Old Mutual Limited

welcome we do appreciate your time and interest in Old Mutual today we've reached another key milestone on our journey as we continuously work to rectify and simplify our business and as we build towards significantly amplifying our impact and results we're confident that the results we present you today will demonstrate how we've succeeded in growing from a firm foundation One of the questions I hear most often is, when will you have returned to pre-COVID numbers? A year ago, I would have been ready to provide an answer. But today, I'm inclined to think differently. I think that that's the wrong question. Getting back to those numbers implies that things will revert to what they were, and they won't. Our countries are different. Our world is different. Our customers are different. and Old Mutual is different. A large part of what lies ahead of us is about amplifying. Much of the groundwork is laid, most of the foundations are built, and with that we can refocus our trajectory, not to get back to pre-COVID numbers, but to surpass them. We stand in front of you today with confidence. We're not measuring ourselves against what we were, but against what we know we can be, We're not setting our sights on recovery but on what lies beyond that. Looking at the agenda for today, I will give an overview of our strategic and operational delivery. Then Kasper will provide detailed insights into our financials and in particular our progress on earnings, capital efficiency and value creation. I'll then come back to close off the session with a look at our revised medium term targets as well as our upcoming key initiatives that serve to further rectify, simplify and amplify our business. And finally, CESA will open the floor to questions via the webcast or audio call. And we do have the NDs of our fund-facing businesses available to help answer any questions that you may have. At our Capital Markets Day in June, we discussed with many of you our strategy. as well as our execution framework, and some highlights of what we had achieved over the past 18 months. I'll quickly remind you of these as a backdrop to the results we're presenting. The truly mutual strategy was born out of a need to revisit our purpose. We asked ourselves what role we were playing in the lives of our customers, and more importantly, could we and should we be more? Our refresh strategy was developed as a result of this process of deep self-reflection. We agreed that we exist to champion mutually positive features every day for our customers and stakeholders. And we do this through the breadth of solutions we offer to assist customers to navigate their life financial journeys. Within our 2D mutual strategy, we set a clear victory condition. of being our customers' first choice in sustaining, growing and protecting their prosperity. Is this the right approach? Our results continue to say yes. We've made a big shift, and it's a long-term shift. So we defined a three-step approach to our future, as well as to how we are approaching every aspect within this shift. Procedures, products, solutions, systems, etc., By rectify, we mean looking at every aspect of our business and fixing what needs to be fixed. Getting these things back on track, reorienting them, bringing them in line with our thinking. This lays a foundation. And once we've done this, we simplify by taking out all the waste, excess duplication, processes, clutter, and simplify our processes. Consolidate them, harmonize them, which gets us to the point where we can amplify. exponentially increasing the results, the impact and the value we can create from a steady, simplified base to deliver for customers and ultimately our shareholders. Let me take a moment to remind you what I said about how committed we are to this. We said we're hanging our hats on this, our hats and our collective features, increases and careers. So how have we fared against our victory condition? How are we delivering on our promises? In terms of Rectify, today our truly mutual strategy of putting our customers first to deliver value and sustainable returns for our shareholders is seeping deep into the fabric of who we are and what we do. Our customer satisfaction scores remain above the industry standard, but we can and will be better. We've built out our intermediary proposition enhanced with machine learning to win back intermediaries. We continue to drive capital optimization initiatives and efficient capital allocation across the business. Our activities on simplifying the business include the announcement of the unbundling of NetBank to simplify the capital structure of the group and to provide a substantial return of capital to shareholders. Take-up rates on our digital platforms have increased, with transactional volumes of more than half a million on our WhatsApp and USSD channels at the end of June. Our new risk proposition, Old Mutual Protect, has met our very high expectations. We have a million policies in force on Old Mutual Protect, with a 77% increase in applications issued since the end of 2020. And lastly, the wind down of our residual PLC operations has released a further 26 million pounds of capital to the group. Under Amplify, we paid 10 billion rand in mortality claims to customers, delivering at key moments of truth to those customers and their families. We paid out approximately 90% of funeral claims within four hours, and that's up from the 80% we reported at the end of 2020. Today, we have a million rewards members up from the end of 2020, and we count 1.1 million active digital users across all 13 of our markets, up from 406,000 just six months earlier. And finally, we were delighted to be awarded the title Best ESG Responsible Investor in Africa 2020, by Capital Finance International. In addition to laying out our Rectify, Simplify and Amplify framework, we've made some very specific commitments to you, and I'd like to share our progress on those. In changing the trajectory of the customer experience, our retail segments have shown a fast, strong recovery, such that we're now the fourth most valued of all South African brands, up from fifth. We've built an entirely new insurance business and Old Metro Protect continues to perform exceptionally, while we're now successfully delivering it through alternative channels as well as our traditional distribution. We are on track to realize our promised 750 million Rand cost efficiency by 2022. And as you will hear, our Mason Foundation cluster has regained its competitive advantage. Across our footprint, we've re-energized how our customers and our intermediaries experience us. Advisor productivity improved by 79% in the first half of this year in personal finance and wealth management. Old mutual investments listed equity mandates have reclaimed their top quartile positioning on a one-year view, and digitalization continues to become more embedded in our business operations. with artificial intelligence, machine learning, and robotics improving the customer and intermediary experience. We remain absolutely focused on driving value for our shareholders, and I can assure you that every day we work to enhance this value through the value levers we discussed at our Capital Markets Day of revenue growth, operating margins, capital efficiencies, competitive strengths, and execution and delivery. Kasper and I will be talking this morning about how we as a leadership team have worked to execute and deliver. Moving on to the environment in which we have operated in these six months. We've had to manage within the unprecedented context of the pandemic, which continues to impact all of us. Sadly, since January, 46 of our colleagues have succumbed to COVID-19. We've provided care packs to our people and have spared no effort or expense to keep them safe. We've also continued to provide premium free cover to frontline health workers and have extended this to the end of 2021. To date, we've paid out R9 million in benefits from this free cover. You also see on this slide the many ways in which we've partnered with others to battle and defeat this pandemic. If there's one thing these uncertain times have taught us, it's that you have to be ready for anything. The senseless violence which rocked KZN in Gatling in July affected us all deeply, and none more so than those of our employees who live in these areas. Of course, we gave them every support, and I'm pleased to say they've all gone straight back to servicing their clients as soon as it was safe for them to do so. We partnered with the Nelson Mandela Foundation to bring meaningful support to affected individuals and communities, pledging 70 million rand to help rebuild SMEs whose businesses were devastated. We have promised to pay out all legitimate insurance claims of under a million rand in under 21 days. We are, as you know, agents for Sazria, but in the wider picture, the immediate effects of the violence on our operations and our results have been limited. We've certainly experienced challenging times since January, but we've come true to our values and our strategic intent in keeping our promises to staff, customers and investors. More than ever, customers in all of our markets look to Old Mutual to prove that we absolutely remain a certain friend in the most uncertain of times. Since January, local equity markets have helped us to sustain, grow and protect our customers' prosperity in the short term, with markets in both South Africa and key territories in the rest of Africa having yielded good returns. Whilst equity markets have recovered, the countries in which we operate have been impacted to different extents by the COVID-19 pandemic. Let me firstly make the point that Unlike the first half of 2020, the various lockdown measures did not significantly affect our operations, our sales, or how our customers experienced us. We have, however, experienced significant claims on our life business relative to the first half of 2020. We've increased our provision for COVID-related claims by a further R2 billion. The increase in provisions was based on our modeling of excess deaths, allowing for vaccine hesitancy management actions, and importantly incorporated the expected excess deaths from wave 3, as well as our view of expected deaths from future waves. There remains considerable uncertainty around assumptions regarding vaccine rollout and the possibility of future viral variants. Moving on to our individual business units. We realize that many people thought that the problems facing Mason Foundation Cluster during 2020 and the lockdown were unresolvable. But I'm extremely pleased to tell you that we are well on our way towards improving the performance of this business. Our result from operations are recovering on the back of an improved credits experience and very positive trajectories of life APE sales and value of new business. Here we show one of NFC's most critical KPIs, the number of issued lives per week per advisor. The numbers here speak volumes about the growing strength of our operations and our market reach. This metric has quadrupled in Q2 this year relative to the same quarter in 2020. The key takeaway from the performances of our personal finance and wealth management businesses is that the front end has recovered to pre-COVID levels in terms of both margin and volumes. The root of this much improved performance has been a ramp up of intermediary activity levels and support from brokers. Result from operations has recovered to pre-COVID levels, 1% up from prior year, ignoring the impact of COVID provisioning. Gross flows, life APE sales and net client cash flow are all strongly up on the comparable half. We've experienced very pleasing performance on sales in both personal finance and wealth. Risk sales on Altmetra Protect now account for 61% of total risk sales, continuing to prove what an exceptional product this is. It is our intention to close the green light risk product by the end of 2021. In wealth management, both our onshore and offshore platforms gave robust, encouraging performances. Moving on to old mutual investments. Investment performance has rebounded strongly in our listed equity business, and gross flows and net client cash flow were exceptional under the circumstances. The improvements in the fabric of this business should make it increasingly attractive to with a significant increase in the percentage of funds over benchmark over the 1, 3 and 5 year periods. Marriott, LDI and indexation all boosted inflows in the period and we continue to see good origination activity in both specialized finance and alternatives. In Altmutual Corporate, the story has been about defending and growing our market leading positions across a number of solution sets. most notably the Superfund umbrella offering. The environment has been extremely tough with significant COVID-related payouts from our risk book, as well as challenges associated with retrenchment-related benefits. The group risk book has been well managed to maintain underwriting profitability. The negative bonus declaration on our flagship smooth bonus product in quarter one 2020 affected comparative returns. With the rebound in underlying investment performance and declared bonuses, we are regaining our competitiveness in this space. We're seeing a significant increase in quote activity in the business with the operational fundamentals remaining strong. Turning to Old Mutual Insurer. The resumption in economic activity impacted the business this half as claim volumes returned to normalized levels after the benign economic activity during the hard lockdown of H1 2020. We've seen an extremely pleasing turnaround in the CGIC result, following selective risk retention and repricing. Gross written premiums have grown consistently, and our project to rectify the expense ratios in this business is on track, although the benefits of this will only be realized in 2022 and beyond. digital enhancements have been about much more than automating time-consuming labour-intensive processes. In the six-month period, Old Mutual Insure launched on-demand self-service insurance cover, a first digital agricultural auction offering, and motor glass insurance claims processes that require virtually no human intervention. There have been no material revisions to business interruption provision estimates, and we carry no significant residual risk from the unrest in July. Our rest of Africa operation is shifting its focus more towards corporate client solutions over retail capital intensive models, particularly in countries where our operations are relatively small. Results from operations on a pre-COVID basis is up 4%, and on a constant currency basis is up substantially at 18%. Performance has been mixed with gross flows under pressure, but life APE sales and VMB margins trending positively. So having looked at our execution framework and segmental delivery, I'm very pleased with the aggregate result for the group. Excluding COVID, results from operations are 8% up, on the same period in 2020, and gross flows are 7% higher. Life APE sales are also positive, being up 13%, while the value of new business has risen more than fivefold. We remain committed to rectify, simplify and amplify our business, and we remain firmly on course to deliver on our strategy. I will now hand you over to Casper to unpack some of the detail relating to our financials. Casper, over to you.

Thanks Ian and good afternoon everyone. We are busy on our journey of rectify, simplify and amplify with varying degrees of success in each of our business units. We are laying the groundwork to change the trajectory of our earnings, but this will require continued hard work. We have seen a positive trajectory on key metrics relating to earnings, capital and RFO, excluding the impacts of COVID, were up 8% compared to the prior period, driven by strong performance in the Mass and Foundation cluster and resilient performances from personal finance and the rest of Africa. Adjusted headline earnings was up 70% on the prior period, following lower COVID impacts, higher shelved investment returns and higher income from associates. Our RONAV improved from 5.2% to 9% given the strong recovery in profitability. RONAV, excluding the direct impacts of COVID, was estimated to be 13.5% driven by favorable markets. We will continue to drive actions to improve RONAV to firstly, above the cost of equity, and secondly, to within our communicated target range within the medium term. The free surplus generated by businesses increased substantially during the period, representing 107% of adjusted headline earnings, following a reduction in required capital from segments. Value of new businesses was up strongly to $740 million from $125 million in the prior period. This is on the back of strong volume growth and acquisition cost efficiencies. The return on group equity value adjusted for COVID for the period was 7% up, supported by VNB recovery and positive economic variances. The value of new business margin recovered to 2.3% to be within our target range of 1.5% to 3%. We started the period with a pandemic provision of just under $4 billion and released $2.8 billion of this provision in line with excess mortality experience and our agreed release pattern. The Delta variant of COVID in South Africa resulted in additional deaths relative to our prior expectations, particularly in our personal finance business, whilst impacts on our mass and foundation offshore corporate and rest of Africa were less material. In light of the current Wave 3 experience and emerging expectations of potential future waves, we have increased the provision by $2 billion to $3.2 billion as of 30 June. This estimation considered our expectations of vaccine hesitancy and future management actions. The provision raised has been stressed, and sensitivities have been analyzed. The sensitivity of our provision, if wave 3 is worse than expected by 10%, is R193 million, and if vaccine hesitancy is worse than expected by 10%, is R233 million. We continue to monitor mortality rates closely, but the adequacy of provisions will depend on any future mutations of the virus, as well as the impact of vaccine hesitancy. In mass and foundation cluster, ROFA of 1.4 billion grew 121% on the back of improved life and savings earnings following higher volumes, improved persistency, and good cost management, as well as a significant turnaround of the old mutual finance business due to improved credit experience. In personal finance, results from operations was up 6%, driven by partial release of discretionary margins and higher asset-based fees. Expense management was good, with expenses for the first half being marginally above the prior year. Wealth management results from operations declined by 19%, as foreign exchange gains of $67 million in the prior period were not repeated. On mutual investments, RFO was down 20%, mainly due to lower non-NU2 revenue in its alternatives and specialized finance businesses. On mutual corporate, RFO was down due to the non-repeat of positive non-COVID-related basis changes in the prior period. Our mutual insurer RFO showed lower underwriting profits as a result of attritional large claim experiences as well as recent fires at the UCT campus. This was partially offset by strong results from CGIC in the period. Rest of Africa RFO was 4% up on the prior period with lower Southern African profits being offset by lower operating losses in East Africa and West Africa. As can be seen from the segmental results, work remains in a number of our segments to rectify our trajectory of earnings. I've taken you through the RFOP COVID results and the impact of COVID provisions on the previous slides. On this slide, we analyzed the rest of the components making up adjusted headline earnings. The Sheldon investment return improved materially relative to prior year with a 70% increase. This was driven largely due to fair value gains on listed equities in both South Africa and the rest of Africa. In South Africa, the Sheldon investment portfolio is largely invested in a mix of interest-bearing assets as well as protected equity. The hedged equity strategy serves to reduce earnings volatility as well as driving capital efficiency. The nature of the protected equity strategy is such that when markets rally beyond the cap of the zero-cost collar, we have limited participation in the outside. Over the six months period, a number of the zero-cost collar tranches were above the cap, resulting in the protected equity strategy performing below a peer-listed equity strategy. Interest income was lower given both lower fixed interest balances and a lower interest rate environment. Income from associates increased significantly with net bank earnings recovering strongly on the back of lower credit impairments and better collections experience. Our business in China reported a gain due to higher sales and mark-to-market gains. Overall, adjusted headline earnings growth of 70% is a step in the right direction. On this slide, we provide a reconciliation of adjusted headline earnings to our IFRS profits to help simplify the understanding of our results. There are two material adjustments between adjusted headline earnings and IFRS profits. Firstly, the impact of restructuring largely comprises the recognition of deferred tax on the net net stake of $1.1 billion and various smaller changes. Secondly, we exclude the results for Zimbabwe from adjusted headline earnings due to not being able to access our capital. The increase in Zimbabwe profits was mostly driven by an increase in investment returns with the Zimbabwe Stock Exchange generating a 135% return during the first half. Despite high levels of volume on the exchange, we remain cautious given the closed nature of the economy. Overall, IFRS earnings improved to $3 billion from a loss of $5.6 billion in the prior year. The group and our principal life company, Omlaxa, remain strongly capitalized within their target ranges. The capital coverage for the group was 177%, while within the target range of 165% to 195%. The life company was capitalized at 206% within the target range of 175% to 210%. The reduction in coverage ratios was driven by strong retail risk sales, as well as a recovery in equity markets, which increased the prescribed equity stress. Free surplus generated by the group increased substantially during the period to 107% of adjusted headline earnings, largely due to changes in retired capital. The group declared a dividend of 25 cents per share during the period under review. The dividends declared by Omlaxa and the group have been taken into account in calculating the solvency ratios. As previously communicated, it is the group's intention to continue issuing debt of up to $2 billion from Omlaxa on a five-year rolling basis in order to amplify our optimal gearing ratio. To this end, we intend going to the market to raise further debt for the remainder of the year and will also be applying to the regulator for a further issuance of up to $2 billion in 2022. This, together with the unbundling of a portion of our netbank stake later in this year, will shift our capital structure closer to our optimal gearing ratio of 15% to 20%. The netbank unbundling is still on track for Q4 2021 a significant step in simplifying our business going forward. In terms of the unbundled stake of 12.2%, the stake is treated as held for sale in our accounts with any further fair value adjustments excluded from headline earnings. Dividend income will be excluded from adjusted headline earnings going forward. We expect the unbundling to drive improved RONAV to a combination of enhanced earnings from a clear strategy on transactional banking as well as a reduction in the average net asset value of the group in time. In terms of the remaining stake of 7.2%, this stake is managed in line with the financial management framework. It remains as equity accounted until the date of unbundling with subsequent movements taking to the shareholders' investment return. In line with optimising the capital efficiency, the remaining stake has been hedged with a zero-cost collar, and the majority of that stake is hedged in our life company. The unbundling results in a gearing ratio of 13.6% and a growth solvency ratio of 174%, based on Nedbank's June share price. We are pleased with the overall recovery in new business to $740 million, compared to the prior year of $125 million, as well as the recovery of the value of new business margin to 2.3%. This increase has largely been driven by recovery in sales volumes and tightly managed costs. particularly retail risk sales of the Omnitral Protect product in the mass and foundation cluster as well as personal finance and wealth management. In addition, personal finance and wealth management experience higher sales volumes of guaranteed annuities as client preferences reflect a need for certainty in the economic climate. We also saw an improvement in the value of new business in the rest of Africa. The group generated a satisfactory return on group equity value of 7% before adjusting for COVID-19 impacts. Within life and savings, strong growth was generated due to recovery in the value of new business as well as economic variances, mostly as a result of recovering equity markets. The asset management business valuation increased largely due to increased fees generated and as a result of higher equity markets, and the banking and lending line of business improved as a result of stronger profits due to the improved credit experience following a tightening of lending criteria in this business. This growth was partially offset by the net pandemic impact of $1.8 billion, which reduced the group return on equity value to 5%. The share price continues to trade at a discount to our IFRS NAV, electable owned funds, and group equity value. The management team remains committed to closing the gap between the market capitalization and group equity value through the execution of a truly mutual strategy, focusing on the underlying key value drivers and delivering on the key performance metrics. through our execution frameworks, namely Rectify, Simplify and Amplify. In summary, in this half year we have seen a strong recovery in results from operations and adjusted headline earnings before COVID-19 impacts, an improvement in our ONAV to be closer to our cost of equity and a recovery of our value of new business margin to be within our target range of 1.5 to 3%. Our group solvency ratio remains strong within the target range of 165 to 195%. The improved trajectory and recovery of core operations has enabled us to further consider our medium term targets, which Ian will now take you through. Over to you Ian.

Given the recovery in markets and the strong results we've delivered year to date, we've revised our medium-term targets upwards. On result from operations, we're now aiming to deliver 2019 results plus between 5% and 10% by 2023. For return on net asset value, we're looking to deliver between cost of equity plus 2% and cost of equity plus 4%. We've also lifted the floor of our V&V margin target to 2% and we will continue to manage our expenses tightly and deliver on the previously communicated cost efficiency targets. Our capital and dividend targets remain unchanged. Work is underway to understand the impact of IFRS 17 on our revised medium term targets and additional information will be provided once greater certainty is available. We now have a stronger core business. Courtesy of the rectification and simplification work that we've been busy with over the last 18 months. Over the short term, our focus within our execution framework of Rectify is to continue to enhance our customer experience and extract further growth from both our East and West African operations. Under Simplify, we will continue to focus on substantially simplifying our South African insurance and savings businesses to deliver our promised cost efficiencies. Included in this process will be the migration of a number of existing books of business onto a single core administration platform. And lastly, the Nedbank unbundling, which will be delivered later this year, will further simplify the structure of the group. In terms of Amplify, in 2022, we will be adding to our very successful Old Mutual Protect product range with new savings and income propositions. We will continue to focus on channel and advisor productivity levels and will grow the membership of our rewards programs. We've refreshed our sustainability framework as we work towards setting targets to minimize our carbon footprint, delivering our first Task Force on Climate-Related Financial Disclosures report in April 2022. We are further integrating ESG into our investment decisions and look forward to innovative product development coming out of this space. Before I conclude, I would like to touch on the most important driver of our ability to amplify our business, our people. I'd like to express my gratitude to all Old Mutual employees who've shown amazing resilience in the face of adversity and have remained committed to servicing our customers. Thank you for embracing and living the truly mutual strategy and helping us succeed with ever-increasing agility and innovation. In order to continue our journey of digital enhancement and innovation, it gives me pleasure to also announce the following key leadership appointments. We welcome our new Chief Operating Officer, Zoraida Ibrahim, who joins us in November and will drive our continued digital journey and lead the Old Mutual Capability Cluster. We will be putting further investment into a variety of innovation and growth initiatives which will be delivered under the umbrella of our recently appointed Head of New Growth and Innovation, Vujo Mpako. In conclusion, I trust we've given you a sense today of a strong set of results, as well as a significantly improved trajectory for the future. The foundations we've spent so much time building are allowing us to do things that until recently we might have thought impossible. The new Old Mutual is going to change the game. We're altering our trajectory and we believe altering the trajectories of the people and communities we serve. I'll now open for Q&A from the audience and Ciswe will take over to manage the process. Ciswe, over to you.

Good morning, everyone. This morning's Q&A will be facilitated via two platforms. One is our webcast and secondly audio via Chorus Call. I'd like to now hand over to our Chorus Call operator to take the first couple of questions from there.

Thank you. For the benefit of other participants who are on the telephone lines, I would like to remind you, you're welcome to pose a question by pressing star and then one on your telephone touch phone or on the keypad on your screen. The first question comes from Anderson Clay of Bank of America.

Thanks and good morning, everyone. Three for me, if that's okay, as usual. Firstly, just on the group solvency ratio, I just really wondered if you could unpack the moving parts on the group solvency ratio, just from the 190% at full-year results to the 177%, I guess, between operating return, COVID provisioning, market moves, dividends, model changes, et cetera, or something along those lines. The second question was just on mass and foundation and credit loss ratio, which I thought was extremely strong, frankly, even compared to pre-COVID levels. I just really wondered if you could give us a little bit of colour on how that's been achieved and what we should see kind of going forwards. And thirdly, it was just on your debt issuance plans. I just really wondered if you can give us some colour about potential uses of that cash and given that solvency already looks pretty comfortable. Free issuance and growth doesn't seem to be too capital intensive. Thanks.

I'll start and Ian can add. So Andy, if you look at the results, you would have seen that we had a number of compensating impacts. Firstly, we saw less capital required in our segments so you'll see that there's a positive adjustment on our free surplus generation because of the fact that we had lower capital requirements and that's on the back of the much lower volumes and the lower business that we wrote last year. In the current year we've seen the opposite effect of increased risk sales and higher equity markets driving The equity stress that the regulator requires us to hold, and it's gone up by 5%, requiring us to hold higher capital. Obviously, the COVID payments that we've seen have impacted on our own funds, but despite that, we were net profitable, so we had an accretion to to our own funds, but the key factor here is increased volumes and increased equity stress has resulted in our ratios reducing in the period. We have a debt program where we're trying to raise, on a rolling five-year basis, two billion rand per debt out of Omnaxa. We are going to the markets in the rest of the year. and we'll also be applying to raise more debt next year. One must bear in mind that we will be paying back some debt during the course of next year, but we feel it's more efficient to fund some of our life business through debt and helps us to improve our own health. We'll have to see how COVID unwinds as to whether – be comfortable with just paying normal dividends or looking at a more aggressive payout in time. But at this stage it's too early to provide any indication of that. I hope that answers your question.

Then Karen, can we bring you in to answer the question on MFC please?

So Andy, there are about three or four things that we're the drivers of our improved credit loss ratio. So the first one is the improved credit origination in that business has contributed to that. We implemented some new lending criteria from 2019 and 2020, so that played a big role. Secondly, we also implemented some collection strategies starting from 2018, and now they've come to maturity and they've really played a big role in terms of collecting from customers. Then the third thing is just the natural unwind of provisions as our book ages and it declines as a result of lagging in new business sales. So that has played a critical role in terms of driving that credit loss ratio to the level that you see. However, when the loan portfolio stabilizes and the credit loss ratio normalizes, we expect it to be in the region of between 7% to 9%.

Okay. Thanks, guys. Appreciate it.

Great. The next question comes from Michael Christelis from UBS. Can you comment on the size of the discretionary margin release on protection products in both personal finance and math and foundation cluster, as well as the repeatability of such?

Nneka, can I ask you to come in on that one?

Sorry. Yeah, just to get context for anyone who doesn't remember, at the end of last year, we'd released the material profit from the reduced risk post hedging our interest rate risk and our protection products data, but we kept some of it back in an implementation discretionary margin, which would hold just because we hadn't been done with the exercise of hedging at all, and we wanted to have something to offset any one of modeling issues uncovered as we embedded the hedging and the associated processes. And we agreed that we would release that half of it in June this year and half of it at year end 2021. During this year, we have now materially completed the work to embed the hedging process. And fortunately, most of what was uncovered in that process was good news, which then went into that implementation margin. and about half of it was released. That means the other half is still available to be released at year-end, subject to any further required adjustments. In terms of size, it's about 400 million, roughly three-quarters in MFC, one-quarter in PF.

Thanks, Dekar. Great. Our next question comes from Donata Sibanda from Midfair. How do you plan to continue to grow MFC sales beyond the recovery to 2019 levels? And how much room do you have for upwards repricing of that segment?

I'll start and then I'll ask Terence to come in. I think from a pricing perspective, I wouldn't foresee upward repricing in the life book, although we will review... In general, our life risk prices given pandemic impacts, etc. But that's probably the only factor I can see that will drive a rethink in terms of pricing levels. As far as driving volumes go, I think it's probably important to understand the background to what we've been up to over the last little while. We've got the new Old Metro Protect product range in the market, including in MSC, as we've discussed. We do intend to make the savings range that we are developing available to that market as well as to personal finance. And we have been working to essentially optimize our distribution footprint between our traditional tied agency salaried model advisors commissioned independent brokers and the loan consultants in the old mutual finance branches. And that's been coupled with a release of a much simplified funeral product into the branches for the loan consultants to sell. My view is that that set of actions still has quite a lot of legs in it to drive our growth for the next few years in that segment. But Terence, maybe you want to embellish further.

No, I think you have nailed it perfectly, Ian. So I put... these things into two big boxes. The first box is around, you know, when we are growing our market share, we are going to drive expanded propositions. That is the one box. So your OMP, your nano drive solutions, your SNR, they sit inside that big box. And of course, we are thinking of things around group affinity, you know, solutions, we are looking at single premiums, you know, around preservation preservation fund and something of that nature but that is down down the road then you have got channel mix as another box that we have in terms of how we're going to grow our market share and here you are optimizing around you know our traditional channels such as your tide advisor calls brokers who are moving more into digital channels direct channels forming strategic partnerships with either retailers and other non-traditional distribution laws that we're thinking of. Then the whole informal market, and particularly that... space where there are irregular premiums. We need to find ways of playing in that particular space. So those are the things that we are going to focus on in terms of trying to grow sales. And of course, if you recall, at our Cripside Market Day, we spoke about our integrated financial services strategy. As a major foundation, we've got about 3.2 million customers. And about a million of those customers have got only sales and solutions only. So we have got an opportunity of cross-selling to those customers We have to use data and data analytics to really play and win in that particular space. And I'm quite excited about the number of things that our technology team are building to help us win in that particular space. And I'm with you. My system is very, very price sensitive. Pricing is something that we need to be very careful around. But there are pockets, of course, particularly with those who are, you know, at what I call a sensitive age stage versus COVID. You need to be very, very careful around, you know, not exposing yourself to too much risk by not reviewing pricing in that space.

Thank you, Clarence. The next two questions will come in this order. One is from Michael Christelis. And he asks, what proportion of your covered and non-covered group equity value sits outside of SA as at the end of June? And then the second question I'll ask is from Jared at All Weather Capital. And he asks, is the zero cost collar on the remaining net bank stake taken into account in the pro forma solvency ratio?

So... Let me just talk through the splits. I think we'll have to send that through, Michael. I don't have it in my head, so we'll get the team just to give you the split of that. And then the zero-cost collar is not in the pro-forma-son-su ratio. It just takes into account the muddling of the net bank stack.

Great, thanks. We'll move over back to the chorus call. Judith?

Thank you. The next question comes from Warwick Bam of Avio Capital Markets.

Good morning, Ian and Kester. Thanks for the presentation. Three from me. If you were to break down your revised group RFO target for 2023, the target of 2019 levels plus 5% to 10%, Do you expect all segments to contribute to this growth or are there any specific segmental dynamics that you can call out for us? My second question is around the net bank stake, the remaining 7%. Do you expect to continue rolling that zero-cost collar? Is that a standard business practice for you and what is the actual capital benefit of this collar? And then my third question is just around your disclosure for Nedbank. Will you continue to disclose it separately or will you now include it after post-down bundling? Will you include it within your shareholders' investment portfolio line item? Thanks.

So I'll go and please add. So if we look at, we're expecting all our business units to contribute to that target in 2023. That includes of the rest of Africa. We're certainly expecting quite a bit from our investments business, given that they've been building on their franchise. So we are expecting all the businesses to contribute to us being able to achieve that target. It is our practice to manage our capital in line with our financial management framework, and that includes, as we said, fixed interest in a protected equity strategy, so the net bank stake nearly falls now into how we manage that stake. If you think about the fact that an equity stress requires us to hold 51% capital on any equity, so any collar that you put on that equity substantially reduces the capital that you have to hold. So, you know, as you said, we have a collar structure. We'll evaluate, you know, how we roll that collar structure off over time. But there's absolutely no urgency to do anything because we've actually hedged the stake now and it remains a recapital question. So just a reminder of the last question, Cesar.

If you can please ask that question again, Warwick. I think it had to do with... Oh, Colin?

Just around your disclosure of Nedbank, will it now form part of the shareholders' investment portfolio, or will you continue to disclose it separately in setting an income statement?

We'll certainly disclose it as part of the shareholders' investment portfolio, but while we're holding a substantial stake, we will show you what that stake is. Thanks.

Thanks. The next question we're going to go to is from Larissa van Deventer from Barclays, and she asks two questions. Could you please provide some color on the COVID costs for each of the first three waves? Also, any trends you are seeing in claims patterns related to COVID? And the second question is, do you consider the current product mix in the life operations to be sustainable? Or do you anticipate an increase in savings products as the economy stabilizes?

OK, so I'll go with those. The pattern of claims from COVID was very aligned to the graph I showed earlier. That graph was of the actual history was data from SAMRC. But what we've seen in our book in aggregates is quite aligned to that data. So essentially, you know, wave two broadly heading towards double the size of wave one, but quite a short and sharp peak. Wave three peak been... higher than wave one, but lower than wave two, but a little bit more drawn out in terms of the length of it. The wave three was more severe than we anticipated at the end of last year, obviously, given that we've updated our provisions quite significantly. And I think the two main drivers of that have been both the emergence of the Delta variant as well as the pace or slower pace than we would have hoped for in the vaccine rollout. And I think the key uncertainty for the future remains those two variables. The pace of vaccine rollout, which at least in the last week has thrown some surreal signs of picking up, and I think in the South African market it's now clear that there are no longer supply constraints or supply bottlenecks around vaccine. There's quite good visibility of the vaccine pipeline and supply, And the key job we've got as a nation now in the South African context is around dealing with vaccine hesitancy and encouraging people to get vaccinated since all the data seems to point in the direction that it makes infinite sense for one to in fact get vaccinated. As far as the product mix goes, I don't necessarily anticipate that the A mixed change will come only on the back of economic recovery. I think what we're seeing at the moment is both a consumer preference for risk, but given the backdrop of COVID and an understanding of the need for life cover, as well as, you know, clearly we have a new offering in the market, which is, I think, driving a level of pull. So I think with all of that, if we – when we deliver the savings and income products into the market, in the nature of these things with new products, I would expect there would be a little bit of a swing towards savings at that time. And then I do think that the mix will likely stabilize into something closer to historical patterns once the new products are bedded down into the market and the you know, the economy normalizes, you know, whatever that may mean, then I think we will see a return to something closer to our historical mix from that perspective.

Thanks. Next question is from Nick at Kruka. He asks, it seems to me that you want to close the gap to embedded value by focusing on the earnings power of the assets. Are there any strategies that you are considering that focus on the equity and liability side of the balance sheet? Example, dividend policy or buybacks?

I think Casper implicitly covered that earlier, but we can just cover the ground with a slightly different slant to the answer, Casper.

So, Nick, obviously, you know, we as a management team, we are... being remunerated on driving low NAV and value of new business and that's what we need to do. That obviously means we have to look at how we can be more efficient on our balance sheet and how we can optimize our capital ratios going forward. So yes, we will look at all the levers we can pull to have a more efficient return on our balance sheet going forward.

Okay, and the next two questions, the first one is from Sipelele Ndudu at Excelsior Capital, and he asks, how confident are you in achieving these new 2023 targets? What could possibly derail achieving these? Then the second question is from Chris Stewart at 91, and he asks, Why hold a concentrated stake in Nedbank at all post the unbundling in November? Okay. Sorry, Steve, just repeat the first one quickly. How confident are you in achieving the 2023 targets?

As a team, I think we would be reluctant to put targets out there that we don't have a reasonable degree of confidence in achieving. Clearly, You know, there are scenarios from an uncontrollable factors environmental perspective that could materialize that would put those targets at risk. You know, if equity markets crash by half or something like that, that does have a big impact on our revenue line. And, you know, we haven't factored those kind of scenarios into our thinking. But I think in most plausible, reasonable scenarios, we would, I think, retain a high degree of confidence in hitting those targets. Great.

And Chris's question. So Chris, obviously, you know, there's no real benefit of holding a concentrated stake. The fact that we've hedged it, you know, makes it a lot less of an issue in our lives and gives us the time that we need to think about how we're going to to deal with that stake. So, you know, any immediate pressure is off us, and we can take our time to think about how we deal with that stake.

Thank you. We'll go back to the chorus call, operator.

Thank you. The next question comes from Fancho Auditore of Anchor Stock Brokers.

Hi, guys. Can you hear me?

Yep.

Thanks. First question just relates to the COVID-19 provisions. It looks like the provisions increased by 2 billion rands, but the total earnings impact in the period was 2.5 billion. So provisions clearly light by around 500 million in the period. And I think you've talked to that already, but are you comfortable that further provisions provisions you've set aside is now adequate. And yeah, I think you've given some color on the expected release and expected future. wave patterns as well, but maybe just in terms of that provision, do you now feel that is the best estimate or do you have some prudence in that provision in your view? That's the first question. Second question, insurers operating expenses increased by around 19% on flat premiums. Maybe if you can talk to that a bit, why were the expenses so high in the insurer and is there some upside from that normalising? Second question. Third question, you've mentioned that the discretionary margins, about half of the discretionary margins that haven't been released at year-end in respect of the change in the investment strategy, that the other half will be released at the end of this year. That adds around $800 million to earnings this year. What happens next year after? Is there further potential margin releases to help earnings going forward? Or all things being equal, will there be a step down of around $800 million in earnings after this year if there aren't any other discretionary margin releases? Those are the questions I've got at the moment.

Thanks. I'll start with the COVID piece. Yeah, I think we believe that the provision we've set aside is a prudent best estimate. It is subject to a lot of uncertainty, I think, to be clear. And the main thing is, as I said earlier, is the vaccine rollout pace. That's probably the critical thing. And then on a global scale, I think there's a level of uncertainty around, particularly a further variant that is perhaps more resistant to the vaccine from a severe illness and death perspective. That would be the other critical variable. But we have allowed, in terms of how we thought about it, we have allowed for a fairly significant level of vaccine hesitancy in our estimation. So, you know, if we can overcome that, then we may end up with a better answer than we predicted and equally If vaccine hesitancy ends up being an even bigger problem than we're thinking, then, you know, it could go the other way. You know, the chair of our risk committee described this a little bit like pinning the tail on a donkey at the moment, but we do think we've done as good a job as is possible with the data available to put a prudent best estimate on the table. I'm sorry, you're going to prompt other questions.

I can't keep... Yeah, Francois, let me just repeat them, please, if you wouldn't mind.

I can answer. So, Francois, obviously difficult to predict what's going to happen next year. We are expecting to see lower impacts of COVID coming through, which will offset some of that positive variants coming through from the implementation in the current year. And we are expecting our other businesses to start growing their profits. As I said, we're still expecting some improvement in earnings from investments from the rest of Africa, from our insured business going into next year. So there will be some offsets. But at this stage, other than... lower COVID costs, we're not expecting to see material numbers replacing those directly.

And then there was a question for Garth.

Garth, do you want to come in and talk about the old material insurer expenses, please?

No problem. Afternoon, everyone. Yeah, I think two things really driving the higher than expected expense growth. The first one is really around forex adjustments. We hold reserves for our exposure on U.S. dollar trade credits insurance policies, and with the RAND weakening, there was a bit of an impact on that, which comes to do on the expense line. The second one is really being driven by we've been going through a cost-cutting exercise, and we've had to incur costs in terms of retrenchments to reduce our cost base. So those two numbers come through in the half-year expense growth. We do expect expenses in the full year to be below 10% growth on prior year, but we will still obviously have the retrenchment costs which will come through for the full year as well.

Thank you. I don't see any more questions on the chorus call line, so I will go now for the final two questions from the webcast. The first one is from Donata Sibanda from Midsa, and she asks, is there any remaining capital expected to be received from the PLC? I assume she means the residual PLC. And if there is, how much is it? And is it going to be retained by the group or distributed to shareholders? Yes. Then the last question is from Mikhail Mutala at PSG Asset Management, and he asks, in your 2023 RFO targets, what level of price inflation is factored into your premium income estimates? How has COVID-19 changed your view of the pricing environment?

I'll deal with the first one. So if you look at the detail – The economic value of our stake in residual PLC is sitting at £61 million at 30 June. We have commented that we have brought back some additional capital in the period, so that will reduce that amount slightly. The remaining risks in the residual PLC are medium to long term. we should see capital return as those risks expire, but there's no immediate expectation of additional dividends coming down from residual PLC. Those will come back as we finish off and close off the remaining operations.

On the 2023 outlook and pricing, I think it's important to realise first of all that The majority of our profits ultimately in that sort of time period will come from in-force book rather than new business. So we've got two and a bit more years of new business that might contribute. So decisions on new business pricing are unlikely to have a particularly material impact either way on our overall earnings in that shortish period of time. Having said that, we do have the ability to reprice on an annual basis effectively one year's worth of existing business, particularly on the risk side. And so there is likely to be some impact from that, but I don't think it would be material enough to start to swing the range of the target that we've provided either way.

Thank you, and that concludes this part of the presentation, the question and answer session. I hand back to you now.

Thanks, Israe. So all that remains then is to just say thanks very much to all of you for your time. I hope you found the presentation this morning a useful overview of the results. We will be talking to many of you, I think, in the coming days on an individual or group basis as part of our subsequent Investor Roadshow, so I look forward to engaging further and answering any further questions that you may have. Thanks very much, everybody.