New business single premiums take a beating

10 August 2006 Angelo Coppola

Bruce Hemphill, head of Liberty says that there are several issues that showed themselves in the first six months. He was talking to analysts at their interim results presentation in Gauteng today.

It appears that off balance sheet sales have increased as people are choosing flexible products and this in an environment of increased interest rates.

The company also looked at their business and it showed that unit trust savings had outgrown life premiums and they realized that they needed to own an asset manager. Having a part ownership in Stanlib (62%) wasn't the way they want to go.

While the asset manager has a reputation as a fixed interest specialist, the new boss there seems to be building an equity franchise.

Discussions have been initiated with the two other shareholders of Stanlib, Standard Bank and BEE shareholder Quantum Leap. The bank wants to see 'paper' in return for their sale while the other major shareholder wants cash. Liberty is offering a combination of paper and cash - discussions are ongoing, but Hemphill has committed to driving this acquisition.

Speaking of shareholders, in the audience as an interested observer was ex CEO Myles Ruck, who, one assumes is interested in the purchase of the Stanlib.

The price discussion has to be finalized, and a number has to be put to the board. He is hoping to conclude the purchase by the end of the year, although the regulatory clearances are still to be completed. It appears that price is a sticking point.

He was quick to mention that the asset manager wouldn't fall under Liberty, but he sees them as a separate business. There are cultural differences between a life office and an asset manager. Both businesses are about people and not machines. He doesn't want to re-create a Libam.

In terms of efficiency and service - another issue which became obvious was the misalignment between products and distribution. Sanlam and Metropolitan seem to have got the combination right.

He reported that there was a reduction in the margin of new business of 2.4%, added to which new business volumes also declined in the reporting period.

Still on the efficiency subject Hemphill mentioned that their back office is essentially a big paper based record keeping factory. They had inherited four legacy systems, which they plan to incorporate into one system - Compass -which is a SunGard offering. According to Hemphill the integration process is now 95% complete.

He did go on to say that this one platform strategy still has three years to go, and he has assembled a team of people with a leaning towards project management skills.

On the new business front he confirmed that the first six months were disappointing. The management team spent a lot of time in the first quarter looking at where and why they had lost market share. Added to which there was a lot of pressure as the negative publicity towards the industry meant a 10% loss of people in this area.

The silo approach to the business also meant that there was a fair amount of duplication and structure.

As a result they had restructured the sales and distribution side of their business. There are now two types of agencies - one for the new entrants into the business and then the sales production agencies.

In terms of duplication the acquisition of CAHL, which operates in the same space as Liberty at Work, meant that rationalization of structures and procedures was needed. Some people were also lost, and the management underestimated the effect this would have on new business. As a matter of interest the purchase of CAHL didn't include the FNB business.

There is now one operating unit.

On the question of living annuity draw-downs, he maintains that the high values apportioned by his competitors are unsustainable. There was also the competition between agents and brokers with brokers wining this battle, and it appears that Liberty have been penalized for doing the right thing.

High draw-downs are not the way to go.

When it comes to their guaranteed products he says that there has been some pricing pressure, with Old Mutual entering with aggressive pricing, which Liberty can't compete against. Momentum has also entered the market. These two entrants plus the rationalization process has led to a loss of R700m in single premium business, which he maintains can be won back.

On the RA front all the players are in the same position. Liberty haven't had a competitive product, although there are plans to launch an offering later this year.

Editor's thoughts:
* Draw-downs and volume are the issue as players vie for market share. One wonders whether the consumer will benefit or not in the long run
* The purchase of an asset manager is interesting. The sale of Libam is still fresh in some people's memories

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