Review of Investments

Discovery Group

The year under review was a seminal one for Discovery – it achieved considerable success in the context of growth, innovation and quality across all areas of its business with all of its businesses performing better than expected.

Discovery's existing businesses performed well, with a focus on quality that manifested in strong embedded value growth, improved new business margins and positive variance experience. Discovery's emerging businesses (PruHealth, PruProtect and Discovery Invest) performed better than expected, with all three generating profits.

This translated into a financial performance that exceeded expectations, with new business of R7,5 billion while operating profit increased by 32% to R2,8 billion. Normalised headline earnings increased by 31% to R2,0 billion. Embedded value increased by 19% to R26,9 billion. RMI Holdings included R165 million of Discovery's earnings in its normalised earnings for the four month period.

For an in-depth review of Discovery's performance, RMI Holdings' shareholders are referred to

MMI Holdings

MMI's maiden set of full year results reflect strong new business growth despite the potential distractions of merger integration. The integration, which is progressing well, has created new energy and opportunities. Significant progress has been made with the integration of the group's business divisions. Synergistic cost savings over time of R500 million per annum have been identified and will be reflected in future years' results.

Total new business increased by 15% to R5,8 billion and was accompanied by a strong improvement in new business margins. Embedded value increased to R31 billion, while core headline earnings increased by 12% to R2,6 billion. RMI Holdings included R223 million of MMI's earnings in its normalised earnings for the four month period.

For an in-depth review of MMI's performance, RMI Holdings' shareholders are referred to


OUTsurance delivered a pleasing performance for the year under review. Group headline earnings attributable to ordinary shareholders grew by 39% to R806,5 million. The key drivers behind the growth were a favourable claims environment, double digit premium growth and a significant decrease in Youi's start-up loss.

A significant contributor to the earnings performance was the favourable claims environment in South Africa, characterised by benign weather conditions, a decrease in crime-related claims and a strong Rand translating into lower replacement car part prices. The South African short term insurance operation continued to expand market share. The top line growth is satisfactory in light of the relatively weak South African economy, soft new vehicle sales and the ever increasing competitive landscape.

During August 2010, OUTsurance Life introduced a fully underwritten product to the South African market. The risk-only product offers high quality death, disability and critical illness benefits directly to the market. OUTsurance believes direct life insurers will continue to penetrate this traditionally broker dominated market by offering less complex products and more competitive premiums on the back of lower acquisition costs.

Youi, the start-up venture in Australia, continued to entrench both its brand and its personal lines product offering in the competitive Australian market, where over ninety percent of short term insurance is sold direct. The group's scientific approach to underwriting and pricing has started to bear fruit, as Youi's claims ratio continues to trend down to below industry averages. The high frequency of severe natural disasters in Australia is a risk to Youi's claims experience, which is managed via adequate reinsurance cover. The business continues to track expectations and is expected to achieve break-even during the 2013 financial year.

Subsequent to the year end, the company reached an agreement to sell an effective interest of 6,8% in the ordinary share capital of OUTsurance to the management team of OUTsurance for a purchase consideration of R552 million. RMI Holdings will facilitate the transaction by providing term funding to the management group for part of the purchase consideration. This transaction is in the process of being implemented.

RMI Holdings included R203 million of OUTsurance's earnings in its normalised earnings for the four month period. For an in-depth review of OUTsurance's performance, RMI Holdings' shareholders are referred to

RMB Structured Insurance

In 2011, RMB-SI recovered from the setback that it suffered during 2009/2010 as a result of losing a major retail client and it reported a significant improvement in profits for the year ended 30 June 2011. Shareholder profit after tax for June 2011 amounted to R92,5 million (2010: R12,7 million).

The main driver of the improved results was the release of insurance reserves in the offshore business as a result of an overfunded position on a long tail liability policy. Over the last five years, RMB-SI have focused on a diversified business strategy to bolster its retainer base income on the back of the more traditional insurance business. This is beginning to bear fruit and the business mix is trending in the right direction.

RMI Holdings included R48 million of RMB-SI's earnings in its normalised earnings for the four month period.