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Operational Update for the Nine Month Period Ended 30 September 2016
Liberty Holdings Limited
Registration number 1968/002095/06
Incorporated in the Republic of South Africa
ISIN code: ZAE0000127148
Share code: LBH
("Liberty Holdings" or "the Company")
OPERATIONAL UPDATE FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2016
The difficult operating conditions experienced in the first half of 2016
persisted in the third quarter. Increased pressure on consumer disposable
income, low economic growth and lower returns from investment markets
impacted customer behaviour negatively. New business performance in the
third quarter was assisted by new product offerings and customer moves
towards new generation products. Active cost management remains a focus
across the group, however, there have been cost pressures resulting from
investments into the asset management business. Returns on the shareholder
investment portfolio were behind benchmark for the nine month period ended
30 September 2016 due to volatile investment market conditions but remain
ahead of the three year cumulative benchmark. Assets under management
amounted to R675 billion (31 December 2015: R668 billion).
Capital position
The group’s capital position was maintained within the board approved risk
appetite. The group’s main life subsidiary, Liberty Group Limited, remains
well capitalised as reflected by its capital adequacy level of 2.84 times
the regulatory minimum at 30 September 2016 (31 December 2015: 3.03 times)
which is within the target range of 2.50 to 3.00 times.
Insurance
Individual Arrangements
The Retail insurance operations indexed new business of R4.8 billion was 2%
up compared to the prior period following a difficult start to the year.
Recurring premium business was up 2% compared to the equivalent 2015
period. Single premium new business was up 1% for the period, reflecting an
improvement compared to the 5% decline reported for the six months to
30 June 2016. This result was assisted by an uptake of the new guaranteed
investment product launched in May 2016. The new offshore domiciled
investment offering and the Liberty Bold Living Annuity were launched at
the end of the third quarter of 2016.
Net cash inflows for the Retail insurance operations (excluding the Retail
SA LISP) reduced to R0.7 billion from R4.8 billion in the prior period,
primarily due to higher policy surrenders and maturities, reflecting
financial pressure on customers resulting in worsening persistency.
Group Arrangements
Indexed new business from Liberty Corporate of R585 million was 9% higher
than the 2015 period. Recurring premiums were up 14% on the prior period
due to growth in umbrella product sales. Liberty Corporate single premiums
were down 31% on the comparative period due to no significant single
premium mandates being secured. Liberty Corporate net cash outflows of
R978 million have improved compared to the prior period outflows of
R1 100 million, reflecting the absence of large single investment mandates,
higher employment terminations impacting member withdrawals in the various
associated retirement funds and higher risk claims.
Liberty Africa Insurance indexed new business of R211 million was 2% lower
than the comparative period. This was partly due to the non-recurrence of
the take on of an existing book in Zambia in the prior year. Lower economic
growth has increased pressure on pricing and new business flows across the
business on the continent. Liberty Health operations have been restructured
to focus more on the proprietary medical expense risk product solution for
employers in non-South African jurisdictions. Lives covered by this product
have grown to 121 000, reflecting growth of 17% per annum over the last
three years.
Balance sheet management
LibFin continued to manage the shareholders’ investment portfolio, the
asset liability market risk exposures and the credit portfolio within
mandate and approved risk limits. The returns on the LibFin Markets credit
portfolio continued to benefit from the growth in credit assets backing
annuities and guaranteed product liabilities.
Asset management
STANLIB
STANLIB’s assets under management amounted to R584 billion compared to
R579 billion at 31 December 2015, reflecting incremental growth from
investment market returns and external net cash inflows of R3 billion. The
South African business attracted retail and institutional inflows of
R0.7 billion and money market inflows of R0.3 billion. The outsourcing of
administration for the South African retail business was completed in the
period. The African asset management businesses received inflows of
R2 billion for the period. Intragroup cash outflows for the period amounted
to R11 billion. The asset management business in Kenya experienced
operational issues coupled with financial market disruption and regulatory
interventions which have impacted the business model.
Conclusion
In the third quarter of 2016, management focused on ensuring that existing
customers are well served during difficult economic conditions. These
conditions resulted in increased surrenders and withdrawals, as well as
poorer disability experience. We responded by introducing new customer
focused product offerings which resulted in higher sales and ensuring that
existing customers understand the benefits we already provide.
Volatility of local investment market returns appears likely to continue in
the short term considering the imminent decision on the status of South
Africa’s investment-grade rating and the outlook for economic growth.
This operational update for the nine month period ended 30 September 2016
has not been audited or reviewed by the company's auditors.
Queries:
Investor Relations
Sharon Steyn 011 408 3063
www.libertyholdings.co.za
24 November 2016
Sponsor
Merrill Lynch South Africa (Pty) Limited
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