Liberty Life Presentation to Investment Analysts

1

• Liberty LifePresentation toInvestment
  Analysts Societyof Southern Africa
• 2 March 2005
• www.liberty.co.za

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

• People
• Customer service
• Business structure and efficiency
• Capital management
• Product development
• Financial Sector Charter implementation
• Domestic operations/other market segments and
  Africa
• Distribution channels
• Implement BEE transaction

4
What weve done people

• Executive management

5
What weve done people

• More new names

6
What weve done people

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

3472
3353
3320
3221
3069
Dec 02
Mar 03
Jun 03
Sep 03
Dec 03
Mar 04
Jun 04
Sep 04
Dec 04
Liberty excluding IEB
Liberty including IEB
7
What weve done customer service

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

8
What weve done business structure and
efficiency

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

9
What weve done capital management

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

10
What weve done FinancialSector Charter
implementation

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

11
What weve done domestic operations, other
market segments and Africa

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

12
What weve done domestic operations, other
market segments and Africa

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

13
What weve done distribution channels

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

14
What weve done BEE transaction

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

15
Operating climate

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

16
Operating climate (continued)

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

17

• Deon De Klerk

18
Operational features 2004/2003
Maturity of R2 090m in respect of one large
client.Excludes STANLIB and Ermitage net cash
inflows.
19
Life insurance operations

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

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

22
11
-12
3
Individual life
Corporate benefits
20
Life insurance operations

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

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

28
R819m
-1
-R4m
2001
2002
2003
2001
2002
2003
2004
2004
Rm
Rm
Individual life
Corporate benefits
21
Life insurance operations

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

R5 492m
-R1 852m
2003
2001
2004
2002
Rm
Net cash inflows from individual life business
Net cash inflows from corporate benefits business
22
Life insurance operations

• New individual business market share (including
  Liberty Active)

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

• STANLIB assets under management and funds under
  administration

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

24
Other operations

• STANLIB net cash inflows

25
Other operations

• Ermitage assets under management

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

26
Financial results 2004/2003
BEE normalised embedded value per share
R65,69 up 14
27
Headline earnings
28
Operating profit from life insurance operations
major influencing factors

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

29
Gross investment returns
22,7
12,5
Year-to-date return 2003
Year-to-date return 2004
Actuarial assumption 2004
30
Main factors affecting the guarantee reserves
Volatility basis change (set up as a second-tier
margin) R148m
31
Expenses
Including non-recurring expenses
32
Non-recurring expenses

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

Policyholders non-recurring R116m (2003
R84m) Shareholders non-recurring R21m (2003
R27m)
33
Expenses

• Costs per policy

R74m after tax release to profit
34
Operating profit from shareholders funds
35
Embedded value
BEE normalised embedded value per share R65,69
up 14
36
Financial services subsidiariesfair value
adjustment
37
Capital adequacy cover
38
Dividend policy

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

39
Dividend policy

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

40
Dividend
41

• Conclusion

42
Focus areas for next twelve months

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

43
Focus areas for next twelve months

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

44
Focus areas for next twelve months

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

45
Questions

• Panel

46

• Appendices

47
Embedded value (EV) reconciliation
48
Financial services and subsidiaries
the value of the IEB business is included in
the group's estimates of the VIF
49
New business excluding contractual increases
50
Effect of the BEE transaction on headline earnings

• Costs associated with the Black Economic
  Empowerment transaction comprise
• R11 million (net of taxation) in respect of the
  general staff scheme under which each staff
  member who does not participate in the ownership
  transaction or the Liberty Group incentive
  scheme, will receive 100 Liberty Group Limited
  shares each.This amount has been included in
  management expenses and
• R7 million (net of taxation) in respect of the
  general staff scheme under which each Liberty
  Life agent who does not participate in the
  ownership transaction or the Liberty Group
  incentive scheme, will receive 100 Liberty Group
  Limited shares. This amount has been included in
  commissions.
• Professional fees amounting to R22 million have
  been written off directly against reserves
  (retained surpluses).
• As a consequence of utilising Liberty Lifes own
  cash flows (in the form of ordinary dividends
  paid) to service the empowerment transaction
  financing structure (in the form of dividends on
  preference shares), the dividends received on the
  empowerment preference shares will be accounted
  for directly in reserves, thereby offsetting the
  dividends so received against the ordinary
  dividends paid by the company.
• Due to the fact that the Black Economic
  Empowerment transaction is effectively accounted
  for as a share buy back (until such time that all
  funding is repaid), the weighted average number
  of shares in issue for 2004 has been reduced by 3
  805 988 shares. The transaction was implemented
  on 8 November 2004(25 796 143 x 54/366 3 805
  988).
• Headline earnings for 2004 include R51 million
  representing the income return on assets utilised
  to fund the Black Economic Empowerment
  transaction up to the date of implementation 8
  November 2004. The weighted average number of
  shares in issue for 2004 has been reduced from
  this date. Preference dividends received on the
  empowerment preference share at 65 of prime
  since the date of implementation amounting to R13
  million were not accounted for in income.

51
Effect of the BEE transaction on EV per share

• Costs associated with the Black Economic
  Empowerment transaction comprise
• R11 million (net of taxation) in respect of the
  general staff scheme under which each staff
  member who does not participate in the ownership
  transaction or the Liberty Group incentive
  scheme, will receive 100 Liberty Group Limited
  shares each. This amount has been included in
  management expenses and
• R7 million (net of taxation) in respect of the
  general staff scheme under which each Liberty
  Life agent who does not participate in the
  ownership transaction or the Liberty Group
  incentive scheme, will receive 100 Liberty Group
  Limited shares. This amount has been included in
  commissions.
• Professional fees amounting to R22 million have
  been written off directly against reserves
  (retained surpluses).
• Due to the fact that the Black Economic
  Empowerment transaction is effectively accounted
  for as a share buy back (until such time that all
  funding is repaid), the total number of shares in
  issue for 2004 has been reduced by 25 796 143
  shares at 31 December 2004

52
Claims policyholder benefits
53
Non-recurring management expenses
54
New business by distribution channel