UBS GLOBAL INSURANCE CONFERENCE Growth Prospects in Emerging Markets - - PowerPoint PPT Presentation

UBS GLOBAL INSURANCE CONFERENCE Growth Prospects in Emerging Markets

Sanlam (CEO – Johan van Zyl) : June 2009

Agenda

• Group Overview
• Sanlam in the Context of the SA Market
• Strategy and Growth opportunities
• Tapping into Existing Client base (Mass Affluent Market)
• Exploring New Growth Markets (Lower-income Market)
• Exploring New Distribution Channels
• Writing Profitable New Business
• Strategy & Outlook

GROUP OVERVIEW

Our 91-year History

The Extent of our Business

• Total assets under management = R409 billion (£31bn)
• Total new business received = R100 billion (£7.5bn)
• Operating profit before tax = R4.3 billion (£323m)
• Market Capitilisation = ~ R37 billion (£2.8bn)
• Personnel = 9,000

Core Purpose & Vision

The Leader in Wealth Creation

Sanlam‟s core objective is the achievement of a sustainable, superior rating to deliver the highest value to shareholders over the long-term

Transforming Sanlam from a mutual insurer into a world-class diversified Financial Services Group providing a wide range of client-centric solutions in retail and institutional markets in both South Africa and other targeted countries

Sanlam Operational Structure

Retail Cluster Institutional Cluster Short-term Insurance Cluster

Net operating result: R 1,757m New bus volumes: R36,014m Net operating result: R 737m New bus volumes: R51,957m Net operating result: R 439m New bus volumes: R12,165m Net operating result: (R 131) mill

Corporate & Other Sanlam Limited

Solution‟s Offering in Retail & Institutional Sectors

Retail

• Investments
• Savings
• Risk products
• Home Loans
• Trusts and Estate planning
• Private Client Portfolios
• Stock-broking
• Short-term insurance
• General Loans
• Health Administration

Institutional

• Pension Fund Administration
• Group Risk provision
• Group Investments and Annuities
• Asset Management – Single and Multi-

Manager

• Private Equity
• Niche debt and equity financial

engineering solutions

• Short-term insurance
• Hedge Funds (International)

Current Geographical Footprint

Current

“LIFE” IN SA

Striking Parallels between Developed Market Economies

High Penetration Rate in SA

Italy Oceania North America Brazil Venezuela Germany Latin Am. & Caribbean Europe Mexico UK South Africa France South Korea Japan PR China Africa Asia World

2 4 6 8 10 12 14 16 1000 10000 100000

Source: Swiss Re, Sigma No. 3/2008

Life Penetration (%GDP) GDP per Capita (log scale)

Market share of SA retail single new business premiums

Highly Concentrated Market in SA

Remainder 10% Sanlam 15% Old Mutual 23% Liberty 23% Metropolitan 7% Momentum 13% Discovery 9%

Market share of SA retail recurring new business premiums

Remainder 20% Discovery 0% Momentum 11% Metropolitan 6% Liberty 24% Old Mutual 17% Sanlam 22%

Summary of SA Life Market (Mass Affluent)

• The high premium-to-GDP ratio has often been used to suggest that

SA has high penetration levels and is a mature market

• A large proportion of premium income is transfer business between

life insurers instead of new savings, or transfer from other financial services firms

• Sizeable portion of SA “life insurance” is management of existing

assets and drawdown / annuity products

• The ratio of retirement assets to GDP is running at around 80%

which is comparable with developed countries where private sector pension plans or private pensions play a key role

STRATEGY & GROWTH OPPORTUNITIES A Sanlam Case Study

Finding Growth in a Mature Market

Global Drivers of Change

From a global perspective, the following are among the key trends impacting life insurers...

• Many developed-insurance markets have become saturated
• Customers are falling into very distinct behavioural segments
• Multi-distribution is on the rise as networks specialise and evolve
• Bancassurance: A successful network, however its enviable position

could still be shaken by market forces

• Searching for future growth, with a spotlight on developing markets
• Regulatory pressures, driven by increased consumerism
• Transformation (SA trend only)

Rationalisation and Drivers of Change at Sanlam

• Growth based on revenue and profit enhancement:
• Client centricity (focusing on a broader range of solutions)
• Changing consumer needs (increased consumerism)
• Cross-pollination opportunities
• Need for entering new growth markets
• Focus on multi-distribution initiatives
• Improving overall efficiencies:
• Diversifying the total service portfolio to reduce risk
• Cost focus
• Capital efficiency focus
• Transformation and People

Diagrammatic Representation of Strategy

• Maximising Returns for Shareholders
• Focus on Client-Centric Solutions

Returns (ROGEV) Growth / Earnings

Operational Efficiencies Diversification Net Business Flows

Capital Efficiency

Optimal Application Strategic Investments Return of Excess

Focus on Profitable Growth

Key drivers in maximising Sanlam‟s operational performance and delivering sustainable, profitable growth:

• Management focus – New business growth, net flows, cost

management

Returns ROGEV Growth / Earnings

Operational Efficiencies Diversification Net Business Flows

NEW GROWTH OPPORTUNITIES i) Tapping into Existing Client Base (Mass Affluent Market)

Consumerism & Increasing Share of Wallet

Client Centricity

Integrated services & a shift from product towards needs-orientated perspective

Listening to What our Clients Want

Changing Consumer Demands

Example of Flows Moving Off-Balance Sheet

0.44 0.63 0.87 0.79 0.74 0.75 1.01 1.65 1.87 1.79 2.11 1.77

100 100 200 200 300 300 400 400 500 500 600 600 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008* 2008* Rbn 0.0 0.4 0.8 1.2 1.6 2.0 2.4 times Mutual Funds Life insurance - Premiums received Mutual Funds vs Life (%)

Development of SA savings industry: Total new business flows

Source: SARB *Note: Life sales on an annualised basis for 9-months ended Sept-08

Sanlam Adapting to Changing Demands

Building Capacity to Exploit New Trends

13 13 9 11 11 11 11 14 14 19 19 18 18 18 18 27 27 43 43 51 51 66 66 83 83 82 82 4.48 2.91 1.47 4.04 4.55 4.67 4.48 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 2007 2007 2008 2008 Rbn

• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 times Life Non-life Ratio of non-life to life

Grow alternative revenue sources: Sanlam Group New business flows

CAGR 2002-2008 (+22%)

Retail Clients

Medical Car & house hold cover Wills & trusts Home loan Financial Education Savings & Invest- ment Short- term Education provision Medium term credit Retire- ment Banking/ Trans- actional Risk cover

Wealth Management Life- style Personal Cover Divestment from Absa, allows Sanlam to

• perate directly in

these banking-related markets

Institutional Clients

Specialist: International Capital Markets Employee Benefits

SPE SIM Blue Ink SSS Sanlam Proper- ties Simeka SAMI SEB Risk

SIM EM incl Nam

SUS SMMI

Cpt & Ldn

Coris SCI Octane SPI SIM Global SCM

Specialist: SA Traditional IM: International Traditional IM: SA

Cross Pollination Opportunities

Creating the Ability to Cross-sell within the Group

Traditional life assurance Investment management Other financial services Short-term insurance

Cross Pollination Opportunities (continued…)

Untapped Opportunities within the Group

77% 55% 52% 45% 37% 30% 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 SPF (Life only) SCI Santam Wills Glacier SHL million 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

• No. of total clients - lhs

% of clients with only 1 product (ie untapped potential) - rhs

Cross-sell Potential at SPF: Clients with a single provider (% untapped)

SPF‟s life clients have the largest untapped potential of 1.3m clients

NEW GROWTH OPPORTUNITIES ii) Tapping into New Markets (Lower-income Markets)

SA, Rest of Africa & India

a) Growth Opportunities in South Africa

Entry-level Market (ELM) and Black Diamonds

Entry-level Market in SA

ELM 87% 87% Affluent 1% 1% Middle- income 12% 12%

Entry level market (ELM)

• Current size of ELM: 18-20 m people
• Only 20-30% of ELM have an insurance-related product

Growth Potential – Size of RSA ELM

Too poor 4,9m No regular income 5,4m No need 0,4m Potential 2,1m Has funeral/ burial insurance 5,2m (30%) Does not have 12,8m (70%) Has Access 2,5m No Access 10,3m

Total Market 18m

Black Diamonds in SA

Black emerging middle-class: Black Diamond

• 3m Black Diamonds at 3Q08 (+15%)
• Spending power increased to R250bn in 2008 (40% of SA)
• Accounts for 67% of total black spending power
• Black Diamond spending power now equals that of total White

spending

Source: UCT Unilever Institute

RSA Strategic focus going forward

• Improved regional penetration in South Africa
• Building our multi-channel distribution strategy
• Value for money client offerings
• Leverage more off the Sanlam brand
• Operational efficiencies to be improved (NTU, lapse rates, costs)
• Ongoing improvement in client service (e.g. Ombud complaints)
• Addressing government‟s social reform initiatives

b) Growth Opportunities in the Rest of Africa

Strong Growth for at least the next 3-5 years

Growth Potential – Presence in Rest of Africa

Key Start Population Policies

SA (ELM) 1982 45 m 933,000 Botswana 1995 2 m 250,000 Kenya 2000 37 m 100,000 Ghana 2000 23 m 95,000 Zambia 2002 12 m 30,000 Tanzania 2005 39 m 8,000

Rest of Africa – Prospects / Opportunities

• Why should we be in rest of Africa?
• Low insurance penetration (3%) and less competition
• Diversification of our business
• Strong economic growth (but slowdown recently)
• Higher margins available
• Does not consume excessive time (small support team)
• Individually small, but collectively meaningful

Rest of Africa – Key Challenges

• Competition for wallet from micro lenders
• Impact of economic crises (commodity driven economies) –

persistency

• Insurance skill shortages – management, technical, operational
• Premium collection capabilities – many countries cash driven
• Evolution of legislation and regulations
• Increase in competition – more appetite for Africa
• But opportunity to help to shape the industries

Rest of Africa – Key Focus Areas

• More focus on bancassurance & credit providers
• Expansion of distribution channels
• Group life business and credit life
• Overall product diversification
• Focus on operational efficiencies
• Distribution capabilities
• Quality of business (lapses, NTU‟s)
• Cost efficiencies
• Improved support out of South Africa
• Further expansion into Africa (eg Nigeria)

c) Growth Opportunities in India

Meaningful Contribution to Growth in >+5 years

Contribution to emerging market life real premium growth, 1998 – 2007

Source: National Insurance Authorities, Swiss Re Economic research & Consulting

Growth Potential – India

Example: The Advantages of India – Insurance linkages

The country is looking at an annual GDP growth of 7-8% (medium term) Insurance penetration of 4.4% 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 Market penetration in developed markets: avg 5.2 policies per client Low penetration levels in India: 1.3 policies (life and non-life) per client

Successful Tie-up with Shriram

• 26% Holding in Shriram (with the right to go to 49%), giving Sanlam

access to 19,000 registered agents + 10m client base

• After 1st three years of operations – growth in new business levels
• n par with competitors, but lowest cost producer (30% cost to APE)
• Only 2 private foreign start-ups have been cash positive from an

earnings perspective (Shriram is one of them)

• Partnership moved into short-term insurance market, as well as a

recent tie-up with SMC on the wealth management side

• „NEW Channel‟ recently launched in North, East and West of India
• By 2011, we will have 5000 field officers, and 500 business

managers

• Target to double existing business volumes within 5 years

Why we are Positive in Terms of Growth?

• Good growth prospects available in South Africa – relative low

market share and scope for improved regional penetration

• Rest of Africa – collective high margins, scope for growth /

increased penetration

• India – country with vast opportunities (but increasing competition)
• Selective structural opportunities :
• In RSA – on distribution front
• New countries to be added over time
• BUT – We need to monitor / manage the following :
• The “basics” in every business (retention, costs, distribution)
• Changing legislative environment

NEW GROWTH OPPORTUNITIES iii) New Distribution Channels

Exploring Non-traditional Channels

Multi-Distribution Initiatives

• Insurers are being forced to multi-distribute to retain market access,

and increase wallet share

• Highly specialised matrix of distribution initiatives, with each network

addressing a specific segment of the market, for a specific need

• Customers intend to use different networks into the future, internet

will continue gaining market share

• Half of customers who use the internet to gather information for their

purchase decisions ultimately buy insurance via the internet

Multi-Distribution Initiatives (continued…)

The Internet is Growing the Fastest

Networks in Mature Markets : Mapping of 3-year Change in Market Share vs. Relative Strength of Top 3 Purchase Influencers (%)

Source : Capgemini analysis, 2007

(Another winner, only held back due to their relative weakness of brand) (Sanlam, Santam and PSG recently launched MiWay – Direct & Internet Solution Provider)

Multi-Distribution Initiatives (continued…)

Highly specialised distribution networks

Distribution Networks in Mature Markets Mapping of Product Specialty

• vs. Strength of Professional Advice (%)

Source : Capgemini analysis, 2007

Another winner, only held back due to their relative weakness of brand Brokers remain critical in distribution process – especially iro advice driven sales of complex life/savings solutions

Major Trend in SA Distribution Environment

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 11%pa in

SFA and 14%pa in broker channel (inflation 6%)

inflation (indexed)

90 100 110 120 130 140 150 160 170 180 190 200 210 2000 2001 2002 2003 2004 2005 2006 2007 2008

Ave CPIX SFA (incl wealth) Broker

Cumulative growth in average recurring premium size vs inflation (indexed)

SA Distribution Environment

Current and Proposed Distribution Space

Experimental / New Opportunities [SanlamConnect] % of business → Existing model % of business → NSSS

Lower Income Middle Income Higher Income

Existing distribution models NSSS

NEW GROWTH OPPORTUNITIES iv) Writing Profitable New Business

Focus on Costs

Focus on Cost Efficiencies

• Increased competition and historically lower inflation levels –

stringent focus on costs

33.6% 31.4% 29.1% 27.1% 27.8% 28.4% 42.1% 38.4% 38.1% 36.8% 35.6% 35.3% 25% 30% 35% 40% 45% 50% 2003 2004 2005 2006 2007 2008

Group admin cost ratio SPF admin cost ratio

Group administration ratio (%)

Securing Sustainable Profitable Growth

Growth in Value of New Business

• Sanlam‟s value of new business is becoming a more meaningful

contributor to Return on EV

3.3% 3.6% 4.0% 4.5% 100 200 300 400 500 600 700 2005 2006 2007 2008

• 0.75%

0.00% 0.75% 1.50% 2.25% 3.00% 3.75% 4.50% 5.25% SPF SDM Other (SUK & SEB) % of net VIF (rhs)

Split of Sanlam‟s value of new business (VNB) per cluster (Rm)

Securing Sustainable Profitable Growth

New business margins

• Sanlam‟s new business margins now exceed its listed large-cap

peer group

Source: Company Financials

Gross Sanlam new business margins vs sector (PV NBP basis)

2.8% 2.3% 2.4% 2.5% 1.8% 2.1% 2.4% 2.7% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 2005 2006 2007 2008 Industry (ex-Sanlam) Sanlam

Securing Sustainable Profitable Growth

Earnings growth

• Sanlam has created a sound platform from which to grow profitably

Group net operating profit (Rm)

Other financial services Life

500 1 000 1 500 2 000 2 500 3 000 3 500 2003* 2004 2005 2006 2007 2008

SPF SDM SEB SUK SIM SCM SNT IFS

5 year CAGR of 20% pa (per share basis)

* Note : Comparative number not restated for Group restructuring

51% 51% 5% 5% 6% 6% 2% 2% 20% 20% 1% 1% 15% 15%

SPF SDM SEB SEB SUK SIM SCM SNT

Diversification of Solutions Profile

Supported Higher Profitability

70% 70% 0% 0% 0% 0% 0% 0% 12% 12% 4% 4% 14% 14%

2003 2008

Pre-tax

• perating

profits

R2,933m R1,541m

• Sanlam‟s profits have increasingly diversified and almost

doubled over the past 5 years

Insights into Strategy

Strategic Focus for 2009 and Beyond

Goals set for 2009

Delivering sustainable growth

No fundamental shift to existing strategy… However, we need to lift the performance bar and further strengthen

• ur long-term strategic position
• South Africa:
• Improved efficiency and performance
• Continued selective diversification
• Transformation
• International:
• Position ourselves to have a leading position in the financial

sector in selected emerging markets

• Pursue a differentiated / niche strategy, in order to have a

specialist position in financial services in developed markets

Particular focus areas for 2009

No major changes, but adjustments in the short term to account for economic realities: Focused on de-risking balance sheet:

• Group‟s exposure to credit is being closely monitored
• Continue with capital management program
• Conservative approach to growth opportunities

Internal focus:

• Strong focus on maintaining and growing distribution footprint
• Strong focus on cost management

Outlook

Business Environment :

• Uncertainty and volatility in global financial markets
• Tough economic climate
• Regulatory change

Challenges:

• Lower asset base
• Persistency
• Cost control

Group‟s portfolio is adequately diversified to spread the risks & creates a sound platform from which to grow

Thank you

Questions?