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Solid half-year interims from Liberty Life

10 August 2007 Gareth Stokes

Liberty Life released its un-audited half year results to 30 June 2007 earlier this week. The results were in line with estimates published in a July trading update and confirmed a jump of 51.5% in BEE normalised headline earnings per share. FAnews Onl

Expanding through diversity

An important aspect emphasised in the 'commentary on results' was that Liberty Life is focused on giving its customers what they want. And what customers want today is a full-spectrum financial services company. This requires the group to transform into a "family of financial services businesses" and to create separate identities to focus on particular fields of specialisation.

To achieve this, Liberty will "selectively expand their offerings from those of a life company to a far broader-based range of wealth management solutions." The group has already embarked on this strategy and believes that the early benefits from this move are already visible.

"Broadening Liberty's wealth management offerings is a fundamental step towards a high-growth future. It is vital we position ourselves to provide our customers with what they expect from a financial services company, be it insurance, investment, bespoke asset management, short term insurance or healthcare," said Bruce Hemphill, CEO of Liberty Life.

The importance of client retention

Many analysts have been concerned about the prospects for the life insurance industry, particularly given the impact of recent regulatory developments. With the Statement of Intent behind them, life insurance companies are now faced with a number of new challenges. These include social security reforms, changes to commission structures and the ever present issue of customer retention.

"We see the issue of retaining clients' policy funds at maturity or at retirement as a key business objective, and one that we have been driving at executive level. It is still early days, but we are seeing some meaningful improvements for example, in a pilot exercise on endowments, we saw increased retention of 11.5% by number of clients, and 18.5% by value of funds retained." The drive to ensure that clients' funds remain within the group should yield significant returns in the future. It would not surprise if Liberty also focuses on extending its product reach by converting more customers into multi-product customers.

Liberty Life is happy with the substantial improvement in new life sales in the first half of 2007. "We are comfortable with a 14% increase in indexed life new business volumes, although new corporate volumes remain disappointing."

Investment business powers ahead

Liberty Life completed the purchase of 100% of StanLib early in 2007. The purchase marks a significant change in strategy from a "defence driven insurance approach to a constructive wealth building culture." The StanLib acquisition provides a clear example of convergence in the life insurance industry.

The contribution of asset management business to the bottom line is already significant. With StanLib's almost 5% market share in the local equity unit trust and institutional product market the group expects significant growth in coming years.

A quick look at the mix of contributions to headline earnings makes for some interesting reading. Insurance operations remain the major contributor with R984 million in the six months to June 2007. This is 36% more than the previous period and quite impressive given the challenging operating environment of late. Asset management operations contributed R201 million, a 109% improvement over the previous year. The contribution from Shareholders' funds was also significantly higher after increasing 102% to R419 million.

While all sections show strong growth, it is clear the growth momentum lies with the asset management side of the business.
 
Strong future prospects as change is bedded down

It often takes years before the shareholders reap the benefits from changes in corporate strategy. Liberty Life has made a number of significant changes in recent times and does not expect to reap these benefits in the current financial year. The second half of 2007 will thus, barring any exceptional events, be in line with the first.

Hemphill sums things up nicely: "Our operations are performing well, our restructuring efforts are paying off and our cost control is solid. The existing business is strong, but we also have a renewed focus on growth. We are continuously exploring new channels for local distribution and expansion into Africa, and we have made key appointments to drive expansion on the continent. Standard Bank's excellent footprint and brand strength give us an unrivalled platform for growth into Africa."

Editor's thoughts:
Liberty Life is South Africa's third largest life assurance company, with a market capitalisation of R25 billion. The groups latest acquisition gives it a strong platform for growing business in the asset management field and for expansion into the rest of Africa. Do you believe South African insurance companies have neglected Africa in the last decade? Send your comments to
gareth@fanews.co.za

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