1. Hantie van Heerden 18 November 2008 (Cape Town) 20 November 2008 (Johannesburg) Overview of the Average Valuation Basis for Long-term Insurers in South Africa during 2007

2. Financial Services Board 29/10/2008 Page 2 To provide information to industry on representative SA Statutory Valuation Method bases reported in 2007, including comparisons with previous years’ data and some comparisons with actual experience. Why are we here?

3. Financial Services Board 29/10/2008 Page 3 ●Brief overview of the LT insurance market in 2007 ●Review the representative: ○Reported AOS results (C7) ○Reported valuation assumptions (G10.x) and ○Reported actual experience (B - statements) for certain key elements in a valuation basis ●Based on 70 insurers’ data What will we show you?

4. Overview of the LT Insurance Market in 2007

5. Financial Services Board 29/10/2008 Page 5 Overview: Rankings InsurerIndustry % of Market Assets Rank on Assets 200720062005 Old Mutual Typical27.8111 Sanlam Typical16.4222 Momentum Typical12.7344 Liberty Typical11.9433 Investment Solutions Linked8.6555 Metropolitan Life Typical4.7666 Investec Assurance Linked2.5778 Allan Gray Life Linked2.48810 Capital Alliance Life Typical1.4999 Coronation Life Linked1.21011

6. Financial Services Board 29/10/2008 Page 6 Overview: Number of insurers & total assets, split by year-end

7. Financial Services Board 29/10/2008 Page 7 Overview: Insurance license

8. Financial Services Board 29/10/2008 Page 8 Overview: Business class

9. Financial Services Board 29/10/2008 Page 9 Overview: Growth by license

10. Financial Services Board 29/10/2008 Page 10 Overview: Growth per business class

11. Financial Services Board 29/10/2008 Page 11 Overview: Key indicators Amounts in R’bn2007200620052004 Total assets (incl s/h)1,3911,2811,069906 Total liabilities1,2821,170975817 Excess assets1091119489 CAR before management action 79696563 CAR after management action 312927 Funding factor (excl. CAR) 1.081.10 1.11 CAR Cover3.453.893.483.28 CAR after / CAR before 40%42%41%43%

12. Financial Services Board 29/10/2008 Page 12 Overview: Key indicators Industry Total R'bn 2007 Total R'bn 2006 Total R'bn 2005 tlranc Number of active insurers 301248115707371 Net premiums received 71.4%26%1.1%0.5%0.4%0.7%228220166 Net benefits paid 68.5%29.6%1%0.2%0.3%0.4%231210160 Acquisition expenses 93.4%0.8%1.8%0.7%1.1%2.3%171615 Operational expenses 94.2%2.5%0.9%0.7% 1.1%13 10

13. Financial Services Board 29/10/2008 Page 13 Overview: Asset composition per industry Asset classes tlrancAll Equities41%50%1%2%58%8%42% Fixed interest20%10%64%1%27%43%18% CIS14%17%3%43%5%14% Cash10%15%20%45%8%25%11% Property4%0% 4% Other11%8%13%9%2%10%11% Investment Yield 13.7%23.3%7.1%7.6%12.9%10.9%15.1% Total Assets (R'bn) 1,131 238 7 1 10 3 1,391

14. Expenses

15. Financial Services Board 29/10/2008 Page 15 Split of expense losses

16. Financial Services Board 29/10/2008 Page 16 Expense inflation assumption

17. Financial Services Board 29/10/2008 Page 17 Actual expense inflation 9% 22% 4% 21% 8% 21% 3% 79%

18. Financial Services Board 29/10/2008 Page 18 Initial per policy expense assumption

19. Financial Services Board 29/10/2008 Page 19 Actual initial expense (individual business) Industry Average initial expense per new policy Average premium per new policy 2007 Change from 20062007 Change from 2006 Assistance businessR 299-3%R 3,064266% Cell captivesR 5972%R 2786% Linked insurersR 12,27959%R 651,34416% Niche insurersR 16961%R 4430% Typical insurersR 1,833-23%R 7,960-15% AllR 1,575-14%R 7,216-4%

20. Financial Services Board 29/10/2008 Page 20 Actual initial expense (individual business) Industry Initial expense as a % of new business net premium 200720062005 Assistance business10%37%12% Cell captives215%223%270% Linked insurers2%1%2% Niche insurers38%24%28% Typical insurers23%25%27% All22%24%25%

21. Financial Services Board 29/10/2008 Page 21 Actual initial expense (individual business) Business class Initial expense as % of net premium 20072006 New business premium Total premium New business premium Total premium With-profit business40%7%108%12% With-profit annuities2% Without-profit annuities2% Linked5% 4% Market-related21%11%17%9% Other68%34%74%36% All22%13%24%14%

22. Financial Services Board 29/10/2008 Page 22 Renewal expense assumption (per policy)

23. Financial Services Board 29/10/2008 Page 23 Actual operating expense (individual business) Industry Average operating expense per policy Operating expenses as % of total net premium 2007200620072006 Assistance businessR 76R 428%17% Cell captivesR 34R 404%5% Linked businessR 420R 3030% Niche insurersR 24R 2210%7% Typical insurersR 280R 2557% AllR 252R 2267%6%

24. Capital Adequacy Requirement (CAR)

25. Financial Services Board 29/10/2008 Page 25 CAR cover bands Band Number of insurers Percentage of total 1 ≤ CAR Cover < 1.51826% 1.5 ≤ CAR Cover < 246% 2 ≤ CAR Cover < 31623% 3 ≤ CAR Cover < 41217% CAR Cover ≥ 42029% Total70100%

26. Financial Services Board 29/10/2008 Page 26 CAR Cover vs. Asset size

27. Financial Services Board 29/10/2008 Page 27 Distribution of CAR

28. Financial Services Board 29/10/2008 Page 28 TCAR Breakdown

29. Financial Services Board 29/10/2008 Page 29 OCAR Breakdown

30. Financial Services Board 29/10/2008 Page 30 Investment Risk Breakdown

31. Financial Services Board 29/10/2008 Page 31 Reduction in CAR by using Management action - over time

32. Financial Services Board 29/10/2008 Page 32 Proportion of insurers applying management action Industry Number of insurers using management action Total number of insurers Proportion Assistance1813% Captives2540% Niche1119% Linked-12- Typical113037% Reinsurers1425% Total167023%

33. Financial Services Board 29/10/2008 Page 33 ●TCAR wasn’t reduced by management action ●Elements of OCAR reduced: ○Investment risk – reduced by 66% Worst investment return – reduced by 71% Resilience risk – reduced by 56% ○Annuitant mortality fluctuation risk – reduced by 12% ○Morbidity fluctuation risk – reduced by 13% ○Rest small (3% or less reduction) Management Action

34. Analysis of Surplus (AOS)

35. Financial Services Board 29/10/2008 Page 35 Overview: AOS

36. Financial Services Board 29/10/2008 Page 36 Profit: % of net written premium

37. Risk Discount Rates (RDR)

38. Financial Services Board 29/10/2008 Page 38 Assumed central discount rate

39. Financial Services Board 29/10/2008 Page 39 Observed investment yield

40. Financial Services Board 29/10/2008 Page 40 Investment yield assumed vs. actual

41. Financial Services Board 29/10/2008 Page 41 Cumulative distribution of assumed real returns

42. Mortality

43. Financial Services Board 29/10/2008 Page 43 ●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

44. Financial Services Board 29/10/2008 Page 44 Assurance mortality

45. Financial Services Board 29/10/2008 Page 45 Change in mortality of assured lives

46. Financial Services Board 29/10/2008 Page 46 AIDS loading comparison

47. Financial Services Board 29/10/2008 Page 47 AIDS loading by industry

48. Financial Services Board 29/10/2008 Page 48 Annuitant mortality by industry

49. Financial Services Board 29/10/2008 Page 49 Change in mortality of annuitants from 2006 to 2007

50. Financial Services Board 29/10/2008 Page 50 Mortality: Actual vs. expected ●For assurance products: ○Individual: 81% (79%) ○Group: 94% (90%) ●For annuity products: ○Individual: 114% (114%) ○Group: 88% (87%)

51. Financial Services Board 29/10/2008 Page 51 Morbidity: Actual vs. expected ●For lump sum disability: ○Individual: 75% (59%) ○Group: 65% (80%) ●For income disability: ○Individual: 28% (71%) ○Group: 74% (49%)

52. Withdrawal Rates

53. Financial Services Board 29/10/2008 Page 53 Assumed lapses per business class

54. Financial Services Board 29/10/2008 Page 54 Assumed surrenders per business class

55. Financial Services Board 29/10/2008 Page 55 Assumed lapses per industry

56. Financial Services Board 29/10/2008 Page 56 Observed withdrawals per industry

57. Thank you Hantie van Heerden (012) 422 2801 hantiev@fsb.co.za