Post on 28-Mar-2018
UBS GLOBAL INSURANCE CONFERENCE
Growth Prospects in Emerging Markets
Sanlam (CEO – Johan van Zyl) : June 2009
Agenda
• Group Overview
• Sanlam in the Context of the SA Market
• Strategy and Growth opportunities
o Tapping into Existing Client base (Mass Affluent Market)
o Exploring New Growth Markets (Lower-income Market)
o Exploring New Distribution Channels
o Writing Profitable New Business
• Strategy & Outlook
GROUP OVERVIEW
Our 91-year History
The Extent of our Business
• Total assets under management = R409 billion (£31bn)
• Total new business received = R100 billion (£7.5bn)
• Operating profit before tax = R4.3 billion (£323m)
• Market Capitilisation = ~ R37 billion (£2.8bn)
• Personnel = 9,000
Core Purpose & Vision
The Leader in Wealth Creation
Sanlam‟s core objective is the achievement of a
sustainable, superior rating to deliver the
highest value to shareholders over the long-term
Transforming Sanlam from a mutual insurer into
a world-class diversified Financial Services Group providing
a wide range of client-centric solutions in retail and institutional
markets in both South Africa and other targeted countries
Sanlam Operational Structure
Retail Cluster Institutional
Cluster
Short-term
Insurance
Cluster
Net operating result:
R 1,757m
New bus volumes:
R36,014m
Net operating result:
R 737m
New bus volumes:
R51,957m
Net operating result:
R 439m
New bus volumes:
R12,165m
Net operating result:
(R 131) mill
Corporate &
Other
Sanlam
Limited
Solution‟s Offering in Retail & Institutional Sectors
Retail
• Investments
• Savings
• Risk products
• Home Loans
• Trusts and Estate planning
• Private Client Portfolios
• Stock-broking
• Short-term insurance
• General Loans
• Health Administration
Institutional
• Pension Fund Administration
• Group Risk provision
• Group Investments and Annuities
• Asset Management – Single and Multi-
Manager
• Private Equity
• Niche debt and equity financial
engineering solutions
• Short-term insurance
• Hedge Funds (International)
Current Geographical Footprint
Current
“LIFE” IN SA
Striking Parallels between Developed Market Economies
High Penetration Rate in SA
Italy
Oceania
North America
Brazil
Venezuela
GermanyLatin Am. &
Caribbean
Europe
Mexico
UK
South Africa
France
South Korea
Japan
PR ChinaAfrica
Asia World
0
2
4
6
8
10
12
14
16
1000 10000 100000
Source: Swiss Re, Sigma No. 3/2008
Life P
enetr
ation (
%G
DP
)
GDP per Capita (log scale)
Market share of SA retail single new
business premiums
Highly Concentrated Market in SA
Remainder
10%
Sanlam
15%
Old Mutual
23%
Liberty
23%
Metropolitan
7%
Momentum
13%
Discovery
9%
Market share of SA retail recurring
new business premiums
Remainder
20%
Discovery
0%
Momentum
11%
Metropolitan
6%
Liberty
24%
Old Mutual
17%
Sanlam
22%
Summary of SA Life Market (Mass Affluent)
• The high premium-to-GDP ratio has often been used to suggest that
SA has high penetration levels and is a mature market
• A large proportion of premium income is transfer business between
life insurers instead of new savings, or transfer from other financial
services firms
• Sizeable portion of SA “life insurance” is management of existing
assets and drawdown / annuity products
• The ratio of retirement assets to GDP is running at around 80%
which is comparable with developed countries where private sector
pension plans or private pensions play a key role
STRATEGY & GROWTH OPPORTUNITIES
A Sanlam Case Study
Finding Growth in a Mature Market
Global Drivers of Change
From a global perspective, the following are among the key trends
impacting life insurers...
• Many developed-insurance markets have become saturated
• Customers are falling into very distinct behavioural segments
• Multi-distribution is on the rise as networks specialise and evolve
• Bancassurance: A successful network, however its enviable position
could still be shaken by market forces
• Searching for future growth, with a spotlight on developing markets
• Regulatory pressures, driven by increased consumerism
• Transformation (SA trend only)
Rationalisation and Drivers of Change at Sanlam
• Growth based on revenue and profit enhancement:
o Client centricity (focusing on a broader range of solutions)
o Changing consumer needs (increased consumerism)
o Cross-pollination opportunities
o Need for entering new growth markets
o Focus on multi-distribution initiatives
• Improving overall efficiencies:
o Diversifying the total service portfolio to reduce risk
o Cost focus
o Capital efficiency focus
• Transformation and People
Diagrammatic Representation of Strategy
• Maximising Returns for Shareholders
• Focus on Client-Centric Solutions
Returns
(ROGEV)
Growth /
Earnings
Operational Efficiencies
Diversification
Net Business Flows
Capital
Efficiency
Optimal Application
Strategic Investments
Return of Excess
Focus on Profitable Growth
Key drivers in maximising Sanlam‟s operational performance and
delivering sustainable, profitable growth:
• Management focus – New business growth, net flows, cost
management
Returns
ROGEV
Growth /
Earnings
Operational Efficiencies
Diversification
Net Business Flows
NEW GROWTH OPPORTUNITIES
i) Tapping into Existing Client Base
(Mass Affluent Market)
Consumerism & Increasing Share of Wallet
Client
Centricity
Integrated services & a shift from product towards
needs-orientated perspective
Listening to What our Clients Want
Changing Consumer Demands Example of Flows Moving Off-Balance Sheet
0.44
0.63
0.870.79 0.74 0.75
1.01
1.65
1.871.79
2.11
1.77
0
100
200
300
400
500
6001
99
7
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
*
Rb
n
0.0
0.4
0.8
1.2
1.6
2.0
2.4
tim
es
Mutual Funds Life insurance - Premiums received Mutual Funds vs Life (%)
Development of SA savings industry: Total new business flows
Source: SARB *Note: Life sales on an annualised basis for 9-months ended Sept-08
Sanlam Adapting to Changing Demands Building Capacity to Exploit New Trends
139 11 11
1419 1818
27
43
51
66
83 824.48
2.91
1.47
4.04
4.55 4.674.48
0
10
20
30
40
50
60
70
80
90
100
2002 2003 2004 2005 2006 2007 2008
Rb
n
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
tim
es
Life Non-life Ratio of non-life to life
Grow alternative revenue sources: Sanlam Group New business flows
CAGR 2002-2008 (+22%)
Retail
Clients Medical
Car &
house
hold
cover
Wills &
trusts
Home
loan
Financial
Education
Savings
& Invest-
ment
Short-
term
Education
provision
Medium
term
credit
Retire-
ment
Banking/
Trans-
actional
Risk
cover
Wealth Management
Life-
style
Personal
Cover
Divestment from Absa,
allows Sanlam to
operate directly in
these banking-related
markets
Institutional
Clients
Specialist:
International
Capital
Markets
Employee
Benefits
SPE
SIM
Blue
Ink
SSS
Sanlam
Proper-
ties
Simeka
SAMI
SEB
Risk
SIM
EM
incl Nam
SUS
SMMI Cpt &
Ldn
Coris
SCI
Octane
SPI
SIM
Global
SCM
Specialist: SA
Traditional IM:
International
Traditional IM:
SA
Cross Pollination Opportunities Creating the Ability to Cross-sell within the Group
Traditional
life assurance
Investment
management
Other financial
services
Short-term
insurance
Cross Pollination Opportunities (continued…)
Untapped Opportunities within the Group
77%
55%52%
45%
37%
30%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
SPF (Life only) SCI Santam Wills Glacier SHL
mil
lio
n
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
No. of total clients - lhs % of clients with only 1 product (ie untapped potential) - rhs
Cross-sell Potential at SPF: Clients with a single provider (% untapped)
SPF‟s life clients have the largest
untapped potential of 1.3m clients
NEW GROWTH OPPORTUNITIES
ii) Tapping into New Markets
(Lower-income Markets)
SA, Rest of Africa & India
a) Growth Opportunities in South Africa
Entry-level Market (ELM) and Black Diamonds
Entry-level Market in SA
ELM
87%
Affluent
1%Middle-
income
12%
Entry level market (ELM)
• Current size of ELM: 18-20 m people
• Only 20-30% of ELM have an insurance-related product
Growth Potential – Size of RSA ELM
Too poor
4,9m
No regular
income
5,4m
No need
0,4m
Potential
2,1m
Has funeral/
burial insurance
5,2m (30%)
Does not have
12,8m (70%)
Has Access
2,5m
No Access
10,3m Total Market
18m
Black Diamonds in SA
Black emerging middle-class: Black Diamond
• 3m Black Diamonds at 3Q08 (+15%)
• Spending power increased to R250bn in 2008 (40% of SA)
• Accounts for 67% of total black spending power
• Black Diamond spending power now equals that of total White
spending
Source: UCT Unilever Institute
RSA Strategic focus going forward
• Improved regional penetration in South Africa
• Building our multi-channel distribution strategy
• Value for money client offerings
• Leverage more off the Sanlam brand
• Operational efficiencies to be improved (NTU, lapse rates, costs)
• Ongoing improvement in client service (e.g. Ombud complaints)
• Addressing government‟s social reform initiatives
b) Growth Opportunities in the Rest of Africa
Strong Growth for at least the next 3-5 years
Growth Potential – Presence in Rest of Africa
Key Start Population Policies
SA (ELM) 1982 45 m 933,000
Botswana 1995 2 m 250,000
Kenya 2000 37 m 100,000
Ghana 2000 23 m 95,000
Zambia 2002 12 m 30,000
Tanzania 2005 39 m 8,000
Rest of Africa – Prospects / Opportunities
• Why should we be in rest of Africa?
o Low insurance penetration (3%) and less competition
o Diversification of our business
o Strong economic growth (but slowdown recently)
o Higher margins available
o Does not consume excessive time (small support team)
• Individually small, but collectively meaningful
Rest of Africa – Key Challenges
• Competition for wallet from micro lenders
• Impact of economic crises (commodity driven economies) –
persistency
• Insurance skill shortages – management, technical, operational
• Premium collection capabilities – many countries cash driven
• Evolution of legislation and regulations
• Increase in competition – more appetite for Africa
• But opportunity to help to shape the industries
Rest of Africa – Key Focus Areas
• More focus on bancassurance & credit providers
• Expansion of distribution channels
• Group life business and credit life
• Overall product diversification
• Focus on operational efficiencies
o Distribution capabilities
o Quality of business (lapses, NTU‟s)
o Cost efficiencies
• Improved support out of South Africa
• Further expansion into Africa (eg Nigeria)
c) Growth Opportunities in India
Meaningful Contribution to Growth in >+5 years
Contribution to emerging market life real premium growth,
1998 – 2007
Source: National Insurance Authorities, Swiss Re Economic research & Consulting
Growth Potential – India Example: The Advantages of India – Insurance linkages
The country is looking at an annual
GDP growth of 7-8% (medium term)
Insurance penetration of 4.4%
following entry of foreign players
High expected growth in personal
income and aspirations
Need for strong financial planning
Markets in most developed countries
have saturated
This makes the Indian market more
attractive for global insurance majors
Huge opportunity to tap semi-urban
and rural markets
There exists a strong urban and rural divide with regard to savings
Over 1 Billion Indians – Strong economic growth
Majority of the population does not
have adequate financial protection
Market penetration in developed
markets: avg 5.2 policies per client
Low penetration levels in India: 1.3
policies (life and non-life) per client
Successful Tie-up with Shriram
• 26% Holding in Shriram (with the right to go to 49%), giving Sanlam
access to 19,000 registered agents + 10m client base
• After 1st three years of operations – growth in new business levels
on par with competitors, but lowest cost producer (30% cost to APE)
• Only 2 private foreign start-ups have been cash positive from an
earnings perspective (Shriram is one of them)
• Partnership moved into short-term insurance market, as well as a
recent tie-up with SMC on the wealth management side
• „NEW Channel‟ recently launched in North, East and West of India
o By 2011, we will have 5000 field officers, and 500 business
managers
o Target to double existing business volumes within 5 years
Why we are Positive in Terms of Growth?
• Good growth prospects available in South Africa – relative low
market share and scope for improved regional penetration
• Rest of Africa – collective high margins, scope for growth /
increased penetration
• India – country with vast opportunities (but increasing competition)
• Selective structural opportunities :
o In RSA – on distribution front
o New countries to be added over time
• BUT – We need to monitor / manage the following :
o The “basics” in every business (retention, costs, distribution)
o Changing legislative environment
NEW GROWTH OPPORTUNITIES
iii) New Distribution Channels
Exploring Non-traditional Channels
Multi-Distribution Initiatives
• Insurers are being forced to multi-distribute to retain market access,
and increase wallet share
• Highly specialised matrix of distribution initiatives, with each network
addressing a specific segment of the market, for a specific need
• Customers intend to use different networks into the future, internet
will continue gaining market share
• Half of customers who use the internet to gather information for their
purchase decisions ultimately buy insurance via the internet
Multi-Distribution Initiatives (continued…)
The Internet is Growing the Fastest
Networks in Mature Markets : Mapping of 3-year Change in
Market Share vs. Relative Strength of Top 3 Purchase Influencers (%)
Source : Capgemini analysis, 2007
(Another winner, only held
back due to their relative
weakness of brand)
(Sanlam, Santam and PSG
recently launched MiWay –
Direct & Internet Solution
Provider)
Multi-Distribution Initiatives (continued…)
Highly specialised distribution networks
Distribution Networks in Mature Markets Mapping of Product Specialty
vs. Strength of Professional Advice (%)
Source : Capgemini analysis, 2007
Another winner, only held
back due to their relative
weakness of brand
Brokers remain critical in distribution process – especially iro
advice driven sales of complex life/savings solutions
Major Trend in SA Distribution Environment Shift towards Higher Average Recurring Premiums
• Unit costs of sale too high: FAIS, FICA and new commission
dispensation likely to push advisors up-market
• Since 2005, average recurring premium file-sizes grew by 11%pa in
SFA and 14%pa in broker channel (inflation 6%)
Cumulative growth in gross average recurring premiun size vs
inflation (indexed)
90
100
110
120
130
140
150
160
170
180
190
200
210
2000 2001 2002 2003 2004 2005 2006 2007 2008
Ave CPIX SFA (incl wealth) Broker
Cumulative growth in average recurring premium size vs inflation (indexed)
SA Distribution Environment Current and Proposed Distribution Space
Experimental / New
Opportunities
[SanlamConnect]
% o
f busin
ess →
Exis
ting m
odel
% o
f busin
ess →
NS
SS
Lower Income Middle Income Higher Income
Existing distribution
models
NSSS
NEW GROWTH OPPORTUNITIES
iv) Writing Profitable New Business
Focus on Costs
Focus on Cost Efficiencies
• Increased competition and historically lower inflation levels –
stringent focus on costs
33.6%
31.4%
29.1%
27.1%27.8%
28.4%
42.1%
38.4% 38.1%36.8%
35.6% 35.3%
25%
30%
35%
40%
45%
50%
2003 2004 2005 2006 2007 2008
Group admin cost ratio SPF admin cost ratio
Group administration ratio (%)
Securing Sustainable Profitable Growth Growth in Value of New Business
• Sanlam‟s value of new business is becoming a more meaningful
contributor to Return on EV
3.3%3.6%
4.0%
4.5%
0
100
200
300
400
500
600
700
2005 2006 2007 2008
-0.75%
0.00%
0.75%
1.50%
2.25%
3.00%
3.75%
4.50%
5.25%
SPF SDM Other (SUK & SEB) % of net VIF (rhs)
Split of Sanlam‟s value of new business (VNB) per cluster (Rm)
Securing Sustainable Profitable Growth New business margins
• Sanlam‟s new business margins now exceed its listed large-cap
peer group
Source: Company Financials
Gross Sanlam new business margins vs sector (PV NBP basis)
2.8%
2.3%2.4% 2.5%
1.8%
2.1%
2.4%
2.7%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
2005 2006 2007 2008
Industry (ex-Sanlam) Sanlam
Securing Sustainable Profitable Growth Earnings growth
• Sanlam has created a sound platform from which to grow profitably
Group net operating profit (Rm)
Other
financial
services
Life
0
500
1 000
1 500
2 000
2 500
3 000
3 500
2003* 2004 2005 2006 2007 2008
SPF SDM SEB SUK SIM SCM SNT IFS
5 year CAGR of 20% pa (per share basis)
* Note : Comparative number not restated for Group restructuring
51%
5%
6%2%
20%
1%
15%
SPF SDM SEB SUK SIM SCM SNT
Diversification of Solutions Profile Supported Higher Profitability
70%0%0%0%
12%
4%
14%
2003
2008
Pre-tax
operating
profits R2,933m R1,541m
• Sanlam‟s profits have increasingly diversified and almost
doubled over the past 5 years
Insights into Strategy
Strategic Focus for 2009 and Beyond
Goals set for 2009 Delivering sustainable growth
No fundamental shift to existing strategy…
However, we need to lift the performance bar and further strengthen our long-term strategic position
• South Africa:
o Improved efficiency and performance
o Continued selective diversification
o Transformation
• International:
o Position ourselves to have a leading position in the financial sector in selected emerging markets
o Pursue a differentiated / niche strategy, in order to have a specialist position in financial services in developed markets
Particular focus areas for 2009
No major changes, but adjustments in the short term to account for
economic realities:
Focused on de-risking balance sheet:
• Group‟s exposure to credit is being closely monitored
• Continue with capital management program
• Conservative approach to growth opportunities
Internal focus:
• Strong focus on maintaining and growing distribution footprint
• Strong focus on cost management
Outlook
Business Environment :
• Uncertainty and volatility in global financial markets
• Tough economic climate
• Regulatory change
Challenges:
• Lower asset base
• Persistency
• Cost control
Group‟s portfolio is adequately diversified to spread the risks &
creates a sound platform from which to grow
Thank you
Questions?