REVIEW OF OPERATIONS // BANKING GROUP // OUTSURANCE

FIRSTRAND SHORT TERM INSURANCE HOLDINGS (“FRSTIH”)

INTRODUCTION

FRSTIH houses the Banking Group’s short term insurance interests, including OUTsurance, Momentum Short Term Insurance (“Momentum STI”) and Youi, the startup direct insurance operation in Australia. OUTsurance is the leading direct short term insurance company in South Africa.

The FirstRand Banking Group, through FirstRand Bank Holdings, owns 47% of FRSTIH.

THE YEAR UNDER REVIEW

Group

In light of the prevailing economic conditions and the startup losses of Youi, the FRSTIH Group produced satisfactory financial results for the year under review by growing attributable earnings by 10% and headline earnings by 14%.

The South African operations produced excellent results by growing attributable and headline earnings by 19% and 23% respectively. Momentum STI, the Group’s joint venture with Momentum Limited, generated its maiden full year profit.

Youi, the Group’s start up venture in Australia was launched on 1 August 2008 and produced a loss before tax of R87 million for the financial year. Since launch, Youi has performed in line with expectations.

OUTsurance

OUTsurance managed to grow net earned premium income by 14%. Premium increases were contained below inflation and industry averages resulting in an expansion in market share in both the Personal and Commercial lines businesses.

The claims ratio (including OUTbonus costs) decreased from 61.7% to 60.5% on the back of favourable weather conditions compared to those experienced in the 2008 financial year.

The recessionary conditions contributed to the short term insurance industry experiencing higher claims ratios in the year under review. OUTsurance has, however, continued to maintain its profit margin confirming the competitiveness of its low cost direct business model and scientific rating approach.

Expenses, as a percentage of net earned premium income, increased from 14.1% to 16.1%. Higher marketing costs, infrastructure expansion and additional staff costs incurred to build capacity contributed to the higher expense ratio.

Investment income grew 10%, initially benefitting from the high interest rate environment, but coming under pressure in the latter six months of the financial year in line with rapidly slowing market interest rates. As most of the investible assets are invested in cash and near cash instruments, OUTsurance was not exposed to market volatility associated with the financial turmoil.

During the year under review, OUTsurance successfully launched its long term insurance offering with a credit life product.

THE YEAR AHEAD

• Further entrench the Youi brand in the Australian market and manage claims ratios and management costs to levels which will ensure future profitability;
• Develop and launch the fully underwritten life product offering;
• Continued focus on organic growth and operational efficiencies throughout all business units; and
• Further extending the reach of Business OUTsurance by product enhancements and marketing initiatives.