“Our engagement with Government, labour and business leaders delivered a specific set of responses geared toward addressing factors that contribute to suboptimal economic growth.”
Group Chief Executive
The 2016 financial year presented the Group with a particularly challenging operating environment as further elaborated on in the Economic review and the Financial review . Despite these conditions, the Group delivered a good overall operational performance. This was achieved through diligent focus on executing the Group’s strategy that is premised on building a diversified financial services group that can deliver sustainable long-term growth.
The significant global and local events that made 2016 memorable – including Brexit, the US Presidential election, local elections and sovereign rating milestones – again emphasised the need for large corporates, such as Sanlam, to play an increasingly active role in shaping the environment in which businesses operate. Active participation in industry and community bodies – to influence development, job creation and ensure stability – is an important feature to sustain long term growth.
Our engagement with Government, labour and business leaders delivered a specific set of responses geared toward addressing factors that contribute to suboptimal economic growth. Sanlam’s priority was to help create an ecosystem, characterised by the main ingredients and capabilities to achieve much higher levels of economic growth. Of equal importance is the message to our employees and business partners to remain focused and realistically optimistic about our operating environment over the medium term, and that we should actively play a role in positively shaping our environment.
We believe that the Sanlam Group’s strategy ensures our long-term success and ability to create sustainable value for shareholders. We can best achieve this by optimising returns through a continued focus on the Group’s five strategic pillars. We acknowledge that sound governance, people development, responsible products and services, a prosperous society, and being able to do business in a healthy natural environment will enable our long-term success.
The successful implementation of our strategy relies on having optionality, and our ability to remain focused on execution of these strategic pillars. Diligent execution on the strategy has been, and remains, a key differentiator for Sanlam, and is enabled by our ability to attract and retain the best skills available in the market.
Our objective of maximising shareholder value demands that we maintain focus on two critical areas:
We have a differentiated approach per region, with the following focus areas:
Sanlam is a large player in a mature market with strong competition. We have to further diversify our distribution capability to drive growth. This can be achieved, particularly through our entry-level market footprint, the Sanlam Reality loyalty programme, health offerings, digital enablers, outcome-based investment solutions, our Ubuntu-Botho empowerment partnership and the use of advanced analytics. Operational and capital efficiencies are key in managing our legacy book.
Sanlam focuses on accelerated growth to obtain leadership positions in all countries. Cross-border alliances and relationships enable us to capitalise on the expanded footprint following the Saham Finances transaction. Geographic expansion will be prioritised in line with client and intermediary needs.
Developed market products and services can be offered in South Africa and the Rest of Africa. The UK consolidation will result in a focus on efficiencies and distribution under new leadership, with a continued wealth and investment management focus.
The strategic focus areas per cluster are summarised in the table below. We continue to make progress in implementing our five-pillar strategy through these focus areas, while remaining flexible in prioritising the pillars according to our federal model and the different requirements or levels of maturity per cluster.
SPF has been realigned for agility, and in preparation for changes in the regulatory environment.
The cluster is addressing digital solutions and business intelligence opportunities, while extracting value from the refreshed Sanlam Reality offering. It continuously fine-tunes its advisor partnership models. There is a strong drive for accelerated growth in the entry-level market. Optimising balance sheet and capital management within the new solvency regime is also prioritised. Transformation of the distribution and office employee profile to reflect South African and client demographics – remains high on the agenda.
Sanlam Investments is defending its leading position in private wealth while building on the success in attracting retail fund flows.
The cluster’s focus is on growing corporate and third-party fund flows, where it does not have its fair market share. Improved cost efficiency is a priority. Transformation of the employee profile – to reflect South African and client demographics – is a particular focus area in support of the corporate and third-party growth initiatives, with specific emphasis on portfolio management.
The cluster, initially comprising SEB and Sanlam Healthcare, will focus on cross-selling to existing clients, bundling products to unlock value and on integrating with other clusters through Sanlam Reality.
It aims to target South Africa’s top companies and multi-nationals (both South African-based and other) with corporate solutions that follow a needs-based approach. Transformation of the employee profile – to reflect South African and client demographics – is a priority within the corporate market space. Optimising balance sheet and capital management is another important focus area.
SEM is leveraging its expanded footprint through organic growth.
Providing an unmatched Pan-African offering to corporate clients and multinational intermediaries is augmented by an in-country retail focus. It will provide expanded central support capabilities to execute on these initiatives. At the same time, focus remains on structural growth opportunities through increasing stakes in existing businesses, expanding product lines and entering new markets. The primary criteria for entering new markets are market potential in terms of size and growth prospects, low financial services penetration and relative political stability.
There is continued focus on risk management to reduce claims cost. Santam is increasing the value extracted from SEM co-investments. Transformation of the employee profile – to reflect South African and client demographics – remains a strategic focus area. A new agreement concluded with Munich Re of Africa to use its AA- Standard & Poor’s international credit rating creates the opportunity to more effectively compete for reinsurance business.
SPF’s restructure positions the cluster for further client-centric diversification. Product innovation included the new segmentation of Matrix Life Insurance Cover, which includes an “express” option that advisors can sell during one visit to the client, and with the client not having to do a medical test. These changes give advisors more options, and resulted in strong growth in new business volumes from this line of business. Product integration with Sanlam Reality is also progressing well, allowing more benefits, and gaining positive traction from advertising and marketing support. Sanlam Reality has been able to attract about 7 000 new members a month, up from 2 000 in the past few years. Clients who engage on Sanlam Reality are also two-and-a-half times more active than they were a year ago.
Distribution diversification requires an omnichannel approach – providing clients with a consistently excellent experience across engagement vehicles or platforms. This entails seamless access to financial advice, products and services wherever, whenever and however clients choose to engage – and at any point of the relationship lifecycle. The Group is making good progress in capturing data to be able to understand client needs in terms of omnichannel experiences.
Santam continues to invest in ways to penetrate new and non-traditional markets. This is partly achieved by leveraging off key stakeholder relationships, and aligning the various distribution channels to exploit business opportunities. A platform was established to enable business units, such as Santam Agri, Santam Direct and Vulindlela Underwriting Managers (VUM), to explore and discuss cross-sell opportunities and share leads.
Consumer education remains one of the most effective ways in which Sanlam creates new market opportunities.
Sanlam’s talent management strategy takes into account global and local talent management practices, and guides the Group in how to attract, recruit, develop and retain its people to strengthen Sanlam’s pool of intellectual capital.
In South Africa, the Group tracks demographic developments and shifts to transform its employee profile and distribution presence. This includes, for example, the increasing importance of Gauteng as a key metropolitan area, due to urbanisation. SPF has made good progress in penetrating new areas and market segments through employee and distribution transformation.
The restructuring initiatives in different clusters provided an opportunity to improve employment equity profiles to meet the Group targets for black recruitment. Good progress was made in senior and middle management appointments, with the South African operations achieving a ratio of 77 black and 23 white appointments.
Overall, the number of black professionals, as a particular category, has continued to increase at a steady pace – from 203 employees in 2014, to 270 in 2016. This is an increase of 33%.
Succession plans show encouraging signs of increasing the number of black people in key roles.
Sanlam and Santam have both been certified as Top Employers in 2017.
Sanlam maintained its BBBEE level 2 (2015: level 2).
Sanlam’s remuneration philosophy and policy align the strategic pillars with organisational behaviours. Short- and long-term strategic objectives are measured and rewarded to mitigate excessive risk-taking, and provide balance between long-term sustainable growth and short-term performance.
The annual bonus targets at a Group and cluster level incorporate financial and non-financial performance measures that are directly linked to the Group strategy and key performance indicators. These include net result from financial services, VNB, adjusted RoGEV and employment equity. The specific performance targets and relative weighting is determined per cluster, based on the cluster’s specific strategic initiatives.
The vesting of long-term incentives is also directly linked to strategic key performance indicators that support sustainable performance, and ensure full alignment with shareholders. Remuneration components for the Group Chief Executive and Group Financial Director are illustrated below, indicating the linkages to strategic KPIs. Performance hurdles are set relative to all five strategic pillars as well as the material sustainability themes.