| Fri 15 May 2009, 7:30 | | LBH - Liberty Holdings Limited - Overview of operations for the three months |
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LBH
LBH
LBH - Liberty Holdings Limited - Overview of operations for the three months
ended 31 March 2009
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")
Overview of operations for the three months ended 31 March 2009
Overview
The core businesses are performing well despite the difficult market conditions.
Group sales production is up by 20.1% compared to the first quarter of 2008,
with indexed new business from retail insurance operations declining by 1.5%
which is pleasing given current economic conditions. The capital adequacy level
remains strong at 2.5 times the required cover (after the payment of the final
cash distribution of R850m) and a significant reduction of the required economic
capital has been achieved.
One of the Group`s stated strategies, the implementation of which commenced in
the second half of 2008 and continues in 2009, was to reduce the levels of
market risk so as to lower earnings volatility and strengthen capital.
Confronted by the real possibility of a global financial market collapse,
management acted in accordance with this strategy, taking the view that it was
in the long-term interests of policyholders and shareholders to sacrifice short-
term potential profit for long-term balance sheet strength. A significant
portion of the Group`s equity exposure was therefore hedged and while the cost
associated with this action has resulted in a mark to market loss in the first
quarter, it has also ensured that the Group achieved the intended economic
capital benefits, with a reduction in economic capital in excess of R1.5bn. The
Group now has what it believes to be acceptable levels of interest rate and
equity exposure, in the current economic environment.
Ongoing interest rate, equity market and currency volatility have put
significant pressure on earnings. Although operations continue to deliver
earnings in line with expectations, the operational earnings have been exceeded
by the impact of balance sheet management activities. The unrealised market risk
loss consists of interest rate and equity mark to market losses of an estimated
R250m and R500m respectively. This unrealised market risk loss was offset by an
estimated R350m of operating earnings from subsidiaries, resulting in an overall
Group loss of approximately R400m for the quarter (BEE normalised earnings).
Life Assurance
The Group`s indexed new business excluding premium escalations was R991m for the
first three months of 2009 compared to R1 042m in 2008. Sales of risk products
were up, while sales of investment and savings products have declined reflecting
the increased risk aversion of investors. Margin pressure experienced in 2008
has eased somewhat, however we continue to see slightly lower margins compared
with the same period in 2008.
Retail net cash flows were strong for the first three months of 2009 and
significantly better than the first quarter of 2008. Corporate net cash flows,
whilst negative, showed an improvement compared to the first quarter of 2008.
Life assurance earnings continue to track in line with management expectations,
and initiatives to improve customer retention are receiving significant
management attention and the results of these activities are satisfactory to
date.
Asset Management
The ongoing market volatility continues to be reflected in customer investment
decisions. The shift towards money market and fixed interest products and away
from other investment classes has continued.
Assets under management decreased from R337.2bn in December 2008 to R326.6bn as
at the end of March 2009 reflecting the decline in underlying asset values.
Total sales for the period (including Liberty Africa) were R42.0bn, up 24.7% on
the same period in 2008, as reflected in table 3. Total net cash flows, while
negative at R330m, include a R8.3bn outflow in respect of a rebalancing of the
Public Investment Corporation Limited mandate with Stanlib. Income and money
market products have seen strong inflows for the year to date. Stanlib`s equity
investment performance has shown a pleasing improvement in the first three
months of the year.
The operational performance of Liberty Properties remains strong, as does the
demand for product containing Liberty`s unlisted property portfolio.
Conclusion
While earnings have been under pressure as a result of interest rate and equity
mark to market losses and the actions taken to implement capital and risk
policy, the Group remains strongly capitalised, and is trading satisfactorily
given the economic circumstances.
The intensive focus on operational efficiency, balance sheet management,
investment performance, persistency of insurance operations, and the execution
of the Group`s other strategic objectives is beginning to show results.
Although the challenging economic environment experienced in the first quarter
of 2009 is expected to continue for the remainder of the year, the Group is
expected to return to profitability for the full year.
The Group continues to implement both its geographic and wealth diversification
strategies.
Audit/Review
None of the figures have been audited or reviewed by the Group`s auditors. A
full actuarial valuation has not been performed on the first quarter results.
Liberty Holdings new business for the three months ended 31 March 2009
Table 1 Liberty Life on balance sheet new business *
2009 2008 %
change
Rm Rm
Individual Life 1
Indexed new business 886 900 -1.5%
Single premium new business 2 493 2 732 -8.7%
Recurring premium new business 637 627 1.6%
Corporate
Indexed new business 105 142 -25.9%
Single premium new business 301 369 -18.4%
Recurring premium new business 75 105 -28.6%
Indexed new business 991 1 042 -4.9%
Individual Life 3 130 3 359 -6.8%
Corporate 376 474 -20.7%
Total new business 3 506 3 833 -8.5%
* Excludes premium escalations.
1 Individual life includes:
- Liberty Africa operations that are not 100% owned but are reported on
a 100% basis
- STANLIB multi-manager (single premium new business)
Table 2 STANLIB** net cash flows
2009 2008 % change
Rm Rm
Retail net cash flows 1 935 1 493 29.6
Institutional net cash - 9 487 - 4 303 n/a
flows including PIC2
Total net cash flows excl -7 552 n/a
money market - 2 810
Money market 7 222 72.7%
4 181
Total net cash -330 n/a
inflows/(outflows) 1 371
2 PIC funds outflows in the period was R8.3 billion
Table 3 STANLIB ** new business
2009 2008 % change
Rm Rm
Total sales excluding money 12 183 14 479 -15.9%
market
Retail sales excluding 8 308 12 358 -32.8%
money market
Institutional sales 3 875 2 121 82.7%
excluding money market
Money market 29 797 19 182 55.3%
Total sales 41 980 33 661 24.7%
** Includes Liberty Africa operations that are not 100% owned but are reported
on a 100% basis
15 May 2009
Sponsor
Merrill Lynch South Africa (Pty) Limited
Date: 15/05/2009 07:30:02 Produced by the JSE SENS Department.
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