Not bad at all

03 March 2005 Angelo Coppola

A for the first time Liberty disclosed their costs per policy. At Liberty Life it costs R248 per policy to administer – which is up 3.5% from last year; while at Liberty Active it is R154, down 4.9% from last year.

* 33% increase in headline earnings per share

* CAR is at 2.1 times, down slightly from 2.6 the previous year

* Embedded value per share was up 17%

The operating profit from life insurance operations were impacted by the shareholders 10% participation and a higher asset base, the investment guarantee reserve, expenses in terms of costs per policy, non-recurring expenses, and Liberty Corporate Benefits.

CAR has come down slightly. Explaining this Deon de Klerk, head of finance, said the figure is strong, even when including the impairment in terms of the BEE deal. He says that the CAR would have been 2.5 times if the deal hadn’t been struck.

The policy going forward is to keep CAR cover above 1.5.

In terms of acquisitions Myles Ruck the Liberty Group CEO said that Ian Kirk was in the building for the Liberty presentation. According to Ruck the deal goes before the board on 7 March. They have unconditional Competition Commission approval to go ahead, while the deal goes to the FSB for approval on 12 April.

Ruck says he is looking forward to the deal – but there are issues to deal with. The Capital Alliance business model is entirely different to that of Liberty. “It is important that we focus on the sales side, while looking at the back office and the other issues.”

On the question of offshore activity Ruck says that Africa, while a small part of the business, it is profitable: “We are not hitching our whole plan on this market – but latching on to the Standard Bank service offering.”

But when it comes to Capital Alliance deal Ruck says that they are stayng at home.

In what some analysts saw as cracks in the deal, Ruck said that if the Capital Alliance deal goes through – their business model is to take closed books overseas and make money in SA. “The book could be anywhere,” says Ruck, “but we have a problem. We need to out the local business first.”

The progression of the offshore model at Capital Alliance has been put on hold - it is suspended.

On distribution side there is a strong focus, because between 40% – 50% of individual life sales came from the broker force. “Its all about the product, service and value for money,” says Ruck.

Productivity is the focus – there is no need to grow the force. The group bolstered distribution a couple of years ago – it was a good decision then says Ruck, and there are now 800 tied agents – aiming for 900. There are 740 franchise agents and they want to up that. The BC force is at 327 – and there are 2700 people agencies selling products.

Ruck did confirm that there was going to be a consolidated presence in Cape Town: “We are not just opening a head office – we want to work off the platform and build BC force there.”

On the question of the reason for the corporate benefit market and why it was so sluggish the discussion was split into two areas.

On the single premiums side – There are very few large funds still on the insurers balance sheets any more. They are going the segregated route or the multi manager route. This is asset management business, and not insurance business.

Added to which pension outsourcing issues are still on hold, although this should unwind later this year, or early next year.

On the recurring premiums side there is small growth, mainly due to the impact of salary inflation. This is low, so the increases only come through with salary increases – could be negative in some instances.

Ruck went on to say that the bancassurance model is doing well – up 36% last year. On the corporate benefits bancassurance model, Ruck says that proper dialogue only started last year.

“We expect to see some fruit this year – I will be disappointed if we don’t.”

The operating climate is really more of the same – more compliance and regulations; low interest rates, but on the up side – the industry is realizing that there is work to be done. The emerging middle class is there and growing –although at the moment they are net spenders and not net savers… There is a pile of cash being accumulated.

Deon de Klerk the head of the finance said that all operational indicators were positive for last year. New business increased by 10%net cash inflows from insurance operations were down due to one large property based investment that matured – valued at just over R2bn.

On the individual life side market share is up to 27% of new business written, in spite of the medical lifestyle product discontinuation. Although he does acknowledge that you cant grow market share indefinitely – they want to defend this.

On the STANLIB side the restructuring in 2003 came through strongly. Total assets increased by 25%. There was a change to mixed equity funds, with money market and other cash products was up at 72%.

Looking ahead: in the next 12 months they will focus on restructuring and simplifying the business, including Capital Alliance, and whether it happens or not. Want to be in a position to deliver.

There is a lot of pressure on the product side. Ruck wants to deliver value to policyholders and shareholders. He wants to drive down the cost per policy, benefiting the policyholder and ultimately the shareholder.

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