International Roadshow Presentation April 2005 www. liberty. co. za
Liberty Life Shareholder structure
Structure Standard Bank (54, 65%) Liberty Holdings Limited (50, 17%) Liberty Group Limited Life Assurance Asset Management • Liberty Personal Benefits • STANLIB (37, 4%) • Liberty Corporate Benefits • Liberty Ermitage • Liberty Active (Charter) • Liberty Properties 3
Liberty Life People the cornerstone of our business
Liberty Life Overview of business
Mix of business (2004) Total new indexed premiums * 17% Total in force indexed premiums * 7% 19% 5% 6% 71% Reversionary bonus 7% Market related (linked) 68% Smoothed bonus Non profit * Indexed refers to recurring premiums plus 10% of single 6
Overview of premiums (2004) Total new indexed premiums * Total in force indexed premiums * 15% 24% 85% Individual 76% Group * Indexed refers to recurring premiums plus 10% of single 7
New individual API premiums by channel API new business 2004 2003 Broker 37% 39% Bancassurance 32% 26% Agency 20% 21% Franchise & other 11% 14% 100% 8
Life insurance operations New individual business market share (including Liberty Active) % 35 30 25 20 23 24 25 27 26 25 20 20 17 15 15 10 5 0 Recurring individual Year ended 31 December 2000 Year ended 31 December 2002 Single individual Year ended 31 December 2001 Year ended 31 December 2003 Nine months ended 30 September 2004 Source: LOA market share statistics for all life offices 9
Individual average new recurring premiums 3 months Sep 2004 3 months Sep 2003 % Change All offices (R) 2, 301 1, 896 21% Large offices (R) 2, 992 2, 859 5% Liberty Personal Benefits (R) 7, 326 6, 487 13% LPB as % of all offices 318% 342% LPB as % of large offices 245% 227% Source: LOA market share statistics for all life offices 10
Market share – corporate benefits • Not comparable due to size of funds targeted • Number of schemes: 9 500 • Number of members: 287 000 • Typically funds with 10 to 300 employees • Scale of business to change significantly 11
Liberty Life Our key financial value drivers
Driving improved performance through higher ROEV’s • ROEV = EV earnings/EV • EV earnings drivers § new business profits § managing the in-force - costs - mortality/morbidity - persistency § investment performance • Capital management § capital management committee § Capital Alliance § debt 13
Seven key financial measures # Description Performance 1 New business volume growth as measured NB volume up 10% on API basis by indexed premiums 2 Value of new business and new business margin VNB at R 815 m up 34%, NB margin at 24% up from 20% 3 Net cash flows +R 3638 m vs +R 4497 m 4 Headline EPS 460. 4 cps (+ 33%) 5 Management expenses Renewal cost per policy R 248 (+3. 5%), Group Manex up 5% 6 Embedded value [EV] per share EV/ps at R 67. 25 (+17%) 7 Capital adequacy cover [CAR] CAR cover of 2. 1 x These items drive ROEV 14
Life insurance operations New business premiums Indexed new business premiums • Total +15% to R 13 440 m • Total +10% to R 4 186 m • Individual life +22% to R 11 374 m • Individual life +11% to R 3 544 m • Corporate benefits -12% to R 2 066 m • Corporate benefits +3% to R 642 m 12000 +22% 12000 10000 8000 6000 4000 -12% 2000 0 Rm 2001 2002 2003 2004 Individual life +11% 2000 0 Rm +3% 2001 2002 2003 2004 Corporate benefits 15
Life insurance operations Total in force business premiums Indexed in force business premiums • Total +13% to R 20 544 m • Total +17% to R 11 343 m • Individual life +21% to R 16 359 m • Individual life +17% to R 8 571 m • Corporate benefits -8% to R 4 195 m • Corporate benefits +18% to R 2 771 m +21% +17% -8% +18% Rm Rm Individual life Corporate benefits 16
New business • CAGR of 11, 3% in total new business (5 yrs) • Consistent market share gains • Upper income segment – growing disposable income • Standard Bank’s client base presents further opportunities • Changing model for corporate benefits business • Liberty Active (Charter) for the future • New product development unit 17
Value of new business and new business margins* 900 800 700 600 500 400 300 200 100 0 Rm 815 30% 28% 391 24% 455 24. 4% 20. 3% 17. 6% 2000 26% 609 605 20% 19. 9% 18. 5% 2001 22% 16% 2002 2003 2004 14% • Margins exceeded our longer term average of 18 -22% • Individual margins range 20 -24% • Corporate margins range from 6 -10% Value of new business New business margin * Value of new business divided by indexed new business premium 18
Headline earnings Revenue earnings attributable to shareholders’ funds Operating profit from insurance operations 19
Headline earnings Operating profit from insurance operations: • Reasons for volatility and decrease since 2000 § 10% shareholders’ participation in investment returns § once off items capitalised by valuation basis e. g. expense profits (or losses) § stochastic modelling of guarantee reserves § AC 133 (to be followed by IFRS 4 and IAS compliance) Other earnings contributors: • STANLIB, Liberty Ermitage, trading portfolio and Liberty Properties • Return on other shareholders’ investments § equities § bonds § cash/preference shares § offshore 20
Life insurance operations Net cash inflows from insurance operations • Total -19% to R 3 640 m • Individual life +76% to R 5 492 m • Corporate benefits -234% to -R 1 852 m 6000 R 5 492 m 5000 4000 3000 2000 1000 -R 1 852 m 0 -1000 -2000 Rm 2001 2002 2003 2004 Net cash inflows from individual life business Net cash inflows from corporate benefits business 21
Net cash inflows from insurance operations • Useful when read together with new business growth • In-force book is being managed better • Customer service drive and STANLIB’s investment performance should improve retention • Maturities of property backed products in second half of 2004 of R 2 bn • Total inflows of R 22. 6 bn (2003 R 18. 3 bn) including asset management inflows Rm 2004 2003 % Change STANLIB net inflows 15, 300 12, 100 26% Ermitage net inflows 3, 681 1, 653 123% 22
Expenses • Business structure to be restructured into front and back office eliminating duplication • Capital Alliance assists with focusing on efficiencies • Expect once off restructuring costs, but enduring benefit • Targeting expense cost per policy increase at 4. 25% • Headcount for Liberty Life & Stanlib reduced by >400 since 30 June 2003, but… • Growing headcount in Liberty Active 23
Expenses – controlling headcount • 251 people taken on in October 2003 as part of IEB acquisition • IT outsourcing and HR restructuring - reduction of 95 people • Group expenses increased 5% • Maintenance cost per policy increased +3. 5% in Liberty and -4. 9% in Liberty Active 3600 3472 3500 3400 3353 3320 3300 3221 3200 3069 3100 3000 2900 2800 Dec 02 Mar 03 Jun 03 Sep 03 Liberty headcount excluding IEB Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Liberty headcount including IEB 24
Embedded value Rm Value of in force business Shareholders’ finds Fair value adjustment BEE impairment 25
Capital adequacy times Times covered incl BEE 26
Capital management • Capital management committee • Long-term shareholder portfolio established • Successful Liblife B. V. bond redemption • Application to the FSB to issue debt - conditional approval received • BEE transaction successfully implemented • Offer made for Capital Alliance • Dividend policy introduced 27
Capital management-dividend policy • Objectives: § predictable growth § less volatility § leave room for new business growth § strong capital adequacy • Yield on EV per share of approximately 4, 75% as a base • Going forward – aligned to medium term growth of EV § taking into account: - economic conditions; and - CAR cover >1, 5 § interim dividend at 40% of previous full year 28
Risks and issues • Increasing compliance and regulatory requirements • Volatile investment markets • Risk averse investors • Perception of industry • AIDS (not as much an issue for Liberty Life) 29
Some positives are emerging • Industry has started recognising its shortcomings • Emerging middle class - a reality, but net spenders • South African economy - a success story • Investors becoming more bullish • Good local investment returns • Cash being accumulated by investors = opportunity 30
A simple business model Liberty’s business is conceptually simple and generic • We develop products • We sell products • We receive money • We invest the money according to product specification • We administer according to product specification • We pay benefits 31
Focus areas for next twelve months Exciting opportunities • Operational restructuring opportunities • Capital Alliance § new business § efficiency • Products • Capital structuring • Liberty Active and, as always. . . people. . . service … costs 32
Why Liberty Life? • Pure, focussed South African life insurance company • Strong parent • Strong equity play • Low smoothed bonus business • Improved returns through better capital management and efficiencies • A history of delivery 33
Why Liberty Life? • High dividend yield at current price • Future growth opportunities (market segments) • Revised top team – good mix of insurance and general management experience • Uncomplicated strategy • Share price offers value! 34
Appendix Insurance industry in South Africa
Competitors Market capitalisation * Old Mutual (listed on the LSE) R 60 667 m Sanlam R 33 598 m Liberty Life R 17 932 m Discovery R 11 192 m Momentum not listed * As at 31 March 2005 36
Total new business Rm 2002 2003 2004 I = Individual; G = Group 37
Indexed new business * Rm 2002 2003 2004 * Indexed new business as per embedded value statement 38
Net flow of funds from life insurance operations Rm Liberty Sanlam 2002 Old Mutual 2003 Momentum Discovery (Life) 2004 39
Embedded value Rm LGL SLM OML NAV and subs MOM DSY VIF 40
JSE Securities Exchange statistics 12 months Dec 2004 12 months Dec 2003 Share price (Rand) High 67, 00 57, 00 Low 48, 00 45, 00 Closing 56, 60 54, 00 Codes Share code LGL I-Net Bridge LGL Bloomberg LGL. SJ Reuters LGL. J. J ISN ordinary shares ZAE 000024543 41
JSE Securities Exchange statistics Shares traded 12 months Dec 2004 12 months Dec 2003 Average monthly volume traded (m) 9, 0 8, 7 Average monthly value traded (Rm) 500, 3 443, 8 276 592 907 274 671 040 Shares in issue 42
Contact details Myles Ruck Deon de Klerk Stewart Rider Chief Executive Chief Financial Officer Group Executive Investor Relations Tel: +27 11 408 -2001 Tel: +27 11 408 -2572 Tel: +27 11 408 -3260 e-mail: myles. ruck@liberty. co. za deon. deklerk@liberty. co. za e-mail: stewart. rider@liberty. co. za 43
International Roadshow Presentation April 2005 www. liberty. co. za
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