Industry Regulations and Changes to Insurance Products - LEW01 Lewis Group Limited Incorporated in the Republic of South Africa) Registration number: 2004/009817/06) LEW01 ISIN: ZAG000110222 ("Lewis Group" or the "Group") INDUSTRY REGULATIONS AND CHANGES TO INSURANCE PRODUCTS The Lewis Group provides the following update on regulations impacting the industry, the potential impact of new and draft regulations on the Lewis Group and changes to the structure of insurance products sold by the Lewis Group. A. Draft credit life insurance regulations The Minister of Trade and Industry published draft regulations on 13 November 2015 which proposed a maximum cost of credit life insurance applicable to “other credit agreements” (category applicable to Lewis Group) of R4.50 per R1 000 of cover, calculated on a reducing balance. In addition, if the credit life insurance provides for the settlement of the consumer’s total obligation in the event of temporary disability or the consumer is unable to earn an income, the maximum cost may increase by R1.00 to R5.50 per R1 000 of cover. The following factors should be considered when assessing the potential impact of these draft regulations on the Group: ? Approximately 12% of total insurance revenue of Lewis Group is generated by operations outside of South Africa and is therefore not impacted by the new regulations. ? The regulations are expected to apply only to new credit contracts. The full impact of the regulations on the Group’s earnings will therefore be on a phased basis and take approximately three to four financial years to have a full impact as new business converts to the proposed standard product and lower rates. ? Credit life insurance in South Africa [for Lewis Group] was approximately R570 million for the financial year ended 31 March 2015. ? The regulations are only in draft form and the Minister has called for public comment on the draft regulations. Lewis Group will be making a formal submission. ? The Group will, if necessary, also adjust its merchandise pricing to support the business model. B. Review of limitations on fees and interest rate regulations Regulations published on 6 November 2015, which will be applicable from 6 May 2016, prescribe a maximum interest rate of 23.25% (repo rate + 17% per year) in regard to “other credit agreements” which is the category applicable to Lewis Group. Lewis Group currently charges an interest rate of 23% and the new regulations are therefore not expected to have a negative impact on revenue. The maximum initiation fees and monthly service fees prescribed in the regulations are higher than the fees currently charged by Lewis Group. C. Change from term to monthly insurance products Lewis Group has previously offered term insurance products across all its trading brands. The insurance premiums for the term of the contract were therefore paid across to the Group’s wholly- owned insurance subsidiary, Monarch Insurance, on the date of the contract coming into effect. Following the acquisition of the Beares chain in late 2014, the decision was taken to introduce a monthly insurance product, with the first offer being extended to customers of Beares from December 2014. The monthly insurance offering was extended to customers of Best Home and Electric in July 2015 and is expected to be extended to customers of the Lewis brand during the first half of 2016. The change from term to monthly policies will result in less capital being allocated to the insurance business and further strengthen the group’s cash resources. The group remains strongly cash generative and its gearing is expected to remain below management’s target ceiling of 34%. Cape Town 2 December 2015 Sponsor Absa Bank Limited (acting through its Corporate and Investment Banking division) Date: 02/12/2015 04:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.