SANLAM LIFE INSURANCE LIMITED GROUP

Annual Financial Statements

2009

SANLAM LIFE INSURANCE LIMITED

REGISTRATION NO. 1998/021121/06

Company incorporated in South Africa Directors Independent Non-Executive RC Andersen (Chairman) MMM Bakane-Tuoane AD Botha AS du Plessis FA du Plessis WG James (Resigned 26/1/2009) MV Moosa SA Nkosi I Plenderleith (1) GE Rudman DK Smith (Appointed 8/6/2009) ZB Swanepoel PL Zim Non-Executive PT Motsepe RV Simelane Executive J van Zyl (2) JP Möller (2)

RK Morathi (2) (Resigned 3/8/2009) YG Muthien (2) (Appointed 2/12/2009) TI Mvusi (2) (Appointed 2/12/2009) (1) British. (2) Full time employees. Company Secretary M Lombard Registered office Postal address 2 Strand Road PO Box 1 Bellville Sanlamhof 7530 7532 Auditors Ernst & Young Inc. P.O. Box 504 Sanlamhof 7532 2

SANLAM LIFE INSURANCE LIMITED GROUP Annual Financial Statements

CONTENTS PAGE Directors’ Responsibility for Financial Reporting 4

Certificate by Company Secretary 4

Report of the Statutory Actuary 5

Report of the Independent Auditors 6

Directors’ Report 7

Basis of Presentation and Accounting Policies 9

Statement of financial position 35

Statement of comprehensive income 36

Statement of changes in equity 37

Cash flow statement 39

Notes to the Annual Financial Statements 40

Principal Subsidiaries 77

Related Parties 79

Statement of Actuarial Values of Assets and Liabilities 81

Capital and Risk Management Report 86

Employment Equity Report 133

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DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING The Board of Sanlam Life Insurance Limited takes responsibility for the integrity, objectivity and reliability of the group and company financial statements of Sanlam Life Insurance Limited in accordance with International Financial Reporting Standards. Adequate accounting records have been maintained. The Board endorses 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, Ernst & Young Inc., is to express an independent opinion on the fair presentation of the financial statements based on their audit of Sanlam Life Insurance Limited and the Group. The Audit, Actuarial and Finance committee has satisfied itself that the external auditors were independent of the company during the period under review.

The audit committee has confirmed that effective systems of internal control and risk management are being maintained. There were no material breakdowns in the functioning of the internal financial control systems during the year, which had a material impact on the Sanlam Life Insurance Limited group financial statements. The Board is satisfied that the financial statements fairly present the financial position, the results of operations and cash flows in accordance with International Financial Reporting Standards and supported by reasonable and prudent judgements consistently applied.

The Board is of the opinion that Sanlam Life Insurance Limited is financially sound and operates as a going concern. The financial statements have accordingly been prepared on this basis.

The financial statements on pages 7 to 132 were approved by the Board and signed on its behalf by:

J van Zyl JP Möller

Director Director 10 March 2010

CERTIFICATE BY COMPANY SECRETARY In my capacity as Company Secretary, I hereby certify, in terms of the Companies Act, that for the year ended 31 December 2009, 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.

M Lombard

Company Secretary 10 March 2010

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REPORT OF THE STATUTORY ACTUARY OF SANLAM LIFE INSURANCE LIMITED

Statutory valuation

The following major life insurance companies have been consolidated in the Sanlam Life Insurance Limited group financial statements set out on pages 7 to 132:

• Sanlam Life Insurance Limited; • Sanlam Developing Markets Limited; • Sanlam Life Namibia Limited; and • Botswana Life Insurance Limited.

In respect of each of the above companies I have obtained confirmation from the appointed Statutory Actuary that:

• The valuation of the company as at 31 December 2009, has been performed in all material respects

on the bases as set out on pages 30 to 34, as applicable. The valuation has been prepared and the results are presented in accordance with the applicable actuarial and statutory guidelines;

• The company was financially sound on the statutory basis as at the valuation date, and in the opinion of the Statutory Actuary is likely to remain financially sound for the foreseeable future; and

• The management actions assumed for the calculation of the capital adequacy requirements have been approved by the board of directors of the company and the Statutory Actuary expects that these actions would be taken if the corresponding risks were to materialise.

AP Zeeman FIA, FASSA Statutory Actuary 10 March 2010

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INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SANLAM LIFE INSURANCE LIMITED

We have audited the annual financial statements and the Group annual financial statements of Sanlam Life Insurance Limited, which comprise the Statement of financial position as at 31 December 2009, the Statement of comprehensive income, the Statement of changes in equity and Cash flow statement for the year then ended, a summary of significant accounting policies and other explanatory notes, as set out on pages 7 to132. Directors’ responsibility for the financial statements The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the company and Group as of 31 December 2009, and of the financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. Ernst & Young Inc. Director: MP Rapson Registered Auditor Cape Town 10 March 2010

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DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2009 NATURE OF BUSINESS

The core activities of the Sanlam Life Insurance Limited group include long-term insurance, investment management and other related financial services activities. Sanlam Life Insurance Limited is a public company incorporated in terms of the Companies Act, 1973, in South Africa.

CORPORATE GOVERNANCE The Board of Sanlam Life Insurance Limited endorses the Code of Corporate Practice and Conduct recommended in the King II Report on Corporate Governance. The directors constantly pursue the implications of the King Code and are of the opinion that the company does substantially comply with the requirements of the King Code. In supporting the Code, the directors recognise the need to conduct the enterprise with integrity, transparency, accountability and in accordance with generally accepted corporate practices. As the company is a wholly owned subsidiary the recommended disclosures of the King II Report have been included in the financial statements of the holding company, Sanlam Limited. The Audit, Actuarial and Finance Committee, based on representations received and after considering compliance with the non-audit services policy of the Sanlam Group and any other business relationships with the external auditors', is satisfied that the external auditors' are independent.

GROUP AND COMPANY RESULTS Profit before tax for the Group increased from R1 613 million in 2008 to R7 813 million in 2009, mainly as a result of higher relative investment market performance in 2009. Profit before tax for the Company increased from a loss of R243 million in 2008 to a profit of R8 969 million in 2009. Further details regarding the Group’s results are included in the financial statements on pages 35 to 132.

SHARE CAPITAL There were no changes in the authorised and issued share capital of the company during the financial year.

DIVIDEND

The Board approved the declaration and payment of dividends amounting to a maximum of R3 500 million (2008: R4 650 million) in respect of the 2009 financial year.

SUBSIDIARIES Details of the company’s principal subsidiaries are set out on page 77.

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DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2009 (continued)

HOLDING COMPANY Sanlam Life Insurance Limited is a wholly owned subsidiary of Sanlam Limited, a company incorporated in South Africa and listed on the Johannesburg Securities Exchange and the Namibia Stock Exchange.

DIRECTORS’ INTEREST IN CONTRACTS No material contracts involving directors’ interests were entered into in the year under review.

DIRECTORS AND SECRETARY Particulars of the directors and secretary of the company are set out on page 2.

DIRECTORS’ EMOLUMENTS

Refer to note 24 for details on directors’ emoluments. Further details can also be found in the Corporate Governance report in the Sanlam Limited financial report.

EMPLOYMENT EQUITY The required report in terms of section 21 of the Employment Equity Act has been submitted and a compliance certificate has been issued. See pages 133 and 134 for an extract of the report.

POST-BALANCE SHEET EVENTS No material facts or circumstances have arisen between the dates of the balance sheet and this report that affect the financial position of Sanlam Life Insurance Limited at 31 December 2009 as reflected in these financial statements.

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES BASIS OF PRESENTATION 1. Introduction The consolidated financial statements are prepared on the historical-cost basis, as modified by the revaluation of investment properties, investment instruments, derivative assets and liabilities, listed term finance and long-term policy liabilities, in accordance with International Financial Reporting Standards (IFRS) and the Companies Act, No. 61 of 1973, as amended, in South Africa. The financial statements are presented in South African rand rounded to the nearest million, unless otherwise stated. The following new or revised IFRSs and interpretations are applied in the Group’s 2009 financial year: IAS 1 Revised Presentation of Financial Statements

IAS 1 Amended Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation

IAS 32 Amended Financial Instruments: Presentation – Puttable Financial Instruments and Obligations Arising on Liquidation

IFRS 2 Amended Share-based Payment – Vesting Conditions and Cancellations

The May 2008 Improvements to IFRS

Amendments to IFRIC 9 – Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement – Embedded Derivatives

Amendment to IFRS 7 Financial Instruments: Disclosure – Improving Disclosures about Financial Instruments

AC 503: Amendment to AC 503 – Accounting for Black Economic Empowerment (BEE) Transactions

The following presentational changes were introduced upon adoption of the revised IAS 1: The Group income statement has been replaced with a Group statement of comprehensive

income, presenting all items of recognised income and expense in one statement; The Group statement of changes in equity only includes details of transactions with owners –

non-owner changes in equity are presented in a single line; and The Group balance sheet has been renamed to a Group statement of financial position.

The application of these standards and interpretations did not have a significant impact on the Group’s financial position, reported results and cash flows. The following new or revised IFRSs and interpretations have effective dates applicable to future financial years and have not been early adopted: IAS 27 Amended Consolidated and Separate Financial Statements (effective 1 July 2009)

IAS 39 Amended Financial Instruments: Recognition and Measurement – Eligible Hedged Items (effective 1 July 2009)

IFRS 3 Revised Business Combinations (effective 1 July 2009)

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IFRS 5 Amended Non-current Assets Held for Sale and Discontinued Operations (effective 1 July 2009)

IFRIC 17 Distribution of Non-cash Assets to Owners (effective 1 July 2009)

The April 2009 Improvements to IFRS (mostly effective 1 January 2010)

Amendments to IFRS 2: Group Cash-settled Share-based Payment Transactions (effective 1 January 2010)

Amendment to IAS 32 - Classification of Rights Issues (effective 1 February 2010)

IAS 24 revised - Related Party Disclosures (effective 1 January 2011)

AC 504: IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction in a South African Pension Fund Environment (effective 1 April 2009)

IFRS 9 Financial Instruments (effective 1 January 2013)

IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010)

Amendments to IFRIC 14 – Prepayment of a Minimum Funding Requirement (1 January 2011)

The application of these revised standards and interpretations in future financial reporting periods is not expected to have a significant impact on the Group’s reported results, financial position and cash flows, except for IFRS 3 Revised and IAS 27 Amended for which the impact cannot be quantified as it will depend on the nature and structure of a specific business combination. The following section provides additional information in respect of the presentation of selected items in the Group and company financial statements on pages 35 to 80 and pages 86 to 132. 2. Financial statements presentation Use of estimates, assumptions and judgements The preparation of the financial statements necessitates the use of estimates, assumptions and judgements. These estimates and assumptions affect items reported in the Group statement of financial position and statement of comprehensive income, as well as contingent liabilities. The major items subject to the application of estimates, assumptions and judgements include: The fair value of unlisted investments; Deferred taxation; The valuation of policy liabilities; and Potential claims and contingencies.

Although estimates are based on management’s best knowledge and judgement of current facts as at the statement of financial position date, the actual outcome may differ from these estimates, possibly significantly. Refer to note 30 for further information on critical estimates and judgements and note 33 for information on contingencies.

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Policyholders’ and shareholders’ activities The Group financial statements set out on pages 35 to 80 include the consolidated activities of the policyholders and shareholders. The Statement of Actuarial Values of Assets and Liabilities of the major life insurance businesses of the Group are disclosed on pages 81 to 85. The assets, liabilities and activities of the policyholders and shareholders in respect of the life insurance businesses 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, IFRS, generally accepted actuarial practice and the stipulations contained in the Sanlam Life demutualisation proposal. The valuation bases in respect of policy liabilities and the profit entitlement of shareholders are set out on pages 30 to 34. Insurance contracts The disclosure of claims experience in claims development tables is based on the period when the earliest material claims arose for which there is still uncertainty about the amount and timing of the claims payments. Cash, deposits and similar securities Cash, deposits and similar securities include bank account balances, call, term and negotiable deposits, promissory notes and money market collective investment schemes. A distinction is made between: Cash, deposits and similar securities included in the asset mix of policyholders’ and

discretionary shareholders’ fund investment portfolios, which are disclosed as investments in the Group statement of financial position; and

Working capital balances that are disclosed as working capital assets, apart from bank overdrafts, which are disclosed as working capital liabilities.

Financial Instruments Due to the nature of the Group’s business, financial instruments have a significant impact on the Group’s financial position and performance. Audited information in respect of the major categories of financial instruments and the risks associated therewith are provided in the following sections: Audited Capital and Risk Management report on pages 86 to 132; Note 7: Investments; Note 15: Long-term policy liabilities; Note 16: Term finance; and Note 30: Critical accounting estimates and judgements.

Segmental information The Group’s segments are based on the dominant source and nature of the Group’s risks and returns, which are also reflected in the Group’s operational management structure. The segmental information is presented for operating segments. The segments are life insurance; investment management and short-term insurance. The life insurance segment includes the activities of Sanlam Personal Finance, Sanlam Employee Benefits and Sanlam Developing Markets. The premiums in respect of the majority of individual underwriting business can be

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rerated. The individual and employee benefits products are therefore subject to similar risks and are accordingly not disclosed as separate segments. Required geographical information is presented. The geographical segments are identified as segments that are subject to risks and returns that differ from those of segments operating in other economic environments. The segments are Republic of South Africa, Africa and Other international. The decentralised nature of the Group businesses facilitates the allocation of costs between them, as the costs are directly attributable to the different businesses. Intersegment transfers are estimated to reflect arm’s length prices. Intergroup loans Intergroup loans are disclosed as follows:

• Loans between the Group and the ultimate holding company are included in working capital assets and liabilities;

• Loans between the Group and other fellow subsidiaries in the rest of the Sanlam Ltd Group are included in working capital assets and liabilities; and

• Loans between the Company and subsidiaries are included in investments in subsidiaries, to reflect the total investment in these subsidiaries.

Funds received from clients Funds received from clients include single and recurring long- and short-term insurance premium income from insurance and investment policy contracts, which are included in the financial statements. New business In the case of long-term insurance business the value of all new policies (insurance and investment contracts) that have been issued during the financial year and have not subsequently been refunded is regarded as new business. Payments to clients Payments to clients include policy benefits paid in respect of long- and short-term insurance and investment policy contracts, which are included in the financial statements. ACCOUNTING POLICIES 1. Introduction The Sanlam Life group has identified the accounting policies that are most significant to its business operations and the understanding of its results. These include policies relating to insurance liabilities, deferred acquisition costs, the ascertainment of fair values of financial assets, financial liabilities and derivative financial instruments, and the determination of impairment losses. In each case, the determination of these is fundamental to the financial results and position, and requires management to make complex judgements based on information and financial data that may change in future periods. Since these involve the use of assumptions and subjective judgements as to future events and are subject to change, the use of different assumptions or data could produce materially different results.

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These policies (as set out below) are in accordance with and comply with IFRS and have been applied consistently for all periods presented. 2. Significant accounting policies Basis of consolidation Subsidiaries and consolidated funds are entities (including special purpose entities) that are controlled by Sanlam Life Insurance Limited or any of its subsidiaries. The Group has control over an entity where it has the power, directly or indirectly, to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether control exists. The purchase method of accounting is applied to account for acquisitions of subsidiaries. The cost of an acquisition is measured as the fair value of consideration transferred, equity instruments issued and liabilities assumed at the date of exchange. Costs directly attributable to an acquisition are included in the cost of the acquisition. Identifiable assets and liabilities acquired and contingent liabilities assumed are recognised at fair value at acquisition date. The excess of the cost of an acquisition over the Group’s share of the fair value of the net identifiable assets and contingent liabilities represents goodwill and is accounted for in terms of the accounting policy note for goodwill. If the cost of an acquisition is less than the fair value of the net identifiable assets and contingent liabilities, the difference is recognised in the statement of comprehensive income. The results of subsidiaries and consolidated funds are included from the effective dates when control is acquired to the effective dates when the Group ceases to have a controlling interest, using accounting policies uniform to the Group. Intergroup transactions, balances and unrealised profits on intergroup transactions are eliminated. Unrealised losses are also eliminated unless the transaction indicates the impairment of the asset transferred. The interest of minority shareholders in subsidiaries is stated at the minorities’ share of the recognised values of the subsidiaries’ assets and liabilities. Net losses attributable to minority shareholders in excess of the minority interest are recognised against the equity attributable to the shareholders of the parent, except to the extent that the minority shareholders are required and capable to contribute additional equity to cover the losses. A financial liability is recognised, and classified as at fair value through profit or loss, for the fair value of external investors’ interest in consolidated funds where the issued units of the fund are classified as financial liabilities in terms of IFRS. Changes in the fair value of the external investors liability are recognised in the statement of comprehensive income. In all other instances, the interests of external investors in consolidated funds are not financial liabilities and are recognised as minority shareholders’ interest. The Group offers cell captive facilities to clients. Cells are classified as special purpose entities and are regarded as being controlled by the cell owner. For this reason these cell captive facilities are not consolidated by the Group. In the case of third party cells, the insurer is still the principal to the insurance transaction, although the business is written on behalf of the cell owner. The insurer, however, in substance reinsures this business to the cell as the cell owner remains responsible for the solvency of the cell.

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The cell owner’s interest liability represents the cell owner’s funds withheld by the insurer, similar to an insurance deposit. The assets relating to the cell captives are under the control of the insurer and are therefore reflected as part of the financial assets at fair value through income or cash and cash equivalents, depending on the nature of the assets. The Company financial statements are consistent with the Group financial statements, apart from investments in subsidiaries, associates and joint ventures, which are valued at fair value through profit or loss. Stock exchange prices are used to determine fair value for listed subsidiaries, associates and joint ventures. The fair values of unlisted subsidiaries, associates and joint ventures are determined by the directors using equity valuation methodologies. Property and equipment Property and equipment are reflected at their depreciated cost prices less provisions for impairment in value, where appropriate. Depreciation is provided for on a straight-line basis, taking into account the residual value and estimated useful lives of the assets, which vary between two and twenty years. If the expected residual value is equal to or greater than the carrying value, no depreciation is provided for. The residual values, estimated useful lives of the assets and depreciation methods are reviewed at each statement of financial position date and adjusted as appropriate. Cost prices include costs directly attributable to the acquisition of property and equipment, as well as any subsequent expenditure when it is probable that future economic benefits associated with the item will flow to the Group and the expenditure can be measured reliably. Property and equipment is included in the net asset value of cash generating units for impairment testing purposes. Property and equipment are derecognised at disposal date or at the date when it is permanently withdrawn from use without the ability to be disposed of. The difference between the carrying amount at the date of derecognition and any disposal proceeds, as applicable, is recognised in the statement of comprehensive income. Owner-occupied property Owner-occupied property is property held for use in the supply of services or for administration purposes. These properties are valued at carrying amount less depreciation and provisions for impairment in value, where appropriate. The carrying amount is based on the cost of properties classified as owner-occupied on date of acquisition and the fair value at date of reclassification in instances where properties are reclassified from investment properties to owner-occupied properties. Depreciation is provided for on a straight-line basis by taking into account the residual value and estimated useful life of the property. The residual values, estimated useful lives of the owner-occupied properties and depreciation methods are reviewed at each statement of financial position date and adjusted as appropriate. If the expected residual value is equal to or greater than the carrying value, no depreciation is provided for. Owner-occupied property is tested annually for impairment. When owner-occupied properties become investment properties, they are reclassified to investment properties at the fair value of the properties at the date of reclassification. The difference between the carrying value and fair value of the properties at the date of reclassification is recognised directly in other comprehensive income as a revaluation surplus. Owner-occupied property is derecognised at disposal date or at the date when it is permanently withdrawn from use without the ability to be disposed of. The difference between the carrying amount at the date of derecognition and any disposal proceeds, as applicable, is recognised in the statement of comprehensive income.

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Goodwill Goodwill arises on the acquisition of a subsidiary company or the acquisition of a business. It represents the excess of the cost of an acquisition over the Group’s share of the fair value of the net identifiable assets of the subsidiary or business at the date of acquisition. Goodwill is not amortised. The gain or loss on the disposal of a subsidiary or business includes the carrying amount of goodwill attributable to the entity or business sold. Goodwill also arises when an interest in an existing subsidiary is increased. The difference between the cost of the acquisition and the minority interest acquired is accounted for as goodwill. When an interest in an existing subsidiary is decreased without a loss of control, the difference between the proceeds received and the share of the net assets disposed of, including an appropriate portion of the related goodwill, is accounted for as a gain or loss on disposal of subsidiaries. For impairment purposes the carrying amount of goodwill is allocated to cash generating units, reviewed bi-annually for impairment and written down where this is considered necessary. Impairment losses in respect of goodwill are recognised in the statement of comprehensive income and are not reversed. Where a number of related businesses acquired in the same business combination are allocated to different Group business divisions, the related goodwill is held on a Group level and the businesses are combined for purposes of determining the recoverable amount of the goodwill. Goodwill in respect of associates and joint ventures is included in the carrying value of investments in associates and joint ventures. For impairment purposes each investment is tested for impairment individually and goodwill is not tested separately from the investment in associates and joint ventures, nor is any impairment allocated to any underlying assets. Value of insurance and investment business acquired The value of insurance and investment management services contracts acquired (VOBA) in a business combination is recognised as an intangible asset. VOBA, at initial recognition, is equal to the discounted value, using a risk-adjusted discount rate, of the projected stream of future after-tax profit that is expected to flow from the book of business acquired, after allowing for the cost of capital supporting the business, as applicable. The valuation is based on the Group’s actuarial and valuation principles as well as assumptions in respect of future premium income, fee income, investment return, policy benefits, costs, taxation, mortality, morbidity and surrenders, as appropriate. VOBA is amortised on a straight-line basis over the expected life of the client relationships underlying the book of business acquired. VOBA is tested for impairment on a bi-annual basis and written down for impairment where this is considered necessary. Where impairment events subsequently reverse, impairments are reversed up to a maximum of what the depreciated cost would have been. The gain or loss on the disposal of a subsidiary or business includes the carrying amount of VOBA attributable to the entity or business sold. VOBA is derecognised when the related contracts are terminated, settled or disposed of. Other intangible assets Acquired intangible assets are recognised at cost on acquisition date. Subsequent to initial recognition, these assets are reflected at their depreciated cost prices less provisions for impairment in value, where appropriate. Depreciation is provided for on a straight-line basis, taking into account the residual value and estimated useful lives of the assets. The residual

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values, estimated useful lives of the assets and depreciation methods are reviewed at each statement of financial position date and adjusted as appropriate. Other intangible assets are tested for impairment on a bi-annual basis and written down for impairment where this is considered necessary. Costs associated with software development for internal use are capitalised if the completion of the software development is technically feasible, the Group has the intent and ability to complete the development and use the asset, the asset can be reliably measured and will generate future economic benefits. No value is attributed to internally developed brands or similar rights. Costs incurred on these items are charged to the statement of comprehensive income in the period in which they are incurred. Deferred acquisition costs Incremental costs directly attributable to the acquisition of investment contracts with investment management services are capitalised to a deferred acquisition cost (DAC) asset if they are separately identifiable, can be measured reliably and it is probable that they will be recovered. Deferred acquisition costs are amortised to the statement of comprehensive income over the term of the contracts as the related services are rendered and revenue recognised, which varies from year to year dependent on the outstanding term of the contracts in force. The DAC asset is tested for impairment bi-annually and written down when it is not expected to be fully recovered from future fee income. Long-term reinsurance contracts Contracts entered into with reinsurers under which the Group is compensated for losses on one or more long-term policy contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as long-term reinsurance contracts. The expected claims and benefits to which the Group is entitled under these contracts are recognised as assets. The Group assesses its long-term reinsurance assets for impairment bi-annually. If there is objective evidence that the reinsurance asset is impaired, the carrying amount is reduced to a recoverable amount, and the impairment loss is recognised in the statement of comprehensive income. Financial instruments Financial instruments carried on the statement of financial position include investments (excluding investment properties, associates and joint ventures), receivables, cash, deposits and similar securities, investment policy contracts, term finance liabilities, liabilities in respect of external investors in consolidated funds and trade creditors. Recognition and derecognition Financial instruments are recognised when the Group becomes party to a contractual arrangement that constitutes a financial asset or financial liability for the Group that is not subject to suspensive conditions. Financial assets are derecognised when the contractual rights to receive the cash flows expire or when the asset is transferred. Financial liabilities are derecognised when the obligation to deliver cash or other resources in terms of the contract is discharged, cancelled or expires.

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Collateral placed at counter-parties as part of the Group’s capital market activities are not derecognised. No transfer of ownership takes place in respect of collateral other than cash and any such collateral accepted by counter-parties may not be used for any purpose other than being held as security for the trades to which such security relates. In respect of cash security, ownership transfers in law. However, the counter-party has an obligation to refund the same amount of cash, together with interest, if no default has occurred in respect of the trades to which such cash security relates. Cash collateral is accordingly also not derecognised. Classification Financial instruments are classified into the following categories: Financial assets: At fair value through profit or loss

Loans and receivables Financial liabilities: At fair value through profit or loss

Other financial liabilities The classification of financial instruments is determined at initial recognition based on the purpose for which the financial assets are acquired or liabilities assumed. Financial instruments classified as at fair value through profit or loss comprise of held for trading assets and liabilities as well as financial instruments designated as at fair value through profit or loss. All non-trading financial instruments are designated as at fair value through profit or loss apart from: Working capital receivables that are classified as loans and receivables based on their short-

term nature; Financial assets acquired as part of interest margin business to match specific financial

liabilities, which are classified as loans and receivables; Term finance liabilities incurred as part of interest margin business and matched by specific

financial assets, which are classified as other financial liabilities; and Working capital payables that are classified as other financial liabilities based on their short-

term nature. The Group designates financial instruments as at fair value through profit or loss in line with its risk management policies and procedures that are based on the management of the Group’s capital and activities on a fair value basis, apart from the exceptions outlined above. The Group’s internal management reporting basis is consistent with the classification of its financial instruments. Initial measurement Financial instruments at fair value through profit or loss are initially recognised at fair value. Costs directly attributable to the acquisition of financial assets classified as at fair value through profit or loss are recognised in the statement of comprehensive income as investment surpluses. Other financial instruments are recognised at the fair value of the consideration given or received in exchange for the instrument plus transaction costs that are directly attributable to their acquisition. Regular way investment transactions are recognised by using trade date accounting. Subsequent measurement and impairment Financial instruments classified as at fair value through profit or loss are carried at fair value after initial recognition, with changes in fair value recognised in the statement of comprehensive income as investment surpluses. The particular valuation methods adopted are disclosed in the individual policy statements associated with each item.

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Loans and receivables and other financial liabilities are carried at amortised cost using the effective interest rate method. The carrying values of all loans and receivables are reviewed for impairment bi-annually. A financial asset is deemed to be impaired when there is objective evidence of impairment. Objective evidence of impairment would include when market rates of return have increased during the period to such an extent that the asset’s recoverable amount has decreased materially. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the asset’s estimated future cash flows, and is recognised in the statement of comprehensive income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can objectively be attributed to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the statement of comprehensive income, to the extent that the carrying amount of the financial asset does not exceed what the amortised cost would have been had the impairment not been recognised. If a financial asset would have been impaired had the terms of the asset not been renegotiated, the asset continues to be accounted for in accordance with its category, and the difference between the carrying amount based on the new terms and the previous carrying amount is recognised in the statement of comprehensive income as investment surpluses. Offsetting Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is currently a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Investments Investment properties Investment properties comprise properties held to earn rental income and/or for capital appreciation. Investment properties are carried at fair value based on valuations by valuators internally employed by the Sanlam Group, less the cumulative straight-line rental adjustment (refer to the accounting policy for investment income). The valuators have appropriate qualifications and extensive experience in property valuations. Fair value is determined by discounting expected future cash flows at appropriate market interest rates. Valuations are carried out monthly. Changes in the fair value of investment properties are recognised in the statement of comprehensive income as investment surpluses. When investment properties become owner-occupied, the Group reclassifies them to owner-occupied properties at a deemed cost equal to the fair value of the investment properties at the date of reclassification. When owner-occupied properties become investment properties, they are reclassified to investment properties at a deemed cost equal to the fair value of the properties at the date of reclassification. The difference between the carrying value and fair value of the properties at the date of reclassification to investment properties is recognised directly in equity as a revaluation surplus. Investment properties are derecognised when they have either been disposed of or when they are permanently withdrawn from use and no future benefit is expected from their disposal.

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Associates An associate is an entity, not being a subsidiary, in which the Group has a long-term investment and over which it has the ability to exercise significant influence, being the ability to participate in the financial and operating policies of the entity without being able to jointly control or control those policies by virtue of a majority vote. Investments in associates are recognised on the date significant influence is obtained and derecognised on the date significant influence is lost. Investments in associates, other than those held by investment-linked life insurance funds, are initially recognised at cost. The results of these associated companies after initial recognition are accounted for using the equity method of accounting, whereby the Group’s share of associates’ post-acquisition profit or loss is recognised in the Group statement of comprehensive income as equity-accounted earnings, and the Group’s share of associates’ post-acquisition movement in reserves is recognised in reserves, with a corresponding adjustment to the carrying value of investments in associates. Net losses are only recognised to the extent of the net investment in an associate, unless the Group has incurred obligations or made payments on behalf of the associate. Equity-accounted earnings are based on accounting policies uniform to those of the Group. The carrying amount is reviewed bi-annually for impairment and written down where this is considered necessary. The carrying value of the investment in an associate includes goodwill. Investments in associates held by investment-linked life insurance funds are treated as investments at fair value through profit or loss and are not equity-accounted. Joint ventures A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The results of joint ventures, other than those held by investment-linked life insurance funds, are accounted for using the equity method of accounting, whereby the Group’s share of the joint ventures’ profit or loss is recognised in the Group statement of comprehensive income as equity-accounted earnings, and the Group’s share of joint ventures’ post-acquisition movement in reserves is recognised in reserves, with a corresponding adjustment to the carrying value of investments in joint ventures. Net losses are only recognised to the extent of the net investment in a joint venture, unless the Group has incurred obligations or made payments on behalf of the joint venture. Equity-accounted earnings are based on accounting policies uniform to those of the Group. The carrying value of the investment in a joint venture is reviewed bi-annually for impairment and written down where this is considered necessary. The carrying value of the investment in a joint venture includes goodwill. Investments in joint ventures held by investment-linked life insurance funds are treated as investments at fair value through profit or loss and are not equity-accounted. Other investments Other investments comprise: Equities and similar securities (including non-trading derivatives); Public sector stocks and loans; Debentures, insurance policies, preference shares and other loans; and Cash, deposits and similar securities.

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These investments are either classified as at fair value through profit or loss (measured at fair value), or as loans and receivables (measured at amortised cost), as described in the financial instruments accounting policy note. Loans of investment scrip to and from third parties are not treated as sales and purchases. The following bases are used to determine fair value, for those investments that are classified as at fair value through profit or loss: Listed shares and units in collective investment schemes are valued at the stock exchange and

net asset value prices respectively; The value of unlisted shares is determined by the directors using appropriate valuation bases; Listed bonds are valued at the stock exchange prices; Unlisted interest-bearing investments are valued by discounting expected future cash flows at

appropriate market interest rates; and Listed derivative instruments are valued at the South African Futures Exchange prices and

the value of unlisted derivatives is determined by the directors using generally accepted valuation models.

Derivative instruments Derivative financial instruments include foreign exchange contracts, interest rate futures, forward rate agreements, currency and interest rate swaps, currency, interest rate and equity options and other derivative financial instruments that are measured at fair value. Fair values are obtained from quoted market prices. In the absence of quoted market prices the Group uses valuation techniques that incorporate factors that market participants would consider in setting the price and are consistent with accepted economic methodologies for pricing derivatives such as discounted cash flow models and option pricing models, as appropriate. The Group calibrates its valuation techniques against market transactions or any available observable market data. Day one gains or losses on derivatives measured using these valuation techniques are recognised in the statement of comprehensive income to the extent that they arise from a technique that incorporates only variables based on observable market data and there has been a change in one of these variables (including time). If there has been no change in one of these variables, the gains or losses are deferred, and recognised in the statement of comprehensive income over the life of the instrument. The Group does not separate embedded derivatives that meet the definition of an insurance contract or relate to investment contracts recognised at fair value. Derivatives are used for non-trading purposes by Group businesses. The fair values related to non-trading derivatives are included in equities and similar securities. Non-trading transactions are those which are held for economic hedging purposes as part of the Group’s risk management strategy against assets, liabilities, positions or cash flows measured at fair value, as well as structures incorporated in the product design of policyholder products. The hedge accounting treatment prescribed by IAS 39 Financial Instruments: Recognition and Measurement is not applied. Although the nature of these derivatives is non-trading from a management perspective, IAS 39 requires all derivatives to be classified as held for trading for accounting purposes. Cash, deposits and similar securities Cash, deposits and similar securities consist of cash at hand, call deposits at banks, negotiable certificates of deposit and other short-term highly liquid investments.

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Short-term insurance technical provisions and assets Outstanding claims Liabilities for outstanding claims are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported, and to estimate the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions). The Group does not discount its liabilities for unpaid claims. Unearned premiums Short-term insurance premiums are recognised as financial services income proportionally over the period of coverage. The portion of premiums received on in-force contracts that relates to unexpired risks at the statement of financial position date is reported as an unearned premium liability. Short-term insurance technical assets The benefits to which the Group is entitled under its short-term reinsurance contracts are recognised as short-term insurance technical assets. These assets represent longer-term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract.

In certain cases a reinsurance contract is entered into retrospectively to reinsure a notified claim under the Group’s property insurance contracts. Where the premium due to the reinsurer differs from the liability established by the Group for the related claim, the difference is amortised over the estimated remaining settlement period. Commissions and other incremental acquisition costs related to securing new contracts and renewing existing contracts are capitalised to deferred acquisition cost assets and amortised to the statement of comprehensive income over the period in which the related premiums are earned. All other costs are recognised as expenses when incurred.

The Group assesses its short-term insurance technical assets for impairment on a bi-annual basis. If there is objective evidence that an asset is impaired, the Group reduces the carrying amount of the asset to its recoverable amount and recognises the impairment loss in the statement of comprehensive income. Salvage and subrogation reimbursements Some insurance contracts permit the Group to sell (usually damaged) property acquired in settling a claim (salvage). The Group may also have the right to pursue third parties for payment of some or all costs (subrogation).

Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvage property is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property.

Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The

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allowance is the assessment of the amount that can be recovered from the action against the liable third party. Trade and other receivables Trade and other receivables are measured at amortised cost apart from trading account assets. Trading account assets include equities and similar securities, interest-bearing instruments and derivative financial instruments relating to the trading transactions undertaken by Sanlam Capital Markets for market making, to service customer needs, for proprietary purposes, as well as any related economic hedging transactions. These transactions are marked-to-market (fair values) after initial recognition and any profits or losses arising are recognised in the statement of comprehensive income as financial services income. The fair values related to such contracts and commitments are determined on the same basis as described for non-trading instruments in the policy note for financial instruments and are reported on a gross basis in the statement of financial position as positive and negative replacement values to the extent that set-off is not required by IAS 32 Financial Instruments: Disclosure and Presentation. Other financial liabilities Other financial liabilities include: Term finance liabilities incurred as part of interest margin business and matched by specific

financial assets measured at amortised cost; Other term finance liabilities measured at stock exchange prices or amortised cost as

applicable; Insurance contract liabilities are measured according to the bases disclosed in the section on

Policy Liabilities and Profit Entitlement; Investment contract liabilities measured at fair value, determined on the bases as disclosed in

the section on Policy Liabilities and Profit Entitlement; and External investors in consolidated funds measured at the attributable net asset value of the

respective funds. Trade and other payables Trade and other payables are measured at amortised cost. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions for onerous contracts are recognised when the expected benefits to be derived from contracts are less than the unavoidable cost of meeting the obligations under the contracts. Provisions are measured at the present value of the amounts that are expected to be paid to settle the obligations. Share capital Share capital is classified as equity where the Group has no obligation to deliver cash or other assets to shareholders. Preference shares issued by the Group that are redeemable or subject to fixed dividend payment terms are classified as term finance liabilities. Dividends paid in respect

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of term finance are recognised in the statement of comprehensive income as a term finance expense. Incremental costs attributable to the issue or cancellation of equity instruments are recognised directly in equity, net of tax if applicable. Non-distributable reserve The reserve comprises the transfer from the Sanlam mutual capital fund on demutualisation and the regulatory non-distributable reserves of the Group's Botswana operations. Foreign currency translation reserve The exchange differences arising on the translation of foreign operations to the presentation currency are transferred to the foreign currency translation reserve. On disposal of the net investment, the cumulative exchange differences relating to the operations disposed of are released to the statement of comprehensive income. Consolidation reserve A consolidation reserve is created for differences in the valuation bases of long-term policy liabilities and investments supporting those liabilities. Certain assets held in policyholder portfolios may not be recognised at fair value in terms of IFRS, whereas the valuation of the related policy liabilities is based on the assets at fair value. This creates a mismatch with a corresponding impact on the shareholders’ fund. A separate reserve is created for these valuation differences due to the fact that they represent accounting differences and not economic losses for the shareholders’ fund. Valuation differences arise from the following investments which are accounted for as noted below for IFRS purposes, while for purposes of valuing the related policy liabilities these same investments are valued at fair value: Investments in subsidiaries and consolidated funds, which are valued at net asset value plus

goodwill; and Investments in associates and joint ventures, which are recognised on an equity-accounted

basis.

The reserve represents temporary differences insofar as the mismatch is reversed when the affected investments are realised. Financial services income Financial services income is considered to be revenue for IFRS purposes and includes: Income earned from long-term insurance activities, such as investment and administration

fees, risk underwriting charges and asset mismatch profits or losses in respect of non-participating business;

Income from short-term insurance business, such as short-term insurance premiums; Income from investment management activities, such as fund management fees and

collective investment and linked-product administration fees; and Income from other financial services, such as independent financial advice and trust services.

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Fees for investment management services Fees for investment management services in respect of investment contracts are recognised as services are rendered. Initial fees that relate to the future rendering of services are deferred and recognised as those future services are rendered. Fee income – long-term policy contracts Investment and insurance contract policyholders are charged for policy administration, risk underwriting and other services. These fees are recognised as revenue on an accrual basis as the related services are rendered. Short-term insurance premiums Short-term insurance premiums are accounted for when receivable, net after a provision for unearned premiums relating to risk periods that extend to the following year. Inward short-term reinsurance agreement premiums are accounted for on an intimated basis. Consulting fees earned Consulting fees are earned for advice and other services provided to clients of the Group’s financial advisory businesses. Fees are accounted for on an accrual basis as the related services are rendered. Investment return Investment income Investment income includes interest, rental and dividend income received. Interest income is accounted for on a time proportionate basis that takes into account the effective yield on the asset and includes the net income earned from interest margin business. Rental income is recognised on an accrual basis, apart from operating leases that contain fixed escalation clauses, where it is recognised on a straight-line basis over the lease term. The difference between rental income on a straight-line and accrual basis is recognised as part of the carrying amount of properties in the statement of financial position. 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. Dividend income from subsidiaries is recognised when the dividends are declared by the subsidiary. In respect of the company financial statements, there is no allocation of pre-acquisition reserves to cost. We consider impairment when the dividend exceeds the total comprehensive income of the subsidiary or associate in the period the dividend is declared and the carrying amount of the investment exceeds the carrying amount of the investee's net assets, including associated goodwill. Investment surpluses Investment surpluses consist of net realised gains and losses on the sale of investments and net unrealised fair value gains and losses on the valuation of investments at fair value excluding

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dividend and interest income. These surpluses are recognised in the statement of comprehensive income on the date of sale or upon valuation to fair value. Premium income – long-term policy contracts Premium income from long-term insurance and investment policy contracts is recognised as an increase in long-term policy liabilities. The full annual premiums on individual insurance and investment policy contracts 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 in terms of their policy contracts accounted for when due. Cover only commences when premiums are received. Group life insurance and investment contract premiums are accounted for when receivable. Where premiums are not determined in advance, they are accounted for upon receipt. The unearned portion of accrued premiums is included within long-term policy liabilities. Policy contract benefits Underwriting benefits Life insurance 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 underwriting policy benefits. Past claims experience is used as the basis for determining the extent of the IBNR claims. Provision is made for underwriting losses that may arise from unexpired short-term insurance risks when it is anticipated that unearned premiums will be insufficient to cover future claims. Income from reinsurance policies are recognised concurrently with the recognition of the related policy benefit. Other policy benefits Other policy benefits are not recognised in the Group statement of comprehensive income but reflected as a reduction in long-term policy liabilities. Maturity and annuity payments are recognised when due. Surrenders are recognised at the earlier of payment date or the date on which the policy ceases to be included in long-term policy liabilities. Sales remuneration Sales remuneration consists of commission payable to sales staff on long-term and short-term investment and insurance business and expenses directly related thereto, bonuses payable to sales staff and the Group’s contribution to their retirement and medical aid funds. Commission is accounted for on all in-force policies in the financial period during which it is incurred. The portion of sales remuneration that is directly attributable to the acquisition of long-term recurring premium investment policy contracts is capitalised to the deferred acquisition cost (DAC) asset and recognised over the period in which the related services are rendered and revenue recognised (refer policy statement for DAC asset).

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Acquisition cost for short-term insurance business is deferred over the period in which the related premiums are earned. Sales remuneration recognised in the statement of comprehensive income includes the amortisation of deferred acquisition costs as well as sales remuneration incurred that is not directly attributable to the acquisition of long-term investment policy contracts or short-term insurance business. Administration costs Administration costs include, inter alia, indirect taxes such as VAT, property and administration expenses relating to owner-occupied property, property and investment expenses related to the management of the policyholders’ investments, claims handling costs, product development and training costs. Leases Leases of assets, under which the lessor effectively retains all the risks and benefits of ownership, are classified as operating leases. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. When an operating lease is terminated, any payment required by the lessor by way of penalty is recognised as an expense in the period in which termination takes place. Leases where the Group effectively assumes all the risks and benefits of ownership are classified as finance leases. Finance leases are capitalised at inception at the lower of the present value of minimum lease payments and the fair value of the leased assets. The effective interest rate method is used to allocate lease payments between finance cost and the lease liability. The finance cost component is recognised as an expense in the statement of comprehensive income. Finance lease assets recognised are depreciated, where applicable, over the shorter of the assets’ useful lives and the lease terms. Borrowing costs Borrowing costs are recognised as an expense in the statement of comprehensive income on an accrual basis. Taxation Normal income tax Current income tax is provided in respect of taxable income based on currently enacted tax legislation. Deferred income tax Deferred income tax is provided for all temporary differences between the tax bases of assets and liabilities and their carrying values for financial reporting purposes using the liability method, except for: Temporary differences relating to investments in associates, joint ventures and subsidiaries

where the Group controls the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future; and

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Temporary differences arising from the initial recognition of assets or liabilities in transactions other than business combinations that at transaction date do not affect either accounting or taxable profit or loss.

The amount of deferred income tax provided is based on the expected realisation or settlement of the deferred tax assets and liabilities using tax rates enacted or substantively enacted at the statement of financial position date. 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. Deferred tax balances are reflected at current values and have not been discounted. Foreign currencies Transactions and balances Foreign currency transactions are translated to functional currency, i.e. the currency of the primary economic environment in which each of the Group’s entities operate, at the exchange rates on transaction date. Monetary assets and liabilities are translated to functional currency at the exchange rates ruling at the financial period end. Non-monetary assets and liabilities carried at fair value are translated to functional currency at the exchange rates ruling at valuation date. Non-monetary assets and liabilities carried at historic cost are translated to functional currency at the exchange rates ruling at the date of initial recognition. Exchange differences arising on the settlement of transactions or the translation of working capital assets and liabilities are recognised in the statement of comprehensive income as financial services income. Exchange differences on non-monetary assets and monetary assets classified as investment assets, such as equities and foreign interest-bearing investments, are included in investment surpluses. Foreign operations Statement of comprehensive income items of foreign operations (including foreign subsidiaries, associates and joint ventures) with a functional currency different from the presentation currency are converted to South African rand at the weighted average exchange rates for the financial year, except where the average exchange rate is not representative of the timing of specific items, in which instances the exchange rate on transaction date is used. The closing rate is used for the translation of assets and liabilities, including goodwill and fair value adjustments arising on the acquisition of foreign entities. At acquisition, equity is translated at the rate ruling on the date of acquisition. Post-acquisition equity is translated at the rates prevailing when the change in equity occurred. Exchange differences arising on the translation of foreign operations are transferred to a foreign currency translation reserve until the disposal of the net investment when it is released to the statement of comprehensive income. 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 the retirement fund valuator. The Group’s contributions to the defined contribution and defined benefit funds are charged to the statement of comprehensive income in the year in which they are incurred. A valuation in accordance with IAS 19 Employee Benefits is performed on the statement of financial position

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date. For the purpose of calculating pensions, medical contributions are deemed to be a part of pensionable salary. Retirement fund contributions are made on the pensionable salary. Therefore, pensioners fund post-retirement medical contributions themselves from their increased pensions. The Group has provided in full for its medical contribution commitments in respect of pensioners and disabled members who are not covered under the current scheme. Defined-benefit plans The schemes are valued using the valuation basis for past-service cost. Any deficits advised by the actuaries are funded either immediately or through increased contributions to ensure the ongoing soundness of the schemes. Contributions are expensed during the year in which they are funded. The net surplus or deficit in the benefit obligation is the difference between the present value of the funded obligation and the fair value of plan assets. The Group recognises the estimated liability using the projected unit credit method. The present value of the overfunded portion of these schemes is recognised as an asset to the extent that there are material benefits available in the form of refunds and reductions in contributions. The amount of actuarial gains and losses recognised in the statement of comprehensive income is equal to the amount that the cumulative actuarial gains and losses at the end of the previous reporting period exceed the greater of 10% of the present value of the defined obligation or 10% of the fair value of the plan assets, amortised over the employees’ average working life. Defined-contribution plans Group contributions to the pension and provident funds are based on a percentage of the payroll and are charged against income as incurred. Medical aid benefits Group contributions to medical aid funds are charged to the statement of comprehensive income in the year in which they are incurred. Post-retirement medical aid benefits The present value of the post-retirement medical aid obligation is actuarially determined annually and any deficit or surplus is immediately recognised in the statement of comprehensive income. The Group recognises the estimated liability using the projected unit credit method. The Group has no significant exposure to any other post-retirement benefit obligation. Contingencies Possible obligations of the Group, the existence of which will only be confirmed by the occurrence or non-occurrence of uncertain future events not wholly within the control of the Group and present obligations of the Group where it is not probable that an outflow of economic benefits will be required to settle the obligation or where the amount of the obligation cannot be measured reliably, are not recognised in the Group statement of financial position but are disclosed in the notes to the financial statements. Possible assets of the Group, the existence of which will only be confirmed by the occurrence or non-occurrence of uncertain future events not wholly within the control of the Group, are not recognised in the Group statement of financial position and are only disclosed in the notes to the financial statements where an inflow of economic benefits is probable.

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Equity-based staff long-term incentive schemes The following staff long-term incentive schemes have been implemented in the Group and have unvested conditions at 31 December 2009: Long-term Incentive Plan In 2005, the Sanlam share option scheme was replaced with a long-term incentive bonus scheme. In terms of the scheme, employees were paid bonuses that vest over a period of between three and five years. The beneficiaries under the scheme, which include executive directors, management and sales advisers employed on a full-time basis, are not entitled to the benefits under the scheme before the pre-determined dates. The cost associated with the bonuses is recognised in the statement of comprehensive income over the vesting period, based on the expected amount to vest at the pre-determined dates. Deferred Share Plan (DSP) In 2007, the DSP replaced the long-term incentive plan. In terms of the DSP, Sanlam undertakes to deliver a fixed number of shares to selected employees on pre-determined dates in the future, on condition that the employee is still in the employment of Sanlam on those dates. Vesting occurs in three tranches over a period starting three years from the grant date, subject to certain performance targets. The fair value of equity instruments granted is measured on grant date using an appropriate valuation model, which takes into account the market price on grant date, the fact that employees will not be entitled to dividends until the shares vest, as well as an assumption on the actual percentage of shares that will be delivered. The fair value on grant date is recognised in the statement of comprehensive income on a straight-line basis over the vesting period of the equity instruments, adjusted to reflect actual levels of vesting. Share Purchase Plan From 2006 loans are granted to selected key employees for the purpose of acquiring Sanlam shares. The loans are secured, bear interest at market related rates and repayable after four years. An annual retention bonus is payable to these employees based on the number of shares held by the employee. The cost in respect of these bonuses is recognised in the statement of comprehensive income over the retention period. Restricted Share Plan The Restricted Share Plan was introduced in 2006. Selected key employees are granted fully paid-up shares at no consideration in terms of retention and performance agreements. Unconditional vesting occurs on pre-determined dates subject to certain performance targets being met. The fair value of the equity investments granted on the date of grant is recognised in the statement of comprehensive income on a straight-line basis over the vesting period. Dividends Dividends proposed or declared after the statement of financial position date are not recognised at the statement of financial position date.

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POLICY LIABILITIES AND PROFIT ENTITLEMENT

Introduction The valuation bases and methodology used to calculate the policy liabilities of all material lines of long-term insurance business and the corresponding shareholder profit entitlement for Sanlam Life are set out below. The same valuation methodology, where applicable, is applied in all material respects to value the policy liabilities of Sanlam Developing Markets Limited and the Namibian insurance companies, as well as investment contracts issued by the Channel Life group of companies, unless otherwise stated. The valuation methodology in respect of insurance contracts issued by Channel Life and its subsidiaries is not presented in view of their relatively immaterial contribution to earnings and the relative small size of their insurance contract liabilities. The valuation bases and methodology, which comply with South African actuarial guidelines and requires minimum liabilities to be held based on a prospective calculation of policy liabilities, serves as a liability adequacy test. No adjustment is required to the value of the liabilities at 31 December 2009 as a result of the aforementioned adequacy test. The valuation bases and methodology comply with the requirements of IFRS. The methodology has been applied for purposes of the Group financial statements and the changes to determine the prudential regulatory results in terms of the requirements of the Long-term Insurance Act of 1998 as amended (LTIA), are presented at the end of this section. Where the valuation of long-term policy liabilities is based on the valuation of supporting assets, the assets are valued on the bases as set out in the accounting policy for investments, with the exception of investments in treasury shares, subsidiaries, associated companies, joint ventures and consolidated funds, which are also valued at fair value. Classification of contracts A distinction is made between investment contracts without discretionary participation features (DPF) (which fall within the scope of IAS 39 Financial Instruments: Recognition and Measurement); and investment contracts with DPF and insurance contracts (where the Financial Soundness Valuation (FSV) method continues to apply, subject to certain requirements specified in IFRS 4 Insurance Contracts). A contract is classified as insurance where Sanlam accepts significant insurance risk by agreeing with the policyholder to pay benefits if a specified uncertain future event (the insured event) adversely affects the policyholder or other beneficiary. Significant insurance risk exists where it is expected that for the duration of the policy or part thereof, policy benefits payable on the occurrence of the insured event will significantly exceed the amount payable on early termination, before allowance for expense deductions at early termination. Once a contract has been classified as an insurance contract, the classification remains unchanged for the remainder of its lifetime, even if the insurance risk reduces significantly during this period. Policy contracts not classified as insurance contracts are classified as investment contracts and comprise of the following categories:

• Investment contracts with DPF; • Investment contracts with investment management services; and • Other investment contracts.

An investment contract with DPF entitles the policyholder to receive benefits or bonuses in addition to guaranteed benefits. These additional benefits have the following features:

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• The benefits constitute a significant portion of each policy’s total benefits; • The timing and amount of the benefits are at the discretion of the Sanlam Life group, which has

to be exercised in a reasonable way; and • The benefits are based on the investment performance of a specified pool of underlying assets.

All investment contracts that fall within the scope of IAS 39 (ie all investment contracts without DPF) are designated as at fair value through profit or loss.

Insurance contracts and investment contracts with DPF The actuarial value of the policy liabilities is determined using the FSV method as described in Professional Guidance Note (PGN) 104 issued by the Actuarial Society of South Africa (Actuarial Society), which is consistent with the valuation method prescribed in the Long Term Insurance Act of 1998 as amended (LTIA) and consistent with the valuation of assets at fair value as described in the accounting policy for investments. The underlying philosophy is to recognise profits prudently over the term of each contract consistent with the work done and risk borne. In the valuation of liabilities, provision is made for: • The best estimate of future experience; • The compulsory margins prescribed in the LTIA; and • Discretionary margins determined to release profits to shareholders consistent with policy

design and company policy. The value of policy liabilities at 31 December 2009 exceeds the minimum requirements in terms of the LTIA, PGN104 and PGN 110. The application of actuarial guidance, as set out in PGN 104 and PGN 110 issued by the Actuarial Society, is described below in the context of the Group’s major product classifications. Best estimate of future experience The best estimate of future experience is determined as follows:

• Future investment return assumptions are derived from market yields of fixed interest securities on the valuation date, with adjustments for the other asset classes. The appropriate asset composition of the various asset portfolios, investment management expenses, taxation at current tax rates and charges for investment guarantees are taken into account.

For some of the Group’s African operations, where long-term fixed interest markets are underdeveloped, investment return assumptions are based on an assessment of longer-term economic conditions. The future investment returns for Namibian businesses are based on the market yields of South African fixed interest securities on the valuation date.

Refer to note 8 on page 84 for investment return assumptions per asset class.

• Unit expenses are based on the 2009 actual expenses and escalated at estimated expense inflation rates per annum. The allocation of initial and renewal expenses is based on functional cost analyses.

• Assumptions with regard to future mortality, disability and disability payment termination rates are consistent with Sanlam’s recent experience or expected future experience if this would result in a higher liability. In particular, mortality and disability rates are adjusted to allow for expected deterioration in mortality rates as a result of Aids, other pandemics and for expected improvements in mortality rates in the case of annuity business.

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• Persistency assumptions with regard to lapse, surrender and paid-up rates are consistent with Sanlam’s recent experience or expected future experience if this would result in a higher liability.

Asset portfolios Separate asset portfolios are maintained in support of policy liabilities for each of the major lines of business; each portfolio having an asset mix appropriate for the specific product. Bonus rates are declared for each class of participating business in relation to the funding level of each portfolio and the expected future net investment return on the assets of the particular investment portfolio. Unrecouped expenses

The timing of fees recovered from some individual life policies do not correspond to the timing of the expenses incurred in respect of the policies. For certain of these policies an unrecouped expense account is created and included in the valuation of the policy liabilities. The unrecouped expense account is increased with expenses incurred and reduced by an allocation of policy charges. Policy charges are designed to ensure that on average the unrecouped expense account is redeemed over the lifetime of the related policies. Unrecouped expenses are annually assessed for impairment and are derecognised when the related contracts are settled or disposed of. Bonus stabilisation reserves Sanlam Life’s individual and group stabilised bonus portfolios are valued on a retrospective basis. If the fair value of the assets in such a portfolio is greater than the policyholders’ investment accounts (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 investment accounts, a negative bonus stabilisation reserve is created. A negative bonus stabilisation reserve will be limited to the amount that the Statutory Actuary expects will be recovered through the declaration of lower bonuses during the ensuing three years, if investment returns are in line with long-term assumptions. Negative bonus stabilisation reserves in excess of 7,5% of the investment accounts are specifically disclosed. Bonus stabilisation reserves are included in long-term policy liabilities. Provision for future bonuses Provision was made for future bonuses so that each asset portfolio, less charges for expenses (including investment guarantee charges) and profit loadings, for each line of business would be fully utilised for the benefit of the policyholders of that portfolio. 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 the bonus rates as set out above, and allowing for the shareholders’ share of one-ninth of the cost of these bonuses.

The present value of the shareholders’ entitlement is sufficient to cover the compulsory margins required in the LTIA and the Actuarial Society guidelines for the valuation of policy liabilities. These margins are thus not provided for in addition to the shareholders’ entitlement. Individual stable bonus, linked and market-related business For investment policies where 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 the relevant discount rates.

32

To the extent that the retrospective liabilities exceed the prospective liabilities, the valuation contains discretionary margins. The valuation methodology results in the release of these margins to shareholders on a fee minus expenses basis consistent with the work done and risks borne over the lifetime of the policies.

An exception to the above relates to policy liabilities in respect of Sanlam Developing Markets’ individual Universal Life business (including stable bonus and market-linked business), which are valued prospectively. Negative values are not allowed in respect of any of these policies. Group stable bonus business In the case of Group policies where bonuses are stabilised, the liabilities are equated to the fair value of the retrospectively accumulated underlying assets.

Future fees are expected to exceed expenses, including allowance for the prescribed margins. These excesses are released to shareholders consistent with the work done and risks borne over the lifetime of the policies. Participating annuity business 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 bonus rates as described above and expected future investment returns. Shareholder entitlements emerge in line with fees charged less expenses incurred consistent with work done and risks borne over the lifetime of the annuities. The present value of the shareholders’ entitlement is sufficient to cover the compulsory margins for the valuation of policy liabilities. The compulsory margins are thus not provided for in addition to the shareholders’ entitlement. Non-participating annuity business Non-participating life annuity instalments and future expenses in respect of these instalments are discounted at the zero-coupon yield curve adjusted to allow for credit risk and investment administration charges. All profits or losses accrue to the shareholders when incurred. Other non-participating business Other non-participating business forms less than 7% of the total liabilities. Most of the other non-participating business liabilities are valued on a retrospective basis. The remainder is valued prospectively and contains discretionary margins via either an explicit interest rate deduction of approximately 2% on average or by not allowing policies with negative reserves.

For Sanlam Life’s non-participating business other than life 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 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, among other purposes, to dampen the impact on earnings of short-term fluctuations in fair values of assets underlying these liabilities. The asset mismatch provision represents a discretionary margin. A negative asset mismatch provision will not be created, but such shortfall will accrue to shareholders in the year in which it occurs. Channel Life’s valuation basis for other non-participating business allows for the creation of negative reserves to the extent that no profit or loss is recognised at inception of the related policy contracts. Provision for HIV/Aids and other pandemics A specific provision for HIV/Aids-related claims is maintained and included as follows:

Within ‘Other non-participating business’ (refer above) in respect of Sanlam Life; and 33

Within the related prospective reserves in respect of Sanlam Developing Markets.

A prospective calculation according to the relevant guidelines is performed for Sanlam Life’s non-participating individual policies and for those with a small savings element. The provision for Sanlam Life’s other individual policies (42% of Sanlam Life’s total HIV/Aids provision for individual policies) 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 attributed to HIV/Aids and further limited to a maximum of the prospective calculation without allowance for future increases in HIV/Aids risk premiums. This retrospectively built-up provision is higher than a prospective calculation done according to the relevant guidelines allowing for possible increases in future HIV/Aids risk premiums. This difference can be regarded as a discretionary margin. It is the intention to rerate premiums as experience develops.

Premium rates for Group business are reviewed annually. The HIV/Aids provision is based on the expected HIV/Aids claims in a year and the time that may elapse before premium rates and underwriting conditions can be suitably adjusted should actual experience be worse than expected.

In addition, provision for claims relating to other pandemics is also made based on the estimated additional death claims should a moderate pandemic occur. Provision for minimum investment return guarantees In addition to the liabilities described above, a stochastic modelling approach was used to provide for the possible cost of minimum investment return guarantees provided by some participating and market-related policies, consistent with actuarial guidance note PGN 110. 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. Reinsurance Liabilities are valued gross before taking into account reinsurance. Where material, the difference between the gross and net (after reinsurance) value of liabilities is held as a reinsurance asset. Investment contracts (other than with DPF) Contracts with investment management services The liabilities for individual and group contracts are set equal to the retrospectively accumulated fair value of the underlying assets. No deduction is made for unrecouped expenses. The profits or losses that accrue to shareholders are equal to fees received during the period concerned plus the movement in the DAC asset less expenses incurred.

Where these contracts provide for minimum investment return guarantees, provision is made for the fair value of the embedded derivative. Non-participating annuity business Term annuity instalments and expected future expenses in respect of these instalments are discounted at market-related interest rates. All profits or losses accrue to the shareholders when incurred. Guarantee plans Guaranteed maturity values and expected future expenses are discounted at market-related interest rates. All profits or losses accrue to the shareholders when incurred.

34

Sanlam Life Insurance Limited GroupStatement of financial positionat 31 December 2009 Group Company

2009 2008 2009 2008Note R million R million R million R million

ASSETSProperty and equipment 1 358 361 176 173 Owner-occupied properties 2 652 651 492 492 Goodwill 3 984 938 753 753 Value of business acquired 4 801 859 - - Other intangible assets 45 - - - Deferred acquisition costs 5 2 022 1 875 1 880 1 763 Long-term reinsurance assets 6 437 414 395 373 Investments 7 269 166 250 325 270 873 251 536

Properties 7.1 13 839 13 754 12 309 11 548 Investment properties 13 125 12 963 11 598 10 760 Straight-line rental adjustment 714 791 711 788

Equity-accounted investments 7.2 1 416 919 - - Equities and similar securities 7.3 131 262 111 749 95 728 84 842 Investments in subsidiaries, joint ventures and associates 7.4 - - 66 205 60 971 Public sector stocks and loans 7.5 47 908 47 057 37 866 34 553 Debentures, insurance policies, preference shares and other loans 7.5 33 248 34 145 27 693 28 725

Cash, deposits and similar securities 7.5 41 493 42 701 31 072 30 897 Deferred tax 8 271 434 53 215 Short-term insurance technical assets 9 2 064 2 250 - - Working capital assets 21 441 24 300 7 837 10 386

Trade and other receivables 10 12 848 16 850 6 896 9 842 Cash, deposits and similar securities 8 593 7 450 941 544

Total assets 298 241 282 407 282 459 265 691

EQUITY AND LIABILITIESCapital and reserves

Share capital and premium 11 5 000 5 000 5 000 5 000 Treasury shares ( 146) ( 159) - - Other reserves 12 5 506 5 648 5 429 5 429 Retained earnings 16 911 16 803 25 412 22 744

Shareholders’ fund 27 271 27 292 35 841 33 173 Minority shareholders’ interest 14 2 582 2 520 - - Total equity 29 853 29 812 35 841 33 173 Long-term policy liabilities 15 227 113 210 578 200 377 186 234

Insurance contracts 120 605 117 643 110 674 108 419 Investment contracts 106 508 92 935 89 703 77 815

Term finance 16 5 195 5 553 1 960 2 043 Interest-bearing liabilities held in respect of margin business 2 290 2 400 - - Other interest-bearing liabilities 2 905 3 153 1 960 2 043

External investors in consolidated funds 10 567 9 871 - - Cell owners interest 535 447 - - Deferred tax 8 721 371 502 266 Short-term insurance technical provisions 9 8 304 8 229 - - Loans from subsidiaries 7.4 - - 32 905 33 713 Working capital liabilities 15 953 17 546 10 874 10 262

Trade and other payables 17 13 296 14 648 8 587 7 540 Provisions 18 813 1 004 620 914 Taxation 1 844 1 894 1 667 1 808

Total equity and liabilities 298 241 282 407 282 459 265 691

35

Sanlam Life Insurance Limited GroupStatement of comprehensive incomefor the year ended 31 December 2009 Group Company

2009 2008 2009 2008Note R million R million R million R million

Net income 56 231 21 258 36 012 4 900 Financial services income 19 29 178 27 006 8 889 8 441 Reinsurance premiums paid 20 (2 832) (2 972) ( 359) ( 298) Reinsurance commission received 21 258 401 37 38 Investment income 22 15 306 15 835 14 428 13 648 Investment surpluses 22 15 359 (20 339) 13 017 (16 929) Finance cost - margin business 26 ( 200) ( 244) - - Change in fair value of external investors liability ( 838) 1 571 - -

Net insurance and investment contract benefits and claims (37 778) (9 286) (23 158) (1 018) Long-term insurance contract benefits 23 (16 592) (6 447) (13 149) (4 801) Long-term investment contract benefits 23 (12 958) 4 583 (10 365) 3 516 Short-term insurance claims (9 800) (9 189) - - Reinsurance claims received 21 1 572 1 767 356 267

Expenses (10 299) (9 872) (3 633) (3 880) Sales remuneration (4 381) (4 127) (1 085) (1 037) Administration costs 24 (5 918) (5 745) (2 548) (2 843)

Impairment of investments and goodwill 39 ( 57) ( 68) ( 61) ( 54)

Amortisation of value of business acquired 4 ( 63) ( 47) - -

Net operating result 8 034 1 985 9 160 ( 52) Equity-accounted earnings 25 114 ( 29) - - Finance cost - other 26 ( 335) ( 343) ( 191) ( 191)

Profit/(loss) before tax 7 813 1 613 8 969 ( 243) Taxation 27 (2 362) ( 556) (1 653) ( 246)

Shareholders' fund (1 584) ( 296) ( 968) ( 44) Policyholders' fund ( 778) ( 260) ( 685) ( 202)

Profit/(loss) from continuing operations 5 451 1 057 7 316 ( 489) Discontinued operations 37 - 25 - - Profit/(loss) for the year 5 451 1 082 7 316 ( 489) Other comprehensive income

Movement in foreign currency translation reserve ( 315) 165 - - Comprehensive income for the year 5 136 1 247 7 316 ( 489) Allocation of comprehensive incomeProfit/(loss) for the year 5 451 1 082 7 316 ( 489)

Shareholders' fund 4 791 674 7 316 ( 489) Minority shareholders' interest 660 408 - -

Comprehensive income for the year 5 136 1 247 7 316 ( 489) Shareholders' fund 4 621 747 7 316 ( 489) Minority shareholders' interest 515 500 - -

36

Sanlam Life Insurance Limited GroupStatement of changes in equityfor the year ended 31 December 2009

Group

R million Share capitalShare

premium Treasury sharesNon-distributable

reserveForeign currency

translation reserveDiscontinued

operations Retained earningsSubtotal: equity

holdersConsolidation

reserveTotal: equity

holders

Minority shareholders'

interest Total equity

Balance at 1 January 2008 1 4 999 ( 175) 5 668 ( 68) 40 19 067 29 532 ( 201) 29 331 2 189 31 520 Comprehensive income - - - - 73 - 674 747 - 747 500 1 247

Profit for the year - - - - - - 674 674 - 674 408 1 082 Other comprehensive income: movement in foreign currency translation reserve - - - - 73 - - 73 - 73 92 165

Net movement in treasury shares - - 16 - - - ( 38) ( 22) - ( 22) ( 48) ( 70) Net realised investment surpluses on treasury shares - - - - - - ( 38) ( 38) - ( 38) ( 28) ( 66) Cost of net treasury shares acquired/(disposed) (2) - - 16 - - - - 16 - 16 ( 20) ( 4)

Share-based payments - - - - - - 36 36 - 36 23 59 Transfer to non-distributable reserve - - - 9 - - ( 9) - - - - - Transfer (from)/to consolidation reserve - - - - - - ( 127) ( 127) 127 - - - Dividends paid (1) - - - - - - (2 800) (2 800) - (2 800) ( 338) (3 138) Acquisitions, disposals and other movements in minority interests - - - - - - - - - - 223 223 Transfer to discontinued operations reserve - - - - 40 ( 40) - - - - ( 29) ( 29) Balance at 31 December 2008 1 4 999 ( 159) 5 677 45 - 16 803 27 366 ( 74) 27 292 2 520 29 812 Comprehensive income - - - - ( 170) - 4 791 4 621 - 4 621 515 5 136

Profit for the year - - - - - - 4 791 4 791 - 4 791 660 5 451 Other comprehensive income: movement in foreign currency translation reserve - - - - ( 170) - - ( 170) - ( 170) ( 145) ( 315)

Net movement in treasury shares - - 13 - - - ( 41) ( 28) - ( 28) 9 ( 19) Net realised investment surpluses on treasury shares - - - - - - ( 41) ( 41) - ( 41) - ( 41) Cost of net treasury shares acquired(2) - - 13 - - - - 13 - 13 9 22

Share-based payments - - - - - - 36 36 - 36 28 64 Transfer to non-distributable reserve - - - 42 - - ( 42) - - - - - Transfer (from)/to consolidation reserve - - - - - - 14 14 ( 14) - - - Dividends paid (1) - - - - - - (4 650) (4 650) - (4 650) ( 397) (5 047) Acquisitions, disposals and other movements in minority interests - - - - - - - - - - ( 93) ( 93) Balance at 31 December 2009 1 4 999 ( 146) 5 719 ( 125) - 16 911 27 359 ( 88) 27 271 2 582 29 853

(1) Dividend of R93 per share declared and paid on 31 March 2009 (2008: R45 per share) in respect of the 2008 financial year. (2) Comprises movement in cost of treasury shares held by subsidiaries.

37

Sanlam Life Insurance Limited GroupStatement of Changes in Equityfor the year ended 31 December 2009

Company

R million Share capitalShare

premiumNon-distributable

reserve Retained earningsSubtotal: equity

holdersConsolidation

reserveTotal: equity

holders

Minority shareholders'

interest Total equity

Balance at 1 January 2008 1 4 999 5 429 26 025 36 454 - 36 454 - 36 454 Total comprehensive income - loss for the year - - - ( 489) ( 489) - ( 489) - ( 489) Share-based payments - - - 8 8 - 8 - 8 Dividends paid (1) - - - (2 800) (2 800) - (2 800) - (2 800) Balance at 31 December 2008 1 4 999 5 429 22 744 33 173 - 33 173 - 33 173 Total comprehensive income - profit for the year - - - 7 316 7 316 - 7 316 - 7 316 Share-based payments - - - 2 2 - 2 - 2 Dividends paid (1) - - - (4 650) (4 650) - (4 650) - (4 650) Balance at 31 December 2009 1 4 999 5 429 25 412 35 841 - 35 841 - 35 841

(1) Dividend of R93 per share declared and paid on 31 March 2009 (2008: R45 per share) in respect of the 2008 financial year.

38

Sanlam Life Insurance Limited GroupCash flow Statementfor the year ended 31 December 2009 Group Company

2009 2008 2009 2008Note R million R million R million R million

Cash flow from operating activities 4 652 3 934 7 669 (1 505) Cash utilised in operations 35.1 (2 581) (4 424) 164 (9 792) Interest and preference share dividends received 10 532 9 974 8 084 7 377 Interest paid ( 535) ( 587) ( 191) ( 191) Dividends received 4 182 4 566 5 658 5 242 Dividends paid (5 047) (3 138) (4 650) (2 800) Taxation paid (1 899) (2 457) (1 396) (1 341)

Cash flow from investment activities (4 621) 1 203 (7 097) 2 849 Net disposal/(acquisition) of investments (4 486) 1 514 (7 097) 2 849 Acquisition of subsidiaries 35.2 ( 183) ( 232) - - Disposal of subsidiaries and associates 35.3 48 ( 79) - -

Cash flow from financing activities ( 96) ( 414) - - Term finance raised 42 - - - Term finance repaid ( 119) ( 344) - - Movement in treasury shares ( 19) ( 70) - -

Net increase in cash and cash equivalents ( 65) 4 723 572 1 344

Cash, deposits and similar securities at beginning of year 50 151 45 428 31 441 30 097

Cash, deposits and similar securities at end of year 50 086 50 151 32 013 31 441 Non-current assets classified as held for sale - - - - Cash, deposits and similar securities at end of year - Continuing operations 35.4 50 086 50 151 32 013 31 441

Cash flows relating to discontinued operationsIncluded in the above are the following cash flows from discontinuing operations

Operating cash flows - ( 410) Investing cash flows - ( 401) Financing cash flows - ( 1) Net increase in cash and cash equivalents - ( 812) Cash, deposits and similar securities at beginning of year - 812 Cash, deposits and similar securities at end of year - -

39

Notes to the group financial statements for the year ended 31 December 2009 Group Company

2009 2008 2009 2008 R million R million R million R million

1. PROPERTY AND EQUIPMENTComputer equipment 202 203 100 98

Cost 680 581 313 269 Accumulated depreciation and impairment ( 478) ( 378) ( 213) ( 171)

Furniture, equipment, vehicles and other 156 158 76 75 Cost 450 428 239 218 Accumulated depreciation and impairment ( 294) ( 270) ( 163) ( 143)

Total property and equipment 358 361 176 173 Reconciliation of carrying amountBalance at beginning of year 361 283 173 159 Additions and expenditure capitalised 169 253 82 98 Disposals ( 8) ( 21) ( 4) ( 6) Acquired through business combinations 12 2 - - Disposal of subsidiaries ( 13) - - - Impairment losses recognised in the statement of comprehensive income - ( 1) - - Depreciation ( 161) ( 158) ( 75) ( 78) Foreign currency translation differences ( 2) 3 - - Balance at end of year 358 361 176 173

2. OWNER-OCCUPIED PROPERTIESBalance at beginning of year 651 645 492 492 Additions and expenditure capitalised 1 6 - -

Balance at end of year 652 651 492 492

Register of owner-occupied properties

3. GOODWILLBalance at beginning of year 938 805 753 753

Gross carrying amount 947 814 753 753 Accumulated impairment ( 9) ( 9) - -

Additions during the year 45 130 - - Net consideration paid 186 232 - - Fair value of net assets acquired ( 11) ( 17) - - Minority shareholders’ interest ( 130) ( 85) - -

Foreign currency translation differences 1 3 - - Balance at end of year 984 938 753 753

Gross carrying amount 993 947 753 753 Accumulated impairment ( 9) ( 9) - -

Impairment of goodwill

Group Company2009 2008 2009 2008

R million R million R million R million 4. VALUE OF BUSINESS ACQUIRED

Balance at beginning of year 859 884 - - Additions during the year 2 29 - - Amortisation ( 63) ( 47) - - Impairments 3 ( 7) - - Balance at end of year 801 859 - -

Gross carrying amount 1 004 1 002 - - Accumulated amortisation and impairment ( 203) ( 143) - -

Amortisation and impairment of value of business acquired

A register containing details of all owner-occupied properties is available for inspection at the registered office of Sanlam Life Insurance Limited.

For impairment testing purposes, goodwill is allocated to cash generating units at the lowest level of operational activity (business) to which it relates. The recoverable amount of goodwill has been determined based on the embedded value of life insurance businesses and the fair value of other businesses, as applicable, less the consolidated net asset value of the respective businesses. R760 million of the Life Group goodwill relates to Santam. The fair value of the investment in Santam of R6,9 billion at 31 December 2009 (based on its listed price) exceeded its net asset value, including goodwill, by approximately R1,7 billion indicating no required impairment of the goodwill allocated to Santam.

The additions to goodwill during 2009 arose primarily from the acquisition of an additional interest in Channel and MiWay, and in 2008 primarily from the acquisition of an additional interest in Santam.

Value of business acquired is amortised to the income statement on a straight-line basis over the expected life of the intangible asset, currently 25 years for Sanlam Developing Markets Limited and 15 years for Channel Life, being the largest components included in the balance. For impairment testing purposes, the value of business acquired is allocated to cash generating units at the lowest level of operational activity (business) to which it relates. The recoverable amount has been determined based on the embedded value less the consolidated net asset value of the respective life insurance businesses.

40

5. DEFERRED ACQUISITION COSTSBalance at beginning of year 1 875 1 619 1 763 1 548 Acquired through business combinations - - - - Credited to statement of comprehensive income 147 256 117 215

Acquisition costs capitalised 402 503 356 454 Expensed for the year ( 255) ( 247) ( 239) ( 239)

Balance at end of year 2 022 1 875 1 880 1 763

6. LONG-TERM REINSURANCE ASSETSBalance at beginning of year 414 412 373 347 Movement in reinsurers' share of insurance liabilities 23 2 22 26 Balance at end of year 437 414 395 373 Maturity analysis of long-term reinsurance assetsDue within one year 7 11 2 2 Due within two to five years 44 41 42 39 Due after more than five years 386 362 351 332 Total long-term reinsurance assets 437 414 395 373

Group Company2009 2008 2009 2008

R million R million R million R million 7. INVESTMENTS 7.1 Properties

Properties comprise the following: Office buildings 3 814 3 993 3 684 3 936 Retail buildings 4 003 4 364 3 697 4 081 Industrial buildings 568 634 568 634 Undeveloped land 46 51 4 4 International properties (situated outside South Africa, including listed properties)

635 641 - -

Listed property companies and property collective investment schemes 4 452 3 693 3 943 2 455 Other 321 378 413 438 Total properties 13 839 13 754 12 309 11 548 Less: straight-line rental adjustment ( 714) ( 791) ( 711) ( 788) Total investment properties 13 125 12 963 11 598 10 760 Reconciliation of carrying amount of properties Fixed properties - balance at beginning of year 10 061 9 571 9 093 8 709 Additions and subsequent expenditure capitalised 116 119 47 107 Disposals ( 330) ( 492) ( 314) ( 445) Foreign currency translation differences ( 54) 44 - - Investment surpluses ( 406) 819 ( 460) 722 Fixed properties - balance at end of year 9 387 10 061 8 366 9 093 Listed property companies and property collective investment schemes 4 452 3 693 3 943 2 455 Total properties 13 839 13 754 12 309 11 548 Reconciliation of straight-line rental adjustmentStraight-line rental adjustment - balance at beginning of year 791 868 788 865 Disposals ( 56) ( 14) ( 56) ( 14) Movement of the year included in the statement of comprehensive income ( 21) ( 63) ( 21) ( 63) Straight-line rental adjustment - balance at end of year 714 791 711 788

Contractual future minimum lease payments receivable under non-cancellable operating leases:Within one year 894 932 870 907 Within two to five years 1 989 2 524 1 970 2 481 After more than five years 516 810 516 810 Future minimum lease payments 3 399 4 266 3 356 4 198

Amounts due from reinsurers in respect of claims incurred by the Group that are reinsured, are included in trade and other receivables (refer to note 10).

41

Group 2009 2008

R million R million 7. INVESTMENTS (continued)7.2 Equity-accounted investments

Investments in associated companies 708 358 Investments in joint ventures 708 561 Total equity-accounted investments 1 416 919

Investments in associated companies Letshego 308 - Other associated companies 400 358 Total investment in associated companies 708 358

Group

Details of material associated companies

Letshego 2009 2008

Fair value of interest - based on quoted share price R million 435 - Direct interest - - Indirectly held by subsidiaries 435 -

Number of shares held 000s 24 833 - Interest in issued share capital % 14 -

Shareholders' fund 14 - Policyholders' fund - -

Average interest in issued share capital for the year % 14 - Shareholders' fund 14 - Policyholders' fund - -

Share of earnings after tax R million 27 - Shareholders' fund 27 - Policyholders' fund - - Aggregate portion of post-acquisition reserves (attributable to shareholders funds)

R million 27 -

Distributions received R million - - Shareholders' fund - - Policyholders' fund - -

Financial information as at 31 December - total:Revenue R million 691 - Earnings attributable to shareholders R million 330 - Total assets R million 2 024 - Total liabilities R million ( 603) -

Futher details are not provided in respect of other associated companies as the total comprise of amounts that are individually immaterial.

42

Group 2009 2008

R million R million 7. INVESTMENTS (continued)7.2 Equity-accounted investments (continued)

Investments in joint venturesShriram Life Insurance 247 208 Sanlam Home Loans 120 133 Sanlam Personal Loans 133 44 Shriram General Insurance 115 115 Other joint ventures 93 61 Total investment in joint ventures 708 561 Shriram General Insurance conducts the Group's short term insurance activities in India. Detailed information is not provided as the Groups's share of earnings and equity is not material.Details of material joint ventures

Sanlam Home Loans (1) Sanlam Personal Loans (2)

2009 2008 2009 2008

Interest in issued share capital % 50 50 70 70 Carrying value of interest R million 120 133 133 44 Fair value of interest R million 120 133 133 71 Share of revenue R million 245 354 262 242 Share of earnings after tax R million ( 12) - 14 ( 33) Share of expenses R million 34 35 125 133 Share of assets R million 2 522 2 484 1 045 1 138

Non-current 2 367 2 321 692 748 Current 155 163 353 390

Share of liabilities R million 2 538 2 483 992 1 097 Non-current 1 146 1 937 717 101

Interest bearing 970 1 761 559 101 Non-interest bearing 176 176 158 -

Current 1 392 546 275 996 Interest bearing 1 366 525 261 962 Non-interest bearing 26 21 14 34

Aggregate portion of post-acquisition reserves (attributable to shareholders)R million ( 23) ( 11) 58 44

Contingencies and capital commitments of venturer: R million 3 Directly incurred 298 456 - -

Share of cash flows R million 27 ( 113) ( 28) 17 Operating activities ( 40) 431 72 20 Investment activities 1 ( 31) - - Financing activities 66 ( 513) ( 100) ( 3)

Shriram Life Insurance (3)

2009 2008

Interest in issued share capital % 26 26 Carrying value of interest R million 247 208 Fair value of interest R million 247 208 Share of revenue R million ( 2) 5 Share of earnings after tax R million ( 2) ( 1) Share of expenses R million - - Share of assets R million 498 348

Non-current 474 323 Current 24 25

Share of liabilities R million 443 274 Non-current 416 249

Interest bearing 416 248 Non-interest bearing - 1

Current 27 25 Interest bearing - - Non-interest bearing 27 25

Aggregate portion of post-acquisition reserves (attributable to shareholders)R million 10 12

Share of cash flows R million ( 1) 8 Operating activities ( 1) 8 Investment activities - - Financing activities - -

(1) Sanlam Home Loans conducts the Group's mortgage lending business in South Africa. (2) Sanlam Personal Loans conducts personal loan business in South Africa. Refer to note 39 for impairment recognised during the year.(3) Shriram Life Insurance conducts the Group's long-term insurance business in India.

The Group holds an interest in the following material jointly controlled entities, which are accounted for on an equity-accounted basis:

43

7. INVESTMENTS (continued) Group Company 2009 2008 2009 2008

R million R million R million R million 7.3 Equities and similar securities

Listed on the JSE - at market value 61 029 52 615 53 486 50 584 Unlisted - at directors' valuation 7 628 8 973 6 375 8 246 Offshore equity investments 30 419 26 518 4 612 2 068

Listed 29 569 26 315 4 510 1 989 Unlisted 850 203 102 79

Equity collective investment schemes 32 186 23 643 31 255 23 944 Units held 23 078 16 379 31 255 23 944 Equities held by consolidated schemes 9 108 7 264 - -

Total equities and similar securities 131 262 111 749 95 728 84 842 Classification of equities and similar securitiesDesignated as at fair value through profit or loss 131 132 110 110 95 728 84 842 Held for trading at fair value 130 1 639 - - Total equities and similar securities 131 262 111 749 95 728 84 842

Group Company 2009 2008 2009 2008

Shares held in ultimate holding company - Sanlam LtdShareholders

Number of shares (thousand) 112 488 142 729 112 288 142 594 Fair value (R million) 2 559 2 426 2 554 2 424

PolicyholdersNumber of shares (thousand) 15 840 22 366 15 294 19 859 Fair value (R million) 360 381 348 338

Company2009 2008

R million R million 7.4 Investments in subsidiaries, joint ventures and associates

Investments in subsidiaries 65 589 60 446 Equity holding 64 883 60 116 Loans to subsidiaries 706 330

Investments in joint ventures 616 525 Sanlam Home Loans 120 133 Sanlam Personal Loans 133 71 Shriram Life Insurance 247 208 Shriram General Insurance 115 113 Other 1 -

66 205 60 971

Loans from subsidiaries (32 905) (33 713)

Refer to page 77 for details of principal subsidiaries.

Group

Amortised cost (1) Total

R million31 December 2009Public sector stocks and loans 47 908 - - 47 908 Debentures, insurance policies, preference shares and other loans 32 060 406 782 33 248 Cash, deposits and similar securities 41 402 - 91 41 493

121 370 406 873 122 649 R million31 December 2008Public sector stocks and loans 47 057 - - 47 057 Debentures, insurance policies, preference shares and other loans 32 068 1 249 828 34 145 Cash, deposits and similar securities 42 528 - 173 42 701

121 653 1 249 1 001 123 903

Company

Amortised cost (1) Total

R million31 December 2009Public sector stocks and loans 37 866 - - 37 866 Debentures, insurance policies, preference shares and other loans 26 792 393 508 27 693 Cash, deposits and similar securities 31 072 - - 31 072

95 730 393 508 96 631 R million31 December 2008Public sector stocks and loans 34 553 - - 34 553 Debentures, insurance policies, preference shares and other loans 26 927 1 220 578 28 725 Cash, deposits and similar securities 30 897 - - 30 897

92 377 1 220 578 94 175

(1) The estimated fair value of investments valued at amortised cost amounts to R873 million (2008: R1 001 million).

Designated as at fair value through

profit or loss

7.5 Total investments other than equities and similar securities, investments in subsidiaries, equity-accounted investments and properties

Held for trading at fair

value

Designated as at fair value through

profit or loss

Held for trading at fair

value

(1) The estimated fair value of investments valued at amortised cost amounts to R508 million (2008: R578 million).

44

Group Company 2009 2008 2009 2008

R million R million R million R million 7. INVESTMENTS (continued)

Listed 68 939 70 427 56 526 55 332 Unlisted 53 710 53 476 40 105 38 843 Total investments other than equities and similar securities, equity-accounted investments and properties 122 649 123 903 96 631 94 175

Maturity analysis of:Public sector stocks and loans; debentures, insurance policies, preference shares and other loans; cash, deposits and similar securities as at:

Group

R million <1 year 1-5 years >5 years Open ended Total31 December 2009Public sector stocks and loans 4 225 6 273 33 781 3 629 47 908 Debentures, insurance policies, preference shares and other loans 11 592 12 041 7 516 2 099 33 248 Cash, deposits and similar securities 32 736 6 176 1 675 906 41 493 Total investments other than equities and similar securities, investments in subsidiaries, equity-accounted investments and properties 48 553 24 490 42 972 6 634 122 649

R million31 December 2008Public sector stocks and loans 2 786 2 368 34 909 6 994 47 057 Debentures, insurance policies, preference shares and other loans 10 566 13 749 8 528 1 302 34 145 Cash, deposits and similar securities 36 227 4 450 879 1 145 42 701 Total investments other than equities and similar securities, investments in subsidiaries, equity-accounted investments and properties 49 579 20 567 44 316 9 441 123 903

Company

R million <1 year 1-5 years >5 years Open ended Total31 December 2009Public sector stocks and loans 3 788 3 037 30 862 179 37 866 Debentures, insurance policies, preference shares and other loans 11 265 7 933 6 746 1 749 27 693 Cash, deposits and similar securities 27 202 2 546 1 324 - 31 072 Total investments other than equities and similar securities, investments in subsidiaries, equity-accounted investments and properties 42 255 13 516 38 932 1 928 96 631

R million31 December 2008Public sector stocks and loans 2 562 1 808 30 038 145 34 553 Debentures, insurance policies, preference shares and other loans 9 818 9 910 7 931 1 066 28 725 Cash, deposits and similar securities 27 634 2 419 844 - 30 897 Total investments other than equities and similar securities, investments in subsidiaries, equity-accounted investments and properties 40 014 14 137 38 813 1 211 94 175

Group Company 2009 2008 2009 2008

R million R million R million R million

Maximum exposure to credit risk at the reporting date 53 710 53 476 40 105 38 843

7.6 Use of valuation techniques to determine fair value

A register containing details of all investments, including fixed property investments and the related lease agreements, is available for inspection at the registered office of Sanlam Life Insurance Limited.

Register of investments

Refer to note 40 for additional disclosures.

Unlisted investments (other than equities and similar securities, equity-accounted investments and properties) designated as at fair value through profit or loss

The amount of change, during the period and cumulatively, in the fair value of the loans and receivables that is attributable to changes in the credit risk of the financial asset is determined as the change triggered by factors other than changes in benchmark interest rates. The impact of changes in credit risk for 2009 and 2008 was not material.

7.5 Total investments other than equities and similar securities, investments in subsidiaries, equity-accounted investments and properties (continued)

45

8. DEFERRED TAX Reconciliation of the deferred tax balances:

Asset Liability Asset LiabilityGroup R million R million R million R millionBalance at 1 January 2008 257 37 2 1 193

95 36 79 ( 903) Accruals and provisions 69 87 - 7 Tax losses and credits 120 1 ( 1) - Net unrealised investment surpluses on shareholders' fund (55) (60) 80 ( 456) Net unrealised investment surpluses on policyholders' fund - - - ( 448) Secondary Tax on Companies 1 - - - Other temporary differences (40) 8 - ( 6)

- - - - Transfer to non-current assets held for sale - - - - Foreign currency translation differences 1 8 - - Balance at 31 December 2008 353 81 81 290

Temporary differences through to the statement of comprehensive income (80) (30) (81) 383 Accruals and provisions (22) - - - Tax losses and credits (92) (1) - - Net unrealised investment surpluses on shareholders' fund 56 (58) (81) 231 Net unrealised investment surpluses on policyholders' fund - - - 146 Secondary Tax on Companies (30) - - - Other temporary differences 8 29 - 6

- (3) - - Foreign currency translation differences (2) - - - Balance at 31 December 2009 271 48 - 673

CompanyBalance at 1 January 2008 126 - - 1 034

11 - 78 ( 768) Tax losses and credits 11 - - - Net unrealised investment surpluses on shareholders' fund - - 78 ( 320) Net unrealised investment surpluses on policyholders' fund - - - ( 448)

Balance at 31 December 2008 137 - 78 266 (84) - (78) 236

Tax losses and credits (84) - - - Net unrealised investment surpluses on shareholders' fund - - (78) 90 Net unrealised investment surpluses on policyholders' fund - - - 146

Balance at 31 December 2009 53 - - 502

Analysis of the deferred tax balances:Group2009Accruals and provisions 64 - - 8 Tax losses and credits 201 - - - Net unrealised investment surpluses on shareholders' fund 2 - - 253 Net unrealised investment surpluses on policyholders' fund - - - 416 Other temporary differences 4 48 - ( 4) Deferred tax balances at 31 December 2009 271 48 - 673

2008Accruals and provisions 86 - - 8 Tax losses and credits 323 1 - - Net unrealised investment surpluses on shareholders' fund (54) 58 81 22 Net unrealised investment surpluses on policyholders' fund - - - 270 Other temporary differences (2) 22 - ( 10) Deferred tax balances at 31 December 2008 353 81 81 290

Net disposal of subsidiaries

Capital Gains TaxIncome Tax

Temporary differences through to the statement of comprehensive income

Net disposal of subsidiaries

Temporary differences through to the statement of comprehensive income

Temporary differences through to the statement of comprehensive income

46

Asset Liability Asset Liability R million R million R million R million

8. DEFERRED TAX (continued)

Company2009Tax losses and credits 53 - - - Net unrealised investment surpluses on shareholders' fund - - - 90 Net unrealised investment surpluses on policyholders' fund - - - 416 Other temporary differences - - - ( 4) Deferred tax balances at 31 December 2009 53 - - 502

2008Tax losses and credits 137 - - - Net unrealised investment surpluses on shareholders' fund - - 78 - Net unrealised investment surpluses on policyholders' fund - - - 270 Other temporary differences - - - ( 4) Deferred tax balances at 31 December 2008 137 - 78 266

Group Company2009 2008 2009 2008

R million R million R million R millionTotal deferred tax asset 271 434 53 215 Total deferred tax liability ( 721) ( 371) ( 502) ( 266) Total net deferred tax ( 450) 63 ( 449) ( 51)

Group2009 2008

R million R million9. SHORT-TERM INSURANCE TECHNICAL PROVISIONS

Short-term insurance technical provisions 8 304 8 229 Outstanding claims 5 421 5 208 Provision for unearned premiums 2 829 2 939 Deferred reinsurance acquisition revenue 54 82

Less : Short-term insurance technical assets 2 064 2 250 Reinsurers' share of technical provisions

Outstanding claims 1 462 1 547 Unearned premiums 343 432

Deferred acquisition cost 259 271

Net short-term insurance technical provisions 6 240 5 979

Analysis of movement in short-term insurance technical provisions

Group

R million Gross Reinsurance Net Gross Reinsurance NetOutstanding claimsBalance at beginning of year 5 208 (1 547) 3 661 4 776 (1 495) 3 281 Cash paid for claims settled in the year (10 003) 1 213 (8 790) (8 971) 1 361 (7 610) Increase in liabilities 10 216 (1 128) 9 088 9 403 (1 413) 7 990 Foreign currency translation reserve and other - - - - - - Transfer to non-current assets held for sale - - - - - - Balance at end of year 5 421 (1 462) 3 959 5 208 (1 547) 3 661 Unearned premiumsBalance at beginning of year 2 939 ( 432) 2 507 2 844 ( 529) 2 315 Net increase in the period ( 110) 89 ( 21) 95 97 192 Foreign currency translation reserve and other - - - - - - Additions during the year - - - - - - Transfer to non-current assets held for sale - - - - - - Balance at end of year 2 829 ( 343) 2 486 2 939 ( 432) 2 507

Deferred tax in respect of investment properties is provided for at capital gains tax rates, where applicable, as it is expected that capital gains tax will be payable on the recovery of the carrying value of the properties. Refer note 30.3 for additional information.

2009 2008

Income Tax Capital Gains Tax

47

Group Company2009 2008 2009 2008

R million R million R million R million10. TRADE AND OTHER RECEIVABLES

Premiums receivable 5 336 5 216 3 639 3 505 Accrued investment income 1 591 2 153 1 384 1 756 Amounts due from holding company and fellow subsidiaries 923 3 204 704 2 960 Trading account and money market investments 1 868 1 668 - - Amounts due from reinsurers 591 814 84 94 Accounts receivable 2 539 3 795 1 085 1 527 Total trade and other receivables 12 848 16 850 6 896 9 842 Classification of trade and other receivables:Held for trading at fair value 1 868 1 668 - - Loans and receivables at amortised cost 10 980 15 182 6 896 9 842

12 848 16 850 6 896 9 842

Maturity analysis of trading accountDue within one year 1 868 1 540 Due within two to five years - - Due after five years - 128 Total trading account 1 868 1 668

Group and Company2009 2008

R million R million11. SHARE CAPITAL AND PREMIUM

Authorised share capital100 million ordinary shares of 1 cent each 1 1 Issued share capital and share premium50 million ordinary shares issued at:Nominal value of 1 cent per share 1 1 Share premium 4 999 4 999 Balance at end of year 5 000 5 000 Authorised and unissued shares

12. OTHER RESERVES

Group Company2009 2008 2009 2008

R million R million R million R millionNon-distributable reserves 5 719 5 677 5 429 5 429 Foreign currency translation reserve ( 125) 45 - - Consolidation reserve ( 88) ( 74) - -

( 88) ( 74) - - - - - -

5 506 5 648 5 429 5 429

13. CONTINGENCY RESERVES

No trade and other receivables of the Company were pledged as collateral.

Contingency reserves in respect of short-term insurance business of R722 million are included in the Group's shareholders’ reserves (2008: R670 million).

Total reserves other than retained earnings

The non-distributable reserve comprises of the transfer from the Sanlam Mutual capital fund on demutualisation of R5 429 million (2008: R5 429 million) for the company, and in addition, the regulatory non-distributable reserves of the Group's Botswana operations of R290 million (2008: R248 million).

Trade and other receivables, excluding trading account, are receivable within one year.

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.

Policyholder fund investments in associated companiesPolicyholder fund investments in consolidated subsidiaries

48

Group2009 2008

R million R million14. MINORITY SHAREHOLDERS' INTEREST

Santam 1 602 1 350 Sanlam Developing Markets 816 896 Sanlam Namibia Holdings 141 127 Channel Life 8 108 MiWay 12 36 Other 3 3 Total minority shareholders' interest 2 582 2 520

Total Insurance contracts Investment contracts

Total Insurance contracts

Investment contracts

R million R million R million R million R million R million15. LONG-TERM POLICY LIABILITIES

15.1 Analysis of movement in policy liabilities

GroupIncome 58 290 26 299 31 991 31 820 16 301 15 519 Premium income (note 15.2) 34 460 15 427 19 033 34 821 14 719 20 102 Investment return after tax (note 23) 23 830 10 872 12 958 (3 001) 1 582 (4 583) Outflow (40 429) (22 792) (17 637) (43 280) (23 383) (19 897) Policy benefits (note 15.3) (25 180) (11 936) (13 244) (26 593) (12 859) (13 734) Retirement fund terminations (2 446) ( 31) (2 415) (5 196) ( 12) (5 184) Transfer to segregated assets ( 13) ( 13) - - - - Fees, risk premiums and other payments to shareholders’ fund

(12 790) (10 812) (1 978) (11 491) (10 512) ( 979)

Movement in policy loans ( 42) 3 ( 45) ( 78) ( 14) ( 64)

Net movement for the year 17 819 3 510 14 309 (11 538) (7 096) (4 442) Foreign currency translation differences (1 284) ( 548) ( 736) 1 193 419 774 Balance at beginning of the year 210 578 117 643 92 935 220 923 124 320 96 603 Balance at end of the year 227 113 120 605 106 508 210 578 117 643 92 935

CompanyIncome 46 309 19 957 26 352 25 026 11 914 13 112 Premium income (note 15.2) 26 365 10 378 15 987 27 057 10 429 16 628 Investment return after tax (note 23) 19 944 9 579 10 365 (2 031) 1 485 (3 516) Outflow (32 121) (17 702) (14 419) (35 981) (19 256) (16 725) Policy benefits (note 15.3) (21 442) (10 993) (10 449) (22 863) (11 893) (10 970) Retirement fund terminations (2 283) ( 31) (2 252) (5 174) ( 12) (5 162) Fees, risk premiums and other payments to shareholders’ fund (8 396) (6 678) (1 718) (7 944) (7 351) ( 593)

Movement in policy loans ( 45) - ( 45) ( 64) - ( 64)

Net movement for the year 14 143 2 255 11 888 (11 019) (7 342) (3 677) Balance at beginning of the year 186 234 108 419 77 815 197 253 115 761 81 492 Balance at end of the year 200 377 110 674 89 703 186 234 108 419 77 815

Group Company2009 2008 2009 2008

R million R million R million R million15.2 Analysis of premium income

Individual business 25 494 24 922 18 875 19 127 Recurring 13 728 12 852 10 193 10 012 Single 10 147 10 183 7 167 7 359 Continuations 1 619 1 887 1 515 1 756

Employee benefits business 8 966 9 899 7 490 7 930 Recurring 5 196 5 026 4 158 4 077 Single 3 770 4 873 3 332 3 853

Total premium income 34 460 34 821 26 365 27 057

2009 2008

49

15. LONG-TERM POLICY LIABILITIES (continued)Group Company

2009 2008 2009 2008R million R million R million R million

15.3 Analysis of long-term policy benefitsIndividual business 19 981 21 010 16 762 18 008

Maturity benefits 10 814 11 503 8 996 9 804 Surrenders 4 134 5 078 3 474 4 190 Life and term annuities 4 125 3 636 3 645 3 356 Death and disability benefits (1) 629 781 594 649

Cash bonuses (1) 279 12 53 9 Employee benefits business 5 199 5 582 4 680 4 855

Withdrawal benefits 2 910 3 231 2 401 2 523 Pensions 1 207 1 161 1 201 1 154 Lump-sum retirement benefits 794 1 031 790 1 026 Taxation paid on behalf of certain retirement funds 1 4 1 4 Death and disability benefits (1) 262 130 262 123

Cash bonuses (1) 25 25 25 25 White label business - 1 - -

Total long-term policy benefits 25 180 26 593 21 442 22 863 (1) Excludes death and disability benefits and cash bonuses underwritten by the shareholders (refer to note 23).

15.4 Composition of policy liabilitiesIndividual business 183 813 169 875 159 196 147 375

Linked and market-related liabilities 93 486 80 982 78 366 66 675 Stable bonus fund 36 763 35 317 34 719 33 302 Reversionary bonus policies 10 430 10 394 10 016 9 942 Non-participating annuities 20 882 21 765 17 922 19 205 Other non-participating liabilities 22 252 21 417 18 173 18 251

Employee benefits business 43 300 40 703 41 181 38 859 Linked and market-related liabilities 18 045 15 344 17 058 14 468 Stable bonus portfolios 10 503 10 192 10 221 9 902 Participating annuities 6 551 7 706 6 543 7 700 Non-participating annuities 4 213 3 695 3 913 3 323 Other non-participating liabilities 3 988 3 766 3 446 3 466

Total policy liabilities 227 113 210 578 200 377 186 234

Group2009: R million < 1 year 1 -5 years > 5 years Open ended TotalLinked and market-related 1 600 6 744 23 557 49 713 81 614 Stable bonus 3 2 34 10 507 10 546 Non-participating annuities 60 912 173 - 1 145 Other non-participating liabilities 1 485 5 366 5 785 567 13 203 Total investment policies 3 148 13 024 29 549 60 787 106 508

2008: R million < 1 year 1 -5 years > 5 years Open ended TotalLinked and market-related 1 920 6 608 18 621 41 411 68 560 Stable bonus - 4 45 10 196 10 245 Non-participating annuities 72 795 170 - 1 037 Other non-participating liabilities 1 993 4 600 5 377 1 123 13 093 Total investment policies 3 985 12 007 24 213 52 730 92 935

Company2009: R million < 1 year 1 -5 years > 5 years Open ended TotalLinked and market-related 1 329 5 395 22 327 39 896 68 947 Stable bonus 2 2 34 10 225 10 263 Non-participating annuities 59 911 171 - 1 141 Other non-participating liabilities 1 004 1 996 5 785 567 9 352 Total investment policies 2 394 8 304 28 317 50 688 89 703

2008: R million < 1 year 1 -5 years > 5 years Open ended TotalLinked and market-related 1 095 4 815 17 976 32 607 56 493 Stable bonus - 5 45 9 907 9 957 Non-participating annuities 73 793 167 - 1 033 Other non-participating liabilities 1 405 2 440 5 377 1 110 10 332 Total investment policies 2 573 8 053 23 565 43 624 77 815 Investment policy contracts are classified as at fair value through profit or loss.

15.5 Maturity analysis of investment policy contracts

50

15. LONG-TERM POLICY LIABILITIES (continued)

Group2009: R million < 1 year 1 -5 years > 5 years Open ended TotalLinked and market-related 1 424 6 433 20 837 1 223 29 917 Stable bonus 1 601 7 510 24 721 2 888 36 720 Reversionary bonus policies 515 2 412 5 630 1 873 10 430 Non-participating annuities 2 37 84 23 827 23 950 Participating annuities - - - 6 551 6 551 Other non-participating liabilities 692 456 2 064 9 825 13 037 Total insurance policies 4 234 16 848 53 336 46 187 120 605

2008: R millionLinked and market-related 1 303 5 936 19 494 1 033 27 766 Stable bonus 1 497 6 894 24 009 2 864 35 264 Reversionary bonus policies 563 2 630 6 142 1 059 10 394 Non-participating annuities 1 35 75 24 312 24 423 Participating annuities - - - 7 706 7 706 Other non-participating liabilities 734 476 2 041 8 839 12 090 Total insurance policies 4 098 15 971 51 761 45 813 117 643

Company2009: R million < 1 year 1 -5 years > 5 years Open ended TotalLinked and market-related 1 273 5 714 18 367 1 123 26 477 Stable bonus 1 522 7 188 23 194 2 773 34 677 Reversionary bonus policies 493 2 297 5 456 1 770 10 016 Non-participating annuities - - - 20 694 20 694 Participating annuities - - - 6 543 6 543 Other non-participating liabilities 423 332 2 114 9 398 12 267 Total insurance policies 3 711 15 531 49 131 42 301 110 674

2008: R millionLinked and market-related 1 153 5 271 17 254 972 24 650 Stable bonus 1 400 6 600 22 495 2 752 33 247 Reversionary bonus policies 537 2 497 5 934 974 9 942 Non-participating annuities - - - 21 495 21 495 Participating annuities - - - 7 700 7 700 Other non-participating liabilities 512 322 2 042 8 509 11 385 Total insurance policies 3 602 14 690 47 725 42 402 108 419

Group Company2009 2008 2009 2008

R million R million R million R million15.7 Policy liabilities include the following:

Provision for HIV/Aids and other pandemics 4 082 4 371 3 018 3 404 Asset mismatch reserve 2 594 1 338 2 478 1 248

15.6 Maturity analysis of insurance policy contracts

51

Group Company2009 2008 2009 2008

R million R million R million R million16. TERM FINANCE

Term finance comprises:Interest-bearing liabilities matched by assets 16.1 2 290 2 400 - - Other interest-bearing liabilities 16.2 2 905 3 153 1 960 2 043

5 195 5 553 1 960 2 043

16.1 Interest-bearing liabilities held in respect of margin business

2 290 2 400 - - Total term finance liabilities matched held in respect of margin business 2 290 2 400 - -

16.2 Other interest-bearing liabilities:

1 114 1 171 1 114 1 171

780 840 780 840

839 972 - -

105 131 - -

25 32 66 32 Finance lease, with interest payable at various rates and terminating from 2010 to 2012 42 -

- 7 - - Total other term finance liabilities 2 905 3 153 1 960 2 043

Redeemable cumulative non-voting preference shares issued by subsidiary companies, with dividend terms that range between 6.4% and 12.2% (2008: 6.8% and 12.2%) or linked to prime interest rates. The preference shares have different redemption dates up to 2014.

Other

Finance lease on owner-occupied property, with interest payable at 10.47% and terminating on 1 June 2012.

Unsecured subordinated bond, with interest payable at 9,64% and a final maturity date of 15 August 2021. The bond has a redemption call option at its nominal value of R828 million, which the Group can exercise on 15 August 2016.

Unsecured subordinated notes, with interest payable at between 8,6% and 9,6% with a final maturity date of 15 September 2022. The notes have a redemption call option at their nominal value of R1 047 million, which the Group can exercise on 15 September 2017.

Obligations towards beneficiaries of companies limited by guarantee – matched by assets held in this regard.

Unsecured subordinated bond, with interest payable at 9,54% and a final maturity date of 15 August 2018. The bond has a redemption call option at its nominal value of R1 160 million, which the Group can exercise on 15 August 2013.

52

Group Company2009 2008 2009 2008

R million R million R million R million16. TERM FINANCE (continued)16.3 Maturity analysis of term finance

Due within one year 1 206 1 341 44 7 Due within two to five years 1 073 961 22 25 Due after more than five years 2 916 3 251 1 894 2 011 Total term finance liabilities 5 195 5 553 1 960 2 043

16.4 Classification of term finance liabilitiesClassified as at fair value through profit or loss 16.4.1 2 838 3 190 1 894 2 011

Valued at stock exchange prices 2 733 2 983 1 894 2 011 Based on internal valuation 105 207 - -

At amortised cost 16.4.2 2 357 2 363 66 32 Total term finance liabilities 5 195 5 553 1 960 2 043

16.4.1 Term finance classified as at fair value through profit or lossTotal designated as at fair value through profit or loss 2 838 3 190 1 894 2 011 Amount contractually payable at maturity 3 140 3 242 1 988 1 988

16.4.2 Term finance classified as other financial liabilitiesEstimated fair value of term finance liabilities measured at amortised cost 2 357 2 363 66 32

17. TRADE AND OTHER PAYABLESAccounts payable 5 902 7 300 3 394 2 547 Policy benefits payable 3 660 3 579 3 246 3 267 Amounts due to reinsurers 834 882 19 5 Amounts due to holding company and fellow subsidiaries 1 714 1 541 943 783 Claims incurred but not reported 1 040 968 985 938 Operating lease creditor 15 - - - Trading account 131 378 - - Total trade and other payables 13 296 14 648 8 587 7 540

131 378 - - 13 165 14 270 8 587 7 540

Total trade and other payables 13 296 14 648 8 587 7 540

18. PROVISIONSDetails of the different classes of provisions are as follows:

Possible claims

Post- retirement

medical aid Onerous

contracts Other TotalR million R million R million R million R million

GroupBalance at 1 January 2008 342 31 - 318 691 Charged to income statement 268 - 2 79 349

Additional provisions 268 - 2 128 398 Unused amounts reversed - - - ( 49) ( 49)

Utilised during the year ( 19) ( 3) - ( 14) ( 36) Balance at 31 December 2008 591 28 2 383 1 004 Charged to income statement ( 122) - 5 200 83

Additional provisions 55 - 5 200 260 Unused amounts reversed ( 177) - - - ( 177)

Utilised during the year ( 28) ( 3) ( 2) ( 241) ( 274) Balance at 31 December 2009 441 25 5 342 813

Classification of trade and other payables:Held for trading at fair valueOther financial liabilities at amortised cost

Trade and other payables are payable within one year.

53

Possible claims

Post- retirement

medical aid Onerous

contracts Other TotalR million R million R million R million R million

18. PROVISIONS (continued)Analysis of provisionsCurrent 10 3 - 45 58 Non-current 431 22 5 297 755 Total provisions at 31 December 2009 441 25 5 342 813

CompanyBalance at 1 January 2008 308 31 - 216 555 Charged to income statement 270 - - 104 374

Additional provisions 270 - - 104 374 Utilised during the year - ( 3) - ( 12) ( 15) Balance at 31 December 2008 578 28 - 308 914 Charged to income statement ( 228) - - 107 ( 121)

Additional provisions 54 - - 107 161 Unused amounts reversed ( 282) - - - ( 282)

Utilised during the year - ( 3) - ( 170) ( 173) Balance at 31 December 2009 350 25 - 245 620

Analysis of provisionsCurrent - 3 - - 3 Non-current 350 22 - 245 617 Total provisions at 31 December 2009 350 25 - 245 620

Possible claimsThe Group provides for possible claims that may arise as a result of past events, transactions or investments. Due to the nature of the provision, the timing of the expected cash outflows are uncertain.Estimates are reviewed annually and adjusted as appropriate for new circumstances.

Post-retirement medical aid contributionThe Group provides for the future medical aid contributions for certain pensioners, disabled staff members and disabled advisers.The provision represents the present value of future contributions, which is actuarially determined on an annual basis. Refer note 31: Retirement benefits for employees.

Onerous contractsProvision is made for the full term of the contractual rental payable in respect of vacated offices where the lease term has not yet expired. A provision for related costs (e.g. electricity) is also included.

Other

Group Company2009 2008 2009 2008

R million R million R million R million19. FINANCIAL SERVICES INCOME

Analysis per revenue sourceLong-term insurance 13 479 11 988 8 889 8 441 Short-term insurance 15 051 14 054 - - Other financial services 648 964 - - Total financial services income 29 178 27 006 8 889 8 441 Analysis per revenue categoryLong-term insurance fee income 13 479 11 988 8 889 8 441

Administration services 2 152 1 912 1 978 1 777 Investment management fees 664 681 523 527 Risk benefit charges and other fee income 10 663 9 395 6 388 6 137

Short-term insurance premiums 15 051 14 054 - - Premiums receivable 14 941 14 148 - - Change in unearned premium provision 110 ( 94) - -

Other financial services fees and income 648 964 - - Total financial services income 29 178 27 006 8 889 8 441

Additional information in respect of other provisions cannot be provided, due to the potential prejudice that such disclosure may confer on the Group.

Includes sundry provisions for possible outflows of resources from the Group arising from past events. The timing of settlement cannot reasonably be determined.

Additional information in respect of possible claims cannot be provided, due to the potential prejudice that such disclosure may confer on the Group.

54

Group Company2009 2008 2009 2008

R million R million R million R million20. REINSURANCE PREMIUMS PAID

Long-term insurance 623 608 359 298 Short-term insurance 2 209 2 364 - -

Premiums payable 2 103 2 301 - -

Change in unearned premium provision 106 63 - -

Total reinsurance premiums paid 2 832 2 972 359 298 21. REINSURANCE INCOME

Reinsurance commission received

Long-term insurance 50 61 37 38 Short-term insurance 208 340 - - Total reinsurance commission received 258 401 37 38 Reinsurance claims received

Long-term insurance 441 354 356 267 Short-term insurance 1 131 1 413 - - Total reinsurance claims received 1 572 1 767 356 267

22. INVESTMENT RETURN

Investment income (1)

Equities and similar securities 4 132 4 560 3 207 3 388 Dividends received from subsidiaries - - 2 436 1 811 Interest-bearing, preference shares and similar securities 10 070 10 224 7 768 7 484 Properties 1 104 1 051 1 017 965

Rental income - excluding contingent rental 1 172 1 152 1 069 1 054

Contingent rental income 137 100 117 74

Rental related expenses ( 205) ( 201) ( 169) ( 163)

Total investment income 15 306 15 835 14 428 13 648 (1) Refer to note 26 for finance cost incurred in respect of margin business.(2) Comparatives have been restated for a reallocation between listed and unlisted investments.

- - - - The interest income on financial assets not classified as at fair value through profit or loss 358 685 337 651

Listed investments (2) 8 956 8 886 7 565 7 099 Unlisted investments (2) 6 350 6 949 6 863 6 549 Total investment income 15 306 15 835 14 428 13 648

Investment surpluses

Investments designated as at fair value through profit or loss 16 924 (23 838) 14 687 (20 376) Investments held for trading (1 213) 2 812 (1 189) 2 788 Investment properties - fixed properties ( 427) 756 ( 481) 659 Profit on disposal of associated companies and subsidiaries 75 ( 69) - - Total investment surpluses 15 359 (20 339) 13 017 (16 929)

Investment return includes:Foreign exchange (losses)/gains (4 903) 7 143 (4 413) 6 619

Insurance contractsUnderwriting policy benefits 5 720 4 865 3 570 3 316 After tax investment return attributable to insurance contract liabilities (note 15) 10 872 1 582 9 579 1 485 Total long-term insurance contract benefits 16 592 6 447 13 149 4 801

Investment contractsAfter tax investment return attributable to investment contract liabilities (note 15) 12 958 (4 583) 10 365 (3 516) Total long-term investment contract benefits 12 958 (4 583) 10 365 (3 516)

Analysis of underwriting policy benefitsIndividual insurance 3 223 2 667 1 835 1 741 Employee benefits 2 497 2 198 1 735 1 575

Total underwriting policy benefits 5 720 4 865 3 570 3 316

23. LONG-TERM INSURANCE AND INVESTMENT CONTRACT BENEFITS

55

Company2009 2008

R million R million24. ADMINISTRATION COSTS INCLUDE:

Directors’ remunerationTotal remuneration paid to present and previous directors (Company and Group):Present

Directors’ fees 4.2 4.0 Other services (basic remuneration, pensions and bonuses) 18.0 10.4

Basic remuneration 7.4 4.2Company contributions 1.4 0.7Bonus 9.2 5.5

PreviousDirectors’ fees 0.1 0.1Other services (basic remuneration, pensions and bonuses) 1.4 -

Total directors’ remuneration 23.7 14.5Executive directors 19.8 10.4Non-executive directors 3.9 4.1

Total directors’ remuneration 23.7 14.5 Directors’ remuneration paid by subsidiaries - -

2009 2008Gains on options exercised (R'000) 29,523 18,719Weighted average strike price R7,49 R7,06Weighted average market price R18,21 R21,26

Full details of directors emoluments are provided in the Sanlam Group annual report. 50% of the non-executive directors remuneration is paid by Sanlam Life Insurance Limited.

Executive directors are employed on a full-time basis and all Sanlam's human resources policies are applicable to their conditions of service. Nospecial arrangements regarding severance or corporate actions have been put in place.None of the non-executive directors have a director's service contract. Futher, it is stated that none of the directors proposed for re-election have a Directors' service contract with the Company.

The following gains were made by executive directors on the exercise of share options during the year. The gain is calculated as the difference between the market value on the date of exercise and the strike price. The date of exercise is the date that the director takes ownership of the shares and is entitled to dispose of them.

The above excludes share-based payments expenses relating to executive directors recognised in the current year. These expenses amounted to R18 million in 2009 (2008: R14 million).

56

24. ADMINISTRATION COSTS (continued)

Original loan Original no shares purchased Purchase price Total loan balance at 31

Dec 2008 Interest accrued Repayments Balance at 31 Dec 2009

Name (R'000) 000 (Rands) (R'000) (R'000) (R'000) (R'000)JP MollerGranted08/06/2006 2,808 188 14,21 2,804 261 326 2,739J van ZylGranted14/06/2006 15,330 1,021 14,31 12,702 1,111 2,859 10,954

18,138 1,209 15,506 1,372 3,185 13,693

2009 2008 2009 2008R million R million R million R million

Auditors’ remunerationAudit fees: statutory audit 59 53 26 23 Other services provided by 2 3 - 1

Subsidiaries' own auditorsDue diligence services 2 1 - 1 Other services - 2 - -

Total auditors’ remuneration 61 56 26 24 Depreciation 161 158 75 78 Operating leases 347 318 38 41

Properties 181 161 37 39 Equipment 151 142 1 1 Other 15 15 - 1

Consultancy fees 336 354 124 189 Technical, administrative and secretarial fees 514 418 50 47 Restructuring costs 21 - - - Employee benefits 3 251 3 066 1 477 1 590

Salaries and other short-term benefits 2 703 2 675 1 144 1 301 Pension costs - defined contribution plans 209 143 96 74 Pension costs - defined benefit plans 12 12 8 9 Other post-employment benefits - 3 - - Share-based payments 156 75 84 70 Other long-term incentive schemes 171 158 145 136

Office staff (number of persons) 8 497 9 025 3 758 3 986

Loans were granted to executive directors for the purpose of acquiring Sanlam shares. The loans are secured, bear interest at market-related rates, and will be repaid over four years. An annual bonus is payable to the directors, based on the number of Sanlam shares held by the director. Details of the loans granted are as follows:

CompanyGroup

57

24. ADMINISTRATION COSTS (continued)

Equity compensation plansThe details of the Sanlam Ltd shares and options that have been granted to Sanlam Life group employees are as follows:

Shares OptionsAverage option

price Shares OptionsAverage option

price 2009 2009 2009 2008 2008 2008000s 000s R 000s 000s R

GroupExecutive share incentive scheme

Total number of shares and share options at beginning of year 18 831 27 586 7.59 9 059 40 277 7.57

Unrestricted shares and share options at beginning of year ( 120) (20 762) 7.39 - (15 969) 7.50Restricted shares and share options at beginning of year 18 711 6 824 8.17 9 059 24 308 7.62New restricted shares granted in terms of restricted share and DSP schemes (2) 9 239 - 10 060 - - Unconditional options and shares released, available for release, or taken up (1 249) (6 660) 8.16 ( 247) (16 452) 7.47Options and shares forfeited ( 790) ( 164) 8.42 ( 172) (1 022) 6.32Options converted to shares - - 10 ( 10) Cash dividends received on restricted shares and converted into shares - - - 1 - -

Restricted shares and share options at end of year 25 911 - 8.17 18 711 6 824 8.17Unrestricted shares and share options at end of year 960 11 975 7.54 120 20 762 7.39

Total number of shares and share options at end of year 26 871 11 975 7.54 18 831 27 586 7.59

Shares the subject of loans granted (1) 10 324 10 727

Total equity participation by employees 37 195 11 975 - 29 558 27 586 -

CompanyExecutive share incentive scheme

Total number of shares and share options at beginning of year 16 863 25 473 7.54 8 223 36 928 7.53

Unrestricted shares and share options at beginning of year ( 120) (19 331) 7.36 - (14 915) 7.45Restricted shares and share options at beginning of year 16 743 6 142 8.13 8 223 22 013 7.58New restricted shares granted in terms of restricted share and DSP schemes (2) 7 533 - 8 846 - Unconditional options and shares released, available for release, or taken up ( 942) (5 978) 8.13 ( 243) (14 857) 7.44Options and shares forfeited ( 758) ( 164) 8.42 ( 94) (1 004) 6.29Options converted to shares - - 10 ( 10) Cash dividends received on restricted shares and converted into shares - - 1 -

Restricted shares and share options at end of year 22 576 - - 16 743 6 142 8.13Unrestricted shares and share options at end of year 960 11 324 7.50 120 19 331 7.36

Total number of shares and share options at end of year 23 536 11 324 7.50 16 863 25 473 7.54Shares the subject of loans granted (1) 8 484 8 739

Total equity participation by employees 32 020 11 324 - 25 602 25 473 - (1) Outstanding amount of loans granted in respect of these shares amounts to R182 million (2008: R198 million) for the Group and R155 million

(2008: R159 million) for the Company. No new loans were granted during the current year.(2) The weighted average fair value of the shares awarded was R15,21 (2008: R17,17) for Group and R15,20 (2008: R17,23) for Company.

probability that the performance conditions will be met in part.

Shares Shares2009 2009

Unrestricted during year ending (subject to performance targets)

000's 000's

31 December 2010 3 231 2 959 31 December 2011 6 039 5 365 31 December 2012 8 622 7 474 31 December 2013 5 390 4 594 31 December 2014 2 629 2 184

Details regarding the restricted shares and share options outstanding on 31 December 2009 and the financial years during which they become unconditional, are as follows:

CompanyGroup

The fair value is based on the Sanlam share price on grant date, adjusted for dividends not accruing to participants during the vesting period and the

58

Group Company2009 2008 2009 2008

R million R million R million R million25. EQUITY-ACCOUNTED EARNINGS

Sanlam Home Loans ( 12) - - - Sanlam Personal Loans 14 ( 33) - - Shriram Life Insurance ( 2) ( 1) - - Letshego 27 - - - Other associated companies 87 5 - -

Equity-accounted earnings 114 ( 29) - -

26. FINANCE COSTInterest paid and term finance cost in respect of interest margin business 200 244 - - Finance cost - margin business 200 244 - -

Interest-bearing liabilities designated as at fair value through profit or loss 307 343 191 191 Interest bearing liabilities held at amortised cost 28 Finance cost - other 335 343 191 191

27. TAXATIONSHAREHOLDERS' FUNDAnalysis of income tax on profit attributable to shareholders’ fundResult from financial services 991 717 503 220

Current year 997 963 503 423 Prior year overprovision ( 6) ( 246) - ( 203)

Investment return 595 ( 465) 465 ( 176) Investment income - current year 231 187 172 151 Investment surpluses - current year 249 ( 653) 209 ( 305) Investment surpluses - change in RSA corporate tax rate from 29% to 28% - ( 5) - ( 11) Profit on disposal of subsidiaries and associated companies 18 - - - Secondary tax on companies 97 6 84 ( 11)

Other ( 2) 44 - -

Tax expense 1 584 296 968 44 Analysis of income tax per categoryNormal income tax 1 216 888 716 453

RSA – current year 1 446 1 175 675 574 RSA P i i i ( 6) ( 246) ( 203)RSA – Prior year overprovision ( 6) ( 246) - ( 203) Foreign 51 77 - - Capital gains tax ( 342) ( 125) 41 82 Secondary Tax on Companies 67 7 - -

Deferred tax 368 ( 592) 252 ( 409) Normal tax - current year 12 ( 64) - - Normal tax - prior year 8 6 - - Capital gains tax - current year 318 ( 528) 168 ( 387) Capital gains tax - change in RSA corporate tax rate from 29% to 28% - ( 5) - ( 11) Secondary Tax on Companies 30 ( 1) 84 ( 11)

Tax expense 1 584 296 968 44

In addition to income tax the following indirect taxes and levies were paid, which are included in the appropriate items:

Included in administration costs 217 231 161 181 Included elsewhere in the statement of comprehensive income 82 92 43 53

Total indirect taxes and levies 299 323 204 234 Indirect taxes and levies include value-added tax and statutory levies payable to the Regional Services Councils and the Financial Services Board.

POLICYHOLDERS’ FUNDIncome taxNormal income tax 505 541 412 483

RSA – current year 417 483 412 483 Deferred - - - - Foreign – current year 88 58 - -

Capital gains tax 273 ( 281) 273 ( 281) Normal - current year 127 167 127 167 Normal - prior year - - - - Deferred - current year 146 ( 423) 146 ( 423) Deferred - change in RSA corporate tax rate from 29% to 28% - ( 25) - ( 25)

Tax on retirement funds - - - - Tax expense 778 260 685 202

59

Group Company2009 2008 2009 2008

% % % %27. TAXATION (continued)

RECONCILIATION OF TAX RATEStandard rate of taxation 28.0 28.0 28.0 28.0Adjusted for:

Non-taxable income (3.4) (19.8) (9.2) 281.9Disallowable expenses 0.3 3.0 0.0 (20.2)Share-based payments 0.2 0.9 0.0 0.0Investment surpluses (4.6) 21.1 (6.8) (419.3)Secondary Tax on Companies 1.4 3.0 0.9 4.5Foreign tax rate differential (0.3) (1.2) 0.0 0.0Policyholder investment return 7.5 12.3 5.5 (59.7)Prior year overprovisions (0.2) (15.3) 0.0 83.6Other 1.3 2.5 0.0 0.0

Effective tax rate 30.2 34.5 18.4 (101.2)

Profit before tax from continuing operations 7 813 1 613 8 969 ( 243) Profit before tax from discontinued operations - 49 - - Profit before tax including discontinued operations 7 813 1 662 8 969 ( 243)

Tax on continuing operations 2 362 556 1 653 246 Tax on discontinuing operations - 24 - - Taxation included in income statement 2 362 580 1 653 246

28. DIVIDENDSA dividend of R93 per share was declared and paid on 31 March 2009 (2008: R45 per share) in respect of the 2008 financial year. The secondary tax on companies (STC) liability in respect of future distributions of retained earnings, is dependent on the STC credits that will be available at the end of the dividend cycles and is impracticable to determine.

60

2009 2008 2009 2008R million R million R million R million

29. COLLATERAL

The following assets have been pledged as collateral for the Group's derivatives, liabilities or contingent liabilities:

InvestmentsInvestment property 159 159 - - Public sector stocks and loans 480 1 871 398 1 871

20 215 20 008 20 129 20 008 Collateral of between 100% and 115% of the value of the loaned securities is held at 31 December 2009.

The following collateral has been received in respect of securities lending activities conducted by the Group:

Fair value of collateral accepted as security for these activities

CompanyGroup

29.1 Collateral provided

29.2 Collateral received

61

30. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

30.1 Impairment of goodwill and value of business acquired

30.2 Properties

Decrease in assumption

Increase in assumption

Assumption Base assumptionChange in

assumption R million R million2009Base discount rate 9.2%-10.5% 1% 352 (332)Capitalisation rate 9.5%-12% 1% 593 (485)

2008Base discount rate 7.2%-8.5% 1% 393 (369)Capitalisation rate 9.5%-12% 1% 627 (513)

30.3 Deferred tax on properties

Group Company2009 2008 2009 2008

R million R million R million R million

259 326 259 326

Unit expenses are based on the 2009 actual figures and escalated at estimated expense inflation rates per annum.

Assumptions with regard to future mortality, disability and disability payment termination rates and surrender and lapse rates are consistent with the experience for the five years up to 30 June 2009. Mortality and disability rates are adjusted to allow for expected deterioration in mortality rates as a result of Aids and for expected improvements in mortality rates in the case of annuity business.

The best estimate of future experience is determined as follows:

Future investment return assumptions are derived from market-related interest rates on fixed-interest securities with adjustments for the other asset classes. The appropriate asset composition of the various asset portfolios, investment management expenses, taxation at current tax rates and charges for investment guarantees are taken into account. Investment return information for the most important products are provided in note 8 on page 84.

Future bonus rates for participating businessAssumed future bonus rates are determined to be consistent with the valuation implicit rate assumptions. Refer to page 84 for additional information.

Investment return

Estimates and assumptions are an integral part of financial reporting and as such have an impact on the amounts reported for the Group's assets and liabilities. Management applies judgement in determining best estimates of future experience. These judgements are based on historical experience and reasonable expectations of future events and changes in experience. Estimates and assumptions are regularly updated to reflect actual experience. It is reasonably possible that outcomes in future financial years will be different to the current assumptions and judgements, which could require a material adjustment to the carrying amounts of the affected assets and liabilities.

The critical estimates and judgements made in applying the Group's accounting policies are summarised below. Given the correlation between assumptions, it is not possible to demonstrate the effect of changes in key assumptions whilst other assumptions remain unchanged. Further, in some instances the sensitivities are non-linear. Interdependencies between certain assumptions cannot be quantified and are accordingly not included in the sensitivity analyses; the primary example being the relationship between economic conditions and lapse, surrender and paid-up risk.

Should income tax rates be applied, the deferred tax liability would have increased by:

In terms of the Group's accounting policies, deferred tax is recognised in respect of temporary differences between the carrying value and tax base of properties. IAS 12 Income Taxes requires that deferred tax be measured to reflect the tax consequences that would follow from the manner in which the entity expects, at the balance sheet date, to recover the carrying value of its assets.

Based on historic experience, the Group's investment strategy and the expected future growth in the fair value of properties, it is expected that mainly capital gains tax will be payable on the realisation of the carrying value of the properties. Deferred tax has accordingly been provided for at capital gains tax rates.

The recoverable amount of goodwill and value of business acquired for impairment testing purposes has been determined based on the embedded value of life insurance businesses and the fair value of other businesses, as applicable, less the consolidated net asset value of the respective businesses. The embedded value or fair value of a business therefore has a significant impact on whether an impairment of goodwill and/or value of business acquired is required.

The valuation of properties is based on estimates and assumptions that have a direct impact on the fair value of properties included in the Group balance sheet. The majority of the Group's properties are held by Sanlam Life Insurance Limited Group for which the main valuation assumptions used as at 31 December 2009 and the sensitivity of the valuations to changes in the assumptions are summarised below:

The following process is followed to determine the valuation assumptions:· Determine the best estimate for a particular assumption.· Prescribed margins are then applied as required by the Long-term Insurance Act in South Africa and Board Notice 72 issued in terms of the Act. · Discretionary margins may be applied as required by the valuation methodology or if the statutory actuary considers such margins necessary to cover the risks inherent in the contracts.

30.4 Policy liabilities in respect of long-term insurance contracts and investment contracts other than those with investment management services

Change in fair value of properties

This disclosure should be read in conjunction with the valuation methodology as described on pages 30 to 34.

Decrements

Expenses

62

30. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)30.5 Policy liabilities for investment contracts with investment management services

The valuation of unlisted investments is based on generally accepted and applied investment techniques, but is subject to judgement in respect of the adjustments made by the Group to allow for perceived risks. The appropriateness of the valuations is continuously tested through the Group's approval framework, in terms of which the valuation of unlisted investments is reviewed and recommended for approval by the Audit, Actuarial and Risk Committee and Board by the Sanlam Non-listed Asset Controlling Body at each reporting period.

30.6 The ultimate liability arising from claims under short-term insurance contracts

30.7 Valuation of unlisted investments

The valuation of these contracts is linked to the fair value of the supporting assets and deviations from future investment return assumptions will therefore not have a material impact. The recoverability of the DAC asset is not significantly impacted by changes in lapse experience; if future lapse experience was to differ by 10% (2008: 10%) from management's estimates, no impairment of the DAC asset would be required.

The risk environment can change suddenly and unexpectedly owing to a wide range of events or influences. The Group is constantly refining its short-term insurance risk monitoring and management tools to enable the Group to assess risks appropriately, despite the greatly increased pace of change. The growing complexity and dynamism of the environment in which the Group operates means that there are, however, natural limits. There will never be absolute certainty in respect of identifying risks at an early stage, measuring them sufficiently or correctly estimating their real hazard potential.

The estimation of the ultimate liability arising from claims under short-term insurance contracts is an important accounting estimate. There are several sources of uncertainty that need to be considered in the estimation of the liability that the Group will ultimately incur.

Refer to the Capital and Risk Management Report on page 120 for further information on the estimation of the claims liability.

63

Group

Company

31.1 Defined contribution funds

GroupThe Group contributed R209 million to these funds during 2009 (2008: R143 million).CompanyThe Company contributed R96 million to these funds during 2009 (2008: R74 million).

31.2 Defined benefit funds

Company fund:

Additional funds in the Group:

Sanlam office personnel

Sanlam Developing

Markets SAPrincipal actuarial assumptions:

Latest valuation date 31 Dec 2009 1 Mar 2009Pre-retirement discount rate % pa 9.4% 9.2%Post-retirement discount rate % pa 4.4% 4.0%Future salary increases % pa 7.2% 6.7%Expected return on assets % pa 9.4% 9.2%

Actual experience:Actual return on assets % pa 15.6% 14.7%

31. RETIREMENT BENEFITS FOR EMPLOYEES

At 31 December 2009 95% of employees were covered by defined contribution funds and 5% by defined benefit funds (2008: 94% and 6% respectively).

Sanlam office personnel (that did not elect to transfer to the defined contribution fund);

BIHL Staff Pension Fund (transferred to new defined contribution fund)

The Group has three defined benefit funds.

There are separate defined contribution funds for advisers, full-time and part-time office staff.

At 31 December 2009 97% of employees were covered by defined contribution funds and 3% by defined benefit funds (2008: 94% and 6% respectively).

The Group provides for the retirement and medical benefits of full-time employees and for certain part-time employees by means of defined benefit and defined contribution pension and provident funds.

Sanlam Developing Markets defined benefit fund SA; and

All funds are closed for new entrants. The Sanlam office personnel fund and Sanlam Developing Markets defined benefit fund SA are governed by the Pensions Funds Act in South Africa. All of the above funds are valued annually. According to the latest valuation in accordance with IAS 19 all of the above funds were in a materially sound financial position.

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. The expected return on defined benefit fund assets is calculated based on the long-term asset mix of these funds. The fund assets are analysed into different classes such as equities, bonds and cash, and a separate expected return is calculated for each class. Current market information and research of future trends are used as the basis for calculating these expected returns.

Group

2009 2008 2007 2006 2005R million R million R million R million R million

Present value of fund obligations 1 144 988 977 1 002 810 Actuarial value of fund assets (1 319) (1 098) (1 204) (1 138) (1 003) Net (assets)/liabilities ( 175) ( 110) ( 227) ( 136) ( 193) Unrecognised actuarial gains 175 110 227 136 193 Net liability recognised in statement of financial position: - - - - -

Experience adjustments on:Fund obligations 0.5% -1.6% 1.0% 1.6% 1.1%Fund assets 5.5% -11.1% 2.0% 9.3% 7.6%

Company2009 2008 2007 2006 2005

R million R million R million R million R millionNet liability recognised in statement of financial position:Present value of fund obligations 1 012 804 827 839 638 Actuarial value of fund assets (1 182) ( 920) ( 995) ( 940) ( 818) Net (assets)/liabilities ( 170) ( 116) ( 168) ( 101) ( 180) Unrecognised actuarial gains 170 116 168 101 180

- - - - - Experience adjustments on:

Fund obligations 0.6% -2.0% 1.2% 1.9% 1.0%Fund assets 6.1% -13.3% 2.5% 10.8% 8.9%

Net liability recognised in statement of financial position:

Net liability recognised in statement of financial position:

The actuarial surplus is currently not recognised as an asset by the Group, as the extent of the surplus available to the company cannot be determined with certainty.

64

Group Company2009 2008 2009 2008

R million R million R million R million

Balance at the beginning of the year 988 977 804 827 Movement for the year: 156 11 208 ( 23)

Current service cost 15 21 12 13 Interest 84 84 73 73 Actuarial gains and losses ( 9) 15 4 - Release of obligation ( 59) ( 58) ( 46) ( 58)Settlements ( 40) - - - Other 165 ( 51) 165 ( 51)

Balance at the end of the year 1 144 988 1 012 804

Balance at the beginning of the year 1 098 1 204 920 995 Movement for the year: 221 ( 106) 262 ( 75)

Expected return on fund assets 89 105 78 88 Actuarial gains and losses 80 ( 165) 73 ( 122) Contributions by employer 6 12 6 7 Contributions by fund participant 3 3 3 3 Benefits paid ( 67) ( 66) ( 48) ( 51) Settlements ( 36) - - - Foreign currency translation differences ( 4) 5 - - Other 150 - 150 -

Balance at the end of the year 1 319 1 098 1 182 920

Group Company% % % %

Fund assets comprise:Properties 3% 4% 3% 5%Equities and similar securities 43% 41% 40% 35%Public sector stocks and loans 2% 6% 1% 4%

30% 26% 32% 30%Cash, deposits and similar securities 22% 23% 24% 26%

100% 100% 100% 100%

Group Company

Fund obligations31.2 Defined benefit funds (continued)31. RETIREMENT BENEFITS FOR EMPLOYEES (continued)

Fund assets

Debentures, insurance policies, preference shares and other loans

The above value of fund assets includes an investment of R3 million (2008: R3 million) in Sanlam shares.Group Company

R million R million R million R million

Net expense recognised in the statement of comprehensive income (included in administration costs):Current service cost 15 21 12 13 Interest cost 84 87 73 73 Expected return on fund assets ( 89) ( 105) ( 78) ( 88) Net actuarial (gains)/losses recognised during the year ( 24) 33 ( 15) 35 Other 26 ( 24) 16 ( 24) Total included in staff costs 12 12 8 9

31.3 Medical aid funds

Group and Company2009 2008

Pre-retirement discount rate 9.4% 8.1%Returns for All bond index (ALBI) -1.0% 17.0%Expected increase in medical aid contributions 9.4% 8.1%

Group and Company2009 2008

R million R million

Balance at the beginning of the year 28 31 Movement for the year: ( 3) ( 3)

Interest 2 3 Actuarial gains and losses ( 1) ( 1)Benefits paid ( 4) ( 5)

Balance at the end of the year 25 28

2009 2008 2007 2006 2005R million R million R million R million R million

Net liability recognised in statement of financial position:Present value of unfunded obligation 25 28 31 35 37

Experience adjustments on:Fund obligation -10.5% -4.1% -8.1% 0.0% -8.1%

Net liability recognised in statement of financial position:

The actuarially determined present value of medical aid obligations for disabled members and certain pensioners is fully provided for at year-end. The Group and Company have no further unprovided post-retirement medical aid obligations for current or retired employees.

Principle actuarial assumptions at 31 December were as follows:

The best estimate of the expected contributions payable to the fund by the Group and Company in 2010 are R13 million and R11 million respectively.

65

31.3 Medical aid funds (continued)% increase in assumed medical aid

contributionsSensitivity analysis +2% -2%

3 2 24 26

32. BORROWING POWERS

Group Company2009 2008 2009 2008

R million R million R million R million

33.1 Operating leases

Lease rentals due within one year 266 237 41 56 Lease rentals due within two to five years 464 263 27 39 Lease rentals due within more than five years 70 91 - - Total operating lease commitments 800 591 68 95

33.2 Services provided by JPMorgan

33.3 Other

34.4 Pension and retirement fund fraud investigation

Effect of change in assumed medical aid contributions (R million):

Total defined benefit obligation for post-employment medical benefits

As part of the disposal of Tasc Administration to JP Morgan during 2004, Sanlam Life agreed to outsource investment administration services to JP Morgan for a period of ten years. The fees payable under the agreement are based on the market value of the investments under administration.

Financial claims are lodged against the Group from time to time. Provisions are recognised for these claims based on best estimates of the expected outcome of the claims (refer to note 18). Provisions include allowance for the potential amount payable in terms of the Pension Funds Surplus Apportionment legislation. Given the high degree of uncertainty involved in determining the expected outcome, it is reasonably possible that outcomes in future financial years will be different to the current estimates. There are no other material commitments or contingencies that have not been provided for or fully disclosed, unless additional disclosures may potentially prejudice the legal arguments of the group.

33. COMMITMENTS AND CONTINGENCIES

Future operating lease commitments:

In terms of the articles of association of Sanlam Life Insurance Limited, the directors may at their discretion raise or borrow money for the purpose of the business of the company subject to the prior approval of the Registrar of Long Term insurance.

31. RETIREMENT BENEFITS FOR EMPLOYEES (continued)

Material borrowings of the Group and Company are disclosed in note 16.

Aggregate of current service and interest costs

Shareholders are referred to the ongoing publicity given to the investigations by the FSB and the National Prosecuting Authorities into alleged fraud within a number of pension and retirement funds. The events in question took place in the mid- to late 1990’s. Sanlam acted as administrator for three of these funds at the time and has been cooperating with the authorities since their investigation started in 2004. Sanlam in 2006 made a payment in good faith to the funds, representing the benefit, plus interest, that Sanlam indirectly received through a company that previously formed part of the Sanlam Group and which was the controlling shareholder of the participating employers of three of the funds. The curator of the funds subsequently issued civil claims against a number of parties, including Sanlam, for the alleged losses suffered by the funds. Sanlam and the curator of the funds are involved in a litigation process in respect of the merits and quantum of his claims. Sanlam was not involved in fraudulent or illegal activities relating to these cases. We are confident that, inter alia through the involvement of the FSB, an amicable resolution will be reached in due course.

34. RELATED PARTIESUltimate shareholderSanlam Limited is the ultimate holding company of Sanlam Life Insurance Ltd.Transactions with directors

Policy administration

The Company advanced, repaid and received loans from other subsidiaries in the Sanlam group during the current and previous years.

Company Total Transactions Balances outstanding2009 2008 2009 2008

Related Parties Transaction / Balance type R million R million R million R millionHolding companySanlam Ltd Inter-company balances - - ( 315) 2 471 SubsidiariesSantam Ltd Service fees 38 - - -

Insurance ( 22) ( 18) - - Inter-company balances - - 4 19 Financial instruments - - ( 24) ( 9) Distributions received 275 189 - -

Sanlam Investment Management (Pty) Ltd Service fees 244 205 - - Scrip lending fees 18 26 - - Distributions received 1 727 137 - -

Anglo African Finance (Pty) Ltd Interest received 8 7 - - Inter-company balances - - 15 72

Sanlam Linked Investments (Pty) Ltd Service & commission fees 63 77 - - Channel Life Ltd Reinsurance premiums received 45 42 - -

Reinsurance policies - - 24 183 Sanlam Customised Insurance Limited Service fees 1 1 - -

Reinsurance premiums received 12 13 - - Distributions received 6 - - -

Sanlam Life Namibia Ltd Cost recoveries 4 3 - - Distributions received 90 60 - -

Details of investments in associated companies are disclosed in note 7.2 and note 7.4. Details of investments in subsidiaries are disclosed on pages 44.

Details of transactions that occurred during the financial period and outstanding balances with related parties, are listed below. A complete list of all related parties are disclosed on pages 79 to 80.

During the year the Company in the ordinary course of business entered into various transactions with subsidiary companies, associated companies, joint ventures and other stakeholders. These transactions occurred at arm’s length. Refer below for detail of transactions and balances outstanding with related parties.

Certain companies in the Group carry out third party policy and other administration activities for other related parties in the Sanlam Group. These transactions are entered into in the normal course of business, under terms that are no more favourable than those arranged with third parties.

Transactions with post-employment benefit plansContributions to the post-employment benefit plans were R221 million in 2009 (2008: R155 million). There are no amounts outstanding at year-end.

Inter-company balances with subsidiaries are disclosed below other than loans which are disclosed on page 77.

Transactions with entities in the Sanlam group

Remuneration is paid to directors in the form of fees to non-executive directors and remuneration to executive directors of the company. All directors of Sanlam Life Insurance Limited have notified that they did not have a material interest in any contract of significance with the company, which could have given rise to a conflict of interest during the year. Details relating to directors’ emoluments are included in note 24.

66

34. RELATED PARTIES (continued)Total Transactions Balances outstanding

2009 2008 2009 2008Related Parties Transaction / Balance type R million R million R million R million

Sanlam Trust Ltd Service & commission fees 8 7 - - Distributions received 16 14 - -

Anson Holdings (Pty) Ltd Interest on loan account 2 - - - U.R.D. Investments (Pty) Ltd Distributions received 70 510 - - Electra Investments (South Africa) Ltd Distributions received - 38 - - Sanlam Developing Markets Ltd Service fees 6 - - -

Distributions received 237 846 - - Sanlam Namibia Holdings Ltd Distributions received 10 17 - - Sanlam Health Care Management (Pty) Ltd Distributions received 5 - - - Sanlam Home Solutions (Pty) Ltd Service fees 8 - - - Subsidiaries of subsidiariesSanlam Properties (Pty) Ltd Asset management fees ( 36) ( 34) - -

Handling fee ( 1) ( 2) - - Sales commission ( 10) ( 13) - -

Subsidiaries of fellow subsidiariesSanlam Collective Investments Ltd Commission fee income 12 12 - -

Marketing fees received 3 3 - - Interest paid ( 13) ( 15) - - Inter-company balances - - ( 81) ( 24)

Sanlam Personal Investments (Pty) Ltd Service & commission fees 19 22 - - Glacier (Pty) Ltd Service & commission fees 254 221 - -

Inter-company balances - - 4 28 Sanlam Capital Markets Ltd Financial instruments - - 5 704 9 065

Inter-company balances - - 37 37 Umholi Investments (Pty) Ltd Inter-company balances - - 22 22 Gensec Ireland Ltd Inter-company balances - - ( 547) ( 700) The Sanlam Limited Share Incentive Trust Inter-company balances - - 464 400 Sanlam Investment Holdings Ltd Inter-company balances - - 176 ( 57) Associate of holding companyGensec Property Services Ltd Asset management fees ( 50) ( 51) - -

Tenant commission ( 20) ( 21) - - Coris Capital (Pty) Ltd Service fees received 7 - - -

Service fees paid ( 21) ( 66) - -

Inter-company balances - - 59 * - Joint VenturesSanlam Personal Loans (Pty) Ltd Interest on loan account 50 118 - -

Fi i l i t t 31 878Financial instruments - - 31 878 Inter-company balances - - - 384 Liquidity fees 7 5 - -

Sanlam Home Loans (Pty) Ltd Service & commission fees 3 12 - -

Shareholders loan - - 176 * 176 Financial instruments - - 590 643 Inter-company balances - - 47 379 Interest received 91 123 - -

* The company has subordinated its claim in favour of other creditors until such time as its assets fairly valued exceed its liabilities.2009 2008

R million R millionRelated Parties Transaction Total TransactionsGlacier International Multi-currency Fund Distributions received - 4 Sanlam Institutional Growth Fund Distributions received 44 31 Sanlam Institutional Special Opportunities Fund Distributions received 71 36 Sanlam Multi Managed Institutional Aggressive Equity Fund One Distributions received 32 13 Sanlam Multi Managed Institutional All Bond Fund One Distributions received 62 59 Sanlam Multi Managed Institutional All Bond Fund Three Distributions received 26 28 Sanlam Multi Managed Institutional All Bond Fund Two Distributions received 46 65 Sanlam Multi Managed Institutional General Equity Fund One Distributions received 43 31 Sanlam Multi Managed Institutional General Equity Fund Three Distributions received 10 9 Sanlam Multi Managed Institutional General Equity Fund Two Distributions received 52 20 Sanlam Multi Managed Institutional Positive Return Fund Four Distributions received 36 52 Sanlam Multi Managed Institutional Positive Return Fund Fund One Distributions received 19 28 Sanlam Multi Managed Institutional Positive Return Fund Three Distributions received 33 19 Sanlam Multi Managed Institutional Positive Return Fund Two Distributions received 27 35 Sanlam Property Fund Distributions received 63 57 Sanlam Value Institutional Fund Distributions received 75 36 SIM Managed Moderate Fund of Funds Distributions received 36 10 Sanlam All Share Index Fund Distributions received 2 1 Sanlam Global Index Fund of Funds Distributions received - 1 Sanlam Multi Managed Institutional General Equity Fund Four Distributions received 3 2 SIM Managed Aggressive Fund of Funds Distributions received 5 1 SIM Managed Conservative Fund of Funds Distributions received - 4 SIM Managed Moderate Aggressive Fund of Funds Distributions received 1 2 SIM Managed Cautious Fund of funds Distributions received 18 - Post-employment benefit fundsPension funds Pension fund admin charges ( 8) ( 9)

Pension fund contributions ( 96) ( 74)

Key management personnel compensationShort-term employee benefits 125 170 Share-based payments 34 21 Contributions to defined contibution plans 11 9 Other long-term benefits 10 41

180 241

67

34. RELATED PARTIES (continued)Group Total Transactions Balances outstanding

2009 2008 2009 2008Related Parties Transaction / Balance type R million R million R million R millionHolding companySanlam Ltd Inter-company balances - - ( 345) 2 471 Subsidiaries of fellow subsidiariesSanlam Collective Investments Ltd Commission fee income 12 12 - -

Marketing fees received 3 3 - - Interest paid ( 13) ( 15) - - Inter-company balances - - ( 81) ( 24)

Sanlam Capital Markets Ltd Financial instruments - - 5 704 9 397 Inter-company balances - - ( 255) ( 300)

Glacier (Pty) Ltd Service & commission fees 254 221 - - Inter-company balances - - 4 28

Umholi Investments (Pty) Ltd Inter-company balances - - 22 22 Gensec Ireland Ltd Inter-company balances - - ( 547) ( 700) Sanpref (Pty) Ltd Inter-company balances - - ( 405) ( 405) Sanlam Spec (Pty) Ltd Inter-company balances - - 32 32 The Sanlam Limited Share Incentive Trust Inter-company balances - - 499 400 Sanlam Investment Holdings Ltd Inter-company balances - - 307 ( 57) Associate of holding companyGensec Property Services Ltd Asset management fees ( 50) ( 51) - -

Tenant commission ( 20) ( 21) - - Coris Capital (Pty) Ltd Service fees received 7 - - -

Service fees paid ( 21) ( 66) - -

Inter-company balances - - 59 * - Joint VenturesSanlam Personal Loans (Pty) Ltd Interest on loan account 50 118 - -

Financial instruments - - 31 878 Inter-company balances - - - 384 Liquidity fees 7 5 - -

Sanlam Home Loans (Pty) Ltd Service & commission fees 3 12 - -

Shareholders loan - - 176 * 176 Financial instruments - - 590 643 Inter-company balances - - 47 379 Interest received 91 123 - -

2009 2008R million R million

Key management personnel compensationShort-term employee benefits 273 298 Share-based payments 49 62 Contributions to defined contibution plans 17 11 Other long-term benefits 21 49

360 420

68

Group Company2009 2008 2009 2008

R million R million R million R million

35.1 Cash utilised in operations Profit/(loss) before tax per statement of comprehensive income 7 813 1 613 8 969 ( 243) Net movement in policy liabilities (note 15.1) 16 535 (10 345) 14 143 (11 019) Non-cash flow items (14 970) 20 883 (12 856) 17 069

Depreciation 161 158 75 78 Bad debts written off 158 183 23 - Share-based payments 64 59 2 8 (Profit)/loss on disposal of subsidiaries/associates ( 75) 79 - - Fair value adjustments (15 284) 20 260 (13 017) 16 929 Amortisation of value of business acquired 63 47 - - Impairment of investments and goodwill 57 68 61 54 Equity-accounted earnings ( 114) 29 - -

Items disclosed separately (13 667) (14 197) (13 220) (12 492) Interest and preference share dividends received (10 070) (10 224) (7 768) (7 484)

Interest paid (1) 535 587 191 191 Dividends received (4 132) (4 560) (5 643) (5 199)

Net purchase of fixed assets ( 161) ( 232) ( 78) ( 92) Net purchase of owner-occupied properties ( 1) ( 6) - - Discontinued operations - 49 - - Decrease/(increase) in net working capital assets and liabilities 1 870 (2 189) 3 206 (3 015) Cash (utilised)/generated in operations (2 581) (4 424) 164 (9 792)

35.2 Acquisition of subsidiaries

Net assets acquired 141 102 - - Minority and other interests acquired during 2009 141 - - - Net assets acquired in 2008 (refer note 36.2) - 102 - -

Goodwill (note 3) 45 130 - - Total purchase consideration 186 232 - -

Less: Net asset value contributed ( 1) - - - Cash, deposits and similar securities acquired ( 2) - - - C h t f i iti f b idi i 183 232

35. NOTES TO THE CASH FLOW STATEMENT

During the year, various subsidiaries were acquired within the Group. The fair value of assets acquired is as follows:

Cash component of acquisition of subsidiaries 183 232 - - 35.3 Disposal of subsidiaries/associates

Investments - 34 - - Property, plant and equipment 13 - - - Trade and other receivables 10 - - - Cash, deposits and similar securities 26 - - - Long term loans - ( 28) Working capital liabilities ( 50) ( 6) - - (Profit)/loss on disposal of subsidiaries/associates 75 ( 79) - - Total disposal price 74 ( 79) - - Less: Cash, deposits and similar securities disposed of ( 26) - - - Cash component of disposal of subsidiaries/associates 48 ( 79) - -

Working capital: Cash, deposits and similar securities 8 593 7 450 941 544 Investment cash 41 493 42 701 31 072 30 897 Total cash, deposits and similar securities 50 086 50 151 32 013 31 441

(1) Other finance cost reclassified

The fair value of assets disposed of was as follows:

35.4 Cash, deposits and similar securities

69

36.1 Material acquisitions of the Group consolidated in the 2009 financial year

There were no material business combinations during the 2009 financial year.

36.2 Material acquisitions of the Group consolidated in the 2008 financial yearMaterial business combinations

OtherOther business combinations mainly relate to the following: - The acquisition of Sanlam Healthcare Management, a medical schemes administration services business in March 2008; and - Increases in the shareholding of other subsidiaries, predominantly Santam. The contribution of Sanlam Healthcare Management to profit for 2008 is not material.

OtherR million

Details of the purchase consideration and goodwill acquired are as follows:Purchase consideration 232

Cash consideration 232 Fair value of net assets contributed -

Fair value of net assets acquired 102 Goodwill 130

Fair Carryingvalue value (1)

R million R millionDetails of the assets and liabilities acquired are as follows:

Property and equipment 2 2 Value of business acquired 15 - Trade and other receivables 2 2 Working capital liabilities ( 2) ( 2) Net assets 17 2 Minority shareholders' interest 85 - Net assets acquired 102 2 (1) Carrying value of assets and liabilities in acquiree's own financial statements on acquisition date.

The Group did not effect any individually material business combination transactions during the year.

36. BUSINESS COMBINATIONS

Other

70

2009 2008R million R million

Gross written premium - 250

Net premium - 26

Net insurance premium revenue - 447 Net investment and reinsurance income - 57 Net insurance benefits and claims - ( 425) Expenses - ( 113) Loss before tax - ( 34) Taxation - ( 7)

- ( 41) - ( 8) - ( 8) - 44 - 61

Income tax on disposal of discontinued operations - ( 17) Translation difference realised on sale of Santam Europe and Westminster - 70 Impairments - ( 40) Total profit relating to discontinued operations - 25

37. DISCONTINUED OPERATIONS

Santam Europe Limited and Westminster Motor Insurance Association Limited operations were disposed of on 15 September 2008 and 22 December 2008, respectively.

Group

37.1 Analysis of the result of discontinued operations

Net loss on disposal of discontinued operations - Santam EuropeLoss on disposal of discontinued operations

Net profit on sale of WMIA book of businessProfit on disposal of discontinued operations

Loss included in headline earnings from discontinued operations

71

38. SEGMENTAL INFORMATION

Group

38.1 Business segments

R million 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Net income 19 069 9 436 13 972 11 795 1 250 1 302 (2 600) 1 506 24 540 (2 781) 56 231 21 258 Financial services income 12 854 11 753 13 345 12 274 1 227 1 358 1 752 1 621 - - 29 178 27 006 Reinsurance premiums paid - - - - - - (2 832) (2 972) - - (2 832) (2 972) Reinsurance commission received - - - - - - 258 401 - - 258 401 Investment income 3 336 2 369 249 204 ( 11) 31 ( 483) 1 702 12 215 11 529 15 306 15 835 Investment surpluses 2 879 (4 686) 378 ( 683) 34 ( 87) ( 257) ( 573) 12 325 (14 310) 15 359 (20 339) Finance cost - margin business - - - - - - ( 200) ( 244) - - ( 200) ( 244) Change in fair value of external investors liability - - - - - - ( 838) 1 571 - - ( 838) 1 571

Net insurance and investment contract benefits and claims (4 810) (4 280) (9 100) (8 007) - - ( 38) - (23 830) 3 001 (37 778) (9 286) Long-term insurance contract benefits (4 810) (4 280) (9 100) (8 007) - - 8 190 7 422 (10 872) (1 582) (16 592) (6 447) Long-term investment contract benefits - - - - - - - - (12 958) 4 583 (12 958) 4 583 Short-term insurance claims - - - - - - (9 800) (9 189) - - (9 800) (9 189) Reinsurance claims received - - - - - - 1 572 1 767 - - 1 572 1 767

Expenses (5 755) (5 524) (3 516) (3 131) ( 662) ( 784) ( 366) ( 433) - - (10 299) (9 872) Sales remuneration (2 258) (2 072) (1 915) (1 727) - - ( 208) ( 328) - - (4 381) (4 127) Administration costs (3 497) (3 452) (1 601) (1 404) ( 662) ( 784) ( 158) ( 105) - - (5 918) (5 745)

Impairment of investments and goodwill ( 51) ( 59) ( 6) ( 8) - ( 1) - - - - ( 57) ( 68)

Amortisation of value of business acquired ( 53) ( 47) ( 10) - - - - - - - ( 63) ( 47)

Net operating result 8 400 ( 474) 1 340 649 588 517 (3 004) 1 073 710 220 8 034 1 985 Equity-accounted earnings 20 ( 53) 69 30 25 ( 6) - - - - 114 ( 29) Finance cost - - - - - - ( 335) ( 343) - - ( 335) ( 343) Discontinued operations - 25 - 25 Profit before tax 8 420 ( 527) 1 409 704 613 511 (3 339) 730 710 220 7 813 1 638 Taxation (1 050) ( 123) ( 372) ( 25) ( 162) ( 148) ( 68) ( 40) ( 710) ( 220) (2 362) ( 556)

Shareholders' fund (1 050) ( 123) ( 372) ( 25) ( 162) ( 148) - - - - (1 584) ( 296) Policyholders' fund - - - - - ( 68) ( 40) ( 710) ( 220) ( 778) ( 260)

Profit from continuing operations 7 370 ( 650) 1 037 679 451 363 (3 407) 690 - - 5 451 1 082 Discontinued operations - - - - - - - - - - - -

Profit for the year 7 370 ( 650) 1 037 679 451 363 (3 407) 690 - - 5 451 1 082 Attributable to:Shareholders' fund 7 224 ( 713) 550 358 421 343 (3 404) 686 - - 4 791 674 Minority shareholders' interest 146 63 487 321 30 20 ( 3) 4 660 408

7 370 ( 650) 1 037 679 451 363 (3 407) 690 - - 5 451 1 082

Non-cash expenses/(income) (2 547) 5 099 ( 355) 756 ( 63) 97 257 573 (12 325) 14 310 (15 033) 20 835 Depreciation 102 108 57 48 2 2 - - - - 161 158 Bad debts 172 169 ( 7) 13 ( 7) - - - - - 158 182 Share-based payments 27 24 36 34 1 1 - - - - 64 59 Investment surpluses (2 879) 4 686 ( 378) 683 ( 34) 87 257 573 (12 325) 14 310 (15 359) 20 339 Impairment of investments and goodwill 51 59 6 8 - 1 - - - - 57 68 Equity-accounted earnings ( 20) 53 ( 69) ( 30) ( 25) 6 - - - - ( 114) 29

Segment revenue from other segments - - - - 581 581 - - - - 581 581

Life insurance Investment ManagementShort-term insuranceConsolidation entries & IFRS

adjustmentsTotal per Group Statement of

Comprehensive IncomePolicyholder activities

72

38. SEGMENTAL INFORMATION (continued)

R million 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Aggregate investments in associates and joint ventures 1 082 680 192 145 142 94 - - - - 1 416 919

Total segment assets 36 011 38 355 17 331 16 736 2 741 2 448 ( 371) ( 307) 242 529 225 175 298 241 282 407

Total segment liabilities 12 384 14 274 11 768 11 657 976 1 010 723 463 242 537 225 191 268 388 252 595

38.2 Geographical segments2009 2008

R million R million

Segment financial services income 29 178 27 006 South Africa 26 905 25 092 Africa 2 273 1 914

Non-current assets(1) 4 862 4 684 South Africa 4 773 4 585 Africa 89 99

(1) Non-current assets include property and equipment, owner-occupied properties, goodwill, value of business acquired and deferred acquisition costs.

Life insurance segment comprise: Sanlam Personal Finance, Sanlam Developing Markets and Channel.Clients are provided financial solutions in the middle, affluent and self-employed markets in South Africa and Namibia by Sanlam Personal Finance and in the entry-level market in South Africa and Africa by Sanlam Developing Markets.

Short-term insurance segement comprise: Santam and MiWay.Santam is South Africa's biggest short-term insurer for personal, corporate, commercial and agricultural needs.MiWay delivers direct financial services and short-term insurance.

Investment Management segment comprise: Sanlam Investment Management.Sanlam Investment Management manages financial assets for individual, institutional, retail and corporate clients and offers investment strategies in vehicles ranging from collective investments to institutional portfolios.

Within the consolidation column the investment in subsidiaries are reversed. Intercompany balances, other investments and term finance between companies within the Group are also consolidated.

Policyholder's assets and liabilities are reflected in the Policyholder segment.

Life insurance Short-term insurance Investment Management Total per Group Statement of

Financial Posistion Policyholder activities Consolidation entries

73

2009 2008 2009 2008 R million R million R million R million

39. ImpairmentsImpairments of investmentsSanlam Home Loans - 44 - 44 Sanlam Personal Loans 51 - 51 - Alfinanz - - 10 10 Other 6 24 - -

57 68 61 54

Group Company

Total impairment of investments and goodwill for the year

74

Determination of fair value and fair value hierachy

R million31 December 2009 Level 1 Level 2 Level 3 Total

GroupEquities and similar securities 118 299 10 056 2 907 131 262Public sector stocks and loans 44 192 3 716 - 47 908Listed property companies and property collective investments 3 777 1 060 - 4 837Debentures, insurance policies, preference shares and other loans 10 587 21 565 314 32 466Trading assets - 1 868 - 1 868Cash deposits and similar securities 14 341 27 061 - 41 402Total financial assets 191 196 65 326 3 221 259 743

Investment contract liabilities - 106 279 229 106 508Term finance 2,838 - - 2,838 Margin business 2 733 - - 2 733Other interest bearing liabilities 105 - - 105Trading liabilities - 131 - 131Total financial liabilities 2 838 106 410 229 109 477

CompanyEquities and similar securities 89 954 4 110 1 664 95 728Investment in subsidiaries 21 679 - 11 005 32 684Public sector stocks and loans 36 865 1 001 - 37 866Listed property companies and property collective investments 3 268 675 - 3 943Debentures, insurance policies, preference shares and other loans 10 226 16 645 314 27 185Cash deposits and similar securities 10 840 20 232 - 31 072Total financial assets 172 832 42 663 12 983 228 478

Investment contract liabilities - 89 703 - 89 703Term finance 1 894 - - 1 894Margin business - - - - Other interest bearing liabilities 1 894 - - 1 894Total financial liabilities 1 894 89 703 - 91 597

Reconciliation of movements in level 3 financial instruments measured at fair value

R million31 December 2009

Group

Financial assetsEquities and similar securities

Debentures, insurance policies, preference shares and other loans

Total financial assets

Balance at 1 January 2009 2 723 272 2 995 Total gains/(loss) in statement of comprehensive income 834 42 876 Disposals (479) - (479)Foreign exchange movements (171) - (171)Balance at 31 December 2009 2 907 314 3 221

There were no transfers between level 1 and level 2 during 2009.

Financial liabilities

Investment contract liabilities

Total financial liabilities

Balance at 1 January 2009 531 531Total gains/(loss) in statement of comprehensive income (302) (302)Balance at 31 December 2009 229 229

There were no transfers between level 1 and level 2 during 2009.

Included in level 2 category are financial assets and liabilities measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). For example, instruments measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions are categorised as level 2.

Financial assets and liabilities measured using inputs that are not based on observable market data are categorised as level 3.

40. FAIR VALUE DISCLOSURES

Below follows required disclosure of fair value measurements, using a three-level fair value hierachy that reflects the significance of the inputs used in determining the measurements. It should be noted that these disclosures only cover instruments measured at fair value.

Included in level 1 category are financial assets and liabilities that are measured in whole or in part by reference to unadjusted, quoted prices in an active market for identical assets and liabilities. Quoted prices are readily and regularly available from an exchange, dealer , broker , industry group, pricing service or regulatory agency and those prices represent actual and regularly occuring market transactions on an arm's length basis.

75

Reconciliation of movements in level 3 financial instruments measured at fair value (continued)

R million31 December 2009

Company

Financial assetsEquities and similar securities

Debentures, insurance policies, preference shares and other loans

Investment in subsidiaries

Total financial assets

Balance at 1 January 2009 917 272 8 355 9 544 Total gains/(loss) in statement of comprehensive income 752 42 2 315 3 109 Issues - - 335 335Disposals (5) - - (5)Balance at 31 December 2009 1 664 314 11 005 12 983

Gains and losses (realised and unrealised) included in profit and lossGroup Company

R million 2009 2009

Total gains or losses included in profit or loss for the period 1 178 3 109 Total gains or losses included in profit or loss for the period for assets held at the end of the reporting period 1 171 3 109

Sensitivity of level 3 financial instruments measured at fair value to changes in key assumptions

2009R millionGroup

Carrying amount Effect of a 10% increase in value

Effect of a 10% decrease in value

Carrying amount

Effect of a 1% increase in discount/ interest rate

Effect of a 1% decrease in discount/ interest rate

Equities and similar securities 2588 (1) 258 (258) 319 (2) (9) 9 Debentures, insurance policies, preference shares and other loans 314 - - - (27) 27Financial assets 2 902 258 (258) 319 (36) 36

Investment contract liabilities 229 23 (23) - - -Financial liabilties 229 23 (23) - - - (1) Represents mainly private equity investments valued on earnings multiple, with sensitivities based on the full valuation.(2) Represents mainly private equity investments valued on a discount cash flow basis, with sensitivities based on changes in the discount rate.

Sensitivity of level 3 financial instruments measured at fair value to changes in key assumptions

2009R millionCompany

Carrying amountEffect of a 10%

increase in valueEffect of a 10% decrease in value

Effect of a 1% increase in P/AuM

Effect of a 1% decrease in P/AuM

Effect of a 1% increase in the discount/ interest rate

Effect of a 1% decrease in the discount/ interest rate

Equities and similar securities 1664 (1) 164 (164) - - - - Investment in subsidiaries 11005 (2) - - 390 (390) 182 (219)Debentures, insurance policies, preference shares and other loans 314 - - - - (27) 27Financial assets 12 983 164 (164) 390 (390) 155 (192)(1) Represents mainly private equity investments valued on earnings multiple, with sensitivities based on the full valuation.(2) Investment management subsidiaries are valued at a P/AUM ratio, subsidiaries that conduct life insurance business are valued at embedded value and other subsidiaries are valued at DCF. Sensitivities for life insurance subsidiaries have been calculated as a 1% increase/decrease of the rate that is used to discount the value of in-force business.

40. FAIR VALUE DISCLOSURES (continued)

76

Sanlam Life Insurance Limited GroupPrincipal Subsidiariesat 31 December 2009

% 2009 2009 2008 2009 2008interest R million R million R million R million R million

Investment companiesU.R.D. Investments (Proprietary) Limited RSA 100 81.0 22 602 22 399 (21 127) (21 376) Electra Investments (South Africa) Limited RSA 100 76.0 6 327 6 513 (6 326) (6 214) Sanlam Universal Fund plc Ireland (1) (1) 16 410 14 659 - - Status Bellegings (Proprietary) Limited RSA 100 (11) 408 - ( 158) - Property investment companyAnson Holdings(Proprietary) Limited RSA 100 (9) - - 28 ** ^ 27 ** ^Jane Furse Plaza (Proprietary) Limited RSA 70 (8) 107 90 12 6 Rycklof Investments (Proprietary) Limited RSA 100 (2) 1 482 1 481 (1 438) (1 433) Acornhoek Plaza Share Block (Proprietary) Limited RSA 67 (3) 123 190 ( 3) 4 Kwagga Plaza Share Block (Proprietary) Limited RSA 53 (10) 88 - ( 5) - Speculation company in negotiable securitiesEdimed (Pty) Ltd RSA 100 (3) 52 44 57 89 Electra Share Ventures (Proprietary) Limited RSA 100 0.1 533 480 ( 532) 31 Asset ManagementSanlam Investment Management (Proprietary) Limited RSA 100 (3) 2 518 1 948 118 (1 370) Credit providerAnglo African Finance (Proprietary) Limited RSA 65 (3) 42 33 - - Linked Investment Service ProviderSanlam Linked Investments (Proprietary) Limited RSA 100 (3) - - 60 ** 61 **Trust servicesSanlam Trust Limited RSA 100 1.0 160 144 ( 17) ( 16) Administration ServicesSolutions Service Provider for Alfinanz (Proprietary) Limited

RSA 50(7) - 10 - -

Sanlam Healthcare Management (Proprietary) Limited RSA 100 (3) 130 78 - - Infinit Group Risk Solutions (Proprietary) Limited RSA 50 (8) 10 10 - - Life InsuranceSanlam Life Namibia Limited Namibia 100 5.8 810 768 13 20 Sanlam Namibia Holdings Limited Namibia (4) 160.7 239 191 - - Sanlam Customised Insurance Limited RSA 100 10.0 34 33 10 - Sanlam Developing Markets Limited RSA 100 113.8 3 678 3 494 37 86 Channel Life Limited RSA 99 273.0 438 415 305 - Short-term insuranceSantam Limited RSA 53 107.0 5 269 3 719 - - Miway Group Holdings (Pty) Ltd RSA 62 1.1 127 110 59 ** - Dormant companiesSankorp Limited RSA 100 (5) 701 701 ( 385) ( 385) Sanlam ou Sankorp Limited RSA 100 (6) 2 556 2 556 (2 872) (2 872) Other 39 50 ( 35) ( 41)

Total 64 883 60 116 (32 199) (33 383) R million R million

2009 2008Aggregate profits from subsidiaries 5 563 1 057 Aggregate losses from subsidiaries 449 482

Issued ordinary capital SharesCountry of

incorporation

Fair value of interest in subsidiaries +

Loans *

77

Sanlam Life Insurance Limited holds indirectly 74% interest in Sanlam Universal Fund plc

(4) Sanlam Life Insurance Limited holds indirectly 54% interest in Sanlam Namibia Holdings Limited

(8) Issued share capital is R1 000(9) Issued share capital is R200(10) Issued share capital is R1 168(11) Issued share capital is R20 000

+ All subsidiaries are reflected at directors' valuation as approved by the Sanlam Non-listed Asset Controlling Body, except for MiWay and Infinit, which are carried at cost.

** The company has subordinated its claim against certain subsidiaries in favour of other creditors of the subsidiary until such time as the subsidiaries assets fairly valued exceed its liabilities.^ Loans are unsecured and not subject to any fixed terms of repayment. Interest is charged at rates which are agreed from time to time.

* Except for Anson Holdings (Proprietary) Limited, loans 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.

(1) Issued share capital can vary, as this is an open-ended investment company.

A register of all subsidiary companies is available for inspection at the registered office of Sanlam Life Insurance Limited. All investments above, except Sanlam Universal Fund plc and Santam, are unlisted.

(2) Issued share capital is R2 000.(3) Issued share capital is R100.

(5) Issued share capital is R7.(6) Issued share capital is R10 220.(7) Issued share capital is R66 000.

78

Sanlam Life Insurance Limited GroupRelated Partiesfor the year ended 31 December 2009

% interest held by Sanlam Life Insurance Ltd Country of

Company Name in company registration

SUBSIDIARIESSanlam Developing Markets Ltd 100% RSAAnglo African Finance (Pty) Ltd 65% RSAChannel Life Ltd 99% RSAAnson Holdings (Pty) Ltd 100% RSAEdimed (Pty) Ltd 100% RSAElectra Investments (South Africa) Limited 100% RSAElectra Share Ventures (Pty) Ltd 100% RSAGiyani Plaza Share Block (Pty) Ltd 100% RSAI-Compli (Pty) Ltd 100% RSARycklof-Beleggings (Pty) Ltd 100% RSALangeler Park (Pty) Ltd 100% RSASiyavuna Properties (Pty) Ltd 100% RSASanlam Customised Insurance Limited 100% RSASanlam Endowment Options (Pty) Ltd 100% RSASanlam Fundshares Nominee (Pty) Ltd 100% RSASanlam Investment Management (Pty) Ltd 100% RSASanlam Share Account (Pty) Ltd 100% RSASanlam Healthcare Management (Pty) Ltd 100% RSAInfinit Group Risk Solutions (Proprietary) Limited 50% RSAMiWay Group Holdings (Pty) Ltd 62% RSASanlam Trust Limited 100% RSASanlam Umbrella Fund Administrators 100% RSAU.R.D. Beleggings (Pty) Ltd 100% RSASanlam Life Namibia Limited 100% NamibiaSantam Limited 56% RSASanlam Universal Funds Plc (a) IrelandSolutions Service Provider for Alfinanz (Pty) Ltd 50% RSASanlam Namibia Holdings Limited (b) NamibiaMulti-Data (Pty) Ltd 100% RSASankorp Limited 100% RSASanlam Ou Sankorp Limited 100% RSAJane Furse Plaza (Pty) Ltd 70% RSASanlam Linked Investments (Pty) Ltd 100% RSAAcornhoek Plaza Share Block (Pty) Limited 67% RSAKwagga Plaza Share Block (Proprietary) Limited 53% RSASanlam STI Administration (Pty) Ltd 100% RSASanlam Home Solutions (Pty) Ltd 100% RSA(a) Issued share capital can vary, as this is an open-ended investment company.(b) Sanlam Life Insurance Limited holds indirectly 54% interest in Sanlam Namibia Holdings Limited

ASSOCIATESVukile Property Fund Ltd 23% RSALetshego Holdings Limited 14% BOT

JOINT VENTURESSanlam Personal Loans (Pty) Ltd 70% RSASanlam Home Loans (Pty) Ltd 50% RSAShriram Life Insurance Ltd 26% IndiaShriram General Insurance Ltd 26% IndiaEncoresa (Pty) Ltd 50% RSA

SPECIAL PURPOSE VEHICLESHighonLife Investments (Pty) Ltd 100% RSACo-ordinated Network Investments (Pty) Ltd 100% RSA

79

% interest held by Sanlam Life Insurance Ltd Country of

Company Name in company registration

COLLECTIVE INVESTMENT SCHEMESSanlam All Share Index Fund 97% RSASanlam Bond Index Fund 100% RSASanlam Global Index Fund of Funds 86% RSASanlam Institutional Growth Fund 65% RSASanlam Institutional Special Opportunities Fund 99% RSASanlam Multi Managed Institutional Aggressive Equity Fund One 100% RSASanlam Multi Managed Institutional Bond Fund 100% RSASanlam Multi Managed Institutional All Bond Fund One 93% RSASanlam Multi Managed Institutional All Bond Fund Three 85% RSASanlam Multi Managed Institutional All Bond Fund Two 100% RSASanlam Multi Managed Institutional General Equity Fund Four 100% RSASanlam Multi Managed Institutional General Equity Fund One 100% RSASanlam Multi Managed Institutional General Equity Fund Three 100% RSASanlam Multi Managed Institutional General Equity Fund Two 94% RSASanlam Multi Managed Institutional Positive Return Fund Four 64% RSASanlam Multi Managed Institutional Positive Return Fund Fund One 100% RSASanlam Multi Managed Institutional Positive Return Fund Three 74% RSASanlam Multi Managed Institutional Positive Return Fund Two 85% RSASanlam Namibia Global Fund 63% NAMSanlam Property Fund 78% RSASanlam Value Institutional Fund 89% RSASIM Managed Aggressive Fund of Funds 74% RSASIM Managed Conservative Fund of Funds 50% RSASIM Managed Moderate Aggressive Fund of Funds 80% RSASIM Managed Moderate Fund of Funds 73% RSASIM World Big Blue Chip Fund 73% RSA

80

Sanlam Life Insurance Limited CompanyStatement of Actuarial Values of Assets and Liabilitiesat 31 DECEMBER 2009

R million Note Dec 2009 Dec 2008Assets

Fair value of assets 1 250 749 232 466

Less : Liabilities 213 713 198 047

Actuarial value of policy liabilities 200 377 186 234 Investment contracts 89 703 77 815 Insurance contracts 110 674 108 419

Long-term and current liabilities 13 336 11 813

Excess of assets over liabilities for financial reporting 2 37 036 34 419 Adjustment for prudential regulatory purposes 3 (15 503) (15 081) Unsecured subordinated bonds 4 1 965 2 084 Excess of assets over liabilities for prudential regulatory purposes 23 498 21 422

Result from financial services before tax 11 2 204 1 864 Investment return on excess of assets over liabilities 6 069 (2 344)

Investment income 1 836 2 510 Realised and unrealised investment surpluses 4 233 (4 854)

Taxation (1 008) ( 242) Income tax ( 682) ( 546) Capital gains tax ( 232) 302 Secondary tax on companies ( 94) 2

Attributable earnings before dividends paid 5 7 265 ( 722) Share-based payments 2 8 Dividends paid (4 650) (2 800) Movement in excess of assets over liabilities for financial reporting 2 617 (3 514)

Capital adequacy requirementsCapital adequacy requirements (CAR) before management actions 15 200 14 825 Management actions assumed 6 (7 525) (6 750) CAR after management actions assumed 7 675 8 075 Times CAR covered by excess of assets over liabilities for prudential regulatory purposes

3.1 2.7

Analysis of movement in excess of assets over liabilities

81

Sanlam Life Insurance Limited CompanyNotes to the Statement of Actuarial Values of Assets and Liabilitiesat 31 DECEMBER 2009

1. FAIR VALUE OF ASSETSDec 2009

R million

Assets have been valued on the bases as set out before, apart from equity investments in treasury shares and Group subsidiaries, associated companies and joint ventures, which are valued at fair value.

Fair value of assets 250 749 282 459 1 035 160 (32 905)

2. EXCESS OF ASSETS OVER LIABILITIES FOR FINANCIAL REPORTING

Dec 2009 Dec 2008R million R million

Excess of assets over liabilities for financial reporting 37 036 34 419 35 841 33 173 1 035 1 137 160 109

3. ADJUSTMENT FOR PRUDENTIAL REGULATORY PURPOSES

Dec 2009 Dec 2008R million R million

Total adjustment (15 503) (15 081) Adjustment for life insurance group undertakings (including capital requirements after adjustment for minority interests)

SDM Ltd (2 534) (2 251) other (1 889) (1 293)

Adjustment for other group undertakingsSanlam Investment Management (3 796) (2 917) Santam (4 188) (3 131) Other ( 392) ( 697)

Shares held in holding company (2 494) (4 441) Inadmissible assets ( 210) ( 351)

Shareholders' Fund per company balance sheet

Total assets per company balance sheetAdjustment of goodwill to fair value

Loan from subsidiariesOther consolidation adjustments

Adjustment of goodwill to fair valueOther consolidation adjustments

Sanlam Life Insurance Limited

Sanlam Life Insurance Limited

The excess of assets over liabilities reconciles as follows with the shareholders' fund in the balance sheet:

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NOTES TO THE STATEMENT OF ACTUARIAL VALUES OF ASSETS AND LIABILITIES

4. UNSECURED SUBORDINATED BONDSDec 2009 Dec 2008R million R million

1 965 2 084 Unsecured subordinated bonds per note 16.2 of the annual financial statements 1 894 2 011 Accrued interest 71 73

5. ATTRIBUTABLE EARNINGS

7 316 ( 489) Adjustment of goodwill to fair value ( 102) ( 168) Other consolidation adjustments 51 ( 65)

7 265 ( 722)

6. MANAGEMENT ACTIONS

404 - 4 165 3 946

Capitalisation of proportion of expected future profits held as discretionary margins 1 037 1 131 Reduction in grossing up of the assets covering CAR and other 1 919 1 673

7 525 6 750

% %

( 4) - ( 4) ( 3) The average change in future bonus rates below expected long-term rates, for three years

The unsecured subordinated bonds reconciles as follows with the annual financial statements:

The following management actions were assumed in the calculation of the capital adequacy requirements:

Attributable earnings reconcile as follows with the annual financial statements:

Attributable earnings per company income statement

AT 30 DECEMBER 2009(continued)

Sanlam Life Insurance Limited

The average change in non-vested bonuses for Reversionary Bonus type business, for three years

Reduction in non-vested bonuses

Attributable earnings per Statement of Actuarial Values of Assets and Liabilities

Total management actions

Reduction in future bonus rates

83

Dec 2009 Dec 2008% %

7. ASSET COMPOSITION

Cash 60 30 Fixed-interest securities 30 50 Hedged equities 10 20

100 100

8. FUTURE INVESTMENT RETURN AND INFLATION ASSUMPTIONS

Point used on relevant yield curve 9 year 9 yearFixed-interest securities 9.4 7.3 Equities and offshore investments 12.9 10.8 Hedged equities 9.9 7.8 Properties 10.4 8.3 Cash 8.4 6.3 Future expense inflation (excluding margin) 6.4 4.3 Consumer price index inflation for premium indexation 6.4 4.3

Retirement annuity business 11.2 9.1 Individual policyholder business 9.7 7.9

Individual stable bonus businessRetirement annuity business 10.8 8.7 Individual policyholder business 9.4 7.6 Non-taxable business 10.8 8.7 Corporate policyholder business 9.1 7.3

Individual market-related businessRetirement annuity business 11.2 9.1 Individual policyholder business 9.7 7.9 Non-taxable business 11.2 9.1 Corporate policyholder business 9.4 7.6

Participating annuity business 9.2 7.1 Non-participating annuity business* 8.9 7.0 Guarantee plans* 7.5 8.1 * The calculation of policy liabilities is based on discount rates derived from the zero-coupon yield curve. This is the average rate that produces the same result.

10. BONUS STABILISATION RESERVES

No portfolio had a negative bonus stabilisation reserve which exceeded 7,5% of the relevant investment accounts at 31 December 2009.

R million R million11. RESULT FROM FINANCIAL SERVICES

( 28) 56 Change in best estimate lapse assumptions 253 205Change in best estimate risk assumptions (241) (200)Change in best estimate expense assumptions (50) (43)Change in roll-up rate of guarantee premiums - 102Other 10 (8)

Pre-tax investment returns by major asset categories and inflation assumptions were as follows:

The assets backing the capital adequacy requirements after management actions were invested as follows:

with the following effect on the result from operations.

Reversionary bonus business

9. DISCOUNT RATES USED IN CALCULATING PROSPECTIVE POLICY LIABILITIES

A number of changes were made to the valuation methodology and assumptions,

84

Dec 2009 Dec 2008

Monte Carlo simulation techniques were used in the calculation of the liabilities in respect of embedded investment derivatives.This was done using the output of a market-consistent stochastic model, which was calibrated as at 31 December 2009.This stochastic model was used to price the following option contracts. (Prices are expressed as percentages of the nominal) % %

A 1-year at-the-money (spot) put on the FTSE/JSE TOP40 index. 10.6% 12.9%A 1-year 80% at-the-money (80% spot) put on the FTSE/JSE TOP40 index 3.5% 4.8%A 1-year forward put on the FTSE/JSE TOP40 index. 13.2% 14.8%A 5-year at-the-money (spot) put on the FTSE/JSE TOP40 index 12.1% 16.6%A 5-year put on the FTSE/JSE TOP40 index, with a strike price equal to (1.04) 5 of 19.5% 25.8%A 5-year put on the FTSE/JSE TOP40 index, with a strike price equal to (1.04) 5 of 9.2% 14.0%A 5-year forward put on the FTSE/JSE TOP40 index 25.8% 24.7%A 20-year at-the-money (spot) put on the FTSE/JSE TOP40 index 4.1% 7.2%A 20-year put on the FTSE/JSE TOP40 index, with a strike price equal to (1.04) 20 of spot 15.2% 26.5%A 20-year put based on an interest rate with a strike equal to the present 5-year forward rate as at maturity of the put, which pays out if the 5-year interest rate at the time of maturity (in 20 years) is lower than this strike 0.30% 0.54%A 20-year forward put on the FTSE/JSE TOP40 index 34.4% 26.4%

The implied volatilities of these option contracts are as follows: % %A 1-year at-the-money (spot) put on the FTSE/JSE TOP40 index. 34.1% 38.8%A 1-year 80% at-the-money (80% spot) put on the FTSE/JSE TOP40 index 34.5% 38.4%A 1-year forward put on the FTSE/JSE TOP40 index. 34.0% 38.8%A 5-year at-the-money (spot) put on the FTSE/JSE TOP40 index 32.9% 34.1%A 5-year put on the FTSE/JSE TOP40 index, with a strike price equal to (1.04) 5 of spot

32.8% 34.0%

A 5-year forward put on the FTSE/JSE TOP40 index 32.7% 34.0%A 20-year at-the-money (spot) put on the FTSE/JSE TOP40 index 32.8% 29.3%A 20-year put on the FTSE/JSE TOP40 index, with a strike price equal to (1.04) 20 of spot 32.6% 29.5%A 20-year forward put on the FTSE/JSE TOP40 index 32.6% 29.5%

The risk-free zero coupon yield curve (annually compounded) used to calibrate the market-consistentstochastic model, is shown in the table below. This yield curve is based on the zero coupon governmentbond curve. % %

1 year 7.5% 8.1%2 years 8.0% 7.3%3 years 8.3% 7.1%4 years 8.6% 7.3%5 years 8.8% 7.4%10 years 9.2% 7.3%15 years 9.3% 7.3%20 years 9.3% 7.3%25 years 9.1% 7.2%30 years 9.0% 7.2%

12. MARKET CONSISTENT STOCHASTIC MODEL USED IN RESERVING FOR EMBEDDED INVESTMENT DERIVATIVES

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CAPITAL & RISK MANAGEMENT REPORT e Capital allocation methodology 87 Capital management 87

Covered business Other Group operations Group Capital Committee Discretionary capital

Capital adequacy 88 Credit rating 90 Risk management Governance structure 91 Group risk policies and guidelines 93 Risk types 95

General risks Operational Taxation Reputational Legislation Strategic

Financial and business-specific risks Market Credit Liquidity Insurance

Risk management: general risks 97 Risk management: by business area 100

Investment management Life insurance Retail credit Capital markets Short-term insurance Corporate

CAPITAL MANAGEMENT

RISK MANAGEMENT

CONTENTS Page

86

OBJECTIVE Effective capital management is an essential component of meeting the Group’s strategic objective of maximising shareholder value. The capital value used by the Group as the primary performance measurement base is Group Equity Value (GEV).The management of the Group’s capital base requires a continuous review of optimal capital levels, including the use of alternative sources of funding, to maximise return on GEV. The Group has an integrated capital and risk management approach. The amount of capital required by the various businesses is directly linked to their exposure to financial and operational risks. Risk management is accordingly an important component of effective capital management. Full information on the Sanlam Limited’s Group Equity Value is provided in the Sanlam Limited annual report. Capital allocation methodology Group businesses are each allocated an optimal level of capital and are measured against appropriate return hurdles. The following methodology is used to determine the allocation of required capital to covered business: The level and nature of the supporting capital is determined by minimum regulatory capital requirements as well as economic, risk and growth considerations. Regulatory capital must comply with specific requirements. For Sanlam Life a stochastic modelling process is used to assist in determining long-term required capital levels that, within a 95% confidence level, will be able to cover the minimum statutory capital adequacy requirement (CAR) at least 1,5 times over each of the next 10 year-ends. For the other smaller life insurers the Group sets supporting capital levels as a multiple of their respective regulatory capital adequacy requirements. The fair value of other Group operations includes the working capital allocated to the respective operations. The Group’s approach to ensure appropriate working capital levels in these operations is twofold: 1. The Group’s internal dividend policy is based on the annual declaration of all discretionary capital that is

not required for normal operations or expansion; and 2. Performance targets are set for other Group operations based on an expected return on the fair value of the

businesses, equal to their internal hurdle rates. This ensures that all non-productive working capital is declared as a dividend to the Group.

Capital management Covered business (life insurance operations) The Group’s covered business requires significantly higher levels of allocated capital than the other Group operations. The optimisation of long-term required capital is accordingly a primary focus area of the Group’s capital management philosophy given the significant potential to enhance shareholder value. The following main strategies are used to achieve this objective: Appropriate matching of assets and liabilities for policyholder solutions. This is especially important for long-

duration policyholder solutions that expose the Group to interest rate risk, e.g. non-participating annuities. Managing the impact of new business on capital requirements by limiting volumes of capital-intensive new

business. The asset mix of the long-term required capital also impacts the overall capital requirement. An increased

exposure to hedged equity and interest-bearing instruments reduces the volatility of the capital base and accordingly also the capital requirement. Over the longer term, the expected investment return on these instruments is however lower than equity with a potential negative impact on the return on GEV. There is accordingly a trade-off between lower capital levels and the return on capital. The Group’s stochastic capital model is used as input to determine the optimal asset mix in this regard.

CAPITAL MANAGEMENT

87

The introduction of long-term debt into the life insurance operations’ capital structure and the concurrent investment of the proceeds in bonds and other liquid assets, to reduce the volatility in the regulatory capital base with a consequential lower overall capital requirement.

Certain of the Group’s investments in other Group operations qualify, to a varying degree, to be utilised as regulatory capital for the covered business. Maximum capital efficiency can therefore be achieved by optimising the level of such investments held in the life companies’ regulatory capital.

Management of operational risk. Internal controls and various other operational risk management processes are used to reduce operational risk and commensurately the allowance for this risk in the calculation of required capital.

The Group continues to improve and further develop its capital management models and processes in line with international best practice and the current significant international developments surrounding solvency and capital requirements (for example the Solvency II initiative in the European Union). Other Group operations The performance measurement of other Group operations is based on the return achieved on the fair value of the businesses. Risk-adjusted return targets are set for the businesses to ensure that each business’ return target takes cognisance of the inherent risks in the business. This approach ensures that the management teams are focused on operational strategies that will optimise the return on fair value, thereby contributing to the Group’s main objective of optimising return on GEV. Group Capital Committee The Group Capital committee, an internal management committee, is responsible to review and oversee the management of the Group’s capital base in terms of the specific strategies approved by the Board. Discretionary capital Any capital in excess of requirements, and not optimally utilised, is identified on a continuous basis. The pursuit of structural growth initiatives has been set as the preferred application of Group capital, subject to such initiatives yielding the applicable hurdle rate and being complementary to or in support of Group strategy. Any discretionary capital not being efficiently redeployed, will be returned to shareholders in the most effective form. Capital adequacy Capital adequacy for the South African operations is measured with reference to the cover provided by the Group’s prudential regulatory capital in relation to the Capital Adequacy Requirements.

The valuation of assets and policy liabilities for prudential capital adequacy purposes is generally in line with the methodology for the published results. Some adjustments are however required, as set out below. Reinsurance

Policy liabilities are valued net of reinsurance and the reinsurance asset is eliminated. Investment contracts with investment management services

The liabilities are set equal to the retrospectively accumulated fair value of the underlying assets less unrecouped expenses (set equal to the deferred acquisition cost (DAC) asset) in the case of individual business. These retrospective liabilities are higher than the prospective liabilities calculated as the present value of expected future benefits and expenses less future premiums at the relevant discount rates.

The DAC asset is eliminated. Group undertakings and inadmissible assets

The value of assets is reduced by taking into account the prescribed valuation bases for Group undertakings and to eliminate inadmissible assets (as defined in the relevant prudential regulations).

88

Capital Adequacy Requirements (CAR)

The excess of assets over liabilities of life insurance operations on the prudential regulatory basis should be sufficient to cover the CAR in terms of the relevant regulations as well as professional guidance notes issued by the Actuarial Society in South Africa. The CAR provides a buffer against experience worse than that assumed in the valuation of assets and liabilities.

On the valuation date, the ordinary CAR was used for the South African operations as they exceeded the termination and minimum CAR, apart from Channel Life where termination CAR applied.

The largest element of the CAR relates to stabilised bonus business. Consistent with an assumed fall in the fair value of the assets (the “resilience scenario”), which is prescribed in the actuarial guidance notes, the calculation of the CAR takes into account a reduction in non-vesting bonuses and future bonus rates and for the capitalisation of some expected future profits (resulting from discretionary margins in the valuation basis and held as part of the liabilities).

At 31 December 2009, the resilience scenario assumes that: Equity values decline by 30.0% (2008: 26,1% *); Property values decline by 15%; Fixed interest yields and inflation-linked real yields increase or decrease by 25% of the nominal or real yields

(whichever gives the highest total capital adequacy requirements); and Assets denominated in foreign currencies decline by at least 20%

on the valuation date and do not subsequently recover within the short term.

* At 31 December 2008 the JSE All Share dividend yield was 4,39%. PGN 104 states that where the dividend yield is less than 4%, a 30% fall in equities must be assumed in the CAR resilience scenario. Where the dividend yield is above 5%, a 20% fall in the equities must be assumed. For dividend yields between 4% and 5% interpolation must be used. The 4,39% dividend yield at 31 December 2008 thus resulted in a 26,1% fall in equities.

Provision is made for credit and operational risk in the calculation of the CAR. The excess of the actuarial values of assets over liabilities for the main life insurance holding companies is disclosed in the table below. The values disclosed for Sanlam Life capture the solvency position of the entire Sanlam Life Group, including subsidiaries such as Sanlam Life Namibia, SDM Limited, Channel Life and Botswana Insurance Holdings. All subsidiaries of Sanlam Life were adequately capitalised, with CAR covered by the excess of assets over liabilities for prudential regulatory purposes of at least 1.1 times (2008: 1,0 times).

89

R million 2009 2008Assets

Fair value of assets 250 749 232 466

Less : Liabilities 213 713 198 047

Actuarial value of policy liabilities 200 377 186 234 Investment contracts 89 703 77 815 Insurance contracts 110 674 108 419

Long-term and current liabilities 13 336 11 813

Excess of assets over liabilities for financial reporting 37 036 34 419 Adjustment for prudential regulatory purposes (15 503) (15 081)

Adjustment for group undertakingsSanlam Investment Management (3 796) (2 917) Santam (4 188) (3 131) Sanlam Developing Markets (2 534) (2 251) Capital requirements of life insurance subsidiaries, adjusted for minority interests (1 889) (1 293)

Inadmissible assets ( 210) ( 351) Other (2 886) (5 138)

Unsecured subordinated bond 1 965 2 084 Excess of assets over liabilities for prudential regulatory purposes 23 498 21 422

Capital adequacy requirementsCapital adequacy requirements (CAR) before management actions

15 200 14 825 Management actions assumed (7 525) (6 750)

(4 165) (3 946) Reduction in non-vested bonuses ( 404) Capitalisation of proportion of expected future profits held as discretionary margins (1 037) (1 131)

(1 919) (1 673)

CAR after management actions assumed 7 675 8 075 Times CAR covered by excess of assets over liabilities for prudential regulatory purposes

3.1 2.7

Reduction in future bonus rates

Reduction in grossing up of the assets covering CAR and other

Sanlam Life

Credit rating Fitch Ratings, an international ratings agency, issues independent ratings of the following Sanlam Life Group entities and instruments: Most recent ratings issued during 2009 Sanlam Life Insurance Limited National Insurer Financial Strength: AA+ (zaf)

National Long-term: AA (zaf) National Short-term: F1+ (zaf)

Subordinated debt issued by Sanlam Life Insurance Limited Subordinated debt: A+ (zaf) Santam Limited National Insurer Financial Strength: AA+ (zaf) Subordinated debt issued by Santam Limited Subordinated debt: A+ (zaf) The independent credit ratings provide assurance to the investors in securities issued by the Group as well as the Group’s business partners and other stakeholders. It also enables the Group to issue debt and equity instruments at market-related rates. The above ratings were confirmed during 2009 and are unchanged from 2008, apart from the subordinated debt issued by Sanlam Life Insurance Limited and Santam Limited. The rating of these instruments were reduced by one notch by Fitch ratings (new ratings are reflected above), in line with its revised methodology and consistent with similar instruments issued by international insurers.

90

Governance structure In terms of the Group’s overall governance structure, the meetings of the Sanlam Limited Board (Sanlam Board) and Sanlam Life Insurance Limited Board (Sanlam Life Board) are combined to improve the flow of information and to increase the efficiency of the Boards. The agenda of the Sanlam Board focuses on Group strategy, capital management, accounting policies, financial results, dividend policy, human resource development and corporate governance and JSE requirements. The Sanlam Life Board is responsible for statutory matters across all Sanlam businesses as well as monitoring operational efficiency and risk issues throughout the Group. In respect of separately listed subsidiaries, this is done within the limitations of sound corporate governance practices. The Group operates within a decentralised business model environment. In terms of this philosophy, the Sanlam Life Board sets the Group risk management policies and frameworks and the individual businesses take responsibility for all operational and risk-related matters on a business level, within the limits set by these policies and frameworks. The following diagram generically depicts the flow of risk management information from the individual businesses to the Sanlam Life Board. * During 2009 the Sanlam Life Audit, Actuarial and Risk committee was split, creating a separate Risk and

Compliance committee, operating in terms of a new charter. Role of Group Risk Management The role of Group Risk Management is one of setting Group standards and guidelines, co-ordinating and monitoring risk management practices and ultimately reporting to the Sanlam and Sanlam Life Boards. Group Risk Management plays an active role with regard to risk management in the Sanlam Group. The involvement includes the following: Permanent invitees of business units’ Risk and Audit committees; Member of the Central Credit committee (see description below); Transactional approval incorporated in approval frameworks of business units where appropriate; Involvement and approval of corporate activity transactions; Chairs the Capital, Asset and Liability and Non-listed Asset committees at Group level and the Group Risk

Forum (see descriptions below); Guidance on risk-related matters at a business level; and Involvement with specialist risk management issues at business level.

RISK MANAGEMENT

Sanlam Life Board Responsible for the

Group’s risk management

framework and policies, as well as

monitoring the effectiveness and disclosure thereof, in accordance with

best practice

Group Risk Management Develops Group risk

management framework, policies and guidelines for

approval by the Sanlam Life Board, co-ordinates reporting responsibilities

and improves risk management across the

Group

Business level Audit and Risk Committees/Forums

Assists the business level Board in fulfilling its responsibilities

to the Sanlam Life Board

Business level management committees

Additional committees that may be established by a business to

assist their Executive committees in certain areas of

risk management

Business (and sub-business) level risk

management Identifies and manages risks faced by the

business

Sanlam Life Risk and Compliance committee * Assists the Sanlam Life Board in fulfilling its responsibilities

Sanlam Group Executive committee Responsible as the Sanlam Board’s executive overseer to ensure that the businesses achieve optimal risk-adjusted returns

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A number of other risk monitoring mechanisms are operating within the Group as part of the overall risk management structure. The most important of these are illustrated in the following table:

Forensics Investigates and reports on

fraud and illegal behaviour in businesses

Internal Audit Assists the Sanlam Life Board and management by monitoring the adequacy and effectiveness of risk

management in businesses

Financial Director Ensures that sound financial

practices are followed, adequate and accurate reporting occurs, and

financial statement risk is minimized

Risk Officer (per business) Assists business management in their implementation of the Group risk management process, and to monitor the

business’s entire risk profile

Group IT Risk Management Manages and reports Group-wide

IT risks

Group Risk Forum Aids co-ordination and transfer of knowledge between businesses and the Group, and assists Group Risk Management in identifying risks

requiring escalation to the Sanlam Board

Group Compliance Office Facilitates management of

compliance through analysing of statutory and

regulatory requirements, and monitoring implementation

and execution thereof

Group Governance/ Secretariat and Public Officers

Reviews and reports on corporate governance practices and

structures. Reports on applicable legal and compliance matters

Investment Committees Determines and monitors appropriate investment

strategies for policyholder solutions

Non-listed Asset Committee Reviews and approves the

valuation of all unlisted assets in the Group for recommendation to the Sanlam Limited and Sanlam

Life Boards

Actuarial Monitors and reports on key risks affecting the life insurance operations. Determines capital

requirements of the life insurance operations and the potential impact of strategic decisions thereon, by using appropriate modelling

techniques

Asset and Liability Committee Determines appropriate investment policies and

guidelines for policyholder portfolios where guarantees are provided

Central Credit Committee Identifies, measures and controls

credit risk exposure

Capital Committee Reviews and oversees the

management of the Group’s capital base

OTHER RISK MONITORING MECHANISMS

92

Group risk policies, standards and guidelines The main policies, standards and guidelines are: The Sanlam Group Enterprise Risk Management (ERM) policy and plan; Sanlam Group Risk Escalation policy; Sanlam Group Business Continuity Management policy; Definitions of Risk categories standard; Risk Appetite guidance note; Sanlam Group Risk Appetite Statement; Sanlam Risk Management Maturity Model; Sanlam Life Risk and Compliance committee charter; and Group Risk forum terms of reference.

[Key: A policy sets out mandatory minimum standards for all businesses. A standard endeavours to ensure consistent use of terminology. A guidance note is aimed at providing information.] The following also cover aspects with linkage to risk management: Sanlam Group Information and Information Technology (I and IT) Risk Management policy; Representations from Group businesses to the Sanlam and Sanlam Life Audit, Actuarial and Finance

committees; Sanlam Corporate Credit Risk strategy and policy; Sanlam Financial Crime Combating policy; Sanlam Human Resources policies; Sanlam Group governance structures; Sanlam Life Insurance Audit, Actuarial and Finance committee charter.

Sanlam Group Enterprise Risk Management policy The Group ERM policy includes the following main components:

• The broad objectives and philosophy of risk management in the Group; • The roles and responsibilities of the various functionaries in the Group tasked with risk management; and • The Group’s minimum standards for implementation of risk management in the businesses.

Sanlam Group Risk Escalation policy The Risk Escalation policy defines the circumstances in which risk events and emerging risks should be escalated to the Sanlam Group level. This includes quantifiable and unquantifiable measures. Summary of Sanlam Group Risk Appetite

The Sanlam Group consists of a number of decentralised businesses. These businesses have different risk profiles and appetites. They are capitalised appropriately based on these risk profiles.

The Group determines the hurdle rates required from these businesses. These hurdle rates are set out for each business in accordance with its risk profile. On average the Sanlam Group aims to yield a return on GEV equal to at least 1% above its cost of capital, being equal to the return on 10-year government bonds plus 4%.

Each decentralised business needs to operate within the restrictions of its allocated capital. For businesses using Value at Risk (VAR) as measurement, a 99,5% confidence level is required over a one-year time horizon. For businesses using capital adequacy (risk-based capital) techniques, a 95% confidence over a 10-year time horizon is required.

Each business needs to manage their risks within the Group ERM policy parameters.

93

Risk Process and Status

The risk assessment process in the individual businesses comprises three distinct phases:

Detailed identification of risk factors.

Performance measurement by means of Key Risk Indicators and Key Performance Indicators. These can be measured in terms of financial and non-financial indicators.

Stress testing and scenario analysis as a forward-looking methodology.

The individual businesses have fully adopted and implemented the ERM policy, the Group Risk Escalation policy and Business Continuity Management policy as part of the individual governance structures. The other policies are adopted by businesses where appropriate, although in the vast majority of cases this implies full adoption (as determined by business size/Group governance principles and the tight/loose principles). Risk management has formally been incorporated into the charters of the various Audit and/or Finance committees.

Independent Assurance reviews

During 2009, the Group developed with an external assurance provider, a Risk Management Maturity Model to assess the risk management processes across the Group. Annually, all businesses conduct self-assessments against the Maturity Model. Larger businesses are assessed by an external assurance provider against the Maturity Model at least once every three years. Internal audit conducts assessments on a rolling annual basis and the overall results are presented to the Sanlam Life Risk and Compliance committee.

94

Risk types The Group is exposed to the following main risks: Risk category

(primary) Risk type (secondary) and description Potential

significant impact

Gen

eral

ris

ks

1. Operational

Operational risk is the risk that there is a loss as a result of inadequate or failed internal processes, people or systems and external events. Operational risk includes:

All Group businesses

Information and technology risk: the risk of obsolescence of infrastructure, deficiency in integration, failures/inadequacies in systems/networks and the loss of accuracy, confidentiality, availability and integrity of data. Going concern/business continuity risk: the risk that inadequate processes, people, financial controls and resources exist to continue business in the foreseeable future. Legal risk: the risk that the Group will be exposed to contractual obligations which have not been provided for. Compliance risk: the risk of not complying with laws and regulations, as well as investment management mandates. Human resources risk: the risk that the Group does not have access to appropriate skills and staff complement to operate and effectively manage other operational risk. Fraud risk: the risk of financial crime and unlawful conduct occurring within the Group.

Taxation risk: the risk of financial loss owing to changes in tax legislation that result in the actual tax on shareholders’ fund earnings being higher than expected, with a corresponding reduction in return on GEV; or the actual policyholder tax being higher than that assumed in the determination of premium rates and guaranteed policy benefits.

Regulatory risk: the risk that new acts or regulations will result in the need to change business practices that may lead to financial loss.

Process risk: the risk of loss as a result of failed or inadequate internal processes. Project risk: the risks inherent in major projects. 2. Reputational Reputational risk is the risk that the actions of a business (e.g. the treatment of clients,

employment equity and social responsibility) harm its reputation and brand. All Group businesses

3. Strategic Strategic risk is the risk that the Group’s strategy is inappropriate or that the Group is unable to implement its strategy.

All Group businesses

Fina

ncia

l and

bus

ines

s-sp

ecifi

c ri

sks

1. Market

Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in the market. Market risk includes:

Life insurance Retail credit Capital markets Short-term insurance

Equity risk: the risk that the value of a financial instrument will fluctuate as a result of changes in equity prices. Interest rate risk: the risk that the value of a financial instrument will fluctuate as a result of changes in interest rates and the risk that a mismatch loss will be incurred in respect of a matched asset/liability position following changes in interest rates. Currency risk: the risk that the rand value of a financial instrument or liability will fluctuate owing to changes in foreign exchange rates. Property risk: the risk that the value of investment properties will fluctuate as a result of changes in the environment. Asset liability mismatching risk: the risk that losses will be incurred as a result of a deviation between asset and liability cash flows, prices or carrying amounts. Concentration risk: the risk of losses associated with inadequately diversified asset portfolios. This may arise either from a lack of diversification in the asset portfolio, or from large exposure to default risk by a single issuer of securities or a group of related issuers (market risk concentrations). Market Liquidity Risk (also known as trading liquidity risk or asset liquidity risk): risk stemming from the lack of marketability of a financial instrument that cannot be bought or sold quickly enough to prevent or minimise a loss (or realise the required profit).

95

2. Credit

Credit risk is the risk of default and change in the credit quality of issuers of securities, counterparties and intermediaries to whom the company has exposure. Credit risk includes:

Life insurance Retail credit Capital markets Short-term insurance Corporate

Default risk: credit risk arising from the inability or unwillingness of a counterparty to a financial instrument to discharge its contractual obligations. Downgrade or Migration risk: risk that changes in the possibility of a future default by an obligator will adversely affect the present value of the contract with the obligator. Settlement risk: risk arising from the lag between the transaction and settlement dates of securities transactions. Reinsurance counterparty risk: concentration risk with individual reinsurers, owing to the nature of the reinsurance market and the restricted range of reinsurers that have acceptable credit ratings.

Credit spread risk: the sensitivity of financial instruments to changes in the level or volatility of credit spreads over the risk-free interest rate term structure.

3. Liquidity

Liquidity risk is the risk relating to the difficulty/inability to accessing/raising funds to meet commitments associated with financial instruments or policy contracts.

Life insurance Retail credit Capital markets Short-term insurance Corporate

4. Insurance risk (life business)

Insurance risk (life business): risk arising from the underwriting of life insurance contracts, in relation to the perils covered and the processes used in the conduct of business. It includes:

Life insurance

Underwriting risk: the risk that the actual experience relating to mortality, disability and medical risks will deviate negatively from the expected experience used in the pricing of solutions and valuation of policy liabilities. Persistency risk: the risk of financial loss owing to negative lapse, surrender and paid-up experience. Expense risk: the risk of loss owing to actual expense experience being worse than that assumed in premium rates and the valuation of policy liabilities. Concentration risk: the risk of financial loss owing to having written large proportions of business with policyholders of the same/similar risk profile.

5. Insurance risk (Short-term insurance business)

Insurance risk (short-term insurance business): risk arising from the underwriting of non-life insurance contracts, in relation to the perils covered and the processes used in the conduct of business. It includes:

Short-term insurance

Claims risk: refers to a change in value caused by the ultimate costs for full contractual obligations varying from those assumed when these obligations were estimated.

Catastrophe risk: the risk of loss, or of adverse change in the value of insurance liabilities, resulting from significant uncertainty relating to the pricing and provisioning assumptions for extreme or exceptional events.

96

Risk management: General risks The Group mitigates this risk through its culture and values, a comprehensive system of internal controls, internal audit, forensic and compliance functions and other measures such as back-up facilities, contingency planning and insurance. The initiation of transactions and their administration is conducted on the basis of the segregation of duties, designed to ensure the correctness, completeness and validity of all transactions. The management of risks associated with human resources is not addressed in this Report. The following functionaries assist in mitigating operational risk: Internal audit A Board-approved internal audit charter governs internal audit activity within the Group. Regular risk-focused reviews of internal control and risk management systems are carried out. The chief audit executive of Sanlam is appointed in consultation with the chairman of the Audit, Actuarial and Finance committee and has unrestricted access to the chairman of the committee. The authority, resources, scope of work and effectiveness of the functions are reviewed regularly. External audit The Group’s external auditors are Ernst & Young Inc.. The reports of the independent auditors for the year under review are contained on page 6 of the Annual Report. The external auditors provide an independent assessment of certain systems of internal financial control which they may rely on to express an independent opinion on the annual financial statements. Non-audit services rendered by the external auditors are strictly governed by a Group policy in this regard. The Group applies a policy of compulsory rotation of audit partners. Information and technology risk The “Group Information and Technology (I&IT) Risk Management policy” is authorised by the Group Risk forum and the Group IT Governance committee and ratified by the Group Executive committee. It stipulates the role of the Information and IT Risk manager that each business is responsible for appointing. Furthermore, it provides a framework of IT risk management, the methods of reporting, assessment and action, appropriate documentation and management of all risk-related IT incidents that have occurred, timing of communication and liaison with other functions in the Group. Reliance on and the continuous availability of IT systems and processes are inherent to the nature of the Group’s operations. An important objective of the Group Information and Technology Risk Management policy is accordingly to ensure that the Group’s IT resources and platforms are maintained and developed in line with changes in the Group’s business environment and requirements, and that proper back-up processes and disaster recovery measures are in place. Going concern/business continuity risk The Board regularly considers and records the facts and assumptions on which it relies to conclude that Sanlam will continue as a going concern. Reflecting on the year under review, the Directors considered a number of facts and circumstances and are of the opinion that adequate resources exist to continue business and that Sanlam will remain a going concern in the foreseeable future. The Board’s statement to this effect is also contained in the statement on the responsibility of directors in the annual financial statements. Legal risk 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 documents to ensure that rights and obligations of all parties are clearly set out. Sanlam seeks to minimise uncertainties through continuous consultation with internal and external legal advisers, to understand the nature of risks and to ensure that transactions are appropriately structured and documented.

1. OPERATIONAL RISK

97

Compliance risk Laws and regulations: Sanlam considers compliance with applicable laws, industry regulations and codes an integral part of doing business. The Group Compliance Office, together with the compliance functions of the Group businesses, facilitates the management of compliance through the analysis of statutory and regulatory requirements, and monitoring the implementation and execution thereof. Compliance with client mandates: Rules for clients’ investment instructions are loaded on an order management system, which produces post-trade compliance reports that are continuously monitored. On a monthly basis, these reports are manually compared with the investment instructions. When a possible breach is detected, the portfolio manager is requested to confirm whether a breach has taken place, to explain the reason for the breach and indicate when it will be rectified (which is expected to be as soon as possible). Further action may be taken, depending on the type of breach. The detailed results of the mandate monitoring process are discussed with the head of investment operations on a monthly basis. Fraud risk The Sanlam Group recognises that financial crime and unlawful conduct are in conflict with the principles of ethical behaviour, as set out in the Group’s code of ethics, and undermines the organisational integrity of the Group. The financial crime combating policy for the Sanlam Group is designed to counter the threat of financial crime and unlawful conduct. A zero-tolerance approach is applied in combating financial crime and all offenders are prosecuted. The forensic services function at Group level oversees the prevention, detection and investigation of incidents of unlawful conduct that are of such a nature that they may have an impact on the Group or the executive of a business cluster. Group Forensic Services is also responsible for the formulation of Group standards in respect of the combating of unlawful conduct and the implementation of measures to monitor compliance with these standards. The chief executive of each business cluster is responsible for the implementation of the policy in his or her respective business and is accountable to the Group Chief Executive and the Sanlam Board. Quarterly reports are submitted by Group Forensic Services to the Sanlam Life Risk and Compliance committee on the incidence of financial crime and unlawful conduct in the Group and on measures taken to prevent, detect, investigate and deal with such conduct. Taxation risk The risk is addressed through clear contracting to ensure that policy contracts entitle policyholders to after-tax returns, where applicable. The Group’s internal tax resources monitor the impact of changes in tax legislation, participate in discussions with the tax legislator to comment on changes in legislation and are involved in the development of new products. External tax advice is obtained as required. Regulatory risk Regulatory risk is mitigated by ensuring that the Group has dedicated personnel that are involved in and therefore informed of relevant developments in legislation. The Group takes a proactive approach in investigating and formulating views on all applicable issues facing the financial services industry. The risk is also managed as far as possible through clear contracting. The Group monitors and influences events to the extent possible by participation in discussions with legislators, directly and through industry organisations. Process risk The risk of failed or inadequate internal processes is addressed through a combination of the following: A risk-based approach is followed in the design of operational processes and internal controls; Operational processes are properly documented; Staff training and the employment of a performance-based remuneration philosophy; and Internal audit review of key operational processes.

98

Project risk A formalised, risk-based approach is followed for the management of major projects to ensure that projects are effectively implemented and the project hurdle rate is achieved. Key deliverables, progress and risks are monitored on a continuous basis throughout the project life cycle. Internal specialists and external consultants are used as required to provide specialist knowledge and experience. Risks with a potential reputational impact are escalated to the appropriate level of senior management. The Audit and Risk committees are involved as required. Events with an industry-wide reputational impact are addressed through industry representative groups. The Group’s governance structure and various monitoring tools ensure that any events that affect the achievement of the Group’s strategy are escalated and addressed at the earliest opportunity. The Board has no tolerance for any breach of guidance. Group strategy is addressed on a continuous basis at various forums within the Group, the most important of which are: The Group’s strategic direction and success is discussed and evaluated at an annual special strategic session

of the Sanlam Life Board as well as at the scheduled Board meetings during the year; As part of the annual budgeting process, the Group businesses present their strategic plans and budgets to the

Sanlam Group Executive committee, which ensures that the businesses’ strategies are aligned with the overall Group strategy; and

The Sanlam Group Executive committee, which includes the chief executives of the various Group businesses, meets on a regular basis to discuss, among others, the achievement of the businesses’ and Group’s strategies. Any strategic issues are identified at these meetings and corrective actions are immediately implemented.

2. REPUTATIONAL RISK

3. STRATEGIC RISK

99

RISK MANAGEMENT: BY BUSINESS AREA The Group’s investment management operations are primarily exposed to operational risks, as they have limited on-balance sheet exposure to financial instruments. Investment risk is borne principally by the client. The asset management operations are, however, exposed to market risk owing to the impact of market fluctuations on revenue levels, as investment fees are generally linked to the level of assets under management. This exposure is reduced through asset class and product diversification. The Group’s life insurance businesses are exposed to financial risk through the design of some policyholder solutions, and in respect of the value of the businesses’ capital. Non-participating policyholder solutions and those that provide investment guarantees, such as market-related business, stable and reversionary bonus business and non-participating annuity business, expose the life insurance businesses to financial risk. Other business, such as linked policies (where the value of policy benefits is directly linked to the fair value of the supporting assets) does not expose the life insurance businesses to financial risk as this risk is assumed by the policyholder. The life insurance businesses’ capital is invested in financial instruments and properties, which also exposes the businesses to financial risk, in the form of market, credit and liquidity risk. The table below summarises the various risks associated with the different policyholder solutions as well as the capital portfolio. (KEY: a= Business is exposed to the applicable risk; X = Business is not exposed to the applicable risk) Please refer to the “Policy liabilities and profit entitlement section” on page 30 for a description of the different policyholder solutions; as well as to note 15 on page 49, which discloses the monetary value of the Group’s exposure to the various solutions.

Market risk

Life insurance businesses exposed to risk via: Equity Interest rate Currency Property Persistency

Other insurance

risksPolicyholder solutions

Linked and market-related (1) (1) (1) (1) (3)

Smoothed-bonus business

Stable bonus (2) (2) (2) (2) (3)

Reversionary bonus (2) (2) (2) (2) (3)

Participating annuities (2) (2) (2) (2) (3)

Non-participating annuities X X (4) X (4) (3) XOther non-participating liabilities

Guarantee plans X X (4) X (3) X

Other X (4) X (4) (3)

Capital portfolio X (4) X X X

(4) An immaterial amount of assets are exposed to this risk.

(2) The life insurance businesses are exposed to this risk, only if the assets backing these policies have underperformed to the extent that there are negative bonus stabilisation reserves that will not be recovered by declaring lower bonuses in the subsecquent years.(3) Although liquidity risk is present, it is not a significant risk for the insurance businesses due to appropriate matching of asset and liability cash flow values and duration.

Credit riskLiquidity

risk

Insurance risk

(1) Only market-related policies (not linked policies) expose the life insurance businesses to this risk, due to these policies providing guaranteed minimum benefits at death or maturity.

The management of these risks is described below.

Life insurance

Investment management

100

Market risk

Life insurance businesses exposed to risk via: Equity Interest rate Currency PropertyPolicyholder solutions

Linked and market-relatedSmoothed-bonus business

Stable bonus

Reversionary bonus

Participating annuities

Non-participating annuities X X XOther non-participating liabilities

Guarantee plans X X X

Other X X Linked and market-related Linked and market-related business relates to contracts where there is a direct relationship between the returns earned on the underlying portfolio and the returns credited to the contract. Policyholders carry the full market risk in respect of linked business. Market-related policies, however, provide for guaranteed minimum benefits at death or maturity, and therefore expose the life insurance businesses to market risk. The risk relating to guaranteed minimum benefits is managed by appropriate investment policies, determined by the Asset Liability Committee (ALCO), and by adjusting the level of guarantees for new policies to prevailing market conditions. These investment policies are then reflected in the investment guidelines for the policyholder portfolios. The Group’s long-term policy liabilities include a specific provision for investment guarantees. The current provision for investment guarantees in insurance contracts has been calculated on a market-consistent basis in accordance with guidance issued by the Actuarial Society of South Africa. Smoothed bonus business These policies provide for the payment of an after-tax and after-cost investment return to the policyholder, in the form of bonuses. The use of bonuses is a mechanism to smooth returns to policyholders in order to reduce the effects of volatile investment performance, and bonus rates are determined in line with the product design, policyholder reasonable expectations, affordability and the approved bonus philosophy. Any returns not yet distributed are retained in a policyholder bonus stabilisation reserve, for future distribution to policyholders. In the event of adverse investment performance, this reserve may become negative. Negative bonus stabilisation reserves are allowed for in the valuation of these liabilities to the extent that the shortfall is expected to be recovered by declaring lower bonuses in the subsequent three years. The funding level of portfolios is bolstered through loans from the capital portfolio in instances where negative stabilisation reserves will not be eliminated by these management actions. At 31 December 2009, all stable and reversionary bonus business portfolios had a funding level in excess of the minimum reporting level of 92,5%. Market risk is borne by policyholders to the extent that the after-tax and after-cost investment return is declared as bonuses. The capital portfolio is however exposed to some market risk as an under performance in investment markets may result in an under funded position that will require financial support by the capital portfolio. The Group manages this risk through an appropriate investment policy. ALCO oversees the investment policy for the various smoothed-bonus portfolios, while the Sanlam Personal Finance Investment Committee also considers these portfolios as part of its overall brief. The aim is to find the optimum balance between high investment returns (to be able to declare competitive bonus rates) and stable investment returns given the need to meet guaranteed benefits and to

1. MARKET RISK

101

support the granting of stable bonus rates. The requirements for the investment management of each portfolio are set out in investment guidelines, which cover, inter alia, the following: Limitations on exposure to volatile assets; The benchmarks for the performance measurement of each asset class and limits on deviations from these

benchmarks; Credit risk limits; Limits on asset concentration – with regard to strategic investments, the exposure of policyholders’ portfolios to

these investments is based on portfolio investment considerations and restricted with reference to a specific counter’s weight in the benchmark portfolio;

Limits on exposure to some particular types of assets, such as unlisted equities, derivative instruments, property and hedge funds; and

Regulatory constraints. Feedback on the investment policy and its implementation and the performance of the smoothed-bonus portfolios is provided quarterly to the Sanlam Life Board and the Policyholders Interest Committee. Non-participating annuities Non-participating annuity business relates to contracts where income is paid to an annuitant for life or for a fixed term, in return for a lump sum consideration paid on origination of the policy. The income may be fixed, or increased at a fixed rate or in line with inflation. The Group guarantees this income and is therefore subject to interest rate risk. Liabilities are matched as far as possible with assets, mostly interest-bearing, to ensure that the change in value of assets and liabilities is closely matched for a change in interest rates. The impact of changes in interest rates is continuously tested, and for a 1% parallel movement in interest rates the impact on profit will be immaterial. The management of credit risk is also of particular importance for non-participating annuities given the exposure to interest-bearing instruments (refer to section 2 below). Guarantee plans These single premium policies provide for guaranteed maturity amounts. The life insurance businesses are therefore exposed to interest rate risk, if the assets backing these liabilities do not provide a comparable yield to the guaranteed value. Interest rate risk is managed by matching the liabilities with assets that have similar investment return profiles as the liabilities. Other non-participating business The Group is exposed to market risk to the extent of the investment of the underlying assets in interest-bearing and property investments. The risk is managed through investments in appropriate asset classes. Insurance risk is however the predominant risk attached to other non-participating business. Currency risk The majority of currency exposure within the policyholder portfolios results from offshore assets held in respect of linked and smoothed bonus business. Offshore exposure within these portfolios is desirable from a diversification perspective. Capital Comprehensive measures and limits are in place to control the exposure of the life insurance businesses’ capital to market and credit risks. Continuous monitoring takes place to ensure that appropriate assets are held in support of the capital and investment return targets. Limits are applied in respect of the exposure to asset classes and individual counters. The exposure of the life insurance operations’ shareholders’ funds to various classes of investments is reflected in the following table:

102

SHAREHOLDERS' FUND - LIFE INSURANCE

R million 2009 2008

Property and equipment 259 257Owner-occupied properties 560 560Goodwill 204 186Other intangibles 45 - Value of business acquired 879 926Deferred acquisition costs 1 390 1 260Investments 32 748 31 992

Properties 1 128 934Equity-accounted investments 1 106 653Equities and similar securities 17 573 19 491Public sector stocks and loans 1 194 1 922Debentures, preference shares and other loans 6 304 5 467Cash, deposits and similar securities 5 443 3 525

Net deferred tax ( 66) 223Net working capital assets/(liabilities) 688 2 361Term finance (4 408) (4 803)External investors in consolidated funds 0 (2 393)Minority shareholders' interest ( 968) (1 133)Shareholders' fund - Life insurance 31 331 29 436Net assets of other operations and consolidation entries (4 060) (2 144)Shareholders' fund - Sanlam Life group 27 271 27 292 The exposure of the capital to currency risk is for the purpose of seeking international diversification of investments. Exposure to different foreign currencies is benchmarked against the currency composition of the Morgan Stanley Developed Equity Markets Index and the Barclays Capital Global Aggregate Bond Index. This exposure is analysed in the table below:

103

104

Sanlam recognises that a sound credit risk policy is essential to minimise the effect on the Group as a result of loss owing to a major corporate failure and the possible systemic risk such a failure could lead to. The Sanlam Investment Cluster Credit Risk policy and strategy has been established for this purpose. Credit risk occurs owing to trading, investment, structured transactions and lending activities. These activities in the Group are conducted mostly by either Sanlam Capital Markets (SCM) or Sanlam Investments (SIM) in terms of the investment guidelines granted to them by the life insurance operations. The Boards of SIM and SCM have delegated responsibility for credit risk management to the Central Credit committee. On a smaller scale, Botswana Insurance Fund Management (BIFM) also performs investment activities in the Group. The governance structures ensure that an appropriate credit culture and environment is maintained, such that no transactions are concluded outside areas of competence, nor without following normal procedures. This credit culture is the product of a formal credit risk strategy and credit risk policy. The credit risk strategy stipulates the parameters for approval of credit applications, such as: economic sector; risk concentration; maximum exposure per obligor, group and industry; geographical location; product type; currency; maturity, anticipated profitability or excess spread; economic capital limits; and cyclical aspects of the economy. The credit risk policy highlights the processes and procedures to be followed in order to maintain sound credit granting standards, to monitor and manage credit risk, to properly evaluate new business opportunities and identify and administer problem credits. Credit analysis is a structured process of investigation and assessment, involving identifying the obligor, determining whether a group of connected obligors should be consolidated as a group exposure, and analysing the financial information of the obligor. A credit rating, being a ranking of creditworthiness, is allocated to the obligor. External ratings (e.g. Moody’s Investor Services, Standard and Poors, Fitch Ratings and Global Credit Ratings) are used when available. In addition to external ratings, internal rating assessments are conducted, whereby the latest financial and related information is analysed in a specified and standardised manner, to ensure a consistent and systematic evaluation process. All facilities are reviewed on at least an annual basis by the appropriate approval authority. Where possible, Sanlam’s interest is protected by obtaining acceptable security. Covenants are also stipulated in the loan agreements, specifying actions that are agreed to. A credit administration and reporting department is in place to implement risk control measures and maintain ongoing review of the credit reports and conditions, to ensure overall compliance with the credit risk strategy and policy. In addition to the above measures, the portfolios are also managed in terms of the investment guidelines of the life insurance operations, which place limits in terms of the lowest credit quality that may be included in a portfolio, the average credit quality of instruments in a portfolio as well as limits on concentration risk. The Group is also exposed to credit risk in respect of its working capital assets. The following are some of the main credit risk management actions: Unacceptable concentrations of credit risk to groups of counterparties, business sectors and product types are

avoided by dealing with a variety of major banks and spreading debtors and loans among a number of major industries, customers and geographic areas;

Long-term insurance business debtors are secured by the underlying value of the unpaid policy benefits in terms of the policy contract;

General insurance premiums outstanding for more than 60 days are not accounted for in premiums, and an appropriate level of provision is maintained; and

Exposure to external financial institutions concerning deposits and similar transactions is monitored against approved limits.

The Group has considered the impact of changes in credit risk on the valuation of its liabilities. Credit risk changes will only have an impact in extreme situations and are accordingly not material for the 2009 and 2008 financial

2. CREDIT RISK – POLICYHOLDER SOLUTIONS & CAPITAL

Life insurance businesses exposed to risk via: Credit riskPolicyholder solutions yCapital portfolio y

105

106

107

3.5 The following table summarises the overall maturity profile of the policyholder business: 31 December 2009R million < 1 year 1-5 years > 5 years Open ended TotalInsurance contracts 4 234 16 848 53 336 46 187 120 605 Investment contracts 3 148 13 024 29 549 60 787 106 508 Total policy liabilities 7 382 29 872 82 885 106 974 227 113

Properties 6 9 26 11 382 11 423 Equities and similar securities 187 269 747 114 395 115 598 Public sector stocks and loans 3 067 3 235 33 060 2 505 41 867 Debentures, insurance policies, preference shares and other loans 9 567 8 825 6 361 873 25 627 Cash, deposits and similar securities 23 710 4 776 1 325 1 244 31 055 Deferred acquisition cost - - - 632 632 Long-term reinsurance assets 3 44 387 4 438 Net working capital 887 - - ( 414) 473 Derivative financial instruments - - - - - Total policyholder assets 37 427 17 158 41 906 130 621 227 113 31 December 2008R million < 1 year 1-5 years > 5 years Open ended TotalInsurance contracts 4 098 15 971 51 761 45 813 117 643 Investment contracts 3 985 12 007 24 213 52 730 92 935 Total policy liabilities 8 083 27 978 75 974 98 543 210 578

Properties 5 11 30 11 784 11 830 Equities and similar securities 111 283 666 96 381 97 441 Public sector stocks and loans 2 759 2 328 30 931 1 945 37 963 Debentures, insurance policies, preference shares and other loans 8 783 10 972 7 074 464 27 293 Cash, deposits and similar securities 27 229 4 051 973 1 521 33 774 Deferred acquisition cost - - - 615 615 Long-term reinsurance assets 6 41 363 - 410 Net working capital 1 519 - - ( 267) 1 252 Total policyholder assets 40 412 17 686 40 037 112 443 210 578 3.6 The life insurance businesses’ capital is not subject to excessive levels of liquidity risk. The publicly issued unsecured bonds issued by Sanlam Life Insurance Limited are managed on a corporate level (refer to page 123 for more information).

108

Life insurance businesses exposed to risk via: PersistencyOther insurance

risksPolicyholder solutions

Linked and market-relatedSmoothed-bonus business:

Stable bonusReversionary bonusParticipating annuities

Non-participating annuities XOther non-participating liabilities

Guarantee plans XOther

Capital portfolio X X

Insurance risk

Insurance risk arises from the writing of non-participating annuity and other non-participating life business, as these products expose the Group to risk if actual experience differs from that which is assumed. The Group is however also exposed to persistency risk in respect of other policyholder solutions and insurance risk in respect of universal life solutions. Persistency risk Distribution models are used by the Group to identify high-risk clients. Client relationship management programmes are aimed at managing client expectations and relationships to reduce lapse, surrender and paid-up rates. The design of insurance products excludes material lapse, surrender and paid-up value guarantees, subject to regulatory constraints, to limit financial loss at surrender. Persistency experience is monitored to ensure that negative experience is timeously identified and corrective action taken. The Group’s reserving policy is based on actual experience, adjusted for expected future changes in experience, to ensure that adequate provision is made for lapses, surrenders and paid-up policies. Other insurance risk Underwriting risk: The Group manages underwriting risk through:

Its product development process and underwriting policy to prevent anti-selection and ensure appropriate premium rates (loadings) for substandard risks;

Adequate reinsurance arrangements to limit exposure per individual and manage concentration of risks; Claims handling policy; and Adequate pricing and reserving.

Quarterly actuarial valuations and the Group’s regular profit reporting process assist in the timely identification of experience variances. The following policies and practices are used by the Group as part of its underwriting strategy to mitigate underwriting risk: All long-term insurance product additions and alterations are required to pass through the approval framework

that forms part of the life insurance business’s governance process. The statutory actuaries approve the policy conditions and premium rates of new and revised products;

Specific testing for HIV/Aids is carried out in all cases where the applications for risk cover exceed a set limit. Product pricing and reserving policies also include specific allowance for the risk of HIV/Aids;

Applications for risk cover are reviewed by experienced underwriters and evaluated against established standards. Retention limits are applied to limit the exposure per individual life;

Appropriate income replacement levels apply to disability insurance; The experience of reinsurers is used where necessary for the rating of substandard risks;

4. INSURANCE RISK

109

The risk premiums for Group risk business and some of the in-force individual risk business can be adjusted within 12 months should claims experience deteriorate to the extent that such an adjustment is considered necessary. Most of the individual new business is sold with a guarantee that risk premiums would not be increased for the first 5 to 15 years;

Risk profits are determined on a regular basis; and Regular investigations into mortality and morbidity experience are conducted to ensure that corrective action,

for example rerating of premiums, is taken where necessary. Expense risk: Expenses are managed through the Group’s budgeting process and continuous monitoring of actual versus budgeted expenses is conducted and reported on. Sensitivity to insurance risk: The table below illustrates the change in the present value of future after-tax profit for changes in insurance risk: Sensitivity to insurance risk R million

Expenses and persistency• Maintenance unit expenses (excluding investment expenses)

decrease by 10% 483• Discontinuance rates decrease by 10% 282

Insurance risk• Base mortality and morbidity rates decreased by 5% for life

assurance business 706• Base mortality and morbidity rates decreased by 5% for life

assurance annuity business (105)

Concentration risk: The Group writes a diverse mix of business, and continually monitors this risk and the opportunities for mitigating actions through reinsurance. The Group’s life insurance businesses are focused on different market segments, resulting in a mix of individual and institutional clients, as well as entry-level, middle market and high net worth clients. The Group’s operations in the entry-level market segment is not exposed to excessive concentration risk given the nature of business sold in this market, which comprises small value policies to a large number of policyholders. The main concentration risk is assumed by Sanlam Life, which serves the middle-income and high net worth market segments in South Africa and Namibia. The tables below provide an analysis of the exposure to the value of benefits insured in respect of non-participating life business as well as the annuity payable per policy in respect of non-participating annuities for the Group’s operations in the middle income and high net worth markets.

110

Non-participating annuity per annum per life insured

2009 2008 2009 2008 2009 2008

R'000 % % % %

0 - 20 206 875 208 102 48 48 48 48

20 - 40 15 752 15 712 18 19 18 19

40 - 60 4 876 4 754 10 10 10 10

60 - 80 2 147 2 090 6 6 6 6

80 - 100 1 107 1 047 4 4 4 4

>100 1 873 1 690 14 13 14 13

232 630 233 395 100 100 100 100

Before reinsurance After reinsuranceNumber of lives

Value of benefits insured: non-participating life business

Benefits insured per individual life 2009 2008 2009 2008 2009 2008

R'000 % % % %

0 - 500 1 283 244 1 435 434 29 34 32 37

500 - 1 000 160 861 159 932 20 20 21 21

1 000 - 5 000 120 085 107 427 39 36 39 35

5 000 - 8 000 5 304 4 219 6 5 5 4

>8 000 2 851 2 059 6 5 3 3

1 572 345 1 709 071 100 100 100 100

Before reinsurance After reinsuranceNumber of lives

The tables indicate that the Group’s exposure is spread over a large number of lives insured, thereby mitigating concentration risk. The geographical exposure of the Group’s life insurance operations is illustrated in the table below, based on the value of policy liabilities in each region. The majority of life insurance exposure is to the South African market. 2009 2008 R million R million South Africa 208 145 193 565 Africa 18 968 17 013 Total policy liabilities 227 113 210 578

111

112

Sanlam Personal Loans:

SPL Amount of arrear accounts as % of total outstanding balances

8.00%

9.00%

10.00%

11.00%

12.00%

13.00%

14.00%

Jan-

08

Feb-

08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

% o

f boo

k

Total Arrears %

Sanlam Home Loans:

SHL Amount of arrears balances as % of total outstanding balances

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Jan-

08

Feb-

08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

1 month in arrears 2 months in arrears 3+ months in arrears Legal book Total arrears and legal

113

The Group’s short-term insurance operations include Santam and MiWay, the direct financial services company launched during 2008. Given the immaterial contribution of MiWay to the Group’s earnings during 2009 and 2008, and the fact that similar risk management processes are followed by Santam and MiWay, this section is limited to information in respect of the Santam Group (Santam). Risk management framework Santam has an established enterprise risk management framework that is designed to identify, assess, measure and manage exposure to risk. Its primary objective is to protect the group from events that hinder the sustainable achievement of the group’s performance objectives, including failing to exploit opportunities. Regulatory impact on risk and risk assessments Santam’s short-term insurance operations are subject to regulatory requirements that prescribe the type, quality and concentrations of investments, and the level of assets to be maintained in local currency to meet insurance liabilities. These requirements help to maintain market risk at an acceptable level. Santam monitors specific risks on a regular basis through its risk monitoring framework. Business units are required to disclose to the Group risk function all material risks, along with information on likelihood and severity of risks, and the mitigating actions taken or planned. This enables Santam to assess its overall risk exposure and to develop a Group-wide risk map, identifying any concentration of risk that may exist, and to define which risks and what level of risk Santam is prepared to accept. The risk map is refreshed quarterly, and business units are required to escalate material changes intra-quarter. Market risk Market risk arises in business units due to fluctuations in both the value of liabilities and the value of investments held. At a Group level, it also arises in relation to the value of investment assets owned directly by the shareholders’ fund. Santam has established a policy on market risk which sets out the principles that businesses are expected to adopt in respect of management of the key market risks to which Santam is exposed. Santam monitors adherence to this market risk policy and regularly reviews how business units are managing these risks through the Santam Investment committee. For each of the major components of market risk, described in more detail below, Santam has put in place additional policies and procedures to set out how each risk should be managed and monitored, and the approach to setting an appropriate risk appetite. Price risk Santam is subject to price risk due to daily changes in the market values of its equity and debt securities portfolios. Santam is not exposed to commodity price risk. The objective is to earn competitive relative returns by investing in a diverse portfolio of high-quality, liquid securities. Portfolio characteristics are analysed regularly and equity price risk is actively managed through a variety of modelling methods. Holdings are diversified across industries, and concentrations in any one company or industry are limited by parameters established by management and statutory requirements. Short-term insurance liabilities are not directly sensitive to equity price risk. Long-term investment contract liabilities are sensitive to price risk of linked assets.

The Santam Board actively monitors equity assets owned directly by Santam, which include some material shareholdings in the strategic business partners. Concentrations of specific equity holdings, e.g. strategic holdings, are also monitored.

Short-term insurance

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Interest rate risk Interest rate risk arises primarily from investments in long-term debt and fixed income securities, which are exposed to fluctuations in interest rates. Exposure to interest rate risk is monitored through several measures that include scenario testing and stress testing using measures such as duration. Interest rate risk is also managed using derivative instruments, including futures, options and swaps, to provide a degree of hedging against unfavourable market movements in interest rates inherent in the assets backing technical liabilities. At 31 December 2009, Santam had an interest rate swap agreement to partially mitigate the effects of potential adverse interest rate movements on financial assets underlying the unsecured subordinated callable notes.

Short-term insurance liabilities are not directly sensitive to the level of market interest rates, as they are undiscounted and contractually non-interest-bearing.

Foreign currency risk Santam’s exposure to currency risk is mainly in respect of foreign investments made in line with the long-term strategy approved by the Board for seeking desirable international diversification of investments to expand its income stream. The company has investments in foreign subsidiaries whose net assets are exposed to currency translation risk, primarily to the British pound. In addition, the Southern African operations have foreign exchange exposure in respect of net monetary assets denominated in foreign currency, predominantly US dollar and the British pound.

Santam does not take cover on foreign currency balances, but evaluates the need for cover on transactions on a case by case basis.

The following assets and liabilities denominated in foreign currencies are included in the statement of financial position (including non-current assets classified as held for sale in 2009):

31 December 2009

R million Euro

United States

Dollar

British

Pound Total

Equities and similar securities - - - -

Debentures, insurance policies, public sector stocks and other loans - - - -

Cash, deposits and similar securities 1 347 77 425

Net other liabilities (7) (48) - (55)

Net working capital - 66 (149) (83)

Foreign currency exposure (6) 365 (72) 287

31 December 2008

Equities and similar securities - - - -

Debentures, insurance policies, public sector stocks and other loans - - - -

Cash, deposits and similar securities 3 479 72 554

Net other liabilities (12) (51) (6) (69)

Net working capital 1 20 (169) (148)

Foreign currency exposure (8) 448 (103) 337

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Derivatives risk Derivatives are primarily used for efficient investment management, risk hedging purposes or to structure specific products. Santam does not use derivative financial instruments for speculative purposes, but instead to manage financial risks and to preserve its capital base. Predetermined mandates control the use of derivative financial instruments. Over-the-counter derivative contracts are entered into only with approved counterparties, in accordance with Santam policies, effectively reducing the risk of credit loss. Santam applies strict requirements to the administration and valuation process it uses, and has a control framework that is consistent with market and industry practice for the activity that it has undertaken. Credit risk Key areas where the group is exposed to credit risk are:

• financial assets and cash and cash equivalents; • amounts due from insurance policyholders; • amounts due from insurance contract intermediaries; and • reinsurers’ share of insurance liabilities.

Santam determines counterparty credit quality by reference to ratings from independent ratings agencies such as Standard and Poor’s or, where such ratings are not available, by internal analysis. Santam seeks to avoid concentration of credit risk to groups of counterparties, to business sectors, product types and geographical segments.

The following table provides information regarding the aggregated credit risk exposure for financial assets with external credit ratings.

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31 December 2009:

31 December 2008:

The carrying amount of assets included in the statement of financial position represents the maximum credit exposure. Unrated receivables that are due from contract holders and intermediaries emanating from the Southern African business amounted to R1 326 million (2008: R1 336 million). Santam is protected by guarantees provided by the Intermediary Guarantee Facility for the non-payment of premiums collected by intermediaries to the value of R737 million (2008: R669 million).

R million

Credit rating Carrying value in Statement of

financial position AAA AA+ AA AA- A+ A A-

BBB Not

rated Debt securities – listed

933 29 448 359 215 372 - 25 15 2 396

Debt securities – unlisted

- - - 587 78 - - - 86 751

Receivables due from contract holders / intermediaries

12 - 24 - 14 - - 9 1 326 1 385

Reinsurance receivables

7 63 1 28 24 11 33 116 163 446

Other loans and receivables

23 - 17 16 7 5 - 16 347 431

Cash and other short-term interest-bearing instruments

2 351 91 1 877 1 170 306 38 - 14 86 5 933

R million

Credit rating Carrying value in Statement of

financial position AAA AA+ AA AA- A+ A A-

BBB Not

rated Debt securities – listed

861 175 588 304 153 - 51 - 13 2 145

Debt securities – unlisted

- - 140 299 - - - - 104 543

Receivables due from contract holders / intermediaries

31 5 11 21 - - - 17 1 336 1 421

Reinsurance receivables

10 41 4 215 14 19 21 166 188 678

Other loans and receivables

43 9 38 11 10 14 1 - 462 588

Cash and other short-term interest-bearing instruments

1 495 789 1 611 424 414 195 25 47 27 5 027

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The financial instruments, except amounts owed by reinsurers, do not represent a concentration of credit risk, as Santam deals with a variety of major banks and its accounts receivable are spread among a number of major companies, intermediary parties, clients and geographic areas.

Reinsurance credit exposures

Reinsurance is used to manage insurance risk. However, this does not discharge Santam’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, Santam remains liable for the payment to the policyholder. Santam has some exposure to concentration risk with individual reinsurers due to the nature of the reinsurance market and the restricted range of reinsurers that have acceptable credit ratings. The creditworthiness of reinsurers is considered annually by reviewing their financial strength prior to finalisation of any contract. Santam’s largest reinsurance counterparty is Munich Re. This exposure is monitored on a regular basis with the forecast to completion monitored for any shortfall in the claims history to verify that the contract is progressing as expected and that no further exposure for Santam will arise. BBB-rated reinsurance receivables of R93 million (2008: R166 million) relate to reinsurance brokers for the group. The reinsurance receivable balances, disclosed as not-rated on a group level, relate to cell owners (R78 million) and reinsurance brokers.

There were no material financial assets that would have been past due or impaired had the terms not been renegotiated. There is no concentration of credit risk with respect to loans and receivables, other than reinsurance debtors as Santam has a large number of dispersed debtors. Insurance risk Santam issues contracts that transfer insurance risk or financial risk or both. This section summarises these risks and the way Santam manages them. Terms and conditions of insurance contracts Engineering – Provides cover for risks relating to The possession, use or ownership of machinery or equipment, other than a motor vehicle, in the carrying on of a

business; The erection of buildings or other structures or the undertaking of other works; and The installation of machinery or equipment.

Guarantee – A contract whereby the insurer assumes an obligation to discharge the debts or other obligations of another person in the event of the failure of that person to do so. Liability – Provides cover for risks relating to the incurring of a liability other than relating to a risk covered more specifically under another insurance contract. Motor – Covers risks relating to the possession, use or ownership of a motor vehicle. This cover can include risks relating to vehicle accident, theft or damage to third-party property or legal liability arising from the possession, use or ownership of the insured vehicle. Accident and health – Provides cover for death, disability and certain health events. This excludes the benefits to the provider of health services, and is linked directly to the expenditure in respect of health services, and is linked directly to the expenditure in respect of health services. Property – Covers risks relating to the use, ownership, loss of or damage to movable or immovable property other than a risk covered more specifically under another insurance contract. Transportation – Covers risks relating to the possession, use or ownership of a vessel, aircraft or other craft or for the conveyance of persons or goods by air, space, land or water. It also covers risks relating to the storage, treatment or handling of goods that are conveyed.

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Crop – Provides indemnity for crops while still on the field against hail, drought and excessive rainfall. Cover ceases as soon as harvesting has taken place. Alternative risk transfer (ART) – The use of techniques, other than traditional insurance, that include at least an element of insurance risk, to provide entities with risk coverage or protection. Insurance risk in Santam arises from:

Fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations; Unexpected claims arising from a single source; Inaccurate pricing of risks when underwritten; Inadequate reinsurance protection or other risk transfer techniques; and Inadequate reserving.

The risks under any one insurance contract are the frequency with which the insured event occurs and the uncertainty of the amount of the resulting claims. For a portfolio of insurance contracts where the theory of probability is applied to pricing and reserving, the principal risks Santam face are that the actual claims and benefit payments exceed the premiums charged for the risks assumed and that the reserves set aside for policyholders’ liabilities, whether they are known or still to be reported, prove to be insufficient.

By the very nature of an insurance contract, this risk is random and therefore unpredictable. Changing risk parameters and unforeseen factors, such as patterns of crime, economic and geographical circumstances, may result in unexpectedly large claims. Insurance events are random and the actual number of claims and benefits will vary from year to year from the estimate established using statistical techniques.

Pricing

Santam bases its pricing policy on the theory of probability. Underwriting limits are set for underwriting managers and brokers to ensure that this policy is consistently applied. Santam also has the right to re-price and change the conditions for accepting risks on renewal. It also has the ability to impose deductibles and reject fraudulent claims. Through the use of extensive expertise, well-maintained data resources, selective underwriting practices and pricing techniques it is able to produce appropriate and competitive premium rates.

The net claims ratio for Santam (continuing activities only), which is important in monitoring insurance risk, has developed as follows over the past seven years:

Loss history 2009 2008 2007 2006 2005 2004 2003 Claims paid and provided %* 70.6 68.4 68.2 68.6 65.3 57 64.8 *Expressed as a percentage of net earned premiums Factors that aggravate insurance risk include a lack of risk diversification in terms of type and amount of risk, geographical location and the industries covered. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. Therefore a diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. Santam has developed its insurance underwriting strategy to diversify the type of insurance risks accepted, to achieve, within each of these categories, a sufficiently large population of risks to reduce the variability of the expected outcome. A specialised catastrophe reinsurance programme mitigates the risk arising from this.

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Claims development tables

The presentation of the claims development tables for Santam is based on the actual date of the event that caused the claim (accident year basis). The claims development tables, represent the development of actual claims paid.

Payment development

- Conventional short-term insurance claims - gross

Reporting year Total 2009 2008 2007 2006 2005 2004 & priorR million R million R million R million R million R million R million

Actual claims costs:- 2009 10,016 7,702 1,959 197 92 28 38 - 2008 8,996 7,181 1,547 156 47 65 - 2007 7,971 6,219 1,385 132 235 - 2006 6,988 - 5,521 1,062 405 - 2005 5,955 - - 4,711 1,244 - 2004 4,797 - - - 4,797 - 2003 5,076 - - - 5,076 - 2002 4,832 4,832

Cumulative payments to date 54,631 7,702 9,140 7,963 7,154 5,980 16,692

- Conventional short-term insurance claims - net

Reporting year Total 2009 2008 2007 2006 2005 2004 & priorR million R million R million R million R million R million R million

Actual claims costs:- 2009 8,805 6,928 1,651 131 41 19 35 - 2008 7,727 6,172 1,381 93 31 50 - 2007 6,672 - - 5,292 1,197 99 84 - 2006 6,020 - 4,924 909 187 - 2005 5,185 - - 4,223 962 - 2004 4,064 - - - 4,064 - 2003 4,194 - - - 4,194 - 2002 3,754 3,754

Cumulative payments to date 46,421 6,928 7,823 6,804 6,255 5,281 13,330

Claims paid in respect of

Claims paid in respect of

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Reporting development - Short-term insurance claims provision - gross

Reporting year Total 2009 2008 2007 2006 2005 2004 & priorR million R million R million R million R million R million R million

Provision raised:- 2009 4,288 2,617 712 401 281 174 103 - 2008 4,075 2,579 630 356 260 250 - 2007 3,774 - 2,804 405 202 363 - 2006 3,922 - - 2,929 375 618 - 2005 3,187 - - - 2,340 847 - 2004 2,436 - - - - 2,436 - 2003 2,303 - - - - 2,303 - 2002 1,747 - - - - 1,747

Cumulative provisions to date 25,732 2,617 3,291 3,835 3,971 3,351 8,667

- Short-term insurance claims provision - net

Reporting year Total 2009 2008 2007 2006 2005 2004 & priorR million R million R million R million R million R million R million

Provision raised:- 2009 2,952 1,861 435 280 200 103 73 - 2008 2,699 1,805 403 195 145 151 - 2007 2,444 - 1,807 268 134 235 - 2006 2,484 - - 1,916 214 354 - 2005 1,909 - - - 1,453 456 - 2004 1,056 - - - - 1,056 - 2003 1,104 - - - - 1,104 - 2002 768 - - - - 768

Cumulative provisions to date 15,416 1,861 2,240 2,490 2,579 2,049 4,197

Financial year during which claim occurred

Financial year during which claim occurred

Reserving

Claims are analysed separately for long-tail and short-tail claims. Short-tail claims can be estimated with greater reliability, and the Santam estimation processes reflect all the factors that influence the amount and timing of cash flows from these contracts. The shorter settlement period for these claims allow Santam to achieve a higher degree of certainty about the estimated cost of claims, and relatively lower levels of IBNR are held at year-end.

The longer time needed to assess the emergence of a long-tail claim makes the estimation process more uncertain for such claims. The uncertain nature of the costs of this type of claim causes greater uncertainty in the estimates, hence the higher level of IBNR. Where possible, Santam adopts multiple techniques to estimate the required level of reserving. This provides a greater understanding of the trends inherent in the experience being projected. The projections given by the various methodologies also assist in estimating the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year. At year-end, Santam believes that its liabilities for long-tail and short-tail claims are adequate.

In calculating the estimated cost of unpaid claims, Santam’s estimation methodology is based on standard statistical techniques. For claims that have been reported to Santam by the valuation date, expert assessors estimate the

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expected cost of final settlement. In addition to this, testing of the entire portfolio is done to determine whether or not these estimates are likely to be sufficient in aggregate or if an additional reserve amount is required.

For claims that have not been reported to Santam by the valuation date, the chain-ladder methodology as well as Bornhuetter-Ferguson techniques are used to determine the expected cost of these unreported claims.

A stochastic reserving process is performed and Santam holds its reserves for unpaid claims at at least the 75th percentile level of sufficiency.

Claim provisions for all classes of business are regularly reviewed and audited internally to make sure they are sufficient. These analyses draw on the expertise and experience of a wide range of specialists, such as actuaries, underwriting and accounting experts.

Accumulation risk Santam is exposed to accumulation risk in the form of geographical (large metropolitan) areas as well as class of business concentrations of risk. The risk appetite policy dictates how much capital the company is willing to put at risk in the pursuit of value. It is within this risk appetite framework that the reinsurance program has been selected to mitigate accumulation risk within its portfolio. Reinsurance Santam obtains third-party reinsurance cover to reduce risks from single events or accumulations of risk that could have a significant impact on the current year’s earnings or capital. This cover is placed on the local and international reinsurance market. Santam uses a number of modelling tools to monitor aggregation and to simulate catastrophe losses to measure the effectiveness of the reinsurance programme and the net exposure of Santam. The core components of the reinsurance programme comprise: Individual excess-of-loss cover for property, liability and engineering risks, which provides protection to limit

losses to R50 million per event, excluding reinstatement premiums due as a result of the claim against the cover; and

Catastrophe cover to the extent of 1,6% (2008: 1,8%) of the total exposure of the significant geographical areas, amounting to protection of up to R4 billion per event.

The Santam Board approves the reinsurance renewal process on an annual basis. The major portion of the reinsurance programme is placed with external reinsurers that have an international credit rating of no less than A- from Standard and Poor’s or AM Best.

Liquidity risk Liquidity risk is the risk that the business will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk arises when there is mismatching between the maturities of liabilities and assets.

Santam is exposed to daily calls on its available cash resources from claims. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The Santam Board sets limits on the minimum proportion of maturing funds available to meet such calls.

Santam actively manages its cash resources, split between short-term and long-term to ensure sufficient cash is at hand to settle insurance liabilities, based on monthly float projections. Santam has sufficient cash resources to cover its obligations. R6 billion (2008: R7 billion) of insurance liabilities are payable within one year, with the remaining balance predominantly payable within two to five years. Cell owners’ interest liabilities are predominantly payable within two to five years.

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The Corporate Cluster is responsible for areas of financial risk management that are not allocated to individual businesses. Term finance liabilities in respect of margin business are matched by appropriate assets with the same maturity profile. These assets are managed to ensure that sufficient liquid investments are available to match the cash flow profile of the term finance liabilities. The Group has significant liquid resources and substantial unutilised banking facilities to cover any mismatch position. The maturity profile of term finance liabilities in respect of the margin business and the assets held to match this term finance is provided in the following table:

R million <1 year 1-5 years >5 years Open ended Total 31 December 2009 Term finance liabilities (1 213) (1 051) - - (2 264)

Interest-bearing liabilities held in respect of margin business

(1 161) (1 051) - - (2 212)

Add: Preference shares issued to subsidiaries and eliminated on consolidation

(52) - - - (52)

Assets held in respect of term finance 1 458 34 365 407 2 264

Equities and similar securities - - - 407 407Public sector stocks and loans 3 5 - - 8Debentures, insurance policies, preference shares and other loans

901 19 365 - 1 285

Cash, deposits and similar securities 610 10 - - 620Working capital assets and liabilities (56) - - - (56)

Net term finance liquidity position 245 ( 1 017) 365 407 -

R million <1 year 1-5 years >5 years Open ended Total 31 December 2008 Term finance liabilities (1 510) (976) (60) - (2 546)

Interest-bearing liabilities held in respect of margin business

(1 341) (925) (60) - (2 326)

Add: Preference shares issued to subsidiaries and eliminated on consolidation

(169) (51) - - (220)

Assets held in respect of term finance 781 908 410 447 2 546

Equities and similar securities - - - 447 447Public sector stocks and loans - - - - -Debentures, insurance policies, preference shares and other loans 635 911 410 -

1 956

Cash, deposits and similar securities 252 (3) - - 249Working capital assets and liabilities (106) - - - (106)

Net term finance liquidity position (729) (68) 350 447 -

Corporate

1. Liquidity risk

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CURRENCY RISK Company

31 December 2009 United States British African Japanese OtherR million Euro Dollar Pound Assets Yen Total

Equities and similar securities 212 1 053 112 64 62 210 1 713 Public sector stocks and loans 25 14 4 4 5 7 59 Debentures, insurance policies, preference shares and other loans - - - - - - - Cash, deposits and similar securities - 417 6 - - - 423 Net working capital assets - ( 2) - - - - ( 2) Capital portfolio 237 1 482 122 68 67 217 2 193 Exchange rates (Rand):Closing rate 10.56 7.36 11.89 1.13 0.08Average rate 11.62 8.31 13.04 1.20 0.09

31 December 2008 United States British African Japanese OtherR million Euro Dollar Pound Assets Yen Total

Equities and similar securities 191 858 71 182 81 107 1 490 Public sector stocks and loans 76 76 12 20 17 201 Debentures, insurance policies, preference shares and other loans - - - - - - - Cash, deposits and similar securities - 164 8 2 - - 174 Net working capital assets - ( 38) - - - - ( 38) Capital portfolio 267 1 060 91 184 101 124 1 827 Exchange rates (Rand):Closing rate 12.85 9.24 13.33 1.26 0.10Average rate 11.98 8.13 15.07 1.22 0.08

Sensitivities Changes in investment return assumptions have an impact on the return on the company’s capital, as changes in the market value of the capital portfolio’s investments will have a commensurate impact on earnings for the year, and the future profitability of the life insurance operations as reflected in the impact on the value of in-force business (the present value of future after-tax profit to be earned from covered business). If investment return (and inflation) assumptions were to decrease by 1%, coupled with a 1% decrease in risk discount rates, and with bonus rates changing commensurately, the impact on the present value of future after-tax profits would be an increase of R320 million (2008: increase of R366 million). The impact on current year profit of the above scenarios is limited, due to the company’s policy of closely matching assets and liabilities together with the fact that any mismatch profits and losses in respect of non-participating life business are absorbed by the asset mismatch reserve, while this reserve has a positive balance.

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CREDIT RISK CompanyCredit risk concentration by credit rating:R million

AAA AA+ AA AA- A+ A A- BBB OtherNot

rated * Total31 December 2009Assets backing policy liabilitiesPublic sector stocks and loans 30 069 141 793 181 141 - 146 2 287 61 2 961 36 780Debentures, insurance policies, preference shares and other loans

2 014 2 308 5 440 2 475 1 670 666 771 2 019 18 4 573 21 954

Cash, deposits and similar securities 4 014 572 3 726 5 593 192 824 54 654 1 664 7 277 24 570Net working capital assets - - - - - - - - - 704 704

36 097 3 021 9 959 8 249 2 003 1 490 971 4 960 1 743 15 515 84 008

Capital portfolioPublic sector stocks and loans 953 - 64 25 31 - - - 13 - 1 086Debentures, insurance policies, preference shares and other loans

973 432 1 298 692 573 266 171 313 167 854 5 739

Cash, deposits and similar securities 3 385 117 724 998 86 162 77 257 404 292 6 502Net working capital assets (3 741) (3 741)

5 311 549 2 086 1 715 690 428 248 570 584 (2 595) 9 586

AAA AA+ AA AA- A+ A A- BBB OtherNot

rated * Total31 December 2008Assets backing policy liabilitiesPublic sector stocks and loans 30 137 226 - 163 4 30 18 12 5 2 556 33 151Debentures, insurance policies, preference shares and other loans

4 720 3 397 3 410 2 481 1 057 768 591 792 2 386 3 776 23 378

Cash, deposits and similar securities 5 390 1 940 7 299 2 068 2 473 668 114 9 1 091 6 425 27 477Net working capital assets - - - - - - - - - 3 561 3 561

40 247 5 563 10 709 4 712 3 534 1 466 723 813 3 482 16 318 87 567

Capital portfolioPublic sector stocks and loans 1 402 - - - - - - - - - 1 402Debentures, insurance policies, preference shares and other loans

1 032 380 857 791 924 203 19 48 322 771 5 347

Cash, deposits and similar securities 2 126 74 388 200 185 86 96 - 43 222 3 420Net working capital assets - - - - - - - - - (3 437) (3 437)

4 560 454 1 245 991 1 109 289 115 48 365 (2 444) 6 732

* Not rated externally or by using internationally recognised credit rating techniques.

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LIQUIDITY RISK – POLICYHOLDER SOLUTIONS The following table summarises the overall maturity profile of the policyholder business: Company31 December 2009R million < 1 year 1-5 years > 5 years Open ended TotalInsurance contracts 3 711 15 531 49 131 42 301 110 674 Investment contracts 2 394 8 304 28 318 50 687 89 703 Total policy liabilities 6 105 23 835 77 449 92 988 200 377

Properties - - - 12 422 12 422 Equities and similar securities - - - 87 936 87 936 Investments in subsidiaries, joint ventures and associates - - - 15 476 15 476 Public sector stocks and loans 3 154 2 820 30 627 179 36 780 Debentures, insurance policies, preference shares and other loans 8 997 6 275 5 743 939 21 954 Cash, deposits and similar securities 21 566 1 991 1 013 - 24 570 Deferred acquisition cost - - - 555 555 Long-term reinsurance assets 2 42 351 - 395 Net working capital and deferred taxation 704 - - ( 415) 289 Total policyholder assets 34 423 11 128 37 734 117 092 200 377

31 December 2008R million < 1 year 1-5 years > 5 years Open ended TotalInsurance contracts 3 602 14 690 47 725 42 401 108 418 Investment contracts 2 573 8 053 23 565 43 625 77 816 Total policy liabilities 6 175 22 743 71 290 86 026 186 234

Properties - - - 10 854 10 854 Equities and similar securities - - - 70 448 70 448 Investment in subsidiaries, joint ventures and associates - - - 16 706 16 706 Public sector stocks and loans 2 610 1 762 28 634 145 33 151 Debentures, insurance policies, preference shares and other loans 8 272 8 039 6 749 318 23 378 Cash, deposits and similar securities 24 734 2 020 723 - 27 477 Deferred acquisition cost - - - 555 555 Long-term reinsurance assets 2 39 332 - 373 Net working capital and deferred taxation 3 561 - - ( 269) 3 292 Total policyholder assets 39 179 11 860 36 438 98 757 186 234

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LIQUIDITY RISK – CAPITAL Company: R million <1 year 1-5 years >5 years Total 31 December 2009 Term finance liabilities (44) (22) (1 894) ( 1 960) Assets held in respect of term finance (174) 1 164 998 1 988

Equities and similar securities 9 16 - 25 Public sector stocks and loans (6) 114 235 343 Debentures, insurance policies, preference shares and other loans

39 692 763 1 494

Cash, deposits and similar securities (184) 342 - 158Working capital assets and liabilities (32) - - (32)

Net term finance liquidity position (218) 1 142 (896) 28 31 December 2008 Term finance liabilities (7) (25) (2 011) (2 043) Assets held in respect of term finance (19) 813 1 257 2 051

Public sector stocks and loans (1) - 460 459 Debentures, insurance policies, preference shares and other loans

142 498 710 1350

Cash, deposits and similar securities (123) 315 87 279Working capital assets and liabilities (37) - - (37)

Net term finance liquidity position (26) 788 (754) 8

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.

INSURANCE RISK 31 December 2009 Net VIF ∆ Sensitivity to insurance risk R million R million Expenses and persistency

Maintenance unit expenses (excluding investment expenses) decrease by 10% 12 409 373

Discontinuance rates decrease by 10% 12 181 145 Insurance risk

Base mortality and morbidity rates decreased by 5% for life assurance business 12 576 540

Base mortality and morbidity rates decreased by 5% for life assurance annuity business 11 988 (48)

31 December 2008 Net VIF ∆ Sensitivity to insurance risk R million R million Expenses and persistency

Maintenance unit expenses (excluding investment expenses) decrease by 10% 11,250 357

Discontinuance rates decrease by 10% 11,002 109 Insurance risk

Base mortality and morbidity rates decreased by 5% for life assurance business 11,356 463

Base mortality and morbidity rates decreased by 5% for life assurance annuity business 10,794 (99)

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CONCENTRATION RISK

CompanyValue of benefits insured: non-participating life business

Benefits insured per individual life

2009 2008 2009 2008 2009 2008

R'000 % % % %

0 - 500 1 071 362 1 208 688 29 33 32 37

500 - 1 000 158 486 154 318 20 21 20 21

1 000 - 5 000 119 125 103 371 39 36 39 35

5 000 - 8 000 5 299 4 121 6 5 5 4

>8 000 2 845 2 040 6 5 4 3

1 357 117 1 472 538 100 100 100 100

Before reinsurance After reinsuranceNumber of lives

Non-participating annuity payable per annum per life insured

2009 2008 2009 2008 2009 2008

R'000 % % % %

0 - 20 200 477 201 881 47 48 47 48

20 - 40 15 211 15 171 18 19 18 19

40 - 60 4 709 4 590 10 10 10 10

60 - 80 2 067 2 011 6 6 6 6

80 - 100 1 074 1 012 4 4 4 4

> 100 1 791 1 616 15 13 15 13

225 329 226 281 100 100 100 100

Before reinsurance After reinsuranceNumber of lives

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The tables indicate that the Company’s exposure is spread over a large number of lives insured, thereby mitigating concentration risk. The geographical exposure of the Company’s life insurance operations is illustrated in the table below, based on the value of policy liabilities in each region. The majority of life insurance exposure is to the South African market. Company 2009 2008 R million R million South Africa 200 377 186 234 Total policy liabilities 200 377 186 234

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EMPLOYMENT EQUITY REPORT 1. WORKFORCE PROFILE

1.1 Please report the total number of employees (including employees with disabilities) in each of the following occupational levels: Note: A=Africans, C=Coloureds, I=Indians and W=Whites

Occupational Levels

Male

Female

Foreign Nationals

Total A C I W A C I W Male Female

Top management 4 2 0 23 2 1 0 4 0 0 36

Senior management 25 29 24 358 7 7 11 98 2 0 561

Professionally qualified and experienced specialists and mid-management 74 64 49 342 27 46 26 307 7 1 943 Skilled technical and academically qualified workers, junior management, supervisors, foremen, and superintendents 357 240 124 1117 226 265 109 1197 7 2 3644 Semi-skilled and discretionary decision making 882 251 21 62 1441 648 85 671 2 0 4063 Unskilled and defined decision making 39 29 1 6 113 66 8 25 0 0 287

TOTAL PERMANENT 1381 615 219 1908 1816 1033 239 2302 18 3 9534

Temporary employees 19 15 2 20 48 42 5 44 0 0 195

GRAND TOTAL 1400 630 221 1928 1864 1075 244 2346 18 3 9729

3 of 12 EEA2

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1.2 Please report the total number of employees with disabilities only in each of the following occupational levels:

Note: A=Africans, C=Coloureds, I=Indians and W=Whites

Occupational Levels

Male

Female

Foreign Nationals

Total A C I W A C I W Male Female

Top management 0 0 0 2 0 0 0 0 0 0 2

Senior management 0 0 0 3 0 0 0 0 0 0 3

Professionally qualified and experienced specialists and mid-management 2 0 0 3 0 1 0 4 0 0 10

Skilled technical and academically qualified workers, junior management, supervisors, foremen, and superintendents 1 1 0 1 0 2 0 7 0 0 12 Semi-skilled and discretionary decision making 0 0 0 0 0 0 0 0 0 0 0 Unskilled and defined decision making 0 0 0 0 0 0 0 0 0 0 0

TOTAL PERMANENT 3 1 0 9 0 3 0 11 0 0 27

Temporary employees 1 0 0 0 0 0 0 0 0 0 1

GRAND TOTAL 4 1 0 9 0 3 0 11 0 0 28

134