Refocused strategy positions the group for a new growth phase.
Financial Highlights
• BEE normalised operating earnings up 18%
• BEE normalised group equity value per share up 11%
• BEE normalised return on group equity value up 5%
• Group equity value R40bn, up 11%
• Net customer cash inflows for long-term insurance up 56%
• Value of long-term insurance new business up 12%
• Capital coverage ratio up 20% to 3.07
Overview
Liberty Holdings has delivered a positive set of results for the year ended 31 December 2014, underpinned by significant operating earnings growth from the South African Retail operations, Liberty Corporate and LibFin Markets, reflecting a healthy increase in long-term insurance indexed new business and sound balance sheet management.
The group’s asset manager, STANLIB, continued to attract positive net inflows into the higher margin retail and institutional mandates, despite the negative sentiment towards money market funds following the African Bank failure and an increased preference for multi-asset classes by investors.
Commenting on the group’s results, CEO Thabo Dloti said: “The group’s positive performance reflects the consistent delivery on our strategy, supported by a robust governance structure that ensures the group operates within clearly defined risk appetite.”
He added that the company would optimise the balance sheet within board approved risk appetite limits as it continues to drive execution of its vision to become the trusted leader in insurance and investments in Africa and other chosen markets.
Management and the board have agreed on a refreshed strategy, with a greater focus on customer centricity that will position the company for growth. “Liberty recognises the significant changes in the regulatory environment and government’s social agenda in South Africa, which is likely to lead to a higher demand for products and services,” said Dloti.
“We embrace these changes that are aimed at improving the sustainability of the industry, and have responded by forming three new customer facing units, namely Individual Arrangements, Group Arrangements and Asset Management, which will launch innovative new products to service targeted customer segments.”
Retail / Individual Arrangements
Liberty’s South African retail operations reported a 15% increase in headline earnings to R1.7 billion, driven by continued sales momentum, particularly in single premiums, combined with positive risk, persistency and expense variances.
The Retail LISP, which offers direct investments into a range of collective investment schemes, attracted just below R2 billion in net new investments. The Evolve investment product range continued to outperform expectations with a meaningful contribution to single premium investment sales of R5.8 billion, up 64% on 2013.
The value of new business increased by 7% to R793 million at a margin of 2.3% (2013: 2.4%), which is at the top end of the medium-term target range. The discount rate, which ended at similar levels in 2013, had a muted impact on new business.
Net cash inflows (excluding the Retail LISP) are pleasing at R5.9 billion, supported by higher contributions from sales of single premium investment products offsetting the increase in average policy withdrawal values due to recent good investment returns.
Institutional/Group Arrangements
Liberty Corporate
The business saw headline earnings rise 40% to R170 million, driven mainly by higher asset based management fees and cost control. Indexed new business grew by 51% to R1.2 billion, contributing a value of new business of R121 million at a margin of 1.1%. Management is encouraged by net customer cash inflows of R3.4 billion, which are positive for the first time since 2007.
Liberty Africa Insurance
African insurance businesses (excluding South Africa) contributed R59 million to the group’s earnings (2013: R52 million). The long-term insurance operations performed in line with expectations while the short-term business improved in the second half of the year. Net claims loss ratios (after re-insurance) have been consistent with last year in the short-term insurance business. Long-term insurance new business was slightly impacted by lower bancassurance sales in Botswana, resulting in a decrease in overall margin to 6.5%.
The group continues to evaluate business opportunities on the continent and has earmarked capital resources to take advantage of opportunities as they arise.
Liberty Health
Liberty Health’s headline loss narrowed to R30 million (2013: R40 million). With effect from 1 August 2014, Liberty acquired the remaining non-controlling shareholder equity interests in Liberty Health for R133 million. Liberty Health is now a 100% held subsidiary, allowing for more flexibility in strategy execution.
Balance sheet management
LibFin Markets (Asset liability management and credit portfolio)
LibFin Markets contributed R220 million to headline earnings (2013: R137 million). The credit portfolio, a diversified portfolio of government, state-owned enterprises and corporate securities backing the guaranteed investment product set, contributed R189 million (2013: R132 million) in line with growth of the portfolio and diversification away from less efficient legacy assets. The asset liability management contributed R31 million for the year (2013: R5 million), benefitting from low realised volatility in equity and interest rate markets during 2014.
LibFin’s assets under management at 31 December 2014 was R45 billion (2013: R36 billion).
LibFin Investments (Shareholder Investment Portfolio)
The Shareholder Investment Portfolio (SIP), which comprises the group’s investment market exposure to the 90:10 book of business and the assets backing capital in the insurance operations, contributed R1.4 billion (2013: R1.9 billion) to the group’s headline earnings. This outcome was broadly in line with low market returns. The portfolio produced a gross return of 10.3% (2013: 14.6%), which was close to benchmark for the year.
Asset Management
STANLIB
STANLIB reported headlined earnings of R662 million, 5% higher than in 2013. Although the business faced significant net cash outflows on the back of withdrawals of R13.7 billion from various money market funds, flows into higher margin non-money market funds offset the negative impact. Accordingly, total assets under management increased slightly to R551 billion from R545 billion in 2013.
Liberty Properties
Liberty Properties added R41 million to headline earnings (2013: R44 million). This was on the back of lower development fee income, from a reduced portfolio size and one-off restructuring costs. As part of the rebalancing of the unlisted property portfolio, several wholly-owned hotels valued at R1.1 billion were sold to The Cullinan Hotel (Pty) Limited, a 40% associate company of Liberty.
Bancassurance
The bancassurance relationship with Standard Bank continues to make a significant contribution to new business and earnings. The value of new business derived from Liberty insurance products (excluding credit life) for the year from bancassurance channels is more than 30% higher than 2013. STANLIB received 4% growth in net asset management fees related to assets acquired through the Standard Bank distribution channel.
Outlook
Dloti concluded: “Our refreshed strategy will see us continuing to build on this base and position the group for growth as we expand our geographical footprint into expected high growth regions of sub-Saharan Africa, accelerate the asset management offerings to capture a greater share of inflows into Africa, and maximise opportunities under the Standard Bank bancassurance agreement.”