METROPOLITAN
create prosperityfor Africa’s people
Together we can
ANNUAL REPORT 2008
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WWW.METROPOLITAN.CO.ZA
International new business present value of premiums (PVP)
18%
Shareholders receive dividend per share of
95 centsANNUAL REPORT 2008
Group CAR cover
3.1 times
highlights 1what we stand for 2at a glance 4
history and highlights 6this is metropolitan 8fi nancial results overview 10
board of directors 16executive committee 20chairman’s letter to shareholders 22group chief executive’s overview 26group fi nance director’s review 32investor relations report 39organisational structure 42operational review
retail cluster 44corporate cluster 48asset management 52international cluster 56health cluster 59
corporate governance report 64empowerment report 74hiv and aids report 80fi nancial statements 86shareholder profi le 211stock exchange performance 212shareholder diary 213notice to members of annual general meeting 214administration 216form of proxy
CONTENTS
HIGHLIGHTS
Financial year overview
Net infl ow
Rbn
Investment
assets
Rbn
Embedded
value
Rbn
Diluted core headline earnings
Rm
% %
Business growth contribution
Retail 2.9 35.5 3.048 448 (3) 44
Corporate (1.2) 28.3 0.599 153 (13) 15
Asset management 4.3 22.2 0.377 65 (7) 7
International 0.3 4.7 1.108 94 (15) 9
Health 2.0 5.0 0.923 100 56 10
Shareholder assets 0.0 2.0 5.275 151 23 15
Total 8.3 97.70 11.330 1 011 1 100
Funds received from clients12 mths to 12 mths to
31/12/2008 31/12/2007
Gross inflow Gross outflow Net inflow Net inflow
Rm Rm Rm Rm
Retail business 7 931 (5 011) 2 920 2 546
Corporate business 2 899 (4 142) (1 243) 1 235
International business 1 006 (624) 382 309
Long-term insurance business cash flows 11 836 (9 777) 2 059 4 090
Health business 14 494 (12 657) 1 837 1 364
Asset administration business 21 074 (17 753) 3 321 6 708
Asset management business 1 722 (763) 959 222
Corporate business 159 – 159 78
Total funds received from clients 49 285 (40 950) 8 335 12 462
Net funds received from clients R8bn
Retail new business present value of premiums (PVP)
23%Dividend yield
8.8%
Value of new insurance business
38%
METROPOLITAN | HIGHLIGHTS | 1
Health administration profits
56%
OUR VISION
creating prosperity for Africa’s
people
Zelphinia Mvula, group empowerment & corporate affairs
2 | WHAT WE STAND FOR | METROPOLITAN
WHAT WE STAND FOR
OUR MISSION
Serving Africa’s people through affordable fi nancial solutions that create fi nancial growth and security
METROPOLITAN | WHAT WE STAND FOR | 3
OUR CORE VALUES
People, trust and performance
OUR CODE OF ETHICS
It provides guidance regarding:
> commitment procedures for dealing
with stakeholders
> decision-making guidelines
> confi dentiality
> unethical payments
> confl icts of interest
> reporting fraud
OUR CORE ETHICS
Accountability, integrity and respect
THE GROUP
The Metropolitan group comprises six independent operating business clusters, each
with clearly defined areas of focus, performance and profit objectives.
* Part of Metropolitan Life Ltd 100%
Retail
Metropolitan Retail*
Union Life Ltd 50%
International
Metropolitan Life of Botswana Ltd 76%
Metropolitan Life Insurance Ghana Ltd 60%
Metropolitan Life International Ltd 100%
Metropolitan Life Insurance Kenya Ltd 66.7%
Metropolitan Lesotho Ltd 100%
Metropolitan Life (Namibia) Ltd 82%
Metropolitan Life Swaziland Ltd 100%
UBA Metropolitan Life Insurance Ltd 50%
Health
Metropolitan Health Corporate (Pty) Ltd 82.4%
Metropolitan Health Holdings (Pty) Ltd 100%
Qualsa Healthcare (Pty) Ltd 79.5%
Corporate
Metropolitan Employee Benefi ts*
Metropolitan Retirement
Administrators
(Pty) Ltd 80%
Asset management
Metropolitan Asset Managers Ltd 100%
Metropolitan Collective Investments Ltd 100%
Metropolitan Property Services (Pty) Ltd 100%
Strategic ventures
Cover2Go 100%
Metropolitan Capital (Pty) Ltd 100%
Metropolitan Card Operations (Pty) Ltd 100%
AT A GLANCE
The character of Metropolitan
4 | AT A GLANCE | METROPOLITAN
WE ARE A TRULY AFRICAN BUSINESS
We are a well-established, truly Africa-based business providing
aspirational individuals, and the people who represent them, with
customised financial services packages that protect and enhance
their assets.
Metropolitan has been providing need-specific financial
services in the lower to middle income market for over
a hundred years. The majority of existing policyholders
(in excess of 80%) are black.
METROPOLITAN | AT A GLANCE | 5
6 | AT A GLANCE | METROPOLITAN
AT A GLANCE
This is Metropolitan
WHO WE ARE
Metropolitan is the largest listed fi nancial services
group on the JSE focusing primarily on the needs of
low and middle-income earners.
WHAT WE DO
We have been providing specialised and affordable
medium to long-term insurance, administration,
investment and health solutions for 111 years. In
terms of client numbers, we are one of the top three
life insurance groups in southern Africa.
Our group comprises six independent operating
business clusters, each with clearly defi ned areas of
focus, performance and profi t objectives. They are:
Retail
Corporate
Asset management
International
Health
Strategic ventures
Our products range from life insurance for
individuals, including retirement annuities and
credit life cover, medical scheme administration,
managed healthcare, asset management services
and collective investment schemes, to employee
benefi ts packages for large and small organisations.
WHERE TO FIND US
Our head offi ce, Parc du Cap, is situated in Bellville,
Cape Town, South Africa. We have branch offi ces
throughout South Africa and subsidiary companies
in Botswana, Ghana, Kenya, Lesotho, Namibia,
Nigeria and Swaziland. We provide employment to
approximately 9 000 people.
WHY WE DO WHAT WE DO
As we continue to grow the wealth and support the
health of Africa’s people, we do so in the knowledge
that we are continuing a legacy: as a well-established,
Africa-based business adding meaningful and lasting
value to people’s lives.
HOW WE GOT TO TODAY
African Homes Trust (forerunner to Metropolitan) is established as an informal association to help poor families to build homes
First branch opens in Paarl
Increasingly, women are appointed as “temporary clerks” to fi ll the positions of men signing up for WWI
The fi rst computer is purchased
1897 1914 – 18
METROPOLITAN | AT A GLANCE | 7
Homes Trust, Metropolitan Life, SAFAS and Dove merge to form Metropolitan Homes Trust Life
The company is renamed Metropolitan Life Limited or Metlife
Metlife lists on the Johannesburg Stock Exchange
1979 1985 1986
AS A LEADING BEE COMPANY IN SOUTH AFRICA WE STRIVE TO:
> implement policies and practices aimed at
redressing past imbalances
> create a diverse workforce
> support the development and advancement of
black employees
> eradicate unfair discrimination in the workplace
> contribute to the advancement of black
businesses
> uplift and empower disadvantaged
communities
MAKING HISTORY
Empowerment before its timeWe have consistently maintained our ranking as
one of the most empowered fi nancial services
companies in South Africa. In acknowledgment of
this achievement, we were rated as one of the
Top 10 empowered companies in the independent
Financial Mail/Empowerdex Top Empowerment
Companies survey in March 2008.
WHAT YOU CAN FIND ONLINE
All the information contained in our annual
and sustainability reports is on our website at
www. metropolitan.co.za. You can also fi nd information
on our share price and performance and other
economic data.
OUR GEOGRAPHICAL FOOTPRINT
In-force ordinary business per province
AT A GLANCE
This is Metropolitan
Parc du Cap, Metropolitan’s current head offi ce, is completed. A BEE consortium – eventually called New Africa Investments Limited (NAIL) – acquires a 10% stake in Metropolitan. Dr Nthato Motlana becomes the fi rst black chairman of Metropolitan.
Metlife Health Services is launched
Metropolitan Employee Benefi ts established
Metropolitan branches out into Africa by establishing subsidiaries in Namibia and Botswana
Metropolitan celebrates its centenary (1897 – 1997)
Metropolitan Asset Managers becomes an independant company
1991 1997 1999
OUR BRAND
“Alone I can’t, together we can”
Our brand positioning remains true to our
unwavering core ideology of being people and
community focused. We acknowledge that the
only way to succeed in our current environment is
through collaboration. Partnerships are imperative
if we are to achieve long-term sustainable fi nancial
security for all our stakeholders.
The words “Alone I can’t” say it all: Metropolitan
knows that it cannot deliver on its vision alone.
We need all our stakeholders working together
towards a common goal because “together we
can” . Only by joining hands and striving to achieve
the same objective will we succeed in reaching it.
8 | AT A GLANCE | METROPOLITAN
Limpopo
Northern Cape
Western Cape
Eastern Cape
Free State
North West
KwaZulu-Natal
MpumalangaGauteng
Kagiso Trust Investments (KTI) becomes Metropolitan’s strategic empowerment partner – currently controls 23.8% of issued shares
Metropolitan expands its footprint into Africa, acquiring a majority stake in an existing insurance company in Ghana and establishing a joint venture with a Nigerian fi nancial services group Wilhelm van Zyl is
appointed group chief executive
Metropolitan International accorded business cluster status
Metropolitan Property Services established
20082001 2004TODAY
INFORMATION OF INTEREST
> Diluted core headline earnings per share remained
strong at 151 cents, increasing by 6% over 2007.
> Metropolitan Health Group’s (MHG) total principal
members under administration, including franchise,
at the year-end exceeded 750 000 (almost 2 million
lives), confi rming MHG’s status as South Africa’s
largest administrator of restricted medical schemes.
STRATEGIC FOCUS AREAS
> Improved investment performance
> Increased geographic reach
> Expanding relevant product offering
> Enhancing client access and building brand
> Managing through current economic cycle
> Expenses, persistency, capital, risk management
KEY AREAS OF STRENGTH
> Sustainable premium income
> Strong increase in retail new business growth
> Assets under management
> Scale in admin businesses
> Robust capital position
> Attractive dividend yield
> Sizeable geographic footprint
> Well positioned for further growth
METROPOLITAN & THE JSE
Listed ordinary shares 542m
Unlisted ordinary shares 14m
Preference shares 123m
Total shares in issue 679m
METROPOLITAN | AT A GLANCE | 9
Market cap at 31/12/08
R7.16bn – $758m
10 | FINANCIAL RESULTS OVERVIEW | METROPOLITAN
Analysis of diluted core headline earnings
2008Rm
2007Rm
Retail business 448 460
Operating profit 612 622
Tax (164) (162)
Corporate business 153 176
Operating profit 211 248
Tax (58) (72)
International business 94 110
Operating profit 107 116
Tax (13) (6)
Asset management business 65 70
Operating profit 92 96
Tax (27) (26)
Health business 100 64
Operating profit 142 116
Tax (42) (52)
Shareholder capital 151 123
Holding company expenses (55) (58)
Strategic ventures (78) (44)
Investment income on shareholder
excess
501 384
Income tax on investment income (217) (159)
Diluted core headline earnings 1 011 1 003
Embedded value
2008Rm
2007Rm
Diluted adjusted net asset value 6 571 7 648
Value of in-force business 4 759 4 789
Diluted embedded value 11 330 12 437
Diluted embedded value per share (cents) 1 709 1 832
Diluted net asset value per share (cents) 991 1 126
AT A GLANCE
Financial results overview
Net funds received from clients(R million)
2 000 4 000 6 000 8 000 10 000 12 000 14 000
04 2 147
05 5 800
06 2 759
07 12 462
08 8 335
Diluted core headline earnings per share and total dividend per share (cents)
04 06 07 0805
160
140
100
80
60
40
20
0
Diluted core headline earnings per share Total dividend per share
2 000
1 600
1 200
800
400
0
New business APE(R million)
04 06 07 0805
Value of new business
2005Rm
2006Rm
2007Rm
2008Rm
Compound growth(3 years)
%
Retail 10 0 114 119 211 28.3
Corporate 6 30 46 20 49.4
International 28 7 15 17 (15.3)
Asset management 22 25 35 39 21.0
Health 76 78 121 84 3.4
Total 232 254 336 371 16.9
METROPOLITAN | FINANCIAL RESULTS OVERVIEW | 11
OPERATING ENVIRONMENT
Overall
> Volatile investment markets continue
> Rising infl ation & interest rates
> Ongoing legislative reform
Retail
> Consumerism & pressure on disposable
income
> Improved value proposition required
> Impact of internal realignment of processes
and structures
Corporate
> Pension fund reform uncertainty
> Image of industry
> Niche opportunities remain
Health
> Industry impact of GEMS
> Increased pressure on non-healthcare costs
> Establishment of national health insurance
Asset management
> Increasingly competitive environment
> Growth in product offerings
> New CIO on board – team strengthened
International
> New markets offer exciting opportunities
> Local partnerships imperative for success
> Established markets very profi table, but
nearing saturation
APE % split of individual life new business production (per distribution channel)
20%Wholesale
39%Personal fi nancial advisers
27%Brokers
5%Third party
9%International
Contribution to diluted core headline earnings
R100mHealth
R65m Assetmanagement
R94mInternational
R153mCorporate
R448mRetail
R151mShareholdercapital
12 | FINANCIAL RESULTS OVERVIEW | METROPOLITAN
FIVE YEAR REVIEW
Compound
growth pa
% (i)
2008
Rm
2007
Rm
2006
Rm
2005
Rm
2004
Rm
Total assets under management 16.2 97 857 102 019 85 719 71 249 53 725
Total assets per balance sheet 11.8 69 613 75 183 66 271 53 248 44 587
Third party assets 32.6 28 244 26 836 19 448 18 001 9 138
Net funds received from clients 40.4 8 335 12 462 2 759 5 800 2 147
Actuarial value of policy liabilities 12.6 57 232 61 782 54 483 42 855 35 612
Excess – long-term insurance business (2.2) 4 913 5 715 5 836 6 144 5 367
Capital adequacy requirement (CAR) 10.6 2 336 1 609 1 592 1 426 1 563
CAR cover (times) (12.6) 2.0 3.4 3.6 4.3 3.4
Turnover (ii) 12.0 12 927 12 643 11 806 8 574 8 212
Infl ow
Net premiums received (iii) 11.2 11 836 11 648 11 030 7 886 7 754
Recurring premiums 9.5 7 472 6 913 6 301 5 770 5 190
Single premiums 14.2 4 364 4 735 4 729 2 116 2 564
Investment return (v) (3 892) 7 548 12 016 10 201 6 544
Investment income 29.9 4 250 3 501 2 489 2 010 1 495
Net realised and fair value (losses)/gains (8 142) 4 047 9 527 8 191 5 049
Infl ow – insurance business (iii) (13.7) 7 944 19 196 23 046 18 087 14 298
Infl ow – other businesses 3.2 799 1 297 1 105 1 016 705
Holding company (iv) (292) 302 329 328 247
Retirement administration 8.2 70 51
Asset management (v) 11.1 119 128 113 106 78
Asset administration (v) 18.7 79 102 103 63 40
Health administration (v) 24.7 823 714 560 519 340
Outgo
Net benefi ts and claims (iii) 14.5 9 777 7 558 7 152 7 117 5 685
Expenses
Management expenses 21.1 1 796 1 355 1 253 976 834
Distribution costs 18.5 240 123 127 128 122
Administration expenses 21.6 1 556 1 232 1 126 848 712
Sales remuneration 7.4 994 1 001 904 862 747
Outgo – insurance business (iii) 14.7 12 567 9 914 9 309 8 955 7 266
Outgo – other businesses 25.6 1 151 1 050 679 687 462
Holding company (iv) 45.1 244 249 57 126 55
Retirement administration 75 51
Asset management 12.9 93 106 89 68 57
Asset administration 28.2 59 40 45 29 22
Health administration 20.0 680 604 488 464 328
Earnings attributable to equity holders (319) 1 503 1 947 1 600 1 653
Core headline earnings 15.9 871 860 730 639 482
Diluted core headline earnings 19.5 1 011 1 003 847 708 495
Core headline earnings per share 21.2 167.18 160.15 130.36 109.04 77.49
Diluted core headline earnings per share 20.7 151.12 142.27 112.93 95.93 71.12
METROPOLITAN | FINANCIAL RESULTS OVERVIEW | 13
Compound
growth pa
% (i)
2008 2007 2006 2005 2004
Ordinary dividend per share (cents) 16.3 95.00 95.00 77.00 63.00 52.00
Ordinary dividend cover
(core headline earnings) 4.2 1.76 1.69 1.69 1.73 1.49
Diluted number of shares in issue (million) (vi) (2.7) 663 679 722 765 739
Share price at year-end (cents) (0.2) 1 080 1 509 1 500 1 185 1 090
Market capitalisation (Rm) (2.9) 7 160 10 246 10 830 9 065 8 055
Diluted embedded value (Rm) 5.8 11 330 12 437 12 287 11 468 9 056
Diluted embedded value per share (cents) 8.7 1 709 1 832 1 710 1 499 1 225
Return on embedded value (%) (vii) (2.1) 17.8 26.1 28.9 29.6
New business premiums (Rm)
Recurring premiums (0.6) 1 278 1 102 983 917 1 311
Retail business 6.0 961 804 753 732 762
Corporate business (17.3) 210 207 141 80 448
International business 1.5 107 91 89 105 101
Single premiums 14.3 4 314 4 794 4 690 2 088 2 527
Retail business 26.7 3 239 2 519 1 872 1 369 1 258
Corporate business (1.9) 979 2 154 2 661 545 1 059
International business (17.8) 96 121 157 174 210
9.9 5 592 5 896 5 673 3 005 3 838
Annual premium equivalent (viii) 2.2 1 709 1 581 1 452 1 126 1 564
Number of in-force policies:
individual life (million) 4.8 4.7 4.2 4.3 4.1 3.9
Number of employees 5.8 9 050 8 275 7 637 7 325 7 229
Indoor 10.1 5 256 4 866 4 321 3 899 3 578
Field 1.0 3 794 3 409 3 316 3 426 3 651
Consumer price index (ix) 6.1 126.70 115.20 108.00 103.40 100.00
CPI adjusted fi gures
Premium income (Rm) 4.8 9 342 10 111 10 213 7 627 7 754
Core headline earnings per share (cents) 14.2 131.95 139.02 120.70 105.45 77.49
Dividend per share (cents) 9.6 74.98 82.47 71.30 60.93 52.00
Share price at year-end (cents) (6.0) 852 1 310 1 389 1 146 1 090
R/US$ exchange at year-end 13.6 9.39 6.86 6.99 6.32 5.64
Average R/US$ exchange rate for year 6.5 8.28 7.01 6.50 6.36 6.44
Over four years, based on rand amounts(i)
Turnover consists of premium income (insurance and investment contracts) and the infl ow of other businesses, excluding the holding (ii)
company.
Consists of insurance and investment contract business(iii)
Includes holding company and consolidation adjustments(iv)
Includes fees received and investment return(v)
2008 is net of 16 million treasury shares; 2007 is net of 44 million treasury shares; 2006 is net of 27 million treasury shares(vi)
Growth in embedded value adjusted for changes in shareholder equity expressed as a % of the embedded value at the beginning of the year, (vii)
adjusted for capital movements during the year.
APE represents new recurring premiums plus 10% of single premiums(viii)
Consumer price index – metropolitan areas as disclosed by Statistics South Africa (average over reporting year). The 2004 base value was set (ix)
at 100.
SOUTH AFRICA4 million individual life policies
INTERNATIONAL615 226 individual life policies
insuring the lives of some
4 MILLION SOUTH AFRICANS
14 | METROPOLITAN
Providing aspirational
individuals, and the people
who represent them, with
customised financial services
packages that protect and
enhance their assets.
Th
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METROPOLITAN | 15
BOARD OF DIRECTORS
Preston SpeckmannPhillip Matlakala
Syd Muller
Prof Wiseman Nkuhlu
John Newbury
Andile Sangqu Marius Smith
16 | BOARD OF DIRECTORS | METROPOLITAN
Fatima Jakoet Peter Lamprecht
Bulelwa Paledi
Franklin Sonn Johan van Reenen
Wilhelm van Zyl
JJ Njeke
METROPOLITAN | BOARD OF DIRECTORS | 17
18 | BOARD OF DIRECTORS | METROPOLITAN
Prof Wiseman Nkuhlu 63BCom, CA(SA), MBA (New York)In addition to his formal academic qualifi cations, Prof Wiseman
Nkuhlu is the recipient of six honorary doctorates – three in
commerce from the universities of the Free State, Pretoria and
Stellenbosch respectively, one in economic sciences from the
University of Cape Town, one from the Nelson Mandela Metropolitan
University and one from the University of Witwatersrand.
Amongst the highlights of his academic career were his
professorship of accountancy at the University of the Transkei and
his fi ve-year tenure as principal of the university. He is currently
the chancellor of the University of Pretoria.
He was president of the SA Institute of Chartered Account ants for
two consecutive terms of offi ce (1998 – 2000) while at the same
time serving as the fi rst chairman of the Council on Higher
Education (1998 to 2002). Through his leadership of the council,
Prof Wiseman played an important role in the repositioning of
higher education in the post-apartheid era.
In 1990 the Association for the Advancement of Black Accountants
of Southern Africa (ABASA) presented him with a special merit
award for his active involvement in promoting the accounting
profession amongst black people while in 2004 the University of
Fort Hare established the Nkuhlu Centre of Accounting in his
honour.
Prof Wiseman is currently a director of Eastern Cape Development
Corporation (chairman), AngloGold Ashanti, Datatec and Bigen
Africa Consulting Engineers (chairman). He established Pan-
African Capital Holdings in July 2005 and was appointed chairman.
In 2006 he accepted the chairmanship of Kagiso Trust Investments.
He is also chairman of Metropolitan Life Ltd. *2007
Phillip Matlakala 54BJuris, BProc, Programme in Taxation and Financial Planning for Life Assurance ConsultantsPhillip Matlakala is currently serving as chief executive of the
group’s retail cluster. His other directorships include those of
executive director at Metropolitan Holdings, Metropolitan Life,
Metropolitan Card Operations and Union Life. *2007
Preston Speckmann 52BCompt (Hons), CA(SA)Group fi nance director Preston Speckmann held a senior
position with Old Mutual before joining Metropolitan Holdings
Limited. He was previously also an audit partner at Coopers &
Lybrand and held directorships in the Pepkor Group and
Seagram SA.
He serves on the boards of Metropolitan Life Ltd, Metropolitan
Health, Metropolitan Collective Investments and Metropolitan
Card Operations. He is also a member of the group’s executive
committee. *1999
Wilhelm van Zyl 43BCom, FIA, AMP (Harvard)Wilhelm van Zyl was appointed as managing director of
Metropolitan Odyssey in 1999. This followed on the acquisition
of Commercial Union Life and Protea Life. Thereafter he was
appointed as group actuary before becoming head of the
group’s corporate business in 2006. His appointment as group
chief executive was effective from April 2008.
Wilhelm chairs the group’s executive committee and is the
managing director of Metropolitan Life Limited. He also serves
on the boards of Metropolitan International, Metropolitan
Asset Managers, Metropolitan Card Operations, Metropolitan
Retirement Administrators and Metropolitan Health. He is a
director on the board of the newly established industry body,
Association for Savings and Investment South Africa (ASISA).
*2008
Fatima Jakoet 48 BSc, CA(SA)Fatima Jakoet currently conducts her own business consulting
practice. She was formerly general manager at both Denel and
Eskom.
Fatima has previously served on the Metropolitan board (May
1996 to November 2001). She currently serves as director of
the SA Reserve Bank Group, MTN Group (West Africa Region),
Impala Platinum, NewClicks Holdings, Tongaat Hulett,
Metropolitan Health, Qualsa Healthcare, Metropolitan
International and Metropolitan Life. *2005
Peter Lamprecht 66BSc, FIA, FASSAPeter Lamprecht was formerly chief executive of life insurance
companies and chairman of an actuarial consultancy. He chairs
the risk and actuarial committees and the board of trustees of
the Metropolitan retirement annuity funds. He also serves on
the board of Metropolitan Life Limited and on the audit
committee. *2002
Syd Muller 60BCom (Hons), CA(SA), MBA, AMP (Harvard)Syd Muller was formerly the chairman of Woolworths Holdings
and a director of other companies in the Wooltru group. He is
chairman of Metropolitan Card Operations, serves on the
board of Metropolitan International and on the audit and
investment subcommittees of Metropolitan Holdings. He is
also active on the boards of a number of private companies.
*1994
John Newbury 66John Newbury serves on the boards of various companies,
including Dorbyl Limited and SAIL Group Limited. He also
serves on the boards of Metropolitan Card Operations,
Metropolitan Health and Union Life. *1993
BOARD OF DIRECTORS
METROPOLITAN | BOARD OF DIRECTORS | 19
Johnson (“JJ”) Njeke 50BCom, BCompt (Hons), CA(SA), HDip TaxPrior to his appointment as group managing director of the
Kagiso group, JJ Njeke, a chartered accountant, spent
six years as audit partner at PricewaterhouseCoopers.
He is also the deputy chairman of Kagiso Media Limited and a
director of several companies within the Kagiso group. He
serves on the board of Metropolitan Health and is the past
chairman of the South African Institute of Chartered
Accountants and of its education committee. He also serves
on the boards of ArcelorMittal (SA), NM Rothschild (SA),
Resilient Property Income Fund, MTN and the Council of the
University of Johannesburg.
He previously served as a member of the Katz Commission of
Inquiry into Taxation in South Africa, the General Committee of
the JSE Limited, the Audit Commission – supervisory body of
the Offi ce of Auditor General, the audit committee of National
Treasury and the editorial board of The Journal of Accounting
Research. *2004
Bulelwa Paledi 38BA, LLB, LLM (Georgetown, USA)Bulelwa Paledi is the managing director of Ndamase
Incorporated, a 100% black female-owned and controlled
commercial law fi rm in KwaZulu-Natal. She is a former
chairperson of the Black Lawyers Association in KwaZulu-
Natal.
She also serves on the boards of Metropolitan International
and the International Convention Centre (ICC) in Durban.
*2005
Andile Sangqu 42BCompt (Hons), HDip Tax Law, MBLAn accountant and tax expert, Andile Sangqu is currently the
group executive at KTI. He completed his articles with
PricewaterhouseCoopers and spent 12 years working in
fi nancial management positions at a number of South African
corporations, eg Impala Platinum and Liberty Life. Prior to
joining Kagiso Trust Investments, Andile was the CEO of
Prodigy-Coris Asset Management. Andile serves on a number
of corporate boards and also chairs the public works and
department of local government audit committees. He also
serves on the boards of Metropolitan Life, Metropolitan
Retirement Administrators and Qualsa Healthcare. *2004
Marius Smith 68BCom, FFAManaging director of Metropolitan Life Ltd from January 1991
to April 1998, Marius Smith chairs the audit committee and
also serves on the boards of Metropolitan Namibia, Sasfi n
Holdings and Sasfi n Bank. *1988
Franklin Sonn 69BA (Hons), STD, FIACFranklin Sonn served as democratic South Africa’s fi rst
ambassador to the United States (1995 – 1998), is the recipient
of several honorary doctorates and has held many distinguished
positions. He was rector of the Peninsula Technikon from 1978
to 1994. He currently serves on the boards of many companies
including Absa Group, Sappi, Steinhoff International Holdings,
Pioneer Food Group, Macsteel Service Centres S.A., RGA
Reinsurance SA. and Esor. He is also chairman of the Airports
Company of SA, Ekapa Mining, JIA Piazza, Kwezi V3 Engineers,
Xinergistix, Imalivest, African Star Ventures and Cape Star
Investments. He is the chancellor of the University of the Free
State, a member of the Nelson Mandela Foundation advisory
board and former president of the Afrikaanse Handelsinstituut.
Franklin previously served on the Metropolitan board from
April 1983 to March 1995. He also serves on the board of
Metropolitan Life. *1999
Johan van Reenen 53BSc (Hons), MBACurrently executive director of Imalivest, Johan van Reenen has
a wealth of expertise and experience in investment banking and
asset management, both locally and internationally, gained while
he was executive director of Genbel Securities from 1996 to
2001, and managing director of Gensec Asset Management
from 1998 to 2000. He is chairman of Metropolitan Asset
Managers and Metropolitan International and serves on the
board of Metropolitan Capital. *2001
* Appointed to the board
1. WILHELM VAN ZYL
GROUP CHIEF EXECUTIVE
Responsible for setting the strategic direction of the group
in conjunction with the board of directors and overseeing
the implementation thereof.
2. PHILLIP MATLAKALA
CHIEF EXECUTIVE: RETAIL
Responsible for developing, distributing, administering
and servicing individual life investment and risk products,
targeting the lower and middle income markets in particular,
with a niche focus on the upper income market.
Makes use of alternate distribution channels such as
telemarketing for the distribution of packaged fi nancial
services products.
Willem Coetzee – resigned 30/09/08
Vasta Mhlongo – resigned 31/12/08
3. PRESTON SPECKMANN
GROUP FINANCE DIRECTOR
Responsible for providing fi nancial services to the group,
comprising fi nancial reporting, fi nancial administration,
ledger processing and reporting, actuarial support, systems
development and support, taxation consulting and support,
project management as well as investor and fi nancial media
relations, in support of the group’s fi nance strategy.
4. NKOSINATHI CHONCO
GROUP EXECUTIVE: GROUP EMPOWERMENT AND CORPORATE AFFAIRS
Responsible for two main areas: group brand and corporate
affairs, including brand strategy, internal and external
communications, sponsorships, corporate social investment
(CSI) and selected key account management.
2
6
EXECUTIVE COMMITTEE
7
1
3
20 | EXECUTIVE COMMITTEE | METROPOLITAN
5. BLUM KHAN
CHIEF EXECUTIVE: HEALTH BUSINESS
Provides medical aid administration services, health risk
management services, managed healthcare (Qualsa) and
administration system franchising to both corporate and
retail healthcare schemes.
6. WIEBKE LUSTED
GROUP EXECUTIVE: GROUP PEOPLE SERVICES
Responsible for providing the full spectrum of people
management services, including recruitment, skills
development, remuneration, incentivisation, leadership
development and succession planning, payroll
administration, employee wellness and transformation.
7. JOHN MELVILLE
CHIEF EXECUTIVE: CORPORATE
Provides employee benefi ts products and services to groups
of employees, including retirement fund administration,
group insurance, investments, annuities, and actuarial
consulting. The business unit incorporates Metropolitan
Employee Benefi ts and Metropolitan Retirement
Administrators.
8. DEREK PEAD
CHIEF EXECUTIVE: STRATEGIC VENTURES
Responsible for Cover2go and other strategic ventures.
9. JUSTIN VAN DEN HOVEN
CHIEF EXECUTIVE: INTERNATIONAL
Responsible for opening up new markets outside South
Africa, focusing on Africa, and existing businesses in
Namibia, Botswana, Lesotho, Swaziland, Kenya, Ghana
and Nigeria.
8
45
9
METROPOLITAN | EXECUTIVE COMMITTEE | 21
22 | CHAIRMAN’S LETTER TO SHAREHOLDERS | METROPOLITAN
Take comfort
At the outset, I would like to reassure you that Metropolitan
endured the punishment meted out by market forces during
2008 to emerge slightly bruised but defi nitely not bowed. In
fact, in several areas – including its net asset value and the
cover multiple of its capital adequacy requirement – the
pounding the group took as a result of the adverse market
conditions, along with the rest of the fi nancial services sector
in this country, was not as painful as it could have been. In
others, for example cash fl ow from clients and retail new
business, it triumphed over external circumstances (see pg 45
for more detail). In times of such extreme turbulence,
achievements such as these are a very real source of solace.
Metropolitan does not exist, and even more importantly does
not operate, in a vacuum. It is therefore important that you
share our understanding of both international and local
developments – and have the assurance that we are fully
aware of how they impact on us, and our responsibilities in this
regard.
International and national economies
Severe turbulence on global investment markets has, according
to minister of fi nance Trevor Manuel, plunged the world
economy into its deepest crisis since the great depression of
1929. What started out as a geographically confi ned credit
crunch, soon spread. Economic activity, both imports and
exports, began to slow world-wide in response to the avalanche
of bad fi nancial news triggered by the sub-prime mortgage
crisis in the USA. Commodity prices tumbled and production
levels plummeted; major retrenchments followed. What should
have been a contagion limited to the developed world, began
to engulf the developing world as well.
Dear Shareholder
As our business is focused primarily on low and middle
income earners, we are one of the few providers in the industry
operating predominantly in expanding markets.
CHAIRMAN’S LETTER TO SHAREHOLDERS
METROPOLITAN | CHAIRMAN’S LETTER TO SHAREHOLDERS | 23
Despite a well-regulated banking system, low levels of public
debt and virtually non-existent exposure to so-called toxic
assets, all of which make South Africa less vulnerable to
fi nancial shocks, prices of local stocks and shares nose-dived
and the value of the rand depreciated sharply. While prudent
macro-economic and fi scal policies have given the South
African economy greater resilience than most, they could not
cushion it in full against the far-reaching effects of international
trade and investment weakness.
Several of the major sectors, including mining and
manufacturing, wholesale and retail trade, contracted while
overall a marked slowdown began. Growth in gross domestic
product (GDP) dropped to its lowest level in ten years.
A much higher economic growth rate is now required, together
with a sustainable current account of the balance of payments,
which can only be achieved by exporting more and importing
less. In addition to a much stronger export orientation,
enhanced productivity levels and higher savings and investment
rates are imperative, for institutions and individuals alike. This
is where life insurance companies – Metropolitan among them
– with their emphasis on wealth creation and management –
will aim to play an increasingly vital role.
As an industry and as a company, we can help to bring about a
closer alignment between the growth aspirations and growth
capacity of South Africa through a major drive to mobilise
money for savings and investment purposes as opposed to
consumption. We can also make a signifi cant contribution to
this end through ongoing investment in human capital.
Metropolitan is and will remain committed to both these
objectives, not only in this country but throughout our African
operations.
Local political scenario
With global investment market volatility having pushed several
major industrialised economies into recession, and many more
teetering on the brink, South Africa has to be on its guard
against potentially destabilising factors. We cannot afford to
adopt an isolationist stance nor make populist promises that
we cannot keep. Resolute leadership and incisive policy
direction are required as we prepare for another general
election, the third since the start of our new democratic era in
1994, while staring certain harsh economic realities in the face,
including the fact that job creation will be under severe
pressure if the GDP growth rate continues to decline.
Stakeholder protection
Incontestable evidence of the solid fundamentals underpinning
Metropolitan’s business – as refl ected in the statement of
actuarial values of assets and liabilities on page 103 – is most
reassuring. However, fi nding out more about the group’s
unremitting efforts to afford stakeholders optimal protection in
these uncertain times, which are the focus of this report, will,
I am sure, give you additional peace of mind.
Professor Wiseman Nkuhlu
Group chairman
24 | CHAIRMAN’S LETTER TO SHAREHOLDERS | METROPOLITAN
National skills shortage
The results of the 2008 national skills audit, released earlier
this year, highlighted yet again the gravity of the situation
facing South Africa. According to the report, insuffi cient
managers and leaders across the employment spectrum
account for more than 30% of the skills shortage, although the
dearth is apparent at all levels of South African society.
Thanks to its focused recruitment, retention, recognition and
reward processes, Metropolitan is managing this critical issue
more successfully than most employers. The group is also
involved in extensive long-term planning on the organisation
and leadership development front to ensure the sustainability
of the results currently being achieved.
Training and development needs are accorded equal importance
at all levels of the organisation and in all skills categories, and
this all-important category of empowerment remains a top
priority for the group.
With a view to helping government attain its accelerated and
shared growth initiative goals for South Africa (ASGISA), which
include halving unemployment and signifi cantly reducing
poverty by 2014, we allocate a large percentage of our
corporate social investment budget to a broad range of
community-based educational initiatives targeting identifi ed
development needs (refer to our separate sustainability report
for additional information).
Legislative and regulatory environment
Despite the increasing number and complexity of the laws and
regulations with which the fi nancial services sector has
to comply, we will continue to work towards further
improvements to the legislative and regulatory frameworks
provided the twin aims remain consumer protection and value
enhancement. The effi cient and effective way in which
Metropolitan Retail is rising to the challenges posed by
the new commission regulations that came into effect in
January this year is covered in more detail in the review of that
cluster (pages 44 to 47). As I indicated in my last year’s letter
to you, representatives of our retail, corporate and health
business clusters are also actively involved in the national
social security reform process, with a view to ensuring the
model(s) ultimately adopted do indeed promote a well-
regulated, cost-effective and effi cient operating environment
in which optimum provision for retirement and healthcare can
be attained.
Sustainability issues, including corporate governance
requirements
As a group, Metropolitan is steadily progressing towards the
full integration of sustainable development principles into all
aspects of business decision-making, as evidenced by our
inclusion in the JSE’s social responsibility index for the third
year in succession. The principles of good corporate governance
– accountability and responsibility, fairness, openness and
transparency – are of course inextricably interwoven with the
former. These issues are addressed in depth in the corporate
governance report on pages 64 to 73. However, there is one
matter to which I would like to draw your attention. To address
the issue of my non-independence (as you are no doubt aware,
I am one of three directors nominated by Kagiso Trust
Investments (KTI) in terms of their empowerment partnership
agreement with Metropolitan) I am pleased to be able to
inform you that Peter Lamprecht has been appointed lead
director, in which capacity he leads the board in specifi ed
circumstances, including all instances where I am confl icted.
CHAIRMAN’S LETTER TO SHAREHOLDERS
continued
METROPOLITAN | CHAIRMAN’S LETTER TO SHAREHOLDERS | 25
In conclusion
Taking all these factors into account – and on the economic
front some of them are certainly forbidding – it is up to us, as
a group and as individuals, to continue doing everything in our
power to ensure that preparations for the even tougher times
that lie ahead are extensive, and intensive.
Metropolitan was undoubtedly buffeted by the elements
during Wilhelm’s fi rst year as group chief executive but his skill
as helmsman kept us fi rmly on course, and I would like to pay
tribute to him for a sure and steady hand on the tiller even
when the wind and waves were pounding relentlessly. I salute
you, Wilhelm, for the cool, calm and collected way in which
you responded to the challenges we faced.
My congratulations and deep appreciation also go to my fellow
directors, all the members of the Metropolitan management
team and staff across the group for remaining undeterred –
and undismayed – throughout 2008 despite everything with
which we had to contend. Your efforts were truly redoubtable.
Professor Wiseman Nkuhlu
Group chairman
As a group, Metropolitan is steadily progressing
towards the full integration of sustainable development
principles into all aspects of business decision-making, as evidenced by our inclusion in the JSE’s social responsibility
index for the third year in succession.
26 | GROUP CHIEF EXECUTIVE’S OVERVIEW | METROPOLITAN
Prosperity and prospects
GROUP CHIEF EXECUTIVE’S OVERVIEW
On fi rm footing despite quicksands
The economic situation in general, and investment markets in
particular, were extremely unstable during the twelve months
to 31 December 2008, with the latter scenario fl uctuating even
more wildly from September onwards. In addition to this
country’s own economic challenges (high infl ation and rising
interest rates) increasing globalisation has led to South Africa
and South African companies no longer being immune to what
is happening on the world stage. However, once you have had
a chance to study our 2008 annual fi nancial report, I am
confi dent you will share my optimism about the future in view
of our consistency in the face of the local and international
turmoil. Thanks to our resilience – from both a strategic and an
operational point of view – we weathered the turbulent times
to emerge in good shape at the end of the year.
Not only did we maintain the positive cashfl ows (recording a
net infl ow of R8 billion in 2008) for which we are renowned but
we also improved the quantity and quality of retail new
business written. The annual premium equivalent of retail new
business was 22% up on the 2007 fi gure while the value of
retail new business was 77% and its profi tability 45% higher.
Please refer to the group fi nance director’s overview on
pages 32 to 38 for further details.
Strategically robust
A steadfast strategic focus meant that Metropolitan had the
strength and stability to continue moving forward in 2008
despite the tricky conditions. The lower and middle income
markets have always been and remain pivotal to our business.
That we are the only major life assurer in the country focusing
primarily on these expanding markets continues to set us
apart, giving us an edge over our competitors, specifi cally as
far as the sustainability of our business model is concerned.
Our experience in these markets, built up over more than one
hundred and ten years, stood us in good stead as the external
That we are the only major life assurer in the
country focusing primarily on expanding markets continues
to set us apart, giving us an edge over our competitors.
METROPOLITAN | GROUP CHIEF EXECUTIVE’S OVERVIEW | 27
Wilhelm van Zyl
Group chief executive
situation deteriorated. Although we made some operational
adjustments to our business model, a redesign was fortunately
never necessary. Not only do we understand the logistics but
we also have unique insight into the behaviour of these
markets. Consequently we were able to carry on meeting the
needs of our customers from both a practical (accessibility and
affordability) and a philosophical (values driving their behaviour)
point of view.
By way of example, our sensitivity to the unusually high levels of
risk aversion amongst purchasers of our savings policies means
that we are constantly refi ning our smoothed bonus range of
products to meet their specifi c requirements. The roller coaster
ride that was 2008 once again demonstrated the benefi ts to
customers of using smoothed bonus products to protect
themselves against the vagaries of the investment markets.
Operationally solid
Looking at 2008 from an operational perspective, Metropolitan
delivered a similarly sound performance overall, with several
areas of excellence as set out in the pages that follow. In
pursuit of our mission to create prosperity for the people of
Africa by providing them with products and services that afford
fi nancial growth and security, our efforts to maintain and
wherever possible to improve the value proposition for our
customers were ongoing.
As I have mentioned, there were times during 2008 when it
was challenging to keep moving forward but we never
abandoned our quest for innovative ways of meeting the needs
of our customers, and ended the year with a more
comprehensive fi nancial solutions offering than we began it.
In line with our stated intention of marketing new products and
services to existing customers, and existing products and
services to new customers, we brought one new international
business on stream in a neighbouring country (Swaziland) and
one in the rest of Africa (Nigeria). The latter is the growth
market with the greatest potential on the African continent.
Efforts to strengthen existing and forge new business alliances
were ongoing across the group.
While on the subject of relationships, it is most pleasing to be
able to report that our proudly Metropolitan television
advertising campaign, entitled “Alone I can’t, together we can”,
also helped to build new, while at the same time bolstering
existing customer relationships. It achieved high ratings for
liking, noting (prompted and unprompted) and retention in the
relevant Millward Brown AdTrack report, thereby further
entrenching the Metropolitan brand, one of the group’s most
invaluable assets, in the hearts and minds of consumers.
Having made our products and services more readily accessible
to customers (whether our approach is in person or by phone),
thereby facilitating both sales and after-sales service, we have
been able to retain their loyalty and trust. Our proven ability to
deliver on the promises made to them also means that their
liking and respect for us is increasing.
Ongoing cost containment plus aggressive cost-cutting
initiatives, together with the relentless pursuit of enhanced
effi ciencies, in the retail cluster in particular, enabled us to
improve the affordability of our products and services, and also
supported the increase in the group’s profi tability. We are
asserting our dominance as a low cost, high volume retail
operator, an area where we currently excel as far as corporate
(group) and health business are concerned.
28 | GROUP CHIEF EXECUTIVE’S OVERVIEW | METROPOLITAN
In a sound fi nancial position
During 2008, the JSE/FTSE all-share index lost about a quarter
of its value. The severity of this equity market event is best
understood by bearing in mind that a 30% drop in market value
is normally used in the stress tests applied to equity
investments when determining a South African life insurer’s
statutory capital adequacy requirement (CAR). As would be
expected, the turmoil in investment markets has had an impact
on the capital position of the Metropolitan group. However, as
clarifi ed in the group fi nancial director’s report on pages 32 to
38, we remain strongly capitalised, with our minimum statutory
group CAR comfortably covered by 3.1 times.
Statutory CAR refers to the minimum amount of capital that
the life companies in the group are bound, in terms of Financial
Services Board (FSB) statutes, to hold at all times so as to
ensure that we are in a position to meet our fi nancial liabilities.
(The non-life businesses in the group do not take on any
signifi cant market or underwriting risk and therefore do not
have any regulatory capital requirements.)
In addition to our statutory CAR requirement, we also model our
longer-term economic capital requirement, taking into account
10 000 future market scenarios over a period of fi ve years.
Economic capital is not a minimum solvency level, but rather a
targeted level of capital. With the release of our interim fi nancials
for the six months to 30 June 2008, we informed the market
that, due to our concerns about the state of the investment
markets, we were not going to release any excess capital above
our long-term economic requirements – in hindsight a wise
decision. While the actual capital resources of the group are now
closer to our internally assessed economic capital requirement
than at any time in recent history, we are nevertheless confi dent
that we are more than adequately capitalised.
Although the funding levels of certain (profi t) participation
portfolios were below the 92.5% reporting watermark at the
end of 2008, the returns to clients over the last year still
compared very favourably to alternative investments in equity
market linked type investments – and even more so over the
medium term. We therefore continue to have full confi dence in
the value proposition of our smoothed bonus product range for
risk-averse policyholders.
In response to the ongoing uncertainty in investment markets,
we are employing various strategies to protect the solvency of
the group as well as client investments. In addition to
monitoring the levels of our bonus stabilisation reserve very
closely and adjusting bonus declarations in accordance with
clearly defi ned profi t participation rules/bonus philosophies,
we are currently applying market value adjusters in cases of
early fund withdrawals, except where these are provided as a
benefi t (for example on death, disablement and maturity).
Where appropriate, hedging strategies have been put in place
to reduce client and shareholder exposure to specifi c risks,
thereby reducing but not eliminating the effects of futher
market downside. Furthermore, a new corporate bonus series
was launched with effect from 1 January 2009, giving “new”
investments immunity to “old” risks.
Governance of client and shareholder funds is strengthened by
having separate investment mandates for different product
ranges and shareholder portfolios (ie for each of the life
companies and separately for excess assets), incorporating
asset allocation and asset quality directives. These mandates
are subject to regular review by the investment subcommittee
of the board, the asset/liability management committee, other
investment professionals and the relevant specialists within
the group.
With both the asset and the liability side of the investment
equation subject to stringent controls, and matching strategies
being put in place as and when appropriate, we continue to
manage our capital position to optimum effect. Any capital
concerns of the statutory actuary in the light of our statutory
CAR and/or economic capital requirement are accorded due
importance in our dividend policy, the aim of which is to provide
our shareholders with stable dividend growth that refl ects the
underlying growth in our earnings in the medium term while
allowing the dividend cover to fl uctuate. Capital reductions
and/or the raising of capital as well as share buy-backs remain
tactics of choice in our capital management strategy although
we only made use of the latter in the fi rst half of 2008.
The group was not immune to the direct impacts of the subprime
credit crisis in the United States of America. As part of our asset
diversifi cation strategy, we invested in certain high-grade
offshore bond portfolios which suffered mark-to-market losses
during the second half of 2008. Please refer to the group fi nance
director’s overview – pages 32 to 38 – for more details.
Leadership numbers not capabilities reduced
That the transition from Peter Doyle, who was at the helm of
Metropolitan for ten years, to me as group chief executive in
April 2008 was effected smoothly bears testimony to the
calibre of the group’s top team. We invest in leadership and
talent development at all levels on an ongoing basis, and
continue to make every effort to attract and retain talent.
My successor as head of the corporate cluster, John Melville,
also assumed his new responsibilities in August without
disruption to the smooth running of the businesses now under
GROUP CHIEF EXECUTIVE’S OVERVIEW
continued
METROPOLITAN | GROUP CHIEF EXECUTIVE’S OVERVIEW | 29
his control. Furthermore, when Abel Sithole, former head of
the asset management cluster, resigned in June 2008, there
was no faltering when his direct reports took over the reigns
from him thanks to our active encouragement of a culture of
entrepreneurship amongst all our employees.
Derek Pead, head of alternative distribution strategies, was well
equipped to take over Willem Coetzee’s responsibilities as head
of strategic ventures when the latter left the group in September.
This was an eminently logical move as both these businesses,
forming what is known as the strategic initiatives cluster, were
established to develop non-traditional products for distribution
to our existing customer base in non-traditional ways.
Both Derek and Justin van den Hoven, head of the international
cluster, have announced that they will be retiring in 2009. To
facilitate a seamless handover, they will start scaling down
their responsibilities in the second (Justin) and third (Derek)
quarters of the year. I am confi dent that the depth and breadth
of talent in the group’s existing management pool is more than
adequate to keep both the strategic initiatives and the
international cluster on track during the intervening period.
We remain committed to the quality rather than the quantity of
leaders in our employ, being acutely aware that a business is
only as good as its people, including those making the decisions
and acting upon them while at the same time being held
accountable for all their actions.
As you will have seen from the aforegoing, we have been able
to retain our existing management structures, and our
recognition and reward mechanisms are also unchanged. We
have, however, instituted a soft freeze on new appointments
and are keeping a close watch on staff numbers. Relatively few
retrenchments have been necessary to date.
Committed to changing legislative and regulatory
environments
The South African life insurance industry has a new
representative body, the Association for Savings and
Investment South Africa (ASISA), established in October 2008.
ASISA, into which the former Life Offi ces’ Association has
been incorporated, represents the majority of the country’s life
insurance companies, asset managers, collective investment
scheme managers, linked investment service providers and
multi-managers. The members of ASISA have mandated the
association to engage pro-actively with policymakers,
legislators and regulators, as well as intermediaries and
consumers, on important matters of common concern, such
as changes to environmental controls.
Bearing in mind the overarching objective – an enhanced value
proposition – of both the new commission regulations that
came into effect on 1 January 2009 (applicable to all investment
policies issued after that date) and the reduction in the penalties
applicable on early termination of endowment policies made
paid-up or surrendered, and retirement annuity contracts made
paid-up or transferred, we are staunch advocates of these
recent regulatory advances.
Unqualifi ed support for national social security reform
Once again I would like to go on record as saying that
Metropolitan is fully behind any moves aimed at improving
provision for the health and retirement needs of all the people
of South Africa. For example, a better regulated and more
affordable retirement industry, with far higher standards of
corporate governance, is undoubtedly in the best interests of all
concerned, including those currently operating in that arena.
Although some commentators have expressed the opinion
that Metropolitan, given that it focuses primarily on the lower
and middle income markets, will be more adversely affected
by the advent of mandatory participation in the proposed
national savings fund than its competitors, we do not share
this thinking. Our business will undoubtedly be affected, along
with all other players in this area, but we know that the rules
are going to change and as a business we are ready and willing,
and confi dent we will be able to adapt to the new challenges.
Our large footprint in the markets that we serve will assist us
in formulating and implementing an appropriate strategic and
operational response.
As one of the leading retirement fund administrators in
the country, and having relatively recently (in December 2006)
established a subsidiary, Metropolitan Retirement Administrators
(MRA), that specialises in the administration of so-called
superfunds, our corporate cluster has the proven capacity and
We remain committed to the quality rather than the quantity of leaders in our employ, being acutely aware that a business is only as good as its people, including those making the decisions and acting upon them while at the same time being held accountable for all their actions.
30 | GROUP CHIEF EXECUTIVE’S OVERVIEW | METROPOLITAN
capabilities to provide the logisitical support that the
government may require. At a group level, our track record in
public sector administration, and specifi cally our various high
volume, low cost administration platforms, also speaks for
itself. The Metropolitan Health Group (MHG) was awarded the
administration contract for the Government Employees
Medical Scheme (GEMS) for a second period of three years
with effect from January 2009 on the strength of its unbeatable
service delivery (from both a cost and an effi ciency perspective)
during its fi rst term as administrator.
Metropolitan Employee Benefi ts was the winner of a
Professional Management Review Africa (PMR) diamond
arrow award for the best administrator of pension funds with a
membership of more than 100 000, further independent
verifi cation of the group’s credentials in this regard.
We remain fi rmly of the opinion that certain of the proposed
social security reforms will open new avenues of individual and
group business for us and are continuing to develop products
to fi ll the gaps that we have identifi ed. A group-wide task team
has been established to evaluate opportunities as well as risks
on an ongoing basis. Whilst it appears that the deadline dates
for the implementation of holistic retirement fund reform and
national health insurance legislation and structures are still
some time away, ensuring that we are ready to make the
necessary adjustments to our business model remains high on
our priority list. We are keen to assist in bringing about solutions
that will best serve the interests of the full spectrum of the
South African population.
Exploring non-traditional avenues
The ability to offer non-traditional products to our existing
customer base via cost-effective non-traditional channels
remains an integral part of our overall business strategy. We
are constantly striving to increase our so-called alternative
development and distribution capacity via our strategic
initiatives business cluster.
During 2008 Metropolitan Card Operations (MC0), a wholly-
owned subsidiary, continued to offer basic banking products to
customers as a complementary way of meeting their savings
needs. The products included a personal loan facility, a credit
life product, a purpose-driven savings account and a
transactional bank account. Ultimately, adverse macro-
economic conditions have meant that people are no longer
keen to take on new debt and, in many instances, are unable
to service existing debt. Consequently MCO’s personal loan
facility is no longer being actively marketed except via our own
client service centres to Metropolitan clients.
Union Money, a joint venture company between Metropolitan
and the National Union of Metalworkers (NUMSA), registered
its fi rst product in January 2008. Known as Stokvel Plus, it is a
community-based fi nancial product designed to help members
save and secure loans that has been rolled out at several
companies where NUMSA members are employed.
Throughout the year under review Metropolitan Cover2Go
continued to pursue opportunities to co-create, in conjunction
with a partner or partners, fi nancial services products that are
convenient, relevant and opportune, as well as being affordable,
accessible and highly innovative. By way of example, in
September an off-the-shelf funeral insurance product was
launched in partnership with Shoprite. Consumers get all their
cash back if no claim is instituted on the life of the owner
during the fi ve year term of the policy. In excess of 13 500
CashBack starter packs had been sold by the end of the year,
more than 18.5% of which had been activated. The rate of
activation is increasing steadily over time.
Still transforming
Our efforts to create equitable workplaces for all our employees
are ongoing, with employment equity and skills development
remaining high on the agenda right across the African continent.
Preferential procurement (support for black suppliers) and
enterprise development (provision of training opportunities
predominantly for black businesses, especially SMMEs) are
also key areas of focus, along with a wide range of corporate
social investment initiatives, many of which are centred around
education and primary healthcare, including HIV/AIDS related
interventions. Financial empowerment – through improved
access to fi nancial products and services together with
fi nancial education – makes it possible for us to develop the
potential of the people with whom we do business and the
communities within which we operate, thereby contributing to
the creation of an inclusive economy.
GROUP CHIEF EXECUTIVE’S OVERVIEW
continued
The ability to offer non-traditional products to
our existing customer base via cost-effective non-traditional
channels remains an integral part of our overall business strategy.
METROPOLITAN | GROUP CHIEF EXECUTIVE’S OVERVIEW | 31
Going the extra mile
Before concluding my overview, I would like to pay tribute to all
the members of the Metropolitan team – from the directors
down through the ranks of management to each and every
member of staff, all 9 050 of them – who made the achievements
of the past year possible. Looking back, our progress through
the quicksands of 2008 is highly laudable. I thank you for the
resolute way in which you applied yourselves to the task at
hand even when the going was tough. May you display equal
tenacity of purpose and the same irrepressible energy and
enthusiasm in the year that lies ahead.
Short-term viability plus long-term sustainability
The preceding paragraphs all point to the fact that we at
Metropolitan, having clearly demonstrated our ability to
transcend hostile conditions in the short term, are ideally
positioned to continue delivering on our vision of creating
prosperity for the people of Africa. Thanks to sound
fundamentals, and the careful consolidation that was our main
aim during the volatile times with which we had to contend in
2008, neither our strategic nor our operational focus requires
signifi cant re-alignment.
Together we can.
Wilhelm van Zyl
Group chief executive
g
Wilhelm van Zyl
32 | GROUP FINANCE DIRECTOR’S REVIEW | METROPOLITAN
Experience and growth
GROUP FINANCE DIRECTOR’S REVIEW
Overview
In this section of the annual report I cover the fi nancial
performance of the group’s life insurance and administration
businesses. I will also highlight certain important factors that
impacted on the operations of the different businesses.
However, for detailed operational reports, please see the
review of operations starting on page 44. The fi ve year review
on page 12 provides a quick numeric overview of how the
group has performed over the past four years.
Operating environment
The past year was characterised by a consumer-led slowdown
in the domestic economy, soaring infl ation, currency volatility
and the spill-over effects from the global fi nancial turmoil.
Consumer infl ation (as measured by CPIX) remained well
outside the 3% to 6% target range used for monetary policy
and peaked at a record high of 13.6% in August 2008, which is
more than double the upper limit of the Reserve Bank’s infl ation
target. The average CPIX for 2008 came in at 11.3%,
substantially higher than the 6.5% recorded in 2007. The
main drivers of infl ation were food and transport costs,
increases which had a particularly negative impact on
consumers in the markets where Metropolitan operates. Food
infl ation peaked at 19.2% in August, while the price of petrol
soared to R10.70 per litre in July, mainly due to the spike in the
price of crude oil from around US$95 per barrel at the start of
2008 to US$147 per barrel in July. Accordingly, the South
African Reserve Bank (SARB) increased the interest rate twice
by 50 basis points during 2008. This brought the cumulative
increase in interest rates since the start of the hiking cycle in
June 2006 to fi ve percentage points.
Infl ation fears were fuelled by the volatility of the SA currency,
with the R/US$ exchange rate experiencing a bout of weakness
in February 2008 and then depreciating substantially to R11.58
at the end of October. The weaker rand impacted the infl ation
outlook mainly through higher transport costs, as oil had to be
imported at a higher rand price. Even though the rand remained
under pressure, the infl ation outlook improved materially
towards the end of the year. In the four months from August to
December 2008, CPIX declined by 3.3 percentage points and
we expect a further decline in the infl ation rate. The improved
outlook comes mainly as the result of a sharp drop in the price
of crude oil and slowing food prices. As a result, the SARB
opted to cut interest rates by 50 basis points at the Monetary
Policy Committee meeting in December 2008, dropping the
prime interest rate to 15% at the end of the year.
Economic indicators such as retail sales provided a clear picture
of the strain that South African consumers had to
endure throughout 2008. Despite these tough conditions,
Metropolitan Retail experienced no negative trends in the
persistency of new business written. Since May 2008 the
country’s year-on-year growth rate of retail sales has been in
negative territory, with the biggest decline in the sales of
durable goods. The GDP growth rate also weakened
substantially during 2008, with the economic growth rate for
the fi rst quarter of the year having been severely hampered by
disruptions in the electricity supply.
High levels of debt, high infl ation and high interest rates
severely depressed consumers’ disposable income over the
past year. Even though the recent decline in interest rates
should relieve some of the pressure on consumer spending,
we believe that the cuts in the price of petrol and lower food
prices will be of even greater benefi t to Metropolitan’s clients
in the retail business. The main reason being that the middle
and low income groups are less exposed to interest rates,
while bigger proportions of their income are spent on food and
transport. We have also seen a sharp decline in asset values,
for example equity and house prices, during the past year. This
might be another area in which Metropolitan’s clients have less
exposure.
However, the overall outlook for economic growth remains
bleak for at least the fi rst half of 2009. Against this background
and uncertainly as to how it will impact on investment markets
and our client base, management remains vigilant.
METROPOLITAN | GROUP FINANCE DIRECTOR’S REVIEW | 33
Preston Speckmann
Group fi nance director
Financial prudence
In my 2007 report I alerted you to the global equity market
volatility, and its potential impact on the group’s performance
in 2008. The reality is that markets across the world
subsequently saw a signifi cant decline in values that eroded
the earnings of corporations world-wide, and in some instances
even led to the demise of renowned international brands.
Metropolitan was no exception and earnings were heavily
dampened by the sharp fall in the value of equities.
Despite the negative effect of the economy and equity markets
on group earnings and operations, it was in several instances a
solid year for many of the businesses in the group.
As management, we maintain our practice of conservatively
managing our capital resources.
The euphoria created by the historic bull market has at times
resulted in unrealistic expectations from stakeholders in terms
of the return of capital. As a result, the group has in the past
been criticised for holding too much excess capital; however,
with the benefi t of hindsight, management and the board
made a very good strategic decision when they agreed earlier
in the year that the group would extract more benefi ts from a
strong balance sheet than a return of capital.
The meltdown in local and international equity markets over
the last four months of 2008 confi rms that a company like
Metropolitan, which does not have a parent company to offer
fi nancial support when needed, is wise to adopt a prudent
strategy regarding capital. What could have been perceived as
“very conservative” capital management, paid dividends when
the group’s strong capital position cushioned it against severe
market volatility.
The group’s long-standing commitment to rigorous under-
writing and strong risk management formed the foundation to
successfully managing the fi nancial challenges with which it
was faced during the recent market instability.
Protecting our capital
Paramount in the midst of all the uncertainties was the
challenge of maintaining a sound balance sheet, which was
achieved through both dynamic asset allocation and hedging
strategies in respect of shareholder and policyholder assets,
resulting in:
> The group being able to cover its capital adequacy
requirement (CAR) 3.1 times. This in itself is a notable
achievement against the background of a 26% drop in the
JSE all-share index.
> The net asset value (NAV) proving its resilience by reducing
signifi cantly less than the 26% drop in South African
equities overall.
> The internally assessed required capital of the life
businesses (of R4.3bn) being covered comfortably by actual
capital held in these entities.
> There being no need to raise additional capital to support
the business.
The very nature of Metropolitan’s smoothed bonus portfolio
meant that the extreme volatility of the equity markets would
have a negative impact on our bonus stabilisation reserves,
resulting in negative funding levels in some instances.
This scenario is not new to the group and when faced with a
similar situation in 2001, the necessary experience and
expertise in managing smoothed bonus portfolios enabled us
to return funding to positive levels within a relatively short
space of time through a suite of management actions.
Put in perspective, our balanced fund mandates still gave
clients relatively better protection versus an investment in the
all-share index. Management is confi dent that the smoothed
34 | GROUP FINANCE DIRECTOR’S REVIEW | METROPOLITAN
bonus suite of products remains a value proposition for clients
investing in Metropolitan.
Highlights of the results
Retail new business APE +22%
Retail value of new business +77%
Positive cashfl ow R8 billion
Insurance CAR multiple 2.0 times
Sources of income
The group’s principal cash infl ows come from its insurance
activities, fee-generating businesses and shareholder
investment activities. The graph below gives a breakdown of
the contribution to core earnings from the different businesses.
The retail business remains the biggest contributor, and
despite the economic slowdown, the health business
experienced strong growth in membership and lifted its
contribution to operating profi t by an impressive 56%.
Contribution to operating profi t (R million)
Group profi t drivers
Conservation
Managing the sales process to ensure the closest possible
correlation between product profi le and customer needs is a
major contributory factor in keeping business on the books.
Despite the greater demands on our customers’ disposable
income, persistency across all lines of business continued to
hold up very well. This is primarily thanks to focused attention
from retail on business conservation.
We are, however, monitoring the trends in persistency very
closely as the situation may worsen over time should the
economic environment not show signs of improvement.
Expense management
Despite many negative external infl uences, including the spike
in CPIX infl ation during 2008, management is satisfi ed with the
increase in unit costs. Comforting in this regard was the
positive impact of strong new business as well as further
growth of the in-force book.
In addition to its ongoing cost control mechanisms, the group
has announced a moratorium on the appointment of new
employees in the support divisions.
Investment performance
We are intensely aware of the vital part that solid investment
performance plays in the group’s ability to enhance its value
proposition for existing clients and to attract new ones.
MetAM has embarked on an extensive programme spanning
many months to improve its investment performance and
although there are encouraging signs of a turnaround, such as
its local bond holdings, there remains much room for
improvement. Performance targets are of critical importance
and are being closely monitored.
It must be borne in mind that the group employs various asset-
liability matching strategies. For example, liability professionals
within the business units assist with the process of matching
and risk mitigation in respect of both policyholder and
shareholder assets.
Although premium income growth across the life businesses
was substantially higher than in 2007, it was not suffi cient to
offset the impact of signifi cantly lower investment income
growth, which was in turn refl ected in earnings.
Critical numbers
Core headline earnings per share (CHEPS)
Management maintains that core headline earnings per share
(CHEPS) remains the most appropriate measure of growth in
the group’s sustainable earnings base. Because it excludes any
capital appreciation on shareholder invested assets, it is not a
suitable measure to produce a valuation; however, it does refl ect
more appropriately the rate of growth of the core businesses.
CHEPS excludes items of both a once-off and an inherently
volatile nature, such as changes to the valuation basis, investment
variances and capital appreciation/depreciation. Diluted core
headline earnings have been adjusted for expenses relating to
all convertible redeemable preference shares, staff share
schemes shares and treasury shares in issue.
Growth in diluted core headline earnings
2005 2006 2007 2008
Compoundgrowth
(3 years)
Rm Rm Rm Rm %
Retail 369 436 460 448 6.7
Corporate 115 145 176 153 10.0
International 86 61 110 94 3.0
Asset management 52 69 70 65 7.7
Health 20 51 64 100 71.0
Shareholders 66 85 123 151 31.8
Diluted core headline earnings 708 847 1 003 1 011 12.6
Diluted core headline earnings per share (cents) 95.93 112.93 142.27 151.12 16.4
Total dividend per share 63.00 77.00 95.00 95.00 14.7
GROUP FINANCE DIRECTOR’S REVIEW
continued
100 Health65 Asset management
94 International
153 Corporate
448 Retail
METROPOLITAN | GROUP FINANCE DIRECTOR’S REVIEW | 35
Metropolitan’s diluted core headline earnings for the year to
December 2008 increased by 0.8% to R1 011 million and the
equivalent per share number increased 6.2% to 151 cents per
share. Taking into account the tough economic environment
over the past year, we are particularly pleased to have achieved
a compound growth in excess of 16% over the past three years,
confi rmation of the underlying growth potential of the group.
In particular, the low growth during 2008 resulted from the
following:
> Retail core earnings, which were negatively affected by
once-off tax items and increased new business strain on
certain lines of business.
> Corporate’s core earnings, impacted by a reduction in risk
profi t margins – now at more normalised levels.
> Core earnings for the international life businesses, where
new business costs in the northern territories had a
dampening effect.
> Group core earnings, where lower than expected asset-
related fees that resulted from the lower policy asset base
detracted from performance.
Dividends
2005 2006 2007 2008
Dividend paid (cps) 63.00 77.00 95.00 95.0095.00
Special dividend/capital reduction 100.00 77.00
Growth in dividends per share (%) 21 22 23
Dividend cover (times – CHEPS) 1.5 1.5 1.5 1.61.6
Dividend yield (%) 5.3 5.1 6.3 8.88.8
The above table confi rms the cash-generative nature of the group.
It also refl ects Metropolitan’s commitment to providing share-
holders with stable dividend growth that refl ects underlying
earnings growth in the medium term, while allowing the dividend
cover to fl uctuate.
A total dividend of 95 cents per ordinary share (interim dividend of
40 cents plus a fi nal dividend of 55 cents) has been declared for
2008, resulting in dividend cover of 1.6 times, based on diluted core
headline earnings per share.
Preference dividends – performance margin
Provided Kagiso Trust Investments (KTI) achieves certain quali-
tative milestones, agreed upon in advance between Metropolitan
and themselves, they are entitled to an additional performance
margin of 0.5% every six months in terms of the dividend rights
attached to the A1 Metropolitan preference shares. The margin
is payable semi-annually, in conjunction with the half-yearly
dividend, until the preference shares have been redeemed.
A committee of the Metropolitan board, comprising indepen-
dent, non-confl icted, non-executive directors approves the
milestones and at the end of each review period determines
whether they have been achieved or not.
The committee reviewed the achievement of the agreed
milestones for the six months ended 31 December 2008, and
after due consideration, concluded that KTI did not achieve the
requisite weighted average of 70%. The performance margin
was therefore not awarded.
Refi nancing of KTI shareholding in Metropolitan
The current fi nancing arrangement of KTI’s (BEE) shareholding
in Metropolitan expires on 30 September 2009. On this date,
the preference shares must either convert to ordinary shares
or be cancelled.
KTI and Metropolitan are committed to working closely
together to secure a suitable refi nancing package should the
debt attaching to these shares not be settled by the date
mentioned above.
Value of new business (VONB)
2005 2006 2007 2008
Compound
growth
(3 years)
Rm Rm Rm Rm %
Retail 100 114 119 211 28.3
Corporate 6 30 46 20 49.4
International 28 7 15 17 (15.3)
Asset management 22 25 35 39 21.0
Health 76 78 121 84 3.4
Total 232 254 336 371 16.9
The value of new business is a measure of the value added to a
company by its activities. The value of new business is calculated
as the present value of the projected stream of future after-tax
profi ts of the new business sold during the twelve months,
allowing for all associated expenses and commission.
Despite increased competition in Metropolitan’s core retail
market, together with increased fuel and food prices that
impact directly on our clients’ ability to save, the retail business
has delivered sustainable value of new business over the past
fi ve years.
Features of the past year were strong growth in single premium
income and a signifi cant improvement in production from the
traditional distribution channels such as direct writers, group
schemes and the general intermediary channel.
The excellent value of new business achieved for retail (new
business margin at 16.4% of APE) was at the high end allowed
for by our pricing model. This margin was attained due to (a) a
good increase in volumes and (b) an improvement in the mix of
business plus (c) the technical impact of applying reduced
discount rates.
36 | GROUP FINANCE DIRECTOR’S REVIEW | METROPOLITAN
The corporate business experienced unusually high outfl ows
of funds, which were driven mainly by high levels of benefi t
payments. The business environment remains extremely
competitive and the ability to secure new business was
hampered by the downturn in the equity market.
This business is particularly well positioned to capitalise on
business opportunities when the markets recover. The newly
launched administration product, Neon, has been favourably
received and is starting to translate into new business infl ows.
The contribution from the international business to the group’s
total VONB was in line with expectations, bearing in mind the
penetration of life insurance products in the traditional countries
where we operate as well as the impact of new business strain
in the most recently acquired businesses.
Signifi cant growth in our public sector clients during 2008
resulted in a 19% increase in lives under administration by the
Metropolitan Health Group (MHG), including the Government
Employees Medical Scheme (GEMS) and franchise members.
New business margin
This represents the value of new business as a % of annual
premium equivalent (APE) or of the present value of premiums
(PVP).
31/12/05 31/12/06 31/12/07 31/12/08
% of APE
% of PVP
% of APE
% of PVP
% of APE
% of PVP
% of APE
% of PVP
Retail 11.5 2.3 12.1 2.1 11.3 2.0 16.4 2.8
Corporate 4.3 0.5 7.4 0.8 10.9 1.3 6.5 0.8
International 22.5 4.3 6.7 1.3 14.6 3.6 14.7 3.4
While profi t margins remain one of the most common measures
used by the investment community to value new business,
Metropolitan attaches greater importance to the volume,
persistency and costs incurred in putting business on the books
(ie the value).
The retail business comfortably exceeded its targeted new
business margin on an APE basis between 12% and 15%, by
posting a fi nal margin for the year of 16.4%.
As mentioned above, management is satisfi ed with this healthy
margin. However, we are fully aware of the challenges that
face the retail business, including (a) reservations regarding
persistency given recent views on the global and domestic
economy for the near future and (b) ongoing uncertainties
relating to the impact of regulatory changes such as the recent
commission restructure and the pending social security
reforms.
In respect of corporate new business, margins are infl uenced
by the mix of business written, and by the lumpy nature of
large single premium contracts. At times the latter have been
so large that, despite being priced at low margins in percentage
terms, they still made a sizable contribution to embedded
value and profi tability in rand terms. In the light of this, and the
tight processes around the risk management and pricing of
corporate business products, the group tends to place more
importance on the rand value of corporate business than the
margin percentages.
The standard classes of corporate business tend to carry higher
margins in percentage terms, although these are, of course,
constrained by the competitiveness of the corporate market.
On the international front, the longer term margin goal on an
APE basis is also in the vicinity of 12% to 15%. Currently it
stands at 14.7%, but we expect the margin to vary more from
year to year due to the fact that the relatively smaller life policy
books would be impacted to a larger extent by volatility in
underlying sales volumes and risk experience.
Acquisitions
DirectFin Solutions (DFS), a direct marketing company that
distributes Metropolitan products, was acquired during 2008. This
business, which is largely campaign driven, achieved mixed
results. Although there have been some encouraging signs in
terms of improved volume and persistency, it has been unable to
match the levels of new business recorded during 2005 and 2006.
Efforts to address persistency and profi tability are ongoing.
Group embedded value
Metropolitan’s group embedded value amounted to R11.3 billion
or 1 709 cents per share (2007: R12.4bn and 1 832 cents per
share).
The group achieved a negative return on embedded value of
only -2.1% for the year under review. Compared to the signifi cant
drop in the general equity investment markets, this result is
noteworthy and illustrates the impact of (a) the resilience of the
diversifi ed business to the economic downturn and (b) the
positive impact of shareholder capital protection strategies.
Group excess – top 10 equity holdings
31/12/2007 31/12/2008
Rm % Rm %
MTN Group Ltd 293 8.2 192 7.6
FirstRand Ltd 130 3.7 132 5.3
Billiton Plc 182 5.0 125 5.0
Impala Platinum Holdings Ltd 157 4.4 122 4.9
Standard Bank Group Ltd 211 5.9 115 4.6
Sasol Ltd 167 4.7 100 4.0
Anglo American Plc 133 3.7 90 3.6
Imperial Holdings Ltd 111 3.1 78 3.1
Compagnie Financiere Richemont – – 70 2.8
RMB Holdings – – 60 2.4
Remgro Plc 70 2.0 – –
Nedbank Group Ltd 90 2.5 – –
1 544 43.2 1 084 43.3
Total equities backing excess 3 575 100.0 2 504 100.0
GROUP FINANCE DIRECTOR’S REVIEW
continued
METROPOLITAN | GROUP FINANCE DIRECTOR’S REVIEW | 37
Value and size of the in-force book
Management is encouraged by the fact that the life businesses
are continuing to experience a net growth of the in-force policy
book. This growth, together with continuing net positive cash-
fl ows in a very diffi cult operating environment, will assist in
maintaining competitive unit pricing and sustainable profi ts.
The profi t margins from the underwriting of mortality and
disability risks in both the retail and employee benefi ts
businesses were also highly satisfactory. Given the fact that
the life business is essentially a low cost, high volume producer,
management is pleased with an average return on capital of
20% (allowing for the re-investment of dividends), achieved
over the last fi ve years.
Effective cost management, however, remains one of the most
important elements in enhancing the value of the in-force
book. Given the increasing demands relating to quality
customer service and regulatory compliance, management is
continually seeking more cost-effective methods relating to
the distribution, administration and information management
of our business.
The table below sets out the components of the embedded value:
31/12/07
Rm
31/12/08
Rm
Adjusted net asset value 7 648 6 571
Value of in-force 4 789 4 759
Diluted embedded value 12 437 11 330
Diluted embedded value per share (cents) 1 832 1 709
Return on embedded value – money weighted (%) 17.8 (2.1)
Capital management
For capital management purposes the current level of capital in
the group is defi ned as the difference between total assets
and total liabilities of the group, plus any qualifying debt
approved by the regulators. For the life companies, the assets
and liabilities are calculated on the regulatory basis.
The key objectives of the group’s capital management
programme are:
> To ensure that the level of capital will be suffi cient and to
manage the actual capital in line with the economic capital
model.
> To ensure that the level of capital refl ects the group’s risk
appetite; the fact that the group has no parent or strategic
partner also has a bearing in this regard.
> To ensure appropriate allocation and monitoring of capital by
line of business for both the life and non-life companies in
the group.
> To ensure ongoing refi nement of the group’s asset allocation
and hedging strategies as well as the economic capital
models.
The economic capital requirements for the life companies are
based on the results from a set of internal capital models that
make allowance for planned business growth and special
projects. The capital models are regularly updated to refl ect
changes in the economic environment and to identify risks
more accurately. Risks currently being modelled include market
risk, credit risk, insurance risk (including some allowance for
pandemic disease risk) and operational risk.
At 31 December 2008 the internally assessed required capital
of the life businesses (of R4.3bn) was covered comfortably by
actual capital held in these entities.
Statutory capital requirement
The life companies are required to maintain a minimum capital
balance equivalent to the statutory capital adequacy requirement
(CAR). This is available to meet obligations in the event of
substantial deviations from the main experience assumptions
affecting the company’s investment and insurance business.
At 31 December 2008 the group’s statutory CAR for life
companies was covered 2.0 times (2007: 3.4 times). The
ordinary CAR exceeded the termination CAR; therefore the
CAR multiple was based on the ordinary CAR. A detailed report
on capital management can be found on page 170 of the notes
to the fi nancial statements.
Share buy-backs
As a result of the fi nancial market turmoil and the impact
thereof on capital, the group’s buy-back programme was
restricted to the fi rst six months of 2008, during which
Metropolitan Life bought back 16 million listed ordinary shares
in the open market at a cost of R201 million. These shares
were acquired at a discount to embedded value at the time of
purchase and will enhance the earnings and embedded value
per share over the medium and longer term.
External rating
Metropolitan’s most recent external ratings were as follows:
Metropolitan Life Limited – national insurer fi nancial strength
(IFS) AA (zaf) and national long-term AA- (zaf); Metropolitan
Holdings – national long-term rating A+ (zaf).
These ratings refl ect Metropolitan’s strong capital position
and established business presence in its chosen markets.
They also refl ect its continued focus on international
expansion within Africa and strong black economic empower-
ment (BEE) credentials in support of its business position and
prospects.
International Financial Reporting Standards
In terms of International Financial Reporting Standards, there
were no signifi cant changes in 2008.
However, we are aware of specifi c standards that will become
effective in 2009. Please see page 108 of the accounting
policies for detail.
38 | GROUP FINANCE DIRECTOR’S REVIEW | METROPOLITAN
Short-term incentive scheme for staff performance
Executives and managers of the group participate in a
performance bonus scheme based on the attainment of pre-
agreed annual performance objectives for the group as a
whole, as well as performance objectives for the various
businesses within the group and for individuals. These
objectives, which include specifi c targets and measures, take
the form of balanced scorecards that are subject to board
approval and are ultimately incorporated into the group’s
business plans for the year in question. It is important to note
that bonuses are not guaranteed.
Thanks to the performance bonus scheme, exceptional
performance can be recognised and rewarded in line with the
group’s stated remuneration philosophy, which is to attract and
retain talent.
Long-term incentive scheme for staff retention
Like many other corporations, Metropolitan has moved away
from traditional staff share schemes and all existing schemes
have been closed for new allocations.
The current long-term incentive scheme is intended to promote
the alignment of the group’s interests with those of share-
holders and provide a retention incentive as part of the
remuneration structure. The scheme provides for an annual
deferred cash payment to members of management that is
linked to the performance of the group, with specifi c growth
targets for each award. Management have to exceed the
threshold target over a three year period in order to qualify.
The fi rst participation award in this scheme was made in
November 2006 and qualifying employees will receive cash
payments in November 2009. Currently 880 employees have
taken up the offer to participate in the scheme.
To promote good corporate governance and at the same time
enhance the alignment of the scheme with shareholder
interests, it is reviewed regularly.
Metropolitan’s strategic partner, Kagiso Trust Investments (KTI),
has also established an empowerment trust in which
management were afforded the opportunity to acquire shares.
Business imperatives
The following critical issues have been identifi ed and are
receiving the necessary attention at all levels:
> Improvement of the group’s investment performance
> Further enhancement of the group’s business intelligence
capability
> Recruitment, focused development, retention and a reward
process to meet future customer and market needs
> Lightening infrastructure costs in order to continue being a
low-cost provider of fi nancial services
> Successfully exporting and establishing the Metropolitan
brand in the rest of Africa
> Identifying and successfully concluding business oppor-
tunities that can benefi t from the group’s strong
administration capabilities
> Continuing to leverage the group’s strong BEE credentials
> Exploiting cross-selling opportunities.
Prospects
Despite large scale interventions by governments across the
world to stabilise global fi nancial markets, there has been no
real indication that confi dence in equity markets is returning to
an acceptable level.
On the contrary, global equity markets remain very volatile and
have deteriorated further since 31 December 2008 and may
continue to do so for a while longer. As a group we will monitor
trading conditions on an ongoing basis and take whatever
action is necessary to manage all aspects of the group’s
operations accordingly.
2008 was a challenging year and we learnt many lessons
during the course of it; however, we have embarked on 2009
with renewed energy and enthusiasm. Our strategic direction
is clear: our businesses are well diversifi ed and well positioned
to take advantage of the growth opportunities in our chosen
markets.
Acknowledgement
I would like to acknowledge the contribution of all the
businesses in the group as well as my fellow directors for their
dedication and strategic input in making Metropolitan the
highly rated provider of fi nancial services it has become.
Conclusion
Metropolitan’s strategy for growing the group going forward is
fi rmly in place and management remains committed to
exploring every possible avenue to enhance the value
proposition for all stakeholders.
Capital management remains high on the agenda, especially in
the current economic climate. Measuring the return on
allocated capital is critical and we will not hesitate to extract
capital from businesses that are underperforming in order to
apply it elsewhere. Effective cost management and increased
productivity across all the businesses in the group are high on
the list of priorities for 2009.
Preston Speckmann
Group fi nance director
GROUP FINANCE DIRECTOR’S REVIEW
continued
METROPOLITAN | INVESTOR RELATIONS REVIEW | 39
DEAR SHAREHOLDER
In my 2007 feedback to you I highlighted the fact that Wilhelm
van Zyl was appointed group chief executive and that he had
indicated his commitment to being accessible to all members
of the investment community.
Although most institutional investors and analysts had met
Wilhelm at some or other time prior to his appointment as
group CEO, we arranged a number of one-on-one meetings as
well as luncheons during which investors and the media were
given the opportunity to discuss the group’s strategy going
forward under his leadership.
These events were well supported and feedback received
confi rms that investors are generally well informed on group
strategy as well as the main drivers of growth and profi t.
The topics most frequently raised with management during the
past year were capital management, expense management,
expected growth within the international business, new
business fl ows and related retention within the retail business,
the proposed national retirement legislation and the impact
of the economic downturn on our business. We believe that
these topics have all been successfully addressed, but take
this opportunity to invite you to engage with us should you
wish to revisit any of the above.
On the international investment front, the market and currency
volatility experienced during the year had a defi nite impact on
South African markets and specifi cally also the fi nancial sector.
We saw a slowdown in the number of foreign fund managers
visiting the group and, despite increased efforts, interest
from investors in meeting with management during overseas
road shows also diminished. Despite the fact that a number
of foreign investors have withdrawn from emerging markets,
most of the leading South African asset managers increased
their holdings in Metropolitan.
Despite the negative sentiment globally on equities, we believe
that it is even more important for our business to retain a high
visibility and remain committed to regular communication with
investors. We will also continue to explore new avenues of
keeping in touch.
Tyrrel Murray
General manager, group fi nance
For shareholders, the fact that the total dividend for the year remained fl at at 95 cents is also indicative of Metropolitan’s resilience in the midst of one of the worst crises on fi nancial markets world-wide.
Tyrrel MurrayGeneral manager, group fi nance
INVESTOR RELATIONS REPORT
CSI projects, resourced by Metropolitan, either by way of finances or people, or both, are all community driven, with the group playing a facilitative role
40 | METROPOLITAN
EQUITY ANDSKILLS DEVELOPMENT REMAINS HIGH ON THEAGENDA RIGHT ACROSSTHE AFRICAN CONTINENT
Commitment to legislative and regulatory
compliance in respect of B-BBEE is ongoing,
being the basis on which all Metropolitan’s
business policies, procedures and practices are
formulated.
Jaso
n v
an
Gra
an
, re
tail
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op
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nt
METROPOLITAN | 41
ORGANISATIONAL STRUCTURE
METROPOLITAN HOLDINGS LIMITED
42 | ORGANISATIONAL STRUCTURE | METROPOLITAN
METROPOLITAN | ORGANISATIONAL STRUCTURE | 43
STRATEGIC VENTURES
Derek Pead
Responsible for Cover2Go and other strategic initiatives.
100% COVER2GO
100% METROPOLITAN CARD OPERATIONS (PTY) LTD
100% METROPOLITAN CAPITAL (PTY) LTD
HEALTH CLUSTER
Blum Khan
Provides medical scheme administration and managed care solutions, including customised outsourced administration, system licensing and integrated or stand-alone health risk management solutions.
100% METROPOLITAN HEALTH HOLDINGS (PTY) LTD
82.4% METROPOLITAN HEALTH CORPORATE (PTY) LTD
79.5% QUALSA HEALTHCARE (PTY) LTD
ASSET MANAGEMENT CLUSTER
Vacant
Attends to all aspects of asset management, including asset management for retirement funds, collective investments, and property management and administration, on behalf of all businesses in the group as well as third parties.
100% METROPOLITAN ASSET MANAGERS LTD
100% METROPOLITAN PROPERTY SERVICES (PTY) LTD
100% METROPOLITAN COLLECTIVE INVESTMENTS LTD
RETAIL CLUSTER
Phillip Matlakala
Develops, distributes and administers individual life investment and risk products; targets the middle and lower income markets.
* METROPOLITAN RETAIL
70% DIRECTFIN SOLUTIONS (PTY) LTD
50% UNION LIFE LTD
INTERNATIONAL CLUSTER
Justin van den Hoven
Extends the geographic spread of the group by opening up new markets, particularly in Africa.
76% METROPOLITAN LIFE OF BOTSWANA LTD
82% METROPOLITAN LIFE (NAMIBIA) LTD
100% METROPOLITAN LIFE INTERNATIONAL LTD
1 00% METROPOLITAN LESOTHO LTD
60% METROPOLITAN LIFE INSURANCE GHANA LTD
66.7% METROPOLITAN LIFE INSURANCE KENYA LTD
100% METROPOLITAN LIFE SWAZILAND LTD
50% UBA METROPOLITAN LIFE INSURANCE LTD
CORPORATE CLUSTER
John Melville
Attends to all aspects of retirement fund business, including investment, risk management, administration, and actuarial consulting.
* METROPOLITAN EMPLOYEE BENEFITS
80% METROPOLITAN RETIREMENT ADMINISTRATORS (PTY) LTD
* Part of Metropolitan Life Ltd 100%
44 | OPERATIONAL REVIEW | METROPOLITAN
MEMBERS OF RETAIL EXCO
Phillip Matlakala Chief executive
Herman Botha Head, independent distribution
Rob Duggan Head, wholesale distribution
Caroline Engelke Head, people development
Nathi Kunene Head, personal fi nancial adviser distribution
Mike McDougall Head, fi nance and business intelligence
Prevanya Moodley Head, compliance and legal
Andy Pitter Head, customer management
Marque van der Walt Head, business communication
Jannie Venter Head, marketing and business development
OPERATIONAL REVIEW
RETAIL CLUSTER
Phillip Matlakala, chief executive
With Phillip Matlakala continuing to oversee Metropolitan
Retail’s realignment and restructuring process, the cluster
redoubled its efforts to reinvent itself in 2008, moving a long
way from being a product pusher towards becoming an adviser
for life. Providing superior value for customers is now the
driving force behind all aspects of its operations, from design
to distribution, sales to service.
PRODUCTION
Retail’s life-event and lifestyle based products and services are
tailored to the needs of customers in the aspirant, emerging
and achiever markets that the cluster targets.
These are delivered to clients via various distribution channels.
Retail achieved record production during 2008, increasing the
number of policies issued and new business annual premium
equivalent (APE) by 12% and 17% respectively. Although still a
relatively small portion of total APE, which comprises new
recurring premium income and 10% of single premium income,
single premium growth was particularly pleasing.
Personal fi nancial adviser distribution (tied agents)
Under the leadership of Nathi Kunene, this channel, comprising
direct writers, group schemes intermediaries, personal fi nancial
planners and investment consultants, all employed by
Metropolitan, increased their APE production by 26%. This
was achieved in a challenging economic environment and,
despite the considerable economic pressure on customers,
the channel improved the persistency of its business on the
2007 levels. It is expected that persistency management will
present signifi cant challenges in the year ahead. Direct writers
and group scheme intermediaries continued to record strong
recurring premium production and achieved good
growth in single premiums, albeit off a low base.
Investment consultants grew their single
premiums by more than 90%. The personal
fi nancial planners channel was unable to make
substantial progress towards meeting its targets
and was closed during the fi rst half of 2008.
The group schemes channel returned to sound
growth in production from traditional sources of
business after a lacklustre performance in 2007.
Independent distribution (brokers)
The independent distributors were the responsibility of
Jacques Coetzer throughout 2008. Jacques has relocated as
managing director of UBA Metropolitan Life Nigeria and was
replaced by the highly experienced Herman Botha during
March 2009.
The broker distribution channel consists of general inter-
mediaries (GICs), independent fi nancial advisers (IFAs) and
Market share in different market segments
Salary Market size Metropolitan
Total market
penetration
Segment (individual) % % %
Mass R1 000 – R3 000 44 9 23
Aspirant R3 000 – R6 000 11 15 47
Emerged R6 000 – R12 000 9 12 63
Achiever R12 000+ 4 11 81
Metropolitan total market share 10
Source: All Media Products Survey (AMPS)
METROPOLITAN | RETAIL CLUSTER | 45
Retail performance overview
2008Rm
2007Rm
%change
Net premium infl ows 7 931 6 726 17.9
Recurring premiums 4 689 4 288 9.4
Single premiums 3 242 2 438 33.0
Payments to contract holders 5 011 4 180 19.9
Operating profi t net of tax 448 460 (2.2)
APE profi tability of new business 16.4 11.3 45.1
26% Wholesale distribution (including third party business)
31% Independent distribution (brokers)
43% Personal fi nancial
adviser distribution (tied agents)
77% increase in value of new business – up from R119 million to R211 million
broker network distribution. The general intermediaries, who
operate in the aspirant and emergent markets, were
the top performing unit. Their business model remains effective
in the current environment where increased regulatory
compliance requirements on independent intermediaries place
heavier burdens on small independent brokerages.
2008 was a diffi cult year for the IFA channel, especially in
respect of recurring premium production. While their single
premium production grew strongly, they experienced pressure
in terms of writing new recurring premium business thanks to
the sharper focus on profi table production and customer value.
The launch of a new range of risk products towards the end of
the fi rst quarter of 2009 is expected to contribute towards an
improvement in recurring premium production.
Outsourced distribution through broker networks has shown
strong growth, although off a low base, and there has been an
increased focus on securing business from corporate
brokerages.
As a whole, the independent channel increased their APE
production by 26%. This was due to a doubling of single
premium production across the channel and strong recurring
premium growth generated by the GIC channel. The focus for
2009 will be on continuing the strong GIC performance while
improving the recurring premium production of the other
channels with the launch of the new RiskPlan product towards
the end of the fi rst quarter.
Wholesale distribution
Within this channel, headed up by Rob Duggan, there are two
areas of focus: corporate clients and call centres. In the case of
the former, Metropolitan makes fi nancial services products
available in conjunction with other major corporations, be they
retailers, eg Woolworths or Edgars, or banks, eg Teba, utilising
the latters’ distribution networks. To date the emphasis has
been on credit life and funeral insurance but the potential for
expanding the product range is signifi cant.
DirectFin Solutions (DFS), a call centre employing some 400
telemarketers in which Metropolitan has a 70% stake, sells
huge volumes of low-premium funeral cover. In 2008 DFS
increased new business recurring premium income by 12%.
However, despite considerable efforts within both Metropolitan
and DFS to improve the quality of business, a sustained
persistency improvement has not yet been achieved.
The wholesale channel is also in the process of assessing the
suitability of other call centres who have expressed an interest
in marketing the Metropolitan product range. This strategy is
being actively pursued and is expected to commence
production during 2009. A stringent due diligence process is
followed to ensure the call centres comply with specifi ed
standards and provide appropriate service to our clients.
Union Life distribution
Union Life, formerly HTG Life, a separate company within
Metropolitan Retail with Sonja Visser as managing director, set
monthly premium income records on seven different occasions
during the year to December 2008, ending the reporting period
with total premium income of R165.8 million compared to
R135.2 million in 2007, an increase of 22.6%. Metropolitan
owns 50% of Union Life.
Viability modelling
During 2008 increased focus was placed on the viability
of each channel, area and branch, with the emphasis on
ensuring a profi table balance between production, persis-
Distribution split of annual premium equivalent (APE) new business production per retail distribution channel –
South Africa only
46 | OPERATIONAL REVIEW | METROPOLITAN
RETAIL CLUSTER
continued
tency, expenses and manpower changes. This focus will
continue during 2009. In support of this initiative, the
recruitment, development and retention programmes for
intermediaries, aimed at improving both productivity and
persistency, as well as at ensuring regulatory compliance, have
been reviewed and revitalised.
New distribution channels
Although the cluster is still working relentlessly towards
achieving optimum output from its existing distribution
channels, it continues to seek and cement partnerships that
will give it better and more cost-effective reach into selected
markets. Job losses are likely to be highest in the private sector
as the economic downturn deepens, giving extra impetus to
retail’s renewed drive into the public sector.
Alternative distribution strategies, aimed at putting business
on the books at a cost considerably lower than is currently the
case, are under constant investigation. Metropolitan represen-
tatives, including one from retail, submitted proposals to the
panel tasked by the government with making recommendations
on the rapidly evolving micro-insurance industry.
Intermediary training
Retail has made a signifi cant investment in intermediary
training, driven by the dual needs of providing optimal advice
to customers and meeting regulatory reguirements, particularly
with regard to the Financial Advisory and Intermediary Services
Act (FAIS). The objective is to have the entire sales force
acquire the NQF5 level Certifi cate of Wealth Management by
the end of 2009.
Ongoing intermediary and branch manager training has seen
more intermediaries qualifying to write single premium
business – which has contributed to the increase in single
premium production in the personal fi nancial adviser distribution
channel in particular – and to the improved productivity of
intermediaries in general.
Customer resilience
Customers at the lower end of the market proved to be
remarkably resilient despite a heavily depressed economic
environment, especially towards the end of 2008. Their relative
fi nancial buoyancy can perhaps be ascribed in part to the fact
that their consumption is mainly needs driven and they are
therefore not as affected by rising interest rates as those in
higher income brackets, not being indebted to the same
extent, if at all. Payout patterns were virtually unchanged
from the previous year, including disability claims, lapses,
surrenders and policy loans. Due to the inestimable cultural
value of a funeral, cover for this life event remains a high if not
the top priority for many customers. However, as the global
economic environment starts to impact more heavily on
employment levels in South Africa, signifi cant challenges in
securing premiums and retaining business are likely in the year
ahead.
Customer service
Retail strives to provide customer-aligned service, of both an
advisory and an administrative nature, as effi ciently and cost-
effectively as possible. The cluster focuses as much on retaining
as it does on gaining customers. To this end, the customer
service area, headed up by Andy Pitter, commissions an annual
customer satisfaction tracking study. Conducted on its behalf by
the independent survey specialists, Research International,
every year since 2003, the overall rating is based on twenty fi ve
satisfaction measures as assessed by a representative random
sample of customers who had interactions with service
consultants from the cluster. After dropping from a record 90%
in 2006 to 86% in 2007, the cluster achieved their second
highest score ever (89%) in 2008. In-house surveys, carried out
throughout the year, confi rm the cluster’s success in meeting
the service needs of customers.
An improvement in turnaround times across the board to the
point where 84% of all service interactions were completed
within the agreed timeframe was particularly pleasing. Absolute
dependability is an essential element in customer satisfaction.
Customer education has as vital a role to play in keeping
business on the books as it does in putting it there. Thanks to its
ongoing efforts to raise the level of fi nancial understanding
amongst customers, both existing and potential, the cluster
makes a meaningful contribution to higher conservation levels.
In addition, wide-ranging offensive and defensive strategies are
in place so that service consultants can respond proactively or
reactively as appropriate when persistency problems arise. In
2008 there was a 12% improvement in lapses at durations four
to twelve months, for which the customer service as opposed
to the sales team is responsible.
Although loan and surrender rates were consistent with
experience in 2007, reduced fund values due to the decline in
equity markets over the last quarter meant that there was an
effective increase in surrender payments as loan amounts began
exceeding fund values.
Annual premium equivalent of R60 million was secured via
repeat sales in 2008, and there was an increase in the percentage
of death and maturity claims reinvested.
Record R1.5 billion in new business APE
METROPOLITAN | RETAIL CLUSTER | 47
NEW INITIATIVES
Restructuring of commission regime
The new commission regulations that came into effect on
1 January 2009 apply only to investment policies issued after
that date; the existing commission structure still applies to all
risk policies as well as to automatic and voluntary premium
increases on existing policies. Although 50% of the new “as
and when” commission may be paid as a sales commission at
the point of sale, this will lead to signifi cant short-term cash
fl ow reductions for intermediaries. Metropolitan Retail has
been proactive in implementing the regulations in such a way
that the impact on our employed intermediaries is phased in
without our policyholders being negatively affected.
Metropolitan lobbied national treasury to ensure that
intermediaries servicing the lower end of the market, where
the impact of the new commission regime is likely to be the
most severe, would have a viable business in future. The
representatives of retail who served on the various committees
were instrumental in securing several concessions, including a
minimum sales commission payment of R400.
However, intermediaries across the industry remain deeply
concerned about the fi nancial implications of the changes to
their remuneration arrangements. While the worst of their
fears are probably not justifi ed, a concerted effort will be
needed to effect a smooth transition from the old to the new
regime. Once as-and-when income has become a fairly stable
and substantial component of their income, which will happen
but only over time, they should be signifi cantly better off.
Customers, for whom service levels will rise dramatically, will
certainly be at an advantage.
Increased early termination values
Implementation of the fi rst phase of the statement of intent
(SOI), the industry-wide agreement on minimum early
termination values reached with national treasury, was
completed in 2007. The second phase, in terms of which a
maximum reduction of 15% of fund value may be applied in
respect of endowment policies made paid-up or surrendered
and retirement annuities made paid-up or transferred, came
into effect in 1 January 2009, with the 15% being reduced
monthly until the termination charge no longer applies. No
reductions are applicable once specifi ed policy terms have
expired.
New code on policy quotations
In an attempt to ensure that policyholder benefi t expectations
remain within reasonable parameters, illustrative values may
no longer be included in policy quotations. The consequences
of early termination still have to be clearly illustrated, which
includes full disclosure of all early termination charges. In
addition, the effects of expense charges on the overall
investment return are demonstrated through the provision of a
reduction in yield (RIY) fi gure that takes into account all charges
and fees, including performance fees. The expected impact of
premium rate reviews after the expiry of the guaranteed term
is clearly explained, and the quote also sets out all guaranteed
values. Certain compulsory statements have to be incorporated,
including the fact that returns are subject to tax, indicating the
likely tax rate payable and outlining the possible effects of
infl ation. In addition, a warning to the effect that past
performance cannot be extrapolated into the future and is not
necessarily an indication of future performance has to be
prominently displayed on all quotes.
The cluster has developed new and highly effective sales aids
to replace existing marketing material that was largely
dependent on illustrative values.
Systems changes
A major systems project, involving a comprehensive reassess-
ment of the multiple administration systems in use by the
cluster, many of which are old and therefore infl exible, has
been underway since 2007. A new fully automated adminis-
tration platform has been selected that will drive down costs
while at the same time improving productivity in line with the
cluster’s aim of becoming an administrator whose costs are
amongst the lowest, if not the lowest, in the industry.
Metropolitan is currently engaging with the selected vendor to
scope and price the project. The business case for this initiative
will be presented to the board during the second quarter of
2009. Should the project go ahead, it will be the biggest single
initiative undertaken by Metropolitan since the introduction of
computers.
LOOKING AHEAD
From a production perspective, 2008 was a truly remarkable
year in which Metropolitan Retail passed the R1 billion mark in
new business APE as early as the fi rst week of September, a
full six weeks sooner than this milestone had ever been
reached previously. The cluster ended the year with a new
business margin of 16.4% on an APE basis.
With a foundation as robust as this on which to build, the
cluster is set to grow even more strongly into the future. The
cluster is writing much higher volumes of business incorporating
a better mix of products, mostly with improved persistency
profi les, but policy issue and renewal costs need to be further
reduced and additional conservation advances made. Each of
the new initiatives outlined above will contribute towards the
attainment of these goals in 2009 and beyond.
48 | OPERATIONAL REVIEW | METROPOLITAN
PRODUCT AND MARKETING MANAGEMENT
Thinus Alsworth-Elvey Investment services
Tjaart Esterhuyse Risk solutions
Joe Karabus Retirement fund administration
Robert Likhanya Sales and marketing: labour and direct
Alan Martin Actuarial services
Kenny Meiring Sales and marketing: brokers
Ian Smith Metropolitan Retirement Administrators
The cluster, headed up by chief executive John Melville who
took over from Wilhelm van Zyl in August 2008, comprises
Metropolitan Employee Benefi ts (MetEB) and Metropolitan
Retirement Administrators (MRA). MetEB offers group insurance
and investment products, and also provides administration
and actuarial consulting services to retirement funds. MRA
specialises in large-scale retirement fund administration
whereas MetEB focuses on mid-sized clients and umbrella
funds in terms of the administration services it provides.
TACKLING TUMULTUOUS TIMES
The turmoil in world fi nancial markets during the last six months
of 2008, which has continued into the fi rst three months of
2009, was unprecedented in our lifetime. Together with a
meltdown in the global fi nancial system thanks to the credit
crunch, there was an equity market blowout of proportions last
seen some eighty years ago. Since then the world has moved
steadily into economic recession, and a signifi cant slowdown
in South Africa has followed. The year ahead is expected to be
particularly tough.
These developments have had and will continue to have a
signifi cant impact on both the businesses in the cluster. A
sizable portion of MetEB’s income is in the form of asset-
based charges and, with reduced fund balances, this source
of revenue has been reduced. An economy in decline has
also put pressure on employment, which will ultimately feed
through to fund membership numbers, premium income and
administration charges. The latter are, however, much less
sensitive to fi nancial markets, and this degree of diversifi cation
provides a measure of protection.
To date the cluster has displayed resilience in weathering the
fi nancial storm by implementing the following strategies:
> putting in place effective hedges to mute the impact of the
equity market collapse on its smoothed bonus and pension
annuity product portfolios
> protecting its capital position through appropriate hedging
and asset mix adjustments
> containing expenses wherever possible to reduce the
impact of falling income on its bottom line
> amending products to increase their attractiveness in the
current investment environment
> building a product development capability that is able to
innovate effectively by customising solutions for key clients
> tightly managing the pricing of group risk business,
ensuring a sustainable stream of risk profi ts
> continuing to focus on securing new business
> communicating more effectively with clients as they
experience economic turbulence related anxieties while at
the same time helping them to maintain realistic benefi t
expectations at all times
> continuing to provide excellent service, thereby enhancing
the ability to retain and attract clients
> improving the quality of its administration business to bring
it in line with its long-term strategic objective of fi nalising
all legacy terminations (predominantly ex Commercial Union
business) and transferring all small unprofi table funds to
umbrella structures or terminating them where appropriate.
OPERATIONAL REVIEW
CORPORATE CLUSTER
John Melville, chief executive
METROPOLITAN | CORPORATE CLUSTER | 49
Corporate performance overview
2008Rm
2007Rm
%change
Net premium infl ows 2 899 3 947 (26.6)
Recurring premiums 1 924 1 793 7.3
Single premiums 975 2 154 (54.7)
Payments to contract holders 4 142 2 712 52.7
Operating profi t net of tax 153 176 (13.1)
APE profi tability of new business 6.5 10.9 (40.4)
SOCIAL SECURITY REFORM
Social security reform is both a challenge and an opportunity for
providers of employee benefi ts. It is a challenge to the extent
that it may change the structure of the industry as it currently
exists. However, with that will come many new opportunities,
as it is unlikely that government will exclude the private sector
from the delivery process, given its many other priorities. The
cluster’s track record of innovation, its respected capabilities
and low cost ratios (based on automation) all strengthen its
ability to engage with a changing retirement fund landscape.
The employee benefi ts environment is also becoming
more tightly regulated in line with government’s retirement
fund reform objectives. As a result, compliance costs are
increasing. This, in conjunction with the better value for
money requirements of the reform process, means that
providers are under pressure to enhance their operational
effi ciencies. Metropolitan’s long-standing focus on effi cient,
integrated and automated administration has resulted in low
administration cost ratios, and made it an attractive partner
to retirement funds. So, although additional regulation comes
with challenges, it will favour providers with more effi cient and
robust capabilities, and improve the scope for fair competition,
which should be in Metropolitan’s favour.
Another issue that came to the fore during the second half of
the year was a rumour that members may lose their retirement
savings when social security reforms are implemented. This
was unfounded and government moved quickly to stop it.
What was notable, however, was the volume and fervour
of the outcry from members, especially the trade unions.
Traditionally, withdrawal benefi ts have been used by retirement
fund members to get themselves out of short-term fi nancial
diffi culty. Growing numbers of members will fi nd themselves
strapped for cash in these tough economic times, especially
in view of the high interest rates currently payable. This will
add another dimension to the debate around the compulsory
preservation of benefi ts.
INVESTMENT AND ANNUITY PRODUCTS
In the context of the equity market collapse, the cluster
focused on managing the funding levels in its smoothed bonus
and annuity product ranges. Thanks to forward planning, good
management information and timely responses, the effect of
the plummeting markets was mitigated. The assets backing
the annuity guarantees clearly demonstrated their resilience in
what turned out to be extreme market conditions.
A new bonus series was launched in January 2009 to attract
new smoothed bonus clients as well as ongoing cash fl ows
from existing clients. This proved to be an attractive proposition
to clients after the market declines in 1998 and 2002.
Clients and investment consultants were also affected by
the turmoil. Their inward focus meant that the fl ow of new
investment business slowed and in some instances almost
dried up. In spite of this, further progress was made in
expanding the reach of the business and reducing its reliance
on large individual deals. In 2008, single premium infl ows
were derived from more than 20 different clients who placed
investments in excess of R20 million in our range of capital
protection and annuity products.
Benefi t payments were signifi cantly higher in 2008 – a
function of the economic climate, generally higher member
fund credits as a result of the long equity bull market run, and
misinformation around social security reform that resulted in
Only provider to have grown market share every year since 2002
23% Administration55%
Risk
22%Investment
Total net recurring premium incomeas at 31 December 2008
50 | OPERATIONAL REVIEW | METROPOLITAN
some workers leaving employment to access their provident
fund benefi ts. Investment terminations were, however, kept
under control through a targeted retention strategy that has
been in place for some time now.
GROUP INSURANCE PRODUCTS
The group insurance market presented pricing challenges in
2008. Rates were tight, constraining both the acquisition of
new business and the ability to retain existing business at
profi table premium rates. The cluster held fast to its policy
of not buying business and re-pricing loss-making schemes
where necessary. By taking advantage of a select number
of attractive opportunities, a creditable overall new business
performance was ultimately achieved. Retention also held
up well.
An increase in disability claims as a result of the economic
downturn is being closely monitored and carefully managed.
There are indications that certain of the cluster’s competitors
have been experiencing losses on their group insurance
business portfolios, and as a result rates may harden slightly
in 2009.
IMPROVED MARKET SHARE
The latest survey of market share in the group insurance/risk
business market showed that MetEB has grown its share of
the risk market from 10% to 14% over the last four years, and
is now the 4th largest player, having been ranked 5th in the
previous three years. It is now the 3rd largest provider of group
life insurance, with a 16% market share. As is refl ected in the
fi rst graph on page 51. MetEB is the only company to have
increased its market share in each of the last fi ve years. It is
also noteworthy that this growth has not been at the expense
of profi tability.
AIDS RISK CONSULTING (ARC) UNIT
This unit, which forms part of MetEB’s risk solutions business,
provides critical input to the pricing and risk management of
its group insurance business. It also provides demographic
and fi nancial HIV/AIDS impact assessments to public and
private organisations, using the latest actuarial modelling tools.
Among its many assignments, MetEB was honoured in 2008
by being selected to undertake a major HIV/AIDS study for
the Namibian government. The unit also received high-profi le
exposure through its roll-out of the Metropolitan HIV/AIDS
scenario project, and its many publications and involvements.
This is refl ected in the following statement by the deputy
president of South Africa in her address to the South African
Business Coalition on HIV and AIDS (SABCOHA) conference
on 5 November 2008: “Once again, government applauds the
initiatives of SABCOHA, Metropolitan and BUSA (Business
Unity South Africa) for your innovative approach in the fi ght
against HIV and AIDS.”
ADMINISTRATION PRODUCTS
The cluster’s new administration product, NEON, aimed
specifi cally at the broker market, has been rolled out via a targeted
launch in the form of personal visits to brokers in Durban,
Johannesburg and Cape Town. NEON business is administered
on an off balance sheet basis, which means that contributions
do not refl ect as premium income. It offers a standardised, but
functionally rich, set of administration services which provide
convenient access and a full range of self-service options to
clients and their independent advisers.
3rd largest group life provider in SA, market share 16% in 2007 (2002: 6%)
Existing recurring premiums New recurring premiums
Consistent growthin recurring premium income
2 500
2 000
1 500
1 000
500
0
03 04 06 07 0805
Lumpy growth in single premium income
3 000
2 500
2 000
1 500
1 000
500
0
03 04 06 07 0805
METROPOLITAN | CORPORATE CLUSTER | 51
To date the feedback received has been exceptional. A number of
deals have already been closed, with several more in the pipeline.
Based on market research, the product is being positioned as
‘getting back to the basics’ in that it enables users to take full
fi nancial control.
The other major drive that is under way is the clean-up of
the unprofi table section of the existing book of administration
business, which has entailed the closure of small funds and the
fi nalisation of legacy terminations. This should be completed by
early 2010.
METROPOLITAN RETIREMENT ADMINISTRATORS (MRA)
MRA focused on the successful implementation of the Pulp,
Paper, Wood and Allied Workers Union (PPWAWU) National
Provident Fund administration in the last quarter of 2008. This
is proceeding well, despite some delays in the provision of
data by the previous administrator. Initial feedback from union
and employer representatives has been very positive.
The drive to secure new business continues, with a number of
very promising prospects in the pipeline.
Feedback from existing clients on service levels has also been
most encouraging. Our trustee clients applauded the completion
of the annual fi nancial reporting requirements and the audits of
all funds within three months of year-end in 2008.
PROFESSIONAL MANAGEMENT REVIEW (PMR) AWARD
In October 2008, Metropolitan was awarded the PMR Diamond
Arrow Award for pension fund administrators in the category
Large Pension Fund Administrators (Administering More Than
100 000 Members) And Product Providers: Insurers. It was the
highest rated company, achieving a mean score of 4.24 out of a
possible 5.00.
PMR conducts over 30 000 interviews with top decision-
makers annually in every country where it has a presence in
order to produce customer ratings, highlighting strengths and
weaknesses. This survey was conducted amongst South African
retirement fund trustees and principal offi cers.
ACTUARIAL CONSULTING SERVICES
Good progress was made on the surplus apportionment
exercises for all the funds for which the cluster’s services
have been contracted and these should be completed during
the course of 2009. The revenue-generating potential of the
area has increased signifi cantly and it is now making a healthy
contribution to the cluster’s profi ts.
LOOKING AHEAD
In spite of the current economic challenges, the cluster is
confi dent that its carefully designed strategies will continue
to bear fruit in future. Each of its lines of business has
focused strategies, and maintains and nurtures the specifi c
competencies necessary for success in its chosen market
segments. Even though the cluster’s market share has grown
considerably over the last fi ve years, none of its business lines
has as yet attained a 15% share, suggesting scope for further
growth. The cluster will also continue to identify new areas
where it can add value with its know-how and capabilities and,
in the medium to long term, to add further lines of business
to its portfolio.
4th largest group risk provider in SA, market share 14% in 2007 (2002: 5%)
Only company to have increased risk business market share every year since 2002
35%
30%
25%
20%
15%
10%
5%
0%Company
A
Company
B
Company
C
MetEB Company
E
Company
F
2002 2003 2004 2005 2006 2007 Gross risk premiums Percentage change
Impressive growthin risk premium income
1 400 000
1 200 000
1 000 000
800 000
600 000
400 000
200 000
0
60%
50%
40%
30%
20%
10%
0%
02 03 04 06 07 0805
52 | OPERATIONAL REVIEW | METROPOLITAN
METAM’S EXECUTIVE COMMITTEE
Robert Walton Managing director
Zaida Essop Marketing manager
Romeo Makhubela Chief investment offi cer
Iqbal Sirkot Chief fi nancial offi cer
Ian Troost Head of multi-asset investments
Shelley van der Westhuizen Investment risk manager
METROPOLITAN ASSET MANAGERS (METAM)
INVESTMENT ENVIRONMENT
The South African equity market fell dramatically over the year
under review, largely because of concerns related to the
stability of the fi nancial system in the United States that is
struggling to deal with the aftermath of the bursting of twin
bubbles in their property and credit markets. This caused huge
uncertainty, because no-one knew exactly who had exposure
to the toxic assets nor, in the case of institutions with exposure,
exactly how big their exposure was.
Real economic activity has been severely affected by the credit
crises and it is now generally accepted that the developed
world will move into recession during 2009. Equity markets
globally plummeted in 2008, with the JSE, as represented by
the shareholder weighted index (SWIX), falling about 42%
from a high in May to a low in October. The earnings outlook for
JSE-listed companies is decidedly subdued as a result.
IMPACT ON PORTFOLIOS
Performance of the various asset classes below use the
Metropolitan Local Managed Fund (which excludes all foreign
assets) as a proxy for MetAM’s best investment view. Relative
to its peers in the Alexander Forbes Large Manager Watch, the
Metropolitan Local Managed Fund was ranked 5/11 based on
performance to 31 December 2008, delivering a return of
-11.8% compared to the average of -12.3% for the year,
a satisfactory performance in light of the environment and in
relation to the industry.
Equities
MetAM underestimated the impact of the global investment
markets fallout on the real economy in South Africa and was
consequently more exposed to equities than it should have
been in that fi xed interest investments delivered better returns
during the twelve months under review. As a result, asset
allocation across the fund detracted from performance. Despite
the overweight position, the equity component of the fund
outperformed the SWIX by 1.2% over the year under review.
Bonds
Bonds were the best performing asset class for 2008. Our
bond portfolios outperformed the all-bond index (ALBI) by
0.2%. Money market investments returned 11.5%.
Deon van Zyl, who manages the Metropolitan Gilt Fund on
behalf of Metropolitan Collective Investments, was the
recipient of the Raging Bull Award in the best domestic fi xed
interest category – for the top achievement on a straight
performance basis over three years to 31 December 2008.
Deon also received the certifi cate for the best domestic fi xed
interest bond fund as his fund was the top performer in this
subcategory.
Property
The property components contributed 1.6% to the annual
return achieved by the fund, delivering 16.1% in total. Direct
property generated a return of 18.2%.
Specialist offerings
> MetAM’s international portfolios had a torrid year and de-
tracted from gains made elsewhere by other asset classes
within balanced mandates. Foreign bonds were the most
signifi cant detractor from the overall foreign return, followed
by exposure to foreign and emerging market equities. Perfor-
mance in the foreign bond sector was negatively impacted
OPERATIONAL REVIEW
ASSET MANAGEMENT
Robert Walton, managing director
(Metropolitan Asset Managers)
Asset management performance overview
2008Rm
2007Rm
%change
Group assets managed 51 758 57 760 (10.4)
Third party assets managed 23 132 21 353 8.3
Net infl ow from clients 4 280 6 930 (38.2)
Operating profi t after tax 65 70 (7.1)
Vacancy levels 3.98% 3.64% 9.3
METROPOLITAN | ASSET MANAGEMENT CLUSTER | 53
by exposure to corporate credit rather than sovereign bonds.
Foreign cash was the only positive contributor.
> The African Wealth Creator fund was also impacted by the
investment environment as a number of the large listed stocks
held by it suffered materially during the latter half of the year.
> MetAM’s absolute return fund portfolios were negatively
affected by the markets in the third quarter of 2008 but
regained some of the lost ground during the last quarter of
the year due to protection structures.
PEOPLE AND PROCESSES
Over and above remuneration, MetAM is a fi rm believer in the
powerful role that job satisfaction levels and a stimulating working
environment play in staff retention. To this end, it has strengthened
its leadership team over the past 18 months by constituting a
new executive committee and fi lling vacancies in areas where
resources were stretched. A concerted effort is also being made
to improve communication and recognition across the business.
The following key appointments were made during 2008:
> Ameer Amod – quants portfolio manager
> Pieter Botha – head of dealing and implementation
> Johan de Kock – head of equity research
> Jaanre Fourie – fi xed interest/economic analyst
> Romeo Makhubela – chief investment offi cer
> Cindy Mathews-de Vries – equity analyst
> Khanyisa Ngesi – equity analyst
> Stephen Roelofse – equity portfolio manager
> Iqbal Sirkot – chief fi nancial offi cer
The team now has a full complement of equity analysts,
working in a more rigorous environment with a more demanding
and disciplined approach. All investment processes are
considerably tighter and regular stock and sector selection
meetings are in place. Unity of purpose is being achieved as a
result.
A number of new initiatives were implemented by the MetAM
investment professionals in 2008, including changes to invest-
ment processes and portfolio compositions. Key amongst
these were:
> MetAM’s investment philosophy has shifted to a value bias
with growth potential. Its core equity philosophy is grounded
in the belief that superior investment performance is
achieved by investing in companies that are attractively
priced (below fair value) and/or have the potential to
accelerate their growth in earnings. In order to be able to add
value over time, MetAM does not buy companies above
their intrinsic value.
> International asset allocation is now the responsibility of the
asset allocation team.
In August 2008 MetAM retained its Investors in People (IiP)
accreditation after an independent external assessment. This
internationally recognised standard provides a framework to
help organisations improve performance and realise business
objectives, both strategic and operational, through the
management and development of their people. MetAM is
particularly proud of having attained this standard and works
hard to maintain and improve on it.
NEW PRODUCTS
Early in 2008, MetAM launched the Metropolitan Income Plus
Fund which is aimed at investors with a moderate risk appetite
Assets under managementsplit by asset class as at 31 December 2008
MetAM’s gross infl ows of R2.6 billion – highest in fi ve years
2.0%Other (structured products)
24.2% Cash
33.2% Equities
0.9% Collective investments6.4%
International
7.3% Property
26.0% Bonds
54 | OPERATIONAL REVIEW | METROPOLITAN
who seek returns above those of traditional income funds. The
return objective is CPI + 4%, which is equivalent to cash plus
fairly signifi cant outperformance.
STRATEGY
MetAM’s key priorities for the year ahead are:
> Achieve enhanced profi tability
> Retain the core investment team
> Build on equity performance
> Increase third-party assets under management
Over the past 18 months MetAM has been aggressively focused
on improved performance delivery and will continue to focus on
its equity performance in particular. The reconstituted team is
confi dent that energising leadership, invigorating new ideas,
renewed purpose and passion, together with rigorous discipline
and a process-driven approach, will help it to secure more third-
party assets and result in higher profi ts in the long term.
METROPOLITAN COLLECTIVE INVESTMENTS
Despite adverse market conditions, Metropolitan Collective
Investments (MetCI), headed up by Robert Walton, grew its
assets by 5% to R20.5 billion and its number of funds from
137 to 160. Of these, 17 are Metropolitan-branded funds, while
143 are third-party branded funds, with assets under
management split 19% and 81% between the two categories
respectively. Net fund infl ows for the year were R3.2 billion.
The number of investors grew by 11% to 48 191, with revenue
increasing by 9% to R71.3 million.
MetCI strengthened its position as the leading manager of
third-party branded funds in South Africa, having built up an
extremely loyal and very diverse client base over the years. Its
aim is to assist its partners to grow their businesses by
providing them with customised products, tailored to their
specifi c needs, in conjunction with superior one-stop service.
Some of its third-party branding partners are amongst the top
niche asset managers in the country.
As mentioned, MetCI administers the Metropolitan Gilt Fund
that was a recent recipient of the Raging Bull Award (presented
to recognise the stars among the stars of the collective
investments industry) for the best performing fi xed interest
fund over the three years ended 31 December 2008. In
addition, two of MetCI’s third-party branded funds were ranked
top over one year to 31 December 2008 in their respective
categories. In total, eight funds (both Metropolitan and third-
party branded) ended the year amongst the top three
performers in their respective categories.
METROPOLITAN PROPERTY SERVICES
Many property practitioners are claiming that 2008 was the
worst year they have experienced since the mid 1990s.
However, Metropolitan Property Services (MetProp), headed
up by Vuyani Hako, fared a great deal better than most, if not
all, of its competitors.
Total assets under management increased from R3.6 billion to
R3.8 billion while the return on the portfolio was 16.5%, a
sterling achievement in the prevailing adverse market
conditions. Profi t before tax amounted to R14.2 million
compared to R13.7 million the previous year, while net rental
income dropped slightly from R307.6 million to R286.8 million.
The average arrears rental percentage increased from 13.2%
to 14.4%, which will in all likelihood be well below the industry
average once this is known. MetProp’s average vacancy
MetCI’s Metropolitan Gilt Fund – 2008 Raging Bull Award for best performing domestic fi xed interest fund over three years
63% Retail
25% Offi ces
4% Industrial
8% Other
Distribution of property portfolio by sector
METROPOLITAN | ASSET MANAGEMENT CLUSTER | 55
percentage of 3.98%, up from 2007’s 3.64%, should also
prove to be an industry outperformer.
Two developments came on stream in 2008 – the Plattekloof
offi ce complex and a ninth building in the Parc du Cap offi ce
park – both located in Bellville. A major refurbishment of
Sandton Village Walk, a mixed retail and offi ce development, is
planned for 2009, while Tygervalley Shopping Centre in Bellville
will be undergoing a cosmetic upgrade. Exciting acquisitions in
previously disadvantaged areas are in the pipeline for 2009.
Four key factors will continue to have a signifi cant impact on
property markets in the year ahead: interest rates, affordability,
economic growth, and sentiment. Although South Africa’s
economic growth rate will show a marked decline, this country
should remain better off than its counterparts in the USA and
Europe, with preparations for the 2010 World Cup gaining
momentum in the year ahead and providing additional stimulus.
Despite the forthcoming elections sentiment is still predom-
inantly positive.
Although the situation is not likely to change dramatically in
the fi rst quarter, MetProp is confi dent that the property market
remains a viable investment vehicle in South Africa and
looks forward to delivering another superior set of results
in 2009.
MetProp assets under management and profi ts up
56 | OPERATIONAL REVIEW | METROPOLITAN
EXECUTIVE COMMITTEE
Justin van den Hoven Group executive
Johann Basson Executive manager: corporate clients and strategic marketing
Jacques Coetzer Managing director, UBA Metropolitan Life Nigeria
Leeba Fouché Executive manager: business development south
Arlene Hangone Human resources manager
AJ Kruger Executive manager: new business development
Murray le Roux Statutory actuary
Willem Naude Head of fi nance
Nigel Shannon General manager: international operations
Metropolitan’s international cluster, currently headed up
by Justin van den Hoven who will be retiring in the second
quarter of 2009, now comprises seven businesses thanks to
the establishment of Metropolitan Swaziland, which began
operations in March and was formally launched in August
2008. All business on the lives of Swazi citizens formerly
conducted by Metropolitan Life South Africa will be transferred
to Metropolitan Swaziland.
The cluster was incorporated as a wholly-owned subsidiary of
Metropolitan Holdings towards the end of last year, under the
name of Metropolitan International (Pty) Ltd. It continues to
operate in three main areas on the African continent:
> South – Metropolitan Namibia (managing director Jason
Nandago), Metropolitan Botswana (managing director Oupa
Mothibatsela), Metropolitan Lesotho (managing director
Nkau Matete) and Metropolitan Swaziland (managing
director Muzi Dlamini)
> West – Metropolitan Ghana (chief executive Diop Frimpong)
and UBA Metropolitan Life Nigeria (managing director
AJ Kruger, who will be succeeded by Jacques Coetzer from
1 March 2009)
> East – Metropolitan Kenya (chief executive Linus Makhulo)
BOARD OF DIRECTORS
The board of directors of Metropolitan International (Pty) Ltd
is chaired by Johan van Reenen and comprises Fatima Jakoet,
Syd Muller, Bulelwa Paledi and Wilhelm van Zyl, all of whom
are non-executive directors of Metropolitan Holdings, with the
exception of Wilhelm van Zyl who is the group chief executive.
The board has been mandated to make newly established
operations its key areas of focus, with specifi c emphasis on
the group’s businesses in West Africa, ie Ghana and Nigeria,
as this is where the greatest growth potential has been
identifi ed.
Interest in the fi nancial services industry in Africa is expected
to increase in spite of recent events on global fi nancial and
investment markets, with the impact of the downturn likely
to be felt even more strongly in the countries in the north
than in the south. A number of South African players entered
new markets on the continent in 2008 while global banking
groups embarked on major development initiatives and local
banks undertook aggressive expansion drives, especially in
Nigeria. African markets will become more competitive as
a result, which in turn will speed up their evolution, leading to
higher standards of corporate governance, more sophisticated
products and improved client service.
KEY STRATEGIC ISSUES
Across the African continent there are four main areas that
pose a challenge to new entrants to these markets.
Regulatory and governance issues
In general, there has been a slow but steady improvement in
standards of governance and regulation in recent years and it is
unlikely that there will be any dramatic new developments on
either of these fronts. Certain very real risks remain, amongst
them the fact that more and increasingly complex legislation,
as well as new and complex tax dispensations, is raising the
cost of compliance and the risk of breaches, when penalties
can be excessive. The size and scope of this problem should
not be underestimated.
Strategic stakeholders
One of the pillars of the cluster’s business model is to seek
an infl uential local partner(s) to take a strategic shareholding
OPERATIONAL REVIEW
INTERNATIONAL CLUSTER
Justin van den Hoven, group executive
METROPOLITAN | INTERNATIONAL CLUSTER | 57
International performance overview
2008Rm
2007Rm
%change
Net premium infl ows 1 006 975 3.2
Recurring premiums 859 832 3.2
Single premiums 147 143 2.8
Payments to contract holders 624 666 (6.3)
Operating profi t net of tax 94 110 (14.5)
APE profi tability of new business 14.7 14.6 0.7
in each of the businesses. Apart from being the only way to
meet statutory requirements regarding local shareholding,
a partnership normally brings with it enormous value-add by
way of local knowledge and skills, brand profi le and existing
distribution capabilities. In those countries where the cluster
has not yet secured local partners, such as Kenya and
Swaziland, discussions are in progress.
Skills development
Globally there is an acute shortage of fi nancial services skills,
and in Africa the situation is even more dire. Developing the
requisite capabilities and competencies is high on the cluster’s
2009 agenda as it was throughout 2008 when three members
of executive management – one each from Botswana, Lesotho
and Namibia – attended the senior leadership development
programme at the University of Cape Town. Another four
candidates are set to complete the programme during the
year ahead. A skills audit was conducted in three countries
and development plans tailored to individual needs are
currently being implemented. The same procedure will be
followed in the remaining four countries within the next few
months. Enhanced support structures have been put in place
so that essential skills can also be made available from other
companies in the group, on a secondment basis if necessary.
New appointments across the cluster, both replacements
and additions to the executive and senior management
teams, made during the course of 2008 are already making
a signifi cant difference both strategically and operationally.
Changes include the implementation of more stringent
fi nancial controls as well as enhanced compliance and risk
management procedures. Stability will undoubtedly boost
future performance.
Products and services
Neighbouring countries
In Namibia, Botswana, Lesotho and Swaziland – the so-called
neighbouring countries – the insurance markets are mature,
with high penetration and comprehensive product offerings.
One of the keys to growing these four businesses is delivering
enhanced client service in a cost-effective manner. The cluster is
continuing its efforts to migrate business processes from South
Africa to the local companies, with client-facing processes that
make the biggest difference to a client’s service experience
amongst the fi rst to be migrated. For example, the registration,
authorisation and payment of claims as well as premium
receipting and reconciliation, where face-to face interaction with
clients is particularly benefi cial, were selected upfront.
In addition to creating local employment opportunities and
facilitating the transfer of skills, the migration process has the
advantage of positioning the businesses as being local rather
than branches of a South African company.
Rest of Africa
As far as Ghana, Nigeria and Kenya are concerned, the fi nancial
services markets are at a much earlier stage of their evolution.
Consequently, opportunities for product enhancements and
totally new products are plentiful. The retail market in West
Africa, although still very underdeveloped, has attractive
growth prospects.
A comprehensive understanding of the exact requirements
of these markets is critical to developing appropriate product
offerings, and a market intelligence capability was developed
in Cape Town in 2008. New product developments are being
tailored to local conditions by combining the knowledge of
local managers and partners with the appropriate market
intelligence disciplines.
16% Lesotho
31% Botswana
53% Namibia
Total premium income exceeded R1 billion for the fi rst time
Contribution to operating profi tInternational businesses – south
58 | OPERATIONAL REVIEW | METROPOLITAN
Ghana – almost 50 000 individual life policies already on books
OPERATING ENVIRONMENT
Despite having an administration platform developed
specifi cally for doing business in Africa at their disposal,
costs and systems-related complications continued to cause
the international businesses headaches in 2008. Many of the
problems were ironed out during the course of the year and
system changes should be effected faster and at a lower cost
in future.
NEW BUSINESS
Retail
At R165 million, new business recurring premium income was
12% up on 2007. The “new” countries (Ghana, Kenya, Nigeria
and Swaziland) contributed approximately one third, with the
major portion of their contribution coming from Ghana. Ghana’s
retail new business premium income already exceeds that of
some of the more established businesses, and with close to
50 000 individual life policies in force, it should in the very near
future surpass the corresponding fi gure for both Botswana and
Lesotho.
In its fi rst year of operation, Nigeria wrote in excess of
R10 million in retail new business and expectations are that
this will increase exponentially in 2009. A review of the
current retail strategy is under way for Kenya in view of its
signifi cant underperformance. Lesotho had a particularly good
year while both Botswana and Namibia delivered satisfactory
performances.
Corporate
From an employee benefi ts perspective, 2008 was a very
tough year, with rate-cutting prevalent in a fi ercely competitive
environment. Having retirement fund trustees elect to move
their business to other service providers was a relatively
common occurrence. As a result, various funds were lost in
Botswana, Lesotho and Namibia.
The retirement fund markets in Ghana and Nigeria are still in
their infancy and more opportunities should arise as they gain
fi rmer footholds.
Turning to credit life, Nigeria performed exceptionally well,
with the bulk of its premium income of Nigerian Naira 1 billion
being generated by business of this nature. On the other hand,
in both Botswana and Namibia credit life business declined
sharply as several of the larger local banks elected to take their
schemes in-house. This had a marked negative impact on the
total premium income and profi ts of those two businesses.
KEY PERFORMANCE INDICATORS
The cluster’s total premium income exceeded R1 billion for
the fi rst time. Mortality and morbidity experience remained
below projections and the increase in surrenders and lapses
was less than expected in the face of the rapidly deteriorating
economic environment. Although margins were squeezed in
the corporate business arena, profi tability in general remained
stable. External factors, such as plummeting stock markets,
did not erode the solvency of Metropolitan International or
any of its subsidiaries, all of which remain in a sound fi nancial
position.
LOOKING AHEAD
In view of the fact that the new international businesses have
not yet reached breakeven point, and that it is taking longer
than anticipated for the greenfi elds operation in Kenya to
achieve economies of scale due to political as well as economic
factors, all further African expansion plans have been put on
hold for at least another year. Downsizings and retrenchments
are likely in 2009 as the economic downturn deepens, with
the countries in East and West Africa likely to be even more
adversely affected by the recessionary times than those in
the South.
West Africa will remain the cluster’s key area of focus for new
business growth. Prospects in Ghana are still good thanks
to its political stability, as evidenced by its peaceful election
and its economic strength due to the recent discovery of oil.
Metropolitan International’s partnership with the UBA Plc
group, the largest fi nancial services provider in Nigeria and the
West African subregion by balance sheet, deposit base, branch
infrastructure and number of customers, will continue to give
the cluster enormous leverage in that country.
A concerted effort will be made to bring strategic stakeholders
on board in both Kenya and Swaziland.
Tough economic conditions and market saturation notwith-
standing, Lesotho and Namibia should continue to measure
up to expectations. Given that the local economy is heavily
dependent on diamond mining and tourism, Botswana’s
performance is likely to be compromised by the recessionary
times being experienced in that country. The intensity of
competition in the relatively small Swazi marketplace will
defi nitely present challenges, but the roll-out of a country-
specifi c retail product range should strengthen Metropolitan
Swaziland’s hand. The international cluster expects that its
operating profi t will refl ect moderate growth in the year ahead
despite the adverse economic environment.
Nigeria – more than R10 million in retail new business in fi rst year of operation
METROPOLITAN | HEALTH CLUSTER | 59
EXECUTIVE COMMITTEE
Blum Khan Chief executive
Colin Campbell Risk executive
Dr Khaya Gobinca Managing director – Qualsa business unit
Kusile Mthunzi- Corporate affairs executiveHairwadzi
Austen Nenguke Chief fi nancial offi cer
Vuyo Ngonyama Company secretary
Nick Rudston Managing director – administration business unit
Joubert Steyn Managing director – IT business unit
Steven Williams Chief operations offi cer
CONTINUITY
The top management team of the Metropolitan Health Group (MHG)
was unchanged in 2008. Blum Khan remained in the role of chief
executive for the ninth year in succession, while Nick Rudston
continued to head up the healthcare administration arm (four years)
and Dr Khaya Gobinca the managed healthcare solutions arm (two
years). Membership of the executive committee was also constant
for the most part.
Continuity of leadership was one of the differentiating factors that
facilitated the robust growth of the cluster during the twelve months
under review, both in terms of numbers and of earnings. However,
an unwavering focus on cost-effectiveness and effi cient client service
in all areas of its operation remained its strongest competitive edge.
MHG continues to be the provider of administration and managed
care services to the greatest number of closed medical schemes
belonging to blue-chip South African companies.
It was on the strength of its past performance as a low-cost, high-
service administrator that MHG won the Polmed and Transmed
business when it re-tendered for these two medical aid administration
and managed care contracts in 2007. The same held true when
GEMS (the Government Employees Medical Scheme) put the
administration and clearing house components of its business
out to tender for a second time in 2008. MHG secured both of
these contracts for a further three-year period with effect from
1 January 2009.
COLLABORATION
MHG’s emphasis on the collaborative nature of client relationships
is another major contributory factor underpinning its success.
By establishing partnerships with the client in question, be it
government, a parastatal or a private sector institution, it develops
solutions in conjunction with them.
The cluster is particularly proud of the way in which it is
partnering with government as the largest single employer
in the country. The latter’s initiative to establish GEMS as a
closed medical aid scheme is supporting the national drive
to make healthcare more readily available to all South Africans,
at a price that is within the reach of many more of the citizens
of this country. GEMS has created the opportunity for
government employees who were previously excluded to join
a medical aid scheme. Alignment with the government’s desire
to improve the accessibility and affordability of healthcare is of
paramount importance to MHG.
CONSOLIDATION
Consolidation within the industry has to date been driven by
spiralling costs, a rapidly ageing population and the enormous
legislative and regulatory changes of the past decade. In the
future, the impact of GEMS, mooted national health insurance
initiatives and other social security reforms will lead to further
consolidation. Enhanced access to affordable healthcare will
clearly require innovative new developments. The importance
of the catalytic role that government will play in this regard
should never be underestimated.
With irrefutable evidence now at hand as to how well the
MHG administration model works for the GEMS product,
being an excellent fi t at current size and in terms of future
growth potential, the cluster will defi nitely seek to partner with
government in other similar initiatives, such as the proposed
OPERATIONAL REVIEW
HEALTH CLUSTER
Blum Khan, chief executive
60 | OPERATIONAL REVIEW | METROPOLITAN
Health performance overview2008
Rm2007
Rm%
change
Contributions received from members 14 494 10 701 35.4
Income 819 713 14.9
Administration fees received, excluding franchise fees 794 692 14.7
Franchise fees 8 10 (20.0)
Investment return 17 11 54.5
Diluted core headline earnings 100 64 56.3
national health insurance scheme, where a proven ability to
operate at minimum cost but optimum effi ciency will once
again be a critical success factor.
Principal members under administration as at 31 December
2008 2007
%
movement
Full administration, excluding
GEMS 421 899 412 757 2.2%
Full administration – GEMS300 520 195 733 53.5%
Total Full administration 722 419 608 490 18.7%
Franchise 59 556 54 555 9.2%
Total members under
administration 781 975 663 045 17.9%
Lives under administration as at 31 December
2008 2007
Full administration, excluding
GEMS 998 143 985 559 1.3%
Full administration – GEMS 824 753 536 221 53.8%
Total full administration 1 822 896 1 521 780 19.8%
Franchise 143 018 135 911 5.2%
Total lives under
administration 1 965 914 1 657 691 18.6%
EXPANSION
Should the government look for private sector partners in
social security undertakings in other health-related spheres, for
example the Road Accident and/or Workmen’s Compensation
Fund, MHG, in view of its track record, would once again be
well positioned to compete for these opportunities. A proven
ability to deliver above average levels of service at a below
average cost, and to do so consistently, makes a tie-up with
MHG an extremely attractive proposition.
MHG’s focus will remain on positioning itself as the
administrator of choice for high-volume, cost-effective service
delivery that exceeds customer expectations.
The cluster’s superior technological capabilities also gives
MHG a defi nite edge in meeting the complex fi nancial demands
of low-cost schemes, facilitating the take-on of new business.
RESOURCES
Planning is ongoing to ensure that the cluster remains
adequately resourced – particularly from a human and infra-
structural perspective – to cope with growth of between
10 000 and 15 000 new GEMS members under administration
per month. Additional offi ce space and the necessary staff
are secured well in advance. From a fi nancial point of view,
healthcare administration is not a capital intensive business
and off balance sheet funding is not required.
Customer service capacity was enhanced during 2008 with the
addition of new GEMS walk-in service centres countrywide, of
which there are now 18 in total. Existing centres were upgraded.
Operational capabilities and competencies were also enhanced,
in Cape Town, Pretoria, Braamfontein and Durban.
All the key performance indicators in existing service level
agreements with clients were met despite the pressure of
growing numbers – a tribute to the dedicated and disciplined
approach of the respective customer service teams.
58% Metropolitan
Health Group
65% of clients have been with us for longer than 10 years.
7% Company A 7% Company B 5% Company C
4% Company D 3% Company E 9% Company F
7% Company G
Share of closed medical aid scheme administration market in South Africa(based on principal members under administration as at
31 December 2008)
NEW INITIATIVES
Qualsa’s efforts to expand the range of managed healthcare
solutions on offer to employers were ongoing. Through its
supplementary employee wellness programme, which is
available on a stand-alone basis or as part of its managed health-
care offering, a more comprehensive risk management offering
is now available to clients. Employers fi nd the programme, with
its strong preventative rather than curative focus, and its dual
emphasis on boosting staff morale and productivity, of immense
practical value and are generally willing to fund it over and above
their normal medical aid contributions.
Establishing provider networks as a means of achieving
sustainable cost reductions and improving relations with providers
remains a priority for Qualsa, and good progress was made in this
regard during 2008. Prospects look promising that the disability
management programme, successfully implemented for the
Province of Gauteng, will be retained, hopefully with an extended
scope, during the year ahead.
QUALSA AWARDS 2008
In 2008 Qualsa, received a total of eight awards for outstanding
service from Professional Management Review (PMR), a
publication aimed at the top decision-makers in business and
government in South Africa.
PMR’s research results are formulated on the basis of interviews
with high-profi le fi gures in both the public and private sectors.
The awards are presented in various categories, with a diamond
arrow award signifying fi rst position overall, a golden arrow
award second position, and a silver arrow award third position.
Qualsa was the recipient of:
two diamond arrow awards
– for its health risk assessment and managed pathology programmes
respectively;
four golden arrow awards
– for its disease management (in respect of HIV/AIDS, diabetes, asthma
and cardiovascular ailments), hospital utilisation management, managed
oncology and managed radiology programmes respectively;
two silver arrow awards
– for its chronic medication management and wellness programmes
respectively.
LOOKING AHEAD
Although to date it has not been necessary for the balance sheets of healthcare administrators to be particularly strong, capital demands are increasing in line with the widening scope of product offerings. Developing and administering health structures for people who are currently underinsured, uninsured or deemed uninsurable because of economic constraints means that both the developer and the administrator have to be prepared to take fi nancial risks. While MHG, having operated at the base of the healthcare administration triangle for more than ten years, has clearly demonstrated its ability to do this very successfully, the fact that it is backed by the size and solidity of the Metropolitan balance sheet, undoubtedly counts heavily in its favour.
MHG will continue to balance cost-effectiveness, responsive-ness to client needs and delivery on promises to customers to ensure that it remains a preferred provider to both the public and the private sector.
Quality of MHG’s client base as at 31 December 2008
Solvency ratio (%) Lives administered Average industry solvency level Regulated solvency level
70
60
50
40
30
20
10
0Open Restricted Franchise All clients
2 500 000
2 000 000
1 500 000
1 000 000
500 000
0
Solvency ratio % Lives administered
28% Company A 13% Company B 4% Company C 7% Company D
10% Company E 16% Company F
Share of total medical aid scheme administration market in South Africa(based on average number of principal members under
administration during 2008)
22% Metropolitan
Health Group
METROPOLITAN | HEALTH CLUSTER | 61
62 | METROPOLITAN
Tim
oth
y M
urr
ay
Metropolitan’s strategy for growing the group going forward is firmly in place and management remains committed to exploring every possible avenue to enhance the value proposition for all stakeholders
METROPOLITAN | 63
Focusing on developing the potential of the people with
whom we do business and the communities within which
we operate, thereby contributing to the creation of an
inclusive economy.
ENHANCINGTHE VALUE PROPOSITION FOR ALL STAKEHOLDERS
64 | CORPORATE GOVERNANCE REPORT | METROPOLITAN
The Metropolitan group has long acknowledged that good
corporate governance is an integral part of its business
operations and that it is a result of collective responsibility and
shared accountability.
The group is committed to the principles of the Code on
Corporate Practices and Conduct as espoused in King Code II.
Our business philosophy is informed by our values, which
include being a good corporate citizen, integrity, accountability,
responsibility and our desire to be the leading fi nancial services
provider on the African continent. Appropriate best practice is
adopted and monitored in the countries where we have
operations.
Some of the key governance highlights and key developments
in 2008 included the following:
> The appointment in April 2008 of Wilhelm van Zyl as the
group CEO to succeed Peter Doyle
> Ongoing compliance with King II
> An annual board effectiveness assessment was conducted
by the Institute of Directors. The key issue that came out of
the assessment was that corporate governance practices
across the group should be standardised to ensure that the
high standards for which Metropolitan is known, are
maintained.
During the coming year, we will focus on succession planning,
as some of the non-executive directors will be retiring in the
next few years. More emphasis will be placed on director
training and development because of the changing legislative
environment and the much anticipated King Code III.
The board remains mindful of the need to achieve a balance
between performance, leadership and control in fostering an
entrepreneurial culture within acceptable risk levels, whilst at
the same time recognising the group’s broader obligations in
terms of environmental and economic performance and social
sustainability.
BOARD OF DIRECTORS
Role and function of the board of directors
The board is ultimately responsible for directing the company
purposefully into the future. It does so by determining the
group’s purpose and values and setting strategy and structure to
achieve this. Having an effective and appropriate board structure
is critical as the board must be able to exercise leadership,
enterprise, integrity and judgment. The Metropolitan Holdings
board is accountable and responsible for the performance and
affairs of the group. It achieves the above by delegating authority
to the board committees and management.
The board’s role and responsibilities include the following:
> ensuring that appropriate systems and procedures are in
place for the group to be able to conduct its business in an
honest, ethical, responsible and safe manner
> ensuring that effective audit, risk management and compliance
measures are in place
> actively guiding the strategic direction of the group
> reviewing acquisitions, disinvestments and capital expenditure
of the group
> reviewing and approving corporate plans, fi nancial policies and
operating budgets as well as monitoring fi nancial performance
and the integrity of reporting
> ensuring that there is effective, transparent and timely
reporting to shareholders
> exercising an overriding control over the business of the
group
> exercising independent judgement on issues facing the
group.
Independence of the board of directors
The group chief executive, Wilhelm van Zyl, assisted by two
executive directors and the executive management team, is
responsible for the day-to-day running of the group. The heads
of group businesses are invited to attend board meetings
when necessary, for example, when matters material to the
group involving their businesses are discussed. Prof Wiseman
Nkuhlu has chaired the board since 1 June 2007. The roles of
the group chairman, who is a non-executive director, and of the
group chief executive are kept separate in accordance with
principles of good corporate governance. In addition to the
three executive directors, the board comprises 11 non-
executive directors, three of whom are not independent.
> The chairman manages the board and provides effective
leadership in setting strategic direction.
> Appropriate governance principles are implemented at board
meetings and confl icts of interest are managed properly.
Possible confl icts of interest are dealt with as and when they
arise. In 2008 the board appointed a lead director, Mr PC
Lamprecht to, amongst other duties, chair the board
meetings when the chairman, Prof LW Nkuhlu, is confl icted.
> The board meets at least six times a year. Apart from those
scheduled, additional meetings are convened as
circumstances dictate. Directors are also afforded the
opportunity to propose additional matters for discussion.
> The majority of the directors on the board’s audit, actuarial,
risk, nominations and directors’ affairs, remuneration,
investment, and human resources and empowerment
committees are independent and non-executive.
> Non-executive directors do not hold service contracts with
the group and their remuneration is not tied to the group’s
fi nancial performance.
> All directors have access to the advice and services of the
company secretary and are entitled, at the group’s expense
CORPORATE GOVERNANCE REPORT
METROPOLITAN | CORPORATE GOVERNANCE REPORT | 65
and with the prior agreement of the group chairman, to seek
independent professional advice on the affairs of the group.
Within subsidiary entities, the role of chairman and chief executive does not vest in the same person; chairmen are non-executive directors of the entities.
Induction of new directors
Board members are decision-makers of the company, therefore the competence of individual directors is essential for effective decision-making. Directors must exercise due care and skill in their fi duciary duties and are required to have a sound under-standing of the business and knowledge of the markets within which the group operates. Our directors are chosen for their business skills and diversity of business and academic qualifi cations. Gender and race are also considered in order to accurately refl ect the demographics of the country.
An orientation programme for new directors is in place to ensure they are adequately briefed and have the required knowledge of the group’s structure, operations and policies to enable them to fulfi l their fi duciary duties and responsibilities.
Appointment and re-election of directors and succession planning
The board is responsible for nominating directors and for fi lling vacancies that may occur between annual meetings of shareholders.
The appointment of new directors is in terms of a formal and transparent procedure; prospective appointees are put forward by the nominations and directors’ affairs committee and approved directly by the board, subject to shareholder confi rmation at the following annual general meeting.
Because continuity is imperative, all non-executive directors are subject to retirement by rotation and re-election by shareholders at least once every three years in accordance with the group’s articles of association. Reappointment is not automatic.
BOARD COMMITTEES
The board has a number of committees that assist it in dis-
charging its duties. The committees meet independently and
then report back to the board through their chairmen.
Membership details of these committees are provided on
page 72. A comprehensive framework setting out the authorities
and responsibilities of the various subcommittees within the
group is in place. Each committee has a formal charter that
clearly defi nes its roles and responsibilities. All board-delegated
authorities are reviewed and updated annually.
A number of Metropolitan Holdings directors have been
appointed to the boards of subsidiaries. Whilst the holding
company board retains overall responsibility for the affairs of
the group, these subsidiary boards play an important role in
the group’s overall governance approach.
Audit committee
The chairman of this committee is an independent non-executive
director and all the members are independent non-executive
directors. Three executive directors, the head of the corporate
governance division, the statutory actuary, the external auditors
and other management, attend committee meetings. One of the
non-executive directors who was not independent resigned as a
member of the committee in order to comply with the Corporate
Laws Amendment Act requirement that members of the audit
committee should be independent. The head of internal audit is an
attendee at the meetings.
Principal objectives
In addition to overseeing the fi nancial reporting process, the
group audit committee’s principal objectives include:
> acting as an effective communication channel between the
respective boards and the external auditors and risk
management
> satisfying the board that adequate internal, fi nancial and
operating controls are addressed and monitored by manage-
ment, and that material fi nancial risks have been identifi ed
and are being contained and monitored
> providing the respective boards with an assessment of the
effectiveness of the external auditors and the internal audit
function
> approving the external audit fees
> monitoring the application of the policy that governs the
provision of non-audit services by the group’s external auditors
> approving the extent and nature of all non-audit services
provided
> dealing appropriately with any complaints it may have received
relating to the accounting policies, internal audit, the audit and
content of the fi nancial statements and internal fi nancial
controls.
The audit committee meets at least four times a year and reviews
and approves the audit plans, budgets and scope of the external
audit and risk management functions. The external auditors, the
statutory actuary, the group secretary and the head of internal
audit have unrestricted access to the chairman of the group audit
committee.
The audit committee has reviewed the statements of internal
control and considered the assumptions used to ascertain that
Metropolitan Holdings Limited will continue as a going concern
for the year ahead, and has recommended that the board approve
disclosure thereof in these annual fi nancial statements.
Internal, fi nancial and operating controls
The board acknowledges its responsibility for ensuring that the
group implements and monitors the effectiveness of systems
of internal, fi nancial and operating control. These systems are
designed to guard against material misstatement and loss.
66 | CORPORATE GOVERNANCE REPORT | METROPOLITAN
The internal, fi nancial and operating controls maintained by the group are designed to provide reasonable assurance regarding:
> safeguarding of assets against unauthorised use or misappropriation
> compliance with applicable laws and regulations
> maintenance of proper accounting records
> adequacy and reliability of fi nancial information.
The identifi cation of risks, as well as the detailed design, implementation and monitoring of adequate systems of internal, fi nancial and operating control to manage such risks, has been delegated to executive management by the board. The external audit and risk management functions help to provide the board and senior executive management with monitoring mechanisms to carry out this task. The group audit, actuarial and risk committees regularly review these matters on behalf of the board.
However, even effective, well-designed systems of internal, fi nancial and operating control have inherent limitations, including the possibility of circumventing or overriding such, to provide absolute assurance. Effective systems of this nature aim, therefore, to provide reasonable assurance as to the reliability of fi nancial information and, in particular, of the fi nancial statements.
In addition, changes in the business and operating environment could have an impact on the effectiveness of such controls. Thus changes of this nature are continually reviewed and reassessed.
To the board’s knowledge, no issue that would constitute a material breakdown in the functioning of these controls occurred during the year under review, up to and including the date on which the annual fi nancial statements were approved.
Financial complaintsIn line with Metropolitan’s commitment to enhanced openness and transparency, a wide range of options have been put in place to make it easier for stakeholders in the group to draw the audit committee’s attention to any aspect of the group’s accounting practices, internal auditing procedures or fi nancial reporting standards, or any related matter, that they are concerned about.
Firstly, concerns can be e-mailed directly to the chairman of the audit committee at [email protected] or in writing to The Chairman, MHL Audit Committee, Corporate Governance, Executive Suite, Parc du Cap 7/1, Metropolitan, PO Box 2212, Bellville, 7535.
Alternatively, a fi nancial complaints form can be submitted from the investor relations webpage on our corporate website www.metropolitan.co.za.
If fraudulent or other irregular activities are suspected, these
can be channelled using the group’s existing fraud report form,
which can also be found on our corporate website, or use can
be made of the Metropolitan Ethics Line (0800 22 14 18).
Internal audit
The internal audit functions of the group are located within the
corporate governance division. The group’s internal auditors
perform independent reviews of the group’s operational and IT
activities. Group internal audit services are charged with
examining and evaluating the effectiveness of the group’s
operational activities, the related business risks and the
systems of internal, fi nancial and operating control. Major
weaknesses are brought to the attention of the group audit,
actuarial and risk committees, the external auditors and
members of executive management for their consideration
and remedial action. The head of internal audit has direct
access to the chairman of the group audit committee.
External audit
PricewaterhouseCoopers Inc. is the group’s appointed
external auditor. Deloitte & Touche reviews the group’s
statement of embedded value. The board has approved a
policy governing the provision of non-audit services by the
group’s external auditor. The policy limits the combined fees
for non-audit services in any year to 50% of the external audit
fee, an amount that must be approved by the audit committee.
Each individual assignment is subject to pre-approval by the
chairman of the audit committee. Any further work to be
undertaken requires the committee’s approval as well.
Actuarial committee
Actuaries assist the board in actuarial matters and conduct the
actuarial valuations of assets and liabilities of the life companies
in the group. The actuaries are subject to the professional
guidelines of the Actuarial Society of South Africa. The statutory
actuaries, who are responsible for all regulatory reporting to
the Financial Services Board, have specifi c responsibilities
relating to the interests of policyholders.
The primary objectives of the committee are:
> understanding the current areas of greatest actuarial risk and
how management is managing these effectively
> reviewing bonus rates, property valuations and valuation of
unlisted investments
> reviewing the statutory actuary’s report
> considering the signifi cant actuarial and fi nancial risks and
exposure and the plans to minimise such risks
> reviewing the principles and practices of fi nancial
management of discretionary participation policies and the
communication thereof to policyholders
> reviewing the external auditor’s and actuaries’ proposed
audit scope and approach insofar as it relates to the actuarial
statements
> reviewing the quality of the actuarial statements to determine
whether they accurately and fairly present the state of affairs
of the company.
CORPORATE GOVERNANCE REPORT
continued
METROPOLITAN | CORPORATE GOVERNANCE REPORT | 67
Human resources and empowerment committee
Chaired by an independent non-executive director of the board,
this committee includes one executive and four independent
non-executive directors. Members of senior management also
attend committee meetings on invitation. The committee,
which meets at least three times a year, is responsible for
managing and monitoring the group’s human capital,
employment equity and transformation initiatives. It is also
tasked with ensuring that the group’s succession planning is
appropriately and adequately dealt with.
Investment committee
Chaired by an independent non-executive director, this
committee includes two executive and two independent non-
executive directors. The group’s asset portfolios, each with its
own unique investment mandate managed by Metropolitan
Asset Managers, follow an investment strategy approved by
this committee. The committee regularly reviews the group’s
investment performance, including the attainment of perfor-
mance benchmarks and compliance with mandates. Members
of senior management attend committee meetings by invitation.
The group and statutory actuaries are integral to the process to
ensure appropriate asset matching for policyholder liabilities and
shareholder investments.
Nominations and directors’ affairs committee
Chaired by a non-executive director of the board, the committee
is responsible for identifying fi t and proper candidates who could
be appointed to the board, and evaluating them against the
specifi c disciplines and areas of expertise required on the board.
The interests of different stakeholders are also considered.
Proposals are presented to the board for a fi nal decision.
Remuneration committee
Meeting four times a year, this committee sets remuneration
policy for all staff members. It comprises an independent
non-executive director as chairman, one non-independent
non-executive director and two independent non-executive
directors. Members of senior management also attend
meetings. Guidelines, balanced scorecards and key perform-
ance indicators (KPIs) have been set to assist the directors and
members of the subcommittees in evaluating the performance
of individuals.
Principal objectives
The remuneration committee also deals with all aspects of the
remuneration of directors and executive management,
including share incentive arrangements.
The committee’s principal objectives are to:
> review the group’s compensation and benefi ts policies and
procedures
> set remuneration levels for executive directors as well as the chairmen and non-executive directors. Such levels are subject to board approval
> review and approving general proposals for salary and benefi t adjustments for all staff
> assist the board by ensuring that effective, affordable and equitable compensation practices are implemented in the wider group
> consider the guaranteed remuneration and annual performance bonuses of executive management
> review and approve proposals for general adjustments to standard conditions of employment
> determine the appropriate short- and long-term incentive schemes across the group for executive directors and management
> evaluate the group’s performance to approve the performance bonus pool and long-term incentive scheme grants
> review the performance measures and criteria to be applied for annual incentive payments
> ensure compliance with applicable legislation and regulations.
Remuneration policyThe group’s philosophy is to appropriately reward performance that results in the attainment of business strategies and goals. Remuneration packages are therefore structured in order to attract, incentivise and retain the talent needed to achieve the group’s strategic and operational objectives. In accordance with this philosophy, the group’s remuneration philosophy includes short-term and long-term incentives.
Guaranteed remunerationThe guaranteed element of remuneration is set at relevant market-related levels, taking individual performance and responsibility into account.
Short-term incentivesTargets and measures in the form of a balanced scorecard are included in annual business plans and approved by the board for the performance of the group, businesses and individuals. As from 2007, the following revised performance criteria for the group and income-generating businesses as well as service units have been agreed:
Group and income-generating businesses
70% fi nancial 10% strategic – group10% strategic – business10% people
Service units
12.5% cost management12.5% strategic12.5% people12.5% service standards50% fi nancial performance of client businesses
68 | CORPORATE GOVERNANCE REPORT | METROPOLITAN
All targets are cascaded and then evaluated from group to
business to individual level.
Performance bonuses paid to individuals are dependent on the
group rating, the rating of the relevant business and the
individual’s own performance rating.
A performance bonus will only be considered once threshold
performance objectives have been met; it is not a guaranteed
portion of remuneration. Both expected and stretch targets
are set for each item, with bonus percentages increasing
exponentially should target thresholds be exceeded. Bonuses
are determined by applying the achieved percentage to the
total annual package. All levels of management participate in
the performance bonus pool.
In addition, a variety of performance-based incentive pro-
grammes are used for employees in the group. The executive
directors participate in the performance bonus scheme described
above.
Long-term incentives
These are intended to promote the alignment of management’s
interests with those of shareholders and provide a longer term
incentive as part of the remuneration structure. The group has a
long-term incentive scheme for management. The cash payment
is linked to the performance of the group, with specifi c growth
targets being set for each annual award to management. Only
on exceeding the threshold target over a three-year period will
management qualify for the cash payment.
Pension and medical aid
Pension and medical aid benefi ts are provided to all permanent
employees.
Annual performance reviews
Remuneration packages, including short- and long-term incen-
tives are reviewed annually by the remuneration committee,
with due regard to individual performance and market rates.
Executive directors do not participate in discussions of their
packages. The chairman appraises the performance of the
group chief executive at least annually and the board performs
a self-assessment. The appraisal focuses on the implementation
of policies and strategies adopted by the board, operational
performance and leadership. Appraisal results are reviewed
and discussed by the remuneration committee and are used to
determine the group chief executive’s remuneration.
Fees for non-executive directors
Non-executive directors receive a fee for their contribution to
the respective boards and board committees of which they are
members. Fee structures are recommended to the board by
the chairman of the remuneration committee, based on market
research on trends and levels of directors’ remuneration.
Disclosure of directors’ remuneration
Individual disclosure of the remuneration of executive and non-
executive directors is provided on page 71 of this report.
Risk committee
The board has delegated the assessment of the quality, integrity
and reliability of the group’s risk management processes to the
Metropolitan Holdings risk committee. The objective of the
committee is to assist the board in the discharge of its duties
relating to corporate accountability and the associated risks in
terms of management, assurance and reporting.
A risk is defi ned as the probability that any event, either internally
or externally generated, may have a critical impact, whether
negative or positive, on the achievement of the business
objectives.
The committee reviews and assesses the integrity of the risk
control systems and ensures that the risk policies and strategies
are effectively managed. The committee sets out the nature, role,
responsibility and authority of the risk management functions
within the Metropolitan Holdings group of companies and support
divisions and outlines the scope of risk management work. The
committee monitors external developments relating to the practice
of corporate accountability and the reporting of specifi cally
associated risks, including emerging and prospective impacts.
The committee provides an independent and objective oversight
and review of the information presented by management on
corporate accountability and specifi cally associated risk, also
taking account of reports by management and the audit and
actuarial committees to the board on fi nancial, business
and strategic risk.
The committee is chaired by an independent non-executive
director and includes two executive directors and fi ve independent
non-executive directors.
In addition to the abovementioned board risk committee, the
group fi nance director chairs a group management risk committee
(RISCO). The members comprise executive directors, selected
senior executives and the corporate governance group executive.
The committee is tasked with integrating and monitoring the
management of risk in respect of the day-to-day activities of the
group. The objectives of the group’s corporate governance
division include facilitating the risk management and reporting
processes on a corporate and business unit level. As risk
management continues to evolve, both locally and globally, the
group’s processes and structure are constantly being reviewed.
Principal objectives
The risk committee’s principal objectives include:
> reviewing all RISCO reports detailing the adequacy and overall
effectiveness of the group’s risk management function and its
implementation by management, reporting on internal controls
and any recommendations, and confi rming that appropriate
action has been taken
> reviewing the total process of risk management in the group
and determining the group’s “risk appetite”
CORPORATE GOVERNANCE REPORT
continued
METROPOLITAN | CORPORATE GOVERNANCE REPORT | 69
> reviewing the risk philosophy, strategy and policies
recommended by RISCO and considering reports by RISCO as
well as ensuring compliance with such policies, and with the
overall risk profi le of the group
> reviewing risk identifi cation and measurement methodologies
> reviewing the adequacy of insurance coverage
> reviewing procedures to deal with the disclosure of information
to clients, as well as any legal matters that could have a
signifi cant impact on the group’s business
> reviewing the effectiveness of the system of monitoring
compliance with the relevant laws and regulations of those
legislative frameworks within which the group’s businesses
operate
> exercising due regard for the principles of governance and
codes of best practice.
Responsibility for risk management
The board acknowledges its responsibility for establishing
appropriate risk and control policies and ensuring that adequate
risk management processes are in place. In fulfi lling its duties,
the board has delegated particular elements of their oversight
responsibilities to board committees.
Management is the “owner” of the risk management process.
They are accountable to the group CEO and board for
implementing and monitoring the process of risk management
and internal control, and integrating it into the day-to-day
operations of the business.
Business continuity and technology recovery
A documented and tested process is in place that allows
Metropolitan’s critical business processes to continue operating
should a large-scale incident disrupt business activities. An
integrated functional business continuity test takes place annually
at our off-site recovery area. Each year the scope is increased to
ensure that the testing becomes more effective and any issues
highlighted during the test are resolved.
Compliance
As is the case for the rest of the fi nancial services industry, the
legislative environment in which Metropolitan operates is rapidly
increasing in complexity.
Metropolitan accordingly has representatives on various industry
bodies, which submit collective input regarding legislative and
regulatory changes, such as the new commission regulations.
Group executive committee
This committee is comprised of the executive directors and
senior group executives. Chaired by the group chief executive,
it is responsible for the day-to-day running of the group. It
meets once a month.
BOARD EVALUATION
In 2008 an external appraisal of the board was conducted by
the Institute of Directors. The evaluation focused on whether
the board fulfi ls its mandate as contained in the group’s board
charter as well as examining the board’s effectiveness. The
conclusion from the evaluation was that the board has more
strengths than weaknesses and is making a concerted effort
to introduce best practice wherever possible.
SHARE DEALING AND INSIDER TRADING
The group has a code focusing on share dealing that applies to
all employees. The code imposes closed periods in order to
prohibit dealing in Metropolitan Holdings Limited securities
before the announcement of interim and year-end fi nancial
results as well as in any other period considered to be price-
sensitive, having regard to the requirements of the JSE
Limited. A closed period has been defi ned as the period from
the end of a particular fi nancial reporting period to the date on
which the results relating to that period are released. Any
period during which the group is trading under a cautionary
announcement is included.
The group company secretary undertakes the administration
needed to ensure compliance with this code, under the
direction of the group fi nance director.
The code goes further by restricting dealings of directors and
other senior personnel in any security that may be affected by
a transaction or proposed transaction.
FINANCIAL REPORTING
The group’s annual fi nancial statements are prepared in
accordance with International Financial Reporting Standards
(IFRS) and are supported by reasonable judgements and
estimates. The directors are responsible for the fi nancial
statements of the group and the company and are satisfi ed
that they fairly present the fi nancial position, performance
and cashfl ows of the group and the company as at
31 December 2008. The external auditors are responsible for
independently auditing the fi nancial statements (see report on
page 88). The embedded value statement is also subject to an
independent actuarial review.
SHAREHOLDER COMMUNICATION
Metropolitan maintains highly rated standards of shareholder
communication which are widely recognised by members of
the investment community. Over and above the normal interim
and full-year fi nancial disclosure, the group also publishes
quarterly and other updates that are distributed to all interested
parties.
In line with international best practice, institutional share-
holders (local and international) receive regular visits
from executive management during which the group’s most
recently published results are discussed.
70 | CORPORATE GOVERNANCE REPORT | METROPOLITAN
DIRECTORATE
The following persons acted as directors of the company
during 2008. The appointments of these directors were
confi rmed at the annual general meeting of shareholders.
Non-executive chairman (non-independent)
Prof Wiseman Nkuhlu
Group chief executive
Wilhelm van Zyl (appointed 1 April 2008)
Peter Doyle (retired 31 March 2008)
Executive directors
Abel Sithole (resigned 30 June 2008)
Phillip Matlakala
Preston Speckmann
Independent non-executive directors
Fatima Jakoet
Peter Lamprecht
Syd Muller
John Newbury
Bulelwa Paledi
Marius Smith
Franklin Sonn
Johan van Reenen
Non-executive directors (non-independent)
Johnson (JJ) Njeke
Andile Sangqu
GROUP COMPANY SECRETARY
The group company secretary plays a vital role in ensuring
the effectiveness of the board and committees of the board.
He/She has unrestricted access to the chairman of the board
and to all the chairmen of the committees of the board,
including the group CEO.
The group company secretary’s functions include the following:
> providing the directors of the group, collectively and individually,
with detailed guidance on their duties, responsibilities and
powers
> providing information on legislation relevant to or affecting the
group
> reporting at any meeting of the shareholders of the group or of
the group’s directors, any failure to comply with such legislation,
including the listings requirements of the JSE Limited
> ensuring that minutes of all shareholders’ meetings, directors’
meetings and the meetings of any committees of the directors
are properly recorded
> ensuring that the group has complied with its memorandum
and articles of association, drafting resolutions for general
meetings and registering them with the registrar of
companies
> administering closed periods for dealing in the listed
securities of the group
> managing the induction of new directors.
Bongiwe Gobodo-Mbomvu is the secretary of Metropolitan
Holdings Limited. Her business and postal addresses are: Parc
du Cap 7, Mispel Road, Bellville 7530 and PO Box 2212, Bellville
7535 respectively.
DIRECTORS’ INTERESTS IN CONTRACTS
As directors of Metropolitan’s strategic empowerment partner,
Kagiso Trust Investments (Proprietary) Limited (KTI), Professor
Wiseman Nkuhlu, JJ Njeke and Andile Sangqu have an interest
in the contractual relationship between the two parties.
DIRECTORS’ SHAREHOLDINGS
The direct and indirect holdings and transactions of the directors
of Metropolitan Holdings Limited as at 31 December 2008 are
set out on page 73. The directors purchased these shares at
ruling market prices. Only executive directors participate in the
share purchase scheme. Non-executive directors have access to
the group’s shares through the open market.
DELEGATION OF AUTHORITY
The Metropolitan Holdings board has delegated the manage-
ment of the group to the chief executive offi cer. In delegating
these powers, the board has imposed certain restrictions,
conditions and limits that they believe to be appropriate for the
effective exercise of such delegated powers. The board approves
the delegation of authority annually, whereupon it can vary or
revoke it as deemed fi t. Having delegated power in this manner,
the board still has the ultimate duty to monitor management’s
performance.
SUSTAINABILITY
A separate report on sustainability is issued concurrently with
the annual fi nancial report. This report includes in-depth
coverage of social, environmental and governance issues, such
as empowerment and HIV and AIDS, that infl uence the
sustainability of the organisation. This report is available on the
group’s website www.metropolitan.co.za, in the investor
relations section.
CORPORATE GOVERNANCE REPORT
continued
METROPOLITAN | CORPORATE GOVERNANCE REPORT | 71
DIRECTORS’ EMOLUMENTS
Months Fees Annual package Bonus Pension fund Total
R’000 R’000 R’000 R’000 R’000
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Prof Wiseman Nkuhlu 12 9 810 408 810 408
Peter Doyle1 3 12 1 023 3 030 3 469 1 800 92 473 4 584 5 303
Phillip Matlakala 12 12 1 721 1 553 1 100 750 192 230 3 013 2 533
Abel Sithole2 6 12 1 468 1 851 715 875 106 272 2 289 2 998
Preston Speckmann 12 12 1 913 1 674 2 375 2 200 213 277 4 501 4 151
Fatima Jakoet 12 12 705 484 705 484
Peter Lambrecht 12 12 795 566 795 566
Syd Muller 12 12 526 418 526 418
John Newbury 12 12 732 620 732 620
JJ Njeke3 12 12 528 576 528 576
Bulelwa Paledi 12 12 330 300 330 300
Andile Sangqu 12 12 550 446 550 446
Marius Smith 12 12 606 551 606 551
Franklin Sonn 12 12 348 300 348 300
Johan van Reenen 12 12 632 500 632 500
Wilhelm van Zyl4 9 2 452 1 000 494 3 946 –
6 562 5 169 8 577 8 108 8 659 5 625 1 097 1 252 24 895 20 154
¹ Retired 31 March 2008
² Resigned 30 June 2008
³ Acting chairman during 20074 Appointed 1 April 2008
DIRECTORS’ ATTENDANCE
Holdings board Audit Actuarial Remuneration
HR &
empowerment Investment Risk
Nominations
& directors’
affairs International
Subsidiary
boards &
committees
Meetings held during 2008 5 5 5 3 4 4 4 4 2
MembersMeetings attended
Meetings attended
Meetings attended
Meetings attended
Meetings attended
Meetings attended
Meetings attended
Meetings attended
Meetings attended
Meetings attended
Wiseman Nkuhlu 5 3* 3 2 4 4
Wilhelm van Zyl 5 5* 5* 3* 4 5 2* 4* 2 20
Preston Speckmann 5 5* 5 5 4 13
Phillip Matlakala 5 2* 11
Fatima Jakoet 5 5 1² 2 15
Peter Lamprecht 5 5 5 4 1³ 4
Syd Muller 5 5 4 2 4
John Newbury 4 3 4 4 14
J J Njeke 5 2 3 4 3
Bulelwa Paledi 4 1 2
Marius Smith 5 5 5 4 7
Franklin Sonn 5 3 1
Johan van Reenen 5 3 5 4 2 9
Andile Sangqu 4 4¹ 4 4 10
* Not a member – attends meetings
¹ Resigned 31 May 2008
² Appointed 1 June 2008
³ Appointed 2 September 2008
72 | CORPORATE GOVERNANCE REPORT | METROPOLITAN
CORPORATE GOVERNANCE REPORT
continued
MEMBERSHIP OF BOARD AND BOARD COMMITTEES
Directors Audit Actuarial Remuneration HR & E Investment Risk Nominations International
Chairman LW Nkuhlu ML Smith PC Lamprecht JE Newbury JE Newbury JC van Reenen PC Lamprecht LW Nkuhlu JC van Reenen
Members FW van Zyl (CEO)3
PR Doyle (CEO)1 SA Muller AH Sangqu JC van Reenen B Paledi ML Smith ML Smith JE Newbury F Jakoet
AM Sithole (exec)2 AH Sangqu5 PE Speckmann MJN Njeke FA Sonn SA Muller JC van Reenen MJN Njeke SA Muller
PE Speckmann (exec) PC Lamprecht MJN Njeke AH Sangqu FA Sonn PR Doyle
P Matlakala (exec) F Jakoet LW Nkuhlu PR Doyle B Paledi FW van Zyl
F Jakoet PR Doyle PE Speckmann LW Nkuhlu
PC Lamprecht AM Sithole AM Sithole PR Doyle
SA Muller FW van Zyl FW van Zyl PE Speckmann
JE Newbury
MJN Njeke
B Paledi
AH Sangqu
ML Smith
FA Sonn
JC van Reenen
Exec directors PR Doyle PR Doyle PR Doyle FW van Zyl PR Doyle
To attend PE Speckmann FW van Zyl FW van Zyl FW van Zyl
AM Sithole
FW van Zyl
P Matlakala
Management V Mhlongo4 L Raftesath M le Roux W Lusted W Lusted PL Morrall WF Coetzee V Mhlongo JTM vd Hoven
On standing WT Naude L Raftesath N Chonco JJ Venter L Raftesath
Invitation B Petersen B Petersen T Alsworth-Elvey V Mhlongo
V Mhlongo M McDougall K Larkin
SecretaryB Gobodo-Mbomvu
B Gobodo-Mbomvu
B Gobodo-Mbomvu
B Gobodo-Mbomvu
B Gobodo-Mbomvu
B Gobodo-Mbomvu
B Gobodo-Mbomvu
B Gobodo-Mbomvu
B Gobodo-Mbomvu
¹ Retired 31 March 2008
² Resigned 30 June 20083 Appointed 1 April 20084 Resigned 31 December 2008 5 Resigned – invitee to all meetings
METROPOLITAN | CORPORATE GOVERNANCE REPORT | 73
LISTED SHARES
Direct Indirect
Benefi cial Non-benefi cial Benefi cial Non-benefi cial Total
31 December 2008 000 000 000 000 000
Wilhelm van Zyl 400 400
Wiseman Nkuhlu 2 2
Syd Muller 7 7
John Newbury 28 28
Johan van Reenen 315 315
Balance at 1 January 2008 419 419
Trades in 2008 -104 -104
Andile Sangqu – –
Balance at 1 January 2008 1 1
Trades in 2008 -1 -1
Marius Smith 105 105
Franklin Sonn 3 41 44
Total listed shares – 2008 405 7 448 41 901
In addition, the executive directors are benefi ciaries of the management trust, which in turn has an indirect shareholding of 5% in Metropolitan
Holdings.
TRADES IN LISTED SHARES
Transaction Number Nature of Extent of
31 December 2008 date Price of shares transaction interest
AH Sangqu 31/03/2008 R13.12 1 000 Sale Direct benefi cial
JC van Reenen 06/05/2008 R13.37 39 000 Sale Indirect benefi cial
JC van Reenen 07/05/2008 R13.05 65 400 Sale Indirect benefi cial
* Purchase price adjusted due to capital reductions
74 | EMPOWERMENT REPORT | METROPOLITAN
EMPOWERMENT REPORT
TRANSFORMATION
Broad-based black economic empowerment (B-BBEE) is one of
Metropolitan’s most important business imperatives and is in
line with the group’s strategic objectives. B-BBEE is aimed at
establishing an inclusive society for certain groups after many
years of exclusion, particularly from an economic perspective.
Metropolitan’s vision is to create prosperity for the people of
Africa by maintaining a leading position as an empowered, and
empowering, fi nancial services group. However, making a
positive contribution to B-BBEE entails more than investing in
empowerment initiatives; it requires a company to be a catalyst
for change by embracing the spirit of transformation and not
merely following the letter of the law.
For Metropolitan, B-BBEE is not about compliance but about
building a sustainable business whose prosperity is determined
by the level of prosperity it generates for all its stakeholders –
shareholders, customers, staff, suppliers and members of the
communities where it does business.
The empowerment requirements set out in the department of
trade and industry’s (DTI) codes of good practice (CoGP) and
the Financial Sector Charter (FSC) are key drivers for the
strategy and operations of the group. However, Metropolitan
regards the legislative and regulatory requirements in respect
of empowerment as the minimum standards to be met; as a
group, we have always focused on exceeding the expectations
outlined by the FSC council and the DTI.
Metropolitan shapes its strategies and its implementation
plans to achieve fully transformed status and become a leader
in terms of the B-BBEE criterion – this is in line with our
commitment to B-BBEE. The group contributes to positive
change by helping to eradicate the imbalances of the past.
An integral part of the way we do business is by enhancing the
level of investment in empowerment initiatives. This is key to
achieving our objective.
The FSC was adopted in 2004 and incorporates several em-
powerment components. The compliance targets and weight-
ings allocated to each component – or pillar – are all aimed at
empowering black people and bringing them into the fi nancial
services industry as owners, customers, employees and/or
suppliers. Strong emphasis is also placed on broadening
access to fi nancial services so that millions of disadvantaged
black people, who were previously unbanked or uninsured, can
enter the mainstream economy by making use of the products
and services offered by the sector.
In 2007 the DTI (under minister Mandisi Mphalwa) introduced
the CoGP. At that time, the industry discovered that there
were several differences between the requirements of the
CoGP and those of the FSC – one of these being ownership.
Whereas the FSC requires a minimum of 10% direct black
ownership and 15% indirect (for a total of 25%), the CoGP
stipulates direct black ownership of 25%.
The CoGP was gazetted on 9 February 2007 and made provision
for a transitional period during which sector charters could be
gazetted as sector codes. Before this can happen for the FSC,
consensus has to be reached on the discrepancies between the
two sets of requirements. However, provision will still have to be
made for the two empowerment components that are unique to
the fi nancial services sector (being empowerment fi nancing and
access to fi nancial services). Unless the matter is resolved before
the end of March 2009, the charter and the council will cease to
exist. However, Metropolitan is continuing its participation in the
FSC reporting process until a fi nal ruling has been made, and is
once again publishing its offi cial scorecard for the reporting
period ended 31 December 2008, audited by accredited rating
agency NERA (National Empowerment Rating Agency), in this
year’s annual report (see pages 78 and 79).
BEE COMPONENTS
The commentary in this report focuses on both the B-BBEE
requirements of the CoGP and the group’s FSC scores, as well
as highlighting
> empowerment fi nance and
> access to fi nancial services and consumer education
being the two components that are only incorporated in
the FSC. Metropolitan is in the process of having its
performance in terms of the CoGP audited by NERA and
will publish its official scorecard on the corporate website
(http://www.metropolitan.co.za) as soon as it is available.
At this stage of the audit, all CoGP statistics are still
provisional.
Ownership
In terms of the CoGP, effective ownership in a company is
determined by two factors, namely:
> economic interest, and
> exercisable voting rights.
Exercisable voting rights by black people and economic interest in the enterprise to which black people are entitled
(provisional calculations in terms of the CoGP) were as follows as at 31 December 2008:
Target % Actual %
Total votes exercisable by black people 25 44.42
Total votes exercisable by black women 10 12.19
Economic interest to which black people are entitled 25 44.42
Economic interest to which black women are entitled 10 12.19
METROPOLITAN | EMPOWERMENT REPORT | 75
The ownership element is aimed at encouraging active partici-
pation by black people in general, black women in particular and
specifi ed broad-based black groupings in the affairs of the
companies they own. Their inclusion is ensured to the extent
that equal economic interest and voting rights are attached to
their shares and the extent to which their shareholdings are
unencumbered.
Therefore, where stakes are held by corporate entities,
shareholder interests and voting rights should be evaluated
individually to determine effective ownership by the ultimate
benefi ciaries.
Based on Metropolitan’s share register as at 31 December 2008,
and the provisional results of the audit outcome of the external
audit that is currently being conducted by NERA, 44.42% of
the voting rights in the group were effectively held by black
people, with 12.19% held by black women.
Employment equity (EE)
By upholding the principles of employment equity and equality,
Metropolitan is aiming to create a working environment based
on dignity and respect for all people. The group also focuses on
attracting a diverse staff complement that refl ects the compo-
sition of society in general at all levels of the organisation. It
therefore strives to develop employment equity strategies that
comply with both legislative and regulatory requirements while
at the same time nurturing diversity in its workforce.
This year’s EE performance (15 points out of a total of 15 in FSC
terms) was particularly pleasing.
Skills development and learnerships
Metropolitan has always been committed to developing and
upskilling its employees, and its black staff members in
particular. On an annual basis, each business unit compiles and
implements a workplace skills plan as well as completing the
necessary annual training reports, used by the group people
services division to capture information as per the Skills
Development Act, Skills Development Levies Act and Inseta’s
on-line reporting requirements. Effective record-keeping
means that the group is able to measure and monitor its
performance on an ongoing basis, including the quantum of its
spend on training and development initiatives.
Despite having to meet cost containment demands and face
certain record-keeping challenges in 2008, Metropolitan
achieved 3.54 out of 5 points in terms of the FSC’s evaluation
criteria.
The group is planning on investing more extensively in
mentorship and coaching programmes as well as corporate
and industry orientation programmes and business-specifi c
training, focused mainly on equipping black people at senior
management level given that the majority of Metropolitan’s
black managers are currently at a junior level. Training and
leadership development initiatives are, however, being put in
place across the employee spectrum in an effort to ensure that
staff are empowered at all levels of the organisation. In this
way the group is also mitigating the potential risk of not having
enough skilled black people in key positions.
Metropolitan also uses other tools to help it achieve its skills
development objectives, eg learnerships and bursary schemes
targeting students who are exploring careers in fi nance and
actuarial science in particular. A separate programme, namely
the Metropolitan leadership and management programme
(LAMP), is specifi cally aimed at increasing the pool of black
female managerial talent across the group.
Allocating considerable fi nancial and human resources to
certifi ed learnership programmes (both employed and
unemployed learnerships) on an annual basis is another of the
ways in which the group makes a signifi cant contribution to the
development of black people.
Employment equity – extract from Metropolitan’s detailed FSC scorecard (see page 78)
INDICATORS TARGET 2008 THRESHOLD WEIGHTING ACTUAL SCORE
SECTION 1 – paragraph 5 of the charter: human resource development 20.00 18.54
1.1 Employment equity 15.00 15.00
1.1.1 Senior managementBlack people as % of senior management Min 20%-25% 10.00% 4.00 40.19% 4.00
Black women as % of senior management Min 4% 1.60% 1.00 11.96% 1.00
1.1.2 Middle managementBlack people as % of middle management Min 30% 17.00% 4.00 45.50% 4.00
Black women as % of middle management Min 10% 5.00% 1.00 16.88% 1.00
1.1.3 Junior managementBlack people as % of junior management Min 40%- 50% 28.00% 4.00 67.49% 4.00
Black women as % of junior management Min 15% 12.00% 1.00 43.64% 1.00
Explanatory notes on EE levels
> Senior management = job grades 3 and 4 (excluding members of the group’s executive committee)
> Middle management = job grades 5 to 7 plus area and regional managers
> Junior management = job grades 8 to 10 plus sales managers and consultants
76 | EMPOWERMENT REPORT | METROPOLITAN
Preferential procurement and enterprise development
Preferential procurement
During the 2008 reporting period, the group appointed an
external service provider to assist with the supplier
management function throughout the organisation. This was
done to enable Metropolitan to capture and assess its own
performance as well as evaluate the B-BBEE information
available on all suppliers registered on its data base.
Regular interventions involving both suppliers and internal
contract owners are ongoing, with a view to educating them
about the group’s empowerment requirements while at the
same time encouraging and enabling them to comply with the
latter. In addition, a series of supplier transformation workshops
was hosted with certain key suppliers during the 2008 reporting
period to sensitise them to the importance of transformation
within their respective organisations. This created a platform
for open dialogue and resulted in growing awareness of Metro-
politan’s preferential procurement or B-BBEE requirements.
At present the biggest challenge facing the group is the
allocation of preferential procurement spend to suppliers that
render essential services, including IT, auditing, share broking
and trading. It is imperative that these challenges be addressed
more aggressively going forward, and a target of 50%
preferential procurement spend on essential services by 2010
has therefore been set.
Enterprise development
In addition to the initiatives identifi ed under the preferential
procurement pillar, one of Metropolitan’s enterprise
development initiatives was particulary successful during the
reporting period, being the Metropolitan SMME (small,
medium and micro enterprises) portal. The group once again
partnered with Ubuntu Empowerment Services to run a very
effective portal to help industry players identify suitable
empowerment partners as well as to pinpoint new business
opportunities for SMMEs. The portal also helps prepare
SMMEs to avail themselves of these new opportunities.
Another of the portal’s key objectives is to provide SMMEs with
a platform to market themselves, as well as to give emerging
informal businesses access to the mainstream economy
through enterprise development and procurement opportunities
leading up to the 2010 Soccer World Cup and beyond.
The portal also seeks to add a developmental dimension to
economic growth by unleashing the entrepreneurial spirit of
South Africans and boosting the growth of small businesses.
It provides real tools that bridge trade barriers and facilitate
true black economic empowerment through enterprise
development and procurement. This fi ts in well with
Metropolitan’s own commitment to B-BBEE and its objective
of inspiring and facilitating active involvement in the social
and economic revival of communities.
To date, the portal has been successfully launched in the
Eastern Cape, Western Province and KwaZulu-Natal. Since its
inception in 2007, a total of 790 SMMEs have registered, with
a tender listing of 801.
Socio-economic development (SED)
Metropolitan’s view on investing in SED initiatives (also referred
to as corporate social investment or CSI) has always been to
add value by contributing to the upliftment and empowerment
of local communities and those who have been disadvantaged
in the past.
The group is committed to making a positive difference to the
lives of people in South Africa as well as in Africa as a whole.
Key to all its SED initiatives is upliftment by enabling black
people who are not yet participating in the mainstream
economy to do so. This ensures that the benefi ciaries of its
SED investments can be incorporated into an economically
active society in a sustainable way.
Metropolitan’s performance as at 31 December 2008 earned
the group a provisional overall score of 4.5 out of 5 in terms of
the CoGP.
Examples of SED initiatives in which the group invested during
2008 included focusing on HIV/AIDS (through the Live the
Future project) and providing fi nancial assistance to black
actuarial students (Actuaries on the Move) as well as to other
black students pursuing a career in accounting, etc.
Metropolitan is also committed to developing and transforming
local black communities through its involvement in soccer at
grassroots level. This includes supporting the Metropolitan
Under 19 League, the Metropolitan Premier Cup and COSAFA
Under 20 Youth Championships.
Access to fi nancial services
The FSC defi nes “access” as the ability to purchase retail
insurance products and services that mitigate the impact of
defi ned basic risks (life insurance, funeral insurance, burial society
membership, household insurance and health insurance).
In 2007, the fi rst set of access standards, applicable to funeral
products, was approved and implemented by the life insurance
industry. The second set of access standards, relating to non-
funeral products, was only released by the FSC council in
February 2008. Although this meant a delay in Metropolitan’s
plans, the group pressed ahead and succeeded in meeting all
self-imposed deadlines for having three out of the maximum
four access products in the market by the end of 2008.
The group’s performance during 2008 was scored at 12.58 out
of 14.
EMPOWERMENT REPORT
continued
METROPOLITAN | EMPOWERMENT REPORT | 77
Going forward, Metropolitan intends to focus more aggressively
on distributing fi nancial products that are in line with the needs
of the lower income groups (LSMs 1–5). Every effort will be
made to ensure that these products are appropriate, affordable,
easy to understand and a good investment in terms of value
for money. This should result in a higher level of participation by
the lower income groups in the mainstream economy.
Consumer education
Metropolitan aims to direct a minimum of 0.2% of its post-tax
operating profi t to consumer education initiatives per annum,
in accordance with the requirements of the FSC. These include
programmes aimed at empowering consumers with basic
fi nancial knowledge to enable them to make more informed
decisions about their fi nances and lifestyles.
The group embarked on a number of FSC-compliant consumer
education initiatives in 2008, investing 0.49% (minimum 0.2%)
of post-tax operating profi t in fi nancial literacy programmes.
Consequently a score of 2 out of 2 points was recorded.
Empowerment fi nancing
Empowerment fi nancing contributes a total of 22 points to the
overall FSC scorecard. According to the requirements outlined
in the charter, empowerment fi nancing is the provision of
fi nance for, or investment in, targeted investments and black
economic empowerment transactions. Targeted investments
include debt fi nancing of, other forms of credit extension to, or
equity investment in, South African projects in areas where
gaps or backlogs in economic development and job creation
have not been adequately addressed by fi nancial institutions.
As per the FSC guidance notes, the 2008 reporting year is the
fi fth of the current fi ve-year evaluation period.
Thanks to Metropolitan’s long-standing commitment to
transformation, the group had already been extensively
involved in empowerment fi nancing initiatives prior to signing
the FSC. Currently, the main driver of the group’s investment
in initiatives of this nature is the African Wealth Creator Fund,
which was established specifi cally for this purpose.
Taking the above factors into account, Metropolitan’s invest-
ment in empowerment fi nancing in 2008 was scored at 14.22
out of the total of 22 points allocated to this component.
IN CONCLUSION
As mentioned earlier, Metropolitan is of the view that B-BBEE
is an important building block in the creation of an egalitarian
society in that it contributes in many and varied ways to the
transformation of the socio-economic landscape in South
Africa. It is the foundation on which a sustainable business
environment can be built, from a community and a commercial
perspective.
Effective transformation is also a corrective tool that aims to
create opportunities for those who were deliberately denied
them in the past. The group therefore believes in a holistic
approach to empowerment which, even though aimed primarily
at black South Africans, has a positive impact on all our
stakeholders, ie internal and external.
As a leading empowerment group, Metropolitan is committed
to:
> investing in and driving empowerment initiatives more
aggressively going forward
> education that creates opportunities for prosperity and
restores dignity
> pride generated through a deep understanding and
appreciation of its African heritage, in all the countries in
which it operates
> partnerships that improve quality of life and leave lasting
legacies within communities and workplaces
> contributing to a sustainable society.
As the group sees it, these are minimum requirements; it is
both Metropolitan’s desire, and its stated intent, to exceed
them. Its commitment to legislative and regulatory compliance
in respect of B-BBEE is ongoing, being the basis on which all
its business policies, procedures and practices are formulated.
However, the expectations of Metropolitan’s people, including
all its stakeholder groupings, are of paramount importance in
setting the empowerment standards that it is constantly
striving to attain, and maintain.
78 | EMPOWERMENT REPORT | METROPOLITAN
EMPOWERMENT REPORT
continued
Metropolitan’s audited Financial Sector Charter (FSC) scorecard as at 31 December 2008
Summary scorecard
ELEMENT POINTS WEIGHTING INSTITUTION’S SCORE
Employment equity 15.00 15.00
Skills development 5.00 3.54
Preferential procurement & enterprise development 15.00 10.48
Access to fi nancial services 14.00 12.58
Empowerment fi nancing 22.00 14.22
Ownership 12.00 16.00
Control 8.00 8.00
Corporate social investment 3.00 3.00
Totals 94.00 82.81
PERCENTAGE 88.10%
ANNUAL TARGET 85.00%
COMPLIANCE% 103.65%
RATING A
Detailed scorecard
INDICATORS TARGET 2008 THRESHOLD WEIGHTING ACTUAL SCORE
SECTION 1 – paragraph 5 of the charter: human resource development 20.00 18.54
1.1 Employment equity 15.00 15.00
1.1.1 Senior managementBlack people as % of senior management Min 20%-25% 10.00% 4.00 40.19% 4.00
Black women as % of senior management Min 4% 1.60% 1.00 11.96% 1.00
1.1.2 Middle managementBlack people as % of middle management Min 30% 17.00% 4.00 45.50% 4.00
Black women as % of middle management Min 10% 5.00% 1.00 16.88% 1.00
1.1.3 Junior managementBlack people as % of junior management Min 40%- 50% 28.00% 4.00 67.49% 4.00
Black women as % of junior management Min 15% 12.00% 1.00 43.64% 1.00
1.2 Skills development 5.00 3.54
1.2.1 Skills spend% payroll spent pa on skills development of black employees
1.50% 3.00 1.90% 3.00
1.2.2 Learnership programme 1.50% 2.00 0.40% 0.54
SECTION 2 – paragraph 6 & 7 of the charter: procurement and enterprise development 15.00 10.48
Procurement 50% 10% 15.00 34.93% 10.48
Procurement from black infl uenced companies & companies rated “D” in terms of a charter
x 50%
Procurement from companies rated “C” in terms of a charter
x 75%
Procurement from black empowered companies & companies rated “B” in terms of a charter
x 100%
Procurement from black SMEs, black companies, black women empowered enterprises & companies rated “A” in terms of a charter
x 125%
Enterprise development
Enterprise development: black infl uenced companies
x 50%
Enterprise development: black empowered companies
x 100%
Enterprise development: black SMEs, black companies & black women empowered enterprises
x 125%
METROPOLITAN | EMPOWERMENT REPORT | 79
INDICATORS TARGET 2008 THRESHOLD WEIGHTING ACTUAL SCORE
SECTION 3 – paragraph 8 of the charter: access to fi nancial services 14.00 12.58
3.3 Life assurance products and services
Compliant products 3 2.00 3.00 2.00
Number of policies 478 971 7.00 534 682 5.58
Transactional access 80% 3.00 79% 3.00
3.7 Consumer education % of post-tax operating profi ts spent pa Min 0.2% 2.00 0.49% 2.00
SECTION 4 – paragraph 9 of the charter: empowerment fi nancing 22.00 14.22
4.1 Targeted investments Institution’s target for targeted investments 758 643 172 17.00 576 117 598 12.91
4.2. BEE transaction fi nancing, including JVs, debt fi nancing, equity investments in BEE companies that are not black SMEs
Institution’s target for BEE transaction fi nancing
597 356 828 5.00 155 983 195 1.31
SECTION 5 – paragraph 10 & 11 of the charter: ownership & control 20.00 24.00
5.1 Ownership 12.00 16.00
5.1.1 Direct ownershipPoints 25% 12.00 44.42% 12.00
Bonus points 25% 4.00 44.42% 4.00
5.1.2 Direct or indirect ownership in excess of 10 %
5.2 Control 8.00 8.00
5.2.1 Board
Black people as a % of the board of directors
33.00% 20.00% 2.00 57.14% 2.00
Black women as a % of the board of directors
11.00% 0.00% 1.00 14.29% 1.00
5.2.2 Executive
Black people as a % of the board of directors
25.00% 18.43% 4.00 50.00% 4.00
Black women as a % of the board of directors
4.00% 0.46% 1.00 10.00% 1.00
SECTION 6 – paragraph 12 of the charter: corporate social investment 3.00 3.00
Corporate social investment % of post-tax operating profi t directed pa to CSI
0.50% 3.00 0.91% 3.00
Totals 94.00 82.81
80 | HIV AND AIDS REPORT | METROPOLITAN
METROPOLITAN’S RESPONSE TO HIV AND AIDS
Metropolitan has been a leader in the response to the HIV and
AIDS epidemic in South Africa for almost two decades, with an
excellent reputation and a proud legacy. Metropolitan’s
commitment to researching HIV and AIDS began as long ago
as 1988 when Peter Doyle, the group’s former chief executive,
developed a modelling tool to project the impact of HIV and
AIDS in South Africa. The well-known Doyle model, published
in 1990, has since been used for research into the prevalence
of HIV and AIDS in South Africa and led to the establishment
of various AIDS research units within the group, the current
one known as AIDS Risk Consulting.
Pioneers in the provision of risk solutions to those affected by
the pandemic, Metropolitan was the fi rst life insurer in South
Africa to classify AIDS sickness as a dread disease and, in
1996, the fi rst company worldwide to offer life cover to HIV
positive people.
The group’s commitment to HIV and AIDS in South Africa
extends to widespread support for and funding of a broad
spectrum of social programmes that care for or offer support
to HIV and AIDS sufferers.
Today, Metropolitan is still considered a leader in the fi eld of
HIV and AIDS research and management, and continues to
develop innovative solutions to managing this growing
epidemic.
In 2008 Metropolitan’s ongoing contribution included:
> enhancing the private sector response to the HIV & AIDS
and STI Strategic Plan for South Africa, 2007 – 2011 through
the use of its Live the Future HIV and AIDS scenarios
> using its expertise in AIDS and demographic modelling to
ensure that its risk products remain competitively priced
> advising organisations on the impact of HIV and AIDS on
their businesses
> implementing an integrated employee wellness programme.
Enhancing the private sector response to HIV and AIDS
through the use of the Live the Future HIV and AIDS
scenarios
How will our responses to HIV and AIDS shape the future of
South Africa by 2025?
The Live the Future model is a thought-provoking scenario
planning tool that aims to provide a vision of a future in which
South Africa has successfully addressed the epidemic. It
comprises four scenarios that create a shared understanding
of the key driving forces of the epidemic and illustrates how
they will shape the future of our country. The scenarios provide
a powerful means of identifying the direction in which a
community or organisation is moving, while at the same time
inspiring action to change or maintain that direction depending
on where it is taking them.
Using Live the Future to create collaboration in the business
sector
In 2008 the Work the Future roadshow, sponsored by
Metropolitan in partnership with Business Unity South Africa
(BUSA) and the South African Business Coalition on HIV and
AIDS (SABCOHA), was used to present the Live the Future
scenarios, which range from devastating to inspiring. The aim
was to engage business leaders on their role in the HIV & AIDS
and STI Strategic Plan for South Africa, 2007 – 2011 (NSP),
promote ‘critical’ business collaboration and highlight what
business is currently doing (or failing to do) in addressing the
prevention of HIV infections and in providing treatment, care
and support. Since the goals of the NSP correspond closely to
the Summer for All People scenario in which prevention is key
and collaboration vital, the roadshow generated a renewed
private sector response to the epidemic in South Africa.
At the Johannesburg launch, the deputy president of
South Africa, Ms Mbete, endorsed the project as
follows:
“ I want to agree that the Work the Future roadshow is an
important vehicle for South African business to
communicate the National Strategic Plan on HIV and
AIDS as well as STIs…
“ For this reason, we want to applaud all stakeholders
for establishing the Live the Future model that seeks
to create a vision for a future South Africa that
effectively addresses this epidemic and will change for
the better the lives of all our people.
“ Indeed this signifi es a new and innovative approach
that complements the NSP. “
World AIDS Day 2008
Leadership and unity was selected as the national theme for
World AIDS Day 2008 (WAD08):
> to encourage leaders at all levels to stop HIV and AIDS and
> to partner as a nation to stop new infections and provide
treatment, care and support to those infected and affected
by HIV and AIDS.
In support of the South African National AIDS Council’s national
call, Metropolitan asked all employees to observe a minute’s
silence at 12:00 on 1 December 2008. We also supported
SANAC’s call for a national 15-minute focus on actions to be
taken by each of us to stop HIV and AIDS.
For the fi rst time in history, South African leaders stood
together to fi ght HIV and AIDS on WAD08. Metropolitan
supported the initiative countrywide, with key messages being
delivered by group chief executive, Wilhelm van Zyl, and
group chairman, Prof Wiseman Nkuhlu. Staff were also invited
to attend the powerful Work the Future multi-media
presentation.
HIV AND AIDS REPORT
METROPOLITAN | HIV AND AIDS REPORT | 81
In addition, Brad Mears, chief executive of SABCOHA, sent
a copy of Work the Future to all SABCOHA members to inspire
business to take action in the fi ght against HIV and AIDS.
Mr Mears stated: “In line with the theme for World
AIDS Day 2008, the Summer for All People scenario
focuses on collaborative leadership and prevention as
the key to a successful future for South Africa…
“ The DVD could be the ideal information to share with
your employees to start a dialogue about where we,
as citizens, employees, companies and a nation, are
going.”
Metropolitan is actively backing the new drive by government
leaders in support of the ongoing efforts of the SA National
AIDS Council to stop the spread of HIV and to assist those
who are infected. Through the use of the powerful Live the
Future scenarios, we aim to inspire, support and facilitate the
private sector strategy on HIV and AIDS.
Expertise in AIDS and demographic modelling ensures
competitive risk product pricing
Metropolitan has been using its expertise in AIDS and
demographic modelling since the early nineties to refi ne the
pricing of its risk products. This ensures that group life and
disability insurance as well as individual life products remain
competitive through making adequate allowance for HIV
infection rates while simultaneously taking into account the
impact of interventions such as anti-retroviral treatment. The
introduction of anti-retroviral treatment in South Africa has
resulted in a shift in the life expectancy of the HIV positive
insured population, leading to more affordable and appropriately
priced risk products.
Advising organisations on the impact of HIV and AIDS
on their businesses
Metropolitan has been advising organisations on the impact of
HIV and AIDS on their business since the late nineties, and has
been instrumental in the introduction of HIV disease
management, including anti-retroviral treatment, to employees
in various big companies across Southern Africa.
Through the use of its comprehensive HIV and AIDS impact
assessment, Metropolitan has convinced numerous clients of
the sound business case underlying the implementation of a
comprehensive workplace programme on the basis of the cost
savings achieved by providing treatment. A detailed and highly
sophisticated study of this nature shows that it is invariably
more cost-effective to treat AIDS-sick employees, even if they
do not have access to a company-sponsored medical aid
scheme, due to the savings on group life and disability costs
and human resource expenses. In addition, an HIV and AIDS
workplace programme is now a vital component of the
employee wellness programme of all major organisations in
Southern Africa and is regarded as a minimum standard as far
as both good corporate governance and sustainability practices
are concerned.
Metropolitan AIDS Risk Consulting provides actuarial expertise
in this regard, while the Metropolitan Health Group develops
healthcare solutions for a wide range of clients.
Integrated HIV and AIDS workplace programme
Metropolitan has a well-established, comprehensive HIV/AIDS
workplace programme that is focused on creating a sustainable
workforce and community. Among the objectives of the
employee wellness team is the integration of HIV and AIDS
into all aspects of their programme, with an emphasis on
wellness in all senses, including dealing with the stigma and
other negative perceptions around HIV and AIDS. In 2008
comprehensive wellness and HIV and AIDS initiatives were
rolled out to all the Metropolitan regional offi ces.
In order to evaluate the success of the HIV and AIDS workplace
programme on an ongoing basis, the actual annual statistics
are compared to those projected in the group’s 2006 Actuarial
Impact Assessment. As indicated above, an impact assess-
ment determines the risk that HIV and AIDS poses to a
business and what the fi nancial implications could be if the
business in question does not respond adequately.
UPDATE ON METROPOLITAN HIV AND AIDS IMPACT
ASSESSMENT
Metropolitan’s 2006 impact assessment provided projected
costs and savings to the company as a result of HIV and AIDS
over a ten-year period. This report summarises the fi ndings
pertaining to the 2008 fi nancial year as well as providing an
overview of what can be expected in 2009.
SAVINGS AS A RESULT OF HIV AND AIDS WORKPLACE
PROGRAMMES
The study showed that in 2008 Metropolitan enjoyed savings
in respect of HIV-related costs because it had had an HIV and
AIDS disease management programme in place since 2003.
The saving, which is equal to the difference between the no
treatment and the status quo scenario, was an estimated
R4.6 million. The saving for 2009 is projected to be R4.7 million.
A further R8.7 million could be saved if the take-up rate of
disease management increases.
DEMOGRAPHIC IMPACT ASSESSMENT
The HIV prevalence rate for Metropolitan (percentage of
employees who are HIV positive) was estimated to be 8.5% in
2008, increasing to 8.7% in 2009 (see fi rst table overleaf). The
30–39 year-old age group showed the highest HIV prevalence
rate at 8.9% (2008) as well as the highest expected increase in
HIV prevalence to 2016.
82 | HIV AND AIDS REPORT | METROPOLITAN
HIV AND AIDS DISEASE MANAGEMENT PROGRAMME:
TAKE-UP RATE
Monitoring the take-up by HIV positive employees of the
Metropolitan HIV and AIDS disease management programme is
important in determining the success of this workplace inter-
vention. The take-up rate of anti-retroviral treatment (percentage
of employees taking up treatment out of those estimated to be
eligible for treatment) dropped slightly over the last fi nancial year.
It is estimated that 41% of the employees are accessing disease
management when they are in the fi nal stages of the disease.
Successful clinical intervention in the AIDS-sick phase results in
employees returning to work and leading a productive life.
MANAGING THE IMPACT OF HIV AND AIDS
Research indicates that human resources are responsible for
more than 50% of an organisation’s operating expenses.
Ensuring employee health and wellness is therefore a critical
operating strategy to achieve optimal productivity, which leads
ultimately to business success. Managing HIV and AIDS
among employees is seen as a critical aspect of employee
health and wellness. The fi rst step in this management is
voluntary counselling and testing (VCT) so that employees
know their status and are given appropriate advice on how to
manage it.
WELLNESS AND HIV/AIDS
In 2008, as in previous years, Metropolitan hosted
comprehensive wellness campaigns during the course of
which the wellness team visited all the branch offi ces in all the
provinces of South Africa, Namibia, Lesotho and Botswana.
During these sessions, employees were educated about health
and wellness matters and given an opportunity to test for all
the chronic diseases, including diabetes, hypertension, body
mass index, HIV, cholesterol, etc.
ESTIMATED HIV PREVALENCE AND AIDS-RELATED DEATHS
2005 2006 2007 2008 2009
HIV prevalence rate 7.4% 7.9% 8.2% 8.5% 8.7%
AIDS deaths as percentage of employees 0.36% 0.41% 0.45% 0.48% 0.51%
An increase in HIV prevalence over time has contributed in part to more people receiving anti-retroviral treatment. It is important to note that longer
life expectancy and better quality of life are the drivers of reduced HIV and AIDS-related costs to a company while giving rise to the apparent paradox
of higher levels of HIV prevalence.
ESTIMATED TAKE-UP RATE OF DISEASE MANAGEMENT THROUGH METROPOLITAN
2005 2006 2007 2008
Too early to treat 8% 5% 7% 8%
On anti-retroviral treatment 36% 37% 46% 41%
Total take-up rate 13% 13% 17% 18%
FINANCIAL IMPACT ASSESSMENT (CURRENT SCENARIO) FOR 2007 AND 2008 (COSTS AS % OF PAYROLL)
2007 2008
Employee benefi ts AIDS-related costs (death benefi ts) 0.7% 0.8%
Employee benefi ts AIDS-related costs (disability benefi ts) 0.4% 0.6%
HIV and AIDS-related human resource costs 0.7% 0.7%
HIV and AIDS-related medical expenses 0.6% 0.7%
Total HIV and AIDS-related expenses 2.4% 2.8%
The fi nancial impact assessment provides an indication of employee benefi ts, human resource and medical costs and savings as a result of the
comprehensive HIV and AIDS workplace programme. Total HIV and AIDS-related costs to Metropolitan were estimated at 2.8% of payroll in 2008.
The human resource costs that were incurred by Metropolitan as a result of HIV and AIDS include those associated with sick leave and absenteeism,
loss in productivity, recruitment to replace employees who die of AIDS-related causes and subsequent training of new staff. The study showed that
the biggest part of this was as a result of HIV and AIDS-related sick leave and loss of productivity. Medical costs as a result of treatment of AIDS-
related illnesses also form a substantial part of the total HIV and AIDS-related costs to Metropolitan.
HIV AND AIDS REPORT
continued
PARTICIPATION IN WELLNESS DAYS
The wellness sessions were well attended, with total overall
participation at 78%. Namibia recorded the highest participation
of 98%, while the Eastern and Western Cape had the lowest
participation levels of 66% and 69% respectively. The
percentage participation is calculated on the basis of the
number of employees who participated versus the total
number of employees in a particular region. Given that out in
the regions most Metropolitan employees are not offi ce bound,
some of them were inevitably absent on the dedicated
wellness days. However, almost all of the employees who
were in offi ce on the appointed day elected to participate. This
level of participation is exceptionally high considering that
people are generally apathetic and distrustful when it comes to
personal health matters, and it was emphasised that partici-
pation was voluntary.
There is ample evidence that HIV and AIDS can impact
negatively on the profi tability and sustainability of an
organisation if not managed well. During these sessions, HIV
testing was actively encouraged and the benefi ts of early
detection of the disease were emphasised. Support services
for counselling, both internal and external, were identifi ed.
Treatment programmes provided by Qualsa, the managed
healthcare arm of the Metropolitan Health Group, were also
highlighted. The future progression of the HIV and AIDS
epidemic depends on actions taken by employer groups like
Metropolitan.
PERCENTAGE THAT PARTICIPATED IN VOLUNTARY HIV
TESTING
Of the 78% of employees who participated in the general
wellness tests, 73% volunteered to be tested for HIV after
receiving counselling. This is a very high participation rate,
indicative of the willingness of Metropolitan employees to
assume responsibility for their own health, including HIV.
However, 27% of the employees who agreed to be tested for
other illnesses declined to have the HIV test done.
METROPOLITAN | HIV AND AIDS REPORT | 83
PARTICIPATION IN VOLUNTARY HIV TESTING
Of the employees who volunteered to be tested, 12% tested
positive. This fi gure is, however, not a reasonable estimate of
the overall HIV prevalence rate for the total workforce due to
the potential bias in the take-up of voluntary counselling and
testing (VCT). Employees who know their HIV status, or those
who perceive themselves not to be at risk of being infected,
might not come forward to test. Although the fi gure is in line
with the estimated total national HIV prevalence rate, it is
higher than the estimated HIV prevalence rate for Metropolitan
as per the actuarial impact assessment, but lower than
the adult HIV prevalence rate as projected for the working
population.
The total HIV prevalence rate in South Africa is 12% whereas
20% of adults between the ages of 20 and 64 are estimated to
be HIV positive (as per the provincial version of the Actuarial
Society of South Africa’s model, namely the ASSA2003 (full)
AIDS and Demographic Model). The adult HIV prevalence rate
for the provinces ranges from 28% in KwaZulu-Natal to 9% in
the Western Cape.
CONCLUSION
The Metropolitan wellness days will be held annually to monitor
the progress of participants and to track new infections. The
wellness team will continue to emphasise education on chronic
illnesses like hypertension, diabetes, hyper-cholesterolaemia
and their effects, to run regular VCT campaigns as well as to
encourage physical activity and promote prudent diet in the
management of overweight, obesity and high cholesterol
levels. Support services for employees who test HIV positive
are always available, but getting those employees who are
positive but are ‘too early to treat’ to enrol on these programmes
remains a challenge.
The wellness of Metropolitan employees will always be a key
focus area of the group people services department.
% p
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Sisa Rafuza, Metropolitan Asset Managers
84 | METROPOLITAN
As a leading empowerment group, Metropolitan is committed to investing in and driving empowerment initiatives more aggressively going forward.
METROPOLITAN | 85
COMMITTEDTO INVESTING INAND DRIVING EMPOWERMENT INITIATIVES
We are also committed to pride generated through a deep
understanding and appreciation of our African heritage, in
all the countries in which we operate.
ADDING VALUEto all that we do
FINANCIAL STATEMENTS
DIRECTORS’ RESPONSIBILITY AND APPROVAL 87
CERTIFICATE BY THE GROUP COMPANY SECRETARY 87
REPORT OF THE INDEPENDENT AUDITORS 88
CERTIFICATE BY THE STATUTORY ACTUARY 88
DIRECTORS’ REPORT 89
AUDIT COMMITTEE REPORT 92
DEFINITIONS 93
REPORT ON GROUP EMBEDDED VALUE 95
STATEMENT OF ACTUARIAL VALUES OF ASSETS
AND LIABILITIES 103
BALANCE SHEET 104
INCOME STATEMENT 105
STATEMENT OF CHANGES IN EQUITY 106
CASH FLOW STATEMENT 107
GROUP ACCOUNTING POLICIES 108
CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES 123
SEGMENT REPORT 124
NOTES TO THE FINANCIAL STATEMENTS 130
METROPOLITAN HOLDINGS LIMITED ANNUAL FINANCIAL
STATEMENTS 196
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 87
RESPONSIBILITY FOR ANNUAL FINANCIAL STATEMENTS
The directors take responsibility for ensuring that these fi nancial
statements accurately and fairly represent the state of affairs
of the company and of the group at the end of the fi nancial
year and the profi ts and losses for the year. The directors are
also responsible for the accuracy and consistency of other
information included in the fi nancial statements.
To enable the directors to meet these responsibilities:
> the group and company fi nancial statements are prepared
by management; opinions are obtained from the statutory
actuaries of the life insurance companies and the external
auditors of the companies.
> the board is advised by the audit committee, comprising
only non-executive directors, and the actuarial committee.
These committees meet regularly with the auditors, the
statutory actuaries and the management of the group to
ensure that adequate internal controls are maintained, and
that the fi nancial information complies with International
Financial Reporting Standards. The internal auditors, external
auditors and the statutory actuaries of the companies have
unrestricted access to these committees.
To the best of their knowledge and belief the directors are
satisfi ed that no material breakdown in the operation of the
systems of internal control and procedures occurred during
the year under review.
The annual fi nancial statements have been prepared in
accordance with the provisions of the South African Companies
In accordance with the provisions of section 268G(d) of the South African Companies Act, 1973, as amended, I certify that for the
year ended 31 December 2008 the companies have lodged with the registrar of companies all such returns as are required of a
company in terms of the act, and that all such returns are true, correct and up to date.
Bongiwe Gobodo-MbomvuGroup company secretary – Metropolitan Holdings Limited and Metropolitan Life Limited
Cape Town
10 March 2009
Act, 1973 as amended and the Long-term Insurance Act, 1998
as amended and comply with International Financial Reporting
Standards and guidelines issued by the Actuarial Society of
South Africa.
The directors have no reason to believe that the group, or
any company within the group, will not be a going concern in
the foreseeable future, based on forecasts and available cash
resources. These fi nancial statements support the viability of
the group and the company.
It is the responsibility of the independent auditors to report
on the fi nancial statements. In order to do so they were given
unrestricted access to all fi nancial records and related data,
including minutes of all meetings of shareholders, the board
of directors and committees of the board. The audit report is
presented on page 88.
APPROVAL OF ANNUAL FINANCIAL STATEMENTS
The annual fi nancial statements, presented on pages 89 to 210,
were approved by the board of directors on 10 March 2009 and
are signed on its behalf by:
Wilhelm van Zyl Preston Speckmann Group chief executive Group fi nance director
Cape Town Cape Town
10 March 2009 10 March 2009
DIRECTORS’ RESPONSIBILITY AND APPROVAL
CERTIFICATE BY THE GROUP COMPANY SECRETARY
Wilhelm van Zyl Preston Speckmann
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
88 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
We have audited the annual fi nancial statements of
Metropolitan Life Limited and the annual fi nancial state-
ments and the consolidated annual fi nancial statements
of Metropolitan Holdings Limited, which comprise the
directors’ report, balance sheets and consolidated balance
sheet as at 31 December 2008, the income statements and
the consolidated income statement, statements of changes
in equity and the consolidated statement of changes in
equity, the cash fl ow statements and consolidated cash
fl ow statement for the year then ended and a summary of
signifi cant accounting policies and other explanatory notes as
set out on pages 89 to 94 and 103 to 210, excluding the audit
committee report on page 92.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL
STATEMENTS
The companies’ directors are responsible for the preparation and
fair presentation of these fi nancial statements in accordance
with International Financial Reporting Standards and in the
manner required by the Companies Act of South Africa. This
responsibility includes: designing, implementing and maintaining
internal control relevant to the preparation and fair presentation
of fi nancial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate
accounting policies; and making accounting estimates that are
reasonable in the circumstances.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these fi nancial
statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance
whether the fi nancial statements are free from material
misstatement.
I hereby certify that:
> the valuation, on the statutory basis, of Metropolitan Life
Limited, as at 31 December 2008, the results of which are
summarised on page 103 and further explained on pages 116
to 119 and in notes 20 and 43 on pages 146 to 150 and
pages 180 to 187, has been conducted in accordance with,
and said commentary has been produced in accordance
with, applicable Actuarial Society of South Africa Professional
Guidance Notes
> Metropolitan Life Limited was fi nancially sound on the
statutory basis as at the valuation date, and in my opinion is
likely to remain fi nancially sound for the foreseeable future.
Lance Raftesath FFAStatutory actuary – Metropolitan Life Limited
Cape Town
10 March 2009
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the fi nancial
statements. The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material
misstatement of the fi nancial statements, whether due
to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entities’
preparation and fair presentation of the fi nancial statements
in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entities’ internal control.
An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the
overall presentation of the fi nancial statements.
We believe that the audit evidence we have obtained is suffi cient
and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the fi nancial statements present fairly, in all
material respects, the fi nancial position of the companies
and of the group as of 31 December 2008, and of their
fi nancial performance and their cash fl ows for the year then
ended, in accordance with International Financial Reporting
Standards, and in the manner required by the Companies Act
of South Africa.
PricewaterhouseCoopers Inc.Director: Hennie Nel
Registered Auditor
Cape Town
10 March 2009
REPORT OF THE INDEPENDENT AUDITORS
to the members of Metropolitan Holdings Limited and Metropolitan Life Limited
CERTIFICATE BY THE STATUTORY ACTUARY
P i t h C I
Lance Raftesath FFA
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 89
The directors take pleasure in presenting their annual report, which forms part of the audited annual fi nancial statements of the group and the company for the year ended 31 December 2008.
PRESENTATION OF FINANCIAL STATEMENTS
International Financial Reporting Standards (IFRS)
The consolidated balance sheet, income statement, statement of changes in equity and cash fl ow statement as set out below have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued and effective at the time of preparing these statements. The accounting policies of the group have been applied consistently to all periods presented. The preparation of fi nancial statements in accordance with IFRS requires the use of certain critical accounting estimates as well as the exercise of managerial judgement in the application of the group’s accounting policies. Such judgement, assumptions and estimates are disclosed on page 123.
Changes to presentation and restatement of 2007 results
> Certain policy loans were previously disclosed as loans and receivables within the fi nancial instruments category. These policy loans (R175 million), together with the related insurance (R134 million) and investment contract liabilities (R41 million), were derecognised and the disclosure was changed from what was disclosed in 2007. The opening balances in 2007 for insurance (R94 million) and investment (R45 million) contract liabilities were also restated. This resulted in net insurance benefi ts and claims for 2007 increasing by R40 million as only insurance premiums are recorded in the income statement. This had no impact on earnings attributable to equity holders of the group.
> Certain investment contracts were accounted for as insurance business in 2007. Premium income and operating profi t on insurance contracts was therefore reduced by R77 million, with a corresponding increase in fee income from investment contracts in 2007. This had no impact on earnings attributable to equity holders of the group.
> The disclosure of scrip lending fees received was changed from that disclosed in the 2007 annual fi nancial statements. Scrip lending fee income of R19 million, previously disclosed as
investment income, has been reclassifi ed as fee income as this class was considered more appropriate. This had no impact on earnings attributable to equity holders of the group.
Embedded value
Revised embedded value guidance from the Actuarial Society of South Africa, which is intended to be materially consistent with the CFO Forum’s European Embedded Value (EEV) Principles issued in May 2004, became effective for reporting periods ending on or after 31 December 2008. The disclosed embedded value results have been prepared in accordance with these new guidelines. The diluted embedded value at 31 December 2007 has been restated accordingly (decrease of R171 million).
Annual fi nancial statements of Metropolitan Holdings Limited and Metropolitan Life Limited
The annual fi nancial statements of Metropolitan Life Limited, the largest operating subsidiary of the holding company, are disclosed with the Metropolitan Holdings group fi gures in this report. The annual fi nancial statements of Metropolitan Holdings Limited are disclosed on pages 197 to 210.
NATURE OF ACTIVITIES
The Metropolitan Holdings group comprises registered life insurance and related fi nancial services companies that transact, in Africa, life, group schemes, employee benefi ts, health insurance products and administration services, selected banking and other complementary products, as well as medical aid scheme administration, managed care and other related health risk management services, asset management business and collective investment schemes.
RESULTS OF OPERATIONS
The operating results and the fi nancial position of the company and of the group are refl ected in the balance sheet, income statement, statement of changes in equity, cash fl ow statement, segmental report and the notes thereto.
Earnings attributable to equity holders for the year under review refl ected a loss of R319 million (2007: profi t of R1 503 million). Diluted core headline earnings were R1 011 million (2007: R1 003 million) and diluted core headline earnings per share 151.12 cents (2007: 142.27 cents).
DIRECTORS’ REPORT
Group diluted core headline earnings were derived from the following businesses:
Analysis of diluted core headline earnings
2008 2007Rm % Rm %
Retail business 448 44.3 460 45.9
Corporate business 153 15.1 176 17.5
International business 94 9.3 110 10.9
Asset management business 65 6.4 70 7.0
Health business 100 9.9 64 6.4
Shareholder capital 151 15.0 123 12.3
1 011 100.0 1 003 100.0
The operations of the group and its major businesses are reviewed in the review of operations on pages 44 to 61.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
90 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
SHARE CAPITAL
Repurchase and cancellation of shares
Metropolitan Holdings Limited cancelled 16 million ordinary shares at a cost of R200 million in May 2007. In March 2008 Metropolitan Holdings Limited cancelled 26 million listed ordinary shares held at 31 December 2007 at a cost of R410 million. In the fi rst half of 2008, Metropolitan Life Limited bought a further 16 million such shares for R201 million in the open market. This was done under the general authority by the shareholders of Metropolitan Holdings Limited granted in May 2007.
Share options
The group has not issued any share options.
SHAREHOLDER DIVIDEND
Ordinary share dividend
An interim dividend of 40 cents per ordinary share was declared in September 2008 and paid in October 2008. On 10 March 2009 a fi nal dividend of 55 cents per ordinary share was declared, payable to the holders of ordinary shares recorded in the register of the company at the close of business on Friday, 3 April 2009. The dividends will be paid on Monday, 6 April 2009. The last day to trade “cum” dividend will be Friday, 27 March 2009 and the shares will trade “ex” dividend from the commencement of business on Monday, 30 March 2009. Share certifi cates may not be dematerialised or rematerialised between Monday, 30 March, and Friday, 3 April 2009, both days inclusive.
Secondary tax on companies (STC)
Estimated STC of R36 million is payable in respect of the total dividends declared.
DIRECTORATE AND SECRETARY
Wilhelm van Zyl was appointed group chief executive on 31 March 2008 after Peter Doyle retired. Abel Sithole resigned as director with effect from 31 March 2008. Detailed information regarding the directors and secretary of Metropolitan Holdings Limited is provided on page 70 in the corporate governance report. The directors of Metropolitan Life Limited are disclosed on page 216.
DIRECTORS’ INTEREST
Kagiso Trust Investments (Proprietary) Limited (KTI), of which JJ Njeke and Andile Sangqu are executive directors, has the following strategic empowerment holdings in the group:
> 13% in Metropolitan Health Corporate (Proprietary) Limited
> A 75% interest in the entity that holds 123 million preference shares and 35 million ordinary shares in Metropolitan Holdings Limited, together comprising 23.8% of the total issued shares.
DIRECTORS’ SHAREHOLDING
The aggregate direct and indirect holdings of the directors of the company at 31 December 2008 are set out below. The directors purchased these shares at ruling market prices.
Executive directors participate in the staff share purchase scheme. At 31 December 2008, loans of R2 million (2007: R3 million) were owed by the executive directors to the share trust in terms of this scheme. No shares in the scheme were allocated to executive directors during the course of the year.
DIRECTORS’ REPORT
(continued)
Preference share dividend
Metropolitan preference shares A1 A2 A3Paid – 31 March 2007 Rate 13.5% 125.00 cps 13.3%
Rm 26 16 21 Paid – 30 September 2007 Rate 14.4% 36.00 cps 15.6%
Rm 27 5 24 Paid – 31 March 2008 Rate 16.1% 59.00 cps 18.0%
Rm 31 8 28 Paid – 30 September 2008 Rate 16.9% 40.00 cps 18.7%
Rm 32 5 29 Payable – 31 March 2009 Rate 16.8% 55.00 cps 19.0%
Rm 33 7 30 Redemption value (per share) R 5.12 9.18 9.18
Dividends on the A1, A2 and A3 Metropolitan preference shares have been declared as disclosed in the table above, payable on 31 March 2009. The declaration rate was determined as set out in the company’s articles. These amounts are included under fi nance costs in the annual fi nancial statements.
Staff share purchase scheme dividend
A dividend of R11 million (2007: R16 million) was declared on the unlisted shares in the staff share purchase scheme, as provided for in the trust deed.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 91
No other changes occurred between the fi nancial year-end and the approval of the fi nancial statements. The detail in terms of the listings requirements of the JSE Limited is set out on page 73 in the corporate governance report.
Direct Indirect Total Total
Benefi cialNon-
benefi cial Benefi cialNon-
benefi cial 2008 2007’000 ’000 ’000 ’000 ’000 ’000
ListedExecutive directors 400 – – – 400 1 149
Non-executive directors 5 7 448 41 501 606
Unlisted(Share purchase scheme)
Executive directors 388 – – – 388 688
793 7 448 41 1 289 2 443
The executive directors are also benefi ciaries in the management trust, which in turn holds a 5.6% indirect interest in Metropolitan Holdings Limited.
DIRECTORS’ EMOLUMENTS
The fi xed contract of Peter Doyle, the group chief executive, expired on 31 March 2008. The other executive directors have standard employment contracts with the company or its subsidiaries, with a three-month notice period. There are no additional costs to the group. The aggregate remuneration of the directors is set out below. The detail in terms of the listings requirements of the JSE Limited is set out on page 71 in the corporate governance report.
FeesAnnual
package BonusPension fund contribution
Total 2008
Total2007
R’000 R’000 R’000 R’000 R’000 R’000Executive – 8 577 8 659 1 097 18 333 14 985
Non-executive 6 562 – – – 6 562 5 169
Total 6 562 8 577 8 659 1 097 24 895 20 154
The executive directors participate in the Metropolitan retention scheme. In terms of this scheme, eligible employees can qualify for a bonus, payable after three years, based on the performance of the group measured against certain benchmarks. Three allocations: 2006, 2007 and 2008, have been made to eligible employees.
SPECIAL RESOLUTIONS
Annual general meeting – 30 May 2008
At the annual general meeting of shareholders of Metropolitan Holdings Limited held on 30 May 2008 the following special resolutions were approved:
General approval for a share buy-back
The board of directors was authorised, by way of a general approval given in terms of the provisions of the Companies Act 61 of 1973, as amended, to enable the company to acquire up to a maximum of 20% of its own issued share capital, or if acquired by a subsidiary, up to a maximum of 10% of its holding company’s issued share capital. Such authority is to remain valid until the company’s next annual general meeting, but not beyond a period of 15 months after the date of approval of this resolution.
Specifi c approval of share buy-back
The board of directors was authorised, by way of a specifi c approval in terms of section 85 of the Companies Act 61 of 1973, as amended, to repurchase and cancel treasury shares held by Metropolitan Life Limited. Such authority is to remain valid until the company’s next annual general meeting, but not beyond a period of 15 months after the date of approval of this resolution.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
92 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
REPORT OF THE AUDIT COMMITTEE IN TERMS OF SECTION 270A(1)(F)
OF THE COMPANIES ACT, (61 OF 1973), AS AMENDED
The audit committee reports that it has adopted appropriate formal terms of reference as its audit committee mandate, and has
regulated its affairs in compliance with this mandate, and has discharged all of the responsibilities set out therein.
The audit committee considered the matters set out in section 270A(5) of the Companies Act, as amended by the Corporate Laws
Amendment Act, and is satisfi ed with the independence and objectivity of the external auditors.
As required by JSE Listings Requirement 3.84(h), the audit committee has satisfi ed itself that the group fi nancial director has
appropriate expertise and experience.
The audit committee is satisfi ed that there was no material breakdown in the internal accounting controls during the fi nancial
year. We base this on the information and explanations given by management and the group internal audit function as well as
discussions with the independent external auditors on the results of their audits.
The audit committee has evaluated the fi nancial statements of Metropolitan Holdings Limited and the group for the year ended
31 December 2008 and, based on the information provided to the audit committee, considers that the group complies, in all
material respects, with the requirements of the Companies Act (61 of 1973), as amended, and International Financial Reporting
Standards (IFRS).
Marius SmithChairman
10 March 2009
AUDIT COMMITTEE REPORT
DIRECTORS’ REPORT
(continued)
CURATORSHIP OF OVATION
Metropolitan Life Limited issued some 2 500 policies for administration on the Ovation Global Investment Service (Proprietary) Limited platform. In exercising the investment choice underlying their fully linked living annuities, certain of these policyholders elected to invest money in Common Cents Strategists (Proprietary) Limited, a fund listed on the Ovation platform. Both Ovation and Common Cents were placed under curatorship during 2007.
In early 2009, the Ovation curators applied to court to break up the Ovation business and return the investments to the respective owners, a process that is expected to be concluded during 2009. As part of the process Metropolitan has reached a settlement with the curators and agreed to compensate policyholders for losses suffered as a result of fraud at Common Cents. In addition, once permission is granted, Metropolitan will take over the administration of the assets backing all policies issued in its name currently being administered on the Ovation platform. This agreement has no impact on group earnings for 2008 as the liability to the policyholders already existed at the start of the year.
POST BALANCE SHEET EVENTS
No material post balance sheet events occurred between the balance sheet date and the date of approval of the annual fi nancial statements.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 93
Annual premium equivalent (APE)
The annualised premium equivalent is a common life industry measure of new business sales. It is calculated as annualised new recurring premiums plus 10% of single premiums.
Basis changes
Basis and other changes are the result of changes in actuarial assumptions and methodologies, reviewed at the reporting date and used in the fi nancial soundness valuation basis. These changes are refl ected in the income statement as they occur.
Bonus stabilisation reserves (BSRs)
Bonus stabilisation reserves are the difference between the fund accounts of smoothed bonus business, or the discounted value of projected future benefi t payments for with-profi t annuity business, and the market values of the underlying assets. BSR is an actuarial term that constitutes either an asset or liability in accounting terms. The BSRs are included in contract holder liabilities.
Capital adequacy requirement (CAR)
The CAR is a minimum statutory capital requirement for South African life insurance companies that is prescribed in PGN104 – Valuation of long-term insurers. CAR does not form part of the contract holder liabilities and is covered by the shareholder assets.
Capitation contracts
Capitation contracts are those under which the group accepts signifi cant health benefi t risk from medical schemes (the contract holder) by agreeing to indemnify the scheme against a defi ned set of the scheme benefi ts (the covered event) in return for a capitation fee.
Cash generating units
A cash generating unit is the smallest identifi able group of assets that generates cash infl ows largely independent of the cash fl ows from other assets or groups of assets.
Compulsory margins
Life insurance companies are required to hold compulsory margins in terms of the fi nancial soundness valuation basis prescribed in PGN104 – Valuation of long-term insurers. These margins are explicitly prescribed and held as a buffer to cover uncertainties with regard to the best-estimate assumptions used in the fi nancial soundness valuation basis. These reserves are held in the contract holder liabilities and released over time in the operating profi t should experience be in line with these best estimates.
Discretionary margins
In addition to compulsory margins, insurance companies may hold further discretionary margins where the statutory actuary believes that:
> the compulsory margins are insuffi cient for prudent reserving, or
> company practice or policy design justifi es the deferment of profi ts.
Discretionary participation feature (DPF)
A discretionary participation feature is a contractual right to receive, as a supplement to guaranteed benefi ts, additional benefi ts or bonuses:
> that are likely to be a signifi cant portion of the total contractual benefi ts;
> whose amount or timing is contractually at the discretion of the issuer; and
> that are contractually based on:– the performance of a specifi ed pool of contracts or a
specifi ed type of contract;– the realised and/or unrealised investment returns on a
specifi ed pool of assets held by the issuer; or – the profi t or loss of the company, fund or other entity that
issues the contract.
Effective control
Effective control is the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities, generally accompanying an interest equivalent to more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.
Effective interest rate
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the fi nancial instrument, or when appropriate a shorter period, to the net carrying amount of the fi nancial asset or liability.
Effective interest rate method
The effective interest rate method is a method of calculating the amortised cost of a fi nancial asset or liability and of allocating the interest income or interest expense over the relevant period.
Embedded value (EV)
The embedded value is defi ned as the value of in-force business plus the shareholder net assets adjusted to fair value.
Financial soundness valuation (FSV)
The fi nancial soundness valuation basis is prescribed by PGN104 – Valuation of long-term insurers – and uses best estimate assumptions regarding future experience together with compulsory and discretionary margins for prudence and deferral of profi t emergence. For IFRS reporting purposes, this basis is used for the valuation of insurance contracts and investment contracts with discretionary participation features.
Fund account
The fund account is the retrospective accumulation of premiums, net of charges and benefi t payments at the declared bonus rates or at the allocated rate of investment return.
DEFINITIONS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
94 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Joint control
Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic fi nancial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the ventures).
New business profi t margin
New business profi t margin is defi ned as the value of new business expressed as a percentage of the annualised premium equivalent (APE) or a percentage of the present value of future premiums (PVP).
Notional value
The notional value is a numeric representation of the extent of the investment in a derivative fi nancial instrument with disregard to fair value.
Objective evidence of impairment
Objective evidence of impairment is related to the specifi c circumstances of each individual asset and can be the combined effect of several events. Objective evidence includes, but is not limited to:
> signifi cant fi nancial diffi culty of the issuer or debtor> a breach of contract, such as a default or delinquency in
payment> it becoming probable that the issuer or debtor will enter
bankruptcy or other fi nancial reorganisation> the disappearance of an active market for that fi nancial asset
because of fi nancial diffi culties> observable data that there is a measurable decrease in the
estimated future cash fl ows from the asset since the initial recognition of the asset.
Present value of future premiums (PVP)
The present value of future premiums is the present value of future premiums in respect of new business using the risk discount rate. The future premiums are net of reinsurance and are based on best estimate assumptions such as future premium growth, mortality and withdrawal experience.
Professional guidance notes (PGN)
The Actuarial Society of South Africa issues professional guidance notes applicable to various areas of fi nancial reporting and practice that require actuarial input.
Related party transactions – key personnel
Key management personnel are those persons, including close members of their families, having authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly, including any director (whether executive or otherwise) of the group. For the group, the executive committee members are considered to be key management personnel.
Return on embedded value
Return on embedded value is the growth in embedded value adjusted for changes in shareholder equity expressed as a percentage of the embedded value at the beginning of the year, adjusted for capital movements during the year.
Risk discount rate
The risk discount rate is the rate at which future expected profi ts (ie compulsory and discretionary margins) are discounted when calculating the value of in-force business or the value of new business.
Signifi cant infl uence
Signifi cant infl uence is the power to participate in the fi nancial and operating policy decisions of the investee but is not control or joint control over those policies, generally accompanying a shareholding of between 20% and 50% of the voting rights.
Statutory basis
The statutory basis is the valuation basis and methodology used for statutory reporting purposes, as determined by the FSB in its board notice “Prescribed requirements for the calculation of the value of the assets, liabilities and capital adequacy requirement of long-term insurers”. These requirements are largely based on fi nancial soundness valuation principles. A reconciliation of the statutory excess and the reporting excess is disclosed in the statement of actuarial values of assets and liabilities.
Unit-linked investments
Unit-linked investments consist of investments in collective investments schemes, private equity fund investments and other investments where the value is determined based on the value of the underlying investments.
Useful life
Useful life is the period over which an asset is expected to be available for use by the group.
Value of in-force business (VoIF)
The value of in-force business is the discounted present value of future after-tax profi ts from the life insurance book, less the cost of capital at risk. The discounted value of future after-tax profi ts comprises the value of the compulsory margins prescribed in the fi nancial soundness valuation basis plus the value of additional discretionary margins held by the insurance company.
Value of new business
The value of new business is the discounted present value of expected future after-tax (including STC) profi ts from new business at point of sale less the cost of capital at risk. Allowance is made for all expenses associated with underwriting, selling, marketing and administration incurred in the effort of obtaining new business.
DEFINITIONS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 95
DEFINITION OF EMBEDDED VALUE
This report sets out the diluted embedded value, taking into
account all shares issued by Metropolitan Holdings Limited.
Revised embedded value guidance from the Actuarial Society
of South Africa (PGN107), which is intended to be materially
consistent with the CFO Forum’s European Embedded Value
(EEV) Principles issued in May 2004, became effective for
reporting periods ending on or after 31 December 2008. This
embedded value report has been prepared in accordance with
these new guidelines.
An embedded value represents the discounted value of
expected after-tax future profi ts from the current business. The
embedded value is defi ned as:
> the value of covered business consisting of the shareholder
net assets supporting covered business operations plus the
value of in-force after allowing for the cost of capital
> the fair value of other group operations excluded from
covered business such as asset management and health
> the fair value of discretionary and other capital.
Covered business
Covered business is defi ned as long-term insurance business
recognised in the group annual fi nancial statements. This
business covers individual stable bonus, linked and market-
related business, reversionary bonus business, group stable
bonus business, annuity business and other non-participating
business written by the life insurance subsidiaries. Covered
business does not include services provided by the group’s
asset management and healthcare operations.
Covered business embedded value
The risk margins have been calculated using a bottom-up
market consistent approach, and refl ect the distinctive risks
of the products in the respective businesses. The effect of
the revised PGN107 changes are recognised separately in
the analysis of change in the embedded value of covered
business.
The methodology and assumptions used to determine the
embedded value of covered business have been adjusted and
restated in preparation for the revised PGN107, as follows:
> the equity risk premium assumption was increased from
2.0% to 3.5% (2007 not restated for this assumption)
> the cost of capital was based on the greater of an internally
assessed level of required capital for market, operational and
insurance risk and the minimum statutory capital adequacy
requirement
> recalibrated risk discount rates were used.
Required capital
Metropolitan Life Ltd
Stochastic modelling techniques are applied on an ongoing
basis to determine and confi rm the most appropriate capital
levels for covered business. The target is set to maintain
supporting capital at such a level that will ensure, within a 95%
confi dence level, that it will at all times cover the minimum
statutory capital adequacy requirement (CAR) at least 1,25
times over the following 5 years. The required capital supporting
existing covered business excludes capital required in respect
of future new business.
Other covered business
A multiple of statutory CAR has been used.
Assets backing required capital
The assumed composition of the assets backing the required
capital is consistent with the long-term mandates of the
shareholder assets.
REPORT ON GROUP EMBEDDED VALUE
at 31 December 2008
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
96 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
EMBEDDED VALUE RESULTS
Embedded value
2008 Rm
2007 Rm
Covered businessReporting excess – long-term insurance business 4 913 5 715
Disregarded assets (177) (124)
Dilutory effect of subsidiaries (7) (8)
Reclassifi cation from non-covered business 7 (7)
Diluted net asset value – covered business 4 736 5 576
Net value of in-force business 4 161 4 249
Individual life 3 501 3 430
Gross value of in-force business 3 864 3 871
Less cost of capital (363) (441)
Employee benefi ts 660 819
Gross value of in-force business 842 945
Less cost of capital (182) (126)
Diluted embedded value – covered business 8 897 9 825
Non-covered businessNet assets – other businesses 934 1 102
Reclassifi cation to covered business (7) 7
Consolidation adjustments (121) (109)
Adjustments for dilution 1 029 1 072
Dilutory effect of subsidiaries 88 81
Staff share scheme loans 91 141
Treasury shares held on behalf of contract holders 9 13
Liability – convertible redeemable preference shares 841 837
Diluted net asset value – non-covered business 1 835 2 072
Net value of in-force business 598 540
Asset management 280 257
Health 664 666
Holding company expenses (346) (383)
Diluted embedded value – non-covered business 2 433 2 612
Diluted adjusted net asset value 6 571 7 648
Value of in-force business 4 759 4 789
Diluted embedded value 11 330 12 437
Required capital – covered business (adjusted for qualifying debt) 3 813 3 554
Surplus capital – covered business 923 2 022
Diluted embedded value per share (cents) 1 709 1 832
Diluted net asset value per share (cents) 991 1 126
Diluted number of shares in issue (million) 663 679
> Disregarded assets as disclosed in the statement of actuarial values of assets and liabilities are adjusted for internally developed software, receivables older than 12 months and recognised employee benefi t assets.
> For accounting purposes Metropolitan Health and Metropolitan Kenya have been consolidated at 100% (2007: 100%) in the balance sheet. For embedded value purposes, disclosed on a diluted basis, the minority interest and related funding have been reinstated and disclosed as the dilutory effect of subsidiaries.
> The holding company expenses refl ect the present value of projected recurring expenses of that company.
> The diluted number of shares takes into account all issued shares, assuming conversion of the convertible redeemable preference shares and the release of staff share scheme shares, and includes the treasury shares held on behalf of contract holders.
REPORT ON GROUP EMBEDDED VALUE
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 97
EMBEDDED VALUE ATTRIBUTABLE TO GROUP
Net asset value Rm
Value of in-force Rm
Embedded value 2008 Rm
2007 Rm
Covered businessMetropolitan Life 4 142 3 567 7 709 8 769
Metropolitan Odyssey 35 – 35 34
Union Life 34 11 45 41
International 525 583 1 108 981
Metropolitan Life International 58 – 58 50
Metropolitan Namibia 169 299 468 417
Metropolitan Botswana 125 69 194 178
Metropolitan Lesotho 113 202 315 307
Metropolitan Kenya 13 3 16 17
Metropolitan Ghana – 8 8 12
Metropolitan Swaziland 12 – 12 –
Metropolitan Nigeria 35 2 37 –
Total covered business 4 736 4 161 8 897 9 825
Non-covered businessAsset management 97 280 377 394
Metropolitan Health Group 259 664 923 831
Metropolitan Holdings (after consolidation adjustments) 1 479 (346) 1 133 1 387
1 835 598 2 433 2 612
Diluted embedded value 6 571 4 759 11 330 12 437
Diluted net asset value – non-covered business (1 835)
Disregarded assets 177
Reporting excess – long-term insurance business 4 913
> The embedded value of the Metropolitan Health Group was net of R54 million for 2007, being the total liability of the option held by the management of the group. The liability was settled during February 2008.
> Embedded value is net of minority interest.
VALUE OF NEW BUSINESS
The value of new business is calculated as the discounted value, at point of sale, using a risk-adjusted discount rate, of the
projected stream of after-tax profi ts for new covered business issued during the fi nancial year under review. The value of new
business is also reduced by the cost of required capital for new covered business. In determining the value of new business:
> a policy is only taken into account for new business if at least one premium, that is not subsequently refunded, is recognised
in the fi nancial statements
> premium increases that have been allowed for in the value of in-force covered business are not included as new business at
inception
> the expected value of future premium increases resulting from premium indexation on the new recurring premium business
written during the fi nancial year under review is included in the value of new business
> continuations of individual policies and deferrals of retirement annuity policies after the maturity dates of the contracts are
included as new business if they have been accounted for as benefi t claims at their respective maturity dates
> for employee benefi t business, increases in business from new schemes or new benefi ts on existing schemes are included
as new business but new members or salary-related increases under existing schemes are allowed for in the value of in-force
covered business
> renewable recurring premiums under group insurance contracts are treated as in-force covered business.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
98 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Value of new business
2008 Rm
2007 Rm
Retail business 211 119 Gross value of new business 223 122 Less: Cost of capital (12) (3)Corporate business 20 46 Gross value of new business 31 53 Less: Cost of capital (11) (7)International business 17 15 Gross value of new business 17 15 Less: Cost of capital (0) (0)
Value of covered new business 248 180 Value of non-covered new business 123 156 Asset management business 39 35 Health business 84 121
Total value of new business 371 336
> The 2008 and 2007 results exclude Metropolitan Ghana, Metropolitan Kenya, Metropolitan Nigeria and Metropolitan Swaziland as these businesses were in a start-up phase. The 2007 results also exclude Union Life as the company was acquired late in 2007.
> Value of new business is net of minority interest.
> Due to rounding, the cost of capital for the international business is less than R1 million.
> The value of new business has been calculated on closing assumptions. Investment yields at the point of sale have been used for fi xed annuity and guaranteed endowment business, for other business the investment yields at the end of the year have been used.
New business premiums – covered business
2008 Rm
2007 Rm
Recurring premiums Retail business 961 804 Corporate business 210 207 International business 107 91
1 278 1 102 Single premiums Retail business 3 239 2 519 Corporate business 979 2 154 International business 96 121
4 314 4 794
2008 Rm
2007 Rm
Annual premium equivalent (APE) 1 709 1 581 Retail business 1 285 1 056 Corporate business 308 422 International business 116 103
Present value premiums (PVP) 10 354 10 068 Retail business 7 426 6 033 Corporate business 2 431 3 613 International business 497 422
> The 2008 and 2007 results exclude Metropolitan Ghana (2008: R13 million and 2007: R9 million APE), Metropolitan Kenya (2008: R2 million and 2007: R4 million APE), Metropolitan Nigeria (2008: R14 million) and Metropolitan Swaziland (2008: R2 million) as these businesses were in a start-up phase. The 2007 results also exclude Union Life as the company was acquired late in 2007.
> New business premiums are net of minority interests.
REPORT ON GROUP EMBEDDED VALUE
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 99
Profi tability of new business – covered business
Margin as a % of APE Margin as a % of PVP 2008 2007 2008 2007
Retail business 16.4 11.3 2.8 2.0
Corporate business 6.5 10.9 0.8 1.3 International business 14.7 14.6 3.4 3.6
Source of new business production – covered business
Individual life business of the group – insurance and investment business
2008 2007 APE% Total % APE % Total %
Tied agents and personal fi nancial advisers 39 31 36 26 Brokers 27 36 25 25 Wholesale and credit life 20 7 21 8 Third party business 5 19 9 34 International 9 7 9 7
CHANGES IN BASES AND ASSUMPTIONS
The Metropolitan group constantly reviews its embedded value methodologies to align them with evolving practice and to ensure consistency with other life insurers.
ASSUMPTIONS
The main assumptions used in the embedded value calculations are described below.
Economic
2008 % per annum
2007 % per annum
Risk discount rate 10.0 10.3 Investment returns (before tax) – smoothed bonus 9.8 9.9 Expense infl ation rate 4.3 5.3
The investment return assumption was determined with reference to the market interest rate on South African government stocks at the valuation date. The expected long-term asset distribution was used to calculate a weighted expected investment return by adding the following premiums/(discounts) to the market interest rate of 7.5% per annum (2007: 8.5%) on South African government stocks as at 31 December 2008.
% premium/ (discount) per
annum
Gross return(% per annum)
2008
Gross return(% per annum)
2007Equities 3.5 11.0 10.5 Properties 1.0 8.5 10.5 Government stock – 7.5 8.5 Cash (1.0) 6.5 6.5
Non-economic
The embedded value calculation uses the same best estimate assumptions with respect to future experience as those used in the fi nancial soundness valuation.
The embedded value of in-force business includes the expected value of future premium increases resulting from premium indexation arrangements on in-force business. The value of new business excludes premium increases during the current year resulting from premium indexation arrangements in respect of in-force business, but includes the expected value of future premium increases in respect of new policies written during the current fi nancial year.
Secondary tax on companies (STC) was allowed for at a rate of 4% (2007: 4%) of the value of in-force business.
SENSITIVITY OF THE IN-FORCE VALUE AND THE VALUE OF NEW BUSINESS
This section illustrates the effect of different assumptions on the net worth, the value of in-force business, the value of new business and the cost of capital. For each sensitivity illustrated, all other assumptions have been left unchanged and, with the exception of the fi rst two sensitivities and the “1% reduction in gross investment return” sensitivity, the central risk discount rate has been used.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
100 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
The table below shows the impact on the embedded value (net worth, value of in-force and cost of capital at risk) and value of
new business (gross and net of the cost of capital at risk) of a 1% change in the risk discount rate. It also shows the impact of
independent changes in a range of other experience assumptions. The effect of an equivalent improvement in these experience
assumptions would be to increase the base values by a percentage approximately equal to the reductions shown below.
Net worth In–force business New business writtenNet
valueGross value
Cost of CAR
Net value
Gross value
Cost of CAR
Rm Rm Rm Rm Rm Rm RmBase value 4 736 4 161 4 706 (545) 248 271 (23)1% increase in risk discount rate 3 862 4 407 (545) 216 239 (23)
% change (7) (6) – (13) (12) –
1% reduction in risk discount rate 4 507 5 052 (545) 285 308 (23)
% change 8 7 – 15 14 –
10% increase in future expenses 3 869 4 414 (545) 213 236 (23)
% change (note 1) (7) (6) – (14) (13) –
10% decrease in lapse, paid-up and
surrender rates 4 327 4 872 (545) 323 346 (23)
% change 4 4 – 30 28 –
5% decrease in mortality and
morbidity for assurance
business 4 305 4 850 (545) 284 307 (23)
% change 3 3 – 15 13 –
5% decrease in mortality for
annuity business 4 143 4 688 (545) 245 268 (23)
% change – – – (1) (1) –
1% reduction in gross investment
return, infl ation rate and risk
discount rate 4 809 4 311 4 823 (512) 284 306 (22)
% change (note 2) 2 4 2 (6) 15 13 (4)
1% reduction in gross investment
return only (no change in risk
discount rate) 4 664 4 048 4 560 (512) 216 238 (22)
% change (note 2) (2) (3) (3) (6) (13) (12) (4)
1% reduction in infl ation rate 4 900 4 097 4 642 (545) 263 286 (23)
% change 3 (2) (1) – 6 6 –
10% fall in market value of equities
and property 4 427 3 926 4 471 (545)
% change (7) (6) (5) –
10% reduction in premium
indexation take-up rate 4 076 4 621 (545) 234 257 (23)
% change (2) (2) – (6) (5) –
10% decrease in non-commission
related acquisition expenses 281 304 (23)
% change 13 12 –
1. No corresponding changes in variable policy charges are assumed, although in practice it is likely that variable charges will be modifi ed according to circumstances.
2. Bonus rates are assumed to change commensurately.
3. The change in the value of cost of CAR is disclosed as nil where the sensitivity test causes an insignifi cant change in the value.
REPORT ON GROUP EMBEDDED VALUE
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 101
ANALYSIS OF CHANGE IN GROUP EMBEDDED VALUE
The table below summarises the analysis of the change in group embedded value over the 2008 fi nancial year.
Non-covered Covered business
Total covered Total Total
2008 NAV VoIF CoCAR 2008 2008 2007Rm Rm Rm Rm Rm Rm Rm
Profi t from new business 129 (116) 398 (23) 259 388 352
Embedded value from new
business 123 (116) 387 (23) 248 371 336
Expected return to end of year 6 – 11 – 11 17 16
Profi t from existing business (4) 457 (19) (43) 395 391 781
Expected return – unwinding of
RDR 84 – 523 (57) 466 550 540
Expected (or actual) net of tax
profi t transfer to net worth – 700 (700) – – – –
Operating experience variances (94) 130 40 – 170 76 414
Operating assumption changes 6 (373) 118 14 (241) (235) (173)
Embedded value profi t from operations 125 341 379 (66) 654 779 1 133
Investment return on net worth (330) (9) – 58 49 (281) 768
Investment variances (59) (345) (578) – (923) (982) 138
Economic assumption changes 15 79 123 30 232 247 (1)
Change in risk margin – 32 (40) – (8) (8) –
Exchange rate movements – 10 6 – 16 16 (4)
Total embedded value profi t (249) 108 (110) 22 20 (229) 2 034
Changes in share capital (231) 30 30 (201) (691)
Dividend paid 492 (1 031) (1 031) (539) (960)
Finance costs – preference shares (138) (138) (124)
PGN107 restatement (171)
Reallocations (53) 53 53 – Change in embedded value (179) (840) (110) 22 (928) (1 107) 88
Time weighted return on embedded
value (%) (2.1) 17.8
> Changes in operating (non-economic) assumptions represent the changes in mortality, morbidity, withdrawal and expense assumptions as well as methodology changes.
> Investment return on net worth represents the actual return on shareholder net assets (excluding the write-up on subsidiaries).
> Changes in economic assumptions represent the changes in the risk discount rate, future investment return and infl ation assumptions.
IMPACT OF OPERATING EXPERIENCE VARIANCES AND CHANGES IN ASSUMPTIONS ON EMBEDDED VALUE
Operating experience variances
Operating experience variances increased the embedded value by R76 million during 2008 (2007: increase R414 million). The
most signifi cant contributors were:
Other businesses
The decrease in embedded value was mainly due to negative variances from losses or a reduction in profi t margins in certain of
the non-life companies.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
102 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Long-term insurance business
> Net asset value
The increase in embedded value was mainly due to a positive contribution from higher than expected mortality profi ts and profi t
from the employee benefi t asset partially offset by negative variances from higher than expected lapses and expenses.
> Value of in-force
The increase in embedded value was mainly due to positive contributions from mortality profi ts.
Operating assumption changes
Adjusting the operating assumptions in the embedded value models resulted in a decrease in the embedded value of R235 million
(2007: decrease R173 million). The operating assumption changes with the most signifi cant impact were:
Other businesses
The increase in embedded value was mainly due to a positive contribution from the reduction in the corporate tax rate from 29%
to 28%.
Long-term insurance business
> Net asset value
The decrease in embedded value was mainly due to a negative change from the strengthening of the lapse basis at longer
durations for grouped individual business as well as a negative change from an increase in the assumed per policy expense for
individual life contracts and a positive change in respect of the assumed mortality on certain lines of business.
> Value of in-force
The increase in embedded value was mainly due to a positive contribution from the reduction in the transfer tax rate from 29%
to 28% and a negative change due to an increase in the assumed future expenses of the corporate business.
REVIEW BY THE INDEPENDENT ACTUARIES
Deloitte & Touche have reviewed the results, methodology (including any modelling changes) and assumptions underlying the
calculation of the embedded value and the value of new business. They have also reviewed the change in embedded value over
the period, including the experience variances. The internally developed required capital model has not been specifi cally reviewed.
Based on the information supplied to them by Metropolitan, they are satisfi ed that the methodology and assumptions:
> are appropriate for the purpose of including the embedded value in this report
> have been determined in accordance with generally accepted actuarial principles and in accordance with guidance note PGN107
– Embedded value and the valuation of new business
> have been applied consistently across the different business units
> have been applied consistently over the year.
REPORT ON GROUP EMBEDDED VALUE
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 103
Group Metropolitan Life Limited2008 2007 2008 2007
Rm Rm Rm RmREPORTING BASISTotal assets per balance sheet 69 613 75 183 62 532 67 170
Actuarial value of policy liabilities (57 232) (61 782) (53 523) (57 751)
Other liabilities per balance sheet (6 393) (6 460) (4 792) (4 329)
Minority interests per balance sheet (141) (124)
Excess 5 847 6 817 4 217 5 090
Net assets – other businesses (934) (1 102)
Excess – long-term insurance business (1) 4 913 5 715 4 217 5 090
Insurance business (1)
Change in excess – long-term insurance business (1) (802) (121) (873) (73)
Increase in share capital (39) (12)
Acquisition of Union Life Ltd – (54)
Change in other reserves (45) (36) (20) (26)
Dividend paid 1 053 1 606 950 1 313
Total surplus arising 167 1 383 57 1 214
Analysis of surplus arisingOperating profi t 734 754 583 618
Investment income on excess 309 289 275 261
Net realised and fair value gains on excess (329) 364 (269) 322
Investment variances (2) (387) 29 (375) 29
Basis and other changes (note 20) (197) (180) (194) (143)
Employee benefi t assets/obligations 37 48 37 48
Deferred tax – 79 – 79
Total surplus arising 167 1 383 57 1 214
Net consolidation adjustments 75 217
Income tax (credits)/expenses (170) 549 (206) 541
Finance costs 49 47 47 47
Results of long-term insurance business (1) 121 2 196 (102) 1 802
Results of other businesses (277) 289
Results of operations per income statement (156) 2 485 (102) 1 802
STATUTORY BASISReporting excess – long-term insurance business 4 913 5 715 4 217 5 090
Disregarded assets in terms of statutory requirements (3) (489) (293) (386) (231)
Capital adjustments 300 91 501 501
Statutory excess – long-term insurance business 4 724 5 513 4 332 5 360
Capital adequacy requirement (CAR) (Rm) (4) 2 336 1 609 2 056 1 422
Ratio of long-term insurance business excess to CAR 2.0 3.4 2.1 3.8
1. The long-term insurance business includes both insurance and investment contract business and is the simple aggregate of all the life insurance companies in the group. It includes minority interests and other items, which are eliminated on consolidation. It excludes non-insurance business.
2. Investment variances refl ect the impact of actual investment returns on the value of future expense recoveries and the movements of the PGN110 (Allowance for embedded investment derivatives) liability.
3. Disregarded assets are those as defi ned in the South African Long term Insurance Act and are only applicable to South African long term insurance companies. Adjustments are also made for the international insurance companies from reporting excess to statutory excess as required by their regulators.
4. The capital adequacy requirement is included in retained earnings and must be maintained as statutory capital.
STATEMENT OF ACTUARIAL VALUES OF ASSETS AND LIABILITIES
at 31 December 2008
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
104 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Group Metropolitan Life Ltd2008 2007 2008 2007 Notes
Rm Rm Rm RmASSETSIntangible assets 525 562 125 109 1
Owner-occupied properties 678 592 486 412 2
Property and equipment 186 233 90 144 3
Investment properties 3 031 2 710 3 117 2 791 4
Interest in subsidiary companies 1 241 1 001 5
Investment in associates 663 405 642 463 6
Investment in joint ventures 35 61 7
Employee benefi t assets 248 177 244 169 23.1
Financial instruments
Designated as at fair value through income 50 795 58 264 45 270 51 305 8.1
Held for trading 1 764 850 1 877 1 259 8.3
Available-for-sale 5 7 – – 8.4
Loans and receivables 1 128 1 193 870 908 9
Insurance and other receivables 1 507 1 476 1 298 1 287 10
Deferred income tax 12 15 – – 11
Reinsurance contracts 212 179 162 113 12
Current income tax assets 14 – 4 – 25.1
Cash and cash equivalents 8 810 8 274 7 106 7 024 13
Non-current assets held for sale – 185 – 185 14
Total assets 69 613 75 183 62 532 67 170
EQUITYCapital and reserves 5 847 6 817 4 217 5 090
Share capital 51 19 624 624 15
Other reserves 532 495 241 223 16
Retained earnings 5 264 6 303 3 352 4 243
Minority interests 141 124
Total equity 5 988 6 941 4 217 5 090
LIABILITIESInsurance contract liabilities
Long-term insurance contracts 32 023 33 397 29 301 30 474 17
Capitation contracts 2 1 18
Financial instruments
Investment contracts 25 209 28 385 24 222 27 277 19
– with discretionary participation features 11 278 14 273 10 781 13 682
– designated as at fair value through income 13 931 14 112 13 441 13 595
Designated as at fair value through income 272 635 – – 21
Held for trading 1 498 858 1 490 858 8.3
Amortised cost 1 349 1 370 502 502 22
Deferred income tax 127 492 66 371 11
Employee benefi t obligations 188 252 173 169 23.2
Other payables 2 934 2 545 2 561 2 194 24
Current income tax liabilities 23 307 – 235 25.1
Total liabilities 63 625 68 242 58 315 62 080
Total equity and liabilities 69 613 75 183 62 532 67 170
BALANCE SHEET
at 31 December 2008
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 105
Group Metropolitan Life Ltd2008 2007 2008 2007 Notes
Rm Rm Rm RmInsurance premiums 10 803 9 084 9 675 8 149
Insurance premiums ceded to reinsurers (398) (369) (370) (340)
Net insurance premiums 10 405 8 715 9 305 7 809 26
Fee income 1 151 903 166 100 27
Investment contracts 174 97 158 85
Trust and fi duciary services 144 93
Other fee income 833 713 8 15
Investment income 4 396 3 613 3 927 3 253 28
Net realised and fair value (losses)/gains (8 484) 4 407 (7 524) 3 770 29
Net income 7 468 17 638 5 874 14 932
Insurance benefi ts and claims 8 399 6 474 7 714 5 864
Insurance claims recovered from reinsurers (330) (242) (302) (230)
Net insurance benefi ts and claims 8 069 6 232 7 412 5 634 30
Change in liabilities (4 468) 4 175 (4 123) 3 865
Change in insurance contract liabilities (1 451) 2 577 (1 173) 2 313 31
Change in investment contracts with DPF liabilities (2 990) 1 562 (2 901) 1 504 31
Change in reinsurance provisions (27) 36 (49) 48 12
Fair value adjustments on investment contract
liabilities 269 1 518 310 1 468
Fair value adjustments on collective investment
scheme liabilities 18 13 – –
Depreciation, amortisation and impairment expenses 221 169 55 69 32
Employee benefi t expenses 1 269 1 145 571 553 33
Sales remuneration and distribution costs 1 235 1 127 1 148 1 017 34
Other expenses 1 011 774 603 524 35
Expenses 7 624 15 153 5 976 13 130
Results of operations (156) 2 485 (102) 1 802
Finance costs (188) (174) (47) (47) 36
Share of (loss)/profi t of associates (2) 5 6
Share of loss of joint venture (26) – – 7
(Loss)/profi t before tax (372) 2 316 (149) 1 755
Income tax credits/(expenses) 77 (788) 206 (541) 25.2
Earnings for year (295) 1 528 57 1 214
Attributable to:Equity holders of group (319) 1 503 57 1 214 37
Minority interests 24 25
(295) 1 528 57 1 214
Basic earnings per share (cents) (61.23) 279.89
Diluted earnings per share (cents) (27.06) 232.43
INCOME STATEMENT
for the year ended 31 December 2008
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
106 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
GROUP
Share capital
Retained earnings
Other reserves
Minority interests Total Notes
Rm Rm Rm Rm RmBalance at 1 January 2007 (136) 6 417 413 109 6 803 Total recognised income 1 503 70 26 1 599 Earnings for year 1 503 25 1 528 Revaluation of land and buildings 65 65 16 Foreign currency translation difference 5 1 6 Dividend paid (926) (49) (975)Employee share scheme – value of services provided 12 12 16Net change in minority interest 38 38 Acquisition of HTG Life (renamed Union Life) 36 36 Acquisition of DirectFin Solutions (1) (1) Sale of shares in Metropolitan Life (Namibia) Ltd (4) (4) Acquisition of Metropolitan Retirement Administrators 7 7 Staff scheme shares released 105 105 Shares repurchased and cancelled (691) (691)Decrease in treasury shares held on behalf of contract holders 50 50 Balance at 1 January 2008 19 6 303 495 124 6 941 Total recognised income (319) 36 28 (255) Earnings for year (319) 24 (295) Revaluation of land and buildings 24 24 16 Foreign currency translation difference 12 4 16 Dividend paid (520) (12) (532)Employee share scheme – value of services provided 4 4 16Transfer from land and buildings reserve 3 (3) – 16Other 1 1 Staff scheme shares released 31 31Shares repurchased and cancelled (203) (203)Decrease in treasury shares held on behalf of contract
holders 1 1 Balance at 31 December 2008 51 5 264 532 141 5 988
Capital adequacy
The capital adequacy requirement of the long-term insurance companies is included in retained earnings and must be maintained as statutory
capital.
METROPOLITAN LIFE LIMITED
Share capital
Retained earnings
Other reserves Total Notes
Rm Rm Rm RmBalance at 1 January 2007 624 4 342 197 5 163 Total recognised income 1 214 22 1 236 Earnings for year 1 214 1 214 Fair value gains net of tax – available-for-sale fi nancial assets (42) (42) Revaluation of land and buildings 64 64 16Dividend paid (1 313) (1 313)Employee share scheme – value of services provided 4 4 16Balance at 1 January 2008 624 4 243 223 5 090 Total recognised income 57 15 72 Earnings for year 57 57 Revaluation of land and buildings 15 15 16Transfer from land and buildings reserve to retained earnings 2 (2) – 16Dividend paid (950) (950)Employee share scheme – value of services provided 5 5 16Balance at 31 December 2008 624 3 352 241 4 217
Capital adequacy
The capital adequacy requirement of Metropolitan Life Limited is included in retained earnings and must be maintained as statutory capital.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2008
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 107
Group Metropolitan Life Ltd2008 2007 2008 2007 Notes
Rm Rm Rm RmCash fl ow from operating activitiesCash (utilised in)/generated by operations (1 799) 615 (2 091) (156) 38.1
Interest received 2 688 2 243 2 378 1 991
Dividends received 1 339 1 020 1 205 915
Income tax paid (589) (546) (342) (305) 38.2
Interest paid (184) (166) (46) (46) 38.3
Net cash infl ow from operating activities 1 455 3 166 1 104 2 399
Cash fl ow from investing activitiesAcquisition of subsidiaries – net cash received – (63) 39.1
Acquisition of joint ventures – (66)
Acquisition of associate (41) –
Loans repaid by related parties 50 179 44 94
Dividend from associates 4 2
Purchases of owner-occupied properties (1) (2) (1) (1)
Purchases of property and equipment (146) (135) (96) (95)
Purchases of intangible assets (29) (30) (20) (12)
Net cash outfl ow from investing activities (163) (115) (73) (14)
Cash fl ow from fi nancing activitiesShares repurchased and cancelled (203) (691)
Finance leases repaid (1) (2) (1) (3)
Repayment of other borrowings (24) – – –
Dividend paid to equity holders (520) (926) (950) (1 313)
Dividend paid to minority shareholders (12) (49)
Net cash outfl ow from fi nancing activities (760) (1 668) (951) (1 316)
Net cash fl ow 532 1 383 80 1 069
Effect of foreign exchange rate changes 4 4 2 (3)
Cash resources and funds on deposit at beginning 8 274 6 887 7 024 5 958
Cash resources and funds on deposit at end 8 810 8 274 7 106 7 024 13
CASH FLOW STATEMENT
for the year ended 31 December 2008
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
108 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
BASIS OF PREPARATION OF THE STATEMENTS
The fi nancial statements, as set out above, have been prepared
in accordance with International Financial Reporting Standards
(IFRS) and International Financial Reporting Interpretations
Committee (IFRIC) interpretations issued and effective at the
time of preparing these statements. These statements have
been prepared on the historical cost basis except for the
following items which are carried at fair value or valued using
another measurement basis:
Fair value
> owner-occupied properties
> investment properties
> fi nancial assets designated as at fair value through income,
held for trading and available-for-sale
> investment contract liabilities designated as at fair value
through income, other liabilities designated as at fair value
through income and held for trading liabilities
Other measurement basis
> insurance contracts and investment contracts with DPF
valued using the fi nancial soundness valuation basis as set
out in PGN104 – Valuation of long-term insurers,
> employee benefi t obligations measured using the projected
unit credit method
> investments in associates and joint ventures measured
using the equity method of accounting.
The preparation of fi nancial statements in accordance with
IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise judgement in the
process of applying the group’s accounting policies. There are
areas of complexity involving a higher degree of judgement
and areas where assumptions and estimates are signifi cant
to the consolidated fi nancial statements. These judgements,
assumptions and estimates are disclosed in detail in the
notes to the annual fi nancial statements and in a summary on
page 123.
Published standards and interpretations effective in 2008
The following published standards are mandatory for the
group’s accounting periods beginning on or after 1 January
2008 and have been implemented in accordance with the
transitional provisions of these standards:
> IFRIC 11 – IFRS 2 – Group and treasury share transactions.
IFRIC 11 provides guidance on whether share-based
transactions involving treasury shares or group entities, for
example options over a parent’s shares, should be accounted
for as equity-settled or cash-settled share-based payment
transactions in the stand-alone accounts of the parent and
group companies. This interpretation did not have an impact
on the group’s fi nancial statements.
> IFRIC 14 – IAS 19 – The limit on a defi ned benefi t asset.
IFRIC 14 provides guidance on assessing the limit in IAS 19
– Employee benefi ts – on the amount of the surplus that can
be recognised as an asset. It also explains how the pension
asset or liability may be affected by a statutory or contractual
minimum funding requirement. This interpretation did not
have an impact on the group’s fi nancial statements.
Interpretations of published standards that are effective
but not currently relevant to the group’s operations
> IFRIC 12 – Service concession arrangements (effective from
annual periods beginning on or after 1 January 2008).
Standards, amendments to and interpretations of published
standards that are not yet effective and have not been early
adopted by the group
> IAS 1 (Revised) – Presentation of fi nancial statements
(effective from annual periods beginning on or after 1 January
2009). The revised standard will prohibit the presentation of
items of income and expenses (that is, ‘non-owner changes
in equity’) in the statement of changes in equity, requiring all
such income and expense items to be presented separately
from owner changes in equity. All non-owner changes
in equity will be required to be shown in a performance
statement, but entities can choose whether to present one
performance statement (the statement of comprehensive
income) or two statements (the income statement and
statement of comprehensive income). Where entities restate
or reclassify comparative information, they will be required
to present a restated balance sheet as at the beginning of
the comparative period. The group will apply the standard
from 1 January 2009.
> IAS 27 (Revised) – Consolidated and separate fi nancial
statements (effective from annual periods beginning on or
after 1 July 2009). The revised standard requires the effects
of all transactions with non-controlling interests to be
recorded in equity if there is no change in control and these
transactions will no longer result in goodwill or gains and
losses. The standard also specifi es the accounting treatment
when control is lost. Any remaining interest in the entity is
re-measured to fair value, and a gain or loss is recognised in
profi t or loss. This standard is not expected to have an impact
on the group’s fi nancial statements.
> IFRS 2 (Amendment) – Share-based payment (effective
from annual periods beginning on or after 1 January 2009).
The amendment clarifi es that vesting conditions include
only service conditions and performance conditions. These
features would need to be included in the fair value at grant
date for transactions with employees and others providing
similar services; they would not impact the number of
awards expected to vest or the valuation thereof subsequent
to the grant date. All cancellations, whether by the entity
or by other parties, should receive the same accounting
treatment. This standard is not expected to have a material
impact on the group’s fi nancial statements.
> IFRS 3 (Revised) – Business combinations (effective from
annual periods beginning on or after 1 July 2009). The
revised standard continues to apply the acquisition method
to business combinations, with some signifi cant changes.
For example, all payments to purchase a business are
GROUP ACCOUNTING POLICIES
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 109
to be recorded at fair value at the acquisition date, with
contingent payments classifi ed as debt subsequently being
re-measured through the income statement. There is a
choice, on an acquisition-by-acquisition basis, to measure
the non-controlling interest in the acquiree either at fair
vale or at the non-controlling interest’s proportionate share
of the acquiree’s net assets. All acquisition-related costs
are to be expensed. The group will apply IFRS 3 (Revised)
prospectively to all business combinations from 1 January
2010.
> IFRIC 16 – Hedges of a net investment in a foreign operation
(effective for annual periods beginning on or after 1 October
2008). IFRIC 16 clarifi es the accounting treatment in respect
of net investment hedging. This includes the fact that net
investment hedging relates to differences in functional
currency not presentation currency, and hedging instruments
may be held anywhere in the group. The requirements of IAS
21 – The effects of changes in foreign exchange rates – apply
to the hedged item. This interpretation is not expected to
have any impact on the group’s fi nancial statements.
The following amendments are part of the International
Accounting Standards Board’s (IASB) annual improvements
project, published in May 2008 (all amendments effective from
annual periods beginning on or after 1 January 2009, unless
otherwise stated):
> IAS 1 (Amendment) – Presentation of fi nancial statements.
The amendment clarifi es that some rather than all fi nancial
assets and liabilities classifi ed as held for trading are
examples of current assets and liabilities respectively. It
is not expected to have an impact on the group’s fi nancial
statements.
> IAS 19 (Amendment) – Employee benefi ts. The amendment
clarifi es that a plan amendment that results in a change in
the extent to which benefi t promises are affected by future
salary increases is a curtailment, while an amendment that
changes benefi ts attributable to past service gives rise to a
negative past service cost if it results in a reduction in the
present value of the defi ned benefi t obligation. The defi nition
of return on plan assets has been amended to state that
plan administration costs are deducted in the calculation of
return on plan assets only to the extent that such costs have
been excluded from measurement of the defi ned benefi t
obligation. The distinction between short-term and long-term
employee benefi ts will be based on whether benefi ts are due
to be settled within or after 12 months of employee service
being rendered. This amendment is not considered to have a
material impact on the group’s fi nancial statements.
> IAS 28 (Amendment) – Investments in associates and IAS 31
(Amendment) – Interests in joint ventures. These amendments
clarify the disclosure requirements for an investment in an
associate and a joint venture that is accounted for in accordance
with IAS 39. This amendment will not have an impact on the
group’s fi nancial statements as the necessary disclosures are
already given.
> IAS 36 (Amendment) – Impairment of assets. Where fair value
less costs to sell is calculated on the basis of discounted
cash fl ows, disclosures equivalent to those for value-in-
use calculations should be made. The group will apply the
amendment and provide the required disclosures where
applicable for impairment tests from 1 January 2009.
> IAS 38 (Amendment) – Intangible assets. A prepayment may
only be recognised in the event that payment has been made
in advance of obtaining right of access to goods or receipt of
services. The amendment is not expected to have any impact
on the groups’ earnings. The amendment also deletes the
wording that states there is ‘rarely, if ever’ support for the
use of a method that results in a lower rate of amortisation
than the straight-line method. This amendment will not have
an impact on the group’s fi nancial statements as intangible
assets are amortised using the straight-line method.
> IAS 39 (Amendment) – Financial instruments: Recognition
and measurement. The defi nition of a fi nancial asset or
fi nancial liability at fair value through income has been
amended to clarify that a fi nancial asset or liability forming a
part of a portfolio of fi nancial instruments managed together
with evidence of a recent pattern of actual short-term profi t-
taking, is included in such a portfolio on initial recognition.
This amendment also clarifi es certain aspects relating to
hedging instruments which are not currently applicable for
the group.
> IAS 40 (Amendment) – Investment property. Property that
is under construction or development for future use as
investment property is within the scope of IAS 40. Where
the fair value model is applied, such property is therefore
measured at fair value. However, where fair value of
investment property under construction is not reliably
measurable, the property is measured at cost until the earlier
of the date construction is completed and the date at which
fair value becomes reliably measurable. Property currently
under construction will be affected by this amendment;
however the impact on the group’s fi nancial statements is
not expected to be signifi cant.
> There are a number of minor amendments to IFRS 7 –
Financial instruments: Disclosures, IAS 8 – Accounting
policies, changes in accounting estimates and errors, IAS 10
– Events after the reporting period, IAS 18 – Revenue and
IAS 34 – Interim fi nancial reporting. These amendments are
unlikely to have an impact on the group’s fi nancial statements
and have therefore not been analysed in detail.
Amendments to and interpretations of published standards
that are not yet effective and not currently relevant to the
group’s operations
> IFRS 1 (Amendment) – First time adoption of IFRS and IAS 27
– Consolidated and separate fi nancial statements (effective
from annual periods beginning on or after 1 January 2009).
> IAS 23 – Borrowing costs (revised) (effective from annual
periods beginning on or after 1 January 2009).
> IAS 32 (Amendment) – Financial instruments: Presentation
and IAS 1 (Amendment) – Presentation of fi nancial
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
110 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
statements – Puttable fi nancial instruments and obligations
arising on liquidation (effective annual periods beginning on
or after 1 January 2009).
> IFRIC 13 – Customer loyalty programmes (effective from
annual periods beginning on or after 1 July 2008).
> IFRIC 15 – Agreements for the construction of real estate
(effective from annual periods beginning on or after 1 January
2009).
The following amendments are part of the IASB’s annual
improvements project published in May 2008 and are not
currently applicable to the group’s operations (effective from
annual periods beginning on or after 1 January 2009 unless
otherwise stated):
> IFRS 5 (Amendment) – Non-current assets held-for-sale
and discontinued operations (effective from annual periods
beginning on or after 1 July 2009).
> IAS 16 (Amendment) – Property, plant and equipment.
> IAS 20 (Amendment) – Accounting for government grants
and disclosure of government assistance.
> IAS 23 (Amendment) – Borrowing costs.
> IAS 27 (Amendment) – Consolidated and separate fi nancial
statements.
> IAS 29 (Amendment) – Financial reporting in hyperinfl ationary
economies.
> IAS 41 (Amendment) – Agriculture.
CONSOLIDATION
Subsidiaries
Subsidiaries, including collective investment schemes and
special purpose entities, are consolidated from the date on
which effective control is transferred to the group, and are
no longer consolidated from the date that control ceases.
All subsidiaries have fi nancial years ending on 31 December
and are consolidated to that date. The accounting policies for
subsidiaries are consistent, in all material respects, with the
policies adopted by the group. Separate disclosure is made
of minority interests. All intra-group balances and unrealised
gains and losses on transactions between group companies
are eliminated.
Initial measurement
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the group, except for common
control transactions; refer merger accounting. The cost of
a business combination is the fair value of the purchase
consideration given at the date of acquisition, equity issued
and liabilities assumed or incurred plus any costs directly
attributable to the business combination. The excess of the
cost of acquisition over the fair value of the group’s share of the
identifi able assets, liabilities and contingent liabilities acquired
is recorded as goodwill. If the cost of acquisition is less than
the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement.
Subsequent measurement – Metropolitan Holdings Limited
Subsidiary companies are stated at cost, including goodwill,
less any impairment losses.
Subsequent measurement – Metropolitan Life Limited
Investments in property subsidiary companies are designated
as at fair value through income. The fair value of these
investments is determined with reference to the value of the
underlying net identifi able assets of the property subsidiary.
Changes in the valuation are shown in the income statement
in the period in which they occur.
Impairment – Metropolitan Holdings Limited
The impairment tests of investments in subsidiary companies
are detailed under the section relating to fi nancial assets.
Gains and losses on disposal
Gains and losses on disposal of subsidiaries are included in the
income statement as investment income.
Transactions with minorities
The group applies a policy of treating transactions with minorities
as transactions with equity participants of the group. Disposals
to minorities result in gains and losses for the group that are
recorded in equity. Any difference between any consideration
paid and the relevant share acquired of the carrying value of the
net assets of the subsidiary is recorded in equity.
Associates
Associates are all entities, including collective investment
schemes, over which the group has signifi cant infl uence, but
not control. The group’s investment in associates includes
goodwill, identifi ed on acquisition, net of any accumulated
impairment loss. The accounting policies for associates are
consistent, in all material respects, with the policies adopted
by the group.
Profi ts and losses resulting from transactions between group
companies are recognised in the group’s results to the extent
of the group’s unrelated interests in the associates.
Measurement
Investments in associated companies, other than investments
in collective investment schemes, are initially recognised at
cost, including goodwill, and the carrying amount is increased
or decreased with the group’s proportionate share of post-
acquisition profi ts or losses, using the equity method of
accounting. Under this method, the group’s share of the post-
acquisition profi ts or losses of associates is recognised in the
income statement and its share of post-acquisition movements
in reserves is recognised in reserves. The cumulative post-
acquisition movements are adjusted against the cost of the
investments. The equity method is discontinued from the date
that the group ceases to have signifi cant infl uence over the
associate.
Investments in collective investment schemes where the
group has signifi cant infl uence are designated as investments
at fair value through income and are not equity accounted
where they back contract holder liabilities, based on the
scope exemption in IAS 28 – Investments in associates for
investment-linked insurance funds. Initial measurement is at
fair value on trade date, with subsequent measurement at
GROUP ACCOUNTING POLICIES
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 111
fair value based on quoted repurchase prices at the close of
business on the last trading day on or before the balance sheet
date. Fair value adjustments on collective investment schemes
are recognised in the income statement. The related income
from these schemes is recognised as interest or dividends
received, as appropriate.
Impairment
Under the equity method, the carrying value is tested for
impairment at reporting dates by comparing the recoverable
amount with the carrying amount. When the group’s share
of losses in an associate equals or exceeds its interest in
the associate, no further losses are recognised unless the
company has incurred obligations or made payments on behalf
of the associate.
Joint ventures
Joint ventures are all entities in which the group has joint
control. Investments in joint ventures are accounted for
using the equity method of accounting. The equity method
is discontinued from the date that the group ceases to have
joint control over the entity. The group’s investment in joint
ventures includes goodwill, identifi ed on acquisition, net of any
accumulated impairment loss.
Measurement
Investments in joint ventures are initially recognised at cost,
including goodwill, and the carrying amount is increased
or decreased with the group’s proportionate share of post-
acquisition profi ts or losses, using the equity method of
accounting. Under this method, the group’s share of the
post-acquisition profi ts or losses is recognised in the income
statement and its share of post-acquisition movements in
reserves is recognised in reserves. The cumulative post-
acquisition movements are adjusted against the cost of the
investments.
Impairment
Under the equity method, the carrying value is tested for
impairment at reporting dates by comparing the recoverable
amount with the carrying amount. When the group’s share
of losses in joint ventures equals or exceeds its interest, no
further losses are recognised unless the company has incurred
obligations or made payments on behalf of the joint venture.
MERGER ACCOUNTING
Separate fi nancial statements of Metropolitan Life Limited
Merger accounting is applied to all common control business
combinations. This accounting method requires that the assets
and liabilities of the purchased business be incorporated at
the consolidated book value (by the ultimate parent) and the
difference between the purchase consideration and the book
value of the assets and liabilities be recorded in equity as a
common control reserve. The fi nancial statements of the
purchaser incorporate the combined companies’ results and
cash fl ows as if the companies have always been combined,
including the restatement of comparatives.
SEGMENT REPORTING
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision-
maker. The chief operating decision-maker has been identifi ed
as the executive committee that makes strategic decisions.
FOREIGN CURRENCIES
Functional and presentation currency
Items included in the fi nancial statements of each entity
in the group are measured using the currency that best
refl ects the primary economic environment in which the
entity operates (“the functional currency”). The consolidated
fi nancial statements are presented in South African rand (“the
presentation currency”), which is the functional currency of the
parent.
Transactions and balances
Transactions in foreign currencies are translated into the
functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised
in the income statement.
Translation differences on non-monetary assets and liabilities,
measured at fair value through income, are recognised as part
of their fair value gain or loss. Translation differences on non-
monetary items, such as available-for-sale fi nancial assets, are
included in the fair value reserve in equity.
Subsidiary undertakings
Foreign entities are entities of the group that have a functional
currency different from the presentation currency. Assets and
liabilities of these entities are translated into the presentation
currency at the rates of exchange ruling at the reporting date.
Income and expenditure are translated into the presentation
currency at the average rate of exchange for the year.
Exchange differences arising from the translation of the net
investment in foreign entities are recognised in the foreign
currency translation reserve in equity. On disposal, such
exchange differences are recognised in the income statement
as part of net realised and fair value gains.
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
NON-CURRENT ASSETS HELD FOR SALE
Non-current assets (or disposal groups) are classifi ed as assets
held for sale and stated at the lower of carrying amount and
fair value less costs to sell if their carrying amount is to be
recovered principally through a sale transaction rather than
through continuing use.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
112 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
INTANGIBLE ASSETS
Goodwill
Recognition and measurement
All business combinations are accounted for by applying the
purchase method of accounting, except in the case of common
control transactions, where merger accounting is used.
The initial cost of a business combination is adjusted if the
agreement provides for adjustments to the cost that are
contingent on one or more future events, and the adjustment
is probable and can be measured reliably.
At the acquisition date, goodwill represents the excess of the
cost of the business combination over the interest acquired
in the net fair value of the identifi able assets, liabilities and
contingent liabilities that satisfy the recognition criteria.
Subsequent to initial measurement, goodwill is carried at cost
less accumulated impairment losses.
Goodwill on acquisition of subsidiaries is included in intangible
assets whereas goodwill on acquisition of associates is
included in investment in associates.
When the interest acquired in the net fair value of the identifi able
assets, liabilities and contingent liabilities exceeds the cost of
the business combination, the difference is recognised directly
in the income statement.
Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Impairment
At the acquisition date, goodwill acquired in a business
combination is allocated to cash generating units that are
expected to benefi t from the synergies of the combination
in which the goodwill arose. Cash generating units, to which
goodwill has been allocated, are assessed annually. An
impairment loss is recognised whenever the carrying amount
of goodwill exceeds its recoverable amount. Impairment losses
on goodwill are not reversed.
Value of business acquired
On acquisition of a portfolio of insurance contracts the company
recognises an intangible asset representing the value of
business acquired (VOBA). VOBA represents the present value
of future after-tax profi ts embedded in the acquired insurance
and investment contract business.
Measurement
The calculation of VOBA is based on actuarial principles
that take into account future premium income, fee income,
mortality, morbidity and surrender probabilities, together with
future costs and investment returns on the underlying assets.
The profi ts are discounted at a rate of return allowing for the
risk of uncertainty of the future cash fl ows. This calculation is
particularly sensitive to the assumptions regarding discount
rate, future investment returns and the rate at which policies
discontinue.
The asset is amortised over the expected profi t recognition
period of the related contracts, being fi ve years, on a straight-
line basis.
Impairment
VOBA is reviewed for impairment losses through the liability
adequacy test.
Contractual customer relationships
Contractual customer relationships relate to rights to receive
fees for administering retirement fund schemes. An intangible
asset is recognised when rights can be identifi ed separately
and measured reliably and it is probable that the cost will be
recovered.
Measurement
The asset represents the group’s contractual right to benefi t
from providing retirement fund administration services and is
amortised on a straight-line basis over the period in which the
group expects to recognise the related revenue.
Impairment
The contractual right is reviewed for impairment losses
whenever events or changes in circumstances indicate that
the carrying amounts may not be recoverable. An impairment
loss is recognised in the income statement for the amount by
which the carrying amount of the asset exceeds its recoverable
amount.
Deferred acquisition costs
Incremental costs that are directly attributable to securing
rights to receive fees for asset management services sold with
investment contracts are recognised as an asset if they can be
identifi ed separately and measured reliably, and if it is probable
that they will be recovered. The asset represents the contractual
right to benefi t from providing investment management
services, and is amortised as the entity recognises the related
revenue on a straight-line basis over the anticipated lives of the
contracts.
Impairment
An impairment test is conducted annually at reporting date
on the deferred acquisition cost balance to ensure that the
amount will be recovered from future revenue generated by
the applicable remaining investment management contracts.
An impairment loss is recognised for the amount by which the
carrying amount of the asset exceeds its recoverable amount.
Computer software
Recognition and measurement
Acquired computer software
Acquired computer software licences are capitalised on the
basis of the cost incurred to acquire and bring to use the
specifi c software. These costs are amortised on the basis of
an expected useful life of four to ten years, which is assessed
annually, using the straight-line method.
GROUP ACCOUNTING POLICIES
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 113
Internally developed computer software
Costs that are directly associated with an identifi able and
unique product or process, which will be controlled by the
group and which has probable economic benefi t exceeding
the cost beyond one year, are recognised as intangible
assets. Directly associated costs include employee costs of
the development team and an appropriate portion of relevant
overheads. Computer software development costs recognised
as assets are amortised over their useful lives, ranging from
fi ve to twenty years, using the straight-line method.
Costs associated with developing or maintaining computer
software programs are recognised as an expense as incurred.
Impairment
Computer software is reviewed for impairment losses
whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. An impairment loss
is recognised for the amount by which the carrying amount of
the asset exceeds its recoverable amount, the latter being the
higher of the net selling price (ie the fair value less cost to sell)
and the value in use.
OWNER-OCCUPIED PROPERTIES
Owner-occupied properties are held for use in the supply of
services or for administrative purposes. Where the group
occupies a signifi cant portion of the property, it is classifi ed as
a owner-occupied property.
Measurement
Owner-occupied properties are stated at revalued amounts,
being fair value refl ective of market conditions at the reporting
date less accumulated depreciation.
Fair value is determined as being the present value of net rental
income, discounted for the different types of properties at the
market rates applicable at the reporting date. All properties
are valued internally and an independent professional valuator
confi rms the fair values of all signifi cant properties externally,
in a three-year cycle.
Increases in the carrying amount arising on revaluation of
buildings are credited to a land and building revaluation reserve
in equity. Decreases that offset previous increases in respect
of the same asset are charged against the revaluation reserve,
and all other decreases are charged to the income statement.
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefi ts associated with
the item will fl ow to the group and the cost of the item can be
measured reliably. All other repairs and maintenance costs are
charged to the income statement during the fi nancial period in
which they are incurred.
Depreciation
Owner-occupied property buildings are depreciated on a
straight-line basis, not exceeding 50 years, to allocate their
revalued amounts to their residual values over their estimated
useful lives. Land is not depreciated. The residual values and
useful lives are reviewed at each reporting date and adjusted
if appropriate.
Accumulated depreciation relating to these properties is
eliminated against the gross carrying amount of the properties
and the net amount is restated to the revalued amount.
Subsequent depreciation charges are adjusted based on the
revalued amount for each property. Any difference between
the depreciation charge on the revalued amount and the
amount which would have been charged under historic cost
is transferred, net of any related deferred tax, between the
revaluation reserve and retained earnings as the property is
utilised.
Shadow accounting
Shadow accounting is permitted if there is a contractual
link between payments to insurance contract holders and
the carrying amounts of, or returns from, owner-occupied
properties. As the revaluation model is used for owner-
occupied properties, the changes in the carrying amounts
of the owner-occupied properties are recognised in the land
and buildings revaluation reserve in equity. The group applies
shadow accounting where the changes in the measurement
of the insurance liability resulting from revaluations of property
are recognised in the land and buildings revaluation reserve.
Gains and losses
When owner-occupied properties are sold, the amounts
included in the land and buildings revaluation reserve are
transferred to retained earnings.
PROPERTY AND EQUIPMENT
Properties under development
Properties under development are properties under construction
that are not yet available to earn rentals for use in the supply
of services or for administrative purposes. These properties
are presented as part of property and equipment until they
meet the defi nition of either owner-occupied or investment
properties.
Measurement
Properties under development are measured at cost directly
attributable to the development of these properties.
Impairment
Properties under development are reviewed for impairment
losses whenever events or changes in circumstances indicate
the carrying amounts may not be recoverable. An impairment
loss is recognised for the amount by which the cost of the
asset capitalised to date exceeds the recoverable amount,
which is the discounted net value of assumed future rentals.
Equipment
Measurement
Equipment is stated at historical cost less accumulated
depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
114 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefi ts associated with
the item will fl ow to the group and the cost of the item can be
measured reliably. All other repairs and maintenance costs are
charged to the income statement during the fi nancial period in
which they are incurred.
Depreciation
All assets are depreciated using the straight-line method to
allocate their cost less their residual values over their estimated
useful lives, as follows:
Furniture and fi ttings 5 years
Computer equipment 3 – 5 years
Motor vehicles 6 years
The residual values and useful lives of the assets are reviewed
at each reporting date and adjusted if appropriate.
Gains and losses
Gains and losses on disposal of assets are determined by
comparing proceeds with carrying amounts and are included
in the income statement.
Impairment
Equipment is reviewed for impairment losses whenever events
or changes in circumstances indicate that the carrying amounts
may not be recoverable. An impairment loss is recognised
immediately for the amount by which the carrying amount of
the asset exceeds its recoverable amount, the latter being the
higher of the net selling price (ie the fair value less cost to sell)
of the asset and its value in use.
INVESTMENT PROPERTIES
Completed properties
Investment properties are held to earn rentals or for capital
appreciation or both and are not occupied by the companies
of the group.
Measurement
Investment properties comprise freehold land and buildings and
are carried at fair value, refl ective of market conditions at the
reporting date. Fair value is determined as being the present
value of net rental income, discounted for the different types
of properties at the market rates applicable at the reporting
date. Selected properties are valued externally, in a three-year
cycle, to confi rm the fair value of the portfolio. Subsequent
expenditure is charged to the asset’s carrying value only when
it is probable that the future economic benefi ts associated
with the item will fl ow to the company and the cost can be
measured reliably. All other repairs and maintenance costs are
charged to the income statement during the fi nancial period in
which they occurred.
Investment properties that are being redeveloped for continuing
use as investment property, or for which the market has
become less active, continue to be measured at fair value.
Undeveloped land is valued at fair value based on recent market
activity in the area.
Transfers to and from investment properties
If an investment property becomes owner-occupied, it is
reclassifi ed as owner-occupied properties, and its fair value at
the date of reclassifi cation becomes its cost for subsequent
accounting purposes.
If an owner-occupied property becomes an investment property
because its use has changed, any difference arising between
the carrying amount and the fair value of this item at the date
of transfer is recognised in equity as a revaluation of owner-
occupied properties. However, if a fair value gain reverses a
previous impairment loss, the gain is recognised in the income
statement. Upon the disposal of such investment property,
any surplus previously recorded in equity is transferred to
retained earnings; the transfer is not made through the income
statement.
Properties held under operating leases
Properties held under operating leases are classifi ed as
investment properties as long as they are held for long-term
rental yields and not occupied by the group. The initial cost of
these properties is the lower of the fair value of the property
and the present value of the minimum lease payments. These
properties are carried at fair value after initial recognition.
Gains and losses
Unrealised gains or losses arising on the valuation of completed
properties and realised gains or losses on disposal of properties
are included in the income statement.
FINANCIAL INSTRUMENTS
Recognition and measurement
The group classifi es its investments into the following
categories:
> fi nancial assets at fair value through income
> available-for-sale fi nancial assets
> loans and receivables
> held-to-maturity fi nancial assets.
The classifi cation depends on the purpose for which the
investments were acquired. Management determines the
classifi cation of its investments at initial recognition and re-
evaluates this designation at every reporting date.
> Financial assets at fair value through income
This category has two sub-categories: fi nancial assets held
for trading and those designated as at fair value through
income at inception.
A fi nancial asset is classifi ed as held for trading at inception if
it is acquired principally for the purpose of selling in the short
term and forms part of a portfolio of fi nancial assets in which
there is evidence of short-term profi t-taking. Derivatives are
classifi ed as held for trading.
GROUP ACCOUNTING POLICIES
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 115
Financial assets are designated as at fair value through
income at inception if they are held to match insurance
contract holder liabilities, investment contract holder
liabilities with DPF and investment contract holder liabilities
designated as at fair value through income, or if they are
managed and their performance is evaluated on a fair value
basis. These assets are initially recognised at fair value and
transaction costs directly attributable to acquiring these
fi nancial assets are expensed in the income statement
in net realised and fair value gains. Subsequent fair value
adjustments are recognised in the income statement.
> Available-for-sale fi nancial assets
Available-for-sale fi nancial assets are non-derivative fi nancial
assets that are not classifi ed in any of the other categories.
> Loans and receivables
Loans and receivables are non-derivative fi nancial assets
with fi xed or determinable payments that are not quoted in
an active market.
> Held-to-maturity fi nancial assets
Held-to-maturity fi nancial assets are non-derivative fi nancial
assets with fi xed or determinable payments and fi xed
maturities – other than those that meet the defi nition of
loans and receivables – that management of the group has
the positive intention and ability to hold to maturity.
A fi nancial asset or fi nancial liability is recognised in the
balance sheet when, and only when, the group becomes a
party to the contractual provisions of the instrument.
Purchases and sales of investments are recognised on
trade date, being the date on which the group commits
to purchase or sell the asset. Investments are initially
recognised at fair value plus, in the case of a fi nancial
asset not at fair value through income, transaction costs
that are directly attributable to the acquisition of the asset.
Financial assets at fair value through income and available-
for-sale assets are subsequently carried at fair value. Loans
and receivables and held-to-maturity assets are recognised
initially at fair value and subsequently carried at amortised
cost, using the effective interest rate method less provision
for impairment.
The fair value of quoted investments is based on current bid
prices. Collective investments are valued at their repurchase
price. For unlisted equity and debt securities, unquoted unit
linked investments and fi nancial assets where the market is
not active, the group establishes fair value by using valuation
techniques. These include discounted cash fl ow analysis
and adjusted price earnings ratios. Unquoted securities are
valued at every reporting period.
Impairment of fi nancial assets
> Financial assets carried at fair value – available-for-sale
At each reporting date the group assesses whether there is
objective evidence that an available-for-sale fi nancial asset
is impaired, including a signifi cant or prolonged decline in
the fair value of the security below its cost in the case of
equity investments classifi ed as available-for-sale. If any such
evidence exists for available-for-sale fi nancial assets, the
cumulative loss – measured as the difference between the
acquisition cost and current fair value, less any impairment
loss on the fi nancial asset previously recognised in profi t
and loss – is removed from equity and recognised in the
income statement. Impairment losses on equity instruments
recognised in the income statement are not subsequently
reversed.
> Loans and receivables
A provision for loans and receivables is established when
there is objective evidence that the group will not be able
to collect all amounts due according to the original terms
of the assets concerned. The amount of the provision is the
difference between the carrying amount of the asset and the
present value of estimated future cash fl ows, discounted
at the original effective interest rate. The movement in
the current year provision is recognised in the income
statement.
De-recognition of fi nancial assets
Investments are de-recognised when the right to receive
cash fl ows from the investments has expired or has been
transferred, and the group has transferred substantially all risks
and rewards of ownership.
Realised and unrealised gains and losses
Assets at fair value through income
Realised and unrealised gains and losses arising from changes
in the value of fi nancial assets at fair value through income are
included in the income statement in the period in which they
arise. Interest and dividend income arising on these assets are
disclosed separately under investment income in the income
statement.
Available-for-sale assets
Unrealised gains and losses arising from changes in the fair
value of available-for-sale fi nancial assets are recognised
in equity. When these assets are sold or impaired, the
accumulated fair value adjustments are included in the income
statement as realised gains and losses. Interest and dividend
income arising on these assets are disclosed separately under
investment income in the income statement.
Changes in the fair value of monetary securities denominated
in a foreign currency and classifi ed as available-for-sale are
analysed between translation differences resulting from
changes in the amortised cost of the security and other
changes in the carrying amount of the security. The translation
differences on monetary securities are recognised in profi t or
loss; translation differences on non-monetary securities are
recognised in equity. Changes in the fair value of monetary
and non-monetary securities classifi ed as available-for-sale are
recognised in equity.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
116 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Offsetting
Financial assets and liabilities are set off and the net balance
reported in the balance sheet where there is a legally
enforceable right to set off, where it is the intention to settle
on a net basis or to realise the asset and settle the liability
simultaneously, where the maturity date for the fi nancial asset
and liability is the same, and where the fi nancial asset and
liability are denominated in the same currency.
Scrip lending
The equities or bonds on loan, and not the collateral security,
are refl ected in the balance sheet of the group at year-end.
Scrip lending fees received are included under fee income.
The group continues to recognise the related income on the
equities and bonds on loan. Collateral held is not recognised in
the fi nancial statements, if it is sold, the gain or loss is included
in the income statement.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are initially recognised at fair value on the date on
which derivative contracts are entered into and are subsequently
remeasured at fair value. Quoted derivative instruments are
valued at the South African Futures Exchange ruling price
while the value of unquoted derivatives is determined by
using valuation techniques that incorporate all factors that
market participants would consider in setting the price. The
latter are consistent with accepted economic methodologies
for pricing derivatives, such as discounted cash fl ow models
and option pricing models, as appropriate. The group calibrates
its valuation techniques against market transactions or any
available observable market data.
Gains or losses on derivatives measured using these valuation
techniques are recognised only to the extent that they arise
from a technique that incorporates variables based on
observable market data and there has been a change in one of
these variables (including time).
None of the group’s derivatives qualifi es for hedge accounting
and all are held for trading. Changes in the fair value of these
derivative instruments are recognised immediately in the
income statement.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried in the balance sheet at
cost, which approximates fair value. Cash and cash equivalents
comprise cash on hand, deposits held at call with banks
and other short-term, highly liquid investments with original
maturities of three months or less. Bank balances that are
held for investment purposes are included in funds on deposit
and other money market instruments with a maturity of three
months or less. Operating bank balances are included in bank
and other cash balances.
SHARE CAPITAL
Ordinary shares with discretionary dividends are classifi ed
as equity. The component of the convertible redeemable
preference shares representing the value of the conversion
option at the time of issue is included in equity.
Issue costs
Incremental external costs directly attributable to the issue
of new shares, other than in connection with business
combinations, are recognised in equity as a deduction from
the proceeds.
Treasury shares
Treasury shares are equity share capital of the holding company
held by subsidiaries, consolidated collective investment
schemes and share trusts, irrespective of whether they are held
in shareholder or contract holder portfolios. The consideration
paid, including any directly attributable costs, is eliminated from
shareholder equity on consolidation. The consideration received
for the shares, net of attributable incremental transaction costs
and the related income tax effects on the subsequent sale, is
included in equity. The net consideration received for the sale of
contract holder shares is included in contract holder liabilities.
Fair value movements are also eliminated on consolidation.
De-recognition of staff share scheme shares
Shares issued to staff through the Metropolitan Holdings staff
share schemes since 1 January 2001 do not comply with the de-
recognition rules in IAS39 – Financial instruments: recognition
and measurement (revised) – and are therefore reversed on
consolidation of the staff share scheme trusts.
INSURANCE AND INVESTMENT CONTRACTS
The Metropolitan group issues contracts that transfer insurance
risk or fi nancial risk or both.
Classifi cation of contracts
Insurance contracts
Insurance contracts are those under which the group accepts
signifi cant insurance risk from another party (contract holder)
by agreeing to pay compensation if a specifi ed uncertain future
event (the insured event) adversely affects the contract holder.
Insurance risk is risk, other than fi nancial risk, transferred
from the holder of a contract to the issuer. Insurance risk is
signifi cant if an insured event could cause an insurer to pay
signifi cant additional benefi ts in any scenario.
Financial risk is the risk of a possible future change in one or
more of a specifi ed interest rate, fi nancial instrument price,
commodity price, foreign exchange rate, index of prices or
rates, credit rating or credit index or other variable, provided
that in the case of a non-fi nancial variable, the variable is not
specifi c to a party to the contract.
Investment contracts
Investment contracts are those where only fi nancial risk is
transferred.
GROUP ACCOUNTING POLICIES
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 117
Contracts with discretionary participation features
The group issues insurance and investment contracts containing
discretionary participation features (DPF). These contracts are
smoothed bonus and conventional with-profi t business. All
contracts with DPF are accounted for in the same manner as
insurance contracts.
Insurance contracts and investment contracts with
discretionary participation features
Measurement
The liabilities relating to insurance contracts and investment
contracts with DPF are measured in accordance with the fi nancial
soundness valuation (FSV) basis as set out in professional
guidance note (PGN)104 – Valuation of long-term insurers. The
FSV basis uses best estimate assumptions regarding future
experience together with compulsory and discretionary margins
for prudence and deferral of profi t emergence.
Assumptions used in the valuation basis are reviewed
periodically and any changes in estimates are refl ected in the
income statement as they occur. The underlying assumptions
are disclosed in note 20.
The valuation bases used for the major classes of contract
liabilities before the addition of the margins described under
the heading of compulsory and discretionary margins below,
were as follows:
> For group smoothed bonus business, the liability is taken
as the sum of the fund accounts, being the retrospective
accumulation of premiums net of charges and benefi t
payments at the declared bonus rates.
> For individual smoothed bonus business, the liability is taken
as the sum of the fund accounts less the present value of
future charges not required for risk benefi ts and expenses.
> For with-profi t annuity business, the liability is taken as the
discounted value of projected future benefi t payments and
expenses. Future bonuses are provided for at bonus rates
supported by the assumed future investment return.
> For the above three classes of business, bonus stabilisation
reserves (BSRs) are held in addition to the liabilities described
above. In the case of smoothed bonus business, the BSR
is equal to the difference between the market value of the
underlying assets and the fund accounts. In the case of with-
profi t annuity business the BSR is equal to the difference
between the market value of the underlying assets and the
discounted value of projected future benefi t payments and
expenses. BSRs are included in contract holder liabilities.
BSR is an actuarial term which constitutes either an asset or
liability in accounting terms.
> For conventional with-profi t business, the liability is taken
as the difference between the discounted value of future
expenses and benefi t payments (including all future bonuses)
and the discounted value of future premium receipts.
> For individual market-related business, the liability is taken as
the fair value of the underlying assets less the present value
of future charges not required for risk benefi ts and expenses.
> For group risk business, liabilities are held to refl ect claims
incurred but not reported (IBNR).
> For conventional non-profi t business, including non-profi t
annuities and guaranteed endowment business, the liability
is taken as the difference between the discounted value of
future expenses and benefi t payments and the discounted
value of future premium receipts.
> A number of contracts contain embedded derivatives in
the form of fi nancial options and investment guarantees.
Liabilities in respect of these derivatives are valued in
accordance with the guidelines in PGN110 – Allowance for
embedded investment derivatives. Stochastic models are
used to determine a best estimate of the time value as well
as the intrinsic value of these derivatives.
> Provision is made for the estimated cost of IBNR claims
for all relevant classes of business as at the reporting date.
IBNR provisions are calculated using run-off triangle methods
or else as percentages of premium, based on historical
experience.
The major classes of contract liabilities are disclosed in note
43.4.
Where contract holders, in respect of certain policies, are
entitled to a partial surrender, any partial surrender is treated as
a de-recognition of the contract holder liability.
Compulsory and discretionary margins
In the valuation of liabilities, provision is made for the explicit
compulsory margins as required by PGN104 – Valuation of long-
term insurers. The following additional discretionary margins
are held in order to release profi ts as they are earned:
> Future fees exceed expenses and compulsory margins on
employee benefi ts business. These excesses represent
discretionary margins and are released in line with work
done over the term of the policies.
> Part of the shareholder share of the asset charge on
individual linked, smoothed bonus and conventional with-
profi t business is not recognised until the period in which
the charge is levied.
> Future profi ts from the surrender of smoothed bonus
individual policies are not recognised until surrender occurs.
> Future profi ts from voluntary group risk business are not
recognised until they are earned.
> An additional liability is held to cover the risk that the mortality
and morbidity experience in respect of supplementary
benefi ts and direct marketing business may be worse than
the best estimate assumption. This margin is calculated by
adding a loading to the underlying mortality.
Embedded derivatives
The group does not separately measure embedded derivatives
that meet the defi nition of an insurance contract and the
entire contract is measured as an insurance contract. All other
embedded derivatives are separated and carried at fair value,
in accordance with PGN110, if they are not closely related
to the host insurance contract but meet the defi nition of a
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118 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
derivative. Embedded derivatives that are separated from the
host contract are carried at fair value through income.
Liability adequacy test
The FSV methodology meets the requirements of the liability
adequacy test in terms of IFRS 4 – Insurance contracts.
However, at each balance sheet date the adequacy of the
insurance liabilities is assessed to confi rm that the carrying
amount of the insurance liabilities, measured in accordance
with the FSV basis, less any related intangible asset, present
value of business acquired (VOBA), is adequate in relation to the
estimated future cash fl ows. Future cash fl ows are based on
best estimates in accordance with the FSV basis, but excluding
compulsory margins as described in PGN104 as well as all
discretionary margins. If the liabilities prove to be inadequate,
the defi ciency is recognised in the income statement.
Reinsurance contracts held
Contracts entered into by the group with reinsurers under
which the group is compensated for losses on one or more
contracts issued by the group and that meet the classifi cation
requirements for insurance contracts are classifi ed as
reinsurance contracts held. The benefi ts to which the group
is entitled under its reinsurance contracts held are recognised
as reinsurance assets. These assets consist of short-term
balances due from reinsurers (classifi ed as receivables), as well
as longer term receivables (classifi ed as reinsurance assets)
that are dependent on the expected claims and benefi ts
arising under the related reinsured insurance contracts.
Amounts recoverable from or due to reinsurers are measured
consistently with the amounts associated with the reinsured
insurance contracts and in accordance with the terms of each
contract.
Impairment of reinsurance assets
If there is objective evidence that the reinsurance asset is
impaired, the group reduces the carrying amount of the
reinsurance asset to its recoverable amount and recognises
that impairment loss in the income statement. The impairment
loss is calculated using the same method adopted for loans
and receivables.
Insurance premiums
Insurance premiums and annuity considerations receivable
from insurance contracts and investment contracts with DPF
are recognised as revenue in the income statement, gross of
commission and reinsurance premiums and excluding taxes
and levies. Where annual premiums are paid in instalments,
the outstanding balance of these premiums is recognised
when due.
Reinsurance premiums
Reinsurance premiums are recognised when due for
payment.
Insurance benefi ts and claims
Insurance benefi ts and claims relating to insurance contracts
and investment contracts with DPF include death, disability,
maturity, annuity and surrender payments and are recognised
in the income statement based on the estimated liability for
compensation owed to the contract holder. Death, disability
and surrender claims are recognised when incurred. These
claims also include claim events, which occurred before the
balance sheet date, but have not been fully processed. Claims
in the process of settlement are recognised in other payables in
the balance sheet. Maturity and annuity claims are recognised
when they are due for payment.
Reinsurance recoveries
Reinsurance recoveries are accounted for in the same period
as the related claim.
Acquisition costs
Acquisition costs, disclosed as sales remuneration, for
insurance contracts and investment contracts with DPF include
all commission and expenses directly related to commission
payable in the production of business and are expensed when
incurred. The FSV basis makes implicit allowance for the
recoupment of acquisition costs; therefore, no explicit deferred
acquisition cost asset is recognised in the balance sheet for
contracts valued on this basis.
Capitation contracts
The group enters into capitation contracts with medical
schemes. These contracts are short-term health benefi t
insurance contracts.
Measurement
The liability for capitation contracts comprises provisions for
the group’s estimate of the ultimate cost of settling all claims
incurred but not yet reported at the balance sheet date and
related internal and external claims handling expenses. Claims
outstanding are determined as accurately as possible based
on a number of factors, which include previous experience in
claims patterns, claims settlement patterns, changes in the
membership profi le according to gender and age, trends in
claims frequency, changes in the claims processing cycle, and
variations in the nature and average cost incurred per claim.
Estimated co-payments and payments from savings plan
accounts are deducted in calculating the outstanding claims
provision. The group does not discount its provision for
outstanding claims on the basis that claims must be submitted
within four months of the medical event.
Capitation premiums
Capitation premiums are received monthly, based on
participating client scheme membership. Capitation premium
income is earned from the date of attachment risk over the
indemnity period, on an accrual basis.
Capitation benefi ts incurred
Gross capitation benefi ts incurred are the total estimated cost of
all claims arising from the healthcare events that have occurred
in the year and for which the group is responsible, whether
or not reported by the end of the year. These claims include
participating client scheme member medical claims, including
hospital, primary care and chronic medication expenses.
GROUP ACCOUNTING POLICIES
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 119
Capitation benefi ts incurred comprise:
> Claims submitted and accrued for services rendered during
the year, net of recoveries from covered members for co-
payments and savings plan accounts, and
> Claims for services rendered during the previous year not
included in the outstanding claims provisions for that year,
net of balances in savings plan accounts and recoveries from
covered members for co-payments.
Investment contracts
Measurement
The group issues investment contracts without fi xed terms
and investment contracts with fi xed and guaranteed terms.
Investment contracts without fi xed terms are fi nancial liabilities
whose fair value is dependent on the fair value of underlying
fi nancial asset portfolios that can include derivatives and are
designated at inception as at fair value through income.
A fi nancial liability is recognised in the balance sheet when,
and only when, the group becomes party to the contractual
provisions of the instrument. Financial liabilities are initially
recognised at fair value.
For investment contracts, other than those with fi xed and
guaranteed terms, fair value is determined using the current
unit values that refl ect the fair value of the fi nancial assets
contained within the group’s unitised investment funds linked
to the related fi nancial liability, multiplied by the number of
units attributed to the contract holders at the valuation date.
The fair value of fi nancial liabilities is never less than the
amount payable on surrender, discounted for the required
notice period, where applicable.
For investment contracts with fi xed and guaranteed terms,
valuation techniques are used to establish the fair value at
inception and at each reporting date. Valuation techniques
include discounted cash fl ow analysis using current market
rates of interest and reference to other instruments that
are substantially the same. The underlying assumptions are
disclosed in note 20.
Deferred revenue liability
A deferred revenue liability is recognised in respect of front-
end fees, which are directly attributable to a contract, that are
charged for securing the investment management service
contract. The deferred revenue liability is then released to
revenue when the services are rendered over the expected
term of the contract on a straight-line basis.
Amounts received and claims incurred
Premiums received under investment contracts are recorded as
deposits to investment contract liabilities and claims incurred are
recorded as deductions from investment contract liabilities.
BORROWINGS
Convertible redeemable preference shares
At initial recognition, the fair value of the liability component of
the convertible redeemable preference shares is determined
by discounting the net present value of future cash fl ows, net
of transaction costs, at market rate at inception for a similar
instrument without the conversion option. This amount is
recorded as a liability on the amortised cost basis, using the
effective interest rate method, until extinguished on conversion of
the preference shares. The remainder of the proceeds is allocated
to the conversion option, which is recognised and included in
shareholder equity. The value of the equity component is not
changed in subsequent periods.
Subordinated redeemable debentures
These debentures are recognised initially at fair value, net of
transaction costs incurred. The debentures are subsequently
stated at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption value
is recognised in the income statement over the period of the
debentures, using the effective interest rate method.
DEFERRED INCOME TAX
Measurement
Deferred income tax is provided for in full, at current tax rates
and in terms of laws substantively enacted at the reporting
date in respect of temporary differences between the tax bases
of assets and liabilities and their carrying values for fi nancial
reporting purposes, using the liability method. However, if the
deferred income tax arises from initial recognition of an asset
or liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting
nor taxable profi t or loss, it is not accounted for. Deferred
tax assets, including tax on capital gains and secondary tax
on companies, are recognised for tax losses and unused tax
credits and are carried forward only to the extent that realisation
of the related future tax benefi t is probable.
Offsetting
Deferred tax assets and liabilities are set off when the income
tax relates to the same fi scal authority and where there is a
legal right of offset at settlement in the same taxable entity.
CURRENT TAXATION
Measurement
Current tax is provided for at the amount expected to be paid,
using the tax rates and in respect of laws that have been
substantively enacted at the reporting date. Retirement fund
tax, individual policyholder tax and corporate policyholder
tax is included in tax on contract holder funds in the income
statement.
Offsetting
Current tax assets and liabilities are set off when a legally
enforceable right exists and it is the intention to settle
on a net basis or to realise the asset and settle the liability
simultaneously.
Secondary tax on companies (STC)
South African resident companies are subject to a dual
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120 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
corporate tax system, one part of the tax being levied on
taxable income and the other, a secondary tax, on distributed
income. A company incurs STC charges on the declaration or
deemed declaration of dividends (as defi ned under tax law) to
its shareholders. STC is not a withholding tax on shareholders,
but a tax on companies.
The STC tax consequence of dividends is recognised as a
taxation charge in the income statement in the same period
that the related dividend is accrued as a liability. The dividend
declared is reduced by dividends received during the dividend
cycle. Where dividends declared exceed the dividends received
during a cycle, STC is payable at the current STC rate on the net
amount. Where dividends received exceed dividends declared
within a cycle, there is no liability to pay STC. The potential tax
benefi t related to excess dividends received is carried forward
to the next dividend cycle as an STC credit. Deferred tax assets
are recognised on unutilised STC credits to the extent that it is
probable that the group will declare future dividends to utilise
such STC credits.
LEASES
Finance leases
Leases of property and equipment where substantially all the
risks and rewards incidental to ownership have been transferred
to the group are classifi ed as fi nance leases.
Measurement
> Asset
Finance leases are capitalised at the lower of the fair value of
the leased asset or the present value of the minimum lease
payments at inception of the lease. The asset acquired is
depreciated over the shorter of the useful life of the asset or
the lease term.
> Liability
The rental obligation, net of fi nance charges, is included
as a liability. Each lease payment is apportioned between
fi nance charges and the reduction of the outstanding liability.
The fi nance charges or interest are charged to the income
statement over the lease term so as to produce a constant
periodic rate of interest on the liability remaining for each
period.
Operating leases
Leases where substantially all the risks and rewards incidental
to ownership have not been transferred to the group are
classifi ed as operating leases. Payments made are charged to
the income statement on a straight-line basis over the period
of the lease.
DIVIDENDS PAID AND RELATED SECONDARY TAX ON
COMPANIES
Dividends paid to shareholders of the company and the
related secondary tax on companies (STC) are recognised on
declaration date.
PROVISIONS
Provisions are recognised when, as a result of past events,
the group has a present legal or constructive obligation of
uncertain timing or amount, and it is probable that an outfl ow
of resources embodying economic benefi ts will be required to
settle the obligation, and a reliable estimate of the amount of
the obligation can be made.
Provisions are measured as the present value of management’s
best estimate of the expenditure required to settle the
obligation at the reporting date. The pre-tax discount rate
used to determine the present value refl ects current market
assessments of the time value of money. The increase in the
provision due to the passage of time is recognised as interest
expense.
Onerous contracts
The group recognises a provision for an onerous contract,
except on insurance contracts, when the expected benefi ts
to be derived from a contract are lower than the unavoidable
costs of meeting the obligations under the contract.
CONTINGENT LIABILITIES
Contingent liabilities are refl ected when the group has a possible
obligation arising from past events, the existence of which will
be confi rmed only by the occurrence or non-occurrence of one
or more uncertain future events not wholly within the control of
the group, or it is possible but not probable that an outfl ow of
resources will be required to settle an obligation, or the amount
of the obligation cannot be measured with suffi cient reliability.
EMPLOYEE BENEFITS
Pension and provident fund obligations
The group provides a defi ned benefi t pension scheme as well
as defi ned contribution pension and provident schemes. The
schemes are funded through payments to trustee-administered
funds, determined by periodic actuarial calculations.
> Defi ned contribution retirement funds
A defi ned contribution plan is a pension fund under which
the group pays fi xed contributions into a separate entity. The
group has no legal or constructive obligations to pay further
contributions if the fund does not hold suffi cient assets to
pay all employees the benefi ts relating to employee service
in the current and prior periods. The group contributes to
the defi ned contribution provident scheme, with employees
contributing to the defi ned contribution pension scheme.
A surplus available to the group is recognised as an asset in
the group’s balance sheet once the trustees of the scheme’s
application for formal recognition of the surplus amounts as
an employer surplus account in terms of section 15F of the
Pension Funds Second Amendment Act 39 of 2001 is approved
by the Financial Services Board. The group’s contributions
are charged to the income statement when incurred, except
those contributions subsidised by the surplus amount.
GROUP ACCOUNTING POLICIES
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 121
> Defi ned benefi t pension fund
A defi ned benefi t plan is a pension fund that defi nes the
amount of the pension benefi t that an employee will receive
on retirement, usually dependent on one or more factors
such as age, years of service and compensation.
The asset or liability recognised in the balance sheet in
respect of defi ned benefi t pension plans is the present value
of the defi ned benefi t obligation at the balance sheet date
less the fair value of plan assets, together with adjustments
for unrecognised actuarial gains or losses and past service
costs. Plan assets exclude any insurance contracts issued
by the group. The defi ned benefi t obligation is calculated
annually, using the projected unit credit method.
The present value of the obligation is determined by
discounting the estimated future cash outfl ows, using
interest rates of high-quality corporate bonds (where
there is no deep corporate bond market, the interest rate
of government bonds is used) that are denominated in the
currency in which the benefi ts will be paid and that have
terms to maturity that approximate the terms of the related
pension liability.
Actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions are
recognised as and when they arise.
Past-service costs are recognised immediately in income,
unless the changes to the pension fund are conditional on
the employees remaining in service for a specifi ed period
of time, known as the vesting period. In this case, the past-
service costs are amortised on a straight-line basis over the
vesting period.
Post-retirement medical aid obligations
The group provides a subsidy in respect of medical aid
contributions on behalf of pensioners who have retired from the
defi ned benefi t pension fund. An accounting provision is made
for the future medical aid contributions of these pensioners
and for the post-retirement medical aid contributions of the
in-service members of the defi ned benefi t pension fund. The
entitlement to these benefi ts is based on the employees
remaining in service up to retirement age. The expected costs
of these benefi ts are accrued over the period of employment,
using a methodology similar to that for defi ned benefi t pension
plans. These provisions are calculated using the projected unit
credit method, actuarial methodologies for the discounted
value of contributions and a best estimate of the expected
long-term investment return, as well as taking into account
estimated contribution increases. The actuarial gains and
losses are recognised as they arise. The increase or decrease
in the accounting provision for these costs is charged to the
income statement.
The group has no obligation for post-retirement medical benefi ts
in respect of other pensioners and in-service members.
Bonus plans
The group pays performance bonuses to senior employees
of the group and thirteenth cheque bonuses to certain staff
members. Performance bonuses are based on certain
objectives, taking into account past business experience and
future strategic issues, agreed upon by the board of directors
of the holding company. The group recognises a provision
where contractually obliged or where there is a past practice
that has created a constructive obligation.
Share-based compensation
The group operates equity-settled and cash-settled share-
based compensation plans.
Equity-settled compensation plans
The fair value of the employee services received in exchange for
the grant of the shares is recognised as an expense. The total
amount to be expensed over the vesting period is determined
by reference to the fair value of the shares granted, excluding
the impact of any non market-related vesting conditions. Non
market-related vesting conditions, such as the resignation
of employees and retrenchment of staff, are included in
assumptions regarding the number of shares expected to
vest, which are revised at every reporting date. The impact of
the revision of original estimates, if any, is recognised in the
income statement, and a corresponding adjustment is made
to equity.
The fair value of equity instruments granted is determined by
using standard option pricing models. The valuation technique
is consistent with generally accepted valuation methodologies
for pricing fi nancial instruments, and incorporates all factors and
assumptions that knowledgeable, willing market participants
would consider in setting the price of the equity instrument.
As the holding company grants the shares to certain subsidiary
employees, the carrying value of the investment in the
subsidiary is increased in the holding company’s fi nancial
statements, with a corresponding increase in the fair value
reserve. The subsidiary recognises the expense and an
equivalent increase in equity.
Cash-settled compensation plans
The group grants units to employees based on a basket of
performance criteria, whereby the employees become entitled
to a future cash payment equal to the twenty-day weighted
average share price of the holding company at the payment
date, which is after a three year period.
The group recognises the value of the services received
(expense), and the liability to pay for those services, as the
employees render service. The liability is measured, initially and
at each reporting date until settled, at the fair value appropriate
to the scheme, taking into account the terms and conditions
on which the rights were granted, and the extent to which the
employees have rendered service to date, excluding the impact
of any non market-related vesting conditions. Non market-related
vesting conditions are included in the assumptions regarding
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122 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
the number of units expected to vest. These assumptions are
revised at every reporting date. The impact of the revision of
original estimates, if any, is recognised in the income statement,
and a corresponding adjustment is made to the liability.
Compensation plans valued on the projected unit credit
method
Metropolitan Health staff share scheme
The group has recognised a liability with respect to its obligation
to purchase shares in Metropolitan Heath Corporate from the
company’s management. The liability has been measured
with reference to the selling price formula that will be used to
repurchase the shares from the employees, and any change is
charged to the income statement over the vesting period of
the shares.
International subsidiaries
The group has recognised a liability with respect to its obligation
to purchase shares in certain international subsidiaries from
the employees of those companies. The liability has been
measured with reference to the applicable embedded value
that will be used to repurchase the shares from the employees,
and any change is charged to the income statement over the
vesting period of the shares.
REVENUE RECOGNITION
Revenue comprises the fair value of services, net of value-
added tax, after eliminating revenue within the group. Revenue
is recognised as follows:
Fee income
Fees received on investment management service contracts
Fees charged for investment management services provided
in conjunction with an investment contract are recognised as
revenue as the services are provided. Initial fees that exceed
the level of recurring fees and relate to the future provision of
services are deferred and released on a straight-line basis over
the lives of the contracts.
Front-end fees
Front-end fees are deferred and released to revenue when the
services are rendered, over the expected term of the contract
on a straight-line basis.
Trust and fi duciary fees received
Fees received from asset management, retirement fund
administration and other related administration services offered
by the group are recognised in the accounting period in which
the services are rendered. Where initial fees are received,
these are deferred and recognised over the average period of
the contract. This period is reassessed annually.
Other fee income
Other fees received relate to administration charges for banking
services and the administration of health schemes and are
recognised in the period in which the services are rendered.
Scrip lending fees are based on rates determined per contract
and are recognised as the service is rendered.
Investment income
Interest income
Interest income is recognised in the income statement, using
the effective interest rate method and taking into account the
expected timing and amount of cash fl ows. Interest income
includes the amortisation of any discounts or premiums or other
difference between the initial carrying amount of an interest-
bearing instrument and its amount at maturity, calculated on an
effective interest rate method.
Dividend income
Dividends received are recognised when the right to receive
payment is established.
Rental income
Rental income is recognised on the straight-line method.
EXPENSE RECOGNITION
Finance costs
Finance costs are recognised in the income statement, using
the effective interest rate method, and taking into account
the expected timing and amount of cash fl ows. Finance costs
include the amortisation of any discounts or premiums or other
differences between the initial carrying amount of an interest-
bearing instrument and its amount at maturity, calculated on an
effective interest rate method.
GROUP ACCOUNTING POLICIES
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 123
PREPARATION OF FINANCIAL STATEMENTS
The consolidated fi nancial statements are prepared on the going
concern basis of accounting. The balance sheet is presented
based on liquidity. The income statement is presented on
the nature of expense method but sales remuneration
and distribution costs are shown on the face of the income
statement. In the cash fl ow statement, the cash fl ows from
operating activities are reported on the indirect method. The
consolidated fi nancial statements are presented in South
African rand, which is the functional currency of the parent.
APPLICATION OF ACCOUNTING POLICIES
Estimates and assumptions are an integral part of fi nancial
reporting and as such have an impact on the assets and
liabilities of the group. Management applies judgement in
determining best estimates of future experience. Judgements
are based on historical experience and management’s best
estimate expectations of future events, taking into account
changes experienced historically. Estimates and assumptions
are regularly updated to refl ect actual experience. Actual
experience in future fi nancial years can be materially different
from the current assumptions and judgements and could
require adjustments to the carrying values of the affected
assets and liabilities. The critical estimates and judgements
made in applying the group’s accounting policies are detailed in
the notes to the annual fi nancial statements, as listed below:
> Impairment of goodwill – note 1.1
> Valuation assumptions for both owner-occupied and
investment properties – notes 2 and 4
> Provision for impairment of loans and receivables – note 9
> Provision for deferred tax – note 11
> Valuation assumptions for the value of services provided
(equity-settled arrangements) – note 16
> Assumptions and estimates of capitation contracts –
note 18
> Assumptions and estimates of contract holder liabilities –
note 20
> Valuation assumptions for retirement benefi t obligations –
note 23.1
> Valuation assumptions for post-retirement medical benefi t
obligations – note 23.2(a)
> Valuation assumptions for the value of services provided –
notes 23.2(b) and 23.2(c)
> Valuation assumptions for fi nancial instruments – note 43
CRITERIA FOR DESIGNATION AS AT FAIR VALUE
THROUGH INCOME
For Metropolitan Life Ltd the investment in the property
subsidiaries, and for both the group and Metropolitan Life
Ltd, the equity securities, debt securities, funds on deposit
and other money market instruments, unit-linked investments
and investment contract liabilities, are designated upon initial
recognition as they are:
> held to match insurance and investment contract liabilities
that are linked to the changes in fair value of these assets,
thereby eliminating or signifi cantly reducing an accounting
mismatch that would otherwise arise from measuring assets
and liabilities or recognising the gains and losses on them on
different bases;
> managed, with their performance being evaluated on a
fair value basis, in accordance with portfolio mandates
that specify the investment strategy. Quarterly investment
reports are submitted to the investment committee, a
Metropolitan Holdings Limited board sub-committee, where
portfolio performance is evaluated against the mandates.
> investment contract liabilities whose fair value is dependent
on the fair value of underlying fi nancial assets, derivatives
and/or investment property are designated at inception as
at fair value through income. The group designates these
investment contracts to be measured at fair value through
income because it eliminates or signifi cantly reduces a
measurement or recognition inconsistency, referred to as
an accounting mismatch, that would otherwise arise from
measuring assets or liabilities or recognising the gains and
losses on them on different bases.
CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
124 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Management has determined the operating segments based
on the way the business is managed, and the reports used by
the executive committee to make strategic decisions refl ect
this.
The committee considers the business from both a geographic
and product perspective. The South African operations are
segregated into retail, corporate, asset management, health
and shareholders capital. The international companies,
Botswana, Ghana, Kenya, Lesotho, Mauritius, Namibia, Nigeria
and Swaziland, are all managed as one operating segment.
Although Metropolitan Card Operations (Pty) Ltd and
Metropolitan Capital group represent separate operating
segments, they do not meet the quantitative thresholds
required by IFRS 8 – Operating segments and are therefore
reported with shareholder capital.
The reportable operating segments derive their revenue as
follows:
> Retail (includes Union Life Ltd, Metropolitan Odyssey Ltd and
DirectFin Solutions (Pty) Ltd) – development, distribution and
administration of individual life investment and risk products
> Corporate (includes Metropolitan Retirement Administrators
(Pty) Ltd) – all aspects of retirement fund business including
investment, risk management, actuarial consulting and
administration
> Asset management – all aspects of active asset management,
collective investment management, property management
and administration, on behalf of all businesses within the
group and third parties
> Health – provision of medical aid administration services,
health risk management strategies, managed healthcare
and administration system franchising to both corporate and
retail healthcare schemes
> Shareholder capital – consists of the holding company,
Metropolitan Card Operations (Pty) Ltd, Metropolitan Capital
group and the shareholders excess in Metropolitan Life Ltd,
Metropolitan Odyssey Ltd and Union Life Ltd
> International – development, distribution and administration
of individual life investment and risk products as well as
retirement fund business.
Inter-segment fees are charged out at arm’s length.
The executive committee assesses the performance of the
operating segments based on diluted core headline earnings.
This measurement basis excludes the effect of net realised
and fair value gains, investment variances and basis changes.
For the operating segments, diluted core headline earnings
also exclude the effect of investment income, as this income
is managed on a group basis and is therefore included in the
shareholder capital segment.
This measurement includes the effect of fi nance costs on
issued debt but excludes that of the convertible redeemable
preference shares. Furthermore, treasury shares held on
behalf of contract holders are deemed to be issued and all
minority interests (not recognised for accounting purposes)
and investment returns are reinstated.
A reconciliation of diluted core headline earnings to earnings is
provided in note 37.
The amounts provided to the executive committee with
respect to total assets and liabilities are measured in a manner
consistent with that of the fi nancial statements. The assets
for both the retail and corporate segments are set equal to
the contract holder liabilities, as these liabilities are equally
matched with assets, plus the allocated economic capital and
capital of non-life subsidiaries included in these segments.
METROPOLITAN LIFE LIMITED
For Metropolitan Life Ltd the operating segments include retail,
corporate and shareholder capital.
2007 RESTATED
The group and Metropolitan Life Limited segment reports have
been restated for the derecognition of certain policy loans
and the related insurance and investment contract liabilities.
Segment benefi ts and claims were increased by R36 million
for the group and R40 million for Metropolitan Life Limited.
Insurance contract premiums, investment contract premiums
and fee income have also been restated, refer note 17.
The group adjustments have also been split out from the
shareholder capital segment.
SEGMENT REPORT
for the year ended 31 December 2008
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 125
GROUP 2008
RetailCorpo-
rate
Asset manage-
ment HealthInterna-
tional
Share-holder capital
Group adjust-ments Total
Rm Rm Rm Rm Rm Rm Rm RmTotal assets 35 541 26 763 178 418 4 675 3 919 (1 881) 69 613 Contract holder liabilities 30 788 22 912 2 3 532 57 234 RevenuePremiums received
Insurance business 6 827 1 719 867 9 413 Investment with DPF business 177 1 117 81 (4) 1 371 Capitation business 19 19 Reinsurance premiums (172) (197) (29) (398) Net insurance premiums 6 832 2 639 19 919 (4) 10 405 Investment business 1 098 521 87 1 706 Transfers – (256) (256) Segment premium income 7 930 2 904 19 1 006 (4) 11 855 Fee income 144 92 102 787 34 10 (18) 1 151 External fee income 144 92 220 787 34 10 – 1 287 Inter-segment fee income – – (118) – – – (18) (136)Investment income 1 726 1 797 12 17 287 567 (10) 4 396 Interest income included in investment income 1 009 1 045 12 17 207 423 (5) 2 708 Net realised and fair value (losses)/gains (4 396) (2 795) (5) – (588) (703) 3 (8 484)ExpensesPayments to contract holders
Insurance business 4 365 1 286 516 6 167 Investment with DPF business 64 2 081 75 (4) 2 216 Capitation business 16 16 Reinsurance claims (92) (210) (28) (330) Net insurance benefi ts and claims 4 337 3 157 16 563 (4) 8 069 Investment business 676 1 244 62 1 982 Transfers – (256) – (256) Segment benefi ts and claims 5 013 4 145 16 625 (4) 9 795 Total expenses 2 352 283 141 664 365 397 (278) 3 924 Depreciation, amortisation and
impairment expenses 48 14 2 46 34 184 (107) 221 Employee benefi t expenses 565 151 78 427 96 (48) – 1 269 Sales remuneration and distribution
costs 1 227 47 2 – 123 (1) (163) 1 235 Other expenses 511 71 58 191 110 78 (8) 1 011 Finance costs 1 – 1 – 2 184 – 188 Inter-segment expenses 63 42 – – 12 4 – 121 Income tax expenses (225) 37 26 51 30 32 (28) (77)Diluted core headline earnings 448 153 65 100 94 151 1 011 Operating profi t 612 211 92 142 107 (141) 1 023 Tax on operating profi t (164) (58) (27) (42) (13) 8 (296)Investment income 501 501 Tax on investment income (217) (217)New business premiums 4 200 1 189 203 5 592 Value of new business 211 20 39 84 17 371 Profi tability of new business as a % of APE 16.4 6.5 14.7 14.5
The recognition of a surplus and movement in employee benefi t assets of R75 million was a material non-cash item in the shareholder capital segment.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
126 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
GROUP 2007
RetailCorpo-
rate
Asset manage-
ment HealthInterna-
tional
Share-holder capital
Group adjust-ments Total
Rm Rm Rm Rm Rm Rm Rm RmTotal assets 37 228 28 171 241 322 4 980 5 691 (1 450) 75 183
Contract holder liabilities 32 266 25 650 1 3 866 61 783
RevenuePremiums received
Insurance business 5 302 1 467 844 7 613
Investment with DPF business 117 1 266 69 1 452
Capitation business 19 19
Reinsurance premiums (153) (187) (29) (369)
Net insurance premiums 5 266 2 546 19 884 8 715
Investment business 1 460 1 518 91 3 069
Transfers (117) (117)
Segment premium income 6 726 3 947 19 975 11 667
Fee income 100 50 48 683 12 10 903
External fee income 100 50 223 683 12 11 1 079
Inter-segment fee income (175) (1) (176)
Investment income 1 614 1 321 18 11 223 2 044 (1 618) 3 613
Interest income included in investment income 991 789 7 11 171 321 (47) 2 243
Net realised and fair value gains 1 942 1 432 19 – 277 616 121 4 407
ExpensesPayments to contract holders
Insurance business 3 706 959 537 5 202
Investment with DPF business 44 1 156 55 1 255
Capitation business 17 17
Reinsurance claims (84) (146) (12) (242)
Net insurance benefi ts and claims 3 666 1 969 17 580 6 232
Investment business 514 860 86 1 460
Transfers (117) (117)
Segment benefi ts and claims 4 180 2 712 17 666 7 575
Total expenses 1 861 261 146 587 285 249 3 389
Depreciation, amortisation and
impairment expenses 56 15 2 51 26 19 169
Employee benefi t expenses 504 124 77 381 71 (12) 1 145
Sales remuneration and distribution costs 973 43 3 – 108 – 1 127
Other expenses 328 79 63 155 78 71 774
Finance costs 1 – 2 171 174
Inter-segment expenses 126 51 (13) – 20 7 191
Income tax expenses 296 162 30 52 12 236 788
Diluted core headline earnings 460 176 70 64 110 123 1 003
Operating profi t 622 248 96 116 116 (109) 1 089
Tax on operating profi t (162) (72) (26) (52) (6) 7 (311)
Investment income 384 384
Tax on investment income (159) (159)
New business premiums 3 323 2 361 212 5 896
Value of new business 119 46 35 121 15 336
Profi tability of new business as a % of APE 11.3 10.9 14.6 11.4
The recognition of a surplus and movement in employee benefi t assets of R48 million was a material non-cash item in the shareholder capital segment.
SEGMENT REPORT
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 127
METROPOLITAN LIFE LTD 2008
Retail CorporateShareholder
capitalTotal
Rm Rm Rm RmTotal assets 35 212 26 724 596 62 532
Contract holder liabilities 30 611 22 912 53 523
Revenue
Premiums received
Insurance business 6 664 1 719 8 383 Investment with DPF business 175 1 117 1 292 Reinsurance premiums (173) (197) (370) Net insurance premiums 6 666 2 639 9 305 Investment business 1 094 521 1 615 Transfers – (256) (256) Segment premium income 7 760 2 904 10 664
Fee income 142 24 166
Investment income 1 706 1 795 426 3 927
Interest income included in investment income 991 1 043 344 2 378
Net realised and fair value losses (4 375) (2 795) (354) (7 524)
Expenses
Payments to contract holders net of reinsurance
Insurance business 4 287 1 286 5 573 Investment with DPF business 60 2 081 2 141 Reinsurance claims (92) (210) (302) Net insurance benefi ts and claims expense 4 255 3 157 7 412 Investment business 674 1 244 1 918 Transfers – (256) (256) Segment claims expense 4 929 4 145 9 074
Total expenses 2 203 249 (28) 2 424
Depreciation, amortisation and impairment 46 9 – 55 Employee benefi t expenses 537 109 (75) 571 Sales remuneration and distribution costs 1 101 47 – 1 148 Other expenses 519 84 – 603 Finance costs – – 47 47 Income tax (credits)/expenses (233) 39 (12) (206)
Diluted core headline earnings 441 155 253 849
Operating profi t 602 215 (30) 787 Tax on operating profi t (161) (60) 8 (213)Investment income 381 381 Tax on investment income (106) (106)
New business premiums 4 184 1 189 5 373
Value of new business 208 20 228 Profi tability of new business as a % of APE 16.1 6.4 14.2
The recognition of a surplus and movement in employee benefi t assets of R75 million was a material non-cash item in the shareholder capital segment.
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
128 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN LIFE LTD 2007
Retail CorporateShareholder
capital TotalRm Rm Rm Rm
Total assets 36 951 28 129 2 090 67 170
Contract holder liabilities 32 101 25 650 57 751
RevenuePremiums received
Insurance business 5 299 1 467 6 766
Investment with DPF business 117 1 266 1 383
Reinsurance premiums (153) (187) (340)
Net insurance premiums 5 263 2 546 7 809
Investment business 1 460 1 518 2 978
Transfers (117) (117)
Segment premium income 6 723 3 947 10 670
Fee income 93 7 100
Investment income 1 613 1 319 321 3 253
Interest income included in investment income 990 788 213 1 991
Net realised and fair value gains 1 942 1 432 396 3 770
ExpensesPayments to contract holders net of reinsurance
Insurance business 3 705 959 4 664
Investment with DPF business 44 1 156 1 200
Reinsurance claims (84) (146) (230)
Net insurance benefi ts and claims expense 3 665 1 969 5 634
Investment business 514 860 1 374
Transfers (117) (117)
Segment benefi ts and claims expense 4 179 2 712 6 891
Total expenses 1 985 262 (1) 2 246
Depreciation, amortisation and impairment 57 12 69
Employee benefi t expenses 504 97 (48) 553
Sales remuneration and distribution costs 974 43 1 017
Other expenses 471 53 524
Finance costs – – 47 47
Income tax expenses 296 162 83 541
Diluted core headline earnings 460 175 244 879
Operating profi t 622 247 (24) 845
Tax on operating profi t (162) (72) 7 (227)
Investment income 321 321
Tax on investment income (60) (60)
New business premiums 3 320 2 361 5 681
Value of new business 119 46 165
Profi tability of new business as a % of APE 11.3 10.9 11.2
The recognition of a surplus and movement in employee benefi t assets of R48 million was a material non-cash item in the shareholder capital segment.
SEGMENT REPORT
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 129
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmPremium income is split between single and recurring
premiums and reconciled to net insurance premiums in
the income statement.
Recurring premiums 7 472 6 913 6 451 6 081
Retail 4 689 4 288 4 527 4 288
Corporate 1 924 1 793 1 924 1 793
International 859 832
Single premiums 4 364 4 735 4 213 4 589
Retail 3 242 2 438 3 234 2 435
Corporate 975 2 154 979 2 154
International 147 143
Health – capitation premiums 19 19
Segment premium income 11 855 11 667 10 664 10 670
Adjusted for premiums received from investment
contract holders (1 706) (3 069) (1 615) (2 978)
Transfers between insurance, investment and investment
with DPF business 256 117 256 117
Net insurance premiums (note 26) 10 405 8 715 9 305 7 809
Payments to contract holders are reconciled to net
insurance benefi ts and claims in the income statement.
Retail 5 475 4 659 4 928 4 179
Death and disability claims 1 084 952 901 863
Maturity claims 1 710 1 417 1 581 1 270
Annuities 664 581 636 555
Withdrawal benefi ts 156 7 105 –
Surrenders 1 977 1 795 1 797 1 575
Re-insurance recoveries (116) (93) (92) (84)
Corporate 4 304 2 899 4 146 2 712
Death and disability claims 1 191 886 1 127 812
Maturity claims 211 136 200 123
Annuities 695 614 688 608
Withdrawal benefi ts 378 469 350 435
Terminations 508 106 473 94
Disinvestments 1 538 837 1 518 786
Re-insurance recoveries (217) (149) (210) (146)
Capitation contracts 16 17
Segment payments to contract holders 9 795 7 575 9 074 6 891
Adjusted for payments to investment contract holders (1 982) (1 460) (1 918) (1 374)
Transfers between insurance, investment and investment with
DPF business 256 117 256 117
Net insurance benefi ts and claims (note 30) 8 069 6 232 7 412 5 634
130 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm1 INTANGIBLE ASSETS
Goodwill 209 244 40 40
Value of in-force acquired 22 28 – –
Contractual customer relationships 1 2 – –
Deferred acquisition costs 55 47 38 32
Computer software 238 241 47 37
525 562 125 109
1.1 Goodwill
Cost 260 260 56 56
Accumulated impairment (51) (16) (16) (16)
209 244 40 40
Carrying amount at beginning 244 148 40 40
Additions – 96 – –
Impairment charges (35) – – –
Carrying amount at end 209 244 40 40
Cash generating unitsLife books 115 115 40 40
Health 38 38
Metropolitan Retirement Administrators (Pty) Ltd 1 1
DirectFin Solutions (Pty) Ltd 55 90
209 244 40 40
Critical accounting estimates and judgements
Goodwill is allocated to cash generating units (CGUs) for the purpose of impairment testing. The life book represents the CGUs of the three life insurance books of:
> Metropolitan Odyssey Ltd (R70 million) and Commercial Union Life Association of South Africa Ltd (R40 million), acquired in 1999 (included in the retail segment)
> Union Life Limited (R5 million), acquired in 2007 (included in the retail segment).
The recoverable value of these CGUs is determined based on value-in-use calculations. Future cash fl ows are discounted at a rate of return that makes allowance for the uncertain nature of the future cash fl ows. This calculation is particularly sensitive to the assumptions disclosed below.
2008 2007Risk discount rate 10.0 11.0
Income and expense infl ation rate 4.3 5.3
The CGUs of the health companies, acquired during 2002, are represented by:
> Qualsa Healthcare (Pty) Ltd (Qualsa)
> the membership administered with respect to Metropolitan Health Corporate (Pty) Ltd.
For the health companies, the recoverable value of CGUs is determined based on value-in-use calculations. These calculations use cash fl ow projections based on fi nancial budgets for 2009, approved by management. Cash fl ows beyond the fi nancial budgets available are extrapolated, using estimated growth rates of 4.3% (2007: 5.3%) for both income and expense infl ation rates and a cost of capital of 10% (2007: 11%).
For DirectFin Solutions (DFS), the recoverable value of this CGU is determined based on a value-in-use calculation. This calculation uses discounted cash fl ow projections of profi t for the company, with an estimated growth rate of 12.5% (2007: 15.0%) and a cost of capital of 13.0% (2007: 14.0%). The cash fl ow period was based on ten years.
Impairment
The goodwill relating to DFS was impaired by R35 million during the current year due to a decrease in the projected future cash fl ows. No goodwill was impaired during 2007.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 131
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm1.2 Value of in-force acquired
Acquisition of insurance and investment contracts
Cost 28 28
Accumulated amortisation (6) –
Carrying amount 22 28
Carrying amount at beginning 28 –
Business combinations 28
Amortisation charges (6) –
Carrying amount at end 22 28
1.3 Contractual customer relationships
Right to receive management fees for administering
retirement schemes
Cost 2 2
Accumulated amortisation (1) –
Carrying amount 1 2
Carrying amount at beginning 2 –
Business combinations 2
Amortisation charges (1) –
Carrying amount at end 1 2
1.4 Deferred acquisition costs
Cost 100 75 62 49
Accumulated amortisation and impairment (45) (28) (24) (17)
Carrying amount 55 47 38 32
Carrying amount at beginning 47 36 32 26
Additions 19 27 13 14
Impairment charges – (4) – (3)
Amortisation charges (12) (12) (7) (5)
Exchange differences 1 –
Carrying amount at end 55 47 38 32
1.5 Computer software
Acquired computer softwareCost 102 88 43 41
Accumulated amortisation and impairment (61) (50) (38) (37)
Carrying amount 41 38 5 4
Carrying amount at beginning 38 21 4 6
Additions 11 11 2 2
Business combinations 15
Amortisation charges (8) (9) (1) (4)
Carrying amount at end 41 38 5 4
132 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmInternally developed computer softwareCost 440 456 174 190
Accumulated amortisation and impairment (243) (253) (132) (157)
Carrying amount 197 203 42 33
Carrying amount at beginning 203 208 33 32
Additions 18 19 18 10
Disposals – (1) – –
Amortisation charges (25) (23) (9) (9)
Exchange differences 1 –
Carrying amount at end 197 203 42 33
Total computer software 238 241 47 37
Material internally developed computer software
Included in internally developed computer software is R127 million (2007: R138 million) relating to the software used by the Metropolitan Health Group with a remaining amortisation period of 11 years. For impairment testing purposes, the recoverable amount was determined based on value-in-use calculations. These calculations use cash fl ow projections based on fi nancial budgets for 2009, approved by management. Cash fl ows beyond the fi nancial budgets available are extrapolated, using estimated growth rates of 4.3% (2007: 5.3%) for both income and expense infl ation rates and a cost of capital of 10% (2007: 11%).
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm2 OWNER-OCCUPIED PROPERTIES
Fair value at beginning 592 375 412 325
Additions 1 1 1 1
Revaluations 36 99 20 94
Depreciation charge (13) (9) (9) (8)
Transfer from investment properties 112 –
Transfer from property and equipment 62 62 Business combinations 14
Fair value at end 678 592 486 412
Historical carrying value – cost model 398 350 256 199
A register of owner-occupied properties is available for inspection at the company’s registered offi ce.
Critical accounting estimates and judgements
All properties were internally valued using a discounted cash fl ow method based on contractual or market-related rent receivable. External valuations were obtained for certain properties, amounting to 34% (2007: 72%) of the portfolio for the group and 36% (2007: 52%) for Metropolitan Life Ltd.
Change in fair value
AssumptionBase
assumptionChange in
assumptionDecrease in assumption
Rm
Increase in assumption
RmCapitalisation rate 9.5% – 12% 1% 57 (46)
Discount rate 14% – 18.5% 1% 38 (36)
Capitalisation and discount rates (2007: 8% – 12% and 13.5% – 18% respectively) are determined using the Investment Property Databank South Africa rates. For valuation purposes, vacancy percentages, existing lease agreements and subsequent expected rentals are used to determine the fair value of each building.
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 133
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm3 PROPERTY AND EQUIPMENT
Property under developmentCarrying amount at beginning 60 – 60 – Capitalised expenditure 58 60 58 60 Transfer to owner-occupied properties (62) (62)Transfer to investment properties (56) (56)Cost at end – 60 – 60
EquipmentCost 698 642 413 417 Accumulated depreciation (512) (469) (323) (333)Carrying amount 186 173 90 84
Equipment comprises furniture and fi ttings, computer equipment and motor vehicles.
Carrying amount at beginning 173 166 84 79 Additions 92 75 41 35 Disposals (4) (3)Business combinations 7 Depreciation charges (75) (75) (32) (30)Carrying amount at end 186 173 90 84
Total property and equipment 186 233 90 144
Value of property and equipment held as security 1 11 – –
4 INVESTMENT PROPERTIESAt 31 December investment properties comprised the
following property types Industrial 136 119 136 119 Shopping malls 2 050 1 927 2 015 1 895 Offi ce buildings 685 519 805 631 Hotels 195 187 195 187 Other 51 50 51 50 Vacant land – 5 – 5 Property at valuation 3 117 2 807 3 202 2 887 Accelerated rental income (note 10) (86) (97) (85) (96)
3 031 2 710 3 117 2 791
Completed properties and vacant landFair value at beginning 2 710 2 492 2 791 2 464 Capitalised subsequent expenditure 33 27 33 27 Disposals – (59) – (59)Revaluations 221 546 226 543 Change in accelerated rental income 11 1 11 1 Transfer to owner-occupied properties (112) – Transfer from property and equipment 56 56 Transfer to non-current assets held for sale – (185) – (185)Fair value at end 3 031 2 710 3 117 2 791
A register of investment properties is available for inspection at the company’s registered offi ce.
Critical accounting estimates and judgements
All properties were internally valued using a discounted cash fl ow method based on contractual or market-related rent receivable. External valuations were obtained for certain properties, amounting to 44% (2007: 44%) of the portfolio.
134 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Change in fair value of properties
AssumptionBase
assumptionChange in
assumptionDecrease in assumption
Rm
Increase in assumption
RmCapitalisation rate 8.5% – 12% 1% 200 (165)Discount rate 12% – 15.5% 1% 132 (126)
Capitalisation and discount rates (2007: 8% – 12% and 13.5% – 18% respectively) are determined using the Investment Property Databank South Africa rates. For valuation purposes, vacancy percentages, existing lease agreements and subsequent expected rentals are used to determine the fair value of each building.
Metropolitan Life Ltd2008 2007
Rm Rm5 INTEREST IN SUBSIDIARY COMPANIES
Interest designated as at fair value through income Property subsidiaries 55 59 Collective investment schemes 1 186 942
1 241 1 001
The directors’ valuation of these investments is equal to fair value. Indebtedness by subsidiaries is disclosed in related party transactions in note 42.8. The property companies are all 100% held. The group and Metropolitan Life Ltd have control over certain collective investment schemes:
Participation rights in total issued units
Group Metropolitan Life Ltd Fund fair value2008 2007 2008 2007 2008 2007
% % % % Rm RmMetropolitan Absolute Provider Fund 100.0 96.4 100.0 96.4 58 59 MetAM Global Equity Fund 100.0 * 83.0 * 445 * Metropolitan Odyssey Balanced Fund of Funds 96.0 88.8 87.3 64.6 30 28 Metropolitan Industrial Fund 94.4 78.1 94.4 78.1 48 87 Metropolitan International Special Income Fund
of Funds 85.6 91.0 85.9 75.8 176 151 Interneuron Equity Fund 86.3 81.8 86.3 81.8 13 18 Metropolitan Property Income Fund 84.9 88.5 * * 200 223 Metropolitan International Fund of Funds 83.2 80.6 81.3 70.9 194 233 Metropolitan Resources Fund 82.1 85.2 82.1 83.3 74 166 Metropolitan Gilt Fund 79.1 89.7 73.8 89.7 193 110 Metropolitan Income Fund 77.5 75.3 77.5 75.3 49 49 Stewart Absolute Return Balanced Fund of Funds 64.2 68.5 64.2 68.5 108 84 AS Forum Aggressive Fund of Funds 69.4 54.7 69.4 54.7 68 40 Metropolitan High Dividend Fund 60.3 54.5 60.3 54.5 17 25 Metropolitan Income Plus Fund 59.6 * * * 125 * Contego B6 Balanced Fund * 62.8 * 62.8 * 52 Metropolitan Odyssey Conservative Fund
of Funds * 60.2 * * * 18 Metropolitan General Equity Fund * 51.7 * * * 649 Contego B5 Protected Equity Fund * 50.7 * 50.7 * 205
1 798 2 197 * Not included in subsidiaries for year
2007 restated
For Metropolitan Life Ltd, the net carrying value, being R942 million, of subsidiaries that are collective investment schemes was reallocated from unit-linked investments.
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 135
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm6 INVESTMENT IN ASSOCIATES
Equity accounted 49 15
Carried at fair value 614 390 642 463
663 405 642 463
Equity accounted associatesCarrying amount at beginning 15 5
Acquisitions 41 –
Share of (loss)/profi t (2) 5
Dividends paid (4) (2)
Other (1) 7
Carrying amount at end – non-current 49 15
The group acquired an effective 49.75% in Mettle Investments (Pty) Ltd, a company incorporated in South Africa, in July 2008 for R41 million.
The directors’ valuation of investment in associates is equal to the carrying value.
Group interest in associates – equity accounted
Assets Liabilities Revenue Earnings%* Rm Rm Rm Rm
2008Methealth Namibia Administrators (Pty) Ltd 37.7 10 (3) 29 4 C Shell 448 (Pty) Ltd 49.0 8 (7) – 1 Mettle Investments (Pty) Ltd 49.8 301 (270) 29 (7)
319 (280) 58 (2)
2007
Methealth Namibia Administrators (Pty) Ltd 37.2 8 (1) 25 5
C Shell 448 (Pty) Ltd 49.0 8 – 1 1
16 (1) 26 6
* Effective group percentage held
136 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
The group and Metropolitan Life Ltd have signifi cant infl uence over certain collective investment schemes incorporated in
South Africa.
Participation rights in total issued units
Group Metropolitan Life Ltd Fund fair value2008 2007 2008 2007 2008 2007
% % % % Rm RmContego B6 Balanced Fund 49.5 * 49.5 * 54 *
AS Forum Moderate Fund of Funds 38.2 35.4 38.2 35.3 107 92
Stewart Macro Equity Fund of Funds 37.4 49.0 37.4 49.0 98 162
Contego B5 Protected Equity Fund 35.9 * 35.9 * 294 *
Metropolitan General Equity Fund 35.2 * * * 327 *
Metropolitan Odyssey Conservative Fund
of Funds 34.3 * 34.3 29.5 24 18
AS Forum Cautious Fund of Funds 31.3 * 31.3 * 60 *
Nedgroup Investments Financial Fund 28.2 32.5 28.2 32.5 117 153
Contego Dynamic Income Fund 27.2 21.6 27.2 21.6 14 25
Nedgroup Investments Mining and Resources
Fund 26.2 23.3 26.2 23.2 507 782
Metropolitan Property Absolute Income Fund 24.5 28.1 24.5 28.1 8 12
NeFG Income Provider Fund of Funds 24.4 24.7 24.4 24.6 143 110
Sasfi n Income Fund of Funds 22.3 27.1 22.3 27.0 15 12
Cadiz Infl ation Plus Fund 22.3 * 22.3 * 57 *
RMB International Balanced Fund of Funds 21.6 * 21.6 * 184 *
PAM Balanced Fund * 23.2 * 23.2 * 33
Met Income Plus Fund * * 47.5 * 125 *
Metropolitan Property Income Fund * * 41.9 30.2 200 223
2 334 1 622
* Not included in associates for year
2007 restated
For Metropolitan Life Ltd, the net carrying value, being R463 million, of associated investments in collective investment schemes was reallocated from unit-linked investments.
Group2008 2007
Rm Rm7 INVESTMENT IN JOINT VENTURES
Carrying amount at beginning 61 –
Acquisitions 66
Share of loss (26) –
Impairment charge – (5)
Carrying amount at end 35 61
The group acquired 50% joint control of UBA Metropolitan Life Insurance Ltd in Nigeria in December 2007. The group’s
interest in the assets and liabilities of the joint venture at 31 December 2008 is R68 million and R30 million (2007: R70 million
and R15 million), respectively. The group’s interest in the revenue and loss of the joint venture for the year under review is
R19 million and R26 million (2007: R15 million and R7 million), respectively. Metropolitan International (Pty) Ltd has a right
to acquire an additional 1% in UBA Metropolitan Life Insurance Ltd from 1 January 2009. The joint venture is included in the
international segment.
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 137
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm8 FINANCIAL INSTRUMENTS
8.1 Designated as at fair value through income
Equity securities 21 167 31 989 18 240 27 273
Debt securities 15 968 14 268 14 576 13 119
Funds on deposit and other money market instruments 3 409 2 150 3 074 1 927
Unit-linked investments 10 251 9 857 9 380 8 986
50 795 58 264 45 270 51 305
Open ended 27 776 41 846 25 959 36 259
Current 6 268 2 936 5 518 2 641
Non-current 16 751 13 482 13 793 12 405
50 795 58 264 45 270 51 305
General
The open ended category includes fi nancial instruments with no fi xed maturity date.For risk disclosure and maturity analysis of the above fi nancial instruments, refer note 43.A schedule of equity securities is available for inspection at the company’s registered offi ce.The director’s value of unlisted equity securities is equal to their fair value.
2007 restated
For Metropolitan Life Ltd, R942 million of unit-linked investments was reallocated to interest in subsidiaries and R463 million was reallocated to investment in associates.
8.2 Scrip lending (included in note 8.1)
Carrying value of securities on loan
Local listed equity securities 1 714 6 172 1 714 6 172
Local listed government stock 583 539 583 539
2 297 6 711 2 297 6 711
Scrip lending policy
The group is authorised to conduct lending activities as lender in respect of local listed equity securities and listed government stock to appropriately accredited institutions. Collateral is maintained at a risk-adjusted level of at least 100% of scrip lent. In general, the lender retains risk and reward of securities lent. The lender fully participates in the market movement of the investment and receives any dividend payments and interest.
Collateral
Collateral to the value of R2 702 million (2007: R8 582 million) was obtained. The group monitors collateral levels on a monthly basis and the status of collateral coverage is reported to the investment committee on a quarterly basis. This collateral can only be used as security for the scrip lending arrangements and in the event of default by the borrowers. The borrowers retain all rights to income attached to the pledged collateral.
8.3 Held for trading assets
Local listed equity securities – – 169 398
Derivative fi nancial instruments 1 764 850 1 708 861
1 764 850 1 877 1 259
Current 129 252 242 661
Non-current 1 635 598 1 635 598
1 764 850 1 877 1 259
Local listed equity securities
Metropolitan Life Ltd repurchased ordinary shares of Metropolitan Holdings Ltd through the open market during 2007 and 2008. Shareholder approval for Metropolitan Holdings Ltd to repurchase the shares at cost was granted at the annual general meeting in May 2008. These shares are reversed on consolidation.
138 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmHeld for trading liabilitiesDerivative fi nancial instruments (1 498) (858) (1 490) (858)
Current (42) (191) (42) (191)
Non-current (1 456) (667) (1 448) (667)
(1 498) (858) (1 490) (858)
Derivative fi nancial instruments consist of the following:
Group Metropolitan Life Ltd
NotionalFair value
assetFair value
liability NotionalFair value
assetFair value
liabilityRm Rm Rm Rm Rm Rm
2008OTC instruments
Equity index options 17 204 (200) 17 204 (200) Equity index futures (37) – (8) (201) 33 – Interest rate swaps 18 987 1 471 (1 290) 18 987 1 471 (1 290)Exchange traded options
Equity index options 493 – – 491 – – Equity index warrants 89 89 – – – – Equity index futures 3 – – 3 – –
1 764 (1 498) 1 708 (1 490)
2007
OTC instruments
Equity index options 78 632 (524) 78 632 (524)
Equity index futures – – – (410) 11 –
Interest rate swaps 16 772 218 (334) 16 772 218 (334)
Exchange traded options
Equity index options 192 – – 147 – –
Equity index futures (5) – – (6) – –
850 (858) 861 (858)
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm8.4 Available-for-sale
Local listed equity securities – 1 – –
Unit-linked investments 5 6 – –
5 7 – –
Local listed equity securities
Metropolitan Asset Managers Ltd received listed equity securities during 2007 which could not be designated as at fair value through income. These were sold during 2008.
Unit-linked investments
The group provides seed capital to enable Metropolitan Collective Investments Ltd to establish new collective investment schemes.
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 139
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm9 LOANS AND RECEIVABLES
Accounts receivable 365 451 207 236 Loans 763 742 663 672 Loans to related parties Loans to group companies 58 60 Empowerment partners 46 44 Other staff loans 29 28 27 26 Loans to staff share scheme trusts (note 16) 80 120 Loans due from associates 28 Preference shares in associates 36 Strategic loans 1 2 Less provision for impairment on related party
loans (12) (12) Due from agents, brokers and intermediaries 150 142 130 125 Less provision for impairment (100) (102) (88) (91) Banking services – loans advanced 124 163 Less provision for impairment (72) (24) Policy loans 533 501 456 432
1 128 1 193 870 908
Current 640 815 522 576 Non-current 488 378 348 332
1 128 1 193 870 908
Reconciliation of provision accountsBalance at beginning 138 108 91 79 Movement in provision 46 30 (3) 12 Balance at end 184 138 88 91
2007 restated
Certain policy loans amounting to R175 million for the group and R134 million for Metropolitan Life Ltd which were previously included in loans and receivables were derecognised. The related insurance (R134 million) and investment contracts designated at fair value through income (R41 million) were also derecognised. Refer to notes 17 and 19.
Terms and conditions of material loans
> Loans to group companies are interest free, repayable on demand, and are unsecured.
> A loan to empowerment partners of R34 million (2007: R32 million) is secured by Metropolitan Life (Namibia) Ltd shares, with a repayment date of 30 November 2012, on which interest is charged at 1% less than the prime interest rate of South Africa.
> Staff loans consist of personal computer and micro loans, with a repayment date of fi ve years and interest rates ranging between 13% and 20% (2007: 11% and 19%) that are unsecured, and bonds, with a repayment date of between 5 and 30 years, an interest rate of 15% (2007: 14%), that are secured by the property.
> Loans to the staff share scheme trusts are secured by the Metropolitan Holdings Ltd shares issued to participants. The loan to the staff share purchase scheme trust is interest-bearing at the offi cial tax interest rate, 13.0% (2007: 10.9%), but the loan to the staff share incentive scheme trust is interest free. These loans are repayable between fi ve and ten years.
> Loans due from associates include a loan due from Mettle Investments Ltd of R22 million which earns interest at the prime interest rate of South Africa and has a repayment date of 15 July 2013.
> Preference shares to associates include a preference share investment in Mettle Investments Ltd of R30 million. Preference dividends are payable at 12% for year 1, 15% for year 2 and 18% thereafter. The redemption date is 31 July 2013.
> Loans advanced by Metropolitan Card Operations (Pty) Ltd attract interest rates ranging between 20% and 41% (2007: 18.5% and 39.5%), are repayable within periods ranging from 12 to 48 months (2007: 12 to 24 months) and are unsecured.
> Policy loans are limited to and secured by the underlying value of the unpaid policy benefi ts. These loans attract interest at rates greater than the current prime rate but limited to 19% (2007: 17.5%) and have no determinable repayment period. Policy loans are tested for impairment against the surrender value of the policy.
Impairment of loans
> A loan of R12 million to an empowerment partner was impaired in prior years.
> Loans advanced have been impaired by R48 million (2007: R24 million) and the impairment is mainly due to default payments by the borrowers.
> Impairment of loans to intermediaries is mainly due to intermediaries moving to out-of-service status and unproductive agent accounts.
140 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm10 INSURANCE AND OTHER RECEIVABLES
Receivables arising from insurance contracts,
investment contracts with DPF and reinsurance
contracts 1 421 1 379 1 213 1 191 Insurance contract holders 1 276 1 261 1 075 1 084 Investment contract holders with DPF 50 35 42 33 Less provision for impairment (41) (33) (35) (28) Due from reinsurers 136 116 131 102 Accelerated rental income (note 4) 86 97 85 96
1 507 1 476 1 298 1 287
Current 1 425 1 379 1 216 1 191 Non-current 82 97 82 96
1 507 1 476 1 298 1 287
Impairment of receivables arising from insurance contracts and investment contracts with DPF
Impairment is mainly due to expected default in payments.
11 DEFERRED INCOME TAXDeferred tax asset 12 15 – – Deferred tax liability (127) (492) (66) (371)
(115) (477) (66) (371)
Deferred tax asset 103 133 87 111 Accruals and provisions 6 12 – – Revaluations 19 – 18 – Tax losses 76 121 69 111 STC credits 2 – – – Deferred tax liability (218) (610) (153) (482) Prepayments (1) (4) – – Accruals and provisions (17) (32) (7) (32) Business combinations – (12) – – Revaluations (200) (562) (146) (450)
(115) (477) (66) (371)
Current (28) (72) (10) (56)Non-current (87) (405) (56) (315)
(115) (477) (66) (371)
Movement in deferred taxBalance at beginning (477) (289) (371) (199)Charge to the income statement 368 (163) 308 (147) Change in tax rate 4 – 3 – Accruals and provisions 22 (29) 24 (32) Business combinations (12) Prepayments – (1) – – Revaluations 386 (229) 323 (226) Tax losses (36) 108 (42) 111 STC credit (8)Charge to equity (6) (25) (3) (25) Balance at end (115) (477) (66) (371)
Deferred tax asset on available tax losses
and credits not provided for 57 53 – –
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 141
Creation of deferred tax assets
Tax losses have been provided for as deferred tax assets where at year-end there was certainty as to their recoverability.
Critical accounting estimates and judgements
Deferred tax on the revaluation of owner-occupied properties has been calculated at the normal South African income tax rate applicable at year-end. If the capital gains tax rate had been used on these properties, the deferred tax raised would have been R33 million (2007: R54 million) lower.
Deferred tax on the revaluation of investment properties has been calculated using a combination of the normal income tax rate and the capital gains tax rate applicable at year-end as the carrying values of certain properties will be recovered through use and through disposal for others. If the normal income tax rate had been used on all these properties, the deferred tax raised would have been R31 million (2007: R64 million) higher.
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm12 REINSURANCE CONTRACTS
Reinsurers’ share of insurance liabilities 212 179 162 113
Balance at beginning 179 217 113 161
Movement charged to income statement 27 (36) 49 (48)
Net exchange differences 6 (2)
Balance at end 212 179 162 113
Current 159 278 131 263
Non-current 53 (99) 31 (150)
212 179 162 113
Amounts due from reinsurers in respect of claims incurred by the group and Metropolitan Life Ltd on contracts that are reinsured, are included in insurance and other receivables. Refer note 10.
13 CASH AND CASH EQUIVALENTS
Bank and other cash balances 728 690 533 333
Funds on deposit and other money market
instruments – maturity < 90 days 8 082 7 584 6 573 6 691
8 810 8 274 7 106 7 024
Restricted balances – 4 – –
14 NON-CURRENT ASSETS HELD FOR SALE
In 2007 non-current assets held for sale consisted of investment property only; refer note 4. No income or expenses were
recognised directly in equity relating to the assets held for sale.
These buildings were sold in the normal course of business. The competition commission approved the sale in
December 2007, but the transfer of ownership was only concluded during 2008. These properties are valued in terms of IAS
40 – Investment properties – and the fair value gains or losses for December 2007 are not material. These properties are in
the retail and corporate segments.
142 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Number of shares
Share premium
Number of shares
Share premium
2008 2008 2007 2007Million Rm Million Rm
15 SHARE CAPITAL
Ordinary shares in issue – 1 January 582 33 626 33
Shares repurchased and cancelled (26) – (44) –
Holding company share capital at 31 December 556 33 582 33
Group consolidation adjustments
Treasury shares held on behalf of contract holders (1) (10) (1) (11)
Staff share scheme shares (17) (91) (26) (122)
Treasury shares held by subsidiary (16) – (26) –
Treasury shares held by subsidiary – cancelled 119 119
Ordinary shares in issue at 31 December 522 51 529 19
Authorised share capital of Metropolitan Holdings Limited
The company has authorised share capital of 1 billion ordinary shares of 0.0001 cents each and 129 million variable rate
cumulative redeemable convertible preference shares of 0.0001 cents each.
Preference shares
In terms of IAS 32 – Financial instruments: presentation, the variable rate redeemable convertible preference shares are
compound instruments with a debt and equity component. The equity component has been calculated to be negligible
while the debt portion is disclosed in note 22.1.
Shares repurchased and cancelled
Details of the 26 million (2007: 44 million) shares repurchased and cancelled in the open market are disclosed in the
directors’ report.
Authorised and issued share capital of Metropolitan Life Limited
The company has authorised share capital of 1 billion ordinary shares of 43.1 cents each and issued share capital
of 728 million ordinary shares of 43.1 cents each, amounting to share capital of R314 million with share premium of
R310 million, totalling R624 million. There has been no change to the share capital since 1 January 2007.
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm16 OTHER RESERVES
Land and building revaluation reserve 182 161 171 158
Foreign currency translation reserve 1 (11)
Fair value reserve 53 50 32 27
Common control reserve (257) (257)
Non-distributable reserve 296 295 295 295
532 495 241 223
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 143
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmMovements in other reserves
(a) Land and building revaluation reserveBalance at beginning 161 96 158 94
Earnings directly attributable to retained earnings 24 65 15 64
Revaluations 33 95 18 91
Depreciation charged on revalued amounts – (3) (2)
Deferred tax on revaluation and depreciation (6) (25) (3) (25)
Shadow accounting (3) (2) – –
Transferred from retained earnings (3) – (2) –
Balance at end 182 161 171 158
(b) Foreign currency translation reserveBalance at beginning (11) (16)
Currency translation differences 12 5
Balance at end 1 (11)
(c) Fair value reserveAvailable-for-sale assets
Balance at beginning 1 1 – 42
Gains transferred to net realised gains (1) – – (49)
Deferred tax on realisation – – – 7
Balance at end – 1 – –
Equity-settled share-based payment arrangements
Balance at beginning 49 37 27 23
Employee share schemes – value of services provided 4 12 5 4
Balance at end 53 49 32 27
Total fair value reserve 53 50 32 27
Equity-settled share-based payment arrangements
Share purchase scheme for senior staff
Ordinary but unlisted shares are allocated to participants and are fi nanced by an interest-bearing loan from the trust,
currently at 13.0% (2007: 10.9%) per annum. A dividend is declared each year, which covers the interest payable by the
participants. The shares are pledged to the trust as security for the loan. After fi ve years from the issue date the shares can,
on repayment of the outstanding loan balance, be released to the participants and listed on the JSE Ltd.
In terms of the trust deed, the trust is fi nanced by a loan from Metropolitan Life Ltd on terms similar to those on which it
grants fi nance to the participants.
144 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Shares available for issue
Shares held by participants
Number of shares (million) 2008 2007 2008 2007At beginning 76 79 17 36
Shares issued to participants
Shares released – (9) (18)
Shares bought back (2) (3) – (1)
At end 74 76 8 17
Of the shares held by participants, 5 million shares with a loan value of R18 million are currently available for release and an additional 1 million shares with a loan value of R6 million will become available for release during 2009. The range of issue prices relating to the shares outstanding is R5.25 to R10.92 (2007: R5.25 to R10.92).
Share incentive scheme for other staff
Ordinary listed shares are allocated to participants and are fi nanced by an interest-free loan from the trust. Participants
receive the same dividend as ordinary shareholders. After fi ve years from the issue date the shares can, on repayment of
the outstanding loan balance, be released from the trust. The participants have an option to put the shares back to the trust
at a price equal to the original issue price.
In terms of the trust deed, the trust is fi nanced by a loan from Metropolitan Life Ltd on terms similar to those on which it
grants fi nance to the participants.
Shares available for issue
Shares held by participants
Number of shares (million) 2008 2007 2008 2007At beginning 37 39 2 4
Shares released – – (1) (1)
Shares bought back (1) (2) – (1)
At end 36 37 1 2
The range of issue prices relating to the shares outstanding is R5.25 to R8.05 (2007: R5.25 to R8.88).
Metropolitan Life Ltd2008 2007
Rm RmLoans grantedLoan from Metropolitan Life Ltd to the purchase scheme trust 73 104
Loan from Metropolitan Life Ltd to the incentive scheme trust 7 16
Loan from purchase scheme trust to participants 44 90
Loan from incentive scheme trust to participants 1 6
Metropolitan Holdings Ltd guarantees the recoverability of both loans from Metropolitan Life Ltd.
Both the trusts have been consolidated on a group level and shares issued to participants since 7 November 2000 have been reversed on consolidation. The value of the shares, R91 million (2007: R122 million), has been reversed and the effect on the number of shares can be seen in the stock exchange performance table.
Critical accounting estimates and judgements
The fair value of the services provided is determined, at inception, using a modifi ed binomial tree (Carpenter 1998) model. The signifi cant assumptions used in the model are:
> risk-free rates ranging from 7.4% to 7.8% (2007: 7.4% to 7.8%)
> a continuously compounded dividend yield of 6.3% (2007: 6.3%)
> volatility of 27.0% (2007: 27.0%) calculated using the historical volatility of the Metropolitan Holdings Ltd listed share
> forfeiture rates of 6% and 9% (2007: 6% and 9%) for the staff purchase scheme and the staff incentive scheme respectively
> fair value per share of shares outstanding ranges from R1.58 to R2.57 (2007: R1.58 to R2.57).
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 145
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm(d) Common control reserve
Balance at beginning (257) (257)
Balance at end (257) (257)
This reserve refl ects the difference between the purchase consideration and the book value of the assets and liabilities of a common control business combination. Metropolitan Life Ltd acquired the long-term insurance business of Metropolitan Odyssey Ltd with effect from 1 January 2006.
(e) Non-distributable reserveBalance at beginning 295 295 295 295
Movement 1 – – –
Balance at end 296 295 295 295
On 1 January 2004 Metropolitan Life Ltd integrated the Commercial Union insurance book previously acquired and removed the 90:10 licence. This process resulted in a transfer through the income statement of R295 million to this non-distributable reserve, which may not be distributed to shareholders for a period of 10 years in terms of the agreement.
17 INSURANCE CONTRACTS
Long-term insurance contracts – gross 32 023 33 397 29 301 30 474
Less: recovery from reinsurers (note 12) (212) (179) (162) (113)
Long-term insurance contracts – net 31 811 33 218 29 139 30 361
Movement in long-term insurance contract liabilities
Balance at beginning 33 397 30 696 30 474 28 161
Non-linked business reclassifi ed (note 19) 9 – – –
Contract holder movements (note 31) (1 458) 3 523 (1 329) 3 186
Premiums received (note 26) 9 414 7 613 8 383 6 766
Investment return (2 184) 3 439 (2 010) 3 123
Contract benefi t payments (note 30) (6 168) (5 202) (5 573) (4 664)
Expenses for marketing and administration (2 659) (2 103) (2 276) (1 815)
Current income tax 139 (224) 147 (224)
Business combinations 145
Net exchange differences 65 (23)
Shareholder movements (note 31) 10 (944) 156 (873)
Balance at end 32 023 33 397 29 301 30 474
Reinsurance movements
Premiums received and contract benefi t payments shown in this note are gross of reinsurance.
2007 restated
> Certain policy loans R134 million (R94 million opening balance and R40 million contract benefi t payments) for the group and Metropolitan Life Ltd previously recognised as loans and receivables were derecognised with the related insurance contract liabilities. Refer to notes 9 and 19.
> Certain investment contracts were accounted for as insurance business in 2007. Premium income and operating profi t on insurance contracts were therefore reduced by R77 million with a corresponding increase in fee income from investment contracts.
146 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm18 CAPITATION CONTRACTS
Movement in outstanding claims
Balance at beginning 1 2
Capitation claims paid in previous year (1) (1)
Increase in claims incurred but not reported (IBNR) 2 –
Balance at end 2 1
Critical judgements and accounting estimates
The assumptions that have the greatest effect on the measurement of the liability are the expected percentages of claims settled after each of the fi rst four months of the claims run-off period, before the claims turn stale. The percentages used as assumptions vary from scheme to scheme. Sensitivity analysis of the impact of these percentages on the resultant claims provision indicates variances less than 10% (which results in > 99% confi dence) and have an immaterial impact on the group results.
The group believes that the liability for claims reported in the balance sheet is adequate. However, it recognises that the estimation process is based upon certain variables and assumptions that could differ when claims arise.
19 INVESTMENT CONTRACTS
Investment contracts with DPF 11 278 14 273 10 781 13 682
Investment contracts designated as at fair value
through income 13 931 14 112 13 441 13 595
Total investment contract liability 25 209 28 385 24 222 27 277
Movement in investment contracts with DPF
Balance at beginning 14 273 12 695 13 682 12 178
Non-linked business reclassifi ed (note 17) (9) – – –
Contract holder movements (note 31) (2 942) 1 664 (2 873) 1 590
Premiums received (note 26) 1 370 1 452 1 292 1 383
Investment return (1 952) 1 620 (1 882) 1 554
Contract benefi t payments (note 30) (2 215) (1 255) (2 141) (1 200)
Expenses for marketing and administration (145) (153) (142) (147)
Net exchange differences 4 (1)
Business combinations 17
Shareholder movements (note 31) (48) (102) (28) (86)
Balance at end 11 278 14 273 10 781 13 682
2007 restated
Certain policy loans of R41 million for the group previously recognised as loans and receivables were derecognised with the related investment contracts designated as at fair value through income. Refer to notes 9 and 17.
20 CONTRACT HOLDER LIABILITIES – ASSUMPTIONS AND ESTIMATES
The valuation of contract holder liabilities is a function of methodology and assumptions. The methodology is described
in the accounting policies on pages 116 to 119. The assumptions used are best-estimate assumptions, with the addition
of explicit compulsory margins required by PGN104 – Valuation of long-term insurers – and the discretionary margins
listed on page 117 of the accounting policies. The excess at 31 December 2008 would have been R1 756 million (2007:
R2 151 million) higher for the group and R1 555 million (2007: R1 905 million) higher for Metropolitan Life Ltd without the
discretionary margins.
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 147
The process used to decide on best-estimate assumptions is described below:
Mortality
> Individual smoothed bonus and non-profi t business: Mortality assumptions are based on internal investigations into
mortality experience. These are carried out annually, with the most recent investigation being in respect of the 2007
fi nancial year. Comparisons of mortality claims and charges are done quarterly, the most recent such investigation being
in respect of the quarter ended December 2008.
> Conventional with-profi t business (excluding home service funeral business): Mortality assumptions are based on standard
tables (principally SA56/62), modifi ed according to internal experience. Annual mortality investigations are carried out,
with the most recent investigation being in respect of the year to June 2007.
> Home service funeral business: Mortality assumptions are based on internal investigations into mortality experience,
with the most recent investigation being in respect of the period 2003 to 2006.
> Annuity business: Mortality assumptions are based on the PA90 standard mortality table, less two years in age, with an
allowance for mortality improvement of 0.5% per annum. The most recent investigation is in respect of the period 2003
to 2007.
> Allowance for worsening mortality as a result of AIDS has been made using the industry standard ASSA2000 model,
calibrated to refl ect the contract holder population being modelled.
Morbidity
> Internal morbidity and accident investigations are done annually, the most recent being in respect of the period January
to September 2008.
Persistency
> Lapse and surrender assumptions are based on past experience. When appropriate, account is also taken of expected
future trends.
> Lapse investigations are performed quarterly in respect of grouped individual business, the most recent being in respect
of the quarter ended September 2008, and quarterly in respect of other individual business, the most recent being in
respect of the quarter ended September 2008.
> Surrender investigations are performed annually, the most recent being in respect of the quarter ended September
2008.
> Experience is analysed by product type as well as policy duration.
> Lapses at inception for individual business were 14.0% (2007: 14.8%) per annum.
Expenses
> The actual expense for 2008 is taken as an appropriate expense base.
> Provision for future renewal expenses starts at a level consistent with the budgeted experience for the 2008 fi nancial year
and allows for escalation at the assumed expense infl ation rate of 4.3% (2007: 5.3%).
> The allocation of total expenses between initial and renewal is based on a functional cost analysis for both grouped and
individual business.
> Expenses of R10 million (2007: R33 million) for the group and Metropolitan Life Ltd were excluded from the analysis, due
to their non-recurring nature.
Investment returns
> Market-related information is used to derive assumptions in respect of investment returns, discount rates used in
calculating contract holder liabilities and renewal expense infl ation.
> These assumptions take into account the notional long-term asset mix backing each liability type and are suitably adjusted
for tax and investment expenses.
> For non-profi t annuity business, yields of appropriate duration from the swap yield curve of the Bond Exchange of South
Africa as at valuation date are used to discount expected cash fl ows at each duration.
148 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
> For guaranteed endowment business, the discount rates used are the yields to maturity of the assets backing each
policy.
> For other business, a single gilt rate from the BEASSA Government Bond yield curve is used, corresponding to the
average discounted mean term of the contract liabilities, and rounded to the nearest quarter of a percent.
> Investment returns for other asset classes are set as follows:
– Equity rate: gilt rate + 3.5% (2007: + 2.0%)
– Property rate: gilt rate + 1% (2007: + 2.0%)
– Cash rate: gilt rate – 1.0% (2007: – 2.0%)
> The assumed renewal expense infl ation rate is based on the gilt rate, less a margin, currently 3.2% (2007: 3.3%). This
margin is set taking into account both internal and external factors affecting future expense infl ation.
> The main best estimate assumptions, gross of tax used in the valuation are:
2008 2007
Gilt rate – risk-free investment return 7.5% 8.5%
Assumed investment return for individual smoothed bonus business 9.8% 9.9%
Renewal expense infl ation 4.3% 5.3%
Future bonuses
> Contract holders’ reasonable benefi t expectations are allowed for by assuming bonus rates supported by the market
value of the underlying assets and the assumed future investment return.
> For smoothed bonus business, where BSRs are negative, liabilities have been reduced by an amount that can reasonably
be accepted to be recovered through under-distribution of bonuses during the ensuing three years. These amounts
were determined by projecting BSRs three years into the future using assumed investment returns as per the valuation
basis, net of applicable taxes and charges, as well as assumed bonus rates that are lower than those supported by the
assumed investment return but nevertheless consistent with the bonus philosophies of the relevant funds. In all cases,
the reduction in liabilities is equal to the negative BSR. The assumed bonus rates have been communicated to, and
accepted by, both management and the respective boards of directors.
> For conventional with profi t business, all future bonuses are provided for at bonus rates supported by the market value
of the underlying assets and the assumed future investment return. Any resulting reduction in future bonus rate used
in the valuation assumptions, relative to those declared for 2008, has been communicated to, and accepted by, both
management and the respective boards of directors.
Investment guarantees (PGN110)
> A market-consistent stochastic model was calibrated using market data as at 31 December 2008, and the value of the
investment guarantee liabilities was calculated as at this date. Refer note 43.4.7
> PGN110 prescribes specifi c disclosure in respect of the market-consistent stochastic model that was used to calculate
the liabilities. The disclosure is set out below.
The following table discloses specifi c points on the zero coupon yield curve used in the projection of the assets as at
31 December 2008.
Year 1 2 3 4 5 10 15 20 25 30Yield % 8.07 6.84 6.91 7.14 7.27 7.35 7.22 6.86 6.51 6.25
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 149
The following instruments have been valued by the model:
Value VolatilityInstrument As at 31.12.2008A 1-year at-the-money (spot) put on the FTSE/JSE Top 40 index 0.087 36%A 1-year put on the FTSE/JSE Top 40 index, with a strike price equal to 0.8 of spot 0.026 35%A 1-year put on the FTSE/JSE Top 40 index, with a strike price equal to a forward of 1.0823 0.127 34%A 5-year at-the-money (spot) put on the FTSE/JSE Top 40 index 0.120 30%A 5-year put on the FTSE/JSE Top 40 index, with a strike price equal to (1.04)5 of spot 0.203 30%A 5-year put on the FTSE/JSE Top 40 index, with a strike price equal to a forward of 1.4293 0.300 30%A 20-year at-the-money (spot) put on the FTSE/JSE Top 40 index 0.074 29%A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to (1.04)10 of spot 0.283 29%A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to a forward of 2.0586 0.652 29%A 5-year put with a strike price equal to (1.04)5 of spot, on an underlying index constructed
as 60% FTSE/JSE Top 40 and 40% ALBI, with rebalancing of the underlying index back to
these weights taking place annually 0.102 24%A 20-year put option on an interest rate with a strike equal to the present 5-year forward
rate as at maturity of the put option which pays out if the 5-year interest rate at the time of
maturity (in 20 years) is lower than this strike price 0.017 20%
Tax
> Future tax is allowed for according to current tax legislation.
> No allowance is made for any assessed losses in the contract holder tax funds.
> Capital gains are assumed to be realised on a six- to seven-year rolling basis. Capital gains tax charges are discounted to
refl ect this, resulting in some deferment of capital gains tax.
Basis and other changes
Assumptions and methodologies used in the fi nancial soundness valuation basis are reviewed at the reporting date and the
impact of any resulting changes in actuarial estimates is refl ected in the income statement as they occur.
> Basis and other changes decreased the excess of assets over liabilities at 31 December 2008 by R197 million for the
group and R194 million for Metropolitan Life Ltd. The major contributors to this change were as follows:
– Methodology changes and corrections, negative R95 million for the group and negative R78 million for Metropolitan
Life Ltd.
– Experience basis changes, negative R224 million for the group and negative R225 million for Metropolitan Life Ltd. The
experience basis changes are in respect of withdrawal and expense assumptions, partly offset by positive mortality
assumptions.
– Economic assumption changes, positive R122 million for the group and positive R109 million for Metropolitan Life Ltd.
The economic assumption changes are in respect of future investment return, bonus and infl ation assumptions as well
as changes in the risk margin on investment assumptions.
> The impact of changes in the valuation discount rate, consequent changes in the assumed level of renewal expense
infl ation and investment over or underperformance in respect of non-linked business is included under this heading.
150 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Sensitivity analysis
> The sensitivity of the value of contract holder liabilities to movement in the assumptions is shown in the table below. In
each instance, one assumption changes while all the other assumptions remain constant.
2008 2007Contract
holder liabilities Change
Contract holder
liabilities ChangeGroup Rm Rm Rm RmCentral value (as published) 57 232 61 782
1% reduction in assumed investment return 57 556 324 61 970 188
10% increase in assumed lapses and surrenders 57 233 1 61 899 117
10% increase in mortality and morbidity for assurances/
decrease in mortality for annuities 57 713 481 62 168 386
10% increase in maintenance/recurring expenses 57 653 421 62 151 369
Metropolitan Life LtdCentral value (as published) 53 523 57 751
1% reduction in assumed investment return 53 780 257 57 919 168
10% increase in assumed lapses and surrenders 53 527 4 57 865 114
10% increase in mortality and morbidity for assurances/
decrease in mortality for annuities 53 940 417 58 111 360
10% increase in maintenance/recurring expenses 53 867 344 58 083 332
> The impact of the reduction in the assumed investment return includes the consequent change in projected bonus rates, discount rates and the assumed level of renewal expense infl ation.
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm21 FINANCIAL LIABILITIES DESIGNATED AS AT
FAIR VALUE THROUGH INCOME
Collective investment scheme liabilities – current 272 635
Certain collective investment schemes have been classifi ed as investments in subsidiaries; refer note 5. Consequently, scheme interests not held by the group are classifi ed as third party liabilities as they represent demand deposit liabilities measured at fair value.
22 FINANCIAL LIABILITIES AT AMORTISED COST
BorrowingsCumulative redeemable convertible preference shares 841 837
Subordinated redeemable debt 501 501 501 501
Finance lease liabilities 2 3 1 1
Other 5 29 – –
1 349 1 370 502 502
Current 533 64 1 1
Non-current 816 1 306 501 501
1 349 1 370 502 502
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 151
22.1 Cumulative redeemable convertible preference shares
Metropolitan Holdings Ltd issued two tranches of variable rate cumulative convertible redeemable preference shares. The
fi rst tranche of 75 842 650 shares at a nominal value of R540 million was issued during 2004 and the second tranche of
47 081 139 shares at a nominal value of R479 million was issued during 2005. The shares are convertible, at the option of
the holder, into ordinary shares on a one for one basis after three years. If the shares are not converted, they are compulsory
redeemable after periods of either four or fi ve years. There is no deferred tax implication.
The dividends are payable semi-annually in arrears on 31 March and 30 September each year.
The effective interest rate for these preference shares at the balance sheet date ranged from 16.1% to 18.7% (2007: 13.3%
to 15.6%).
22.2 Subordinated redeemable debt
Metropolitan Life Ltd issued R500 million unsecured subordinated notes with a nominal value of R1 million per note, at
99.7% of the nominal amount. The notes are mixed rate notes with an optional conversion from fi xed rate to fl oating rate
after eight years and compulsorily redemption after a further fi ve years. The fi xed interest rate is 9.25% per annum, and both
the fi xed and fl oating rate payment dates are 15 June and 15 December from issue date, 15 December 2006. The holder has
an option to redeem the debt from 15 December 2014 and the ultimate maturity date is 15 December 2019.
The FSB granted approval for the company to raise debt on 10 November 2006. The company has suffi cient required cash
to cover the debt.
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm22.3 Finance lease liabilities – minimum lease payments
Not later than 1 year 1 2 1 1
Later than 1 year and not later than 5 years 1 2 – –
2 4 1 1
Future fi nance charges on fi nance leases – (1) – –
Present value of fi nance lease liabilities 2 3 1 1
152 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Metropolitan Life LimitedGroup MSRF MSPF CU Total
2008 Rm Rm Rm Rm Rm23 EMPLOYEE BENEFIT ASSETS AND
OBLIGATIONS
23.1 Employee benefi t assets
Present value of funded obligation (410) – (403) (6) (409)
Fair value of plan assets 658 106 521 26 653
248 106 118 20 244
Movement in present value of funded
obligation
Balance at beginning 394 – 388 6 394
Current service costs 1 1 – 1
Interest costs 30 30 – 30
Actuarial gains 12 11 – 11
Estimated benefi ts paid (28) (28) – (28)
Estimated member contributions 1 1 – 1
Balance at end 410 – 403 6 409
Current 28 28
Non-current 382 381
410 409
Movement in fair value of plan assets
Balance at beginning 571 – 531 32 563
First time recognition of plan assets 106 106 – 106
Expected return on plan assets 45 42 2 44
Actuarial losses (36) (26) (8) (34)
Employer contribution – 1 – 1
Interest cost 1 – – –
Estimated member contributions – 1 – 1
Estimated benefi ts paid (29) (28) – (28)
Balance at end 658 106 521 26 653
Current 63 61
Non-current 595 592
658 653
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 153
Metropolitan Life LimitedGroup MSPF CU Total
2007 Rm Rm Rm RmPresent value of funded obligation (394) (388) (6) (394)
Fair value of plan assets 571 531 32 563
177 143 26 169
Movement in present value of funded obligation
Balance at beginning 384 383 383
First time recognition of funded obligation 6 6 6
Current service costs 1 1 1
Interest costs 30 30 30
Actuarial gains 1 1 1
Estimated benefi ts paid (29) (28) (28)
Estimated members contributions 1 1 1
Balance at end 394 388 6 394
Current portion 26 26
Movement in fair value of plan assets
Balance at beginning 510 504 504
First time recognition of plan assets 32 32 32
Expected return on plan assets 41 39 39
Actuarial gains 15 13 13
Estimated employer contribution 1 1 1
Interest cost (1) – –
Estimated member contributions 1 1 1
Estimated benefi ts paid (28) (27) (27)
Balance at end 571 531 32 563
Current portion 28 26
Metropolitan Staff Retirement Fund (MSRF)
The MSRF is a defi ned contribution arrangement with two separately registered sections: pension and provident. Members
contribute at a fi xed percentage of salaries to the pension fund section and the employer contributes to the provident fund
section. The employer’s share of the surplus in the old defi ned benefi t fund which was transferred to the defi ned contribution
fund on 1 April 1999 was kept in the Employer Contribution Subsidy Reserve Account until 1 April 2002. The surplus
apportionment scheme of the provident section was approved by the Financial Services Board (FSB) in June 2008. The surplus
is to be transferred to the Employer Surplus Account (ESA) which can be used by the employer to subsidise contributions to the
fund. The pension fund section has a nil scheme, approved by the FSB. The fair value of the plan assets represents the balance
of the ESA valued at market value at year-end. There is no defi ned benefi t obligation attached to this asset. Since this is the fi rst
year of recognition there are no disclosures for the return on assets or actuarial gains or losses.
Metropolitan Staff Pension Fund (MSPF)
With effect from 1 April 1999 the majority of employees converted their retirement benefi t plans from defi ned benefi t to
defi ned contribution by way of transfer from the Metropolitan Staff Pension Fund to the Metropolitan Staff Retirement Fund.
The defi ned benefi t scheme was closed to new members from 1 April 1999. All new employees automatically become
members of the Metropolitan Staff Retirement Fund.
154 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Metropolitan Staff Pension Fund (MSPF) (continued)
Metropolitan Life Ltd is required to meet the balance of the cost of providing the fund benefi ts as recommended by the
valuator on the basis of the ongoing triennial actuarial valuations. Any surplus arising in the fund as determined during the
valuation is held in an employer surplus account, as allowed by the Second Amendment to the Pension Funds Act 39 of
2001. The nil scheme was noted by the FSB in October 2005. Subsequent to the surplus apportionment date, surplus has
emerged in the fund and the employer has economic benefi t of the surplus. The liability at 31 December 2008 is based on a
projection of the 1 April 2007 valuation results. Fair value of the plan assets is determined with reference to the approximate
rate of investment return earned by the fund until December 2008. The key valuation assumptions are:
Assumptions Base assumptionValuation rate of interest 8.0% (2007: 8.0%)
Expected rate of return 8.0% (2007: 8.0%) – based on the valuation rate of interest
Salary infl ation 6.5% (2007: 6.5%)
Net post-retirement interest rate 3.0% (2007: 3.0%)
Normal retirement age 60 – 65 years
Mortality
Pre-retirement SA 72-77 ultimate, with female rates equal to 70% of male rates
Post-retirement PA(90) minus 2, with ill-health (disability) retirements rated up by 10 years
The plan assets as a percentage (%) comprise 2008 2007Equity securities 51 52
Debt securities 18 18
Property 9 10
Foreign assets 9 9
Cash equivalents 3 1
Socially responsible investments 10 10
100 100
Commercial Union Defi ned Contribution Pension Fund (CU)
The fund is a defi ned contribution fund and is closed to new members. Any surplus arising in the fund as determined during
the valuation is held in an employer surplus account, as allowed by the Act. Metropolitan Life Ltd recognised a surplus of
R26 million as an asset in 2007 when the FSB approved the surplus apportionment. This account is currently used by the
fund to meet the obligation in respect of the additional retirement benefi t in lieu of the post-retirement medical aid subsidy
for eligible members. The key valuation assumptions are similar to the MSPF except for:
Assumptions Base assumptionHealthcare cost infl ation 7.0% (2007: 6.8%)
Administration fee infl ation 5.5% (2007: 5.5%)
Normal retirement age 60 years
The plan assets as a percentage (%) comprise 2008 2007Equity securities 60 62
Debt securities 6 9
Property 4 4
Foreign assets 11 11
Cash equivalents 19 14
100 100
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 155
Actual return on assets
The actual return on assets of the funds is R8 million for the group and R10 million for Metropolitan Life Ltd.
International subsidiaries
During 2008, the international subsidiaries have recognised a net asset of R4 million (2007: R8 million), in accordance with
IAS 19 – Employee benefi ts – where applicable.
Metropolitan Health Group Retirement Fund
The group sponsors the Metropolitan Health Group Retirement Fund, which is a defi ned contribution arrangement with
a defi ned benefi t underpin for certain members. The fund is closed to new members. This fund has submitted a surplus
apportionment arrangement in terms of the Pension Funds Second Amendment Act 39 of 2001. This has yet to be
approved.
Previous year’s balances
Present value of funded obligations and plan assets for 2006 was R384 million and R510 million respectively for the group
and R383 million and R504 million respectively for Metropolitan Life Ltd.
Other
The total movement is recognised in the income statement in employee benefi t costs. The best estimate of the employer’s
contributions for 2009 is R39 million for the group and R37 million for Metropolitan Life Ltd.
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm23.2 Employee benefi t obligations
Post-retirement medical benefi ts (a) 174 164 170 161
Share scheme obligations (b) 6 64 – –
Cash-settled arrangements (c) 8 15 3 8
Staff bonuses – 9 – –
188 252 173 169
Current 14 80 10 10
Non-current 174 172 163 159
188 252 173 169
Movements in the income statement are included in employee benefi t expenses.
(a) Post-retirement medical benefi tsBalance at beginning – unfunded 164 157 161 154
Interest costs 13 13 13 13
Actuarial gains (3) (6) (4) (6)
Balance at end – unfunded 174 164 170 161
Previous years’ balances
The post-retirement medical benefi t obligation for the group was R157 million in 2006, R96 million in 2005 and R103 million in 2004 and for Metropolitan Life Ltd it was R154 million in 2006, R93 million in 2005 and R100 million in 2004.
156 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Critical accounting estimates and judgements
Liabilities for qualifying employees and current retirees are taken as the actuarial present value of all future medical contribution subsidies, using the long-term valuation assumptions. The current medical scheme contribution rates are projected into the future using the long-term healthcare infl ation rate, while the value of the portion subsidised by the employer after retirement is discounted back to the valuation date using the valuation rate of interest. The projected unit credit method is used to calculate the liabilities. The key valuation assumptions are:
Change in value of liability
Assumptions Base assumptionChange in
assumption
Decrease in assumption
R’000
Increase in assumption
R’000Healthcare cost infl ation rate
Defi ned benefi t fund 7.0% (2007: 6.8%) 1% (92) 113
Defi ned contribution fund 7.0% (2007: 6.8%) 1% (50) 76
Valuation rate of interest 8.0% (2007: 8.0%)
Administration fee infl ation 5.5% (2007: 5.5%)
Normal retirement age 60 years
Mortality
Pre-retirement SA 72-77 ultimate, with female rates equal to 70% of male rates
Post-retirement PA(90) minus 2, with ill-health (disability) retirements rated up by 10 years
Group2008 2007
Rm Rm(b) Share scheme obligationsHealth staff share scheme
Balance at beginning 54 53
Additional provisions 1 25
Used during year (55) (24)
Balance at end – 54
Critical accounting estimates and judgements
In 2007, the liability was based on actual profi ts as it was expected that the shares would be put back to Metropolitan Holdings Ltd during 2008. The liability was settled during 2008.
International subsidiaries’ share schemes
Balance at beginning 10 12
Current service costs 2 5
Interest costs 1 2
Actuarial losses (1) –
Benefi ts paid (6) (9)
Balance at end 6 10
Critical accounting estimates and judgements
The assumptions used in calculating the expenses and liabilities for these schemes were:
> risk-free rates ranging from 8% to 10% (2007: 9% to 10%)
> expected growth rates between 12% and 14% (2007: 14% to 15%)
> forfeiture rates ranging from 9% to 19% (2007: 7% to 19%)
> a continuously compounded dividend yield of 0% (2007: 0%)
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 157
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm(c) Cash-settled arrangementsLong-term retention scheme
Balance at beginning 15 1 8 1
Additional provisions (3) 14 (2) 7
Benefi ts paid (4) (3)Balance at end – non-current 8 15 3 8
During 2006 the group introduced a long-term retention scheme for all South African employees. In terms of this scheme,
participants can qualify for a bonus, payable after three years, based on the performance of the group measured against
certain benchmarks. The basket of performance criteria includes growth in dividend per ordinary share, diluted core headline
earnings per share and value of new business and determines the number of units that will vest with each employee over
the three-year period. The participant will then receive a cash payment per unit, based on the volume weighted average
share price of Metropolitan Holdings Ltd shares at the payment date.
Group Metropolitan Life Ltd2008 2007 2008 2007‘000 ‘000 ‘000 ‘000
Number of units outstandingAt beginning of year 5 120 2 365 2 698 1 461
Allocations
2nd tranche 2 891 1 396
3rd tranche 4 736 2 639 Net forfeits and transfers (572) (136) (276) (159)
At end of year 9 284 5 120 5 061 2 698
Critical accounting estimates and judgements
The fair value of the services provided is determined by taking the fair value of the option granted, adjusted for non-fi nancial performance indicators. The price of the forward, a fi nancial variable, was derived using a risk-neutral forward pricing technique. The valuation methodology uses observable market prices, in conjunction with appropriate forward-looking dividend assumptions, to determine the value of the forward as the current market value of a portfolio that has the same expected pay-off profi le as the instrument. The non-fi nancial variables include:
> a maximum vesting rate of 200%
> a target vesting rate of 100%
3rd tranche 2nd tranche 1st trancheIssue date 21 November 2008 26 November 2007 01 December 2006
Expiry date 21 November 2011 25 November 2010 30 November 2009
Outstanding units – group 4 735 500 2 713 500 1 834 820
Outstanding units – Metropolitan Life Ltd 2 639 000 1 283 500 1 138 160
Valuation assumptions include:
3rd tranche 2nd tranche 1st tranche2008 2008 2007 2008 2007
Outstanding tranche period in years 2.9 1.9 2.9 0.9 1.9
Take-up rate on units outstanding 85% 90% 84% 95% 89%
Current vesting rate 0% 45% 118% 69% 135%
Adjusted share price, adjusted for future
dividends and past special distributions R7.50 R8.53 R12.12 R9.94 R13.94
158 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm24 OTHER PAYABLES
Payables arising from insurance contracts and
investment contracts with DPF 1 595 1 449 1 474 1 330
Claims in process of settlement
Insurance contracts 1 255 1 171 1 184 1 087
Investment contracts with DPF 210 133 190 121
Premiums paid in advance 74 82 51 64
Due to reinsurers 56 63 49 58
Deferred revenue liability 47 46 27 26
Financial instruments
Due to group companies 57 53
Other payables 1 292 1 050 1 003 785
2 934 2 545 2 561 2 194
Current 2 723 2 507 2 535 2 170
Non-current 211 38 26 24
2 934 2 545 2 561 2 194
25 INCOME TAX
25.1 Current income tax liabilities/(assets)
Current income tax assets (14) – (4) –
Current income tax liabilities 23 307 – 235
9 307 (4) 235
Balance at beginning 307 202 235 146
Charged to income statement 220 448 103 323
Additional provisions 325 532 194 407
Unused amounts reversed (105) (84) (91) (84)
Used during year (518) (357) (342) (234)
Business combinations 14
Balance at end 9 307 (4) 235
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 159
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm25.2 Income tax (credits)/expenses
Current taxation
South African normal tax 308 503 188 399
Prior year overprovision (102) (99) (91) (99)
Foreign countries – normal tax 14 24 6 3
Tax on contract holder funds – 5 – 5
Prior year underprovision – 15 – 15
220 448 103 323
Deferred tax
Shareholder tax (211) (55) (153) (57)
Contract holder tax (156) 204 (156) 204
Prior year overprovision (1) – – –
Foreign withholding tax 18 – – –
Secondary tax on companies 53 120 – –
Prior year underprovision – 71 – 71
(77) 788 (206) 541
2008 2007 2008 2007Tax rate reconciliation % % % %Tax calculated at standard rate of South African tax
on earnings 28.0 29.0 28.0 29.0
Change in tax rate (0.9) (2.1)Prior year reversals (27.5) (4.3) (61.3) (5.6)
Secondary tax on companies (14.2) 8.3 - 4.3
Taxation on contract holder funds 41.7 9.8 104.6 13.0
Foreign tax (6.5) (0.4) 4.1 0.2
Capital gains tax (11.6) (4.4) (22.1) (5.5)
Non-deductible expenses 11.7 (4.0) 87.1 (4.5)
Effective rate 20.7 34.0 138.3 30.9
Change in tax rate
The tax rate for companies changed from 29% to 28% during 2008.
2008 2007 2008 2007Rm Rm Rm Rm
26 NET INSURANCE PREMIUMS
Premiums received 10 803 9 161 9 675 8 149
Long-term insurance contracts (note 17) 9 414 7 690 8 383 6 766
Capitation premiums 19 19
Investment contracts with DPF (note 19) 1 370 1 452 1 292 1 383
Premiums received ceded to reinsurers (398) (369) (370) (340)
10 405 8 792 9 305 7 809 2007 restated
Certain investment contracts were accounted for as insurance business in 2007. Premium income and operating profi t on insurance contracts was therefore reduced by R77 million with a corresponding increase in fee income from investment contracts.
160 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm27 FEE INCOME
Contract administration 174 97 158 85
Investment contracts 158 84 153 81
Release of deferred front-end fees 16 13 5 4
Trust and fi duciary services 144 93
Asset management 20 4
Asset administration 56 39
Retirement fund administration 68 50
Other income 833 713 8 15
Health 787 684
Banking services 9 10
Scrip lending fees 16 19 8 15
Other 21
1 151 903 166 1002007 restated
> Scrip lending fees were reallocated from investment income to fee income.
> Health fee income was reallocated from trust and fi duciary services to other income within fee income.
> Certain investment contracts were accounted for as insurance business in 2007. Premium income and operating profi t on insurance contracts was therefore reduced by R77 million with a corresponding increase in fee income on investment contracts.
28 INVESTMENT INCOME
Designated as at fair value through income
Dividend income – listed 1 242 944 1 103 807
Dividend income – unlisted 97 76 94 75
Held for trading dividend income – listed 8 33
Interest income 2 708 2 243 2 378 1 991
Designated as at fair value through income 1 709 1 179 1 530 1 035
Loans and receivables 202 242 157 229
Cash and cash equivalents 797 822 691 727
Rental income 344 349 344 346
Investment property 334 343 328 337
Owner occupied 10 6 8 5
Other group companies 8 4
Other income 5 1 – 1
4 396 3 613 3 927 3 253 Interest received
Included in interest received is Rnil million (2007: R6 million) on impaired loans.
2007 restated
Scrip lending fees of R19 million for the group and R15 million for Metropolitan Life Limited were reallocated from investment income to fee income.
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 161
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm29 NET REALISED AND FAIR VALUE (LOSSES)/ GAINS
Financial instruments (8 719) 3 868 (7 764) 3 230
Designated as at fair value through income (10 073) 3 809 (9 099) 3 169
Held for trading fi nancial instruments 1 240 53 1 249 53
Available-for-sale – realised gains 1 1 – –
Net realised and unrealised foreign exchange
differences on fi nancial instruments not
designated at fair value through income 113 5 90 2
Fair value (losses)/gains on investments in
subsidiaries (4) 6
Investment property 232 541 237 538
As per valuation 221 540 226 537
Change in accelerated rental income 11 1 11 1
Other investments 3 (2) 3 2
(8 484) 4 407 (7 524) 3 770 2007 restated
Net realised and fair value gains for designated as at fair value through income instruments now includes the foreign exchange differences on these instruments.
30 NET INSURANCE BENEFITS AND CLAIMS
Long-term insurance contracts (note 17) 6 168 5 202 5 573 4 664
Death and disability claims 2 237 1 800 2 002 1 643
Maturity claims 1 399 1 248 1 275 1 121
Annuities 615 573 581 542
Surrenders 1 806 1 451 1 627 1 235
Withdrawal benefi ts 111 13 88 6
Terminations – 117 – 117
Capitation benefi ts incurred 16 17
Investment contracts with DPF (note 19) 2 215 1 255 2 141 1 200
Death and disability claims 28 30 21 26
Maturity claims 128 81 117 69
Annuities 54 38 53 38
Surrenders 17 6 16 6
Withdrawal benefi ts 281 208 253 185
Terminations 1 707 892 1 681 876
8 399 6 474 7 714 5 864
Amounts recovered from reinsurers (330) (242) (302) (230)
8 069 6 232 7 412 5 634 2007 restated
The restatement of certain policy loans resulted in an increase in surrenders of R40 million for both the group and Metropolitan Life Limited.
162 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm31 CHANGE IN LIABILITIES
Change in insurance contract liabilitiesMovement in liability balance
Contract holder movements (note 17) (1 458) 3 523 (1 329) 3 186
Adjusted for
Shadow accounting (3) (2) – –
Shareholder movements (note 17) 10 (944) 156 (873)
Operating profi t (702) (795) (539) (678)
Basis changes 301 165 273 114
Investment variances 451 (41) 441 (41)
Deferred tax – (111) – (111)
Reinsurance movements (40) (162) (19) (157)
(1 451) 2 577 (1 173) 2 313
Change in investment contracts with DPF liabilitiesMovement in liability balance
Contract holder movements (note 19) (2 942) 1 664 (2 873) 1 590
Shareholder movements (note 19) (48) (102) (28) (86)
Operating profi t (115) (120) (115) (103)
Basis changes (note 20) (13) 17 9 16
Investment variances 80 1 78 1
(2 990) 1 562 (2 901) 1 504
32 DEPRECIATION, AMORTISATION AND
IMPAIRMENT EXPENSES
Depreciation (notes 2, 3 & 16) 88 81 41 36
Owner-occupied properties 13 6 9 6
Equipment 75 75 32 30
Amortisation (note 1) 52 44 17 18
Value of in-force acquired 6 –
Contractual customer relationships 1 –
Deferred acquisition costs 12 12 7 5
Computer software – acquired 8 9 1 4
Computer software – internally developed 25 23 9 9
Impairment of intangible assets (note 1) 35 4 – 3
Goodwill 35 – – –
Deferred acquisition costs – 4 – 3
Impairment of fi nancial assets 46 40 (3) 12
Loans advanced 48 24 – –
Amounts due from agents and brokers (2) 11 (3) 12
Other – 5 – –
221 169 55 69
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 163
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm33 EMPLOYEE BENEFIT EXPENSES
Salaries 1 155 985 558 511
Defi ned benefi t retirement fund 6 2 2 2
Defi ned contribution retirement fund 106 93 49 44
Retirement fund assets (note 23.1) (71) (51) (75) (48)
Share-based payment expenses 2 26 3 12
Equity-settled arrangements 4 12 5 5
Cash-settled arrangements (2) 14 (2) 7
Current service costs 5 32
Metropolitan Health staff share scheme 2 26
International subsidiaries’ share schemes 3 6
Training costs 39 32 24 23
Other 27 26 10 9
1 269 1 145 571 553
Directors’ emoluments included above 6 6
34 SALES REMUNERATION AND DISTRIBUTION COSTS
Distribution costs 241 123 102 107
Sales remuneration 994 1 004 1 046 910
1 235 1 127 1 148 1 017
35 OTHER EXPENSES
Administration fees received (83) (75) (70) (62)
Asset management fees 113 90 195 227
Auditors’ remuneration 22 19 14 12
Audit fees 20 17 14 11
Fees for other services 2 2 – 1
Consulting fees 108 70 51 38
Direct property operating expenses on investment
property 92 67 117 63
Information technology expenses 129 118 55 65
Marketing costs 158 124 133 108
Other expenses 339 235 43 13
Other related taxes 133 126 106 95
1 011 774 644 559
Fees recovered from subsidiaries (41) (35)
1 011 774 603 524 Administration fees received
Fee income on fi nancial instruments not at fair value amounting to R13 million (2007: R14 million) for the group and R11 million (2007: R12 million) for Metropolitan Life Ltd is included in administration fees received.
36 FINANCE COSTS
Interest expense on liabilities at amortised cost
Redeemable preference shares 138 123
Subordinated redeemable debt 47 46 47 46
Other 3 5 – 1
188 174 47 47
164 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
37 GROUP EARNINGS PER SHARE Basic earnings Diluted earnings
Attributable to equity holders 2008 2007 2008 2007Earnings (cents per share) (61.23) 279.89 (27.06) 232.43 Headline earnings (cents per share) (52.78) 279.89 (20.48) 232.43 Core headline earnings (cents per share) 167.18 160.15 151.12 142.27
Reconciliation of headline earnings attributable
to equity holders of group
Basic earnings Diluted earnings2008 2007 2008 2007
Rm Rm Rm RmEarnings – equity holders of group (319) 1 503 (319) 1 503 Finance costs – preference shares (note 36) 138 124 Diluted earnings (181) 1 627 Goodwill impaired 44 – 44 – Headline earnings (275) 1 503 (137) 1 627 Net realised and fair value gains on excess 603 (719) 603 (719)Basis and other changes, and investment variances 580 64 580 64 Employee benefi t assets/obligations (37) (48) (37) (48)Dilutory effect of subsidiaries 1 6 Investment income on treasury shares held on behalf
of contract holders 1 13 Secondary tax on companies – special dividend 60 60 Core headline earnings 871 860 1 011 1 003
Weighted average number of ordinary shares in issue (million) 521 537 521 537 Adjustments for Assumed conversion of preference shares 123 123 Staff share scheme shares 25 40 Diluted weighted average – earnings and headline earnings (million) 669 700 Treasury shares held on behalf of contract holders – 5 Diluted weighted average – core headline earnings (million) 669 705
Basic earnings per share
In calculating the basic earnings per share, the exclusion from the income statement of the income in respect of treasury shares and shares issued to staff through the staff share scheme after 1 January 2001 requires that these shares similarly be excluded from the weighted average number of ordinary shares in issue.
Diluted earnings per share
Diluted earnings per share are calculated using the weighted average number of ordinary shares in issue, assuming conversion of all issued shares with dilutive potential. The convertible redeemable preference shares and the staff share scheme shares not recognised in accordance with IAS 39 have dilutive potential. The preference shares are assumed to have been converted into ordinary shares and earnings adjusted to eliminate the interest expense. The staff share scheme shares are assumed to have been released as ordinary listed shares with no adjustment to earnings.
Diluted weighted average number of shares
For diluted core headline earnings, treasury shares held on behalf of contract holders are deemed to be issued. For diluted earnings and headline earnings, these shares are deemed to be treasury shares.
Headline earnings
Headline earnings consist of operating profi t, investment income, net realised and fair value gains, investment variances and basis and other changes.
Core headline earnings
Net realised and fair value gains, investment variances and basis and other changes can be volatile; therefore core headline earnings have been disclosed that comprise operating profi t and investment income on shareholder assets only.
Diluted core headline earnings
Metropolitan Health and Metropolitan Kenya are consolidated at 100% in the results. For the purposes of diluted core headline earnings, minority interests and investment returns are reinstated.
NOTES TO THE FINANCIAL STATEMENTS
(continued)
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 165
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm38 CASH FLOW FROM OPERATING ACTIVITIES
38.1 Cash (utilised in)/generated by operations
Profi t before tax (372) 2 316 (149) 1 755
Adjusted for
Dividends received (1 339) (1 020) (1 205) (915)
Interest received (2 708) (2 243) (2 378) (1 991)
Finance costs 188 174 47 47
Share of losses/(profi ts) of associates 2 (5)
Share of losses of joint ventures 26 –
Net realised and fair value losses/(gains) 8 484 (4 407) 7 524 (3 770)
Depreciation and amortisation expenses 140 125 58 54
Impairment charges 81 44 (3) 15
Share-based payment expenses 7 58 3 12
Staff bonuses (5) 9 – –
Reinsurance assets (27) 36 (49) 48
Employee benefi t assets/obligations (71) (51) (65) (48)
Fair value adjustments on collective investments
scheme liability 18 13
Accelerated rental income 11 – 11 –
Changes in operating assets and liabilities (excluding
effect of acquisitions and exchange rate differences
on consolidation)
Insurance and investment liabilities (4 591) 7 161 (4 228) 6 799
Intangible assets related to insurance and
investment contracts (19) (27) (13) (14)
Investment property (33) 32 (33) 32
Assets designated as at fair value through income (3 168) (1 928) (3 397) (2 535)
Assets held for trading 1 055 147 1 263 (261)
Assets available-for-sale 1 3 – 358
Loans and receivables 92 (264) (1) (157)
Insurance and other receivables (42) (95) (22) (96)
Non-current assets held for sale 185 – 185 –
Change in employee benefi t obligations (71) (33)
Other operating liabilities 357 570 361 511
Cash (utilised in)/generated by operations (1 799) 615 (2 091) (156)
38.2 Income tax paid
Due at beginning (784) (491) (606) (345)
Charged to income statement 77 (788) 206 (541)
Charged directly to equity (6) (25) (3) (25)
Business combinations – (26) –
Due at end 124 784 62 606
(589) (546) (341) (305)
38.3 Interest paid
Redeemable preference shares (134) (118)
Subordinated redeemable debt (47) (46) (47) (46)
Other (3) (2) – –
(184) (166) (47) (46)
166 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm Rm39 CASH FLOW FROM INVESTING ACTIVITIES
39.1 Acquisition of subsidiaries
The group acquired 80% of a retirement administration company in April 2007, 50% and control through board representation
of HTG Life Ltd (renamed Union Life Ltd), a life insurance company, and 70% of DirectFin Solutions (Pty) Ltd, a distribution
channel, both in December 2007, for a total cost of R145 million. The group would have recognised R20 million profi t if these
companies had been consolidated from the beginning of 2007.
The assets and liabilities arising from the
acquisitions are as follows
Intangible assets 51
Owner-occupied properties 14
Equipment 7
Equity securities 162
Loans and receivables 22
Cash and cash equivalents 91
Contract holder liabilities (162)
Borrowings (29)
Deferred tax (12)
Other payables (23)
Current income tax (14)
Fair value of net assets 107
Minority interests (43)
Goodwill and value of in-force on acquisition 90
Cash and cash equivalents in net assets acquired (91)
Cash outfl ow on acquisition 63
40 CAPITAL AND LEASE COMMITMENTS
Capital commitmentsAuthorised but not contracted 124 35 – –
Authorised and contracted 14 132 – 128
138 167 – 128
The above commitments, which are in respect of computer software, computer equipment, vehicles, furniture, property,
sponsorships, promotions and new business opportunities, will be fi nanced from internal sources.
Lease commitmentsMinimum lease payments on non-cancellable contracts:
Less than 1 year 12 20 – –
Between 1 and 5 years 17 51 – –
29 71 – –
41 CONTINGENT LIABILITIES
The South African Revenue Service has raised a tax assessment on the company. No provision has been made based on
legal grounds and on independent tax advice received by the group.
The group is party to legal proceedings in the normal course of business and appropriate provisions are made when losses
are expected to materialise.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 167
Proof number 04 – 12 March 2009
42 RELATED PARTY TRANSACTIONS42.1 Holding company
Metropolitan Holdings Ltd is the ultimate holding company in the Metropolitan Holdings group. The shares are widely held by public and non-public shareholders; refer to the shareholder profi le.
Group companies are listed in annexure 1. Other related parties include Kagiso Trust Investments (Pty) Ltd, directors, key personnel and their families, associated companies and joint ventures.
42.2 Transactions with directors and key personnel and their families
Remuneration is paid in the form of fees to non-executive directors and remuneration to executive directors and key personnel of the company. Transactions with directors are disclosed in the corporate governance report and the directors’ report respectively.
The group executive committee members are members of the staff pension schemes, the details of which are in note 23. Certain of them have investments with the group that have been taken out in the ordinary course of business.
The aggregate remuneration of this committee, excluding the executive directors, is R10 million (2007: R17 million) for the group. Included are pension fund contributions of R0.3 million (2007: R2 million) for the group.
In addition to the shares held by executive directors, other executive committee members hold nil (2007: 50 000) shares in the staff share schemes and had loans of Rnil (2007: R174 000) outstanding at year-end. Rnil (2007: R6 million) was paid out to executive directors relating to the staff share schemes.
The executive committee members are benefi ciaries in the management trust, which in turn holds a 5.6% indirect interest in Metropolitan Holdings Ltd.
The executive committee members participate in the Metropolitan long-term retention scheme. In terms of this scheme, management can qualify for a bonus, payable after three years, based on the performance of the group measured against certain benchmarks.
The directors and group executive committee members do not have signifi cant investment holdings and insurance contracts in the Metropolitan group business.
42.3 Black economic empowerment partner
The group’s black economic empowerment partner, Kagiso Trust Investments (Pty) Ltd (KTI), has an interest of 24% (2007: 22%) in Metropolitan Holdings Ltd. The group has entered into the following transactions with KTI:
> Metropolitan Holdings Ltd issued preference shares to KTI as disclosed in note 22.1.
> Metropolitan Health Group issued “A” ordinary shares to KTI which were fi nanced through preference shares to Metropolitan Holdings Ltd. The “A” ordinary shares are convertible into ordinary shares on a 1 for 1 basis and can only be converted as and when the preference shares are redeemed, also on a 1 for 1 basis. KTI holds a 17.6% interest in Metropolitan Health Corporate (Pty) Ltd through this transaction.
> KTI has a 20% holding in Metropolitan Retirement Administrators (Pty) Ltd.
> KTI has a 51% holding in C Shell 448 (Pty) Ltd – refer note 6.
> Other transactions between the group and KTI are in the normal course of business.
42.4 Contract administration
Certain companies in the group carry out third party contract and other administration activities for other related companies in the group. These fees are eliminated on consolidation.
42.5 Staff share schemes
Loans were advanced to the two share schemes and to participants in the schemes. Amounts outstanding at the end of the year are disclosed in note 16(c). Interest paid by the trusts to Metropolitan Life Ltd was R11 million (2007: R16 million).
42.6 Property lease agreements
Certain related parties of the group are lessees of Metropolitan Life Ltd. Rental income for Metropolitan Life Ltd from group companies, Metropolitan Asset Managers Ltd, Metropolitan Collective Investments Ltd, Metropolitan Holdings Ltd and Metropolitan Retirement Administrators (Pty) Ltd, for the year ended 31 December 2008 amounted to R8 million (2007: R4 million).
42.7 Transactions with group companies
There were no material transactions with associated companies or joint ventures.
168 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
42.8 Transactions between Metropolitan Life Ltd and group companies
Loans are advanced between Metropolitan Life Ltd, its subsidiaries and fellow subsidiaries as funding. These loans are
interest free and repayable on demand. Set out below is a list of loans to/(from) subsidiaries and fellow subsidiaries included
in loans and receivables and other payables in the balance sheet of Metropolitan Life Ltd.
Metropolitan Life Ltd2008 2007
Rm RmIndebtedness by/(to) group companiesInvestment subsidiaries – 1
Metropolitan Asset Managers Ltd 15 –
Metropolitan Card Operations (Pty) Ltd – 1
Metropolitan Collective Investments Ltd 2 1
Metropolitan Holdings Ltd 5 6
Metropolitan Life International Ltd – 2
Metropolitan Lesotho Ltd 23 25
Metropolitan Life (Namibia) Ltd 1 20
Metropolitan Life of Botswana Ltd (1) –
Metropolitan Life property subsidiaries (49) (49)
Metropolitan Odyssey Ltd – 3
Metropolitan Property Services (Pty) Ltd (6) (4)
Metropolitan Retirement Administrators (Pty) Ltd 2 1
Metropolitan Health Corporate (Pty) Ltd 5 –
Metropolitan International (Pty) Ltd 4 –
1 7
Transactions with group companiesAsset management fees paid – Metropolitan Asset Managers Ltd 84 129
Internal recoveries 41 35
Dividends received
Metropolitan Holdings Ltd – treasury shares 8 37
Post-retirement medical benefi t obligations
Metropolitan Lesotho Ltd 3 3
Metropolitan Health Corporate (Pty) Ltd 2 2
Contract holder benefi t payments
Metropolitan Lesotho Ltd 4 –
Dividends and interest received from fellow subsidiaries
Collective investment schemes 32 25
Property administration fee expense
Metropolitan Property Services (Pty) Ltd 30 27
Administration fee expense
DirectFin Solutions (Pty) Ltd 162 –
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 169
Proof number 04 – 12 March 2009
43 RISK MANAGEMENT
A key risk for the group is that the proceeds from its assets will not be suffi cient to fund the obligations arising from its
insurance and investment contracts. The risk arises from the presence of fi nancial or insurance risk in the contracts issued
by the group. This section provides information on the processes and structures in place to manage and mitigate such
risks.
Responsibility for risk management
The board is ultimately responsible for risk management. The board has delegated the assessment of the quality, integrity
and reliability of the group’s risk management processes to a number of committees.
> The risk committee assists the board in the discharge of its duties relating to corporate accountability and the associated
risk in terms of management, assurance and reporting. The committee reviews and assesses the integrity of the risk
control systems and ensures that the risk policies and strategies are effectively managed.
> The audit, risk and actuarial committees assist the board in carrying out its assessment of controls and the risk function. In
fulfi lling this duty, these committees review the fi nancial reporting processes and results, the audit process, the systems
of internal control and the management of fi nancial, actuarial and operational risks. They also monitor legislative and
regulatory compliance and ensure good corporate governance.
> The investment committee reviews the asset management arrangements of the group and monitors investment
performance in terms of mandates and set benchmarks.
> Risk management is implemented at an operational level via a number of committees, including:
– the management risk committee, whose primary responsibility is the review of strategic, business, operational and
fi nancial risks facing the group; and
– the asset-liability management forum, which is a cross-business management forum whose purpose is to promote the
best possible standards of asset/liability management for the group. This includes ensuring that risks are addressed on
a group level rather than just at an individual business unit level.
43.1 Capital management
For capital management purposes the current level of capital in the group is defi ned as the difference between total assets
and total liabilities of the group, plus any qualifying debt approved by the regulators and less any disregarded assets.
Key objectives of the group’s capital management programme are:
> to ensure that the level of capital will be suffi cient, with a high degree of confi dence, to cover a desired multiple of the
statutory capital requirement during the next fi ve years in each of the life companies;
> to manage the levels of capital across the group to keep them in line with the long-term capital requirement for each
company;
> to ensure that the level of capital refl ects the group’s risk appetite;
> to optimise the level of capital, the investment of the capital and the future use of this capital to the benefi t of all
stakeholders; and
> to ensure that there is suffi cient capital available for profi table business growth.
The long-term capital requirement (LTCR) for Metropolitan Life Ltd is based on the result of an internal capital model.
For other life companies in the group, a multiple of statutory CAR is used. In addition the group holds capital for planned
business growth and special projects. The capital models are regularly updated to refl ect changes in the economic and
regulatory environment as well as further enhancements to model the identifi ed risks more accurately. Risks currently
modelled include market risk, credit risk, insurance risk, including pandemic disease risk, and operational risk. The amount
of capital in each life company is regularly compared to its LTCR and the intention is to manage the capital levels to be in
line with the LTCR.
170 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
The capital levels of the non-insurance companies are based on operational requirements and approved new business
projects.
Actions that have been used in the past to manage capital levels include share buy-back exercises, normal and special
dividend payments, capital reductions, raising subordinated debt as well as the consolidation of life and other licences in
the group.
All dividends and other capital reductions paid are approved by the various boards, as well as by the statutory actuary in
each life company.
Statutory capital requirement
All of the life companies in the group are required to maintain a capital balance equivalent to the statutory capital adequacy
requirement (CAR). This capital is available to meet obligations in the event of substantial deviations from the main experience
assumptions affecting the company’s investment and insurance business.
The CAR is determined in accordance with the requirements of the FSB and PGN104 as amended. It is a risk-based
capital measure that is intended to provide reasonable confi dence that insurers will be able to meet their existing liabilities.
Amendments to PGN104 require an allowance for credit and operational risk as well as changes to the allowance for
embedded derivatives which was included in the CAR calculation for the fi rst time at 31 December 2008. The CAR as at
31 December 2007 was not restated for these amendments.
Although CAR is only a statutory requirement for South African life companies, it is applied to non-South African life
companies in the group as a measure of prudence. The capital requirements of insurance companies outside South Africa
are generally less stringent than South African CAR requirements.
The termination CAR ensures that the insurer has suffi cient capital to survive an adverse selective mass termination of
contracts. The ordinary CAR includes provisions and scenario tests for a number of risks including:
> fi nancial risk from asset and liability mismatch under specifi ed market movements (resilience test)
> random fl uctuations in insurance and expense risks
> risk that long-term insurance and fi nancial assumptions are not realised.
At 31 December 2008 the group’s CAR for life companies was covered 2.0 times (2007: 3.4 times) and for Metropolitan
Life Ltd 2.1 times (2007: 3.8 times). The ordinary CAR exceeded the termination CAR; therefore the CAR has been
based on the ordinary CAR. The group also holds additional capital in the holding company.
The following assumptions and resulting management actions were used to calculate the CAR:
> A decline of 26% in equity asset values, 15% in property asset values and 12.7% in fi xed interest asset values, resulting
from a 25% relative decrease in fi xed interest yields, will occur on the valuation date.
> Non-vesting bonuses will be removed, up to a maximum of 10% of the pre-decline fund accounts for smoothed bonus
business, or pre-decline sums assured and accumulated bonuses for conventional with-profi t business.
> In the three-year period following the decline, bonuses will lag investment performance. The extent of the assumed
lag varies by class of business, and the maximum allowable lag averages out at 10% of the pre-decline fund account
for smoothed bonus business, or pre-decline sums assured and accumulated bonuses for conventional with-profi t
business.
> Interim bonuses for individual smoothed bonus business will be reduced to zero.
> Assets backing the CAR are 75% invested in equities and 25% in cash.
> In the event of adverse selective mass terminations, discretionary margins on remaining policies will be reduced or
eliminated to reduce contract holder liabilities, which will result in an increase in the net asset value.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 171
Proof number 04 – 12 March 2009
Should asset values decline as assumed, the relevant management actions above will reduce contract holder liabilities by
R4.1 billion (2007: R3.8 billion) for the life companies and R3.6 billion (2007: R3.7 billion) for Metropolitan Life Ltd.
The offsetting management actions assumed have been approved by specifi c resolution by the respective boards of directors
and the respective statutory actuaries are satisfi ed that these actions will be taken if the adverse scenarios materialise.
As at 31 December 2008 and for the year then ended, all material entities in the group held capital in excess of their
respective regulatory requirements.
A summary of the group’s CAR and long-term capital requirement is shown in the table below:
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmNet asset value – excess 5 847 6 817 4 217 5 090
Add Redeemable preference shares 841 837
Less Disregarded assets (489) (293) (386) (231)
Available capital 6 199 7 361 3 831 4 859
Retained for
Redeemable preference shares (841) (837)
Metropolitan Life Ltd (3 621) (3 383) (3 621) (3 383)
Economic capital (4 122) (3 884) (4 122) (3 884)
Less Qualifying debt 501 501 501 501
Economic capital – other group companies (331) (457)
1 406 2 684 210 1 476
Attributed to
Approved expansion 233 336 75 –
Proposed dividend 335 440 – 750
Surplus capital 838 1 908 135 726
1 406 2 684 210 1 476
172 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
43.2 The following table reconciles the assets in the balance sheet to the classes and portfolios used for asset-liability
matching by the group in all instances where assets are managed and performance is evaluated against mandates.
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmAssetsDesignated as at fair value through income
Equity securities 21 167 31 989 18 240 27 273
Local listed 19 579 29 683 17 204 25 419
Foreign listed 1 143 1 554 596 1 176
Unlisted 445 752 440 678
Debt securities 15 968 14 268 14 576 13 119
Government stock
Local listed 3 887 2 972 3 719 2 887
Foreign listed 532 425 – –
Stock of and loans to other public bodies
Local listed 1 281 1 326 1 017 1 111
Foreign listed 108 – 108 –
Unlisted 1 790 1 834 1 789 1 834
Debentures and corporate bonds
Local listed 4 734 4 356 4 715 4 313
Foreign listed 987 1 707 668 1 388
Unlisted 1 664 777 1 575 715
Unlisted unquoted 985 871 985 871
Funds on deposit and other money market instruments 3 409 2 150 3 074 1 927
Unit-linked investments 10 251 9 857 9 380 8 986
Collective investment schemes
Local unlisted quoted 3 438 3 698 3 112 3 541
Foreign unlisted quoted 1 718 3 160 1 673 2 497
Local listed quoted 127 163 112 142
Foreign listed quoted 1 152 228 1 011 198
Unit-linked investments
Local unlisted unquoted 3 492 2 580 3 428 2 580
Foreign unlisted unquoted 324 28 44 28
Held for trading 1 764 850 1 877 1 259
Local listed equity securities – – 169 398
Derivative fi nancial instruments 1 764 850 1 708 861
Available-for-sale 5 7 – –
Local listed equity securities – 1 – –
Local unlisted quoted collective investment schemes 5 6 – –
Loans and receivables 1 128 1 193 870 908
Accounts receivable 365 451 207 236
Loans 763 742 663 672
Cash and cash equivalents 8 810 8 274 7 106 7 024
Interest in subsidiary companies at fair value 1 241 1 001
Investment in associates carried at fair value 614 390 642 463
Other assets 6 497 6 205 5 526 5 210
Total assets 69 613 75 183 62 532 67 170
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 173
Proof number 04 – 12 March 2009
The following table provides an analysis of the fair value of fi nancial assets not carried at fair value in the balance sheet.
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmAssetsLoans and receivables 1 285 1 239 1 020 947
Loans 920 788 813 711
Accounts receivable 365 451 207 236
Cash and cash equivalents 8 810 8 274 7 106 7 024
10 095 9 513 8 126 7 971
> For accounts receivable and cash and cash equivalents, the carrying value approximates fair value due to their short-term nature.> Loans to group companies have no fi xed terms of repayment and are considered payable on demand, with the carrying value approximating
fair value.> The fair value of loans to empowerment partners, strategic loans and other staff loans is the discounted amount of the estimated future
cash fl ows expected to be received. The expected cash fl ows are discounted at 13% (2007: between 11% and 19%).> For policy loans, the fair value is the discounted amount of the estimated future cash fl ows to be received, which is based on monthly
repayments of between 15 and 30 months. The expected cash fl ows are discounted at 7.3% (2007: 9.4%).
Unit-linked investments
Unit-linked investments comprise local and foreign collective investment schemes as well as other unit-linked investments.
Collective investment schemes are categorised into property, equity or interest-bearing instruments based on a minimum
of 55% per category of the underlying asset composition of the fund by value. In the event of no one category meeting this
threshold, it is classifi ed as a mixed asset class.
Unlisted and unquoted unit-linked instruments are mainly exposed to equity, comprising investments in hedge funds and
private equity funds, or interest-bearing instruments, comprising mezzanine funding and structured guaranteed income
products. Where Metropolitan is the policyholder of an investment contract at another insurer, but does not have title to the
underlying investment assets, it is allocated to a mixed asset class.
Money market collective investment schemes are included in funds on deposit and other money market instruments less
than 90 days.
The unit-linked investments are exposed as follows:
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmCollective investment schemes
Local and foreign 6 601 7 112 5 908 6 377
Equity 4 882 5 276 4 364 4 813
Interest-bearing 1 004 1 119 872 906
Property 482 580 453 547
Mixed asset class 233 137 219 111
Unlisted and unquoted unit-linked investments
Local and foreign 3 650 2 745 3 472 2 609
Equity 1 125 922 1 125 922
Interest-bearing 1 597 913 1 596 913
Mixed asset class 928 910 751 774
Interest in subsidiary companies at fair value 1 186 942
Investment in associates at fair value 614 390 642 463
10 865 10 247 11 208 10 391
174 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
Valuation techniques
The following classes of assets are valued using published price quotations in an active market:
> Local listed equity securities
> Foreign listed equity securities
> Listed government stock
> Listed stock of and loans to other public bodies
> Listed debentures and corporate bonds
> Local listed and unlisted quoted collective investment schemes
> Foreign listed and unlisted quoted collective investments schemes
> Derivative fi nancial instruments, excluding over-the-counter (OTC) derivatives.
The following classes of assets are valued using a valuation technique:
Class Valuation techniques and assumptions
Equity securities
Unlisted Where external valuations are used, the valuation is based on the net asset
values where the assets and liabilities are carried at fair value or on a yield-
to-maturity basis by using the required rate of return.
Where price earnings ratios are used, the valuation is based on a relevant
industry price/earnings ratio, adjusted for each individual investment.
Quoted market information is used in the valuation of foreign unlisted
securities.
Debt securities
Stock of and loans to other public bodies
Unlisted The valuation is based on a discounted cash fl ow basis, using real interest
rates of 4.9% and 5.1% respectively (2007: 4.6% and 4.7%).
Foreign listed on an inactive market The bond is valued on a discounted cash fl ow basis, using a yield that
results in the same Z-spread as that of a similar local listed instrument,
issued by the same entity.
Debentures and corporate bonds
Local listed on an inactive market The valuation is based on the discounting of real cash fl ows which are
uplifted for infl ation, with a discount rate of 3.4% (2007: 3.0%).
Foreign listed on an inactive market External parties provide live mark-to-market values for the foreign credit
linked notes which represent the price that the foreign note would be
currently bought at in the market. The valuation of the foreign credit linked
notes consists of three components – 1) collateral 2) credit default overlay
and 3) an index performance swap. The collateral takes the form of a
listed bond and is valued as such. The credit default overlay consists of
a portfolio of credit default swaps structured as a synthetic collateralised
debt obligation. The individual credit default swaps’ prices are quoted in
the public domain. The index performance swap valuation is based on the
movement of the underlying index.
Unlisted The valuation is based on a discounted cash fl ow basis, with real discount
rates ranging between 1.8% and 2.4% and other with nominal discount
rates ranging between 6.1% and 11.7% (2007: 7.4% and 11.7%).
The unlisted debentures’ valuation is based on the net asset value of a
hedge fund where the assets and liabilities are carried at fair value.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 175
Proof number 04 – 12 March 2009
Class Valuation techniques and assumptions
Unlisted unquoted This classifi cation relates to the capital guarantee portion of the local and
foreign structured products. The capital guarantee is valued using market-
related discount yields ranging between 8.65% and 9.8% (2007: between
9.95% and 11.65%).
Unit-linked investments
Local unlisted unquoted Where external valuations are used for investments in private equity
funds, the valuation is based on the net asset values where the assets and
liabilities are carried at fair value.
The valuations of the other investments are based on external confi rmation
of the market values of the investments. The external valuations are based
on the value of the underlying investments that in most cases are listed or
quoted instruments.
Foreign unlisted unquoted The valuation is based on external confi rmation of the market values of the
investments. The external valuations are based on the value of the underlying
investments that in most cases are listed or quoted instruments.
Derivative fi nancial instruments (OTC)
Equity index options This classifi cation relates to the equity upside portion of the structured
products. External confi rmation of the market values is obtained and used
as fair value. Generally these options are valued by using the Black Scholes
model.
Equity index futures This equity future is valued at the current spot price less the specifi ed
selling price (settlement price) at a future date.
Interest rate swaps The fair value is the net present value of the difference between the fi xed
and variable portion of the interest rates, as per the terms and conditions
of the OTC agreement.
Where a valuation technique uses assumptions that are not supported by prices from observable current market transactions,
changing one or more of these assumptions to reasonably possible alternative assumptions would not change the fair value
signifi cantly.
Unrealised losses of R205 million (2007: profi ts of R136 million) have been recognised on fi nancial assets at the year-end,
using a valuation technique with no observable market data.
Credit risk
Credit risk is the risk that one party to a fi nancial instrument will cause a fi nancial loss for the other party by failing to
discharge an obligation.
One of the tools that the group uses to manage its credit risk is through a group credit policy for money market and debt
instruments as these instruments comprise 65% (2007: 64%) of the assets exposed to credit risk. Portfolios managed by
Metropolitan Asset Managers are managed according to this policy. Investments on behalf of Metropolitan’s international
subsidiaries in African countries, where little rated paper is available, must be approved by the boards of those companies
and will in the future be reported to the group investment committee.
No exposure is permitted to leveraged credit instruments, eg instruments where exposure to an entity or small group
of entities can cause greater losses across the portfolio than the proportionate share of the defaulting entity or entities,
without investment committee approval.
Where a credit risk is entirely borne by a contract holder in a pure linked investment contract, and this is made explicit in
the contract and acknowledged by the contract holder in writing, the risk will not be aggregated with the group’s risks. This
applies to special contracts and structured products.
176 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
Unless the asset manager has a fully fl edged credit analysis capability, credit quality will be based on ratings assigned by
recognised ratings agencies. Lower credit quality than that implied by the rating may be assumed if the manager feels the
credit quality is overstated.
Exposure and probability of default can also be mitigated by means such as:
> obtaining guarantees of better quality from a counterparty;
> having the counterparty post collateral;
> creating bankruptcy remote structures to isolate the assets from the counterparty’s balance sheet;
> choosing senior over subordinated debt;
> buying into tranches that procure preferential payment; and
> transacting through markets where settlement is guaranteed.
For debt instruments, the major risks that are managed are the probability of default and concentration of exposure to
individual entities. Probability of default is managed by limiting exposure to the various credit rating bands through a risk
budget. For the risk budget, government guaranteed instruments do not draw down the risk budget and there is no limit on
exposure to these instruments. Although it is customary to permit investments up to BBB rating, a review of the history of
long-term probability of default indicated that the risk of default increased 3.5 times from A to BBB. Therefore investments
in debt securities are limited to A- ratings or better. No exposure is permitted to unrated counterparties or those rated below
investment grade, except with investment committee approval. The risk of exposure to individual entities, both local and
foreign, is managed through diversifi cation. Limits directly linked to credit ratings are placed on the maximum exposure per
issuer. More generous limits are set for top-tier banks and parastatals.
Money market instruments are those instruments with an original (legal) maturity not exceeding one year. As in the case
of debt instruments, the two major credit risks that are managed are probability of default and concentration of exposure
to individual entities. Probability of default is managed by limiting exposure to the various short-term credit rating bands.
Investment is only permitted in rated issuers or issues, unless no rated issuers or issues are available. Where a short-
term rating is not available, the long-term rating of the issuer is converted to a short-term rating. Default probabilities at a
long-term level of BBB (equivalent to short-term rating F3) and below, are signifi cantly riskier based on historic information
and hence not appropriate for money market investments. The risk of exposure to individual entities is managed through
diversifi cation. Limits directly linked to credit bands are placed on the maximum exposure per issuer. There is no limit on
the exposure to categories F1 and F1+ instruments, but a limit of 25% of the total portfolio is assigned to the category F2
instruments. For each of these categories there is an implied minimum number of issuers to reach the maximum exposure
in a category. There is no need for a risk budgeting approach given the limited number of restricted categories. Provisions
of the Long-term Insurance Act 1998 have the effect of limiting exposure to individual issuers due to the inadmissibility of
assets for regulatory purposes if specifi ed limits are breached.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 177
Proof number 04 – 12 March 2009
The group’s maximum exposure to credit risk is through the following classes of assets:
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmDesignated as at fair value through income
Debt securities
Government stock 4 419 3 397 3 719 2 887
Stock of and loans to other public bodies 3 179 3 160 2 913 2 945
Debentures and corporate bonds 7 385 6 840 6 958 6 416
Unlisted unquoted 985 871 985 871
Funds on deposit and other money market instruments 3 409 2 150 3 074 1 927
Unit-linked investments
Collective investment schemes
Local unlisted quoted 3 438 3 698 3 112 3 541
Foreign unlisted quoted 1 718 3 160 1 673 2 497
Local listed quoted 127 163 112 142
Foreign listed quoted 1 152 228 1 011 198
Unit-linked investments
Local unlisted unquoted 3 492 2 580 3 428 2 580
Foreign unlisted unquoted 324 28 44 28
Held for trading
Derivative fi nancial instruments 1 764 850 1 708 861
Available-for-sale
Local unlisted quoted collective investment schemes 5 6 – –
Loans and receivables
Accounts receivable 365 451 207 236
Loans 763 742 663 672
Other receivables
Receivables arising from insurance contracts,
investment contracts with DPF and reinsurance
contracts 1 421 1 379 1 213 1 191
Interests in subsidiary companies at fair value 1 241 1 001
Investments in associates carried at fair value 614 390 642 463
Cash and cash equivalents 8 810 8 274 7 106 7 024
Total assets bearing credit risk 43 370 38 367 39 809 35 480
Security and credit enhancements
> For debt securities, unit-linked investments and cash and cash equivalents, the credit risk is managed through the group’s credit risk exposure policy described above.
> Metropolitan Life Limited has a continuing guarantee, relating to the full payment of the value of certain annuities up to a maximum of R1 billion, if an event of default occurs. The fair value of these debt instruments at the reporting date is R633 million (2007: R332 million).
> For OTC equity index options, the credit risk is managed through the creditworthiness of the counterparty in terms of the group’s credit risk exposure policy.
> For OTC interest rate swaps, the group enters into margining arrangements with counterparties, which limit the exposure to each counterparty to a level commensurate with the counterparties’ credit rating and the value-at-risk in the portfolio.
> For exchange traded options, credit risk is largely mitigated through the formal trading mechanism of the derivative exchange.> Security held on loans is described in note 9.> Amounts receivable in terms of long-term insurance contracts and investment contracts with DPF are limited to and secured by the
underlying value of the unpaid policy benefi ts in terms of the policy contract.> Reinsurance is placed with reputable companies. The credit rating of the company is assessed when placing the business and when there is
a change in the status of the reinsurer. If a reinsurer fails to pay a claim, the group remains liable for the payment to the contract holder.
Loans designated as at fair value through income
Included in the table above is R7 670 million (2007: R6 716 million) for the group and R7 581 million (2007: R6 652 million) for Metropolitan Life Ltd of loans that were designated as at fair value through income and carry credit risk. The amount of change in its fair value that is attributable to changes in credit risk is Rnil for the period and cumulatively for the group and Metropolitan Life Ltd (2007: Rnil for the group and Metropolitan Life Ltd).
178 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
The assets in the table above are analysed in the table below using Fitch ratings or the equivalent thereof when Fitch ratings
are not available.
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmDebt securities 13 745 12 379 12 543 11 460
AAA 6 250 5 619 5 783 5 242
AA 5 916 5 443 5 800 5 372
A 641 998 447 826
BBB 889 319 513 20
B 49 – – –
Cash and cash equivalents and funds on deposit 10 308 9 037 9 376 8 402
F1 10 238 8 868 9 376 8 233
F2 28 169 – 169
B 42 – – –
Derivatives 1 675 846 1 707 858
AAA 134 26 134 26
AA 1 540 815 1 540 815
A 1 5 33 17
Unrated
Cash and cash equivalents 541 603 139 192
Corporate bonds 504 269 313 39
Derivative fi nancial instruments 90 3 2 3
Funds on deposit 210 256 2 38
Government stock and parastatals 1 720 1 620 1 720 1 620
Money market unit-linked investments 1 157 528 662 319
Structured notes 1 – – –
Available-for-sale 5 6 – –
Loans and other receivables 1 906 1 906 1 557 1 549
Unit-linked investments 10 251 9 857 9 380 8 986
Interests in subsidiary companies at fair value 1 241 1 001
Investments in associates carried at fair value 614 390 642 463
Past due or impaired assets 643 667 525 550
43 370 38 367 39 809 35 480
General
The BBB ratings in the table above relate mainly to the foreign credit linked notes where ratings have deteriorated signifi cantly during the year. Refer above for a description of the valuation technique of these instruments.
2007 restated
The 2007 credit risk ratings of cash and cash equivalents and funds on deposit have been restated to short-term credit ratings. The probability of default associated with these instruments is managed by limiting exposure to the above short-term credit rating bands.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 179
Proof number 04 – 12 March 2009
The following tables analyse the age of fi nancial assets that are past due as at the reporting date but not impaired.
0 to 1 year 1 to 5 years > 5 years TotalRm Rm Rm Rm
Group2008Loans and receivables
Loans 22 27 4 53 Accounts receivable 178 12 – 190 Other receivables
Receivables arising from insurance contracts, investment
contracts with DPF and reinsurance contracts 357 3 2 362 557 42 6 605
2007
Loans and receivables
Loans – 1 1 2
Accounts receivable 358 16 – 374
Other receivables
Receivables arising from insurance contracts, investment
contracts with DPF and reinsurance contracts 249 35 2 286
607 52 3 662
Metropolitan Life Ltd 2008Loans and receivables
Loans 19 1 4 24 Accounts receivable 156 5 – 161 Other receivables
Receivables arising from insurance contracts, investment
contracts with DPF and reinsurance contracts 335 3 2 340 510 9 6 525
2007
Loans and receivables
Loans – 1 1 2
Accounts receivable 234 8 – 242
Other receivables
Receivables arising from insurance contracts, investment
contracts with DPF and reinsurance contracts 228 22 2 252
462 31 3 496
180 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
43.3 The following table reconciles the liabilities in the balance sheet to liability classes:
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmLiabilitiesInvestment contracts 25 209 28 385 24 222 27 277
With discretionary participation features 11 278 14 273 10 781 13 682
Designated as at fair value through income 13 931 14 112 13 441 13 595
Designated as at fair value through income 272 635
Held for trading – derivative fi nancial instruments 1 498 858 1 490 858
Amortised cost 1 349 1 370 502 502
Cumulative redeemable preference shares 841 837
Subordinated redeemable debt 501 501 501 501
Finance lease liabilities 2 3 1 1
Other 5 29 – –
Other payables 1 292 1 050 1 060 838
Due to group companies 57 53
Other payables 1 292 1 050 1 003 785
Other liabilities 34 005 35 944 31 041 32 605
Total liabilities 63 625 68 242 58 315 62 080
The following table provides an analysis of the fair value of fi nancial liabilities not carried at fair value in the balance sheet.
LiabilitiesInvestment contracts with DPF 11 278 14 273 10 781 13 682
Amortised cost 1 909 2 427 506 491
Cumulative redeemable preference shares 1 397 1 905
Subordinated redeemable debt 505 490 505 490
Finance lease liabilities 2 3 1 1
Other 5 29 – –
Other payables 1 292 1 050 1 060 838
Due to group companies 57 53
Other payables 1 292 1 050 1 003 785
Calculation of fair value
> For other payables, amounts due to group companies and fi nance leases, the carrying value approximates fair value due to their short-term nature.
> The estimated fair value of preference shares is based on the market value of the listed ordinary shares, adjusted for the differences in the estimated cash fl ows of dividends between the valuation and conversion dates. The expected cash fl ows are discounted at current market rates of 10.0% (2007: 11.0%). The conversion of the preference shares is at the option of the preference shareholder; the date of conversion was estimated based on the most benefi cial dividend stream to the holder.
> The fair value of subordinated redeemable debt is determined using published price quotations in an active market (BESA).
Investment contracts with DPF
The value of investment contracts with DPF is the retrospective accumulation of the fair value of the underlying assets, which is a reasonable approximation to the fair value of this fi nancial liability.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 181
Proof number 04 – 12 March 2009
43.4 The table below reconciles the contract holder liabilities for each category to the total liability in the balance sheet. Each
category represents distinct fi nancial risks. Some categories may include both insurance and investment contracts.
Insurance Investment with DPF
Investment Total 2008
Total
2007
Rm Rm Rm Rm Rm
GroupContracts with DPF 16 789 11 260 – 28 049 35 427
Individual contracts with DPF 14 858 491 – 15 349 20 008
Smoothed bonus 9 918 472 – 10 390 13 951
Conventional with-profi t 4 940 19 – 4 959 6 057
Group contracts with DPF 1 931 10 769 – 12 700 15 419
Smoothed bonus – 9 273 – 9 273 12 012
Smoothed bonus – fully vesting – 1 458 – 1 458 1 698
With-profi t annuity 1 931 38 – 1 969 1 709
Market-related business 6 167 18 9 693 15 878 14 558
Individual market-related business 6 118 18 4 564 10 700 9 070
Group market-related business 49 – 5 129 5 178 5 488
Other business 9 067 – 4 238 13 305 11 797
Non-profi t annuity business 3 999 – 6 4 005 3 063
Guaranteed endowments 822 – 72 894 623
Structured products – – 135 135 291
Other non-profi t business 4 246 – 4 025 8 271 7 820
Total contract holder liabilities 32 023 11 278 13 931 57 232 61 782
Metropolitan Life LtdContracts with DPF 15 872 10 630 – 26 502 32 887
Individual contracts with DPF 13 960 472 – 14 432 18 063
Smoothed bonus 9 290 472 – 9 762 12 233
Conventional with-profi t 4 670 – – 4 670 5 830
Group contracts with DPF 1 912 10 158 – 12 070 14 824
Smoothed bonus – 8 664 – 8 664 11 441
Smoothed bonus – fully vesting – 1 458 – 1 458 1 698
With-profi t annuity 1 912 36 – 1 948 1 685
Market-related business 5 239 12 9 238 14 489 14 114
Individual market-related business 5 239 12 4 291 9 542 8 803
Group market-related business – – 4 947 4 947 5 311
Other business 8 190 139 4 203 12 532 10 750
Non-profi t annuity business 3 744 – 6 3 750 2 852
Guaranteed endowments 808 – 72 880 617
Structured products – – 134 134 291
Other non-profi t business 3 638 139 3 991 7 768 6 990
Total contract holder liabilities 29 301 10 781 13 441 53 523 57 751
182 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
43.4.1 Contracts with discretionary participation features
> Bonuses are declared taking into account a number of factors, including actual investment returns, previous bonus
rates declared and contract holders’ reasonable expectations. Bonuses are generally designated as vesting bonuses,
which cannot be removed or reduced on death or maturity, or non-vesting bonuses, which can be removed or reduced.
Declared bonuses are usually a combination of both vesting and non-vesting bonuses, although for certain classes of
business declared bonuses are all vesting.
> For smoothed bonus business, bonus stabilisation reserves (BSRs) are held equal to the difference between the fund
accounts, or the discounted value of projected future benefi t payments for with-profi t annuity business, and the market
value of the underlying assets. A positive BSR is undistributed surplus in the asset portfolio that is earmarked for future
distribution to contract holders. The full value of the underlying assets is recognised as a liability. Market risk is, however,
borne only in respect of the vested benefi ts.
> If the smoothing process has resulted in a negative BSR because of a downward fl uctuation in the market value of the
backing assets, the liabilities are reduced to refl ect the amount that can reasonably be expected to be recovered through
under-distribution of bonuses during the ensuing three years, provided that the statutory actuary is satisfi ed that if the
market values of assets do not recover, future bonuses will be reduced to the extent necessary. The group is exposed
to market and operational risk to the extent that a negative BSR cannot reasonably be expected to be recovered through
under-distribution of bonuses during the ensuing three years.
> Derivative structures may be utilised to minimise the extent of negative BSRs.
> The major classes of smoothed bonus business are:
– Metropolitan individual smoothed bonus business
– Metropolitan Employee Benefi ts smoothed bonus business
– Metropolitan Employee Benefi ts with-profi t annuity business
– ex-Commercial Union Life individual smoothed bonus business
As at 31 December 2008, the market value of underlying assets as a percentage of accumulated fund accounts was less than
92.5% for the bulk of the employee benefi ts smoothed bonus class of business and for one material fund (market value of
R3.6 billion) within the individual smoothed bonus class of business. The main reason for these relatively low funding levels
is poor market performance in respect of local equities, as well as foreign credit linked notes, during the second half of 2008.
For all other business the market value of underlying assets as a percentage of accumulated fund accounts was greater than
92.5%. The market value of the underlying assets in respect of all smoothed bonus business at 31 December 2008 was
R24.1 billion (2007: R29.9 billion) for the group and R22.3 billion (2007: R27.6 billion) for Metropolitan Life Ltd.
> The shareholders earn management fees as a percentage of the fair value of the asset portfolio. To the extent that the
assets are subject to interest rate and market price risk, these fees are volatile, although always positive.
> Shareholders also earn specifi ed charges.
43.4.2 Market-related business
> The group holds the assets on which unit prices are based in accordance with policy terms and conditions.
> The group is thus not exposed to market risk on these funds.
> The shareholders earn management fees as a percentage of the fair value of the asset portfolio. To the extent that these
assets are subject to interest rate and market price risk, these fees are volatile, although always positive.
> The liabilities originating from market-related investment contracts are measured with reference to their respective
underlying assets. Changes in the credit risk of the underlying assets impact the measurement of these liabilities. There
was no other impact on these liabilities in respect of credit risk.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 183
Proof number 04 – 12 March 2009
43.4.3 Non-profi t annuity business
> Benefi t payments on non-profi t annuities are fi xed and guaranteed at inception (except to the extent that they are
exposed to mortality insurance risk).
> In order to reduce market risk, projected liability outfl ows on annuity business are closely matched by an actively
managed combination of bonds of appropriate duration and interest rate derivatives. Any residual mismatch profi t or loss
as well as any credit risk for these policies is borne by the shareholder.
> The impact of a 1% reduction in yields on the annuity portfolio will generate a mismatch profi t of R5 million (2007: profi t
of R2 million) for the group and will have no impact (2007: loss of R2 million) for Metropolitan Life Limited.
> The calculation is based on discount rates derived from a swap yield curve. The average rate that produces the same
result is 6.7% (2007: 8.2%) for the group and 6.7% (2007: 8.2%) for Metropolitan Life Limited.
43.4.4 Guaranteed endowments (include both insurance business and fi nancial instruments)
> Guaranteed endowments are fi ve-year term contracts with fi xed benefi t payments that are guaranteed at inception. The
guaranteed benefi ts are closely matched by a combination of bonds and interest rate derivatives from inception.
> Credit risk for these policies is borne by the shareholder. The structured assets backing this business have a credit rating
that corresponds to senior bank debt, equivalent to a long-term rating of AA from Fitch.
> There is no adjustment to the investment contract liabilities in respect of credit risk.
43.4.5 Structured products (fi nancial instruments)
> The group issues tranches of term contracts whose benefi ts are defi ned in terms of specifi ed fi nancial variables.
A specifi c asset structure to match the fi nancial liability is created for each tranche.
> Credit risk for these policies is borne by the contract holder. The structured assets backing this business have a credit
rating that corresponds to senior bank debt, equivalent to a long-term rating of A from Moody’s.
> There is no adjustment to the investment contract liabilities in respect of credit risk.
43.4.6 Other non-profi t business
> These are primarily insurance contracts of varying duration and infl ation-linked annuities.
> Backing assets are duration matched according to the tax-adjusted modifi ed term of the liabilities.
> There is no adjustment to the investment contract liabilities in respect of credit risk.
> For insurance contracts, the average discount rate used in calculating contract holder liabilities is 6.2% (2007: 7.1%) for
the group and 6.2% (2007: 7.1%) for Metropolitan Life Limited.
> The investment contract liability is primarily in respect of infl ation-linked benefi ts, which are discounted using a real yield
curve. The average real yield that produces the same result is 2.9% (2007: 3.1%) for the group and 2.9% (2007: 3.1%)
for Metropolitan Life Limited.
184 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
43.4.7 Investment guarantees
> A guaranteed maturity value is attached to the majority of the individual DPF business and some of the individual
market-related business. Typically, guaranteed returns of 4% are provided.
> In addition, all DPF business has a minimum death or maturity value equal to the vested benefi ts.
> Investment guarantees on death and early termination are also provided and some older blocks of retirement annuity
business have attaching guaranteed annuity options on maturity. These give contract holders the right to purchase
conventional annuity contracts at guaranteed rates specifi ed at the inception dates of the retirement annuity contracts.
The liabilities in respect of these types of guarantee are much less signifi cant than the liabilities in respect of guaranteed
maturity values.
> The liabilities in respect of investment guarantees are sensitive to interest rate and equity price movements and are
valued using accepted proprietary models in accordance with market-consistent valuation techniques as set out in
PGN110 – Allowance for embedded investment derivatives. Refer note 20.
> Currently no structures are in place to match movements in this liability.
43.5 Insurance risk
Insurance risk is the risk that benefi t payments and expenses exceed the carrying amount of the company’s insurance
liabilities. Insurance events are random and the actual number and amount of claims and benefi ts will vary from year to
year. Statistically, the larger the portfolio of similar insurance contracts, the smaller the relative variability of the expected
outcome will be. Similarly, diversifi cation of the portfolio with respect to risk factors reduces insurance risk.
43.5.1 Mortality, morbidity and medical risks
Underwriting processes are in place to manage exposure to death, disability and medical risks. The most signifi cant
measures:
> Premium rates are required to be certifi ed by the statutory actuary as being fi nancially sound.
> Regular experience investigations are conducted and used to set premium rates.
> Reinsurance arrangements are negotiated in order to limit the risk on any individual contract.
The nature of risk varies depending on the class of business. The material classes of business most affected by these risks
are discussed below.
Individual insurance business
> These are contracts providing benefi ts on death, disability, accident, medical events and survival that are sold directly to
individuals. These contracts may also bear signifi cant fi nancial risk.
> Factors affecting these risks
– The most signifi cant factors that could substantially increase the frequency of claims are epidemics (such as AIDS or
Avian fl u) or widespread changes in lifestyle (smoking, exercise, eating, sexual practices), resulting in more or earlier
claims.
– Economic conditions can potentially affect morbidity claims where benefi ts are determined in terms of the ability to
perform an occupation.
– Medical advances can potentially affect the size of medical claims.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 185
Proof number 04 – 12 March 2009
> How risks are managed:
– Risk premiums on most smoothed bonus and market-related contracts may be adjusted within the terms and
conditions of the contracts. Group practice is to adjust these charges so that on average they refl ect actual mortality
experience, hence reducing mortality risk. There is residual mortality risk resulting from delays in identifying worsening
experience and adjusting charges as well as marketing pressures.
– To reduce cross-subsidisation of risks, and the possibility of anti-selection, premium rates differentiate on the basis of:
age, gender, occupation, smoker status, education, income level, geographic region and the results of underwriting
investigations. Experience investigations have shown these are reliable indicators of the risk exposure.
– All applications are subject to underwriting rules. Applications for risk cover above certain limits are reviewed by
experienced underwriters and evaluated against established standards.
– Compulsory testing for HIV is carried out in all cases where the applications for risk cover exceed limits specifi ed
for each product. Where HIV tests are not required, this is fully refl ected in the pricing and experience is closely
monitored.
– Underwriting is done to identify abnormal risks and take appropriate action, such as applying additional premium
loadings or altering benefi t terms.
– Mortality on non-profi t annuities is monitored and future mortality improvements are allowed for in the pricing.
– Additional provisions are held in respect of the potential deterioration of the mortality experience of supplementary
benefi ts and direct marketing business.
– Reinsurance agreements are used to limit the risk on any single policy. Sums assured above a negotiated retention
level are reinsured on a risk premium basis. Facultative arrangements are used for substandard lives and large sums
assured. Currently no catastrophe cover has been purchased, but this is assessed on a regular basis.
The table below shows the concentration of individual insurance contract benefi ts by sum insured at risk:
2008 2007
Sum insured per benefi tsNumber of
benefi tsAmount
(gross)Amount
(net)Number of
benefi ts
Amount
(gross)
Amount
(net)
Rm Rm Rm Rm
Group 0 – 20 000 2 153 339 8 940 8 591 2 244 044 9 716 9 356
20 001 – 50 000 342 824 11 757 10 644 371 483 12 587 11 454
50 001 – 100 000 121 100 9 178 8 095 123 580 9 250 8 204
100 001 – 200 000 59 037 8 634 7 431 59 917 8 528 7 538
200 001 – 500 000 51 001 17 464 12 202 50 674 16 546 12 062
>500 001 53 612 63 316 34 937 47 962 53 689 28 900
Metropolitan Life Ltd 0 – 20 000 1 773 237 7 010 6 694 1 896 679 7 783 7 463
20 001 – 50 000 308 877 10 635 9 605 329 824 11 259 10 227
50 001 – 100 000 112 672 8 577 7 540 114 457 8 592 7 647
100 001 – 200 000 56 193 8 256 7 093 56 693 8 091 7 149
200 001 – 500 000 49 710 17 022 11 859 49 105 16 110 11 727
>500 001 53 076 62 656 34 431 47 381 52 988 28 337
186 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
Group insurance business
> These are contracts that provide life and/or disability cover to members of a group (eg clients or employees of a specifi c
company).
> Factors affecting these risks:
– Contracts are similar to individual insurance contracts but there is greater risk of correlation between claims on group
schemes because the assured lives live in the same geographical location or work in the same industry.
– Underwriting processes may be streamlined, with cover supplied up to certain limits without underwriting.
> How risks are managed:
– Rates are based on scheme experience and are reviewed annually.
– Rate reviews take into account known trends such as worsening experience due to AIDS.
– Reinsurance arrangements are in place to limit the risk on each individual life. In addition, catastrophe cover is used to
limit the risk of a large number of claims arising as a result of a single event.
The table below shows the concentration of group schemes by scheme size (as determined by the number of lives
covered).
NumberLives covered by scheme 2008 2007
Group 0 – 1 000 2 028 1 798
1 001 – 5 000 281 281
>5 001 138 141
Metropolitan Life Ltd 0 – 1 000 1 337 1 348
1 001 – 5 000 254 266
>5 001 126 131
Annuity business
> These are contracts that provide benefi t payments contingent on the survival of the annuitant. The group is exposed to
the risk that on average annuitants live longer than assumed in the pricing basis.
> Factors affecting these risks:
– Increased longevity due to medical advances and improvement in social conditions.
– Selection bias – individuals purchasing annuities are in better health and therefore live longer than assumed in the
pricing basis.
> How risks are managed:
– Pricing assumptions are based on international mortality tables, with an allowance for improving mortality trends.
– Premium rates differentiate on the basis of age and sex.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 187
Proof number 04 – 12 March 2009
The table below shows the concentration of individual annuity contracts by annual annuity amounts:
2008 2007
Number of annuitants
Total amount per annum
Number of
annuitants
Total amount
per annum
Annuity amount per annum Rm Rm
Group 0 – 50 000 40 258 273 38 851 245
50 001 – 100 000 994 69 788 54
100 001 – 250 000 292 41 187 26
>250 001 41 16 31 12
Metropolitan Life Ltd 0 – 50 000 38 478 256 37 360 230
50 001 – 100 000 897 62 697 48
100 001 – 250 000 267 37 165 23
>250 001 39 16 30 12
43.5.2 Contract persistency risk
> Contract holders generally have a right to pay reduced or no future premiums, or to terminate the contract completely
before expiry of the contract term.
> Economic conditions and/or consumer trends can infl uence persistency rates.
> Expenses incurred in the acquisition of contracts are expected to be recouped over the term of the policy. These may
not be recovered where the premiums are reduced or the contract terminated early.
> Terminations can have the effect of increasing insurance risk, for example contract holders whose health has deteriorated
are less likely on average to terminate a contract providing medical or death benefi ts.
> The liability held for some contracts may be less than the termination benefi t payable. The net group surplus will reduce
if these contracts terminate early.
How risks are managed:
> Where withdrawal benefi ts are payable on termination, these can be adjusted to recover certain expenses. However,
market and legislative forces may restrict the extent to which this may be done in future.
> Persistency rates are measured on a monthly basis by a variety of factors and resources are directed towards the sale
of business with higher persistency.
43.6 Liquidity risk
Liquidity risk is the risk that the group will encounter diffi culty in meeting obligations associated with fi nancial and insurance
liabilities, arising because of the possibility that the group could be required to pay its liabilities earlier than expected.
Contract holder liabilities
> The insurance contract liabilities comprise 50% (2007: 49%) of the liabilities of the group and 50% (2007: 49%) of
the liabilities of Metropolitan Life Ltd. Expected cash fl ows, ie the estimated timing of repayment of the amounts
recognised in the balance sheet are disclosed for these liabilities in the maturity analysis below. The assumptions used
to calculate the balance sheet value of these liabilities are disclosed in note 20.
> Contractual cash fl ows for investment contract liabilities, both with DPF and designated as at fair value through income,
are disclosed in the maturity analysis below.
– The earliest contractual maturity date is used for these liabilities.
– The contractually required cash fl ows for policies that can be surrendered are the surrender values of such policies. It
is assumed that surrender values are contractually available on demand and therefore these policies are disclosed as
open-ended.
– For policies with no surrender value, the estimated contractual cash fl ow is disclosed.
188 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
> Guaranteed endowment and structured products have a very specifi c guaranteed repayment profi le, and these policies
are backed by assets structured by investment banks.
Liabilities designated as at fair value through income and at amortised cost
> Collective investment scheme liabilities represent demand deposit liabilities of scheme interests not held by the group.
Refer note 21.
> Both the cumulative convertible redeemable preference shares and the subordinated redeemable debt are shareholder
liabilities. The shareholder asset composition, as disclosed under market risk, accommodates the cash requirements of
both these liabilities and is managed accordingly.
> It is expected that the preference shares will convert into ordinary shares and that there will therefore be no cash outfl ow
on conversion; however, if the shares are not converted, an outfl ow at redemption value is assumed on redemption
date, which is 30 September 2009 for the A1 and A2 preference shares and 15 December 2010 for the A3 preference
shares. The group has a further obligation to pay preference share dividends. The cash fl ows for these dividends are
those expected up to redemption date, even though the conversion of the preference shares is at the option of the
preference shareholder.
> It is assumed that the subordinated redeemable debt will be redeemed on 15 December 2014, being the earliest date
on which the holder can redeem the debt.
Management of liquidity risk
> The investment committee and the asset-liability management forum monitor liquidity requirements and cash
resources.
> The group reduces liquidity risk for contract holder liabilities by ensuring that appropriate assets, including liquid
resources, back these liabilities.
> For assets backing guaranteed endowment and structured products, it is the intention to hold these assets to their
maturity date. Although these assets can be realised at any point in time, there will be signifi cant fees payable in
unwinding these asset structures prematurely. These assets are therefore regarded as illiquid assets and have a
market value of R1 029 million, 1.5% of total group assets (2007: R914 million, 1.2%). For Metropolitan Life Ltd, the
corresponding market value is R1 014 million, 1.6% of total company assets (2007: R908 million, 1.4%).
> Intangible assets, owner-occupied properties, property and equipment, investment properties, interest in subsidiaries
(excluding interest in collective investment schemes), investments in associates and joint ventures (excluding
investments in collective investment schemes) and employee benefi t assets are less liquid assets and amount to
R4.8 billion, 6.8% of total group assets (2007: R4.4 billion, 5.8%). For Metropolitan Life Ltd, the corresponding values,
including interest in subsidiary companies, are R4.1 billion, 6.6% of total company assets (2007: R3.7 billion, 5.5%).
> The remainder of the assets, R63.8 billion, 91.7% (2007: R69.9 billion, 93.0%) of total group assets and R57.4 billion,
91.8% (2007: R62.6 billion, 93.2%) of the total assets of Metropolitan Life Ltd, is seen to be liquid and relatively easy
to realise.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 189
Proof number 04 – 12 March 2009
The following table indicates the maturity analysis of the liabilities:
Group Carrying Open Cash fl owsvalue ended 0 to 1 year 1 to 5 years > 5 years
Rm Rm Rm Rm Rm2008Insurance contracts 32 025 1 502 2 739 5 321 22 463 Investment contracts
With DPF 11 278 11 231 – 30 32 Designated as at fair value through
income 13 931 6 299 691 3 035 5 417 Collective investment scheme liabilities 272 272 Derivative liabilities 1 498 Amortised cost
Cumulative redeemable convertible
preference shares 841 – 644 381 – Subordinated redeemable debt 501 – 46 185 546 Finance lease liabilities 2 – 1 1 – Other 5 – 3 2 – Other payables 1 292 3 1 280 10 – Insurance payables 1 521 – 1 521 – – Other liabilities 459 Total liabilities 63 625
2007
Insurance contracts 33 398 1 304 3 330 4 796 23 968
Investment contracts
With DPF 14 273 14 225 – 23 44
Designated as at fair value through
income 14 112 6 040 810 3 163 5 115
Collective investment scheme liabilities 635 635
Derivative liabilities 858
Amortised cost
Cumulative redeemable convertible
preference shares 837 – 134 1 129 –
Subordinated redeemable debt 501 – 46 185 593
Finance lease liabilities 3 – 3 – –
Other 29 – 29 – –
Other payables 1 050 – 1 050 – –
Insurance payables 1 367 – 1 367 – –
Other liabilities 1 179
Total liabilities 68 242
190 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
Metropolitan Life Ltd Carrying Open Contractual cash fl owsvalue ended 0 to 1 year 1 to 5 years > 5 years
Rm Rm Rm Rm Rm2008Insurance contracts 29 301 1 366 2 434 4 705 20 796 Investment contracts
With DPF 10 781 10 734 – 30 32 Designated as at fair value through
income 13 441 5 935 689 2 962 5 326 Derivative liabilities 1 490 Amortised cost
Subordinated redeemable debt 501 – 46 185 546 Finance lease liabilities 1 – 1 – – Other payables 1 004 – 1 004 – – Insurance payables 1 423 – 1 423 – –Other liabilities 373 Total liabilities 58 315
2007
Insurance contracts 30 474 1 139 2 985 4 525 21 825
Investment contracts
With DPF 13 682 13 651 – 19 12
Designated as at fair value through
income 13 595 5 656 806 3 122 5 031
Derivative liabilities 858
Amortised cost
Subordinated redeemable debt 501 – 46 185 593
Finance lease liabilities 1 – 1 – –
Other payables 785 – 785 – –
Insurance payables 1 266 – 1 266 – –
Other liabilities 918
Total liabilities 62 080
> Open-ended liabilities do not have a specifi ed term and are contractually available on demand.> Insurance contract liabilities are disclosed at discounted values. All other values are undiscounted.> Insurance payables exclude premiums paid in advance.> Cash fl ows for derivative fi nancial instruments are disclosed on a net basis below.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 191
Proof number 04 – 12 March 2009
Derivative fi nancial instruments
Derivative contracts are not entered into purely for speculative purposes. All hedging transactions are to hedge the exposure
to changes in the fair value of recognised assets and liabilities.
The following table indicates the expiry of derivative fi nancial assets and liabilities, based on undiscounted cash fl ow
projections. When the amount payable is not fi xed, the amount disclosed is determined by reference to the conditions
existing at the reporting date.
Group Metropolitan Life Limited0 to 1 year 1 to 5 years > 5 years 0 to 1 year 1 to 5 years > 5 years
Rm Rm Rm Rm Rm Rm2008OTC instruments
Equity index options 4 – – 4 – – Equity index futures (37) – – (201) – – Interest rate swaps (63) (226) (776) (63) (226) (776)Exchange traded
Equity index warrants 88 – – (8) (226) (776) (260) (226) (776)
2007OTC instruments
Equity index options 63 45 – 63 45 –
Equity index futures (410) – –
Interest rate swaps (58) (214) (744) (58) (214) (744)
5 (169) (744) (405) (169) (744)
43.7 Market risk
Introduction
> Market risk for shareholders, is the risk that the fair value on future cash fl ows of fi nancial instruments backing the
shareholder excess will fl uctuate because of changes in market prices, taking into account the second order impact on
earnings due to such market price fl uctuations of fi nancial instruments backing the contract holder liabilities.
> Management analyses three types of market risk, being equity price risk, interest rate risk and currency risk.
For contract holder liabilities, the fi nancial instruments backing each major line of business are segregated to ensure that
they are used exclusively to provide benefi ts for the relevant contract holders. These fi nancial instruments are subject
to various market risks, particularly interest rate and equity price risk. Each portfolio consists of an asset mix deemed
appropriate for the specifi c product. These risks are discussed in note 43.4 and the group’s exposure to interest rate, equity
and currency risks is disclosed in notes 43.7.1 to 43.7.2.
192 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
The following table is an analysis of the assets backing shareholder capital, ie shareholder excess:
Group Metropolitan Life Ltd2008 2007 2008 2007
Rm Rm Rm RmEquity securities 2 504 3 575 1 427 1 736
Collective investment schemes 629 1 325 416 881
Debt securities 295 523 199 475
Owner-occupied properties 671 592 486 412
Investment properties 286 103 433 255
Cash and cash equivalents 2 100 1 490 1 238 1 002
Goodwill 209 244 40 40
Other net assets 495 303 479 790
7 189 8 155 4 718 5 591
Redeemable convertible preference shares (841) (837)
Subordinated redeemable debt (501) (501) (501) (501)
Excess per reporting basis 5 847 6 817 4 217 5 090
Sensitivity analysis
Sensitivity ranges
> The upper and lower limits of the sensitivity ranges are management’s best judgement of the range of probable changes
within a twelve month period from the reporting date of 31 December 2008.
> These limits are set taking into account actuarial guidance relating to acceptable ranges of sensitivities within a normal
asset distribution. Extreme or irregular events that occur sporadically, ie not on an annual basis, have been ignored, as
they are by nature not predictable in terms of timing.
Methods and assumptions used in preparing the sensitivity analysis
> The sensitivities are assumed to be a once-off event on the balance sheet date, with respect to the particular assets
backing shareholder capital on that date.
> For the second order impact on earnings resulting from market fl uctuations on fi nancial instruments backing contract
holder liabilities, no changes are made to long-term market assumptions used in determining the contract holder liabilities.
The actuarial valuation model is simply applied using the new asset levels, ie after adjusting for a particular sensitivity.
> Each sensitivity is calculated in isolation and no inter relationship between variables is taken into account. It is, however,
accepted that these variables tend not to move in isolation.
Sensitivities to market risks
> Management identifi ed the risk of a sudden drop in equity market values as the most signifi cant market risk. If the market
value of equities decreased by 10% at the balance sheet date, the approximate impact would be a reduction in earnings
of R324 million (2007: R424 million) for the group and R210 million (2007: R233 million) for Metropolitan Life Ltd.
Derivative and other structures on shareholder assets are used to negate such risk. These structures and other ways of
reducing this risk are assessed, investigated and implemented on an ongoing basis by management with consideration
of the market conditions at any given time.
> The shareholders’ exposure to an increase in interest rates is mainly of a second order nature. If the expectation of future
investment yields, discount rates and infl ation rates were increased by 1% at the balance sheet date, it would result in a
reduction of the excess asset value of R73 million (2007: R55 million) for the group and R78 million (2007: R71 million) for
Metropolitan Life Ltd.
This impact is addressed by ensuring that contract holder liabilities and assets are matched and continuously monitored
to ensure that no signifi cant mismatching losses will arise due to a shift in the yield curve or a change in the shape of the
yield curve.
> Foreign assets backing shareholder capital amount to R572 million (2007: R701 million) for the group and R379 million
(2007: R471 million) for Metropolitan Life Ltd. The shareholders’ exposure to foreign exchange is therefore relatively small
and not seen to be a primary market risk.
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 193
Proof number 04 – 12 March 2009
43.7.1 Interest rate risk
Interest rate risk is the risk that the value of a fi nancial instrument will fl uctuate as a result of changes in interest rates.
Changes in market interest rates have a direct effect on the contractually determined cash fl ows associated with fl oating
rate fi nancial assets and fi nancial liabilities, and on the fair value of other investments. Fair values of fi xed maturity
investments included in the group’s investment portfolios are subject to changes in prevailing market interest rates.
Additionally, relative values of alternative investments and the liquidity of the instruments invested in could affect the fair
value of interest rate market-related investments. The ongoing assessment by an investment research team of market
expectations within the South African interest rate environment drives the process of asset allocation in this category. The
group is exposed to fi xed and fl oating interest rates.
Group Metropolitan Life Ltd2008 2007 2008 2007
Instrument class and weighted average rate Rm Rm Rm RmDebt securities 15 968 14 268 14 576 13 119
Fixed rate – coupon - 9.8% (2007: 10.2%) 7 279 6 345 6 015 5 346
Floating rate – 11.5% (2007: 10.2%) 649 144 647 144
Real market yields – 3.9% (2007: 3.6%) 5 097 4 756 5 097 4 756
Nominal market yields – 8.0% (2007: 8.9%) 1 001 698 926 650
Structured notes 719 1 454 668 1 352
Unlisted unquoted 1 223 871 1 223 871
Funds on deposit and other money market instruments 3 409 2 150 3 074 1 927
Fixed rate – 12.4% (2007: 10.5%) 1 747 957 1 440 740
Floating rate – 13.0% (2007: 10.3%) 1 448 1 193 1 444 1 187
Nominal market yields – 11.5% 214 – 190 –
Cash and cash equivalents 8 810 8 274 7 106 7 024
Fixed rate – 12.1% (2007: 10.5%) 1 544 586 1 344 408
Floating rate – 10.9% (2007: 9.7%) 5 408 6 546 4 501 5 758
Nominal market yields – 11.5% (2007: 10.7%) 584 539 584 539
Money market unit-linked 1 157 528 662 319
Current account – no interest 117 75 15 –
28 187 24 692 24 756 22 070
43.7.2 Currency risk
Currency risk is the risk that the rand value of a fi nancial instrument will fl uctuate due to changes in foreign exchange
rates.
The group has unit trusts and cash invested offshore which are denominated in foreign currencies. These investments
were made for the purpose of obtaining a favourable international exposure to foreign currency and to investment value
fl uctuations in terms of investment mandates.
To the extent that offshore assets are held in respect of contracts where the contract holder benefi ts are a function of the
returns on the underlying assets, currency risk is minimised.
Foreign assets backing the shareholder excess, included in the table below, amount to R572 million (2007: R701 million)
for the group and R379 million (2007: R471 million) for Metropolitan Life Ltd.
The following assets and liabilities denominated in foreign currencies are included in the group balance sheet. Assets and
liabilities denominated in Namibian dollar, Lesotho maluti and Swazi lilangeni, currencies that are pegged to the South
African rand on a 1:1 basis, do not form part of the currency risk of the group. The geographical area of Africa includes
Botswana, Ghana and Kenya.
194 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
Proof number 04 – 12 March 2009METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
NOTES TO THE FINANCIAL STATEMENTS
(continued)
GroupAfrica UK£ US$ Euro
Asian Pacifi c Other Total
Rm Rm Rm Rm Rm Rm Rm2008Closing exchange rate 13.68 9.39 13.19 Financial assets 757 293 4 007 454 63 98 5 672 Equity securities 186 43 429 128 63 44 893 Debt securities 360 41 719 – – – 1 120 Unit-linked investments – 179 2 725 187 – 54 3 145 Other fi nancial assets 211 30 134 139 – – 514 Other assets 51 51
808 293 4 007 454 63 98 5 723
Insurance contract liabilities (726) (726)Investment contract liabilities (56) (56)Other liabilities (98) (98)
(880) (880)
2007
Closing exchange rate 13.63 6.86 10.01
Financial assets 657 437 6 155 382 27 19 7 677
Equity securities 211 23 1 671 50 26 18 1 999
Debt securities 235 153 1 500 – – – 1 888
Unit-linked investments – 193 2 464 229 – – 2 886
Other fi nancial assets 211 68 520 103 1 1 904
Other assets 50 50
707 437 6 155 382 27 19 7 727
Insurance contract liabilities (754) (754)
Investment contract liabilities (46) (46)
Other liabilities (77) (77)
(877) (877)
Metropolitan Life LtdUK£ US$ Euro
Asian Pacifi c Other Total
Rm Rm Rm Rm Rm Rm2008Closing exchange rate 13.68 9.39 13.19 Financial assets
Equity securities 21 289 39 26 28 403 Debt securities 41 668 – – – 709 Unit-linked investments 41 2 414 135 – – 2 590 Other fi nancial assets 27 6 8 – – 41
130 3 377 182 26 28 3 743
2007
Closing exchange rate 13.63 6.86 10.01
Financial assets
Equity securities 21 1 561 47 24 16 1 669
Debt securities 153 1 388 – – – 1 541
Unit-linked investments 35 2 199 111 – – 2 345
Other fi nancial assets 67 440 91 1 1 600
276 5 588 249 25 17 6 155
METROPOLITAN HOLDINGS | ANNUAL FINANCIAL STATEMENTS 2008 | 195
Proof number 04 – 12 March 2009
44 METROPOLITAN HEALTH GROUP
Risks relating to services provided
Metropolitan Health provides a comprehensive suite of services to the private healthcare industry in South Africa and is organised into the following business units:
Third party administration
This business has a 58% (2007: 54%) market share of restricted scheme members. The business receives a monthly fee per member for administering medical schemes on behalf of their trustees.
*Contribution to turnover 64% (2007: 60%)
Managed care
Qualsa Healthcare provides a comprehensive suite of managed care services to the administration and franchise client base. Historically it has mainly contracted on a fee for service basis, but is increasingly harnessing its network competencies to provide risk products, such as capitation contracts.
*Contribution to turnover 21% (2007: 26%)
Technology services
Metropolitan Health develops and maintains its own systems that it provides to all businesses in the health group as well as licensing systems to third parties via its franchise solution.
*Contribution to turnover 15% (2007: 14%)
Risks relating to the company
This section provides information on the key risks to Metropolitan Health and provides information on the processes and structures in place to manage and mitigate these risks.
Contract risk
In line with industry legislation (the Medical Schemes Act) all clients have contract termination notice periods not exceeding six months, except technology services that has notice periods not exceeding twelve months. Providing high-quality services through client-centric business units mitigates this risk.
Operational risk
Constant legislative change and increasing client demands make third party administration inherently a high-risk industry. The integration of the managed care and third party administration systems has greatly reduced the operational risks for both. Technology services’ systems architecture is highly scalable and requires minimal lead-times to increase capacity to match growth demands. It is also subject to regular testing and reviews, including an independent service auditor review.
Legislative risk
Both the administration business and Qualsa have compliance offi cers who monitor ongoing legislative compliance. Both companies have received a B rating from the National Empowerment Rating Agency. Technology services’ risk is limited to confi dentiality of member data and fl exibility to accommodate legislative changes.
Financial risk
All the businesses are cash generative, with fees mostly being collected monthly in advance. They have a signifi cant fi xed cost base and as such profi ts are relatively sensitive to changes in members under administration.
Environmental risk
Consolidation of medical schemes is the dominant environmental risk in the private healthcare industry.
Capitation agreements
Claims are managed through advanced managed care programmes. These managed care programmes include pre-authorisation steps for high cost procedures and claims adjudication procedures that are linked to clinical protocols developed by respected leaders in the respective medical disciplines. In addition to this, a specialist clinical audit team uses sophisticated data mining software to identify over-servicing by providers and other incidents of fraudulent claims.
A VISION OF PROSPERITYrefl ected in the bottom line
METROPOLITAN HOLDINGS LTD FINANCIAL STATEMENTS
BALANCE SHEET 197
INCOME STATEMENT 197
STATEMENT OF CHANGES IN EQUITY 198
CASH FLOW STATEMENT 198
NOTES TO THE FINANCIAL STATEMENTS 199
SIGNIFICANT SUBSIDIARY COMPANIES 210
SHAREHOLDER PROFILE 211
BENEFICIAL OWNERS 211
STOCK EXCHANGE PERFORMANCE 212
SHAREHOLDER DIARY 213
NOTICE TO MEMBERS ANNUAL GENERAL MEETING 214
ADMINISTRATION 216
PROXY
Proof number 04 – 12 March 2009
METROPOLITAN HOLDINGS LTD | ANNUAL FINANCIAL STATEMENTS 2008 | 197
BALANCE SHEET
at 31 December 2008
INCOME STATEMENT
for the year ended 31 December 2008
2008 2007Rm Rm Notes
ASSETS Equipment 0.2 0.3 2
Interest in subsidiary companies 1 576.3 1 402.1 3
Financial instruments 1 338.3 2 172.5
Designated as at fair value through income 975.0 1 673.9 4
Loans and receivables 363.3 498.6 5
Cash and cash equivalents 303.5 65.3 6
Total assets 3 218.3 3 640.2
EQUITY Share capital 32.9 32.9 7
Fair value reserve 52.3 48.7
Retained earnings 1 985.6 2 517.5
Total equity 2 070.8 2 599.1
LIABILITIES Financial instruments 1 051.0 837.3 8
Amortised cost 1 042.8 837.3
Held for trading 8.2 –
Deferred income tax 35.6 83.8 9
Employee benefi t obligations 0.7 1.7 10
Other payables 55.8 76.4 11
Current income tax liability 4.4 41.9 12.1
Total liabilities 1 147.5 1 041.1
Total equity and liabilities 3 218.3 3 640.2
2008 2007Rm Rm Notes
Investment income 1 343.5 1 759.0 13
Net realised and fair value (losses)/gains (349.8) 219.9 14
Net income 993.7 1 978.9
Depreciation and impairment expenses 135.6 0.2 15
Employee benefi t expenses 17.6 26.8 16
Other expenses 45.4 38.2 17
Expenses 198.6 65.2
Results of operations 795.1 1 913.7
Finance costs (137.6) (123.6) 18
Profi t before tax 657.5 1 790.1
Income tax expenses (32.2) (156.6) 12.2
Earnings for year 625.3 1 633.5
Proof number 04 – 12 March 2009
198 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS LTD
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2008
Share capital
Retained earnings
Fair value reserve Total
Rm Rm Rm Rm
Balance at 1 January 2007 32.7 2 505.3 35.2 2 573.2
Earnings for year 1 633.5 1 633.5
Employee share schemes – value of services provided 4.0 4.0
Equity-settled arrangements – contribution to subsidiaries 9.1 9.1
Dividend paid (981.4) (981.4)
Costs of repurchased and cancelled shares 0.2 0.2
Transfer (to)/from other reserves (0.4) 0.4 –
Shares repurchased and cancelled (639.5) (639.5)
Balance at 1 January 2008 32.9 2 517.5 48.7 2 599.1
Earnings for year 625.3 625.3
Employee share schemes – value of services provided (3.7) (3.7)
Equity-settled arrangements – contribution to subsidiaries 7.3 7.3
Dividend paid (546.2) (546.2)
Shares repurchased and cancelled (409.5) (409.5)
Obligation to purchase own shares (201.5) (201.5)
Balance at 31 December 2008 32.9 1 985.6 52.3 2 070.8
2008 2007Rm Rm Notes
Cash fl ow from operating activitiesCash utilised in operations (24.0) (101.4) 19.1
Dividends received 1 297.0 1 717.3
Interest received 26.8 41.7
Income tax paid (117.9) (127.3) 19.2
Interest paid (133.6) (117.8) 19.3
Net cash infl ow from operating activities 1 048.3 1 412.5
Cash fl ow from investing activitiesNet disposal of assets designated as at fair value through income 357.3 511.4
Investments in subsidiary companies (201.9) (160.2)
Net loans to related parties advanced (9.7) (185.5)
Purchases of equipment (0.1) (0.1)
Net cash infl ow from investing activities 145.6 165.6
Cash fl ow from fi nancing activitiesShares repurchased and cancelled (409.5) (639.5)
Dividend paid (546.2) (981.4)
Net cash outfl ow from fi nancing activities (955.7) (1 620.9)
Net cash fl ow 238.2 (42.8)
Cash resources and funds on deposit at beginning 65.3 108.1
Cash resources and funds on deposit at end 303.5 65.3 6
CASH FLOW STATEMENT
for the year ended 31 December 2008
Proof number 04 – 12 March 2009
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1 BASIS OF PREPARATION AND ACCOUNTING POLICIESThe basis of preparation and accounting policies of the company are the same as that of the group, as set out in the group
accounting policies in the group annual fi nancial statements. These fi nancial statements should be read in conjunction with
the group annual fi nancial statements.
2008 2007Rm Rm
2 EQUIPMENTCost 0.9 0.8 Accumulated depreciation (0.7) (0.5)Carrying amount 0.2 0.3
Carrying amount at beginning 0.3 0.3 Additions 0.1 0.1 Depreciation charges (0.2) (0.1)Carrying amount at end 0.2 0.3
Equipment comprises furniture and fi ttings and computer equipment.
3 INTEREST IN SUBSIDIARY COMPANIESCost less impairment 1 138.3 1 147.6 Loans to subsidiary companies 438.0 254.5
1 576.3 1 402.1
Opening balance 1 402.1 981.0 Equity-settled arrangements – contribution to subsidiary companies 7.3 9.1 Cost of subsidiaries acquired 18.4 157.5 Less impairment charge (35.0) – Movements on and loans to subsidiary companies 183.5 254.5 Closing balance 1 576.3 1 402.1
General
Details of interest in subsidiary companies are disclosed in annexure 1.
Impairment
The company impaired its investment in DirectFin Solutions (Pty) Ltd by R35.0 million. The recoverable value of this company is determined based on a value-in-use calculation. This calculation uses discounted cash fl ow projections of profi t for the company, with an estimated growth rate of 12.5% and a discount rate of 13.0%. The cash fl ow period was based on ten years. During 2007 there were no impairments.
Loans to subsidiary companies
The loans to subsidiary companies are not of a commercial nature and are therefore interest free, with no fi xed repayment terms. These loans are intended to provide the subsidiaries with a long-term source of additional capital. The company can recall these loans when cash is required.
2007 restated
Loans to subsidiary companies to the value of R254.5 million were reallocated from loans and receivables. These loans are not of a commercial nature, have no set terms and are intended to provide the subsidiaries with a long-term source of additional capital.
4 DESIGNATED AS AT FAIR VALUE THROUGH INCOMEEquity securities 929.0 1 439.4 Unit-linked investments 46.0 234.5
975.0 1 673.9
> Assets designated as at fair value through income are all open-ended.
> The criteria for designation of assets as at fair value through income are disclosed in the group annual fi nancial statements under critical judgements and accounting estimates.
> A schedule of equity securities is available for inspection at the company’s registered offi ce.
NOTES TO THE FINANCIAL STATEMENTS
Proof number 04 – 12 March 2009
NOTES TO THE FINANCIAL STATEMENTS
(continued)
200 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS LTD
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
2008 2007Rm Rm
5 LOANS AND RECEIVABLESAccounts receivable 3.2 42.6 Loans to related parties 358.6 453.9 Loans to subsidiary companies (annexure 1) 171.4 232.7 Loan to associate 6.7 7.4 Private equity funding – 50.4 Empowerment partners 180.5 163.4 Strategic unsecured loans 1.5 2.1
363.3 498.6
Current 205.9 286.5 Non-current 157.4 212.1
363.3 498.6
Terms and conditions of material loans
> Loans to subsidiary companies are interest free, unsecured and have no repayment terms.
> The loan to associate is unsecured, has no repayment terms, and interest is as agreed between the shareholders (currently 0%).
> The private equity funding was repaid during the current year.
> Loans to empowerment partners consist of:
– an unsecured loan of R146.4 million (2007: R130.9 million) to a subsidiary (SPV) of Kagiso Trust Investments (Pty) Ltd, with a repayment date of between fi ve and ten years from date of issue (January 2005), on which interest is charged at 80% of the prime interest rate.
– a secured loan of R34.1 million (2007: R32.5 million) to Pinnacle Business Investments (Pty) Ltd, with a repayment date of 30 November 2012, on which interest is charged at 1% less than the prime interest rate of South Africa. The loan is secured by the underlying shares in Metropolitan Life (Namibia) Ltd.
Impairment
During 2008 loans to subsidiary companies were impaired by R100.4 million. These loans were impaired to the net asset value of the companies in question. There were no impairments during 2007.
2007 restated
Loans to subsidiary companies to the value of R254.5 million were reallocated from loans and receivables to investment in subsidiary companies. These loans are not of a commercial nature, have no set terms and are intended to provide the subsidiaries with a long-term source of additional capital.
6 CASH AND CASH EQUIVALENTS
Bank and other cash balances 5.9 18.2 Funds on deposit and other money market instruments 297.6 47.1
303.5 65.3
7 SHARE CAPITALDetails of share capital are disclosed in note 15 of the group annual fi nancial statements.
8 FINANCIAL LIABILITIESAmortised cost 1 042.8 837.3 Cumulative redeemable convertible preference shares 841.3 837.3 Obligation to purchase own shares 201.5 – Held for trading Derivative fi nancial instrument 8.2 –
1 051.0 837.3
Current 733.1 31.0 Non-current 317.9 806.3
1 051.0 837.3
> Details of the cumulative redeemable convertible preference shares are disclosed in note 22.1 of the group annual fi nancial statements.
> Metropolitan Life Ltd repurchased ordinary shares of the company through the open market. Shareholder approval for the company to repurchase the shares at cost was granted at the annual general meeting in May 2008. This obligation to purchase treasury shares has a corresponding entry in equity.
> The derivative fi nancial instrument is an equity call option on shares in a subsidiary company.
Proof number 04 – 12 March 2009
METROPOLITAN HOLDINGS LTD | ANNUAL FINANCIAL STATEMENTS 2008 | 201
2008 2007Rm Rm
9 DEFERRED INCOME TAX
Deferred tax asset 2.1 2.4
Tax losses and credits 1.7 1.6
Accruals and provisions 0.4 0.8
Deferred tax liability (37.7) (86.2)
Revaluations (37.7) (86.2)
(35.6) (83.8)
Current (17.4) (12.4)
Non-current (18.2) (71.4)
(35.6) (83.8)
Movement in deferred tax
Balance at beginning (83.8) (78.4)
Change in tax rate 2.9 –
Revaluations 45.4 (6.5)
Accruals and provisions (0.4) 0.5
Tax losses and credits 0.1 0.6
Balance at end (35.6) (83.8)
10 EMPLOYEE BENEFIT OBLIGATIONS
Cash-settled arrangement – long-term retention schemeBalance at beginning 1.7 –
Allocations – 1.7
Net of redemptions and transfers (1.1) –
Valuation adjustments 0.1 –
Balance at end 0.7 1.7
Current 0.5 –
Non-current 0.2 1.7
0.7 1.7
During 2006 the group introduced a new cash-settled long-term retention scheme. In terms of this scheme, participants can qualify for a bonus, payable after three years, based on the performance of the group measured against certain benchmarks. The basket of performance criteria includes growth in dividend per share, diluted core headline earnings per share and value of new business for the group and determines the number of units that will vest with each employee over the three-year period. The participants will then receive a cash payment per unit, based on the volume weighted average Metropolitan Holdings Ltd share price at the payment date.
The assumptions are disclosed in note 23.2(c) of the group annual fi nancial statements.
11 OTHER PAYABLES
Other payables 15.8 11.5
Loans from subsidiary companies (annexure 1) 40.0 64.9
55.8 76.4
Current 55.8 76.4
Terms and conditions of loans
The loans to subsidiary companies are interest free, unsecured and payable on demand.
Proof number 04 – 12 March 2009
NOTES TO THE FINANCIAL STATEMENTS
(continued)
202 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS LTD
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
2008 2007
Rm Rm
12 INCOME TAX
12.1 Current income tax liability
Movement in liability
Balance at beginning 41.9 18.0
Charged to income statement 7.2 42.4
Additional provisions
Current year 18.3 42.4
Prior year underprovision 1.0 –
Unused amounts reversed (12.1) –
Used during year (44.7) (18.5)
Balance at end 4.4 41.9
12.2 Income tax expenses
South African normal tax
Current year 18.3 31.1
Income tax 8.1 6.6
Capital gains tax 10.2 24.5
Prior year overprovision (11.1) –
Foreign countries – withholding tax 20.6 11.3
27.8 42.4
Secondary tax on companies 52.6 108.9
Deferred tax (48.2) 5.3
32.2 156.6
12.3 Tax rate reconciliation in percentage (%)
Tax calculated at standard rate of South African tax on earnings 28.0 29.0
Prior year reversals (1.6) –
Secondary tax on companies 7.8 6.1
Foreign tax 3.0 0.6
Capital gains tax (5.7) (1.8)
Non-taxable items (26.6) (25.2)
Effective rate 4.9 8.7
Change in tax rate
The tax rate for companies changed from 29% to 28% during 2008.
13 INVESTMENT INCOME
Dividends received – listed equities 61.5 57.7
Dividends received – subsidiary companies 1 235.5 1 659.6
Interest received 46.5 41.7
Designated as at fair value through income 20.1 14.6
Loans and receivables 23.9 26.5
Cash and cash equivalents 2.5 0.6
1 343.5 1 759.0
14 NET REALISED AND FAIR VALUE (LOSSES)/GAINS
Designated as at fair value through income (341.6) 222.5
Held for trading (8.2) –
Realised and unrealised foreign exchange differences on
assets not at fair value through income – (2.6)
(349.8) 219.9
Proof number 04 – 12 March 2009
METROPOLITAN HOLDINGS LTD | ANNUAL FINANCIAL STATEMENTS 2008 | 203
2008 2007
Rm Rm
15 DEPRECIATION AND IMPAIRMENT EXPENSES
Depreciation 0.2 0.2
Impairment of investments in subsidiary companies 35.0 –
Impairment of loans to subsidiary companies 100.4 –
135.6 0.2
16 EMPLOYEE BENEFIT EXPENSES
Salaries 19.6 18.7
Defi ned contribution retirement fund 2.0 1.9
Share-based payment expenses – equity-settled (3.7) 4.0
Share-based payment expenses – cash-settled (1.0) 1.6
Training costs 0.4 0.4
Other 0.3 0.2
17.6 26.8
Executive directors’ emoluments included above 12.6 9.5
Directors’ emoluments paid 18.3 15.0
Directors’ emoluments recovered from subsidiary companies (5.7) (5.5)
Details of the staff share schemes are disclosed in note 16 of the group annual fi nancial statements.
17 OTHER EXPENSES
Asset management fees 9.3 7.9
Auditors’ remuneration 1.3 0.9
Audit fees 0.2 0.2
Other services 1.1 0.7
Consulting fees 13.2 10.3
Information technology expenses 0.6 0.5
Interest on foreign withholding tax 2.7 –
Management fees 0.3 0.3
Marketing costs 3.9 3.3
Non-executive directors’ fees 5.8 4.1
Directors’ fees paid 6.6 5.2
Directors’ fees recovered from subsidiary companies (0.8) (1.1)
Other expenses 4.7 4.7
Other South African taxes 2.9 4.0
Project costs 0.7 2.2
45.4 38.2
18 FINANCE COSTS
Redeemable preference shares 137.6 123.6
Proof number 04 – 12 March 2009
NOTES TO THE FINANCIAL STATEMENTS
(continued)
204 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS LTD
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
2008 2007
Rm Rm
19 CASH FLOW FROM OPERATING ACTIVITIES19.1 Cash utilised in operations
Profi t before tax 657.5 1 790.1 Dividends received (1 297.0) (1 717.3)Interest received (46.5) (41.7)Finance costs 137.6 123.6 Impairment of loans to and investment in subsidiary companies 135.4 – Adjustments for Depreciation 0.2 0.2 Net realised and fair value gains 349.8 (219.9) Share-based payment expenses (4.7) 5.6 Changes in operating assets and liabilities Loans and receivables 39.4 (43.3) Other operating liabilities 4.3 1.3
(24.0) (101.4)
19.2 Income tax paidDue at beginning (125.7) (96.4)Charged and provided (32.2) (156.6)Due at end 40.0 125.7
(117.9) (127.3)
19.3 Interest paidRedeemable preference shares Paid 31 March (66.8) (62.0) Paid 30 September (66.8) (55.8)
(133.6) (117.8)
20 RELATED PARTY TRANSACTIONS20.1 Holding company
Shares in Metropolitan Holdings Ltd, the ultimate holding company in the group, are widely held by public and non-public shareholders; refer to the shareholder profi le included in the annual report. Signifi cant subsidiary companies are listed in annexure 1. Other related parties include Kagiso Trust Investments (Pty) Ltd, directors, key personnel and close members of their families.
20.2 Transactions with directors
Remuneration is paid in the form of fees to non-executive directors and remuneration to executive directors and key personnel of the company. Transactions with directors are disclosed in the corporate governance and directors’ reports of the group annual fi nancial statements, respectively. One member, who resigned at the end of 2008 (2007: three members), excluding executive directors, of the group executive committee was employed by Metropolitan Holdings Ltd. The aggregate remuneration, shares held and transactions of the group executive committee members are disclosed in note 42.2 of the group fi nancial statements.
20.3 Transactions with subsidiaries and associates
Loans are advanced between Metropolitan Holdings Ltd and its subsidiaries and associates as funding. The loans to subsidiary companies included in loans in the balance sheet are detailed in annexure 1. The loan to associate is included in note 5.
Details of other transactions with subsidiaries included in the fi nancial statements are listed below:
2008 2007Rm Rm
Administrative charges – Metropolitan Life Ltd 1.4 3.1 Asset management fees expense – Metropolitan Asset Managers Ltd 4.2 5.5 Fee expense – Metropolitan Capital Ltd 7.2 1.9 Rental expenses – Metropolitan Life Ltd 2.4 2.2
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METROPOLITAN HOLDINGS LTD | ANNUAL FINANCIAL STATEMENTS 2008 | 205
21 CONTINGENT LIABILITIES
The company is party to legal proceedings in the normal course of business and appropriate provisions are made when
losses are expected to materialise.
22 CAPITAL COMMITMENTS
There are no material capital commitments made by the company.
23 RISK MANAGEMENT POLICIES
Details of fi nancial instruments and risk management strategies are disclosed in note 43 of the group annual fi nancial statements.
The more important fi nancial risks to which the company is exposed are credit risk, equity risk and interest rate risk.
The company’s capital is managed with that of the group. The capital management of the group is discussed in note 43.1
of its annual fi nancial statements.
23.1 The following table reconciles the assets and liabilities in the balance sheet to the classes and portfolios of assets managed
in terms of mandates.
2008 2007
Rm Rm
AssetsDesignated as at fair value through income 975.0 1 673.9
Equity securities
Local listed equities 929.0 1 439.4
Unit-linked investments
Local unlisted quoted collective investment schemes 46.0 234.5
Loans and receivables 363.3 498.6
Loans 360.1 456.0
Accounts receivable 3.2 42.6
Cash and cash equivalents 303.5 65.3
Other assets 1 576.5 1 402.4
Total assets 3 218.3 3 640.2
LiabilitiesAmortised cost 1 042.8 837.3
Cumulative redeemable preference shares 841.3 837.3
Obligation to purchase own shares 201.5 –
Held for trading
Derivative fi nancial instrument 8.2 –
Other payables 55.8 76.4
Loans from subsidiary companies 40.0 64.9
Other payables 15.8 11.5
Other liabilities 40.7 127.4
Total liabilities 1 147.5 1 041.1
Unit-linked investments
> Unit-linked investments comprise collective investment schemes and are categorised as equity as at least 55% of the underlying assets in the schemes consist of equity.
Proof number 04 – 12 March 2009
NOTES TO THE FINANCIAL STATEMENTS
(continued)
206 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS LTD
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
23.2 The following table provides an analysis of the fair value of fi nancial assets and liabilities not carried at fair value in the
balance sheet.
2008 2007
Rm Rm
AssetsLoans and receivables 363.3 498.6
Accounts receivable 3.2 42.6
Loans to subsidiary companies 171.4 232.7
Loans to associates 6.7 7.4
Private equity funding – 50.4
Empowerment loans 180.5 163.4
Strategic loans 1.5 2.1
Cash and cash equivalents 303.5 18.2
LiabilitiesAmortised cost 1 598.9 1 905.4
Cumulative redeemable preference shares 1 397.4 1 905.4
Obligation to purchase own shares 201.5 –
Other payables 55.8 76.4
Loans from subsidiary companies 40.0 64.9
Other payables 15.8 11.5
> For cash and cash equivalents, accounts receivable and other payables, the carrying value approximates fair value due to their short-term nature.
> For loans to subsidiary companies and the loan to associate there are no fi xed terms of repayment. When the company is in a position to repay the loan, it will be payable on demand. The face value therefore approximates fair value.
> The private equity funding is refl ected at the fair value of the underlying assets in 2007.
> The fair value of loans to empowerment partners is the discounted amount of the estimated future cash fl ows expected to be received. The expected cash fl ows are discounted at 13.0% (2007: 11.0%).
> The estimated fair value of preference shares is based on the market value of the listed ordinary share adjusted for the differences in the estimated cash fl ows of dividends between the valuation and conversion dates. The expected cash fl ows are discounted at current market rates of 10.0% (2007: 11.0%). The conversion of the preference shares is at the option of the preference shareholder; the date of conversion was estimated based on the most benefi cial dividend stream to the holder.
> For the obligation to purchase own shares the face value approximates fair value as the company received approval from shareholders to repurchase these shares at cost.
> For loans from subsidiary companies the carrying value approximates fair value as they are payable on demand.
23.3 Local listed equities and local unlisted quoted collective investment schemes are valued using published price quotations
in an active market.
Proof number 04 – 12 March 2009
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23.4 Credit risk
Credit risk is the risk that one party to a fi nancial instrument will cause a fi nancial loss for the other party by failing to
discharge an obligation.
The credit risk of the company is managed similarly to that of the group as disclosed in note 43.2 in the group annual
fi nancial statements.
The company’s maximum exposure to credit risk is through the following classes of assets.
2008 2007
Rm Rm
Unit-linked investments
Local unlisted collective investment schemes 46.0 234.5
Loans and receivables 363.3 498.6
Loans 360.1 456.0
Accounts receivable 3.2 42.6
Cash and cash equivalents 303.5 65.3
Total assets bearing credit risk 712.8 798.4
Security and credit enhancements
> For unit-linked investments and cash and cash equivalents, the credit risk is managed through the group’s credit risk
exposure policy described in the group annual fi nancial statements.
> Securities held on loans are disclosed in note 5.
The assets in the table above are analysed in the table below using Fitch ratings or the equivalent thereof when Fitch ratings
are not available.
Rating 2008 2007
Rm Rm
Cash and cash equivalents
F1+, F1, P-1 303.5 65.3
Unrated
Collective investment schemes 46.0 234.5
Loans and receivables 302.7 498.6
Loans 299.5 456.0
Accounts receivable 3.2 42.6
Past due or impaired assets 60.6 –
712.8 798.4
> The loan to Metropolitan Card Operations (Pty) Ltd was impaired during 2008.
> Interest capitalised on a loan to an empowerment partner of R6.3 million is past due since 2007.
Proof number 04 – 12 March 2009
NOTES TO THE FINANCIAL STATEMENTS
(continued)
208 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS LTD
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
23.5 Liquidity risk
Liquidity is the risk that the company will encounter diffi culty in meeting obligations associated with fi nancial liabilities,
arising because of the possibility that the company could be required to pay its liabilities earlier than expected.
Liabilities at amortised cost
> It is expected that the preference shares will convert into ordinary shares and that there will therefore be no cash outfl ow
on conversion; however, if the shares are not converted an outfl ow at redemption value is assumed on redemption date
which is 30 September 2009 for the A1 and A2 preference shares and 15 December 2010 for the A3 preference shares.
The company has a further obligation to pay preference share dividends. The cash fl ow for these dividends are those
expected up to redemption date, even though the conversion of the preference shares is at the option of the preference
shareholder.
> It is expected that the company will purchase the treasury shares during the course of 2009.
Other payables
Other payables include loans from subsidiary companies which are payable on demand.
Management of liquidity risk
The convertible redeemable preference shares are backed mostly by listed equity securities.
The following table indicates the contractual timing of cash fl ows arising from liabilities.
Carrying value
Contractual cash fl ows0 to 1 year 1 to 5 years
Rm Rm Rm2008Amortised cost
Cumulative redeemable preference shares 841.3 644.2 381.3 Obligation to purchase own shares 201.5 201.5 – Held for trading
Derivative fi nancial instrument 8.2 – 8.2 Other payables 55.8 55.8 – Other liabilities 40.7
1 147.5 901.5 389.5
2007
Amortised cost
Cumulative redeemable preference shares 837.3 133.6 1 129.1
Other payables 76.4 76.4 –
Other liabilities 127.4
1 041.1 210.0 1 129.1
23.6 Market risk
Introduction
> Market risk is the risk that the fair value on future cash fl ows of fi nancial instruments will fl uctuate as a result of changes
in market prices.
> Management analyses three types of market risk, being equity price risk, interest rate risk and currency risk.
Sensitivity ranges
> The upper and lower limits of the sensitivity ranges are management’s best judgement of the range of probable changes
within a twelve-month period from the reporting date of 31 December 2008.
> These limits are set taking into account actuarial guidance relating to acceptable ranges of sensitivities within a normal
asset distribution. Extreme or irregular events that occur sporadically, ie not on an annual basis, have been ignored, as
they are by nature not predictable in terms of timing.
Proof number 04 – 12 March 2009
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Methods and assumptions used in preparing the sensitivity analysis
> The sensitivities are assumed to be a once-off event on the balance sheet date, with respect to the particular assets of
the company on that date.
> Each sensitivity applied is calculated in isolation and no inter-relationship trends between variables are taken into account.
It is, however, accepted that these variables tend not to move in isolation.
> The following variables apply:
Risk VariableEquity price Change in the market price of equity securities, irrespective of whether the change is
equity, index or exchange specifi c
Interest rate Change in the future investment yields
Currency Change in the rand exchange rates to all applicable currencies
Sensitivities
> Management identifi ed the risk of a sudden drop in equity market values as the most signifi cant market risk. The equity
portfolio is managed with consideration of the market conditions at any given time. If the market value of equity securities
decrease by 10% on the balance sheet date, the approximate impact would be a reduction of R92.9 million (2007:
R143.9 million) of earnings. An equal and opposite impact will occur if the market values increase by 10%.
> The company is exposed to fl oating interest rate changes only. Cash requirements fl uctuate during the course of the
year and would therefore be of a short-term nature. Interest rate changes with respect to cash and cash equivalents will
therefore not have a signifi cant impact on earnings. The interest rate risk on loans to empowerment partners are born by
the empowerment partners.
> The company has no foreign currency exposure.
23.6.1 Equity price risk
Equity price risk is the risk that the value of a fi nancial instrument will fl uctuate as a result of changes in the marketplace.
Equities are refl ected at market values, which are susceptible to fl uctuations. The stock selection and investment analysis
process is supported by a well-developed research function.
2008 2007
Five largest local listed equity securities % Rm % Rm
MTN Group Ltd 9.7 89.9 11.8 176.2
FirstRand Ltd 7.3 67.4 – –
Impala Platinum Holdings Ltd 6.3 58.2 – –
Billiton Plc 6.1 57.1 5.9 87.9
Standard Bank Group Ltd 5.1 47.7 7.2 107.4
Sasol Ltd – – 5.9 88.0
Anglo American Plc – – 5.5 82.0
34.5 320.3 36.3 541.5
23.6.2 Interest rate risk
Interest rate risk is the risk that the value of a fi nancial instrument will fl uctuate as a result of changes in interest rates.
2008 2007
Rm Rm
Loans and receivables – empowerment partners
Floating rate – weighted rate 12.4% (2007: 11.5%) 180.5 163.4
Cash and cash equivalents
Floating rate – weighted rate: 11.3% (2007: 9.6%) 303.5 65.3
484.0 196.2
210 | ANNUAL FINANCIAL STATEMENTS 2008 | METROPOLITAN HOLDINGS
METROPOLITAN ANNUAL FINANCIAL STATEMENTS 2008
SIGNIFICANT SUBSIDIARY COMPANIES
Annexure 1
Issued share
capital Interest held Cost
Amount owing (to)/by subsidiaries
2008 2007 2008 2007 2008 2007% % Rm Rm Rm Rm
Life insuranceMetropolitan Life Ltd R624m 100 100 656.3 651.6 (5.5) (6.4)(incorporated in South Africa)Metropolitan Odyssey Ltd R35m 100 100 36.0 36.0 (25.0) (25.0)(incorporated in South Africa)Union Life Ltd (2) R24m 50 50 41.0 41.0 (incorporated in South Africa)Metropolitan International (Pty) Ltd (3) (1) 100 100 – – 203.3 45.7 (incorporated in South Africa) Subsidiaries Metropolitan Life Insurance Kenya Ltd R19m 100 100 (incorporated in Kenya) Metropolitan Life Insurance Ghana Ltd R25m 60 60 (incorporated in Ghana) Metropolitan Life Swaziland Ltd R20m 100 – (incorporated in Swaziland)Metropolitan Life International Ltd R40m 100 100 47.1 47.1 (incorporated in South Africa)Metropolitan Life (Namibia) Ltd R52m 82 82 37.6 37.6 (incorporated in Namibia)Metropolitan Life of Botswana Ltd R27m 75.8 75.8 24.5 24.5 (incorporated in Botswana)Metropolitan Lesotho Ltd R120m 100 100 120.3 120.2 (incorporated in Lesotho)MHG UK Ltd (3) R11k 100 100 – – – 110.6(incorporated in England)Metropolitan Retirement Administrators (1) 80 80 28.0 28.0 (Pty) Ltd (incorporated in South Africa)DirectFin Solutions (Pty) Ltd (1) 70 70 49.0 84.0 3.4 3.4 (incorporated in South Africa)Asset managementMetropolitan Asset Managers Ltd R148k 100 100 22.5 22.2 (9.5) (33.5)(incorporated in South Africa)Metropolitan Collective Investments Ltd R13m 100 100 25.8 25.6 (incorporated in South Africa)Metropolitan Property Services (Pty) Ltd (1) 100 100 0.5 0.3 (incorporated in South Africa)Metropolitan Capital Ltd – 100 100 18.4 82.8 2.0 (incorporated in South Africa)HealthMetropolitan Health Holdings (Pty) Ltd (1) 100 100 31.3 29.5 265.6 129.2 (incorporated in South Africa) Subsidiary Metropolitan Health Corporate (Pty) Ltd R63m 100 100 (incorporated in South Africa)BankingMetropolitan Card Operations (Pty) Ltd (1) 100 100 54.3 196.3 (incorporated in South Africa)
1 138.3 1 147.6 569.4 422.3 Amount owing by subsidiaries 569.4 422.3 Total interest in subsidiary companies 1 707.7 1 569.9
(1) The issued share capital of these companies is less than R1 000.
(2) The company owns 50% of the voting rights, but has control through appointment of the chairman with a casting vote.
(3) All the interest in and loans to subsidiaries of MHG(UK) Ltd have been transferred to Metropolitan International (Pty) Ltd during 2008.
The aggregate amount of income, after tax before goodwill impairment, derived from subsidiary companies is R323 million
(2007: R1 469 million). The aggregate amount of losses after tax from subsidiaries is R123 million (2007: R43 million).
METROPOLITAN HOLDINGS | SHAREHOLDER PROFILE | 211
SHAREHOLDER PROFILE
BENEFICIAL OWNERS
Shareholder
Number of shareholders
% of issued share capital
Shares held (million)
Non-public Directors (excluding shares in staff share scheme) 7 0.1 1
Staff share scheme members and trust – unlisted 2 445 2.1 14
Staff share scheme members and trust – listed 182 0.6 4
Group contract holder fund
Kagiso Trust Investments (Pty) Ltd – SPV 2 23.8 158
Public Private investors 7 071 4.4 29
Pension funds 217 21.6 143
Collective investment schemes and mutual funds 455 35.0 232
Banks and insurance companies 63 12.4 82
Total 10 442 100.0 663
An estimated 85 million shares (12.8% of total shares) are held by foreign investors (2007: 112 million shares (16.5%)).
Size of shareholding
Number of share-
holders
% of total share-
holders Shares held (million)
% of issued share
capital 1 – 5 000 8 455 81.0 10 1.6
5 001 – 10 000 634 6.1 5 0.7
10 001 – 50 000 735 7.0 17 2.6
50 001 – 100 000 206 2.0 15 2.2
100 001 – 1 000 000 325 3.1 101 15.2
1 000 001 and more 87 0.8 515 77.7
Total 10 442 100.0 663 100.0
Shares held (million)
% of issued share capital
Kagiso Trust Investments (Pty) Ltd – SPV 158 23.8
Public Investment Corporation (SA) 80 12.1
Total 238 35.9
Pursuant to the provisions of section 140A of the South African Companies Act of 1973 as amended, benefi cial shareholdings exceeding 3% in aggregate, as at 31 December 2008, are disclosed.
212 | STOCK EXCHANGE PERFORMANCE | METROPOLITAN HOLDINGS
STOCK EXCHANGE PERFORMANCE
2008 2007 2006 2005
12 months to 31 DecemberValue of listed shares traded (rand million) (1) 4 718 7 024 5 614 3 347
Volume of listed shares traded (million) (1) 392 456 442 315
Shares traded (% of average listed shares in issue) (1) 71.1 79.7 75.0 51.1
Value of shares traded – life insurance (J857 – Rbn) 93.0 108.0 81.9 70.0
Value of shares traded – top 40 index (J200 – Rbn) 2 687.7 2 328.0 1 735.0 1 028.2
Trade prices
Highest (cents per share) 1 520 1 691 1 581 1 220
Lowest (cents per share) 890 1 314 1 020 950
Last sale of period (cents per share) 1 080 1 509 1 500 1 185
Percentage (%) change during period (2) (28.43) 6.04 38.25 19.70
Percentage (%) change – life insurance sector (J857) (50.18) 3.11 28.18 21.18
Percentage (%) change – top 40 index (J200) (25.93) 16.11 37.53 44.12
31 DecemberPrice/core headline earnings ratio (diluted) 7.15 10.61 13.28 12.35
Dividend yield % (dividend on listed shares) 8.80 6.30 5.13 5.32
Dividend yield % – top 40 index (J200) 4.27 2.39 2.06 2.24
Total shares issued (million)Listed on JSE 542 559 585 594
Ordinary shares 538 553 578 587
Share incentive scheme 4 6 7 7
Unlisted – share purchase scheme 14 23 41 48
Total ordinary shares in issue 556 582 626 642
Treasury shares held in subsidiary company (16) (26) (27) –
Treasury shares held on behalf of contract holders (1) (1) (13) (22)
Adjustment to staff share scheme shares (3) (17) (26) (47) (50)
Share incentive scheme (4) (4) (7) (5)
Share purchase scheme (13) (22) (40) (45)
Basic number of shares in issue 522 529 539 570
Adjustment to staff share scheme shares 17 26 47 50
Treasury shares held on behalf of contract holders 1 1 13 22
Convertible redeemable preference shares 123 123 123 123
Diluted number of shares in issue (4) 663 679 722 765
Market capitalisation at period-end (Rbn) (5) 7.16 10.25 10.83 9.07
Percentage (%) of life insurance sector 7.05 4.93 5.45 6.83
(1) 31.12.2008 is net of 16 million shares acquired for R200 million as part of a share buy-back programme (31.12.2007: 44 million shares acquired for R690 million; 31.12.2006: 42 million shares acquired for R558 million; 31.12.2005: 22 million shares acquired for R242 million).
(2) 2007 has been adjusted for the special dividend of 77 cents per share paid in April, while both 2006 and 2005 have been adjusted for a capital reduction of 100 cents each.
(3) These shares were issued after 1 January 2001, the date on which the group adopted AC133 (now IAS39).
(4) The diluted number of shares in issue takes into account all issued shares, assuming conversion of the convertible redeemable preference shares and the release of staff share scheme shares, and includes the treasury shares held on behalf of contract holders.
(5) The market capitalisation is calculated on the diluted number of shares in issue.
METROPOLITAN HOLDINGS | SHAREHOLDER DIARY | 213
FINANCIAL YEAR-END 31 DECEMBER
Reporting Interim results 3 September 2008
Announcement of year-end results 11 March 2009
Annual report published April 2009
Annual general meeting 26 May 2009
Ordinary dividends Interim
Declared 2 September 2008
Remat/Demat 29 September 2008
Record date 3 October 2008
Paid 6 October 2008
Final
Declared 10 March 2009
Remat/Demat 30 March 2009
Record date 3 April 2009
Paid 6 April 2009
SHAREHOLDER DIARY
214 | NOTICE OF ANNUAL GENERAL MEETING | METROPOLITAN HOLDINGS
ORDINARY RESOLUTION NUMBER 3 – RETIREMENT BY
ROTATION AND RE-ELECTION OF DIRECTOR
“Resolved that, as at least one third of the directors are
required to retire by rotation as directors of the company at
this annual general meeting in accordance with the articles
of association of the company, and whereas Mr M L Smith
will be so retiring by way of rotation, Mr M L Smith, having
offered himself for re-election, be and is hereby re-appointed
as director of the company with immediate effect.”
A brief curriculum vitae for the above director offering himself
for re-election as set out in ordinary resolution number 3 above
is available on page 19 of the report.
ORDINARY RESOLUTION NUMBER 4 – RETIREMENT BY
ROTATION AND RE-ELECTION OF DIRECTOR
“Resolved that, as at least one third of the directors are
required to retire by rotation as directors of the company at
this annual general meeting in accordance with the articles
of association of the company, and whereas Mr A H Sangqu
will be so retiring by way of rotation, Mr A H Sangqu, having
offered himself for re-election, be and is hereby re-appointed
as director of the company with immediate effect.”
A brief curriculum vitae for the above director offering himself
for re-election as set out in ordinary resolution number 4 above
is available on page 19 of the report.
ORDINARY RESOLUTION NUMBER 5 – RETIREMENT BY
ROTATION AND RE-ELECTION OF DIRECTOR
“Resolved that, as at least one third of the directors are
required to retire by rotation as directors of the company at
this annual general meeting in accordance with the articles
of association of the company, and whereas Mr M J N Njeke
will be so retiring by way of rotation, Mr M J N Njeke, having
offered himself for re-election, be and is hereby re-appointed
as director of the company with immediate effect.”
A brief curriculum vitae for the above director offering himself
for re-election as set out in ordinary resolution number 5 above
is available on page 19 of the report.
Notice is hereby given that the eighth annual general meeting
of the shareholders of the company will be held at 14h00 on
Tuesday, 26 May 2009 in the auditorium at Parc du Cap 7,
Mispel Road, Bellville, Cape Town to transact the following
business:
> to receive and adopt the annual fi nancial statements of the
company for the fi nancial year ended 31 December 2008;
> to transact such other business as may be transacted at an
annual general meeting;
> to note the re-appointment of PricewaterhouseCoopers Inc
as the external auditors of the company, with Mr H D Nel as
the designated audit partner;
> to consider and, if deemed fi t, to pass the following
resolutions, with or without modifi cations.
ORDINARY RESOLUTION NUMBER 1 – ADOPTION OF
FINANCIAL STATEMENTS
“Resolved that the company hereby receives and adopts the
annual fi nancial statements of the company for the fi nancial
year ended 31 December 2008, including the directors’ report
and the auditors’ report, all as contained in the annual report
accompanying this notice.”
ORDINARY RESOLUTION NUMBER 2 – APPROVAL OF
DIRECTORS’ REMUNERATION
“Resolved that the company hereby approves the revised
annual remuneration payable by the company to non-executive
directors of the company with effect from 1 January 2009 as
follows:
Position Current Recommended
Chairperson of the board R760 000 R900 000 18%
Non-executive directors R220 000 R260 000 18%
Chairperson audit committee R175 000 R192 500 10%
Members R100 000 R110 000 10%
Chairperson actuarial
committee R165 000 R181 500 10%
Members R82 500 R90 750 10%
Chairpersons other
committeesR110 000 R121 000 10%
Members R55 000 R60 500 10%
NOTICE TO MEMBERS OF THE EIGHTH ANNUAL GENERAL MEETING OF
METROPOLITAN HOLDINGS LIMITED (“Metropolitan” or “the company”)
METROPOLITAN HOLDINGS | NOTICE OF ANNUAL GENERAL MEETING | 215
Dematerialised shareholders, other than those with “own name”
registration, who wish to attend the annual general meeting,
must inform their CSDP or broker of their intention to attend
the meeting and must obtain the necessary authorisation from
their CSDP or broker. Should such shareholders be unable to
attend the annual general meeting but wish to be represented
thereat, they must provide their CSDP or broker with their
voting instructions. This must be done in the manner and time
stipulated in terms of the agreement entered into between a
shareholder and the CSDP or broker concerned.
On a poll every shareholder present in person or represented
by proxy shall have one vote for every share held by such
shareholder.
Directors: M J N Njeke (acting group chairman), F W van Zyl
(group chief executive), P Matlakala (executive), P E Speckmann
(group fi nance director), F Jakoet, P C Lamprecht, S A Muller,
J E Newbury, B Paledi, A H Sangqu, M L Smith, F A Sonn,
J C van Reenen.
By order of the board
Mrs B Gobodo-MbomvuGroup company secretary
11 March 2009
Registered offi ce:
Parc du Cap
7 Mispel Road
Bellville
Cape Town
ORDINARY RESOLUTION NUMBER 6 – RETIREMENT BY
ROTATION AND RE-ELECTION OF DIRECTOR
“Resolved that, as at least one third of the directors are required
to retire by rotation as directors of the company at this annual
general meeting in accordance with the articles of association
of the company, and whereas Mrs B Paledi will be so retiring
by way of rotation, Mrs B Paledi, having offered herself for
re-election, be and is hereby re-appointed as director of the
company with immediate effect.”
A brief curriculum vitae for the above director offering herself
for re-election as set out in ordinary resolution number 6 above
is available on page 19 of the report.
ORDINARY RESOLUTION NUMBER 7 – APPOINTMENT OF
DIRECTOR OR THE COMPANY SECRETARY TO IMPLEMENT
RESOLUTIONS
“Resolved that any one director of the company or the
company secretary be and is hereby authorised to take such
steps, do all such things and sign all such documents as may
be necessary or required for the purpose of implementing the
ordinary resolutions proposed at this meeting.”
VOTING AND PROXIES
A shareholder entitled to attend and vote at the annual general
meeting is entitled to appoint one or more proxies to attend,
speak and, on a poll, to vote or abstain from voting in his
stead.
A proxy need not be a shareholder of the company. A form
of proxy is enclosed for the convenience of any certifi cated
or “own name” registered, dematerialised shareholder who is
unable to attend the annual general meeting, but who wishes
to be represented thereat.
The form of proxy must be received at the transfer offi ce
of the company, Link Market Services SA (Pty) Ltd,
5th Floor, 11 Diagonal Street, Johannesburg (or PO Box 4844,
Johannesburg, 2000), by not later than 14h00 on Friday,
22 May 2009.
216 | ADMINISTRATION | METROPOLITAN HOLDINGS
ADMINISTRATION
METROPOLITAN HOLDINGS LTD
Group company secretary and
registered offi ce
Bongiwe Gobodo-Mbomvu
Parc du Cap 7
Mispel Road, Bellville 7530
Investor relations
Nico Oosthuizen
Telephone: +27 21 940 6111
Fax: +27 21 940 6690
E-mail: [email protected]
Company registration
2000/031756/06
American Depository Receipt
CUSIP: 592144109
Depository: Bank of New York
Internet address
http://www.metropolitan.co.za
E-mail: [email protected]
Sponsor – South Africa
Merrill Lynch
Transfer secretaries – South Africa
Link Market Services SA (Pty) Ltd
5th Floor, 11 Diagonal Street
Johannesburg 2000
PO Box 4844, Johannesburg 2000
Sponsor – Namibia
Simonis Storm Securities (Pty) Ltd
Transfer secretaries – Namibia
Transfer Secretaries (Pty) Ltd
Shop 8, Kaiserkrone Centre
Post Street Mall, Windhoek, Namibia
PO Box 2301, Windhoek, Namibia
Auditors
PricewaterhouseCoopers Inc
Share codes
JSE – MET
NSX – MTD
Abbreviated name – MET LTD
METROPOLITAN LIFE LTD
Reg no 1949/032491/06
Registered offi ce
Parc du Cap 7
Mispel Road, Bellville 7530
Postal address
PO Box 2212, Bellville 7535
Telephone: +27 21 940 5911
Fax: +27 21 940 6973
http://www.metropolitan.co.za
Board of directors
Prof W Nkuhlu (chairman 02.07.2007)
Mrs F Jakoet
Mr P C Lamprecht
Mr P Matlakala
Mr D H Pead
Mr A H Sangqu
Dr F A Sonn
Mr P E Speckmann
Mr F W van Zyl
METROPOLITAN HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2000/031756/06)
(“the company”)
ISIN: ZAE000050456
JSE share code: MET NSX share code: MTD
FORM OF PROXY
To be completed by certifi cated shareholders and dematerialised shareholders with “own name” registration
Eighth annual general meeting to be held at 14h00 on Tuesday, 26 May 2009 in the auditorium at Parc du Cap 7, Mispel Road,
Bellville, Cape Town
I, _______________________________________________________________________________________________________________
of ______________________________________________________________________________________________________________
being the holder of _____________________ (number) shares in Metropolitan Holdings Limited, hereby appoint as my proxy the
following person:
__________________________________________________________________________________________(full name of proxy holder)
of _________________________________________________________________________________________________ or, failing him,
__________________________________________________________________________________________(full name of proxy holder)
of _________________________________________________________________________________________________ or, failing him,
the duly appointed chairman of the meeting to attend, speak and vote for me and on my behalf at the annual general meeting
of the company to be held in Bellville, Cape Town on Tuesday, 26 May 2009 at 14h00, as well as at any adjournment of the said
meeting.
Signed at _________________________________________ on this _____________________ day of ______________________ 2009
Signature: _______________________________________________________________________________________________________
VOTING INSTRUCTIONS
(Indicate instructions to the appointed proxy by way of a cross in the spaces provided below; if no indications are given, the proxy
may vote as he thinks fi t)
NATURE OF RESOLUTION FOR AGAINST ABSTAIN
1. Adoption of fi nancial statements
2. Approval of non-executive directors’ remuneration
Position Current Recommended
Chairman of the board R760 000 R900 000 18%
Non-executive directors R220 000 R260 000 18%
Chairperson audit committee R175 000 R192 500 10%
Members R100 000 R110 000 10%
Chairperson actuarial committee R165 000 R181 500 10%
Members R82 500 R90 750 10%
Chairpersons other committees R110 000 R121 000 10%
Members R55 000 R60 500 10%
3. Authorising the retirement and re-election of Mr ML Smith
4. Authorising the retirement and re-election of Mr AH Sangqu
5. Authorising the retirement and re-election of Mr M J N Njeke
6. Authorising the retirement and re-election of Mrs B Paledi
7. Appointment of director or the company secretary to implement the
aforesaid resolutions
NOTES:
1. Proxies must be lodged at the company’s transfer offi ce, Link Market Services SA (Pty) Ltd, 5th Floor, 11 Diagonal
Street, Johannesburg (or PO Box 4844, Johannesburg, 2000), so as to be received by not later than 14h00 on Tuesday,
19 May 2009.
2. A member may appoint one or more persons of his own choice as his proxy/ies by inserting the name/s of such proxy/ies
in the space provided and any such proxy need not be a member of the company. Should this space be left blank, the proxy
will be exercised by the chairman of the meeting.
3. If a member does not indicate on this instrument that his proxy is to vote in favour of or against any resolution or resolutions
or to abstain from voting, or gives contradictory instructions, or should any further resolution/s or any amendment/s that
may be properly put before the annual general meeting be proposed, the proxy shall be entitled to vote as he thinks fi t.
4. Unless the above section is completed for a lesser number of shares, this proxy shall apply to all the ordinary shares
registered in the name of the member/s at the date of the annual general meeting or any adjournment thereof.
5. Companies and other corporate bodies are advised to appoint a representative in terms of section 188 of the Companies
Act, 1973, for which purpose a duly certifi ed copy of the resolution appointing such a representative should be lodged with
the company’s transfer offi ce, as set out in 1 above.
6. The authority of the person signing a proxy form under a power of attorney must be attached hereto unless that power of
attorney has already been recorded by the company.
7. Any alterations made to this form of proxy must be initialled.
METROPOLITAN
create prosperityfor Africa’s people
Together we can
ANNUAL REPORT 2008
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