Mark Lapedus, Divisional Director of Investments, at Liberty explains how client funds are invested
2016 was a turbulent year for the South African economy. Last year was a challenging environment for life companies due to a weak economy, tougher times for consumers and poorly performing investment markets. This is reflected in Liberty’s results for 2016. But rest assured, the returns on your investments with Liberty are in no way linked to the performance of Liberty as a company, unless the portfolio manager happens to hold Liberty shares in the portfolio.
If you’re invested in portfolios like Agile or Bold, the returns on these products are based on the portfolios that you have selected. These portfolios are managed by Stanlib or a range of other investment managers available on the investment platforms.
The biggest driver of returns is usually asset class performance. For example, this is linked to how the JSE has performed that year, as well as the asset mix of the different portfolios based on risk profile. That means that a portfolio that had 80% invested in equities would perform differently from a portfolio with only 30% equities.
Liberty does, however, manage its balance sheet to meet its liabilities in respect of life insurance and investments that are sold through an insurance wrapper. This includes retirement products and endowments.
For example, in a retirement product like Agile, although you can select the underlying unit trusts to invest in, these assets are held on balance sheet by Liberty to meet your liability. The same is true for our competitors. This is not unique to Liberty. Similarly, if you buy a life product, the promise to pay you when you claim comes from Liberty. This promise is supported by the fact that in 2016, Liberty paid out R4,3 billion in claims and we have not wavered on our promise to you.
So when you invest with Liberty or buy life products from us, you are taking on Liberty’s credit risk, as you would with any life insurance company. The credit risk of an insurance company is calculated on its ability to meet its liabilities through the Capital Adequacy Requirement.
In order to protect policyholders, the Financial Services Board (FSB) sets the Capital Adequacy Requirement (CAR), which is the minimum amount that an insurer’s assets must exceed its liabilities. The Capital Adequacy Cover/Ratio is the actual amount of capital the insurer has, expressed as a multiple of the minimum requirement.
For example, a Capital Adequacy ratio of 1 would mean that the insurer has matched the FSB requirement, while any ratio higher than 1 means that the insurer is holding assets in excess of the FSB requirement.
Our capital cover ratio has been increasing over the years and is very stable, sitting at 3,18 times the requirement at the end of 2016 for Liberty Holdings Limited, and 2,95 times the requirement at the end of 2016 for Liberty Group Limited. This means that Liberty Holdings' capital position is exceptionally strong.
It is important to note that after 60 years in the industry, Liberty remains a profitable and well-capitalised business. As a customer you can be confident that Liberty is sound, solid and able to deliver on our promises to you.
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