ubs conference presentation

UBS Financials ConferenceThe quest for positive “jaws” – balancing growth and efficiency: 

UBS Financials Conference The quest for positive “jaws” – balancing growth and efficiency 20 October 2006 www.liberty.co.za

Agenda: 

Agenda 3

Key performance indicators: 

Key performance indicators Return on embedded value (ROEV) New business margins New business volumes Management expenses Headline earnings per share Net cash flows CAR cover

Retrospective drivers of revenues (1970’s – early 1990’s): 

Retrospective drivers of revenues (1970’s – early 1990’s) High interest rates, high inflation Lower penetration of life products  growth Consumerism all but non existent Tax advantages for life wrapped products Limited competition from non-assurance companies Strong, well remunerated sales forces Strong collaborative relationship with policymakers Clearly times have changed. Has the industry been slow to adapt? As good as it gets

Retrospective drivers of revenues – Liberty: 

Retrospective drivers of revenues – Liberty Cost and inefficiencies are tolerated in high inflationary and growth environments

The jaws of the crocodile: 

Strong sales and cost growth The jaws of the crocodile Historical Shape Cumulative percentage change Time Premiums Costs Pre 2005

The jaws of the crocodile: 

Weaker life sales, flat cost growth The jaws of the crocodile Cumulative percentage change Time Current Shape 2006 Premiums Costs Historical shape

The jaws of the crocodile: 

The jaws of the crocodile Future Shape 2007 onwards Sales Costs Cumulative percentage change Original historical shape Time Improved sales, … slower than the past; rigorous focus on costs

The jaws of the crocodile: 

The jaws of the crocodile Time Premiums Costs Historical shape (pre 2005) Time Current shape (2006) Cumulative percentage change Cumulative percentage change Premiums Costs Time Future shape (2007 onwards) Cumulative percentage change Sales Costs Strong sales and cost growth Weaker life sales, flat cost growth Improved sales, … slower than past; rigorous focus on costs The jaws will open

Top jaw dropping … preserving our basis for growth: 

Top jaw dropping … preserving our basis for growth Development of SA savings industry total business (incl. money market) Source: Citigroup (a) incl retail and institutional assets Source: SARB, Deutsche Bank Unit trust savings have outgrown life insurance premiums over the past three years Off-balance sheet sales for the life industry have significantly outstripped on-balance sheet sales since 2003 22% 44% 63% 87% 79% 74% 75% 101% 165% 187% Development of SA life company new savings business (ex money market) (a) 45 48 93 46 75 120 55 94 149

Strengthening the top jaw: 

Strengthening the top jaw Focus on building an equity franchise Proposed acquisition of 100% of STANLIB is the most appropriate response

Sustainable asset acquisition costs: 

Sustainable asset acquisition costs Maintaining sustainable operating margins is a key profitability requirement. A significant component of this relates to evolving the distribution and sales structures into models which provide for long term sustainable asset acquisition costs

Opportunities for top line growth – sustainable asset acquisition cost: 

Costs of distribution and sales to be more closely linked to the general sales environment Facilitate migrations from expensive to cheaper channels Differentiated service models – not “one size fits all” Customer and intermediary touch points through technology solutions Distribution and sales process Opportunities for top line growth – sustainable asset acquisition cost

Opportunities for top line growth – Bancassurance: 

Opportunities for top line growth – Bancassurance Driven at strategic level Leverage current model more broadly Representation in branch structure Review of consultant profile and remuneration Technology enabled sales processes Senior staff seconded to Bank for simple product

Opportunities for top line growth –: 

Opportunities for top line growth – Optimal product portfolio to widest IFA footprint Optimise overlap issues in IFA “Single selling message irrespective of wrapper” Alleviate product and channel competition in SBFC and Tied force Integrated wealth offering at bank branch level Combined and integrated direct model Integration of corporate benefit sales with Stanlib institutional sales Combined approach to Africa

Opportunities for top line growth Alternative models: 

Opportunities for top line growth Alternative models Opportunities exist to broaden our distribution reach where we: Do not wish to build distribution Are unable to penetrate market segments Wish to convert a component of fixed cost to variable cost Require flexibility on human resource and remuneration practices

Operational challengesA snapshot: 

Operational challenges A snapshot Poor productivity in processing # Median Liberty Complex operating environment From 13 main systems to 4 Currently +50 interfaces to Compass Detailed project plans for conversions in place Significant opportunity to improve productivity Individual ahead of corporate People, process and technology

Enhancing operational delivery and customer service : 

Enhancing operational delivery and customer service PAST / TODAY Reaction to consumerism led to increased operating costs and service burden Meeting policyholder service led to deferral of key improvements in intermediary service Improved ease of doing business will enhance sales productivity Largely an undifferentiated service model Complicated legacy environment

Enhancing operational delivery and customer service: 

Enhancing operational delivery and customer service TODAY / FUTURE Re-balance spend to provide differentiated service to intermediary Intermediary service spend should increase sales productivity  partner of choice Cost savings delivered from service rationalisation Increased productivity through process and system rationalisation Ensure scalability and decreased time to market

Enhancing operational delivery and customer service: 

Enhancing operational delivery and customer service Increase productivity and prioritise service spend better Get it right the first time Better service at lower costs Detailed project plans, management structures and executive responsibility in place to ensure we deliver on our savings promise Doing what’s right for the customer

Driving capital management efficiency : 

Driving capital management efficiency Post Stanlib transaction we estimate excess capital at circa R1bn vs interim of R1.4bn Commenced risk based modelling to analyse right amount of capital for business T-CAR is quite onerous Further opportunity to gear the balance sheet If we don’t need it we will return it to shareholders in the most effective way

The quest for positive jaws: 

The quest for positive jaws Significant value add for shareholders