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AUDITED RESULTS PRESENTATION FOR THE YEAR ENDED 31 MARCH 2003 June 2003.

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Presentation on theme: "AUDITED RESULTS PRESENTATION FOR THE YEAR ENDED 31 MARCH 2003 June 2003."— Presentation transcript:

1 AUDITED RESULTS PRESENTATION FOR THE YEAR ENDED 31 MARCH 2003 June 2003

2 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE OPERATIONAL PERFORMANCE FINANCIAL RESULTS OBJECTIVES

3 OUR AMBITION To create shareholder value in the medium to long term by: –Integration & administration of policy books –Doing new business in our target markets –Maximising return on capital (‘NAV’) & value on in force (‘VIF’) –Providing innovative products & operational excellence

4 WHY WE EXIST To offer: –Life insurance on the Capital Alliance brand to the lower income commercial market –Life insurance products to selected markets primarily through branded distribution partners & specialist intermediaries –Life insurance admin services to local & overseas operators –Our primary products & services cover: Individual insurance Group insurance Retirement fund products & admin services

5 WHY WE EXIST Efficient integrator of life insurance business Provide better value proposition to selected markets (price, benefits, service) via focus on efficiency & cost leadership (bottom quartile new business & renewal cost) Maximise retention & onsell to existing customers

6 CORE COMPETENCIES Efficient cost-effective operations engine Integration expertise Innovative product factory to support group risk business, distribution partners and CAL Commercial channel

7 CAPITAL ALLIANCE STRUCTURE CAPITAL ALLIANCE HOLDINGS Capital Alliance Life Investments - Australia39% - Nova31% Group Business Individual Life Product Factory Single Operations Engine

8 OUR STRATEGY IN SUMMARY Primarily a ‘wholesaler, integrator & administrator’ strategy building on our operations core competence Distribution via distribution partners & specialist intermediaries to achieve one to many A customer service & cost-effective culture Focused on embedded value enhancement

9 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE OPERATIONAL PERFORMANCE FINANCIAL RESULTS OBJECTIVES

10 CHALLENGES AND RESPONSE Impact –Negative return on certain share & policyholder portfolios –Level of surrenders & maturities in line with plan, but –Difficult to conserve maturing & surrendering funds ahead of plan Volatility & substantial decline in investment values (primarily international assets & local equities)

11 CHALLENGES AND RESPONSE Our response –Set portfolio mandates to protect share & policyholder assets –Set performance benchmarks for all portfolios & critically evaluate asset management performance –Rely on trusted asset management professionals Achievement –Satisfactory relative investment performance for policyholders –Positive return on shareholders’ portfolio Volatility & substantial decline in investment values (primarily international assets & local equities)

12 CHALLENGES AND RESPONSE Overcapacity in market Low growth in formal sector employment Low levels of discretionary saving Competition from other investment products Impact –Ongoing decline in recurring premium volumes –Group business market is mature –Limited scope to increase IL production volumes profitably at acceptable risk Pressure on new business volumes

13 CHALLENGES AND RESPONSE Our response –Remain a niche player – focus on risk business –Tight control of new business activities –Continue to build our presence in the group risk market –Preference for as-and-when commission in IL business Achievement –Growth in IL new business EV for 3 consecutive years –Met target in group risk business for 4 consecutive years –Good relationship with distribution partners provides platform for future growth Pressure on new business volumes

14 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE OPERATIONAL PERFORMANCE FINANCIAL RESULTS OBJECTIVES

15 OPERATIONAL PERFORMANCE Fedsure/Norwich individual life integration completed ahead of schedule & within budget Acquired & integrated Saambou Life Concluded reinsurance & integration of Investec Employee Benefits annuities Exceeded planned embedded value enhancement in all integrations Improved EV on new business for third year

16 OPERATIONAL PERFORMANCE Excellence in administration operations demonstrated –Now administer >1million IL contracts on one scalable platform –Exceed demanding service levels –Policyholders & intermediaries have commented favourably –Call centre judged 5th in insurance, banking & other financial services –Improved group business administration systems

17 OPERATIONAL PERFORMANCE Work items / / /01 Loans SurrendersClient ServicesValuesClaimsMaturities

18 OPERATIONAL PERFORMANCE Service levels Value calculations Loans Surrenders Death claims Other alterations Complex alterations Premium recon Premium queries Refunds Scanning 99% 100% 98% 100% 98% 96% 95% 98% 100% Achievement May days 1 day 2 days 1 day 2 days 1 day Current Service level May % Achievement May days Current Service level May % 70% 80% 40% 5% 0% Achievement August days 50 days 10 days 30 days 5 days Current Service level August 2001Item

19 OPERATIONAL PERFORMANCE Call centre statistics 3766Number of agents sec240 secAverage talk time173 sec 3.4%15%Abandoned calls6.5% Incoming calls sec180 secAverage queue time37 sec 92%60%Service level (80% answered in 45 sec’s)77% May 2003May 2002August th place ‘Call centre of the year’ Awards Item

20 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE OPERATIONAL PERFORMANCE FINANCIAL RESULTS OBJECTIVES

21 SUMMARISED GROUP INCOME STATEMENTS Audited year ended 31 March 2003 Income Outgo Taxation Life insurance and pensions business Total 2002 R'000 Total 2003 R' Net premium income Investment income ( ) disposal of investments Gain/(loss) on revaluation and Net policyholders' benefits Commissions Administration expenses Amortisation of intangible assets- (29 060)5 489 ( )Transfers (from)/to life funds ( )

22 SUMMARISED GROUP INCOME STATEMENTS 40% Audited year ended 31 March 2003 Income/(loss) after tax Life insurance & pensions business ( ) Other income ( ) Headline earnings Split as: Operating income ( ) Investment income (Loss)/gain on revaluation & disposal(96 511) Attributable earnings ( ) Total 2002 R'000 Total 2003 R'000 Preference dividends paid(23 537)(16 304))

23 SUMMARISED GROUP INCOME STATEMENTS Attributable earnings per share (cents) 22% Headline earnings per share (cents) Dividend per ordinary share (cents) Dividend cover (headline earnings, times) Weighted avg. number of shares in issue (’000) Total shares in issue (’000) Audited year ended 31 March 2003 (161.4)

24 SUMMARISED GROUP INCOME STATEMENTS Audited year ended 31 March 2003 Plus : Except. reserving strain on reinsurance transactions Amortisation of intangible assets Attributable earnings ( ) Headline earnings Total 2002 R'000 Total 2003 R'000 Non recurring expenses Preference share dividends paid Consolidation adjustments in respect of the share scheme (7 618) Headline earnings disclosed last year Reconciliation:

25 HEADLINE EARNINGS

26 SUMMARISED GROUP BALANCE SHEETS 31 Mar 2002 R' Mar 2003 R'000 as at ASSETS Investment assets Property, plant & equipment Deferred tax Current assets EQUITY, RESERVES AND LIABILITIES TOTAL EQUITY, RESERVES AND LIABILITIES Intangible assets TOTAL ASSETS Audited year ended 31 March Total shareholders' funds Policyholder liabilities Non-current liabilities Current liabilities Outside shareholders' interests

27 SUPPLEMENTARY INFORMATION LIFE ASSURANCE OPERATIONS Premiums net of reinsurance Audited year ended 31 March 2003 Individual - recurring premiums Group - lump sums Group - other premiums Group funeral - single premiums Credit life - normal Reinsurance premiums Individual - single premiums Standard General Total 2002 R'000 Total 2003 R'000

28 SUPPLEMENTARY INFORMATION LIFE ASSURANCE OPERATIONS Net policyholder benefits Audited year ended 31 March 2003 Individual life Group benefits Credit life - normal Standard General Death & disability benefits Maturities * Annuities Surrenders * Total 2002 R'000 Total 2003 R'000 * Stated gross of policy loans of R1.311bn

29 SUPPLEMENTARY INFORMATION Risk discount rate12.9% Equity return (before capital gains tax)12.4% Fixed interest return (before tax)10.4% Cash return (before tax)8.4% Average investment return (before tax)11.1% VALUATION BASIS: ECONOMIC ASSUMPTIONS AT 31 MARCH 2003 Audited year ended 31 March 2003 Property return (before tax)11.4% Expense inflation rate per annum6.4%

30 GROUP EMBEDDED VALUE 31 March 2002 R' March 2003 R'000 Shareholders' net assets Gross value of in force life business Embedded value Less: opportunity cost of ( )capital adequacy requirements Audited year ended 31 March total plus other group assets Net value of in force life business ( ) as at

31 GROUP EMBEDDED VALUE Capital adequacy requirement ("CAR") Capital adequacy cover (times) Net asset value per share (Rands) Embedded value of in force business per share (Rands) Embedded value per share (Rands) Audited year ended 31 March March 2002 R' March 2003 R'000 as at 12%

32 VALUE OF NEW BUSINESS Gross value of new life insurance business Less: opportunity cost of capital adequacy requirements Net value of new life insurance business (4 579) Audited year ended 31 March (3 635) March 2002 R' March 2003 R'000 as at 113%

33 ANALYSIS OF GROWTH IN EMBEDDED VALUE 2002 R' R'000 Audited year ended 31 March 2003 Changes in share capital Dividends declared or paid( ) (82 577) Embedded value earnings Investment return on group net assets Value of new business Change in economic assumptions9 065 (7 804) Growth in embedded value Saambou Life opening embedded value Expected return on value of in force Expected return on new business Change in non-economic assumptions & basis (40 585) Experience variations Embedded value earnings

34 COMPOSITION OF SHAREHOLDERS’ NAV Equity Cash Interest bearing Property Other Audited year ended 31 March (25 074) R' March ( ) R' March

35 SHAREHOLDER VALUE DRIVERS Individual Life Recurring CAL Commercial Broker Distribution partners - continuing discontinued Group Benefits Recurring Group Risk Credit Life Funeral Total Single premiums - Individual Life Credit Life New business API by source Audited year ended 31 March 2003 R' R'

36 SHAREHOLDER VALUE DRIVERS Improved new business EV from R18m to R38.6m This was due to: –Re-pricing the product set for all distribution channels –Higher agent productivity (avg monthly production per agent of 6.5 policies) due to better management controls and training –Top 10% of agents production > 20 policies per month with first year persistency > 80% Achieved despite reduced production volumes & increased acquisition cost per policy from R157 to R268 Group NB EV increased due to mix of business New business profitability

37 SHAREHOLDER VALUE DRIVERS Acquisition and renewal costs New businessCAL renewal Fed renewal

38 SHAREHOLDER VALUE DRIVERS CAL Commercial 15 month persistency 78% (78%) Distribution partners 15 month persistency 79% (79%) Group risk retention 87% (92%) Client retention

39 SHAREHOLDER VALUE DRIVERS Sustainability of in force book Projected reduction in life fund in percentage terms over 20 years 0% 20% 40% 60% 80% 100% 120% Mar-03Mar-04Mar-06Mar-07Mar-09Mar-10Mar-12Mar-13Mar-15Mar-16Mar-18Mar-19Mar-21Mar-22

40 SHAREHOLDER VALUE DRIVERS A terrible year for the ALSI Mar-02May-02Jul-02Sep-02Nov-02Jan-03Mar-03May-03

41 SHAREHOLDER VALUE DRIVERS ….. with some recovery after the year-end Mar-02May-02Jul-02Sep-02Nov-02Jan-03Mar-03May-03

42 SHAREHOLDER VALUE DRIVERS CAL equity portfolios better off than ALSI Mar-02Apr-02May-02Jun-02Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03Mar-03 ALSICALEQTCALSCPCALABR

43 SHAREHOLDER VALUE DRIVERS CAL core equity performance -40% -30% -20% -10% 0% 10% 20% 30% 1m3m6m1y -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% Core equityALSI40Active (RH)

44 SHAREHOLDER VALUE DRIVERS …and bonds gave excellent returns Mar-02Apr-02May-02Jun-02Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03Mar-03

45 SHAREHOLDER VALUE DRIVERS Bond performance 0% 5% 10% 15% 20% 25% 30% 6 months1 year2 yrs p.a.3 yrs p.a.5 yrs p.a. PortfolioIndexActive

46 0% 3% 6% 9% 12% 15% 18% 21% 10%12%14%16%18%20%22%24%26% Annualised standard deviation Annualised return Absolute return ALBI ALSI SHAREHOLDER VALUE DRIVERS Absolute return comparative risk/return matrix

47 SHAREHOLDER VALUE DRIVERS Absolute return rolling returns 0% 10% 20% 30% 40% 50% 60% 70% Mar-98Sep-98Mar-99Sep-99Mar-00Sep-00Mar-01Sep-01Mar-02Sep-02Mar m return12 m risk

48 SHAREHOLDER VALUE DRIVERS Absolute return cumulative Sep-99Mar-00Sep-00Mar-01Sep-01Mar-02Sep-02Mar-03 SA 3m T-billHeadline inflation (1 m lag)ALBIALSIInvestec opportunity

49 RETURN ON CAPITAL Calculated as headline earnings divided by average capital employed Assumes all capital employed in life business 35% for 2003 (33%)

50 PRESENTATION OUTLINE CAPITAL ALLIANCE PROFILE CHALLENGES AND RESPONSE OPERATIONAL PERFORMANCE FINANCIAL RESULTS OBJECTIVES

51 5 PILLARS OF BEE AT CAPITAL ALLIANCE

52 Equity Employment Equity Skills development and training Procurement Corporate Social Responsibility

53 BEE AT CAPITAL ALLIANCE Highest direct level of black equity ownership in listed life insurance sector Black directors play strong role in strategic direction, transformation & positioning of the group Ahead of industry average in terms of employment equity 4% of payroll budgeted on black staff development & training in 2004, increasing in % of discretionary procurement directed to black suppliers in 2003

54 BEE AT CAPITAL ALLIANCE Corporate Social Responsibility commitment to: –Siyandiza, with South African Air Force –CAL Kids, a project to rehabilitate street children –Hantam Educational Trust, a rural education programme –Jhb CBD police upliftment programme –CIDA City campus –Tikkun

55 BEE AT CAPITAL ALLIANCE Employment Equity : HDI’s by occupational category 0% 10% 20% 30% 40% 50% 60% 70% DirectorsExec mgtSen mgtProf & mid mgtTech & jnr mgtSemi-skilled

56 BEE AT CAPITAL ALLIANCE Employment profile by economic sector 0%5%10%15%20%25%30%35%40% African Male Coloured Male Indian Male White Male African Female Coloured Female Indian Female White Female Capital AllianceIndustry average

57 2004 OBJECTIVES Key initiatives are: –Further renewal cost reduction –Maturity extensions, annuity & risk products –Retention/conservation –Commitment to continuous service improvements –Continual review of asset/liability matching to optimise investment returns 1.Continue focus on service levels, retention of existing policyholders & enhancement in VIF

58 2004 OBJECTIVES Key initiatives are: –Expand delivery from current distribution channels (IL & group) –Source new distribution partners 2. Reinforce business development activities

59 2004 OBJECTIVES Key initiatives are: –Enhance systems capability to deliver on specific requirements of local & international TPA opportunities –Improve positioning to deliver the business –Leverage our investment in Australia where appropriate to further our integration strategy 3. Investigate life insurance administration business locally & internationally

60 2004 OBJECTIVES We recognise the importance of patience & will not be unduly pressurised Will only conclude further transactions which demonstrate acceptable shareholder value add 4. Conclude further local transactions if available on acceptable terms

61 THANK YOU


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