Sanlam UK

 
 
Sanlam UK
R million
2010
%
Net operating profit
46
39
New business flows
3 059
43
— Life insurance
967
5
— Investment
2 092
71
PVNB premiums
996
5
VNB
11
(21)
Margin
1,10 vs 1,47%
RoGEV
2,7%
 
Adjusted RoGEV
7,1%
 
 
Share offering
 
 
Investment structure
 

Investment

Shareholding

Description

Merchant Investors Assurance Company 
100%
A Bristol-based niche player in the affluent life and specialist pension markets. 
Principal Holdings
96%
A private client and retail investment management company specialising in discretionary portfolio management. 
Buckles Holdings
72%
The largest independent financial adviser practice based in Wales. 
Nucleus Financial Group 
43%
A linked investment product platform controlled by independent financial advisers. 
Intrinsic Financial Services 
28%
A financial intermediary business consisting of financial planning and mortgage advisory divisions. 
Punter Southall Group 
23%
A UK-based financial services advisory group. 
 
“Sanlam UK produced much improved results for 2010. This is reflective largely of the stabilisation and recovery of financial markets, a more positive contribution from all businesses and the absence of several material one-off costs.” 
 

Who we are

Sanlam UK aims to build a sustainable, profitable and customerfocused niche retail financial services business that is predominantly UK-focused.

The Sanlam UK cluster consists of subsidiary companies, Merchant Investors, Principal and Buckles. The portfolio is further complemented by Sanlam's minority holdings in Intrinsic Financial Services, Nucleus Financial Group and the Punter Southall Group. Our growing portfolio of financial services businesses in the UK is active in distribution, product packaging, administration, and asset management services.

In addition, Sanlam UK also houses a newly created division - Sanlam Distribution UK. This division was set up during 2010 to assist two of our regulated businesses, Principal and Merchant Investors, achieve greater new business volumes by providing intermediaries with expert support in the fields of business consultancy, technical support, taxation and risk management.

Sanlam UK's role is to create a framework that will enable each of our businesses to thrive through the establishment of quality intermediary relationships, the linking of business opportunities, sharing of knowledge and experience, and having access to the necessary capital for growth. 
 

2010 in perspective

After the UK had experienced its worst recession in 60 years during 2009, it came as no surprise that conditions in the country continued to prove difficult, especially during the first half of 2010. As anticipated, trading conditions remained tough, with consumers reluctant to invest and new business difficult to secure.

 
However, financial markets bounced back strongly in the latter half of 2010 on the back of improved global economic data and expectations of further rounds of quantitative easing and low interest rates for longer periods of time. Yet, while fears of a ‘double dip’ recession, a Eurozone crisis and further banking sector weakness receded somewhat, consumer confidence remained weak as a result of conflicting and confusing messages regarding the shape of the economic recovery, the tackling of the fiscal deficit, and the future direction of sterling, taxes, interest rates and inflation.

Against this backdrop, Sanlam UK produced much improved results for 2010. This is reflective largely of the stabilisation and recovery of financial markets, a more positive contribution from all businesses and the absence of several material one-off costs in the cluster (as was the case in 2009). 
 

The UK portfolio - subsidiaries

The issue of water is not based on conjecture or varying opinion. It is based on fact - and the most crucial fact is that the demand for fresh water will exceed supply by 2025 - placing severe pressure on our already strained freshwater ecosystems.
Merchant Investors is a niche player in the affluent life and specialist pension markets with assets under management in excess of £1,7 billion. Its financial solutions include a suite of competitive personal pension and unit-linked bond products distributed by the intermediary market and directed at affluent individuals resident in the UK.

During 2010, Merchant Investors launched Accel, an innovative offering that combines asset allocation with fund selection to create a range of model portfolios based on different attitudes to risk. Accel is expected to appeal to a large number of independent financial adviser (IFA) firms since its innovative legal structure effectively converts client funds "under influence" to funds "under management".

Merchant Investors achieved a surplus in 2010 that was well ahead of the previous year's surplus.

Principal, a private client and retail investment management company with assets under management of £1,2 billion, specialises in discretionary portfolio management for private individuals, family trusts and corporate/institutional clients.

Principal performed well over 2010 with strong new business flows and improved profitability. Its performance is significantly correlated to that of equity markets and the business benefited from the strong equity market recovery in the latter half of 2010.

Buckles is the largest IFA practice in Wales and ranks among the top 100 in the UK by turnover. Buckles managed to stabilise its operating performance for most of 2010, fluctuating around break-even at a core business level, following the substantial losses in 2009 as a direct result of the global financial crisis. It also continues to invest in growing its business and delivering group linkages. 
 

The UK portfolio – associated companies

Nucleus is an Edinburgh-based wrap platform provider, majority-owned by its IFA shareholder firms. It had another very successful year with its asset base once again doubling, resulting in it ending the year with £2,1 billion in assets. Nucleus has gained excellent traction since it commenced operations in 2007, with around 75 supporting IFA firms and a business model that is likely to result in it remaining strategically well positioned for further strong growth.

Intrinsic is a multi-tied distribution network of financial planning and mortgage advisers. It is currently the fourth largest network in the UK by adviser numbers. A pure distribution business, Intrinsic continued to prove its resilience in what continues to be a very challenging environment. While the business remained profitable and self-funding, Intrinsic is heavily influenced by consumer sentiment and requires a much improved environment before it can reach full potential.

The Punter Southall Group (PSG) is a UK-based financial services advisory group, operating through a number of underlying businesses offering a range of asset and liability services and solutions to both institutional and high net worth clients. Services include actuarial consulting, investment consulting, wealth management, independent financial advice, and investment management. PSG produced satisfactory results with good performance from the actuarial consulting and investment management businesses. 
 

Challenges and changes

The aftershocks of the 2008 global financial crisis continue to be felt across the UK financial services industry. In addition, difficult economic conditions are made more challenging by political and regulatory factors, which continue to cause the industry to evolve. Moreover, regaining the trust of the consumer is one of the biggest challenges our industry continues to grapple with. We acknowledge, however, that challenges and change create opportunities, and Sanlam UK is well positioned to take advantage of opportunities as they present themselves. Some of the key challenges and changes that are likely to impact on our business include:
 
> Significant public sector spending cuts by the UK's coalition government are fuelling fears of a 'double-dip' recession. At the same time, however, consumers are realising that they can no longer rely on the State for their financial well-being, which means they are likely to turn increasingly to suitable private sector savings and investment products. 
> Increases in inflation and tax rates place an even greater burden on a struggling consumer base. 
> A tough economic environment continues to demand cost cutting and restructuring in the financial services industry. 
> The Financial Services Authority is to be abolished in 2012 and replaced by a new prudential regulator that will operate as a subsidiary of the Bank of England, which will be given significant regulatory powers. The new Consumer Protection and Markets Authority will regulate every UK firm providing financial services to consumers. We anticipate tougher regulation and more intrusive supervision. 
> The intended creation of three new pan-EU supervisors for securities, insurers and banks, along with a European Systemic Risk Board in January 2011 will result in the power to overrule national agencies such as the FSA. 
> The implementation of the Retail Distribution Review (RDR) by the end of 2012, will transform the advice process and set prescribed minimum qualification requirements for advisers. The impact on distribution is not completely clear, but we expect large insurers to set up their own sales forces and a material exit by independent financial advisers. 
> The possible introduction of Personal Accounts in 2012, which requires employers to automatically enroll jobholders into a pension scheme. 
> The implementation of Solvency II by January 2013.
> The continued closure of defined benefit pension schemes. 
 

Gearing for sustainable growth

The constituent business units within the Sanlam UK cluster all offer significant growth potential. We will focus on tapping into opportunities created by some of the regulatory, economic and social changes mentioned in the previous section. Our focus areas for 2011 include:
 
>
The new Sanlam Distribution UK division
  This division was established with the aim of developing and implementing a consistent strategy for the distribution of our products and services. The Distribution services division will enable us to keep pace with the rapidly changing IFA landscape in the UK. 
>
Leveraging off the Sanlam brand
  We are in a good position now to leverage off the strength of the Sanlam brand, which is recognised and respected in the UK. We will therefore rebrand and reposition certain of our businesses in the first half of 2011. 
>
Forging deeper relationships
  The pressures placed on traditional adviser business models by regulatory changes create opportunities for us to forge deeper relationships with IFAs by promoting RDR-friendly products, platforms and wrap solutions, and advising on best practice. 
>
Building trust
  We will continue our focus on establishing our business as a trusted adviser to clients and a trusted business partner to IFAs. 
>
Enhancing our retail solutions
  Widening the breadth of our financial solutions sets remains an ongoing focus area. With the new skills set within Sanlam Distribution UK, we will intensify the development of retail investment propositions. The Accel risk profiling tool and a model portfolio wrap platform will form an integral part of the retail offering. 
>
Establishing a wealth management offering
  In 2011, we will pilot a wealth management offering under the Sanlam Wealth Management umbrella, focusing on both existing and prospective direct clients.

Core to this strategy will be our continued coordinated approach to growing our businesses, promoting linkages and driving collaboration, but with each business being empowered to make its own decisions within an agreed strategic framework. 
 

Our leadership

Divisional board and committee membership

Non-executive directors

Lizé Lambrechts Chairperson of Divisional Board, Audit and Risk and Human Resources 
Johan van Zyl Human Resources
Johan van der Merwe Human Resources, Audit and Risk 
Ian Plenderleith Audit and Risk
Angus Samuels Human Resources
Paul Bradshaw Audit and Risk
 

Executive directors

Lukas van der Walt Chief Executive
Stuart Geard Financial Director
 

Chief executives of controlled entities

Lukas van der Walt Merchant Investors
Hugh Titcomb Principal
Nigel Speirs Buckles