Overview of the Experience of Long-term Insurers in SA for 2008

1. Overview of the Experience of Long-term Insurers in SA for 2008 Tienie Hamman 17/19 November 2009

2. Why are we here? To provide information to industry on representative SA Statutory Valuation Method bases reported in 2008, including comparisons with previous years’ data and some comparisons with actual experience.

3. What will we show you? • Brief overview of the LT insurance market in 2008 • Review the representative: • Reported valuation assumptions (G10.x) and • Reported actual experience (B - statements) for certain key elements in a valuation basis

4. Overview of the LT Insurance Market in 2008

5. Overview: Rankings

6. Overview: Number of insurers & total assets, split by year-end

7. Overview: Business class

8. Overview: Insurance license

9. Overview: Growth per business class

10. Overview: Growth by license

11. Overview: Key indicators

12. Overview: Key indicators

13. Overview:Asset compositionper industry

14. Mortality

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

16. Assurance mortality

17. Change in mortality of assured lives

18. AIDS loading comparison

19. AIDS loading by industry

20. Annuitant mortality by industry

21. Change in mortality of annuitants from 2007 to 2008

22. Mortality: Actual vs. expected • For assurance products: • Individual: 83% (81%) • Group: 89% (94%) • For annuity products: • Individual: 115% (114%) • Group: 97% (88%)

23. Morbidity: Actual vs. expected • For lump sum disability: • Individual: 74% (75%) • Group: 66% (65%) • For income disability: • Individual: 42% (28%) • Group: 68% (74%)

24. Discount Rates

25. Assumed central discount rate Page 25

26. Observed investment yield

27. Investment yield assumed vs. actual

28. Cumulative distribution of assumed real returns

29. Expenses

30. Split of expense experience(Statement C7)

31. Expense inflation assumption

32. Actual expense inflation 9% 4% 21% 8% 22% 21% 3% 79%

33. Initial per policy expense assumption

34. Actual initial expense(individual business)

35. Renewal expense assumption(per policy)

36. Actual operating expense(individual business)

37. Capital Adequacy Requirement (CAR)

38. Overview – CAR cover • Total CAR is 2.56% of total liabilities • This is a 4.36% increase from the previous year

39. Distribution of CAR

40. TCAR Breakdown

41. IOCAR Breakdown – Dec year-ends

42. Operational and Credit risk • Operational risk • Total amount of ± R4.6bn • Comprises 17% of total CAR held • Comprises 0.5% of total Assets • Credit risk • Total amount of ± R2.9bn • Comprises 10.7% of total CAR held • Comprises 0.3% of total Assets

43. Reduction in CAR by using Management action - over time

44. Proportion of insurers applying management action

45. Management Action • TCAR wasn’t reduced by management action • Elements of OCAR reduced: • Investment risk – reduced by 66% • Worst investment return – reduced by 42% • Resilience risk – reduced by 66% • Annuitant mortality fluctuation risk – reduced by 12% • Morbidity fluctuation risk – reduced by 11% • Operational risk - reduced by 3% • Credit risk – reduced by 23% • No reduction in Embedded Investment Derivatives Component

46. Withdrawal Rates

47. Assumed lapses per business class

48. Assumed surrenders per business class

49. Assumed lapses per industry

50. Observed withdrawals per industry