Download complete 2008 Annual Report

LIBERTY HOLDINGS LIMITEDKey performance indicators• Significant improvement in CAR cover to 2,66 times despite weak markets• Distributions per share up 11% to 455 cents per share• Core operating earnings remain healthy• Group-wide sales strongly assisted by low risk product preferences• Significant investment in growth initiatives fully expensed• BEE normalised embedded value per share firm at R95,122008 2007 % changeLiberty Holdings LimitedBasic earnings per share (cents) 709,3 1 051,8 (32,6)BEE normalised embedded value per share (R) 95,12 n/aLiberty Group LimitedBEE normalised headline earnings per share (cents) 574,6 1 100,4 (47,8)BEE normalised embedded value per share (R) 95,27 96,10 (0,9)BEE normalised return on embedded value (%) 3,7 21,6 (82,9)Capital adequacy requirement cover (times covered) 2,66 2,03 31,0Insurance operationsIndexed new business (excluding contractual increases) (Rm) 4 782 4 351 9,9New business margin (%) 2,6 2,8 (7,1)Net cash outflows (Rm) (2 861) (207) (>100)Asset managementAssets under management (Rbn) 337 357 (5,6)Net cash inflows (Rm) 13 374 13 107 2,0Pg 1

Liberty Holdings Limited – Annual Report 2008Liberty Group Limited isnow a wholly ownedsubsidiary of LibertyHoldings Limited. This is akey enabler of our growthstrategy as it createsopportunity for a moreefficient and flexiblecapital structure .Saki Macozoma – ChairmanPg 2

Liberty Holdings Limited – Annual Report 2008Chairman’s letter to shareholdersBusiness environmentThe 2008 financial year saw investment marketsunderperform significantly when compared to the stronginvestment markets of 2007. Unprecedented volatility waswitnessed in the final quarter of 2008 which impactedall financial institutions. The earnings of the group wereconsequently impacted when compared to the highearnings base set in the previous year.Significant management action was required during thesecond half of 2008 to navigate the financial market crisisand to protect capital and profitability whilst continuing todeliver on our stated strategy.Delivery on strategyOn 27 May 2008, Standard Bank announced that it wouldmake an offer to shareholders to acquire the issuedordinary shares in Liberty Holdings Limited which it didnot already hold. This offer was accepted overwhelminglyby shareholders and the transaction proceeded.On 1 December 2008, Liberty Holdings Limited acquiredthe shares not already owned in Liberty Group Limitedthrough a share swop arrangement. Standard Bankretained a 53,65% ownership of Liberty. Significantbenefits will flow from this structure, which allows for moreefficient utilisation of capital.The implementation of improved risk managementprocesses aligned to the group’s risk appetite and theformation of a separate unit to enhance the managementof the financial position, allowed the group to manage themarket crisis far more effectively than might have beenpossible previously. Overall business performance for theyear was strong despite the difficult market and capitalconditions.The group has continued to diversify from both ageographical and wealth solutions perspective throughthe establishment of a footprint in the African continentand the launch of a differentiated healthcare offering.OutlookAgainst the backdrop of a sharply weakening globaleconomy, economic activity in South Africa has slowedsubstantially in recent months, particularly consumerspending and export activity. With the outlook for thenext few quarters indicating ongoing weakness, 2009will undoubtedly be an extremely challenging year.Management will continue to focus on dealing with thecurrent investment market volatility and managing the keyexposures, risks and financial impacts so as to preservethe profitability and capital of the group.Expression of appreciationOn behalf of the board, I would like to pay tribute to thesubstantial contribution made by my predecessor, DerekCooper. Derek took over as chairman in 1999 from ourfounder, Sir Donald Gordon, and resigned from the boardon 1 December 2008.Buddy Hawton retired from the board on 21 May 2008 andI would like to thank him for the part he played in thesuccess of the group over the past nine years, whichincluded chairing the Remuneration Committee.Martin Shaw resigned from the board on 1 December 2008.Martin served as chairman of the Audit Committee andI thank him for his significant contribution and dedication.On 12 November 2008, as part of the reorganisation ofthe group structure mentioned above, we welcomedHylton Appelbaum, Angus Band, Professor Leila Patel,Tim Ross, Dr Sibusiso Sibisi, Swazi Tshabalala, PeterWharton-Hood, Bruce Hemphill and Rex Tomlinson to theLiberty board. I also welcome Tony Cunningham andPeter Moyo to the board from 1 February 2009 and lookforward to their contribution.A particular word of thanks must go to our intermediariesfor their dedication, persistent efforts and ongoing supportduring a very tough year. This has also been a challengingyear for our staff and I would like to thank them all for theircommitment and contribution to the group during 2008.Thanks to you, our shareholders for your continuedsupport. Our new corporate structures will allow us tooptimise our capital requirements and I trust that in duecourse you will be handsomely rewarded.Saki MacozomaChairman25 February 2009Pg 3

Liberty Holdings Limited – Annual Report 2008We have made strong progressagainst our long-term objectiveto transform Liberty into theleading wealth managementcompany in Africa and otherselect emerging markets.In addition, through activemanagement, despite theshort-term economic crisis, wedelivered healthy operationaland financial results.Bruce Hemphill – Chief ExecutivePg 4

Liberty Holdings Limited – Annual Report 2008Chief Executive’s reportAround the world, last year is not one that investors – orinvestment businesses – will forget quickly, nor rememberwith much pleasure.The aftermath of the unprecedented crisis in globalinvestment and credit markets looks likely to continue wellinto 2009, having already crippled several internationalbanks, driven major economies into recession, andseverely damaged investor sentiment – possibly for yearsto come.With dire global economic conditions as a backdrop,I believe Liberty produced a good set of annual resultsfor 2008 and the following key points should be noted:1. Our primary responsibility as Liberty’s executive teamis to actively manage the group’s current operationsthrough a challenging business environment. Twelvemonths prior to the crisis, we implemented a strong riskand capital management framework, resulting in betterdecision-making on critical capital issues. This,coupled with the establishment of Liberty FinancialSolutions (LibFin) in mid-2008, placed the group in astrong position to protect capital, and mitigateearnings impacts.2. Our strategic growth plan is unchanged, and we madesignificant progress in diversifying our business interms of wealth solutions, geography and distribution.If anything, the market conditions experienced in 2008confirm that diversification is a business imperative.3. Although falling markets took an inevitable toll on our2008 earnings, our overall business performance lastyear was strong. Of particular interest is our capitalposition which, through management action, hasimproved by 30% despite the collapse in assetprices globally. Overall, I believe our financial resultsexceeded market expectations.South Africa has – to an extent – been insulated from theworst effects of the international market melt-down. But Ido believe that global investor confidence in the variousfinancial sectors will be at a premium for some time,and in this regard, the ability to mitigate business riskand protect shareholders’ capital is a vital managementpriority.Strategic growth highlightsManagement’s mandate from the board is to expandLiberty from a life insurance-focused company into abroad-based wealth management group – diversified inour product offerings, in our geographic market exposure,and in our distribution channels.To facilitate this, Liberty Group Limited (LGL) – whichcontains the group’s life businesses – was delisted inthe last quarter of 2008. LGL is now a wholly-ownedsubsidiary of Liberty Holdings Limited, which isthe group’s sole remaining publicly-listed entry pointfor investors.The re-structure will enable us to implement our growthstrategy more effectively, as it allows us far greaterregulatory and capital allocation flexibility.The group’s established business units now have theirown strategic targets, and are accountable for their ownprofitability. The next phase of the re-structure will see ournon-life legal entities structured alongside LGL, assubsidiaries of Liberty Holdings Limited.Also fundamental to our growth agenda: shareholdersmay recall the “three-manager” capital managementmodel we introduced in 2007, and underpinned by acorporate risk appetite statement approved by the boardof directors.The model separates liability management, strategicbalance sheet management and asset management,providing a risk and capital management framework thatenables us to better align risk management with capitalrequirements across the group’s businesses.This framework was augmented by the establishment ofLibFin, as the strategic balance sheet manager. Thisbusiness unit employs specialised financial and capitalmanagement skills, positioning us uniquely in the localindustry to efficiently manage our market, credit andliquidity risk.LibFin’s contribution was particularly evident as the globalfinancial crisis unfolded during 2008. We estimate that thegroup’s capital position improved by 30% as a result oftheir initiatives.Liberty continued to invest in promising growth initiativesin our Health and Africa units – though we also walkedaway from a number of proposals that we consideredPg 5

Liberty Holdings Limited – Annual Report 2008Chief Executive’s report (continued)uncompetitively priced. In the prevailing businessenvironment, we have adopted the cautious approach ofdirectly expensing all costs incurred in these ventures.During 2008, Liberty Africa established a presence inboth the East and West African regions, and has alsoproved an effective business enabler for other businessunits on the continent.Liberty Health is one such unit. Our Health model offers atechnology-enabled multi-revenue health solutionsbusiness that is flexible and scaleable to accommodatethe needs of health businesses in select markets wherewe see large health books with available risk profits.Liberty Health has recently seen significant new businessgrowth, with lives under management having increasedfrom 12 000 at the start of 2008 to a current 472 000.We further strengthened our top management team,particularly in the insurance business, which remains acore area of strategic focus, from both a new businessand retention perspective.We are ahead of our transformation targets in terms of theFinancial Sector Charter and will continue to drive thisbusiness and growth imperative in order to achieve aculturally transformed organisation, relevant in all sectorsof the market.Financial and operational highlightsLower equity markets and a roughly 100 basis pointreduction in the 10-year government bond yield were themain contributors to the 32,6% decrease in the group’sbasic earnings per share – 47,8% down at the pro-formaLGL BEE-normalised headline earnings per share level.As mentioned earlier, LibFin initiatives cushioned the blowduring the second half, when long-term interest rates fellby some 350 basis points.Liberty BEE-normalised embedded value per share wasR95,12 at year end, down less than 1% over the year atthe comparable LGL level. With asset prices tumbling inthe prevailing market turmoil, we consider this anexcellent achievement.Our capital adequacy ratio or CAR (being a multiple ofthe regulatory minimum requirement) – a vital measure interms of our risk appetite statement, as well as anacid test of how well our policyholders are protected –improved from 2,0 times at end-2007 to 2,7 times byDecember 2008. This is Liberty’s strongest year-end CARposition since 2002.Group-wide, sales for 2008 were up a healthy 31% toR175 billion – though risk mitigation was also evident inour investors’ approach: we saw significant inflowsinto money market funds in our asset managementbusiness, and increased sales of guaranteed products inthe life business.The group’s core life operations and earnings also heldup well in the prevailing market conditions, and it is vital torecognise the contribution that our individual andcorporate business units make to the group’sperformance. Our growth strategy would be impossible toimplement without the continuing firm foundation of ourtraditional business base.Indexed new business sales in LGL were up 9,9% for2008, though new business profitability was down slightlyfrom 2,8% to 2,6%. Mortality profits increased, while theincrease in our recurring costs was held below the level ofinflation.Costs were tightly managed. The bulk of Liberty’s costsare incurred in our continuing operations (“business asusual”). Total group business as usual costs rose 8,9% in2008, with the recurring portion in the insuranceoperations up 7,8%.Improved business retention procedures saw us preservesome 110 000 policy cases that might otherwise havegone off the books. There remain further improvementsto be made in this area, though unsurprisingly thedeteriorating economic conditions increase consumers’propensity to disinvest and terminate.2008 net group cash flows into Liberty remained stronglypositive at R10,5 billion, though lower than 2007’sR12,9 billion (excluding the R4,5 billion IEB transfer).The net cash flows into the group’s asset managementoperations at STANLIB and Liberty Africa were up slightlyto R13,3 billion.Other business unit highlights for 2008 included a 26%increase in Liberty Properties’ headline earnings.We expect Liberty Properties’ contribution to groupearnings to become proportionately higher.STANLIB improved headline earnings by 4%, drivenlargely by performance fees and continued cost control.Pg 6

Liberty Holdings Limited – Annual Report 2008Liberty Equity Growth SchemeThe salient terms of the Liberty Equity Growth Schemeare set out below.The Liberty Equity Growth Scheme is established foremployees of Liberty, its subsidiaries and associates.The aggregate number of unissued ordinary shares inLiberty which may be reserved for the scheme may notexceed 29 000 000, being approximately 10% of theissued ordinary share capital of Liberty after theimplementation of the scheme. No employee is entitled toacquire in excess of 2,5% of this number of shares interms of the scheme.In terms of the scheme, the board of directors of Libertymay award rights to participating employees. These rightswill have an award price equal to the closing price of ashare on the trading day preceding the award. 50% of therights awarded will vest three years after the date of anaward to an employee, a further 25% of the rights awardedwill vest four years after that date, and the balance will vestfive years after that date. The remuneration committee ofthe board of directors of Liberty has the authority to varythese vesting periods, and the exercise period referred toin the paragraph below, and also has the power to declarethat all rights awarded to employees shall vest in the eventof the change of control of Liberty.After the rights awarded to an employee have vested, thatemployee is entitled to exercise his rights. The exerciseprice in respect of a right would be the closing price of aLiberty share on the JSE on the trading day immediatelyprior to the day on which the right is exercised. Thebenefit due to an employee on exercise of their rights willbe calculated by subtracting the award price of thoserights from the exercise price of those rights andmultiplying the difference by the number of rights whichare exercised by the employee. The value of the benefitdue to the employee would then be divided by theabovementioned exercise price in order to obtain thenumber of ordinary shares to be received by theemployee. For the avoidance of doubt, employees areonly entitled to receive their benefits in the form of Libertyordinary shares.The rights awarded to employees who leave the employof the Liberty group for any reason whatsoever, prior tothe rights vesting in accordance with the scheme, willlapse, subject to the discretion of the board of directorsof Liberty.The award of rights does not entitle an employee to anyrights in respect of the ordinary shares, until the ordinaryshares are delivered to the employee pursuant to thecalculation of the benefit due upon such exercise.In the event of a reorganisation or a transaction thathas an effect on the capital of Liberty, the auditors ofthe company are consulted in order to ensure that boththe employee and Liberty are not prejudiced.Reconstitution of the board of the companyIn light of the fact that, upon the implementation of thescheme, Liberty became the sole shareholder of LGL andall minority shareholdings in LGL became minorityshareholdings in Liberty, it was considered appropriateto reconstitute the Liberty board. The LGL directors whowere not already on the Liberty board were appointed.Accordingly, Mr HI Appelbaum, Mr AWB Band,Mr JB Hemphill, Professor L Patel, Mr TDA Ross,Dr SP Sibisi, Mr RG Tomlinson, Ms BS Tshabalala andMr PG Wharton-Hood were appointed to the Libertyboard on 12 November 2008. Messrs DE Cooper andMJ Shaw resigned from the board of Liberty on1 December 2008.AccountingAs Liberty previously controlled LGL and through thetransaction increased its’ ownership to 100%, thetransaction has been accounted for as a common controltransaction in terms of International Financial ReportingStandards. Refer to the group’s accounting policy inthis regard.Pictorial view of control structure at 31 December 2008Listed on the JSEStandard BankGroup Limited53,65%Listed on the JSELiberty Holdings Limited100%9,89% BEE transactions36,46% other shareholdersDelisted from the JSE(effective 1 December 2008)Liberty Group LimitedPg 9

Liberty Holdings Limited – Annual Report 2008Economic reviewrecorded at their lowest levels ever, a severe recession inthe housing market, with property prices down more than25% from their peak and rising unemployment that hasresulted in more than 3,6 million jobs losses since thestart of the recession. Huge negative wealth effects (dueto declining house and stock market values) are adding tothe downward pressure.The Euro-area is facing the biggest economic challengein its ten year history. Measures of business activitycollapsed towards the end of 2008. In addition, thefinancial difficulties in the region have intensified, andhousing weakness is spreading. Export performance isfading, while domestic policy support has been lessaggressive than in the United States.Kevin LingsSTANLIB EconomistThe global recessionThe key feature of the current economic crisis is thespeed at which the credit and banking sector turmoiloverwhelmed the financial markets and broadereconomic environment. The rush to low risk assets bybanks, corporates and consumers, in the last few monthsof 2008, led to a sudden broad-based weakening infinancial markets, especially equity markets; which hasnow spilt over into the broader economy.The weakness in the global economy has been breathtakinglysudden, severe and extremely widespread.The recent flow of economic data out of the United States,Euro-area, Japan and the United Kingdom has beenalarmingly weak. Economic activity has declined at itsfastest pace since the 1940s, while unemployment ismoving sharply higher on a global scale. Currently allthe major developed economies are in recessionincluding the United States, Euro-area, Japan and theUnited Kingdom.While all components of the United States economy arevery weak, the area that stands out is consumerspending. A number of factors are combining toundermine consumer activity in the United States. Theseinclude extremely weak confidence levels, recentlyThe recent flow of data from Japan has been very weak.The Bank of Japan’s Tankan business survey droppeddramatically towards the end of 2008, confirming theextreme weakness in GDP performance. The main reasonthat Japan is looking so weak is that the economy remainsvery heavily geared to exports. The sudden plunge inglobal trade is wreaking havoc in Japan.Growth in emerging economies continues to moderate,albeit to a level that remains above that in the developedmarkets. Indeed, the five percentage point differential thathas persisted between emerging and mature marketgrowth in recent years is expected to persist. Amongemerging markets, Emerging Europe is the weakest, withsignificant difficulties evident between Russia andUkraine and growing concern about the banking sector.Latin America is also struggling given the combination ofa large exposure to commodities and heavy reliance onthe United States. In Asia, both China and India areslowing significantly, but should sustain sufficientdomestic demand to produce a growth outcome thatcompares favourably with other countries.Unprecedented monetary and fiscal policyresponseIn essence, the banking sector in the major developedmarkets has three inter-linked problems, namely a hugepool of troubled or ‘toxic’ assets, partly in the form ofmortgage backed securities; inadequate levels of capitalgiven that the values of their assets had to be writtendown dramatically; and a lack of funding liquidity sincemost banks are unable or unwilling to provide credit toother banks.Pg 10

Liberty Holdings Limited – Annual Report 2008Economic review (continued)SWIXSWIX6 5006 0005 5005 0004 5004 0003 500Jan 08Feb 08Mar 08Apr 08May 08June 08July 08IndexAug 08Sep 08Oct 08Nov 08Dec 08Fortunately, over the past few years the Minister ofFinance has substantially curtailed the build-up ofgovernment’s debt, as well as generating a fiscal surplus.This generally healthy fiscal position should ensure thatgovernment can increase spending without having toincrease taxes. This is despite the fact that tax revenue isslowing sharply, with further risk to the downside.Investment markets have been extremelyvolatileDuring 2008 the domestic bond market was the bestperforming asset class in South Africa, yielding a totalreturn of 17,0%. Most of that gain was achieved in thefinal quarter of 2008, after a dismal first half performance.In fact, the bond market rose by a total of 11,8% in thefinal two months of the year. This improved bondperformance was helped by the sharply lower oil price, amore favourable outlook for inflation and expectations oflower interest rates.In contrast, the South African equity market declined by23,2% in 2008. This makes 2008 the second worst annual(calendar) equity performance since 1960, and hence avery rare event. Interestingly, the equity market wasactually up a total of 6,4% in the first half of 2008, howeverthe severity and pace of the banking sector crisis resultedin losing 23,3% in September and October 2008.The speed of the decline in equity performance duringSeptember and October meant that most large investmentfunds simply did not have sufficient time to reduce theirequity market exposure to more satisfactory levels.In line with the trend of decreased liquidity and de-risking,investment flows from foreigners have been negative inrecent months, driving the rand weaker. The rand endedthe year at R9,31 to the US$ representing a 36,7% declineover the year.ConclusionThe current economic, business and investmentenvironment remains extremely challenging. In thatregard, the main concern currently is the escalation in joblosses, which has the potential to substantially worsen analready dire situation. The global recession is occurring in“fast forward”. Fortunately massive policy support is nowbeing provided to try and lift the global and local economy.Realistically, output declines are likely to persist for most of2009, but hopefully the current policy stimulus allows for atleast a modest economic recovery during 2010.Kevin LingsFebruary 2009Pg 12

ABOUTLIBERTYPg 13

Our aim is to diversify the group – in terms of the wealthsolutions we offer, the geographies we serve, the way inwhich we distribute products and the people whoultimately drive the success of our business.Pg 14

Liberty Holdings Limited – Annual Report 2008Liberty in numbersR337 billion assets under managementR27,2 billion group BEE normalised embedded valueR5,9 billion* total shareholder distributions over past five years3 499 combined distribution force (agency, franchise, Liberty@work,broker consultants and bancassurance)5 334 permanent staff (excluding distribution force)Achievement on Financial Sector Charter Scorecard 93,3%Liberty has a presence in 7 countries in Africa3,2 million credit life policies in-force2,7 million individual policies in-force386 450 members under corporate retirement schemes472 000 lives under health service managementR3,4 billion planned for properties expansion and refurbishment programmeR23 million spent on social responsibility programmes9 012 ordinary shareholders* Dividends and returns of capital by Liberty Group LimitedPg 15

Liberty Holdings Limited – Annual Report 2008Vision and valuesVisionLiberty will be the market leading wealth managementcompany in Africa, while entering growth marketswhich allows us to use our points of difference tomake a meaningful contribution to the group.We are a family of specialised wealth brands andpartnerships informed by our customers’ needs.4. Working together to achieve common goals• United and proud to belong• Sharing knowledge and expertise• Taking time to help others• Get involved and encourage participation• Constructively acknowledge and appreciatecontributions• Build strong relationshipsOur unique strength lies in our ability to do twokey things:1. Leverage the power of both our specialisationand the strength of the collective group.2. To execute by enlisting, mobilising, and partneringwith our people.Values1. Always passionate, positive, and having fun• Passion and pride in all that we do• Positive, friendly, can-do attitude• Having fun, while remaining productive andprofessional• Proud ambassadors of our brands2. Maintaining open channels of communicationthat encourage freedom of expression• Engage staff on all matters that affect them• Speak openly, listen actively, act wisely• Listen to our customers3. Interacting with respect and integrity, by beinghonest, trustworthy and transparent• Keep our promises• Recognise and value individuals’ contributions• Embrace diversity in all we do• Always honest, trustworthy and transparent5. Taking responsibility for our attitudes, actionsand development• Take responsibility for your own personaldevelopment• Own your decisions, own your actions, ownyour attitude• Own the problem, own the solution6. Providing excellent customer service, from endto end, all the time• Exceed customers’ expectations• Continuously improve and impress• Listen and respond appropriately to thecustomer• Be genuinely interested and empathise• Smile and care – always!7. Creating a culture of sharing knowledge andexpertise• Mentoring and coaching• Willing to teach, willing to learn• Continuously building and sharing knowledgeand expertisePg 16

Liberty Holdings Limited – Annual Report 2008Strategic reviewStrategic visionIn 2007 the executive management team of Liberty weregiven a mandate by the board to increase the focuson growth and to build a broader wealth company.The resulting group vision, therefore, incorporated thefollowing key points:Liberty will be the market leading wealth managementcompany in Africa, including a family of specialisedbusinesses and partnerships informed by customerneeds. The unique strengths are the ability to leveragethe power of both specialisation and the collective groupand being able to effectively execute by enlisting andpartnering with the group’s people.Gathering of assets and three manager modelAt the heart of the business proposition is the customerand the ability to gather and manage customers’ assetsas effectively and cheaply as possible. Underpinningthe gathering and management of assets is the group’sthree manager model which splits the origination andmanagement of assets into three categories:• Liability generation: The process of liability origination,i.e. the sale of the group’s product range, encompassinginsurance, health services and asset management (theliability origination responsibility includes managingreputational risk as well as the resultant financialobligation).• A strategic balance sheet management capability:Separate and independent management of market,credit and liquidity risks arising from liability generationactivities.• Asset management capability: Focused managementof the group and customer assets to maximise returnswithin mandate and risk appetite.The liabilities are originated and assets are gatheredprimarily through a consolidated marketing, sales anddistribution platform which leverages the group’s tiedsales force and maximises mutually beneficialarrangements with partners such as Standard Bank.Measuring delivery of strategyLiberty measures the delivery of the agreed strategy atthree distinct levels throughout the group:• Business as usual: The ability to optimise currentbusiness processes through a focus on continuousimprovement and efficiency.• Leverage and build: The opportunity to extractadditional value from the existing customer base andproduct offering.• Extend and grow: The creation of additional wealthsolutions and extension of the customer base throughproduct manufacturing, geographic and strategicpartnership expansion.2008 strategic objectives and self assessmentThe charts below summarise each of the delivery levels’primary objectives and managements’ 2008 selfassessment of these.The business as usual progress has been satisfactory,with positive achievements made on efficiency, overheadoptimisation and enhanced IT capabilities. SignificantBusiness as usual Leverage and build Extend and growEfficiency focus ~ Segmented client solutionsDistribution channelextensionsOverhead optimisation ~RetentionCapital optimisationEnhanced IT capabilities ~ LibFin✔: achieved ~: partial success ✘: work still to be done✘✔✘✔✔Africa ~Strategic ventures• Direct ~• Stonehouse✔Extend the wealth offering• Health✔• Short-term✘• Property✔• Wraps and platforms ~• High net worth client solutions ✘Pg 17

Liberty Holdings Limited – Annual Report 2008Strategic review (continued)work, however, still needs to be done in these areas andthey remain key focus areas for 2009.Good progress was also made on the leverage and buildand extend and grow initiatives. Certain areas willrequire additional attention in 2009 if they are to deliverthe expected value uplift. A summary of the successesand ongoing focus areas are:Successes• The completion of the extension to the group’sdistribution channels;• Capital optimisation through the newly formed LibFinbusiness unit has made significant progress. The riskmitigation strategies have already started to have amaterial impact on profit protection and the capitaladequacy requirements of the business;• The re-entry into healthcare has been successful andshould start to provide meaningful investment returnsin 2009;• There has been a significant focus on opportunitiesoutside of South Africa which has helped clarify targetsfor growth. It is anticipated that some of these targetswill be realised during 2009;• The strategic re-positioning of the Properties businessunit into three business opportunities, namelydevelopment management, administration servicesand asset management, is beginning to pay off and isexpected to gain momentum in 2009;• The business has been successfully restructured intobusiness units with designated chief executives whohave full accountability for their business units’contribution to the group’s income; and• The entry into the direct market channel has beenapproved and will be operationalised in 2009.Completing the wealth offeringThe group has in the past two years moved quicklyto diversify its business away from an over-reliance onlong-term insurance. It now has individual andcorporate investment and insurance, health services,asset management, property and treasury businesses.In order to create a distinctive and compelling Pan-Africanand emerging markets wealth business, the followingactions are planned in the foreseeable future:• Completion of phase two of the group restructurewhich entails transferring existing non long-terminsurance business units and legal entities under thenon-regulated holding company, thereby optimisingthe group’s capital structure;• Entry into short term insurance. Management arecurrently assessing the best alternative to achieve this;• Finalising a high net worth customer segment offeringin partnership with Standard Bank; and• Entering into bancassurance agreements withStandard Bank that extend beyond South Africa.Continued focus areas• There still remains significant work that needs to takeplace in the segmented customer solutions andretention area. The ongoing tough economic conditionshave in fact led to a worsening of the retention ofLiberty’s insurance customer base during 2008. Thiswill be one of the group’s top priorities in 2009; and• The anticipated Kulula joint venture with Comair was reevaluatedin light of the ongoing negative economicconditions and a decision to postpone this venture hasbeen taken.Pg 18

Liberty Holdings Limited – Annual Report 2008Five year financial review2008 2007 2006 2005 2004Rm Rm Rm Rm RmLiberty Holdings LimitedCapital and earningsShareholders’ funds 11 633 5 288 5 247 4 967 4 823Headline earnings 1 110 1 458 1 190 917 664Headline earnings per share (cents) 709,3 1 049,7 2 552,2 1 965,3 1 346,0Total earnings per share (cents) 709,3 1 051,8 2 968,9 1 536,6 2 012,9Liberty Group LimitedCapital and earningsShareholders’ funds 11 474 11 029 10 665 9 434 8 526Capital adequacy cover (multiple of capitaladequacy requirements) 2,66 2,03 2,27 2,04 2,46BEE normalised headline earnings 1 619 3 129 2 589 1 929 1 281BEE normalised headline earnings per share (cents) 574,6 1 100,4 930,2 694,8 464,6Maintenance costs per policy (rand) (2)– complex products 315,65 283,61 279,04 258,29 248,44– simple products 157,83 141,80 139,52Embedded value (3)BEE normalised embedded value 27 048 27 250 23 016 20 404 17 570Adjusted net asset value 8 089 9 060 8 696 7 692 8 130Net value of life business in-force 14 188 14 191 12 420 10 874 8 157Non long-term insurance company subsidiaries 4 771 3 999 1 900 1 838 1 283BEE normalised embedded value per share (rand) 95,27 96,10 82,55 73,41 63,72Value of new business written 724 785 607 777 815New business margin (%) 2,6 2,8 2,5 3,0BEE normalised embedded value profits 1 000 4 961 4 577 3 539 2 458BEE normalised return on embedded value (%) 3,7 21,6 22,4 20,1 15,4Assets under management (Rbillion) 337 357 309 290 234STANLIB 299 328 294 276 223Liberty Africa 19 12Liberty Properties 19 17 15 14 11Cash flowsIndividual and Corporate InsuranceNet premium income and inflows 31 346 34 752 27 901 27 291 20 554Total claims and policyholders’ benefits (34 207) (30 459) (24 275) (21 565) (16 914)Net cash inflow (2 861) 4 293 3 626 5 726 3 640Individual 458 1 922 3 607 4 948 5 491Corporate (3 319) 2 371 19 778 (1 851)Asset management 13 374 13 107 (5 783) 12 795 13 679STANLIB 5 115 8 888 (5 783) 12 795 13 679Liberty Africa 8 259 4 219New businessIndividual and Corporate InsuranceRecurring premiums and inflows underinvestment contracts 3 437 2 987 3 600 3 559 3 158Individual 3 020 2 608 2 949 2 924 2 674Corporate 417 379 651 635 484Single premiums and inflows underinvestment contracts 13 458 13 642 13 077 13 114 10 282Individual 11 891 12 294 11 172 10 797 8 700Corporate 1 567 1 348 1 905 2 317 1 582Indexed new business 4 782 4 351 4 908 4 870 4 186Asset management sales 157 650 116 298 99 562 105 381 93 749STANLIB 138 146 106 233 99 562 105 381 93 749Liberty Africa 19 504 10 065Total group staff (1) 7 876 7 071 5 772 6 092 5 276(1)522 additional appointees in 2008 for health services, 610 joined in 2007 on acquisition of STANLIB and 520 joined in 2005 on acquisition of Capital Alliance.(2)With effect from 1 January 2006 the group adopted a shared servicing agreement which has resulted in a group maintenance cost per policy used inthe valuation of applicable policyholder liabilities in each group life company. 2003 – 2005 comparatives are those for Liberty Group Limited only.(3)2007 onwards incorporates the revised PGN 107 principles.Pg 19

Liberty Holdings Limited – Annual Report 2008Shareholder informationShareholders’ spreadNumber of Number % of issuedshareholders % of shares shares1 – 10 000 shares 8 434 93,59 5 393 151 1,8910 001 – 100 000 shares 426 4,73 15 040 305 5,26100 001 – 1 000 000 shares 129 1,43 35 735 163 12,491 000 001 – 10 000 000 shares 20 0,22 51 582 385 18,0310 000 001 shares and over 3 0,03 178 271 369 62,33Distribution of shareholders9 012 100,00 286 022 373 100,00Number of Number % of issuedshareholders % of shares sharesBanks 128 1,42 169 431 315 59,24Close Corporations 35 0,39 52 153 0,02Empowerment 4 0,04 25 796 145 9,02Endowment Funds 50 0,55 787 390 0,28Individuals 6 931 76,91 6 621 357 2,31Insurance Companies 58 0,64 10 716 093 3,75Investment Companies 32 0,36 25 684 347 8,98Medical Aid Schemes 14 0,16 227 617 0,08Mutual Funds 261 2,90 27 860 547 9,74Nominees & Trusts 903 10,02 1 548 684 0,54Other Corporations 108 1,20 594 808 0,21Pension Funds 292 3,24 13 904 608 4,85Private Companies 192 2,13 2 781 602 0,97Public Companies 4 0,04 15 707 0,01Beneficial shareholders holding 3% or more9 012 100,00 286 022 373 100,00Numberof shares% of issuedsharesStandard Bank Group Limited 153 456 360 53,65Public Investment Corporation 22 008 662 7,69The Black Managers’ Trust (Lexshell 622 Investments (Pty) Ltd) 10 318 458 3,61Share statistics and ratios – five year review2008 2007 2006 2005 2004Liberty closing share price (rand) 62,46 75,33 70,00 63,00 58,73Total number of shares in issue at31 December (millions) 286 147 147 148 148Weighted average number of shares inissue (millions) 163 139 140 140 148Distributions per ordinary share paid (cents) 259 352 670 267 280Market capitalisation (Rm) 17 864 11 095 10 309 9 325 8 6942007 to 2004 statistics and ratios have been restated as if the 3:1 share split occurred at the beginning of 2004.Pg 20

Liberty Holdings Limited – Annual Report 2008Effective ownership of the groupPublic 36,46%Standard Bank 53,65%BEE entities 9,89%Shareholder profile by geographical regionCompany vs financial services and whole market%1009093,4%807068,7% 65,5%0,3%60504030201007,4%12,1%1,8%13,1%8,8%0,8% 3,7% 1,7% 3,1%4,4%7,5%South AfricaSource: JP Morgan CazenoveUK North America and Canada Rest of EuropeLiberty Holdings Limited Financial services Whole marketRest of WorldShare price performanceSector and market comparison over one yearPrice (R)90807060504030Mar 08Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 08Feb 09Source: DatastreamLiberty Holdings LimitedFinancial servicesPg 21

Liberty Holdings Limited – Annual Report 2008Dividend policy and distributionsThe initial base for the dividend policy was determined in 2004. Subject to the statutory CAR cover remaining above1,5 times, growth in the group’s dividend will be broadly in line with the medium-term growth in embedded value(currently targeted at 14,5% to 15,5%). The interim dividend will be declared as 40% of the previous full year’s dividend.Total distributions to shareholders2008 2007RmRmPaidOrdinary shareholders 382 5192007 final dividend No. 78 of 715 cents (2006: 670 cents) paid on 14 April 2008to shareholders registered on 11 April 2008 351 3292008 extraordinary dividend No. 79 of 63 cents (2007: 387 cents) paid on10 November 2008 to shareholders registered on 7 November 2008 31 190Preference shareholders 2 2Dividend 60 of 5,5 cents paid on 7 July 2008 to shareholders registered on 4 July 2008 1 1Dividend 61 of 5,5 cents paid on 29 December 2008 to shareholders registeredon 24 December 2008 1 1Total 384 521Declared capital reductionA capital reduction in lieu of a 2008 final dividend of 291 cents per ordinary share to shareholders recorded at the closeof business on 27 March 2009 to be paid on 30 March 2009.Comparable shareholder distributions (per share)2008 2007 %Cents Cents increaseInterim 164 (1) 144 (1)Final 291 (2) 266 (1)Total 455 410 11,0(1)Paid by Liberty Group Limited.(2)Declared by Liberty Holdings Limited.Shareholders’ diaryFinancial year end 31 December 2008Declaration of final dividend for 2008 26 February 2009Final distribution for 2008 paid to ordinary shareholders 30 March 2009Annual general meeting 15 May 2009Preference dividend declared for the six months ended 30 June 2009 29 May 2009Preference dividend paid for the six months ended 30 June 2009 6 July 2009Publication of interim results and declaration of interim dividend 6 August 2009Interim distribution for 2009 paid to ordinary shareholders 7 September 2009Preference dividend declared for the six months ended 31 December 2009 27 November 2009Preference dividend paid for the six months ended 31 December 2009 4 January 2010Pg 22

Liberty Holdings Limited – Annual Report 2008Overview of sustainabilityWhat sustainability means for LibertyBy any measure, the past year has been one of the mostvolatile for businesses across the globe and across mostindustries. Sustainability still needs to be high up on thegroup’s agenda even at a time when our stakeholdersseek reassurance of the group’s continued survival.Liberty views sustainability in the true sense of the term –stewardship of all issues that may have an effect on itsability stay in business over the long term.The current global economic meltdown is the result ofshort term behaviours that sustainable business practicesseek to avoid. Excessive credit extension – particularly bythe financial services industry in the United States andUnited Kingdom – in a lax governance environmenthas now resulted in the failure, or partial nationalisation,of many of the largest financial institutions across most ofthe developed world.Liberty agrees with various sustainability organisations(e.g. the Global Reporting Initiative) that maltreatment ofsociety, over-exploitation of resources and unfair dealingsin economic practices will lead to the collapse of theeconomic system in which the group operates. It istherefore Liberty’s duty, indeed the duty of all businessentities, to understand its impacts and act responsibly toeffect positive change in its performance.The purpose of this overview report is to describe howLiberty has identified these issues, important initiatives toaddress them, and the performance in each area.More detail on each issue can be found atwww.liberty.co.za.Establishing Liberty’s material issuesThe sustainability of Liberty’s business is whollydependent on how successfully the group interacts withits stakeholders. While the most obvious relationship thegroup has is with its customers, other relationships maynot be sustainable over the long term, thus impairing thegroup’s ability to survive into the future.Understanding Liberty stakeholders’ areas of concerntherefore helps management frame its response andimprove the quality of its business. Not only are theredirect benefits, but indirectly Liberty can enhance itsreputation as a good citizen in the corporate economy,thus building the value of the brand.The main stakeholders impacted by Liberty’s operationsare:• Customers• Shareholders• Employees• Financial advisers• Regulators• Suppliers• Property interest groups (e.g. tenants)• Environmental advocacy groups• The recipients of Liberty’s corporate social investmentin educationTo enhance managements understanding of stakeholderconcerns an independent survey was completed duringthe 2008 financial year.The issues that arose from this survey were thencompared with already identified issues resulting in thefollowing list of key issues:• Improve trust and confidence in Liberty;• Increasing capacity to deliver strategic objectives andsustainable returns;• Meet the evolving needs of Liberty’s customers;• Ensure Liberty’s continued viability in an uncertainbusiness environment;• Limit Liberty’s impact on the environment; and• Contribute to South Africa’s social and economicdevelopment.Improve trust and confidence in LibertyIt is imperative that Liberty’s stakeholders value its’ brandand believe in the products and services offered. Thebusiness equally relies on retaining existing customers aswell as acquiring new business. In order to build trust andconfidence in Liberty, management endeavours torespond to feedback from policyholders and advisers onimproving the product and service offering. The overarchingmission is to treat customers fairly, in particular:• Restore integrity in the life insurance industry –Exposure of unfair industry practices in the pastresulted in consumer and regulatory pressure on theinsurance industry to improve product and salesmodels. Aside from early termination charges, sincerectified, social security and retirement reform remainsa high priority with government. In response, Liberty isPg 23

Liberty Holdings Limited – Annual Report 2008Overview of sustainability (continued)actively engaged in discussions with governmentthrough various industry forums and representativebodies.• Design products that build trust and confidence inLiberty – The group has adopted a policy to developproducts and services that not only comply with thespirit of the law but offer intermediaries andpolicyholders flexibility, simplicity and value formoney. Examples of new products include the Excelsior2000 Series of investment products, which comply withnew commission regulations. Non-complying productshave been closed to new business.• Treat customers fairly throughout the sales process –Adviser professionalism is one of the key objectives andto this end Liberty provides training and developmentprogrammes that are compliant with the FinancialAdvisory and Intermediary Services (FAIS) Act.During 2008, approximately 640 contracted adviserscompleted the National Certificate in WealthManagement (NQF 5).Increasing capacity to deliverTo deliver on the commitment to treat customers fairly,there is a need to attract, educate and retain staff whovalue customers and who understand the importance ofsuperior service delivery. To back up this quality team,systems will need to deliver promptly and dependably,offering the customer a seamless interface with thebusiness:• Attract and retain the highest calibre employees –Emphasis during 2008 was on recruiting essentialpersonnel into areas such as Liberty Financial Services(LibFin) and on training and mentoring existing talent.Staff turnover has dropped from 16,8% in 2007 to13,7% in 2008, and employee satisfaction is on a parwith last year. A significant initiative was the co-creation,between management and employees, of a new visionand values for the group as described on page 16.A Leadership Charter was launched in 2007 (referpage 29) and FSC learnerships are continuing.• Improve IT systems and related processes – GroupInformation Technology is focused on ensuringstability, reliability and performance in theprocessing of transactions for all stakeholders. Enduserperformance, particularly at branch offices,remains a challenge. Achievements include reducingthe number of critical outages by 31% over the yearand improving Help Desk service levels.Meet the evolving needs of Liberty’s customersPreviously disadvantaged citizens of South Africa werelargely excluded from enjoying the benefits of evolvingfinancial services. In response, many resorted to informalarrangements, such as stokvel savings clubs, which areprone to unique risks, insecurity and performancelimitations. Reaching this sector with quality financialservices is a national imperative and one that Liberty hasembraced in the ways described below:• Offer products that are accessible to lower-incomeconsumers – The group has attained 76% of theFinancial Sector Charter (FSC) 2014 target (one millionpolicies), placing the group in the top three life offices.The challenge is to retain customers and to expandthe reach in areas beyond the footprint offered byStandard Bank. Liberty is doing this by developingdiverse distribution channels, appropriate productsand better ways to transact with customers.• Educate previously disadvantaged consumers tounderstand and participate in the financial sector –Liberty has changed its approach from supporting theLife Offices Association (now under the ASISA umbrella)initiatives to bringing consumer education in-house.Liberty’s consumer education programme offered faceto-face,basic financial literacy training to more than14 000 individuals in seven provinces in 2008. Sitesincluded rural settlements, universities catering topreviously disadvantaged students and businesses withlow-income employees. Plans are to launch financialliteracy campaigns via mass media in 2009.• Expand geographical footprint – Liberty continued withthe Branch Revitalisation and Consolidation Project toprovide a convenient, one-stop shop for customers andintermediaries across the country. Development of thelarger ‘Flagship’ branches in metropolitan centres aswell as selected ‘Premier’ second-tier metropoles likePolokwane and Nelspruit will continue. Plans for 2009include a branch in Soweto and the relocation of abranch serving entry-level market customers fromSandton to the City Centre in Johannesburg.Ensure Liberty’s continued viability in anuncertain business environmentWhile most of the sustainability issues in this report areeither economic (e.g. treating customers fairly), social(reaching previously disadvantaged consumers) orenvironmental (reducing carbon footprint), in this highlyuncertain economic climate Liberty needs to focusfirmly on the following core business issues that directlyaffect its business viability both in the long and theshort term.• Retain policyholders in challenging economic conditionsBoth the Individual Life and Corporate businessesPg 24

Liberty Holdings Limited – Annual Report 2008faced a challenging 2008. Regarding the former, phase1 of a customer retention programme was completed inDecember 2008. An estimated 15% (110 000 policies)at risk of withdrawal were retained, short of its 20%target but showing improvement.• Manage enterprise risk – Investors increasinglydemand transparency regarding the risk managementof financial institutions. In Europe in particular,Solvency II regulations are driving insurers to betteridentify, measure, manage and report on risks specificto each insurer. Liberty is becoming aligned with thisstandard through its Enterprise Value and RiskManagement (EVRM) process. In 2008 LibFin focusedon interest rate risk, enabling the group to markedlyreduce its volatility of earnings.• Manage the capital base in a responsible buttransparent manner – Along with EVRM, Libertyalso manages its Capital Adequacy Requirement,anticipating a move from OCAR (Ordinary CapitalAdequacy Requirement) to TCAR (Termination CapitalAdequacy Requirement), which ensures that no policyhas a negative liability or surrender value.• Represent industry’s and Liberty’s interests in engagingwith legislators – There is an expectation of a globaltightening of financial sector governance regulations,which South Africa will need to follow. In tracking about100 regulatory developments, Liberty seeks positiveand constructive engagement with the variousregulators and policymakers.Limit Liberty’s impact on the environmentWhile the group’s operations do not have a high directimpact on the environment, it does however make manyinvestment decisions that may have an indirect impact onthe way resources are exploited, biomes affected andemissions caused. In the international arena, thisresponsibility is well recognised. Liberty’s response is tobegin advocating within the investor community for agreater responsibility towards the environment.Management is focused on gaining value from moreattractive ‘green’ buildings and saving costs through themore efficient use of electricity and water and otherconsumables.• Measure and reduce the operation’s direct environmentalimpact – Liberty Properties has engaged with theDepartment of Minerals and Energy, Eskom and theNational Energy Regulator of South Africa on a numberof occasions to deliberate on energy savings targets andprovide feedback on the prospective national energyefficiency policy. Liberty Properties has also conductedresearch and engaged service providers to build a solidunderstanding of all the issues relating to environmentalsustainability. During 2008, Liberty Properties became amember of the Green Building Council of South Africaand achieved an overall 9% saving on electricityconsumption across the property portfolio. Systems arebeing put in place to more accurately measure waterconsumption and waste management.• Improve awareness of social and environmental impactsof investment decisions – STANLIB became a signatoryto the International Principles for ResponsibleInvestment in March 2008. STANLIB monitors corporateactions by companies in which the group has investedcustomer funds and will oppose actions it believes arenot in the interest of investors or the community. In thepast STANLIB has approached the SecuritiesRegulation Panel to raise concerns over proposedcorporate actions. Liberty considers environmental,social and governance (ESG) principles during itsdecision making process before voting on issues and iscompiling a new proxy voting policy that will expresslyinclude ESG principles.Contribute to South Africa’s social andeconomic developmentAs a party to the FSC, Liberty is committed to drivingtransformation in the South African economy throughBlack Economic Empowerment. Against an FSC target of100 by the end of 2014, the group’s overall charter scorehas increased from 86,00 points as at 31 December 2007,to 93,30 points as at 31 December 2008. Full points werescored in the areas of human resource development,preferential procurement, empowerment financing andcorporate social investment; and the group is one pointaway from its goal (21 out of 22) for ownership andcontrol. The one area where progress still has to be madeis in access to financial services, which has a longer-termindustry target than the other pillars due to the extent ofwork required in this area.• Represent industry’s interests in the integration ofthe FSC and the DTI codes – The Department of Tradeand Industry’s (DTI) Codes of Good Practice forBroad-based Black Economic Empowerment werefinalised and gazetted at the end of February 2007.With the DTI Codes coming into effect, the influence ofsector charters like the FSC has reduced. While theinitial deadline for the alignment of the FSC with theDTI Codes has passed (August 2008), the negotiationprocess – particularly relating to the ownership pillar –Pg 25

Liberty Holdings Limited – Annual Report 2008Overview of sustainability (continued)continues. Liberty is involved in the discussionsthrough representation on various subcommittees.• Make the conversion from working within the FSC to theDTI Codes – Liberty remains confident of its ability todeliver the revised targets within the relevant timelines.• Impact positively on society through corporate socialinvestment – In 2008, Liberty’s corporate socialinvestment spending increased from R20,5 million toR22,7 million, in excess of the DTI Codes requirementof 1% of profits after tax. Key programmes includethe Liberty Learning Channel and Mindset, both multimediabroadcast learning initiatives with national reach.Value added statementLiberty also has an impact on the greater economythrough the funds it pays to policyholders, the salaries itpays to employees, the taxes it pays, the returns it pays toshareholders and the donations it makes to society. Thevalue added statement below details these amounts paidin 2008 and the increase or decrease since 2007.Liberty value added statement for the year ended 31 December 20082008 2007 %Rm Rm changeGroup value addedPremium income and reinsurance recoveries 31 881 35 362 (9,8)Investment and other operating income (69) 26 591 (>100,0)Commissions paid to agents and brokers (2 822) (2 894) 2,5Payments to outside suppliers (2 565) (2 082) (23,2)Wealth created 26 425 56 977 (53,6)Wealth distributed amongst stakeholdersEmployees (Salaries and other benefits) 1 859 1 513 22,9Government (in the form of taxes) 923 2 472 (62,7)Policyholders (Policyholder claims, benefits and increase in reserves) 20 839 48 645 (57,2)Providers of capital 1 282 1 461 (12,3)Ordinary distributions paid to Liberty shareholders 372 503 (26,0)Earnings attributable to preference shareholders 310 276 12,3Distributions to minorities 397 462 (14,1)Finance cost 203 220 (7,7)Retentions to support future growth 1 522 2 886 (47,3)Retained surplus 1 174 2 564 (54,2)Depreciation, amortisation and impairments 348 322 8,1Wealth distributed 26 425 56 977 (53,6)Wealth distributed excluding policyholders2008 200727%33%35%18%23%17%17%30%Employees Government Providers of capital RetainedPg 26

CORPORATEGOVERNANCEPg 27

Professionalism, integrity and transparency form theheart of the group’s code of business ethics.Pg 28

Liberty Holdings Limited – Annual Report 2008Leadership charterDuring 2007 Liberty’s executive team developed and signed a leadership chartercommitting themselves to certain values and behaviours in how they guide the businessand their teams.A Liberty leader will at all times:• Be a proud, committed ambassador for Liberty, its vision, its people and its products.• Put the customer at the centre of thought and actively meet their needs.• Create a high performance culture by assuming and demanding accountability based on clearexpectations.• Engage in active listening and constructive debate in pursuit ofof the business.the best outcomes• Be fair, sincere, consistent and transparent.• Put themselves and their people in the knowledge position that enables informedand courageous decision making.• Actively drive transformation and embrace diversity.• Ensure that effective, meaningful communication and feedback takes place with appropriateengagement.• Inspire passion in the workplace by energising and inspiring people and so creatingan environment of partnership, recognition and fun.• Develop people to be their best through empowerment, appropriate mentoring and the removalof obstacles.Code of business ethicsLiberty subscribes to the highest levels of professionalism and integrity in conducting its businessand in dealings with stakeholders. All Liberty employees and representatives are expected to actin a manner that inspires trust and confidence from the general public. Liberty has formalised acode of ethics, which prescribes the group’s approach to business ethics and its obligations tocustomers, shareholders, employees, representatives, suppliers, the general public and theauthorities. Responsibility for ensuring compliance with the code has been delegated tomanagement.Pg 29

Liberty Holdings Limited – Annual Report 2008Board of directors1 234 5 671. Saki Macozoma (BA)Appointed to the board: 2003Aged 51, is the non-executive chairman ofLiberty Holdings Limited and Liberty GroupLimited. He is deputy chairman ofStandard Bank Group Limited as well asnon-executive director of The StandardBank of South Africa Limited. He iscurrently the chairman of Iliso Consulting,Safika Holdings (Pty) Limited, Council ofthe University of the Witwatersrand andSTANLIB Limited. He is also a directorof Safika Resources (Pty) Limited,Safika Capital (Pty) Limited, Safika FinancialServices (Pty) Limited, Safika TwoInvestments (Pty) Limited. and TutuwaStrategic Holdings 2 (Pty) Limited. Hechairs the Group Transformation and GroupDirectors’ Affairs Committees of LibertyHoldings Limited and is a member of theGroup Remuneration Committee.2. Bruce Hemphill (BA, CPE, Solicitor)Appointed to the board: November 2008Aged 45, is the chief executive of LibertyHoldings Limited and Liberty GroupLimited and serves on the TransformationCommittee of Liberty Holdings Limited. Heis also a director of STANLIB Limited.3. Hylton Appelbaum (BA, LLB)Appointed to the board: November 2008Aged 55, is a non-executive director ofLiberty Holdings Limited and LibertyGroup Limited and serves on the GroupTransformation Committee of LibertyHoldings Limited. He is the chairman ofMindset Network and Classic FM and adirector of Kagiso Media and KagisoTrust Investments. He is a trustee of TheLiberty Life Educational Foundation, TheDonald Gordon Foundation, NelsonMandela Children’s Fund, Helen SuzmanFoundation, Kagiso Trust and ImpumeleloInnovations Award Trust. In addition he isa Member of the Council of University ofthe Witwatersrand and a Member ofPricewaterhouseCoopers’ Corporate SocialResponsibility Board.4. Angus Band (BA, BAcc, CA(SA))Appointed to the board: November 2008Aged 56, is an independent director ofLiberty Holdings Limited and Liberty GroupLimited. He is the chairman of the GroupRemuneration Committee and serves on theGroup Risk Committee, Group Audit andActuarial Committee and Group Directors’Affairs Committee of Liberty HoldingsLimited. He is also a member of the AuditCommittee and Risk Committee of LibertyGroup Limited. He is the chairman of AVILimited and Aveng Limited and is a directorof Consol Glass Limited.5. Jacko Maree (BCom, MA (Oxon))Appointed to the board: 1997Aged 54 is a non-executive director ofLiberty Holdings Limited and LibertyGroup Limited. He serves on the GroupTransformation Committee and GroupDirectors’ Affairs Committee of LibertyHoldings Limited. He is the chief executiveand a director of Standard Bank GroupLimited and The Standard Bank ofSouth Africa Limited and the chairmanof Standard Bank Plc. He is also a directorof Stanbic IBTC Bank Plc.6. Alan Romanis* (CA)Appointed to the board: 1993Aged 69, is an independent director ofLiberty Holdings Limited and LibertyGroup Limited. He serves on the GroupRisk Committee, the Group Audit andActuarial Committee and the GroupRemuneration Committee of LibertyHoldings Limited as well as serving on theAudit Committee and Risk Committee ofLiberty Group Limited. He is also a directorof Kagiso Trust Investments and AIG LifeSouth Africa Limited.7. Professor Leila Patel (PhD, MSW)Appointed to the board: December 2008Aged 56, is an independent director ofLiberty Holdings Limited and LibertyGroup Limited. She serves on the GroupTransformation Committee of LibertyHoldings Limited. She is Professor ofSocial Development Studies – University ofJohannesburg and a director of the Centrefor Social Development in Africa.* Non South AfricanPg 30

Liberty Holdings Limited – Annual Report 20088 9 1011 12 13148. Tim Ross (CTA, CA(SA))Appointed to the board: November 2008Aged 64, is an independent director ofLiberty Holdings Limited and Liberty GroupLimited. He is the chairman of the GroupRisk Committee and Group Audit andActuarial Committee of Liberty HoldingsLimited as well as the chairman of theAudit Committee and Risk Committee ofLiberty Group Limited. He is a director andchairman of the audit committees of EqstraHoldings Limited and Pretoria PortlandCement Company Limited.9. Peter Wharton-Hood (BCom (Hons),CA(SA))Appointed to the board: November 2008Aged 43, is a non-executive director ofLiberty Holdings Limited and LibertyGroup Limited. He is currently the ChiefOperating Officer of Standard BankGroup Limited.10. Dr Sibusiso Sibisi (BSc, PhD)Appointed to the board: November 2008Aged 53, is an independent director ofLiberty Holdings Limited and LibertyGroup Limited. He serves on the GroupRisk Committee and Group Audit andActuarial Committee of Liberty HoldingsLimited as well as the Audit Committee andRisk Committee of Liberty Group Limited.He is the president and the chief executiveofficer of the CSIR and is a director ofMurray and Roberts Limited and Denel(Pty) Limited. He is also a trustee of theHans Merensky Foundation.11. Rex Tomlinson (BCom, HDPM, SEP(Stanford))Appointed to the board: November 2008Aged 46, is the deputy chief executive ofLiberty Holdings Limited and Liberty GroupLimited and serves on the TransformationCommittee of Liberty Holdings Limited.He is also a director of STANLIB Limited,Liberty Health Holdings (Pty) Limited andSandton Hotels (Pty) Limited.12. Swazi Tshabalala (BA (Econ), MBA)Appointed to the board: November 2008Aged 43, is an independent director ofLiberty Holdings Limited and LibertyGroup Limited. She serves on the GroupRisk Committee and Group Audit andActuarial Committee of Liberty HoldingsLimited as well as the Audit Committee andRisk Committee of Liberty Group Limited.She is the chief executive officer of theIndustrial Development Group, a diversifiedpan African investment holding company.She was previously the Group Treasurerfor Transnet Limited and a member of theirExecutive Committee.13. Tony Cunningham* (MA (Cambridge)and Fellow of the Institute of Actuaries)Appointed to the board: February 2009Aged 53, is an independent director ofLiberty Holdings Limited and Liberty GroupLimited. He serves on the Group RiskCommittee of Liberty Holdings Limited andRisk Committee of Liberty Group Limited.He is a qualified actuary and Fellow of theInstitute of Actuaries. He joins Liberty withover 30 years experience in the insuranceand investment advisory fields. He was apartner in the UK-based global actuarialadvisory practice, Lane Clark & Peacock for18 years. During the last 10 years he wasalso a member of its managing board. Priorto that, he was a regional director at BainDawes, and then a director at Willis Faber.14. Peter Moyo (CA(SA), AMP (Harvard))Appointed to the board: February 2009Aged 46, is an independent director ofLiberty Holdings Limited and LibertyGroup Limited and has extensiveexperience in the financial services sectorin South Africa. He is currently a directorof Amabubesi, a diversified investmentholding company. He was previously chiefexecutive of Alexander Forbes and alsoserved as the deputy managing director ofOld Mutual SA for five years. He is currentlya non-executive director of the Transnetboard and serves as a member on theiraudit committee. He is also the chairmanof the audit committee in the office ofthe Auditor General and is a member ofthe Advisory Council of the StellenboschBusiness School.* Non South AfricanPg 31

Liberty Holdings Limited – Annual Report 2008Group executive profile1 234 5 61. Bruce HemphillAge: 45Title: Chief Executive – LibertyJoined Standard Bank Group: 1993Joined Liberty: 2006, appointed ChiefExecutive: 2006Qualifications: BA, CPE, SolicitorExperience:Qualified solicitor. Prior to joining the groupas Chief Executive at STANLIB, Bruce heldsenior management positions in merchantand investment banking at Standard Bank,both locally and internationally.2. Rex TomlinsonAge: 46Title: Deputy Chief Executive – LibertyJoined Liberty: 2004, appointed DeputyChief Executive: 2006Qualifications: BCom, HDPM, SEP(Stanford)Experience:Prior to joining Liberty as a Group Executive,Rex was on the board of Nampak where heheld a number of line and staff roles.3. George BritsAge: 49Title: Chief Executive – STANLIBJoined Liberty: 2006Qualifications: PhD (Physics), MBAExperience:Nuclear physics and investment management.George was previously GlobalChief Investment Officer for Investec AssetManagement, based in London.4. Steven BraudoAge: 37Title: Chief Executive – InsuranceJoined Liberty: 2008Qualifications: BEconSc, BSc(Hons), FIA,CFA, AMP(Harvard)Experience:Life Assurance, Employee Benefits andAsset Management. Prior to joining Liberty,Steven was the Managing Director ofInvestment Solutions with responsibilitiesspanning both South Africa and the UnitedKingdom.5. Russell HarteAge: 51Title: Chief Financial Officer, Chief RiskOfficerJoined Liberty: 2007Qualifications: BComm, DipAcc, CA (SA)Experience:Previously held executive positions witha number of well-known financial servicesgroups in Australia and South Africa.6. Giles HeegerAge: 36Title: Chief Executive – Liberty FinancialSolutionsJoined Standard Bank Group: 2000Joined Liberty: 2008Qualifications: BBusSc (Hons), PGDA,MSc, CA (SA)Experience:Structured debt finance, market risk,derivatives and global markets. Giles joinedLiberty from Standard Bank, where he wasthe director of Sales and Structuring in theGlobal Markets Division of the Corporateand Investment Banking unit.Pg 32

Liberty Holdings Limited – Annual Report 200878 9 1011 127. Bernard KatompaAge: 48Title: Chief Executive – Liberty AfricaJoined Liberty: 2007Qualifications: BComm (Hons), BSc,MComm, CPA, AMP (Harvard)Experience:Certified Public Accountant with extensiveinternational experience in seniormanagement with BHP Billiton, mostrecently as VP and Chief Financial Officerat Samancor Manganese.8. Bobby MalabieAge: 48Title: Chief Executive – Marketing andDistribution, South AfricaJoined Liberty: 2004Qualifications: BComm, MBA, MDP(Harvard)Experience:Local and international experience inSales and Marketing with Unilever and SABreweries and since 2001 in the financialservices industry. Bobby was previouslyhead of Personal Banking, Nedbank.9. Audrey MothupiAge: 38Title: Group Executive – HumanResources and Corporate AffairsJoined Liberty: 2005Qualifications: BA (Hons)Experience:Audrey joined Liberty from SABC, whereshe was Head of Strategy for the publicbroadcasting service. Prior to that, Audreywas a management consultant with MonitorGroup based in Johannesburg.10. Samuel OgbuAge: 46Title: Chief Executive – Liberty PropertiesJoined Liberty: 2007Qualifications: BA (Hons), ACA, MBAExperience:Samuel has a strong track record ingeneral and commercial managementin both South Africa and the UK, andpreviously held executive managementpositions with Old Mutual SA and Sage Life.11. Frik van der MerweAge: 55Title: Group Chief Information OfficerJoined Liberty: 2008Qualifications: MDP/EDP (Wits), EDP (IMD)Experience:Frik’s has a background of technologyand general management in the financialservices industry. He was Group CIO atAbsa Group responsible for South Africaand Africa operations before joining Liberty.He served on various Global BarclaysTechnology boards.12. Ian van SchoorAge: 41Title: Chief Executive – Global Marketing,Sales and DistributionJoined Standard Bank Group: 1992Joined Liberty: 2006Qualifications: BComm, LLB, LLM (Tax),CFPExperience:Ian has broad based Wealth Managementexperience ranging from Fund managementand Product Development to BusinessDevelopment Builds, where he has beenresponsible for the establishment of manyof the businesses now in the broadergroup. These include businesses such asthe African business, the Multi-Managerbusiness and STANLIB.Ian has extensive Sales, Marketing andDistribution and Bancassurance experiencegained in his last seventeen years with thebroader Standard Bank group.Pg 33

Liberty Holdings Limited – Annual Report 2008Corporate governanceLiberty Holdings Limited (Liberty)Liberty is the holding company of Liberty Group Limited(LGL) and to date, carries on no other business other thanthat related to its investment in LGL. The scheme ofarrangement on 1 December 2008 (the effective date), thedetails of which are set out on pages 8 and 9 of this reportresulted in LGL becoming a wholly owned subsidiary.During the 11 months to 30 November 2008, the boardof directors consisted of five non-executive directorsas follows:DE Cooper (Chairman)SJ MacozomaJH MareeA RomanisMJ ShawMr DA Hawton resigned from the board at the AnnualGeneral Meeting held on 21 May 2008.The number of directors’ meetings and number of meetingsattended by each of the director during the year were:Board of AuditDirectors CommitteeLiberty A B A BDE Cooper 5 5DA Hawton 1 1SJ Macozoma 5 4 2 2JH Maree 5 5A Romanis 5 5 2 2MJ Shaw 5 4 2 2(1)Column A indicates the number of meetings held duringthe year while the director was a member of the board orcommittee.(2)Column B indicates the number of meetings attended by thedirector during the year while the director was a member ofthe board or committee.Board CommitteesUp until the effective date, the audit committee wasthe only standing committee of the board, followingdispensation by the JSE not to appoint a remunerationcommittee in view of the fact that the company did notemploy any personnel.The board assumed responsibility for the functions of theremuneration committee mainly to formulate remunerationpolicies for the non-executive directors for approval byshareholders.Audit CommitteeDuring 2008 the members of the audit committee wereMr MJ Shaw, chairman and non-executive director,Mr A Romanis, an independent non-executive director, andMr SJ Macozoma, a non-executive director. The auditcommittee met twice in the year and was attended by thecompany’s external auditors.Liberty’s business operations for the eleven months tothe effective date were mainly governed through itssubsidiary LGL. LGL being separately listed on the JSEand being the operating entity had full governanceprocesses as follows:Liberty Group Limited (LGL)Statement of commitmentThe directors endorsed the Code of Corporate Practicesand Conduct contained within the King Report onCorporate Governance – 2002 and were satisfied that LGLcomplied with the provisions and spirit of the Code in allmaterial respects. LGL is committed to achieving a highstandard of corporate governance and best practice.At 31 December 2008 the composition of the board ofdirectors and committees was as follows:Board of DirectorsSJ Macozoma (Non-executive chairman)JB Hemphill (Chief executive)RG Tomlinson (Deputy chief executive)HI Appelbaum (Non-executive)AWB Band (Independent)JH Maree (Non-executive)L Patel (Independent)A Romanis (Independent)TDA Ross (Independent)SP Sibisi (Independent)BS Tshabalala (Independent)PG Wharton-Hood (Non-executive)At the Annual General Meeting on 14 May 2008,Mr DA Hawton retired and did not stand for re-election.Mr PG Wharton-Hood was appointed to the board on1 June 2008.Five meetings were held during the year.Pg 34

Liberty Holdings Limited – Annual Report 2008Group Audit and Actuarial CommitteeTDA Ross (Chairman)AWB BandA RomanisSP SibisiBS TshabalalaIn compliance with the Corporate Laws Amendment Bill,Mr Romanis, as a non-executive director, resignedfrom the committee on 22 February 2008, however was reappointedon the effective date.Four meetings were held during the year.Group Risk CommitteeTDA Ross (Chairman)AWB BandA RomanisSP SibisiBS TshabalalaMr DA Hawton resigned from the committee on 2 April 2008.Four meetings were held during the year.Group Remuneration CommitteeAWB Band (Chairman)SJ MacozomaA RomanisBS TshabalalaMr DA Hawton resigned on 22 February 2008 andMs BS Tshabalala was appointed in his stead on12 May 2008.Three ordinary meetings and one extraordinary meetingwas held during the year.Group Transformation CommitteeSJ Macozoma (Chairman)HI AppelbaumJB HemphillJH MareeL PatelRG TomlinsonFour meetings were held during the year.Group Directors’ Affairs CommitteeSJ Macozoma (Chairman)AWB BandJH MareeTwo meetings were held during the year.The number of directors’ meetings and number of meetings attended by each of the directors during the year were:Group Audit Group Group Group Directors’Board of and Actuarial Group Risk Remuneration Transformation AffairsDirectors Committee Committee Committee Committee CommitteeLGL A B A B A B A B A B A BSJ Macozoma 5 5 4 4 4 4 2 2HI Appelbaum 5 4 4 3AWB Band 5 4 4 3 4 3 4 4 2 2DA Hawton 2 2 1 – 1 1JB Hemphill 5 5 4 4JH Maree 5 4 4 3 2 1L Patel 5 4 4 2A Romanis 5 5 1 1 4 4 4 4TDA Ross 5 5 4 4 4 4SP Sibisi 5 4 4 4 4 4RG Tomlinson 5 5 4 3BS Tshabalala 5 5 4 4 4 4 3 3PG Wharton-Hood 3 2(1)Column A indicates the number of meetings held during the year while the director was a member of the board or committee.(2)Column B indicates the number of meetings attended by the director during the year while the director was a member of the boardor committee.Pg 35

Liberty Holdings Limited – Annual Report 2008Corporate governance (continued)From the effective date the full governance structureshave been established at Liberty Holdings Limited asfollows:Liberty Holdings Limited(post 1 December 2008)Following the scheme of arrangement as detailed onpages 8 and 9 of this report, which became effective on1 December 2008, the board of Liberty was reconstitutedto mirror that of LGL which delisted on the effective date.Statement of commitmentThe directors of Liberty Holdings Limited and itssubsidiaries are responsible for developing, approvingand monitoring high standards of corporate governancefor the group and fully endorse the principles of theSouth African Code of Corporate Practices and Conductas recommended in the King Report on CorporateGovernance – 2002 (King II).The directors believe that Liberty complies with and hasimplemented the applicable requirements of King II in allsignificant respects, with regard to the year under review.Liberty is committed to an open governance process thatprovides stakeholders with a high degree of confidencethat the group is being managed ethically, within prudentrisk parameters and in compliance with best practice.Board of directorsAs at the date of this report, the company has a unitaryboard structure consisting of fourteen directors.Messrs JB Hemphill, RG Tomlinson, PG Wharton-Hood,HI Appelbaum, AWB Band, TDA Ross, Ms BS Tshabalala,Dr SP Sibisi and Professor L Patel were appointed on12 November 2008. Messrs DE Cooper and MJ Shawresigned from the board of Liberty on 1 December 2008.Messrs AP Cunningham and MP Moyo were appointed on1 February 2009. The board’s details are as set out onpages 30 and 31 of this report.These directors are drawn from diverse backgroundsand bring a wide range of experience, insight andprofessional skills to the board. There are two executivedirectors and twelve non-executive directors of whicheight are classified as independent in terms of theCorporate Laws Amendment Act.The boards of Liberty and LGL are constituted with thesame directors and function as an integrated unit inpractice as far as possible. Both boards have the samenon-executive chairman and chief executive. The boardmeetings of these companies are combined meetingsresulting in improved efficiency and flow of information.Role and functionThe board provides leadership to the group and bringsan independent judgement on all issues of strategy,performance, resources and standards of conduct, eitherdirectly or through its committees.The board acknowledges its responsibility for overallcorporate governance and the ultimate control of thegroup’s various businesses, as well as for ensuring thatthere is clear strategic direction and that appropriatemanagement structures are in place.Key structures, which are described in this annual report,are designed to provide a reasonable level of assuranceas to the proper control and conduct of the group’s affairs.The board agrees the group’s objectives, participates indiscussions on and monitors the progress of:• Strategic direction and policy;• Operational performance;• Business acquisitions and disposals;• Approval of major capital expenditure;• Consideration of significant financial matters;• Risk management;• Compliance;• Succession planning;• Monitoring of executive management’s activities;• Transformation and requirements of the Financial SectorCharter; and• Any other matters that have a material impact onLiberty’s affairs.The board meets quarterly and additional meetingsare arranged as and when necessary. The chiefexecutive oversees and manages the group’sdaily operations.IndependenceThe board’s independence from the daily executivemanagement team is ensured by adhering to a number ofkey principles, including:• The roles of non-executive chairman and chiefexecutive are separate;• Twelve of the fourteen directors are non-executive, witheight of the twelve non-executive directors beingindependent;Pg 36

Liberty Holdings Limited – Annual Report 2008• The group audit and actuarial committee consists offive independent, non-executive directors;• The group risk committee consists of six independent,non-executive directors;• The group remuneration committee consists of threeindependent, non-executive directors and the nonexecutivechairman of the board;• The group transformation committee consists of twoexecutive and four non-executive directors, one ofwhom is independent;• The group directors’ affairs committee consists of thenon-executive chairman of the board, and two nonexecutivedirectors, one of whom is independent;• Non-executive directors do not hold service contractswith the group and, with the exception of sharerights granted to black non-executive directors, theirremuneration is not tied to the group’s financialperformance; and• All directors have access to the advice and services ofthe company secretary and are entitled, at the expenseof Liberty and after consultation with the chairman,to seek independent, professional advice on theaffairs of the group. No director obtained independentprofessional advice on the affairs of Liberty during 2008.Board mandateThe board operates in terms of a mandate which sets outits roles and responsibilities. Key terms of reference asset out in the mandate are to:• Agree the group’s objectives;• Agree the strategies and plans for achieving thoseobjectives;• Periodically review the corporate governance processand assess achievement against objectives;• Review board and board committee mandates andapprove recommended changes;• Delegate to the chief executive or any director holdingany executive office or any senior executive any of thepowers, authorities and discretions vested in theboard, including the power of sub-delegation.• Delegate similarly such powers, authorities anddiscretions to any committee and subsidiary companyboard as may be created from time to time;• Evaluate and approve where appropriate theremuneration to be paid to non-executive directors forboard and committee membership based onrecommendations made by the group remunerationcommittee, for ultimate approval by shareholders at theAnnual General Meeting;• Approve company and group capital funding and theterms and conditions of rights or other issues and anyprospectus in connection therewith;• Ensure that an adequate budget and planning processexists, approve annual budgets for the group andensure that performance is measured against approvedbudgets and plans and approve the delegation ofauthority for management expenditure;• Approve significant acquisitions, mergers, take-overs,divestments of operating companies, equity investmentsand new strategic alliances by the company andthe group;• Consider and approve capital expenditurerecommended by the group executive managementcommittee;• Consider and approve any significant changesproposed in accounting policy or practice andconsider the recommendations of the group audit andactuarial committee;• Consider and approve the external audit fee andbudgeted audit fee as per the recommendation of thegroup audit and actuarial committee;• Consider and approve the annual financial statements,interim statements, dividend announcements andnotices to shareholders, and consider and agree thebasis for considering the group to be a going concernas per the recommendation of the group audit andactuarial committee;• Have ultimate responsibility for systems of financial,operational and internal controls, the adequacy andreview of which will be delegated to committees withthe board ensuring that reporting on these issues isadequate;• Have ultimate responsibility for regulatory complianceand ensure that reporting to the board is comprehensive• Ensure balanced reporting to stakeholders onthe group’s position and that such reporting is done ina manner that can be understood by stakeholders; and• Review non-financial matters which have not beenspecifically delegated to a committee of the board.Board evaluationThe performance of the board and its committees isevaluated periodically against their respective mandatesby their members, and the results are reviewed by theexternal auditors. Feedback is provided to the board.No material concerns were expressed in theseevaluations and the members are satisfied that they havedischarged their responsibilities during the year.Pg 37

Liberty Holdings Limited – Annual Report 2008Corporate governance (continued)Membership and attendanceThe number of directors’ meetings and number ofmeetings attended by each of the directors of LGL andLiberty during the year are as set out above.Appointment and re-election of directorsIn accordance with the articles of association of Liberty,only the non-executive directors are subject to retirementby rotation and re-election by shareholders at least onceevery three years. The appointment of executive directorsis approved directly by the board.All executive directors are required to give or receive onemonth’s notice prior to the termination of their services.Induction of new directorsA comprehensive two day induction programme has beendeveloped and is in place for new directors to ensure theyare adequately briefed and have the required knowledgeof the company’s structure, operations, policies andindustry related issues, to enable them to fulfil their dutiesand responsibilities. The induction also includes anopportunity for the directors to meet with key executivemanagement of the various business units. The companysecretary is responsible for the administration of theinduction programme.In addition, one-on-one meetings are scheduled withmanagement in key positions to provide briefingsregarding complex industry-specific issues. Directors arealso invited to information sessions which are heldperiodically to assist in keeping the directors abreast ofeconomic and industry trends.New directors are also provided with details of allapplicable legislation, the company’s articles andmemorandum, board minutes, relevant mandates anddocumentation setting out their duties and responsibilitiesas directors.Boards of directors of subsidiary and associate companiesApart from LGL whose board of directors is the same asLiberty’s, all other operating subsidiaries have their ownboards of directors. The role of these boards involvesparticipating in discussions on maintaining the progressof strategic direction and policy, operational performance,approval of major capital expenditure, considerationof significant financial matters, risk management,compliance, succession planning and any other mattersthat do or may impact materially on the subsidiarycompanies’ activities.Share dealing by directors and senior personnelLiberty has implemented a code of conduct relating toshare dealing by directors and other senior personnelwho, by virtue of the key positions they hold, havecomprehensive knowledge of the group’s affairs. Thecode imposes closed periods to prohibit dealing inLiberty securities before the announcement of mid-yearand year end financial results or in any other periodconsidered price sensitive, in compliance with therequirements of the Insider Trading Act and the JSELimited in respect of dealings by directors. The companysecretary undertakes the administration required toensure compliance with this code under the direction ofthe chief executive.The code goes further by also restricting dealings bydirectors and other senior personnel in any company’ssecurities that may be affected by a transaction orproposed transaction involving Liberty, any groupsubsidiary or holding company.Company secretarial functionThe company secretary is required to provide the directorsof the company, collectively and individually, with guidanceon their duties, responsibilities and powers. She is alsorequired to ensure that all directors are aware of legislationrelevant to, or affecting, the company and to report at anymeetings of the shareholders of the company or of thecompany’s directors any failure to comply with suchlegislation, including the JSE Listings Requirements.The company secretary is required to ensure that minutesof all shareholders’ meetings, directors’ meetings and themeetings of any committees of the board are properlyrecorded and that all required returns are lodged inaccordance with the requirements of the Companies Act.The administration of closed periods for dealing in listedsecurities of Liberty and the induction of new directorsare also responsibilities of the company secretary.Board committeesFive standing committees of the board detailed below, towhich certain of its functions have been delegated,were in place during 2008 in LGL. These committeeshave been constituted in Liberty from the effectivedate. The appointment of the board members to thevarious committees was therefore effective from1 December 2008, except for Mr A Romanis whoalready served on the Liberty audit committee as anindependent director.Pg 38

Liberty Holdings Limited – Annual Report 2008The group audit and actuarial committee, the group riskcommittee, the group remuneration committee, the grouptransformation committee and the directors’ affairscommittee all operate in accordance with the writtenterms of reference stipulated by the board.Details of these committees follow:Group Audit and Actuarial CommitteeTDA Ross (Chairman)AWB BandA Romanis*SP SibisiBS Tshabalala* Mr Romanis was a member of the LGL audit and actuarialcommittee but resigned on 22 February 2008 in compliance withthe requirements of the Corporate Laws Amendment Act. Heremained a member of the Liberty audit committee and wasappointed to the group audit and actuarial committee of the newlyconstituted board of Liberty on the effective date. He was alsoappointed to the LGL audit and actuarial committee on that date.Principal objectivesThe group audit and actuarial committee’s principalobjectives are to:• Act as an effective communication channel betweenthe board on the one hand and the external auditorsand the head of internal audit on the other;• Assist the board in ensuring that the external audit isconducted in a thorough, objective and cost effectivemanner;• Provide the board with an assessment of theeffectiveness of the external auditors and the internalaudit function and recommend external audit fees tothe board;• Provide the board with an assessment of theeffectiveness of the compliance function;• Enhance the quality, effectiveness, relevance andcommunication value of the published financialstatements and other public documentation of afinancial nature issued by Liberty, with focus beingplaced on the actuarial assumptions, parameters,valuations and reporting guidelines and practicesadopted by the statutory actuary, as appropriate toLiberty’s insurance activities;• Review and recommend to the board the group’saccounting policies and financial statement disclosures;• Provide the board with an independent point ofreference in seeking a resolution of interpretative andcontroversial issues that impact on the publishedfinancial statements and other public announcementsissued by Liberty;• Monitor the application of the policy governing theprovision of non-audit services by Liberty’s externalauditors and review the extent and nature of all nonauditservices provided;• Review the statutory actuary’s reports on the results ofactuarial investigations, including the validation ofactuarial models;• Review and recommend to the board the managementactions assumed in calculating the capital adequacy ofthe group;• Review and recommend to the board the statutoryactuary’s recommended changes to the bonusphilosophy and bonus rates; and• Review the assumptions used in performing theembedded value calculations and the results thereof.Independent external auditorsPricewaterhouseCoopers Inc. is Liberty’s appointed firmof external auditors. In addition to the audit of Liberty’soperations (excluding STANLIB), PricewaterhouseCoopersInc. also audits Liberty’s statement of embedded value.Pursuant to section 270A (1)(d) and (e) of the CompaniesAct, the board has approved a policy governing theprovision of non-audit services by the group’s externalauditors in order to avoid impairment of theirindependence. The policy requires the group audit andactuarial committee’s prior approval for any non-auditassignment with a fee in excess of R500 000.On 23 February 2009, the audit and actuarial committeeresolved that pursuant to sections 270(2)(d) and 270A (1)of the Companies Act it had no objection to the audit firm,PricewaterhouseCoopers Inc., and the audit partner CorliaVolschenk being appointed as the group’s auditor for thefinancial year ending 31 December 2009, and that it hassatisfied itself that both the audit firm and audit partner areindependent of the company.The members of the group audit and actuarial committeereview the audit plans, budgets and scope of the externaland internal audit functions. The external auditors, head ofinternal audit, statutory actuary, group executive financeand risk, chief executive, head of group compliance andcompany secretary all have unrestricted access to thechairman of the group audit and actuarial committee.The group audit and actuarial committee is also the auditand actuarial committee of LGL which has responsibilityfor LGL’s life insurance subsidiaries: Liberty ActivePg 39

Liberty Holdings Limited – Annual Report 2008Corporate governance (continued)Limited, Capital Alliance Life Limited, RentmeesterVersekeraars Beperk, STANLIB Multi-Manager Limited,Liberty Life Namibia Limited, Liberty Life BotswanaLimited, Liberty Life Swaziland Limited and Liberty LifeAssurance Uganda Limited. Internal review committeeswere established to fulfil the audit committee functions forthe LGL wholly owned life insurance subsidiaries. Thegroup’s wholly owned asset management subsidiary,STANLIB Limited, has its own internal review committee.The internal review committees meet quarterly andminutes of meetings are reviewed at the group audit andactuarial committee meetings.MeetingsGroup audit and actuarial committee meetings are heldconcurrently with LGL’s group audit and actuarialcommittee at least four times a year and are attended bythe external auditors, statutory actuary, head of internalaudit, chief executive, deputy chief executive, groupexecutive finance and risk and appropriate members of thesenior executive management team.Group Risk CommitteeTDA Ross (Chairman)AWB BandAP Cunningham (appointed 1 February 2009)A RomanisSP SibisiBS TshabalalaPrincipal objectivesThe group risk committee’s principal objectives are to:• Review Liberty’s risk philosophy, strategy, policies andprocesses recommended by executive management;• Review the overall risk profile of Liberty;• Review compliance with risk policies;• Review and assess the integrity of the process andprocedures for identifying, assessing, recording andmonitoring of risk;• Review the adequacy and effectiveness of Liberty’srisk management function and its implementation bymanagement;• Review the adequacy of insurance coverage;• Ensure that material corporate risks have beenidentified, assessed and receive attention; and• Provide the board on a quarterly basis with an assessmentof the state of risk management within Liberty andrecommendations to address serious risk issues.The members of the group risk committee review reportsprovided by executive management dealing with the toprisks faced by Liberty which have been identifiedin accordance with the group’s risk managementmethodology. Presentations are received from executivemanagement dealing with topical risk issues. Thecommittee also reviews reports dealing with reassuranceretention limits, the group’s risk management processes,relevant corporate governance issues and developmentsand short-term insurance matters.The group risk committee is also the risk committee ofLGL and thereby also has responsibility for LGL’s lifeinsurance subsidiaries: Liberty Active Limited, CapitalAlliance Life Limited, Rentmeester Versekeraars Beperk,STANLIB Multi-Manager Limited, Liberty Life NamibiaLimited, Liberty Life Botswana Limited, Liberty LifeSwaziland Limited and Liberty Life Assurance UgandaLimited. Internal review committees were establishedto fulfil the risk committee functions for the wholly ownedlife insurance subsidiaries of LGL. STANLIB Limited hasits own internal review committee. The internal reviewcommittees meet quarterly and minutes of meetings arereviewed at the group risk committee meetings.MeetingsGroup risk committee meetings are held concurrently withLGL’s risk committee at least four times a year and areattended by the group executive finance and risk, thehead of internal audit, Liberty’s external auditors, chiefexecutive, deputy chief executive and appropriatemembers of the senior executive management team.Group Remuneration CommitteeAWB Band (Chairman)SJ MacozomaA RomanisBS TshabalalaPrincipal objectivesThe objectives of the remuneration committee are toformulate remuneration strategy and policies for approvalby the board and to monitor the implementation of suchpolicies and report thereon to the board, thereby enablingthe board to discharge its responsibilities relating tothe following:• Determining the policy for executive remuneration andapproving the individual remuneration packages foreach of the executive directors and other seniorexecutives, as appropriate;• Ensuring that competitive reward strategies andprogrammes are in place to facilitate the recruitment,motivation and retention of high performing staff;• Reviewing the design and management of salarystructures and policies, incentive schemes and sharePg 40

Liberty Holdings Limited – Annual Report 2008schemes;• Developing and implementing a remunerationphilosophy to enable a reasonable assessment ofreward practices and governance processes to bemade by stakeholders;• Recommending the level of non-executive directors’fees, including the chairman’s fee, to the board afterreceiving inputs from executive directors, for ultimateapproval by shareholders;• Ensuring the adequacy of retirement funding andhealthcare benefits; and• Ensuring compliance with applicable laws and codes.Further information on the group remuneration committeeis provided in the Remuneration report on pages 42 to 52.Group Transformation CommitteeSJ Macozoma (chairman)HI AppelbaumJB HemphillJH MareeL PatelRG TomlinsonPrincipal objectivesThe group transformation committee’s principal objectivesare to:• Ensure that appropriate policies on transformationare developed, maintained and guide transformationinitiatives within Liberty;• Monitor the implementation of transformation policies,practices and procedures to ensure compliance withcurrent and evolving legislation and related regulationsin South Africa, with particular reference to the FinancialSector Charter and DTI Codes of Good Practice;• Ensure that the group meets the requirements ofthe Financial Sector Charter and Codes of GoodPractice and that any issues arising there from areaddressed; and• Monitor achievements against targets and reportthereon to the board.Group Directors’ Affairs CommitteeSJ Macozoma (Chairman)AWB BandJH MareePrincipal objectivesThe directors’ affairs committee’s principal objectivesare to:• Assist the board in discharging its responsibility ofensuring that the composition and structure of theboard and its committees enables the board to fulfil itsobligations in terms of the board mandate;• Assist the board of directors in its determinationand evaluation of the adequacy, efficiency andappropriateness of the corporate governancestructures and practices in the group;• Identify, evaluate and recommend nominees to theboard of directors and board committees; and• Ensure that an appropriate induction course is inplace for all new directors and that there is ongoingdevelopment and exposure for directors to enablethem to remain up-to-date on relevant business andstatutory developments.MeetingsIn terms of its mandate, the directors’ affairs committee isrequired to meet at least twice a year.MeetingsGroup transformation committee meetings are held atleast three times a year and are attended by the grouphuman resource chief executive and appropriatemembers of the senior executive management team.Pg 41

Liberty Holdings Limited – Annual Report 2008Remuneration reportIntroductionThe purpose of this section is to disclose the remunerationphilosophy and policies applied across Liberty forexecutive management and directors, employees andnon-executive directors.Remuneration philosophy and structureThe remuneration process is designed to:• Align individual and team performance to the achievementof the group’s vision and business objectives; and• Attract and retain suitably qualified people.There is a responsibility to balance employees’ desires tobe well-remunerated with shareholders’ expectations ofefficient cost management.The process to determine the appropriate remunerationlevels is as follows:All begins with the group’s visionThe development of the remuneration policy and structurecommences with Liberty’s corporate vision and the boardapproved strategy.Establishing the annual budgetTo meet the strategy, the executive team prepares theannual budget and submits this to the board for approval.Determination of expectations for teams and individualsMeasurable objectives for teams and individuals are set inaccordance with the group’s strategy and budgets. Thesevary depending on the nature of the work performed andthe individual’s level in the group, but generally willinclude some combination of deliverables for achieving:• financial goals;• key success factors; and• the transformation of the group according to the vision.Targets may be quantitative or qualitative.Staff motivationStaff are kept focused and motivated through:• Continual communication of progress towards thegroup’s strategy;• Regular performance management reviews;• Ensuring there is the highest possible calibre ofleadership at all levels; and• A combination of competitive salaries, short-term andlong-term incentives.Short-term incentives, which are delivery specific, areviewed as strong drivers of competitiveness andperformance. A significant portion of senior managements’reward is therefore variable.Long-term incentives seek to ensure that seniormanagement are rewarded to stay with the group and fortheir ability to add shareholder value.Responsibility for developing and governingremunerationThe board is ultimately responsible for the remunerationpolicies. To assist the board in fulfilling its responsibilities,it has appointed and mandated the Group RemunerationCommittee (Remco), consisting of three independentnon-executive directors and the non-executive chairmanof the board.Remco operates in terms of an agreed mandateapproved annually by the board. On the committee’srecommendation, the board will in some instances refermatters to shareholders for approval, for example new andamended board and committee member fees.Remco is responsible for formulating remunerationstrategies, monitoring the implementation of such policiesand reporting on them to enable the board to meet itsresponsibilities as follows:• Developing and implementing a remunerationphilosophy to enable a reasonable assessment ofreward practices and governance processes to bemade by stakeholders;• Determining the policy for executive remuneration andapproving the individual remuneration packages foreach of the executive directors and other executivemanagement, as appropriate;• Reviewing the design and management of salarystructures and policies, incentive schemes and shareoption/right schemes;• Recommending the level of non-executive directors’fees, including the chairman’s fee, after receiving inputfrom executive directors and market surveys, forultimate approval by shareholders;• Ensuring adequacy of retirement funding andhealthcare benefits;Pg 42

Liberty Holdings Limited – Annual Report 2008• Ensuring compliance with applicable laws andcodes; and• Making sure remuneration structures are marketrelated to attract and retain talent.Remco utilises the services of a number of advisers,including those listed below, to assist in tracking markettrends related to all levels of staff:• Deloitte Human Capital;• Remchannel Financial Reward Survey; and• 21st Century Business and Pay Solutions.Remco membershipMembers of Remco during 2008 were AWB Band(chairman), an independent non-executive director,SJ Macozoma, A Romanis, and BS Tshabalala (who joinedthe committee on 12 May 2008 replacing DA Hawton).All Remco members have the relevant skills andexperience to perform their duties.Meeting attendance can be found in the table on page 35of this report.Remuneration for executive managementand employees (excluding executive directors)Remuneration packages for executive managementand employees may contain some or all of the followingcomponents, depending on the individual’s level inthe group:Guaranteed componentAll permanent employees, irrespective of level, receive aguaranteed element of remuneration. This is based oncost to company (CTC). CTC comprises a fixed cashportion, compulsory benefits (medical aid, life cover andretirement fund membership) and optional benefits (forexample motor vehicle benefits).The group currently targets the CTC portion between 65%and 70% of the financial services market.The emphasis of employee compensation is on having ahigh proportion of performance-related pay. The premiseis that superior performance by an individual will resultin the employee earning in the top quartile for his orher position.Salary surveys are utilised to establish appropriate salaryscales, to monitor pay policies, to track market movementsand to obtain general employment practice informationsuch as labour turnover and incentive bonus schemepractices.Retirement funding and risk-related benefitsRetirement funding and risk-related benefits form part ofthe CTC of all employees and are market-related. Thegroup’s liability exposure in respect of defined benefitretirement funds and risk-related benefits has beenreduced by not offering these benefits to new employees.This was effective from 1 March 2001 in respect ofdefined benefit retirement funds and 1 July 1998 inrespect of post-retirement medical benefits.Short-term incentivesShort-term incentives are aimed at the achievement ofstipulated annual objectives, thereby ensuring that asignificant portion of executive management andemployee cost is variable.Executives, divisional directors, senior managers andother nominated managers participate in the seniormanagement incentive scheme. This scheme is based onthe achievement of short-term performance targetsrelevant to the individual and his or her team, which arealigned to the achievement of the group’s overallobjectives for the year. The targets relate to the group’soverall financial performance, growth in non investmentmarket components in embedded value, the achievementof strategic objectives for the employee’s business unitand agreed personal key performance indicators.Incentive payments for each level of management aresubject to a maximum amount based on a percentageof annual total CTC package. Depending on theparticipation level, the participants can earn between15% to 140% of their annual total CTC package as abonus. The board may under certain circumstancesutilise an additional discretionary amount to rewardexceptional performance.Following a detailed performance review, the chiefexecutive presents proposals to Remco for approval.For the 2008 incentive scheme cycle there were472 participants in the group compared to the398 participants in 2007.Pg 43

Liberty Holdings Limited – Annual Report 2008Remuneration report (continued)Long-term incentivesLong-term incentives include retention agreements andshare incentive schemes.Retention agreementsAs part of the group’s strategy to retain highly mobile andtalented employees, the group will selectively enter intoagreements in terms of which retention payments aremade. Retention payments have to be repaid should theindividuals concerned leave of their own volition within astipulated period.Share incentive schemesExecutives, divisional directors and senior managementare eligible to participate in share incentive schemes.During the 2008 financial year, 64% of eligible employeesparticipated in the equity growth scheme. The schemesare intended to promote an alignment of interests withthose of shareholders and to provide a longer-termincentive as part of the remuneration structure to attractnew, skilled and competent employees and to retaintheir services.Share allocations are based on one or all of performance,high potential and scarce skills. On an annual basis, acomprehensive review of existing allocations isundertaken and appropriate new awards are made.Awards of options and rights are based on a multipleof CTC. In exceptional cases, awards may alsobe made outside of this review period to attract orretain talent.Shares under option and subject to rights schemesAs described on pages 8 and 9. Liberty is obliged tofulfil all the obligations of the existing LGL share optionand rights schemes. LGL operates four share incentiveschemes, being the Liberty Life Senior Executive ShareOption Scheme, the Liberty Life Association of AfricaLimited Share Trust, Liberty Group Share IncentiveScheme and the Liberty Life Equity Growth Scheme. Withthe exception of the rights granted in terms of the KatlehoManagers Trust to certain black non-executive directors,share options or rights to acquire shares were granted toexecutive directors and permanent employees only.In relation to share options and rights granted:• The specific grant was not subject to prior shareholderapproval, as the schemes had been approvedby the relevant shareholders in general meetings.Any amendments to the schemes were submittedfor shareholder approval.• No options or rights were issued at a pricing discount.• The directors have the discretion to vary the vestingperiods and this discretion had been applied in certaininstances. Typically, the options or rights were grantedwith vesting of 50%, 75% and 100% in years three, fourand five, respectively.• Option and right holders were not entitled to dividendsand did not have voting rights.• In terms of the Liberty Life Equity Growth Scheme, thebeneficiaries acquired the right to participate in thegrowth of LGL’s ordinary shares and the value of suchparticipation was delivered to the beneficiaries in theform of LGL ordinary shares.Effect of the section 311 scheme of arrangement on LGLshare option and right schemesIn terms of the section 311 scheme of arrangement asapproved by shareholders on 21 October 2008, Libertywas obliged to make an appropriate offer to each shareoption and right holder. With the approval of the SecuritiesRegulation Panel, Liberty therefore extended offers to allof the share option and right holders, in terms of which:i) Right holders who acquired options to subscribe forLiberty shares in terms of the schemes that LGLadopted prior to April 2005 were offered either anexchange of each LGL ordinary share which theyacquire upon implementation of those options for theissue of a new Liberty ordinary share, or that the rightsand obligations of LGL in terms of those options wereassigned to Liberty on the basis that all references toLGL shares would in future be references to Libertyshares, but the reference prices, vesting andimplementation dates of those options would not beaffected by that assignment. At 31 December 2008there were 2 233 885 such options in existence in termsof which right holders were entitled to acquire the samenumber of LGL shares at prices ranging from R33,40 toR63,00 over the period up to 3 January 2015. Sincethese schemes are historic and Liberty does not intendto make future awards of options under these schemes,it was not necessary for Liberty to adopt these schemesand Liberty will simply discharge the obligations itacquired from LGL by settling such options with Libertyordinary shares;ii) The rights and obligations of right holders who hadrights in terms of the Liberty Life Equity GrowthScheme (adopted by LGL in 2005), were assigned toLiberty on the basis that all references to LGL shareswould in future be references to Liberty shares, but thePg 44

Liberty Holdings Limited – Annual Report 2008award prices, vesting and implementation dates ofthose rights would not be affected by that assignment.At 31 December 2008 there were 7 373 845 such rightsin existence which had been awarded at award pricesranging from R55,15 to R95,50 which could beexercised over the period up to 17 November 2018. Forthis purpose Liberty adopted the Liberty Equity GrowthScheme described below, which will in future govern allrights in terms of the Liberty Life Equity GrowthScheme assigned to Liberty, as well as all new awardsof rights by Liberty after the acquisition. The terms ofthe Liberty Equity Growth Scheme described beloware, apart from the necessary changes to adapt itto Liberty instead of LGL, identical to those of theLiberty Life Equity Growth Scheme as adopted by LGLin 2005.Salient terms of the Liberty Equity Growth Scheme, asadopted by Liberty on 21 October 2008:• The Liberty Equity Growth Scheme was established foremployees of Liberty, its subsidiaries and associates.• The aggregate number of unissued ordinary sharesin Liberty which may be reserved for the scheme maynot exceed 29 000 000, being approximately 10% ofthe issued ordinary share capital of Liberty after theimplementation of the Scheme of Arrangement. Noemployee is entitled to acquire in excess of 2,5% of thisnumber of shares in terms of the scheme.• In terms of the scheme, the board of directors ofLiberty may award rights to participating employees.These rights will have an award price equal to theclosing price of a Liberty share on the trading daypreceding the award. 50% of the rights awarded willvest three years after the date of an award to anemployee, a further 25% of the rights awarded will vestfour years after that date, and the balance will vest fiveyears after that date. Remco has the authority to varythese vesting periods, the exercise period set outbelow and also has the power to declare that all rightsawarded to employees shall vest in the event of achange of control of Liberty.• After the rights awarded to an employee have vested,that employee is entitled to exercise his rights, within a10 year period from date of award of the rights. Theexercise price in respect of a right would be theclosing price of a Liberty ordinary share on the JSE onthe trading day immediately prior to the day on whichthe right is exercised. The benefit due to an employeeon exercise of his rights will be calculated bysubtracting the award price of those rights from theexercise price of those rights and multiplying thedifference by the number of rights which are exercisedby the employee. The value of the benefit due tothe employee would then be divided by theabovementioned exercise price in order to obtain thenumber of Liberty ordinary shares to be received bythe employee. For the avoidance of doubt, employeesare only entitled to receive their benefits in the form ofLiberty ordinary shares.• The rights awarded to employees who leave the employof the employer company within the Liberty group forany reason whatsoever prior to the rights vestingin accordance with the scheme will lapse, subject to thediscretion of the board of directors of Liberty.Liberty Holdings Limited Senior Executive Share OptionScheme (1988)Liberty formerly operated the Liberty Holdings LimitedSenior Executive Share Option Scheme (1988) which hasbeen dormant since 31 March 2006 when the last optionsawarded in 2001 in terms of this scheme wereimplemented. Changes introduced to the Income Tax Actpertaining to share option schemes in October 2004, haverendered this scheme ineffective and there is no intentionto award any new share options in terms of this scheme.Accordingly, an ordinary resolution for approval by Libertyshareholders has been included in the notice of theannual general meeting forming part of this annual report,proposing that this scheme be terminated and that thereservation of unissued ordinary shares for purposes ofthis scheme be discontinued.Phantom Share SchemeLGL reduced its capital by approximately R1 billion, orR3,60 per share, which was paid out to shareholders on12 June 2006 from the share premium account.Share option/right holders are not entitled to receivedividends on their share options/rights and therefore eachemployee who had outstanding share options/rights atthat date received a particular right in a scheme ofphantom shares to compensate for the economicopportunity cost applicable to the capital no longeravailable. The number of phantom shares was calculatedas the number of share options/rights outstandingmultiplied by R3,60, divided by the average LGL shareprice over five days starting 5 June 2006 (R73,81 pershare). The vesting dates of these rights have beenmatched to the share options/rights in respect of whichthey were granted, with the earliest date being11 August 2006, and can be exercised at the option of theemployee over a maximum of a 10 year period fromPg 45

Liberty Holdings Limited – Annual Report 2008Remuneration report (continued)12 June 2006. On exercise LGL would compensate theemployee in cash for the difference between the strikeprice and the market price of a LGL share at the date ofexercise. The Phantom Share Scheme qualifies as a cashsettledscheme, as LGL incurred a liability to theemployee based on the price of LGL’s shares.In terms of LGL’s scheme of arrangement as approved byshareholders on 21 October 2008, LGL became a whollyownedsubsidiary of Liberty and the listing of LGL’sshares on the JSE was terminated, making it necessaryfor the value of the cash benefits to be received byholders of phantom rights to be determined by referenceto the value of shares in Liberty, rather than by referenceto the value of shares in LGL. This necessitatedamendments to the phantom scheme, and Libertyadopted the Liberty Holdings Phantom Equity GrowthScheme 2008, on the same terms as the Liberty LifePhantom Equity Growth Scheme, except for the referenceshare being a Liberty ordinary share, rather than a LGLordinary share.Reservation of shares for purposes of the share optionand share rights schemesAs at 31 December 2008, the following Liberty HoldingsLimited ordinary shares were in reserve in respect of theshare option and rights schemes in terms of shareholderapprovals:• In respect of former Liberty Group Limited shareoptions scheme: 2 233 855 shares;• In respect of former Liberty Life Equity GrowthScheme: 7 373 845 shares;• In respect of the liberty Equity Growth Scheme asadopted by Liberty Holdings Limited on 21 October2008: 21 626 155 shares (29 000 000 less assignmentof outstanding Liberty Life Equity Growth Schemerights);• In respect of the Liberty Holdings Senior ExecutiveShare Option Scheme: 476 705 shares (this reservationwill be discontinued if the termination of the schemeis approved by shareholders at the annual generalmeeting).Remuneration for non-executive directorsNon-executive directors’ fees are reviewed annually andindustry benchmarked to ensure that the fees remaincompetitive. Remco reviews fees and makesrecommendations to the board for consideration. Theboard then recommends these fees to shareholders forapproval at the annual general meeting.The remuneration received by the non-executive directorsrelating to Liberty for 2008 is as follows:Name 2008 2007R’000 R’000DE Cooper 66 66DA Hawton 12 30SJ Macozoma 40 40A Romanis 40 40MJ Shaw 50 50Total 208 226The group restructure has made it difficult to comparenon-executive directors remuneration year-on-year. Thetable below combines both Liberty and LGL remunerationpaid to non-executive directors for the full year.Name 2008 2007R’000 R’000DE Cooper 66 1 416HI Appelbaum 203 148AWB Band 467 270DA Hawton 94 393SJ Macozoma 1 600 980JH Maree – –L Patel 496 480– Fees 203 148– Share-based payments (1) 293 332A Romanis 345 308SP Sibisi 610 564– Fees 317 232– Share-based payments (1) 293 332BS Tshabalala 649 442– Fees 356 110– Share-based payments (1) 293 332TDA Ross 484 117MJ Shaw 50 453PG Wharton-Hood – n/aTotal 5 064 5 571(1)The share-based payments represent the year’s allocatedexpense as calculated under International Financial ReportingStandards.On 7 December 2004, LGL shareholders passedresolutions approving the participation of black nonexecutivedirectors in the black ownership initiative throughthe Katleho Managers Trust (other than Mr SJ MacozomaPg 46

Liberty Holdings Limited – Annual Report 2008who participated directly in the black ownership initiative asa member of the empowerment consortium), as the boardbelieved it highly necessary to secure, at an early stage,the services of black directors with the necessarycompetence. 100 000 rights to Liberty (previously LGL)ordinary shares per director have been awarded toProf L Patel, Dr SP Sibisi and Ms BS Tshabalala at anoriginal effective strike price of R48,50.With regard to the strike price, it should be noted that theshares to which the beneficiaries will be entitled oncompletion of the vesting period in 2010 were acquired bythe Katleho Managers Trust in 2004 at R48,50 per share.The acquisition was financed by the trust issuingredeemable preference shares to LGL, with the preferenceshare obligation being serviced by the dividend receipts inrespect of the shares held by the trust. On repayment of thepreference share obligation in full by the trust, beneficiarieswill receive their share entitlement in terms of the trust asfully paid at no cost to them. The benefits received by thebeneficiaries are therefore determined by the number ofrights they are awarded and not the “strike price” as thestrike price is nil in the hands of the beneficiary. The benefitwill be the number of shares times the full market price ofthe shares on the date the shares are delivered to thebeneficiary.The performance of the CE and DCE are measuredannually on board approved quantifiable financial targetsand non-financial quantifiable specific individualkey performance indicators (KPIs). In 2008, their KPIsincluded responsibility for:• Group strategy – driving it, tracking progress andensuring all executives are aligned to it;• Performance management – driving a performanceculture;• Growth – driving the growth strategy into new marketsegments while allowing for an evolution to globaloperating models driven off a customer perspective;• The relationship with Standard Bank – identifyingopportunities to unlock value and growth for the group;• Talent management – leading the effort to bring newtalent into the business and maximising existing talent,all while managing the transformation agenda; and• Risk and governance – implementing delegationof authority and risk/governance frameworks thatallow for the devolvement of decision making to thelowest levels.Performance related payments are based on a maximumof 140% of CTC plus a possible discretionary amountapproved by the board.Other than the participation of black non-executivedirectors in the black ownership initiative as describedabove, non-executive directors do not participate in anyshare-based incentive scheme.Terms of serviceIn terms of Liberty’s articles of association, one third ofthe non-executive directors are required to retire annuallyby rotation, but may offer themselves for re-election.Directors are required to retire at the age of 70 at theannual general meeting following their 70th birthday.Shareholders have the power to appoint directors at theannual general meeting. The board of directors has thepower to fill casual vacancies, subject to the confirmationof such appointments at the first annual general meetingfollowing the date of appointment.Remuneration for executive directorsThe two executive directors on Liberty’s board are theChief Executive (CE), Bruce Hemphill and the DeputyChief Executive (DCE), Rex Tomlinson.Pg 47

Liberty Holdings Limited – Annual Report 2008Remuneration report (continued)The remuneration received by executive directors relating to Liberty following their appointments on 12 November 2008,is as follows:Perfor- Retiremancement and TotalBasic related medical Expense Other emolusalariespayments benefits allowances benefits mentsR’000 R’000 R’000 R’000 R’000 R’0002008Paid by subsidiariesJB Hemphill 398 750 7 33 2 1 190RG Tomlinson 310 560 32 36 21 959708 1 310 39 69 23 2 149The group restructure has made it difficult to compare executive directors remuneration year-on-year. The table belowcombines both Liberty and LGL remuneration paid to executive directors of both boards for the full year.Perfor- Retiremancement and TotalBasic related medical Expense Other emolusalariespayments benefits allowances benefits mentsR’000 R’000 R’000 R’000 R’000 R’0002008Paid by subsidiariesJB Hemphill (1) (2) 3 186 5 625 343 7 3 9 164RG Tomlinson (1) (2) 2 424 4 200 264 240 191 7 3195 610 9 825 607 247 194 16 4832007Paid by subsidiariesJB Hemphill (1) (2) 2 673 7 500 314 5 3 10 495RG Tomlinson (1) (2) 2 187 5 500 240 240 126 8 2934 860 13 000 554 245 129 18 788(1)Messrs JB Hemphill and RG Tomlinson were each paid R5 million on 1 March 2006 as a four-year retention incentive. Should eitherof them leave of their own accord or through a dismissible offence, prior to 28 February 2010, they are obliged to refund the groupthe full amount paid.(2)Messrs JB Hemphill and RG Tomlinson have been awarded share incentives as detailed on page 51. The year’s allocatedexpenses in relation to these share incentives as calculated in terms of International Financial Reporting Standards are R2 036 000(2007: R1 504 000) and R1 757 000 (2007: R1 837 000) respectively.Pg 48

Liberty Holdings Limited – Annual Report 2008Liberty and LGL shares under option and subject to rights at 31 December 2008Shares/ Options/ Shares/rights Options/ rights Options/ rightsunder rights imple- rights underPrice Final option at granted mented cancelled optionpayable vesting beginning during during during at endDate granted per share (1) date (2) of year year year year of year10 Sep 98 R32,84 10 Sep 2005 36 250 36 250 –28 Sep 99 R33,40 28 Sep 2005 125 588 3 377 373 121 83815 Nov 99 R43,60 15 Nov 2005 62 300 23 300 39 00018 Feb 00 R54,30 18 Feb 2005 73 300 73 30014 Apr 00 R41,70 14 Apr 2005 45 201 45 20121 Nov 00 R42,70 21 Nov 2005 90 434 5 167 85 2673 Apr 01 R44,90 3 Apr 2006 135 917 6 513 129 40410 Apr 01 R41,50 10 Apr 2006 252 376 21 200 231 17616 Apr 02 R54,60 16 Apr 2007 303 125 26 850 276 27514 Mar 03 R46,15 14 Mar 2008 511 775 85 800 425 97512 Sep 03 R46,40 12 Sep 2008 30 000 30 00024 Nov 03 R46,25 24 Nov 2008 21 575 6 725 1 250 13 60015 Mar 04 R50,65 15 Mar 2009 502 799 49 440 16 760 436 5992 Aug 04 R47,70 2 Aug 2009 62 500 31 250 31 2501 Sep 04 R51,40 1 Sep 2009 120 000 120 00015 Nov 04 R59,95 15 Nov 2009 60 000 4 609 391 55 0002 Dec 04 R60,39 2 Dec 2009 100 000 100 0003 Jan 05 R63,00 3 Jan 2010 20 000 20 00021 Apr 05 R58,40 21 Apr 2010 645 300 6 973 161 352 476 97520 Jun 05 R55,15 20 Jun 2010 50 000 5 263 19 737 25 0006 Oct 05 R59,40 6 Oct 2010 70 000 20 000 50 0001 Nov 05 R60,90 1 Nov 2010 10 000 10 000 –21 Nov 05 R65,10 21 Nov 2010 30 000 30 0001 Dec 05 R69,10 1 Dec 2010 20 000 20 0003 Jan 06 R71,90 3 Jan 2011 50 000 50 0003 Mar 06 R81,61 3 Mar 2011 1 074 000 153 700 920 30018 Apr 06 R77,28 18 Apr 2011 60 000 60 0002 May 06 R79,38 2 May 2011 20 000 20 0001 Jun 06 R73,40 1 Jun 2011 30 000 30 0003 Jul 06 R72,00 3 Jul 2011 20 000 20 00010 Aug 06 R72,00 10 Aug 2011 60 000 60 00023 Oct 06 R74,00 23 Oct 2011 20 000 20 00022 Nov 06 R75,50 22 Nov 2011 10 000 10 00028 Feb 07 R80,25 28 Feb 2012 1 919 800 155 700 1 764 10011 Apr 07 R83,24 11 Apr 2012 10 000 10 0002 May 07 R92,25 2 May 2012 50 000 50 00022 May 07 R93,30 22 May 2012 180 000 25 000 155 0001 Jun 07 R92,00 1 Jun 2012 55 000 55 00028 Jun 07 R88,50 28 Jun 2012 20 000 20 000 –1 Aug 07 R90,50 1 Aug 2012 10 000 10 0003 Sep 07 R89,71 3 Sep 2012 175 000 175 00014 Sep 07 R88,88 14 Sep 2012 20 000 20 00012 Oct 07 R95,50 12 Oct 2012 20 000 20 0002 Nov 07 R92,95 2 Nov 2012 100 000 100 0004 Dec 07 R89,50 4 Dec 2012 80 000 80 00012 Dec 07 R92,90 12 Dec 2012 50 000 50 000Balance carried forward 7 412 240 – 312 717 584 263 6 515 260Pg 49

Liberty Holdings Limited – Annual Report 2008Remuneration report (continued)Liberty and LGL shares under option and subject to rights at 31 December 2008 (continued)Shares/ Options/ Shares/rights Options/ rights Options/ rightsunder rights imple- rights underPrice Final option at granted mented cancelled optionpayable vesting beginning during during during at endDate granted per share (1) date (2) of year year year year of yearBalance broughtforward 7 412 240 – 312 717 584 263 6 515 2602 Jan 08 R89,75 2 Jan 2013 290 600 30 650 259 95014 Jan 08 R81,00 14 Jan 2013 20 000 20 00022 Feb 08 R73,21 22 Feb 2013 2 023 000 117 000 1 906 0003 Mar 08 R76,00 3 Mar 2013 20 000 20 00025 Mar 08 R69,70 25 Mar 2013 20 000 20 000 –10 Apr 08 R77,80 10 Apr 2013 15 000 15 00018 Apr 08 R77,62 18 Apr 2013 10 000 10 0005 May 08 R71,55 5 May 2013 50 000 50 00013 May 08 R73,00 13 May 2013 30 000 30 00015 May 08 R70,22 15 May 2013 5 000 5 00016 May 08 R70,90 16 May 2013 15 000 15 00026 May 08 R69,01 26 May 2013 6 720 6 7204 Jun 08 R71,00 4 Jun 2013 6 000 6 00012 Jun 08 R72,70 12 Jun 2013 170 000 170 0002 Jul 08 R61,50 2 Jul 2013 315 000 315 0007 Jul 08 R58,88 7 Jul 2013 6 000 6 00011 Jul 08 R57,95 11 Jul 2013 15 000 15 0001 Aug 08 R63,90 1 Aug 2013 36 500 36 50012 Aug 08 R71,13 12 Aug 2013 20 000 20 00021 Aug 08 R71,00 21 Aug 2013 29 400 5 000 24 40015 Sep 08 R73,00 15 Sep 2013 10 000 10 00023 Sep 08 R75,00 23 Sep 2013 11 450 11 45015 Oct 08 R72,50 15 Oct 2013 40 000 40 00024 Oct 08 R57,00 24 Oct 2013 81 450 81 4503 Nov 08 R60,80 3 Nov 2013 5 000 5 00017 Nov 08 R61,00 17 Nov 2013 14 000 14 0007 412 240 3 265 120 312 717 756 913 9 607 730Market value of shares/rights under option (Rm) 665,3 600,11)The price payable per share was reduced by R3,60 per share for all options outstanding as at 9 June 2006, the record date for LGL’scapital reduction of R3,60 per share.(2)The majority of the above options/rights have vesting periods of 50%, 75% and 100% after years 3, 4 and 5 from date of grant. Aftervesting, options/rights may be implemented at any time except during closed periods. Options/rights expire on the tenth anniversaryfrom the date of grant of the options/rights.In terms of LGL’s scheme of arrangement as approved by shareholders on 21 October 2008, Liberty has takenassignment of LGL’s obligations in terms of its share incentive schemes to settle LGL share options/rights with Libertyordinary shares, subject to the consent of the option/right holders.Closing price for a Liberty ordinary share on 31 December 2008: R62,46 (equivalent LGL ordinary share on31 December 2007: R89,75).Pg 50

Liberty Holdings Limited – Annual Report 2008Movement in executive directors’ interests in shares/rights under optionShares/ Options/ Shares/rights Options/ rights Options/ rightsunder rights imple- rights underPrice option at granted mented cancelled optionpayable Date beginning during during during at endDate granted per share fully vested of year year year year of yearJB Hemphill (1) 220 000 80 000 300 00021 Apr 05 R58,40 21 Apr 2010 40 000 40 00018 Apr 06 R77,28 18 Apr 2011 60 000 60 00028 Feb 07 R80,25 28 Feb 2012 120 000 120 00022 Feb 08 R73,21 22 Feb 2013 80 000 80 000RG Tomlinson (1) 300 000 50 000 350 0001 Sep 04 R51,40 1 Sep 2009 120 000 120 00021 Apr 05 R58,40 21 Apr 2010 40 000 40 0003 Mar 06 R81,61 3 Mar 2011 60 000 60 00028 Feb 07 R80,25 28 Feb 2012 80 000 80 00022 Feb 08 R73,21 22 Feb 2013 50 000 50 000(1)Appointed as Liberty director on 12 November 2008.Interest of directors, including their families, in the share capital of LibertyDirect interestsNumber of Number ofshares shares2008 2007 (1)Beneficial (ordinary shares of 8,33* cents each)HI Appelbaum 60 000 –A Romanis 230 876 –PG Wharton-Hood 1 006 n/a(1)In 2007, HI Appelbaum and A Romanis held the same number of LGL shares.291 882 –Pg 51

Liberty Holdings Limited – Annual Report 2008Remuneration report (continued)Indirect interestsBy virtue of either directorships in or materialshareholdings held directly or indirectly by Standard BankGroup Limited 53,65% (2007: 59,17%) in the issuedordinary share capital of Liberty, Messrs SJ Macozomaand JH Maree (2007: Messrs DE Cooper, DA Hawton,SJ Macozoma, JH Maree and MJ Shaw), being directorsof Liberty and Standard Bank Group Limited, had inaggregate an indirect beneficial and non-beneficialinterest in 153 457 149 (2007 equivalent after 3-for-1 subdivision:87 138 744) ordinary shares in Liberty at31 December 2008.By virtue of Mr SJ Macozoma’s directorship and 23%shareholding in Safika Holdings (Proprietary) Limited(Safika) and by virtue of Safika owning 2,90% of Liberty(2007: 2,87% in equivalent LGL), Mr SJ Macozoma had anadditional indirect beneficial interest in 1 909 830 ordinaryshares in Liberty (2007: 1 660 722 in equivalent LGL) at31 December 2008.By virtue of their participation in the Katleho ManagersTrust, Prof L Patel, Dr SP Sibisi and Ms BS Tshabalala eachhave an indirect beneficial interest in 100 000 ordinaryshares in Liberty.There have been no changes to the interests of directors,including their families, in the share capital as disclosedabove to the date of approval of the annual financialstatements, namely 25 February 2009.Pg 52

BUSINESSUNIT REVIEWSPg 53

Our unique difference lies in the quality of our decisionsand their execution. This can only be achieved with theright people.Pg 54

Liberty Holdings Limited – Annual Report 2008Business unit structureIn order to efficiently service Liberty's diverse customer base and broad wealth product offering, its operations arestructured into business units.These business units are structured as product businesses and distribution and support services.Product businessesIndividual LifeCorporateSTANLIBPropertiesHealthProvide productsaimed at meetingindividual wealthcreation, particularlyretirement savings.In addition offerwealth protectionthrough life anddisability insurance.Provide similarproducts toindividual butthrough collectiveretirement vehiclesaligned to employersand designed toprovide benefits totheir employees.Offer tailor-madeinvestment andasset managementsolutions to individual,retirement vehiclesand institutionalcustomers.Develop, manageand administerthe group’s directlyowned and thirdparty propertyportfolios.A global healthbusiness providingtechnology enabledsolutions in growinghealth markets.Distribution andsupport servicesLibFinEstablished in July 2008to specifically focus onthe strategic managementof the group’s market,credit and liquidity risks,and the maximisation ofrisk adjusted returnson shareholder investmentsand insurance contractmismatch positions.Marketing andDistributionCustodian of the group’sbrands and divisionresponsible for procuringnew business throughnew and existing customersand additional servicesto existing customers.Liberty AfricaThe Africa business isan enabler of the group’sexpansion into Africa,that manages operations,outside of South Africaand works collaborativelywith other business unitsto provide country,market and industryassessments witha view to identifyingand capturing goodbusiness opportunities.Central ServicesResponsible for providingvarious services to theoperating business unitsincluding, inter alia,information technology,risk and compliance,human resources,actuarial, finance andlegal. This division is alsoresponsible for the group’sgovernance, strategy,corporate affairs, investorrelations and externalfinancial reporting.Pg 55

Liberty Holdings Limited – Annual Report 2008Individual lifeSteven Braudo – Chief ExecutiveJohn Maxwell – Managing DirectorWhat we doThe Individual Life business unit proudly represents the51 year success story of Liberty in South Africa, andcontinues to be the primary driver of the group’s financialperformance.Individual Life is responsible for the design, manufacture,servicing and administration of retail insurance productsfor the South African consumer market.The business unit does not distribute its own products,but rather utilises the shared distribution of the broadergroup, being the Marketing and Distribution business unit.The business unit offers a comprehensive range of risk,investment and retirement products, as well as funeraland savings products for entry level markets (ELM).Individual Life is responsible for the profitablemanagement of insurance risk, specifically mortality andmorbidity risk, persistency risk and expense risk.The operational areas within the business unit areresponsible for:• The provision of customer services to existing andprospective customers as well as intermediaries;• The design, development and launch of innovativeproducts and marketing campaigns.• The administration of required operational processessuch as premium collection, financial managementand control and customer communication.• The ongoing development of appropriate technologyapplications in support of customer service experience,as well as business unit strategic objectives.Review of 2008 performanceOperational2008 was a year focused on product innovation,customer retention and technology simplification toimprove the overall service experience by customers andintermediaries.Innovative new products were launched, or productenhancements implemented across the range of risk,investment, retirement and ELM products. A marketleading new investment and retirement savings product,Excelsior 2000, was launched in compliance with thenew commission regulations that came into effect on1 January 2009.of 2008. Significant effort in the customer services andoperational areas, as well as process redesign using theLean Six Sigma methodology, have, however, restoredcustomer service levels. Sufficient backup generatorcapability has been installed to ensure full protectionagainst future power outages.A customer retention programme was implementedduring 2008. In excess of 110 000 policies were retainedacross all retention channels as a result. The retentionprogramme will be accelerated and expandedduring 2009.Notable achievements during 2008 included:• The Liberty Conventional system was successfullyconverted onto Compass in May 2008, in line with thetechnology simplification strategy (Single PlatformStrategy) embarked upon in 2005. This represents thethird policy administration system that has been decommissionedin the course of the programme.• Successful retirement of more than 20 mainframeapplications as part of the Single Platform Strategyprogramme.• The Liberty Contact Centre was the winner of 3 awardsand the 2008 Contact Centre winners at the annualBPeSA Call Centre Awards. Awards received included:• Liberty’s Contact Centre manager was honoured asGauteng Manager of the Year and took secondplace for National Manager of the Year;• Gauteng’s Best Customer Contact Centre; and• National accolades followed as the country’s BestDesign and Wellness Incorporated Contact Centre.• Liberty was voted the best life insurance company inSouth Africa by readers of RiskSA magazine in thefourth quarter of 2008.• Non-contractual customer communication waslaunched in October 2008 to inform customers aboutthe global economic crisis and to reassure customersabout their investments in the face of the economicuncertainty brought about by the crisis.In the 2007 annual financial statements we provided alist of objectives that we set out to achieve in 2008.The scorecard below reflects managements’ assessmentof the performance against those objectives:Customer service levels were negatively impacted bynationwide power outages experienced in the first quarterPg 56

Liberty Holdings Limited – Annual Report 2008Key objectives for 2008AssessmentIncreased focus on retention – understandingcustomer needs, measuring and then improvingthe customer experience ~Improved relations with intermediaries✔An improved risk environment – compliancereviews as well as a focus on audit findings ✔Effective financial control, including premiumallocation, and financial reporting✔Focus on product development ensuring productdifferentiation and competitiveness✔New business strategies aligned to targeting growthin embedded value and return on embedded value ✔Ongoing improvement in key service level indicatorsTechnology enhancement, particularly platformsthat assist in customer service, retentioninitiatives and MaD supportAdministration cost per policy to be withinactuarial assumptions✔: achieved ~: partial success ✘: work still to be doneFinancialFinancial performance indicators for 2008 include:2008 2007Rm RmHeadline earnings 1 255 1 369New business 14 848 14 866Recurring 2 966 2 584Single (1) 11 882 12 282Indexed new business 4 154 3 812Net cash flows 407 1 868Premium income 24 286 23 760Recurring premiums 12 406 12 355Single premiums 11 880 11 405Claims (23 879) (21 892)Embedded value of newbusiness* (1) 701 756Embedded value new businessmargin (%)* (1) 3,0 3,2* December 2007 restated for revised PGN 107.(1)Includes STANLIB insurance product sales.Overall Individual Life performed well despite a verytough environment. Consistent and conservative pricingalong with good reinsurance and underwriting practicesresulted in increased mortality profits. In addition, theactive management of costs in the second half of 2008resulted in targets being met. No further strengthening of✔✔✘cost per policy assumptions was required to thoseapplied and announced at the half year. However,poorer persistency experience required strengtheningof actuarial assumptions and resulted in a R879 millionreduction to the business units profit including negativevariances to expectations.Indexed new business (excluding contractual increases)rose by 9,0% to R4 154 million. Whilst good growth wasrecorded in risk and ELM products, individual investmentproducts are only marginally up on 2007. Net cash flowswere positive R407 million for the year, lower sales of singlepremium investment business being the main reason forthe decline over last year’s R1 868 million inflow.The new business embedded value profit margin of 3,0%(2007: 3,2% restated) has decreased as a result ofstrengthened persistency assumptions.Outlook for the year aheadThe South African consumer remains under pressure dueto the current economic environment of high interest ratesand high inflation rates. Although the expectation is thatthese rates will reduce during 2009, there is no doubtthat Liberty’s customers on average will continue to seereduced disposable income for most of 2009. A likelihoodof increasing company closures and retrenchments in thebroader economy will exacerbate this trend.Continued volatility of equity markets introduces fear anduncertainty in the minds of many investors.These factors are likely to contribute to a continuation ofpoor customer persistency trends experienced in 2008.The business unit will focus on a variety of customerretention initiatives, to enable customers to retain theirinsurance policies with Individual Life.The success of 2008 will enable Individual Life to deliveron its key strategies for 2009 which are:• Continued focus on customer retention.• Cost efficiency.• Product innovation.• Partnering with Liberty Africa to export insurancecapability into other African territories.“Whilst the environment we’re operating in remainschallenging, Liberty’s positioning as a holistic wealthmanagement business allows us to take a longer term view.Our staff are fully committed to continually improving ourcustomers’ experience and always offering comprehensivesolutions. There are many opportunities for us to make adifference and differentiate ourselves, and with this in mind,we can look forward to the future with confidence.”– Steven BraudoPg 57

Liberty Holdings Limited – Annual Report 2008CorporateSteven Braudo – Chief ExecutiveDavid Price – Managing DirectorWhat we doCorporate provides employee benefit solutions to meetthe risk and retirement funding needs of corporatecustomers by offering pension, provident, investment andrisk products.The division has a fully fledged administration arm,marketing and communications teams, sales, product,distribution and investment areas that holistically createthe most suitable solutions for the customer. With astaff complement of 750 people, Corporate is a dynamicbusiness unit with a focus on high performance.Review of 2008 performanceOperationalA key focus of 2008 was to improve customerrelationships and retention of retirement funds. Targetedcustomer service campaigns were undertaken andservice level agreements entered into.Interactions with top intermediaries were increasedwhich assisted in addressing concerns early as well asobtaining constructive feedback, especially in thesedifficult economic times.Analysis of the funds terminated revealed that most of thefunds were terminated due to employers closing down ornot being able to afford the cost of retirement funding.Productivity tools were identified and implemented toimprove efficiencies and eliminate waste in criticalprocesses, including the anniversary renewal process,billing and allocation and section 14 transfers. The LeanSix Sigma methodology has been adopted by Corporateto address process inefficiencies.From a technology perspective an improved ITinfrastructure and closer working relationships with thebusiness contributed towards the achievement ofbusiness objectives. Despite the power outages thatimpacted response times, deliverables were closelymanaged. The Compass 6.6 upgrade was implementedduring the fourth quarter 2008 and resulted in increasedsystem stability during November and December. As aresult a significant decrease in response time problemswas reported.After careful review of the business case, the CapitalAlliance Life group risk conversion to Compass project ison track. The benefits include a reduction in IT costs overtime and enhanced customer reporting.High level deliverables for the overall improvement in therisk environment included quality assurance of criticalprocesses, business continuity management, ongoingreviews of policies, risk and compliance monitoring aswell as resolution of outstanding audit issues.Pensions reform remains a key issue and LibertyCorporate are closely monitoring developments. A highleveltask team is in place to identify opportunities andthreats and engage international pension reform experts.A National Pension Reform Study has been conductedto gain an understanding of the current operationaleffectiveness within the industry. This study also aimed toestablish a national and international benchmark.The Joint Forum on Pension Reform has worked on anumber of key areas. In October 2008 a round tablediscussion was held between the Joint Forum andNational Treasury. A number of proposals onaccreditation, the scope for umbrella funds, and possiblefunctioning of the National Social Security Fund weretabled. Treasury indicated that follow up workshops wouldbe scheduled for first quarter 2009.Periodic meetings have also been set up with fellowindustry members outside the confines of the Joint Forumto discuss issues. The ASISA Board, of which the JointForum is now a sub-committee, is to consider ratifyinga formal industry position in early 2009.Some of the highlights from 2008:• Improved client service.• Improved risk management.• Improved people management across a broad rangeof issues.• Improved financial reporting and understanding,including good cost management.• A strategic review was initiated during the first half of2008. This confirmed the long-term strategic directionof the business and also the areas of opportunity andthreat over the next few years.• Significant progress has been made in the delivery ofkey strategic projects. A number of projects identifiedwere successfully delivered, which included: Lifestageinvestment product, development of financialstatement capability within the business, conversion ofthe pensioner payments onto Compass and enhancingthe liquidations process.In the 2007 annual financial statements we provided alist of objectives that we set out to achieve in 2008.The scorecard below reflects managements’ assessmentof the performance against those objectives:Pg 58

Liberty Holdings Limited – Annual Report 2008Key objectives for 2008AssessmentIncreased focus on retention – understandingcustomer needs, measuring and then improvingthe customer experience ~Improved relations with intermediaries✔An improved risk environment – compliancereviews as well as a focus on audit findings. ✔Effective financial control, including premiumallocation, cost control and financial reporting ✔Focus on product development ensuringproduct differentiation and competitiveness ~New business strategies aligned to targetinggrowth in embedded value and return onembedded value✘Ongoing improvement in key service levelindicators✔Technology enhancement, particularly platformsthat assist in customer service, retentioninitiatives and intermediary support✔Responsible cost control and management ~✔: achieved ~: partial success ✘: work still to be doneMost of the key objectives set out for 2008 were achieved.Those that were not fully achieved will be focused on in2009 to ensure a consistent approach and delivery of thelong-term business strategy.FinancialFinancial performance indicators for 2008 include:2008 2007Rm RmHeadline earnings 152 118New business 1 984 1 727Recurring 417 379Single 1 567 1 348Indexed new business 573 514Net cash flows (3 319) (2 115)Premiums and inflows 6 468 5 907Recurring premiums 4 971 4 558Single premiums 1 497 1 349Claims and benefits (9 111) (7 387)Net outflow on IEB book (676) (635)Embedded value of newbusiness* 23 29Embedded value new businessmargin (%)* 0,4 0,7The overall financial result was pleasing with higher riskprofits following from revisions to premium rates. However,the financial result in 2008 was negatively impactedby the decline in asset market values resulting in lowerfee income and a worsening claim experience for thegroup income disability product. The increase in claimexperience for this category of business is not uncommonduring a declining economic cycle.The business unit experienced good new businessgrowth (indexed new business was 11,5% up from 2007)at very competitive rates.Net cash outflows of R3 319 million in 2008 resulted mainlyfrom an increase in Corporate Bond scheme terminationsand withdrawals.Outlook for the year aheadThe success of 2008 will enable Corporate to deliver onits key strategies during 2009 which are:• Developing a direct, large fund sales and consultingcapability.• Initiating a number of focused structural cost reductioninitiatives.• Updating the Corporate product to ensure productdifferentiation and competitiveness.• Continued focus on customer retention and servicing.• Building capacity and focusing on the skill andcapability levels of staff to enhance the customerexperience.• Assessing the opportunities for the Corporate productset in other African markets.* December 2007 restated for revised PGN 107.Pg 59

Liberty Holdings Limited – Annual Report 2008STANLIBGeorge Brits – Chief ExecutiveMike Galloway – Retail Business DirectorWhat we doSTANLIB is a world class investment business thatfocuses on building investment propositions, which servethe investment needs of its customers.STANLIB re-engineered its investment process in 2006to produce arguably the most transformed assetmanagement team in the country. Not only has there beensignificant investment in the right talent, but a robust fundmanagement process has been put in place. The multispecialistapproach to investment management, popularlyreferred to as the “Franchise Model”, led to a shift from thegeneralist, house view investment process to a specialistand more rigorous investment process.STANLIB is a substantial player in the South Africanfinancial services industry, with assets under managementof R299 billion as at 31 December 2008.Review of 2008 performanceOperationalThe 2008 calendar year was one for the investment recordbooks, as the JSE recorded its second worst performancesince 1960, losing 23,2%, while bonds and cash wereup 17,0% and 11,7% respectively. This variation andvolatility of returns across asset classes and sub-sectorscan provide for fairly dramatic short-term portfolioperformances, as STANLIB has experienced.Five of STANLIB’s top performing unit trust funds in 2007were particularly affected by the market downturns during2008, mainly due to the higher than average marketholding in resources and construction stocks, which weresome of the worst performing sectors in 2008.A number of the other STANLIB funds in various categoriescontinued to excel against funds with similar mandates.The STANLIB Property franchise has proven the merits ofactive management in what is perceived to be ahomogeneous sector, as it once again beat its benchmark.The STANLIB Property Income fund maintained its strongperformance in the shorter periods, being one of the bestperforming funds over one year and achieving top quartileresults over 3 years. The fund also retained its ranking asSouth Africa’s best performing property fund in the fiveyear category.The Bond fund had a good year, ending in the top half ofits peer rankings and out performing the All Bond Index.The Flexible Income fund, Money Market fund andDividend Income fund continue to do well, benefiting fromSTANLIB’s fixed interest rate view, while the Financialsfund finished the year on top of its category, outperformingthe financials sector benchmark by 10,9% over 12 months.The institutional funds which are submitted to the varioussurveys provided the best 12 month performance to30 June 2008, since the inception of the Franchise Model.Unfortunately, the two key calls around resources andconstruction stocks had the same effects on theinstitutional portfolios, as they did on the retail portfolios,with the resulting underperformance giving back a lot ofthe good work done over the last three years.The cash business was restructured during the year, amove which proved successful as market share increasedfrom 21% to 25%.Although 2008 may be considered a “once in a lifetime”type of period, STANLIB is focusing on improving itsinvestment process to deal with such extreme events inthe future.The scorecard below reflects the key 2008 objectives andmanagements’ assessment of the performance againstthose objectives:Key objectives for 2008AssessmentCommercial: tightly manage revenue streams,margins and expenses and invest for growth ✔Brand footprint: create a sustainable connect withthe emotions of customers, staff and community ✔Customers: deliver the best of breedperformance, product and service ~Retail ~InstitutionalLibertyPICOther significant customers✘Investments: deliver consistent first quartileperformance ~EquitiesBondsCashPeople: attract and retain top talent and buildan open, participative leadership culture thatpromotes a sense of belonging and encouragespeople to stretch their potential✔: achieved ~: partial success ✘: work still to be done✘✔✔✘✔✔✔Pg 60

Liberty Holdings Limited – Annual Report 2008FinancialFinancial performance indicators for 2008 include:2008 2007Rm RmHeadline earnings 370 355Sales* 138 146 106 233Retail 37 551 32 269Institutional 5 329 8 062Money market 95 266 65 902Cash flows* 5 115 8 888Retail (3 830) 11 110Institutional (10 327) (5 820)Money market 19 272 3 598Assets undermanagement (Rbn) 299 328Retail 81 96Institutional 156 190Money market 62 42* Excluding intercompany life business.STANLIB had a robust profit experience in 2008 withheadline earnings of R370 million for 2008, which is 4,2%higher than 2007 headline earnings. It is anticipated thatSTANLIB’s earnings performance will be better than thepeer group. This was due to the following:• STANLIB had a conservative allocation to equities inits asset mix relative to peers during the exceptionalequity markets of the last few years. While this meantSTANLIB slightly underperformed peers during theboom years, the benefit of the conservative approachwas realised during the equity market crisis in thesecond half of 2008, when the asset base wasrelatively protected compared to peers; and• Robust cost management, which is reflected in thecost to income ratio increasing slightly to 51% from49% in 2007. It must be noted that a cost to incomeratio of 51% is 12% below the 2008 industry average.Despite net cash flows of R5 billion for the year, mainlyinto the money market and dividend income funds, thefinancial markets crisis and the generally poor globaleconomic environment resulted in the asset base endingthe year R29 billion lower than 2007.Outlook for the year aheadThe main objectives for 2009 will be firstly, to expand salesby developing the capabilities and relationships to entermarkets which have been identified as having highpotential (for example the high net worth sector) toincrease STANLIB’s overall market share. To deliver this anew head of Linked Investment and Structured Products(LISP), and a related new sales force were hired in thelatter part of 2008.Secondly the focus will be on executing the institutionalbusiness strategy, which is an intensely relationshipdriven industry. A new head of institutional business withextensive experience in the industry has been hired todeliver on this strategy.Key strategies for 2009:• Execute the LISP, offshore and high net worth businessstrategies;• Restructure the business to facilitate user friendlycustomer engagement;• Establish an investment advisory capability for theretail market;• Roll out the brand footprint;• Execute the Top IFA engagement plan;• Attract and retain top talent to build adequatesuccession plans into all investment franchises;• Focus on multi-culturalism and transformation as keycompetitive differentiators; and• Deliver on the role of investment manufacturing in theoverall Liberty proposition.“2008 was an extraordinary year for the financial marketand it is likely that 2009 is going to be a tough year.STANLIB has a robust customer proposition forboth institutional and retail segments. A highlyqualified team of investment and businessprofessionals will effectively manage ourcustomers investments.”– George BritsPg 61

Liberty Holdings Limited – Annual Report 2008Liberty PropertiesSamuel Ogbu – Chief ExecutiveWhat we doLiberty Properties provides a range of property relatedservicessuch as development, property managementand asset management, with a particular focus on superregional shopping centres. The business has developedand manages some of the most prime retail propertiesin South Africa, including Sandton City, Eastgate andan extensive portfolio of luxury hotels. Liberty Properties’portfolio is valued in excess of R19 billion which includescommercial, retail and hotel property and has enjoyedsustained success under the management of LibertyProperties.Review of 2008 performanceOperationalDuring 2008, Liberty Properties continued its strongfinancial performance, while re-inventing itself from a corecompetence as a property management company withone of South Africa’s premier portfolios, to a cluster ofproperty businesses, involving management, developmentand asset management.2008 saw the appointment of a new chief executive. Theestablishment of a programme management office andthe creation of a business development manager role,which aims to improve property business ties withcustomers and intermediaries. The business risk, assetmanagement and strategic marketing functions were alsostrengthened through the appointment of new talent. Thedevelopment pipeline was increased to over R3 billion, ofwhich R1 billion related to property development outsideof South Africa.Much of 2008 was focused on creating the platform forfuture growth. Key processes and structures wereimproved and a Property Investment Executive Committeewas established to improve decision making in thepolicyholder portfolio.Property development activities received much focus.A R1,7 billion upgrade and refurbishment of Sandton Citywas approved and launched to the media. A R610 millionextension of the Eastgate mall was approved and Phase 1of the development is expected to be completed bymid-2009. An extension of the Alberton City mall wascompleted to the value of R185 million.Liberty Properties’ efforts to establish itself as a premierproperty services provider was rewarded when it won thecontract to develop a mixed use development in Lusaka,Zambia valued at over R1 billion. The Lusaka developmentwill be Liberty Properties first development project outsideof South Africa.The scorecard below reflects the key 2008 objectives andmanagements’ assessment of the performance againstthose objectives:Key objectives for 2008Reposition the business into a new structuredasset management businessIncrease contribution to group earningsIncrease assets under management throughnew acquisitions and bulk maximisationCommence Sandton City extension✔: achieved ~: partial success ✘: work still to be doneAssessmentFinancialFinancial performance indicators for 2008 include:✔✔✔✔2008 2007Rm RmHeadline earnings 64 46Properties 58 46Fountainhead 6Value of properties undermanagement* 19 120 17 155Return on unlisted propertyportfolio pre-taxation (%) 14,9 20,6* Excluding Fountainhead.Liberty Properties, which earns development andmanagement fees from managing the group’s propertyportfolio, performed well and earnings after taxationincreased by 26,1% to R58 million. Liberty Properties ismanaging a number of property developments andconsequently development fees were higher.As announced to shareholders on 27 March 2008, a 50%interest in Fountainhead was acquired with effectfrom 1 April 2008. Net earnings to 31 December 2008attributable to the group were R6 million.Outlook for the year aheadLiberty Properties is transitioning from being a propertydivision of a South African insurer to becoming anemerging market property brand.Pg 62

Liberty Holdings Limited – Annual Report 2008Key strategies for 2009 are as follows:• Transition from a single-stranded property managementbusiness to a property-focused wealth brand, withmultiple customers and earning streams focusing onemerging markets.• Creating an Africa-wide property franchise derivingearnings across the property spectrum.• Increase assets under management without strainingthe group financial position.• Maximise opportunities across the Standard BankAfrican footprint through collaboration.• Working in partnerships with other players in theproperty market to secure third party business.• Substantially increase development activity in SouthAfrica and the rest of Africa.“South Africa has fared better than most of its tradingpartners in developed economies but it is not immune.The property sector saw much turbulence in the earlypart of 2008 as shortages of electricity combined with anegative macroeconomic environment to put pressure onconsumers and businesses alike. Despite the negativity,Liberty Properties delivered a robust economicperformance and creditable returns to policyholders.While we remain very mindful of the economic climateand continue to exercise the extreme vigilance in themanagement of the business that is required in thesetough times, we are nevertheless fully committed todoing what is necessary to position the business to takefull advantage of the opportunities that currently existand those that are emerging. Our investments deliverover the long term and while the current year will bedifficult, we are facing the future with confidencebecause the changes we have made to the businesstogether with the high quality assets that we manage willenable us to remain competitive through the cycle.”– Samuel OgbuPg 63

Liberty Holdings Limited – Annual Report 2008Liberty HealthPeter Botha – Chief ExecutiveWhat we doLiberty made the strategic decision to re-enter the healthmarket in 2007. Liberty Health is a technology-enabled,multiple-revenue health solutions business, with theflexibility and scalability to tap into the needs of the healthbusiness, in South Africa, the rest of Africa, and otheremerging markets.Liberty Health’s core business is administration andmanaged care. The administration model is based on asingle back office supporting multiple front-officesfor medical schemes, private health insurers, healthmaintenance organisations, corporate companies andgovernments in South Africa and the rest of Africa.The South African customers provide the coremembership but the scale will be achieved through themembership growth in East and West Africa and throughthe international health insurance products managed byLiberty Health.Review of 2008 performanceOperationalThe new executive team made significant strides inachieving the Liberty Health strategy during 2008. Thiswas achieved through the acquisition of the strategicenablers; Neil Harvey and Associates (NHA) – the largestindependent technology vendor in Africa that providestechnology solutions to over 1 million lives and V MedicalAid Administrators (VMed) – an accredited medicalaid administrator that uses the NHA system; andthe administration business of Medicover – a selfadministeredmedical scheme .The growth objectives in South Africa were achievedthrough the take-on of the following medical schemes:Medicover, Selfmed, Libcare and Liberty Health MedicalScheme.Liberty Health is responsible for driving the healthstrategy in Africa in collaboration with Liberty Africa. Thecurrent opportunities include administration, managedcare, health insurance and technology solutions.Liberty Health commenced its growth into the rest ofAfrica through the administration of UgaMed in Uganda ;the technology implementation at CfC Health andHeritage Health in Kenya; and the acquisition of astake in Total Health Trust one of the leading HealthManagement Organisations in Nigeria. An additionalhighlight in Africa was the establishment of two PanAfrican health insurance products, Liberty Health Blueand Optimum Global.Liberty Health Blue was established to provide healthinsurance benefits to employees of multi-nationalcompanies in Africa and the key innovations arethe standardised contributions and benefits across thecontinent.Optimum Global is an international evacuation productunderwritten by Aviva. Liberty Health has an exclusivearrangement to distribute and manage this offeringin Africa.The scorecard below reflects the key 2008 objectives andmanagements’ assessment of the performance againstthose objectives:Key objectives for 2008Completion and acquisition of strategic enablersCompletion of scale based acquisitions andtake-onTechnology implementation in East AfricaDevelopment and registration of pan Africanhealth insurance productsCompletion of the capacity build for VMed tofunction as the administrative hub for the group.Completion of the connectivity strategy tosupport thin front office strategy in Africa✔: achieved ~: partial success ✘: work still to be doneAssessmentFinancialFinancial performance indicators for 2008 include:2008 2007Rm RmRevenue 57 13Expenses (122) (16)Loss before taxation (65) (3)Taxation 46Loss after taxation (19) (3)Liberty share – (3)Lives under management (’000) 267 12✔✔✔✔✔✔Pg 64

Liberty Holdings Limited – Annual Report 2008Overall this was a year in which Liberty Health made greatstrides in laying the foundation and providing the buildingblocks to support its future growth strategy.The business unit reflected a small loss in 2008, but isnow well placed to contribute positive earnings goingforward.Outlook for the year aheadThe focus for 2009 will be on maintaining Liberty Health’score business of over 260 000 lives whilst rapidly takingon new growth from the rest of Africa. Liberty Health havestrengthened the top management structure, with theview to affirm the target operating model and plan forcapacity and optimal implementation.Key focus area for 2009 are as follows:• The integration of the acquired business units intoLiberty Health;• Build and maintain back office capacity to support thegrowth strategy;• Growth the Liberty Health Medical Scheme through anintegrated marketing and distribution strategy withinLiberty;• Grow the membership base in East and West Africa byleveraging the partnerships in those regions; and• Roll out Liberty Health Blue and Optimum Globalbehind the Standard Bank footprint in Africa.“The growth in 2008 exceeded our expectationsand provides the perfect platform to launchinto lucrative growth markets.”– Peter BothaPg 65

Liberty Holdings Limited – Annual Report 2008Liberty Financial SolutionsGiles Heeger – Chief ExecutiveAndrew Lonmon-Davis – Deputy Chief ExecutiveWhat we do2008 saw the creation of a strategic balance sheetmanagement business unit, known as Liberty FinancialSolutions (LibFin), which is a key element of the ‘threemanager model’ utilised by Liberty.The unit was formally constituted in June 2008 when GilesHeeger joined Liberty as chief executive of LibFin. Duringthe remainder of the year staff were recruited to establishthe various operations for which the business unit isresponsible. These include:• Asset liability matching – this involves the managementof the mismatch risk arising from the differencebetween the market risk characteristics of the liabilitycommitments to policyholders and the assets investedto match these. Specifically this refers to the annuity,guaranteed annuity option and guaranteed maturityvalue products which contribute significantly to themarket risk component of earnings. Reducing this riskis a key focus of LibFin.• Financial position structuring and advisory operation –the role of this operation is to provide recommendationson the funding of the financial position andfinancing transactions with the aim to reduceregulatory and capital costs.• Strategic asset allocation operations – LibFin assumedthe responsibility for the strategic asset allocation(i.e. the long run asset allocation investment decisions)of both policyholder and shareholder funds. This areais also responsible for setting asset managementmandates and negotiating fees, monitoring mandatecompliance and analysing and monitoring assetmanagers’ performance.LibFin will continue to develop itself as Liberty’s centre ofexcellence for the management of market, liquidity andcredit risks across the group’s financial position.Review of 2008 performanceOperationalA great deal was achieved by LibFin during 2008,considering that the unit was only formally constituted inJune, with significant momentum being gained duringAugust once the majority of the staffing requirements hadbeen filled.The most important achievement was obtaining asufficient understanding of the overall group marketrisk to ensure solvency was protected and earningsconsequences essentially contained during the collapseof the global market in the last quarter of 2008.Significant focus was put on the asset liability matchingoperations initially, until the market conditions allowed ashift towards strategic asset allocation in the fourthquarter of 2008.The scorecard below reflects the key 2008 objectives andmanagements’ assessment of the performance againstthose objectives:Key objectives for 2008AssessmentEstablish a strategic balance sheet managementunit (LibFin) and staff up the business unit✔Establish the necessary support and controlstructures✔Understand and manage the market and creditrisks to which the group is exposed✔Ensure capital and control earnings impactfrom market movements ~Strategic asset allocation of policyholder andshareholder funds✘✔: achieved ~: partial success ✘: work still to be doneFinancialFinancial performance indicators for 2008 include:2008 2007Note Rm RmBalance sheet mismatchresults (522) 297Economic assumptionchanges 1 322 (140)10% bonus participation 2 (600) 172Funding cost of excess assets (200) (150)Mismatch and tail earnings 3 399 129Investment GuaranteeReserves (PGN 110) 4 (1 666) 407Risk mitigation 5 1 097 –Taxation 126 (121)Shareholders’ investmentearnings 334 819Interest and dividends 740 632Capital profit/(loss) net of CGT (270) 281Funding benefit of excessassets 200 150Callable bond – interestexpense (179) (189)Expenses (7) –STC (28) (84)Related income taxation (122) 29Headline earnings (188) 1 116Pg 66

Liberty Holdings Limited – Annual Report 2008Notes1. Economic assumption changes – the impact ofchanges to the applied valuation risk discount rate.2. 10% bonus participation – the variance between theactuarial assumed investment return and actualexperience in relation to policyholder portfolios whereLiberty has a 10% share of the declared investmentreturns.3. Mismatch and tail earnings – amount of the net actualinvestment return on mismatched policyholder liabilitypositions and the return on excess assets (tail)contained in the life fund on a published (IFRS) basis.4. Effect of the adjustment required to mark-to-marketinvestment guarantees embedded in certain policiesin-force.5. Risk mitigation – the fair value adjustments on riskmitigation financial instruments particularly thoseprotecting interest rate movements.Given the severity of the financial market losses in 2008,the total investment portfolio held up fairly well, reflectingboth a cautious positioning of shareholder investmentsand the hedging of interest rate risk.Due to high short-term equity volatilities, poor equityreturns and lower long-term interest rates, the valuation ofthe embedded investment guarantees, contained incertain investment and risk products, gave rise to a markto-marketloss of R569 million, net of interest rate hedges.This was further offset by the economic assumptionchange of R322 million.The weighted average investment return, used as a proxyin relation to policyholder bonuses on portfolios whereshareholders have a 10% participation, ended theyear negative 12,4%, compared to the 14,8% positiveperformance in 2007.Shareholders’ investment earnings of R334 million for2008 were R485 million lower than the R819 millionreported in 2007. Assets, not specifically held to matchpolicyholder liabilities or utilised in asset managementoperations, are held to back regulatory capital andminimise liquidity risk. Currently, portfolios are balancedbetween long-term equity holdings and interest relatedinvestments to achieve an investment portfolio designedto maximise long-term returns for shareholders. Equityportfolios are currently biased towards financial andindustrial sectors which performed negatively, partlyoffset by currency profits on foreign assets. Thesecombined effects resulted in the group’s earnings beingnegatively impacted to the extent of R270 million, net oftaxation (2007: R281 million profit). However, interestrevenue has benefited from the higher average short-termrates experienced during 2008.Outlook for the year aheadLibFin will continue to focus on market risk positionmanagement. The business unit will continue to look forways to reduce the risk associated with the overallshareholders’ portfolio, in order to minimise the risk ofpossible capital losses and to increase the sustainabilityand consistency of earnings arising from shareholdercommitments. This would include a significant focus onsystems build and improvements in process efficiency.In addition, LibFin intends to more fully develop,implement and operationalise its asset allocation function.This will better equip the business unit to meet itsobjectives of generating improved long-run performancethrough greater focus on strategic asset allocation.Key strategies for 2009 include:• Provide earnings protection, generate additional profitsand assist management in moving within the stated riskappetite;• Complete staffing up the unit, in order to generate thecapacity to fully achieve its mandate;• Monitor and control strategy effectiveness as themarkets move and affect the financial position; and• Generate long-run outperforming balanced portfoliosthrough strategic asset allocation with a focus onperformance against the liability set rather then themarket (specifically for pension liabilities).“Market conditions during 2008 were extraordinarilychallenging and look to continue unabated in 2009. Thisincludes extreme price and volatility movements, thelikes of which have not been seen for many decades. Itis precisely to address such an environment that LibFinhas been established and we are excited about rising tothe challenge of such conditions and remain committedto ensuring that the capital and earnings impacton the group arising from these markets remaintightly controlled.”– Giles HeegerPg 67

Liberty Holdings Limited – Annual Report 2008Marketing and DistributionIan van Schoor – Chief Executive: Global Marketing, Sales and DistributionBobby Malabie – Chief Executive: Marketing and Distribution, South AfricaWhat we doMarketing and Distribution (MaD) encompasses thecustomer facing components of the business and acts asa strategic shared service for all the business units in thegroup. MaD is the division responsible for the procuring ofnew business and serves as the custodian for the groupbrand architecture.MaD consists of four divisions:• Sales and Distribution – sales consists of multiplechannels servicing the insurance businesses,Liberty Health and STANLIB, where financialproducts are manufactured for the consumer.Distribution channels are business to businesschannels servicing intermediaries (brokers andbrokerages) who in turn provide financial planningand advice to consumers;• Marketing and Communications – services all thebusiness units of Liberty;• Technical Sales and Distribution Support – a divisiondesigned to improve the efficiency and productivity ofSales and Distribution capabilities; and• Strategic Enterprises – includes initiatives such asstrategic projects and the management of strategicrelationships such as bancassurance.Review of 2008 performanceOperationalSales and DistributionThe challenging environmental conditions along withimpending commission regulations impacted manpowergrowth and retention over the course of 2008. Managementinterventions, fast tracked during the year, were initiatedto stimulate sales productivity which contributed tothe resilience of production. New Era distributionmodels (incorporating the STANLIB and Liberty teams)were successfully introduced during the year. Thesemodels have been designed to deliver lower unit costof sales and impart a structural shift to variable costsin distribution.Marketing and CommunicationsAbove the line marketing expenditure was deliberatelycurtailed during 2008 in keeping with the convictionthat this spend is more effective in a robust economicclimate. The focus of the team was on building theadvisory capability into the field through the Risk andFund focus road shows. A highlight of the year was theWealthworld conference.Technical Sales and Distribution SupportSales re-engineering projects directed at deliveringproductivity, convenience and efficiencies into Salesand Distribution progressed well during the year. Theseproductivity improvement projects have been useddirectly in support of sales forecasting models for 2009.Product adjustments and changes to remuneration weremade to mitigate the impact of the new commissionregulations and improve overall persistency.Strategic EnterprisesSignificant progress was made during the year in thebancassurance joint venture with Standard Bank. Jointmanagement mandates and structures were confirmedand closer co-management of Standard Bank FinancialConsultants will deliver sustainability through improvedand aligned measurement metrics. Bancassurance saleswere more robust for the year when compared withperformance from third party banks, further underscoringthe importance of this joint venture with Standard Bank.Tight fiscal discipline by MaD delivered flat recurring‘business as usual’ costs on 2007. In keeping with thephilosophy to manage cost growth in relation to newbusiness growth expectations MaD completed arestructuring process by year end. This was done in orderto position MaD for 2009, given our expectation of a slowdown in sales volumes as disposable income levels ofconsumers’ contract.The scorecard below reflects the key 2008 objectives andmanagements’ assessment of the performance againstthose objectives:Key objectives for 2008Continue to grow the national branch networkConsolidate the KwaZulu Natal region intoa single head office in DurbanEnhanced brand and customer promotionsAssessmentDevelopment of sales leadership academyDevelopment and implementation of a number ofstrategic ventures utilising brand collaborationwhere appropriateDesign remuneration models that will discourageunnecessary churn in the existing customer baseIncreased headcount and service support to alldistribution channels✔: achieved ~: partial success ✘: work still to be done✔✘✔✔✔✔✘Pg 68

Liberty Holdings Limited – Annual Report 2008FinancialFinancial performance indicators for 2008 include:Insurance productionTotal IndexedPercentage increase % %Total production 31,3 8,4Individual Life 23,6 7,6Corporate 45,8 16,7Investment gross sales2008 2007Rm RmSTANLIB Sales* 138 146 106 233Retail 37 551 32 269Institutional 5 329 8 062Money market 95 266 65 902* Excluding intercompany life business.The past year was particularly challenging with marketuncertainty, economic and consumer distress impactingsales growth. These growth challenges were exacerbatedby the new commission regulations introduced in January2009 and the record sales year in 2007.MaD delivered indexed production new business growthof 8,4% in the insurance business and investment grosssales growth of 30% fuelled by the flight to lower riskcash alternatives.Growth in sales slowed considerably in the last quarterdespite sales activation efforts aimed at stimulating growth.Outlook for the year aheadWhilst MaD remains committed to its three year build andtransformation strategy, emphasis will shift to improvingsales and distribution efficiencies. The persistence ofeconomic headwinds into 2009 will sharpen the focuson retention initiatives directed at both experiencedintermediaries and in force business. The development ofNew Era sales models will support both retention and unitcost reduction (cost of sales) objectives.The development of a global marketing and distributioncapability in 2009 is a key initiative leading Liberty’sexpansion into selected emerging markets.The key strategic challenges for MaD in 2009 include:• Enhanced sales productivity through productivityinitiatives and business process re-engineering;• Structural reduction in unit cost of sales;• Build of a global distribution capability; and• Implementation of New Era sales models.“Whilst the outlook for sales remains extremelychallenging for 2009, I remain quietly confident that themanagement interventions fast tracked in 2008 inresponse to the deteriorating environment will lendthemselves to a more resilient sales performance in thecoming months. The restructured MaD has given us theopportunity to position the management team optimallyto implement our strategy more effectively which shouldentrench our competitive advantage in Salesand Distribution not only here in South Africa butalso in our selected Emerging Markets.”– Ian van SchoorPg 69

Liberty Holdings Limited – Annual Report 2008Liberty AfricaBernard Katompa – Chief ExecutiveWhat we doDuring 2008 the group pursued its strategy of expandinginto the rest of Africa with Liberty Africa being used as thevehicle to build a leading wealth management company inthe rest of the continent.The Africa division is an enabler of the group’s expansioninto Africa, that manages operations outside South Africaand works collaboratively with other business units toprovide country, market and industry assessment with aview to identifying and capturing growth opportunities.Review of 2008 performanceOperationalWhilst the global economic conditions continued to betainted by the adverse impact of the global financialcrisis, a number of economists have suggested that Africacould recover from the current downturn faster thanthe western world as its growth is today more correlatedto developing than developed economies.The executive team at Liberty Africa spent much of 2008building capacity to deliver the expansion strategy andto achieve specified objectives, including performanceimprovement from existing operations in Namibia,Botswana, Swaziland, Lesotho, Kenya and UgandaInvestment businessNotwithstanding the current economic environment,which put pressure on asset inflows, the investmentbusiness units in the rest of Africa continued to targetmajor funds and were successful in obtaining newmandates whilst building on the existing ones.Gross cash asset inflows and gross sales for segregatedfunds ended the year well above projections. Unit trustsales received a boost during the last quarter of the yearas a result of the Africa Challenge Competition.Liberty Africa also held trustees training for executivesfrom government institutions and the private sector invarious countries.Insurance businessThe insurance operations delivered satisfactoryperformance with new business and net cash flows beinghigher than the previous year.Liberty Africa HealthThe vision for Liberty Africa Health is to be a Pan Africanhealth business, providing technology solutions ingrowing health markets. The growth will be driven throughthe management and distribution of two Pan Africanproducts namely Liberty Health Blue and OptimumGlobal. The management team and appropriate capacityand technology have been put in place.Liberty Africa PropertiesDuring 2008 Liberty Properties won a contract to developa mixed use complex in Lusaka, Zambia valued atmore than R1 billion. This is the first development contractoutside South Africa.The following notable achievements were made by LibertyAfrica during 2008:• An effective organisational structure with the rightpeople in the right roles was implemented;• The Head office of the Southern Region wassuccessfully relocated from Johannesburg to Windhoek.• Two green-field long-term insurance operations werelaunched in Botswana and Swaziland;• Charter Life Namibia was rebranded as Liberty LifeNamibia and Liberty Life Assurance Uganda wasofficially launched;• Information Technology and business processes asrequired by various countries were developed anddelivered; and• A number of due diligences on targeted entitieswere conducted during the year but did not result inacquisitions as a result of unreasonably high pricesrequested by existing shareholdersFinancialFinancial performance indicators for 2008 include:2008 2007Rm RmHeadline earningsLiberty share (1) 16Asset managementSales 19 504 10 065Cash flows 8 259 4 219Assets under management 19 190 12 425Insurance operationsNew business 63 35Indexed new business 55 25Net cash flows 50 40Pg 70

Liberty Holdings Limited – Annual Report 2008Despite the global financial crisis which affected someof the African economies, Liberty Africa deliveredsatisfactory performance with significant growth in assetsunder management, cash flows, sales and new business.Headline earnings were adversely affected by capacitybuilding and expensing of due diligence costs.Outlook for the year aheadThe following initiatives are planned for 2009.• Expand a regional presence in East Africa anchoredout of Nairobi, Kenya and in West Africa anchored outof Lagos, Nigeria;• Enhance sales productivity through expansion ofdistribution channels;• Understand the needs of customers and develop thenecessary products to satisfy demand; and• Aggressively market the existing asset managementcompetencies to various government pension fundsthus positioning the investment business for higherasset allocations.“Even amid global financial market turmoil we areoptimistic about the future of Africa. The continentpresents huge opportunities which, if effectively andefficiently captured, can unlock significant value for ourstakeholders. Combining our technical expertisewith local knowledge and innovation will enable usto become truly Pan-African and lead the wayin wealth management on the continent”– Bernard KatompaPg 71

Liberty Holdings Limited – Annual Report 2008Group Central ServicesExecutives: Russell Harte (Group Professional Services), Audrey Mothupi (People, Services and Stakeholder Management),Frik van der Merwe (Group Information Technology), Rex Tomlinson/Bruce Hemphill (Corporate Finance and Strategic Ventures)Group Central Services consists of a number of servicecentres within the group, namely Group ProfessionalServices, Group Information Technology, PeopleManagement, Group Stakeholder Management, ServicesManagement, Corporate Finance and Strategic Ventures.These service centres provide an array of specialisedservices, as described below, and act as an enabler tothe other business units of the group.Group Professional Services (GPS)GPS exists to support the group's operations by providingprofessional services tailored to the requirements of thebusiness in the following areas:• Market and credit risk management• Risk and capital analytics• Investor relations• Financial planning and reporting• Taxation• Statutory actuarial• Legal• Project management• Procurement servicesBy fulfilling these key specialist roles, GPS supports thegroup in achieving its strategic vision of becoming aleading wealth management company in Africa and otheremerging markets.Group Information Technology (GIT)GIT are responsible for developing an IT architectureplatform, which will be used as a base for other businessunits to leverage off in delivering their strategies. A stableand scalable world-class IT system is essential to thesuccess of the Liberty growth and diversification strategy.People ManagementAs partners within the group, the purpose of the PeopleManagement service centre is to lead the business intonew frontiers of unlocking and enabling the power ofLiberty’s people to achieve the group’s strategic prioritiesand intent. People Management is committed topartnering with each of the business units by providingend-to-end people solutions over the employee life cycletailored to business specific requirements.Group Stakeholder Management (GSM)GSM drives transformation and sustainability throughthe group’s various business units, manages Liberty’scorporate responsibility activities and ensures thatstrategic relationships between the group and keystakeholders (i.e. government and regulators, investors,shareholders, employees, financial advisers andsuppliers) are built and maintained.Services ManagementThe Service Management division contributes to makingLiberty a compelling place to work by providing thebasic services required to run the offices and workingenvironment. The services provided include security andguarding, CCTV, access control, occupational healthand safety, mailing services, office moves, space planningand catering.Corporate FinanceCorporate Finance provides an advisory service tothe various business units during the due diligenceinvestigations of merger and acquisition opportunities.During 2008 specific focus has been on the expansionopportunities in the rest of Africa.Strategic VenturesThe Strategic Ventures business unit was created in 2007to enable Liberty to incubate and build businesses of thefuture, while not risking the existing, traditional business.During 2008, the unit continued to be very active and iscurrently involved in operationalising a number of newbusinesses. Following the changes in the marketenvironment and consumer confidence, a number oflaunch dates have been altered with a view of going tomarket when conditions are favourable.Pg 72

FINANCIALREPORTSPg 73

The application of the three manager model provedsuccessful in managing the business through theeconomic crisis.Pg 74

Liberty Holdings Limited – Annual Report 2008Approval of the annual financial statementsIn accordance with Companies Act requirements, the directors are responsible for the preparation of the annual financialstatements which conform with International Financial Reporting Standards (IFRS) and in accordance with IFRS, fairlypresent the state of affairs of the company and the group as at the end of the financial year, and the net income andcash flows for that period.It is the responsibility of the independent auditors to report on the fair presentation of the financial statements.The directors are ultimately responsible for the internal controls. Management enables the directors to meet theseresponsibilities. Standards and systems of internal control are designed and implemented by management to providereasonable assurance as to the integrity and reliability of the financial statements in terms of IFRS and to adequatelysafeguard, verify and maintain accountability for group assets. Accounting policies supported by judgements, estimates,and assumptions which comply with IFRS are applied on a consistent and going concern basis. Systems and controlsinclude the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures andadequate segregation of duties.Systems and controls are monitored throughout the group. Greater detail of such, including the operation of the internalaudit function, is provided in the risk management section of the report on pages 88 to 161.Based on the information and explanations given by management and the internal and external auditors, the directorsare of the opinion that the accounting controls are adequate and that the financial records may be relied upon forpreparing the financial statements in accordance with IFRS and maintaining accountability for the group’s assets andliabilities. Nothing has come to the attention of the directors to indicate that any breakdown in the functioning of thesecontrols, resulting in material loss to the group, has occurred during the year and up to the date of this report.The directors have a reasonable expectation that the company and the group have adequate resources to continuein operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis inpreparing the financial statements.The group embedded value report as set out on pages 78 to 84 and the financial statements of the group and companyfor the year ended 31 December 2008, prepared in accordance with IFRS, which are set out on pages 86 to 257 wereapproved by the board of directors on 25 February 2009 and signed on its behalf byJB HemphillChief executiveSJ MacozomaChairmanJohannesburg25 February 2009Pg 75

Liberty Holdings Limited – Annual Report 2008Certificate by the Company SecretaryCompliance with Companies Act 61 of 1973In terms of Section 268g(d) of the Companies Act, 1973, as amended, I certify that the company has lodged with theRegistrar of Companies all such returns as are required by the Companies Act, 1973, as amended, and that all suchreturns are true, correct and up to date.J ParrattCompany secretaryJohannesburg25 February 2009Pg 76

Liberty Holdings Limited – Annual Report 2008Report of the independent auditors on the group embedded valueTo the members of Liberty Holdings LimitedWe have audited the group embedded value report of Liberty Holdings Limited and Liberty Group Limited for the yearended 31 December 2008 on pages 78 to 84 which has been prepared in accordance with the embedded value basis setout in paragraphs 3 and 5. This report should be read in conjunction with the audited annual financial statements where thepolicyholder liabilities are determined in terms of International Financial Reporting Standards, which is on pages 86 to 249.Directors’ responsibility for the group embedded value reportThe company’s directors are responsible for the preparation and presentation of the group embedded value report interms of the embedded value basis set out in paragraphs 3 and 5. This responsibility includes: designing, implementingand maintaining internal control relevant to the preparation and fair presentation of the group embedded value reportthat are free from material misstatement, whether due to fraud or error; selecting and applying appropriate embeddedvalue principles; and making valuation estimates that are reasonable in the circumstances.Auditor’s responsibilityOur responsibility is to express an opinion on the group embedded value report. We conducted our audit in accordancewith International Standards on Auditing. Those standards require that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance whether the group embedded value report is free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the groupembedded value report. The procedures selected depend on the auditor’s judgement, including the assessment of therisks of material misstatement of the group embedded value report, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the groupembedded value report in order to design audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluatingthe appropriateness of the embedded value principles used and the reasonableness of valuation estimates made by thedirectors, as well as evaluating the overall presentation of the group embedded value report.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the group embedded value report has been prepared in all material respects in accordance with the basisset out in paragraphs 3 and 5 of the group embedded value report.PricewaterhouseCoopers Inc.Director: C VolschenkRegistered AuditorJohannesburg25 February 2009Pg 77

Liberty Holdings Limited – Annual Report 2008Group embedded value report1. IntroductionThe embedded value is a determination of the economic value of a life insurance company before making allowancefor any value which may be attributed to future new business. The embedded value and value of new business havebeen prepared in accordance with PGN 107, the guidance note on embedded values and value of new businessissued by the Actuarial Society of South Africa.2. Group structureAs described on pages 8 and 9 of this report the structure of the group changed with effect from 1 December 2008.Prior to that date Liberty Holdings Limited housed Standard Bank Group Limited’s controlling interest in Liberty GroupLimited. Both Liberty Holdings Limited and Liberty Group Limited were listed on the Johannesburg Stock Exchange(JSE). The restructure resulted in Liberty Group Limited becoming a wholly owned subsidiary of Liberty HoldingsLimited and was delisted from the JSE.The embedded value has been presented in note 4 in respect of Liberty Holdings Limited. In addition embeddedvalue, value of new business and a corresponding full analysis of the change in the embedded value over the periodhas been presented for Liberty Group Limited in note 5.3. Adoption of revised PGN 107A revised version of Professional Guidance Note PGN 107 comes into force for all financial year ends on or after31 December 2008. PGN 107 governs the way in which embedded values are reported. The main changes are:• A reassessment of the equity risk premium. This has been assessed at 3,5% (2% previously).• The setting of the risk discount rate as the risk free rate plus a proportion of the equity risk premium. Theproportion has been determined by assessing the beta and the weighted average cost of capital of the group.Previously the risk discount rate was set as the risk free rate plus 2,5%. This has resulted in the risk discount rateincreasing by 0,25% to 2,75%.• The use of required capital, being the target multiple of statutory capital.The embedded value consists of:• The free surplus attributed to the covered business;• Plus the required capital identified to support the in-force covered business;• Plus the present value of future shareholder cash flows from in-force covered business (PVIF);• Less the cost of required capital.The PVIF is the discounted value of the projected stream of after tax shareholder profits arising from existing in-forcecovered business. These shareholder profits arise from the release of margins under the statutory basis of valuingliabilities. This value is reduced by the present value of after tax future shareholder recurring and non-recurringexpenses. Covered business is defined as business regulated by the FSB as long-term insurance business. Thisbusiness comprises life assurance policies, investment policies (smooth bonus, reversionary bonus, market-relatedand linked), annuities and group pensions business.For reversionary and smoothed bonus business, the value of in-force covered business has been calculatedassuming that bonuses are changed over time so that the full amount of the bonus stabilisation reserves aredistributed to policyholders over the lifetime of the in-force policies.The required capital is defined as the level of capital that is restricted for distribution to shareholders. This comprisesthe statutory CAR calculated in accordance with PGN 104 plus any additional capital considered by the board to beappropriate given the risks in the business. For Liberty Group Limited, required capital is calculated as 1,7 x CAR.The cost of required capital is the present value, at the risk discount rate, of the projected release of the requiredcapital allowing for investment returns on the assets supporting the projected required capital.The value of new business written over the year is the present value at the point of sale of the projected stream ofafter tax profits from that business, reduced by the cost of required capital. New business is defined as coveredbusiness arising from the sale of new policies and once off premium increases in respect of in force coveredbusiness during the year. Only policies where at least one premium has been received are included. This definitionis consistent with that used in the financial statements.The value of new business has been calculated on the closing assumptions. Investment yields at the point of salehave been used for new fixed annuities and Guaranteed Capital Bonds; for all other business the investment yieldsat the end of the year have been used.No adjustment has been made for the discounting of tax provisions in the embedded value.Pg 78

Liberty Holdings Limited – Annual Report 2008Group embedded value report (continued)4. Liberty Holdings Limited4.1 Embedded value and embedded value per shareEmbedded value per share information31 December 2008BEE normalisedEmbedded embeddedvaluevalueLiberty Group Limited embedded value (Rm) 25 889 27 048Liberty Holdings net asset value (Rm) 159 159Liberty Holdings embedded value (Rm) 26 048 27 207Number of applicable shares (’000) 260 226 286 022Embedded value per ordinary share (R) 100,10 95,125. Liberty Group Limited5.1 Embedded value and value of new businessGroup embedded valueRestated (1)31 December 31 December2008 2007RmRmRisk discount rate 10,25% 11,25%Net worth 11 701 11 900Ordinary shareholders’ funds on published basis 11 474 11 029PGN 107 restatement 33Adjustment of ordinary shareholders’ funds from published basis (1) (3 012) (2 197)Financial service subsidiaries fair value adjustment (2) 4 107 4 124Adjustment for carrying value of in-force business acquired (3) (683) (789)Allowance for fair value of share options/rights (185) (300)Net value of life business in-force 14 188 14 191Value of life business in-force 14 640 15 282Cost of required capital (452) (1 091)Embedded value 25 889 26 091(1)Refer to section 3 for details of the restatement.(2)Refer to section 5.5 note 2.(3)Refer to section 5.5 note 3.Pg 79

Liberty Holdings Limited – Annual Report 2008Group embedded value report (continued)5. Liberty Group Limited (continued)5.1 Embedded value and value of new business (continued)Value of new business and new business marginsRestated (1)31 December 31 December2008 2007RmRmGross value of new business 763 845Cost of required capital (39) (60)Net value of new business written in the year 724 785Individual 701 756Group 23 29Present value of future expected premiums 28 180 28 337Margin 2,6% 2,8%(1)Refer to section 3 for details of the restatement.The value of new business is the value at the point of sale derived from the new business premium income net ofcontractual increases. The new business margin is the value of new business as a percentage of the present valueof future expected premiums.Pg 80

Liberty Holdings Limited – Annual Report 2008Group embedded value report (continued)5. Liberty Group Limited (continued)5.2 Sensitivity to risk discount rates and other assumptionsIn order to indicate sensitivity to varying assumptions, the value of life business in-force less cost of solvency capitaland the value of new business written are shown below for various changes in assumptions. Each value is shownwith only the indicated parameter being changed.Value of lifebusiness in-forceless cost of Value ofsolvency capital at new business31 December written in2008 2008RmRmBase value 14 188 724Value of in-force/new business 14 640 763Cost of required capital (452) (39)100 basis point increase in risk discount rate 12 916 597Value of in-force/new business 13 838 667Cost of required capital (922) (70)100 basis point decrease in interest rate environment 14 355 802Value of in-force/new business 14 740 834Cost of required capital (385) (32)10% fall in equity and property market values 13 740Value of in-force/new business 14 192Cost of required capital (452)100 basis point increase in equity and property returns 15 048 786Value of in-force/new business 15 309 818Cost of required capital (261) (32)10% decrease in maintenance expenses 14 651 774Value of new business 15 103 813Cost of required capital (452) (39)10% decrease in new business acquisition expenses(other than commissions) 792Value of new business 831Cost of required capital (39)10% decrease in withdrawal rates 15 164 873Value of in-force/new business 15 609 911Cost of required capital (445) (38)5% improvement in mortality and morbidity for assurances 14 859 838Value of in-force/new business 15 311 877Cost of required capital (452) (39)5% improvement in mortality for annuities 14 040 721Value of in-force/new business 14 492 760Cost of required capital (452) (39)Pg 81

Liberty Holdings Limited – Annual Report 2008Group embedded value report (continued)5. Liberty Group Limited (continued)5.3 Embedded value profitsEmbedded value profits are equal to the change in the embedded value over the year increased by any dividendspaid, capital reductions or share buy backs made during the year and decreased by any capital raised during theyear. Embedded value profits provide a measure of a company’s financial performance over the year.Embedded valueBEE normalisedRestated (1) Restated (1)2008 2007 2008 2007Rm Rm Rm RmEmbedded value at the end of the year 25 889 26 091 27 048 27 250Less capital raised (846) (846)Plus impact of share buy backs 583 583Less share options/rights exercised (18) (68) (18) (68)Plus net capital reduction paid 640 372 700 416Plus dividends paid 466 588 520 642Less embedded value at the beginning of the year (26 091) (21 857) (27 250) (23 016)Embedded value profits 886 4 863 1 000 4 961Return on net worth 7,4% 51,5% 8,4% 52,6%Return on embedded value 3,4% 22,2% 3,7% 21,6%(1)Refer to section 3 for details of the restatement.5.4 Analysis of embedded value profitsAn analysis of the components of embedded value profits for the year ended 31 December 2008 is summarised below.Value ofin-force Cost ofcovered required EmbeddedNet worth business capital valueRm Rm Rm RmEmbedded value profits for the yearEmbedded value at the end of the year 11 701 14 640 (452) 25 889Less share options exercised (18) (18)Plus net capital reduction paid 640 640Plus dividends paid 466 466Less restated embedded value at the beginningof the year (11 900) (15 282) 1 091 (26 091)Embedded value at the beginning of the year (11 867) (14 655) 900 (25 622)PGN 107 restatement (33) (627) 191 (469)Embedded value profits 889 (642) 639 886Components of embedded value profitsValue of new business written in the year (915) 1 678 (39) 724Expected return on value of life business 1 626 (128) 1 498Expected net of tax profit transfer to net worth 1 895 (2 104) 209 –Operating experience variances (47) (426) 212 (261)Operating assumption changes (298) (208) (2) (508)Change in respect of allowance for STC 351 351Embedded value profits from operations 635 917 252 1 804Investment return on net worth 640 640Exchange rate movements (42) (42)Investment variances (120) (1 340) 27 (1 433)Changes in economic assumptions 71 74 361 506Changes in modelling methodology (293) (1) (294)Change in allowance for fair value of shareoptions/rights 115 115Change in respect of investment guarantees (410) (410)Total embedded value profits 889 (642) 639 886Pg 82

Liberty Holdings Limited – Annual Report 2008Group embedded value report (continued)5. Liberty Group Limited (continued)5.5 Bases, assumptions and additional information1. The amounts of R3 012 million and R2 197 million, reflected as the adjustment of shareholders’ funds from thepublished basis, represent the change in these assets as a result of moving from a published valuation basisto the statutory valuation method. The statutory valuation method is defined in schedule 3 to the Long-termInsurance Act, 1998. The main adjustments being the elimination of certain negative rand reserves, intangibleassets and the defined benefit pension fund employer surplus asset. The reduction in net worth results in acorresponding increase in the value of in-force.2. The published value of financial service subsidiaries is enhanced for embedded value purposes to holdthese subsidiaries at a multiple of net after-tax earnings. This adjustment is shown as the “financial servicesubsidiaries fair value adjustment”.This adjustment consists of the following:31 December 31 December2008 2007RmRmLiberty Group Properties (Proprietary) Limited 504 400STANLIB Limited 3 603 3 7244 107 4 124For STANLIB Limited a multiple of 10 was used, less the embedded value of its life business which has beenincluded in the value of life business in-force. For Liberty Group Properties (Proprietary) Limited a multiple of10 was used (both same as in 2007).3. The carrying value of business acquired by Liberty (analysed below) has been deducted from shareholders’funds in order to avoid double counting. For embedded value purposes the value in respect of this amount isincluded in the net value of life business in-force.2008 2007RmRmInvestec Employee Benefits (58) (71)Capital Alliance Holdings Limited (CAHL) (590) (679)Business previously acquired by CAHL (35) (39)(683) (789)4. Future investment returns on the major classes were set with reference to the market yield on medium-termSouth African government stock. The investment returns used are:Investment return p.a. (%)Restated (1)2008 2007Government stock 7,50 8,50Equities 11,00 12,00Property 8,50 9,50Cash 6,00 7,005. The risk discount rate has been set equal to the risk freerate plus 80% of the equity risk premium 10,25 11,256. Maintenance expense inflation rate 4,5 5,0(1)Refer to section 3 for details of the restatement.Pg 83

Liberty Holdings Limited – Annual Report 2008Group embedded value report (continued)5. Liberty Group Limited (continued)5.5 Bases, assumptions and additional information (continued)7. The expected return on the value of life business is obtained by applying the previous year’s discount rate tothe value of life business in-force at the beginning of the year and the current year’s discount rate for half a yearto the value of new business.8. Taxation has been allowed for at rates and on bases applicable to section 29A of the Income Tax Act. Fulltaxation relief on expenses to the extent permitted was assumed. Capital gains taxation has been taken intoaccount in the embedded value. Allowance has been made for future secondary taxation on companies at 10%.No allowance has been made for the likely replacement of STC with a withholding tax on shareholders.9. Other bases, bonus rates and assumptions:Parameters reflect best estimates of future experience, consistent with the valuation bases used by the statutoryactuaries, excluding any compulsory or discretionary margins. However, in contrast to the assumptions in thevaluation bases, the embedded value does make allowance for automatic premium and benefit increases.10. Operating experience variances consist of the combined effect on net worth and value in force of operatingexperience proving different from that anticipated at the prior year end.The net 2008 operating experience variance of negative R261 million is made up of two principal components,being a positive variance of R567 million in respect of mortality experience, offset by a negative variance ofR940 million arising from policyholder behaviour.Approximately R470 million of this R940 million results from an unanticipated increase in retirement annuitypolicies being made paid-up. This level of paid-ups is a recent occurrence and is thought to be connected tothe deterioration in economic conditions. As such, this effect is considered to be cyclical and unlikely to persistat this level over the run-off of the relevant book of policies. However, short-term assumptions have been furtherstrengthened to allow for potential further losses on retirement annuity paid-ups during 2009 and 2010.(Refer withdrawals amounts in note 11 below).Long-term assumptions have been strengthened in line with experience investigations.11. Operating assumption changes of R508 million comprise:RmFuture project costs (139)Net maintenance expenses (121)Change in corporate tax rate (29% to 28%) 168Withdrawals (1 040)Individual – to maturity (729)Individual – additional for next two years (270)Corporate – to maturity (41)Individual mortality 62412. The amount of R351 million in respect of the change in the allowance for STC represents the reduction in futuretax payable arising from the restructure of the group.13. The amount of R506 million shown for changes in economic assumptions arises from the change to a lower levelof economic assumptions.14. The amount of R294 million shown for changes in modelling methodology arises from the transfer of adiscretionary AIDS margin into the best estimate assumptions.15. The amount of R115 million in respect of the change in the fair value of share options/rights arises from thechange in the number of shares under option and the decrease in the market value of the Liberty Group Limitedand Liberty Holdings Limited share prices over the reporting period.16. The amount of R410 million in respect of the change in investment guarantees represents the increase in thereserve over the year less the investment return on the assets backing the reserve.17. The assets backing the required capital are assumed to be 60% equities, 25% preference shares, 10% cashand 5% gilts, unchanged from 2007.(508)Pg 84

Liberty Holdings Limited – Annual Report 2008Independent auditors’ reportTo the members of Liberty Holdings LimitedWe have audited the group annual financial statements and annual financial statements of Liberty Holdings Limited,which comprise the consolidated and separate statements of financial position as at 31 December 2008, and theconsolidated and separate statements of comprehensive income, the consolidated and separate statements of changesin shareholders’ funds and consolidated and separate statements of cash flow for the year then ended, and a summaryof significant accounting policies and other explanatory notes, and the directors’ report, as set out on pages 86 to 257.Directors’ responsibility for the financial statementsThe company’s directors are responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial Reporting Standards and in the manner required by the Companies Act of SouthAfrica. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparationand fair presentation of financial 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 thecircumstances.Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with International Standards on Auditing. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance whether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks ofmaterial misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, theauditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as well as evaluatingthe overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements present fairly, in all material respects, the consolidated and separate financialposition of Liberty Holdings Limited as at 31 December 2008, and its consolidated and separate financial performanceand its consolidated and separate cash flows for the year then ended in accordance with International FinancialReporting Standards and in the manner required by the Companies Act of South Africa.PricewaterhouseCoopers Inc.Director: S MasukuRegistered AuditorJohannesburg25 February 2009Pg 85

Liberty Holdings Limited – Annual Report 2008Directors’ reportThe directors of Liberty Holdings Limited (Liberty) have pleasure in presenting their report, which forms part of theaudited annual financial statements of the group for the year ended 31 December 2008.Main business activitiesLiberty is the holding company of Liberty Group Limited (LGL) and does not conduct any other business other than thatrelated to its investment in LGL.During the fourth quarter, shareholders of Liberty and LGL approved a restructure via a section 311 scheme ofarrangement which effectively resulted in LGL becoming a wholly owned subsidiary of Liberty from 1 December 2008.This restructure will assist in facilitating the group’s future diversification strategy and improving capital utilisation. Furtherdetails regarding the scheme of arrangement are contained on pages 8 and 9. At 31 December 2008 Liberty held aneffective 100% (31 December 2007: 51,19%) interest in LGL. Liberty is incorporated in the Republic of South Africa andis a public company listed on the JSE.Review of resultsHeadline earnings after the preference dividend for the group has decreased by 23,9% from R1 458 million in 2007 toR1 110 million in 2008. Commentary on results is contained in various sections in the annual report, refer pages 1 to 72.Corporate governanceThe directors of the company have unanimously adopted the principles recommended in the South African Code ofCorporate Practice and Conduct contained in the King Report on Corporate Governance – 2002 (King II). Compliancedisclosures are disclosed in the Corporate Governance and risk management disclosures within the annual financialstatements.Share capitalIn order to facilitate the group’s diversification strategy, shareholders in LGL were offered and accepted a one for oneshare swop of Liberty ordinary shares, for LGL ordinary shares.To give effect to the transaction a 3:1 share split of Liberty’s issued 49 090 722 ordinary shares of 25 cents each wasauthorised by shareholders. This resulted in an increase of 98 181 444 ordinary issued shares, all shares post the sharesplit with a par value of 8,33 recurring cents each.Shareholders approved an increase in the authorised ordinary share capital to 400 000 000 ordinary shares of 8,33 recurringcents each.A further 138 750 207 ordinary shares were then issued in terms of the share swop, at a value of R60,50 each, resultingin an increase in share premium of R8 383 million.Dividends and capital reductions2007 finalOn 13 March 2008, an ordinary dividend of 715 cents per ordinary share was declared to shareholders recorded at theclose of business on 11 April 2008 and was paid on 14 April 2008.2008 extraordinaryOn 14 October 2008, an extraordinary ordinary dividend of 63 cents per ordinary share was declared to shareholdersrecorded at the close of business on 7 November 2008 and was paid on 10 November 2008.2008 finalOn 25 February 2009, the directors declared a capital reduction in lieu of a final dividend of 291 cents per ordinary shareto shareholders recorded at the close of business on 27 March 2009, to be paid on 30 March 2009.Directorate and secretaryFollowing the scheme of arrangement, the board of Liberty was reconstituted to mirror that of LGL. Accordingly,Mr HI Appelbaum, Mr AWB Band, Mr JB Hemphill, Professor L Patel, Mr TDA Ross, Dr SP Sibisi, Mr RG Tomlinson,Ms BS Tshabalala and Mr PG Wharton-Hood were appointed to the Liberty board with effect from 1 December 2008.On the same date Messrs DE Cooper and MJ Shaw resigned from the board.Further details are contained on pages 30 and 31 of this annual report.The company’s secretary is Jill Parratt. The address of the company secretary is that of the registered office as statedin this annual report.Pg 86

Liberty Holdings Limited – Annual Report 2008Directors’ report (continued)Direct and indirect interest of directors, including their families, in share capitalAt the date of this report, the directors held, directly and indirectly, interests in the company’s ordinary issued sharecapital as reflected on pages 51 and 52 of this report.There have been no changes to the interests of directors, including their families, in the share capital as disclosed aboveto date of approval of the annual financial statements, namely 25 February 2009.Shares/rights under optionLiberty formerly operated the Liberty Holdings Senior Executive Share Option Scheme (1988) which has been dormantsince 31 March 2006, when the last options awarded in terms of this scheme were implemented. Liberty share optionswere previously granted to executive directors and permanent employees only. An ordinary resolution for approval byLiberty shareholders has been included in the notice of the annual general meeting proposing that this scheme beterminated.In terms of the scheme of arrangement, Liberty assumed all obligations of previously authorised LGL employee sharerights and options schemes. Accordingly, Liberty now operates four share incentive schemes, being the Liberty LifeSenior Executive Share Option Scheme, the Liberty Life Association of Africa Limited Share Trust, the Liberty GroupShare Incentive Scheme and the Liberty Life Equity Growth Scheme.An analysis of Liberty’s obligations in respect of ordinary shares under options/rights and the movement in executivedirectors’ interests in shares under options/rights at 31 December 2008 is included on pages 49 to 51.ContractsShareholders are referred to the related party disclosure in note 39 to the group financial statements for disclosurepertaining to contracts relating to directors.Holding companyAt 31 December 2008, the group’s holding company, Standard Bank Group Limited held 53,65% (2007: 59,17%) ofLiberty.SubsidiaryDetails of the interest in subsidiary company, Liberty Group Limited, is contained in note 1 to the company financialstatements on page 254.ShareholdersAt 31 December 2008, Liberty had 9 012 (2007: 7 094) shareholders, consisting of individuals, corporate investors andfinancial institutions.An analysis of Liberty’s ordinary shares at 31 December 2008 is included on pages 20,21 and 221.Borrowing powersIn terms of the company’s articles of association the amount which the group may borrow is unlimited. However, anyborrowings within the subsidiary life licence entities are subject to the Financial Services Board of South Africa’s priorapproval.Events after reporting dateThere were no significant events after the reporting date, being 31 December 2008, to the date of approval of the annualfinancial statements, namely 25 February 2009.Pg 87

Liberty Holdings Limited – Annual Report 2008Risk managementfor the year ended 31 December 2008Context of risk management disclosuresAs described on pages 8 and 9 of this report the structure of the group changed with effect from 1 December 2008.Prior to that date Liberty Holdings Limited housed Standard Bank Limited’s controlling interest in Liberty Group Limited.Both Liberty Holdings Limited and Liberty Group Limited were listed on the Johannesburg Stock Exchange (JSE).The restructure resulted in Liberty Group Limited becoming a wholly owned subsidiary of Liberty Holdings Limited andwas delisted from the JSE.Both pre and post the restructure, Liberty Holdings Limited was not an operating entity. All risk was taken and managedin Liberty Group Limited and its subsidiaries. As such this section describes the risk management structures andprocesses employed by these entities during 2008.Contents of 2008 risk management Section PageEnterprise-wide value and risk management 1 90Risk governance structures, roles and responsibilities 2 93Risk appetite and capital management 3 98The financial market crisis and credit crunch 4 106Risk taxonomy 5 109Risk categories:Strategic and business 6 110Insurance 7 112Market 8 119Credit 9 133Operational 10 140Liquidity 11 144Reputational 12 148Concentration 13 149Sensitivity analysis 14 150Summary of the group’s financial, property and insurance assets andliabilities per class 15 153Summary of the group’s assets and liabilities by measurement basis 16 156Consolidated mutual funds 17 157Pg 88

Liberty Holdings Limited – Annual Report 2008Risk managementfor the year ended 31 December 2008AbbreviationsIndex to common abbreviations used throughout the risk management report:ALMCboardBUCARCARATCECFOCRODPFEVRMexcoFinComFSBGAACGAOGBSMCGIASGRaCAGRCGROCGRPOCIFRSISDALGLLibertyLibFinNAVOTCPGNRPOAsset Liability Management CommitteeLiberty Holdings Limited Board of DirectorsBusiness UnitStatutory Capital Adequacy RequirementCapital and Risk Analysis TransformationChief ExecutiveChief Financial OfficerChief Risk OfficerDiscretionary Participation FeaturesEnterprise-wide Value and Risk ManagementGroup Executive CommitteeGroup Finance CommitteeFinancial Services Board of South AfricaGroup Audit and Actuarial CommitteeGuaranteed Annuity OptionsGroup Balance Sheet Management CommitteeGroup Internal Audit ServicesGroup Risk and Capital AnalyticsGroup Risk CommitteeGroup Risk Oversight CommitteeGroup Risk Policy and Oversight CommitteeInternational Financial Reporting StandardsInternational Swaps and Derivatives AssociationLiberty Group LimitedLiberty Holdings Limited and its subsidiariesLiberty Financial Solutions Business UnitNet Asset ValueOver the CounterProfessional Guidance NoteRisk Policy and OversightPg 89

Liberty Holdings Limited – Annual Report 2008Risk managementfor the year ended 31 December 20081. Enterprise-wide value and risk management1.1 IntroductionLiberty offers a comprehensive range of financial products and services to both the individual and corporatemarkets, distributing tailored risk, insurance, investment, retirement and health products through its network oflicensed financial advisers. It is through the prudent taking and management of the risks inherent in theproduction, distribution and maintenance of these products and services that the group generates returns toshareholders. Value creation and risk management are thus directly linked and a robust risk managementprocess is critical to ensure the sustainability of the business.The group’s main value creation activities can be summarised into two categories:1. Providing risk cover – Liberty’s core competency is to understand the life and health related risk needs ofindividuals and groups, and design sustainable products that provide financial security to policyholdersand their families in times of death and disability.2. Providing asset management services – primarily through its own asset manager subsidiaries, STANLIBand Liberty Properties, as well as selected outsourced managers, Liberty uses its financial skills to providecompetitive investment products and investment advice to a broad range of customers.In both instances Liberty assumes risk in order to generate value for shareholders. The Enterprise-wide Valueand Risk Management framework, approved by the board in November 2008, provides direction to theoperation and development of the group’s value creation and risk management processes.1.2 Risk management objectivesThe group’s key risk management objectives are to:• manage shareholder value by generating a long-term sustainable return on capital;• ensure the protection of policyholder and investor interests by maintaining adequate solvency levels;• meet the statutory requirements of the Financial Services Board, and other regulators;• ensure that capital and resources are strategically focused on activities that generate the greatest value ona risk adjusted basis; and• create a competitive long-term advantage in the management of the business with greater demonstratedresponsibility to all stakeholders.1.3 EVRM principlesThe EVRM framework is based upon the following principles:• Identification of risks – All risks assumed through value creating activities should be identified andcategorised in accordance with the group’s risk taxonomy.• Clarity of accountability and ownership of risks – Effective risk management requires clarity ofaccountability for management of risks and the associated value creation outcomes. Where economies ofscale or more effective value and risk management can be realised through group-wide aggregation ofcertain risks, these risks are aggregated and managed by purpose created centres of excellence.• Risk must be managed within risk appetite making use of limits – Risk appetite defines the maximumamount of risk the group is willing to assume in aggregate. Risk taking activities should be constrained bylimits in respect of specific risks within the group’s risk taxonomy. Risk specific limits must be aligned withoverall risk appetite.• Risk quantification and measurement – Risks should be quantified in accordance with metrics used inlimits and the dimensions of the quantitative risk appetite.• Risk monitoring and reporting – Risks should be monitored against limits and reported on in accordancewith the group’s governance model.• Assessment of value creation on a risk-adjusted basis – Value creation should be measured using riskadjusted profitability metrics in order to align management’s risk taking activity with sustainable shareholdervalue creation.Pg 90

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20081. Enterprise-wide value and risk management (continued)1.3 EVRM principles (continued)The EVRM framework has been aligned with the risk management principles underlying Solvency II.Solvency II is a European principles-based and risk focused regulatory regime currently under development forEuropean insurers (both long-term and short-term). Solvency II represents a significant shift away from theprescriptive rules-based systems used for regulatory purposes in the past and essentially relies on three pillars.• Pillar I: Quantitative requirementsThis pillar describes the market consistent basis for the measurement of assets and liabilities. In addition,this pillar defines the quantification of the solvency capital requirement using either advanced internalmodels of economic capital or a simpler risk-based standard approach as the default alternative.• Pillar II: Supervisory reviewIn order for internal modelling results to qualify for regulatory purposes, insurers need to demonstrate theuse of these models in governance systems, risk management and other internal decision makingprocesses. Based on the outcomes of various tests (use test, statistical quality test and calibration test), thesupervisor retains the discretion to increase the insurer’s capital requirement.• Pillar III: Disclosure requirementsThis pillar deals with the disclosure required to be made to various stakeholders such as regulators,shareholders and policyholders. Disclosures, designed to drive improvements in risk management throughimproved transparency are expected to be particularly demanding.Liberty is of the view that Solvency II will become a global benchmark for insurance regulation. The FSB hasnot issued a formal statement regarding the local adoption of Solvency II. However, they are monitoringdevelopments. The group consequently expects Solvency II to have a significant influence on the regulation ofSouth African insurers in future. The group also believes that Solvency II provides a measurement frameworkthat is consistent with market consistent embedded value principles. While there are many similarities withthe principles discussed in IFRS 4 Phase II (insurance liability measurement standard), convergence isless certain.1.4 Implementation of EVRMThe group is in the process of implementing EVRM through the multi-year Capital and Risk Analysis Transformationprogramme, designed to realise the full extent of the benefits. This programme covers:• Business applicationsThe EVRM framework will fundamentally shift core decision making processes by embedding risk-adjustedmeasures in value creating activities, such as:• performance measurement and incentivisation;• asset and liability management;• allocation of capital to business opportunities;• strategic planning; and• product design and pricing.Risk-adjusted metrics will provide group-wide consistent measures thereby building a commonunderstanding of risks that flow from decisions aimed at creating shareholder value.Pg 91

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20081. Enterprise-wide value and risk management (continued)1.4 Implementation of EVRM (continued)• MeasurementThe group is committed to building an advanced internal risk-based economic capital model that will meetthe Solvency II requirements. In this regard, the group’s quantitative risk measurement capabilities wereexpanded significantly during 2008. Development of models of the insurance business is well advanced.This work has enhanced the understanding of the risks faced as well as the interactions between theserisks. Continued development of models is a priority for the year ahead and this work is expected to yieldfurther insights into group risk exposures.In addition, risk adjusted profitability metrics that will augment existing risk-reward decision makingprocesses are planned.• Governance and organisational structureThe three lines of defence model, described in more detail in section 2, provides detail on the governanceof risk taking and management activities of the group. In this regard, the risk community has beensignificantly strengthened over the past year, particularly in the area of market risk.Liberty Financial Solutions was established during 2008 as a centre of excellence to specifically managemarket, credit and liquidity risk across the group. Subsequent sections dealing with these risks providefurther description of LibFin’s activities.• Operational and information technology infrastructureEffective implementation of the EVRM framework requires timely and good quality information available todecision making processes. While good progress has been made in 2008, further advance in respect ofinformation relating to value creation and risk management have been identified as a key priority for the yearahead.• Risk appetite and cultureRisk appetite is an articulation of the aggregate level of risk that is acceptable to the group. Risk appetiteis the foundation on which the EVRM framework is based. During 2008 the board approved an enhancedquantitative risk appetite statement. Subsequent quarterly reporting to the board has included anestimation of risk exposure relative to risk appetite.Risk limits applicable to individual risk types are in the process of being developed. As the EVRMframework becomes more closely embedded in business processes, and through ongoing changemanagement, the group’s culture will become more risk aware.Pg 92

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20082. Risk governance structures, roles and responsibilitiesIntroductionThe group’s governance structures and processes are aligned with EVRM principles. In particular these structuresand processes provide clarity of accountability for the management of risk.Governance and the ‘three lines of defence’ modelThe group has adopted the ‘three lines of defence’ model for managing risk. This model defines the roles,responsibilities and accountabilities for managing, reporting and escalating risks and issues throughout the group.The model incorporates the oversight, management and assurance of risk management, essentially giving threeindependent views of risk in the organisation. The implementation of this model ensures that risk management isembedded in the culture of the organisation and provides assurance to the board and senior management that riskmanagement is effective.Within this structure the group relies on the board, its key sub-committees and on the group executive committee toprovide oversight of the operation of the group’s EVRM.The diagram below depicts the group’s risk management governance model.OversightGroup RiskCommitteeRisk CommitteeBoard of directors and Key Sub-committeesLiberty Holdings LimitedBoard of DirectorsLiberty Group LimitedBoard of DirectorsGroup Audit andActuarial CommitteeAudit andActuarial CommitteeGroup Executive CommitteeGovernanceManagement CommitteesGroup BalanceSheetGroup FinanceManagementCommitteeCommitteeGroup Tax andAsset LiabilityGroup Finance andMatchingActuarial TechnicalCommitteeCommitteeFirst Line of DefenceGroup RiskOversightCommitteeGroup Risk Policyand OversightCommitteeSubsidiary Company Statutory EntityGovernance CommitteesGroup Product ApprovalProcessGroup UnderwritingCommitteeBusiness Unit ExecutiveCommitteesSecond Line of DefenceManagement of OperationsStatutory ActuariesThird Line of DefenceAssuranceGroup and Business Unit RiskPolicy and Oversight TeamsGroup Internal Audit Servicesand External AuditorsPg 93

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20082. Risk governance structures, roles and responsibilities (continued)Roles and responsibilities within the governance modelThe roles, responsibilities and accountabilities for managing, reporting and escalating risks and issues differthroughout the group’s ‘three lines of defence’. These have been defined as follows:OversightBoard of directors and key committeesThe board of directors and key committees of the board provide an oversight function of the group’s riskmanagement activities. Their accountabilities are described below.Board of Directors (board)The board is ultimately accountable for the group’s risk management processes, although the day-to-daymanagement of risk has been delegated to the Chief Executive. The board receives regular reporting on riskgovernance including any non-compliance with policies through its established committees, the Group RiskCommittee and the Group Audit and Actuarial Committee. LGL delisted on the 1 December 2008 and became awholly owned subsidiary of Liberty. In order to comply with the regulations of the Long-term Insurance Act, LGL hasits own Risk Committee and Audit and Actuarial Committee to consider the life-licence entities throughout the group.The members of these committees are the same as the members on the GRC and GAAC and meetings are runconcurrently with specific time being set aside to consider life licence issues.Group Risk CommitteeThe purpose of the GRC is to provide an independent and objective oversight of risk management across the groupand report thereon to the board in order to support the board in fulfilling its responsibility for risk management. TheGRC makes recommendations to the board on how to mitigate substantial risk issues.The GRC is mandated to review the risk philosophy, strategies, policies and processes recommended by executivemanagement; to review and assess the group’s risk control systems; to ensure that risk policies and strategies areeffectively managed and to contribute to a climate of discipline and control that will reduce the opportunity for fraud. Thecommittee reviews executive management’s reports regarding the overall adequacy and effectiveness of the group’s riskmanagement function and its implementation by management and ensures that appropriate action has been taken wherenecessary. The committee reviews any legal matters that could have a significant impact on the group’s business, theadequacy of insurance coverage for the group and the acceptability of the risk profile, in relation to the group’s overallrisk appetite. The GRC also ensures compliance with all applicable legal and regulatory requirements.Group Audit and Actuarial CommitteeThe GAAC is responsible to the board for reviewing and assessing the integrity and effectiveness of the group’saccounting, financial, compliance, internal control and reporting systems and for ensuring the group’s compliancewith all applicable legal, regulatory, actuarial and accounting standards.The GAAC facilitates communication among the board, the external auditors and the head of internal audit withregard to financial reporting and risk management. The audit plan is reviewed by the committee together with theinternal and external auditors, with specific reference to the proposed audit scope and approach to group riskactivities. The GAAC is responsible for ensuring the independence of the internal and external audit functions.The committee reviews the reports of the internal auditors, independent auditors and statutory actuaries andensures that management takes prompt action to resolve any issues raised in these reports.The GAAC reviews the financial position of the group to give comfort to the board that the company is a going concern.ManagementThe CE utilises the Group Executive Committee and key sub-committees, to manage the components of risk asdescribed below:Group Executive CommitteeThe members of exco are the chief executives of the various business units and central service functions. The excomeets monthly and its key responsibilities in respect of risk management are to:• ensure that appropriate risk and compliance policies are developed, approved and implemented;• monitor the group’s exposure to risk; and• review regular reports on the status of compliance with established policies and to direct and monitor efforts toaddress non-compliance.Exco fulfils these obligations through the operation of the Group Risk Oversight Committee.Pg 94

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20082. Risk governance structures, roles and responsibilities (continued)Management (continued)Group Risk Oversight CommitteeThe GROC supports the exco in the execution of its risk management responsibilities. The committee is responsiblefor reviewing risk operating models and governance structures, the implementation of risk and compliancestrategies, governance standards and policies for the group and escalating issues to exco where necessary. Thecommittee engages in discussion on the risk appetite of the group.The membership of GROC is drawn from exco, specifically including the Chief Risk Officer, with the addition of keypersonnel from the Group Risk and Capital Analytics function. GROC is chaired by the CE and meets four times ayear for the purpose of reviewing risk and compliance reports prepared by the business units and then reports onthese to the GRC and GAAC.Significant issues escalated by business unit heads requiring executive action are considered. Where conflictingviews exist between the three lines of defence, the GROC will attempt to resolve these issues where possible, orescalate to exco for resolution. Significant issues may include adverse audit or compliance reports and other keyconcerns such as market conditions requiring discussion prior to tabling at GRC and/or GAAC.Group Balance Sheet Management CommitteeThe members of the GBSMC are specifically chosen by the chief executive for their financial, actuarial and market riskqualifications and experience and the committee is chaired by the CFO. The GBSMC assists exco in the managementof the group’s financial position. This includes managing the level and mix of capital as well as cash requirements andliquidity. The committee monitors the capital that is invested in the legal entities that have life licences in order to supportthe capital adequacy requirements prescribed by the Long-term Insurance Act or specific levels set by the High Courton prior sanctioned transfers of insurance business. Proposals are made to exco, who in turn motivate to the board, thelevel of additional capital to be held in excess of the statutory minimum requirements. The GBSMC also manages thecapital requirements of non-life subsidiaries and considers the requirements of investors. Decisions requiring theutilisation of capital are approved by the committee and additional future capital required to support proposed newbusiness, group strategies and business acquisitions, is assessed. A major focus of the GBSMC is market and creditrisk and the GBSMC considers and approves asset allocation, hedging, financial position management and othermarket risk management recommendations made by LibFin as well as approving and monitoring market, credit andliquidity risks against agreed risk appetite limits (including the criteria for selecting counterparties for the purposes ofover-the-counter derivatives). The GBSMC is responsible for reviewing and recommending to exco the group’s dividendpolicy as well as the allocation of risk appetite and related economic capital to business units and new initiatives orventures. Returns to policyholders and related asset manager performance are also monitored by the GBSMC.Asset Liability Management CommitteeThis committee focused on the matching of assets to policyholder liabilities. It also reviewed the high-level asset mixparameters for various group products and portfolios and agreed benchmarks and mandates for the construction andperformance of each investment portfolio with the relevant asset managers. Going forward, this function will bereplaced by the newly constituted Group Investment Committee, which has been created to form a view on themarkets and thus assist the GBSMC in oversight of asset liability management decisions.Group Finance CommitteeThis committee has recently been constituted to formally assist exco in the management of the financial operationsand activities of the group. Its mandate is to review and implement financial controls, processes and procedures forthe group, including the planning and budgeting processes as well as reviewing and providing input to the group’sdelegation of authority framework. Project business cases and benefit realisations are also reviewed by thecommittee and reports from the finance and technical committees are considered. The members of this committeeare the financial officers in each business unit, chaired by the CFO. Two sub-committees of this committee have alsobeen constituted, namely the Group Finance and Actuarial Technical Committee and the Group Tax Committee, toassist the FinCom in the execution of its mandate. These committees are made up of specialists in each specificarea and are chaired by the deputy chief financial officer.Subsidiary Company Statutory Entity Governance CommitteesThe Statutory Entity Governance Committees have been introduced to assist the GAAC and the audit and actuarialcommittee of LGL in discharging its accountabilities for subsidiary entities with life licences. They are subcommitteesof the GAAC and function under the same charter as the GAAC.The chairpersons of these committees attend the GAAC and GRC meetings as well as the risk and audit andactuarial committee meetings of LGL and report relevant matters to the GAAC and GRC.Subsidiary entities with life licences are Liberty Group Limited, STANLIB Multi-Manager Limited, Capital Alliance LifeLimited, Rentmeester Versekeraars Beperk, Liberty Life Botswana Limited, Liberty Life Namibia Limited, Liberty LifeSwaziland Limited, Liberty Active Limited and Liberty Life Assurance Uganda Limited.Pg 95

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20082. Risk governance structures, roles and responsibilities (continued)Management (continued)Group Product Approval ProcessIn previous years the Product Approval Committee assessed whether products to be written under the life licencesconformed to the group’s product development standards. During 2008 a Product Approval Policy was adopted bythe GRC. This policy provides the framework within which business units are mandated to develop and approveproducts taking cognisance of the risks associated with the product, its development and implementation at both abusiness unit and group level. New products must be developed in line with the group’s vision and strategy whileadhering to legal and regulatory requirements and ‘treating customers fairly’ principles. No new products or servicesmay be introduced to the market without the review and approval of an appropriate governance body. This bodycould be the Product Approval Committee or a committee within the business unit with the appropriate authority toapprove new products. The GROC reviews reports on the development and risk management of new products andservices and reviews reports on non-compliance with this policy and ensures that appropriate corrective action istaken to address non-compliance. The group’s statutory actuary must satisfy himself that new products will notmaterially affect the financial soundness of the group or the specific life licence entity.Group Underwriting CommitteeThe underwriting committee reviews claims experience within the life licence entities and monitors reinsuranceretention and stop loss limits. The committee identifies concentration risks and recommends reinsuranceopportunities to exco. This committee is chaired by the group’s statutory actuary and meets at least bi-annually.The three lines of defenceThe “three lines of defence” that support exco and its key sub-committees are as follows:• First line – Business Unit ManagementBusiness unit management, including business unit executives and management are accountable for:• managing day-to-day risk exposures by using appropriate procedures, internal controls, and implementinggroup policies;• the effectiveness of risk management and risk outcomes and for allocating resources to execute riskmanagement activities;• tracking risk events and losses, identifying issues and implementing remedial actions to address these issues; and• reporting and escalating material risks and issues to GROC, GRC, GAAC or other governance bodies.They have the authority to manage risks within their approved mandates and may also recommend the taking ofrisk beyond their mandate to the group’s risk policy and oversight function.• Second line – Chief Risk Officer, Statutory Actuaries, Group and Business Unit Risk Policy and Oversight FunctionsThe second line of defence comprises the group’s risk policy and oversight functions.Chief Risk OfficerThe CRO is a member of exco and GROC, and is accountable for the effective and objective functioning of thesecond line of defence. The CRO reports to the CE, and has direct and unrestricted access to the GRC. Thisincludes development of group-wide risk management policies, overseeing their implementation, and reporting onthese issues to exco, GRC and the board.Statutory actuaries of life licencesThe statutory actuary of each legal entity with a life assurance licence exercises oversight of the solvency of theselegal entities, compliance with existing product terms, and the financial soundness of new products.The statutory actuaries have a duty under the Long-term Insurance Act to carry out actuarial investigations and toreport on those investigations in particular to ensure that they have satisfied themselves that each legal entity witha life licence remains solvent and able to meet liabilities at all times. They report on the solvency of these legalentities to their boards, the LGL board, independent auditors and the Financial Services Board, to all of whom theyhave unrestricted access.The statutory actuaries have a duty to report any contravention of the obligations in the Long-term Insurance Actthat they become aware of in the normal course of their duties to the board and, if not resolved, to the FSB.From a risk management point of view, the statutory actuaries identify and monitor the risks faced by the groupwhich could have a material impact on the group’s ability to meet policyholder liabilities, and advise managementif they believe that the policyholder liabilities are not being or will not be met.Pg 96

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20082. Risk governance structures, roles and responsibilities (continued)The three lines of defence (continued)• Second line – Statutory Actuaries, Group and Business Unit Risk Policy and Oversight Functions (continued)Group Risk Policy and Oversight CommitteeThe GRPOC is responsible for assisting the GROC in discharging its responsibilities relating to the managementof risk and compliance in the group. In particular, the GRPOC develops, recommends for approval and overseesimplementation of risk management policies and standards. Key members of GRPOC are the statutory actuary,heads of RPO in each business unit and members of group RPO functions. The GRPOC is chaired by theCRO. GRPOC provides a platform for business unit heads of RPO to interact with group wide projects andinitiatives such as the capital and risk analysis and transformation programme which is driving the group-wideimplementation of the EVRM.Business unit heads of RPOBusiness unit heads of RPO are responsible for contributing to the development of group level policies, enablingand overseeing their implementation, and maintaining their operation at a business unit level.Heads of RPO are responsible for ensuring that issues raised and proposed at the GRPOC meetings arecommunicated to the business unit executive committees in order that the business units remain cognisant of allrisk related matters, including proposed policies and mandates, which may be discussed at these meetings.The business unit heads of RPO have a dotted reporting line to the CRO and access to GRC.• Third line – AssuranceThe third line of defence comprises the group’s assurance functions that are intended to provide an independent,and balanced view of all aspects of risk management (both first and second line of defence) across the group tothe various governance bodies within the organisation.Group Internal Audit ServicesGIAS is responsible for providing independent and objective assurance to management and the board on theadequacy and effectiveness of the group’s risk management, governance, business processes and controls. GIASis responsible for validating compliance with the group’s overall risk framework and risk governance structures andfor providing independent assurance to management and the board on the effectiveness of the first and secondlines of defence. Internal audit programmes are based on an assessment of risk areas, as well as on issueshighlighted by GAAC and management. GIAS maintain a formal “Findings Tracking System” to ensure that all auditfindings raised are addressed through clear action plans in a timely manner. GIAS subscribes to regularindependent quality assurance reviews. The latest review conducted by the South African Institute of InternalAuditors did not reveal any non-conformance findings in relation to GIAS.External AuditorsThe external auditors have a statutory duty to report their independent opinion on the group’s financial statementsto the shareholders. They also report to the GAAC on any weaknesses in accounting and operational controls,which come to their attention during their audits.GIAS and the external auditors have unrestricted access to the chairman of the GAAC, the CE and the membersof the board. GIAS and the external auditors also meet formally at least every quarter to ensure optimal relianceon the work of GIAS.Pg 97

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20083. Risk appetite and capital management3.1 IntroductionLiberty’s capital management strategy seeks to ensure that the group is adequately capitalised at all times tosupport the risks assumed by the group in accordance with the group’s risk appetite and to fund workingcapital and strategic requirements, thereby protecting policyholder and customer interests while optimisingshareholder risk-adjusted returns and delivering in accordance with the dividend policy.3.2 Risk appetiteRisk appetite is defined as the aggregate amount of risk that is acceptable to the group. As such risk appetitedefines the group’s willingness and capacity to accept a high or low level of exposure to specific risks orgroups of risks.In recent years, the group’s risk appetite has been expressed as a target multiple of the statutory capitaladequacy requirement. However, during the course of 2008, as part of the EVRM implementation theexpression of the group risk appetite has been taken to a Solvency II consistent level.Through a process of consultation with various stakeholders including major shareholders, investmentanalysts, rating agencies and the FSB, it was established that IFRS comprehensive earnings, return onembedded value and economic capital coverage are also measures of considerable importance in decidingon the level of risk acceptance. Following further stakeholder input, peer benchmarking, a top-downand bottom-up analysis of the group’s risk profile and other internal considerations, a revised risk appetitestatement was developed using all of these measures.A risk-based stress approach was adopted to ensure that all the measures would dynamically reflect thechanges in the group’s risk exposure as the group took on or mitigated risk, thereby providing a direct linkagebetween risk management and capital management. The revised quantitative risk appetite statement wasapproved by the board in May 2008. The group’s risk appetite statement will be reviewed annually to ensureits continued appropriateness.The revised risk appetite statement provides management with a clearer mandate for the management of risk.In particular, depending on whether the group is inside or outside of appetite, the quantitative risk appetiteprovides management with clarity on whether further risk-taking is acceptable or whether risk mitigationactions are required at any point in time.The revised risk appetite statement is defined across four risk measures: comprehensive earnings at risk,return on embedded value, statutory capital adequacy requirement coverage and economic capital coverage.The first two measures assess the impact of the level of risk in the operation, whereas the second twocompare required against available capital. Each of these risk appetite boundaries is described in more detailbelow.Comprehensive earnings at risk is a measure of the fall in IFRS comprehensive earnings over the next year(normalised for the BEE transaction) in a moderate stress event (e.g. ‘1 in 10’ year event) relative to forecastIFRS comprehensive earnings over the next year.Return on embedded value at risk is a measure of the fall in return on embedded value over the next year in amoderate stress event (e.g. ‘1 in 10’ year event) relative to forecast return on embedded value over the next year.Statutory capital adequacy requirement boundary is defined as the amount of financial resources on thestatutory basis needed to meet a minimum multiple of CAR over a one-year time horizon after a moderatelysevere stress event (e.g. ‘1 in 25’ year event). Available capital is similarly stressed when it is compared to theamount required.Economic capital coverage is a specified multiple of the amount of financial resources on the economic basisneeded to protect against economic insolvency over a one year time-horizon in an extreme stress event (e.g.‘1 in 200’ year event).On a quarterly basis, the group’s risk exposure relative to risk appetite on each risk measure is reported to theGBSMC, GROC and GRC. Corrective action is taken if the group is outside of risk appetite. If risk exposureis within appetite, risk-taking opportunities that could enhance risk-adjusted shareholder value can beidentified and implemented.Pg 98

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20083. Risk appetite and capital management (continued)3.2 Risk appetite (continued)For internal reporting purposes, the group’s risk exposure relative to risk appetite on each risk measure, isrepresented graphically. The following is a graphical illustration, without current risk exposure, of the riskappetite statement. This provides the structure for representing graphically whether or not actual riskexposures are inside or outside of appetite, shown as the “boundary” line.Comprehensive earnings at riskStatutory CAR coverageRisk insideof appetiteReturn on embedded value at riskRisk appetite boundary i.e. risk limitsEconomic capital coverageThe revised risk appetite statement approved by the board requires that the CAR coverage ratio should bemanaged such that it does not fall below a specified minimum in a moderately severe stress event. This impliesa variable target CAR coverage level. In the transition moving from the 1,7 times CAR cover target to revisedrisk appetite, both measures are considered in parallel in capital management decisions.The group currently allows for insurance, market, credit and operational risk in measuring its exposuresin respect of the risk appetite measures. Separate, but related, models are run for each of the four measures.The decision concerning where risk appetite should be set is fundamentally driven by the dual, and at timesconflicting, objectives of creating shareholder value through risk taking, while providing financial security forpolicyholders and customers through appropriate maintenance of the group’s ongoing solvency. Thus therisks accepted by the group, as reflected in its strategic plans, are assessed in terms of their potential impacton shareholder returns and on the group’s risk appetite measures. Consideration is also given to the strategicand working capital requirements of the business in the short, medium and long term.3.3 Capital fundingLife companies have in the last few years been permitted by the FSB to partially fund their requirements withforms of capital other than equity. Liberty raised R2 000 million in subordinated debt in 2005 at a fixed rate of8,93%, paid bi-annually, to fund the working capital of the group, and to lower its weighted average cost ofcapital (WACC).The group continues to consider further ways of lowering WACC in order to enhance shareholder value.One of the main drivers of the Liberty Holdings Limited restructure is to improve the group’s ability to raisealternative forms of funding.On 17 June 2007, Fitch Ratings revised the outlook for Liberty Group Limited’s National Insurer FinancialStrength rating to ‘AA+(zaf)’ from ‘AA(zaf)’. LGL’s National Long-term rating has also been upgraded to ‘AA(zaf)’from ‘AA-(AA minus)(zaf)’. Through the recent financial market crisis the outlooks for both these ratings havebeen changed to stable from positive. At the same time, the agency upgraded the rating on the R2 billionsubordinated debt issue to ‘AA- (AA minus)(zaf)’ from ‘A+(zaf)’.Pg 99

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20083. Risk appetite and capital management (continued)3.4 Capital management of various capital measuresDue to varying requirements of different stakeholders the group reports and manages capital on a number ofdifferent bases, as reflected in the revised risk appetite statement. It is important to note that the risk appetitestatement defines the capital requirements in both statutory CAR and economic capital terms. (As notedabove, available capital in excess of that required is annotated within the risk appetite “diamond”.)Thus theprocess of capital management is to ensure the group’s available capital exceeds the capital required bothcurrently and going forward. Although it is important to manage the WACC, this needs to be done in thecontext of ensuring the group has unfettered access to its capital at all times to meet its requirements.IFRS (published) basisPublished capital is the amount by which the value of the assets exceeds the value of the liabilities where theassets and liabilities are measured in accordance with IFRS. The variability of comprehensive earnings,calculated in accordance with IFRS, is used as a risk measure in the revised risk appetite statement.From a capital management perspective, the amount of capital on the published basis is not a primary focusof the group, as the statutory and economic capital bases (described below) are considered more pertinent.The published earnings, however, is one of the focal interests of the group. IFRS earnings at risk is one of theprincipal measures included within the group’s risk appetite statement.The table below summarises the assets, liabilities and excess assets of the group’s significant insurancecompanies on the published basis.STANLIBPublished basis (Rm) Liberty Capital Rent- Multi- Liberty2008 LGL Active Alliance meester manager Africa (1)Total assets 166 044 17 514 19 459 942 7 628 140Less liabilities 153 422 16 950 17 685 583 7 557 64Liabilities under insurancecontracts 93 253 13 415 15 123 269 29Liabilities under investmentcontracts with DPF 2 648Liabilities under investmentcontracts 46 732 2 251 1 516 262 7 541 11Other liabilities 10 789 1 284 1 046 52 16 24Excess of assets over liabilities 12 622 564 1 774 359 71 762007Total assets 179 682 15 513 20 260 964 7 894 86Less liabilities 167 715 14 744 18 346 631 7 818 46Liabilities under insurancecontracts 104 430 11 255 15 525 323 26Liabilities under investmentcontracts with DPF 3 353Liabilities under investmentcontracts 49 776 2 139 1 746 261 7 805 12Other liabilities 10 156 1 350 1 075 47 13 8Excess of assets over liabilities 11 967 769 1 914 333 76 40(1)Liberty Africa comprises Liberty Life Namibia, Liberty Life Uganda, Liberty Life Swaziland and Liberty Life Botswana.Pg 100

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20083. Risk appetite and capital management (continued)3.4 Capital management of various capital measures (continued)Embedded value basisThe embedded value is comprised of the net worth and the value of in-force business less the cost ofsolvency capital. Embedded value is an alternative measure of capital employed to that in the IFRSrepresentation.In decision making processes within the life business, management makes use of return on embedded valueas the key measure of shareholder value creation. The group’s dividend policy is based on a target mediumtermreturn on embedded value of 14,5% to 15,5%.The embedded value earnings at risk is one of the measures in the group’s risk appetite statement. Furtherdetail is provided in the group embedded value report.Statutory basisAvailable statutory capital is the amount by which the value of the assets exceeds the value of the liabilities,where the assets and liabilities are measured on the statutory basis in accordance with the Long-termInsurance Act, associated regulations and guidance notes issued by the Actuarial Society of South Africa.The table below summarises the assets, liabilities and excess assets for the group’s significant insurancecompanies on the statutory basis.STANLIBStatutory basis (Rm) Liberty Capital Rent- Multi- Liberty2008 LGL Active Alliance meester manager Africa (1)Total assets 151 200 15 800 18 817 900 87 135Less liabilities 143 173 15 203 17 562 645 16 64Policyholder liabilities 137 181 13 922 16 611 622 40Other liabilities 5 992 1 281 951 23 16 24Excess of assets over liabilities 8 027 597 1 255 255 71 712007 Restated (2) Restated (3)Total assets 165 617 14 206 19 563 906 89 82Less liabilities 157 278 13 461 17 797 680 13 46Policyholder liabilities 152 286 12 115 16 793 637 38Other liabilities 4 992 1 346 1 004 43 13 8Excess of assets over liabilities 8 339 745 1 766 226 76 36(1)Liberty Africa comprises Liberty Life Namibia, Liberty Life Uganda, Liberty Life Swaziland and Liberty Life Botswana.(2)Subsequent to the issue of the 2007 annual report an adjustment was required as the regulator deemed the definedbenefit pension fund employer surplus published asset to be inadmissable for statutory purposes.(3)Restated to be consistent with the statutory return sent to the FSB.Pg 101

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20083. Risk appetite and capital management (continued)3.4 Capital management of various capital measures (continued)The table below provides a reconciliation of the excess assets between the published and statutory bases.STANLIBLiberty Capital Rent- Multi- LibertyLGL Active Alliance meester manager Africa (1)2008 Rm Rm Rm Rm Rm RmExcess of assets over liabilities– statutory basis 8 027 597 1 255 255 71 70Excess of assets over liabilities– published reporting basis 12 622 564 1 774 359 71 76Difference (4 595) 33 (519) (104) – (6)Items of differenceCAR requirements of subsidiaries (1 507) (5) (45)Write-up of subsidiaries from costto NAV (2 158) 50 (7)Debt instruments 2 000Difference between statutory andpublished valuation methodologies (2 695) 14 (445) (92)Inadmissible assets (235) (26) (22) (12) (6)2007Excess of assets over liabilities– statutory basis 8 339 745 1 766 226 76 36Excess of assets over liabilities– published reporting basis 11 967 769 1 914 333 76 40Difference (3 628) (24) (148) (107) – (4)Items of differenceCAR requirements of subsidiaries (1 403) (5) (42)Write-up of subsidiaries fromcost to NAV (1 961) 29 180Debt instruments 2 000Difference between statutory andpublished valuation methodologies (1 976) (2) (256) (93)Inadmissible assets (288) (46) (30) (14) (4)(1)Liberty Africa comprises Liberty Life Namibia, Liberty Life Uganda, Liberty Life Swaziland and Liberty Life Botswana.Notes:For the purposes of the company IFRS accounts, long-term insurance subsidiaries are held at cost. For statutory purposes,long-term insurance subsidiaries and other regulated entities are held at net asset value, less the statutory capital requirementsof the subsidiary.For the purposes of the published accounts, the subordinated debt of R2 000 million raised by LGL is included in otherliabilities. For statutory purposes, the subordinated debt is regarded as capital.The assets that are inadmissible for statutory purposes consist largely of intangible assets and the defined benefit pensionfund employer surplus.Pg 102

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20083. Risk appetite and capital management (continued)3.4 Capital management of various capital measures (continued)Statutory capital requirements are the amounts by which the regulators require the assets to exceed the liabilitiesfor each individual regulated entity. Liberty Holdings Limited has no statutory capital requirements of its own, sinceit is not a regulated entity, however the various regulated subsidiaries do have statutory capital requirements.The South African regulator, the FSB, requires long-term insurers to hold a CAR calculated in accordance withthe Long-term Insurance Act (1998) including Board Notice 72 of 2005 and Professional Guidance Note 104Valuation of Long-term insurers issued by the Actuarial Society of South Africa.The CAR is calculated as the greater of:• MCAR – the minimum capital requirement for maintaining a South African long-term insurance licence. MCARis consequently only relevant to smaller South African life licences.• TCAR – this requirement examines a highly selective scenario in which all policies with surrender values greaterthan the policy liability terminate immediately (similar to a run-on-the-bank scenario).• OCAR – a risk-based measure based on a number of market and insurance risk stress tests, which togetherwith compulsory margins are intended to provide approximately a 95% confidence level over the long term thatthe insurer will be able to meet its obligations to policyholders. In the calculation of OCAR allowance may bemade for management actions. Currently in the calculation of OCAR for LGL and Capital Alliance, it has beenassumed that non-vested bonuses will be removed if stabilisation reserves fall below -7,5% of the basicguaranteed liability. These assumed management actions have been approved by the board.Additional discretionary margins and additions to CAR may be held if the statutory actuary feels that theprescribed requirements are not appropriate for the risk undertaken. This includes operational and credit risk.For international life insurance subsidiaries, the capital requirements are calculated as the maximum of anycapital requirements required by the applicable local regulations and the capital calculated as per the SouthAfrican CAR calculation excluding the minimum capital requirement of R10 million per life licence.The group subsidiary, STANLIB Collective Investments and STANLIB Asset Management, are required to holda statutory capital requirement calculated in accordance with the Collective Investment Schemes Control Act(2002) equivalent to thirteen weeks of operating costs.LGL, in addition to its own licence requirements, is the holding company of the other life licence entities. WithinLGL the subsidiaries are held at their net asset value, less their statutory capital requirements.The table below summarises the statutory capital requirement for each of the group’s insurance companiesand the available capital held on the statutory basis.2008Liberty STANLIB Liberty Liberty LibertyLiberty Capital Rent- Life Multi- Life Life LifeLGL (2) Active (1) Alliance (1) meester (2) Namibia (2) Manager (3)(4) Botswana (5) Swaziland (5) UgandaStatutory capitaladequacyrequirement (Rm) 3 020 404 886 45 5 10 1 6 5Available statutorycapital (Rm) 8 027 597 1 255 255 54 71 1 9 6Target CAR coverageratio (times) (6) 1,7 1,5 1,5 1,5 2,0 1,5 2,0 1,5 2,0Actual CAR coverageratio (times) 2,7 1,5 1,4 5,7 10,5 7,1 1,0 1,5 1,4(1)Based on TCAR(2)Based on OCAR(3)Based on MCAR(4)STANLIB Multi-Manager is a life licence contained within a subsidiary of STANLIB Limited.(5)Liberty Life Botswana and Liberty Life Swaziland were formed in 2008.(6)Target CAR coverage is based on the old risk appetite. Target CAR coverage will be reviewed once the operational useof the revised risk appetite statement has matured.Pg 103

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20083. Risk appetite and capital management (continued)3.4 Capital management of various capital measures (continued)2007Liberty STANLIB LibertyLiberty Capital Rent- Life Multi- LifeLGL (2) (7) Active (1) (7) Alliance (1) meester (2) Namibia (2) Manager (3)(4) UgandaStatutory capital adequacyrequirement (Rm) 4 102 264 1 116 42 5 16 1Available statutorycapital (Rm) 8 339 745 1 766 226 33 76 5Target CAR coverageratio (times) (6) 1,7 1,5 1,5 1,5 2,0 1,5 2,0Actual CAR coverageratio (times) 2,0 2,8 1,6 5,3 6,9 4,7 3,7(1)Based on TCAR(2)Based on OCAR(3)Based on MCAR(4)STANLIB Multi-Manager is a life licence contained within a subsidiary of STANLIB Limited.(5)Liberty Life Botswana and Liberty Life Swaziland were formed in 2008.(6)Target CAR coverage is based on the old risk appetite. Target CAR coverage will be reviewed once the operational useof the revised risk appetite statement has matured.(7)Restated to be consistent with the statutory return sent to the FSB.A capital buffer over the CAR is held to reduce the risk of breaching the statutory requirement. This buffer isset at a level intended to optimise the trade-off between retaining sufficient capital to remain within riskappetite, while maximising returns achieved for shareholders.LGL is required by the conditions of the Investec Employee Benefits (IEB) Section 37 transfer to maintain aCAR coverage of 1,25 times until 31 December 2009. Similarly, Capital Alliance Life Limited is required by theconditions of the Section 37 transfer in respect of other IEB business to maintain a CAR coverage thatdepends on the results of a prescribed calculation (the results of this calculation lie between 1,25 and1,5 times CAR coverage) until 31 December 2011.In recent years LGL has targeted a CAR coverage ratio of 1,7 times. Based on a forecast of budgeted statutoryprofits the resilience of the forecast was tested based on specific stress scenarios. The capital base wasmanaged such that in these stress scenarios the CAR coverage did not fall below 1,5 times. Should CARcoverage fall below 1,5 times consideration will be given to a reduction in the group’s dividend to shareholders.If the group is within risk appetite and does not require the excess capital to fund strategic plans, thenconsideration is given to reducing capital by means of special dividends, capital reductions or share buybacksas appropriate.During 2008 there have been no breaches of regulatory CAR requirements.Economic basisAvailable financial resources are the amount by which the value of the assets exceeds the value of theliabilities, where the assets and liabilities are measured on a market consistent basis.The economic capital requirement is the amount of financial resources required to protect against economicinsolvency due to unexpected events. As such the economic capital requirement is a quantification of riskexposure.The approaches taken by the group to calculate the available financial resources and economic capitalrequirements are consistent with the approaches currently proposed under Solvency II. These approaches valueboth assets and liabilities using market consistent valuation principles. For elements of the liability that can bereplicated by market instruments, the measurement of the liability uses assumptions based on the observablemarket data to produce liability values equal to the price of these replicating instruments.Pg 104

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20083. Risk appetite and capital management (continued)3.4 Capital management of various capital measures (continued)For elements of the liability not observable in the market, measurement is based on a best estimate discountedcash flow valuation with risk margins calculated using a cost of capital approach. The economiccapital requirement is the amount of capital required to remain economically solvent in extreme events(e.g. Solvency II requires stresses at a 99,5% confidence level over a 1 year time horizon). The primary risk eventsconsidered in the calculation of the economic capital requirements are covered in the respective risk categoriesin this report.With the continuing development of the group’s economic capital modelling capability, the economic capitalrequirement is increasingly being used in the group’s risk and capital management e.g. in the group’s riskappetite statement. As economic capital becomes more embedded group-wide, the return on economiccapital will become more important as a group-wide consistent measure of value creation.3.5 Group-wide consistent measures of risk and capitalThe economic capital frameworks and models currently being built provide a group-wide consistent measureof risk and required capital. Solvency II has laid the conceptual framework, however detailed applicationacross the group will require further development.One of the objectives of IFRS is the introduction of consistency of measurement across industries andgeographies. As a result, measures such as comprehensive earnings are generally useful for comparisonpurposes since they are measured consistently. However, the IFRS standard for the measurement of insuranceliabilities (IFRS 4 Phase II) is still under development. As a result local accounting standards and practices areapplied, thus losing consistency with economic capital measures.Perhaps most importantly, IFRS accounting measures such as comprehensive earnings have limited use asforward-looking risk measures since they are retrospective in nature. This can be overcome by applying stresstests to the standard IFRS measures, for example, by determining comprehensive earnings at risk. However,in order to retain consistency and comparability, the stress tests need to be standardised.In addition, earnings measures currently reported for long-term insurance businesses have long beenregarded as difficult to interpret and obfuscatory of the underlying economic reality. Embedded value wasdeveloped by the industry in response to this criticism. Embedded value and return on embedded value arewidely used throughout the long-term insurance industry internationally as primary value metrics. As in the caseof comprehensive earnings, stress tests can be applied to derive forward looking risk measures. The difficulty isthat embedded value is only directly relevant to long-term insurance, so it does not provide metrics for use acrossthe full breadth of the group’s financial services offerings.In the case of CAR, the TCAR requirement is not a risk-based measure and hence provides little information forthe management of risk. The OCAR, on the other hand, is a risk-based measure which together with compulsorymargins is intended to provide approximately a 95% confidence level over the long term that the insurer will beable to meet its obligations to policyholders. The margins and capital requirements are based on prescriptiverules that may not reflect the group’s actual experience and risk management processes, and an attribution ofdiscretionary margins to risk is subjective. This results in an arbitrary linkage between risk and capital. Mostimportantly, the statutory CAR is relevant only to long-term insurance businesses. As a result it does notprovide a measure of risk-based capital requirements for all activities across the group.The economic capital models and risk adjusted profitability framework currently under development provide agroup-wide consistent measure of risk, based on the conceptual platform laid by Solvency II. Going forward,increasing emphasis is likely to be placed on the economic capital requirements in monitoring the riskexposures due to the greater clarity and consistency that they will provide.3.6 Capital management actionsThe main focus of capital management activities in 2008 was the establishment of Liberty Financial Solutionsto manage the group’s aggregate market risk exposuresAs the credit crunch took hold and the full extent of the financial crisis deepened, significant emphasis wasplaced on the hedging of local equity, foreign currency and interest rate exposures. Hedging and assetallocation decisions taken by LibFin have reduced the group’s risk exposures and associated capitalrequirements materially, in addition to offsetting the negative earnings effects markets have had onpolicyholder liabilities.Pg 105

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20084. The financial market crisis and credit crunch4.1 IntroductionThe current financial market crisis has resulted in severe stresses within the financial system, including:• large losses on equities throughout the world, including South Africa;• significant depreciation of the rand;• falling interest rate yield curves, especially short-term interest rates;• significant illiquidity across markets;• extremely high levels of price volatility in most asset classes, and record high option implied volatilities; and• rising credit and counterparty defaults.The group had some defensive strategies in place prior to the crisis. However, the nature and scale of whathas unfolded has been far greater than anticipated. Increasing market volatility and illiquidity has madedirectional asset allocation decisions extremely challenging and outright protection strategies veryexpensive. Continuous active market risk management through the crisis has received particular managementattention.Given rising defaults, particularly offshore, shareholder and policyholder exposure to financial marketcounterparty default risk and hedge fund performance has been reviewed.Commentary on the salient features of the market events together with the group’s response and managementthrough the crisis is detailed below.4.2 Market backgroundEmerging marketsIn 2007 sub-prime mortgage lending related problems, particularly emanating from the USA, started emerginginternationally. Central Banks in Europe and USA responded by injecting liquidity and by reducing interestrates. This restored order and international stock markets recovered amidst growing confidence that a fullblown crisis had been averted.Despite continued reports during the first half of 2008 that losses had been incurred throughout the financialsystem, the true extent of the financial market crisis and credit crunch only came to the fore in September2008 after Lehman Brothers announced that it would file for bankruptcy protection. The subsequent failure ofother financial institutions in the USA soon evolved into a global credit crisis and deflation, resulting in anumber of European bank failures and declines in various stock indices, and large reductions in the marketvalue of equities and commodities worldwide. In addition, the crisis led to a liquidity problem that wasexacerbated by the de-leveraging actions of financial institutions.As attention turned from financial stocks to the real economy and the potential impact on growth in 2009, therehas been a significant increase in global risk aversion. This has resulted in a withdrawal of funds from allemerging markets, a widening of risk spreads, and raised uncertainty about the emerging markets.South African equitiesEquity bourses in emerging markets and developed markets alike lost significant value – none were spared.All markets incurred double-digit losses in 2008 in local currency terms.Relative to other markets, South Africa was initially somewhat insulated. It benefited from the relatively lowlevels of gearing in its financial sector, the local banking regulatory regime and exchange controls. However,as the crisis unfolded, correlation to global markets increased, causing significant volatility on the local bourseas confidence was lost in the local market’s ability to perform going forward due to the slowing global economyand resultant impact on demand for resources in particular.Local markets followed global sentiment as the absence of positive local news provided no reason to do otherwiseand international fund outflows dominated the local landscape, pushing equity markets and the rand weaker.CurrencyThe rand was one of the worst performing currencies against the US dollar in the last few months of 2008 asa result of international fund outflows. Volatility of the rand has spiked to levels last seen in 2001/2002.Pg 106

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20084. The financial market crisis and credit crunch (continued)4.2 Market background (continued)Interest rates and fixed incomeDespite falling global inflation (following falling oil, food and commodity prices) the recent currency weaknesshas clouded the local inflation prospects and hence the interest rate outlook. Local rates traded in a widerange, being driven alternately by inflation concerns arising from rand depreciation, to expectations that aglobal deflationary environment and local credit conditions would result in significant short-term rate cutsin 2009.For fixed income investors, heightened concerns about inflation fuelled volatile conditions during early 2008, butfalling stock markets and growing signs of a global economic downturn eventually caused a flight to qualitygovernment securities. Investors moved funds into US Treasuries, pushing prices higher and yields lower acrossthe maturity spectrum. While government issues rallied, corporate bonds endured a variety of fundamental andtechnical pressures. Unlike previous bear markets, investment-grade bonds led the move downward, as initialmarket concerns focused on higher-quality financial firms tied to the sub-prime mortgage market.Realised and implied volatilitiesRealised volatility in most markets has reached unprecedented levels driven by rapid swings in sentiment.With economies around the world sliding fast and fears of declining company earnings, investor nervousnessremained high. Higher realised volatility coupled with significant risk aversion has pushed equity-option andswaption implied volatility to all time highs.Liquidity and counterparty riskApart from direct financial losses suffered, the banking sector and financial markets have suffered a crisis ofconfidence – this in turn led to liquidity problems. This concern has lessened as governments worldwide havetried to introduce liquidity into the system with bailouts and investment in banking systems and rate cuts.Counterparty credit risk increased across the board as big international banking names defaulted and ratingswere downgraded.4.3 Managing through the crisisThe group’s capability to manage market risk was strengthened significantly with the establishment of LibertyFinancial Solutions and the GRaCA team in the first half of 2008. As the financial markets crisis unfolded thevalue of the investment banking skills that have been brought into the group through the creation of LibFinbecame increasingly evident, ably supported by new levels of capability to identify and model particularlymarket risk.On 15 September, when Lehman Brothers filed for bankruptcy protection and it was apparent that AIG was indistress, a full investigation into Liberty’s exposure into these names was initiated. Within a few days it wasevident that there was limited direct exposure to Lehman Brothers and only a small amount of re-insurancewritten by AIG. A sufficient level of comfort was reached and the board was briefed on these developments.The team continued to analyse all foreign financial sector exposures.By the end of the following week it was clear that capital markets worldwide were in a severe crisis. In orderto navigate the increasingly complex set of circumstances, a committee was established to meet daily to dealwith the events as they unfolded. The first meeting was held on 26 September. The committee was chaired byeither the CE or the CFO and included the CEO of LibFin, the head of Market and Credit Risk, the group’sstatutory actuary and the head of the GRaCA team. Other experts were drawn in as and when needed.The committee’s mandate was first and foremost to protect the statutory solvency of the group and thereafterto protect the published comprehensive earnings within the over-arching context of risk appetite.Overnight market moves were the first item of discussion daily followed by any particular concerns with theoutlook for the day. Market risks, counterparty exposures, liquidity considerations and other potential impactson the business arising from the unfolding events were considered and action taken accordingly.Opportunities to hedge interest rate, equity and foreign exchange exposures were discussed and thecommittee provided the necessary approvals (where appropriate) for LibFin to transact.Pg 107

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20084. The financial market crisis and credit crunch (continued)4.3 Managing through the crisis (continued)Task teams to address particular issues were mandated and their findings reviewed. This included assessingcounterparty exposures, earnings impacts from market price movements and assessment of capital and theimpact of the embedded derivatives on the business.Tools and reports that have been used to manage through the crisis include:• Market risk exposure position report – This report summarises estimated exposures to interest rate andasset classes, combining market risk exposures arising out of both shareholder assets and mismatches ofpolicyholder liabilities. In the normal course of events, this report is produced monthly, however, during thelatter part of 2008 it was produced weekly.• Earnings estimates, forecasts and sensitivities – This tool provides an estimate of year-to-date earnings,a forecast of earnings for the financial year and forecast earnings under various market risk stressscenarios. In normal market conditions earnings estimates are produced monthly, but during the latter partof 2008, earnings estimates along with forecasts and sensitivities were produced weekly.• Estimated embedded derivative sensitivities – This report summarises the impact on embedded derivativeliabilities resulting from movements in interest rates, equity markets and implied volatilities to enable theapproximation of mark-to-market liability under various scenarios. Results of this analysis are used in theconstruction of estimated exposure report and earnings estimates. This proved critical to hedgingdecisions given the size and volatility of these exposures. Further strengthening of the group capabilitiesto provide sensitivity analysis of embedded derivatives is under development.• Risk appetite exposures – This tool enables the estimation of the group’s overall risk exposure relative torisk appetite. Through the latter part of 2008 risk exposure relative to appetite was estimated monthly.• Total credit exposure summary – This report examines the group’s credit exposure across bothpolicyholder and shareholder assets. Further development work is required to strengthen the credit riskmanagement process.• Foreign asset breakdown – This report provides a comprehensive breakdown of foreign assets held onbehalf of policyholders as well as for the shareholders. Foreign asset managers were engaged on theseexposures and relationships established by members of the LibFin team.• Hedge fund unit exposures – Notwithstanding the opaque nature of hedge funds, a detailed analysis ofthese exposures in shareholders’ and policyholders’ funds and their associated investment processes andrisks was conducted during the year. These exposures were re-examined in detail during the latter part ofthe year.The tools and reports described above enabled appropriate management actions to be taken timeously. Thetransactions performed by LibFin improved the solvency position by reducing the OCAR, and neutralisingmuch of the negative earnings effect resulting from increases in the embedded derivative liabilities andthereby helped to maintain the group broadly within its risk appetite.The group continues to monitor the markets and its risk positions through its governance processes to ensureits risk objectives are met as the economic crisis unfolds.Pg 108

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20085. Risk taxonomyAs part of the group’s EVRM, the board has approved the risk categories that reflect the diverse nature of thegroup’s business activities. These risk categories form the group’s risk taxonomy and cover the range of risks towhich the group is exposed. The risk taxonomy allows management and the board to develop specific frameworksand policies covering the management of each risk, as well as to obtain accurate, reliable and expeditiousinformation with which to measure and monitor risks.The diagram below depicts the group’s taxonomy.Overall risk: Solvency risk12 3 4 5 6Strategic andbusiness risk(section 6)Insurance risk(section 7)Market risk(section 8)Credit risk(section 9)Operationalrisk(section 10)Liquidity risk(section 11)Consequential risk: Reputation impactSolvency risk is the risk that the group does not have sufficient assets to cover its liabilities and capital requirements.It arises from risk events that occur in other risk classes in the risk taxonomy, and is therefore considered to be anaggregate level risk. It is considered to be of primary importance and both statutory and economic solvency has beenintegrated into the group’s risk appetite measures.In the sections that follow, each risk category included in the taxonomy is discussed in more detail, including adescription of the following:• Accountability and ownership of the risks;• Risk identification and measurement on both the statutory and economic bases; and• Detail on actions taken and processes followed to manage the risks.Pg 109

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20086. Strategic and business risk6.1 DefinitionStrategic risk is the risk that the group’s future business plans and strategies may be inadequate to preventfinancial loss or protect the group’s competitive position and shareholder returns. Business risk arises fromunexpected losses due to changes in business volumes, margins and costs.6.2 Ownership and accountabilityThe board is accountable for setting the group’s objectives and the strategies and plans to achieve thoseobjectives. The board approves any subsequent material changes in strategic direction, as well as significantacquisitions, mergers, take-overs, divestment of operating companies, equity investments and new strategicalliances by the company or its subsidiaries.The group CE is responsible for the development of the strategic plan and implementing the approvedstrategic plan at both a group and business unit level. The CE is supported by the various CEs of the businessunits in implementing the strategic plans within each of the business units.The CRO plays an active role in the development and oversight of the implementation of the group’s strategicplans across the group and the business units.6.3 Risk managementThe group’s strategy is reviewed annually by exco through a formal strategic planning process. Each businessunit is required to present its business unit strategy for the forthcoming year to exco and also report on anygaps or shortfalls in achieving the preceding year’s strategic goals and the reasons therefore. Exco will reviewand assess the BU strategies to ensure that they are aligned with the overall group strategy, which issubsequently presented to the board for approval. On a quarterly basis, the board reviews the group’sperformance relative to the approved strategy and ensures that management takes corrective action toaddress any risks that may impact on the achievement of the strategy.On a monthly basis, BU Heads of Risk Policy & Oversight prepare a risk report for review and discussion ata BU executive committee level. The risk reports provide an overview of the business unit’s risk profileencompassing all risks across the risk taxonomy (including strategic and business risk). Furthermore, thequarterly risk reporting process to the group’s risk oversight committees (GROC and GRC) forms an integralpart of monitoring the BU and group’s overall risk profile. The reports include information on:• Strategic and business risks and their potential residual risk in relation to the group’s risk appetite;• The actions implemented to mitigate against these risks, accountable persons and implementation orresolution date;• Progress on implementing the action plans since the previous reporting cycle; and• Trends within the business environment that could potentially impact the strategic and business risks facedby the group.Strategic and business risks deemed to be outside of group’s risk appetite are escalated to the board.Pg 110

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20086. Strategic and business risk (continued)6.4 Current strategic and business risks6.4.1 Current economic environmentUnderstanding current trends and the strategic and business risks that the industry must deal with isvital if the group is to grow its current market share. Executive and business unit management monitorthe external business environment (industry trends, customer behaviour, competitors etc.) and discussrisks and opportunities at a business unit and executive management level. Furthermore, the StrategicVentures unit responds to these challenges by focusing on the group’s core strategy thereby pursuingappropriate new initiatives, strategic alliances etc. to help achieve those objectives.The 2008 credit crisis and the aftermath thereof dominated the global financial services industry.A risk to the group and the industry in general, is that the current economic environment could lead tosignificant lapses, surrenders and reduced new business volumes. As a result, mitigating strategieshave been developed and implemented.6.4.2 Social security and retirement reformGovernment’s intention to establish a broad-based contributory social security arrangement will havean impact on the life insurance industry and, ultimately, the group. Although the 2012 deadline forimplementation looks increasingly unlikely, the retirement fund industry has already commencedplanning for reform. With the 2009 election it is expected that a revised policy paper will only bereleased in late 2009, with draft legislation possibly emerging in late 2010.Depending on whether or not government proposals result in some redirection of compulsory savingsaway from the industry, a variety of risks exist. In response to this, the group has appointed an experton pension reform to head up the senior task team which is identifying opportunities and threats thatthe government’s proposal may present.Pg 111

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20087. Insurance risk7.1 IntroductionInsurance risk is the risk that future claims and expenses will exceed the allowance for expected claims andexpenses in the measurement of policyholder liabilities and in product pricing.The insurance risks that the group is exposed to that have the greatest impact on the financial positionand comprehensive income are covered in more detail in section 7.2 – 7.7.Ownership and accountabilityThe management and staff (the first line of defence) in all business units taking on insurance risk areresponsible for the day-to-day identification, management and monitoring of insurance risk. It is alsomanagement’s responsibility to report any material insurance risks, risk events and issues identified to seniormanagement through certain pre-defined escalation procedures.The Heads of Risk and the statutory actuaries (the second line of defence) in the business units provideindependent oversight of the compliance with the group’s risk management policies and procedures and theeffectiveness of the group’s insurance risk management processes.Risk identification, assessment and measurementInsurance risks arise due to the uncertainty of the timing and amount of future cash flows arising underinsurance contracts. The timing is specifically influenced by future mortality, longevity, morbidity, withdrawaland expenses about which assumptions are made in the measurement of policyholder liabilities and inproduct pricing. Deviations from assumptions will result in actual cash flows being different from thoseexpected. As such, each assumption represents a source of uncertainty.Experience investigations are conducted on all insurance risks to ascertain the reasons for deviations fromassumptions and their financial impacts.Insurance risks are assessed and reviewed against the group’s risk appetite. Mitigating actions are developed forany insurance risks that fall outside of management’s assessment of risk appetite in order to reduce the level of risk.IFRS sensitivities for the primary insurance risks are provided in section 14. Embedded value sensitivities forinsurance risks are included in the group embedded value report. The statutory and economic capitalrequirements are discussed separately in each of the insurance risk sections that follow.Risk managementThe management of insurance risk is effectively the management of deviations of actual experience from theassumed best estimate of future experience, on which product pricing is based. On the published reportingbasis, earnings are expected as a result of the release of margins that have been added to the best estimateassumptions. The risk is that these earnings are less than expected due to adverse actual experience.The statutory actuaries provide oversight on the insurance risks undertaken by the group in that they arerequired to:• report at least annually on the financial soundness of the life companies within the group;• set policy for assumptions used to provide best estimates plus compulsory and discretionary margins (asdescribed in the accounting policies);• oversee the setting of these assumptions; and• report on the actuarial soundness of premium rates in use for new business, and the profitability of thebusiness, taking into consideration the reasonable benefit expectations of policyholders and the associatedinsurance and market risks.In addition, all new products and premium rates are approved through the product approval process after signoff by the relevant statutory actuary.ReportingEach business unit taking on insurance risk prepares monthly and quarterly reports that contain informationon insurance risk. The reports are presented to the relevant business unit executives committees for reviewand discussion.Pg 112

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20087. Insurance risk (continued)7.1 Introduction (continued)In respect of insurance risks, the reports contain the results of any experience investigations conducted(e.g. on mortality, morbidity, withdrawals or expenses) along with other indicators of actual experiences. Thesereports also raise any issues identified and track the effectiveness of any mitigation plans put in place.Monthly reports are submitted by the business unit head of RPO. On a quarterly basis, the CE’s of thebusiness units assuming insurance risks report on the status of business unit insurance risk management toGROC. Major insurance risks are incorporated into a report of the CRO on the group’s overall risk which issubmitted to GRC. Where it is deemed necessary, material insurance risk exposures are escalated tothe board.7.2 Policyholder behaviour riskPolicyholder behaviour risk is the risk of loss arising due to actual policyholders’ behaviour being different thanexpected.The primary policyholder behaviour risk arises due to policyholders discontinuing or reducing contributions orwithdrawing benefits partially or in total prior to maturity of the contract. This behaviour results in a loss offuture charges that are designed to recoup expenses and commission incurred early in the life of the contractand to provide a return on capital.The group manages the policyholder behaviour risk by:• requiring a needs analysis and affordability checks to be performed at policy inception to ensure that theproduct design meets the policyholder’s needs and financial means;• building terms into the policy contracts that enable the deduction of charges from policy proceeds for therecoupment of expenses and commission incurred early in the life of the contract;• including commission clawback provisions in contracts with intermediaries;• not providing withdrawal benefits as a contractual benefit on certain policies where the policyholder canselect against the group (e.g. non-participating life annuity contracts);• having contractual withdrawal benefits linked to the value of the unit liabilities on unit-linked policies;• applying appropriate market value penalties on the withdrawal benefits of discretionary participationfeature contracts when the withdrawal benefits exceed the value of assets backing the contracts; and• regularly monitoring actual policyholder behaviour so that deteriorating experience can be identified –policy pricing and the measurement of the liabilities may be changed if the deteriorating experience isexpected to continue and cannot be mitigated. Detailed withdrawal investigations are conducted on anannual basis, but withdrawal experience is monitored monthly.In addition, the group has embarked on a customer retention programme that seeks to actively retaincustomers at risk of departure due to lapse, surrender or maturity. The programme seeks to retain suchcustomers by explaining the financial consequences of early termination, offering alternatives to the customeror adjusting existing products to meet their changing circumstances. The customer retention programme isbeing conducted in partnership with intermediaries, and is further being embedded into every customerinteraction and touch point. Further initiatives are underway to improve the quality of new business with aparticular view to improving first premium collection processes.The deduction of certain charges from policy proceeds has been limited in terms of regulations in recentyears, increasing the group’s exposure to the risks associated with policyholder behaviour. The estimatedeffect of these regulations have been allowed for in the measurement of policyholder liabilities and inprovisions in respect of terminated contracts.Effective 1 January 2009, industry commission regulations have been reformed such that the commission paidon many products with investment components is more closely aligned to premium collection and terms of thecontract. This reduces the risk of non-recovery of commission on new policies subsequently cancelled orpaid up.Pg 113

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20087. Insurance risk (continued)7.2 Policyholder behaviour risk (continued)In the measurement of policyholder liabilities, the liabilities are adjusted by a margin as described in theaccounting policies depending on whether a surrender benefit is payable or not. In addition, an allowance ismade for withdrawals in the TCAR and OCAR. The TCAR examines a highly selective scenario in which allpolicies, with surrender values greater than the policy liability, terminate immediately (similar to a run-on-thebankscenario). A proportion of the TCAR calculation is allowed for in the OCAR calculation.In the calculation of economic capital requirements, allowance is made for the following risks in respect ofpolicyholder behaviour:• The risk that the actual level of withdrawals is different from expected; and• The risk of a withdrawal catastrophe to capture a run-on-the-bank type of scenario that could for exampleoccur due to loss of reputation or operational difficulties.This economic capital requirement is significant, although the withdrawal catastrophe event used in thecalculation of the economic capital requirements is an extreme scenario, it is still more reasonable than theevent being tested in the TCAR calculation.7.3 Mortality and morbidity riskMortality risk is the risk of loss arising due to actual death rates on life assurance business being higher thanexpected.Morbidity risk is the risk of loss arising due to policyholder health related claims being higher than expected.The group has the following processes and procedures in place to manage mortality and morbidity risk:• Premium rates are differentiated by factors which historical experience has shown are significantdeterminants of mortality and morbidity claim experience:o For individual business, premiums are differentiated by product, age, gender, smoker status and proxiesto socio-economic class.o Group (corporate) scheme pricing is based on age, gender, industry class, average income and pastscheme experience for large schemes amongst other factors.• Terms are built into the policy contracts that permit risk premiums to be reviewed on expiry of a guaranteeperiod:o For individual risk business, most in-force risk premiums and all new business risk premiums arereviewable (after 10 to 15 years on Lifestyle Protector business; annually on Credit Life and Entry LevelMarket business).o For group (corporate) risk business, the risk premiums (charges) are reviewable annually.Delays in implementing increases in premiums, and market or regulatory restraints over the extent of theincreases, may reduce their mitigating effects. Furthermore, charges can only be increased to the extentthat they can be supported by gross premiums, although this is not relevant on contracts where grosspremiums can be reviewed.• The underwriting committee determines underwriting guidelines concerning authority limits and proceduresto be followed.• All individual business applications for risk cover are underwritten. For smaller sums assured this process islargely automated. For individual and group business larger sums assured in excess of specified limits arereviewed by experienced underwriters and evaluated against established processes determined by theunderwriting committee. For group risk business, these specified limits are scheme specific based on the sizeof the scheme and distribution of sums assured. Since applications on group business below the specifiedlimits are not medically underwritten, very few lives are tested for HIV, however the annually reviewable termson group business enable premiums to keep pace with emerging claim experience.• Specific testing for HIV is carried out in all cases where the applications for risk cover exceed set limits.• Part of the underwriting process involves assessing the health condition and family medical history ofapplicants and premiums, terms and conditions are varied accordingly.Pg 114

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20087. Insurance risk (continued)7.3 Mortality and morbidity risk (continued)• The policy terms and conditions contain exclusions for non-standard and unpredictable risks that may resultin severe financial loss (e.g. on life policies, a suicide exclusion applies to the sum assured for death withintwo years from the date of issue).• Non-standard risks, such as hazardous pursuits and medical conditions, are assessed at underwriting stage.• The expertise of reinsurers is used in the rating of non-standard risks.• Financial underwriting is used where necessary to determine insurable interest.• The actual claim experience is monitored on a regular basis so that deteriorating experience can betimeously identified – product pricing and the measurement of the liabilities is changed if the deterioratingexperience is expected to continue and cannot be mitigated. Detailed mortality and morbidity investigationsare conducted on a bi-annual basis, but the general progression of mortality claims is reviewed monthly.• Allowance for AIDS is made in product pricing and special AIDS provisions are held within policyholderliabilities to provide for deterioration in experience as a result of assured lives becoming HIV infected afterinception of the contract. Liberty’s historical experience is that the actual deterioration in mortality andmorbidity due to HIV and AIDS is less than allowed for in the measurement of policyholder liabilities,calculated in accordance with South African actuarial guidance.• For morbidity, experienced claims assessors determine the merits of the claim in relation to the policy termsand conditions. In the case of disability annuitants, claim management ensures the continued eligibility formonthly income and includes interventions that may result in the full or partial medical recovery of theclaimant. The actual disability experience is highly dependent on the quality of the claim assessments.• Reinsurance arrangements are put in place to reduce the mortality and morbidity exposure per individualand provide cover in catastrophic events.For LGL individual business, mortality and morbidity benefits in excess of R8,0 million (2007: R8,0 million) perindividual are reinsured under an original term surplus reinsurance arrangement. Business written in the pastwas reinsured at lower retention levels, which are fixed for the life of the contract. For LGL corporate business,mortality and morbidity benefits in excess of R3,2 million (2007: R3,0 million) per main member are reinsuredon an annually renewable basis. Reinsurance with lower retentions levels is in place for Capital Alliance andLiberty Active. The retention limits under surplus reinsurance arrangements are reviewed annually to keeppace with inflation. The group intends to enhance the annual review process so that its risk tolerance will bebased on the results of a stochastic analysis of the inherent risk. A proportion of both corporate and individualincome disability business is reinsured on a proportionate quota share basis. Special risks are reinsured on acase-by-case basis.The tables below summarise the profile of the sum assured at risk per life in terms of mortality benefits beforeand after reinsurance for individual and group risk business:2008 Before reinsurance After reinsuranceIndividual retained sum at risk (R) Rm % Rm %0 – 1 499 999 251 611 44 232 834 491 500 000 – 2 999 999 133 115 24 108 813 233 000 000 – 7 499 999 125 596 22 112 073 247 500 000 and above 54 666 10 22 220 4Total 564 988 100 475 940 10020070 – 1 499 999 201 362 42 182 481 461 500 000 – 2 999 999 86 915 18 79 890 203 000 000 – 7 499 999 101 303 21 97 920 247 500 000 and above 91 169 19 39 550 10Total 480 749 100 399 841 100Pg 115

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20087. Insurance risk (continued)7.3 Mortality and morbidity risk (continued)2008 Before reinsurance After reinsuranceCorporate retained sum at risk (R) Rm % Rm %0 – 1 499 999 235 315 75 235 315 791 500 000 – 2 999 999 42 043 14 42 043 143 000 000 – 7 499 999 24 845 8 19 302 67 500 000 and above 10 031 3 2 189 1Total 312 234 100 298 849 100Restated20070 – 1 499 999 245 483 80 241 693 831 500 000 – 2 999 999 42 460 14 37 912 133 000 000 – 7 499 999 16 509 5 11 642 47 500 000 and above 2 792 1 1 418Total 307 244 100 292 665 100The tables above show that the sums assured are spread over many lives and that the exposure to individuallives has been reduced by means of surplus reinsurance arrangements. Given the large number of assuredlives the random fluctuation in mortality claims is expected to be small, as the larger the portfolio ofuncorrelated insurance risks, the smaller the relative variability around the expected outcome becomes.Catastrophe reinsurance consolidated across the group’s life licences is in place to reduce the risk of manyclaims arising from the same event. The reinsurance covers events that result in claims of more thanR50 million (2007: R50 million) up to a limit of R600 million (2007: R500 million) for single event disasters andR1 200 million (2007: R1 000 million) in aggregate over the treaty year. Various events are excluded from thecatastrophe reinsurance (e.g. epidemics, radioactive contamination, war).For corporate risk business, the exposure per industry class is monitored in order to maintain a diversifiedportfolio of risks and manage concentration exposure to a particular industry class. The following table splitsthe annual corporate risk business by industry class:Restated (1)2008 2007Industry class % %Administrative/professional 24 23Retail 25 27Light manufacturing 31 31Heavy manufacturing 19 17Heavy industrial and other high risk 1 2Total 100 100(1)Comparatives have been restated for industry codes of participating employers within umbrella funds.In the measurement of policyholder liabilities, margins as described in the accounting policies are added tothe best estimate mortality and morbidity rates. In addition, an allowance is made for the mortality andmorbidity fluctuation risk in the OCAR calculation. No additional allowance is made for mortality or morbiditycatastrophes in the CAR calculation.In the calculation of economic capital requirements, allowance is made for the following risks in respect ofmortality and morbidity:• The risk that the actual level of mortality and morbidity experience is different from that expected; and• The risk that a mortality or morbidity catastrophe event occurs.Pg 116

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20087. Insurance risk (continued)7.3 Mortality and morbidity risk (continued)The risk of a loss arising from a random fluctuation in either mortality or morbidity rates is ignored. Given thelarge number of lives with mortality and morbidity cover, this risk has a far smaller impact than the change inlevel risk and catastrophe risk.The group views mortality and morbidity risks as risks that are core to our business. These risks will beretained if they cannot be mitigated or transferred on risk-adjusted value enhancing terms. Mortality andmorbidity risk gives rise to large economic capital requirements in particular due to potentially catastrophicevents. Since it is difficult to obtain reinsurance for certain catastrophic events, such as epidemics (e.g. Asianbird flu), on reasonable terms, the mortality and morbidity economic capital requirements are likely toremain large.7.4 Longevity riskLongevity risk is the risk of loss arising due to annuitants living longer than expected.For life annuities, the loss arises as a result of the group having undertaken to make regular payments tothe policyholders for their remaining lives, and possibly additionally to the policyholders’ spouses for theirremaining lives. The most significant risk on these liabilities is continued medical advances and improvementin social conditions that lead to longevity improvements being better than expected.The group manages the longevity risk by:• annually monitoring the actual longevity experience and identifying trends over time; and• making allowance for future mortality improvements in the pricing of new business and the measurementof the policyholder liabilities – this allowance will be based on the trends identified in experienceinvestigations and external data.Proof of existence certificate reports are required annually from annuitants to ensure that annuities are onlypaid to eligible policyholders.Claims on disability income business also give rise to annuity payments which are contingent on the claimant’slongevity and continued disablement. The claims management of the disability income business is coveredunder morbidity risk.Undue concentration of life annuities would leave the group heavily exposed to the longevity experience of afew lives. The profile of annuity amounts payable per life in respect of life annuities (including disability incomeannuities in payment) is as follows:2008 2007AnnualAnnualNumber of annuity amount Number of annuity amountAnnuity amount per life annuities exposure life annuities exposureannum (R) in payment Rm in payment Rm0 – 240 000 96 313 1 543 96 751 1 484240 000 – 480 000 349 112 333 105480 000 – 720 000 45 25 41 23720 000 and above 18 17 19 18Total 96 725 1 697 97 144 1 630The table above shows that the concentration risk is likely to be small given the large number of lives and theannuity profile being heavily weighted to lower annuity amounts per annum.In the measurement of annuitant liabilities, a margin as described in the accounting policies is subtractedfrom the best estimate mortality. The best estimate mortality includes an allowance for future mortalityimprovements. In addition, an allowance is made for the annuitant mortality fluctuation risk in the OCARcalculation. No additional allowance is made for fluctuations in the rate of annuitant longevity improvements.Pg 117

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20087. Insurance risk (continued)7.4 Longevity risk (continued)In the calculation of economic capital requirements, allowance is made for the following risks in respect oflongevity:• The risk that the actual base level of longevity experience is different from that expected; and• The risk that the rate of longevity improvement is different from that expectedThe group views longevity risk as a strategic risk that is core to our business. This risk will be retained if itcannot be mitigated or transferred on risk-adjusted value enhancing terms. The economic capital requirementin respect of longevity risk is relatively small.7.5 Expense riskExpense risk is the risk of loss arising due to expenses incurred in the administration of policies being higherthan expected.Allowance is made for expected future expenses in the measurement of policyholder liabilities. Theseexpected expenses are dependent on estimates of the number of in-force and new business policies. As aresult, the risk of expense loss arises due to expenses increasing by more than expected as well as thenumber of in-force and/or new business policies being less than expected.The group manages the expense risk by:• regularly monitoring actual expenses against the budgeted expenses;• regularly monitoring new business;• regularly monitoring withdrawal rates; and• implementing cost control measures in the event of expenses exceeding budget.In 2008, cost cutting measures were implemented following a revision of estimates as a result of the 2008market crisis and credit crunch.In the measurement of policyholder liabilities, a margin as described in the accounting policies is added tothe best estimate expenses. In addition, an allowance for general administration expenses (excludingacquisition costs incurred on new policies) incurred in the previous reporting period is made for in the OCARcalculation.In the calculation of economic capital requirements, allowance is made for the following risks in respect ofexpenses:• The risk that on in-force policies the actual level of expenses is different from expected; and• The risk that the rate at which the group’s expenses increase is greater than the assumed rate of inflation.(The risk that inflation is higher than expected is treated as a market risk.)Even though expense risk does not give rise to large capital requirements, the management of expense riskis core to the business. The expenses that the group is expected to incur on policies are allowed for in productpricing. If the expenses expected to be incurred are considerably higher than those of insurers offeringcompeting products, the ability of the group to sell business on a profitable basis will be restricted. This doesnot only have capital implications, but can also affect the group’s ability to function as a going concern in thelong-term.7.6 Tax riskTax risk is the risk of loss arising due to the actual tax experienced being more than the tax expected.Allowance for tax is made in the measurement of policyholder liabilities at the rates applicable at the financialposition date. Adjustments may be made for known future changes in the tax regime.No explicit allowance is made for tax risk in the OCAR calculation.The calculation of the economic capital requirement does allow for the risk of a change in tax. This economiccapital requirement is small.Pg 118

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk8.1 IntroductionMarket risk is the risk of adverse financial impact due to changes in fair values or future cash flows of financialinstruments from fluctuations in equity prices, interest rates, and foreign currency exchange rates. In addition,in light of the group’s significant investment in investment properties, there is exposure to fluctuation inproperty values.In particular the group is exposed to market risk where the proceeds from its property and financial assetsare not sufficient to fund the obligations arising from insurance and investment contracts. This risk is termedthe policyholder asset-liability mismatch risk.Financial assets and liabilities utilised to support the group’s capital base are exposed fully to the relevantelements of market risk.The key components of market risk are:Equity risk is the risk arising from the actual fair value and/or the future cash flows from equities fluctuatingfrom their expected values as a result of changes in market prices and/or dividend amounts.Interest rate risk is the risk arising from the fair value and/or future cash flows of a financial instrumentfluctuating from expected values as a result of changes in market interest rates.Currency risk is the risk arising from fair value and/or future cash flows of a financial instrument fluctuatingfrom their expected values as a result of changes in exchange rates. This can either be in the form of amismatch between currencies of assets and liabilities or supporting capital or the functional currency of thelocal entity being different to the reporting currency of the group.Property market risk is the risk arising from actual market value and/or the income from properties fluctuatingfrom their expected values as a result of changes in market prices and/or rental income.Ownership and accountabilityLibFin is responsible for managing the group’s aggregate market risks including exposures arising out ofshareholder funds and from asset-liability mismatches in terms of the delegation of authority and within thelimits set by the GBSMC. STANLIB, Liberty Properties and other external asset managers are still responsiblefor managing the investment risks within their investment mandates.The Market and Credit Risk Policy and Oversight function provides independent oversight on the effectivenessof market risk management processes and reports on the status of market risk management to GROCand GRC.Risk identification, assessment and measurementIn the case of market risks in respect of shareholder funds, the risk can be identified and measured byconsidering the market risks that apply to the assets held.However, in the case of asset-liability mismatches, market risk cannot be identified by considering the marketrisks that apply to the various assets in isolation. The group is exposed to market risk to the extent that theserisks result in a loss due to the assets increasing by less than the liabilities or the assets falling by more thanthe liabilities. Hence, to manage market risk, the interaction of assets and liabilities to market movementsneeds to be considered (ie the asset-liability mismatch risk).The group assesses its asset-liability mismatch exposures with respect to the key components of market riskat a consolidated group level. Further information, such as embedded derivative sensitivities, are produced toimprove understanding of the risk and to enable effective risk mitigation.Risk management and reportingLiberty has processes in place to ensure that the assets backing unit-linked liabilities are the same assetsunderlying the unit promise. Similarly, for liabilities with DPF, the assets backing the liability have a mixconsistent with contractual mandates and policyholder reasonable expectations. This asset liability matchingprocess reduces the group’s market risk exposures to the assets held backing these liabilities.Pg 119

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.1 Introduction (continued)Risk management and reporting (continued)The group is exposed to the residual market risks on unit-linked liabilities and liabilities with DPF that arise fromthe group’s entitlement to management fee revenues and 10% of the return on some of these assets, and fromany embedded derivative provided in contracted policies (e.g. minimum investment return guarantees andguaranteed annuity options as described in 8.3).Furthermore, the group writes many products where the policyholders bear no market risk (e.g. annuities andguaranteed capital bonds). The group carries market risk on these policies to the extent that the assetsbacking the liabilities do not provide an exact match to the liabilities’ cash flows. The group holds assets thatbroadly match the nature, term and currency of these liabilities.All the asset liability mismatches described above give rise to market risk exposures for the group. In addition,the assets backing the group’s capital base are exposed fully to the relevant elements of market risks. Thegroup’s allocation of assets between policyholders and shareholders is summarised in the group asset liabilitymatching report.The exposures to market risk are summarised in aggregate across the group in a shareholder’s market riskexposure report. This report includes the exposure split by the main sources of market risk (assets backingshareholder capital, embedded derivatives, entitlement to management fee revenues and 10% of the returnon some of the assets backing unit-linked liabilities and other asset liability mismatches) and by type of marketrisk (equity, interest rate, property and currency risk).The group’s asset-liability matching and shareholders’ market risk exposure report are reviewed on a monthlybasis by the ALMC and GBSMC (in addition to specific LibFin and Head of Market and Credit RPO riskreports). These committees then consider the group’s current market risk exposures alongside the group’sother risk exposures, overall risk appetite limits and management’s view of future market movements indeciding which market risk exposures should be retained or mitigated. LibFin develops and proposesstrategies, such as hedging, for any market risks that fall outside of management’s assessment of risk appetitein order to reduce the level of risk. LibFin is then instructed to execute trades accordingly. On a quarterly basis,the Head of Market and Credit RPO reports to GROC and to GRC. Where it is deemed necessary, materialmarket risk exposures are escalated to the board.The interest rate risk which arises as a result of interest rate sensitive liabilities is managed by constructingasset portfolios which replicate the behaviour of the liabilities as closely as possible. These constructed assetportfolios include derivative financial instruments.In 2008, derivative financial instruments were held in order to reduce market risk exposures in respect ofinterest rate, equity and foreign currency risk. The fair value adjustments on derivative instruments held at31 December 2008 are included in the held for trading category of liabilities and assets in note 11 to thegroup’s financial statements. Fair value adjustments off-setting these derivative market values are reflected inthe change in value of assets and liabilities shown elsewhere in the financial statements.IFRS sensitivities for the market risks are provided in section 14. Embedded value sensitivities are includedin the group embedded value report. The statutory and economic capital requirements are discussedseparately in each of the market risk sections that follow.Pg 120

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.2 Summary of group assets subject to market risk (refer class table in section 15)The table below summarises the group’s exposure to insurance, financial and property assets. This exposurehas been split into the relevant market risk categories and then attributed to the effective “holders” of the riskdefined as follows:Policyholder market-related liabilities – Liabilities that are determined with reference to specific assets andwhere a significant portion of the market risk is borne by the respective policyholders. The group shareholdersare still exposed to management fee revenues and 10% of the return on some of the assets backing thisliability. In addition, the group is exposed to any embedded derivatives (e.g. minimum investment returnguarantees) provided on benefits linked to these assets. The embedded derivatives liabilities have beenincluded in “Other policyholder liabilities”.Other policyholder liabilities – Liabilities where shareholders bear all the market risk.Ordinary shareholders – Assets that are specifically held to support Liberty’s capital base. The groupshareholders assume the entire market risk related to these assets.Minority shareholders – Minority shareholders are the non-Liberty shareholder participants in unincorporatedproperty partnership subsidiaries. Their risk exposure is to property price risk in respect of the relevantproperties contained in the partnerships.Third party financial liabilities arising on consolidation of mutual funds – Certain mutual funds in which thegroup owns in excess of 50% of units are classified as subsidiaries and are consolidated. The attributableportion to market risks on the underlying assets is assumed by unit holders in these mutual funds.Attributable toPolicyholderThird partyTotal financial, market Other financialproperty and related policyholder Ordinary Minority liabilities onRisk category (Rm) insurance assets liabilities liabilities (2) shareholders shareholders mutual funds2008Equity price 69 672 70 432 (6 151) 2 194 3 197Interest rate 99 208 50 606 25 824 18 793 121 3 864Property price 20 713 18 968 (929) (415) 2 072 1 017Mixed portfolios (1) 17 843 13 314 (822) 2 948 2 403Reinsurance assets 827 827Total 208 263 153 320 18 749 23 520 2 193 10 481Percentage (%) 73,6 9,0 11,3 1,1 5,02007Equity price 103 072 97 986 (5 728) 4 058 1 241 5 515Interest rate 74 022 37 823 19 619 11 189 3 438 1 953Property price 18 405 17 542 (1 476) 173 2 166Mixed portfolios (1) 21 651 19 828 (277) 1 170 358 572Reinsurance assets 820 820Total 217 970 173 179 12 958 16 590 7 203 8 040Percentage (%) 79,5 5,9 7,6 3,3 3,7(1)Mixed portfolios are subject to a combination of equity price, interest rate and property price risks depending on eachportfolio’s construction. A substantial portion of the mixed portfolios will be subject to equity price and interest rate risk.The exact proportion is practically difficult to accurately calculate given the number of mutual funds and hedge fundscontained in the group portfolios.(2)Negative exposure to the various risk categories can occur in ‘Other policyholder liabilities’ since the present value offuture charges can exceed the present value of future benefits and expenses resulting in a negative liability. The groupoffsets these negative liabilities against policyholders’ market related liabilities. The policyholders’ market riskexposure however remains unchanged. Hence, shareholders bear all the risks of shorting assets backing thepolicyholder market related liabilities by the amount of these negative liabilities.Pg 121

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.3 Market risk by product typeThe relevant market risks associated with the various policyholder products are discussed by producttype below:(a)Unit-linked productsA significant portion of the market risk (including equity, interest rate, currency and property risk) isborne by the group’s policyholders through the linkage to the value of their policies. Unit linkedpolicyholders in particular have all the exposure to these risks. Market risk also influences the possibilityof exposure to existing minimum investment return guarantees and guaranteed annuity options.For unit-linked contracts, the group holds the assets on which the unit prices are based. As a result inrespect of the unit-linked contracts, there is virtually no mismatch (except for the insignificant timing riskbetween receipt from the policyholder and allocation to the investment). However, in respect of IFRSdefined insurance contracts with unit-linked components, the liability is reduced by the present value offuture charges less the present value of future expenses and risk claims. Some market risk isconsequently retained on this business to the extent that the present value of future expenses and riskclaims less future charges does not move in line with gross unit liabilities. In respect of IFRS definedinvestment contracts there may be an associated deferred acquisition cost intangible asset. There is arisk that in the event of adverse market movements, future expected management fees may reduce and,consequently this asset may not be realised and therefore necessitate impairment.Management fees charged on this business are determined as a percentage of the fair value of theunderlying assets held in the linked funds, which are subject to market risk. As a result the managementfees are volatile, although always positive.On a portion of business in this category, policyholders receive 90% of both the positive and negativereturns achieved on the underlying assets. This leaves shareholders’ earnings with exposure to theremaining 10% thereby introducing earnings volatility due to the exposure to market risk.In addition a significant portion of unit-linked business has embedded derivatives in the form ofminimum investment return guarantees.(b)Market related guarantees and optionsSignificant exposure to market risk (equity, interest rate, property and currency risk) arises on marketrelated guarantees and options. These product features are embedded in various products, and IFRSrequires them to be separately identified and measured as embedded derivatives. The group regularlymonitors the exposure to embedded derivatives arising from minimum investment return guaranteesand guaranteed annuity options. The group actively manages the group’s exposure to market risk byputting appropriate hedges in place so that the group remains within its risk appetite.The policyholder liabilities in respect of minimum investment return guarantees and guaranteed annuityoptions amounted to R2 959 million (2007: R1 516 million) and R796 million (2007: R264 million)respectively.(i)Minimum investment return guaranteesMinimum investment return guarantees are provided on the death and/or maturity proceeds onpolicies invested in selected investment portfolios. The liabilities from these embedded derivativesare valued in accordance with valuation techniques that approximate market consistent optionpricing techniques using stochastic Monte Carlo simulation. These techniques mirror a marketconsistent price to be paid to externally transfer the risk.The value of the minimum investment guarantees is not only sensitive to the assumptions used in theirvaluation, but is also highly dependent on the ‘moneyness’ (defined here as the ratio ofthe guaranteed value as at the financial position date to the value of the investment as at the financialposition date) as well as the outstanding term to maturity on the contract at the financial position date.Pg 122

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.3 Market risk by product type (continued)(b) Market related guarantees and options(i) Minimum investment return guarantees (continued)The following graph shows the investment value subject to minimum investment return guaranteeson maturity for LGL (which account for more than 80% of the liability in respect of minimuminvestment return guarantees for the group) split by outstanding term to maturity and moneyness(as defined above):Investment value split by moneyness and outstanding term to maturityfor minimum investment return guaranteesAt the moneyOut of the money In the money1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30Outstanding term to maturity (in years)0 – 10 Rm 10 – 150 Rm 150 – 300 Rm 300 – 450 Rm 450 – 600 Rm 600 – 750 RmNotes:1. The various shades represent the investment value in R’ millions at the financial position date within bands ofmoneyness and outstanding term to maturity.2. Investment values above the dotted line are in-the-money (i.e. the guaranteed value exceeds the investmentvalue at the financial position date); Investment values below the dotted line are out-of-the money (i.e. theinvestment value exceeds the guaranteed value at the financial position date).3. No allowance is made in the above graph for investment growth or premiums payable after the financialposition date.The graph above shows that the majority of the investments subject to minimum investment guaranteesare out-of-the-money at the financial position date. Investment values currently in-the-money with anoutstanding term of one year to maturity are likely to result in actual guarantee payments being madeto the policyholder unless equity markets quickly recover and/or interest rates increase in the monthsfollowing 31 December 2008. Most of the investment values that are in-the-money with outstandingterms of four years or more represent contracts written in the last year or two. The investments on thesecontracts fell during the financial market crisis in 2008, but did not benefit from the good returns in theyears immediately preceding 2008.Pg 123

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.3 Market risk by product type (continued)(b) Market related guarantees and options (continued)(ii) Guaranteed annuity options (GAOs)Guaranteed annuity options (GAOs) give the policyholder the option to convert the maturityproceeds of a retirement annuity at a predefined rate. From 1997 onwards very few policies withGAOs were sold and from 2001 GAOs were no longer offered. As in the case of minimuminvestment return guarantees, liabilities from these embedded derivatives are valued in accordancewith valuation techniques that approximate market consistent option pricing using stochastic MonteCarlo simulation techniques.GAOs expose the group to interest rate risk. Interest rates impact not only the projected value ofthe proceeds of the policy but also the value of the annuity offered at the date of retirement.The following table provides the typical guaranteed conversion rates sold with the GAOs, as well asthe annuity payment per annum that are affordable using best estimate interest rate and annuitantlongevity assumptions as at the financial position date, along with interest rate sensitivities:Annuity payment per annum per R1 000 of annuity considerationGuaranteed Best estimate BE interest BE interestconversion rate rates (BE) rate x 1,12 rate x 0,88Age Male Female Male Female Male Female Male Female55 69,8 63,5 85,81 80,54 92,91 87,75 78,93 73,5760 78,0 70,2 91,00 85,32 97,97 92,40 84,24 78,4665 88,0 79,0 96,83 90,99 103,66 97,93 90,18 84,2669 96,2 87,0 101,84 96,13 108,55 102,95 95,28 89,50Notes:1. The rates above are based on an annuity with a 10 year guarantee period.2. The annuity rates per annum calculated have been based on an average annuity consideration of R200 000.The above table shows that at best estimate assumptions at the financial position date, the annuitypayment per annum that is affordable per R1 000 of annuity consideration exceeds the annuitypayment per annum as per the guaranteed conversion rate (i.e. the options are out-of-the-money atthe financial position date). The same is true for the interest rate sensitivities provided, except formales aged 69. The above table also shows that the group is exposed to the risk of a fall in interestrates on guaranteed annuity options, as the annuity payment per annum that is affordable perR1 000 of annuity consideration falls as interest rates fall, increasing the likelihood that guaranteedannuity options would be exercised by the policyholder.The value of the annuity is also sensitive to the annuitant longevity assumption, which gives rise tothe longevity risk described in the insurance risk section.The GAO applies to the full proceeds of the underlying policy. Since the proceeds of the policytypically have a large equity component, they also give rise to an equity risk – increasing equityprices generally increase the value of the GAO liabilities. Similarly other smaller components of theinvestment proceeds are exposed to interest rate, property and currency risk.To some extent the upside equity risk exposure on GAOs can be offset against the downside equityrisk exposure on guaranteed maturity values.The bulk of GAO exposure relates to policies with terms to maturity up to 15 years, however termsto maturity extend as far out as 30 years.Pg 124

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.3 Market risk by product type (continued)(c) Non-participating annuitiesNon-participating annuities (including disability income annuities in payment) provide benefit paymentsthat are fixed and guaranteed (although a small proportion of the business provides inflation relatedincreases on annuities in payment). These liabilities are backed largely by fixed income securities, withother assets held only to support the longest dated cash flows arising from a portion of these liabilities.The group’s primary financial risk on these contracts is the risk that interest income and capitalredemptions from the financial assets backing the liabilities are insufficient to fund the guaranteed benefitspayable.The group monitors interest rate risk on this business by comparing the modified duration and convexityof the investment portfolio and the liabilities issued. The modified duration of the liabilities is determinedby projecting expected cash flows from the contracts using best estimates of future longevity. Themodified duration is a linear measure of how the values of assets and liabilities change in response tointerest rate changes. However, values do not change linearly as interest rates change. So convexity, ameasure of the curvature of the change in value of assets and liabilities with respect to changes ininterest rate, is also monitored.The portfolio mandate requires that the difference between the modified duration of the assets andliabilities is never more than one year. For a large proportion of the business, sensitivity to changes inthe shape of the yield curve is also monitored and managed.At 31 December, the duration of the assets was within 0,3 of a year different from the duration of theliabilities with regard to the large annuity portfolios. Any residual risk is managed at a group level.(d)Long-term insurance contracts with discretionary participating featuresThe group has a number of portfolios of long-term insurance contracts with DPFs, most of which havebeen acquired from other insurers. Each portfolio is backed by a distinct asset profile, often as a resultof conditions included in the scheme of transfer in terms of which the business was acquired. Theassets backing these liabilities are generally segregated from the group’s other assets to ensure thatthe assets are used exclusively to provide benefits for the relevant policyholders.Bonuses are declared on this business taking a number of factors into account, including the previousbonus rates declared, policyholders’ reasonable expectations, expenses, actual investment returns onthe underlying assets, expectations of future investment returns and the extent to which the value ofassets exceeds the value of benefits allowing for both the guaranteed benefits and projected futurebonus at the most recently declared rates, amongst other factors. Once declared, a portion of the bonus,depending on the operation of the specific class of business in accordance with the terms andconditions of the contract, forms part of the guaranteed benefits. The bonuses declared are inaccordance with the Principles and Practices of Financial Management (PPFM) document which isavailable on Liberty’s website.The group recognises the full value of the backing assets as a liability. The guaranteed portion of theliability is sensitive to interest rates. The group bears equity risk to the extent that equities are held toback the guaranteed portion of liabilities. The group bears interest rate risk to the extent that the assetsbacking the guaranteed portion of the liability are not a match for these fixed and guaranteed payments.However, the group’s market risk can be passed onto the policyholder to the extent that the assets inthe portfolio exceed the value of the guaranteed portion of liabilities. As at 31 December 2008, theassets exceeded the guaranteed portion of liabilities for most of these portfolios. The shortfall on theother portfolios is not material from a risk perspective.Pg 125

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.3 Market risk by product type (continued)(e) Pure risk productsPure risk products are predominantly recurring premium policies that provide benefits that are fixed andguaranteed at inception of the contract. Since future recurring premiums often exceed future benefits,the liabilities on these products are often negative. These liabilities are sensitive to interest rates. Aninterest rate risk is borne by the shareholders to the extent that these liabilities are not shorted againstappropriately matching interest rate sensitive instruments.(f)Guaranteed capital endowments and structured productsGuaranteed capital endowments are single premium policies that have benefit payments that are fixedand guaranteed at inception of the contract. The group’s practice is that assets are selected to providea cash flow match to these liabilities. There is consequently limited market risk on these products.Structured products are single premium policies that provide a guaranteed minimum maturity benefittogether with predefined market related upside. The group’s philosophy dictates that these obligationsare matched exactly. At inception of these contracts, assets which have proceeds that exactly matchthe payout under the policy are purchased. Consequently, there is no market risk on these products.8.4 Capital requirements to back equity and interest rate riskThe group’s shareholders are exposed to equity and interest rate risk amongst other market risks on the assetsbacking policyholder liabilities (details of these market risks are discussed in more detail within the mainproduct groups in section 8.3) as well as on assets held by shareholders as capital.In the measurement of policyholder liabilities relating to insurance contracts, compulsory and discretionarymargins as described in the accounting policies are added to investment return assumptions to allow forequity and interest rate risk. In addition, an allowance is made for equity and interest rate risk in the OCARcalculation. The equity and interest rate risks are typically by far the biggest contributors to OCAR.In the calculation of economic capital requirements allowance is made for equity and interest rate risk. Theequity risk allows for a fall in current equity prices. In allowing for interest rate risks, the extreme events considerthe impact of parallel shifts as well as twists and inflections in the yield curve on both the assets and liabilities.The equity and interest rate risks give rise to substantial economic capital requirements. These capitalrequirements can be reduced by appropriate asset liability matching (described in more detail in 11.2). Thecapital requirements in respect of insurance risks are reduced by taking on market risks (including equity andinterest rate risk) due to diversification benefits that can be realised as a result of insurance and market risksnot being perfectly correlated. The diversification benefits enable the group to take on market risk on riskadjustedvalue enhancing terms. The market risks taken on by the group, however, are subject to the group’srisk appetite limits. If the group is not within appetite, the removal of market risk is generally considered priorto exploring reducing core strategic risks such as mortality risk.In 2008, a large portion of the group’s interest rate risk and some of the equity risk was reduced. This helpedto protect earnings and reduce capital requirements during the financial market crisis.Pg 126

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.5 Interest rate risk applicable to financial instrument assets and liabilitiesThe tables below give additional detail on financial instrument assets and liabilities and their specific interestrate exposure. Due to practical considerations interest rate risk details contained in investments in nonsubsidiarymutual funds are not provided. Derivative instrument exposure to interest rates is reflected insection 8.8.Accounts receivable and accounts payable where settlement is expected within 90 days are not included inthe analysis below, since the effect of interest rate risk on these balances is not considered significant giventhe short-term duration of these underlying cash flows.Exposed to Exposed tocash flow fair value EffectiveCarrying interest interest interestvalue rate risk rate risk rate (1)Financial instrument assets Rm Rm Rm %2008Held at fair value through profit or lossGovernment, municipal and utility stocks 27 438 27 438 6,98Non-parastatal term deposits 40 323 3 918 36 405 8,74Investment policies 3 393 1 597 1 796 10,38Preference shares 4 190 2 102 2 088 8,82Cash and cash equivalents 5 112 4 466 646 9,36Loans and receivablesMortgages and loans 735 735 14,99Held-to-maturityLoan receivables to joint ventures 4 4 –Total 81 195 12 818 68 3772007Held at fair value through profit or lossGovernment, municipal and utility stocks 21 434 679 20 755 7,78Non-parastatal term deposits 31 067 5 988 25 079 9,77Investment policies 264 138 126 10,47Preference shares 4 236 2 490 1 746 6,76Cash and cash equivalents 4 688 4 544 144 10,29Loans and receivablesMortgages and loans 962 469 493 14,50Held-to-maturityLoan receivables to joint ventures 50 50 15,29Total 62 701 14 308 48 393(1)Effective interest rate is the rate applicable at 31 December on a nacm basis averaged on a weighted basis with referenceto carrying value.Pg 127

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.5 Interest rate risk applicable to financial instrument assets and liabilities (continued)The maturity profile of the financial instrument investments is as follows:2008 2008 2007 2007Carrying Contractual Carrying Contractualamount repricing (2) amount repricing (2)Rm Rm Rm RmWithin 1 year 27 573 6 621 22 615 6 5031 – 5 years 19 515 4 187 14 651 1 8396 – 10 years 14 673 263 12 000 57211 – 20 years 12 912 1 227 9 638 315Over 20 years 3 975 230 2 785 120Open ended 2 547 397 1 012Total 81 195 12 925 62 701 9 349Exposed to Exposed tocash flow fair value EffectiveCarrying interest interest interestvalue rate risk rate risk rate (1)Financial instrument liabilities Rm Rm Rm %2008At amortised costCallable capital bond (3) 2 054 2 054 8,61Redeemable non-participating preferenceshares 225 225 8,87Minority loan 151 151 11,30Total 2 430 376 2 0542007At amortised costCallable capital bond (3) 2 054 2 054 8,77Redeemable non-participating preferenceshares 364 364 9,57Total 2 418 364 2 054(1)Effective interest rate is the rate applicable at 31 December on a nacm basis averaged on a weighted basis with referenceto the carrying value.(2)The amounts represented are where there is a contractual repricing of the coupon interest rate prior to the date of maturity.(3)Contractually repriced on 12 September 2012, at which date it is callable by Liberty Group Limited, with compulsoryredemption on 12 September 2017.Pg 128

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.6 Currency riskOffshore assets are held in policyholder portfolios to match the corresponding liabilities. The group is exposedto currency risk through minimum investment return guarantees issued on contracts invested in offshoreportfolios and related mismatch policies, 10% participation and management fees. These guarantees, witheffect from 2005 are no longer offered on new business invested in offshore portfolios. The rand denominatedvalue of management fees derived from these contracts is also subject to currency risk. Strengthening of therand against the offshore currencies reduces the rand value of management fees on offshore portfolios andincreases the liability in respect of rand denominated minimum investment return guarantees on this business.In addition certain offshore assets are held with full exposure for the group’s shareholders.The total exposure of financial instruments expressed in rands (converted at closing rates) at 31 December isR31 010 million (2007: R26 895 million). It is not practical to isolate accurately any detailed currency riskcontained in investments in mutual funds and investment policies which are priced in rands and are notsubsidiaries. This exposure however is not material to the group. The table below segregates the currencyexposure by major currency at 31 December:British Japanese AustralianCurrency risk pound US dollar Euro yen dollar OtherRm 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007Debt instruments 1 322 60 6 367 3 613 1 811 138 29 24 45Equity instruments 74 82 8 740 11 719 102 327 32 33 195 140 86 153Mutual funds 198 1 070 8 688 4 023 1 423 3 946 96 128 6 20Prepayment,insurance andother receivables 41 46 657 207 3 3 69 64 27 5Cash and cashequivalents 179 41 645 943 141 80 (1) 31 30Derivatives 4Total 1 814 1 299 25 097 20 505 3 480 4 494 156 185 264 204 199 208Foreign currencyamount (1) 133 95 2 696 3 011 267 449 1 560 3 083 41 34Closing rate at31 December (2) 13,64 13,64 9,31 6,81 13,02 10,00 0,10 0,06 6,41 5,97Average rate duringthe year (2) 15,01 14,10 8,23 7,05 12,00 9,65 0,08 0,06 6,90 5,92(1)Certain currency exposures are reduced by means of forward exchange contracts. These contracts are summarisedunder the derivatives section below.(2)Expressed as a ratio of rand equivalent to one unit of applicable currency referenced to the closing/average rate providedby the Corporate and Investment Banking Division of Standard Bank.Currency risk is allowed for in the OCAR and economic capital requirements calculation.The economic capital requirements in respect of currency risk are currently fairly large due to the largeamount of shareholder capital invested in foreign assets.8.7 Property market riskThe group is exposed to tenant default and unlet space within its investment property portfolio affectingproperty values and rental income. This risk is mainly attributable to the matching policyholders’ liability andthe shareholder exposure is mainly limited to management fees and profit margins. The managed diversity ofthe property portfolio and the existence of multi-tenanted buildings significantly reduces the exposure to thisrisk. At 31 December 2008 the proportion of unlet space in the property portfolio was less than 2% (2007: 1%).Pg 129

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.7 Property market risk (continued)The group’s exposure to property market risk at 31 December is as follows:2008 2007RmRmInvestment properties 17 623 15 879Owner-occupied properties 1 282 1 276Properties under development 215Mutual funds with >80% property exposure 2 348 1 25021 468 18 405Attributable to minority interests (2 072) (2 113)Net exposure 19 396 16 292Concentration use risk within properties is summarised below:Shopping malls 14 472 12 858Office buildings 2 292 2 162Hotels 1 778 1 549South African listed property securities held via mutual fund investments 2 348 1 250Other 578 58621 468 18 405Property risk is allowed for in the OCAR and economic capital requirement calculation. The economic capitalrequirements in respect of property risk are fairly small due to the fact that most of the property risk can bepassed on to the unit-linked policyholders.8.8 Derivative financial instrumentsCertain group entities are parties to contracts for derivative financial instruments, mainly entered into as partof the market risk management hedging strategy implemented in the second half of the financial year inresponse to the global financial crisis. These instruments comprise futures, options, swaps, swaptions andforward exchange contracts.Derivative financial instruments are either traded on a regulated exchange e.g. South African FuturesExchange (SAFEX) or negotiated over-the-counter as a direct arrangement between two counterparties.Instruments traded on SAFEX are margined and SAFEX is the counterparty to each and every trade. OTCinstruments are only entered into with appropriately accredited counterparties and are entered into in termsof signed international swap and derivative agreements with each counterparty.For derivative financial instruments traded on a regulated exchange the valuation is determined by referenceto regulated exchange quoted ruling bid prices. For OTC derivative instruments independent third-partyvaluations are sought. LibFin feeds into its own models the observable market variables and such otherassumptions as are necessary to generate its own valuations for each instrument. The two valuations are thencompared at an instrument by instrument level. Any discrepancies in valuation that exceed a materialthreshold are identified and reasons for the discrepancy are understood. Where necessary, either the LibFinmodels will be updated or an updated valuation from the original independent valuer will be requested.Derivative assets and liabilities2008 2007Total carrying amount of derivative financial instruments Rm RmGross carrying amount of assets 1 208 190Gross carrying amount of liabilities (77) (66)Net carrying value 1 131 124Pg 130

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.8 Derivative financial instruments (continued)Open derivative positionsMaturity analysis of net fair valueUnderlyingAfterprincipal1 year Net Fair Fair amount/Within but within After fair value of value of notional (1)1 year 5 years 5 years value assets liabilities amount2008 Rm Rm Rm Rm Rm Rm RmDerivatives held for tradingForeign exchange derivatives (55) (55) 4 (59) 2 132Forwards 3 3 4 (1) 270Options (dollar denominated) (58) (58) (58) 1 862Interest rate derivatives (12) 986 974 986 (12) 10 742Forwards (12) 62 50 62 (12) 2 175Swaps 695 695 695 5 117Swaptions 229 229 229 3 450Equity derivatives 162 50 212 218 (6) 820Futures (742)Options 162 50 212 218 (6) 1 562Total derivative assets/(liabilities) held for trading 95 50 986 1 131 1 208 (77) 13 6942007Derivatives held for tradingForeign exchange derivativesForwards 2 2 4 (2) 312Equity derivativesOptions (9) 131 122 186 (64) 575Total derivative assets/(liabilities) held for trading (7) 131 124 190 (66) 887(1)The notional or underlying principal amount reflects the volume of the group’s investment in derivative financialinstruments. It represents the amount to which a rate or price is applied to calculate the exchange of cash flows. Theamount at risk inherent in these contracts is significantly less than the notional amount.Maximum credit risk represents the cost of replacing, at current fair values, all contracts which have a positivefair value, should the counterparty default. No loss related to credit risk is incurred for contracts with a negativefair value.Pg 131

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20088. Market risk (continued)8.8 Derivative instruments (continued)Forward exchange contractsAll forward exchange contracts are valued at fair value on the balance sheet with the resultant gain or lossincluded in the statement of comprehensive income.ForeignRandcurrency Settlement Settlement Average carryingForward exchange amount currency value rate value Maturity datescontract summary ’m ’m Rm2008SellEuros 2,9 US dollars 4,0 0,71 –Japanese yen 53,8 US dollars 0,6 89,41 –Pound sterling 5,2 US dollars 7,8 0,67 2 Varies betweenUS dollars 1,2 Australian dollars 1,8 0,66 – 1 January 2009US dollars 2,0 Euros 1,5 1,38 – to 19 March 2009US dollars 5,7 Japanese yen 514,8 0,01 –US dollars 1,0 New Zealand dollars 1,8 0,55 –US dollars 1,4 Norwegian krone 9,9 0,14 –US dollars 1,1 Swedish krona 9,0 0,13 –US dollars 0,2 Swiss francs 0,8 0,87 1Total 32007SellCanadian dollars 1,3 Australian dollars 1,6 0,87 –Euros 0,9 Swiss francs 1,6 0,61 – Various betweenEuros 6,8 US dollars 9,8 0,69 – 1 January 2008New Zealand dollars 2,6 US dollars 2,0 1,33 – andPound sterling 1,1 Euros 1,6 0,72 – 19 March 2008Pound sterling 4,0 US dollars 8,0 0,50 1Swedish krona 8,0 Euros 0,9 9,42 –Swiss francs 3,3 Euros 2,0 1,65 –US dollars 1,3 Australian dollars 1,5 0,85 –US dollars 1,3 Canadian dollars 1,3 0,98 –US dollars 4,0 Euros 2,8 1,45 –US dollars 10,9 Japanese yen 1 218,6 0,01 1US dollars 1,3 Norwegian krone 7,4 0,18 –US dollars 3,6 Swedish krona 23,3 0,15 –US dollars 2,6 Swiss francs 2,9 0,87 –Total 2Pg 132

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20089. Credit risk9.1 IntroductionCredit risk is defined as the risk of a change in value due to actual credit losses deviating from expected creditlosses as a result of the failure of counterparties to meet contractual debt obligations. Credit risk comprisesdefault, settlement and migration risk (if credit ratings change).Key areas where the group is exposed to credit risk are:– Financial asset instruments such as debt instruments, term deposits, investment policies and derivativeinstruments– Reinsurance assets including amounts due from reinsurers in respect of claims already paid– Pledged assets and scrip lending of equity– Certain accounts within the balance sheet categories of prepayments, insurance and other receivables– Tenants that occupy space within the group’s investment properties– Cash and cash equivalentsThe ownership and accountability for credit risk and the reporting process for credit risk are the same as formarket risk.9.2 Financial assetsVarious debt instruments are entered into by the group in order to match policyholders’ liabilities and investsurplus shareholder funds. The group is exposed to the issuer’s credit standing on these instruments.Policies and procedures are in place to mitigate the group’s exposure to these credit risks.Provisions of the Long-term Insurance Act 1998 have the effect of limiting exposure to individual issuers dueto the inadmissibility of assets for regulatory purposes if specified limits are breached.Significant credit exposures that the group may have are reported to GROC and GRC.The group has appointed qualified asset managers to manage the group’s investment and associatedfinancial instruments that support policyholder liabilities. In the case of Liberty Group Limited and LibertyActive Limited the principal asset manager is STANLIB Limited while in the case of Capital Alliance LifeLimited the principal asset manager is Investec Asset Management Limited. In addition, there are a numberof smaller asset managers and the group’s own management who are responsible for asset management,particularly surrounding offshore and shareholder assets.STANLIB credit risk proceduresThe STANLIB Credit Committee, which meets quarterly, and on an ad-hoc basis as required, determines creditlimits for assets under management. The STANLIB Credit Committee is appointed by the STANLIB executivecommittee and consists of the STANLIB Chief Executive Officer, Chief Investment Officer, Head of Equities,Head of Retirement Funds, Head of Middle Office, Head of Risk Management, Head of Compliance, Headand Deputy Head of Fixed Interest team, Credit Analyst and Head of Finance Research. Members of theequity research team are also invited to attend meetings as required.The credit process, involves extensive and in-depth analysis including financial assessment, reviews of ratingsfrom rating agencies and estimated default frequencies which are used to determine appropriate credit limits.Credit analysis of counterparties is done in conjunction with the respective equity analysis of the relevantcompanies.Daily monitoring of actual exposures versus the approved limits is performed by the compliance and riskmanagement functions, which are independent of the fixed interest team.The STANLIB legal department reviews documentation related to credit investments as required and informsthe Credit Committee of acceptability of legal risk. The legal department also ensures that ISDA agreementsare in place with all approved counterparties with whom the asset managers enter into OTC derivativetransactions on behalf of their customers. ISDA agreements assist in the management of credit risk by clearlydefining the performance obligations of counterparties to derivative trades.Pg 133

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20089. Credit risk (continued)9.2 Financial assets (continued)Investec Asset Management (IAM) credit processA separate high level Credit Committee, comprising four IAM directors, has the responsibility of approvingcounterparties, confirming internal ratings (which affect limits) and overseeing the monitoring of existingexposures.The fixed income team is responsible for actively managing credit. A credit application (incorporating bothqualitative and quantitative analysis) is produced for new counterparties. The fixed income team works closelywith the equity investment team and requires its input into all credit decisions involving listed companies.Independent rating reports are used as a source of information.Counterparty exposure, credit rating band exposure, mandates and regulatory limits determine the limits thatare then monitored. Mandate and regulatory limits may override and reduce determined credit limits. Thereview process includes a documentation review, a structure and quantitative analysis, a review of associatedparties, the review of the originator or servicer, an asset review and an assessment of a rating report.ISDA agreements are in place for all OTC derivative transactions.9.3 Reinsurance assetsReinsurance is used to manage insurance risk and consequently, in the liability valuation process, reinsuranceassets are raised for expected recoveries on projected claims. This does not, however, discharge the group’sliability as primary insurer. In addition reinsurance debtors are raised for specific recoveries on claimsrecognised.Credit ratings of reinsurers are taken into account in reinsurance placement decisions. Credit exposure toreinsurers is also limited through the use of several reinsurers.In order to mitigate reinsurance risk, reassurance management perform the following annual checks onreinsurers:– Financial standing of reinsurers is assessed by referring to annual financial statements– Copies of reinsurers’ claim paying abilities, as assessed by reputable rating agencies and copies ofvaluators’ certificates are obtained and analysed– Meetings and administration process audits are conducted with reassurers with whom the group has largerexposures– Reinsurance agreements are reviewed and amended as appropriate with accurate and complete recordskept9.4 Credit assessment changes recognised in profit and lossThe group invests in unlisted debt instruments some of which are not traded in an active market. Theseinstruments are fair valued based on a mark-to-model.For 2008, the change in the fair value movement recognised in profit and loss, with respect to unlisted debtinstruments in a non-active market, due to widening credit spreads currently prevailing in local and globalmarkets, is a negative R366 million (2007: Nil).Pg 134

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20089. Credit risk (continued)9.5 Credit exposureThe following table provides information regarding the aggregated credit risk exposure for the group, for debtinstruments categorised by credit ratings (if available), at 31 December.TotalSove- Not carryingRm reign AAA AA A BBB rated value2008Debt instruments 14 802 11 637 23 078 3 505 45 19 619 72 686– Listed preference shares 453 785 163 10 408 1 819– Unlisted preference shares 1 684 687 2 371– Listed term deposits 14 802 6 575 10 209 1 602 35 4 847 38 070Local 14 802 6 414 10 151 1 559 4 845 37 771Foreign 161 58 43 35 2 299Unlisted term deposits 4 609 10 400 1 740 13 677 30 426Local 4 609 10 400 1 740 4 402 21 151Foreign 9 275 9 275Investment policies 8 746 8 746Prepayments, insuranceand other receivables– Local (1) 183 207 557 51 71 4 012 5 081– Accrued income (1) 183 184 448 31 71 162 1 079– Reinsurancerecoveries 23 109 20 2 154– Other 3 848 3 848Prepayments, insuranceand other receivables– Foreign (1) 797 797– Reinsurancerecoveries 2 2– Other 795 795Reinsurance assets 41 581 187 18 827Derivatives 336 868 4 1 208Loan receivables to joint ventures 4 4Cash and cash equivalents 765 2 620 1 727 5 112Local 657 2 411 1 049 4 117Foreign 108 209 678 995Total assets bearing credit risk 14 985 12 986 27 704 3 747 116 34 923 94 461(1)The total carrying value excludes R84 million dividend income relating to listed equities.Pg 135

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20089. Credit risk (continued)9.5 Credit exposure (continued)The following table provides information regarding the aggregated credit risk exposure for both policyholdersand shareholders, for debt instruments categorised by credit ratings (if available), at 31 December.TotalSove- Below Not carryingRm reign AAA AA A BBB BBB rated value2007Debt instruments 11 278 17 649 17 920 3 445 82 36 7 289 57 699– Listed preferenceshares 423 724 281 911 2 339– Unlisted preferenceshares 1 268 629 1 897– Listed term deposits 11 278 9 829 8 001 2 426 50 211 31 795Local 11 278 9 538 7 952 2 426 50 211 31 455Foreign 291 49 340Unlisted term deposits 7 397 7 927 738 32 36 5 538 21 668Local 7 397 7 927 703 32 36 2 078 18 173Foreign 35 3 460 3 495Investment policies 8 449 8 449Prepayments, insuranceand other receivables– Local (1) 179 353 399 47 1 2 127 3 106– Accrued income (1) 179 334 301 29 1 147 991– Reinsurance recoveries 19 98 18 1 136– Other 1 979 1 979Prepayments, insuranceand other receivables– Foreign (1) 325 325– Accrued income (1)– Reinsurance recoveries– Other 325 325Reinsurance assets 31 576 197 16 820Derivatives 186 4 190Loan receivables tojoint ventures 50 50Cash and cashequivalents 443 2 087 11 2 147 4 688Local 311 2 087 1 196 3 594Foreign 132 11 951 1 094Total assets bearingcredit risk 11 457 18 476 21 168 3 704 83 36 20 403 75 327(1)The total carrying value excludes R97 million dividend income relating to listed equities.Pg 136

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20089. Credit risk (continued)9.5 Credit exposure (continued)The assets in the preceding table are based on the lower of the external credit ratings obtained from variousexternal rating agencies such as Fitch and Standard and Poors. This internal assessment groups the externalratings (based on the rating agencies definitions) within categories described below. These are revised by therespective credit committees who may, based on current analysis, change the external rating from an internalperspective.The rating scales are linked to long-term investment horizons as the group cannot accurately determine thematurity of these assets due to volatility of the markets and policyholder behaviour, and have the followingbroad definitions:Investment gradeSovereign Obligations by the local sovereign entity i.e. South African government are considered to be ofthe highest quality and are subject to minimal credit risk. Sovereign obligations are considered tobe superior to AAA.AAA Obligations are judged to be of the highest quality, with minimal credit risk and indicate the bestquality issuers that are reliable and stable.AA Obligations are judged to be of high quality and are subject to very low credit risk and indicatequality issuers, although riskier than AAA.A Obligations are considered upper-medium grade and are subject to low credit risk although certaineconomic situations can more readily affect the issuer adversely than those rated AAA or AA.BBB Obligations are subject to moderate credit risk and indicate medium class issuers, which arecurrently satisfactory.Not rated The group considers and reviews credit risk on all financial instrument exposures, however incertain categories a formal investment grade is not assessed.DerivativesDerivative counterparties and cash transactions are limited to high credit quality financial institutions withminimum credit ratings of “A” determined by reputable credit rating agencies, unless specifically authorisedby the appropriate investment committee. Exposure to counterparty credit risks are outlined under derivativesin the market risk section of this report.Insurance and other receivablesDebt collection procedures are rigorously carried out on defaulters. Industry supported default lists help toprevent rogue agents, brokers and intermediaries from conducting business with Liberty. Full impairment ismade for non-recoverability as soon as management is uncertain as to the recovery.Investment debtors are protected by the security of the underlying investment not being transferred to thepurchaser prior to payment. Established broker relationships and protection afforded through the rules anddirectives of the JSE Limited further reduce credit risk.ImpairmentsThe table below indicates the impairments raised against financial assets.Pg 137

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20089. Credit risk (continued)9.5 Credit exposure (continued)Financial assets impaired – all rand denominated2008 2007OtherOtherprepayments,prepayments,Unlisted insurance Unlisted insuranceterm and other term and otherdeposits (1) receivables (2) deposits (1) receivables (2)Rm Rm Rm RmGross carrying value 21 186 4 477 18 198 2 581Less: Accumulated impairment (35) (141) (25) (101)Net carrying value 21 151 4 336 18 173 2 480(1)Mortgages and loans, consisting of policy loans, included in “unlisted term deposits” are impaired when the amount ofthe loan exceeds the policyholder’s investment balance. The fair value of mortgages and loans is R804 million (2007:R962 million). The policyholders’ debtors of R735 million (2007: R723 million) are recoverable through offset against theirrespective liabilities (policy benefits).(2)Included in “Other prepayments, insurance and other receivables” are balances due by agents, brokers and intermediaries.These are impaired as soon as management is uncertain as to the recovery of these balances. Agents, brokers andother intermediaries totalling R226 million (2007: R110 million) are subject to a comprehensive relationship managementprogramme, including credit assessment. The highest exposure to any single agent, broker or other intermediary is less thanR6 million (2007: R2 million). The average exposure is R24 000 (2007: R27 000). The widespread nature of the individualamounts combined with a close management relationship reduces the credit risk.9.6 Scrip lendingScrip lending is the process of providing listed equity scrip holdings held by the group to external parties ona lending arrangement, for a negotiated fee, to be returned on a fixed date.The process is well recognised and strictly regulated within the South African environment and is generallyencouraged to support liquidity in the equity markets.Scrip lending counterparties are restricted to appropriately accredited financial institutions. During 2008 thehighest level of equity scrip lending activity at any one time amounted to R5 478 million (2007: R5 776 million)and at 31 December 2008 R1 622 million (2007: R5 209 million). These are disclosed as pledged assets in thefinancial position. Scrip lending activities have resulted in R14 million (2007: R19 million) in scrip lending fees.Fees earned are split 46% to Liberty and 54% to policyholder benefits.Scrip lending of equities held the benefit of registered retirement plans are subject to approval by the relevanttrustees of these plans.2008 2007 2008 2007Credit CreditFinancial Institution Counterparty rating rating Rm RmHSBC AAA AAA 255Standard Bank AA AA 1 035 1 247Rand Merchant Bank AA AA 587 1 745Nedbank AA AA 1 613Absa AAA AAA 10Investec A A 3391 622 5 209Pg 138

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 20089. Credit risk (continued)9.7 Mutual fundsThe group is exposed to underlying credit risk contained within debt instruments held in mutual funds in whichthe group invests. It is practically difficult to accurately aggregate and assess this risk. Mutual funds which arebiased towards debt instruments will consequently carry higher credit exposures.Mutual funds in themselves are currently not formally credit rated. However, each fund manager is required tooperate under the fund’s mandate including not exposing the fund to a single material credit exposure.Further credit risk reduction measures are obligatory for South African mutual funds as required by controlclauses within the Collective Investment Scheme Control Act, 45 of 2002.9.8 Standard Bank Group Limited (Standard Bank) credit risk concentrationStandard Bank is Liberty Holdings Limited’s holding company. Normal credit processes are followed before anyasset exposure is entered into with Standard Bank. Assets within the life licence entities are governed by totalexposure limits to any one institution, set by the FSB.2008 2007Overall Exposure Overall Exposure togroup to Standard group Standardinvestment Bank investment BankRm Rm % Rm Rm %Equity instruments 60 169 2 566 4,3 83 403 4 122 4,9Preference shares 4 190 305 7,3 4 236 294 6,9Term deposits 68 496 10 626 15,5 53 463 10 719 20,0Cash and cash equivalents 5 112 2 693 52,7 4 688 697 14,9Pledged assets – scriplending 1 622 1 035 63,8 5 209 1 247 23,9Derivatives 1 208 593 49,1 190 186 97,9Total exposure toStandard Bank 17 818 17 625The group invests in various structured entities that are credit enhanced by Standard Bank. Total value ofthese investments is R3 035 million (2007: R1 469 million).In the ordinary course of business the group invests in various mutual funds which in turn may have someexposure to Standard Bank. The group does not control these mutual funds. Consequently, it has not beendeemed necessary to quantify the aggregate Standard Bank exposure in each mutual fund, which in any eventwould not be material to the group.9.9 Capital requirementsCredit risk is allowed for in the OCAR calculation by applying a price shock to the market value of assetsbacking non-unit linked products dependent on the asset’s credit rating.The economic capital requirements allow for credit risk by increasing the current risk spreads on the assetsproportionally by a specified amount assumed to occur in a severe credit risk event.Credit risk has a small economic capital requirement.Pg 139

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200810. Operational risk10.1 IntroductionOperational risk is the risk of loss caused by inadequate or failed internal processes, people and systems, orfrom external events. Operational risk is therefore pervasive across all financial institutions.As a typical financial institution, the operational risks the group is exposed to could relate to failures related tothe following:• Information technology• Process management• Implementation of new and emerging regulation• Compliance with regulation• Customer service• Human resources• Internal controls• Project management• Outsourcing of activities• Business continuity• Unit pricing• Introducing new products10.2 Ownership and accountabilityOwnership of and accountability for operational risk management is of primary importance. As indicated bythe ‘three lines of defence’ model of risk management adopted by the group, the first line of defence(management and staff at every level of the business) is accountable for the day-to-day identification,management and monitoring of operational risks. It is also management’s responsibility to report any materialoperational risks, risk events and issues identified to senior management through certain pre-definedescalation procedures.Risk managers in each of the business units ensure that the business adheres to the group’s risk managementand compliance policies and procedures.The Heads of Risk in the business units provide independent oversight of the effectiveness of the group’soperational risk management processes and assist business unit managers by providing training and advicein relation to operational risk management. GRPOC reports on the status of business unit operational riskmanagement to GROC.10.3 Risk identification, assessment and measurementAs noted in the introduction to this section, the group has identified the areas in which operational risk arises.The process of operational risk management starts with the operational risk assessment. Consideration is thengiven to the need for a group or business unit policy to define the approach to mitigating this risk.Risk and compliance policies are developed, where necessary, to:• ensure compliance with internal principles and with legal and regulatory requirements;• address associated risks in the business, define roles, responsibilities and expectations at all levels;• guide staff at all levels on how to conduct Liberty’s business;• ensure that staff apply consistent processes throughout the group; and• help management to develop operating processes.Once these policies have been approved at the appropriate governance level, they are then implemented. Aproject-based approach is used to introduce and implement risk and compliance changes to the organisation,which typically result in changes to processes and roles. Project teams implement changes according to therequirements stipulated in the group’s change management policy and the group’s project managementmethodology and standards.Once identified, operational risks are assessed to determine the potential impact to the group should the riskevents occur, and reviewed against the group’s risk appetite. Mitigating actions are developed for any operationalrisks that fall outside of management’s assessment of risk appetite in order to reduce the level of risk.10.4 Risk managementPolicy compliance is the subject of ongoing monitoring. The group’s policy framework is constantly reviewedand approved where necessary.Pg 140

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200810. Operational risk (continued)10.4 Risk management (continued)Risk management activities in relation to operational risks include but are not limited to:Information technology (IT) risk: The group is highly dependent on and constantly increasing its use ofinformation technology to ensure improved operations and customer service. Information technology is astrategic differentiator in the markets we serve. Our IT systems enable us to take our products to marketsacross the African continent and so carry out our expansion strategy.The group is, therefore, exposed to various IT risks which include the disruption of transaction processing,information loss and/or malicious attacks from third parties.Maintaining technological advantage requires a strong IT risk management culture and function that allows usto identify and manage IT risks effectively. The group’s IT risk management function conforms to the “threelines of defence” model of risk management. In order to prevent potential risk events and ensure best practicelevels of continuous IT service and security, business unit management and second and third line riskmanagement review and ensure compliance with relevant IT policies and procedures, conduct control and riskself-assessments and are subject to internal and external audits.Process risk: The group’s approach to process improvement focuses on process efficiency and work qualitythrough a structured toolset involving significant frontline staff engagement. This methodology has a risk andcompliance identification component to it as well as appropriate engagement touch-points for the functions.The approach ensures that any process undergoing improvement using the methodology has had appropriateinput from risk and compliance specialists, other generic process stakeholders like internal audit and groupfinance, as well as the identification of points of failure in the process by the staff themselves. The interactionsoccur at appropriate stages in the process improvement project which results in risk and compliance controlsbeing built into the new process design.Regulatory risk: The regulatory environment is monitored closely to ensure that the group implements new oramended legislation requirements promptly to ensure compliance and avoid unnecessary fines and penaltiesor the revocation of any business licences.Regulatory monitoring is done by group legal services, distributed mainly in the form of a regulatorydashboard, which details all new regulatory items that have a potential impact on the business as well as detailon the affected area and level of impact. Liberty seeks positive and constructive engagement with our variousregulators and policymakers, both directly and through appropriate participation in industry forums, to partnerwith them in ensuring optimal regulatory outcomes for our industry and all its stakeholders.Some items that are currently being tracked include:• the Consumer Protection Bill and the draft Protection of Personal Information Bill;• the Insurance Laws Amendment Act and its ensuing regulations;• changes to the FAIS Fit and Proper requirements;• various FSB Circulars; and• various Revenue Acts.Compliance risk: The risk of regulatory sanctions, financial loss or damage to reputation as a result of notcomplying with legislation, regulation or internal policies is managed through the established compliancefunctions within the group and a compliance policy. The policy ensures that compliance requirements areidentified and implemented through the development of appropriate policies and procedures and that regularmonitoring and reporting of breaches is carried out within the businesses and at the centre to provide theboard with assurance on the status of compliance within the organisation. A compliance steering committeehas been established to continually identify and interpret regulatory requirements, which impose obligationson the group. The committee assesses the impact of the requirements and ensures the businesses establishprojects to manage any changed regulatory requirementsTaxation risk: The risk of suffering a loss, financial or otherwise, as a result of an incorrect interpretation andapplication of taxation legislation or the impact of new taxation legislation on existing products, is managedthrough the group’s tax policy. The policy ensures that the group fulfils its responsibilities under tax law in eachof the jurisdictions in which it operates, whether in relation to compliance, planning or customer servicematters. Tax law includes all responsibilities which the group may have in relation to company taxes, personaltaxes, capital gains taxes, indirect taxes and tax administration.Pg 141

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200810. Operational risk (continued)10.4 Risk management (continued)The group tax function identifies and manages tax risk through the application of a formulated tax risk approachwhich measures the fulfilment of tax responsibilities against the specific requirements of each category of taxto which the group is exposed and in the context of the various types of activities the group conducts.Human resources: The group remains concerned about the availability of specialist technical skills availablein South Africa to provide first world financial services. It focuses on recruitment, development and retentionthrough a number of group-wide initiatives.Business continuity management (BCM): The risk of not continuing normal business activities should a crisisoccur was given major focus last year, particularly as a result of the electricity crisis which emerged early in2008. The group’s business continuity strategy was significantly revised with the planning assumption beingan expectation of regular, potentially prolonged energy outages. The group updated the impact analysis of itsproperty portfolio and business operations to determine short-, medium- and long-term solutions for affectedlocations. This was a complex task, impacting on continuity of operations as well as potentially on theoperation of the group’s extensive commercial and retail properties. A number of projects to upgrade thegroup’s generator power have now been implemented, and whilst a number of generators still have to becommissioned, our capabilities to continue operations have been significantly enhanced.The business continuity management framework has been revised in line with best practice. The businessimpact assessments have been updated and risks identified pro-actively managed. Appropriate reaction andrecovery structures and plans exist, which are subject to testing on a cyclical basis.Customer complaints: The group customer relations team was established to resolve high-level complaintsfrom customers, regulators, media forums and complaints made directly to executives to ensure a favourablereputation is maintained. Complaints are handled with due care and diligence to minimise any relatedreputation risks and to avoid determinations and regulatory rulings. Any disputed complaints that are unableto be resolved by management are referred to independent dispute resolution for a final assessment. Costsare monitored and recorded centrally for compensation, concessions, ex-gratia payments, regulator rulingsand determinations.Internal and external fraud: The group adopts a ‘zero-tolerance’ approach to fraud. The Group ForensicServices function supports management in meeting their objective of minimising fraud risk. In terms of thegroup’s anti-fraud policy, line management (i.e. the first line of defence) is responsible for ensuring thatcontrols at all stages of a business process are adequate for the prevention and detection of fraud. Preventionand detection measures are periodically rolled out by forensic services to support management, therebyensuring fraud risk is maintained in line with the group’s risk appetite.An independent and externally managed best practice fraud hotline (0800 20 45 57) and internal email facility(fraud@liberty.co.za) are in place and provide the means to ensure that actual and/or suspected fraud orirregularities are confidentially and promptly reported. In addition, the group’s whistle-blowing policy aims toprotect whistle-blowers in the workplace against recrimination and victimisation and promotes staffparticipation in reporting fraud. All reported cases are strictly investigated in line with international standards.Fraud perpetrators are reported to the South African Police Services and criminal proceedings are institutedwhere appropriate.Internal controls: The internal controls implemented in respect of high-risk processes, e.g. the payment ofdeath and disability claims, are reviewed regularly by management for effectiveness. Group Internal AuditServices provide additional assurance on the adequacy and effectiveness of internal controls by conductingindependent risk-based reviews in line with the board approved three-year rolling internal audit plan. Controlweaknesses are reported to management and corrective action plans are implemented by management andindependently reviewed by GIAS.Monitoring controls around business risks confirms that the business is operating within its risk appetite.Monitoring is performed by business unit management, BU risk functions, GRPOC and GIAS. The approachto ensuring compliance is typically included in more detail in individual policies. The extent and frequency ofmonitoring and oversight is influenced by the level of risk of particular business activities.Pg 142

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200810. Operational risk (continued)10.5 Capital requirementsAn allowance for operational risk is required to be made in the OCAR calculation. The method to calculate theoperational risk capital requirement is not prescribed, as there is still considerable academic debate around ‘bestpractice’ approaches to calculate these capital requirements. The methodology used for purposes of the OCARcalculation has been adopted from approaches used in the quantitative impact studies under Solvency II.An allowance for operational risk is also made in the calculation of economic capital requirements.10.6 ReportingThe preparation of monthly and quarterly risk reports forms an integral part of monitoring the group’s overalloperational risk profile. These reports are prepared by each business unit and presented to the relevantbusiness unit executive committees for review and discussion.The reports include information relating to:• critical operational risks the group faces or is potentially facing;• risk events losses and issues (together with intended mitigating actions and progress thereon);• the effectiveness of mitigation plans and progress made from reporting cycle to reporting cycle;• trends in relation to fraud and security incidents, litigation and customer complaints; and• actual losses and control failures experienced.Monthly reports are submitted by the second line of defence risk function. On a quarterly basis the CROcompiles and submits a risk report on the group’s overall risk profile to GROC and GRC and where necessary,escalates material risk exposures to the board.10.7 AssuranceGIAS (the third line of defence) provides independent and objective assurance on the adequacy andeffectiveness of internal controls across all business processes to key stakeholders, including the board.10.8 Short-term InsuranceA comprehensive insurance programme which addresses the diversified requirements of the group is in placeand is determined after extensive research, investigations and consulting with insurance risk and controlexperts. The group’s financial covers for directors and officers, crime and professional indemnity cover areunderwritten by Novae who lead the programme and are supported by a number of Lloyd syndicates andother insurance companiesThe group’s insurance programme includes the following categories of cover:Director’s and officer’s liability insuranceThis insurance was renewed on 31 December 2008 for the 2009 year and is designed to protect directors andofficers of the group and its subsidiary companies by indemnifying them against losses resulting from awrongful act, an error or omission allegedly committed in their capacity as directors or officers.Commercial Crime (CC) and Professional Indemnity (PI)CC cover essentially provides indemnity against losses arising from crime or fraud perpetrated against thegroup by employees or third parties. This insurance also covers losses resulting directly from the fraudulentinput of data on Liberty’s systems, including fraud-related computer virus attacks and the modification anddestruction of electronic data. PI cover protects third parties against financial loss resulting from negligentacts, errors and omissions by the group. Combined CC and PI cover was renewed on 31 December 2008 forthe 2009 year.In addition to the above financial covers, the group ensures that all property investments are adequatelyinsured for material damage and business interruption. All risk insurance relating to assets covers the contentsof buildings occupied by the group, including computers and office equipment. Political riot and public liabilityinsurance is also purchased.Management, together with the group's local and offshore brokers, review the adequacy and effectiveness ofthe group’s insurance programme regularly to ensure that it contributes to the overall risk mitigation and riskmanagement strategy of the group.Pg 143

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200811. Liquidity risk11.1 IntroductionLiquidity risk is the risk of not being able to settle liability obligations because of insufficient funds and/orinvestments that are not marketable and therefore cannot be realised in the short term.Long term insurance companies are registered financial institutions and are required to hold minimum capitalto inter alia reduce policyholder exposure to the entity’s liquidity risk. The Financial Services Board is theregulatory authority that regularly reviews compliance with these minimum capital requirements (refer section3 on capital requirements).The Financial Services Board’s approval of the group issuance of subordinated debt namely being thecallable capital bonds (refer note 16 on the financial statements) included a requirement to hold liquid assetsequal to at least the amount of the outstanding debt being R2 billion. As at 31 December 2008 and 2007 thisrequirement has been met and attested to by the statutory actuary of Liberty Group Limited.Refer to the directors’ report for the company’s borrowing powers.The ownership and accountability for liquidity risk is the same as for market risk.11.2 Asset liability matchingLiquidity requirements are reviewed on a monthly basis by the ALMC and GBSMC.On unit linked business, liquidity risk and asset liability matching risk arising as a result of changes in lapseand withdrawal experience is limited through policy terms and conditions that restrict claims to the value atwhich assets are realised. In the case of property-backed contracts, it is not normally possible to realise theassets as claim payments arise due to the relatively small number of high value properties and illiquidity ofthe assets. For this reason property exposures are afforded specific attention by the Property InvestmentExecutive Committee and orderly sales and purchases are managed within the mandate granted by GBSMC.Similarly the liquidity and asset liability matching risk arising from a change in withdrawal experience onbusiness with DPF is limited through policy terms and conditions that permit withdrawal benefits to be alteredin the event of falling asset prices.On non-participating annuities, the liquidity risk is largely managed by predominantly investing in highly liquidfixed interest securities with appropriately timed cash flows. In addition, the investment proceeds along with newbusiness consideration generally are more than sufficient to meet current annuity payments. No withdrawalbenefits are provided on non-participating life annuities.11.3 Liquidity profile of assetsThe group’s assets are liquid as the following table illustrates. However given the quantum of investments heldrelative to the volumes of trading within the relevant exchanges and counterparty transactions a substantialshort-term liquidation may result in current values not being realised due to demand supply principles. It ishighly unlikely, however, that a short-term realisation of that magnitude would ever occur.Contractual maturity profiles of the group financial instrument assets are contained in section 8.5. No maturityprofile can be reliably given for the group’s investments in mutual funds, equities and non-term financial debtinstruments given the volatility of equity markets and uncertain policyholder behaviour.2008 2007Financial asset liquidity % Rm % RmLiquid (1) 67 139 465 75 162 738Medium (2) 24 49 678 17 38 077Illiquid (3) 9 19 120 8 17 155100 208 263 100 217 970(1)Liquid assets are those that are considered to be realisable within one month (e.g. cash, listed equities, term deposits, etc.)(2)Medium assets are those that are considered to be realisable within six months (e.g. unlisted equities, certain unlisted termdeposits, etc.)(3)Illiquid assets are those that are considered to be realisable in excess of six months (e.g. investment properties)Pg 144

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200811. Liquidity risk (continued)11.4 Maturity profile of liabilities11.4.1 Maturity profiles of the group’s financial instrument liabilitiesThe table below summarises the maturity profile of the financial liabilities of the group based on theremaining undiscounted contractual obligations. Policyholder liabilities under investment contracts andinvestment contracts with DPF and insurance contracts are shown in a separate table in 11.4.2, asthese are managed according to expected and not contractual cash flows. Derivative financialinstruments are shown in a separate table in 8.8.BalancesheetContractual cash 0 – 3 3 – 12 1 – 5 6 – 10 carryingflows (Rm) months (1) months years years Total value2008Callable capital bond 54 125 2 481 2 660 2 054Redeemable nonparticipatingpreference shares 23 137 95 255 225Minority loan 234 234 151Third party financial liabilitiesarising on consolidation ofmutual funds 10 481 10 481 10 481Insurance and otherpayables 8 177 9 22 2 8 210 8 210Total 18 735 271 2 832 2 21 840 21 121Percentage portion 86% 1% 13% 100%2007Callable capital bond 54 125 2 660 2 839 2 054Redeemable non-participatingpreference shares 171 247 418 364Third party financial liabilitiesarising on consolidationof mutual funds 8 040 8 040 8 040Insurance and other payables 5 746 82 159 6 5 993 5 993Total 14 011 454 2 819 6 17 290 16 451Percentage portion 81% 3% 16% 100%(1)0 – 3 months are either due within the time frame or are payable on demand.Pg 145

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200811. Liquidity risk (continued)11.4 Maturity profile of liabilities (continued)11.4.2 Liquidity risks arising out of obligations to policyholdersThe following tables give an indication of liquidity needs in respect of cash flows required to meetobligations arising under insurance contracts, investment contracts with DPF and investment contracts.The amounts in the unit liabilities table represent the expected cash flows arising from the value ofunits, allowing for future premiums, growth, benefit payments and expected policyholder behaviour. Theamounts in the non-unit liability cash flow table represent the expected cash flows from the non-unitliabilities. All the cash flows are shown gross of reinsurance. Undiscounted cash flows are shown andthe effect of discounting is taken into account to reconcile to total policyholder liabilities underinsurance contracts, investment contracts and investment contracts with DPF. For unit-linked contracts,the cash flows relating to the DPF portion are assumed to occur in proportion to the cash flows of theguaranteed units. The cash flows for the guaranteed element and the non-guaranteed element ofinsurance contracts with DPF have been combined and are included in the unit cash flow table. Inrespect of annually renewable risk business (namely lumpsum group risk business, group disabilityincome business and credit life business) no allowance has been made for the expected cash flowsexcept in respect of incurred but not reported claims (IBNR) and disability income annuities in paymentwhere applicable. The liabilities in respect of embedded value derivatives are assumed to run-off inthe same proportion as the unit cash flows that give rise to them.Investment Investment InsuranceExpected cash flows contracts with DPF contracts2008 2007 2008 2007 2008 2007Unit liabilities Rm Rm Rm Rm Rm RmWithin 1 year 4 277 4 109 284 337 6 129 6 4392 – 5 years 3 741 4 666 (97) (8) 22 939 25 8626 – 10 years 699 1 669 (188) (115) 9 596 9 15511 – 20 years (186) (1 418) (381) (491) 27 994 26 359Over 20 years 37 292 41 029 3 030 3 632 31 115 41 138Total 45 823 50 055 2 648 3 355 97 773 108 953Total deferred taxation (203) (196) (533) (515)Total unit liabilities 45 620 49 859 2 648 3 355 97 240 108 438Non-unit liabilitiesWithin 1 year 473 318 (1) 1 866 2 3542 – 5 years 1 125 846 (1) (1) 7 691 7 5776 – 10 years 275 296 (1) (1) 5 544 6 13311 – 20 years 72 93 (1) (1) 12 101 12 049Over 20 years 2 4 37 088 39 165Effect of discountingcash flows (237) (184) 3 2 (39 439) (44 164)Total non-unit liabilities 1 710 1 373 – (2) 24 851 23 114Pg 146

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200811. Liquidity risk (continued)11.4 Maturity profile of liabilities (continued)10.4.2 Liquidity risks arising out of obligations to policyholders (continued)Investment Investment Insurancecontracts with DPF contracts2008 2007 2008 2007 2008 2007Total policyholder liabilities Rm Rm Rm Rm Rm RmWithin 1 year 4 750 4 427 284 336 7 995 8 7932 – 5 years 4 866 5 512 (98) (9) 30 630 33 4396 – 10 years 974 1 965 (189) (116) 15 140 15 28811 –20 years (114) (1 325) (382) (492) 40 095 38 408Over 20 years 37 294 41 033 3 030 3 632 68 203 80 303Effect of discountingcash flows (237) (184) 3 2 (39 439) (44 164)Total 47 533 51 428 2 648 3 353 122 624 132 067Total deferred taxation (203) (196) (533) (515)Total policyholder liabilities 47 330 51 232 2 648 3 353 122 091 131 552The following table shows the cash surrender value for policyholders’ liabilities:2008 2007Carrying Surrender Carrying SurrenderRm value value value valueInsurance contracts 122 091 95 966 131 552 105 557Investment contractswith DPF 2 648 2 655 3 353 2 931Investment contracts 47 330 47 151 51 232 51 121Total policyholder liabilities 172 069 145 772 186 137 159 609The contractual worst case cash flows for investment contracts, would be an immediate cash flowamounting to the surrender value of investment contracts at the financial position date.11.5 Capital requirementsThe group’s view is that liquidity risk has to be managed by means other than capital. If assets and liabilitiesare not well matched by term even a large amount of capital may provide only a little buffer in an extremeliquidity event.Liquidity risk is most likely to arise due to a sharp increase in benefit withdrawals or risk-related claims.The liquidity risk arising from withdrawals is largely managed by policy terms and conditions in the contractthat enable the group to reduce withdrawal benefits in the event that asset prices fall. The liquidity risk arisingfrom risk-related claims is managed by having reinsurance arrangements in place for catastrophic events.Liquidity risks arising on maturity benefits are managed by closely monitoring the expected future maturitiesand realising assets in advance if large outflows are expected. As a result of these liquidity risk mitigationmeasures in place, the liquidity risk is expected to be small.Currently no allowance is made for liquidity risk in the economic capital requirements.Pg 147

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200812. Reputational riskThe group defines reputational risk as the risk which arises when an actual risk event occurs that has the potentialto materially influence stakeholders’ perceptions of, and trust and confidence in, the group.Reputation damage is usually a consequence of failed risk management and is, therefore, managed by havingeffective risk management processes in place and by effectively dealing with the impact of any significant risk event.The group also takes cognisance of research showing the extreme and long-term negative effects on the shareprices of companies that have experienced losses caused by risks that were not understood by shareholders andanalysts. At least in part, these effects reflect the markets’ loss of confidence in the reputation and transparency ofthese companies. With this in mind, the group is committed to making risk disclosures which assists its shareholdersand analysts in gaining a full understanding of its business.Should a risk event occur, the group’s crisis management processes are designed to minimise the reputation impactof the event. Crisis management teams are in place both at executive and business unit level to ensure the effectivemanagement of any such events. This includes ensuring that the group's perspective is fairly represented inthe media.Reputational risk can also arise through the group’s business practices being considered inappropriate, givenchanges in the social and economic environment. The group’s risk identification processes include the earlyidentification of environmental changes and their potential impacts.The group’s leadership charter emphasises the importance of the customer, as well as fairness, sincerity andtransparency in all its dealings. As such a ‘treating customers fairly’ (TCF) approach is actively encouraged. Thegroup makes use of independent dispute resolution and established a customer relations department to ensure thatcustomers who perceive that they are not being fairly dealt with, are able to escalate their complaints or issues forresolution. The group monitors the complaints that are handled by these functions and ensures that managementtakes the necessary action to address problem areas in a prompt and efficient manner.No explicit allowance is made for reputational damage in the OCAR or economic capital requirements. An implicitallowance is included in the run-on-the bank type of scenario allowed for in TCAR and in the economic capitalrequirements’ withdrawal catastrophe event as this could occur as a result of reputational damage.Pg 148

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200813. Concentration risk13.1 IntroductionConcentration risk is the risk that the group is exposed to financial loss which if incurred would be significantdue to the aggregate (concentration) exposure the group has to a particular asset, counterparty, customer orservice provider.In addition to concentration risks detailed in previous sections the group has identified the following additionalrisks detailed below.13.2 Asset manager allocationThe group engages the services of the following asset managers who manage assets on its behalf:2008 2007% Rm % RmLiberty Properties (subsidiary) 9 19 120 8 17 155STANLIB (subsidiary) 65 134 772 72 156 169Investec 9 17 977 9 19 092Ermitage 8 17 074 3 6 183Frank Russell – 810 1 1 277Investment Solutions 4 8 465 3 7 805Other 5 10 045 4 10 289100 208 263 100 217 970Risks associated with asset managers are:1) Poor fund performance resulting in the reduced ability of the group to retain and sell investment relatedproducts.2) Adoption of poor credit policies exposing the group to undue credit risk.Both aspects are closely monitored by the ALMC and GBSMC. Credit processes within STANLIB and Investechave been outlined in the credit risk section of this report.13.3 South AfricaThe group was founded in South Africa 51 years ago and has, during this time, mainly concentrated onproviding risk and investment products to South African customers. Consequently both the group’s asset baseand liabilities contain South African country risk.The table below summarises South African asset concentration. With the exception of R60 million (2007:R23 million) of liabilities, all other liabilities are rand denominated.Financial, property and insurance assets2008 2007SouthSouthAfrican Foreign African Foreignrand currency Total rand currency TotalRisk category Rm Rm Rm Rm Rm RmEquity price 58 942 10 512 69 454 88 738 14 144 102 882Interest rate 83 248 14 970 98 218 66 250 7 772 74 022Property price 20 708 5 20 713 18 396 9 18 405Mixed portfolios 12 324 5 519 17 843 16 681 4 970 21 651Reinsurance assets 827 827 820 820Derivatives 1 204 4 1 208 190 190177 253 31 010 208 263 191 075 26 895 217 97085,1% 14,9% 100,0% 87,7% 12,3% 100,0%Pg 149

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200814. Sensitivity analysisThe group’s earnings and available capital are exposed to insurance and market risks amongst others through itsinsurance and asset management operations. Assumptions are made in respect of the market and insurance risksin the measurement of policyholder liabilities. This section provides the group’s monetary sensitivity to changes insome of these variables.The sensitivities provided, in isolation, are not amounts that can simply be extrapolated to determine prospectiveearnings’ forecasts and caution is advised to any user doing this. They do, however, provide insight into the impactthat changes in these risks can have on policyholder liabilities and attributable profit after taxation.The upper and lower sensitivities chosen reflect management’s best judgement of a reasonably possible change inthe respective variable (i.e. management’s view is that the actual experience has a 50/50 chance of falling in/out ofthe range) within a twelve month period from the financial position date. Each range used is broadly based onapplying a 75% confidence level to the relevant historical experience. These ranges are adjusted accordingly formanagement’s views. The sensitivity analysis does not cover extreme or irregular events that occur sporadically andtherefore not on an annual basis.The table below provides a description of the sensitivities that are provided on insurance risk assumptions.Insurance risk variables Description of sensitivityAssurance mortalityAnnuitant longevityMorbidityWithdrawalExpense per policyA level percentage change in the expected future mortality rates on assurance contractsA level percentage change in the expected future mortality rates on annuity contractsA level percentage change in the expected future morbidity ratesA level percentage change in the policyholder withdrawal rates prior to maturityA level percentage change in the expected maintenance expensesSensitivities on expected taxation have not been provided.Insurance risk sensitivities are applied as a proportional percentage change to the assumptions made in themeasurement of policyholder liabilities.The table below provides a description of the sensitivities provided on market risk assumptions.Market risk variablesInterest rate yield curveDescription of sensitivityA parallel shift in the interest rate yield curveImplied option volatilities A change in the implied short-term equity, property and interest rate option volatilityassumptionEquity priceRand currencyA change in the local and foreign equity pricesA change in the ZAR exchange rate to all applicable currenciesSensitivities on long-term expense inflation assumptions have not been provided.The equity price and rand currency sensitivities are applied as an instantaneous event at the financial position datewith no change to long-term market assumptions used in the measurement of policyholder liabilities (i.e. the assetsare instantaneously impacted by the sensitivity on the financial position date; the new asset levels are applied to themeasurement of policyholder liabilities where applicable, but no changes are made to the assumptions used in themeasurement of policyholder liabilities). The interest rate yield curve and implied option volatilities sensitivities areapplied similarly but the assumptions used in the measurement of policyholder liabilities that are dependent oninterest rates yield curves and implied option volatilities are updated.The market sensitivities are applied to all assets held by the group (not just assets backing the policyholderliabilities).Each sensitivity is applied in isolation with all other assumptions left unchanged.Pg 150

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200814. Sensitivity analysis (continued)The table below summarises the impact of the change in the above risk variables on policyholder liabilities and onordinary shareholders’ equity and attributable profit after taxation:Impact on ordinaryImpact on shareholders’ equityChange in policyholders’ and attributable31 December 2008 variable liabilities profit after taxationAssumption description % Rm RmInsurance assumptionsMortalityAssured lives +2 187 (135)-2 (192) 138Annuitant longevity +4 242 (174)-4 (231) 166Morbidity +5 288 (201)-5 (291) 204Withdrawals +8 175 (126)-8 (195) 141Expense per policy +5 173 (125)-5 (177) 128Market assumptionsInterest rate yield curve +12 (3 513) (28)-12 3 715 115Option price volatilities +10 264 (173)-30 (622) 393Equity prices +22 17 886 972-7 (4 994) (825)Rand exchange rates +12 (1) 1 348 185-12 (2) (1 329) (230)(1)Strengthening foreign currency.(2)Weakening foreign currency.Pg 151

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200814. Sensitivity analysis (continued)14.3 Sensitivities provided (continued)Impact on ordinaryImpact on shareholders’ equityChange in policyholders’ and attributable31 December 2007 variable liabilities profit after taxationAssumption description % Rm RmInsurance assumptionsMortalityAssured lives +2 188 (132)-2 (188) 132Annuitant longevity +4 179 (126)-4 (172) 121Morbidity +5 282 (195)-5 (282) 195Withdrawals +8 155 (111)-8 (170) 122Expense per policy +5 194 (137)-5 (194) 137Market assumptionsInterest rate yield curve +10 (2 510) 77-10 2 990 (300)NoteOption price volatilities 1 527 (374)2 (482) 342Equity prices and randexchange rates 3 36 897 3 5644 (6 956) (736)Notes1. 17% increase in equity option price volatilities plus13% increase in interest rate and property option price volatilities plus12% increase in foreign asset volatilities (expressed in rands)2. Note 1 except a decrease in option price volatilities3. 35% increase in rand denominated equities plus20% increase in foreign currency denominated equities plus15% rand depreciation to all applicable currencies4. 7% decrease in rand denominated equities plus3% decrease in foreign currency denominated equities plus3% rand appreciation to all applicable currenciesPg 152

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200815. Summary of the group’s financial, property and insurance assets and liabilities per class15.1 AssetsRandForeign currencydenominated denominated Total2008 2007 2008 2007 2008 2007Rm Rm Rm Rm Rm RmEquity instruments 52 562 76 158 9 229 12 454 61 791 88 612Listed ordinary shares on the JSE (1) 51 930 75 275 51 930 75 275Listed ordinary shares on foreignexchanges 8 876 12 208 8 876 12 208Listed preference shares on the JSE (1) 23 23Unlisted 632 860 353 246 985 1 106Debt instruments 63 112 53 864 9 574 3 835 72 686 57 699Listed preference shares on the JSE (1) 1 819 2 339 1 819 2 339Unlisted preference shares 2 371 1 897 2 371 1 897Listed term deposits (2) on BESA (3) ,or JSE (1) or foreign exchanges 37 771 31 455 299 340 38 070 31 795Unlisted term deposits (2) 21 151 18 173 9 275 3 495 30 426 21 668Mutual funds (4) 22 474 27 592 10 411 9 187 32 885 36 779Active market 22 039 27 372 10 411 9 187 32 450 36 559Property 1 588 1 233 5 9 1 593 1 242Equity instruments 5 945 12 369 1 283 1 690 7 228 14 059Interest-bearing instruments 7 535 5 274 3 604 2 518 11 139 7 792Mixed assets classes 6 971 8 496 5 519 4 970 12 490 13 466Non-active market 435 220 435 220Property 8 8Equity instruments 435 212 435 212Investment policies 8 746 8 449 8 746 8 449Interest linked 3 393 264 3 393 264Mixed assets classes 5 353 8 185 5 353 8 185Reinsurance assets 827 820 827 820Derivatives 1 204 190 4 1 208 190Prepayments, insurance and otherreceivables 5 087 3 203 797 325 5 884 3 528Current balance related to– insurance contracts 664 750 6 670 750– investment contracts 81 109 3 84 109Other prepayments, insurance andother receivables 4 342 2 344 788 325 5 130 2 669Loan receivables on joint ventures 4 50 4 50Cash and cash equivalents 4 117 3 594 995 1 094 5 112 4 688Property 19 120 17 155 19 120 17 155177 253 191 075 31 010 26 895 208 263 217 970(1)JSE – Johannesburg Stock Exchange.(2)Term deposits include instruments which have a defined maturity date and capital repayment. These instruments are bynature interest bearing at a predetermined rate, which is either fixed or referenced to quoted floating indices.(3)BESA – Bond Exchange of South Africa.(4)Mutual funds are categorised into either property, equity, interest-bearing instruments based on a minimum of 80% ofthe underlying asset composition of the fund by value, being of a like category. In the event of “no one categorymeeting this threshold” it is classified as mixed assets class.Pg 153

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200815. Summary of the group’s financial, property and insurance assets and liabilities per class (continued)15.2 LiabilitiesPolicyholder liability classTotal perInvestment statementInsurance Investment contracts of financialcontracts contracts with DPF positionRm Rm Rm Rm2008Policyholders’ liabilities 172 069Unit-linked (excluding discretionaryparticipation features (DPF)) 80 745 46 293 127 038Business with DPF 17 168 2 648 19 816Non-participating annuities (includingdisability income in claim) 17 423 1 186 18 609Guaranteed capital endowments 5 996 5 996Individual pure risk (excluding disabilityincome annuities in claim) (3 283) 10 (3 273)Group risk (excluding group disabilityincome annuities in claim) 864 864Embedded derivatives 3 711 44 3 755Total deferred taxation applicable to fair valueadjustments on investment properties (533) (203) (736)Third party financial liabilities arising onconsolidation of mutual funds 10 481Financial liabilities at amortised cost 2 430Derivative financial liabilities 77Insurance and other payables 8 210Current balance related to insurance contracts 2 630Current balance related to investment contracts 276Other 5 304122 091 47 330 2 648 193 2672007Policyholders’ liabilities 186 137Unit-linked (excluding discretionaryparticipation features (DPF)) 90 772 50 543 141 315Business with DPF 21 919 3 353 25 272Non-participating annuities (includingdisability income in claim) 14 780 872 15 652Guaranteed capital endowments 4 213 4 213Individual pure risk (excluding disability incomeannuities in claim) (2 187) (2 187)Group risk (excluding group disability incomeannuities in claim) 803 803Embedded derivatives 1 767 13 1 780Total deferred taxation applicable to fair valueadjustments on investment properties (515) (196) (711)Third party financial liabilities arising onconsolidation of mutual funds 8 040Financial liabilities at amortised cost 2 418Derivative financial liabilities 66Insurance and other payables 5 993Current balance related to insurance contracts 2 715Current balance related to investment contracts 270Other 3 008131 552 51 232 3 353 202 654Pg 154

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200815. Summary of the group’s financial, property and insurance assets and liabilities per class (continued)15.3 Reconciliation of financial asset classes to financial positionTotal perAsset classstatementEquity Debt Mutual Investment of financialinstruments instruments funds policies Derivatives positionRm Rm Rm Rm Rm Rm2008Properties 19 120Properties under development 215Owner-occupied properties 1 282Investment properties 16 771Operating leases – accruedincome 1 067Operating leases – accruedexpense (215)Held-to-maturity financialinstruments with joint ventures 4Reinsurance assets 827Pledged assets 1 622 1 622Interest in associates– mutual funds 4 726 4 726Financial instruments 60 169 72 686 28 159 8 746 1 208 170 968Prepayments, insurance andother receivables 5 884Cash and cash equivalents 5 112Total financial, property andinsurance assets 61 791 72 686 32 885 8 746 1 208 208 2632007Properties 17 155Owner-occupied properties 1 276Investment properties 14 937Operating leases – accruedincome 1 180Operating leases – accruedexpense (238)Held-to-maturity financialinstruments with joint ventures 50Reinsurance assets 820Pledged assets 5 209 5 209Interest in associates– mutual funds 10 297 10 297Financial instruments 83 403 57 699 26 482 8 449 190 176 223Prepayments, insurance andother receivables 3 528Cash and cash equivalents 4 688Total financial, property andinsurance assets 88 612 57 699 36 779 8 449 190 217 970Pg 155

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200816. Summary of the group’s assets and liabilities by measurement basisFinancial position measurement basis at 31 December 2008CostAmor-Financial less Amor- tisedFair sound- amor- tised fair Past Equity Calculatedvalue ness (1) tisation (2) cost (2) value (2) service accounted (2) amount Other (2)Note 1 2 3 4 5 6 7 8 9AssetsEquipment and properties underdevelopment 946Owner-occupied properties 1 282Investment properties 16 771Intangible assets 239 1 091 114Defined benefit pensionfund employer surplus 144Deferred acquisition costs 344Interests in joint ventures 4 501Reinsurance assets 827Operating leases – accrued income 1 067Pledged assets 1 622Interests in associates – mutual funds 4 726Financial instruments 170 233 735Deferred taxation 131Prepayments, insurance and otherreceivables 5 884Cash and cash equivalents 5 112Total assets 206 697 827 1 529 739 1 091 144 501 131 114Percentage (%) 97,6 0,4 0,7 0,3 0,5 0,1 0,2 0,1 0,1LiabilitiesPolicyholders’ liabilities 51 085 120 984Insurance contracts 3 755 118 336Investment contracts with DPF 2 648Financial liabilities under investmentcontracts 47 330Financial liabilities at amortised cost 2 430Third party financial liabilities arisingon consolidation of mutual funds 10 481Employee benefits 298 344Deferred revenue 114Deferred taxation 2 897Provisions 64Operating leases – accrued expense 215Derivative financial liabilities 77Insurance and other payables 8 210Current taxation 748Total liabilities 70 366 120 984 114 2 430 – 344 – 3 645 64Percentage (%) 35,5 61,1 0,1 1,2 0,2 1,8 0,1(1)Subject to liability adequacy test.(2)Subject to annual impairment tests.Note1. Amounts equal or materially approximate fair value.2. Financial Soundness Valuation Methodology defined within South African actuarial guidance notes3. Original cost less straight line amortisation over defined periods, limited to residual value.4. Amortised cost utilising the effective interest rate method.5. Fair value at acquisition less straight line amortisation over defined periods, limited to residual value.6. Past services obligation determined using the projected unit credit method.7. Cost of investment plus equity accounted post acquisition earnings.8. Gross calculated amounts utilising appropriate tax rates not present valued over expected settlement periods.9. Other comprises goodwill at cost and provisions at best estimate liability.Pg 156

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200817. Consolidated mutual funds17.1 IntroductionThe group invests in various registered mutual funds in order to match obligations provided in policyholdercontracts.Certain of these mutual fund investments exceed 50% of the total value of the underlying net assets within thefund. Consequently, these funds are defined as subsidiaries in terms of the group’s accounting policies andconsolidated into the group results.Each fund has its own legal constitution and operates within a defined fund mandate delegated to theappointed fund manager. Market and credit risks assumed within the assets held are controlled by variousprotection mechanisms within the mandate and in law. For example, the Collective Investment SchemesControl Act, 45 of 2001, in South Africa prescribes maximum limits to concentration risk exposures.Each fund’s trustees or board appoints administrators who are responsible to ensure that the fundsmandate and any internal and legislated control procedures are adhered to. In the event of breach theyare obligated to immediately bring it to the attention of the fund trustees/board and management of theadministrators for remedial action.The mutual fund vehicle and related procedures for offering investments is mature within South Africa and iswell regulated.The mutual funds which are defined as subsidiaries can be grouped under two managers, namely, STANLIBLimited, a fellow group subsidiary, and Ermitage Funds Limited, a former group subsidiary.Described below is each mutual fund subsidiary and their respective mandate and objectives.17.2 Funds managed by STANLIBSTANLIB in South Africa employs a multi-style, multi-manager investment approach that is designed toproduce above average returns with below average risk. This is achieved by:• A thorough and ongoing quantitative and qualitative research process of all managers in the domesticuniverse.• Selecting the most talented specialist managers, taking their investment style and specific areas ofexpertise into consideration.• Determining the optimal blend of selected managers within the portfolio through a portfolio constructionand testing process.• Writing segregated investment mandates with selected managers to tightly control portfolio risk.• Continuous monitoring of the portfolio risk and return characteristics of each selected manager as well asthe overall portfolio.• Making manager changes where STANLIB Multi-Manager feels this is in the best interest of investors.The Collective Investments Scheme Control Act, 45 of 2001, also imposes specific restrictions which theunderlying managers have to comply with and also restricts the interest rate and credit risk, where applicable,that they are able to take.17.2.1 STANLIB Multi-Manager Property FundObjective – To achieve an investment medium for investors which shall have as its primary objectivegrowth of capital and income, with the focus on income yield relative to income growth.Mandate restrictions – Liquidity may not exceed 50%. This portfolio may not have any foreign exposure.Typical investments – Listed property shares and property-related securities including property loanstock, debentures, debenture stock and debenture bonds, unsecured notes and collective investmentschemes in property.Risk exposure – Moderately aggressive fund exposed to property price, interest rate and credit risk.17.2.2 STANLIB Multi-Manager Flexible Property FundObjective – To generate a reasonably high level of current income as well as the potential for moderatecapital growth with a bias to property securities.Mandate restrictions – At least 40% exposure to property shares and property related securities.Liquidity may not exceed 60%. The portfolio’s exposure to non-equity securities shall be between15% – 60% of the portfolio. This portfolio may not have any foreign exposure.Pg 157

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200817. Consolidated mutual funds (continued)17.2 Funds managed by STANLIB (continued)17.2.2 STANLIB Multi-Manager Flexible Property Fund (continued)Typical investments – Financially sound listed property securities and other securities includingproperty loan stock, debentures, debenture stock, debenture bonds, unsecured notes and collectiveinvestment schemes in property.Risk exposure – Moderate fund exposed to property price, interest rate and credit risk.17.2.3 STANLIB Multi-Manager International Fund of FundsIn territories other than South Africa, participatory interests will be included in the portfolio only wherethe regulatory environment is to the satisfaction of the manager and the trustee and of sufficientstandard to provide investor protection at least equal to that in South Africa, as the CollectiveInvestment Schemes Control Act, 45 of 2001, may allow from time to time, and liquid assets which areconsistent with the portfolio’s investment policy. The collective investment schemes will also beregistered collective investment schemes administered by a globally recognised multi-manager.Objective – To achieve an investment medium for investors that shall have as its primary objectivecapital growth, with income generation as a secondary objective.Mandate restrictions – The portfolio must contain a minimum foreign exposure of 85%.Typical investments – Apart from liquid assets, consists solely of participatory interests of collectiveinvestment schemes, which have as their investment objective the investment in securities listed onforeign exchanges.Risk exposure – Aggressive fund exposed to equity price and currency risk.17.2.4 STANLIB Funds LimitedSTANLIB Asset Management Limited is the investment manager in respect of the class funds, whileHSBC Luxembourg is the administrator of the class funds. This fund consists of the following classfunds (class fund specific objectives are stated under each class fund):STANLIB Multi-Manager Global Bond FundObjective – To provide attractive investment returns from investments in major international bondmarkets.STANLIB Multi-Manager Global Equity FundObjective – To maximise long-term total returns by investing in global equities.High Alpha Global Equity FundObjective – To maximise long-term total returns by investing in global equities.STANLIB Global Bond FundObjective – To provide attractive investment returns from investments in major international bondmarkets. The criteria for investment is the preservation of capital and appropriate weighted averagecredit rating.Mandate restrictions for all the above funds – No investment may exceed 10% of the net asset value ofthe class fund or a 10% holding of the total nominal amount of the investment. However, the aggregateof amounts held on call or deposit accounts with an approved bank (banking institution withshareholders’ funds greater than US$ 500 million) may represent up to 20% of the net asset value onthe fund. A class fund shall not be exposed to the creditworthiness and solvency of any onecounterparty by more than 20% of net asset value of the fund. The fund shall not acquire any realproperty, gold or silver bullion, platinum or other precious metals or coins. A class fund may not engagein scrip borrowing or invest in a fund of funds or a feeder fund. An investment in hybrid funds may notexceed 20% in aggregate of the class fund’s net asset value. A class fund shall not invest in anysecurity in which a director owns more than 0,5% of the total nominal amount of all the listed securitiesof that class, or collectively the directors own more than 5% of those securities.Typical investments – Dependent on the particular class fund.Risk exposure – Dependent on the particular class fund mix. However, the fund is exposed to equityprice, property price, interest rate, credit and currency risk.Pg 158

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200817. Consolidated mutual funds (continued)17.3 Funds managed by ErmitageErmitage Funds Limited is the investment manager of the below funds while HSBC Luxembourg is theadministrator of these funds.17.3.1 Ermitage Event Driven FundObjective – To deliver consistent and superior returns over the medium term compared to fixed interestinvestments by investing in a diversified portfolio of risk arbitrage and event driven funds managed byspecialist managers who have, over a prolonged period, achieved above average, risk adjustedreturns.Mandate restrictions – No investment can be acquired where the value of an investment in any one fundexceeds 15% of the net asset value of the fund, or where the value of loans to or investments insecurities created, issued, made, accepted or guaranteed by any one issuer or the value of exposureto the creditworthiness or solvency of any counterparty exceeds 20% of the gross assets of the fund.Direct investments in physical commodities or real property may not exceed 10% of the gross assetsof the fund. Borrowings shall be temporary in nature and shall not exceed 20% of the net asset valueof the fund.Typical investments – The underlying funds will invest in equity securities of entities engaged incorporate mergers and acquisitions and loan stock or debt of companies with proven products andbusiness track records which are involved in the restructuring/rescheduling of their debt programmeor other structural realignment.Risk exposure – The fund is exposed to equity price risk, interest rate, credit and currency rate risk.17.3.2 Ermitage Asset Selection FundObjective – To seek consistent annual returns representing a meaningful premium over the risk-free ratethrough investments in funds investing primarily in relative value and arbitrage strategies.Mandate restrictions – The fund may not hold more than 20% of the net asset value of any singleinvestment fund. No more than 20% of the gross assets of the fund may be lent to or invested in thesecurities of any one issuer or may be exposed to the creditworthiness or solvency of any onecounterparty. Borrowings and leverage will only be temporary and in any event will not exceed 100%of the net asset value of the fund. Borrowings will be used for short-term liquidity purposes and willnot be used for gearing. Option premiums and futures margins cannot in aggregate exceed 10% of thenet asset value of the fund.Typical investments – Investment funds or managed accounts with investment managers whosemethodology aims to provide absolute rather than relative returns.Risk exposure – The fund is exposed to equity price, interest rate, credit and exchange risk.17.3.3 Ermitage European Multi Strategy FundObjective – To achieve consistent absolute, risk-adjusted returns through diversification across multipleasset classes and strategies.Mandate restrictions – The fund will not lend to or invest more than 20% of its gross assets in thesecurities of any one issuer. This restriction will not apply in relation to investment in securities issuedby a government, government agency or instrumentality of a European Union Member State. The fundwill not expose more than 20% of its gross assets to the creditworthiness or solvency of any onecounterparty. The fund will not invest in real property or physical commodities or take or seek to takelegal or management control of any issuer in which it invests.Typical investments – The fund allocates its assets across a number of funds and managed accountsimplementing a variety of investment strategies. In addition, the fund may invest in other securities,including derivatives, as part of its overall investment and hedging strategy and for the purposes ofefficient portfolio management.Risk exposure – The fund is exposed to equity price, interest rate, credit and exchange risk.Pg 159

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200817. Consolidated mutual funds (continued)17.3 Funds managed by Ermitage (continued)17.3.4 Ermitage European Absolute FundObjective – To seek long-term capital appreciation by investing in a diversified portfolio of Europeanfocused hedge funds.Mandate restrictions – The fund will invest at all times more than 25% of its net asset value in openendedinvestment funds but may not invest more than 20% of its net asset value in a single issuer orinvestment fund. The fund may not hold more than 20% of the securities issued by a single issuer orinvestment fund. Investments are not allowed where the investment policy of the investment fund is theinvestment in other collective investment undertakings. The fund may not invest in real estate nor ininvestment funds where the investment policy is the investment in real estate. Borrowings will only betemporary, and in any event will not exceed 10% of net asset value of the fund.It may deal in options on securities only if such options are traded on a recognised exchange or aregulated market which operates regularly and is recognised and open to the public. It may write calloptions on securities provided such options are covered by assets of the fund. In this case theaggregate exercise price of all uncovered options shall not exceed 25% of the net assets of the fund.It may acquire call and put options on securities provided that such options that are acquired forpurposes other than hedging shall not exceed 15% of the net assets of the fund.Typical investments – European focused hedge funds.Risk exposure – The fund is exposed to equity price, interest rate, credit and currency risk.17.3.5 Ermitage Global Long/Short FundObjective – To achieve consistent absolute, risk-adjusted returns principally through investments inglobal equity markets primarily in long/short equities and equity linked instruments, but also to a lesserextent, in the currency and debt markets.Mandate restrictions – The fund will not lend to or invest more than 20% of its gross assets in thesecurities of any one issuer. This restriction will not apply in relation to investment in securities issuedby a government, government agency or instrumentality of a European Union Member State. The fundwill not expose more than 20% of its gross assets to the creditworthiness or solvency of any onecounterparty. No real property or physical commodities may be acquired.Typical investments – Investments in global equity markets primarily in long/short equities and equitylinked instruments, and to a lesser extent, in the currency and debt markets.Risk exposure – The fund is exposed to equity price, interest rate, credit and exchange risk.17.3.6 Ermitage Global Wealth Management Strategies FundThis fund consists of the following class funds (class fund specific objectives are stated under eachclass fund):The Conservative FundObjective – To generate returns superior to cash with a very low exposure to traditional equities.The Moderately Conservative FundObjective – To generate returns superior to global bond markets which will secure a moderatelyconservative portfolio with a low exposure to traditional equities and/or fixed income combined with astable concentration of alternative investments.The Moderate FundObjective – To generate superior risk-adjusted returns compared to fixed income and equity marketswhich will provide an internationally balanced portfolio of cash, equity and fixed income achievedthrough traditional and alternative investments.Pg 160

Liberty Holdings Limited – Annual Report 2008Risk management (continued)for the year ended 31 December 200817. Consolidated mutual funds (continued)17.3 Funds managed by Ermitage (continued)17.3.6 Ermitage Global Wealth Management Strategies Fund (continued)The Moderately Aggressive FundObjective – To generate superior risk adjusted returns to provide an internationally balanced portfoliowith an appropriate exposure to cash, fixed income, equities and alternative investments.The Aggressive FundObjective – To generate superior risk adjusted returns which will reflect an international growth portfoliowith an appropriate exposure to cash, fixed income, equities and alternative investments.Mandate restrictions – The fund may not invest more than 40% of the net asset value of any class fundin a single fund except for investments in the cash funds managed by Ermitage. The fund may not investmore than 60% of its net asset value in the securities of any one umbrella or multi-class fund.Borrowings will only be temporary, and in any event will not exceed 15% of the net asset value ofthe fund.Typical investments – Dependent on the particular class fund.Risk exposure – Dependent on the particular class fund mix. However, the fund is exposed to equityprice, interest rate, credit and exchange risk.Pg 161

Liberty Holdings Limited – Annual Report 2008Accounting policiesSummary of significant accounting policiesStatement of complianceThe 2008 consolidated financial statements of Liberty Holdings Limited have been prepared in accordance withInternational Financial Reporting Standards (IFRS).All amounts are shown in rand millions unless otherwise stated.1. Basis of preparationIFRS comprise International Financial Reporting Standards, International Accounting Standards and Interpretationsoriginated by the International Financial Reporting Interpretations Committee (IFRIC) or the former StandingInterpretations Committee (SIC). The standards referred to are set by the International Accounting StandardsBoard (IASB).The financial statements have been prepared in compliance with IFRS and interpretations for year ends commencingon or after 1 January 2008.The financial statements have been prepared on a historical cost basis, except for the following:Carried at fair value:• Derivative financial instruments;• Financial instruments held for trading or designated at fair value through profit or loss;• Investment properties and owner-occupied properties;• Interests in mutual funds which are included in interests in associates;• Policyholder investment contract liabilities; and• Third party financial liabilities arising on consolidation of mutual funds.Carried at a different measurement basis:• Policyholder insurance contract liabilities and related reinsurance assets that are measured in terms of thefinancial soundness valuation (FSV) basis as set out in note 15 to the accounting policies; and• Retirement benefit obligations which are measured in terms of the projected unit credit method.The accounting policies are consistent with those adopted in the previous year except for the adoption of thefollowing new standards or amendments and changes:Standards and interpretations effective in 2008The following amendments to published standards are mandatory for the group’s accounting periods beginning onor after 1 January 2008:• IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Thisinterpretation must be applied to all annual periods commencing on or after 1 January 2008. IFRIC 14 providesgeneral guidance on how to assess the limit in IAS 19 Employee Benefits on the amount of the surplus that canbe recognised as an asset. It also explains how the pension fund's asset or liability may be affected when thereis a statutory or contractual minimum funding requirement. This interpretation did not have a material impact onthe group results.• IAS 39 (Amendment) Reclassification of financial assets. An amendment to the standard, issued in October 2008,permits an entity to reclassify non-derivative financial assets (other than those designated at fair value throughprofit or loss by the entity upon initial recognition) out of the fair value through profit or loss category in particularcircumstances. The amendment also permits an entity to transfer from the available-for-sale category to the loansand receivables category a financial asset that would have met the definition of loans and receivables (if thefinancial asset had not been designated as available for sale), if the entity has the intention and ability to hold thatfinancial asset for the foreseeable future. This amendment has no impact on the group’s financial statements, asthe group does not have assets that meet these definitions.Standards and interpretations effective in 2008 and not relevant to the groupThe following new interpretations are effective for the current financial year but are not relevant to the group.• IFRIC 12 Service Concession Arrangements. This interpretation must be applied to all annual periodscommencing on or after 1 January 2008. Service concession arrangements are arrangements whereby agovernment or other body grants contracts for the supply of public services such as roads, energy distribution,prisons or hospitals to private operators. The objective of this IFRIC is to clarify how certain aspects of existingIASB literature are to be applied to service concession arrangements.Pg 162

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)1. Basis of preparation (continued)Standards and interpretations effective in 2008 and not relevant to the group (continued)• IFRIC 11, IFRS 2 – Group and treasury share transactions provides guidance on whether share-basedtransactions involving treasury shares or involving 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-aloneaccounts of the parent and group companies.Interpretations or standards early adoptedThe following interpretations or standards have been early adopted in accordance with the transitional provisions ofthe interpretations or standards:• IFRS 8 Operating Segments. This standard must be applied to all annual periods commencing on or after1 January 2009 and will supersede IAS 14 Segment Reporting. The standard requires an entity to report financialand descriptive information about its reportable segments based on information provided to key management.The financial information should be reported on the same basis as is used internally for evaluating operatingsegment performance and deciding how to allocate resources to operating segments. The statement thereforedoes not impact the results, financial position and cash flows of the group but does impact the identification,measurement and disclosure of segment results.• IAS 1 Presentation of Financial Statements (Revised 2007). This standard must be applied to all annual periodscommencing on or after 1 January 2009. This amendment requires that an entity must present all non-ownerchanges in equity either in one statement of comprehensive income or in two statements; a separate incomestatement and a statement of comprehensive income. All owner changes in equity are recognised in a statementof changes in equity.Comprehensive income for a period includes profit or loss for that period plus other income. Other incomecomprises income or expense items that are not recognised in profit or loss as required or permitted by otherstandards. The standard does not change the recognition, measurement or disclosure of specific transactions.This statement does not impact the results, financial position and cash flows of the group.Standards and interpretations applicable to the group not yet effectiveThe following new standards and interpretations are not yet effective for the current financial year. The group willcomply with the new statements and interpretations from the effective date.• IAS 23 Borrowing Costs. This standard must be applied to all annual periods commencing on or after 1 January2009. The standard has eliminated the option of immediate recognition of borrowing costs, which are directlyattributable to the acquisition, construction or production of a qualifying asset, as an expense. It is unlikely thatthis standard will have a material impact on the group results.• IAS 27 (Revised), Consolidated and separate financial statements (effective from 1 July 2009). The revisedstandard requires the effects of all transactions with non-controlling interests to be recorded in equity if there isno change in control and these transactions will no longer result in goodwill or gains or losses. The standard alsospecifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, anda gain or loss is recognised in profit or loss. The group will apply IAS 27 (Revised) prospectively to transactionswith non-controlling interests from 1 January 2010.• IFRS 3 (Revised) Business combinations (effective from 1 July 2009). The revised standard continues to apply theacquisition method to business combinations, with some significant changes. For example, all payments topurchase a business are to be recorded at fair value at the acquisition date, with contingent payments classifiedas debt subsequently re-measured through the statement of comprehensive income. There is a choice on anacquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at thenon-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should beexpensed. 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. This interpretation must be applied to all annualperiods commencing on or after 1 October 2008. IFRIC 16 provides that the difference between the functionalcurrency of a foreign operation and the presentation currency of a parent entity's consolidated financialstatements does not create an exposure to which an entity may apply hedge accounting. Consequently, theinterpretation provides that a parent entity may designate as a hedged risk only the foreign exchange differencesarising from a difference between its own functional currency and that of its foreign operation.Pg 163

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)1. Basis of preparation (continued)Standards and interpretations not yet effective and not relevant to the groupThe following new interpretations are not yet effective for the current financial year and are not relevant to the group.• IFRIC 13 Customer Loyalty Programmes. This interpretation must be applied to all annual periods commencingon or after 1 July 2008. The interpretation addresses accounting by entities that grant loyalty award credits tocustomers who buy other goods or services. Specifically, it explains how such entities should account for theirobligations to provide free or discounted goods or services to customers who redeem award credits.• IFRS 1 (Amendment) First time adoption of IFRS and IAS 27, Consolidated and separate financial statements(effective from 1 January 2009). The amended standard allows first-time adopters to use a deemed cost of eitherfair value or the carrying amount under previous accounting practice to measure the initial cost of investments insubsidiaries, jointly controlled entities and associates in the separate financial statements. The amendment alsoremoves the definition of the cost method from IAS 27 and replaces it with a requirement to present dividends asincome in the separate financial statements of the investor.• IAS 32 (Amendment) Financial instruments: Presentation, and IAS 1 (Amendment), Presentation of financialstatements – Puttable financial instruments and obligations arising on liquidation (effective from 1 January 2009).The amended standards require entities to classify puttable financial instruments and instruments, or componentsof instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assetsof the entity only on liquidation as equity, provided the financial instruments have particular features and meetspecific conditions.• IFRIC 17 Distributions of non-cash assets to owners (effective from 1 July 2009). IFRIC 17 clarifies the accountingtreatment for non-cash distributions of non-cash assets to owners.• IAS 39 (amendment) Eligible hedged items (effective from 1 July 2009). This amendment clarifies how theprinciples that determine whether a hedged risk or portion of cash flows is eligible for designation should beapplied in particular situations.Annual improvements projectThe IASB initiated an annual improvements project in 2007 as a method of making necessary, but non-urgentamendments to IFRS. These changes will not be included as part of another major project.The following amendments are effective for annual periods beginning on or after 1 January 2009, although entitiesare permitted to adopt them earlier.• IFRS 5 Non Current Assets Held for Sale and Discontinued Operations• IAS 1 Presentation of Financial Statements• IAS 16 Property, Plant and Equipment• IAS 19 Employee Benefits• IAS 20 Accounting for Government Grants and Disclosure of Government Assistance• IAS 23 Borrowing Costs• IAS 27 Consolidated and Separate Financial Statements• IAS 28 Investments in Associates• IAS 29 Financial Reporting in Hyperinflationary Economies• IAS 31 Interests in Joint Ventures• IAS 36 Impairment of Assets• IAS 38 Intangible Assets• IAS 39 Financial Instruments: Recognition and Measurement• IAS 40 Investment Property• IAS 41 AgricultureManagement is currently considering the effect of these changes but it is not expected that these will have a materialimpact on the group’s results.Pg 164

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)2. Basis of consolidationThe group financial statements consolidate the financial statements of the company and its subsidiaries.Interests in subsidiariesInterest in subsidiaries comprises interests in subsidiary companies and mutual funds.Subsidiaries are entities in which the group has the power to govern their financial and operating policies and/or inwhich the group has more than 50% of the voting rights or economic interest. The existence and effect of potentialvoting rights that are currently exercisable are considered when assessing whether the group controls another entity.The results of the subsidiaries are included from the date on which control is transferred to the group (effective date ofacquisition) and are no longer included from the date that control ceases (effective date of disposal). Gains and losseson disposal of subsidiaries are included in profit and loss.Interests in subsidiary companies in the company financial statements are shown at cost less any required impairment(which is assessed annually). The group uses the purchase method of accounting to account for the acquisition ofsubsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issuedand liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measuredinitially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of thecost of acquisition over the fair value of the group’s share of the identifiable net assets acquired is recorded asgoodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the differenceis recognised directly in the statement of comprehensive income.The accounting policies for subsidiaries are consistent, in all material respects, with the policies adopted by thegroup. Intergroup transactions, balances and unrealised gains and losses are eliminated on consolidation.Mutual funds, in which the group has greater than 50% economic interest resulting in effective control areconsolidated. The consolidation principles applied to these mutual funds are consistent with those applied toconsolidated subsidiary companies.Interests in joint venturesJoint ventures are contractual arrangements whereby the group and one or more parties undertake an economicactivity, involving a corporation, partnership or entity, which is subject to joint control. Investments in joint venturesare accounted for using equity accounting principles for the duration in which the group has the ability to exercisejoint control.The group’s interests in joint ventures are carried initially at cost. The group’s share of post-acquisition profit orlosses is recognised in profit and loss and its share of post-acquisition movements in reserves is recognised inreserves. Any goodwill in respect of joint ventures acquired is recognised as part of interests in joint ventures in thestatement of financial position. The group discontinues equity accounting when the group’s share of losses exceedsor equals its interests in the joint venture, unless it has incurred obligations or guaranteed obligations in favour of thejoint venture. Where the accounting policies for joint ventures are not consistent, in all material respects, with policiesadopted by the group, adjustments are made to ensure consistency with the group policies.Interests in associatesThose mutual funds in which the group has between 20% and 50% economic interest, backing policyholders’liabilities, therefore providing significant influence, are deemed to be interests in associates and are, on initialrecognition, designated as at fair value through profit or loss, based on the scope exemption in IAS 28 Investmentsin Associates for investment-linked insurance funds.Initial measurement is at fair value on trade date with subsequent measurement at fair value based on quotedrepurchase prices at the close of business on the last trading day on or before the balance sheet date. Fair valueadjustments on mutual funds are recognised in profit and loss.Pg 165

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)2. Basis of consolidation (continued)Acquisitions of subsidiaries under common controlCommon control is defined as a business combination in which all of the combining entities (subsidiaries) areultimately controlled by the same party both before and after the business combination, and control is not transitory.The cost of an acquisition of a subsidiary under common control is measured as the fair value of the assets given,equity instruments issued and liabilities incurred or assumed at the date of exchange. Any costs directly attributableto the acquisition are written off against reserves. On acquisition the carrying value of assets and liabilities are notrestated to fair value. The acquirer incorporates assets and liabilities at their pre-combination carrying amounts. Anyexcess/deficit of the purchase price over the pre-combination recorded ultimate holding company’s net asset valueof the subsidiary, is adjusted directly to equity. Any differences to values of the subsidiary’s underlying assets andliabilities compared to those presented by the ultimate holding company and adjustments to achieve harmonisationof accounting policies will be adjusted on consolidation. Under this approach comparatives are not restated.The principles of when control arises are the same as those for interests in subsidiaries where purchase priceaccounting is applied.Transactions with minoritiesThe group applies a policy of treating transactions with minority shareholders that do not result in the gain or loss ofcontrol, as transactions with equity owners of the group. For purchases of additional interests from minorityshareholders, the excess of the purchase consideration over the group’s proportionate share of the additional netasset value of the subsidiary acquired is accounted for directly in equity. For disposals to minority shareholders, theprofit or loss on partial disposal of the group’s interest in a subsidiary is also accounted for directly in equity.3. Foreign currenciesForeign currency translationThe group’s presentation currency is South African Rand (ZAR). The functional currency of the group’s operationsis the currency of the primary economic environment where each operation physically has its main activities.Transactions and balancesTransactions in foreign currencies are translated into the functional currency at the foreign exchange rate ruling atthe date of the transaction. Monetary assets and liabilities denominated in foreign currencies different to thefunctional currency at the statement of financial position date are translated into the functional currency at the rulingrate at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rate at the date of transaction, and those measured at fair value in a foreign currencyare translated using the exchange rates at the date when the fair value was determined. Foreign exchange gains orlosses are recognised as part of fair value adjustments on financial instruments in profit and loss.Group foreign companiesAssets and liabilities of companies whose functional currency is different to the presentation currency are translatedfrom their respective functional currency into the group’s presentation currency at closing rates ruling at statementof financial position. The income and expenditure and equity movements are translated into the group’s presentationcurrency at rates approximating the foreign exchange rates ruling at the date of the various transactions.All resulting translation differences arising from the consolidation and translation of foreign companies arerecognised directly in equity as a foreign currency translation reserve.On the disposal of a foreign operation, the cumulative amount of the exchange differences deferred in the separatecomponent of equity relating to that foreign operation is recognised in profit or loss when the gain or loss on disposalis recognised.4. Equipment and properties under developmentEquipmentEquipment is stated at cost less accumulated depreciation and impairment losses. The cost of an item comprisesits purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts andrebates. Maintenance and repairs, which neither add to the value of assets nor appreciably prolong their useful lives,are recognised in profit and loss. Profits or losses on disposal are included within general marketing andadministration expenses in profit and loss.When significant components of equipment have different useful lives, those components are accounted for anddepreciated as separate items.Pg 166

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)4. Equipment and properties under development (continued)Properties under developmentProperties under development are properties not yet available to earn investment returns or for own use. Propertiesunder development are carried at cost less any required impairment. This asset is impaired if the recoverableamount is less than the cost. The asset is reviewed for impairment when events or changes in circumstances indicatethat the carrying amount may not be recoverable. Once development is complete, the properties are transferred toinvestment properties or owner-occupied properties as appropriate.DepreciationDepreciation is recognised in profit and loss on a straight-line basis at rates appropriate to the expected usefullives of the assets. Depreciation is calculated on the cost less any impairment and expected residual value.No depreciation is charged on properties under development. The estimated useful lives applied are as follows:• Computer equipment 5 years• Purchased computer software 5 years• Fixtures, furniture and fittings 10 years• Office equipment and office machines 5 – 7 years• Motor vehicles 5 yearsThere has been no change to useful lives from those applied in the previous financial year. The residual values anduseful lives are reassessed on an annual basis.5. PropertiesInvestment propertiesInvestment properties are held to earn rental income and capital appreciation. Investment properties include cost ofinitial purchase, developments transferred from property under development, subsequent cost of development andfair value adjustments. Developments on existing properties are measured at fair value.Owner-occupied propertiesOwner-occupied properties are held by the group for use in the supply of services or for its own administrationpurposes.MeasurementInvestment properties are reflected at valuation based on open-market fair value at the statement of financial positiondate. Owner-occupied properties are stated at revalued amounts, being fair value at the date of valuation lesssubsequent accumulated depreciation for buildings and accumulated impairment losses. If the open-market valuationinformation cannot be reliably determined, the group uses alternative valuation methods such as discounted cash flowprojections or recent prices on active markets. The fair values are the estimated amounts for which a property couldbe exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction.The open-market fair value is determined annually by independent professional valuators.The fair value adjustments on investment properties are included in profit and loss as investment gains in the period inwhich these gains or losses arise and are adjusted for any double counting arising from the recognition of lease incomeon the straight-line basis compared to the accrual basis normally assumed in the fair value determination.The fair value adjustments on owner-occupied properties are taken directly to equity to the extent that theaccumulated adjustment is a surplus. Any accumulated deficits are recorded in profit and loss. On disposal ortransfer (change in use) of owner-occupied properties to investment properties, the amounts included in therevaluation reserve are transferred directly to retained surplus.The deemed cost for any re-classification (between investment properties and owner-occupied properties) is at fairvalue, at the date of reclassification.Pg 167

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)5. Properties (continued)Depreciation in respect of owner-occupied propertiesDepreciation will be accounted for in profit and loss at rates appropriate to the expected useful lives of owneroccupiedbuildings (normally 40 years) and any significant component part. Land is not depreciated. Depreciationis calculated on the opening open-market fair value less any expected residual value. If the expected residual valueis greater than or equal to the carrying value, no depreciation is provided for. On the date of the revaluation, anyaccumulated depreciation is eliminated against the gross carrying amount of the property and the net amountrestated to the revalued amount. Subsequent depreciation charges are adjusted based on the revalued amount foreach property. Any difference between the depreciation charge on the revalued amount and that which would havebeen charged under historic cost is directly transferred net of any related deferred taxation, between the revaluationreserve and retained earnings as the property is utilised.6. Intangible assetsGoodwillAll business combinations are accounted for by applying the purchase method. The cost of a business combination isthe fair value of the purchase consideration due at the date of acquisition plus any directly attributable acquisition costs.Goodwill represents the excess of the purchase price consideration of an acquisition over the fair value attributableto the net identifiable assets, liabilities and contingent liabilities at the date of acquisition.Goodwill on acquisition of subsidiaries is included in intangible assets and goodwill on acquisitions of associatesand joint ventures is included in interests in associates and interests in joint ventures respectively.With effect from 1 January 2004, goodwill is capitalised at opening net carrying value for business combinations priorto that date, or cost in respect of subsequent acquisitions. Goodwill is allocated to the applicable cash-generatingunits for the purposes of impairment testing. Goodwill is tested annually for impairment and carried at capitalisedvalue less accumulated impairment losses. Any impairment calculated is expensed to profit and loss. Gains andlosses on disposal of an entity include the carrying amount of goodwill relating to the entity sold.Computer software development costsCosts associated with maintaining computer software programs are recognised as an expense as incurred. However,costs that are clearly associated with an identifiable system, which will be controlled by the group and has a probablebenefit exceeding the cost beyond one year, are recognised as an asset. These costs comprise all directly attributablecosts necessary to create, produce and prepare the asset for its intended use, such as costs of materials andemployee services used or consumed in generating the intangible asset. Computer software development costsrecognised as assets are amortised in profit and loss on a straight-line basis at rates appropriate to the expecteduseful life of the asset. Amortisation commences from the date the software is applied to day-to-day businessprocessing. As the software is proprietary and specific to the group operations, no residual value is estimated.Present value of acquired in-force policyholder insurance contracts and investment contracts with DPFWhere a portfolio of policyholder contracts is acquired either directly from another insurer or through the acquisitionof a subsidiary, the present value of acquired in-force (PVIF) business on the portfolio, being the net present valueof estimated future cash flows of the existing contracts, is recognised as an intangible asset and amortised on abasis consistent with the settlement of the relevant liability in respect of the purchased contracts. The estimated lifeis re-evaluated annually. These cash flows ignore the effects of taxation as this is separately adjusted for onapplication of the deferred taxation accounting policy. The PVIF is carried in the statement of financial position atcost less any accumulated amortisation.Customer relationships and contractsCustomer relationships and contracts acquired as part of a business combination are capitalised at their fair value,represented by the estimated net present value of the future cash flows from the relevant relationships and contractsacquired at the date of acquisition.Subsequent to initial recognition such acquired intangible assets are amortised on a straight-line basis over theirestimated useful lives. The estimated life is re-evaluated on a regular basis.Technology-based intangible assetsTechnology based intangibles consists of software acquired as part of business combinations and is capitalised atits fair value at the date of acquisition, as determined by an independent valuer. The fair value was determinedutilising a method which calculated the cost involved in creation of the software. Subsequent to initial recognitionpurchased software is amortised on a straight-line basis over its estimated useful life. The estimated life is reevaluatedon a regular basis.Pg 168

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)6. Intangible assets (continued)Amortisation of intangiblesAmortisation of intangibles is charged to profit and loss. Goodwill is not amortised. The expected useful lives areas follows:• Computer software development costs 2 – 5 years• PVIF business 5 – 15 years• Customer relationships and contracts 7 years• Purchased software 7 years7. ImpairmentThe carrying amounts of the group’s assets are reviewed on an annual basis to determine whether there is anyindication of impairment, other than of a temporary nature. If any such indication exists, the assets’ recoverableamounts are estimated.Financial assets carried at amortised costThe group assesses at each statement of financial position date whether there is objective evidence that a financialasset or group of financial assets is impaired. A financial asset or group of financial assets is impaired andimpairment losses are incurred only if there is objective evidence of impairment as a result of one or more eventsthat have occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impacton the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to theattention of the group about the following events:(i) significant financial difficulty of the issuer or debtor;(ii) a breach of contract, such as a default or delinquency in payments;(iii) it becoming probable that the issuer or debtor will enter bankruptcy or other financial reorganisation;(iv) the disappearance of an active market for that financial asset because of financial difficulties; or(v) observable data indicating that there is a measurable decrease in the estimated future cash flow from a groupof financial assets since the initial recognition of those assets, although the decrease cannot yet be identifiedwith the individual financial assets in the group, including:• adverse changes in the payment status of issuers or debtors in the group; or• national or local economic conditions that correlate with defaults on the assets in the group.The group first assesses whether objective evidence of impairment exists individually for financial assets that areindividually significant. If the group determines that no objective evidence of impairment exists for an individuallyassessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similarcredit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed forimpairment and for which an impairment loss is or continues to be recognised are not included in a collectiveassessment of impairment.If there is objective evidence that an impairment loss has been incurred on loans and receivables or held-to-maturityinvestments carried at amortised cost, the amount of the loss is measured as the difference between the asset’scarrying amount and the present value of estimated future cash flows (excluding future credit losses that have beenincurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset isreduced and the amount of the loss is recognised in profit and loss. If a loan has a variable interest rate, the discountrate for measuring any impairment loss is the current effective interest rate determined under contract. As a practicalexpedient, the group may measure impairment on the basis of an instrument’s fair value using an observablemarket price.For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar creditrisk characteristics (i.e. on the basis of the group’s grading process that considers asset type, industry, geographicallocation, past-due status and other relevant factors). Those characteristics are relevant to the estimation of futurecash flows for groups of such assets by being indicative of the issuer’s ability to pay all amounts due under thecontractual terms of the debt instrument being evaluated.If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectivelyto an event occurring after the impairment was recognised (such as improved credit rating), the previouslyrecognised impairment loss is reversed in profit and loss.Pg 169

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)7. Impairment (continued)GoodwillGoodwill is allocated to cash-generating units (CGUs), being the smallest identifiable group of assets that generatescash inflows that are largely independent of the cash inflows from other assets or group of assets. Each CGUcontaining goodwill is tested annually for impairment. An impairment loss is recognised whenever the carryingamount of an asset or its CGU exceeds its recoverable amount. Impairment losses recognised in respect of CGUsare allocated first to reduce the carrying amount of any goodwill allocated to a CGU and then to reduce the carryingamount of the other assets on a pro rata basis. Impairment losses relating to goodwill are not reversed.Impairment of other non-financial assetsAssets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount may not be recoverable. An impairment loss is recognised in profit and lossimmediately when incurred for the amount by which the asset’s carrying amount exceeds its recoverable amount.The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes ofassessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows(cash-generating units).8. Financial assetsThe group classifies its financial assets at initial recognition into categories, namely held at fair value through profitor loss, held-to-maturity investments and loans and receivables. The classification depends on the purpose for whichthe asset was acquired and, with the exception of those held at fair value through profit or loss, is reassessed on anannual basis.In general, financial assets are designated as at fair value through profit or loss, as the group’s strategy is to managefinancial investments acquired to match its insurance and investment contract liabilities. In addition shareholders’ capitalis invested under a formal capital management strategy that actively measures the performance on a fair value basis.Financial assets comprise financial instruments, pledged assets, interests in associates to which the scopeexemption in IAS 28 Investments in Associates applies.Initial measurementPurchases and sales of financial assets are recognised on trade date, which is the date on which the group assumesor transfers substantially all risks and rewards of ownership. Financial assets are initially recognised as follows:• Fair value through profit or loss – at fair value on trade date, with transaction costs recognised in profit and loss.This category has two sub-categories, namely financial assets held for trading and those designated at fair valuethrough profit or loss at inception.Financial instruments that are classified as held for trading are those that are:(i) Acquired or incurred principally for the purpose of selling or repurchasing in the short term, or(ii) Part of a portfolio of identified financial instruments that are managed together and for which there is evidenceof a recent actual pattern of short- term profit-taking; or(iii) A derivative (except for a derivative that is a financial guarantee contract or a designated and effectivehedging instrument).Financial assets designated as at fair value through profit or loss at inception are those that are:(i) used to match investment contract liabilities held at fair value and/or insurance contract liabilities, and thisdesignation eliminates or significantly reduces measurement or recognition inconsistencies that wouldotherwise arise from measuring assets or liabilities or recognising gains or losses on a different basis; or(ii) managed and performance is evaluated on a fair value basis. Information about these financial assets isprovided internally on a fair value basis to the group executive committee. The group’s investment strategy isto invest in equity and debt securities and to evaluate them with reference to their fair value. Assets that arepart of these portfolios are designated upon initial recognition at fair value through profit or loss.• Held-to-maturity and loans and receivables – at fair value on trade date plus transaction costs that are directlyattributable to their acquisition.Pg 170

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)8. Financial assets (continued)Those mutual funds in which the company and group have between 20% and 50% economic interest,providing significant influence, are deemed to be interests in associates and are, on initial recognition, designatedas at fair value through profit or loss, based on the scope exemption in IAS 28 relating to investment-linkedinsurance funds.Financial assets are derecognised when the rights to receive cash flows from the investments have expired or ontrade date when they have been transferred and the group has also transferred substantially all risks and rewardsof ownership.Non-cash financial assets pledged, where the counterparty has the right to sell or repledge the assets to a thirdparty, are classified as pledged assets.Subsequent measurementFinancial assets classified as fair value through profit or lossGains or losses arising from changes in the fair value of financial assets at fair value through profit or loss are presentedin profit and loss within net fair value gains on financial assets at fair value in the period in which they arise.The fair value of financial assets with standard terms and conditions and traded on active liquid markets isdetermined by reference to regulated exchange quoted ruling bid prices at the close of business on the last tradingday on or before the statement of financial position date.If quoted market prices are not available, reference can also be made to readily and regularly available broker ordealer price quotations. For units in mutual funds and shares in open ended investment companies, fair value isdetermined by reference to published repurchase prices.If a market for a financial asset is not active, the group establishes fair value by using valuation techniques. Theseinclude the use of recent arm’s length transactions, reference to the current market value of other instruments thatare substantially the same, discounted cash flow analysis and option pricing models making maximum use of marketinputs and relying as little as possible on entity-specific inputs.Where the fair value of financial assets is determined using discounted cash flow techniques, estimated future cashflows are based on management’s best estimates and the discount rate used is a market related rate for a similarinstrument. Certain financial instruments are valued using pricing models that consider, among other factors,contractual and market prices, correlation, time value of money, credit risk, yield curve volatility factors andprepayment rates of the underlying positions. The use of different pricing models and assumptions could producematerially different estimates of fair values.Fair value adjustments for unquoted instruments are included in investment gains and losses and are determinedas follows:Fixed and linked variable rate preference shares, bonds and fixed depositsA discount rate is calculated by determining an appropriate credit spread based on the credit spread curve of listedvanilla bonds with a similar credit risk. A discounted cash flow model is then applied to calculate the fair value, usingthe calculated discount rate and the anticipated cash flows. For variable rate instruments linked to the prime interestrate, anticipated cash flows are calculated using a prime interest rate curve.Inflation-linked bondsThe fair value is determined by present valuing future cash flows at the agreed real rate as per the contract. Thepresent values are then adjusted for the current CPI index ratio.Credit-linked notesAnticipated cash flows from credit-linked notes are discounted at rates interpolated from the Bond Exchange ofSouth Africa zero curve plus a credit spread that applies to the issuer of the instrument. Anticipated cash flows arecalculated taking into account the probability of default by the relevant reference entity and the discounted valuetherefore takes the credit default swap embedded in the credit-linked note into account.Equity-linked notesThe capital guarantee component is valued similar to a zero coupon bond and the equity upside participationcomponent is valued as a call option on the index.Pg 171

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)8. Financial assets (continued)Subsequent measurement (continued)SwapsSwaps are valued using the swap zero curve from BESA or other independent market information to discount fixedand variable rate cash flows, as well as to calculate implied forward rates used to determine the floating interest rateamounts. Actual-in-advance reset rates are input manually. The net present values of the two legs of the swap areoffset to calculate the fair value of the swap.Unlisted equities (including unlisted variable rate preference shares)Valuations are determined by applying appropriate valuation techniques such as discounted cash flow analysis orrecent arm’s length market transactions in respect of the equity instrument.Negotiable certificates of depositThese instruments are valued using the appropriate rate from the quoted money market yield curve, based on theterm to maturity of the instrument. A discounted cash flow model is then applied, using the determined yield, in orderto calculate the fair value.Investment policies with other insurersThese are valued at the fair values of the underlying investments supporting the policy adjusting for applicable liquidityor credit risk.Over-the-counter optionsThese are priced by applying recognised option pricing models, for example the Black Scholes Model.Pledged assetsMarketable securities held under scrip lending arrangements are measured in accordance with the statedaccounting policy applicable to the security and are reflected as pledged assets on the statement of financialposition. Scrip lending arrangements are entered into only with appropriate accredited institutions.Financial assets classified as held-to-maturityHeld-to-maturity investments are financial assets with fixed or determinable payments, other than loans andreceivables, and fixed maturity where management has both the intent and the ability to hold to maturity. They arecarried at amortised cost using the effective interest rate method less any required impairment.Loans and receivablesLoans and receivables are non-derivative financial assets that are created by the entity for providing money, goodsor services directly to a debtor, other than those that are originated with the intention of sale immediately or in theshort term or designated at fair value through profit or loss. They have fixed or determinable payments and areinitially recognised at fair value and subsequently carried at amortised cost using the effective interest rate methodless any required impairment.9. Financial liabilitiesFinancial liabilities comprise callable capital bonds, redeemable non-participating preference shares, policyholders’liabilities under investment contracts, and third party financial liabilities arising on consolidation of mutual funds.Financial liabilities are initially recognised at fair value, net of transaction costs that are directly attributable to theraising of the funds.The fair value of financial liabilities is determined using discounted cash flow techniques, estimated future cash flowsare based on management’s best estimates and the discount rate used is a market related rate for a similarinstrument adjusted for the credit risk of Liberty.The callable capital bonds and redeemable non-participating preference shares are subsequently measured atamortised cost using the effective interest rate method.The measurement of policyholder liabilities under investment contracts is described in note 15 to the accounting policies.Third party financial liabilities arising on consolidation of mutual funds are effectively demand deposits and areconsequently measured at fair value, which is the quoted unit values as derived by the fund administrator withreference to the rules of each particular fund. Fair value gains or losses are recognised in profit and loss.Pg 172

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)10. Derivative financial instrumentsDerivative financial instruments are recognised initially at fair value on the date on which a derivative contract isentered into. Subsequent to initial recognition, derivative financial instruments are measured at fair value. Fair valuesof exchange-traded derivatives are obtained from quoted market prices. Fair values of over-the-counter derivativesare obtained using valuation techniques, including discounted cash flow models and option pricing models.Derivative financial instruments are carried as financial assets when the fair value is positive and financial liabilities whenthe fair value is negative. Derivative assets and liabilities arising from different transactions are only offset if transactionsare with the same counterparty, a legal right of offset exists, and the parties intend to settle the cash flows on a netbasis. All gains or losses on measurement are recognised in profit and loss within investment gains or losses.The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of theconsideration given or received) unless the fair value of that instrument is evidenced by comparison with otherobservable current market transactions in the same instrument or based on a valuation technique whose variablesinclude only observable market data.When unobservable market data has an impact on the valuation of derivatives, the entire day one gain or loss in fairvalue indicated by the valuation model from the transaction price is not recognised immediately in profit and lossbut over the life of the transaction on an appropriate basis, or when the inputs become observable, or when thederivative matures or is closed out.11. Cash and cash equivalentsCash and cash equivalents comprise balances with bankers, highly liquid short-term funds on deposit and cash onhand, but do not include money market securities held for investment. Instruments included in this category are thosewith maturity dates or three months or less.12. Share capitalShares are classified as equity when there is no obligation to transfer cash or other assets to the holder. Incrementalcosts directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, fromthe proceeds. Incremental costs directly attributable to the issue of equity instruments as consideration for theacquisition of a business reduce the proceeds from the equity issue.Treasury sharesWhere any group company purchases the company’s equity share capital (treasury shares), the consideration paid,including any directly attributable incremental costs (net of income taxes), is on consolidation deducted from equityattributable to the company’s equity holders until the shares are cancelled, reissued or disposed of. Where suchshares are subsequently sold or reissued, any consideration received, net of any directly attributable incrementaltransaction costs and the related income tax effects, is included in equity.Any net income in relation to treasury shares (both fair value movements and dividends) is eliminated from groupprofit for the year.The number of shares in the earnings per share calculation is reduced for treasury shares held during the period ona weighted average basis.13. Black economic empowerment (BEE) transactionInvestments in BEE entities via equity instruments, the proceeds of which were used by the BEE entities to financeshare purchases from shareholders to facilitate the 2004 BEE transaction, do not meet the IAS 39 definition of afinancial asset and are considered to be a reduction of equity.Cash flows arising from Liberty Holdings Limited’s dividends are used by the BEE entities to redeem these equityinstruments and fulfil dividend obligations and are recognised directly in equity.The number of shares in the earnings per share calculation is reduced for the respective weighted average LibertyHoldings Limited shares held by the BEE entities.14. Dividend distributionDividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements inthe period in which the dividends are approved by the company’s directors.Pg 173

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)15. Policyholder insurance and investment contractsProfessional Guidance Notes (PGNs) issued by the Actuarial Society of South Africa (ASSA)In terms of IFRS 4, defined insurance liabilities are measured under existing local practice at the date of adoptionof IFRS 4. The group has, prior to the adoption of IFRS 4, adopted the PGNs to determine the liability in respect ofinsurance contracts issued in South Africa.The PGNs are available on the ASSA website (www.actuarialsociety.co.za).Where applicable, the PGNs are referred to in the accounting policies and notes to the annual financial statements.Insurance and investment contract classificationThe group issues contracts that transfer insurance risk or financial risk or, in some cases, both.An insurance contract is a contract under which the group (insurer) accepts significant insurance risk from thepolicyholder by agreeing to compensate the policyholder if a specified uncertain future event (the insured event)adversely affects the policyholder. Such contracts may also transfer financial risk. The group defines significantinsurance risk as the possibility of having to pay benefits on the occurrence of an insured event that are significantlymore than the benefits payable if the insured event did not occur.Investment contracts are those contracts that transfer financial risk with no significant insurance risk. Financial risk isthe risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodityprice, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable.Discretionary participation features (DPF)A number of insurance and investment contracts contain a discretionary participation feature (DPF). This featureentitles the policyholder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses:(i) that are likely to be a significant portion of the total contractual benefits;(ii) whose amount or timing is contractually at the discretion of the group; and(iii) that are contractually based on:• the performance of a specified pool of contracts or a specified type of contract; and/or• realised and/or unrealised investment returns on a specified pool of assets held by the group.The terms and conditions or practice relating to these contracts set out the bases for the determination of theamounts on which the additional discretionary benefits are based (the DPF eligible surplus) and within which thegroup may exercise its discretion as to the quantum and timing of the payment to policyholders. A proportion, as setout in the policy conditions, of the eligible surplus (usually 9/10ths of the surplus) must be attributed to policyholdersas a group (which can include future policyholders), while the amount and timing of the distribution to individualpolicyholders is at the discretion of the group, subject to the advice of the statutory actuary. The terms reversionarybonus and smoothed bonus refer to the specific forms of DPF contracts underwritten by the group.All components in respect of DPFs are included in the policyholder liabilities.Insurance contracts and investment contracts with DPFMeasurementThese contracts are valued in terms of the Financial Soundness Valuation (FSV) basis as described in PGN 104,using a discounted cash flow methodology. The liability is reflected as policyholders’ liabilities under insurancecontracts and investment contracts with DPF.The discounted cash flow methodology allows for premiums and benefits payable in terms of the contract,future administration expenses and commission, investment return and tax and any expected losses in respectof options.The liability is based on assumptions of the best estimate of future experience, plus compulsory margins as requiredin terms of PGN 104, plus additional discretionary margins.Derivatives embedded in an insurance contract are not separated and measured at fair value if the embeddedderivative itself qualifies for recognition as an insurance contract. As such, the group does not separately measureany embedded derivatives as they qualify for recognition as an insurance contract and are measured as insurancecontracts. The liabilities in respect of the investment guarantees underlying maturity and death benefits, andguaranteed annuity options are measured in accordance with PGN 110 on a market-consistent basis.Pg 174

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)15. Policyholder insurance and investment contracts (continued)Insurance contracts and investment contracts with DPF (continued)Discretionary margins are held to ensure that the profit and risk margins in the premiums are not capitalised beforeit is probable that future economic benefits will flow to the entity. These profits emerge over the lifetime of the contractin line with the risks borne by the company. These discretionary margins include an allowance for the shareholders’participation in the reversionary and terminal bonuses expected to be declared each year in respect of with-profitbusiness, an allowance for the shareholders’ participation in the bonus expected to be declared and a portion of themanagement fees levied under certain classes of market-related business. In addition to the provision made in thebasic policyholder liabilities, discretionary margins are held for further possible deviations in medical claimsexperience, in AIDS-related death claims.Liabilities for individual market-related policies where benefits are in part dependent on the performance ofunderlying investment portfolios (including business with stabilised bonuses) are taken as the aggregate value of thepolicies’ investment in the investment portfolio at the valuation date (the unit reserve element), reduced by the excessof the present value of the expected future risk and expense charges over the present value of the expected futurerisk benefits and expenses on a policy-by-policy cash flow basis (the rand reserve element).Reversionary bonus classes of policies, and policies with fixed and guaranteed benefits are valued by discountingthe expected future cash flows at a market-related rate of interest (and in the case of life and income protectionannuities, at a rate of return yielded by the nominated matching assets) reduced by an allowance for investmentexpenses and the relevant compulsory margins (the guaranteed element). Future bonuses have been allowed for atthe latest declared rates where appropriate (the non-guaranteed element).The rand reserve element of market-related policies and the guaranteed element in respect of other policies arecollectively known as the rand reserve.In respect of corporate life and lumpsum disability business, no discounting of future cash flows is performed.However, a provision will be held if the expected guaranteed premiums under the current basis and investmentreturns in the short term are not sufficient to meet expected future claims and expenses. For corporateinvestment contracts with DPF, in addition to the value of the policies’ investment in the investment portfolios held, anadditional provision will be held if the expected fee recoveries in the short term are not sufficient to meet expectedexpenses.Within the group all investment contracts invested in smoothed bonus portfolios are classified as investmentcontracts with DPF. In respect of insurance and investment contracts with DPF where bonuses are smoothed, bonusstabilisation provisions are held arising from the difference between the after taxation investment performance of theassets net of the relevant management fees and the value of the bonuses declared (non-guaranteed element). Inaccordance with PGN 104, where the bonus stabilisation provision is negative, this provision is restricted to anamount that can reasonably be expected to be recovered through under-distribution of bonuses during the ensuingthree years. All bonus stabilisation provisions are held as part of the liabilities under these contracts.The liability estimates are reviewed annually. Any changes in estimates to the liability are reflected in profit and lossas they occur.Where policyholders, in respect of certain policies, are entitled to a part surrender, any part surrender is treated asa derecognition of the policyholders’ liability.Incurred but not reported claimsProvision is made in the policyholders’ liabilities under insurance contracts for the estimated cost at the end of the yearof claims incurred but not reported (IBNR) at that date. IBNR provisions are calculated using run-off triangle techniques.These liabilities are not discounted due to the short-term nature of outstanding claims. Outstanding claims and benefitpayments are stated gross of reinsurance.Liability adequacy testAt each statement of financial position date the adequacy of the insurance liabilities is assessed. If that assessmentshows that the carrying amount of its insurance liabilities (as measured under the FSV basis) net of any relatedintangible present value of acquired in-force business (PVIF) assets is inadequate in light of the estimated futurecash flows (based on the best estimate basis underlying the FSV basis, but excluding compulsory margins asdescribed in PGN 104 as well as any additional discretionary margins), the deficiency is recognised in profit or loss.Pg 175

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)15. Policyholder insurance and investment contracts (continued)Insurance contracts and investment contracts with DPF (continued)Premium incomePremiums and annuity considerations on insurance contracts are recognised when due in terms of the contract,other than in respect of universally costed policies (policies where insurance risk charges are dependent on theexcess of the sum assured over the value of units underlying the contract) and recurring premium pure risk policies(collectively the Lifestyle series) and corporate schemes. Premiums receivable in respect of corporate schemes arerecognised when there is reasonable assurance of collection in terms of the policy contract. Premiums in respectof the Lifestyle series of policies are recognised as premiums when received, as failure to pay a premium will resultin a reduction of attributable fund value, if available or else in the lapse of the policy. Premium income on insurancecontracts is shown gross of reinsurance. Premiums are shown before deduction of commission. Premium incomereceived in advance is included in insurance and other payables.Reinsurance premiumsReinsurance premiums are recognised when due for payment in accordance with the terms of each reinsurancecontract.ClaimsClaims on insurance contracts, which include death, disability, maturity, surrender and annuity payments, arecharged to income when notified of a claim based on the estimated liability for compensation owed to policyholders.They also include claims that arise from death and disability events that have occurred up to the statement offinancial position date even if they have not been reported to the group. Unpaid disability claims are estimated usingthe input of assessors for individual cases reported to the group and statistical analyses for the claims incurred butnot reported. Outstanding claims are recognised in insurance and other payables. Reinsurance recoveries areaccounted for in the same period as the related claim.Acquisition costsAcquisition costs for insurance contracts represent commission and other costs (including bonuses payable andcompany’s contribution to agents’ pension and medical aid funds) that relate to the securing of new contracts andthe renewing of existing contracts. These costs are expensed as incurred.The FSV method for valuing insurance contracts makes implicit allowance for the deferral of acquisition costs andhence no explicit deferred acquisition cost asset is recognised in the statement of financial position for insurancecontracts.Investment contracts without DPFMeasurementThe group issues investment contracts without fixed benefits (unit-linked and structured products) and investmentcontracts with fixed and guaranteed benefits (term certain annuity).Investment contracts without fixed benefits are financial liabilities whose fair value is dependent on the fair value ofthe underlying financial assets, derivatives and/or investment property (unit linked) and are designated at inceptionas at fair value through profit or loss.The best evidence of the fair value at initial recognition is the transaction price (i.e. the fair value of the considerationreceived) unless the fair value of that instrument is evidenced by comparison with other observable current markettransactions in the same instrument or based on a valuation technique whose variables include only data fromobservable markets.The group’s valuation methodologies incorporate all factors that market participants would consider and are based onobservable market data. The fair value of a unit linked financial liability is determined using the current unit price thatreflects the fair values of the financial assets contained within the group’s unitised investment funds linked to the financialliability, multiplied by the number of units attributed to the policyholder at the statement of financial position date.If an investment contract is subject to a put or surrender option, the fair value of the financial liability is never lessthan the amount payable on the put or surrender option.For investment contracts with fixed and guaranteed terms, future benefit payments and premium receipts arediscounted using the rates implied by the government zero-coupon yield curve at the relevant statement of financialposition. No initial profit is recognised immediately as any profit on initial recognition is amortised in line with cashflow projections over the life of the contract.Pg 176

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)15. Policyholder insurance and investment contracts (continued)Service fees on investment management contracts and deferred revenue liability (DRL)Service fee income on investment management contracts is recognised on an accrual basis as and when theservices are rendered.A DRL is recognised in respect of upfront fees, which are directly attributable to a contract, that are charged forsecuring the investment management service contract. The DRL is then released to revenue when the services areprovided, over the expected duration of the contract on a straight-line basis.Regular fees are charged to the customer periodically (monthly, quarterly or annually) either directly or by making adeduction from invested funds. Regular charges billed in advance are recognised on a straight-line basis over thebilling period, which is the period over which the service is rendered. Outstanding fees are accrued as a receivablein terms of the investment management contract.Amounts received and claims incurred on investment management contractsAmounts received under investment contracts, such as premiums, are recorded as deposits to investment contractliabilities, whereas claims incurred are recorded as deductions from investment contract liabilities.Deferred acquisition costs (DAC) in respect of investment contractsCommissions paid and other incremental acquisition costs are incurred when new investment contracts are obtainedor existing investment contracts are renewed. These costs are expensed when incurred, unless specificallyattributable to an investment contract with an investment management service element. Such costs are deferred andamortised over the expected life of the contract, taking into account all decrements, on a straight-line basis, as theyrepresent the right to receive future management fees. Amortisation periods are as follows:• Linked annuities 10 – 16 years• Other investment contracts 5 yearsA DAC asset is recognised for all applicable policies with the amortisation being calculated on a portfolio basis.An impairment test is conducted annually at reporting date on the DAC balance to ensure that the amount will berecovered from future revenue generated by the applicable remaining investment management contracts.Investment contracts with a DPF switching optionOn certain investment contracts policyholders have an option to switch some or all of their investment from a DPFfund to a non-DPF fund (and vice versa). The value of the liability held with respect to these contracts is taken at theaggregate value of the policyholders’ investment in the investment portfolio at the valuation date.Receivables and payables related to insurance contracts and investment contractsReceivables and payables are recognised when due. These include amounts due to and from agents, brokers andpolicyholders.16. Reinsurance contracts heldThe group cedes some insurance risk in the normal course of business. Reinsurance contracts are contracts enteredinto by the group with reinsurers under which the group is compensated for the entire or a portion of losses arisingon one or more of the insurance contracts issued by the group.The expected benefits to which the group is entitled under its reinsurance contracts held are recognised asreinsurance assets. These assets consist of short-term balances due from reinsurers (classified within loans andreceivables) as well as longer-term receivables (classified as reinsurance assets) that are dependent on the presentvalue of expected claims and benefits arising net of expected premiums payable under the related reinsurancecontracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associatedwith the reinsured contracts and in accordance with the terms of each reinsurance contract.Reinsurance assets are assessed for impairment at each statement of financial position date. If there is reliableobjective evidence, as a result of an event that occurred after its initial recognition, that amounts due may not berecoverable, the group reduces the carrying amount of the reinsurance asset to its recoverable amount andrecognises that impairment loss in profit and loss.17. OffsettingAssets and liabilities are offset and the net amount reported in the statement of financial position only when there isa legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or torealise the asset and settle the liability simultaneously.Pg 177

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)18. Investment income and finance costsInvestment income for the group comprises rental income from properties, interest and dividends. Dividends arerecognised when the right to receive payment is established. Rental income is accounted for on a straight-line basis.Interest income and expenses for all interest-bearing financial instruments, including financial instruments measuredat fair value through profit or loss, are recognised within investment income and finance costs in profit and loss usingthe effective interest rate method. When a receivable is impaired, the group reduces the carrying amount to itsrecoverable amount being the estimated future cash flow discounted at the original effective interest rate of theinstrument, and continues unwinding the discount as interest income. Rental income in respect of group owneroccupiedproperties is eliminated on consolidation. Accrued investment income on instruments held at amortised costis assessed for impairment in line with accounting policy 7. Scrip lending fees received are recognised on an accrualbasis and are included in profit and loss as scrip lending fees within investment income.19. Hotel operations salesHotel operations sales comprises the sale of accommodation, food and beverage, other guest facilities and rentalsreceived. Sales are recognised over the period for which the services are rendered. Revenue is shown net of valueaddedtax, returns, rebates and discounts.20. Fee revenueFee revenue includes management fees on assets under management and administration fees.Management fees on assets under management are recognised over the period for which the services are rendered,in accordance with the substance of the relevant agreements.Administration fees received for the administration of medical schemes are recognised when the services arerendered.21. Employee benefitsLeave pay provisionThe group recognises a liability for the amount of accumulated leave if the group has a present or constructiveobligation to pay this amount as a result of past service provided by the employee and the obligation can beestimated reliably.Incentive schemeIncentive scheme bonuses are recognised as an expense as incurred when it is probable that the economic benefitswill be paid and the amount can be reliably measured.Pension obligationsGroup companies operate various pension schemes. The schemes are generally funded through payments totrustee administered funds, determined by periodic actuarial calculations. The group has both defined benefitand defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefitthat an employee will receive on retirement, usually dependent on one or more factors such as age, years ofservice and compensation. A defined contribution plan is a pension plan under which the group pays fixedcontributions into a separate entity. The group has no legal or constructive obligations to pay further contributions ifthe fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the currentand prior periods.The liability recognised in the statement of financial position in respect of defined benefit pension plans is thepresent value of the defined benefit obligation at the statement of financial position date less the fair value of planassets, together with adjustments for unrecognised actuarial gains or losses and past service costs. Plan assetsexclude any insurance contracts issued by the group. The defined benefit obligation is calculated annually byindependent actuaries using the projected unit credit method. The present value of the defined benefit obligation isdetermined by discounting the estimated future cash outflows using interest rates of high-quality corporate bondsthat are denominated in the currency in which the benefits will be paid and that have terms to maturity thatapproximate the terms of the related pension liability. When the calculation results in a benefit to the group, therecognised asset is limited to the net total of any unrecognised past service costs and the present value of anyeconomic benefits available in the form of future refunds from the plan or reductions in future contributions tothe plan.Pg 178

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)21. Employee benefits (continued)The group’s current service costs to the defined benefit funds are recognised as expenses in the current year. Pastservice costs, experience adjustments and the effect of changes in actuarial assumptions are recognised asexpenses or income in the current year to the extent that they relate to retired employees or past service. For activeemployees, these items are recognised as expenses or income systematically over a period not exceeding theexpected remaining service period of employees.Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional onthe employees remaining in service for a specified period of time (the vesting period). In this case, the past-servicecosts are amortised on a straight-line basis over the vesting period.For defined contribution plans, the group pays contributions to privately administered pension insurance plans on amandatory, contractual or voluntary basis. The group has no further payment obligations once the contributions havebeen paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributionsare recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.Other post-employment obligationsSome group companies provide post-retirement healthcare benefits to their retirees. The entitlement to these benefitsis usually conditional on the employee remaining in service up to retirement age and the completion of a minimumservice period. The expected costs of these benefits are accrued over the period of employment using an accountingmethodology similar to that for defined benefit pension plans. Actuarial gains and losses arising from experienceadjustments and changes in actuarial assumptions are charged or credited to income over the expected averageremaining working lives of the related employees. Independent qualified actuaries value these obligations annually.22. TaxationIncome taxation on the profit or loss for the periods presented comprises current and deferred taxation.Current taxationCurrent taxation is the expected taxation payable, using taxation rates enacted at the statement of financial positiondate, including any prior year adjustments.Deferred taxationDeferred taxation is provided in full using the liability method. Provision is made for deferred taxation attributable totemporary differences in the accounting and taxation treatment of items in the financial statements. A deferred taxationliability is recognised for all temporary differences, at enacted or substantially enacted rates of taxation at the statementof financial position date, except differences relating to goodwill, initial recognition of assets and liabilities which affectneither accounting nor taxable profits or losses and investments in subsidiaries and joint ventures (excluding mutualfunds) where the group controls the timing of the reversal of temporary differences and it is probable that thesedifferences will not reverse in the foreseeable future. In respect of temporary differences arising on fair valueadjustments on investment properties, deferred taxation is provided at the use rate if the property is considered to bea long-term strategic investment or at the capital gains effective rate if recovery is anticipated to be mainly throughdisposal. A deferred taxation asset is recognised for the carry forward of unused taxation losses, unused taxationcredits and deductible temporary differences to the extent that it is probable that future taxable profit will be availableagainst which they can be utilised. The major categories of assets and liabilities giving rise to a deferred taxationbalance are investment properties revaluation surpluses, policyholder valuation basis, life fund special transfers,deferred acquisition costs, deferred revenue, unrealised gains on investments, intangible assets and provisions.23. ProvisionsProvisions are recognised when the group has a present legal or constructive obligation of uncertain timing oramount, as a result of past events and it is probable that an outflow of resources embodying economic benefits willbe required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisionsare discounted using a pre-tax discount rate that reflects current market assessments of the time value of moneyand, where appropriate, the risks specific to the liability.24. Operating leasesLeases of assets under which the lessor effectively retains all the risks and benefits of ownership are classified asoperating leases.Pg 179

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)24. Operating leases (continued)The group as lessorReceipts of operating leases from properties held as investment properties are accounted for as income on thestraight-line basis over the period of the lease. When an operating lease is terminated, any payment required by thelessee by way of penalty is recognised as income in the period in which termination takes place.The group as lesseeLease payments arising from operating leases is recognised in profit and loss on a straight-line basis over thelease term.25. Share-based payment transactionsEquity compensation plansOptions are granted to permanent employees at the discretion of the directors in terms of which shares in LibertyHoldings Limited (formerly Liberty Group Limited) may be acquired at prices prevailing at the dates of grant of theoptions. Delivery of the shares so acquired is effected at future dates, which are determined at the time of grantingthe options. Shares acquired through the share option incentive schemes have to be paid for by the employees atthe subscription prices as determined in the option contracts. Shares under option, which have not yet beendelivered to participants, carry no shareholder rights.The fair value of share options granted after 7 November 2002 and not vested at 1 January 2005 is measured atgrant date and expensed on a straight-line basis over the period during which the employees will become entitledto the options granted (vesting period). The fair value of the options is measured using an appropriate model whichtakes into account the terms and conditions of the share option scheme as well as the historical share pricemovement. The expense recognised is adjusted to ultimately reflect the actual number of share options vested afterwhich no further adjustments are made. The expense is credited to a share-based payments reserve. When theoptions are exercised or cancelled after vesting date the relevant amount is transferred from the share-basedpayment reserve to retained surplus.Equity compensation plan implemented during 2005The equity compensation scheme implemented during 2005 confers rights to employees to acquire Liberty HoldingsLimited (formerly Liberty Group Limited) shares equivalent to the value of the right at date of exercise. The fair valueof the rights are measured at grant date using an appropriate model which takes into account the terms andconditions of the scheme, as well as the historical share price movement. The fair value is expensed over the vestingperiod on the same basis as the equity compensation plans.Cash-settled share-based paymentsFor cash-settled share-based payments, a liability equal to the portion of the goods or services received isrecognised at the current fair value determined at each statement of financial position date. Until the liability issettled, the fair value is re-measured at each reporting date and date of settlement, with any changes in fair valuerecognised in profit and loss for the period.Black economic empowerment (BEE) transactionThe group concluded its BEE transaction on 8 November 2004. The issue of equity-linked instruments to the BlackManagers’ Trust had not vested with the participants at 31 December 2004. These instruments have been accountedfor as an equity-settled share-based payment transaction and the option, inherent in the transaction, has beenvalued at fair value at the date of the transaction. The fair value is recognised as an expense on a straight-line basisin profit and loss over the vesting period, with a corresponding increase in the share-based payments reserve withinequity. The fair value of the options is measured using an appropriate model which takes into account the terms andconditions of the BEE transaction. When the options are exercised or cancelled after vesting date the relevantamount is transferred from the share-based payment reserve to retained surplus.Pg 180

Liberty Holdings Limited – Annual Report 2008Accounting policies (continued)26. Segment informationThe group’s products and services are managed by various business units along geographical lines, productcategories and risk components. The segment information is presented by each distinct revenue generating arearepresenting groups of similar products, consistent with the way the group manages the business. These are longterminsurance (individual and corporate), asset management and health services. Given the nature of operations,there are no major customers within any of the segments.The information is presented in the same format as is presented to the chief operating decision maker when makingoperating decisions and for allocating resources and assessing performance. Certain reporting adjustments areprovided separately to reconcile to IFRS reported earnings.Reallocations of certain comparative segment information have been made following changes in the group’smanagement structure, effective 1 January 2008.27. Non-current assets and disposal groups held for saleNon-current assets and disposal groups are classified as held for sale if their carrying amount will be recoveredthrough a sale transaction rather than continuing use. This classification is only met if the sale is highly probable andthe assets or disposal groups are available for immediate sale.In light of the group’s primary business being the provision of insurance and investment products, non-currentassets held as investments are not classified as held for sale as the ongoing investment management implies regularpurchases and sales in the ordinary course of business.Immediately before classification as held for sale, the measurement (carrying amount) of assets and liabilities inrelation to a disposal group is recognised based upon the appropriate IFRS standards. On initial recognition as heldfor sale, the non-current assets and liabilities are recognised at the lower of carrying amount and fair value less coststo sell.Any impairment losses on initial classification as held for sale are recognised in profit and loss.The non-current assets and disposal groups held for sale will be reclassified immediately when there is a change inintention to sell. Subsequent measurement of the asset or disposal group at that date will be the lower of:(i) its carrying amount before the asset or disposal group was classified as held for sale, adjusted for anydepreciation, amortisation or revaluations that would have been recognised had the asset or disposal group notbeen classified as held for sale; and(ii) its recoverable amount at the date of the subsequent decision not to sell.Pg 181

Liberty Holdings Limited – Annual Report 2008Statement of financial positionat 31 December 20082008 2007Notes Rm RmAssetsEquipment and properties under development 3 946 519Owner-occupied properties 4 1 282 1 276Investment properties 5 16 771 14 937Intangible assets 6 1 444 1 137Defined benefit pension fund employer surplus 18 144 162Deferred acquisition costs 7 344 325Interests in joint ventures 8 505 295Reinsurance assets 14 827 820Operating leases – accrued income 5 1 067 1 180Pledged assets 9 1 622 5 209Interests in associates – mutual funds 10 4 726 10 297Financial instruments 11 170 968 176 223Deferred taxation 20 131 51Prepayments, insurance and other receivables 12 5 884 3 528Cash and cash equivalents 13 5 112 4 688Total assets 211 773 220 647LiabilitiesPolicyholders’ liabilities 172 069 186 137Insurance contracts 14 122 091 131 552Investment contracts with discretionary participation features 14 2 648 3 353Financial liabilities under investment contracts 15 47 330 51 232Financial liabilities at amortised cost 16 2 430 2 418Third party financial liabilities arising on consolidation of mutual funds 17 10 481 8 040Employee benefits 18 642 524Deferred revenue 19 114 95Deferred taxation 20 2 897 3 484Provisions 21 64 60Operating leases – accrued expense 5 215 238Derivative financial instruments 11 77 66Insurance and other payables 22 8 210 5 993Current taxation 748 1 101Total liabilities 197 947 208 156EquityOrdinary shareholders’ interests 11 633 5 288Share capital 23 26 14Share premium 23 9 276 903Retained surplus 3 166 4 906Other reserves (835) (535)Minority interests 2 193 7 203Total equity 13 826 12 491Total equity and liabilities 211 773 220 647Pg 182

Liberty Holdings Limited – Annual Report 2008Statement of comprehensive incomefor the year ended 31 December 20082008 2007Notes Rm RmRevenueInsurance premium revenue 24 22 986 23 709Reinsurance premiums 24 (727) (693)Net insurance premiums 22 259 23 016Service fee income from policyholder investment contracts 25 799 837Investment income 26 13 552 10 372Hotel operations sales 714 597Investment (losses)/gains 27 (15 476) 14 346Fee revenue 28 1 144 1 005Defined benefit pension fund employer surplus 162Total revenue 22 992 50 335Claims and policyholders’ benefits under insurance contracts 29 (23 596) (20 739)Insurance claims recovered from re-insurers 29 535 610Change in policyholder liabilities 10 173 (10 554)Insurance contracts 9 461 (8 838)Investment contracts with discretionary participation features 705 (1 634)Applicable to reinsurers 7 (82)Fair value adjustment to policyholders’ liabilities under investment contracts 15 1 025 (6 281)Fair value adjustment on third party mutual fund interests 17 (134) (189)Acquisition costs 30 (2 822) (2 894)General marketing and administration expenses 31 (5 151) (4 297)Finance costs 33 (356) (392)Preference dividend in subsidiary (308) (274)Profit on sale of subsidiary 6Equity accounted earnings from joint ventures 8 40 51Profit before taxation 2 398 5 382Taxation 35 (607) (2 105)Total earnings 1 791 3 277Other comprehensive income (20) 102Owner-occupied properties – fair value adjustment 26 127Foreign currency translation (40) 16Income tax relating to components of other comprehensive income 35 (6) (41)Total comprehensive income 1 771 3 379Total earnings attributable to:Ordinary shareholders’ interests 1 112 1 463Minority interest 679 1 8141 791 3 277Total comprehensive income attributable to:Ordinary shareholders’ interests 1 072 1 516Minority interest 699 1 8631 771 3 379Restated (1)Cents CentsBasic earnings per share 1 709,3 1 051,8Fully diluted basic earnings per share 1 683,3 1 051,8Dividends per share 259,3 352,3(1)2007 earnings and dividends per share amounts have been restated to adjust for the 3:1 share split in 2008 as if it occurred at thebeginning of 2007.Pg 183

Liberty Holdings Limited – Annual Report 2008Statement of changes in shareholders’ fundsfor the year ended 31 December 2008ShareSharecapitalTreasury Owner Empower- basedand share share occupied ment payment Retained MinorityRm premium reserve FCTR CRRF properties reserve reserve surplus interests TotalShareholders’ funds at1 January 2007 917 (238) 14 3 212 (372) 53 4 658 6 674 11 921Increase in minorities resultingfrom acquisition of STANLIB 11 11Excess purchase price over NAV of STANLIB (1 148) (1 050) (2 198)Increase in minorities resultingfrom acquisition of Liberty LifeAssurance Uganda 2 2Capital reduction in subsidiary (207) (207)Total comprehensive income 9 44 1 463 1 863 3 379Minority share of subsidiary dividend (312) (312)Ordinary dividends (503) (503)2006 final dividend No. 76 of 670 cents (319) (319)2007 interim dividend No. 77 of 387 cents (184) (184)Preference dividend (2) (2)Unincorporated propertypartnerships – minority movements (77) (77)Capital contribution 73 73Distributions (150) (150)Black economic empowerment transaction 49 49 98Share-based payments 28 26 54Transfer of vested equity options reserve (11) 11Sale and transfer of owneroccupiedproperties 1 (1)Treasury shares adjustment (278) 9 (252) (521)Issue of shares in subsidiary 846 846Charge in effective ownership 370 (370)Shareholders’ funds at31 December 2007 917 (516) 23 3 257 (372) 70 4 906 7 203 12 491Acquisition of Nelson Mandela Square (230) (230)Issue of shares in subsidiary 50 50Capital reduction in subsidiary (368) (368)Minority share of subsidiary dividend (230) (230)Total comprehensive income (51) 11 1 112 699 1 771Ordinary dividends (372) (372)Ordinary dividends No. 78 of 715 cents (341) (341)Extraordinary dividend No. 79 of 63 cents (31) (31)Preference dividend (2) (2)Unincorporated property partnerships– minority movements (90) (90)Capital contribution 77 77Distributions (167) (167)Subscriptions for shares 8 395 8 395Section 311 Liberty transaction costs (10) (10)Black economic empowerment transaction 57 56 113Share-based payments 31 30 61Transfer of vested equity options reserve (15) 15Sale and transfer of owner occupiedproperties (5) 5Transfer of prior years unrealisedprofit on sale of subsidiary shares (208) 208Treasury shares adjustment 516 (192) 318 642Change in effective ownership (5) 5Acquisition of Liberty Group Minorities (579) 579 (5 250) (5 250)Excess purchase price over NAVof Liberty Group (3 145) (3 145)Shareholders’ funds at31 December 2008 9 302 – (28) 3 263 (1 159) 86 3 166 2 193 13 826Pg 184

Liberty Holdings Limited – Annual Report 2008Statement of cash flowsfor the year ended 31 December 20082008 2007Notes Rm RmCash flows from operating activities 1 907 7 989Cash (utilised by)/generated from operations 36 (6 198) 1 642Cash receipts from policyholders 32 073 35 445Cash paid to policyholders, intermediaries, suppliers and employees (38 271) (33 803)Interest received 6 597 6 306Interest paid (356) (392)Dividends received 4 470 2 724Dividends paid 37 (765) (903)Distribution to minorities in unincorporated property partnerships (167) (150)Taxation paid 38 (1 674) (1 238)Cash flows from investing activities (1 702) (7 711)Net purchases of properties under development, investment andowner-occupied properties (395) (90)Purchase of equipment (361) (236)Purchase of intangible assets (1)Proceeds on sale of equipment 4 5Net purchase of financial instruments (1) (329) (6 678)Net movements in loans with joint venture companies (1) 12Acquisition of Health Services related entities 34.1 (203)Acquisition of joint ventures 34.2 (187)Acquisition of minority interests in unincorporated property partnerships (230)Acquisition of STANLIB Limited 34.3 (840)Disposal of Saambou Life Assurers Limited 34.4 117Cash flows from financing activities 203 (957)Repayment of financial liabilities at amortised cost (138) (310)Minority share of capital reduction in subsidiary (368) (207)Proceeds from issue of share capital to minority shareholders in subsidiary 68Minority capital movements in unincorporated property partnerships 77 73Minority capital introduced in Liberty Life Assurance Uganda Limited 2Proceeds from issue of treasury shares 642Subsidiary share buy back (583)Expenses related to issue of shares (10)Net increase/(decrease) in cash and cash equivalents 408 (679)Cash and cash equivalents at the beginning of the year 4 688 5 242Cash and cash equivalents acquired through business acquisition 16 166Cash and cash equivalents disposed through business disposal (41)Cash and cash equivalents at the end of the year 13 5 112 4 688(1)This includes the net purchases of mutual funds that are classified as associates and subsidiaries.Pg 185

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statementsfor the year ended 31 December 20082008 2007RmRm1. Headline earnings and earnings per share (3)Reconciliation of total earnings to headline earnings attributable to equity holdersTotal earnings attributable to equity holders 1 112 1 463AdjustmentsPreference share dividend (2) (2)Total earnings attributable to ordinary shareholders 1 110 1 461Profit on sale of subsidiaries (3)Headline earnings 1 110 1 458Net income earned on BEE preference shares 65 n/a (1)BEE normalised headline earnings attributable to ordinary shareholders 1 175 1 458Restated (2)Cents CentsEarnings per shareTotal earnings attributable to ordinary equity holdersBasic 709,3 1 051,8Headline 709,3 1 049,7BEE normalised headline 740,8 n/a (1)Fully dilutedBasic 683,3 1 051,8Headline 683,3 1 049,7Definitions:Basic earnings per share is total earnings divided by the weighted average number of ordinary shares in issueduring the year.Headline earnings per share is calculated by dividing the headline earnings by the weighted average number ofshares in issue during the year.The application of IFRS to the BEE transaction specifies that the full number of applicable ordinary shares willcontinue as a deduction in deriving the weighted average number of shares in issue for earnings per sharecalculations. These shares will be considered in issue only to the extent the preference shares are held by externalparties at risk or if redeemed in full. This treatment distorts the economic reality and a BEE normalised headlineearnings per share is provided which better reflects shareholder economic earnings.BEE normalised headline earnings is headline earnings adjusted for accrued dividends on BEE preference shares(not recognised as a financial asset) divided by the weighted average of ordinary shares assuming the BEEallocated shares are in issue.Fully diluted basic and headline earnings per share is calculated adjusting the weighted average number of ordinaryshares outstanding to assume conversion of all dilutive potential ordinary shares. Both the BEE transaction and shareoptions could potentially cause dilution. A calculation is performed to determine the number of shares that couldhave been acquired at fair value (determined as the average annual market share price of the company’s shares)based on the monetary value of the subscription rights attached to outstanding share options adjusted for any sharebasedpayment expense recognised. The number of shares calculated as above is compared with the number ofshares that would have been issued assuming the exercise of the share options.000’s 000’sRestated (1)Weighted average number of shares in issue 156 530 138 957Weighted average shares before BEE transaction 158 644 138 957Effect of BEE transaction (2 114) n/a (1)Fully diluted weighted average number of shares in issue 162 505 138 957 (2)Weighted average number of shares in issue (excluding treasury shares) 156 530 138 957Adjustments for:Implementation of shares under option below fair value 276 –Effect of BEE transaction 5 699 n/a (1)(1)The company’s previously listed subsidiary Liberty Group Limited was partially owned in 2007 and BEE normalised headlineearnings was a measure quoted in prior years by Liberty Group Limited and was not applicable at Liberty Holdings Limited.(2)2007 shares in issue and earnings per share figures have been restated to adjust for the 3:1 share split in 2008 as if it occurredat the beginning of 2007.(3)Liberty elected to early adopt the long-term insurance industry exemption contained in the addition to circular 8 of 2007 dated22 February 2008 which allows for no headline earnings adjustment in respect of realised or unrealised remeasurements ofinvestment properties.Pg 186

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082. Segment informationLiberty is a matrix organisation with products and services managed by various business units along geographicallines and risk components. Operations are structured to align the group’s services and related products to retail andcorporate markets.The segment information is therefore primarily presented by each distinct revenue generating service area. Thegroup currently has four revenue generating service areas namely Individual long-term insurance, Corporate longterminsurance, Asset Management and Health Services. Additional information on product classifications within thelong-term insurance segment and geographical analysis is provided.The group accounts for inter-segment revenues and transfers as if the transaction were with third parties. Given thenature of the operations there is no single external customer that provides 10% or more of the group’s revenues.The profit and loss information follows a similar format as the consolidated statement of comprehensive income. Totalearnings are reconciled to BEE normalised headline earnings, which is one of the key performance measuresreported to the group’s chief operating decision makers. The group utilises additional measures to assessthe performance of each of the segments, which can be found in the chief executive report and business unitreviews and include measures such as indexed new business, new business margin, net cash flows, assets undermanagement and embedded value.DefinitionsLong-term InsuranceProducts and services sold in terms of the long-term insurance acts in various territories. These products andservices are split between individual and corporate customers.IndividualProducts aimed at individuals that provide wealth creation, particularly through retirement savings, and wealthprotection through health, life and disability insurance.Product categories:(a) Pure riskContracts that only provide insurable risk benefits in the event of death, sickness ordisability.(b) Investment and risk Contracts that offer a combination of savings and risk benefits. These include productsthat offer a prescribed monetary benefit over a contractually determined period.CorporateRisk and retirement savings products under the umbrella of group schemes marketed to employers who providethose benefits to their employees.Product categories:(a) RiskInsurable risk benefits such as life and disability.(b) InvestmentFacilitation of employee savings for retirement.Asset ManagementThe provision of focused investment solutions for the customer base of the long-term insurance businesses as well asdirect institutional business and individual customers. Management of the group’s property portfolios is also includedin this segment.Health ServicesHealthcare administration, supply and development of related information technology systems, employee wellnessprogrammes and medical risk management.OtherOther includes:Investment portfolios Shareholder capital, not allocated to the other operating segments, specifically invested tomaximise the investment yield within the group’s risk appetite and regulatory requirements.Central costs Costs associated with the group’s central administration and shareholder services includingcertain corporate social investment and black empowerment activities.Reporting adjustmentsThe information in the segment report is presented on the same basis as reported to management. Reportingadjustments are those accounting reclassifications and entries required to produce IFRS compliant results. Specificdetails of these adjustments are included as footnotes.Pg 187

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082. Segment information (continued)The group’s revenue generating service areas are managed by various business units as follows:1. Marketing and Distribution (MaD). MaD manages the development, integrity and preservation of the group’sbrands, image and communication as well as sales and distribution support to the individual and corporateinsurance, asset management and health segments.The revenues and costs related to this business unit are appropriately allocated to the benefiting service areaand business unit.2. Individual Life manages the direct customers’ and financial advisers’ needs with regard to risk and investmentproducts sold to individuals under a long-term insurance licence in South Africa. The operations includedeveloping specific products and servicing the existing policyholders’ benefits and requirements.3. Corporate develops and provides investment and risk products that meet the needs of employers in South Africawho provide these benefits centrally to their employees. Corporate scheme administration services, includingactuarial compliance and advice are also provided.4. STANLIB is the group’s largest asset manager. It offers a local and international product mix which aims to meetthe wealth needs of both institutional and individual investors. STANLIB also services the majority of the assetmanagement requirements that support the products marketed by MaD and Liberty Africa.5. Liberty Properties is responsible for the development, management, administration and marketing of theextensive commercial, retail and hotel property portfolio owned by the group across South Africa. The businessunit also offers property development management and administration services to external customers.6. LibFin is a newly established unit which manages Liberty’s shareholder market, credit and liquidity risks.7. Liberty Africa aims to extend the group’s insurance, asset management and health services in African countriesoutside of South Africa.8. Liberty Health is focused on providing health related services to institutional customers, including registeredhealth funds, and individuals that work in countries that are less developed in terms of health solutions andservices.9. Group Central Services includes business units that provide certain services to the group or parts of the group.These services include group professional services, group information technology services, people andstakeholder management, corporate finance and strategic ventures.Pg 188

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082. Segment information (continued)Segment earnings for the year ended 31 December 2008:Long-term insurance Asset Reportingmanage- Health adjust- IFRSRm Individual Corporate ment services Other Total ments (1) reportedPolicyholder premiums 24 387 6 959 31 346 (9 087) 22 259Service fee income from policyholderinvestment contracts 799 799Investment returns (2 083) (1 031) 173 2 601 (2 338) 1 128 (1 210)Fee revenue 1 526 55 24 1 605 (461) 1 144OtherTotal revenue 22 304 5 928 1 699 57 625 30 613 (7 621) 22 992Net claims and policyholder benefits (23 929) (10 278) (34 207) 11 146 (23 061)Change in policyholders’ liabilities 8 562 5 488 14 050 (3 877) 10 173Fair value adjustment to policyholders’liabilities under investment contracts 1 025 1 025Fair value adjustment on third partymutual fund interests (134) (134)Acquisition costs (2 403) (223) (196) (2 822) (2 822)Marketing and administration expenses (3 070) (702) (709) (122) (375) (4 978) (173) (5 151)Finance costs (42) (151) (163) (356) (356)Preference dividend (308) (308) (308)Equity accounted earnings fromjoint ventures 29 4 6 1 40 40Profit before taxation 1 143 217 649 (65) 88 2 032 366 2 398Taxation (399) (61) (198) 46 30 (582) (25) (607)Total earnings 744 156 451 (19) 118 1 450 341 1 791Other comprehensive incomeOwner-occupied properties– fair value adjustment 23 3 26 26Foreign currency translation (42) 2 (40) (40)Income tax relating to componentsof other comprehensive income (5) (1) (6) (6)Total comprehensive income 720 158 451 (19) 120 1 430 341 1 771Attributable to:Minorities (187) (38) (114) 19 (38) (358) (341) (699)Equity holders 533 120 337 – 82 1 072 – 1 072Reconciliation of total earnings toheadline earnings attributableto equity holdersTotal earnings 744 156 451 (19) 118 1 450 341 1 791Attributable to minorities (178) (37) (114) 19 (28) (338) (341) (679)Preference share dividend (2) (2) (2)Headline earnings 566 119 337 – 88 1 110 – 1 110Net income earned on BEEpreference shares 65 65 65BEE normalised headline earnings 566 119 337 – 153 1 175 – 1 175(1)Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities,providing additional deferred taxation on investment property revaluations, the classification of long-term insurance into defined IFRS ‘investment’and ‘insurance’ products, and the elimination of inter-group transactions. The effect of the classification of long-term investment products in thereporting adjustments column is to recognise premiums on investment contracts as revenue.Pg 189

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082. Segment information (continued)Segment earnings for the year ended 31 December 2007:Long-term insurance Asset Reportingmanage- adjust- IFRSRm Individual Corporate ment Other Total ments (1) reportedPolicyholder premiums 23 840 10 912 34 752 (11 736) 23 016Service fee income frompolicyholder investment contracts 837 837Investment returns 18 220 4 960 118 1 062 24 360 955 25 315Management fees on asset undermanagement 1 299 136 1 435 (430) 1 005Other 162 162 162Total revenue 42 060 15 872 1 417 1 360 60 709 (10 374) 50 335Net claims and policyholder benefits (21 918) (8 541) (30 459) 10 330 (20 129)Change in policyholders’ liabilities (11 139) (6 212) (17 351) 6 797 (10 554)Fair value adjustment to policyholders’liabilities under investment contracts (6 281) (6 281)Fair value adjustment on third partymutual fund interests (189) (189)Acquisition costs (2 540) (184) (170) (2 894) (2 894)Marketing and administration expenses (2 873) (618) (465) (385) (4 341) 44 (4 297)Finance costs (57) (2) (124) (209) (392) (392)Preference dividend (274) (274) (274)Profit on sale of subsidiaries 6 6 6Equity accounted earnings from jointventures 37 3 11 51 51Profit before taxation 3 296 318 658 783 5 055 327 5 382Taxation (1 727) (89) (205) (121) (2 142) 37 (2 105)Total earnings 1 569 229 453 662 2 913 364 3 277Other comprehensive incomeOwner occupied properties – fairvalue adjustment 111 16 127 127Foreign currency translation 18 (2) 16 16Income tax relating to componentsof other comprehensive income (36) (5) (41) (41)Total comprehensive income 1 662 240 453 660 3 015 364 3 379Attributable to:Minorities (811) (117) (224) (347) (1 499) (364) (1 863)Equity holders 851 123 229 313 1 516 – 1 516Reconciliation of total earningsto headline earnings attributableto equity holdersTotal earnings 1 569 229 453 662 2 913 364 3 277Attributable to minorities (766) (112) (224) (348) (1 450) (364) (1 814)Profit on sale of subsidiaries (3) (3) (3)Preference share dividend (2) (2) (2)Headline earnings 803 117 229 309 1 458 – 1 458Net income earned on BEEpreference shares n/a n/a n/aBEE normalised headline earnings 803 117 229 309 1 458 – 1 458(1)Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutual fund liabilities,providing additional deferred taxation on investment property revaluations, the classification of long-term insurance into defined IFRS ‘investment’and ‘insurance’ products, and the elimination of inter-group transactions. The effect of the classification of long-term investment products in thereporting adjustments column is to recognise premiums on investment contracts as revenue.Pg 190

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082. Segment information (continued)Analysis of Long-term insurance earnings by product classificationIndividualCorporateInvestmentRm Pure risk and risk Risk Investment TotalFor year ended 31 December 2008Policyholder premiums 4 052 20 335 1 823 5 136 31 346Investment returns (662) (1 421) 314 (1 345) (3 114)Total revenue 3 390 18 914 2 137 3 791 28 232Net claims and policyholder benefits (1 343) (22 586) (1 462) (8 816) (34 207)Change in policyholders’ liabilities 1 028 7 534 (239) 5 727 14 050Acquisition costs (1 347) (1 056) (69) (154) (2 626)Marketing and administration expenses (1 043) (2 027) (173) (529) (3 772)Finance costs (42) (42)Preference dividend (308) (308)Equity accounted earnings from joint ventures 29 4 33Profit before taxation 377 766 194 23 1 360Total per operating segment 1 143 217 1 360For year ended 31 December 2007Policyholder premiums 3 394 20 446 1 708 9 204 34 752Investment returns (152) 18 372 79 4 881 23 180Total revenue 3 242 38 818 1 787 14 085 57 932Net claims and policyholder benefits (1 245) (20 673) (1 438) (7 103) (30 459)Change in policyholders’ liabilities 561 (11 700) 67 (6 279) (17 351)Acquisition costs (1 361) (1 179) (69) (115) (2 724)Marketing and administration expenses (872) (2 001) (121) (497) (3 491)Finance costs (57) (2) (59)Preference dividend (274) (274)Equity accounted earnings from joint ventures 37 3 40Profit before taxation 51 3 245 226 92 3 614Total per operating segment 3 296 318 3 614Pg 191

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082. Segment information (continued)Other financial detail by operating segmentLong-term insurance Asset Reportingmanage- Health adjust- IFRSRm Individual Corporate ment services Other Total ments (1) reported2008Total assets 136 351 35 718 10 242 349 15 432 198 092 13 681 211 773Additions to non-current assets 187 29 198 533 563 1 510 69 1 579Interest in joint ventures 273 42 188 2 505 505Interest income 4 384 1 194 80 256 5 914 683 6 597Depreciation (17) (1) (149) (167) (167)Amortisation of PVIF (108) (56) (164) (164)Amortisation of computer softwareinternally generated (16) (16) (16)Amortisation of customerrelationships and contracts (1) (1) (1)Amortisation of deferredacquisition costs (46) (176) (222) (222)Release of deferred revenue 9 9 92007Total assets 145 666 41 155 989 22 144 209 954 10 693 220 647Additions to non-current assets 249 95 29 180 553 28 581Interest in joint ventures 270 24 1 295 295Interest income 3 941 1 073 67 230 5 311 432 5 743Depreciation (20) (107) (127) (127)Amortisation and impairmentof PVIF (142) (26) (168) (168)Amortisation of computersoftware internally generated (27) (27) (27)Amortisation of deferredacquisition costs (136) (50) (186) (186)Release of deferred revenue 8 8 8(1)Reporting adjustments include the consolidation of unincorporated property partnerships, the consolidation of third party mutualfund liabilities, providing additional deferred taxation on investment property revaluations, the classification of long-terminsurance into defined IFRS ‘investment’ and ‘insurance’ products, and the elimination of inter-group transactions. The effect ofthe classification of long-term investment products in the reporting adjustments column is to recognise premiums on investmentcontracts as revenue.Pg 192

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082. Segment information (continued)Segment information from geographical areasSouth Africa Other Africa (4) TotalRm 2008 2007 2008 2007 2008 2007Revenue from externalcustomers 22 854 50 297 138 38 22 992 50 335Total earnings attributableto equity holders 1 113 1 455 (1) 8 1 112 1 463Non-current assets 22 890 20 200 10 22 900 20 200Total assets 211 569 220 576 204 71 211 773 220 647Total liabilities 197 860 208 118 87 38 197 947 208 156(4)Other Africa includes Namibia, Swaziland, Botswana, Kenya, Uganda, Lesotho.Revenue is allocated based on the country in which the insurance or investment contract is issued or service feeincome and investment returns are earned.Non-current assets are allocated based on where the matching insurance or investment contract is issued or, if notmatched, where the business owning the asset is situated.Pg 193

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20083. Equipment and properties under development2008 2007RmRmCost at the beginning of the year 1 546 1 409Additions through business acquisition 21 111563 236Additions 361 236Additions – capitalised subsequent expenditure 202Disposals (22) (26)Transfers to investment properties (8)Transfers from/(to) owner-occupied properties 13 (176)Cost at the end of the year 2 121 1 546Accumulated depreciation and impairment at the beginning of the year (1 027) (845)Additions through business acquisitions (77)Depreciation (167) (127)Disposals 19 22Accumulated depreciation and impairment at the end of the year (1 175) (1 027)Net carrying value at the end of the year 946 519Summary of net carrying valueProperties under development 215 –Computer equipment 281 143Purchased computer software 32 29Fixtures, furniture and fittings 318 269Office equipment and office machines 64 45Motor vehicles 36 366Pg 194

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 2008BalanceBalanceat the Business at thebeginning acqui- Depre- Transfers end ofof the year sition Additions Disposals ciation in the yearRm Rm Rm Rm Rm Rm Rm3. Equipment and propertiesunder development (continued)2008Cost – movementProperties under development (1) 202 13 215Computer equipment 731 18 193 (7) 935Purchased computer software 90 17 107Fixtures, furniture and fittings 566 3 107 (3) 673Office equipment and office machines 97 27 (1) 123Motor vehicles 62 17 (11) 681 546 21 563 (22) 13 2 121Accumulated depreciationand impairments – movementComputer equipment (588) 7 (73) (654)Purchased computer software (61) (14) (75)Fixtures, furniture and fittings (297) 2 (60) (355)Office equipment and office machines (52) 1 (8) (59)Motor vehicles (29) 9 (12) (32)(1 027) 19 (167) (1 175)2007Cost – movementProperties under development (1) 184 (184) –Computer equipment 627 31 75 (2) 731Purchased computer software 52 25 13 90Fixtures, furniture and fittings 408 42 126 (10) 566Office equipment and office machines 78 12 8 (1) 97Motor vehicles 60 1 14 (13) 621 409 111 236 (26) (184) 1 546Accumulated depreciation andimpairment – movementComputer equipment (506) (28) 2 (56) (588)Purchased computer software (28) (23) (10) (61)Fixtures, furniture and fittings (243) (17) 6 (43) (297)Office equipment and office machines (40) (9) 4 (7) (52)Motor vehicles (28) 10 (11) (29)(1)No depreciation is provided for on properties under development.(845) (77) 22 (127) (1 027)Pg 195

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20084. Owner-occupied properties2008 2007RmRmFair value at the beginning of the year 1 276 867Additions 18 108Disposals (23) (2)Revaluations 26 127Transfers (to)/from properties under development (13) 176Reclassifications to investment properties (2)Fair value at the end of the year 1 282 1 276The cost less accumulated depreciation of the owner-occupied properties is provided below. The allowed alternativemethod as described in IAS 16 is fair value, which has been adopted by the group.2008 2007RmRmCost at the beginning of the year 544 265Additions 18 108Impairment (4)Disposals (9) (1)Reclassifications to investment propertiesTransfer (to)/from properties under development (13) 176Cost at the end of the year 540 544Accumulated depreciation at the beginning and end of the year (1) (57) (57)Cost less accumulated depreciation 483 487(1)No depreciation was provided in 2008 or 2007 as the residual value of the building is equal or greater than the cost lessaccumulated depreciation.The valuation of owner-occupied properties and investment properties has been carried out by Ian MitchellInvestment Property Consultants CC (Chartered Valuation Surveyor – Professional Valuer) and Asset ValuationServices CC (Professional Associate Valuer).The valuation is prepared in accordance with the guidelines of the South African Institute of Valuers for valuationreports and in accordance with the appraisal and valuation manual of the Royal Institution of Chartered Surveyors,adapted for South African law and conditions. The valuation assumes that there will be no change in the social,economic or political circumstances between the date of the valuation and the financial year end of the company.The basis of value is “market value” which is defined as an opinion of the best price at which the sale of an interestin property, taking into account existing tenant lease terms, would have been completed unconditionally for a cashconsideration on the date of valuation assuming:• a willing seller;• that the state of the market, level of values and other circumstances were, on any earlier assumed date ofexchange of contracts, the same as at the date of valuation;• that no account is taken of any additional bid by a prospective purchaser with a special interest; and• that both parties to the transaction had acted knowledgeably, prudently and without compulsion.The properties have been valued on a discounted cash flow basis. In the majority of cases, discounted cash flowshave been used and summed together with the capitalised and discounted value of the projected income to givepresent value as at 31 December 2008. In order to determine the reversionary rental income on lease expiry, renewalor review a market gross rental income (basic rental plus operating cost rental) has been applied to give a marketrelatedrental value for each property as at 31 December 2008. Market rental growth has been determined basedon the individual property, property market trends and economic forecasts. Vacancies have been considered basedon historic and current vacancy factors as well as the nature, location, size and popularity of each building.Pg 196

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20084. Owner-occupied properties (continued)Appropriate discount rates have been applied to cash flows for each property to reflect the relative investment riskassociated with the particular building, tenant, covenant and the projected income flow. Extensive market researchhas been conducted to ascertain the most appropriate market-related discount rate to apply, regard to the currentlong-term bond yield (R153 risk free rate) and the relative attractiveness that an investor may place on property asan asset class.Primary discount rates range from 7,75% to 12,5% (2007: 8,0% to 11,5%) on a property by property basis.Exit capitalisation rates generally range from 7,75% to 12,5% (2007: 8,0% to 11,5%).On the basis that turnover or profit rental income has a greater degree of uncertainty and risk than the contractualbase rental, a risk premium of between 1% and 6% has been added to the discount rate and to the exit capitalisationrate, to reflect the greater investment risk associated with the variable rental element on a property by property basis.5. Investment propertiesDetails of property investments are recorded in registers, which may beinspected by members or their duly authorised agents, at the company’sregistered office.2008 2007RmRmFair value at the beginning of the year 14 937 13 200Revaluations net of lease straight-lining 1 634 1 745Revaluations 1 544 1 775Net movement on straight-lining operating leases 90 (30)Additions – property acquired 8Additions – capitalised subsequent expenditure 190 33Disposals (49)Reclassifications from owner-occupied properties 2Transfers from properties under development 8Fair value at the end of the year 16 771 14 937At the end of the year investment properties comprised the following property types:Office buildings 1 010 886Shopping malls 14 257 12 858Hotels 1 778 1 549Other 578 586Total investment properties 17 623 15 879Investment properties at fair value 16 771 14 937Operating leases – accrued income 1 067 1 180Operating leases – accrued expense (215) (238)The investment properties were independently valued as at 31 December 2008 by Mr I Mitchell and Asset ValuationServices CC, who are both registered as professional valuers with the South African Council for the Property ValuersProfession as well as members of the Institute of Valuers of South Africa. The method of valuation is more fullydescribed in note 4, owner-occupied properties.At 31 December 2008 and 2007 there was no significant unlet space in the investment properties held by the group.The property rental income earned by the group from its investment property, all of which is leased out underoperating leases, amounted to R1 305 million (2007: R1 339 million). Direct operating expenses arising on theinvestment property amounted to R235 million (2007: R227 million).Pg 197

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082008 2007RmRm6. Intangible assetsCost at the beginning of the year 2 257 2 256Additions 1Additions through business acquisition 488Disposals (7)Cost at the end of the year 2 738 2 257Accumulated amortisation and impairment at the beginning of the year (1 120) (925)Amortisation (181) (191)Impairment charge (4)Disposals 7Accumulated amortisation and impairment at the end of the year (1 294) (1 120)Net carrying amount at the end of the year 1 444 1 137Summary of net carrying valueGoodwill (1) 114Computer software – internally generated 239 27Customer relationships and contracts 145Present value of in-force policyholder insurance contracts (2) 946 1 110Balance Busi- Balanceat the ness at thebeginning acqui- Amorti- end of Amortisationof the year sitions Disposals sation the year periodRm Rm Rm Rm Rm2008Cost – movementGoodwill 397 114 511Computer software – internallygenerated 236 228 (7) 457Customer relationships andcontracts 146 146Present value of in-forcepolicyholder contracts 1 624 1 6242 257 488 (7) 2 738Accumulated amortisationand impairment – movementGoodwill (397) (397) No amortisationComputer software – internallygenerated (209) 7 (16) (218) Up to 7 yearsCustomer relationships andcontracts (1) (1) Up to 7 yearsPresent value of in-forcepolicyholder contracts (514) (164) (678) Up to 12 years(1 120) 7 (181) (1 294)Accumulated Net carryingCost impairment amount(1)Goodwill comprises Rm Rm RmCapital Alliance Holdings Limited 397 (397) –Liberty Health Holdings (Proprietary) Limited 114 114511 (397) 114Goodwill relating to Liberty Health Holdings (Proprietary) Limited includes value attributable to acquired workforce and the effectof double accounting of deferred tax on customer relationships and contracts.(2)Represents the present value (at acquisition date) of future profits before taxation, on policyholder contracts acquired frombusiness combination, less amortisation. No internally generated value of in-force has been recognised, since it does not meetthe recognition criteria in IAS 38.Pg 198

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20086. Intangible assets (continued)Balance atBalancethe beginning Impair- Amorti- at the end Amortisationof the year Additions ments sation of the year periodRm Rm Rm Rm Rm2007Cost – movementGoodwill (1) 397 397Computer software – internallygenerated 235 1 236Present value of in-force policyholderinsurance contracts and investmentcontracts with DPF (2) 1 624 1 6242 256 1 2 257Accumulated amortisationand impairment – movementGoodwill (1) (397) (397) No amortisationComputer software – internallygenerated (182) (27) (209) Up to 5 yearsPresent value of in-force policyholderinsurance contracts and investmentcontracts with DPF (2) (346) (4) (164) (514) Up to 12 years(925) (4) (191) (1 120)(1)Goodwill arising from acquisition of Capital Alliance Holdings Limited.(2)Represents the pre-taxation present value (at acquisition date) less amortisation of future profits on policyholder insurancecontracts and investment contracts with DPF acquired from business combinations. No internally generated value of in-force hasbeen recognised.2008 2007RmRm7. Deferred acquisition costsBalance at the beginning of the year 325 308Cost of new business acquired 241 203Amortisation realised through profit and loss (222) (186)Balance at the end of the year 344 325Current 138 132Non-current 206 193Pg 199

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20088. Interests in joint ventures2008 2007RmRm8.1 SummaryEquity loans and ordinary shares at cost 251 17Held-to-maturity financial instruments (1) 4 50Share of post-acquisition reserves 250 228Total interests in joint ventures 505 2958.2 Movement analysisEquity loans and ordinary shares at costBalance at the beginning of the year 17 129Acquisition of equity loan in Evening Star (3) 140Adjustment required re STANLIB acquisition (2) (112)Held-to-maturity financial instrument converted to ordinary shares (1) 47Acquisition of Fountainhead and Evening Star ordinary shares (3) 47Balance at the end of the year 251 17Held-to-maturity financial instruments (1)Balance at the beginning of the year 50 502Effective repayment on acquisition of STANLIB (2) (440)Advances 1 8Repayments (20)Held-to-maturity financial instrument converted to ordinary shares (47)Balance at the end of the year 4 50Share of post-acquisition reservesBalance at the beginning of the year 228 311Adjustment required re STANLIB acquisition (2) (113)Earnings recognised in the statement of comprehensive income 40 51Ordinary dividends received (18) (21)Balance at the end of the year 250 228(1)Held-to-maturity financial instruments comprise:R4 million (2007: R4 million) on demand interest free loan receivable extended to The Financial Services Exchange(Proprietary) Limited.On 13 February 2008 a convertible debenture valued at R47 million (2007: R46 million), issued by The Cullinan Hotel(Proprietary) Limited, was converted into ordinary shares.(2)In 2007, the remaining shares in STANLIB Limited not owned by Liberty were purchased from Standard Bank GroupLimited and Quantum Leap Investments 140 (Proprietary) Limited, effective 29 January 2007. Prior to this date Libertyeffectively owned 37,4%.(3)With effect from 1 April 2008, 50% of equity loans and ordinary shares in Fountainhead Property Trust ManagementLimited and Evening Star Trading 768 (Proprietary) Limited were acquired from Standard Bank Group Limited.Pg 200

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20088. Interests in joint ventures (continued)Equity loans Held-to- Share ofand shares maturity post- EquityPercentage held at financial acquisition Total accountedownership cost instruments (6) reserves interest earnings2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007% % Rm Rm Rm Rm Rm Rm Rm Rm Rm RmPrincipal joint ventures– unlistedFountainhead Property TrustManagement Limited (5) 50,0 47 1 48 1(property trust management)Evening Star Trading 768(Proprietary) Limited 50,0 140 140 5(property trust management)The Financial Services Exchange(Proprietary) Limited 33,3 33,3 4 4 (2) (3) 2 1 1(financial verification andtechnology service provider)The Cullinan Hotel(Proprietary Limited) (4) 50,0 50,0 64 17 46 251 231 315 294 33 40(hotel developer and manager)Capital Alliance Finance(Proprietary) Limited (7) 11(financial services company)Total 251 17 4 50 250 228 505 295 40 51(4)This entity has a 31 March year end and therefore management accounts as at 31 December are used to equity accountearnings.(5)This entity has a 30 September year end and therefore management accounts as at 31 December are used to equity accountearnings.(6)The fair value of these investments is R2 million (2007: R47 million) and they are long-term in nature.(7)Capital Alliance Finance (Proprietary) Limited was voluntarily liquidated in 2007.2008 2007RmRmStatement of financial position extracts (1)Non-current assets 458 303Current assets 41 23Long-term liabilities – interest bearing (47)Long-term liabilities – non-interest bearing (5)Current liabilities (39) (25)Statement of comprehensive income extracts (1)Income 139 132Expenses (99) (81)Commitments (1)Capital commitments – authorised by directors but not contracted 18 16(1)Represents the group’s proportionate share in the joint ventures.9. Pledged assets held at fair value through profit or lossFinancial assets that may be repledged by counterpartiesListed equities on the JSE 1 622 5 209Listed equities which are being utilised in scrip lending transactionsRefer to page 138 of the risk management section contained in this report.Maturity profile of the return of scrip under lending transactionsDue in 0 – 3 months 67Due in 4 – 12 months 1 622 5 1421 622 5 209It should be noted however, that the borrower of scrip has the right to contractually return scrip at any time andLiberty has the right to call for the return of scrip within five business days.Pg 201

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082008 2007RmRm10. Interest in associates – mutual fundsFair value of associates held at fair value through profit or loss 4 726 10 297Summarised financial information of associates:Total investments 13 268 27 724Current assets 434 1 576Current liabilities (425) (808)Total revenue (1) (2) 912 1 007(1)Total revenue is defined as interest, dividend and sundry income.(2)Units or shares held in mutual funds are by their nature demand deposits and are held at fair value. The net income or loss iscapitalised to unit values within each fund and consequently there is no net profit or loss. Increase in net assets as a result ofoperations represents total income less expenses before any distributions or capitalisation.As at 31 December, the group’s associates and percentages held were as follows:Percentage ofparticipation rightsName in total issued units Fair value2008 2007 2008 2007% % Rm RmSTANLIB Institutional Property Fund 42 49 616 563STANLIB Multi Manager Equity Fund 47 569STANLIB Value Fund 42 41 511 765STANLIB Stability Fund 31 35 382 498STANLIB Multi-Manager Low Equity Fund of Funds 38 37 364 483STANLIB International Equity Fund of Funds 39 33 362 402STANLIB Managed Flexible Fund 29 25 355 468Ermitage European Multi Strategy Fund 25 219STANLIB Multi-Manager Medium Equity Fund of Funds 33 33 190 268STANLIB Multi-Manager Real Return Feeder Fund 48 43 167 210STANLIB Aggressive Income Fund 30 166STANLIB Resources Fund 24 32 162 368STANLIB Moderately Conservative Fund of Funds 36 29 144 150STANLIB ALSI 40 Fund 34 46 116 186STANLIB International Balanced Fund of Funds 26 34 115 113STANLIB Quants Fund (1) 53 51 100 183STANLIB Conservative Fund of Funds 27 24 96 106STANLIB Moderate Fund of Funds 25 92STANLIB Medical Investment Fund 31 130STANLIB Multi National Fund 35 124Ermitage Institutional Money Market Funds (2) 48 2 151Ermitage Asset Selection Fund (2) 22 1 501Ermitage Global Wealth ManagementStrategies Limited (2) 39 1 006STANLIB Small Cap Fund (3) 22 310STANLIB European Fund of Funds (3) 32 128Strategic Partners Fund (3) 22 184Associates at a group level 4 726 10 297(1)This interest has been disclosed as an associate as the percentage ownership during the year fluctuated at or below what isconsidered to be a controlling interest.(2)Defined as subsidiaries in 2008 due to percentage of participation rights exceeding 50%.(3)No longer defined as an associate due to percentage of participated rights reducing to below 20%.Pg 202

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200811. Financial instruments2008 2007RmRm11.1 Financial assets comprise:Held for trading (1)Over the counterDerivative financial assets 1 208 190Financial assets held at fair value through profit or lossQuoted in an active marketListed 99 073 101 131Equities 59 184 82 325Preference shares 1 819 2 339Commercial term deposits 16 765 3 795Government, municipal and utility stocks 21 305 12 672Unlisted 57 850 62 516Commercial term deposits 23 558 27 272Mutual funds 28 159 26 482Government, municipal and utility stocks 6 133 8 762Unquoted and unlisted 12 102 11 424Equities 985 1 078Preference shares 2 371 1 897Investment policies 8 746 8 449Interest linked 3 393 264Mixed asset classes 5 353 8 185Financial assets held-to-maturityLoans and receivablesMortgages and loans (2) 735 962Total financial assets 170 968 176 223Held for trading (1)Over the counterDerivative financial liabilities (77) (66)(1)The derivative instruments disclosed above were entered into as part of the market risk management hedging strategyimplemented in the second half of the financial year in response to the global financial crisis.(2)The fair value of mortgages and loans is R804 million (2007: R962 million).Pg 203

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 2008Held for Held for Fair valuetrading trading through Loans andliabilities assets profit or loss receivables (2) TotalRm Rm Rm Rm Rm11. Financial instruments (continued)11.2 Movement analysis:2008Balance at the beginning of the year (66) 190 190 577 962 191 663Financial instruments (66) 190 175 071 962 176 157Pledged assets 5 209 5 209Interest in associates 10 297 10 297Additions (purchases and issuings) 17 119 138 114 196 138 446Disposals (sales and redemptions) (2) (155) (137 920) (71) (138 148)Accrued interest 531 121 652Repayments (455) (455)Fair value adjustments (26) 1 054 (18 578) (17 550)Impairment (18) (18)Movement on third party share offinancial instruments in mutual funds 2 584 2 584Foreign currency translation 65 65Balance at the end of the year (77) 1 208 175 373 735 177 239Financial instruments (77) 1 208 169 025 735 170 891Pledged assets 1 622 1 622Interest in associates – mutual funds 4 726 4 7262007Balance at the beginning of the year (96) 172 171 743 809 172 628Financial instruments (96) 172 160 986 809 161 871Pledged assets 3 600 3 600Interest in associates 7 157 7 157Additions through businessacquisition 611 611Disposals through businessacquisition (127) (127)Additions (purchases and issuings) (25) 25 153 336 208 153 544Disposals (sales and redemptions) 19 (2) (147 412) (147 395)Accrued interest 248 116 364Repayments (145) (171) (316)Fair value adjustments 36 (5) 12 725 12 756Movement on third party share offinancial instruments in mutual funds (425) (425)Foreign currency translation 23 23Balance at the end of the year (66) 190 190 577 962 191 663Financial instruments (66) 190 175 071 962 176 157Pledged assets 5 209 5 209Interest in associates – mutual funds 10 297 10 297Pg 204

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200811. Financial instruments (continued)2008 2007RmRmMaturity profile of commercial term deposits, government, municipal and utilitystocks and mortgages and loans:Less than 1 year 14 356 11 9591 – 5 years 18 712 13 9475 – 10 years 16 032 14 17210 – 20 years 13 097 9 638Over 20 years 5 564 2 785Open ended (1) 735 962Total 68 496 53 463There is no maturity profile for listed and unlisted equities and other non-term instruments as management is unableto provide a reliable estimate given the volatility of equity markets and policyholder behaviour.Details of listed and unlisted investments are recorded in registers which may be inspected by members or theirduly authorised agents at the company’s registered office.(1)Open ended represent mortgages and loans which are secured against policyholder contracts and the maturity profile is notdeterminable as the holder has the option to settle at any time prior to the contract maturity date.12. Prepayments, insurance and other receivables2008 2007RmRmCurrent balances related to insurance contracts 670 750Outstanding premium receivables 514 614Reinsurance recoveries 156 136Current balances related to investment contractsOutstanding premium receivables 84 109Current balances related to insurance and investment contracts 754 859Accrued income 1 163 1 087Investment debtors 1 609 567Consolidated mutual funds’ receivables 713 207Property consortiums’ receivables 57 43Deferred sale proceeds on Liberty Ermitage Jersey Limited 36 46Agents, brokers and intermediaries 226 110Escrow debtor in respect of sale of Prefsure Holdings Limited 69 64Other debtors 1 257 545Total prepayments, insurance and other receivables (1) 5 884 3 528(1)All inflows of economic benefits are expected to occur within one year.13. Cash and cash equivalentsCash at bank and at hand 3 138 1 108Short-term cash deposits 1 974 3 580Total cash and cash equivalents 5 112 4 688Pg 205

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082008 2007Investment Reinsu- Investment Reinsu-Insurance contracts rance Insurance contracts rancecontracts with DPF (1) assets contracts with DPF (1) assetsRm Rm Rm Rm Rm Rm14. Policyholders’ liabilitiesBalance at the beginning of the year 131 552 3 353 (820) 122 875 1 719 (1 065)Reduction through business disposal (162) 162Inflows 20 926 (101) (807) 38 421 1 843 (690)Insurance premiums 22 820 166 (727) 22 334 1 375 (693)Investment returns (1 927) (267) (80) 16 047 468 3Unwinding of discount rate 930 (33) 651 32Investments (2 857) (267) (47) 15 396 468 (29)Equity accounted earnings fromjoint ventures 33 40Outflows (29 313) (606) 562 (27 778) (202) 600Claims and policyholders’ benefits (23 023) (573) 535 (20 576) (163) 610Claims and policyholders’ benefitsunder insurance contracts (23 023) (262) 535 (20 576) (311) 610Switches between investment withDPF to investment without DPF (311) 148Acquisition costs associated withinsurance contracts (2 395) (9) (2 543) (9)General marketing andadministration expenses (3 053) (25) (2 763) (27)Preference dividend (308) (274)Finance costs (29) (7)Taxation (505) 1 27 (1 615) (3) (10)Net income from insurance operations (1 074) 2 238 (1 804) (7) 173Changes in estimates (410) 64 (809) 32Planned margins and othervariances (668) 2 201 (1 334) (9) 198New business (586) (349)Shareholder taxation on transferof net income 590 (27) 688 2 (57)Balance at the end of the year 122 091 2 648 (827) 131 552 3 353 (820)Current 7 995 284 (161) 8 793 336 (177)Non-current 114 629 2 364 (666) 123 274 3 017 (643)Total deferred taxation applicableto fair value adjustment oninvestment properties (2) (533) (515)(1)The group cannot measure reliably the fair value of the investment contracts with discretionary participation features (DPF).The DPF is a contractual right that gives investors in these contracts the right to receive supplemental discretionary returnsthrough participation in the surplus arising from the assets held in the investment DPF fund. These supplementary returns aresubject to the discretion of the group.(2)In compliance with IAS 12 Income Taxes, deferred taxation has been provided at the use rate in respect of revaluation surpluses oninvestment properties held as long-term strategic investments. The additional deferred taxation liability, which has been debited topolicyholders’ liabilities for accounting purposes, does not reflect economic reality as the fair (open market) values of the investmentproperties already discount the income tax consequences in respect of rental income. The additional deferred taxation liability doestherefore not affect policyholders’ values and is reversed for statutory reporting purposes to the Financial Services Board.Pg 206

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200814. Policyholders’ liabilities (continued)Process used to decide on assumptions and changes in assumptionsMortalityAn appropriate base table of standard mortality is chosen depending on the type of contract and class of business.Industry standard tables are used for smaller classes of business. Company specific tables, based on graduatedindustry standard tables modified to reflect the company specific experience, are used for larger classes.Investigations into mortality experience are performed annually. The period of investigation extends over the latestthree full years for larger classes of business. Investigations relating to smaller classes usually extend over five yearsin order to gain sufficient credibility from the data.The results of the investigation are used to set the valuation assumptions, which are applied as an adjustment to therespective base table.In setting the assumptions provision is made for the expected increase in AIDS-related claims. Allowance for AIDSrelateddeaths is made in the base mortality rates at rates consistent with the requirement of ASSA’s PGN 105. Therates are defined using the ASSA2003 lite model calibrated to reflect Liberty's assurance lives.For contracts insuring survivorship, an allowance is made for future mortality improvements based on trendsidentified in the data and in the continuous mortality investigations performed by independent actuarial bodies.MorbidityThe incidence of disability claims is derived from the risk premium rates determined from annual investigations.The incidence rates are reviewed on an annual basis, based on medical claims experience. The adjusted rates areintended to reflect future expected experience.WithdrawalThe withdrawal assumptions are based on the most recent withdrawal investigations taking into account past as wellas expected future trends. The withdrawal investigation is performed each year and incorporates a full year’sexperience. The withdrawal rates are analysed by product type and policy duration. These withdrawal rates varyconsiderably by duration, policy term and company. Typically the rates are higher for risk type products than forinvestment type products, and are higher at early durations.Investment returnFuture investment returns are set for the main asset classes as follows:• Gilt rate – Effective 10-year yield curve rate at the balance sheet date rounded to the nearest 0,25 percentagepoint 7,5% (2007: 8,5%).• Equity rate – Gilt rate plus 3,5 percentage points as an adjustment for risk 11% (2007: 10,5%).• Property rate – Gilt rate plus 1 percentage point as an adjustment for risk 8,5% (2007: 9,5%).• Cash – Gilt rate less 1,5 percentage points 6% (2007: 7%).The overall investment return for a block of business is based on the investment return assumptions allowing for thecurrent mix of assets supporting the liabilities. The pre-taxation discount rate is set at the same rate. The rateaveraged across the blocks of business (excluding annuity and guaranteed capital bond business) is 9,6% perannum in 2008 (2007: 10,0% per annum). Where appropriate the investment return assumption will be adjusted tomake allowance for investment expenses, taxation and the relevant prescribed margins as per PGN 104 issued bythe Actuarial Society of South Africa.For annuity and guaranteed capital bond business, discount rates are largely set at risk free rates consistent with theduration of the liabilities, reduced by an allowance for investment expenses and the relevant prescribed margin.ExpensesAn expense analysis is performed on the actual expenses incurred in the calendar year preceding the balance sheetdate. This analysis is used to calculate the acquisition costs incurred and to set the maintenance expenseassumption which is based on the budget approved by the board.Pg 207

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200814. Policyholders’ liabilities (continued)Process used to decide on assumptions and changes in assumptions (continued)Expense inflationThe inflation rate is set at 60% of the risk free rate (gilt rate) at the current valuation, resulting in a best estimateexpense inflation assumption of 4,5% at 31 December 2008. Previously the rate was set at 3,5 percentage pointsbelow the gilt rate investment return assumption prevailing at the balance sheet date, resulting in a best estimateexpense inflation assumption of 5,0% at 31 December 2007. The expense inflation assumption is set taking intoconsideration the expected future development of the number of inforce policies, as well as the expected futureprofile of group maintenance expenses.TaxationFuture taxation and taxation relief are allowed for at the rates and on the bases applicable to section 29A of theIncome Tax Act at the balance sheet date. Each company’s current tax position is taken into account. Taxation ratesconsistent with that position, and the likely future changes in that position, are allowed for. In respect of capital gainstaxation (CGT), taxation is allowed for at the full CGT rate. Deferred taxation liabilities include a provision for CGT onunrealised gains/(losses) at the valuation date, at the full undiscounted value.CorrelationsNo correlations between assumptions are allowed for.Contribution increasesIn the valuation of the liabilities, voluntary premium increases that give rise to expected profits are not allowed for.However, compulsory increases and increases that give rise to expected losses are allowed for. This is consistentwith the requirements of PGN 104.Embedded investment derivative assumptionsThe assumptions used to value embedded derivatives, in respect of policyholder contracts, are set in accordancewith PGN 110. Account is taken of the yield curve at the valuation date. Both implied market volatility and historicalvolatility are taken into account when setting volatility assumptions. Long-term volatility assumptions are set basedon market information where available, otherwise a measure of subjectivity is required. The 30 year annualisedimplied at-the-money volatility assumption, estimated using the asset model output for the FTSE/JSE Top 40 index,is 27,74% (2007: 28,4%). Correlations between asset classes are set based on historical evidence. At least onethousand simulations are performed in calculating the liability.A reserve for minimum investment return guarantees, calculated on a stochastic basis in accordance with PGN 110,is held.Using the simulated investment returns, the prices and implied volatilities of the following instruments are:PriceVolatilityA 1-year at-the-money spot put on the FTSE/JSE TOP 40 index 10,33% 35,17%A 1-year put on the FTSE/JSE TOP 40 index, with a strike price equal to 80% of spot 3,38% 35,01%A 1-year forward on the FTSE/JSE TOP 40 index 13,63% 35,15%A 5-year at-the-money spot put on the FTSE/JSE TOP 40 index 13,60% 33,21%A 5-year put with a strike price equal to 1,04 5 of spot on the FTSE/JSE TOP 40 index 21,71% 33,09%A 5-year forward on the FTSE/JSE TOP 40 index 25,63% 33,01%A 5-year put with a strike price equal to 1,04 5 of spot, on an underlying indexconstructed as 60% FTSE/JSE TOP 40 and 40% ALBI, with rebalancing of theunderlying index back to these weights taking place annually 10,45% N/AA 20-year at-the-money spot put on the FTSE/JSE TOP 40 index 8,26% 29,76%A 20-year put with a strike price equal to 1,04 20 of spot on the FTSE/JSE TOP 40 index 29,57% 29,57%A 20-year forward on the FTSE/JSE TOP 40 index 29,46% 29,58%A 20-year put option based on an interest rate with a strike equal to the present5-year forward rate as at maturity of the put option, which pays out if the 5-yearinterest rate at the time of maturity (in 20 years) is lower than this strike. 0,40% N/APg 208

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200814. Policyholders’ liabilities (continued)For 2007 using the simulated investment returns, the instruments below are priced as follows:A 6-month at-the-money spot put on the FTSE/JSE TOP 40 index 5,60%A 6-month at-the-money spot call on the FTSE/JSE TOP 40 index 9,64%A 5-year put on the FTSE/JSE TOP 40 index, with a strike price equal to 1,04 5 of spot 14,56A 5-year put with a strike price equal to 1,04 5 of spot, on an underlying index constructed as60% FTSE/JSE TOP 40 and 40% ALBI, with rebalancing of the underlying index back to theseweights taking place 6 monthly. 5,79%A 20-year put option based on an interest rate with a strike equal to the present 5-yearforward rate as at maturity of the put option (stripped from the zero coupon yield curve),which pays out if the 5-year interest rate at the time of maturity (in 20 years) is lower than the strike. 0,32%A 20-year at-the-money (spot) put on the FTSE/JSE TOP 40 index 5,45%The TOP 40 index above is a capital returns index whereas the ALBI is a total return index. Spot refers to the value ofthe index at market close on 31 December. At-the-money means that the strike value of the option is equal to the spot.The zero coupon yield curve used in the projection is as follows (expressed in NACC):Model output yield curve (%) 2008 20071 year 9,27 10,562 years 8,41 10,253 years 8,18 9,974 years 8,08 9,715 years 8,04 9,4810 years 7,80 8,5815 years 7,23 7,9820 years 6,68 7,5725 years 6,32 7,2730 years 6,10 7,0635 years 5,93 6,8940 years 5,82 6,7745 years 5,74 6,6750 years 5,69 6,58Changes in assumptionsModelling and other changes were made to the valuation to realign valuation assumptions with future experience.These changes resulted in a net increase in policyholders’ liabilities of R1 361 million in 2008 compared to a decreaseof R809 million in 2007.The primary items were:• The adoption of the revised PGN 107 resulted in the equity risk premium being increased from 2,0% to 3,5%. Theimpact was to decrease the liability by R25 million.• A change in the economic valuation assumptions to realign the economic assumptions with expected futureexperience, resulting in a decrease in the liability of R172 million compared to a decrease of R510 million in 2007.• A change in the economic valuation assumptions used to calculate the liabilities in respect of minimum investmentreturn guarantees to align the valuation to a market consistent basis, resulting in an increase in the liability ofR1 328 million compared to an increase of R193 million in 2007.• A revision of the future expense assumptions, amounting to an increase in the liability of R95 million compared toa decrease of R163 million in 2007.• The demographic experience assumptions were adjusted to reflect expected future experience, amounting to adecrease in the liability of R799 million compared to a decrease of R202 million in 2007.• A change in the allowance for future AIDS related deaths, resulting in an increase in the liability of R74 millioncompared to a decrease of R286 million in 2007.• A change in the assumptions to allow for expected future withdrawals, resulting in an increase in the liability ofR689 million compared to an increase of R295 million in 2007.• The balance of modelling changes amounting to an increase in liabilities of R171 million compared to a decreaseof R131 million in 2007.• In 2007 there were also an allowance for future technology transformation expenses amounting to an increase inliability of R296 million, a change in the retirement fund tax rate from 9% to 0% resulting in a decrease in liabilityof R140 million, and a change in the modelling of the liabilities in respect of minimum investment returnguarantees amounting to a decrease in liabilities of R161 million.Pg 209

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200815. Policyholders’ liabilities under investment contracts2008 2007Rm RmBalance at the beginning of the year 51 232 44 304Additions through business acquisition 131Reduction through business disposals (38)Inflows 8 271 18 365Fund inflows from investment contracts (excluding switches) 9 087 11 736Investment returns (816) 6 629Fair value adjustment prior to deferred taxation on investment properties (1) (1 018) 6 332Policyholder taxation on investment returns (18) 34Expenses applied to investment returns 220 263Outflows (12 107) (11 370)Fund outflows from investment contracts (11 146) (10 330)Payments under investment contracts (excluding switches) (11 457) (10 182)Switches between investment with DPF to investment without DPF 311 (148)Expenses (934) (874)General marketing and administration expenses (694) (699)Acquisition costs associated with investment contracts (222) (172)Finance costs (18) (3)Taxation (8) (151)Movement in deferred revenue liability (19) (15)Net income from investment contracts (66) (160)Service fee income (799) (837)Expenses 933 874Expenses applied to investment returns (220) (263)Shareholder taxation on transfer of net income 20 66Balance at the end of the year 47 330 51 232Investment contracts 47 533 51 428Total deferred taxation applicable to fair value adjustment on investment properties (2) (203) (196)Current 4 750 4 427Non-current 42 783 47 001Total deferred taxation applicable to fair value adjustment on investment properties (203) (196)Total 47 330 51 232(1)Fair value adjustment prior to deferred taxation on investment properties (1 018) 6 332Movement in deferred taxation applicable to fair value adjustment on investmentproperties (7) (51)Fair value adjustment per profit and loss (1 025) 6 281(2)In compliance with IAS 12 Income Taxes, deferred taxation has been provided at the use rate in respect of revaluation surpluseson investment properties held as long-term strategic investments. The additional deferred taxation, which has been debited topolicyholders’ liabilities for accounting purposes, does not reflect economic reality as the fair (open market) values of the investmentproperties already discount the income tax consequence in respect of rental income. The additional deferred taxation liability doestherefore not affect policyholders’ values and is reversed for statutory reporting purposes to the Financial Services Board.Pg 210

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200816. Financial liabilities at amortised cost2008 2007RmRmCallable capital bonds (1) (3) 2 054 2 054Redeemable non-participating preference shares (2) (3) 225 364 (3)Minority loan (4) 151Total financial liabilities at amortised cost 2 430 2 418Current 205 79Non-current 2 225 2 339Movement analysisBalance at the beginning of the year 2 418 2 261Arising through business acquisition 150 467Interest paid 203 220Repayments (341) (530)Balance at the end of the year 2 430 2 418(1)On 12 September 2005, Liberty Group Limited issued R2 billion subordinated unsecured secondary capital callable bondsredeemable on 12 September 2017 and callable by Liberty Group Limited on 12 September 2012. The bond was launched at aspread of 120 bps over the benchmark R153 bond to yield a fixed bi-annual interest coupon of 8,93%.The coupon rate is fixed at 8,93% and payable bi-annually on 12 March and 12 September of each year until 12 September2012, thereafter floating at three-month JIBAR plus 186 bps and payable quarterly on 12 December, 12 March, 12 June and12 September until maturity date.The financial liability is measured at amortised cost using the effective interest rate method.The Financial Services Board’s approval of the group issuance of this subordinated debt included a requirement to hold liquidassets equal to at least the amount of the outstanding debt being R2 billion.(2)2 598 STANLIB Limited redeemable non-participating cumulative preference shares of 10 cents each, issued at a share premiumof R130 323,71 per share. The interest on these shares is calculated at 66% of the prevailing prime rate, payable annually inarrears on 28 February. There are no fixed terms of redemption.(3)The fair value of the callable capital bond is R2 116 million (2007: R1 978 million) and the redeemable non-participatingpreference shares R224 million (2007: R356 million).(4)Minority shareholder loan to the group subsidiary Liberty Health Holdings (Proprietary) Limited repayable on exercise ofreciprocal put and call options any time after 19 November 2013, or as and when Liberty Health Holdings (Proprietary) Limitedhas surplus cash resources. Interest accrues monthly at the 90 day call rate offered by Standard Bank of South Africa Limitedcurrently 11,3%.2008 2007RmRm17. Third party financial liabilities arising on consolidation of mutual funds 10 481 8 040Movement analysisBalance at the beginning of the year 8 040 8 559Additional mutual funds classified as subsidiaries 3 359Repayments through withdrawal or change in effective ownership (776)Mutual funds no longer classified as subsidiaries (276) (708)Fair value adjustment 134 189Balance at the end of the year 10 481 8 040Certain mutual funds have been classified as investments in subsidiaries. Consequently fund interests not held bythe group are classified as third party liabilities as they represent demand deposit liabilities measured at fair value.Maturity analysis is not possible as it is dependent on external unit holders behaviour outside of Liberty’s control.Pg 211

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200818. Employee benefits2008 2007Note Rm Rm18.1 SummaryAsset:Defined benefit pension fund employer surplus 18.5 144 162Liabilities:Short-term employee benefits 18.2 298 231Post-retirement medical aid 18.4(b) 344 293Total liability 642 524LeaveIncentivepay scheme Total2008 2007 2008 2007 2008 2007Rm Rm Rm Rm Rm Rm18.2 Short-term employee benefitsAt the beginning of the year 41 40 190 75 231 115Additions through business acquisition 1 4 76 1 80Additional provision raised 54 41 245 181 299 222Utilised during the year (32) (44) (201) (142) (233) (186)At the end of the year 64 41 234 190 298 231All outflows in economic benefits in respect of the short-term employee benefits are expected to occur withinone year.Leave payIn terms of the group policy, employees are entitled to accumulate a maximum of 20 days (2007: 15 days)compulsory leave and 20 days discretionary leave. Compulsory leave has to be taken within 18 months (2007:12 months) of earning it, failing which it is forfeited. Discretionary leave can be sold back to the company whilecompulsory leave cannot be sold back to the company.Incentive schemeIn terms of the group policy, selected employees at the discretion of directors receive an incentive bonus.The incentive bonus relates to employee, corporate and divisional performance and is approved by theremuneration committee.18.3 Details of fundsThe group operates the following retirement and post-retirement medical schemes for the benefit of itsemployees.Liberty Group Defined Benefit Pension FundThe group operates a funded defined benefit pension scheme in terms of section 1 of the Income Tax Act,1962. With effect from 1 March 2001 the majority of employees accepted an offer to convert their retirementplans from defined benefit to defined contribution. Employees joining after 1 March 2001 automaticallybecome members of the defined contribution schemes. The defined benefit pension scheme was closed tonew employees from 1 March 2001. Employer companies contribute the total cost of benefits provided, takinginto account the recommendation of the actuaries.ACA Defined Benefit FundCapital Alliance Life Limited, a subsidiary of Capital Alliance Holdings Limited (CAHL) operates the ACAfunded, paid up, defined benefit pension scheme.Rentmeester Defined Benefit FundRentmeester Limited, a subsidiary of CAHL, operates a funded, paid up, defined benefit pension scheme.Pg 212

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200818. Employee benefits (continued)18.3 Details of funds (continued)Liberty Defined Contribution Pension Fund (1)Liberty Group Limited operates a funded defined contribution pension scheme in terms of section 1 of theIncome Tax Act, 1962. The Liberty Defined Contribution Pension Fund offers a benefit to Liberty employeesbased on the accumulated contributions and investment returns at retirement.Liberty Provident Fund (1)The Liberty Provident Fund offers a benefit to Liberty employees, based on the accumulated contributions andinvestment returns at retirement. The group contributes to the scheme for the benefit of employees in terms ofthe rules of the fund.Liberty Agency Fund (1)The Liberty Agency Fund offers a benefit to the group’s qualifying agents based on the accumulatedcontributions and investment returns at retirement. The employer makes a predetermined rate of contributionper month as stipulated in the rules of the fund.Liberty Active Provident Fund (1)The Liberty Active Provident Fund came into effect on 1 February 2005. The fund offers a benefit to LibertyActive employees, based on the accumulated contributions and investment returns at retirement. Theemployer makes a predetermined rate of contribution per month as stipulated in the rules of the fund.Liberty Franchise Umbrella Fund (1)The Liberty Franchise Umbrella Fund offers a benefit to registered qualifying franchises, on the accumulatedcontributions and investment returns at retirement. The employer makes a predetermined rate of contributionper month as stipulated in the rules of the fund.Rentmeester Defined Contribution Pension Fund (1)Rentmeester Limited, a subsidiary of CAHL, operates a funded paid up defined contribution pension schemein terms of section 1 of the Income Tax Act, 1962. The Rentmeester Defined Contribution Pension Fund offersa benefit to Rentmeester employees based on the accumulated contributions and investment returns atretirement.Capital Alliance Holdings (CAH) Defined Contribution Pension Fund (1)Capital Alliance Holdings Limited operates a funded defined contribution scheme in terms of section 1 of theIncome Tax Act, 1962. The CAH defined contribution fund offers a benefit to Capital Alliance employees basedon the accumulated contributions and investment returns at retirement.(1)All these schemes are defined contribution schemes, therefore, there can be no future obligation against the group forunfunded benefits.Post-retirement medical benefitThe group operates an unfunded post-retirement medical aid benefit for employees who joined the group priorto 1 July 1998. Medical aid costs are included in the profit or loss within general marketing and administrationexpenses in the period during which the employees render services to the group. For past service ofemployees the group recognises and provides for the actuarially determined present value of post-retirementmedical aid employer contributions on an accrual basis using the projected unit credit method.In all cases employer companies’ contributions are charged to the profit or loss when incurred. All retirementschemes are governed by the Pension Fund Act, 1956 as amended.Pg 213

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 2008Rent-ACA meesterDefined DefinedLiberty Group Defined Benefit BenefitBenefit Pension Fund Fund (1) Fund (1)2008 2007 2006 2005 2004 2008 2007 2008 2007Rm Rm Rm Rm Rm Rm Rm Rm Rm18. Employee benefits (continued)18.4 Retirement benefit obligation(a) Change in defined benefit funded obligationIn the opinion of the pension fund valuator,after the most recent statutory actuarialvaluation as at 1 January 2006, the definedbenefit plan was financially sound.Present value of funded obligation at thebeginning of the year 1 369 583 637 561 513 8 7 2 3Additions through business acquisition 8Adjustments (2) 688 13Service cost benefits earned during the year 14 14 18 16 16Interest cost on projected benefit obligation 59 50 40 42 30 1Actuarial loss/(gain) 19 132 (53) 59 48 1Benefits paid (350) (106) (59) (41) (59) (1)Present value of funded obligationat the end of the year 1 111 1 369 583 637 561 9 8 2 2Change in plan assetsFair value of plan assets at the beginningof the year 1 821 1 613 1 332 1 093 901 14 12 3 3Additions through business acquisition 24Expected return on plan assets 164 136 88 77 74 1 1 1Actuarial (loss)/gain (446) 142 238 188 163 (1) 1Employer contribution (3) 8 12 14 15 14Benefits paid (350) (106) (59) (41) (59) (1) (1)Fair value of plan assets at the endof the year (4) 1 197 1 821 1 613 1 332 1 093 13 14 3 3Excess not recognised 86 452 1 030 695 532 4 6 1 1Analysis of the defined benefit pensionfund obligation movementAdjustment for change in valuation basis 13Current service cost 14 14 18 16 16Interest cost 59 50 40 42 30 1 1Expected return on plan assets (164) (136) (88) (77) (74) (1) (1)Net actuarial loss/(gain) recognised inthe year 466 (10) (291) (129) (115) 1Employer contributions (8) (12) (14) (15) (14)Total 367 (94) (335) (163) (144) 1 –(1)The ACA Defined Benefit Fund and Rentmeester Defined Benefit Fund form part of the Capital Alliance Holdings Group,which was acquired on 1 April 2005.(2)This adjustment represents the former member, member and employer surplus accounts which were set up following theapproval of the apportionment of the surplus by the registrar of pension funds in terms of the Pension Fund SecondAmendment Act, 39 of 2001.(3)The employer’s best estimate of contributions expected to be paid to the Liberty Pension Fund during 2009 is nil as it isanticipated the contributions will be decreased to utilise the employer portion of the surplus apportionment approval.(4)The fair value of the plan assets for 2008 constitute: 28,14% cash, 6,84% bonds, 53,63% equities, 11,24% international fundsand 0,15% property (2007: 37,16% cash, 4,37% bonds, 49,42% equities, 8,95% international funds and 0,10% property).Pg 214

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200818. Employee benefits (continued)2008 2007 2006 2005 2004Rm Rm Rm Rm Rm18.4 Retirement benefit obligation (continued)(b) Change in post-retirement medical aidobligationPresent value of unfunded obligation atthe beginning of the year 293 261 196 160 155Additions through business acquisition 11Service cost benefits earned during the year 6 5 5 6 6Interest cost on projected benefit obligation 26 22 17 23 20Actuarial loss/(gain) 19 (6) 43 7 (21)Present value of unfunded obligationat the end of the year 344 293 261 196 160Net liability recognised in financial position 344 293 261 196 160Current 92 77 72Non-current 252 216 18918.5 Defined benefit pension fund employer surplus2008 2007RmRmBalance at the beginning of the year 162Approved surplus apportionment 162Additional trustee agreed allocation 84Investment losses (92)Agreed contribution to member benefit enhancements (10)Balance at the end of the year 144 162Current 13 2Non-current 131 160The apportionment of the surplus within the Liberty Group Defined Benefit Pension Fund between theemployer and the members was approved on 31 August 2007 by the Registrar of Pension Funds in terms ofthe Pension Fund Second Amendment Act, 39 of 2001. The employer surplus has been measured as theapproved amount allocated at 1 January 2003 (date of apportionment) adjusted for additional trusteesapproved allocations and subsequent related investment net gains or losses. The amount will be recoveredthrough future reductions in employer contributions to the plan.Pg 215

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200818. Employee benefits (continued)18.6 Assumptions used in the valuation of obligations (1) Post-LibertyPension FundRetirementMedical Aid2008 2007 2008 2007The valuation was based on the followingprincipal actuarial assumptions:Anticipated after taxation returns on investments 7% 9% 8% 8%Discount rate 7% 9% 8% 8%Future salary increases (excluding increases on promotion) 5% 6%Medical cost trend rate 6% 6%Mortality assumption – pre-retirement(2) (2)n/a n/a– post-retirement(3) (3) (3) (3)Retirement age – executives 63 63 63 63– others 65 65 65 65Investments in employer and holding companies Rm RmStandard Bank Group Limited 41 44Liberty Group Limited 15(1)The ACA defined benefit fund and Rentmeester defined benefit fund are paid up funds and therefore, assumptions arenot applicable.(2)For the Liberty Pension fund, pre-retirement mortality assumption is based on the SA 85/90 Tables combined withoutallowance for AIDS deaths.(3)For both the Liberty Pension Fund and the Post-Retirement Medical Aid Fund, the post-retirement mortality assumption isbased on the PA(90) Tables for Pensioners (Ultimate Rates) less 2 years.18.7 Sensitivity analysisShown in the table below are sensitivities of the value of the post-retirement medical aid to changes in themedical inflation rates:Decrease/ Decrease/(increase) (increase)in liability at in liability at31 Dec 31 Dec2008 2007Variable Rm Rm1% decrease in medical inflation rate– active members 18 36– pensioners 9 81% increase in medical inflation rate– active members (20) (46)– pensioners (11) (10)18.8 Transactions between group companies and the funds18.8.1 The contributions which the group companies have made on behalf of the employees during the yearare as follows:2008 2007RmRmRetirementDefined benefit funds 8 12Defined contribution funds 193 205MedicalPost-retirement medical benefit paid 6 5Pg 216

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200818. Employee benefits (continued)18.8 Transactions between group companies and the funds (continued)18.8.2 Certain defined benefit funds have various banking relationships with Standard Bank Group Limited andits subsidiaries. The summary of balances deposited and fees and bank charges paid are as follows:Balance depositedInterest received2008 2007 2008 2007R’000 R’000 R’000 R’000Defined benefit fundsBalance at 1 January 687 513Balance at 31 December 84 687 39 3818.8.3 Certain defined benefit funds have outsourced their management to Liberty Group Limited. Thesummary of fees paid is as follows:2008 2007R’000 R’000Defined benefit funds 223 21718.8.4 The Liberty Pension Fund has investments in certain mutual fund subsidiaries and in Standard BankGroup Limited as follows:2008 2007RmRmSTANLIB Funds Limited 103 114Standard Bank bonds and deposits 72 78Ermitage Institutional Money Market 3218.8.5 The following retirement benefit funds have insurance policies with Liberty Group Limited and itssubsidiaries, held as investment policies in the funds. A summary of the transactions for each policywith each fund follows:Liberty Defined Contribution Pension FundFund value2008 2007RmRmBalance at 1 January 199 182Premiums 46 24Fair value adjustments (19) 25Withdrawals (28) (32)Balance at 31 December 198 199Liberty Provident FundBalance at 1 January 1 458 1 380Premiums 145 133Fair value adjustments (100) 180Withdrawals (173) (235)Balance at 31 December 1 330 1 458Liberty Agency FundBalance at 1 January 924 880Premiums 51 44Fair value adjustments (54) 125Withdrawals (80) (125)Balance at 31 December 841 924Pg 217

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200818. Employee benefits (continued)18.8 Transactions between group companies and the funds (continued)18.8.5 The following retirement benefit funds have insurance policies with Liberty Group Limited and itssubsidiaries held as investment policies in the funds. A summary of the transactions for each policy withineach fund follows (continued):Fund value2008 2007RmRmLiberty Active Provident FundBalance at 1 January 2 2Premiums – 2Withdrawals (1) (2)Balance at 31 December 1 2Liberty Franchise Umbrella FundBalance at 1 January 44 36Premiums 9 8Fair value adjustments (3) 6Withdrawals (10) (6)Balance at 31 December 40 44Liberty Pension Annual Voluntary Contributions FundBalance at 1 January 10 6Premiums 24 35Fair value adjustments – 1Withdrawals (27) (32)Balance at 31 December 7 10Capital Alliance Holdings Defined Contribution Pension FundBalance at 1 January 177 168Withdrawals (13) (11)Fair value adjustments (8) 20Balance at 31 December 156 17719. Deferred revenueRentmeester Defined Contribution Pension FundBalance at 1 January and 31 December 4 4Balance at 1 January 95 80Released to profit and loss (9) (8)Deferred income relating to new business 28 23Net carrying amount at the end of the year 114 95Current 12 10Non-current 102 85Deferred revenue is upfront fees received from policyholder investment contract holders as a prepayment for assetmanagement and related services. These amounts are non-refundable and released to income as the services arerendered.Pg 218

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200820. Deferred taxationAsset/(liability) Additions Asset/at the through (Provision)/ (liability)beginning business release at endof the acquisi- Rate for the of theyear tion adjustment year yearRm Rm Rm Rm RmNormal taxation (1 903) (41) 37 (118) (2 025)Investment properties revaluationsurpluses (838) (13) (851)Policyholder liabilities differencebetween statutory and accountingbasis (817) 28 (312) (1 101)Utilisation of tax losses andspecial transfers 88 (3) 185 270Intangible assets – PVIF (323) 12 46 (265)Deferred acquisition costs (93) 3 (8) (98)Deferred revenue liability 27 (1) 6 32Customer relationships and contracts (41) (41)Provisions 53 (2) (22) 29Capital gains taxation (1 530) 7 782 (741)Total (3 433) (41) 44 664 (2 766)Disclosed as:Deferred taxation asset 51 131Deferred taxation liability (3 484) (2 897)(3 433) 2 7662008 2007RmRmMovement summaryBalance at the beginning of the year (3 433) (3 222)Additions through business acquisition (41) 34Tax rate adjustment 44Release/(charge) through the statement of comprehensive income 664 (245)Balance at the end of the year (2 766) (3 433)Deferred tax assetsCurrent 57 –Non-current 74 51Deferred tax liabilitiesNon-current (2 897) (3 484)Pg 219

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200821. ProvisionsRestructuring Possible claims Total2008 2007 2008 2007 2008 2007Rm Rm Rm Rm Rm RmBalance at the beginning of the year – 12 60 60 60 72Additions through business acquisition 23 23Provision raised 17 43 25 60 25Provisions no longer required (30) (30) (30) (30)Utilised during the year (12) (26) (18) (26) (30)Balance at the end of the year 17 – 47 60 64 60RestructuringThis relates to the restructuring of the marketing and distribution business unit (2007: group operations after theacquisition of Capital Alliance Holdings Limited). This will be expended in 2009.Possible claimsProvision has been made for possible claims arising from new business acquisition costs, fraudulent broker activitiesand past errors in funds administered. Due to the nature of the provision, the timing of the expected cash flows isuncertain but likely to be within the next two years.22. Insurance and other payables2008 2007RmRmCurrent balances related to insurance contracts 2 630 2 715Outstanding claims and surrenders 2 310 2 348Commission creditors 230 240Statement of intent accrual for out-of-force contracts 90 127Current balances related to investment contracts 276 270Outstanding claims and surrenders 259 262Other 17 8Total current balances related to insurance andinvestment contracts 2 906 2 985Total other payables 5 304 3 008Sundry payables 1 961 1 467Consolidated mutual funds payables 994 532Preference share dividend 308 274Investment creditors 2 041 735Total insurance and other payables 8 210 5 993Current 8 186 5 828Non-current 24 165Pg 220

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200823. Share capital and share premium2008 2007RmRmAuthorised share capital15 000 000 cumulative preference shares of 10 cents each 2 230 000 000 redeemable cumulative preference shares of 10 cents each 3 36 000 000 convertible redeemable cumulative preference shares of 25 cents each 1 1Before share split75 000 000 ordinary shares of 25 cents each 19After 3:1 share split dated 24 November 2008225 000 000 ordinary shares of 8,33 recurring cents eachAfter the approval of 175 000 000 ordinary shares of 8,33 recurring centseach on 24 November 2008400 000 000 ordinary shares of 8,33 recurring cents each 3339 25Unissued shares excluding reserved unissued shares30 000 000 redeemable cumulative preference shares of 10 cents each 3 36 000 000 convertible redeemable cumulative preference shares of 25 cents each 2 2Before share split25 432 573 ordinary shares of 25 cents each 6After 3:1 share split dated 24 November 200876 297 719 ordinary shares of 8,33 recurring cents eachAfter increase in authorised share capital on 24 November 2008251 297 719 ordinary shares of 8,33 recurring cents eachAfter the listing of an additional 138 022 373 shares on 24 November 2008112 547 512 ordinary shares of 8,33 recurring cents each 9Unissued shares reservedBefore share splitFor the purpose of the Senior Executive Share Option Scheme (1988)476 705 ordinary shares of 25 cents each –After share splitFor the purpose of the Senior Executive Share Option Scheme (1988)1 430 115 shares of 8,33 recurring each –Obligations assumed following approved section 311 Liberty transaction: (1)For the purposes of the assigned Liberty Group Limited Share Option Schemes2 233 885 ordinary shares of 8,33 recurring cents each –For the purposes of the assigned Liberty Life Equity Growth Scheme7 373 845 ordinary shares of 8,33 recurring cents each –For the purpose of the Liberty Life Equity Growth Scheme 21 626 155 ordinaryshares of 8,33 recurring cents each 216 11Issued share capitalBefore share split49 090 722 ordinary shares of 25 cents each 12After 3:1 share split dated 24 November 2008147 272 166 ordinary shares of 8,33 recurring cents eachAfter the listing of an additional 138 750 207 shares on 24 November 2008286 022 373 ordinary shares of 8,33 recurring cents each 2415 000 000 (2007: 15 000 000) cumulative preference shares of 10 cents each 2 2Total issued share capital 26 14Share premium 9 276 903Total issued share capital and share premium 9 302 917Pg 221

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200823. Share capital and share premium (continued)Share movement analysis: Number of Share Shareshares capital premium TotalRm Rm RmOrdinary sharesIssued shares at 1 January 2007 of 25 cents each 49 090 722 12 890 902Share split 3:1 shares of 8,33 recurring cents each 98 181 444Share issue in terms of section 311 transaction (1)at R60,50 par value of 8,33 recurring cents each 138 750 207 12 8 383 8 395Section 311 Liberty transaction costs (1) (10) (10)Issued shares at 31 December 2008 of 8,33 recurringcents each 286 022 373 24 9 263 9 287Preference sharesIssued shares at 31 December 2008 and 2007 of10 cents each 15 000 000 2 13 15Total issued share capital and share premium at31 December 2008 26 9 276 9 302Total issued share capital and share premium at31 December 2007 14 903 917(1)Shareholders on 21 October 2008 approved a section 311 scheme of arrangement to acquire Liberty Group Limited ordinaryshares in exchange for Liberty Holdings Limited ordinary shares. In addition shareholders approved that Liberty Holdings Limitedwould assume all obligations of previously authorised Liberty Group Limited employee share rights and option schemes.The 15 000 000 cumulative preference shares are not redeemable and carry dividends at the rate of 11 cents pershare per annum.The preference shares confer the right, on a winding up of the company, to receive a return of R1 per share togetherwith any arrears in preference dividends in priority to any payment in respect of any other class of share in thecapital of the company then issued.The following unissued shares are all under the general authority and control of the directors, which expires at theannual general meeting to be held on 15 May 2009: 11 254 751 (2007: 2 454 536) ordinary shares of 8,33 recurringcents each (2007: 25 cents each); 30 000 000 (2007: 30 000 000) redeemable cumulative preference shares of10 cents each and 6 000 000 (2007: 6 000 000) non-redeemable cumulative preference shares of 25 cents each.The closing price for a Liberty Holdings Limited ordinary share on 31 December 2008: R62,46 (31 December 2007:R226,00, notionally R75,33 taking into account 3:1 split).Pg 222

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082008 2007RmRm24. PremiumsInsurance premiums 22 986 23 709Reinsurance premiums (727) (693)Net insurance premiums 22 259 23 016Fund inflows from investment contracts 9 087 11 736Net premium income from insurance contracts and inflows frominvestment contracts 31 346 34 752Individual 19 993 20 466Corporate (1) 6 959 10 912Immediate annuities 4 394 3 374Comprising:Recurring 17 866 20 990Individual 12 459 11 426Corporate 5 407 9 564Single premium 13 480 13 762Individual 7 534 9 040Corporate (1) 1 552 1 348Immediate annuities 4 394 3 374Net premium income from insurance contracts and inflows frominvestment contracts 31 346 34 752(1)Premium income is stated net of inter-company transactions between group companies.25. Service fee income from policyholder investment contractsService fee income from investment contracts 818 852Released to profit and loss 9 8Deferred income relating to new business (28) (23)Total service fee income from policyholder investment contracts 799 83726. Investment incomeFinancial assets held at fair value through profit or lossInterest income 6 476 5 660Dividends received 4 470 2 724Listed shares 4 008 2 157Unlisted instruments 394 402Manufactured dividends on scrip lending 68 165Proceeds on sale of dividends 1 110 563Scrip lending fees 14 19Investment propertiesRental income from investment properties 1 305 1 339Financial instruments held-to-maturityInterest income 121 83Sundry income 74 (16)Adjustment to surplus recognised on defined benefit pension fund (18)Total investment income 13 552 10 372Pg 223

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200827. Investment (losses)/gains2008 2007RmRmInvestment properties 1 634 1 745Financial instruments held at fair value through profit or loss (17 550) 12 756Quoted instruments (17 772) 10 565Unquoted instruments 222 2 191Cash and cash equivalents 485 12Foreign exchange differences on subsidiaries 138 18Consolidated mutual funds (183) (185)Total investment (losses)/gains (15 476) 14 34628. Fee revenueManagement fees on assets under management 1 104 994Health administration fees 31 11Fee revenue on software development 9Total fee revenue 1 144 1 00529. Claims and policyholders’ benefitsClaims and policyholders’ benefits under insurance contracts 23 596 20 739Payments under investment contracts 11 146 10 33034 742 31 069Insurance claims recovered from re-insurers (535) (610)Net claims and policyholders’ benefits 34 207 30 459Comprising:Individual 23 929 21 918Death and disability claims 3 513 3 214Policy maturity claims 4 717 5 967Policy surrender claims 12 835 10 180Annuity payments 2 864 2 557Corporate (1) 10 278 8 541Death and disability claims 1 621 1 598Scheme terminations and member withdrawals 8 320 6 642Annuity payments 337 301Total claims and policyholders’ benefits 34 207 30 459(1)Corporate claims and policyholders’ benefits are stated net of inter-company transactionsbetween group companies.30. Acquisition costsInsurance contracts 2 404 2 552Investment contracts 222 172Asset management 196 170Total acquisition costs 2 822 2 894Incurred during the year 2 841 2 911Deferred acquisition costs (241) (203)Amortisation and impairment of deferred acquisition costs 222 186Pg 224

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082008 2007RmRm31. General marketing and administration expensesComprisingEmployee costs 1 937 1 567Office costs 1 303 1 163Training and development costs 343 268Other 1 568 1 299Total general marketing and administration expenses 5 151 4 297General marketing and administration expenses include the following:Amortisation of intangible assets 181 191Auditors’ remuneration 40 34Audit fees – current year 36 30Audit fees – prior year underprovision 1Other services 3 4Consulting fees 290 242Cost of sales – software development 12Depreciation 167 127Computer equipment 73 56Purchased computer software 14 10Fixtures, furniture and fittings 60 43Office equipment and office machines 8 7Motor vehicles 12 11Direct operating expenses – on investment properties 235 227– on owner-occupied properties 17 18– on hotel operations 439 377Intangible assets impairment 4Loss on disposal of equipment (1) (1)Asset management fees 114 239Operating lease charges – equipment 19 20– property 98 99Other related South African taxes 246 268Financial services levy 13 10Non-recoverable value added taxation 233 258Restructuring expense 175 179Retrenchment and other staff related costs 17 12Infrastructure and office costs 1 6Systems and processes 157 157Consolidation of marketing and distribution 4Staff costs 1 920 1 555Salaries and wages 1 255 1 012Defined benefit pension fund contributions 8 12Medical aid contributions 107 72Staff and management incentives 254 203Share-based payment expenses – equity-settled schemes 61 54– cash-settled schemes (3) 2Other post-retirement benefits 91 78Other 147 122Full details of the directors’ emoluments are contained in the Remuneration report on pages 46 and 48.The number of staff at 31 December 2008 was 7 876 (2007: 7 071).Pg 225

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082008 2007RmRm32. Share-based paymentsReconciliation of reserveStaff options and rightsLiberty Group Limited or Liberty Holdings Limited ordinary sharesAllocated cost in or to subsidiaries 128 92Standard Bank Group Limited ordinary sharesAllocated cost in subsidiaries 2 2BEE transactionLiberty Holdings Limited (2007 Liberty Group Limited) ordinary sharesAllocated costs in or to subsidiaries 101 77Standard Bank Group Limited ordinary sharesAllocated cost in subsidiaries 3 2Transfer of vested options/rights to retained surplus (67) (38)Gross reserve 167 135Previous minority shareholders share of reserve (81) (65)Total share-based payments reserve 86 70Movement for the year 31 28Per profit and loss – equity-settled schemes 61 54Minority share (30) (26)(15) (11)Transfer of vested options/rights to retained surplus (30) (21)Minority share 15 10Total change in reserve 16 17Staff options and rightsThe group has accounted for share options and rights granted after 7 November 2002 not vested prior to 1 January 2005.Liberty Holdings Limited Senior Executive Scheme (1988)Liberty Holdings Limited formerly operated the Liberty Holdings Limited Senior Executive Scheme (1988) whichhas been dormant since 31 March 2006 when the last options awarded in 2001 in terms of this scheme wereimplemented.Effect of Liberty Group Limited Scheme of Arrangement on share option and right schemesIn terms of Liberty Group Limited’s Scheme of Arrangement as approved by shareholders on 21 October 2008,Liberty Holdings Limited was obliged to make an appropriate offer to each share option and right holder.Right holders who acquired options to subscribe for Liberty shares in terms of the schemes that Liberty Group Limitedadopted prior to April 2005 were offered either an exchange of each Liberty Group Limited ordinary share which theyacquire upon implementation of those options for the issue of a new Liberty Holdings Limited ordinary share, or that therights and references to Liberty Group Limited shares would in future be references to Liberty Holdings Limited shares.The terms of the Liberty Equity Growth Scheme are, apart from the necessary changes to adapt it to LibertyHoldings Limited instead of Liberty Group Limited, identical to those of the Liberty Life Equity Growth Scheme asadopted by Liberty Group Limited in 2005.The change has been treated as a modification which does not result in a change in the fair value of options/rightsgranted.Liberty Holdings Limited (previously Liberty Group Limited)Liberty has a number of share incentive schemes, which entitles key management personnel and senior employeesto purchase Liberty Holdings Limited shares. These share incentive schemes are the Liberty Group Senior ExecutiveShare Option Scheme, the Liberty Life Association of Africa Limited Share Trust, the Liberty Life Share IncentiveScheme and the Liberty Life Equity Growth Scheme. During 2005, the Liberty Life Equity Growth Scheme wasimplemented, which confers rights on employees to acquire Liberty Group Limited ordinary shares equivalent to thevalue of the right at date of exercise. The eventual value of the rights is effectively settled by the issue of sharesequivalent to the value of rights. Both the previous equity compensation plans and the new equity rights scheme areclassified as equity-settled share option plans in accordance with the requirements of IFRS 2.Pg 226

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200832. Share-based payments (continued)Standard Bank Group LimitedCertain STANLIB employees have previously been included in the Standard Bank Group Share Option Scheme andthe Standard Bank Group Share Equity Growth Scheme. The Standard Bank Group Share Option Scheme confersrights to employees to acquire ordinary shares at the value of the Standard Bank Group share at the date the optionis granted. The Standard Bank Group Share Equity Growth Scheme has been implemented in 2005 and allocatesemployees appreciation rights. The eventual appreciation amount is settled by the receipt of shares equivalent to theappreciation amount, being the difference between the share price at exercise date and grant date multiplied by thenumber of appreciation rights. The Standard Bank Group Share Option Scheme is classified as an equity-settledshare option plan and the Standard Bank Group Share Equity Growth Scheme is classified as a cash-settled schemein accordance with the requirements of IFRS 2.Liberty Share Incentive SchemesThe following is a summary of the movements of the applicable Liberty share options and rights granted:Price range Number Price range NumberReconciliation 2008 2008 2007 2007Options/rights outstanding at thebeginning of the year 6 287 749 4 764 833Granted R57,00 – R89,75 3 265 120 R80,25 – R95,50 2 833 200Exercised R45,10 – R63,55 (190 060) R46,15 – R81,61 (692 070)Lapsed R49,85 – R93,30 (756 540) R46,15 – R90,50 (618 214)Options/rights outstanding at theend of the year 8 606 269 6 287 749The weighted average share price for the year was R69,30 (2007: R88,08). For 2008, this was calculated on LibertyGroup Limited’s share price for the eleven months to 1 December 2008, and Liberty Holdings Limited’s share pricefor the month of December 2008.50% of the options/rights vest in year three, thereafter 25% in year four and five. Typically, the employee must remainin the employment of the company in order to exercise options/rights. The weighted average fair value per shareoption/right granted in 2008 is R24,49 (2007: R29,24).A binominal tree model and a modified binominal tree model were used in order to value the share options and sharerights, respectively. The fair value of the share options/rights granted during the year and the assumptions used areas follows:2008 2007Exercise price R57,00 – R89,75 R80,25 – R95,50Expected volatility (1) 31,16% – 31,96% 31,08% – 31,85%Option life 5 years 5 yearsDividend yield 4,30% – 7,93% 3,83% – 4,43%Share-based payment expense recognised during 2008 relating to the Liberty share options/rights was R36 million(2007: R26 million). These share options/rights have been classified as an equity-settled scheme, and therefore ashare-based payment reserve has been recognised.(1)Expected volatility is determined separately for each tranche of options issued. The expected volatility is based on the annualisedhistoric volatility of the share price for 10 years before the grant date. The volatility is calculated using daily price movements ontrading days. The range disclosed shows the minimum and maximum volatility over all tranches issued during the year.The following is a summary of the movements of the applicable Standard Bank Group Limited share options and rightsgranted.Standard Bank Group Share Incentive SchemePrice Number Price NumberReconciliation range 2008 2008 range 2007 2007Options outstanding at the beginningof the year 217 200Acquired through business acquisition 378 600Exercised R27,81 – R39,90 (34 000) R27,81 – R39,90 (138 000)Lapsed R27,81 – R39,90 (23 400)Options outstanding at the endof the year 183 200 217 200Pg 227

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200832. Share-based payments (continued)Share options were exercised regularly throughout the period. The weighted average share price for the year wasR85,15 (2007: R106,60). The share-based payment expense recognised during 2008 relating to the Standard BankGroup Share Incentive Scheme is R0,4 million (2007: R1 million). These options have been classified as an equitysettledscheme, and therefore a share-based payment reserve has been recognised.A Black-Scholes option pricing model was used in order to value the share options.Standard Bank Group Equity Growth SchemePrice range Number Price range NumberReconciliation 2008 2008 2007 2007Rights outstanding at the beginningof the year 508 700Acquired through business acquisition 644 800Exercised R87,45 – R93,53 (12 519) R80,50 – R111,00 (19 415)Lapsed R60,35 – R81,00 (20 200) R60,35 – R85,80 (116 685)Rights outstanding at the end of the year 475 981 508 700The share-based payment expense recognised during 2008 relating to the Standard Bank Group Equity GrowthScheme is R1,6 million (2007: R1,3 million). These rights have been classified as a cash-settled scheme and thereforea liability of R7,6 million has been recognised (2007: R6 million) and is included in insurance and other payables.A Black-Scholes option pricing model was used in order to value the share rights.Black Economic Empowerment (BEE) transaction and IFRS 2Liberty Group LimitedLiberty entered into a BEE transaction during 2004, which resulted in the recognition of a share-based paymentexpense in respect of shares allocated to incentivise black employees.The Katleho Managers Trust acquired the right to grant options of 10,3 million shares in Liberty Group Limited toqualifying black employees and directors of the Liberty Group.Approximately 96% of the share options have been allocated since inception of the transaction in 2004. Theseoptions have been valued and are being expensed over the vesting period, which will continue until 2010. Theremaining 4% will be allocated within the next year and the recognition of the expense relating to this portion hascommenced and will continue over the remaining vesting period.The fair value of the options, being R12,30 per share, were measured using a stochastic simulation model, whichincorporated the terms and conditions of the BEE transaction. The model requires a number of assumptions, whichare as follows:• Grant date of the options: 29 October 2004, being the last date of trade before the scheme implementation;• Market price of the underlying shares at the grant date: R57 per share;• Dividend yield: assumed to equal the average dividend yield of 5,22% for the 12 months preceding the grant date;• Strike price: this will differ based on the investment return scenario generated by the valuation mode;• Expiry date: the options are assumed to have a term of 20 years and, therefore, the expiry date will be in the year 2024;• Volatility: the annualised standard deviation of the monthly return on Liberty Group Limited shares was used,namely 29,71%;• Risk-free rate of interest: Bond Exchange of South Africa (BESA) zero-coupon South African government bondcurve used as at the grant date. From the zero-coupon curve, a forward rate curve was derived; and• Preference dividend rate: this rate is set at 67% (66% when the company income taxation rate was 29%) of theprime lending rate.The share-based payment expense recognised during 2008 relating to the Liberty Group BEE transaction wasR24 million (2007: R25 million). The BEE transaction is classified as an equity-settled scheme and therefore, a sharebasedpayment reserve has been recognised.Pg 228

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200832. Share-based payments (continued)Standard Bank Group LimitedCertain STANLIB staff participate in the Standard Bank BEE share incentive scheme. The Standard Bank Groupentered into a black economic empowerment transaction during 2004, which also resulted in the recognition of ashare-based payment expense. The fair value of the options were measured using a modified European valuationmodel, which incorporated the terms and conditions of the BEE transaction.The share-based payment expense recognised during 2008 relating to the Standard Bank Group Limited was R1 million(2007: R2 million). The BEE transaction is classified as an equity-settled scheme and therefore a share-based paymentreserve has been recognised.Phantom share schemeLiberty Group Limited reduced its capital by approximately R1 billion, or R3,60 per share, which was paid out toshareholders on 12 June 2006 from the share premium account.Share option/right holders are not entitled to receive dividends on their share options/rights and therefore eachemployee who had outstanding share options/rights at that date received a participation right in a phantom sharescheme to compensate for the economic opportunity cost applicable to the capital no longer available. The numberof phantom rights were calculated as the number of share options/rights outstanding multiplied by R3,60, dividedby the average Liberty Group Limited share price over five days starting 5 June 2006 (R73,81 per share). The vestingdates of these rights have been matched to the share options/rights in respect of which they were granted, withthe earliest date being 11 August 2006, and can be exercised at the option of the employee over a maximum of a10-year period from 12 June 2006. On exercise Liberty Group Limited will compensate the employee in cash for thedifference between strike price and the market price of a Liberty Group Limited share at the date of exercise. Interms of the section 311 scheme of arrangement entered into between Liberty Group Limited and Liberty HoldingsLimited, the value of the cash benefits to be determined by holders of phantom rights will now be determined withreference to the value of shares in Liberty Holdings Limited. The phantom share scheme qualifies as a cash-settledscheme, as Liberty incurs a liability to the employee based on the price of Liberty Holdings Limited’s shares. As theyear end closing share price was less than the average share price referred to above of R73,81, the cumulativeliability of R3 million was reversed to zero in 2008 (2007: expense of R1 million) .2008 2007Reconciliation of options under phantom share scheme Number NumberOptions outstanding at the beginning of the year 280 133 338 273Exercised (5 760) (33 421)Lapsed (23 684) (24 719)Options outstanding at the end of the year 250 689 280 133RmRmLiability included in insurance and other payables – 333. Finance costsInterest expense:– interest paid on policyholder claims and supplier balances 153 172– interest on financial liabilities at amortised cost 203 220Total finance costs 356 392Pg 229

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200834. Business acquisitions and disposals34.1 Acquisition of Health Service related entitiesTo assist in the group’s strategic intent to offer health services as part of the group’s wealth service productproposition, the group acquired a 50,1% controlling interest in the Neil Harvey and Associates group ofcompanies with effect from 19 November 2008.The purchase consideration was settled in cash with an additional expected earn out liability of R80 millionpayable after two years.The acquisition includes reciprocal put and call options that give the group and the minority shareholders theright to purchase or sell the minority shareholding to Liberty at an independently determined fair value. Theseoptions are effective any time after 19 November 2013.The assets and liabilities arising from the acquisition were as follows:2008Total recognised valuesRmEquipment 21Intangible assets 374Prepayments, insurance and other receivables 33Cash and cash equivalents 16Employee benefits (1)Insurance and other payables (33)Deferred taxation (41)Net identifiable assets and liabilities 369Goodwill on acquisition 114Total acquisition value 483Financial liabilities at amortised cost (minority loan) (150)Capital contribution (50)Minority earn out liability (80)Consideration paid in cash 203Less cash acquired (16)Net cash outflow 187The initial acquisition accounting described above is provisional due to the complexity of valuing customerrelationships and contracts.34.2 Acquisition of joint venturesWith effect from 1 April 2008, Liberty Group Limited acquired from Standard Bank South Africa Limited, awholly-owned subsidiary of Standard Bank Group Limited, 50% of the issued share capital of FountainheadProperty Trust Management Limited and Evening Star Trading 768 (Proprietary) Limited for a consideration ofR47 million.Liberty Group Limited also acquired from Standard Bank Properties (Proprietary) Limited, a wholly-ownedsubsidiary of Standard Bank Group Limited, equity loan claims of R140 million against Evening Star Trading 768(Proprietary) Limited.2008RmShares acquired 47Equity loan claim acquired 140Consideration paid in cash 187Pg 230

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200834. Business acquisitions and disposals34.3 Acquisition of STANLIB Limited (STANLIB)The board of directors released various announcements during the second half of 2006, stating its intentionto pursue the acquisition of the remaining 62,6% of the ordinary shares of STANLIB, owned by Standard BankGroup Limited (Standard Bank) (37,4%) and Quantum Leap Investments 740 (Proprietary) Limited (QuantumLeap) (25,2%). A circular was issued to shareholders on 2 January 2007 providing information regarding thetransaction and convening a general meeting which was held on 29 January 2007, at which 97% of votingshareholders approved the transaction. The effective date of the acquisition is therefore 29 January 2007.The life industry has experienced a pronounced shift from on-balance sheet life products to off-balance sheetsavings products over the past few years enhancing the value of STANLIB (an investment management, linkedinvestment and collective investment scheme business). In order for Liberty to grow and retain market share,it must be in a position to provide new products and formulate a sustainable asset acquisition strategy. Theprimary reason for the acquisition therefore is to enable Liberty to defend its asset base against competinginvestment houses and to enable both companies to manage the rate and extent of asset conversion to newgeneration products.The purchase consideration was settled as follows:• Liberty Group Limited issuing to Standard Bank 7 246 005 ordinary shares and a cash payment ofR384 million; and• Liberty Group Limited issuing to Quantum Leap 2 486 577 ordinary shares and a cash payment ofR441 million.The shares that were issued for the purpose of this transaction were issued on 10 April 2007 at the ruling shareprice at the close of business on the effective date of acquisition. The final acquisition value includingtransaction costs amounted to R1 686 million.Pg 231

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200834. Business acquisitions and disposals (continued)34.3 Acquisition of STANLIB Limited (STANLIB) (continued)The assets and liabilities arising from the acquisition were as follows:2007Total recognised valuesRmEquipment 34Goodwill 1 076Interests in joint ventures (440)Financial instruments 611Deferred taxation 34Prepayments, insurance and other receivables 31Cash and cash equivalents 166Policyholders‘ liabilities – investment contracts (131)Financial liabilities at amortised cost (467)Employee benefits (91)Provisions (23)Insurance and other payables (146)Current taxation (60)Net identifiable assets and liabilities 594Attributable to minority shareholders (11)Net asset value attributable to Liberty Group Limited 583Intergroup goodwill no longer recognised (1 076)Adjusted net asset value (493)Total cost 1 705Carrying value of existing 37,4% 19Cost of acquiring remaining 62,6% 1 686 (1)Excess purchase price over net asset value 2 198(1)Made up of cash payments equal to R840 million (including transaction costs) and shares issued to subsidiary ofR846 million. The transaction was accounted for as a business combination involving entities under common control. Thecarrying amount of assets and liabilities recognised in Liberty’s balance sheet are those book values as applied onconsolidation by the ultimate holding company, being Standard Bank. No other assets or liabilities are recognised as aresult of the combination. The excess purchase price over the holding company’s consolidated net asset value was setoff directly against shareholder reserves in the 2007 financial year.34.4 Disposal of Saambou Life Assurers LimitedEarly in 2007 the group disposed of its wholly owned subsidiary Saambou Life Assurers Limited.The assets and liabilities disposed of are as follows:2007RmReinsurance assets 162Financial instruments 127Cash and cash equivalents 41Policyholders’ liabilities – investment (38)Policyholders’ liabilities – insurance (162)Insurance and other payables (3)Current taxation (16)Net assets disposed of 111Proceeds 117Profit on disposal of subsidiary 6Pg 232

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200835. Taxation2008 2007RmRm35.1 Sources of taxationSouth African normal taxation 1 039 1 504Current year taxation 1 123 1 293Overprovision prior year current taxation (165) (90)Current deferred taxation 118 301Attributable to rate change (37)South African capital gains taxation (479) 530Current year taxation 348 586Overprovision prior year current taxation (38)Deferred taxation (782) (24)Attributable to rate change (7)Overprovision prior year deferred taxation (32)Other related South African taxes 53 112Retirement fund taxation (14) (1)Secondary tax on companies 67 113Total taxation 613 2 146Profit and loss 607 2 105Other comprehensive income 6 41Pg 233

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200835. Taxation (continued)35.2 Taxation rate reconciliationCIT (1) RFT (2) STC (3) CGT (4)(8) Total2008 Rm Rm Rm Rm RmTaxation per profit and loss 1 032 (14) 67 (478) 607Taxation on other comprehensive income 7 (1) 6Total taxation 1 039 (14) 67 (479) 613Taxation specific to policyholder tax funds (5) (7) (590) 14 468 (108)Shareholder taxation 449 67 (11) 505Profit before taxation per statement ofcomprehensive income 3 046 (648) 2 398Defined as capital 316 (502) (186)Defined as revenue 2 730 (146) 2 584Taxable revenue directly charged to reserves 26 26Dividends paid 1 204OrdinaryLiberty Holdings Limited 372Liberty Group Limited 474Preference (6) 358Total 3 072 1 204 (648)% % %Effective rate of taxation 14,6 5,6 1,7Adjustments due to:Income exempt from normal taxation:Dividends received 2,8Rate adjustment 1,2 1,1Non-tax deductible expenses (0,8)Revenue offset for life fund taxes 1,4Over provision of taxes in respect ofprior years 5,5 2,7Income attributable to controlled foreigncompanies (0,6) (6,9)Utilised tax losses and special transfers 2,4Amounts excluded from capital gains tax 0,1 15,4Foreign exchange gains and losses 1,4Relief obtained from secondary taxationcredits on dividends received 4,4Standard rate of South African taxation 28,0 10,0 14,0(1)CIT represents corporate income taxation.(2)RFT represents retirement funds taxation which is a South African tax and interest on rental income earned within definedretirement tax funds.(3)STC represents secondary tax on companies which is a South African tax on defined dividend distributions to shareholders.The STC rate changed from 12,5% to 10% in respect of dividend distributions with effect from 1 October 2007. STC hasbeen reconciled to 10% (2008) and 12,5% (2007).(4)CGT represents capital gains taxation which is an effective tax on defined capital gains in South Africa.(5)Policyholder taxation funds are separate taxation persons which have differing taxation rules applied in the South Africantaxation legislation. There are three separate funds defined as untaxed, individual and corporate. As these funds andrelated taxes are in essence direct taxes against investments held on behalf of policyholders (not shareholders), it is notconsidered necessary to reconcile effective rates by fund.(6)R48 million (2007: R44 million) of preference dividends paid by a subsidiary are disclosed as interest expense in thestatement of comprehensive income but is defined as dividends for taxation purposes.Pg 234

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200835. Taxation (continued)35.2 Taxation rate reconciliation (continued)CIT (1) RFT (2) STC (3) CGT (4)(8) Total2007 Rm Rm Rm Rm RmTaxation per profit and loss 1 469 (1) 113 524 2 105Taxation on other comprehensive income 35 6 41Total taxation 1 504 (1) 113 530 2 146Taxation specific to policyholder tax funds (5) (7) (452) 1 (490) (941)Shareholder taxation 1 052 – 113 40 1 205Profit before taxation per statement ofcomprehensive income 5 142 240 5 382Defined as capital 240 240Defined as revenue 5 142 5 142Taxable revenue directly charged to reserves 127 127Dividends paid 1 465OrdinaryLiberty Holdings Limited 503Liberty Group Limited 642Preference (6) 320Total 5 269 1 465 240% % %Effective rate of taxation 20,0 7,7 16,7Adjustments due to:Income exempt from normal taxation:Dividends received 4,2Non-tax deductible expenses (0,5)Revenue offset for life fund taxes 3,4Over provision of taxes in respect ofprior years 1,8 11,8Income attributable to controlled foreigncompanies (0,1)Utilised tax losses and special transfers 0,1 (1,4)Effect of differing secondary taxation oncompanies rates 0,5Amounts excluded from capital gains tax 8,2Base cost difference to historical cost (15,4)Relief obtained from secondary taxationcredits on dividends received 4,3 (5,3)Standard rate of South African taxation 29,0 12,5 14,5(7)Normal policyholder taxation contains a charge of R25 million (2007: release of R37 million) in respect of deferredtaxation relating to investment property fair value movements which as detailed in notes 14 and 15 is considered to be aneffective double counting of the taxation effects implicit in the valuation.(8)Capital gains taxation arising on the possible disposal of subsidiaries or business units will only be provided for when afirm intention to sell has been mandated by the directors of the holding company.Pg 235

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200835. Taxation (continued)2008 2007RmRm35.3 Potential future taxation reliefSecondary taxation credits not utilised and not provided for representingpossible future STC relief 15 26South African assessed losses carried forward not provided forrepresenting possible future normal taxation relief 90 11636. Reconciliation of total earnings to cash (utilised by)/generatedfrom operationsTotal earnings 1 791 3 277Adjustments for:Interest received (6 597) (6 306)Interest paid 356 392Dividends received (4 470) (2 724)Taxation 607 2 105Net fund (outflows)/inflows after service fees on policyholder investment contracts (2 877) 554Service fee income deferred on new business 28 23Deferred acquisition costs on new business (241) (203)(11 403) (2 882)Adjustments for non-cash items:Policyholders’ liability transfers (11 198) 16 837Impairment and amortisation of deferred acquisition costs 222 186Amortisation of deferred revenue liability (9) (8)Retained income of joint ventures (22) (30)Amortisation of intangible assets 181 191Impairment of intangible assets 4Depreciation of equipment 167 127Adjustment to surplus recognised on defined benefit pension fund 18 (162)Profit on sale of subsidiaries (6)Loss on disposal of equipment (1) (1)Share-based payment expenses 61 54Investment losses/(gains) 15 476 (14 346)Investment gains attributable to third party mutual fund financial liabilities 134 189Income attributable to minority preference shareholders in subsidiaries 308 274Movement on provisions 4 (35)(6 062) 392Working capital changes: (136) 1 250Prepayments, insurance and other receivables (2 323) (308)Insurance and other payables 2 187 1 558Cash (utilised by)/generated from operations (6 198) 1 642Pg 236

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200837. Dividends paid2008 2007RmRmDividends as per statement of changes in shareholders’ funds (374) (505)Dividends received on preference shares held in relation to BEE transaction 113 98Dividends paid to minority shareholders in subsidiaries (504) (496)Total dividends paid (765) (903)38. Taxation paidTaxation payable and deferred taxation at the beginning of the year (4 534) (3 616)Net movements through business acquisition/disposal (41) (10)Taxation attributable (613) (2 146)Income taxation relating to components of other comprehensive income (6) (41)Charged directly to profit and loss (607) (2 105)Taxation payable and deferred taxation at the end of the year 3 514 4 534Total taxation paid (1 674) (1 238)39. Related party disclosuresList of related parties as defined:ParentDirect holding company: Standard Bank Group Limited controls 53,65% (2007: 59,17%) of the issued ordinaryshares.Fellow subsidiariesAll subsidiaries of the Standard Bank Group Limited are fellow subsidiaries of Liberty Holdings Limited – a full listcan be obtained from the company secretary and details are contained in the published annual report of StandardBank Group Limited.SubsidiariesDirectly ownedThe only directly owned subsidiary is Liberty Group Limited in which Liberty Holdings Limited controls an effective100% (2007: 51,19%) of the issued ordinary shares.All subsidiaries of Liberty Group Limited are indirectly owned by Liberty Holdings Limited.Subsidiaries directly owned by Liberty Group Limited:Wholly owned:Capital Alliance Holdings Limited, Cape Hotels Property Holdings Share Block (Proprietary) Limited, Electric Liberty(Proprietary) Limited, General Staff Scheme Share Trust, Lexshell 615 (Proprietary) Limited, Liberty Active Limited,Liberty Group Properties (Proprietary) Limited, Liberty Hotels (Proprietary) Limited, Liberty Life Association of AfricaLimited Share Trust, Liberty Life Botswana (Proprietary) Limited, Liberty Life Swaziland Limited, Liberty Nominees(Proprietary) Limited, Liberty Private Fund Administrators Limited, Libgroup Jersey Holdings Limited, LPH PropertiesLimited, North City Brokers Limited, Sandton Hotels (Proprietary) Limited, STANLIB Limited, Stonehouse Capital(Proprietary) Limited, The Liberty Life Educational Foundation, The Liberty Life Foundation, Wedelin Investments 1(Proprietary) Limited.Pg 237

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)Subsidiaries directly owned by Liberty Group Limited:Indirectly ownedWholly owned:Blue Line Management Limited, CAL Limited (Isle of Man), Capital Alliance Australia Holdings (Proprietary) Limited,Capital Alliance Executive Share Trust, Capital Alliance Holdings Share Scheme, Capital Alliance InvestmentHoldings (Proprietary) Limited, Capital Alliance Life Limited, Capital Alliance Special Finance (Proprietary) Limited,Cell within Nova Life Partners Limited, Group Solutions at Capital Alliance (Proprietary) Limited, Jorrlove (Proprietary)Limited, Killyman Estates (Proprietary) Limited, Liberty Ermitage Luxembourg SA, Liberty Group PropertyDevelopment (Proprietary) Limited, Liberty Group Property Management (Proprietary) Limited, Liberty Life NamibiaLimited, Lodestone Holdings (Proprietary) Limited, Mooi and Anderson Street Properties (Proprietary) Limited,Rentmeester Versekeraars Beperk, Shoebill (Proprietary) Limited, Sillena Ontwikkelingsmaatskappy (Proprietary)Limited, Standard Bank Unit Trusts (Proprietary) Limited, STANLIB Asset Management Limited, STANLIB CollectiveInvestments Limited, STANLIB Multi-Manager Limited, STANLIB Wealth Management Limited, The Big Rock(Proprietary) Limited, Traduna Property Holdings Limited.Partially owned (percentage effective ownership indicated):These entities are subsidiaries due to effective control as Liberty Group Limited has the option to acquire furthershares and/or the right to manage the operations.Africa and International Recovery Services (Proprietary) Limited, CAL AIL Investments Limited (75%), Liberty HealthHoldings (Proprietary) Limited (50,1%), Liberty Life Assurance Uganda Limited (51%), Stanbic InvestmentManagement Services (Proprietary) Limited (50%), Stanbic Investment Management Services (East Africa) Limited(50%), Stanbic Investment Management Services – Lesotho (Proprietary) Limited (50%), Standard Lesotho BankUnit Trust (Proprietary) Limited (50%), VMed Administrators (Proprietary) Limited, VMedical Solutions (Proprietary)Limited, Vision Equity Living (Proprietary) Limited.Joint venturesDetails of joint ventures of the group are contained in note 8.AssociatesDetails of associates of the group are contained in note 10.Key management personnelKey management personnel have been defined as follows:Standard Bank Group Limited directors and executive committee members;Liberty Holdings Limited directors and executive committee members; andLiberty Group Limited directors and executive committee members, with effect from 1 January 2008.Refer to the published annual financial statements of Standard Bank Group Limited for details pertaining to its keymanagement members.Details of the current directors of Liberty Holdings Limited are on pages 30 and 31.Liberty Holdings Limited executive committee members at 31 December 2008:Steven Braudo Appointed 1 July 2008George BritsRussell HarteGiles Heeger Appointed 1 June 2008Bruce Hemphill (chairman)Bernard KatompaBobby MalabieAudrey MothupiSamuel OgbuRex TomlinsonFrik van der Merwe Appointed 1 October 2008Ian van SchoorPg 238

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)Key management personnel (continued)It is not considered necessary to disclose details of key management family members and their influenced orcontrolled separate entities. To the extent that specific transactions have occurred between the group and theserelated parties (as defined in IAS 24) the details are included in the aggregate disclosure contained below under keymanagement and where significant full details of all relationships and terms of the transaction are provided.Post-employment benefit plansRefer to note 18.A. Holding company – Standard Bank Group Limited and fellow subsidiariesA.1 Investment in ordinary shares, preference shares and term depositsLiberty and its subsidiaries invest from time to time in securities issued by its holding company, StandardBank Group Limited for the benefit of policyholders:Nominal holdingFair valueStandard Bank Group ordinary sharesSummary of ordinary share holdings 2008 2007 2008 2007and movements: ’000 ’000 Rm RmHoldings at 1 January 41 182 38 588 4 122 3 647Liberty Group Limited 35 528 34 293 3 557 3 241Capital Alliance Life Limited 3 202 2 804 320 265Liberty Active Limited 2 452 1 491 245 141Purchases 7 892 10 123 697 1 092Liberty Group Limited 4 575 7 892 411 844Capital Alliance Life Limited 1 986 1 231 168 131Liberty Active Limited 1 331 1 000 118 117Sales (18 163) (7 529) (1 771) (785)Liberty Group Limited (14 982) (6 657) (1 480) (690)Capital Alliance Life Limited (1 854) (833) (166) (91)Liberty Active Limited (1 327) (39) (125) (4)Fair value adjustments (482) 168Liberty Group Limited (403) 162Capital Alliance Life Limited (45) 15Liberty Active Limited (34) (9)Holdings at 31 December 30 911 41 182 2 566 4 122Liberty Group Limited 25 121 35 528 2 085 3 557Capital Alliance Life Limited 3 334 3 202 277 320Liberty Active Limited 2 456 2 452 204 245Percentage of total issued ordinary shares 2,03% 3,00%Pg 239

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)A. Holding company – Standard Bank Group Limited and fellow subsidiaries (continued)A.1 Investment in ordinary shares, preference shares and term deposits (continued)Nominal holdingFair valueStandard Bank Group preference sharesSummary of preference share holdings 2008 2007 2008 2007and movements: ’000 ’000 Rm RmHoldings at 1 January 3 067 2 959 294 307Liberty Group Limited 2 786 2 938 268 306Capital Alliance Life Limited 15 15 – –Liberty Active Limited 6 6 1 1Mutual funds 260 25Additions 260 27Mutual funds 260 27Purchases 673 65Liberty Group Limited 50 5Capital Alliance Life Limited 623 60Liberty Active LimitedSales (623) (152) (60) (16)Liberty Group Limited (623) (152) (60) (16)Fair value adjustments 6 (24)Liberty Group Limited 4 (22)Capital Alliance Life Limited 1Mutual funds 1 (2)Holdings at 31 December 3 117 3 067 305 294Liberty Group Limited 2 213 2 786 217 268Capital Alliance Life Limited 638 15 61 –Liberty Active Limited 6 6 1 1Mutual funds 260 260 26 25Pg 240

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)A. Holding company – Standard Bank Group Limited and fellow subsidiaries (continued)A.1 Investment in ordinary shares, preference shares and term deposits (continued)Fair valueStandard Bank Group term deposits 2008 2007Summary of term deposits holdings and movements: Rm RmHoldings at 1 January 10 719 8 191Liberty Group Limited 6 116 4 657Capital Alliance Life Limited 880 382Liberty Active Limited 3 637 3 152Mutual funds 86Additions 35 51Mutual Funds 35 51Purchases 4 678 8 595Liberty Group Limited 4 006 5 530Capital Alliance Life Limited 291 659Liberty Active Limited 381 2 359Mutual Funds 47Sales (3 590) (5 995)Liberty Group Limited (1 830) (4 017)Capital Alliance Life Limited (703) (173)Liberty Active Limited (1 057) (1 794)Mutual funds (11)Disposals (1 320)Liberty Group Limited (463)Liberty Active Limited (771)Mutual funds (86)Fair value adjustments 104 (123)Liberty Group Limited 34 (54)Capital Alliance Life Limited 18 12Liberty Active Limited 49 (80)Mutual funds 3 (1)Holdings at 31 December (1) 10 626 10 719Liberty Group Limited 7 863 6 116Capital Alliance Life Limited 486 880Liberty Active Limited 2 239 3 637Mutual funds 38 86(1)Analysis of term deposits as at 31 December:Listed:Fixed rate notes 3 153 3 335Fixed rate credit-linked notes 50 21Floating rate notes 130 127Inflation – linked notes 647 649Unlisted:Fixed rate notes 283 558Fixed rate zero-coupon bonds 3 031 2 137Fixed rate credit-linked notes 576 1 604Floating rate notes 232 896Inflation – linked notes 1 469 980Negotiable certificates of deposit 1 055 41210 626 10 719Pg 241

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)A. Holding company – Standard Bank Group Limited and fellow subsidiaries (continued)A.1 Investment in ordinary shares, preference shares and term deposits (continued)Fair valueStandard Bank credit enhanced structured entities 2008 2007Summary of holdings and movements: Rm RmHoldings at 1 January 1 469 608Liberty Group Limited 1 417 608Capital Alliance Life Limited 52Additions 1 234 814Liberty Group Limited 463 814Liberty Active Limited 771Purchases 494 64Liberty Group Limited 280 13Capital Alliance Life Limited 138 51Liberty Active Limited 76Sales (210) (10)Liberty Group Limited (40) (10)Capital Alliance Life Limited (170)Fair value adjustments 48 (7)Liberty Group Limited 15 (8)Capital Alliance Life Limited 3 1Liberty Active Limited 30Holdings at 31 December 3 035 1 469Liberty Group Limited 2 135 1 417Capital Alliance Life Limited 23 52Liberty Active Limited 877A.2 Information technology outsourcing arrangementWith effect from 1 October 2004, Liberty partially outsourced its information technology services toStandard Bank of South Africa Limited in terms of an agreement until 31 March 2010. Fees charged for2008 amounted to R24 million (2007: R24 million).A.3 Software developmentStandard Bank of South Africa Limited has contracted Liberty to develop a commission and specificcustomer information system. Fees associated with this development will be charged over five years.2008 fees received are R3,8 million (2007: R8,0 million).Pg 242

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)A. Holding company – Standard Bank Group Limited and fellow subsidiaries (continued)A.4 Banking arrangementsLiberty and its subsidiaries makes use of banking facilities provided by Standard Bank of South AfricaLimited.Summary of cash balances, interest earned and fees charged:Cash balances Interest earned Fees charged2008 2007 2008 2007 2008 2007Rm Rm Rm Rm Rm RmHoldings at 1 January 697 1 680Liberty 29 5Liberty subsidiaries 668 1 675Net movements during the year 1 996 (983)Liberty 192 24Liberty subsidiaries 1 804 (1 007)Holdings at 31 December 2 693 697Liberty 221 29 12 5Liberty subsidiaries 2 472 668 110 81 11 29Total 122 86 11 29A.5 Operating leaseLease expenseLiberty leases a Pretoria property from Standard Bank of South Africa Limited in terms of a leaseentered on 22 December 1999 for a period of 13,5 years terminating on 31 May 2013. Lease escalationsare fixed at 12% per annum. Total lease payments for 2008: R71 million (2007: R64 million).Lease incomeStandard Bank of South Africa Limited leases several properties from Liberty, including 50% of its headoffice at 5 Simmonds Street, Johannesburg, and various retail branches in shopping centres. Theseleases are governed by numerous separate lease agreements. Total lease receipts for 2008: R58 million(2007: R53 million).A.6 BancassuranceLiberty has entered into profit share agreements (renegotiated on 25 April 2002 for a period until31 December 2010) with Standard Bank of South Africa Limited for the sale and promotion of insuranceproducts. New business premium income in respect of this business in 2008 amounted to R5 091 million(2007: R4 966 million). In terms of the agreement Liberty Active Limited pays 90% of profits on simpleproducts and 50% of profits on complex products through a preference share dividend to Standard Bankof South Africa Limited. The preference dividend accrued for 2008 is R308 million (2007: R274 million).A.7 Liberty conference centre utilisationVarious subsidiaries of the Standard Bank Group Limited used the facilities of Liberty’s conferencecentre – fees earned amounted to R302 000 (2007: R2 million). The Liberty conference centre was soldduring 2008.A.8 InsuranceCertain insured risks for Liberty are included in the Standard Bank Group Limited insuranceprogramme. These include R3 billion (2007: R3 billion) cover for crime, fraud and professional indemnity,R1,5 billion plus £100 million (2007: R1,5 billion) directors’ and officers’ cover and R760 million (2007:R620 million) asset all risks cover. The asset all risks premiums include SASRIA cover R500 million(2007: R500 million). The proportionate share of premiums charged to Liberty by Standard Bank GroupLimited for 2008 is R9,0 million (2007: R9,0 million).Pg 243

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)A. Holding company – Standard Bank Group Limited and fellow subsidiaries (continued)A.9 Approved purchase of shares held by Standard Bank Limited in STANLIB LimitedLiberty Group Limited shareholders on 29 January 2007 approved the purchase of shares in STANLIBLimited held by Standard Bank Limited, refer note 34.3 for further details.A.10 Asset management feesAsset management fees of R19 million (2007: R32 million) were paid to STANLIB Asset ManagementLimited by The Standard Bank Group Retirement Fund.A.11 Acquisition of Fountainhead Property Trust Management Limited and Evening Star Trading 768 (Pty)LimitedLiberty Group Limited, with effect from 1 April 2008, acquired from Standard Bank South Africa Limited, awholly-owned subsidiary of Standard Bank Group Limited, 50% of the issued share capital of FountainheadProperty Trust Management Limited and Evening Star Trading 768 (Pty) Limited for a consideration ofR46,7 million.Liberty Group Limited also acquired from Standard Bank Properties (Pty) Limited, a wholly-ownedsubsidiary of Standard Bank Group Limited, equity loan claims of R139,5 million against Evening StarTrading 768 (Pty) Limited.A.12 Acquisition of the remaining issued ordinary share capital of Liberty Holdings LimitedOn 27 May 2008, Standard Bank Group Limited announced their intention to acquire the remainingissued ordinary share capital of Liberty Holdings Limited.The consideration offered was 21 925 cents per ordinary share. Liberty Group Limited sold 2 717 247 sharesfor a total consideration of R596 million in Liberty Holdings Limited in terms of this offer.A.13 Dividend purchase agreementIn May 2007, Liberty entered into a dividend purchase agreement with Standard Bank.In terms of this agreement, the rights to dividend income from certain share investments was sold toStandard Bank. Proceeds on the sale of rights to dividends was R1 110 million (2007: R563 million).A.14 DerivativesCertain derivative transactions were entered into between Liberty Group Limited and the Corporate &Investment Banking Division of Standard Bank Group Limited (CIB).These include interest rate swaps, swaptions, bond forwards and equity options. All transactions wereentered into in order to hedge the market risk inherent in the group’s assets and liabilities.Interest rate swaps on a notional amount of R2 915 million were entered into during the year for varioustenors between 12 years and 20 years. All of these were outstanding at year end.Swaptions, which give an option to enter into a swap in the future, were entered into with CIB during theyear. The total notional of the swaptions is R3 400 million and cover various tenors from 10 years to30 years. All were outstanding at year end and the premium paid for these options amounted toR100 million in total.Bond forwards were entered into to purchase BESA listed government gilts at future dates with theforward yield being set at current market rates. These are all less than 6 months in duration and for atotal notional amount of R2 200 million.Premiums paid for equity options amounted to R25 million in total. These were for a total notional amountof R1 100 million.The transactions were entered into on an arm’s length basis and only after obtaining competitive pricingquotations from several market players who conduct business in these markets.The total fair value of these instruments at 31 December 2008 is R593 million (2007: R186 million).A.15 Scrip lendingScrip lending transactions are entered into between Liberty Group Limited and Standard Bank.The value of scrip lent at 31 December 2008 totalled R1 035 million (2007: R1 247 million) and thefees earned were R3 million (2007: R4 million).Pg 244

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)B. Transactions with directors and related entitiesRefer to note 41 for related party relationships in respect of the 2004 BEE transaction.B.1 Transactions with Shanduka Group (Proprietary) Limited (Shanduka)Shanduka is a related entity of Cyril Ramaphosa, a current director of Standard Bank Group Limited.Phuti Malabie is the wife of Bobby Malabie, who is defined as part of key management. Phuti Malabieis a director of various subsidiaries in the Shanduka group.Cyril Ramaphosa, who is defined as part of key management, effectively controls 44,15% (2007: 40,0%)of Shanduka. Standard Bank Group Limited has a 11,86% (2007: 14,8%) interest in Shanduka.B.1 (a) Computer equipmentRentWorks Africa (Proprietary) Limited is 50,1% held (2007: 25%) by Shanduka.A portion of the group’s computer equipment is leased from RentWorks Africa (Proprietary)Limited under various lease agreements ranging between three to four years with no escalations.Rentals paid are summarised as follows:2008 2007RmRmLiberty subsidiaries 12 17B.1 (b) Preference shares – Shanduka• In December 2007 Liberty Group Limited purchased R37 million of variable rate cumulativeredeemable “A” class preference shares in Shanduka. The preference shares are redeemableon 30 June 2012, or earlier at the option of Shanduka. Up to 31 December 2008, no dividendhas been received and the fair value of these preference shares is R42 million (2007:R37 million).• In December 2007 Liberty Group Limited purchased 11 redeemable participating “B” classpreference shares in Shanduka for 11 cents. The participation dividend is in reference to theincrease in the net asset value of the Shanduka group over the period to 30 June 2012.No participation dividend has been accrued for up to 31 December 2008 and the fair valueremains at 11 cents.B.1 (c) Preference shares – Shanduka Newsprint (Proprietary) Limited (Shanduka Newsprint)Shanduka Newsprint is a subsidiary of Shanduka. In December 2006 Liberty Group Limitedpurchased R46 million variable rate cumulative redeemable preference shares in ShandukaNewsprint. The preference shares are redeemable on 1 June 2016, or earlier at the option ofShanduka Newsprint. Up to 31 December 2008, no dividend has been received and the fairvalue of these preference shares is R57 million (2007: R46 million).B.2 Transaction with Safika Holdings (Proprietary) Limited (Safika)Safika is a related entity of Saki Macozoma, the current chairman and a director of Liberty andStandard Bank Group Limited.Saki Macozoma, who is defined as part of key management, effectively controls 23% (2007: 20%) ofSafika Holdings (Proprietary) Limited. Liberty has an effective interest of 5,75% (2007: 5,0%) andStandard Bank Group Limited has a 17,25% (2007: 16,6%) interest in Safika Holdings (Proprietary)Limited. The fair value of Liberty’s interest is R55 million (2007: R40 million).The 2007 STANLIB transaction, as detailed in note 34.3 included Liberty purchasing Safika’s 25,2%interest in STANLIB Limited.B.3 Construction contractsCertain of the group’s investment properties namely the Liberty Promenade, Sandton City and Eastgatecomplexes are undergoing refurbishments and extensions. Grinaker-LTA Limited, a subsidiary of AvengLimited, has been awarded construction contracts to the value of R1 455 million. Angus Band who throughhis directorship of Liberty is defined as a key manager, is currently the chairman of Aveng Limited.Pg 245

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200839. Related party disclosures (continued)C. Key management personnel of Liberty Holdings Limited and Standard Bank Group Limited, families of keymanagement (as defined in IAS 24) and entities significantly influenced or controlled by key management(i) Liberty Holdings Limited directors’, Liberty Group Limited directors’ and group executive committeemembers’ aggregate compensation paid by the group or on behalf of the group for services renderedto Liberty Holdings Limited and Liberty Group Limited:2008 2007R’000 R’000Salaries and other short-term employee benefits 72 596 67 659Post-employment benefits 2 343 1 740Share-based payments 15 774 11 941Directors’ fees 4 185 4 575Total 94 898 85 915(ii)Aggregate details of insurance, annuity and investment transactions between Liberty Holdings Limited,any subsidiary, associate or joint venture of Liberty Holdings Limited and key management personnel,their families (as defined per IAS 24) and entities significantly influenced or controlled by key management:InsuranceAggregate Premiumsinsured cover received Surrender value2008 2007 2008 2007 2008 2007R’000 R’000 R’000 R’000 R’000 R’000Life 54 333 31 363 1 084 580 8 373 4 236Morbidity 35 023 17 084 (included in lifepremiums)AnnuitiesAmounts paid2008 2007R’000 R’000Life (1) 808 764InvestmentFund value2008 2007R’000 R’000Balance at 1 January 18 880 13 412Appointments and resignations (2) 23 243 235Premiums received 3 176 2 093Investment return credited net of charges (4 072) 3 338Commission and other transaction fees (64) (42)Claims and withdrawals (549) (156)Balance at 31 December 40 614 18 880(1)There are no certain or term annuity related party transactions.(2)During 2008 Liberty Holdings Limited acquired the remaining minority interest in Liberty Group Limited, andrepositioned itself as the holding company for the wider financial services interests of the group. For the purposesof related party disclosures the directors and executive committee members of Liberty Group Limited have beendefined as key managers of Liberty Holdings Limited from 1 January 2008.Pg 246

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 20082008 2007RmRm40. Commitments40.1 Operating lease commitmentsEquipment 22 42Within 1 year 12 251 to 5 years 10 17Properties 621 658Within 1 year 142 1121 to 5 years 479 54640.2 Capital commitmentsBusiness acquisitions 194 (1) 386 (2)Equipment 391 216Under contracts 72 25Authorised by the directors but not contracted 319 191Investment properties 3 239 394Under contracts 1 695Authorised by the directors but not contracted 1 544 394Owner-occupied propertiesAuthorised by the directors but not contracted 19 94Total commitments 4 486 1 790The group’s share of commitments of joint ventures amounting to R18 million (2007: R16 million) is disclosed innote 8. The above 2008 capital commitments will be financed by available bank facilities, existing cash resources,internally generated funds, R429 million (2007: R7 million) from minorities in unincorporated property partnerships,and R13,5 million from minorities in Liberty Health Holdings (Pty) Limited.(1)The board has approved certain business acquisitions related to its stated strategy of broadening the group’s financialservices offerings. These acquisitions are in the final state of negotiation and finalisation is expected within the next fewmonths from the date of this report. In light of the sensitive nature of the negotiations and certain required regulatoryapprovals it is not practical to provide financial details with respect to the transactions. However, the transactions will nothave a material impact on the group’s earnings and capital structure.(2)In 2007, the board approved certain business acquisitions which occurred in 2008 and are disclosed in note 34.Pg 247

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200841. Black Economic Empowerment (BEE) transactionLiberty’s 100% (2007: 50,23%) held subsidiary, Liberty Group Limited entered into a series of transactions during2004 whereby an investment in aggregate of R1 251 million was made in cumulative redeemable preference shares.The proceeds of this were used by the BEE entities to purchase Liberty Group Limited shares. On 12 June 2006Liberty Group Limited paid a capital reduction of R3,60 per ordinary share. The total amount of R92 million receivedby the respective BEE entities was utilised at the request of the various directors and trustees to redeem a portionof the cumulative preference shares. On 1 December 2008, in terms of the section 311 transaction, each BEE entityaccepted an exchange of Liberty Holdings Limited ordinary shares for Liberty Group Limited shares on a one forone basis.OriginalNumber ofamount Remaining Libertyinvested Redemption amounts HoldingsPosition at 31 December 2008: (2004) (2006) invested LimitedBEE entity Beneficiary Rm Rm Rm shares (3)Lexshell 620 (Proprietary) Limited Safika Holdings (Proprietary) Limited 300 (22) 278 6 191 075Lexshell 621 (Proprietary) Limited Shanduka Group (Proprietary) Limited 200 (15) 185 4 127 383Lexshell 622 (Proprietary) Limited The Black Managers’ Trust (1) 501 (37) 464 10 318 458Lexshell 623 (Proprietary) Limited The Community Trust (2) 250 (18) 232 5 159 229(1)Registered as the Katleho Managers Trust.(2)Registered as the Katleho Community Trust.(3)Restricted with redemption of the cumulative preference shares.1 251 (92) 1 159 25 796 145The cumulative redeemable preference shares attract dividends at 67% (with effect from 1 March 2008) (2007: 66%)of Standard Bank’s prime lending rate. The preference dividends are payable on each date the company (whichhas issued the preference shares) receives an ordinary dividend from Liberty Holdings Limited.In accordance with local and international accounting advice the preference shares do not meet the definition of afinancial asset in terms of International Financial Reporting Standards and therefore the investment value of thepreference shares has reduced equity and is stated in the analysis of equity as a negative empowerment reserve.Receipt of preference share redemptions and dividends will be credited directly to reserves.For the purposes of earnings per share calculations the weighted average number of ordinary shares in issue isreduced by the number of Liberty shares held by the empowerment subsidiaries directly funded by the proceedsreceived from the preference shares. In accordance with interpretations of International Financial ReportingStandards, the reduction of the weighted average number of shares will remain at the initial amount until allthe preference shares are redeemed or to the extent any preference shares are sold to an external partywithout recourse.42. Statement of intent (SOI)Representatives of the LOA, the five largest life insurance groups and the Minister of Finance signed an SOI inDecember 2005. This was as a result of various Pension Fund Adjudicator rulings relating to charges levied on earlypremium reduction or cessation.On 1 December 2006, regulations giving effect to the minimum standards specified in the SOI were gazettedin government notice Volume 498, No 29446. These regulations in respect of in-force contracts were implementedin the first half of 2007.The financial consequences of applying the regulations to out-of-force contracts will only be known once a period ofthree years has elapsed from 1 December 2006. At this stage the accrual amount of R90 million (2007: R127 million)is considered to be adequate.Pg 248

Liberty Holdings Limited – Annual Report 2008Notes to the group financial statements (continued)for the year ended 31 December 200843. Key judgements in applying assumptions on application of accounting policiesKey assumptions can materially affect the reported amounts of assets and liabilities. The assumptions requirecomplex management judgements and are therefore continually evaluated. They are based on historical experienceand other factors, including expectations of future events that are believed to be reasonable under thecircumstances. The most significant assets and liabilities which typically require such assumptions are the following:• Policyholders’ liabilities under insurance contracts are derived from actual claims submitted which are not settledat reporting date, and estimates of the net present value of future claims and benefits under existing contracts,offset by probable future premiums to be received (net of expected service costs). The key assumptions appliedhave been detailed in the insurance risk component of the risk management section of this report, in theaccounting policies and in note 14 on the group financial statements.The group embedded value report contained on pages 78 to 84 includes an analysis of operating experience andassumption changes. This is an indication of the degree of accuracy of insurance liability assumptions used bythe group.• The group holds a number of financial assets that are designated at fair value through profit or loss. These arevalued at quoted market prices as far as possible. However, if such prices are unavailable, fair value is basedeither on internal valuations or management’s best estimates of realisable amounts. The group’s valuationmethodologies for unquoted financial instruments have been set out in note 8 to the accounting policies. The valueof the instruments fluctuates on a daily basis and the actual amounts realised may differ materially from their valueat the reporting date.• Impairment tests are conducted on all assets included in the statement of financial position. In determining thevalue in use, various estimates are used by management including deriving future cash flows and applicablediscount rates. These estimates are most applicable to the impairment tests on reinsurance assets, intangibleassets (including goodwill) and receivables. Further details are contained in the accounting policies.• In deriving probable post-retirement employee benefit liabilities and recognised surpluses, various assumptionsare required. Further details are contained in note 18 on the group financial statements.• Investment properties are valued using various inputs relating to existing tenant terms, location and vacancylevels. Risk adjusted discount rates factor in liquidity and asset class risk. Refer note 4 and 5 on the group financialstatements for specific details.Allocation of specific investment properties to long-term strategic holdings determines the deferred taxation rateto be applied to fair value adjustments. The applicable income tax rate is applied to long-term holdings whilst theapplicable capital gains tax rate is applied to the non long term holdings (as it is likely those properties will berecovered through the realisation of the carrying value).• The various shareholder agreements relating to the acquisition of the Health Service related entities referred to innote 34.1 were assessed by management as conferring a controlling interest to Liberty. The main factors in thisassessment being that Liberty controls the ordinary share vote and has the right to appoint majority of directorsas well as the chairman of the board. Liberty also appoints the managing director and chief financial officer.Overall strategic and day to day management is the responsibility of Liberty and furthermore the agreementsconfer put and call rights in order for the minority shareholders to exit ownership after a prescribed period.44. Changes to comparatives44.1 To ensure comparability arising from new definitions, changes have been made to comparatives in thefollowing templates in the risk management disclosure:• Corporate retained sum at risk, page 116.• Industry class, page 116.• Summary of group assets subject to market risk, page 121.44.2 Due to the 3:1 ordinary share split during 2008, 2007 weighted average number of shares and earnings pershare have been restated (refer note 1).44.3 Early adoption of amendments to IAS 1 Presentation of Financial Statements and IFRS 8 Operating Segmentshas resulted in changes to formats and consequently comparative information for the Statement ofComprehensive Income and Segment Information (refer note 2).Pg 249

Liberty Holdings Limited – Annual Report 2008Company statement of financial positionat 31 December 20082008 2007Notes Rm RmAssetsInterests in subsidiary 1 9 568 1 562Cash and cash equivalents 2 221 29Total assets 9 789 1 591LiabilitiesDeferred taxation 3 36 37Insurance and other payables 4 8 22Current taxation 16 1Total liabilities 60 60EquityOrdinary shareholders’ interests 9 729 1 531Share capital (1) 26 14Share premium (1) 9 276 903Retained surplus 423 614Share based payment reserve 4Total equity 9 729 1 531Total equity and liabilities 9 789 1 591(1)For notes on share capital and share premium refer to group financial statements note 23.Pg 250

Liberty Holdings Limited – Annual Report 2008Company statement of comprehensive incomefor the year ended 31 December 20082008 2007Notes Rm RmRevenueInvestment income 5 250 340Total revenue 250 340Administration expenses (6) (4)Administration fee paid to subsidiary (2)Legal fees (4)Other (2) (2)Profit before taxation 244 336Taxation 7 (51) (56)Total earnings and comprehensive income 193 280Pg 251

Liberty Holdings Limited – Annual Report 2008Statement of changes in company shareholders’ fundsfor the year ended 31 December 2008Share Sharecapitalbasedand share payment Retainedpremium reserve surplus TotalRm (1) Rm Rm RmBalance at 1 January 2007 917 855 1 772Total comprehensive earnings 280 280Ordinary dividends (519) (519)2006 final dividend No. 76 of 670 cents (329) (329)2007 interim dividend No. 77 of 387 cents (190) (190)Preference dividends (2) (2)Shareholders’ funds at 31 December 2007 917 614 1 531Total comprehensive income 193 193Ordinary dividends (382) (382)Ordinary dividend No. 78 of 715 cents (351) (351)Extraordinary dividend No. 79 of 63 cents (31) (31)Preference dividend (2) (2)Share-based payments 4 4Subscription for shares 8 395 8 395Section 311 Liberty transaction costs (10) (10)Shareholders’ funds at 31 December 2008 9 302 4 423 9 729(1)Refer note 23 in the consolidated group financial statements.Pg 252

Liberty Holdings Limited – Annual Report 2008Company statement of cash flowsfor the year ended 31 December 20082008 2007Notes Rm RmCash flows utilised in operating activities (187) (185)Cash utilised for operations 8 (16) 15Interest received 12 6Dividends received 238 334Dividends paid 9 (384) (521)Taxation paid 10 (37) (19)Cash flows from investing activities 389 209Capital reduction in subsidiary 386 209Net movement on subsidiary loan 3Cash flows from financing activitiesExpenses related to issue of shares (10)Net increase in cash and cash equivalents 192 24Cash and cash equivalents at the beginning of the year 29 5Cash and cash equivalents at the end of the year 2 221 29Pg 253

Liberty Holdings Limited – Annual Report 2008Notes to the company financial statementsfor the year ended 31 December 20081. Interests in subsidiary2008 2007RmRmLiberty Group LimitedShares held at cost 9 571 1 562Balance at the beginning of the year 145 156 072 (2007: 145 156 072)ordinary shares 1 562 1 771Acquisition of 138 763 032 ordinary shares of R60,50 per share 8 395Capital reduction of R2,66 (2007: R1,44) per share (386) (209)Loan from subsidiary (1) (3)Total interests in subsidiary 9 568 1 562283 919 104 (2007: 145 156 072) ordinary shares at cost, representing an effective 100% (2007: 51,2%) of the totalissued share capital of Liberty Group Limited.The interest of the company for the year in the aggregate taxed earnings of its subsidiary was R1 156 million(2007: R1 517 million).Liberty Holdings Limited, indirectly through Liberty Group Limited, has interests in a number of other subsidiaries.Further details can be obtained from the group financial statements in note 39. A register containing full informationon all the group subsidiaries is available for inspection at the registered office of the company.(1)The loan has no specific repayment terms but is repayable on demand.2. Cash and cash equivalents2008 2007RmRmCash at bank and at hand 5 29Short-term cash deposits 216Total cash and cash equivalents 221 293. Deferred taxationCapital gains taxationBalance at the beginning of the year 37Rate change (1)Charge through the profit and loss 37Balance at the end of the year 36 37Non-current 36 374. Insurance and other payablesSundry payables 8 22Current 8 225. Investment incomeFinancial assets held at fair value through profit or lossInterest income 12 6SubsidiaryDividends received 238 334Total investment income 250 340Pg 254

Liberty Holdings Limited – Annual Report 2008Notes to the company financial statements (continued)for the year ended 31 December 20086. Share-based paymentsReconciliation of reserveStaff optionsAllocated cost to subsidiaries 2BEE transactionAllocated cost to subsidiaries 2Total share-based payments reserve 4In terms of the section 311 of the Companies Act No. 61 of 1973 as approved by shareholders on 21 October 2008,Liberty Holdings Limited is obliged to offer to the Liberty Group Limited option and right holders, Liberty HoldingsLimited ordinary shares in place of Liberty Group Limited ordinary shares.Details of these schemes and relevant IFRS 2 valuation assumptions are contained in note 32 to the group financialstatements. The reserve represents the relevant IFRS 2 costs in relation to these schemes from the effective date of1 December 2008.2008Rm2008 2007RmRm7. TaxationSources of taxationSouth African normal taxation (1) –Current year taxation 3 1Over provision prior year current taxation (4) (1)South African capital gains taxation 17 37Current year taxation 18Current deferred taxation 37Rate change (1)Other related South African taxes 35 19Secondary tax on companies 35 19Total taxation 51 56STC represents the standard rate of 10% of the R382 million dividends declared less R31 million STC credit.Remaining STC credits available are R207 million. Realised CGT arises as a result of the capital distribution receivedfrom Liberty Group Limited in 2008 which is deemed to be a part disposal of the investment in Liberty Group Limited.2008 2007RmRm8. Reconciliation of total earnings to cash generated from operationsTotal earnings 193 280Adjustments for:Interest received (12) (6)Dividends received (238) (334)Taxation 51 56Recovery of share-based payment expenses 4(2) (4)Working capital changes: (14) 19(Decrease)/increase in insurance and other payables (14) 19Cash (utilised for)/generated from operations (16) 15Pg 255

Liberty Holdings Limited – Annual Report 2008Notes to the company financial statements (continued)for the year ended 31 December 20082008 2007RmRm9. Dividends paidDividends as per statement of changes in shareholders’ funds (384) (521)10. Taxation paidTaxation payable and deferred taxation at the beginning of the year (38) (1)Charged directly to profit and loss (51) (56)Taxation payable and deferred taxation at the end of the year 52 38Total taxation paid (37) (19)11. Directors’ emoluments R’000 R’000Chairman’s and non-executive directors’ fees 2 155 3 550Executive directors 2 665Basic salaries 708Performance related payments 1 310Expense allowances 39Retirement and medical benefits 69Other benefits 23Share options 506Total emoluments 4 810 3 550Paid by subsidiaries 4 810 3 550Full details of the directors’ emoluments are contained in the Remuneration report on pages 46 and 48.12. Related party disclosureA list of related parties, as defined, is contained in the related party disclosures note 39 to the group financialstatements. Related party transactions with the direct holding company and ultimate holding company, directors andrelated entities, and joint ventures are also disclosed therein.The disclosures below are additional to the group note:A. SubsidiariesA.1 Direct subsidiary – Liberty Group LimitedIn 2007, Liberty Group Limited provided certain administrative and secretarial services to LibertyHoldings Limited for which it was reimbursed for an amount of R1,5 million. No services were providedfor 2008.A.2 Share based transactionsThe value of certain Liberty Holdings Limited (formerly Liberty Group Limited) share options grantedto employees of Liberty Group Limited and subsidiaries, are charged to the applicable subsidiary.Summary of share option charges:2008RmLiberty Group Limited 3,2Liberty Group Properties (Proprietary) Limited 0,2STANLIB Limited 0,6Total 4,0Pg 256

Liberty Holdings Limited – Annual Report 2008Notes to the company financial statements (continued)for the year ended 31 December 200813. Capital commitmentsBusiness acquisitions (1) 194The above 2007 expenditure will be financed by available bank facilities, existing cash resources and internallygenerated funds.(1)The board of directors has approved certain business acquisitions related to its stated strategy of broadening the group’sfinancial service offerings. These acquisitions are in the final state of negotiations and separate announcements are expectedwithin the next few months from the date of this report. In light of the sensitive nature of the negotiations and certain requiredregulatory approvals it is not practical to provide financial details with respect to the transactions. However, the transactions arenot likely to have a material impact to the group’s earnings and capital structure.14. Additional notesPlease refer to the following notes on the group financial statements:Note 41 – Black Economic Empowerment (BEE) transactionNote 42 – Statement of intent (SOI)Note 43 – Key judgements in applying assumptions on application of accounting policies.2008RmPg 257

Liberty Holdings Limited – Annual Report 2008Appendix A – Policyholders’ liabilities reconciliationfor the year ended 31 December 20082008 PerInvest- Deferred statementment Reinsu- Invest- acqui- Deferred of compre-Insurance contracts rance ment sition revenue Reclassi- Insurance Other hensivecontracts with DPF assets contracts costs liability Total fication Total segment segments incomeGroup Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm RmBalance at the beginningof the year 131 552 3 353 (820) 51 232 (325) 95 185 087 185 087Inflows 20 926 (101) (807) 8 271 31 346Insurance premiums/fundinflows 22 820 166 (727) 22 259 22 259 22 259 22 259Fund inflows 9 087 9 087 9 087Investment returns (1 927) (267) (80) (816)Unwinding of discount rate 930 (33) 897 (897)Fair value adjustment priorto deferred taxation oninvestment properties (1 018) (1 018) 1 018 1 025 1 025Policyholder taxation oninvestment returns (18) (18) 18Expenses applied toinvestment returns 220 220 (220)Investments (2 857) (267) (47) (3 171) 76 (3 095) (3 095) 1 885 (1 210)Equity accounted earningsfrom joint ventures 33 33 33 33 7 40Management fees on assetsunder management 1 144 1 144Outflows (29 313) (606) 562 (12 107) (19) 19Claims and policyholders’benefits (23 023) (573) 535 (11 146) (34 207)Claims and policyholders’benefits under insurancecontracts (23 023) (262) 535 (22 750) (311) (23 061) (23 061) (23 061)Fund outflows (11 457) (11 457) (11 457)Switches from investmentwith DPF to investmentwithout DPF (311) 311 311 311(2 645)Acquisition costs (2 395) (9) (222) 222 (2 404) (222) (2 626) (2 626) (196) (2 822)Acquisition costs capitalised (241) (241) 222 (19)General marketing andadministration expenses (3 053) (25) (694) (3 772) (3 772) (3 772) (1 379) (5 151)Finance costs (29) (18) (47) 5 (42) (42) (314) (356)Preference dividend (308) (308) (308) (308) (308)Taxation (505) 1 27 (8) (485) (485) (485) (122) (607)Deferred income relating tonew business 28 28 (28)Movement in deferredrevenue liability (19) (9) (28) 28Fair value adjustment on thirdparty mutual fund interests (134) (134)Net income from insuranceoperations (1 074) 2 238 (66) (900) (900)Changes in estimates (410) 64 (346)Service fee income (799) (799) 799 799Expenses 933 933Expenses applied toinvestment returns (220) (220)Planned margins and othervariances (668) 2 201 (465)New business (586) (586)Shareholder taxation ontransfer of net income 590 (27) 20 583Change in policyholderliabilities 10 173 10 173Balance at the end of the year 122 091 2 648 (827) 47 330 (344) 114 171 012 – 171 012 900 891 1 791Pg 258

Liberty Holdings Limited – Annual Report 2008Appendix A – Policyholders’ liabilities reconciliationfor the year ended 31 December 20082007 PerInvest- Deferred statementment Reinsu- Invest- acqui- Deferred of compre-Insurance contracts rance ment sition revenue Reclassi- Insurance Other hensivecontracts with DPF assets contracts costs liability Total fication Total segment segments incomeGroup Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm RmBalance at the beginningof the year 122 875 1 719 (1 065) 44 304 (308) 80 167 605 167 605Additions through businessacquisition 131 131 131Reductions through businessdisposals (162) 162 (38) (38) (38)Profit on sale of subsidiary 6 6Defined benefit pension fundemployer surplus 162 162Inflows 38 421 1 843 (690) 18 365 34 752Insurance premiums/fundinflows 22 334 1 375 (693) 23 016 23 016 23 016 23 016Fund inflows 11 736 11 736 11 736Investment returns 16 047 468 3 6 629Unwinding of discount rate 651 32 683 (683)Fair value adjustment priorto deferred taxation oninvestment properties 6 332 6 332 (6 332) (6 281) (6 281)Policyholder taxation oninvestment returns 34 34 (34)Expenses applied toinvestment returns 263 263 (263)Investments 15 396 468 (29) 15 835 7 361 23 196 23 196 2 119 25 315Equity accounted earningsfrom joint ventures 40 40 40 40 11 51Management fees on assetsunder management 1 005 1 005Outflows (27 778) (202) 600 (11 370) (17) 15Claims and policyholders’benefits (20 576) (163) 610 (10 330) (30 459)Claims and policyholders’benefits under insurancecontracts (20 576) (311) 610 (20 277) 148 (20 129) (20 129) (20 129)Fund outflows (10 182) (10 182) (10 182)Switches from investmentwith DPF to investmentwithout DPF 148 (148) – (148) (148)(2 741)Acquisition costs (2 543) (9) (172) 186 (2 538) (186) (2 724) (2 724) (170) (2 894)Acquisition costs capitalised (203) (203) 186 (17)General marketing andadministration expenses (2 763) (27) (699) (3 489) (3 489) (3 491) (806) (4 297)Finance costs (7) (3) (10) (49) (59) (59) (333) (392)Preference dividend (274) (274) (274) (274) (274)Taxation (1 615) (3) (10) (151) (1 779) (1 779) (1 779) (326) (2 105)Deferred income relating tonew business 23 23 (23)Movement in deferredrevenue liability (15) (8) (23) 23Fair value adjustment on thirdparty mutual fund interests (189) (189)Net income from insuranceoperations (1 804) (7) 173 (160) (1 798) (1 798)Changes in estimates (809) 32 (777)Service fee income (837) (837) 837 837Expenses 874 874Expenses applied toinvestment returns (263) (263)Planned margins and othervariances (1 334) (9) 198 (1 145)New business (349) (349)Shareholder taxation ontransfer of net income 688 2 (57) 66 699Change in policyholderliabilities (10 554) (10 554)Balance at the end of the year 131 552 3 353 (820) 51 232 (325) 95 185 087 – 185 087 1 798 1 479 3 277Pg 259

Liberty Holdings Limited – Annual Report 2008Appendix B – Analysis of ordinary shareholders’ funds investedfor the year ended 31 December 2008Analysis of shareholders’ interests:CapitalGroup Contribution investmentfunds invested to earnings gains/(losses)2008 2007 2008 2007 2008 2007Rm Rm Rm Rm Rm RmInsurance operations 681 789 885 1 784Insurance operating surplus 1 511 2 327Present value of in-force business 681 789 (118) (119)Liberty Active preference dividend (308) (274)Working capital charge (1) (200) (150)Financing of insurance operations (252) 808 21 (39)Fixed assets and working capital (1) 1 748 2 808 200 150Callable capital bonds and preferenceshare liabilities (2 000) (2 000) (179) (189)Financial services operations 898 255 474 469Liberty Group Properties 46 18 58 46STANLIB 343 196 395 387Liberty Jersey (long only fund fees) 20Liberty Africa 87 (1) 16Fountainhead 187 6Liberty Health 234 (3)Other 1 41 16 3Investments 10 147 9 177 740 632 (373) 284Listed equities 1 934 2 945 92 112 (633) 102Interest bearing deposits 4 609 3 073 421 300 113 8Preference shares 1 323 1 191 108 119 (18) 32Mutual funds 1 788 802 38 30 101 71Share of pooled portfolios 285 607 76 39 (89) 29Unlisted investments 208 559 5 32 153 42Administration expenses– shareholder allocation (289) (198)Pension fund surplus 162Normal taxation excluding insuranceoperations (31) 22 42Secondary tax on companies (28) (84)Capital gains taxation on shareholderspecific assets 61 (3)Net investment gains (270) 281 270 (281)Headline earnings 1 502 3 029Profit on sale of Saambou Life Assurers 6Liberty Group shareholders’ funds 11 474 11 029 1 502 3 035Attributable to minority shareholders inLiberty Group (5 072) (346) (1 444)Liberty Holdings company 159 (32) (46) (54)Treasury shares adjustment (637) 2 (74)Liberty Holdings shareholders’ funds 11 633 5 288 1 112 1 463Pg 260

Liberty Holdings Limited – Annual Report 2008Abbreviations and definitionsAbbreviationsALMCASISAASSABCMBESABUCAHCARCARATCECFOCRODPFDTIEVEVRMexcoFAISFinComFSBFSCFSVGAACGAOGBSMCGIASGRaCAGRCGROCGRPOCIAMIFRSISDAJSELGLLibertyLibFinMCARNACCNACMNAVOCAROTCPGNPPFMPVIFROEVRPOTCARWACCAsset Liability Management CommitteeAssociation for Savings and Investment SAActuarial Society of South AfricaBusiness continuity managementBond Exchange of South AfricaBusiness unitCapital Alliance Holdings LimitedStatutory capital adequacy requirementCapital and Risk Analysis TransformationChief ExecutiveChief Financial OfficerChief Risk OfficerDiscretionary participation featuresDepartment of Trade and IndustryEmbedded valueEnterprise-wide Value and Risk ManagementGroup Executive CommitteeFinancial Advisory and Intermediary ServicesGroup Finance CommitteeFinancial Services Board of South AfricaFinancial Sector CharterFinancial soundness valuationGroup Audit and Actuarial CommitteeGuaranteed annuity optionsGroup Balance Sheet Management CommitteeGroup Internal Audit ServicesGroup Risk and Capital AnalyticsGroup Risk CommitteeGroup Risk Oversight CommitteeGroup Risk Policy and Oversight CommitteeInvestec Asset ManagementInternational Financial Reporting StandardsInternational Swaps and Derivatives AssociationJohannesburg Stock ExchangeLiberty Group LimitedLiberty Holdings Limited and its subsidiariesLiberty Financial Solutions Business UnitMinimum Capital Adequacy RequirementNominal annual compounded continuouslyNominal annual compounded monthlyNet asset valueOrdinary capital adequacy requirementOver the counterProfessional Guidance NotePrinciples and Practices of Financial ManagementPresent value of acquired in-forceReturn on embedded valueRisk policy and oversightTermination capital adequacy requirementWeighted average cost of capitalPg 261

Liberty Holdings Limited – Annual Report 2008Abbreviations and definitions (continued)DefinitionsAnnuityAsset liability matching (ALM)A financial contract between an insurer and a customer under which the insurerpromises to make a series of periodic benefit payments to an agreed beneficiaryin exchange for the payment of a premium or series of premiums to the insurer.The process whereby an insurer invests in assets expected to generate inward cashflowsof the same amounts and at the same times as the outward cash-flows that areexpected in order to meet benefit payments.Association for Savings and ASISA represents the majority of South Africa’s asset managers, collectiveInvestment SA (ASISA)investment scheme management companies, linked investment service providers,multi-managers and life insurance companies.BancassuranceAn arrangement whereby banks sell life, pension and investment products to theircustomers on behalf of a registered insurer.BEE normalised headline These measures reflect the economic reality of the group’s Black Economicearnings per share, embedded Empowerment (BEE) transaction as opposed to the required technical accountingvalue per share and return treatment that reflects the BEE transaction as a share buy back. Dividends receivedon embedded valueon the group’s BEE preference shares (which are recognised as an asset forthis purpose) are included in income. Shares in issue relating to the transaction arereinstated.Bonus stabilisation reserveCapital AdequacyRequirement (CAR)Cost of capitalCovered businessThe portion of the liability in respect of DPF policies, which represents surplusearned but not yet distributed to policyholders.The minimum amount by which the Financial Services Board requires an insurer’sassets to exceed its liabilities. The assets, liabilities and capital adequacyrequirement must all be calculated using a method which meets the FinancialServices Board’s requirements. This amount is required to be held to protectthe ongoing solvency of the insurer against experience worse than assumed in thevaluation of the liabilities.Measures the opportunity cost incurred by a company for holding the level ofrequired capital. It is calculated as the required capital at the valuation date less thediscounted value, using a risk-adjusted discount rate, of the expected annual releaseof the capital over the life of the in-force business.Business regulated by the FSB as long-term insurance business.Deferred acquisition costs (DAC) The direct and indirect costs incurred during the financial period arising from thewriting or renewing of investment contracts without DPF, which are deferred to theextent that these costs are recoverable out of future charges.Deferred revenue liability (DRL)Discretionary participationfeatures (DPF)Initial and other front-end fees received for the rendering of future investmentmanagement services relating to investment contracts without DPF, which aredeferred and recognised as revenue when the related services are rendered.A contractual right given to a policyholder to receive, as a supplement to guaranteedbenefits, additional benefits that are:• likely to be a significant portion of the total contractual benefits,• whose amount or timing is contractually at the discretion of the issuer, and• that are contractually based on the:o performance of a specified pool of contracts or a specified type of contract,o realised and or unrealised investment returns on a specified pool of assets heldby the issuer, oro profit or loss of the company, fund or other entity that issues the contract.Pg 262

Liberty Holdings Limited – Annual Report 2008Abbreviations and definitions (continued)Embedded value (EV)Financial Services Board (FSB)Financial soundnessvaluation (FSV)Guaranteed annuity options(GAO)Guaranteed elementThe net worth of an insurer plus the value of in-force business less the cost ofrequired capital. The net worth of an insurer includes financial services subsidiaries,other than life companies, at fair value.The FSB is an independent government endorsed institution which oversees theSouth African non-banking financial services industry in the public interest.The valuation methodology used to value insurance contracts and investmentcontracts with DPF as described in PGN 104 issued by the Actuarial Society ofSouth Africa.An option provided to the holder of an insurance or investment contract to convertthe maturity proceeds into an annuity at a predefined rate.The portion of the policyholder’s benefit on a DPF policy that is guaranteed andcannot be removed at the discretion of the insurer.Incurred but not reported (IBNR) Claims expected to be made by policyholders in respect of events that have alreadyoccurred at the insurer’s reporting date but at that date have not yet been reported.In-forceInsurance contractInvestment contractInvestment guaranteeLife licenceLife Offices Association (LOA)New business indexNew business marginOutstanding claimsPersistencyPolicyholder liabilitiesProfessional GuidanceNotes (PGNs)ReinsuranceAn insurance policy is “in-force” from its start date until the date it is derecognised.In-force business refers to policies which are active, i.e. where the premiums arebeing paid or have been fully paid and which have not been terminated.A contract under which one party (the insurer) accepts significant insurance risk fromanother party (the policyholder) by agreeing to compensate the policyholder if aspecified uncertain future event (the insured event) adversely affects the policyholder.A contract, which contains significant financial risk and may also contain insignificantinsurance risk, but does not meet the definition of an insurance contract.An undertaking to give a minimum investment return for a period up to an agreedfuture date provided within a contract of insurance or investment.Licence to write business regulated in terms of the Long-term Insurance Act (1998). Thislicence may include life, disability and health benefits and services.The LOA was a membership body representing South Africa’s major life assurancecompanies. It has now been incorporated into ASISA.The new business index is an accepted measure which is calculated as the sum ofnew business annualised recurring premiums plus 10% of new single premiums forthe year.This is expressed as the embedded value of new business as a percentage of thepresent value of future expected premiums.Valid claims from policyholders which have been reported to the insurance companybut have not yet been paid.Persistency measures the proportion of policies that are not surrendered, transferredor lapsed. It is an important measure of a insurer’s retention of its business.Measured liabilities on contracts that are in-force.These are minimum standards for the conduct of South African actuaries andthe valuation of insurance assets and liabilities. These PGNs are available onwww.actuarialsociety.co.za.Insurance or investment risk that is ceded to another insurer in return for premiums.The obligation to the policyholder remains with the entity who issued the originalinsurance contract.Return on embedded value ROEV is the ratio of embedded value profits to the embedded value at the(ROEV)beginning of the year.Pg 263

Liberty Holdings Limited – Annual Report 2008Abbreviations and definitions (continued)Reversionary bonus policyStatutory ActuarySurrender valueUnit linked policyValue of in-force businessValue of new businessA policy with DPF where the benefit at a point in time is defined as the sum assuredplus past bonus additions, to which annual bonuses are added. A final terminalbonus may also be added.An actuary appointed by the insurer and approved by the Financial Services Board.This actuary is responsible for monitoring the financial soundness of the insurer toensure that it is able to meet its policyholders’ reasonable benefit expectations.The surrender value of a policy is the cash value, if any, which is payable in respectof that policy upon cancellation before the end of the policy’s term.A policy where benefits are dependent on the investment return on a portfolio of assets.The present value of the projected stream of after tax profits for all business in-forceat the reporting date.The present value, at point of sale, of the projected stream of after-tax profits for newbusiness issued, net of the cost of required capital. The present value is calculatedusing a risk-adjusted discount rate.Pg 264

Liberty Holdings Limited – Annual Report 2008Notice to membersLiberty Holdings LimitedIncorporated in the Republic of South AfricaRegistration number 1968/002095/06(“Libhold” or “the company”)JSE Share Code LBHISIN Code ZAE000127148Notice is hereby given that the forty first annual general meeting of members will be held on Friday, 15 May 2009 at 09:00on the 4th floor, Liberty Life Centre, 1 Ameshoff Street, Braamfontein, Johannesburg, 2001, to transact the followingbusiness:Ordinary resolution number 1To receive, consider and adopt the audited financial statements for the year ended 31 December 2008.Ordinary resolution number 2To approve the remuneration of the Chairman of the Board of R1 685 000 for the year ending 31 December 2009.Ordinary resolution number 3To approve the remuneration of the Non-Executive Directors of R162 000 per Non-Executive Director for the year ending31 December 2009.Ordinary resolution number 4To approve the remuneration of the International Non-Executive Directors of £50 000 per International Non-ExecutiveDirector for the year ending 31 December 2009.Ordinary resolution number 5To approve the remuneration of the Chairman of the Audit and Actuarial Committee of R250 000 for the year ending31 December 2009.Ordinary resolution number 6To approve the remuneration of the Members of the Audit and Actuarial Committee of R120 000 per member for the yearending 31 December 2009.Ordinary resolution number 7To approve the remuneration of the Chairman of the Risk Committee of R250 000 for the year ending 31 December 2009.Ordinary resolution number 8To approve the remuneration of the Members of the Risk Committee of R120 000 per member for the year ending31 December 2009.Ordinary resolution number 9To approve the remuneration of the Chairman of the Remuneration Committee of R150 000 for the year ending31 December 2009.Ordinary resolution number 10To approve the remuneration of the Members of the Remuneration Committee of R70 000 per member for the year ending31 December 2009.Ordinary resolution number 11To approve the remuneration of the Chairman of the Transformation Committee of R114 000 for the year ending31 December 2009.Ordinary resolution number 12To approve the remuneration of the Members of the Transformation Committee of R57 000 per member for the yearending 31 December 2009.Ordinary resolution number 13To approve the remuneration of the Members of the Directors’ Affairs Committee of R30 000 per member for the yearending 31 December 2009.Ordinary resolutions number 14 to 19To elect directors in place of those retiring in accordance with the provisions of the Company’s articles of association:Messrs SJ Macozoma, JH Maree, A Romanis and HI Appelbaum retire by rotation, and being eligible, offer themselvesfor re-election.Pg 265

Liberty Holdings Limited – Annual Report 2008Notice to members (continued)Since the date of the Extraordinary General Meeting held on 21 October 2008, Messrs AP Cunningham and MP Moyowere appointed as directors with effect from 1 February 2009. In terms of the Company’s articles of association theyretire and, being eligible, offer themselves for re-election.• Ordinary resolution number 14 Mr SJ Macozoma, being eligible, offers himself for re-election;• Ordinary resolution number 15 Mr JH Maree, being eligible, offers himself for re-election;• Ordinary resolution number 16 Mr A Romanis, being eligible, offers himself for re-election;• Ordinary resolution number 17 Mr HI Appelbaum, being eligible, offers himself for re-election;• Ordinary resolution number 18 Mr AP Cunningham, being eligible, offers himself for re-election;• Ordinary resolution number 19 Mr MP Moyo, being eligible, offers himself for re-election.(Brief Curriculum Vitae of the directors standing for re-election are provided on pages 30 and 31 of this annual report.Ordinary resolution number 20 – Place unissued ordinary shares under the control of the directorsTo consider and if deemed fit, to pass with or without modification, the following ordinary resolution number 20:“That all the unissued ordinary shares of the Company be placed under the control of the directors of the Company whobe and they are hereby authorised, subject to the provisions of the Companies Act, 1973 and the Listings Requirementsof the JSE Limited to allot and issue such shares in their discretion on such terms and conditions as and when they deemit fit to do so, subject to (i) the aggregate number of ordinary shares to be allotted and issued in terms of this resolutionbeing limited to 2,5% of the number of ordinary shares in issue at 31 December 2008, in addition to any ordinary sharesreserved for the purpose of carrying out the terms of the Company’s share incentive schemes, particulars of which areset out in the annual report for 2008: (ii) any issue of ordinary shares for cash being authorised and governed by ordinaryresolution number 22.”Ordinary resolution number 21 – Place unissued preference shares under the control of the directorsTo consider and if deemed fit, to pass with or without modification, the following ordinary resolution number 21:“That all the unissued redeemable cumulative preference shares and the unissued convertible redeemable cumulativepreference shares of the Company be placed under the control of the directors of the Company who be and they arehereby authorised, subject to the provisions of the Companies Act, 1973 and the Listings Requirements of the JSE Limited,to allot and issue such shares in their discretion on such terms and conditions as and when they deem it fit to do so.Ordinary resolution number 22 – General authority to issue shares for cashTo consider and if deemed fit, to pass with or without modification, the following ordinary resolution number 22:“That with the exception of a pro rata rights offer to members and subject to the passing of ordinary resolution number20, and the Listings Requirements of the JSE Limited (“the Listings Requirements”), the directors be given the generalauthority to issue ordinary shares of 8,3333333 cents each for cash as and when suitable situations arise, subject to thefollowing limitations:a) that this general authority shall be valid until the Company’s next annual general meeting or for 15 months from thedate of this resolution, whichever occurs first;b) that the equity securities, which are the subject of the issue for cash, be of a class already in issue, or where this isnot the case, must be limited to such securities or rights that are convertible into a class already in issue;c) that the equity securities be issued to persons qualifying as public shareholders as defined in the ListingsRequirements, and not to related parties;d) that issues in the aggregate in any one financial year (including the number to be issued in the future as a result ofthe exercise of options or conversion of convertible securities issued in that same financial year) will not exceed 2,5%of the number of shares of any class of the Company’s issued share capital, including instruments which arecompulsorily convertible into shares of that class;e) that, in determining the price at which an issue of shares will be made in terms of this authority, the maximum discountpermitted will be 10% of the weighted average traded price of the shares in question, as determined over the30 business days prior to the date that the price of the issue is agreed between the issuer and the party subscribingfor the securities;f) the number of securities which may be issued shall be based on the number of securities of that class in issue addedto those that may be issued in future in terms of the company’s share incentive schemes and the conversion of anyissued convertible securities, at the date of such application:Pg 266

Liberty Holdings Limited – Annual Report 2008Notice to members (continued)(1) less any securities of the class issued, or to be issued in future terms of the company’s share incentive schemesand the conversion of any issued convertible securities, during the current financial year;(2) plus any securities of that class to be issued pursuant to:(aa) a rights issue which has been announced, is irrevocable and is fully underwritten; or(bb) an acquisition (which has had final terms announced) may be included as though they were securities inissue at the date of application;g) that after the Company has issued equity securities in terms of an approved general issue for cash representing, ona cumulative basis within a financial year, 5% of the number of equity securities in issue prior to that issue, theCompany shall publish an announcement containing full details of the issue; including:– the number of securities issued;– the average discount to the weighted average traded price of the equity securities over the 30 business days priorto the date that the price of the issue was determined;– the effect of the issue on net asset value per share, net tangible asset value per share, earnings per share andheadline earnings per share.”The approval of a 75% majority of the votes cast by shareholders present or represented by proxy at this meeting isrequired for this ordinary resolution number 22 to become effective.Ordinary resolution number 23 – General authority to distribute surplus capitalTo consider and if deemed fit, to pass with or without modification, the following ordinary resolution number 23:“That the directors of the Company be hereby authorised, by way of a general authority, to distribute to shareholders ofthe Company any share capital and reserves of the Company in terms of Section 90 of the Companies Act, 61 of 1973,as amended (“the Act”), Articles 12 and 30 of the Company’s articles of association and in terms of the ListingsRequirements of the JSE Limited (“JSE”) (“the Listings Requirements”), it being recorded that the Listings Requirementscurrently require, inter alia, that the Company may make such a general distribution only if:– authorised to do so by a general authority, which shall only be valid until the next annual general meeting of theCompany, provided that it shall not extend beyond 15 months from the passing of this ordinary resolution;– the general payment is made pro rata to all shareholders; and– any general distribution by the Company shall not exceed 20% of the Company’s issued share capital and reservesbut excluding minority interests and revaluations of assets and intangible assets that are not supported by a valuationby an independent professional expert acceptable to the JSE prepared within the last six months, in any one financialyear, measured as at the beginning of such financial year.”The directors of the Company confirm that the Company will not distribute share capital and reserves in terms of thisauthority unless, after such distribution:– the Company, and the Company and its subsidiaries (“the group”) will be able to pay its debts as they become duein the ordinary course of business for a period of 12 months after the date of the notice of annual general meeting;– the assets of the Company and the group, valued in accordance with the accounting policies used in the latestaudited annual group financial statements, will exceed the liabilities of the Company and the group for a period of12 months after the date of the notice of annual general meeting;– the share capital and reserves of the Company and the group will be adequate for ordinary business purposes for aperiod of 12 months after the date of the notice of annual general meeting; and– the working capital of the Company and the group will be adequate for ordinary business purposes for a period of12 months after the date of the notice of the annual general meeting.”The reason for and effect of this ordinary resolution number 23 is to grant the board of directors of the Company ageneral authority in terms of the Companies Act, 61 of 1973, as amended (“the Act”) for the distribution of share capitaland reserves by the Company to its shareholders. Such general authority will provide the board with the flexibility, subjectto the requirements of the Act, the articles of association and the JSE Limited, to distribute any surplus capital of theCompany to its shareholders. This general approval shall be valid until its variation or revocation of such general authorityby an ordinary resolution by any subsequent general meeting of the Company, provided that the general authority shallnot be extended beyond 15 months from the date of passing of this ordinary resolution.Pg 267

Liberty Holdings Limited – Annual Report 2008Notice to members (continued)Ordinary resolution number 24 – Termination of schemeTo consider and if deemed fit, to pass with or without modification, the following ordinary resolution number 24:“That the Liberty Holdings Limited Senior Executive Share Option Scheme (1988) be hereby terminated and that thereservation of unissued ordinary shares for purposes of this scheme be discontinued.”The reason for this ordinary resolution is that the Liberty Holdings Limited Senior Executive Share Option Scheme (1988)(“the scheme”) has been dormant since 31 March 2006, when the last outstanding share options awarded in 2001 interms of the scheme, were implemented. There is no intention to award new share options in terms of the scheme, asthe changes to the Income Tax Act pertaining to share option schemes, introduced in October 2004, have rendered thescheme ineffective. Liberty Group employees will in future participate in the Liberty Equity Growth Scheme as approvedby shareholders on 21 October 2008.The effect of this ordinary resolution will be that no unissued ordinary shares in the capital of the Company will bereserved for the scheme and the scheme will be closed permanently.The approval of a 75% majority of the votes cast by shareholders present or represented by proxy at this meeting isrequired for this ordinary resolution number 24 to become effective.Ordinary resolution number 25 – Amendment to schemeTo consider and if deemed fit, to pass with or without modification, the following ordinary resolution number 25:“That the Liberty Equity Growth Scheme (“the Equity Growth Scheme”) be amended by:• inserting the following wording at the end of the definition of “group” in clause 1.14 of Equity Growth Scheme: “andshall include Standard Bank Group Limited and its subsidiaries and associates.”The Equity Growth Scheme does not make provision for employees who transfer from Liberty Holdings Limited or one ofits subsidiaries or associates to Standard Bank Group Limited or one of its subsidiaries or associates (as defined in theEquity Growth Scheme), to retain their rights under the Equity Growth Scheme.The purpose of this resolution is to make provision for such employees to retain their rights on the terms and conditionsof the Equity Growth Scheme and to allow for flexibility of movement of employees within the group. This will enablemanagement to deploy resources in the group to other entities without any prejudicial remuneration consequences forthe individual.The approval of a 75% majority of the votes cast by shareholders present or represented by proxy at this meeting isrequired for this ordinary resolution number 25 to become effective.Special resolution number 1 – General authority to repurchase sharesTo consider and if deemed fit, to pass the following resolution as special resolution number 1:“That the directors be authorised to facilitate the acquisition by the Company, or a subsidiary of the Company, from timeto time of the issued shares of the Company upon such terms and conditions and in such amounts as the directors ofthe Company may from time to time decide, but subject to the provisions of the Companies Act, 1973, as amended, theListings Requirements of the JSE Limited (“the JSE”) (“Listings Requirements”), which general approval shall endure untilthe following annual general meeting of the Company (whereupon this approval shall lapse unless it is renewed at theaforementioned annual general meeting, provided that it shall not extend beyond 15 months from the date of registrationof this special resolution number 1), it being recorded that the Listings Requirements currently require, inter alia, that theCompany may make a general repurchase of securities only if:(i)(ii)(iii)(iv)the repurchase of securities is being effected through the order book operated by the JSE trading system and donewithout any prior understanding or arrangement between the Company and the counterparty (reported trades areprohibited);the Company is authorised thereto by its articles of association;the Company is authorised by shareholders in terms of a special resolution of the Company, in general meeting,which authority shall only be valid until the next annual general meeting, provided it shall not extend beyond 15 monthsfrom the date of the resolution;the repurchase should not in aggregate in any one financial year exceed 10% of the Company’s issued sharecapital, as at the beginning of that financial year;Pg 268

Liberty Holdings Limited – Annual Report 2008Notice to members (continued)(v)(vi)at any point in time, the Company may only appoint one agent to effect any repurchase(s) on the Company’s behalf;the Company may only undertake a repurchase of securities if after such repurchase the Company still complieswith shareholder spread requirements in terms of the Listings Requirements;(vii) the Company or its subsidiary may not repurchase securities during a prohibited period, unless they have in placea repurchase programme where the dates and quantities of securities to be traded during the relevant period arefixed (not subject to any variation) and full details of the programme have been disclosed in an announcement overSENS prior to the commencement of the prohibited period;(viii) repurchases are not made at a price more than 10% above the weighted average of the market value for thesecurities for the five business days immediately preceding the repurchase; and(ix)a paid press announcement containing full details of such acquisition is published as soon as the Company hasacquired shares constituting, on a cumulative basis, 3% of the number of shares in issue prior to the acquisition.”At the present time the directors have no specific intention with regard to the utilisation of this authority, which will onlybe used if the circumstances are appropriate.The reason for and effect of special resolution number 1 is to grant the Company a general authority in terms of theCompanies Act, 1973, as amended, to facilitate the acquisition of the Company’s own shares, which general authorityshall be valid until the earlier of the next annual general meeting of the Company or the variation or revocation of suchgeneral authority by special resolution by any subsequent general meeting of the Company, provided that this generalauthority shall not extend beyond 15 months from the date of this general meeting. Such general authority will providethe directors with flexibility to effect a repurchase of the Company’s shares, should it be in the interest of the Companyto do so at any time while the general authority is in force.For the purpose of considering the special resolution and in compliance with paragraph 11.26 of the ListingsRequirements, the information listed below has been included in the Annual Report in which this notice of Annual GeneralMeeting is included, at the places indicated.Directors’ responsibility statementThe board of directors are of the opinion that were the Company to enter into a transaction to repurchase shares totalling10% of the current issued share capital at the maximum price at which the repurchase may take place, i.e. a 10%premium above the weighted average of the market value for the securities for the five business days immediatelypreceding the date of the repurchase, based on the ruling market price of the Company’s ordinary shares on the JSE atthe last practical date prior to the printing of these annual financial statements:1. the Company and the Company and its subsidiaries (“the group”) will be able to pay its debts as they become due inthe ordinary course of business for a period of 12 months after the date of the notice of annual general meeting;2. the assets of the Company and the group, valued in accordance with the accounting policies used in the latestaudited group annual financial statements, will exceed the liabilities of the Company and the group for a period of12 months after the date of the notice of annual general meeting;3. the share capital and reserves of the Company and the group will be adequate for ordinary business purposes for aperiod of 12 months after the date of the notice of the annual general meeting; and4. the working capital available to the Company and the group will be adequate for ordinary business purposes for aperiod of 12 months after the date of the notice of the annual general meeting.The directors, whose names are given on pages 30 and 31 of this annual report, collectively and individually accept fullresponsibility for the accuracy of the information given in Ordinary Resolution number 23 and Special Resolution number1 and certify that to the best of their knowledge and belief there are no facts that have been omitted which would makeany statement false or misleading, and that all reasonable enquiries to ascertain such facts have been madeand that ordinary resolution number 23 and special resolution number 1 contain all information required by the ListingsRequirements.Pg 269

Liberty Holdings Limited – Annual Report 2008Notice to members (continued)General information– Information relating to the Directors and Management of the Company can be found on pages 30 to 33 of the annualreport for 2008.– Information relating to the Major Shareholders of the Company can be found on page 20 of the annual report for 2008.– There has been no material change in the financial or trading position of the Company and its subsidiaries subsequentto the publication of the Company’s audited preliminary financial statements for the year ended 31 December 2008.– Information relating to the Director’s interest in the Company can be found on pages 51 and 52 of the annual reportfor 2008.– Information relating to the share capital of the Company can be found on page 221 of the annual report for 2008.– There are no legal or arbitration proceedings which may have, or have had, during the twelve-month-period precedingthe date of this notice, a material effect on the financial position of the Company and the Company is not aware ofany such pending or threatened proceedings.Attendance and voting– If you hold dematerialised shares with “own name” registration or are the registered holder of certificated shares:You may attend the annual general meeting in person.Alternatively, you may appoint a proxy to represent you at the annual general meeting by completing the attached formof proxy in accordance with the instructions it contains and returning it to the transfer secretaries to be received notlater than 09:00 on Thursday, 14 May 2009.– If you hold dematerialised shares not with “own name” registration:And wish to attend the annual general meeting, you must obtain the necessary letter of authority from your CSDP orbroker.And do not wish to attend the annual general meeting but would like your vote to be recorded at the l meeting, youshould contact your CSDP or broker and furnish them with your voting instructions. You must not complete theattached form of proxy.On behalf of the boardJM ParrattCompany secretaryJohannesburg25 February 2009Registered addressTransfer SecretariesLiberty Life CentreComputershare Investor Services (Proprietary) Limited1 Ameshoff Street 70 Marshall Street, Johannesburg, 2001Braamfontein (Reg No 2004/003647/07)2001 PO Box 61051, Marshalltown 2107PO Box 10499 Telephone +27 (11) 370 5000Johannesburg 2000Tel: +27 (11) 408 3911Pg 270

Liberty Holdings Limited – Annual Report 2008Proxy formLiberty Holdings Limited(“the Company”)(Incorporated in the Republic of South Africa)(Registration Number 1968/002095/06)(JSE code: LBH)(ISIN code: ZAE0000127148)For use by certificated shareholders and dematerialised shareholders with “own name” registration.Forty first annual general meeting to be held on Friday, 15 May 2009 at 09:00 on the 4th Floor, Liberty Life Centre, 1 Ameshoff Street,Braamfontein, Johannesburg, 2001.I/We(Please print)ofbeing a member/s of the Company and being the registered owner/s ofordinary shares in the Company hereby appointor failing himthe chairman of the meeting to vote for me/us and on my/our behalf at the annual general meeting of the Company to be held on Friday,15 May 2009 and at any adjournment thereof and to speak and act for me/us and, on a poll, vote on my/our behalf.My/Our proxy shall vote as follows:Resolution No. In favour of Against AbstainOrd. No. 1Ord. No. 2Ord. No. 3Ord. No. 4Ord. No. 5Ord. No. 6Ord. No. 7Ord. No. 8Ord. No. 9Ord. No. 10Ord. No. 11Ord. No. 12Adoption of financial statementsRemuneration of the Chairman of the BoardRemuneration of the Non-Executive DirectorsRemuneration of the International Non-Executive DirectorsRemuneration of the Chairman of the Audit and Actuarial CommitteeRemuneration of the Members of the Audit and Actuarial CommitteeRemuneration of the Chairman of the Risk CommitteeRemuneration of the Members of the Risk CommitteeRemuneration of the Chairman of the Remuneration CommitteeRemuneration of the Members of the Remuneration CommitteeRemuneration of the Chairman of the Transformation CommitteeRemuneration of the Members of the Transformation CommitteeOrd. No. 13 Remuneration of the Members of the Directors’ Affairs CommitteeElection of directors:Ord. No. 14 Mr SJ MacozomaOrd. No. 15 Mr JH MareeOrd. No. 16 Mr A RomanisOrd. No. 17 Mr HI AppelbaumOrd. No. 18 Mr AP CunninghamOrd. No. 19 Mr MP MoyoOrd. No. 20 Place unissued ordinary shares under the control of the directorsOrd. No. 21 Place unissued preference shares under the control of the directorsOrd. No. 22 General authority to issue shares for cashOrd. No. 23 General authority to distribute surplus capitalOrd. No. 24 Termination of the Liberty Holdings Limited Senior Executive ShareOption Scheme (1988) and discontinuance of the reservation of unissuedordinary shares for purposes of this schemeOrd. No. 25 Amend clause of the Liberty Equity Growth SchemeSpec. No. 1 General authority to repurchase the Company’s sharesIndicate with a cross how you wish your votes to be cast. If you do not do so, the proxy may vote or abstain at his discretion.Dated this day of 2009Signature

Liberty Holdings Limited – Annual Report 2008Notes to proxy1. All beneficial holders who have dematerialised their shares through a Central Securities Depository Participant(“CSDP”) or broker, other than those in “own name”, must provide the CSDP or broker with their voting instruction.Alternatively, should they wish to attend the meeting in person, they may request the CSDP or broker to provide themwith a letter of representation in terms of the custody agreement entered into between the beneficial owner and theCSDP or broker.2. Proxies must be lodged at the Company’s transfer office, Computershare Investor Services (Proprietary) Limited,70 Marshall Street, Johannesburg, (PO Box 61051, Marshalltown, 2107), so as to be received by not later than09:00 on Thursday, 14 May 2009.3. A member may appoint one or more persons of his own choice as his proxy/ies by inserting the name/s of suchproxy/ies in the space provided and any such proxy need not be a member of the Company. Should this space beleft blank, the proxy will be exercised by the chairman of the meeting. The person whose name appears first on theform of proxy and who is present at the meeting will be entitled to act as proxy to the exclusion of those personswhose names follow.4. If a member does not indicate on this instrument that his proxy is to vote in favour of or against any resolution orresolutions or to abstain from voting, or gives contradictory instructions, or should any further resolution/s or anyamendment/s which may be properly put before the annual general meeting be proposed, the proxy shall be entitledto vote as he thinks fit.5. Unless the above section is completed for a lesser number of shares, this proxy shall apply to all the ordinary sharesregistered in the name of the member/s at the date of the annual general meeting or any adjournment thereof.6. Companies and other corporate bodies are advised to appoint a representative in terms of section 188 of theCompanies Act, 1973, for which purpose a duly certified copy of the resolution appointing such a representativeshould be lodged with the Company, as set out in 1 above.7. The authority of the person signing a proxy form under a power of attorney must be attached hereto unless that powerof attorney has already been recorded by the Company.8. Any alterations made in this form of proxy must be initialled by the authorised signatory/ies.9. The completion and lodging of this form of proxy will not preclude the member who grants the proxy form fromattending the meeting, speaking and voting in person thereat to the exclusion of the proxy appointed in terms thereof,should the member wish to do so.

Contact detailsChief Financial OfficerRussell HarteTel: +27 (11) 408 2157russell.harte@liberty.co.zaDeputy Chief Financial OfficerStewart RiderTel: +27 (11) 408 2381stewart.rider@liberty.co.zaInvestor RelationsHelen LubambaTel: +27 (11) 408 3063investorrelations@liberty.co.zaStatutory ActuaryPaul LancasterTel: +27 (11) 408 3484paul.lancaster@liberty.co.zaCompany SecretaryJill ParrattTel: +27 (11) 408 4275jill.parratt@liberty.co.zaHead Office and Registered AddressLiberty Life Centre, 1 Ameshoff StreetBraamfontein, Johannesburg, 2001Postal address: PO Box 10499, Johannesburg, 2000Tel: +27 (11) 408 3911Transfer SecretariesComputershare Investor Services (Proprietary) Limited(Reg No 2004/003647/07)70 Marshall Street, Johannesburg, 2001Tel: +27 (11) 370 5000AuditorsPricewaterhouseCoopers Inc.2 Eglin Road, Sunninghill, 2157Postal address: Private Bag X36, Sunninghill, 2157Tel: +27 (11) 797 4000Website: www.liberty.co.zaCustomer Call CentreTel: 0860 456 789