Chairman’s report

"Since listing in 1998, Sanlam has returned phenomenal value to shareholders. The share price reached an all-time high closing price of R28,29 in February 2011, a long way from its listing 12 years ago at R6."

In 1997 when I left Sanlam after 30 years of service, the Group had just started shifting direction towards a new path of major change – embarking on a significant journey to become a world-class financial services group. At the time Sanlam was considering demutualisation and a stock exchange listing, together with a radical repositioning of its financial services offering.
Much has been achieved over the past 12 years to fulfil this ambition. Clearly evident in the Group's results is the big focus on diversification across different markets, countries and offerings. I therefore feel honoured to have been elected to the position of Chairman of this world-class operation.

The five-pillar strategy introduced by Johan van Zyl in 2003 - optimal capital utilisation, earnings growth, costs and efficiencies, diversification and transformation - has propelled the Sanlam Group towards achieving its goal of becoming a trusted world-class financial services group. The same strategy also produced a business model that provided the Group with the resilience to weather the global financial crisis when it struck in 2008. Therefore, despite the difficult Chairman's report conditions that marked the past three years, the Sanlam Group remains an organisation underpinned by an exceptionally strong operational core.

Since joining the Sanlam Board in 2009, I have been particularly impressed by the calibre of people managing the company. Sanlam boasts incredible depth of management, and not just at executive level. The competence, skill, integrity and loyalty displayed by our staff on all levels are a source of comfort and optimism.

I am also very pleased with the level of transformation that has taken place at Sanlam in a relatively short period of time. While more must be done, I am encouraged by Sanlam's true commitment to transforming the company. In 1992, the first English-speaking Managing Director was appointed. Today, 60% of Sanlam's staff members are black and in 2010, 86% of new people appointed were black.

In 2010 our Board comprised three black females, five black males, one white female and eight white males.

Delivering shareholder value

Since listing in 1998, Sanlam has returned phenomenal value to shareholders. The share price reached an all-time high closing price of R28,29 in February 2011, a long way from its listing 12 years ago at R6. The share price ended 2010 at R27,92. This represents growth of 365% over this 12-year period (excluding the additional return of annual dividends) compared with the SA Life Assurance Index which grew by 49% over the same period.

This translates into an average return per annum of 13,6% for Sanlam, significantly outperforming our peer group which generated an average annual return of 3,3%.

Despite a difficult operating environment, Sanlam delivered a pleasing operating performance in 2010 and continued traction in respect of growth, efficiencies and capital management.

Our growth over the past two years has not been spectacular, but despite world events and the impact on the markets in which we are represented we nevertheless delivered a sound performance. While it was prudent for Sanlam to shift focus from strong growth to consolidation over the past two years, the time is now right for us to renew our ambitions and invest some of the Group’s discretionary capital more aggressively in growth opportunities.

Board review

The assessment of the effectiveness of the Sanlam Board, its committees and its chairman was conducted by Deloitte in the latter half of 2010. Feedback provided indicates that our Board is conducting its business very effectively.

I would like to commend my fellow Board members and the executive management team of Sanlam for maintaining a very open, honest and transparent relationship. This approach has played a fundamental role in ensuring a shared understanding of the issues facing the Sanlam Group and what we are trying to achieve.

I am also particularly appreciative of the diversity of thinking displayed by my fellow Board members and the executive management team. At the helm of Sanlam is a group of people with very differing views who are not afraid to speak their minds. This leads to constructive debate around issues that affect the future of the company and the role it plays in the wider context of the country's economy and society in general. In this same group there is, however, also a congruency of strategy and values, which is critical.

Doing business in an ethical way is one of the values to which we stringently adhere. For this reason Sanlam has in place a Code of Ethics, which requires the submission of a full report to the Board every year. Ensuring that our clients are treated fairly is equally important to the Sanlam Board. We are proud to have in place a Board Policyholders' Interest committee, tasked with ensuring that our policyholders are treated fairly across all levels of our business.

As at the end of the 2010 financial year, the Sanlam Board had 17 members: 11 were independent non-executives (in accordance with King III's 'independence' standards), two were non-executives, and four were executive directors. The classification of directors as independent is reviewed annually. The average length of service by the directors was five years and eight months. In June 2010 we said goodbye to Roy Andersen, who had held the reins for six years. I would like to express my gratitude to Roy for his contribution to the Sanlam Group during his term of office.

I would also like to thank JP Bester, former Company Secretary for Sanlam Limited and Magda Lombard, former Company Secretary for Sanlam Life, for their service to our Boards and committees over many years. At the same time, I would like to welcome Sana-Ullah Bray who has joined us from 1 January 2011 in both these positions. 

Good governance and disclosure

In the aftermath of the global financial and economic crisis, experts around the globe agreed that in combination a number of regulatory failures allowed the crisis to proliferate and spread the way it did.

In response, the leaders of the Group of Twenty (G20) started driving international reform initiatives aimed at improving financial regulation in the major areas that had contributed to the crisis. As a member of the G20, South Africa holds a seat on the G20’s Financial Stability Board – the international advisory body on regulation and financial stability. As a contributing policymaker, South Africa is therefore in a position to influence the international reform debate. Conversely, South Africa also has a responsibility to implement policy in line with the Financial Stability Board’s recommendations. Therefore, even though the South African financial services industry displayed incredible robustness throughout the global meltdown, not suffering a single casualty, we will not escape the torrent of new regulations descending upon all players in the financial services industry.

Global thought leaders agree that in this regard four key developments will shape the next decade:
> Convergence of actuarial standards
With more than 98% of our current water availability already allocated for use, South Africa's water balance is precariously poised.
The International Actuarial Association (IAA), of which South Africa is a member, has appointed a task force to develop a strategy in this regard. 

However, Solvency II is to an extent already driving actuarial convergence in the insurance space. The Financial Services Board (FSB) established the Solvency Assessment and Management (SAM) Project towards the end of 2009 with the aim of developing a South African equivalent solvency regime based on Solvency II. A 2014 implementation date is expected.
> Increasing government intervention and assertiveness through regulatory reform
  In South Africa a host of regulatory reforms are already in the pipeline, including the Solvency Assessment and Management (SAM) Project, the regulation of credit rating agencies, the amendment of asset spread regulations of retirement funds and the Treating Customers Fairly programme. 
> Convergence of accounting and reporting standards
  It is generally accepted that internationally, accounting and reporting practices fall short of meeting the information needs of stakeholders. However, in South Africa the King Code of Governance (King III) has addressed many of these shortcomings through its integrated reporting requirements, which aim to provide stakeholders with an integrated and comprehensive view of the company by including social, environmental and economic performance along with the company's financial performance. South Africa is among the first countries in the world to require integrated reporting of listed companies. The Sanlam Board supports King III and the Group therefore commenced implementing the King III recommendations throughout the business during 2010. This, our first Integrated Annual Report, for example, already strives to comply with the King III reporting requirements. We are also supportive of the Integrated Reporting Committee (IRC) formed in 2010, which aims to set standards on integrated reporting in South Africa.
> Competitive realignment of companies post the global financial meltdown
  Companies across all sectors revisited their strategies and reprioritised following the global crisis. Many returned to their core business and started selling off assets that posed a risk and did not fit the new company profile. As you know the Sanlam Group responded by taking the foot off the growth accelerator and retaining discretionary capital to buffer its operations during the crisis, but at no point was there a change to the Sanlam strategy. Our five-pillar strategy remains firmly in place and continues to enjoy the support of the Sanlam Board. 

Geared for a sustainable future

As mentioned earlier, this Integrated Annual Report, together with the 2010 Sustainability Report, is our first effort towards integrated reporting in line with King III recommendations and the Discussion Paper on Integrated Reporting released by the Integrated Reporting Committee.

Our aim is to continually improve our reporting efforts with the aim of demonstrating effectively the Sanlam Group’s long-term viability across financial, economic, environmental and social dimensions. We will therefore adapt and refine our reporting processes in the 2011 reporting cycle. To help with this process, we are currently developing a Sustainability Management Framework that will start to improve our information and data co-ordination and collection across the Group.

Sustainability has many facets, and not all of them are always obvious. To me, good governance and unwavering ethics are the fundamental cornerstones of a sustainable business.

Since joining the Sanlam Board some 18 months ago, I have encountered governance structures that are comprehensive and a leadership with high moral values and integrity. With such strong principles underpinning the operation, Sanlam is, in my opinion, superbly placed to address the challenges facing the business, the industry and society in the long run.

We have the structures in place to ensure that the Group responds appropriately to growing stakeholder demands for broad-based corporate accountability on environmental, social and governance (ESG) issues. Sanlam’s approach regarding many of these issues is already well entrenched in the way it does business, and the Board Sustainability committee provides robust oversight and direction regarding the ESG and transformation implications for the business.

The Group also has a dedicated Sustainability department to monitor trends and ensure that Sanlam moves progressively towards a more integrated approach to managing and reporting on the spectrum of so-called sustainability indicators.

I would like to single out three of these indicators:
> Our people
  Sanlam's people are its backbone and the Group pays great attention to attracting, developing and retaining the many skills it requires to remain a leading financial services organisation. Sanlam places enormous emphasis on the quality of its people, not only in terms of their expertise but also their values, ethics and approach. Sanlam encourages a performance driven environment with strong focus on getting things done. To this end, people are given the accountability and responsibility, underpinned by a clear ethical framework and solid support structures. 
> Transformation
  Sanlam is making very pleasing progress in terms of its broad-based transformation, as reflected by the BEE Scorecard in this Integrated Annual Report. Given the diverse skills required by the Sanlam business, challenges remain, particularly in terms of recruitment at the senior and middle management levels. 
> Social responsibility
South Africa is ranked 30th from the bottom of all nations in terms of water availability per capita.
I am resolute in my belief that anyone in a privileged position - whether individual or corporate - has a moral obligation to plough back into society. Sanlam leads by example in this regard. The Group's annual reporting highlights some of the contributions it makes at corporate level to a range of social, developmental and environmental initiatives through CSI and sponsorship projects. But I am even more encouraged by the contributions that so many members of our staff make to their communities - whether financial or by way of personal commitment, sacrifice and community service. When corporate, employee and community interests and actions intersect, that is the mark of a truly sustainable society. 

In closing

In the 1960s, at the start of my career, I was introduced to the following quote by philosopher and author Francis Bacon: "I hold every man a debtor to his profession." Since then I have lived my life believing in giving back to the profession, the institution and the industry that have shaped my professional life and provided me with the vast opportunities that I have enjoyed.

As chairman of Sanlam I have been given the opportunity of working with an organisation that has achieved trusted world-class status in 12 short years to make a difference in a country that is currently grappling with achieving sustainable growth for the benefit of its people.

We have in place the ingredients for sustainable growth within our own organisation and I believe we can assist the country in achieving the same. We are, after all, engaged in a symbiotic relationship where one depends on the other. Sanlam is an important stakeholder in an industry that is the custodian of more than R3 trillion of the country's savings and requires a growing economy and stable political environment to achieve its strategic objectives. Equally, the country depends on companies like Sanlam to safeguard existing savings and help expand the savings pool to achieve economic growth.

In 2010, South Africa surprised even its most fervent critics by staging one of the most successful Soccer World Cup tournaments ever hosted. With this we have proved that we can make the seemingly impossible possible when focusing on the task at hand. But, while last year it was about delivering a world-class soccer tournament, the future is all about making South Africa sustainable and viable for generations to come. I believe that together we can achieve this.

A sincere thank-you goes to our shareholders and other stakeholders for their support and for believing in the resilience of the Sanlam Group. I would also like to express my gratitude to my fellow Board members, as well as Johan van Zyl and his management team for leading this organisation with vision, courage and integrity. 
Desmond Smith