Annual report 2016 |

Chairman’s review


“Sanlam is well positioned for growth: we now have the largest non-banking financial services footprint in Africa. No other insurer in the world can currently claim such a position.”
Desmond Smith

Sanlam’s resilience in uncertain times is testimony to a value system and work ethic that has stood the test of time for almost 100 years. Reflecting on the past year, two features are notable:

    Consistency: we remain committed to our strategy and business philosophy
    Execution: we have the ability to implement our plans to achieve our strategic objectives

These two features enabled the delivery of solid results in a tumultuous year. Our operating environment has been tough, with high levels of uncertainty undermining business confidence and customer decisions to invest for the longer term. The Group Chief Executive successfully made further planned changes to his executive team without losing any momentum in our businesses.

A key feature of our 2016 financial year is the progress of executing our vision of becoming the leading Pan-African diversified financial services player. Following the Saham Finances transaction, Sanlam has a presence in an additional 22 countries. Many of the countries in our expanded footprint offer excellent opportunities for longer-term growth, but would have been difficult to enter without the support of a partner like Saham Finances. The language in which we conduct business across markets is key to our success as our executives and employees have to clearly understand the business to be able to manage it. While Sanlam’s first wave of growth on the African continent was mostly confined to Anglophone territories, we have subsequently moved into French and Portuguese speaking markets on the continent. In this regard, we appreciate the effort that the Saham Finances leadership makes to accommodate Sanlam in English at the Saham Finances board meetings. This will facilitate co-operation between the two groups.

The opportunity in Africa is characterised by falling trade barriers and greater intra-Africa trade, changing customer demographics, more diversified economies and major investments from other parts of the world – all drivers of growth on the continent. However, we are cognisant of the fact that the investment case for Africa depends largely on the risk appetite of developed-world players and that this may vary significantly, adding to the challenges of delivering acceptable shareholder returns.

Sanlam is well positioned for growth: we now have the largest non-banking financial services footprint in Africa. No other insurer in the world can currently claim such a position. The growth opportunities are attractive, but will take time to deliver maximum returns, including those unlocked by Sanlam acquisitions over the past few years. We also recognise that our growing presence in Africa results in a shifting risk profile, and that we are bound to have challenges in managing the complexity, depth and scope of the risks – as was the case in our general insurance business in Rwanda, where gross misrepresentation of financial statements was uncovered for previous periods. Our pro-active position should therefore always be that we promote ethical business conduct and where we are made aware of misconduct, we act swiftly to investigate and ultimately correct the situation. Ethical leadership is paramount as it forms the basis on which clients’ and other stakeholders’ trust in the Group is founded.

Our long-term commitment to Africa does not mean that our businesses in India and Malaysia will become less important. In fact, we believe that our expanding operations in India and Malaysia offer great optionality to the Group as the combination of all these territories provide us with essential diversification to mitigate risks by having an investment profile spread.

Sanlam’s ability to operate and invest in growth markets outside South Africa is premised on a strong and healthy foundation built over many decades in South Africa. For this reason, the Group will remain a highly-invested and committed player in the local market, where our strong cash generating businesses enable us to execute strategic investment choices in the rest of the world, most notably in the emerging markets of Africa. It is therefore critical that our home base remains economically and politically stable, as this is a prerequisite for our long term growth ambitions.

The continued and successful execution of the Sanlam strategy is key to making the Group a sustainable business. The Board continues directing and monitoring the implementation of the Group strategy, which is reviewed on an annual basis. Even though the Group’s strategy has not changed significantly over the past 14 years, we continually test our assumptions, consider trends in the markets in which we operate, identify risks and opportunities, and decide on how to respond appropriately.

Read more about progress with our strategy implementation

Our regulatory challenge

The successful execution of our strategy relies on economic growth, political stability and regulatory clarity and certainty. The continued uncertainty around proposed financial sector regulations is a major concern for the industry.

As an example, the development of a risk-based regulatory regime for the prudential regulation of long- and short-term insurers in South Africa was launched more than seven years ago. It envisaged a well-designed set of interconnected and interdependent regulatory elements. We supported this move, and started preparing and investing in systems, structures and policies to proactively adhere to the new requirements. Seven years later, the industry is still uncertain what changes might be implemented after the introduction of a Twin Peaks regulatory model in South Africa during 2017 and when this will take place. Uncertainty also exists around the mandate of the Market Conduct Authority (MCA) that will be introduced as part of the Twin Peaks model and the compliance requirements that will be rolled out by the MCA, some of which could potentially require significant further investments in systems and processes. We need policy certainty for Sanlam to continue to deploy capital effectively.

Read more about regulatory developments

Excellence in client-centricity

Sanlam continues to proactively implement new regulation and best practice and apply client-centric learnings from other territories. For example, the restructuring of Sanlam Personal Finance (SPF) was based on research done by the team in the UK, which has already implemented the Retail Distribution Review (RDR).

The Board’s Customer Interest Committee also continues to monitor and adopt leading practice in client-centric execution.

Client satisfaction measures tracked in South Africa, indicated that, for example, 96% of clients will strongly to very strongly recommend their Sanlam financial intermediary to friends, family or colleagues. This is in line with findings of previous surveys and confirms that Sanlam maintains its high level of service and advice.

Overall, clients rate the quality of advice that they receive from their Sanlam adviser as good to excellent.

The South African Ombudsman’s complaints data for the year ended 31 December 2015 indicated that Sanlam, measured against its main peers, had the lowest “market share” of complaints at 3.95%, and the lowest percentage of complaints awarded in favour of complainants at 17,7%.

Sanlam makes superior customer experiences the basis of the Group’s competitiveness. Supported by a strong brand reputation and business intelligence capabilities, this allows us to leverage existing and entrenched high levels of client loyalty.

Value creation and governance

Sanlam aims to create sustainable growth in shareholder value. We have achieved this consistently since listing in 1998, with our cumulative Return on Group Equity Value (RoGEV) per share of 1 103% well in excess of our cumulative target of 824% over the same period. This was only possible through the creation of value for all our material stakeholders.

The Group creates primary value for stakeholders by pooling risk and investment funds to provide long-term financial security and stability. This is augmented by the provision of credit facilities and ancillary financial services. Secondary value is created through the Group’s role in providing stability to the financial system and being a provider of financial capital to other businesses. Our investment in skills development and training of our existing employees, financial education of a large number of communities, the business development of our black suppliers and corporate social investments (CSIs), among others, further benefits individuals and society.

Sanlam’s commitment to value creation for all stakeholders is aligned to the principles contained in the recently published King IV Report on Corporate Governance for South Africa™, 2016 (King IV™). The Board embraces the new principles, and has positively made preparations to report accordingly. The format of the Sanlam remuneration report, included in the online 2016 Annual Reporting Suite, has already been adapted in accordance with the new requirements outlined in King IV™, with full alignment from a content perspective planned for 2017.

A sustainable Sanlam

Sanlam can only be sustainable and meaningful if it operates within a sustainable economic, social and environmental context. As such, our Group Chief Executive, Ian Kirk, has engaged widely with leaders from Government, labour and business to work towards a lasting economic growth solution for South Africa. These talks have indeed led to action and, in particular, the formation of three key steering committees, which will drive very specific ongoing projects, all geared towards creating jobs, promoting business confidence and investment and, ultimately, sustained economic growth. The outcomes include Sanlam’s commitment to contribute R40 million to the newly established South African SME fund, which aims to support the creation of many small to medium businesses, as they have the ability to create vast employment opportunities. We have also seconded the Group’s former Chief Actuary, André Zeeman, to the Board of the National Student Financial Aid Scheme, which provides much-needed funding to students for tertiary education that they otherwise could not afford. André is making a valuable contribution in the areas of risk, governance and financial controls to assist in improving the success of the fund. Sanlam is also actively involved in the youth education and development initiative.

Sanlam’s material sustainability themes remain relevant: ensuring sound governance, promoting responsible products and services, contributing to a prosperous society, developing people and reducing our environmental impact. Detail about Sanlam’s initiatives can be accessed in a set of supplementary reports that are available on the website as part of the Group’s 2016 Annual Reporting Suite. These elaborate on the themes that we have included in the Integrated Report as our main reporting mechanism.

The Sanlam Foundation is our primary vehicle to address challenges in consumer financial education, socio-economic development and enterprise development. We recognise that the increasing diversification of financial products on offer in South Africa has complicated financial decision-making for ordinary consumers, and that we can play a meaningful role in addressing this.

Sustainability also relies on our ability to transform internally to reflect the demographics of our client universe and the countries where we operate. We highlighted this in last year’s report as one of our priorities, in particular South Africa, and can confirm that the Group has made significant progress in South Africa in senior management appointments, 79% of which were black candidates and 56% of internal promotions were black – we believe that this is a strong indicator of creating a sustainable succession pipeline.


This is my last report as Chairman as I shall be retiring in June 2017, having reached the mandated retirement age of 70. Looking back on a 50-year journey with Sanlam, I am immensely proud to have been part of the transformation of the company from a domestic player with limited focus into an international financial services group. It has been a privilege to be part of the metamorphosis that made Sanlam resilient, successful and trusted by millions of clients. On a personal note, my path has crossed with thousands of colleagues and business associates during this 50-year journey. My thanks to all who have helped to make it rewarding and memorable.

My fellow Board members were excellent companions on this journey. In the almost eight years since I re-joined the Board, I have had the benefit of their experience, commitment and leadership inputs in steering a complex Group of businesses.

I would like to thank Patrice Motsepe, in particular, for his support as Deputy Chairman. We also recognise outgoing Financial Director, Kobus Möller, who retired after 10 years of service in this role. He will continue to serve within the Group in a non-executive capacity on subsidiary boards and committees.

In the same spirit, we welcome Heinie Werth as the new Financial Director. Junior John Ngulube, who was appointed as Chief Executive of the newly established cluster, Sanlam Corporate, was appointed to replace Heinie Werth as Chief Executive: Sanlam Emerging Markets. We are making good progress in identifying a successor for the Chief Executive role at Sanlam Corporate.

We also welcomed Dr Johan van Zyl as a non-executive director in January 2016 – one of the three Ubuntu-Botho Investment (UB) nominated representatives. Johan was named as Chairman-elect to take over from me in June 2017. Johan, a consummate leader, is well positioned to take over as Chairman. His association with Sanlam and his industry experience will add value to the future direction and growth of the Group for the benefit of all stakeholders. Given Johan’s status in terms of King IV™ as non-independent, the Board has put in place well-considered and adequate processes to uphold and safeguard adherence to good governance at all times. These include, among others, the appointment of Sipho Nkosi, who has served as an independent non-executive director on the Board since 2006, as the lead independent non-executive director. An ad hoc board committee comprising of independent Board members will manage potential conflict of interest matters.

We were all saddened by the recent passing of Paul Bradshaw, who was involved with the business here and in the United Kingdom for over two decades. He was appointed to the Sanlam Board on 7 August 2013 and served on the Customer Interest, Risk and Compliance as well as the Audit, Actuarial and Finance committees of Sanlam and Sanlam Life. He was a hugely supportive and passionate member of the Board and made a significant contribution to Sanlam – as a friend, as a professional and as a greatly admired colleague.

Last, but not least, I would like to extend my thanks to our clients, Sanlam’s management, employees and intermediaries, as well as our our shareholders and other stakeholders for their support in 2016.

Thank you for choosing Sanlam as your Wealthsmith™ to help create, manage and protect your wealth.

Desmond Smith