Sanlam’s Investment Case – AR2010 Sanlam’s Investment Case – AR2010 Slide # 1 Slide # 1
Clear strategy (firm commitment to deliver on promises) 1. Profitable growth opportunities 2. Diversification (reducing risk of overall portfolio) 3. Cost efficiency focus 4. Capital efficiencies 5. Prudence underpins quality and sustainability of base 6. Creation of shareholder value (share price performance) 7. Solid operational track-record (enhancing profitability and returns) 8. Sanlam’s Investment Case – AR2010 Slide # 2
Maximise profitable growth Maximise capital efficiencies Net Business Flows Growth / Diversification Earnings Operational Efficiencies Returns (ROGEV) Optimal Application Capital Strategic Investments Efficiency Return of Excess Sanlam’s Investment Case – AR2010 Slide # 3
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 – AR2010 Slide # 4
Access to life insurance products by customer segments Access to life insurance products by population group Source: AMPS 2010 Source: AMPS 2010 Note: Affluent (R30k+), High income (R12k-R30k)n, Middle income (R6k-R12k), ELM (<R6k). Note: Data based on survey results of South African financial habits. Personal incomes by population group (Rbn) Living standards improvement 9% 8% 10% 8% CAGR CAGR CAGR CAGR Source: Unisa (Bureau of market research) Source: AMPS 2010 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 Note: LSM groups comprising the most impoverished end of the spectrum. 5 A rising middle class Black population represents a sizable market for insurance products Sanlam’s Investment Case – AR2010 Slide # 5
Customer breakdown by company Source: Credit Suisse research. Sanlam individual life APE development in South Africa Sanlam FY10 PVNBP margins in South Africa by segment 06 – 10 Personal Finance CAGR : 7,0% Entry Level Mid-affluent Income Group 06 – 10 Developing Market CAGR: 14,4% (ZAR in millions) Source: Company filings and analyst presentation. Source: Company filings and analyst presentation. Note: Sanlam Personal Finance caters towards middle, affluent and self employed markets while 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 Sanlam Developing Markets caters entry-level markets in South Africa through Sanlam Sky Channel Life. and Channel Life. Sanlam Developing Markets, Sanlam‟s entry level proposition, has experienced strong growth and profitability Sanlam’s Investment Case – AR2010 Slide # 6
Demographics comparison Population Population Working age Median age Literacy Urbanization GDP per Income per National (mm) growth population (mm) (years) rate rate capita (US$) capita (US$) 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) Income per capita in South Africa (ZAR) GDP per capita in South Africa (ZAR) Source: EIU. Source: EIU. Sanlam’s Investment Case – AR2010 Slide # 7
Population in South Africa (in Millions) Ratio of working age to population above 60 2000 – 2010 CAGR 2010 – 2020 CAGR 49.1% #1 Brazil (2.0%) #1 China (3.7%) 48.3% 48.3% 47.5% 45.1% #2 China (1.5%) #2 Russia (3.3%) #3 India (1.3%) #3 Indonesia (2.9%) #4 Indonesia (1.2%) #4 Brazil (2.8%) #5 South Africa (1.2%) #5 South Africa (2.7%) #6 Russia 0.6% #6 India (1.9%) 8.6 8.5 8.3 8.0 6.4 6.2 5.7 5.4 4.9 3.8 3.4 2.6 2000A 2005A 2010E 2015E 2020E South Africa India Indonesia Brazil China Russia Source: US Census Bureau. Source: US Census Bureau.a Demand for savings and protection products is expected to increase as the number of working people supporting an aging population decreases Sanlam’s Investment Case – AR2010 Slide # 8
South Africa‟s contribution to Life insurance penetration of Projected size of life insurance Sub-Saharan African countries (2009) premium in Africa (2009) market in Africa in 2010 (US$ in billions) 2009A 2010E Rest 37.9 of 35.5 32.6 32.6 Africa 10.0% South Africa 90.0% 2009A total premiums: US$ 34bn Source: Swiss Re and AXCO. Source: Swiss Re. Note: Potential market size calculated assuming that those countries above the targeted penetration rate will maintain its current penetration rate. Sanlam’s Investment Case – AR2010 Slide # 9
Number of markets present in Sub-Saharan Africa New business volumes* 06 – 10 Africa CAGR : 15,3% 06 – 10 Overall CAGR : 5,6% (ZAR in millions) Source: Company filings. Source: Company filings. Note: Excluding South Africa. * Note : excluding white Label Value of new business 1H10 PVNBP margins 06 – 10 Overall CAGR : 15,1% 06 – 10 Africa CAGR: 27,8% (ZAR in millions) 698 689 567 434 Source: Company filings. Source: Company filings, analyst presentation. South Africa includes SPF, Sky, Channel Life and Employee Benefits. UK based on Sanlam UK. Sanlam has achieved strong growth and profitability from its Sub-Saharan operations Sanlam’s Investment Case – AR2010 Slide # 10
Markets of potential interest Population and real GDP growth Ghana Nigeria Uganda Insurance penetration Kenya Tanzania Zambia Malawi Botswana Namibia Countries with Sanlam operations Source: EIU, AXCO and Swiss Re. Sanlam’s Investment Case – AR2010 Slide # 11
EV Breakdown (FY2010) – R57,4bn Cross-sell opportunities Traditional life assurance Short-term Investment insurance management EV : ZAR 50,2 billion Other financial services Source: Company filings. Source: Company presentation Clients with a single provider (% untapped) Source: Company presentation as of June 2009 Sanlam’s Investment Case – AR2010 Slide # 12
Amidst a difficult business environment, gross VNB grew by 11% yoy, while average margins continued to rise Slide # 13 Sanlam’s Investment Case – AR2010 Slide # 13
Contribution to group net operating profit (Rm) 2003 – R1 541m 2010 – R3 415m Accelerated success towards providing a wide range of client-centric solutions (reducing risk of portfolio) Sanlam’s Investment Case – AR2010 Slide # 14
Intensified focus on costs in light of Sanlam’s expansionary mode Group administration ratio (%) Sanlam’s Investment Case – AR2010 Slide # 15
22.5 7.1 5.3 3.3 3.3 2.3 1.2 Over R21bn of capital earmarked for redeployment since 2005 Sanlam’s Investment Case – AR2010 Slide # 16
Continue to improve capital efficiency / optimisation : Capital allocated to business units in a manner which will achieve optimal ROGEV targets Improve our understanding of implications of SAM (Solvency II) framework Pursue profitable growth opportunities, and value-adding strategic initiatives, to efficiently redeploy discretionary capital Pipeline of potential transactions (mainly India and Africa) Consider capital redistribution options (prefer share buy-backs in times of share price weakness) Optimisation of capital remains a key priority for the Group Sanlam’s Investment Case – AR2010 Slide # 17
“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) Sanlam’s Investment Case – AR2010 Slide # 18
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 – AR2010 Slide # 19
SPF – Value of Lapses, Surrenders & Fully Paid-Ups (quarterly average - Rm) R80m 2007 2008 2009 2010 Sanlam’s Investment Case – AR2010 Slide # 20
Level of retention of maturing policies improved over 2009 Retention as percentage of maturities (SPF) 45,9% 43,9% Sanlam’s Investment Case – AR2010 Slide # 21
Sky - Number of NTUs, lapses and surrenders as % of in-force Sanlam’s Investment Case – AR2010 Slide # 22
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