also fi nd information

on our share price and performance and other

economic data.

OUR GEOGRAPHICAL FOOTPRINT

In-force ordinary business per province

AT A GLANCE

This is Metropolitan

Parc du Cap, Metropolitan’s current head offi ce, is completed. A BEE consortium – eventually called New Africa Investments Limited (NAIL) – acquires a 10% stake in Metropolitan. Dr Nthato Motlana becomes the fi rst black chairman of Metropolitan.

Metlife Health Services is launched

Metropolitan Employee Benefi ts established

Metropolitan branches out into Africa by establishing subsidiaries in Namibia and Botswana

Metropolitan celebrates its centenary (1897 – 1997)

Metropolitan Asset Managers becomes an independant company

1991 1997 1999

OUR BRAND

“Alone I can’t, together we can”

Our brand positioning remains true to our

unwavering core ideology of being people and

community focused. We acknowledge that the

only way to succeed in our current environment is

through collaboration. Partnerships are imperative

if we are to achieve long-term sustainable fi nancial

security for all our stakeholders.

The words “Alone I can’t” say it all: Metropolitan

knows that it cannot deliver on its vision alone.

We need all our stakeholders working together

towards a common goal because “together we

can” . Only by joining hands and striving to achieve

the same objective will we succeed in reaching it.


Limpopo

Northern Cape

Western Cape

Eastern Cape

Free State

North West

KwaZulu-Natal

MpumalangaGauteng

Kagiso Trust Investments (KTI) becomes Metropolitan’s strategic empowerment partner – currently controls 23.8% of issued shares

Metropolitan expands its footprint into Africa, acquiring a majority stake in an existing insurance company in Ghana and establishing a joint venture with a Nigerian fi nancial services group Wilhelm van Zyl is

appointed group chief executive

Metropolitan International accorded business cluster status

Metropolitan Property Services established

20082001 2004TODAY

INFORMATION OF INTEREST

> Diluted core headline earnings per share remained

strong at 151 cents, increasing by 6% over 2007.

> Metropolitan Health Group’s (MHG) total principal

members under administration, including franchise,

at the year-end exceeded 750 000 (almost 2 million

lives), confi rming MHG’s status as South Africa’s

largest administrator of restricted medical schemes.

STRATEGIC FOCUS AREAS

> Improved investment performance

> Increased geographic reach

> Expanding relevant product offering

> Enhancing client access and building brand

> Managing through current economic cycle

> Expenses, persistency, capital, risk management

KEY AREAS OF STRENGTH

> Sustainable premium income

> Strong increase in retail new business growth

> Assets under management

> Scale in admin businesses

> Robust capital position

> Attractive dividend yield

> Sizeable geographic footprint

> Well positioned for further growth

METROPOLITAN & THE JSE

Listed ordinary shares 542m

Unlisted ordinary shares 14m

Preference shares 123m

Total shares in issue 679m


Market cap at 31/12/08

R7.16bn – $758m

10 | FINANCIAL RESULTS OVERVIEW | METROPOLITAN

Analysis of diluted core headline earnings

2008Rm

2007Rm

Retail business 448 460

Operating profit 612 622

Tax (164) (162)

Corporate business 153 176


Tax (58) (72)

International business 94 110


Tax (13) (6)

Asset management business 65 70


Tax (27) (26)

Health business 100 64


Tax (42) (52)

Shareholder capital 151 123

Holding company expenses (55) (58)

Strategic ventures (78) (44)

Investment income on shareholder

excess

501 384

Income tax on investment income (217) (159)

Diluted core headline earnings 1 011 1 003

Embedded value

2008Rm

2007Rm

Diluted adjusted net asset value 6 571 7 648

Value of in-force business 4 759 4 789

Diluted embedded value 11 330 12 437

Diluted embedded value per share (cents) 1 709 1 832

Diluted net asset value per share (cents) 991 1 126

AT A GLANCE

Financial results overview

Net funds received from clients(R million)

2 000 4 000 6 000 8 000 10 000 12 000 14 000

04 2 147

05 5 800

06 2 759

07 12 462

08 8 335

Diluted core headline earnings per share and total dividend per share (cents)

04 06 07 0805

160

140

100

80

60

40

20

0

Diluted core headline earnings per share Total dividend per share

2 000

1 600

1 200

800

400

0

New business APE(R million)

04 06 07 0805

Value of new business

2005Rm

2006Rm

2007Rm

2008Rm

Compound growth(3 years)

%

Retail 10 0 114 119 211 28.3

Corporate 6 30 46 20 49.4

International 28 7 15 17 (15.3)

Asset management 22 25 35 39 21.0

Health 76 78 121 84 3.4

Total 232 254 336 371 16.9

METROPOLITAN | FINANCIAL RESULTS OVERVIEW | 11

OPERATING ENVIRONMENT

Overall

> Volatile investment markets continue

> Rising infl ation & interest rates

> Ongoing legislative reform

Retail

> Consumerism & pressure on disposable

income

> Improved value proposition required

> Impact of internal realignment of processes

and structures

Corporate

> Pension fund reform uncertainty

> Image of industry

> Niche opportunities remain

Health

> Industry impact of GEMS

> Increased pressure on non-healthcare costs

> Establishment of national health insurance

Asset management

> Increasingly competitive environment

> Growth in product offerings

> New CIO on board – team strengthened

International

> New markets offer exciting opportunities

> Local partnerships imperative for success

> Established markets very profi table, but

nearing saturation

APE % split of individual life new business production (per distribution channel)

20%Wholesale

39%Personal fi nancial advisers

27%Brokers

5%Third party

9%International

Contribution to diluted core headline earnings

R100mHealth

R65m Assetmanagement

R94mInternational

R153mCorporate

R448mRetail

R151mShareholdercapital

12 | FINANCIAL RESULTS OVERVIEW | METROPOLITAN

FIVE YEAR REVIEW

Compound

growth pa

% (i)

2008

Rm

2007

Rm

2006

Rm

2005

Rm

2004

Rm

Total assets under management 16.2 97 857 102 019 85 719 71 249 53 725

Total assets per balance sheet 11.8 69 613 75 183 66 271 53 248 44 587

Third party assets 32.6 28 244 26 836 19 448 18 001 9 138

Net funds received from clients 40.4 8 335 12 462 2 759 5 800 2 147

Actuarial value of policy liabilities 12.6 57 232 61 782 54 483 42 855 35 612

Excess – long-term insurance business (2.2) 4 913 5 715 5 836 6 144 5 367

Capital adequacy requirement (CAR) 10.6 2 336 1 609 1 592 1 426 1 563

CAR cover (times) (12.6) 2.0 3.4 3.6 4.3 3.4

Turnover (ii) 12.0 12 927 12 643 11 806 8 574 8 212

Infl ow

Net premiums received (iii) 11.2 11 836 11 648 11 030 7 886 7 754

Recurring premiums 9.5 7 472 6 913 6 301 5 770 5 190

Single premiums 14.2 4 364 4 735 4 729 2 116 2 564

Investment return (v) (3 892) 7 548 12 016 10 201 6 544

Investment income 29.9 4 250 3 501 2 489 2 010 1 495

Net realised and fair value (losses)/gains (8 142) 4 047 9 527 8 191 5 049

Infl ow – insurance business (iii) (13.7) 7 944 19 196 23 046 18 087 14 298

Infl ow – other businesses 3.2 799 1 297 1 105 1 016 705

Holding company (iv) (292) 302 329 328 247

Retirement administration 8.2 70 51

Asset management (v) 11.1 119 128 113 106 78

Asset administration (v) 18.7 79 102 103 63 40

Health administration (v) 24.7 823 714 560 519 340

Outgo

Net benefi ts and claims (iii) 14.5 9 777 7 558 7 152 7 117 5 685

Expenses

Management expenses 21.1 1 796 1 355 1 253 976 834

Distribution costs 18.5 240 123 127 128 122

Administration expenses 21.6 1 556 1 232 1 126 848 712

Sales remuneration 7.4 994 1 001 904 862 747

Outgo – insurance business (iii) 14.7 12 567 9 914 9 309 8 955 7 266

Outgo – other businesses 25.6 1 151 1 050 679 687 462

Holding company (iv) 45.1 244 249 57 126 55

Retirement administration 75 51

Asset management 12.9 93 106 89 68 57

Asset administration 28.2 59 40 45 29 22

Health administration 20.0 680 604 488 464 328

Earnings attributable to equity holders (319) 1 503 1 947 1 600 1 653

Core headline earnings 15.9 871 860 730 639 482

Diluted core headline earnings 19.5 1 011 1 003 847 708 495

Core headline earnings per share 21.2 167.18 160.15 130.36 109.04 77.49

Diluted core headline earnings per share 20.7 151.12 142.27 112.93 95.93 71.12

METROPOLITAN | FINANCIAL RESULTS OVERVIEW | 13

Compound

growth pa

% (i)

2008 2007 2006 2005 2004

Ordinary dividend per share (cents) 16.3 95.00 95.00 77.00 63.00 52.00

Ordinary dividend cover

(core headline earnings) 4.2 1.76 1.69 1.69 1.73 1.49

Diluted number of shares in issue (million) (vi) (2.7) 663 679 722 765 739

Share price at year-end (cents) (0.2) 1 080 1 509 1 500 1 185 1 090

Market capitalisation (Rm) (2.9) 7 160 10 246 10 830 9 065 8 055

Diluted embedded value (Rm) 5.8 11 330 12 437 12 287 11 468 9 056

Diluted embedded value per share (cents) 8.7 1 709 1 832 1 710 1 499 1 225

Return on embedded value (%) (vii) (2.1) 17.8 26.1 28.9 29.6

New business premiums (Rm)

Recurring premiums (0.6) 1 278 1 102 983 917 1 311

Retail business 6.0 961 804 753 732 762

Corporate business (17.3) 210 207 141 80 448

International business 1.5 107 91 89 105 101

Single premiums 14.3 4 314 4 794 4 690 2 088 2 527

Retail business 26.7 3 239 2 519 1 872 1 369 1 258

Corporate business (1.9) 979 2 154 2 661 545 1 059

International business (17.8) 96 121 157 174 210

9.9 5 592 5 896 5 673 3 005 3 838

Annual premium equivalent (viii) 2.2 1 709 1 581 1 452 1 126 1 564

Number of in-force policies:

individual life (million) 4.8 4.7 4.2 4.3 4.1 3.9

Number of employees 5.8 9 050 8 275 7 637 7 325 7 229

Indoor 10.1 5 256 4 866 4 321 3 899 3 578

Field 1.0 3 794 3 409 3 316 3 426 3 651

Consumer price index (ix) 6.1 126.70 115.20 108.00 103.40 100.00

CPI adjusted fi gures

Premium income (Rm) 4.8 9 342 10 111 10 213 7 627 7 754

Core headline earnings per share (cents) 14.2 131.95 139.02 120.70 105.45 77.49

Dividend per share (cents) 9.6 74.98 82.47 71.30 60.93 52.00

Share price at year-end (cents) (6.0) 852 1 310 1 389 1 146 1 090

R/US$ exchange at year-end 13.6 9.39 6.86 6.99 6.32 5.64

Average R/US$ exchange rate for year 6.5 8.28 7.01 6.50 6.36 6.44

Over four years, based on rand amounts(i)

Turnover consists of premium income (insurance and investment contracts) and the infl ow of other businesses, excluding the holding (ii)

company.

Consists of insurance and investment contract business(iii)

Includes holding company and consolidation adjustments(iv)

Includes fees received and investment return(v)

2008 is net of 16 million treasury shares; 2007 is net of 44 million treasury shares; 2006 is net of 27 million treasury shares(vi)

Growth in embedded value adjusted for changes in shareholder equity expressed as a % of the embedded value at the beginning of the year, (vii)

adjusted for capital movements during the year.

APE represents new recurring premiums plus 10% of single premiums(viii)

Consumer price index – metropolitan areas as disclosed by Statistics South Africa (average over reporting year). The 2004 base value was set (ix)

at 100.

SOUTH AFRICA4 million individual life policies

INTERNATIONAL615 226 individual life policies

insuring the lives of some

4 MILLION SOUTH AFRICANS

14 | METROPOLITAN

Providing aspirational

individuals, and the people

who represent them, with

customised financial services

packages that protect and

enhance their assets.

Th

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METROPOLITAN | 15

BOARD OF DIRECTORS

Preston SpeckmannPhillip Matlakala

Syd Muller

Prof Wiseman Nkuhlu

John Newbury

Andile Sangqu Marius Smith

16 | BOARD OF DIRECTORS | METROPOLITAN

Fatima Jakoet Peter Lamprecht

Bulelwa Paledi

Franklin Sonn Johan van Reenen

Wilhelm van Zyl

JJ Njeke

METROPOLITAN | BOARD OF DIRECTORS | 17

18 | BOARD OF DIRECTORS | METROPOLITAN

Prof Wiseman Nkuhlu 63BCom, CA(SA), MBA (New York)In addition to his formal academic qualifi cations, Prof Wiseman

Nkuhlu is the recipient of six honorary doctorates – three in

commerce from the universities of the Free State, Pretoria and

Stellenbosch respectively, one in economic sciences from the

University of Cape Town, one from the Nelson Mandela Metropolitan

University and one from the University of Witwatersrand.

Amongst the highlights of his academic career were his

professorship of accountancy at the University of the Transkei and

his fi ve-year tenure as principal of the university. He is currently

the chancellor of the University of Pretoria.

He was president of the SA Institute of Chartered Account ants for

two consecutive terms of offi ce (1998 – 2000) while at the same

time serving as the fi rst chairman of the Council on Higher

Education (1998 to 2002). Through his leadership of the council,

Prof Wiseman played an important role in the repositioning of

higher education in the post-apartheid era.

In 1990 the Association for the Advancement of Black Accountants

of Southern Africa (ABASA) presented him with a special merit

award for his active involvement in promoting the accounting

profession amongst black people while in 2004 the University of

Fort Hare established the Nkuhlu Centre of Accounting in his

honour.

Prof Wiseman is currently a director of Eastern Cape Development

Corporation (chairman), AngloGold Ashanti, Datatec and Bigen

Africa Consulting Engineers (chairman). He established Pan-

African Capital Holdings in July 2005 and was appointed chairman.

In 2006 he accepted the chairmanship of Kagiso Trust Investments.

He is also chairman of Metropolitan Life Ltd. *2007

Phillip Matlakala 54BJuris, BProc, Programme in Taxation and Financial Planning for Life Assurance ConsultantsPhillip Matlakala is currently serving as chief executive of the

group’s retail cluster. His other directorships include those of

executive director at Metropolitan Holdings, Metropolitan Life,

Metropolitan Card Operations and Union Life. *2007

Preston Speckmann 52BCompt (Hons), CA(SA)Group fi nance director Preston Speckmann held a senior

position with Old Mutual before joining Metropolitan Holdings

Limited. He was previously also an audit partner at Coopers &

Lybrand and held directorships in the Pepkor Group and

Seagram SA.

He serves on the boards of Metropolitan Life Ltd, Metropolitan

Health, Metropolitan Collective Investments and Metropolitan

Card Operations. He is also a member of the group’s executive

committee. *1999

Wilhelm van Zyl 43BCom, FIA, AMP (Harvard)Wilhelm van Zyl was appointed as managing director of

Metropolitan Odyssey in 1999. This followed on the acquisition

of Commercial Union Life and Protea Life. Thereafter he was

appointed as group actuary before becoming head of the

group’s corporate business in 2006. His appointment as group

chief executive was effective from April 2008.

Wilhelm chairs the group’s executive committee and is the

managing director of Metropolitan Life Limited. He also serves

on the boards of Metropolitan International, Metropolitan

Asset Managers, Metropolitan Card Operations, Metropolitan

Retirement Administrators and Metropolitan Health. He is a

director on the board of the newly established industry body,

Association for Savings and Investment South Africa (ASISA).

*2008

Fatima Jakoet 48 BSc, CA(SA)Fatima Jakoet currently conducts her own business consulting

practice. She was formerly general manager at both Denel and

Eskom.

Fatima has previously served on the Metropolitan board (May

1996 to November 2001). She currently serves as director of

the SA Reserve Bank Group, MTN Group (West Africa Region),

Impala Platinum, NewClicks Holdings, Tongaat Hulett,

Metropolitan Health, Qualsa Healthcare, Metropolitan

International and Metropolitan Life. *2005

Peter Lamprecht 66BSc, FIA, FASSAPeter Lamprecht was formerly chief executive of life insurance

companies and chairman of an actuarial consultancy. He chairs

the risk and actuarial committees and the board of trustees of

the Metropolitan retirement annuity funds. He also serves on

the board of Metropolitan Life Limited and on the audit

committee. *2002

Syd Muller 60BCom (Hons), CA(SA), MBA, AMP (Harvard)Syd Muller was formerly the chairman of Woolworths Holdings

and a director of other companies in the Wooltru group. He is

chairman of Metropolitan Card Operations, serves on the

board of Metropolitan International and on the audit and

investment subcommittees of Metropolitan Holdings. He is

also active on the boards of a number of private companies.

*1994

John Newbury 66John Newbury serves on the boards of various companies,

including Dorbyl Limited and SAIL Group Limited. He also

serves on the boards of Metropolitan Card Operations,

Metropolitan Health and Union Life. *1993

BOARD OF DIRECTORS

METROPOLITAN | BOARD OF DIRECTORS | 19

Johnson (“JJ”) Njeke 50BCom, BCompt (Hons), CA(SA), HDip TaxPrior to his appointment as group managing director of the

Kagiso group, JJ Njeke, a chartered accountant, spent

six years as audit partner at PricewaterhouseCoopers.

He is also the deputy chairman of Kagiso Media Limited and a

director of several companies within the Kagiso group. He

serves on the board of Metropolitan Health and is the past

chairman of the South African Institute of Chartered

Accountants and of its education committee. He also serves

on the boards of ArcelorMittal (SA), NM Rothschild (SA),

Resilient Property Income Fund, MTN and the Council of the

University of Johannesburg.

He previously served as a member of the Katz Commission of

Inquiry into Taxation in South Africa, the General Committee of

the JSE Limited, the Audit Commission – supervisory body of

the Offi ce of Auditor General, the audit committee of National

Treasury and the editorial board of The Journal of Accounting

Research. *2004

Bulelwa Paledi 38BA, LLB, LLM (Georgetown, USA)Bulelwa Paledi is the managing director of Ndamase

Incorporated, a 100% black female-owned and controlled

commercial law fi rm in KwaZulu-Natal. She is a former

chairperson of the Black Lawyers Association in KwaZulu-

Natal.

She also serves on the boards of Metropolitan International

and the International Convention Centre (ICC) in Durban.

*2005

Andile Sangqu 42BCompt (Hons), HDip Tax Law, MBLAn accountant and tax expert, Andile Sangqu is currently the

group executive at KTI. He completed his articles with

PricewaterhouseCoopers and spent 12 years working in

fi nancial management positions at a number of South African

corporations, eg Impala Platinum and Liberty Life. Prior to

joining Kagiso Trust Investments, Andile was the CEO of

Prodigy-Coris Asset Management. Andile serves on a number

of corporate boards and also chairs the public works and

department of local government audit committees. He also

serves on the boards of Metropolitan Life, Metropolitan

Retirement Administrators and Qualsa Healthcare. *2004

Marius Smith 68BCom, FFAManaging director of Metropolitan Life Ltd from January 1991

to April 1998, Marius Smith chairs the audit committee and

also serves on the boards of Metropolitan Namibia, Sasfi n

Holdings and Sasfi n Bank. *1988

Franklin Sonn 69BA (Hons), STD, FIACFranklin Sonn served as democratic South Africa’s fi rst

ambassador to the United States (1995 – 1998), is the recipient

of several honorary doctorates and has held many distinguished

positions. He was rector of the Peninsula Technikon from 1978

to 1994. He currently serves on the boards of many companies

including Absa Group, Sappi, Steinhoff International Holdings,

Pioneer Food Group, Macsteel Service Centres S.A., RGA

Reinsurance SA. and Esor. He is also chairman of the Airports

Company of SA, Ekapa Mining, JIA Piazza, Kwezi V3 Engineers,

Xinergistix, Imalivest, African Star Ventures and Cape Star

Investments. He is the chancellor of the University of the Free

State, a member of the Nelson Mandela Foundation advisory

board and former president of the Afrikaanse Handelsinstituut.

Franklin previously served on the Metropolitan board from

April 1983 to March 1995. He also serves on the board of

Metropolitan Life. *1999

Johan van Reenen 53BSc (Hons), MBACurrently executive director of Imalivest, Johan van Reenen has

a wealth of expertise and experience in investment banking and

asset management, both locally and internationally, gained while

he was executive director of Genbel Securities from 1996 to

2001, and managing director of Gensec Asset Management

from 1998 to 2000. He is chairman of Metropolitan Asset

Managers and Metropolitan International and serves on the

board of Metropolitan Capital. *2001

* Appointed to the board

1. WILHELM VAN ZYL

GROUP CHIEF EXECUTIVE

Responsible for setting the strategic direction of the group

in conjunction with the board of directors and overseeing

the implementation thereof.

2. PHILLIP MATLAKALA

CHIEF EXECUTIVE: RETAIL

Responsible for developing, distributing, administering

and servicing individual life investment and risk products,

targeting the lower and middle income markets in particular,

with a niche focus on the upper income market.

Makes use of alternate distribution channels such as

telemarketing for the distribution of packaged fi nancial

services products.

Willem Coetzee – resigned 30/09/08

Vasta Mhlongo – resigned 31/12/08

3. PRESTON SPECKMANN

GROUP FINANCE DIRECTOR

Responsible for providing fi nancial services to the group,

comprising fi nancial reporting, fi nancial administration,

ledger processing and reporting, actuarial support, systems

development and support, taxation consulting and support,

project management as well as investor and fi nancial media

relations, in support of the group’s fi nance strategy.

4. NKOSINATHI CHONCO

GROUP EXECUTIVE: GROUP EMPOWERMENT AND CORPORATE AFFAIRS

Responsible for two main areas: group brand and corporate

affairs, including brand strategy, internal and external

communications, sponsorships, corporate social investment

(CSI) and selected key account management.

2

6

EXECUTIVE COMMITTEE

7

1

3

20 | EXECUTIVE COMMITTEE | METROPOLITAN

5. BLUM KHAN

CHIEF EXECUTIVE: HEALTH BUSINESS

Provides medical aid administration services, health risk

management services, managed healthcare (Qualsa) and

administration system franchising to both corporate and

retail healthcare schemes.

6. WIEBKE LUSTED

GROUP EXECUTIVE: GROUP PEOPLE SERVICES

Responsible for providing the full spectrum of people

management services, including recruitment, skills

development, remuneration, incentivisation, leadership

development and succession planning, payroll

administration, employee wellness and transformation.

7. JOHN MELVILLE

CHIEF EXECUTIVE: CORPORATE

Provides employee benefi ts products and services to groups

of employees, including retirement fund administration,

group insurance, investments, annuities, and actuarial

consulting. The business unit incorporates Metropolitan

Employee Benefi ts and Metropolitan Retirement

Administrators.

8. DEREK PEAD

CHIEF EXECUTIVE: STRATEGIC VENTURES

Responsible for Cover2go and other strategic ventures.

9. JUSTIN VAN DEN HOVEN

CHIEF EXECUTIVE: INTERNATIONAL

Responsible for opening up new markets outside South

Africa, focusing on Africa, and existing businesses in

Namibia, Botswana, Lesotho, Swaziland, Kenya, Ghana

and Nigeria.

8

45

9

METROPOLITAN | EXECUTIVE COMMITTEE | 21

22 | CHAIRMAN’S LETTER TO SHAREHOLDERS | METROPOLITAN

Take comfort

At the outset, I would like to reassure you that Metropolitan

endured the punishment meted out by market forces during

2008 to emerge slightly bruised but defi nitely not bowed. In

fact, in several areas – including its net asset value and the

cover multiple of its capital adequacy requirement – the

pounding the group took as a result of the adverse market

conditions, along with the rest of the fi nancial services sector

in this country, was not as painful as it could have been. In

others, for example cash fl ow from clients and retail new

business, it triumphed over external circumstances (see pg 45

for more detail). In times of such extreme turbulence,

achievements such as these are a very real source of solace.

Metropolitan does not exist, and even more importantly does

not operate, in a vacuum. It is therefore important that you

share our understanding of both international and local

developments – and have the assurance that we are fully

aware of how they impact on us, and our responsibilities in this

regard.

International and national economies

Severe turbulence on global investment markets has, according

to minister of fi nance Trevor Manuel, plunged the world

economy into its deepest crisis since the great depression of

1929. What started out as a geographically confi ned credit

crunch, soon spread. Economic activity, both imports and

exports, began to slow world-wide in response to the avalanche

of bad fi nancial news triggered by the sub-prime mortgage

crisis in the USA. Commodity prices tumbled and production

levels plummeted; major retrenchments followed. What should

have been a contagion limited to the developed world, began

to engulf the developing world as well.

Dear Shareholder

As our business is focused primarily on low and middle

income earners, we are one of the few providers in the industry

operating predominantly in expanding markets.

CHAIRMAN’S LETTER TO SHAREHOLDERS

METROPOLITAN | CHAIRMAN’S LETTER TO SHAREHOLDERS | 23

Despite a well-regulated banking system, low levels of public

debt and virtually non-existent exposure to so-called toxic

assets, all of which make South Africa less vulnerable to

fi nancial shocks, prices of local stocks and shares nose-dived

and the value of the rand depreciated sharply. While prudent

macro-economic and fi scal policies have given the South

African economy greater resilience than most, they could not

cushion it in full against the far-reaching effects of international

trade and investment weakness.

Several of the major sectors, including mining and

manufacturing, wholesale and retail trade, contracted while

overall a marked slowdown began. Growth in gross domestic

product (GDP) dropped to its lowest level in ten years.

A much higher economic growth rate is now required, together

with a sustainable current account of the balance of payments,

which can only be achieved by exporting more and importing

less. In addition to a much stronger export orientation,

enhanced productivity levels and higher savings and investment

rates are imperative, for institutions and individuals alike. This

is where life insurance companies – Metropolitan among them

– with their emphasis on wealth creation and management –

will aim to play an increasingly vital role.

As an industry and as a company, we can help to bring about a

closer alignment between the growth aspirations and growth

capacity of South Africa through a major drive to mobilise

money for savings and investment purposes as opposed to

consumption. We can also make a signifi cant contribution to

this end through ongoing investment in human capital.

Metropolitan is and will remain committed to both these

objectives, not only in this country but throughout our African

operations.

Local political scenario

With global investment market volatility having pushed several

major industrialised economies into recession, and many more

teetering on the brink, South Africa has to be on its guard

against potentially destabilising factors. We cannot afford to

adopt an isolationist stance nor make populist promises that

we cannot keep. Resolute leadership and incisive policy

direction are required as we prepare for another general

election, the third since the start of our new democratic era in

1994, while staring certain harsh economic realities in the face,

including the fact that job creation will be under severe

pressure if the GDP growth rate continues to decline.

Stakeholder protection

Incontestable evidence of the solid fundamentals underpinning

Metropolitan’s business – as refl ected in the statement of

actuarial values of assets and liabilities on page 103 – is most

reassuring. However, fi nding out more about the group’s

unremitting efforts to afford stakeholders optimal protection in

these uncertain times, which are the focus of this report, will,

I am sure, give you additional peace of mind.

Professor Wiseman Nkuhlu

Group chairman

24 | CHAIRMAN’S LETTER TO SHAREHOLDERS | METROPOLITAN

National skills shortage

The results of the 2008 national skills audit, released earlier

this year, highlighted yet again the gravity of the situation

facing South Africa. According to the report, insuffi cient

managers and leaders across the employment spectrum

account for more than 30% of the skills shortage, although the

dearth is apparent at all levels of South African society.

Thanks to its focused recruitment, retention, recognition and

reward processes, Metropolitan is managing this critical issue

more successfully than most employers. The group is also

involved in extensive long-term planning on the organisation

and leadership development front to ensure the sustainability

of the results currently being achieved.

Training and development needs are accorded equal importance

at all levels of the organisation and in all skills categories, and

this all-important category of empowerment remains a top

priority for the group.

With a view to helping government attain its accelerated and

shared growth initiative goals for South Africa (ASGISA), which

include halving unemployment and signifi cantly reducing

poverty by 2014, we allocate a large percentage of our

corporate social investment budget to a broad range of

community-based educational initiatives targeting identifi ed

development needs (refer to our separate sustainability report

for additional information).

Legislative and regulatory environment

Despite the increasing number and complexity of the laws and

regulations with which the fi nancial services sector has

to comply, we will continue to work towards further

improvements to the legislative and regulatory frameworks

provided the twin aims remain consumer protection and value

enhancement. The effi cient and effective way in which

Metropolitan Retail is rising to the challenges posed by

the new commission regulations that came into effect in

January this year is covered in more detail in the review of that

cluster (pages 44 to 47). As I indicated in my last year’s letter

to you, representatives of our retail, corporate and health

business clusters are also actively involved in the national

social security reform process, with a view to ensuring the

model(s) ultimately adopted do indeed promote a well-

regulated, cost-effective and effi cient operating environment

in which optimum provision for retirement and healthcare can

be attained.

Sustainability issues, including corporate governance

requirements

As a group, Metropolitan is steadily progressing towards the

full integration of sustainable development principles into all

aspects of business decision-making, as evidenced by our

inclusion in the JSE’s social responsibility index for the third

year in succession. The principles of good corporate governance

– accountability and responsibility, fairness, openness and

transparency – are of course inextricably interwoven with the

former. These issues are addressed in depth in the corporate

governance report on pages 64 to 73. However, there is one

matter to which I would like to draw your attention. To address

the issue of my non-independence (as you are no doubt aware,

I am one of three directors nominated by Kagiso Trust

Investments (KTI) in terms of their empowerment partnership

agreement with Metropolitan) I am pleased to be able to

inform you that Peter Lamprecht has been appointed lead

director, in which capacity he leads the board in specifi ed

circumstances, including all instances where I am confl icted.

CHAIRMAN’S LETTER TO SHAREHOLDERS

continued

METROPOLITAN | CHAIRMAN’S LETTER TO SHAREHOLDERS | 25

In conclusion

Taking all these factors into account – and on the economic

front some of them are certainly forbidding – it is up to us, as

a group and as individuals, to continue doing everything in our

power to ensure that preparations for the even tougher times

that lie ahead are extensive, and intensive.

Metropolitan was undoubtedly buffeted by the elements

during Wilhelm’s fi rst year as group chief executive but his skill

as helmsman kept us fi rmly on course, and I would like to pay

tribute to him for a sure and steady hand on the tiller even

when the wind and waves were pounding relentlessly. I salute

you, Wilhelm, for the cool, calm and collected way in which

you responded to the challenges we faced.

My congratulations and deep appreciation also go to my fellow

directors, all the members of the Metropolitan management

team and staff across the group for remaining undeterred –

and undismayed – throughout 2008 despite everything with

which we had to contend. Your efforts were truly redoubtable.

Professor Wiseman Nkuhlu

Group chairman

As a group, Metropolitan is steadily progressing

towards the full integration of sustainable development

principles into all aspects of business decision-making, as evidenced by our inclusion in the JSE’s social responsibility

index for the third year in succession.

26 | GROUP CHIEF EXECUTIVE’S OVERVIEW | METROPOLITAN

Prosperity and prospects

GROUP CHIEF EXECUTIVE’S OVERVIEW

On fi rm footing despite quicksands

The economic situation in general, and investment markets in

particular, were extremely unstable during the twelve months

to 31 December 2008, with the latter scenario fl uctuating even

more wildly from September onwards. In addition to this

country’s own economic challenges (high infl ation and rising

interest rates) increasing globalisation has led to South Africa

and South African companies no longer being immune to what

is happening on the world stage. However, once you have had

a chance to study our 2008 annual fi nancial report, I am

confi dent you will share my optimism about the future in view

of our consistency in the face of the local and international

turmoil. Thanks to our resilience – from both a strategic and an

operational point of view – we weathered the turbulent times

to emerge in good shape at the end of the year.

Not only did we maintain the positive cashfl ows (recording a

net infl ow of R8 billion in 2008) for which we are renowned but

we also improved the quantity and quality of retail new

business written. The annual premium equivalent of retail new

business was 22% up on the 2007 fi gure while the value of

retail new business was 77% and its profi tability 45% higher.

Please refer to the group fi nance director’s overview on

pages 32 to 38 for further details.

Strategically robust

A steadfast strategic focus meant that Metropolitan had the

strength and stability to continue moving forward in 2008

despite the tricky conditions. The lower and middle income

markets have always been and remain pivotal to our business.

That we are the only major life assurer in the country focusing

primarily on these expanding markets continues to set us

apart, giving us an edge over our competitors, specifi cally as

far as the sustainability of our business model is concerned.

Our experience in these markets, built up over more than one

hundred and ten years, stood us in good stead as the external

That we are the only major life assurer in the

country focusing primarily on expanding markets continues

to set us apart, giving us an edge over our competitors.

METROPOLITAN | GROUP CHIEF EXECUTIVE’S OVERVIEW | 27

Wilhelm van Zyl

Group chief executive

situation deteriorated. Although we made some operational

adjustments to our business model, a redesign was fortunately

never necessary. Not only do we understand the logistics but

we also have unique insight into the behaviour of these

markets. Consequently we were able to carry on meeting the

needs of our customers from both a practical (accessibility and

affordability) and a philosophical (values driving their behaviour)

point of view.

By way of example, our sensitivity to the unusually high levels of

risk aversion amongst purchasers of our savings policies means

that we are constantly refi ning our smoothed bonus range of

products to meet their specifi c requirements. The roller coaster

ride that was 2008 once again demonstrated the benefi ts to

customers of using smoothed bonus products to protect

themselves against the vagaries of the investment markets.

Operationally solid

Looking at 2008 from an operational perspective, Metropolitan

delivered a similarly sound performance overall, with several

areas of excellence as set out in the pages that follow. In

pursuit of our mission to create prosperity for the people of

Africa by providing them with products and services that afford

fi nancial growth and security, our efforts to maintain and

wherever possible to improve the value proposition for our

customers were ongoing.

As I have mentioned, there were times during 2008 when it

was challenging to keep moving forward but we never

abandoned our quest for innovative ways of meeting the needs

of our customers, and ended the year with a more

comprehensive fi nancial solutions offering than we began it.

In line with our stated intention of marketing new products and

services to existing customers, and existing products and

services to new customers, we brought one new international

business on stream in a neighbouring country (Swaziland) and

one in the rest of Africa (Nigeria). The latter is the growth

market with the greatest potential on the African continent.

Efforts to strengthen existing and forge new business alliances

were ongoing across the group.

While on the subject of relationships, it is most pleasing to be

able to report that our proudly Metropolitan television

advertising campaign, entitled “Alone I can’t, together we can”,

also helped to build new, while at the same time bolstering

existing customer relationships. It achieved high ratings for

liking, noting (prompted and unprompted) and retention in the

relevant Millward Brown AdTrack report, thereby further

entrenching the Metropolitan brand, one of the group’s most

invaluable assets, in the hearts and minds of consumers.

Having made our products and services more readily accessible

to customers (whether our approach is in person or by phone),

thereby facilitating both sales and after-sales service, we have

been able to retain their loyalty and trust. Our proven ability to

deliver on the promises made to them also means that their

liking and respect for us is increasing.

Ongoing cost containment plus aggressive cost-cutting

initiatives, together with the relentless pursuit of enhanced

effi ciencies, in the retail cluster in particular, enabled us to

improve the affordability of our products and services, and also

supported the increase in the group’s profi tability. We are

asserting our dominance as a low cost, high volume retail

operator, an area where we currently excel as far as corporate

(group) and health business are concerned.


In a sound fi nancial position

During 2008, the JSE/FTSE all-share index lost about a quarter

of its value. The severity of this equity market event is best

understood by bearing in mind that a 30% drop in market value

is normally used in the stress tests applied to equity

investments when determining a South African life insurer’s

statutory capital adequacy requirement (CAR). As would be

expected, the turmoil in investment markets has had an impact

on the capital position of the Metropolitan group. However, as

clarifi ed in the group fi nancial director’s report on pages 32 to

38, we remain strongly capitalised, with our minimum statutory

group CAR comfortably covered by 3.1 times.

Statutory CAR refers to the minimum amount of capital that

the life companies in the group are bound, in terms of Financial

Services Board (FSB) statutes, to hold at all times so as to

ensure that we are in a position to meet our fi nancial liabilities.

(The non-life businesses in the group do not take on any

signifi cant market or underwriting risk and therefore do not

have any regulatory capital requirements.)

In addition to our statutory CAR requirement, we also model our

longer-term economic capital requirement, taking into account

10 000 future market scenarios over a period of fi ve years.

Economic capital is not a minimum solvency level, but rather a

targeted level of capital. With the release of our interim fi nancials

for the six months to 30 June 2008, we informed the market

that, due to our concerns about the state of the investment

markets, we were not going to release any excess capital above

our long-term economic requirements – in hindsight a wise

decision. While the actual capital resources of the group are now

closer to our internally assessed economic capital requirement

than at any time in recent history, we are nevertheless confi dent

that we are more than adequately capitalised.

Although the funding levels of certain (profi t) participation

portfolios were below the 92.5% reporting watermark at the

end of 2008, the returns to clients over the last year still

compared very favourably to alternative investments in equity

market linked type investments – and even more so over the

medium term. We therefore continue to have full confi dence in

the value proposition of our smoothed bonus product range for

risk-averse policyholders.

In response to the ongoing uncertainty in investment markets,

we are employing various strategies to protect the solvency of

the group as well as client investments. In addition to

monitoring the levels of our bonus stabilisation reserve very

closely and adjusting bonus declarations in accordance with

clearly defi ned profi t participation rules/bonus philosophies,

we are currently applying market value adjusters in cases of

early fund withdrawals, except where these are provided as a

benefi t (for example on death, disablement and maturity).

Where appropriate, hedging strategies have been put in place

to reduce client and shareholder exposure to specifi c risks,

thereby reducing but not eliminating the effects of futher

market downside. Furthermore, a new corporate bonus series

was launched with effect from 1 January 2009, giving “new”

investments immunity to “old” risks.

Governance of client and shareholder funds is strengthened by

having separate investment mandates for different product

ranges and shareholder portfolios (ie for each of the life

companies and separately for excess assets), incorporating

asset allocation and asset quality directives. These mandates

are subject to regular review by the investment subcommittee

of the board, the asset/liability management committee, other

investment professionals and the relevant specialists within

the group.

With both the asset and the liability side of the investment

equation subject to stringent controls, and matching strategies

being put in place as and when appropriate, we continue to

manage our capital position to optimum effect. Any capital

concerns of the statutory actuary in the light of our statutory

CAR and/or economic capital requirement are accorded due

importance in our dividend policy, the aim of which is to provide

our shareholders with stable dividend growth that refl ects the

underlying growth in our earnings in the medium term while

allowing the dividend cover to fl uctuate. Capital reductions

and/or the raising of capital as well as share buy-backs remain

tactics of choice in our capital management strategy although

we only made use of the latter in the fi rst half of 2008.

The group was not immune to the direct impacts of the subprime

credit crisis in the United States of America. As part of our asset

diversifi cation strategy, we invested in certain high-grade

offshore bond portfolios which suffered mark-to-market losses

during the second half of 2008. Please refer to the group fi nance

director’s overview – pages 32 to 38 – for more details.

Leadership numbers not capabilities reduced

That the transition from Peter Doyle, who was at the helm of

Metropolitan for ten years, to me as group chief executive in

April 2008 was effected smoothly bears testimony to the

calibre of the group’s top team. We invest in leadership and

talent development at all levels on an ongoing basis, and

continue to make every effort to attract and retain talent.

My successor as head of the corporate cluster, John Melville,

also assumed his new responsibilities in August without

disruption to the smooth running of the businesses now under


continued


his control. Furthermore, when Abel Sithole, former head of

the asset management cluster, resigned in June 2008, there

was no faltering when his direct reports took over the reigns

from him thanks to our active encouragement of a culture of

entrepreneurship amongst all our employees.

Derek Pead, head of alternative distribution strategies, was well

equipped to take over Willem Coetzee’s responsibilities as head

of strategic ventures when the latter left the group in September.

This was an eminently logical move as both these businesses,

forming what is known as the strategic initiatives cluster, were

established to develop non-traditional products for distribution

to our existing customer base in non-traditional ways.

Both Derek and Justin van den Hoven, head of the international

cluster, have announced that they will be retiring in 2009. To

facilitate a seamless handover, they will start scaling down

their responsibilities in the second (Justin) and third (Derek)

quarters of the year. I am confi dent that the depth and breadth

of talent in the group’s existing management pool is more than

adequate to keep both the strategic initiatives and the

international cluster on track during the intervening period.

We remain committed to the quality rather than the quantity of

leaders in our employ, being acutely aware that a business is

only as good as its people, including those making the decisions

and acting upon them while at the same time being held

accountable for all their actions.

As you will have seen from the aforegoing, we have been able

to retain our existing management structures, and our

recognition and reward mechanisms are also unchanged. We

have, however, instituted a soft freeze on new appointments

and are keeping a close watch on staff numbers. Relatively few

retrenchments have been necessary to date.

Committed to changing legislative and regulatory

environments

The South African life insurance industry has a new

representative body, the Association for Savings and

Investment South Africa (ASISA), established in October 2008.

ASISA, into which the former Life Offi ces’ Association has

been incorporated, represents the majority of the country’s life

insurance companies, asset managers, collective investment

scheme managers, linked investment service providers and

multi-managers. The members of ASISA have mandated the

association to engage pro-actively with policymakers,

legislators and regulators, as well as intermediaries and

consumers, on important matters of common concern, such

as changes to environmental controls.

Bearing in mind the overarching objective – an enhanced value

proposition – of both the new commission regulations that

came into effect on 1 January 2009 (applicable to all investment

policies issued after that date) and the reduction in the penalties

applicable on early termination of endowment policies made

paid-up or surrendered, and retirement annuity contracts made

paid-up or transferred, we are staunch advocates of these

recent regulatory advances.

Unqualifi ed support for national social security reform

Once again I would like to go on record as saying that

Metropolitan is fully behind any moves aimed at improving

provision for the health and retirement needs of all the people

of South Africa. For example, a better regulated and more

affordable retirement industry, with far higher standards of

corporate governance, is undoubtedly in the best interests of all

concerned, including those currently operating in that arena.

Although some commentators have expressed the opinion

that Metropolitan, given that it focuses primarily on the lower

and middle income markets, will be more adversely affected

by the advent of mandatory participation in the proposed

national savings fund than its competitors, we do not share

this thinking. Our business will undoubtedly be affected, along

with all other players in this area, but we know that the rules

are going to change and as a business we are ready and willing,

and confi dent we will be able to adapt to the new challenges.

Our large footprint in the markets that we serve will assist us

in formulating and implementing an appropriate strategic and

operational response.

As one of the leading retirement fund administrators in

the country, and having relatively recently (in December 2006)

established a subsidiary, Metropolitan Retirement Administrators

(MRA), that specialises in the administration of so-called

superfunds, our corporate cluster has the proven capacity and

We remain committed to the quality rather than the quantity of leaders in our employ, being acutely aware that a business is only as good as its people, including those making the decisions and acting upon them while at the same time being held accountable for all their actions.


capabilities to provide the logisitical support that the

government may require. At a group level, our track record in

public sector administration, and specifi cally our various high

volume, low cost administration platforms, also speaks for

itself. The Metropolitan Health Group (MHG) was awarded the

administration contract for the Government Employees

Medical Scheme (GEMS) for a second period of three years

with effect from January 2009 on the strength of its unbeatable

service delivery (from both a cost and an effi ciency perspective)

during its fi rst term as administrator.

Metropolitan Employee Benefi ts was the winner of a

Professional Management Review Africa (PMR) diamond

arrow award for the best administrator of pension funds with a

membership of more than 100 000, further independent

verifi cation of the group’s credentials in this regard.

We remain fi rmly of the opinion that certain of the proposed

social security reforms will open new avenues of individual and

group business for us and are continuing to develop products

to fi ll the gaps that we have identifi ed. A group-wide task team

has been established to evaluate opportunities as well as risks

on an ongoing basis. Whilst it appears that the deadline dates

for the implementation of holistic retirement fund reform and

national health insurance legislation and structures are still

some time away, ensuring that we are ready to make the

necessary adjustments to our business model remains high on

our priority list. We are keen to assist in bringing about solutions

that will best serve the interests of the full spectrum of the

South African population.

Exploring non-traditional avenues

The ability to offer non-traditional products to our existing

customer base via cost-effective non-traditional channels

remains an integral part of our overall business strategy. We

are constantly striving to increase our so-called alternative

development and distribution capacity via our strategic

initiatives business cluster.

During 2008 Metropolitan Card Operations (MC0), a wholly-

owned subsidiary, continued to offer basic banking products to

customers as a complementary way of meeting their savings

needs. The products included a personal loan facility, a credit

life product, a purpose-driven savings account and a

transactional bank account. Ultimately, adverse macro-

economic conditions have meant that people are no longer

keen to take on new debt and, in many instances, are unable

to service existing debt. Consequently MCO’s personal loan

facility is no longer being actively marketed except via our own

client service centres to Metropolitan clients.

Union Money, a joint venture company between Metropolitan

and the National Union of Metalworkers (NUMSA), registered

its fi rst product in January 2008. Known as Stokvel Plus, it is a

community-based fi nancial product designed to help members

save and secure loans that has been rolled out at several

companies where NUMSA members are employed.

Throughout the year under review Metropolitan Cover2Go

continued to pursue opportunities to co-create, in conjunction

with a partner or partners, fi nancial services products that are

convenient, relevant and opportune, as well as being affordable,

accessible and highly innovative. By way of example, in

September an off-the-shelf funeral insurance product was

launched in partnership with Shoprite. Consumers get all their

cash back if no claim is instituted on the life of the owner

during the fi ve year term of the policy. In excess of 13 500

CashBack starter packs had been sold by the end of the year,

more than 18.5% of which had been activated. The rate of

activation is increasing steadily over time.

Still transforming

Our efforts to create equitable workplaces for all our employees

are ongoing, with employment equity and skills development

remaining high on the agenda right across the African continent.

Preferential procurement (support for black suppliers) and

enterprise development (provision of training opportunities

predominantly for black businesses, especially SMMEs) are

also key areas of focus, along with a wide range of corporate

social investment initiatives, many of which are centred around

education and primary healthcare, including HIV/AIDS related

interventions. Financial empowerment – through improved

access to fi nancial products and services together with

fi nancial education – makes it possible for us to develop the

potential of the people with whom we do business and the

communities within which we operate, thereby contributing to

the creation of an inclusive economy.


continued

The ability to offer non-traditional products to

our existing customer base via cost-effective non-traditional

channels remains an integral part of our overall business strategy.


Going the extra mile

Before concluding my overview, I would like to pay tribute to all

the members of the Metropolitan team – from the directors

down through the ranks of management to each and every

member of staff, all 9 050 of them – who made the achievements

of the past year possible. Looking back, our progress through

the quicksands of 2008 is highly laudable. I thank you for the

resolute way in which you applied yourselves to the task at

hand even when the going was tough. May you display equal

tenacity of purpose and the same irrepressible energy and

enthusiasm in the year that lies ahead.

Short-term viability plus long-term sustainability

The preceding paragraphs all point to the fact that we at

Metropolitan, having clearly demonstrated our ability to

transcend hostile conditions in the short term, are ideally

positioned to continue delivering on our vision of creating

prosperity for the people of Africa. Thanks to sound

fundamentals, and the careful consolidation that was our main

aim during the volatile times with which we had to contend in

2008, neither our strategic nor our operational focus requires

signifi cant re-alignment.

Together we can.

Wilhelm van Zyl


g

Wilhelm van Zyl

32 | GROUP FINANCE DIRECTOR’S REVIEW | METROPOLITAN

Experience and growth

GROUP FINANCE DIRECTOR’S REVIEW

Overview

In this section of the annual report I cover the fi nancial

performance of the group’s life insurance and administration

businesses. I will also highlight certain important factors that

impacted on the operations of the different businesses.

However, for detailed operational reports, please see the

review of operations starting on page 44. The fi ve year review

on page 12 provides a quick numeric overview of how the

group has performed over the past four years.

Operating environment

The past year was characterised by a consumer-led slowdown

in the domestic economy, soaring infl ation, currency volatility

and the spill-over effects from the global fi nancial turmoil.

Consumer infl ation (as measured by CPIX) remained well

outside the 3% to 6% target range used for monetary policy

and peaked at a record high of 13.6% in August 2008, which is

more than double the upper limit of the Reserve Bank’s infl ation

target. The average CPIX for 2008 came in at 11.3%,

substantially higher than the 6.5% recorded in 2007. The

main drivers of infl ation were food and transport costs,

increases which had a particularly negative impact on

consumers in the markets where Metropolitan operates. Food

infl ation peaked at 19.2% in August, while the price of petrol

soared to R10.70 per litre in July, mainly due to the spike in the

price of crude oil from around US$95 per barrel at the start of

2008 to US$147 per barrel in July. Accordingly, the South

African Reserve Bank (SARB) increased the interest rate twice

by 50 basis points during 2008. This brought the cumulative

increase in interest rates since the start of the hiking cycle in

June 2006 to fi ve percentage points.

Infl ation fears were fuelled by the volatility of the SA currency,

with the R/US$ exchange rate experiencing a bout of weakness

in February 2008 and then depreciating substantially to R11.58

at the end of October. The weaker rand impacted the infl ation

outlook mainly through higher transport costs, as oil had to be

imported at a higher rand price. Even though the rand remained

under pressure, the infl ation outlook improved materially

towards the end of the year. In the four months from August to

December 2008, CPIX declined by 3.3 percentage points and

we expect a further decline in the infl ation rate. The improved

outlook comes mainly as the result of a sharp drop in the price

of crude oil and slowing food prices. As a result, the SARB

opted to cut interest rates by 50 basis points at the Monetary

Policy Committee meeting in December 2008, dropping the

prime interest rate to 15% at the end of the year.

Economic indicators such as retail sales provided a clear picture

of the strain that South African consumers had to

endure throughout 2008. Despite these tough conditions,

Metropolitan Retail experienced no negative trends in the

persistency of new business written. Since May 2008 the

country’s year-on-year growth rate of retail sales has been in

negative territory, with the biggest decline in the sales of

durable goods. The GDP growth rate also weakened

substantially during 2008, with the economic growth rate for

the fi rst quarter of the year having been severely hampered by

disruptions in the electricity supply.

High levels of debt, high infl ation and high interest rates

severely depressed consumers’ disposable income over the

past year. Even though the recent decline in interest rates

should relieve some of the pressure on consumer spending,

we believe that the cuts in the price of petrol and lower food

prices will be of even greater benefi t to Metropolitan’s clients

in the retail business. The main reason being that the middle

and low income groups are less exposed to interest rates,

while bigger proportions of their income are spent on food and

transport. We have also seen a sharp decline in asset values,

for example equity and house prices, during the past year. This

might be another area in which Metropolitan’s clients have less

exposure.

However, the overall outlook for economic growth remains

bleak for at least the fi rst half of 2009. Against this background

and uncertainly as to how it will impact on investment markets

and our client base, management remains vigilant.

METROPOLITAN | GROUP FINANCE DIRECTOR’S REVIEW | 33

Preston Speckmann

Group fi nance director

Financial prudence

In my 2007 report I alerted you to the global equity market

volatility, and its potential impact on the group’s performance

in 2008. The reality is that markets across the world

subsequently saw a signifi cant decline in values that eroded

the earnings of corporations world-wide, and in some instances

even led to the demise of renowned international brands.

Metropolitan was no exception and earnings were heavily

dampened by the sharp fall in the value of equities.

Despite the negative effect of the economy and equity markets

on group earnings and operations, it was in several instances a

solid year for many of the businesses in the group.

As management, we maintain our practice of conservatively

managing our capital resources.

The euphoria created by the historic bull market has at times

resulted in unrealistic expectations from stakeholders in terms

of the return of capital. As a result, the group has in the past

been criticised for holding too much excess capital; however,

with the benefi t of hindsight, management and the board

made a very good strategic decision when they agreed earlier

in the year that the group would extract more benefi ts from a

strong balance sheet than a return of capital.

The meltdown in local and international equity markets over

the last four months of 2008 confi rms that a company like

Metropolitan, which does not have a parent company to offer

fi nancial support when needed, is wise to adopt a prudent

strategy regarding capital. What could have been perceived as

“very conservative” capital management, paid dividends when

the group’s strong capital position cushioned it against severe

market volatility.

The group’s long-standing commitment to rigorous under-

writing and strong risk management formed the foundation to

successfully managing the fi nancial challenges with which it

was faced during the recent market instability.

Protecting our capital

Paramount in the midst of all the uncertainties was the

challenge of maintaining a sound balance sheet, which was

achieved through both dynamic asset allocation and hedging

strategies in respect of shareholder and policyholder assets,

resulting in:

> The group being able to cover its capital adequacy

requirement (CAR) 3.1 times. This in itself is a notable

achievement against the background of a 26% drop in the

JSE all-share index.

> The net asset value (NAV) proving its resilience by reducing

signifi cantly less than the 26% drop in South African

equities overall.

> The internally assessed required capital of the life

businesses (of R4.3bn) being covered comfortably by actual

capital held in these entities.

> There being no need to raise additional capital to support

the business.

The very nature of Metropolitan’s smoothed bonus portfolio

meant that the extreme volatility of the equity markets would

have a negative impact on our bonus stabilisation reserves,

resulting in negative funding levels in some instances.

This scenario is not new to the group and when faced with a

similar situation in 2001, the necessary experience and

expertise in managing smoothed bonus portfolios enabled us

to return funding to positive levels within a relatively short

space of time through a suite of management actions.

Put in perspective, our balanced fund mandates still gave

clients relatively better protection versus an investment in the

all-share index. Management is confi dent that the smoothed


bonus suite of products remains a value proposition for clients

investing in Metropolitan.

Highlights of the results

Retail new business APE +22%

Retail value of new business +77%

Positive cashfl ow R8 billion

Insurance CAR multiple 2.0 times

Sources of income

The group’s principal cash infl ows come from its insurance

activities, fee-generating businesses and shareholder

investment activities. The graph below gives a breakdown of

the contribution to core earnings from the different businesses.

The retail business remains the biggest contributor, and

despite the economic slowdown, the health business

experienced strong growth in membership and lifted its

contribution to operating profi t by an impressive 56%.

Contribution to operating profi t (R million)

Group profi t drivers

Conservation

Managing the sales process to ensure the closest possible

correlation between product profi le and customer needs is a

major contributory factor in keeping business on the books.

Despite the greater demands on our customers’ disposable

income, persistency across all lines of business continued to

hold up very well. This is primarily thanks to focused attention

from retail on business conservation.

We are, however, monitoring the trends in persistency very

closely as the situation may worsen over time should the

economic environment not show signs of improvement.

Expense management

Despite many negative external infl uences, including the spike

in CPIX infl ation during 2008, management is satisfi ed with the

increase in unit costs. Comforting in this regard was the

positive impact of strong new business as well as further

growth of the in-force book.

In addition to its ongoing cost control mechanisms, the group

has announced a moratorium on the appointment of new

employees in the support divisions.

Investment performance

We are intensely aware of the vital part that solid investment

performance plays in the group’s ability to enhance its value

proposition for existing clients and to attract new ones.

MetAM has embarked on an extensive programme spanning

many months to improve its investment performance and

although there are encouraging signs of a turnaround, such as

its local bond holdings, there remains much room for

improvement. Performance targets are of critical importance

and are being closely monitored.

It must be borne in mind that the group employs various asset-

liability matching strategies. For example, liability professionals

within the business units assist with the process of matching

and risk mitigation in respect of both policyholder and

shareholder assets.

Although premium income growth across the life businesses

was substantially higher than in 2007, it was not suffi cient to

offset the impact of signifi cantly lower investment income

growth, which was in turn refl ected in earnings.

Critical numbers

Core headline earnings per share (CHEPS)

Management maintains that core headline earnings per share

(CHEPS) remains the most appropriate measure of growth in

the group’s sustainable earnings base. Because it excludes any

capital appreciation on shareholder invested assets, it is not a

suitable measure to produce a valuation; however, it does refl ect

more appropriately the rate of growth of the core businesses.

CHEPS excludes items of both a once-off and an inherently

volatile nature, such as changes to the valuation basis, investment

variances and capital appreciation/depreciation. Diluted core

headline earnings have been adjusted for expenses relating to

all convertible redeemable preference shares, staff share

schemes shares and treasury shares in issue.

Growth in diluted core headline earnings

2005 2006 2007 2008

Compoundgrowth

(3 years)

Rm Rm Rm Rm %

Retail 369 436 460 448 6.7

Corporate 115 145 176 153 10.0

International 86 61 110 94 3.0


Health 20 51 64 100 71.0

Shareholders 66 85 123 151 31.8

Diluted core headline earnings 708 847 1 003 1 011 12.6

Diluted core headline earnings per share (cents) 95.93 112.93 142.27 151.12 16.4

Total dividend per share 63.00 77.00 95.00 95.00 14.7


continued

100 Health65 Asset management

94 International

153 Corporate

448 Retail


Metropolitan’s diluted core headline earnings for the year to

December 2008 increased by 0.8% to R1 011 million and the

equivalent per share number increased 6.2% to 151 cents per

share. Taking into account the tough economic environment

over the past year, we are particularly pleased to have achieved

a compound growth in excess of 16% over the past three years,

confi rmation of the underlying growth potential of the group.

In particular, the low growth during 2008 resulted from the

following:

> Retail core earnings, which were negatively affected by

once-off tax items and increased new business strain on

certain lines of business.

> Corporate’s core earnings, impacted by a reduction in risk

profi t margins – now at more normalised levels.

> Core earnings for the international life businesses, where

new business costs in the northern territories had a

dampening effect.

> Group core earnings, where lower than expected asset-

related fees that resulted from the lower policy asset base

detracted from performance.

Dividends

2005 2006 2007 2008

Dividend paid (cps) 63.00 77.00 95.00 95.0095.00

Special dividend/capital reduction 100.00 77.00

Growth in dividends per share (%) 21 22 23

Dividend cover (times – CHEPS) 1.5 1.5 1.5 1.61.6

Dividend yield (%) 5.3 5.1 6.3 8.88.8

The above table confi rms the cash-generative nature of the group.

It also refl ects Metropolitan’s commitment to providing share-

holders with stable dividend growth that refl ects underlying

earnings growth in the medium term, while allowing the dividend

cover to fl uctuate.

A total dividend of 95 cents per ordinary share (interim dividend of

40 cents plus a fi nal dividend of 55 cents) has been declared for

2008, resulting in dividend cover of 1.6 times, based on diluted core

headline earnings per share.

Preference dividends – performance margin

Provided Kagiso Trust Investments (KTI) achieves certain quali-

tative milestones, agreed upon in advance between Metropolitan

and themselves, they are entitled to an additional performance

margin of 0.5% every six months in terms of the dividend rights

attached to the A1 Metropolitan preference shares. The margin

is payable semi-annually, in conjunction with the half-yearly

dividend, until the preference shares have been redeemed.

A committee of the Metropolitan board, comprising indepen-

dent, non-confl icted, non-executive directors approves the

milestones and at the end of each review period determines

whether they have been achieved or not.

The committee reviewed the achievement of the agreed

milestones for the six months ended 31 December 2008, and

after due consideration, concluded that KTI did not achieve the

requisite weighted average of 70%. The performance margin

was therefore not awarded.

Refi nancing of KTI shareholding in Metropolitan

The current fi nancing arrangement of KTI’s (BEE) shareholding

in Metropolitan expires on 30 September 2009. On this date,

the preference shares must either convert to ordinary shares

or be cancelled.

KTI and Metropolitan are committed to working closely

together to secure a suitable refi nancing package should the

debt attaching to these shares not be settled by the date

mentioned above.

Value of new business (VONB)

2005 2006 2007 2008

Compound

growth

(3 years)

Rm Rm Rm Rm %

Retail 100 114 119 211 28.3

Corporate 6 30 46 20 49.4

International 28 7 15 17 (15.3)


Health 76 78 121 84 3.4

Total 232 254 336 371 16.9

The value of new business is a measure of the value added to a

company by its activities. The value of new business is calculated

as the present value of the projected stream of future after-tax

profi ts of the new business sold during the twelve months,

allowing for all associated expenses and commission.

Despite increased competition in Metropolitan’s core retail

market, together with increased fuel and food prices that

impact directly on our clients’ ability to save, the retail business

has delivered sustainable value of new business over the past

fi ve years.

Features of the past year were strong growth in single premium

income and a signifi cant improvement in production from the

traditional distribution channels such as direct writers, group

schemes and the general intermediary channel.

The excellent value of new business achieved for retail (new

business margin at 16.4% of APE) was at the high end allowed

for by our pricing model. This margin was attained due to (a) a

good increase in volumes and (b) an improvement in the mix of

business plus (c) the technical impact of applying reduced

discount rates.


The corporate business experienced unusually high outfl ows

of funds, which were driven mainly by high levels of benefi t

payments. The business environment remains extremely

competitive and the ability to secure new business was

hampered by the downturn in the equity market.

This business is particularly well positioned to capitalise on

business opportunities when the markets recover. The newly

launched administration product, Neon, has been favourably

received and is starting to translate into new business infl ows.

The contribution from the international business to the group’s

total VONB was in line with expectations, bearing in mind the

penetration of life insurance products in the traditional countries

where we operate as well as the impact of new business strain

in the most recently acquired businesses.

Signifi cant growth in our public sector clients during 2008

resulted in a 19% increase in lives under administration by the

Metropolitan Health Group (MHG), including the Government

Employees Medical Scheme (GEMS) and franchise members.

New business margin

This represents the value of new business as a % of annual

premium equivalent (APE) or of the present value of premiums

(PVP).

31/12/05 31/12/06 31/12/07 31/12/08

% of APE

% of PVP

% of APE

% of PVP

% of APE

% of PVP

% of APE

% of PVP

Retail 11.5 2.3 12.1 2.1 11.3 2.0 16.4 2.8

Corporate 4.3 0.5 7.4 0.8 10.9 1.3 6.5 0.8

International 22.5 4.3 6.7 1.3 14.6 3.6 14.7 3.4

While profi t margins remain one of the most common measures

used by the investment community to value new business,

Metropolitan attaches greater importance to the volume,

persistency and costs incurred in putting business on the books

(ie the value).

The retail business comfortably exceeded its targeted new

business margin on an APE basis between 12% and 15%, by

posting a fi nal margin for the year of 16.4%.

As mentioned above, management is satisfi ed with this healthy

margin. However, we are fully aware of the challenges that

face the retail business, including (a) reservations regarding

persistency given recent views on the global and domestic

economy for the near future and (b) ongoing uncertainties

relating to the impact of regulatory changes such as the recent

commission restructure and the pending social security

reforms.

In respect of corporate new business, margins are infl uenced

by the mix of business written, and by the lumpy nature of

large single premium contracts. At times the latter have been

so large that, despite being priced at low margins in percentage

terms, they still made a sizable contribution to embedded

value and profi tability in rand terms. In the light of this, and the

tight processes around the risk management and pricing of

corporate business products, the group tends to place more

importance on the rand value of corporate business than the

margin percentages.

The standard classes of corporate business tend to carry higher

margins in percentage terms, although these are, of course,

constrained by the competitiveness of the corporate market.

On the international front, the longer term margin goal on an

APE basis is also in the vicinity of 12% to 15%. Currently it

stands at 14.7%, but we expect the margin to vary more from

year to year due to the fact that the relatively smaller life policy

books would be impacted to a larger extent by volatility in

underlying sales volumes and risk experience.

Acquisitions

DirectFin Solutions (DFS), a direct marketing company that

distributes Metropolitan products, was acquired during 2008. This

business, which is largely campaign driven, achieved mixed

results. Although there have been some encouraging signs in

terms of improved volume and persistency, it has been unable to

match the levels of new business recorded during 2005 and 2006.

Efforts to address persistency and profi tability are ongoing.

Group embedded value

Metropolitan’s group embedded value amounted to R11.3 billion

or 1 709 cents per share (2007: R12.4bn and 1 832 cents per

share).

The group achieved a negative return on embedded value of

only -2.1% for the year under review. Compared to the signifi cant

drop in the general equity investment markets, this result is

noteworthy and illustrates the impact of (a) the resilience of the

diversifi ed business to the economic downturn and (b) the

positive impact of shareholder capital protection strategies.

Group excess – top 10 equity holdings

31/12/2007 31/12/2008

Rm % Rm %

MTN Group Ltd 293 8.2 192 7.6

FirstRand Ltd 130 3.7 132 5.3

Billiton Plc 182 5.0 125 5.0

Impala Platinum Holdings Ltd 157 4.4 122 4.9

Standard Bank Group Ltd 211 5.9 115 4.6

Sasol Ltd 167 4.7 100 4.0

Anglo American Plc 133 3.7 90 3.6

Imperial Holdings Ltd 111 3.1 78 3.1

Compagnie Financiere Richemont – – 70 2.8

RMB Holdings – – 60 2.4

Remgro Plc 70 2.0 – –

Nedbank Group Ltd 90 2.5 – –

1 544 43.2 1 084 43.3

Total equities backing excess 3 575 100.0 2 504 100.0


continued


Value and size of the in-force book

Management is encouraged by the fact that the life businesses

are continuing to experience a net growth of the in-force policy

book. This growth, together with continuing net positive cash-

fl ows in a very diffi cult operating environment, will assist in

maintaining competitive unit pricing and sustainable profi ts.

The profi t margins from the underwriting of mortality and

disability risks in both the retail and employee benefi ts

businesses were also highly satisfactory. Given the fact that

the life business is essentially a low cost, high volume producer,

management is pleased with an average return on capital of

20% (allowing for the re-investment of dividends), achieved

over the last fi ve years.

Effective cost management, however, remains one of the most

important elements in enhancing the value of the in-force

book. Given the increasing demands relating to quality

customer service and regulatory compliance, management is

continually seeking more cost-effective methods relating to

the distribution, administration and information management

of our business.

The table below sets out the components of the embedded value:

31/12/07

Rm

31/12/08

Rm

Adjusted net asset value 7 648 6 571

Value of in-force 4 789 4 759



Return on embedded value – money weighted (%) 17.8 (2.1)

Capital management

For capital management purposes the current level of capital in

the group is defi ned as the difference between total assets

and total liabilities of the group, plus any qualifying debt

approved by the regulators. For the life companies, the assets

and liabilities are calculated on the regulatory basis.

The key objectives of the group’s capital management

programme are:

> To ensure that the level of capital will be suffi cient and to

manage the actual capital in line with the economic capital

model.

> To ensure that the level of capital refl ects the group’s risk

appetite; the fact that the group has no parent or strategic

partner also has a bearing in this regard.

> To ensure appropriate allocation and monitoring of capital by

line of business for both the life and non-life companies in

the group.

> To ensure ongoing refi nement of the group’s asset allocation

and hedging strategies as well as the economic capital

models.

The economic capital requirements for the life companies are

based on the results from a set of internal capital models that

make allowance for planned business growth and special

projects. The capital models are regularly updated to refl ect

changes in the economic environment and to identify risks

more accurately. Risks currently being modelled include market

risk, credit risk, insurance risk (including some allowance for

pandemic disease risk) and operational risk.

At 31 December 2008 the internally assessed required capital

of the life businesses (of R4.3bn) was covered comfortably by

actual capital held in these entities.

Statutory capital requirement

The life companies are required to maintain a minimum capital

balance equivalent to the statutory capital adequacy requirement

(CAR). This is available to meet obligations in the event of

substantial deviations from the main experience assumptions

affecting the company’s investment and insurance business.

At 31 December 2008 the group’s statutory CAR for life

companies was covered 2.0 times (2007: 3.4 times). The

ordinary CAR exceeded the termination CAR; therefore the

CAR multiple was based on the ordinary CAR. A detailed report

on capital management can be found on page 170 of the notes

to the fi nancial statements.

Share buy-backs

As a result of the fi nancial market turmoil and the impact

thereof on capital, the group’s buy-back programme was

restricted to the fi rst six months of 2008, during which

Metropolitan Life bought back 16 million listed ordinary shares

in the open market at a cost of R201 million. These shares

were acquired at a discount to embedded value at the time of

purchase and will enhance the earnings and embedded value

per share over the medium and longer term.

External rating

Metropolitan’s most recent external ratings were as follows:

Metropolitan Life Limited – national insurer fi nancial strength

(IFS) AA (zaf) and national long-term AA- (zaf); Metropolitan

Holdings – national long-term rating A+ (zaf).

These ratings refl ect Metropolitan’s strong capital position

and established business presence in its chosen markets.

They also refl ect its continued focus on international

expansion within Africa and strong black economic empower-

ment (BEE) credentials in support of its business position and

prospects.

International Financial Reporting Standards

In terms of International Financial Reporting Standards, there

were no signifi cant changes in 2008.

However, we are aware of specifi c standards that will become

effective in 2009. Please see page 108 of the accounting

policies for detail.


Short-term incentive scheme for staff performance

Executives and managers of the group participate in a

performance bonus scheme based on the attainment of pre-

agreed annual performance objectives for the group as a

whole, as well as performance objectives for the various

businesses within the group and for individuals. These

objectives, which include specifi c targets and measures, take

the form of balanced scorecards that are subject to board

approval and are ultimately incorporated into the group’s

business plans for the year in question. It is important to note

that bonuses are not guaranteed.

Thanks to the performance bonus scheme, exceptional

performance can be recognised and rewarded in line with the

group’s stated remuneration philosophy, which is to attract and

retain talent.

Long-term incentive scheme for staff retention

Like many other corporations, Metropolitan has moved away

from traditional staff share schemes and all existing schemes

have been closed for new allocations.

The current long-term incentive scheme is intended to promote

the alignment of the group’s interests with those of share-

holders and provide a retention incentive as part of the

remuneration structure. The scheme provides for an annual

deferred cash payment to members of management that is

linked to the performance of the group, with specifi c growth

targets for each award. Management have to exceed the

threshold target over a three year period in order to qualify.

The fi rst participation award in this scheme was made in

November 2006 and qualifying employees will receive cash

payments in November 2009. Currently 880 employees have

taken up the offer to participate in the scheme.

To promote good corporate governance and at the same time

enhance the alignment of the scheme with shareholder

interests, it is reviewed regularly.

Metropolitan’s strategic partner, Kagiso Trust Investments (KTI),

has also established an empowerment trust in which

management were afforded the opportunity to acquire shares.

Business imperatives

The following critical issues have been identifi ed and are

receiving the necessary attention at all levels:

> Improvement of the group’s investment performance

> Further enhancement of the group’s business intelligence

capability

> Recruitment, focused development, retention and a reward

process to meet future customer and market needs

> Lightening infrastructure costs in order to continue being a

low-cost provider of fi nancial services

> Successfully exporting and establishing the Metropolitan

brand in the rest of Africa

> Identifying and successfully concluding business oppor-

tunities that can benefi t from the group’s strong

administration capabilities

> Continuing to leverage the group’s strong BEE credentials

> Exploiting cross-selling opportunities.

Prospects

Despite large scale interventions by governments across the

world to stabilise global fi nancial markets, there has been no

real indication that confi dence in equity markets is returning to

an acceptable level.

On the contrary, global equity markets remain very volatile and

have deteriorated further since 31 December 2008 and may

continue to do so for a while longer. As a group we will monitor

trading conditions on an ongoing basis and take whatever

action is necessary to manage all aspects of the group’s

operations accordingly.

2008 was a challenging year and we learnt many lessons

during the course of it; however, we have embarked on 2009

with renewed energy and enthusiasm. Our strategic direction

is clear: our businesses are well diversifi ed and well positioned

to take advantage of the growth opportunities in our chosen

markets.

Acknowledgement

I would like to acknowledge the contribution of all the

businesses in the group as well as my fellow directors for their

dedication and strategic input in making Metropolitan the

highly rated provider of fi nancial services it has become.

Conclusion

Metropolitan’s strategy for growing the group going forward is

fi rmly in place and management remains committed to

exploring every possible avenue to enhance the value

proposition for all stakeholders.

Capital management remains high on the agenda, especially in

the current economic climate. Measuring the return on

allocated capital is critical and we will not hesitate to extract

capital from businesses that are underperforming in order to

apply it elsewhere. Effective cost management and increased

productivity across all the businesses in the group are high on

the list of priorities for 2009.

Preston Speckmann

Group fi nance director


continued

METROPOLITAN | INVESTOR RELATIONS REVIEW | 39

DEAR SHAREHOLDER

In my 2007 feedback to you I highlighted the fact that Wilhelm

van Zyl was appointed group chief executive and that he had

indicated his commitment to being accessible to all members

of the investment community.

Although most institutional investors and analysts had met

Wilhelm at some or other time prior to his appointment as

group CEO, we arranged a number of one-on-one meetings as

well as luncheons during which investors and the media were

given the opportunity to discuss the group’s strategy going

forward under his leadership.

These events were well supported and feedback received

confi rms that investors are generally well informed on group

strategy as well as the main drivers of growth and profi t.

The topics most frequently raised with management during the

past year were capital management, expense management,

expected growth within the international business, new

business fl ows and related retention within the retail business,

the proposed national retirement legislation and the impact

of the economic downturn on our business. We believe that

these topics have all been successfully addressed, but take

this opportunity to invite you to engage with us should you

wish to revisit any of the above.

On the international investment front, the market and currency

volatility experienced during the year had a defi nite impact on

South African markets and specifi cally also the fi nancial sector.

We saw a slowdown in the number of foreign fund managers

visiting the group and, despite increased efforts, interest

from investors in meeting with management during overseas

road shows also diminished. Despite the fact that a number

of foreign investors have withdrawn from emerging markets,

most of the leading South African asset managers increased

their holdings in Metropolitan.

Despite the negative sentiment globally on equities, we believe

that it is even more important for our business to retain a high

visibility and remain committed to regular communication with

investors. We will also continue to explore new avenues of

keeping in touch.

Tyrrel Murray

General manager, group fi nance

For shareholders, the fact that the total dividend for the year remained fl at at 95 cents is also indicative of Metropolitan’s resilience in the midst of one of the worst crises on fi nancial markets world-wide.

Tyrrel MurrayGeneral manager, group fi nance

INVESTOR RELATIONS REPORT

CSI projects, resourced by Metropolitan, either by way of finances or people, or both, are all community driven, with the group playing a facilitative role

40 | METROPOLITAN

EQUITY ANDSKILLS DEVELOPMENT REMAINS HIGH ON THEAGENDA RIGHT ACROSSTHE AFRICAN CONTINENT

Commitment to legislative and regulatory

compliance in respect of B-BBEE is ongoing,

being the basis on which all Metropolitan’s

business policies, procedures and practices are

formulated.

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an

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METROPOLITAN | 41

ORGANISATIONAL STRUCTURE

METROPOLITAN HOLDINGS LIMITED

42 | ORGANISATIONAL STRUCTURE | METROPOLITAN

METROPOLITAN | ORGANISATIONAL STRUCTURE | 43

STRATEGIC VENTURES

Derek Pead

Responsible for Cover2Go and other strategic initiatives.

100% COVER2GO

100% METROPOLITAN CARD OPERATIONS (PTY) LTD

100% METROPOLITAN CAPITAL (PTY) LTD

HEALTH CLUSTER

Blum Khan

Provides medical scheme administration and managed care solutions, including customised outsourced administration, system licensing and integrated or stand-alone health risk management solutions.

100% METROPOLITAN HEALTH HOLDINGS (PTY) LTD

82.4% METROPOLITAN HEALTH CORPORATE (PTY) LTD

79.5% QUALSA HEALTHCARE (PTY) LTD

ASSET MANAGEMENT CLUSTER

Vacant

Attends to all aspects of asset management, including asset management for retirement funds, collective investments, and property management and administration, on behalf of all businesses in the group as well as third parties.

100% METROPOLITAN ASSET MANAGERS LTD

100% METROPOLITAN PROPERTY SERVICES (PTY) LTD

100% METROPOLITAN COLLECTIVE INVESTMENTS LTD

RETAIL CLUSTER

Phillip Matlakala

Develops, distributes and administers individual life investment and risk products; targets the middle and lower income markets.

* METROPOLITAN RETAIL

70% DIRECTFIN SOLUTIONS (PTY) LTD

50% UNION LIFE LTD

INTERNATIONAL CLUSTER

Justin van den Hoven

Extends the geographic spread of the group by opening up new markets, particularly in Africa.

76% METROPOLITAN LIFE OF BOTSWANA LTD

82% METROPOLITAN LIFE (NAMIBIA) LTD

100% METROPOLITAN LIFE INTERNATIONAL LTD

1 00% METROPOLITAN LESOTHO LTD

60% METROPOLITAN LIFE INSURANCE GHANA LTD

66.7% METROPOLITAN LIFE INSURANCE KENYA LTD

100% METROPOLITAN LIFE SWAZILAND LTD

50% UBA METROPOLITAN LIFE INSURANCE LTD

CORPORATE CLUSTER

John Melville

Attends to all aspects of retirement fund business, including investment, risk management, administration, and actuarial consulting.

* METROPOLITAN EMPLOYEE BENEFITS

80% METROPOLITAN RETIREMENT ADMINISTRATORS (PTY) LTD

* Part of Metropolitan Life Ltd 100%

44 | OPERATIONAL REVIEW | METROPOLITAN

MEMBERS OF RETAIL EXCO

Phillip Matlakala Chief executive

Herman Botha Head, independent distribution

Rob Duggan Head, wholesale distribution

Caroline Engelke Head, people development

Nathi Kunene Head, personal fi nancial adviser distribution

Mike McDougall Head, fi nance and business intelligence

Prevanya Moodley Head, compliance and legal

Andy Pitter Head, customer management

Marque van der Walt Head, business communication

Jannie Venter Head, marketing and business development

OPERATIONAL REVIEW

RETAIL CLUSTER

Phillip Matlakala, chief executive

With Phillip Matlakala continuing to oversee Metropolitan

Retail’s realignment and restructuring process, the cluster

redoubled its efforts to reinvent itself in 2008, moving a long

way from being a product pusher towards becoming an adviser

for life. Providing superior value for customers is now the

driving force behind all aspects of its operations, from design

to distribution, sales to service.

PRODUCTION

Retail’s life-event and lifestyle based products and services are

tailored to the needs of customers in the aspirant, emerging

and achiever markets that the cluster targets.

These are delivered to clients via various distribution channels.

Retail achieved record production during 2008, increasing the

number of policies issued and new business annual premium

equivalent (APE) by 12% and 17% respectively. Although still a

relatively small portion of total APE, which comprises new

recurring premium income and 10% of single premium income,

single premium growth was particularly pleasing.

Personal fi nancial adviser distribution (tied agents)

Under the leadership of Nathi Kunene, this channel, comprising

direct writers, group schemes intermediaries, personal fi nancial

planners and investment consultants, all employed by

Metropolitan, increased their APE production by 26%. This

was achieved in a challenging economic environment and,

despite the considerable economic pressure on customers,

the channel improved the persistency of its business on the

2007 levels. It is expected that persistency management will

present signifi cant challenges in the year ahead. Direct writers

and group scheme intermediaries continued to record strong

recurring premium production and achieved good

growth in single premiums, albeit off a low base.

Investment consultants grew their single

premiums by more than 90%. The personal

fi nancial planners channel was unable to make

substantial progress towards meeting its targets

and was closed during the fi rst half of 2008.

The group schemes channel returned to sound

growth in production from traditional sources of

business after a lacklustre performance in 2007.

Independent distribution (brokers)

The independent distributors were the responsibility of

Jacques Coetzer throughout 2008. Jacques has relocated as

managing director of UBA Metropolitan Life Nigeria and was

replaced by the highly experienced Herman Botha during

March 2009.

The broker distribution channel consists of general inter-

mediaries (GICs), independent fi nancial advisers (IFAs) and

Market share in different market segments

Salary Market size Metropolitan

Total market

penetration

Segment (individual) % % %

Mass R1 000 – R3 000 44 9 23

Aspirant R3 000 – R6 000 11 15 47

Emerged R6 000 – R12 000 9 12 63

Achiever R12 000+ 4 11 81

Metropolitan total market share 10

Source: All Media Products Survey (AMPS)

METROPOLITAN | RETAIL CLUSTER | 45

Retail performance overview

2008Rm

2007Rm

%change

Net premium infl ows 7 931 6 726 17.9

Recurring premiums 4 689 4 288 9.4

Single premiums 3 242 2 438 33.0

Payments to contract holders 5 011 4 180 19.9

Operating profi t net of tax 448 460 (2.2)

APE profi tability of new business 16.4 11.3 45.1

26% Wholesale distribution (including third party business)

31% Independent distribution (brokers)

43% Personal fi nancial

adviser distribution (tied agents)

77% increase in value of new business – up from R119 million to R211 million

broker network distribution. The general intermediaries, who

operate in the aspirant and emergent markets, were

the top performing unit. Their business model remains effective

in the current environment where increased regulatory

compliance requirements on independent intermediaries place

heavier burdens on small independent brokerages.

2008 was a diffi cult year for the IFA channel, especially in

respect of recurring premium production. While their single

premium production grew strongly, they experienced pressure

in terms of writing new recurring premium business thanks to

the sharper focus on profi table production and customer value.

The launch of a new range of risk products towards the end of

the fi rst quarter of 2009 is expected to contribute towards an

improvement in recurring premium production.

Outsourced distribution through broker networks has shown

strong growth, although off a low base, and there has been an

increased focus on securing business from corporate

brokerages.

As a whole, the independent channel increased their APE

production by 26%. This was due to a doubling of single

premium production across the channel and strong recurring

premium growth generated by the GIC channel. The focus for

2009 will be on continuing the strong GIC performance while

improving the recurring premium production of the other

channels with the launch of the new RiskPlan product towards

the end of the fi rst quarter.

Wholesale distribution

Within this channel, headed up by Rob Duggan, there are two

areas of focus: corporate clients and call centres. In the case of

the former, Metropolitan makes fi nancial services products

available in conjunction with other major corporations, be they

retailers, eg Woolworths or Edgars, or banks, eg Teba, utilising

the latters’ distribution networks. To date the emphasis has

been on credit life and funeral insurance but the potential for

expanding the product range is signifi cant.

DirectFin Solutions (DFS), a call centre employing some 400

telemarketers in which Metropolitan has a 70% stake, sells

huge volumes of low-premium funeral cover. In 2008 DFS

increased new business recurring premium income by 12%.

However, despite considerable efforts within both Metropolitan

and DFS to improve the quality of business, a sustained

persistency improvement has not yet been achieved.

The wholesale channel is also in the process of assessing the

suitability of other call centres who have expressed an interest

in marketing the Metropolitan product range. This strategy is

being actively pursued and is expected to commence

production during 2009. A stringent due diligence process is

followed to ensure the call centres comply with specifi ed

standards and provide appropriate service to our clients.

Union Life distribution

Union Life, formerly HTG Life, a separate company within

Metropolitan Retail with Sonja Visser as managing director, set

monthly premium income records on seven different occasions

during the year to December 2008, ending the reporting period

with total premium income of R165.8 million compared to

R135.2 million in 2007, an increase of 22.6%. Metropolitan

owns 50% of Union Life.

Viability modelling

During 2008 increased focus was placed on the viability

of each channel, area and branch, with the emphasis on

ensuring a profi table balance between production, persis-

Distribution split of annual premium equivalent (APE) new business production per retail distribution channel –

South Africa only


RETAIL CLUSTER

continued

tency, expenses and manpower changes. This focus will

continue during 2009. In support of this initiative, the

recruitment, development and retention programmes for

intermediaries, aimed at improving both productivity and

persistency, as well as at ensuring regulatory compliance, have

been reviewed and revitalised.

New distribution channels

Although the cluster is still working relentlessly towards

achieving optimum output from its existing distribution

channels, it continues to seek and cement partnerships that

will give it better and more cost-effective reach into selected

markets. Job losses are likely to be highest in the private sector

as the economic downturn deepens, giving extra impetus to

retail’s renewed drive into the public sector.

Alternative distribution strategies, aimed at putting business

on the books at a cost considerably lower than is currently the

case, are under constant investigation. Metropolitan represen-

tatives, including one from retail, submitted proposals to the

panel tasked by the government with making recommendations

on the rapidly evolving micro-insurance industry.

Intermediary training

Retail has made a signifi cant investment in intermediary

training, driven by the dual needs of providing optimal advice

to customers and meeting regulatory reguirements, particularly

with regard to the Financial Advisory and Intermediary Services

Act (FAIS). The objective is to have the entire sales force

acquire the NQF5 level Certifi cate of Wealth Management by

the end of 2009.

Ongoing intermediary and branch manager training has seen

more intermediaries qualifying to write single premium

business – which has contributed to the increase in single

premium production in the personal fi nancial adviser distribution

channel in particular – and to the improved productivity of

intermediaries in general.

Customer resilience

Customers at the lower end of the market proved to be

remarkably resilient despite a heavily depressed economic

environment, especially towards the end of 2008. Their relative

fi nancial buoyancy can perhaps be ascribed in part to the fact

that their consumption is mainly needs driven and they are

therefore not as affected by rising interest rates as those in

higher income brackets, not being indebted to the same

extent, if at all. Payout patterns were virtually unchanged

from the previous year, including disability claims, lapses,

surrenders and policy loans. Due to the inestimable cultural

value of a funeral, cover for this life event remains a high if not

the top priority for many customers. However, as the global

economic environment starts to impact more heavily on

employment levels in South Africa, signifi cant challenges in

securing premiums and retaining business are likely in the year

ahead.

Customer service

Retail strives to provide customer-aligned service, of both an

advisory and an administrative nature, as effi ciently and cost-

effectively as possible. The cluster focuses as much on retaining

as it does on gaining customers. To this end, the customer

service area, headed up by Andy Pitter, commissions an annual

customer satisfaction tracking study. Conducted on its behalf by

the independent survey specialists, Research International,

every year since 2003, the overall rating is based on twenty fi ve

satisfaction measures as assessed by a representative random

sample of customers who had interactions with service

consultants from the cluster. After dropping from a record 90%

in 2006 to 86% in 2007, the cluster achieved their second

highest score ever (89%) in 2008. In-house surveys, carried out

throughout the year, confi rm the cluster’s success in meeting

the service needs of customers.

An improvement in turnaround times across the board to the

point where 84% of all service interactions were completed

within the agreed timeframe was particularly pleasing. Absolute

dependability is an essential element in customer satisfaction.

Customer education has as vital a role to play in keeping

business on the books as it does in putting it there. Thanks to its

ongoing efforts to raise the level of fi nancial understanding

amongst customers, both existing and potential, the cluster

makes a meaningful contribution to higher conservation levels.

In addition, wide-ranging offensive and defensive strategies are

in place so that service consultants can respond proactively or

reactively as appropriate when persistency problems arise. In

2008 there was a 12% improvement in lapses at durations four

to twelve months, for which the customer service as opposed

to the sales team is responsible.

Although loan and surrender rates were consistent with

experience in 2007, reduced fund values due to the decline in

equity markets over the last quarter meant that there was an

effective increase in surrender payments as loan amounts began

exceeding fund values.

Annual premium equivalent of R60 million was secured via

repeat sales in 2008, and there was an increase in the percentage

of death and maturity claims reinvested.

Record R1.5 billion in new business APE

METROPOLITAN | RETAIL CLUSTER | 47

NEW INITIATIVES

Restructuring of commission regime

The new commission regulations that came into effect on

1 January 2009 apply only to investment policies issued after

that date; the existing commission structure still applies to all

risk policies as well as to automatic and voluntary premium

increases on existing policies. Although 50% of the new “as

and when” commission may be paid as a sales commission at

the point of sale, this will lead to signifi cant short-term cash

fl ow reductions for intermediaries. Metropolitan Retail has

been proactive in implementing the regulations in such a way

that the impact on our employed intermediaries is phased in

without our policyholders being negatively affected.

Metropolitan lobbied national treasury to ensure that

intermediaries servicing the lower end of the market, where

the impact of the new commission regime is likely to be the

most severe, would have a viable business in future. The

representatives of retail who served on the various committees

were instrumental in securing several concessions, including a

minimum sales commission payment of R400.

However, intermediaries across the industry remain deeply

concerned about the fi nancial implications of the changes to

their remuneration arrangements. While the worst of their

fears are probably not justifi ed, a concerted effort will be

needed to effect a smooth transition from the old to the new

regime. Once as-and-when income has become a fairly stable

and substantial component of their income, which will happen

but only over time, they should be signifi cantly better off.

Customers, for whom service levels will rise dramatically, will

certainly be at an advantage.

Increased early termination values

Implementation of the fi rst phase of the statement of intent

(SOI), the industry-wide agreement on minimum early

termination values reached with national treasury, was

completed in 2007. The second phase, in terms of which a

maximum reduction of 15% of fund value may be applied in

respect of endowment policies made paid-up or surrendered

and retirement annuities made paid-up or transferred, came

into effect in 1 January 2009, with the 15% being reduced

monthly until the termination charge no longer applies. No

reductions are applicable once specifi ed policy terms have

expired.

New code on policy quotations

In an attempt to ensure that policyholder benefi t expectations

remain within reasonable parameters, illustrative values may

no longer be included in policy quotations. The consequences

of early termination still have to be clearly illustrated, which

includes full disclosure of all early termination charges. In

addition, the effects of expense charges on the overall

investment return are demonstrated through the provision of a

reduction in yield (RIY) fi gure that takes into account all charges

and fees, including performance fees. The expected impact of

premium rate reviews after the expiry of the guaranteed term

is clearly explained, and the quote also sets out all guaranteed

values. Certain compulsory statements have to be incorporated,

including the fact that returns are subject to tax, indicating the

likely tax rate payable and outlining the possible effects of

infl ation. In addition, a warning to the effect that past

performance cannot be extrapolated into the future and is not

necessarily an indication of future performance has to be

prominently displayed on all quotes.

The cluster has developed new and highly effective sales aids

to replace existing marketing material that was largely

dependent on illustrative values.

Systems changes

A major systems project, involving a comprehensive reassess-

ment of the multiple administration systems in use by the

cluster, many of which are old and therefore infl exible, has

been underway since 2007. A new fully automated adminis-

tration platform has been selected that will drive down costs

while at the same time improving productivity in line with the

cluster’s aim of becoming an administrator whose costs are

amongst the lowest, if not the lowest, in the industry.

Metropolitan is currently engaging with the selected vendor to

scope and price the project. The business case for this initiative

will be presented to the board during the second quarter of

2009. Should the project go ahead, it will be the biggest single

initiative undertaken by Metropolitan since the introduction of

computers.

LOOKING AHEAD

From a production perspective, 2008 was a truly remarkable

year in which Metropolitan Retail passed the R1 billion mark in

new business APE as early as the fi rst week of September, a

full six weeks sooner than this milestone had ever been

reached previously. The cluster ended the year with a new

business margin of 16.4% on an APE basis.

With a foundation as robust as this on which to build, the

cluster is set to grow even more strongly into the future. The

cluster is writing much higher volumes of business incorporating

a better mix of products, mostly with improved persistency

profi les, but policy issue and renewal costs need to be further

reduced and additional conservation advances made. Each of

the new initiatives outlined above will contribute towards the

attainment of these goals in 2009 and beyond.


PRODUCT AND MARKETING MANAGEMENT

Thinus Alsworth-Elvey Investment services

Tjaart Esterhuyse Risk solutions

Joe Karabus Retirement fund administration

Robert Likhanya Sales and marketing: labour and direct

Alan Martin Actuarial services

Kenny Meiring Sales and marketing: brokers

Ian Smith Metropolitan Retirement Administrators

The cluster, headed up by chief executive John Melville who

took over from Wilhelm van Zyl in August 2008, comprises

Metropolitan Employee Benefi ts (MetEB) and Metropolitan

Retirement Administrators (MRA). MetEB offers group insurance

and investment products, and also provides administration

and actuarial consulting services to retirement funds. MRA

specialises in large-scale retirement fund administration

whereas MetEB focuses on mid-sized clients and umbrella

funds in terms of the administration services it provides.

TACKLING TUMULTUOUS TIMES

The turmoil in world fi nancial markets during the last six months

of 2008, which has continued into the fi rst three months of

2009, was unprecedented in our lifetime. Together with a

meltdown in the global fi nancial system thanks to the credit

crunch, there was an equity market blowout of proportions last

seen some eighty years ago. Since then the world has moved

steadily into economic recession, and a signifi cant slowdown

in South Africa has followed. The year ahead is expected to be

particularly tough.

These developments have had and will continue to have a

signifi cant impact on both the businesses in the cluster. A

sizable portion of MetEB’s income is in the form of asset-

based charges and, with reduced fund balances, this source

of revenue has been reduced. An economy in decline has

also put pressure on employment, which will ultimately feed

through to fund membership numbers, premium income and

administration charges. The latter are, however, much less

sensitive to fi nancial markets, and this degree of diversifi cation

provides a measure of protection.

To date the cluster has displayed resilience in weathering the

fi nancial storm by implementing the following strategies:

> putting in place effective hedges to mute the impact of the

equity market collapse on its smoothed bonus and pension

annuity product portfolios

> protecting its capital position through appropriate hedging

and asset mix adjustments

> containing expenses wherever possible to reduce the

impact of falling income on its bottom line

> amending products to increase their attractiveness in the

current investment environment

> building a product development capability that is able to

innovate effectively by customising solutions for key clients

> tightly managing the pricing of group risk business,

ensuring a sustainable stream of risk profi ts

> continuing to focus on securing new business

> communicating more effectively with clients as they

experience economic turbulence related anxieties while at

the same time helping them to maintain realistic benefi t

expectations at all times

> continuing to provide excellent service, thereby enhancing

the ability to retain and attract clients

> improving the quality of its administration business to bring

it in line with its long-term strategic objective of fi nalising

all legacy terminations (predominantly ex Commercial Union

business) and transferring all small unprofi table funds to

umbrella structures or terminating them where appropriate.

OPERATIONAL REVIEW

CORPORATE CLUSTER

John Melville, chief executive

METROPOLITAN | CORPORATE CLUSTER | 49

Corporate performance overview

2008Rm

2007Rm

%change

Net premium infl ows 2 899 3 947 (26.6)

Recurring premiums 1 924 1 793 7.3

Single premiums 975 2 154 (54.7)

Payments to contract holders 4 142 2 712 52.7


APE profi tability of new business 6.5 10.9 (40.4)

SOCIAL SECURITY REFORM

Social security reform is both a challenge and an opportunity for

providers of employee benefi ts. It is a challenge to the extent

that it may change the structure of the industry as it currently

exists. However, with that will come many new opportunities,

as it is unlikely that government will exclude the private sector

from the delivery process, given its many other priorities. The

cluster’s track record of innovation, its respected capabilities

and low cost ratios (based on automation) all strengthen its

ability to engage with a changing retirement fund landscape.

The employee benefi ts environment is also becoming

more tightly regulated in line with government’s retirement

fund reform objectives. As a result, compliance costs are

increasing. This, in conjunction with the better value for

money requirements of the reform process, means that

providers are under pressure to enhance their operational

effi ciencies. Metropolitan’s long-standing focus on effi cient,

integrated and automated administration has resulted in low

administration cost ratios, and made it an attractive partner

to retirement funds. So, although additional regulation comes

with challenges, it will favour providers with more effi cient and

robust capabilities, and improve the scope for fair competition,

which should be in Metropolitan’s favour.

Another issue that came to the fore during the second half of

the year was a rumour that members may lose their retirement

savings when social security reforms are implemented. This

was unfounded and government moved quickly to stop it.

What was notable, however, was the volume and fervour

of the outcry from members, especially the trade unions.

Traditionally, withdrawal benefi ts have been used by retirement

fund members to get themselves out of short-term fi nancial

diffi culty. Growing numbers of members will fi nd themselves

strapped for cash in these tough economic times, especially

in view of the high interest rates currently payable. This will

add another dimension to the debate around the compulsory

preservation of benefi ts.

INVESTMENT AND ANNUITY PRODUCTS

In the context of the equity market collapse, the cluster

focused on managing the funding levels in its smoothed bonus

and annuity product ranges. Thanks to forward planning, good

management information and timely responses, the effect of

the plummeting markets was mitigated. The assets backing

the annuity guarantees clearly demonstrated their resilience in

what turned out to be extreme market conditions.

A new bonus series was launched in January 2009 to attract

new smoothed bonus clients as well as ongoing cash fl ows

from existing clients. This proved to be an attractive proposition

to clients after the market declines in 1998 and 2002.

Clients and investment consultants were also affected by

the turmoil. Their inward focus meant that the fl ow of new

investment business slowed and in some instances almost

dried up. In spite of this, further progress was made in

expanding the reach of the business and reducing its reliance

on large individual deals. In 2008, single premium infl ows

were derived from more than 20 different clients who placed

investments in excess of R20 million in our range of capital

protection and annuity products.

Benefi t payments were signifi cantly higher in 2008 – a

function of the economic climate, generally higher member

fund credits as a result of the long equity bull market run, and

misinformation around social security reform that resulted in

Only provider to have grown market share every year since 2002

23% Administration55%

Risk

22%Investment

Total net recurring premium incomeas at 31 December 2008


some workers leaving employment to access their provident

fund benefi ts. Investment terminations were, however, kept

under control through a targeted retention strategy that has

been in place for some time now.

GROUP INSURANCE PRODUCTS

The group insurance market presented pricing challenges in

2008. Rates were tight, constraining both the acquisition of

new business and the ability to retain existing business at

profi table premium rates. The cluster held fast to its policy

of not buying business and re-pricing loss-making schemes

where necessary. By taking advantage of a select number

of attractive opportunities, a creditable overall new business

performance was ultimately achieved. Retention also held

up well.

An increase in disability claims as a result of the economic

downturn is being closely monitored and carefully managed.

There are indications that certain of the cluster’s competitors

have been experiencing losses on their group insurance

business portfolios, and as a result rates may harden slightly

in 2009.

IMPROVED MARKET SHARE

The latest survey of market share in the group insurance/risk

business market showed that MetEB has grown its share of

the risk market from 10% to 14% over the last four years, and

is now the 4th largest player, having been ranked 5th in the

previous three years. It is now the 3rd largest provider of group

life insurance, with a 16% market share. As is refl ected in the

fi rst graph on page 51. MetEB is the only company to have

increased its market share in each of the last fi ve years. It is

also noteworthy that this growth has not been at the expense

of profi tability.

AIDS RISK CONSULTING (ARC) UNIT

This unit, which forms part of MetEB’s risk solutions business,

provides critical input to the pricing and risk management of

its group insurance business. It also provides demographic

and fi nancial HIV/AIDS impact assessments to public and

private organisations, using the latest actuarial modelling tools.

Among its many assignments, MetEB was honoured in 2008

by being selected to undertake a major HIV/AIDS study for

the Namibian government. The unit also received high-profi le

exposure through its roll-out of the Metropolitan HIV/AIDS

scenario project, and its many publications and involvements.

This is refl ected in the following statement by the deputy

president of South Africa in her address to the South African

Business Coalition on HIV and AIDS (SABCOHA) conference

on 5 November 2008: “Once again, government applauds the

initiatives of SABCOHA, Metropolitan and BUSA (Business

Unity South Africa) for your innovative approach in the fi ght

against HIV and AIDS.”

ADMINISTRATION PRODUCTS

The cluster’s new administration product, NEON, aimed

specifi cally at the broker market, has been rolled out via a targeted

launch in the form of personal visits to brokers in Durban,

Johannesburg and Cape Town. NEON business is administered

on an off balance sheet basis, which means that contributions

do not refl ect as premium income. It offers a standardised, but

functionally rich, set of administration services which provide

convenient access and a full range of self-service options to

clients and their independent advisers.

3rd largest group life provider in SA, market share 16% in 2007 (2002: 6%)

Existing recurring premiums New recurring premiums

Consistent growthin recurring premium income

2 500

2 000

1 500

1 000

500

0

03 04 06 07 0805

Lumpy growth in single premium income

3 000

2 500

2 000

1 500

1 000

500

0

03 04 06 07 0805

METROPOLITAN | CORPORATE CLUSTER | 51

To date the feedback received has been exceptional. A number of

deals have already been closed, with several more in the pipeline.

Based on market research, the product is being positioned as

‘getting back to the basics’ in that it enables users to take full

fi nancial control.

The other major drive that is under way is the clean-up of

the unprofi table section of the existing book of administration

business, which has entailed the closure of small funds and the

fi nalisation of legacy terminations. This should be completed by

early 2010.

METROPOLITAN RETIREMENT ADMINISTRATORS (MRA)

MRA focused on the successful implementation of the Pulp,

Paper, Wood and Allied Workers Union (PPWAWU) National

Provident Fund administration in the last quarter of 2008. This

is proceeding well, despite some delays in the provision of

data by the previous administrator. Initial feedback from union

and employer representatives has been very positive.

The drive to secure new business continues, with a number of

very promising prospects in the pipeline.

Feedback from existing clients on service levels has also been

most encouraging. Our trustee clients applauded the completion

of the annual fi nancial reporting requirements and the audits of

all funds within three months of year-end in 2008.

PROFESSIONAL MANAGEMENT REVIEW (PMR) AWARD

In October 2008, Metropolitan was awarded the PMR Diamond

Arrow Award for pension fund administrators in the category

Large Pension Fund Administrators (Administering More Than

100 000 Members) And Product Providers: Insurers. It was the

highest rated company, achieving a mean score of 4.24 out of a

possible 5.00.

PMR conducts over 30 000 interviews with top decision-

makers annually in every country where it has a presence in

order to produce customer ratings, highlighting strengths and

weaknesses. This survey was conducted amongst South African

retirement fund trustees and principal offi cers.

ACTUARIAL CONSULTING SERVICES

Good progress was made on the surplus apportionment

exercises for all the funds for which the cluster’s services

have been contracted and these should be completed during

the course of 2009. The revenue-generating potential of the

area has increased signifi cantly and it is now making a healthy

contribution to the cluster’s profi ts.

LOOKING AHEAD

In spite of the current economic challenges, the cluster is

confi dent that its carefully designed strategies will continue

to bear fruit in future. Each of its lines of business has

focused strategies, and maintains and nurtures the specifi c

competencies necessary for success in its chosen market

segments. Even though the cluster’s market share has grown

considerably over the last fi ve years, none of its business lines

has as yet attained a 15% share, suggesting scope for further

growth. The cluster will also continue to identify new areas

where it can add value with its know-how and capabilities and,

in the medium to long term, to add further lines of business

to its portfolio.

4th largest group risk provider in SA, market share 14% in 2007 (2002: 5%)

Only company to have increased risk business market share every year since 2002

35%

30%

25%

20%

15%

10%

5%

0%Company

A

Company

B

Company

C

MetEB Company

E

Company

F

2002 2003 2004 2005 2006 2007 Gross risk premiums Percentage change

Impressive growthin risk premium income

1 400 000

1 200 000

1 000 000

800 000

600 000

400 000

200 000

0

60%

50%

40%

30%

20%

10%

0%

02 03 04 06 07 0805


METAM’S EXECUTIVE COMMITTEE

Robert Walton Managing director

Zaida Essop Marketing manager

Romeo Makhubela Chief investment offi cer

Iqbal Sirkot Chief fi nancial offi cer

Ian Troost Head of multi-asset investments

Shelley van der Westhuizen Investment risk manager

METROPOLITAN ASSET MANAGERS (METAM)

INVESTMENT ENVIRONMENT

The South African equity market fell dramatically over the year

under review, largely because of concerns related to the

stability of the fi nancial system in the United States that is

struggling to deal with the aftermath of the bursting of twin

bubbles in their property and credit markets. This caused huge

uncertainty, because no-one knew exactly who had exposure

to the toxic assets nor, in the case of institutions with exposure,

exactly how big their exposure was.

Real economic activity has been severely affected by the credit

crises and it is now generally accepted that the developed

world will move into recession during 2009. Equity markets

globally plummeted in 2008, with the JSE, as represented by

the shareholder weighted index (SWIX), falling about 42%

from a high in May to a low in October. The earnings outlook for

JSE-listed companies is decidedly subdued as a result.

IMPACT ON PORTFOLIOS

Performance of the various asset classes below use the

Metropolitan Local Managed Fund (which excludes all foreign

assets) as a proxy for MetAM’s best investment view. Relative

to its peers in the Alexander Forbes Large Manager Watch, the

Metropolitan Local Managed Fund was ranked 5/11 based on

performance to 31 December 2008, delivering a return of

-11.8% compared to the average of -12.3% for the year,

a satisfactory performance in light of the environment and in

relation to the industry.

Equities

MetAM underestimated the impact of the global investment

markets fallout on the real economy in South Africa and was

consequently more exposed to equities than it should have

been in that fi xed interest investments delivered better returns

during the twelve months under review. As a result, asset

allocation across the fund detracted from performance. Despite

the overweight position, the equity component of the fund

outperformed the SWIX by 1.2% over the year under review.

Bonds

Bonds were the best performing asset class for 2008. Our

bond portfolios outperformed the all-bond index (ALBI) by

0.2%. Money market investments returned 11.5%.

Deon van Zyl, who manages the Metropolitan Gilt Fund on

behalf of Metropolitan Collective Investments, was the

recipient of the Raging Bull Award in the best domestic fi xed

interest category – for the top achievement on a straight

performance basis over three years to 31 December 2008.

Deon also received the certifi cate for the best domestic fi xed

interest bond fund as his fund was the top performer in this

subcategory.

Property

The property components contributed 1.6% to the annual

return achieved by the fund, delivering 16.1% in total. Direct

property generated a return of 18.2%.

Specialist offerings

> MetAM’s international portfolios had a torrid year and de-

tracted from gains made elsewhere by other asset classes

within balanced mandates. Foreign bonds were the most

signifi cant detractor from the overall foreign return, followed

by exposure to foreign and emerging market equities. Perfor-

mance in the foreign bond sector was negatively impacted

OPERATIONAL REVIEW

ASSET MANAGEMENT

Robert Walton, managing director

(Metropolitan Asset Managers)

Asset management performance overview

2008Rm

2007Rm

%change

Group assets managed 51 758 57 760 (10.4)

Third party assets managed 23 132 21 353 8.3

Net infl ow from clients 4 280 6 930 (38.2)

Operating profi t after tax 65 70 (7.1)

Vacancy levels 3.98% 3.64% 9.3

METROPOLITAN | ASSET MANAGEMENT CLUSTER | 53

by exposure to corporate credit rather than sovereign bonds.

Foreign cash was the only positive contributor.

> The African Wealth Creator fund was also impacted by the

investment environment as a number of the large listed stocks

held by it suffered materially during the latter half of the year.

> MetAM’s absolute return fund portfolios were negatively

affected by the markets in the third quarter of 2008 but

regained some of the lost ground during the last quarter of

the year due to protection structures.

PEOPLE AND PROCESSES

Over and above remuneration, MetAM is a fi rm believer in the

powerful role that job satisfaction levels and a stimulating working

environment play in staff retention. To this end, it has strengthened

its leadership team over the past 18 months by constituting a

new executive committee and fi lling vacancies in areas where

resources were stretched. A concerted effort is also being made

to improve communication and recognition across the business.

The following key appointments were made during 2008:

> Ameer Amod – quants portfolio manager

> Pieter Botha – head of dealing and implementation

> Johan de Kock – head of equity research

> Jaanre Fourie – fi xed interest/economic analyst

> Romeo Makhubela – chief investment offi cer

> Cindy Mathews-de Vries – equity analyst

> Khanyisa Ngesi – equity analyst

> Stephen Roelofse – equity portfolio manager

> Iqbal Sirkot – chief fi nancial offi cer

The team now has a full complement of equity analysts,

working in a more rigorous environment with a more demanding

and disciplined approach. All investment processes are

considerably tighter and regular stock and sector selection

meetings are in place. Unity of purpose is being achieved as a

result.

A number of new initiatives were implemented by the MetAM

investment professionals in 2008, including changes to invest-

ment processes and portfolio compositions. Key amongst

these were:

> MetAM’s investment philosophy has shifted to a value bias

with growth potential. Its core equity philosophy is grounded

in the belief that superior investment performance is

achieved by investing in companies that are attractively

priced (below fair value) and/or have the potential to

accelerate their growth in earnings. In order to be able to add

value over time, MetAM does not buy companies above

their intrinsic value.

> International asset allocation is now the responsibility of the

asset allocation team.

In August 2008 MetAM retained its Investors in People (IiP)

accreditation after an independent external assessment. This

internationally recognised standard provides a framework to

help organisations improve performance and realise business

objectives, both strategic and operational, through the

management and development of their people. MetAM is

particularly proud of having attained this standard and works

hard to maintain and improve on it.

NEW PRODUCTS

Early in 2008, MetAM launched the Metropolitan Income Plus

Fund which is aimed at investors with a moderate risk appetite

Assets under managementsplit by asset class as at 31 December 2008

MetAM’s gross infl ows of R2.6 billion – highest in fi ve years

2.0%Other (structured products)

24.2% Cash

33.2% Equities

0.9% Collective investments6.4%

International

7.3% Property

26.0% Bonds


who seek returns above those of traditional income funds. The

return objective is CPI + 4%, which is equivalent to cash plus

fairly signifi cant outperformance.

STRATEGY

MetAM’s key priorities for the year ahead are:

> Achieve enhanced profi tability

> Retain the core investment team

> Build on equity performance

> Increase third-party assets under management

Over the past 18 months MetAM has been aggressively focused

on improved performance delivery and will continue to focus on

its equity performance in particular. The reconstituted team is

confi dent that energising leadership, invigorating new ideas,

renewed purpose and passion, together with rigorous discipline

and a process-driven approach, will help it to secure more third-

party assets and result in higher profi ts in the long term.

METROPOLITAN COLLECTIVE INVESTMENTS

Despite adverse market conditions, Metropolitan Collective

Investments (MetCI), headed up by Robert Walton, grew its

assets by 5% to R20.5 billion and its number of funds from

137 to 160. Of these, 17 are Metropolitan-branded funds, while

143 are third-party branded funds, with assets under

management split 19% and 81% between the two categories

respectively. Net fund infl ows for the year were R3.2 billion.

The number of investors grew by 11% to 48 191, with revenue

increasing by 9% to R71.3 million.

MetCI strengthened its position as the leading manager of

third-party branded funds in South Africa, having built up an

extremely loyal and very diverse client base over the years. Its

aim is to assist its partners to grow their businesses by

providing them with customised products, tailored to their

specifi c needs, in conjunction with superior one-stop service.

Some of its third-party branding partners are amongst the top

niche asset managers in the country.

As mentioned, MetCI administers the Metropolitan Gilt Fund

that was a recent recipient of the Raging Bull Award (presented

to recognise the stars among the stars of the collective

investments industry) for the best performing fi xed interest

fund over the three years ended 31 December 2008. In

addition, two of MetCI’s third-party branded funds were ranked

top over one year to 31 December 2008 in their respective

categories. In total, eight funds (both Metropolitan and third-

party branded) ended the year amongst the top three

performers in their respective categories.

METROPOLITAN PROPERTY SERVICES

Many property practitioners are claiming that 2008 was the

worst year they have experienced since the mid 1990s.

However, Metropolitan Property Services (MetProp), headed

up by Vuyani Hako, fared a great deal better than most, if not

all, of its competitors.

Total assets under management increased from R3.6 billion to

R3.8 billion while the return on the portfolio was 16.5%, a

sterling achievement in the prevailing adverse market

conditions. Profi t before tax amounted to R14.2 million

compared to R13.7 million the previous year, while net rental

income dropped slightly from R307.6 million to R286.8 million.

The average arrears rental percentage increased from 13.2%

to 14.4%, which will in all likelihood be well below the industry

average once this is known. MetProp’s average vacancy

MetCI’s Metropolitan Gilt Fund – 2008 Raging Bull Award for best performing domestic fi xed interest fund over three years

63% Retail

25% Offi ces

4% Industrial

8% Other

Distribution of property portfolio by sector

METROPOLITAN | ASSET MANAGEMENT CLUSTER | 55

percentage of 3.98%, up from 2007’s 3.64%, should also

prove to be an industry outperformer.

Two developments came on stream in 2008 – the Plattekloof

offi ce complex and a ninth building in the Parc du Cap offi ce

park – both located in Bellville. A major refurbishment of

Sandton Village Walk, a mixed retail and offi ce development, is

planned for 2009, while Tygervalley Shopping Centre in Bellville

will be undergoing a cosmetic upgrade. Exciting acquisitions in

previously disadvantaged areas are in the pipeline for 2009.

Four key factors will continue to have a signifi cant impact on

property markets in the year ahead: interest rates, affordability,

economic growth, and sentiment. Although South Africa’s

economic growth rate will show a marked decline, this country

should remain better off than its counterparts in the USA and

Europe, with preparations for the 2010 World Cup gaining

momentum in the year ahead and providing additional stimulus.

Despite the forthcoming elections sentiment is still predom-

inantly positive.

Although the situation is not likely to change dramatically in

the fi rst quarter, MetProp is confi dent that the property market

remains a viable investment vehicle in South Africa and

looks forward to delivering another superior set of results

in 2009.

MetProp assets under management and profi ts up


EXECUTIVE COMMITTEE

Justin van den Hoven Group executive

Johann Basson Executive manager: corporate clients and strategic marketing

Jacques Coetzer Managing director, UBA Metropolitan Life Nigeria

Leeba Fouché Executive manager: business development south

Arlene Hangone Human resources manager

AJ Kruger Executive manager: new business development

Murray le Roux Statutory actuary

Willem Naude Head of fi nance

Nigel Shannon General manager: international operations

Metropolitan’s international cluster, currently headed up

by Justin van den Hoven who will be retiring in the second

quarter of 2009, now comprises seven businesses thanks to

the establishment of Metropolitan Swaziland, which began

operations in March and was formally launched in August

2008. All business on the lives of Swazi citizens formerly

conducted by Metropolitan Life South Africa will be transferred

to Metropolitan Swaziland.

The cluster was incorporated as a wholly-owned subsidiary of

Metropolitan Holdings towards the end of last year, under the

name of Metropolitan International (Pty) Ltd. It continues to

operate in three main areas on the African continent:

> South – Metropolitan Namibia (managing director Jason

Nandago), Metropolitan Botswana (managing director Oupa

Mothibatsela), Metropolitan Lesotho (managing director

Nkau Matete) and Metropolitan Swaziland (managing

director Muzi Dlamini)

> West – Metropolitan Ghana (chief executive Diop Frimpong)

and UBA Metropolitan Life Nigeria (managing director

AJ Kruger, who will be succeeded by Jacques Coetzer from

1 March 2009)

> East – Metropolitan Kenya (chief executive Linus Makhulo)

BOARD OF DIRECTORS

The board of directors of Metropolitan International (Pty) Ltd

is chaired by Johan van Reenen and comprises Fatima Jakoet,

Syd Muller, Bulelwa Paledi and Wilhelm van Zyl, all of whom

are non-executive directors of Metropolitan Holdings, with the

exception of Wilhelm van Zyl who is the group chief executive.

The board has been mandated to make newly established

operations its key areas of focus, with specifi c emphasis on

the group’s businesses in West Africa, ie Ghana and Nigeria,

as this is where the greatest growth potential has been

identifi ed.

Interest in the fi nancial services industry in Africa is expected

to increase in spite of recent events on global fi nancial and

investment markets, with the impact of the downturn likely

to be felt even more strongly in the countries in the north

than in the south. A number of South African players entered

new markets on the continent in 2008 while global banking

groups embarked on major development initiatives and local

banks undertook aggressive expansion drives, especially in

Nigeria. African markets will become more competitive as

a result, which in turn will speed up their evolution, leading to

higher standards of corporate governance, more sophisticated

products and improved client service.

KEY STRATEGIC ISSUES

Across the African continent there are four main areas that

pose a challenge to new entrants to these markets.

Regulatory and governance issues

In general, there has been a slow but steady improvement in

standards of governance and regulation in recent years and it is

unlikely that there will be any dramatic new developments on

either of these fronts. Certain very real risks remain, amongst

them the fact that more and increasingly complex legislation,

as well as new and complex tax dispensations, is raising the

cost of compliance and the risk of breaches, when penalties

can be excessive. The size and scope of this problem should

not be underestimated.

Strategic stakeholders

One of the pillars of the cluster’s business model is to seek

an infl uential local partner(s) to take a strategic shareholding

OPERATIONAL REVIEW

INTERNATIONAL CLUSTER

Justin van den Hoven, group executive

METROPOLITAN | INTERNATIONAL CLUSTER | 57

International performance overview

2008Rm

2007Rm

%change

Net premium infl ows 1 006 975 3.2

Recurring premiums 859 832 3.2

Single premiums 147 143 2.8

Payments to contract holders 624 666 (6.3)


APE profi tability of new business 14.7 14.6 0.7

in each of the businesses. Apart from being the only way to

meet statutory requirements regarding local shareholding,

a partnership normally brings with it enormous value-add by

way of local knowledge and skills, brand profi le and existing

distribution capabilities. In those countries where the cluster

has not yet secured local partners, such as Kenya and

Swaziland, discussions are in progress.

Skills development

Globally there is an acute shortage of fi nancial services skills,

and in Africa the situation is even more dire. Developing the

requisite capabilities and competencies is high on the cluster’s

2009 agenda as it was throughout 2008 when three members

of executive management – one each from Botswana, Lesotho

and Namibia – attended the senior leadership development

programme at the University of Cape Town. Another four

candidates are set to complete the programme during the

year ahead. A skills audit was conducted in three countries

and development plans tailored to individual needs are

currently being implemented. The same procedure will be

followed in the remaining four countries within the next few

months. Enhanced support structures have been put in place

so that essential skills can also be made available from other

companies in the group, on a secondment basis if necessary.

New appointments across the cluster, both replacements

and additions to the executive and senior management

teams, made during the course of 2008 are already making

a signifi cant difference both strategically and operationally.

Changes include the implementation of more stringent

fi nancial controls as well as enhanced compliance and risk

management procedures. Stability will undoubtedly boost

future performance.

Products and services

Neighbouring countries

In Namibia, Botswana, Lesotho and Swaziland – the so-called

neighbouring countries – the insurance markets are mature,

with high penetration and comprehensive product offerings.

One of the keys to growing these four businesses is delivering

enhanced client service in a cost-effective manner. The cluster is

continuing its efforts to migrate business processes from South

Africa to the local companies, with client-facing processes that

make the biggest difference to a client’s service experience

amongst the fi rst to be migrated. For example, the registration,

authorisation and payment of claims as well as premium

receipting and reconciliation, where face-to face interaction with

clients is particularly benefi cial, were selected upfront.

In addition to creating local employment opportunities and

facilitating the transfer of skills, the migration process has the

advantage of positioning the businesses as being local rather

than branches of a South African company.

Rest of Africa

As far as Ghana, Nigeria and Kenya are concerned, the fi nancial

services markets are at a much earlier stage of their evolution.

Consequently, opportunities for product enhancements and

totally new products are plentiful. The retail market in West

Africa, although still very underdeveloped, has attractive

growth prospects.

A comprehensive understanding of the exact requirements

of these markets is critical to developing appropriate product

offerings, and a market intelligence capability was developed

in Cape Town in 2008. New product developments are being

tailored to local conditions by combining the knowledge of

local managers and partners with the appropriate market

intelligence disciplines.

16% Lesotho

31% Botswana

53% Namibia

Total premium income exceeded R1 billion for the fi rst time

Contribution to operating profi tInternational businesses – south


Ghana – almost 50 000 individual life policies already on books

OPERATING ENVIRONMENT

Despite having an administration platform developed

specifi cally for doing business in Africa at their disposal,

costs and systems-related complications continued to cause

the international businesses headaches in 2008. Many of the

problems were ironed out during the course of the year and

system changes should be effected faster and at a lower cost

in future.

NEW BUSINESS

Retail

At R165 million, new business recurring premium income was

12% up on 2007. The “new” countries (Ghana, Kenya, Nigeria

and Swaziland) contributed approximately one third, with the

major portion of their contribution coming from Ghana. Ghana’s

retail new business premium income already exceeds that of

some of the more established businesses, and with close to

50 000 individual life policies in force, it should in the very near

future surpass the corresponding fi gure for both Botswana and

Lesotho.

In its fi rst year of operation, Nigeria wrote in excess of

R10 million in retail new business and expectations are that

this will increase exponentially in 2009. A review of the

current retail strategy is under way for Kenya in view of its

signifi cant underperformance. Lesotho had a particularly good

year while both Botswana and Namibia delivered satisfactory

performances.

Corporate

From an employee benefi ts perspective, 2008 was a very

tough year, with rate-cutting prevalent in a fi ercely competitive

environment. Having retirement fund trustees elect to move

their business to other service providers was a relatively

common occurrence. As a result, various funds were lost in

Botswana, Lesotho and Namibia.

The retirement fund markets in Ghana and Nigeria are still in

their infancy and more opportunities should arise as they gain

fi rmer footholds.

Turning to credit life, Nigeria performed exceptionally well,

with the bulk of its premium income of Nigerian Naira 1 billion

being generated by business of this nature. On the other hand,

in both Botswana and Namibia credit life business declined

sharply as several of the larger local banks elected to take their

schemes in-house. This had a marked negative impact on the

total premium income and profi ts of those two businesses.

KEY PERFORMANCE INDICATORS

The cluster’s total premium income exceeded R1 billion for

the fi rst time. Mortality and morbidity experience remained

below projections and the increase in surrenders and lapses

was less than expected in the face of the rapidly deteriorating

economic environment. Although margins were squeezed in

the corporate business arena, profi tability in general remained

stable. External factors, such as plummeting stock markets,

did not erode the solvency of Metropolitan International or

any of its subsidiaries, all of which remain in a sound fi nancial

position.

LOOKING AHEAD

In view of the fact that the new international businesses have

not yet reached breakeven point, and that it is taking longer

than anticipated for the greenfi elds operation in Kenya to

achieve economies of scale due to political as well as economic

factors, all further African expansion plans have been put on

hold for at least another year. Downsizings and retrenchments

are likely in 2009 as the economic downturn deepens, with

the countries in East and West Africa likely to be even more

adversely affected by the recessionary times than those in

the South.

West Africa will remain the cluster’s key area of focus for new

business growth. Prospects in Ghana are still good thanks

to its political stability, as evidenced by its peaceful election

and its economic strength due to the recent discovery of oil.

Metropolitan International’s partnership with the UBA Plc

group, the largest fi nancial services provider in Nigeria and the

West African subregion by balance sheet, deposit base, branch

infrastructure and number of customers, will continue to give

the cluster enormous leverage in that country.

A concerted effort will be made to bring strategic stakeholders

on board in both Kenya and Swaziland.

Tough economic conditions and market saturation notwith-

standing, Lesotho and Namibia should continue to measure

up to expectations. Given that the local economy is heavily

dependent on diamond mining and tourism, Botswana’s

performance is likely to be compromised by the recessionary

times being experienced in that country. The intensity of

competition in the relatively small Swazi marketplace will

defi nitely present challenges, but the roll-out of a country-

specifi c retail product range should strengthen Metropolitan

Swaziland’s hand. The international cluster expects that its

operating profi t will refl ect moderate growth in the year ahead

despite the adverse economic environment.

Nigeria – more than R10 million in retail new business in fi rst year of operation

METROPOLITAN | HEALTH CLUSTER | 59

EXECUTIVE COMMITTEE

Blum Khan Chief executive

Colin Campbell Risk executive

Dr Khaya Gobinca Managing director – Qualsa business unit

Kusile Mthunzi- Corporate affairs executiveHairwadzi

Austen Nenguke Chief fi nancial offi cer

Vuyo Ngonyama Company secretary

Nick Rudston Managing director – administration business unit

Joubert Steyn Managing director – IT business unit

Steven Williams Chief operations offi cer

CONTINUITY

The top management team of the Metropolitan Health Group (MHG)

was unchanged in 2008. Blum Khan remained in the role of chief

executive for the ninth year in succession, while Nick Rudston

continued to head up the healthcare administration arm (four years)

and Dr Khaya Gobinca the managed healthcare solutions arm (two

years). Membership of the executive committee was also constant

for the most part.

Continuity of leadership was one of the differentiating factors that

facilitated the robust growth of the cluster during the twelve months

under review, both in terms of numbers and of earnings. However,

an unwavering focus on cost-effectiveness and effi cient client service

in all areas of its operation remained its strongest competitive edge.

MHG continues to be the provider of administration and managed

care services to the greatest number of closed medical schemes

belonging to blue-chip South African companies.

It was on the strength of its past performance as a low-cost, high-

service administrator that MHG won the Polmed and Transmed

business when it re-tendered for these two medical aid administration

and managed care contracts in 2007. The same held true when

GEMS (the Government Employees Medical Scheme) put the

administration and clearing house components of its business

out to tender for a second time in 2008. MHG secured both of

these contracts for a further three-year period with effect from

1 January 2009.

COLLABORATION

MHG’s emphasis on the collaborative nature of client relationships

is another major contributory factor underpinning its success.

By establishing partnerships with the client in question, be it

government, a parastatal or a private sector institution, it develops

solutions in conjunction with them.

The cluster is particularly proud of the way in which it is

partnering with government as the largest single employer

in the country. The latter’s initiative to establish GEMS as a

closed medical aid scheme is supporting the national drive

to make healthcare more readily available to all South Africans,

at a price that is within the reach of many more of the citizens

of this country. GEMS has created the opportunity for

government employees who were previously excluded to join

a medical aid scheme. Alignment with the government’s desire

to improve the accessibility and affordability of healthcare is of

paramount importance to MHG.

CONSOLIDATION

Consolidation within the industry has to date been driven by

spiralling costs, a rapidly ageing population and the enormous

legislative and regulatory changes of the past decade. In the

future, the impact of GEMS, mooted national health insurance

initiatives and other social security reforms will lead to further

consolidation. Enhanced access to affordable healthcare will

clearly require innovative new developments. The importance

of the catalytic role that government will play in this regard

should never be underestimated.

With irrefutable evidence now at hand as to how well the

MHG administration model works for the GEMS product,

being an excellent fi t at current size and in terms of future

growth potential, the cluster will defi nitely seek to partner with

government in other similar initiatives, such as the proposed

OPERATIONAL REVIEW

HEALTH CLUSTER

Blum Khan, chief executive


Health performance overview2008

Rm2007

Rm%

change

Contributions received from members 14 494 10 701 35.4

Income 819 713 14.9

Administration fees received, excluding franchise fees 794 692 14.7

Franchise fees 8 10 (20.0)

Investment return 17 11 54.5

Diluted core headline earnings 100 64 56.3

national health insurance scheme, where a proven ability to

operate at minimum cost but optimum effi ciency will once

again be a critical success factor.

Principal members under administration as at 31 December

2008 2007

%

movement

Full administration, excluding

GEMS 421 899 412 757 2.2%

Full administration – GEMS300 520 195 733 53.5%

Total Full administration 722 419 608 490 18.7%

Franchise 59 556 54 555 9.2%

Total members under

administration 781 975 663 045 17.9%

Lives under administration as at 31 December

2008 2007

Full administration, excluding

GEMS 998 143 985 559 1.3%

Full administration – GEMS 824 753 536 221 53.8%

Total full administration 1 822 896 1 521 780 19.8%

Franchise 143 018 135 911 5.2%

Total lives under

administration 1 965 914 1 657 691 18.6%

EXPANSION

Should the government look for private sector partners in

social security undertakings in other health-related spheres, for

example the Road Accident and/or Workmen’s Compensation

Fund, MHG, in view of its track record, would once again be

well positioned to compete for these opportunities. A proven

ability to deliver above average levels of service at a below

average cost, and to do so consistently, makes a tie-up with

MHG an extremely attractive proposition.

MHG’s focus will remain on positioning itself as the

administrator of choice for high-volume, cost-effective service

delivery that exceeds customer expectations.

The cluster’s superior technological capabilities also gives

MHG a defi nite edge in meeting the complex fi nancial demands

of low-cost schemes, facilitating the take-on of new business.

RESOURCES

Planning is ongoing to ensure that the cluster remains

adequately resourced – particularly from a human and infra-

structural perspective – to cope with growth of between

10 000 and 15 000 new GEMS members under administration

per month. Additional offi ce space and the necessary staff

are secured well in advance. From a fi nancial point of view,

healthcare administration is not a capital intensive business

and off balance sheet funding is not required.

Customer service capacity was enhanced during 2008 with the

addition of new GEMS walk-in service centres countrywide, of

which there are now 18 in total. Existing centres were upgraded.

Operational capabilities and competencies were also enhanced,

in Cape Town, Pretoria, Braamfontein and Durban.

All the key performance indicators in existing service level

agreements with clients were met despite the pressure of

growing numbers – a tribute to the dedicated and disciplined

approach of the respective customer service teams.

58% Metropolitan

Health Group

65% of clients have been with us for longer than 10 years.

7% Company A 7% Company B 5% Company C

4% Company D 3% Company E 9% Company F

7% Company G

Share of closed medical aid scheme administration market in South Africa(based on principal members under administration as at

31 December 2008)

NEW INITIATIVES

Qualsa’s efforts to expand the range of managed healthcare

solutions on offer to employers were ongoing. Through its

supplementary employee wellness programme, which is

available on a stand-alone basis or as part of its managed health-

care offering, a more comprehensive risk management offering

is now available to clients. Employers fi nd the programme, with

its strong preventative rather than curative focus, and its dual

emphasis on boosting staff morale and productivity, of immense

practical value and are generally willing to fund it over and above

their normal medical aid contributions.

Establishing provider networks as a means of achieving

sustainable cost reductions and improving relations with providers

remains a priority for Qualsa, and good progress was made in this

regard during 2008. Prospects look promising that the disability

management programme, successfully implemented for the

Province of Gauteng, will be retained, hopefully with an extended

scope, during the year ahead.

QUALSA AWARDS 2008

In 2008 Qualsa, received a total of eight awards for outstanding

service from Professional Management Review (PMR), a

publication aimed at the top decision-makers in business and

government in South Africa.

PMR’s research results are formulated on the basis of interviews

with high-profi le fi gures in both the public and private sectors.

The awards are presented in various categories, with a diamond

arrow award signifying fi rst position overall, a golden arrow

award second position, and a silver arrow award third position.

Qualsa was the recipient of:

two diamond arrow awards

– for its health risk assessment and managed pathology programmes

respectively;

four golden arrow awards

– for its disease management (in respect of HIV/AIDS, diabetes, asthma

and cardiovascular ailments), hospital utilisation management, managed

oncology and managed radiology programmes respectively;

two silver arrow awards

– for its chronic medication management and wellness programmes

respectively.

LOOKING AHEAD

Although to date it has not been necessary for the balance sheets of healthcare administrators to be particularly strong, capital demands are increasing in line with the widening scope of product offerings. Developing and administering health structures for people who are currently underinsured, uninsured or deemed uninsurable because of economic constraints means that both the developer and the administrator have to be prepared to take fi nancial risks. While MHG, having operated at the base of the healthcare administration triangle for more than ten years, has clearly demonstrated its ability to do this very successfully, the fact that it is backed by the size and solidity of the Metropolitan balance sheet, undoubtedly counts heavily in its favour.

MHG will continue to balance cost-effectiveness, responsive-ness to client needs and delivery on promises to customers to ensure that it remains a preferred provider to both the public and the private sector.

Quality of MHG’s client base as at 31 December 2008

Solvency ratio (%) Lives administered Average industry solvency level Regulated solvency level

70

60

50

40

30

20

10

0Open Restricted Franchise All clients

2 500 000

2 000 000

1 500 000

1 000 000

500 000

0

Solvency ratio % Lives administered

28% Company A 13% Company B 4% Company C 7% Company D

10% Company E 16% Company F

Share of total medical aid scheme administration market in South Africa(based on average number of principal members under

administration during 2008)

22% Metropolitan

Health Group

METROPOLITAN | HEALTH CLUSTER | 61

62 | METROPOLITAN

Tim

oth

y M

urr

ay

Metropolitan’s strategy for growing the group going forward is firmly in place and management remains committed to exploring every possible avenue to enhance the value proposition for all stakeholders

METROPOLITAN | 63

Focusing on developing the potential of the people with

whom we do business and the communities within which

we operate, thereby contributing to the creation of an

inclusive economy.

ENHANCINGTHE VALUE PROPOSITION FOR ALL STAKEHOLDERS

64 | CORPORATE GOVERNANCE REPORT | METROPOLITAN

The Metropolitan group has long acknowledged that good

corporate governance is an integral part of its business

operations and that it is a result of collective responsibility and

shared accountability.

The group is committed to the principles of the Code on

Corporate Practices and Conduct as espoused in King Code II.

Our business philosophy is informed by our values, which

include being a good corporate citizen, integrity, accountability,

responsibility and our desire to be the leading fi nancial services

provider on the African continent. Appropriate best practice is

adopted and monitored in the countries where we have

operations.

Some of the key governance highlights and key developments

in 2008 included the following:

> The appointment in April 2008 of Wilhelm van Zyl as the

group CEO to succeed Peter Doyle

> Ongoing compliance with King II

> An annual board effectiveness assessment was conducted

by the Institute of Directors. The key issue that came out of

the assessment was that corporate governance practices

across the group should be standardised to ensure that the

high standards for which Metropolitan is known, are

maintained.

During the coming year, we will focus on succession planning,

as some of the non-executive directors will be retiring in the

next few years. More emphasis will be placed on director

training and development because of the changing legislative

environment and the much anticipated King Code III.

The board remains mindful of the need to achieve a balance

between performance, leadership and control in fostering an

entrepreneurial culture within acceptable risk levels, whilst at

the same time recognising the group’s broader obligations in

terms of environmental and economic performance and social

sustainability.

BOARD OF DIRECTORS

Role and function of the board of directors

The board is ultimately responsible for directing the company

purposefully into the future. It does so by determining the

group’s purpose and values and setting strategy and structure to

achieve this. Having an effective and appropriate board structure

is critical as the board must be able to exercise leadership,

enterprise, integrity and judgment. The Metropolitan Holdings

board is accountable and responsible for the performance and

affairs of the group. It achieves the above by delegating authority

to the board committees and management.

The board’s role and responsibilities include the following:

> ensuring that appropriate systems and procedures are in

place for the group to be able to conduct its business in an

honest, ethical, responsible and safe manner

> ensuring that effective audit, risk management and compliance

measures are in place

> actively guiding the strategic direction of the group

> reviewing acquisitions, disinvestments and capital expenditure

of the group

> reviewing and approving corporate plans, fi nancial policies and

operating budgets as well as monitoring fi nancial performance

and the integrity of reporting

> ensuring that there is effective, transparent and timely

reporting to shareholders

> exercising an overriding control over the business of the

group

> exercising independent judgement on issues facing the

group.

Independence of the board of directors

The group chief executive, Wilhelm van Zyl, assisted by two

executive directors and the executive management team, is

responsible for the day-to-day running of the group. The heads

of group businesses are invited to attend board meetings

when necessary, for example, when matters material to the

group involving their businesses are discussed. Prof Wiseman

Nkuhlu has chaired the board since 1 June 2007. The roles of

the group chairman, who is a non-executive director, and of the

group chief executive are kept separate in accordance with

principles of good corporate governance. In addition to the

three executive directors, the board comprises 11 non-

executive directors, three of whom are not independent.

> The chairman manages the board and provides effective

leadership in setting strategic direction.

> Appropriate governance principles are implemented at board

meetings and confl icts of interest are managed properly.

Possible confl icts of interest are dealt with as and when they

arise. In 2008 the board appointed a lead director, Mr PC

Lamprecht to, amongst other duties, chair the board

meetings when the chairman, Prof LW Nkuhlu, is confl icted.

> The board meets at least six times a year. Apart from those

scheduled, additional meetings are convened as

circumstances dictate. Directors are also afforded the

opportunity to propose additional matters for discussion.

> The majority of the directors on the board’s audit, actuarial,

risk, nominations and directors’ affairs, remuneration,

investment, and human resources and empowerment

committees are independent and non-executive.

> Non-executive directors do not hold service contracts with

the group and their remuneration is not tied to the group’s

fi nancial performance.

> All directors have access to the advice and services of the

company secretary and are entitled, at the group’s expense

CORPORATE GOVERNANCE REPORT

METROPOLITAN | CORPORATE GOVERNANCE REPORT | 65

and with the prior agreement of the group chairman, to seek

independent professional advice on the affairs of the group.

Within subsidiary entities, the role of chairman and chief executive does not vest in the same person; chairmen are non-executive directors of the entities.

Induction of new directors

Board members are decision-makers of the company, therefore the competence of individual directors is essential for effective decision-making. Directors must exercise due care and skill in their fi duciary duties and are required to have a sound under-standing of the business and knowledge of the markets within which the group operates. Our directors are chosen for their business skills and diversity of business and academic qualifi cations. Gender and race are also considered in order to accurately refl ect the demographics of the country.

An orientation programme for new directors is in place to ensure they are adequately briefed and have the required knowledge of the group’s structure, operations and policies to enable them to fulfi l their fi duciary duties and responsibilities.

Appointment and re-election of directors and succession planning

The board is responsible for nominating directors and for fi lling vacancies that may occur between annual meetings of shareholders.

The appointment of new directors is in terms of a formal and transparent procedure; prospective appointees are put forward by the nominations and directors’ affairs committee and approved directly by the board, subject to shareholder confi rmation at the following annual general meeting.

Because continuity is imperative, all non-executive directors are subject to retirement by rotation and re-election by shareholders at least once every three years in accordance with the group’s articles of association. Reappointment is not automatic.

BOARD COMMITTEES

The board has a number of committees that assist it in dis-

charging its duties. The committees meet independently and

then report back to the board through their chairmen.

Membership details of these committees are provided on

page 72. A comprehensive framework setting out the authorities

and responsibilities of the various subcommittees within the

group is in place. Each committee has a formal charter that

clearly defi nes its roles and responsibilities. All board-delegated

authorities are reviewed and updated annually.

A number of Metropolitan Holdings directors have been

appointed to the boards of subsidiaries. Whilst the holding

company board retains overall responsibility for the affairs of

the group, these subsidiary boards play an important role in

the group’s overall governance approach.

Audit committee

The chairman of this committee is an independent non-executive

director and all the members are independent non-executive

directors. Three executive directors, the head of the corporate

governance division, the statutory actuary, the external auditors

and other management, attend committee meetings. One of the

non-executive directors who was not independent resigned as a

member of the committee in order to comply with the Corporate

Laws Amendment Act requirement that members of the audit

committee should be independent. The head of internal audit is an

attendee at the meetings.

Principal objectives

In addition to overseeing the fi nancial reporting process, the

group audit committee’s principal objectives include:

> acting as an effective communication channel between the

respective boards and the external auditors and risk

management

> satisfying the board that adequate internal, fi nancial and

operating controls are addressed and monitored by manage-

ment, and that material fi nancial risks have been identifi ed

and are being contained and monitored

> providing the respective boards with an assessment of the

effectiveness of the external auditors and the internal audit

function

> approving the external audit fees

> monitoring the application of the policy that governs the

provision of non-audit services by the group’s external auditors

> approving the extent and nature of all non-audit services

provided

> dealing appropriately with any complaints it may have received

relating to the accounting policies, internal audit, the audit and

content of the fi nancial statements and internal fi nancial

controls.

The audit committee meets at least four times a year and reviews

and approves the audit plans, budgets and scope of the external

audit and risk management functions. The external auditors, the

statutory actuary, the group secretary and the head of internal

audit have unrestricted access to the chairman of the group audit

committee.

The audit committee has reviewed the statements of internal

control and considered the assumptions used to ascertain that

Metropolitan Holdings Limited will continue as a going concern

for the year ahead, and has recommended that the board approve

disclosure thereof in these annual fi nancial statements.

Internal, fi nancial and operating controls

The board acknowledges its responsibility for ensuring that the

group implements and monitors the effectiveness of systems

of internal, fi nancial and operating control. These systems are

designed to guard against material misstatement and loss.


The internal, fi nancial and operating controls maintained by the group are designed to provide reasonable assurance regarding:

> safeguarding of assets against unauthorised use or misappropriation

> compliance with applicable laws and regulations

> maintenance of proper accounting records

> adequacy and reliability of fi nancial information.

The identifi cation of risks, as well as the detailed design, implementation and monitoring of adequate systems of internal, fi nancial and operating control to manage such risks, has been delegated to executive management by the board. The external audit and risk management functions help to provide the board and senior executive management with monitoring mechanisms to carry out this task. The group audit, actuarial and risk committees regularly review these matters on behalf of the board.

However, even effective, well-designed systems of internal, fi nancial and operating control have inherent limitations, including the possibility of circumventing or overriding such, to provide absolute assurance. Effective systems of this nature aim, therefore, to provide reasonable assurance as to the reliability of fi nancial information and, in particular, of the fi nancial statements.

In addition, changes in the business and operating environment could have an impact on the effectiveness of such controls. Thus changes of this nature are continually reviewed and reassessed.

To the board’s knowledge, no issue that would constitute a material breakdown in the functioning of these controls occurred during the year under review, up to and including the date on which the annual fi nancial statements were approved.

Financial complaintsIn line with Metropolitan’s commitment to enhanced openness and transparency, a wide range of options have been put in place to make it easier for stakeholders in the group to draw the audit committee’s attention to any aspect of the group’s accounting practices, internal auditing procedures or fi nancial reporting standards, or any related matter, that they are concerned about.

Firstly, concerns can be e-mailed directly to the chairman of the audit committee at [email protected] or in writing to The Chairman, MHL Audit Committee, Corporate Governance, Executive Suite, Parc du Cap 7/1, Metropolitan, PO Box 2212, Bellville, 7535.

Alternatively, a fi nancial complaints form can be submitted from the investor relations webpage on our corporate website www.metropolitan.co.za.

If fraudulent or other irregular activities are suspected, these

can be channelled using the group’s existing fraud report form,

which can also be found on our corporate website, or use can

be made of the Metropolitan Ethics Line (0800 22 14 18).

Internal audit

The internal audit functions of the group are located within the

corporate governance division. The group’s internal auditors

perform independent reviews of the group’s operational and IT

activities. Group internal audit services are charged with

examining and evaluating the effectiveness of the group’s

operational activities, the related business risks and the

systems of internal, fi nancial and operating control. Major

weaknesses are brought to the attention of the group audit,

actuarial and risk committees, the external auditors and

members of executive management for their consideration

and remedial action. The head of internal audit has direct

access to the chairman of the group audit committee.

External audit

PricewaterhouseCoopers Inc. is the group’s appointed

external auditor. Deloitte & Touche reviews the group’s

statement of embedded value. The board has approved a

policy governing the provision of non-audit services by the

group’s external auditor. The policy limits the combined fees

for non-audit services in any year to 50% of the external audit

fee, an amount that must be approved by the audit committee.

Each individual assignment is subject to pre-approval by the

chairman of the audit committee. Any further work to be

undertaken requires the committee’s approval as well.

Actuarial committee

Actuaries assist the board in actuarial matters and conduct the

actuarial valuations of assets and liabilities of the life companies

in the group. The actuaries are subject to the professional

guidelines of the Actuarial Society of South Africa. The statutory

actuaries, who are responsible for all regulatory reporting to

the Financial Services Board, have specifi c responsibilities

relating to the interests of policyholders.

The primary objectives of the committee are:

> understanding the current areas of greatest actuarial risk and

how management is managing these effectively

> reviewing bonus rates, property valuations and valuation of

unlisted investments

> reviewing the statutory actuary’s report

> considering the signifi cant actuarial and fi nancial risks and

exposure and the plans to minimise such risks

> reviewing the principles and practices of fi nancial

management of discretionary participation policies and the

communication thereof to policyholders

> reviewing the external auditor’s and actuaries’ proposed

audit scope and approach insofar as it relates to the actuarial

statements

> reviewing the quality of the actuarial statements to determine

whether they accurately and fairly present the state of affairs

of the company.


continued


Human resources and empowerment committee

Chaired by an independent non-executive director of the board,

this committee includes one executive and four independent

non-executive directors. Members of senior management also

attend committee meetings on invitation. The committee,

which meets at least three times a year, is responsible for

managing and monitoring the group’s human capital,

employment equity and transformation initiatives. It is also

tasked with ensuring that the group’s succession planning is

appropriately and adequately dealt with.

Investment committee

Chaired by an independent non-executive director, this

committee includes two executive and two independent non-

executive directors. The group’s asset portfolios, each with its

own unique investment mandate managed by Metropolitan

Asset Managers, follow an investment strategy approved by

this committee. The committee regularly reviews the group’s

investment performance, including the attainment of perfor-

mance benchmarks and compliance with mandates. Members

of senior management attend committee meetings by invitation.

The group and statutory actuaries are integral to the process to

ensure appropriate asset matching for policyholder liabilities and

shareholder investments.

Nominations and directors’ affairs committee

Chaired by a non-executive director of the board, the committee

is responsible for identifying fi t and proper candidates who could

be appointed to the board, and evaluating them against the

specifi c disciplines and areas of expertise required on the board.

The interests of different stakeholders are also considered.

Proposals are presented to the board for a fi nal decision.

Remuneration committee

Meeting four times a year, this committee sets remuneration

policy for all staff members. It comprises an independent

non-executive director as chairman, one non-independent

non-executive director and two independent non-executive

directors. Members of senior management also attend

meetings. Guidelines, balanced scorecards and key perform-

ance indicators (KPIs) have been set to assist the directors and

members of the subcommittees in evaluating the performance

of individuals.


The remuneration committee also deals with all aspects of the

remuneration of directors and executive management,

including share incentive arrangements.

The committee’s principal objectives are to:

> review the group’s compensation and benefi ts policies and

procedures

> set remuneration levels for executive directors as well as the chairmen and non-executive directors. Such levels are subject to board approval

> review and approving general proposals for salary and benefi t adjustments for all staff

> assist the board by ensuring that effective, affordable and equitable compensation practices are implemented in the wider group

> consider the guaranteed remuneration and annual performance bonuses of executive management

> review and approve proposals for general adjustments to standard conditions of employment

> determine the appropriate short- and long-term incentive schemes across the group for executive directors and management

> evaluate the group’s performance to approve the performance bonus pool and long-term incentive scheme grants

> review the performance measures and criteria to be applied for annual incentive payments

> ensure compliance with applicable legislation and regulations.

Remuneration policyThe group’s philosophy is to appropriately reward performance that results in the attainment of business strategies and goals. Remuneration packages are therefore structured in order to attract, incentivise and retain the talent needed to achieve the group’s strategic and operational objectives. In accordance with this philosophy, the group’s remuneration philosophy includes short-term and long-term incentives.

Guaranteed remunerationThe guaranteed element of remuneration is set at relevant market-related levels, taking individual performance and responsibility into account.

Short-term incentivesTargets and measures in the form of a balanced scorecard are included in annual business plans and approved by the board for the performance of the group, businesses and individuals. As from 2007, the following revised performance criteria for the group and income-generating businesses as well as service units have been agreed:

Group and income-generating businesses

70% fi nancial 10% strategic – group10% strategic – business10% people

Service units

12.5% cost management12.5% strategic12.5% people12.5% service standards50% fi nancial performance of client businesses


All targets are cascaded and then evaluated from group to

business to individual level.

Performance bonuses paid to individuals are dependent on the

group rating, the rating of the relevant business and the

individual’s own performance rating.

A performance bonus will only be considered once threshold

performance objectives have been met; it is not a guaranteed

portion of remuneration. Both expected and stretch targets

are set for each item, with bonus percentages increasing

exponentially should target thresholds be exceeded. Bonuses

are determined by applying the achieved percentage to the

total annual package. All levels of management participate in

the performance bonus pool.

In addition, a variety of performance-based incentive pro-

grammes are used for employees in the group. The executive

directors participate in the performance bonus scheme described

above.

Long-term incentives

These are intended to promote the alignment of management’s

interests with those of shareholders and provide a longer term

incentive as part of the remuneration structure. The group has a

long-term incentive scheme for management. The cash payment

is linked to the performance of the group, with specifi c growth

targets being set for each annual award to management. Only

on exceeding the threshold target over a three-year period will

management qualify for the cash payment.

Pension and medical aid

Pension and medical aid benefi ts are provided to all permanent

employees.

Annual performance reviews

Remuneration packages, including short- and long-term incen-

tives are reviewed annually by the remuneration committee,

with due regard to individual performance and market rates.

Executive directors do not participate in discussions of their

packages. The chairman appraises the performance of the

group chief executive at least annually and the board performs

a self-assessment. The appraisal focuses on the implementation

of policies and strategies adopted by the board, operational

performance and leadership. Appraisal results are reviewed

and discussed by the remuneration committee and are used to

determine the group chief executive’s remuneration.

Fees for non-executive directors

Non-executive directors receive a fee for their contribution to

the respective boards and board committees of which they are

members. Fee structures are recommended to the board by

the chairman of the remuneration committee, based on market

research on trends and levels of directors’ remuneration.

Disclosure of directors’ remuneration

Individual disclosure of the remuneration of executive and non-

executive directors is provided on page 71 of this report.

Risk committee

The board has delegated the assessment of the quality, integrity

and reliability of the group’s risk management processes to the

Metropolitan Holdings risk committee. The objective of the

committee is to assist the board in the discharge of its duties

relating to corporate accountability and the associated risks in

terms of management, assurance and reporting.

A risk is defi ned as the probability that any event, either internally

or externally generated, may have a critical impact, whether

negative or positive, on the achievement of the business

objectives.

The committee reviews and assesses the integrity of the risk

control systems and ensures that the risk policies and strategies

are effectively managed. The committee sets out the nature, role,

responsibility and authority of the risk management functions

within the Metropolitan Holdings group of companies and support

divisions and outlines the scope of risk management work. The

committee monitors external developments relating to the practice

of corporate accountability and the reporting of specifi cally

associated risks, including emerging and prospective impacts.

The committee provides an independent and objective oversight

and review of the information presented by management on

corporate accountability and specifi cally associated risk, also

taking account of reports by management and the audit and

actuarial committees to the board on fi nancial, business

and strategic risk.

The committee is chaired by an independent non-executive

director and includes two executive directors and fi ve independent

non-executive directors.

In addition to the abovementioned board risk committee, the

group fi nance director chairs a group management risk committee

(RISCO). The members comprise executive directors, selected

senior executives and the corporate governance group executive.

The committee is tasked with integrating and monitoring the

management of risk in respect of the day-to-day activities of the

group. The objectives of the group’s corporate governance

division include facilitating the risk management and reporting

processes on a corporate and business unit level. As risk

management continues to evolve, both locally and globally, the

group’s processes and structure are constantly being reviewed.


The risk committee’s principal objectives include:

> reviewing all RISCO reports detailing the adequacy and overall

effectiveness of the group’s risk management function and its

implementation by management, reporting on internal controls

and any recommendations, and confi rming that appropriate

action has been taken

> reviewing the total process of risk management in the group

and determining the group’s “risk appetite”


continued


> reviewing the risk philosophy, strategy and policies

recommended by RISCO and considering reports by RISCO as

well as ensuring compliance with such policies, and with the

overall risk profi le of the group

> reviewing risk identifi cation and measurement methodologies

> reviewing the adequacy of insurance coverage

> reviewing procedures to deal with the disclosure of information

to clients, as well as any legal matters that could have a

signifi cant impact on the group’s business

> reviewing the effectiveness of the system of monitoring

compliance with the relevant laws and regulations of those

legislative frameworks within which the group’s businesses

operate

> exercising due regard for the principles of governance and

codes of best practice.

Responsibility for risk management

The board acknowledges its responsibility for establishing

appropriate risk and control policies and ensuring that adequate

risk management processes are in place. In fulfi lling its duties,

the board has delegated particular elements of their oversight

responsibilities to board committees.

Management is the “owner” of the risk management process.

They are accountable to the group CEO and board for

implementing and monitoring the process of risk management

and internal control, and integrating it into the day-to-day

operations of the business.

Business continuity and technology recovery

A documented and tested process is in place that allows

Metropolitan’s critical business processes to continue operating

should a large-scale incident disrupt business activities. An

integrated functional business continuity test takes place annually

at our off-site recovery area. Each year the scope is increased to

ensure that the testing becomes more effective and any issues

highlighted during the test are resolved.

Compliance

As is the case for the rest of the fi nancial services industry, the

legislative environment in which Metropolitan operates is rapidly

increasing in complexity.

Metropolitan accordingly has representatives on various industry

bodies, which submit collective input regarding legislative and

regulatory changes, such as the new commission regulations.

Group executive committee

This committee is comprised of the executive directors and

senior group executives. Chaired by the group chief executive,

it is responsible for the day-to-day running of the group. It

meets once a month.

BOARD EVALUATION

In 2008 an external appraisal of the board was conducted by

the Institute of Directors. The evaluation focused on whether

the board fulfi ls its mandate as contained in the group’s board

charter as well as examining the board’s effectiveness. The

conclusion from the evaluation was that the board has more

strengths than weaknesses and is making a concerted effort

to introduce best practice wherever possible.

SHARE DEALING AND INSIDER TRADING

The group has a code focusing on share dealing that applies to

all employees. The code imposes closed periods in order to

prohibit dealing in Metropolitan Holdings Limited securities

before the announcement of interim and year-end fi nancial

results as well as in any other period considered to be price-

sensitive, having regard to the requirements of the JSE

Limited. A closed period has been defi ned as the period from

the end of a particular fi nancial reporting period to the date on

which the results relating to that period are released. Any

period during which the group is trading under a cautionary

announcement is included.

The group company secretary undertakes the administration

needed to ensure compliance with this code, under the

direction of the group fi nance director.

The code goes further by restricting dealings of directors and

other senior personnel in any security that may be affected by

a transaction or proposed transaction.

FINANCIAL REPORTING

The group’s annual fi nancial statements are prepared in

accordance with International Financial Reporting Standards

(IFRS) and are supported by reasonable judgements and

estimates. The directors are responsible for the fi nancial

statements of the group and the company and are satisfi ed

that they fairly present the fi nancial position, performance

and cashfl ows of the group and the company as at

31 December 2008. The external auditors are responsible for

independently auditing the fi nancial statements (see report on

page 88). The embedded value statement is also subject to an

independent actuarial review.

SHAREHOLDER COMMUNICATION

Metropolitan maintains highly rated standards of shareholder

communication which are widely recognised by members of

the investment community. Over and above the normal interim

and full-year fi nancial disclosure, the group also publishes

quarterly and other updates that are distributed to all interested

parties.

In line with international best practice, institutional share-

holders (local and international) receive regular visits

from executive management during which the group’s most

recently published results are discussed.


DIRECTORATE

The following persons acted as directors of the company

during 2008. The appointments of these directors were

confi rmed at the annual general meeting of shareholders.

Non-executive chairman (non-independent)

Prof Wiseman Nkuhlu


Wilhelm van Zyl (appointed 1 April 2008)

Peter Doyle (retired 31 March 2008)

Executive directors

Abel Sithole (resigned 30 June 2008)

Phillip Matlakala

Preston Speckmann

Independent non-executive directors

Fatima Jakoet

Peter Lamprecht

Syd Muller

John Newbury

Bulelwa Paledi

Marius Smith

Franklin Sonn

Johan van Reenen

Non-executive directors (non-independent)

Johnson (JJ) Njeke

Andile Sangqu

GROUP COMPANY SECRETARY

The group company secretary plays a vital role in ensuring

the effectiveness of the board and committees of the board.

He/She has unrestricted access to the chairman of the board

and to all the chairmen of the committees of the board,

including the group CEO.

The group company secretary’s functions include the following:

> providing the directors of the group, collectively and individually,

with detailed guidance on their duties, responsibilities and

powers

> providing information on legislation relevant to or affecting the

group

> reporting at any meeting of the shareholders of the group or of

the group’s directors, any failure to comply with such legislation,

including the listings requirements of the JSE Limited

> ensuring that minutes of all shareholders’ meetings, directors’

meetings and the meetings of any committees of the directors

are properly recorded

> ensuring that the group has complied with its memorandum

and articles of association, drafting resolutions for general

meetings and registering them with the registrar of

companies

> administering closed periods for dealing in the listed

securities of the group

> managing the induction of new directors.

Bongiwe Gobodo-Mbomvu is the secretary of Metropolitan

Holdings Limited. Her business and postal addresses are: Parc

du Cap 7, Mispel Road, Bellville 7530 and PO Box 2212, Bellville

7535 respectively.

DIRECTORS’ INTERESTS IN CONTRACTS

As directors of Metropolitan’s strategic empowerment partner,

Kagiso Trust Investments (Proprietary) Limited (KTI), Professor

Wiseman Nkuhlu, JJ Njeke and Andile Sangqu have an interest

in the contractual relationship between the two parties.

DIRECTORS’ SHAREHOLDINGS

The direct and indirect holdings and transactions of the directors

of Metropolitan Holdings Limited as at 31 December 2008 are

set out on page 73. The directors purchased these shares at

ruling market prices. Only executive directors participate in the

share purchase scheme. Non-executive directors have access to

the group’s shares through the open market.

DELEGATION OF AUTHORITY

The Metropolitan Holdings board has delegated the manage-

ment of the group to the chief executive offi cer. In delegating

these powers, the board has imposed certain restrictions,

conditions and limits that they believe to be appropriate for the

effective exercise of such delegated powers. The board approves

the delegation of authority annually, whereupon it can vary or

revoke it as deemed fi t. Having delegated power in this manner,

the board still has the ultimate duty to monitor management’s

performance.

SUSTAINABILITY

A separate report on sustainability is issued concurrently with

the annual fi nancial report. This report includes in-depth

coverage of social, environmental and governance issues, such

as empowerment and HIV and AIDS, that infl uence the

sustainability of the organisation. This report is available on the

group’s website www.metropolitan.co.za, in the investor

relations section.


continued


DIRECTORS’ EMOLUMENTS

Months Fees Annual package Bonus Pension fund Total

R’000 R’000 R’000 R’000 R’000

2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

Prof Wiseman Nkuhlu 12 9 810 408 810 408

Peter Doyle1 3 12 1 023 3 030 3 469 1 800 92 473 4 584 5 303

Phillip Matlakala 12 12 1 721 1 553 1 100 750 192 230 3 013 2 533

Abel Sithole2 6 12 1 468 1 851 715 875 106 272 2 289 2 998

Preston Speckmann 12 12 1 913 1 674 2 375 2 200 213 277 4 501 4 151

Fatima Jakoet 12 12 705 484 705 484

Peter Lambrecht 12 12 795 566 795 566

Syd Muller 12 12 526 418 526 418

John Newbury 12 12 732 620 732 620

JJ Njeke3 12 12 528 576 528 576

Bulelwa Paledi 12 12 330 300 330 300

Andile Sangqu 12 12 550 446 550 446

Marius Smith 12 12 606 551 606 551

Franklin Sonn 12 12 348 300 348 300

Johan van Reenen 12 12 632 500 632 500

Wilhelm van Zyl4 9 2 452 1 000 494 3 946 –

6 562 5 169 8 577 8 108 8 659 5 625 1 097 1 252 24 895 20 154

¹ Retired 31 March 2008

² Resigned 30 June 2008

³ Acting chairman during 20074 Appointed 1 April 2008

DIRECTORS’ ATTENDANCE

Holdings board Audit Actuarial Remuneration

HR &

empowerment Investment Risk

Nominations

& directors’

affairs International

Subsidiary

boards &

committees

Meetings held during 2008 5 5 5 3 4 4 4 4 2

MembersMeetings attended

Meetings attended

Meetings attended

Meetings attended

Meetings attended

Meetings attended

Meetings attended

Meetings attended

Meetings attended

Meetings attended

Wiseman Nkuhlu 5 3* 3 2 4 4

Wilhelm van Zyl 5 5* 5* 3* 4 5 2* 4* 2 20

Preston Speckmann 5 5* 5 5 4 13

Phillip Matlakala 5 2* 11

Fatima Jakoet 5 5 1² 2 15

Peter Lamprecht 5 5 5 4 1³ 4

Syd Muller 5 5 4 2 4

John Newbury 4 3 4 4 14

J J Njeke 5 2 3 4 3

Bulelwa Paledi 4 1 2

Marius Smith 5 5 5 4 7

Franklin Sonn 5 3 1

Johan van Reenen 5 3 5 4 2 9

Andile Sangqu 4 4¹ 4 4 10

* Not a member – attends meetings

¹ Resigned 31 May 2008

² Appointed 1 June 2008

³ Appointed 2 September 2008



continued

MEMBERSHIP OF BOARD AND BOARD COMMITTEES

Directors Audit Actuarial Remuneration HR & E Investment Risk Nominations International

Chairman LW Nkuhlu ML Smith PC Lamprecht JE Newbury JE Newbury JC van Reenen PC Lamprecht LW Nkuhlu JC van Reenen

Members FW van Zyl (CEO)3

PR Doyle (CEO)1 SA Muller AH Sangqu JC van Reenen B Paledi ML Smith ML Smith JE Newbury F Jakoet

AM Sithole (exec)2 AH Sangqu5 PE Speckmann MJN Njeke FA Sonn SA Muller JC van Reenen MJN Njeke SA Muller

PE Speckmann (exec) PC Lamprecht MJN Njeke AH Sangqu FA Sonn PR Doyle

P Matlakala (exec) F Jakoet LW Nkuhlu PR Doyle B Paledi FW van Zyl

F Jakoet PR Doyle PE Speckmann LW Nkuhlu

PC Lamprecht AM Sithole AM Sithole PR Doyle

SA Muller FW van Zyl FW van Zyl PE Speckmann

JE Newbury

MJN Njeke

B Paledi

AH Sangqu

ML Smith

FA Sonn

JC van Reenen

Exec directors PR Doyle PR Doyle PR Doyle FW van Zyl PR Doyle

To attend PE Speckmann FW van Zyl FW van Zyl FW van Zyl

AM Sithole

FW van Zyl

P Matlakala

Management V Mhlongo4 L Raftesath M le Roux W Lusted W Lusted PL Morrall WF Coetzee V Mhlongo JTM vd Hoven

On standing WT Naude L Raftesath N Chonco JJ Venter L Raftesath

Invitation B Petersen B Petersen T Alsworth-Elvey V Mhlongo

V Mhlongo M McDougall K Larkin

SecretaryB Gobodo-Mbomvu

B Gobodo-Mbomvu

B Gobodo-Mbomvu

B Gobodo-Mbomvu

B Gobodo-Mbomvu

B Gobodo-Mbomvu

B Gobodo-Mbomvu

B Gobodo-Mbomvu

B Gobodo-Mbomvu

¹ Retired 31 March 2008

² Resigned 30 June 20083 Appointed 1 April 20084 Resigned 31 December 2008 5 Resigned – invitee to all meetings


LISTED SHARES

Direct Indirect

Benefi cial Non-benefi cial Benefi cial Non-benefi cial Total

31 December 2008 000 000 000 000 000

Wilhelm van Zyl 400 400

Wiseman Nkuhlu 2 2

Syd Muller 7 7

John Newbury 28 28

Johan van Reenen 315 315

Balance at 1 January 2008 419 419

Trades in 2008 -104 -104

Andile Sangqu – –

Balance at 1 January 2008 1 1

Trades in 2008 -1 -1

Marius Smith 105 105

Franklin Sonn 3 41 44

Total listed shares – 2008 405 7 448 41 901

In addition, the executive directors are benefi ciaries of the management trust, which in turn has an indirect shareholding of 5% in Metropolitan

Holdings.

TRADES IN LISTED SHARES

Transaction Number Nature of Extent of

31 December 2008 date Price of shares transaction interest

AH Sangqu 31/03/2008 R13.12 1 000 Sale Direct benefi cial

JC van Reenen 06/05/2008 R13.37 39 000 Sale Indirect benefi cial

JC van Reenen 07/05/2008 R13.05 65 400 Sale Indirect benefi cial

* Purchase price adjusted due to capital reductions

74 | EMPOWERMENT REPORT | METROPOLITAN

EMPOWERMENT REPORT

TRANSFORMATION

Broad-based black economic empowerment (B-BBEE) is one of

Metropolitan’s most important business imperatives and is in

line with the group’s strategic objectives. B-BBEE is aimed at

establishing an inclusive society for certain groups after many

years of exclusion, particularly from an economic perspective.

Metropolitan’s vision is to create prosperity for the people of

Africa by maintaining a leading position as an empowered, and

empowering, fi nancial services group. However, making a

positive contribution to B-BBEE entails more than investing in

empowerment initiatives; it requires a company to be a catalyst

for change by embracing the spirit of transformation and not

merely following the letter of the law.

For Metropolitan, B-BBEE is not about compliance but about

building a sustainable business whose prosperity is determined

by the level of prosperity it generates for all its stakeholders –

shareholders, customers, staff, suppliers and members of the

communities where it does business.

The empowerment requirements set out in the department of

trade and industry’s (DTI) codes of good practice (CoGP) and

the Financial Sector Charter (FSC) are key drivers for the

strategy and operations of the group. However, Metropolitan

regards the legislative and regulatory requirements in respect

of empowerment as the minimum standards to be met; as a

group, we have always focused on exceeding the expectations

outlined by the FSC council and the DTI.

Metropolitan shapes its strategies and its implementation

plans to achieve fully transformed status and become a leader

in terms of the B-BBEE criterion – this is in line with our

commitment to B-BBEE. The group contributes to positive

change by helping to eradicate the imbalances of the past.

An integral part of the way we do business is by enhancing the

level of investment in empowerment initiatives. This is key to

achieving our objective.

The FSC was adopted in 2004 and incorporates several em-

powerment components. The compliance targets and weight-

ings allocated to each component – or pillar – are all aimed at

empowering black people and bringing them into the fi nancial

services industry as owners, customers, employees and/or

suppliers. Strong emphasis is also placed on broadening

access to fi nancial services so that millions of disadvantaged

black people, who were previously unbanked or uninsured, can

enter the mainstream economy by making use of the products

and services offered by the sector.

In 2007 the DTI (under minister Mandisi Mphalwa) introduced

the CoGP. At that time, the industry discovered that there

were several differences between the requirements of the

CoGP and those of the FSC – one of these being ownership.

Whereas the FSC requires a minimum of 10% direct black

ownership and 15% indirect (for a total of 25%), the CoGP

stipulates direct black ownership of 25%.

The CoGP was gazetted on 9 February 2007 and made provision

for a transitional period during which sector charters could be

gazetted as sector codes. Before this can happen for the FSC,

consensus has to be reached on the discrepancies between the

two sets of requirements. However, provision will still have to be

made for the two empowerment components that are unique to

the fi nancial services sector (being empowerment fi nancing and

access to fi nancial services). Unless the matter is resolved before

the end of March 2009, the charter and the council will cease to

exist. However, Metropolitan is continuing its participation in the

FSC reporting process until a fi nal ruling has been made, and is

once again publishing its offi cial scorecard for the reporting

period ended 31 December 2008, audited by accredited rating

agency NERA (National Empowerment Rating Agency), in this

year’s annual report (see pages 78 and 79).

BEE COMPONENTS

The commentary in this report focuses on both the B-BBEE

requirements of the CoGP and the group’s FSC scores, as well

as highlighting

> empowerment fi nance and

> access to fi nancial services and consumer education

being the two components that are only incorporated in

the FSC. Metropolitan is in the process of having its

performance in terms of the CoGP audited by NERA and

will publish its official scorecard on the corporate website

(http://www.metropolitan.co.za) as soon as it is available.

At this stage of the audit, all CoGP statistics are still

provisional.

Ownership

In terms of the CoGP, effective ownership in a company is

determined by two factors, namely:

> economic interest, and

> exercisable voting rights.

Exercisable voting rights by black people and economic interest in the enterprise to which black people are entitled

(provisional calculations in terms of the CoGP) were as follows as at 31 December 2008:

Target % Actual %

Total votes exercisable by black people 25 44.42

Total votes exercisable by black women 10 12.19

Economic interest to which black people are entitled 25 44.42

Economic interest to which black women are entitled 10 12.19

METROPOLITAN | EMPOWERMENT REPORT | 75

The ownership element is aimed at encouraging active partici-

pation by black people in general, black women in particular and

specifi ed broad-based black groupings in the affairs of the

companies they own. Their inclusion is ensured to the extent

that equal economic interest and voting rights are attached to

their shares and the extent to which their shareholdings are

unencumbered.

Therefore, where stakes are held by corporate entities,

shareholder interests and voting rights should be evaluated

individually to determine effective ownership by the ultimate

benefi ciaries.

Based on Metropolitan’s share register as at 31 December 2008,

and the provisional results of the audit outcome of the external

audit that is currently being conducted by NERA, 44.42% of

the voting rights in the group were effectively held by black

people, with 12.19% held by black women.

Employment equity (EE)

By upholding the principles of employment equity and equality,

Metropolitan is aiming to create a working environment based

on dignity and respect for all people. The group also focuses on

attracting a diverse staff complement that refl ects the compo-

sition of society in general at all levels of the organisation. It

therefore strives to develop employment equity strategies that

comply with both legislative and regulatory requirements while

at the same time nurturing diversity in its workforce.

This year’s EE performance (15 points out of a total of 15 in FSC

terms) was particularly pleasing.

Skills development and learnerships

Metropolitan has always been committed to developing and

upskilling its employees, and its black staff members in

particular. On an annual basis, each business unit compiles and

implements a workplace skills plan as well as completing the

necessary annual training reports, used by the group people

services division to capture information as per the Skills

Development Act, Skills Development Levies Act and Inseta’s

on-line reporting requirements. Effective record-keeping

means that the group is able to measure and monitor its

performance on an ongoing basis, including the quantum of its

spend on training and development initiatives.

Despite having to meet cost containment demands and face

certain record-keeping challenges in 2008, Metropolitan

achieved 3.54 out of 5 points in terms of the FSC’s evaluation

criteria.

The group is planning on investing more extensively in

mentorship and coaching programmes as well as corporate

and industry orientation programmes and business-specifi c

training, focused mainly on equipping black people at senior

management level given that the majority of Metropolitan’s

black managers are currently at a junior level. Training and

leadership development initiatives are, however, being put in

place across the employee spectrum in an effort to ensure that

staff are empowered at all levels of the organisation. In this

way the group is also mitigating the potential risk of not having

enough skilled black people in key positions.

Metropolitan also uses other tools to help it achieve its skills

development objectives, eg learnerships and bursary schemes

targeting students who are exploring careers in fi nance and

actuarial science in particular. A separate programme, namely

the Metropolitan leadership and management programme

(LAMP), is specifi cally aimed at increasing the pool of black

female managerial talent across the group.

Allocating considerable fi nancial and human resources to

certifi ed learnership programmes (both employed and

unemployed learnerships) on an annual basis is another of the

ways in which the group makes a signifi cant contribution to the

development of black people.

Employment equity – extract from Metropolitan’s detailed FSC scorecard (see page 78)

INDICATORS TARGET 2008 THRESHOLD WEIGHTING ACTUAL SCORE

SECTION 1 – paragraph 5 of the charter: human resource development 20.00 18.54

1.1 Employment equity 15.00 15.00

1.1.1 Senior managementBlack people as % of senior management Min 20%-25% 10.00% 4.00 40.19% 4.00

Black women as % of senior management Min 4% 1.60% 1.00 11.96% 1.00

1.1.2 Middle managementBlack people as % of middle management Min 30% 17.00% 4.00 45.50% 4.00

Black women as % of middle management Min 10% 5.00% 1.00 16.88% 1.00

1.1.3 Junior managementBlack people as % of junior management Min 40%- 50% 28.00% 4.00 67.49% 4.00

Black women as % of junior management Min 15% 12.00% 1.00 43.64% 1.00

Explanatory notes on EE levels

> Senior management = job grades 3 and 4 (excluding members of the group’s executive committee)

> Middle management = job grades 5 to 7 plus area and regional managers

> Junior management = job grades 8 to 10 plus sales managers and consultants


Preferential procurement and enterprise development

Preferential procurement

During the 2008 reporting period, the group appointed an

external service provider to assist with the supplier

management function throughout the organisation. This was

done to enable Metropolitan to capture and assess its own

performance as well as evaluate the B-BBEE information

available on all suppliers registered on its data base.

Regular interventions involving both suppliers and internal

contract owners are ongoing, with a view to educating them

about the group’s empowerment requirements while at the

same time encouraging and enabling them to comply with the

latter. In addition, a series of supplier transformation workshops

was hosted with certain key suppliers during the 2008 reporting

period to sensitise them to the importance of transformation

within their respective organisations. This created a platform

for open dialogue and resulted in growing awareness of Metro-

politan’s preferential procurement or B-BBEE requirements.

At present the biggest challenge facing the group is the

allocation of preferential procurement spend to suppliers that

render essential services, including IT, auditing, share broking

and trading. It is imperative that these challenges be addressed

more aggressively going forward, and a target of 50%

preferential procurement spend on essential services by 2010

has therefore been set.

Enterprise development

In addition to the initiatives identifi ed under the preferential

procurement pillar, one of Metropolitan’s enterprise

development initiatives was particulary successful during the

reporting period, being the Metropolitan SMME (small,

medium and micro enterprises) portal. The group once again

partnered with Ubuntu Empowerment Services to run a very

effective portal to help industry players identify suitable

empowerment partners as well as to pinpoint new business

opportunities for SMMEs. The portal also helps prepare

SMMEs to avail themselves of these new opportunities.

Another of the portal’s key objectives is to provide SMMEs with

a platform to market themselves, as well as to give emerging

informal businesses access to the mainstream economy

through enterprise development and procurement opportunities

leading up to the 2010 Soccer World Cup and beyond.

The portal also seeks to add a developmental dimension to

economic growth by unleashing the entrepreneurial spirit of

South Africans and boosting the growth of small businesses.

It provides real tools that bridge trade barriers and facilitate

true black economic empowerment through enterprise

development and procurement. This fi ts in well with

Metropolitan’s own commitment to B-BBEE and its objective

of inspiring and facilitating active involvement in the social

and economic revival of communities.

To date, the portal has been successfully launched in the

Eastern Cape, Western Province and KwaZulu-Natal. Since its

inception in 2007, a total of 790 SMMEs have registered, with

a tender listing of 801.

Socio-economic development (SED)

Metropolitan’s view on investing in SED initiatives (also referred

to as corporate social investment or CSI) has always been to

add value by contributing to the upliftment and empowerment

of local communities and those who have been disadvantaged

in the past.

The group is committed to making a positive difference to the

lives of people in South Africa as well as in Africa as a whole.

Key to all its SED initiatives is upliftment by enabling black

people who are not yet participating in the mainstream

economy to do so. This ensures that the benefi ciaries of its

SED investments can be incorporated into an economically

active society in a sustainable way.

Metropolitan’s performance as at 31 December 2008 earned

the group a provisional overall score of 4.5 out of 5 in terms of

the CoGP.

Examples of SED initiatives in which the group invested during

2008 included focusing on HIV/AIDS (through the Live the

Future project) and providing fi nancial assistance to black

actuarial students (Actuaries on the Move) as well as to other

black students pursuing a career in accounting, etc.

Metropolitan is also committed to developing and transforming

local black communities through its involvement in soccer at

grassroots level. This includes supporting the Metropolitan

Under 19 League, the Metropolitan Premier Cup and COSAFA

Under 20 Youth Championships.

Access to fi nancial services

The FSC defi nes “access” as the ability to purchase retail

insurance products and services that mitigate the impact of

defi ned basic risks (life insurance, funeral insurance, burial society

membership, household insurance and health insurance).

In 2007, the fi rst set of access standards, applicable to funeral

products, was approved and implemented by the life insurance

industry. The second set of access standards, relating to non-

funeral products, was only released by the FSC council in

February 2008. Although this meant a delay in Metropolitan’s

plans, the group pressed ahead and succeeded in meeting all

self-imposed deadlines for having three out of the maximum

four access products in the market by the end of 2008.

The group’s performance during 2008 was scored at 12.58 out

of 14.

EMPOWERMENT REPORT

continued


Going forward, Metropolitan intends to focus more aggressively

on distributing fi nancial products that are in line with the needs

of the lower income groups (LSMs 1–5). Every effort will be

made to ensure that these products are appropriate, affordable,

easy to understand and a good investment in terms of value

for money. This should result in a higher level of participation by

the lower income groups in the mainstream economy.

Consumer education

Metropolitan aims to direct a minimum of 0.2% of its post-tax

operating profi t to consumer education initiatives per annum,

in accordance with the requirements of the FSC. These include

programmes aimed at empowering consumers with basic

fi nancial knowledge to enable them to make more informed

decisions about their fi nances and lifestyles.

The group embarked on a number of FSC-compliant consumer

education initiatives in 2008, investing 0.49% (minimum 0.2%)

of post-tax operating profi t in fi nancial literacy programmes.

Consequently a score of 2 out of 2 points was recorded.

Empowerment fi nancing

Empowerment fi nancing contributes a total of 22 points to the

overall FSC scorecard. According to the requirements outlined

in the charter, empowerment fi nancing is the provision of

fi nance for, or investment in, targeted investments and black

economic empowerment transactions. Targeted investments

include debt fi nancing of, other forms of credit extension to, or

equity investment in, South African projects in areas where

gaps or backlogs in economic development and job creation

have not been adequately addressed by fi nancial institutions.

As per the FSC guidance notes, the 2008 reporting year is the

fi fth of the current fi ve-year evaluation period.

Thanks to Metropolitan’s long-standing commitment to

transformation, the group had already been extensively

involved in empowerment fi nancing initiatives prior to signing

the FSC. Currently, the main driver of the group’s investment

in initiatives of this nature is the African Wealth Creator Fund,

which was established specifi cally for this purpose.

Taking the above factors into account, Metropolitan’s invest-

ment in empowerment fi nancing in 2008 was scored at 14.22

out of the total of 22 points allocated to this component.

IN CONCLUSION

As mentioned earlier, Metropolitan is of the view that B-BBEE

is an important building block in the creation of an egalitarian

society in that it contributes in many and varied ways to the

transformation of the socio-economic landscape in South

Africa. It is the foundation on which a sustainable business

environment can be built, from a community and a commercial

perspective.

Effective transformation is also a corrective tool that aims to

create opportunities for those who were deliberately denied

them in the past. The group therefore believes in a holistic

approach to empowerment which, even though aimed primarily

at black South Africans, has a positive impact on all our

stakeholders, ie internal and external.

As a leading empowerment group, Metropolitan is committed

to:

> investing in and driving empowerment initiatives more

aggressively going forward

> education that creates opportunities for prosperity and

restores dignity

> pride generated through a deep understanding and

appreciation of its African heritage, in all the countries in

which it operates

> partnerships that improve quality of life and leave lasting

legacies within communities and workplaces

> contributing to a sustainable society.

As the group sees it, these are minimum requirements; it is

both Metropolitan’s desire, and its stated intent, to exceed

them. Its commitment to legislative and regulatory compliance

in respect of B-BBEE is ongoing, being the basis on which all

its business policies, procedures and practices are formulated.

However, the expectations of Metropolitan’s people, including

all its stakeholder groupings, are of paramount importance in

setting the empowerment standards that it is constantly

striving to attain, and maintain.


EMPOWERMENT REPORT

continued

Metropolitan’s audited Financial Sector Charter (FSC) scorecard as at 31 December 2008

Summary scorecard

ELEMENT POINTS WEIGHTING INSTITUTION’S SCORE

Employment equity 15.00 15.00

Skills development 5.00 3.54

Preferential procurement & enterprise development 15.00 10.48

Access to fi nancial services 14.00 12.58

Empowerment fi nancing 22.00 14.22

Ownership 12.00 16.00

Control 8.00 8.00

Corporate social investment 3.00 3.00

Totals 94.00 82.81

PERCENTAGE 88.10%

ANNUAL TARGET 85.00%

COMPLIANCE% 103.65%

RATING A

Detailed scorecard


SECTION 1 – paragraph 5 of the charter: human resource development 20.00 18.54

1.1 Employment equity 15.00 15.00

1.1.1 Senior managementBlack people as % of senior management Min 20%-25% 10.00% 4.00 40.19% 4.00

Black women as % of senior management Min 4% 1.60% 1.00 11.96% 1.00

1.1.2 Middle managementBlack people as % of middle management Min 30% 17.00% 4.00 45.50% 4.00

Black women as % of middle management Min 10% 5.00% 1.00 16.88% 1.00

1.1.3 Junior managementBlack people as % of junior management Min 40%- 50% 28.00% 4.00 67.49% 4.00

Black women as % of junior management Min 15% 12.00% 1.00 43.64% 1.00

1.2 Skills development 5.00 3.54

1.2.1 Skills spend% payroll spent pa on skills development of black employees

1.50% 3.00 1.90% 3.00

1.2.2 Learnership programme 1.50% 2.00 0.40% 0.54

SECTION 2 – paragraph 6 & 7 of the charter: procurement and enterprise development 15.00 10.48

Procurement 50% 10% 15.00 34.93% 10.48

Procurement from black infl uenced companies & companies rated “D” in terms of a charter

x 50%

Procurement from companies rated “C” in terms of a charter

x 75%

Procurement from black empowered companies & companies rated “B” in terms of a charter

x 100%

Procurement from black SMEs, black companies, black women empowered enterprises & companies rated “A” in terms of a charter

x 125%

Enterprise development

Enterprise development: black infl uenced companies

x 50%

Enterprise development: black empowered companies

x 100%

Enterprise development: black SMEs, black companies & black women empowered enterprises

x 125%



SECTION 3 – paragraph 8 of the charter: access to fi nancial services 14.00 12.58

3.3 Life assurance products and services

Compliant products 3 2.00 3.00 2.00

Number of policies 478 971 7.00 534 682 5.58

Transactional access 80% 3.00 79% 3.00

3.7 Consumer education % of post-tax operating profi ts spent pa Min 0.2% 2.00 0.49% 2.00

SECTION 4 – paragraph 9 of the charter: empowerment fi nancing 22.00 14.22

4.1 Targeted investments Institution’s target for targeted investments 758 643 172 17.00 576 117 598 12.91

4.2. BEE transaction fi nancing, including JVs, debt fi nancing, equity investments in BEE companies that are not black SMEs

Institution’s target for BEE transaction fi nancing

597 356 828 5.00 155 983 195 1.31

SECTION 5 – paragraph 10 & 11 of the charter: ownership & control 20.00 24.00

5.1 Ownership 12.00 16.00

5.1.1 Direct ownershipPoints 25% 12.00 44.42% 12.00

Bonus points 25% 4.00 44.42% 4.00

5.1.2 Direct or indirect ownership in excess of 10 %

5.2 Control 8.00 8.00

5.2.1 Board

Black people as a % of the board of directors

33.00% 20.00% 2.00 57.14% 2.00

Black women as a % of the board of directors

11.00% 0.00% 1.00 14.29% 1.00

5.2.2 Executive

Black people as a % of the board of directors

25.00% 18.43% 4.00 50.00% 4.00

Black women as a % of the board of directors

4.00% 0.46% 1.00 10.00% 1.00

SECTION 6 – paragraph 12 of the charter: corporate social investment 3.00 3.00

Corporate social investment % of post-tax operating profi t directed pa to CSI

0.50% 3.00 0.91% 3.00

Totals 94.00 82.81

80 | HIV AND AIDS REPORT | METROPOLITAN

METROPOLITAN’S RESPONSE TO HIV AND AIDS

Metropolitan has been a leader in the response to the HIV and

AIDS epidemic in South Africa for almost two decades, with an

excellent reputation and a proud legacy. Metropolitan’s

commitment to researching HIV and AIDS began as long ago

as 1988 when Peter Doyle, the group’s former chief executive,

developed a modelling tool to project the impact of HIV and

AIDS in South Africa. The well-known Doyle model, published

in 1990, has since been used for research into the prevalence

of HIV and AIDS in South Africa and led to the establishment

of various AIDS research units within the group, the current

one known as AIDS Risk Consulting.

Pioneers in the provision of risk solutions to those affected by

the pandemic, Metropolitan was the fi rst life insurer in South

Africa to classify AIDS sickness as a dread disease and, in

1996, the fi rst company worldwide to offer life cover to HIV

positive people.

The group’s commitment to HIV and AIDS in South Africa

extends to widespread support for and funding of a broad

spectrum of social programmes that care for or offer support

to HIV and AIDS sufferers.

Today, Metropolitan is still considered a leader in the fi eld of

HIV and AIDS research and management, and continues to

develop innovative solutions to managing this growing

epidemic.

In 2008 Metropolitan’s ongoing contribution included:

> enhancing the private sector response to the HIV & AIDS

and STI Strategic Plan for South Africa, 2007 – 2011 through

the use of its Live the Future HIV and AIDS scenarios

> using its expertise in AIDS and demographic modelling to

ensure that its risk products remain competitively priced

> advising organisations on the impact of HIV and AIDS on

their businesses

> implementing an integrated employee wellness programme.

Enhancing the private sector response to HIV and AIDS

through the use of the Live the Future HIV and AIDS

scenarios

How will our responses to HIV and AIDS shape the future of

South Africa by 2025?

The Live the Future model is a thought-provoking scenario

planning tool that aims to provide a vision of a future in which

South Africa has successfully addressed the epidemic. It

comprises four scenarios that create a shared understanding

of the key driving forces of the epidemic and illustrates how

they will shape the future of our country. The scenarios provide

a powerful means of identifying the direction in which a

community or organisation is moving, while at the same time

inspiring action to change or maintain that direction depending

on where it is taking them.

Using Live the Future to create collaboration in the business

sector

In 2008 the Work the Future roadshow, sponsored by

Metropolitan in partnership with Business Unity South Africa

(BUSA) and the South African Business Coalition on HIV and

AIDS (SABCOHA), was used to present the Live the Future

scenarios, which range from devastating to inspiring. The aim

was to engage business leaders on their role in the HIV & AIDS

and STI Strategic Plan for South Africa, 2007 – 2011 (NSP),

promote ‘critical’ business collaboration and highlight what

business is currently doing (or failing to do) in addressing the

prevention of HIV infections and in providing treatment, care

and support. Since the goals of the NSP correspond closely to

the Summer for All People scenario in which prevention is key

and collaboration vital, the roadshow generated a renewed

private sector response to the epidemic in South Africa.

At the Johannesburg launch, the deputy president of

South Africa, Ms Mbete, endorsed the project as

follows:

“ I want to agree that the Work the Future roadshow is an

important vehicle for South African business to

communicate the National Strategic Plan on HIV and

AIDS as well as STIs…

“ For this reason, we want to applaud all stakeholders

for establishing the Live the Future model that seeks

to create a vision for a future South Africa that

effectively addresses this epidemic and will change for

the better the lives of all our people.

“ Indeed this signifi es a new and innovative approach

that complements the NSP. “

World AIDS Day 2008

Leadership and unity was selected as the national theme for

World AIDS Day 2008 (WAD08):

> to encourage leaders at all levels to stop HIV and AIDS and

> to partner as a nation to stop new infections and provide

treatment, care and support to those infected and affected

by HIV and AIDS.

In support of the South African National AIDS Council’s national

call, Metropolitan asked all employees to observe a minute’s

silence at 12:00 on 1 December 2008. We also supported

SANAC’s call for a national 15-minute focus on actions to be

taken by each of us to stop HIV and AIDS.

For the fi rst time in history, South African leaders stood

together to fi ght HIV and AIDS on WAD08. Metropolitan

supported the initiative countrywide, with key messages being

delivered by group chief executive, Wilhelm van Zyl, and

group chairman, Prof Wiseman Nkuhlu. Staff were also invited

to attend the powerful Work the Future multi-media

presentation.

HIV AND AIDS REPORT

METROPOLITAN | HIV AND AIDS REPORT | 81

In addition, Brad Mears, chief executive of SABCOHA, sent

a copy of Work the Future to all SABCOHA members to inspire

business to take action in the fi ght against HIV and AIDS.

Mr Mears stated: “In line with the theme for World

AIDS Day 2008, the Summer for All People scenario

focuses on collaborative leadership and prevention as

the key to a successful future for South Africa…

“ The DVD could be the ideal information to share with

your employees to start a dialogue about where we,

as citizens, employees, companies and a nation, are

going.”

Metropolitan is actively backing the new drive by government

leaders in support of the ongoing efforts of the SA National

AIDS Council to stop the spread of HIV and to assist those

who are infected. Through the use of the powerful Live the

Future scenarios, we aim to inspire, support and facilitate the

private sector strategy on HIV and AIDS.

Expertise in AIDS and demographic modelling ensures

competitive risk product pricing

Metropolitan has been using its expertise in AIDS and

demographic modelling since the early nineties to refi ne the

pricing of its risk products. This ensures that group life and

disability insurance as well as individual life products remain

competitive through making adequate allowance for HIV

infection rates while simultaneously taking into account the

impact of interventions such as anti-retroviral treatment. The

introduction of anti-retroviral treatment in South Africa has

resulted in a shift in the life expectancy of the HIV positive

insured population, leading to more affordable and appropriately

priced risk products.

Advising organisations on the impact of HIV and AIDS

on their businesses

Metropolitan has been advising organisations on the impact of

HIV and AIDS on their business since the late nineties, and has

been instrumental in the introduction of HIV disease

management, including anti-retroviral treatment, to employees

in various big companies across Southern Africa.

Through the use of its comprehensive HIV and AIDS impact

assessment, Metropolitan has convinced numerous clients of

the sound business case underlying the implementation of a

comprehensive workplace programme on the basis of the cost

savings achieved by providing treatment. A detailed and highly

sophisticated study of this nature shows that it is invariably

more cost-effective to treat AIDS-sick employees, even if they

do not have access to a company-sponsored medical aid

scheme, due to the savings on group life and disability costs

and human resource expenses. In addition, an HIV and AIDS

workplace programme is now a vital component of the

employee wellness programme of all major organisations in

Southern Africa and is regarded as a minimum standard as far

as both good corporate governance and sustainability practices

are concerned.

Metropolitan AIDS Risk Consulting provides actuarial expertise

in this regard, while the Metropolitan Health Group develops

healthcare solutions for a wide range of clients.

Integrated HIV and AIDS workplace programme

Metropolitan has a well-established, comprehensive HIV/AIDS

workplace programme that is focused on creating a sustainable

workforce and community. Among the objectives of the

employee wellness team is the integration of HIV and AIDS

into all aspects of their programme, with an emphasis on

wellness in all senses, including dealing with the stigma and

other negative perceptions around HIV and AIDS. In 2008

comprehensive wellness and HIV and AIDS initiatives were

rolled out to all the Metropolitan regional offi ces.

In order to evaluate the success of the HIV and AIDS workplace

programme on an ongoing basis, the actual annual statistics

are compared to those projected in the group’s 2006 Actuarial

Impact Assessment. As indicated above, an impact assess-

ment determines the risk that HIV and AIDS poses to a

business and what the fi nancial implications could be if the

business in question does not respond adequately.

UPDATE ON METROPOLITAN HIV AND AIDS IMPACT

ASSESSMENT

Metropolitan’s 2006 impact assessment provided projected

costs and savings to the company as a result of HIV and AIDS

over a ten-year period. This report summarises the fi ndings

pertaining to the 2008 fi nancial year as well as providing an

overview of what can be expected in 2009.

SAVINGS AS A RESULT OF HIV AND AIDS WORKPLACE

PROGRAMMES

The study showed that in 2008 Metropolitan enjoyed savings

in respect of HIV-related costs because it had had an HIV and

AIDS disease management programme in place since 2003.

The saving, which is equal to the difference between the no

treatment and the status quo scenario, was an estimated

R4.6 million. The saving for 2009 is projected to be R4.7 million.

A further R8.7 million could be saved if the take-up rate of

disease management increases.

DEMOGRAPHIC IMPACT ASSESSMENT

The HIV prevalence rate for Metropolitan (percentage of

employees who are HIV positive) was estimated to be 8.5% in

2008, increasing to 8.7% in 2009 (see fi rst table overleaf). The

30–39 year-old age group showed the highest HIV prevalence

rate at 8.9% (2008) as well as the highest expected increase in

HIV prevalence to 2016.

82 | HIV AND AIDS REPORT | METROPOLITAN

HIV AND AIDS DISEASE MANAGEMENT PROGRAMME:

TAKE-UP RATE

Monitoring the take-up by HIV positive employees of the

Metropolitan HIV and AIDS disease management programme is

important in determining the success of this workplace inter-

vention. The take-up rate of anti-retroviral treatment (percentage

of employees taking up treatment out of those estimated to be

eligible for treatment) dropped slightly over the last fi nancial year.

It is estimated that 41% of the employees are accessing disease

management when they are in the fi nal stages of the disease.

Successful clinical intervention in the AIDS-sick phase results in

employees returning to work and leading a productive life.

MANAGING THE IMPACT OF HIV AND AIDS

Research indicates that human resources are responsible for

more than 50% of an organisation’s operating expenses.

Ensuring employee health and wellness is therefore a critical

operating strategy to achieve optimal productivity, which leads

ultimately to business success. Managing HIV and AIDS

among employees is seen as a critical aspect of employee

health and wellness. The fi rst step in this management is

voluntary counselling and testing (VCT) so that employees

know their status and are given appropriate advice on how to

manage it.

WELLNESS AND HIV/AIDS

In 2008, as in previous years, Metropolitan hosted

comprehensive wellness campaigns during the course of

which the wellness team visited all the branch offi ces in all the

provinces of South Africa, Namibia, Lesotho and Botswana.

During these sessions, employees were educated about health

and wellness matters and given an opportunity to test for all

the chronic diseases, including diabetes, hypertension, body

mass index, HIV, cholesterol, etc.

ESTIMATED HIV PREVALENCE AND AIDS-RELATED DEATHS

2005 2006 2007 2008 2009

HIV prevalence rate 7.4% 7.9% 8.2% 8.5% 8.7%

AIDS deaths as percentage of employees 0.36% 0.41% 0.45% 0.48% 0.51%

An increase in HIV prevalence over time has contributed in part to more people receiving anti-retroviral treatment. It is important to note that longer

life expectancy and better quality of life are the drivers of reduced HIV and AIDS-related costs to a company while giving rise to the apparent paradox

of higher levels of HIV prevalence.

ESTIMATED TAKE-UP RATE OF DISEASE MANAGEMENT THROUGH METROPOLITAN

2005 2006 2007 2008

Too early to treat 8% 5% 7% 8%

On anti-retroviral treatment 36% 37% 46% 41%

Total take-up rate 13% 13% 17% 18%

FINANCIAL IMPACT ASSESSMENT (CURRENT SCENARIO) FOR 2007 AND 2008 (COSTS AS % OF PAYROLL)

2007 2008

Employee benefi ts AIDS-related costs (death benefi ts) 0.7% 0.8%

Employee benefi ts AIDS-related costs (disability benefi ts) 0.4% 0.6%

HIV and AIDS-related human resource costs 0.7% 0.7%

HIV and AIDS-related medical expenses 0.6% 0.7%

Total HIV and AIDS-related expenses 2.4% 2.8%

The fi nancial impact assessment provides an indication of employee benefi ts, human resource and medical costs and savings as a result of the

comprehensive HIV and AIDS workplace programme. Total HIV and AIDS-related costs to Metropolitan were estimated at 2.8% of payroll in 2008.

The human resource costs that were incurred by Metropolitan as a result of HIV and AIDS include those associated with sick leave and absenteeism,

loss in productivity, recruitment to replace employees who die of AIDS-related causes and subsequent training of new staff. The study showed that

the biggest part of this was as a result of HIV and AIDS-related sick leave and loss of productivity. Medical costs as a result of treatment of AIDS-

related illnesses also form a substantial part of the total HIV and AIDS-related costs to Metropolitan.

HIV AND AIDS REPORT

continued

PARTICIPATION IN WELLNESS DAYS

The wellness sessions were well attended, with total overall

participation at 78%. Namibia recorded the highest participation

of 98%, while the Eastern and Western Cape had the lowest

participation levels of 66% and 69% respectively. The

percentage participation is calculated on the basis of the

number of employees who participated versus the total

number of employees in a particular region. Given that out in

the regions most Metropolitan employees are not offi ce bound,

some of them were inevitably absent on the dedicated

wellness days. However, almost all of the employees who

were in offi ce on the appointed day elected to participate. This

level of participation is exceptionally high considering that

people are generally apathetic and distrustful when it comes to

personal health matters, and it was emphasised that partici-

pation was voluntary.

There is ample evidence that HIV and AIDS can impact

negatively on the profi tability and sustainability of an

organisation if not managed well. During these sessions, HIV

testing was actively encouraged and the benefi ts of early

detection of the disease were emphasised. Support services

for counselling, both internal and external, were identifi ed.

Treatment programmes provided by Qualsa, the managed

healthcare arm of the Metropolitan Health Group, were also

highlighted. The future progression of the HIV and AIDS

epidemic depends on actions taken by employer groups like

Metropolitan.

PERCENTAGE THAT PARTICIPATED IN VOLUNTARY HIV

TESTING

Of the 78% of employees who participated in the general

wellness tests, 73% volunteered to be tested for HIV after

receiving counselling. This is a very high participation rate,

indicative of the willingness of Metropolitan employees to

assume responsibility for their own health, including HIV.

However, 27% of the employees who agreed to be tested for

other illnesses declined to have the HIV test done.

METROPOLITAN | HIV AND AIDS REPORT | 83

PARTICIPATION IN VOLUNTARY HIV TESTING

Of the employees who volunteered to be tested, 12% tested

positive. This fi gure is, however, not a reasonable estimate of

the overall HIV prevalence rate for the total workforce due to

the potential bias in the take-up of voluntary counselling and

testing (VCT). Employees who know their HIV status, or those

who perceive themselves not to be at risk of being infected,

might not come forward to test. Although the fi gure is in line

with the estimated total national HIV prevalence rate, it is

higher than the estimated HIV prevalence rate for Metropolitan

as per the actuarial impact assessment, but lower than

the adult HIV prevalence rate as projected for the working

population.

The total HIV prevalence rate in South Africa is 12% whereas

20% of adults between the ages of 20 and 64 are estimated to

be HIV positive (as per the provincial version of the Actuarial

Society of South Africa’s model, namely the ASSA2003 (full)

AIDS and Demographic Model). The adult HIV prevalence rate

for the provinces ranges from 28% in KwaZulu-Natal to 9% in

the Western Cape.

CONCLUSION

The Metropolitan wellness days will be held annually to monitor

the progress of participants and to track new infections. The

wellness team will continue to emphasise education on chronic

illnesses like hypertension, diabetes, hyper-cholesterolaemia

and their effects, to run regular VCT campaigns as well as to

encourage physical activity and promote prudent diet in the

management of overweight, obesity and high cholesterol

levels. Support services for employees who test HIV positive

are always available, but getting those employees who are

positive but are ‘too early to treat’ to enrol on these programmes

remains a challenge.

The wellness of Metropolitan employees will always be a key

focus area of the group people services department.

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Sisa Rafuza, Metropolitan Asset Managers

84 | METROPOLITAN

As a leading empowerment group, Metropolitan is committed to investing in and driving empowerment initiatives more aggressively going forward.

METROPOLITAN | 85

COMMITTEDTO INVESTING INAND DRIVING EMPOWERMENT INITIATIVES

We are also committed to pride generated through a deep

understanding and appreciation of our African heritage, in

all the countries in which we operate.

ADDING VALUEto all that we do

FINANCIAL STATEMENTS

DIRECTORS’ RESPONSIBILITY AND APPROVAL 87

CERTIFICATE BY THE GROUP COMPANY SECRETARY 87

REPORT OF THE INDEPENDENT AUDITORS 88

CERTIFICATE BY THE STATUTORY ACTUARY 88

DIRECTORS’ REPORT 89

AUDIT COMMITTEE REPORT 92

DEFINITIONS 93

REPORT ON GROUP EMBEDDED VALUE 95

STATEMENT OF ACTUARIAL VALUES OF ASSETS

AND LIABILITIES 103

BALANCE SHEET 104

INCOME STATEMENT 105

STATEMENT OF CHANGES IN EQUITY 106

CASH FLOW STATEMENT 107

GROUP ACCOUNTING POLICIES 108

CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES 123

SEGMENT REPORT 124

NOTES TO THE FINANCIAL STATEMENTS 130

METROPOLITAN HOLDINGS LIMITED ANNUAL FINANCIAL

STATEMENTS 196

METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 87

RESPONSIBILITY FOR ANNUAL FINANCIAL STATEMENTS

The directors take responsibility for ensuring that these fi nancial

statements accurately and fairly represent the state of affairs

of the company and of the group at the end of the fi nancial

year and the profi ts and losses for the year. The directors are

also responsible for the accuracy and consistency of other

information included in the fi nancial statements.

To enable the directors to meet these responsibilities:

> the group and company fi nancial statements are prepared

by management; opinions are obtained from the statutory

actuaries of the life insurance companies and the external

auditors of the companies.

> the board is advised by the audit committee, comprising

only non-executive directors, and the actuarial committee.

These committees meet regularly with the auditors, the

statutory actuaries and the management of the group to

ensure that adequate internal controls are maintained, and

that the fi nancial information complies with International

Financial Reporting Standards. The internal auditors, external

auditors and the statutory actuaries of the companies have

unrestricted access to these committees.

To the best of their knowledge and belief the directors are

satisfi ed that no material breakdown in the operation of the

systems of internal control and procedures occurred during

the year under review.

The annual fi nancial statements have been prepared in

accordance with the provisions of the South African Companies

In accordance with the provisions of section 268G(d) of the South African Companies Act, 1973, as amended, I certify that for the

year ended 31 December 2008 the companies have lodged with the registrar of companies all such returns as are required of a

company in terms of the act, and that all such returns are true, correct and up to date.

Bongiwe Gobodo-MbomvuGroup company secretary – Metropolitan Holdings Limited and Metropolitan Life Limited

Cape Town

10 March 2009

Act, 1973 as amended and the Long-term Insurance Act, 1998

as amended and comply with International Financial Reporting

Standards and guidelines issued by the Actuarial Society of

South Africa.

The directors have no reason to believe that the group, or

any company within the group, will not be a going concern in

the foreseeable future, based on forecasts and available cash

resources. These fi nancial statements support the viability of

the group and the company.

It is the responsibility of the independent auditors to report

on the fi nancial statements. In order to do so they were given

unrestricted access to all fi nancial records and related data,

including minutes of all meetings of shareholders, the board

of directors and committees of the board. The audit report is

presented on page 88.

APPROVAL OF ANNUAL FINANCIAL STATEMENTS

The annual fi nancial statements, presented on pages 89 to 210,

were approved by the board of directors on 10 March 2009 and

are signed on its behalf by:

Wilhelm van Zyl Preston Speckmann Group chief executive Group fi nance director

Cape Town Cape Town

10 March 2009 10 March 2009

DIRECTORS’ RESPONSIBILITY AND APPROVAL

CERTIFICATE BY THE GROUP COMPANY SECRETARY

Wilhelm van Zyl Preston Speckmann

METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008

88 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS

We have audited the annual fi nancial statements of

Metropolitan Life Limited and the annual fi nancial state-

ments and the consolidated annual fi nancial statements

of Metropolitan Holdings Limited, which comprise the

directors’ report, balance sheets and consolidated balance

sheet as at 31 December 2008, the income statements and

the consolidated income statement, statements of changes

in equity and the consolidated statement of changes in

equity, the cash fl ow statements and consolidated cash

fl ow statement for the year then ended and a summary of

signifi cant accounting policies and other explanatory notes as

set out on pages 89 to 94 and 103 to 210, excluding the audit

committee report on page 92.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL

STATEMENTS

The companies’ directors are responsible for the preparation and

fair presentation of these fi nancial statements in accordance

with International Financial Reporting Standards and in the

manner required by the Companies Act of South Africa. This

responsibility includes: designing, implementing and maintaining

internal control relevant to the preparation and fair presentation

of fi nancial statements that are free from material misstatement,

whether due to fraud or error; selecting and applying appropriate

accounting policies; and making accounting estimates that are

reasonable in the circumstances.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these fi nancial

statements based on our audit. We conducted our audit in

accordance with International Standards on Auditing. Those

standards require that we comply with ethical requirements

and plan and perform the audit to obtain reasonable assurance

whether the fi nancial statements are free from material

misstatement.

I hereby certify that:

> the valuation, on the statutory basis, of Metropolitan Life

Limited, as at 31 December 2008, the results of which are

summarised on page 103 and further explained on pages 116

to 119 and in notes 20 and 43 on pages 146 to 150 and

pages 180 to 187, has been conducted in accordance with,

and said commentary has been produced in accordance

with, applicable Actuarial Society of South Africa Professional

Guidance Notes

> Metropolitan Life Limited was fi nancially sound on the

statutory basis as at the valuation date, and in my opinion is

likely to remain fi nancially sound for the foreseeable future.

Lance Raftesath FFAStatutory actuary – Metropolitan Life Limited

Cape Town

10 March 2009

An audit involves performing procedures to obtain audit

evidence about the amounts and disclosures in the fi nancial

statements. The procedures selected depend on the auditor’s

judgement, including the assessment of the risks of material

misstatement of the fi nancial statements, whether due

to fraud or error. In making those risk assessments, the

auditor considers internal control relevant to the entities’

preparation and fair presentation of the fi nancial statements

in order to design audit procedures that are appropriate in

the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the entities’ internal control.

An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the

overall presentation of the fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient

and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the fi nancial statements present fairly, in all

material respects, the fi nancial position of the companies

and of the group as of 31 December 2008, and of their

fi nancial performance and their cash fl ows for the year then

ended, in accordance with International Financial Reporting

Standards, and in the manner required by the Companies Act

of South Africa.

PricewaterhouseCoopers Inc.Director: Hennie Nel

Registered Auditor

Cape Town

10 March 2009

REPORT OF THE INDEPENDENT AUDITORS

to the members of Metropolitan Holdings Limited and Metropolitan Life Limited

CERTIFICATE BY THE STATUTORY ACTUARY

P i t h C I

Lance Raftesath FFA


The directors take pleasure in presenting their annual report, which forms part of the audited annual fi nancial statements of the group and the company for the year ended 31 December 2008.

PRESENTATION OF FINANCIAL STATEMENTS

International Financial Reporting Standards (IFRS)

The consolidated balance sheet, income statement, statement of changes in equity and cash fl ow statement as set out below have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued and effective at the time of preparing these statements. The accounting policies of the group have been applied consistently to all periods presented. The preparation of fi nancial statements in accordance with IFRS requires the use of certain critical accounting estimates as well as the exercise of managerial judgement in the application of the group’s accounting policies. Such judgement, assumptions and estimates are disclosed on page 123.

Changes to presentation and restatement of 2007 results

> Certain policy loans were previously disclosed as loans and receivables within the fi nancial instruments category. These policy loans (R175 million), together with the related insurance (R134 million) and investment contract liabilities (R41 million), were derecognised and the disclosure was changed from what was disclosed in 2007. The opening balances in 2007 for insurance (R94 million) and investment (R45 million) contract liabilities were also restated. This resulted in net insurance benefi ts and claims for 2007 increasing by R40 million as only insurance premiums are recorded in the income statement. This had no impact on earnings attributable to equity holders of the group.

> Certain investment contracts were accounted for as insurance business in 2007. Premium income and operating profi t on insurance contracts was therefore reduced by R77 million, with a corresponding increase in fee income from investment contracts in 2007. This had no impact on earnings attributable to equity holders of the group.

> The disclosure of scrip lending fees received was changed from that disclosed in the 2007 annual fi nancial statements. Scrip lending fee income of R19 million, previously disclosed as

investment income, has been reclassifi ed as fee income as this class was considered more appropriate. This had no impact on earnings attributable to equity holders of the group.

Embedded value

Revised embedded value guidance from the Actuarial Society of South Africa, which is intended to be materially consistent with the CFO Forum’s European Embedded Value (EEV) Principles issued in May 2004, became effective for reporting periods ending on or after 31 December 2008. The disclosed embedded value results have been prepared in accordance with these new guidelines. The diluted embedded value at 31 December 2007 has been restated accordingly (decrease of R171 million).

Annual fi nancial statements of Metropolitan Holdings Limited and Metropolitan Life Limited

The annual fi nancial statements of Metropolitan Life Limited, the largest operating subsidiary of the holding company, are disclosed with the Metropolitan Holdings group fi gures in this report. The annual fi nancial statements of Metropolitan Holdings Limited are disclosed on pages 197 to 210.

NATURE OF ACTIVITIES

The Metropolitan Holdings group comprises registered life insurance and related fi nancial services companies that transact, in Africa, life, group schemes, employee benefi ts, health insurance products and administration services, selected banking and other complementary products, as well as medical aid scheme administration, managed care and other related health risk management services, asset management business and collective investment schemes.

RESULTS OF OPERATIONS

The operating results and the fi nancial position of the company and of the group are refl ected in the balance sheet, income statement, statement of changes in equity, cash fl ow statement, segmental report and the notes thereto.

Earnings attributable to equity holders for the year under review refl ected a loss of R319 million (2007: profi t of R1 503 million). Diluted core headline earnings were R1 011 million (2007: R1 003 million) and diluted core headline earnings per share 151.12 cents (2007: 142.27 cents).

DIRECTORS’ REPORT

Group diluted core headline earnings were derived from the following businesses:

Analysis of diluted core headline earnings

2008 2007Rm % Rm %

Retail business 448 44.3 460 45.9

Corporate business 153 15.1 176 17.5

International business 94 9.3 110 10.9

Asset management business 65 6.4 70 7.0

Health business 100 9.9 64 6.4

Shareholder capital 151 15.0 123 12.3

1 011 100.0 1 003 100.0

The operations of the group and its major businesses are reviewed in the review of operations on pages 44 to 61.



SHARE CAPITAL

Repurchase and cancellation of shares

Metropolitan Holdings Limited cancelled 16 million ordinary shares at a cost of R200 million in May 2007. In March 2008 Metropolitan Holdings Limited cancelled 26 million listed ordinary shares held at 31 December 2007 at a cost of R410 million. In the fi rst half of 2008, Metropolitan Life Limited bought a further 16 million such shares for R201 million in the open market. This was done under the general authority by the shareholders of Metropolitan Holdings Limited granted in May 2007.

Share options

The group has not issued any share options.

SHAREHOLDER DIVIDEND

Ordinary share dividend

An interim dividend of 40 cents per ordinary share was declared in September 2008 and paid in October 2008. On 10 March 2009 a fi nal dividend of 55 cents per ordinary share was declared, payable to the holders of ordinary shares recorded in the register of the company at the close of business on Friday, 3 April 2009. The dividends will be paid on Monday, 6 April 2009. The last day to trade “cum” dividend will be Friday, 27 March 2009 and the shares will trade “ex” dividend from the commencement of business on Monday, 30 March 2009. Share certifi cates may not be dematerialised or rematerialised between Monday, 30 March, and Friday, 3 April 2009, both days inclusive.

Secondary tax on companies (STC)

Estimated STC of R36 million is payable in respect of the total dividends declared.

DIRECTORATE AND SECRETARY

Wilhelm van Zyl was appointed group chief executive on 31 March 2008 after Peter Doyle retired. Abel Sithole resigned as director with effect from 31 March 2008. Detailed information regarding the directors and secretary of Metropolitan Holdings Limited is provided on page 70 in the corporate governance report. The directors of Metropolitan Life Limited are disclosed on page 216.

DIRECTORS’ INTEREST

Kagiso Trust Investments (Proprietary) Limited (KTI), of which JJ Njeke and Andile Sangqu are executive directors, has the following strategic empowerment holdings in the group:

> 13% in Metropolitan Health Corporate (Proprietary) Limited

> A 75% interest in the entity that holds 123 million preference shares and 35 million ordinary shares in Metropolitan Holdings Limited, together comprising 23.8% of the total issued shares.

DIRECTORS’ SHAREHOLDING

The aggregate direct and indirect holdings of the directors of the company at 31 December 2008 are set out below. The directors purchased these shares at ruling market prices.

Executive directors participate in the staff share purchase scheme. At 31 December 2008, loans of R2 million (2007: R3 million) were owed by the executive directors to the share trust in terms of this scheme. No shares in the scheme were allocated to executive directors during the course of the year.

DIRECTORS’ REPORT

(continued)

Preference share dividend

Metropolitan preference shares A1 A2 A3Paid – 31 March 2007 Rate 13.5% 125.00 cps 13.3%

Rm 26 16 21 Paid – 30 September 2007 Rate 14.4% 36.00 cps 15.6%

Rm 27 5 24 Paid – 31 March 2008 Rate 16.1% 59.00 cps 18.0%

Rm 31 8 28 Paid – 30 September 2008 Rate 16.9% 40.00 cps 18.7%

Rm 32 5 29 Payable – 31 March 2009 Rate 16.8% 55.00 cps 19.0%

Rm 33 7 30 Redemption value (per share) R 5.12 9.18 9.18

Dividends on the A1, A2 and A3 Metropolitan preference shares have been declared as disclosed in the table above, payable on 31 March 2009. The declaration rate was determined as set out in the company’s articles. These amounts are included under fi nance costs in the annual fi nancial statements.

Staff share purchase scheme dividend

A dividend of R11 million (2007: R16 million) was declared on the unlisted shares in the staff share purchase scheme, as provided for in the trust deed.


No other changes occurred between the fi nancial year-end and the approval of the fi nancial statements. The detail in terms of the listings requirements of the JSE Limited is set out on page 73 in the corporate governance report.

Direct Indirect Total Total

Benefi cialNon-

benefi cial Benefi cialNon-

benefi cial 2008 2007’000 ’000 ’000 ’000 ’000 ’000

ListedExecutive directors 400 – – – 400 1 149

Non-executive directors 5 7 448 41 501 606

Unlisted(Share purchase scheme)

Executive directors 388 – – – 388 688

793 7 448 41 1 289 2 443

The executive directors are also benefi ciaries in the management trust, which in turn holds a 5.6% indirect interest in Metropolitan Holdings Limited.

DIRECTORS’ EMOLUMENTS

The fi xed contract of Peter Doyle, the group chief executive, expired on 31 March 2008. The other executive directors have standard employment contracts with the company or its subsidiaries, with a three-month notice period. There are no additional costs to the group. The aggregate remuneration of the directors is set out below. The detail in terms of the listings requirements of the JSE Limited is set out on page 71 in the corporate governance report.

FeesAnnual

package BonusPension fund contribution

Total 2008

Total2007

R’000 R’000 R’000 R’000 R’000 R’000Executive – 8 577 8 659 1 097 18 333 14 985

Non-executive 6 562 – – – 6 562 5 169

Total 6 562 8 577 8 659 1 097 24 895 20 154

The executive directors participate in the Metropolitan retention scheme. In terms of this scheme, eligible employees can qualify for a bonus, payable after three years, based on the performance of the group measured against certain benchmarks. Three allocations: 2006, 2007 and 2008, have been made to eligible employees.

SPECIAL RESOLUTIONS

Annual general meeting – 30 May 2008

At the annual general meeting of shareholders of Metropolitan Holdings Limited held on 30 May 2008 the following special resolutions were approved:

General approval for a share buy-back

The board of directors was authorised, by way of a general approval given in terms of the provisions of the Companies Act 61 of 1973, as amended, to enable the company to acquire up to a maximum of 20% of its own issued share capital, or if acquired by a subsidiary, up to a maximum of 10% of its holding company’s issued share capital. Such authority is to remain valid until the company’s next annual general meeting, but not beyond a period of 15 months after the date of approval of this resolution.

Specifi c approval of share buy-back

The board of directors was authorised, by way of a specifi c approval in terms of section 85 of the Companies Act 61 of 1973, as amended, to repurchase and cancel treasury shares held by Metropolitan Life Limited. Such authority is to remain valid until the company’s next annual general meeting, but not beyond a period of 15 months after the date of approval of this resolution.



REPORT OF THE AUDIT COMMITTEE IN TERMS OF SECTION 270A(1)(F)

OF THE COMPANIES ACT, (61 OF 1973), AS AMENDED

The audit committee reports that it has adopted appropriate formal terms of reference as its audit committee mandate, and has

regulated its affairs in compliance with this mandate, and has discharged all of the responsibilities set out therein.

The audit committee considered the matters set out in section 270A(5) of the Companies Act, as amended by the Corporate Laws

Amendment Act, and is satisfi ed with the independence and objectivity of the external auditors.

As required by JSE Listings Requirement 3.84(h), the audit committee has satisfi ed itself that the group fi nancial director has

appropriate expertise and experience.

The audit committee is satisfi ed that there was no material breakdown in the internal accounting controls during the fi nancial

year. We base this on the information and explanations given by management and the group internal audit function as well as

discussions with the independent external auditors on the results of their audits.

The audit committee has evaluated the fi nancial statements of Metropolitan Holdings Limited and the group for the year ended

31 December 2008 and, based on the information provided to the audit committee, considers that the group complies, in all

material respects, with the requirements of the Companies Act (61 of 1973), as amended, and International Financial Reporting

Standards (IFRS).

Marius SmithChairman

10 March 2009

AUDIT COMMITTEE REPORT

DIRECTORS’ REPORT

(continued)

CURATORSHIP OF OVATION

Metropolitan Life Limited issued some 2 500 policies for administration on the Ovation Global Investment Service (Proprietary) Limited platform. In exercising the investment choice underlying their fully linked living annuities, certain of these policyholders elected to invest money in Common Cents Strategists (Proprietary) Limited, a fund listed on the Ovation platform. Both Ovation and Common Cents were placed under curatorship during 2007.

In early 2009, the Ovation curators applied to court to break up the Ovation business and return the investments to the respective owners, a process that is expected to be concluded during 2009. As part of the process Metropolitan has reached a settlement with the curators and agreed to compensate policyholders for losses suffered as a result of fraud at Common Cents. In addition, once permission is granted, Metropolitan will take over the administration of the assets backing all policies issued in its name currently being administered on the Ovation platform. This agreement has no impact on group earnings for 2008 as the liability to the policyholders already existed at the start of the year.

POST BALANCE SHEET EVENTS

No material post balance sheet events occurred between the balance sheet date and the date of approval of the annual fi nancial statements.


Annual premium equivalent (APE)

The annualised premium equivalent is a common life industry measure of new business sales. It is calculated as annualised new recurring premiums plus 10% of single premiums.

Basis changes

Basis and other changes are the result of changes in actuarial assumptions and methodologies, reviewed at the reporting date and used in the fi nancial soundness valuation basis. These changes are refl ected in the income statement as they occur.

Bonus stabilisation reserves (BSRs)

Bonus stabilisation reserves are the difference between the fund accounts of smoothed bonus business, or the discounted value of projected future benefi t payments for with-profi t annuity business, and the market values of the underlying assets. BSR is an actuarial term that constitutes either an asset or liability in accounting terms. The BSRs are included in contract holder liabilities.

Capital adequacy requirement (CAR)

The CAR is a minimum statutory capital requirement for South African life insurance companies that is prescribed in PGN104 – Valuation of long-term insurers. CAR does not form part of the contract holder liabilities and is covered by the shareholder assets.

Capitation contracts

Capitation contracts are those under which the group accepts signifi cant health benefi t risk from medical schemes (the contract holder) by agreeing to indemnify the scheme against a defi ned set of the scheme benefi ts (the covered event) in return for a capitation fee.

Cash generating units

A cash generating unit is the smallest identifi able group of assets that generates cash infl ows largely independent of the cash fl ows from other assets or groups of assets.

Compulsory margins

Life insurance companies are required to hold compulsory margins in terms of the fi nancial soundness valuation basis prescribed in PGN104 – Valuation of long-term insurers. These margins are explicitly prescribed and held as a buffer to cover uncertainties with regard to the best-estimate assumptions used in the fi nancial soundness valuation basis. These reserves are held in the contract holder liabilities and released over time in the operating profi t should experience be in line with these best estimates.

Discretionary margins

In addition to compulsory margins, insurance companies may hold further discretionary margins where the statutory actuary believes that:

> the compulsory margins are insuffi cient for prudent reserving, or

> company practice or policy design justifi es the deferment of profi ts.

Discretionary participation feature (DPF)

A discretionary participation feature is a contractual right to receive, as a supplement to guaranteed benefi ts, additional benefi ts or bonuses:

> that are likely to be a signifi cant portion of the total contractual benefi ts;

> whose amount or timing is contractually at the discretion of the issuer; and

> that are contractually based on:– the performance of a specifi ed pool of contracts or a

specifi ed type of contract;– the realised and/or unrealised investment returns on a

specifi ed pool of assets held by the issuer; or – the profi t or loss of the company, fund or other entity that

issues the contract.

Effective control

Effective control is the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities, generally accompanying an interest equivalent to more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.

Effective interest rate

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the fi nancial instrument, or when appropriate a shorter period, to the net carrying amount of the fi nancial asset or liability.

Effective interest rate method

The effective interest rate method is a method of calculating the amortised cost of a fi nancial asset or liability and of allocating the interest income or interest expense over the relevant period.

Embedded value (EV)

The embedded value is defi ned as the value of in-force business plus the shareholder net assets adjusted to fair value.

Financial soundness valuation (FSV)

The fi nancial soundness valuation basis is prescribed by PGN104 – Valuation of long-term insurers – and uses best estimate assumptions regarding future experience together with compulsory and discretionary margins for prudence and deferral of profi t emergence. For IFRS reporting purposes, this basis is used for the valuation of insurance contracts and investment contracts with discretionary participation features.

Fund account

The fund account is the retrospective accumulation of premiums, net of charges and benefi t payments at the declared bonus rates or at the allocated rate of investment return.

DEFINITIONS



Joint control

Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic fi nancial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the ventures).

New business profi t margin

New business profi t margin is defi ned as the value of new business expressed as a percentage of the annualised premium equivalent (APE) or a percentage of the present value of future premiums (PVP).

Notional value

The notional value is a numeric representation of the extent of the investment in a derivative fi nancial instrument with disregard to fair value.

Objective evidence of impairment

Objective evidence of impairment is related to the specifi c circumstances of each individual asset and can be the combined effect of several events. Objective evidence includes, but is not limited to:

> signifi cant fi nancial diffi culty of the issuer or debtor> a breach of contract, such as a default or delinquency in

payment> it becoming probable that the issuer or debtor will enter

bankruptcy or other fi nancial reorganisation> the disappearance of an active market for that fi nancial asset

because of fi nancial diffi culties> observable data that there is a measurable decrease in the

estimated future cash fl ows from the asset since the initial recognition of the asset.

Present value of future premiums (PVP)

The present value of future premiums is the present value of future premiums in respect of new business using the risk discount rate. The future premiums are net of reinsurance and are based on best estimate assumptions such as future premium growth, mortality and withdrawal experience.

Professional guidance notes (PGN)

The Actuarial Society of South Africa issues professional guidance notes applicable to various areas of fi nancial reporting and practice that require actuarial input.

Related party transactions – key personnel

Key management personnel are those persons, including close members of their families, having authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly, including any director (whether executive or otherwise) of the group. For the group, the executive committee members are considered to be key management personnel.

Return on embedded value

Return on embedded value is the growth in embedded value adjusted for changes in shareholder equity expressed as a percentage of the embedded value at the beginning of the year, adjusted for capital movements during the year.

Risk discount rate

The risk discount rate is the rate at which future expected profi ts (ie compulsory and discretionary margins) are discounted when calculating the value of in-force business or the value of new business.

Signifi cant infl uence

Signifi cant infl uence is the power to participate in the fi nancial and operating policy decisions of the investee but is not control or joint control over those policies, generally accompanying a shareholding of between 20% and 50% of the voting rights.

Statutory basis

The statutory basis is the valuation basis and methodology used for statutory reporting purposes, as determined by the FSB in its board notice “Prescribed requirements for the calculation of the value of the assets, liabilities and capital adequacy requirement of long-term insurers”. These requirements are largely based on fi nancial soundness valuation principles. A reconciliation of the statutory excess and the reporting excess is disclosed in the statement of actuarial values of assets and liabilities.

Unit-linked investments

Unit-linked investments consist of investments in collective investments schemes, private equity fund investments and other investments where the value is determined based on the value of the underlying investments.

Useful life

Useful life is the period over which an asset is expected to be available for use by the group.

Value of in-force business (VoIF)

The value of in-force business is the discounted present value of future after-tax profi ts from the life insurance book, less the cost of capital at risk. The discounted value of future after-tax profi ts comprises the value of the compulsory margins prescribed in the fi nancial soundness valuation basis plus the value of additional discretionary margins held by the insurance company.


The value of new business is the discounted present value of expected future after-tax (including STC) profi ts from new business at point of sale less the cost of capital at risk. Allowance is made for all expenses associated with underwriting, selling, marketing and administration incurred in the effort of obtaining new business.

DEFINITIONS

(continued)


DEFINITION OF EMBEDDED VALUE

This report sets out the diluted embedded value, taking into

account all shares issued by Metropolitan Holdings Limited.

Revised embedded value guidance from the Actuarial Society

of South Africa (PGN107), which is intended to be materially

consistent with the CFO Forum’s European Embedded Value

(EEV) Principles issued in May 2004, became effective for

reporting periods ending on or after 31 December 2008. This

embedded value report has been prepared in accordance with

these new guidelines.

An embedded value represents the discounted value of

expected after-tax future profi ts from the current business. The

embedded value is defi ned as:

> the value of covered business consisting of the shareholder

net assets supporting covered business operations plus the

value of in-force after allowing for the cost of capital

> the fair value of other group operations excluded from

covered business such as asset management and health

> the fair value of discretionary and other capital.

Covered business

Covered business is defi ned as long-term insurance business

recognised in the group annual fi nancial statements. This

business covers individual stable bonus, linked and market-

related business, reversionary bonus business, group stable

bonus business, annuity business and other non-participating

business written by the life insurance subsidiaries. Covered

business does not include services provided by the group’s

asset management and healthcare operations.

Covered business embedded value

The risk margins have been calculated using a bottom-up

market consistent approach, and refl ect the distinctive risks

of the products in the respective businesses. The effect of

the revised PGN107 changes are recognised separately in

the analysis of change in the embedded value of covered

business.

The methodology and assumptions used to determine the

embedded value of covered business have been adjusted and

restated in preparation for the revised PGN107, as follows:

> the equity risk premium assumption was increased from

2.0% to 3.5% (2007 not restated for this assumption)

> the cost of capital was based on the greater of an internally

assessed level of required capital for market, operational and

insurance risk and the minimum statutory capital adequacy

requirement

> recalibrated risk discount rates were used.

Required capital

Metropolitan Life Ltd

Stochastic modelling techniques are applied on an ongoing

basis to determine and confi rm the most appropriate capital

levels for covered business. The target is set to maintain

supporting capital at such a level that will ensure, within a 95%

confi dence level, that it will at all times cover the minimum

statutory capital adequacy requirement (CAR) at least 1,25

times over the following 5 years. The required capital supporting

existing covered business excludes capital required in respect

of future new business.

Other covered business

A multiple of statutory CAR has been used.

Assets backing required capital

The assumed composition of the assets backing the required

capital is consistent with the long-term mandates of the

shareholder assets.

REPORT ON GROUP EMBEDDED VALUE

at 31 December 2008



EMBEDDED VALUE RESULTS

Embedded value

2008 Rm

2007 Rm

Covered businessReporting excess – long-term insurance business 4 913 5 715

Disregarded assets (177) (124)

Dilutory effect of subsidiaries (7) (8)

Reclassifi cation from non-covered business 7 (7)

Diluted net asset value – covered business 4 736 5 576

Net value of in-force business 4 161 4 249

Individual life 3 501 3 430

Gross value of in-force business 3 864 3 871

Less cost of capital (363) (441)

Employee benefi ts 660 819

Gross value of in-force business 842 945

Less cost of capital (182) (126)

Diluted embedded value – covered business 8 897 9 825

Non-covered businessNet assets – other businesses 934 1 102

Reclassifi cation to covered business (7) 7

Consolidation adjustments (121) (109)

Adjustments for dilution 1 029 1 072

Dilutory effect of subsidiaries 88 81

Staff share scheme loans 91 141

Treasury shares held on behalf of contract holders 9 13

Liability – convertible redeemable preference shares 841 837

Diluted net asset value – non-covered business 1 835 2 072

Net value of in-force business 598 540

Asset management 280 257

Health 664 666

Holding company expenses (346) (383)

Diluted embedded value – non-covered business 2 433 2 612

Diluted adjusted net asset value 6 571 7 648

Value of in-force business 4 759 4 789


Required capital – covered business (adjusted for qualifying debt) 3 813 3 554

Surplus capital – covered business 923 2 022


Diluted net asset value per share (cents) 991 1 126

Diluted number of shares in issue (million) 663 679

> Disregarded assets as disclosed in the statement of actuarial values of assets and liabilities are adjusted for internally developed software, receivables older than 12 months and recognised employee benefi t assets.

> For accounting purposes Metropolitan Health and Metropolitan Kenya have been consolidated at 100% (2007: 100%) in the balance sheet. For embedded value purposes, disclosed on a diluted basis, the minority interest and related funding have been reinstated and disclosed as the dilutory effect of subsidiaries.

> The holding company expenses refl ect the present value of projected recurring expenses of that company.

> The diluted number of shares takes into account all issued shares, assuming conversion of the convertible redeemable preference shares and the release of staff share scheme shares, and includes the treasury shares held on behalf of contract holders.


(continued)


EMBEDDED VALUE ATTRIBUTABLE TO GROUP

Net asset value Rm

Value of in-force Rm

Embedded value 2008 Rm

2007 Rm

Covered businessMetropolitan Life 4 142 3 567 7 709 8 769

Metropolitan Odyssey 35 – 35 34

Union Life 34 11 45 41

International 525 583 1 108 981

Metropolitan Life International 58 – 58 50

Metropolitan Namibia 169 299 468 417

Metropolitan Botswana 125 69 194 178

Metropolitan Lesotho 113 202 315 307

Metropolitan Kenya 13 3 16 17

Metropolitan Ghana – 8 8 12

Metropolitan Swaziland 12 – 12 –

Metropolitan Nigeria 35 2 37 –

Total covered business 4 736 4 161 8 897 9 825

Non-covered businessAsset management 97 280 377 394

Metropolitan Health Group 259 664 923 831

Metropolitan Holdings (after consolidation adjustments) 1 479 (346) 1 133 1 387

1 835 598 2 433 2 612

Diluted embedded value 6 571 4 759 11 330 12 437

Diluted net asset value – non-covered business (1 835)

Disregarded assets 177

Reporting excess – long-term insurance business 4 913

> The embedded value of the Metropolitan Health Group was net of R54 million for 2007, being the total liability of the option held by the management of the group. The liability was settled during February 2008.

> Embedded value is net of minority interest.

VALUE OF NEW BUSINESS

The value of new business is calculated as the discounted value, at point of sale, using a risk-adjusted discount rate, of the

projected stream of after-tax profi ts for new covered business issued during the fi nancial year under review. The value of new

business is also reduced by the cost of required capital for new covered business. In determining the value of new business:

> a policy is only taken into account for new business if at least one premium, that is not subsequently refunded, is recognised

in the fi nancial statements

> premium increases that have been allowed for in the value of in-force covered business are not included as new business at

inception

> the expected value of future premium increases resulting from premium indexation on the new recurring premium business

written during the fi nancial year under review is included in the value of new business

> continuations of individual policies and deferrals of retirement annuity policies after the maturity dates of the contracts are

included as new business if they have been accounted for as benefi t claims at their respective maturity dates

> for employee benefi t business, increases in business from new schemes or new benefi ts on existing schemes are included

as new business but new members or salary-related increases under existing schemes are allowed for in the value of in-force

covered business

> renewable recurring premiums under group insurance contracts are treated as in-force covered business.




2008 Rm

2007 Rm

Retail business 211 119 Gross value of new business 223 122 Less: Cost of capital (12) (3)Corporate business 20 46 Gross value of new business 31 53 Less: Cost of capital (11) (7)International business 17 15 Gross value of new business 17 15 Less: Cost of capital (0) (0)

Value of covered new business 248 180 Value of non-covered new business 123 156 Asset management business 39 35 Health business 84 121

Total value of new business 371 336

> The 2008 and 2007 results exclude Metropolitan Ghana, Metropolitan Kenya, Metropolitan Nigeria and Metropolitan Swaziland as these businesses were in a start-up phase. The 2007 results also exclude Union Life as the company was acquired late in 2007.

> Value of new business is net of minority interest.

> Due to rounding, the cost of capital for the international business is less than R1 million.

> The value of new business has been calculated on closing assumptions. Investment yields at the point of sale have been used for fi xed annuity and guaranteed endowment business, for other business the investment yields at the end of the year have been used.

New business premiums – covered business

2008 Rm

2007 Rm

Recurring premiums Retail business 961 804 Corporate business 210 207 International business 107 91

1 278 1 102 Single premiums Retail business 3 239 2 519 Corporate business 979 2 154 International business 96 121

4 314 4 794

2008 Rm

2007 Rm

Annual premium equivalent (APE) 1 709 1 581 Retail business 1 285 1 056 Corporate business 308 422 International business 116 103

Present value premiums (PVP) 10 354 10 068 Retail business 7 426 6 033 Corporate business 2 431 3 613 International business 497 422

> The 2008 and 2007 results exclude Metropolitan Ghana (2008: R13 million and 2007: R9 million APE), Metropolitan Kenya (2008: R2 million and 2007: R4 million APE), Metropolitan Nigeria (2008: R14 million) and Metropolitan Swaziland (2008: R2 million) as these businesses were in a start-up phase. The 2007 results also exclude Union Life as the company was acquired late in 2007.

> New business premiums are net of minority interests.


(continued)


Profi tability of new business – covered business

Margin as a % of APE Margin as a % of PVP 2008 2007 2008 2007

Retail business 16.4 11.3 2.8 2.0

Corporate business 6.5 10.9 0.8 1.3 International business 14.7 14.6 3.4 3.6

Source of new business production – covered business

Individual life business of the group – insurance and investment business

2008 2007 APE% Total % APE % Total %

Tied agents and personal fi nancial advisers 39 31 36 26 Brokers 27 36 25 25 Wholesale and credit life 20 7 21 8 Third party business 5 19 9 34 International 9 7 9 7

CHANGES IN BASES AND ASSUMPTIONS

The Metropolitan group constantly reviews its embedded value methodologies to align them with evolving practice and to ensure consistency with other life insurers.

ASSUMPTIONS

The main assumptions used in the embedded value calculations are described below.

Economic

2008 % per annum

2007 % per annum

Risk discount rate 10.0 10.3 Investment returns (before tax) – smoothed bonus 9.8 9.9 Expense infl ation rate 4.3 5.3

The investment return assumption was determined with reference to the market interest rate on South African government stocks at the valuation date. The expected long-term asset distribution was used to calculate a weighted expected investment return by adding the following premiums/(discounts) to the market interest rate of 7.5% per annum (2007: 8.5%) on South African government stocks as at 31 December 2008.

% premium/ (discount) per

annum

Gross return(% per annum)

2008

Gross return(% per annum)

2007Equities 3.5 11.0 10.5 Properties 1.0 8.5 10.5 Government stock – 7.5 8.5 Cash (1.0) 6.5 6.5

Non-economic

The embedded value calculation uses the same best estimate assumptions with respect to future experience as those used in the fi nancial soundness valuation.

The embedded value of in-force business includes the expected value of future premium increases resulting from premium indexation arrangements on in-force business. The value of new business excludes premium increases during the current year resulting from premium indexation arrangements in respect of in-force business, but includes the expected value of future premium increases in respect of new policies written during the current fi nancial year.

Secondary tax on companies (STC) was allowed for at a rate of 4% (2007: 4%) of the value of in-force business.

SENSITIVITY OF THE IN-FORCE VALUE AND THE VALUE OF NEW BUSINESS

This section illustrates the effect of different assumptions on the net worth, the value of in-force business, the value of new business and the cost of capital. For each sensitivity illustrated, all other assumptions have been left unchanged and, with the exception of the fi rst two sensitivities and the “1% reduction in gross investment return” sensitivity, the central risk discount rate has been used.



The table below shows the impact on the embedded value (net worth, value of in-force and cost of capital at risk) and value of

new business (gross and net of the cost of capital at risk) of a 1% change in the risk discount rate. It also shows the impact of

independent changes in a range of other experience assumptions. The effect of an equivalent improvement in these experience

assumptions would be to increase the base values by a percentage approximately equal to the reductions shown below.

Net worth In–force business New business writtenNet

valueGross value

Cost of CAR

Net value

Gross value

Cost of CAR

Rm Rm Rm Rm Rm Rm RmBase value 4 736 4 161 4 706 (545) 248 271 (23)1% increase in risk discount rate 3 862 4 407 (545) 216 239 (23)

% change (7) (6) – (13) (12) –

1% reduction in risk discount rate 4 507 5 052 (545) 285 308 (23)

% change 8 7 – 15 14 –

10% increase in future expenses 3 869 4 414 (545) 213 236 (23)

% change (note 1) (7) (6) – (14) (13) –

10% decrease in lapse, paid-up and

surrender rates 4 327 4 872 (545) 323 346 (23)

% change 4 4 – 30 28 –

5% decrease in mortality and

morbidity for assurance

business 4 305 4 850 (545) 284 307 (23)

% change 3 3 – 15 13 –

5% decrease in mortality for

annuity business 4 143 4 688 (545) 245 268 (23)

% change – – – (1) (1) –

1% reduction in gross investment

return, infl ation rate and risk

discount rate 4 809 4 311 4 823 (512) 284 306 (22)

% change (note 2) 2 4 2 (6) 15 13 (4)

1% reduction in gross investment

return only (no change in risk

discount rate) 4 664 4 048 4 560 (512) 216 238 (22)

% change (note 2) (2) (3) (3) (6) (13) (12) (4)

1% reduction in infl ation rate 4 900 4 097 4 642 (545) 263 286 (23)

% change 3 (2) (1) – 6 6 –

10% fall in market value of equities

and property 4 427 3 926 4 471 (545)

% change (7) (6) (5) –

10% reduction in premium

indexation take-up rate 4 076 4 621 (545) 234 257 (23)

% change (2) (2) – (6) (5) –

10% decrease in non-commission

related acquisition expenses 281 304 (23)

% change 13 12 –

1. No corresponding changes in variable policy charges are assumed, although in practice it is likely that variable charges will be modifi ed according to circumstances.

2. Bonus rates are assumed to change commensurately.

3. The change in the value of cost of CAR is disclosed as nil where the sensitivity test causes an insignifi cant change in the value.


(continued)


ANALYSIS OF CHANGE IN GROUP EMBEDDED VALUE

The table below summarises the analysis of the change in group embedded value over the 2008 fi nancial year.

Non-covered Covered business

Total covered Total Total

2008 NAV VoIF CoCAR 2008 2008 2007Rm Rm Rm Rm Rm Rm Rm

Profi t from new business 129 (116) 398 (23) 259 388 352

Embedded value from new

business 123 (116) 387 (23) 248 371 336

Expected return to end of year 6 – 11 – 11 17 16

Profi t from existing business (4) 457 (19) (43) 395 391 781

Expected return – unwinding of

RDR 84 – 523 (57) 466 550 540

Expected (or actual) net of tax

profi t transfer to net worth – 700 (700) – – – –

Operating experience variances (94) 130 40 – 170 76 414

Operating assumption changes 6 (373) 118 14 (241) (235) (173)

Embedded value profi t from operations 125 341 379 (66) 654 779 1 133

Investment return on net worth (330) (9) – 58 49 (281) 768

Investment variances (59) (345) (578) – (923) (982) 138

Economic assumption changes 15 79 123 30 232 247 (1)

Change in risk margin – 32 (40) – (8) (8) –

Exchange rate movements – 10 6 – 16 16 (4)

Total embedded value profi t (249) 108 (110) 22 20 (229) 2 034

Changes in share capital (231) 30 30 (201) (691)

Dividend paid 492 (1 031) (1 031) (539) (960)

Finance costs – preference shares (138) (138) (124)

PGN107 restatement (171)

Reallocations (53) 53 53 – Change in embedded value (179) (840) (110) 22 (928) (1 107) 88

Time weighted return on embedded

value (%) (2.1) 17.8

> Changes in operating (non-economic) assumptions represent the changes in mortality, morbidity, withdrawal and expense assumptions as well as methodology changes.

> Investment return on net worth represents the actual return on shareholder net assets (excluding the write-up on subsidiaries).

> Changes in economic assumptions represent the changes in the risk discount rate, future investment return and infl ation assumptions.

IMPACT OF OPERATING EXPERIENCE VARIANCES AND CHANGES IN ASSUMPTIONS ON EMBEDDED VALUE

Operating experience variances

Operating experience variances increased the embedded value by R76 million during 2008 (2007: increase R414 million). The

most signifi cant contributors were:

Other businesses

The decrease in embedded value was mainly due to negative variances from losses or a reduction in profi t margins in certain of

the non-life companies.



Long-term insurance business

> Net asset value

The increase in embedded value was mainly due to a positive contribution from higher than expected mortality profi ts and profi t

from the employee benefi t asset partially offset by negative variances from higher than expected lapses and expenses.

> Value of in-force

The increase in embedded value was mainly due to positive contributions from mortality profi ts.

Operating assumption changes

Adjusting the operating assumptions in the embedded value models resulted in a decrease in the embedded value of R235 million

(2007: decrease R173 million). The operating assumption changes with the most signifi cant impact were:

Other businesses

The increase in embedded value was mainly due to a positive contribution from the reduction in the corporate tax rate from 29%

to 28%.

Long-term insurance business

> Net asset value

The decrease in embedded value was mainly due to a negative change from the strengthening of the lapse basis at longer

durations for grouped individual business as well as a negative change from an increase in the assumed per policy expense for

individual life contracts and a positive change in respect of the assumed mortality on certain lines of business.

> Value of in-force

The increase in embedded value was mainly due to a positive contribution from the reduction in the transfer tax rate from 29%

to 28% and a negative change due to an increase in the assumed future expenses of the corporate business.

REVIEW BY THE INDEPENDENT ACTUARIES

Deloitte & Touche have reviewed the results, methodology (including any modelling changes) and assumptions underlying the

calculation of the embedded value and the value of new business. They have also reviewed the change in embedded value over

the period, including the experience variances. The internally developed required capital model has not been specifi cally reviewed.

Based on the information supplied to them by Metropolitan, they are satisfi ed that the methodology and assumptions:

> are appropriate for the purpose of including the embedded value in this report

> have been determined in accordance with generally accepted actuarial principles and in accordance with guidance note PGN107

– Embedded value and the valuation of new business

> have been applied consistently across the different business units

> have been applied consistently over the year.


(continued)


Group Metropolitan Life Limited2008 2007 2008 2007

Rm Rm Rm RmREPORTING BASISTotal assets per balance sheet 69 613 75 183 62 532 67 170

Actuarial value of policy liabilities (57 232) (61 782) (53 523) (57 751)

Other liabilities per balance sheet (6 393) (6 460) (4 792) (4 329)

Minority interests per balance sheet (141) (124)

Excess 5 847 6 817 4 217 5 090

Net assets – other businesses (934) (1 102)

Excess – long-term insurance business (1) 4 913 5 715 4 217 5 090

Insurance business (1)

Change in excess – long-term insurance business (1) (802) (121) (873) (73)

Increase in share capital (39) (12)

Acquisition of Union Life Ltd – (54)

Change in other reserves (45) (36) (20) (26)

Dividend paid 1 053 1 606 950 1 313

Total surplus arising 167 1 383 57 1 214

Analysis of surplus arisingOperating profi t 734 754 583 618

Investment income on excess 309 289 275 261

Net realised and fair value gains on excess (329) 364 (269) 322

Investment variances (2) (387) 29 (375) 29

Basis and other changes (note 20) (197) (180) (194) (143)

Employee benefi t assets/obligations 37 48 37 48

Deferred tax – 79 – 79

Total surplus arising 167 1 383 57 1 214

Net consolidation adjustments 75 217

Income tax (credits)/expenses (170) 549 (206) 541

Finance costs 49 47 47 47

Results of long-term insurance business (1) 121 2 196 (102) 1 802

Results of other businesses (277) 289

Results of operations per income statement (156) 2 485 (102) 1 802

STATUTORY BASISReporting excess – long-term insurance business 4 913 5 715 4 217 5 090

Disregarded assets in terms of statutory requirements (3) (489) (293) (386) (231)

Capital adjustments 300 91 501 501

Statutory excess – long-term insurance business 4 724 5 513 4 332 5 360

Capital adequacy requirement (CAR) (Rm) (4) 2 336 1 609 2 056 1 422

Ratio of long-term insurance business excess to CAR 2.0 3.4 2.1 3.8

1. The long-term insurance business includes both insurance and investment contract business and is the simple aggregate of all the life insurance companies in the group. It includes minority interests and other items, which are eliminated on consolidation. It excludes non-insurance business.

2. Investment variances refl ect the impact of actual investment returns on the value of future expense recoveries and the movements of the PGN110 (Allowance for embedded investment derivatives) liability.

3. Disregarded assets are those as defi ned in the South African Long term Insurance Act and are only applicable to South African long term insurance companies. Adjustments are also made for the international insurance companies from reporting excess to statutory excess as required by their regulators.

4. The capital adequacy requirement is included in retained earnings and must be maintained as statutory capital.

STATEMENT OF ACTUARIAL VALUES OF ASSETS AND LIABILITIES

at 31 December 2008



Group Metropolitan Life Ltd2008 2007 2008 2007 Notes

Rm Rm Rm RmASSETSIntangible assets 525 562 125 109 1

Owner-occupied properties 678 592 486 412 2

Property and equipment 186 233 90 144 3

Investment properties 3 031 2 710 3 117 2 791 4

Interest in subsidiary companies 1 241 1 001 5

Investment in associates 663 405 642 463 6

Investment in joint ventures 35 61 7

Employee benefi t assets 248 177 244 169 23.1

Financial instruments

Designated as at fair value through income 50 795 58 264 45 270 51 305 8.1

Held for trading 1 764 850 1 877 1 259 8.3

Available-for-sale 5 7 – – 8.4

Loans and receivables 1 128 1 193 870 908 9

Insurance and other receivables 1 507 1 476 1 298 1 287 10

Deferred income tax 12 15 – – 11

Reinsurance contracts 212 179 162 113 12

Current income tax assets 14 – 4 – 25.1

Cash and cash equivalents 8 810 8 274 7 106 7 024 13

Non-current assets held for sale – 185 – 185 14

Total assets 69 613 75 183 62 532 67 170

EQUITYCapital and reserves 5 847 6 817 4 217 5 090

Share capital 51 19 624 624 15

Other reserves 532 495 241 223 16

Retained earnings 5 264 6 303 3 352 4 243

Minority interests 141 124

Total equity 5 988 6 941 4 217 5 090

LIABILITIESInsurance contract liabilities

Long-term insurance contracts 32 023 33 397 29 301 30 474 17

Capitation contracts 2 1 18


Investment contracts 25 209 28 385 24 222 27 277 19

– with discretionary participation features 11 278 14 273 10 781 13 682

– designated as at fair value through income 13 931 14 112 13 441 13 595

Designated as at fair value through income 272 635 – – 21

Held for trading 1 498 858 1 490 858 8.3

Amortised cost 1 349 1 370 502 502 22

Deferred income tax 127 492 66 371 11

Employee benefi t obligations 188 252 173 169 23.2

Other payables 2 934 2 545 2 561 2 194 24

Current income tax liabilities 23 307 – 235 25.1

Total liabilities 63 625 68 242 58 315 62 080

Total equity and liabilities 69 613 75 183 62 532 67 170

BALANCE SHEET

at 31 December 2008



Rm Rm Rm RmInsurance premiums 10 803 9 084 9 675 8 149

Insurance premiums ceded to reinsurers (398) (369) (370) (340)

Net insurance premiums 10 405 8 715 9 305 7 809 26

Fee income 1 151 903 166 100 27

Investment contracts 174 97 158 85

Trust and fi duciary services 144 93

Other fee income 833 713 8 15

Investment income 4 396 3 613 3 927 3 253 28

Net realised and fair value (losses)/gains (8 484) 4 407 (7 524) 3 770 29

Net income 7 468 17 638 5 874 14 932

Insurance benefi ts and claims 8 399 6 474 7 714 5 864

Insurance claims recovered from reinsurers (330) (242) (302) (230)

Net insurance benefi ts and claims 8 069 6 232 7 412 5 634 30

Change in liabilities (4 468) 4 175 (4 123) 3 865

Change in insurance contract liabilities (1 451) 2 577 (1 173) 2 313 31

Change in investment contracts with DPF liabilities (2 990) 1 562 (2 901) 1 504 31

Change in reinsurance provisions (27) 36 (49) 48 12

Fair value adjustments on investment contract

liabilities 269 1 518 310 1 468

Fair value adjustments on collective investment

scheme liabilities 18 13 – –

Depreciation, amortisation and impairment expenses 221 169 55 69 32

Employee benefi t expenses 1 269 1 145 571 553 33

Sales remuneration and distribution costs 1 235 1 127 1 148 1 017 34

Other expenses 1 011 774 603 524 35

Expenses 7 624 15 153 5 976 13 130

Results of operations (156) 2 485 (102) 1 802

Finance costs (188) (174) (47) (47) 36

Share of (loss)/profi t of associates (2) 5 6

Share of loss of joint venture (26) – – 7

(Loss)/profi t before tax (372) 2 316 (149) 1 755

Income tax credits/(expenses) 77 (788) 206 (541) 25.2

Earnings for year (295) 1 528 57 1 214

Attributable to:Equity holders of group (319) 1 503 57 1 214 37

Minority interests 24 25

(295) 1 528 57 1 214

Basic earnings per share (cents) (61.23) 279.89

Diluted earnings per share (cents) (27.06) 232.43

INCOME STATEMENT

for the year ended 31 December 2008



GROUP

Share capital

Retained earnings

Other reserves

Minority interests Total Notes

Rm Rm Rm Rm RmBalance at 1 January 2007 (136) 6 417 413 109 6 803 Total recognised income 1 503 70 26 1 599 Earnings for year 1 503 25 1 528 Revaluation of land and buildings 65 65 16 Foreign currency translation difference 5 1 6 Dividend paid (926) (49) (975)Employee share scheme – value of services provided 12 12 16Net change in minority interest 38 38 Acquisition of HTG Life (renamed Union Life) 36 36 Acquisition of DirectFin Solutions (1) (1) Sale of shares in Metropolitan Life (Namibia) Ltd (4) (4) Acquisition of Metropolitan Retirement Administrators 7 7 Staff scheme shares released 105 105 Shares repurchased and cancelled (691) (691)Decrease in treasury shares held on behalf of contract holders 50 50 Balance at 1 January 2008 19 6 303 495 124 6 941 Total recognised income (319) 36 28 (255) Earnings for year (319) 24 (295) Revaluation of land and buildings 24 24 16 Foreign currency translation difference 12 4 16 Dividend paid (520) (12) (532)Employee share scheme – value of services provided 4 4 16Transfer from land and buildings reserve 3 (3) – 16Other 1 1 Staff scheme shares released 31 31Shares repurchased and cancelled (203) (203)Decrease in treasury shares held on behalf of contract

holders 1 1 Balance at 31 December 2008 51 5 264 532 141 5 988

Capital adequacy

The capital adequacy requirement of the long-term insurance companies is included in retained earnings and must be maintained as statutory

capital.

METROPOLITAN LIFE LIMITED

Share capital

Retained earnings

Other reserves Total Notes

Rm Rm Rm RmBalance at 1 January 2007 624 4 342 197 5 163 Total recognised income 1 214 22 1 236 Earnings for year 1 214 1 214 Fair value gains net of tax – available-for-sale fi nancial assets (42) (42) Revaluation of land and buildings 64 64 16Dividend paid (1 313) (1 313)Employee share scheme – value of services provided 4 4 16Balance at 1 January 2008 624 4 243 223 5 090 Total recognised income 57 15 72 Earnings for year 57 57 Revaluation of land and buildings 15 15 16Transfer from land and buildings reserve to retained earnings 2 (2) – 16Dividend paid (950) (950)Employee share scheme – value of services provided 5 5 16Balance at 31 December 2008 624 3 352 241 4 217

Capital adequacy

The capital adequacy requirement of Metropolitan Life Limited is included in retained earnings and must be maintained as statutory capital.

STATEMENT OF CHANGES IN EQUITY




Rm Rm Rm RmCash fl ow from operating activitiesCash (utilised in)/generated by operations (1 799) 615 (2 091) (156) 38.1

Interest received 2 688 2 243 2 378 1 991

Dividends received 1 339 1 020 1 205 915

Income tax paid (589) (546) (342) (305) 38.2

Interest paid (184) (166) (46) (46) 38.3

Net cash infl ow from operating activities 1 455 3 166 1 104 2 399

Cash fl ow from investing activitiesAcquisition of subsidiaries – net cash received – (63) 39.1

Acquisition of joint ventures – (66)

Acquisition of associate (41) –

Loans repaid by related parties 50 179 44 94

Dividend from associates 4 2

Purchases of owner-occupied properties (1) (2) (1) (1)

Purchases of property and equipment (146) (135) (96) (95)

Purchases of intangible assets (29) (30) (20) (12)

Net cash outfl ow from investing activities (163) (115) (73) (14)

Cash fl ow from fi nancing activitiesShares repurchased and cancelled (203) (691)

Finance leases repaid (1) (2) (1) (3)

Repayment of other borrowings (24) – – –

Dividend paid to equity holders (520) (926) (950) (1 313)

Dividend paid to minority shareholders (12) (49)

Net cash outfl ow from fi nancing activities (760) (1 668) (951) (1 316)

Net cash fl ow 532 1 383 80 1 069

Effect of foreign exchange rate changes 4 4 2 (3)

Cash resources and funds on deposit at beginning 8 274 6 887 7 024 5 958

Cash resources and funds on deposit at end 8 810 8 274 7 106 7 024 13

CASH FLOW STATEMENT




BASIS OF PREPARATION OF THE STATEMENTS

The fi nancial statements, as set out above, have been prepared

in accordance with International Financial Reporting Standards

(IFRS) and International Financial Reporting Interpretations

Committee (IFRIC) interpretations issued and effective at the

time of preparing these statements. These statements have

been prepared on the historical cost basis except for the

following items which are carried at fair value or valued using

another measurement basis:

Fair value

> owner-occupied properties

> investment properties

> fi nancial assets designated as at fair value through income,

held for trading and available-for-sale

> investment contract liabilities designated as at fair value

through income, other liabilities designated as at fair value

through income and held for trading liabilities

Other measurement basis

> insurance contracts and investment contracts with DPF

valued using the fi nancial soundness valuation basis as set

out in PGN104 – Valuation of long-term insurers,

> employee benefi t obligations measured using the projected

unit credit method

> investments in associates and joint ventures measured

using the equity method of accounting.

The preparation of fi nancial statements in accordance with

IFRS requires the use of certain critical accounting estimates.

It also requires management to exercise judgement in the

process of applying the group’s accounting policies. There are

areas of complexity involving a higher degree of judgement

and areas where assumptions and estimates are signifi cant

to the consolidated fi nancial statements. These judgements,

assumptions and estimates are disclosed in detail in the

notes to the annual fi nancial statements and in a summary on

page 123.

Published standards and interpretations effective in 2008

The following published standards are mandatory for the

group’s accounting periods beginning on or after 1 January

2008 and have been implemented in accordance with the

transitional provisions of these standards:

> IFRIC 11 – IFRS 2 – Group and treasury share transactions.

IFRIC 11 provides guidance on whether share-based

transactions involving treasury shares or group entities, for

example options over a parent’s shares, should be accounted

for as equity-settled or cash-settled share-based payment

transactions in the stand-alone accounts of the parent and

group companies. This interpretation did not have an impact

on the group’s fi nancial statements.

> IFRIC 14 – IAS 19 – The limit on a defi ned benefi t asset.

IFRIC 14 provides guidance on assessing the limit in IAS 19

– Employee benefi ts – on the amount of the surplus that can

be recognised as an asset. It also explains how the pension

asset or liability may be affected by a statutory or contractual

minimum funding requirement. This interpretation did not

have an impact on the group’s fi nancial statements.

Interpretations of published standards that are effective

but not currently relevant to the group’s operations

> IFRIC 12 – Service concession arrangements (effective from

annual periods beginning on or after 1 January 2008).

Standards, amendments to and interpretations of published

standards that are not yet effective and have not been early

adopted by the group

> IAS 1 (Revised) – Presentation of fi nancial statements

(effective from annual periods beginning on or after 1 January

2009). The revised standard will prohibit the presentation of

items of income and expenses (that is, ‘non-owner changes

in equity’) in the statement of changes in equity, requiring all

such income and expense items to be presented separately

from owner changes in equity. All non-owner changes

in equity will be required to be shown in a performance

statement, but entities can choose whether to present one

performance statement (the statement of comprehensive

income) or two statements (the income statement and

statement of comprehensive income). Where entities restate

or reclassify comparative information, they will be required

to present a restated balance sheet as at the beginning of

the comparative period. The group will apply the standard

from 1 January 2009.

> IAS 27 (Revised) – Consolidated and separate fi nancial

statements (effective from annual periods beginning on or

after 1 July 2009). The revised standard requires the effects

of all transactions with non-controlling interests to be

recorded in equity if there is no change in control and these

transactions will no longer result in goodwill or gains and

losses. The standard also specifi es the accounting treatment

when control is lost. Any remaining interest in the entity is

re-measured to fair value, and a gain or loss is recognised in

profi t or loss. This standard is not expected to have an impact

on the group’s fi nancial statements.

> IFRS 2 (Amendment) – Share-based payment (effective

from annual periods beginning on or after 1 January 2009).

The amendment clarifi es that vesting conditions include

only service conditions and performance conditions. These

features would need to be included in the fair value at grant

date for transactions with employees and others providing

similar services; they would not impact the number of

awards expected to vest or the valuation thereof subsequent

to the grant date. All cancellations, whether by the entity

or by other parties, should receive the same accounting

treatment. This standard is not expected to have a material

impact on the group’s fi nancial statements.

> IFRS 3 (Revised) – Business combinations (effective from

annual periods beginning on or after 1 July 2009). The

revised standard continues to apply the acquisition method

to business combinations, with some signifi cant changes.

For example, all payments to purchase a business are

GROUP ACCOUNTING POLICIES


to be recorded at fair value at the acquisition date, with

contingent payments classifi ed as debt subsequently being

re-measured through the income statement. There is a

choice, on an acquisition-by-acquisition basis, to measure

the non-controlling interest in the acquiree either at fair

vale or at the non-controlling interest’s proportionate share

of the acquiree’s net assets. All acquisition-related costs

are to be expensed. The group will apply IFRS 3 (Revised)

prospectively to all business combinations from 1 January

2010.

> IFRIC 16 – Hedges of a net investment in a foreign operation

(effective for annual periods beginning on or after 1 October

2008). IFRIC 16 clarifi es the accounting treatment in respect

of net investment hedging. This includes the fact that net

investment hedging relates to differences in functional

currency not presentation currency, and hedging instruments

may be held anywhere in the group. The requirements of IAS

21 – The effects of changes in foreign exchange rates – apply

to the hedged item. This interpretation is not expected to

have any impact on the group’s fi nancial statements.

The following amendments are part of the International

Accounting Standards Board’s (IASB) annual improvements

project, published in May 2008 (all amendments effective from

annual periods beginning on or after 1 January 2009, unless

otherwise stated):

> IAS 1 (Amendment) – Presentation of fi nancial statements.

The amendment clarifi es that some rather than all fi nancial

assets and liabilities classifi ed as held for trading are

examples of current assets and liabilities respectively. It

is not expected to have an impact on the group’s fi nancial

statements.

> IAS 19 (Amendment) – Employee benefi ts. The amendment

clarifi es that a plan amendment that results in a change in

the extent to which benefi t promises are affected by future

salary increases is a curtailment, while an amendment that

changes benefi ts attributable to past service gives rise to a

negative past service cost if it results in a reduction in the

present value of the defi ned benefi t obligation. The defi nition

of return on plan assets has been amended to state that

plan administration costs are deducted in the calculation of

return on plan assets only to the extent that such costs have

been excluded from measurement of the defi ned benefi t

obligation. The distinction between short-term and long-term

employee benefi ts will be based on whether benefi ts are due

to be settled within or after 12 months of employee service

being rendered. This amendment is not considered to have a

material impact on the group’s fi nancial statements.

> IAS 28 (Amendment) – Investments in associates and IAS 31

(Amendment) – Interests in joint ventures. These amendments

clarify the disclosure requirements for an investment in an

associate and a joint venture that is accounted for in accordance

with IAS 39. This amendment will not have an impact on the

group’s fi nancial statements as the necessary disclosures are

already given.

> IAS 36 (Amendment) – Impairment of assets. Where fair value

less costs to sell is calculated on the basis of discounted

cash fl ows, disclosures equivalent to those for value-in-

use calculations should be made. The group will apply the

amendment and provide the required disclosures where

applicable for impairment tests from 1 January 2009.

> IAS 38 (Amendment) – Intangible assets. A prepayment may

only be recognised in the event that payment has been made

in advance of obtaining right of access to goods or receipt of

services. The amendment is not expected to have any impact

on the groups’ earnings. The amendment also deletes the

wording that states there is ‘rarely, if ever’ support for the

use of a method that results in a lower rate of amortisation

than the straight-line method. This amendment will not have

an impact on the group’s fi nancial statements as intangible

assets are amortised using the straight-line method.

> IAS 39 (Amendment) – Financial instruments: Recognition

and measurement. The defi nition of a fi nancial asset or

fi nancial liability at fair value through income has been

amended to clarify that a fi nancial asset or liability forming a

part of a portfolio of fi nancial instruments managed together

with evidence of a recent pattern of actual short-term profi t-

taking, is included in such a portfolio on initial recognition.

This amendment also clarifi es certain aspects relating to

hedging instruments which are not currently applicable for

the group.

> IAS 40 (Amendment) – Investment property. Property that

is under construction or development for future use as

investment property is within the scope of IAS 40. Where

the fair value model is applied, such property is therefore

measured at fair value. However, where fair value of

investment property under construction is not reliably

measurable, the property is measured at cost until the earlier

of the date construction is completed and the date at which

fair value becomes reliably measurable. Property currently

under construction will be affected by this amendment;

however the impact on the group’s fi nancial statements is

not expected to be signifi cant.

> There are a number of minor amendments to IFRS 7 –

Financial instruments: Disclosures, IAS 8 – Accounting

policies, changes in accounting estimates and errors, IAS 10

– Events after the reporting period, IAS 18 – Revenue and

IAS 34 – Interim fi nancial reporting. These amendments are

unlikely to have an impact on the group’s fi nancial statements

and have therefore not been analysed in detail.

Amendments to and interpretations of published standards

that are not yet effective and not currently relevant to the

group’s operations

> IFRS 1 (Amendment) – First time adoption of IFRS and IAS 27

– Consolidated and separate fi nancial statements (effective

from annual periods beginning on or after 1 January 2009).

> IAS 23 – Borrowing costs (revised) (effective from annual

periods beginning on or after 1 January 2009).

> IAS 32 (Amendment) – Financial instruments: Presentation

and IAS 1 (Amendment) – Presentation of fi nancial



statements – Puttable fi nancial instruments and obligations

arising on liquidation (effective annual periods beginning on

or after 1 January 2009).

> IFRIC 13 – Customer loyalty programmes (effective from

annual periods beginning on or after 1 July 2008).

> IFRIC 15 – Agreements for the construction of real estate

(effective from annual periods beginning on or after 1 January

2009).

The following amendments are part of the IASB’s annual

improvements project published in May 2008 and are not

currently applicable to the group’s operations (effective from

annual periods beginning on or after 1 January 2009 unless

otherwise stated):

> IFRS 5 (Amendment) – Non-current assets held-for-sale

and discontinued operations (effective from annual periods

beginning on or after 1 July 2009).

> IAS 16 (Amendment) – Property, plant and equipment.

> IAS 20 (Amendment) – Accounting for government grants

and disclosure of government assistance.

> IAS 23 (Amendment) – Borrowing costs.

> IAS 27 (Amendment) – Consolidated and separate fi nancial

statements.

> IAS 29 (Amendment) – Financial reporting in hyperinfl ationary

economies.

> IAS 41 (Amendment) – Agriculture.

CONSOLIDATION

Subsidiaries

Subsidiaries, including collective investment schemes and

special purpose entities, are consolidated from the date on

which effective control is transferred to the group, and are

no longer consolidated from the date that control ceases.

All subsidiaries have fi nancial years ending on 31 December

and are consolidated to that date. The accounting policies for

subsidiaries are consistent, in all material respects, with the

policies adopted by the group. Separate disclosure is made

of minority interests. All intra-group balances and unrealised

gains and losses on transactions between group companies

are eliminated.

Initial measurement

The purchase method of accounting is used to account for the

acquisition of subsidiaries by the group, except for common

control transactions; refer merger accounting. The cost of

a business combination is the fair value of the purchase

consideration given at the date of acquisition, equity issued

and liabilities assumed or incurred plus any costs directly

attributable to the business combination. The excess of the

cost of acquisition over the fair value of the group’s share of the

identifi able assets, liabilities and contingent liabilities acquired

is recorded as goodwill. If the cost of acquisition is less than

the fair value of the net assets of the subsidiary acquired, the

difference is recognised directly in the income statement.

Subsequent measurement – Metropolitan Holdings Limited

Subsidiary companies are stated at cost, including goodwill,

less any impairment losses.

Subsequent measurement – Metropolitan Life Limited

Investments in property subsidiary companies are designated

as at fair value through income. The fair value of these

investments is determined with reference to the value of the

underlying net identifi able assets of the property subsidiary.

Changes in the valuation are shown in the income statement

in the period in which they occur.

Impairment – Metropolitan Holdings Limited

The impairment tests of investments in subsidiary companies

are detailed under the section relating to fi nancial assets.

Gains and losses on disposal

Gains and losses on disposal of subsidiaries are included in the

income statement as investment income.

Transactions with minorities

The group applies a policy of treating transactions with minorities

as transactions with equity participants of the group. Disposals

to minorities result in gains and losses for the group that are

recorded in equity. Any difference between any consideration

paid and the relevant share acquired of the carrying value of the

net assets of the subsidiary is recorded in equity.

Associates

Associates are all entities, including collective investment

schemes, over which the group has signifi cant infl uence, but

not control. The group’s investment in associates includes

goodwill, identifi ed on acquisition, net of any accumulated

impairment loss. The accounting policies for associates are

consistent, in all material respects, with the policies adopted

by the group.

Profi ts and losses resulting from transactions between group

companies are recognised in the group’s results to the extent

of the group’s unrelated interests in the associates.

Measurement

Investments in associated companies, other than investments

in collective investment schemes, are initially recognised at

cost, including goodwill, and the carrying amount is increased

or decreased with the group’s proportionate share of post-

acquisition profi ts or losses, using the equity method of

accounting. Under this method, the group’s share of the post-

acquisition profi ts or losses of associates is recognised in the

income statement and its share of post-acquisition movements

in reserves is recognised in reserves. The cumulative post-

acquisition movements are adjusted against the cost of the

investments. The equity method is discontinued from the date

that the group ceases to have signifi cant infl uence over the

associate.

Investments in collective investment schemes where the

group has signifi cant infl uence are designated as investments

at fair value through income and are not equity accounted

where they back contract holder liabilities, based on the

scope exemption in IAS 28 – Investments in associates for

investment-linked insurance funds. Initial measurement is at

fair value on trade date, with subsequent measurement at


(continued)


fair value based on quoted repurchase prices at the close of

business on the last trading day on or before the balance sheet

date. Fair value adjustments on collective investment schemes

are recognised in the income statement. The related income

from these schemes is recognised as interest or dividends

received, as appropriate.

Impairment

Under the equity method, the carrying value is tested for

impairment at reporting dates by comparing the recoverable

amount with the carrying amount. When the group’s share

of losses in an associate equals or exceeds its interest in

the associate, no further losses are recognised unless the

company has incurred obligations or made payments on behalf

of the associate.

Joint ventures

Joint ventures are all entities in which the group has joint

control. Investments in joint ventures are accounted for

using the equity method of accounting. The equity method

is discontinued from the date that the group ceases to have

joint control over the entity. The group’s investment in joint

ventures includes goodwill, identifi ed on acquisition, net of any

accumulated impairment loss.

Measurement

Investments in joint ventures are initially recognised at cost,

including goodwill, and the carrying amount is increased

or decreased with the group’s proportionate share of post-

acquisition profi ts or losses, using the equity method of

accounting. Under this method, the group’s share of the

post-acquisition profi ts or losses is recognised in the income

statement and its share of post-acquisition movements in

reserves is recognised in reserves. The cumulative post-

acquisition movements are adjusted against the cost of the

investments.

Impairment

Under the equity method, the carrying value is tested for

impairment at reporting dates by comparing the recoverable

amount with the carrying amount. When the group’s share

of losses in joint ventures equals or exceeds its interest, no

further losses are recognised unless the company has incurred

obligations or made payments on behalf of the joint venture.

MERGER ACCOUNTING

Separate fi nancial statements of Metropolitan Life Limited

Merger accounting is applied to all common control business

combinations. This accounting method requires that the assets

and liabilities of the purchased business be incorporated at

the consolidated book value (by the ultimate parent) and the

difference between the purchase consideration and the book

value of the assets and liabilities be recorded in equity as a

common control reserve. The fi nancial statements of the

purchaser incorporate the combined companies’ results and

cash fl ows as if the companies have always been combined,

including the restatement of comparatives.

SEGMENT REPORTING

Operating segments are reported in a manner consistent with

the internal reporting provided to the chief operating decision-

maker. The chief operating decision-maker has been identifi ed

as the executive committee that makes strategic decisions.

FOREIGN CURRENCIES

Functional and presentation currency

Items included in the fi nancial statements of each entity

in the group are measured using the currency that best

refl ects the primary economic environment in which the

entity operates (“the functional currency”). The consolidated

fi nancial statements are presented in South African rand (“the

presentation currency”), which is the functional currency of the

parent.

Transactions and balances

Transactions in foreign currencies are translated into the

functional currency using the exchange rates prevailing at the

dates of the transactions. Foreign exchange gains and losses

resulting from the settlement of such transactions and from

the translation at year-end exchange rates of monetary assets

and liabilities denominated in foreign currencies are recognised

in the income statement.

Translation differences on non-monetary assets and liabilities,

measured at fair value through income, are recognised as part

of their fair value gain or loss. Translation differences on non-

monetary items, such as available-for-sale fi nancial assets, are

included in the fair value reserve in equity.

Subsidiary undertakings

Foreign entities are entities of the group that have a functional

currency different from the presentation currency. Assets and

liabilities of these entities are translated into the presentation

currency at the rates of exchange ruling at the reporting date.

Income and expenditure are translated into the presentation

currency at the average rate of exchange for the year.

Exchange differences arising from the translation of the net

investment in foreign entities are recognised in the foreign

currency translation reserve in equity. On disposal, such

exchange differences are recognised in the income statement

as part of net realised and fair value gains.

Goodwill and fair value adjustments arising on the acquisition

of a foreign entity are treated as assets and liabilities of the

foreign entity and translated at the closing rate.

NON-CURRENT ASSETS HELD FOR SALE

Non-current assets (or disposal groups) are classifi ed as assets

held for sale and stated at the lower of carrying amount and

fair value less costs to sell if their carrying amount is to be

recovered principally through a sale transaction rather than

through continuing use.



INTANGIBLE ASSETS

Goodwill

Recognition and measurement

All business combinations are accounted for by applying the

purchase method of accounting, except in the case of common

control transactions, where merger accounting is used.

The initial cost of a business combination is adjusted if the

agreement provides for adjustments to the cost that are

contingent on one or more future events, and the adjustment

is probable and can be measured reliably.

At the acquisition date, goodwill represents the excess of the

cost of the business combination over the interest acquired

in the net fair value of the identifi able assets, liabilities and

contingent liabilities that satisfy the recognition criteria.

Subsequent to initial measurement, goodwill is carried at cost

less accumulated impairment losses.

Goodwill on acquisition of subsidiaries is included in intangible

assets whereas goodwill on acquisition of associates is

included in investment in associates.

When the interest acquired in the net fair value of the identifi able

assets, liabilities and contingent liabilities exceeds the cost of

the business combination, the difference is recognised directly


Gains and losses on the disposal of an entity include the

carrying amount of goodwill relating to the entity sold.

Impairment

At the acquisition date, goodwill acquired in a business

combination is allocated to cash generating units that are

expected to benefi t from the synergies of the combination

in which the goodwill arose. Cash generating units, to which

goodwill has been allocated, are assessed annually. An

impairment loss is recognised whenever the carrying amount

of goodwill exceeds its recoverable amount. Impairment losses

on goodwill are not reversed.

Value of business acquired

On acquisition of a portfolio of insurance contracts the company

recognises an intangible asset representing the value of

business acquired (VOBA). VOBA represents the present value

of future after-tax profi ts embedded in the acquired insurance

and investment contract business.

Measurement

The calculation of VOBA is based on actuarial principles

that take into account future premium income, fee income,

mortality, morbidity and surrender probabilities, together with

future costs and investment returns on the underlying assets.

The profi ts are discounted at a rate of return allowing for the

risk of uncertainty of the future cash fl ows. This calculation is

particularly sensitive to the assumptions regarding discount

rate, future investment returns and the rate at which policies

discontinue.

The asset is amortised over the expected profi t recognition

period of the related contracts, being fi ve years, on a straight-

line basis.

Impairment

VOBA is reviewed for impairment losses through the liability

adequacy test.

Contractual customer relationships

Contractual customer relationships relate to rights to receive

fees for administering retirement fund schemes. An intangible

asset is recognised when rights can be identifi ed separately

and measured reliably and it is probable that the cost will be

recovered.

Measurement

The asset represents the group’s contractual right to benefi t

from providing retirement fund administration services and is

amortised on a straight-line basis over the period in which the

group expects to recognise the related revenue.

Impairment

The contractual right is reviewed for impairment losses

whenever events or changes in circumstances indicate that

the carrying amounts may not be recoverable. An impairment

loss is recognised in the income statement for the amount by

which the carrying amount of the asset exceeds its recoverable

amount.

Deferred acquisition costs

Incremental costs that are directly attributable to securing

rights to receive fees for asset management services sold with

investment contracts are recognised as an asset if they can be

identifi ed separately and measured reliably, and if it is probable

that they will be recovered. The asset represents the contractual

right to benefi t from providing investment management

services, and is amortised as the entity recognises the related

revenue on a straight-line basis over the anticipated lives of the

contracts.

Impairment

An impairment test is conducted annually at reporting date

on the deferred acquisition cost balance to ensure that the

amount will be recovered from future revenue generated by

the applicable remaining investment management contracts.

An impairment loss is recognised for the amount by which the

carrying amount of the asset exceeds its recoverable amount.

Computer software


Acquired computer software

Acquired computer software licences are capitalised on the

basis of the cost incurred to acquire and bring to use the

specifi c software. These costs are amortised on the basis of

an expected useful life of four to ten years, which is assessed

annually, using the straight-line method.


(continued)


Internally developed computer software

Costs that are directly associated with an identifi able and

unique product or process, which will be controlled by the

group and which has probable economic benefi t exceeding

the cost beyond one year, are recognised as intangible

assets. Directly associated costs include employee costs of

the development team and an appropriate portion of relevant

overheads. Computer software development costs recognised

as assets are amortised over their useful lives, ranging from

fi ve to twenty years, using the straight-line method.

Costs associated with developing or maintaining computer

software programs are recognised as an expense as incurred.

Impairment

Computer software is reviewed for impairment losses

whenever events or changes in circumstances indicate that the

carrying amounts may not be recoverable. An impairment loss

is recognised for the amount by which the carrying amount of

the asset exceeds its recoverable amount, the latter being the

higher of the net selling price (ie the fair value less cost to sell)

and the value in use.

OWNER-OCCUPIED PROPERTIES

Owner-occupied properties are held for use in the supply of

services or for administrative purposes. Where the group

occupies a signifi cant portion of the property, it is classifi ed as

a owner-occupied property.

Measurement

Owner-occupied properties are stated at revalued amounts,

being fair value refl ective of market conditions at the reporting

date less accumulated depreciation.

Fair value is determined as being the present value of net rental

income, discounted for the different types of properties at the

market rates applicable at the reporting date. All properties

are valued internally and an independent professional valuator

confi rms the fair values of all signifi cant properties externally,

in a three-year cycle.

Increases in the carrying amount arising on revaluation of

buildings are credited to a land and building revaluation reserve

in equity. Decreases that offset previous increases in respect

of the same asset are charged against the revaluation reserve,

and all other decreases are charged to the income statement.

Subsequent costs are included in the asset’s carrying amount

or recognised as a separate asset, as appropriate, only when

it is probable that future economic benefi ts associated with

the item will fl ow to the group and the cost of the item can be

measured reliably. All other repairs and maintenance costs are

charged to the income statement during the fi nancial period in

which they are incurred.

Depreciation

Owner-occupied property buildings are depreciated on a

straight-line basis, not exceeding 50 years, to allocate their

revalued amounts to their residual values over their estimated

useful lives. Land is not depreciated. The residual values and

useful lives are reviewed at each reporting date and adjusted

if appropriate.

Accumulated depreciation relating to these properties is

eliminated against the gross carrying amount of the properties

and the net amount is restated to the revalued amount.

Subsequent depreciation charges are adjusted based on the

revalued amount for each property. Any difference between

the depreciation charge on the revalued amount and the

amount which would have been charged under historic cost

is transferred, net of any related deferred tax, between the

revaluation reserve and retained earnings as the property is

utilised.

Shadow accounting

Shadow accounting is permitted if there is a contractual

link between payments to insurance contract holders and

the carrying amounts of, or returns from, owner-occupied

properties. As the revaluation model is used for owner-

occupied properties, the changes in the carrying amounts

of the owner-occupied properties are recognised in the land

and buildings revaluation reserve in equity. The group applies

shadow accounting where the changes in the measurement

of the insurance liability resulting from revaluations of property

are recognised in the land and buildings revaluation reserve.

Gains and losses

When owner-occupied properties are sold, the amounts

included in the land and buildings revaluation reserve are

transferred to retained earnings.

PROPERTY AND EQUIPMENT

Properties under development

Properties under development are properties under construction

that are not yet available to earn rentals for use in the supply

of services or for administrative purposes. These properties

are presented as part of property and equipment until they

meet the defi nition of either owner-occupied or investment

properties.

Measurement

Properties under development are measured at cost directly

attributable to the development of these properties.

Impairment

Properties under development are reviewed for impairment

losses whenever events or changes in circumstances indicate

the carrying amounts may not be recoverable. An impairment

loss is recognised for the amount by which the cost of the

asset capitalised to date exceeds the recoverable amount,

which is the discounted net value of assumed future rentals.

Equipment

Measurement

Equipment is stated at historical cost less accumulated

depreciation. Historical cost includes expenditure that is

directly attributable to the acquisition of the items.



Subsequent costs are included in the asset’s carrying amount

or recognised as a separate asset, as appropriate, only when

it is probable that future economic benefi ts associated with

the item will fl ow to the group and the cost of the item can be



which they are incurred.

Depreciation

All assets are depreciated using the straight-line method to

allocate their cost less their residual values over their estimated

useful lives, as follows:

Furniture and fi ttings 5 years

Computer equipment 3 – 5 years

Motor vehicles 6 years

The residual values and useful lives of the assets are reviewed

at each reporting date and adjusted if appropriate.

Gains and losses

Gains and losses on disposal of assets are determined by

comparing proceeds with carrying amounts and are included


Impairment

Equipment is reviewed for impairment losses whenever events

or changes in circumstances indicate that the carrying amounts

may not be recoverable. An impairment loss is recognised

immediately for the amount by which the carrying amount of

the asset exceeds its recoverable amount, the latter being the

higher of the net selling price (ie the fair value less cost to sell)

of the asset and its value in use.

INVESTMENT PROPERTIES

Completed properties

Investment properties are held to earn rentals or for capital

appreciation or both and are not occupied by the companies

of the group.

Measurement

Investment properties comprise freehold land and buildings and

are carried at fair value, refl ective of market conditions at the

reporting date. Fair value is determined as being the present

value of net rental income, discounted for the different types

of properties at the market rates applicable at the reporting

date. Selected properties are valued externally, in a three-year

cycle, to confi rm the fair value of the portfolio. Subsequent

expenditure is charged to the asset’s carrying value only when

it is probable that the future economic benefi ts associated

with the item will fl ow to the company and the cost can be



which they occurred.

Investment properties that are being redeveloped for continuing

use as investment property, or for which the market has

become less active, continue to be measured at fair value.

Undeveloped land is valued at fair value based on recent market

activity in the area.

Transfers to and from investment properties

If an investment property becomes owner-occupied, it is

reclassifi ed as owner-occupied properties, and its fair value at

the date of reclassifi cation becomes its cost for subsequent

accounting purposes.

If an owner-occupied property becomes an investment property

because its use has changed, any difference arising between

the carrying amount and the fair value of this item at the date

of transfer is recognised in equity as a revaluation of owner-

occupied properties. However, if a fair value gain reverses a

previous impairment loss, the gain is recognised in the income

statement. Upon the disposal of such investment property,

any surplus previously recorded in equity is transferred to

retained earnings; the transfer is not made through the income

statement.

Properties held under operating leases

Properties held under operating leases are classifi ed as

investment properties as long as they are held for long-term

rental yields and not occupied by the group. The initial cost of

these properties is the lower of the fair value of the property

and the present value of the minimum lease payments. These

properties are carried at fair value after initial recognition.

Gains and losses

Unrealised gains or losses arising on the valuation of completed

properties and realised gains or losses on disposal of properties

are included in the income statement.

FINANCIAL INSTRUMENTS


The group classifi es its investments into the following

categories:

> fi nancial assets at fair value through income

> available-for-sale fi nancial assets

> loans and receivables

> held-to-maturity fi nancial assets.

The classifi cation depends on the purpose for which the

investments were acquired. Management determines the

classifi cation of its investments at initial recognition and re-

evaluates this designation at every reporting date.

> Financial assets at fair value through income

This category has two sub-categories: fi nancial assets held

for trading and those designated as at fair value through

income at inception.

A fi nancial asset is classifi ed as held for trading at inception if

it is acquired principally for the purpose of selling in the short

term and forms part of a portfolio of fi nancial assets in which

there is evidence of short-term profi t-taking. Derivatives are

classifi ed as held for trading.


(continued)


Financial assets are designated as at fair value through

income at inception if they are held to match insurance

contract holder liabilities, investment contract holder

liabilities with DPF and investment contract holder liabilities

designated as at fair value through income, or if they are

managed and their performance is evaluated on a fair value

basis. These assets are initially recognised at fair value and

transaction costs directly attributable to acquiring these

fi nancial assets are expensed in the income statement

in net realised and fair value gains. Subsequent fair value

adjustments are recognised in the income statement.

> Available-for-sale fi nancial assets

Available-for-sale fi nancial assets are non-derivative fi nancial

assets that are not classifi ed in any of the other categories.

> Loans and receivables

Loans and receivables are non-derivative fi nancial assets

with fi xed or determinable payments that are not quoted in

an active market.

> Held-to-maturity fi nancial assets

Held-to-maturity fi nancial assets are non-derivative fi nancial

assets with fi xed or determinable payments and fi xed

maturities – other than those that meet the defi nition of

loans and receivables – that management of the group has

the positive intention and ability to hold to maturity.

A fi nancial asset or fi nancial liability is recognised in the

balance sheet when, and only when, the group becomes a

party to the contractual provisions of the instrument.

Purchases and sales of investments are recognised on

trade date, being the date on which the group commits

to purchase or sell the asset. Investments are initially

recognised at fair value plus, in the case of a fi nancial

asset not at fair value through income, transaction costs

that are directly attributable to the acquisition of the asset.

Financial assets at fair value through income and available-

for-sale assets are subsequently carried at fair value. Loans

and receivables and held-to-maturity assets are recognised

initially at fair value and subsequently carried at amortised

cost, using the effective interest rate method less provision

for impairment.

The fair value of quoted investments is based on current bid

prices. Collective investments are valued at their repurchase

price. For unlisted equity and debt securities, unquoted unit

linked investments and fi nancial assets where the market is

not active, the group establishes fair value by using valuation

techniques. These include discounted cash fl ow analysis

and adjusted price earnings ratios. Unquoted securities are

valued at every reporting period.

Impairment of fi nancial assets

> Financial assets carried at fair value – available-for-sale

At each reporting date the group assesses whether there is

objective evidence that an available-for-sale fi nancial asset

is impaired, including a signifi cant or prolonged decline in

the fair value of the security below its cost in the case of

equity investments classifi ed as available-for-sale. If any such

evidence exists for available-for-sale fi nancial assets, the

cumulative loss – measured as the difference between the

acquisition cost and current fair value, less any impairment

loss on the fi nancial asset previously recognised in profi t

and loss – is removed from equity and recognised in the

income statement. Impairment losses on equity instruments

recognised in the income statement are not subsequently

reversed.

> Loans and receivables

A provision for loans and receivables is established when

there is objective evidence that the group will not be able

to collect all amounts due according to the original terms

of the assets concerned. The amount of the provision is the

difference between the carrying amount of the asset and the

present value of estimated future cash fl ows, discounted

at the original effective interest rate. The movement in

the current year provision is recognised in the income

statement.

De-recognition of fi nancial assets

Investments are de-recognised when the right to receive

cash fl ows from the investments has expired or has been

transferred, and the group has transferred substantially all risks

and rewards of ownership.

Realised and unrealised gains and losses

Assets at fair value through income

Realised and unrealised gains and losses arising from changes

in the value of fi nancial assets at fair value through income are

included in the income statement in the period in which they

arise. Interest and dividend income arising on these assets are

disclosed separately under investment income in the income

statement.

Available-for-sale assets

Unrealised gains and losses arising from changes in the fair

value of available-for-sale fi nancial assets are recognised

in equity. When these assets are sold or impaired, the

accumulated fair value adjustments are included in the income

statement as realised gains and losses. Interest and dividend

income arising on these assets are disclosed separately under

investment income in the income statement.

Changes in the fair value of monetary securities denominated

in a foreign currency and classifi ed as available-for-sale are

analysed between translation differences resulting from

changes in the amortised cost of the security and other

changes in the carrying amount of the security. The translation

differences on monetary securities are recognised in profi t or

loss; translation differences on non-monetary securities are

recognised in equity. Changes in the fair value of monetary

and non-monetary securities classifi ed as available-for-sale are

recognised in equity.



Offsetting

Financial assets and liabilities are set off and the net balance

reported in the balance sheet where there is a legally

enforceable right to set off, where it is the intention to settle

on a net basis or to realise the asset and settle the liability

simultaneously, where the maturity date for the fi nancial asset

and liability is the same, and where the fi nancial asset and

liability are denominated in the same currency.

Scrip lending

The equities or bonds on loan, and not the collateral security,

are refl ected in the balance sheet of the group at year-end.

Scrip lending fees received are included under fee income.

The group continues to recognise the related income on the

equities and bonds on loan. Collateral held is not recognised in

the fi nancial statements, if it is sold, the gain or loss is included


DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives are initially recognised at fair value on the date on

which derivative contracts are entered into and are subsequently

remeasured at fair value. Quoted derivative instruments are

valued at the South African Futures Exchange ruling price

while the value of unquoted derivatives is determined by

using valuation techniques that incorporate all factors that

market participants would consider in setting the price. The

latter are consistent with accepted economic methodologies

for pricing derivatives, such as discounted cash fl ow models

and option pricing models, as appropriate. The group calibrates

its valuation techniques against market transactions or any

available observable market data.

Gains or losses on derivatives measured using these valuation

techniques are recognised only to the extent that they arise

from a technique that incorporates variables based on

observable market data and there has been a change in one of

these variables (including time).

None of the group’s derivatives qualifi es for hedge accounting

and all are held for trading. Changes in the fair value of these

derivative instruments are recognised immediately in the

income statement.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are carried in the balance sheet at

cost, which approximates fair value. Cash and cash equivalents

comprise cash on hand, deposits held at call with banks

and other short-term, highly liquid investments with original

maturities of three months or less. Bank balances that are

held for investment purposes are included in funds on deposit

and other money market instruments with a maturity of three

months or less. Operating bank balances are included in bank

and other cash balances.

SHARE CAPITAL

Ordinary shares with discretionary dividends are classifi ed

as equity. The component of the convertible redeemable

preference shares representing the value of the conversion

option at the time of issue is included in equity.

Issue costs

Incremental external costs directly attributable to the issue

of new shares, other than in connection with business

combinations, are recognised in equity as a deduction from

the proceeds.

Treasury shares

Treasury shares are equity share capital of the holding company

held by subsidiaries, consolidated collective investment

schemes and share trusts, irrespective of whether they are held

in shareholder or contract holder portfolios. The consideration

paid, including any directly attributable costs, is eliminated from

shareholder equity on consolidation. The consideration received

for the shares, net of attributable incremental transaction costs

and the related income tax effects on the subsequent sale, is

included in equity. The net consideration received for the sale of

contract holder shares is included in contract holder liabilities.

Fair value movements are also eliminated on consolidation.

De-recognition of staff share scheme shares

Shares issued to staff through the Metropolitan Holdings staff

share schemes since 1 January 2001 do not comply with the de-

recognition rules in IAS39 – Financial instruments: recognition

and measurement (revised) – and are therefore reversed on

consolidation of the staff share scheme trusts.

INSURANCE AND INVESTMENT CONTRACTS

The Metropolitan group issues contracts that transfer insurance

risk or fi nancial risk or both.

Classifi cation of contracts

Insurance contracts

Insurance contracts are those under which the group accepts

signifi cant insurance risk from another party (contract holder)

by agreeing to pay compensation if a specifi ed uncertain future

event (the insured event) adversely affects the contract holder.

Insurance risk is risk, other than fi nancial risk, transferred

from the holder of a contract to the issuer. Insurance risk is

signifi cant if an insured event could cause an insurer to pay

signifi cant additional benefi ts in any scenario.

Financial risk is the risk of a possible future change in one or

more of a specifi ed interest rate, fi nancial instrument price,

commodity price, foreign exchange rate, index of prices or

rates, credit rating or credit index or other variable, provided

that in the case of a non-fi nancial variable, the variable is not

specifi c to a party to the contract.

Investment contracts

Investment contracts are those where only fi nancial risk is

transferred.


(continued)


Contracts with discretionary participation features

The group issues insurance and investment contracts containing

discretionary participation features (DPF). These contracts are

smoothed bonus and conventional with-profi t business. All

contracts with DPF are accounted for in the same manner as

insurance contracts.

Insurance contracts and investment contracts with

discretionary participation features

Measurement

The liabilities relating to insurance contracts and investment

contracts with DPF are measured in accordance with the fi nancial

soundness valuation (FSV) basis as set out in professional

guidance note (PGN)104 – Valuation of long-term insurers. The

FSV basis uses best estimate assumptions regarding future

experience together with compulsory and discretionary margins

for prudence and deferral of profi t emergence.

Assumptions used in the valuation basis are reviewed

periodically and any changes in estimates are refl ected in the

income statement as they occur. The underlying assumptions

are disclosed in note 20.

The valuation bases used for the major classes of contract

liabilities before the addition of the margins described under

the heading of compulsory and discretionary margins below,

were as follows:

> For group smoothed bonus business, the liability is taken

as the sum of the fund accounts, being the retrospective

accumulation of premiums net of charges and benefi t

payments at the declared bonus rates.

> For individual smoothed bonus business, the liability is taken

as the sum of the fund accounts less the present value of

future charges not required for risk benefi ts and expenses.

> For with-profi t annuity business, the liability is taken as the

discounted value of projected future benefi t payments and

expenses. Future bonuses are provided for at bonus rates

supported by the assumed future investment return.

> For the above three classes of business, bonus stabilisation

reserves (BSRs) are held in addition to the liabilities described

above. In the case of smoothed bonus business, the BSR

is equal to the difference between the market value of the

underlying assets and the fund accounts. In the case of with-

profi t annuity business the BSR is equal to the difference

between the market value of the underlying assets and the

discounted value of projected future benefi t payments and

expenses. BSRs are included in contract holder liabilities.

BSR is an actuarial term which constitutes either an asset or

liability in accounting terms.

> For conventional with-profi t business, the liability is taken

as the difference between the discounted value of future

expenses and benefi t payments (including all future bonuses)

and the discounted value of future premium receipts.

> For individual market-related business, the liability is taken as

the fair value of the underlying assets less the present value

of future charges not required for risk benefi ts and expenses.

> For group risk business, liabilities are held to refl ect claims

incurred but not reported (IBNR).

> For conventional non-profi t business, including non-profi t

annuities and guaranteed endowment business, the liability

is taken as the difference between the discounted value of

future expenses and benefi t payments and the discounted

value of future premium receipts.

> A number of contracts contain embedded derivatives in

the form of fi nancial options and investment guarantees.

Liabilities in respect of these derivatives are valued in

accordance with the guidelines in PGN110 – Allowance for

embedded investment derivatives. Stochastic models are

used to determine a best estimate of the time value as well

as the intrinsic value of these derivatives.

> Provision is made for the estimated cost of IBNR claims

for all relevant classes of business as at the reporting date.

IBNR provisions are calculated using run-off triangle methods

or else as percentages of premium, based on historical

experience.

The major classes of contract liabilities are disclosed in note

43.4.

Where contract holders, in respect of certain policies, are

entitled to a partial surrender, any partial surrender is treated as

a de-recognition of the contract holder liability.

Compulsory and discretionary margins

In the valuation of liabilities, provision is made for the explicit

compulsory margins as required by PGN104 – Valuation of long-

term insurers. The following additional discretionary margins

are held in order to release profi ts as they are earned:

> Future fees exceed expenses and compulsory margins on

employee benefi ts business. These excesses represent

discretionary margins and are released in line with work

done over the term of the policies.

> Part of the shareholder share of the asset charge on

individual linked, smoothed bonus and conventional with-

profi t business is not recognised until the period in which

the charge is levied.

> Future profi ts from the surrender of smoothed bonus

individual policies are not recognised until surrender occurs.

> Future profi ts from voluntary group risk business are not

recognised until they are earned.

> An additional liability is held to cover the risk that the mortality

and morbidity experience in respect of supplementary

benefi ts and direct marketing business may be worse than

the best estimate assumption. This margin is calculated by

adding a loading to the underlying mortality.

Embedded derivatives

The group does not separately measure embedded derivatives

that meet the defi nition of an insurance contract and the

entire contract is measured as an insurance contract. All other

embedded derivatives are separated and carried at fair value,

in accordance with PGN110, if they are not closely related

to the host insurance contract but meet the defi nition of a



derivative. Embedded derivatives that are separated from the

host contract are carried at fair value through income.

Liability adequacy test

The FSV methodology meets the requirements of the liability

adequacy test in terms of IFRS 4 – Insurance contracts.

However, at each balance sheet date the adequacy of the

insurance liabilities is assessed to confi rm that the carrying

amount of the insurance liabilities, measured in accordance

with the FSV basis, less any related intangible asset, present

value of business acquired (VOBA), is adequate in relation to the

estimated future cash fl ows. Future cash fl ows are based on

best estimates in accordance with the FSV basis, but excluding

compulsory margins as described in PGN104 as well as all

discretionary margins. If the liabilities prove to be inadequate,

the defi ciency is recognised in the income statement.

Reinsurance contracts held

Contracts entered into by the group with reinsurers under

which the group is compensated for losses on one or more

contracts issued by the group and that meet the classifi cation

requirements for insurance contracts are classifi ed as

reinsurance contracts held. The benefi ts to which the group

is entitled under its reinsurance contracts held are recognised

as reinsurance assets. These assets consist of short-term

balances due from reinsurers (classifi ed as receivables), as well

as longer term receivables (classifi ed as reinsurance assets)

that are dependent on the expected claims and benefi ts

arising under the related reinsured insurance contracts.

Amounts recoverable from or due to reinsurers are measured

consistently with the amounts associated with the reinsured

insurance contracts and in accordance with the terms of each

contract.

Impairment of reinsurance assets

If there is objective evidence that the reinsurance asset is

impaired, the group reduces the carrying amount of the

reinsurance asset to its recoverable amount and recognises

that impairment loss in the income statement. The impairment

loss is calculated using the same method adopted for loans

and receivables.

Insurance premiums

Insurance premiums and annuity considerations receivable

from insurance contracts and investment contracts with DPF

are recognised as revenue in the income statement, gross of

commission and reinsurance premiums and excluding taxes

and levies. Where annual premiums are paid in instalments,

the outstanding balance of these premiums is recognised

when due.

Reinsurance premiums

Reinsurance premiums are recognised when due for

payment.

Insurance benefi ts and claims

Insurance benefi ts and claims relating to insurance contracts

and investment contracts with DPF include death, disability,

maturity, annuity and surrender payments and are recognised

in the income statement based on the estimated liability for

compensation owed to the contract holder. Death, disability

and surrender claims are recognised when incurred. These

claims also include claim events, which occurred before the

balance sheet date, but have not been fully processed. Claims

in the process of settlement are recognised in other payables in

the balance sheet. Maturity and annuity claims are recognised

when they are due for payment.

Reinsurance recoveries

Reinsurance recoveries are accounted for in the same period

as the related claim.

Acquisition costs

Acquisition costs, disclosed as sales remuneration, for

insurance contracts and investment contracts with DPF include

all commission and expenses directly related to commission

payable in the production of business and are expensed when

incurred. The FSV basis makes implicit allowance for the

recoupment of acquisition costs; therefore, no explicit deferred

acquisition cost asset is recognised in the balance sheet for

contracts valued on this basis.

Capitation contracts

The group enters into capitation contracts with medical

schemes. These contracts are short-term health benefi t

insurance contracts.

Measurement

The liability for capitation contracts comprises provisions for

the group’s estimate of the ultimate cost of settling all claims

incurred but not yet reported at the balance sheet date and

related internal and external claims handling expenses. Claims

outstanding are determined as accurately as possible based

on a number of factors, which include previous experience in

claims patterns, claims settlement patterns, changes in the

membership profi le according to gender and age, trends in

claims frequency, changes in the claims processing cycle, and

variations in the nature and average cost incurred per claim.

Estimated co-payments and payments from savings plan

accounts are deducted in calculating the outstanding claims

provision. The group does not discount its provision for

outstanding claims on the basis that claims must be submitted

within four months of the medical event.

Capitation premiums

Capitation premiums are received monthly, based on

participating client scheme membership. Capitation premium

income is earned from the date of attachment risk over the

indemnity period, on an accrual basis.

Capitation benefi ts incurred

Gross capitation benefi ts incurred are the total estimated cost of

all claims arising from the healthcare events that have occurred

in the year and for which the group is responsible, whether

or not reported by the end of the year. These claims include

participating client scheme member medical claims, including

hospital, primary care and chronic medication expenses.


(continued)


Capitation benefi ts incurred comprise:

> Claims submitted and accrued for services rendered during

the year, net of recoveries from covered members for co-

payments and savings plan accounts, and

> Claims for services rendered during the previous year not

included in the outstanding claims provisions for that year,

net of balances in savings plan accounts and recoveries from

covered members for co-payments.


Measurement

The group issues investment contracts without fi xed terms

and investment contracts with fi xed and guaranteed terms.

Investment contracts without fi xed terms are fi nancial liabilities

whose fair value is dependent on the fair value of underlying

fi nancial asset portfolios that can include derivatives and are

designated at inception as at fair value through income.

A fi nancial liability is recognised in the balance sheet when,

and only when, the group becomes party to the contractual

provisions of the instrument. Financial liabilities are initially

recognised at fair value.

For investment contracts, other than those with fi xed and

guaranteed terms, fair value is determined using the current

unit values that refl ect the fair value of the fi nancial assets

contained within the group’s unitised investment funds linked

to the related fi nancial liability, multiplied by the number of

units attributed to the contract holders at the valuation date.

The fair value of fi nancial liabilities is never less than the

amount payable on surrender, discounted for the required

notice period, where applicable.

For investment contracts with fi xed and guaranteed terms,

valuation techniques are used to establish the fair value at

inception and at each reporting date. Valuation techniques

include discounted cash fl ow analysis using current market

rates of interest and reference to other instruments that

are substantially the same. The underlying assumptions are

disclosed in note 20.

Deferred revenue liability

A deferred revenue liability is recognised in respect of front-

end fees, which are directly attributable to a contract, that are

charged for securing the investment management service

contract. The deferred revenue liability is then released to

revenue when the services are rendered over the expected

term of the contract on a straight-line basis.

Amounts received and claims incurred

Premiums received under investment contracts are recorded as

deposits to investment contract liabilities and claims incurred are

recorded as deductions from investment contract liabilities.

BORROWINGS

Convertible redeemable preference shares

At initial recognition, the fair value of the liability component of

the convertible redeemable preference shares is determined

by discounting the net present value of future cash fl ows, net

of transaction costs, at market rate at inception for a similar

instrument without the conversion option. This amount is

recorded as a liability on the amortised cost basis, using the

effective interest rate method, until extinguished on conversion of

the preference shares. The remainder of the proceeds is allocated

to the conversion option, which is recognised and included in

shareholder equity. The value of the equity component is not

changed in subsequent periods.

Subordinated redeemable debentures

These debentures are recognised initially at fair value, net of

transaction costs incurred. The debentures are subsequently

stated at amortised cost; any difference between the

proceeds (net of transaction costs) and the redemption value

is recognised in the income statement over the period of the

debentures, using the effective interest rate method.

DEFERRED INCOME TAX

Measurement

Deferred income tax is provided for in full, at current tax rates

and in terms of laws substantively enacted at the reporting

date in respect of temporary differences between the tax bases

of assets and liabilities and their carrying values for fi nancial

reporting purposes, using the liability method. However, if the

deferred income tax arises from initial recognition of an asset

or liability in a transaction other than a business combination

that at the time of the transaction affects neither accounting

nor taxable profi t or loss, it is not accounted for. Deferred

tax assets, including tax on capital gains and secondary tax

on companies, are recognised for tax losses and unused tax

credits and are carried forward only to the extent that realisation

of the related future tax benefi t is probable.

Offsetting

Deferred tax assets and liabilities are set off when the income

tax relates to the same fi scal authority and where there is a

legal right of offset at settlement in the same taxable entity.

CURRENT TAXATION

Measurement

Current tax is provided for at the amount expected to be paid,

using the tax rates and in respect of laws that have been

substantively enacted at the reporting date. Retirement fund

tax, individual policyholder tax and corporate policyholder

tax is included in tax on contract holder funds in the income

statement.

Offsetting

Current tax assets and liabilities are set off when a legally

enforceable right exists and it is the intention to settle

on a net basis or to realise the asset and settle the liability

simultaneously.

Secondary tax on companies (STC)

South African resident companies are subject to a dual



corporate tax system, one part of the tax being levied on

taxable income and the other, a secondary tax, on distributed

income. A company incurs STC charges on the declaration or

deemed declaration of dividends (as defi ned under tax law) to

its shareholders. STC is not a withholding tax on shareholders,

but a tax on companies.

The STC tax consequence of dividends is recognised as a

taxation charge in the income statement in the same period

that the related dividend is accrued as a liability. The dividend

declared is reduced by dividends received during the dividend

cycle. Where dividends declared exceed the dividends received

during a cycle, STC is payable at the current STC rate on the net

amount. Where dividends received exceed dividends declared

within a cycle, there is no liability to pay STC. The potential tax

benefi t related to excess dividends received is carried forward

to the next dividend cycle as an STC credit. Deferred tax assets

are recognised on unutilised STC credits to the extent that it is

probable that the group will declare future dividends to utilise

such STC credits.

LEASES

Finance leases

Leases of property and equipment where substantially all the

risks and rewards incidental to ownership have been transferred

to the group are classifi ed as fi nance leases.

Measurement

> Asset

Finance leases are capitalised at the lower of the fair value of

the leased asset or the present value of the minimum lease

payments at inception of the lease. The asset acquired is

depreciated over the shorter of the useful life of the asset or

the lease term.

> Liability

The rental obligation, net of fi nance charges, is included

as a liability. Each lease payment is apportioned between

fi nance charges and the reduction of the outstanding liability.

The fi nance charges or interest are charged to the income

statement over the lease term so as to produce a constant

periodic rate of interest on the liability remaining for each

period.

Operating leases

Leases where substantially all the risks and rewards incidental

to ownership have not been transferred to the group are

classifi ed as operating leases. Payments made are charged to

the income statement on a straight-line basis over the period

of the lease.

DIVIDENDS PAID AND RELATED SECONDARY TAX ON

COMPANIES

Dividends paid to shareholders of the company and the

related secondary tax on companies (STC) are recognised on

declaration date.

PROVISIONS

Provisions are recognised when, as a result of past events,

the group has a present legal or constructive obligation of

uncertain timing or amount, and it is probable that an outfl ow

of resources embodying economic benefi ts will be required to

settle the obligation, and a reliable estimate of the amount of

the obligation can be made.

Provisions are measured as the present value of management’s

best estimate of the expenditure required to settle the

obligation at the reporting date. The pre-tax discount rate

used to determine the present value refl ects current market

assessments of the time value of money. The increase in the

provision due to the passage of time is recognised as interest

expense.

Onerous contracts

The group recognises a provision for an onerous contract,

except on insurance contracts, when the expected benefi ts

to be derived from a contract are lower than the unavoidable

costs of meeting the obligations under the contract.

CONTINGENT LIABILITIES

Contingent liabilities are refl ected when the group has a possible

obligation arising from past events, the existence of which will

be confi rmed only by the occurrence or non-occurrence of one

or more uncertain future events not wholly within the control of

the group, or it is possible but not probable that an outfl ow of

resources will be required to settle an obligation, or the amount

of the obligation cannot be measured with suffi cient reliability.

EMPLOYEE BENEFITS

Pension and provident fund obligations

The group provides a defi ned benefi t pension scheme as well

as defi ned contribution pension and provident schemes. The

schemes are funded through payments to trustee-administered

funds, determined by periodic actuarial calculations.

> Defi ned contribution retirement funds

A defi ned contribution plan is a pension fund under which

the group pays fi xed contributions into a separate entity. The

group has no legal or constructive obligations to pay further

contributions if the fund does not hold suffi cient assets to

pay all employees the benefi ts relating to employee service

in the current and prior periods. The group contributes to

the defi ned contribution provident scheme, with employees

contributing to the defi ned contribution pension scheme.

A surplus available to the group is recognised as an asset in

the group’s balance sheet once the trustees of the scheme’s

application for formal recognition of the surplus amounts as

an employer surplus account in terms of section 15F of the

Pension Funds Second Amendment Act 39 of 2001 is approved

by the Financial Services Board. The group’s contributions

are charged to the income statement when incurred, except

those contributions subsidised by the surplus amount.


(continued)


> Defi ned benefi t pension fund

A defi ned benefi t plan is a pension fund that defi nes the

amount of the pension benefi t that an employee will receive

on retirement, usually dependent on one or more factors

such as age, years of service and compensation.

The asset or liability recognised in the balance sheet in

respect of defi ned benefi t pension plans is the present value

of the defi ned benefi t obligation at the balance sheet date

less the fair value of plan assets, together with adjustments

for unrecognised actuarial gains or losses and past service

costs. Plan assets exclude any insurance contracts issued

by the group. The defi ned benefi t obligation is calculated

annually, using the projected unit credit method.

The present value of the obligation is determined by

discounting the estimated future cash outfl ows, using

interest rates of high-quality corporate bonds (where

there is no deep corporate bond market, the interest rate

of government bonds is used) that are denominated in the

currency in which the benefi ts will be paid and that have

terms to maturity that approximate the terms of the related

pension liability.

Actuarial gains and losses arising from experience

adjustments and changes in actuarial assumptions are

recognised as and when they arise.

Past-service costs are recognised immediately in income,

unless the changes to the pension fund are conditional on

the employees remaining in service for a specifi ed period

of time, known as the vesting period. In this case, the past-

service costs are amortised on a straight-line basis over the

vesting period.

Post-retirement medical aid obligations

The group provides a subsidy in respect of medical aid

contributions on behalf of pensioners who have retired from the

defi ned benefi t pension fund. An accounting provision is made

for the future medical aid contributions of these pensioners

and for the post-retirement medical aid contributions of the

in-service members of the defi ned benefi t pension fund. The

entitlement to these benefi ts is based on the employees

remaining in service up to retirement age. The expected costs

of these benefi ts are accrued over the period of employment,

using a methodology similar to that for defi ned benefi t pension

plans. These provisions are calculated using the projected unit

credit method, actuarial methodologies for the discounted

value of contributions and a best estimate of the expected

long-term investment return, as well as taking into account

estimated contribution increases. The actuarial gains and

losses are recognised as they arise. The increase or decrease

in the accounting provision for these costs is charged to the

income statement.

The group has no obligation for post-retirement medical benefi ts

in respect of other pensioners and in-service members.

Bonus plans

The group pays performance bonuses to senior employees

of the group and thirteenth cheque bonuses to certain staff

members. Performance bonuses are based on certain

objectives, taking into account past business experience and

future strategic issues, agreed upon by the board of directors

of the holding company. The group recognises a provision

where contractually obliged or where there is a past practice

that has created a constructive obligation.

Share-based compensation

The group operates equity-settled and cash-settled share-

based compensation plans.

Equity-settled compensation plans

The fair value of the employee services received in exchange for

the grant of the shares is recognised as an expense. The total

amount to be expensed over the vesting period is determined

by reference to the fair value of the shares granted, excluding

the impact of any non market-related vesting conditions. Non

market-related vesting conditions, such as the resignation

of employees and retrenchment of staff, are included in

assumptions regarding the number of shares expected to

vest, which are revised at every reporting date. The impact of

the revision of original estimates, if any, is recognised in the

income statement, and a corresponding adjustment is made

to equity.

The fair value of equity instruments granted is determined by

using standard option pricing models. The valuation technique

is consistent with generally accepted valuation methodologies

for pricing fi nancial instruments, and incorporates all factors and

assumptions that knowledgeable, willing market participants

would consider in setting the price of the equity instrument.

As the holding company grants the shares to certain subsidiary

employees, the carrying value of the investment in the

subsidiary is increased in the holding company’s fi nancial

statements, with a corresponding increase in the fair value

reserve. The subsidiary recognises the expense and an

equivalent increase in equity.

Cash-settled compensation plans

The group grants units to employees based on a basket of

performance criteria, whereby the employees become entitled

to a future cash payment equal to the twenty-day weighted

average share price of the holding company at the payment

date, which is after a three year period.

The group recognises the value of the services received

(expense), and the liability to pay for those services, as the

employees render service. The liability is measured, initially and

at each reporting date until settled, at the fair value appropriate

to the scheme, taking into account the terms and conditions

on which the rights were granted, and the extent to which the

employees have rendered service to date, excluding the impact

of any non market-related vesting conditions. Non market-related

vesting conditions are included in the assumptions regarding



the number of units expected to vest. These assumptions are

revised at every reporting date. The impact of the revision of

original estimates, if any, is recognised in the income statement,

and a corresponding adjustment is made to the liability.

Compensation plans valued on the projected unit credit

method

Metropolitan Health staff share scheme

The group has recognised a liability with respect to its obligation

to purchase shares in Metropolitan Heath Corporate from the

company’s management. The liability has been measured

with reference to the selling price formula that will be used to

repurchase the shares from the employees, and any change is

charged to the income statement over the vesting period of

the shares.

International subsidiaries

The group has recognised a liability with respect to its obligation

to purchase shares in certain international subsidiaries from

the employees of those companies. The liability has been

measured with reference to the applicable embedded value

that will be used to repurchase the shares from the employees,

and any change is charged to the income statement over the

vesting period of the shares.

REVENUE RECOGNITION

Revenue comprises the fair value of services, net of value-

added tax, after eliminating revenue within the group. Revenue

is recognised as follows:

Fee income

Fees received on investment management service contracts

Fees charged for investment management services provided

in conjunction with an investment contract are recognised as

revenue as the services are provided. Initial fees that exceed

the level of recurring fees and relate to the future provision of

services are deferred and released on a straight-line basis over

the lives of the contracts.

Front-end fees

Front-end fees are deferred and released to revenue when the

services are rendered, over the expected term of the contract

on a straight-line basis.

Trust and fi duciary fees received

Fees received from asset management, retirement fund

administration and other related administration services offered

by the group are recognised in the accounting period in which

the services are rendered. Where initial fees are received,

these are deferred and recognised over the average period of

the contract. This period is reassessed annually.

Other fee income

Other fees received relate to administration charges for banking

services and the administration of health schemes and are

recognised in the period in which the services are rendered.

Scrip lending fees are based on rates determined per contract

and are recognised as the service is rendered.

Investment income

Interest income

Interest income is recognised in the income statement, using

the effective interest rate method and taking into account the

expected timing and amount of cash fl ows. Interest income

includes the amortisation of any discounts or premiums or other

difference between the initial carrying amount of an interest-

bearing instrument and its amount at maturity, calculated on an

effective interest rate method.

Dividend income

Dividends received are recognised when the right to receive

payment is established.

Rental income

Rental income is recognised on the straight-line method.

EXPENSE RECOGNITION

Finance costs

Finance costs are recognised in the income statement, using

the effective interest rate method, and taking into account

the expected timing and amount of cash fl ows. Finance costs

include the amortisation of any discounts or premiums or other

differences between the initial carrying amount of an interest-

bearing instrument and its amount at maturity, calculated on an

effective interest rate method.


(continued)


PREPARATION OF FINANCIAL STATEMENTS

The consolidated fi nancial statements are prepared on the going

concern basis of accounting. The balance sheet is presented

based on liquidity. The income statement is presented on

the nature of expense method but sales remuneration

and distribution costs are shown on the face of the income

statement. In the cash fl ow statement, the cash fl ows from

operating activities are reported on the indirect method. The

consolidated fi nancial statements are presented in South

African rand, which is the functional currency of the parent.

APPLICATION OF ACCOUNTING POLICIES

Estimates and assumptions are an integral part of fi nancial

reporting and as such have an impact on the assets and

liabilities of the group. Management applies judgement in

determining best estimates of future experience. Judgements

are based on historical experience and management’s best

estimate expectations of future events, taking into account

changes experienced historically. Estimates and assumptions

are regularly updated to refl ect actual experience. Actual

experience in future fi nancial years can be materially different

from the current assumptions and judgements and could

require adjustments to the carrying values of the affected

assets and liabilities. The critical estimates and judgements

made in applying the group’s accounting policies are detailed in

the notes to the annual fi nancial statements, as listed below:

> Impairment of goodwill – note 1.1

> Valuation assumptions for both owner-occupied and

investment properties – notes 2 and 4

> Provision for impairment of loans and receivables – note 9

> Provision for deferred tax – note 11

> Valuation assumptions for the value of services provided

(equity-settled arrangements) – note 16

> Assumptions and estimates of capitation contracts –

note 18

> Assumptions and estimates of contract holder liabilities –

note 20

> Valuation assumptions for retirement benefi t obligations –

note 23.1

> Valuation assumptions for post-retirement medical benefi t

obligations – note 23.2(a)

> Valuation assumptions for the value of services provided –

notes 23.2(b) and 23.2(c)

> Valuation assumptions for fi nancial instruments – note 43

CRITERIA FOR DESIGNATION AS AT FAIR VALUE

THROUGH INCOME

For Metropolitan Life Ltd the investment in the property

subsidiaries, and for both the group and Metropolitan Life

Ltd, the equity securities, debt securities, funds on deposit

and other money market instruments, unit-linked investments

and investment contract liabilities, are designated upon initial

recognition as they are:

> held to match insurance and investment contract liabilities

that are linked to the changes in fair value of these assets,

thereby eliminating or signifi cantly reducing an accounting

mismatch that would otherwise arise from measuring assets

and liabilities or recognising the gains and losses on them on

different bases;

> managed, with their performance being evaluated on a

fair value basis, in accordance with portfolio mandates

that specify the investment strategy. Quarterly investment

reports are submitted to the investment committee, a

Metropolitan Holdings Limited board sub-committee, where

portfolio performance is evaluated against the mandates.

> investment contract liabilities whose fair value is dependent

on the fair value of underlying fi nancial assets, derivatives

and/or investment property are designated at inception as

at fair value through income. The group designates these

investment contracts to be measured at fair value through

income because it eliminates or signifi cantly reduces a

measurement or recognition inconsistency, referred to as

an accounting mismatch, that would otherwise arise from

measuring assets or liabilities or recognising the gains and

losses on them on different bases.

CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES



Management has determined the operating segments based

on the way the business is managed, and the reports used by

the executive committee to make strategic decisions refl ect

this.

The committee considers the business from both a geographic

and product perspective. The South African operations are

segregated into retail, corporate, asset management, health

and shareholders capital. The international companies,

Botswana, Ghana, Kenya, Lesotho, Mauritius, Namibia, Nigeria

and Swaziland, are all managed as one operating segment.

Although Metropolitan Card Operations (Pty) Ltd and

Metropolitan Capital group represent separate operating

segments, they do not meet the quantitative thresholds

required by IFRS 8 – Operating segments and are therefore

reported with shareholder capital.

The reportable operating segments derive their revenue as

follows:

> Retail (includes Union Life Ltd, Metropolitan Odyssey Ltd and

DirectFin Solutions (Pty) Ltd) – development, distribution and

administration of individual life investment and risk products

> Corporate (includes Metropolitan Retirement Administrators

(Pty) Ltd) – all aspects of retirement fund business including

investment, risk management, actuarial consulting and

administration

> Asset management – all aspects of active asset management,

collective investment management, property management

and administration, on behalf of all businesses within the

group and third parties

> Health – provision of medical aid administration services,

health risk management strategies, managed healthcare

and administration system franchising to both corporate and

retail healthcare schemes

> Shareholder capital – consists of the holding company,

Metropolitan Card Operations (Pty) Ltd, Metropolitan Capital

group and the shareholders excess in Metropolitan Life Ltd,

Metropolitan Odyssey Ltd and Union Life Ltd

> International – development, distribution and administration

of individual life investment and risk products as well as

retirement fund business.

Inter-segment fees are charged out at arm’s length.

The executive committee assesses the performance of the

operating segments based on diluted core headline earnings.

This measurement basis excludes the effect of net realised

and fair value gains, investment variances and basis changes.

For the operating segments, diluted core headline earnings

also exclude the effect of investment income, as this income

is managed on a group basis and is therefore included in the

shareholder capital segment.

This measurement includes the effect of fi nance costs on

issued debt but excludes that of the convertible redeemable

preference shares. Furthermore, treasury shares held on

behalf of contract holders are deemed to be issued and all

minority interests (not recognised for accounting purposes)

and investment returns are reinstated.

A reconciliation of diluted core headline earnings to earnings is

provided in note 37.

The amounts provided to the executive committee with

respect to total assets and liabilities are measured in a manner

consistent with that of the fi nancial statements. The assets

for both the retail and corporate segments are set equal to

the contract holder liabilities, as these liabilities are equally

matched with assets, plus the allocated economic capital and

capital of non-life subsidiaries included in these segments.

METROPOLITAN LIFE LIMITED

For Metropolitan Life Ltd the operating segments include retail,

corporate and shareholder capital.

2007 RESTATED

The group and Metropolitan Life Limited segment reports have

been restated for the derecognition of certain policy loans

and the related insurance and investment contract liabilities.

Segment benefi ts and claims were increased by R36 million

for the group and R40 million for Metropolitan Life Limited.

Insurance contract premiums, investment contract premiums

and fee income have also been restated, refer note 17.

The group adjustments have also been split out from the

shareholder capital segment.

SEGMENT REPORT



GROUP 2008

RetailCorpo-

rate

Asset manage-

ment HealthInterna-

tional

Share-holder capital

Group adjust-ments Total

Rm Rm Rm Rm Rm Rm Rm RmTotal assets 35 541 26 763 178 418 4 675 3 919 (1 881) 69 613 Contract holder liabilities 30 788 22 912 2 3 532 57 234 RevenuePremiums received

Insurance business 6 827 1 719 867 9 413 Investment with DPF business 177 1 117 81 (4) 1 371 Capitation business 19 19 Reinsurance premiums (172) (197) (29) (398) Net insurance premiums 6 832 2 639 19 919 (4) 10 405 Investment business 1 098 521 87 1 706 Transfers – (256) (256) Segment premium income 7 930 2 904 19 1 006 (4) 11 855 Fee income 144 92 102 787 34 10 (18) 1 151 External fee income 144 92 220 787 34 10 – 1 287 Inter-segment fee income – – (118) – – – (18) (136)Investment income 1 726 1 797 12 17 287 567 (10) 4 396 Interest income included in investment income 1 009 1 045 12 17 207 423 (5) 2 708 Net realised and fair value (losses)/gains (4 396) (2 795) (5) – (588) (703) 3 (8 484)ExpensesPayments to contract holders

Insurance business 4 365 1 286 516 6 167 Investment with DPF business 64 2 081 75 (4) 2 216 Capitation business 16 16 Reinsurance claims (92) (210) (28) (330) Net insurance benefi ts and claims 4 337 3 157 16 563 (4) 8 069 Investment business 676 1 244 62 1 982 Transfers – (256) – (256) Segment benefi ts and claims 5 013 4 145 16 625 (4) 9 795 Total expenses 2 352 283 141 664 365 397 (278) 3 924 Depreciation, amortisation and

impairment expenses 48 14 2 46 34 184 (107) 221 Employee benefi t expenses 565 151 78 427 96 (48) – 1 269 Sales remuneration and distribution

costs 1 227 47 2 – 123 (1) (163) 1 235 Other expenses 511 71 58 191 110 78 (8) 1 011 Finance costs 1 – 1 – 2 184 – 188 Inter-segment expenses 63 42 – – 12 4 – 121 Income tax expenses (225) 37 26 51 30 32 (28) (77)Diluted core headline earnings 448 153 65 100 94 151 1 011 Operating profi t 612 211 92 142 107 (141) 1 023 Tax on operating profi t (164) (58) (27) (42) (13) 8 (296)Investment income 501 501 Tax on investment income (217) (217)New business premiums 4 200 1 189 203 5 592 Value of new business 211 20 39 84 17 371 Profi tability of new business as a % of APE 16.4 6.5 14.7 14.5

The recognition of a surplus and movement in employee benefi t assets of R75 million was a material non-cash item in the shareholder capital segment.



GROUP 2007

RetailCorpo-

rate

Asset manage-

ment HealthInterna-

tional

Share-holder capital

Group adjust-ments Total

Rm Rm Rm Rm Rm Rm Rm RmTotal assets 37 228 28 171 241 322 4 980 5 691 (1 450) 75 183

Contract holder liabilities 32 266 25 650 1 3 866 61 783

RevenuePremiums received

Insurance business 5 302 1 467 844 7 613

Investment with DPF business 117 1 266 69 1 452

Capitation business 19 19

Reinsurance premiums (153) (187) (29) (369)

Net insurance premiums 5 266 2 546 19 884 8 715

Investment business 1 460 1 518 91 3 069

Transfers (117) (117)

Segment premium income 6 726 3 947 19 975 11 667

Fee income 100 50 48 683 12 10 903

External fee income 100 50 223 683 12 11 1 079

Inter-segment fee income (175) (1) (176)

Investment income 1 614 1 321 18 11 223 2 044 (1 618) 3 613

Interest income included in investment income 991 789 7 11 171 321 (47) 2 243

Net realised and fair value gains 1 942 1 432 19 – 277 616 121 4 407

ExpensesPayments to contract holders

Insurance business 3 706 959 537 5 202

Investment with DPF business 44 1 156 55 1 255

Capitation business 17 17

Reinsurance claims (84) (146) (12) (242)

Net insurance benefi ts and claims 3 666 1 969 17 580 6 232

Investment business 514 860 86 1 460


Segment benefi ts and claims 4 180 2 712 17 666 7 575

Total expenses 1 861 261 146 587 285 249 3 389

Depreciation, amortisation and

impairment expenses 56 15 2 51 26 19 169

Employee benefi t expenses 504 124 77 381 71 (12) 1 145

Sales remuneration and distribution costs 973 43 3 – 108 – 1 127

Other expenses 328 79 63 155 78 71 774

Finance costs 1 – 2 171 174

Inter-segment expenses 126 51 (13) – 20 7 191

Income tax expenses 296 162 30 52 12 236 788

Diluted core headline earnings 460 176 70 64 110 123 1 003

Operating profi t 622 248 96 116 116 (109) 1 089

Tax on operating profi t (162) (72) (26) (52) (6) 7 (311)

Investment income 384 384

Tax on investment income (159) (159)

New business premiums 3 323 2 361 212 5 896

Value of new business 119 46 35 121 15 336

Profi tability of new business as a % of APE 11.3 10.9 14.6 11.4


SEGMENT REPORT

(continued)


METROPOLITAN LIFE LTD 2008

Retail CorporateShareholder

capitalTotal

Rm Rm Rm RmTotal assets 35 212 26 724 596 62 532

Contract holder liabilities 30 611 22 912 53 523

Revenue

Premiums received

Insurance business 6 664 1 719 8 383 Investment with DPF business 175 1 117 1 292 Reinsurance premiums (173) (197) (370) Net insurance premiums 6 666 2 639 9 305 Investment business 1 094 521 1 615 Transfers – (256) (256) Segment premium income 7 760 2 904 10 664

Fee income 142 24 166

Investment income 1 706 1 795 426 3 927

Interest income included in investment income 991 1 043 344 2 378

Net realised and fair value losses (4 375) (2 795) (354) (7 524)

Expenses

Payments to contract holders net of reinsurance

Insurance business 4 287 1 286 5 573 Investment with DPF business 60 2 081 2 141 Reinsurance claims (92) (210) (302) Net insurance benefi ts and claims expense 4 255 3 157 7 412 Investment business 674 1 244 1 918 Transfers – (256) (256) Segment claims expense 4 929 4 145 9 074

Total expenses 2 203 249 (28) 2 424

Depreciation, amortisation and impairment 46 9 – 55 Employee benefi t expenses 537 109 (75) 571 Sales remuneration and distribution costs 1 101 47 – 1 148 Other expenses 519 84 – 603 Finance costs – – 47 47 Income tax (credits)/expenses (233) 39 (12) (206)


Operating profi t 602 215 (30) 787 Tax on operating profi t (161) (60) 8 (213)Investment income 381 381 Tax on investment income (106) (106)

New business premiums 4 184 1 189 5 373

Value of new business 208 20 228 Profi tability of new business as a % of APE 16.1 6.4 14.2




METROPOLITAN LIFE LTD 2007

Retail CorporateShareholder

capital TotalRm Rm Rm Rm

Total assets 36 951 28 129 2 090 67 170

Contract holder liabilities 32 101 25 650 57 751

RevenuePremiums received

Insurance business 5 299 1 467 6 766

Investment with DPF business 117 1 266 1 383

Reinsurance premiums (153) (187) (340)

Net insurance premiums 5 263 2 546 7 809

Investment business 1 460 1 518 2 978


Segment premium income 6 723 3 947 10 670

Fee income 93 7 100

Investment income 1 613 1 319 321 3 253

Interest income included in investment income 990 788 213 1 991

Net realised and fair value gains 1 942 1 432 396 3 770

ExpensesPayments to contract holders net of reinsurance

Insurance business 3 705 959 4 664

Investment with DPF business 44 1 156 1 200

Reinsurance claims (84) (146) (230)

Net insurance benefi ts and claims expense 3 665 1 969 5 634

Investment business 514 860 1 374


Segment benefi ts and claims expense 4 179 2 712 6 891

Total expenses 1 985 262 (1) 2 246

Depreciation, amortisation and impairment 57 12 69

Employee benefi t expenses 504 97 (48) 553

Sales remuneration and distribution costs 974 43 1 017

Other expenses 471 53 524

Finance costs – – 47 47

Income tax expenses 296 162 83 541


Operating profi t 622 247 (24) 845

Tax on operating profi t (162) (72) 7 (227)

Investment income 321 321

Tax on investment income (60) (60)

New business premiums 3 320 2 361 5 681

Value of new business 119 46 165

Profi tability of new business as a % of APE 11.3 10.9 11.2


SEGMENT REPORT

(continued)


Group Metropolitan Life Ltd2008 2007 2008 2007

Rm Rm Rm RmPremium income is split between single and recurring

premiums and reconciled to net insurance premiums in

the income statement.

Recurring premiums 7 472 6 913 6 451 6 081

Retail 4 689 4 288 4 527 4 288

Corporate 1 924 1 793 1 924 1 793

International 859 832

Single premiums 4 364 4 735 4 213 4 589

Retail 3 242 2 438 3 234 2 435

Corporate 975 2 154 979 2 154

International 147 143

Health – capitation premiums 19 19

Segment premium income 11 855 11 667 10 664 10 670

Adjusted for premiums received from investment

contract holders (1 706) (3 069) (1 615) (2 978)

Transfers between insurance, investment and investment

with DPF business 256 117 256 117

Net insurance premiums (note 26) 10 405 8 715 9 305 7 809

Payments to contract holders are reconciled to net

insurance benefi ts and claims in the income statement.

Retail 5 475 4 659 4 928 4 179

Death and disability claims 1 084 952 901 863

Maturity claims 1 710 1 417 1 581 1 270

Annuities 664 581 636 555

Withdrawal benefi ts 156 7 105 –

Surrenders 1 977 1 795 1 797 1 575

Re-insurance recoveries (116) (93) (92) (84)

Corporate 4 304 2 899 4 146 2 712

Death and disability claims 1 191 886 1 127 812

Maturity claims 211 136 200 123

Annuities 695 614 688 608

Withdrawal benefi ts 378 469 350 435

Terminations 508 106 473 94

Disinvestments 1 538 837 1 518 786

Re-insurance recoveries (217) (149) (210) (146)

Capitation contracts 16 17

Segment payments to contract holders 9 795 7 575 9 074 6 891

Adjusted for payments to investment contract holders (1 982) (1 460) (1 918) (1 374)

Transfers between insurance, investment and investment with

DPF business 256 117 256 117

Net insurance benefi ts and claims (note 30) 8 069 6 232 7 412 5 634




Rm Rm Rm Rm1 INTANGIBLE ASSETS

Goodwill 209 244 40 40

Value of in-force acquired 22 28 – –

Contractual customer relationships 1 2 – –

Deferred acquisition costs 55 47 38 32

Computer software 238 241 47 37

525 562 125 109

1.1 Goodwill

Cost 260 260 56 56

Accumulated impairment (51) (16) (16) (16)

209 244 40 40

Carrying amount at beginning 244 148 40 40

Additions – 96 – –

Impairment charges (35) – – –

Carrying amount at end 209 244 40 40

Cash generating unitsLife books 115 115 40 40

Health 38 38

Metropolitan Retirement Administrators (Pty) Ltd 1 1

DirectFin Solutions (Pty) Ltd 55 90

209 244 40 40

Critical accounting estimates and judgements

Goodwill is allocated to cash generating units (CGUs) for the purpose of impairment testing. The life book represents the CGUs of the three life insurance books of:

> Metropolitan Odyssey Ltd (R70 million) and Commercial Union Life Association of South Africa Ltd (R40 million), acquired in 1999 (included in the retail segment)

> Union Life Limited (R5 million), acquired in 2007 (included in the retail segment).

The recoverable value of these CGUs is determined based on value-in-use calculations. Future cash fl ows are discounted at a rate of return that makes allowance for the uncertain nature of the future cash fl ows. This calculation is particularly sensitive to the assumptions disclosed below.

2008 2007Risk discount rate 10.0 11.0

Income and expense infl ation rate 4.3 5.3

The CGUs of the health companies, acquired during 2002, are represented by:

> Qualsa Healthcare (Pty) Ltd (Qualsa)

> the membership administered with respect to Metropolitan Health Corporate (Pty) Ltd.

For the health companies, the recoverable value of CGUs is determined based on value-in-use calculations. These calculations use cash fl ow projections based on fi nancial budgets for 2009, approved by management. Cash fl ows beyond the fi nancial budgets available are extrapolated, using estimated growth rates of 4.3% (2007: 5.3%) for both income and expense infl ation rates and a cost of capital of 10% (2007: 11%).

For DirectFin Solutions (DFS), the recoverable value of this CGU is determined based on a value-in-use calculation. This calculation uses discounted cash fl ow projections of profi t for the company, with an estimated growth rate of 12.5% (2007: 15.0%) and a cost of capital of 13.0% (2007: 14.0%). The cash fl ow period was based on ten years.

Impairment

The goodwill relating to DFS was impaired by R35 million during the current year due to a decrease in the projected future cash fl ows. No goodwill was impaired during 2007.

NOTES TO THE FINANCIAL STATEMENTS




Rm Rm Rm Rm1.2 Value of in-force acquired

Acquisition of insurance and investment contracts

Cost 28 28

Accumulated amortisation (6) –

Carrying amount 22 28

Carrying amount at beginning 28 –

Business combinations 28

Amortisation charges (6) –

Carrying amount at end 22 28

1.3 Contractual customer relationships

Right to receive management fees for administering

retirement schemes

Cost 2 2

Accumulated amortisation (1) –

Carrying amount 1 2



Amortisation charges (1) –


1.4 Deferred acquisition costs

Cost 100 75 62 49

Accumulated amortisation and impairment (45) (28) (24) (17)

Carrying amount 55 47 38 32


Additions 19 27 13 14

Impairment charges – (4) – (3)

Amortisation charges (12) (12) (7) (5)

Exchange differences 1 –


1.5 Computer software

Acquired computer softwareCost 102 88 43 41




Additions 11 11 2 2







Rm Rm Rm RmInternally developed computer softwareCost 440 456 174 190




Additions 18 19 18 10

Disposals – (1) – –


Exchange differences 1 –


Total computer software 238 241 47 37

Material internally developed computer software

Included in internally developed computer software is R127 million (2007: R138 million) relating to the software used by the Metropolitan Health Group with a remaining amortisation period of 11 years. For impairment testing purposes, the recoverable amount was determined based on value-in-use calculations. These calculations use cash fl ow projections based on fi nancial budgets for 2009, approved by management. Cash fl ows beyond the fi nancial budgets available are extrapolated, using estimated growth rates of 4.3% (2007: 5.3%) for both income and expense infl ation rates and a cost of capital of 10% (2007: 11%).


Rm Rm Rm Rm2 OWNER-OCCUPIED PROPERTIES

Fair value at beginning 592 375 412 325

Additions 1 1 1 1

Revaluations 36 99 20 94

Depreciation charge (13) (9) (9) (8)

Transfer from investment properties 112 –

Transfer from property and equipment 62 62 Business combinations 14

Fair value at end 678 592 486 412

Historical carrying value – cost model 398 350 256 199

A register of owner-occupied properties is available for inspection at the company’s registered offi ce.


All properties were internally valued using a discounted cash fl ow method based on contractual or market-related rent receivable. External valuations were obtained for certain properties, amounting to 34% (2007: 72%) of the portfolio for the group and 36% (2007: 52%) for Metropolitan Life Ltd.

Change in fair value

AssumptionBase

assumptionChange in

assumptionDecrease in assumption

Rm

Increase in assumption

RmCapitalisation rate 9.5% – 12% 1% 57 (46)

Discount rate 14% – 18.5% 1% 38 (36)

Capitalisation and discount rates (2007: 8% – 12% and 13.5% – 18% respectively) are determined using the Investment Property Databank South Africa rates. For valuation purposes, vacancy percentages, existing lease agreements and subsequent expected rentals are used to determine the fair value of each building.


(continued)



Rm Rm Rm Rm3 PROPERTY AND EQUIPMENT

Property under developmentCarrying amount at beginning 60 – 60 – Capitalised expenditure 58 60 58 60 Transfer to owner-occupied properties (62) (62)Transfer to investment properties (56) (56)Cost at end – 60 – 60

EquipmentCost 698 642 413 417 Accumulated depreciation (512) (469) (323) (333)Carrying amount 186 173 90 84

Equipment comprises furniture and fi ttings, computer equipment and motor vehicles.

Carrying amount at beginning 173 166 84 79 Additions 92 75 41 35 Disposals (4) (3)Business combinations 7 Depreciation charges (75) (75) (32) (30)Carrying amount at end 186 173 90 84

Total property and equipment 186 233 90 144

Value of property and equipment held as security 1 11 – –

4 INVESTMENT PROPERTIESAt 31 December investment properties comprised the

following property types Industrial 136 119 136 119 Shopping malls 2 050 1 927 2 015 1 895 Offi ce buildings 685 519 805 631 Hotels 195 187 195 187 Other 51 50 51 50 Vacant land – 5 – 5 Property at valuation 3 117 2 807 3 202 2 887 Accelerated rental income (note 10) (86) (97) (85) (96)

3 031 2 710 3 117 2 791

Completed properties and vacant landFair value at beginning 2 710 2 492 2 791 2 464 Capitalised subsequent expenditure 33 27 33 27 Disposals – (59) – (59)Revaluations 221 546 226 543 Change in accelerated rental income 11 1 11 1 Transfer to owner-occupied properties (112) – Transfer from property and equipment 56 56 Transfer to non-current assets held for sale – (185) – (185)Fair value at end 3 031 2 710 3 117 2 791

A register of investment properties is available for inspection at the company’s registered offi ce.


All properties were internally valued using a discounted cash fl ow method based on contractual or market-related rent receivable. External valuations were obtained for certain properties, amounting to 44% (2007: 44%) of the portfolio.



Change in fair value of properties

AssumptionBase

assumptionChange in

assumptionDecrease in assumption

Rm


RmCapitalisation rate 8.5% – 12% 1% 200 (165)Discount rate 12% – 15.5% 1% 132 (126)

Capitalisation and discount rates (2007: 8% – 12% and 13.5% – 18% respectively) are determined using the Investment Property Databank South Africa rates. For valuation purposes, vacancy percentages, existing lease agreements and subsequent expected rentals are used to determine the fair value of each building.

Metropolitan Life Ltd2008 2007

Rm Rm5 INTEREST IN SUBSIDIARY COMPANIES

Interest designated as at fair value through income Property subsidiaries 55 59 Collective investment schemes 1 186 942

1 241 1 001

The directors’ valuation of these investments is equal to fair value. Indebtedness by subsidiaries is disclosed in related party transactions in note 42.8. The property companies are all 100% held. The group and Metropolitan Life Ltd have control over certain collective investment schemes:

Participation rights in total issued units

Group Metropolitan Life Ltd Fund fair value2008 2007 2008 2007 2008 2007

% % % % Rm RmMetropolitan Absolute Provider Fund 100.0 96.4 100.0 96.4 58 59 MetAM Global Equity Fund 100.0 * 83.0 * 445 * Metropolitan Odyssey Balanced Fund of Funds 96.0 88.8 87.3 64.6 30 28 Metropolitan Industrial Fund 94.4 78.1 94.4 78.1 48 87 Metropolitan International Special Income Fund

of Funds 85.6 91.0 85.9 75.8 176 151 Interneuron Equity Fund 86.3 81.8 86.3 81.8 13 18 Metropolitan Property Income Fund 84.9 88.5 * * 200 223 Metropolitan International Fund of Funds 83.2 80.6 81.3 70.9 194 233 Metropolitan Resources Fund 82.1 85.2 82.1 83.3 74 166 Metropolitan Gilt Fund 79.1 89.7 73.8 89.7 193 110 Metropolitan Income Fund 77.5 75.3 77.5 75.3 49 49 Stewart Absolute Return Balanced Fund of Funds 64.2 68.5 64.2 68.5 108 84 AS Forum Aggressive Fund of Funds 69.4 54.7 69.4 54.7 68 40 Metropolitan High Dividend Fund 60.3 54.5 60.3 54.5 17 25 Metropolitan Income Plus Fund 59.6 * * * 125 * Contego B6 Balanced Fund * 62.8 * 62.8 * 52 Metropolitan Odyssey Conservative Fund

of Funds * 60.2 * * * 18 Metropolitan General Equity Fund * 51.7 * * * 649 Contego B5 Protected Equity Fund * 50.7 * 50.7 * 205

1 798 2 197 * Not included in subsidiaries for year

2007 restated

For Metropolitan Life Ltd, the net carrying value, being R942 million, of subsidiaries that are collective investment schemes was reallocated from unit-linked investments.


(continued)



Rm Rm Rm Rm6 INVESTMENT IN ASSOCIATES

Equity accounted 49 15

Carried at fair value 614 390 642 463

663 405 642 463

Equity accounted associatesCarrying amount at beginning 15 5

Acquisitions 41 –

Share of (loss)/profi t (2) 5

Dividends paid (4) (2)

Other (1) 7

Carrying amount at end – non-current 49 15

The group acquired an effective 49.75% in Mettle Investments (Pty) Ltd, a company incorporated in South Africa, in July 2008 for R41 million.

The directors’ valuation of investment in associates is equal to the carrying value.

Group interest in associates – equity accounted

Assets Liabilities Revenue Earnings%* Rm Rm Rm Rm

2008Methealth Namibia Administrators (Pty) Ltd 37.7 10 (3) 29 4 C Shell 448 (Pty) Ltd 49.0 8 (7) – 1 Mettle Investments (Pty) Ltd 49.8 301 (270) 29 (7)

319 (280) 58 (2)

2007

Methealth Namibia Administrators (Pty) Ltd 37.2 8 (1) 25 5

C Shell 448 (Pty) Ltd 49.0 8 – 1 1

16 (1) 26 6

* Effective group percentage held



The group and Metropolitan Life Ltd have signifi cant infl uence over certain collective investment schemes incorporated in

South Africa.

Participation rights in total issued units

Group Metropolitan Life Ltd Fund fair value2008 2007 2008 2007 2008 2007

% % % % Rm RmContego B6 Balanced Fund 49.5 * 49.5 * 54 *

AS Forum Moderate Fund of Funds 38.2 35.4 38.2 35.3 107 92

Stewart Macro Equity Fund of Funds 37.4 49.0 37.4 49.0 98 162

Contego B5 Protected Equity Fund 35.9 * 35.9 * 294 *

Metropolitan General Equity Fund 35.2 * * * 327 *

Metropolitan Odyssey Conservative Fund

of Funds 34.3 * 34.3 29.5 24 18

AS Forum Cautious Fund of Funds 31.3 * 31.3 * 60 *

Nedgroup Investments Financial Fund 28.2 32.5 28.2 32.5 117 153

Contego Dynamic Income Fund 27.2 21.6 27.2 21.6 14 25

Nedgroup Investments Mining and Resources

Fund 26.2 23.3 26.2 23.2 507 782

Metropolitan Property Absolute Income Fund 24.5 28.1 24.5 28.1 8 12

NeFG Income Provider Fund of Funds 24.4 24.7 24.4 24.6 143 110

Sasfi n Income Fund of Funds 22.3 27.1 22.3 27.0 15 12

Cadiz Infl ation Plus Fund 22.3 * 22.3 * 57 *

RMB International Balanced Fund of Funds 21.6 * 21.6 * 184 *

PAM Balanced Fund * 23.2 * 23.2 * 33

Met Income Plus Fund * * 47.5 * 125 *

Metropolitan Property Income Fund * * 41.9 30.2 200 223

2 334 1 622

* Not included in associates for year

2007 restated

For Metropolitan Life Ltd, the net carrying value, being R463 million, of associated investments in collective investment schemes was reallocated from unit-linked investments.

Group2008 2007

Rm Rm7 INVESTMENT IN JOINT VENTURES


Acquisitions 66

Share of loss (26) –

Impairment charge – (5)


The group acquired 50% joint control of UBA Metropolitan Life Insurance Ltd in Nigeria in December 2007. The group’s

interest in the assets and liabilities of the joint venture at 31 December 2008 is R68 million and R30 million (2007: R70 million

and R15 million), respectively. The group’s interest in the revenue and loss of the joint venture for the year under review is

R19 million and R26 million (2007: R15 million and R7 million), respectively. Metropolitan International (Pty) Ltd has a right

to acquire an additional 1% in UBA Metropolitan Life Insurance Ltd from 1 January 2009. The joint venture is included in the

international segment.


(continued)



Rm Rm Rm Rm8 FINANCIAL INSTRUMENTS

8.1 Designated as at fair value through income

Equity securities 21 167 31 989 18 240 27 273

Debt securities 15 968 14 268 14 576 13 119

Funds on deposit and other money market instruments 3 409 2 150 3 074 1 927

Unit-linked investments 10 251 9 857 9 380 8 986

50 795 58 264 45 270 51 305

Open ended 27 776 41 846 25 959 36 259

Current 6 268 2 936 5 518 2 641

Non-current 16 751 13 482 13 793 12 405

50 795 58 264 45 270 51 305

General

The open ended category includes fi nancial instruments with no fi xed maturity date.For risk disclosure and maturity analysis of the above fi nancial instruments, refer note 43.A schedule of equity securities is available for inspection at the company’s registered offi ce.The director’s value of unlisted equity securities is equal to their fair value.

2007 restated

For Metropolitan Life Ltd, R942 million of unit-linked investments was reallocated to interest in subsidiaries and R463 million was reallocated to investment in associates.

8.2 Scrip lending (included in note 8.1)

Carrying value of securities on loan

Local listed equity securities 1 714 6 172 1 714 6 172

Local listed government stock 583 539 583 539

2 297 6 711 2 297 6 711

Scrip lending policy

The group is authorised to conduct lending activities as lender in respect of local listed equity securities and listed government stock to appropriately accredited institutions. Collateral is maintained at a risk-adjusted level of at least 100% of scrip lent. In general, the lender retains risk and reward of securities lent. The lender fully participates in the market movement of the investment and receives any dividend payments and interest.

Collateral

Collateral to the value of R2 702 million (2007: R8 582 million) was obtained. The group monitors collateral levels on a monthly basis and the status of collateral coverage is reported to the investment committee on a quarterly basis. This collateral can only be used as security for the scrip lending arrangements and in the event of default by the borrowers. The borrowers retain all rights to income attached to the pledged collateral.

8.3 Held for trading assets

Local listed equity securities – – 169 398

Derivative fi nancial instruments 1 764 850 1 708 861

1 764 850 1 877 1 259

Current 129 252 242 661

Non-current 1 635 598 1 635 598

1 764 850 1 877 1 259

Local listed equity securities

Metropolitan Life Ltd repurchased ordinary shares of Metropolitan Holdings Ltd through the open market during 2007 and 2008. Shareholder approval for Metropolitan Holdings Ltd to repurchase the shares at cost was granted at the annual general meeting in May 2008. These shares are reversed on consolidation.




Rm Rm Rm RmHeld for trading liabilitiesDerivative fi nancial instruments (1 498) (858) (1 490) (858)

Current (42) (191) (42) (191)

Non-current (1 456) (667) (1 448) (667)

(1 498) (858) (1 490) (858)

Derivative fi nancial instruments consist of the following:

Group Metropolitan Life Ltd

NotionalFair value

assetFair value

liability NotionalFair value

assetFair value

liabilityRm Rm Rm Rm Rm Rm

2008OTC instruments

Equity index options 17 204 (200) 17 204 (200) Equity index futures (37) – (8) (201) 33 – Interest rate swaps 18 987 1 471 (1 290) 18 987 1 471 (1 290)Exchange traded options

Equity index options 493 – – 491 – – Equity index warrants 89 89 – – – – Equity index futures 3 – – 3 – –

1 764 (1 498) 1 708 (1 490)

2007

OTC instruments

Equity index options 78 632 (524) 78 632 (524)

Equity index futures – – – (410) 11 –

Interest rate swaps 16 772 218 (334) 16 772 218 (334)

Exchange traded options

Equity index options 192 – – 147 – –

Equity index futures (5) – – (6) – –

850 (858) 861 (858)


Rm Rm Rm Rm8.4 Available-for-sale

Local listed equity securities – 1 – –

Unit-linked investments 5 6 – –

5 7 – –

Local listed equity securities

Metropolitan Asset Managers Ltd received listed equity securities during 2007 which could not be designated as at fair value through income. These were sold during 2008.


The group provides seed capital to enable Metropolitan Collective Investments Ltd to establish new collective investment schemes.


(continued)



Rm Rm Rm Rm9 LOANS AND RECEIVABLES

Accounts receivable 365 451 207 236 Loans 763 742 663 672 Loans to related parties Loans to group companies 58 60 Empowerment partners 46 44 Other staff loans 29 28 27 26 Loans to staff share scheme trusts (note 16) 80 120 Loans due from associates 28 Preference shares in associates 36 Strategic loans 1 2 Less provision for impairment on related party

loans (12) (12) Due from agents, brokers and intermediaries 150 142 130 125 Less provision for impairment (100) (102) (88) (91) Banking services – loans advanced 124 163 Less provision for impairment (72) (24) Policy loans 533 501 456 432

1 128 1 193 870 908

Current 640 815 522 576 Non-current 488 378 348 332

1 128 1 193 870 908

Reconciliation of provision accountsBalance at beginning 138 108 91 79 Movement in provision 46 30 (3) 12 Balance at end 184 138 88 91

2007 restated

Certain policy loans amounting to R175 million for the group and R134 million for Metropolitan Life Ltd which were previously included in loans and receivables were derecognised. The related insurance (R134 million) and investment contracts designated at fair value through income (R41 million) were also derecognised. Refer to notes 17 and 19.

Terms and conditions of material loans

> Loans to group companies are interest free, repayable on demand, and are unsecured.

> A loan to empowerment partners of R34 million (2007: R32 million) is secured by Metropolitan Life (Namibia) Ltd shares, with a repayment date of 30 November 2012, on which interest is charged at 1% less than the prime interest rate of South Africa.

> Staff loans consist of personal computer and micro loans, with a repayment date of fi ve years and interest rates ranging between 13% and 20% (2007: 11% and 19%) that are unsecured, and bonds, with a repayment date of between 5 and 30 years, an interest rate of 15% (2007: 14%), that are secured by the property.

> Loans to the staff share scheme trusts are secured by the Metropolitan Holdings Ltd shares issued to participants. The loan to the staff share purchase scheme trust is interest-bearing at the offi cial tax interest rate, 13.0% (2007: 10.9%), but the loan to the staff share incentive scheme trust is interest free. These loans are repayable between fi ve and ten years.

> Loans due from associates include a loan due from Mettle Investments Ltd of R22 million which earns interest at the prime interest rate of South Africa and has a repayment date of 15 July 2013.

> Preference shares to associates include a preference share investment in Mettle Investments Ltd of R30 million. Preference dividends are payable at 12% for year 1, 15% for year 2 and 18% thereafter. The redemption date is 31 July 2013.

> Loans advanced by Metropolitan Card Operations (Pty) Ltd attract interest rates ranging between 20% and 41% (2007: 18.5% and 39.5%), are repayable within periods ranging from 12 to 48 months (2007: 12 to 24 months) and are unsecured.

> Policy loans are limited to and secured by the underlying value of the unpaid policy benefi ts. These loans attract interest at rates greater than the current prime rate but limited to 19% (2007: 17.5%) and have no determinable repayment period. Policy loans are tested for impairment against the surrender value of the policy.

Impairment of loans

> A loan of R12 million to an empowerment partner was impaired in prior years.

> Loans advanced have been impaired by R48 million (2007: R24 million) and the impairment is mainly due to default payments by the borrowers.

> Impairment of loans to intermediaries is mainly due to intermediaries moving to out-of-service status and unproductive agent accounts.




Rm Rm Rm Rm10 INSURANCE AND OTHER RECEIVABLES

Receivables arising from insurance contracts,

investment contracts with DPF and reinsurance

contracts 1 421 1 379 1 213 1 191 Insurance contract holders 1 276 1 261 1 075 1 084 Investment contract holders with DPF 50 35 42 33 Less provision for impairment (41) (33) (35) (28) Due from reinsurers 136 116 131 102 Accelerated rental income (note 4) 86 97 85 96

1 507 1 476 1 298 1 287

Current 1 425 1 379 1 216 1 191 Non-current 82 97 82 96

1 507 1 476 1 298 1 287

Impairment of receivables arising from insurance contracts and investment contracts with DPF

Impairment is mainly due to expected default in payments.

11 DEFERRED INCOME TAXDeferred tax asset 12 15 – – Deferred tax liability (127) (492) (66) (371)

(115) (477) (66) (371)

Deferred tax asset 103 133 87 111 Accruals and provisions 6 12 – – Revaluations 19 – 18 – Tax losses 76 121 69 111 STC credits 2 – – – Deferred tax liability (218) (610) (153) (482) Prepayments (1) (4) – – Accruals and provisions (17) (32) (7) (32) Business combinations – (12) – – Revaluations (200) (562) (146) (450)

(115) (477) (66) (371)

Current (28) (72) (10) (56)Non-current (87) (405) (56) (315)

(115) (477) (66) (371)

Movement in deferred taxBalance at beginning (477) (289) (371) (199)Charge to the income statement 368 (163) 308 (147) Change in tax rate 4 – 3 – Accruals and provisions 22 (29) 24 (32) Business combinations (12) Prepayments – (1) – – Revaluations 386 (229) 323 (226) Tax losses (36) 108 (42) 111 STC credit (8)Charge to equity (6) (25) (3) (25) Balance at end (115) (477) (66) (371)

Deferred tax asset on available tax losses

and credits not provided for 57 53 – –


(continued)


Creation of deferred tax assets

Tax losses have been provided for as deferred tax assets where at year-end there was certainty as to their recoverability.


Deferred tax on the revaluation of owner-occupied properties has been calculated at the normal South African income tax rate applicable at year-end. If the capital gains tax rate had been used on these properties, the deferred tax raised would have been R33 million (2007: R54 million) lower.

Deferred tax on the revaluation of investment properties has been calculated using a combination of the normal income tax rate and the capital gains tax rate applicable at year-end as the carrying values of certain properties will be recovered through use and through disposal for others. If the normal income tax rate had been used on all these properties, the deferred tax raised would have been R31 million (2007: R64 million) higher.


Rm Rm Rm Rm12 REINSURANCE CONTRACTS

Reinsurers’ share of insurance liabilities 212 179 162 113

Balance at beginning 179 217 113 161

Movement charged to income statement 27 (36) 49 (48)

Net exchange differences 6 (2)

Balance at end 212 179 162 113

Current 159 278 131 263

Non-current 53 (99) 31 (150)

212 179 162 113

Amounts due from reinsurers in respect of claims incurred by the group and Metropolitan Life Ltd on contracts that are reinsured, are included in insurance and other receivables. Refer note 10.

13 CASH AND CASH EQUIVALENTS

Bank and other cash balances 728 690 533 333

Funds on deposit and other money market

instruments – maturity < 90 days 8 082 7 584 6 573 6 691

8 810 8 274 7 106 7 024

Restricted balances – 4 – –

14 NON-CURRENT ASSETS HELD FOR SALE

In 2007 non-current assets held for sale consisted of investment property only; refer note 4. No income or expenses were

recognised directly in equity relating to the assets held for sale.

These buildings were sold in the normal course of business. The competition commission approved the sale in

December 2007, but the transfer of ownership was only concluded during 2008. These properties are valued in terms of IAS

40 – Investment properties – and the fair value gains or losses for December 2007 are not material. These properties are in

the retail and corporate segments.



Number of shares

Share premium

Number of shares

Share premium

2008 2008 2007 2007Million Rm Million Rm

15 SHARE CAPITAL

Ordinary shares in issue – 1 January 582 33 626 33

Shares repurchased and cancelled (26) – (44) –

Holding company share capital at 31 December 556 33 582 33

Group consolidation adjustments

Treasury shares held on behalf of contract holders (1) (10) (1) (11)

Staff share scheme shares (17) (91) (26) (122)

Treasury shares held by subsidiary (16) – (26) –

Treasury shares held by subsidiary – cancelled 119 119

Ordinary shares in issue at 31 December 522 51 529 19

Authorised share capital of Metropolitan Holdings Limited

The company has authorised share capital of 1 billion ordinary shares of 0.0001 cents each and 129 million variable rate

cumulative redeemable convertible preference shares of 0.0001 cents each.

Preference shares

In terms of IAS 32 – Financial instruments: presentation, the variable rate redeemable convertible preference shares are

compound instruments with a debt and equity component. The equity component has been calculated to be negligible

while the debt portion is disclosed in note 22.1.

Shares repurchased and cancelled

Details of the 26 million (2007: 44 million) shares repurchased and cancelled in the open market are disclosed in the

directors’ report.

Authorised and issued share capital of Metropolitan Life Limited

The company has authorised share capital of 1 billion ordinary shares of 43.1 cents each and issued share capital

of 728 million ordinary shares of 43.1 cents each, amounting to share capital of R314 million with share premium of

R310 million, totalling R624 million. There has been no change to the share capital since 1 January 2007.


Rm Rm Rm Rm16 OTHER RESERVES

Land and building revaluation reserve 182 161 171 158

Foreign currency translation reserve 1 (11)

Fair value reserve 53 50 32 27

Common control reserve (257) (257)

Non-distributable reserve 296 295 295 295

532 495 241 223


(continued)



Rm Rm Rm RmMovements in other reserves

(a) Land and building revaluation reserveBalance at beginning 161 96 158 94

Earnings directly attributable to retained earnings 24 65 15 64

Revaluations 33 95 18 91

Depreciation charged on revalued amounts – (3) (2)

Deferred tax on revaluation and depreciation (6) (25) (3) (25)

Shadow accounting (3) (2) – –

Transferred from retained earnings (3) – (2) –


(b) Foreign currency translation reserveBalance at beginning (11) (16)

Currency translation differences 12 5

Balance at end 1 (11)

(c) Fair value reserveAvailable-for-sale assets

Balance at beginning 1 1 – 42

Gains transferred to net realised gains (1) – – (49)

Deferred tax on realisation – – – 7

Balance at end – 1 – –

Equity-settled share-based payment arrangements


Employee share schemes – value of services provided 4 12 5 4


Total fair value reserve 53 50 32 27

Equity-settled share-based payment arrangements

Share purchase scheme for senior staff

Ordinary but unlisted shares are allocated to participants and are fi nanced by an interest-bearing loan from the trust,

currently at 13.0% (2007: 10.9%) per annum. A dividend is declared each year, which covers the interest payable by the

participants. The shares are pledged to the trust as security for the loan. After fi ve years from the issue date the shares can,

on repayment of the outstanding loan balance, be released to the participants and listed on the JSE Ltd.

In terms of the trust deed, the trust is fi nanced by a loan from Metropolitan Life Ltd on terms similar to those on which it

grants fi nance to the participants.



Shares available for issue

Shares held by participants

Number of shares (million) 2008 2007 2008 2007At beginning 76 79 17 36

Shares issued to participants

Shares released – (9) (18)

Shares bought back (2) (3) – (1)

At end 74 76 8 17

Of the shares held by participants, 5 million shares with a loan value of R18 million are currently available for release and an additional 1 million shares with a loan value of R6 million will become available for release during 2009. The range of issue prices relating to the shares outstanding is R5.25 to R10.92 (2007: R5.25 to R10.92).

Share incentive scheme for other staff

Ordinary listed shares are allocated to participants and are fi nanced by an interest-free loan from the trust. Participants

receive the same dividend as ordinary shareholders. After fi ve years from the issue date the shares can, on repayment of

the outstanding loan balance, be released from the trust. The participants have an option to put the shares back to the trust

at a price equal to the original issue price.

In terms of the trust deed, the trust is fi nanced by a loan from Metropolitan Life Ltd on terms similar to those on which it

grants fi nance to the participants.

Shares available for issue

Shares held by participants

Number of shares (million) 2008 2007 2008 2007At beginning 37 39 2 4

Shares released – – (1) (1)

Shares bought back (1) (2) – (1)

At end 36 37 1 2

The range of issue prices relating to the shares outstanding is R5.25 to R8.05 (2007: R5.25 to R8.88).


Rm RmLoans grantedLoan from Metropolitan Life Ltd to the purchase scheme trust 73 104

Loan from Metropolitan Life Ltd to the incentive scheme trust 7 16

Loan from purchase scheme trust to participants 44 90

Loan from incentive scheme trust to participants 1 6

Metropolitan Holdings Ltd guarantees the recoverability of both loans from Metropolitan Life Ltd.

Both the trusts have been consolidated on a group level and shares issued to participants since 7 November 2000 have been reversed on consolidation. The value of the shares, R91 million (2007: R122 million), has been reversed and the effect on the number of shares can be seen in the stock exchange performance table.


The fair value of the services provided is determined, at inception, using a modifi ed binomial tree (Carpenter 1998) model. The signifi cant assumptions used in the model are:

> risk-free rates ranging from 7.4% to 7.8% (2007: 7.4% to 7.8%)

> a continuously compounded dividend yield of 6.3% (2007: 6.3%)

> volatility of 27.0% (2007: 27.0%) calculated using the historical volatility of the Metropolitan Holdings Ltd listed share

> forfeiture rates of 6% and 9% (2007: 6% and 9%) for the staff purchase scheme and the staff incentive scheme respectively

> fair value per share of shares outstanding ranges from R1.58 to R2.57 (2007: R1.58 to R2.57).


(continued)



Rm Rm Rm Rm(d) Common control reserve

Balance at beginning (257) (257)

Balance at end (257) (257)

This reserve refl ects the difference between the purchase consideration and the book value of the assets and liabilities of a common control business combination. Metropolitan Life Ltd acquired the long-term insurance business of Metropolitan Odyssey Ltd with effect from 1 January 2006.

(e) Non-distributable reserveBalance at beginning 295 295 295 295

Movement 1 – – –


On 1 January 2004 Metropolitan Life Ltd integrated the Commercial Union insurance book previously acquired and removed the 90:10 licence. This process resulted in a transfer through the income statement of R295 million to this non-distributable reserve, which may not be distributed to shareholders for a period of 10 years in terms of the agreement.

17 INSURANCE CONTRACTS

Long-term insurance contracts – gross 32 023 33 397 29 301 30 474

Less: recovery from reinsurers (note 12) (212) (179) (162) (113)

Long-term insurance contracts – net 31 811 33 218 29 139 30 361

Movement in long-term insurance contract liabilities

Balance at beginning 33 397 30 696 30 474 28 161

Non-linked business reclassifi ed (note 19) 9 – – –

Contract holder movements (note 31) (1 458) 3 523 (1 329) 3 186

Premiums received (note 26) 9 414 7 613 8 383 6 766

Investment return (2 184) 3 439 (2 010) 3 123

Contract benefi t payments (note 30) (6 168) (5 202) (5 573) (4 664)

Expenses for marketing and administration (2 659) (2 103) (2 276) (1 815)

Current income tax 139 (224) 147 (224)



Shareholder movements (note 31) 10 (944) 156 (873)

Balance at end 32 023 33 397 29 301 30 474

Reinsurance movements

Premiums received and contract benefi t payments shown in this note are gross of reinsurance.

2007 restated

> Certain policy loans R134 million (R94 million opening balance and R40 million contract benefi t payments) for the group and Metropolitan Life Ltd previously recognised as loans and receivables were derecognised with the related insurance contract liabilities. Refer to notes 9 and 19.

> Certain investment contracts were accounted for as insurance business in 2007. Premium income and operating profi t on insurance contracts were therefore reduced by R77 million with a corresponding increase in fee income from investment contracts.




Rm Rm Rm Rm18 CAPITATION CONTRACTS

Movement in outstanding claims

Balance at beginning 1 2

Capitation claims paid in previous year (1) (1)

Increase in claims incurred but not reported (IBNR) 2 –

Balance at end 2 1

Critical judgements and accounting estimates

The assumptions that have the greatest effect on the measurement of the liability are the expected percentages of claims settled after each of the fi rst four months of the claims run-off period, before the claims turn stale. The percentages used as assumptions vary from scheme to scheme. Sensitivity analysis of the impact of these percentages on the resultant claims provision indicates variances less than 10% (which results in > 99% confi dence) and have an immaterial impact on the group results.

The group believes that the liability for claims reported in the balance sheet is adequate. However, it recognises that the estimation process is based upon certain variables and assumptions that could differ when claims arise.

19 INVESTMENT CONTRACTS

Investment contracts with DPF 11 278 14 273 10 781 13 682

Investment contracts designated as at fair value

through income 13 931 14 112 13 441 13 595

Total investment contract liability 25 209 28 385 24 222 27 277

Movement in investment contracts with DPF

Balance at beginning 14 273 12 695 13 682 12 178

Non-linked business reclassifi ed (note 17) (9) – – –


Premiums received (note 26) 1 370 1 452 1 292 1 383

Investment return (1 952) 1 620 (1 882) 1 554

Contract benefi t payments (note 30) (2 215) (1 255) (2 141) (1 200)

Expenses for marketing and administration (145) (153) (142) (147)



Shareholder movements (note 31) (48) (102) (28) (86)

Balance at end 11 278 14 273 10 781 13 682

2007 restated

Certain policy loans of R41 million for the group previously recognised as loans and receivables were derecognised with the related investment contracts designated as at fair value through income. Refer to notes 9 and 17.

20 CONTRACT HOLDER LIABILITIES – ASSUMPTIONS AND ESTIMATES

The valuation of contract holder liabilities is a function of methodology and assumptions. The methodology is described

in the accounting policies on pages 116 to 119. The assumptions used are best-estimate assumptions, with the addition

of explicit compulsory margins required by PGN104 – Valuation of long-term insurers – and the discretionary margins

listed on page 117 of the accounting policies. The excess at 31 December 2008 would have been R1 756 million (2007:

R2 151 million) higher for the group and R1 555 million (2007: R1 905 million) higher for Metropolitan Life Ltd without the

discretionary margins.


(continued)


The process used to decide on best-estimate assumptions is described below:

Mortality

> Individual smoothed bonus and non-profi t business: Mortality assumptions are based on internal investigations into

mortality experience. These are carried out annually, with the most recent investigation being in respect of the 2007

fi nancial year. Comparisons of mortality claims and charges are done quarterly, the most recent such investigation being

in respect of the quarter ended December 2008.

> Conventional with-profi t business (excluding home service funeral business): Mortality assumptions are based on standard

tables (principally SA56/62), modifi ed according to internal experience. Annual mortality investigations are carried out,

with the most recent investigation being in respect of the year to June 2007.

> Home service funeral business: Mortality assumptions are based on internal investigations into mortality experience,

with the most recent investigation being in respect of the period 2003 to 2006.

> Annuity business: Mortality assumptions are based on the PA90 standard mortality table, less two years in age, with an

allowance for mortality improvement of 0.5% per annum. The most recent investigation is in respect of the period 2003

to 2007.

> Allowance for worsening mortality as a result of AIDS has been made using the industry standard ASSA2000 model,

calibrated to refl ect the contract holder population being modelled.

Morbidity

> Internal morbidity and accident investigations are done annually, the most recent being in respect of the period January

to September 2008.

Persistency

> Lapse and surrender assumptions are based on past experience. When appropriate, account is also taken of expected

future trends.

> Lapse investigations are performed quarterly in respect of grouped individual business, the most recent being in respect

of the quarter ended September 2008, and quarterly in respect of other individual business, the most recent being in

respect of the quarter ended September 2008.

> Surrender investigations are performed annually, the most recent being in respect of the quarter ended September

2008.

> Experience is analysed by product type as well as policy duration.

> Lapses at inception for individual business were 14.0% (2007: 14.8%) per annum.

Expenses

> The actual expense for 2008 is taken as an appropriate expense base.

> Provision for future renewal expenses starts at a level consistent with the budgeted experience for the 2008 fi nancial year

and allows for escalation at the assumed expense infl ation rate of 4.3% (2007: 5.3%).

> The allocation of total expenses between initial and renewal is based on a functional cost analysis for both grouped and

individual business.

> Expenses of R10 million (2007: R33 million) for the group and Metropolitan Life Ltd were excluded from the analysis, due

to their non-recurring nature.

Investment returns

> Market-related information is used to derive assumptions in respect of investment returns, discount rates used in

calculating contract holder liabilities and renewal expense infl ation.

> These assumptions take into account the notional long-term asset mix backing each liability type and are suitably adjusted

for tax and investment expenses.

> For non-profi t annuity business, yields of appropriate duration from the swap yield curve of the Bond Exchange of South

Africa as at valuation date are used to discount expected cash fl ows at each duration.



> For guaranteed endowment business, the discount rates used are the yields to maturity of the assets backing each

policy.

> For other business, a single gilt rate from the BEASSA Government Bond yield curve is used, corresponding to the

average discounted mean term of the contract liabilities, and rounded to the nearest quarter of a percent.

> Investment returns for other asset classes are set as follows:

– Equity rate: gilt rate + 3.5% (2007: + 2.0%)

– Property rate: gilt rate + 1% (2007: + 2.0%)

– Cash rate: gilt rate – 1.0% (2007: – 2.0%)

> The assumed renewal expense infl ation rate is based on the gilt rate, less a margin, currently 3.2% (2007: 3.3%). This

margin is set taking into account both internal and external factors affecting future expense infl ation.

> The main best estimate assumptions, gross of tax used in the valuation are:

2008 2007

Gilt rate – risk-free investment return 7.5% 8.5%

Assumed investment return for individual smoothed bonus business 9.8% 9.9%

Renewal expense infl ation 4.3% 5.3%

Future bonuses

> Contract holders’ reasonable benefi t expectations are allowed for by assuming bonus rates supported by the market

value of the underlying assets and the assumed future investment return.

> For smoothed bonus business, where BSRs are negative, liabilities have been reduced by an amount that can reasonably

be accepted to be recovered through under-distribution of bonuses during the ensuing three years. These amounts

were determined by projecting BSRs three years into the future using assumed investment returns as per the valuation

basis, net of applicable taxes and charges, as well as assumed bonus rates that are lower than those supported by the

assumed investment return but nevertheless consistent with the bonus philosophies of the relevant funds. In all cases,

the reduction in liabilities is equal to the negative BSR. The assumed bonus rates have been communicated to, and

accepted by, both management and the respective boards of directors.

> For conventional with profi t business, all future bonuses are provided for at bonus rates supported by the market value

of the underlying assets and the assumed future investment return. Any resulting reduction in future bonus rate used

in the valuation assumptions, relative to those declared for 2008, has been communicated to, and accepted by, both

management and the respective boards of directors.

Investment guarantees (PGN110)

> A market-consistent stochastic model was calibrated using market data as at 31 December 2008, and the value of the

investment guarantee liabilities was calculated as at this date. Refer note 43.4.7

> PGN110 prescribes specifi c disclosure in respect of the market-consistent stochastic model that was used to calculate

the liabilities. The disclosure is set out below.

The following table discloses specifi c points on the zero coupon yield curve used in the projection of the assets as at

31 December 2008.

Year 1 2 3 4 5 10 15 20 25 30Yield % 8.07 6.84 6.91 7.14 7.27 7.35 7.22 6.86 6.51 6.25


(continued)


The following instruments have been valued by the model:

Value VolatilityInstrument As at 31.12.2008A 1-year at-the-money (spot) put on the FTSE/JSE Top 40 index 0.087 36%A 1-year put on the FTSE/JSE Top 40 index, with a strike price equal to 0.8 of spot 0.026 35%A 1-year put on the FTSE/JSE Top 40 index, with a strike price equal to a forward of 1.0823 0.127 34%A 5-year at-the-money (spot) put on the FTSE/JSE Top 40 index 0.120 30%A 5-year put on the FTSE/JSE Top 40 index, with a strike price equal to (1.04)5 of spot 0.203 30%A 5-year put on the FTSE/JSE Top 40 index, with a strike price equal to a forward of 1.4293 0.300 30%A 20-year at-the-money (spot) put on the FTSE/JSE Top 40 index 0.074 29%A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to (1.04)10 of spot 0.283 29%A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to a forward of 2.0586 0.652 29%A 5-year put with a strike price equal to (1.04)5 of spot, on an underlying index constructed

as 60% FTSE/JSE Top 40 and 40% ALBI, with rebalancing of the underlying index back to

these weights taking place annually 0.102 24%A 20-year put option on an interest rate with a strike equal to the present 5-year forward

rate as at maturity of the put option which pays out if the 5-year interest rate at the time of

maturity (in 20 years) is lower than this strike price 0.017 20%

Tax

> Future tax is allowed for according to current tax legislation.

> No allowance is made for any assessed losses in the contract holder tax funds.

> Capital gains are assumed to be realised on a six- to seven-year rolling basis. Capital gains tax charges are discounted to

refl ect this, resulting in some deferment of capital gains tax.

Basis and other changes

Assumptions and methodologies used in the fi nancial soundness valuation basis are reviewed at the reporting date and the

impact of any resulting changes in actuarial estimates is refl ected in the income statement as they occur.

> Basis and other changes decreased the excess of assets over liabilities at 31 December 2008 by R197 million for the

group and R194 million for Metropolitan Life Ltd. The major contributors to this change were as follows:

– Methodology changes and corrections, negative R95 million for the group and negative R78 million for Metropolitan

Life Ltd.

– Experience basis changes, negative R224 million for the group and negative R225 million for Metropolitan Life Ltd. The

experience basis changes are in respect of withdrawal and expense assumptions, partly offset by positive mortality

assumptions.

– Economic assumption changes, positive R122 million for the group and positive R109 million for Metropolitan Life Ltd.

The economic assumption changes are in respect of future investment return, bonus and infl ation assumptions as well

as changes in the risk margin on investment assumptions.

> The impact of changes in the valuation discount rate, consequent changes in the assumed level of renewal expense

infl ation and investment over or underperformance in respect of non-linked business is included under this heading.



Sensitivity analysis

> The sensitivity of the value of contract holder liabilities to movement in the assumptions is shown in the table below. In

each instance, one assumption changes while all the other assumptions remain constant.

2008 2007Contract

holder liabilities Change

Contract holder

liabilities ChangeGroup Rm Rm Rm RmCentral value (as published) 57 232 61 782

1% reduction in assumed investment return 57 556 324 61 970 188

10% increase in assumed lapses and surrenders 57 233 1 61 899 117

10% increase in mortality and morbidity for assurances/

decrease in mortality for annuities 57 713 481 62 168 386

10% increase in maintenance/recurring expenses 57 653 421 62 151 369

Metropolitan Life LtdCentral value (as published) 53 523 57 751

1% reduction in assumed investment return 53 780 257 57 919 168

10% increase in assumed lapses and surrenders 53 527 4 57 865 114

10% increase in mortality and morbidity for assurances/

decrease in mortality for annuities 53 940 417 58 111 360

10% increase in maintenance/recurring expenses 53 867 344 58 083 332

> The impact of the reduction in the assumed investment return includes the consequent change in projected bonus rates, discount rates and the assumed level of renewal expense infl ation.


Rm Rm Rm Rm21 FINANCIAL LIABILITIES DESIGNATED AS AT

FAIR VALUE THROUGH INCOME

Collective investment scheme liabilities – current 272 635

Certain collective investment schemes have been classifi ed as investments in subsidiaries; refer note 5. Consequently, scheme interests not held by the group are classifi ed as third party liabilities as they represent demand deposit liabilities measured at fair value.

22 FINANCIAL LIABILITIES AT AMORTISED COST

BorrowingsCumulative redeemable convertible preference shares 841 837

Subordinated redeemable debt 501 501 501 501

Finance lease liabilities 2 3 1 1

Other 5 29 – –

1 349 1 370 502 502

Current 533 64 1 1

Non-current 816 1 306 501 501

1 349 1 370 502 502


(continued)


22.1 Cumulative redeemable convertible preference shares

Metropolitan Holdings Ltd issued two tranches of variable rate cumulative convertible redeemable preference shares. The

fi rst tranche of 75 842 650 shares at a nominal value of R540 million was issued during 2004 and the second tranche of

47 081 139 shares at a nominal value of R479 million was issued during 2005. The shares are convertible, at the option of

the holder, into ordinary shares on a one for one basis after three years. If the shares are not converted, they are compulsory

redeemable after periods of either four or fi ve years. There is no deferred tax implication.

The dividends are payable semi-annually in arrears on 31 March and 30 September each year.

The effective interest rate for these preference shares at the balance sheet date ranged from 16.1% to 18.7% (2007: 13.3%

to 15.6%).

22.2 Subordinated redeemable debt

Metropolitan Life Ltd issued R500 million unsecured subordinated notes with a nominal value of R1 million per note, at

99.7% of the nominal amount. The notes are mixed rate notes with an optional conversion from fi xed rate to fl oating rate

after eight years and compulsorily redemption after a further fi ve years. The fi xed interest rate is 9.25% per annum, and both

the fi xed and fl oating rate payment dates are 15 June and 15 December from issue date, 15 December 2006. The holder has

an option to redeem the debt from 15 December 2014 and the ultimate maturity date is 15 December 2019.

The FSB granted approval for the company to raise debt on 10 November 2006. The company has suffi cient required cash

to cover the debt.


Rm Rm Rm Rm22.3 Finance lease liabilities – minimum lease payments

Not later than 1 year 1 2 1 1

Later than 1 year and not later than 5 years 1 2 – –

2 4 1 1

Future fi nance charges on fi nance leases – (1) – –

Present value of fi nance lease liabilities 2 3 1 1



Metropolitan Life LimitedGroup MSRF MSPF CU Total

2008 Rm Rm Rm Rm Rm23 EMPLOYEE BENEFIT ASSETS AND

OBLIGATIONS

23.1 Employee benefi t assets

Present value of funded obligation (410) – (403) (6) (409)

Fair value of plan assets 658 106 521 26 653

248 106 118 20 244

Movement in present value of funded

obligation

Balance at beginning 394 – 388 6 394

Current service costs 1 1 – 1

Interest costs 30 30 – 30

Actuarial gains 12 11 – 11

Estimated benefi ts paid (28) (28) – (28)

Estimated member contributions 1 1 – 1

Balance at end 410 – 403 6 409

Current 28 28

Non-current 382 381

410 409

Movement in fair value of plan assets

Balance at beginning 571 – 531 32 563

First time recognition of plan assets 106 106 – 106

Expected return on plan assets 45 42 2 44

Actuarial losses (36) (26) (8) (34)

Employer contribution – 1 – 1

Interest cost 1 – – –

Estimated member contributions – 1 – 1

Estimated benefi ts paid (29) (28) – (28)

Balance at end 658 106 521 26 653

Current 63 61

Non-current 595 592

658 653


(continued)


Metropolitan Life LimitedGroup MSPF CU Total

2007 Rm Rm Rm RmPresent value of funded obligation (394) (388) (6) (394)

Fair value of plan assets 571 531 32 563

177 143 26 169

Movement in present value of funded obligation

Balance at beginning 384 383 383

First time recognition of funded obligation 6 6 6

Current service costs 1 1 1

Interest costs 30 30 30

Actuarial gains 1 1 1

Estimated benefi ts paid (29) (28) (28)

Estimated members contributions 1 1 1


Current portion 26 26

Movement in fair value of plan assets

Balance at beginning 510 504 504

First time recognition of plan assets 32 32 32

Expected return on plan assets 41 39 39

Actuarial gains 15 13 13

Estimated employer contribution 1 1 1

Interest cost (1) – –

Estimated member contributions 1 1 1

Estimated benefi ts paid (28) (27) (27)


Current portion 28 26

Metropolitan Staff Retirement Fund (MSRF)

The MSRF is a defi ned contribution arrangement with two separately registered sections: pension and provident. Members

contribute at a fi xed percentage of salaries to the pension fund section and the employer contributes to the provident fund

section. The employer’s share of the surplus in the old defi ned benefi t fund which was transferred to the defi ned contribution

fund on 1 April 1999 was kept in the Employer Contribution Subsidy Reserve Account until 1 April 2002. The surplus

apportionment scheme of the provident section was approved by the Financial Services Board (FSB) in June 2008. The surplus

is to be transferred to the Employer Surplus Account (ESA) which can be used by the employer to subsidise contributions to the

fund. The pension fund section has a nil scheme, approved by the FSB. The fair value of the plan assets represents the balance

of the ESA valued at market value at year-end. There is no defi ned benefi t obligation attached to this asset. Since this is the fi rst

year of recognition there are no disclosures for the return on assets or actuarial gains or losses.

Metropolitan Staff Pension Fund (MSPF)

With effect from 1 April 1999 the majority of employees converted their retirement benefi t plans from defi ned benefi t to

defi ned contribution by way of transfer from the Metropolitan Staff Pension Fund to the Metropolitan Staff Retirement Fund.

The defi ned benefi t scheme was closed to new members from 1 April 1999. All new employees automatically become

members of the Metropolitan Staff Retirement Fund.



Metropolitan Staff Pension Fund (MSPF) (continued)

Metropolitan Life Ltd is required to meet the balance of the cost of providing the fund benefi ts as recommended by the

valuator on the basis of the ongoing triennial actuarial valuations. Any surplus arising in the fund as determined during the

valuation is held in an employer surplus account, as allowed by the Second Amendment to the Pension Funds Act 39 of

2001. The nil scheme was noted by the FSB in October 2005. Subsequent to the surplus apportionment date, surplus has

emerged in the fund and the employer has economic benefi t of the surplus. The liability at 31 December 2008 is based on a

projection of the 1 April 2007 valuation results. Fair value of the plan assets is determined with reference to the approximate

rate of investment return earned by the fund until December 2008. The key valuation assumptions are:

Assumptions Base assumptionValuation rate of interest 8.0% (2007: 8.0%)

Expected rate of return 8.0% (2007: 8.0%) – based on the valuation rate of interest

Salary infl ation 6.5% (2007: 6.5%)

Net post-retirement interest rate 3.0% (2007: 3.0%)

Normal retirement age 60 – 65 years

Mortality

Pre-retirement SA 72-77 ultimate, with female rates equal to 70% of male rates

Post-retirement PA(90) minus 2, with ill-health (disability) retirements rated up by 10 years

The plan assets as a percentage (%) comprise 2008 2007Equity securities 51 52

Debt securities 18 18

Property 9 10

Foreign assets 9 9

Cash equivalents 3 1

Socially responsible investments 10 10

100 100

Commercial Union Defi ned Contribution Pension Fund (CU)

The fund is a defi ned contribution fund and is closed to new members. Any surplus arising in the fund as determined during

the valuation is held in an employer surplus account, as allowed by the Act. Metropolitan Life Ltd recognised a surplus of

R26 million as an asset in 2007 when the FSB approved the surplus apportionment. This account is currently used by the

fund to meet the obligation in respect of the additional retirement benefi t in lieu of the post-retirement medical aid subsidy

for eligible members. The key valuation assumptions are similar to the MSPF except for:

Assumptions Base assumptionHealthcare cost infl ation 7.0% (2007: 6.8%)

Administration fee infl ation 5.5% (2007: 5.5%)

Normal retirement age 60 years

The plan assets as a percentage (%) comprise 2008 2007Equity securities 60 62

Debt securities 6 9

Property 4 4

Foreign assets 11 11

Cash equivalents 19 14

100 100


(continued)


Actual return on assets

The actual return on assets of the funds is R8 million for the group and R10 million for Metropolitan Life Ltd.

International subsidiaries

During 2008, the international subsidiaries have recognised a net asset of R4 million (2007: R8 million), in accordance with

IAS 19 – Employee benefi ts – where applicable.

Metropolitan Health Group Retirement Fund

The group sponsors the Metropolitan Health Group Retirement Fund, which is a defi ned contribution arrangement with

a defi ned benefi t underpin for certain members. The fund is closed to new members. This fund has submitted a surplus

apportionment arrangement in terms of the Pension Funds Second Amendment Act 39 of 2001. This has yet to be

approved.

Previous year’s balances

Present value of funded obligations and plan assets for 2006 was R384 million and R510 million respectively for the group

and R383 million and R504 million respectively for Metropolitan Life Ltd.

Other

The total movement is recognised in the income statement in employee benefi t costs. The best estimate of the employer’s

contributions for 2009 is R39 million for the group and R37 million for Metropolitan Life Ltd.


Rm Rm Rm Rm23.2 Employee benefi t obligations

Post-retirement medical benefi ts (a) 174 164 170 161

Share scheme obligations (b) 6 64 – –

Cash-settled arrangements (c) 8 15 3 8

Staff bonuses – 9 – –

188 252 173 169

Current 14 80 10 10

Non-current 174 172 163 159

188 252 173 169

Movements in the income statement are included in employee benefi t expenses.

(a) Post-retirement medical benefi tsBalance at beginning – unfunded 164 157 161 154

Interest costs 13 13 13 13

Actuarial gains (3) (6) (4) (6)

Balance at end – unfunded 174 164 170 161

Previous years’ balances

The post-retirement medical benefi t obligation for the group was R157 million in 2006, R96 million in 2005 and R103 million in 2004 and for Metropolitan Life Ltd it was R154 million in 2006, R93 million in 2005 and R100 million in 2004.




Liabilities for qualifying employees and current retirees are taken as the actuarial present value of all future medical contribution subsidies, using the long-term valuation assumptions. The current medical scheme contribution rates are projected into the future using the long-term healthcare infl ation rate, while the value of the portion subsidised by the employer after retirement is discounted back to the valuation date using the valuation rate of interest. The projected unit credit method is used to calculate the liabilities. The key valuation assumptions are:

Change in value of liability

Assumptions Base assumptionChange in

assumption

Decrease in assumption

R’000


R’000Healthcare cost infl ation rate

Defi ned benefi t fund 7.0% (2007: 6.8%) 1% (92) 113

Defi ned contribution fund 7.0% (2007: 6.8%) 1% (50) 76

Valuation rate of interest 8.0% (2007: 8.0%)

Administration fee infl ation 5.5% (2007: 5.5%)

Normal retirement age 60 years

Mortality

Pre-retirement SA 72-77 ultimate, with female rates equal to 70% of male rates

Post-retirement PA(90) minus 2, with ill-health (disability) retirements rated up by 10 years

Group2008 2007

Rm Rm(b) Share scheme obligationsHealth staff share scheme


Additional provisions 1 25

Used during year (55) (24)

Balance at end – 54


In 2007, the liability was based on actual profi ts as it was expected that the shares would be put back to Metropolitan Holdings Ltd during 2008. The liability was settled during 2008.

International subsidiaries’ share schemes


Current service costs 2 5

Interest costs 1 2

Actuarial losses (1) –

Benefi ts paid (6) (9)

Balance at end 6 10


The assumptions used in calculating the expenses and liabilities for these schemes were:

> risk-free rates ranging from 8% to 10% (2007: 9% to 10%)

> expected growth rates between 12% and 14% (2007: 14% to 15%)

> forfeiture rates ranging from 9% to 19% (2007: 7% to 19%)

> a continuously compounded dividend yield of 0% (2007: 0%)


(continued)



Rm Rm Rm Rm(c) Cash-settled arrangementsLong-term retention scheme


Additional provisions (3) 14 (2) 7

Benefi ts paid (4) (3)Balance at end – non-current 8 15 3 8

During 2006 the group introduced a long-term retention scheme for all South African employees. In terms of this scheme,

participants can qualify for a bonus, payable after three years, based on the performance of the group measured against

certain benchmarks. The basket of performance criteria includes growth in dividend per ordinary share, diluted core headline

earnings per share and value of new business and determines the number of units that will vest with each employee over

the three-year period. The participant will then receive a cash payment per unit, based on the volume weighted average

share price of Metropolitan Holdings Ltd shares at the payment date.

Group Metropolitan Life Ltd2008 2007 2008 2007‘000 ‘000 ‘000 ‘000

Number of units outstandingAt beginning of year 5 120 2 365 2 698 1 461

Allocations

2nd tranche 2 891 1 396

3rd tranche 4 736 2 639 Net forfeits and transfers (572) (136) (276) (159)

At end of year 9 284 5 120 5 061 2 698


The fair value of the services provided is determined by taking the fair value of the option granted, adjusted for non-fi nancial performance indicators. The price of the forward, a fi nancial variable, was derived using a risk-neutral forward pricing technique. The valuation methodology uses observable market prices, in conjunction with appropriate forward-looking dividend assumptions, to determine the value of the forward as the current market value of a portfolio that has the same expected pay-off profi le as the instrument. The non-fi nancial variables include:

> a maximum vesting rate of 200%

> a target vesting rate of 100%

3rd tranche 2nd tranche 1st trancheIssue date 21 November 2008 26 November 2007 01 December 2006

Expiry date 21 November 2011 25 November 2010 30 November 2009

Outstanding units – group 4 735 500 2 713 500 1 834 820

Outstanding units – Metropolitan Life Ltd 2 639 000 1 283 500 1 138 160

Valuation assumptions include:

3rd tranche 2nd tranche 1st tranche2008 2008 2007 2008 2007

Outstanding tranche period in years 2.9 1.9 2.9 0.9 1.9

Take-up rate on units outstanding 85% 90% 84% 95% 89%

Current vesting rate 0% 45% 118% 69% 135%

Adjusted share price, adjusted for future

dividends and past special distributions R7.50 R8.53 R12.12 R9.94 R13.94




Rm Rm Rm Rm24 OTHER PAYABLES

Payables arising from insurance contracts and

investment contracts with DPF 1 595 1 449 1 474 1 330

Claims in process of settlement

Insurance contracts 1 255 1 171 1 184 1 087

Investment contracts with DPF 210 133 190 121

Premiums paid in advance 74 82 51 64

Due to reinsurers 56 63 49 58

Deferred revenue liability 47 46 27 26


Due to group companies 57 53

Other payables 1 292 1 050 1 003 785

2 934 2 545 2 561 2 194

Current 2 723 2 507 2 535 2 170

Non-current 211 38 26 24

2 934 2 545 2 561 2 194

25 INCOME TAX

25.1 Current income tax liabilities/(assets)

Current income tax assets (14) – (4) –

Current income tax liabilities 23 307 – 235

9 307 (4) 235


Charged to income statement 220 448 103 323

Additional provisions 325 532 194 407

Unused amounts reversed (105) (84) (91) (84)

Used during year (518) (357) (342) (234)


Balance at end 9 307 (4) 235


(continued)



Rm Rm Rm Rm25.2 Income tax (credits)/expenses

Current taxation

South African normal tax 308 503 188 399

Prior year overprovision (102) (99) (91) (99)

Foreign countries – normal tax 14 24 6 3

Tax on contract holder funds – 5 – 5

Prior year underprovision – 15 – 15

220 448 103 323

Deferred tax

Shareholder tax (211) (55) (153) (57)

Contract holder tax (156) 204 (156) 204

Prior year overprovision (1) – – –

Foreign withholding tax 18 – – –

Secondary tax on companies 53 120 – –

Prior year underprovision – 71 – 71

(77) 788 (206) 541

2008 2007 2008 2007Tax rate reconciliation % % % %Tax calculated at standard rate of South African tax

on earnings 28.0 29.0 28.0 29.0

Change in tax rate (0.9) (2.1)Prior year reversals (27.5) (4.3) (61.3) (5.6)

Secondary tax on companies (14.2) 8.3 - 4.3

Taxation on contract holder funds 41.7 9.8 104.6 13.0

Foreign tax (6.5) (0.4) 4.1 0.2

Capital gains tax (11.6) (4.4) (22.1) (5.5)

Non-deductible expenses 11.7 (4.0) 87.1 (4.5)

Effective rate 20.7 34.0 138.3 30.9

Change in tax rate

The tax rate for companies changed from 29% to 28% during 2008.

2008 2007 2008 2007Rm Rm Rm Rm

26 NET INSURANCE PREMIUMS

Premiums received 10 803 9 161 9 675 8 149

Long-term insurance contracts (note 17) 9 414 7 690 8 383 6 766

Capitation premiums 19 19

Investment contracts with DPF (note 19) 1 370 1 452 1 292 1 383

Premiums received ceded to reinsurers (398) (369) (370) (340)

10 405 8 792 9 305 7 809 2007 restated

Certain investment contracts were accounted for as insurance business in 2007. Premium income and operating profi t on insurance contracts was therefore reduced by R77 million with a corresponding increase in fee income from investment contracts.




Rm Rm Rm Rm27 FEE INCOME

Contract administration 174 97 158 85

Investment contracts 158 84 153 81

Release of deferred front-end fees 16 13 5 4

Trust and fi duciary services 144 93

Asset management 20 4

Asset administration 56 39

Retirement fund administration 68 50

Other income 833 713 8 15

Health 787 684

Banking services 9 10

Scrip lending fees 16 19 8 15

Other 21

1 151 903 166 1002007 restated

> Scrip lending fees were reallocated from investment income to fee income.

> Health fee income was reallocated from trust and fi duciary services to other income within fee income.

> Certain investment contracts were accounted for as insurance business in 2007. Premium income and operating profi t on insurance contracts was therefore reduced by R77 million with a corresponding increase in fee income on investment contracts.

28 INVESTMENT INCOME

Designated as at fair value through income

Dividend income – listed 1 242 944 1 103 807

Dividend income – unlisted 97 76 94 75

Held for trading dividend income – listed 8 33

Interest income 2 708 2 243 2 378 1 991

Designated as at fair value through income 1 709 1 179 1 530 1 035

Loans and receivables 202 242 157 229

Cash and cash equivalents 797 822 691 727

Rental income 344 349 344 346

Investment property 334 343 328 337

Owner occupied 10 6 8 5

Other group companies 8 4

Other income 5 1 – 1

4 396 3 613 3 927 3 253 Interest received

Included in interest received is Rnil million (2007: R6 million) on impaired loans.

2007 restated

Scrip lending fees of R19 million for the group and R15 million for Metropolitan Life Limited were reallocated from investment income to fee income.


(continued)



Rm Rm Rm Rm29 NET REALISED AND FAIR VALUE (LOSSES)/ GAINS

Financial instruments (8 719) 3 868 (7 764) 3 230

Designated as at fair value through income (10 073) 3 809 (9 099) 3 169

Held for trading fi nancial instruments 1 240 53 1 249 53

Available-for-sale – realised gains 1 1 – –

Net realised and unrealised foreign exchange

differences on fi nancial instruments not

designated at fair value through income 113 5 90 2

Fair value (losses)/gains on investments in

subsidiaries (4) 6

Investment property 232 541 237 538

As per valuation 221 540 226 537

Change in accelerated rental income 11 1 11 1

Other investments 3 (2) 3 2

(8 484) 4 407 (7 524) 3 770 2007 restated

Net realised and fair value gains for designated as at fair value through income instruments now includes the foreign exchange differences on these instruments.

30 NET INSURANCE BENEFITS AND CLAIMS

Long-term insurance contracts (note 17) 6 168 5 202 5 573 4 664

Death and disability claims 2 237 1 800 2 002 1 643

Maturity claims 1 399 1 248 1 275 1 121

Annuities 615 573 581 542

Surrenders 1 806 1 451 1 627 1 235


Terminations – 117 – 117

Capitation benefi ts incurred 16 17

Investment contracts with DPF (note 19) 2 215 1 255 2 141 1 200

Death and disability claims 28 30 21 26

Maturity claims 128 81 117 69

Annuities 54 38 53 38

Surrenders 17 6 16 6


Terminations 1 707 892 1 681 876

8 399 6 474 7 714 5 864

Amounts recovered from reinsurers (330) (242) (302) (230)

8 069 6 232 7 412 5 634 2007 restated

The restatement of certain policy loans resulted in an increase in surrenders of R40 million for both the group and Metropolitan Life Limited.




Rm Rm Rm Rm31 CHANGE IN LIABILITIES

Change in insurance contract liabilitiesMovement in liability balance


Adjusted for

Shadow accounting (3) (2) – –

Shareholder movements (note 17) 10 (944) 156 (873)

Operating profi t (702) (795) (539) (678)

Basis changes 301 165 273 114

Investment variances 451 (41) 441 (41)

Deferred tax – (111) – (111)

Reinsurance movements (40) (162) (19) (157)

(1 451) 2 577 (1 173) 2 313

Change in investment contracts with DPF liabilitiesMovement in liability balance


Shareholder movements (note 19) (48) (102) (28) (86)

Operating profi t (115) (120) (115) (103)

Basis changes (note 20) (13) 17 9 16

Investment variances 80 1 78 1

(2 990) 1 562 (2 901) 1 504

32 DEPRECIATION, AMORTISATION AND

IMPAIRMENT EXPENSES

Depreciation (notes 2, 3 & 16) 88 81 41 36

Owner-occupied properties 13 6 9 6

Equipment 75 75 32 30

Amortisation (note 1) 52 44 17 18

Value of in-force acquired 6 –

Contractual customer relationships 1 –

Deferred acquisition costs 12 12 7 5

Computer software – acquired 8 9 1 4

Computer software – internally developed 25 23 9 9

Impairment of intangible assets (note 1) 35 4 – 3

Goodwill 35 – – –

Deferred acquisition costs – 4 – 3

Impairment of fi nancial assets 46 40 (3) 12

Loans advanced 48 24 – –

Amounts due from agents and brokers (2) 11 (3) 12

Other – 5 – –

221 169 55 69


(continued)



Rm Rm Rm Rm33 EMPLOYEE BENEFIT EXPENSES

Salaries 1 155 985 558 511

Defi ned benefi t retirement fund 6 2 2 2

Defi ned contribution retirement fund 106 93 49 44

Retirement fund assets (note 23.1) (71) (51) (75) (48)

Share-based payment expenses 2 26 3 12

Equity-settled arrangements 4 12 5 5

Cash-settled arrangements (2) 14 (2) 7

Current service costs 5 32

Metropolitan Health staff share scheme 2 26

International subsidiaries’ share schemes 3 6

Training costs 39 32 24 23

Other 27 26 10 9

1 269 1 145 571 553

Directors’ emoluments included above 6 6

34 SALES REMUNERATION AND DISTRIBUTION COSTS

Distribution costs 241 123 102 107

Sales remuneration 994 1 004 1 046 910

1 235 1 127 1 148 1 017

35 OTHER EXPENSES

Administration fees received (83) (75) (70) (62)

Asset management fees 113 90 195 227

Auditors’ remuneration 22 19 14 12

Audit fees 20 17 14 11

Fees for other services 2 2 – 1

Consulting fees 108 70 51 38

Direct property operating expenses on investment

property 92 67 117 63

Information technology expenses 129 118 55 65

Marketing costs 158 124 133 108

Other expenses 339 235 43 13

Other related taxes 133 126 106 95

1 011 774 644 559

Fees recovered from subsidiaries (41) (35)

1 011 774 603 524 Administration fees received

Fee income on fi nancial instruments not at fair value amounting to R13 million (2007: R14 million) for the group and R11 million (2007: R12 million) for Metropolitan Life Ltd is included in administration fees received.

36 FINANCE COSTS

Interest expense on liabilities at amortised cost

Redeemable preference shares 138 123


Other 3 5 – 1

188 174 47 47



37 GROUP EARNINGS PER SHARE Basic earnings Diluted earnings

Attributable to equity holders 2008 2007 2008 2007Earnings (cents per share) (61.23) 279.89 (27.06) 232.43 Headline earnings (cents per share) (52.78) 279.89 (20.48) 232.43 Core headline earnings (cents per share) 167.18 160.15 151.12 142.27

Reconciliation of headline earnings attributable

to equity holders of group

Basic earnings Diluted earnings2008 2007 2008 2007

Rm Rm Rm RmEarnings – equity holders of group (319) 1 503 (319) 1 503 Finance costs – preference shares (note 36) 138 124 Diluted earnings (181) 1 627 Goodwill impaired 44 – 44 – Headline earnings (275) 1 503 (137) 1 627 Net realised and fair value gains on excess 603 (719) 603 (719)Basis and other changes, and investment variances 580 64 580 64 Employee benefi t assets/obligations (37) (48) (37) (48)Dilutory effect of subsidiaries 1 6 Investment income on treasury shares held on behalf

of contract holders 1 13 Secondary tax on companies – special dividend 60 60 Core headline earnings 871 860 1 011 1 003

Weighted average number of ordinary shares in issue (million) 521 537 521 537 Adjustments for Assumed conversion of preference shares 123 123 Staff share scheme shares 25 40 Diluted weighted average – earnings and headline earnings (million) 669 700 Treasury shares held on behalf of contract holders – 5 Diluted weighted average – core headline earnings (million) 669 705

Basic earnings per share

In calculating the basic earnings per share, the exclusion from the income statement of the income in respect of treasury shares and shares issued to staff through the staff share scheme after 1 January 2001 requires that these shares similarly be excluded from the weighted average number of ordinary shares in issue.

Diluted earnings per share

Diluted earnings per share are calculated using the weighted average number of ordinary shares in issue, assuming conversion of all issued shares with dilutive potential. The convertible redeemable preference shares and the staff share scheme shares not recognised in accordance with IAS 39 have dilutive potential. The preference shares are assumed to have been converted into ordinary shares and earnings adjusted to eliminate the interest expense. The staff share scheme shares are assumed to have been released as ordinary listed shares with no adjustment to earnings.

Diluted weighted average number of shares

For diluted core headline earnings, treasury shares held on behalf of contract holders are deemed to be issued. For diluted earnings and headline earnings, these shares are deemed to be treasury shares.

Headline earnings

Headline earnings consist of operating profi t, investment income, net realised and fair value gains, investment variances and basis and other changes.

Core headline earnings

Net realised and fair value gains, investment variances and basis and other changes can be volatile; therefore core headline earnings have been disclosed that comprise operating profi t and investment income on shareholder assets only.

Diluted core headline earnings

Metropolitan Health and Metropolitan Kenya are consolidated at 100% in the results. For the purposes of diluted core headline earnings, minority interests and investment returns are reinstated.


(continued)



Rm Rm Rm Rm38 CASH FLOW FROM OPERATING ACTIVITIES

38.1 Cash (utilised in)/generated by operations

Profi t before tax (372) 2 316 (149) 1 755

Adjusted for

Dividends received (1 339) (1 020) (1 205) (915)

Interest received (2 708) (2 243) (2 378) (1 991)

Finance costs 188 174 47 47

Share of losses/(profi ts) of associates 2 (5)

Share of losses of joint ventures 26 –

Net realised and fair value losses/(gains) 8 484 (4 407) 7 524 (3 770)

Depreciation and amortisation expenses 140 125 58 54

Impairment charges 81 44 (3) 15

Share-based payment expenses 7 58 3 12

Staff bonuses (5) 9 – –

Reinsurance assets (27) 36 (49) 48

Employee benefi t assets/obligations (71) (51) (65) (48)

Fair value adjustments on collective investments

scheme liability 18 13

Accelerated rental income 11 – 11 –

Changes in operating assets and liabilities (excluding

effect of acquisitions and exchange rate differences

on consolidation)

Insurance and investment liabilities (4 591) 7 161 (4 228) 6 799

Intangible assets related to insurance and

investment contracts (19) (27) (13) (14)

Investment property (33) 32 (33) 32

Assets designated as at fair value through income (3 168) (1 928) (3 397) (2 535)

Assets held for trading 1 055 147 1 263 (261)

Assets available-for-sale 1 3 – 358

Loans and receivables 92 (264) (1) (157)

Insurance and other receivables (42) (95) (22) (96)

Non-current assets held for sale 185 – 185 –

Change in employee benefi t obligations (71) (33)

Other operating liabilities 357 570 361 511

Cash (utilised in)/generated by operations (1 799) 615 (2 091) (156)

38.2 Income tax paid

Due at beginning (784) (491) (606) (345)

Charged to income statement 77 (788) 206 (541)

Charged directly to equity (6) (25) (3) (25)

Business combinations – (26) –

Due at end 124 784 62 606

(589) (546) (341) (305)

38.3 Interest paid

Redeemable preference shares (134) (118)

Subordinated redeemable debt (47) (46) (47) (46)

Other (3) (2) – –

(184) (166) (47) (46)


Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008


(continued)


Rm Rm Rm Rm39 CASH FLOW FROM INVESTING ACTIVITIES

39.1 Acquisition of subsidiaries

The group acquired 80% of a retirement administration company in April 2007, 50% and control through board representation

of HTG Life Ltd (renamed Union Life Ltd), a life insurance company, and 70% of DirectFin Solutions (Pty) Ltd, a distribution

channel, both in December 2007, for a total cost of R145 million. The group would have recognised R20 million profi t if these

companies had been consolidated from the beginning of 2007.

The assets and liabilities arising from the

acquisitions are as follows

Intangible assets 51

Owner-occupied properties 14

Equipment 7

Equity securities 162

Loans and receivables 22

Cash and cash equivalents 91

Contract holder liabilities (162)

Borrowings (29)

Deferred tax (12)

Other payables (23)

Current income tax (14)

Fair value of net assets 107

Minority interests (43)

Goodwill and value of in-force on acquisition 90

Cash and cash equivalents in net assets acquired (91)

Cash outfl ow on acquisition 63

40 CAPITAL AND LEASE COMMITMENTS

Capital commitmentsAuthorised but not contracted 124 35 – –

Authorised and contracted 14 132 – 128

138 167 – 128

The above commitments, which are in respect of computer software, computer equipment, vehicles, furniture, property,

sponsorships, promotions and new business opportunities, will be fi nanced from internal sources.

Lease commitmentsMinimum lease payments on non-cancellable contracts:

Less than 1 year 12 20 – –

Between 1 and 5 years 17 51 – –

29 71 – –

41 CONTINGENT LIABILITIES

The South African Revenue Service has raised a tax assessment on the company. No provision has been made based on

legal grounds and on independent tax advice received by the group.

The group is party to legal proceedings in the normal course of business and appropriate provisions are made when losses

are expected to materialise.


Proof number 04 – 12 March 2009

42 RELATED PARTY TRANSACTIONS42.1 Holding company

Metropolitan Holdings Ltd is the ultimate holding company in the Metropolitan Holdings group. The shares are widely held by public and non-public shareholders; refer to the shareholder profi le.

Group companies are listed in annexure 1. Other related parties include Kagiso Trust Investments (Pty) Ltd, directors, key personnel and their families, associated companies and joint ventures.

42.2 Transactions with directors and key personnel and their families

Remuneration is paid in the form of fees to non-executive directors and remuneration to executive directors and key personnel of the company. Transactions with directors are disclosed in the corporate governance report and the directors’ report respectively.

The group executive committee members are members of the staff pension schemes, the details of which are in note 23. Certain of them have investments with the group that have been taken out in the ordinary course of business.

The aggregate remuneration of this committee, excluding the executive directors, is R10 million (2007: R17 million) for the group. Included are pension fund contributions of R0.3 million (2007: R2 million) for the group.

In addition to the shares held by executive directors, other executive committee members hold nil (2007: 50 000) shares in the staff share schemes and had loans of Rnil (2007: R174 000) outstanding at year-end. Rnil (2007: R6 million) was paid out to executive directors relating to the staff share schemes.

The executive committee members are benefi ciaries in the management trust, which in turn holds a 5.6% indirect interest in Metropolitan Holdings Ltd.

The executive committee members participate in the Metropolitan long-term retention scheme. In terms of this scheme, management can qualify for a bonus, payable after three years, based on the performance of the group measured against certain benchmarks.

The directors and group executive committee members do not have signifi cant investment holdings and insurance contracts in the Metropolitan group business.

42.3 Black economic empowerment partner

The group’s black economic empowerment partner, Kagiso Trust Investments (Pty) Ltd (KTI), has an interest of 24% (2007: 22%) in Metropolitan Holdings Ltd. The group has entered into the following transactions with KTI:

> Metropolitan Holdings Ltd issued preference shares to KTI as disclosed in note 22.1.

> Metropolitan Health Group issued “A” ordinary shares to KTI which were fi nanced through preference shares to Metropolitan Holdings Ltd. The “A” ordinary shares are convertible into ordinary shares on a 1 for 1 basis and can only be converted as and when the preference shares are redeemed, also on a 1 for 1 basis. KTI holds a 17.6% interest in Metropolitan Health Corporate (Pty) Ltd through this transaction.

> KTI has a 20% holding in Metropolitan Retirement Administrators (Pty) Ltd.

> KTI has a 51% holding in C Shell 448 (Pty) Ltd – refer note 6.

> Other transactions between the group and KTI are in the normal course of business.

42.4 Contract administration

Certain companies in the group carry out third party contract and other administration activities for other related companies in the group. These fees are eliminated on consolidation.

42.5 Staff share schemes

Loans were advanced to the two share schemes and to participants in the schemes. Amounts outstanding at the end of the year are disclosed in note 16(c). Interest paid by the trusts to Metropolitan Life Ltd was R11 million (2007: R16 million).

42.6 Property lease agreements

Certain related parties of the group are lessees of Metropolitan Life Ltd. Rental income for Metropolitan Life Ltd from group companies, Metropolitan Asset Managers Ltd, Metropolitan Collective Investments Ltd, Metropolitan Holdings Ltd and Metropolitan Retirement Administrators (Pty) Ltd, for the year ended 31 December 2008 amounted to R8 million (2007: R4 million).

42.7 Transactions with group companies

There were no material transactions with associated companies or joint ventures.




(continued)

42.8 Transactions between Metropolitan Life Ltd and group companies

Loans are advanced between Metropolitan Life Ltd, its subsidiaries and fellow subsidiaries as funding. These loans are

interest free and repayable on demand. Set out below is a list of loans to/(from) subsidiaries and fellow subsidiaries included

in loans and receivables and other payables in the balance sheet of Metropolitan Life Ltd.


Rm RmIndebtedness by/(to) group companiesInvestment subsidiaries – 1

Metropolitan Asset Managers Ltd 15 –

Metropolitan Card Operations (Pty) Ltd – 1

Metropolitan Collective Investments Ltd 2 1

Metropolitan Holdings Ltd 5 6

Metropolitan Life International Ltd – 2

Metropolitan Lesotho Ltd 23 25

Metropolitan Life (Namibia) Ltd 1 20

Metropolitan Life of Botswana Ltd (1) –

Metropolitan Life property subsidiaries (49) (49)

Metropolitan Odyssey Ltd – 3

Metropolitan Property Services (Pty) Ltd (6) (4)

Metropolitan Retirement Administrators (Pty) Ltd 2 1

Metropolitan Health Corporate (Pty) Ltd 5 –

Metropolitan International (Pty) Ltd 4 –

1 7

Transactions with group companiesAsset management fees paid – Metropolitan Asset Managers Ltd 84 129

Internal recoveries 41 35

Dividends received

Metropolitan Holdings Ltd – treasury shares 8 37

Post-retirement medical benefi t obligations

Metropolitan Lesotho Ltd 3 3

Metropolitan Health Corporate (Pty) Ltd 2 2

Contract holder benefi t payments

Metropolitan Lesotho Ltd 4 –

Dividends and interest received from fellow subsidiaries

Collective investment schemes 32 25

Property administration fee expense

Metropolitan Property Services (Pty) Ltd 30 27

Administration fee expense

DirectFin Solutions (Pty) Ltd 162 –



43 RISK MANAGEMENT

A key risk for the group is that the proceeds from its assets will not be suffi cient to fund the obligations arising from its

insurance and investment contracts. The risk arises from the presence of fi nancial or insurance risk in the contracts issued

by the group. This section provides information on the processes and structures in place to manage and mitigate such

risks.

Responsibility for risk management

The board is ultimately responsible for risk management. The board has delegated the assessment of the quality, integrity

and reliability of the group’s risk management processes to a number of committees.

> The risk committee assists the board in the discharge of its duties relating to corporate accountability and the associated

risk in terms of management, assurance and reporting. The committee reviews and assesses the integrity of the risk

control systems and ensures that the risk policies and strategies are effectively managed.

> The audit, risk and actuarial committees assist the board in carrying out its assessment of controls and the risk function. In

fulfi lling this duty, these committees review the fi nancial reporting processes and results, the audit process, the systems

of internal control and the management of fi nancial, actuarial and operational risks. They also monitor legislative and

regulatory compliance and ensure good corporate governance.

> The investment committee reviews the asset management arrangements of the group and monitors investment

performance in terms of mandates and set benchmarks.

> Risk management is implemented at an operational level via a number of committees, including:

– the management risk committee, whose primary responsibility is the review of strategic, business, operational and

fi nancial risks facing the group; and

– the asset-liability management forum, which is a cross-business management forum whose purpose is to promote the

best possible standards of asset/liability management for the group. This includes ensuring that risks are addressed on

a group level rather than just at an individual business unit level.

43.1 Capital management

For capital management purposes the current level of capital in the group is defi ned as the difference between total assets

and total liabilities of the group, plus any qualifying debt approved by the regulators and less any disregarded assets.

Key objectives of the group’s capital management programme are:

> to ensure that the level of capital will be suffi cient, with a high degree of confi dence, to cover a desired multiple of the

statutory capital requirement during the next fi ve years in each of the life companies;

> to manage the levels of capital across the group to keep them in line with the long-term capital requirement for each

company;

> to ensure that the level of capital refl ects the group’s risk appetite;

> to optimise the level of capital, the investment of the capital and the future use of this capital to the benefi t of all

stakeholders; and

> to ensure that there is suffi cient capital available for profi table business growth.

The long-term capital requirement (LTCR) for Metropolitan Life Ltd is based on the result of an internal capital model.

For other life companies in the group, a multiple of statutory CAR is used. In addition the group holds capital for planned

business growth and special projects. The capital models are regularly updated to refl ect changes in the economic and

regulatory environment as well as further enhancements to model the identifi ed risks more accurately. Risks currently

modelled include market risk, credit risk, insurance risk, including pandemic disease risk, and operational risk. The amount

of capital in each life company is regularly compared to its LTCR and the intention is to manage the capital levels to be in

line with the LTCR.




(continued)

The capital levels of the non-insurance companies are based on operational requirements and approved new business

projects.

Actions that have been used in the past to manage capital levels include share buy-back exercises, normal and special

dividend payments, capital reductions, raising subordinated debt as well as the consolidation of life and other licences in

the group.

All dividends and other capital reductions paid are approved by the various boards, as well as by the statutory actuary in

each life company.

Statutory capital requirement

All of the life companies in the group are required to maintain a capital balance equivalent to the statutory capital adequacy

requirement (CAR). This capital is available to meet obligations in the event of substantial deviations from the main experience

assumptions affecting the company’s investment and insurance business.

The CAR is determined in accordance with the requirements of the FSB and PGN104 as amended. It is a risk-based

capital measure that is intended to provide reasonable confi dence that insurers will be able to meet their existing liabilities.

Amendments to PGN104 require an allowance for credit and operational risk as well as changes to the allowance for

embedded derivatives which was included in the CAR calculation for the fi rst time at 31 December 2008. The CAR as at

31 December 2007 was not restated for these amendments.

Although CAR is only a statutory requirement for South African life companies, it is applied to non-South African life

companies in the group as a measure of prudence. The capital requirements of insurance companies outside South Africa

are generally less stringent than South African CAR requirements.

The termination CAR ensures that the insurer has suffi cient capital to survive an adverse selective mass termination of

contracts. The ordinary CAR includes provisions and scenario tests for a number of risks including:

> fi nancial risk from asset and liability mismatch under specifi ed market movements (resilience test)

> random fl uctuations in insurance and expense risks

> risk that long-term insurance and fi nancial assumptions are not realised.

At 31 December 2008 the group’s CAR for life companies was covered 2.0 times (2007: 3.4 times) and for Metropolitan

Life Ltd 2.1 times (2007: 3.8 times). The ordinary CAR exceeded the termination CAR; therefore the CAR has been

based on the ordinary CAR. The group also holds additional capital in the holding company.

The following assumptions and resulting management actions were used to calculate the CAR:

> A decline of 26% in equity asset values, 15% in property asset values and 12.7% in fi xed interest asset values, resulting

from a 25% relative decrease in fi xed interest yields, will occur on the valuation date.

> Non-vesting bonuses will be removed, up to a maximum of 10% of the pre-decline fund accounts for smoothed bonus

business, or pre-decline sums assured and accumulated bonuses for conventional with-profi t business.

> In the three-year period following the decline, bonuses will lag investment performance. The extent of the assumed

lag varies by class of business, and the maximum allowable lag averages out at 10% of the pre-decline fund account

for smoothed bonus business, or pre-decline sums assured and accumulated bonuses for conventional with-profi t

business.

> Interim bonuses for individual smoothed bonus business will be reduced to zero.

> Assets backing the CAR are 75% invested in equities and 25% in cash.

> In the event of adverse selective mass terminations, discretionary margins on remaining policies will be reduced or

eliminated to reduce contract holder liabilities, which will result in an increase in the net asset value.



Should asset values decline as assumed, the relevant management actions above will reduce contract holder liabilities by

R4.1 billion (2007: R3.8 billion) for the life companies and R3.6 billion (2007: R3.7 billion) for Metropolitan Life Ltd.

The offsetting management actions assumed have been approved by specifi c resolution by the respective boards of directors

and the respective statutory actuaries are satisfi ed that these actions will be taken if the adverse scenarios materialise.

As at 31 December 2008 and for the year then ended, all material entities in the group held capital in excess of their

respective regulatory requirements.

A summary of the group’s CAR and long-term capital requirement is shown in the table below:


Rm Rm Rm RmNet asset value – excess 5 847 6 817 4 217 5 090

Add Redeemable preference shares 841 837

Less Disregarded assets (489) (293) (386) (231)

Available capital 6 199 7 361 3 831 4 859

Retained for

Redeemable preference shares (841) (837)

Metropolitan Life Ltd (3 621) (3 383) (3 621) (3 383)

Economic capital (4 122) (3 884) (4 122) (3 884)

Less Qualifying debt 501 501 501 501

Economic capital – other group companies (331) (457)

1 406 2 684 210 1 476

Attributed to

Approved expansion 233 336 75 –

Proposed dividend 335 440 – 750

Surplus capital 838 1 908 135 726

1 406 2 684 210 1 476




(continued)

43.2 The following table reconciles the assets in the balance sheet to the classes and portfolios used for asset-liability

matching by the group in all instances where assets are managed and performance is evaluated against mandates.


Rm Rm Rm RmAssetsDesignated as at fair value through income


Local listed 19 579 29 683 17 204 25 419

Foreign listed 1 143 1 554 596 1 176

Unlisted 445 752 440 678

Debt securities 15 968 14 268 14 576 13 119

Government stock

Local listed 3 887 2 972 3 719 2 887

Foreign listed 532 425 – –

Stock of and loans to other public bodies

Local listed 1 281 1 326 1 017 1 111

Foreign listed 108 – 108 –

Unlisted 1 790 1 834 1 789 1 834

Debentures and corporate bonds

Local listed 4 734 4 356 4 715 4 313

Foreign listed 987 1 707 668 1 388

Unlisted 1 664 777 1 575 715

Unlisted unquoted 985 871 985 871



Collective investment schemes

Local unlisted quoted 3 438 3 698 3 112 3 541

Foreign unlisted quoted 1 718 3 160 1 673 2 497

Local listed quoted 127 163 112 142

Foreign listed quoted 1 152 228 1 011 198


Local unlisted unquoted 3 492 2 580 3 428 2 580

Foreign unlisted unquoted 324 28 44 28

Held for trading 1 764 850 1 877 1 259

Local listed equity securities – – 169 398


Available-for-sale 5 7 – –

Local listed equity securities – 1 – –

Local unlisted quoted collective investment schemes 5 6 – –

Loans and receivables 1 128 1 193 870 908

Accounts receivable 365 451 207 236

Loans 763 742 663 672

Cash and cash equivalents 8 810 8 274 7 106 7 024

Interest in subsidiary companies at fair value 1 241 1 001

Investment in associates carried at fair value 614 390 642 463

Other assets 6 497 6 205 5 526 5 210

Total assets 69 613 75 183 62 532 67 170



The following table provides an analysis of the fair value of fi nancial assets not carried at fair value in the balance sheet.


Rm Rm Rm RmAssetsLoans and receivables 1 285 1 239 1 020 947

Loans 920 788 813 711



10 095 9 513 8 126 7 971

> For accounts receivable and cash and cash equivalents, the carrying value approximates fair value due to their short-term nature.> Loans to group companies have no fi xed terms of repayment and are considered payable on demand, with the carrying value approximating

fair value.> The fair value of loans to empowerment partners, strategic loans and other staff loans is the discounted amount of the estimated future

cash fl ows expected to be received. The expected cash fl ows are discounted at 13% (2007: between 11% and 19%).> For policy loans, the fair value is the discounted amount of the estimated future cash fl ows to be received, which is based on monthly

repayments of between 15 and 30 months. The expected cash fl ows are discounted at 7.3% (2007: 9.4%).


Unit-linked investments comprise local and foreign collective investment schemes as well as other unit-linked investments.

Collective investment schemes are categorised into property, equity or interest-bearing instruments based on a minimum

of 55% per category of the underlying asset composition of the fund by value. In the event of no one category meeting this

threshold, it is classifi ed as a mixed asset class.

Unlisted and unquoted unit-linked instruments are mainly exposed to equity, comprising investments in hedge funds and

private equity funds, or interest-bearing instruments, comprising mezzanine funding and structured guaranteed income

products. Where Metropolitan is the policyholder of an investment contract at another insurer, but does not have title to the

underlying investment assets, it is allocated to a mixed asset class.

Money market collective investment schemes are included in funds on deposit and other money market instruments less

than 90 days.

The unit-linked investments are exposed as follows:


Rm Rm Rm RmCollective investment schemes

Local and foreign 6 601 7 112 5 908 6 377

Equity 4 882 5 276 4 364 4 813

Interest-bearing 1 004 1 119 872 906

Property 482 580 453 547

Mixed asset class 233 137 219 111

Unlisted and unquoted unit-linked investments

Local and foreign 3 650 2 745 3 472 2 609

Equity 1 125 922 1 125 922

Interest-bearing 1 597 913 1 596 913

Mixed asset class 928 910 751 774

Interest in subsidiary companies at fair value 1 186 942

Investment in associates at fair value 614 390 642 463

10 865 10 247 11 208 10 391




(continued)

Valuation techniques

The following classes of assets are valued using published price quotations in an active market:

> Local listed equity securities

> Foreign listed equity securities

> Listed government stock

> Listed stock of and loans to other public bodies

> Listed debentures and corporate bonds

> Local listed and unlisted quoted collective investment schemes

> Foreign listed and unlisted quoted collective investments schemes

> Derivative fi nancial instruments, excluding over-the-counter (OTC) derivatives.

The following classes of assets are valued using a valuation technique:

Class Valuation techniques and assumptions

Equity securities

Unlisted Where external valuations are used, the valuation is based on the net asset

values where the assets and liabilities are carried at fair value or on a yield-

to-maturity basis by using the required rate of return.

Where price earnings ratios are used, the valuation is based on a relevant

industry price/earnings ratio, adjusted for each individual investment.

Quoted market information is used in the valuation of foreign unlisted

securities.

Debt securities

Stock of and loans to other public bodies

Unlisted The valuation is based on a discounted cash fl ow basis, using real interest

rates of 4.9% and 5.1% respectively (2007: 4.6% and 4.7%).

Foreign listed on an inactive market The bond is valued on a discounted cash fl ow basis, using a yield that

results in the same Z-spread as that of a similar local listed instrument,

issued by the same entity.

Debentures and corporate bonds

Local listed on an inactive market The valuation is based on the discounting of real cash fl ows which are

uplifted for infl ation, with a discount rate of 3.4% (2007: 3.0%).

Foreign listed on an inactive market External parties provide live mark-to-market values for the foreign credit

linked notes which represent the price that the foreign note would be

currently bought at in the market. The valuation of the foreign credit linked

notes consists of three components – 1) collateral 2) credit default overlay

and 3) an index performance swap. The collateral takes the form of a

listed bond and is valued as such. The credit default overlay consists of

a portfolio of credit default swaps structured as a synthetic collateralised

debt obligation. The individual credit default swaps’ prices are quoted in

the public domain. The index performance swap valuation is based on the

movement of the underlying index.

Unlisted The valuation is based on a discounted cash fl ow basis, with real discount

rates ranging between 1.8% and 2.4% and other with nominal discount

rates ranging between 6.1% and 11.7% (2007: 7.4% and 11.7%).

The unlisted debentures’ valuation is based on the net asset value of a

hedge fund where the assets and liabilities are carried at fair value.



Class Valuation techniques and assumptions

Unlisted unquoted This classifi cation relates to the capital guarantee portion of the local and

foreign structured products. The capital guarantee is valued using market-

related discount yields ranging between 8.65% and 9.8% (2007: between

9.95% and 11.65%).


Local unlisted unquoted Where external valuations are used for investments in private equity

funds, the valuation is based on the net asset values where the assets and

liabilities are carried at fair value.

The valuations of the other investments are based on external confi rmation

of the market values of the investments. The external valuations are based

on the value of the underlying investments that in most cases are listed or

quoted instruments.

Foreign unlisted unquoted The valuation is based on external confi rmation of the market values of the

investments. The external valuations are based on the value of the underlying

investments that in most cases are listed or quoted instruments.

Derivative fi nancial instruments (OTC)

Equity index options This classifi cation relates to the equity upside portion of the structured

products. External confi rmation of the market values is obtained and used

as fair value. Generally these options are valued by using the Black Scholes

model.

Equity index futures This equity future is valued at the current spot price less the specifi ed

selling price (settlement price) at a future date.

Interest rate swaps The fair value is the net present value of the difference between the fi xed

and variable portion of the interest rates, as per the terms and conditions

of the OTC agreement.

Where a valuation technique uses assumptions that are not supported by prices from observable current market transactions,

changing one or more of these assumptions to reasonably possible alternative assumptions would not change the fair value

signifi cantly.

Unrealised losses of R205 million (2007: profi ts of R136 million) have been recognised on fi nancial assets at the year-end,

using a valuation technique with no observable market data.

Credit risk

Credit risk is the risk that one party to a fi nancial instrument will cause a fi nancial loss for the other party by failing to

discharge an obligation.

One of the tools that the group uses to manage its credit risk is through a group credit policy for money market and debt

instruments as these instruments comprise 65% (2007: 64%) of the assets exposed to credit risk. Portfolios managed by

Metropolitan Asset Managers are managed according to this policy. Investments on behalf of Metropolitan’s international

subsidiaries in African countries, where little rated paper is available, must be approved by the boards of those companies

and will in the future be reported to the group investment committee.

No exposure is permitted to leveraged credit instruments, eg instruments where exposure to an entity or small group

of entities can cause greater losses across the portfolio than the proportionate share of the defaulting entity or entities,

without investment committee approval.

Where a credit risk is entirely borne by a contract holder in a pure linked investment contract, and this is made explicit in

the contract and acknowledged by the contract holder in writing, the risk will not be aggregated with the group’s risks. This

applies to special contracts and structured products.




(continued)

Unless the asset manager has a fully fl edged credit analysis capability, credit quality will be based on ratings assigned by

recognised ratings agencies. Lower credit quality than that implied by the rating may be assumed if the manager feels the

credit quality is overstated.

Exposure and probability of default can also be mitigated by means such as:

> obtaining guarantees of better quality from a counterparty;

> having the counterparty post collateral;

> creating bankruptcy remote structures to isolate the assets from the counterparty’s balance sheet;

> choosing senior over subordinated debt;

> buying into tranches that procure preferential payment; and

> transacting through markets where settlement is guaranteed.

For debt instruments, the major risks that are managed are the probability of default and concentration of exposure to

individual entities. Probability of default is managed by limiting exposure to the various credit rating bands through a risk

budget. For the risk budget, government guaranteed instruments do not draw down the risk budget and there is no limit on

exposure to these instruments. Although it is customary to permit investments up to BBB rating, a review of the history of

long-term probability of default indicated that the risk of default increased 3.5 times from A to BBB. Therefore investments

in debt securities are limited to A- ratings or better. No exposure is permitted to unrated counterparties or those rated below

investment grade, except with investment committee approval. The risk of exposure to individual entities, both local and

foreign, is managed through diversifi cation. Limits directly linked to credit ratings are placed on the maximum exposure per

issuer. More generous limits are set for top-tier banks and parastatals.

Money market instruments are those instruments with an original (legal) maturity not exceeding one year. As in the case

of debt instruments, the two major credit risks that are managed are probability of default and concentration of exposure

to individual entities. Probability of default is managed by limiting exposure to the various short-term credit rating bands.

Investment is only permitted in rated issuers or issues, unless no rated issuers or issues are available. Where a short-

term rating is not available, the long-term rating of the issuer is converted to a short-term rating. Default probabilities at a

long-term level of BBB (equivalent to short-term rating F3) and below, are signifi cantly riskier based on historic information

and hence not appropriate for money market investments. The risk of exposure to individual entities is managed through

diversifi cation. Limits directly linked to credit bands are placed on the maximum exposure per issuer. There is no limit on

the exposure to categories F1 and F1+ instruments, but a limit of 25% of the total portfolio is assigned to the category F2

instruments. For each of these categories there is an implied minimum number of issuers to reach the maximum exposure

in a category. There is no need for a risk budgeting approach given the limited number of restricted categories. Provisions

of the Long-term Insurance Act 1998 have the effect of limiting exposure to individual issuers due to the inadmissibility of

assets for regulatory purposes if specifi ed limits are breached.



The group’s maximum exposure to credit risk is through the following classes of assets:


Rm Rm Rm RmDesignated as at fair value through income

Debt securities

Government stock 4 419 3 397 3 719 2 887

Stock of and loans to other public bodies 3 179 3 160 2 913 2 945

Debentures and corporate bonds 7 385 6 840 6 958 6 416

Unlisted unquoted 985 871 985 871



Collective investment schemes

Local unlisted quoted 3 438 3 698 3 112 3 541

Foreign unlisted quoted 1 718 3 160 1 673 2 497

Local listed quoted 127 163 112 142

Foreign listed quoted 1 152 228 1 011 198


Local unlisted unquoted 3 492 2 580 3 428 2 580

Foreign unlisted unquoted 324 28 44 28

Held for trading


Available-for-sale

Local unlisted quoted collective investment schemes 5 6 – –

Loans and receivables


Loans 763 742 663 672

Other receivables

Receivables arising from insurance contracts,

investment contracts with DPF and reinsurance

contracts 1 421 1 379 1 213 1 191

Interests in subsidiary companies at fair value 1 241 1 001

Investments in associates carried at fair value 614 390 642 463


Total assets bearing credit risk 43 370 38 367 39 809 35 480

Security and credit enhancements

> For debt securities, unit-linked investments and cash and cash equivalents, the credit risk is managed through the group’s credit risk exposure policy described above.

> Metropolitan Life Limited has a continuing guarantee, relating to the full payment of the value of certain annuities up to a maximum of R1 billion, if an event of default occurs. The fair value of these debt instruments at the reporting date is R633 million (2007: R332 million).

> For OTC equity index options, the credit risk is managed through the creditworthiness of the counterparty in terms of the group’s credit risk exposure policy.

> For OTC interest rate swaps, the group enters into margining arrangements with counterparties, which limit the exposure to each counterparty to a level commensurate with the counterparties’ credit rating and the value-at-risk in the portfolio.

> For exchange traded options, credit risk is largely mitigated through the formal trading mechanism of the derivative exchange.> Security held on loans is described in note 9.> Amounts receivable in terms of long-term insurance contracts and investment contracts with DPF are limited to and secured by the

underlying value of the unpaid policy benefi ts in terms of the policy contract.> Reinsurance is placed with reputable companies. The credit rating of the company is assessed when placing the business and when there is

a change in the status of the reinsurer. If a reinsurer fails to pay a claim, the group remains liable for the payment to the contract holder.

Loans designated as at fair value through income

Included in the table above is R7 670 million (2007: R6 716 million) for the group and R7 581 million (2007: R6 652 million) for Metropolitan Life Ltd of loans that were designated as at fair value through income and carry credit risk. The amount of change in its fair value that is attributable to changes in credit risk is Rnil for the period and cumulatively for the group and Metropolitan Life Ltd (2007: Rnil for the group and Metropolitan Life Ltd).




(continued)

The assets in the table above are analysed in the table below using Fitch ratings or the equivalent thereof when Fitch ratings

are not available.


Rm Rm Rm RmDebt securities 13 745 12 379 12 543 11 460

AAA 6 250 5 619 5 783 5 242

AA 5 916 5 443 5 800 5 372

A 641 998 447 826

BBB 889 319 513 20

B 49 – – –

Cash and cash equivalents and funds on deposit 10 308 9 037 9 376 8 402

F1 10 238 8 868 9 376 8 233

F2 28 169 – 169

B 42 – – –

Derivatives 1 675 846 1 707 858

AAA 134 26 134 26

AA 1 540 815 1 540 815

A 1 5 33 17

Unrated

Cash and cash equivalents 541 603 139 192

Corporate bonds 504 269 313 39

Derivative fi nancial instruments 90 3 2 3

Funds on deposit 210 256 2 38

Government stock and parastatals 1 720 1 620 1 720 1 620

Money market unit-linked investments 1 157 528 662 319

Structured notes 1 – – –

Available-for-sale 5 6 – –

Loans and other receivables 1 906 1 906 1 557 1 549


Interests in subsidiary companies at fair value 1 241 1 001

Investments in associates carried at fair value 614 390 642 463

Past due or impaired assets 643 667 525 550

43 370 38 367 39 809 35 480

General

The BBB ratings in the table above relate mainly to the foreign credit linked notes where ratings have deteriorated signifi cantly during the year. Refer above for a description of the valuation technique of these instruments.

2007 restated

The 2007 credit risk ratings of cash and cash equivalents and funds on deposit have been restated to short-term credit ratings. The probability of default associated with these instruments is managed by limiting exposure to the above short-term credit rating bands.



The following tables analyse the age of fi nancial assets that are past due as at the reporting date but not impaired.

0 to 1 year 1 to 5 years > 5 years TotalRm Rm Rm Rm

Group2008Loans and receivables

Loans 22 27 4 53 Accounts receivable 178 12 – 190 Other receivables

Receivables arising from insurance contracts, investment

contracts with DPF and reinsurance contracts 357 3 2 362 557 42 6 605

2007


Loans – 1 1 2

Accounts receivable 358 16 – 374

Other receivables


contracts with DPF and reinsurance contracts 249 35 2 286

607 52 3 662

Metropolitan Life Ltd 2008Loans and receivables

Loans 19 1 4 24 Accounts receivable 156 5 – 161 Other receivables


contracts with DPF and reinsurance contracts 335 3 2 340 510 9 6 525

2007


Loans – 1 1 2

Accounts receivable 234 8 – 242

Other receivables


contracts with DPF and reinsurance contracts 228 22 2 252

462 31 3 496




(continued)

43.3 The following table reconciles the liabilities in the balance sheet to liability classes:


Rm Rm Rm RmLiabilitiesInvestment contracts 25 209 28 385 24 222 27 277

With discretionary participation features 11 278 14 273 10 781 13 682

Designated as at fair value through income 13 931 14 112 13 441 13 595

Designated as at fair value through income 272 635

Held for trading – derivative fi nancial instruments 1 498 858 1 490 858

Amortised cost 1 349 1 370 502 502

Cumulative redeemable preference shares 841 837



Other 5 29 – –

Other payables 1 292 1 050 1 060 838


Other payables 1 292 1 050 1 003 785

Other liabilities 34 005 35 944 31 041 32 605

Total liabilities 63 625 68 242 58 315 62 080

The following table provides an analysis of the fair value of fi nancial liabilities not carried at fair value in the balance sheet.

LiabilitiesInvestment contracts with DPF 11 278 14 273 10 781 13 682

Amortised cost 1 909 2 427 506 491

Cumulative redeemable preference shares 1 397 1 905



Other 5 29 – –

Other payables 1 292 1 050 1 060 838


Other payables 1 292 1 050 1 003 785

Calculation of fair value

> For other payables, amounts due to group companies and fi nance leases, the carrying value approximates fair value due to their short-term nature.

> The estimated fair value of preference shares is based on the market value of the listed ordinary shares, adjusted for the differences in the estimated cash fl ows of dividends between the valuation and conversion dates. The expected cash fl ows are discounted at current market rates of 10.0% (2007: 11.0%). The conversion of the preference shares is at the option of the preference shareholder; the date of conversion was estimated based on the most benefi cial dividend stream to the holder.

> The fair value of subordinated redeemable debt is determined using published price quotations in an active market (BESA).

Investment contracts with DPF

The value of investment contracts with DPF is the retrospective accumulation of the fair value of the underlying assets, which is a reasonable approximation to the fair value of this fi nancial liability.



43.4 The table below reconciles the contract holder liabilities for each category to the total liability in the balance sheet. Each

category represents distinct fi nancial risks. Some categories may include both insurance and investment contracts.

Insurance Investment with DPF

Investment Total 2008

Total

2007

Rm Rm Rm Rm Rm

GroupContracts with DPF 16 789 11 260 – 28 049 35 427

Individual contracts with DPF 14 858 491 – 15 349 20 008

Smoothed bonus 9 918 472 – 10 390 13 951

Conventional with-profi t 4 940 19 – 4 959 6 057

Group contracts with DPF 1 931 10 769 – 12 700 15 419

Smoothed bonus – 9 273 – 9 273 12 012

Smoothed bonus – fully vesting – 1 458 – 1 458 1 698

With-profi t annuity 1 931 38 – 1 969 1 709

Market-related business 6 167 18 9 693 15 878 14 558

Individual market-related business 6 118 18 4 564 10 700 9 070

Group market-related business 49 – 5 129 5 178 5 488

Other business 9 067 – 4 238 13 305 11 797

Non-profi t annuity business 3 999 – 6 4 005 3 063

Guaranteed endowments 822 – 72 894 623

Structured products – – 135 135 291

Other non-profi t business 4 246 – 4 025 8 271 7 820

Total contract holder liabilities 32 023 11 278 13 931 57 232 61 782

Metropolitan Life LtdContracts with DPF 15 872 10 630 – 26 502 32 887

Individual contracts with DPF 13 960 472 – 14 432 18 063

Smoothed bonus 9 290 472 – 9 762 12 233

Conventional with-profi t 4 670 – – 4 670 5 830

Group contracts with DPF 1 912 10 158 – 12 070 14 824

Smoothed bonus – 8 664 – 8 664 11 441

Smoothed bonus – fully vesting – 1 458 – 1 458 1 698

With-profi t annuity 1 912 36 – 1 948 1 685

Market-related business 5 239 12 9 238 14 489 14 114

Individual market-related business 5 239 12 4 291 9 542 8 803

Group market-related business – – 4 947 4 947 5 311

Other business 8 190 139 4 203 12 532 10 750

Non-profi t annuity business 3 744 – 6 3 750 2 852

Guaranteed endowments 808 – 72 880 617

Structured products – – 134 134 291

Other non-profi t business 3 638 139 3 991 7 768 6 990

Total contract holder liabilities 29 301 10 781 13 441 53 523 57 751




(continued)

43.4.1 Contracts with discretionary participation features

> Bonuses are declared taking into account a number of factors, including actual investment returns, previous bonus

rates declared and contract holders’ reasonable expectations. Bonuses are generally designated as vesting bonuses,

which cannot be removed or reduced on death or maturity, or non-vesting bonuses, which can be removed or reduced.

Declared bonuses are usually a combination of both vesting and non-vesting bonuses, although for certain classes of

business declared bonuses are all vesting.

> For smoothed bonus business, bonus stabilisation reserves (BSRs) are held equal to the difference between the fund

accounts, or the discounted value of projected future benefi t payments for with-profi t annuity business, and the market

value of the underlying assets. A positive BSR is undistributed surplus in the asset portfolio that is earmarked for future

distribution to contract holders. The full value of the underlying assets is recognised as a liability. Market risk is, however,

borne only in respect of the vested benefi ts.

> If the smoothing process has resulted in a negative BSR because of a downward fl uctuation in the market value of the

backing assets, the liabilities are reduced to refl ect the amount that can reasonably be expected to be recovered through

under-distribution of bonuses during the ensuing three years, provided that the statutory actuary is satisfi ed that if the

market values of assets do not recover, future bonuses will be reduced to the extent necessary. The group is exposed

to market and operational risk to the extent that a negative BSR cannot reasonably be expected to be recovered through

under-distribution of bonuses during the ensuing three years.

> Derivative structures may be utilised to minimise the extent of negative BSRs.

> The major classes of smoothed bonus business are:

– Metropolitan individual smoothed bonus business

– Metropolitan Employee Benefi ts smoothed bonus business

– Metropolitan Employee Benefi ts with-profi t annuity business

– ex-Commercial Union Life individual smoothed bonus business

As at 31 December 2008, the market value of underlying assets as a percentage of accumulated fund accounts was less than

92.5% for the bulk of the employee benefi ts smoothed bonus class of business and for one material fund (market value of

R3.6 billion) within the individual smoothed bonus class of business. The main reason for these relatively low funding levels

is poor market performance in respect of local equities, as well as foreign credit linked notes, during the second half of 2008.

For all other business the market value of underlying assets as a percentage of accumulated fund accounts was greater than

92.5%. The market value of the underlying assets in respect of all smoothed bonus business at 31 December 2008 was

R24.1 billion (2007: R29.9 billion) for the group and R22.3 billion (2007: R27.6 billion) for Metropolitan Life Ltd.

> The shareholders earn management fees as a percentage of the fair value of the asset portfolio. To the extent that the

assets are subject to interest rate and market price risk, these fees are volatile, although always positive.

> Shareholders also earn specifi ed charges.

43.4.2 Market-related business

> The group holds the assets on which unit prices are based in accordance with policy terms and conditions.

> The group is thus not exposed to market risk on these funds.

> The shareholders earn management fees as a percentage of the fair value of the asset portfolio. To the extent that these

assets are subject to interest rate and market price risk, these fees are volatile, although always positive.

> The liabilities originating from market-related investment contracts are measured with reference to their respective

underlying assets. Changes in the credit risk of the underlying assets impact the measurement of these liabilities. There

was no other impact on these liabilities in respect of credit risk.



43.4.3 Non-profi t annuity business

> Benefi t payments on non-profi t annuities are fi xed and guaranteed at inception (except to the extent that they are

exposed to mortality insurance risk).

> In order to reduce market risk, projected liability outfl ows on annuity business are closely matched by an actively

managed combination of bonds of appropriate duration and interest rate derivatives. Any residual mismatch profi t or loss

as well as any credit risk for these policies is borne by the shareholder.

> The impact of a 1% reduction in yields on the annuity portfolio will generate a mismatch profi t of R5 million (2007: profi t

of R2 million) for the group and will have no impact (2007: loss of R2 million) for Metropolitan Life Limited.

> The calculation is based on discount rates derived from a swap yield curve. The average rate that produces the same

result is 6.7% (2007: 8.2%) for the group and 6.7% (2007: 8.2%) for Metropolitan Life Limited.

43.4.4 Guaranteed endowments (include both insurance business and fi nancial instruments)

> Guaranteed endowments are fi ve-year term contracts with fi xed benefi t payments that are guaranteed at inception. The

guaranteed benefi ts are closely matched by a combination of bonds and interest rate derivatives from inception.

> Credit risk for these policies is borne by the shareholder. The structured assets backing this business have a credit rating

that corresponds to senior bank debt, equivalent to a long-term rating of AA from Fitch.

> There is no adjustment to the investment contract liabilities in respect of credit risk.

43.4.5 Structured products (fi nancial instruments)

> The group issues tranches of term contracts whose benefi ts are defi ned in terms of specifi ed fi nancial variables.

A specifi c asset structure to match the fi nancial liability is created for each tranche.

> Credit risk for these policies is borne by the contract holder. The structured assets backing this business have a credit

rating that corresponds to senior bank debt, equivalent to a long-term rating of A from Moody’s.


43.4.6 Other non-profi t business

> These are primarily insurance contracts of varying duration and infl ation-linked annuities.

> Backing assets are duration matched according to the tax-adjusted modifi ed term of the liabilities.


> For insurance contracts, the average discount rate used in calculating contract holder liabilities is 6.2% (2007: 7.1%) for

the group and 6.2% (2007: 7.1%) for Metropolitan Life Limited.

> The investment contract liability is primarily in respect of infl ation-linked benefi ts, which are discounted using a real yield

curve. The average real yield that produces the same result is 2.9% (2007: 3.1%) for the group and 2.9% (2007: 3.1%)

for Metropolitan Life Limited.




(continued)

43.4.7 Investment guarantees

> A guaranteed maturity value is attached to the majority of the individual DPF business and some of the individual

market-related business. Typically, guaranteed returns of 4% are provided.

> In addition, all DPF business has a minimum death or maturity value equal to the vested benefi ts.

> Investment guarantees on death and early termination are also provided and some older blocks of retirement annuity

business have attaching guaranteed annuity options on maturity. These give contract holders the right to purchase

conventional annuity contracts at guaranteed rates specifi ed at the inception dates of the retirement annuity contracts.

The liabilities in respect of these types of guarantee are much less signifi cant than the liabilities in respect of guaranteed

maturity values.

> The liabilities in respect of investment guarantees are sensitive to interest rate and equity price movements and are

valued using accepted proprietary models in accordance with market-consistent valuation techniques as set out in

PGN110 – Allowance for embedded investment derivatives. Refer note 20.

> Currently no structures are in place to match movements in this liability.

43.5 Insurance risk

Insurance risk is the risk that benefi t payments and expenses exceed the carrying amount of the company’s insurance

liabilities. Insurance events are random and the actual number and amount of claims and benefi ts will vary from year to

year. Statistically, the larger the portfolio of similar insurance contracts, the smaller the relative variability of the expected

outcome will be. Similarly, diversifi cation of the portfolio with respect to risk factors reduces insurance risk.

43.5.1 Mortality, morbidity and medical risks

Underwriting processes are in place to manage exposure to death, disability and medical risks. The most signifi cant

measures:

> Premium rates are required to be certifi ed by the statutory actuary as being fi nancially sound.

> Regular experience investigations are conducted and used to set premium rates.

> Reinsurance arrangements are negotiated in order to limit the risk on any individual contract.

The nature of risk varies depending on the class of business. The material classes of business most affected by these risks

are discussed below.

Individual insurance business

> These are contracts providing benefi ts on death, disability, accident, medical events and survival that are sold directly to

individuals. These contracts may also bear signifi cant fi nancial risk.

> Factors affecting these risks

– The most signifi cant factors that could substantially increase the frequency of claims are epidemics (such as AIDS or

Avian fl u) or widespread changes in lifestyle (smoking, exercise, eating, sexual practices), resulting in more or earlier

claims.

– Economic conditions can potentially affect morbidity claims where benefi ts are determined in terms of the ability to

perform an occupation.

– Medical advances can potentially affect the size of medical claims.



> How risks are managed:

– Risk premiums on most smoothed bonus and market-related contracts may be adjusted within the terms and

conditions of the contracts. Group practice is to adjust these charges so that on average they refl ect actual mortality

experience, hence reducing mortality risk. There is residual mortality risk resulting from delays in identifying worsening

experience and adjusting charges as well as marketing pressures.

– To reduce cross-subsidisation of risks, and the possibility of anti-selection, premium rates differentiate on the basis of:

age, gender, occupation, smoker status, education, income level, geographic region and the results of underwriting

investigations. Experience investigations have shown these are reliable indicators of the risk exposure.

– All applications are subject to underwriting rules. Applications for risk cover above certain limits are reviewed by

experienced underwriters and evaluated against established standards.

– Compulsory testing for HIV is carried out in all cases where the applications for risk cover exceed limits specifi ed

for each product. Where HIV tests are not required, this is fully refl ected in the pricing and experience is closely

monitored.

– Underwriting is done to identify abnormal risks and take appropriate action, such as applying additional premium

loadings or altering benefi t terms.

– Mortality on non-profi t annuities is monitored and future mortality improvements are allowed for in the pricing.

– Additional provisions are held in respect of the potential deterioration of the mortality experience of supplementary

benefi ts and direct marketing business.

– Reinsurance agreements are used to limit the risk on any single policy. Sums assured above a negotiated retention

level are reinsured on a risk premium basis. Facultative arrangements are used for substandard lives and large sums

assured. Currently no catastrophe cover has been purchased, but this is assessed on a regular basis.

The table below shows the concentration of individual insurance contract benefi ts by sum insured at risk:

2008 2007

Sum insured per benefi tsNumber of

benefi tsAmount

(gross)Amount

(net)Number of

benefi ts

Amount

(gross)

Amount

(net)

Rm Rm Rm Rm

Group 0 – 20 000 2 153 339 8 940 8 591 2 244 044 9 716 9 356

20 001 – 50 000 342 824 11 757 10 644 371 483 12 587 11 454

50 001 – 100 000 121 100 9 178 8 095 123 580 9 250 8 204

100 001 – 200 000 59 037 8 634 7 431 59 917 8 528 7 538

200 001 – 500 000 51 001 17 464 12 202 50 674 16 546 12 062

>500 001 53 612 63 316 34 937 47 962 53 689 28 900

Metropolitan Life Ltd 0 – 20 000 1 773 237 7 010 6 694 1 896 679 7 783 7 463

20 001 – 50 000 308 877 10 635 9 605 329 824 11 259 10 227

50 001 – 100 000 112 672 8 577 7 540 114 457 8 592 7 647

100 001 – 200 000 56 193 8 256 7 093 56 693 8 091 7 149

200 001 – 500 000 49 710 17 022 11 859 49 105 16 110 11 727

>500 001 53 076 62 656 34 431 47 381 52 988 28 337




(continued)

Group insurance business

> These are contracts that provide life and/or disability cover to members of a group (eg clients or employees of a specifi c

company).

> Factors affecting these risks:

– Contracts are similar to individual insurance contracts but there is greater risk of correlation between claims on group

schemes because the assured lives live in the same geographical location or work in the same industry.

– Underwriting processes may be streamlined, with cover supplied up to certain limits without underwriting.


– Rates are based on scheme experience and are reviewed annually.

– Rate reviews take into account known trends such as worsening experience due to AIDS.

– Reinsurance arrangements are in place to limit the risk on each individual life. In addition, catastrophe cover is used to

limit the risk of a large number of claims arising as a result of a single event.

The table below shows the concentration of group schemes by scheme size (as determined by the number of lives

covered).

NumberLives covered by scheme 2008 2007

Group 0 – 1 000 2 028 1 798

1 001 – 5 000 281 281

>5 001 138 141

Metropolitan Life Ltd 0 – 1 000 1 337 1 348

1 001 – 5 000 254 266

>5 001 126 131

Annuity business

> These are contracts that provide benefi t payments contingent on the survival of the annuitant. The group is exposed to

the risk that on average annuitants live longer than assumed in the pricing basis.

> Factors affecting these risks:

– Increased longevity due to medical advances and improvement in social conditions.

– Selection bias – individuals purchasing annuities are in better health and therefore live longer than assumed in the

pricing basis.


– Pricing assumptions are based on international mortality tables, with an allowance for improving mortality trends.

– Premium rates differentiate on the basis of age and sex.



The table below shows the concentration of individual annuity contracts by annual annuity amounts:

2008 2007

Number of annuitants

Total amount per annum

Number of

annuitants

Total amount

per annum

Annuity amount per annum Rm Rm

Group 0 – 50 000 40 258 273 38 851 245

50 001 – 100 000 994 69 788 54

100 001 – 250 000 292 41 187 26

>250 001 41 16 31 12

Metropolitan Life Ltd 0 – 50 000 38 478 256 37 360 230

50 001 – 100 000 897 62 697 48

100 001 – 250 000 267 37 165 23

>250 001 39 16 30 12

43.5.2 Contract persistency risk

> Contract holders generally have a right to pay reduced or no future premiums, or to terminate the contract completely

before expiry of the contract term.

> Economic conditions and/or consumer trends can infl uence persistency rates.

> Expenses incurred in the acquisition of contracts are expected to be recouped over the term of the policy. These may

not be recovered where the premiums are reduced or the contract terminated early.

> Terminations can have the effect of increasing insurance risk, for example contract holders whose health has deteriorated

are less likely on average to terminate a contract providing medical or death benefi ts.

> The liability held for some contracts may be less than the termination benefi t payable. The net group surplus will reduce

if these contracts terminate early.

How risks are managed:

> Where withdrawal benefi ts are payable on termination, these can be adjusted to recover certain expenses. However,

market and legislative forces may restrict the extent to which this may be done in future.

> Persistency rates are measured on a monthly basis by a variety of factors and resources are directed towards the sale

of business with higher persistency.

43.6 Liquidity risk

Liquidity risk is the risk that the group will encounter diffi culty in meeting obligations associated with fi nancial and insurance

liabilities, arising because of the possibility that the group could be required to pay its liabilities earlier than expected.

Contract holder liabilities

> The insurance contract liabilities comprise 50% (2007: 49%) of the liabilities of the group and 50% (2007: 49%) of

the liabilities of Metropolitan Life Ltd. Expected cash fl ows, ie the estimated timing of repayment of the amounts

recognised in the balance sheet are disclosed for these liabilities in the maturity analysis below. The assumptions used

to calculate the balance sheet value of these liabilities are disclosed in note 20.

> Contractual cash fl ows for investment contract liabilities, both with DPF and designated as at fair value through income,

are disclosed in the maturity analysis below.

– The earliest contractual maturity date is used for these liabilities.

– The contractually required cash fl ows for policies that can be surrendered are the surrender values of such policies. It

is assumed that surrender values are contractually available on demand and therefore these policies are disclosed as

open-ended.

– For policies with no surrender value, the estimated contractual cash fl ow is disclosed.




(continued)

> Guaranteed endowment and structured products have a very specifi c guaranteed repayment profi le, and these policies

are backed by assets structured by investment banks.

Liabilities designated as at fair value through income and at amortised cost

> Collective investment scheme liabilities represent demand deposit liabilities of scheme interests not held by the group.

Refer note 21.

> Both the cumulative convertible redeemable preference shares and the subordinated redeemable debt are shareholder

liabilities. The shareholder asset composition, as disclosed under market risk, accommodates the cash requirements of

both these liabilities and is managed accordingly.

> It is expected that the preference shares will convert into ordinary shares and that there will therefore be no cash outfl ow

on conversion; however, if the shares are not converted, an outfl ow at redemption value is assumed on redemption

date, which is 30 September 2009 for the A1 and A2 preference shares and 15 December 2010 for the A3 preference

shares. The group has a further obligation to pay preference share dividends. The cash fl ows for these dividends are

those expected up to redemption date, even though the conversion of the preference shares is at the option of the

preference shareholder.

> It is assumed that the subordinated redeemable debt will be redeemed on 15 December 2014, being the earliest date

on which the holder can redeem the debt.

Management of liquidity risk

> The investment committee and the asset-liability management forum monitor liquidity requirements and cash

resources.

> The group reduces liquidity risk for contract holder liabilities by ensuring that appropriate assets, including liquid

resources, back these liabilities.

> For assets backing guaranteed endowment and structured products, it is the intention to hold these assets to their

maturity date. Although these assets can be realised at any point in time, there will be signifi cant fees payable in

unwinding these asset structures prematurely. These assets are therefore regarded as illiquid assets and have a

market value of R1 029 million, 1.5% of total group assets (2007: R914 million, 1.2%). For Metropolitan Life Ltd, the

corresponding market value is R1 014 million, 1.6% of total company assets (2007: R908 million, 1.4%).

> Intangible assets, owner-occupied properties, property and equipment, investment properties, interest in subsidiaries

(excluding interest in collective investment schemes), investments in associates and joint ventures (excluding

investments in collective investment schemes) and employee benefi t assets are less liquid assets and amount to

R4.8 billion, 6.8% of total group assets (2007: R4.4 billion, 5.8%). For Metropolitan Life Ltd, the corresponding values,

including interest in subsidiary companies, are R4.1 billion, 6.6% of total company assets (2007: R3.7 billion, 5.5%).

> The remainder of the assets, R63.8 billion, 91.7% (2007: R69.9 billion, 93.0%) of total group assets and R57.4 billion,

91.8% (2007: R62.6 billion, 93.2%) of the total assets of Metropolitan Life Ltd, is seen to be liquid and relatively easy

to realise.



The following table indicates the maturity analysis of the liabilities:

Group Carrying Open Cash fl owsvalue ended 0 to 1 year 1 to 5 years > 5 years

Rm Rm Rm Rm Rm2008Insurance contracts 32 025 1 502 2 739 5 321 22 463 Investment contracts

With DPF 11 278 11 231 – 30 32 Designated as at fair value through

income 13 931 6 299 691 3 035 5 417 Collective investment scheme liabilities 272 272 Derivative liabilities 1 498 Amortised cost

Cumulative redeemable convertible

preference shares 841 – 644 381 – Subordinated redeemable debt 501 – 46 185 546 Finance lease liabilities 2 – 1 1 – Other 5 – 3 2 – Other payables 1 292 3 1 280 10 – Insurance payables 1 521 – 1 521 – – Other liabilities 459 Total liabilities 63 625

2007

Insurance contracts 33 398 1 304 3 330 4 796 23 968


With DPF 14 273 14 225 – 23 44

Designated as at fair value through

income 14 112 6 040 810 3 163 5 115

Collective investment scheme liabilities 635 635

Derivative liabilities 858

Amortised cost

Cumulative redeemable convertible

preference shares 837 – 134 1 129 –

Subordinated redeemable debt 501 – 46 185 593

Finance lease liabilities 3 – 3 – –

Other 29 – 29 – –

Other payables 1 050 – 1 050 – –

Insurance payables 1 367 – 1 367 – –

Other liabilities 1 179

Total liabilities 68 242




(continued)

Metropolitan Life Ltd Carrying Open Contractual cash fl owsvalue ended 0 to 1 year 1 to 5 years > 5 years

Rm Rm Rm Rm Rm2008Insurance contracts 29 301 1 366 2 434 4 705 20 796 Investment contracts

With DPF 10 781 10 734 – 30 32 Designated as at fair value through

income 13 441 5 935 689 2 962 5 326 Derivative liabilities 1 490 Amortised cost

Subordinated redeemable debt 501 – 46 185 546 Finance lease liabilities 1 – 1 – – Other payables 1 004 – 1 004 – – Insurance payables 1 423 – 1 423 – –Other liabilities 373 Total liabilities 58 315

2007

Insurance contracts 30 474 1 139 2 985 4 525 21 825


With DPF 13 682 13 651 – 19 12

Designated as at fair value through

income 13 595 5 656 806 3 122 5 031

Derivative liabilities 858

Amortised cost

Subordinated redeemable debt 501 – 46 185 593

Finance lease liabilities 1 – 1 – –

Other payables 785 – 785 – –

Insurance payables 1 266 – 1 266 – –

Other liabilities 918

Total liabilities 62 080

> Open-ended liabilities do not have a specifi ed term and are contractually available on demand.> Insurance contract liabilities are disclosed at discounted values. All other values are undiscounted.> Insurance payables exclude premiums paid in advance.> Cash fl ows for derivative fi nancial instruments are disclosed on a net basis below.



Derivative fi nancial instruments

Derivative contracts are not entered into purely for speculative purposes. All hedging transactions are to hedge the exposure

to changes in the fair value of recognised assets and liabilities.

The following table indicates the expiry of derivative fi nancial assets and liabilities, based on undiscounted cash fl ow

projections. When the amount payable is not fi xed, the amount disclosed is determined by reference to the conditions

existing at the reporting date.

Group Metropolitan Life Limited0 to 1 year 1 to 5 years > 5 years 0 to 1 year 1 to 5 years > 5 years

Rm Rm Rm Rm Rm Rm2008OTC instruments

Equity index options 4 – – 4 – – Equity index futures (37) – – (201) – – Interest rate swaps (63) (226) (776) (63) (226) (776)Exchange traded

Equity index warrants 88 – – (8) (226) (776) (260) (226) (776)

2007OTC instruments

Equity index options 63 45 – 63 45 –

Equity index futures (410) – –

Interest rate swaps (58) (214) (744) (58) (214) (744)

5 (169) (744) (405) (169) (744)

43.7 Market risk

Introduction

> Market risk for shareholders, is the risk that the fair value on future cash fl ows of fi nancial instruments backing the

shareholder excess will fl uctuate because of changes in market prices, taking into account the second order impact on

earnings due to such market price fl uctuations of fi nancial instruments backing the contract holder liabilities.

> Management analyses three types of market risk, being equity price risk, interest rate risk and currency risk.

For contract holder liabilities, the fi nancial instruments backing each major line of business are segregated to ensure that

they are used exclusively to provide benefi ts for the relevant contract holders. These fi nancial instruments are subject

to various market risks, particularly interest rate and equity price risk. Each portfolio consists of an asset mix deemed

appropriate for the specifi c product. These risks are discussed in note 43.4 and the group’s exposure to interest rate, equity

and currency risks is disclosed in notes 43.7.1 to 43.7.2.




(continued)

The following table is an analysis of the assets backing shareholder capital, ie shareholder excess:


Rm Rm Rm RmEquity securities 2 504 3 575 1 427 1 736

Collective investment schemes 629 1 325 416 881

Debt securities 295 523 199 475

Owner-occupied properties 671 592 486 412

Investment properties 286 103 433 255


Goodwill 209 244 40 40

Other net assets 495 303 479 790

7 189 8 155 4 718 5 591

Redeemable convertible preference shares (841) (837)

Subordinated redeemable debt (501) (501) (501) (501)

Excess per reporting basis 5 847 6 817 4 217 5 090

Sensitivity analysis

Sensitivity ranges

> The upper and lower limits of the sensitivity ranges are management’s best judgement of the range of probable changes

within a twelve month period from the reporting date of 31 December 2008.

> These limits are set taking into account actuarial guidance relating to acceptable ranges of sensitivities within a normal

asset distribution. Extreme or irregular events that occur sporadically, ie not on an annual basis, have been ignored, as

they are by nature not predictable in terms of timing.

Methods and assumptions used in preparing the sensitivity analysis

> The sensitivities are assumed to be a once-off event on the balance sheet date, with respect to the particular assets

backing shareholder capital on that date.

> For the second order impact on earnings resulting from market fl uctuations on fi nancial instruments backing contract

holder liabilities, no changes are made to long-term market assumptions used in determining the contract holder liabilities.

The actuarial valuation model is simply applied using the new asset levels, ie after adjusting for a particular sensitivity.

> Each sensitivity is calculated in isolation and no inter relationship between variables is taken into account. It is, however,

accepted that these variables tend not to move in isolation.

Sensitivities to market risks

> Management identifi ed the risk of a sudden drop in equity market values as the most signifi cant market risk. If the market

value of equities decreased by 10% at the balance sheet date, the approximate impact would be a reduction in earnings

of R324 million (2007: R424 million) for the group and R210 million (2007: R233 million) for Metropolitan Life Ltd.

Derivative and other structures on shareholder assets are used to negate such risk. These structures and other ways of

reducing this risk are assessed, investigated and implemented on an ongoing basis by management with consideration

of the market conditions at any given time.

> The shareholders’ exposure to an increase in interest rates is mainly of a second order nature. If the expectation of future

investment yields, discount rates and infl ation rates were increased by 1% at the balance sheet date, it would result in a

reduction of the excess asset value of R73 million (2007: R55 million) for the group and R78 million (2007: R71 million) for

Metropolitan Life Ltd.

This impact is addressed by ensuring that contract holder liabilities and assets are matched and continuously monitored

to ensure that no signifi cant mismatching losses will arise due to a shift in the yield curve or a change in the shape of the

yield curve.

> Foreign assets backing shareholder capital amount to R572 million (2007: R701 million) for the group and R379 million

(2007: R471 million) for Metropolitan Life Ltd. The shareholders’ exposure to foreign exchange is therefore relatively small

and not seen to be a primary market risk.



43.7.1 Interest rate risk

Interest rate risk is the risk that the value of a fi nancial instrument will fl uctuate as a result of changes in interest rates.

Changes in market interest rates have a direct effect on the contractually determined cash fl ows associated with fl oating

rate fi nancial assets and fi nancial liabilities, and on the fair value of other investments. Fair values of fi xed maturity

investments included in the group’s investment portfolios are subject to changes in prevailing market interest rates.

Additionally, relative values of alternative investments and the liquidity of the instruments invested in could affect the fair

value of interest rate market-related investments. The ongoing assessment by an investment research team of market

expectations within the South African interest rate environment drives the process of asset allocation in this category. The

group is exposed to fi xed and fl oating interest rates.


Instrument class and weighted average rate Rm Rm Rm RmDebt securities 15 968 14 268 14 576 13 119

Fixed rate – coupon - 9.8% (2007: 10.2%) 7 279 6 345 6 015 5 346

Floating rate – 11.5% (2007: 10.2%) 649 144 647 144

Real market yields – 3.9% (2007: 3.6%) 5 097 4 756 5 097 4 756

Nominal market yields – 8.0% (2007: 8.9%) 1 001 698 926 650

Structured notes 719 1 454 668 1 352

Unlisted unquoted 1 223 871 1 223 871


Fixed rate – 12.4% (2007: 10.5%) 1 747 957 1 440 740

Floating rate – 13.0% (2007: 10.3%) 1 448 1 193 1 444 1 187

Nominal market yields – 11.5% 214 – 190 –


Fixed rate – 12.1% (2007: 10.5%) 1 544 586 1 344 408

Floating rate – 10.9% (2007: 9.7%) 5 408 6 546 4 501 5 758

Nominal market yields – 11.5% (2007: 10.7%) 584 539 584 539

Money market unit-linked 1 157 528 662 319

Current account – no interest 117 75 15 –

28 187 24 692 24 756 22 070

43.7.2 Currency risk

Currency risk is the risk that the rand value of a fi nancial instrument will fl uctuate due to changes in foreign exchange

rates.

The group has unit trusts and cash invested offshore which are denominated in foreign currencies. These investments

were made for the purpose of obtaining a favourable international exposure to foreign currency and to investment value

fl uctuations in terms of investment mandates.

To the extent that offshore assets are held in respect of contracts where the contract holder benefi ts are a function of the

returns on the underlying assets, currency risk is minimised.

Foreign assets backing the shareholder excess, included in the table below, amount to R572 million (2007: R701 million)

for the group and R379 million (2007: R471 million) for Metropolitan Life Ltd.

The following assets and liabilities denominated in foreign currencies are included in the group balance sheet. Assets and

liabilities denominated in Namibian dollar, Lesotho maluti and Swazi lilangeni, currencies that are pegged to the South

African rand on a 1:1 basis, do not form part of the currency risk of the group. The geographical area of Africa includes

Botswana, Ghana and Kenya.




(continued)

GroupAfrica UK£ US$ Euro

Asian Pacifi c Other Total

Rm Rm Rm Rm Rm Rm Rm2008Closing exchange rate 13.68 9.39 13.19 Financial assets 757 293 4 007 454 63 98 5 672 Equity securities 186 43 429 128 63 44 893 Debt securities 360 41 719 – – – 1 120 Unit-linked investments – 179 2 725 187 – 54 3 145 Other fi nancial assets 211 30 134 139 – – 514 Other assets 51 51

808 293 4 007 454 63 98 5 723

Insurance contract liabilities (726) (726)Investment contract liabilities (56) (56)Other liabilities (98) (98)

(880) (880)

2007

Closing exchange rate 13.63 6.86 10.01

Financial assets 657 437 6 155 382 27 19 7 677

Equity securities 211 23 1 671 50 26 18 1 999

Debt securities 235 153 1 500 – – – 1 888

Unit-linked investments – 193 2 464 229 – – 2 886

Other fi nancial assets 211 68 520 103 1 1 904

Other assets 50 50

707 437 6 155 382 27 19 7 727

Insurance contract liabilities (754) (754)

Investment contract liabilities (46) (46)

Other liabilities (77) (77)

(877) (877)

Metropolitan Life LtdUK£ US$ Euro

Asian Pacifi c Other Total

Rm Rm Rm Rm Rm Rm2008Closing exchange rate 13.68 9.39 13.19 Financial assets

Equity securities 21 289 39 26 28 403 Debt securities 41 668 – – – 709 Unit-linked investments 41 2 414 135 – – 2 590 Other fi nancial assets 27 6 8 – – 41

130 3 377 182 26 28 3 743

2007

Closing exchange rate 13.63 6.86 10.01

Financial assets


Debt securities 153 1 388 – – – 1 541

Unit-linked investments 35 2 199 111 – – 2 345

Other fi nancial assets 67 440 91 1 1 600

276 5 588 249 25 17 6 155



44 METROPOLITAN HEALTH GROUP

Risks relating to services provided

Metropolitan Health provides a comprehensive suite of services to the private healthcare industry in South Africa and is organised into the following business units:

Third party administration

This business has a 58% (2007: 54%) market share of restricted scheme members. The business receives a monthly fee per member for administering medical schemes on behalf of their trustees.

*Contribution to turnover 64% (2007: 60%)

Managed care

Qualsa Healthcare provides a comprehensive suite of managed care services to the administration and franchise client base. Historically it has mainly contracted on a fee for service basis, but is increasingly harnessing its network competencies to provide risk products, such as capitation contracts.


Technology services

Metropolitan Health develops and maintains its own systems that it provides to all businesses in the health group as well as licensing systems to third parties via its franchise solution.


Risks relating to the company

This section provides information on the key risks to Metropolitan Health and provides information on the processes and structures in place to manage and mitigate these risks.

Contract risk

In line with industry legislation (the Medical Schemes Act) all clients have contract termination notice periods not exceeding six months, except technology services that has notice periods not exceeding twelve months. Providing high-quality services through client-centric business units mitigates this risk.

Operational risk

Constant legislative change and increasing client demands make third party administration inherently a high-risk industry. The integration of the managed care and third party administration systems has greatly reduced the operational risks for both. Technology services’ systems architecture is highly scalable and requires minimal lead-times to increase capacity to match growth demands. It is also subject to regular testing and reviews, including an independent service auditor review.

Legislative risk

Both the administration business and Qualsa have compliance offi cers who monitor ongoing legislative compliance. Both companies have received a B rating from the National Empowerment Rating Agency. Technology services’ risk is limited to confi dentiality of member data and fl exibility to accommodate legislative changes.

Financial risk

All the businesses are cash generative, with fees mostly being collected monthly in advance. They have a signifi cant fi xed cost base and as such profi ts are relatively sensitive to changes in members under administration.

Environmental risk

Consolidation of medical schemes is the dominant environmental risk in the private healthcare industry.

Capitation agreements

Claims are managed through advanced managed care programmes. These managed care programmes include pre-authorisation steps for high cost procedures and claims adjudication procedures that are linked to clinical protocols developed by respected leaders in the respective medical disciplines. In addition to this, a specialist clinical audit team uses sophisticated data mining software to identify over-servicing by providers and other incidents of fraudulent claims.

A VISION OF PROSPERITYrefl ected in the bottom line

METROPOLITAN HOLDINGS LTD FINANCIAL STATEMENTS

BALANCE SHEET 197

INCOME STATEMENT 197

STATEMENT OF CHANGES IN EQUITY 198

CASH FLOW STATEMENT 198

NOTES TO THE FINANCIAL STATEMENTS 199

SIGNIFICANT SUBSIDIARY COMPANIES 210

SHAREHOLDER PROFILE 211

BENEFICIAL OWNERS 211

STOCK EXCHANGE PERFORMANCE 212

SHAREHOLDER DIARY 213

NOTICE TO MEMBERS ANNUAL GENERAL MEETING 214

ADMINISTRATION 216

PROXY


METROPOLITAN HOLDINGS LTD | ANNUAL FINANCIAL STATEMENTS 2008 | 197

BALANCE SHEET

at 31 December 2008

INCOME STATEMENT


2008 2007Rm Rm Notes

ASSETS Equipment 0.2 0.3 2

Interest in subsidiary companies 1 576.3 1 402.1 3

Financial instruments 1 338.3 2 172.5

Designated as at fair value through income 975.0 1 673.9 4

Loans and receivables 363.3 498.6 5

Cash and cash equivalents 303.5 65.3 6

Total assets 3 218.3 3 640.2

EQUITY Share capital 32.9 32.9 7

Fair value reserve 52.3 48.7

Retained earnings 1 985.6 2 517.5

Total equity 2 070.8 2 599.1

LIABILITIES Financial instruments 1 051.0 837.3 8

Amortised cost 1 042.8 837.3

Held for trading 8.2 –

Deferred income tax 35.6 83.8 9

Employee benefi t obligations 0.7 1.7 10

Other payables 55.8 76.4 11

Current income tax liability 4.4 41.9 12.1

Total liabilities 1 147.5 1 041.1

Total equity and liabilities 3 218.3 3 640.2


Investment income 1 343.5 1 759.0 13

Net realised and fair value (losses)/gains (349.8) 219.9 14

Net income 993.7 1 978.9

Depreciation and impairment expenses 135.6 0.2 15

Employee benefi t expenses 17.6 26.8 16

Other expenses 45.4 38.2 17

Expenses 198.6 65.2

Results of operations 795.1 1 913.7

Finance costs (137.6) (123.6) 18

Profi t before tax 657.5 1 790.1

Income tax expenses (32.2) (156.6) 12.2

Earnings for year 625.3 1 633.5


198 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS LTD


STATEMENT OF CHANGES IN EQUITY


Share capital

Retained earnings

Fair value reserve Total

Rm Rm Rm Rm

Balance at 1 January 2007 32.7 2 505.3 35.2 2 573.2

Earnings for year 1 633.5 1 633.5

Employee share schemes – value of services provided 4.0 4.0

Equity-settled arrangements – contribution to subsidiaries 9.1 9.1

Dividend paid (981.4) (981.4)

Costs of repurchased and cancelled shares 0.2 0.2

Transfer (to)/from other reserves (0.4) 0.4 –

Shares repurchased and cancelled (639.5) (639.5)

Balance at 1 January 2008 32.9 2 517.5 48.7 2 599.1

Earnings for year 625.3 625.3

Employee share schemes – value of services provided (3.7) (3.7)

Equity-settled arrangements – contribution to subsidiaries 7.3 7.3


Shares repurchased and cancelled (409.5) (409.5)

Obligation to purchase own shares (201.5) (201.5)

Balance at 31 December 2008 32.9 1 985.6 52.3 2 070.8


Cash fl ow from operating activitiesCash utilised in operations (24.0) (101.4) 19.1

Dividends received 1 297.0 1 717.3

Interest received 26.8 41.7

Income tax paid (117.9) (127.3) 19.2

Interest paid (133.6) (117.8) 19.3

Net cash infl ow from operating activities 1 048.3 1 412.5

Cash fl ow from investing activitiesNet disposal of assets designated as at fair value through income 357.3 511.4

Investments in subsidiary companies (201.9) (160.2)

Net loans to related parties advanced (9.7) (185.5)

Purchases of equipment (0.1) (0.1)

Net cash infl ow from investing activities 145.6 165.6

Cash fl ow from fi nancing activitiesShares repurchased and cancelled (409.5) (639.5)


Net cash outfl ow from fi nancing activities (955.7) (1 620.9)

Net cash fl ow 238.2 (42.8)

Cash resources and funds on deposit at beginning 65.3 108.1

Cash resources and funds on deposit at end 303.5 65.3 6

CASH FLOW STATEMENT




1 BASIS OF PREPARATION AND ACCOUNTING POLICIESThe basis of preparation and accounting policies of the company are the same as that of the group, as set out in the group

accounting policies in the group annual fi nancial statements. These fi nancial statements should be read in conjunction with

the group annual fi nancial statements.

2008 2007Rm Rm

2 EQUIPMENTCost 0.9 0.8 Accumulated depreciation (0.7) (0.5)Carrying amount 0.2 0.3

Carrying amount at beginning 0.3 0.3 Additions 0.1 0.1 Depreciation charges (0.2) (0.1)Carrying amount at end 0.2 0.3

Equipment comprises furniture and fi ttings and computer equipment.

3 INTEREST IN SUBSIDIARY COMPANIESCost less impairment 1 138.3 1 147.6 Loans to subsidiary companies 438.0 254.5

1 576.3 1 402.1

Opening balance 1 402.1 981.0 Equity-settled arrangements – contribution to subsidiary companies 7.3 9.1 Cost of subsidiaries acquired 18.4 157.5 Less impairment charge (35.0) – Movements on and loans to subsidiary companies 183.5 254.5 Closing balance 1 576.3 1 402.1

General

Details of interest in subsidiary companies are disclosed in annexure 1.

Impairment

The company impaired its investment in DirectFin Solutions (Pty) Ltd by R35.0 million. The recoverable value of this company is determined based on a value-in-use calculation. This calculation uses discounted cash fl ow projections of profi t for the company, with an estimated growth rate of 12.5% and a discount rate of 13.0%. The cash fl ow period was based on ten years. During 2007 there were no impairments.

Loans to subsidiary companies

The loans to subsidiary companies are not of a commercial nature and are therefore interest free, with no fi xed repayment terms. These loans are intended to provide the subsidiaries with a long-term source of additional capital. The company can recall these loans when cash is required.

2007 restated

Loans to subsidiary companies to the value of R254.5 million were reallocated from loans and receivables. These loans are not of a commercial nature, have no set terms and are intended to provide the subsidiaries with a long-term source of additional capital.

4 DESIGNATED AS AT FAIR VALUE THROUGH INCOMEEquity securities 929.0 1 439.4 Unit-linked investments 46.0 234.5

975.0 1 673.9

> Assets designated as at fair value through income are all open-ended.

> The criteria for designation of assets as at fair value through income are disclosed in the group annual fi nancial statements under critical judgements and accounting estimates.

> A schedule of equity securities is available for inspection at the company’s registered offi ce.




(continued)



2008 2007Rm Rm

5 LOANS AND RECEIVABLESAccounts receivable 3.2 42.6 Loans to related parties 358.6 453.9 Loans to subsidiary companies (annexure 1) 171.4 232.7 Loan to associate 6.7 7.4 Private equity funding – 50.4 Empowerment partners 180.5 163.4 Strategic unsecured loans 1.5 2.1

363.3 498.6

Current 205.9 286.5 Non-current 157.4 212.1

363.3 498.6

Terms and conditions of material loans

> Loans to subsidiary companies are interest free, unsecured and have no repayment terms.

> The loan to associate is unsecured, has no repayment terms, and interest is as agreed between the shareholders (currently 0%).

> The private equity funding was repaid during the current year.

> Loans to empowerment partners consist of:

– an unsecured loan of R146.4 million (2007: R130.9 million) to a subsidiary (SPV) of Kagiso Trust Investments (Pty) Ltd, with a repayment date of between fi ve and ten years from date of issue (January 2005), on which interest is charged at 80% of the prime interest rate.

– a secured loan of R34.1 million (2007: R32.5 million) to Pinnacle Business Investments (Pty) Ltd, with a repayment date of 30 November 2012, on which interest is charged at 1% less than the prime interest rate of South Africa. The loan is secured by the underlying shares in Metropolitan Life (Namibia) Ltd.

Impairment

During 2008 loans to subsidiary companies were impaired by R100.4 million. These loans were impaired to the net asset value of the companies in question. There were no impairments during 2007.

2007 restated

Loans to subsidiary companies to the value of R254.5 million were reallocated from loans and receivables to investment in subsidiary companies. These loans are not of a commercial nature, have no set terms and are intended to provide the subsidiaries with a long-term source of additional capital.

6 CASH AND CASH EQUIVALENTS

Bank and other cash balances 5.9 18.2 Funds on deposit and other money market instruments 297.6 47.1

303.5 65.3

7 SHARE CAPITALDetails of share capital are disclosed in note 15 of the group annual fi nancial statements.

8 FINANCIAL LIABILITIESAmortised cost 1 042.8 837.3 Cumulative redeemable convertible preference shares 841.3 837.3 Obligation to purchase own shares 201.5 – Held for trading Derivative fi nancial instrument 8.2 –

1 051.0 837.3

Current 733.1 31.0 Non-current 317.9 806.3

1 051.0 837.3

> Details of the cumulative redeemable convertible preference shares are disclosed in note 22.1 of the group annual fi nancial statements.

> Metropolitan Life Ltd repurchased ordinary shares of the company through the open market. Shareholder approval for the company to repurchase the shares at cost was granted at the annual general meeting in May 2008. This obligation to purchase treasury shares has a corresponding entry in equity.

> The derivative fi nancial instrument is an equity call option on shares in a subsidiary company.



2008 2007Rm Rm

9 DEFERRED INCOME TAX

Deferred tax asset 2.1 2.4

Tax losses and credits 1.7 1.6

Accruals and provisions 0.4 0.8

Deferred tax liability (37.7) (86.2)

Revaluations (37.7) (86.2)

(35.6) (83.8)

Current (17.4) (12.4)

Non-current (18.2) (71.4)

(35.6) (83.8)

Movement in deferred tax

Balance at beginning (83.8) (78.4)

Change in tax rate 2.9 –

Revaluations 45.4 (6.5)

Accruals and provisions (0.4) 0.5

Tax losses and credits 0.1 0.6

Balance at end (35.6) (83.8)

10 EMPLOYEE BENEFIT OBLIGATIONS

Cash-settled arrangement – long-term retention schemeBalance at beginning 1.7 –

Allocations – 1.7

Net of redemptions and transfers (1.1) –

Valuation adjustments 0.1 –

Balance at end 0.7 1.7

Current 0.5 –

Non-current 0.2 1.7

0.7 1.7

During 2006 the group introduced a new cash-settled long-term retention scheme. In terms of this scheme, participants can qualify for a bonus, payable after three years, based on the performance of the group measured against certain benchmarks. The basket of performance criteria includes growth in dividend per share, diluted core headline earnings per share and value of new business for the group and determines the number of units that will vest with each employee over the three-year period. The participants will then receive a cash payment per unit, based on the volume weighted average Metropolitan Holdings Ltd share price at the payment date.

The assumptions are disclosed in note 23.2(c) of the group annual fi nancial statements.

11 OTHER PAYABLES

Other payables 15.8 11.5

Loans from subsidiary companies (annexure 1) 40.0 64.9

55.8 76.4

Current 55.8 76.4

Terms and conditions of loans

The loans to subsidiary companies are interest free, unsecured and payable on demand.



(continued)



2008 2007

Rm Rm

12 INCOME TAX

12.1 Current income tax liability

Movement in liability

Balance at beginning 41.9 18.0

Charged to income statement 7.2 42.4

Additional provisions

Current year 18.3 42.4

Prior year underprovision 1.0 –

Unused amounts reversed (12.1) –

Used during year (44.7) (18.5)

Balance at end 4.4 41.9

12.2 Income tax expenses

South African normal tax

Current year 18.3 31.1

Income tax 8.1 6.6

Capital gains tax 10.2 24.5

Prior year overprovision (11.1) –

Foreign countries – withholding tax 20.6 11.3

27.8 42.4

Secondary tax on companies 52.6 108.9

Deferred tax (48.2) 5.3

32.2 156.6

12.3 Tax rate reconciliation in percentage (%)

Tax calculated at standard rate of South African tax on earnings 28.0 29.0

Prior year reversals (1.6) –

Secondary tax on companies 7.8 6.1

Foreign tax 3.0 0.6

Capital gains tax (5.7) (1.8)

Non-taxable items (26.6) (25.2)

Effective rate 4.9 8.7

Change in tax rate

The tax rate for companies changed from 29% to 28% during 2008.

13 INVESTMENT INCOME

Dividends received – listed equities 61.5 57.7

Dividends received – subsidiary companies 1 235.5 1 659.6

Interest received 46.5 41.7

Designated as at fair value through income 20.1 14.6

Loans and receivables 23.9 26.5

Cash and cash equivalents 2.5 0.6

1 343.5 1 759.0

14 NET REALISED AND FAIR VALUE (LOSSES)/GAINS

Designated as at fair value through income (341.6) 222.5

Held for trading (8.2) –

Realised and unrealised foreign exchange differences on

assets not at fair value through income – (2.6)

(349.8) 219.9



2008 2007

Rm Rm

15 DEPRECIATION AND IMPAIRMENT EXPENSES

Depreciation 0.2 0.2

Impairment of investments in subsidiary companies 35.0 –

Impairment of loans to subsidiary companies 100.4 –

135.6 0.2

16 EMPLOYEE BENEFIT EXPENSES

Salaries 19.6 18.7

Defi ned contribution retirement fund 2.0 1.9

Share-based payment expenses – equity-settled (3.7) 4.0

Share-based payment expenses – cash-settled (1.0) 1.6

Training costs 0.4 0.4

Other 0.3 0.2

17.6 26.8

Executive directors’ emoluments included above 12.6 9.5

Directors’ emoluments paid 18.3 15.0

Directors’ emoluments recovered from subsidiary companies (5.7) (5.5)

Details of the staff share schemes are disclosed in note 16 of the group annual fi nancial statements.

17 OTHER EXPENSES

Asset management fees 9.3 7.9

Auditors’ remuneration 1.3 0.9

Audit fees 0.2 0.2

Other services 1.1 0.7

Consulting fees 13.2 10.3

Information technology expenses 0.6 0.5

Interest on foreign withholding tax 2.7 –

Management fees 0.3 0.3

Marketing costs 3.9 3.3

Non-executive directors’ fees 5.8 4.1

Directors’ fees paid 6.6 5.2

Directors’ fees recovered from subsidiary companies (0.8) (1.1)

Other expenses 4.7 4.7

Other South African taxes 2.9 4.0

Project costs 0.7 2.2

45.4 38.2

18 FINANCE COSTS

Redeemable preference shares 137.6 123.6



(continued)



2008 2007

Rm Rm

19 CASH FLOW FROM OPERATING ACTIVITIES19.1 Cash utilised in operations

Profi t before tax 657.5 1 790.1 Dividends received (1 297.0) (1 717.3)Interest received (46.5) (41.7)Finance costs 137.6 123.6 Impairment of loans to and investment in subsidiary companies 135.4 – Adjustments for Depreciation 0.2 0.2 Net realised and fair value gains 349.8 (219.9) Share-based payment expenses (4.7) 5.6 Changes in operating assets and liabilities Loans and receivables 39.4 (43.3) Other operating liabilities 4.3 1.3

(24.0) (101.4)

19.2 Income tax paidDue at beginning (125.7) (96.4)Charged and provided (32.2) (156.6)Due at end 40.0 125.7

(117.9) (127.3)

19.3 Interest paidRedeemable preference shares Paid 31 March (66.8) (62.0) Paid 30 September (66.8) (55.8)

(133.6) (117.8)

20 RELATED PARTY TRANSACTIONS20.1 Holding company

Shares in Metropolitan Holdings Ltd, the ultimate holding company in the group, are widely held by public and non-public shareholders; refer to the shareholder profi le included in the annual report. Signifi cant subsidiary companies are listed in annexure 1. Other related parties include Kagiso Trust Investments (Pty) Ltd, directors, key personnel and close members of their families.

20.2 Transactions with directors

Remuneration is paid in the form of fees to non-executive directors and remuneration to executive directors and key personnel of the company. Transactions with directors are disclosed in the corporate governance and directors’ reports of the group annual fi nancial statements, respectively. One member, who resigned at the end of 2008 (2007: three members), excluding executive directors, of the group executive committee was employed by Metropolitan Holdings Ltd. The aggregate remuneration, shares held and transactions of the group executive committee members are disclosed in note 42.2 of the group fi nancial statements.

20.3 Transactions with subsidiaries and associates

Loans are advanced between Metropolitan Holdings Ltd and its subsidiaries and associates as funding. The loans to subsidiary companies included in loans in the balance sheet are detailed in annexure 1. The loan to associate is included in note 5.

Details of other transactions with subsidiaries included in the fi nancial statements are listed below:

2008 2007Rm Rm

Administrative charges – Metropolitan Life Ltd 1.4 3.1 Asset management fees expense – Metropolitan Asset Managers Ltd 4.2 5.5 Fee expense – Metropolitan Capital Ltd 7.2 1.9 Rental expenses – Metropolitan Life Ltd 2.4 2.2



21 CONTINGENT LIABILITIES

The company is party to legal proceedings in the normal course of business and appropriate provisions are made when

losses are expected to materialise.

22 CAPITAL COMMITMENTS

There are no material capital commitments made by the company.

23 RISK MANAGEMENT POLICIES

Details of fi nancial instruments and risk management strategies are disclosed in note 43 of the group annual fi nancial statements.

The more important fi nancial risks to which the company is exposed are credit risk, equity risk and interest rate risk.

The company’s capital is managed with that of the group. The capital management of the group is discussed in note 43.1

of its annual fi nancial statements.

23.1 The following table reconciles the assets and liabilities in the balance sheet to the classes and portfolios of assets managed

in terms of mandates.

2008 2007

Rm Rm

AssetsDesignated as at fair value through income 975.0 1 673.9

Equity securities

Local listed equities 929.0 1 439.4


Local unlisted quoted collective investment schemes 46.0 234.5


Loans 360.1 456.0

Accounts receivable 3.2 42.6


Other assets 1 576.5 1 402.4

Total assets 3 218.3 3 640.2

LiabilitiesAmortised cost 1 042.8 837.3

Cumulative redeemable preference shares 841.3 837.3

Obligation to purchase own shares 201.5 –

Held for trading

Derivative fi nancial instrument 8.2 –


Loans from subsidiary companies 40.0 64.9


Other liabilities 40.7 127.4

Total liabilities 1 147.5 1 041.1


> Unit-linked investments comprise collective investment schemes and are categorised as equity as at least 55% of the underlying assets in the schemes consist of equity.



(continued)



23.2 The following table provides an analysis of the fair value of fi nancial assets and liabilities not carried at fair value in the

balance sheet.

2008 2007

Rm Rm

AssetsLoans and receivables 363.3 498.6


Loans to subsidiary companies 171.4 232.7

Loans to associates 6.7 7.4

Private equity funding – 50.4

Empowerment loans 180.5 163.4

Strategic loans 1.5 2.1


LiabilitiesAmortised cost 1 598.9 1 905.4

Cumulative redeemable preference shares 1 397.4 1 905.4

Obligation to purchase own shares 201.5 –


Loans from subsidiary companies 40.0 64.9


> For cash and cash equivalents, accounts receivable and other payables, the carrying value approximates fair value due to their short-term nature.

> For loans to subsidiary companies and the loan to associate there are no fi xed terms of repayment. When the company is in a position to repay the loan, it will be payable on demand. The face value therefore approximates fair value.

> The private equity funding is refl ected at the fair value of the underlying assets in 2007.

> The fair value of loans to empowerment partners is the discounted amount of the estimated future cash fl ows expected to be received. The expected cash fl ows are discounted at 13.0% (2007: 11.0%).

> The estimated fair value of preference shares is based on the market value of the listed ordinary share adjusted for the differences in the estimated cash fl ows of dividends between the valuation and conversion dates. The expected cash fl ows are discounted at current market rates of 10.0% (2007: 11.0%). The conversion of the preference shares is at the option of the preference shareholder; the date of conversion was estimated based on the most benefi cial dividend stream to the holder.

> For the obligation to purchase own shares the face value approximates fair value as the company received approval from shareholders to repurchase these shares at cost.

> For loans from subsidiary companies the carrying value approximates fair value as they are payable on demand.

23.3 Local listed equities and local unlisted quoted collective investment schemes are valued using published price quotations

in an active market.



23.4 Credit risk

Credit risk is the risk that one party to a fi nancial instrument will cause a fi nancial loss for the other party by failing to

discharge an obligation.

The credit risk of the company is managed similarly to that of the group as disclosed in note 43.2 in the group annual

fi nancial statements.

The company’s maximum exposure to credit risk is through the following classes of assets.

2008 2007

Rm Rm


Local unlisted collective investment schemes 46.0 234.5


Loans 360.1 456.0



Total assets bearing credit risk 712.8 798.4

Security and credit enhancements

> For unit-linked investments and cash and cash equivalents, the credit risk is managed through the group’s credit risk

exposure policy described in the group annual fi nancial statements.

> Securities held on loans are disclosed in note 5.

The assets in the table above are analysed in the table below using Fitch ratings or the equivalent thereof when Fitch ratings

are not available.

Rating 2008 2007

Rm Rm

Cash and cash equivalents

F1+, F1, P-1 303.5 65.3

Unrated

Collective investment schemes 46.0 234.5


Loans 299.5 456.0


Past due or impaired assets 60.6 –

712.8 798.4

> The loan to Metropolitan Card Operations (Pty) Ltd was impaired during 2008.

> Interest capitalised on a loan to an empowerment partner of R6.3 million is past due since 2007.



(continued)



23.5 Liquidity risk

Liquidity is the risk that the company will encounter diffi culty in meeting obligations associated with fi nancial liabilities,

arising because of the possibility that the company could be required to pay its liabilities earlier than expected.

Liabilities at amortised cost

> It is expected that the preference shares will convert into ordinary shares and that there will therefore be no cash outfl ow

on conversion; however, if the shares are not converted an outfl ow at redemption value is assumed on redemption date

which is 30 September 2009 for the A1 and A2 preference shares and 15 December 2010 for the A3 preference shares.

The company has a further obligation to pay preference share dividends. The cash fl ow for these dividends are those

expected up to redemption date, even though the conversion of the preference shares is at the option of the preference

shareholder.

> It is expected that the company will purchase the treasury shares during the course of 2009.

Other payables

Other payables include loans from subsidiary companies which are payable on demand.

Management of liquidity risk

The convertible redeemable preference shares are backed mostly by listed equity securities.

The following table indicates the contractual timing of cash fl ows arising from liabilities.

Carrying value

Contractual cash fl ows0 to 1 year 1 to 5 years

Rm Rm Rm2008Amortised cost

Cumulative redeemable preference shares 841.3 644.2 381.3 Obligation to purchase own shares 201.5 201.5 – Held for trading

Derivative fi nancial instrument 8.2 – 8.2 Other payables 55.8 55.8 – Other liabilities 40.7

1 147.5 901.5 389.5

2007

Amortised cost

Cumulative redeemable preference shares 837.3 133.6 1 129.1

Other payables 76.4 76.4 –

Other liabilities 127.4

1 041.1 210.0 1 129.1

23.6 Market risk

Introduction

> Market risk is the risk that the fair value on future cash fl ows of fi nancial instruments will fl uctuate as a result of changes

in market prices.

> Management analyses three types of market risk, being equity price risk, interest rate risk and currency risk.

Sensitivity ranges

> The upper and lower limits of the sensitivity ranges are management’s best judgement of the range of probable changes

within a twelve-month period from the reporting date of 31 December 2008.

> These limits are set taking into account actuarial guidance relating to acceptable ranges of sensitivities within a normal

asset distribution. Extreme or irregular events that occur sporadically, ie not on an annual basis, have been ignored, as

they are by nature not predictable in terms of timing.



Methods and assumptions used in preparing the sensitivity analysis

> The sensitivities are assumed to be a once-off event on the balance sheet date, with respect to the particular assets of

the company on that date.

> Each sensitivity applied is calculated in isolation and no inter-relationship trends between variables are taken into account.

It is, however, accepted that these variables tend not to move in isolation.

> The following variables apply:

Risk VariableEquity price Change in the market price of equity securities, irrespective of whether the change is

equity, index or exchange specifi c

Interest rate Change in the future investment yields

Currency Change in the rand exchange rates to all applicable currencies

Sensitivities

> Management identifi ed the risk of a sudden drop in equity market values as the most signifi cant market risk. The equity

portfolio is managed with consideration of the market conditions at any given time. If the market value of equity securities

decrease by 10% on the balance sheet date, the approximate impact would be a reduction of R92.9 million (2007:

R143.9 million) of earnings. An equal and opposite impact will occur if the market values increase by 10%.

> The company is exposed to fl oating interest rate changes only. Cash requirements fl uctuate during the course of the

year and would therefore be of a short-term nature. Interest rate changes with respect to cash and cash equivalents will

therefore not have a signifi cant impact on earnings. The interest rate risk on loans to empowerment partners are born by

the empowerment partners.

> The company has no foreign currency exposure.

23.6.1 Equity price risk

Equity price risk is the risk that the value of a fi nancial instrument will fl uctuate as a result of changes in the marketplace.

Equities are refl ected at market values, which are susceptible to fl uctuations. The stock selection and investment analysis

process is supported by a well-developed research function.

2008 2007

Five largest local listed equity securities % Rm % Rm

MTN Group Ltd 9.7 89.9 11.8 176.2

FirstRand Ltd 7.3 67.4 – –

Impala Platinum Holdings Ltd 6.3 58.2 – –

Billiton Plc 6.1 57.1 5.9 87.9

Standard Bank Group Ltd 5.1 47.7 7.2 107.4

Sasol Ltd – – 5.9 88.0

Anglo American Plc – – 5.5 82.0

34.5 320.3 36.3 541.5

23.6.2 Interest rate risk

Interest rate risk is the risk that the value of a fi nancial instrument will fl uctuate as a result of changes in interest rates.

2008 2007

Rm Rm

Loans and receivables – empowerment partners

Floating rate – weighted rate 12.4% (2007: 11.5%) 180.5 163.4

Cash and cash equivalents

Floating rate – weighted rate: 11.3% (2007: 9.6%) 303.5 65.3

484.0 196.2



SIGNIFICANT SUBSIDIARY COMPANIES

Annexure 1

Issued share

capital Interest held Cost

Amount owing (to)/by subsidiaries

2008 2007 2008 2007 2008 2007% % Rm Rm Rm Rm

Life insuranceMetropolitan Life Ltd R624m 100 100 656.3 651.6 (5.5) (6.4)(incorporated in South Africa)Metropolitan Odyssey Ltd R35m 100 100 36.0 36.0 (25.0) (25.0)(incorporated in South Africa)Union Life Ltd (2) R24m 50 50 41.0 41.0 (incorporated in South Africa)Metropolitan International (Pty) Ltd (3) (1) 100 100 – – 203.3 45.7 (incorporated in South Africa) Subsidiaries Metropolitan Life Insurance Kenya Ltd R19m 100 100 (incorporated in Kenya) Metropolitan Life Insurance Ghana Ltd R25m 60 60 (incorporated in Ghana) Metropolitan Life Swaziland Ltd R20m 100 – (incorporated in Swaziland)Metropolitan Life International Ltd R40m 100 100 47.1 47.1 (incorporated in South Africa)Metropolitan Life (Namibia) Ltd R52m 82 82 37.6 37.6 (incorporated in Namibia)Metropolitan Life of Botswana Ltd R27m 75.8 75.8 24.5 24.5 (incorporated in Botswana)Metropolitan Lesotho Ltd R120m 100 100 120.3 120.2 (incorporated in Lesotho)MHG UK Ltd (3) R11k 100 100 – – – 110.6(incorporated in England)Metropolitan Retirement Administrators (1) 80 80 28.0 28.0 (Pty) Ltd (incorporated in South Africa)DirectFin Solutions (Pty) Ltd (1) 70 70 49.0 84.0 3.4 3.4 (incorporated in South Africa)Asset managementMetropolitan Asset Managers Ltd R148k 100 100 22.5 22.2 (9.5) (33.5)(incorporated in South Africa)Metropolitan Collective Investments Ltd R13m 100 100 25.8 25.6 (incorporated in South Africa)Metropolitan Property Services (Pty) Ltd (1) 100 100 0.5 0.3 (incorporated in South Africa)Metropolitan Capital Ltd – 100 100 18.4 82.8 2.0 (incorporated in South Africa)HealthMetropolitan Health Holdings (Pty) Ltd (1) 100 100 31.3 29.5 265.6 129.2 (incorporated in South Africa) Subsidiary Metropolitan Health Corporate (Pty) Ltd R63m 100 100 (incorporated in South Africa)BankingMetropolitan Card Operations (Pty) Ltd (1) 100 100 54.3 196.3 (incorporated in South Africa)

1 138.3 1 147.6 569.4 422.3 Amount owing by subsidiaries 569.4 422.3 Total interest in subsidiary companies 1 707.7 1 569.9

(1) The issued share capital of these companies is less than R1 000.

(2) The company owns 50% of the voting rights, but has control through appointment of the chairman with a casting vote.

(3) All the interest in and loans to subsidiaries of MHG(UK) Ltd have been transferred to Metropolitan International (Pty) Ltd during 2008.

The aggregate amount of income, after tax before goodwill impairment, derived from subsidiary companies is R323 million

(2007: R1 469 million). The aggregate amount of losses after tax from subsidiaries is R123 million (2007: R43 million).

METROPOLITAN HOLDINGS | SHAREHOLDER PROFILE | 211

SHAREHOLDER PROFILE

BENEFICIAL OWNERS

Shareholder

Number of shareholders

% of issued share capital

Shares held (million)

Non-public Directors (excluding shares in staff share scheme) 7 0.1 1

Staff share scheme members and trust – unlisted 2 445 2.1 14

Staff share scheme members and trust – listed 182 0.6 4

Group contract holder fund

Kagiso Trust Investments (Pty) Ltd – SPV 2 23.8 158

Public Private investors 7 071 4.4 29

Pension funds 217 21.6 143

Collective investment schemes and mutual funds 455 35.0 232

Banks and insurance companies 63 12.4 82

Total 10 442 100.0 663

An estimated 85 million shares (12.8% of total shares) are held by foreign investors (2007: 112 million shares (16.5%)).

Size of shareholding

Number of share-

holders

% of total share-

holders Shares held (million)

% of issued share

capital 1 – 5 000 8 455 81.0 10 1.6

5 001 – 10 000 634 6.1 5 0.7

10 001 – 50 000 735 7.0 17 2.6

50 001 – 100 000 206 2.0 15 2.2

100 001 – 1 000 000 325 3.1 101 15.2

1 000 001 and more 87 0.8 515 77.7

Total 10 442 100.0 663 100.0

Shares held (million)

% of issued share capital

Kagiso Trust Investments (Pty) Ltd – SPV 158 23.8

Public Investment Corporation (SA) 80 12.1

Total 238 35.9

Pursuant to the provisions of section 140A of the South African Companies Act of 1973 as amended, benefi cial shareholdings exceeding 3% in aggregate, as at 31 December 2008, are disclosed.

212 | STOCK EXCHANGE PERFORMANCE | METROPOLITAN HOLDINGS

STOCK EXCHANGE PERFORMANCE

2008 2007 2006 2005

12 months to 31 DecemberValue of listed shares traded (rand million) (1) 4 718 7 024 5 614 3 347

Volume of listed shares traded (million) (1) 392 456 442 315

Shares traded (% of average listed shares in issue) (1) 71.1 79.7 75.0 51.1

Value of shares traded – life insurance (J857 – Rbn) 93.0 108.0 81.9 70.0

Value of shares traded – top 40 index (J200 – Rbn) 2 687.7 2 328.0 1 735.0 1 028.2

Trade prices

Highest (cents per share) 1 520 1 691 1 581 1 220

Lowest (cents per share) 890 1 314 1 020 950

Last sale of period (cents per share) 1 080 1 509 1 500 1 185

Percentage (%) change during period (2) (28.43) 6.04 38.25 19.70

Percentage (%) change – life insurance sector (J857) (50.18) 3.11 28.18 21.18

Percentage (%) change – top 40 index (J200) (25.93) 16.11 37.53 44.12

31 DecemberPrice/core headline earnings ratio (diluted) 7.15 10.61 13.28 12.35

Dividend yield % (dividend on listed shares) 8.80 6.30 5.13 5.32

Dividend yield % – top 40 index (J200) 4.27 2.39 2.06 2.24

Total shares issued (million)Listed on JSE 542 559 585 594

Ordinary shares 538 553 578 587

Share incentive scheme 4 6 7 7

Unlisted – share purchase scheme 14 23 41 48

Total ordinary shares in issue 556 582 626 642

Treasury shares held in subsidiary company (16) (26) (27) –

Treasury shares held on behalf of contract holders (1) (1) (13) (22)

Adjustment to staff share scheme shares (3) (17) (26) (47) (50)

Share incentive scheme (4) (4) (7) (5)

Share purchase scheme (13) (22) (40) (45)

Basic number of shares in issue 522 529 539 570

Adjustment to staff share scheme shares 17 26 47 50

Treasury shares held on behalf of contract holders 1 1 13 22

Convertible redeemable preference shares 123 123 123 123

Diluted number of shares in issue (4) 663 679 722 765

Market capitalisation at period-end (Rbn) (5) 7.16 10.25 10.83 9.07

Percentage (%) of life insurance sector 7.05 4.93 5.45 6.83

(1) 31.12.2008 is net of 16 million shares acquired for R200 million as part of a share buy-back programme (31.12.2007: 44 million shares acquired for R690 million; 31.12.2006: 42 million shares acquired for R558 million; 31.12.2005: 22 million shares acquired for R242 million).

(2) 2007 has been adjusted for the special dividend of 77 cents per share paid in April, while both 2006 and 2005 have been adjusted for a capital reduction of 100 cents each.

(3) These shares were issued after 1 January 2001, the date on which the group adopted AC133 (now IAS39).

(4) The diluted number of shares in issue takes into account all issued shares, assuming conversion of the convertible redeemable preference shares and the release of staff share scheme shares, and includes the treasury shares held on behalf of contract holders.

(5) The market capitalisation is calculated on the diluted number of shares in issue.

METROPOLITAN HOLDINGS | SHAREHOLDER DIARY | 213

FINANCIAL YEAR-END 31 DECEMBER

Reporting Interim results 3 September 2008

Announcement of year-end results 11 March 2009

Annual report published April 2009

Annual general meeting 26 May 2009

Ordinary dividends Interim

Declared 2 September 2008

Remat/Demat 29 September 2008

Record date 3 October 2008

Paid 6 October 2008

Final

Declared 10 March 2009

Remat/Demat 30 March 2009

Record date 3 April 2009

Paid 6 April 2009

SHAREHOLDER DIARY

214 | NOTICE OF ANNUAL GENERAL MEETING | METROPOLITAN HOLDINGS

ORDINARY RESOLUTION NUMBER 3 – RETIREMENT BY

ROTATION AND RE-ELECTION OF DIRECTOR

“Resolved that, as at least one third of the directors are

required to retire by rotation as directors of the company at

this annual general meeting in accordance with the articles

of association of the company, and whereas Mr M L Smith

will be so retiring by way of rotation, Mr M L Smith, having

offered himself for re-election, be and is hereby re-appointed

as director of the company with immediate effect.”

A brief curriculum vitae for the above director offering himself

for re-election as set out in ordinary resolution number 3 above

is available on page 19 of the report.






of association of the company, and whereas Mr A H Sangqu

will be so retiring by way of rotation, Mr A H Sangqu, having











of association of the company, and whereas Mr M J N Njeke

will be so retiring by way of rotation, Mr M J N Njeke, having






Notice is hereby given that the eighth annual general meeting

of the shareholders of the company will be held at 14h00 on

Tuesday, 26 May 2009 in the auditorium at Parc du Cap 7,

Mispel Road, Bellville, Cape Town to transact the following

business:

> to receive and adopt the annual fi nancial statements of the

company for the fi nancial year ended 31 December 2008;

> to transact such other business as may be transacted at an

annual general meeting;

> to note the re-appointment of PricewaterhouseCoopers Inc

as the external auditors of the company, with Mr H D Nel as

the designated audit partner;

> to consider and, if deemed fi t, to pass the following

resolutions, with or without modifi cations.

ORDINARY RESOLUTION NUMBER 1 – ADOPTION OF

FINANCIAL STATEMENTS

“Resolved that the company hereby receives and adopts the

annual fi nancial statements of the company for the fi nancial

year ended 31 December 2008, including the directors’ report

and the auditors’ report, all as contained in the annual report

accompanying this notice.”

ORDINARY RESOLUTION NUMBER 2 – APPROVAL OF

DIRECTORS’ REMUNERATION

“Resolved that the company hereby approves the revised

annual remuneration payable by the company to non-executive

directors of the company with effect from 1 January 2009 as

follows:

Position Current Recommended

Chairperson of the board R760 000 R900 000 18%

Non-executive directors R220 000 R260 000 18%

Chairperson audit committee R175 000 R192 500 10%

Members R100 000 R110 000 10%

Chairperson actuarial

committee R165 000 R181 500 10%

Members R82 500 R90 750 10%

Chairpersons other

committeesR110 000 R121 000 10%

Members R55 000 R60 500 10%

NOTICE TO MEMBERS OF THE EIGHTH ANNUAL GENERAL MEETING OF

METROPOLITAN HOLDINGS LIMITED (“Metropolitan” or “the company”)

METROPOLITAN HOLDINGS | NOTICE OF ANNUAL GENERAL MEETING | 215

Dematerialised shareholders, other than those with “own name”

registration, who wish to attend the annual general meeting,

must inform their CSDP or broker of their intention to attend

the meeting and must obtain the necessary authorisation from

their CSDP or broker. Should such shareholders be unable to

attend the annual general meeting but wish to be represented

thereat, they must provide their CSDP or broker with their

voting instructions. This must be done in the manner and time

stipulated in terms of the agreement entered into between a

shareholder and the CSDP or broker concerned.

On a poll every shareholder present in person or represented

by proxy shall have one vote for every share held by such

shareholder.

Directors: M J N Njeke (acting group chairman), F W van Zyl

(group chief executive), P Matlakala (executive), P E Speckmann

(group fi nance director), F Jakoet, P C Lamprecht, S A Muller,

J E Newbury, B Paledi, A H Sangqu, M L Smith, F A Sonn,

J C van Reenen.

By order of the board

Mrs B Gobodo-MbomvuGroup company secretary

11 March 2009

Registered offi ce:

Parc du Cap

7 Mispel Road

Bellville

Cape Town



“Resolved that, as at least one third of the directors are required

to retire by rotation as directors of the company at this annual

general meeting in accordance with the articles of association

of the company, and whereas Mrs B Paledi will be so retiring

by way of rotation, Mrs B Paledi, having offered herself for

re-election, be and is hereby re-appointed as director of the

company with immediate effect.”

A brief curriculum vitae for the above director offering herself



ORDINARY RESOLUTION NUMBER 7 – APPOINTMENT OF

DIRECTOR OR THE COMPANY SECRETARY TO IMPLEMENT

RESOLUTIONS

“Resolved that any one director of the company or the

company secretary be and is hereby authorised to take such

steps, do all such things and sign all such documents as may

be necessary or required for the purpose of implementing the

ordinary resolutions proposed at this meeting.”

VOTING AND PROXIES

A shareholder entitled to attend and vote at the annual general

meeting is entitled to appoint one or more proxies to attend,

speak and, on a poll, to vote or abstain from voting in his

stead.

A proxy need not be a shareholder of the company. A form

of proxy is enclosed for the convenience of any certifi cated

or “own name” registered, dematerialised shareholder who is

unable to attend the annual general meeting, but who wishes

to be represented thereat.

The form of proxy must be received at the transfer offi ce

of the company, Link Market Services SA (Pty) Ltd,

5th Floor, 11 Diagonal Street, Johannesburg (or PO Box 4844,

Johannesburg, 2000), by not later than 14h00 on Friday,

22 May 2009.

216 | ADMINISTRATION | METROPOLITAN HOLDINGS

ADMINISTRATION

METROPOLITAN HOLDINGS LTD

Group company secretary and

registered offi ce

Bongiwe Gobodo-Mbomvu

Parc du Cap 7

Mispel Road, Bellville 7530

Investor relations

Nico Oosthuizen

Telephone: +27 21 940 6111

Fax: +27 21 940 6690

E-mail: [email protected]

Company registration

2000/031756/06

American Depository Receipt

CUSIP: 592144109

Depository: Bank of New York

Internet address

http://www.metropolitan.co.za

E-mail: [email protected]

Sponsor – South Africa

Merrill Lynch

Transfer secretaries – South Africa

Link Market Services SA (Pty) Ltd

5th Floor, 11 Diagonal Street

Johannesburg 2000

PO Box 4844, Johannesburg 2000

Sponsor – Namibia

Simonis Storm Securities (Pty) Ltd

Transfer secretaries – Namibia

Transfer Secretaries (Pty) Ltd

Shop 8, Kaiserkrone Centre

Post Street Mall, Windhoek, Namibia

PO Box 2301, Windhoek, Namibia

Auditors

PricewaterhouseCoopers Inc

Share codes

JSE – MET

NSX – MTD

Abbreviated name – MET LTD

METROPOLITAN LIFE LTD

Reg no 1949/032491/06

Registered offi ce

Parc du Cap 7

Mispel Road, Bellville 7530

Postal address

PO Box 2212, Bellville 7535

Telephone: +27 21 940 5911

Fax: +27 21 940 6973

http://www.metropolitan.co.za

Board of directors

Prof W Nkuhlu (chairman 02.07.2007)

Mrs F Jakoet

Mr P C Lamprecht

Mr P Matlakala

Mr D H Pead

Mr A H Sangqu

Dr F A Sonn

Mr P E Speckmann

Mr F W van Zyl

METROPOLITAN HOLDINGS LIMITED

(Incorporated in the Republic of South Africa)

(Registration number 2000/031756/06)

(“the company”)

ISIN: ZAE000050456

JSE share code: MET NSX share code: MTD

FORM OF PROXY

To be completed by certifi cated shareholders and dematerialised shareholders with “own name” registration

Eighth annual general meeting to be held at 14h00 on Tuesday, 26 May 2009 in the auditorium at Parc du Cap 7, Mispel Road,

Bellville, Cape Town

I, _______________________________________________________________________________________________________________

of ______________________________________________________________________________________________________________

being the holder of _____________________ (number) shares in Metropolitan Holdings Limited, hereby appoint as my proxy the

following person:

__________________________________________________________________________________________(full name of proxy holder)

of _________________________________________________________________________________________________ or, failing him,

__________________________________________________________________________________________(full name of proxy holder)

of _________________________________________________________________________________________________ or, failing him,

the duly appointed chairman of the meeting to attend, speak and vote for me and on my behalf at the annual general meeting

of the company to be held in Bellville, Cape Town on Tuesday, 26 May 2009 at 14h00, as well as at any adjournment of the said

meeting.

Signed at _________________________________________ on this _____________________ day of ______________________ 2009

Signature: _______________________________________________________________________________________________________

VOTING INSTRUCTIONS

(Indicate instructions to the appointed proxy by way of a cross in the spaces provided below; if no indications are given, the proxy

may vote as he thinks fi t)

NATURE OF RESOLUTION FOR AGAINST ABSTAIN

1. Adoption of fi nancial statements

2. Approval of non-executive directors’ remuneration

Position Current Recommended

Chairman of the board R760 000 R900 000 18%

Non-executive directors R220 000 R260 000 18%

Chairperson audit committee R175 000 R192 500 10%

Members R100 000 R110 000 10%

Chairperson actuarial committee R165 000 R181 500 10%

Members R82 500 R90 750 10%

Chairpersons other committees R110 000 R121 000 10%

Members R55 000 R60 500 10%

3. Authorising the retirement and re-election of Mr ML Smith

4. Authorising the retirement and re-election of Mr AH Sangqu

5. Authorising the retirement and re-election of Mr M J N Njeke

6. Authorising the retirement and re-election of Mrs B Paledi

7. Appointment of director or the company secretary to implement the

aforesaid resolutions

NOTES:

1. Proxies must be lodged at the company’s transfer offi ce, Link Market Services SA (Pty) Ltd, 5th Floor, 11 Diagonal

Street, Johannesburg (or PO Box 4844, Johannesburg, 2000), so as to be received by not later than 14h00 on Tuesday,

19 May 2009.

2. A member may appoint one or more persons of his own choice as his proxy/ies by inserting the name/s of such proxy/ies

in the space provided and any such proxy need not be a member of the company. Should this space be left blank, the proxy

will be exercised by the chairman of the meeting.

3. If a member does not indicate on this instrument that his proxy is to vote in favour of or against any resolution or resolutions

or to abstain from voting, or gives contradictory instructions, or should any further resolution/s or any amendment/s that

may be properly put before the annual general meeting be proposed, the proxy shall be entitled to vote as he thinks fi t.

4. Unless the above section is completed for a lesser number of shares, this proxy shall apply to all the ordinary shares

registered in the name of the member/s at the date of the annual general meeting or any adjournment thereof.

5. Companies and other corporate bodies are advised to appoint a representative in terms of section 188 of the Companies

Act, 1973, for which purpose a duly certifi ed copy of the resolution appointing such a representative should be lodged with

the company’s transfer offi ce, as set out in 1 above.

6. The authority of the person signing a proxy form under a power of attorney must be attached hereto unless that power of

attorney has already been recorded by the company.

7. Any alterations made to this form of proxy must be initialled.

METROPOLITAN

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