1.  Life Seminar 2008 THE CHALLENGES OF THE LIFE INDUSTRY – Strategic & Emerging Issues 20 February 2008 Presenter: Barry Stott

2. PricewaterhouseCoopers 15 January 2008 Slide 2 Agenda/Contents Emerging Trends and Strategic Issues in South African Insurance comparison and trends from 2004 to 2006 International comparisons and trends – Banana Skins The 2008 South African survey Conclusion Peer review

3. PricewaterhouseCoopers 15 January 2008 Slide 3 Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006 Surveys focused on strategic and emerging issues Provide industry-wide perspective Personal interviews with managing directors and senior executives

4. PricewaterhouseCoopers 15 January 2008 Slide 4 Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006 Main findings20042006 Main issues Financial Sector Charter (BEE & emerging black insurance market) Product, pricing and distribution Legislative and regulatory Consolidation and polarisationReputation / Image damage Self-criticism of industry Distribution channelsValue for money AIDSLack of transparency ComplianceDistribution channels

5. PricewaterhouseCoopers 15 January 2008 Slide 5 Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006 Main findings20042006 Competitive markets Intensive competition Threat from established broad-based financial institutions Long-term market overcrowded Channels expecting growth: worksite marketing, bancassurance and direct sales Channels expecting growth: bancassurance, direct sales and retailers

6. PricewaterhouseCoopers 15 January 2008 Slide 6 Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006 Main findings20042006 Drivers of change Long-term Industry FSC Economies of scale Capital requirements Long-term Industry Regulatory FSC Consumerism Short-term Industry FSC Technology Capital requirements Short-term Industry FSC Regulatory Technology Pressing issues 1. FSC 2. Profit performance 3. Cost reduction 1. Retaining existing customers 2. Building a customer base 3. Recruiting/training competent staff

7. PricewaterhouseCoopers 15 January 2008 Slide 7 Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006 Main findings20042006 Restructuring Companies believed they will undergo restructuring M&AJoint ventures & alliances Regulation and governance Regulatory pressure to increase substantially Regulatory pressure to be maintained Poor integration with other functions is the key barrier to compliance Complexity of regulatory environment is the key barrier to compliance

8. PricewaterhouseCoopers 15 January 2008 Slide 8 Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006 Main findings20042006 Risk management and fraud Enterprise-wide risk management very important Effectively manage and measured risks Effectively manage ALM Effectively manage fraud Policyholders main source of fraud

9. PricewaterhouseCoopers 15 January 2008 Slide 9 International comparisons and trends Long-running series on banking risk First survey of insurance Paints a picture of the risk landscape

10. PricewaterhouseCoopers 15 January 2008 Slide 10 Top ten banana skins Global 1. Too much regulation 2. Natural catastrophes 3. Management quality 4. Climate change 5. Managing the cycle 6. Distribution channels 7. Long tail liabilities 8. Actuarial assumptions 9. Longevity assumptions 10. New types of competitors

11. PricewaterhouseCoopers 15 January 2008 Slide 11 Life Insurers Banana Skins LIFE INSURANCE Strongest concern is over-regulation Other concerns lay close to the nature of the business New competitors in the savings market posing a risk LIFE INSURANCE 1.Too much regulation 2.Distribution channels 3.Interest rates 4.Longevity assumptions 5.Political shocks and pressures 6.Investment performance 7.Management quality 8.Retail sales practices 9.Equity markets 10.New types of competitors

12. PricewaterhouseCoopers 15 January 2008 Slide 12 South Africa Industry Survey vs. Global Insurance Banana Skins Comparison of Emerging Trends and Strategic Issues in South African Insurance responses to Insurance Banana Skins responses RiskSouth AfricaGlobal Too much regulation  Natural catastrophes*  Management quality  Climate change*  Managing the cycle  Distribution channels  Actuarial and longevity assumptions*  New types of competitors  Investment performance  Managing technology  Capital requirements  Mergers and Acquisitions  * Not included as risk in the South African Survey

13. PricewaterhouseCoopers 15 January 2008 Slide 13 Global Insurance Banana Skins Natural catastrophes & climate change Sharp rise in catastrophic events e.g. avian flu; tsunami, flood & climate change Industry’s ability to price these risks and manage them Uncertainties surrounding climate change Climate change will continue influence underwriting results

14. PricewaterhouseCoopers 15 January 2008 Slide 14 Global Insurance Banana Skins Actuarial assumptions Tyranny of the actuary Accuracy of actuarial assumptions Skills Longevity assumptions Rising risk for life insurers Pricing

15. PricewaterhouseCoopers 15 January 2008 Slide 15 Emerging Trends and Strategic Issues in South African Insurance 2008 Interviews with managing directors and senior executives during February 2008 Questionnaire – considers and address the challenges facing the industry Release in June 2008

16. PricewaterhouseCoopers 15 January 2008 Slide 16 Emerging Trends and Strategic Issues in South African Insurance 2008 Economic environment  interest rates, inflation, currency and market fluctuations investment performance Market  image and reputation competitive market shortage of skills consumerism developing non-traditional markets “Without doubt, one of the major challenges for the insurance industry in 2008 will be the retention of skills.” – Nick Kohler, Hollard.

17. PricewaterhouseCoopers 15 January 2008 Slide 17 Emerging Trends and Strategic Issues in South African Insurance 2008 “Getting to grips with the raft of new legislation planned for the financial services industry will be one of the biggest challenges in 2008” – Mike Harper, Old Mutual Regulatory  alignment of FSC and DTI code of good practice credit insurance commission regulations demarcation between medical schemes and health insurance FCR and capital management social security scheme NCA Strategies  retain of existing customers foreign investors innovation

18. PricewaterhouseCoopers 15 January 2008 Slide 18 Industry Outlook 2008 Industry issue / challenge / development HighMediumLow Legislation and regulationImage and reputationDemarcation Shortage of skillsIntermediary marketClimate change Competitive marketsDistribution channelsNew strategies Motor insuranceProduct development Hardening in motor ratesConsumerism Capital management “The industry continues to face significant competitive pressure from new entrants, particularly those using alternative distribution channels, primarily bancassurance and direct selling.” Ian Kirk – Santam

19. PricewaterhouseCoopers 15 January 2008 Slide 19 Conclusion There are unique challenges in the industry Regulatory developments and compliance Continued growth Realignment of distribution channels Design of products to suit the needs of the emerging market Meeting customer expectations Focus on bottom line earnings but This is an innovative industry that has responded well to economic challenges

20. PricewaterhouseCoopers 15 January 2008 Slide 20 Peer review FirstSecondThird Products200620042006200420062004 ART Guardrisk SantamNova RiskHollard Assistance business MetropolitanAfrican LifeSanlam / African Life MetropolitanOld Mutual Credit Life Hollard ABSA Life RegentCharter Life Group business – Investment Old Mutual LibertySanlamInvestment Solutions Metropolitan Group business – Risk Old Mutual*Sanlam*Momentum/ Liberty * Health Discovery MomentumOld MutualMedscheme / Old Mutual Liberty Investment products Old Mutual MomentumMomentum & Liberty LibertyInvestment Solutions Life risk products MomentumDiscovery MomentumLibertyOld Mutual Property (excl. motor) Santam*Mutual & Federal *Hollard* Motor insurance Santam*Outsurance*Auto & General *

21. PricewaterhouseCoopers 15 January 2008 Slide 21 Peer review FirstSecondThird Other200620042006200420062004 Customer relationships Discovery Momentum SantamLiberty InnovationsDiscovery Hollard MomentumOutsurance Marketing strategies Outsurance Discovery Auto & General Liberty & Hollard Technically competent staff Mutual & Federal/ Santam Discovery Old MutualLibertyMomentum

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