1. 1 Hantie van Heerden Elash Mistry 14 Nov 2007 Overview of Experience for Long-term Insurers in SA 2006

2. 2 Why are we here? To provide information to practicing life actuaries on representative SA Statutory Valuation Method bases reported in 2006

3. 3 What will we show you? Brief overview of the LT insurance market in 2006 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

4. 4 Overview of the LT Insurance Market in 2006

5. 5 Overview: rankings InsurerIndustry % of Market Assets Rank on Assets 200620052004 Old MutualTypical28.3%111 SanlamTypical17.1%222 LibertyTypical12.1%333 MomentumTypical11.3%444 Investment SolutionsLinked8.0%555 Metropolitan LifeTypical4.6%666 Investec AssuranceLinked2.1%778 Allan Gray LifeLinked1.9%81013 Capital Alliance LifeTypical1.5%989 Investec Employee BenefitsTypical1.3%1097

6. 6 Overview: by year-end

7. 7 Overview: by license

8. 8 Overview: per business class

9. 9 Overview: growth by license

10. 10 Overview: growth per business class

11. 11 Overview: over time Amounts in R‘bn2006200520042003 Total assets1,2811,069906817 Total liabilities1,170975817736 Excess assets111948981 CAR before management action 69656373 CAR after management action 2927 32 Funding factor (Excl CAR)1.10 1.11 CAR Cover3.893.483.282.55 CAR after / CAR before42%41%43%44%

12. 12 Overview: key indicators Industry Total R'bn 2006 Total R'bn 2005 Total R'bn 2004 tlranc Number of active insurers 311169124737170 Net premiums received 69%29%1.3%0.3%0.5%0.6%220166151 Net benefits paid 68%29%1.0%0.2%0.4%1.0%210160162 Acquisition expenses 94%0.4%1.7%0.7%1.0%2.1%161512 Operational expenses 94%2.5%1.3%0.7% 0.8%13108 t = typical; l = linked; r = reinsurer; a = assistance; n = niche; c = captive

13. 13 Overview: asset composition per industry Asset classes tlrancAll Equities 45%44%0%7%59%21%45% Fixed interest 20%13%62%5%29%32%19% CIS 12%21%2%51%3%13%14% Cash 9%14%24%22%7%25%10% Property 4%0% 1%0% 3% Other 10%7%12% 2%9% Investment Yield 22.1%31.3%6.2%14.6%24.8%13.8%23.1% Total Assets (R'bn) 1,06020081931,281

14. 14 Capital Adequacy Requirement (CAR)

15. 15 Distribution of CAR

16. 16 OCAR breakdown

17. 17 Management action over time

18. 18 Proportion of insurers that apply management action Industry Number of insurers using management action Total number of insurers Proportion Assistance1911% Captives1425% Niche31225% Typical113135% Total167322%

19. 19 Management action Examples of management actions used: –Reduce future bonuses –Reduce/Remove non-vested bonuses –Reduce bonus smoothing reserve –Implement additional surrender charge

20. 20 Analysis of Surplus (AOS)

21. 21 Overview - AOS Amounts in R’bn200620052004 Start excess assets 948976.2 New business (2)(1.6) Change in valuation basis 0.2(0.8) Release of margins 75.7 Investment experience 30.724.920.2 Mortality experience 2.92.41.6 Morbidity experience 1.1 0.8 Expense experience (1.7)(0.7)(0.5) Early withdrawals 0.20.1 Tax (4.3)(3.8)(4.5) Other (7.1)(9.8)1.6 Income from subsidiaries 1.31.1 Dividends paid (12.9)(12.8)(5.9) End excess assets 1109489

22. 22 Profit as a % of net written premium

23. 23 Expenses

24. 24 Split of expense losses

25. 25 Expense inflation assumption

26. 26 Actual expense inflation 8% 21% 4% 79% 3% 21%

27. 27 Initial per policy expense assumption

28. 28 Actual initial expense (individual business) Industry Average Initial Expense per new policy Average Premium per new policy 2006 Change from 2005 2006 Change from 2005 Assistance businessR 309101%R 837-35% Cell captivesR 586-25%R 263-8% Linked insurersR 7,736-11%R 561,6225% Niche insurersR 10549%R 44175% Typical insurersR 2,382-7%R 9,358-1% AllR 1,8314%R 7,5308%

29. 29 Actual initial expense (individual business) Industry Initial expense as a % of new business net premium 200620052004 Assistance business37%12%49% Cell captives223%270%54% Linked insurers1%2%1% Niche insurers24%28%9% Typical insurers25%27% Total24%25%

30. 30 Actual initial expense (individual business) Business Class Initial expense as % of net premium 20062005 New Business Premiums Total Premiums New Business Premiums Total Premiums With-profit business108%12%104%11% With-profit annuities2% Without-profit annuities 2% Linked5%4%5% Market-related17%9%23%14% Other74%36%68%36% All24%14%24%15%

31. 31 Renewal per policy expense assumption

32. 32 Actual operating expense (individual business) Industry Average Operating Expense per policy Operating Expenses as % of Total Net Premium 2006200520062005 Assistance businessR 42R 5017%16% Cell captivesR 40R 315%4% Linked businessR 303R 3020% Niche insurersR 22R 207%8% Typical insurersR 255R 2207%6% TotalR 226R 1996%

33. 33 Central Discount Rates

34. 34 Assumed central discount rate

35. 35 Observed investment yield

36. 36 Cumulative distribution of assumed real returns

37. 37 Mortality

38. 38 Mortality In the graphed rates, we tried to determine representative mortality rates For assured lives we used SA85/90 ultimate 100% heavy to place weighted rates in perspective. For annuitants we used a(55) to put weighted average rates in perspective.

39. 39 Assurance mortality per industry Male Smokers without AIDS loading

40. 40 Change in mortality for assured lives from 2005 to 2006 Smoker without AIDS loading

41. 41 AIDS loading comparison for 2005 and 2006 Mortality for Assured Lives Male Smoker

42. 42 AIDS loading by industry Mortality for Assured Lives Male Smoker

43. 43 Annuitant mortality by industry Male Smoker

44. 44 Change in mortality for annuitants from 2005 to 2006

45. 45 Mortality: actual vs. expected For assurance products: –Individual: 79% (79%) actual vs. expected –Group: 90% (93%) actual vs. expected For annuity products: –Individual: 114% (114%) actual –Group: 87% (93%) actual vs. expected * Figures in brackets represent 2005 assumptions

46. 46 Morbidity: actual vs. expected For lump sum disability: –Individual: 59% (73%) –Group: 80% (80%) For income disability: –Individual: 71% (43%) –Group: 49% (81%) * Figures in brackets represent 2005 assumptions

47. 47 Withdrawal Rates

48. 48 Assumed lapses per business class

49. 49 Assumed surrenders per business class

50. 50 Assumed lapses per industry

51. 51 Observed withdrawals per industry

52. 52 Thank you Hantie van Heerden (012) 422 2801 hantiev@fsb.co.za Elash Mistry (012) 428 8164 elashm@fsb.co.za www.fsb.co.za