Strategic and Emerging Issues in South African Insurance 2010 Contents

Foreword 3

Executive summary 6

Market environment 12

Emerging issues 25

Restructuring 36

Regulation and governance 40

Information technology 49

Performance 55

Risk management and fraud 58

Peer review 63

Appendices 70

Background data 74

About Pricewaterhousecoopers 90

© 2010 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. Foreword

Welcome to our fourth biannual and differences in opinions, all of PricewaterhouseCoopers Strategic which I’m sure you’ll find useful and Emerging Issues in South benchmarks for your organisation. African Insurance survey. This edition builds on our previous The key objectives of this survey surveys, and our industry specialist are to: group has ensured that the • Raise the awareness of insurers contents provide a comprehensive to emerging trends and issues overview of the issues and in the South African insurance challenges facing the industry industry; today. • Establish industry trends; The South African insurance • Understand the strategic industry accounts for 71% of thinking of CEOs in the Africa’s total premiums and has the insurance industry; and third-highest insurance penetration, in the world (15.3%). • Provide insight into how the insurance industry might evolve Since our last survey, the insurance over the next few years. industry has quickly recovered after experiencing difficulties I would like to thank the executives precipitated by the financial crisis. who participated in the survey. We The quick recovery demonstrates greatly appreciate their openness the resilience of the insurance and the insight and vision they industry in this country. provide on key topics. I would also like to thank Dr Brian Metcalfe Looking ahead, the insurance for the time and effort he put into industry can expect many more producing this survey. challenges, as economic conditions remain volatile, consumerism We trust you will find this survey continues and the regulatory thought provoking and insightful. environment keeps evolving. New If you would like to discuss business growth prospects and any of the issues addressed the durability of existing policies in more detail, please speak continue to be adversely affected with one of the contacts at by reduced consumer discretionary PricewaterhouseCoopers or those income, high interest rate listed at the end of the survey. increases, increased energy costs We would also appreciate your and other inflationary pressures. feedback on the content of this The South African insurance survey, as this will help us to ensure industry faces unique challenges that we are addressing the issues and it is important that it evaluates on which you are most focused. and adapts to the needs of the emerging market.

We are confident that this survey will help the industry achieve its goals and meet the challenges it faces. With the survey covering both long- and short-term insurers, Victor Muguto we have been able to identify Insurance Leader – Southern Africa major trends, emerging issues Tel: +27 11 797 5372 Email: [email protected]

Strategic and Emerging Issues in South African Insurance 3 About the author

Dr Brian Metcalfe is an Associate In 2009, Brian authored Strategic Professor in the Business School at and Emerging Issues in South Brock University, Ontario, Canada. African Banking 2009. Other recent He has a doctorate in financial reports include Foreign Banks in services marketing and has China, Foreign Joint Venture Fund researched and produced over 40 Management Companies in China reports, such as this one, on behalf and Foreign Insurance Companies of PricewaterhouseCoopers firms in China. in 11 different countries including Australia, Canada, China, India, He has consulted for a wide range Japan and South Africa. of organisations, including Royal Bank of Canada, Bank of Nova Previous reports have examined Scotia, Barclays Bank, Sun Life strategic and emerging issues in Insurance Company, Equitable corporate, investment and private Life of Canada and several major banking, life and property and consulting firms. casualty insurance, insurance broking, and wealth management. He has also taught an executive management course entitled “Financial Services Marketing” at the Graduate School of Business at the University of Cape Town.

pwc

This report was researched and Additional copies of this report can written by Brian Metcalfe, PhD. be obtained from Susan de Klerk, Information presented here, while Insurance Knowledge Manager – obtained from sources believed PricewaterhouseCoopers Inc., reliable, is not guaranteed as to its 2 Eglin Road, Sunninghill, 2157 accuracy or completeness. This report has been commissioned Telephone: +27 11 797 5148 and distributed through Fax: +27 11 209 5148 PricewaterhouseCoopers Inc., Email: [email protected] Johannesburg.

4 PricewaterhouseCoopers Executive summary Executive summary

Background This survey focuses on strategic The survey is based on personal and emerging issues in the South interviews with managing directors African insurance industry. This is and senior executives in 30 the fourth survey of its type in the companies. The list below shows insurance market, although similar 32 companies. This is because surveys have been published in only one interview was conducted the banking and insurance broking with both Hollard and Regent, each markets. listed both under the short- and long-term insurance companies. The survey attempts to provide an industry-wide perspective. The re-insurers and cell captives However, where meaningful, it are included in the overall industry also reports differences between charts but not in the breakouts the short-term and long-term for long-term versus short-term participants. companies

The interviews were approximately one hour in length and were conducted in Johannesburg and Cape Town during February and March 2010.

Participants Short-term insurance companies • AVBOB interviewed: • Clientèle Life • Absa Insurance • Discovery Life • Alexander Forbes Insurance • Hollard Life • Chartis • Liberty Life • Hollard Insurance • Metropolitan • Lion of Africa • Momentum • Mutual & Federal • Old Mutual • Outsurance • Professional Provident Society • Regent Insurance • PSG • RMB Structured Insurance • Regent Life • Santam • Sanlam • Standard Insurance

• Telesure Re-insurance companies • Zurich Insurance interviewed: • Hannover Re Long-term insurance companies • Munich Re interviewed: • 1Lifedirect Cell captives: • Absa Life • Centriq • Assupol • Guardrisk

6 PricewaterhouseCoopers Main findings The report has been compiled change was well underway at the from personal interviews with 30 time of the 2008 survey and it managing directors and senior continues unabated. Indeed, the executives representing long-term launch of direct channel initiatives and short-term insurers, re-insurers by the large “traditional” insurers and cell captives. reflects the importance of this distribution method. The report seeks to identify emerging trends and strategic As consumer products become issues over the next three years. more commoditised and subject to intense promotion and aggressive pricing, low-cost distribution and Post global financial crisis efficient servicing will be critical. Respondents feel the insurance industry had escaped the worst Consumerism effects of the financial crisis. Investment performance was Consumerism is being fuelled by obviously affected, but the industry Government initiatives such as remains robust and confident. the Consumer Protection Act and by consumers themselves as they Respondents acknowledged that are becoming more educated, there had been evidence of client self directed and confident. This attrition and cost control remains movement is further facilitated an ongoing concern. by online access to competitive insurance offerings. However, the larger companies believed they had benefited from a Unexpected consolidation flight to quality and had used this market uncertainty to strategically Responses from participants grow. suggested that future consolidation would be low to moderate with Participants believe that following most developments taking place at the crisis they will devote more the lower end of the market. time to three areas; acquiring new clients, managing risk and holding However, just days after the on to existing clients. research was completed, two of the participants in this report, Direct delivery and Metropolitan and Momentum, commoditisation agreed to merge their operations. This must have been a surprise to Many insurance products the industry participants because have been commoditised and none had predicted a consolidation consumers continue to embrace at this level. direct marketing channels. This

Strategic and Emerging Issues in South African Insurance 7 Executive summary continued

Rise of the niche players Into Africa Although most short- and long- Although participants are term companies continue to view expanding into Asia and South the established broad-based America, expansion into the rest institutions as their number one of sub-Saharan Africa is also competitors, there is a growing gaining traction. Many short-term awareness of niche players and long-term companies have attacking specific parts of the significant relationships in key market. African markets and it seems highly likely that this trend will continue to Participants had mixed views on develop. the merits of a “one-stop shop” wealth model for consumers and South African insurers have little this suggests that they endorse interest in developed markets. the “best of breed”, which may Instead, they see opportunities originate with specialist niche to leverage their unique skill sets players. and expertise in other developing markets. Pressing issues One problem going forward may The three issues that senior be their ability to manage and executives found most pressing control these diversifications and in 2010 were regulation, retaining expansions. Given the HR problem customers and recruiting/training in mentioned above, it seems that the distribution channels. management resources will be stretched as international networks Risk management and profit grow. performance are also close to the top of a list of 48 issues identified. Participants also indicated that they were interested in seeking Accuracy of actuarial assumptions strategic investors if it allowed was identified as the most them ready access to other important rising issue. markets particularly within Africa.

Human resources (HR) remain Ongoing restructuring scarce A total of 12 participants believe Nine out of 12 different skill sets they will participate in significant were considered difficult and if a M&A activity over the next five black economic empowerment years and this may involve foreign (BEE) factor was added to this participation. rating, then some personnel functions become extremely Joint ventures and partnerships difficult. At the top of the list will be the key to future expansion in 2010 were IT, non-executive strategies. While most companies directors, actuarial skills and are comfortable with their existing underwriting skills. structure, nine companies admitted they needed to change.

8 PricewaterhouseCoopers Reinsurance readjustment of those who have are satisfied with their capabilities. There is Most respondents made reference also the territorial issue of who to the reconfiguration of one re- owns client data. Intermediaries insurer in South Africa to a branch continue to exert powerful control status, but attributed the reasons in the channels. One short-term for this to external factors. They insurer lamented that he failed to contended that there had been have a “line of sight” into his group little change in the reinsurance business. The data chain has many market, but noted the entrance of broken links and this frustrates and new reinsurers, including SCOR, hinders the producers and this is Africa Re and Flagstone Re. not to the customers’ advantage.

Regulation Technology Almost three quarters of Technology has already changed participants believe that regulation the rules of the game. In future will “increase substantially” over it will play a major role in new the next three years. In the 2008 applications for actuarial systems, report, the National Credit Act was real-time data mining and various a primary concern. In 2010, there types of modelling. is concern over the implementation and alignment of the Consumer Protection Act. Steady growth predicted Short-term insurers expect annual There is also an acceptance that premium growth in the 15% to the Regulator will continue to 25% range in 2010 and anticipate monitor and impose new controls little change over the next three across different parts of their years. operations. Five long-term insurers were in It is very early days to predict the the 20% range in 2010, but by full impact of Solvency Assessment 2013 growth is expected to slow and Management (SAM)/Solvency and only three companies expect II and King III. growth above 20%. On top of these issues, the unfolding proposals on the Risk management Social Security Retirement Fund and National Health Insurance Risk management was strongly programme means that the endorsed by participants, operating environment has become who concluded it has added more complex and unpredictable. substantially more value to their business than three years ago.

Data concerns The survey found that companies are monitoring, and in most cases One of the weaknesses of the measuring, a wide variety of risks. industry and a critical concern The three most difficult risks is the capture and use of data. to measure were political risk, Not all insurance companies environmental risk and latent claim have customer relationship risk. management systems and few

Strategic and Emerging Issues in South African Insurance 9 Executive summary continued

Peer ranking overview This table displays a peer ranking of the top three companies in each business line. A more detailed set of results is shown later in the report.

First Second Third Products Alternative risk Santam – Guardrisk Zurich transfer Centriq Assistance business Clientéle Life Metropolitan Hollard Credit life Hollard Life Absa Life Regent Life Group business – Old Mutual Allan Gray Sanlam Investment Group business – Old Mutual Sanlam Momentum Risk Investment products Sanlam Momentum Old Mutual Life risk products Discovery Life Momentum Old Mutual Motor insurance Outsurance Telesure Santam Property (excluding Mutual & Santam Outsurance motor) Federal Health insurance Discovery Chartis Momentum Other Customer relationship Discovery Hollard Santam management Innovations Discovery Hollard Outsurance Marketing strategies Discovery Outsurance Hollard Technically Santam Discovery Outsurance competent staff

10 PricewaterhouseCoopers Market environment Market environment

Short-term companies Short-term companies surveyed The number of policyholders is employed 15,040 people and expected to increase dramatically anticipate this number to increase from 16.7 million in 2010 to 25.6 by 8% to 16,250 people by 2013. million by 2013.

Gross premium income is expected to grow by 53% to R77 billion by 2013.

Short-term companies

2010 2013 Change % Change Branches in South Africa 196 212 16 8.1 Brokers/Intermediaries 16,060 17,300 1,240 7.7 Full-time employees in SA 15,040 16,250 1,210 8.0 Gross premium income (Rbn) 50.3 76.9 26.5 52.8 Policyholders (millions) 16.7 25.6 8.9 53.4

Long-term companies Long-term companies expect to Finally, policyholders are expected expand their branches by 27% to to grow by 30% to 35.7 million over 1,600 by 2013. They expect by 2013. Two large long-term only a modest increase in the companies declined to provide number of brokers/intermediaries estimates for 2010 and 2013. As a to 42,400. result, we were unable to provide an industry estimate for gross The number of employees in the premium income. long-term companies are expected to increase at a similar growth rate to the short-term companies although they employ three times as many people.

Long-term companies

2010 2013 Change % Change Branches in South Africa 1,328 1,687 359 27.0 Brokers/Intermediaries 40,425 42,400 1,975 4.9 Full-time employees in SA 45,240 48,740 3,500 7.74 Policyholders (millions) 27.4 35.7 8.3 30.0

12 PricewaterhouseCoopers Q What, in your opinion, The wide range of changes Capital management are the most important mentioned by participants A large long-term insurer indicated changes taking place have been grouped under the subheadings below: a more conservative approach to in the South African the use of capital and strong focus insurance market at A wide range of different changes on asset/liability management. present? were mentioned by participants, but two stood out in terms of the Risk management number of recorded mentions. They were the continued move to Both short- and long-term direct channels and consumerism. insurers indicated that there was much more emphasis on risk management. Direct channels

One large short-term insurer noted SAM/Solvency II that personal lines were now becoming a commodity with a The SAM (Solvency Assessment focus on pricing. Management) target date for both short-term and long- Another participant commented term insurers has been set for that the larger insurers were 2014. Earlier developments for introducing direct channels. He short-term insurers under FCR mentioned Sanlam and MiWay (Financial Condition Reporting) but said that other companies will be implemented as an interim were reviewing their options. In measure from 2012. keeping with these sentiments, a large short-term insurer said the Participants anticipate that “volume side” of the business was the transition to meet the SAM now being offered through direct requirements will trigger major channels. changes in the sector.

Consumerism Growing competence of insurance providers A smaller long-term insurer observed that consumers were One large short-term insurer becoming better informed believed the industry had and growing in confidence experienced “an advancement in regarding decision making. competency”. Several participants mentioned the legislative changes affecting Difficulties for smaller protection of consumer rights. companies

Impact of the financial crisis Consolidation, costs of regulation and the increased significance of While recognising that South Africa brands have made the environment had escaped the worst effects more challenging for the smaller of the crisis, several companies operators. mentioned the negative impact on investment performance.

Strategic and Emerging Issues in South African Insurance 13 Market environment continued

Q Can you identify the major The major strength identified The most frequently cited strengths and weaknesses by participants centred on the weakness was the skills shortage. of the South African financial soundness and stability of the South African insurance Several participants commented insurance industry at market. It was viewed as a highly that it was difficult to attract fresh present? competitive and innovative competent talent. A long-term marketplace. insurer said that they had 500 agents but only 150 of them were A number of insurers believed the performing satisfactorily. Another players to be well capitalised. long-term insurer noted that their brokers were aging and they were Several companies highlighted the unable to attract new committed uniqueness of South Africa in being and competent replacements. simultaneously both an established market and an emerging market. Other weaknesses mentioned were: Other strengths mentioned were: • Poor market practice; • Entrepreneurial orientation; • The large number of legacy • Strong brands; products; • Good competencies for • Weak client service; expansion into Africa; • Not enough black • Strong partnerships with the intermediaries; banks; • Products too complex for the • Strong broker market; market; • Creative product design; • Everything delegated to the broker base; • Well regulated; and • Lack of a strong competitive • Good underwriting. reinsurance market; • Affordability of some products; • Inability as an industry to collect and share data; • Domestic companies lack an international scope; • Rating agencies do not play an important role; and • Need to focus on adding value for consumers.

14 PricewaterhouseCoopers Q In your view, what is Market competition the level of intensity The following charts illustrate Where segments have attracted of competition in the how companies perceive the level responses from more than 20% following markets, and of competition in eight different of respondents, they have been how do you expect this segments of their business, and shaded in grey. to affect your competitive then how they have organisationally response? responded to that competition.

Alternative Risk Transfer (ART) Intensive 6% 13% 13% About one-third of participants Moderate 6% 31% 6% 13% consider alternative risk transfer to be intensively competitive. The

Light 6% 6% majority of participants believe it is moderately competitive.

None Competition Two companies claim to have Response made a fundamental change to No change Minor Significant Fundamental their strategy over the last year. In change operational change in and organisa- strategy and comparison to two years ago the tional change positioning level of competition appears to Note: Based on responses from 16 companies have moderated.

Assistance business Intensive 26% 16% 26% 11% Assistance business includes Moderate 5% 11% funerals, support for family and education. This market Light 5% appears to be experiencing an increase in competition. In 2006, 50% considered it intensively None Competition competitive and by 2008 this Response percentage had risen to 72%. In No change Minor Significant Fundamental 2010 it is 80%. change operational change in and organi- strategy and sational positioning change

Note: Based on responses from 19 companies

Strategic and Emerging Issues in South African Insurance 15 Market environment continued

Credit life Intensive 6% 16% 16% 6% Just less than half the respondents Moderate 6% 11% 11% 6% consider credit life to be intensively competitive and two companies have made fundamental changes Light 11% 11% to their strategies. This is a lower competitive recording than in None

Competition 2008. Four companies considered Response competition to be light. No change Minor Significant Fundamental change operational change in and organisa- strategy and tional change positioning

Note: Based on responses from 18 companies

Group business Intensive 17% 25% 17% 8% Two-thirds of respondents view Moderate 17% 8% group business as intensively competitive. The same number of

Light 8% respondents also indicated that they had made minor or no change to strategy. None Competition Response No change Minor Significant Fundamental change operational change in and organisa- strategy and tional change positioning

Note: Based on responses from 12 companies

Motor insurance Intensive 12% 18% 46% 6% In 2008, 90% of participants Moderate 6% 12% viewed motor insurance as intensively competitive, an increase

Light from the 2006 figure of 61%. This year the number is 82%, which suggests the competition remains None Competition fierce. Over half the group have Response made significant or fundamental No change Minor Significant Fundamental changes to their strategies. change operational change in and organisa- strategy and tional change positioning

Note: Based on responses from 17 companies

16 PricewaterhouseCoopers Investment products Intensive 9% 27% 46% 9% Investments portray very high Moderate 9% levels of competition. The percentage increased to 91% in

Light 2010 against 84% in 2008 and 85% in 2006. Many companies have made significant or None

Competition fundamental changes to their Response strategies. No change Minor Significant Fundamental change operational change in and organisa- strategy and tional change positioning

Note: Based on responses from 11 companies

Life risk products Intensive 50% 10% 5% The market is viewed as Moderate 20% 15% competitive, but few participants have made any significant changes

Light to strategy.

None Competition Response No change Minor Significant Fundamental change operational change in and organisa- strategy and tional change positioning

Note: Based on responses from 20 companies

Property (excluding motor) Intensive 6% 12% 18% 18% In 2008, 40% of participants Moderate 34% 12% classified the market as intensively competitive, but this has grown to 54% in 2010. Almost half the Light group have made significant fundamental changes. None Competition Response No change Minor Significant Fundamental change operational change in and organisa- strategy and tional change positioning

Note: Based on responses from 17 companies

Strategic and Emerging Issues in South African Insurance 17 Market environment continued

Health insurance Intensive 17% Lower levels of competition are Moderate 8% 51% 8% found in this sector. All but one company recorded their response

Light 8% 8% to the market as minor or no change.

None Competition Response No change Minor Significant Fundamental change operational change in and organisa- strategy and tional change positioning

Note: Based on responses from 12 companies

Q How will the insurance A number of respondents pointed A short-term insurer indicated needs of the policyholders out that policyholders’ needs that Government was directing of 2013 differ from those may remain relatively unchanged companies to develop more simple, over the next three years, but straightforward, comprehensible of today? their rising expectations on speed policies. Government is also and convenience of delivery, pressing companies to provide the channels to be used, value more education for consumers to propositions and flexibility, will help them make better-informed require insurance providers to decisions. adapt and change. Another insurer suggested that Several respondents mentioned changing demographics would the ongoing transition to electronic require more entry-level insurance delivery. For example, a large long- products. term insurer said that claims could not be made over the internet at The growing black middle class present, but by 2013 this would be market will also drive a change in possible. the companies’ offerings. Several companies indicated that they were formulating strategies to address this market segment more specifically.

18 PricewaterhouseCoopers Q What are the major drivers The top two drivers of change, Technology and the Financial of change in the insurance consumerism followed by the Sector Charter maintain roughly industry today? Can you regulatory environment, remain the the same ranking as 2008 but the same as in 2008. global financial crisis enters the list rank them 1 to 5? in eighth position. However in third place is a new driver, SAM/Solvency II followed by capital requirements, which remains in fourth place.

30 March 2010 40 Based on the principles of the Solvency II Directive adopted Score by the European Parliament last year, SAM, which will supercede 30 the current Financial Condition Reporting (FCR) structure, will align South Africa’s long and short-term insurance sector with 20 international standards, taking local conditions into account. 10 “In short, SAM can be compared to BASEL II of SA’s banking sector in which all role players are governed 0 and risk managed. If correctly n n IFRS gence implemented, SAM will help to ements King III echnology Recession ensure a sustainable insurance equir T est of Africa Consumerism ConveGlobalisationr industry that has resilience to Capital markets SAM / SolvencyDisintermediation II Economies of scale gers/Consolidation withstand shocks and meet Capital r Global financial crisis New domestic entrants Mer Regulatory / LegislationFinancial Sector Charter policyholder obligations among Global economic downtur others,” South African economic downtuOpportunitiesr in the r Michael Blain, CEO, Centriq Source: Insurance Times & Investments News Based on responses from 29 companies

Strategic and Emerging Issues in South African Insurance 19 Market environment continued

Q What are the major drivers 30 A breakout into short- and long- of change in the short- term companies provided some term industry today? Can further insight. 25 you rank them 1 to 5? Consumerism remains in first place for both groups, as it did in 2008. 20 However, SAM/Solvency II is the Score second most important driver for the short-term companies. 15 None of the short-term companies ranked the global financial crisis as 10 a “top five” driver of change.

IFRS King III

Technology Recession Consumerism Globalisation Capital markets SAM Disintermediation/ Solvency II Economies of scale Capital requirements RegulatoryFinancial / Legislation SectorNew domestic Charter entrants Global economic downturn

Opportunities in the rest of Africa

Based on responses from 11 short-term companies

Q What are the major drivers The long-term companies of change in the long-term emphasised consumerism and industry today? Can you 35 regulatory change. The global rank them 1 to 5? financial crisis was in third position. 30 Technology, IFRS, the economic downturn and SAM/Solvency II 25 were also considered important Score influences on change. 20

0 n IFRS gence ements King III echnology Recession T equir est of Africa Consumerism Conver SAM / Solvency II Disintermediation Economies of scale Global financial crisis Capital r Regulatory / Legislation New domestic entrants

South African economicOpportunities downtur in the r

Based on responses from 13 long-term companies

20 PricewaterhouseCoopers Q Do you believe There was a general consensus A contrary view point was consolidation in the that there would be little expressed by a few participants insurance market will consolidation at the higher levels in who cited the possible both the short-term and long-term fragmentation of the market with continue? sectors. The feeling was that the new entrants and “offshoots” by Competition Commission would established companies. These block any mergers by the larger included Outsurance entering the players. life market and Miway (Sanlam) offering short-term insurance Despite this prediction and through a direct channel. following just a few weeks after this survey, Metropolitan and The results were very consistent Momentum announced plans to between the short- and long- merge their operations. term participants. The majority of companies recorded a “low” The participants, however, probability of consolidation and contended that there would be only one long-term company rated further shake outs at the bottom it as “high”. end of the market.

Long-term companies 16

15 Short-term companies 14 13

Number of 8 companies 7

0 High Moderate Low none at all

Based on responses from 30 companies. Not all companies provided a double answer.

Strategic and Emerging Issues in South African Insurance 21 Market environment continued

Q In your opinion, which Established broad-based Foreign insurers, when compared category of institutions financial institutions already in the to 2008, are also seen as a modest represents the most respondents’ market continue to but increasing competitive force. represent the greatest competitive This was foreseen more on the significant competitive threat. This is consistent with the investment side of the business. threat to your organisation 2008 finding. over the next five years? Only three companies indicated Please choose one answer One noticeable change in 2010 is that competitors moving from only. the increased significance of niche retailing into financial services players, which have the ability represented a competitive threat. to chip away at the established Again, this was consistent with the market leaders. previous survey.

Established broad-based financial institutions already competing in your market

Established broad-based financial institutions moving from one market to another 2010

Niche players 2008

New competitors moving from retailing into financial services

Foreign insurers entering the market

Start-up institutions

0 5 10 15 Number of companies

Based on 30 companies in 2010 and 23 companies in 2008

22 PricewaterhouseCoopers Q Do you believe that The respondents held mixed From the consumers’ perspective, policyholders would opinions on the merits of it could only be beneficial if it benefit from a “one-stop the “one-stop shop” wealth allowed them to exert leverage on model. The concept envisages the service provider. For this to shop” wealth model for clients benefiting from a more happen the client must provide full financial products and integrated, holistic approach to disclosure of their financial position would such a model be wealth management. While 16 and a participant argued that in the best interests of respondents favoured the model, clients are often reluctant to take policyholders? ten believe that it does not work in this step. the best interests of policyholders. A short-term insurer commented Seven long-term believe it is not that it allowed them to reward beneficial which suggests that customers for “good behaviour”. short-term insurers are more For example, having no claims supportive. Two sizeable short-term for five years allows, could be companies were, however, critical rewarded with better pricing. of an approach which attempted to be “all things to all people”.

Those in favour of the “one-stop shop” argued that it could only be successful if it centralised the “best of breed” in one place. Another company termed this approach the “portfolio model” rather than the “single brand model”.

Strategic and Emerging Issues in South African Insurance 23 Emerging issues Q What are the most Pressing issues Increasing legislative demands pressing issues you face? has moved up from ninth position No less than 48 different pressing Can you rate them 1 to 5? to fourth position while crime has issues were scored by participants. dropped from fourth position, The top three were, in order to 17th position. (It was in 22nd of importance, regulation and position in 2006). Risk management retaining existing customers, was in fifth position this year, followed by recruiting/training in compared to twelfth position in the distribution channels. 2008.

Regulation Retaining existing customers Recruiting/Training distribution channels Increasing legislative demands Risk management Profit performance (margin) Improving premium growth Recruiting/Training competent staff Building a customer base Quality of insurance books (lapse risk) Capital management SAM/Solvency II BEE/Financial Sector Charter Back office/operational/system quality Brand awareness FAIS regulation Level of crime Accuracy of actuarial assumptions IFRS amendments Data security Appropriate staff incentive schemes Retail sales practices Managing the cycle High dependence on new technology IFRS 4 Phase II Transparency of fees and commisions Cost reduction Fraud levels Global economic downturn Capital management Demographic trends Political shocks and pressures Interest rates Business continuation

Legacy systems (ability to mine data) Targeting the uninsured market Impact on rates of global catastrophes Complex, alternative investment instruments Climate change and natural catastrophes Deregulation of commission Longevity assumptions Guaranteed returns in products Liquidity Currency fluctuations Overcapacity Globalisation Aids Litigation risk -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 increasing importance

Based on responses from 26 companies Strategic and Emerging Issues in South African Insurance 25 Emerging issues continued

Pressing issues: Both the short- and long-term The long-term companies awarded companies scored regulation higher scores to the Financial Short-term versus long-term and retaining customers at the Sector Charter, FAIS, IFRS and companies top of their lists. Issues that were retail sales practices. particularly important to short-term companies included improving premium growth, recruiting and training and crime.

Regulation Retaining existing customers Recruiting/Training distribution channels Risk management BEE/ Financial Sector Charter Increasing legislative demands Building a customer base Profit performance (margin) Back office/operational/system quality FAIS regulation Quality of insurance books (lapse risk) Brand awareness IFRS amendments Improving premium growth Retail sales practices Accuracy of actuarial assumptions Capital management Cost reduction Recruiting/Training competent staff Global economic downturn IFRS 4 Phase II Short-term High dependence on new technology Level of crime SAM/Solvency II Appropriate staff incentive schemes Long-term Demographic trends Capital management Complex, alternative investment instruments Data security Interest rates Political shocks and pressures Managing the cycle Deregulation of commission Fraud levels Targeting the uninsured market Business continuation Transparency of fees and commisions Guaranteed returns in products Aids Legacy systems (ability to mine data) Impact on rates of global catastrophes Longevity assumptions Globalisation Liquidity Overcapacity Currency fluctuations Litigation risk Climate change & natural catastrophes -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 increasing importance

Based on responses from 12 long-term and 9 short-term companies

26 PricewaterhouseCoopers Pressing issues trends: In addition to scoring the 48 most • Recruiting/training in the pressing issues, participants were distribution channels asked to assess whether the Are the issues rising, steady or • Regulation, and falling? issue was rising, steady or falling in importance. The top five rising • SAM/Solvency II issues in order of importance were: The only one that was in this • Accuracy of actuarial top five list two years ago was assumptions increasing legislative demands. • Increasing legislative demands

Accuracy of actuarial assumptions Increasing legislative demands Recruiting/Training distribution channels Regulation SAM/Solvency II Retaining existing customers Risk management Steady Climate change and natural catastrophes Brand awareness Building a customer base Falling Improving premium growth Profit performance (margin) Recruiting/Training competent staff Capital management Rising FAIS regulation Quality of insurance books (lapse risk) BEE/ Financial Sector Charter Targeting the uninsured market Appropriate staff incentive schemes Back office/operational/system quality Fraud levels High dependence on new technology IFRS 4 Phase II IFRS amendments Cost reduction Data security Demographic trends Transparency of fees and commisions Political shocks and pressures Retail sales practices Complex, alternative investment instruments Deregulation of commission Level of crime Legacy systems (ability to mine data) Impact on rates of global catastrophes Global economic downturn Guaranteed returns in products Capital management Managing the cycle Business continuation Overcapacity Longevity assumptions Currency fluctuations Interest rates Litigation risk Liquidity Aids Globalisation 0 10 20 30 40 50 60 70 80 90 100 Percentage

Strategic and Emerging Issues in South African Insurance 27 Emerging issues continued

Q How has the global The global financial crisis has had Some of the issues raised under financial crisis impacted a negative impact on insurers by “other”, included investment your organisation? causing client attrition and requiring performance, a focus on credit them to make cuts in costs. risks, profit decline and ease of retaining staff. However, a number of the larger, more-established companies believed that the downturn has resulted in a flight to quality and has also allowed insurers an opportunity to strategically grow their organisations.

Score

0 ow Other eduction

Client attritionCost cuttings Asset attrition

om a flight to quality Head count r Business divestment

An opportunity to strategically gr e have benefited fr W

28 PricewaterhouseCoopers Q On which strategic areas The top three areas in which more Other areas receiving attention does your organisation organisational time has been were: expended as a result of the crisis spend more time, as • Improving profitability; were identified as: a result of the global • Acquisition and retention of • Acquisition of new clients; financial crisis? key staff; and • Managing risk; and • Cost reduction/business • Retention of clients. refocusing.

Score

0 f

Other ofitability efocusing Managing risk oving pr Retention of clientsetention of key staf Impr Entry into new markets Acquisition of new clients Investment performance

eduction/business r

AcquisitionCost and r r

Strategic and Emerging Issues in South African Insurance 29 Emerging issues continued

Q In which areas are you In the 2008 survey the most The top three areas of greatest currently experiencing the important human resource issue skills shortage were identified greatest shortage of skills? centred on BEE. The BEE category as information technology, non- was removed from the question this executive directors and actuarial year to focus just on the functional skills. descriptions. Six further skills sets also scored Respondents scored each function above 3 on the scale of 1 to 5. on a scale of 1 to 5, where 5 They were underwriting, risk represented greatest shortage. management, audit committee, Several respondents commented compliance, capital management that if they were to provide BEE and executive directors. weighted scores to each factor, then their score would increase by 1 to 1,5.

Information technology

Non-executive directors

Actuarial

Underwriting

Risk management

Audit committee

Compliance

Capital management

Executive directors

Financial reporting

Internal audit

Administration 0 1 2 3 4 5 Maximum score is 5 Increasing difficulty

Based on responses from 30 companies

30 PricewaterhouseCoopers Q What do you regard as the In terms of principal challenges behaviour follow in third and fourth principal challenges that faced by the insurers over the place. In 2008, these were in the your organisation will face next year, they demonstrated reverse order. consistency with the responses over the coming year in provided in 2008. The other group included your key growth markets? challenges such as governance, Please choose the top The top challenge remains risk management, crime, five. compliance and regulatory underwriting sustainability and requirements, followed by a pricing rates. lack of skilled resources. Levels of competition and customer

100

70 Score 60

0 ces Other ements esour get marketsPolitical risk get markets equir es/languages epatriation rules Customer behaviour oducts and services Levels ofMaturity competitionoeconomic of ofilethe marketin conditions tar egulatory r Long paybacknance horizons in tar Lack of skilled r Macr

opriate acquisitions or partners ds of gover e of existing pr opriate brand pr Compliance and r Natur

Shortagefering of standa appr r Lack of understanding of local cultur Low or inappr Dif eign ownership, taxation and capital r For Based on responses from 30 companies

Strategic and Emerging Issues in South African Insurance 31 Emerging issues continued

Q On which offshore The rest of Africa is recognised survey compared to 2008. They expansion strategies do as the primary region for the clearly see their expertise in the you believe South African expansion of South African developing markets. Those insurers insurers. Although Africa also with bank affiliations are also taking insurers should focus? came in the top position in the advantage of South African banks’ 2006 and 2008 surveys, it has now advances into sub-Saharan Africa widened the gap ahead of second and South America. placed Asia and third placed South America. As the press coverage on the pages following illustrates, Old Europe, Australia and the United Mutual, Liberty and Santam are Sates collectively were only of making moves into Africa, while interest to three companies. Discovery has a health insurance Respondents seemed more joint venture with Ping An informed about market Insurance in China. opportunities in Africa in this

Rest of Africa

Asia

South America

Europe

Australia

0 5 10 15 20 25 30 Number of companies

Based on responses from 30 companies

32 PricewaterhouseCoopers Trade Invest Nigeria 29 April 2009

Liberty Health, which describes itself as a multi-dimensional provider of health solutions in South Africa and other emerging markets, acquired 35% of Nigerian health management organisation (HMO) Total Health Trust. According to newspaper reports, Liberty will aim to increase its stake in the company to 51% over the next three years.

Liberty Holdings’ majority shareholder, Standard Bank had already established a footprint in Nigeria when it bought a controlling stake in IBTC Chartered Bank in 2007.

Liberty’s investigations into the health insurance market in Nigeria found that a strong business case exists for a presence in the West African country. The industry has huge potential with 75% of Nigeria’s employed population not covered by private health insurance. “The current market is about 3 million lives, but there is potential to grow to 40 million lives,” says Peter Botha, CEO of Liberty Health. Source: www.tradeinvestnigeria.com

Discovery in Chinese acquisition 2 December 2009

South African healthcare insurer Discovery has announced its intention to expand into China with the acquisition of a 24.99% stake in Ping An Health Insurance. The Chinese company is owned by Ping An Insurance, the second largest insurer in China with a market capitalisation of 292-billion Yuan (about R319-billion).

Ping An Health currently holds one of a limited number of health insurance licences issued by the Chinese Insurance Regulatory Commission.

“Ping An Group currently has a 30% share of the ‘riders’ or ‘supplementary’ private health insurance market,” said Discovery CEO Adrian Gore. “In 2005, Ping An grasped the enormous growth opportunity and potential of the comprehensive health insurance market, and Ping An Health was established in Shanghai,” he said Source: www.southafrica.info

Strategic and Emerging Issues in South African Insurance 33 Emerging issues continued

Santam expands with corporate clients north of the border April 2010

Santam, South Africa’s largest short-term insurer, is placing special emphasis on growing its corporate business in more countries north of the border, by insuring companies for risks they face as they expand from South Africa into the rest of Africa.

Santam already has international operations in Namibia, Zimbabwe, Malawi, Botswana and Zambia, where it has been successfully doing business for many years. It also insures the risks of multinationals with business operations around the continent, where generally multi-country risks are combined into one policy based in South Africa.

“The African insurance environment is complicated; regulations are different in each country,” elaborates Payne, Santam’s Head of Corporate Business. “Most African countries have strict regulations under which all insurance activity must be conducted by an entity licensed in that country. However, it is often the case that a local insurer is unable to underwrite the entire risk of a foreign business because the value of the policy is too large for them. We are partnering with local insurers to take on a portion of that risk, but only what they cannot absorb.” The insurer has set up a network of insurance partners with whom cooperation agreements are firmly in place, he adds. Thorough prior investigations of the partners and successful experience to date have made Santam confident of these partnerships.

“Generally, we are taking on the insurance of the buildings, while local insurers are able to cover the lower-value items like stocks and vehicles,” Payne says. “But everything is done on a case-by-case basis so that the client can have a policy tailor-made to their exact requirements.”

Large global insurers like Lloyds, Allianz, and Zurich are posing stiffer competition for smaller companies like Santam as they look to boost their own business in Africa, which is increasingly seen as a lucrative market. However, local insurers’ understanding of the local market can give it an edge over these players, the Santam executive points out. “Even though Africa can be regarded as a niche market because it is relatively small, it is a priority for us. We see potential for good growth in our corporate business there going forward and are doing our best to provide insurance solutions anywhere on the continent,” concludes Payne. Source: www.santam.co.za

South African Insurers expand into Africa 14 December 2009

Old Mutual South Africa (Omsa) is in talks with a number of life partners in West Africa in a bid to “paint Africa green”, according to Kuseni Dlamini, the chief executive. “We are talking with credible entities there and talks have been ongoing,” he said on Friday. “Next year, we will reach an important milestone in this matter,” he added, declining to name the probable partners. The aim was to find partners that could assist Omsa to enter the west African market. He said Omsa was also in talks with West African banking giant Ecobank, but did not want to reveal more details. The outcome of these talks could be positive considering Nedbank, a subsidiary of Old Mutual, has partnered with Ecobank in an effort to expand into Africa just like its peers.

Liberty has said its African expansion strategy would be setting shop where its parent company, Standard Bank, has operations. Africa’s biggest bank by assets has operations in 18 African countries.

In 2007, Metropolitan entered into a 50/50 joint venture with the biggest retail bank in Nigeria, UBA Nigeria, to form UBA Metropolitan Life Insurance. Source: www.busrep.co.za

34 PricewaterhouseCoopers Restructuring Restructuring

Q Which are the key The following table (based on Asset management appeals to areas for growth in your responses from 24 companies the larger long-term insurers while diversification strategies and) indicates that a limited health administration attracts within the next three number of participants have providers already in the health years? Please rate them 1 specific interests in expanding insurance market. to 5 (where 5 is the highest into asset management and health administration. (It should also be Responses that related to the priority). noted that a much larger number other category included examples have no interest in these areas.) such as exploiting new distribution channels and companies moving into group business.

Level of importance 1 2 3 4 5 Asset management 8 4 2 4 6 Health administration 13 4 3 4 Pension fund 14 3 5 1 1 administration Other 0 0 0 2 2

Q Is your organisation likely The participants see benefits in important benefits included IT and to seek an overseas seeking strategic investors over the management expertise, followed strategic investor by 2013, next three years. The most valuable by brands, new capital and new benefit relates to increasing products. and if so, what would they regional expansion and market hope to gain from the access. Participants that are foreign owned association? or part of a larger financial group, Black economic empowerment were unable to respond to this was also recognised as a reason question. to seek a strategic investor. Other

Number of 5 selections

BEE Brands oducts

New capital New pr estricted market

Management expertise IT and operational systems

Access to an otherwise r

36 PricewaterhouseCoopers Regional network to expand outside South Africa Q Do you agree or disagree Our organisation will undergo Our organisation will undergo a significant M&A over the next five significant business disposal over with the following years the next five years statements?

Disagree Disagree Agree Agree Neither Neither

Based on responses from 30 companies Based on responses from 29 companies Twelve of the 30 participants The vast majority of respondents responded that they will undergo say they will not divest parts of significant M&A activity over the their business in the future. next five years. In 2008, a similar number held the same opinion.

Our organisation will seek a Our organisation is already foreign strategic investor or structured in the way we want a partner in a significant new venture in the next five years

Disagree Disagree

Agree Agree Neither Neither

Based on responses from 27 companies Based on responses from 29 companies Twelve respondents also plan to The status quo holds for more seek a foreign strategic investor than half the participants, but nine over the next five years. companies believe things need to change.

Joint ventures and partnerships will be key to our expansion plans

Disagree

Agree Neither

Based on responses from 29 companies

It is very clear that joint ventures and partnerships will be a key element for almost all the participants going forward.

Strategic and Emerging Issues in South African Insurance 37 Restructuring

Q How do you see the South Most respondents noted the Africa Re shareholders include African reinsurance market restructuring of a reinsurer’s South 41 member countries, five changing in the wake of Africa business model. They development finance institutions also mentioned the entrance and and 110 insurance and reinsurance the global financial crisis? expansion of new providers. such companies. as SCOR, Africa Re and Flagstone. Overall, the feeling was that there Paris-based SCOR plans to create had been little change in the market a regional platform in South Africa following the global financial crisis. to support activities in countries While one short-term insurer such as Angola and Nigeria, where commented that there had been a they have relationships in oil, firming in rates another short-term mining and other industries. insurer held a contrary opinion.

In 2008, Bermuda-based Flagstone One reinsurer that participated in Re acquired 65% of Imperial Re this survey indicated that on the from Imperial Holdings. long-term side, the vast majority of reinsurance (90%) is bought locally. Nigerian-based Africa Re has a In contrast, on the short-term side, subsidiary in South Africa. over 60% is sold overseas and this is expected to increase.

38 PricewaterhouseCoopers Regulation and governance Regulation and governance

Q Do you see the intensity of The growing impact of regulation Several participants suggested regulation of the insurance is documented in several places in that the global financial crisis industry increasing or this report. has heightened awareness and concerns around the management decreasing over the next Going forward, participants believe of risk. three years? that it will increase substantially (22 companies).

In 2008, 14 companies thought it would increase substantially, an increase from 12 companies in 2006.

2010

Increase substantially

Increase slightly Stay the same

Decrease slightly

Decrease substantially

22 companies recorded increase substantially Based on responses from 30 companies

2008

Increase substantially

Increase slightly

Stay the same

Decrease slightly

Decrease substantially

Based on responses from 24 companies in 2008

40 PricewaterhouseCoopers Q Do you believe South Within the group of 30 companies, There was no discernible difference Africa should move to only 11 believe a single regulator between the long-term and short- a single regulator for all for all financial institutions is the term companies in their response right choice. to this question. financial institutions? One large long-term insurer noted that, their perception was that, it had not worked in the UK with the Financial Services Authority.

Separate regulators

Single regulator

Based on responses from 30 companies

Q Do you agree or disagree Concerns over compliance are with the following dampening risk appetite and stifling growth potential statements about Disagree regulation? The majority of respondents Agree agree that compliance issues are affecting risk appetites and growth. Those that disagreed tended to be larger companies, and several international companies. Based on responses from 30 companies

Regulatory considerations are slowing the pace of our international expansion Disagree

Of the 23 companies that Agree responded to this question, opinions were equally divided. Several large long-term companies agreed but those affiliated with banks tended to disagree. Based on responses from 23 companies

Strategic and Emerging Issues in South African Insurance 41 Regulation and governance continued

The impact of greater regulation is hurting our ability to achieve growth Disagree

Again, opinion was split evenly, Agree regarding regulation’s impact on growth. No pattern was discernible regarding short-term or long-term companies.

Based on responses from 30 companies

Regulations have created a fairer playing field for institutions to achieve their growth targets Disagree

The majority of participants believe Agree regulations have helped create a fairer playing field. Long-term companies tended to disagree with this statement.

Based on responses from 30 companies

King III The King Committee on governance issued the King King III will add to the already Report on Governance for South heavy compliance burden Africa – 2009 (the “Report”) and Disagree the King Code of Governance Finally there was general Principles – 2009 (the “Code”), Agree agreement that King III will add together referred to as “King III” to the compliance burden. One on 1 September 2009. long-term insurer suggested that see PwC publication “Executive Guide to King III would cause refocusing King III” at .www.pwc.com/za/en/king3 by companies rather than add to compliance. Based on responses from 30 companies

42 PricewaterhouseCoopers 19. The Consumer Protection The Consumer Protection Act (CPA) consumer protection path with Act 68 of 2008 introduces ushered in a new era for South initiatives such as the Policy holder new consumer protection African consumers by providing Protection Rules (PPR) and the a legal framework for consumer launch of a voluntary ombudsman principles: protection. scheme.

At the time of publication of this Schedule 2 of the CPA requires survey, there was considerable the Short-term Insurance Act and debate surrounding whether the Long-term Insurance Act to be the insurance industry would be aligned with the CPA. governed by the Act.

For example, the insurance industry has already taken steps along the

Q Do you agree or disagree Do you believe there is enough with the following focus on consumer protection in the insurance industry? statements about No regulation? A strong majority of participants Yes believe there is already satisfactory focus on consumer protection. Three of those that disagreed were long-term companies.

Based on responses from 29 companies

Do you believe there is enough focus on consumer education in the insurance industry? No

The majority of participants Yes contend that there should be more emphasis on consumer education.

Based on responses from 29 companies

Strategic and Emerging Issues in South African Insurance 43 Regulation and governance continued

Q Do you agree or disagree Do you foresee a need to revise with the following policy documents as a result of statements about the Consumer Protection Act? No regulation? Most participants agree that it Yes will be necessary to revise policy documents as a result of the CPA.

Based on responses from 29 companies

Do you think the insurance industry will need to focus on educating and assisting No consumers about their responsibilities and possible Yes liabilities arising from the new Consumer Protection Act?

Participants almost unanimously believe that consumers need to become more aware of their responsibilities. Based on responses from 29 companies

Do you foresee an increase in liability and therefore insurance premiums following the No introduction of the Consumer Yes Protection Act?

The respondents are divided on whether the CPA will cause an increase in liability and therefore insurance premiums. Based on responses from 29 companies

44 PricewaterhouseCoopers Q Do you believe that A significant majority of Some of the more measured views a move to Solvency participants believe that the were: Solvency Assessment and Assessment and • The current system has Management regime and worked well; Management (SAM)/ Solvency II will be of great benefit Solvency II will be of to the South African insurance • This cannot be a one size fits benefit to the South industry. all solution; African insurance • Depends on the Some of the more positive industry? implementation; and endorsements were: • There will be benefits if it • Will bring more confidence adds to the consumers’ and stability; perception that the industry • A more professional is sound... but most approach to risk companies would prefer to management; use their own model. • Will force decisions on the allocation of capital; • More realistic reflection of a company’s business; • Greater capital efficiency; and • Will allow companies to better understand their risks.

Yes

Based on responses from 28 companies

Strategic and Emerging Issues in South African Insurance 45 Regulation and governance continued

Q Have the revised The respondents were almost pass judgement. What is clear is commission structures equally divided in their assessment that less product has been sold but of whether the shakeout of whether this means it is as a result and enhanced consumer intermediaries as a result of of better advice is unknown. protection for contractual commission structures and savings products resulted enhanced consumer protection, A long-term insurer pointed out in better professional had resulted in better advice. that the fact that there were now advice and ongoing fewer intermediaries did not mean services by intermediaries Those that did not believe this to that the best producers were the be true said it was too early to ones to survive the shakeout. to consumers?

Yes

Based on responses from 25 companies

Q Did these revised The participants believe that the A large long-term insurer said that impact of revised regulations premium volumes had dropped commission regulations has negatively impacted on the significantly. Another long-term have a positive or negative intermediaries. insurer contended that there had impact on intermediaries? been a 20% to 30% shakeout and A smaller long-term insurer that it had forced consolidation. commented that a lot of intermediaries have left the market due to compliance costs.

Negative

Positive

Based on responses from 21 companies

46 PricewaterhouseCoopers Q How will the proposed Opinions on the impact of SSRF Most respondents opted to sit on Social Security and reforms on the insurance industry the fence and say it was too early Retirement Fund (SSRF) were mixed. On the positive side, it to judge. was felt that reforms would draw in reforms impact the clients that are not currently part of There is considerable uncertainty South African insurance the industry. As a result, over time surrounding the level of private- industry? this would expand the life pool and sector participation. add to funds.

Potential impact on retirement funds April 2010

The social security and retirement fund reform is likely to be positive for all South Africans: • Increasing long-term savings in a disciplined fashion, • Providing access to regulated simple, cost-effective retirement savings, • Providing access to related products for those who historically haven’t had access. Source: Old Mutual website

Q What will be the key The participants were very Some of the challenges expected challenges to the reluctant to provide comments to arise include: on the proposed National Health introduction of the • Funding; Insurance Programme. One National Health Insurance long-term insurer said they were • Administration; (NHI) programme? awaiting the Government’s white • Consumer education; paper. Overall there was concern about how the NHI would be • Affordability; funded and the time frame needed • The national tax burden; and for its introduction. • Capacity limitations.

Strategic and Emerging Issues in South African Insurance 47 Information technology Q Do you currently use a Only four companies within the This is an improvement over customer relationship group of 30 indicted that they previous surveys. In 2006, ten model (CRM) system? did not possess a CRM. Within companies said they had no CRM the group of four, one is currently system, while in 2008 the number building a new system. dropped to nine.

Yes

Based on responses from 30 companies

Q On a scale of 1 to 5 (where However, having a CRM system of these companies recorded a 5 is very satisfied), how does not mean that client value of three or below, while only satisfied are you with the relationships are being fully seven companies recorded a 4 out leveraged. The chart below of 5 score. system? suggests that although companies have CRM systems, they are Three of this more satisfied group unhappy with their performance. were short-term insurers and two might be described as “non- Twenty six companies scored their legacy” system companies. degree of satisfaction collectively as 2.47 on a 1 to 5 scale. Nineteen

6 Number of companies

0 1 2 3 4 5

26 of 30 companies said they had a CRM system

Strategic and Emerging Issues in South African Insurance 49 Information technology continued

Q What do you believe Respondents were asked to • Connectivity with clients; rank the top three technology will be the top three • Capital modelling; applications of technology applications by 2013. • Underwriting and claims in insurance by 2013? Actuarial systems had the highest assessment; and score followed closely by real-time • Dynamic financial analysis data mining capabilities. Linkage (DFA) modelling. DFA is an between insurance and call centre approach based on large- systems and claims modelling will scale computer simulations also be important. for non-life and reinsurance companies. In life insurance, The other category generated techniques such as this one, suggestions on a variety of are termed asset liability technologies including: management (ALM). • Telephone underwriting; • Data sharing; • Connectivity with intermediaries;

30 Score

Other

e systems ed information Actuarial systems Claims modelling equir

Real-time data mining capabilities

Linkages - insurance and call centSystemsr to deliver IFRS r

Smart systems to identify money laundering/fraud Based on responses from 29 companies

50 PricewaterhouseCoopers Q In your opinion are In the 2008 report, a key IT As noted earlier in the CRM weaknesses on the weakness was identified as discussion, data mining is inhibited technology front a cumbersome and inefficient by the limited access to data on legacy systems. In 2010, seven the customer relationships. major problem for the respondents made specific insurance industry? Please references once again to Other weaknesses mentioned identify the three major underperforming legacy systems. were: weaknesses. • Limited B2B capacity; A strong theme in 2010 centred on the lack of ability by insurance • In-effective underwriting models; companies to link up with their and distribution partners. This could • A general lack of modelling. also be referred to as a data ownership and data sharing Inability to transact with clients problem. One short-term insurer over the internet under know your referred to being unable to have customer (KYC) rules. a “line of sight” into his group business. Participants noted that this lack of integration adversely affected the ability to accurately rate and model.

Several participants referred to internet connectivity bandwidth and performance. If mobile technology is to be harnessed, then there will need to be a broader expansion of the 3G network.

Strategic and Emerging Issues in South African Insurance 51 Information technology continued

Instant Life Launches an Online Automated Insurance Service 7 December 2009

INSTANT Life, an online insurer, is SA’s first direct insurer to function without the expense of an interactive call centre, using an automated administrative system.

The company claims to represent a sea change in the way insurers do business -- 100 years ago saw the emergence of the broker-driven insurance business; about 50 years later call centre technology changed the industry, while the online, low-cost system of Instant Life represents the kind of do-it-yourself change similar to that of buying airline tickets .

“The new generation of insurers will shift the focus from the old model of push-selling by a commissioned intermediary, to life products that internet savvy and informed clients will want to buy,” said Jan Kotze, CEO of Instant Life. He said life cover could become more affordable -- including to the 50% of South Africans who were underinsured -- by the life industry engaging directly with clients online and by shedding “its top- heavy management layers”.

Instant Life started operating in August but was officially launched only last week because it needed time to refine the business models and technology. Nonetheless, it had already received about 8000 applications from 40 000 hits, said Kotze.

Cutting out intermediaries, call centres and overheads such as excessive management layers and office parks had given it a cost advantage over competitors.

Kotze said the South African life insurance market was far from saturated, in spite of the high number of competitors. “Traditionally, life insurance has been ‘sold’ not ‘bought’. Products have been complex and client needs not always clearly defined. We think Instant Life can change that,” he said. The company was offering up to R6m life cover without a full medical, at about half the cost of its competitors.

Asked how reliable self-assessing for life assurance was, Kotze said research showed by far the majority of clients were truthful when assessing their own risk, especially if the online prompts were clear and to the point.

He said every life policy issued by the firm was reinsured by Hannover Life Re, a subsidiary of Hannover Life Re Africa.

Kotze was a former director of Deloitte Consulting and ran its innovation unit before setting up VentureCapitalworks; an independent alternative asset management company that holds the majority share in Instant Life.

He said Instant Life’s target market was educated internet users between the ages of 20 and 65, accounting for about 5-million people in SA. Source: Business Day,

52 PricewaterhouseCoopers Compass – Enabling Opportunity The Compass Insurance business model is unique in the short-term insurance industry. We only deal with Underwriting Managers. These business partners focus on providing innovative products and a specialised policy administration service to short-term insurance brokers. We do not market our own products, nor do we seek business directly from consumers.

We strive to be the most attractive and consistent long-term partner for our selected underwriting managers and outsource suppliers by reviewing how we can allow them to be more competitive in the market to the best of all our businesses. The earning potential of our business partners is linked to the profitability of the underlying business. This enables our business partners to focus on sustainable profitable growth which allows all the partners in the relationship to benefit from the business.

Compass Insurance began operations in 1994. In 2001, Hannover Re Africa, a subsidiary of the international operation acquired the full share capital of Compass Insurance Company Limited. Source: www.compass.co.za

Strategic and Emerging Issues in South African Insurance 53 Performance Q What is your estimate of the Short-term companies in 2010. Most companies fall in annual growth in premiums the 15% to 25% range. Going The vertical axis records growth of your business for 2010 forward to 2013, the pattern rates for 2010, while the horizontal remains largely the same with most and over the next three axis shows anticipated growth short-term companies predicting years? rates in 2013. 15% annual premium growth. The two 30% growth companies in Only two short-term companies 2010 envisage this rate of growth predict premium growth of 30% continuing in 2013.

30 owth rate in 2010

15 Expected annual g r 10

0 0 5 10 15 20 25 30 35 40 45 50

Expected annual growth rate in 2013

Long-term companies to slow down. By 2013 within the group of 15 companies only The fastest growing long-term three companies expect growth company expects premiums above 20% (this includes the 40% to grow by 50% in 2010 and company just mentioned). The to expand at 40% in 2013. expectation is that premium growth Five companies anticipate will fall back to around 15% by approximately 20% growth in 2013. 2010. By 2013, growth is expected

30 owth rate in 2010

15 Expected annual g r 10

0 0 5 10 15 20 25 30 35 40 45 50

Expected annual growth rate in 2013

Strategic and Emerging Issues in South African Insurance 55 Performance continued

Q Do you allocate risk-based The majority of both short-term this will happen during the current capital to the different and long-term companies allocate year. Three short-term companies business units in order to risk-based capital to different indicated this was yet to be business units in order to measure implemented. measure return on capital their return on capital. The long- generated by these units? term companies seemed to have However, the general feedback progressed further along this path. was that although these companies Only three companies within a say they have implemented this group of 15 have not adopted this methodology, almost all the method. participants recognised that they had quite a way to go to make this Eight short-term companies are fully effective. already using this approach and two more companies are “in progress” with the expectation that

Short-term capital allocation Long-term capital allocation

In progress

No No

Yes Yes

Based on responses from 13 companies Based on responses from 15 companies

56 PricewaterhouseCoopers Risk management and fraud Risk management and fraud

Q Do you have processes Twenty nine different types of risk and 100% said they monitored in place to monitor and were identified and respondents counterparty risk/credit risk. measure each of the were asked to record whatever Although they monitored this risk, they monitored of these risks and only 21 companies or 81% said following risks? then, secondly, if they had metrics they actually measured the risk. in place to quantify and measure them. The risks were sorted The chart indicates that the three according to the percentage that most difficult risks to measure were monitored the risk. For example, 26 political risk, environmental risk and companies answered this question latent claim risk.

Monitor Measure Counterparty risk/credit risk evaluation Fraud risks HR/people risk IT/technology risk Legal risk Market risk Regulatory risk Reputational risk Sovereign/political risk Business continuity risk Business/strategic risk Client and product suitability Customer-related risk Data security Environmental risk Interest rate risk/ALM Investment performance Lapse risk Liquidity risk Operational risk Tax risk Third-party risk Concentration and catastrophe risk Credit risk Insurance risk Persistency risk Group risk Latent claim risk Mis-selling/inappropriate advice 0 100% 0% 100%

Percentage that monitor and/or measure Percentage that do not monitor and/or measure

Based on responses from 26 companies

58 PricewaterhouseCoopers Q Does the risk management Risk management received a Within the group of 30 companies, function at your similar endorsement to that 22 said risk management added organisation add more recorded in the 2008 report. substantially more value while eight companies said it added just lightly value to the business now more value.

than it did three years 25 ago? Please select one of the following. 20

Number of companies

e value e value e value

No mor Slightly less value Slightly mor

Substantially mor Substantially less value

Based on responses from 30 companies in 2010 and 23 companies in 2008

Q Does your organisation All 30 respondents suggested However, several said they would currently apply capital that capital management was like to do it more effectively. One management as part an integral part of their risk small long-term insurer observed management strategy. “as a start-up company, capital is of its risk management everything.” strategy?

2008

2010 Yes

Based on responses from 30 companies in 2010 and 22 companies in 2008

Strategic and Emerging Issues in South African Insurance 59 Risk management and fraud continued

Q Please score each of the There are real differences between The long-term insurers believed following counterparty short-term and long-term insurers they are less at risk. The only hint risks according to the level regarding counterparty risks. of counterparty exposure was to brokers. of importance: Short-term insurers feel exposed to brokers, underwriting managers and banks.

Banks and other financial institutions

Brokers

Investment managers

Long-term Policyholders

Short-term Reinsurers

Underwriting managers

-1.0 -0.5 0.0 0.5 1.0

increasing importance of counterparty risk

28 companies responded, 13 short-term and 15 long-term

Q Do you currently In the 2008 report, 18 of the 19 Some companies acknowledged effectively monitor your respondents to this question said there was room for further they monitored asset/liability improvement. asset/liability matching matching risk. By 2010 all 30 risk? companies confirmed that they Several companies stated they follow this practice. have actively recruited in this area.

2008

2010 Yes

Based on responses from 30 companies in 2010 and 19 companies in 2008

60 PricewaterhouseCoopers Q Do you see a move Overall, insurers forsee a move Several companies suggested towards or away from toward more re-insurance rather that the larger players in the re-insurance as part of than away. industry were moving away from re-insurance. This was found to be your risk management Thirteen companies said they the case in this survey although strategy? were moving towards while eight several large companies also companies indicated they were recorded “no change”. taking more insurance on their own books and seven companies One large short-term company reported no change. suggested that the re-insurance move was very company One long-term company revealed dependent and did not reflect an that as it moved into a new line, it industry trend. utilised more re-insurance and then as the business matured, it would unwind.

2010

Away from

Towards

No change

Based on responses from 28 companies

2008

Away from

Towards No change

Based on responses from 23 companies

Strategic and Emerging Issues in South African Insurance 61 Peer review Ranking of peer companies by participants Q Can you name the The 30 participants provided a peer and were comfortable in providing top three insurance assessment of companies in the an accurate ranking in terms of companies in terms of industry. A simple scoring method success (performance, presence awarded three points to first place, and momentum) as opposed to success (performance, two points to second and one point mere size. They were not permitted presence and momentum) to third place. This allowed the to rank their own institution. Often across a variety of insurance companies to be ranked insurance companies would different markets? according to a cumulative a total choose only first or second-ranked score. companies.

Insurance companies were asked not to record an opinion unless they were active in that segment

Products

Alternative risk transfer

Ranking First Second Third Score Change Guardrisk 17 51  Santam - Centriq 6 1 13  Zurich Insurance 1 3  Hollard 1 2  Mutual & Federal 1 2 

* Based on responses from 18 companies

Assistance business Ranking First Second Third Score Change Clientéle Life 5 1 17  Metropolitan 3 2 3 16  Hollard 1 3 2 11  Sanlam 3 9  Old Mutual 1 2 7  Momentum 1 1 5  Europ Assist 1 3  Discovery 1 2  International SOS 1 2 

* Based on responses from 15 companies

Strategic and Emerging Issues in South African Insurance 63 Peer review continued

Credit life

Ranking First Second Third Score Change Hollard Life 4 3 18  Absa Life 4 2 1 17  Regent Life 1 2 2 9  Old Mutual 1 2 7  Sanlam 1 1 5  Clientéle Life 1 3  Wesbank 1 3  Discovery 1 1  Metropolitan 1 1  Momentum 1 1 

* Based on responses from 13 companies

Group business – investment Ranking First Second Third Score Change Old Mutual 3 2 13  Allan Gray 2 2 10  Sanlam 1 3 9  Alexander Forbes 1 1 1 6  Investment Solutions 2 6  Momentum 1 1 5  Liberty Life 1 2 5  Metropolitan 1 3  Coronation 1 2  Investec 1 1 

* Based on responses from 12 companies

Group business – risk

Ranking First Second Third Score Change Old Mutual 6 2 2 24  Sanlam 3 5 1 20  Momentum 2 2 10  Discovery 2 6  Momentum 3 3  Alexander Forbes 1 2  Liberty Life 1 2  Metropolitan 1 1 

* Based on responses from 13 companies

64 PricewaterhouseCoopers Investment products

Ranking First Second Third Score Change Sanlam 3 4 2 19  Momentum 3 2 13  Old Mutual 3 1 2 13  Allan Gray 2 1 8  Discovery 1 2 7  Cadiz 1 1 5  Liberty Life 1 2 5  Coronation 1 1 3  Investment Solutions 1 3 

* Based on responses from 15 companies

Life risk products Ranking First Second Third Score Change Discovery 10 4 38  Momentum 6 4 26  Old Mutual 1 1 4 9  1LifeDirect 1 1 5  Liberty Life 2 1 5  Sanlam 4 4  Hollard Life - Alt Risk** 1 2 

* Based on responses from 18 companies

** Set up in 1999 by Hollard and Hannover Re

Motor insurance

Ranking First Second Third Score Change Outsurance 8 5 1 35  Telesure 4 6 2 26  Santam 4 4 1 21  Hollard 2 1 2 10  Regent 2 6  MiWay 2 2 

* Based on responses from 20 companies

Strategic and Emerging Issues in South African Insurance 65 Peer review continued

Property (excluding motor) Ranking First Second Third Score Change Santam 12 3 42  Mutual & Federal 4 2 10  Outsurance 2 1 2 10  Chartis 2 6  Zurich 1 2 4  Absa 1 3  Telesure 1 2 

* Based on responses from 17 companies

Health insurance

Ranking First Second Third Score Discovery 6 1 19 Chartis 2 6 Momentum 2 6 Hollard 2 4 Old Mutual 1 1

* Based on responses from 10 companies

Customer relationships Ranking First Second Third Score Change Discovery 8 1 1 27  Hollard 3 2 1 14  Santam 3 2 13  Momentum 3 1 1 12  Outsurance 3 1 1 12  Sanlam 2 3 12  Old Mutual 2 1 5  Telesure 1 2 4  Chartis 1 2  MiWay 1 2  Liberty Life 1 1  Standard 1 1  Guardrisk 1 1  RisCura 1 1  Zurich 1 1 

* Based on responses from 22 companies

66 PricewaterhouseCoopers Innovations Ranking First Second Third Score Change Discovery 16 3 1 55  Hollard 5 5 2 27  Outsurance 3 6 21  Momentum 2 2 10  Santam 1 1 4  Sanlam 2 4  Telesure 4 4  MiWay 1 3  1LifeDirect 1 2  RisCura Solutions 1 2  Allan Gray 1 1  Cadiz 1 1  Coronation 1 1  Fifth Quadrant 1 1  Liberty Life 1 1  Virgin 1 1 

* Based on responses from 28 companies

Marketing strategies

Ranking First Second Third Score Change Discovery 10 4 2 40  Outsurance 6 2 3 25  Hollard 3 5 1 20  Telesure 2 1 2 10  Momentum 1 2 1 8  Old Mutual 1 1 2 7  Santam 1 1 5  Sanlam 1 2 4  1LifeDirect 1 1 3  Clientéle 2 2  Liberty Life 1 2  MiWay 1 2 

* Based on responses from 24 companies

Strategic and Emerging Issues in South African Insurance 67 Peer review continued

Technically competent staff

Ranking First Second Third Score Change Santam 11 1 2 37  Discovery 5 2 19  Outsurance 2 4 2 16  Sanlam 3 3 15  Old Mutual 3 2 11  Hollard 4 1 9  Momentum 3 1 7  Telesure 1 1 1 6  Fifth Quadrant 1 3  Alexander Forbes 1 2  Liberty Life 2 2  Mutual & Federal 1 2  Guardrisk 1 1  RisCura 1 1  Zurich 1 1 

* Based on responses from 26 companies

68 PricewaterhouseCoopers Appendices Methodology and participants Methodology Previous experience in the financial The time commitment and support services sector has shown that by all of the insurance companies personal interviews with senior invited to participate in this survey executives using a standard was, as in previous surveys, questionnaire offers the best outstanding. research approach. The report attempts to provide The questionnaire contained 42 guidance on the direction South questions and was administered African short- and long-term during interviews of approximately insurance will follow over the next one hour. The author conducted three years. all interviews during February and March 2010 in Johannesburg and Cape Town.

Responses have not been attributed to individual insurance companies but rather collectively to all participants which included two re-insurers and two cell captives or in a more narrow focus of just those categorised as either short- term companies or long-term companies.

70 PricewaterhouseCoopers Participants Name Position Insurance company Anton de Souza Chief Executive Officer 1Lifedirect Edwyn O’Neill Managing Director Absa Insurance Izak Smit Managing Director Absa Life Gari Dombo Managing Director Alexander Forbes Insurance Gert Wessels Managing Director Assupol Louis de Klerk Chief Executive Officer AVBOB Michael Blain Chief Executive Officer Centriq Insurance Peter Flint Chief Executive Officer Chartis South Africa Gavin Soll Managing Director Clientéle Life Herschel Mayers Managing Director Discovery Life Herman Schoeman Managing Director Guardrisk Achim Klennert Managing Director Hannover Re Ian Ross Executive Director Hollard Steve Baudo Managing Director Liberty Life Adam Samie Managing Director Lion of Africa Wilhelm van Zyl Chief Executive Officer Metropolitan Nicolaas Kruger Managing Director Momentum Junior John Ngulube Managing Director Munich Re Keith Kennedy Managing Director Mutual & Federal Mike Harper Retail Managing Director Old Mutual Willem Roos Joint Managing Director Outsurance Mike Jackson Chief Executive Professional Provident Society René Miles Managing Director PSG Future Wealth David Gnodde Managing Director Regent Life/Regent Insurance Gustavo Arroyo Chief Executive Officer RMB Structured Insurance Hennie de Villiers Chief Executive – Sanlam Operations Ian Kirk Chief Executive Santam Denise Shaw/Tetiwe Managing Director/ Standard Insurance/ Jawuna Managing Director Standard Bank Insurance Brokers Leon Vermaak Chief Executive Officer Telesure Guy Munnoch Managing Director Zurich Insurance

Strategic and Emerging Issues in South African Insurance 71 Insurance groups The information provided has been considered proprietary and remains confidential. Results are therefore presented in a “disguised” group format,as either short- or long-term insurance companies. The members of the different groups are as follows:

Short-term insurance Re-insurance companies: companies: • Hannover Re • Absa Insurance • Munich Re • Alexander Forbes Insurance • Chartis Cell captives: • Hollard Insurance • Centriq • Lion of Africa • Guardrisk • Mutual & Federal • Outsurance • Regent Insurance • RMB Structured Insurance • Santam • Standard Insurance • Telesure • Zurich Insurance

Long-term insurance companies: • 1Lifedirect • Absa Life • Assupol • AVBOB • Clientèle Life • Discovery Life • Hollard Life • Liberty Life • Metropolitan • Momentum • Old Mutual • Professional Provident Society • PSG • Regent Life • Sanlam

72 PricewaterhouseCoopers Background data

Information from Financial Services Board (“FSB”), Registrar of Long-term Insurance tenth annual report 2007, and Registrar of Short-term Insurance tenth annual report 2007. Long-term Short name Gross premiums written R’000 % Old Mutual 41,395,412 17% Momentum Group 37,937,027 16% Liberty Group 28,771,137 12% Sanlam 23,559,593 10% Metropolitan 11,009,445 5% Rest of the Long-term 99,958,742.0 41% insurance market TOTAL 242,631,356.0 100%

Rest of market

Metropolitan

Sanlam

Liberty Group

Momentum Group

Old Mutual

Short-term

Gross premiums written Short name % R’000

Santam 11,134,807 19% Mutual & Federal 7,721,670 13% Hollard 4,477,837 8% Zurich 3,964,136 7% Outsurance 2,892,322 5% Rest of the Short-term 27908079 48% insurance market TOTAL 58,098,851 100%

Rest of market

Outsurance

Zurich

Hollard

Mutual & Federal

Santam

74 PricewaterhouseCoopers 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,431 26,564 41,350 84,110 10,000 29,153 18,694 642,214 274,031 169,265 680,000 155,300 481,594 911,298 1,313,497 Dividends paid R’000 0 0 0 0 0 0 0 0 0 0 0 0 0 7 0 0 26 78 856 993 544 960 775 2,471 4,773 2,565 3,146 (1,067) 10,853 13,170 42,675 12,876 15,374 46,475 38,550 32,129 235,839 4,535,748 Other expenditure 2007 0 0 0 0 0 0 0 0 23 19 943 857 370 1,243 7,508 6,086 2,403 3,543 7,618 4,785 1,907 3,881 4,965 9,229 29,573 15,270 16,927 78,535 63,460 71,450 52,579 24,864 (24,245) 785,491 161,664 205,307 148,066 1,333,603 Other income 11 198 1,161 1,655 3,167 1,232 1,544 2,671 2,216 2,179 19,079 35,397 12,999 34,657 26,062 30,348 136,190 723,322 336,016 115,149 434,666 176,671 238,812 222,470 536,280 819,549 361,882 796,181 784,775 7,037,927 1,369,623 2,822,203 4,737,483 1,804,155 8,389,196 2,513,076 21,118,507 16,095,832 Investment income 0 0 11 409 864 5,359 6,322 9,560 4,973 1,280 2,076 2,383 4,474 20,919 39,744 17,996 21,360 24,755 11,725 18,153 20,742 37,075 53,914 444,545 509,814 421,443 432,398 167,556 186,476 486,240 210,569 154,302 179,620 137,528 265,030 152,585 1,299,888 2,415,710 Management expenses 5 0 0 0 0 0 0 0 0 11 35 451 351 812 3,809 2,751 2,299 1,504 5,854 25,080 67,551 41,942 43,186 11,999 33,502 66,210 909,608 772,370 275,999 888,468 203,122 189,044 266,113 145,189 347,785 251,198 159,741 1,673,506 Commission 0 0 564 5,829 8,827 6,787 8,171 5,541 7,683 4,393 14,614 37,743 50,800 37,810 490,309 759,125 199,553 543,158 115,102 161,934 234,264 686,338 209,411 523,432 139,352 6,968,269 4,337,150 2,936,095 1,980,708 8,120,426 3,014,759 1,042,518 4,813,194 1,447,551 1,498,903 22,562,641 21,984,622 23,246,556 Net benefits 0 0 0 3,102 13,607 97,215 21,135 61,766 11,414 10,622 14,402 39,600 14,145 223,564 588,227 115,503 441,494 648,394 152,355 298,500 623,435 836,540 683,300 4,530,120 1,187,238 2,747,852 1,916,296 5,522,835 1,924,971 2,036,901 1,151,011 5,225,723 1,910,956 3,853,940 10,669,765 25,786,008 16,712,034 26,246,883 Net premiums 0 0 993 3,102 13,607 21,643 61,766 11,414 16,052 14,402 24,633 228,626 588,227 111,470 115,503 539,359 676,143 152,355 301,583 623,848 881,120 683,300 4,897,413 2,610,903 3,039,571 2,422,364 5,522,835 2,108,590 2,255,101 1,151,011 5,225,723 2,508,698 1,916,296 3,924,091 11,009,445 28,771,137 16,712,034 26,246,883 Gross Gross premiums Short name Long-term insurance: summary of key figures Momentum Ability Metropolitan Odyssey Metropolitan Metropolitan Inter Metropolitan Metropolitan mCubed McLife Lion of Africa Liberty Group Liberty Active KGA Investment Solutions Investec Employee Ben Investec HTG (a) Hollard Life Hollard Guardrisk Life Guardrisk Goodall and Company Goodall and Bourne Discovery Life Corpcapital Life Coronation Constantia Life Clientéle Citadel Channel Life Centriq Life Capital Alliance BoE Life AVBOB Assupol Anglo Dutch Life Allan Gray Life Algoa Alexander Forbes AIG Life African Life Absa Life Primary 1 Life Direct

Strategic and Emerging Issues in South African Insurance 75 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9,303 6,500 60,000 33,000 35,304 20,000 29,333 350,000 145,000 107,900 2,900,000 8,293,714 2,601,217 19,369,771 Dividends paid R’000 0 0 0 0 0 0 0 0 0 0 0 20 65 799 135 800 154 3,966 6,638 9,179 6,673 8,093 9,938 1,948 26,609 79,792 14,275 54,834 24,474 111,302 782,122 347,029 418,275 6,800,536 Other expenditure 2007 0 0 0 0 0 0 0 0 90 17 50 204 625 636 764 7,265 7,167 4,206 2,370 3,886 5,589 2,719 4,683 1,675 1,905 7,005 22,621 10,443 10,104 183,588 223,000 8,349,009 3,021,808 1,815,931 Other income 970 1,366 2,277 8,680 5,731 6,854 1,271 4,606 1,033 7,602 1,307 2,540 53,860 71,555 45,660 19,300 10,502 91,982 27,865 19,522 42,017 733,295 647,920 865,277 177,268 869,000 205,912 105,465 1,235,145 1,436,096 24,579,510 44,498,657 30,809,134 178,208,305 Investment income 0 0 0 0 0 812 244 638 1,525 7,578 1,542 2,834 5,822 3,594 2,895 50,674 30,439 55,831 10,271 38,316 30,988 16,023 12,352 12,320 13,859 12,779 47,609 196,586 296,859 158,230 2,838,000 6,062,778 1,649,324 19,247,405 Management expenses 0 0 0 0 0 0 0 0 808 644 390 443 7,642 5,338 5,697 2,126 1,051 4,236 2,563 9,016 17,072 19,680 30,367 26,120 40,501 59,626 42,062 922,000 189,503 138,949 132,248 1,704,532 1,113,216 10,828,576 Commission 0 55 914 (365) 5,132 1,291 5,645 50,146 32,903 43,361 24,035 31,114 38,454 49,323 18,229 31,471 15,353 38,085 468,374 482,758 998,311 150,984 214,357 114,231 207,445 136,189 782,153 1,931,368 2,359,589 1,930,799 28,999,804 42,875,131 38,684,388 228,320,113 Net benefits 0 0 0 0 444 4,941 5,319 4,968 10,899 53,415 57,737 47,103 88,111 44,639 49,825 634,334 860,023 795,039 103,711 707,251 208,038 120,784 769,222 185,669 726,698 235,453 1,217,995 2,426,653 1,772,825 1,242,025 23,326,763 37,762,364 37,345,686 225,634,430 Net premiums 0 0 5,066 5,619 4,968 10,899 53,687 92,919 24,003 92,729 44,143 83,563 62,301 905,416 822,670 116,091 713,699 696,775 208,038 260,734 928,295 343,183 779,004 281,766 1,014,893 1,217,995 2,426,653 1,772,825 2,003,615 1,296,770 23,559,593 41,395,412 37,937,027 242,631,356 Gross Gross premiums Short name Long-term insurance: summary of key figures Hannover Life Reinsurers: General Re Total (d) Total Universal (c) Zurich Life Ten-50-six Sygnia Superflex Stanlib Sentry (c) General Standard Sekunjalo Life Sanlam Customised Sanlam SAHL life (b) Safrican Saambou Life RMB Structured Life RMB Structured RMA Life Rentmeester Relyant Life Regent Life Real People Prosperity Prescient Life Prescient PPS Insurance Pinnafrica Life Old Mutual Risk Old Mutual NIB Life New Era Netcare Life Netcare Nestlife Nedgroup Life Nedgroup MS Life Momentum Group

76 PricewaterhouseCoopers 0 0 0 345,000 285,000 19,714,771 Dividends paid R’000 0 2,670 20,719 24,511 154,301 6,954,837 Other expenditure 2007 0 0 (8,940) 32,578 (48,783) 8,340,070 Other income 3,227 41,578 80,673 554,960 304,067 178,763,265 Investment income 5,364 88,500 47,785 41,942 264,704 19,512,109 Management expenses 485 5,729 45,513 265,593 177,114 11,094,170 Commission 7,310 142,260 500,077 2,894,376 1,293,597 231,214,489 Net benefits 11,205 966,844 169,042 677,809 3,319,257 228,953,687 Net premiums 22,656 966,844 530,988 731,683 4,172,480 246,803,836 Gross Gross premiums (a) The figures for HTG cover a sixteen month period due to change in the financial year end. (a) The figures for SAHL Life cover a ten month period due to change in the financial year end. (b) The figures reinsured. fully shown for Sentry and Universal as their liabilities are are (c) No figures return are not included as no statutory has been for Community Life for Alternativenot included due to a change in the financial year end, figures (d) The figures Channel are submitting a return for 2007. and exempted from submitted and Sage Life has been de-registered Short name Long-term insurance: summary of key figures Grand Total Total Swiss Re Life and Health Saxum Re RGA Munich Re

Strategic and Emerging Issues in South African Insurance 77 0.9 0.9 0.8 0.8 4.7 2.0 1.7 1.2 0.8 0.6 0.5 0.4 0.3 0.4 0.3 0.3 0.3 0.0 0.0 0.0 0.0 0.0 7.4 2.4 2.3 10.3 16.7 16.6 11.4 11.6 2007 Share of total Share (a) primary market %

4,941 49,825 44,639 39,600 14,145 836,540 648,394 795,039 726,698 623,435 769,222 1,924,971 2,036,901 1,916,296 1,910,956 4,530,120 3,853,940 2,747,852 1,772,825 1,242,025 1,187,238 5,522,835 5,225,723 10,669,765 23,326,763 37,762,364 37,345,686 25,786,008 26,246,883 16,712,034 Total (a) Total net premiums and received outstanding R’000 4.3 0.7 0.0 4.3 1.8 0.9 0.3 10.9 18.8 58.0 62.5 10.1 12.1 100.0 Sinking fund business % 1.8 1.0 2.0 7.4 3.8 3.2 1.8 1.1 1.3 1.8 0.0 0.4 0.8 0.6 0.6 0.6 0.7 0.0 0.0 0.0 0.0 0.0 5.9 13.9 17.3 19.0 20.8 38.2 22.9 100.0 Life business % 0.5 0.0 0.3 1.5 1.8 3.7 3.4 8.0 0.0 23.5 57.2 100.0 Health business % 0.4 0.1 0.0 1.3 5.4 0.9 0.8 0.0 1.1 7.5 0.2 0.0 7.4 41.4 13.8 27.1 31.1 44.3 10.2 100.0 Fund business % 3.3 5.5 0.1 0.7 8.2 9.9 0.3 0.1 0.5 0.0 17.3 14.2 18.6 21.1 100.0 Disability business % 0.3 0.1 9.1 9.7 1.3 4.5 0.1 0.0 2.5 1.6 0.2 1.4 0.0 0.0 32.7 18.0 18.3 100.0 Assistance business % 1.2 1.2 1.2 1.1 6.6 2.8 2.4 1.3 0.8 1.7 0.7 0.5 0.5 0.4 0.5 0.4 0.0 0.4 0.0 0.0 0.0 0.0 9.3 8.8 23.0 15.9 14.3 23.2 28.2 44.3 100.0 Percentage share of net premiums received and outstanding in the segment received of net premiums share Percentage Total Total % 6 3 6 3 6 6 9 6 6 6 3 6 3 6 3 3 3 9 2 12 12 12 12 12 12 12 12 12 12 12 Financial year end (month) Short name Long-term insurance: individual market share: primary market Long-term insurance: individual market share: Discovery Life Channel Life African Life Superflex Metropolitan Liberty Active Absa Life Life Hollard Capital Alliance PPS Insurance Investec Employee Ben Momemtum Group Liberty Group Sanlam Assupol General segment: Old Mutual General Standard AVBOB Regent Life Clientéle Nestlife Nedgroup Life Nedgroup New Era Alexander Forbes 1 Life Direct Real People Investment Solutions Total % Total Link investment segment: Investec Coronation Allan Gray Life

78 PricewaterhouseCoopers 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.2 0.1 0.1 0.0 0.0 0.0 0.3 0.1 0.1 0.0 0.0 0.0 1.1 0.5 0.5 0.3 0.1 0.0 2007 Share of total Share (a) primary market %

0 0 0 444 5,319 4,968 97,215 88,111 53,415 47,103 57,737 10,899 61,766 13,607 235,453 208,038 103,711 683,300 441,494 298,500 223,564 707,251 185,669 115,503 588,227 152,355 2,426,653 1,217,995 1,151,011 Total (a) Total net premiums and received outstanding R’000 0.0 0.0 0.3 5.9 9.1 100.0 Sinking fund business % 4.4 5.6 0.1 6.5 1.0 1.0 4.1 3.2 0.1 0.9 0.0 0.2 1.7 0.1 43.1 18.5 19.9 52.3 27.7 12.5 99.1 19.1 11.8 100.0 100.0 100.0 Life business % 0.0 78.7 21.3 100.0 100.0 100.0 Health business % 1.5 0.0 0.4 4.3 2.3 0.0 98.5 100.0 100.0 100.0 100.0 Fund business % 0.0 0.2 0.7 2.7 58.8 19.3 20.9 32.6 50.6 14.1 99.8 100.0 100.0 Disability business % 0.0 5.8 0.7 9.3 49.2 44.2 26.7 26.9 46.4 47.4 19.6 17.5 100.0 100.0 Assistance business % 6.3 5.6 0.6 0.6 3.4 0.6 0.0 5.5 1.9 0.0 4.1 2.1 1.0 0.3 27.9 24.7 12.3 11.5 10.4 39.8 25.7 17.4 13.0 62.7 16.5 10.2 100.0 100.0 100.0 Percentage share of net premiums received and outstanding in the segment received of net premiums share Percentage Total Total % 2 6 8 8 6 9 3 6 6 7 9 3 9 6 2 3 12 12 12 11 12 12 12 12 12 12 12 12 12 Financial year end (month) Short name Long-term insurance: individual market share: primary market Long-term insurance: individual market share: Total % Total Niche segment: MS Life RMA Life SAHL Life (b) McLife Relyant Life Sekunjalo Life RMB Structured Life RMB Structured Pinnafrica Life Life Netcare % Total Cell captive segment: AIG Life Life Guardrisk Centriq Life Momentum Ability Sanlam Customised Zurich Life Old Mutual Risk % Total Assistance segment: Safrican Prosperity HTG (c) KGA Stanlib Precient Life Precient Sygnia Ten-50-six BoE Life mCubed Citadel Inter Metrolpolitan NIB Life

Strategic and Emerging Issues in South African Insurance 79 0.0 0.1 0.0 5.1 0.3 0.0 0.0 0.0 29.1 25.9 19.1 20.4 100.0 100.0 2007 2007 Share of total Share (a) primary market % of total Share (a) primary market %

0 21,135 11,205 14,402 11,414 10,622 123,886 966,844 860,023 634,334 169,042 677,809 3,319,257 225,634,430 Total (a) Total net premiums and received outstanding R’000 (a) Total net premiums and received outstanding r’000 0.0 0.0 Sinking fund business % Sinking fund business % 0.0 5.5 0.4 26.2 24.2 19.3 24.3 100.0 100.0 Life business % Life business % 4.6 0.0 2.5 40.8 21.3 30.8 100.0 100.0 100.0 Health business % Health business % 4.7 1.2 0.0 0.1 0.0 93.9 100.0 100.0 100.0 Fund business % Fund business % 3.0 0.0 0.2 0.2 4.2 37.7 37.2 17.6 100.0 100.0 Disability business % Disability business % 2.3 0.0 0.0 0.5 0.4 1.7 1.6 (3.2) 34.4 68.4 100.0 100.0 Assistance business % Assistance business % 1.9 5.1 0.3 1.3 1.0 0.9 29.1 25.9 20.4 19.1 100.0 100.0 Percentage share of net premiums received and outstanding in the segment received of net premiums share Percentage and outstanding in the segment received of net premiums share Percentage Total Total % Total % 2 8 8 8 12 12 12 12 12 12 12 Financial year end (month) Financial year end (month) (a) No figures are shown for Sentry and Universal as their liabilities are fully reinsured, the figures for Alternativeare not included due to a change in the financial year the figures Channel reinsured, fully shown for Sentry and Universal as their liabilities are are (a) No figures return submitting a for and exempted from return not included as no statutory has been submitted and Sage Life de-registered for Community Life are end, the figures 2007. for SAHL Life cover a ten moth period due to change in the financial year end. (b) The figures for HTG cover a sixteen month period due to change in the financial year end. (c) The figures Long-term insurance: individual market share: primary market Long-term insurance: individual market share: market reinsurance Long-term insurance: individual market share: Short name Short name Total % Total dormant or in that are Insurers run-off: Total Lion of Africa Algoa Swiss Re Life & Health General Re Munich Re RGA Saxum Re % Total Goodall and Bourne Hannover Life Constantia Life Goodall and Company

80 PricewaterhouseCoopers 0 0 2 0 9 2 2 0 3 0 (2) (3) (8) 18 11 11 46 83 34 17 13 71 51 (82) (92) (10) (19) (54) (34) (66) (70) 271 165 303 (143) (5,166) Profit / Profit (loss) (e) 2007 0 0 0 0 8 7 0 18 10 42 12 28 26 48 27 13 11 65 87 30 41 23 15 48 27 44 31 10 18 40 13 11 260 101 213 (5,255) Expenses (e) 0 0 0 0 6 0 0 0 6 0 2 0 0 0 (1) (1) (8) (1) (6) 17 22 14 13 19 21 (12) (14) (22) (13) (94) (62) (27) (10) (45) (259) 9,419 Commission (e) 0 0 0 0 0 0 (4) 54 22 57 62 21 67 66 79 42 76 62 82 46 55 73 58 97 23 53 80 45 42 176 156 134 215 161 (189) (128) Claims incurred (d) 0 0 0 0 0 5 0 (0) 24 98 79 40 90 21 33 24 49 63 25 16 68 87 45 43 40 50 45 65 79 92 87 67 91 100 100 100 Retention (c) Percentages Net underwriting 0 0 0 0 0 (499) (364) (614) 1,960 5,204 6,178 9,248 4,899 2,521 3,939 (1,471) (4,152) (6,822) (1,583) 14,918 13,528 19,076 30,701 85,552 92,166 17,536 15,203 (28,620) (16,263) (14,501) (56,712) 230,791 101,401 151,573 208,162 (148,767) Underwriting / (loss) profit 0 0 0 0 0 724 (179) 3,161 7,350 3,285 5,781 2,270 31,245 19,842 83,860 15,420 26,719 22,722 12,402 51,528 19,872 29,776 85,709 311,884 864,245 167,461 260,582 328,114 184,405 113,537 250,831 658,617 130,681 103,857 2,061,781 1,117,082 Premiums Premiums written Net 0 0 0 0 125 (364) (391) 3,088 4,214 1,024 (1,471) (6,536) 45,025 17,016 27,319 10,605 56,631 33,379 11,702 10,656 43,596 48,547 92,166 95,827 16,328 (27,596) (39,272) (59,885) (15,733) 233,887 361,718 181,545 232,050 215,231 324,106 (144,826) Underwriting / (loss) profit 0 0 0 0 0 0 7,962 3,770 2,505 39,474 84,400 85,678 15,420 68,382 12,402 17,102 30,656 29,784 217,346 486,027 129,755 668,123 114,354 498,384 461,549 254,488 838,335 142,221 118,862 107,259 127,402 2,301,008 1,280,240 2,266,493 1,367,312 1,640,628 Premiums Premiums written Underwriting Gross 100 630 622 232 166 6,955 3,111 9,070 1,937 3,853 9,853 8,972 2,091 7,760 4,045 9,224 2,851 3,779 37,664 35,278 28,625 12,354 18,533 42,720 12,918 28,197 10,436 25,246 53,855 227,870 159,828 204,423 189,675 160,969 138,747 240,109 Investment income (b) 119 620 1,990 8,827 7,964 67,761 23,002 22,191 30,040 67,738 24,417 78,278 58,909 60,030 22,864 15,805 50,831 77,273 86,071 84,313 41,746 37,877 34,151 199,983 265,683 153,886 323,603 247,955 211,528 116,484 171,430 804,399 602,765 654,526 1,454,193 1,062,063 R’000 Assets less liabilities (a) 2 3 6 4 8 3 8 8 3 6 6 3 3 3 2 6 6 12 12 12 12 12 11 12 12 12 12 12 12 12 12 12 12 12 12 12 Year Year end (mth) Short name Short-term insurance: review of overall business Short-term insurance: review Attorneys Insurance Absa Aegis Afgen AGRe Agri Risko AIG (SA) AIM Alexander Forbes Allianz Auto & General (f) Aviation Centriq Constantia Corporate Guarantee Guarantee Credit Ace AECI Captive (f) Bensure CGU Compass Absa Risk Coface Customer Protection Densecure Dial Direct Emerald Enpet Escap Export Credit Federated E M Ferrosure Fidelity Firstrand FNB Credit Guarantee FNB Credit General Accident

Strategic and Emerging Issues in South African Insurance 81 0 4 4 7 5 5 0 0 3 5 2 (9) (3) (6) (5) 99 34 14 21 11 54 22 48 18 13 26 59 26 11 (28) (45) (44) (61) (23) (189) (130) (8,887) Profit / Profit (loss) (e) 2007 1 0 9 0 4 6 0 6 7 0 9 31 68 44 71 60 35 35 31 47 48 42 74 39 19 28 21 14 42 23 12 16 370 101 134 148 (391) Expenses (e) 9 0 4 8 3 9 0 7 3 0 7 7 0 0 0 0 4 0 (0) (1) (2) 12 21 14 25 10 13 13 16 45 (33) (10) (16) (18) (13) (274) (112) Commission (e) 7 0 0 0 0 64 51 40 66 51 41 74 87 10 50 58 71 40 37 26 44 79 64 86 64 21 10 52 91 66 40 83 53 81 39 73 2,660 Claims incurred (d) 0 4 0 7 0 9 66 74 94 80 43 58 34 71 96 91 43 99 33 46 63 93 97 80 22 18 36 13 97 100 100 100 100 100 142 111 (1,922) Retention (c) Percentages Net underwriting 0 94 474 (242) (586) (482) 8,817 7,473 2,884 1,808 3,084 3,416 (6,751) (5,893) (8,179) (7,834) 20,368 15,818 92,922 41,658 32,528 27,267 28,817 15,374 77,877 70,766 38,798 (25,345) (40,383) (25,557) (22,255) (25,055) 282,143 171,135 700,354 173,598 153,458 Underwriting / (loss) profit 0 0 0 856 (173) 1,312 8,785 5,618 6,021 20,473 48,163 15,657 72,512 58,155 50,502 66,355 15,699 13,515 24,191 35,725 31,652 232,637 498,608 290,614 185,996 299,202 128,671 352,507 322,108 477,798 120,928 149,366 2,037,362 7,288,063 2,678,540 3,175,600 1,515,745 Premiums Premiums written Net (242) (482) 7,797 8,734 1,071 6,862 3,974 2,530 1,939 4,367 4,607 (7,348) (1,526) (3,538) 20,368 23,363 13,852 68,856 69,135 58,862 55,681 28,817 (14,532) (25,345) (39,692) (25,557) (15,749) 550,014 444,374 239,581 770,698 514,079 148,979 115,102 289,202 691,393 (102,710) Underwriting / (loss) profit 9 856 (569) 5,510 20,473 29,226 10,570 16,254 58,155 67,064 11,067 13,515 21,760 15,533 45,898 32,643 351,157 624,236 112,176 547,116 504,643 222,504 128,213 328,914 770,242 118,647 128,671 510,882 493,403 549,412 193,462 2,743,363 7,721,670 2,892,322 4,477,837 1,884,575 1,618,924 Premiums Premiums written Underwriting Gross 503 849 351 382 740 6,994 3,578 5,281 1,876 5,224 1,868 4,770 8,536 22,688 37,572 96,891 13,253 14,765 13,644 34,020 10,130 10,636 17,576 22,094 11,286 36,323 41,594 13,237 12,155 26,763 41,973 167,375 195,551 262,008 415,362 123,462 1,031,699 Investment income (b) 3,046 9,447 8,100 (4,296) 73,033 50,635 91,364 26,439 53,997 25,258 19,739 62,924 55,448 79,133 29,482 20,544 22,848 76,883 15,376 45,928 268,090 628,867 577,289 678,069 126,947 161,724 118,338 111,808 170,977 118,566 276,826 765,216 371,469 170,749 123,625 1,797,197 1,301,261 R’000 Assets less liabilities (a) 3 6 6 8 6 9 3 3 6 2 6 6 6 3 6 8 6 6 6 6 3 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 Year Year end (mth) Short name Short-term insurance: review of overall business Short-term insurance: review Global Guardian National Guardian Guardrisk Mutual & Federal Mut & Fed Risk Nova Risk Old Mut Health Outsurance HDI Gerling Hollard Natsure Nedgroup New National Home Loan IGF Indequity Infiniti Risk Khula Kingfisher Legal Expenses Lion of Africa Lombard Mcsure Momentum Short-term Monarch MUA Nedcor (SA) Pinnafrica Rand Mutual Regent Parktown Relyant RMB Structured Renasa Resolution RMB Specialised Lines Sabsure

82 PricewaterhouseCoopers 3 0 0 1 8 0 0 3 4 (7) 20 49 46 44 86 61 18 87 21 38 28 (14) (55) (25) (28) (3,891) 23,400 Profit / Profit (loss) (e) 2007 6 1 0 0 7 3 9 0 9 5 0 15 62 18 12 12 11 77 14 27 11 33 73 30 20 5,516 (9,400) Expenses (e) 5 0 0 0 0 0 (2) (5) (2) (1) 14 11 12 13 28 33 21 15 19 10 15 21 14 (15) (13) (16) (15,000) Commission (e) 1 1 0 9 0 0 0 (3) 59 99 69 31 53 59 55 62 80 67 23 77 14 72 73 67 33 211 (1,512) Claims incurred (d) 0 0 0 0 0 84 31 91 48 81 52 46 81 51 66 90 28 54 75 24 84 49 85 89 38 100 100 Retention (c) Percentages Net underwriting 0 60 485 101 468 (523) 8,040 3,870 6,127 1,550 (1,011) (4,882) (6,148) (6,174) 13,772 29,096 42,196 40,539 10,084 (16,261) (17,462) 319,416 193,631 131,021 147,179 101,356 127,996 165,645 3,495,437 3,661,081 Underwriting / (loss) profit 0 0 0 0 2 996 158 7,034 8,328 8,938 7,226 40,969 31,608 33,310 64,846 21,689 226,339 214,371 811,123 636,596 522,385 253,005 107,778 241,730 460,470 3,363,917 1,970,770 42,410,810 Premiums Premiums written Net 10,115,436 44,381,580 70 (61) 485 745 101 (632) 5,124 3,449 (6,293) (9,416) (8,015) (6,778) 13,069 20,069 11,929 54,045 38,410 34,755 48,071 46,875 52,953 849,525 353,766 131,021 210,099 347,706 379,405 488,653 7,759,054 8,247,706 Underwriting / (loss) profit 0 0 0 0 996 294 9,623 1,453 49,009 23,059 17,528 39,220 17,235 65,912 71,691 44,465 487,751 214,371 967,785 128,071 272,087 1,007,385 1,878,520 3,964,136 1,067,364 1,221,306 5,272,872 58,098,851 Premiums Premiums written Underwriting Gross 11,134,807 63,371,723 561 925 260 530 2,180 1,806 9,242 2,335 5,602 1,159 6,897 10,471 30,946 23,520 23,729 14,878 38,456 16,526 13,069 77,396 176,699 232,169 178,829 152,286 170,120 283,724 491,368 2,613,809 8,012,464 8,503,832 Investment income (b) 7,948 3,544 34,210 21,875 13,473 72,498 81,544 72,074 10,492 81,122 35,274 15,209 85,311 17,326 191,301 909,379 401,805 136,823 708,535 180,460 134,237 131,507 146,950 285,929 3,982,290 1,999,695 1,030,933 1,787,269 24,708,138 R’000 Assets less liabilities (a) 26,495,407 3 6 2 3 9 3 6 6 6 8 6 6 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 Year Year end (mth) Short name Short-term insurance: review of overall business Short-term insurance: review Safire Sage SAHL (g) Santam SARB Sasguard Sasria Saxum Sentrasure Shoprite Standard Sunderland Marine Central Re General Re Hannover Imperial Re Munich Saxum Re Westchester Zurich Reinsurers: African Re Truck & General Truck Unitrans Unity XL Insurance Zurich Risk (h) Total Swiss Re Total (i) Total Grand Total

Strategic and Emerging Issues in South African Insurance 83 Profit / Profit (loss) (e) 2007 Expenses (e) Commission (e) Claims incurred (d) Retention (c) Percentages Net underwriting Underwriting / (loss) profit Premiums Premiums written Net Underwriting / (loss) profit Premiums Premiums written Underwriting Gross Investment income (b) R’000 Assets less liabilities (a) Year Year end (mth) (a) Figures exclude the additional asset requirement. (a) Figures realisation of investments. or losses on profits exclude unrealised (b) Figures as net premiums. written, retained premiums of gross the percentage (c) Retention represents earned. of net premiums is shown as a percentage (d) Claims incurred written. of net premiums shown as a percentage (e) These items are cover an eighteen month period due to changes in their financial year ends. Aviation and Bensure for (f) The figures for the period ended December 2007 have been submitted for SAHL cover the period ended February 2007 but, due to a change in financial year end, figures (g) The figures available on request. and are of curatorship. not included due to the process for First Central are (h) The figures of curatorship. not included due to the process are for South Union Re (perviously Zimre) (i) The figures Short name Short-term insurance: review of overall business Short-term insurance: review

84 PricewaterhouseCoopers 2007 Share of Share total primary market (a) % 18.7 12.9 7.5 6.6 4.8 3.8 3.2 2.7 2.6 2.1 1.3 1.1 0.9 0.8 0.3 0.1 0.1 0.1 0.0 0.1 0.1 0.0 4.6 2.3 1.4 1.0 0.5 0.0 0.0 2.7 0.9 Total gross gross Total premiums written (a) R.’000 11,134,807 7,721,670 4,477,837 3,964,136 2,892,322 2,266,493 1,884,575 1,640,628 1,576,462 1,280,240 770,242 668,123 547,116 461,549 193,462 85,678 67,064 49,009 20,473 45,898 44,465 15,533 2,743,363 1,367,312 838,335 624,236 272,087 16,254 3,770 1,618,924 549,412

Miscellaneous % 1.1 1.3 11.6 3.0 2.3 0.7 48.0 16.0 11.0 0.3 0.9 0.7 0.9 2.2 0.0 0.0 100.0 56.1 35.9 7.9 0.1 100.0 36.5 10.7 Engineering % 24.8 19.2 10.2 22.8 4.7 0.4 3.9 7.0 3.6 1.0 0.0 2.3 100.0 71.1 5.3 21.8 1.8 100.0 Liability % 57.0 7.0 2.8 4.6 0.0 0.3 2.4 0.2 14.5 7.6 0.9 2.3 0.0 0.0 0.3 0.0 0.0 0.1 0.0 0.0 0.0 0.0 100.0 25.7 28.8 37.1 4.2 4.1 100.0 Guarantee % 7.5 1.0 16.2 0.5 0.0 5.4 4.0 4.1 1.8 51.5 0.0 3.9 1.6 0.9 1.6 100.0 24.0 (46.1) 72.6 49.5 100.0 Accident and health % 18.9 10.5 14.2 4.6 0.8 0.1 4.2 15.7 11.2 14.5 0.4 1.1 0.2 0.2 3.2 0.0 0.0 0.1 100.0 74.3 12.0 3.0 2.1 0.0 8.7 100.0 0.0 24.9 Motor % 24.2 17.2 12.8 9.5 9.8 9.5 7.1 1.3 0.7 0.5 1.5 0.7 1.9 0.6 1.8 0.2 0.2 0.1 0.2 0.1 0.0 100.0 42.0 39.6 5.5 2.3 0.8 0.3 9.5 100.0 0.1 1.0

% Transportation Transportation 21.3 8.8 12.0 12.1 0.3 9.3 0.1 25.4 3.5 1.9 3.4 1.4 0.0 0.0 0.0 0.5 100.0 44.2 15.7 2.7 36.2 1.2 100.0 Property Property % 33.2 27.9 7.8 10.1 7.1 1.6 0.7 0.0 1.9 3.0 2.2 2.6 0.6 0.4 0.3 0.2 0.1 0.2 0.0 0.0 100.0 40.3 12.6 23.9 22.2 0.8 0.3 100.0 35.9 5.3 Total Total % 26.6 18.5 10.7 9.5 6.9 5.4 4.5 3.9 3.8 3.1 1.8 1.6 1.3 1.1 0.5 0.2 0.2 0.1 0.1 0.0 0.1 0.0 100.0 46.8 23.3 14.3 10.6 4.6 0.3 0.1 100.0 23.0 7.8 Short name Short-term insurance: individual market share: primary market Short-term insurance: individual market share: written in the segment premiums of gross share Percentage General segment: Santam Mutual & Federal Hollard Zurich Outsurance Auto & General Regent Constantia Lloyd’s AIG (SA) Lion of Africa Compass New National Dial Direct Renasa Alexander Forbes Momentum Short-term Safire RMB Specialised Lines Resolution Unity Global Total % Total Cell Captive segment: Guardrisk Centriq Escap Mut & Fed Risk Zurich Risk Indequity Absa Risk % Total Specialist segment: RMB Structured Relyant

Strategic and Emerging Issues in South African Insurance 85 2007 Share of Share total primary market (a) % 0.9 0.8 0.8 0.6 0.8 0.8 0.4 0.4 0.2 0.4 0.4 0.0 0.1 0.2 0.1 0.2 0.2 0.2 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.9 1.7 Total gross gross Total premiums written (a) R.’000 510,882 498,384 493,403 328,914 486,027 487,751 222,504 254,488 142,221 217,346 214,371 29,784 39,474 114,354 58,155 118,647 129,755 128,671 128,071 118,862 29,226 23,059 21,760 17,235 10,570 13,515 15,420 5,308 5,510 9,623 8,268 1,453 2,301,008 1,007,385

Miscellaneous % 3.9 8.4 20.2 14.0 0.1 1.1 0.0 5.0 0.2 100.0 49.2 50.1 Engineering % 39.2 26.1 12.1 6.6 16.0 100.0 100.0 Liability % 0.1 0.2 19.5 22.1 22.9 30.3 3.9 1.3 (0.4) 0.1 0.0 100.0 (0.0) Guarantee % 54.3 0.1 15.9 12.8 13.3 1.2 1.5 0.4 0.6 100.0 96.1 Accident and health % 28.9 27.5 2.6 1.9 0.1 4.2 0.0 3.0 5.5 0.0 1.1 100.0 45.9 46.4 Motor % 0.1 2.2 15.4 29.6 9.2 8.2 18.1 12.5 3.1 0.4 0.0 100.0 72.2 25.1

Transportation Transportation % 5.2 53.6 9.3 3.8 5.9 0.0 8.8 13.5 (0.1) 100.0 8.2 1.3 Property Property % 10.0 4.8 16.8 9.4 3.9 0.6 3.3 7.5 0.5 1.1 0.5 0.3 0.0 0.1 100.0 51.9 26.3 Total Total % 7.2 7.1 7.0 6.9 3.6 4.7 6.9 3.1 3.2 1.8 3.0 2.0 0.4 0.4 0.8 0.6 1.6 1.8 1.8 1.7 1.7 0.3 0.3 0.2 0.2 0.1 0.1 0.2 0.0 0.1 0.1 0.1 100.0 56.7 24.8 Short name Short-term insurance: individual market share: primary market Short-term insurance: individual market share: written in the segment premiums of gross share Percentage Monarch Customer Protection Rand Mutual Sasria Emerald Legal Expenses Credit Guarantee Credit Allianz MUA Ace Shoprite Export Credit HDI Gerling Fidelity Infiniti Risk Attorneys Insurance Coface Mcsure Unitrans Federated E M Lombard SAHL Pinnafrica Saxum Corporate Guarantee Sunderland Marine IGF Khula XL Insurance Aviation (b) Aviation Bensure (b) Bensure Home Loan Total % Total Bank segment: Absa Standard

86 PricewaterhouseCoopers 2007 Share of Share total primary market (a) % 0.2 0.8 0.0 0.2 100.0 1.5 Total gross gross Total premiums written (a) R.’000 127,402 504,643 2,505 112,176 59,667,233 887,627

Miscellaneous % 0.7 100.0 Engineering % 100.0 Liability % 93.0 7.0 100.0 Guarantee % 1.7 2.2 100.0 Accident and health % 1.7 2.5 3.5 100.0 Motor % 1.8 1.0 100.0

% Transportation Transportation 90.5 100.0 Property Property % 2.8 18.7 0.3 100.0 (0.0) Total Total % 2.8 12.4 3.1 100.0 0.1 Short-term insurance: individual market share: primary market Short-term insurance: individual market share: written in the segment premiums of gross share Percentage Short name Natsure Nedgroup Firstrand Total % Total FNB Credit Guarantee FNB Credit (a) Insurers who have not written any gross premium, or where the amount of gross premium written is negligible, have been omitted, and the figures for First Centeral have not written is negligible, have been omitted, and the figures premium the amount of gross or where premium, who have not written any gross (a) Insurers of curatorship. been included due to the process have been annualised. submitted returns which did not cover 12 month period and the figures and Bensure (b) Aviation Total Total Captive segment:

Strategic and Emerging Issues in South African Insurance 87 2007 gross Total written premiums (b) R.’000 71,691 65,912 294 0 5,272,872 967,785 1,067,364 1,221,306 1,878,520 Miscellaneous (a) % 100.0 1.7 0.4 0.0 19.8 22.7 19.4 36.0 Transportation % 100.0 4.9 8.6 14.0 49.4 23.1 Property % 2.4 100.0 0.6 17.5 17.8 25.2 36.5 Total % Percentage share of gross premiums written premiums of gross share Percentage 1.3 0.0 100.0 1.4 18.4 20.2 23.2 35.6 (a) Most reinsurers report in three classes only and where reinsurers have reported in more classes, these premiums have been classes, these premiums in more have reported reinsurers classes only and where in three report (a) Most reinsurers included under miscellaneous. of curatorship. have not been included due to the process Zimre) for South Union Re (previously (b) Figures Individual market share: reinsurance market reinsurance Individual market share: Short name General Re Saxum Re Central Re % Total Total Imperial Re African Re Swiss Re Hannover Munich

88 PricewaterhouseCoopers About PricewaterhouseCoopers About PricewaterhouseCoopers continued

A world-leading professional PricewaterhouseCoopers provides We are one of the largest services firm industry-focused assurance, tax knowledge businesses in the world and advisory services for public – a leader in every market in which and private clients. More than we operate. 160 000 people in 151, including 29 in Africa, countries connect Worldwide, we possess an enviable their thinking, experience and breadth and depth of resources, solutions to build public trust and yet we work locally, bringing enhance value for clients and their appropriate local knowledge and stakeholders. experience to bear – and using the depth of our resources to provide PricewaterhouseCoopers is truly a professional service, specifically a global organisation committed tailored to meet our clients’ needs. to helping our clients meet the challenges posed by the The service we offer to clients globalising economy. is underpinned by our extensive coverage and breadth of skills.

Servicing our markets The objectives of our service requirements such as the King III offering are to build trust and Report on Corporate Governance enhance value for clients and and International Financial their stakeholders. To meet the Reporting Standards (IFRS). requirements of our clients, our services are grouped into three The true value of an audit is not distinct service lines, namely solely in ensuring compliance Assurance, Advisory and Tax. We with exacting rules, regulations continue to operate as a multi- and standards. Instead, it lies competency organisation offering in our focus on substance over a range of high-quality services to form and on progressing toward clients. a reporting and audit model that communicates better information In our business, change is the only about a company’s long-term value constant and we are continually and the risks that are being taken adapting our range of services to to achieve such value. ensure our sustainability and that of our clients and stakeholders. As Our leading-edge audit approach market needs change, so will our can be tailored to meet the needs service offering. of any size organisation, as evidenced by our appointment as auditor to thousands of small and Assurance mid-sized businesses. In every Our Assurance group provides case, the PricewaterhouseCoopers audits to clients on their financial audit is underpinned by our performance and operations, as deep industry knowledge, wide well as helping them improve international experience, and global their external financial reporting network of skilled professionals. and adapt to new regulatory This deep industry knowledge is one of the foundations of our success.

90 PricewaterhouseCoopers Our teams are aligned to the Advisory Tax industry groupings in which they have the most expertise, enabling Advisory provides advice and Taxation is one of the biggest cost them to deliver tailored solutions assistance based on financial, items in any business, yet it is one to problems in these sectors. Our analytical and business process of the most manageable. Using traditional core competency has skills to corporations, Government state-of-the-art methodologies and been augmented over the years bodies and intermediaries in the technology, coupled with specialist by the development of additional implementation of strategies skills, our national team of advisers services that address our clients’ relating to: can assist clients to control and minimise their tax burden by requirements. • Creating/acquiring/financing providing innovative and practical businesses; Our audit clients include many of tax and business solutions. the top-performing companies on • Integrating them into current the Johannesburg Stock Exchange operations; Our advice covers all aspects of Southern African direct and (JSE), as well as many small and • Enhancing performance; mid-sized businesses. In addition indirect taxes, exchange control to audit, other services provided • Improving management and regulations and employee-related include accounting and regulatory control; issues. Through our extensive network of offices we are also able advice, and attest and attest- • Dealing with crises; and related services. to provide advice on structuring • Restructuring and realising international business operations value. and investments.

Offered by trained professionals Corporate tax siness lifecyc specialising in their respective Bu le fields, we provide advisory services Corporate Tax provides specialist re & ct u advice to assist South African r u al u e A in an objective manner that helps s t e v q u e l is ir e corporates to manage taxation R a / clients create stakeholder value, re C r e costs and cash flows. Our a build trust and communicate with t

Client priorities: e specialists are informed on

M M the marketplace. Advisory clients

a a • Transactions n n current regulatory and business

• Performance set and implement strategies that a a

g g improvement developments, and use this e create value for their stakeholders.

& • Governance, knowledge to maximise the return

c Risk & Compliance o e n • Crisis t Advisory services are built to our clients through corporate tax t r a o management r l g around four key client priorities: planning. t e I n transactions; performance I Human resource services m p r improvement; governance, risk p e r o v e f o r m a n ce and compliance; and crisis management. We have an established human resource practice delivering solutions to the people-related Comprehensive services related to financial transactions, including financial due diligence, issues encountered by our clients. Transactions valuations, financial modelling, negotiating and structuring acquisitions and disposals, raising finance, and developing exit strategies. By combining our expertise in reward strategy and incentives, Performance personal tax and social security, Improvement Services to assist clients in identifying and implementing cost-saving initiatives, improving employment law, employee benefit management and control, identifying and managing risk, and improving quality. services and human resource Governance, Risk and Compliance consulting, we are able to deliver solutions on all issues relating to the development, reward and Crisis Management Comprehensive services related to business recovery, restructuring, and dispute analysis and investigations. management of employees within an organisation.

Strategic and Emerging Issues in South African Insurance 91 About PricewaterhouseCoopers continued

Our experts providing expatriate Tax Compliance Centre by engaging our clients in tax services examine all aspects conversations around the issues, of deploying people globally from We provide specialist income tax risks and opportunities of the creating non-standard assignment compliance services, based on day, in order to ensure that their programmes to managing costs global best practice models, to businesses continue on the road to through effective tax planning, companies, individuals and trusts. sustainable profitability and growth. process improvements and The Centre runs state-of-the-art We also know that life is about outsourcing. They are supported income tax compliance processes, more than business. It is also about by highly experienced immigration and has a dedicated compliance individuals. We therefore extend specialists in South Africa and manager responsible for each our involvement to offering advice worldwide providing advice on the outsourcing contract to ensure the on personal finances, taxation, immigration law and various permit timely and efficient delivery of tax succession, estate and retirement categories. returns. Tailored electronic tax data planning. We assist clients with collection tools and robust risk every facet of their business in Indirect tax management and quality control order to add real value, and help procedures ensure the delivery of them achieve their business goals Our specialists have a detailed high-quality tax returns. and dreams. knowledge of local and international laws and practices Private Company Services and can offer an unparalleled breadth and depth of services Business leaders regard business and advice on value-added tax, as personal. Our past and customs and excise duties and continued involvement with Regional Services Council levies. business leaders gives us a broad understanding of the unique International tax structuring demands and challenges facing private companies today. Our We provide business solutions to response is simple – to develop specific, complex client needs that professionals who understand control and minimise the global these challenges and rise to tax burden, taking into account them. These Trusted Business exchange control as appropriate. Advisers (TBAs) work closely with We work as part of an integrated our industry experts to provide local and international industry- tailor-made solutions specifically focused team of business advisers, geared to adding value in the to provide specialist international private company environment. A tax and exchange control services. TBA acts as a gateway to all the knowledge and expertise of our Transfer pricing entire organisation, combined with We develop transfer pricing comprehensive knowledge of local policies that are practical, markets and industries. Through defensible and consistent with our our TBAs, clients have access clients’ overall business strategy. to an integrated service delivery Our services include transfer approach encompassing any pricing risk assessments and combination of our firm’s services. full transfer pricing studies. We also provide advice on current Trust and excellence are the and proposed transfer pricing foundations of our relationships. legislation in South Africa and We foster those relationships abroad.

92 PricewaterhouseCoopers A focus on industries One of the foundations of our firm’s industry groups are: success is our ability to adapt our • Financial Services services to meet the needs of our clients. • Consumer and Industrial Products and Services (CIPS) Internationally, teams are aligned • Technology, InfoComm, to the industry groupings in which Entertainment and Media (TICE) they have the most expertise, enabling them to deliver tailored • Mining solutions to problems in these • Public Sector sectors. The depth of our industry expertise, like our international • Health Care perspective, is an attribute that • Higher Education our clients value highly. We invest significant resources in building • Agribusiness and sharing such expertise. We have organised ourselves around Financial Services industries to: • Share the latest research and The financial services industry points of view on emerging landscape is continually changing industry trends. and increasing in complexity, causing firms to face a diverse • Locate individual experts on array of challenges and concerns. each issue, wherever they are Corporate governance, risk based. management and regulatory • Develop industry-specific issues continue to impact the performance benchmarks, industry. Firms have expanded based on global best practices. international operations around the globe to tap into new markets • Share methodologies and as a source of growth, increase approaches in complex areas their competitiveness, satisfy such as financial instruments demand and better leverage their and tax provisioning. expertise. To assist our clients, • Collaborate on accounting or our professionals have in-depth technical issues unique to a knowledge of the issues driving particular industry, especially change in the various sectors of when interpretive guidance is the financial services industry. needed. This knowledge, combined with our specialised skills, enables Our clients range from the us to design and implement country’s largest and most cost-effective multi-disciplinary complex organisations to some of solutions to meet the challenges its most innovative entrepreneurs and opportunities facing our – we are privileged to work with clients. an unrivalled client base. We serve many of the leading businesses Actuarial and Insurance in every sector on which we Management Solutions focus; those businesses value our rigorous, practical approach, The PricewaterhouseCoopers characterised by a detailed Actuarial & Insurance Management understanding of individual client Solutions (AIMS) practice assists issues and by deep industry private and public entities knowledge and experience. Our throughout the world with critical

Strategic and Emerging Issues in South African Insurance 93 About PricewaterhouseCoopers continued

insurance business issues. We an impact on the global insurance We act as auditors to more assist clients in developing industry. Many insurers are financial services companies solutions to the challenges looking beyond traditional markets in South Africa than any other raised by intense competition, and distribution channels for professional services firm. technological changes, opportunities. restructuring and increased The leadership of our Southern attention from regulators as well as We are ideally placed to meet African Financial Services practice the ongoing challenge of providing these demands. We have the would be pleased to hear from you. greater value to all stakeholders. largest specialist financial services Please contact: practice in Southern Africa, Locally, our experience is managed by a multidisciplinary Financial Services Leader: concentrated in the life insurance team of auditors, advisers and tax industry, with additional expertise professionals. Tom Winterboer in the health, short-term insurance, +2711 797 5407 employee benefits and asset Our strategy is to bring significant management markets. We provide business advantage to our Insurance Leader: solutions focused on clients’ clients through combining our needs and based on our deep global multidisciplinary teams, Victor Muguto understanding of the insurance integrated across-industry sectors, +27 11 797 5372 operations, risk and regulatory geographies and functional skills. environment, value measurements Actuarial Services Leader: and global best practice. Our Insurance practice has Mark Claassen previously presented research +27 21 529 2522 AIMS combines broad local on the local insurance market knowledge and experience with the in 2004, 2006 and 2008 which Asset Management Leader: unparalleled support and expertise complements our substantial of the world’s largest professional international research projects. Pierre de Villiers services firm. This enables us to +27 11 797 5368 provide a broad multi-disciplinary Some industry specific perspective to our solutions for PricewaterhouseCoopers Banking and Capital Markets clients. publications include: Leader: • Emerging Trends and Strategic Insurance Issues in South African Johannes Grosskopf Insurance (2004, 2006, 2008 +27 11 797 4346 Organisations operating in the and now 2010) insurance industry are faced with Retirement Funds Leader: working in an environment that is • Making sense of the numbers rapidly changing and increasing - South African analysts’ Gert Kapp in its complexity. New market perspectives on current and +27 12 429 0059 entrants, changing customer future reporting in the insurance preferences and market erosion industry (2010) across product lines demand • Strategic and Emerging Issues creative approaches to product in the South African Insurance development, and a willingness to Broking Industry 2005 keep up with the rapid changes in technology. • The Financial Services Journal (An annual South African The continuing impact of major publication) losses, sourcing and managing • CBI/PricewaterhouseCoopers capital effectively, regulatory Financial Services Survey changes, risk management and the ever-present need to enhance • Insurance Digest webarticles shareholder value are also having • Countdown to Solvency II webarticles

94 PricewaterhouseCoopers Contact for insurance services

South Africa Gauteng: Johannesburg and Pretoria Cape Town Private Bag X36 PO Box 2799 Sunninghill Cape Town 2157 8000

Tel +27 11 797 5372 Tel +27 21 529 2118 Fax +27 11 797 5372 Fax +27 21 529 1618

Contact: Victor Muguto Contact: Hennie Nel

Southern Africa Namibia, Windhoek Zimbabwe, Harare

PO Box 1571 PO Box 453 Windhoek Harare

Tel +264 61 284 1000 Tel +263 4 3383 628 Fax +264 61 284 1001 Fax +263 4 3383 96

Contact: Louis van der Riet Contact: Clive Mukondiwa

Swaziland, Mbabane Mozambique, Maputo

PO Box 569 PO Box 2583 Mbabane Maputo

Tel +268 404 3143 Tel +258 21 307 620 Fax +268 404 5015 Fax +258 21 307 621

Contact: Theo Mason Contact: Rob Walker

Botswana, Gaborone

PO Box 1453 Gaborone

Tel +267 395 2011 Fax +267 397 3901

Contact: Rudi Binedell www.pwc.com/za