Sanlam Operational Update

Johan van Zyl

Our operational update for the period January to October 2009 has just been released on SENS (attached). Our Group Chief Executive, Johan van Zyl, comments as follows:

"The strength of new business volumes achieved at sustained new life business margins, as well as ongoing success with regard to the level of client retention, contributed to satisfactory operating results of the Group, notwithstanding the demanding business environment experienced in the first ten months of 2009.

“In difficult business conditions we managed to retain our focus on operational efficiencies while staying on course in the pursuit of our long-term strategy of optimising our capital structure, pursuing growth opportunities through acquisitions and collaboration, and exploring further opportunities for diversification through a wider range of financial solutions and geographic expansion.

“As we reported in March and September this year, our successful strategy of diversification continues to provide us with the resilience that is again a distinguishing factor of our performance in the turbulent market conditions.

“There are encouraging early indications of recovery in the developed economies and in the outlook for sustainable growth. In this regard, the South African and other emerging-market economies are expected to follow suit towards the middle of 2010. We are confident that the Sanlam Group is well positioned to benefit from the expected improved conditions,” Van Zyl said.

Operational Update – December 2009

The demanding business environment experienced in the first six months of the year continued unabated during the four months ended 31 October 2009. Given these challenging conditions the Group continued to record satisfactory operating results. Particularly pleasing are the resilient new business volumes, sustained average new life business margins and the level of client retention, as is evident in strong net business flows and satisfactory persistency levels.

Business environment

The economic conditions in our target markets remain depressed as the aftermath of the global financial crisis continues to impact on the business fortunes of developing economies in particular. Early signs of recovery in the developed economies are encouraging and bode well for a step up in the outlook for sustainable economic growth. This is however expected to take some time to manifest in any meaningful improvement in the developing world. The South African economy is expected to follow a similar recovery path with real upside only likely towards the middle of 2010.

International investment markets have recovered sharply since the end of June 2009 based on the expected turnaround in the global economy. Even though this is supported by early evidence of improved company earnings there is some doubt about the sustainability of the current market levels.

Highlights

Total new business volumes (excluding low margin white label business) increased by 2% on the first ten months of the 2008 financial year. The rest of Africa life insurance businesses continued to perform well, while risk underwriting and institutional new business volumes continued to be the main drivers of the overall growth in South African new business sales. Pressure on the retail middle-income market in South Africa persisted, with the contractual savings in Sanlam Personal Finance and retail collective investments new business volumes being impacted in particular. Sanlam UK new business sales volumes remain depressed.

Core earnings per share for the ten months ended 31 October 2009 are 1% lower than the comparable period in 2008. The strong investment market performance for the year to date is in sharp contrast to the deterioration in equity markets experienced during the ten months to October 2008. This had a major positive impact on the relative net investment return earned on the capital portfolio, resulting in a five-fold increase in normalised headline earnings per share for the ten months.

Capital

The Group continued with its cautious capital management approach. The utilisation of discretionary capital since the end of June 2009 was limited to R190 million, essentially used in respect of the capitalisation of the Indian joint venture investment businesses with SMC, the acquisition of the PSG Group’s interest in MiWay and a further contribution to fund MiWay’s start-up losses. The share buy-back programme remained suspended. All of the Group operations remain well capitalised. Sanlam Life Insurance Limited’s statutory capital covered its Capital Adequacy Requirements by 2,8 times on 30 September 2009. Santam’s solvency remained within its target range of 35% to 45%.

Salient features of the Group’s performance for the ten months to October 2009 are:

New Business volumes

· Overall new business volumes (based on 100% of recurring and single business volumes), excluding white label, are up 2% on the comparable period in 2008, with a strong contribution from institutional fund flows.

· New life business volumes decreased by 6% compared to the first ten months of 2008.

o Sanlam Personal Finance recorded a 6% decrease in new life business sales, with both Glacier and Topaz South African business reflecting improved levels of growth compared to those reported in the 2009 interim results. The impact of the continued pressure on consumers’ disposable income is, however, still evident. Risk underwriting business remains more resilient in the current environment and recorded a 10% increase compared to the first ten months of 2008.

o Sanlam Developing Markets reported growth of 13% in its new business volumes for the first ten months of 2009, a particularly satisfactory result. South African recurring premiums increased by 6%, with the deliberate scaling down of low margin direct sales continuing to limit the overall level of growth. The African operations recorded strong growth of 37%, with recurring premiums increasing by 33% and single premiums by 40%. Shriram Life’s new business performance remained in line with that of the first half of the year.

o The economic environment in the United Kingdom remained weak, with investor risk aversion being prevalent. Sanlam UK’s new life business volumes decreased by 43% as a result.

o Sanlam Employee Benefits’ new business performance improved since the end of June. New business volumes decreased by 5% on the first ten months of 2008, compared to a decrease of 47% for the first six months of the year. Recurring premiums increased by 66%, with single premiums decreasing by 33%.

o The average life new business margin for the ten months increased marginally compared to the first half of 2009.

o Persistency in the middle market remains within acceptable levels, with no marked negative experience variances for the Group.

· Gross investment business inflows are 4% higher than in 2008.

o The strain on disposable income is also evident in Sanlam Personal Finance’s new investment business in South Africa, which decreased by 7%. Unit trust sales in Namibia remained resilient and were only marginally down on the high base of 2008.

o Gross investment flows in Sanlam Investments increased by 7%, supported by strong performances from Sanlam Private Investments and the International operations. The Sanlam Private Investments performance includes a once-off, low margin inflow of some R1 billion. However, even excluding this inflow, its performance reflects a significant improvement since the end of June. Institutional collective investments new business volumes slowed down, as expected. This contributed to an overall slowdown in Sanlam Collective Investments growth, but still positive on an overall basis. Sanlam Investments’ assets under management amounted to R443 billion on 31 October 2009.

· Net fund inflows of R13,5 billion (excluding white label) are particularly satisfactory in the current environment. Life net fund flows improved from a marginal net inflow in 2008 to R1,6 billion in 2009.

Earnings

· Net result from financial services for the ten months to 31 October 2009 is down 7% on 2008.

o Sanlam Personal Finance achieved a solid performance taking cognisance of the impact of lower interest rates and fund based fee income on its financial services income.

o Sanlam Capital Markets continued to outperform significantly compared to its 2008 results.

o Sanlam Developing Markets’ contribution was negatively impacted by once-off items, including restructuring costs associated with the integration of the Channel Life and Sanlam Sky operations.

o Santam’s results continue to be impacted by the large commercial claims during the first few months of 2009.

o Volatile equity markets and overall lower market levels continue to have an adverse impact on Sanlam Investment’s results, with net operating profit decreasing in line with the overall lower average level of assets under management.

· Core earnings per share are 1% lower than 2008.

· Normalised headline earnings per share for the ten months to October 2009 increased five-fold, primarily due to the relatively strong investment market performance for the period compared to a very low comparative base in 2008. Markets were at a low point at the end of October 2008 but recovered towards the end of the 2008 financial year which should, together with continued market volatility, impact on the headline earnings growth to be reported for the full year.

Outlook

The challenging economic environment is likely to impact on growth in the Group’s key operational performance indicators. Shareholders need to be aware of the impact of financial market volatility on Group earnings and Group Equity Value.

The information in this operational update has not been reviewed or reported on by Sanlam's external auditors. Sanlam’s annual results for the year ended 31 December 2009 are expected to be released on 11 March 2010. Shareholders are advised that this is not a trading statement as per section 3.4 of the JSE Listings Requirements.