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  • New life insurance business volumes increased by 23%.
  • Net value of new life business (before the impact of STC release) is some 20% higher.
  • Net fund inflows of R19 billion.
  • Growth in net result from financial services of 10%.
  • Normalised headline earnings are marginally down on 2010.

 

Business environment

Global market uncertainty, fuelled by renewed concerns on sovereign debt in Europe and economic growth prospects in the major world economies, continues to impact on the Group’s operating environment and is also reflected in the results for the ten months to October.

  • Despite some positive economic indicators in South Africa, consumer debt levels and inflation in the middle market remain high and impact on the level of discretionary retail expenditure.
  • The South African equity market largely followed the volatility of international markets, with the major indices only marginally up for the year to date relative to an increase of some 10% during the first ten months of 2010. This, as well as the low interest rate environment, had a negative impact on relative investment returns.
  • Low interest rates also impact on interest earned on the Group companies’ working capital as well as the demand for guaranteed and money market solutions.
  • Investors remain cautious under these conditions, contributing to a challenging environment for new business sales.

 

Results:

Salient features of the Group’s performance for the ten months to October 2011 are set out below. As anticipated, the relatively strong performance experienced in the second half of 2010 results in a higher comparative base for the 2011 full year. This is reflecting in a lower percentage growth in earnings than that reported for the first half of 2011.

 

New Business volumes

  • Overall new business volumes are up by 4% on the comparable period in 2010, with particularly satisfactory growth in new life insurance business.
  • New life business volumes increased by 23% compared to the first ten months of 2010.
  • Sanlam Personal Finance recorded an 18% increase in new life business sales, supported by particularly strong growth in Glacier single premium business and a 14% increase in South African middle-income market sales. Demand for the traditional guaranteed solutions remain weak in the low interest rate environment, but this has been offset by strong demand for the new savings products launched during the last year. Recurring premium new business volumes in the South African entry-level market were in line with the 2010 performance, with the continued focus on writing quality new business impacting on growth, but supporting an increase in new business margins. Roll-overs of the discontinued single premium business in Sanlam Sky continued to decline, as expected.
  • Sanlam Emerging Markets reported growth of 9% in its new business volumes for the first ten months of 2011. The strong average exchange rate of the Rand impacted negatively on the growth reported by the various operations. The Botswana operations recorded growth of 9% in Rand, reflecting the more mature nature of this market as well as the current difficult economic environment. Rest of Africa new business volumes increased by some 30%.
  • Sanlam UK continued its strong performance during 2011 and increased its new life business volumes by more than 30%.
  • Sanlam Employee Benefits more than doubled its contribution to new business. This is attributable to a large annuity business mandate received since the end of June 2011.
  • Overall, the average life new business margin for the ten months increased slightly from that achieved for the first half of the 2011 financial year. This reflects the impact of the focus on quality in the South African entry-level market as well as the strong new business growth at Sanlam Employee Benefits.
  • Persistency in all markets remains within acceptable levels.
  • Life net flows were more than double that of 2010.
  • Gross investment business inflows are 2% lower than in 2010.
  • Sanlam Personal Finance’s new investment business sales decreased by 1%. This reflects the impact of the high comparative base, attributable to a R1 billion once-off book transfer to Glacier in 2010. Excluding this, new investment business sales increased by 11%.
  • Namibian new investment business declined by 9% on the first ten months of 2010 in a very competitive environment. This contributed to a similar reduction in new investment business for the Emerging Markets cluster.
  • Gross investment flows in the Institutional cluster decreased by 2%. Strong growth in collective investment scheme business was offset by lower segregated and multi-manager new business volumes. Sanlam UK continued to report strong growth.
  • Net investment inflows of some R10,4 billion for the ten months, versus R11,7 billion in 2010, are particularly satisfactory in the current environment.

 

Earnings

  • Net result from financial services for the ten months is up 10% on 2010.
  • Sanlam Personal Finance, Sanlam Employee Benefits and Santam achieved solid performances.
  • Growth reported by the rest of the Group operations reflects the impact of the higher comparative base in the second half of 2010, as expected, as well as the impact of costs incurred on new initiatives and expansion.
  • Normalised headline earnings are marginally down on 2010, with the operating performance being offset by lower investment return earned on the capital portfolio.

 

Capital

The Group remains well capitalised. As at the end of June 2011 the Group reported discretionary capital of some R3,2 billion. Since then, more than R700 million of additional capital was added to the discretionary capital portfolio through the disposal of non-strategic investments, including the sale of a major part of the Group’s holding in Vukile. R600 million of discretionary capital was utilised in respect of strategic acquisitions, including the acquisition of some 3 million Santam shares. The increased holding in Santam to an effective 59.9% compensates for the dilution in the Group’s short term insurance exposure following the sale to Santam of our interest in MiWay. The remaining capital utilised is essentially in respect of Sanlam Private Investments’ acquisition of majority stakes in Merchant Securities in the United Kingdom and Summit Trust in Switzerland. Discretionary capital held within the Group thus remained broadly in line with the June 2011 level, with some R2 billion being earmarked for the Shriram Capital transaction announced in the Group’s interim results.

All of the Group operations remain well capitalised. Sanlam Life Insurance Limited’s statutory capital covered its Capital Adequacy Requirements by 3.2 times on 30 September 2011.

Outlook

The risk of sovereign default in Europe will continue to weigh heavily on sentiment and investment markets in general. The risk of a slowdown in economic growth in the major global economies is also increasing. The Group’s major exposure remains to the South African economy and investment market, which is not shielded from international events. The operating environment will commensurately remain challenging and is likely to impact on growth in the Group’s key operational performance indicators. Shareholders need to be aware of the impact of financial market returns and volatility on the investment return component of the Group’s earnings and Group Equity Value. Relative market movements may have a major impact on the growth in Group earnings to be reported for the full 2011 financial year. The strong market performance in the second half of the 2010 financial year, in particular, may not be repeated in 2011, which will impact on the full year growth in earnings compared to the ten months ended 31 October 2011. Operationally, we will continue to execute on the Group’s strategy and will remain focused on the quality of new business. Although this may impact on the level of growth in new business volumes, it enhances shareholder value creation. This is in line with the Group’s stated objective of not striving to be the largest writer of new business, but instead to focus on profitable business.

The information in this operational update has not been reviewed or reported on by Sanlam's auditors. Sanlam’s financial results for the year ending 31 December 2011 are due to be released on 8 March 2012. Shareholders are advised that this is not a trading statement as per section 3.4 of the JSE Listings Requirements.

A conference call for analysts, investors and the media will take place at 17h00 (South African time) today. Investors and media who wish to participate in the conference call should dial the following numbers:

 

Audio dial-in facility

A toll free dial-in facility will be available. We kindly advise callers to dial in 5 - 10 minutes before the conference call starts at 17:00.

 

Access numbers for participants dialing live from their country:

South Africa and other countries
Toll +27 11 535 3600
Toll-free 0800 200 648

USA
Toll 1 412 858 4600
Toll-free 1 800 860 2442

UK
Toll-free 0800 917 7042

Recorded playback will be available for three days after the conference.

 

Access Numbers for Recorded Playback:

Access code for recorded playback: 2560#

South Africa and other countries
Toll +27 11 305 2030

USA
Toll 1 412 317 0088

UK
Toll 0808 234 6771

 

For further information on Sanlam, please visit our website at www.sanlam.co.za

Sponsor
Deutsche Securities (SA) (Proprietary) Limited

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