savings in utopia - liberty holdings · 2013-03-25 · 4 source: sigma report swiss re: world...

Savings in Utopia

2

Myths or truths?

The industry is mature with little room for growth

National Social Security will destroy the industry

The move from on-balance to off-balance sheet places the life industry in a dire position

Commission is the root of all evil

Liberty is a pure life assurer

3

Myth 1


4

Source: Sigma report Swiss re: World insurance in 2006


Life insurance premiums to GDP (%)

0%

2%

4%

6%

8%

10%

12%

14%

16%

SA UK France Ireland Portugal Denmark Italy Austria Poland

2004 2005 2006

5

Public pension and unemployment benefit expenditure (% of GDP 2004)


Source: EU Director General of Economic and Financial Affairs: Special report no 1/2006; South Africa Treasury data

0%

2%

4%

6%

8%

10%

12%

14%

16%

Italy Poland Austria France Denmark Portugal UK Ireland SA

Pensions Unemployment benefits

6


Total estimated expenditure on pensions/life assurance (% of GDP 2004)

Source: Sigma report Swiss re: World insurance in 2006:

EU Director General of Economic and Financial Affairs: Special report no 1/2006; South Africa Treasury data; Liberty Estimates

SA savings industry not as penetrated as people think

0%

5%

10%

15%

20%

France Italy Denmark Austria Portugal UK Poland SA Ireland

Public expenditure on pensions Private expenditure on life products

7

Savings

The need to save exists:

Consumer:

5-10% of the population retires with sufficient income

Household savings rates are among the worst in the world

Government:

The government’s desire to raise savings rates to fund GDP growth,given the lack of fixed FDI flows

Partnership approach required to achieve this

8

Savings

Pool of funds available for saving is improving

Adjusted savings to disposable income

Source: SARB; Investec securities Research; Investec Securities Ltd - ‘Life assurance: Asset levels and share prices’

0%

2%

4%

6%

8%

10%

12%

14%

16%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

The economy and employment continue to grow

which should further broaden the savings base

9

Savings

Where people are currently putting their money - total market

Source: Finscope

16.5

39

1

1

1

2

2

3

3

4

11

28

0 10 20 30 40 50

Other

None

Voluntary contributors to a pension or provident fund

Investment in cattle or livestock

Fixed deposits

Improving your home

A Post Office savings account

Retirement annuities

Stokvel/umgalelo or savings club

Savings policies, endowments or life insurance company

Burial society

A savings or current account at the bank

10

1

1

1

2

2

4

6

6

7

Endowment policy with death/disability cover

Investment/savings policy

Education policy/plan

Unit trust

Other savings club

Stokvel/umgalelo savings club

Pension fund

Provident fund

Retirement annuity

%

Investments people have in the non-bank savings industry

Savings

Source: Finscope

11

Savings

Estimated retail: number of policies per person

Opportunity to cross-sell and upsell existing life book

0%

10%

20%

30%

40%

Agency Franchise SBFC Banks Financial advisor Overall

% C

lient

s in

Cha

nnel

s

Clients with more than one policy by channel

12

Savings

Liberty individual new business market share*

* Including ACIs

Source: LOA; Liberty Life

13

Savings

STANLIB market share FUM – Q2 2007, medium term estimates

FUMSTANLIB

market shareEstimated natural

market share

Equity 7% 12%

Asset allocation 4% 12%

Real estate 37% 30%

Fixed income 9% 15%

Money Market 23% 15%

The above chart includes estimates for retail and institutional

Source: ACI Statistics; STANLIB

14

Savings

STANLIB economic view - the bull market in context

Bull run looks sustainable for at least the next 12 months

Bull marketstart year

Earnings growth(% pa)

Rating(% pa)

Annualised real pricereturn (% p.a.)

1961 2 17 20

1971 14 24 41

1976 13 15 30

1982 -5 28 22

1988 -2 8 5

1998 14 3 18

Average 6 16 23

2003 29 4 35

15

Savings

Opportunities for growth:

South Africans need to save more and the government needs people to save more

Economy is growing and the ability to save has improved

Market share can be regained through organic and cross-sell opportunities

Equity market outlook is positive

… and that’s just in South Africa

Multiple reasons for a positive savings growth outlook

16

Myth 2

National Social Securitywill destroy the industry

17

National Social Security

Industry will be impacted

Awareness of need to save will increase

Could create opportunities in the asset management arena

Could create opportunities in other areas, eg. administration

National Social Security will redefine the industry

18


Liberty Corporate benefits - improving today; building tomorrow

Sales and distribution

• Restructure

• Implementation

Compellingstrategic value

proposition

• Pension fundreform

• Industry changes

• Technology

Operationalimprovement

ongoing

19


Liberty impact

Members who earn less than R60k per annum savings make up:

R2.8bn in liabilities only (13% of EB liability)

R780m in contributions (19% of EB contributions)

Risk

R140m in premiums

20


Embedded value split - at June 2007

Source: Liberty Life

Impact on Liberty business not significant

Retail VIF47%

AssetManagement

16%

NAV30%

7%

Corporate VIF

21

Myth 3

The move from on-balance to off-balance sheetplaces the life industry in a dire position

22

On-balance sheet to off-balance sheet

Macro environment:

Contractual savings aligns to governments long term agenda

There is a need for both on-balance and off-balance sheet savings

Has consumer sentiment has swung too far towards off-balance sheet?

Will this allow balancing of government objectives and consumer trends?

23


Consumer needs

Important to have full suite of products to suit individual needs

Solution first - range of product follows

Do the right thing for the client - risk; tax; discipline

Product arbitrage must be removed

24


Balancing benefits

On-balance sheet providers ability to manufacture product must be done in a way that competes effectively on either price or benefit

Liberty’s new savings product reduction in yield compares well with unit trust industry

While margins may be lower in the off-balance sheet market the returns on capital and the ability to unlock capital tied up in the on-balance sheet business are greater

25


1. Assumes a R1 000 per month recurring premium contribution, age 40, retirement age 60

2. RIY assumption of investment returns 4% above inflation, over 20 years

3. Liberty estimates

Retirement annuity commissions-recurring premiums (first two years)¹ R

Liberty Excelsior 1000 5 460

Competitors 9 600

Retirement annuity costs (RIY)² Total

Liberty Excelsior 300 - old product 2.54%

Liberty Excelsior 1000 - new product 1.70%

Nearest competitor³ 2.50%

26


Ratio of life assurance to unit trust asset based market share

Source: SARB; Investec securities Research; Investec Securities Ltd - ‘Life assurance: Asset levels and share prices’

Better positioned than competitors if there is a full swing to off-balance sheet savings

1.72.62.93.2

7.5

0

2

4

6

8

10

A B C D Liberty

27


Liberty well positioned for growth

in both on-balance and off-balance sheet savings

28

Myth 4

Commission is the root of all evil

29

Commission

Issue is not commission - it’s behaviour and culture

You get what you measure

Bulk of adviser work upfront but …

Front-end loaded commission incentivises front-end loaded service and churn

On-balance sheet measured by new business sales;off-balance sheet measured by assets under management.Why?

30

Commission

High net worth

Entry level market

Mass affluent

Middle class

Emerging market

Fee based

Simple/low advice

CommissionUpfront and as-and-when

31

Commission

Answer lies in professionalising financial planning

Customer and intermediary need to be treated fairly

Customer determines value

32

Commission

Answer lies in professionalising financial advice

Address the root of the problem, not the symptom

Full upfront was reducing the alignment of life company, client and adviser interests

Visible commitment needed:

Compliance and standards

Training

Terminations for not adhering to standards

Excelsior 1000

Zero tolerance for behaviours that undermine customer trust

Do the right thing

33

Myth 5

Liberty is a pure life assurer

34

Liberty geared for growth

35

STANLIB

Integration of front endscomplete

Development of STANLIBequity franchise

Investment in talent

Strong investmentperformance

Delivering on strategy – Wealth solutions

36

Restructured sales startingto deliver results

Customer focused product range

Delivering on strategy – Sales and distribution

37

Rest of Africa

Delivering on strategy – Geographic

38

Work in progress

Delivering on strategy – Strategic partnerships

39

Liberty geared for growth

Strong financial performance with record earnings

Already seeing benefits of earlier strategic decisions

Growth plan to expand the business into a broaderWealth company

40

The industry may be mature but there is lots of opportunity for growth

National Social Security may change the industry but will create opportunity

There is strong need for both on-balance andoff-balance sheet savings

Commission is not the root of all evil- encouraging undesirable business practices is

Liberty is growing into a broader wealth company

5 myths dispelled

Savings in Utopia

Questions?

savings in utopia - liberty holdings · 2013-03-25 · 4 source: sigma report swiss re: world...

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