LIBERTY HOLDINGS LIMITED - Operational update for the nine-month period ended 30 September 2020

Operational update for the nine-month period ended 30 September 2020

Liberty Holdings Limited
Registration number 1968/002095/06
Incorporated in the Republic of South Africa
Share code: LBH
ISIN code: ZAE000127148
("Liberty Holdings" or "the Group")
LIBERTY HOLDINGS LIMITED

OPERATIONAL UPDATE FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020


Current business environment


While the relaxation of lockdown measures and the latest move to Alert Level 1 in South Africa from
21 September 2020 have gradually improved our ability to engage with clients and financial advisers
who support our clients, the South African economic environment continues to be extremely
challenging. This operational update focuses on the operational impacts of the COVID-19 pandemic as
well as the financial metrics traditionally covered in the third quarter operational update.

We remain committed to the safety and support of all within the Liberty community during this difficult
time. Overall client servicing levels and volumes have progressively improved over the lockdown period
as evidenced by improved client satisfaction scores relative to the comparative period. Despite
increased claim volumes, we have kept our promises to clients by paying their claims as they have
arisen in a timely manner. There has been significant uptake of the various measures implemented to
provide relief to clients, advisers and tenants of our retail shopping malls and commercial properties.
Premium relief measures provided to clients by the South African Insurance Operations in the period
amounted to over R700 million, with relief measures for investment and retirement annuity business
having been extended to February 2021.

Liberty’s results for the six-month period to 30 June 2020 included the establishment of a pandemic
reserve of R3 billion (before tax). Actual death rates experienced by Liberty to 30 September 2020 have
broadly tracked the death rates projected in the reference scenario adopted for the establishment of
this pandemic reserve. Accordingly, the pandemic reserve is considered adequate at this stage however
significant uncertainty remains. The reserve will be assessed again at 31 December 2020 taking
account of further developments relating to the pandemic and Liberty’s experience to
31 December 2020.


Operational update to 30 September 2020


Liberty’s operations remain financially sound and well capitalised. The Solvency Capital Requirement
(SCR) cover ratio of Liberty Group Limited, the Group’s main long-term insurance licence, remained
strong at 1,91 times at 30 September 2020 compared to 1,83 times at 30 June 2020. The improvement
in the SCR ratio was partly attributable to the successful R1,5 billion unsecured subordinated note
issuance on 9 September 2020, which forms part of Liberty’s domestic medium term note programme.
The issuance was oversubscribed and took place subsequent to a scheduled R1,0 billion Liberty Group
Limited note redemption on 14 August 2020. The SCR ratio remains at the upper end of the Group's
target range and underpins our ability to fulfil our promises to clients and other stakeholders.

Group net external third-party client cash inflows amounted to R15,6 billion compared to R16,8 billion
for the nine months to 30 September 2019. Group total assets under management amounted to
R732 billion compared to R738 billion at 31 December 2019.

The COVID-19 pandemic has had a material impact on the economies where we operate and the
financial well-being of clients, as reflected in group long-term insurance indexed new business sales
having decreased by 12,7% relative to the comparative period.
South African Insurance Operations


SA Retail

Indexed new business sales of R4 626 million were 3,7% below the comparative period as a result of
new business productivity being severely hampered by the nationwide lockdown, in particular during
the second quarter of 2020. Indexed new business sales for the third quarter of 2020 were flat in
comparison to the third quarter of 2019, however reflected a 6,3% increase over sales for the first
quarter of 2020 and a 23,1% increase over sales for the second quarter of 2020. Recurring premium
new business sales for the nine months to 30 September 2020 were 2,8% below the comparative
period, with lower recurring risk and investment business sales partly offset by strong growth in the
embedded credit channel. Single premium new business sales decreased by 5,6% for the nine months
to 30 September 2020. Conventional annuity new business however continued to increase significantly
relative to the comparative period. The consequential impact of lower new business sales volumes in
relation to costs incurred on the value of new business written remains one of the main concerns in the
business, with various management actions underway to address the impact that COVID-19 has had
on new business productivity.

Net customer cash outflows amounted to R1 367 million compared to R392 million in the comparative
period, reflecting the impact of lower premium income, including premium relief measures taken up by
clients, as well as higher annuity payments and death and disability claims.

Focus remains on retention activities as well as supporting and enabling financial advisers to engage
and advise clients through digital capabilities during these uncertain times.

Liberty Corporate

Indexed new business sales of R360 million were below the comparative period of R789 million with
lower recurring and single premium new business sales in the current period. Recurring premium sales
of R306 million (30 September 2019: R716 million) reflected lower risk and investment sales. Single
premium new business amounted to R535 million (30 September 2019: R728 million). There have been
limited opportunities for enhancement sales with clients focused on reducing contributions through
utilisation of premium relief options. Net cash outflows of R2 653 million (30 September 2019: outflows
of R980 million) reflected lower recurring premiums due to the impact of premium relief options being
exercised by clients, continued high volumes of group life assurance death claims and high levels of
member withdrawals and retirement claims experienced in line with the subdued South African
economic environment.


South African Asset Management


STANLIB South Africa

In the STANLIB South Africa business, assets under management amounted to R577 billion compared
to R568 billion at 31 December 2019. This increase is largely attributable to the net impact of good third
party net cash inflows partly offset by net intragroup outflows and negative investment market returns
during the period. Net external third-party client cash inflows of R21,1 billion remained strong
(30 September 2019: R20,5 billion) supported by increased money market inflows from institutional
clients in a more risk averse environment.


Africa regions


Liberty Africa Insurance

Indexed new business of R208 million (30 September 2019: R355 million) was negatively impacted by
the various national lockdown measures introduced in each of the territories in which the Group
operates. Net customer cash inflows of R411 million were lower than comparative period inflows of
R477 million mainly due to higher claims reported in the Kenya life business in the current period.


STANLIB Africa

Assets under management by STANLIB Africa reduced to R17,1 billion (31 December 2019:
R28,4 billion) mainly as a result of discontinued segregated mandates of R7,0 billion being transferred
to other external managers, due to the completion of the sale of the Kenyan and Ugandan businesses
in June 2020. Net external third-party client cash outflows amounted to R2,4 billion compared to
outflows of R2,6 billion in the comparative period.


Operations under ownership review


The sale of the South African health administration business was completed during the period. Efforts
continue to find a suitable outcome for the remaining operations under ownership review.


Outlook


The strength of the Liberty balance sheet and its healthy capital position made it possible to establish
a pandemic reserve, which was comprehensively reported on in Liberty’s results for the six-month
period ended 30 June 2020. The Group’s capital position remains strong and the pandemic reserve is
considered adequate at 30 September 2020.

Financial market volatility will continue to have a material impact on the returns from the Shareholder
Investment Portfolio (SIP) consistent with a balanced portfolio managed with a long-term through-the-
cycle investment horizon. Property exposure concentration has not increased materially in the SIP
relative to the exposure reported at 30 June 2020.

We expect continued pressure on new business volumes and margins given the financial distress that
is prevalent in South Africa.

We remain confident in our strategy and committed to its execution. While significant management time
and resources have been diverted to dealing with the crisis created by the COVID-19 pandemic, the
transformation of our business towards a digital enterprise has been successfully accelerated through
the many measures adopted to handle the new ways of working and remote engagement for staff,
advisers and clients.

We would like to thank all our staff and advisers for their extraordinary commitment, resilience and hard
work in these difficult times, and our clients for their continued support.

This operational update for the nine-month period ended 30 September 2020 has not been audited or
reviewed by the Group's auditors.


Queries:

Investor Relations
Sharon Steyn
Email: sharon.steyn@liberty.co.za

19 November 2020

Sponsor
Merrill Lynch South Africa (Pty) Limited

Date: 19-11-2020 07:05:00
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.