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Results

The salient features of the Group’s performance for the 10 months to 31 October 2016 are:

New business volumes of R195 billion, up 11% on the first 10 months of the 2015 financial year.

  • Sanlam Personal Finance achieved growth of 3% in new business sales, with pressure on discretionary single premium savings sales persisting in both Individual Life and Glacier. Sanlam Sky new business volumes were in line with the high base of 2015. The focus on improving the mix of business yielded positive results, contributing to 11% growth in Sanlam Sky’s individual life risk business sales, a particularly satisfactory improvement since the end of June 2016. Sales of savings products in Sanlam Sky declined by 38% due to the realignment of the channels towards more profitable product lines. Group recurring business at Sanlam Sky was in line with the comparable period due to the impact of the large one-off scheme written in 2015 and the biennial renewal of the ZCC scheme that also occurred during 2015. Excluding these, Sanlam Sky new business volumes increased by 10%. New business volumes in the Individual Life segment (focussing primarily on the middle-income market) declined by 1%. Single premium sales remained under pressure and declined by 3%. New recurring premiums increased by a satisfactory 13%, supported by continued strong growth in risk business. Glacier achieved overall growth of 5% as demand for discretionary savings products remained under pressure. Glacier life business sales grew by 16% with strong demand for its offshore and wrap product solutions.
  • Sanlam Emerging Markets achieved overall new business growth of 67%, supported by a weaker average Rand exchange rate and the impact of corporate activity. Excluding corporate activity, new business volumes increased by some 50%. All major businesses contributed good growth, apart from Zambia and Malawi, that continue to struggle in difficult environments, and Malaysia, where general insurance premium growth are impacted by weak motor cycle sales and a slower than anticipated diversification of the product set. New life business volumes increased by 5%, the combined effect of lower annuity sales in Botswana and good growth in the other regions. Investment business grew by 96%, supported by a R4.6 billion new mandate from the Botswana Public Officers Pension Fund. General insurance net earned premiums increased by 130% (17% excluding Saham Finances).
  • The Sanlam Investments cluster increased its new business volumes by 10%, with Sanlam Employee Benefits and the SA Investment management businesses achieving particularly good growth.
  • Gross written premium growth at Santam was under pressure, specifically in the specialist insurance lines, resulting in a lower growth rate compared to June 2016.
  • Net value of new life business (“VNB”) on a consistent economic basis increased by 8% on the comparable period in 2015 (6% up based on actual 31 October 2016 economic basis). VNB margins have been largely maintained on a per product basis. Sanlam Personal Finance’s overall VNB increased by 7% on a consistent economic basis, with VNB margins in line with 2015. Sanlam Emerging Markets’ net VNB grew by a moderate 5% on a consistent economic basis. Lower individual life new business volumes in Zambia and Kenya resulted in negative VNB contributions from these regions, offsetting an otherwise solid performance. Sanlam Employee Benefits achieved an improved performance, supported by good growth in recurring premium Group Risk business.
  • Overall net fund inflows of R32 billion were up from the R11 billion achieved in the comparable 10-month period in 2015, with most businesses contributing to the higher net inflows. The comparable 2015 period included the Botswana Public Officers Pension Fund withdrawal from Sanlam Emerging Markets and Sanlam Investments as well as the Public Investment Corporation withdrawal from Sanlam Investments.
  • No noticeable deterioration in persistency experience since June 2016.

Net result from financial services up 10% on the first 10 months of the 2015 financial year.

  • Most businesses contributed satisfactory growth, apart from Sanlam Investment Management where fund-based fee income was impacted by lower average market levels. Further narrowing of credit spreads and improved commodity share prices contributed to a more than doubling in Capital Management’s earnings contribution.
  • Sanlam Personal Finance achieved growth of 9%, with trends broadly in line with the first six months of 2016.
  • Growth at Sanlam Emerging Markets slowed down from 40% for the first six months of 2016 to 26% for the 10 months to 31 October 2016. This is attributable to a relative strengthening in the average Rand exchange rate since the end of June, as well as a lower profit contribution from Namibia, where claims experience in both the life and general insurance businesses are weaker than in the first 10 months of 2015. Asset mismatch profits were also lower in Namibia during 2016, while new business strain increased due to strong growth in new life business.
  • The strong performance reported by the Capital Management business supported growth of 16% in Sanlam Investments’ contribution to net result from financial services. This level of growth is not expected to continue for the remainder of the year as it is highly dependent on movements in credit spreads and the share prices of certain commodity stocks. In addition, the performance fees earned in 2015 on the Sanlam Life portfolios based on a three-year rolling investment performance included a particularly strong year of investment outperformance, which falls away for purposes of the 2016 performance fee calculation.
  • Santam’s net underwriting margin for the 10-month period was slightly below the midpoint of the target range of 4% to 8%. The personal, commercial and specialist intermediated business lines were impacted by weather related catastrophe events in July and October 2016 and a number of large commercial fire losses. MiWay maintained its growth momentum and Santam Re made a positive contribution to the underwriting results.

Normalised headline earnings per share down 8% compared to the first 10 months of the 2015 financial year.

  • Subdued investment returns earned on the capital portfolio relative to the first 10 months of 2015 were further negatively impacted by the strengthening in the Rand exchange rate since the end of December 2015, which contributed to negative returns from the offshore exposure in the portfolio.
  • Capital utilised for corporate transactions, in particular Saham Finances and the Shriram Insurance entities, also reduced the capital base on which investment return is earned relative to the first 10 months of 2015.

Diluted headline earnings per share, which include fund transfers recognised in respect of Sanlam shares held in policyholder portfolios, decreased by 9% compared to the first 10 months of the 2015 financial year.

Capital

All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory capital covered its Capital Adequacy Requirements 5.5 times on 30 September 2016.

The Group had excess capital of R3.1 billion available for redeployment at the end of June 2016, after allowing for the Shriram Insurance transactions that concluded in October 2016. Utilisation since then has been limited to a number of small transactions. Including investment return earned on the portfolio and the special dividend declared by Santam, discretionary capital amounted to R3.6 billion on 31 October 2016. The available discretionary capital remains earmarked for transactions currently under consideration.

Good progress has been made with capital modelling under the Solvency Assessment and Management (SAM) regime to be introduced in South Africa during 2017. The Group will remain well capitalised under the SAM regime. Further information on the Group’s optimal capital levels will be provided as part of the Group’s 2016 annual results announcement in March 2017.

Outlook

We expect that the economic and operating environment will remain challenging for the remainder of 2016 with a resulting impact on the Group’s key operational performance indicators. A number of factors are likely to impact on the Group’s ability to maintain the 10-month growth rate in net result from financial services for the full 2016 financial year, including average investment market levels, the strengthening in the Rand exchange rate and the high comparable 2015 base for performance fees at Sanlam Investments. Shareholders also need to be aware of the impact of movements in the Rand exchange rate, the level of interest rates and financial market returns and volatility on the Group’s investment return and Group Equity Value. Relative movements in these elements may have a major impact on the growth in normalised headline earnings and Group Equity Value to be reported for the full 2016 financial year.

The information in this operational update has not been reviewed and reported on by Sanlam's external auditors. Sanlam’s financial results for the year ending 31 December 2016 are due to be released on 9 March 2017. Shareholders are advised that this is not a trading statement as per paragraph 3.4(b) of the JSE Limited Listings Requirements.

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