Savings in Transition UBS Financial Services Conference 2007 Johan - - PDF document

Savings in Transition

UBS Financial Services Conference 2007 Johan van Zyl

Savings in Utopia

Savings in Utopia ~ Insights into the following questions:

Where does Sanlam see the future growth potential in respect of the

various savings markets in which it operates?

What is the group’s associated strategies to penetrate these markets,

and grow its market share?

And lastly, what are the associated opportunities and risks?

At Sanlam, we see the current savings environment in transition, and are gearing up our capabilities to make the most of these anticipated changes To understand our outlook for savings, and answers to the above- mentioned questions, one needs to understand our strategy…

Agenda

Strategy — Client centricity Changing savings environment Retail Savings Solutions

Lower-income market (NSSS) Middle-income Market Affluent Market

Institutional Savings Solutions Conclusion

• 1. Client Centricity

Strategy: Client Centricity

Client centricity:-

Know who our clients are, Understand their needs, Design solutions to meet their needs (confirm appropriateness of

particular solution set)

Continue to satisfy expectations (through operational efficiencies and

continuous advice)

Strategically, we do not intend to grow market share predominantly through product superiority, but mainly through client centricity However, if we focus on the client, innovation in respect of superior products/solutions will surely follow Understanding Understanding and a and adapting apting to the to the c client ient Understanding Understanding and a and adapting apting to the to the c client ient’ ’s needs, s needs, s needs, s needs, through a broader through a broader through a broader through a broader distribution network, supported by a wider array of service/prod distribution network, supported by a wider array of service/prod distribution network, supported by a wider array of service/prod distribution network, supported by a wider array of service/product uct uct uct

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Wealth Management Life- style Personal Cover Financial Education

Sanlam Personal Finance Elsewhere in Sanlam Group

Edu- cation provi- sion Savings & Invest- ment Home loan Car & house- hold cover Banking / Banking / Trans- Trans- actional actional Medium term credit Finan- cial Educa- tion Wills & trusts Medical Risk cover Retirement

Client Client Client Client

Competitive adva Competitive advantage: ntage: Interact with clients Understand their needs Provide advice Design solutions Feedback - Maintain relationship Comprehensive offering: Comprehensive offering: Client focus also provides various cross- sell opportunities Thereby enhancing

• verall value proposition

for client

Cross-sell Potential at SPF: Clients with a Single Provider and % Untapped

56% 51% 44% 36% 41% 30% 77% 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 SPF (Life only) SCI Santam Wills Glacier SPL Home Loans millio lion 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

• no. of clients with a single provider - lhs

As a % of provider's base (ie untapped potential) - rhs

SPF’s life clients have the largest untapped potential of 1.4m clients

Despite Significant Future Potential, our Progress to Date

Accelerated success towards Accelerated success towards providing a wide range of providing a wide range of client-centric solutions client-centric solutions

Group net operating profit (Rm) Other financial services

20 200 40 400 60 600 80 800 1 00 1 000 1 20 1 200 1 40 1 400 1 60 1 600 1H03 1H03 1H04 04 1H05 1H05 1H06 1H07 1H07

SP SPF SD SDM SEB SEB SI SIM SC SCM SNT SNT IFS IFS

Life

CAGR: 19%pa

• 2. Savings Environment

South Africa, a Country of Rapid Change

Increased freedom ↔ increased personal responsibility: Catalyst behind changing realities in South Africa

Socio-economic realities Transparency / Access to information Consumerism / Protection of the individual → Increased regulation Empowerment Economic realities Low inflation environment Increased market volatility Shorter time horizons → Flexibility and mobility Other influences Proliferation of technology Expectations created by other industries Expectations from Government (FAIS, FICA, SOI, NSSS)

Current Savings Environment in SA

Overall a strong improvement in household wealth, driven by:

Strong growth in disposable income (CAGR of 11% over past 3 yrs) Increasing tax relief Lower inflationary environment Strong GDP growth Higher stock market levels Escalating house prices

However, not reflected in the official macro statistics (-0.5% savings rate of personal disposable income - PDI) due to aggregation impacts (ie unemployed and lower wage earners) Despite a sharp rate of growth in household consumption expenditure, a recent survey commissioned by Credit Suisse Standard Securities (TNS Survey — March 2007) paints a very different picture…

Current Savings Environment in SA — Higher Savings Rate

After stripping out aggregation impacts, survey showed a higher propensity to save amongst households (savings from 4%-10% of PDI) Suggests higher income households are not consuming out of savings

Savings as a % of Disposable Inco Savings as a % of Disposable Income me (by (by househol household income groupin d income groupin Savings as a % of Disposable Inco Savings as a % of Disposable Income me (by (by househol household income groupin d income grouping) g) g) g)

0% 0% 2% 2% 4% 4% 6% 6% 8% 8% 10% 10% 12% 12% 7000- 000-7999 999 8000 8000-8999 8999 900 9000- 0- 10 10999 999 110 11000- 00- 13 13999 999 1400 14000- 0- 19 19999 999 200 20000- 00- 24999 4999 25 25000- 000- 4199 41999 >42000 000

Source : CSSS

Current Savings Environment in SA — Savings Diversified

63% of households use more than one savings product

Lower income groups typically use a large number of funeral plans Higher income households use a larger array of savings products

Savings products used Savings products used Savings products used Savings products used

0% 0% 20% 20% 40% 40% 60% 60% 80% 80% 100% 100% 7000- 7000- 799 7999 8000 8000- 899 8999 9000 9000- 10999 0999 11000- 11000- 13999 13999 14000- 14000- 19999 19999 20000- 20000- 24999 24999 25000- 25000- 41999 41999 >42000 42000

• t
• ther

shar ares es on

• n the s

e stock

• ck exch

chan ange ge Money m market ket acco account or

• r 3

30/60 d day notice accou accounts Inve vest stment i in o

• ther yo

your o

• wn o
• r

someon eone el e else's b busines ess Unit tr trusts ts Stokv

• kvel

els or

• r ot
• ther s

savings cl clubs or

• r

buria ial so l societie ies Educ Education po n policy/s Endo Endowment po policy/s Pension or

• r p

prov

• viden

ent f t fund/s or

• r

retirement nt a annui nnuity/s Fune Funeral po policy/s

Source : CSSS

Current Savings Environment in SA — Black Diamonds

Number of people in the middle market will grow by approximately 37% from 2006 to 2011 Blacks and Indians have a growth rate of more than 50% (Coloureds — 72%), whereas the White population has a mere 19% growth rate

200 200 400 400 600 600 800 800 1 000 1 000 1 200 1 200 1 400 1 400 1 600 1 600 1 800 1 800 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2 7 2008 2 8 2009 2 9 2010 2 2011 '000 '000

Black ack Co Coloured Indi ndian Wh Whit ite

Source : AMPS 2006

Growth in race gr Growth in race groups

• ups

Growth in race gr Growth in race groups

• ups —

— Middle income market Middle income market Middle income market Middle income market

• 3. Retail Businesses — Savings Solutions
• 3. Retail Savings Solutions - Summary

Low income

Currently low savings penetration, limited mainly to risk solutions Roll-out of NSSS should fill the gap (limited private sector opportunities) RoA, India and other emerging markets provide the biggest savings-

related opportunities in the lower-income market Middle income

Higher level of savings penetration Opportunities in respect of new distribution models

Affluent market

New commission dispensation will change structure of market Relaxation (or abolishment) of foreign exchange controls Capturing share of ‘Baby Boomers’ market Addressing trend of backward integration by IFAs

Lower Income Market Regulatory Environment in SA

National Social Security Scheme (NSSS):

Supportive of government’s initiative for a collective scheme with its

resultant cost advantages and compulsory participation We expect a (at least a partially) funded scheme:

Funded schemes give people a greater sense of control over their

• wn financial positions (rather than feeling that they are cross-subsidizing)

The amount of assets available for investment will be substantial —

difficult to manage without splitting up assets / partnering with the private sector We see the NSSS as meeting only a very specific need for our clients:

Still exists a wide array of ‘other’ financial services which we can offer

this market (e.g. there will still be a need for shorter-term savings)

A focus on direct marketing channels, also provides a lower-cost

avenue to tap into this market

Overview — Rest of Africa

Overview

Sanlam operates in African countries with under-developed

investment markets

Life insurance products give clients access to participate in these

investment markets

Leverage off our existing expertise to expand into otherwise

unavailable products (e.g. annuities) Drivers

Huge drive in Africa for education - since educated people can take

better advantage of developing economies

Demand for savings products is primarily driven by educational

savings, which we see as a huge growth area

Growth Potential — Presence in Rest of Africa

Why we should be in rest of Africa?

Low industry penetration + competition Strong economic growth Higher margins available Does not consume excessive

management time

5 000 36 million 2005 Tanzania 24 000 10 million 2002 Zambia 45 000 20 million 2000 Ghana 85 000 32 million 2000 Kenya 200 000 1.7 million 1995 Botswana 810 000 45 million 1930 South Africa (ELM) Policies Population Commenced Key

Rest of Africa — Key Risks & Challenges

Restore image of industry — legacy of state insurance companies Skill shortages — management, technical, operational Premium collection capabilities — many countries cash driven Evolution of legislation — revision of Insurance Acts Increase in competition — more appetite for Africa But opportunity to help shape the industries…

Rest of Africa — Key Focus Areas

Maintain dominant market position in Botswana, but:

More focus on bancassurance / group business Benefits from annuity matching Utilization of excess capital

Focus on operational efficiencies

Distribution capabilities Quality of business (lapses, NTU’s) Cost efficiencies

Partnerships with other credit providers Improved support out of South Africa Further expansion into Africa — Nigeria?

Growth Potential — India

The country is looking at an annual GDP growth of 9.2% Insurance penetration of 3,1% following entry of foreign players High expected growth in personal income and aspirations Need for strong financial planning Markets in most developed countries have saturated This makes the Indian market more attractive for global insurance majors Huge opportunity to tap semi-urban and rural markets There exists a strong urban and rural divide with regard to savings Over 1 Billion Indians – Strong economic growth Majority of the population does not have adequate financial protection

Example : The advantage of India — Example : The advantage of India — Insurance linkages nsurance linkages

Shriram — New Business Premium YTD growth

(Sorted by APE Growth)

30 30% 26 26% Tata AIG Tata AIG 22/% 22/% 24 24% Aviva Aviva 24 24% 32 32% ING Vysya ING Vysya 42 42% 42 42% ICIC ICICI P I Prudential udential 48 48% 56 56% Kotak M Kotak Mahi hindra Old M ndra Old Mutual tual 71 71% 60 60% SBI Life SBI Life 55 55% 60 60% Birla Sunlife Birla Sunlife 91 91% 63 63% Ma Max Ne x New York w York 61 61% 78 78% HDFC Standard HDFC Standard 117% 117% 106% 106% Met Life Met Life 48 48% 106% 106% Bajaj Allianz Bajaj Allianz 120% 120% 140% 140% Reliance Life Reliance Life 342% 342% 187% 187% Shriram Li Shriram Life fe 253% 253% 610% 610% Sahara Li Sahara Life fe 1391% 1391% 1356% 1356% Bharti Bharti Axa Life Axa Life 55 55% 64 64% Total Private Total Private 9% 9% 41 41% LIC LIC 19 19% 48 48% Grand Total Grand Total

Unweighted Growth Unweighted Growth YTD F2008 YTD F2008 APE G APE Grow

• wth

th YTD YTD Life Insure Life Insurer Source : Source : IRDA, JP Morgan * unweighted as data for single premiums were not available prior to Feb06

Middle Income Market Some of our Challenges

Need for better communication between parties involved in solution:

Client Intermediary Provider

Providers differentiate through “product innovation” (difficult to answer

to a call for simplification)

Difficult to introduce technology into the entire process Advice increasingly provided only to the wealthy International experience — UK

Desertion of the middle market Interventions so far failed — protection gap

Existing Distribution Space

Experimental / New Opportunities % of business → Existing model % of business → NSSS

Lower Income Middle Income Higher Income

Existing distribution models NSSS

Shift towards Higher Average Recurring Premiums

Unit costs of sale too high: FAIS, FICA and new commission dispensation likely to push advisors up-market Since 2005, average recurring premium file-sizes grew by 14%pa in SFA and 18%pa in broker channel (vs. inflation of 4.8%)

Cumulative gr grow

• wth i

in gr gros

• ss av

aver erage r age recu curring p g prem emiun si size ze vs i vs inflation ( (indexed)

90 100 110 120 130 140 150 160 170 180 190 200 2000 2001 2002 2003 2004 2005 2006 2007 Av Ave CPI CPIX SFA SFA ( (inc ncl w l wealth) Broker

• ker

Our Opportunity in the Future Distribution Space

Experimental / New Opportunities % of business → Existing model % of business → NSSS

Lower Income Middle Income Higher Income

NSSS Outlook for Existing distribution models

Value Innovation and New Solution

In the middle market, the most important components:

Advice, simplicity, transparency, flexibility and value for money

New Solution: Proposition for clients

Empower the client Quality advice Needs based solution Process designed to facilitate on-going advice Cost of advice process embedded in the product charging structure Use technology

A new role for the consultant (and Implementation)

Critical for face-to-face advice (industry trends will leave a gap) Role of system in the advice process — standardised ongoing advice Seamless link from advice process to product implementation Simple products - Savings and retirement

Benefits to Sanlam

Consistent with brand proposition New growth opportunities (target new clients and grow market share) Tight control over legal liabilities arising from the provision of advice In line with thought process of National Treasury Pro-active initiative against potential fall-out of traditional business model Improved client retention Reduced acquisition cost — improved margins and value for money

Improved productivity (FC) Reduced new business support per financial plan (automated) Reduced management requirements

A streamlined, high-volume process

Affluent Market

Funds under management

Building on a very successful LISP Business

7 9 12 12 16 16 23 23 30 30 35 35 5 10 10 15 15 20 20 25 25 30 30 35 35 40 40 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 R b R b'n

50 100 150 200 250 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 '000

65+ yrs 50 - 64 yrs 35 - 49 yrs 25 - 34 yrs 16 - 24 yrs

Growth in age groups — Affluent Market

Future growth profile of Affluent Market

Population size of affluent market will grow by 59% from 2006 to 2011 The 16-24 age group will show the highest growth rate over the period

• f 63%, but growth from all the age groups will >50%

By 2011, age group 35-49 will make up half of the Affluent market All race groups will grow by between 53% (Whites) and 86% (Coloureds)

Source : AMPS 2006

Changing Market Conditions

Commoditisation of LISP business Arrival of new competitors (Coronation, Allan Gray and Discovery) Increased competition from existing players LISPs increasingly competing on price Relaxation (abolishment) of foreign exchange controls provides

• pportunities for offshore long-only asset management opportunities

Backward integration from advisors:

Likely to put further pressure on margins Lose independence from the client’s perspective IFA’s will increasingly compete directly against private banks However, appears to be a bull-market trend

Product Product Product Product Packages Packages Packages Packages IFA IFA IFA IFA Asset Asset Asset Asset Manager Manager Manager Manager Backwar Backward Backwar Backward Integration Integration Integration Integration

C L I E N T S

50 — 75 bps 50 bps 85 bps 65 — 150 bps 75 — 100 bps 100 bps Current Current Future Future

Affluent Market — Strategic Outlook

Offering a wider set of financial solutions to affluent clients, as well as assisting intermediaries to diversify their practices across a wider solution set Diversify income streams away from pure administrative profits Partnering with key intermediaries in the market New commission proposals and early termination proposals likely to push more IFAs up-market Establishing a relationship with clients earlier in their life Scale advantages are still important in this business Potential for IFA aggregation opportunities both locally and abroad Sustainable superior investment returns is key to playing across the value chain

• 4. Institutional Businesses — Savings Solutions

Sanlam Adapting to Changing Consumer Demands

13 13 10 10 11 11 11 11 14 14 7 18 18 27 27 43 43 51 51 66 66 38 38 1. 1.41 41 2. 2.72 72 3.81 3.81 4. 4.55 55 4. 4.74 74 5.26 5.26 10 10 20 20 30 30 40 40 50 50 60 60 70 70 80 80 90 90 100 100 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 1H 1H07 07 Rb Rbn

• 0.5

0. 0.5 1. 1.5 2. 2.5 3. 3.5 4. 4.5 5. 5.5 tim times Lif Life No Non-life Ratio of

• of n

non-lif life t e to li life

Grow alternative revenue sources: Sanlam Group New business flows

CAGR 2002-2007 (+24%)

Following off-balance sheet trend & Countering Disintermediation

• Making sure that Sanlam has the capabilities in place to capture the

shift in savings off-balance sheet

• Diversification strategy: In part, a response to an increasing trend of

disintermediation in the savings industry New product providers and platforms “eating” into the existing value chain

Client Product platforms Distribution Network

Traditional LT savings firms Asset managers

Unit Trusts, LISPs, Multi- managers

“If you can’t beat them – then join them” (or own them)!

Profile of Sanlam Investments — Available Capacity

Sanlam Sanlam Sanlam Sanlam Investment Investment Investment Investment Management Management Management Management Octane Octane Octane Octane Holdings Holdings Holdings Holdings Li Limited mited Li Limited mited Sanlam Sanlam Sanlam Sanlam Collective Collective Collective Collective Investments Investments Investments Investments Sanlam Sanlam Sanlam Sanlam Private Private Private Private Equit Equity Equit Equity Sanlam A Sanlam Asset set Sanlam A Sanlam Asset set Management Management Management Management (Ireland) (Ireland) (Ireland) (Ireland) Sanlam Mult Sanlam Multi Sanlam Mult Sanlam Multi-

• Managers

Managers Managers Managers Internation International Internation International Sanlam Sanlam Sanlam Sanlam Properties Properties Properties Properties

Sanlam Sanlam Sanlam Sanlam Investments Investments Investments Investments

Sanlam Sanlam Sanlam Sanlam Private Private Private Private Investments Investments Investments Investments SIM Emerging SIM Emerging SIM Emerging SIM Emerging Markets Markets Markets Markets Sanlam Sanlam Sanlam Sanlam Capital Capital Capital Capital Markets Markets Markets Markets SIM Global SIM Global SIM Global SIM Global Hedgehog Hedgehog Hedgehog Hedgehog Capital Capital Capital Capital Sanlam Sanlam Sanlam Sanlam Structured Structured Structured Structured Solut Solutions

• ns

Solut Solutions

• ns

Simeka Simeka Simeka Simeka Sanlam Sanlam Sanlam Sanlam Employee Employee Employee Employee Benefits Benefits Benefits Benefits

Increased Diversity (leads to Increased Focus)

209 227 286 327 406 430 150 200 250 300 350 400 450 500 2002 2003 2004 2005 2006 Jun-07

SIM - AUM (Rbn)

CAGR 2002-2007 (+16%)

SCI - AUM (Rbn)

55 22 26 31 41 53 15 30 45 60 2002 2003 2004 2005 2006 Jun-07 Retail Institutional White Label CAGR 2002-2007 (+20%)

Multi-Manager - AUM (Rbn)

25 23 38 59 97 20 40 60 80 100 120 2002 2003 2004 2005 2006 Consulting SA Discretionary Global Discretionary SA CAGR 2002-2006 (+40%)

200 400 600 800 1,000 1,200 2002 2003 2004 2005 2006 Jun-07

International SA CAGR 2002-2007 (+36%)

Profit before tax (Rm)

243 270 419 699 1 077 560

Conclusion

The current savings market in South Africa is healthier than expected, and is continuing to grow There is also sizeable growth potential in the savings market in the rest of Africa as well as other emerging markets We see the need for alternative distribution models in the middle-income market which offers a needs based solution, with (or without) on-going advice. Cost of advice could be embedded in the product charging structure We see a strong underpin to growth in savings in the form of the black emerging market (black diamond), as well as the unwind of the ‘Baby Boomers’ phenomenon Increased regulation will continue to shift the IFAs up-market Given the current success in diversification of the group, Sanlam is well placed to capture these savings trends

Thank You