“The challenges for revenue growth and profitability in a declining interest rate and low inflation environment.” Myles Ruck Chief Executive Liberty Group Limited 16 October 2003

Have we seen this before?

UK 10-Year Bond Yields %

5 4 3 7 6 2 9 8 1 0 01-Jan-96 31-Dec-96 31-Dec-97 31-Dec-98 01-Jan-00 31-Dec-00 31-Dec-01 31-Dec-02 01-Jan-04

UK Retail Price Inflation

%

9 8 7 6 5 4 3 2 1 0 01/ 1996 12/ 1996 12/ 1997 12/ 1998 01/ 2000 12/ 2000 12/ 2001 12/ 2002 01/ 2004

In the UK : 1996 - 2000 • • • • Declining interest rates Declining inflation Positive life and pension business growth BUT Beginning 2000 equity market slid into a bear phase

From 2000 • • • • Rates continued downward trend Inflation continued to fall Bear market grew worse Investment returns were eroded AND …

From 2000 (continued) • • • • • Guarantees exposed Mortality rates under estimated (annuity contracts) Mismatches Poor investment performance Threatened solvency ratios SO ...

UK Life insurers on verge of bankruptcy

From 2000 (continued) • • • • • AND Sales declined Companies sold equities to avoid continued declines in asset values New capital was raised Profits fell Dividends came under pressure BUT MEANWHILE …

Back at the ranch … • • • • • High interest rate environment throughout Relatively high inflation Stronger capital adequacy ratios Little or no forced equity sales No capital raising required, but significant management action assumed by some companies AND …

Back at the ranch … • • • • Bear market less severe Positive sales growth throughout Weakening rand environment (helped sales) Investment guarantees low relative to yields WE WEATHERED THE STORM!

The new environment (SA) • • • Likely to achieve 3% - 6% inflation target range Interest rates will adjust accordingly, moving lower Can stock market go lower?

The new environment (SA) (continued) Macro-economic forecast Actual 2002 2003 2004 2005 2006 Real GDP (% p.a.) 3,00 Prime (% average) Headline CPIX (% p.a.) annual average 9,30 $/R (R average) 15,59 10,54 2,00 3,50 15,25 11,30 6,80 7,56 4,40 7,10 3,80 11,20 3,50 11,75 4,90 7,50 4,50 7,80

The new environment (SA) (continued) • • Increased savings likely to result (lower debt servicing costs >> more disposable income) Contractual savings will gain market share as cash savings become less attractive

The new environment (SA) (continued) • • Shift from money-market to equity-type investments Pension fund outflows likely to reduce

Industry challenges and risks • • • Asset-liability matching * Particularly annuity portfolio (long duration and reinvestment risk) Smoothed-bonus business * Negative bonus stabilisation reserves Capital management * * How much? (What CAR ratio?) What asset mix?

Industry challenges and risks (continued) • • Earnings volatility * * Investment returns and currency fluctuations Investment guarantees > At what level in the future and at what cost?

> New stochastic reserving basis >> volatility Vulnerable to 10% shareholder entitlement to investment return * Both positive and negative returns

Industry challenges and risks (continued) • • Pressure on expenses (increase above inflation rate) * * Skilled staff and IT costs Large fixed cost infrastructure Margin squeeze * * Fixed management fees Commission deregulation

Industry challenges and risks (continued) • • • • Outperform investment benchmarks and competitors’ investment performance Competition from unit trust industry and other savings providers Manage policyholders’ expectations Customer retention

Industry challenges and risks (continued) • Regulation and cost of compliance * * * FAIS, FICA Exchange control AC133

So what is Liberty doing?

Revenue growth Rm

2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 -

Total net cash inflow from insurance operations

479 1 057 1 024 1 637 1 730 1H99 1H00 1H01 1H02 1H03

Continued focus on being cash-flow positive and increasing the quantum - Premiums received exceed benefits paid

30% 25% 20% 15% 10% 5% 0% Revenue growth (continued) Individual business market share

TOTAL LIBERTY & CHARTER

19,6% 22,7% 23,6% 24,8% 15,4% 16,6% 20,2% 22,6% Recurring Individual Single Individual Year ended 31 December 2000 Year ended 31 December 2001 Year ended 31 December 2002 Quarter ended 31 March 2003

Revenue growth (continued) • Boost premiums by focusing on: * * * * Customer service Improving persistency Providing the right product Educating the consumer

Revenue growth (continued) * * * * Growing market share New markets (including Africa) Distribution Bancassurance

Revenue growth (continued) • Manage benefit payments * * * * Extend maturing policies Offer attractive alternatives at maturity Keep proceeds within the larger Liberty Group Underwriting

Profitability • • • • Ensure that products are written on profitable bases Cut and control expenses Reduce cost per policy * Increase the in-force book Accurate underwriting and risk rating

Conclusion • • • Strong capital position Largely matched book (annuities, guaranteed products and linked business) Limited exposure to smoothed bonus business

Conclusion (continued) • • Positioned to benefit from flow out of money-market investments Expect low interest-rate low inflation environment to be good for equity markets

Yield Gap

All Share Index trailing P/E ratio Rises as interest rates decline RISC1 7 October 2003

F/C F/C

Liberty is well positioned to meet the challenges of the new environment