Sanlams Investment Case 1H10 Sanlams Investment Case 1H10 Slide # - - PowerPoint PPT Presentation

Sanlam’s Investment Case – 1H10 Slide # 1 Sanlam’s Investment Case – 1H10 Slide # 1

Sanlam’s Investment Case – 1H10 Slide # 2

1.

Clear strategy (firm commitment to deliver on promises)

2.

Profitable growth opportunities

3.

Diversification (reducing risk of overall portfolio)

4.

Cost efficiency focus

5.

Capital efficiencies

6.

Prudence underpins quality and sustainability of base

7.

Creation of shareholder value (share price performance)

8.

Solid operational track-record (enhancing profitability and returns)

Sanlam’s Investment Case – 1H10 Slide # 3

 Maximise profitable growth  Maximise capital efficiencies

Returns (ROGEV) Growth / Earnings Operational Efficiencies Diversification Net Business Flows Capital Efficiency Optimal Application Strategic Investments Return of Excess

Sanlam’s Investment Case – 1H10 Slide # 4



Under penetrated lower income market in South Africa



Sanlam’s customer mix is best aligned with growth segments in South Africa



SA attractive demographics represent an opportunity for insurers



Africa is an emerging insurance market and offers an attractive growth story



Sanlam has the widest Pan-African presence and offers an excellent platform for expansion



Growth in high net worth / mass affluent segments within SA



Resulting in profitable growth for Sanlam

Sanlam’s Investment Case – 1H10 Slide # 5

5

Access to life insurance products by customer segments Access to life insurance products by population group

Source: Credit Suisse research. Note: High income defined as LSM 9-10, Middle income LSM 6-8, Low income 1-5. Source: Finscope. Note: Data based on survey results of South African financial habits.

A rising middle class Black population represents a sizable market for insurance products

Note: Living Standard Measure (“LSM”) is a categorization ranging from 1 to 10 used extensively by marketers and advertisers as a means to segment the population. It is crude proxy for wealth, with the lower LSM groups comprising the most impoverished end of the spectrum.

Monthly household income

18% CAGR 9% CAGR 6% CAGR 26% CAGR

Living standards improvement

Sanlam’s Investment Case – 1H10 Slide # 6

Sanlam Developing Markets, Sanlam‟s entry level proposition, has experienced strong growth and profitability

Source: Credit Suisse research.

Customer breakdown by company

Source: Company filings and analyst presentation. Note: Sanlam Personal Finance caters towards middle, affluent and self employed markets while Sanlam Developing Markets caters entry-level markets in South Africa through Sanlam Sky and Channel Life.

Sanlam individual life APE development in South Africa

06 – 10 Personal Finance CAGR : 7,6% 06 – 10 Developing Market CAGR: 17,6% (ZAR in millions)

Source: Company filings and analyst presentation. Note: Sanlam Personal Finance caters towards middle, affluent and self employed markets while Sanlam Developing Markets caters entry-level markets in South Africa through Sanlam Sky and Channel Life.

Sanlam 1H10 PVNBP margins in South Africa by segment

Entry Level Group Mid-affluent Income

Sanlam’s Investment Case – 1H10 Slide # 7

National Population (mm) Population growth Working age population (mm) Median age (years) Literacy rate Urbanization rate GDP per capita (US$) Income per capita (US$)

South Africa

48.8 0.8% 17.8 24.2 82.4% 60.7% 10 100 3 633

China

1 328.0 0.5% 807.3 37.6 90.9% 43.1% 6 140 1 804

India

1 148.0 1.6% 458.0 24.4 61.0% 29.5% 2 930 838

United States

304.1 0.9% 154.3 36.8 NA 81.7% 47 496 42 858

Indonesia

237.5 1.2% 112.0 27.5 61.0% 51.4% 3 820 1 774

Brazil

191.9 1.3% 93.7 27.6 88.6% 85.6% 10 320 6 285

Nigeria

146.3 2.1% 46.3 18.3 69.1% 50.6% 2 170 841

Russia

141.8 (0.4%) 75.8 37.6 99.4% 72.8% 15 940 7 863

Egypt

81.5 1.8% 24.7 23.4 91.0% 43.3% 5 440 1 920

United Kingdom

61.4 0.7% 31.2 39.2 99.0% 89.9% 35 760 41 341

Australia

21.0 1.2% 11.3 36.9 99.0% 88.7% 37 840 32 535

Source: Euromonitor (Data as of December 2008)

Demographics comparison

Source: EIU.

GDP per capita in South Africa (ZAR)

Source: EIU.

Income per capita in South Africa (ZAR)

Sanlam’s Investment Case – 1H10 Slide # 8 Population in South Africa (in Millions) Ratio of working age to population above 60

Source: US Census Bureau.

Demand for savings and protection products is expected to increase as the number of working people supporting an aging population decreases

2010 – 2020 CAGR #1 (3.7%) China (3.3%) Russia #2 (2.9%) Indonesia #3 (2.8%) Brazil #4 (2.7%) South Africa #5 2000A 2005A 2010E 2015E 2020E

South Africa India Indonesia Brazil China Russia

2000 – 2010 CAGR (2.0%) Brazil #1 (1.5%) China #2 (1.3%) India #3 (1.2%) Indonesia #4 (1.2%) South Africa #5 0.6% #6 Russia (1.9%) India #6 2.6 3.8 4.9 5.4 5.7 6.2 3.4 6.4 8.0 8.3 8.5 8.6

Source: US Census Bureau.a

45.1% 47.5% 49.1% 48.3% 48.3%

Sanlam’s Investment Case – 1H10 Slide # 9

South Africa 90.0% Rest

• f

Africa 10.0%

Life insurance penetration of Sub-Saharan African countries (2009) South Africa‟s contribution to premium in Africa (2009) Projected size of life insurance market in Africa in 2010

Source: Swiss Re and AXCO. Note: Potential market size calculated assuming that those countries above the targeted penetration rate will maintain its current penetration rate. Source: Swiss Re.

(US$ in billions)

2009A total premiums: US$ 34bn

2009A 2010E

32.6 32.6 35.5 37.9

10.0% 5.2% 1.5% 0.9% 0.5% 0.5% 0.1% 0.1% South Africa Namibia Botswana Kenya Ghana Zambia Tanzania Nigeria

BRIC average: 1.2% Global average: 4.0%

Sanlam’s Investment Case – 1H10 Slide # 10

35.8 45.4 47.2 48.7

Sanlam has achieved strong growth and profitability from its Sub-Saharan operations

1H10 PVNBP margins

Source: Company filings, analyst presentation. South Africa includes SPF, Sky, Channel Life and Employee Benefits. UK based on Sanlam UK.

Number of markets present in Sub-Saharan Africa

Source: Company filings. Note: Excluding South Africa.

06 – 10 Africa CAGR : 14,6% 06 – 10 Overall CAGR : 7,2% (ZAR in millions)

Source: Company filings. * Note : excluding white Label

New business volumes*

Source: Company filings.

06 – 10 Overall CAGR : 16,8% 06 – 10 Africa CAGR: 29,4% (ZAR in millions)

Value of new business

276 290 260 172

Sanlam’s Investment Case – 1H10 Slide # 11

Source: EIU, AXCO and Swiss Re.

Markets of potential interest Population and real GDP growth Insurance penetration Countries with Sanlam operations Potential target Tanzania Namibia Kenya Ghana Nigeria Angola Botswana Zambia Zimbabwe Malawi Uganda Angola Gabon Ghana Kenya Nigeria South Africa Tanzania Zambia 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 2 4 6 8 10 12 14 16 2008 – 2011 Population CAGR 2008 - 2011 Real GDP Growth Mozambique

Sanlam’s Investment Case – 1H10 Slide # 12

f

EV Breakdown (1H10) – R50,2bn Cross-sell opportunities

Source: Company filings. Source: Company presentation

EV : ZAR 50,2 billion

Source: Company presentation as of June 2009

Clients with a single provider (% untapped) Traditional life assurance Short-term insurance Investment management Other financial services

Sanlam’s Investment Case – 1H10 Slide # 13

 Amidst a difficult business environment, VNB in 1H10 grew by 16%

yoy (CAGR 17%pa), while average margins continued to rise

Slide # 13

1.50% 1.70% 1.90% 2.10% 2.30% 2.50%

• 50

100 150 200 250 300 350 1H06 1H07 1H08 1H09 1H10

Value of new business (Rm) vs new business margins (%)

South Africa Africa Other International Margins (net) - rhs

Sanlam’s Investment Case – 1H10 Slide # 14

Group net operating profit (Rm)

SPF 65% SEB 9% SI 11% SCM 5% SNT 10%

1H03 - R736m

SPF 49% SDM 6% SUK 2% SEB 4% SI 17% SICM 4% SNT 18%

1H10 - R1 448m

Accelerated success towards providing a wide range of client-centric solutions (reducing risk of portfolio)

Sanlam’s Investment Case – 1H10 Slide # 15

 Intensified focus on costs in light of Sanlam’s expansionary mode

Group administration ratio (%)

Sanlam’s Investment Case – 1H10 Slide # 16

Over R21bn of capital earmarked for redeployment since 2005

21.1 3.9 1.2 3.3 2.3 7.1 3.3

Sanlam’s Investment Case – 1H10 Slide # 17

 Capital efficiency / optimisation remains a priority :

 Capital allocated to business units in a manner which will achieve

• ptimal ROGEV targets

 Application of current discretionary capital of R2,8bn:

 Value-adding strategic initiatives (maximise return on GEV)  Consider capital redistribution options

 Timeframe:

 Strategic projects assessed on an ongoing basis

Sanlam’s Investment Case – 1H10 Slide # 18

“De-risking” at Sanlam – shifting the „Efficient Frontier‟

 Based on principles of optimal asset allocation  Obtaining similar returns, but at a lower level of risk  Long-term decision (not based on weaker equities)

Expected Return Standard Deviation (Risk)

Sanlam’s Investment Case – 1H10 Slide # 19 Note : Returns based on 5-year averages - Special dividends (All-in returns for the SA Financial Index), Share buy-back (Sanlam’s all-in returns), Return on new business (5 yr average IRR of new business strain)

Sanlam’s Investment Case – 1H10 Slide # 20

SPF – Value of Lapses, Surrenders & Fully Paid-Ups (quarterly average - Rm)

R80m

Sanlam’s Investment Case – 1H10 Slide # 21

 Level of retention of maturing policies improved over 1H10 Retention as percentage of maturities (SPF)

44,5% 43,9% 45,8% 45,9% 45,8%

Sanlam’s Investment Case – 1H10 Slide # 22

Sky - Number of NTUs, lapses and surrenders as % of in-force

Sanlam’s Investment Case – 1H10 Slide # 23

 Ongoing improvement in net life cash flows : Positive retail net life

cash flows & lower institutional net outflows

Net life cash flows (Rbn)

* Note : Annualised

Sanlam’s Investment Case – 1H10 Slide # 24

 VNB, positive experience variances and assumption changes has

generated R4.7bn of value (30% of VIF) over the past 5.5 years

* Note : Annualised

Sanlam’s Investment Case – 1H10 Slide # 25

Source: Credit Suisse research.

# of policies lapses and surrenders as % of policies in force at the start of year

Source: Company data

Surrender payments as % of retail life business claim payouts

Sanlam’s Investment Case – 1H10 Slide # 26

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 50 100 150 200 250 300 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 SLM Life Fini SLM (CAGR) Life (CAGR)

19.7% pa 7.9% pa

Sanlam’s Investment Case – 1H10 Slide # 27

Total New business Long-term insurance new business VNB (net) Net

• perating

Profit Core EPS GEV per share DPS*

11% 13% 16% 13% 9% 11% 16%

5-yr CAGR (1H05 to 1H10)

* Note : No interim dividend paid, but used prior year full year dividend per share

Sanlam’s Investment Case – 1H10 Slide # 28

1.

Clear strategy (firm commitment to deliver on promises)

2.

Profitable Growth opportunities

3.

Diversification (reducing risk of overall portfolio)

4.

Cost efficiency focus

5.

Capital efficiencies

6.

Prudence underpins quality and sustainability of base

7.

Creation of shareholder value (share price performance)

8.

Solid operational track-record (enhancing profitability and returns)

Sanlam’s Investment Case – 1H10 Slide # 29 Sanlam’s Investment Case – 1H10 Slide # 29