Profitable top-line growth through a culture of client-centricity
Enhancing Sanlam’s resilience and earnings growth through diversification
Extracting value through innovation and improved efficiencies
Responsible capital allocation and management
This section reflects on our strategic execution in the past year. As highlighted in the introduction to this report, our ability to effectively execute has been a competitive advantage for more than a decade.
We explain the underlying aspects per pillar in the Strategic pillars overview and the Strategic pillars.
We deliver top-line growth through organic growth (writing new business and retaining our existing clients) and strategic acquisitions. We achieved a solid overall new business performance in 2017. Particularly satisfactory was the strong growth in the more profitable lines of business, which underpinned an exceptional value of new life business (VNB) performance. We did, however, experience pressure on top-line growth in a few areas. Challenging external operating environments in South Africa, Namibia and Botswana impacted our organic growth, particularly in new single-premium business flows. Internal challenges in the Kenyan and Malaysian operations furthermore contributed to a disappointing new business performance from these countries. These were the exceptions, though, and we achieved good growth in other lines of business in South Africa and where we operate elsewhere.
Our diligent focus on client-centricity supported the top-line growth, as clients experience how we support their financial resilience and prosperity. This was particularly evident in South Africa during 2017, when we protected our clients against the largest financial losses in our history from weather-related damage. Santam paid gross general insurance claims of R20,6 billion in 2017 (an increase of 20% since 2016), which included R2 billion in respect of weather-related catastrophes. In addition, we paid a total of R209 billion to our clients during 2017 in the form of life insurance and investment fund benefits, an increase of 1% on an already high base in 2016.
We continued to adapt to our clients’ changing needs through product innovation. Based on our understanding of clients’ needs, SPF launched digital-enabled Go-Cover and Indie in South Africa. These products offer clients a wider range of choice of channels through which to interact with Sanlam – from the initial transaction to ongoing servicing.
Sanlam Sky obtained a three-year extension of the Zion Christian Church contract and secured the International Pentecostal Holiness Church contract from July 2017. The latter has 1,5 million active church-going members and is believed to be the second-biggest church organisation in South Africa. Our presence in the South African entry-level market through Sanlam Sky is of strategic importance to the Group considering its growth potential.
Sanlam Investments’ Implemented Consulting solution continues to add value for advisers, as it provides a robust investment process that involves the financial adviser, coupled with seamless implementation of investment changes and ease of reporting to the client. The solution lowered the overall risk of inappropriate advice by the Sanlam distribution network. Implemented Consulting is a strong revenue generator for Sanlam Investments and Glacier.
Our client-centric focus contributed significantly to our ability to maintain robust persistency experience (client retention), despite the challenging operating environment.
Our commitment to client service is evident from the reports of the industry ombudsman in South Africa. Sanlam’s proportion of total claims awarded in favour of clients is much lower than our relative market share.
More detailed information on how we contributed to the financial resilience and prosperity of our clients in 2017 is available in the Resilience Report.
Strategic acquisitions that contributed to top-line growth in 2017 include the increased stake in Saham Finances and the acquisitions of BrightRock and Sanlam Investments East Africa at a Sanlam level, as well as Santam Structured Insurance at Santam.
Our new business performance in 2017 also created significant value of R7,2 billion in sales remuneration for our advisers and independent distribution partners (excluding amounts paid by associated companies). This is an increase of 6% compared to 2016, despite growth being somewhat dampened by the subdued single premium performance in South Africa, Namibia and Botswana. The total number of advisers and supporting brokers in SPF increased to 11 666 (excluding BrightRock), which provided income opportunities for an additional 1 250 individuals and brokerages compared to the end of 2016.
We continue to support our more than 240 Sanlam BlueStar practices in South Africa by assisting them to achieve higher levels of positive client experience. We are particularly proud of our initiatives that enhance client experience through the provision of an online distribution capability. This allows practices to adapt to the changing client needs for omni-channel delivery. It also positions Sanlam well for the new regulatory environment to be rolled out as part of the Financial Services Board’s Retail Distribution Review (RDR).
Read more about RDR in the report on Our regulatory environment.
The benefits of diversification were reinforced during 2017 as the markets in which we operate experienced different levels of challenge and performance. Our partnership with Saham Finances continues to be a game changer in diversification as it increases our exposure to the higher-growth Rest of Africa region, while enhancing the line of business profile with a shift towards general insurance. Through the acquisition of PineBridge East Africa, which was renamed Sanlam Investments East Africa, we now have the largest asset management operations in East Africa. Our presence in this region was skewed towards life insurance in the past. In Ghana, we disposed of our stake in the Enterprise Group as it became clear that we will not be able to meet the future regional expansion aspirations of our partner while being a shareholder of Saham Finances. In line with our approach of having mutually beneficial partnerships in the Rest of Africa region, we decided instead to exit the business. Ghana remains an attractive market, and opportunities to build Saham Finances’ life insurance presence in this market through acquisitions is a near-term focus for SEM.
Our diversification efforts were further strengthened by a new partnership with Sompo International Holdings Limited (Sompo), a specialty provider of property and casualty insurance and re-insurance with a large customer base in Japan. The partnership gives Sompo and its customers access to new markets in Africa through the existing footprint of Sanlam and Saham Finances’ insurance subsidiaries. This creates a unique offering for multinationals on the African continent.
The BrightRock and EasyEquities acquisitions provide opportunities for enhanced product diversification in South Africa through access to new risk products and a unique low-cost investment platform respectively, which supports our client-centric approach.
The transaction provides EasyEquities with access to capital and skills in support of an aggressive plan to grow client numbers and products. For Sanlam Investments, the transaction expands on previous collaboration with EasyEquities to establish SatrixNOW, the first passive digital portal in South Africa giving investors easy access to exchange-traded funds (ETFs). In the past year, SatrixNOW launched three new international Satrix ETFs, which further diversified the low-cost product set available to clients.
Sanlam Private Wealth (SPW) opened its first African office outside South Africa. This Mauritian office gives private clients in the Rest of Africa access to SPW’s global investment and wealth management solutions. Mauritius is more cost effective than the traditional European jurisdictions and will be the new hub of SPW Africa’s expansion strategy. The business consists of SPW Mauritius, which focuses on wealth management; and Sanlam Trustees International, which offers multi-jurisdictional fiduciary and tax advice and services to private clients, and a range of company administration services to the corporate market.
Our diversification initiatives included a strong emphasis on omni-channel initiatives as a way to reach, attract, retain and service clients while empowering intermediaries. We empower intermediaries by providing enhanced business intelligence, which, in turn, strengthens our client-centric approach and competitiveness. Since non-traditional players compete in disruptive ways, we have to ensure that our offering and engagement with clients remains resilient and relevant. At the same time, we recognise that our physical branch infrastructure remains critical for financial inclusion and growth, particularly in the entry-level market in South Africa.
Earnings growth was negatively impacted by the high number of catastrophe events that Santam faced this year, which included storm damage in Cape Town, large property claims and fires in the Southern Cape, and extensive flooding in KwaZulu-Natal and Gauteng. The latter was the worst catastrophe event in South African insurance history. Santam’s ability to remain within its target range for its underwriting margin is testimony to the resilience of the business and the diversified nature of its insurance book. Low growth in Santam’s underwriting result was well mitigated by good growth in other businesses, which saw the Group achieve robust overall growth in its net result from financial services.
Operational efficiency is a key focus area across all our operations, particularly during low market growth cycles. Low growth further inspires innovation as a way to attract and retain clients, while exploiting opportunities created by new legislation and technology.
New innovative launches and initiatives include:
Read more in the case study on Building omni-channel and analytics strength.
Several initiatives were implemented last year that delivered efficiency benefits:
Further efforts to optimise our business include improved advisory productivity in Sanlam Sky and the implementation of the effective annual cost standard in all our South African businesses – a standardised disclosure methodology that can be used by clients and advisers to compare charges on most retail investment products. As SPF’s products show particular value in the market, we are in a strong position compared to our peers. SPF concluded a distribution partnership with Capitec, one of the fastest-growing banks in South Africa. This partnership will add a lower-cost distribution channel to SPF’s footprint, which will enhance our ability to provide a wider product set in the entry-level market.
We started engagements to optimise Group re-insurance operations between Santam, Saham Finances and the rest of SEM, with the potential to create significant consolidated value.
We approach capital allocation responsibly, as Sanlam’s long-term sustainability depends on having a resilient balance sheet that can both support our growth initiatives as well as withstand adverse conditions. This is a safeguard to our clients, employees, suppliers and broader society, and has built stakeholder trust in Sanlam over the almost 100 years of our existence. Prudence is therefore inherent in the Sanlam culture and capital allocation methodology.
Capital management is controlled centrally from the Group Office, which means businesses must compete for capital. We allocate capital to those areas where we expect a higher return. To enhance RoGEV, Group businesses are allocated an optimal level of capital, and are measured against appropriate return hurdles. We continuously investigate opportunities to optimise the capital base as the Group and the operating environment develop, including more sophisticated balance sheet management, changes to strategic asset allocation, and the most appropriate capital structure.
Discretionary capital of R4,2 billion was released during 2017 through the excess cash dividend cover in respect of the 2016 financial year, the disposal of our stake in the Enterprise Group in Ghana and a reduction in the capital allocation to Sanlam Capital Markets and SPF. The latter is largely attributable to more effective balance sheet management.
Responsible capital allocation requires that we invest where we can optimise value to shareholders as measured by RoGEV. The deployment of capital during 2017 was focused on areas with the highest growth and return on capital prospects. This included the acquisitions already referred to.
Read more about capital management in the Financial and Operational Review.