|  |
 |
Liberty |
 |
| |
Both policyholders and shareholders benefited from the strong growth enjoyed by South African investment markets in general, particularly during the second half of the year.
Financial highlights
- Headline earnings increased by 32%.
- Both policyholders and shareholders benefited from the strong growth enjoyed by South African investment markets in general, particularly during the second half of the year.
- Indexed new business grew by 10% over 2003, from R3,8 billion to R4,2 billion, while the value of new business increased from R609 million to R815 million.
- Overall new business margins for the year grew to 24%, due largely to the increased volume of risk business sold during the year.
- Net cash flows from insurance operations were positive at R3,6 billion.
- Expense increases were contained within the actuarial assumption of annual growth of 5%, and embedded value grew by 17%.
- Capital adequacy requirement ratio remained strong at 2,1 times.
- The total dividend for the year was 13% up.
|
How we did
| |
2004 |
2003 |
| Headline earnings (Rm) 1 |
1 252 |
950 |
| Headline earnings attributable to Standard Bank (Rm) |
350 |
270 |
| Profit for the year (Rm) 1 |
1 804 |
1 162 |
| Total embedded value (Rm) 1 |
16 867 |
15 817 |
| Headline earnings contribution (%) |
5 |
4 |
|
1 Liberty Life as published
Wealth management in South Africa
What we achieved in 2004
Black Ownership Initiative
In November 2004 Liberty Life concluded a R1,3 billion Black Ownership Initiative, involving the sale of ordinary shares equivalent to 10% of the value of its South African operations to a broad based empowerment grouping headed up by Safika and Shanduka. Significantly, 40% of the shares made available in this deal were acquired by a trust for the benefit of current and future black management of Liberty. All other staff members who were not participants in the black management scheme or any other staff incentive scheme were given 100 shares in Liberty. This participation in ownership, together with the existing staff share incentive schemes means that the staff of Liberty now have an interest in approximately 7% of the group's share capital which should align their interests closely to those of the wider body of Liberty shareholders.
Acquisition of Capital Alliance
In December it was announced that Liberty Life intended making an offer to acquire the entire listed shareholding of Capital Alliance Holdings Limited. The offer was subject to a number of conditions precedent, most of which have been met. Should the deal be sanctioned by the court, the merger of the two businesses is expected to deliver positive synergies – generating efficiencies of scale, reduced costs in certain areas and some revenue enhancement. Calculations show that the deal will be immediately earnings accretive.
Capital management
Having concluded the Black Ownership Initiative, the associated capital impairment of R1,3 billion has been determined. In spite of this impairment, Liberty Life remained healthily capitalised at year end. The conclusion of the Capital Alliance transaction will reduce Liberty’s capital adequacy ratio to approximately 1,6 times. The Capital Management Committee within Liberty has also been actively exploring the allocation and mix of its capital, and as early as June last year made application to the Financial Services Board for permission to issue a subordinated bond which would count towards its capital adequacy requirement cover. If successful, Liberty intends to raise between R1,0 and R2,0 billion of debt which will be used to fund the group’s working capital requirements.
Liberty Active (formerly Charter Life)
For some 15 years Charter Life has been the principal bancassurance vehicle for Liberty Life and Standard Bank and it has enjoyed considerable success and rapid growth. As early as 1999, Charter Life indicated it would aggressively enter the lower end of the assurance and investment market. During the course of 2004 a structured plan to "build" a way into that market was finally drawn up and doors were opened for business as Liberty Active early in 2005. Early indications are promising.
Cost reductions and customer service
Focus on these two vital areas of Liberty Life's business continues. For the second year in a row cost increases were managed to within actuarial assumptions. Liberty will continue to spend money where it is important to provide professional products and services to its stakeholders, so as to deliver top class service in an industry that is not renowned for it.
Operational performance
New individual single premiums increased by 28% to R8 700 million with CPI Plus, Excelsior risk profiled and property portfolios being the most favoured asset classes for investment products. New individual recurring premiums grew by 7% to R2 674 million, with the rate of growth being negatively impacted by the discontinuance of the Medical Lifestyle and Medical Lifestyle Plus product sales in the first quarter of 2004.
In the first full year, Lifestyle Protector risk product sales amounted to R494 million.
New corporate single premiums decreased by 18% to R1 582 million while stronger sales in the second half of 2004 resulted in new recurring corporate premiums increasing by 12%.
Support from independent brokers continued in 2004 with individual new business sales increasing by 17% to R4 344 million, despite the discontinuance of the Medical Lifestyle and Medical Lifestyle Plus products, which were widely distributed by this channel.
The bancassurance relationship with Standard Bank continued to yield significant benefits, with individual new business premiums increasing by 35% to R3 557 million in 2004. New corporate premiums doubled year on year, but remain disappointing given the opportunities that should exist within Standard Bank’s client base. The sales model for corporate benefits was restructured towards the end of 2004 with a view to improving sales from this channel. Bancassurance sales now comprise 26% of total new business.
Cooperation with Standard Bank
In addition to the long standing bancassurance venture, Liberty Life has also been exploring other avenues for cooperation with Standard Bank, particularly on the expense side of the income statement. To this end an agreement to outsource much of its information technology requirements to the bank was concluded.
Stanlib
Stanlib is a vital part of Liberty Life's business – both from an asset management and profit contribution aspect. The turnaround in profitability at Stanlib in 2004 was encouraging as was the continued improvement in investment performance.
The charter
Liberty is making significant strides towards meeting its commitments under the charter and should meet the requirements of the charter in full and on time.
Opportunities
Exciting opportunities exist for the year ahead. Liberty Life will be restructuring its business into a front office/back office model in order to achieve better efficiencies. The acquisition of Capital Alliance should enable Liberty Life to reach its "simplification" objective sooner as Capital Alliance has successfully integrated nine closed policyholders’ funds in the last five years.
Real growth in earnings, embedded value and dividends is anticipated in 2005, but will, to some extent, depend on investment markets continuing to perform well in 2005. The acquisition of Capital Alliance will achieve the aim of generating efficiencies in due course which should benefit policyholders and shareholders alike.
Focus areas for 2005
In the year ahead Liberty Life will focus on:
- developing new products;
- structuring and managing capital;
- integrating Capital Alliance;
- managing Liberty Active's entrance into a new market; and
- people, service and costs.
| | | | | | | |
