Old Mutual Limited

Good morning, ladies and gentlemen, and thank you very much for taking the time to be with us today. With me today in Cape Town and Johannesburg is the Old Mutual Leadership Team. Looking at the agenda, I'll spend some time reflecting on how we fared against our strategy in all areas of the business. I'll then hand over to our CFO, Kasper Trotsky, to provide a financial review before making some concluding remarks, which will be followed by a question and answer session. For the better part of two centuries, Old Mutual has stood for a promise that we will work to champion mutually positive futures. This did not change in 2020. This past year was one of extreme crisis and uncertainty, a year in which Old Mutual prevailed and kept its promises. The impact of COVID-19 on human life was immense and the impact on capital markets and economies significant. By now, We've all been affected in some way by the pandemic. We offer our condolences to all those who have experienced loss, including members of the old mutual family. In 2020, we were extremely sensitive to the pressures our customers were facing, undertaking meaningful initiatives designed to assist them, their families and businesses. We paid mortality claims to the value of 13 billion rand, supporting our customers and their loved ones in their times of need. We also stood in solidarity with our frontline healthcare workers who were battling this pandemic by providing 4 billion rand of premium free life cover. And we played the important role of fund administrator for the Solidarity Fund, as well as pursuing various other initiatives across the continent. On the operational front, we redoubled our efforts to make sure that our customers kept receiving the high quality of service they have come to expect from us. We enhanced the digital capability of advisors to sell remotely across our channels while keeping our staff safe. Our diversified business model proved to be resilient, and we have remained profitable despite some material one-off items relating to the pandemic. In contrast to the economic slowdown witnessed in the year, our product rollout accelerated its pace, as our teams all stepped up to take control of our fortunes and those of our customers. Our balance sheet remains strong, and I'm pleased to tell you that the Board has declared a final dividend for 2020 of $0.35 per share, consistent with our dividend policy. I'm proud of the difference we were able to make in these remarkable, unsettling times. I'm proud of our people and the many ways in which we kept our promises to our customers. On this slide, we cover the macro environment in our operations. The South African economy went through a severe COVID-induced fall in Q2 of 2020, before recovering sharply in Q3 2020. and ending the year better than most commentators had expected. As the economy rebounded, the investments we had made in products, in digital, and in making our delivery as lockdown-proof as possible, meant we were well-equipped to maximise every opportunity. On the right-hand side, you can see how South African equity markets slumped at the time of hard lockdown, before beginning a gradual but sustained recovery to end the year at levels similar to those at the end of 2019. Finally, equity markets in our other African markets suffered more pronounced losses with a similar recovery pattern, except for Namibia, which remains well below its pre-pandemic market levels. On the left of this slide is data confirming the weekly excess mortality we experienced in South Africa and a forecast up to the end of September 2021. Our wave two experience was significantly worse than that of wave one, with infections and deaths accelerating in the fourth quarter. Despite this, our wave two increase in excess deaths has not been as severe as the national experience. The forecast by the South African Medical Research Council is key to considering the likelihood, timing, and severity of a third wave. We've been closely monitoring infection rates and mortality data on a weekly basis. The short-term provision raised in half one was utilized by the year end, and we incurred 1.9 billion rand of claims during the first two months of 2021. We have set aside two billion rand for experience beyond February, which includes an anticipated third wave at similar but less severe levels than wave one. Despite continuing uncertainty around this virus, we believe this is a solid basis on which to provide for the future effects of the pandemic. This slide gives a quick snapshot of Old Mutual's resilience in the face of the events of 2020. Our reported result from operations was 81% down compared to 2019. Excluding the direct impact of the pandemic, these were down 14%. From a business point of view, COVID has remained an earnings event and not one that has impacted the strength of the fabric of our business. Strong growth flows drove increased positive net client cash flow, which speaks to the underlying strength of the business. The positive momentum experienced in the last quarter has continued into the first quarter of 2021 and is gathering pace. Our life, as well as property and casualty businesses, bore the brunt of the COVID impacts. through mortality and business interruption claims and reserves, as well as indirectly through the lockdown and financial pressures that clients experienced. Casper will go into more detail about COVID-related impacts on our earnings. Our cash generation remains extremely solid and the decisive actions we've taken resulted in our liquidity and solvency levels remaining robust in all stress scenarios. Our customer-facing segments fared differently during the year, but all demonstrated that our commitment to be a certain friend in uncertain times ultimately prevailed. The Masson Foundation plus the customer base was particularly vulnerable to the impacts of the pandemic, and it was here that we paid out many of our COVID-related mortality claims. Encouragingly, we witnessed solid and sustained growth in productivity and sales from H2, which momentum is continuing. Recovery in the cluster's life sales was robust and the Q4 result was just 15% lower than that recorded in the same quarter of 2019. Similarly, our credit loss ratio has improved following the unwinding of pricing pressure on a cohort of loans granted 18 months ago. Personal finance and wealth management experienced increased demand for risk over savings products and a growing preference for single premium business. The business managed its expenses extremely well to deliver flat expense growth from the prior year while focusing on digital enablement of the sales force in a very competitive environment. Personal finance's pre-COVID results for the year include substantial overall net positive basis changes, whereas in 2019, these were negative. However, even without these changes and COVID impacts, the segment's performance was encouraging. I might mention here as well that both Mass and Foundation and Personal Finance have had very encouraging reinstatement rates among those customers who took up our offer of premium relief. All mutual investments demonstrated some encouraging trends in 2020. Highlights were good origination in alternatives business and encouraging neckline cash flow performance, which was driven by buoyant retail inflows to our income solutions franchise. The first half equity slump penalized the segment's equity fund performance following earlier long South Africa investment calls. However, asset values recovered well in the second half and short-term listed investment performance has been good. The segment maintained high levels of deal flow during the year, originating more than R15 billion, particularly in unlisted equity, infrastructure and credit, which will allow it to take advantage of subsequent opportunities. Our group assurance offering in Old Mutual Corporate experienced substantial mortality losses and the segment was further impacted by a limited ability to generate new business, as employers took a cautious view in responding to the pandemic. Old Mutual Insure achieved pleasing growth in most of its business lines, although the underwriting result, as well as margins, suffered. CJIC experienced an unprecedented level of claims in the first half as the economy struggled. But I'm pleased to report that from late August last year, we've seen a sustained recovery in CJIC's business performance, and our digital short-term offering, IWAS, surpassed a billion rand in premium income for the first time. The impact of COVID-19 on the rest of Africa business has been much lower than that of South Africa, our largest market. We continue to make improvements in our rest of Africa business during 2020. Our property and casualty business showed good top-line growth, asset management recorded strong inflows, and Malawi continued to achieve good growth, particularly in the life business. Also pleasing was the extent to which our West Africa operations losses have reduced. I am confident that we are poised for growth in this portfolio. Across the business, in the face of everything that the year threw at us, our fundamentals, our brands and our channels remain solid. This slide gives a sense of how lockdown affected our ability to drive new business and the recovery we saw in the second half of the year. In quarter one, weekly activity levels were tracking close to prior year in the mass and foundation cluster and personal finance and wealth management. And then hard lockdown was imposed. The impact was sudden and severe for both segments. During this time, we fast-tracked our digital offerings and supported our advisors by enabling remote selling in several dynamic, practical ways. As we gradually mobilized our on-the-ground presence and rolled out our fully digital risk product, Old Mutual Protect, a more encouraging picture began to emerge. By quarter four, both Masson Foundation and Personal Finance and Wealth Management were recovering, and this momentum continues to date. The quarter four green shoots I pointed to in the previous slide derived largely from our three-phase coronavirus response strategy, which we first communicated to you six months ago. The first phase was about stabilization. We continue to do well in optimizing our capital, and the dividend declaration in line with our policy points to our ability to continue to reward shareholders. The well-being of our people and customers was always a non-negotiable. And I'm satisfied that we did everything we could to minimize the health risks posed by the pandemic. Six months ago, I shared with you that we had already embarked on phase two, transitioning out of the immediate first effects of COVID-19 and working to mitigate the impacts on our results and business for the medium term. We also focused on accelerating digital transformation and broadening our solution set. After stabilizing and transitioning our business, moving it beyond risk to opportunity, we embarked on the final phase. This involves re-envisioning a nimble, impactful old mutual that unashamedly puts the customer front and center of a refreshed strategy. I'll briefly touch on how we see re-envisioning the business as a forward-looking process It builds on our core strengths to meet the opportunities presented by a rapidly changing world. A world in which competition is fiercer than ever and disruption is a given. We have an extremely solid core based on diversity of markets, products and delivery channels. We will keep this core strong. It's been the lifeblood of Old Mutual for over 175 years and the reason why our brand remains so strong. and it split for purpose, the purpose which is now embodied in our new strategy. We began re-envisioning Old Mutual before anyone had heard of COVID-19. This manifested itself in our digital transformation, which in this time of severe crisis has stood us in good stead, making us more robust, more adaptable, and more relevant to our customers. In the next few slides, I'll discuss how our strategy is deliberate in aggressively driving brand differentiation, providing solutions that meet changing customer needs, and enabling a seamless transition between face-to-face and digital customer journeys. In 2019, we refreshed our strategy and transitioned from a tactical plan which we referred to as the Eight Battlegrounds and into our truly mutual strategy. We believe that we can become our customers' first choice to sustain, grow, and protect their prosperity by delivering on the five interconnected pillars summarized by the acronym CARES. Old Mutual CARES means that we will be always present first for our customers, wherever and whenever they need us. with propositions and advice that are relevant to their needs. Increasingly, we will offer customers rewarding digital engagements. Engaged employees who feel a deep sense of belonging and connection with our purpose will deliver a customer experience which embodies our truly mutual strategy. They will deliver solutions that lead whatever the need or product may be. We will continue to invest in our core propositions, which are advice, insurance and investing. And as we move forward, we will deepen our capabilities in transactional and lending solutions. When we bring these five pillars together, they work coherently and in an interconnected way to generate mutually beneficial outcomes for all our stakeholders. So that every time we interact with a customer or design a product or solution, We're thinking about how we can make a difference and demonstrate that all mutual cares. As we succeed in delivering on these pillars, we will become our customers' first choice, and ultimately this will enable us to build the most valuable businesses in our industry in a responsible manner. This slide covers proof points pointing to some of the ways in which we have delivered against our care strategy. We've invested more than 140 billion rand in the green economy to preserve our planet and its people for the next generation. Our funds are invested in renewable energy, housing, agriculture, and a variety of sustainable ventures. And they are delivering risk-adjusted returns. We play a stewardship role over assets totaling more than 300 billion rand to meet our fiduciary obligations in managing client funds. I've already mentioned the 13 billion Rand we paid in mortality claims to our customers, keeping our promises at a key moment of truth for them. The ways in which we consistently keep our promises helped to make Old Mutual the fifth most valued brand in Africa in 2020. In independent customer satisfaction benchmarks, Old Mutual Insure and the South African Life Operation were rated first and second respectively in their categories. In September, I told you that in South Africa we were rapidly developing, testing and deploying new digital channels. In the second half of the year, we continued along that path, expanding our platforms through public websites, mobile apps, as well as WhatsApp and USSD channels across our regions. We continue to increase digital adoption by our customers, and today we have 406,000 active digital customers worldwide. an exceptional growth of 50% from the prior year. Our rewards program continues to retain and attract customers. To date, we've awarded an amazing 1.6 billion points, which customers can redeem with a growing set of rewards partners. We greatly value the way in which our people persevered and serviced our customers despite the multiple challenges of working from home. A distributed workforce pilot will support new ways of working, and our diversity and inclusion strategy has enhanced how we work together. At our interim results, I told you how we were working hard to keep employees in the loop about our business, despite them being physically dispersed. I'm therefore pleased to note that a recent culture survey found our people remain engaged, that they feel a sense of belonging and connection to the organisation. Six months ago I also mentioned that we had processed 14,000 applications for our new flexible digital risk proposition, Old Mutual Protect, in South Africa and Namibia. I can tell you that since then we've processed more than 202,000 applications for this groundbreaking product. This time a year ago I told you that we were using automation to drive down costs, improve operational efficiency, and to make greater use of data-driven new business leads. We have delivered on all of these aspirations. In South Africa, Old Mutual Insurer has deployed a software tool that allows prices, rules, adjustments, and risk scores to be deployed into the market in real time. This will enable us to be more competitive and improve the customer and intermediary experience. In Malawi, we've launched insurance products tailored for women, as well as SME retailers. And in South Africa and Malawi, we've launched non-advised funeral products, which are affordable and easily accessible. All these achievements represent how we remain resilient, focused on our customers' features and our growing ability to develop and implement compelling digital tools and services in an age of increasing disruptions. I'll now hand you over to Kasper to take you through our 2020 financials. Kasper, over to you.

Thank you, Ian, and good morning, ladies and gentlemen. I will be focusing on our financial delivery for the 2020 financial year and will deal with key movements in our earnings. Firstly, results from operations were resilient on a pre-COVID basis at $7.7 billion. 14% down on the prior year. Direct COVID impacts for the full year amounted to $6.1 billion due to an increase in pandemic reserves, business interruption claims and negative mark-to-market losses in our credits and private equity portfolios. Adjusted headline earnings of $2.5 billion was 75% down on the prior year. impacted further by lower shareholder investment returns and net bank earnings. Our group solvency ended the year in a very strong position with the benefits of key regulatory approvals and other capital management actions offsetting significant stress from lower earnings and additional provisions raised for COVID-19. The return on embedded value remained positive despite the substantial provision raised for COVID-19 impacts. On a pre-COVID basis, the profitability of most of my businesses was further impacted by negative GDP growth, job losses, and the significant drop in investment markets at the end of the first quarter. This negatively impacted asset returns, sales levels, and persistency levels. Our mutual insurer had an excellent year on a pre-COVID basis, given much slower claims experienced. Net expenses from central functions were higher, mainly due to lower interest earned on central cash balances and a small treasury loss on central assets held, more than offsetting a decrease in gross expenses. Given improved activity levels towards the end of the year, we expect a strong recovery in operating earnings in all our businesses in 2021. We have applied a methodology largely consistent with our half year reporting to identify direct COVID related COVID-19 related items, business interruption and rescue reserves in respect of only to ensure CGIC and rest of Africa, including IBNRs of 791 million have been provided for. We have included profit of 293 million relating to the personal lines motorbook, given the abnormal circumstances in the year resulting in lower claims. Unrealised mark-to-market losses across the investment, credits and private equity portfolios, which we carry at fair value, had an aggregate impact of $704 million. The impact on the credit portfolio is largely due to the widening of credit spreads during the year. The equity portfolio has seen some fair value adjustments in line with listed sectors impacted by the pandemic. These impacts are expected to reverse as spreads normalise and we are largely satisfied with the quality of our investment credit portfolio. We have increased our expected credit loss provisions in our mutual finance and Fahulu by $169 million to allow for the deterioration in forward-looking economic forecasts. We have also incurred incremental net expenses of $350 million directly due to the pandemic to stabilise and transition our mutual out of the crisis. On this slide, we analyzed movements in pandemic reserves to 31 December 2020. We raised total reserves of $1.3 billion at the half year. In total, actual claims in the second half of the year were $204 million higher than the provision raised at the half-year, with an acceleration in infection and excess death rates in the fourth quarter. As Ian explained, we therefore raised additional reserves of $3.9 billion at year-end, bringing the total amount provided for to $5.5 billion. Of the $3.9 billion, we have already recorded COVID-related mortality claims of $1.9 billion in January and February, leaving $2 billion for future claims. We have released discretionary reserves of $1.1 billion relating to mortality in Mass and Foundation, reducing the overall income statement impact to $4.4 billion. We have discussed the results from operations both on a pre- and post-COVID basis. The reduction in the shareholder investment return was mainly due to the lower interest rate environment, the decline in the average shareholder asset base, and fair value losses on unlisted equity portfolios. Finance costs were down due to lower average debt levels and fair value gains on interest rate swaps. Income from associates was down 64%, from $2.5 billion to $970 million, largely due to the decrease in net banks' earnings. The decrease in non-controlling interest is driven by lower profits in own mutual finance. A reminder that adjusted headline earnings is the key earnings measure that is used to set management targets for earning growth and RO-NAF. Here we provide a reconciliation of adjusted headline earnings to headline earnings as well as a reconciliation of headline earnings to IFRS earnings. Items excluded from adjusted headline earnings are the elimination of negative investment return on policy of the investments in group equity and debt instruments. The impact of restructuring includes the reversal of a data provision in wealth related to prior year provision raised for the take-on of an international IT platform from CULTA. Zimbabwe recorded profits of $1.1 billion, where substantial investment returns exceeded continued hyperinflation and the devaluation of the Zimbabwean dollar. We caution investors that these returns may reverse in future, and we remain concerned that the required IFRS accounting treatment results in income statement profits being partially offset by FCT losses recorded in reserves. Residual PLC reported a profit of $229 million as losses on residual investments and running costs were more than offset by a tax refund received. Excluded from headline earnings are impairment of goodwill and other intangibles mainly relating to a mutual finance and the write-down of investment in associate undertakings in respect of net bank to recoverable value. Here we focus on key areas of emphasis from a finance perspective. The first relates to significant balance sheet judgments finalized during the year end. The finalization of the pandemic reserve in the life business was dependent on getting accurate, up-to-date information on the extent of waves to infections and deaths, which only peaked in late January and early February, as well as taking into account potential further waves given the slow rollout of vaccines in South Africa. Equally, provision for business option interruption remained complex as the impact of court cases and further interpretations of potential reinsurance outcomes caused us to revise our estimates post the year end. We reassessed the value of use in respect of Nedbank with no further impairment required. and additional provisions were also raised in East Africa following a balance sheet remediation exercise. On the market risk front, we made solid progress in the implementation of the three-manager model, which allows us to better manage risk across the whole balance sheet. We successfully executed the change in investment strategy in respect of our risk products, which resulted in a substantial de-risking of our balance sheet, as well as a once-off financial benefit of R1.8 billion. We will continue to focus on capital optimisation as well as expense reduction initiatives. We are pleased with the group as well as the Omlaxa solvency positions, which have remained extremely robust. In Omlaxa, the reduction of the NetBank share price reduced both owned funds and the capital requirements. The transfer of 12.4% of NetBank shares to Omnitral Emerging Markets further decreased owned funds and capital requirements. The OML 2019 ratio has been re-presented to reflect the insurance group designation, treating NetBank as an equity rather than on a Basel III basis and increasing the ratio from 161% to 189%. Both own funds and the Solentik requirement reduced during the year due to the reduction in the value of NetBank. We are in the process of revising our group target ranges of 155% to 175% for OML and expect an upward revision of that target range. The actual ratio of 185% is expected to remain in the upper end of our target range. An ongoing recovery in the economy and reduced risk levels could see an acceleration of capital returns to shareholders in the near to medium term. Our return on embedded value was positive with new business value of $621 million and existing business contributions of $5.8 billion, exceeding the impact of negative operating variances, basis changes and economic changes. Extremely pleasing were the positive expense variances given strong expense management during the year. Basis changes were dominated by short-term COVID-related changes of $4.3 billion and and a strengthening of mortality and persistency bases, partially offset by the positive impacts following the change in investment strategy on our risk books. Group equity value represents management's view of equity valuations for each of the underlying businesses and is reduced to $98.5 billion from $116.5 billion in the prior year. Our life and savings business, or covered business, was valid using embedded value, where embedded value recognises future profit streams for business that is in existence at the end of the year, but does not recognise future new business, and excludes the value of our asset management and lending businesses. Material non-covered businesses were valued at fair value using a combination of discounted cash flow models or comparable price earnings or price-to-book multiples. We reflect owned funds that have been calculated in accordance with the regulatory rules. The key differences between owned funds and our group equity value is the lower value that the regulatory basis requires for net banking. offset by the inclusion of subordinated debts and the non-recognition of intangible assets and participation spoken about earlier. For NetBank, we have used the recoverable value of future dividend streams that we expect to receive over time, discounted at an appropriate interest rate. It should be noted that the share price currently trades at a substantial discount to all measures of value including IFRS net asset value. Thank you for your time. I will now hand you back to Ian.

Thanks, Kasper. Ladies and gentlemen, thanks for your attention this morning and for your ongoing interest in Old Mutual. We've come through an exceptionally difficult year in good shape and extremely well equipped to build on our core, our brand, our strategy, and our strengths. Already this year, we're seeing strong evidence of how productivity levels are recovering. Our digital rollout stood us in good stead in 2020, and we will keep delivering on digital at pace as we continue with the dynamic ongoing process of re-envisioning Old Mutual. Kasper and I have discussed our COVID-19 provisions for the rest of 2021, and we're confident these are appropriate. We believe that the disciplined and accelerated execution of our refresh strategy will put us in a good position to win in the market as the economy recovers. With engaged employees in 2021, we're succeeding in gaining new customers by being always present first with simpler, more impactful, improved product sets with solutions that lead delivered through a rewarding digital experience. As we give customers a richer, more rewarding old mutual experience, we're increasingly enhancing and expanding our suite of products, including transactional and lending, to improve our customer value proposition. While our business was challenged under the pandemic, we're confident that our result from operations and return on net asset value will recover to their 2019 levels by 2023. Given good economic tailwinds, possibly sooner. In the medium term, we're targeting a new business margin of 1.5% to 3% across our segments. We anticipate our underwriting margin target will remain at between 4% and 6%. And by the end of 2022, we are confident of having delivered on our target run rate cost savings of R750 million. Delivery of this will come from automation and process efficiencies in our core life and short-term businesses. As Casper has said, barring unanticipated risks materialising, we anticipate an acceleration in the pace of capital returns to shareholders in the medium term as we refine our capital ranges. We look forward to giving you further detail on these developments at a Capital Markets Day in June. We'll now open up for any questions that you may have. Thanks very much.

Thanks, everyone. I'd just like to hand over to Operator to just give us the calls on the line.

Of course. The first question we have is from Andrew Sinclair from Bank of America.

Thanks. Good morning, everyone. Three from me as usual, if that's okay. First one is just on liquidity. Clearly very strong capital levels, but just wondering if you could tell us a little bit more about liquidity levels. What is the current level of holding company liquidity? Secondly, on capital, you talked about the target solvency range potentially being revised, but you've also talked about potential for accelerating capital return as the economy recovers. Just really wondered if you could give us a bit more colour on how we should think about the right range and what sort of colour you can give us around excess capital in the business today. And thirdly, it was just around the change in investment strategy on the risk book, which I think led to a nice 700 million-odd gain in Madison Foundation, another billion in personal finance. Just really wondered if you could tell us a little bit more about how that was generated and whether there's potential for anything similar in future.

Thanks. I'll start and then I'll ask I think maybe if I've missed anything if you can chip in and then we can I'll sneak to talk through the detail on the change in the investment strategy. So Andy, we are expecting to revise our ranges upwards. What we do want to do, and we've done most of the work on it, we just want to stress this, that by running our stress scenarios based on the year-end results, which we haven't yet done, to make sure we're comfortable with those ranges. Those are not expected to be a material increase in the ranges that you see today, but they will move upwards. We're also expecting to see some positive improvements in our capital post the year end, post the two applications really, or one application and one item we need to resolve, and that's the applications for the accounting consolidation method, as well as certain policy participations where we're expecting to improve our capital ratio. So we should see an uptrend an uptick in the range and we should see an uptick in the actual ratio post the year end. And just to confirm to investors that the capital ratio at the end of December already takes into account the foreseeable dividend that we have declared both at an OMLAXA and an OLEVEL. So despite the fact that we're moving our ranges upward, we expect our capital range to be at or in the upper end of the target that we will be communicating. So that obviously puts us in a strong capital position. We are also very comfortable with liquidity levels at OMLAXA and in terms of the liquidity position. We don't double count liquidity, so we make sure that we're comfortable with our liquidity at OMLAXA. And if we have excess liquidity in Omnaxa, we don't count that for OMR. So we are comfortable for both companies that we have strong liquidity positions. In terms of the change in investment strategy, we effectively moved – and I'll ask Nikki to add if I missed anything – We effectively moved the change in investment strategy from a balanced fund type investment and a 10-year point valuation basis to a risk-free yield curve and we've therefore hedged that portfolio with a portfolio of bonds to hedge the underlying movements in that portfolio going forward. That's very similar to what some of our competitors have done in prior years. An experience there has shown that your volatility in hedging reduces materially, and consequently we were able to also then reduce some of the discretionary margins that we were holding against that volatility that you experience when you hedge only on the 10-year point. Nikki, anything to add from your side?

No, thanks. That was perfect. It is materially de-risked balance sheet and therefore able to have similar protection against future risk with smaller discretionary margins.

I hope I answered all the questions, Ian. I don't know if I missed anything.

Operator, what's the next question?

The next question we have is from Warwick Baum from Avio Capital Markets.

morning everyone thank you for the presentation three questions from me can you give us some more insight into the possible outcomes for business interruption claims the second one is if you if you do experience mortality claims which exceed your existing provision you still have discretionary margins which could absorb the excess and then lastly Maybe you could just give us some more color around your loyalty program and the success that you've experienced there and whether you've had any material difference in actuarial or sales experience from the loyalty members versus non-members. Thanks.

Okay. So the first one, Garth, if you could pick up the first question on business interruption, please.

I think on the net BI claim side, I think we're reasonably confident with the reserves we've put through. Obviously, quite a lot of reinsurance that's needed to be taken into account. The gross number is the one where there's probably still a bit of uncertainty around. It's dependent on a couple of things. The way BI works is you're obviously indemnifying people for their losses over a period of time. Our BI claims typically run 12 months, but we do have some indemnity periods of 18 months. So we need those indemnity periods to be completed before we have a sense of the total quantum of claims. So the gross number may go up, but the net number, I think we've been reasonably conservative on and quite confident around it.

Thanks, Garth. If you can add in more detail as to why you're confident around the net number, that would be useful.

Yeah, I think the reason for that is there's two treaties that will apply. And on both of those, we're reasonably confident that the treatment we've applied is aligned with how the reinsurers are seeing it playing out. And the quantum, the gross quantum of our claims is well below the top end of our reinsurance treaty, so therefore we don't expect to exceed that. the top end of our reinsurance, and it's really about the kind of deductible that we would need to pay reinsurers and hence the confidence. So our portion of the BI claims is reasonably clear in terms of A, our proportional treaty, as well as our CATS treaty has got a 75 million rand deductible, and that's pretty clear. So, again, there shouldn't be too much movement on the net side. The growth will obviously, as the claims progress, we'll get a firmer view on that.

Thanks. Does that answer all your questions, John? I'm sorry, Warwick?

I'm trying to remember the second. No, the second question is on discretionary margins. Nico, can you pick up the discretionary margin point?

Yeah. We have set up best estimate provisions for COVID, which is disclosed, and we've added prescribed margins to those as required in South Africa. We did not add additional discretionary margins on top of that. We do have discretionary margins. It is disclosed. I just checked in the results booklet on page 96. You can see the size of the discretionary margins we still have available. Those are a number of separate discretionary margins, each with their own purpose, so set up to protect us against a specific area of uncertainty or set up to deliver a specific measure. type of smoothing of results or whatever it is that's the purpose of each of the bits. There isn't a piece of specific COVID included in there. So not a direct release from discretionary margins if additional claims exceed the provisions set up. And that would then look similar to what happened in the second six months of 2020 when we'd released the provisions we'd set up, but actually experience was a little bit heavier than that, and that came through as an experience variance in the second six months. So that's the default. But you can see the size of the discretionary margins that also still protect the balance sheet on page 96 in the booklet. Okay.

We would also think about starting to take more active management actions if we see a continuation of COVID-19 claims. Obviously, in certain of our books, it's easier to implement management actions on shorter data, but certainly some of those management actions would start looking at price increases for some of our products if we do see this now going into our base.

Okay, and then the last question Warwick had was on the rewards program. Ray, do you want to pick that one up?

Yeah, sure. Thanks, Ian. So our rewards program is sitting on about 600,000 customers as members of the program. The program is about two and a half years old, so it's still fairly early days. We haven't seen any material differences between actual and expected yet, and the initial indications around the impact of the rewards program on new business, upsell, cross-sell, and persistency is actually very encouraging.

Thanks very much. Thank you. Operator, I think we can move to the next question.

Thank you, sir. The next question we have is from Larissa van de Venter from Barclays.

Thank you. Good morning. Three quick ones, please. The first one, on the $1.1 billion of discretionary reserves that you mentioned in the presentation that you released mainly into Mass and Foundation, Is that the main reason for Madden Foundation not declining to the same extent as the personal finance division? Related to that, why was the impact of COVID so pronounced in the Reto Afrin division when flows were still relatively strong in the industry? And lastly, on PLC, reported net profits of $229 million. They appear to be largely one for nature. How should we think about PLC earnings going forward? Thank you.

Cassidy, you want to form that up?

Yes. On the Masson Foundation piece, yes, Larissa, the fact that we were able to use pre-existing pandemic reserves in Masson Foundation as well as some additional reserves that we were holding for Gaston Valley initiatives did decrease the COVID impact on Mass Foundation. So that was a benefit. We didn't have to set up as much of that. And then maybe Karen should pick up the item on personal finance.

Sure. Thanks, Kasper. I think on the personal finance side, it was really nothing to do with flows or sales. Our impact was entirely the provisions we actually set up on the COVID front and the mortality experience we saw in 2020 and the first couple of months in 2021. So XC provisions, our underlying profit is actually quite strong at sort of $2.8 billion. So, if you look at that relative to prior year, it's quite a dramatic increase. Our prior year number was $1.7 billion. That is a little bit flattering. The prior year had some negative basis changes in it, and this year we had the discretionary margin release as a result of changing the risk strategy and the risk investment strategy and valuation basis. However, that billion rand that came through from the risk change, we actually used the opportunity to strengthen our bases in a couple of areas. The net impact was some 450 million positive on our numbers. So actually, if you strip out all the funnies, we are comparing roughly 2.2 billion normalised for 2019 to 2.4 billion in personal finance normalized for 2020. So actually a little bit of an increase in a tough environment, and that was as a result of the sales momentum into the second half and good expense management.

I can't remember the third question, Larissa.

Larissa, do you mind repeating the third one? No, of course, it was on PLC normalized earnings going forward.

Larissa, we expect to have a small, depending on the investment returns that we earn on that base, which is quite small, a very small cost base. I would expect a sort of zero or small credit or debit going forward. We are bringing back more capital in the first half of this year. So, yeah, we're not expecting to see any big debits or credits in that book going forward.

Are you able to quantify how much you're bringing back, Kasper?

No. I don't have it in my head. I can check with the team and let you know. We'll try and check before the end of the call.

Thank you. That's kind of you.

I appreciate the trouble.

That was our final question on the call.

Okay, moving on to the webcast questions. The first one I'm going to read out is from Musa Mlanja from Differential Capital. His question is – it's just multiple questions. The first is on MSC-covered business. New business have been weak throughout the pandemic, while peers have seen strong numbers. How much of this underperformance is due, A, to digital capability, B, to talent retention in the sales channel, and C, worksite access during COVID, respectively? And how do you turn this around in 2021? The second on OMF, he asks that we please provide more detail on the cohort of loans that experience credit deterioration, as mentioned in the presentation and the booklet. Was this trend exclusive to OM Finance or is it industry-wide? And then on OMF, he asks what our appetite is for credit origination in 2021 relative to pre-COVID levels and how much of new loans are consolidated loans. That's it from myself for now.

So Clarence, would you pick up those? I think they're all in your business.

Can you just put the question back again for me to see because I was not writing down everything as I go through answering it. I think Musa, his first question is, you know, was it because of lack of digital capabilities? I need to correct him. We do have digital capabilities within the business, and sales that have come through our digital as well as direct channel were quite good actually versus the sales that were generated by our commission channel as well as our entire advisor force. What we are going to do going forward in 2021 actually is to increase capacity in our direct tele-sales channel to be able to pick up all those customers that engage with us digitally but not fulfill the entire process. So from that perspective, we are quite in the same space with everybody else in the market. Talent retention in the sales channel, particularly the Thai channel, I suspect that's where your question is headed. We have retained quite a lot of the leadership in that space. And I will explain to you why the so-called underperformance that you have highlighted. It has got nothing to do with talent retention. It has got more to do with two things. First, access to work sites. And two, moving people to work remotely. So it's very difficult to manage the performance of financial advisors when you are not going to sit down in a room with them on a daily basis and help them. with understanding where they are falling short and related stuff. But what we saw in H2 was a huge improvement when we moved into what we call a hub sort of strategy where we could meet financial advisors in selected hubs across the country, and we had 80 of them. So each and every Friday, management will go into this hub and then improve the performance of the advisors. That's the reason why if you look at our productivity in Q4, of 2020 it was done almost 14 15 versus q for pre-pandemic in 2019 which was quite pleasing and that performance that continued very strongly in q1 with about two weeks to go it is almost you know at at good levels versus q1 of 2020 which again was pre-covered uh environment were quite pleased with it. Insofar as it relates to mutual finance, the cohort, so first of all, you need to have an understanding, and I think we do disclose it, that we did a classification of one of the categories of performing loans into default to align with contractual delinquency versus behavioral patterns. So that is one of the things that you need to take into account. In terms of other cohorts of loans that will experience credit deterioration, it was more towards your high-risk type of customers. And most of that happened before the pricing and when we sort of enhanced our score bands and scorecards in 2019. What is our appetite for credit origination in 2021? The reality is that we are living in a very difficult environment. From an economic perspective, growth is going to be quite muted. Yes, other things are going to be faster than growth to GDP, but that is way below pre-pandemic level. And it will be very much... failure of us to behave as if we are in a pre-2019 level and then increase our appetite for credit origination. So that will always be in line with the current cycle that we are living in, and we will see very little appetite for credit origination at the level of 2019. How much of the new loans, the consolidation loans, Very small number of various consolidation loans. Most of it is just ordinary. And by consolidation loans, I think we are referring to a product that we had in the market around 2011 to 2013. We are no longer offering that. We're just offering loans in a different way.

Thanks, Clarence. The next question is from Michael Christalis from UBS. His question is just that we provide more detail as to what level of capital we currently deem to have in excess of our medium-term requirements. And then I'll just tag on to that John Story's question from JP Morgan. He's asking whether we think there are any issues in our underwriting standards in PF given the size and frequency of mortality claims experienced over the past two years.

So I'll view the capital question. So We'll be able to do and bring back that sort of messaging at our June Capital Markets Day. We want to firm up on our, as I said earlier, on the stress testing around the year end balances and firm up on our capital range. At a group level, in which case we'd be able to give you a bit more detail on the excess capital. On the residual PLC dividend, we're expecting to bring back about £25 million of that by June. and the rest of that PLC NAV will release slowly as the risks relating to what's in that balance sheet releases, and some of those are very long-dated risks, just to complete that answer. Ian, back to you on the other question.

Okay, I'll ask Kieran and Nico to add to this, but essentially we're not concerned about our underwriting standards in PF particularly. We have had them reviewed by reinsurers who've confirmed that there's no particular issues there. And we have also done a comparison of the level of claims we've experienced relative to some of the competitor pitchers And most of it's down to the shape and profile of the underlying book. But perhaps even Nicole can embellish a little bit on that piece.

Yeah, perhaps let me add, I mean, we did do a basis change in 2019 to Greenlight to really allow for some of the cross subsidies we were seeing in pricing between ages. And it was a little bit too short to tell, but the experience coming through in the pre-COVID, in the first bit of 2020, seem to indicate that those were effective and correct. If we look at the actual claims we've experienced in the course of 2020, the typical duration of the claim on books was more than five years. So I don't think it's an underwriting problem. I think, as Ian said, we simply have a shape of book and a size of book. So our actual normal claims that we pay in a year is sort of $4 billion, and last year was closer to $5 billion. So we have a larger book on enforced business than I think some of the competitors do.

Thanks. And then the last two questions as we're running out of time, I will group together again. The first is from Spelele, who's asking how productivity has been for our sales force compared to last year in January and February. And the second is from Justice Ndo at MMH, who's asking what our earnings projections are for 2021.

Karen, do you want to start with the Q1 productivity piece?

Yeah. So Q1 productivity, I think we saw a continuation of the momentum of Q4. The first part of January was quite slow as we were, I guess, in the middle of wave two. And I think also with schools going back later and sort of the economy restarting a bit later in January than is normally the case. It was a bit of a slow start, but actually looking really good as we sit today and definitely that momentum we saw in H2 last year continuing and some strong numbers coming through. In terms of mix and shape, a continuing preference by customers for risk business and single premium business over recurring savings. But we do, you know, those are both quite good margin areas. So like 2020, actually still delivering decent margin.

Thanks. Clarice, would you like to add?

Yeah, I am more than pleased with the performance in the first two months of the year. And I'm particularly pleased by, you know, the performance of the branch channel. And when I talk about the branch channel, we introduced an unadvised product that is handled by financial consultants who we have never used for insurance purposes inside the brand. And that product is performing very, very well in line with some of our competitors in the market. So I'm absolutely pleased with that performance so far.

Thanks, Clarence. Kasper, I think the second question was more directed at you. So, Kayla, can you just repeat the second question?

Sure. The second question was just about earnings projections for 2021.

So, we don't normally give earnings projections or forecasts as part of the year end, but we have sort of given you guidance around what we're trying to achieve as a management team. which is to recover profitability and margins as quickly as possible to, you know, what would have been a sort of 2019 number. And Ian's in his outlook given you a view that we're trying to target that in 2023. And then we've also, you know, we're trying to... make sure that our RONAV, our return on net asset value, we can exceed the cost of equity as quickly as possible and once again we think we'll be able to get there by 2023. But that's very dependent on what happens with GDP and markets. If we have strong GDP growth and supportive market levels, it makes it a little bit easier to get there. And conversely, it will be more difficult if we have very weak GDP and weak market levels. Our business is geared to those two factors. But we are, as Ian said, we are As a management team, that's what we're trying to deliver.

Thanks, and that's it for the questions. Over to you, Ian.

Okay, so ladies and gentlemen, that brings us to the conclusion of our presentation and questions this morning. Thanks very much to all of you for your interest and attendance. We'll be meeting with a number of you one-on-one over the coming days. And thanks very much to the management team for all your... all your hard work during 2020. And I think we've got a business in really good shape to take on the challenges of 2021. Thanks, everybody.