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Operational Update – December 2017

6 December 2017

The Group achieved a solid operational performance for the first 10 months of the 2017 financial year. Particularly pleasing is sustained strong growth in the value of new life business (VNB) and an improvement in operational earnings growth.

The operating environment remained challenging, in particular in South Africa, Namibia, Botswana, Angola and Nigeria. A stronger average Rand exchange rate during the first 10 months of 2017 compared to the same period in 2016 also had a negative impact on the translated Rand results of the non-South African operations. These conditions were consistent with the first-half 2017 experience and as a result, the underlying new business performance trends were largely in line with those reported for the six months ended 30 June 2017.

Despite persistent political and policy uncertainty in South Africa, the local equity market rallied since the end of June 2017 on the back of dual listed and blue chip stocks, supporting assets under management and fund-based fee income in the second half of the year. Due to the lag effect on average assets under management, the higher market levels did not have a significant impact on the October 2017 year-to-date results.


  • Net result from financial services up 7%
  • Normalised headline earnings up 22%
  • New business volumes down 2%
  • Net fund inflows of R32 billion, in line with 2016
  • Net value of new life business (VNB) up 13%
  • Net VNB margin of 2,76%, up from 2,52% in 2016
  • Sanlam Life Capital Adequacy Requirement (CAR) cover of 5,6 times at 30 September 2017
  • Sanlam Life Solvency Assessment and Management (SAM) cover ratio of 2,8 times at 30 September 2017; Group at 2,1 times


The constant currency information included in this operational update has been presented to illustrate the impact of changes in currency exchange rates and is the responsibility of the Group’s board of directors. It is presented for illustrative purposes only and because of its nature may not fairly present the company’s financial position, changes in equity, result of operations or cash flows. All references to constant currency information are based on the translation of foreign currency results for the 10 months to 31 October 2017 at the weighted average exchange rate for the 10 months to 31 October 2016, which is also applied for the translation of comparative information. The major currencies contributing to the exchange rate movements are the British Pound, Indian Rupee, Botswana Pula, Moroccan Dirham and the Nigerian Naira (negative movements in the table below indicate a strengthening in the Rand exchange rate):

CurrencyAverage Rand exchange rate – 10 months to October 2017Average Rand exchange rate – 10 months to October 2016Change in average exchange rate
British Pound16.9520.24-16.3%
Indian Rupee0.2030.222-8.3%
Botswana Pula1.2951.378-6.0%
Moroccan Dirham1.3741.507-8.8%
Nigeria Naira0.04060.0642-1.8%

The constant currency information has not been reviewed and reported on by Sanlam’s external auditors.

The salient features of the Group’s performance for the 10 months to 31 October 2017 are:

  • Net VNB increased by 13% on the first 10 months of 2016 (17% in constant currency). Overall VNB margins improved by some 20 basis points, in line with the change in mix to more profitable business. The underlying trends reported for the first half of 2017 continued for the 10 months to October 2017.
  • New business volumes of R190 billion, down 2% on the first 10 months of the 2016 financial year, largely due to lower lump-sum inflows at Glacier and the Botswana asset management business.
    • Robust growth in Sanlam Personal Finance’s more profitable recurring premium risk business continued, in both the entry-level and middle-income market segments. Investor confidence, however, remained under pressure in the mass affluent segment in the uncertain economic and political environment, with discretionary and life business sales in this market exhibiting similar trends to the first half of 2017. Overall new business volumes at Sanlam Personal Finance declined by 7% as a result.

      Sanlam Sky new business sales increased by 12% on the comparable 2016 period, with the large new scheme written by Safrican in the first half of the year having a diminishing impact on growth as the year progresses. The change in mix towards risk business persisted, contributing to 15% growth in Sanlam Sky’s individual life risk business sales. Sales of savings products declined by 38% following our deliberate decision to scale back on selling unprofitable savings products. Overall individual life new recurring business increased by 7%. Group recurring premium new business increased by 29%, supported by the large new Safrican scheme written in the first half of the year, as well as the biennial renewal of the ZCC scheme.

      New business volumes in the middle-income market increased by 3%. Solid demand for recurring premium risk business (up 10%) and retirement annuities (up 11%) contributed to overall growth of 6% in recurring premium sales. Demand for traditional endowment savings products and ad hoc premium increases remained under pressure. Overall single premium growth of some 2% reflected a change in mix to the more profitable guaranteed products, benefiting growth in VNB.

      As highlighted above, Glacier new business volumes remained under pressure and declined by 11%, in line with the first-half 2017 performance.
    • Sanlam Emerging Markets recorded an overall decline in new business volumes of 3%. The net positive impact of structural activity (Saham Finances, direct stakes in Shriram Life and General Insurance, Sanlam Investments East Africa and the disposal of the Group’s stake in the Enterprise Group) was more than offset by the base effect of the R4.6 billion Botswana Public Officers Pension Fund (BPOPF) mandate received in the comparable 2016 period. Excluding these one-off impacts, new business volumes increased by 17% (25% in constant currency). Saham Finances slightly lagged the business plan due to the economic pressure in Angola and Nigeria. Corrective actions at the Malaysian operations are not yet reflecting in top-line growth. Underlying trends within the other Emerging Markets businesses were in line with the first-half 2017 results.
    • Sanlam Investments continued to attract healthy institutional fund flows with overall growth in new fund inflows in the SA asset management business broadly in line with its performance for the first half of 2017. The Wealth Management and International businesses gained traction, contributing to an overall improvement in the cluster’s new business growth from an 8% decline at the end of June 2017 to a decline of only 2% for the 10 months to October 2017.
    • Sanlam Employee Benefits achieved pleasing growth of 11% in its new business contribution. Both recurring premium risk business and single premium inflows recorded good growth on the first 10 months of 2016.
    • Overall net fund inflows of R32 billion were in line with the comparable 2016 results, a resilient performance in the challenging environment. Sanlam Investments achieved a threefold increase in net inflows, which was offset by lower inflows at Sanlam Personal Finance (due to the lower Glacier single premium inflows) and Sanlam Emerging Markets (attributable to the base effect of the BPOPF inflow in Botswana during 2016).
    • Persistency experience remained broadly in line with the first-half 2017 results. Should the poor economic conditions in South Africa persist, it may put pressure on this key profit driver.
  • Net result from financial services up 7% on the first 10 months of the 2016 financial year (up 10% in constant currency). Improved contributions from Sanlam Personal Finance, Sanlam Emerging Markets and Sanlam Investments supported the overall acceleration in growth compared to the six months ended 30 June 2017.
    • The strong growth in risk business at Sanlam Sky and Individual Life generated a significant increase in the new business strain recognised in terms of the Group’s prudent accounting policies. This limited growth in Sanlam Personal Finance’s net result from financial services to 4%. Excluding the increase in new business strain, commendable growth of some 9% was achieved on the first 10 months of 2016.
    • Sanlam Emerging Markets’ net result from financial services increased by 22% (35% in constant currency), supported by structural activity. Organic growth in constant currency of 16% was achieved. The demonetisation-related bad debt provision of R110 million (after tax and allowing for Sanlam Emerging Markets’ effective interest) recognised in the first half of the year in Shriram Capital largely reversed in the second half as the arrears position started to improve. The impact of the structural growth will moderate towards the end of the year and growth is commensurately not expected to be sustained at the current level for the full 2017 financial year. Saham Finances’ operating earnings tracked the business plan despite the pressure in Angola and Nigeria.
    • Sanlam Investments’ contribution to net result from financial services increased by 3% (up 8% in constant currency). Fee income in the South African asset and wealth management businesses remained under pressure from lacklustre growth in average assets under management, as the improved equity market performance since the end of June 2017 had only a subdued impact for the 10-month period to October 2017. Investor risk aversion also continued to affect brokerage volumes and related income at Sanlam Private Wealth. The benefits of the restructuring at Sanlam UK during 2016 was still evident in strong growth in international earnings. Capital management earnings declined from a high comparative base in 2016.
    • Santam’s net underwriting margin for the 10-month period was within the target range of 4% to 8% despite a number of catastrophe claims in 2017, reflecting the benefits of its well-diversified book of business and reinsurance strategy. Further weather-related large claims since June 2017 were partly offset by increased allowance for reinsurance recoveries in respect of the first-half 2017 catastrophes. A severe winter storm in June 2017 caused widespread wind and water damage in Cape Town, while strong winds from the same storm also drove wildfires in the Knysna and Plettenberg Bay areas that resulted in significant property damage. These were treated as separate events in Santam’s 2017 interim results. Clarity has now been provided that it is one event for reinsurance purposes, increasing the allowance for reinsurance recoveries by some R70 million.
    • Sanlam Employee Benefits and Sanlam Healthcare achieved good growth in net result from financial services of 14%. The growth rate normalised somewhat since the end of June 2017, commensurate with the higher comparative base in the second half of 2016. Risk claims experience at Sanlam Employee Benefits remained above longer term trends.
  • Normalised headline earnings per share increased by 22% compared to the first 10 months of the 2016 financial year. A relatively stronger investment market performance in 2017 to date supported investment return earned on the capital base. Investment market returns up to the end of 2017 can have an impact on the sustainability of this level of growth.
  • Diluted headline earnings per share increased by 2%. The lower level of growth in diluted headline earnings per share compared to normalised headline earnings is attributable to the one-off deferred tax asset of R1.3 billion raised in 2016 following the introduction of the Risk Policy Fund in South Africa for tax purposes. This significantly increased the comparative earnings base.


All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory capital covered its CAR under the current solvency regime 5.6 times on 30 September 2017. Under the new SAM regime being implemented in South Africa, Sanlam Life Insurance’s Solvency Capital Requirement cover ratio amounted to 2.8 times on 30 September 2017, while the Sanlam Group cover ratio was 2.1 times.

Capital deployment since the end of June 2017 was limited to the acquisition of Lion Assurance Company, a general insurer in Uganda, and the Group following its rights in terms of the Afrocentric rights issue for a combined outlay of some R100 million. Available discretionary capital at 31 October 2017 was therefore largely unchanged from the 30 June 2017 position. A combined total of some R400 million will be utilised for the Absa Consultants and Actuaries and EasyEquities transactions.


We expect that the economic and operating environment will remain challenging for the remainder of 2017 with a resulting impact on the Group’s key operational performance indicators. Persistent investor risk aversion, average investment market levels, the relative strength of the Rand exchange rate and the level of long-term interest rates are key factors that may have an impact on the growth in net result from financial services, normalised headline earnings and Group Equity Value to be reported for the full 2017 financial year. The outcome of the African National Congress’ national elective conference in December 2017 can potentially result in currency, investment market and interest rate volatility. The Group is, however, well-positioned to weather these headwinds and to continue delivering value for our shareholders and other stakeholders.

The information in this operational update has not been reviewed and reported on by Sanlam's external auditors. Sanlam’s annual financial results for the year ending 31 December 2017 are due to be released on 8 March 2018. Shareholders are advised that this is not a trading statement as per paragraph 3.4(b) of the JSE Limited Listings Requirements.

Sanlam Life Insurance is a licensed financial service provider.
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