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What is RoGEV?

RoGEV is a robust forward-looking financial performance indicator that primarily measures the value we add for our shareholders. Given the direct relationship over the long term between shareholder and other stakeholder value creation, RoGEV also indirectly reflects how successful we are in creating value for our other material stakeholders.

What is GEV?

GEV is the aggregate of:

  • the value of Sanlam’s in-force book of life insurance business;
  • the value of non-life operations based on longer term assumptions; and
  • the fair value of discretionary and other capital not allocated to Sanlam operations.

GEV is not an appraisal value of the Group as it does not place any value on future new life insurance business or prudence in our valuation bases.

GEV is a forward-looking measure that provides shareholders with a valuation for the major part of the Group’s appraisal value. The Shareholders’ information section provides sensitivities for the most important valuation assumptions as well as a full analysis of change in GEV. The disclosures separately identify the change in value due to differences between actual earnings for a particular period under review and those assumed in the valuation models at the end of the previous period, as well as the change in value attributable to changes in assumed future earnings. These disclosures provide shareholders with an indication of the accuracy of the assumptions used in determining GEV over time as well as sufficient information to enable shareholders to adjust GEV should they wish to use different assumptions.

How are GEV and RoGEV determined?

The following valuation methodologies are applied in determining GEV:

  • Sanlam’s stake in Santam and Nucleus is valued at its listed market value. This represents the market’s valuation of Santam’s future earnings (16% of GEV at 31 December 2018).
  • Most of the other non-life operations and the in-force book of life insurance business are valued at the discounted value of the future earnings that we expect to earn from these operations. Allowances are made for the cost of capital allocated to these businesses (81% of GEV at 31 December 2018).
  • Some small and/or newly acquired companies are valued at net asset value (2% of GEV at 31 December 2018).
  • Discretionary and other capital not allocated to Group operations are valued at fair value (1% of GEV at 31 December 2018).

RoGEV is equal to:

  • The change in GEV, after adding back dividends paid and movements in share capital, as a percentage of the total of GEV at the beginning of the period and the weighted value of movements in share capital during the period.
  • RoGEV is therefore a composite measure of growth in the value of Sanlam, with RoGEV for a particular period including both the variance between current year actual earnings and the earnings assumed in the valuation models at the end of the previous year, as well as the change in present value of future expected earnings.

As GEV reflects the present value of future Group earnings, the key drivers of RoGEV are the same as those underlying the Group’s main sources of earnings.

Sanlam’s RoGEV target is to outperform its cost of capital of i+4%, with i being the South African nine-year risk-free rate. We have outperformed this hurdle on a cumulative basis since listing in 1998.

What Drives Future Earnings and RoGEV?

Our main sources of earnings are the net operating profit we earn from our different lines of business (Net result from financial services) and the net income we earn from investing discretionary capital and the capital allocated to our operations in the financial markets (Net investment return)

Net Result from Financial Services

Financial Services Income

  • Premiums earned in respect of risk cover provided under life insurance and general insurance solutions;
  • Margins earned from savings and retirement products where we provide guaranteed payments to clients;
  • Net interest and other margins earned from credit and structuring solutions; and
  • Fees charged for investment management, health, administration and other services.

Sales Remuneration

  • Comprises commission and other distribution costs paid to our distribution channels.

Underwriting Policy Benefits

  • Includes all payments to clients in respect of risk cover provided under life insurance and general insurance solutions.

Administration Costs

  • Include all variable and fixed costs incurred in managing the full life cycle of client solutions, excluding sales remuneration.

Tax on Financial Services Income and Non-controlling Interests

  • A function of prevailing tax legislation and the interests held by minority shareholders respectively.

Key Drivers of Net Result from Financial Services

Financial services income is driven by:

  • the size of our client base, which depends on the level of new business written and the retention of existing clients;
  • investment return earned on the underlying assets managed and administered for clients, which affects the size of the asset base on which we earn investment management and administration fees; and
  • the level of fees and margins priced into our solutions.

The main drivers of sales remuneration are the level of new business written and the commission rates payable, which are regulated in most markets.

Net result from financial services income is also affected by:

  • the level of claims experienced in respect of life insurance risk cover and general insurance solutions to protect clients from unforeseen events. Underwriting policy benefits are volatile in nature due to variances in the frequency and size of unforeseen events occurring; and
  • the level of administration costs incurred in running our operating activities.

Net Investment Return on Capital

Key Drivers of Net Investment Return

  • Investment market returns;
  • Investment performance relative to market returns;
  • The strategic asset allocation contained in the investment management mandates; and
  • The level of capital held.

Strategic Pillars to Enhance RoGEV

To maximise RoGEV, we need to actively manage the drivers of earnings over the long term. This is achieved through a number of strategic pillars which are primarily aimed at optimising relative value creation between shareholders and other stakeholders.

Strategic Focus Area Strategic Pillar Material Stakeholder Group Affected
Focus on client-centricity to build trust in the Sanlam brand
Drive structural changes to enhance agility and responsiveness to changing client needs
Product innovation to enhance competitiveness
Expand distribution in all regions in which we operate to facilitate improved access to our financial solutions
Introduce new distribution channels
Employ the best distribution talent available in the market
Continuous transformation to reflect the demographic profile of the markets where we operate Transformation
Sanlam Brand associated with good corporate citizenship and sound governance Transformation
Participate in regulatory change to improve trust in the financial services industry Transformation
Expand through acquisitions
Strategic Focus Area Strategic Pillar Material Stakeholder Group Affected
Client-centricity – selling products and services that a client needs at an appropriate price
Remunerate distribution channels based on retention experience
Continuously measure client engagement and satisfaction
Manage value outcomes of products and services in line with client expectations
Focus on quality of business – affordability and other measures are used as part of the sales process
Ensure product innovation to improve the value proposition of the client’s product portfolio
Offer a superior client service experience by attracting, developing, motivating and retaining the best skills available in the market
Continuous transformation to reflect the demographic profile of the markets where we operate Transformation
Participate in regulatory change to improve trust in the financial services industry Transformation
Strategic Focus Area Strategic Pillar Material Stakeholder Group Affected
Set appropriate pricing
Optimise the business mix
Expand into under-penetrated regions that offer higher margins
Optimise capital requirements through innovative product development and balance sheet management skills
Strategic Focus Area Strategic Pillar Material Stakeholder Group Affected
Ensure appropriate pricing of new business, taking cognisance of expected future claims experience
Limit exposure through product diversification
Use reinsurance to limit exposure
Conduct regular claims experience analyses to identify trends
Appropriate risk management to prevent fraudulent claims
Strategic Focus Area Strategic Pillar Material Stakeholder Group Affected
Continuous focus on improving cost efficiencies
Reducing the complexity of product features through product innovation
Strategic Focus Area Strategic Pillar Material Stakeholder Group Affected
Maintain consistent superior investment performance through a robust and competitive investment process
Attracting, developing, motivating and retaining the best investment management skills available in the market
Strategic Focus Area Strategic Pillar Material Stakeholder Group Affected
Appropriate mix of business to optimise overall capital requirements through diversification
Appropriate product pricing to ensure hurdle rates are achieved on required capital
Product development and innovation to optimise capital efficiency of new business

Read more about the operational responses to the RoGEV drivers in the cluster reports.

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