Embedded value

Sanlam Personal Finance

19 574

20 089

   Adjusted net worth

8 275

8 285

   Net value of in-force covered business

11 299

11 804

      Value of in-force covered business

12 809

13 452

      Cost of capital

(1 378)

(1 555)

      Minority shareholders' interest

(132)

(93)

Sanlam Developing Markets

2 796

2 160

   Adjusted net worth

1 032

860

   Net value of in-force covered business

1 764

1 300

      Value of in-force covered business

2 432

1 833

      Cost of capital

(284)

(268)

      Minority shareholders' interest

(384)

(265)

Sanlam UK

680

921

   Adjusted net worth

234

447

   Net value of in-force covered business

446

474

      Value of in-force covered business

481

506

      Cost of capital

(35)

(32)

      Minority shareholders' interest

–

–

Sanlam Employee Benefits

5 541

5 262

5 472

5 118

   Net value of in-force covered business

69

144

      Value of in-force covered business

824

961

      Cost of capital

(755)

(817)

      Minority shareholders' interest

–

–

Embedded value of covered business

28 591

28 432

Adjusted net worth

15 013

14 710

Net value of in-force covered business

1

13 578

13 722

28 591

28 432

Embedded value of covered business at the beginning of the year

28 432

13 722

14 710

27 403

   Value of new business ⁽²⁾

612

1 677

(1 065)

489

   Net earnings from existing covered business

1 885

(693)

2 578

1 996

      Expected return on value of in-force business

1 838

1 838

–

1 442

      Expected transfer of profit to adjusted net worth

–

(2 195)

2 195

–

      Operating experience variances

278

(92)

370

288

      Operating assumption changes

(231)

(244)

13

   Expected investment return on adjusted net worth

1 180

–

1 180

1 048

Embedded value earnings from operations

3 677

984

2 693

3 533

   Economic assumption changes

356

402

(46)

(109)

   Tax changes

215

216

(1)

291

   Investment variances – value of in-force

(1 435)

(1 769)

334

271

   Investment variances – investment return on adjusted net worth

(1 864)

–

(1 864)

541

   Exchange rate movements

23

23

–

(22)

   Net project expenses

(53)

–

(53)

(77)

   EEV changes

–

–

–

272

Embedded value earnings from covered business

919

(144)

1 063

4 700

   Transfers to other Group operations ⁽³⁾

–

–

–

(205)

   Change in utilisation of capital diversification

197

–

197

(300)

   Net transfers from covered business

(957)

–

(957)

(3 166)

Embedded value of covered business at the end of the year

28 591

13 578

15 013

28 432

Analysis of earnings from covered business

   Sanlam Personal Finance

453

(505)

958

3 953

   Sanlam Developing Markets

659

464

195

351

   Sanlam UK

(36)

(28)

(8)

63

   Sanlam Employee Benefits

(157)

(75)

(82)

333

Embedded value earnings from covered business

919

(144)

1 063

4 700

787

657

 419

363

343

233

6

13

19

48

(89)

(90)

(33)

(39)

(41)

(30)

(5)

(5)

(10)

(16)

698

567

386

324

302

203

1

8

9

32

612

493

377

321

225

132

1

8

9

32

86

74

9

3

77

71

-

-

-

-

698

567

507

426

181

125

10

16

698

567

26 033

23 886

17 371

14 985

5 332

5 476

1 484

1 327

1 846

2 098

2,68%

2,37%

2,22%

2,16%

5,66%

3,17%

0,07%

0.60%

0.49%

1,53%

24 459

21 886

17 080

14 873

4 049

3 588

1 484

1 327

1 846

2 098

2,50%

2,25%

2,21%

2,16%

5,56%

3,68%

0,07%

0,60%

0,49%

1,53%

Base value

15 939

(2 361)

13 578

• Risk discount rate increase by 1%

14 907

(3 067)

11 840

-13

• Investment return and inflation decrease by 1%, coupled with a 1% decrease in risk discount rates, and with bonus rates changing commensurately

16 338

(2 296)

14 042

3

• Equity and property values decrease by 10%, without a corresponding change in dividend and rental yields

15 079

(2 318)

12 761

-6

• Expected return on equity and property investments increase by 1%, without a corresponding change in discount rates

16 488

(1 895)

14 593

7

Expenses and persistency

• Non-commission maintenance expenses (excluding investment expenses) decrease by 10%

16 424

(2 359)

14 065

4

• Discontinuance rates decrease by 10%

16 251

(2 427)

13 824

2

Insurance risk

• Mortality and morbidity decrease by 5% for life assurance business

16 543

(2 358)

14 185

4

• Mortality and morbidity decrease by 5% for life annuity business

15 817

(2 353)

13 464

-1

Base value

685

(73)

612

Interest rate and assets

• Risk discount rate increase by 1%

586

(88)

498

-19

• Investment return and inflation decrease by 1%, coupled with a 1% decrease in risk discount rates, and with bonus rates changing commensurately

726

(74)

652

7

Expenses and persistency

• Non-commission maintenance expenses (excluding investment expenses) decrease by 10%

731

(73)

658

8

• Acquisition expenses (excluding commission and commission related expenses) decrease by 10%

744

(71)

673

10

• Discontinuance rates decrease by 10%

765

(77)

688

12

Insurance risk

• Mortality and morbidity decrease by 5% for life assurance business

772

(73)

699

14

• Mortality and morbidity decrease by 5% for life annuity business

658

(73)

585

-4

3. OPERATING EXPERIENCE VARIANCES

   Risk experience

307

215

   Investment guarantee reserve shortfall

(117)

-

   Working capital and other

88

73

   Total operating experience variances

278

288

4. OPERATING ASSUMPTION CHANGES

   Mortality and morbidity

(196)

98

   Persistency

(31)

(18)

   Modelling improvements and other

(4)

186

   Total operating assumption changes

(231)

266

5. ECONOMIC ASSUMPTION CHANGES

   Investment yields and risk premium

363

(86)

   Long-term asset mix assumptions

(7)

(23)

   Total economic assumption changes

356

(109)

6. TAX CHANGES

   Change in corporate tax rate

215

-

   Change in policyholders' fund tax rate

-

141

   Reduction in STC rate from 12,5% to 10,0%

-

150

   Total tax changes

215

291

7. NET PROJECT EXPENSES

Net project expenses relate to once-off expenditure on the Group's distribution platform that has not been allowed for in the embedded value assumptions.

8. ECONOMIC ASSUMPTIONS

   Gross investment return, risk discount rate and inflation

   SANLAM LIFE:

   Point used on the relevant yield curve

9 year

9 year

   Fixed-interest securities

7,3

8,3

   Equities and offshore investments

10,8

11,8

   Hedged equities

7,8

8,8

   Property

8,3

9,3

   Cash

6,3

7,3

   Return on required capital

8,8

9,7

   Inflation rate

4,3

5,3

   Risk discount rate

9,8

10,8

   MERCHANT INVESTORS:

   Point used on the relevant yield curve

15 year

15 year

   Fixed-interest securities

3,7

4,6

   Equities and offshore investments

7,0

7,8

   Hedged equities

7,0

7,8

   Property

7,0

7,8

   Cash

3,7

4,6

   Return on required capital

3,7

4,6

   Inflation rate

2,9

3,7

   Risk discount rate

7,5

8,3

   SDM LIMITED:

   Point used on the relevant yield curve

6 year

6 year

   Fixed-interest securities

7,3

8,6

   Equities and offshore investments

10,8

12,1

   Hedged equities

n/a

n/a

   Property

8,3

9,6

   Cash

6,3

6,6

   Return on required capital

8,6

9,4

   Inflation rate

4,3

5,6

   Risk discount rate

9,8

11,1

   BOTSWANA LIFE INSURANCE:

   Point used on the relevant yield curve

n/a

n/a

   Fixed-interest securities

10,5

10,5

   Equities and offshore investments

14,0

14,0

   Hedged equities

n/a

n/a

   Property

11,5

11,5

   Cash

9,5

8,5

   Return on required capital

10,6

9,5

   Inflation rate

7,5

7,5

   Risk discount rate

14,0

14,0

   Asset mix for assets supporting the required capital

   SANLAM LIFE:

      Equities

44

44

      Hedged equities

13

13

      Property

3

3

      Fixed-interest securities

25

25

      Cash

15

15

100

100

   MERCHANT INVESTORS:

      Equities

-

-

      Hedged equities

-

-

      Property

-

-

      Fixed-interest securities

-

-

      Cash

100

100

100

100

   SDM LIMITED:

      Equities

50

50

      Hedged equities

-

-

      Property

-

-

      Fixed-interest securities

-

-

      Cash

50

50

100

100

   BOTSWANA LIFE INSURANCE:

      Equities

15

69

      Hedged equities

-

-

      Property

10

1

      Fixed-interest securities

25

30

      Cash

50

-

100

100