Highlights Solid financial performance in a tough economic environment Increased indexed new business by 6% to R6,4 billion Cumulative Evolve and Gateway sales reached R13,4 billion by year end Net cash flows of R7,9 billion including the LISP Headline earnings of R1 689 million Continued to develop innovative product solutions and offerings Developed a Switch Product to provide clients an opportunity to move to newer, more flexible products Introduced the first interactive 'Claims Explorer' tool to educate consumers about the risks they face at a specific life stage Significant changes made to the Own Your Life Rewards programme to enhance the customer offering Received the FIA Product Supplier of the Year Investment Products Recurring Premium award Improved distribution footprint through increased tied agency capacity Significantly improved customer satisfaction levels Received the Ask Orange Index award for service excellence in the long-term insurance category Continued investment in people practices with a view to attracting, developing and retaining quality employees is responsible for the development, marketing, distribution, servicing and administration of retail insurance and retail investment products in support of financial advice provided to South n customers. B2
Overview The South n operating environment continued to be challenging due to slow economic growth, pressure on consumer disposable income, and the rapidly changing regulatory environment. Despite this, delivered positive financial and operational results and continued to gain market share. Recognising that employees are an important part of sustainable business growth, continues to invest in the development and empowerment of its employees. The core business introduced new innovation and enhanced customer solutions which resulted in improved customer satisfaction metrics. The focus of the strategy was to: Provide relevant products and servicing options to customers; Optimise our distribution capabilities; and Continue to manage the business to better than model. The integration of Liberty s Direct Financial Services (1) (DFS) business into resulted in operational efficiencies and further efficiencies continue to be explored. Examples include a single product development team, integrated technology services, as well as underwriting processes. The rationalisation of the FRANK. NET life licence into the Liberty Life licence commenced, offering additional cost savings and opportunities for further operational efficiencies once completed in 2015. In addition, enhancements were made to the Own Your Life Rewards programme. Details of the various innovations and enhancements across the business are shown on page B5 of this review. Performance review Performance indicators Rm 2014 Rm 2013 Headline earnings 1 689 1 467 Expected profit and premium escalations 2 645 2 400 Variances, modelling and assumption changes 496 509 Project, outperformance incentive and non-cost per policy expenses (248) (249) New business strain (559) (553) Other (171) (81) Direct Financial Services (65) (67) Taxation (465) (541) Earnings before bancassurance 1 633 1 418 Credit life bancassurance (net of all taxes) 144 145 Complex bancassurance preference dividend including STC (88) (96) Indexed new business 6 375 6 000 Recurring 4 281 4 177 Single 2 094 1 823 Net cash flows Insurance 5 921 6 111 Net cash flows GateWay LISP 1 959 882 Embedded value of new business 793 742 Total claims paid 33 084 29 158 Assets under management GateWay LISP 2 969 882 Embedded value of new business margins (%) 2,3 2,4 Maintenance cost per complex policy (R) 481 457 Total policies in-force ( 000) 2 634 2 596 Number of employees (2) 2 171 2 074 (1) Liberty Direct Financial Services includes three brands: FRANK.NET (wholly-owned subsidiary), Standard Bank Direct Life and Insurance Services (affinity partner) and Vodacom Life (affinity partner). (2) The 2013 number of employees have been restated by 417 employees to include Direct Financial Services and 846 employees transferred to GP&T. B3
Headline earnings of R1 689 million was 15% higher than in 2013. This was due to continued positive persistency and risk variances, as well as effective expense controls. In terms of the existing bancassurance agreement with Standard Bank, Liberty s share of risk profits on simple credit life products sold by Standard Bank s distribution channels is 10%. Indexed new business premiums for the year amounted to R6,4 billion, an increase of 6% on the 2013 comparative. This was largely driven by higher single premium investment sales in the traditional business. The value of new business increased to R793 million at a margin of 2,3%, which is within the medium-term target range of 2,0% 2,5%. The slight decline in margin is a consequence of a product mix favouring investment business over risk business. Net insurance cash flows of R5,9 billion are marginally lower than the R6,1 billion achieved in 2013 primarily due to an increase in claims. GateWay (Liberty s LISP) attracted R1,9 billion in net inflows, due to innovative product delivery. Total policies in-force increased by 38 000 policies during the year. Delivering on commitments 2014 strategic objectives Self-assessment Finalise the operating model and prepare the business to adapt as required to regulatory changes Further align customer experience and branding Continue to develop our investment business Broaden our distribution capability Continue to grow and empower staff Focus on offering digital servicing capabilities to existing and new customers as well as to intermediaries following the incorporation of DFS into Continue to develop innovative offerings in our Life and Protection business ü ü ü Substantially achieved. Good progress. Develop and enhance products to meet customers needs Customer management practices Liberty continued to build its brand during 2014 through three advertising campaigns and an external communication campaign, all aimed at communicating how Liberty s knowledge is put into practice when designing financial solutions. These marketing campaigns have been well received by the general public, customers, intermediaries and employees. Furthermore, Retail SA, in association with STANLIB, held investment roadshows nationwide with clients to provide opportunities to share Liberty s investment capabilities. During 2014, all customer service and retention functions were consolidated into a single contact centre and a strong focus was placed on driving a customer centric culture. A number of interventions were implemented to improve the overall customer experience. To allow for end-to-end ownership of the customer experience a new organisational structure was established. A retail customer experience and fairness executive committee was established, with its objectives to monitor end-to-end customer experience and fairness across all channels, segments and products. This Retail executive committee supports the group s customer fairness committee established in 2014 to provide customer oversight and ensure that the board and executive management fulfil their responsibilities in respect of treating customers fairly (TCF). Customer surveys The Net Promoter Score (NPS) is an outcome-based metric utilised to determine customer sentiment and loyalty towards provider companies. Liberty participated in the NPS survey throughout the year to gauge the progress and effectiveness of its customer service strategies and initiatives. The strategies, identified as key drivers for increasing customer satisfaction levels and entrenching loyalty, are proving successful as evidenced by a significant improvement in the NPS. Furthermore, Liberty was awarded the Ask Orange Index award for Service Excellence in the long-term insurance category in 2014. This index is the largest service excellence benchmark B4
in South. It measures service excellence within and across industries. Liberty participated in previous surveys but this is the first win in the long-term insurance category. There were marked improvements in customer feedback throughout channels such as financial advisers and call centre agents. Online selfservice logins increased by 28%, indicating customer preference for the efficacy of Liberty s self-service platforms. Product development and enhancements Market share growth and value of new business were supported by product development and distribution strength. All new products are designed with reference to the TCF framework and the group product development policy. During 2014, developed a unique Switch proposition for existing Liberty clients to move into new generation products, giving them greater choice and flexibility. Liberty sold the highest volume of risk business for the 11th consecutive year according to the annual Swiss Re volume survey. In addition, Liberty paid over R3 billion in 2014 in respect of risk claims. Highlights of enhancements to recently launched products are tabled below. A summarised list of the product offerings appears at the end of this review. Product and innovative tools Launch/ enhancement date Description of product/enhancement Key statistics and achievements during 2014 Risk product developments Lifestyle Protector Product first launched in 2003 December 2013 Lifestyle Protector includes a suite of specific insurance products aimed at providing cover for death, disability or impairment, dread disease and loss of income to meet the customers changing lifestyle needs. As of December 2013, Lifestyle Protector also covers HIV-positive lives. HIV-positive customers will be eligible for the following benefits under Lifestyle Protector: Life Cover and Renewable Life Cover (including the option to add the free Immediate Expenses Benefit); and EduCator (death only). A new, fixed increasing premium pattern was introduced and the digital presence was boosted with the introduction of the Risk Revealer online tool. Recorded the largest market share for 11 consecutive years. Cover available for HIV-positive lives. Risk Revealer online tool accessed over 100 000 times since inception. Risk Revealer Risk Revealer is an industry-first, webbased tool that allows potential and existing customers to calculate their level of lifestyle and accidental risk and at the same time, gain knowledge of their risk in a fun, interactive and educational manner. During 2014, the Risk Revealer was updated to improve the user experience significantly. B5
Product and innovative tools Launch/ enhancement date Description of product/enhancement Key statistics and achievements during 2014 Investment product developments Free Cover May 2014 Provision of R25 000 free life insurance cover was introduced to customers who were recently married, had a child or bought a home. The intention of this product was to educate consumers about their changing financial needs brought about by these life events. 1 070 benefits taken up. Liberty GateWay Investment Plan GateWay Investment Plan (a Linked Investment Service Provider) provides investors with an opportunity to invest in a range of leading unit trusts offered by 15 leading asset management companies, with no upfront administration charges. The greater the investment value, the lower the ongoing administration charges to an investor. There are no charges for cash holdings. The platform was designed with accessibility, transparency and simplicity in mind. The entry level investment amount is R1 000 per month. R3,4 billion invested in GateWay s single product (discretionary investment plan), directly and through the Evolve hybrid since inception. First South n Linked Investment Service Provider to only offer clean-fee classes (lowest cost unit trusts) with no rebates. Liberty Evolve October 2012 Evolve is an investment solution where investors do not pay upfront adviser fees or setup costs and never will, unless the product first delivers a pre-specified return on investment. R10 billion invested since inception. Issued business of R6 billion during 2014. In, the Evolve hybrid was launched which combines Evolve s pay-ondelivery concept with unit trust investing across 15 leading asset management companies. In addition, clients can now combine their discretionary, compulsory and cash investments all in one product and receive discounted fees based on their aggregate investment amount. FullView FullView is South s first tool to provide advisers with a consolidated view of customers investments. 1 291 intermediaries registered on FullView. Emerging consumer market (ECM) Education benefit part of the suite of funeral policies The education benefit is designed to assist with the cost of education for the policyholder s children in the event of the policyholder s death. From a minimum of R30 per month a policyholder can cover up to eight children, from a new-born to an 18 year old. 2 474 policies sold during 2014 (2013: 980). Value Added Product Services ECM also launched Value Added Product Services such as airtime, electricity, grocery, transportation, extended legal cover and discount on the purchase of tombstones. 67 168 policies with value added service products were issued during 2014 (2013: 9 816). Extended family funeral plan October 2014 The extended family funeral plan was relaunched with some enhancements. The product allows Liberty to be more competitive in this market. 218 extended family funeral plans sold in 2014. B6
Product and innovative tools Launch/ enhancement date Description of product/enhancement Key statistics and achievements during 2014 Emerging consumer market (ECM) Improved Investment Plan September 2014 ECM improved its Investment Plan with new features including reduced policy charges, surrender penalties and no tax charge. 18 790 investment plans issued 8 810 were issued with the new features. Rewards programme Own Your Life Rewards September 2012 Own Your Life Rewards, a joint initiative by and Liberty Health, is a comprehensive reward offering providing customers with a suite of non-insurance services to suit their individual needs and preferences. Over 33 000 principal members and 56 000 beneficiaries. Total member savings since launch: >R200 million. October 2014 Significant changes were made to the programme including the introduction of a base level programme ( Lifestyle Rewards ) at a fee of R49 and a range of subscription options ( Travel and Fitness ) available at an extra cost. In addition, a cash back partner with a network of 200 partners was made available to all members on the programme, thereby allowing for greater penetration of the customer base and greater customer interaction (through immediate rewards). Expand sales capacity and grow market share Sales and distribution The sustainable growth of the sales and distribution capacity remains integral to the success of the business. During 2014, continued to increase its tied agency capacity through its traditional agency and entrepreneur channels. Agency headcount and entrepreneurship headcounts increased by 8,6% to 1 033 and 13,7% to 1 285 respectively. remained focused on the attraction, development and retention of quality financial advisers by investing in Liberty s talent acquisition centre and learning channels. The recruitment, development (personal and professional) and recognition of financial advisers together with the alignment of remuneration to strategic goals, remains a key focus point going forward to ensure that the advice provided to Liberty s customers is of the highest quality. Furthermore, as a result of good adviser retention levels, the number of Liberty s experienced advisers is continuously growing. This is due to its holistic, marketleading financial adviser value proposition (FAVP). The business also investigated and developed a number of alternative distribution partnerships during the year to enhance its FAVP. In preparation for RDR implementation, established a team comprising individuals from across the organisation to study and provide comment on the discussion paper issued in November 2014. Opportunities and concerns arising from the discussion paper are being identified. Furthermore, many of the sales and distribution medium-term plans developed incorporate the RDR principles. Bancassurance and Standard Bank continued to strengthen their business relationship through the bancassurance channel to gain further mutual commercial advantage in the embedded, advisory and transactional business. Improved cost and operational effectiveness The IT team in the retail business are focused on utilising the latest technology for all new system builds to ensure that functionality is reusable and scalable to any platform, including mobile devices. Liberty is in the process of rebuilding its group website to enhance its customer experience. Engagements have taken place with Liberty s distribution channel to understand their digital servicing requirements and plans are underway to pilot specific intermediary support initiatives. A number of process efficiencies were introduced to assist Liberty@Work financial advisers in operating more efficiently, including a mobile application that enables financial advisers to calculate premiums using their mobile phones. Furthermore, the implementation of a real-time scoring system within the Direct Financial Services division resulted in improved quality of new sales and customer retention. A predictive dialer system was implemented in the direct channel, which led to increased productivity and new business volumes. B7
Competitive differentiation s IT teams implemented processes which enhance business effectiveness and reduce IT dependencies, thus leading to greater hours of system availability, fewer disruptions to business and lower associated downtime costs. Sales and support processes and subsequent customer experience are key differentiators. The focus will be on the FAVP and ensuring that the business continues to develop innovative products, while leveraging off the group s unique market risk management capability. Attract and retain quality employees recognises that people are critical to the success of its business and continues to develop and implement people practices that will enable the business to respond to an ever-changing work environment. During 2014, we launched the Life and Protection Academy. Our objective is to develop specialist competencies through specialised training and development such as classroom training, e-learning solutions and interactive learning amenities. In addition, 24 employees across were selected for various leadership development programmes in partnership with Duke University. Transformation remains an ongoing focus in the retail business and achieved its employment equity targets in support of Liberty s transformation journey. Looking ahead In 2015, will focus on the delivery of the following key objectives Align the Individual Arrangements operating model towards achieving the group s 2020 strategy and continue to prepare the business to adapt to required regulatory themes Ongoing development of the investment business Continue to identify operational efficiencies towards further improving the customer experience Further expand distribution capability Continue to develop innovative offerings in the Life and Protection business Further align customer experience and branding Continue to invest in the growth and empowerment of staff B8
summarised product offering Products Product name Product description Risk products Lifestyle Protector range Provides life protection, loss of income protection, lifestyle protection risk and policy protection. The product offers cover to meet customers changing needs through life. ecm product range Life cover plan Provides life cover and disability benefits. Accident plan Life insurance contract that provides cover for death and permanent disability due to an accident. Funeral plans Standard, comprehensive and parents funeral plans. Direct offerings Life Cover Provides life cover up to a maximum of R10 million through an automated underwriting process. Investment and savings products Retirement and postretirement planning Salary Protection Disability Cover Serious Illness Cover Hospital Cash Back Funeral Plan Education Builder Investment Builder GateWay Investment Plan Liberty Evolve Hybrid Investment Plan Liberty Evolve Hybrid Retirement Annuity Plan Retirement Annuity Builder Flexible Annuity Provides for salary protection against disability, serious illness and retrenchment. Provides lump sum cover for disability up to a maximum of R5 million through an automated underwriting process for own or suited occupation. Provides lump sum cover through an automated underwriting process for four major conditions/illnesses. Provides cover in the event of hospitalisation relating to illness or injury for three consecutive nights or more. Provides life cover to family members to cover funeral related expenses. A regular contribution pure investment plan with the focus on saving for the cost of an investor s child s education. This plan is aimed at all market segments. A recurring contribution investment plan with loyalty bonuses. The plan is aimed at all market segments. A unit trust investment platform for single and recurring contribution investments. This is not a life insurance investment. A single or recurring single contribution plan aimed at the mature and affluent market segments that offers the choice of endowment or unit trust portfolios within a unique pay on delivery charging structure. A single or recurring single contribution plan aimed at the mature and affluent market segments that offers a choice of portfolios within a unique pay on delivery charging structure to provide a retirement income and capital at selected retirement age. A regular contribution retirement annuity, with the option to invest additional premiums at any time, allowing a member to provide retirement income and capital upon retirement at the selected retirement age. The product is aimed at all segments. A single contribution plan aimed at all market segments. B9