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Sanlam Group - Interim results for the six months ended 30 June 2006
SANLAM GROUP
REGISTERED NAME: SANLAM LIMITED
(REGISTRATION NUMBER 1959/001562/06)
JSE SHARE CODE: SLM
ISIN number: ZAE000070660
NSX SHARE CODE: SLA
Interim results for the six months ended 30 June 2006
Contents
Overview
Key features 2
Salient results 3
Executive review 4
Comments on the interim results 6
Financial statements
Accounting policies and actuarial basis 13
External audit review 14
Group balance sheet 15
Group income statement 16
Group statement of changes in equity 17
Group cash flow statement 18
Notes to the financial statements 19
Shareholders" fund information 22
Group embedded value results 38
Administration 46
Sanlam Group Interim Results June 2006
Key features
Earnings
*Core earnings per share up 18%
*Headline earnings per share up 35%
Business volumes
*Total new business volumes up 47% to R43,8 billion
*Net fund inflows of R11,8 billion
Embedded Value
*Embedded value per share of 1 750 cents
*Annualised return on embedded value per share of 26,6%
*Value of new life insurance business of R172 million
*Life new business margin of 1,8%
Capital management
*3,5% of issued shares bought back since year-end for R1,3 billion
*Subordinated debt issue of R2 billion in August 2006
SALIENT RESULTS
for the 6 months ended 30 June 2006 2005
2006
SANLAM LIMITED GROUP
Earnings:
Net result from financial R million 1 165 1 006 16%
services
Core earnings (1) R million 1 582 1 556 2%
Headline earnings (2) R million 3 130 2 681 17%
Net result from financial cents 51,5 38,5 34%
services per share
Core earnings per share (1) cents 69,9 59,4 18%
Headline earnings per share (2) cents 138,4 102,5 35%
Group administration cost ratio % 25,7 28,3
(3)
Group operating margin (4) % 18,7 20,1
Business volumes:
New business volumes R million 43 758 29 834 47%
Net fund flows R million 11 822 495
Value of new life insurance
business
Value of new life insurance R million 172 114 51%
business
Life insurance PVNBP (5) R million 9 485 7 175 32%
Life new business margin (6) % 1,8 1,6
VALUE OF NEW NON-LIFE LINKED AND R million 28 -
LOAN BUSINESS
EMBEDDED VALUE:
Embedded value (7) R million 40 218 38 204 5%
Embedded value per share (7) cents 1 750 1 615 8%
Annualised growth from life % 26,0 16,6
insurance business
Annualised return on embedded % 26,6 23,2
value per share (8)
SANLAM LIFE INSURANCE LIMITED
Shareholders" fund (7) R million 28 346 27 314
Capital adequacy requirements R million 5 725 5 375
(CAR) (7)
CAR covered by prudential capital times 3,4 3,9
(7)
Notes
1. Core earnings = net result from financial services and net
investment income (including dividends received from associates).
2. Headline earnings = core earnings, net investment surpluses,
secondary tax on companies and equity-accounted headline earnings less
dividends received from associates.
3. Administration costs as a percentage of financial services income
earned by the shareholders" fund less sales remuneration.
4. Result from financial services as a percentage of financial services
income earned by the shareholders" fund less sales remuneration.
5. PVNBP = present value of new business premiums and is equal to the
present value of new recurring premiums plus single premiums.
6. Life new business margin = value of new business as a percentage of
life insurance PVNBP.
7. Comparative figures are as at 31 December 2005.
8. Growth in embedded value per share (with dividends paid, capital
movements and cost of treasury shares acquired reversed) as a percentage
of embedded value per share at the beginning of the period.
EXECUTIVE REVIEW
Overview
The Sanlam group delivered strong overall results for the first half of
2006, providing testimony to the success of our strategy of product
diversification, enhanced distribution and capital management. Headline
earnings for the six months of R3 130 million improved by 17% on the
first half of 2005. The benefit of the share buy-back programme is
reflected in the increase of 35% in headline earnings per share for the
six months. The weighted average number of shares in issue during the
reporting period was 13,5% lower than for the comparable period in 2005.
The strong new business performance in the second half of 2005 continued
across the Group during the first half of 2006. This followed upon a
relatively disappointing first half performance in 2005. Total new
business volumes amounted to R43,8 billion, a 47% increase on the first
six months of 2005. The 42% improvement in new life insurance business
(23% excluding the contribution made by new acquisitions) was
particularly pleasing. The contribution made by the Developing Markets"
life businesses reflects the value added by the recent acquisitions of
African Life and the controlling interest in Channel Life.
The Group"s operating performance for the six months was satisfactory
with the net result from financial services increasing by 16% compared to
the same period in 2005. A sterling performance by the Investment
Management businesses was to an extent offset by the anticipated decline
in short-term insurance and employee benefits underwriting margins. The
disposal of the Group"s interest in Absa during July 2005, combined with
the application of excess capital over the past 12 months, contributed to
a 24% reduction in net investment income on the reduced investment asset
base. Core earnings are consequently only marginally up on 2005, but
improved by 18% on a per share basis.
The value of new life insurance business of R172 million is 51% up on
2005. This is supplemented by the value of Sanlam Personal Finance"s new
non-life business of R28 million. Sanlam"s embedded value amounted to
R17,50 per share at the end of June 2006. The annualised growth in
embedded value per share of 26,6% for the first half of 2006 once again
exceeded the Group"s target rate by a substantial margin.
This performance has been aided by the strong equity market in the
reporting period, as evidenced by the 17% growth in the JSE All Share
Index for the six months to 30 June 2006.
Delivering on strategy
The Sanlam Board and management remain focussed on the strategy to build
a balanced, robust and diversified organisation within the financial
services environment. Major progress has been made to integrate the
newly acquired businesses within the Sanlam group, while efforts
continued to further build on the initiatives that form part of Sanlam"s
journey towards sustained growth and profitability.
The Group"s distribution capacity and reach were extended by the
deployment of excess capital into local and international growth
opportunities. The acquisition of African Life and Channel Life
established Sanlam as an important player in the entry-level market. The
joint venture agreement with Shriram Life Insurance in India as well as
the acquisition of equity stakes in the UK-based intermediary
distribution companies Intrinsic and recently Nucleus, provide further
international diversification and growth opportunities. The assimilation
of these businesses into the Sanlam group is progressing well and we are
confident that they will contribute to Sanlam"s growth strategy.
In a further significant step towards establishing Sanlam as a well-
diversified financial services group, the Sanlam Board decided to
commence with a formal process that may lead to Sanlam extending an offer
to acquire all of the Santam Limited shares not already owned by the
Group. Sanlam and Santam issued a joint cautionary announcement in this
regard on 23 August 2006. The process is ongoing and shareholders will be
informed of progress made.
In line with our strategic objective to re-enter the health management
market, Sanlam announced in December 2005 that we have reached an
agreement to acquire a majority interest in the Resolution Health Group,
subject to the fulfilment of certain suspensive conditions. A key
condition, the ratification of the provisional accreditation of
Resolution Health Managed Care by the Council of Medical Schemes remained
unfulfilled as of 31 August 2006 and Sanlam consequently decided to
terminate the proposed transaction. Sanlam will remain a participating
employer of Resolution Health Medical Scheme. We remain committed to
finding a quality and affordable health management solution as part of
the Group"s comprehensive product offering.
It is Sanlam"s stated objective to provide our clients with a competitive
value proposition. This requires continuous product innovation and the
need to maintain cost efficiencies across the Group. Ongoing cost
awareness resulted in a reduction in the Group"s administration cost
ratio from 28,3% for the first six months of 2005 to 25,7% in 2006.
Satisfactory progress has been made towards meeting the transformation
targets of the Financial Sector Charter. The Sanlam Broad-based Employee
Share Plan was launched during 2006 as part of the investment in our
human capital. In terms of the Share Plan some 1,8 million Sanlam shares
are to be transferred to more than 5 000 Group employees that do not
participate in other Group share schemes, ensuring that all employees
share in the future growth of the Group.
We have taken significant strides in transforming Sanlam from a mutual
insurer into a world-class financial services group. While this process
will continue to evolve, the benefits of the change so far are already
evident in our ability to deliver strong results in a competitive
environment.
Capital management
The effective management of Sanlam"s capital base, as a key component of
our drive to maximise return on embedded value, is a primary focus area
of the Group. The disposal of the shareholder fund"s interest in Absa
during 2005 provided the opportunity to redeploy surplus capital
identified within the Group. The share buy-back programme implemented
during 2005 and the acquisition of African Life and Channel Life were the
first steps to extract value for Sanlam shareholders through transforming
the Group"s capital utilisation.
The Group continued to buy back shares in the open market during the
first half of 2006. A total of 83,4 million shares were acquired for
some R1,3 billion. The JSE Limited approved the cancellation of 70
million of the acquired shares during June 2006. The aggregate buy-back
since the start of 2005 amounts to 442 million shares at a total cost of
R5,7 billion (R12.97 per share), which reduced Sanlam"s issued share
capital by 16%. The benefits of the share buy-back programme are
reflected in both the positive impact on earnings per share and the
accretion in embedded value per share.
The R2 billion subordinated debt issue by Sanlam Life Insurance Limited
in August 2006 marked another important milestone in optimising the
Group"s capital base. The introduction of long-term debt into Sanlam
Life"s capital structure and the concurrent investment of the proceeds in
bonds and other liquid assets, lead to a reduction in volatility in its
regulatory capital base and consequently a lower overall capital
requirement.
Looking ahead
We will continue to build on our achievements and focus on our four key
strategies of growth, effective capital utilisation, cost efficiencies
and transformation. We will pursue the acquisition, on acceptable and
value enhancing terms, of the minority shareholders" interest in Santam,
while operational focus will remain on the settling down and integration
of the newly acquired Group businesses.
Market conditions, including risk-underwriting conditions, will impact on
our ability to repeat the performance of the first six months during the
second half of the year. Investment markets in particular have a
significant impact on the Group"s results.
COMMENTS ON THE INTERIM RESULTS
Introduction
The Sanlam group interim results for the six months to 30 June 2006 are
presented based on and in compliance with International Financial
Reporting Standards (IFRS). The Group"s external auditors, Ernst &
Young, have reviewed the results for the six months ended 30 June 2006.
The comparative 30 June 2005 financial information has not been audited
or reviewed.
The business environment during the first half of 2006 was characterised
by volatile equity and currency markets, an increasing interest rate
environment as well as contracting underwriting margins in the short-term
insurance industry. Despite these challenges the Group continued to
deliver strong results.
Earnings
Shareholders" fund summarised income statement for the 6 months
ended 30 June
R million 2006 2005
Net result from financial 1 165 1 006 16%
services
Net investment income 417 550 -24%
CORE EARNINGS 1 582 1 556 2%
Net broad-based employee share (19) -
plan
Net equity-accounted headline 56 421
earnings
Investment surpluses (excluding 1 246 700
fund transfers)
Amortisation of value of business (21) -
acquired
Net Secondary Tax on Companies (99) (87) -14%
(STC)
Earnings before fund transfers 2 745 2 590 6%
Fund transfers 385 91
HEADLINE EARNINGS 3 130 2 681 17%
Net other equity-accounted - (8)
earnings
Profit/(loss) on disposal of 98 (4)
associates and subsidiaries
Impairment of investments and (8) 6
goodwill
Attributable earnings 3 220 2 675 20%
Net result from financial 1 165 1 006 16%
services
Net investment return 2 055 1 669
Attributable earnings 3 220 2 675 20%
Core earnings
Core earnings, a measure of the Group"s `normalised" earnings, of R1 582
million for the six months, are marginally up on the corresponding period
in 2005. Core earnings comprise the net result from financial services
(net operating profit) and net investment income earned on the
shareholders" fund and exclude investment surpluses and abnormal non-
recurring items that cause volatility in headline earnings. Core earnings
also account for dividends received from non-strategic associated
companies but do not include the equity-accounted retained earnings. The
marginal increase in core earnings is the result of a 16% increase in net
operating profit for the period being offset by a 24% decline in net
investment income over the same period. On a per share basis, core
earnings increased by 18%, reflecting the 14% reduction in the weighted
average number of issued shares following the share buy-back scheme in
2005 and continued market buy-backs during 2006.
All Group businesses, apart from Santam and Sanlam Employee Benefits,
contributed to the improvement in net operating profit. Gross operating
profit of R1 768 million for the first six months of 2006 is 12% higher
than the comparative period in 2005. An exceptional performance by
Sanlam"s Investment Management businesses was in part offset by the
anticipated reduction in the Santam underwriting performance as well as a
lower Sanlam Employee Benefits contribution. Net of taxation and minority
interests, operating profit is 16% higher than 2005. The minority
shareholders" interest in operating profit after tax reduced as a result
of the lower Santam contribution.
Result from financial services for the 6 months ended 30 June
R million 2006 2005
Sanlam Personal Finance 773 699 11%
Sanlam Employee Benefits 69 92 -25%
Developing Markets 156 (14)
Investment Management 482 269 79%
Sanlam Capital Markets 53 51 4%
Short-term insurance 304 532 -43%
Independent Financial Services 27 26 4%
Corporate expenses (96) (82) -17%
Gross result from financial services 1 768 1 573 12%
Taxation (411) (364) -13%
Minority shareholders" interest (192) (203) 5%
Net result from financial services 1 165 1 006 16%
*Sanlam Personal Finance recorded an 11% improvement to R773 million in
operating profit for the six months to June 2006. The results were
positively impacted by favourable market-related income as well as an
increase in fund value linked fees, which were supported by the buoyant
equity markets during the period.
*Sanlam Employee Benefits" operating profit was negatively impacted by
reduced underwriting margins as well as new business strain from the
improved levels of new business. Underwriting margins returned to more
normalised levels after the favourable experience of the past few years.
*The maiden contribution of the new Developing Markets businesses is in
line with expectations. The 2005 comparative figure includes Safrican
and Sanlam Group Solutions, which were previously reported as part of
Sanlam Personal Finance.
*Most of the Investment Management businesses benefited from the strong
equity markets, which supported operating results for the six months.
Performance fees earned contributed largely to the 79% increase in
performance to R482 million. The softer Rand exchange rate also supported
the earnings of the international operations. The African operations,
which include Botswana Insurance Fund Management (the Botswana based
investment management business acquired as part of the African Life
Assurance group), recorded an increase of 64% in operating profit. The
international businesses more than doubled their profit contribution.
*The first six months of 2006 has been challenging for Sanlam Capital
Markets due to the high levels of market volatility experienced during
this period. Despite the difficult business environment, the business
improved on its 2005 performance and achieved its target return on equity
of 25%.
*Santam"s operating profit for the six months is 43% lower than in 2005
due to a higher claims experience. The deterioration in the short-term
insurance underwriting cycle was expected as the exceptional margins of
the past few years were not sustainable over the long-term. An average
underwriting margin of 3,6% was achieved for the first six months of 2006
compared to 9,3% for the comparable period in 2005.
*Independent Financial Services delivered a marginally improved
contribution for the six months despite the reduction in Sanlam"s
interest in the Punter Southall Group (formerly Sanlam Financial Services
UK) from 61% to 45%.
*The Group"s focus on reducing administration costs resulted in a decline
in the administration cost ratio from 28,3% for the first half of 2005 to
25,7% in 2006.
Net investment income consists of dividends, interest and rental income
earned on the shareholders" fund, as well as the margin earned on the
Group"s preference share portfolio. As part of the Group"s capital
management strategy some R7 billion of excess capital was utilised for
the share buy-back programme and acquisitions during the latter part of
2005. A further R1,3 billion was used to buy back shares in the market
during the first six months of 2006. The resulting lower investment asset
base, combined with the impact of the R249 million extraordinary Absa
dividend received in June 2005, contributed to a 24% decline in net
investment income. Excluding the 2005 Absa dividend, net investment
income increased by 39%.
Headline earnings
Headline earnings of R3 130 million are 17% up on the first six months of
2005, benefiting from the relatively stronger equity markets during the
period. The reduction in the weighted average number of issued shares
resulted in a 35% increase in Headline earnings per share.
*Equity-accounted earnings in 2005 included Absa"s earnings for the
period prior to the sale of Sanlam"s stake in Absa in July 2005 as well
as the Group"s 20% interest in African Life"s earnings from March to
December 2005 in respect of the initial block of shares acquired. These
are no longer applicable and the 2006 equity-accounted earnings only
include the proportionate earnings in respect of sundry associated
investments held by Santam, Sanlam Life and Sanlam Properties.
*Headline earnings include the R19 million once-off cost recognised in
terms of IFRS 2 Share-Based Payment in respect of the Broad-based
Employee Share Plan introduced by the Group during 2006. The IFRS 2 cost
represents the fair value of the Sanlam shares transferred to Sanlam
employees in terms of the scheme.
*Gross market value changes of R1 677 million (R1 246 million after tax
and minorities) compared to R691 million (R700 million after tax and
minorities) in 2005 reflect the stronger market performance for the six
months.
*Fund transfers for the six months are R294 million higher than the same
period in 2005. In terms of IFRS the policyholders" fund"s investments
in Sanlam shares and Group subsidiaries may not be accounted for as
investments at fair value, but must be deducted from equity and accounted
for at net asset value respectively. The valuation of the related policy
liabilities however includes the fair value of these investments,
resulting in a mismatch between policy liabilities and policyholder
investments. The movement in this mismatch is recognised as a fund
transfer in the income statement. Excluding fund transfers, Headline
earnings increased by 6%.
Attributable earnings increased by 20% to R3 220 million. The profit on
disposal of subsidiaries and associated companies during 2006 relates
mainly to the reduction of the Group"s interest in Punter Southall to 45%
and the disposal of an associated company by African Life.
Business volumes
New business flows
Total new business inflows for the six months amounted to R43,8 billion,
a 47% increase on the corresponding period in 2005. Investment inflows
were the prevalent contributor to the new business flows, exceeding the
2005 inflows by 53%. Life business inflows also recorded a significant
increase of 42%, assisted by the first time inclusion of African Life and
Channel Life in the 2006 results. Excluding the Developing Market
contribution, new Life business improved by 23%. Santam"s net premium
income increased by 18%.
In terms of the Group"s accounting policies 100% of the Punter Southall
business flows were included in 2005 as it was a subsidiary of the Group,
but following the reduction in Sanlam"s interest at the beginning of
2006, only 45% is included in 2006.
New Business Volumes for the 6 months ended 30 June
R million 2006 2005
Life business 6 954 4 907 42%
Sanlam Personal Finance 4 500 3 813 18%
Developing Markets 979 35
Group business 1 475 1 059 39%
Investment business 31 907 20 788 53%
Investment Management 21 537 14 064 53%
Sanlam Personal Finance 3 822 2 572 49%
Punter Southall Group 4 177 2 539 65%
Namibia Unit Trust 2 371 1 613 47%
Short-term insurance 4 897 4 139 18%
43 758 29 834 47%
Retail 21 901 12 240 79%
SA Life: Sanlam Personal Finance 3 985 3 275 22%
SA Life: Developing Markets 701 35
SA Non-Life 14 051 6 779 107%
Non-SA 3 164 2 151 47%
Institutional 13 360 11 499 16%
SA Group Life 1 379 1 059 30%
SA Non-life 5 998 7 575 -21%
Non-SA 5 983 2 865 109%
Sanlam Collective Investments white 3 600 1 956 84%
label
Short-term insurance 4 897 4 139 18%
43 758 29 834 47%
*New retail business flows improved by 79% on 2005 to R21,9 billion.
The evolution of the retail cluster into a diversified unit with
distribution reach in all of the major retail market segments greatly
assisted our growth strategy. Sanlam"s strengths in the middle market
are now supplemented by an increasing contribution from the affluent
market and the first time inclusion of the recently acquired developing
market businesses.
*South African Sanlam Personal Finance Life Insurance business of R4
billion increased by 22%. New recurring premiums improved by 13%, with
single premiums rising by 23%. Innofin continued to extend its
distribution footprint during the period, translating into a more than
60% growth in its contribution.
*South African Developing Markets Life Insurance business of R701 million
exceeded expectations, with Channel Life being a major contributor.
*South African non-life inflows of R14,1 billion are 107% up on 2005.
Sanlam Private Investments and Sanlam Collective Investments had a very
successful six months and more than doubled their new business flows.
*Non-SA business volumes increased by 47%, assisted by a 47% increase in
Namibian unit trust business and the first time inclusion of the
Developing Markets non-SA business of R278 million.
*Institutional new business flows of R13,4 billion are 16% up on 2005.
*Group Life premiums rose by 30%, a satisfying result in a highly
competitive market.
*Sanlam Investment Management"s (SIM) institutional investment inflows
are down 21% from the high base in 2005. New segregated mandates
decreased from R4,6 billion to R3,3 billion and new multi-managed
mandates by R600 million. This was offset by a 31% increase in Sanlam
Collective Investment"s wholesale business. A normalisation of
segregated mandate investment flows from the high base in 2005 was
expected but remains a primary focus area for institutional flows.
*The growth of 109% in non-SA institutional flows is the result of
sterling performances by Octane and Punter Southall. Sanlam"s 45% share
of Punter Southall"s new business amounted to R4,2 billion compared to a
100% share of R2,5 billion in 2005.
Net business flows
Net business flows of R11,8 billion for the first half of 2006 is a
significant improvement over the R0,5 billion achieved in the comparable
2005 period. The Public Investment Corporation (PIC) withdrew R6 billion
of its funds under management from SIM in March 2005. Excluding the PIC
withdrawal, net business flows still almost doubled from 2005.
Investment business contributed R11,6 billion of the net inflows, with
positive flows experienced by all of the major divisions. South African
Individual Life business recorded positive net flows of R226 million for
the period compared to a net outflow of R500 million in 2005.
The positive result stems from Individual Life policy benefits, including
surrenders, remaining on similar levels to 2005 and an increase in
Innofin"s life business net inflows. The Developing Markets also
reported net inflows of R551 million for the six months to June 2006.
Group Life business and non-South African Individual Life business
however reported net outflows of R1,8 billion and R112 million
respectively. Santam"s net business inflow for the six months amounted to
R1,4 billion.
Value of new business
The value of new life insurance business (VNB) of R172 million for the
six months ended 30 June 2006 is 51% up on the R114 million for the
comparable period in 2005. African Life and Channel Life contributed R54
million to the VNB. Excluding African Life and Channel Life, VNB
increased marginally to R118 million. This represents a satisfactory
performance, taking cognisance of the negative impact of the increase in
the risk discount rate on VNB for the first half of 2006. The
profitability of VNB improved compared to the comparable period in 2005,
as reflected in the increase in the life new business margin from 1,6% to
1,8%.
Given the increasing contribution from non-life products distributed by
the Group, the value of Sanlam Personal Finance"s new non-life business
will also be reported in future. The value of new business from non-life
linked products and loan business for the first half of 2006 amount to
R14,7 million and R13,7 million respectively. The value of new non-life
linked business as a percentage of the present value of new contributions
received amounts to 0,5% for the six months ended 30 June 2006. The
value of new loan business as a percentage of loans granted during the
first half of 2006 amounts to 1,4%.
The value of new non-life business is based on methodologies and
assumptions similar to the calculation of life insurance VNB. The
Group"s methodology will be developed over time in line with developing
best practice.
As an indication of new business profitability, the overall Investment
Management profit for the reporting period equated to an annualised
aggregate 0,28% of average assets under management, compared to 0,23% for
the full year 2005.
Embedded value
The Group"s embedded value of R40,2 billion as at 30 June 2006 is 5% up
on the R38,2 billion reported at 31 December 2005, after allowing for the
R1,5 billion dividend paid in respect of the 2005 financial year as well
as R1,3 billion spent on the buy-back of shares during the six-month
period. Embedded value per share increased by 8,4% to R17,50, reflecting
the accretion resulting from the share buy-back programme. The discount
of Sanlam"s share price to embedded value increased from 5,9% at 31
December 2005 to 17,1% at 30 June 2006.
EMBEDDED VALUE
June December
R million 2006 2005
Net asset value (at 32 006 30 592 5%
fair value)
Goodwill on life 1 395 1 328
company acquisitions
Non-life Group 10 309 9 702 6%
operations
Portfolio investments 20 302 19 562 4%
Adjustments (2 989) (2 962) -1%
Adjusted net asset 29 017 27 630 5%
value
Net value of life in- 11 201 10 574 6%
force business
Embedded value 40 218 38 204 5%
Embedded value per 1 750 1 615 8%
share (cents)
Share price (cents) 1 450 1 519 -5%
Discount to embedded 17,1% 5,9%
value
Taking into account the share buy-backs during the first six months of
2006 as well as the dividend paid, the annualised return on embedded
value to the end of June 2006 amounted to 26,2%. On a per share basis the
growth amounted to 26,6%, compared with growth of 23,2% in 2005.
Growth from life insurance business, based on the starting value of Value
of In Force, amounted to 26,0% compared with growth of 16,6% in 2005.
Solvency
All life insurance companies in the Group were adequately capitalised at
the end of June 2006. The capital of Sanlam Life Insurance Limited
amounted to R28,3 billion (after payment of a R1,7 billion dividend),
compared to R27,3 billion as at 31 December 2005. The Capital Adequacy
Requirements (CAR) were covered 3,4 times by regulatory capital at the
end of June 2006, compared to 3,9 times as at 31 December 2005. As at 30
June 2006 there were no policyholder portfolios with negative
stabilisation reserves.
Santam maintained its healthy solvency position and held capital of 56%
of net earned premiums at the end of June 2006, compared to 65% as at 31
December 2005.
Although the Group"s capital base was reduced by R1,3 billion as a result
of the buy-back of shares during the six months ended 30 June 2006, the
Group remained in a strong solvency position at 30 June 2006. In terms
of the JSE Listing Requirements, the Sanlam Limited Board is of the
opinion that after the share buy-back, Sanlam Limited and the Group has
sufficient share capital, reserves and working capital for ordinary
business purposes and to service its debt during the following 12 months
and that the Group"s assets will exceed its liabilities during this
period.
Dividend
In line with the Group policy no interim dividend has been declared.
Sanlam only declares an annual dividend.
Roy Andersen Johan van Zyl
Chairman Group Chief Executive
Sanlam Limited
Cape Town
6 September 2006
Interim Financial Statements for the six months ended 30 June 2006
ACCOUNTING POLICIES AND ACTUARIAL BASIS
Basis of presentation
The accounting policies adopted for the purposes of the financial
statements comply with International Financial Reporting Standards,
specifically IAS 34 on interim financial reporting, and with applicable
legislation. These condensed financial statements are presented in terms
of IAS 34, with additional disclosure where applicable, using accounting
policies consistent with those applied in the 2005 financial statements.
The policy liabilities and profit entitlement rules are determined in
accordance with prevailing legislation, generally accepted actuarial
practice and the stipulations contained in the demutualisation proposal.
There have been no material changes in the financial soundness valuation
basis since 31 December 2005, apart from changes in the economic
assumptions (refer to page 44 for the major assumptions applied).
Application of new and revised standards
The following new or revised IFRSs and interpretations have effective
dates applicable to the Group"s 2006 financial year:
*Amendment to IAS 19 Employee Benefits - Actuarial Gains and Losses,
Group Plans and Disclosures
*Amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates -
Net Investment in a Foreign Operation
*Amendments to IAS 39 Financial Instruments: Recognition and Measurement
- Cash Flow Hedge Accounting of Forecast Intragroup Transactions
*Amendments to IAS 39 Financial Instruments: Recognition and Measurement
- The Fair Value Option
*Amendments to IAS 39 Financial Instruments: Recognition and Measurement
and IFRS 4 Insurance Contracts - Financial Guarantee Contracts
*IFRIC 4 Determining whether an arrangement contains a lease
The application of these standards and interpretation did not have a
significant impact on the Group"s reported results and cash flows for the
six months ended 30 June 2006 and the financial position as at 30 June
2006.
The following new or revised IFRSs and interpretations have effective
dates applicable to future financial years of the Group:
*IFRS 7 Financial Instruments: Disclosures
*Amendment to IAS 1 Presentation of Financial Statements - Capital
Disclosures
*IFRIC 8 Scope of IFRS 2
*IFRIC 9 Reassessment of Embedded Derivatives
*IFRIC 10 Interim Financial Reporting and Impairment
*AC 503 Accounting For Black Economic Empowerment (BEE) Transactions
The Group has not early adopted any of these standards or
interpretations. The application of these 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.
EXTERNAL AUDIT REVIEW
The appointed external auditors, Ernst & Young, reviewed the accompanying
condensed balance sheet of the Sanlam Limited group as at 30 June 2006
and the related condensed statements of income, changes in equity and
cash flows for the six-month period then ended, and other explanatory
notes set out on pages 13 and 15 to 37. The review was conducted in
accordance with the International Standard on Review Engagements 2410,
Review of Interim Financial Information Performed by the Independent
Auditor of the Entity. The comparative 30 June 2005 financial information
has not been audited or reviewed.
The external auditors have also conducted a limited assurance review of
the Group Embedded Value Results for the six months ended 30 June 2006 on
pages 38 to 45 in accordance with the International Standard on Assurance
Engagements 3000 Assurance Engagements Other Than Audits or Reviews of
Historical Financial Information. The comparative 30 June 2005 financial
information has not been audited or reviewed.
COPIES OF THE UNQUALIFIED REPORTS OF ERNST & YOUNG ARE AVAILABLE FOR
INSPECTION AT THE REGISTERED OFFICE OF THE COMPANY.
GROUP BALANCE SHEET at 30 June 2006
June December
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
ASSETS
Property and equipment 240 217 249
Owner-occupied properties 504 381 492
Goodwill 1 958 2 191 2 174
Value of business acquired 949 - 942
Deferred acquisition costs 1 248 1 050 1 155
Long-term reinsurance assets 391 333 389
Investments 251 819 200 554 232 851
Properties 13 072 14 659 12 748
Equity-accounted investments 2 016 6 404 1 037
Equities and similar securities 133 901 97 536 120 763
Public sector stocks and loans 47 624 42 064 47 998
Debentures, insurance policies, 25 058 17 901 21 173
preference shares and other
loans
Cash, deposits and similar 30 148 21 990 29 132
securities
Deferred tax 356 441 372
Short-term insurance technical 2 505 1 864 2 372
assets
Working capital assets 43 063 34 808 35 716
Trade and other receivables 31 270 25 479 27 427
Cash, deposits and similar 11 793 9 329 8 289
securities
Total assets 303 033 241 839 276 712
Equity and liabilities
Shareholders" fund 25 626 21 205 25 020
Minority shareholders" interest 3 263 3 305 3 443
Total equity 28 889 24 510 28 463
Long-term policy liabilities 215 423 172 051 198 234
Insurance contracts 113 812 96 948 109 591
Investment contracts 101 611 75 103 88 643
Term finance 3 262 4 901 2 879
Interest-bearing liabilities 3 262 3 499 2 835
matched by assets
Other interest-bearing - 1 402 44
liabilities
External investors in 8 072 4 169 6 030
consolidated funds
Cell owners" interest 286 86 268
Deferred tax 1 588 1 279 1 623
Short-term insurance technical 7 537 5 632 6 702
provisions
Working capital liabilities 37 976 29 211 32 513
Trade and other payables 35 767 28 076 30 057
Provisions 887 319 860
Taxation 1 322 816 1 596
Total equity and liabilities 303 033 241 839 276 712
GROUP INCOME STATEMENT for the 6 months ended 30 June 2006
Six months Full year
Reviewed Unaudited Audited
2006 2005 2005
Notes R million R million R million
Net income 26 457 21 783 63 307
Financial services income 11 382 9 161 20 393
Reinsurance premiums paid (1 072) (979) (2 339)
Reinsurance commission 222 193 445
received
Investment income 7 255 4 878 10 429
Investment surpluses 9 024 8 759 35 282
Change in fair value of (354) (229) (903)
external investors
liability
Net insurance and (17 516) (15 037) (41 440)
investment contract
benefits and claims
Long-term insurance and (14 082) (12 439) (35 164)
investment contract
benefits
Enhanced early termination - - (620)
benefits
Short-term insurance (3 838) (2 980) (6 904)
claims
Reinsurance claims 404 382 1 248
received
Expenses (4 059) (3 464) (7 769)
Sales remuneration (1 580) (1 199) (2 632)
Administration costs (2 452) (2 265) (5 137)
Broad-based employee share (27) - -
plan
Impairment of investments (8) 6 (12)
and goodwill
Amortisation of value of (21) - -
business acquired
Net operating result 4 853 3 288 14 086
Equity-accounted earnings 121 781 944
Finance cost - (62) (136)
Profit before tax 4 974 4 007 14 894
Taxation 1 (1 347) (836) (2 803)
Shareholders" fund (876) (393) (1 684)
Policyholders" fund (471) (443) (1 119)
Profit for the period 3 627 3 171 12 091
Attributable to:
Shareholders" fund 3 220 2 675 10 927
Minority shareholders" 407 496 1 164
interest
3 627 3 171 12 091
Earnings attributable to
shareholders of the
company (cents):
Basic earnings per share 2 145,2 104,3 439,2
Diluted earnings per share 2 142,3 102,3 432,0
GROUP STATEMENT OF CHANGES IN EQUITY
for the 6 months ended 30
June 2006
Six months Full year
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
Shareholders" fund:
Balance at beginning of 25 020 19 685 19 685
period
Total recognised income 3 531 2 865 11 008
Profit for the period 3 220 2 675 10 927
Equity-accounted movement - 23 15
in associated companies"
reserves
Movement in foreign 311 167 66
currency translation
reserve
Net realised investment (85) (57) 25
surpluses on treasury
shares
Share-based payments 45 38 64
Dividends paid (1) (1 469) (1 295) (1 295)
Acquired through business - - (31)
combinations
Shares cancelled (1 036) - (4 446)
Cost of treasury shares (380) (31) 10
acquired (2)
Balance at end of period 25 626 21 205 25 020
Minority shareholders"
interest:
Balance at beginning of 3 443 3 515 3 515
period
Total recognised income 512 526 1 163
Profit for the period 407 496 1 164
Movement in foreign 105 30 (1)
currency translation
reserve
Share-based payments 4 2 5
Dividends paid (575) (702) (788)
Acquisitions, disposals and (121) (36) (452)
other movements in minority
interests
Balance at end of period 3 263 3 305 3 443
Shareholders" fund 25 020 19 685 19 685
Minority shareholders" 3 443 3 515 3 515
interest
Total equity at beginning 28 463 23 200 23 200
of period
Shareholders" fund 25 626 21 205 25 020
Minority shareholders" 3 263 3 305 3 443
interest
Total equity at end of 28 889 24 510 28 463
period
1. Dividend of 65 cents per share paid during 2006 (2005: 50 cents per
share) in respect of the 2005 financial year.
2. Comprises movement in cost of shares held by subsidiaries and the
share incentive trust.
GROUP CASH FLOW STATEMENT
for the 6 months ended 30 June
2006
Six months Full year
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
Net cash inflow from operating 8 415 3 031 1 938
activities
Net cash (outflow)/inflow from (2 672) 1 443 13 069
investment activities
Net cash outflow from financing (1 210) (1 907) (6 919)
activities
Net increase in cash and cash 4 533 2 567 8 088
equivalents
Cash, deposits and similar 37 408 29 320 29 320
securities at beginning of period
Cash, deposits and similar 41 941 31 887 37 408
securities at end of period
NOTES TO THE FINANCIAL STATEMENTS
for the 6 months ended
30 June 2006
Six months Full year
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
1. TAXATION
Result from financial 411 364 747
services
Investment income 68 62 150
Investment surpluses 247 (120) 330
Profit on disposal of 4 - 534
associated companies
Enhanced early - - (180)
termination benefits
Broad-based employee (8) - -
share plan
Secondary Tax on 154 87 103
Companies
Tax expense - 876 393 1 684
shareholders" fund
Tax expense - 471 443 1 119
policyholders" fund
Total income tax charged 1 347 836 2 803
to income statement
Cents Cents Cents
2. EARNINGS PER SHARE
Basic earnings per
share:
Net result from 52,5 39,2 92,5
financial services
Core earnings 71,3 60,7 131,8
Headline earnings 141,1 104,5 233,7
Profit attributable to 145,2 104,3 439,2
shareholders" fund
Diluted earnings per
share:
Net result from 51,5 38,5 90,9
financial services
Core earnings 69,9 59,4 129,7
Headline earnings 138,4 102,5 229,8
Profit attributable to 142,3 102,3 432,0
shareholders" fund
R million R million R million
Analysis of earnings
(refer segmental
analysis on page 26):
Net result from 1 165 1 006 2 300
financial services
Core earnings 1 582 1 556 3 280
Headline earnings 3 130 2 681 5 813
Profit attributable to 3 220 2 675 10 927
shareholders"
fund
Six months Full year
Reviewed Unaudited Audited
2006 2005 2005
million million million
Number of shares:
Number of ordinary shares in 2 408,6 2 767,6 2 767,6
issue at beginning of period
Less: Weighted average number (11,7) - (76,4)
of shares cancelled
Less: Weighted average Sanlam (178,7) (202,9) (203,5)
shares held by subsidiaries
(including policyholders)
Adjusted weighted average 2 218,2 2 564,7 2 487,7
number of shares for basic
earnings per share
Add: Weighted conversion of 6,6 6,9 6,2
deferred shares
Add: Total number of shares 72,7 119,9 89,6
under option
Less: Number of shares (35,2) (75,7) (54,1)
(under option) that would
have been issued at fair
value
Adjusted weighted average 2 262,3 2 615,8 2 529,4
number of shares for diluted
earnings per share
Number of ordinary shares in 2 408,6 2 767,6 2 767,6
issue - beginning of period
Shares cancelled (70,0) - (359,0)
Number of ordinary shares in 2 338,6 2 767,6 2 408,6
issue
Shares held by subsidiaries (47,0) (49,9) (48,6)
in shareholders" fund
Convertible deferred shares 6,6 7,7 6,5
held by Ubuntu-Botho
Adjusted number of shares for 2 298,2 2 725,4 2 366,5
value per share
3. SHARE REPURCHASES
The Sanlam shareholders granted general authorities to the Group at the
2005 and 2006 annual general meetings to repurchase Sanlam shares in the
market. The Group acquired 83,4 million shares from 9 March 2006 to 30
June 2006 in terms of the general authorities. The lowest and highest
prices paid were R14,07 and R16,56 per share respectively. The total
consideration paid of R1,3 billion was funded from existing cash
resources. All repurchases were effected through the JSE trading system
without any prior understanding or arrangement between the Group and the
counter parties. Authority to repurchase 227 million shares, or 9,4% of
Sanlam"s issued share capital at the time, remain outstanding in terms of
the general authority granted at the annual general meeting held on 7
June 2006.
The financial effects of the share repurchases during 2006 are
illustrated in the table below:
Before After
repurchases repurchases
Basic earnings per share:
Profit attributable to Cents 144 145
shareholders" fund
Headline earnings Cents 140 141
Diluted earnings per share:
Profit attributable to Cents 141 142
shareholders" fund
Headline earnings per share Cents 137 138
Value per share:
Embedded value Cents 1 744 1 750
Net asset value Cents 1 131 1 115
Tangible net asset value Cents 955 934
4. BUSINESS COMBINATIONS
The Group acquired a controlling interest in Channel Life Limited
(Channel Life) during February 2006. As part of the transaction,
the Group"s 55% interest in Safrican Insurance Company Limited
(Safrican) was transferred to Channel Life. The Channel Life group
contributed R353 million and R8 million to Group revenue and net
profit respectively for the six months ended 30 June 2006.
Channel Life
R million
Details of the purchase consideration and
goodwill acquired are as follows:
Purchase consideration 133
Cash consideration 122
Net asset value contributed 10
Costs directly attributable to acquisition 1
Fair value of net assets acquired 81
Goodwill 52
The goodwill acquired relates to the future new business potential
of the Channel Life group.
Channel Life
Provisio Carrying
nal fair value (1)
value
R R million
million
Details of the assets and liabilities
acquired are as follows:
Property and equipment 5 5
Intangible assets 42 15
Investments 3 945 3 945
Deferred tax 57 57
Cash, deposits and similar securities 134 134
Long-term liabilities (3 993) (3 993)
Net working capital liabilities (46) (46)
Net assets 144 117
Minority shareholders" interest (63)
Net assets acquired 81
(1) Carrying value of assets and liabilities in acquiree"s own
financial statements on acquisition date.
5. CONTINGENT LIABILITIES
Shareholders are referred to the contingent liabilities disclosed in
the 2005 annual report. The circumstances surrounding these
contingent liabilities remained unchanged, apart from the discussions
with the South African Revenue Service (SARS) regarding revised tax
assessments issued to a subsidiary of Genbel Securities Limited
(Gensec), which has been resolved since the issuance of the 2005
annual report. A final settlement has been reached between Gensec
and SARS. The amount paid in terms of the agreement has been funded
from an existing provision held for this purpose.
6. SUBSEQUENT EVENTS
Subsequent to the end of the interim reporting period Sanlam Life
Insurance Limited, a wholly owned subsidiary of the Group, issued
unsecured subordinated debt instruments to a value of R2 billion.
Financial Information for the Shareholders" Fund for the 6 months
ended 30 June 2006
Contents
Shareholders" fund balance sheet - Net Asset 23
Value
Shareholders" fund balance sheet - Fair Value 24
Segmental analysis 26
Reconciliation of earnings to segmental analysis 29
Notes to the shareholders" fund information 32
Adjusted headline earnings - LTRR 37
SHAREHOLDERS" FUND BALANCE SHEET AT NET ASSET VALUE
at 30 June 2006
June December
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
Assets
Goodwill 1 958 2 175 2 174
Value of business acquired 949 - 942
Investments 31 810 28 440 32 547
Working capital and other 39 452 30 763 32 976
assets
Total assets 74 169 61 378 68 639
Equity and liabilities
Shareholders" fund 25 626 21 205 25 020
Minority shareholders" 3 379 2 583 3 557
interest
Term finance, working 45 164 37 590 40 062
capital and other
liabilities
Total equity and liabilities 74 169 61 378 68 639
Net asset value per share 1 115 778 1 057
(cents)
SHAREHOLDERS" FUND BALANCE SHEET AT FAIR VALUE
at 30 June 2006
June December
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
Assets
Property and equipment 181 144 177
Owner-occupied properties 488 369 480
Goodwill (2) 473 389 419
Value of business acquired 947 - 942
(2)
Deferred acquisition costs 782 122 582
Investments 34 857 37 404 35 307
Sanlam businesses 10 309 7 949 9 702
Investment Management 4 240 2 572 3 228
SIM Wholesale (3) 3 110 1 636 2 481
International (SMMI and 816 526 522
Octane)
Sanlam Collective 314 410 225
Investments
Life cluster businesses 869 590 668
Innofin 440 232 341
Sanlam Personal Loans (4) 98 189 71
Multi-Data 85 64 82
Sanlam Trust 82 55 84
Sanlam Home Loans 110 6 60
Other (5) 54 44 30
Independent Financial 622 492 505
Services cluster businesses
Punter Southall 354 379 382
Gensec Properties 38 12 13
Other (6) 230 101 110
Sanlam Capital Markets 467 444 552
Santam 4 111 3 851 4 749
Associated companies 799 11 405 871
Absa - 10 250 -
African Life - 521 -
Peermont 736 634 779
Other 63 - 92
Joint ventures 395 278 395
Safair Lease Finance 271 278 271
Shriram 124 - 124
Other investments 23 354 17 772 24 339
Other equities and similar 12 082 7 840 12 267
securities
Public sector stocks and 2 277 1 494 2 019
loans
Investment properties 537 571 671
Other interest-bearing and 8 458 7 867 9 382
preference share investments
Deferred tax 179 310 216
Working capital assets 4 953 5 669 4 486
Total assets 42 860 44 407 42 609
Equity and liabilities
Shareholders" fund 32 006 32 101 30 592
Minority shareholders" 588 53 439
interest
Term finance 2 884 3 791 2 834
External investors in 52 98 49
consolidated funds
Deferred tax 545 1 105 1 031
Working capital liabilities 6 785 7 259 7 664
Total equity and liabilities 42 860 44 407 42 609
Net asset value per share 1 393 1 178 1 293
(cents)
1. Group businesses listed above not consolidated, but reflected as
investments at fair value.
2. The value of business acquired and goodwill relate mainly to the
consolidation of African Life Assurance and Merchant Investors and are
excluded in the build-up of the Group embedded value, as the current
value of in-force business for these life insurance companies are
included in the embedded value.
3. Excludes the investment management operations of Botswana Insurance
Fund Management (BIFM), as it is included in the current value of BIFM in-
force life insurance business.
4. Formerly Direct Axis. The life insurance component of Sanlam
Personal Loans" operations is included in the value of in-force business
and therefore excluded from the Sanlam Personal Loans fair value.
5. Other Life cluster businesses comprise the non-life businesses in
Namibia.
6. Other Independent Financial Services businesses include Intrinsic,
Nucleus, Thebe Community Financial Services, SA Quantum, Break-Thru
Financial Services, Simeka Employee Benefits and Bull and Bear Financial
Services.
SEGMENTAL ANALYSIS
for the 6 months ended 30 June 2006
June December
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
Result from 1 768 1 573 3 455
financial services
before tax
Life insurance 998 777 1 729
Short-term 304 532 1 016
Insurance
Investment 482 269 699
Management
Sanlam Capital 53 51 151
Markets
Independent 27 26 32
Financial Services
Corporate and other (96) (82) (172)
Tax on financial (411) (364) (752)
services income
Minority (192) (203) (403)
shareholders"
interest
Net result from 1 165 1 006 2 300
financial services
Net investment 417 550 980
income
Core earnings 1 582 1 556 3 280
Net enhanced early - - (440)
termination
benefits
Provision for - - (150)
financial claims
Net broad-based (19) - -
employee share plan
Net equity- 56 421 478
accounted headline
earnings
Net investment 1 631 791 2 733
surpluses
Amortisation of (21) - -
value of business
acquired
Net Secondary tax (99) (87) (88)
on Companies
Headline earnings 3 130 2 681 5 813
Other equity- - (8) (8)
accounted earnings
Profit/(loss) on 98 (4) 5 125
disposal of
subsidiaries and
associates
Impairment of (8) 6 (3)
investments and
goodwill
Attributable 3 220 2 675 10 927
earnings
RECONCILIATION OF EARNINGS to segmental analysis
for the 6 months
ended 30 June 2006
Six months ended 30 June 2006 -
reviewed
Shareholder Policyholder
activities activities
R MILLION Total Financial Investmen
services t return
Net income 26 457 10 989 2 687 12 781
Financial services 11 382 11 459 - (77)
income
Reinsurance (1 072) (1 072) - -
premiums paid
Reinsurance 222 222 - -
commission
received
Investment income 7 255 371 527 6 357
Investment 9 024 9 2 167 6 848
surpluses (347)
Change in fair (354) - (7)
value of external
investors
liability
Net insurance and (17 516) (5 241) - (12 275)
investment
contract benefits
and claims
Long-term (14 082) (1 807) - (12 275)
insurance and -
investment -
contract benefits
Enhanced early - - -
termination
benefits
Short-term (3 838) (3 838) -
insurance claims
Reinsurance claims 404 404 - -
received
Expenses (4 059) (4 024) - (35)
Sales remuneration (1 580) (1 580) - -
Administration (2 452) (2 417) - (35)
costs
Broad-based (27) (27) - -
employee share (21)
plan
Amortisation of (21) - -
value of business
acquired
Impairment of (8) - (8) -
investments and
goodwill
Net operating 4 853 1 703 2 679 471
result
Equity-accounted 121 17 104 -
earnings
Finance cost - - - -
Profit before tax 4 974 1 720 2 783 471
Tax expense (1 347) (403) (473) (471)
Shareholders" fund (876) (403) (473) -
(471)
3 627
Policyholders" - - (471)
fund
Profit for the 1 317 2 310 -
period
Attributable to:
Shareholders" fund 3 220 1 125 2 095 -
Minority 407 192 215 -
shareholders"
interest
3 627 1 317 2 310 -
Financial services profit comprising (refer segmental income
statement):
Net result from 1 165
financial services
Amortisation of (21)
value of business
acquired
Net broad-based (19)
employee share
plan
Total financial services profit 1 125
attributable to shareholders" fund
RECONCILIATION OF EARNINGS to segmental analysis
for the 6 months ended
30 June 2006
Six months ended 30 June 2005 -
unaudited
Shareholder Policyholder
activities activities
R MILLION Total Financial Investmen
services t return
Net income 21 783 9 078 1 170 11 535
Financial services 9 161 9 183 (2) (20)
income
Reinsurance premiums (979) (979) - -
paid
Reinsurance commission 193 193 - -
received
Investment income 4 878 657 397 3 824
Investment surpluses 8 759 24 788 7 947
Change in fair value (229) - (13) (216)
of external investors
liability
Net insurance and (15 037) (4 046) - (10 991)
investment contract
benefits and claims
Long-term insurance (12 439) (1 448) - (10 991)
and investment
contract benefits
Enhanced early - - - -
termination benefits
Short-term insurance (2 980) (2 980) - -
claims
Reinsurance claims 382 382 - -
received
Expenses (3 464) (3 459) - (5)
Sales remuneration (1 199) (1 199) - -
Administration costs (2 265) (2 260) - (5)
Broad-based employee - - - -
share plan
Amortisation of value - - - -
of business acquired
Impairment of 6 - 6 -
investments and
goodwill
Net operating result 3 288 1 573 1 176 539
Equity-accounted 781 - 713 68
earnings
Finance cost (62) - - (62)
Profit before tax 4 007 1 573 1 889 545
Tax expense (836) (364) (29) (443)
Shareholders" fund (393) (364) (29) -
Policyholders" fund (443) - - (443)
Profit for the period 3 171 1 209 1 860 102
Attributable to:
Shareholders" fund 2 675 1 006 1 669 -
Minority shareholders" 496 203 191 102
interest
3 171 1 209 1 860 102
RECONCILIATION OF EARNINGS to segmental analysis
for the 6 months ended 30
June 2006
Full year ended 31 December 2005 -
audited
Shareholder Policy
activities holder
activitie
s
R MILLION Total Financia Investmen
l t return
services
Net income 63 307 19 390 10 022 33 895
Financial services income 20 393 20 524 (3) (128)
Reinsurance premiums paid (2 339) (2 339) - -
Reinsurance commission 445 445 - -
received
Investment income 10 429 718 892 8 819
Investment surpluses 35 282 42 9 115 26 125
Change in fair value of (903) - 18 (921)
external investors liability
Net insurance and investment (41 440) (9 030) - (32 410)
contract benefits and claims
Long-term insurance and (35 164) (2 754) - (32 410)
investment contract benefits
Enhanced early termination (620) (620) - -
benefits
Short-term insurance claims (6 904) (6 904) - -
Reinsurance claims received 1 248 1 248 - -
Expenses (7 769) (7 685) - (84)
Sales remuneration (2 632) (2 632) - -
Administration costs (5 137) (5 053) - (84)
Broad-based employee share - - - -
plan
Amortisation of value of - - - -
business acquired
Impairment of investments (12) - (12) -
and goodwill
Net operating result 14 086 2 675 10 010 1 401
Equity-accounted earnings 944 5 865 74
Finance cost (136) - - (136)
Profit before tax 14 894 2 680 10 875 1 339
Tax expense (2 803) (567) (1 117) (1 119)
Shareholders" fund (1 684) (567) (1 117) -
Policyholders" fund (1 119) - - (1 119)
Profit for the period 12 091 2 113 9 758 220
Attributable to:
Shareholders" fund 10 927 1 710 9 217 -
Minority shareholders" 1 164 403 541 220
interest
12 091 2 113 9 758 220
FINANCIAL SERVICES PROFIT COMPRISING (REFER SEGMENTAL INCOME
STATEMENT):
Net result from financial 2 300
services
Net enhanced early (440)
termination benefits
Provision for financial (150)
claims
TOTAL FINANCIAL SERVICES PROFIT 1 710
ATTRIBUTABLE TO SHAREHOLDERS" FUND
NOTES TO THE SHAREHOLDERS" FUND INFORMATION
for the 6 months ended 30 June 2006
June
Reviewed Unaudited
2006 2005
R million R million
1. NEW BUSINESS AND TOTAL FUNDS
RECEIVED FROM CLIENTS
Analysed per market:
Retail
Sanlam Personal Finance 3 985 3 275
Individual Life 2 818 2 560
Sanlam Personal Loans Credit Life 17 -
Innofin 1 150 715
Developing Markets 701 35
Non-life 14 051 6 779
Innofin 3 822 2 572
Sanlam Private Investments 4 051 1 183
Sanlam Collective Investments cash 6 178 3 024
and equity
South African 18 737 10 089
Non-South African 3 164 2 151
Developing Markets 278 -
Merchant Investors 367 351
Sanlam Namibia 2 519 1 800
Total Retail 21 901 12 240
Institutional
Group Life 1 379 1 059
Sanlam Employee Benefits 1 341 1 019
Sanlam Investment Management 38 40
Non-life 5 998 7 575
Segregated 3 292 4 594
Sanlam Multi-Manager 1 189 1 821
Sanlam Collective Investments 1 517 1 160
wholesale
South African 7 377 8 634
Sanlam Investment Management 1 806 326
International
Punter Southall 4 177 2 539
Total Institutional 13 360 11 499
Sanlam Collective Investments white 3 600 1 956
label
Short-term insurance 4 897 4 139
Total new business 43 758 29 834
June
Reviewed Unaudited
2006 2005
R million R million
2. NET FLOW OF FUNDS
Analysed per market:
Retail
Sanlam Personal Finance 223 (500)
Individual Life (479) (871)
Innofin 702 371
Developing Markets 273 66
Non-life 4 187 948
Innofin 1 618 1 046
Sanlam Private Investments 1 726 (17)
Sanlam Collective Investments cash and equity 843 (81)
South African 4 683 514
Non-South African 1 321 529
Developing Markets 278 -
Merchant Investors (122) (65)
Sanlam Namibia 1 165 594
Total Retail 6 004 1 043
Institutional
Group Life (1 841) (1 568)
Sanlam Employee Benefits (1 321) (1 488)
Sanlam Investment Management (520) (80)
Non-life (268) (3 342)
Segregated (659) (4 924)
Sanlam Multi-Manager 3 1 360
Sanlam Collective Investments wholesale 388 222
South African (2 109) (4 910)
Sanlam Investment Management International 1 541 288
Punter Southall 3 550 2 075
Total Institutional 2 982 (2 547)
Sanlam Collective Investments white label 1 449 524
Short-term insurance 1 387 1 475
Total new business 11 822 495
June December
Reviewed Unaudited Audited
2006 2005 2005
3. EXCESS OF FAIR VALUE OVER NET ASSET
VALUE OF SANLAM BUSINESSES AND INVESTMENTS
The shareholders" fund balance sheet at
fair value includes the value of the
companies below based on directors"
valuation, apart from Santam, Absa,
African Life and Peermont, which are
valued according to ruling share prices.
No deferred capital gains tax is provided
in respect of Santam from 2006.
Net fair value of businesses and 11 420 18 696 10 422
investments
Fair value of businesses and 11 503 19 632 10 968
investments
Deferred capital gains tax on businesses (83) (936) (546)
and investments at fair value
Less: Net asset value of businesses and 5 511 9 262 5 583
investments
Investment Management businesses 694 486 752
SIM Wholesale 467 254 437
International (SMMI and Octane) 168 143 231
Sanlam Collective Investments 59 89 84
Life cluster businesses 394 180 305
Innofin 191 157 177
Sanlam Personal Loans 46 26 32
Multi-Data 28 7 18
Sanlam Trust 6 (34) 4
Sanlam Home Loans 100 2 55
Other 23 22 19
Independent Financial Services 498 435 450
cluster businesses
Punter Southall 249 355 340
Gensec Properties 12 3 11
Other 237 77 99
Sanlam Capital Markets 467 444 552
Santam 2 852 2 398 2 903
Associated companies 386 5 248 403
Absa - 4 498 -
African Life - 521 -
Peermont 323 229 310
Other 63 - 93
Joint ventures 220 71 218
Safair Lease Finance 96 71 94
Shriram 124 - 124
Less: Goodwill in respect of above 1 248 1 198 1 198
businesses
Revaluation adjustment of interest in 4 661 8 236 3 641
businesses and investments to
fair value
Analysis of fair value
Sanlam businesses 10 309 7 949 9 702
Associated companies 799 11 405 871
Joint ventures 395 278 395
Fair value of businesses 11 503 19 632 10 968
and investments
3. EXCESS OF FAIR VALUE OVER NET ASSET VALUE OF SANLAM BUSINESSES AND
INVESTMENTS (continued)
The fair value of the Sanlam businesses has been determined by the
application of stock exchange prices for listed companies and the
following valuation methodologies for unlisted businesses:
Valuation method Fair value
R million
Ratio of price to assets under 4 240
management
SIM Wholesale 3 110
International (SMMI and Octane) 816
Sanlam Collective Investments 314
Discounted cash flows 781
Innofin 440
Sanlam Personal Loans 98
Multi-Data 85
Sanlam Trust 82
Gensec Properties 38
Other 38
Earnings multiple - Other 56
External valuation - Punter Southall 354
Net asset value 577
Sanlam Home Loans 110
Sanlam Capital Markets 467
Other 190
Fair value of unlisted businesses 6 198
The main assumptions applied in the primary valuation for the unlisted
businesses are presented below. The sensitivity analysis is based on
the following changes in assumptions:
Assumption Change in
assumption
Ratio of price to assets under 0,1%
management (P/AuM)
Risk discount rate (RDR) 1,0%
Perpetuity growth rate (PGR) 1,0%
Earnings multiple (PE) 1,0
Fair value of businesses
Valuation method Weighted Base Decrease Increase
average value in in
assumption assumption assumption
Ratio of price to P/AuM = 4 240 3 810 4 675
assets under 1,2%
management (P/AuM)
Discounted cash flows RDR = 19,5% 781 835 734
PGR = 5% 781 755 803
Earnings multiple PE = 7,3 56 47 64
Six months Full
year
Reviewed Unaudited Audited
2006 2005 2005
4. INVESTMENT INCOME - SHAREHOLDERS" FUND
Interest-bearing investments and term 223 234 460
finance
Interest income 327 399 753
Interest paid and term finance cost (104) (165) (293)
Equities 271 120 372
Properties 29 43 53
Investment income before associated 523 397 885
companies
Dividends from associated companies 23 273 384
Total investment income 546 670 1 269
5. ASSETS UNDER MANAGEMENT AND ADMINISTRATION
Total assets per Group balance sheet 303 033 241 839 276 712
Segregated funds not included in Group 190 138 139 206 167 215
balance sheet
Total assets under management and 493 171 381 045 443 927
administration
6. ADJUSTED HEADLINE EARNINGS - LTRR
Six months Full year
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
The LTRR investment return is
determined
by applying the long-term
expected return
of 9% (2005: 10%) to the
average monthly
shareholders" fund investments.
Adjusted headline earnings - long-
term rate of return (LTRR)
Net result from financial services 1 165 1 006 2 300
Secondary Tax on Companies (99) (87) (88)
Amortisation of value of business (21) - -
acquired
Broad-based employee share plan (19) - -
Policyholder fund restitution and - - (590)
financial claims
LTRR investment return after 962 1 331 2 453
taxation
Equity-accounted headline earnings 56 421 478
Dividends received from associated 23 273 290
companies
LTRR investment return - balanced 883 637 1 685
portfolio
Adjusted headline earnings - LTRR 1 988 2 250 4 075
Reconciliation of headline earnings
and LTRR headline earnings
Headline earnings per segmental 3 130 2 681 5 813
income statement
Fund transfers (385) (91) (730)
Net LTRR adjustment (757) (340) (1 008)
Adjusted headline earnings - LTRR 1 988 2 250 4 075
Analysis of net LTRR adjustment
Investment return (946) (185) (1 411)
Equities (1 260) (278) (1 856)
Interest-bearing investments 346 133 460
Properties (32) (40) (15)
Tax 89 (216) 64
Minority shareholders" interest 100 61 339
Net LTRR adjustment (757) (340) (1 008)
AssetS subject to LTRR
Investments per shareholders" fund 31 810 28 440 32 547
balance sheet at net asset value
Less: Investment in associated (960) (5 604) (2 428)
companies
Investment in joint ventures (390) (116) (328)
Investments held in respect of term (2 539) (3 718) (2 508)
finance
Investments held in respect of (467) (109) (42)
operating activity
Investments matched by liabilities - (781) (2 567)
Other (425) (413) (36)
LTRR investments 27 029 17 699 24 638
GROUP EMBEDDED VALUE RESULTS
for the six months ended 30 June 2006
1. EMBEDDED VALUE
June December
Reviewed Unaudited Audited
2006 2005 2005
R million R million R million
Sanlam group shareholders" fund 32 006 32 101 30 592
at fair value
Reverse goodwill and value of (1 395) (356) (1 328)
business acquired (1)
Present value of strategic (924) (772) (947)
corporate expenses (2)
Fair value of share incentive (618) (668) (793)
scheme (3)
Adjustment for discounting 89 176 245
capital gains tax (4)
Adjustment for delayed tax (62) - (60)
relief on enhanced early
termination benefits (5)
STC deferred tax asset written (79) (100) (79)
down (6)
Sanlam group shareholders" 29 017 30 381 27 630
adjusted net assets
Net value of life insurance 11 201 8 882 10 574
business in-force (7)
Value of life insurance 13 312 10 497 12 542
business in-force
*Individual business 12 271 9 447 11 485
*Employee benefits 1 041 1 050 1 057
Cost of capital at risk (1 800) (1 563) (1 707)
*Individual business (1 514) (1 237) (1 393)
*Employee benefits (286) (326) (314)
Minority shareholders" interest (311) (52) (261)
in value of in-force
Sanlam group embedded value 40 218 39 263 38 204
Embedded value per share 1 750 1 441 1 615
(cents) (8)
Number of shares (million) (8) 2 298 2 725 2 366
Notes:
1. Goodwill and value of insurance and investment contract business
acquired (VOBA) relating to life insurance businesses are reversed as the
value of in-force business of life insurance businesses are included in
the Group value of in-force business. At 30 June 2006 the adjustment was
mainly in respect of African Life Assurance (R923 million) and Merchant
Investors Assurance (R356 million).
2. The June 2006 value has been calculated by multiplying the recurring
after tax corporate expenses for the six months not related to life
business of R56 million by the Sanlam Limited share price of 1450 cents
and dividing by the headline earnings per share based on the long-term
rate of return (excluding exceptional items) of 87,9 cents.
3. The fair value of the Sanlam group share incentive schemes has been
determined using a statistical model. Actual options outstanding have
been valued
based on the actual share price and dividend yield at the valuation date.
4. Adjustment to allow for the delay before incurring the capital gains
tax liability recognised in respect of the shareholders" fund"s assets.
No deferred capital gains tax is provided in respect of Santam from 2006,
with a consequential reduction in the discounting adjustment for capital
gains tax. The net impact on embedded value earnings is approximately
R200 million.
5. At 30 June 2006 the financial statements allow for the full tax
deduction of R180 million on the enhanced early termination benefit cost
of R620 million. This adjustment allows for the time value effect of not
realising the tax
relief immediately.
6. The deferred tax asset recognised for unused Secondary Tax on
Companies (STC) credits in respect of life insurance businesses is
reversed, as the value of in-force business already includes an allowance
for STC credits.
7. The net value of life insurance business in-force as at 30 June 2006
and 31 December 2005 includes the African Life Assurance Group.
8. The number of shares is after the effect of shares delisted and
cancelled under the share buy back programme, as well as the dilution
from the additional conversion rights vesting during the period in
respect of the deferred shares held by Ubuntu-Botho.
2. EMBEDDED VALUE EARNINGS
Six months Full year
Reviewed Unaudited Audited
2006 2005 2005
VALUE OF ADJUSTED TOTAL Total Total
IN-FORCE NET ASSETS
R million R million R million R million R million
Embedded value from 522 (350) 172 114 291
new life insurance
business (1)
Earnings from existing
life insurance
business:
*Expected return on 624 - 624 591 1 193
value of in-force
business (2)
*Expected transfer (963) 963 - - -
of profit to adjusted
net assets (3)
*Operating experience (27) 59 32 137 138
variations (4)
*Operating assumption (14) (20) (34) 70 20
changes
Embedded value 142 652 794 912 1 642
earnings from life
operations
Economic assumption (165) 5 (160) (319) (316)
changes (5)
Tax changes (6) 90 12 102 (87) (179)
Investment variances 459 26 485 184 845
Exchange rate 100 - 100 36 4
movements (7)
Change in minorities (26) - (26) (18) (20)
shareholders" interest
in value of in-force
Growth from life 600 695 1 295 708 1 976
insurance business
Investment return on - 3 249 3 249 3 185 5 551
shareholders" adjusted
net assets
Change in fair value - 175 175 131 6
of share incentive
scheme
Total embedded value 600 4 119 4 719 4 024 7 533
earnings before
dividends paid,
capital movements and
cost of treasury
shares acquired
Acquired value of in 27 (27) - - -
force - Channel Life
Dividends paid - (1 535) (1 535) (1 363) (1 363)
Shares cancelled - (1 036) (1 036) - (4 446)
Cost of treasury - (134) (134) (31) (153)
shares acquired
Change in Sanlam group 627 1 387 2 014 2 630 1 571
embedded value
Annualised growth from 26,0% 16,6% 22,3%
life insurance
business as a % of
beginning value of in-
force
Annualised return on 26,2% 23,2% 20,6%
embedded value (8)
Annualised return on 26,6% 23,2% 24,4%
embedded value per
share (9)
Analysis of return on embedded value (ROEV):
June 2006 June 2005 December 2005
Reviewed Unaudited Audited
EV ROEV EV ROEV EV ROEV
earnings earnings earnings
R % R % R %
million million million
Non-life 1 512 15,6% 1 063 13,1% 2 610 33,7%
operations
Life cluster 223 33,4% 112 13,1% 190 38,3%
Santam (324) -6,8% 487 12,1% 1 198 29,7%
SIM 1 433 44,4% 355 14,9% 1 011 42,4%
SCM 50 12,5% 44 11,0% 152 34,5%
IFS 130 25,7% 65 16,5% 59 15,0%
Balanced 1 912 10,7% 2 253 11,4% 2 947 14,7%
portfolio
Value of in- 1 295 12,2% 708 8,0% 1 976 22,3%
force
Value of new 172 1,6% 114 1,3% 291 3,3%
life insurance
business
Existing life 622 5,9% 798 9,0% 1 351 15,3%
business
Expected return 624 5,9% 591 6,7% 1 193 13,5%
Operating 32 0,3% 137 1,5% 138 1,6%
experience
variations
Operating (34) -0,3% 70 0,8% 20 0,2%
assumption
changes
Adjustments 527 5,0% (186) -2,1% 354 3,9%
Investment 585 5,5% 220 2,5% 849 9,5%
variances
Economic (160) -1,5% (319) -3,6% (316) -3,6%
assumption
changes
Tax changes 102 0,9% (87) -1,0% (179) -2,0%
Minority (26) -0,2% (18) -0,2% (20) -0,2%
interest
Return on 4 719 12,4% 4 024 11,0% 7 533 20,6%
embedded value
Annualised 26,2% 23,2% 20,6%
return on
embedded value
Notes:
1. The minority shareholders" interest in the net value of new business
for the first half of 2006 amounted to R23 million.
2. Includes the expected return on both the starting value of in-force
business and the accumulation of value of new business from point of sale
to the end of the period.
3. This amount is the expected after tax profit transfer to net assets
from the value of in-force at the beginning of the year. (The expected
after tax profit/(loss) transferred to net assets in respect of value of
new business is not included.)
4. The main contributors to the operating experience variations are
positive risk experience of R120 million, partially offset by higher than
expected outflows from group stabilised bonus business decreasing
embedded value by R77 million.
5. Economic assumption changes at 30 June 2006 arise from the generally
higher level of interest rates.
6. The tax changes at 30 June 2006 relate to the reduction in the tax
on retirement funds rate from 18% to 9%.
7. The principal exchange rates used to translate the embedded value
earnings of foreign businesses are the same as those used in the
principal financial statements.
8. Total embedded value earnings before dividends paid, shares
cancelled and cost of treasury shares acquired, as a percentage of
embedded value at the beginning of the period.
9. The return on embedded value per share for the first half of 2006
includes the effect of shares delisted and cancelled under the share buy
back programme, as well as the dilution from the additional conversion
rights vesting during the period in respect of the deferred shares held
by Ubuntu-Botho.
3. VALUE OF NEW LIFE INSURANCE BUSINESS
Six months Full
year
Reviewed Unaudited Audited
2006 2005 2005
R million R million R
million
VALUE OF NEW BUSINESS:
GROSS VALUE OF NEW BUSINESS 192 127 318
SANLAM PERSONAL FINANCE 129 117 262
SANLAM DEVELOPING MARKETS 52 - -
Sanlam Employee Benefits 11 10 56
Cost of capital at risk (20) (13) (27)
SANLAM PERSONAL FINANCE (7) (9) (17)
SANLAM DEVELOPING MARKETS (10) - -
Sanlam Employee Benefits (3) (4) (10)
Net value of new business 172 114 291
SANLAM PERSONAL FINANCE 122 108 245
SANLAM DEVELOPING MARKETS 42 - -
Sanlam Employee Benefits 8 6 46
Net value of new business
attributable to:
Shareholders" fund 149 113 291
Minority shareholders" interest 23 1 -
172 114 291
NEW BUSINESS PROFITABILITY RATIOS:
Present value of new business 9 485 7 175 16 533
premiums (1)
SANLAM PERSONAL FINANCE 6 373 5 783 12 422
SANLAM DEVELOPING MARKETS 1 426 - -
Sanlam Employee Benefits 1 686 1 392 4 111
Life new business margin (1) 1,8% 1,6% 1,8%
SANLAM PERSONAL FINANCE 1,9% 1,9% 2,0%
SANLAM DEVELOPING MARKETS 2,9% - -
Sanlam Employee Benefits 0,5% 0,4% 1,1%
Annual Premium Equivalent (APE) (1) 1 424 919 2 153
APE margin (1) 12,1% 12,4% 13,5%
Notes:
1. The profitability of new business is measured by both the ratio of
the value of new business (VNB) to:
* The present value of new business premiums, referred to as `life new
business margin", as well as
* Annual premium equivalent (APE), referred to as `APE margin". APE is
equal to new recurring premiums (excluding indexed growth premiums) plus
10% of single premiums.
4. SENSITIVITY TO RISK DISCOUNT RATE at 30 June 2006
Gross value Change
of in-force Cost of Net value from base
business capital of in- value
R million at risk force %
R million business
R million
VALUE OF IN-FORCE
BUSINESS
BASE VALUE 13 312 (1 800) 11 512
*Increase risk discount 12 633 (2 125) 10 508 -9
rate by 1,0%
*Decrease risk discount 14 108 (1 435) 12 673 10
rate by 1,0%
Gross value
of new Cost of Net value Change from
business capital at of new base value
R million risk business %
R million R million
VALUE OF NEW BUSINESS
Base value 192 (20) 172
*Increase risk 162 (23) 139 -19
discount rate by 1,0%
*Decrease risk 223 (17) 206 20
discount rate by 1,0%
5. EMBEDDED VALUE METHODOLOGY
The methodology applied in preparing the embedded value report is
consistent with the methodology used in the 2005 annual report, apart
from the following:
*Improved modeling of Sanlam Life"s future paid-up policies; and
*Explicit allowance for the expected increase in maintenance unit cost
associated with the decline in the Sanlam Life in force book.
The net impact of the above changes in methodology on the value of in
force business and embedded value earnings was not material.
Subsequent to the end of the interim reporting period Sanlam Life
Insurance Limited, a wholly owned subsidiary of the Group, issued
unsecured subordinated debt instruments to the value of R2 billion. The
Group embedded value results as at 30 June 2006 have not been adjusted
for the impact of raising debt.
6. ASSUMPTIONS
Investment return and inflation
The assumed investment return on assets supporting the policyholder
liabilities and capital at risk are based on the long-term asset mix for
these funds.
Inflation linked indexation for individual life premiums is assumed to be
equal to consumer price index inflation, while that for employee benefits
is assumed to equal expected salary inflation. Unit cost inflation is
assumed to be at the same level as salary inflation.
Cost of capital at risk
The assumed composition of the assets backing the capital at risk is
consistent with Group practice and with the long-term asset distribution
used to calculate the capital requirements. The management actions
assumed for purposes of the cost of capital at 30 June 2006 are
consistent with those applied for 31 December 2005 in the 2005 annual
financial statements.
Decrements, expenses and bonuses
Future mortality, morbidity and discontinuance rates and future expense
levels are based on recent experience where appropriate. Explicit
allowance is made for the expected increase in maintenance unit cost
associated with the decline in the Sanlam Life in force book.
Future rates of bonuses for traditional participating business, stable
bonus business and participating annuities are set at levels that are
supportable by the assets backing the respective product asset funds at
the respective valuation dates.
Surrender and paid-up bases
The surrender and paid-up bases of South African life companies have been
adjusted, where applicable, to reflect the minimum standards for early
termination values agreed by the Life Offices" Association and National
Treasury. In all other respects, future benefits have been determined on
current surrender and paid-up bases.
HIV/Aids
Allowance is made, where appropriate, for the impact of expected HIV/Aids-
related claims, using models developed by the Actuarial Society of South
Africa, adjusted for Sanlam"s practice and product design.
Premiums on individual business are assumed to be rerated, where
applicable, in line with deterioration in mortality, with a three-year
delay from the point where mortality losses would be experienced.
Recurring expenses and project costs
Future investment expenses are based on the current scale of fees payable
by the Group"s life insurance companies to the relevant asset managers.
To the extent that this scale of fees includes profit margins for Sanlam
Investment Management (excluding Botswana Insurance Fund Management),
these margins have not been included in the value of in-force and new
business.
In determining the value of in-force business, the value of expenses for
certain planned projects focusing on both administration and distribution
aspects of the life insurance business has been deducted. No allowance
has been made for the expected positive impact these projects may have on
future operating experience.
Taxation
Projected tax is allowed for at rates and on bases in accordance with the
tax regimes applicable for each of the life businesses.
Allowance has been made for the impact of capital gains tax on
investments in South Africa, excluding Group subsidiaries. The assumed
rollover period for realisation of these investments is five years.
Allowance for secondary tax on companies (STC) is made by placing a
present value on the tax liability generated by the net cash dividends
paid that are attributable to the South African life companies. It is
assumed that all future dividends will be paid in cash.
Gross investment return, inflation and risk discount rate
Risk discount rates were set by adding a premium to expected equity
returns based on an assessment of the underlying risks.
The following principal economic assumptions were applied:
June December
Reviewed Unaudited Audited
2006 2005 2005
% p.a. % p.a. % p.a.
SANLAM LIFE INSURANCE
LIMITED AND SANLAM LIFE
NAMIBIA:
Fixed-interest 8,8 8,1 7,5
securities
Equities and offshore 10,8 10,1 9,5
investments
Hedged equities 8,8 8,1 7,5
Property 9,8 9,1 8,5
Cash 6,8 6,1 5,5
Risk discount rate 11,3 10,6 10,0
Return on capital at 9,0 8,4 7,8
risk
Unit cost and salary 5,3 4,1 4,0
inflation
Consumer price index 4,3 3,1 3,0
inflation
MERCHANT INVESTORS:
Fixed-interest 4,7 4,2 4,1
securities
Equities and offshore 7,1 6,7 6,6
investments
Hedged equities 7,1 6,7 6,6
Property 7,1 6,7 6,6
Cash 4,5 4,8 4,1
Risk discount rate 8,4 7,9 7,8
Return on capital at 4,7 4,2 4,1
risk
Unit cost and salary 3,0 3,0 3,0
inflation
Consumer price index 3,0 3,0 3,0
inflation
AFRICAN LIFE ASSURANCE:
Fixed-interest 8,8 n/a 7,4
securities
Equities and offshore 10,8 n/a 9,4
investments
Hedged equities n/a n/a n/a
Property 9,8 n/a 8,4
Cash 6,8 n/a 5,4
Risk discount rate 11,3 n/a 10,9
Return on capital at 9,3 n/a 7,9
risk
Unit cost and salary 5,8 n/a 4,4
inflation
Consumer price index n/a n/a n/a
inflation
BOTSWANA INSURANCE
HOLDINGS LIMITED:
Fixed-interest 12,0 n/a 10,0
securities
Equities and offshore 14,0 n/a 12,0
investments
Hedged equities 14,0 n/a n/a
Property 13,0 n/a 11,0
Cash 10,0 n/a 8,0
Risk discount rate 15,5 n/a 13,5
Return on capital at 12,6 n/a 11,0
risk
Unit cost and salary 9,0 n/a 7,0
inflation
Consumer price index n/a n/a n/a
inflation
Long-term asset mix for assets supporting the capital at risk
The assumed asset mix for assets supporting capital at risk for the
principal insurance companies was as follows:
June December
Reviewed Unaudited Audited
2006 2005 2005
% % %
SANLAM LIFE INSURANCE
LIMITED:
Equities 25 25 25
Hedged equities 35 35 35
Property 5 5 5
Fixed-interest 20 20 20
securities
Cash 15 15 15
100 100 100
MERCHANT INVESTORS AND
SANLAM LIFE NAMIBIA:
Equities - - -
Hedged equities - - -
Property - - -
Fixed-interest - - -
securities
Cash 100 100 100
100 100 100
AFRICAN LIFE ASSURANCE:
Equities 50 n/a 50
Hedged equities - n/a -
Property - n/a -
Fixed-interest 25 n/a 25
securities
Cash 25 n/a 25
100 n/a 100
BOTSWANA INSURANCE
HOLDINGS LIMITED:
Equities 66 n/a 65
Hedged equities - n/a -
Property 3 n/a 4
Fixed-interest 31 n/a 14
securities
Cash - n/a 17
100 n/a 100
Group Secretary Registered Name: Sanlam Limited
Johan Bester (Registration Number
1959/001562/06)
Registered Office Jse Share Code: SLM
2 Strand Road, Bellville 7530, NSX SHARE CODE: SLA
South Africa Isin Number: Zae000070660
Telephone +27 21 947-9111 Incorporated In South Africa
Fax +27 21 947-8066
Transfer Secretaries:
Computershare Investor Services
Postal Address 2004 (Proprietary) Limited
Po Box 1, Sanlamhof 7532, South (Registration Number
Africa 2004/003647/07)
70 Marshall Street, Johannesburg
2001, South Africa
Po Box 61051, Marshalltown 2107,
South Africa
Tel 086 1100 913
Fax +27 11 688-5201
WWW.SANLAM.CO.ZA
Directors: R.C. Andersen (Chairman), P.T. Motsepe (Deputy Chairman), J.
van Zyl (Group Chief Executive), M.M.M. Bakane-Tuoane, A.D. Botha, P. de
V. Rademeyer, A.S. du Plessis, F.A. du Plessis, W.G. James, M.V. Moosa,
R.K. Morathi, S.A. Nkosi, I. Plenderleith, M. Ramos, G.E. Rudman, R.V.
Simelane, Z.B. Swanepoel, E. van As, J.J.M. van Zyl, P.L. Zim.
Sponsor: J.P.Morgan Equities Limited
Date: 07/09/2006 08:01:13 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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