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2008 Interim results
CONTENT | Salient features | Executive review | Comments | Accounting policies
| Shareholders' fund information | Group Financial statements | Embedded value
 
  EMBEDDED VALUE OF COVERED BUSINESS
  at 30 June 2008
       

  EMBEDDED VALUE OF COVERED BUSINESS at 30 June 2008

                June December 
                Reviewed Audited 
    2008  2007  2007 
  Note   R million  R million  R million 
         
  Sanlam Personal Finance   19 974   19 397  20 089 
    Adjusted net worth   8 300   8 735  8 285 
    Net value of in-force covered business   11 674   10 662  11 804 
      Value of in-force covered business   13 309   12 327  13 452 
      Cost of capital   (1 528) (1 582) (1 555)
      Minority shareholders’ interest   (107) (83) (93)
           
  Sanlam Developing Markets   2 281   2 049  2 160 
    Adjusted net worth   925   650  860 
    Net value of in-force covered business   1 356   1 399  1 300 
      Value of in-force covered business   1 956   1 922  1 833 
      Cost of capital   (280) (155) (268)
      Minority shareholders’ interest   (320) (368) (265)
           
  Sanlam UK   1 030   904  921 
    Adjusted net worth   510   423  447 
    Net value of in-force covered business   520   481  474 
      Value of in-force covered business   560   513  506 
      Cost of capital   (40) (32) (32)
      Minority shareholders’ interest   –   –  – 
           
  Sanlam Employee Benefits   5 333   5 936  5 262 
    Adjusted net worth   5 120   5 415  5 118 
    Net value of in-force covered business   213   521  144 
      Value of in-force covered business   1 075   951  961 
      Cost of capital   (862) (430) (817)
      Minority shareholders’ interest   –  –  – 
           
  Embedded value of covered business   28 618  28 286  28 432 
           
  Adjusted net worth   14 855  15 223  14 710 
  Net value of in-force covered business 1   13 763  13 063  13 722 
  Embedded value of covered business   28 618  28 286  28 432 
 
 
  CHANGE IN EMBEDDED VALUE OF COVERED BUSINESS
  for the six months ended 30 June 2008
      Six months    
      Reviewed   Full year 
      2008   Audited 
      Value of  Adjusted  2007  2007 
  R million Note   Total  in-force  net worth  Total  Total 
             
  Embedded value of covered business            
  at the beginning of the year   28 432  13 722  14 710  27 403  27 403 
   Value of new business 290  825  (535) 260  565 
   Net earnings from existing covered business   1 268  (106) 1 374  1 003  2 085 
     Expected return on value of in-force business   919  919  –  768  1 493 
     Expected transfer of profit            
     to adjusted net worth   –  (1 134) 1 134  –  – 
     Operating experience variances 3   284  78  206  223  315 
     Operating assumption changes   65  31  34  12  277 
   Net project expenses 4   (32) –  (32) (31) (77)
             
  Embedded value earnings            
  from life operations   1 526  719  807  1 232  2 573 
   Economic assumption changes 5   (712) (688) (24) (118) (128)
   Tax changes 6   187  187  –  285  291 
   Investment variances   (239) (238) (1) 238  210 
   Exchange rate movements   131  131  –  9  (22)
   Change in minority shareholders’ interest   (115) (70) (45) (133) (85)
   EEV changes   –  –  –  –  272 
  Growth from covered business   778  41  737  1 513  3 111 
   Investment return on adjusted net worth   220  –  220  921  1 589 
  Embedded value earnings            
  from covered business   998  41  957  2 434  4 700 
   Transfers to other Group operations   –  –  –  –  (205)
   Net transfers to/from covered business   (812) –  (812) (1 551) (3 466)
 Embedded value of covered business
 at the end of the year		   28 618  13 763  14 855  28 286  28 432 
              
  Analysis of earnings from covered business            
   Sanlam Personal Finance   490  (130) 620  1 785  3 953 
   Sanlam Developing Markets   180  56  124  253  351 
   Sanlam UK   139  46  93  44  63 
   Sanlam Employee Benefits   189  69  120  352  333 
  Embedded value earnings
  from covered business		   998 41 957 2 434 4 700
 
 

  VALUE OF NEW BUSINESS (VNB)

  for the six months ended 30 June 2008
 

  VALUE OF NEW BUSINESS for the six months ended 30 June 2008

    Six months Full year  
    Reviewed Audited  
  R million Note   2008  2007  2007  
         
  Value of new business (at point of sale):        
   Gross value of new business   332  278  657  
     Sanlam Personal Finance   178  147  363  
     Sanlam Developing Markets   128  95  233  
     Sanlam UK   6  7  13  
     Sanlam Employee Benefits   20  29  48  
         
   Cost of capital   (41) (18) (90) 
     Sanlam Personal Finance   (18) (5) (39) 
     Sanlam Developing Markets   (15) (7) (30) 
     Sanlam UK   (2) (3) (5) 
     Sanlam Employee Benefits   (6) (3) (16) 
         
   Value of new business   290  260  567  
     Sanlam Personal Finance   160  142  324  
     Sanlam Developing Markets   113  88  203  
     Sanlam UK   3  4  8  
     Sanlam Employee Benefits   14  26  32  
         
   Value of new business attributable to:        
     Shareholders’ fund 2   250  222  493  
       Sanlam Personal Finance   157  141  321  
       Sanlam Developing Markets   76  51  132  
       Sanlam UK   3  4  8  
       Sanlam Employee Benefits   14  26  32  
         
     Minority shareholders’ interest   40  38  74  
       Sanlam Personal Finance   3  1  3  
       Sanlam Developing Markets   37  37  71  
       Sanlam UK   –  –  –  
       Sanlam Employee Benefits   –  –  –  
         
  Value of new business   290  260  567  
         
  Geographical analysis:        
    South Africa   198  202  426  
    Africa   85  52  125  
    Other international   7  6  16  
  Value of new business   290  260  567  
         
  Analysis of new business profitability:        
   Before minorities:        
     Present value of new business premiums   12 141  11 214  23 886  
       Sanlam Personal Finance   8 089  6 859  14 985  
       Sanlam Developing Markets   2 330  2 010  5 476  
       Sanlam UK   836  579  1 327  
       Sanlam Employee Benefits   886  1 766  2 098  
         
     New business margin   2,39%  2,32%  2,37%  
       Sanlam Personal Finance   1,98%  2,07%  2,16%  
       Sanlam Developing Markets   4,85%  4,38%  3,71%  
       Sanlam UK   0,36%  0,69%  0,60%  
       Sanlam Employee Benefits   1,58%  1,47%  1,53%  
         
   After minorities:        
     Present value of new business premiums   11 501  10 535  21 886  
       Sanlam Personal Finance   8 020  6 811  14 873  
       Sanlam Developing Markets   1 759  1 379  3 588  
       Sanlam UK   836  579  1 327  
       Sanlam Employee Benefits   886  1 766  2 098  
         
     New business margin   2,17%  2,11%  2,25%  
       Sanlam Personal Finance   1,96%  2,07%  2,16%  
       Sanlam Developing Markets   4,32%  3,70%  3,68%  
       Sanlam UK   0,36%  0,69%  0,60%  
       Sanlam Employee Benefits   1,58%  1,47%  1,53%  
           
           
1. VALUE OF IN-FORCE SENSITIVITY Gross     Net   Change 
  ANALYSIS value of  Cost  value of  from 
    in-force  of  in-force  base 
    business  capital  business  value 
    R million R million R million %
           
  Base value 16 397  (2 634) 13 763   
               
 

• Increase risk discount rate by 1,0%

 15 428  (3 438) 11 990  -13% 
 

• Decrease risk discount rate by 1,0%

 17 500  (1 922) 15 578  13% 
               
2. VALUE OF NEW BUSINESS Gross     Net   Change 
  SENSITIVITY ANALYSIS value  Cost  value  from 
    of new  of   of new  base 
    business  capital  business  value 
    R million R million R million %
               
               
  Base value 285  (35) 250    
               
 

• Increase risk discount rate by 1,0%

 246  (42) 204  -18% 
  • Decrease risk discount rate by 1,0% 333  (28) 305  22% 
       Six months Full year 
       Reviewed Audited 
       2008  2007  2007 
3. OPERATING EXPERIENCE VARIANCES    R million  R million  R million 
    Risk experience    116  111  254 
    Group stabilised business outflows    24  (14) (20)
    Working capital and other    144  126  81 
    Total operating experience variances    284  223  315 
           
4. NET PROJECT EXPENSES            
  Net project expenses relate to once-off expenditure on the Group’s distribution platform that has not been allowed for in the embedded value assumptions.        
               
5. ECONOMIC ASSUMPTION CHANGES            
    Investment yields and inflation gap    (715) (80) (95)
    Long-term asset mix assumptions    3  (38) (33)
    Total economic assumption changes   (712) (118) (128)
              
6. TAX CHANGES           
    Change in corporate tax rate    187  –  – 
    Change in policyholders’ fund tax rate    –  135  141 
    Reduction in STC rate from 12,5% to 10,0%   –  150  150 
    Total tax changes    187  285  291 
           
      June December 
      Reviewed Audited 
      2008  2007  2007 
7. ECONOMIC ASSUMPTIONS   %  %  % 
    Gross investment return, risk discount rate and inflation
    SANLAM LIFE:        
      Point used on the government bond yield curve 9 year  10 year  9 year 
      Fixed-interest securities   10,7  8,4  8,3 
      Equities and offshore investments   14,2  10,4  11,8 
      Hedged equities   11,2  8,4  8,8 
      Property   11,7  9,4  9,3 
      Cash   9,7  6,4  7,3 
      Return on required capital   12,2  7,6  9,7 
      Inflation rate   7,7  4,9  5,3 
      Risk discount rate   13,2  10,9  10,8 
           
    MERCHANT INVESTORS:        
      Point used on the government bond yield curve 15 year  15 year  15 year 
      Fixed-interest securities   5,2  5,3  4,6 
      Equities and offshore investments   8,4  7,8  7,8 
      Hedged equities   8,4  7,8  7,8 
      Property   8,4  7,8  7,8 
      Cash   5,2  5,3  4,6 
      Return on required capital   5,2  5,3  4,6 
      Inflation rate   4,5  3,9  3,7 
      Risk discount rate   8,9  9,0  8,3 
           
    SANLAM SKY SOLUTIONS:        
      Point used on the government bond yield curve 6 year  6 year  6 year 
      Fixed-interest securities   11,0  8,7  8,6 
      Equities and offshore investments   14,5  10,7  12,1 
      Hedged equities   n/a  n/a  n/a 
      Property   12,0  9,7  9,6 
      Cash   10,0  6,7  6,6 
      Return on required capital   12,3  8,7  9,4 
      Inflation rate   8,0  5,7  5,6 
      Risk discount rate   13,5  11,2  11,1 
           
    BOTSWANA LIFE INSURANCE:        
      Fixed-interest securities   10,5  10,5  10,5 
      Equities and offshore investments   14,0  12,5  14,0 
      Hedged equities   n/a  n/a  n/a 
      Property   11,5  11,5  11,5 
      Cash   9,5  8,5  8,5 
      Return on required capital   10,6  11,1  9,5 
      Inflation rate   7,5  7,5  7,5 
      Risk discount rate   14,0  14,0  14,0 
           
    Asset mix for assets supporting the required capital (1)
    SANLAM LIFE:        
      Equities   44  –  44 
      Hedged equities   13  20  13 
      Property   3  –  3 
      Fixed-interest securities   25  50  25 
      Cash   15  30  15 
      100  100  100 
           
  MERCHANT INVESTORS:        
      Equities   –  –  – 
      Hedged equities   –  –  – 
      Property   –  –  – 
      Fixed-interest securities   –  –  – 
      Cash   100  100  100 
      100  100  100 
           
  SANLAM SKY SOLUTIONS:        
      Equities   50  50  50 
      Hedged equities   –  –  – 
      Property   –  –  – 
      Fixed-interest securities   –  –  – 
      Cash   50  50  50 
      100  100  100 
           
  BOTSWANA LIFE INSURANCE:        
      Equities   15  68  69 
      Hedged equities   –  –  – 
      Property   10  8  1 
      Fixed-interest securities   25  14  30 
      Cash   50  10  – 
      100  100  100 
           
           
(1) From 31 December 2007 the cost of capital is based on the higher of an internally assessed required capital and the statutory capital adequacy requirement, previously based on the statutory capital adequacy requirement.
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