Wrap Text
Condensed Unaudited Group Results For the six months ended 31 December 2017
Clientèle Limited
(Registration number 2007/023806/06)
Share code: CLI
ISIN: ZAE000117438
Condensed Unaudited Group Results
For the six months ended 31 December 2017
Diluted headline earnings per share increased by 18% to 78.27 cents
Net insurance premiums increased by 12% to R1.0 billion
Annualised return on average shareholders' interest of 55%
Value of New Business of R313.5 million
Recurring Embedded Value Earnings of R570.9 million
Annualised Recurring Return on Embedded Value of 21.0%
Embedded value per share of 1,805.92 cents
Commentary
Introduction
The Clientèle Group has produced a good set of results for the six month period against the backdrop of a continuing challenging economic
environment. New business production volumes are in line with expectations, and have been assisted by the contributions from the new
Agency and Broker distribution channels. These new channels were established just over a year ago and are both growing in line with the
business plan.
In the last quarter of the previous financial year Clientèle launched a single premium co-branded product which accounts for most of the
increase in financial assets during the period.
Investment returns for the period were good and produced a 16.6% (2016: 3.1%) annualised return from the portfolios which have a
conservative equity content.
The increase in expenses above inflation for the period is mostly attributable to the new business acquisition costs for the Agency and Broker
channels as well as acquisition costs for the IFA distribution network as a result of higher production levels.
Withdrawals, particularly in respect of new business written, and debit order disputes have not met management's expectations which has
affected insurance premium revenues, the Value of New Business ("VNB") and Recurring Embedded Value Earnings ("REVE"). These areas
remain a focus of management attention.
Operating Results
Group Statement of Comprehensive Income
Net insurance premiums increased by 12% to R1.0 billion (2016: R0.9 billion), on the back of good production over the last twelve months
and higher average premiums on new business, with a consequent diluted headline earnings per share increase of 18% over the comparative
period.
Net insurance benefits and claims of R194.7 million (2016: R172.9 million) were 13% higher than the comparative period.
Operating expenses of R644.6 million (2016: R553.4 million) were 16% higher than the comparative period. It should be noted that
R6.4 million in respect of the Goodwill incentive scheme was expensed in the current period and R14.9 million was released in the
comparative six month period. If the Goodwill incentive scheme and the Agency, Broker and other new venture expenses are excluded, then
the operating expenses would have increased by 7%.
Headline earnings for the Group increased by 18% to R262.1 million (2016: R222.2 million) which has resulted in an annualised return on
average shareholders' interests of 55% (2016: 55%).
Group Embedded Value and Value of New Business
The Group Embedded Value ("EV"), after the R384.5 million annual dividend payment during the period, increased from R5.8 billion at 30 June
2017 to R6.0 billion at 31 December 2017. Recurring Embedded Value Earnings ("REVE") of R570.9 million were recorded for the six months
(2016: R340 million), an increase of 68% off a relatively low base.
The Value of New Business ("VNB") was negatively impacted by lower quality new business. Nevertheless, the VNB increased by 27% from
R246.7 million in the comparative period to R313.5 million this period.
New business profit margins (excluding single premium investment business) have increased to 23.0% (2016: 20.9%).
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 R3.2 billion (2016:
R2.9 billion).
Segment Results
Clientèle Life - Long-term insurance
Clientèle Life's Long-term insurance segment remains the major contributor to the Group's performance. Clientèle Life's VNB of R243.9 million
(2016: R185.6 million) increased by 31%. Clientèle Life recorded REVE of R439.8 million (2016: R275.5 million), an increase of 60% and
generated a 17% increase in net profit for the period to R224.5 million (2016: R192.2 million).
Clientèle General Insurance (Clientèle Legal) - Short-term insurance
Clientèle Legal's VNB of R69.1 million (2016: R60.5 million) increased by 14%. Clientèle Legal recorded REVE of R121.5 million (2016: R60.2
million), an increase of 102% and generated a 15% increase in net profit for the period to R34.5 million (2016: R30.0 million) driven largely by
good investment performance.
Outlook
Management's primary focus is currently directed at improving the quality of new business written whilst maintaining production levels and
reducing the level of withdrawals and debit order disputes.
New initiatives include the acquisition of "Switch2", an innovative start-up providing niche credit life products as well as the introduction of the
"Estate Preservation" product which will be launched within a month.
The roll out of new distribution channels, particularly the Agency and Broker channels, are expected to create meaningful value for the Group
into the future.
Clientèle remains committed to providing products that are relevant and meet policyholders' needs whilst delivering these to the market
conveniently and efficiently.
The Board is encouraged by the new initiatives and their prospects for growth and value creation in the Group's target market.
By order of the Board
12 February 2018
GQ Routledge BW Reekie
Chairman Managing Director
Johannesburg
19 February 2018
Condensed Group Statement of Financial Position
Audited
31 December 30 June
(R'000's) 2017 2016 2017
Assets
Intangible assets* 48,479 37,238 35,751
Property and equipment 49,021 47,151 46,518
Owner-occupied properties** 423,475 410,752 422,013
Deferred tax 37,058 37,797 42,817
Inventories 2,190 2,080 1,894
Reinsurance assets 2,580 2,711 2,504
Financial assets held at fair value through profit or loss*** 2,999,208 1,611,044 2,196,020
Financial assets at amortised cost^ 146,398 276,426 288,627
Loans and receivables including insurance receivables 43,436 40,935 34,891
Current tax 2,429 3,991 990
Cash and cash equivalents 266,714 255,389 221,047
Total assets 4,020,988 2,725,514 3,293,072
Total equity and reserves 897,114 761,835 1,015,996
Liabilities
Policyholder liabilities under insurance contracts 670,110 669,789 652,614
Financial liabilities at fair value through profit or loss - investment contracts*** 2,009,281 882,048 1,159,676
Financial liabilities - loans at amortised cost 116,829 113,076 113,043
Employee benefits# 57,034 81,965 97,339
Deferred tax 48,950 35,904 43,855
Accruals and payables including insurance payables 210,984 174,178 210,180
Current tax 10,686 6,719 369
Total liabilities 3,123,874 1,963,679 2,277,076
Total equity and liabilities 4,020,988 2,725,514 3,293,072
* Intangible assets include R13.5 million in respect of the purchase of Switch2 Cover (Pty) Ltd.
** Owner-occupied properties are disclosed at level 3 in the fair value measurement hierarchy.
*** The increase in "Financial liabilities held at fair value through profit or loss" relates to the increase in single premium business underwritten
during the period, particularly in respect of co-branded single premium policies. The corresponding increase in "Financial assets held at fair
value through profit or loss" has been reduced as a result of the annual dividend payment.
^ Zero coupon fixed deposits held in African Bank Limited have been classified as financial assets at amortised cost. The fair value
approximates amortised cost. The reduction relates to the early surrender of fixed deposits.
# The reduction in "Employee benefits" relates to a reduction in benefits in respect of the "medium term" and "goodwill" staff incentive
schemes.
Condensed Group Statement of Comprehensive Income
Six months Audited
ended Year ended
31 December 30 June
2017 2016 %
(R'000's) Actual Actual Change 2017
Revenue
Insurance premium revenue 1,095,728 989,545 11 2,003,255
Reinsurance premiums (60,052) (64,806) (130,690)
Net insurance premiums 1,035,676 924,739 12 1,872,565
Other income 83,534 77,436 156,113
Interest income 18,964 19,287 40,090
Fair value adjustment to financial assets at fair value through profit or loss* 181,958 35,500 136,881
Net income 1,320,132 1,056,962 2,205,649
Net insurance benefits and claims (194,667) (172,868) (359,470)
(Increase)/decrease in policyholder liabilities under insurance contracts (17,344) 20,312 37,488
Decrease in reinsurance assets (76) (78) (285)
Fair value adjustment to financial liabilities at fair value through profit or loss -
investment contracts* (95,729) (37,579) (99,346)
Interest expense (4,960) (4,863) (9,866)
Reversal of impairment of advances 65
Operating expenses (644,596) (553,393) 16 (1,132,005)
Profit before tax 362,760 308,558 18 642,165
Tax (100,555) (86,161) 17 (175,468)
Net profit for the period 262,205 222,397 18 466,697
Attributable to:
- Non-controlling interest - ordinary shareholders (5) 58 199
- Equity holders of the Group - ordinary shareholders 262,210 222,339 18 466,498
Profit for the period 262,205 222,397 466,697
Other comprehensive income:
Gains on property revaluation# 8,475
Income tax relating to gains on property revaluation# (2,155)
Other comprehensive income for the period - net of tax 262,205 222,397 6,320
Total comprehensive income for the period 262,205 222,397 18 473,017
Attributable to:
- Non-controlling interest - ordinary shareholders (5) 58 199
- Equity holders of the Group - ordinary shareholders 262,210 222,339 18 472,818
# Items that cannot be recycled to profit or loss.
* R95.5 million (2016: R6.0 million) of the R182.0 million (2016: R35.5 million) relates to investment returns from shareholder and policyholder investment
portfolios. The balance of R86.5 million (2016: R29.5 million) relates to the fair value adjustment in respect of single premium investment
contracts which is matched within the fair value adjustment to financial liabilities at fair value through profit or loss in respect of investment
contracts.
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 Reserves* Revaluation total interest Total
Balance as at 1 July 2016 6,636 328,875 (220,273) 115,238 655,279 28,524 65,374 864,415 1,133 865,548
Ordinary dividends - (331,897) (331,897) (331,897)
Total comprehensive income - - - - 222,339 - - 222,339 58 222,397
- Net profit for the period - 222,339 222,339 58 222,397
Shares issued 6 4,866 4,872 4,872 4,872
SAR and Bonus Rights Scheme allocation - 5,787 5,787 5,787
Transfer from shares issued - (1,083) (3,789) (4,872) (4,872)
Balance as at 31 December 2016 6,642 333,741 (220,273) 120,110 544,638 30,522 65,374 760,644 1,191 761,835
Balance as at 1 January 2017 6,642 333,741 (220,273) 120,110 544,638 30,522 65,374 760,644 1,191 761,835
Ordinary dividends - - (1,050) (1,050)
Total comprehensive income - - - - 244,159 - 6,320 250,479 141 250,620
- Net profit for the period - 244,159 244,159 141 244,300
- Other comprehensive income - 6,320 6,320 6,320
Shares issued 38 32,147 32,185 32,185 32,185
SAR and Bonus Rights Scheme allocation - 4,591 4,591 4,591
Transfer from shares issued - (18,365) (13,820) (32,185) (32,185)
Balance as at 30 June 2017 6,680 365,888 (220,273) 152,295 770,432 21,293 71,694 1,015,714 282 1,015,996
Balance as at 1 July 2017 6,680 365,888 (220,273) 152,295 770,432 21,293 71,694 1,015,714 282 1,015,996
Ordinary dividends - (384,261) (384,261) (261) (384,522)
Total comprehensive income - - - - 262,210 - - 262,210 (5) 262,205
- Net profit/(loss) for the period - 262,210 262,210 (5) 262,205
Shares issued 9 7,710 7,719 7,719 7,719
SAR and Bonus Rights Scheme allocation - 3,435 3,435 3,435
Transfer from shares issued - (2,656) (5,063) (7,719) (7,719)
Balance as at 31 December 2017 6,689 373,598 (220,273) 160,014 645,725 19,665 71,694 897,098 16 897,114
* SAR Scheme - the Clientèle Limited Share Appreciation Rights Scheme.
* Bonus Rights Scheme - the Clientèle Limited Bonus Rights Scheme.
* 0.4 million shares were issued during the period (2016: 0.3 million) in terms of the SAR and Bonus Rights Schemes.
Condensed Group Statement of Cash Flows
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2017 2016 2017
Cash flows from operating activities 74,437 53,131 41,503
Profit from operations adjusted for non-cash items 346,205 324,720 632,279
Working capital changes (93,260) (71,230) (29,753)
Separately disclosable items(1) (56,725) (46,485) (96,040)
Increase/(decrease) in financial liabilities(2) 753,877 (65,350) 150,511
Net (acquisition)/disposal of investments(3) (467,045) 279,384 (204,210)
Interest received 43,964 38,377 80,023
Dividends received 12,761 8,108 16,017
Dividends paid (384,517) (331,796) (332,846)
Tax paid (80,823) (82,597) (174,478)
Cash flows from investing activities(4) (23,701) (16,870) (34,549)
Cash flows from financing activities (5,069) 9,280 4,245
Net increase in cash and cash equivalents 45,667 45,541 11,199
Cash and cash equivalents at beginning of the period 221,047 209,848 209,848
Cash and cash equivalents at end of the period 266,714 255,389 221,047
1. Interest and dividends received.
2. Financial liabilities - investment contracts.
3. Investments in respect of insurance operations and investment contracts.
4. Mainly relates to the acquisition of intangible assets, property and equipment.
Segment Information
The Group's results are analysed across South Africa ("SA") - geographical segment.
The Group's main operating segments are Long-term insurance, Short-term insurance (legal insurance policies) and Other (Clientèle Limited,
Switch2 Cover and Clientèle Loans Direct). The vast majority of policies written are in respect of individuals.
Segment Assets and Liabilities
Audited
31 December 30 June
(R'000's) (2016: Restated) 2017 2016 2017
Assets
Long-term insurance 3,657,319 2,437,544 2,932,597
Short-term insurance 246,572 209,777 251,861
Other 129,685 89,658 121,292
Inter segment (12,588) (11,465) (12,678)
Total Group assets 4,020,988 2,725,514 3,293,072
Liabilities
Long-term insurance 3,072,840 1,921,467 2,225,884
Short-term insurance 56,794 51,572 61,617
Other 6,828 2,105 2,253
Inter segment (12,588) (11,465) (12,678)
Total Group liabilities 3,123,874 1,963,679 2,277,076
Segment Statements of Comprehensive Income
Long-term Short-term Inter
(R'000's) insurance insurance Other segment Total
31 December 2017
Insurance premium revenue 898,797 196,931 1,095,728
Reinsurance premiums (60,052) (60,052)
Net insurance premiums 838,745 196,931 - - 1,035,676
Other income 89,344 469 382,024 (388,303) 83,534
Interest income 16,524 723 1,717 18,964
Fair value adjustment to financial assets at fair value
through profit or loss 162,454 14,360 5,144 181,958
Segment income 1,107,067 212,483 388,885 (388,303) 1,320,132
Segment expenses and claims (795,752) (165,981) (3,253) 7,614 (957,372)
Net insurance benefits and claims (173,729) (20,938) (194,667)
Decrease/(increase) in policyholder liabilities under
insurance contracts (17,820) 476 (17,344)
Decrease in reinsurance assets (76) (76)
Fair value adjustment to financial liabilities at fair value
through profit or loss (95,729) (95,729)
Interest expense (4,960) (4,960)
Operating expenses (503,438) (145,519) (3,253) 7,614 (644,596)
Profit before tax 311,315 46,502 385,632 (380,689) 362,760
Tax (86,815) (11,993) (1,747) (100,555)
Net profit for the period 224,500 34,509 383,885 (380,689) 262,205
Attributable to:
Non-controlling interest - ordinary shareholders (5) (5)
Equity holders of the Group - ordinary shareholders 224,500 34,509 383,890 (380,689) 262,210
Long-term Short-term Inter
(R'000's) Restated* insurance insurance Other segment Group
31 December 2016
Insurance premium revenue 819,777 169,768 989,545
Reinsurance premiums (64,806) (64,806)
Net insurance premiums 754,971 169,768 924,739
Other income 80,654 728 337,602 (341,548) 77,436
Interest income 18,026 578 683 19,287
Fair value adjustment to financial assets at fair value through
profit or loss 30,394 3,894 1,212 35,500
Segment income 884,045 174,968 339,497 (341,548) 1,056,962
Segment expenses and claims (617,871) (133,538) (2,654) 5,659 (748,404)
Net insurance benefits and claims (152,789) (20,079) (172,868)
Decrease/(increase) in policyholder liabilities under insurance
contracts 20,418 (106) 20,312
Decrease in reinsurance assets (78) (78)
Fair value adjustment to financial liabilities at fair value through
profit or loss (37,579) (37,579)
Interest expense (4,863) (4,863)
Reversal of impairment of advances 65 65
Operating expenses (442,980) (113,353) (2,719) 5,659 (553,393)
Profit before tax 266,174 41,430 336,843 (335,889) 308,558
Tax (73,968) (11,415) (778) (86,161)
Net profit for the period 192,206 30,015 336,065 (335,889) 222,397
Attributable to:
Non-controlling interest - ordinary shareholders 58 58
Equity holders of the Group - ordinary shareholders 192,206 30,015 336,007 (335,889) 222,339
* Refer to the note below
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
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.
Accounting Policies
Statement of compliance
The condensed consolidated interim Financial Statements are prepared in accordance with the JSE Listings 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 and must also, as a minimum, contain the information required by IAS 34 Interim Financial
Reporting. The report has been so prepared.
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, intangible
assets 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.
Tax
Six months Audited
ended Year ended
31 December 30 June
(R'000's) 2017 2016 2017
Current and deferred tax (100,157) (85,420) (176,204)
Capital gains tax (398) (741) 1,065
Underprovision in prior periods (329)
Tax (100,555) (86,161) (175,468)
The Individual Policyholder Fund has an estimated tax loss of R2.8 billion (2016: R2.8 billion).
Reconciliation of Net Profit to Headline Earnings
Six months Audited
ended Year ended
31 December 30 June
%
(R'000's) 2017 2016 Change 2017
Net profit for the period attributable to equity holders of the Group 262,210 222,339 18 466,498
Less: Profit on disposal of property and equipment (131) (173) (207)
Headline earnings for the period 262,079 222,166 18 466,291
Ratios per Share
Six months Audited
ended Year ended
31 December 30 June
%
(Cents) 2017 2016 Change 2017
Headline earnings per share 78.44 66.94 17 140.29
Diluted headline earnings per share 78.27 66.45 18 139.06
Earnings per share 78.48 67.00 17 140.35
Diluted earnings per share 78.31 66.50 18 139.12
Net asset value per share 268.22 229.38 17 304.19
Diluted net asset value per share 267.91 227.88 18 303.00
Dividends per share - paid 115.00 100.00 15 100.00
Dividends per share - declared - - 115.00
Ordinary shares in issue ('000) 334,475 332,122 334,003
Weighted average ordinary shares ('000) 334,107 331,870 332,381
Diluted average ordinary shares ('000) 334,855 334,320 335,312
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
2017:
(R'000's) Level 1 Level 2 Level 3 Total
Assets
Listed equity securities 558,415 558,415
Unlisted equity securities 3,850 3,850
Promissory notes and fixed deposits 1,653,593 175,960 1,829,553
Funds on deposit 501,308 501,308
Fixed interest securities 28,951 4,040 32,991
Government and public authority bonds 73,091 73,091
Total assets 558,415 2,260,793 180,000 2,999,208
Liabilities
Financial liabilities at fair value through profit or loss 1,833,321 175,960 2,009,281
Total liabilities - 1,833,321 175,960 2,009,281
Policyholders' linked exposure to African Bank Limited (ABL) through investments in zero coupon fixed deposits of R176.0 million as at
31 December 2017 are disclosed at level 3 on the fair value hierarchy as values are estimated indirectly using valuation techniques or models.
Key inputs include the zero coupon risk free yield curve.
Capital and Other Commitments
During the 2016 financial year Clientèle Limited provided financial assistance resulting in a net exposure through guarantees of R45 million for
the purchase of approximately 3.92% of Clientèle's issued shares ("ordinary Shares") by Yellowwoods Trust Investments (Pty) Ltd ("YTI") a
wholly owned subsidiary of the Hollard Foundation Trust, a BBBEE Trust.
During the 2017 financial year Clientèle Limited provided further financial assistance through the issuance of a guarantee in the amount of
R223 million (with a net unhedged exposure of R155 million) in respect of additional Ordinary Shares which YTI purchased or will purchase,
the majority of which have already been purchased.
As at 31 December 2017, both guarantees remained in place.
Restatements of Comparative Segment results
The group has incorporated the "Investment Contracts" segment into the "Long-term Insurance" segment and Clientèle Limited into the
"other" segment to align with internal reporting practices.
Events after the Reporting Date
There are no material items to report after the reporting date.
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.
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 2017.
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:
31 December 30 June
(R'000's) 2017 2016 2017
Required capital 467,042 398,587 425,232
Free surplus 451,714 366,709 632,484
Adjusted Net Worth ("ANW") of covered business 918,756 765,296 1,057,716
CoC (97,150) (87,375) (84,267)
PVIF 5,218,738 4,517,220 4,858,112
EV of covered business 6,040,344 5,195,141 5,831,561
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
31 December 30 June
(R'000's) 2017 2016 2017
Total equity and reserves per the Statement of Financial Position 897,114 761,835 1,015,996
Adjusted for Deferred Profits and impact of compulsory margins on investment
business 25,617 13,988 29,326
Adjusted for minority interests (16) (1,190) (282)
Adjusting subsidiaries to Net Asset Value 33,583 31,427 33,583
SAR and Bonus Rights Schemes adjustment (23,968) (40,764) (20,907)
Reversal of Switch2 intangible asset (13,574)
ANW 918,756 765,296 1,057,716
The CoC is the opportunity cost of having to hold the Required Capital of R467.0 million as at 31 December 2017 (30 June 2017: R425.2
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 2017 was 1.81 times (31 December 2016: 1.83; 30 June 2017: 2.43) on the
statutory valuation basis.
Clientèle General Insurance's Statutory CAR cover ratio at 31 December 2017 was 1.34 times (31 December 2016:
1.30; 30 June 2017: 1.44) on the statutory valuation basis.
Value of New Business ("VNB")
Six months ended Year ended
31 December 30 June
(R'000's) 2017 2016 2017
Total VNB 313,513 246,718 527,184
Present Value of New Business premiums 2,181,702 1,287,930 2,466,148
New Business profit margin 14.4% 19.2% 21.4%
New Business profit margin (excluding single premium investment business) 23.0% 20.9% 23.2%
The Present Value of New Business premiums has increased due to a major increase in single premium investment business written over the
period. The relatively low profit margin on this block of business has resulted in a marked decrease in the overall New Business profit margin.
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 2017, less the CoC pertaining to this business. The VNB was adjusted for the current withdrawal experience on new 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
31 December 30 June
(%) 2017 2016 2017
Risk discount rate 12.1 12.3 12.2
Non-unit investment return 8.6 8.8 8.7
Unit investment return 9.6 9.9 9.7
Expense inflation 6.1 6.8 6.1
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 0.112, 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 2017 was 12.1% p.a. (30 June 2017: 12.2% p.a.).
RDR Sensitivities
(R'000's) EV VNB
RDR 10.1% 6,892,739 398,565
RDR 11.1% 6,435,301 352,915
RDR 12.1% (as at December 2017) 6,040,344 313,513
RDR 12.2% (as at June 2017) 6,016,056 311,535
RDR 12.3% (as at December 2016) 5,982,248 307,786
RDR 13.1% 5,723,779 281,422
RDR 14.1% 5,444,976 252,716
EV per Share
31 December 30 June
(Cents) 2017 2016 2017
EV per share 1,805.92 1,564.22 1,745.96
Diluted EV per share 1,803.87 1,552.77 1,739.15
Segment Information
The EV can be split between segments as follows:
(R'000's) ANW PVIF CoC EV
31 December 2017
Long-term insurance 646,424 4,227,738 (67,155) 4,807,007
Short-term insurance 185,723 984,692 (29,995) 1,140,420
Other 86,609 6,308 92,917
Total 918,756 5,218,738 (97,150) 6,040,344
31 December 2016 (Restated)*
Long-term insurance 547,723 3,673,011 (57,523) 4,163,211
Short-term insurance 154,436 837,622 (29,852) 962,206
Other 63,137 6,587 69,724
Total 765,296 4,517,220 (87,375) 5,195,141
30 June 2017
Long-term insurance 774,375 3,963,841 (57,575) 4,680,641
Short-term insurance 187,134 887,721 (26,692) 1,048,163
Other 96,207 6,550 102,757
Total 1,057,716 4,858,112 (84,267) 5,831,561
The VNB can be split between segments as follows:
Six months ended Year ended
31 December 30 June
(R'000's) (2016 Restated)* 2017 2016 2017
Long-term insurance 243,905 185,635 408,763
Short-term insurance 69,135 60,471 117,321
Other 473 612 1,100
Total 313,513 246,718 527,184
* Refer to the note on page 12.
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 2017 Six months
ended Year ended
31 December 30 June
(R'000's) ANW PVIF CoC EV 2016 2017
Closing EV 918,756 5,218,738 (97,150) 6,040,344 5,195,141 5,831,561
Opening EV 1,057,716 4,858,112 (84,267) 5,831,561 5,230,643 5,230,643
Dividends declared (384,261) (384,261) (331,897) (331,897)
Adjusted opening EV 673,455 4,858,112 (84,267) 5,447,300 4,898,746 4,898,746
EV Earnings 245,301 360,626 (12,883) 593,044 296,395 932,815
Reversing impact of Switch2 purchase 13,574 (845) 12,729
Effect of economic assumption changes 408 (33,454) (1,780) (34,826) 43,612 6,196
Recurring EV Earnings 259,283 326,327 (14,663) 570,947 340,007 939,011
Recurring Return on EV 21.0% 13.9% 19.2%
Return on EV 21.8% 12.1% 19.0%
Components of EV earnings
VNB (254,796) 576,453 (8,144) 313,513 246,718 527,184
Expected return on covered business 291,945 2,509 294,454 265,735 553,610
Expected profit transfer 492,136 (492,136) -
Withdrawal and unpaid premiums experience
variance (3,398) (46,971) (679) (51,048) (81,892) (99,458)
Changes in withdrawals and other decrement
assumptions*# - (122,726)
Other change in non-economic assumptions
and modelling# 4,205 (9,320) (6,166) (11,281) (101,349) 37,316
Claims and reinsurance experience variance 955 955 338 2,920
Sundry experience variance (1,894) 946 (948) 2,656 (195)
Expected return on ANW 35,969 35,969 29,355 59,945
SAR and Bonus Rights Schemes (88) (88) (360) 24,087
Goodwill and Medium-term incentive schemes (21,310) 5,410 (15,900) 11,820 (12,785)
Benefit enhancements (7,622) (7,622)
EV operating return 251,779 326,327 (12,480) 565,626 365,399 962,276
Investment variance 7,504 (2,183) 5,321 (25,392) (23,265)
Recurring EV Earnings 259,283 326,327 (14,663) 570,947 340,007 939,011
Effect of economic assumption changes# (408) 33,454 1,780 34,826 (43,612) (6,196)
Reversing impact of Switch2 purchase (13,574) 845 (12,729)
EV Earnings 245,301 360,626 (12,883) 593,044 296,395 932,815
* This item was not split out in the 2016 results.
# The change in assumptions and modelling items pertains to existing business only.
Registered office: Clientèle Office Park, Cnr Rivonia and Alon Roads, Morningside,
Johannesburg 2196, South Africa
PO Box 1316, Rivonia 2128, South Africa
Transfer secretaries: Computershare Investor Services Proprietary Limited,
First floor, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2106, South Africa
PO Box 61051, Marshalltown 2107, South Africa
Sponsor: PricewaterhouseCoopers Corporate Finance Proprietary Limited
Directors: GQ Routledge BA LLB (Chairman); BW Reekie BSc(Hons), FASSA* (Managing Director);
ADT Enthoven BA, PhD (Political Science); B Frodsham BCom*; PR Gwangwa BProc LLB, LLM;
IB Hume CA(SA), ACMA*; BY Mkhondo BCom, MBA; D Molefe MCom, CA(SA); PG Nkadimeng BSC Statistics and Economics, BA Stott
CA(SA); RD Williams BSc(Hons), FASSA, (*Executive Director)
Company secretary: W van Zyl CA(SA)
Release Date: Monday 19 February 2018
Date: 19/02/2018 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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