COMMENTS ON THE RESULTS

Introduction
Group Equity Value
Earnings
Business volumes
Solvency
Dividend

Introduction

Group Equity Value (GEV)

The GEV as at 30 June 2008 amounted to R46,5 billion. This is 9% lower than the R51,3 billion at the end of December 2007. On a per share basis GEV decreased by 4% from 2 350 cents to 2 254 cents at 30 June 2008. The decrease in GEV per share is largely attributable to:

• The payment of the annual dividend of R2 billion (93 cents per share) in May 2008.
• A reduction of R1,4 billion in the value of the Group's investment in Santam, due to a 24% fall in Santam's share price during the period.
• A reduction in the valuation of the businesses in the Institutional cluster, the result of an overall decrease in the cluster's assets under management since 31 December 2007. The valuation base for these operations is directly linked to the level of assets under management.
  
  

The Group achieved a -2,2% (zero% per share) annualised return on GEV for the first six months of 2008, significantly lower than the comparable 2007 performance. The main contributors to this result are the fall in the Santam share price and the impact of lower equity markets on the valuation of the Group's asset management businesses.

The return on covered business is a combination of the investment return earned on the capital supporting these operations and the earnings from the book of in-force business (VIF). Overall, covered business recorded an annualised return of 7,1% for the first six months of 2008, compared to a return of 18,6% in the same period in 2007. This decrease is largely attributable to changes in the investment and economic environment, which resulted in the investment return earned on the capital supporting the covered business of Sanlam Personal Finance and Sanlam Employee Benefits declining from 6% (R838 million) in the first six months of 2007 to 0,7% (R94 million) in 2008. This can be ascribed to the volatility in investment markets coupled with an overweight exposure in the applicable portfolios to the underperforming financial and industrial sectors. The annualised return on VIF decreased from 26,2% in 2007 to 11,7% in 2008, again substantially linked to the weak investment returns. Negative investment variances amounted to R108 million for the first six months of 2008 compared to favourable investment variances of R247 million for the comparable period in 2007. The increase in interest rates and inflation resulted in a change in the economic assumptions used to calculate the value of in-force covered business. This had a negative impact of R712 million on the earnings from covered business, compared to negative economic assumptions changes of R118 million in 2007. Changes in tax legislation contributed R187 million to the earnings from covered business in 2008, compared to R285 million in 2007.  The combined effect of these external factors is a relative reduction in the earnings from covered business of R1,8 billion in 2008 when compared to the first half of 2007. These negative return attributes were somewhat compensated for by a 12% increase in the value of new covered business. Excluding the impact of the above economic factors, the normalised annualised return on covered business amounts to 20,6%, which reflects an improvement on 2007.

The Santam share price derated during the period in line with other listed financial services companies, decreasing from R104,00 at the end of December 2007 to R78,71 at 30 June 2008. Combined with dividends declared by Santam during the first six months of 2008, the Group's investment return on Santam was negative R1,4 billion (-39.6% annualised), a R2,8 billion turnaround from the earnings recorded in the comparable period in 2007.

Earnings

Core earnings

Core earnings for the six months of R1 913 million are 4% down on 2007 (up 4% on a per share basis). This is the net result of a 10% fall in the net result from financial services, in part offset by a 17% increase in net investment income. The latter was positively impacted by relatively higher average cash interest rates during the first six months of 2008.

The net result from financial services of R1 334 million is R154 million (10%) lower than in the comparative period in 2007. In evaluating this performance, cognisance should be taken of the impact of a number of material items:

• In terms of IFRS only variable costs incurred in writing new investment policy contracts can be capitalised and expensed over the lifetime of the contract in line with fees earned. All fixed acquisition costs must be expensed at inception of the policy. Similarly, the Group's actuarial valuation basis for most insurance contracts does not allow for the capitalisation of upfront acquisition costs, which commensurately results in accounting losses at inception of these contracts. These losses, referred to as new business strain, have a particularly pronounced impact on earnings in strong new business growth scenarios, as achieved by the Group in the first six months of 2008.
• The initial losses incurred by MiWay whilst in its start-up phase. MiWay is performing in line with expectations, with the initial start-up losses being anticipated in its business plan.

On a comparable basis the net result from financial services per share increased by 7% (-1% in absolute terms), with a very strong growth from the Retail cluster.

The table below provides an analysis of the net result from financial services per individual business.

• Sanlam Personal Finance's net operating profit for the year to date is 8% higher than in 2007. The higher interest rate environment supported market related profit, while risk underwriting profit benefited from improved underwriting experience. This was to an extent offset by lower growth in administration profit due to new business strain following the strong growth in new business volumes. Excluding the impact of new business strain, the Sanlam Personal Finance earnings increased by 10%.
• The Sanlam Developing Markets net operating profit is 3% down on 2007. This is mainly attributable to an increase in new business strain, the impact of changes in economic assumptions on Channel Life and the poor investment market performance in Botswana in the first half of 2008 compared to particularly good investment performance in 2007.  Strong growth in new life business volumes in the first half of 2008 (refer below) resulted in an increase of R67 million (after tax and minorities) in the new business strain recognised at inception of the contracts compared to the same period in 2007. A portion of the profit earned by the Botswana operations is linked to the investment return earned on specific policyholder reserves. The weak performance of the Botswana stock market in 2008 relative to 2007 resulted in negative investment variances in 2008. This was to an extent offset by a weakening of the rand exchange rate against the Botswana pula. Excluding the impact of new business strain, Sanlam Developing Markets increased its contribution to the Group net result from financial services by 34%, which is a reflection of the major improvement in its performance on a normalised basis.
• Sanlam UK recorded a 16% growth in its net operating profit, which is largely attributable to a strong performance by Sanlam Multi-Manager International, the first-time inclusion of the results of the newly acquired Principal and Buckles businesses as well as the weakening in the exchange rate.
• The Instutional cluster businesses had a challenging first six months of 2008 with net operating profit for the six months 24% lower than 2007. Sanlam Investments recorded a 27% reduction in earnings. The volatile investment markets had a major negative impact on these businesses' investment performance, in particular Octane and SIM Global, which earned significantly lower performance fees. Profit before tax and gross performance fees increased by 8% on the comparable period in 2007, a satisfactory result in the challenging environment. Administration costs increased by 19%, mainly due to business expansion, with Simeka, Blue Ink and the transfer of investment linked business from Sanlam Employee Benefits impacting on the expense base subsequent to the first half of 2007. Sanlam Employee Benefits performed well to post a 73% increase in its net profit. The performance can mostly be ascribed to an increase in risk underwriting profit following improved claims experience and the positive impact of higher interest rates on market related profit. The 2007 result also included provisions to correct historic errors on the administration platform. Sanlam Capital Markets was adversely affected by the significant market turbulence in the first half of 2008, with reported results that are significantly lower than the comparable period in 2007. The volatility in debt and equity markets, together with the associated uncertainty experienced by market participants in these conditions, resulted in a slowdown in deal flow during the first half of 2008. This, combined with the impact of widening credit spreads on the valuation of credit positions, lead to a 63% reduction in its reported earnings.
• Santam's net operating earnings for the six months is 23% lower than 2007. Santam's earnings should however be evaluated against the high underwriting margin of 8,7% achieved in 2007. For the first half of 2008 Santam reported an underwriting margin of 5,8%, which represents a very satisfactory result in the current short-term insurance market, in particular given a number of large industrial related claims experienced in the corporate business unit.

Normalised headline earnings

Normalised headline earnings of R1 254 million are 60% lower than the first six months of 2007. This is largely the result of a substantial reduction in investment surpluses and equity-accounted earnings. The JSE All Share Index increased by 5% during the first half of 2008, but this was mainly driven by an exceptionally strong resources sector, specifically BHP Billiton, Anglo American and Sasol, which masked a substantial fall in value in most other sectors. The Sanlam and Santam portfolios were underweight these three shares which resulted in a material fall in relative returns. The lower capital base following the continued buy-back of Sanlam shares in 2007 and 2008 also contributed to the lower earnings, but the 137% reduction in reported investment surpluses was in essence due to the relatively weaker investment performance for the six months. The sharp fall in equity-accounted earnings is attributable to lower contributions from the Safair Lease Finance joint venture and an investment linked to the market value of the Vukile listed property fund as well as the impact of the disposal of the Group's interest in Peermont during 2007. 

Discontinued operations relate to the results of Santam's operations in Europe that are in the process of being closed down and/or disposed of.

Earnings per share

On a per share basis core earnings are 4% up on 2007 and normalised headline earnings are 57% down on the comparable 2007 period. Diluted headline earnings per share decreased by 24%. The higher growth on a per share basis is due to the lower weighted average number of shares in issue following the share buy-backs.

Business volumes

New business flows

Total new business volumes increased by 2% from R49,8 billion in the first six months of 2007 to R51 billion in the first half of 2008.

Sanlam Personal Finance continued its strong performance of 2007 and reported a 33% increase in new business volumes. Life business increased by 32% with growth of 33% in new investment business, an exemplary performance in the current economic environment.

Total South African new business volumes increased by 30% compared to 2007.

• Recurring premium life sales are marginally down on the same period in 2007. The impact of increasing financial strain on the Topaz middle market clients is evident in the reduction in the sales volumes of savings and retirement solutions. Recurring risk solution sales are less exposed and new business volumes grew by a satisfactory 20% over 2007. Advisor numbers that lagged the previous year also had a negative impact on recurring business sales, but this has been addressed through appropriate management action. 
• Single premium life sales are up 37% on 2007 with a 69% increase in Glacier's life business the main contributor. Topaz life sales increased by 21%, with volatile equity market conditions and rising interest rates increasing the demand for Topaz guaranteed solutions.
• Investment business reflects growth of 28% on 2007, supported by a more than doubling in the growth of money market products. Sales of equity based solutions are marginally down on 2007.

The Namibian operations recorded a 39% improvement in volumes, largely attributable to continued out performance by collective investment flows that are 41% up on 2007. Some of these inflows are however not expected to be retained over the longer term.

Sanlam Developing Markets inflows are 16% higher than 2007.

• The core recurring premium business in South Africa performed well to achieve a 29% increase in new business. This was however offset by a 23% reduction in the sale of single premium business.
  • Sanlam Sky Solutions (formerly African Life) volumes are well ahead of 2007, with both new recurring and single premium volumes up 65% on 2007. This strong performance is the result of specific actions implemented to address the trend of declining sales experienced in 2006 and the beginning of 2007. In particular, agents remuneration and branches having been restructured resulted in an increase in the number of agents and a reduction in agent turnover.
  • Channel Life's new recurring premiums are slightly lower than the comparative period in 2007 based on an under performance by the call centre, which was closed at the end of May 2008. Single premium new business volumes decreased by 50% on 2007 following the disposal of Alternative Channel during the 2007 financial year, which contributed most of the single premium business. As these flows were low margin business, the impact on profitability is negligible with a positive effect on the overall profitability of new business.
• Other African business inflows are 42% up on 2007, supported by strong growth in all regions, and with both recurring and single premium volumes increasing by 42%. The Kenyan business performed exceptionally well to increase its total new business volumes by 67% despite the impact of political violence at the start of the year.
• Shriram is continuing its strong sales performance with year-to-date sales of R100 million, compared to R53 million in 2007. The total number of accredited agents reached 17 500 at the end of June 2008, compared to 11 300 a year earlier. 

Sanlam UK comprises Merchant Investors' new business volumes.  The business has been successful in expanding its distribution platform and reach with new business volumes increasing by 43% on 2007.

New business volumes in the Institutional cluster are down 12% from a high base in 2007.

• Sanlam Investments' new business volumes decreased by 12% compared to 2007, largely attributable to a reduction in institutional inflows at Sanlam Collective Investments and Sanlam Multi-Manager. The South African investment businesses performed well when evaluated against the high base in 2007. Segregated fund flows, excluding Sanlam Multi-Manager, recorded particularly strong growth of 25% on 2007 with Sanlam Private Investments reporting growth of 8% despite the large inflows experienced in 2007. Sanlam Collective Investments wholesale flows decreased by 46% and its overall new business flows by 24% as a result thereof. Sanlam Multi-Manager experienced a 43% reduction in new business volumes. Both these trends were not unexpected given the relatively strong inflows in 2007, coupled with the impact of the current subdued economic outlook. The International businesses grew their contribution to new business volumes by 16% compared to the first half of 2007. The hedge fund business, Blue Ink, is the main contributor to this growth. Inflows at SIM Global are down 19%. 
• Sanlam Employee Benefits inflows are marginally lower than the comparable 2007 inflows. Recurring premiums are 15% lower with single premiums reflecting growth of 5%.

Santam recorded an 11% increase in net premium inflows over the first six months of 2007, which is in line with expectations and above industry growth. This is a satisfactory performance in the current business environment.

Total inflows increased by 3% on 2007 while outflows in respect of fund withdrawals and policy benefits are down by 5%. This resulted in an overall net inflow of funds amounting to R5,5 billion compared to a net inflow of R1,3 billion in the corresponding period in 2007. Excluding the volatile white label business, net business flows improved from R1,1 billion in the first half of 2007 to R7,3 billion during 2008. Life business net flows improved significantly from a R2,2 billion net outflow in 2007 to a net inflow of R639 million in 2008, a combination of improved net flows in all of the Group's life businesses. Sanlam Investments also reported an improvement, with net inflows of R3,1 billion in 2008 compared to net outflows of R2,5 billion in 2007. The main contributor to the improvement is South African segregated business, which recorded net inflows of R3 billion compared to net outflows of R4,5 billion in 2007. This was however somewhat offset by a deterioration in Multi-Manager net flows.

Total VNB for the first six months of 2008 of R290 million reflects strong growth of 12% (13% after minorities) with an improvement in new business margins from 2,32% in 2007 to 2,39% in 2008 (2,11% and 2,17% respectively after minorities), despite the negative impact of a 2,4% increase in the risk discount rate following a similar rise in long-term interest rates. On a comparable basis, before adjusting for the change in economic assumptions, VNB and PVNBP increased by 28% and 11% respectively, with new business margins improving from 2,32% to 2,67%. This is reflective of the strong operational performance and the resilient results achieved in the current economic environment. The table below presents the VNB results before and after the change in economic assumptions.

Sanlam Personal Finance's VNB for the first six months of 2008 is 13% higher than 2007. The impact of the higher risk discount rate masks a very strong new life business performance during the reporting period as the change in economic assumptions reduced the year-to-date VNB by R30 million. VNB margins improved on a comparable basis from 2,07% in 2007 to 2,27% in 2008.

Sanlam Developing Markets recorded VNB of R113 million in 2008, which is 28% up on 2007 despite a R20 million negative impact from the change in economic assumptions. This result reflects the strong growth in new business volumes. VNB margins increased from 4,38% in 2007 to 4,85% in 2008, supported by an improved contribution by the African operations, which were not affected to the same extent by economic assumption changes as the South African operations. On a comparable basis, VNB margins increased from 4,38% in 2007 to 5,49%.

Sanlam Employee Benefits' lower new business performance is also reflected in the 46% decrease in VNB during 2008. The 50% decrease in PVNBP is however mostly attributable to a decision by the end of the 2007 financial year to include the investment business as investment flows in Sanlam Investments. Comparative VNB information has not been restated for this change in classification.

Solvency

All of the life insurance businesses within the Group were sufficiently capitalised at the end of June 2008.  The total capital of Sanlam Life Insurance Limited, the holding company of the Group's major life insurance subsidiaries, amounted to R33,6 billion on 30 June 2008. Its allocated regulatory capital at the end of June 2008 amounted to R22,5 billion, which covered its regulatory Capital Adequacy Requirement (CAR) 2,8 times, compared to 3,5 times on 31 December 2007. No policyholder portfolios held negative bonus stabilisation reserves below the statutory reporting funding level of 92,5%.

Santam's regulatory capital (shareholders' funds including subordinated debt) constituted 40% of net earned premiums on 30 June 2008 compared to 42% as at 31 December 2007. The solvency level is within the target range of 35% to 45% set by Santam.

FitchRatings has affirmed the following ratings of the Group in 2008:

Sanlam Limited:         

• National Long-term: AA-(zaf)

Sanlam Life Insurance Limited:

• National Insurer Financial Strength: AA+(zaf)
• National Long-term: AA(zaf)
• National Short-term: F1+(zaf)
• Subordinated debt: AA-(zaf)

Santam Limited:

• National Insurer Financial Strength: AA+(zaf)
• National Long-term: AA(zaf)

Dividend

No interim dividend has been declared. It is Sanlam's practice to pay only an annual dividend, given the cost associated with the distribution of a dividend to our large shareholder base.

Roy Andersen                                                              Johan van Zyl             
Chairman                                                                    Group Chief Executive

Sanlam Limited
Cape Town
4 September 2008