Financial review

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Where many companies face pressure from shareholders to deliver in the short-term, with too much focus on quarterly results, Sanlam is privileged to have shareholders who are fully supportive of our approach and invest for the longer term – many of our shareholders have been investors in Sanlam since 1998. Undue emphasis on short-term results is one of the most prevalent threats to long-term sustainability.

Key features of the 2016 annual results

  • Net result from financial services per share increased by 10%
  • Normalised headline earnings per share down 6%

Business volumes
  • New business volumes up 11% to R233 billion Net value of new covered business up 18% to R1 605 million
  • Net new covered business margin of 2,69% (2,62% in 2015)
  • Net fund in flows of R41 billion compared to R19 billion in 2015

Group Equity Value
  • Group Equity Value per share of R54,07
  • Return on Group Equity Value per share of 11,8% Adjusted Return on Group Equity Value per share of 17,8%; exceeding target of 14,1%

Capital management
  • R3,4 billion redeployed during 2016
  • Unallocated discretionary capital of R550 million at 31 December 2016
  • Further planned releases of discretionary capital of R500 million – R1 billion per annum over next four years Sanlam Life Insurance Limited CAR cover ratio of 5,8 times
  • Sanlam Group SAM cover ratio of 2,2 times; Sanlam Life Insurance Limited at 3,1 times

  • Dividend per share of 268 cents, up 9,4%

The operational performance of the Group in 2016 is testimony to a well-executed sustainable strategy. The five-pillar strategy introduced in 2003 transformed the Group into a business diversified across business lines, geographies, market segments and products, with an exceptionally strong capital base. The Group’s strategy is by no means unique with many other multi-national insurance and financial services groups following a similar approach. Sanlam’s ability to consistently execute on the strategy has, however, been a key differentiator, enabled by:

This enabled the Group to achieve particularly satisfactory results in the 2016 financial year, delivering double-digit growth in all key operating indicators despite a challenging environment.


Economic growth, supportive investment markets and political and social stability are some of the key drivers of growth for Sanlam. The Group, however, faced the opposite in 2016. On the domestic political front the year started in the aftermath of the unexpected changes in Ministers of Finance during December 2015, setting the stage for a year of political uncertainty along with poor economic growth. Positive developments since the end of December 2015 were successful local government elections and renewed cooperation between government, labour and business to address the structural challenges that are hampering economic and employment growth in South Africa. Various initiatives were launched, which assisted in South Africa maintaining its investment grade sovereign debt ratings. The Finance Ministry and private sector are committed to achieve the common goals of the initiatives of inclusive growth, which bode well for accelerated future economic growth should political stability be maintained.

As highlighted in the report on the Economic and operating environment, global markets have been impacted by various domestic and international events. These included fears of lower than expected global economic growth driven by a slowdown in China and the soft commodity cycle, rising geopolitical risks and the impact of potentially opposing monetary policy stances by central banks in the US, UK, Europe and Japan. The fragile outlook for global economic growth was dealt a further blow at the end of the second quarter by the UK electorate’s surprise vote in favour of Britain leaving the European Union, signifying rising pressure in a number of countries for more protectionist policies. Protectionism also featured strongly in the US Presidential elections.

These conditions increased the pressure on the economic growth, currencies and investment market performance of the emerging market countries where the Group operates, with commodity-based economies such as Zambia, Nigeria and Angola particularly hard hit. The British pound was similarly under pressure. The exceptions were the rand exchange rate and returns on the bond market in South Africa. The changes in Finance Ministers in December 2015 sparked a sharp weakening in the rand and a significant rise in long-term interest rates at the end of 2015. The positive developments since then and South Africa’s ability to retain its investment grade foreign credit rating, supported a rally in the rand exchange rate and a 15% return from the South African All-bond index as long-term interest rates declined by some 100 basis points. The rand strengthened by 12% and 26% against the US dollar and British pound respectively, with the pound weakening on a relative basis in the aftermath of Brexit. The rand also strengthened against the emerging market currencies where the Group operates. On an average basis, though, it was still weaker during 2016 compared to the 2015 financial year.


The impact of the operating environment is particularly evident in the following areas of the Group’s results:

  • Growth in single premium life and non-life business as well as institutional fund flows in South Africa, where retail and institutional clients remained risk averse in the uncertain environment.
  • Fund-based fee income at SI and SPF, where the weak equity market performance limited growth in assets under management.
  • Investment return earned on the Group’s capital portfolio. The relative movement in the rand exchange rate during 2015 and 2016 had a pronounced impact on the investment return earned on the foreign exposure in the South African portfolio. The MSCI World index in rand returned 33% in 2015 compared to a negative return of 5% in 2016. This was aggravated by the relatively weaker performance of investment markets in the major SEM countries.
  • The decline in long-term interest rates in South Africa resulted in a commensurate decline in the risk discount rate (RDR) used for the valuation of the South African businesses for GEV purposes and to determine VNB. This had a positive impact on RoGEV and growth in VNB.
  • The strengthening of the rand contributed to the recognition of significant foreign currency translation losses in RoGEV in respect of the Group’s non-South African operations due to the impact on the year-end GEV valuations.

Changes in tax legislation in South African also affected the Group’s results for the year to 31 December 2016:

  • The effective corporate capital gains tax (CGT) rate was increased from 19% to 22% during the first half of 2016, requiring re-measurement of the Group’s deferred tax balances. This resulted in the recognition of a R192 million (net of non-controlling interests) one-off capital gains tax charge in the Group’s earnings for the year to 31 December 2016 in respect of the capital portfolio investments held by the South African businesses.
  • The taxation of risk business written by life insurance companies was amended through the introduction of a separate risk policyholder tax fund (RPF) for this business. The net effect was as follows:
    • For new business, tax relief for the upfront costs incurred in respect of writing new business is effectively delayed until the product becomes profitable from a cash flow perspective, having a negative effect on VNB and new business strain generated by risk business. This negative impact is somewhat countered by non-taxable investment return earned on risk reserves in the RPF. The impact on the risk business margin was substantially mitigated through product design changes and re-pricing in the market.
    • In respect of existing business transferred from the Individual Policyholder Fund (IPF) to the RPF, investment income earned on accumulated reserves is no longer taxable, resulting in a reduction in the policyholder reserves required to back risk business. A discretionary margin has been recognised to offset the reserve release to ensure profit is still recognised over the lifetime of the affected policies. This discretionary reserve led to an increase in the value of in-force life business.
  • Group subsidiaries that wrote large volumes of risk business in the past, generated assessed losses within the IPF on an annual basis. The level of assessed losses generated annually by new risk business was of such an extent that it was not considered probable that it would be fully utilised. No deferred tax assets were therefore recognised in respect of these assessed losses. With all new risk business now being written within the RPF, taxable investment income generated by savings business remaining within the IPF will in future utilise the available assessed losses. The International Financial Reporting Standards (IFRS) requirement for the recognition of deferred tax assets in respect of the assessed losses are therefore met, with a total amount of R1,3 billion recognised in 2016. The recognition of these assets in respect of the policyholder fund did not result in a similar increase in investment contract liabilities in terms of IFRS, causing a mismatch between policyholder assets and liabilities. This mismatch is recognised in the Consolidation Reserve, with movements in the mismatch included in the Fund Transfers line in the shareholders’ fund income statement. It therefore does not have any impact on the shareholders’ fund net asset value included in GEV or normalised headline earnings, which are used by management for shareholder performance measurement. This treatment is in line with similar mismatches caused by Sanlam shares held in policyholder portfolios.

Refer to the basis of presentation and accounting policies of the Annual Financial Statements and Shareholders’ Information for further information in respect of the Consolidation Reserve.

The more significant highlights and lowlights for the year are:

  • Adjusted RoGEV of 17,8% exceeded the target of 14,1% by a healthy margin
  • Strong growth in VNB at SPF and SEM
  • Recovery in Shriram Capital operational performance
  • Solid growth in overall new business and net result from financial services despite major challenges
  • Significant mandates of more than R4 billion awarded by Botswana Public Officers Pension Fund
  • Saham Finances, Shriram Life and Shriram General Insurance investments finalised
  • Good progress with Saham Finances co-operation
  • R3,4 billion of discretionary capital redeployed
  • Good progress with capital and balance sheet management
  • Recovery in operating experience variances in second half of the year
  • Maiden contribution from Central Credit Manager

  • Underperformance in Zambia, Kenya, UK and Malaysia
  • Losses from financial irregularities in Rwanda
  • Higher claims experience at SPF, SEB, SEM Namibia and Santam
  • Lack of progress in diversifying Pacific & Orient product mix resulted in lower GEV valuation and recognition of IFRS impairment charge
  • Lower annuity sales in Botswana
  • Lower discretionary flows at SPF
  • Impact of weak investment markets on returns

  • Basis of presentation and accounting policies

The Sanlam Group IFRS financial statements for the year ended 31 December 2016 are presented based on and in compliance with IFRS. The basis of presentation and accounting policies for the IFRS financial statements and Shareholders’ Information are in all material respects consistent with those applied in the 2015 Annual Report. For segmental reporting, the newly created Sanlam Corporate cluster is shown separately for the first time, initially comprising of SEB and the Sanlam Healthcare businesses.

All growth percentages reflected in this review are relative to the 12 months ended 31 December 2015, unless otherwise indicated.

  • Financial performance measure

The Group has chosen RoGEV as its main measure of financial performance for many years. GEV provides an indication of the value of the Group’s operations, but only values the Group’s in-force covered (life insurance) business and excludes the value of future new life insurance business to be written by the Group. GEV is the aggregate of the following components:
  • The embedded value of covered business, which comprises the required capital supporting these operations and the net present value of their in-force books of business (VIF);
  • The fair value of other Group operations based on longer-term assumptions, which includes the investment management, capital markets, credit, general insurance and wealth management operations of the Group; and
  • The fair value of discretionary and other capital.

Sustained growth in GEV is the combined result of delivery on a range of key performance drivers in the Group. RoGEV measured against a set performance hurdle is therefore used by the Group as its primary internal and external performance benchmark in evaluating the success of its strategy to maximise shareholder value.


The RoGEV target is to outperform the Group’s cost of capital. The cost of capital is set at the risk free nine-year bond rate (RFR) plus 400bps. The compounded RoGEV of the Group since Sanlam demutualised and listed in 1998 comprehensively outperformed this target.

GEV amounted to R110,7 billion or 5 407 cents per share at 31 December 2016. Including the dividend of 245 cents per share paid during the year, a RoGEV per share of 11,8% was achieved for 2016. This is lower than the 14,1% target for the year, principally due to negative foreign currency translation differences recognised in respect of the non-South African operations following the sharp recovery in the rand exchange rate during 2016. The benefits of a lower RDR in South Africa at 31 December 2016 compared to end-2015 were substantially offset by the weak equity market performance during 2016. Adjusted RoGEV per share, which excludes the impact of lower investment return than the long-term assumptions, interest rate changes and other one-off effects not under management control (such as tax changes), and assuming normalised exchange rate movements, amounted to 17,8% – well in excess of the target.

South African long-term interest rates declined by some 90bps during 2016, with a corresponding 90bps decline in the RDR used to value the Group’s South African businesses for GEV purposes. A discounted cash flow (DCF) valuation basis is used for essentially all of the Group’s operations, with the decline in RDR having a positive effect on the end-2016 valuations and RoGEV for 2016. This positive impact was largely negated by a weak equity market performance, which limited growth in assets under management and hence GEV valuations at SI and SPF. The strengthening of the rand against most currencies during 2016 had a pronounced negative impact of more than R5 billion on the rand-based valuations of the Group’s operations outside of South Africa and Namibia. This resulted in an overall underperformance in RoGEV compared to target in 2016. Adjusted RoGEV is a more comparable measure of the underlying operational performance, which continues to reflect sound results despite the challenging operating environment during 2016.


Group operations yielded an overall return of 13,1% in 2016,the combination of 15,8% return on covered business and 10,5% on other Group operations

The main components contributing to the return on covered business are covered in the table below:


The Group’s covered business operations (comprising 46% of GEV) achieved a good overall performance, exceeding the Group hurdle rate by a healthy margin despite the economic and currency headwinds faced in 2016. This was supported by a sterling return from the mature South African covered business operations of SPF, which exceeded the 14,1% hurdle rate by 7,3% with an overall return of 21,4% (20% on an adjusted basis). A strong VNB performance, positive operating experience variances and assumptions changes, tax changes and the positive effect of the lower RDR contributed to this performance. The weak investment return earned on the South African capital portfolio during 2016 suppressed Sanlam Corporate’s covered business return to 7,8% given the large relative capital allocation to this business. SEM achieved a return of only 0,7% due to foreign currency translation losses – adjusted RoGEV of 21,1% was well in excess of its target. The Sanlam UK return on covered business of -24,7% (adjusted RoGEV of 9,6%) reflects the stronger rand exchange rate, but also operational underperformance emanating from the UK restructuring, lower than expected new business production and the strengthening of the reserving basis for regulatory changes (refer Earnings section below). The main items contributing to the return from covered business are:

  • Value of new covered business: The strong new business performance of 2015 was maintained during 2016, with VNB on a consistent economic basis contributing 3,2% to the overall return.
  • Operating experience variances improved markedly in the second half of 2016 compared to the first six months of the year. Risk experience at SPF, SEB and Namibia were particularly weak in the first half of 2016. This improved in the latter part of the year with all clusters reporting overall positive experience for the full 2016 year. Augmented by continued positive working capital and other experience, operating experience variances contributed 2,1% to RoGEV, at a similar level than 2015. Negative persistency experience of only R11 million is particularly satisfactory under current market conditions and testimony to the Group’s focus on writing quality new business and maintaining a superior client experience.
  • Operating assumption changes made a similar contribution to RoGEV in 2016 than in the comparable 2015 period.
  • The largest variances relate to economic assumption changes, investment variances and foreign currency translation differences. The lower RDR in 2016 supported the valuation of covered business in South Africa, partly reversing the negative economic assumption changes at the end of 2015 when long-term interest rates rose by 200bps. Negative investment variances largely reflect the weak equity market performance in South Africa and most of the Rest of Africa markets as well as the marked-to- market losses incurred on the non-South African exposure in the capital portfolio. The negative foreign currency translation differences reflect the negative impact of the stronger rand on the non-South African value of in-force covered business.

Capital allocated to covered business (adjusted net worth) increased only marginally on 2015, with Sanlam Life’s capital requirement remaining unchanged.

Other Group operations (comprising 46% of GEV) achieved a return of 10,5% (20,4% on an adjusted basis). The valuation and return of the South African businesses were positively impacted by the lower RDR, partly offset by low growth in assets under management at the SI asset management businesses. Foreign currency translation differences on the SEM and SI non-South African operations account for most of the difference between actual and adjusted RoGEV. All of the major businesses achieved good growth in adjusted RoGEV, apart from the following:

  • Sanlam Investments’ international businesses. The Sanlam UK businesses experienced expense overruns and weak new business growth during the restructuring process, which inevitably led to some internal focus. Assets under management at the Dublin platform business and the asset management businesses were impacted by large withdrawals from Sanlam FOUR and a repatriation of funds by South African clients (refer Business volumes section below).
  • The Shriram Capital credit businesses, where a prudent valuation approach was followed in light of the uncertain impact that de-monetisation will have on the Indian economy and credit businesses in general.
  • The general insurance operations of Pacific & Orient (P&O). Diversification of the P&O product lines is taking longer than expected, impacting negatively on the short-term growth prospects and valuation of the business.
  • The Soras general insurance business, where financial irregularities uncovered during the year resulted in an impairment of the GEV valuation.

Central support functions at SEM were also strengthened during the year to more effectively support the expanding footprint. Capitalisation of the increased central support costs also had a negative impact on the non-life RoGEV returns, as the valuations do not explicitly allow for any potential future benefits arising from these initiatives.

The Group’s investment in Santam is valued at its listed share price, which recorded a strong return of 32% in 2016 compared to a negative performance of 8,4% in 2015.

The low return on discretionary and other capital is essentially the combined effect of the following:

  • Net corporate expenses of R107 million recognised in net result from financial services.
  • A relatively low level of return earned on the portfolio’s exposure to low yielding liquid assets.
  • Hedging of the Saham Finances and Shriram Life and General Insurance transactions. (Refer Capital management section below.) The transactions were hedged through the acquisition of foreign currency, which earns a very low rate of interest due to the US Dollar denomination. The application of hedge accounting principles in the GEV presentation furthermore eliminated the foreign currency gains, essentially exposing the portfolio to some R5 billion of assets that earned close to zero return – R4 billion for two months (Saham Finances) and R1 billion for nine months (Shriram options).

Read more about the Group’s client-centric approach and value proposition in the Value creation section.


Net result from financial services (net operating profit) of R8 billion increased by 10% on 2015, with sterling contributions from SEM and Sanlam Corporate and solid performances by the other Group operations. Santam achieved lower operational earnings due to the normalisation in its underwriting margin from an exceptionally high base in 2015. Structural growth (Saham Finances, the Zimbabwean operations, Afrocentric and the 23% direct stakes acquired in Shriram Life Insurance and Shriram General Insurance) contributed R221 million to net result from financial services. Excluding these, organic growth of 7% represents a satisfactory performance in an unsupportive environment.


SPF delivered a solid performance for a largely mature business in an environment of stagnant economic growth and a weak equity market performance.


Sanlam Individual Life remains the largest contributor to SPF’s operating earnings with growth in its net result from financial services of 6% in 2016.


Profit from investment products declined by 2%, largely attributable to the impact of the weak equity market performance on assets under management, a relatively lower impact on profit from actuarial basis changes, a decline in asset mismatch profits and an acceleration in deferred acquisition cost amortisation following a rise in paid up and early retirement policies.

Profit from risk products declined by 53%, the combined effect of increased new business strain and weaker claims experience. The Group follows a prudent profit recognition approach for insurance contracts in terms of which all upfront acquisition costs are expensed instead of being capitalised and amortised over the duration of the contracts. The strong growth in new recurring premium risk business in 2016 (refer below) combined with the introduction of the RPF contributed to a 45% increase in new business strain. Mortality claims experience deteriorated significantly in the first half of 2016 after exceptionally favourable experience in 2015. Claims experience improved in the second half of the year, but were still at a lower overall level for the 2016 full-year compared to 2015.

Profit released from the asset mismatch reserve held in respect of non-participating risk business increased by 4% in line with the higher average level of this reserve during 2016.

Profit from the annuity book almost doubled due to increased risk margin releases in line with the larger size of the book, an increase in asset mismatch profits and higher spread generated by the newly established Central Credit Manager in SCM. Other life profits increased by 82%, benefiting from higher short-term interest rates through an 18% rise in working capital profit and lower negative actuarial basis changes in 2016 compared to the 2015 comparable period.

Sanlam Personal Loans profit declined by 4%, attributable to only a marginal increase in the size of the loan book. The implementation of the National Credit Amendment Act added substantially to the administration process surrounding loan applications and also introduced more strict affordability requirements. This resulted in a decline in activations, and also a decline in the number of clients qualifying for loans. Focus remained on maintaining the quality of the book. The bad debt ratio improved to 5,0% as a result, from 5,4% in 2015.

Sanlam Sky’s net result from financial services increased by 6%. Growth in the size of the in-force book and positive mortality and persistency experience variances were somewhat offset by lower investment variances and economic assumption changes.

Glacier grew its profit contribution by 25% after tax. Fund-based fee income benefited from an increase in average assets under management. Stringent expense management and lower variable costs due to the lower level of growth in new business also supported the results.

SEM grew its net result from financial services by 30%, comprising organic growth of 18% and a 12% contribution from structural growth.

Namibia's net result from financial services declined by 12% (down 7% on a gross basis). Life earnings were suppressed by negative mortality and disability claims experience, an increase in new business strain following strong growth in entry-level market risk business and lower annuity mismatch profits. Santam Namibia also experienced a normalisation in underwriting margins, similar to Santam’s South African operations. Bank Windhoek performed well and achieved double-digit profit growth.

The Botswana operations achieved mixed results with overall growth of only 1% in net result from financial services. Life insurance profit declined marginally due to lower annuity new business volumes and asset mismatch losses recognised following adverse movements in the yield curve. Letshego, the second largest profit contributor, experienced flat earnings compared to 2015. Increased competition from banks in Botswana limited growth in the loan book while foreign currency translation losses also dampened earnings growth. The asset management business experienced strong growth of 19%, benefiting from an increase in assets under management after being awarded a large new mandate by the Botswana Public Officers Pension Fund (BPOPF).

The Rest of Africa operations, excluding first time contributions of R112 million from Saham Finances and the Zimbabwe operations, achieved growth in net result from financial services of 45%. All countries delivered strong growth, apart from Malawi and Zambia. The general insurance operations in Malawi experienced pressure on claims, while Zambia continues to be impacted by a difficult operating environment. The Zimbabwean and Nigerian operations exceeded expectations, while Saham Finances performed only marginally below the business plan despite pressure on the Nigerian and Angolan operations that are affected by currency liquidity constraints and pressure on economic growth from lower oil prices.

Net result from financial services in India rose 65%; 19% excluding profit contributed by the 23% direct stakes acquired in Shriram Life Insurance and Shriram General Insurance during the year as well as the R103 million equipment finance bad debt provision recognised in 2015, which did not reoccur in 2016. The credit businesses achieved strong growth pursuant to almost 20% growth in their loan books and an expansion in net interest margins. The general insurance business also contributed good growth despite higher than expected claims experience on the third party motor book, while the life insurance business incurred an operating loss due to increased new business strain and continued investment in expanding its distribution footprint.

The Malaysian businesses had a disappointing year, masked by one-off IBNR releases. Net result from financial services increased by 110%, the aggregate of more than threefold growth in general insurance earnings and a lower contribution from the life insurance business. Growth in general insurance business premiums remained under pressure, with diversification of the product lines taking longer than anticipated. This was however more than offset by releases of the IBNR reserves recognised in 2015 as experience develops. Product innovation is a key focus for the business to regain market share and to expand its product lines. A number of new products are planned for launch during 2017. The life insurance business had a difficult year with operating earnings declining by 38%. This is attributable to a number of one-off items:

  • Higher reinsurance premiums payable in respect of Group Life products in terms of renewed treaties.
  • Continued medical losses due to the delayed effect of repricing of the product while awaiting regulatory approvals. The approvals have recently been received.
  • Strengthening of the reserving basis in a number of areas.

SI achieved overall growth of 4% in its net result from financial services, with an exceptional performance from Capital Management largely offset by a lower profit contribution from investment management.


Investment Management's net result from financial services declined by 10% on 2015, predominantly caused by lower performance fees in the South African Asset Management business.

The ability of the South African Asset Management business to grow assets under management and fee income in 2016 was hampered by a number of factors:

  • The weak South African equity market performance in 2015 and 2016 impacted adversely on growth in assets under management with flat average market levels. Strong returns from the bond market could only compensate partially due to the lower fee base of the fixed interest asset class.
  • Continued net outflows from the South African life book. The legacy life book managed by SI is running off while SPF’s open architecture approach results in only a portion, albeit increasing, of its new business being managed by SI.
  • The redeployment of discretionary capital during the year further reduced the SI asset base.
  • Net performance fees declined by 41% from R214 million in 2015 to R127 million in 2016. Performance fees on the SPF and SEB portfolios are measured over a rolling 3-year period. The 2015 base still included the 2013 calendar year, which was a particularly strong year of outperformance. Its exclusion from the 2016 calculation muted growth in performance fees in 2016.

The impact of the weak equity markets on assets under management and related fee income was even more pronounced at the Wealth Management business given the larger exposure to equities in its underlying portfolios.

These businesses have done well to limit the decline in their operational earnings to only 4% under these conditions. This was achieved through diligent cost management and success in attracting higher margin retail flows (refer below).

The International business had a disappointing year, with net result from financial services declining by 38% on 2015. The weakening of the rand during 2015 caused breaches in a number of South African funds’ foreign investment allowance, requiring a repatriation of assets from the international portfolios. This had a negative impact on administration and assets management fee income. Sanlam FOUR also experienced large outflows from its UK equity portfolio (refer below), further suppressing fee income growth. Sanlam UK earnings also came under pressure from one-off restructuring costs incurred in realigning the business for future growth, and strengthening of the reserving basis in the UK life operations following the introduction of regulatory caps on exit fees. The latter required an increase in policy liabilities of some R70 million, part of which is expected to emerge as positive experience in the future depending on persistency experience.

Capital Management achieved 89% growth in its net result from financial services. Credit spreads on Eurobonds narrowed during 2016 while commodity stock share prices linked to equity-backed financing structures rose sharply. This contributed to a reversal of the marked-to-market losses incurred on these instruments during the 2015 financial year, when credit spreads widened and share prices were under severe pressure.


The underwriting margin at Santam normalised during 2016 to 6,4% from an exceptionally high base of 9,6% in 2015. The 2016 performance is in the middle of the target range of 4% to 8%, representing a solid performance. The benign claims environment of 2015 reversed with higher claims experienced across most lines of business. The crop and property business lines were severely affected by drought-related and large corporate claims respectively. Net premium growth was also less than planned for 2016 in a competitive environment for especially niche and specialist classes. Net result from financial services declined by 13% as a result.

The 36% growth in Sanlam Corporate’s net result from financial services includes a first-time contribution of R82 million by Afrocentric (14% growth excluding Afrocentric). SEB’s net result from financial services increased by 18%. SEB Investments benefited from asset mismatch profits, good mortality (annuity longevity) experience and lower new business strain, supporting a doubling in investment and other profit. Higher short-term interest rates increased interest earned on working capital by 38%. The retirement fund administration business on boarded a large new client, which increased administration fee income in 2016 and contributed to a pleasing decline in the business’s operating loss from R18 million in 2015 to R5 million in 2016, which was partly offset by one-off system development costs. The adverse disability claims experience in the first half of 2016 improved in the second half of the year, but with this improvement partly offset by a few large mortality claims in December 2016. Group risk profits accordingly remained under pressure and declined by 38% compared to 2015.


Normalised headline earnings of R8,4 billion are 6% down on 2015. This is the combined effect of the 10% increase in net result from financial services, a 65% decline in net investment return earned on the capital portfolio and an 22% decline in amortisation of intangible assets and equity participation costs. Net investment return was adversely affected by the following:

  • The impact of the stronger rand on investment return earned on the international exposure in the South African portfolio;
  • Weaker equity market returns in the major SEM geographies; and
  • The additional deferred tax expense of R192 million recognised following the increase in the effective CGT rate from 19% to 22% during the first half of 2016.

The Group achieved overall growth of 11% in new business volumes, a credible performance. Excluding first-time contributions from structural growth, new business volumes increased by 9%. Life insurance new business volumes increased by 9%, investment business inflows by 10% and general insurance earned premiums by 18% (7% excluding structural growth). Structural growth did not contribute significantly to life insurance and investment new business.


SPF’s new business sales grew by 1%, with lower discretionary single premium volumes concealing a strong recurring premium performance.


Sanlam Sky new business increased by 1%. Major progress was made in improving the mix of business between risk and savings solutions after disproportionate sales of tax free savings products in 2015. The design of the savings solution was also amended during 2016 as much weaker than expected persistency experience rendered the original product launched in 2015 unprofitable. Individual life recurring premium new business declined marginally due to the management actions implemented to improve the mix of business. Individual life risk business sales increased by a healthy 13%, offset by a 43% decline in savings business. The change in mix had a significant positive impact on VNB (refer below). Group recurring premium sales were supported by a few large new schemes written by Safrican during 2016 and increased by 17%, excluding the impact of the biennial renewal of the ZCC scheme that occurred in 2015. Including the ZCC, group recurring premium business increased by 8%.

New business volumes in the Individual Life segment, which is largely focused on the middle income segment in South Africa, increased by 1%. Single premium sales declined by 1%, the combined effect of some pressure on disposable income and increased investor risk aversion in the uncertain political and investment market environment. Guaranteed plan business did well under these conditions and increased by 9%, but was more than offset by lower sales of the other major product lines. New recurring premium sales grew by a strong 13%, with all lines of business contributing to the growth apart from credit life that reflects the low level of growth in the Sanlam Personal Loans book. Growth in sales of the more profitable risk business remained particularly strong at 20% following recent product innovation and improvements, and enhanced distribution focus. VNB benefited as a result (refer below), but new business strain recognised in operating earnings increased commensurately as highlighted above.

Glacier was also severely impacted by the heightened investor risk aversion, contributing to a 12% decline in discretionary non-life new business sales (excluding wrap funds). Demand for life licence and wrap solutions were more resilient with new business volumes increasing by 11% and 7% respectively. Within the life insurance sales, demand for both offshore and local funds persisted.

The slowdown in single premium business had a negative impact on SPF’s net fund inflows, which declined from R22 billion in 2015 to R16 billion in 2016.

SEM new business volumes grew by 63% (47% excluding structural growth). New life business increased by 7% (4% excluding structural growth), investment business inflows by 80% and general insurance earned premiums by 140% (10% excluding structural growth).

New business volumes in Namibia increased by 4%, the combined result of 16% and 1% growth in new life and investment business respectively. Entry-level market life business sales performed particularly well, supporting growth in the Namibian VNB (refer below). The low growth in investment business is attributable to only marginal growth in both collective investment scheme inflows and Glacier Namibia new business.


The Botswana operations almost doubled their new business contribution. This is largely attributable to a R4,6 billion asset management mandate received from the BPOPF, a welcome development after the large withdrawals by the BPOPF in 2015. Annuity sales declined from a high base in 2015, contributing to an overall 19% decline in life insurance new business.

Rest of Africa new business volumes grew by 149%, supported by the first-time inclusion of Saham Finances and Zimbabwe. Excluding structural growth, new business volumes increased by 51%. All countries in the region contributed to the growth, apart from Zambia and Malawi. In Zambia, the operating environment remains under pressure from low copper prices, presenting headwinds to growth in new business volumes. In Malawi, general insurance premiums were under pressure, more than offsetting good growth in life business. The Kenyan business achieved good growth in single premium life and general insurance business, augmented by a threefold rise in new investment management mandates. Individual life recurring premium life sales, however, remained under pressure following a change in the agency remuneration model and declined by 17%. Particularly pleasing is the performance of the Nigerian business, which grew its new business contribution by 52% to R407 million despite a sluggish economy and a significantly weaker currency. This illustrates the benefits of low insurance penetration in Africa that enables the Group to maintain good growth despite a weaker economic environment.

Strong growth in Indian new business persisted, with overall growth of 55% in 2016 (21% excluding structural growth). New life and general insurance business sales increased by 86% (49% excluding structural growth) and 44% (10% excluding structural growth) respectively. The life business continued to benefit from the investments made in growing its distribution footprint. Organic growth in general insurance was less than expected due to slow progress in expanding the product mix to include new and more profitable lines of business.

New business volumes in Malaysia were in line with the 2015 financial year. The life business had a good sales year, experiencing growth of 22%. Pacific & Orient, however, disappointed with a 17% decline in net earned premiums. Progress with diversifying the lines of business was slower than anticipated, aggravated by some market share losses in its traditional two-wheeler line of business. Management focus in 2017 will be on accelerated diversification and effectively responding to the de-tariffing of the general insurance industry in Malaysia.

Net fund flows staged a recovery from net outflows of R7 billion in 2015 to R11 billion of net inflows in 2016. This is the combination of strong new business growth in 2016 and the large withdrawals by the BPOPF included in the 2015 comparative base.


SI's new business growth of 8% represents a satisfactory performance given the difficult operating environment during 2016. Retail and institutional clients in South Africa took a cautious stance given political and investment market instability. The SA Investment Management business struggled to win new third party mandates under these conditions as especially pension fund trustees refrained from changing mandates and asset managers. The implemented consulting product offering, however, continued to gain traction, contributing to good growth in primary retail inflows as well as an increase in the proportion of funds invested in SI products. This supported satisfactory growth of 8% in new inflows at the SA Investment Management business. The Wealth Management business did particularly well to grow by 11% despite the heightened investor risk aversion. The international businesses achieved new business growth of only 5% as management focus was partly on the restructuring.

Net fund inflows improved from a R3 billion net outflow in 2015 to a net inflow of R5 billion in 2016. The turnaround is largely attributable to the R14 billion withdrawals by the BPOPF and the Public Investment Corporation included in the 2015 results. The International businesses experienced net outflows of some R5 billion in 2016, largely from Sanlam FOUR’s UK equity portfolio which underperformed in the aftermath of the Brexit vote due to its exposure to UK small caps.

The majority of Santam’s premiums are still written in the highly competitive South African market, where the niche classes were in particular under pressure. Gross written premiums and net earned premiums grew by 7%, reflecting the maturity of the South African market, competitive pressures and the current low-growth economic environment. MiWay, Santam’s direct insurance business, continues to achieve strong growth and increased its premium base by 19%.

Sanlam Corporate achieved growth of 73% in new business volumes, with net fund flows commensurately improving from a R489 million net outflow in 2015 to net inflows of R1,4 billion in 2016. Linked and smoothed bonus investment business did well, but the more profitable recurring premium risk business declined by 23% as competitive market pressures to retain existing business persisted.


Overall net fund inflows of R41 billion in 2016 is a satisfactory performance given the challenging market conditions.



The discount rate used to determine VNB is directly linked to long-term interest rates. The 90bps and 100bps decline in the South African nine- and five-year benchmark rates respectively during 2016 resulted in a commensurate decline in the risk discount rate with a positive impact on VNB growth and margins. In general, VNB margins were maintained on a per product basis. Changes in business mix at SPF had a significant positive impact on the Group’s VNB performance in 2016, augmented by strong organic growth at SEM. Net VNB at actual discount rates increased by 18%. On a comparable basis (before economic assumption changes) net VNB increased by a pleasing 10%.

SPF achieved overall growth of 11% on a comparable basis. The change in business mix in Sanlam Sky, together with an improvement in the profitability of the savings product, contributed to a 27% increase in its VNB contribution and an increase in VNB margin from 5,86% in 2015 to 6,8% in 2016 on a consistent economic basis. The good growth in new risk business in Individual Life similarly supported VNB, with this segment’s contribution increasing by 9% on a comparable basis despite only marginal overall growth in new business sales. Individual Life VNB margins improved from 2,59% to 2,70%. Glacier’s VNB growth was in line with its new business performance.

Net VNB at SEM grew by 19% on a comparable basis, with strong growth in Namibia, Nigeria, Tanzania, Uganda, India and Malaysia in line with these regions’ new life business performance. Saham Finances made a first-time contribution of R16 million. Malawi reported lower VNB compared to 2015 due to an adverse change in business mix. Kenya disappointed with a negative VNB contribution of R7 million as lower individual life recurring premium business resulted in an increase in maintenance unit costs. Management focus remains on improving the new business performance.

SI’s VNB declined by 73%, principally due to a 15% decline in life insurance new business in the UK and an increase in the cost of capital allowance.

Sanlam Corporate VNB declined by 5% on a comparable basis, due to the change in mix towards less profitable savings business.


Solvency Assessment and Management

The South African insurance industry performed parallel solvency reporting during 2016 to prepare for the implementation of the new Solvency Assessment and Management (SAM) regime in 2017. The SAM regime is anticipated to replace the current Financial Soundness Valuation (FSV) solvency regime in the second half of 2017. As highlighted in previous communication, SAM is a risk-based solvency regime founded on the European Solvency II principles, but adapted for South African circumstances.

The initial focus of Sanlam’s SAM programme was to prepare the Group and the South African insurance subsidiaries for SAM compliance. In a second phase, the strategic asset allocation of the balanced portfolio supporting Sanlam Life’s covered business was amended during the 2015 financial year to optimise the capital base from a RoGEV perspective in line with the pending SAM environment. SAM is significantly more punitive in respect of unhedged equity exposures than FSV and accordingly require a more conservative asset allocation. Implementation of the revised strategic asset allocation (illustrated in the table below) concluded in the first half of 2016.


For Sanlam Life, the Group’s target under the FSV basis was to ensure that its CAR cover would be at least 1,5 times over a 10-year period, within a 95% confidence level. At the end of 2015 this translated into IFRS-based required capital of some R14,5 billion for Sanlam Life’s life insurance business, which was covered as follows:

  • R2,5 billion by Santam shares;
  • R2 billion by the subordinated debt issued by Sanlam Life; and
  • R10 billion by the balanced portfolio.

A prudent approach was followed in determining required capital at the end of 2015 as further modelling capability and certainty on the final SAM standard formula were required to confirm the level of required capital under SAM.

The third phase of the SAM programme involved expansion of the Group’s capital management projection capability, specifically adapted for SAM. Good progress has been made during 2016 in this regard, which enabled the Group to set an appropriate level of IFRS required capital for Sanlam Life’s covered business under SAM, based on the following principles:

  • A SAM Solvency Capital Requirement (SCR) cover range of between 1,7 times and 2,1 times is targeted over a 10-year projection period. At the lower end of the range Sanlam Life’s covered business should be able to withstand two economic shock scenarios before reaching the minimum 1 times SCR cover (refer page 17 of the Capital and Risk Management report in the Annual Financial Statements online for a description of the shock scenario).
  • Investment return earned on the balanced portfolio is excluded from the projections. Actual investment return earned will therefore be available for release to discretionary capital on an annual basis under normal circumstances. In severe scenarios that result in a breach of the lower threshold, investment return can be retained in the portfolio to restore the SCR cover to the lower end of the range. This allows for increased capital management flexibility.
  • Transfers to discretionary capital will occur when the upper limit of the target range is breached over the full 10-year projection period.

As indicated in the Group’s interim results announcement, a SCR target cover range of between 1,7 times and 2,1 times has been set for Sanlam Life’s covered business. The R14,5 billion of IFRS-based required capital translated into a SCR cover at the upper end of the target range at 31 December 2015.

The IFRS required capital for Sanlam Life’s covered business has been set at R12 billion at 31 December 2016, covered by the R2 billion subordinated debt and R10 billion in the balanced portfolio.

On this basis, the SAM cover ratio for Sanlam Life’s covered business amounted to 2,2 times on 31 December 2016. Including Sanlam Life’s investments in Group businesses, the discretionary capital held on its balance sheet as well as the cash held for the anticipated dividend payment to Sanlam Limited in 2017, the SCR cover for the Sanlam Life legal entity (solo) amounted to 3,1 times on 31 December 2016. The solo solvency ratio will be reported to the regulator once SAM is effective and will also be relevant for clients, market participants and credit rating agencies in evaluating Sanlam Life’s credit risk. The graphic below illustrates the build-up of Sanlam Life’s available capital (own funds) and SCR cover.

Download Analysis of SAM solvency position as at 31 December 2016


SAM also requires the calculation of a Group solvency position, which is likely to become the more relevant solvency measure over time. The Sanlam Group had a healthy SCR cover of 2,2 times at 31 December 2016. The principle reason for the lower Group SCR cover compared to Sanlam Life, is the inclusion of Santam in the Group position. General insurance business can be conducted at lower cover ratios than life business given its different risk profile. Santam’s well diversified book further reduces its capital requirement and hence SCR cover ratio. At a Group level a prudent approach was also followed by not including the Santam surplus capital, thereby effectively including it at a 1 times cover ratio.

Read more about the SAM solvency position in the Capital and Risk Management Report included in the online Annual Financial Statements.

Sanlam Life’s capital requirement is expected to reduce over the next few years as the more capital intensive legacy business continue to decline as a proportion of the overall life book, settling at around R8 billion. The capital modelling conducted during 2016 indicate that, together with expected investment return to be earned on the balanced portfolio, between R500 million and R1 billion could be released per annum over the next four years to augment the discretionary capital available for deployment, assuming no significant change in regulations. Focus will also be placed in 2017 on opportunities to further optimise the capital position of the other South African life insurance licences.

The fourth phase of the SAM programme was also launched during 2016, focusing on optimising balance sheet management. The introduction of the Central Credit Management function in SCM is the first initiative flowing from this work.

Read more about the Central Credit Manager in the Operational Review by the Group Chief Executive

Discretionary capital

The Group started the year with discretionary capital of R2,3 billion, which was earmarked for new growth and expansion opportunities as well as to strengthen existing relationships. This balance excluded the capital allocated for the Saham Finances transaction announced in 2015 and the acquisition of 23% direct stakes in Shriram Life Insurance and Shriram General Insurance. These transactions were concluded and payment made during 2016.

A net total of R3,4 billion was redeployed in 2016 in respect of new transactions, which included the following:

  • An additional investment in Saham Finances was announced in December 2016. In terms of this second transaction, the Group will acquire a further 16,6% stake for some R4,6 billion. At least R2,7 billion will be funded from discretionary capital and has been formally allocated as such from the available discretionary capital, with the remainder to be funded through the raising of debt. The acquisition price is payable in US Dollars, which the Group hedged in the latter part of 2016 and beginning of 2017.
  • In January 2017 SPF announced the acquisition of a 53% stake in BrightRock for some R700 million. BrightRock is an innovative provider of unique needs-based life insurance cover in South Africa that adapts in line with changing client needs. The BrightRock products will augment SPF’s existing risk product offering and is expected to enhance SPF’s market share of this profitable line of business. ( Read more about the BrightRock acquisition in the Strategic Review by the Group Chief Executive on page 114.)
  • SI concluded a number of smaller transactions, including:
  • A R150 million investment in Brackenham, a private client wealth management business.
  • An effective 49% shareholding in FIRSTGLOBAL Asset Management, a South African asset management company which also renders intermediary services in relation to participatory interests in collective investment schemes. The total acquisition consideration was R56 million.
  • The acquisition of the minority shareholders’ interest in Blue Ink for R39 million.
  • R18 million for investment in its international asset managers, to set up an African wealth management business and for trail payments for the acquisition of the Vukile property management agreement.
  • Some R140 million was invested by SEM to bolster the capital position of its Rwanda operations and to expand its bancassurance arrangement with Standard Chartered Bank to general insurance business.
  • The disposal of SPF’s interest in Anglo African Finance and Santam’s contribution to SEM general insurance transactions during 2016 (including Shriram General Insurance) generated some R360 million of discretionary capital.

The discretionary capital portfolio was augmented by the following inflows:

  • Sanlam’s share of the Santam special dividend payment in 2016 amounted to R542 million.
  • The investment return of R182 million earned on the Sanlam Life balanced portfolio was released to discretionary capital as the balance required in the portfolio remained unchanged at R10 billion.
  • Some illiquid investments were disposed of, generating some R150 million.
  • The 2015 dividend cover in excess of cash operating earnings and other smaller items added some R800 million.

Together with investment return earned on the discretionary capital portfolio, unallocated discretionary capital amounted to R550 million at the end of December 2016. Further discretionary capital is expected to be generated in 2017 through a release from the Sanlam Life balanced portfolio (refer above) as well as the 2016 excess dividend cover of some R700 million. Discretionary capital remains earmarked to be utilised for value-accretive investment opportunities.

All of the life insurance businesses within the Group were sufficiently capitalised at the end of December 2016. The total admissible regulatory capital (including identified discretionary capital) of Sanlam Life Insurance Limited, the holding company of the Group’s major life insurance subsidiaries, of R46,9 billion, covered its capital adequacy requirements (CAR) 5,8 times.

The Group’s solvency position under the new SAM regime is also healthy, as indicated above.

Standard & Poors issued the following credit ratings to the Group during 2016: Sanlam Limited: South Africa National: zaA; Sanlam Life Insurance Limited: South Africa National: zaAAA, Subordinated debt: zaAA-.

The Group only declares an annual dividend due to the costs involved in distributing an interim 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 normal dividend, subject to the Group’s liquidity and solvency requirements. Dividend cover of cash operating earnings is managed broadly within a 1 to 1,1 times range to target consistent real growth in the Group’s normal dividend payment. The operational performance of the Group in the 2016 financial year enabled the Board to increase the normal dividend per share by 9,4% to 268 cents. This will maintain a cash operating earnings cover of approximately 1,1 times. The South African dividend withholding tax regime applies in respect of this dividend. The dividend does not carry any STC credits and will in full be subject to the 20% withholding tax, where applicable.

Shareholders are advised that the final cash dividend of 268 cents for the year ended 31 December 2016 is payable on Monday, 10 April 2017 by way of electronic bank transfers to ordinary shareholders recorded in the register of Sanlam at close of business on Friday, 7 April 2017. The last date to trade to qualify for this dividend will be Tuesday, 4 April 2017, and Sanlam shares will trade ex-dividend from Wednesday, 5 April 2017.

Share certificates may not be dematerialised or rematerialised between Wednesday, 5 April 2017 and Friday, 7 April 2017, both days included.