liberty life ubs financials conference “the turning points for our business” myles ruck ceo...
TRANSCRIPT
Liberty Life
UBS Financials Conference“The Turning Points For Our Business”
Myles RuckCEO
October 2005
- 3 -
Liberty’s turning points
A brief history
• 1974 Liberty acquired SA operations of Sun Life
• 1978 Liblife Controlling Corporation formed with Standard Bank (SBK)
• 1983 Joint control of Premier Group, which acquires 35% of SAB
• 1987 Liberty increases stake in SBK to over 30%
• 1987 Prudential Assurance becomes wholly owned subsidiary
• 1991 Investment in SBK increases to 39%
• 1993 Libsil established to hold Liberty strategic assets
- 4 -
Liberty’s turning points-historical structure
6.1%
Liberty Life
Association of
Africa Limited
Liberty
InvestorsLimited
LiblifeControlling
Corporation
(Pty)
Limited
Guardian
National
Insurance
Company
Limited
Liberty Holdings
Limited
StandardBank
Investment
Corporation
Limited
Standard
Bank
Investment
Corporation
Limited
Beverage
andConsumer
Industry
Holdings
Limited
The Premier
Group
Limited
50 % 50% 21.8%
54.9%
53.9%45.4%
Liberty
Life
Properties
(Pty)
Ltd
Liblife
International
BV
Netherlands
Guardbank
Management
Corporation
Limited
Charter
LifeInsurance
Company
Limited
Liblife
Strategic
Investments
Limited
Liberty
Asset
Management
Limited
First
International
Trust
Limited
54.8% 100%(4)
100% 82.5% 100% 100% 94.0%
Millennium
Financial
Consultants
and
Investment
Services
(Pty)Ltd
41.6%*39.1%* 28.1%*31.8%41.5%
Liberty
International
Holdings
PLC
(UK)
The South
African
Breweries
Limited
Liberty
International
Financial
Services PLC
Capital &
Counties
Capital
Shopping
Centres PLC
100% 71.8% 100.0% 28.5%*
100%
* Effective interest(UK)
(UK)
(UK)
- 5 -
Liberty’s turning points-historical EV
Premier1%
Other NAV16%
VIF18% SBK
22%
Guardian National
2%
SAB/Bevcon12%
Liberty International
29%
At 31 December 1998
- 6 -
Liberty’s turning points
Changing the investment trust
• 1999 unbundling of FIT
• 1999 Distribution of direct holding in Liberty International
• 1999 Unbundling of Libsil to LGL level
• 1999 sale of Guardian National
• 1999 Change of control to Standard Bank
• 1999 Appointment of Roy Andersen (Donald Gordon retires)
• 2000 Dispose of Liberty International
- 7 -
Liberty’s turning points-improving structure
StanbicStanbic
Liberty Holdings (“Libhold”)Liberty Holdings (“Libhold”)
Liberty LifeLiberty Life
SAB plcSAB plc
55%
56%
8%
100% Liberty Asset Management
100% Liberty Healthcare
100% Liberty Properties
100% Charter Life
94% Millennium Financial Consultants
100% Oracle Employee benefits
100% Guardbank Management Corporation
100% Liberty Asset Management
100% Liberty Healthcare
100% Liberty Properties
100% Charter Life
94% Millennium Financial Consultants
100% Oracle Employee benefits
100% Guardbank Management Corporation
As at April 2001
- 8 -
Liberty’s turning points-EV more focused
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003 Dec 2004 June 2005
NAV VIF
EV is as reported
- 9 -
Liberty’s turning points
Relationship with Standard Bank
• The change in control in 1999 had a positive impact on relationship
• Liberty structure had changed radically
• Formal bancassurance agreement entered into in 1999 and revised in 2002
• Stanlib formed in 2002
• New CEO from Standard Bank in June 2003
• Other initiatives
- IT outsourcing JV
- Management development programs
- BEE
- 10 -
Bancassurance
Bancassurance has performed well (Rm)
33 46 72 99316
589 680 757
1,155
1,5551,671
3,164
2,639
3,608
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Total new bancassurance premiums
- 11 -
Stanlib-Created in 2002
Strong performance
116.1 112.2
284.7
197.0
-
50.0
100.0
150.0
200.0
250.0
300.0
350.0
2002 2003 2004 1H 2005
Rm
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Pre tax profit Cost to income ratio
- 12 -
Liberty’s turning points
Stopped the offshore expansion
• 2003- decision taken to focus on local business
• International distribution -Hightree
• Merchant Investors Assurance
• Ermitage sale initiated in 2005
• We may however follow SBK into African retail territories
• We may still enter the closed book market in time
- 13 -
Liberty’s turning points
Significant senior management changes made
•The only way to change attitude and culture is to start from the top
•Working hard to eliminate the ‘entitlement factor’
•Ongoing transformation at Liberty
•Fresh ideas need fresh management
- 14 -
Liberty previous management structure
Executive management committee
RoyAndersen
HyltonAppelbaum
MarkBloom
Deonde Klerk
LeanneDewey
ThembaGamedze
MikeGarbutt
LeeIzikowitz
CraigLawrence
AndrewLonmon-Davis
IanMaron
MikeJackson
JimMcLean
RonMitchell
DavidNohr
DanPienaar
MartinSmale
AlanWoolfson
- 15 -
Liberty management structure changes
Executive management committee
RoyAndersen
HyltonAppelbaum
MarkBloom
Deonde Klerk
LeanneDewey
ThembaGamedze
MikeGarbutt
LeeIzikowitz
CraigLawrence
AndrewLonmon-Davis
IanMaron
MikeJackson
JimMcLean
RonMitchell
DavidNohr
DanPienaar
MartinSmale
AlanWoolfson
- 16 -
Liberty-current management structure
Myles Ruck
Ian Kirk
Deonde Klerk
AudreyMothupi
LeeIzikowitz
Bobby Malabie
AndrewLonmon-Davis
IanMaron
RexTomlinson
HennieNortje
MartijnAppelo
Bruce Hemphill
AlanWoolfson
Group Executive Committee, a number of new faces
- 17 -
Liberty’s turning points
Remained committed to face-to-face distribution
•We have consistently looked to grow our distribution
•Avoided the cutbacks that some of our competitors embarked on
•Were first to introduce the franchise agency concept
•Bancassurance has been a critical success factor
•Entering the emerging market in a cautious way
•Continue to monitor the efficiency not just the absolute level of sales staff
- 18 -Source: LOA market share statistics for all life offices
Year ended 31 December 2000 Year ended 31 December 2001
Year ended 31 December 2002 Year ended 31 December 2003
Three months ended 31 March 2005Year ended 31 December 2004
Liberty’s turning points
New business market share
0%
5%
10%
15%
20%
25%
30%
35%
Recurring Individual Single Individual
19.6%
22.8%23.6%
25.3%26.0%
25.3%
15.5%16.5%
20.3%
24.5%
27.2%
32.0%
- 19 -
Liberty’s turning points
BEE deals finalised
•Initial BEE deal done at Stanlib level
- 25,2% sale to Safika Consortium
- A successful LBO
•November 2004 Liberty finalised BEE deal
- Shanduka and Safika 3.7%
- Black staff 3.7%
- Community Trust 1.9%
- 20 -
Liberty’s turning points
Capital management received significant attention
•Introduced capital management committee in Nov 2003
•Cleaned up the balance sheet
•Shed equity concentration risks and liquidated trading portfolio
•New dividend policy established
•First life assurance company in SA to issue debt
•Utilised excess capital to buy CAHL
- 21 -
Liberty’s turning points
Capital Alliance (CAHL) acquisition
•A marriage of strong distribution and operational focus
•Liberty’s new management team up for the challenge
•Significantly scales up our operations (1.8m to 3.0m policies)
•Facilitated planned organisational restructure at Liberty (at some cost)
•CAHL has experience to significantly lower operational risk
•Improvement of processes to improve efficiency
- 22 -
Liberty operational structure
The past
Insurance operations Other operations
Liberty Group Limited Liberty Active CAHL
Liberty PropertiesLCB Individual Life Individual Life
Liberty ErmitageLPB Bancassurance Group Life
Liberty HealthcareConsultancy Project Khula Distribution
Support Services Support Services Support Services
- 23 -
Liberty operational structure
The present
Assetmanagement
Marketingand
distributionOperations
Group support services
- 24 -
CAHL time line
2005 2006 2007
… people … service … costs …
Implement acquisition
Implementnew structure
Plan phase I
Integration and methodology – phase I – start with Liberty Active
Plan phase II
Integration phase II
More detail will be presented on the CAHL integration end Nov 2005
- 26 -
Industry turning points
Regulatory environment increasingly difficult
•FAIS
•FICA
•PPR
•Audit on pension funds
•Foreign exchange changes
•Surplus Apportionment Act
•PFA rulings
- 27 -
PFA Rulings
3 Major issues have been ruled on by PFA
1. Illustrative maturity values
2. Inflationary increases on guaranteed annuities
3. Early termination or reduced premiums on retirement annuities
…lets deal with the facts and the implications
- 28 -
Rulings we consider illogicalIssue 1-Illustrative maturity values (IMV)
• This has never been a guarantee, although some clients may have seen it as such
• In the Sanlam case, the illustrative real return was less than actual achieved, yet still ruled against Sanlam (De Beer case)
• IMV showing 15% plus returns was appropriate for a 15% inflationary environment
• New policyholder quotations showing reduction in yield (RIY)
• Expect a decision on De Beer case by end October 2005
Rulings we consider illogical
- 29 -
Rulings we consider illogicalIssue 2-Guaranteed annuities (GA)
• At the time of purchasing an annuity, client decides on options
• Fixed, living, escalating, joint life, guaranteed, or other
• We price an annuity based on the client’s choice
• We can’t give something for nothing
• Pensions Fund Act requires inflationary increases
• Favourable senior counsel opinion obtained and provided to FSB
Rulings we consider illogical
- 30 -
Issue 3-Retirement annuities (RA)
• The problem has been with early termination (paid up and lapse), reduction in premiums and early retirement
• The industry needs to accept that the product has not been flexible enough for clients
• It is this that causes clients to feel ‘fleeced’
• There is no doubt that both the client and the life company make more money in the long term if the client keeps paying
• Upfront costs are the problem, both commission and life company acquisition costs
Rulings that may have some merit
- 32 -
Liberty’s future turning points
A change in attitude and the way we do business
•A focused single platform will enhance customer service, reduce costs and
improve value proposition for client
•Totally re-vamped investment product
•Lower margin, higher volume ?
- 33 -
Liberty’s future turning points
A change in attitude and the way we do business
•Resolution of PFA issues
•Financial Sector Charter implementation
•Solution to access by lower income markets an industry imperative