1. Tienie Hamman 17/19 November 2009 Overview of the Experience of Long-term Insurers in SA for 2008

2. Financial Services Board 2 17/19 Nov 2009 To provide information to industry on representative SA Statutory Valuation Method bases reported in 2008, including comparisons with previous years’ data and some comparisons with actual experience. Why are we here?

3. Financial Services Board 3 17/19 Nov 2009 ●Brief overview of the LT insurance market in 2008 ●Review the representative: ○Reported valuation assumptions (G10.x) and ○Reported actual experience (B - statements) for certain key elements in a valuation basis What will we show you?

4. Overview of the LT Insurance Market in 2008

5. Financial Services Board 5 17/19 Nov 2009 Overview: Rankings

6. Financial Services Board 6 17/19 Nov 2009 Overview: Number of insurers & total assets, split by year-end

7. Financial Services Board 7 17/19 Nov 2009 Overview: Business class

8. Financial Services Board 8 17/19 Nov 2009 Overview: Insurance license

9. Financial Services Board 9 17/19 Nov 2009 Overview: Growth per business class

10. Financial Services Board 10 17/19 Nov 2009 Overview: Growth by license

11. Financial Services Board 11 17/19 Nov 2009 Overview: Key indicators Amounts in R’bn2008200720062005 Total assets1,3401,3911,2811,069 Total liabilities1,2401,2821,170975 Excess assets10010911194 CAR before management action 76796965 CAR after management action 32312927 Funding factor (excl. CAR) 1.08 1.10 CAR Cover3.143.453.893.48 CAR after / CAR before 42%40%42%41%

12. Financial Services Board 12 17/19 Nov 2009 Overview: Key indicators Industry Total R'bn 2008 Total R'bn 2007 Total R'bn 2006 tlranc Number of active insurers 241351097687073 Net new premiums received 56.9%41.3%0.8%0.3% 0.5%218183177 Net total premiums received 63.4%33.6%1.6%0.3% 0.7%268228220 Net benefits paid 65.7%32.5%0.9%0.3% 0.2%265231210 Acquisition expenses 92.3%1%2.1%0.9% 3%191716 Operational expenses 93.3%2.1%1.7%0.9%0.6%1.1%1413

13. Financial Services Board 13 17/19 Nov 2009 Overview: Asset composition per industry Asset classes tlrancAll Equities38%48%1%4%45%7%39% Fixed interest25%9%72%0%27%30%23% CIS14%16%1%22%6%16%15% Cash10%17%11%39%20%35%11% Property5.5%0.3%0%0.2%0% 4.4% Other8%9%15%34%2%12%8% Total100% Investment Yield -1.5%5.5%10.9%2.2%-4.8%8.7%-0.4% Total Assets (R'bn) 1,058 258 9 1 9 4 1,340

14. Mortality

15. Financial Services Board 15 17/19 Nov 2009 ●In the graphed rates, we tried to determine representative mortality rates ●For assured lives we used 100% of the SA85/90 (heavy) ultimate table to place weighted rates into perspective ●For annuitants we used 100% of the a(55) table to put weighted average rates into perspective Mortality

16. Financial Services Board 16 17/19 Nov 2009 Assurance mortality

17. Financial Services Board 17 17/19 Nov 2009 Change in mortality of assured lives

18. Financial Services Board 18 17/19 Nov 2009 AIDS loading comparison

19. Financial Services Board 19 17/19 Nov 2009 AIDS loading by industry

20. Financial Services Board 20 17/19 Nov 2009 Annuitant mortality by industry

21. Financial Services Board 21 17/19 Nov 2009 Change in mortality of annuitants from 2007 to 2008

22. Financial Services Board 22 17/19 Nov 2009 Mortality: Actual vs. expected ●For assurance products: ○Individual: 83% (81%) ○Group: 89% (94%) ●For annuity products: ○Individual: 115% (114%) ○Group: 97% (88%)

23. Financial Services Board 23 17/19 Nov 2009 Morbidity: Actual vs. expected ●For lump sum disability: ○Individual: 74% (75%) ○Group: 66% (65%) ●For income disability: ○Individual: 42% (28%) ○Group: 68% (74%)

24. Discount Rates

25. Financial Services Board 25 17/19 Nov 2009 Page 25 Assumed central discount rate

26. Financial Services Board 26 17/19 Nov 2009 Observed investment yield

27. Financial Services Board 27 17/19 Nov 2009 Investment yield assumed vs. actual

28. Financial Services Board 28 17/19 Nov 2009 Cumulative distribution of assumed real returns

29. Expenses

30. Financial Services Board 30 17/19 Nov 2009 Split of expense experience (Statement C7)

31. Financial Services Board 31 17/19 Nov 2009 Expense inflation assumption

32. Financial Services Board 32 17/19 Nov 2009 Actual expense inflation 9% 22% 4% 21% 8% 21% 3% 79%

33. Financial Services Board 33 17/19 Nov 2009 Initial per policy expense assumption

34. Financial Services Board 34 17/19 Nov 2009 Actual initial expense (individual business) Industry Average initial expense per new policy Average premium per new policy Average initial expense as a % of average recurring premium Recurring Non- recurring Assistance businessR 272R 776R 42,68935% Cell captivesR 1,320R 557R 14,483237% Linked insurersR 9,052R 2,762R 595,149328% Niche insurersR 127R 596R 55121% Typical insurersR 1,582R 1,425R 289,648111% AllR 1,458R 1,356R 69,391107%

35. Financial Services Board 35 17/19 Nov 2009 Renewal expense assumption (per policy)

36. Financial Services Board 36 17/19 Nov 2009 Actual operating expense (individual business) Industry Average Operating Expense per policy Operating Expenses as % of Total Net Premium 200820072006200820072006 Assistance businessR 122R 76R 4221%8%17% Cell captivesR 544R 994R 11411% 5% Linked businessR 462R 420R 3030% Niche insurersR 21R 24R 226%10%7% Typical insurersR 259R 280R 2558%7% AllR 239R 252R 2267% 6%

37. Capital Adequacy Requirement (CAR)

38. Financial Services Board 38 17/19 Nov 2009 Overview – CAR cover ●Total CAR is 2.56% of total liabilities ●This is a 4.36% increase from the previous year

39. Financial Services Board 39 17/19 Nov 2009 Distribution of CAR

40. Financial Services Board 40 17/19 Nov 2009 TCAR Breakdown

41. Financial Services Board 41 17/19 Nov 2009 IOCAR Breakdown – Dec year-ends

42. Financial Services Board 42 17/19 Nov 2009 ●Operational risk ○Total amount of ± R4.6bn ○Comprises 17% of total CAR held ○Comprises 0.5% of total Assets ●Credit risk ○Total amount of ± R2.9bn ○Comprises 10.7% of total CAR held ○Comprises 0.3% of total Assets Operational and Credit risk

43. Financial Services Board 43 17/19 Nov 2009 Reduction in CAR by using Management action - over time

44. Financial Services Board 44 17/19 Nov 2009 Proportion of insurers applying management action Industry Number of insurers using management action Total number of insurers Proportion Assistance11010% Captives4757% Niche2922% Linked-13- Typical122450% Reinsurers1520% Run-off1425% Total217229%

45. Financial Services Board 45 17/19 Nov 2009 ●TCAR wasn’t reduced by management action ●Elements of OCAR reduced: ○Investment risk – reduced by 66% Worst investment return – reduced by 42% Resilience risk – reduced by 66% ○Annuitant mortality fluctuation risk – reduced by 12% ○Morbidity fluctuation risk – reduced by 11% ○Operational risk - reduced by 3% ○Credit risk – reduced by 23% ○No reduction in Embedded Investment Derivatives Component Management Action

46. Withdrawal Rates

47. Financial Services Board 47 17/19 Nov 2009 Assumed lapses per business class

48. Financial Services Board 48 17/19 Nov 2009 Assumed surrenders per business class

49. Financial Services Board 49 17/19 Nov 2009 Assumed lapses per industry

50. Financial Services Board 50 17/19 Nov 2009 Observed withdrawals per industry

51. Thank you