1. November 2012 Overview of the experience of long-term insurers in South Africa for 2011

2. Financial Services Board 2 To provide information to industry on representative South African Statutory Valuation Method bases reported in 2011, including comparisons with previous years’ data and some comparisons with actual experience. Why are we here?

3. Financial Services Board 3 What will we show you? ●Brief overview of the LT insurance market in 2011 ●Review the representative: o Reported AOS results (C7) o Reported valuation assumptions (C10) o Reported actual experience (B - statements) for certain key elements in a valuation basis o High level stress test results o Top risks (Qualitative return)

4. Overview of the LT Insurance Market in 2011

5. Financial Services Board 5 Rankings

6. Financial Services Board 6 Number of insurers & total assets, split by year-end

7. Financial Services Board 7 Business class

8. Financial Services Board 8 Insurance licence

9. Financial Services Board 9 Growth per licence

10. Financial Services Board 10 Key indicators

11. Financial Services Board 11 Key indicators

12. Financial Services Board 12 Asset composition

13. Mortality & Morbidity

14. Financial Services Board 14 ●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

15. Financial Services Board 15 Assurance mortality

16. Financial Services Board 16 Change in mortality of assured lives

17. Financial Services Board 17 AIDS loading comparison

18. Financial Services Board 18 AIDS loading by industry

19. Financial Services Board 19 Annuitant mortality by industry

20. Financial Services Board 20 Change in assurance mortality (2011/2006)

21. Financial Services Board 21 Change in annuitant mortality (2011/2006)

22. Financial Services Board 22 Mortality: Actual vs. expected ●Assurance products o Individual: 89% (88%) o Group: 89% (89%) ●Annuity products o Individual: 113% (105%) o Group: 102% (117%)

23. Financial Services Board 23 Morbidity: Actual vs. expected

24. Discount Rates

25. Financial Services Board 25 Assumed central discount rate

26. Withdrawal Rates

27. Financial Services Board 27 Observed lapse rates for individual business

28. Financial Services Board 28 Observed surrender rates for individual business

29. Financial Services Board 29 Observed withdrawal rates for group business

30. Expenses

31. Financial Services Board 31 Expense experience (Statement C7)

32. Financial Services Board 32 Expense inflation assumption

33. Financial Services Board 33 Actual expense inflation

34. Financial Services Board 34 Actual expense inflation

35. Financial Services Board 35 Actual initial expense (individual business)

36. Financial Services Board 36 Renewal expense assumption (per policy)

37. Financial Services Board 37 Actual operating expense (individual business)

38. Capital Adequacy Requirement (CAR)

39. Financial Services Board 39 Overview CAR Cover

40. Financial Services Board 40 Distribution of CAR

41. Financial Services Board 41 TCAR

42. Financial Services Board 42 IOCAR

43. Financial Services Board 43 Operational risk and credit risk ●Operational risk o Total amount of ± R6.6bn o Comprises 18.4% of total CAR held o Comprises 0.4% of total assets ●Credit risk o Total amount of ± R4.9bn o Comprises 13.9% of total CAR held o Comprises 0.3% of total assets

44. Financial Services Board 44 Proportion of insurers using management action

45. Financial Services Board 45 Effect of management action

46. Financial Services Board 46 Effect of management action ●Overall CAR was reduced by 52% ●TCAR was reduced by 4% ●Elements of OCAR reduced: o Investment risk – 64%  Worst investment return risk – 28%  Resilience risk – 64% o Annuitant mortality fluctuation risk –13% o Morbidity fluctuation risk –10% o Credit risk –13%

47. Analysis of Surplus (AOS)

48. Financial Services Board 48 Overview: AOS

49. Stress Test Results

50. Financial Services Board 50 Economic Stress Tests

51. Financial Services Board 51 Non-Economic Stress Tests

52. Financial Services Board 52 Typical Insurers

53. Financial Services Board 53 Typical Insurers

54. Top Risks (Qualitative)

55. Financial Services Board 55 Top Risks

56. Financial Services Board 56 Top Risks: Typical

57. Financial Services Board 57 Top Risks: Assistance

58. Financial Services Board 58 Top Risks: Linked

59. Financial Services Board 59 Top Risks: Other ●HR Risk o Key man dependency o Recruiting and retaining skilled staff ●Operational Risk o IT systems o Fraud ●Regulatory Risk o Keeping abreast with all regulatory changes o SAM, Micro insurance, FAIS ●Strategic Risk o Competition

60. Thank You