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PA G E 3 0
Business Reviews
• Sanlam Personal Finance
• Sanlam Employee Benefits
• Gensec
• Sanlam Health
• New Business Development
PA G E 6 0
Sanlam Corporate, Support
Services and Namibia
PA G E 6 1
Corporate Social Involvement and
Sponsorships
PA G E 6 4
Annual Financial Statements
PA G E 1 2 0
Definitions and Glossary of
Technical Terms
PA G E 1 2 1
Notice of Annual General Meeting
PA G E 1 2 4
Shareholding and Administration
co
nte
nts
SANLAM IS BASED
IN SOUTH AFRICA
BUT NOT
LIMITED TO IT
PA G E 1
Business Structure
PA G E 2
Salient Features
PA G E 4
Non-executive Directors
PA G E 7
Chairman’s Statement
PA G E 1 5
Executive Committee
PA G E 1 6
Report of the Financial Director
PA G E 2 4
Corporate Governance Statement
PA G E 2 7
Human Resources Report
the benchmark ofOur vision is to be
b u s i n e s s s t r u c t u r e
co
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s
SANTAM – 59,5%s t r a t e g i c i n v e s t m e n t
The largest short term insurance company and
market leader in the motor and personal insurance
sector in South Africa
36,3% HELD BY SHAREHOLDERS
23,2% HELD BY POLICYHOLDERS
ABSA – 23,0%a s s o c i a t e d c o m p a n y
One of the largest commercial banks
in South Africa
14,8% HELD BY SHAREHOLDERS
8,2% HELD BY POLICYHOLDERS
s a n l a m p e r s o n a l f i n a n c e
SPF is a major provider of life insurance, retirement annuities, savings products,
unit trusts and trust services to individuals through Sanlam Life, Sanlam Unit
Trusts and Sanlam Trust.
s a n l a m e m p l o y e e b e n e f i t s
SEB is the second largest provider of investment and risk products to group funds
and schemes in South Africa. It also provides administration, actuarial and con-
sulting services to the group retirement industry and money transfer services.
s a n l a m h e a l t h
Underwriting and risk management to medical schemes.
g e n s e c b a n k
Providing investment banking solutions for the South African savings industry,
public sector enterprises and corporates.
s a n l a m i n v e s t m e n t m a n a g e m e n t
(previously Gensec Asset Management)
South Africa’s second largest asset manager measured by assets under management.
g e n s e c p r o p e r t y s e r v i c e s
Property management services such as letting, rental collection, marketing, con-
tracting and administration.
n e w b u s i n e s s d e v e l o p m e n t
Explores opportunities for investment and for launching new initiatives for the
development of new business in the Sanlam group.
P A G E 1
P A G E 2
s a l i e n t f e a t u r e s
for the year ended 31 December 2000
2000 1999
SANLAM LIMITED GROUP
New business volumes R million 37 700 25 810
Net inflow/(outflow) of funds R million 777 (10 427)
Operating profit before tax R million 1 924 1 722
Headline earnings based on the LTRR(1) R million 3 478 2 721
Headline earnings per share based on the LTRR(1) cents 130,9 102,1
Embedded value of new business R million 209 101
New business embedded value as % of APE(2) % 8,0 5,7
Embedded value per share cents 1 035 1 004
Growth from life business % 24 30
Dividend per share cents 30 25
FINANCIAL RATIOS
Returns
• Operating profit before tax(3) 8,2% 7,7%
• Operating profit after tax(3) 7,2% 6,4%
• Headline earnings based on the long term rate of return(4) 18,7% 16,3%
• Return on embedded value(5) 5,1% 24,4%
• Return on the Sanlam share price(6) 27,0% 41,0%
Group administration cost ratio(7) 29,7% 29,8%
Group operating margin(8) 17,4% 17,9%
SANLAM LIFE INSURANCE LIMITED
Shareholders’ funds to total policy liabilities 12% 12%
Shareholders’ funds to non-market-related policy liabilities 20% 20%
Capital adequacy requirement covered(9) times 2,4 2,7
NOTES
(1) LTRR = Long term rate of return.(2) APE = Annual premium equivalent and is equal to new recurring premiums (excluding indexed growth premiums) plus 10% of single premi-
ums.(3) Operating profit before and after tax as a percentage of the average monthly shareholders’ funds for the year.(4) Headline earnings based on the long term rate of return as a percentage of the average monthly shareholders’ funds for the year.(5) Growth in embedded value (before dividends paid) as a percentage of embedded value at the beginning of the year.(6) Annualised growth rate on the Sanlam share price since listing plus dividends paid.(7) Administration costs as a percentage of income earned by the shareholders’ funds less sales remuneration.(8) Operating profit as a percentage of income earned by the shareholders’ funds less sales remuneration.(9) Represents the times by which the shareholders’ funds of Sanlam Life Insurance Limited cover the capital adequacy requirements (refer to definitions on
page 120).
d e l i v e r i n g o n o u r t a r g e t s
P A G E 3
E X E C U T I V E C H A I R M A N
MARINUS DALING
The growth goals that we set:
REVERSE THE OUTFLOW OF FUNDS
The outflow of funds in 1999 of R10 427 million was reversed and
a net inflow of R777 million was achieved in 2000.
10% REAL GROWTH
Headline earnings based on the long term rate of return grew by
28% – well in excess of our target for 2000 of 18,3%.
Headline return on equity of 18,7% based on the long term rate of
return and calculated on the monthly average net asset value of the
shareholders’ funds, was in line with our target of 18,3%.
RETURN ON EMBEDDED VALUE
The return on embedded value of 5,1% is below our target of a 10%
real return and was affected by the difficult stock market conditions
during 2000. The JSE ALSI was 3% lower in 2000 than in 1999.
However, good growth of 24% was achieved in the value of our existing
life insurance business (value of in-force) for 2000.
NEW BUSINESS EMBEDDED VALUE
We set ourselves the target to achieve new business embedded value in
excess of R200 million by 2001 and achieved R209 million in 2000 –
one year earlier than our target date.
“In our 1999 annual report we identified
growth as one of our key financial focus areas for 2000.
In this year’s annual report we
report back on how we delivered
against these targets.”
P A G E 4
n o n - e x e c u t i v e d i r e c t o r s
JPL Alberts (Johan) (58)
SASS, BCom, CA (SA), IAMP (Geneva)
Appointed 1995
Businessman and director of various companies
Prof AC Bawa (Ahmed) (46)
MSc, PhD
Appointed 1997
Deputy Vice-Chancellor of University of Natal
Director of Atomic Energy Corporation of South Africa Limited
DC Brink (Dave) (61)
MSc Eng (Mining), DCom (hc)
Appointed 1994
Chairman of Murray & Roberts Holdings Limited
Deputy Chairman of Absa and director of other companies
WM Grindrod (Murray) (65)
BA (Mech Sc), DEcon (hc)
Appointed 1993
Chairman of Grindrod Unicorn Group Limited and director of
other companies
K Jowell (Kate) (61)
BSc, MBA
Appointed 1993
Director of Foschini Limited
DL Keys (Derek) (69)
BCom, CA (SA), FIBSA, Dr Econ Sc (hc)
First appointed 1989 to 1991 – Reappointed 1995
Director of Billiton Plc, Munich Reinsurance of Africa and
other companies
DNM Mokhobo (Dawn) (52)
BA (Social Sciences)
Appointed 1996
Managing Director of MBM Change Agents (Proprietary)
Limited, Chairperson of The Fedics Group Limited, Director of
Nozala Investments (Proprietary) Limited, Engen Limited and
other companies
Prof P Smit (Flip) (64)
MA, DLitt et Phil
Appointed 1990
Former Vice-Chancellor and Rector of University of Pretoria
P A G E 5
PEI Swartz (Peter) (59)
Ad Ed Dip
Appointed 1994
Director of Absa, Distell (Pty) Ltd, Ellerine Holdings Limited,
New Clicks Holdings Limited, Sancino Project Limited and
other companies
JJM van Zyl (Boetie) (62)
Pr Eng, BSc Eng
Appointed 1995
Director of Naspers Limited, Murray & Roberts Holdings Limited
and other companies
T Vosloo (Ton) (63)
D Phil (hc)
Appointed 1989
Deputy Chairman since 1998, Chairman of Naspers Limited,
MIH Holdings Limited, MIH Limited and Electronic Media
Network Limited
On 7 March 2001, Messrs TS Gcabashe and BP Vundla and
Professors AF Perold and J van Zyl were appointed as non-
executive directors. Ms K Jowell and Prof P Smit and
Mr WM Grindrod retired as directors on this date.
A U D I T C O M M I T T E E
JJM van Zyl (chairman)
JPL Alberts
Prof AC Bawa
PEI Swartz
H U M A N R E S O U R C E S C O M M I T T E E
T Vosloo (chairman)
DC Brink
K Jowell
N O M I N A T I O N S C O M M I T T E E
Prof P Smit (chairman)
DC Brink
WM Grindrod
DL Keys
S P E C I A L C O M M I T T E E
T Vosloo (chairman)
JPL Alberts
Prof AC Bawa
DC Brink
WM Grindrod
K Jowell
DL Keys
DNM Mokhobo
Prof P Smit
PEI Swartz
JJM van Zyl
BOARD COMMITTEES
P A G E 6
TO ACHIEVE OUR VISION WE WILL . . .
• Be a leading South African group reaching out to new markets
• Continue our culture of empowerment to the benefit of all our stakeholders
• Make innovative use of our experience and our human skills and technological resources to
deliver products and services of a high quality to all our clients
• Establish international structures to support these products and services
• Be performance-driven and passionate about client service, and
• Create a working environment conducive to attracting, training and retaining skilled people
from all sectors of the community
AND IN THIS WAY . . .
• Generate excellent returns for our shareholders
THE VALUES WE UPHOLD . . .
• Integrity
• Respect
• Accountability
Our vision is to be the benchmark
of excellence for financial services
wherever we operate
c h a i r m a n ’ s s t a t e m e n t
P A G E 7
In the period since our listing, from
30 November 1998 to 31 December 2000,
our share price grew by R3,56 from R6,00
per share to R9,56. This growth together
with the dividend of 25 cents paid, yielded
a compound return of 27% per annum for
our shareholders on their initial invest-
ments that represents a real return of
approximately 17% per annum.
I congratulate and welcome
Dr Leon Vermaak as chief executive of
Sanlam Limited with effect from 1 May
2001. We underwent an extensive process
to select the person best suited to accept the
challenge of Sanlam’s strategic needs of the
future and have no doubt that Dr Vermaak
will energetically lead the Group into the
important next phase of our development.
I also take pleasure in welcoming
Mr Thulani Gcabashe, Prof André Perold,
Prof Johan van Zyl, and Mr Peter Vundla to the Board as new
non-executive directors of Sanlam. I have great confidence in the
perspectives and contributions they can bring to Sanlam.
FINANCIAL RESULTS
R e a c h i n g p r i n c i p a l t a r g e t s
We are pleased to report that Sanlam achieved most of the financial
objectives set a year ago and that our focus on improving
operational efficiencies and the performance of our businesses is
paying dividends. This focus has delivered growth in profits in new
business and in a net inflow of funds. A crucial measure of success is
the discount of Sanlam’s share price to embedded value. Although
we have shown progress, particularly recently, we have not yet
convinced the market that our performance and prospects justify a
share price at least equal to Sanlam’s embedded value, let alone a
premium. On 31 December 2000 Sanlam’s share price of 956 cents
reflected a discount of 8% to an embedded value of 1 035 cents per
share. Our approximate embedded value on 28 February 2001
amounted to 1 075 cents per share, which reflects a widening of this
discount to 13%. Eradicating this discount remains the key focus
INTRODUCTION
D e a r s h a r e h o l d e r ,
It is my pleasure to report on the
performance of your investment in Sanlam
over the past year and to highlight certain
of our achievements and activities.
Although we made considerable progress
in several areas and achieved our objectives
for this period, we nevertheless face new
challenges and need to tackle certain areas
that require further attention. It remains
our mission to achieve excellent returns for
our shareholders – our immediate focus
being to produce the results that will
enable the market to convert to a premium
the discount of our current share price to
embedded value.
we achieved mostof the financial objectives
for 2000
E X E C U T I V E C H A I R M A N
MARINUS DALING
the reduction in net outflow of
funds and sound growth in
profits of Sanlam Employee
Benefits. Gensec registered an
improved performance in the
second half of 2000, overcoming
the effects of the weak financial
markets in the first half of the
year. Sanlam Investment
Management (previously Gensec
Asset Management) succeeded in
securing strong inflows from
segregated funds and Gensec
Bank continued to register sound
growth, as it has done since its
launch two years ago.
OTHER ACHIEVEMENTS
Among the significant successes
in 2000 was the conclusion of the
acquisition of Guardian National
Insurance by Santam. The
transaction was implemented and
Santam and Guardian’s operations
were successfully integrated. This
amalgamation strengthens
Santam’s position as the market
leader and provides a sturdy
foundation for future growth.
During the year the Board
and Gensec management
considered the need for the
continued listing of Gensec and
we reached the conclusion that
significant benefits were to be had
if we acquired the interests of
minorities and established Gensec
basis for further improvement in
2001 and thereafter.
New business volumes grew by
46% to R37, 7 billion, improving
the embedded value of new
business for 2000 to R209 million
from R101 million in 1999.
In 2001 we expect to further
improve on this performance.
O p e r a t i o n a l
p e r f o r m a n c e
The performances of each
business are discussed in detail in
the business review section of this
report. All businesses recorded
successes, most notably the
operational performance and
growth in new business volumes
of Sanlam Personal Finance and
We clearly succeeded in exceeding
our target of 10% real growth
in 2000.
N e w b u s i n e s s a n d
f u n d s f l o w
I am pleased to report that we
achieved a net inflow of
R777 million in 2000. During
1999 Sanlam had a net outflow of
funds of R10,427 million.
Management focused on turning
this net outflow around and
although we are certainly not
satisfied with this level of net
inflows, we are confident that this
turnaround has established the
our results must enable themarket to convert to a premium
the discount of our current share price to embedded value
c h a i r m a n ’ s s t a t e m e n t – c o n t i n u e d
P A G E 8
C H I E F E X E C U T I V E O F F I C E R
( F R O M 1 M A Y 2 0 0 1 )
DR LEON VERMAAK (39)
BCom, MBA, PhD (City University, London)
area to unlock value for shareholders. The message from
our shareholders is clear. We need to demonstrate
sustainable growth to improve Sanlam’s rating.
D i v i d e n d
On 7 March 2001 the Board declared a dividend of
30 cents per share for 2000.
Our target of sound real growth in dividends in
2000 was achieved as the dividend increased by 20%
compared with the dividend of 1999.
E a r n i n g s
Shareholders will note that, with effect from this report,
we have decided to use the long term rate of return for
the determination of our earnings. The rationale, its
benefits and the analysis of earnings are discussed in
the Report of the Financial Director. Applying a
long-term return of 13%, our headline earnings for
2000 amounted to R3 478 million, 28% higher
than the earnings of R2 721 million for 1999.
P A G E 9
company in its first full year of a listing on
the JSE Securities Exchange SA (JSE).
I have to commend our financial
director, Flip Rademeyer, for his
contribution towards achieving this award.
We will continue to be transparent and
approachable, thereby improving the
standard of our evaluation by investors and
enabling the market to determine a
realistic value for Sanlam shares.
During 2000 we also succeeded in
influencing the lives of many South
Africans positively through our expanded
corporate social involvement and
sponsorship programmes.
GROWTH STRATEGY
We believe that real growth is the key to
changing the discount of the share price to
embedded value to a premium.
Sanlam has set itself a target of 10%
growth in real terms, as primarily measured
by growth in headline earnings, which in
turn requires similar growth in operating
businesses. This has already been achieved between Gensec Bank’s abilities in
structuring products and Sanlam Personal Finance’s distribution capabilities.
The increasing importance of individual choice in the markets serviced by
Sanlam Employee Benefits offers significant opportunities. Sanlam Employee
Benefits’ people and technological capabilities position it to exploit these
opportunities, and we are therefore targeting this market as a source of future
growth. Providing reliable administration that is able to accommodate the
individual needs of our members, backed up by sound advice, will be
prerequisites for growing our market share.
The re-engineering of the investment process of Sanlam Investment
Management to meet world-class standards has fundamentally transformed the
business. We want to build on our capabilities as managers and will focus on
achieving sound investment returns that out-perform relevant benchmarks, taking
full cognisance of the risk/reward relationship. Improved investment performance
will contribute to our objective of growing funds flow and improving profitability.
S t r u c t u r a l g r o w t h
Since 1998 our focus has been on improving our operational performance in
existing businesses. I believe that our businesses are now ready to start seeking
international opportunities.
as a wholly owned subsidiary. This
transaction, valued at R5 billion, was
completed on 22 December 2000. The
exploitation of potential synergies and the
optimisation of Sanlam and Gensec’s capital
efficiencies are receiving attention.
Henceforth Sanlam Investment Manage-
ment and Gensec Bank will be managed as
separate businesses within the Sanlam
Group. This structure promises to add real
value to shareholders, starting this year.
Our commitment to transparent,
comprehensive and frank communication
with our shareholders was recognised by
the Investment Analysts Society of
Southern Africa last year, when we won
their overall award for Financial Reporting
and Communication. This was the first
time that this award had been made to a
profit and top-line growth. As indicated earlier, the improvement in the flow of
net funds will be an important focus area in the year ahead.
O r g a n i c g r o w t h
Our growth objectives will be achieved by enhancing and expanding Sanlam’s
value proposition to our clients, and ensuring that our product offerings and
client service continue to improve. First indications are that we have started
regaining market share. Our sales force and brokers have done well and the
restructuring of Sanlam’s businesses has positioned the Group to keep on
growing in its targeted market segments. A concerted effort is being made to
achieve greater penetration of the emerging black salaried market. Further
penetration of the higher end of the market is equally important and will be
pursued through Innofin as well as Sanlam Personal Finance.
Since reorganising Sanlam into autonomous businesses in 1998 the first
objective has been to improve each business’ operations within its target
markets. The next phase will be to develop synergies between the various
new business
volumes grew
by 46%
optimisation of the Sanlam and
Gensec capital bases, free up
capital. While the Sanlam share
price trades at a discount to its
embedded value a buy-back of
our shares makes eminently good
sense. We will request shareholders
to renew the existing authority at
our Annual General Meeting on
13 June 2001. A possible buy-back
of shares couldn’t be considered
during the past year owing to the
proposed Metlife merger and the
acquisition of Gensec minorities.
Shareholders will also note
that we are devoting attention to
the returns earned by our
businesses, as discussed in more
detail in the Report of the
Financial Director. Applying
realistic bases is crucial, and we
will therefore hold management
of each business responsible for
operating profit returns on equity.
These will be augmented by the
investment return on Group capital.
The corporate asset manager is
responsible for ensuring that the
targeted investment returns are
achieved. Net asset value
represents about 80% of our
market capitalisation and 75%
of our embedded value, and we
are improving our management
of capital.
Improving returns obviously
starts with enhancing operational
performance and optimising
2001. This will also improve its
ability to attract funds offshore.
CAPITAL EFFICIENCY
The acquisition of the Gensec
minorities has enabled the Group
to increase capital efficiency
through its capital outlay of
R5 billion in exchange for full
control over the Gensec
Corporate capital of R3 billion
and its total profit and cash-flow.
In similar vein, we are revisiting
the capital allocation to all our
businesses to determine whether
the current allocation is still
appropriate. This is being
considered in conjunction with
the deployment of assets backing
the capital, which could with the
Innofin is in the process of
launching its first product aimed
at the high net worth market and,
with SP2, expects to grow its share
of this important market segment.
Sanlam Investment
Management acquired Punter
Southall in the United Kingdom,
which will extend and improve its
capability there. The expansion of
Sanlam Investment Management’s
private client business through
the purchase of the private client
business of ABN Amro South
Africa (now Sanlam Private
Investor Services) will advance its
offering in South Africa and
should contribute to growth in
we have accelerated our efforts in
evaluating international opportunities
c h a i r m a n ’ s s t a t e m e n t – c o n t i n u e d
P A G E 1 0
Sanlam won the
overall award for
financial reporting
and communication
from the Investment
Analysts Society
of Southern Africa
last year
P A G E 1 1
repositioning of Sanlam, we have
concluded that an empowerment
transaction of substance in South Africa
pertaining to our business is unlikely in
the near future. However, in my view,
tremendous potential exists to co-operate
on business projects of relevance to Sanlam
and empowerment organisations.
Our Employment Equity Programme
was submitted to Government and,
although good progress was made in
several areas, results are not yet satisfactory
and will demand a concerted effort
throughout the Group. Mentoring and the
development of empowerment appointees
to the fullest extent of their abilities will
enjoy priority.
EMPLOYER OF CHOICE
The Financial Services industry is particularly
dependent on its people and our future
achievements will be inextricably linked to
the further development and retention of
Initially we aimed at penetrating developing markets because of the particular
suitability of our core competencies to their specific requirements. It has, however,
become clear from our investigations that we may well be able to capitalise on
opportunities in niche markets of developed markets. The information technology,
administrative capabilities and operational efficiencies of Sanlam’s traditional
businesses are of a First World standard and could be deployed outside
South Africa. This could, for instance, provide a low-risk and low-capital
opportunity in the field of third party administration. Both Sanlam Investment
Management and Gensec Bank will continue to focus primarily on developed
markets to satisfy their international aspirations. While we are keen to report
heightened success and progress, we are well aware of the need to avoid the pitfalls
of over-exuberance in initiatives such as these. We remain true to our primary
requirement of achieving a return on equity commensurate with the risk.
ENVIRONMENT
I n d u s t r y r e l a t e d t r e n d s
S t a t u t o r y
There are particular regulatory trends in our industry that will impact on our
industry. On the statutory side the Policyholder Protection Rules and the
margins but ultimately, should a business
or a part of the business prove not able to
deliver sustainable returns, we will sell it or
close it down.
REPOSITIONING
Sanlam is intent on further strengthening
its position as a truly South African
company in the full sense which will
require a measure of repositioning. This
requirement is supported by extensive
market research during 2000, which again
confirms the strength of the Sanlam brand
in all our target markets. This competitive
advantage will be aggressively deployed in
the strengthening of our position as a truly
South African company.
In analysing the proposed Metlife
merger, which would have accelerated the
employees and to attract people of the highest calibre. Success in this area will be
measured by whether Sanlam will be recognised as the employer of choice.
This recognition will depend on creating a culture and working
environment that provide challenging opportunities for all employees. This
process begins with our core philosophy of decentralised management providing
development, stimulation and satisfaction in the working environment. It clearly
also requires compensation commensurate with performance and an alignment
of employees’ objectives with those of our shareholders.
To meet these challenges we are continuously updating our remuneration
policies and placing more emphasis on incentives, including bonuses and share
incentive schemes.
INTERNATIONALISATION
The drive towards the internationalisation of our businesses will come from
their decentralised management teams. Their local operational successes indicate
that they are now ready to pursue international initiatives.
we are strengthening our
position as a truly South African company
and as the employer of choice
and to apply them to the benefit
of our clients and ultimately our
shareholders.
Capital gains tax
Capital gains tax is expected to
come into effect on 1 October
this year and, with the recent
changes in the four-fund
dispensation and the tax on
foreign dividends, it will
negatively affect all savings,
directly or indirectly. The
proposed effective rate of the tax
is acceptably low at the current
rate of inflation, but the potential
of future increases in the rates of
tax and/or inflation is of concern.
Sanlam together with the rest of
the life insurance industry is at
present raising a number of issues
with the authorities. These
include tax cascading or double
taxation where the same gain can
be taxed more than once in
certain group structures.
The legislation on value-
added tax and secondary taxation
on companies eliminated tax
cascading to a large extent. It
would appear that in the apparent
rush to implement capital gains
tax, such elimination has been
overlooked. This will, among
others, also affect retirement
funds, which are currently by
definition exempted from
capital gains tax. Given the
medical cover. These regulations
introduced new risks for medical
schemes by removing some of the
mechanisms they previously used
to manage their exposure to risk.
At the end of 2000 most medical
schemes had to raise their
contributions significantly but it
remains unclear whether the
number of individuals who are
covered by medical schemes has
increased as envisaged.
Our businesses that are
affected by this legislation have
over the past years prepared
themselves for its practical
implementation. I am pleased to
report that we are ready to
comply with the terms of all the
new legislation and regulations
proposed Financial Advisory and
Intermediary Services Bill have
far-reaching implications. The
objectives of this legislation are to
improve disclosure and consumer
protection. We fully support these
goals but believe that in time and
without detracting too much
from the aims of the legislation,
the regulations should be adjusted
to lower the cost of compliance –
a cost ultimately born by consumers.
The Medical Schemes Act
introduced on 1 January 2000
prescribes, among others,
community rating and open
enrolment in an effort to enable
more people to have access to
our businesses areready to comply with
the terms of all relevant newstatutory regulations
c h a i r m a n ’ s s t a t e m e n t – c o n t i n u e d
P A G E 1 2
Peter Vundla (52)
Deputy Executive Chairman: AfricanMerchant Bank
Prof André F Perold (49)
George Gund Professor of Finance andBanking. Graduate School of BusinessAdministration: Harvard University
Prof Johan van Zyl(44)
Vice-Chancellorand Principal:
University ofPretoria
Thulani Gcabashe(43)
Chief ExecutiveOfficer of Eskom
and Chairman ofEskom Enterprises
n e w n o n - e x e c u t i v e d i r e c t o r s
P A G E 1 3
to sustainable economic development.
It is therefore regrettable that the
actions of political leaders such as
President Robert Mugabe of Zimbabwe
and in some other African states seem to
directly oppose the very first element of
President Mbeki’s MAP, namely to promote
peace, security, stability and democratic
governance. As long as these actions remain
unchallenged by the Organisation of
African Unity (OAU) and African leaders
committed to the MAP, the realisation of
our vision for Africa – and South Africa –
will be protracted. South Africa stands out
as a beacon of hope for Africa with our
commitment to democracy and the rule of
law based on our constitution.
Locally, and on a more positive note,
I believe that South Africa is making head-
way in pragmatically addressing its own
problems. While crime remains a banner
issue, President Mbeki’s State of the Nation
Address at the opening of Parliament on
9 February generated welcome impetus to
Government successfully improve service delivery, and should business
confidence further recover, the South African economy could deliver a
pleasant surprise.
Macro-economic stability has largely been achieved, allowing the
emphasis to shift to much needed micro-economic reforms. These include
improved labour relations – i.e. a significant reduction in work days lost as a
result of strikes, addressing the shortage of workforce skills, improving the
execution of government policy, and more effective promotion of the small
business sector. I believe that the Minister of Finance, Mr Trevor Manuel,
comprehensively addressed these elements in his Budget speech on 21 February
this year. The outlook for the South African economy remains positive
although the low personal saving rate of 0,6% in 2000 remains a problem.
We are disappointed that the Budget did not allow more scope for life insurers
to increase their foreign investment from the current ceiling of 15% to 20% of
assets, and thus level the playing fields for all financial institutions. The scope
for life insurers to invest abroad was actually reduced. We appreciate that the
reduction should attract more investments to the JSE , but we believe the long-
term effect of this limitation is to the detriment of South Africans who, for
sound reasons, want the same freedom as citizens of the rest of the developed
world to spread their investments internationally.
acknowledgement by National Treasury
that important policy issues still need to be
clarified, I trust that capital gains tax will
not be implemented until acceptable
solutions have been found.
P o l i t i c a l m i l i e u
South Africa’s prominent political and
economic role in Africa is progressively
and successfully being promoted under the
leadership of President Thabo Mbeki, for
which he deserves credit. The President has
progressed significantly in founding a
specific vision for the continent – the
Millennium African Renaissance
Programme (MAP). His briefing on MAP
to the World Economic Forum in Davos in
January 2001 was a reassuring confirma-
tion of the commitment by African leaders
the local practical implementation of MAP. The attention in his speech to
economic matters was a welcome recognition of the important role of the private
sector in the development of South Africa.
E c o n o m y
In the past year, the South African economy once again demonstrated its resilience
in the face of challenges. Real gross domestic product increased by 3% in 2000,
and it appears the economy will repeat this performance in 2001. The driving
forces behind this will, however, change. Whereas growth was driven by a strong
performance in net exports in 2000, domestic demand will play a dominant role
in ensuring that the economy remains on track in 2001.
If taken into account that government consumption expenditure
declined in real terms in 2000, it is clear that the private sector performed
admirably and is continuing to do so. The decline in confidence levels has
to date not been reflected in household consumption expenditure, nor in
fixed capital formation in the business sector. Therefore, should
our information technology, administrative
capabilities and operational efficiencies
are of a first world standard
been a challenging year in many
ways and I am proud that our
management and staff have
shown what can be done.
A special word of appre-
ciation goes to executive director
George Rudman, who has elected
to retire after 37 years of
commendable service and
achievements. George did a
sterling job in his leadership role
in the demutualisation of Sanlam
in particular and I wish him and
his family a most wonderful and
well-deserved retirement.
Thank you to our shareholders
for investing in Sanlam; analysts
and brokers for your research,
coverage and support; our business
partners for the successes we all
achieved; our sales brokers and
advisers for these results we can
post for 2000; and the media for
objective reporting on our business.
Lastly, a personal thank you for
all the good wishes and the support
I received during my recent
illness. I am responding very well
to treatment and, together with
my medical team, am indeed
positive about the outcome.
Marinus Daling
Executive Chairman
7 March 2001
APPRECIATION
The wise guidance of my fellow
directors, their commitment
and support over the past year
are indeed appreciated.
Ms Kate Jowell, Prof Flip Smit and
Mr Murray Grindrod, who retire
as directors on 7 March 2001,
deserve a special word of
appreciation for their services over
the years. I thank my executive
committee and all our employees
for their continued dedication
and diligence towards meeting the
objective of improving the
performance of Sanlam. It is
gratifying to be able to rely on
such exceptional support to achieve
excellent returns for shareholders
and to serve our clients with the
passion they deserve. This has
We have taken measures to
financially manage the ravaging
effects of this devastating virus
and have set aside an Aids reserve
of approximately R1,5 billion to
cover expected future claims from
existing business. Many of our
policies allow us to increase risk
premiums as needed. We also
revise rates for new business from
time to time, in accordance with
the expected mortality rates for
each business sector. While we are
permitted to properly underwrite
applications for life insurance our
mortality experience should
remain within expectations.
A further factor restraining the South African economy
is the lack of fixed investment, with the ratio of gross fixed
capital formation to GDP running at approximately 15%.
While Government’s stated intention to increase capital and
infrastructure spending will support an improvement in
this regard, the private sector holds the key to putting the
economy onto a higher growth platform. For this to
happen would require the availability of profitable business
opportunities, and the confidence on the part of the
business sector to exploit those opportunities. It would also
be unrealistic to expect foreign investors to take up the
baton of investing in South Africa ahead of local businesses.
A social accord between all the important role players in the
economy, recognising these realities, is a necessary step to
improving the investment climate in South Africa.
A i d s
The Aids pandemic shows no signs of abating. It will
impact on our national economy and overall productivity,
and not only the directly related industries such as health
care and life insurance.
south africa is making headway in
pragmatically addressingits own problems
c h a i r m a n ’ s s t a t e m e n t – c o n t i n u e d
P A G E 1 4
e x e c u t i v e c o m m i t t e e
P A G E 1 5
J Moalusi (John) (48) BProc (Unisa), HDPM (Wits), EDP
(North Western, USA), EDP (GSB, Cape Town)
Deputy Chief Executive of Sanlam Employee Benefits
Years of service: 3
P de V Rademeyer (Flip) (53)* CA(SA), SEP (Stanford)
Financial Director
Years of service: 3
PJ Cook (Peter) (54) BSc Eng (Mining), MBA
Group Risk Manager
Years of service: 3
GE Rudman (George) (57)* BSc, FFA, FASSA, ISMP (Harvard)
Executive Director: Strategy
Years of service: 37
AS du Plessis (Attie) (57)* BCom, CA(SA), Adv Dip Tax Law, AMP (Harvard), AEP (Unisa)
Executive Director of Associated Companies and Services
Years of service: 15
JAA Samuels (Angus) (51)
Chief Executive of Sanlam Investment Management
Years of service: 2
CG Swanepoel (Chris) (50) BSc (Hons), FIA, FASSA
Statutory Actuary of Sanlam Life Insurance Limited
Years of service: 29
PC le Roux (Charl) (46) BSc
Chief Executive of New Business Development
Years of service: 22
HSC Bester (Hendrik) (50)* BCom (Hons),
FIA, FASSA, AMP (Harvard)
Chief Executive of Sanlam Personal Finance
Years of service: 27
AD Botha (Anton) (47)* BProc, BCom (Hons),
SEP (Stanford)
Chief Executive of Gensec
Years of service: 22
NT Christodoulou (Nick) (52) BSc Eng (Ind), MBA
Chief Executive of Sanlam Employee Benefits
Years of service: 5
MH Daling (Marinus) (55)BSc, FFA, FASSA, AEP (Unisa), DCom (hc)
Executive Chairman
Years of service: 34
M Ferreira (Marius) (46) BCom (Hons)
Chief Executive of Gensec Bank
Years of service: 6
*Alternate and executive director
R110 million tax one-offs (after
minorities) in the 1999 earnings,
headline earnings per share still
show satisfactory growth of 20%.
Details on the tax one-offs are
provided in this report.
The change in the definition
of our headline earnings to include
the investment return based on the
long term rate of return reflects
our quest to provide improved
and more valuable information.
In terms of the previous
definition, headline earnings per
share amounted to 90,6 cents a
share, which represents a 23%
growth on 1999. An income
statement based on the previous
headline earnings definition is
R10 427 million in 1999.
Headline earnings per share based
on the long term rate of return
increased by 28% from
102,1 cents to 130,9 cents per
share. Operational earnings
contributed 50,5 cents (growth of
26%) and investment earnings
80,4 cents (growth of 30%)
to these headline earnings.
The embedded value of new
business increased from
R101 million to R209 million
and we achieved a return on
equity based on the long term
rate of return of 18,7%.
If we exclude the one-off
deferred tax reversal of
R354 million in 2000 and
OVERVIEW
In the Chairman’s Statement
reference is made to Sanlam’s
results and the achievement of
most of our key financial targets
for the 2000 financial year. The
results are discussed in more
detail in this report and the
business reviews.
Sanlam’s results for the
financial year ended 31 December
2000 show a sound improvement
on those of 1999. The Group
achieved a dramatic turnaround
in the net flow of funds to a net
inflow of R777 million
compared to a net outflow of
the group achieved adramatic turnaround
in the net flow of funds
r e p o r t o f t h e f i n a n c i a l d i r e c t o r
P A G E 1 6
F I N A N C I A L D I R E C T O R
FLIP RADEMEYER
P A G E 1 7
the earnings of the shareholders’ funds.
These earnings are therefore subject to
short term fluctuations in the stock
markets.
In an attempt to address this short
term volatility in our earnings in the past,
we excluded the realised and unrealised
investment surpluses from our headline
earnings and only included the interest,
dividend and rental income earned.
This largely reduced the volatility of
our earnings but had the following
deficiencies:
• headline earnings were understated due
to the exclusion of investment surpluses
• investment decisions and the headline
earnings reporting model were not
aligned.
We have been reviewing the definition
of headline earnings and in our 1999
annual report and 2000 interim results we
disclosed, as supplementary information,
our headline earnings based on the long
An element of volatility is still inherent in the long term rate of return
model as this return is calculated on the monthly underlying fair value of
investments that are exposed to market volatility.
We believe this will be of value to shareholders and the investment
community in general.
RETURN ON EQUITY
Prior to 1999 the capital of the Sanlam Group was managed at a group
level. In line with our philosophy of decentralised businesses, where the
full responsibility for financial performance lies with the businesses, the
capital requirements of our various core businesses were determined and
allocated in 1999. The investments supporting Sanlam Personal Finance
(SPF) and Sanlam Employee Benefits’ (SEB) capital have been managed
on a pooled basis and the pooled investment return allocated in
proportion to the capital. This was largely because the life activities of
these two businesses were conducted in one statutory company, Sanlam
Life Insurance Limited. This process has borne fruit. However, the need to
improve the efficiency of capital within the Group means the model must
be adjusted.
included on page 111 to facilitate
comparison.
EARNINGS BASED ON THE LONG TERM
RATE OF RETURN
Long term insurance companies are
required to hold significant regulatory
capital adequacy reserves that serve as a
buffer against unfavourable conditions for
the policyholders. These reserves are
provided by the shareholders’ funds and
are invested in a balanced investment
portfolio, which has a large component of
equity investments. These investments are
reflected at fair value and unrealised
investment surpluses arising from their
revaluation as well as realised investment
surpluses constitute an important part of
the investment return and are included in
term rate of return. This basis is recommended by the Statement of
Recommended Practice for long term insurers in the United Kingdom.
In terms of this basis, the investment return based on the long term
investment yield expected to be earned on the underlying investments is
included in current year earnings. (Refer to page 82 for details.)
It is our view that this basis is an appropriate measure of our headline
earnings and have decided to adopt it as the primary measure of headline
earnings. We also believe that it eliminates the deficiencies of the current
definition. In order to ensure appropriate focus on the group shareholders’
funds operational and investment performance, we will disclose net
operating profit (after tax and minorities) separately from the net investment
return based on the long term rate of return (also after tax and minorities) in
the income statement. This action is in our view another step forward in
providing quality information and will facilitate the evaluation of the
performance and contribution of the two major but distinct components
of headline earnings.
we have taken another step
forward in providing
quality information
is used to determine the long
term investment return included
in the headline earnings in the
income statement.
The Group’s headline
earnings return on equity based
on the long term rate of return
target of 10% in real terms will
therefore comprise the aggregate
net operating profit return of the
businesses and the long term
investment return on the
portfolio of investments of the
shareholders’ funds.
This model will increase the
focus on operational and
investment efficiency within the
Group whilst allocating return
responsibility to its line authority.
• operating capital, which is
required in the operating
activities of the businesses.
The individual capital
requirements of the various
businesses in respect of these two
categories will be determined on a
periodic basis with the businesses
and targets will be set, taking risk
into account, for the net
operating return on equity. The
cost of the regulatory capital will
be included in setting the return
targets. The investment of the
Group’s capital will be managed
at the group level with the
objective of achieving appropriate
long term investment returns.
A current long term yield of 13%
The acquisition of the
minority interests in Gensec
which constituted Gensec as a
wholly-owned subsidiary has
brought specific challenges but
also opportunities to improve
capital utilisation to the fore.
Capital falls into two main
categories:
• Regulatory capital, which is
required to provide safeguards
for unfavourable conditions.
This capital is not normally
required in the operating
activities of the businesses and
is available for investment,
and
r e p o r t o f t h e f i n a n c i a l d i r e c t o r – c o n t i n u e d
P A G E 1 8
a unified structure following thegensec transaction will enhance
capital efficiency within the sanlam group
P A G E 1 9
In the determination of embedded
value, a fair value was placed on Gensec,
based on its constituent businesses and
assets, which amounted to R32,48 per
share at 31 December 2000. This value
is determined taking cognisance of
current market values and does not place
the same value on the longer term
strategic value as was required for the
acquisition. The unlisted valuation will
be done monthly.
The rationale for the acquisition was
driven in the first instance by the need to
integrate Group activities, particularly
the core business of Asset Management
and the synergy potential with the Bank.
Under a unified structure, the product
capabilities of Gensec can be used to
further complement the distribution
capabilities of Sanlam and will be
explored in order to create common
objectives, enhance strategic
development and facilitate cross-selling
healthy growth in the embedded value of new business. New business from non-
life activities such as unit trusts, segregated funds and short term insurance
activities grew at an even greater rate of 52% to R23 506 million, largely
owing to the increase in segregated funds from R2 310 million in 1999 to
R7 973 million in 2000. The growth in total new business was as a result of
innovative product offerings and the re-engineering of our investment process to
world class standards.
The substantial growth in new business contributed significantly to the
increase in the gross inflow of funds, which includes recurring inflows in
respect of existing in-force business, for the Group of 31% to R46 926 million
from R35 768 million in 1999. Payments to clients remained fairly constant
at R46 149 million over the two years. This resulted in a net inflow of funds
of R777 million compared to a net outflow of R10 427 million in 1999 – a
significant achievement on which we intend to build in the future. Sanlam
Employee Benefits reduced its net outflow of funds significantly from
R11 542 million in 1999 to R5 348 million in 2000 and aims to continue
its efforts to improve its flows. SIM’s segregated fund activities showed an
excellent improvement and turned its net outflow of funds of R1 215 million
in 1999 around to a net inflow of R3 301 million in 2000.
We are currently in the process of
implementation and will report on
progress in our interim results for 2001.
ACQUISITION OF GENSEC MINORITIES
Sanlam acquired all the shares in Gensec
which it and its subsidiaries did not already
own for R37 per share with effect from
22 December 2000 and for financial
statement purposes with effect from
31 December 2000. The total net
consideration amounted to R4 978 million
and was financed through the utilisation of
existing shareholders’ funds. The value of
R37 per share was determined on an
intrinsic value basis of the sum of the parts
of the businesses in Gensec. The transaction
resulted in net goodwill of R1 711 million,
which will be amortised over ten years.
between the two companies. A unified structure will also enhance capital
efficiency within the Sanlam Group.
The integration of the Gensec businesses into the Sanlam Group has
progressed well. Sanlam Investment Management (SIM) (previously Gensec
Asset Management), Gensec Bank and Gensec Properties will be constituted as
separate core businesses of the Sanlam Group. Underwriting and private equity
activities will be incorporated as part of the investment activities of the
shareholders’ funds and the corporate activities of Gensec will be integrated into
the existing structures of either the Gensec businesses or into the Sanlam Group.
The initial stages of the redeployment of Gensec’s capital within the Sanlam
Group has commenced, but its full implementation will have to be done as part
of the drive towards greater capital efficiency and improving returns.
NEW BUSINESS AND FLOW OF FUNDS
Total new business grew significantly by 46% to R37 700 million. Life insurance
new business grew by 37% to R14 194 million and contributed towards the
innovative product offerings and
the re-engineering of our investment process
resulted in healthy growth
781
1 044
168202
11 15
747
683
59100
(44)
(120)
OPERATING PROFIT BEFORE TAX (R million)
1999
2000
SPF SEB SanlamHealth
Gensec Santam Corporateand other
tax of R411 million, which is
51% higher than the first six
months. Corporate income,
which consists largely of profits
earned on leveraging assets using
structured finance arrangements
and involve the issue of
preference shares by Sanlam
Group subsidiaries, declined by
53% from R197 million in 1999
to R93 million in 2000. This
decrease is largely attributable
to increased competition from
similar products and smaller
margins due to the lower
level of interest rates in 2000
compared to 1999.
These varying successes
resulted in the group operating
These results were tempered
by Gensec’s profits before tax of
R683 million, which showed
a 9% reduction compared to
1999. This is in line with
expectations published at the
interim stage as their results in
the first half of 2000 were
substantially lower than the
corresponding period
in 1999 as a result of the
impact of the difficult financial
market conditions in the first half
on equity trading and its
investments in private equity
and small capitalisation shares.
The second six months
however showed significant
improvement with profits before
OPERATING PROFIT
BEFORE TAX
I wish to refer shareholders
to the business reviews for a
detailed discussion of the
activities and results of the
businesses.
Sanlam Personal Finance
(SPF) experienced a good year
and grew its operating profit by
34% to R1 044 million.
Sanlam Employee Benefits
(SEB) also posted a most
satisfactory 20% growth in its
profits to R202 million and
corporate expenses were
reduced by 22% to
R190 million.
r e p o r t o f t h e f i n a n c i a l d i r e c t o r – c o n t i n u e d
P A G E 2 0
sanlam personal finance experienced a
good year
P A G E 2 1
Administration costs increased by 8%
(14% including Santam), largely owing to
a 26% increase in Gensec’s costs resulting
from building their international capability
and continued growth in Gensec Bank.
The group administration ratio remained
fairly constant at 29,7%.
Group exceptional items decreased by
22% to R368 million and include
restructuring costs of R33 million at
Gensec following the acquisition of the
Gensec minorities and R79 million at SPF
in respect of a further phase of the
restructuring of its sales function. Expenses
for new systems and projects, which are
aimed at improving client service, product
development and administration
capabilities, amounted to R231 million.
The group operating margin was
reduced to 17,4% from 17,9 % in 1999,
largely owing to Gensec’s margin, which
decreased to 49,2% from 59,9% in 1999
but SPF and SEB registered
improvements.
The gross investment return based on the long term rate of
return grew by 23% from R2 120 million to R2 603 million in
2000. A long term investment return of 13% was assumed for
both years. The average monthly fair value of the asset base on
which the long term return is calculated was on average 8%
higher in 2000 compared to 1999 and contributed to this
growth in investment return.
Investment income of R950 million which increased by 3%
compared to 1999 was affected by lower interest rates in 2000.
The creation of an investment provision of R53 million in 1999
and its subsequent reversal in 2000 as it was no longer required,
had a positive impact on the growth for 2000. Please refer below
for details on Absa’s results. (The latter two items are not subject
to the long term return basis.)
The reduction in investment surpluses from a positive
R1 687 million in 1999 to a negative R25 million in
2000 is attributable to the JSE stock market conditions.
The JSE All Share Index was 3% lower at the end of 2000
compared to 1999.
profit increasing by 12% to
R1 924 million.
The discussion below of the elements
of group operating profit excludes
Santam’s figures as they are distorted by
the acquisition of Guardian National and
the inclusion of Guardian’s results with
effect from 1 May 2000.
Group financial services income
increased by only 4% (14% including
Santam) due to an 8% reduction in
Sanlam Health’s income, lower corporate
income referred to above and lower
administration fee income earned by SPF.
Risk benefits remained at the same
levels as in 1999 (20% increase including
Santam) and contributed largely to the
healthy risk profits reported by SPF
and SEB.
GROSS INVESTMENT RETURN BASED ON THE LONG TERM RATE
OF RETURN
The gross investment return based on the long term rate of return earned by the
Sanlam Group is set out below:
R million 2000 1999 Variance
Investment income 950 922 3%
Absa equity accounted earnings 423 327 29%
Investment (deficits)/surpluses (25) 1 687 —
Actual investment return 1 348 2 936 -54%
Adjustment for long term rate of return 1 255 (816) —
Gross long term investment return 2 603 2 120 23%
corporate
expenses reduced
by 22%
57
NEW BUSINESS
EMBEDDED
VALUE
GROWTH
(R million)
1998 1999 2000
101
209 shareholders’ funds interest in
Absa from 13,8% to 14,8%
resulted in a 29% increase in
their equity accounting earnings
contribution to Sanlam.
Since the announcement of
Absa’s results in November 2000,
their share price and price
earnings ratio have outperformed
the banks’ index. Absa is
confident that the growth in
headline earnings achieved at
the interim stage will be
sustained for the financial year.
SANTAM
Sanlam holds a 59% interest in
Santam of which 36% is held by the
The tax reversal of R354 million
for 2000 is in respect of an
overprovision of deferred tax in
respect of our life business.
The provision was raised in prior
years on the financial soundness
valuation basis on the previous
tax dispensation for long term
insurers. This dispensation was
amended with effect from
1 January 2000 to bring the
actual tax charge more in line
with the accounting provision.
The tax one-offs in 1999 relate
to an adjustment of R62 million
on the deferred tax balance
as a result of the change in the
corporate tax rate and
Sanlam shareholders’ funds.
Santam acquired 100% of the
shareholding in Guardian
National Insurance Company
Limited in April 2000 and is now
South Africa’s leading short term
insurer.
Santam’s underwriting
profits increased by 69% to
R100 million and included
non-recurring integration benefits
of R37 million. Their total
contribution to the Sanlam Group
headline earnings on the long term
rate of return basis used by Sanlam,
amounted to R139 million
compared to R107 million in 1999.
The favourable Santam results
achieved in 2000, supported by a
balanced insurance portfolio after
the reversal by Gensec of a
R100 million overprovision for
tax in prior years in respect of one
of its offshore subsidiaries. At
31 December 2000 the remaining
balance of the deferred tax liability
amounted to R284 million, the
application of which will be
considered when outstanding
assessments have been received.
ABSA
Absa’s equity accounted earnings
before tax, based on its earnings
for the twelve months ended
30 September 2000 are included
in the Sanlam Group headline
earnings. Their improved interim
results for 30 September 2000
and an increase in the
INCOME TAX
As a result of the change in presentation of the income
statement and the reversal of tax provisions in prior
years, it is considered appropriate to provide an analysis
of the group income tax charge:
r e p o r t o f t h e f i n a n c i a l d i r e c t o r – c o n t i n u e d
P A G E 2 2
R million 2000 1999 Variance
Income tax before one-offs
• Operating profit 455 347 31%
• Investment return 349 264 32%
Income tax before one-offs 804 611 32%
Tax one-offs (354) (162) 119%
Income tax after one-offs 450 449 0%
Long term rate of
return adjustment 23 21 10%
Income tax on headline
earnings based on the
long term rate of return 473 470 1%
santam’s favourable results for 2000 and
its successful merger with guardian havecreated a solid platform for growth
P A G E 2 3
of R9 million were included in the 2000
results. Sanlam also underwrote the issue
of Santam shares following their acquisition
of Guardian National.
EMBEDDED VALUE
The embedded value of new business
more than doubled to R209 million in
2000 compared to R101 million in
1999. In our 1999 annual report we set
the target to achieve an embedded value
of new business in excess of R200
million by no later than 2001. We are
indeed pleased that this was achieved
one year earlier.
This improvement was achieved largely
as a result of increased new business
volumes (embedded value new business
annual premium equivalent (APE)
increased by 49% over 1999) and increased
margins (new business embedded value as
a percentage of APE was 8,0% compared
to 5,7% in 1999). Our target for 2001 is
to continue this good growth pattern.
a 20% increase over the 25 cents declared in 1999, of which 10 cents was paid
as a special interim dividend in October 1999. The dividend is covered three
times by headline earnings on the previous basis, which is in line with the policy
as stated at the time of our listing. The new earnings basis using the long term
rate of return to determine the investment return requires a revision of the
dividend cover policy to 3,5 to 4,5 times of these earnings. Our dividend policy
is included in the directors’ report on page 67.
PROSPECTS
Sanlam has set itself a target of 10% real growth and is confident of meeting this
target in respect of its net operating profit.
Flip Rademeyer
Financial Director
7 March 2001
the successful merger with Guardian, have
created a solid platform for future growth.
CORPORATE ACTIVITIES
New Business Development, which includes
the Innofin joint venture as well as Sanlam
Personal Portfolios, is discussed in its
separate business review. During the year,
the Fundamo project was initiated which
proposes to use cellular telephony within the
financial services arena. Although still at an
early stage of its development, we are hopeful
that this venture in which we held a 46,3%
equity stake at year end, will prove a success
and yield attractive returns. The Cura
project which used the internet in providing
new generation medical insurance was
discontinued during the year as its viability
could not be proved. Establishment costs
The Sanlam Group embedded value increased by only 2% to
R27 238 million largely because of the poor investment return earned on the
shareholders’ funds net assets due to the difficult stock market conditions in
2000 compared to 1999. However, the embedded value from life insurance
business (value of in-force) grew by a satisfactory 24% during the year.
FINANCIAL INFORMATION ON SHAREHOLDERS’ FUNDS
Additional financial information in respect of the shareholders’ funds which we
believe will be of value to shareholders is provided on pages 102 to 119 and
includes separate balance sheets and cash flow statements for the
shareholders’ funds and a segmental analysis of the income statement
per business.
DIVIDENDS
The Board has declared a dividend of 30 cents per share payable on
16 May 2001 to shareholders registered on 20 April 2001. This represents
the embedded
value of new business
more than doubled
committee, which consists of the
executives of the various
businesses and the heads of
corporate functions, some of
whom are also executive directors
of Sanlam Limited. This
committee functions under the
leadership of the chairman.
RELATIONS WITH
SHAREHOLDERS
The Board places a great deal of
importance on meaningful
dialogue with shareholders to
ensure that they are kept
appropriately informed and have
access to the Group. Much effort
is directed towards providing full
information to shareholders, both
existing and prospective, by way
of reports and announcements as
well as meetings with analysts,
journalists and the group’s web
site. Open lines of communica-
tion are maintained and the
chairman and the business
executives frequently meet with
shareholders on an ongoing basis.
A comprehensive programme
of meetings with shareholders
follows the release of final and
interim results. A computer
database is utilised to monitor
and follow up such meetings and
shareholders are encouraged to
contact the company direct with
questions or concerns and,
experience, insight and
independent judgement on
issues of strategy, performance,
resources, key appointments
and standards of conduct.
The Board meets at least
six times a year to monitor
that delegated responsibilities
are properly executed by
management and to consider
strategic issues. Senior members
of management are present at
Board meetings. The various
committees of the Board meet
regularly for in-depth consideration
of relevant matters.
Management responsibility
for the day-to-day operations of
the Group rests with the executive
evaluates the effectiveness of the
executive chairman. The Sanlam
Board announced the
appointment of Dr L Vermaak as
chief executive officer with effect
from 1 May 2001, resulting in
the separation of the function of
the chairman and chief executive.
In addition to the Sanlam
Limited Board, each of the core
operating businesses in the group
has board structures with both
executive and non-executive
directors. The business reviews on
pages 30 to 63 provide details of
these boards and their committees.
Non-executive directors
bring with them diversity of
PRINCIPLES
The Board of Sanlam Limited endorses the Code of
Corporate Practice and Conduct recommended in the
King Report on Corporate Governance and has satisfied
itself that Sanlam has consistently complied with the
Code during 2000. There are continuing developments
in national and international corporate governance and
the Board will consider for adoption those principles
that most effectively advance corporate governance and
add value within the Group’s field of operations.
DIRECTORS
The composition of the Sanlam Limited Board of
directors appears on pages 4, 5, 12 and 15. The Board
comprises an executive chairman, 12 non-executive
directors and five alternate executive directors.
An independent director serves as the non-executive
deputy chairman, who is also the chairman of a special
committee, consisting of non-executive directors, which
c o r p o r a t e g o v e r n a n c e s t a t e m e n t
P A G E 2 4
the functions ofchairman and
chief executive officerseparated
P A G E 2 5
responsible to the Board for ensuring that
Board procedures are followed.
All directors are entitled to seek inde-
pendent professional advice, at the Group’s
expense, concerning the affairs of the Group.
BOARD COMMITTEES
The Board committees consist of non-
executive directors and their composition
appears on page 5. The principal
committees are as follows:
• A u d i t c o m m i t t e e
The audit committee meets at least
three times a year with the external
and internal auditors and members
of senior management to evaluate
matters regarding accounting
practices, internal control systems,
auditing, financial reporting and
management of critical risk areas.
The audit committee has a clear
mandate and reports to the Board.
• N o m i n a t i o n s c o m m i t t e e
The nominations committee is responsible for proposing new appointments
to the Board. In doing so, it considers the balance of the Board, the demands
made on the Board and its committees and the requirements of good
corporate governance.
STATUTORY ACTUARY
The statutory actuary is subject to the disciplines of professional conduct and
guidance and has a reporting relationship with the directors of Sanlam Life Insurance
Limited and to the regulatory authorities. He has access to the Board and must report
fully and impartially to these bodies on the financial soundness of Sanlam Life
Insurance Limited based on the actuarial valuation of its assets and policy liabilities.
RISK MANAGEMENT
The focus of risk management in the Group is on identifying, assessing, managing
and monitoring all important risk areas of the Group. Management is involved
in a continuous process of developing and enhancing its risk and control
procedures to improve the mechanisms for identifying, monitoring and
managing risks. These risks include technology, competition, corporate
subject to price sensitivity, management
seeks to provide a rapid response.
We are also committed to transparency
and disclosure of relevant and appropriate
information in our Annual Report and
through other communication channels.
This is aimed at a full and proper
valuation of the Sanlam share price and is
a means of monitoring management’s
performance. This is pursued continuously
notwithstanding the complex nature of
Life insurance business and the lack of
appropriate and consistent accounting
standards both locally and internationally.
COMPANY SECRETARY AND
PROFESSIONAL ADVICE
All directors have unlimited access to the
services of the company secretary, who is
The internal and external auditors have unrestricted access to the audit
committee.
Each of the core operating businesses has audit committees, which
operate on a similar basis to the Sanlam committee. This enhances the
control environment and increases the reach and penetration of the Sanlam
committee.
Sanlam has an effective internal audit function that has the respect and
co-operation of both the Board and management. Apart from its access to
the audit committee, it also has direct access to the Chairman and every
Sanlam executive.
• H u m a n r e s o u r c e s c o m m i t t e e
The human resources committee is responsible for the remuneration strategy
of the Group, the long and short term incentives for executives and the senior
executives’ remuneration packages relative to local and international industry
benchmarks.
open lines of
communication are
maintained with shareholders
accepted a code of ethics and
conduct that requires the highest
ethical standards to ensure that
business practices are conducted
in a manner that fosters public
trust and confidence.
EMPLOYMENT EQUITY
Sanlam has recognised the
business imperative of
employment equity and is fully
committed to complying with the
Employment Equity Act. Its
employment equity policy was
ratified by the Board after
extensive consultation with
staff.
EMPLOYEE PARTICIPATION
A broad spectrum of
participative structures exists for
handling issues that affect
employees directly and
materially. These structures are
designed to promote
employer/employee relations
through effective sharing of
relevant information,
consultation and the
identification and resolution
of conflicts.
A range of internal
communication media is used
to help motivate employees,
allow them to gain a better
understanding of the business
and keep them abreast of
important developments.
• the relevant legislation and
regulations are adhered to, and
• adequate internal financial
control systems are developed
to provide reasonable certainty
of the completeness and accuracy
of the accounting records, the
integrity and reliability of the
financial statements and the
safeguarding of assets.
The board is satisfied with
the integrity, objectivity and
reliability of the financial
statements and that all material
relevant legislation has been
adhered to.
CODE OF ETHICS
Management and the Board, in
consultation with staff, have
procedures, and applies risk-
monitoring techniques.
FINANCIAL STATEMENTS
AND INTERNAL FINANCIAL
CONTROLS
The directors’ responsibility for
the financial statements is
described on page 67.
The Board accepts
responsibility for the existence of
internal financial control systems.
Management ensures that
• clear objectives are defined,
• progress in terms of these
objectives is monitored and
reported,
reputation, compliance with regulations and legislation,
money laundering, professional liability and business as
well as general operating and financial risks.
The management of risk is decentralised to the
management and boards of the various businesses but
is in compliance with overall group policies.
All businesses have appointed risk managers and their
own audit committees to consider material risk areas,
plans to manage risks and the adequate implementation
of these plans. A corporate risk function has been
established to monitor group risks on a macro level,
particularly with respect to risks with a significant
financial impact, a negative reputational impact or risks
that could, as a result of the scope, impact negatively
on Sanlam.
Compliance is measured through periodic risk reports,
which are considered by the various audit committees.
At operational level, senior management identifies
critical and major business risks, promotes awareness,
introduces applicable control environments and
c o r p o r a t e g o v e r n a n c e s t a t e m e n t – c o n t i n u e d
P A G E 2 6
risk management is decentralised
to the various businesses
h u m a n r e s o u r c e s r e p o r t
P A G E 2 7
environment. Incentives have been
introduced at all levels in the group but
specifically for key roles. Sustained excellent
performance is rewarded with performance
bonuses and share incentive schemes.
Good progress has also been made
with our transformation strategy. Further
improvement is still required and will be
driven by a concerted effort across the
spectrum of the group.
EXECUTIVE INVOLVEMENT
The executive chairman and chief executives
of the businesses have led the way in
achieving our goals by their direct involve-
ment in a number of key interventions.
H i g h - f l y e r p r o g r a m m e
The executive chairman conducts strategic
planning workshops with selected high-
potential employees. The outcomes of
E m p l o y m e n t e q u i t y
The executive chairman and chief executive are involved in regular
meetings with groups of mostly black, female and disabled employees, who
are selected from various levels and businesses within the group.
The purpose of these meetings is to ensure that important feedback on the
qualitative and quantitative aspects of employment equity reaches the
highest levels of the group and can be translated into action
when required.
O r i e n t a t i o n p r o g r a m m e
A formal orientation programme, hosted by the executive chairman and the
chief executives, was launched in January 2000. The executives meet all new
entrants and introduce them to their fellow employees. The programme has
encouraged a sense of unity amongst employees and has underlined the fact that
every employee is a valued member of a cohesive team.
INTRODUCTION
Sanlam has made good progress during
2000 in its goal to be recognised as the
employer of choice. Emphasis has been
placed on the further development of our
intellectual capital and on creating a
challenging and exciting working
these workshops are taken into account in
the processes to develop the overall group
strategies. The workshops also play an
important role in the personal
development of these employees by
exposing them to strategic thinking at the
highest levels.
EMPLOYER OF CHOICE
“The Financial Services industry is particularly dependent on its
people and our future achievements will be inextricably linked to
the further development and retention of employees and to attract
people of the highest calibre. Success in this area will be measured
by whether Sanlam will be recognised as the employer of choice”
– Marinus Daling, Executive Chairman
employment
equity is a business
imperative
presented by international
experts, has been initiated in
conjunction with the
International Center for
Management Development
and has been customised
according to our requirements.
Senior managers also
participate in a development
programme presented by the
Harvard Business School and the
University of the Witwatersrand.
Furthermore, a management
training programme (Smile), which
focuses on the development of
middle and first-line managers,
has been implemented within the
various businesses.
S u c c e s s i o n p l a n n i n g
Succession planning receives
ongoing attention within the
group to ensure that sufficient
leadership is in place to guide
the group in the future.
This pool of resources is
supplemented when required
by selective recruitment from
external national and
international markets.
whole. Sanlam fully believes that
skills development for its
employees is an investment in the
future and acts accordingly.
D e v e l o p m e n t
Senior executives have attended
internationally acclaimed
advanced management
programmes such as the
programme offered by Harvard
Business School.
In addition, an executive
development programme was
launched at the beginning of the
year. This two-year programme,
MANAGEMENT OF
INTELLECTUAL CAPITAL
A structured programme for the
development of our intellectual
capital is operating successfully.
This programme has been
carefully formulated to ensure the
appropriate development of our
skills base and to equip employees
with the skills required to operate
in an increasingly competitive
and globalised environment.
Skilled people are vital to a
company’s success, and also to the
future growth of the country as a
h u m a n r e s o u r c e s r e p o r t – c o n t i n u e d
P A G E 2 8
succession planning receives
ongoing attention
P A G E 2 9
TRANSFORMATION
E m p l o y m e n t e q u i t y
Sanlam considers employment equity to be
a business imperative. Each business in the
Sanlam Group has embarked on a
thorough consultation process culminating
in the drafting of an employment equity
plan for the group. These plans have been
submitted to the Department of Labour in
line with current legislation.
Consultation forums have been
initiated throughout the group and will
play an important role in monitoring and
providing input into employment equity
initiatives. The appointment, development
P e r s o n s w i t h d i s a b i l i t i e s
After consulting employees with disabilities, a number of structural
adjustments have been made to the Sanlam Head Office building. The
nature of some of the alterations was extensive, such as the renovation and
altering of lifts and toilet facilities, but this has had an enormous impact on
the lives of employees and visitors with disabilities.
LABOUR LEGISLATION
Sanlam acts in accordance with the labour legislative requirements of the
country in such a way that compliance is aligned to the Group’s strategic focus
and also adds value to the business.
B u r s a r i e s
The use of bursaries for the development of
employees and potential employees is a
crucial element of our overall skills
development plan. In most instances,
bursaries are awarded in line with individual
development plans that are aligned to
identified core business skills.
Eleven bursaries for actuarial science and
chartered accounting were awarded at the
beginning of the year (seven to black
students), bringing the total number of
bursaries currently in operation in these
fields of study to 65 (33 to black students).
and promotion of persons from the designated
groups, particularly in key positions, is gaining
momentum and should see Sanlam being
transformed into a truly South African group.
B l a c k e m p o w e r m e n t
A number of internal black empowerment
initiatives were launched during the year.
Non-core services, namely printing and
chauffeur services, were successfully outsourced
to internal black employees.
non-core services
were outsourced in black
empowerment initiatives
NATURE OF BUSINESS
Sanlam Personal Finance (SPF) is
a separate business in the Sanlam
Group aimed at individual clients.
It comprises the operations of
Sanlam Life, Sanlam Unit Trusts
(SUT), and Sanlam Trust, as well
as a multi-channelled distribution
infrastructure and certain
administrative and support
services. SPF aims to generate
excellent returns for Sanlam and
its shareholders, while meeting
the reasonable expectations of all
its other stakeholders.
SPF’s business is to provide
financial insurance to its clients
through empowered staff and
intermediaries. SPF offers quality
financial advice and competitive
life insurance, investment,
guarantee and related products,
s a n l a m p e r s o n a l f i n a n c e
UNLOCKING
WEALTH
C H I E F E X E C U T I V E
HENDRIK BESTER
P A G E 3 0
SALIENT FEATURES
• 34% increase in operating profit
• New business volumes up
• New business embedded value more
than doubled
• Favourable underwriting results continued
• Lapse rate down for third successive year
another successful
embedded value
of new business
increased by 121%
P A G E 3 1
backed up by professional and efficient
administration services. Its vision is to be
the preferred provider of these products
and services in its target markets.
BUSINESS ENVIRONMENT AND
OPERATIONAL REVIEW
SPF sustained its record of consistent real
operating profit growth by producing
another set of good operating results.
Operating profit before tax rose by 34%
on the back of a 13% increase in funds
received from clients, favourable risk
underwriting results, the containment of
administration expenditure, and a
reduction in exceptional expenditure on IT
systems and restructuring. The embedded
value of new business increased by 121%
to R190 million. These results were
achieved notwithstanding certain adverse
market influences.
After a promising start early in 2000
the stock market deteriorated to levels
below those of December 1999. This had a
negative impact on investment income and
other market linked sources of revenue, as
well as the returns offered on investment
products. A strong demand for guarantee
products and foreign investment opport-
unities nevertheless continued in reaction
to the adverse stock market performance
and the deteriorating value of the rand.
High levels of churning and policy surrenders
persisted in the industry. This can, to some
extent, be attributed to the clients’
preference to switch to either potentially
higher yielding foreign investments or the
safe haven of hedged investments.
Life companies are facing increasing
competition for clients’ discretionary
investment funds. Within the financial
services industry various alternative
investment products are on offer, both
from local and international players. This
is forcing a review of product ranges and
higher levels of transparency and product
flexibility. SPF launched its new generation
Stratus product range in response in 1999
and continues to expand on the alternative
products being offered. The introduction of
the South African national lottery as well as
the fast growing cellular phone industry has
had a marked impact on consumer spending,
including savings patterns. Their initial high
attraction of cash flows should stabilise in
due course, but their impact will remain,
albeit at a lower level.
Government action also impacted on the
industry. The decision to discontinue the
collection of stop order premiums from
government employees had a limited effect
on SPF’s new business for the current year.
Discussions are still taking place between
Government and the Life Office Association
and we are fairly confident that an agreement
will be reached that will serve the best
interest of all parties involved. A prudent
provision was raised in the current year’s
results that will cover any potential losses that
may result from lapses as a result of
discontinued premiums on existing policies.
Recent changes to taxation applicable to life
companies had some negative impact on the
profitability and embedded value of certain
life products. The introduction of taxation
on capital gains will further impact on net
investment returns offered to clients.
Sanlam Life had a successful 2000, as
good results were achieved in most of its
operations. The transition from traditional
walk-in centres to the two client contact
centres in Pretoria and Cape Town was
successfully completed. Service excellence is
an ongoing target in this new environment.
2 795
SINGLE
LIFE PREMIUMS
(R million)
1998 1999 2000
4 046
4 989
1 121
NET NEW RECURRING
LIFE PREMIUMS
(R million)
1998 1999 2000
1 112
1 529
three years. After a recent dip in
performance the Balanced Fund
was the best performer over one
year. The Equity Focus Fund still
offers the best return on monthly
investments over a ten year
period, while its one year
performance has improved to a
strong second place.
Sanlam Unit Trusts (SUT)
achieved strong growth in new
funds received. Gross inflows
improved by 14% to more than
R9 billion. The Big Easy range of
funds that was introduced during
the year, and is aimed at
simplifying the investment choice
for individual investors, proved to
be very popular and attracted
R600 million in gross funds for
the year, with a retention rate of
72%, which is well above the
industry average. New funds
launched as part of the Big Easy
range include the International
Fund of Funds and the Asian
Pacific Funds of Funds. An
Enhanced Cash Fund was also
launched, meeting the
requirements of clients with a
preference for a money market
fund that invests in assets with a
longer duration.
After two consecutive years as
top investment performer, SUT
lost its number one position.
Equity funds overall were
outperformed by cash based
funds in the twelve months to
December 2000. Among the
facility was established late in
1999. The introduction of tax on
capital gains has, however, reduced
the economic viability of the latter.
The retention of non-annuity
maturity funds improved from
25% in 1999 to 34% in 2000.
Notwithstanding the
unfavourable market conditions
the Life investment funds
performed well in 2000 compared
to industry peers. The Offshore
Equity Fund retained its first
place for returns on monthly
investments over one, two and
making use of the individual
policyholder’s own foreign
investment allowance. This Stratus
product creates the opportunity
for smaller instalment based
offshore investments, and is
expected to contribute substantially
to new business inflows, in
particular given the failure of the
recent Treasury Budget to increase
the foreign asset capacity of life
companies.
The retention of funds
payable to clients on the maturity
of policies remains an important
focus area. Competitive contin-
uation options are being offered
in the Stratus product range,
while a secondary policy trading
Continuous monitoring and training of staff members,
as well as the optimal use of modern technology,
contributes to an increasing improvement in service
levels. Success already achieved is evident in positive
client feedback, inter alia from the independent brokers
making use of the facility. The streamlining of Sanlam
Life’s back and front office processes led to an 8%
reduction in staff during the year. This has been achieved
without compromising service levels. This created the
potential for a lower future cost base, although
increasing technology expenditure is due to offset most
of these cost savings. The implementation of the new
Life administration system (Lamda) is progressing
according to plan. All new investment products are now
issued on this new platform. A decision on the next
phase of adding risk products to the new system will be
taken shortly.
Product innovation is a competitive imperative.
Sanlam Life introduced several new products throughout
the year. Among these were a property based Stratus
investment product that exposes the policyholder to
the property market, but at the same time offers a
guaranteed return on the investment. Complementing
its existing offshore product range, SPF now also offers
an international endowment product that is unique in
international endowment a popular addition
to the stratus range of products
s a n l a m p e r s o n a l f i n a n c e – c o n t i n u e d
P A G E 3 2
P A G E 3 3
better performing individual funds, the Sanlam
Value Fund and Global Fund were in the top ten
performers of all funds in the industry over two
and three years respectively, while the Income
Trust and Provider Trust received Moneymate
consistency awards for three year performance.
For the last quarter of 2000 the Sanlam Financial
Fund performed best in its category and achieved
a second place overall.
Assets under management increased by 36%
to R17 900 million, raising SUT’s market share of
assets from 11,8% in December 1999 to 14%,
and confirming its position as a major player in
the industry.
SPF Sales had a good year in which consistent
growth in sales volumes was achieved, despite
possible uncertainty created by the next phase of
restructuring of the Advisers’ Channel. Single
premiums rose by 23% and new recurring business
by 38%. With one exception single and new recur-
ring premiums received in every quarter of 1999
and 2000 exceeded the volumes of the corres-
ponding quarter the year before. Monthly new
business volumes achieved a similar growth pattern.
Planning and negotiations regarding structural
changes continued throughout the year, culmi-
nating in the introduction of a new business model
for Sanlam advisers. The creation of 87 separate
distribution business units will result in a substan-
tial reduction in organisational layers (replacing
26 regional and 160 branch managers) and transfer
full responsibility for growth and profitability to
each of these business units. At the same time a
simplified remuneration structure for advisers was
put in place. Administrative support for these units
will be more centralised, aided by the online
electronic selling and administration capabilities
provided by S.net. These changes will become
effective in 2001. During the year agreements were
also concluded with other life companies in terms of
which selected cross selling of products by suitably
qualified general agents is allowed, supplementing
the total product offering to SPF clients.
FINANCIAL REVIEW
F l o w o f f u n d s
Total funds received from clients in 2000 were
13% higher than in 1999, as both the life funds
and unit trusts benefited from a strong demand
for offshore investments. Life inflows improved by
R1 650 million (12%) on 1999.
FUNDS RECEIVED FROM CLIENTS
R million 2000 1999 Variance
Life business 15 630 13 980 12%
Single premiums 4 989 4 046 23%
Continuations 2 240 1 624 38%
Recurring premiums 8 401 8 310 1%
Unit Trust gross inflow 9 074 7 926 14%
Total funds received 24 704 21 906 13%
Net new recurring premiums 1 529 1 112 38%
erosion remained high. Premiums
lost due to policies that reached
maturity were up by 15%. This
was essentially owing to a large
number of five - and ten year
policies that reached the end of
their contractual duration. Policy
surrenders remained at the high
levels of 1999.
The introduction of the
Stratus products on the new
Lamda administration system
led to more prudent profit
recognition. A relatively smaller
fee income component is
recognised up front in respect of
the products on this system, while
premium income, in terms of the
policy contract, is also accounted
for on a monthly basis, once
receivable. In terms of the old
Legacy policy contracts,
premiums are accounted for
annually on the policy
anniversary date. This change
resulted in a notable deferral of
recognised premium income.
Policy benefits paid by
Sanlam Life were marginally up
by R164 million compared to
1999, substantially the result of
increasing maturity benefits.
Outflows as a result of policy
surrenders rose by 7%, causing
an increase of R392 million in
total payments to policyholders.
At the same time the reinvestment
of some of these benefits –
continuations – grew by
R616 million to R2 240 million.
due to lapses during the first
policy year were in fact down by
20%. Similar positive trends were
also evident in second and third
year lapses. The percentage of
policies that lapsed in their first
year decreased for the third
successive year. This positive
trend is attributed to the success
of the ODDS process of
managing lapse probability
through analysis and prior
screening.
Although marginally better
than in 1999, overall premium
benefits. Comparative figures
have been restated accordingly.
In 2000 continuations increased
by 38% to R2 240 million.
• Recurring premiums received
amounted to R8 401 million,
which is marginally better than
the R8 310 million achieved in
1999. Net new recurring
premiums, after allowing for
cancellations and first year
lapses, grew by 38% to
R1 529 million. This includes
an institutional policy with
an annual premium of
R250 million.
While new recurring
premium income grew well in
excess of 30%, premiums lost
• Single premiums grew by 23% to R5 billion, the
result of strong growth in the sale of guaranteed and
offshore investment products.
• Once a policy reaches maturity, the policyholder has
the choice to either withdraw the funds or to continue
to invest with Sanlam. As significant amounts are
reinvested with Sanlam, ‘Continuations’ will in future
be disclosed as a separate funds inflow item, while fund
outflows will be shown gross of continued amounts.
In the past continuations were netted against maturity
R5 billion receivedin single premiums
s a n l a m p e r s o n a l f i n a n c e – c o n t i n u e d
P A G E 3 4
POLICY BENEFITS
R million 2000 1999 Variance
Death & disability claims 1 609 1 645 2%
Maturity and retirement benefits 7 526 7 053 -7%
Annuities 3 145 3 418 8%
12 280 12 116 -1%
Surrenders 3 672 3 444 -7%
Total policy benefits 15 952 15 560 -3%
P A G E 3 5
In total, net flows from policyholders improved
by R1 258 million, and were only marginally
negative.
SUT inflows were up by 14%, mainly as a
result of a 44% increase in equity fund inflows.
The bulk of these inflows were attracted to
international funds. Outflows grew by 28% with
the major portion flowing from cash funds and
local equity funds.
O p e r a t i n g p r o f i t
SPF contributed R1 044 million before tax to
Sanlam’s 2000 operating profit, an improvement
of R263 million or 34% on its performance in 1999.
The administration surplus of R296 million
is 14% lower than in 1999. This accounts for the
difference between fee income and other policy
recoveries and administration costs incurred.
Administration fee income earned, after the
remuneration of intermediaries, was 3% lower
than in 1999. This anomaly, if viewed in the
context of the increase in new business volumes, is
mainly caused by the prudent change in income
recognition for Stratus products that defers a
portion of fee income that is referred to above.
Other items that impacted on the fee base include
the relative product mix, a lower number of
policies sold (higher unit value) and a shorter
average policy duration. Administration
expenditure rose by R85 million or 6%, a
marginal decrease in real terms. Cost savings
realised on the closing of offices and the reduction
of staff partly compensated for volume related,
technology and other inflationary cost increases.
As a result of the exceptional operational
performance, additional incentive bonuses will be
paid to SPF staff. These bonuses account for half
the increase in administration expenditure.
Excluding these bonuses, the administration
expenditure as a ratio to income amounted to
36,1% – marginally lower than in 1999.
Risk profits increased by 15% as the
favourable underwriting results experienced in
1999 continued during the year.
Market related income improved by 23%.
This category of income includes, inter alia, net
interest received on working capital, as well as
income attributable to the non profit sharing
portfolios, i.e. where SPF carries the underlying
investment risk. A major contribution to the
FINANCIAL RATIOS
EMBEDDED VALUE (EV )
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS
R million 2000 1999 Variance
Administration surplus 296 343 -14%
Risk profits 404 352 15%
Market related income 605 494 22%
Operating profit before exceptionals 1 305 1 189 10%
INCOME STATEMENT
R million 2000 1999 Variance
Financial services income 4 809 4 576 5%
Sales remuneration (1 000) (915) -9%
Income after sales remuneration 3 809 3 661 4%
Underwriting policy benefits (1 089) (1 142) 5%
Administration costs (1 415) (1 330) -6%
Profit before exceptional items 1 305 1 189 10%
Systems/projects (182) (203) 10%
Other exceptional items (79) (205) 61%
Operating profit before tax 1 044 781 34%
Percentage 2000 1999
Admin cost to income 37,1% 36.3%
Operating profit to income 27,4% 21,3%
R million 2000 1999 Variance
EV of new business 190 86 121%
EV of in-force business 6 152 5 857 5%
substantially better than the
R86 million contributed in 1999.
Higher new business volumes and
the control of expenditure
contributed to this achievement.
The embedded value of SPF’s in-
force business grew by
R295 million in 2000 to
R6 152 million.
PROSPECTS FOR 2001
The South African market remains
SPF’s prime focus for growth in
2001. Efforts will be concentrated
on the continued recapturing of
market share, where appropriate,
by extending its current product
range, as well as focusing on new
untapped markets. A thorough
market segmentation approach is
key to SPF’s product develop-
ment, marketing and distribution
strategy. SPF’s infrastructure and
technical capabilities also provide
a strong base that can be capital-
ised on exploiting structural
growth opportunities, even
beyond the South African borders.
These will be pursued in 2001.
SPF’s objective is to grow its
operating profit annually at a real
rate of 10%. Current estimates
indicate that this is an achievable
target for 2001, given favourable
market conditions and sufficient
offshore capacity to meet the
demand for such products.
A sustained upturn in the stock
market and an improvement in
market linked income is a
retrenching sales staff, the closure
of offices and the write-off of
redundant office equipment.
An accrual was also raised for
the transition costs associated
with a simultaneous change to a
simplified remuneration model
for advisers.
SPF identified the improve-
ment of the embedded value
added by new business as a specific
target area for 2000. New business
written during 2000 added
embedded value of R190 million,
somewhat higher than the original
expectations for 2000, but the
additional spending is the result
of a decision to accelerate some
projects. Three major projects,
the new Life administration
system, the electronic sales aid
S.net, and a centralised customer
information management
capability accounted for almost
all of the expenditure.
An amount of R79 million
is accounted for as other
exceptional expenditure in 2000.
This comprises mainly costs
associated with a further phase of
the restructuring of the sales
function and include the cost of
increase came from an improvement in the performance
of the annuity portfolio. During 1999 it was necessary to
incur expenditure to improve the matching of assets and
associated liabilities in the portfolio, and to reduce the
risk of any material future mismatching losses, while lower
interest rates resulted in a reduction in interest earned.
Expenditure on systems and projects continued at a
relatively high level and at R182 million is only 10%
below that of 1999. This level of expenditure is
operating profitincreased by 34%
to exceed R1 billion
s a n l a m p e r s o n a l f i n a n c e – c o n t i n u e d
P A G E 3 6
P A G E 3 7
prerequisite, in part to compensate for a likely
normalising of the current favourable level of
underwriting results. Process improvements
introduced by Sanlam Investment Management
during 2000 should enable them to take advantage
of an improvement in the stock market performance
in 2001. A relatively high level of expenditure on
IT-related projects will continue in 2001, albeit at
a substantially lower level than in 2000. The Life
administration system will account for the bulk of
the IT expenditure.
One of the building blocks of SPF’s strategy is an
empowered employee and sales force. Training and
the retention of key players are receiving ongoing
attention. At the same time, diversity in employ-
ment is proactively encouraged. A programme of
employment equity, supporting and complementing
SPF’s business initiatives, is in place for SPF.
MH Daling (Marinus) (Chairman)
JPL Alberts (Johan)
HSC Bester (Hendrik)
D Lessing (Deon)
JA Marais (Inus)
DNM Mokhobo (Dawn)
JP Möller (Kobus)
P de V Rademeyer (Flip)
CG Swanepoel (Chris)
JJM van Zyl (Boetie)
DIRECTORS
JPL Alberts (Johan) (Chairman)
P de V Rademeyer (Flip)
CG Swanepoel (Chris)
AUDIT COMMITTEE
EXECUTIVE COMMITTEE
JA Marais (Inus)* (42) BA, LLB, ILPA
Sales
(16 years)
JP Möller (Kobus)* (41) BCom (Hons), CA(SA), AMP (Harvard)
Finance
(3 years)
L Lambrechts (Lizé) (37) BSc (Hons), FIA
Sanlam Life
(15 years)
T Siyolo (Themba) (38) BJuris, IRDP, SEP (Harvard)
Human Resources
(2 years)
SA Lategan (Fanie) (49) BCom (Hons), MBA
Sanlam Unit Trusts
(24 years)
L Watkins (Leon) (37) BSc (Hons)
Information Technology
(2 years)
D Lessing (Deon)* (41) DCom
Marketing
(3 years)
AP Zeeman (André) (40) BCom, FIA
Risk Management
(19 years)
* Executive directors of Sanlam Personal Finance Limited
DESCRIPTION OF BUSINESS
Sanlam Employee Benefits (SEB)
is an independent business in the
Sanlam group focusing on
corporate clients in terms of
primary decision making,
premium collection and
communication, but with
individual member access to
facilitate individual choice and
flexibility. Its main product lines
include:
• risk products consisting of
group life and disability cover
provided to group funds and
schemes;
s a n l a m e m p l o y e e b e n e f i t s
CONTINUED
GROWTH
C H I E F E X E C U T I V E
NICK CHRISTODOULOU
providing quality
P A G E 3 8
SALIENT FEATURES
• 69% increase in single premiums
• 50% reduction in net outflow of funds
• 20% increase in operating profit
P A G E 3 9
• investment products consisting of
smoothed bonus products, participating
annuities and market linked investment
policies for group funds;
• administration business consisting of
retirement fund administration, money
transfer business and payroll
administration;
• actuarial and consultation services to the
retirement fund industry.
THE BUSINESS ENVIRONMENT
AND OPERATIONAL REVIEW
The trend that large independent
intermediaries are becoming product
competitors in traditional insurance
business has further increased competition
in the already highly competitive industry.
small, an increase of more than 50% was
achieved, which is significant when
measured against the ability to leverage
other services from this base.
On the investment side, our Monthly
Bonus Fund, launched during 1999,
remains the ideal investment vehicle when
investment guarantees are required.
Bonuses on this product are declared
monthly in advance, and vest in full.
During 2000 the bonuses on this product
remained the highest in the industry,
making it a very attractive option for
trustees and members. In addition, the
Enhanced Capital Guaranteed Fund was
launched during the year, providing for the
needs of large funds seeking a capital
guarantee while having the flexibility of
monthly fund flows.
Our risk products were extended this
year. Trauma benefits were improved, a
new group risk product was launched,
specifically designed to assist those with
HIV/Aids and other terminally ill people
to cope with this difficult stage of their
disease, and our Managed Disability
Benefits unit saw good growth on the
previous year in the number of employers
opting for this product. A risk benefit plan
for executives was also launched.
During the past few years there has
been a gradual move towards individual
reduction in
net outflow by 50%
This year saw an increased
uncertainty in the handling of surpluses in
retirement funds, especially in respect of
the ownership and treatment of past
members. SEB’s view has been that each
case should be assessed on its merits with
an equitable handling of all stakeholders.
As a result of this uncertainty, and the low
funding levels in retirement funds owing
to the low return on equities achieved
during 2000, fund trustees have been wary
of moving assets into other insurance
products, especially insured annuities.
When the surplus issue is resolved and
markets improve, we foresee a renewed
potential for the outsourcing of bulk
annuities to insurers.
SEB has embarked on a strategy of
enhancing its consulting capacity, with
further improvements during the year.
Although the revenue from this source is
14
RISK PROFIT
(R million)
1998 1999 2000
59
80
115
OPERATING
PROFIT
(R million)
1998 1999 2000
168
202
tion in a secure web-enabled
environment on the back of our
Wiz@rd and HRP@c platforms,
and the benefits to be derived
from dealing with such
individuals, was also initiated
during the year.
FINANCIAL REVIEW
Recurring premiums increased by
only 1% to R2 883 million.
The low growth follows two years
of fairly high fund dissolutions,
which impacted on the recurring
premium levels, notwithstanding
a 58% increase in new recurring
premiums to R219 million. With
the reversal of this outflow, future
growth should return to normal
consultation is offered and a
professional group of trustees is
also a feature of this product.
SEB has progressed well with
the development of its Internet-
based human resources
administration system HRP@c to
meet the needs of employers who
wish to outsource these services.
Our e-business strategy,
which is built around retirement
fund members and employees
being able to access their informa-
funds to its new Wiz@rd admin-
istration platform. This system
was specifically developed to cater
for member choices and is thus
well placed to gain market share
due to its administration
capabilities. An Internet-based
front-end was also developed,
further enhancing the capabilities
of the Wiz@rd system.
A new generation umbrella
fund was designed for the middle
market as a packaged product
providing flexible risk and
investment options on our
modern administration platform.
Appropriate advice and
investment and risk benefit
choice within retirement funds.
The trend has been slower than
originally anticipated, partly
owing to the necessary
administration platforms not
being available. During 2000 SEB
successfully migrated its first
20% increasein operating profit
s a n l a m e m p l o y e e b e n e f i t s – c o n t i n u e d
P A G E 4 0
FINANCIAL RATIOS
EMBEDDED VALUE (EV )
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS
R million 2000 1999 Variance
Risk business 80 59 36%
Investment business 125 103 21%
Administration business 19 28 -32%
Consulting unit 6 4 50%
Operating profit before exceptionals 230 194 19%
FUNDS RECEIVED FROM CLIENTS*
R million 2000 1999 Variance
Recurring premiums 2 883 2 850 1%
Single premiums 4 146 2 449 69%
Total premiums 7 029 5 299 33%
New recurring premiums 219 139 58%
PAYMENTS TO CLIENTS*
R million 2000 1999 Variance
Policy benefits 5 765 6 311 9%
Funds terminations 7 271 11 060 34%
Total payments 13 036 17 371 25%
INCOME STATEMENT
R million 2000 1999 Variance
Financial services income 1 558 1 426 9%
Sales remuneration (43) (32) -34%
Income after sales remuneration 1 515 1 394 9%
Underwriting policy benefits (984) (929) -6%
Administration costs (301) (271) -11%
Profit before exceptional items 230 194 19%
Systems development expenditure (32) (20) -60%
Other exceptional items 4 (6) 167%
Operating profit before tax 202 168 20%
Percentage 2000 1999
Admin cost to income 19,9% 19,4%
Operating profit to income 13,3% 12,1%
R million 2000 1999 Variance
EV of new business 70 64 9%
EV of in-force business 897 720 25%
P A G E 4 1
levels. Single premiums of R4 146 million are a
69% improvement on 1999, mainly due to large
single premium pre-retirement investments
capitalising on new and improved product
offerings on an ongoing basis. The post-
retirement investments are still at low levels
owing to the caution of trustees to invest in
insured annuities before there is clarity on the
surplus issue.
Policyholder benefits (consisting of benefits
paid or payable in terms of insurance contracts)
decreased by 9% to R5 765 million mainly
owing to lower withdrawal benefits paid
resulting from fewer retrenchments and
resignations by fund members compared with
previous years. Fund terminations reduced by
34% to R7 271 million (R11 060 million in
1999). The resulting net R6 007 million outflow
of funds is a 50% improvement on 1999’s
R12 072 million net outflow. This positive trend
is expected to gain momentum in future.
SEB has achieved a 20% increase in its
operating profit before tax from R168 million in
1999 to R202 million in 2000. Over the two-
year period a 38% average growth per annum
has been achieved.
Income after variable sales remuneration
increased by 9% as a result of increased fees
following good flows into our guaranteed
products. This increase combined with fairly low
increases in insured policy benefits from
R929 million in 1999 to R984 million in 2000
saw operating profits before exceptional items
increasing by 19% to R230 million notwith-
standing administration expenditure increasing
11% as a result of higher expenditure in sales
and marketing.
Systems development expenditure still
reflects the implementation of our Wiz@rd fund
administration system as well as the develop-
ment of the web-enabled HR outsourcing
system, HRP@c. These investments are planned
to contribute to the bottom line from 2001
onwards.
* Includes intergroup transactions
expanding its consultancy
capacity, enhancing its
multimanager product,
aggressively selling its new
generation umbrella fund in the
middle market, and building on
its successes in its risk business.
These, together with a focus
on improving the efficiencies in
our more mature business areas as
well as building on the success of
continuous product innovation,
should enable SEB to provide a
steady growing operating profit in
order to optimise returns on
equity and embedded value.
a 9% improvement on 1999’s
R64 million. The value of in-
force business grew by 25% from
R720 million at 31 December
1999 to R897 million at
year-end.
PROSPECTS FOR 2001
SEB will position itself for
continued growth in 2001 by
using its new e-business
administration platforms,
Administration business
profit decreased mainly as a result
of losses incurred in the provision
of HR services within the Sanlam
group, which have since been
outsourced to the various
businesses, and the lower than
expected income from the money
transfer business.
The consulting unit increased
income by 50%, although still
small, this is a strategic thrust to
position SEB better in its target
markets.
Embedded value added by
new business written during 2000
amounted to R70 million,
The administration cost to
income ratio has increased slightly
to 19,9%, as a result of higher
sales and marketing expenses,
which is designed to provide
better access to clients in future.
Operating profit to income has
improved from 12,1% to 13,3%,
following excellent risk profits.
The table on the previous
page shows that the growth in
operating profit is mainly due to
profits from the risk business
increasing by 36%. Continued
product improvement, repricing
and claims management
contributed to this increase.
Investment business profits
increased by 21%, mainly as a
result of improved inflows in
some of our higher margin
product portfolios.
wiz@rd administrationplatform successfully
launched
s a n l a m e m p l o y e e b e n e f i t s – c o n t i n u e d
P A G E 4 2
P A G E 4 3
In addition to optimising its current
products and position in the South African
market, emphasis is being placed on redirecting
our focus towards high growth markets and
products so that our growth and return
objectives can be sustained over the longer term.
SEB is searching for opportunities, locally and
abroad, to expand its client base using its
traditional skills, but is also considering
alternative strategies to reduce its dependency on
its traditional risk and guaranteed business.
In all of this, SEB’s staff are highly valued
and will be developed to support SEB’s objective
of providing quality service to a diversified
South African market. SEB’s success in growing
its profits steadily over the last few years is
directly attributable to the quality of its staff and
the emphasis on servicing its markets and clients
with excellent resources.
MH Daling (Marinus) (Chairman)
Prof AC Bawa (Ahmed)
NT Christodoulou (Nick)
K Jowell (Kate)
J Moalusi (John)
P de V Rademeyer (Flip)
CG Swanepoel (Chris)
TW Thom (Wouter)
HC Werth (Heinie)
BOARD OF DIRECTORS
P de V Rademeyer (Flip) (Chairman)
Prof AC Bawa (Ahmed)
CG Swanepoel (Chris)
AUDIT COMMITTEE
EXECUTIVE COMMITTEE
PJF Venter (Francois) (43) BCom (Hons)
Information Technology
(3 years)
TW Thom (Wouter)* (44) BCom (Hons), FIA
Risk & Investment Products
(22 years)
* Executive directors of Sanlam Employee Benefits Limited
HC Werth(Heinie)* (37)
CA(SA), MBA
Finance
(3 years)
E ten Oever (Erika) (36)BCom, MBA
E-Business
(1 year)
TMM Nkone (Theo) (40) BA, BSc
Multi-Data
(1 year)
DG Steyn (Douw) (54)
Retirement Fund Administration
(33 years)
S Lagerdien (Safia) (39)BA (Hons), MA (Ind Psych)
Human Resources
(3 years)
CP Pretorius (Neels) (43) BCom, FILPA, CAT
Product Research & Development
(22 years)
J de Villiers (Jacques) (46) BCom, FIA
Consulting Services
(24 years)
GR Perils (Godwin) (35) Nat Dipl Marketing
Marketing
(1 year)
J Moalusi (John)* (48) BProc, HDPM, EDP
Deputy Chief Executive
(3 years)
BX Nomvete (Bax) (47) Dip Comp Science (UK)
Distribution
(3 years)
National Treasury’s Medium Term
Budget Policy Statement included
expected receipts on privatisation
that were both lower and later
than market expectations,
impacted negatively on the
financial sector.
Internationally, markets
were under pressure for the last
six months of the year, with the
benchmark Morgan Stanley
World Index down by 11% and
the technology-dominated
NASDAQ Index down by 38%.
The Dow Jones Industrial Index
rose by a marginal 3% as
investors directed their cash
flows towards the old economy
stocks.
g e n s e c g r o u p o v e r v i e w
INTEGRATED GROUP
ACTIVITIES FOR
GLOBAL GROWTH
C H I E F E X E C U T I V E
ANTON BOTHA
P A G E 4 4
control relaxation. As a result,
share prices on the JSE declined
sharply. The prices of growth and
small capitalisation shares were
particularly weak.
During the second half of the
year the JSE recovered some of its
losses and the All Share Index
rose by 8% on the back of a 22%
rise in the Resources Index. In
contrast, the Financial and
Industrial Index at the end of
December was only 1% higher
than its 30 June 2000 level. The
South African Reserve Bank’s 25
basis points increase in the repo
rate in October, and the fact that
transaction. The Gensec
businesses have subsequently
been integrated into the
Sanlam Group.
BUSINESS ENVIRONMENT
At the time of the release of its
half-year results Gensec reported
that a number of factors had
negatively influenced the South
African financial markets during
the first half of 2000. These
included, inter alia, rising global
interest rates, rand weakness,
soaring international oil prices,
the political turmoil in Zimbabwe
and increased foreign investment
by South African asset managers
following further exchange
NATURE OF BUSINESS
Gensec (Genbel Securities
Limited) is a South African
financial services group providing
knowledge-based financial
solutions to clients in four principal
areas, namely asset management,
investment banking, property
services and equity underwriting.
During December 2000,
Sanlam acquired all the shares in
Gensec that it did not already
own and Gensec was delisted
from the Financial Services sector
of the JSE. Refer to the Report of
the Financial Director on page 16
for further details of this
providing knowledge –
P A G E 4 5
FINANCIAL RESULTS
The Gensec group results for the full year
were well below management’s initial
expectations, but were in line with the
outlook published in the interim report.
As a result of the weak financial markets,
the first half ’s results were well down on
the corresponding period of the previous
financial year. The second six months,
however, showed a significant
improvement with earnings after tax of
R343 million, 31% higher than the first
half ’s earnings and only 2% lower than
the second half of the previous year.
Earnings after tax for the full year
amounted to R604 million, 23% lower
than the R788 million earned
in 1999.
Financial services income of
R1 387 million (1999: R1 247 million)
was up by 11%, but with administration
costs which increased by 26% to
R631 million (1999: R500 million) and
exceptional items of R73 million,
operating profit before tax was 9% lower
at R683 million (1999: R747 million).
The significant increase in administration
costs related particularly to staff costs,
which accounted for 47% of the total and
were mainly due to the establishment of
Gensec’s international operations and the
continued strong growth of Gensec Bank.
Refer to the separate Gensec divisional
reviews in respect of Gensec Bank, Sanlam
Investment Management (SIM) and
Gensec Property Services which follow for
a further analysis of their activities and
results. The taxation charge for the year
under review was R79 million, whereas in
1999 taxation contributed a net
R41 million to earnings. This swing,
which was the result of a R100 million
write-back of a tax provision on foreign
operations during 1999, contributed
further to the reduction in the Gensec
group earnings in relation to 1999.
GENSEC GROUP INCOME STATEMENT
R million 2000 1999 Variance
Financial services income 1 387 1 247 11%
Administration costs (631) (500) -26%
Profit before exceptional items 756 747 1%
Exceptional items (73) — —
Operating profit before tax 683 747 -9%
Tax (79) 41 -293%
Operating profit after tax 604 788 -23%
the second
six months’ results showed a
significant improvement
GENSEC GROUP SEGMENTAL CONTRIBUTION TO EARNINGS
R million 2000 1999 Variance
Sanlam Investment Management 205 211 -3%
Bank 234 183 28%
Property Services 39 52 -25%
Underwriting, corporate and other 126 342 -63%
Earnings after tax 604 788 -23%
FINANCIAL RATIOS
Percentage 2000 1999
Admin cost to income 45,5% 40,1%
Operating profit to income 49,2% 59,9%
grew by 137% and 39%
respectively. The specialist approach
used to manage these products is
core to the re-engineered invest-
ment process, the goal of which
remains delivering consistent long-
term positive investment returns.
The transparency, scaleability and
consistency of the investment
process have been improved
significantly through the
implementation of internationally
acclaimed technology.
The concept of specialisation
has also been incorporated within
client services and has resulted in
greater client focus. Technology
has been introduced to support
service levels, most notably the
availability of client reports via
secure and controlled web access
and the introduction of a leading
edge client relationship
management system.
Efficiency is a key
differentiator in the highly
competitive and margin sensitive
global asset management
industry. During the year SIM
undertook a fundamental review
of efficiency to bring resources in
line with the re-engineered
processes and to increase efficiency.
This led to an increase in assets
under management per employee
from R794 million in 1999 to
R937 million in 2000 but
BUSINESS ENVIRONMENT AND
OPERATIONAL REVIEW
The business environment in 2000
was dominated yet again by volatil-
ity, in the local markets throughout
the year and internationally for the
second half of the year. This clearly
impacted on trading conditions
and market values remained sub-
stantially at previous year levels.
Despite this harsh environ-
ment, funds continued to flow
into the large cap and cash
management products, which
SIM’s vision is to become the
Leader in Wealth Management.
In order to achieve this vision
the business will focus on
the following key strategic
areas:
• Investment performance
• Efficiency
• Distribution, marketing and
sales
• Building the international
credentials
• Strengthen the retail
proposition
• Human capital development
DESCRIPTION OF BUSINESS
Sanlam Investment Management (SIM) is the second
largest investment manager in South Africa providing
the full spectrum of investment management services.
This encompasses the manufacturing, distribution and
servicing of investment products to individuals,
intermediaries and institutions.
sanlam investment management buys british group
for global growth
s a n l a m i n v e s t m e n t m a n a g e m e n t( p r e v i o u s l y g e n s e c a s s e t m a n a g e m e n t )
P A G E 4 6
C H I E F E X E C U T I V E
ANGUS SAMUELS
P A G E 4 7
unfortunately led to the retrenchment of a number
of staff members.
In 2000 SIM Namibia was launched and had a
number of successes, including the appointment as
sole asset manager for the development capital
portfolio of the largest retirement fund in
Namibia. This consolidated its position as the
largest asset management business in Namibia.
In line with the strategic intent of internation-
alisation, a number of important initiatives were
undertaken during the year at Gensec International
Asset Management. The most significant initiatives
relate to products and resources.
The product range was substantially enhanced
with the restructuring of the Dublin based funds
to increase the number of funds from five to twelve.
This greatly increases client choice as the funds
can be used in combination to create bespoke
solutions. This process involved proprietary market
segmentation and manager combination analyses.
The human and technical resource base was
strengthened considerably during the year and now
includes risk management and performance
attribution analysis, asset allocation and solutions
capabilities and transition management services.
FINANCIAL REVIEW
Despite the tough trading conditions during
2000, SIM experienced a net inflow of funds,
reversing the previous year’s outflow.
The majority of inflows occurred in third
party segregated portfolios and specifically the
specialised product portfolios developed as
part of the redesigned investment process.
This resulted in a 2% increase in assets under
management compared to 1999.
Operating profit after tax grew by 9%,
notwithstanding the low growth in financial
markets.
Fee income increased by 15% partly due to
the increase of funds under management and
partly due to a larger component of
internationally managed funds at higher fees.
The net inflows into the South African
specialised mandates resulted in fee income from
third parties increasing by 35% representing
20% of South African fee income.
INCOME STATEMENT
ASSETS UNDER MANAGEMENT
R million 2000 1999
Market value – beginning of year 197 867 161 996
Net contributions 2 263 (7 402)
Segregated funds 2 218* (1 745)
Sanlam portfolios (8 728) (15 173)
Investment income 8 773 9 516
Market value appreciation 1 857 43 273
Market value – end of year 201 987 197 867
*includes intergroup transactions
R million 2000 1999 Variance
Fee income 496 430 15%
Administration costs (239) (185) -29%
Profit before exceptionals 257 245 5%
Exceptional items (14) — —
Profit after exceptionals 243 245 -1%
Tax (52) (69) 25%
Operating profit after tax 191 176 9%
Interest after tax 14 35 -60%
Operating profit after interest 205 211 -3%
Admin cost to income ratio 48,2% 43,0% —
the Satrix range and will also be
well positioned to participate in
other joint ventures or white label
manufacturing initiatives.
The focus on retail will
continue, in particular the private
client business. The recent
acquisition of the private client
business of ABN Amro South
Africa introduces a further
23 000 clients and R2 billion of
assets to the existing private client
business of SIM. The range of
services offered is also enhanced
by the addition of retail
stockbroking capabilities.
The strong branch network will
give clients access to one of the
largest research, portfolio, risk and
administration teams in the
country, offering local and
international services. Clients will
also be able to access these services
through the vast network of Sanlam
advisers and independent brokers.
I n t e r n a t i o n a l
On the international front the
credentials have been substantially
strengthened by the acquisition of
one of the top British-based firms
of consulting actuaries and
financial advisers, Punter Southall
& Company. The deal enhances
the international expansion
plans of SIM by increasing its
international offering
D o m e s t i c
The communication and
promotion of the investment
process will continue in 2001.
The transparency of the invest-
ment process is already finding
favour in the market. In addition,
the launch of a new product
range should also be well received
by clients and consultants.
Following on from the
success of Satrix 40, it is
anticipated that SIM will be
supporting additional products in
SIM had substantial surplus
capital in 1999, which was
returned to the Gensec Group at
the end of that year. This resulted
in higher interest income in 1999
compared to 2000. For
comparative purposes the interest
income should be excluded from
the operating profit.
PROSPECTS FOR 2001
The prospects for 2001 look
positive on both the domestic
and international fronts
supporting the real target profit
growth of 10% given favourable
market conditions.
The 29% increase in administrative costs can be
explained as follows:
• The administration function of asset management
was established as an independent business (TASC)
from 1 January 2000. This resulted in higher and
more market related administration costs.
• Salaries and incentives were brought into line with
market practice.
• The year 2000 was the first full year that the
international business operated on a stand-alone
basis.
Exceptional items include the following costs:
• The efficiency review and the resultant
retrenchment costs.
• The implementation of the new investment
process technology.
The effective tax rate declined during 2000, mainly
owing to the international business, where lower
marginal tax rates apply.
despite a harsh environment, funds continued to flow
into the large cap and cash management products
s a n l a m i n v e s t m e n t m a n a g e m e n t – c o n t i n u e d
P A G E 4 8
P A G E 4 9
and providing interesting new products and
distribution opportunities.
As one of the leading independent UK firms
of consulting actuaries, Punter Southall has a
substantial base of client funds.
The deal will provide an integrated service
combining the multimanager approach to asset
management with independent actuarial expertise
to create products for selected target markets as
well as to provide the new group with additional
distribution capabilities.
The new international group offers four
distinct businesses:
• multimanager asset management services,
• actuarial consulting,
• financial advice to high net worth individuals, and
• investment solutions.
A unique combination of traditional actuarial
consulting with product driven asset management,
including asset liability matching.
AS du Plessis (Attie) (Chairman)
DR Geeringh (Div)
D Ladds (David)
AUDIT COMMITTEE
MH Daling (Marinus) (Chairman)
AD Botha (Anton)
AS du Plessis (Attie)
PJ Cook (Peter) (Alternate to AS du Plessis)
DR Geeringh (Div)
D Ladds (David)
R Masson (Ronnie)
Prof AF Perold (André)
JD Punter (Jonathan)
AA Raath (Anton)
JAA Samuels (Angus)
BOARD
EXECUTIVE COMMITTEE
– SOUTH AFRICA
AA Raath (Anton) (45) BCom, CA(SA)
Retail & Operations
(1 year)
RT Schkolne (Raymond) (43) BSc, BBus Sc
Human Development Capital
(1 year)
RB Goldblatt (Raymond) (41) CFA
Marketing & Sales
(3 years)
CA Teague (Carol) (34) BA (Hons), CA(UK)
Strategic Development
(2 years)
C Greyling (Chris) (40)BCom (Hons), (Economics)
Chief Investment Officer
(2 years)
KJ McKelvey (Kenneth) (44) BSc MBA, FIA
Chief Operating Officer: Gensec Financial Services bv
JD Punter (Jonathan) (43) BSc, FIA
Chief Executive Officer: Gensec Financial Services bv
SM Southall (Stuart) (43) MA, FIA
Chairman: Punter Southall & Company
W P Wormley (Wallace) (53) BSc, MA Harvard, PhD (Harvard)
Chief Investment Officer: Gensec Financial Services bv
EXECUTIVE COMMITTEE
– INTERNATIONAL
BUSINESS ENVIRONMENT
The wide fluctuations in interest
rate levels and the Reserve Bank’s
tightening of liquidity in response
to such financial market
disruptions resulted in a relatively
harsh operating environment for
our industry. The anticipated
Y2K problems meant that
liquidity conditions were tough
right from the beginning of 2000
and never really eased materially
during the course of the year. A
number of smaller banks
experienced financing problems
and were forced to close or to be
absorbed by other institutions in
rescue packages. At the same
time, the bigger banks, stock-
brokers and foreign financial
foreign exchange and equity
markets, with specific focus on
derivative based products.
Our focus on new generation
financial products currently
includes securitised debt, collateral
bond and loan obligations and
credit derivatives. We also manage
financial risk on behalf of our
clients and advise on and execute
mergers and acquisitions, listings,
restructures, unbundlings and
international capital raising.
NATURE OF BUSINESS
Gensec Bank is a specialist banker
for the South African savings
industry, public sector enterprises
and corporates.
The Bank provides products,
services and skills across the broad
spectrum of money, capital,
the bank provides products, services and skills across the broad spectrum of money,
capital, foreign exchange and equity markets
P A G E 5 0
C H I E F E X E C U T I V E
MARIUS FERREIRA
g e n s e c b a n k
SALIENT FEATURES
• Growth in revenue of 22%
• Raised international capital of R2 billion
on behalf of SA corporations
• Launch of Satrix 40, Kiwane CDO fund
and warrants
P A G E 5 1
institutions progressively encroached on the
business territory targeted by Gensec Bank and its
counterparts, as they sought to diversify their
income base.
OPERATIONAL REVIEW
M a r k e t a c t i v i t y
Gensec Bank, in recognising the increased market
risk in its chosen business environment, has sought
to be proactive in adapting to the prevailing
conditions. We have progressively moved away
from our early business model based upon
proprietary trading. During the course of 2000, we
closed down our equity trading desk; consolidated
the treasury and interest rate trading desks under a
single operational entity; significantly reviewed and
prescribed the trading mandates for our interest
rate and equity derivatives units and combined our
arbitrage activities in a single specialised division
managed separately from the trading floor.
Risk management, control and measurement
have been and will continue to be the object of
much attention and expense. Although the Bank
and its clients are exposed to market conditions,
volatility and flows, these risks can be defined,
quantified and controlled. The South African
markets are developing rapidly in sophistication
concerning investment vehicles and opportunities
to hedge, sell off or otherwise share credit or
market risk and we are well placed to participate in
the growth of this market.
I n v e s t m e n t b a n k i n g
With the Bank shifting its focus from proprietary
trading to seeking client based and fee income
business, the diversification of income has received
priority. The absorption of Gensec’s corporate
advisory, private equity and equity fund raising
activities into the Bank has been a critical element
towards achieving this objective. Over 50% of the
investment banking division’s revenue in 2000 was
derived from corporate fund raising activities and
this division has focused on bringing merger and
acquisition opportunities to a growing number of
clients. Specialist teams concentrating on specific
industries are a unique approach in South Africa to
Equity Financing and have proved successful.
FINANCIAL RATIOS
2000 1999
Admin cost to income ratio % 50% 46%
Revenue per employee R’000s 2 020 1 807
25%
54%
3%
18%
REVENUE PER BUSINESS
FOR THE YEAR 2000
Investment banking
Risk management solutions
Market activity
Arbitrage
36%
39%
4%
21%
REVENUE PER BUSINESS
FOR THE YEAR 1999
Investment banking
Risk management solutions
Market activity
Arbitrage
REVENUE DISTRIBUTION
INCOME STATEMENT
R million 2000 1999* Variance
Revenue 481 394 22%
Administration costs (242) (182) -33%
Operating profit 239 212 13%
*The 1999 comparative figures have been restated to afford a better comparison.
The effect on operating profit is an increase of R12 million from R200 million as
previously reported to the restated amount of R212 million. Consolidated Gensec
and Sanlam comparatives for 1999 were not revised as the effect at group level is
not significant.
a necessary but adverse impact on
administration costs, the objective
is to not exceed an administration
cost to income ratio of 50%.
PROSPECTS FOR 2001
We have adopted the following
strategies for the coming year:
• Strengthening and evolving our
core business model by
diversifying our income base
through exploring synergies in
the Sanlam group, adding new
products, seeking additional
clients and expanding our
geographical reach.
• Focusing our business on
servicing the needs of our
clients by concentrating on
managing customer
relationships through constant
communication with our
clients so as to establish their
needs and to understand their
businesses. Client database
systems, CRM processes and
structures to provide consistent
communication within the
Bank on client contacts and
service have been implemented
for this purpose.
• Expanding our business
internationally with the
objective of servicing our
existing and new clients
globally and adapting our
FINANCIAL REVIEW
Although the growth in revenue
of 22% is particularly pleasing,
the longer term objective is to
achieve revenue and operating
profit growth of 25%. The
process of diversifying revenue
streams and reducing the relative
contribution of proprietary
trading to total revenue gained
momentum during 2000.
Operational efficiency is currently
and will continue to be a focus
area. Although this obviously has
The combination of
initiatives such as packaging,
structuring, the introduction of
new asset classes, seeking cross
market opportunities and
utilising derivatives where
physical assets are scarce, forms
the foundation of these products.
In 2000, we were able to
introduce new products to the
local markets such as the Kiwane
Collateralised Debt Obligation
Fund, the first CDO fund in
South Africa and Satrix 40, a
highly successful listed Exchange
Traded Fund tracking the JSE
ALSI 40 index, a first in emerging
markets.
R i s k m a n a g e m e n t
s o l u t i o n s
The Structured Products team has
focused on developing new
products, on seeking a wider
client base and quantitative invest-
ment solutions, not only for fund
management, but also for cash flow
problems. Such products are being
successfully marketed. Smaller
business units have been
established to broaden the income
base in the fields of stockbroking,
debt origination and retail
warrants. A meaningful
contribution to income from
these units is expected in the
coming year.
We are working on a number
of pioneering products for the
South African markets.
we are working ona number of pioneering
products for the south african markets
g e n s e c b a n k – c o n t i n u e d
P A G E 5 2
P A G E 5 3
products to markets comparable to
South Africa.
• Improving operational efficiencies with a view
to implementing trading, accounting, risk
management and reporting systems that are
globally compatible and competitive.
• Implementing a human resources strategy to
support our corporate vision. Our people are
our major resource and we are committed to
developing their skills and to providing a
working environment that makes Gensec Bank
an employer of choice.
The investment banking environment will
remain extremely competitive in the year ahead
as global banks continue to expand activities
and corporate activity of South African based
organisations remains subdued. This, together with
volatile financial markets will result in an
extremely challenging 2001.
AD Botha (Anton) (Chairman)
DR Geeringh (Div) (Vice-Chairman)
M Ferreira (Marius)
PJ Cook (Peter)
TL de Beer (Tom)
AS du Plessis (Attie)
JH Fouche (Jaco)
D Ladds (David)
Prof AF Perold (André)
DIRECTORS
A S du Plessis (Attie) (Chairman)
TL de Beer (Tom)
DR Geeringh (Div)
D Ladds (David)
AUDIT COMMITTEE
PJ Cook (Peter) (Chairman)
TL de Beer (Tom)
AS du Plessis (Attie)
M Ferreira (Marius)
D Ladds (David)
CREDIT COMMITTEE
DIVISIONAL HEADS
SH Müller (Steve) (40) CA(SA)
Investment Banking
(6 years)
K Magwenthsu (Khanyisa) (35) BJuris, LLB
Corporate Services (1 year)
FJ Oosthuizen (Francois)(41) BCom (Hons)
Arbitrage (15 years)
J Latsky (Johan) (41) BA, LLB
Special Projects
(2 years)
MS Murning (Mark) (41) BCom
Risk Management Solutions and Market Activity(18 years)
G Erasmus (Gerhard) (36) CA (SA)
Finance
(4 years)
standard portfolio management
fees earned. The reduction in
profits before tax compared to
1999 is due to reduced interest
income resulting from lower
levels of capital together with
lower interest rates and increased
staff and restructuring costs.
OUTLOOK FOR 2001
Prospects for the property market
during 2001 are still unfavourable.
Competitive opportunistic
investors are building up-market
properties in new development
nodes and are attracting tenants
from existing properties. Sanlam’s
strategy of reducing its exposure
to property investments has placed
more pressure on the property
portfolio and therefore on Gensec
Property Services’ profitability.
During 2001 we want to build
on our vision to become a leading
property management group with
a broad client base, diversified
revenue streams and consistent
growth in profits.
FINANCIAL AND
OPERATIONAL REVIEW
Gensec Property Services’ main
source of revenue continues to be
generated from the management
of the Sanlam property portfolio.
However, our continued drive to
obtain business from other
sources resulted in an increase in
our revenue from external sources
to 10% of total income. Good
progress has been made in diver-
sifying sources of revenue with
the acquisition of a company that
delivers property-related services.
The performance of the Sanlam
property portfolio and therefore
also Gensec Property Services
came under pressure due to poor
market conditions and the general
overprovision of lettable space.
Operating profit before tax of
R59 million was 18% lower than
1999 but exceeded our target for
2000. The positive variance
compared to the target is mostly
due to an increase in fee income
owing to increased incentive and
NATURE OF BUSINESS
Gensec Property Services is a property management
company, whose activities include letting, rental
collection and marketing through to contracting and
administration. Other services include asset management,
investment analysis, investment structuring, project
management, lease administration, market research and
Geographical Information Systems (GIS).
good progress made in diversifyingsources of revenue
g e n s e c p r o p e r t y s e r v i c e s
P A G E 5 4
INCOME STATEMENT
R million 2000 1999 Variance
Fee income 170 146 16%
Net interest income 14 23 -39%
Financial services income 184 169 9%
Administration costs (111) (97) -14%
Operating profit before exceptional items 73 72 1%
Exceptional items (14) — —
Operating profit before tax 59 72 -18%
Tax (20) (20) 0%
Operating profit after tax 39 52 -25%
AD Botha (Anton)
PJ Cook (Peter)
NA Siebrits (Nico) (Alternate to PJ Cook)
ERM Field (Eric)
R Masson (Ronnie)
AL Müller (Dolf )
DK Smith (Desmond)
Prof S Vil-Nkomo (Sibusiso)
DIRECTORS
ERM Field (Eric)
AL Müller (Dolf )
NA Siebrits (Nico)
AUDIT COMMITTEE
M A N A G I N G D I R E C T O R
BANUS VAN DER WALT (50)
BEcon (Hons)
(32 years)
g e n s e c u n d e r w r i t i n g ,
c o r p o r a t e a n d o t h e r
a c t i v i t i e s
P A G E 5 5
In its equity underwriting business, Gensec utilises its own
capital for selective underwriting of large transactions and
bought deals both locally and internationally. Our clients are
mainly large South African corporates and investment banks.
Generally, the capital markets were very quiet during
2000 as corporate clients waited for stronger markets to
raise capital. Profits realised on positions held at the start
of the year and Gensec’s participation in a limited number
of successful underwriting transactions, contributed
R168 million to the net divisional profit before
exceptionals of R163 million for the year.
The Corporate division, which consisted of trading, private
equity investments, corporate cash and corporate expenses,
incurred a loss of R5 million before exceptional items. At
31 December 2000, corporate assets of the Gensec group
consisted of a portfolio of private equity investments
(R756 million) and other local investments (R918 million)
and international (R919 million) cash and near cash
holdings.
The trading activities, which incurred a
R102 million loss in the first half of the year, were
discontinued and the entire portfolio liquidated.
The selling off of this portfolio rendered a small profit
of R6 million in the second half of the year. Losses of
R131 million were incurred during the first half of the
year on private equity investments but recovered during
the second half with a profit of R67 million resulting in a
loss for the full year of R64 million. The international
cash holdings benefited in Rand terms from the
depreciation of the South African currency and boosted
interest income on cash holdings to R164 million.
Included in administration costs are the corporate
expenses of the Gensec group of R9 million. Exceptional
costs of R41 million include restructuring costs resulting
from the acquisition of the Gensec minorities by Sanlam
and expenses related to international acquisitions.
GENSEC PROPERTY SERVICES –
EXECUTIVE COMMITTEE
G van Zyl (Gerhard) (41)BSc Eng (Hons), MBA
Executive Director
(9 years)
HJ Mocke (Hugo) (45)BCom, MBA
Asset Management
(25 years)
A le Roux (Alan) (41) BSc, Eng (Hons)
Western Cape Region
(8 years)
M de K Rall (Kokkie) (53) BJuris
Facilities
(17 years)
G Kirchner (Gerhard) (48) MSc, Eng
Portfolio Management
(11 years)
S Pieterse (Steyn) (55) BCom, BSc Building Management
Gauteng North region
(1 year)
V de Stadler (Vic) (41)
Gauteng South region
(20 years)
TI Mvusi (Themba) (46) BA
Marketing
(2 years)
E van Niekerk (Rassie) (47)BEcon
KwaZulu Natal region
(21 years)
M van der Walt (Marna) (32) CA(SA), MCom
Finance
(5 years)
INCOME STATEMENT
R million 2000 1999 Variance
Fee income 3 29 -90%
Investment profits 163 305 -47%
Net interest income 40 (118) 134%
Financial services income 206 216 -5%
Administration costs (43) (36) -19%
Profit before exceptional items 163 180 -9%Exceptional items (41) — —
Operating profit before tax 122 180 -32%
Tax 4 162 -98%
Operating profit after tax 126 342 -63%
facilities on the Web. Sanlam
Health developed a new low-cost
product for Topmed to fill the
gap in the market for affordable
but quality health care and plan
to market this product
aggressively in the coming year.
FINANCIAL REVIEW
Income decreased by 8% as a
result of membership losses in the
retail business (Topmed and
Selfmed). Quality health-care
management and administration
contributed to the slight
improvement in the claims ratio
to 95,8% (1999: 96,1%). Due to
s a n l a m h e a l t h
PURSUING GROWTH
OPPORTUNITIES
C H I E F E X E C U T I V E
JOHAN DU PREEZ (35)
MPharm, MBA
(4 years)
P A G E 5 6
role player in the wholesale
market during the year by
applying its knowledge-based
skills and systems to enhance its
products in order to meet market
demands. Sanlam Health’s core
competency in this area provides
a competitive advantage and will
support the growth of its client
base in the future. Notable value-
added client services initiatives for
the year include Sanlam Health’s
WAP-enabled provider directory,
comprehensive online interaction
for members and intermediaries
with scheme administrators as
well as pre-authorisation tracking
OPERATIONAL REVIEW
The medical scheme industry has
undergone significant changes in
the past year. Amendments to the
Medical Schemes Act introduced
community rating and open
enrolment, which are threatening
the solvency of schemes. A key
focus area was to provide
innovative risk management
services to scheme clients to
protect their solvency. Sanlam
Health positioned itself as a key
NATURE OF BUSINESS
Sanlam Health focuses on
providing medical risk
management services to
medical schemes (wholesale
business). Its Solutio product
takes managed health care a
step further by guaranteeing
the outcome of managed care
initiatives and thereby capping
the risks of certain major
medical expenses of schemes.
Sanlam Health also provides
administration, scheme
management and marketing
services to Topmed and
Selfmed (retail business).
P A G E 5 7
effective cost management, the administration
cost ratio improved from 19,3% in 1999 to 16,3%
in 2000. The surplus of outsourcing and
restructuring provisions created in the past was
reversed and an Aids reserve of R5 million was
created. An operating profit of R15 million was
achieved for the year (1999: R11 million).
PROSPECTS FOR 2001
Although profitability was maintained with
Sanlam Health’s current business volumes, Sanlam
Health’s key focus area for 2001 is to grow its
wholesale client base and to increase margins on
current and new business. Further challenges are
to convert Sanlam Health’s extensive knowledge
capital into new revenue streams and to pursue
structural growth opportunities.
INCOME STATEMENT
R million 2000 1999 Variance
Underwriting risk premiums 668 700 -5%
Fee income 93 109 -15%
Interest income 22 45 -51%
Financial services income 783 854 -8%
Underwriting policy benefits (640) (673) 5%
Administration costs (128) (165) 22%
Profit before exceptional items 15 16 -6%
Exceptional items — (5) 100%
Operating profit before tax 15 11 36%
FINANCIAL RATIOS
Percentage 2000 1999
Claims ratio 95,8% 96,1%
Admin costs to income 16,3% 19,3%
Operating profit to income 1,9% 1,3%
EXECUTIVE COMMITTEE
RW Schnetler (Rudolf ) (40) BCom
Information Technology
(12 years)
DC Steyn (Dirk) (32) BCom (Hons)
Strategic Initiatives
(8 years)
K White (Kobus) (40) BCom (Hons)
Medical Schemes
(7 years)
DG Fredericks (Desmond) (35) BAdmin
Scheme Marketing and Sales
(1 year)
H Louw (Hanneke) (29) CA(SA)
Finance
(4 years)
GE Rudman (George) (Chairman)
J v D du Preez (Johan)
P de V Rademeyer (Flip)
PC le Roux (Charl)
PEI Swartz (Peter)
Prof P Smit (Flip)
DIRECTORS
P de V Rademeyer (Flip) (Chairman)
PC le Roux (Charl)
GE Rudman (George)
AUDIT COMMITTEE
1 574
SP2 FUNDS
UNDER
MANAGEMENT
(R million)
1998 1999 2000
3 618
4 907 linked product business into
Innofin. SP2, previously one of
the product providers of SPF, was
managed as a separate business
during 2000 and formed part of
New Business Development.
SP2 embarked on several
successful product initiatives
during the year to meet market
demands. Included in these
initiatives is a unique combina-
tion of private share portfolios
with retirement funds and living
annuities, a combination of
guarantees with unit trust funds,
the launch of offshore wrap
Innofin will be a South African
investment and portfolio
management services business
targeting the high net worth
market. This will focus on
innovative products and excep-
tional service to clients. The
launch of the first product is
planned for the first half of 2001.
SANLAM PERSONAL
PORTFOLIOS (SP2)
Sanlam Personal Portfolios (SP2),
is the linked product provider in
the Sanlam group. It is the
intention to incorporate the
INNOFIN
New Business Development was
established to increase Sanlam’s
focus on growth in the high net
worth individual market. A joint
venture agreement with
Macquarie Bank was signed on
27 February 2000 to form
Innofin (Pty) Ltd. Macquarie
Bank is a leading Australian
financial services group that has
developed extensive expertise
and a strong reputation in
Australia for product innovation
and excellent client service.
targeting the high net worth market with
innovative products and expert service
n e w b u s i n e s s d e v e l o p m e n t
P A G E 5 8
funds, an automatic fee discount for existing
clients and combined reporting of all products
per client on one statement.
SP2 will continue with new initiatives in
2001. New offshore products will be developed
and launched during the year to further address
market demand. The introduction of interactive
voice response technology in the new call centre
is planned in order to further improve service to
clients and intermediaries. Increased focus on
tools for intermediaries to assist them with
improved service to their clients and further
improvement in Internet functionality to enable
those clients and intermediaries
who want to transact on-line with SP2.
SP2/Innofin are creating a work
environment conducive to innovation and
excellent customer service by attracting and
developing a diverse group of people.
Employment equity is a business imperative
to build our human resource capabilities and
competitive business.
Despite volatile market conditions, inflows
to SP2 increased by 4% to R2 449 million
compared to 1999. Market share of net inflows
remained at the high levels of 1999 resulting in
continuous growth of market share in respect of
funds under management.
Exceptional items consist of systems and
development costs relating to the set-up and
development costs in respect of Innofin and to a
lesser extent SP2.
INCOME STATEMENT – SP2 AND INNOFIN
R million 2000 1999 Variance
Fee and other income 59 43 37%
Sales expenses (18) (13) -38%
Administration expenses (35) (24) -46%
Operating profit before exceptional items 6 6 —
Exceptional items (29) (4) —
Operating profit before tax (23) 2 —
P A G E 5 9
SUPPORT SERVICES
AS du Plessis (Attie) (57)
CA(SA), Adv Dip Tax Law,
AMP (Harvard), AEP (Unisa)
Executive Director
(15 years)
JD Venter (Kobus) (41)
BSc
Group IT
(17 years)
PJ Cook (Peter) (54)
BSc.Eng (Mining), MBA
Group Risk Manager
(3 years)
JP Bester (Johan) (48)
BCom (Hons), CA(SA), AEP (Unisa)
Company Secretary
(20 years)
V van Vuuren (Vic) (43)
BJuris, AEP (Unisa)
Human Resources
(4 years)
NAMIBIA
VR Rokoro (Vekuii) (46)
LLM
Managing Director:
Sanlam Namibia Limited
CORPORATE
• A c t u a r i a l
CG Swanepoel (Chris) (50)
BSc (Hons), FIA, FASSA
Chief Actuary
(29 years)
• F i n a n c e
P de V Rademeyer (Flip) (53)
CA(SA), SEP (Stanford)
Financial Director
(3 years)
DG Claassen (Danie) (36)
CA(SA), BCom (Hons) (Taxation)
Tax Services
(9 years)
L van der Walt (Lukas) (40)
BCom (Hons), CA(SA)
Corporate Finance
(2 years)
WJ Harris (Wally) (41)
CA(SA)
Financial Accounts
(13 years)
HS Malherbe (Helet) (31)
CA(SA)
Investor Relations
(6 years)
AC Nortier (André) (30)
CA(SA)
Chief Internal Auditor
(5 years)
• P u b l i c A f f a i r s
L Koen (Leon) (57)
BA, STD (US) B.Ed (UPE),
MPA (UPE), APR
(17 years)
s a n l a m c o r p o r a t e , s u p p o r t s e r v i c e s a n d n a m i b i a
P A G E 6 0
Sanlam joined hands with the
Eastern Cape community to develop
an Aids education programme
Ernie Els is patron of the Sanlam Cancer Golf Challenge through which
R1 million is donated to the National Cancer Association annually
c o r p o r a t e s o c i a l i n v o l v e m e n t a n d s p o n s o r s h i p s
P A G E 6 1
Big guy Moshe
leading his cast in
Takalani Sesame
The Sanlam Rescuer
is operated by the
National Sea Rescue
Institute in
Gordons Bay
The Sanlam Restoration
Programme restored this
fisherman’s cottage at
Waenhuiskrans to its
original state
The main thrust of our endeavours in this field is the empowerment of people. During the past year
we expanded our major initiatives to support the development of school readiness through the
television, radio and outreach programme Takalani Sesame – a South African version of the world
acclaimed TV series Sesame Street. Entrepreneurship is being developed through the Sanlam
Foundation for Future Business Leaders. In addition, we are a substantial contributor to The
Business Trust that works closely with partner organisations to create employment opportunities, to
develop education and to reduce crime.
Sanlam supported numerous projects and programmes last year and we remain committed to
allocating available resources to initiatives that will positively influence the lives and aspirations of all
South Africans.
Golf
Dig
est
P A G E 6 2
c o r p o r a t e s o c i a l i n v o l v e m e n t a n d s p o n s o r s h i p s
c o n t i n u e d
Former President
Nelson Mandela
officially opened
the centre for
disabled children
in Umtata which
was funded
by Sanlam
In search of South Africa’s Tiger Woods.
Sanlam is a major sponsor of the SA
Golf Development Board
Young entrepreneurs were
awarded for their business ideas
at the convention of the
Sanlam Foundation for
Future Business Leaders
Sanlam was the official sponsor of the
African Cup of Nations for Women in 2000
The Sanlam/Burger annual
cycling tour attracts
thousands of entries
P A G E 6 3
Sanlam is one of South Africa’s major
corporate art collectors with more than
1 500 works. These are regularly exhibited
nationally and at the Sanlam Art Gallery
in Bellville.
Published manuscripts
of finalists in the
Sanlam Competition
for Youth Literature
The annual Sanlam Music
Competition for Primary Schools
draws many talented entries from
across the country
Thomas Bains
Gerard Sekoto
PA G E 7 5
Group Balance Sheets
PA G E 7 6
Group Statements of Changes in
Equity
PA G E 7 7
Group Cash Flow Statements
PA G E 7 8
Notes to the Group Financial
Statements
PA G E 9 9
Principal Subsidiaries
PA G E 1 0 0
Sanlam Limited Financial
Statements
PA G E 1 0 2
Financial Information for the
Shareholders’ Funds
co
nte
nts
A FUTURE
FILLED WITH
GROWTH
Sanlam Limited andSanlam Life
Insurance LimitedPA G E 6 5
Directors’ Responsibility for
Financial Reporting
PA G E 6 5
Certificate by Company Secretary
PA G E 6 6
Report of the Statutory Actuary
PA G E 6 6
Report of the Independent
Auditors
PA G E 6 7
Directors’ Report
PA G E 6 8
Basis of Presentation and
Accounting Policies
PA G E 7 4
Group Income Statements
a n n u a l f i n a n c i a l s t a t e m e n t s
P A G E 6 4
d i r e c t o r s ’ r e s p o n s i b i l i t y f o r f i n a n c i a l r e p o r t i n g
The Boards of Sanlam Limited and Sanlam Life Insurance Limited accept responsibility for the integrity, objectivity and
reliability of the group and company financial statements of Sanlam Limited and Sanlam Life Insurance Limited respectively.
Adequate accounting records have been maintained. The Boards endorse the principle of transparency in financial reporting.
The responsibility for the preparation and presentation of the financial statements has been delegated to management.
The responsibility of the external auditors is to express an independent opinion on the fair presentation of the financial
statements based on their audit of Sanlam Limited, Sanlam Life Insurance Limited and their subsidiaries.
The audit committee has confirmed that adequate internal financial control systems are being maintained. There were no
material breakdowns in the functioning of the internal financial control systems during the year. The Boards are satisfied that the
financial statements fairly present the financial position, the results of operations and cash flows in accordance with relevant
accounting policies, based on South African Statements of Generally Accepted Accounting Practice.
The Boards are of the opinion that Sanlam Limited and Sanlam Life Insurance Limited are financially sound and operate as
going concerns. The financial statements have accordingly been prepared on this basis.
The financial statements on pages 67 to 111 were approved by the Boards and signed on their behalf by:
MH Daling P de V Rademeyer
Executive Chairman Financial Director
7 March 2001
P A G E 6 5
c e r t i f i c a t e b y c o m p a n y s e c r e t a r y
In my capacity as Company Secretary, I hereby certify, in terms of the Companies Act, 1973, that for the year ended
31 December 2000, the company has lodged with the Registrar of Companies all such returns as are required of a public company
in terms of this Act, and that all such returns are, to the best of my knowledge and belief, true, correct and up to date.
JP Bester
Company Secretary
7 March 2001
r e p o r t o f t h e s t a t u t o r y a c t u a r y
FINANCIAL SOUNDNESS VALUATION
I have valued the policy liabilities on bases (set out on pages 71 to 73 and note 19 on pages 89 to 92) consistent with the fair value
of the corresponding assets. The valuation was conducted in accordance with the applicable guidelines of the Actuarial Society of
South Africa. As at 31 December 2000, the operations of Sanlam Life Insurance Limited were financially sound and the excess of
the assets over the liabilities of Sanlam Life Insurance Limited was more than sufficient to cover its capital adequacy requirements.
In my view, the financial statements fairly present the financial position of Sanlam Life Insurance Limited as at 31 December 2000.
EMBEDDED VALUE
In my view, the Sanlam Group embedded value and the value of new life insurance business as set out on pages 114 to 118, fairly
present these values as defined.
CG Swanepoel FIA, FASSA
Statutory Actuary
Sanlam Life Insurance Limited
7 March 2001
r e p o r t o f t h e i n d e p e n d e n t a u d i t o r s
TO THE MEMBERS OF SANLAM LIMITED AND SANLAM LIFE INSURANCE LIMITED
We have audited the annual financial statements of Sanlam Limited and the group annual financial statements of Sanlam Limited
and Sanlam Life Insurance Limited for the year ended 31 December 2000 as set out on pages 67 to 111. These annual financial
statements are the responsibility of the directors of Sanlam Limited and Sanlam Life Insurance Limited. It is our responsibility to
express an opinion on these financial statements based on our audit.
SCOPE
We conducted our audit in accordance with statements of South African Auditing Standards. These standards require that we
plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.
An audit includes:
• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;
• assessing the accounting principles used and significant estimates made by management; and
• evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
AUDIT OPINION
In our opinion, the annual financial statements of Sanlam Limited and the group annual financial statements of Sanlam Limited
and Sanlam Life Insurance Limited fairly present in all material respects the financial position of the company and groups at
31 December 2000 and the results of their operations and cash flows for the year then ended in accordance with South African
Statements of Generally Accepted Accounting Practice, and in the manner required by the Companies Act in South Africa.
Ernst & Young Chartered Accountants (SA) PricewaterhouseCoopers Inc.
Registered accountants and auditors
Bellville
7 March 2001
P A G E 6 6
d i r e c t o r s ’ r e p o r t
for the year ended 31 December 2000
NATURE OF BUSINESS
The Sanlam Group is one of the largest established financial
services groups in South Africa. Its core activities are set out
on page 1.
CORPORATE GOVERNANCE
The Board of Sanlam endorses the Code of Corporate
Practice and Conduct recommended in the King Report on
Corporate Governance and has satisfied itself that Sanlam
consistently complied with the Code during 2000. The
corporate governance statement is set out on pages 24 to 26.
GROUP RESULTS
Headline earnings based on the long term rate of return basis
increased from R2 721 million (102,1 cents per share) in
1999 to R3 478 million (130,9 cents per share) in 2000.
Further details regarding the Group’s results are included in
the report of the financial director on pages 16 to 23 and the
business reviews on pages 30 to 59.
SHARE CAPITAL
There were no changes in the authorised and issued share
capital of the company during the financial year.
DIVIDENDS AND DIVIDEND POLICY
It is the Board’s intention to declare only annual dividends
and to maintain a three and a half to four and a half times
dividend cover on headline earnings based on the long term
rate of return. The objective of the Board is to achieve stable
growth in dividend payments and the dividend pattern will
therefore not strictly follow the earnings pattern. The Board
has declared a dividend of 30 cents per share payable on
16 May 2001 to shareholders registered on 20 April 2001.
SUBSIDIARIES
Details of the company’s principal subsidiaries are set out on
page 99.
DIRECTORS’ INTEREST IN CONTRACTS
No material contracts involving directors’ interest were
entered into in the current year.
INTEREST OF DIRECTORS AND OFFICERS IN
SHARE CAPITAL
The shareholdings, direct and indirect, of the directors and
officers holding office at the date of this report are as follows:
Ordinary shares
Non-
Beneficial beneficial Options
Number of shares 3 087 974 3 575 847 18 718 944
Comprising
Non-executive directors 211 520 8 860 —
Executive directors 1 281 530 3 217 855 11 804 086
Officers 1 594 924 349 132 6 914 858
Disclosures by the directors indicate that at 31 December 2000
and at the date of this report, their interests did not, in
aggregate, exceed 5% in respect of either the share capital or
voting control of the company. No material change in the
foregoing interests has taken place between 31 December 2000
and the date of this report.
DIRECTORS AND SECRETARY
Particulars of the directors and secretary of the company are
set out on pages 4, 5, 12, 15 and 124.
POST-BALANCE-SHEET EVENTS
No material facts or circumstances have arisen between the
dates of the balance sheet and this report which affect the
financial position of the Sanlam Limited group and the
Sanlam Life Insurance Limited group as reflected in these
financial statements.
By order of the Board
JP Bester
Secretary
7 March 2001
P A G E 6 7
b a s i s o f p r e s e n t a t i o n a n d
a c c o u n t i n g p o l i c i e s
BASIS OF PRESENTATION
POLICYHOLDERS’ AND SHAREHOLDERS’ ACTIVITIES
The activities of the policyholders and shareholders in respect
of life insurance business are conducted in Sanlam Life
Insurance Limited. The assets, liabilities and activities of these
two groups of stakeholders are managed separately and are
governed by the valuation bases for policy liabilities and
profit entitlement rules which are determined in accordance
with prevailing legislation and generally accepted actuarial
practice and the stipulations contained in the demutuali-
sation proposal. The accounting policies in respect of policy
liabilities and profit entitlement are set out on pages 71 to 73.
The group financial statements set out on pages 74 to 98
include the consolidated activities of the policyholders and
shareholders of Sanlam Life Insurance Limited. Separate
financial information on the activities of the shareholders of
the Sanlam Limited group is disclosed on pages 103 to 119.
FUNDS RECEIVED FROM CLIENTS
Funds received from clients consist of single and recurring
long- and short-term insurance premium income which is
included in the financial statements and unit trust
contributions, inflow for assets managed and administered
on behalf of clients and non-life insurance linked-product
contributions, which are not included in the financial
statements as they are funds held on behalf of and at the
risk of clients. Internal transfers between the various types
of business, other than those transacted at arm’s length,
are eliminated.
FINANCIAL SERVICES INCOME
Financial services income for the shareholders consists of:
• income earned from long-term insurance activities such as
investment and administration fees, risk underwriting
premiums, asset mismatch profits or losses and income
earned on working capital;
• income from short-term health, medical insurance and
general insurance business; and
• income from other financial services such as banking,
equity and underwriting activities, unit trust
administration, trust services and linked-product business.
SEGREGATED FUNDS
Sanlam also manages and administers assets for the account of
and at the risk of clients. As these are not the assets of the Sanlam
Group, they are not reflected in the Sanlam Group balance
sheet but are disclosed in a footnote to the balance sheet.
TERM FINANCE
The portion of term finance which is repayable within one
year is not transferred to current liabilities. This is consistent
with the treatment of investments redeemable within one
year that are not included in current assets.
COMPARATIVES
Where necessary, comparative figures have been adjusted to
conform with changes in presentation in the current year.
ACCOUNTING POLICIES
The Sanlam Limited group and Sanlam Life Insurance
Limited group financial statements are prepared applying the
principal accounting policies below, which are in accordance
with and comply with South African Statements of Generally
Accepted Accounting Practice, and some of which apply
specifically to the life insurance industry. The accounting
policies applied in preparing the financial statements are
consistent with those of the previous year except for the
treatment of goodwill, the introduction of the long term rate
of return adjustment and equity accounting the interest in
Santam and Gensec by Sanlam Life Insurance Limited
described below.
BASIS OF CONSOLIDATION
The results of consolidated subsidiaries are included from the
effective dates of acquisition to the effective dates of disposal.
All material inter-company profits and losses are eliminated
from the group results. Inter-company transactions at arm’s
length and where there is no effect on the Group’s net
earnings, are not eliminated from the results.
Sanlam Limited and its subsidiaries acquired all of the
shares in Gensec which it and its subsidiaries did not already
own with effect from 31 December 2000. (Refer to page 19
for details of this transaction.) As a result, Sanlam Life
Insurance Limited holds a controlling interest in Gensec.
This controlling interest is intended to be temporary
pursuant to the integration of the Gensec operations into the
Sanlam Group and therefore has not been consolidated in the
Sanlam Life Insurance Limited group financial statements
and is treated as an unlisted associated company.
ASSOCIATED COMPANIES
An associated company is a company, not being a subsidiary,
in which the Sanlam Group has a long-term investment and
over which it has the ability, because of the extent of its
investment, to exercise significant influence.
P A G E 6 8
The results of associated companies have been accounted
for using the equity method of accounting, where the Group’s
share of the associated companies’ earnings before dividends
is included in earnings. The equity-accounted earnings are
included in investment income with a corresponding
adjustment to the carrying value of the investment in
associated companies. This carrying value is adjusted to fair
value with a corresponding adjustment to investment
surpluses on the investment in associated companies in the
income statement.
The above policy has been applied by Sanlam Life
Insurance Limited in respect of its interest in Santam, Gensec
and ABSA. Previously its interests in Santam and Gensec
were treated as equity investments. The effect of this change
in the income statement is that investment income as
previously disclosed has been increased and investment
surpluses on the investment in associated companies has been
decreased by a corresponding amount.
GOODWILL
Goodwill may arise on the acquisition or change in the
holding ("adjustment") in a subsidiary company. It represents
the excess of the cost of an acquisition or adjustment over the
fair value of the Group’s share of the net assets of the
subsidiary at the date of acquisition or adjustment.
The accounting policy in respect of goodwill has been
changed during the current year to comply with the new
Accounting Statement implemented in South Africa (AC 131)
and it is now written off on a straight-line basis over the lesser
of its estimated useful life or twenty years. This policy has
been applied prospectively. In the past goodwill was written
off against share premium where the acquisition or
adjustment was financed by a share issue and in all other cases
it was written off against unrealised investment surpluses.
The carrying amount of goodwill is reviewed annually
and is written down for impairment where this is considered
necessary.
In certain instances, a portion of the Sanlam Group’s
interest in consolidated subsidiaries is held by the
policyholders’ fund of Sanlam Life Insurance Limited to fund
future benefits in terms of its policyholders’ contracts. The
excess of the fair value of the policyholders’ interest in these
consolidated subsidiaries over their proportionate share of the
subsidiaries’ net assets (including unamortised purchased
goodwill) included in the group financial statements, is
recognised in the group balance sheet as equity investments.
INTANGIBLE ASSETS
No value is attributed to internally developed trademarks or
similar rights and assets. Costs incurred on these items,
whether purchased or created by the Group, are charged to
the income statement in the period in which they are incurred.
INVESTMENTS
Investments are reflected at fair value, which has been
determined on the following bases:
• The value of fixed property, including the Head Office
building, which generates income is determined by
discounting expected future cash flows at appropriate
market interest rates. Other fixed property is valued at cost
less provision for impairment in value, where appropriate;
• Listed shares and units in unit trusts are valued at the stock
exchange and repurchase prices respectively. The value of
unlisted shares is determined by the directors using
appropriate valuation bases;
• Interest-bearing investments are valued by discounting
expected future cash flows at appropriate market interest rates;
• Listed derivative instruments are valued at the South
African Futures Exchange price and the value of unlisted
derivatives is determined by the directors using generally
accepted models.
Loans of investment scrip to and from third parties are
not treated as sales and purchases.
Shares held in Sanlam Limited by subsidiary companies
are eliminated on consolidation where these shares are held
by the shareholders’ fund of the Sanlam Limited group.
Where these shares are held as investments for policyholder
benefits they are not eliminated on consolidation but
reflected at fair value as equity investments in the
balance sheet.
INVESTMENT RESERVE
Net realised and unrealised investment surpluses on the
revaluation or sale of investments attributable to shareholders
are transferred to an investment reserve. However, the Board
may transfer realised investment surpluses to retained
income. A negative investment reserve will not be created and
any shortfall will remain in retained income. Unrealised
investment surpluses in the investment reserve in respect of
investments held for resale are released to operating income
on realisation of these investments.
Realised and unrealised investment surpluses attributable
to policyholders are included in policyholders’ liabilities.
P A G E 6 9
b a s i s o f p r e s e n t a t i o n a n d
a c c o u n t i n g p o l i c i e s – c o n t i n u e d
INVESTMENTS HELD FOR RESALE
Investments held for resale which are expected to be realised
in the longer term, are reflected at fair value, which is
determined on the bases set out above for investments. When
the Group’s holding in equity investments in a particular
security exceeds what the directors regard as being disposable
within a reasonable time horizon, an appropriate liquidity
adjustment is made to determine the fair value.
TRADING ACCOUNT AND MONEY MARKET ASSETS AND
LIABILITIES
Trading account and money market assets and liabilities are
reflected at fair value, which is determined on the bases set
out above for investments.
FIXED ASSETS
Fixed assets are reflected at their depreciated cost prices.
Depreciation is provided for on a straight-line basis, taking
into account the residual value of estimated useful lives of the
assets, which vary from two to twenty years.
PREMIUM INCOME
The full annual premiums on individual insurance policies
that are receivable in terms of the policy contracts are
accounted for on policy anniversary dates, notwithstanding
that premiums are payable in instalments. The monthly
premiums in respect of certain new products are accounted
for when due.
Employee benefits premiums are accounted for when
receivable. Where premiums are not determined in advance
they are accounted for upon receipt.
Short term insurance premiums are accounted for when
receivable, with an appropriate adjustment for unearned
premiums.
Gross premium income is reduced by reinsurance
premiums applicable to the same period.
INVESTMENT RETURN
Investment income
Rental income, including rentals in respect of space occupied
in owned buildings, is reflected net of property expenditure.
Dividend income is recognised once the last day for
registration has passed. Capitalisation shares received in terms
of a capitalisation issue from reserves, other than share
premium or a reduction in share capital, are treated as
dividend income.
Investment income earned on working capital is included
in operating profit.
Investment surpluses
Investment surpluses consist of net realised surpluses on the
sale of investments and net unrealised surpluses on the
valuation of investments to fair value. These surpluses are
recognised in the income statement and policy liabilities on
the date of sale or on the valuation to fair value date.
LONG TERM RATE OF RETURN ADJUSTMENT
The long term rate of return adjustment represents the
difference between the actual investment income and surpluses
earned on shareholders’ funds during the year and the long
term investment return calculated on the basis described
below. The long term investment return is determined by the
directors and is based on historical experience and current
market conditions having regard to inflation expectations and
consensus economic and investment forecasts.
The long term investment return of 13% is calculated on
a monthly basis on the fair value of the investments held in
the shareholders’ fund excluding holdings in subsidiaries and
associated companies. The directors are of the opinion that
this rate of return is prudent and has been selected with a
view to ensuring that investment returns credited to
earnings are consistent with the actual returns expected to
be earned over the long term. (Also refer to page 17 for
further details.)
POLICY BENEFITS
Policy claims received up to the last day of each financial
period and claims incurred but not reported (IBNR) are
provided for and included in policy benefits. Past claims
experience is used as the basis for determining the extent of
the IBNR claims.
Underwriting policy benefits in respect of long-term
insurance business also include the movement in the actuarial
liabilities backing the risk underwriting business.
Policy benefits are reflected net of amounts recovered from
reinsurers.
SALES REMUNERATION
Sales remuneration consists of commission payable to
non-salaried sales staff on new insurance business, including
renewal commission, and expenses directly related thereto,
bonuses payable to sales staff and the Group’s contribution to
their retirement and medical aid funds.
Commission is generally payable in the first and second
year of a policy’s existence. Commission is accounted for in
the financial period during which it is incurred.
P A G E 7 0
ADMINISTRATION COSTS
Administration costs include, inter alia, indirect taxes such as
revenue stamps payable on insurance policy contracts and
VAT, rental of space occupied in own buildings which are
held mainly as property investments of policyholders,
property and investment expenses related to the management
of the policyholders’ investments, product development and
training costs. Internal systems development costs and
purchased systems costs are included in administration
expenses when incurred.
DEFERRED INCOME TAX
Deferred income tax is provided at current tax rates using the
liability method for all temporary differences arising between
the tax bases of assets and liabilities and their carrying values
for financial reporting purposes. Deferred tax assets relating
to unused tax losses are recognised to the extent that it is
probable that future taxable profit will be available against
which the unused tax losses can be utilised.
FOREIGN CURRENCIES
Assets and liabilities in foreign currencies are converted to
South African rand at exchange rates ruling at the financial
period end. Differences arising from this translation is
included in investment surpluses as substantially all foreign
assets and liabilities are in respect of investments. Foreign
currency income items are translated at the weighted average
exchange rates for the period.
FOREIGN OPERATIONS
Income statement items of foreign operations are translated
into South African rand at the rates of exchange ruling at the
dates the income and expenses and cash flows are incurred. The
rate of exchange ruling at the transaction date is used for non-
monetary balance sheet items and the closing rate for monetary
items. Differences arising on translation are recognised in the
income statement in the year in which they arise.
RETIREMENT BENEFITS
Retirement benefits for employees are provided by a number
of defined benefit and defined contribution pension and
provident funds. The assets of these funds, including those
relating to any actuarial surpluses, are held separately from
those of the Group. The retirement plans are funded by
payments from employees and the relevant group companies,
taking into account the recommendations of independent
actuaries. The Group’s contributions to the defined
contribution and defined benefit funds are charged to the
income statement in the year in which they are incurred.
For the purpose of calculating pensions, medical
contributions are deemed to be a part of pensionable salary.
Retirement fund contributions are made on these increased
amounts. Therefore pensioners will fund post-retirement
medical contributions from the increased pensions. The
Group has provided in full for its medical contribution
commitments in respect of a small number of employees who
are not covered by the last mentioned. The group’s
contributions to medical funds are charged to the income
statement in the year in which they are incurred.
EQUIVALENT CASH FLOWS
Unrealised investment surpluses arising on the valuation to fair
value of investments have the same nature and financial effect
as realised investment surpluses, as investments are reflected at
fair value in the financial statements. For the purposes of the
cash-flow statement and consistent with the treatment of
realised investment surpluses, unrealised investment surpluses
arising on the valuation to fair value of investments and
investments held for resale are treated as equivalent cash flows.
POLICY LIABILITIES AND PROFIT
ENTITLEMENT
INTRODUCTION
The valuation bases used to calculate the policy liabilities
of all material lines of long-term insurance business and
the corresponding shareholder profit entitlement are set
out below.
The actuarial valuation of the policy liabilities is
determined using the financial soundness valuation method.
Under this method either a retrospective or prospective
approach can be used. The underlying philosophy is to
recognise profits prudently over the term of each contract
consistent with the work done and risk borne.
Policy liabilities are valued on bases consistent with the
fair value of assets. The liabilities exceeded the minimum
requirements in terms of actuarial guidance note PGN 104
issued by the Actuarial Society of South Africa ("ASSA").
In the valuation of liabilities, provision is made for:
• The best estimate of future experience;
• The margins prescribed in the ASSA guidelines; and
• Second-tier margins determined to release profits to
shareholders consistent with policy design and company policy.
No provision has been made for capital gains tax in the
financial soundness valuation.
P A G E 7 1
b a s i s o f p r e s e n t a t i o n a n d
a c c o u n t i n g p o l i c i e s – c o n t i n u e d
APPLICATION OF VALUATION METHODOLOGY
The valuation methodology has been consistently applied for
1999 and 2000. The changes in the discount rates, bonus rates
and other assumptions in general did not have a material net
effect on the liabilities and the earnings reported for 2000.
BEST ESTIMATE OF FUTURE EXPERIENCE
The best estimate of future experience is determined as follows:
• Unit expenses are based on the recent experience of Sanlam
Life Insurance Limited on a going-concern basis and
escalated at estimated inflation rates per annum;
• Assumptions with regard to future surrender, lapse,
mortality, medical claim, disability and disability payment
termination rates are consistent with the rates experienced
over the recent past; and
• Future investment return assumptions are consistent with
market-related interest rates.
REVERSIONARY BONUS BUSINESS
The liability is set equal to the fair value of the underlying
assets. This is equivalent to a best estimate prospective
liability calculation using a bonus rate supportable by the
underlying assets and expected future investment returns,
and allowing for the shareholders’ share of a maximum of
one-ninth of these costs of the bonus.
The present value of the shareholders’ entitlement is
sufficient to cover the margins prescribed in the ASSA
guidelines for the valuation of policy liabilities. The
prescribed margins are thus not provided for in addition to
the shareholders’ entitlement.
INDIVIDUAL STABLE BONUS AND MARKET-
RELATED BUSINESS
For investment policies for which the bonuses are stabilised
or directly related to the return on the underlying investment
portfolios, the liabilities are equated to the retrospectively
accumulated fair value of the underlying assets less any
unrecouped expenses. These retrospective liabilities are higher
than the prospective liabilities calculated as the present value
of expected future benefits and expenses less future premiums
at market-related interest rates, net of expected income tax.
The prospective liabilities provided for bonus rates which are
supportable by the underlying assets and expected future
investment returns.
To the extent that the retrospective liabilities exceed the
prospective liabilities, the basis contains second-tier margins.
The valuation methodology results in the release of these
margins to shareholders on a fees minus expenses basis
consistent with the work done and risks borne over the
lifetime of the policies.
GROUP STABLE BONUS AND LINKED BUSINESS
In the case of group linked business and group policies where
bonuses are stabilised, the liabilities are equated to the fair
value of the retrospectively accumulated underlying assets.
To the extent that future fees exceed expenses, including
allowance for the prescribed ASSA margins, the basis contains
second-tier margins. These margins are released to
shareholders consistent with the work done and risks borne
over the lifetime of the policies.
PARTICIPATING ANNUITIES
The liabilities are equated to the fair value of the
retrospectively accumulated underlying assets. This is
equivalent to a best estimate prospective liability calculation
allowing for future growth in annuity instalments supportable
by the underlying assets and expected future investment
returns. This approach implicitly allows for the effect of the
margins prescribed in the ASSA guidelines.
Shareholder entitlements emerge on a fees minus
expenses basis consistent with work done and risks borne over
the lifetime of the annuities.
NON-PARTICIPATING ANNUITY BUSINESS
Non-participating life and term annuity instalments and
future expenses in respect of these instalments are discounted
at market-related interest rates. All profits or losses accrue to
the shareholders when incurred.
GUARANTEED PLANS
Guaranteed maturities are discounted at market-related
interest rates. All profits or losses accrue to the shareholders
when incurred.
OTHER NON-PARTICIPATING BUSINESS
The majority of the other non-participating business liabilities
is valued on a retrospective basis. The remainder (less than 1%
of Sanlam Life Insurance Limited’s liabilities) is valued
prospectively and contains second-tier margins via an explicit
interest rate deduction of approximately 2,75% on average.
For non-participating business other than life and term
annuity business, an asset mismatch provision is maintained.
The interest and asset profits arising from the non-
participating portfolio are added to this provision. The asset
P A G E 7 2
mismatch provision accrues to shareholders at the rate of
1,33% monthly, based on the balance of the provision at the
end of the previous quarter. The effect of holding this
provision is to dampen the impact on earnings of short-term
fluctuations in fair values of underlying assets. The asset
mismatch provision represents a second-tier margin.
A negative asset mismatch provision will not be created.
The shortfall will accrue to shareholders in the year in which
it occurs.
HIV/Aids
A specific provision for HIV/Aids-related claims is
maintained. The provision for individual policies (more than
85% of the total HIV/Aids provision) is built up by
increasing the opening provision by the HIV/Aids risk
premiums and investment returns on the underlying assets.
It is then reduced by claims attributable to HIV/Aids.
This retrospectively built-up provision is higher than a
prospective calculation done according to the ASSA
guidelines allowing for possible increases in future HIV/Aids
risk premiums. This difference can be regarded as a second-
tier margin. It is the intention of Sanlam Life Insurance
Limited to re-rate premiums as experience develops.
Premium rates for group business are reviewed more
frequently. An HIV/Aids provision equivalent to twice the
expected Aids claims in a year is maintained for group
business as up to two years may elapse before premium rates
and underwriting conditions may be suitably adjusted.
WORKING CAPITAL
To the extent that the management of working capital gives rise
to profits, no credit is taken for this in determining the policy
liabilities. This could be viewed as a second-tier margin.
ASSET FUNDS
Separate asset funds are maintained for each of the major
lines of business. Operating costs are allocated to the major
lines of business by reference to the accounting records.
Bonus rates are declared for each class of participating
business in relation to net investment return earned on the
assets of the particular investment portfolio.
BONUS STABILISATION RESERVES
The group and individual stabilised bonus portfolios are
valued on a retrospective basis. If the fair value of the assets in
such a portfolio is greater than the net premiums invested
plus declared bonuses, a positive bonus stabilisation reserve is
created which will be used to enhance future bonuses.
Conversely, if assets are less than the net premiums invested
plus declared bonuses, a negative bonus stabilisation reserve is
created. A negative bonus stabilisation reserve will be limited
to the amount that will be recovered through the distribution
of lower bonuses during the ensuing three years, provided
that the Statutory Actuary is satisfied that, if market values of
assets do not recover, future bonuses will be reduced to the
extent necessary.
CAPITAL ADEQUACY REQUIREMENTS
The excess of assets over liabilities of Sanlam Life Insurance
Limited’s operations is sufficient to cover its capital adequacy
requirements. The capital adequacy requirements provide a
buffer against experience worse than that assumed in the
financial soundness valuation. Consistent with an assumed
fall in the fair value of the assets, which is prescribed in the
ASSA guidance notes, the calculation of the capital adequacy
requirements takes into account a reduction in non-vesting
bonuses and future bonus rates. The assumed reduction in
bonuses and other assumed management actions varied
at the 1999 and 2000 year-ends, according to the level of
the fair value of assets at these dates relative to the expected
asset values.
The largest element of the capital adequacy requirements
relates to stabilised bonus business.
For individual stabilised bonus business the assumed
management actions will be to eliminate within three years
the larger of (in absolute terms):
• any negative bonus stabilisation reserve; and
• 35% of the aggregate value of the bonus stabilisation
reserve plus the effect of the assumed asset drop where the
assumed asset drop is taken as a negative figure.
No such management action will apply if the positive
bonus stabilisation reserve exceeds the assumed asset drop.
For group stabilised bonus business the aim is to
eliminate within three years the absolute value of any negative
bonus stabilisation reserve, including the increase that results
from the resilience scenario, by way of a reduction in future
bonus rates. The extent to which reductions in future bonuses
can be used for management actions is assumed to be limited
to 60% of the expected long-term bonus rate declared for a
fully funded position.
P A G E 7 3
g r o u p i n c o m e s t a t e m e n t s
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
Note R million R million R million R million
Funds received from clients 1 46 926 35 768 25 107 22 001
Net operating profit
Financial services income 2 12 566 10 988 6 347 6 057
Sales remuneration 1 505 1 353 1 052 963
Income after sales remuneration 11 061 9 635 5 295 5 094
Underwriting policy benefits 3 5 480 4 569 2 077 2 073
Administration costs 4 3 289 2 875 1 879 1 775
Profit before exceptional items 2 292 2 191 1 339 1 246
Exceptional items 5 368 469 277 452
Operating profit before tax 6 1 924 1 722 1 062 794
Tax on operating profit 7 225 204 93 192
Operating profit from ordinary activities after tax 1 699 1 518 969 602
Minority shareholders’ interest 357 451 — —
Net operating profit 1 342 1 067 969 602
Net investment return based on the
long-term rate of return
Investment return 8 1 348 2 936 1 349 2 796
Tax on investment return 7 (225) (245) (157) (167)
Minority shareholders’ interest (36) (190) — —
Net long-term rate of return adjustment 9 1 049 (847) 835 (1 031)
Net investment return based on the
long-term rate of return 2 136 1 654 2 027 1 598
Headline earnings based on the
long-term rate of return 3 478 2 721 2 996 2 200
Short-term investment fluctuations 9 (1 049) 847 (835) 1 031
Other net investment (deficits)/surpluses 10 (220) (199) (1 015) 149
Accounting policy change by subsidiary — 68 — —
Attributable earnings 2 209 3 437 1 146 3 380
Diluted earnings per share: cents cents
• Net operating profit from ordinary activities 12 50,5 40,1
• Headline earnings based on the long-term rate of return 12 130,9 102,1
Attributable earnings per share 12 83,1 129,0
Dividend per share 30,0 25,0
The financial statements of Sanlam Limited are included on pages 100 to 101. The group income statement on the basis as presented previously is included on page 111.
P A G E 7 4
g r o u p b a l a n c e s h e e t s
at 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
Note R million R million R million R million
ASSETS
Non-current assets
Fixed assets 13 256 328 103 101
Goodwill 14 1 711 — — —
Investments 15 150 452 151 635 151 830 150 953
Properties 12 453 12 432 12 452 12 432
Equities 87 027 90 903 91 036 91 812
Public sector stocks and loans 28 469 29 221 27 365 28 530
Mortgages, debentures and other loans 7 736 6 746 7 400 6 721
Cash, deposits and similar securities 14 767 12 333 13 577 11 458
Deferred tax 23 115 37 — —
Investments held for resale 1 213 1 460 — —
Current assets 16 24 318 22 108 9 143 9 651
Total assets 178 065 175 568 161 076 160 705
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 17 3 514 3 514 5 000 5 000
Non-distributable reserves 9 415 10 289 5 429 5 429
Investment reserve 395 592 2 914 3 834
Retained income 4 898 3 282 3 297 1 891
Shareholders’ funds 18 222 17 677 16 640 16 154
Minority shareholders’ interest 1 215 2 387 — —
Non-current liabilities
Policy liabilities 19 133 952 134 319 133 952 134 319
Term finance 20 4 698 4 062 4 796 4 807
Deferred tax 23 284 693 284 663
Current liabilities 21 19 694 16 430 5 404 4 762
Total equity and liabilities 178 065 175 568 161 076 160 705
Segregated funds not included in the above balance sheet 45 572 40 356
Total assets under management and administration 223 637 215 924
Tangible net asset value per share (cents) 25 779 771
P A G E 7 5
s a n l a m l i m i t e d g r o u p s t a t e m e n t o f c h a n g e s i n e q u i t y
for the year ended 31 December 2000
Non-
Share Share Investment distributable Retained
R million Note capital premium reserve reserve(1) income Total
Balance at 1 January 1999 27 3 487 — 10 289 1 101 14 904
Attributable earnings for the year — — — — 3 437 3 437
Transfer to investment reserve 11 — — 592 — (592) —
Dividends paid and payable — — — — (664) (664)
Balance at 31 December 1999 27 3 487 592 10 289 3 282 17 677
Attributable earnings for the year — — — — 2 209 2 209
Transfer from investment reserve 11 — — (197) — 197 —
Transfer to goodwill 14 — — — (874) — (874)
Dividends paid and payable — — — — (790) (790)
Balance at 31 December 2000 27 3 487 395 9 415 4 898 18 222
(1)Non-distributable reserve arising on acquisition of subsidiaries.
s a n l a m l i f e i n s u r a n c e l i m i t e d g r o u p s t a t e m e n t o f
c h a n g e s i n e q u i t y
for the year ended 31 December 2000
Non-
Share Share Investment distributable Retained
R million Note capital premium reserve reserve(2) income Total
Balance at 1 January 1999 1 4 999 1 957 5 429 1 004 13 390
Attributable earnings for the year — — — — 3 380 3 380
Transfer to investment reserve 11 — — 1 877 — (1 877) —
Dividends paid and payable — — — — (616) (616)
Balance at 31 December 1999 1 4 999 3 834 5 429 1 891 16 154
Attributable earnings for the year — — — — 1 146 1 146
Transfer from investment reserve 11 — — (920) — 920 —
Dividends paid and payable — — — — (660) (660)
Balance at 31 December 2000 1 4 999 2 914 5 429 3 297 16 640
(2)Arising on the transfer from the Sanlam mutual capital fund on demutualisation.
P A G E 7 6
g r o u p c a s h - f l o w s t a t e m e n t s
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
Note R million R million R million R million
Net cash flow from operating activities 4 954 23 040 927 22 172
Cash utilised in operations 30.1 (8 047) (15 934) (9 777) (16 479)
Decrease/(increase) in net current assets 30.2 3 192 (1 213) 887 (1 169)
Decrease in investments held for resale 119 436 — —
Fixed assets – additions and replacements (20) (137) (52) (25)
Cash flow from operations (4 756) (16 848) (8 942) (17 673)
Cash flow from investment return 30.3 11 280 39 613 10 219 40 111
Cash flow from operating activities 6 524 22 765 1 277 22 438
(Decrease)/increase in minority shareholders’ interest (1 172) 541 — —
Dividend paid (398) (266) (350) (266)
Cash flow from investment activities (1 328) (21 888) (462) (21 544)
Net sale of investments 5 912 8 571 965 9 426
Net realised and unrealised growth in investments(1) 30.4 (2 262) (30 459) (1 427) (30 970)
Acquisition of Gensec minorities (4 978) — — —
Cash flow from financing activities
Net term finance raised/(repaid) 628 (1 536) (11) (874)
Net increase/(decrease) in cash and cash equivalents 4 254 (384) 454 (246)
Cash, deposits and similar securities at beginning of year 4 870 5 254 2 158 2 404
Cash, deposits and similar securities at end of year 16 9 124 4 870 2 612 2 158
(1)Refer to the basis of Presentation and Accounting Policies on page 71 regarding the treatment of unrealised growth in investments as equivalent cash flows.
P A G E 7 7
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
1. FUNDS RECEIVED FROM CLIENTS
– Analysis per product (Refer to page 106 for analysis
per Sanlam business.)
Insurance business
Premium income 27 924 23 598 23 420 20 295
Long-term insurance (note 19.2)(1) 23 806 20 295 23 806 20 295
Transfer from segregated funds (386) — (386) —
Short-term insurance 4 504 3 303 — —
Other business 19 002 12 170 1 687 1 706
Unit trusts 9 342 8 154 — —
Segregated funds(1) 7 973 2 310 — —
Linked products(1) 1 687 1 706 1 687 1 706
Total funds received from clients 46 926 35 768 25 107 22 001
The funds received from clients are disclosed net of
the following reinsurance premiums:
• Life business 154 136 154 136
• Short-term insurance 803 187 — —
(1) Included in long-term insurance business single premiums is R762 million (1999: R640 million) in respect of linked-product business and R176 million
(1999: R224 million) in respect of segregated fund business.
2. FINANCIAL SERVICES INCOME
Analysis per product
Long-term insurance 6 674 6 355 6 244 5 995
Short-term insurance 4 526 3 348 — —
Other financial services 1 366 1 285 103 62
Total financial services income 12 566 10 988 6 347 6 057
Included in financial services income is
Dividend income 159 151 1 —
Interest received 1 171 1 546 808 1 144
Interest paid and term finance costs (766) (961) (544) (691)
564 736 265 453
P A G E 7 8
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
3. UNDERWRITING POLICY BENEFITS
Long-term insurance: death, disability and cash bonuses 2 077 2 073 2 077 2 073
Individual insurance 1 093 1 144 1 093 1 144
Employee benefits 984 929 984 929
Short-term insurance 3 403 2 496 — —
General insurance benefits 2 763 1 823 — —
Medical insurance benefits 640 673 — —
Total underwriting policy benefits 5 480 4 569 2 077 2 073
4. ADMINISTRATION COSTS AND
EXCEPTIONAL ITEMS INCLUDE:
Directors’ remuneration
Total remuneration paid by Sanlam Limited and its consolidated
subsidiaries to its present, retired and previous directors:
Directors’ fees 2,4 2,4
Other services (basic remuneration, pensions and bonuses) 20,5 15,0
Total directors’ remuneration 22,9 17,4
Analysis of directors’ remuneration
Executive directors 20,9 15,4
Non-executive directors 2,0 2,0
Total directors’ remuneration 22,9 17,4
Directors’ remuneration paid by subsidiaries 20,8 15,6
Auditors’ remuneration
Audit fees 14,2 11,5 9,0 8,2
Other services 10,6 10,8 5,5 2,8
Total auditors’ remuneration 24,8 22,3 14,5 11,0
Depreciation 101 133 51 24
Operating leases 76 99 8 48
Consultancy fees 249 177 237 170
Fees paid
Technical, administrative and secretarial fees 86 81 16 17
Office staff costs 1 666 1 433 828 872
P A G E 7 9
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
5. EXCEPTIONAL ITEMS
Restructuring of businesses 112 236 79 236
Systems and projects 231 231 201 214
Other 25 2 (3) 2
Total exceptional items 368 469 277 452
6. SEGMENTAL ANALYSIS OF
OPERATING PROFIT
Sanlam Personal Finance 1 044 781 944 677
Sanlam Employee Benefits 202 168 206 163
Gensec 683 747 — —
Sanlam Health 15 11 — —
New Business Development (23) 2 (3) —
Santam 100 59 — —
Corporate income 93 197 103 200
Corporate costs (190) (243) (188) (246)
Total operating profit 1 924 1 722 1 062 794
7. TAXATION: SHAREHOLDERS
Normal income tax: RSA 538 467 411 250
current year 540 459 409 250
prior year (2) 8 2 —
Deferred tax (267) 109 (304) 112
current year 88 214 50 112
prior year (355) (105) (354) —
Effect of change in tax rate — (47) — (62)
Share of associate companies’ tax charge 111 63 143 59
Taxation 382 592 250 359
In addition, the shareholders’ funds paid the following indirect
taxes and levies which are included in the appropriate items
in the income statements:
Included in administration costs 195 173 191 172
Included elsewhere 52 79 52 76
247 252 243 248
Indirect taxes and levies include value-added tax, revenue stamps paid on insurance policy contracts and statutory levies
payable to the Regional Services Councils and the Financial Services Board.
Tax of R283 million (1999: R336 million) was also paid on policyholders’ funds (refer note 19.5).
P A G E 8 0
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
7. TAXATION: SHAREHOLDERS (continued)
Analysis of taxation of shareholders
Operating profit 225 204 93 192
current year 452 301 322 192
prior year (227) (97) (229) —
Investment return 225 245 157 167
Investment income 79 182 14 108
current year 202 182 137 108
prior year (123) — (123) —
Net investment surpluses – current year 35 — — —
Equity accounted earnings 111 63 143 59
Unrealised surpluses on investments held for resale (note 10) (68) 143 — —
Income tax on earnings 382 592 250 359
Reconciliation of tax rate on operating profit
Standard rate of taxation (30,0%) (30,0%) (30,0%) (30,0%)
Adjusted for:
Non-taxable income 3,7% 8,2% — —
Prior year adjustments 12,0% 5,6% 21,7% —
Effect of changes in tax rate — 1,4% — 5,4%
Foreign tax rate differential 5,5% 3,3% — —
Other (2,9%) (0,3%) (0,5%) 0,4%
Effective tax rate on operating profit (11,7%) (11,8%) (8,8%) (24,2%)
Reconciliation of tax rate on long-term investment return
Standard rate of taxation (30,0%) (30,0%) (30,0%) (30,0%)
Adjusted for:
Non-taxable income 2,8% 2,2% 1,9% 1,4%
Investment surpluses (1,6%) 24,1% 1,3% 28,8%
Prior year adjustments 4,8% — 5,6% —
Effect of changes in tax rate — 1,0% — 1,1%
Equity accounted earnings — 1,7% 2,4% 6,1%
Long-term rate of return adjustment 13,6% (12,8%) 9,8% (18,6%)
Other 0,9% 1,3% (0,1%) (0,1%)
Effective tax rate on long-term investment return (9,5%) (12,5%) (9,1%) (11,3%)
P A G E 8 1
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
8. INVESTMENT RETURN: SHAREHOLDERS
Interest bearing investments 667 724 370 364
Equities 214 135 157 80
Properties 69 63 69 63
Equity-accounted earnings 423 327 658 561
Investment income 1 373 1 249 1 254 1 068
Net investment (deficit)/surpluses (25) 1 687 95 1 728
Investment return: shareholders 1 348 2 936 1 349 2 796
9. NET LONG TERM RATE OF RETURN
ADJUSTMENT
Analysis of net long term rate of return adjustment
Gross investment return 1 255 (816) 881 (995)
Equities 1 228 (825) 730 (1 074)
Interest bearing investments 12 (189) 135 (119)
Properties 15 198 16 198
Tax (23) (21) (46) (36)
Minority shareholders’ interest (183) (10) — —
Net long term rate of return adjustment 1 049 (847) 835 (1 031)
A comparison of the aggregate actual and calculated longer term returns (after tax and minorities) since 1 January 1999 is set out below.
Actual returns 3 588 2 501 3 821 2 629
Longer term returns 3 790 1 654 3 625 1 598
(Deficit)/excess aggregate short term fluctuations (202) 847 196 1 031
A reconciliation of the investments included in the calculation of the long-term rate of return is as follows:
Investments per shareholders’ balance sheet (refer page 104) 20 923 23 325 21 620 21 480
Less: Investment in Absa 2 751 2 444 2 740 2 428
Investment in Gensec — — 4 906 2 488
Investment in Santam — — 508 256
Investments held in respect of term finance 3 919 3 026 4 344 4 135
Investment in Guardian National — 1 108 — —
Free float assets of subsidiary 1 814 611 — —
Other 923 (156) 571 483
Long term rate of return investments 11 516 16 292 8 551 11 690
Analysis of long term rate of return investments
Equities 7 522 9 110 5 510 7 227
Public sector stocks and loans 2 111 3 617 1 696 2 981
Other interest bearing investments 809 2 701 271 618
Properties 1 074 864 1 074 864
Long term rate of return investments 11 516 16 292 8 551 11 690
P A G E 8 2
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
10. OTHER NET INVESTMENT (DEFICITS)/SURPLUSES
Investment (deficits)/surpluses on investments held for resale (112) 48 — —
Unrealised investment (deficits)/surpluses (294) 275 — —
Income tax (note 7) 68 (143) — —
Minority shareholders’ interest 114 (84) — —
Net investment (deficits)/surpluses on investment in
associated companies (108) (247) (1 015) 149
Total other net investment (deficits)/surpluses (220) (199) (1 015) 149
11. TRANSFER TO/(FROM) INVESTMENT
RESERVE
Net investment (deficits)/surpluses (note 8) (25) 1 687 95 1 728
Tax on investment surpluses (note 7) (35) — — —
Minority interest in net investment deficits/(surpluses) 83 (74) — —
Net investment surpluses 23 1 613 95 1 728
Other net investment (deficits)/surpluses (note 10) (220) (199) (1 015) 149
(197) 1 414 (920) 1 877
Investment deficits previously included in retained income — (822) — —
Transfer (from)/to investment reserve (197) 592 (920) 1 877
12. DILUTED EARNINGS PER SHARE
For the diluted earnings per share the weighted average number of ordinary shares is adjusted for the shares not yet issued
under the Sanlam share incentive scheme. Diluted earnings per share is calculated by dividing earnings by the adjusted
weighted average number of shares in issue.
Sanlam Limited
2000 1999
Net operating profit from ordinary activities R million 1 342 1 067
Headline earnings based on the long term rate of return R million 3 478 2 721
Attributable earnings R million 2 209 3 437
Number of ordinary shares in issue million 2 655 2 655
Add: Incentive shares not issued million 24 9
Less: Sanlam shares held by subsidiary company (note 17) million (22) —
Adjusted weighted average number of shares million 2 657 2 664
Diluted earnings per share
Net operating profit from ordinary activities cents 50,5 40,1
Headline earnings based on the long-term rate of return cents 130,9 102,1
Attributable earnings per share cents 83,1 129,0
P A G E 8 3
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
13. FIXED ASSETS
Land and buildings 37 17 — —
Computer equipment 114 167 58 16
Cost 385 652 165 54
Accumulated depreciation (271) (485) (107) (38)
Furniture, equipment and vehicles 105 144 45 85
Cost 236 293 127 195
Accumulated depreciation (131) (149) (82) (110)
Total fixed assets 256 328 103 101
The reduction in the computer equipment in 2000 relates largely to the sale of the mainframe computer resulting from the
outsourcing of the IT Infrastructure Services to debis during the year.
The reconciliation of the movement in the book value of fixed assets is not provided as it is not considered meaningful or
material in relation to the Group’s activities.
14. GOODWILL
The Sanlam shareholders’ fund acquired the remaining shares in Gensec which it and its subsidiaries did not already own,
for a consideration of R37 per share with effect from 31 December 2000 for financial statement purposes. (Refer to
page 19 for details.) Details of the net assets acquired and goodwill are as follows:
Sanlam Limited
R million
Net cash purchase consideration paid to 4 978
minorities 3 625
policyholders 1 353
Fair value of net assets acquired (2 393)
Goodwill on acquisition 2 585
Transfer from non-distributable reserve (874)
Goodwill 1 711
The estimated useful life of this goodwill is ten years and will be amortised with effect from 1 January 2001.
The transfer from the non-distributable reserve relates to the negative goodwill which resulted from the acquisition of a
controlling interest in Gensec by Sanlam in 1998 pursuant to the sale of Sanlam’s asset management activities to Gensec.
P A G E 8 4
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
15. INVESTMENTS
Spread of investments in equities by sector (1) (2) (2) (3) (3)
Industrial 40% 45% 40% 43%
Financial 38% 35% 38% 37%
Resources 22% 20% 22% 20%
Total spread of investments in equities 100% 100% 100% 100%
(1)Spread of investments in equities per sector excludes offshore equities, derivatives, unit trusts and unlisted investments.
(2)Includes the appropriate underlying investments of Santam.
(3)Investment in Santam and Gensec excluded.
Unlisted equity investments
As a percentage of the total investment in equities 7% 4% 6%(1) 4%
(1)Excludes unlisted interest in Gensec
Offshore investments R million R million R million R million
Equities 14 846 14 902 14 791 14 902
Interest bearing investments 8 613 5 543 8 610 5 543
Total offshore investments 23 459 20 445 23 401 20 445
Shares held in holding company
Sanlam Limited shares held by policyholders
Number million 159 169 159 169
Fair value R million 1 523 1 453 1 523 1 453
Investment in associated companies(1)
Absa
Fair value of interest R million 4 277 4 195 4 266 4 179
Number of shares held 000s 149 532 151 985 149 162 151 380
Interest in issued share capital %
Shareholders 14,8 13,8 14,4 13,8
Policyholders 8,2 9,9 8,2 9,9
Share of earnings after tax for current year R million
Shareholders 309 263 309 263
Policyholders 200 199 200 199
Distributions received R million
Shareholders 96 83 96 83
Policyholders 72 62 72 62
Aggregate post-acquisition reserves
attributable to shareholders R million 590 377 590 377
The financial year-end of Absa is 31 March. The equity-accounted earnings for Absa included in the Sanlam Limited group
results are for the twelve-month period ended 30 September and were derived from their published annual financial
statements and their interim results. The Sanlam Group’s share of these earnings is included in investment income.
(1) Interest in associated companies exclude segregated funds’ interest.
P A G E 8 5
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
15. INVESTMENTS
Investment in associated companies (continued)
Santam
Fair value of interest R million 1 321 800
Number of shares held 000s 41 294 26 423
Interest in issued share capital %
Shareholders 14,4 11,6
Policyholders 23,2 24,7
Share of earnings after tax for current year R million
Shareholders 59 39
Policyholders 98 84
Distributions received R million
Shareholders 15 11
Policyholders 31 29
Gensec
Fair value of interest R million 4 906 4 026
Number of shares held 000s 151 031 103 784
Interest in issued share capital %
Shareholders 57,9 25,4
Policyholders — 15,7
Share of earnings after tax for current year R million
Shareholders 147 200
Policyholders 90 145
Distributions received R million
Shareholder 67 28
Policyholders 53 24
Register of investments
A register containing details of all investments including fixed property investments is available for inspection at the
registered office of Sanlam Limited.
16. CURRENT ASSETS R million R million R million R million
Premiums receivable 4 704 4 556 4 314 4 455
Accrued investment income 1 118 1 495 1 059 1 460
Trading account and money market investments 7 498 8 068 — —
Accounts receivable 1 874 3 119 726 1 473
Amounts owing by group companies — — 432 105
Cash, deposits and similar securities 9 124 4 870 2 612 2 158
Total current assets 24 318 22 108 9 143 9 651
Cash, deposits and similar securities of R793 million (1999: R367 million) and trading account investments of
R316 million (1999: R636 million) are encumbered as detailed in note 21.
P A G E 8 6
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
17. SHARE CAPITAL AND PREMIUM
Authorised share capital
4 000 million ordinary shares of 1 cent each 40 40
100 million ordinary shares of 1 cent each 1 1
Issued share capital and premium
Number of ordinary shares in issue
Balance at beginning of year million 2 654,6 2 654,6 50 50
Shares held by subsidiary million (22,2) — — —
Balance at end of year million 2 632,4 2 654,6 50 50
Nominal value and share premium
Nominal value of 1 cent per share R million 27 27 1 1
Share premium R million 3 487 3 487 4 999 4 999
Total nominal value and share premium R million 3 514 3 514 5 000 5 000
In terms of the Demutualisation Proposal of 1998, a number of shares were held by the Sanlam Demutualisation Trust to
enable adjustments to be made in the event of errors in the allocation of free shares. The period within which adjustments
could be made expired on 22 October 1999. The remaining 22,2 million shares held for this purpose were returned to
Sanlam Limited and are currently held as treasury stock by a wholly-owned subsidiary. These inter-group holdings are
eliminated on consolidation of the Sanlam Group results.
Sanlam Limited
2000 1999
000s 000s
Executive share incentive scheme
Restricted shares and share options at the beginning of the year 55 544 46 029
New options granted 18 359 19 322
Restricted shares purchased and options granted for the conversion of the Gensec share scheme 75 962 —
Unconditional options and shares released, available for release, or taken up (12 324) (8 477)
Options lapsed or cancelled (510) (1 536)
Cash dividends received on restricted shares and converted into shares 166 206
Restricted shares and share options at the end of the year 137 197 55 544
Restricted and unrestricted share options as a percentage of total issued shares 4,8% 2,0%
P A G E 8 7
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Executive share incentive scheme (continued)
Details regarding the restricted shares and share options outstanding on 31 December 2000 and the financial years during
which they become unconditional, are as follows:
Unconditional during Number of` Average
year ended Shares Options option price
000s 000s R
31 December 2001 4 096 13 994 7,94
31 December 2002 3 847 22 419 7,61
31 December 2003 5 599 27 838 7,58
31 December 2004 3 720 30 113 6,91
31 December 2005 2 868 15 815 7,47
31 December 2006 and later 1 174 5 714 7,95
21 304 115 893
Following the acquisition of the Gensec minorities, the Gensec share incentive scheme was converted to the Sanlam scheme
by accelerating a small number of existing Gensec options, using the net proceeds of the balance to purchase Sanlam shares
to be held in terms of the Gensec scheme until the original vesting periods expire (“restricted shares”) and offering new
Sanlam options for participants’ unexpired vesting period.
In terms of the rules of the Sanlam Scheme, a maximum of 5% of the issued share capital of Sanlam Limited may be used
for this purpose. However, as a result of the acquisition of the Gensec minorities and the conversion of the Gensec share
incentive scheme, this limit is fully exhausted. Shareholders will be requested to increase this limit to 7,5% at the
forthcoming annual general meeting.
Authorised and unissued shares
Subject to the restrictions imposed by the Companies Act, the authorised and unissued shares are under the control of the
directors until the forthcoming annual general meeting.
18. CONTINGENCY RESERVES
Contingency reserves in respect of short-term insurance business of R208 million are included in shareholders’ reserves
(1999: R160 million) and R90 million (1999: R65 million) in policy liabilities.
P A G E 8 8
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
19. POLICY LIABILITIES
19.1 Analysis of movement in policy liabilities
Income 33 842 57 716 33 842 57 716
Premium income (note 19.2) 23 806 20 295 23 806 20 295
Investment return (note 19.3) 10 036 37 421 10 036 37 421
Outgo 34 209 37 573 34 209 37 573
Policy benefits (note 19.4) 20 019 20 053 20 019 20 053
Retirement fund terminations 6 585 10 812 6 585 10 812
Transfer to segregated assets 1 093 637 1 093 637
Taxation (note 19.5) 283 336 283 336
Fees, risk premiums and other payments to shareholders 6 229 5 735 6 229 5 735
Net (outflow)/income for the year (367) 20 143 (367) 20 143
Balance at beginning of the year 134 319 114 176 134 319 114 176
Balance at end of the year 133 952 134 319 133 952 134 319
19.2 Analysis of premium income
Individual insurance 16 576 14 772 16 576 14 772
Recurring premiums 8 455 8 344 8 455 8 344
Single premiums 5 881 4 804 5 881 4 804
Continuations 2 240 1 624 2 240 1 624
Employee benefits 7 230 5 523 7 230 5 523
Recurring premiums 3 050 3 029 3 050 3 029
Single premiums 4 180 2 494 4 180 2 494
Total premium income 23 806 20 295 23 806 20 295
19.3 Investment return: policyholders
Investment income
Net interest bearing investments 4 512 5 274 4 512 5 274
Equities 1 445 1 339 1 445 1 339
Properties 1 238 1 234 1 238 1 234
Total investment income 7 195 7 847 7 195 7 847
Equity-accounted earnings 494 481 494 481
Net investment surpluses 2 347 29 093 2 347 29 093
Total investment return 10 036 37 421 10 036 37 421
P A G E 8 9
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
19.4 Analysis of long-term insurance policy benefits
Individual insurance 15 080 14 522 15 080 14 522
Maturity benefits 7 539 7 060 7 539 7 060
Surrenders 3 714 3 460 3 714 3 460
Life and term annuities 3 103 3 278 3 103 3 278
Death and disability benefits (1) 576 549 576 549
Cash bonuses (1) 148 175 148 175
Employee benefits 4 939 5 531 4 939 5 531
Withdrawal benefits 2 263 2 980 2 263 2 980
Pensions 1 175 1 163 1 175 1 163
Lump-sum retirement benefits 1 232 1 089 1 232 1 089
Taxation paid on behalf of certain retirement funds 164 207 164 207
Death and disability benefits (1) 69 63 69 63
Cash bonuses (1) 36 29 36 29
Total long-term insurance policy benefits 20 019 20 053 20 019 20 053
(1)Excludes death and disability benefits and cash bonuses underwritten by the shareholders (refer note 3).
19.5 Taxation: policyholders
Normal tax – foreign 8 9 8 9
Deferred (74) (44) (74) (44)
current year — — — —
prior year (74) (44) (74) (44)
Share of associated companies’ tax charge 106 53 106 53
Other 243 318 243 318
Taxation on retirement funds 187 261 187 261
Withholding tax on foreign investments 39 23 39 23
Indirect taxation 17 34 17 34
Total taxation: policyholders 283 336 283 336
A deferred tax asset has not been recognised for estimated assessed losses in the policyholders’ tax funds as it is uncertain
whether and when these losses will be utilised.
P A G E 9 0
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
19.6 Composition of policy liabilities
Individual insurance 89 775 86 339 89 775 86 339
Market-related liabilities 28 085 25 699 28 085 25 699
Stable bonus fund 30 266 32 905 30 266 32 905
Reversionary bonus policies 9 614 10 060 9 614 10 060
Non-participating annuities 10 697 9 954 10 697 9 954
Other non-market-related liabilities 11 113 7 721 11 113 7 721
Employee benefits 44 177 47 980 44 177 47 980
Market-related liabilities 24 457 28 702 24 457 28 702
Stable bonus portfolios 10 283 10 530 10 283 10 530
Participating annuities 7 272 6 975 7 272 6 975
Other non-market-related liabilities 2 165 1 773 2 165 1 773
Total policy liabilities 133 952 134 319 133 952 134 319
19.7 Capital adequacy and ratios
Capital adequacy requirements (CAR) R million 6 996 5 925
Shareholders’ funds(1) R million 16 640 16 154
Times CAR covered by shareholders’ funds times 2,4 2,7
Shareholders’ funds as percentage of:
Policy liabilities % 12 12
Non-market-related liabilities % 20 20
(1)Assets of the shareholders’ funds include an investment in Gensec of R4 906 million.
% % % %
19.8 Discount rates used in calculating prospective policy liabilities
Reversionary bonus business
Retirement annuity business 12,9 14,0 12,9 14,0
Taxable business 12,7 13,7 12,7 13,7
Individual stable bonus business
Retirement annuity business 12,8 13,5 12,8 13,5
Taxable business 12,6 13,3 12,6 13,3
Individual market-related business
Retirement annuity business 13,2 13,9 13,2 13,9
Taxable business 13,0 13,7 13,0 13,7
Participating annuity business 12,6 13,6 12,6 13,6
Non-participating annuity business 12,8 14,0 12,8 14,0
Guaranteed plans 11,3 12,1 11,3 12,1
Future expense inflation rate assumptions 7,3 8,4 7,3 8,4
P A G E 9 1
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
19.9 Provisions included in policy liabilities
HIV/Aids provision 1 465 1 266 1 465 1 266
Reduction in earnings caused by using a retrospective
HIV/Aids provision instead of a prospective provision (136) (2) (136) (2)
Asset mismatch provision 532 419 532 419
20. TERM FINANCE
Redeemable cumulative non-voting preference shares
issued by subsidiary companies with dividend terms
which are linked to prime interest rates and with
different redemption dates up to 2005 3 886 3 163 4 311 4 272
Obligation for post-retirement medical fund
contributions in respect of clients 176 220 176 220
Unsecured loan from an associated company at
17% per annum interest and repayable on 30 September 2001 300 300 300 300
Unsecured bank loan — 231 — —
Secured bank loans of R132 million and R195 million
at interest rates of 19,85% and 8,45% and repayable in
equal monthly and six-monthly instalments over fifteen
and five years respectively. 327 124 — —
Other 9 24 9 15
Total term finance 4 698 4 062 4 796 4 807
Portion potentially repayable within one year included above 2 532 1 269 2 761 2 139
21. CURRENT LIABILITIES
Trading account and money market liabilities 8 645 7 263 — —
Accounts payable 6 431 5 759 2 116 2 130
Policy benefits payable 2 278 1 656 1 534 1 322
Claims incurred but not reported 1 028 842 597 505
Taxation 522 512 497 455
Shareholders for dividend 790 398 660 350
Total current liabilities 19 694 16 430 5 404 4 762
Trading assets with a total value of R1 109 million (1999: R1 003 million) have been pledged as security for trading
account liability positions of Gensec (refer note 16).
P A G E 9 2
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
22. PAYMENTS TO CLIENTS
Analysis per product (Refer to page 107 for
analysis per Sanlam business.)
Insurance benefits paid
Policy benefits 25 499 24 622 22 096 22 126
Long-term insurance(1)
Underwriting (note 3) 2 077 2 073 2 077 2 073
Other (note 19.4) 20 019 20 053 20 019 20 053
Short-term – medical and general (note 3) 3 403 2 496 — —
Other payments 14 065 10 761 987 674
Unit trust repurchases 8 728 6 769 — —
Segregated funds withdrawn(1) 4 350 3 318 — —
Linked products withdrawn(1) 987 674 987 674
Total payments 39 564 35 383 23 083 22 800
Retirement fund terminations (note 19.1) 6 585 10 812 6 585 10 812
Total payments to clients 46 149 46 195 29 668 33 612
(1)Included in long-term insurance policy benefits is R146 million (1999: R63 million) in respect of linked-product business and R498 million
(1999: R431 million) in respect of segregated fund business.
23. DEFERRED TAX AND PROVISIONS
Details of the deferred tax balances and provisions of the Sanlam Limited group are as follows:
Deferred tax
Asset Liability Provisions
R million R million R million
Balance at 1 January 2000 37 (693) (292)
Charged to income statement (68) 335 (60)
Additional provisions (68) (20) (60)
Unused amounts reversed — 355 —
Utilised during the year — — 46
Unused amounts reversed to policy liabilities — 74 —
Arising on acquisition of subsidiary 146 — —
Balance at 31 December 2000 115 (284) (306)
Provisions
None of the items included in the provisions is individually material.
P A G E 9 3
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
24. FINANCIAL INSTRUMENTS
Derivative financial instruments
Derivative financial instruments are used by the Sanlam Group for hedging purposes to mitigate risk.
Gensec, in its trading activities, acts as a dealer in derivative instruments to satisfy the risk management needs of its clients
and assume trading positions based on its market expectations, and to benefit from price differentials between instruments
and markets.
Scrip lending
The Sanlam Group conducts scrip-lending activities in respect of some of its listed equities and bonds. The exposure to
these activities was limited to less than 25% of the shareholders’ fund of Sanlam Life Insurance Limited and collateral
security and guarantees of between 105% and 150% of the value of the loaned securities are held.
Market risk – interest and equities
Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices or changes in
market interest rates.
Policyholders’ and shareholders’ investments in equities are valued at fair value and are therefore susceptible to market
fluctuations. Shareholders’ investments in listed subsidiaries are reflected at net asset value based on the market value of the
underlying investments. Investments subject to equity risk are analysed in the balance sheet and in note 15.
The acquisition of policyholders’ assets is based on the contract entered into and the preferences expressed by the
policyholder. Within these parameters, investments are managed with the aim of maximising policyholder returns while
limiting risk to acceptable levels within the framework of statutory requirements.
Continuous monitoring takes place to ensure that appropriate assets are held where the liabilities are dependent upon the
performance of specific portfolios of assets and that a suitable match of assets exists for all non-market-related liabilities.
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate in rand owing to changes in foreign exchange rates.
The Group’s exposure to currency risk is mainly in respect of foreign investments made on behalf of policyholders and
shareholders for the purpose of seeking desirable international diversification of investments. Exposure to different foreign
currencies is benchmarked against the currency composition of the Morgan Stanley Capital International World Equity
Index and the JP Morgan Government Bond Index.
Credit risk
Credit risk arises from the inability or unwillingness of a counterparty to a financial instrument to discharge its contractual
obligations.
The Sanlam Group’s financial instruments do not represent a concentration of credit risk because the Group deals with a
variety of major banks and its accounts receivable and loans are spread among a number of major industries, customers and
geographic areas.
Amounts receivable in terms of long-term insurance business are secured by the underlying value of the unpaid policy
benefits in terms of the policy contract.
An appropriate level of provision is maintained. Exposure to outside financial institutions concerning deposits and similar
transactions is monitored against approved limits.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial
instruments.
Approximately 90% of term finance liabilities are backed by appropriate assets with the same maturity profile. Details of
term finance liabilities are provided in note 20, and current liabilities in note 21. The Group has significant liquid resources
and substantial unutilised banking facilities.
P A G E 9 4
Underwriting risk
Underwriting risk is the risk that the actual exposure to mortality, disability and medical risks in respect of policyholder benefits
will exceed prudent exposure.
The statutory actuary reports annually on the actuarial soundness of the premium rates in use and the profitability of the
business taking into consideration the reasonable benefit expectation of policyholders. All new rate tables are approved and
authorised by the statutory actuary prior to being issued. Regular investigations into mortality and morbidity experience
are conducted. Catastrophe insurance is in place for single-event disasters.
All applications for risk cover in excess of specified limits are reviewed by experienced underwriters and evaluated against
established standards. Specific testing for HIV/Aids is carried out in all cases where the applications for risk cover exceed
a set limit. All risk-related liabilities in excess of specified monetary or impairment limits are reinsured.
Legal risk
Legal risk is the risk that the Group will be exposed to contractual obligations which have not been provided for.
During the development stage of any new product and for material transactions entered into by the Group, the legal
resources of the Group monitor the drafting of the contract document to ensure that rights and obligations of all parties
are clearly set out.
Capital adequacy risk
Capital adequacy risk is the risk that there are insufficient reserves to provide for variations in actual future experience worse than
that which has been assumed in the financial soundness valuation.
Capital adequacy requirements were covered 2,4 times at 31 December 2000 (1999: 2,7 times).
25. TANGIBLE NET ASSET VALUE PER SHARE: SANLAM LIMITED GROUP
Tangible net asset value per share is calculated on the group shareholders’ funds of R20 512 million (1999: R20 463 million),
after adjusting for the shareholders’ interest in Santam and Gensec from net asset value to fair value, divided by
2 632 million (1999: 2 655 million) shares issued at the year-end.
26. RETIREMENT BENEFITS FOR EMPLOYEES
Retirement provision
The Sanlam Limited Group provides for the retirement benefits of full-time employees and for certain part-time employees
by means of defined benefit and defined contribution pension and provident funds. These funds are governed by the
Pension Funds Act.
Defined contribution funds
There are separate defined contribution funds for advisers, full-time and part-time office staff. The Sanlam Limited Group
contributed R171 million to these funds during 2000 (1999: R150 million).
Defined benefit funds
Sanlam has two defined benefit funds. These funds relate to the office staff and advisers who did not elect to transfer to the
defined contribution funds. These funds are closed to new entrants. The Sanlam Limited Group contributed R8 million to
these funds during 2000 (1999: R9 million). According to the latest actuarial valuations as at 1 April 1999 the funds were
financially sound.
The present value of accrued retirement benefits in respect of past services at the valuation date was R704 million and the
actuarial value of the assets of the funds was R761 million. Based on reasonable actuarial assumptions about future
experience, the employers contribution as a fairly constant percentage of the remuneration of the members of the funds
should be sufficient to meet the promised benefits of the funds.
P A G E 9 5
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
27. BORROWING POWERS
In terms of the articles of association of Sanlam Limited, the directors may at their discretion raise or borrow money for the
purpose of the business of the company without limitation.
The directors of Sanlam Life Insurance Limited have the same discretion as Sanlam Limited, subject to the prior approval
of the Registrar of Long-term Insurance.
Material borrowings of the Sanlam Limited group are disclosed in note 20.
28. COMMITMENTS AND CONTINGENCIES
Gensec has a commitment in respect of underwriting and private equity commitments amounting to R185 million
(1999: R271 million) and has future operating lease commitments of R223 million (1999: R28 million).
There are no other material commitments or contingencies.
29. RELATED PARTY TRANSACTIONS
During the year the company and its subsidiaries in the ordinary course of business entered into various transactions with
other group companies, associates and other stakeholders.These transactions occurred under terms that are no less
favourable than those arranged with third parties.
Associates
Details of investments in associates are disclosed in note 15.
Subsidiaries
Details of investments in subsidiaries are disclosed on page 99.
Other stakeholders
Details of transactions between the policyholders of Sanlam Life Insurance Limited and the shareholders’ funds of the
Sanlam Limited group are disclosed in notes 2 and 19.1.
Directors
All directors of Sanlam Limited and Sanlam Life Insurance Limited have notified that they did not have a material interest
in any contract of significance with the company or any of its subsidiaries which could have given rise to a conflict of
interests during the year.
Details relating to directors’ emoluments are included in note 4 and shareholdings in the company are disclosed in the
directors’ report on page 67.
P A G E 9 6
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
30. NOTES TO THE CASH-FLOW STATEMENTS
30.1 Operating profit on ordinary activities 1 342 1 067 969 602
Decrease in policy liabilities before investment return (10 403) (17 278) (10 403) (17 278)
Net (decrease)/increase (note 19.1) (367) 20 143 (367) 20 143
Less: Investment return (note 19.3) (10 036) (37 421) (10 036) (37 421)
Adjustment for non-cash items 1 014 277 (343) 197
Cash utilised in operations (8 047) (15 934) (9 777) (16 479)
30.2 Decrease/(increase) in net current assets
Current assets 418 (4 616) 527 (549)
Premiums receivable (148) (57) 141 (70)
Accrued investment income (183) (39) (46) (53)
Trading account and money market investments (93) (3 832) — —
Accounts receivable 842 (688) 759 (552)
Amounts owing by group companies — — (327) 126
Current liabilities 2 774 3 403 360 (620)
Trading account and money market liabilities 1 382 3 229 — —
Accounts payable 587 1 009 14 6
Policy benefits payable and claims incurred but
not reported 808 (867) 304 (678)
Taxation (3) 32 42 52
Decrease/(increase) in net current assets 3 192 (1 213) 887 (1 169)
P A G E 9 7
n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
30.3 Cash flow from investment return
Per income statement
• Net investment return 2 136 1 654 2 027 1 598
• Adjustment for net long-term rate of return (1 049) 847 (835) 1 031
• Other net investment (deficits)/surpluses (220) (199) (1 015) 149
Net investment return attributable to shareholders 867 2 302 177 2 778
Net investment return attributable to policyholders (note 19.3) 10 036 37 421 10 036 37 421
Non-cash items 377 (110) 6 (88)
Cash from investment return 11 280 39 613 10 219 40 111
30.4 Net realised and unrealised growth in investments
Net investment (deficits)/surpluses attributable to
shareholders (note 11) (197) 1 414 (920) 1 877
Adjustment for surpluses/(deficits) on investments held
for resale (note 10) 112 (48) — —
Net investment surpluses attributable to policyholders
(note 19.3) 2 347 29 093 2 347 29 093
Net realised and unrealised growth in investments 2 262 30 459 1 427 30 970
P A G E 9 8
p r i n c i p a l s u b s i d i a r i e s
for the year ended 31 December 2000
Issued Fair value of
ordinary interest in subsidiaries
capital Shares Loans
% 2000 2000 1999 2000 1999
interest R million R million R million R million R million
SANLAM LIMITED
Long-term insuranceSanlam Life Insurance Limited 100 5 000 16 640 16 154 (85) —
Asset management, equity activities and bankingGenbel Securities Limited (Gensec) 100 1 952,5 (3) (3) (3) (3)
Short-term insuranceSantam Limited (listed) 59 1 045,6 (3) (3) (3) (3)
Investment companyBeldiv Investments (Proprietary) Limited 100 (1) 356 687 3 278 2 893
Computer hardware holding companySanlam Computer Holdings (Proprietary) Limited 100 (1) — 1 — (7)
Money transfer businessMulti-Data (Proprietary) Limited 100 (4) — 3 48 —
Managed health care(5)
Sanlam Health (Proprietary) Limited 100 (1) 237 435 34 293
Management of unit trust schemesSanlam Trust Managers Limited 100 2,6 389 318 (184) (184)
Trust servicesSanlam Trust Limited 100 1,0 — — — 2
Management companiesSanlam Personal Finance Limited 100 (1) — — — —Sanlam Employee Benefits Limited 100 (1) — — — —
Total 17 622 17 598 3 091 2 997
SANLAM LIFE INSURANCE LIMITED
Investment companiesU.R.D. Investments (Proprietary) Limited 100 81,0 32 611 30 989 (14 096) (8 974)Electra Investments (South Africa) Limited 100 76,0 8 645 8 347 (5 216) (4 050)
Property investment companyRycklof Investments (Proprietary) Limited 100 (2) 3 902 3 579 4 202 4 337
Management of Namibian businessSanlam Namibia Limited 100 5,0 113 101 (9) (11)
Other 493 1 018 268 330
Total 45 764 44 034 (14 851) (8 368)
(1) Issued share capital is R100.(2) Issued share capital is R2 000.(3) The interest in Santam and Gensec is held indirectly by Sanlam Life Insurance Limited and Beldiv Investments (Pty) Limited.(4) Issued share capital is R2.(5) The fair value of the shares and loan account represents the value of the underlying companies in the Sanlam Health (Pty) Limited group.
A register of all subsidiary companies is available for inspection at the registered office of Sanlam Limited. All investments above are unlisted unless otherwise
indicated.
Gensec Santam
Analysis of the Group’s holding in Santam and Gensec 2000 1999 2000 1999
Shareholders• Sanlam Life Insurance Limited 58% 25% 14% 12%• Sanlam Limited 42% 24% 22% 20%
Policyholders• Sanlam Life Insurance Limited — 16% 23% 25%
100% 65% 59% 57%
P A G E 9 9
s a n l a m l i m i t e d f i n a n c i a l s t a t e m e n t s
for the year ended 31 December 2000
BALANCE SHEET AT 31 DECEMBER 2000
2000 1999
Note R million R million
ASSETS
Non-current assets
Investment in group companies 2 13 750 12 547
Investment in joint venture 20 —
Current assets 1 262 1 723
Loans to subsidiaries 452 1 373
Dividends receivable 810 350
Total assets 15 032 14 270
EQUITY AND LIABILITIES
Share capital and premium 3 3 514 3 514
Non-distributable reserves 4 9 342 9 342
Retained income 980 737
Shareholders’ funds 13 836 13 593
Current liabilities 1 196 677
Loans from subsidiaries 367 191
Accounts payable 32 88
Shareholders for dividend 797 398
Total equity and liabilities 15 032 14 270
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2000
Unlisted dividends received 1 042 666
Dividends paid and proposed 5 (797) (664)
Expenditure (2) (2)
Retained income for the year 243 —
Retained income at beginning of the year 737 737
Retained income at end of the year 980 737
CASH-FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2000
Cash flow from operating activities 7 146 65
Cash flow from investing activities
Investment in subsidiary companies (1 203) (437)
Investment in joint venture (40) —
Decrease in cash and cash equivalents (1 097) (372)
Net loans to subsidiaries – beginning of the year 1 182 1 554
Net loans to subsidiaries – end of the year 85 1 182
P A G E 1 0 0
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2000
1. ACCOUNTING POLICIES
The accounting policies of the Sanlam Limited group as set out on pages 68 to 71 are also applicable to Sanlam Limited
except as indicated below.
Investments
Investments in subsidiary companies are reflected at book value or at a lower value if there is an impairment in value.
2000 1999
R million R million
2. SUBSIDIARY COMPANIES
Investment in group companies
Shares at cost 10 374 10 374
Amounts owing by subsidiaries 3 376 2 173
Total investment in group companies 13 750 12 547
Current loans with group companies
Loans to subsidiaries 452 1 373
Loans from subsidiaries (367) (191)
Book value of interest in subsidiaries 13 835 13 729
Fair value of investment in subsidiaries 20 713 20 595
The loans to subsidiaries are unsecured and not subject to any fixed terms of repayment. No interest is charged but these
arrangements are subject to revision from time to time. Details regarding the principal subsidiaries of Sanlam Limited are
set out on page 99 of the Sanlam Limited Group financial statements.
3. SHARE CAPITAL
Details of share capital are reflected in note 17 on page 87 of the Sanlam Limited Group financial statements.
4. NON-DISTRIBUTABLE RESERVES
Pre-acquisition reserves arising on acquisition of subsidiaries 9 342 9 342
5. DIVIDENDS
Details of dividends paid are reflected in the directors’ report on page 67 of the Sanlam Limited Group financial statements.
6. REPORT OF THE DIRECTORS
The directors’ report is included on page 67 of the Sanlam Limited Group financial statements.
7. CASH FLOW FROM OPERATING ACTIVITIES
Retained income for the year 243 —
Non-cash items – dividend receivable (810) (350)
– dividend payable 797 398
– provision against investment 20 —
Decrease in accounts receivable 350 5
Increase in accounts payable (454) 12
Cash flow from operating activities 146 65
P A G E 1 0 1
P A G E 1 0 2
PA G E 1 1 1
Income Statement
(as previously disclosed)
PA G E 1 1 2
Six-Year Review
PA G E 1 1 3
Stock Exchange Performance
PA G E 1 1 4
Report on the Sanlam Group
Embedded Value
co
nte
nts
PA G E 1 0 3
Income Statement per Business
PA G E 1 0 4
Balance Sheets
PA G E 1 0 5
Cash Flow Statements
PA G E 1 0 6
Notes to the Financial Statements
f i n a n c i a l i n f o r m a t i o n f o r t h e s h a r e h o l d e r s ’
f u n d s
for the year ended 31 December 2000
s a n l a m l i m i t e d s h a r e h o l d e r s ’ f u n d s – s e g m e n t a l
i n c o m e s t a t e m e n t
for the year ended 31 December 2000
Corporate Investment
SPF SEB Health Gensec Santam and other return(1) Total
R million 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999
Financial services income 4 809 4 576 1 558 1 426 783 854 1 387 1 247 3 836 2 603 193 282 — — 12 566 10 988
Sales remuneration 1 000 915 43 32 — — — — 444 390 18 16 — — 1 505 1 353
Income after sales
remuneration 3 809 3 661 1 515 1 394 783 854 1 387 1 247 3 392 2 213 175 266 — — 11 061 9 635
Underwriting policy
benefits 1 089 1 142 984 929 640 673 — — 2 763 1 823 4 2 — — 5 480 4 569
Administration costs 1 415 1 330 301 271 128 165 631 500 529 331 285 278 — — 3 289 2 875
Profit before exceptionals 1 305 1 189 230 194 15 16 756 747 100 59 (114) (14) — — 2 292 2 191
Exceptional items 261 408 28 26 — 5 73 — — — 6 30 — — 368 469
Operating profit before tax 1 044 781 202 168 15 11 683 747 100 59 (120) (44) — — 1 924 1 722
Tax on operating profit (105) (211) (5) (34) — — (79) 41 (21) (15) (15) 15 — — (225) (204)
Operating profit after tax 939 570 197 134 15 11 604 788 79 44 (135) (29) — — 1 699 1 518
Minority interest — — — — — — (301) (421) (56) (30) — — — — (357) (451)
Net operating profit 939 570 197 134 15 11 303 367 23 14 (135) (29) — — 1 342 1 067
Investment return
based on LTRR(3)
Investment return — — — — — — — — 155 320 — — 1 193 2 616 1 348 2 936
Tax on investment return — — — — — — — — (95) (46) — — (130) (199) (225) (245)
Minority interest — — — — — — — — (36) (190) — — — — (36) (190)
Net LTRR(3) adjustment — — — — — — — — 92 9 — — 957 (856) 1 049 (847)
Net investment return
based on LTRR(3) — — — — — — — — 116 93 — — 2 020 1 561 2 136 1 654
Headline earnings
based on LTRR(3) — — — — — — 303 367 139 107 — — 2 020 1 561 3 478 2 721
Short-term investment
surpluses — — — — — — — — (92) (9) — — (957) 856 (1 049) 847
Net investment surpluses on:
trade investments — — — — — — (112) 48 — — — — — — (112) 48
investment in associate — — — — — — — — — — — — (108) (247) (108) (247)
Accounting policy change — — — — — — — — — 68 — — — — — 68
Attributable earnings — — — — — — 191 415 47 166 — — 955 2 170 2 209 3 437
Ratios
Admin ratio(2) 37,1% 36,3% 19,9% 19,4% 16,3% 19,3% 45,5% 40,1% 15,6% 15,0% — — — — 29,7% 29,8%
Operating margin(2) 27,4% 21,3% 13,3% 12,1% 1,9% 1,3% 49,2% 59,9% 2,9% 2,7% — — — — 17,4% 17,9%
Return on equity
Operating profit before tax — — — — — — — — — — — — — — 8,2% 7,7%
Operating profit after tax — — — — — — — — — — — — — — 7,2% 6,4%
Headline earnings based
on LTRR(3) — — — — — — — — — — — — — — 18,7% 16,3%
(1) Represents the investment return earned on the Sanlam Group investments excluding Santam’s underlying investments.(2) Calculated as a percentage of income earned by the shareholders less sales remuneration.(3) LTRR = Long term rate of return.
P A G E 1 0 3
s h a r e h o l d e r s ’ f u n d s b a l a n c e s h e e t s
at 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
Note R million R million R million R million
ASSETS
Non-current assets
Fixed assets 256 328 103 101
Goodwill 1 711 — — —
Investments 20 923 23 325 21 620 21 480
Properties 1 074 864 1 074 864
Equities 4 10 337 12 712 13 664 12 399
Public sector stocks and loans 2 958 3 886 1 854 3 246
Mortgages, debentures and other loans 2 106 1 394 1 770 1 444
Cash, deposits and similar securities 4 448 4 469 3 258 3 527
Deferred tax 115 37 — —
Investments held for resale 1 213 1 460 — —
Current assets 5 19 729 16 398 4 554 3 952
Total assets 43 947 41 548 26 277 25 533
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 6 3 514 3 514 5 000 5 000
Non-distributable reserves 9 415 10 289 5 429 5 429
Investment reserve 395 592 2 914 3 834
Retained income 4 898 3 282 3 297 1 891
Shareholders’ funds 18 222 17 677 16 640 16 154
Minority interest 1 897 3 543 — —
Outside shareholders 1 215 2 387 — —
Sanlam policyholders 682 1 156 — —
Non-current liabilities
Term finance 4 698 4 062 4 796 4 807
Deferred tax 284 693 284 663
Current liabilities 7 18 846 15 573 4 557 3 909
Total equity and liabilities 43 947 41 548 26 277 25 533
P A G E 1 0 4
s h a r e h o l d e r s ’ f u n d s c a s h f l o w s t a t e m e n t s
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
Note R million R million R million R million
Net cash flow from operating activities 3 834 3 797 290 2 841
Cash generated by operations 8.1 2 356 1 344 626 799
Decrease/(increase) in net current assets 8.2 2 237 (218) (115) (220)
Decrease in investments held for resale 119 436 — —
Fixed assets – additions and replacements (20) (137) (52) (25)
Cash flow from operations 4 692 1 425 459 554
Cash flow from investment return 8.3 1 186 2 057 181 2 553
Cash flow from operating activities before 5 878 3 482 640 3 107
(Decrease)/increase in minority shareholders’ interest (1 646) 581 — —
Dividend paid (398) (266) (350) (266)
Cash flow from investment activities (208) (2 642) 175 (2 210)
Net sales/(purchases) of investments 4 685 (1 276) (745) (333)
Net realised and unrealised growth in investments 8.4 85 (1 366) 920 (1 877)
Acquisition of Gensec minorities (4 978) — — —
Cash flow from financing activities
Net term finance raised/(repaid) 628 (1 536) (11) (874)
Net increase/(decrease) in cash and cash equivalents 4 254 (381) 454 (243)
Cash, deposits and similar securities at beginning of year 4 870 5 251 2 158 2 401
Cash, deposits and similar securities at end of year 5 9 124 4 870 2 612 2 158
P A G E 1 0 5
n o t e s t o t h e s h a r e h o l d e r s ’ f u n d s f i n a n c i a l
s t a t e m e n t s
for the year ended 31 December 2000
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The basis of presentation and accounting policies in respect of the financial statements for the shareholders’ funds of the
Sanlam Life Insurance Limited group and Sanlam Limited group are the same as set out on
pages 68 to 73.
Basis of consolidation
Santam and Gensec are consolidated in the Sanlam Limited group shareholders’ financial statements. The policyholders’ and
outside shareholders’ interests in these companies are treated as minority shareholders’ interest on consolidation.
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
2. FUNDS RECEIVED FROM CLIENTS
(analysis per business)
Sanlam Personal Finance 24 704 21 906 15 630 13 980
Individual insurance 15 630 13 980 15 630 13 980
Recurring premiums 8 401 8 310 8 401 8 310
Single premiums 4 989 4 046 4 989 4 046
Continuations 2 240 1 624 2 240 1 624
Unit trust inflows 9 074 7 926 — —
SP2 (linked products) 2 449 2 346 2 449 2 346
Sanlam Employee Benefits 6 658 5 299 6 658 5 299
Recurring premiums 2 883 2 850 2 883 2 850
Single premiums 4 146 2 449 4 146 2 449
7 029 5 299 7 029 5 299
Transfer from segregated funds (371) — (371) —
Santam 3 836 2 603 — —
Sanlam Health 668 700 — —
SIM segregated funds 8 149 2 534 176 224
Sanlam Namibia Limited 462 380 194 152
Total funds received from clients 46 926 35 768 25 107 22 001
P A G E 1 0 6
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
3. PAYMENTS TO CLIENTS
(analysis per business)
Sanlam Personal Finance 24 521 22 258 15 952 15 560
Individual insurance 15 952 15 560 15 952 15 560
Surrenders 3 672 3 444 3 672 3 444
Death, maturity, disability and annuity benefits 12 280 12 116 12 280 12 116
Unit trust outflows 8 569 6 698 — —
SP2 (linked products) 1 133 737 1 133 737
Sanlam Employee Benefits 12 006 16 841 12 006 16 841
Fund terminations 7 271 11 060 7 271 11 060
Death, retirement, pension, disability and
withdrawal benefits 5 765 6 311 5 765 6 311
13 036 17 371 13 036 17 371
Transfer to segregated funds (1 030) (530) (1 030) (530)
Santam 2 763 1 823 — —
Sanlam Health 640 673 — —
SIM segregated funds 4 848 3 749 498 431
Sanlam Namibia Limited 238 114 79 43
Total payments to clients 46 149 46 195 29 668 33 612
4. INVESTMENTS
Analysis of equity investments (1) (1) (2) (2)
Absa 2 751 2 444 2 740 2 428
Gensec — — 4 906 2 488
Santam (1) (1) 508 256
Other equities
Local 5 648 8 368 3 627 5 327
Offshore 1 938 1 900 1 883 1 900
Equity investments 10 337 12 712 13 664 12 399
(1) Includes the underlying investments of Santam which are consolidated in the Sanlam Limited group results.
(2) Interest in Santam and Gensec reflected as investments in associated companies and not consolidated.
P A G E 1 0 7
n o t e s t o t h e s h a r e h o l d e r s ’ f u n d s f i n a n c i a l
s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
4. INVESTMENTS (continued)
Spread of investments in equities by sector (1) (2) (2) (3) (3)
Industrial 28% 37% 23% 25%
Financial 55% 48% 61% 64%
Resources 17% 15% 16% 11%
Total spread of investment in equities 100% 100% 100% 100%
(1) Spread of investments in equities per sector excludes offshore equities, derivatives, unit trusts and unlisted investments.
(2) Includes the appropriate underlying investments of Santam.
(3) Investment in Santam and Gensec excluded.
Offshore investments
Equities 1 938 1 900 1 883 1 900
Interest-bearing investments 1 068 726 1 065 726
Total offshore investments 3 006 2 626 2 948 2 626
Unlisted equity investments
As a percentage of total investment in equities 2% 1% 1% (1) 1%
(1) Excludes unlisted interest in Gensec.
5. CURRENT ASSETS
Premiums receivable 930 411 540 310
Accrued investment income 242 536 183 502
Trading account and money market investments 7 498 8 068 — —
Accounts receivable 1 935 2 513 787 877
Amounts owing by group companies — — 432 105
Cash, deposits and similar securities 9 124 4 870 2 612 2 158
Total current assets 19 729 16 398 4 554 3 952
6. SHARE CAPITAL AND PREMIUM
Details of share capital are reflected in note 17 on page 87 of the Sanlam Limited group financial statements.
P A G E 1 0 8
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
7. CURRENT LIABILITIES
Trading account and money market liabilities 8 645 7 263 — —
Accounts payable 6 180 5 407 1 866 1 782
Policy benefits payable 2 278 1 656 1 534 1 322
Claims incurred but not reported 431 337 — —
Taxation 522 512 497 455
Shareholders for dividend 790 398 660 350
Total current liabilities 18 846 15 573 4 557 3 909
8. NOTES TO THE CASH-FLOW STATEMENTS
8.1 Cash generated by operations per income statement 1 342 1 067 969 602
Adjustment for non-cash items 1 014 277 (343) 197
Cash generated by operations 2 356 1 344 626 799
8.2 Decrease/(increase) in net current assets
Current assets (546) (3 997) (481) 217
Premiums receivable (519) 93 (230) 79
Accrued investment income (109) 51 (26) 51
Trading account and money market investments (93) (3 832) — —
Accounts receivable 175 (309) 102 (38)
Amounts owing by group companies — — (327) 125
Current liabilities 2 783 3 779 366 (437)
Trading account and money market liabilities 1 382 3 229 — —
Accounts payable 688 1 442 112 235
Policy benefits payable and claims incurred but not reported 716 (924) 212 (724)
Taxation (3) 32 42 52
Decrease/(increase) in net current assets 2 237 (218) (115) (220)
P A G E 1 0 9
n o t e s t o t h e s h a r e h o l d e r s ’ f u n d s f i n a n c i a l
s t a t e m e n t s – c o n t i n u e d
for the year ended 31 December 2000
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
8.3 Cash flow from investment return
Per income statement
• Net investment return per income statement 2 136 1 654 2 027 1 598
• Adjustment for net long-term rate of return (1 049) 847 (835) 1 031
• Other net investment (deficits)/surpluses (220) (199) (1 015) 149
Net investment return attributable to shareholders 867 2 302 177 2 778
Non-cash items 319 (245) 4 (225)
Cash from investment return 1 186 2 057 181 2 553
8.4 Net realised and unrealised growth in investments
Net investment (deficits)/surpluses (note 11 on page 83) (197) 1 414 (920) 1 877
Adjust for surpluses/(deficits) on investments held for resale
(note 10 on page 83) 112 (48) — —
Net realised and unrealised growth in investments (85) 1 366 (920) 1 877
P A G E 1 1 0
g r o u p i n c o m e s t a t e m e n t s
for the year ended 31 December 2000 (on previous basis of disclosure)
Sanlam Life
Sanlam Limited Insurance Limited
2000 1999 2000 1999
R million R million R million R million
Operating profit after exceptional items 1 924 1 722 1 062 794
Investment income (refer note 8 on page 82) 1 373 1 249 1 254 1 068
Headline earnings before taxation 3 297 2 971 2 316 1 862
Tax on headline earnings (415) (449) (250) (359)
Headline earnings after taxation 2 882 2 522 2 066 1 503
Minority shareholders’ interest (476) (567) — —
Headline earnings 2 406 1 955 2 066 1 503
Net investment surpluses (refer note 11 on page 83) (197) 1 414 (920) 1 877
• Investment surpluses (427) 1 715 (920) 1 877
• Income tax 33 (143) — —
• Minority shareholders’ interest 197 (158) — —
Accounting policy change by subsidiary — 68 — —
• Accumulated prior years’ effect of policy change — 212 — —
• Minority shareholders’ interest — (144) — —
Earnings attributable to shareholders 2 209 3 437 1 146 3 380
Diluted attributable earnings per share (cents) 83,1 129,0
Diluted headline earnings per share (cents) 90,6 73,4
P A G E 1 1 1
s i x - y e a r r e v i e w
Average
annual
2000 1999 1998 1997(1) 1996(1) 1995(1) growth
R million R million R million R million R million R million rate %
EXTRACTS FROM FINANCIAL STATEMENTS
Operating profit 1 924 1 722 1 237 1 026 1 070 1 079 12%
Headline earnings based on long-term rate of return 3 478 2 721 — — — — —
Shareholders’ funds 18 222 17 677 14 904 10 172 9 005 7 182 20%
Policy liabilities 133 952 134 319 114 176 119 506 114 647 107 839 4%
Total assets under management 223 637 215 924 176 792 166 382 147 969 135 984 10%
Net tangible asset value per share (cents) (2) 779 771 630 528 466 376 16%
Group administration cost ratio (%) 29,7% 29,8% 27,8% — — — —
Group operating margin (%) 17,4% 17,9% 12,9% — — — —
NEW BUSINESS
Long-term insurance business
Individual insurance 9 795 7 704 6 319 7 743 6 733 7 244 6%
• Recurring premiums – indexed growth 525 527 500 500 425 385 6%
– other 1 149 749 830 1 039 1 301 1 366 –3%
• Single premiums 5 881 4 804 3 107 5 458 4 376 4 862 4%
• Continuations 2 240 1 624 1 882 746 631 631 29%
Employee benefits 4 399 2 633 5 247 5 154 3 503 2 252 14%
• Recurring premiums 219 139 137 — (3) — (3) — (3) —
• Single premiums 4 180 2 494 5 110 5 154 3 503 2 252 13%
Total long-term insurance business 14 194 10 337 11 566 12 897 10 236 9 496 8%
Other business 23 506 15 473 18 280 12 214 8 757 5 978 32%
• Unit trusts 9 342 8 154 8 266 2 957 1 164 890 60%
• Segregated funds 7 973 2 310 4 498 5 519 4 666 2 714 24%
• Linked products 1 687 1 706 1 423 431 — — 58%
• Short-term insurance 4 504 3 303 4 093 3 307 2 927 2 374 14%
Total new business 37 700 25 810 29 846 25 111 18 993 15 474 19%
RECURRING PREMIUMS
Long-term insurance business
Individual insurance 8 455 8 344 8 496 8 354 7 781 6 961 4%
Employee benefits 3 050 3 029 2 740 3 000 2 958 2 579 3%
Total recurring premiums 11 505 11 373 11 236 11 354 10 739 9 540 4%
STAFF
Office staff (excluding marketing staff ) 9 709 10 159 11 669 12 756 12 635 12 406 -5%
(1) Pro forma figures to reflect the demutualisation and restructuring of Sanlam in 1998.(2) Shareholders’ interest in Santam and Gensec adjusted from net asset value to fair value.(3) Figures not readily available as the definition of new business was only introduced in 1999.
P A G E 1 1 2
s t o c k e x c h a n g e p e r f o r m a n c e
2000 1999 1998(1)
Number of shares traded (million) 1 030 1 463 350
Value of shares traded (R million) 8 578 9 451 2 035
Percentage of issued shares traded (%) 39 55 13
Price: earnings ratio (times) 7,3 8,4 —
Shareholders’ return since listing(2) (%) 27 41 —
Headline earnings return on equity (%) 18,7 16,3 —
Market price per share (cents)
• Year-end closing price 956 860 585
• Highest closing price 1 000 890 599
• Lowest closing price 675 440 567
Net asset value per share (cents) 779 771 630
Embedded value per share (cents) 1 035 1 004 827
Market capitalisation at year end (R million) 25 381 22 833 15 531
Sanlam share price relative to
• Financial index 8,87 8,02 6,94
• Life insurance index 7,92 7,07 6,85
(1) Sanlam Limited was listed on 30 November 1998.(2) Annualised growth in the Sanlam share price since listing plus dividends paid.
P A G E 1 1 3
SHARE PRICE vs EMBEDDED VALUE
Share price
Embedded value
400
550
700
850
1 000
1 150
Dec2000
Oct2000
Aug2000
Jun2000
Apr2000
Feb2000
Dec1999
Oct1999
Aug1999
Jun1999
Apr1999
Feb1999
Dec1998
SANLAM SHARE PRICE RELATIVE TO FINANCIAL INDEX
4
5
6
7
8
9
Dec2000
Oct2000
Aug2000
Jun2000
Apr2000
Feb2000
Dec1999
Oct1999
Aug1999
Jun1999
Apr1999
Feb1999
Dec1998
r e p o r t o n t h e
s a n l a m g r o u p e m b e d d e d v a l u e
for the year ended 31 December 2000
DEFINITIONS
In estimating the economic value of a life insurance company,
it is common to use a concept known as the “embedded
value” of the company. The embedded value represents the
shareholders’ net assets plus the value of the life insurance
business in force (VIF), net of the cost of holding prudential
reserves (CPR) in relation to this business. The economic
value of the company is then derived by adding to the
embedded value an estimate of the value of future sales of
new life insurance business, sometimes calculated by applying
a multiple to the value of one year’s sales. The value of one
year’s sales is a measure of the economic value added by a life
insurance company during the course of the year as a result of
writing new business.
This report presents the embedded value of the Sanlam
Group, rather than that of Sanlam Life Insurance Limited. In
addition, the report also presents the net value of new life
insurance business (VNB).
The VIF is calculated as the discounted value, using a
risk-adjusted discount rate, of the projected stream of future
after-tax profits determined on the financial soundness
valuation (FSV) basis for business in force at the valuation
date. This value excludes the discounted value of the release
of prudential reserves over the life of the in-force business.
The CPR with respect to the in-force life insurance
business is calculated as follows:
• the amount of prudential reserves at the valuation date, less
• the discounted value, using a risk-adjusted discount rate, of
the expected annual release of these reserves over the life of
the in-force business, allowing for the after-tax investment
return on the expected level of reserves held in each year.
The VNB is calculated as the discounted value at issue,
using a risk-adjusted discount rate, of the projected stream of
after-tax FSV profits for new business issued during the
twelve months prior to the valuation date. The VNB is
reduced by the CPR over the life of this cohort of business, to
obtain the net VNB.
SANLAM GROUP EMBEDDED VALUE (EV)
Ta b l e 1 2000 1999
Risk discount rate 15,6% 16,1%
(R million)
Sanlam Group shareholders’
net assets 18 222 17 677
Revaluation to fair value(1) 2 290 2 786
Sanlam Group shareholders’
adjusted net assets 20 512(2) 20 463
Net VIF 6 726 6 193
Gross VIF 7 900 7 774
Less: CPR (1 174)(3) (1 581)
Sanlam Group EV 27 238 26 656
EV per share (cents) 1 035 1 004
Number of shares (million)(4) 2 632 2 655
VALUE OF NEW LIFE INSURANCE BUSINESS (VNB)
Ta b l e 2 2000 1999
(R million)
Net VNB(5) 209 101
Gross VNB 245 132
Less: CPR (36) (31)
The above values are net of company tax and do not
include allowance for the tax position of an investor in
Sanlam Limited.(1) Interest in Santam and Gensec adjusted from net asset value to fair value.
A fair value of R32,48 per share was placed on Gensec at
31 December 2000 based on its constituent businesses and assets. This
value is determined taking cognisance of current market values and does
not place a value on the longer term strategic value as was required for the
acquisition of the Gensec minorities.
(2) Includes 100% interest in Gensec (1999: 49%) as a result of the
acquisition of the Gensec minorities during December 2000.
(3) Decrease is largely due to changes in the asset composition underlying
prudential reserves and changes in economic assumptions and
risk discount rate.
(4) Refer note 17 on page 87 of the financial statements.
(5) Based on sales volumes, business mix and acquisition expenses for the
respective years and assumptions at the respective year-ends.
P A G E 1 1 4
ANALYSIS OF NET VIF BUSINESS
Ta b l e 3 2000
Gross Net
(R million) VIF CPR VIF
Sanlam Personal Finance 7 036 (884) 6 152
Sanlam Employee Benefits 1 187 (290) 897
Corporate(1) (323) — (323)
Sanlam Group 7 900 (1 174) 6 726
1999
Gross Net
(R million) VIF CPR VIF
Sanlam Personal Finance 7 102 (1 245) 5 857
Sanlam Employee Benefits 1 056 (336) 720
Corporate (384) — (384)
Sanlam Group 7 774 (1 581) 6 193
(1) Includes R20 million for Sanlam Namibia Limited.
ANALYSIS OF NET VNB
Ta b l e 4 2000
Gross Net
(R million) VNB CPR VNB
Sanlam Personal Finance 198 (8) 190
Sanlam Employee Benefits 98 (28) 70
Corporate(1) (51) — (51)
Sanlam Group 245 (36) 209
1999
Gross Net
(R million) VNB CPR VNB
Sanlam Personal Finance 101 (15) 86
Sanlam Employee Benefits 80 (16) 64
Corporate (49) — (49)
Sanlam Group 132 (31) 101
(1) Includes R5 million for Sanlam Namibia Limited.
Sanlam Personal Finance’s increase in VNB was mainly due to
a significant increase in new business and an overall
improvement in margins. Sanlam Employee Benefit’s increase
in VNB is the net result of
• a substantial increase in new business, and
• a relatively larger allocation of SEB corporate and marketing
expenses in 2000 (an additional R34 million in 2000),
owing to the refinement of the expense analysis.
MARGINS
Profitability of new business can be measured by the ratio of
the net value of new business to the annual premium
equivalent (APE).
NET VNB AS A PERCENTAGE OF APE
Ta b l e 5 2000
Net
(R million) VNB APE(1) Margin
Sanlam Personal Finance 190 1 948 9,8%
Sanlam Employee Benefits 70 629 11,1%
Corporate (51) 41(2) —
Sanlam Group 209 2 618 8,0%
1999
Net
(R million) VNB APE(1) Margin
Sanlam Personal Finance 86 1 391 6,2%
Sanlam Employee Benefits 64 366 17,5%
Corporate (49) — —
Sanlam Group 101 1 757 5,7%
(1) Annual Premium Equivalent (APE) is new recurring premiums
(excluding indexed growth premiums) plus 10% of single premiums.
(2) The APE for Sanlam Namibia Limited was R41million.
EMBEDDED VALUE EARNINGS
Ta b l e 6 2000 1999
(R million)
Net VNB 209 101
Earnings from existing life
insurance business 1 330 1 056
• Expected return 1 173 1 219
• Operating experience variations 137(1) (101)
• Operating assumption changes 20 (62)
Embedded value earnings
from operations 1 539 1 157
Economic and other assumption
changes 289(2) 521
Tax changes (22) (512)
Investment variances (304) 408
Growth from life insurance
business 1 502 1 574
Investment return on adjusted
net worth (130)(3) 3 794
Total embedded value earnings 1 372 5 368
Dividends paid or proposed (790) (664)
Increase in Sanlam Group
embedded value 582 4 704
Return on embedded value 5,1%(4) 24,4%
P A G E 1 1 5
r e p o r t o n t h e
s a n l a m g r o u p e m b e d d e d v a l u e – c o n t i n u e d
for the year ended 31 December 2000
The above values are based on the assumptions at the respective year ends.
(1) Profit and losses were incurred due to better or worse than expected expense
and demographic experience on all products. The main contributor to
the positive operating experience was R193 million in respect of risk
underwriting. The positive values were reduced by project expenses of
R68 million that were not foreseen at the previous year-end.
(2) The R289 million resulting from economic and other assumption changes is
due to:
• R97 million in respect of the net effect of changes in the asset mix for
prudential reserves resulting in an increase in unprotected equities to
54% (see Table 9) and following from this, an increase in the risk
discount rate to 0,5% above equity returns.
• R192 million mainly in respect of the 1% reduction in assumed investment
returns (see Table 8).
(3) The investment return experience includes the effect of realised and
unrealised investment surpluses which were negatively influenced by the
difficult stock market conditions in 2000.
(4) The return on embedded value is the embedded value earnings as a
percentage of the embedded value at the beginning of the year.
GROWTH FROM LIFE BUSINESS
Ta b l e 7 2000 1999
(R million)
VIF at end of year 6 726 6 193
Plus: net operating profit transferred
to current year’s earnings(1) 969 602
Less: VIF at beginning of year (6 193) (5 221)
Growth in life business 1 502 1 574
Growth in life business(2) 24,3% 30,1%
(1) Net operating profit after tax.
(2) Growth from life business expressed as a percentage of VIF at the beginning
of the year.
DISCOUNT RATE
The long-term investment objectives for the Sanlam Life
Insurance Limited’s shareholders investment portfolio were
reviewed and the proportion of equities was increased. This
increased the expected return and volatility of investment
returns. The required rate of return on shareholders’ capital,
as represented by the risk discount rate, was increased as a
result. At 31 December 1999 the risk discount rate was equal
to the assumed long-term equity return, whereas at
31 December 2000 it was set at 0,5% higher than the long-
term equity return (see Table 8).
PRINCIPAL BASES AND ASSUMPTIONS
The assessment of the VIF business, the CPR and the VNB
is based on the “best estimate” assumptions used for
determining the FSV policy liabilities excluding
any margins.
The principal bases and assumptions used in the
calculations are described below.
Investment return and inflation
The investment assumptions used in the EV and the FSV
basis have been the same since 1999.
The assumed pre-tax investment returns by major asset
category and assumed inflation were based on the market
yield of fixed-interest securities, and are:
GROSS INVESTMENT RETURN AND INFLATION
ASSUMPTIONS
Ta b l e 8 2000 1999
% %
Fixed-interest securities 13,1 14,1
Equities and off-shore investments 15,1 16,1
Hedged equities(1) 12,1 13,1
Property 14,1 15,1
Cash 11,1 12,1
Risk discount rate 15,6 16,1
Prudential reserves asset returns(2) 14,1 14,5
Inflation(3) 6,6 7,6
(1) The assumed future return for these assets is lower than that of equities
which are not hedged, reflecting the cost of the derivative instruments.
(2) The investment return on assets supporting the prudential reserves shown in
Table 9, is based on the assumed long-term asset mix for these funds.
(3) The inflation assumption is used for both expense inflation and for
premium indexation.
Prudential reserving
The following asset mix was assumed for funds supporting
Sanlam Life Insurance Limited’s prudential reserves.
P A G E 1 1 6
ASSUMED LONG TERM ASSET MIX FOR FUNDS
SUPPORTING PRUDENTIAL RESERVES
Ta b l e 9 2000 1999
% %
Equities 54 32
Hedged equities 18 17
Property 16 10
Fixed-interest securities 10 33
Cash 2 8
Total 100 100
Sanlam is satisfied that its capital adequacy requirement cover
allows it to increase the risk profile of the assets underlying the
prudential reserves. The long-term asset mix for prudential
reserves in 2000 largely reflects the actual change in asset mix,
which occurred simultaneously with the acquisition of the
Gensec minorities.
Assets held in the shareholders’ fund of Sanlam Life
Insurance Limited in excess of the prudential reserves are
assumed to be invested in local equities or in foreign assets.
It was assumed that the current prudential reserving basis
would be maintained in the future and has not changed since
the 1999 valuation.
Other decrements and bonuses bases
The bases for these elements were as follows:
• Future mortality, morbidity and discontinuance rates and
future expense levels were based on recent experience where
appropriate.
• Future rates of bonuses for traditional participating
business, stable bonus business and participating annuities
were set at levels which were supportable by the assets
backing the respective product sub-funds at the respective
valuation dates.
• Sanlam Life Insurance Limited’s current surrender and
paid-up bases were assumed to be maintained in the future
and have not changed since the December 1999 valuation.
HIV/Aids
Allowance for the impact of expected HIV/Aids-related
claims, where appropriate, was made consistent with the
recommendations of the Actuarial Society of South Africa as
set out in its Professional Guidance Note (PGN) 105.
Premiums were assumed to be rerated, where applicable, in
line with deteriorations in mortality, with a three-year delay
from the point where mortality losses would be experienced.
Recurring expenses and project costs
The expense bases were as follows:
• Future investment expenses were based on the current scale
of fees in place between Sanlam Investment Management
and Sanlam Life Insurance Limited. To the extent that this
scale of fees includes profit margins for Sanlam Investment
Management, these margins have not been included in the
assessment of the VIF business and the VNB.
• In determining the VIF business, the value of expenses for
certain planned projects focusing on both administration
and distribution aspects of Sanlam’s life insurance business
has been deducted. These projects are of a short-term
nature, although similar projects may be undertaken from
time to time. No allowance has been made for the expected
positive impact these projects may have on the future
operating experience of Sanlam Life Insurance.
New business premiums
• In determining the VNB with regard to new recurring
premiums, increases in existing recurring premium
contracts associated with indexation arrangements were not
included, but instead were allowed for in the VIF business.
• The VNB includes the expected value of future premium
increases resulting from premium indexation on the new
recurring premium business written during the year to
31 December 2000.
• The value of individual policies that matured during the
year and were subsequently continued, has been included
in the VNB.
• The new Millennium and Stratus products of Sanlam
Personal Finance, are taken into account as open-ended
policies.
Taxation
• Projected corporate tax was allowed for at 30% for both
1999 and 2000. The values for these years were calculated
on the revised four-fund tax basis for life insurers which
came into effect from 1 January 2000.
• Allowance has been made for the change in taxation of
overseas dividends, as announced by the Minister of
Finance in his February 2000 budget speech.
• No allowance was made for capital gains tax owing to
uncertainty regarding the implementation of this tax.
P A G E 1 1 7
r e p o r t o n t h e
s a n l a m g r o u p e m b e d d e d v a l u e – c o n t i n u e d
for the year ended 31 December 2000
Other factors
The embedded values do not include an allowance for the
cost of the share incentive scheme. In respect of share
options, where shares have not yet been issued, the number of
shares used to calculate the embedded value per share will be
increased as and when these options are granted. Granting
share options will therefore influence the embedded value per
share negatively in future.
SENSITIVITY ANALYSIS
To illustrate the effect of using different assumptions, the
sensitivity of the values is shown in Table 10. Sensitivities
have been determined at a risk discount rate of 15,6% per
annum (except where indicated otherwise). The risk discount
rate appropriate to an investor will depend on the investor’s
own requirements, tax position and perception of the risks
associated with the realisation of the future profits of Sanlam
Life Insurance Limited. For each sensitivity illustrated, all
other assumptions have been left unchanged. Note that the
different sensitivities do not indicate that they each have a
similar chance of occurring. The sensitivities are illustrative.
SENSITIVITY ANALYSIS – 31 December 2000
Ta b l e 1 0
Value of in force Gross Net
(R million) VIF CPR VIF %(1)
Base value 7 900 (1 174) 6 726 —
Increase risk discount rate
by 1,5% to 17,1% 7 321 (1 666) 5 655 –16%
Decrease risk discount
rate by 1,5% to 14,1% 8 575 (586) 7 989 19%
Increase investment return
and inflation by 1,5%,
coupled with an increase in
risk discount rate of 1,5%
to 17,1%, and with bonus
rates changing commensurately 7 809 (1 194) 6 615 –2%
Increase inflation by 1,5%,
without adjustment in
nominal investment return,
but with index-linked
premiums increased by
1,5% as well 7 894 (1 180) 6 714 0%
Increase non-commission
expenses (excluding
investment expenses) by 10% 7 667 (1 172) 6 495 –3%
Increase discontinuance rates
by 10% 7 770 (1 132) 6 638 –1%
Increase mortality of
products providing death
benefits by 10%(2) 7 743 (1,166) 6 577 –2%
SENSITIVITY ANALYSIS – 31 December 2000
Ta b l e 1 1
Value of new business Gross Net
(R million) VNB CPR VNB %(1)
Base value 245 (36) 209 —
Increase risk discount rate
by 1,5% to 17,1% 209 (50) 159 –24%
Decrease risk discount rate
by 1,5% to 14,1% 286 (18) 268 28%
Increase investment return
and inflation by 1,5%,
coupled with an increase in
risk discount rate of 1,5% to
17,1%, and with bonus rates
changing commensurately 232 (37) 195 –7%
Increase inflation by 1,5%,
without adjustment in nominal
investment return, but with
index-linked premiums
increased by 1,5% as well 241 (37) 204 –2%
Increase non-commission
expenses (excluding investment
expenses) by 10% 182 (35) 147 –30%
Decrease new business volumes
by 10%, but acquisition
expenses remain unchanged 187 (35) 152 –27%
Increase mortality of products
providing death benefits
by 10%(2) 227 (35) 192 –8%
(1) Percentage change from base value.(2) Risk premiums are assumed to be increased accordingly (where
appropriate), but only after a three year lag. Mortality of annuities is
assumed to be unchanged, because a decrease rather than an increase in
mortality, increases the mortality risk on annuities.
P A G E 1 1 8
c o n s u l t i n g a c t u a r i e s r e p o r t
for the year ended 31 December 2000
P A G E 1 1 9
7 March 2001
The Directors
Sanlam Limited
2 Strand Road
Bellville
South Africa
Ladies and Gentlemen
Embedded Value of the Sanlam Group
The embedded value of the Sanlam Group, an analysis of the change in this embedded value over the twelve months to
31 December 2000 and the value of one year’s new life insurance business, are set out on pages 114 to 118 of these accounts.
We have reviewed the calculation of the Sanlam Group embedded value and the value of one year’s new life insurance business
and the methodology and assumptions underlying those calculations. Based on this work, we are satisfied that the results have been
prepared with due care and using sound actuarial principles, and the methodology and assumptions are appropriate for the purpose of
reporting the results of the Sanlam Group. Further, the methodology has been consistently applied at each valuation date, and the
analysis of change in embedded value is a fair representation of the experience over 2000.
In performing our work, we have relied on audited and unaudited information supplied to us by, or on behalf of, Sanlam
Limited for periods up to 31 December 2000 and on information from other sources. The information included the amount of
the adjusted shareholders’ net assets of the Sanlam Group as shown on page 114 of this report, and statistical data relating to
current and recent operating experience. We have reviewed this information for overall reasonableness and consistency with our
knowledge of the industry but we have not carried out independent checks of the data and other information supplied to us.
Yours faithfully
Mike Davies Joanne Atkinson
Fellow of the Institute of Actuaries Fellow of the Institute of Actuaries
Fellow of the Actuarial Society of South Africa Fellow of the Actuarial Society of South Africa
Towers, Perrin, Forster & Crosby (Inc in Pennsylvania, USA)
Registered in South Africa, Registration number 97/20979/10
3rd Floor, Safmarine House, 22 Riebeek Street, Cape Town 8001, South Africa
d e f i n i t i o n a n d g l o s s a r y o f t e c h n i c a l t e r m s
“ b i l l i o n ” – one thousand million;
“ b o n u s p e n s i o n ” – a bonus pension is a policy which provides immediate annuities, the benefits of which
are increased annually by the bonuses declared;
“ c a p i t a l a d e q u a c y ” – capital adequacy implies the existence of a buffer against experience worse than that
assumed in the financial soundness valuation. The sufficiency of the buffer is
measured by comparing available capital with the capital adequacy requirement. The
main element in the calculation of the capital adequacy requirement is the
determination of the effect of an assumed fall in asset values on the excess of assets
over liabilities;
“ e m b e d d e d v a l u e ” – embedded value represents the net assets of a life company together with the value of
the portfolio of business in force, net of the cost of holding prudential reserves in
relation to this business;
“ i m m e d i a t e a n n u i t y ” – a policy which provides that, in consideration for a single premium, a series of regular
benefit payments will be made for a defined period;
“ l i n k e d p o l i c y ” – a non-participating policy which is allotted units in an investment portfolio. The
value of the policy at any stage is equal to the number of units multiplied by the unit
price at that stage;
“ m a r k e t - r e l a t e d p o l i c y ” – a participating policy which participates in non-vesting investment growth. This
growth reflects the volatility of the market value of the underlying assets of the policy;
“ n o n - p a r t i c i p a t i n g p o l i c y ” – a policy which provides benefits that are fixed contractually, either in monetary terms
or by linking them to the return of a particular investment portfolio, eg a linked or
fixed-benefit policy;
“ p a r t i c i p a t i n g p o l i c y ” – a policy which provides guaranteed benefits as well as discretionary bonuses. The
declaration of such bonuses will take into account the return of a particular
investment portfolio. Reversionary bonus, stable bonus, market related and bonus
pension policies are participating policies;
“ p o l i c y ” – unless the context indicates otherwise, a reference to a policy in this report means an
insurance policy issued by Sanlam Life Insurance Limited in accordance with the
Long-term Insurance Act;
“ r e v e r s i o n a r y b o n u s p o l i c y ” – a conventional participating policy which participates in reversionary bonuses,
ie bonuses of which the face amounts are only payable at maturity or on earlier death
or disability. The present value of such bonuses is less than their face amounts;
“ S a n l a m L i f e ” – a business of Sanlam Personal Finance mainly conducting life insurance business for
individuals;
“ S a n l a m L i f e – a wholly-owned subsidiary of Sanlam Limited conducting mainly life insurance
I n s u r a n c e L i m i t e d ” business;
“ S a n l a m L i m i t e d ” – the holding company listed on the JSE Securities Exchange, SA and Namibian Stock
Exchange;
“ S a n l a m” o r “ S a n l a m G r o u p ” – Sanlam Limited and its subsidiaries;
“ s t a b l e b o n u s p o l i c y ” – a participating policy under which bonuses tend to stabilise short-term volatility in
investment performance;
“ s u r r e n d e r v a l u e ” – the surrender value of a policy is the cash value, if any, which is payable in respect of
that policy upon cancellation by the policyholder.
P A G E 1 2 0
n o t i c e o f a n n u a l g e n e r a l m e e t i n g
SANLAM LIMITED
(Incorporated in the Republic of South Africa)
(Registration No 1959/001562/06)
Notice is hereby given that the third Annual General
Meeting of the Members of Sanlam Limited (“the company”)
will be held on Wednesday 13 June 2001 at 09:00 in the
CR Louw Auditorium, Sanlam Head Office, 2 Strand Road,
Bellville, for the following purposes:
1. To consider and adopt the annual financial statements
and the group annual financial statements of the company
for the financial year ended 31 December 2000.
2. To re-appoint the auditors of the company.
3. To elect the following retiring directors appointed by the
board of directors of the company (“the Board”) in casual
vacancies or as additional directors in terms of article 13.2
of the company’s articles of association (“the articles”),
and who are eligible and offer themselves for re-election:
TS Gcabashe, Prof AF Perold, Prof J van Zyl and
BP Vundla
4. To elect the following directors retiring after having held
office for a period of three years since their last election in
terms of article 14.1 of the articles, and who are eligible
and offer themselves for re-election:
DL Keys, DNM Mokhobo and JJM van Zyl.
5. To authorise the directors to determine the remuneration
of the auditors.
6. To table and approve the total amount of directors’
remuneration.
7. To consider and, if deemed fit, to pass, with or without
modification, the following ordinary resolution number 1:
“That the authorised but unissued ordinary shares in
the share capital of the company be and are hereby placed
at the disposal and under the control of the Board, and such
directors are hereby authorised and empowered to allot,
issue or otherwise dispose thereof to such person or persons
and on such terms and conditions as the directors may
from time to time determine, but subject to the provisions
of the Companies Act, No 61 of 1973, as amended (“the
Companies Act”), the requirements of the JSE Securities
Exchange South Africa (“the Securities Exchange”), and
any other stock exchange upon which the shares of the
company may be quoted or listed from time to time”.
8. To consider and, if deemed fit, to pass, with or without
modification, the following ordinary resolution number 2:
“1. That in terms of clause 27.1.3 of the trust deed (“the
Trust Deed”) of the Sanlam Limited Share Incentive
Trust (“the Sanlam Share Scheme”) the Trust Deed be
and is hereby amended in the following manner:
1.1. Pursuant to the acquisition by the company of
all of the ordinary shares for cash in Genbel Securities
Limited (“Gensec”), the reference to “5% (five percent)”
in the definition of “scheme allocation” in clause 1.2.34
shall be amended to “7,5% (seven comma five percent)”
in order to allow previous participants of the Genbel
Securities Limited Share Trust (“the Gensec Share
Incentive Scheme”) to participate in the Sanlam
Share Scheme, which shall amount to 199,1 million
of the 2 654,6 million current issued shares.
1.2 In order to bring the Sanlam Share Scheme
in accordance with current market practice, clause 17.2,
which deals with the release periods before which
beneficiaries can dispose of their shares acquired under
the Sanlam Share Scheme, shall be amended as follows:
“• 40% (forty percent) of each tranche on or after
the third anniversary as from the offer date or the
option date, as the case may be;
• 20% (twenty percent) of each tranche on or after
the fourth anniversary as from the offer date or
the option date, as the case may be;
• 20% (twenty percent) of each tranche on or after
the fifth anniversary as from the offer date or the
option date, as the case may be;
• 20% (twenty percent) of each tranche on or after
the sixth anniversary as from the offer date or the
option date, as the case may be;”
P A G E 1 2 1
n o t i c e o f a n n u a l g e n e r a l m e e t i n g – c o n t i n u e d
1.3 In order to protect beneficiaries against fluctuations
in the share price and to compel them to pay the
share debt in respect of shares acquired in the event
of death, retirement, early retirement, retrenchment
or disability earlier, the provisions of clause 18.2.1
shall be amended as follows:
“18.2.1 the share debt in respect of shares will become
payable within 24 (twenty four) months after
the termination date, provided, however, that if
the current market price (as defined in clause
1.2.25, mutatis mutandis) of the shares is lower
than the purchase price at the termination date,
the trustees shall have the discretion to make an
offer to acquire the shares concerned at their
original purchase price, including any interest
accrued on the purchase price and to set off
such purchase price against the outstanding
share debt on the termination date, provided,
however, that should the individual elect not to
accept such offer from the trustees, any
fluctuation of the share price thereafter shall be
for the risk and/or benefit of the individual
concerned.”
1.4 In order to provide for individuals who accept
retirement or early retirement but continue to render
services thereafter to the company, a new clause
18.2.3 is inserted into the Trust Deed on the basis
that the same restrictions pertaining to the ability of
those individuals to deal with their shares acquired in
the company, shall continue to apply consistently in
accordance with the purpose of the Sanlam Share
Scheme, as follows –
– the deletion of the word “and” at the end of clause
18.2.1;
– the deletion of the full stop at the end of clause
18.2.2 and the substitution thereof with “and”;
– the introduction of a new clause 18.2.3, which
reads as follows:
“18.2.3 where individuals continue to render services to
the company in circumstances where they have
accepted retirement or early retirement, the
provisions of clause 18.2.1 and clause 18.2.2
shall apply only to the extent that the trustees
have decided to invoke those provisions in their
sole and absolute discretion at the date of
retirement, provided that these individuals will
otherwise be deemed to be employees and not
retired employees for purposes of the scheme.”.
2. That the trustees of the Sanlam Share Scheme be
authorised to offer a maximum of 8 (eight) million
options in respect of shares in the company to previous
participants of the Gensec Share Incentive Scheme at a
price equal to R8,20 (eight rand twenty) per ordinary
share of the company, it being recorded that
• this was the price at which shares in the company
traded at the date that the intention by the company
to acquire all of the ordinary shares in Gensec was
made public;
• in order to confer upon the participants of the
Gensec Share Incentive Scheme the same rights and
obligations as they had under the Gensec Share
Incentive Scheme, participants under the Gensec
Share Incentive Scheme were thus offered new
company options in the Sanlam Share Scheme at an
option price of R8,20 (eight rand twenty) per
ordinary share of the company, of which
approximately 88% (eighty eight percent) have
already been accommodated within the current
restrictions of the Sanlam Share Scheme;
• such course of conduct has been approved by the
Securities Exchange.”
9. To consider and, if deemed fit, to pass, with or without
modification, the following Special Resolution number 1:
“That the boards of directors of the company and any
subsidiary of the company be authorised by way of a
general authority, up to and including the date of the
following annual general meeting of the company, to
approve
(a) the purchase of any of its securities by the company or
its subsidiaries, including ordinary shares of R0,01
each in the capital of the company; and
(b) the purchase of such securities by the company in any
holding company of the company, if any, and any
subsidiary of any such holding company,
subject to the provisions of the Companies Act and the
P A G E 1 2 2
requirements of the Securities Exchange and any other
stock exchange upon which the shares of the company
may be quoted or listed from time to time, and subject
to such other conditions as may be imposed by any
other relevant authority,
provided that:
• the general authority shall only be valid until the
company’s next annual general meeting, provided that
it does not extend beyond 15 months from the date of
this resolution;
• the general authority to repurchase be limited to a
maximum of 10% of the relevant company’s issued
share capital of that class at the time the authority is
granted; and
• repurchases must not be made at a price more than
5% above the weighted average of the market value of
the securities for the five business days immediately
preceding the date of the repurchases.”
The reason for and effect of Special Resolution number 1
is to grant the directors a general authority to enable the
company to acquire shares which have been issued by it, or
its holding company, if any, and any subsidiary of any such
holding company.
STATEMENT OF INTENT
The Board shall implement a general repurchase of the
company’s shares, only if prevailing circumstances (including
the tax dispensation and market conditions) warrant same,
and should they be of the opinion, after considering the
effect of such repurchase of shares, that the following
requirements have been and will be met:
• the company will be able to pay its debts in the ordinary
course of business;
• the consolidated assets of the company, fairly valued in
accordance with generally accepted accounting practice,
are in excess of the consolidated liabilities of the company;
• the company will have adequate capital; and
• the working capital of the company will be sufficient for
the company’s requirements for the year ahead.
P A G E 1 2 3
PROXIES AND REPRESENTATIVES
1. A member entitled to attend and vote at the meeting may
appoint a proxy to attend, speak and vote in his or her
stead. A proxy includes a person appointed under a
general or special power of attorney. A notarially certified
copy of such power of attorney or other documentary
evidence establishing the authority of the person signing
as proxy must be attached to the proxy form.
2. A proxy form is enclosed for use by members who are
unable to attend the meeting. Same is also obtainable
from the registered office of the company. Duly
completed proxy forms must be deposited at the
registered office of the company not less than 48 hours
before the time of holding the meeting.
3. The proxy need not be a member of the company.
4. A person representing a corporation/company is not
deemed to be a proxy as such corporation/company can
only attend a meeting through a person, duly authorised
by way of a resolution to act as representative. Such person
enjoys the same rights at the meeting as the shareholding
company and must at least 48 hours before the meeting
provide the company with satisfactory documentary
evidence (the resolution) that he or she is entitled to act.
5. A member whose shares are held by Sanlam Share Account
(Proprietary) Limited or Sanlam Fundshare Nominee
(Proprietary) Limited is empowered by such relevant
nominee company to attend and vote at the meeting.
By order of the Board
JP Bester
Company Secretary
12 March 2001
s h a r e h o l d i n g a n d a d m i n i s t r a t i o n
ANALYSIS OF SHAREHOLDERS ON 31 DECEMBER 2000
Shareholders Shares held
Number % Number %
DISTRIBUTION OF SHAREHOLDING
1 – 1 000 876 427 84,47 353 607 319 13,32
1 001 – 5 000 143 664 13,85 283 105 393 10,66
5 001 – 10 000 11 990 1,16 81 327 594 3,06
10 001 – 50 000 4 957 0,48 82 077 536 3,09
50 001 – 100 000 179 0,02 12 588 708 0,47
100 001 –1 000 000 224 0,02 59 172 916 2,23
1 000 000 and over 44 0,00 1 782 691 201 67,17
1 037 485 100.00 2 654 570 667 100,00
PRINCIPAL SHAREHOLDINGS
Individuals 1 021 984 98,50 778 194 738 29,31
Companies 9 412 0,91 65 076 337 2,49
Pension and retirement funds 5 765 0,56 113 714 256 4,28
Nominee companies 250 0,02 1 694 971 473 63,85
Insurance companies 7 0,00 932 074 0,04
Other 67 0,01 1 681 789 0,03
1 037 485 100,00 2 654 570 667 100,00
PUBLIC AND NON-PUBLIC SHAREHOLDERS
Public shareholders 98,09
Non-public shareholders
• Directors’ interest 0,18
• Employee pension fund 0,51
• Sanlam Limited Share Incentive Trust 1,22
100,00
SHAREHOLDERS’ DIARY
FINANCIAL YEAR-END 31 December
ANNUAL GENERAL MEETING 13 June 2001
REPORTS
• Interim report for 30 June 2001 September 2001
• Announcement of the results
for the year ended 31 December 2001 March 2002
• Annual report for year ended 31 December 2001 April 2002
DIVIDENDS
• Dividend for 2000 declared 7 March 2001
• LDR for 2000 dividend 20 April 2001
• Payment of dividend for 2000 16 May 2001
• Declaration of dividend for 2001 March 2002
• Payment of dividend for 2001 May 2002
ADMINISTRATION
SANLAM LIMITED
Registration no
1959/001562/06
SANLAM LIFE INSURANCE
LIMITED
Registration no 1998/021121/06
GROUP SECRETARY
JP Bester
REGISTERED OFFICE
2 Strand Road, Bellville
Telephone (021) 947-9111
Fax (021) 947-3670
POSTAL ADDRESS
PO Box 1
Sanlamhof
7532
South Africa
INTERNET ADDRESS
http://www.sanlam.co.za
TRANSFER SECRETARIES
Mercantile Registrars Limited
(Registration no 1987/003382/06)
10th Floor
11 Diagonal Street
Johannesburg
2001
South Africa
PO Box 1053
Johannesburg
2000
South Africa
Telephone (011) 370-5320
Fax (011) 370-5486
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