Wrap Text
Condensed Group Results for the six months ended 31 December 2015
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI ISIN: ZAE000117438
Condensed Group results for the six months ended 31 December 2015
Net insurance premiums increased by 16% to R862.2 million
Diluted headline earnings per share increased by 10% to 60.50 cents
Annualised return on average shareholders' interest of 58%
Annualised Recurring Return on Embedded Value of 22%
Value of New Business of R300.9 million
Recurring Embedded Value Earnings of R463.6 million
Comments
Introduction
The Clientèle Group's results for the six month period should be read in the context of the ongoing tough economic environment and investment markets characterised by volatility and
poor returns. The Group Embedded Value ("EV") results were negatively impacted by the material increase in the risk discount rate ("RDR"), as a consequence of the material move in
market yield curves, which resulted in weaker EV results in relation to the prior period.
Net insurance premiums increased by 16% to R862.2 million on the back of the sustained production of good quality business in recent years. New business production volumes have
declined marginally in comparison to the comparative six month record numbers, and the quality of new business has also declined marginally. The reason for the declines is understood
by management and good progress has been made on restoring new business volumes and new business quality. It should be noted that the decline has, to an extent, been countered
by higher average premiums on new business and persistency experience which was better than assumption on existing business.
Diluted headline earnings per share increased by 10% on the comparable period, on the back of the 16% increase in net premium income and the lower increase in operating expenses
of 7%, despite low investment returns.
Headline earnings for the Group increased by 12% to R203.1 million (2014: R181.3 million) which has resulted in an annualised return on average shareholders' interests of 58%
(2014: 62%).
The dividend per share paid during the period increased by 15% to 90.00 cents (2014: 78.00 cents).
The Value of New Business ("VNB") has decreased by 25% to R300.9 million (2014: R400.5 million) mostly due to the negative impact of the increase in the RDR to 13.4% (2014:
11.2%). Had the RDR remained at the 31 December 2014 level, VNB would have decreased by 7%.
Recurring Embedded Value Earnings ("REVE") have decreased by 23% to R463.6 million (2014: R603.7 million) on the back of an increase in the claims experience and a consequent
once-off increase in reinsurance risk rates which reduced the REVE for the period by R78.2 million.
Operating Results
Group Statement of Comprehensive Income
Headline earnings per share for the period increased by 12% to 61.40 cents (2014: 55.02 cents) driven by the increase in net insurance premium revenue to R862.2 million (2014:
R742.1 million) and well controlled operating expenses.
Investment returns of R13.4 million, although being above the market's returns, were 82% lower than the comparative period's returns of R74.7 million. Returns were also negatively
impacted by a fair value adjustment to Single Premium assets of R19.0 million for the period as a result of increases in interest rates; this was fully off-set by a corresponding change in
financial liabilities.
Net insurance benefits and claims of R156.2 million (2014: R145.9 million) were 7% higher than the comparative period.
The Group follows a conservative accounting practice of eliminating negative reserves. As acquisition costs are expensed upfront, the recovery of these costs and the profits are deferred
over the policy life. The present value of this discretionary margin amounts to R2.5 billion (2014: R2.4 billion).
Group Embedded Value and Value of New Business
The increase in the RDR is the main contributor to the decrease in the VNB to R300.9 million (2014: R400.5 million). New business profit margins have declined to 26.1% (2014: 29.7%).
The REVE of R463.6 million translates into an annualised Recurring Return on Embedded Value of 22% (2014: 33%). The Group EV, which has also been materially impacted by the
increase in the RDR, has increased by 2% to R4.4 billion (2014: R4.3 billion). On a comparable RDR the EV would have amounted to R5.0 billion (an 18% increase).
The RDR calculation is comprehensively explained in the Group EV results section of the results and a sensitivity analysis is also provided.
Segment Results
Clientèle Life - Long-term insurance
Clientèle Life's Long-term insurance segment remains the major contributor to Group's performance. It accounts for 77% (2014: 86%) or R232.2 million (2014: R343.6 million) of the
Group's R300.9 million (2014: R400.5 million) of VNB and recorded REVE of R345.8 million (2014: R511.4 million) for the period, which was negatively impacted by the claims experience
and once-off reinsurance risk rate change mentioned earlier. The segment generated R175.1 million (2014: R153.9 million) net profit for the period, an increase of 14%.
Clientèle Life - Investment contracts
The Investment contracts operating segment reported a R1.3 million net profit for the period (2014: R4.6 million). This should be viewed in conjunction with the R21.1 million (2014:
R18.4 million) of deferred profits included in the Statement of Financial Position.
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal's VNB of R66.7 million (2014: R55.0 million) increased by 21% despite the increase in the RDR referred to above due to strong new business volumes and good new
business quality. Clientèle Legal recorded REVE of R116.6 million (2014: R95.2 million), a commendable increase of 22% and generated an 18% increase in net profit for the period to
R25.1 million (2014: R21.2 million).
Clientèle Loans Direct
The personal loans business, Clientèle Loans Direct, as previously reported, no longer enters into new business contracts. This is reflected by the substantial decrease in both the
"Interest income" and "Loans and receivables including insurance receivables" balances as reflected in the Condensed Group Statements of "Comprehensive Income" and "Financial
Position" respectively.
Outlook
The Board's focus is to continue to build on the positive momentum that has been achieved in the production of quality business in recent financial years and the ongoing improvements
in understanding our customer needs and customer service.
Clientèle is committed to providing products that are relevant and meet individual policyholder's needs and delivering these to the market conveniently and efficiently as well as creating
and nurturing mutually beneficial partnerships with all its stakeholders that add value on a sustainable basis. The Board remains convinced that there are attractive opportunities for
growth and value creation in Clientèle's target market.
By order of the Board
G Q Routledge B W Reekie
Chairman Managing Director
Johannesburg
15 February 2016
UNAUDITED
Condensed Group Statement of Comprehensive Income
Six months Audited
ended Year ended
31 December 30 June
%
(R'000's) 2015 2014 Change 2015
Revenue
Insurance premium revenue 921,408 798,302 1,641,189
Reinsurance premiums (59,191) (56,192) (114,001)
Net insurance premiums 862,217 742,110 16 1,527,188
Other income 81,801 88,952 170,652
Interest income 8,370 16,123 22,759
Fair value adjustment to financial assets at fair value
through profit or loss 13,381 74,654 (82) 154,889
Net income 965,769 921,839 5 1,875,488
Net insurance benefits and claims (156,180) (145,896) (300,499)
Decrease in policyholder liabilities under insurance contracts 16,757 16,789 5,042
Decrease in reinsurance assets (161) (74) (227)
Fair value adjustment to financial liabilities at fair value
through profit or loss - investment contracts (20,697) (42,492) (72,275)
Interest expense (50) (2,546) (2,752)
Reversal of impaired/(impairment of) advances 1,541 (5,889) (12,380)
Operating expenses (526,736) (490,187) 7 (990,505)
Profit before tax 280,243 251,544 11 501,892
Tax (76,617) (69,318) (137,501)
Net profit for the period 203,626 182,226 12 364,391
Attributable to:
Non-controlling interest
- ordinary shareholders 672 790 2,748
Equity holders of the Group
- ordinary shareholders 202,954 181,436 12 361,643
Net profit for the period 203,626 182,226 12 364,391
Other comprehensive income:
Gains on property revaluation# 6,711
Income tax relating to gains on property revaluation# (1,742)
Other comprehensive income for the period - net of tax - - 4,969
Total comprehensive income for the period 203,626 182,226 12 369,360
Attributable to:
Non-controlling interest
- ordinary shareholders 672 790 2,748
Equity holders of the Group
- ordinary shareholders 202,954 181,436 12 366,612
# Items that cannot be recycled to profit or loss.
Condensed Group Statement of Financial Position
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2015 2014 2015
Assets
Intangible assets 26,897 24,601 27,088
Property and equipment 41,762 23,041 26,487
Owner-occupied properties^ 392,139 249,843 308,715
Deferred tax 33,079 23,829 31,395
Inventories 1,999 1,380 1,484
Reinsurance assets 2,854 3,168 3,015
Financial assets held at fair value through profit or loss 1,841,809 1,942,009 2,051,487
Loans and receivables including insurance receivables 52,181 87,879 76,138
Current tax 269 689 5,258
Cash and cash equivalents 244,159 124,588 223,939
Total assets 2,637,148 2,481,027 2,755,006
Total equity and reserves 650,819 549,995 740,195
Liabilities
Policyholder liabilities under insurance contracts 682,125 687,135 698,882
Financial liabilities - investment contracts 905,300 975,554 942,336
- at fair value through profit or loss 905,300 963,359 942,336
- at amortised cost 12,195
Financial liabilities - loans at amortised cost 93,999 28,380 35,177
Employee benefits 104,978 75,776 122,308
Deferred tax 25,574 29,909 30,071
Accruals and payables including insurance payables 160,473 133,929 181,620
Current tax 13,880 349 4,417
Total liabilities 1,986,329 1,931,032 2,014,811
Total equity and liabilities 2,637,148 2,481,027 2,755,006
^ Owner-occupied properties are disclosed at level 2 in the fair value measurement hierarchy.
Tax
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2015 2014 2015
Current and deferred tax (74,666) (64,154) (129,301)
Capital gains tax (1,951) (5,164) (5,811)
Underprovision in prior periods (2,389)
Tax (76,617) (69,318) (137,501)
The Individual Policyholder Fund has an estimated tax loss of R2.9 billion (2014: R2.5 billion).
Reconciliation of Net Profit to Headline Earnings
Six months Audited
ended Year ended
31 December % 30 June
(R'000's) 2015 2014 Change 2015
Net profit for the period attributable to equity holders
of the Group 202,954 181,436 12 361,643
Add/(Less): Loss/(Profit) on disposal of property
and equipment 108 (133) (282)
Add: Impairment of intangible assets 1,234
Less: Taxation effects on loan write-off (2,037)
Headline earnings for the period 203,062 181,303 12 360,558
Ratios per Share
Six months Audited
ended Year ended
31 December % 30 June
(Cents) 2015 2014 Change 2015
Headline earnings per share 61.40 55.02 12 109.33
Diluted headline earnings per share 60.50 54.99 10 107.67
Earnings per share 61.36 55.07 11 109.66
Diluted earnings per share 60.47 55.03 10 107.99
Net asset value per share 196.58 166.79 18 223.87
Diluted net asset value per share 193.90 166.83 16 221.04
Dividends per share - paid 90.00 78.00 15 78.00
Dividends per share - declared 90.00
Ordinary shares in issue ('000) 331,075 329,761 330,630
Weighted average ordinary shares ('000) 330,739 329,494 329,799
Diluted average ordinary shares ('000) 335,644 329,682 334,877
Condensed Group Statement of Cash Flows
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2015 2014 2015
Cash flows from operating activities 71,363 (49,201) 128,721
Profit from operations adjusted for non-cash items 341,719 268,178 553,120
Working capital changes (69,629) (53,844) 9,350
Separately disclosable items1 (37,249) (25,811) (61,082)
Decrease in financial liabilities2 (57,733) (115,907) (178,930)
Net disposal of investments3 223,059 176,039 146,796
Interest received 30,072 18,500 44,435
Dividends received 7,177 7,311 16,647
Dividends paid (297,707) (256,963) (257,081)
Tax paid (68,346) (66,704) (144,534)
Cash flows from investing activities4 (109,965) (37,837) (113,205)
Cash flows from financing activities5 58,822 28,380 25,177
Net increase/(decrease) in cash and cash equivalents 20,220 (58,658) 40,693
Cash and cash equivalents at beginning of the period 223,939 183,246 183,246
Cash and cash equivalents at end of the period 244,159 124,588 223,939
1. Interest and dividends.
2. Financial liabilities - investment contracts.
3. Investments in respect of insurance operations and investment contracts.
4. Mainly relates to the acquisition of property and equipment in respect of the new building.
5. External funding for new office building development.
Notes to the Results
The results have not been reviewed or audited by the Group's auditors, PricewaterhouseCoopers Incorporated. The change in policyholder liabilities has been based on best estimates
after providing for compulsory and discretionary margins and has been actuarially reviewed by the Group's internal Statutory Actuary.
The Condensed Group Results were prepared under the supervision of Mr I B Hume (CA(SA), ACMA), the Group Financial Director.
Changes to the Board
Mrs B Y Mkhondo was appointed as a Non-Executive Director on 1 January 2016.
Segment Assets and Liabilities
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2015 2014 2015
Assets
Long-term insurance 1,569,160 1,382,040 1,653,027
Investment contracts 905,916 976,008 942,702
Short-term insurance 174,933 135,980 173,805
Other* 12,694 57,197 24,146
Inter segment (25,555) (70,198) (38,674)
Total Group Assets 2,637,148 2,481,027 2,755,006
Liabilities
Long-term insurance 1,035,335 914,709 1,026,336
Investment contracts 905,300 975,554 942,336
Short-term insurance 50,456 38,254 50,328
Other* 20,793 72,713 34,485
Inter segment (25,555) (70,198) (38,674)
Total Group Liabilities 1,986,329 1,931,032 2,014,811
* The decrease in other segment assets and liabilities relates to the decrease in advances of Clientèle Loans Direct
Accounting Policies
Statement of compliance
The condensed consolidated interim Financial Statements are prepared in accordance with the JSE Listing Requirements for interim reports and the requirements of the Companies Act,
Act 71 of 2008, of South Africa. The Listings Requirements require interim reports to be prepared in accordance with the framework concepts, the measurement and recognition
requirements of International Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council must also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the condensed consolidated interim Financial Statements are in terms of IFRS and are consistent with those applied in the previous
consolidated annual Financial Statements.
The preparation of the condensed consolidated interim Financial Statements in accordance with IFRS requires the use of certain critical accounting estimates and judgments. The
reported amounts in respect of the Group's insurance contracts, employee benefits and unquoted financial instruments are affected by accounting policies and judgments.
There was no major impact due to changes in previous assumptions and estimates used in deriving the amounts referred to above, besides the impact on estimates affected by the
increase in the valuation interest rate.
Capital and Other Commitments
The Group's wholly owned subsidiaries, Clientèle Properties East and Clientèle Properties North, are close to completing the new office building and parking structure within the Clientèle
Office Park. The capitalised costs of this are estimated to be R213.0 million, of which R198.2 million has been capitalised since inception.
The Group has provided financial assistance by means of a net exposure through guarantees of R45 million for the purchase of 3.92% of Clientèle's issued shares by Yellowwoods Trust
Investments (Pty) Ltd a wholly owned subsidiary of the Hollard Foundation Trust, a BBBEE Trust.
Financial Assets and Liabilities held at Fair Value through profit or loss - Fair Value Hierarchy Disclosure
The following table presents the Group's financial assets and liabilities that are measured at fair value through profit or loss at 31 December 2015.
(R'000's) Level 1 Level 2 Level 3 Total
Assets
Listed equity securities 474,306 474,306
Unlisted equity securities 3,850 3,850
Promissory notes and fixed deposits 456,353 431,005 887,358
Funds on deposit 381,656 381,656
Fixed interest securities 89,691 4,948 94,639
Total Assets 474,306 931,550 435,953 1,841,809
Liabilities
Financial liabilities at fair value through profit or loss 757,984 147,316 905,300
Total Liabilities - 757,984 147,316 905,300
Shareholders' and policyholders' linked exposure to African Bank Limited through investments in zero coupon fixed deposits of R283.7 million and R147.3 million respectively as at
31 December 2015 have been classified at level 3 on the fair value measurement hierarchy.
Related Party Transactions
Transactions between Clientèle Limited and its subsidiaries have been eliminated on consolidation. There were no material related party transactions during the period except for financial
assistance provided to the Group's wholly-owned subsidiary, Clientèle Properties East in respect of the new office building development.
Segment Information
The Group's results are analysed across South Africa ("SA") - geographical segment.
The Group's main operating segments are Long-term insurance, Investment contracts, Short-term insurance and Other (which is predominantly Clientèle Loans Direct). The vast majority
of policies written are in respect of individuals.
Segment Statements of Comprehensive Income
Inter
segment
Long-term Investment Short-term (revenue)/
(R'000's) insurance contracts insurance Other expense Group
31 December 2015
Insurance premium revenue 774,783 146,625 921,408
Reinsurance premiums (59,191) (59,191)
Net insurance premiums 715,592 146,625 862,217
Other income 78,903 4,710 239 659 (2,710) 81,801
Interest income 6,805 679 2,153 (1,267) 8,370
Fair value adjustment to financial assets at fair value through profit or loss (7,875) 20,697 559 13,381
Segment revenue 793,425 25,407 148,102 2,812 (3,977) 965,769
Segment expenses and claims (551,333) (23,633) (113,968) (569) 3,977 (685,526)
Net insurance benefits and claims (140,879) (15,301) (156,180)
Decrease/(increase) in policyholder liabilities under insurance contracts 17,347 (590) 16,757
Decrease in reinsurance assets (161) (161)
Fair value adjustment to financial liabilities at fair value through profit or loss (20,697) (20,697)
Interest expense (1,317) 1,267 (50)
Reversal of impaired advances 1,541 1,541
Operating expenses (427,640) (2,936) (98,077) (793) 2,710 (526,736)
Profit before tax 242,092 1,774 34,134 2,243 - 280,243
Tax (67 036) (497) (9,084) (76,617)
Net profit for the period 175,056 1,277 25,050 2,243 - 203,626
Attributable to:
Non-controlling interest - ordinary shareholders 672 672
Equity holders of the Group - ordinary shareholders 175,056 1,277 25,050 1,571 - 202,954
31 December 2014
Insurance premium revenue 682,192 116,110 798,302
Reinsurance premiums (55,957) (235) (56,192)
Net insurance premiums 626,235 115,875 742,110
Other income 80,331 7,854 216 3,190 (2,639) 88,952
Interest income 7,913 399 11,664 (3,853) 16,123
Fair value adjustment to financial assets at fair value through profit or loss 24,342 45,502 4,810 74,654
Segment revenue 738,821 53,356 121,300 14,854 (6,492) 921,839
Segment expenses and claims (525,127) (47,039) (92,528) (12,093) 6,492 (670,295)
Net insurance benefits and claims (133,676) (13,060) 840 (145,896)
Decrease in policyholder liabilities under insurance contracts 16,470 319 16,789
Decrease in reinsurance assets (74) (74)
Fair value adjustment to financial liabilities at fair value through profit or loss (42,492) (42,492)
Interest expense (2,247) (4,152) 3,853 (2,546)
Impairment of advances (5,889) (5,889)
Operating expenses (407,847) (2,300) (79,787) (2,052) 1,799 (490,187)
Profit before tax 213,694 6,317 28,772 2,761 - 251,544
Tax (59,782) (1,769) (7,616) (151) (69,318)
Net profit for the period 153,912 4,548 21,156 2,610 - 182,226
Attributable to:
Non-controlling interest - ordinary shareholders 790 790
Equity holders of the Group - ordinary shareholders 153,912 4,548 21,156 1,820 - 181,436
Condensed Group Statement of Changes in Equity
SAR and
Common Bonus Rights Non-
Share Share control Sub- Retained Schemes NDR: Sub- controlling
(R'000's) capital premium deficit total earnings Reserve* Revaluation total interest Total
Balance as at 1 July 2014 6,584 285,618 (220,273) 71,929 468,364 23,181 61,222 624,696 (5,850) 618,846
Ordinary dividends (257,031) (257,031) (257,031)
Total comprehensive income 181,436 181,436 790 182,226
- Net profit for the period 181,436 181,436 790 182,226
Shares issued 11 9,458 9,469 9,469 9,469
SAR and Bonus Rights Schemes allocated 5,954 5,954 5,954
Transfer from Shares issued (7,973) (1,496) (9,469) (9,469)
Balance as at 31 December 2014 6,595 295,076 (220,273) 81,398 384,796 27,639 61,222 555,055 (5,060) 549,995
Balance as at 1 January 2015 6,595 295,076 (220,273) 81,398 384,796 27,639 61,222 555,055 (5,060) 549,995
Total comprehensive income 180,207 4,969 185,176 1,958 187,134
- Net profit/(loss) for the period 180,207 180,207 1,958 182,165
- Other comprehensive income 4,969 4,969 4,969
Shares issued 18 15,109 15,127 15,127 15,127
SAR and Bonus Rights Schemes allocated 3,066 3,066 3,066
Transfer from shares issued (12,121) (3,006) (15,127) (15,127)
Balance as at 30 June 2015 6,613 310,185 (220,273) 96,525 552,882 27,699 66,191 743,297 (3,102) 740,195
Balance as at 1 July 2015 6,613 310,185 (220,273) 96,525 552,882 27,699 66,191 743,297 (3,102) 740,195
Ordinary dividends (297,759) (297,759) (297,759)
Total comprehensive income 202,954 202,954 672 203,626
- Net profit for the period 202,954 202,954 672 203,626
Shares issued 9 7,859 7,868 7,868 7,868
SAR and Bonus Rights Schemes allocated 4,757 4,757 4,757
Transfer from Shares issued (5,959) (1,909) (7,868) (7,868)
Balance as at 31 December 2015 6,622 318,044 (220,273) 104,393 452,118 30,547 66,191 653,249 (2,430) 650,819
* SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme.
* Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme.
Group embedded value results
Group Embedded Value
The Embedded Value ("EV") represents an estimate of the value of the Group, exclusive of goodwill attributable to future new business. The EV comprises:
- the Free Surplus; plus,
- the Required Capital identified to support the in-force business; plus,
- the Present Value of In-force ("PVIF") business; less,
- the Cost of Required Capital ("CoC").
The PVIF business is the present value of future after-tax profits arising from covered business in force as at 31 December 2015.
All material business written by the Group has been covered by EV Methodology as outlined in Advisory Practice Notice, APN 107 of the Actuarial Society of South Africa, including:
- All long-term insurance business regulated in terms of the Long-term Insurance Act, 1998;
- Legal insurance business where EV Methodology has been used to determine future shareholder entitlements;
- Annuity income arising from non-insurance contracts where EV Methodology has been used to determine future shareholder entitlements; and
- Loans business where EV Methodology has been used to determine future shareholder entitlements.
The EV calculation has been reviewed by the Group's internal Statutory Actuary. The EV can be summarised as follows:
Six months
ended Year ended
31 December 30 June
(R'000's) 2015 2014 2015
Required capital 360,151 334,438 335,208
Free surplus 274,756 186,822 387,605
Adjusted Net Worth ("ANW") of covered business 634,907 521,260 722,813
CoC (85,433) (67,257) (74,170)
PVIF 3,811,118 3,802,279 3,952,657
EV of covered business 4,360,592 4,256,281 4,601,300
The ANW of covered business is defined as the excess value of all assets attributed to the covered business, but not required to back the liabilities of covered business. Free Surplus is the
ANW less the Required Capital attributed to covered business.
Reconciliation of Total Equity to ANW
Six months
ended Year ended
31 December 30 June
(R'000's) 2015 2014 2015
Total equity and reserves per the Statement of Financial Position 650,819 549,995 740,195
Adjusted for Deferred Profits and impact of compulsory margins
on investment business 12,179 10,313 11,327
Adjusted for minority interests 2,430 5,060 3,102
Adjusting subsidiaries to Net Asset Value 21,884 20,148 21,884
SAR and Bonus Rights Schemes adjustment (52,405) (64,257) (53,695)
ANW 634,907 521,260 722,813
The CoC is the opportunity cost of having to hold the Required Capital of R360.2 million as at 31 December 2015 (30 June 2015: R335.2 million). The Required Capital has been set at the
greater of the Statutory Termination Capital Adequacy Requirement and 1.25 times the Statutory Ordinary Capital Adequacy Requirement for the Life company plus the Required Statutory
Capital for the Short-term company.
The SAR and Bonus Rights Schemes adjustment recognises the future dilution in EV, on a mark to market basis, as a result of the SAR and Bonus Rights Schemes.
Clientèle Life's Statutory Capital Adequacy Requirement (CAR) was calculated as the maximum of TCAR, OCAR and MCAR, with TCAR being the highest of the three.
Clientèle Life's Statutory CAR cover ratio at 31 December 2015 was 1.8 times (30 June 2015: 2.32 times) on the statutory valuation basis.
Clientèle General Insurance's Statutory CAR cover ratio at 31 December 2015 was 1.18 times (30 June 2015: 1.33 times) on the statutory valuation basis.
Value of New Business ("VNB")
Six months
ended Year ended
31 December 30 June
(R'000's) 2015 2014 2015
Total VNB 300,934 400,454 717,574
Present Value of New Business premiums 1,154,695 1,350,435 2,482,780
New Business profit margin 26.1% 29.7% 28.9%
The VNB (excluding any allowance for the Management incentive schemes, which is shown as a separate component of EV earnings), represents the present value of projected after-tax profits
at the point of sale on new covered business commencing during the period ended 31 December 2015, less the CoC pertaining to this business.
The New Business profit margin is the VNB expressed as a percentage of the present value of future premiums (and other annuity fee income) pertaining to the same business.
Long-term Economic Assumptions
Six months
ended Year ended
31 December 30 June
(%) 2015 2014 2015
Risk discount rate 13.4 11.2 11.8
Non-unit investment return 9.9 7.7 8.3
Unit investment return 10.7 9.0 9.3
Expense inflation 8.4 6.2 6.8
Corporate tax 28.0 28.0 28.0
The risk discount rate ("RDR") has been determined using a top-down weighted average cost of capital approach, with the equity return calculated using the Capital Asset Pricing Model
("CAPM") theory. In terms of current actuarial guidance, the RDR has been set as the risk free rate plus a beta multiplied by the assumed equity risk premium. It has been assumed that the
equity risk premium (i.e. the long-term expected difference between equity returns and the risk free rate) is 3.5%. The beta pertaining to the Clientèle share price is relatively low, which is partially
a consequence of the relatively small free-float of shares. After careful consideration, the Board has decided to continue to use a more conservative beta of 1, as opposed to its actual beta of
0.0815, in the calculation of the RDR. The Board draws the reader's attention to the RDR sensitivity analysis in the next table, which allows for sensitivity comparisons using various alternative
RDRs.
The resulting RDR utilised for the South African business as at 31 December 2015 was 13.4% p.a. (30 June 2015: 11.8% p.a.).
RDR Sensitivities
(R'000's) EV VNB
RDR 11.2% (RDR as at December 2014) 5,016,522 374,228
RDR 11.4% 4,951,141 367,213
RDR 11.8% (RDR as at June 2015) 4,817,492 351,507
RDR 12.4% 4,633,037 331,042
RDR 13.4% (RDR as at December 2015) 4,360,592 300,934
RDR 14.4% 4,127,226 276,140
RDR 15.4% 3,924,354 253,932
Demographic and other changes
A withdrawal and unpaid premium profit was experienced during the period. The results allow for worse withdrawal experience in the second half of the financial year, as per historic
experience.
EV per Share
Six months ended Year ended
31 December 30 June
(Cents) 2015 2014 2015
EV per share 1,317.10 1,290.72 1,391.68
Diluted EV per share 1,297.88 1,289.98 1,370.63
Segment Information
The EV can be split between segments as follows:
(R'000's) ANW PVIF CoC EV
31 December 2015
SA - Long-term insurance 519,645 3,130,063 (59,875) 3,589,833
SA - Short-term insurance 120,931 675,405 (25,558) 770,778
SA - Investment contracts - 2,544 - 2,544
Other (5,669) 3,106 - (2,563)
Total 634,907 3,811,118 (85,433) 4,360,592
31 December 2014
SA - Long-term insurance 437,210 3,202,133 (45,750) 3,593,593
SA - Short-term insurance 94,505 594,863 (21,507) 667,861
SA - Investment contracts - 2,799 - 2,799
Other (10,456) 2,484 - (7,972)
Total 521,260 3,802,279 (67,257) 4,256,281
30 June 2015
SA - Long-term insurance 609,521 3,306,547 (53,314) 3,862,754
SA - Short-term insurance 120,532 639,592 (20,856) 739,268
SA - Investment contracts - 2,629 - 2,629
Other (7,240) 3,889 - (3,351)
Total 722,813 3,952,657 (74,170) 4,601,300
The VNB can be split between segments as follows:
Six months ended Year ended
31 December 30 June
(R'000's) 2015 2014 2015
SA - Long-term insurance 232,164 343,611 602,313
SA - Short-term insurance 66,666 55,038 111,360
SA - Investment contracts 1,784 792 3,037
Other 320 1,014 864
Total 300,934 400,454 717,574
Embedded Value Earnings Analysis
EV earnings (per APN 107) comprises the change in EV for the period after adjusting for capital movements and dividends paid.
Six months ended 31 December 2015 Six months ended Year ended
31 December 30 June
(R'000's) ANW PVIF CoC Total 2014 2015
A: EV at the end of the period 634,907 3,811,118 (85,433) 4,360,592 4,256,281 4,601,300
EV at the beginning of the period 722,813 3,952,657 (74,170) 4,601,300 3,938,694 3,938,694
Ordinary dividends (297,759) - - (297,759) (257,031) (257,031)
B: Adjusted EV at the beginning of the period 425,054 3,952,657 (74,170) 4,303,540 3,681,663 3,681,663
EV earnings (A - B) 209,853 (141,538) (11,263) 57,052 574,618 919,637
Impact of once-off economic assumption changes (8,786) 408,508 6,802 406,524 29,111 178,005
Recurring EV earnings 201,067 266,970 (4,461) 463,576 603,729 1,097,642
Recurring Return on EV 21.5% 32.8% 29.8%
Return on EV 2.7% 31.2% 25.0%
Components of EV earnings
VNB (178,025) 484,282 (5,323) 300,934 400,454 717,574
Expected return on covered business - 237,626 5,651 243,277 198,158 411,292
Expected profit transfer 395,875 (395,875) - - - -
Withdrawal and unpaid premium experience variance 395 9,653 (4,764) 5,284 34,599 19,017
Claims and reinsurance experience variance (1,405) - - (1,405) 56 (3,416)
Sundry experience variance 11,385 10,027 - 21,412 4,698 4,167
Changes in modelling/basis and non-economic assumptions - (5,360) (25) (5,385) 1,118 (31,951)
Changes in claims assumption and reinsurance risk rates (3,274) (74,945) - (78,219) - -
Expected return on ANW 22,567 - - 22,567 14,280 34,987
SAR and Bonus Rights Schemes 6,047 - - 6,047 (4,865) 13,221
Goodwill and Medium-term incentive schemes (31,192) 1,562 - (29,630) (49,063) (68,498)
EV operating return 222,373 266,970 (4,461) 484,882 599,436 1,096,394
Investment return variances on ANW (21,306) - - (21,306) 4,293 1,248
Recurring EV earnings 201,067 266,970 (4,461) 463,576 603,729 1,097,642
Effect of economic assumption changes 8,786 (408,508) (6,802) (406,524) (29,111) (178,005)
EV earnings 209,853 (141,538) (11,263) 57,052 574,618 919,637
Registered office: Clientèle Office Park, Cnr Rivonia and Alon Roads, Morningside, PO Box 1316, Rivonia 2128, South Africa
Transfer secretaries: Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg 2001, South Africa
PO Box 61051, Marshalltown 2107, South Africa
Directors: G Q Routledge BA LLB (Chairman); G J Soll CA(SA) (Vice Chairman); B W Reekie BSc(Hons), FASSA* (Managing Director); A D T Enthoven BA, PhD (Political Science);
B Frodsham BCom*; P R Gwangwa BProc LLB, LLM; I B Hume CA(SA), ACMA*; B Y Mkhondo BCom, MBA; B A Stott CA(SA); R D Williams, BSc(Hons), FASSA
Company secretary: W van Zyl CA(SA) *Executive Director
website: www.clientele.co.za e-mail: results@clientele.co.za
Sponsor: PricewaterhouseCoopers Corporate Finance Proprietary Limited
Date: 15/02/2016 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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