Liberty fights policy defaults

Johannesburg - The volume of Liberty Life's new business contributions to Liberty Holdings remained flat in the three months to end-March as it focused on customer retention and capital management.

Liberty Life accounts for about 85% of the operational earnings of the larger wealth management holding company.

"It has been a tough time for everybody and both corporates and individuals alike have been affected by the economic downturn," said Liberty Life CEO Steven Braudo, adding that more customers allow their policies to lapse.

Consumers are also cashing in their retirement savings and investments to settle debt.

Braudo said he anticipates another "tough 12 to 18 months".

Braudo said the group responded to the crisis with a variety of initiatives, which "sacrificed short-term profit for longer-term stability".

This includes the establishment of a retention centre to negotiate "payment holidays" and guaranteed products for policy holders under pressure.

Asked whether the introduction of payment holidays would add risk to Liberty Life's book, Braudo said: "The other option is a straight default - where nobody wins."

Also, guaranteed products have proven a headache for listed counterpart Old Mutual. The company was expected to guarantee investor returns despite a tumbling market, which made significant demands on the group's capital structure.

Braudo downplayed this scenario, saying Liberty's guaranteed book is far smaller than that of its competitors.

Braudo said Liberty Financial Services (Libfin) has played an important role in managing capital and risk in the group.

Libfin was established in June 2008 to oversee the balance sheet, and to ensure capital was allocated effectively within the group.

- Fin24.com