Liberty Holdings Limited 2012 · 2016-06-28 · Value of new business Increased volume, morbidity assumption changes, sales mix and cost management Dec 12 Dec 11 % D Value of new

Liberty Holdings Limited

Annual results 2012 for the year ended 31 December

Financial performance review Liberty Holdings Limited

Casper Troskie

3

Operating environment

• Uncertainty remained high regarding the Eurozone sovereign debt crisis and the US fiscal cliff

• Improved US domestic data and higher Chinese growth supported positive investor sentiment

• Declining bond yields, weaker rand and strong equity markets assisted investment markets

• Worsening socio-economic conditions and the growing current account deficit weakened currency

Source: Bloomberg

7.0

7.5

8.0

8.5

9.098

103

108

113

118

123

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ZAR/ USD All Share 10 year bond ZAR/USD (RHS)

4

Group financial summary

* Where applicable comparative restated for accounting policy change

Rm (unless stated otherwise) Dec 12 Dec 11* % D

IFRS operating earnings 1 803 1 768 2

LibFin Investments 1 965 969 >100

BEE normalised headline earnings per share (c) 1 328.3 956.7 39

BEE normalised headline earnings 3 768 2 737 38

Embedded value of long-term insurance new business 691 410 69

Indexed long-term insurance new business 6 055 5 152 18

Long-term insurance net customer cash flows 4 572 4 230 8

Asset management net cash inflows/(outflows) 14 327 (91) >100

Retail and Institutional excluding Money Market 11 744 13 598 (14)

Money Market 2 583 (13 689) >100

LGL CAR cover (times covered) 2.71 2.89 (6)

BEE normalised Group Equity Value per share (R) 115.43 100.15 15

BEE normalised RoGEV (%) 20.8 15.3 36

BEE normalised RoE (%) 24.5 20.2 21

5

No significant impacts from changes in non-economic assumptions

• Risk discount rate decreased 126 bps 9.69% (Dec 11: 10.95%)

• No significant operating assumption changes made at year end

• Modelling changes in respect of cost of CAR calculation negatively

impacted EV

• Comparatives for Retail SA and Corporate have been restated to

accommodate accounting policy changes

• The property management business has been transferred to STANLIB

Changes in key assumptions and comparatives

6

Business unit BEE normalised operating earnings


Rm 2H12 1H12 Dec 12 Dec 11* % D

Retail SA 651 648 1 299 1 382 (6)

Corporate 33 42 75 42 79

LibFin Markets 52 99 151 155 (3)

STANLIB 289 200 489 435 12

Liberty Properties 23 25 48 75 (36)

Liberty Africa 53 16 69 21 >100

Liberty Health 3 (45) (42) (65) 35

Direct Financial Services (2) (36) (38) (47) 19

Central overheads, development

costs and sundry income (154) (94) (248) (230) (8)

BEE normalised operating

earnings 948 855 1 803 1 768 2

LibFin Investments 1 144 821 1 965 969 >100

BEE normalised headline earnings 2 092 1 676 3 768 2 737 38

7

Sources of BEE normalised Group Equity Value earnings

Rm (unless stated otherwise) Dec 12 Dec 11 % D

Value of long-term insurance new business 691 410 69

Expected return on SA covered business 1 763 1 640 8

Variances/changes in operating assumptions (112) 894 (>100)

Headline earnings of other businesses 502 419 20

Operational Equity Value earnings 2 844 3 363 (15)

Development costs (78) (61) (28)

Investment return on net worth and investment variances 1 580 353 >100

Changes in economic assumptions - SA covered business 507 (12) >100

Increase in fair value adjustment on value of other businesses 1 163 145 >100

Other movements (130) 193 (>100)

Group Equity Value earnings 5 886 3 981 48

RoGEV (%) 20.8 15.3 36

8

Long-term insurance indexed new business¹

1. Excludes natural increases

Continued momentum in sales growth

Rm Dec 12 Dec 11 % D

Retail SA 5 286 4 375 21

Corporate 612 638 (4)

Liberty Africa 138 111 24

Direct Financial Services 19 28 (32)

Total 6 055 5 152 18

9

Value of new business

Increased volume, morbidity assumption changes, sales mix and cost management

Dec 12 Dec 11 % D

Value of new business (Rm) 691 410 69

Retail segment 661 392 69

Institutional segment 30 18 67

New business margins (%) 2.0 1.4 43

Retail segment 2.4 1.7 41

Institutional segment 0.5 0.3 67

10

Assets under management

1. Includes property asset management and Liberty Africa

2. Excluding intergroup

Dec 12 Dec 11 % D

Assets under management (Rbn) 528 455 16

STANLIB¹ 473 407 16

LibFin 32 25 28

Externally managed 23 23 -

Asset management net cash flows² (Rm) 14 327 (91) >100

Retail and Institutional 11 744 13 598 (14)

Money Market 2 583 (13 689) >100

11

Regulatory capital

* Applicable CAR

2.81x

2.67x

2.89x

2.71x

1.5x

2.0x

2.5x

3.0x

3.5x

2009 2010 2011 2012

LGL TCAR 2 542* 2 532 2 406 2 791*

LGL OCAR 2 413 2 688* 2 495* 2 592

12

Appropriate capital levels – focus on capital efficiency

• Capital management

› Successful share buy-back programme in 2012; average price of R89

› R2bn tier 2 capital bonds issued at competitive pricing

› Fitch rating affirmed at;

- Subordinated debt: ‘A+(zaf)’

- National IFS rating: ‘AA(zaf)’; outlook stable

› Target debt ratio reviewed; capacity to raise more debt capital

› QIS (quantitative impact study) 2 completed

› Active capital management supports dividend declarations

› Have set aside capital to fund growth activities

• Return targets clarified

› Cost of equity; risk free rate + 4%

› Return targets (EV based); risk free rate + 5%

Capital management activities

13

Distributions

Strong 2012 results - focus on capital efficiency and more debt capital

Per cycle - cents per share 2012 2011 % D

Interim 192 182 6

Final 336 298 13

Total 528 480 10

Special dividend 130

14

Continued engagement on SAM programmes

• Industry

› Implementation timeline for SAM remains 1 January 2015, with 2014 being used as

a parallel run year for certain aspects of the SAM regime

• Liberty

› Integrated regulatory change initiatives for SAM, PoPI and TCF

› Significantly strengthened risk management capabilities

› Improved depth and breadth of financial, risk and capital forecasting capabilities

› Planned life licence rationalisation should assist with SAM implementation but will

result in a reduction of CAR ratio due to base effects

Regulatory developments

15

Financial performance dashboard

Earnings

Operational earnings

Shareholder Investment Portfolio

Insurance sales, new business strain

Assets under management

Group Equity Value

Expected return ± variances,

assumption changes

Return on NAV, investment variances,

economic assumption changes

Value of new business

Value of mature non-life subsidiaries

Business Development operations

LibFin Business unit review

Giles Heeger

17

LibFin value proposition

Area of expertise Description Objective Target

LibFin Investments

- SIP

Conservative investment

portfolio with exposure to

diversified asset classes

Optimise return on

capital within risk

appetite

Benchmark during the

cycle and return on

capital through the

cycle

LibFin Markets

Credit Portfolio Credit investment

portfolio with diversified

exposure to sovereign,

SOE, bank and corporate

debt

Efficient management

of investment

opportunities derived

from ALM mismatch

Growing net

sustainable earnings

consistent with growth

in the underlying

product set

ALM mismatch Manage asset-liability

mismatch arising from

policyholder guarantees

Reduce capital

utilisation and

investment variances

Nil sustainable

earnings with a ±R50m

ALM investment

variance

18

Performance overview 2012

• LibFin Investments strategy of accessing a diversified range of investment opportunities

has paid off, allowing it to generate strong earnings with low volatility

• LibFin Markets results flat year on year, but contribution from Credit Portfolio backing

annuities and other guaranteed products increased

Rm – headline earnings Dec 12 Dec 11 % D

LibFin

LibFin Investments 1 965 969 >100

LibFin Markets* 151 155 (3)

Total 2 116 1 124 88

* LibFin Markets R151m split for 2012: Credit Portfolio; R109m and ALM mismatch; R42m

19

90

100

110

120

130

140

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Asset class performances in 2012

Local equity Local bonds Listed property

Foreign Local preference shares Shareholder Investment Portfolio

LibFin Investments

Gross return of 16% for the period, ahead of benchmark

Gross return (%)

Selection of indices 2008 2009 2010 2011 2012

SWIX (21.7) 29.9 20.9 4.3 29.1

ALBI 17.0 (1.0) 15.0 8.8 16.0

STEFI 11.7 9.1 6.9 5.7 5.6

R/$ exchange (26.6) (26.4) 11.6 22.0 4.7

20

LibFin Investments – Shareholder Investment Portfolio

* For foreign split by asset class refer to supplementary information

Rm 2012 % 2011 % D

Equities 3 751 18 3 094 15

Bonds 4 422 21 4 343 21

Cash 2 445 12 5 472 27

Preference shares 1 343 7 1 471 7

Property 2 942 14 2 423 12

Foreign* 5 666 27 3 623 18

Other 201 1 - -

Total 20 770 100 20 426 100

Assets backing capital 9 424 45 9 226 45

Assets backing life funds 7 251 35 7 397 36

90:10 exposure 4 095 20 3 803 19

Total 20 770 100 20 426 100

Rand 15 104 73 16 803 82

Foreign currency* 5 666 27 3 623 18

21

Improved diversification in Credit Portfolio

• Credit Portfolio backing annuity and other guaranteed products

• Objective is to diversify the existing portfolio away from current bias towards SA government,

SOE and local banks

• The portfolio was further diversified during the period through the investment in various new

credit assets

• Goal is to optimise portfolio on a risk adjusted return on capital basis

LibFin Markets - Credit Portfolio

Credit Portfolio 2009 Credit Portfolio 2012

Government

Banks

SOE

22

9 343

12 061

LibFin Markets

• Benign financial markets were positive particularly in first half

• Sharp interest rate reductions weighed on ALM profitability in second half

• Lower implied volatilities, which remain largely unhedged, contributed to profits

SWIX

6.4%

7.8%

10 year swap 29% 140bp

28%

31%

3 year implied volatility

1H12 2H12 1H12 2H12 1H12 2H12

3%

23

EV of R500m included in Group EV

• Equity Value (EV) of R500m included in Group EV for 2012

• Net sustainable earnings of R50m at a multiple of 10x

• The EV reflects net sustainable earnings attributed to the LibFin Markets

Credit Portfolio

• ALM mismatches are assumed to be once-off in nature, no allowance in EV

LibFin Markets - Equity Value

Retail SA Business unit review

Steven Braudo

25

Managing to model and growing market share at the right price

• Managed to model and delivered both positive variances and assumption

changes

• Regained market share together with significant increases in the value of

new business and margin

• Product innovation and delivery

• Maintained customer centric focus

• Stabilised ECM business and increased market share

• Increased size of the in-force book

• Controlled expenses within assumption


26

Retail SA Insurance – key performance measures

* Restated for accounting policy change

Continued excellent performance in a tough economic environment


Headline earnings 1 299 1 382* (6)

Headline earnings normalised for assumption changes 1 181 1 090* 8

Net customer cash flows 6 030 4 767 26

Gross sales 18 848 16 229 16

Indexed new business 5 286 4 375 21

Value of new business 619 361 71

Retail SA margin excluding STANLIB (%) 2.4 1.7 41

STANLIB ‘on balance sheet’ margin 0.1 0.1 -

New business margin including STANLIB 2.3 1.6 44

27

Retail SA Distribution – new business

Marketing efforts and new product innovation contributing to excellent sales outcome

Rm - indexed premium Dec 12 Dec 11 % D

Retail SA Insurance (excl. ECM) 4 794 4 006 20

ECM 277 190 46

Total Retail SA Insurance 5 071 4 196 21

STANLIB ‘on balance sheet’ sales 215 179 20

Total ‘on balance sheet’ sales 5 286 4 375 21

STANLIB ‘off balance sheet’ sales 2 251 1 446 56

Total Retail SA Distribution 7 537 5 821 30

28

Sales capacity and productivity

• Continued improvement in the average AQC scores

• Increase in headcount across all channels

• Financial Advisor Value proposition – valuable contributor;

› Record retention levels of experienced advisors

› Improved quality of new recruits

Delivered exceptional sales performance for the period

Agency Broker Franchise

Advisor quality score

2011 2012

813

697

859

576

244

874 832

1 048

630

250

Agency Libertyentreprenuers

Liberty@work

SBFC Brokerconsultants

Headcount

2011 2012

29

Market share

1. ASISA stats

• Consistent growth in market share since December 2010 due to;

› New product innovation in the risk and investment space

› Consistent focus and improvement on sales capacity and productivity

Successful increase in market share whilst improving new business margin

25% 25%

23% 22%

25%

Jun 08 Jun 09 Jun 10 Jun 11 Jun 12

Large insurer market share stats¹

Recurring Single Indexed

30

• Liberty is the market leading risk provider

• New generation Evolve Growth Share has been the most successful new investment

product in a decade

• In Q4 2012, over 25 000 new clients tested using finger prick HIV testing technology.

Vastly improved client experience and saving in medical expenses

Liberty continues on its path of market first product innovations

Whole of Life

Capital Disability

Whole of Life

Income Protection

Finger prick

HIV and cotinine

Liberty – the leading innovator in South Africa over past 24 months

1H11 2H11 1H12 2H12

Risk

Investments

Rewards

Differential

pricing

Retrenchment

Challenge

Medical

Advancement

Protection

Risk Explorer

application

Challenge

Flexible

annuity

Evolve

Growth Share

Own Your Life

Market firsts

31

Continued strong investment returns to policyholders

Absolute and relative returns on the risk profiled Excelsior portfolios*

Investment performance

* Measured against the relevant ASISA retail unit trust categories

Portfolio name

1 year

after fees

3 years

after fees

5 years

after fees

1 year

ranking

3 year

ranking

5 year

ranking

Excelsior Conservative 12.2% 9.9% 9.0%

Excelsior Moderately Conservative 17.6% 12.8% 9.5%

Excelsior Moderate 20.9% 14.5% 9.6%

Excelsior Moderately Aggressive 22.7% 15.2% 9.3%

Excelsior Aggressive 24.7% 15.9% 8.9%

First quartile

Second quartile

Third quartile

32

Expenses and weighted case count

Costs increasing below inflation, in-force book growing

2

2.1

2.2

2.3

2.4

2.5

0

250

500

750

1 000

2008 2009 2010 2011 2012

Maintenance expenses

CPI increase Actual Case count

150

200

250

300

350

0

0

1

1

1

2008 2009 2010 2011 2012

Acquisition expenses

CPI increase Actual Case count

1H10 2H10 1H11 2H11 1H12 2H12

Weighted case count of in-force

Case count

1H10 2H10 1H11 2H11 1H12 2H12

Weighted case count of new business

Case count

33

Striving to manage to better than model and add value to all stakeholders

• Crafted a new strategy for delivering on customer service promises

• Continue to strengthen our strategy execution capability through investment

in our technology solutions practices

• Regulatory environment complex

• Operational efficiencies remain an ongoing focus

• Productivity and capacity remain a focus across all sales channels

• Pipeline for innovative products aligned to market needs remains in place

Conclusion and looking ahead

Institutional and Asset Management Business unit review

Thabo Dloti

35

Delivering real growth in earnings whilst building a diversified earnings stream for the Group

• STANLIB – leveraging platform built in the past two years

› Earnings growth of 12%, with continued investment in new franchises

› Achieved significant net inflows with improved asset mix

› Investment performance improvement on track

• Liberty Properties – business in transformation

› Earnings are down by 36%; development pipeline constrained due to socio-economic

conditions

› Direct property portfolio delivered 29 consecutive years of double digit returns;

quality of properties and excellent portfolio management

• Corporate – accelerating the fix and stabilising the operations

› Earnings increased 79%; reflecting strong underwriting results

› Fund termination backlog project completed one year ahead of schedule

› Launched new generation investment product


36

STANLIB – headline earnings

• Growth in earnings largely due to increased asset base and margins

• On-boarded new franchises

* Comparative restated for the transfer of the property asset management business from Liberty Properties to STANLIB


Net fee income 1 432 1 261 14

Base fees 1 380 1 200 15

Performance fees 52 61 (15)

Operating expenses (793) (689) (15)

Profit before investment income 639 572 12

Other income 32 37 (14)

Pre-tax profit 671 609 10

Taxation (182) (174) 5

Headline earnings – South Africa 489 435 12

Average margin (bps) 34 33 3

Average assets under management 402 374 8

37

STANLIB – key performance measures

• Total net flows significantly ahead of previous year

› Record retail flows – improved performance and distribution support

› Improved institutional net flows – winning institutional segregated mandates

• Improved asset mix and margins

Despite emerging challenges, we have made good progress on delivering our financial targets

Rbn Dec 12 Dec 11 % D

STANLIB excl. Money Market 16.5 7.9 >100

Retail 17.5 10.0 75

Institutional (1.0) (2.1) 52

Money Market 3.8 (13.4) >100

Retail (1.8) 1.0 (>100)

Institutional 5.6 (14.4) >100

Net STANLIB external client cash flows 20.3 (5.5) >100

38

STANLIB – investment performance

Source: Morningstar, Alexander Forbes

• The core investment team is focused and stable with strong performances in established franchises

• Continued industry recognition

› Awarded five Raging Bull awards and Morningstar runner up

› Retained Plexcrown Fund rating as South Africa’s top Offshore Fund Manager

Focus remains on sustaining investment performance and team stability, over a longer period

73%

53% 54%

87%

67%

57%

73% 73%

50%

1 year 3 years 5 years

Core Retail funds in first and second quartile

2010 2011 2012

64%

14%

42%

58% 58% 60%

83%

75%

45%

1 year 3 years 5 years

Institutional funds in first and second quartile

2010 2011 2012

39

STANLIB – Africa

• Significant growth in earnings due to;

› Improved fees from East Africa region

› Better expense management in the Southern African region

• Continue to diversify asset and client mix

› Strong growth in pension mandates in East Africa

› Good growth in longer duration products in Southern Africa

• Significant outflows from a few key clients to meet their short term funding deficits

• Good progress made in aligning operations to South Africa

Strategy of dominance continues to fulfil diversification ambitions of the Group


Headline earnings – Liberty share 48 35 37

Rbn

Net external client cash flows incl. Money Market (6.0) 5.4 (>100)

Assets under management 36 39 (8)

40

Liberty Properties

• Significantly transformed business; sale of Fountainhead and SDPI³ move to STANLIB

• Results reflect difficult trading conditions faced by Property Development business

› Socio-economic and political factors delayed activation of projects in Nigeria and DRC

› South African projects delayed due to portfolio review of Liberty Property Portfolio

• Continued efforts to build and convert development pipeline in South Africa and Rest of Africa

1. Includes 8 months of Fountainhead

2. Comparative restated for the transfer of the property asset management business from Liberty Properties to STANLIB

3. SDPI: STANLIB Direct Property Investments

Rm Dec 12 Dec 11² % D

Headline earnings¹ 48 75 (36)

Fountainhead 9 11 (18)

Property and hotel management and property development 39 64 (39)

Gross profit 215 219 (2)

Property management 193 150 29

Hotel management 5 5 -

Property development 17 64 (73)

41

Liberty Properties

Source: CPI – Statistics SA; Liberty financials

• Better outcomes in

property management

from improved rentals

and increased income

8.6%

• Working with better

focused SDPI to

enhance capacity for

3rd party

0

5

10

15

20

25

1998 2000 2002 2004 2006 2008 2010 2012Returns (%)

Portfolio return vs. benchmark

Liberty Properties Portfolio Benchmark

42

Corporate – key performance measures


• Focus to stabilise the operating environment and create a solid platform for growth

› Improving consistency of customer service

• Significant improvement in earnings 79% from better Group risk underwriting experience and

increased premium income 15%

• Improved value of new business from better product mix and sales, with enhancements to

existing clients of 33%

• Fund termination backlog project completed one year ahead of schedule

• Launched innovative new investment and annuity products

Foundation laid to achieve growth plans


Headline earnings 75 42 79

Gross sales 1 415 1 586 (11)

Indexed new business 612 638 (4)

Value of new business 30 18 67

New business margin (%) 0.5 0.3 67

Net customer cash flows (2 048) (661) (>100)

43

We are confident the base for growth is solid

• STANLIB

› Increase earnings contribution from new capabilities and markets

› Leverage capabilities into new markets

› Increase continental presence with representation in West and East Africa

• Liberty Properties

› Increase efforts to build and convert development pipeline

› Streamline and refocus property management

› Continue to build development capacity for 3rd party clients

• Corporate

› Complete Corporate Administration Transformation programme

› Expand into large corporate market through specialist offerings

› Continue with rollout of full tiered umbrella fund offering


Business Development Cluster Business unit review

Mukesh Mittal

45

Good progress made in 2012

• Total value of new business for Business Development

› R63m; includes R12m estimate for Health (excluding SA bancassurance)

• Insurance

› Rest of Africa

- Substantial growth in new business volumes and earnings

- Acquisitions tracking to business case

› Direct Financial Services is evolving, particularly through affinities

• Health

› Rest of Africa - positive growth and improved medical loss ratio

› South Africa - enhanced customer proposition and improved service levels

• Bancassurance

› Collaborative activities resulted in significant increase in new business volume growth


46

Insurance – key performance measures

* Includes asset management earnings

Strong increase in volumes and earnings, strategically well positioned for further growth


Rest of Africa

Headline earnings – Liberty share* 69 21 >100

Net value of new business written in period 36 29 24

New business margin (%) 9.6 9.0 7

Insurance operations

Long-term

Indexed new business 138 111 24

Net customer cash flows 309 216 43

Short-term

New business 160 133 20

Claims loss ratio (%) 44.2 52.7 16

South Africa

Headline earnings: Direct Financial Services (38) (47) 19

47

Liberty Health – key performance measures

1. Ratio of claims incurred/(net premiums earned less direct related costs)

• Strategic business improvements in Africa contributed to reduction in medical loss ratio

• South Africa delivered net growth in administration lives in Q4

Revised health strategy on track

Thousands (unless stated otherwise) Dec 12 Dec 11 % D

Headline earnings (Rm) (42) (65) 35

Risk lives – Rest of Africa 84 68 24

Medical loss ratio (%)¹ 89 114 22

Administration lives 519 498 4

South Africa 185 212 (13)

Africa (Total Health Trust) 334 286 17

IT lives 921 1 107 (17)

South Africa 489 688 (29)

Africa 432 419 3

48

Bancassurance – benefit to Liberty

• Growth achieved across all channels

• Substantial increase in VNB for both Africa and South Africa

• New products rolled out

Strong increase in business volumes, reaping rewards of joint collaboration and planning


Embedded value of in-force contracts - Liberty share 1 238 1 133 9

STANLIB - net service fee on assets under management 395 357 11

49

Business Development Cluster focused on adding substantial value

• Africa Insurance

› Deliver growth in existing operations with a focus on new product rollout,

affinities, and enhancing distribution channels

› West Africa a key expansion opportunity

• DFS

› Focus on growth in sales in affinities, and execute retention plans

• Health

› South Africa and Rest of Africa focused on profitable growth in lives

› Clear value proposition for future growth

• Bancassurance

› Continue to grow sales across all channels


Conclusion Bruce Hemphill

51

Good results and a solid platform for growth

Good set of results – business units have performed in line with or ahead of expectation

Conclusion

Return on BEE normalised Group Equity Value 21% Group cash flows R19bn

Long-term insurance indexed new business up 18% Long-term insurance new business margin 2.0%

Value of long-term insurance indexed new business up 69% Liberty Group Limited CAR cover 2.7 times

In addition, we have a stable experienced management team that has been able to;

• Establish Retail SA as the dominant player in the traditional market; increase ECM market share

• Establish STANLIB as a top asset manager; alternative asset classes added

• Establish a competitive offering for Liberty Health in SA and sub-Saharan Africa

• Entrench LibFin as a world class market risk manager, contribution to product development and

revenue streams

• Improve Corporate offering; new opportunities in the larger corporate market

• Establish sustainable businesses in East and sub-Saharan Africa; finalised the strategy for West Africa

• Expand alternative sales channels and service capabilities through DFS

Questions

Documents

Liberty Holdings Limited 2012 · 2016-06-28 · Value of new business Increased volume, morbidity assumption changes, sales mix and cost management Dec 12 Dec 11 % D Value of new