Comments

COMMENTS ON THE RESULTS





Introduction


The Sanlam Group results for the year ended 31 December 2008 are presented based on and in compliance with International Financial Reporting Standards (IFRS), as applicable.

Group Equity Value (GEV)

GEV is the aggregate of the following components:

  1. The embedded value of covered business, being the life insurance businesses of the Group, which comprises the required capital supporting these operations and the net present value of their in-force books of business (VIF);
  2. The fair value of other Group operations based on longer term assumptions, which includes the investment management, capital markets, credit, short-term insurance and the non-covered wealth management operations of the Group; and
  3. The fair value of discretionary and other capital.


GEV provides an indication of the value of the Group's operations, but without placing any value on future new covered business to be written by the Group's life insurance businesses. Sustainable return on GEV is the primary performance benchmark used by the Group in evaluating the success of its strategy to maximise shareholder value. 

Group Equity Value at 31 December 2008
R million
    Total  

2008

Fair value of assets

 Value of in force
    Total  

2007

Fair value of assets

 Value of in force
Embedded value of covered business 28 591   15 013  
 13 578  
 28 432   14 710   13 722  
Sanlam Personal Finance 19 574  
 8 275  
 11 299  
 20 089   8 285   11 804  
Sanlam Developing Markets 2 796  
 1 032  
 1 764  
 2 160   860   1 300  
Sanlam UK 680  
 234  
 446  
 921   447   474  
Sanlam Employee Benefits 5 541  
 5 472  
 69  
 5 262   5 118   144  
Other group operations 13 560  
 13 560  
 -  
 15 451   15 451   -  
Retail cluster 2 287  
 2 287  
 -  
 1 820   1 820   -  
Institutional cluster 6 000  
 6 000  
 -  
 7 256   7 256   -  
Short-term insurance 5 273  
 5 273  
 -  
 6 375   6 375   -  
Capital diversification (1 429) 
  (1 429) 
 -  
 (1 232)  (1 232)  -  
Other capital 2 416  
 2 416  
 -  
 2 542   2 542   -  
  43 138  
 29 560  
 13 578  
 45 193   31 471   13 722  
Discretionary capital 2 100  
 2 100  
 -  
 6 100   6 100   -  
Group Equity Value 45 238
 31 660
 13 578
 51 293 37 571 13 722

Issued shares for value per share (million)






































2 044,2   2 182,8  

Group Equity Value per share (cents)






































2 213   2 350  

Share price (cents)






































1 700   2 275  




 

The GEV as at 31 December 2008 amounted to R45,2 billion, down 12% on the R51,3 billion at the end of 2007. On a per share basis GEV decreased by 6% from 2 350 cents to 2 213 cents at 31 December 2008, after allowing for the 93 cents per share dividend paid during 2008. The Sanlam share price traded at a 23% discount to GEV by close of trading on 31 December 2008.

As a financial services organisation, the Group is to a large extent exposed to investment markets, both in respect of the shareholder capital portfolio that is invested in financial instruments, as well as a significant portion of the fee income base that is linked to the level of assets under management. Therefore, viewed against the major downturn in investment markets, Sanlam did well to achieve a negative return on GEV (ROGEV) per share of only 1,7% for 2008, significantly better than the overall equity market. This is testimony to the defensive qualities of the Group's diversified portfolio of businesses. The investment management operations were severely impacted by these conditions, but this was offset by a resilient performance by the life operations. Although the return for 2008 is below the Group's long-term target, the cumulative ROGEV per share since demutualisation is only slightly lower than target.


Return on Group Equity Value for the year ended 31 December 2008





2008

Earnings

R million

Return

%

2007

Earnings

R million

Return

%

Covered business
 919
 3,2
 4 700
 17,2
Sanlam Personal Finance
 453
 2,3
 3 953
 22,2
Sanlam Developing Markets
 659
 30,5
 351
 18,0
Sanlam UK
36
 -3,9 63 7,3
Sanlam Employee Benefits
(157) -3,0 333 4,9
Other operations
 (1 885)
 -12,2
 4 428
 33,7
Sanlam Personal Finance
 291
 24,4
 169
 16,0
Sanlam Developing Markets
 (11)
 -39,3
 26
 -
Sanlam UK
 (320)
 -53,3
 149
 33,9
Institutional cluster
 (566)
 -8,0
 1 722
 29,4
Short-term insurance
 (1 279)
 -20,1
 2 362
 42,0
Discretionary and other capital
 (440)
 -
 (209)
 -
Balance of portfolio
 114
 -
 365
 -
Shares delivered to Sanlam Demutualisation Trust
 (46)
 -
 (71)
 -
Shriram goodwill less value of in-force acquired
 (43)
 -
 (108)
 -
Treasury shares and other
 (269)
 -
 (286)
 -
Change in net worth adjustments
 (196)
 -
 (109)
 -
Return on Group Equity Value
 (1 406)
 -2,7
 8 919
 19,1
Return on Group Equity Value per share
 -
 -1,7
 -
 18,8



 

Covered business yielded a return of 3% compared to 17% in 2007. This lower level of return is attributable to the negative investment market performance during 2008, which decreased the return earned on the supporting capital from positive earnings of R1,6 billion in 2007 to a loss of R0,7 billion in 2008, and also resulting in negative investment variances of R1,4 billion on the value of in force business in 2008. Sanlam Personal Finance, Sanlam UK and Sanlam Employee Benefits' return on covered business were depressed by these items compared to the returns in 2007, with Sanlam Employee Benefits in particular being negatively impacted by the return on adjusted net worth, given its disproportionate size relative to its value of in-force. A very strong new business performance, combined with lower equity exposure in its supporting capital base, contributed to a sterling 31% return on covered business for Sanlam Developing Markets.

The other Group operations were more severely impacted by the market conditions and yielded a negative return of 12% for 2008 compared to positive earnings of 34% in 2007. The Group's investment in Santam was the largest contributor to this under performance. Compared to positive earnings of R2,4 billion in 2007 (42% return), the investment in Santam yielded a negative return of R1,3 billion (20% negative return) in 2008, a turnaround of R3,6 billion. The decline in the Santam share price was however in line with the general market performance. Operations in the Institutional cluster achieved a negative return of 8%. As mentioned above, this performance is directly linked to the lower overall level of assets under management following the negative investment market performance during the year. The Group's businesses in the UK are experiencing the aftermath of the financial markets crisis more severely than the South African based operations, with the UK economy officially in recession. These economic conditions, combined with lower assets under management, is expected to have a negative impact on the business flows and profitability and consequently also the valuation, of these operations.  This is reflected in the more than 50% negative return reported for the Sanlam UK non-life operations.  The newly acquired Principal private client business is the main contributor to this under performance.  Since the acquisition of Principal in the first half of the year, the UK equity markets recorded record losses with a commensurate reduction in Principal's assets under management.  This, combined with a more than 20% strengthening of the Rand against the British Pound since acquisition, required a write down of approximately R180 million in the Principal carrying value.

The return on discretionary and other capital was impacted by the following:

  • The write-off for GEV purposes of the R43 million goodwill recognised in respect of a performance payment to Shriram in terms of the acquisition agreement of Shriram Life in India;
  • Some R125 million profit realised on the disposal of the Group's interest in the afair Lease Finance joint venture;
  • A negative change of R196 million in the net worth adjustments.  This is largely due to an increase in the allowance for corporate costs following a change in the calculation methodology. Up to the 2007 financial year, the Group allowed for the interest earned on the cash held in respect of the annual dividend between year-end and the dividend payment date. With effect from the 2008 financial year, it is assumed that the dividend is paid at the beginning of each reporting period, resulting in an increase in the net corporate expenses assumed in the calculation of GEV;
  • A loss of R46 million incurred on the delivery of Sanlam shares to the Sanlam Demutualisation Trust (the Trust). As part of the Ubuntu-Botho (UB) empowerment transaction, the Trust sold 52 million Sanlam shares to UB in exchange for UB preference shares. This was based on expectations at the time of the number of shares that the Trust will deliver to its beneficiaries. As part of the transaction, Sanlam undertook to deliver Sanlam shares to the Trust in instances of shortfalls, in exchange for an equivalent number of UB preference shares. The Trust delivered more shares than expected and started to experience shortfalls in its stock of Sanlam shares, which required of the Group to transfer Sanlam shares to it during the year.  The fair value of the UB shares received in exchange was less than the fair value of the Sanlam shares delivered, resulting in a loss of R46 million, which can be seen as part of the financing costs of the UB transaction. 
  • A loss of R269 million recognised in respect of treasury shares.  This loss is substantially attributable to losses recognised on the delivery of share incentive scheme shares to participants at the applicable strike prices.

 



Earnings


Summarised shareholders' fund income statement for the six months ended 31 December 2008

R million
2008 2007
 Δ
Net result from financial services
 2 802
 3 029
 -7%
Net investment income
 1 068
 1 117
 -4%
CORE EARNINGS
 3 870
 4 146
 -7%
Project expenses
 (56)
 (85)
 34%
Net equity-accounted headline earnings
 16
 152
 -89%
BEE transaction costs
 (7)
 (5)
 -40%
Net investment surpluses
 (1 699)
 1 264
 -234%
Secondary Tax on Companies (STC)
 (59)
 (131)
 55%
Discontinued operations
 (22)
 (91)
 76%
Amortisation of value of business acquired
 (77)
 (51)
 -51%
NORMALISED HEADLINE EARNINGS
 1 966
 5 199
 -62%
Disposal of associates and subsidiaries
 3
 668
 -
Other non-headline earnings and impairments
 (211)
 (7)
 -
Normalised attributable earnings
 1 758
 5 860
 -70%


 



Core earnings

 
Core earnings comprise the net result from financial services (operating profit) and net investment income earned on the shareholders' fund, but exclude abnormal and non-recurring items as well as investment surpluses. Net investment income includes dividends received from non-operating associated companies and joint ventures, but excludes the equity-accounted retained earnings.

Core earnings for the year of R3 870 million are 7% down on 2007, the combined effect of a 7% reduction in the net result from financial services for the year and a 4% decline in net investment income over the same period. On a per share basis, core earnings increased by 1%, reflecting the impact of the 8% reduction in the weighted average number of shares in issue due to the share buy-backs during 2008 and 2007.


The net result from financial services of R2 802 million for the 2008 financial year is 7% lower than in 2007. In evaluating this performance, cognisance should be taken of the impact of a number of material items:


  • In terms of IFRS only variable costs incurred in writing new investment management policy contracts can be capitalised and expensed over the lifetime of the contract in line with fees earned. All fixed acquisition costs must be expensed at inception of the policy. Similarly, the Group's actuarial valuation basis for most insurance contracts does not allow for the capitalisation of upfront acquisition costs, which commensurately results in accounting losses at inception of these contracts. These losses, referred to as new business strain, have a particularly pronounced impact on earnings in strong new business growth scenarios, as achieved by the Group in the 2008 financial year.
  • The initial losses incurred by MiWay whilst in its start-up phase. MiWay is performing in line with expectations, with the initial start-up losses being anticipated in its business plan.


On a comparable basis the net result from financial services is in line with 2007, a very pleasing result in the current environment.

Net result from financial services for the six months ended 31 December 2008
R million 2008 2007 Δ
Net result from financial services on comparable basis 3 922   3 905   0%  
Retail cluster 2 785   2 542   10%  
Institutional cluster 774   1 110   -30%  
Santam 494   372   33%  
Corporate and other (131)  (119)  -10%  
Direct Financial Services (MiWay launched in 2008) (55)  -   -  
New business strain (1 065)  (876)  -22%  
Net result from financial services 2 802 3 029 -7%  


 


The table below provides an analysis of the net result from financial services per individual business.


Net result from financial services for the six months ended 31 December 2008


R million 2008 2007 Δ
Net result from financial services on comparable basis 3 922 3 905 0%
Retail cluster 2 785 2 542 10%
Institutional cluster 774
 1 110 -30%
Santam 494 372 33%
Corporate and other (131) (119) -10%
Direct Financial Services (MiWay launched in 2008) (55) - -
New business strain (1 065) (876) -22%
Net result from financial services 2 802 3 029 -7%


  • Sanlam Personal Finance's gross result from financial services for the year of R1 975 million is 6% up on 2007. Market related income which contributes some two thirds of SPF's profit grew by 12%, largely due to higher interest earned on working capital. The higher interest rates during the year also contributed to a higher level of asset mismatch reserve held during the year in respect of non-participating business and therefore the consequential increased level of profit released from the reserve in terms of the profit entitlement policy. Risk profits – some 22% of profit – declined by 1% largely due to some deterioration in claims experience, in particular in respect of mortality claims. The average underwriting margin decreased from 17,3% to 16,3%. Administration profit decreased by 9% largely due to an increase of 17% in new business strain on the increased new business volumes. The increase in administration costs was contained at 5% notwithstanding inflationary pressures and new business units (e.g. Sanlam Health Management) established during the period. The profit contribution from non-life operations amounted to R85m, marginally up from that in 2007 despite pressure on the profitability of Sanlam Home Loans and Sanlam Personal Loans. This is substantially due to some deterioration in the level of arrears as well as a deliberate scaling back in new loans granted (down 38% and 9% respectively). Net of taxation and minorities the results increased by 10% to R1 555 million.
  • The Sanlam Developing Markets gross result from financial services of R218 million is 36% down on 2007. Notwithstanding some fall in profitability in Botswana, due to the negative impact of the fall in equity markets, a strong performance by all the other African operations led to an overall 18% increase in profit from the Rest of Africa. The South African operations however reported a substantial fall in profit. Two main factors contributed to this lower profit level; a major negative mortality experience in a Channel Life product and increased new business strain. Corrective action has been taken to curtail the negative claims experience at Channel. New business costs expensed in 2008 increased by 31% to R335m after tax and minorities. The deferred benefit is reflected in the value of the in-force book and will have a positive impact on future profitability. After allowing for taxation and minority interest the SDM net operating results are down 37% to R144m. The taxation charge in both years benefited from some reversal of an overprovision in prior years.
  • Sanlam UK reported gross operating profit of R68 million, a 39% improvement on their 2007 results. The 2008 results, however, include a maiden contribution from Principal and Buckles. Excluding these new acquisitions, earnings growth is 16%. A weaker average exchange rate contributed to this growth but Merchant Investors and the PS Group both achieved satisfactory trading results in a difficult UK business environment. Profit net of tax and minorities increased by 29% to R58 million.
  • The Institutional cluster operations were in particular affected by the financial turmoil in 2008 and reported a 32% fall in operating earnings for the year.

    • Sanlam Investments' gross operating results of R825 million are down 33% on 2007. This turnaround is substantially due to the volatile investment markets which had a major negative impact on these businesses' investment performance. This resulted in significantly lower performance fees being earned, down from R526 million in 2007 to R107 million in 2008. Other factors contributing to the performance include an initial diluting impact of expenditure on new ventures and acquisitions. Administration costs increased by 8%, mainly due to once-off restructuring costs of R47 million and costs associated with business expansion, with Simeka, Blue Ink, Atom Funds Management, the growth of the Emerging Markets business and the transfer of investment linked business from Sanlam Employee Benefits impacting on the expense base. The effect of these items has been somewhat offset by a reduction in performance bonuses. Profit net of minorities and tax amounted to R589 million, down 32% on 2007. Major progress has been made over the past few years in transforming the business from a wholesale asset manager into a diversified boutique of investment related businesses. The wholesale asset manager contributed only a third of net profit in 2008, with the non-South African businesses contributing 29%.

    • Sanlam Employee Benefits continued its recent turnaround in profitability and posted gross profit of R258 million, a 49% improvement on 2007. The Group Risk business' profit contribution increased by 33% due to an 8% increase in total recurring premiums and an improvement in underwriting experience. The migration of the policy administration business to Coris Capital and progress towards an initial breakeven target remains on track. The loss for the year attributable to this business of R32m is well down on the R74 million recorded in 2007. Adverse market conditions required a R69 million charge to the income statement in respect of an increase in the minimum investment guarantee reserve held for employee benefit products, resulting in a 23% fall in the contribution from the Structured Solutions unit. Profit net of tax and minorities amounted to R183 million, 49% up on 2007.

    • Capital Markets recorded its first loss of R61 million since its formation. This is the result of the volatility in debt and equity markets, the impact of widening credit spreads on the valuation of credit positions and a slowdown in deal flow associated with the uncertainty experienced by market participants in these conditions. Under the prevailing circumstances this business performed well to contain its downside risk. After allowing for the effect of tax, the loss for the period amounted to R35 million.

  • Santam's gross operating results for the year of R1 288 million are 30% higher than in 2007, the combined effect of a 12% increase in underwriting results and a 69% increase in income earned on working capital. The latter benefited from a higher working capital level, higher average interest rates as well as a positive contribution from some bond exposure in the backing portfolio during the year. The claims ratio of 68% was in line with 2007 while the average underwriting margin of 6,4% is marginally up on the 6,2% reported in 2007. Taking into account a marginal increase during the year to 57% in Sanlam's effective holding, Santam's contribution to the Group's after tax results increased by 33% to R494 million.  These results exclude the earnings from discontinued operations in Europe, which is recognised separately in the income statement. These operations reported a net loss of R22 million (Sanlam's effective interest) for the year compared to a loss of R91 million in 2007.
  • An initial pre-tax loss of R127 million incurred by MiWay is within its original business plan. MiWay made substantial inroads into the direct insurance market since inception in the first quarter of 2008 and already had some 26 000 short-term insurance policyholders by the end of December. The initial focus has been on short-term insurance. Diversification to also include other financial services will follow in due course. Continuing strong growth in new business volumes should keep MiWay on target to break even on a monthly basis towards the end of 2009, which will be a remarkable achievement for this fledgling operation.
  • Corporate administration expenses were well maintained within inflationary limits.


 


Normalised headline earnings


Normalised headline earnings of R1 966 million are 62% lower than the comparative period in 2007. The reduction in normalised headline earnings is in the main attributable to the following:

  • reduction of 7% in core earnings as discussed above.
  • Project expenditure of R56 million (net of taxation and minorities) spent on Sanlam Personal Finance's SanlamConnect distribution channel and the MiWay direct distributional channel (up to its launch in February 2008) during their set-up phases. No further project cost is envisaged in respect of these projects. Ongoing costs incurred on the process refinements will be accounted for as operational expenditure.
  • Equity-accounted earnings from non-operating investments decreased substantially in 2008. This is due to the disposal of the Group's interest in Peermont Global during 2007 as well as a reduction in earnings from the Safair Lease Finance joint venture ('SLF') and  investments held by Sanlam Developing Markets, Sanlam Investments, Sanlam Personal Finance and Santam. The Group disposed of its interest in SLF effective from the end of 2008.
  • Investment surpluses amounting to R1 264 million (after tax and minorities) in 2007 turned around to aggregate negative investment returns of R1 699 million (after tax and minorities) in the 2008 financial year. This is the effect of the substantial deterioration in global equity markets during 2008. The FTSE/JSE All Share Index return in 2008 was – 26% relative to a positive return of 16% in 2007.
  • The 55% fall in the secondary tax on companies (STC) charge is mainly attributable to the increased availability of STC credits generated to offset the charge in respect of the dividend paid in 2008.
  • Discontinued operations relate to Santam's operations in Europe that have been unwound and disposed of. The profit or loss earned from discontinued operations must be recognised separately in the income statement in terms of IFRS.


 


Business volumes


New business flows


Total new business volumes decreased by 2% from R102 billion in 2007 to R100 billion for the 2008 financial year.

New business volumes for the six months ended 31 December 2008


R million 2008 2007 Δ
Sanlam Personal Finance 31 070 26 516 17%
South Africa
 22 644 19 137 18%
Africa 8 426 7 379 14%
Sanlam Developing Markets 2 594 3 615 -28%
South Africa 1 449 2 767 -48%
Africa 968 722 34%
Other international 177 126 40%
Sanlam UK 2 350 1 293 82%
Institutional cluster 45 476 50 177 -9%
Sanlam Investments 44 961 49 299 -9%
Sanlam Employee Benefits 515 878 -41%
Santam 12 165 11 407 7%
White label 6 481 8 996 -28%
Total new business 100 136 102 004 -2%



Sanlam Personal Finance's total new business volumes increased by 17%. Recurring premium business (including both life and non-life) increased by 3% compared to 2007 with single premium business achieving growth of 18%. These results are commendable in the very tough economic environment.


  • South African new business volumes increased by 18%, with good support experienced for both investment and life solutions.

    • New recurring premium life sales were in line with that of 2007. The impact of the high inflation and interest rate environment on clients' disposable income is evident in a fall in the sale of contractual savings products. This was however offset by an ongoing strong demand for risk solutions that led to a 16% growth in new business sales of these solutions.
    • Total single premium life sales are up 24% on 2007, a very satisfactory performance but somewhat down on the 37% growth reported for the first six months of 2008. Growth in the Glacier life insurance solution range accelerated during the year to achieve an increase of 46% in inflows. Guaranteed plan and contractual preservation fund solutions were popular in the volatile market conditions, while equity linked savings solutions reflect lower sales volumes in 2008.
    • Investment business increased by 16% in 2008 as Glacier continued its strong growth in new business flows, confirming the successful diversification of the business into the investment space. The new Topaz linked investment solution also made a solid contribution to overall investment business volumes. The growth was supported by a strong demand for money market solutions with less demand for equity-linked solutions due to the market volatility and uncertainty.

    • The Namibian operations experienced another good year and increased its new business volumes by 14%.



Sanlam Developing Markets delivered sterling results with a 33% increase in new life insurance business, excluding the discontinued, relatively low margin single premium business. Only continuations of existing single premium business are reflected in the 2008 single premium new business volumes.

  • South African total new recurring premium business inflows increased by 31% to R765 million, the combined result of 43% growth in Sanlam Sky (previously African Life SA) and a 14% increase in Channel Life sales. Sanlam Sky's results were supported by an increase in manpower and average premium size as well as a recovery from the negative impact of administrative problems experienced in 2007. The operational problems experienced by the Channel Life call centre led to its closure in the first half of 2008. Notwithstanding the loss of these volumes, Channel Life managed to record strong new recurring business volumes.
  • The other African operations continued on their strong growth trajectory with an increase of 34% in new business volumes. Botswana Life remains the main contributor to African flows and increased its recurring premiums by 32% to R183 million, and single premiums by 18% to R475 million. Recurring premium business was supported by the launch of new solutions in late 2007, improvements in validation and the strengthening of broker relationships. The single premium growth from the annuity product is particularly satisfactory and local assets have been acquired to back this portfolio. The other African operations also had a very good year and reported R310 million (up 72%) of new business volumes, with all operations growing in excess of 30% and Zambia and Tanzania more than doubling their sales volumes.

  • Shriram Life, our 26% held life operation in India, is continuing its strong sales performance, albeit at a somewhat slower pace, with 2008 full year sales of R177 million, up 40% on 2007. India is not escaping the global economic downturn, which is reflected in a lower demand for single premium savings products. Optimising the productivity of Shriram's substantial agency force remains a challenge receiving ongoing focus. At the same time an investment is being made in additional complimentary distribution capacity. 



The Sanlam UK unit was established in 2008 to consolidate the Group's UK operations. Its total new business volumes for the year amounted to R2,3 billion. This comprises R1,4 billion in new life insurance business from Merchant Investors (up 10% on 2007), and a first time contribution of R0,9 billion of new investment inflows in Principal, the newly acquired private client investment business. Both these operations were affected by the major slowdown in the UK economy. 

Institutional new business flows are down 9% compared to the 2007 financial year.

  • New life insurance business of R2,2 billion is down 19% on 2007. This performance should be evaluated against a background of severe market turmoil as well as a deliberate strategy to hold back on growth in certain areas during the restructuring of the Employee Benefits business. New recurring premiums increased by 13% on 2007 but this has been more than offset by lower single premium business flows.
  • New investment inflows are down 9% to R43,3 billion. South African wholesale segregated inflows performed well and increased by 18% to R11,8 billion. The South African multi manager unit, as well as the private client and collective investment businesses, however, all recorded lower new inflows in 2008 – these businesses attracted large volumes of business in 2007 that was not expected to continue. The market conditions weighed heavily on the non-SA operations, which halved their 2008 new inflows to R2,1 billion.


 


Net fund flows

 
Net inflows (excluding white label business) for the year amounted to R10,6 billion, 11% up on the R9,6 billion in the corresponding period in 2007. Total inflows increased by 1% to R109,5 billion while outflows in respect of fund withdrawals and policy benefits of R99 billion were up by only 0,6%.

Net fund flows for the year ended 31 December 2008

R million 2008 2007
Sanlam Personal Finance 3 876 3 693
Life business 1 170 (1 182)
Investment business 2 706 4 875
Sanlam Developing Markets 1 218 2 266
Sanlam UK 89 (172
Institutional cluster 1 650 390
Sanlam Employee Benefits (1 994) (3 594)
Sanlam Investments 3 644 3 984
Santam 3 734 3 379
Net business flows before white label 10 567 9 556
White label (1 445 1 807
Total net business flows 9 122 11 363


 



Value of new covered business (VNB)

 
The Group's life insurance operations reported exceptional new business value for 2008. The total value of new life business (VNB) of R698 million is 23% higher than that reported in 2007. Net of minority interests VNB improved by 24% to R612 million. The overall average new life business margin increased from 2,37% to 2,68%. This improved performance is the combined effect of cost efficiencies, higher new business volumes and beneficial product mix. At the same time lower long-term interest rates resulted in a reduction in the discount rate applied. The latter contributed R49 million to the increase in total VNB.

Value of new covered business for the six months ended 31 December 2008


R million 2008 2007 Δ


Value of new covered business 698 567 23%
Sanlam Personal Finance 386 324 19%
Sanlam Developing Markets 302 203 49%
Sanlam UK 1 8 -88%
Sanlam Employee Benefits 9 32 -72%
Net of minorities 612 493 24%


Present value of new business premiums 26 033 23 886 9%
Sanlam Personal Finance 17 371 14 985 16%
Sanlam Developing Markets 5 332 5 476 -3%
Sanlam UK 1 484 1 327 12%
Sanlam Employee Benefits 1 846 2 098 -12%
Net of minorities 24 459 21 886 12%
 


New covered business margin 2,68% 2,37%
Sanlam Personal Finance 2,22% 2,16%
Sanlam Developing Markets 5,66% 3,71%
Sanlam UK 0,07% 0,60%
Sanlam Employee Benefits 0,49% 1,53%
Net of minorities 2,50% 2,25%




Sanlam Personal Finance's VNB increased by 19% to R386 million. This result was positively impacted by the good sales recorded for the year as well as the change in economic assumptions, with the average VNB margin increasing from 2,16% in 2007 to 2,22%.

The Sanlam Developing Markets operations contributed to an exceptional 49% increase in gross VNB to R302 million following the 53% growth achieved in 2007. The average VNB margin improved from 3,71% to 5,66%. This improvement can be ascribed to the strong new business growth achieved as well as the decision to discontinue the sale of low margin single premium business. Sanlam Sky increased its VNB by 87% while Ghana, Zambia and Tanzania more than doubled their contribution during 2008 on the back of the strong new business growth. Channel Life's VNB was however negatively impacted by deteriorating mortality experience and a consequential strengthening of the mortality basis. The Botswana operations are continuing to do well, with VNB increasing by 22% and margins broadly in line with 2007.

The Sanlam UK operations reported nominal VNB for 2008 as increased expenditure on the Merchant Investors distribution infrastructure offset the benefit of increased business volumes.

Sanlam Employee Benefits similarly reported a major reduction in VNB in 2008. This is essentially due to the lower level of new life business in 2008.


Solvency

 
All of the life insurance businesses within the Group were sufficiently capitalised at the end of the 2008 financial year.  The total capital of Sanlam Life Insurance Limited, the holding company of the Group's major life insurance subsidiaries, amounted to R34,4 billion on 31 December 2008. Its admissible regulatory capital at the end of December 2008 amounted to R21,4 billion, which covered its regulatory Capital Adequacy Requirement (CAR) 2,7 times, compared to 3,5 times on 31 December 2007. No policyholder portfolio held a negative bonus stabilisation reserve in excess of 7,5% of policyholder liabilities at the end of 2008.

Following Santam's capital reduction in 2007 its regulatory capital (shareholders' funds including bonds) constituted 47% of net earned premiums on 31 December 2007. The adverse market conditions in 2008 resulted in a marginal reduction in the solvency level to 44% on 31 December 2008. This reduced solvency level is still at the higher end of the target range of 35% to 45% set by Santam.

FitchRatings has affirmed the following ratings of the Group in 2008:

Sanlam Limited:


  • National Long-term: AA-(zaf)


Sanlam Life Insurance Limited:

  • National Insurer Financial Strength: AA+(zaf)
  • National Long-term: AA(zaf)
  • National Short-term: F1+(zaf)
  • Subordinated debt: AA-(zaf)



Santam Limited:

  • National Insurer Financial Strength: AA+(zaf)

  • National Long-term: AA(zaf)



Dividend

 
It is Sanlam's practice to pay only an annual dividend, given the cost associated with the distribution of a dividend to our large shareholder base.

Sustainable growth in dividend payments is an important consideration for the Board in determining the dividend for the year. The Board uses cash operating earnings as a guideline in setting the level of the dividend, subject to the Group's liquidity and solvency requirements. The operational performance of the Group in the 2008 financial year enabled the Board to increase the dividend per share by 5% to 98 cents. Taking into account the reduction in the number of shares in issue following the share buy-backs during the year, this will keep the total rand value of the dividend distribution in line with that of 2007, maintaining a cash operating earnings cover of approximately 1,1 times.

The cash dividend for the year ended 31 December 2008 will be paid to shareholders in the register on Friday, 24 April 2009. The last date to trade to qualify for this dividend will be Friday, 17 April 2009, and Sanlam shares will trade ex-dividend from Monday, 20 April 2009. Dividend payment by way of electronic bank transfers will be effected on Wednesday, 6 May 2009. The mailing of cheque payments in respect of dividends due to those shareholders who have not elected to receive electronic dividend payments will commence on or as soon as practically possible after this date. Share certificates may not be dematerialised or rematerialised between Monday, 20 April 2009 and Friday, 24 April 2009. In the event that the South African National Elections are confirmed for Wednesday, 22 April 2009, a public holiday may be declared and the dividend timetable stated above would be impacted. In this event, the last day to trade to qualify for this dividend will be Thursday, 16 April 2009 with the corresponding ex dividend date being changed to Friday, 17 April 2009. The record and payment dates would remain as stated above.



Annual general meeting

 
These financial results will be tabled at the annual general meeting. Shareholders are invited to attend this meeting, to be held on Wednesday, 3 June 2009 at 14:00 at the Sanlam head office in Bellville.


Roy Andersen                                                             Johan van Zyl            
Chairman                                                                    Group Chief Executive


Sanlam Limited
Cape Town

4 March 2009


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