integrated report - Santam

integrated report - Santam

INTEGRATED REPORT 2016 OUR STORY IN 2016 Our promise to deliver Insurance good and proper was tested by the worsening claims environment this year,...

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INTEGRATED REPORT

2016

OUR STORY IN 2016 Our promise to deliver Insurance good and proper was tested by the worsening claims environment this year, compounded by financial market volatility, low domestic growth, limited consumer disposable income, growing competition, soft premium rates, higher auto repair and related costs, and increasing claims associated with systemic risk. What emerged, was the confirmation that what matters most to you, our stakeholders, matters most to us. This was endorsed by business conversations about the future, wide engagement through partnerships and feedback from our clients. We share some of these real experiences with you in this report. Seven stories highlight what mattered most to you: 1. Subsistence farmers struggle to become financially astute commercial farmers, who can manage their risks and access markets and funding. We have found ways to help. 2. A 10-year old has her first experience of theft, the insurance claims process and the relief of being able to replace her phone. 3. Collaboration is taking city infrastructure development in Africa to the next level – where insurance partners and city officials create proactive solutions together. 4. Fires are devastating for shack owners: smoke alarms offer a solution for vulnerable communities that form part of Santam’s Risk and Resilience programme. 5. When a client is in a dangerous situation, we are sometimes in a position to offer more than just telephone support. 6. Many low-income households are battling with debt, but find help and learn to manage with the assistance of agencies that are supported by the Santam Resilience Investment (SRI) Fund. 7. We tackle cyber and safety issues creatively through a new campaign and a blockchain hackathon. These examples illustrate how we operate in an ever-changing world and how client needs evolve over time. For Santam, this means that we have to provide protection and the opportunity for people to access the cover that they need for the things that matter to them, wherever they are. It is also what Insurance good and proper means: we make it our business to understand what clients value, and know that different things are important to different people. Please share your experience of reading this report via one of the following channels:

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A FEW TIPS FOR READERS OF THIS REPORT −

There is a glossary of insurance and financial terms on page 132.



The assurance process and elements are explained on page 5.



The disclaimer related to forward-looking statements is on page 5.



Santam’s full set of reporting elements can be found on page 5.



Santam’s performance over the long term (seven years), according to key performance indicators, is set out on page 130.

For more information, please visit www.santam.co.za.

CONTENTS

CONTENTS 4

ABOUT THIS REPORT

5 8

SCOPE AND BOUNDARY

THE ROLE OF INSURANCE IN SOCIET Y MATERIAL MATTERS AND KEY FUTURE DRIVERS

22

GROUP AT A GL ANCE

40

LEADERSHIP REPORT

58

CHIEF FINANCIAL OFFICER’S REPORT

68

CORPORATE GOVERNANCE REPORT

76

MESSAGE FROM THE CHAIRMAN

77

CORPORATE GOVERNANCE REPORT

88

RISK MANAGEMENT REPORT

92

REMUNERATION REPORT

98

TRANSFORMATION REPORT

101

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14

VALUE-ADDED STATEMENT

104

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

130

APPENDICES

130

SE VEN-YE AR RE VIEW

132

GLOSSARY

134

ADMINISTRATION

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INSURANCE GOOD AND PROPER IS ABOUT PEOPLE. Clients trust us to protect what is important to them and to put them at the centre of what we do. The qualities we value most within our business are humanity and integrity. We strive to see beyond the facts in front of us and care about the human behind them. Our employees are our most valuable human capital assets. It’s with their skills, resourcefulness and hard work that we can live up to our promise of insurance good and proper. We make it our business to help drive the economy, growth and development in Africa and internationally, as well as create jobs and develop infrastructure. This is insurance that invests in people and the environments they work and live in. It is one of the reasons why we are South Africa’s leading general insurer and have also been certified a Top Employer in South Africa in 2017.

ABOUT THIS REPORT

ABOUT THIS REPORT TARGET AUDIENCE AND CONTENT Santam Ltd (Santam or the group) is a South African company listed on the JSE since 1964 under the insurance (non-life) sector. The company was founded in 1918 and its headquarters are in Cape Town, South Africa. This integrated report reviews the financial year for the 12 months ended 31 December 2016 and covers general insurance and investment operations in South Africa and Namibia, as well as investments in emerging market insurance companies through Sanlam Emerging Markets in the rest of Africa, India and Southeast Asia.

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The report provides information targeted at Santam’s providers

In this report, all references to Santam refer to the group. The Santam branded business units (Santam Commercial and Personal, Santam Specialist, MiWay and Santam re) and subsidiaries are mentioned by name when discussed. This report includes summary consolidated financial statements. Cross-references to notes in this report refer to the full set of the annual financial statements, available on www.santam.co.za. The Santam broad-based black economic empowerment (BBBEE) certificate is available on the website.

of financial capital. The interest of other stakeholders was also

APPROVAL OF THIS REPORT

considered in determining what is material and appropriate to

The 2016 integrated report was reviewed by the audit and the social,

include. The development of content was further informed by the

ethics and sustainability committees. The reviewed report was

scenario process and outcomes described from page 14. The process

recommended to the board and final approval was granted on

provided a robust view of what matters most – those elements that

1 March 2017. On this basis, the board is satisfied that the report

are material for the creation of value. Accordingly, the structure of

offers the necessary substance for the providers of financial capital to

this report was adapted, with the further inclusion of real-life stories

make considered evaluations about the performance and sustainable

that highlight how the six capitals of value creation (as described by

value creation ability of the group.

the International Integrated Reporting Council’s Framework), the group’s strategy and risk management efforts created value in specific circumstances. Refer to page 11 for information about the six capitals. The content remains comparable to the 2015 report in terms of the entities covered, the measurement methods applied and time frames used for financial and non-financial data. The following events can impact comparability and should be kept in mind when reading the report:

NAVIGATION The following icons are applied throughout the report to improve usability and show the integration between the relevant elements of the report.

THIS ICON IS USED TO REFER TO THE SANTAM WEBSITE: WWW.SANTAM.CO.ZA. THIS ICON IS USED FOR CROSS-REFERENCES IN THE REPORT.

The acquisition of a 30% interest by SAN JV (Pty) Ltd (SAN JV) in Saham Finances SA (Saham Finances) was completed during the first quarter of 2016. Saham Finances is the insurance arm of the Saham Group. Santam and Sanlam Emerging Markets (SEM) hold 25% and 75% of the shareholding in SAN JV, respectively. Santam’s effective interest in Saham Finances is 7.5%.

A further economic interest of 8% in Shriram General Insurance Co Ltd (SGI) was acquired during the second half of 2016.

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ABOUT THIS REPORT

SCOPE AND BOUNDARY REPORTING FRAMEWORKS, GUIDELINES AND STANDARDS This report was developed with due consideration of the following reporting requirements and principles: − King III Report on Governance for South Africa, 2009 (King III) − International Financial Reporting Standards (IFRS) − The Companies Act, 71 of 2008, as amended − JSE Listings Requirements − International Integrated Reporting Council’s (IIRC) Integrated

CONTENT ASSURANCE Santam’s 2016 integrated report is the result of combined material input from all the different business units reporting on their activities and achievements for the year. PricewaterhouseCoopers Inc provided assurance of the summary consolidated financial statements included in this report. Data relating to BBBEE was verified by AQRate. Non-financial indicators were reviewed by an internal process that includes approval by the executive committee.

In this report, certain statements are made that are not historical facts and relate to analyses and other information based on forecasts of future results not yet determinable, relating, among others, to gross premium growth levels, underwriting margins and investment returns. These are forward-looking statements, as defined in the United States Private Securities Litigation Reform Act of 1995. Words such as “believe”, “anticipate”, “intend”, “seek”, “will”, “plan”, “could”, “may”, “endeavour”, “project” and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve inherent risks and uncertainties and, if one or more of these risks materialise, or should the underlying assumptions prove incorrect, actual results may differ from those that were anticipated. Forward-looking statements apply only as of the date on which they are made, and Santam does not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

REPORTING ELEMENTS The elements of Santam’s full reporting suite can be accessed through the following channels:

Printed documents

Santam website

Target audience

2016 integrated report with summary consolidated financial statements





Providers of financial capital

Full annual financial statements





Providers of financial capital

Notice and proxy of the annual general meeting





Shareholders

Sustainability-related information and downloads





All stakeholders

Reporting element

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Reporting Framework

FORWARD-LOOKING STATEMENTS

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KNOWING WHAT MATTERS MOST TO OUR CLIENTS COMES WITH EXPERIENCE. We have been offering personal insurance for almost 100 years. Over this time, we made it our business to understand what is most important to our clients and the risks they face. That is how, whatever our clients value most, we give them the peace of mind that they are covered by South Africa’s largest general insurer. An insurer that is there for them 24/7 and able to put them back in the same position they were before any loss occurred, while also paying out more claims than any other insurer.

THE ROLE OF INSUR ANCE IN SOCIET Y

THE ROLE OF INSURANCE IN SOCIETY – Massive fire burns stored oil, buildings and eight cars – National syndicate linked to more than 100 cars hijacked in Eastern Cape – Armed robbery at boating dealership in Gauteng

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– Burglars clean out three houses in one street – Heavy flooding in Lagos destroys roads and bridges

These headlines can mean financial ruin for businesses, families

Resilience, which highlights the emergence of a protection gap

or individuals. If any one of them had to absorb the cost and trauma

as societal exposure to climate risk increases while insurance

on their own, even a small incident could set them back for years.

penetration declines.

Most of these real examples also have a systemic impact beyond the primary incident, placing a drain on national and local governments,

Furthermore, as the disposable income of consumers continues

small businesses in the area or vulnerable communities.

to shrink on the back of rising inflation and higher interest rates, insurance is often an early option to trim expenses. Unexpected

An event does not have to be big to cause harm – small, recurring

financial events or problems are usually not budgeted for, forcing

natural disasters that continually damage critical public

reliance on credit to survive or meet monthly financial commitments.

infrastructure, housing and the means of production are just

Being insured means not having to incur unnecessary debt. This

as detrimental.

frees up income that can go towards savings and investments, which in turn contributes to sustainable economic growth and a

Risk management is society’s way of handling man-made and natural

healthier society.

accidents and disasters, so that people and their activities can better deal with events that are an inevitable part of life. Much can be done by individuals, business and governments to manage risk, but a portion always remains – and it is this exposure that the insurance sector takes on: the risks that are transferred or “insured” against. The main role of insurance is to pool risk and ensure that consumers or businesses are left in the same financial position that they were in before the incident that led to them lodging a claim with their insurer. Unfortunately, the high rate of underinsurance or risk protection gaps means that many households and entrepreneurs have to take on most of or all the financial risk incurred when it comes to unexpected losses. Insurance penetration in emerging markets remains low. According to a new Swiss Re sigma study, insurance penetration in 21 frontier markets in sub-Saharan Africa, Latin America, the Commonwealth of Independent States and Asia is at a rate of less than 1.5%. This is echoed in the 2016 ClimateWise report, Investing for

A CRITICAL ELEMENT OF THE FINANCIAL SERVICES SYSTEM An economy requires a functioning and stable financial system to work effectively. The European Central Bank (ECB) defines financial stability as a condition where the financial system can withstand shocks without giving way to processes that impair the allocation of savings to investments and the processing of payments in the economy. Financial systems are becoming more complex, and stability – previously associated with the banking sector – is now dependent on a wider network of players, including insurance companies. Therefore, the financial services system is highly regulated. Within this system, the insurance sector acts as a conduit for households and businesses to transfer risks to entities that are better suited to handle them. Risk managers and carriers are in the best position to prevent and share risk, thereby enabling society to function, innovate and initiate projects that would otherwise be less feasible, and contributing to economic growth and sustainability.

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THE ROLE OF INSUR ANCE IN SOCIET Y

THE INSURANCE BUSINESS MODEL General insurance companies have two main sources of revenue: premiums and investment income on insurance funds from insurance activities, and investment returns on shareholder investments. Insurance income is generated by upfront premiums. Insurers therefore have strong operating cash flow without requiring alternative funding. Insurance activities typically include the following elements:

THE INSURANCE BUSINESS MODEL

DESIGNING POLICIES TO COVER RISKS

CLIENT CONTRACTING AND COMMUNICATION THROUGH THE DISTRIBUTION NETWORK (INTERMEDIARIES AND DIRECT)

MANAGING CLAIMS COSTS AND SUPPLIER NETWORK

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UNDERWRITING AND PRICING OF RISKS BASED ON UNDERSTANDING AND ASSESSMENT

CARRYING AND DIVERSIFYING RISK THROUGH REINSURANCE

MARKETING AND BRANDING

CLAIMS PAYMENT AND ASSISTANCE, WITH ASSOCIATED IMPLEMENTATION OF PREVENTION INITIATIVES

SYSTEMS AND ADMINISTRATIVE SUPPORT FOR DISTRIBUTION AND CLAIMS MANAGEMENT

INVESTMENT MANAGEMENT AND CAPITAL ALLOCATION

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THE ROLE OF INSUR ANCE IN SOCIET Y

Clients select a policy based on the cover that they require and the

Reinsurance – as a form of insurance cover for insurance

trust they have in the insurer or brand. Complex commercial or

companies – is an insurance company’s safety net: it reduces the

specialist insurance options further depend on advisory input from

volatility of their results due to large claims and helps balance

an intermediary.

available capital.

The policy is priced by using several modelling techniques to predict

For the business model to function, an insurer needs a sophisticated

client behaviour. For example, analytics include the level of cover,

administration system, a reliable network of suppliers, and access to

the claims history of groups of people with similar characteristics

specialised skills, such as actuarial and underwriting.

and requirements, potential safety features, replacement value and demographics. In the contracting process, the client agrees to share

SANTAM’S CONTRIBUTION TO INSURANCE

risk with the insurer, which takes the form of excess payment for the

Santam creates value by contributing to a robust, inclusive and

client in the case of a claim. When the client suffers an insured loss, they lodge a claim and the insurer, which has agreed to shoulder the majority of the risk, pays out the claim to reimburse the client.

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Initiating a claim is often called the “moment of truth” in an insurer’s relationship with a client. A positive claims experience ensures client loyalty and persistency, whereas a negative experience can cause farreaching reputational damage for the insurer, including penalties. Insurance fraud occurs in a variety of forms: from slightly exaggerated claims to deliberately causing accidents or damage. Submitting a false claim is a crime and results in higher premiums as it impacts the analytic ratings, which ultimately affect affordability

and stability – in all the markets where it operates. This supports sustainable social, environmental and economic development. Santam considers all six capitals to be able to effectively manage the size, quality and diversity of the risk pool in which the group operates. Long-term sustainability relies on the group’s ability to manage systemic risk through partnerships, to diversify its geographic footprint, product and service offering, and to improve operating efficiency. The group’s diversified portfolio of business with good growth prospects is backed by a healthy financial position and a supportive majority shareholder. Santam is also committed to consumer financial education and increasing access to insurance for emerging and uninsured communities and individuals.

for all clients.

Santam’s commitment to its clients is captured in the brand

Income generated through premiums is invested to generate a return

by focus areas that are continuously refined to entrench the group’s

for shareholders, and to provide a capital buffer that enables the insurer to maintain liquidity to cover liabilities associated with claims made against the policies that they underwrite. Therefore, underwriting is the key determinant of an insurance company’s profitability. Underwriting is the process of evaluating and pricing the risk that each prospective client poses. A good underwriting process will allow the insurance company to optimise the balance between a policy premium and potential claims against the policy.

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responsible general insurance industry that offers stakeholders value

promise: Insurance good and proper. The group’s strategy is defined competitiveness and resilience, and to deliver ongoing sustainable and positive performance.

Insurance companies have the potential to positively impact all six capitals – the stocks of value that are affected or transformed by business activities and outputs. This is possible given insurers’ ability to indirectly influence socio-economic activities through underwriting practices, claims management and risk products. Increasing insurance penetration and reducing the risk protection gap benefits society in any market where an insurer operates.

SIX CAPITAL INPUTS, OUTPUTS AND OUTCOMES FINANCIAL

THE ROLE OF INSUR ANCE IN SOCIET Y

SIX CAPITAL INPUTS, OUTPUTS AND OUTCOMES

Financial capital is generated through gross written premiums, an increased underwriting margin and investment returns, and conserved through efficiency initiatives. It funds business activities – including acquisitions and investment in technology, which generate more financial capital over the long term – and is distributed in the case of claims, as dividends or group expenses, such as the payment of salaries. It is also applied to improved socio economic conditions, thereby making it a sustainably available capital. Read the real-life story on page 31 to see how this capital can be transformed and regenerated.

Manufactured capital relates to infrastructure used by insurance companies and the physical assets of clients that are insured. To operate, insurers use buildings and systems, with a growing footprint as they expand into new territories. Insurance companies also provide insurance cover for manufactured capital and invest funds in infrastructure development projects. Insurers are therefore highly invested in the landscape in which they operate, as it constitutes a large portion of the risk pool. Insurance companies’ influence on spatial, green design and the development of capabilities such as geocoding, can assist in protecting and maintaining this capital. Read more about how the sustainability of manufactured capital is ensured through initiatives such as Dar es Salaam on page 33 or the Partnerships for Risk and Resilience on page 50.

HUMAN

Human capital takes the form of employees who work for insurance companies, intermediaries and supply chain partners. This capital depends on the availability of appropriate skills, and efforts by the industry to invest in, expand and transfer skills. Multinational groups are in a strong position to transfer skills through board memberships, secondments and group-wide training initiatives. Santam’s commitment to human capital growth is evident from its focus on improving employee diversity, developing supply chain preferential partners and collaborating with industry associations, such as the Financial Intermediaries Association of Southern Africa (FIA) and the South African Insurance Association (SAIA) to develop a black broker base for the industry.

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MANUFACTURED

Read more about human capital development in “The right people” on page 53, as well as in “Transformation highlights” on page 100.

INTELLECTUAL

Intellectual capital takes the form of industry-specific expertise and know-how and is changing with the expansion of the direct business model and other forms of technology-driven change. Regulatory requirements direct the use of this capital in terms of product development, distribution, pricing and client centricity. Intellectual capital provides a competitive advantage through the improved ability to price risk, innovative risk management capabilities and deep industry and underwriting experience and knowledge. Read more about the safety campaign and Santam 24-hour Blockchain Hackathon initiative on page 37.

SOCIAL AND RELATIONSHIP

Insurance companies rely on relationships of trust to deliver on the promises made through their branded marketing activities. Instances of fraud or dissatisfaction destroy this capital to the detriment of the entire industry, while transformation to meet the needs of every market context expands this capital. This includes introducing more people to the benefits of insurance through financial literacy and other social investment initiatives. An insurance company’s value network of intermediaries and suppliers is an essential element of the business model. Read more in the real-life story on page 33 and the section on Insurance good and proper on page 47.

NATURAL

Although insurance companies use relatively low levels of natural capital in their direct business activities, they impact the use, transformation and destruction of this capital through their investment activities and the risks that they insure. Climate risk, ecological degradation and natural disasters can have a significant impact on the financial capital of insurance companies. They rely on systemic risk management for mitigation. Read more about proactive ways in which to manage natural disasters in the real-life story about Dar es Salaam on page 33.

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WE KNOW WHAT IS IMPORTANT FOR BUSINESS. Running a business, large or small, requires hard work and the right partnerships. Our commercial expertise enables us to truly understand the risks a business faces and helps us ensure the correct insurance cover. That is one of the reasons 86 of the top 100 JSE-listed companies trust us to protect their businesses.

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M AT E R I A L M AT T E R S A N D K E Y F U T U R E D R I V E R S

MATERIAL MATTERS AND KEY FUTURE DRIVERS Santam set ambitious targets for the group in Vision 2020: being the leading general insurer in selected emerging markets. To achieve this, and in the process of approving the group strategy, the board acknowledged that the business is exposed to a dynamic and shifting environment, locally and internationally, with much disruption being forecast for the insurance sector over the next decade.

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While the board has to consider financial priorities, such as Santam’s ongoing solvency position, it also deliberates on early warning indicators that may affect the future viability of the business. This includes evaluating the implications arising from interaction between the various financial and non-financial factors, as Santam has to be able to respond with agility to emerging challenges and opportunities.

MEGATRENDS SHAPING FUTURE WORLDS The following megatrends – those transformative, global forces that define the future world with a far-reaching impact on businesses, societies, economies, cultures and personal lives – were used as contextualising input into the scenario conversations.

MEGATRENDS SHAPING FUTURE WORLDS

As part of the annual strategy review for 2016, Santam’s executive team initiated a cross-group Insurance 2025 future-sketch scenario process to inquire into the fundamental shifts at play in the world and the group’s target market. The overarching framing question of

VOLATILE ECONOMIC ENVIRONMENT

the exercise was: Insurance 2025: What is driving our future? The approach ensured that the business formed a systemic, businessportfolio-based and longer-term view of resource allocation.

The Insurance 2025 future-sketch scenarios enabled Santam to identify those matters that are most material for stakeholders – and therefore material for the group to continue creating value in the longer term.

FEAR AND UNCERTAINTY IMPACTING DECISION-MAKING

THE FOOD-ENERGY-WATER NEXUS

COLLABORATION, SHARING AND PLATFORMS BECOMING THE NORM URBAN MOVEMENT: (UN)PLANNED CHANGING FACES OF CITIES

GOVERNANCE: A CRISIS OF TRUST

THE NEW AFRICAN/ASIAN CONSUMER

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LOCAL CONTEXT

COLLABORATION, SHARING AND PLATFORMS BECOMING THE NORM

South Africa is facing a depressed economic outlook with evidence

The fourth industrial revolution is disrupting almost every industry

of declining levels of business confidence, an uncertain political

in every country, transforming entire systems of production,

environment, growing incidence of violent activism and low GDP

management and governance. This is creating a peer economy of

growth. Further social challenges include pay disparities, strikes

sharing, collaborative consumption and commercial peer-to-peer

and continued inequality.

mutualisation systems. These platforms allow consumers to engage in monetised exchanges through peer-to-peer-based services or

GLOBAL CONTEXT

temporary access to goods.

The projection for global growth remains modest with continued episodes of global asset market volatility, some loss of growth momentum in the advanced economies, and continuing headwinds for emerging market economies and lower-income countries. Global non-life sector growth is expected to weaken due to moderate economic activity and soft pricing, mainly in developed markets. The grow robustly, mainly driven by China because of government support for insurance. Further backing will come from rate hikes in motor third-party liability (MTPL) insurance in India, and infrastructure investments in other Asian markets. However, detariffication of motor in China and Malaysia could offset some of the positive momentum in the region. Non-life premiums in Africa, the Middle East and Central Asia is expected to continue to grow, but at a lower rate.

URBAN MOVEMENT: (UN)PLANNED CHANGING FACES OF CITIES The world, including sub-Saharan Africa, is undergoing the largest wave of urban growth in history. While today’s cities are designed around the automobile, there is a shift in the demand for public transportation options, parking spaces and pedestrian traffic. Cities will increasingly use water and climate change as drivers for development to create the best conditions for future generations. Smart cities will use digital technologies to enhance performance and well-being, to reduce costs and resource consumption, and to engage more effectively and actively with citizens.

GOVERNANCE: A CRISIS OF TRUST One of the emerging global risks is a crisis of trust in institutions.

FEAR AND UNCERTAINTY IMPACTING DECISION-MAKING

Citizens increasingly distrust public institutions, particularly

Volatility has become an inherent feature of the international financial

a sense of disenfranchisement and rising job insecurity, driving a

system. Massive inflows of private capital into emerging markets are frequently followed by sudden reversals. In many emerging countries, government revenue from earnings on exports has also fallen – especially for economies reliant on commodities – while deposit growth in banking systems has waned. Credit rating agencies are playing a critical role in channelling reliable, objective and transparent information, which forms the basis of investors’ decisions regarding where to invest and the pricing of their investments.

THE FOOD-ENERGY-WATER NEXUS With 2016 confirmed as the hottest year on record globally, major

governments, large corporations, banks and multinationals – and the traditional media. This is partly the result of rising inequality, growing alienation between the elite and middle class. On the other hand, institutions face an increasing level of scrutiny in the form of

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outlook for emerging markets is mixed. Emerging Asia is forecast to

M AT E R I A L M AT T E R S A N D K E Y F U T U R E D R I V E R S

VOLATILE ECONOMIC ENVIRONMENT

increasing regulation. This is resulting in an increasing need for businesses to act more responsibly, ethically, transparently and be more stakeholder orientated.

THE NEW AFRICAN/ASIAN CONSUMER 60% of the global population lives in Asia and 16% in Africa, with the current Asian median age at 29 and the comparative African age at about 18.6 years. Africa’s young population is expected to drive consumption and economic growth in the coming decades.

parts of the world are experiencing droughts, water scarcity or floods and rising sea levels, which are disrupting ecosystems and leading to

Africans are exceptionally optimistic about their future as they

more extreme weather events. The drought fuelled by El Niño (likely

become busier, healthier and more informed. Due to growth in

worsened by climate change) affected prices of goods and overall

internet penetration and travel, Africans are more connected to global

food security in the short and medium term.

trends than ever. Spending patterns are changing with a growing middle class in Africa and Asia: more people are buying technology goods and cars, and spending money on holidays, providing more insurance options and demand.

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M AT E R I A L M AT T E R S A N D K E Y F U T U R E D R I V E R S

THE SANTAM SCENARIO DEVELOPMENT PROCESS

The outcome of the process enabled the board and executive

At the core of the process was a two-day workshop, which involved

to prioritise the broader material stakeholder issues the group must

a wide range of stakeholders, including Santam and Sanlam employees from a wide variety of business units, suppliers, service providers, academic institutions, as well as public institutions and

management to understand the fundamental shifts at play in the world and in the group’s competitive target markets. It also served respond to for long-term sustainable value creation.

and represent a range of insights relevant to the contexts, territories

MATERIAL FACTORS SHAPING THE FUTURE INSURANCE CONTEXT

and market spaces for Santam – including external experts and

The following table presents those drivers that the participants in the

young millennials as conversation catalysts and to represent

Santam Insurance 2025 workshop identified as material in shaping

broader perspectives.

the future insurance business context. The material factors described

industry associations. The participants were selected to be diverse

below offer a high-level view that will be considered in strategic Workshop participants developed future sketches by considering

planning for the future:

the impact of megatrends, economic context, value networks and the role of fintech (new and often disruptive technology and innovation

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start-ups) in shaping financial services, including insurance, for defined contexts.

MATERIAL FACTORS MATERIAL DRIVERS

ECONOMIC GROWTH – OR THE LACK THEREOF

TECHNOLOGY AND THE RISE OF FINTECH

FACTORS SHAPING THE FUTURE INSURANCE CONTEXT

Economic growth, or the lack thereof, will continue to shape the future insurance context, with questionable returns, unequal, variable and volatile capital returns, particularly in emerging markets, driving the mobility and flow of global capital in search of yields. Consequences of this for insurance clients include unemployment, rising cost of living and consequent decreases in disposable income. For entrepreneurs, this can bring more opportunities and success. Levels of underwriting will be impacted by the extent of economic factors increasing or decreasing.

Technological developments will continue to change exponentially and fundamentally reshape and transform every aspect of the future business context. Aspects of technology that are driving change include increasing connectivity of people to the “connected world”, increased connectedness of things (Internet of things), the massive growth in data about people and things, the increased ability to extract relevant business information from this data and the speed of information flow. Aspects of the business context that are increasingly being impacted by these changes include more informed and empowered clients, with changing expectations related to products, services and providers. Technology will facilitate self-organising and empowered communities, thereby shifting roles and relationships between stakeholders. Insurance companies are likely to respond by adapting their business models and distribution capabilities to ensure innovative offerings and higher efficiency expectations. The nature of insurance is set to be redefined – from philosophy to processes and products.

WHAT AND HOW: CLIENTS AND MARKETS

Virtually every aspect of what matters to future consumers is in transition. Some aspects are likely to cause dramatic change, including shifts in consumers’ value systems, expectations related to access, accessibility, speed and geographic availability – all impacting future preferred channels of interaction. Consumer populations are expected to experience demographic polarities: ageing and becoming younger, leading to lifestyle changes and an increasing variety of lifestyles. With the nature of needs shaped by global mobility and decreased ownership of personal goods, insurance companies will have to be flexible: offering on-demand risk insurance while managing fluid risk profiles within a context of increasing urbanisation. Insurance products, underwriting and the nature of risks will have to change alongside distribution and service delivery offers.

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ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) RISK PROFILES

A NEW INSURANCE VALUE CHAIN

BUSINESS BECOMING SOCIAL ECOSYSTEMS

DISRUPTIVE COMPETITION

COMPLEXITY RULES

ESG risks are increasing and will show an accelerated impact on the risk universe. Fundamental drivers include population growth, urbanisation, increased interconnectedness in societies, business and infrastructure, global climate risk, energy, water and food shortages, and failed or failing levels of governments. The changing risk profiles will include lower predictability of the nature and magnitude of risks, while taking into account the increasing interconnectedness of risks. Knock-on effects may include secondary impacts on infrastructure and business, potentially leading to dysfunctional and overwhelmed urban governments. Insurance products and the nature of risks underwritten will change, with a direct effect on underwriting philosophy, approach and processes.

A combination of changing political agendas and regulatory regimes will continue shaping the future insurance environment. This includes drivers such as national protectionism and social objectives, combined with consumer protection demands. Aspects of insurance that will continue to be informed by this include the potentially reduced ease of doing business and requirements for client data protection and usage. This is likely to increase the cost and complexity of doing business.

Changes in the insurance value chain will continue to accelerate adjustments to all aspects of the business model. The underlying drivers include technology developments, fintech and increasing competition in response to mass customisation and omnichannel opportunities. The globalisation of risk and risk capital is likely to be one of the outcomes. This will result in changing underwriting and distribution models, and accelerated disintermediation, combined with collaboration opportunities with alternative or new players in the value chain. Insurers are likely to have to increase their size by expanding either scope or scale.

Collaboration and the forming of partnerships around various components of the value chain will change business, with increased partnerships with government(s) and cooperation with communities and consumer groupings. Relationships will be impacted, leading to new forms of competition.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

POLITICAL AND REGULATORY INTERFACES

FACTORS SHAPING THE FUTURE INSURANCE CONTEXT

M AT E R I A L M AT T E R S A N D K E Y F U T U R E D R I V E R S

MATERIAL DRIVERS

The variety and sources of competition will increasingly blur traditional boundaries, reshape products, distribution and underwriting. Supplementary change factors include technology and fintech developments, and the globalisation of risk and capital markets. The need for new business volumes to drive premium growth and to diversify the risk pool will result in a blurring between insurance and reinsurance, in addition to alternative approaches to fulfilling insurance needs, e.g. self-insurance, insurance by product suppliers and community-based risk support schemes. Insurers’ approach to risk management, underwriting, insurance products and distribution will have to change.

Increasing complexity will result from clients’, business’s and governments’ changing technology, lifestyle and risk profiles. Factors driving increased complexity include globalisation of business with the concomitant requirement to operate in different territories. Clients’ expectations for speed and convenience will drive insurance on demand, speed and universality of access. Aspects of insurance businesses that will be impacted include business models, the product range, design and development philosophy, underwriting approach and philosophy, with new demands placed on management and technical expertise. This will require employees and suppliers to be more flexible, open to change, and able to innovate and think differently.

17

M AT E R I A L M AT T E R S A N D K E Y F U T U R E D R I V E R S

SANTAM’S STRATEGIC RESPONSE Santam strives to maximise socio-economic welfare, enhance stakeholders’ sustainability and build a more resilient world through the provision of risk solutions in selected emerging markets, while delivering on its brand promise of Insurance good and proper.

INSURANCE GOOD AND PROPER THE RIGHT PEOPLE

The group follows a regular and robust strategic review process – with the addition of a scenario development initiative this year. The strategy development process focuses on material imperatives and is designed to: −

identify the material contextual drivers of the ESG systems that the business portfolio is embedded in;



sense the changes in the competitive environment that

GROWTH THROUGH INNOVATION AND DIVERSIFICATION CONTINUOUSLY INCREASE EFFICIENCY

are relevant; −

identify the strategic variables that the group has to manage for present and future success;

S A N TA M I N T E G R AT E D R E P O R T 2 0 16



make clear and informed choices about what the group will and will not do; and



review and establish strategic imperatives and performance

THE LEADING GENERAL INSURER IN SELECTED EMERGING MARKETS

MANAGE THE RISK POOL

criteria at group and business unit level. The group determines the strategic focus areas and targets. Each business unit then takes responsibility for its own strategic process,

Vision 2020 recognises that progression relies on adherence to

focusing on implementation through go-to-market strategies and

the Santam Way, the creation of stakeholder value, long-term

projects, operational implications and resource allocations. A

sustainability, reducing systemic risk and fulfilling Santam’s socio-

dashboard tracks strategic implementation against key metrics and

economic responsibility.

is shared with the board on a quarterly basis. The Santam Way defines the culture that is embedded throughout the The annual budget and business planning cycle ensures that the

group. Although some of the business units and subsidiaries have

group takes a systemic, portfolio-based and long-term view of

formulated their own values and codes, these are fully aligned with

resource allocation, cultural and behavioural elements and strategic

the group values of integrity, passion, humanity, innovation

initiatives. The aim is to ensure the effective setting of and delivery on

and excellence.

the strategy and targets. Santam’s Vision 2020 strategy was tested against the future contexts and continued to provide appropriate and relevant focus for the group. The following five focus areas were retained for the group to be

READ MORE ABOUT PROGRESS PER STRATEGIC FOCUS AREA IN THE LEADERSHIP REPORT FROM PAGE 47.

able to create value by being the leading general insurer in selected

SUSTAINABILITY FOCUS AREAS

emerging markets:

The Santam sustainability framework is continually reviewed and refined with the social, ethics and sustainability committee providing regular oversight. Key initiatives have been identified with accountabilities allocated to relevant executives.

18

SUSTAINABILITY FOCUS AREA

REACHING THE INSURED AND UNINSURED MARKETS

DEVELOP SUSTAINABLE BUSINESS EFFICIENCIES (INTERNAL AND EXTERNAL)

RESPONSIBLE INVESTMENT AND SOLVENCY

KEY INITIATIVES

READ MORE

Santam develops and implements its emerging market strategy through appropriate channels in the business to support growth and diversification. This includes the development of products to reach the emerging market in alignment with the Financial Services Charter (FSC) targets and criteria.

Treating Customers Fairly (TFC)

Page 48

Offering value-added services

Page 100

Creating access to products and services

Page 100

Developing distribution channels

Page 100

Santam works with local municipalities through the Partnerships for Risk and Resilience programme, focusing on disaster risk management and reduction.

Partnerships for Risk and Resilience

Page 50

Products and value-added services that integrate ESG

Page 51

Contributing to safety and security in communities

Page 51

ESG-informed underwriting rules

Page 51

Refining systemic risk models

Page 51

ESG culture and carbon footprint

Page 5

Developing with suppliers

Page 52

Scarce skills development

Page 54

Diverse, productive employee base

Page 53

Information management and governance

Page 52

SRI Fund Management

Page 36

Enterprise development initiatives

Page 52

Socio-economic investments

Page 51

Solvency and asset management

Page 64

Santam manages the quality and impact of its own risk pool through addressing pressures on human, social and environmental capital by continuously increasing efficiency and through the brand promise, Insurance good and proper.

Santam influences responsible systemic risk responses through vehicles such as the SRI Fund, the South African SME fund, enterprise and supplier development and corporate social investment (CSI) initiatives.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

RESILIENCE THROUGH SHARED VALUE PARTNERSHIPS

RATIONALE

M AT E R I A L M AT T E R S A N D K E Y F U T U R E D R I V E R S

MATERIAL FACTORS

19

OUR STRENGTH LIES IN OUR PARTNERSHIPS. Our intermediaries are a crucial link to our clients, and remain the cornerstone of our business. That is why we nurture the future success of intermediaries by offering them tools, support and advice to help them deliver insurance good and proper.

G R O U P AT A G L A N C E

GROUP AT A GLANCE KEY FACTS Gross written premium (GWP) GWP earned outside South Africa

2015 R24.3 billion

R2.5 billion

R2.4 billion

> 22%

> 22%

31 countries

13 countries

65.1%

62.1%

Headline earnings per share

1 086 cents

1 844 cents

Number of group employees

5 749

5 313

South African market share International investments through SEM and SAN JV Net claims ratio

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Santam group BBBEE level** Santam black ownership percentage Global credit rating Standard & Poor’s rating* Value of claims incurred Socio-economic development spend as % of net profit after tax**

2

3

28.7%

28.8%

AAA(ZA) claims paying ability

AAA(ZA) claims paying ability

BBB international rating zaAAA national scale

BBB+ international rating zaAAA national scale rating

R12.9 billion

R11.5 billion

0.95%

0.84%

* Santam’s credit rating is capped by the sovereign rating. Santam’s indicative standalone credit profile, before taking into account the sovereign risk adjustment, remained unchanged at “A-”. ** Based on Santam Ltd and its South African subsidiaries.

KEY INDICATORS Return on capital

Achieved in 2016

Long-term goal

15.9%

2016: > 24%

Gross written premium growth (including cell insurance)

7%

Gross written premium growth (excluding cell insurance)

6%

Real GDP growth

Acquisition cost ratio

28.5%

27%

Underwriting margin

6.4%

4% – 8% through the cycles

3.1%

2.5% of NEP through the cycles

155%

130% – 170%

Investment return on insurance funds Economic capital coverage ratio GDP = gross domestic product NEP = net earned premium

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2016 R25.9 billion

G R O U P AT A G L A N C E

THIS IS THE SANTAM GROUP Santam is a multinational general insurance group that writes insurance business in South African and Namibia and has investments and clients in a further 31 countries. It is the leading general insurer in South Africa with a market share of more than 22%. The group provides a diversified range of general insurance products and services through a network of 2 700 intermediaries and direct channels. The group boasts more than 1 million policyholders, ranging from individuals to commercial and specialist business owners and institutions in South Africa.

Insurance activities include commercial and personal insurance and alternative risk cover. The performance of insurance activities is based on gross written premium as a measure of growth, with net underwriting result as a measure of profitability. The group consists of the Santam branded business units (Santam Commercial and Personal, Santam Specialist and Santam re) and wholly-owned subsidiaries – MiWay (direct insurer), Centriq (cell captive insurer) and Brolink (an independently managed insurance administration business). A number of specialist underwriting managers are included within Santam Specialist. The group also participates in investments and partnerships in emerging markets in Africa, India and Southeast Asia through

Saham Finances via its 25% shareholding in SAN JV with SEM, which significantly expands the Santam footprint across the African continent. The group’s other significant associates constitute its 40% interest in Western Group Holdings (personal and commercial insurer). The group also holds a 49% interest in start-up general insurer Professional Provident Society Short-term Insurance Company Ltd (PST) and a 24% interest in Indwe (an independently managed insurance intermediary business). The Santam business units set out in the accompanying diagram are responsible for implementing their business strategies and plans to contribute collectively to the value creation of the group. The Santam group governance policy stipulates the manner in which each business unit undertakes its business and how this is agreed between the parties and approved by the relevant boards. Over and above this, shareholder and/or binder holder agreements form the contractual basis whereby outsourced underwriting activities are governed. A core “tight” principle that applies throughout the group is that Santam does not underwrite business that is not well understood. The business units share various group governance and support functions for consistency and efficiency. Santam is a subsidiary of South African financial services group,

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

The group derives revenue from insurance activities and investments.

Santam holds an effective 7.5% stake in the Moroccan-based

Sanlam, which holds 61.5% of Santam’s shares.

collaboration with SEM.

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G R O U P AT A G L A N C E

THE SANTAM BUSINESS PORTFOLIO

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

SANTAM COMMERCIAL AND PERSONAL

SANTAM SPECIALIST

MIWAY

SANTAM RE

SANTAM EMERGING MARKETS INVESTMENTS

The multichannel general insurance business in South Africa and Namibia – Intermediated – Strategic partnerships – Direct

The specialist insurance business portfolio in Africa, India and Southeast Asia – Agri – Niche – Centriq

The direct insurance business in South Africa – Personal – Business – Life

The reinsurance business in South Africa and international markets – Group – Non-group

Investments in emerging markets – Africa – India – Southeast Asia

OPERATIONAL PROFILES SANTAM COMMERCIAL AND PERSONAL For commercial insurance, Santam offers a business portfolio in South Africa and Namibia that serves small to large enterprises by providing commercial insurance solutions that suit the needs of entrepreneurs and businesses. For personal insurance, Santam offers a multiproduct and multichannel distribution portfolio that provides clients with comprehensive cover through a wide range of

bespoke underwriting, which demonstrates an understanding of this unique claims environment, to meet and exceed client expectations. The Santam Specialist business unit includes: Underwriting managers and niche business units: −

covering cargo, hull and liabilities. −

commercial sectional title and share block properties, and

tailored through flexible excess structures and policy benefits.

administration capability through Brolink. Santam Commercial and Personal Lines distribution channels include: −

National and independent intermediaries



Direct contact centre



Outsourced portfolio administrators



Referral business



Affinity business



Sanlam agency network

SANTAM SPECIALIST

designed to give intermediaries and clients comprehensive and innovative insurance solutions. −

developing markets. −

Echelon Private Client Insurance focuses on the high-net-worth personal lines segment of the market.



Hospitality and Leisure Underwriters caters for the needs of the hospitality sector, from the smallest to the largest risks, including retail businesses, from restaurants and caterers to game lodges and hotels.



Mirabilis Engineering Underwriting Managers offers a comprehensive range of engineering insurance solutions in South Africa and other developing markets.



Santam Aviation specialises in general aviation for commercial and private sector insurance including hull, third-party and

complex risks in niche market segments. Underwriting these classes

24

Emerald Risk Transfer provides property insurance solutions for large industrial and corporate businesses in South Africa and

The Santam Specialist business focuses on the insurance of large and of insurance requires skilled resources to assess and quantify the

Corporate Sure Underwriting Managers (C-Sure) rebranded as Santam Real Estate was created exclusively for residential and

products. Policies target each segment’s needs profile and can be

Santam Commercial and Personal also offers an independent

Associated Marine Underwriting is a leading marine underwriter

passenger liability insurance. −

Santam Bonds and Guarantees provides a wide range of surety

risk and exposure as provided by the unit’s underwriting managers

solutions, including construction guarantees, contract bonds and

and niche business units. Products are client-driven and supported by

court bonds.





Santam Transport is the leading heavy commercial vehicle insurer

Current services include:

in South Africa, offering comprehensive cover to transport



General insurance (motor, home owners and household contents)

contractors.



Motor warranty

Stalker Hutchinson Admiral (SHA) provides insurance against



Credit life

broad-form liability, bankers blanket, cyber and computer



Accidental death and disability

crime, directors’ and officers’ liability, professional indemnity



Other value-added products

for traditional and emerging professions, as well as personal



Business insurance

accident, kidnap and ransom, and motor fleet insurance.



Life insurance (underwritten by Sanlam Life Insurance Ltd)

Travel Insurance Consultants (TIC) is South Africa’s largest travel insurance provider that offers specialised travel insurance

SANTAM RE

solutions, including emergency medical, loss of money

Santam re is a wholesale reinsurance service provider for

or baggage, travel supplier insolvency for leisure and corporate travellers. −

G R O U P AT A G L A N C E



Vulindlela Underwriting Managers (VUM) specialises in providing a range of insurance solutions for owners of minibus, midibus and metered taxis in South Africa. VUM has recently entered the the relationship off the taxi base to include other assets and motor vehicles in emerging markets.

Centriq is a specialist cell captive insurer that focuses on alternative risk transfer, underwriting management and affinity

independent general insurers in South Africa, Africa, India and Asia, including China and South Korea. Santam re operates on the Santam general insurance licence and enables the group to optimise the size, quality and diversity of its overall risk pool, relative to its capital resources and risk appetite.

SANTAM EMERGING MARKETS INVESTMENTS Through its partnership with SEM, Santam has economic participation in 13 countries in Africa, India and Southeast Asia.

insurance sectors.

SEM’s shareholding in Saham Finances, through its shareholding in

Santam Agriculture is the leading crop insurer in South Africa,

East, with Saham Finances operating in 26 countries. Santam acts as

SAN JV, expanded this to North, East and West Africa, and the Middle

focusing on named peril insurance and multiperil crop insurance.

the general insurance technical partner for SEM. The international

MIWAY

Specialist. This forms part of the group’s multichannel and multi-

MiWay is a direct insurer in the group, underwriting predominantly

diversification strategy is enabled by Santam re and Santam territory strategy through different business units.

personal lines general insurance business, with a business insurance

READ MORE ABOUT THE PERFORMANCE OF EACH BUSINESS UNIT IN THE LEADERSHIP REPORT FROM PAGE 40 AND THE FINANCIAL REVIEW FROM PAGE 58.

product that was launched in 2014. MiWay supports Santam’s strategy of growth through diversification and enables it to coexist well with

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

small, medium and micro-enterprises (SMME) market to expand

the Santam/Sanlam group general insurance businesses and

and complement the intermediary business model within the group. MiWay launched a broker-direct model in May 2015.

CLASSES OF GENERAL INSURANCE PRODUCTS Santam Commercial and Personal

Santam Specialist

MiWay

Santam re

Accident

Accident and health

Life

Accident

Aviation

Alternative risk transfer

Motor

Engineering

Engineering

Aviation

Property

Guarantee

Guarantee

Crop

Liability

Liability

Engineering

Marine

Marine

Guarantee

Motor

Motor

Liability

Property

Property

Life

Santam re writes proportional and non-proportional reinsurance on marine and non-marine classes.

Livestock and game Marine Motor Property

Santam Emerging Markets Investments provides technical support in all classes to all investment partners.

25

G R O U P AT A G L A N C E

SANTAM’S SUSTAINABLE COMPETITIVE ADVANTAGES 10-YEAR TRANSFORMATION AND DIVERSIFICATION INDICATORS Geographic transformation (source of gross premium)

4%

Channel transformation (source of gross premium)

Employee profile

4% 2% 10% 10 years ago:

10 years ago:

100%

100%

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

90% South Africa Namibia

Southeast Asia, India, Middle East and China

90% Intermediated

10 years ago:

44%

68% Black

White

Rest of Africa

R1.5 billion

invested in technology enablers over the past 10 years to replace legacy systems and position Santam for multinational growth

Note: The above represents Santam group (excluding SEM and SAN JV investments).

26

Direct

32%

“We will continue to focus on transformation of our employees and suppliers.” – Lizé Lambrechts

COMPETITIVENESS

Santam’s geographical footprint, scale, brand strength, business diversity and distribution networks put the group in a strong competitive position in South Africa, where it has a market share in excess of 22%. The group also benefits from the diversity of its product offering and multiple channel capabilities (including a growing direct channel market share), which have contributed to sustained underwriting surpluses despite challenging operating conditions. It currently insures 86 of the top 100 companies listed on the JSE and has a network of more than 2 700 intermediaries.

G R O U P AT A G L A N C E

SUSTAINABLE COMPETITIVE ADVANTAGES

Through its partnership with SEM, it offers intermediaries access to insurance licences across the African continent, India and Malaysia.

CONSISTENCY

Santam has been able to achieve underwriting profits consistently, while adapting its business model to the prevailing market conditions and risks. Since its establishment in 1918, the group has diversified its portfolio, focusing on profitability rather than only on increasing market share. The group has enjoyed the benefit of a strong, stable and strategically aligned core shareholder in Sanlam.

COMPETENCE

Santam has a world-class scientific underwriting capability supported by a strong and experienced management team. Its pool of specialist insurance skills and knowledge is evident in the success of its specialist business, which offers a complex range of insurance cover. Due to its integrated systems and processes, the group is also able to deal proactively with and benefit from regulatory changes, which can constitute high barriers of entry into the industry for new players. Santam’s competence includes its ability to maintain and grow a large and complex network of intermediaries, suppliers and business partners. Santam has a stringent capital management framework underpinned by an internally developed, risk-based capital model and embedded enterprise risk management (ERM) framework, which is integrated into strategic decision-making and capital allocation.

GROWTH OPPORTUNITIES

RETURNS

THE SANTAM BRAND

SUSTAINABLE AND RESPONSIBLE

Santam has a strong international diversification capability through its partnership with SEM, and through Santam re and Santam Specialist. This gained further traction in Africa following the SAN JV (Saham Finances) transaction. A new agreement was also concluded with Munich Re of Africa for certain Santam businesses to use its AA- S&P credit rating from 1 January 2017. MiWay attracts new and previously uninsured policyholders through its new online life and business insurance offerings in South Africa. Acquisitive growth opportunities in the local market are limited due to Santam’s dominant position, but organic growth remains a focus area, driven by Santam’s well-established intermediary network, integration opportunities with Sanlam’s distribution network and development of the Santam direct distribution channel.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Santam continues to be recognised in the market: it was again voted the leading general insurer in South Africa by the intermediary community in the Personal Insurance category at the Financial Intermediaries Association (FIA) of Southern Africa’s annual Insurer of the Year awards in 2016. Consumers recognise the brand through the South African Consumer Satisfaction Index, the Sunday Times Top Brands Survey and Top Employer certification.

Efficient capital management and a stable dividend policy have enabled Santam to deliver consistent returns. An average return on capital of 23.6% has been achieved over the last 10 years and 22.5% over the last five years. Ordinary dividend per share compound growth of 8.9% has been achieved over the last 10 years and four special dividends have been paid. The unwinding of the BBBEE scheme in 2015 created a combined value of R1.1 billion for participants. The business is highly cash generative and investment performance has a solid track record.

Santam is associated with brands such as MiWay, Centriq, the specialist underwriting managers’ brands and several niche business unit brands. These other brands are well regarded and acknowledge the importance of being associated with the Santam brand – which is internationally known – when doing business on the continent. The Santam brand remains the most recognised and awarded among the group brands, all of which embrace the ethos around Santam’s brand positioning, Insurance good and proper, which emphasises responsible and ethical insurance. Santam plays a leading and active role amid global insurance players by setting the tone in South Africa and selected emerging markets through participation in ClimateWise and PSI initiatives. Santam’s integrated approach to managing long-term sustainability through improved management of systemic risk ensures alignment with the strategic drivers of the business. Santam’s sustainability journey focuses on: − reaching the insured and uninsured markets; − resilience through shared value partnerships; − responsible investment and solvency; and − developing sustainable business efficiencies (internal and external).

27

G R O U P AT A G L A N C E

GEOGRAPHIC ANALYSIS OF INVESTMENTS

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

SEM investments SAN JV (Saham Finances) investment Santam group subsidiaries

“Santam has a strong competitive position, mainly stemming from its favourable brand and reputation, dominant position in the South African market, and an operating performance that we consider to be better than its peers ... It remains the market leader and we believe Santam can draw on its positive brand differentiation relative to peers to help shape the South African market.” – S&P Global, RatingsDirect, May 2016

28

G R O U P AT A G L A N C E

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

29

G R O U P AT A G L A N C E

KEY STAKEHOLDERS

SANTAM REAL LIFE STORIES

Santam shares a business, socio-economic and ecological landscape

The following seven stories, collected during the course of the year,

with a range of stakeholders in South Africa and in the markets

provide insight into real-life situations that illustrate the value of

where it has investments. During many years of formal and informal

insurance in the lives of our policyholders and stakeholders. Santam

engagement, the group has structured its engagement according to

was able to provide direct or indirect options for support with

eight main stakeholder groupings:

positives outcomes. These stories tested the group’s ability to deliver on the brand promise of Insurance good and proper, and ensured that Santam’s products and services met the requirements of what

CLIENTS

SHAREHOLDERS

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

EMPLOYEES

SUPPLIERS/BUSINESS PARTNERS

INDUSTRY REGULATORS

INDUSTRY NETWORKS

GOVERNMENT

COMMUNITIES Relationships are critical for Santam to be able to play a positive role in society. Santam’s approach to stakeholder engagement therefore aims to build and maintain quality business relationships with all material stakeholders. Through effective dialogue and collaboration, the group aims to create a more resilient and sustainable business environment in support of its long-term strategy.

30

matters most to stakeholders.

FROM EMERGING TO COMMERCIAL FARMERS It is not an easy time to be a farmer in South Africa. Besides changing weather patterns, the crippling drought, labour costs and unrest, crop disease, declining competitiveness in global markets and limited resources are all putting strain on South Africa’s shrinking agricultural sector. One of the sector’s challenges is to convert subsistence farming into commercial farming, thereby empowering emerging farmers to become profitable and sustainable. A recent Santam training programme, involving close to 800 emerging farmers from villages and rural towns across the country, contributed to imparting necessary financial and business skills to the farmers. “The training has really assisted me in managing my small farming enterprise,” says William Mmakola, an emerging farmer from the Tsimanyane Village in Limpopo and a member of the Willpot Young Farmers Cooperative. “The practical lessons I learnt are now helping me to set and manage my business plans and do financial projections. I have already drawn up a worksheet to manage the turnover earned from the cultivation of fresh produce,” he says. Klass Ridane, from Mpumalanga, shares Mmakola’s sentiment and says the training provided him with useful information that is helping him manage the financial duties in his small farming operation. “The training has given me a lot of practical tips and ideas on how to run the business better and to motivate our workers as we start planting our winter crops.” “I wish the rest of our community had the opportunity to attend the training as I learnt so much,” says Mapule Emily Moggi from Brilliant Farming Corporation in Gauteng. “It is something many people can benefit from and it will help us to be better farmers.” Gerhard Diedericks, head of Santam Agriculture, explains that the insurer recognises agriculture as key to the future health of the South African economy, and thus embarked on this training campaign, the first of its kind in the industry. “Santam is committed to assisting emerging farmers, as they are vital to the long-term sustainability of the agriculture sector. While significant challenges face all farmers, small and emerging farmers require even more support. They may not always have the necessary skills and support to bounce back when fate steps in.” Farmers were given face-to-face financial skills training, information on risk management, and ongoing mentorship and support. Participants were sourced through Santam’s relationship with agricultural bodies such as the African Farmers’ Association of South Africa (AFASA), the National Emergent Red Meat Producers’ Organisation (NERPO) and existing Santam clients. Santam’s emerging farmer training programme forms part of a broader consumer financial education strategy initiated by the insurer aimed at community upliftment and promoting access to financial services. It is done in support of government’s drive to combat the challenges of poverty, unemployment and inequality, but with the understanding that emerging markets have specific needs.

31

INSURING A NEXT-GENERATION CLIENT Dear Santam Good morning my name is Angelica Bottari. I am 10 years old. We had a car break-in in Cape Town where they stole my phone, jacket and earphones. Thank you for replacing my stolen items so fast. Kind regards A future client Angelica Bottari This was the letter received by Santam Claims from the 10-year-old daughter of a happy Johannesburg client in July 2016. Angelica had come to Cape Town on holiday with her family and, while they were having lunch in a restaurant in the Bo-Kaap, her possessions were stolen out of their rental car. “We parked the car and, as always, I told Angelica to put her cellphone away. She left it on the car seat and covered it with her new K-Way jacket. When we got back to the car, the back window had been smashed and her jacket, earphones and cellphone were all gone. She started crying and, even after we flew back to Johannesburg the next day, she was inconsolable,” says her mom, Carol Bottari. Carol, who runs her own insurance brokerage firm, submitted an insurance claim with Santam and, within a few days, Angelica’s new replacement phone, earphones and jacket had been delivered to her. “I use my phone mainly to play games, watch YouTube, take photos and have WhatsApp convos with my friends. I was very impressed at how quickly Santam replaced everything and so happy to have a phone again,” says Angelica, who turned 10 last December. As the daughter of an insurance broker, Angelica is already familiar with the concept of insurance and wanted to say “thank you” to the Santam employee who helped her, “Just like a thank you letter to Santa.” Santam Claims did extensive work this year to map the customer’s journey. This required that employees put themselves into the shoes of the client, and recognise how they impact the client’s experience at every point in the process. The team shifted the expectation that “the client should follow up” to a proactive, client-centric approach. Below are examples of client feedback: From a policyholder: I wish to highlight to you both the excellent and speedy service I received with regard to my cellphone claim. I accidentally dropped my phone yesterday late afternoon; lodged the claim and was about to go and get a damage report done today. However, Nafisa called and said that Santam is prepared to have my phone replaced and she set the process in motion. She has sourced a phone already and it is at present available for collection. Thank you, Nafisa! You are really an ambassador for the Santam brand of Insurance good and proper with your commitment to outstanding service delivery. From an intermediary: Thank you very much for your assistance with this difficult matter. Thank you for keeping on following up and giving feedback. Thank you for keeping on referring the matter and obtaining assistance, and for keeping calm and professional. That is really providing good client service. From a policyholder: Just wished to notify you of the extremely efficient service we received from one of your listed plumbers as well as your efficient call centre lady. I called in Friday afternoon Oct 14th at wits’ end, with problems relating to our apartment geyser. I was truly impressed by their quick, efficient and professional service. I honestly assumed because it was a Friday afternoon call to your call centre, my geyser will only get attended to the Monday after the weekend and we would have to somehow make do, or seek alternate arrangements. I was truly and honestly impressed at how quickly the matter was attended to.

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DAR ES SALAAM CITY MANAGEMENT LEARNS ABOUT RISK AND RESILIENCE IN INFRASTRUCTURE DEVELOPMENT Billions of dollars are flowing into Africa to meet the growing infrastructure needs of the continent. However, with this massive investment comes the responsibility to create and build sustainably. This raises the question as to whether the stakeholders involved in individual projects are mindful of the broader risks and impacts, especially over the longer term. This entails the eventual asset management once the project is completed and handed over to asset owners. The port city of Dar es Salaam in Tanzania faces two challenges. The first is that, as one of the fastest growing economies in Africa with limited financial resources, the city has to invest in public infrastructure, which carries a number of risks, not least of which is flooding on a near-annual basis. The second challenge is that global financial institutions providing capital for large infrastructure projects typically only seek insurance cover towards the end of the process. Unfortunately, often at a late stage in the process, some unavoidable risks are typically already embedded in the project. Building on lessons learnt from the United Nations Environment Programme Finance Initiative’s (UNEF FI) Principles for Sustainable Insurance (PSI) Global Resilience Project (GRP), it was felt that there would be benefit in considering risk management proactively – before projects are contracted and in a non-competitive space, where city managers could engage with insurance professionals. Santam initiated a process in 2014 to explore how the general insurance industry in the region might best engage with infrastructure decision-makers in Africa, for example city engineers and planners. Sustainable city infrastructure is a critical element to enhance protection and readiness against possible disaster events such as fires and floods. Under the banner of “African Infrastructure Risk and Resilience”, a series of conversations and workshops took place through 2015 and 2016. These involved representatives from Santam and Sanlam, including various experts in sustainable infrastructure, finance and investment. The research included a two-day intensive workshop in Dar es Salaam in October 2016, with members of the insurance sector and Dar es Salaam city officials. The workshop was declared a breakthrough in mutual understanding, opening up a range of opportunities for future learning and collaboration for both sides. What emerged, aside from a lengthy list of collaborative actions various participants committed to, was a mutually agreed “decision pathway” describing the logical necessary steps a city government must take if it is to attain genuinely resilient, sustainable infrastructure. The city officials said they found this – and the discussions leading up to the workshop – exceptionally helpful, as they had never considered decision-making from a proactive risk management perspective before. A key outcome of the intervention was the request for insurers to demonstrate the cost/benefit at city level for risk protection and sensible regulation. The initiative pioneered a methodology of motivating city management to engage with the insurance sector, which will be shared globally. It was founded in a partnership approach and included Marsh, Munich Re, Sanlam, Santam, Global Infrastructure Basel, ClimateWise and PSI representatives. A research paper, documenting learnings, will be published via ClimateWise early in 2017 to share important proactive risk management insights with other cities and insurance sector players. Santam’s has a presence in the Tanzanian market via the SEM partnership.

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SMOKE ALARMS HELP PREVENT SHACK FIRES Ivy Malopi and Novunga Shadrack lost everything when their wooden house in the Simile informal settlement in Thaba Chweu, in Sabie outside Mbombela, burnt down in the early hours of the morning. Fortunately, they were visiting friends and no one was home. With the help of family, friends and the local municipality, the couple has since managed to build a new wooden home. It is estimated that more than 8 000 people are left homeless each year as a result of shack fires. Between 2009 and 2012, about 5 000 informal settlement fires were reported. Many lose their valuable possessions, but even more tragic is the trauma suffered by families and communities – and the loss of life during such events. Over the last two years, 8 600 structural fires and 9 018 veld fires have occurred in Thaba Chweu local municipality. Seven people lost their lives in these incidents. Ivy and Novunga were some of the first beneficiaries of smoke alarms sponsored by Santam for 1 000 homes in informal settlements in their district. The project, launched on the International Day for Disaster Risk Reduction, aims to raise awareness about practical interventions, such as identifying high-risk areas and the appropriate responses that can be factored into disaster management and planning to reduce the risks on the ground. The alarm system has proven to detect smoke in less than 15 seconds. This will help raise the alarm of a fire danger quickly, lessen the level of smoke inhalation and, in doing so, save lives. The battery-operated smoke alarm, with a lifespan of 10 years, increases exponentially the chances of surviving a fire. Santam has partnered with the Ehlanzeni District Municipality and Chubb Fire & Security to roll out this project in Thaba Chweu. The project forms part of Santam’s active work with municipalities through the Partnership for Risk and Resilience programme to identify risks such as fire and flooding. Since establishing the partnership in 2012, Santam has invested more than R5.4 million, helping the original 24 municipalities respond more appropriately and timeously to the risk of fire and flood. The programme has been expanded to assist 53 local municipalities in disaster-prone, high-risk areas over the next five years. According to Councillor J Sidell, executive mayor of the Ehlanzeni District Municipality, they face increasing levels of disasters, ranging from severe heatwaves to drought, forest and structural fires, hail and thunderstorms and floods. These natural and man-made disasters affect mostly the poor and people living in vulnerable areas, such as informal settlements, rural communities and floodplains. “We are immensely grateful to Santam for their continuous support to our disaster management efforts in our district. Through this smoke detector project, we are able to make a significant impact and hopefully save lives in the process. Thank you for your partnership and for the example you set as a responsible corporate citizen,” Councillor Sidell said.

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MIWAY CUSTOMER’S SAFETY IS PERSONALLY PRIORITISED BY CALL CENTRE AGENT When first-time driver, Lehlogonolo Selathla’s car broke down one night in Johannesburg, she knew that her best bet was to contact her insurer, MiWay, to arrange for tow truck assistance. However, it was already past 7 p.m., and as she pulled off to the side of the R101 to Centurion, she realised that she was not in the safest area. “My Renault Clio had a mechanical failure and I still had the learner sign on the back window, plus the area I was in was not well lit at all. When I called MiWay for help, I got through to Tshepiso Thole, who talked me through the process and stayed on the line with me for a while,” she recalls. However, once Tshepiso had arranged for the tow truck assistance and hung up, Lehlogonolo noticed that several cars driving past were flashing their lights at her. She looked around and saw a group of men were approaching her car. “I was panicking by now, but managed to somehow get the car started and while I was doing that, Tshepiso called back to check on me. He could hear that I was panicking and advised me to get to the nearest garage or well-lit area and he stayed on the phone with me. The garage was less than 500 m away, so I managed to get there,” she says. Less than 10 minutes later, she was a bit wary when a young man approached her, but his first words were: “Hi, I’m Tshepiso from MiWay. You sounded scared on the phone, so my friend and I will wait with you until the tow truck arrives.” And so they did. The young MiWay call centre agent, whose call from Lehlogonolo was his last for that shift, did not stop to think twice. He simply got into his car and drove out to assist a client he had never met or spoken to before that day. Tshepiso says it was actually his first month on the MiWay emergency helpline. “When we got there, you could see the relief on her face. That kind of expression from a client helps you realise what you are actually doing to help people. At MiWay, our clients are not just clients, but they are people that we value. When you assist someone with passion and they thank you, it brings a smile to your heart. To me, this job is not just about rendering a service, but is about helping another person,” he says. In a bid to improve customer service and reduce response times, MiWay Insurance took its 24-hour emergency call centre in-house in July 2016, helping the insurer to ensure that clients receive the appropriate levels of service, and they can easily monitor the progress of each incident to a successful resolution. Greta Goosen, head of Client Services at MiWay, says that the new call centre was developed over a two-month period, with a “soft launch” two weeks prior to the official launch. “The ‘soft launch’ allowed us to iron out any challenges before the system went live, thus reducing any impact on our clients. Our reason for bringing the call centre in-house was to improve the service we offer to clients at a critical time for them – when they experience a crisis – so it was important that our clients receive world-class assistance from the onset,” she says. “Thanks to the hard work of the entire team, the project has already been a huge success.”

35

A FAMILY USES DEBT CONSOLIDATION TO KEEP THEIR HOME Overindebtedness has become one of the biggest problems facing South Africans today as salaries fail to keep pace with inflation. Fortunately, debt consolidation and a good financial plan can help. Ghadija Lawrence of Mitchells Plain was in financial trouble a few years ago. As the cost of living continued to rise, the combined income that she and her husband were bringing home was not enough to make ends meet. Desperate, they took out credit, but then found themselves in a cycle of debt. Ghadija already had two defaults on loans from African Bank and her husband was under administration. With three children to support, Ghadija and her husband were in danger of losing the home they had lived in for 15 years. When Ghadija’s sister heard an advert for Mattfin Money Matters on a Christian radio station, it sounded like the answer to their problems. Mattfin Money Matters provides a service to overindebted consumers that own property and still have at least 70% equity in the property. Graham Sinclair, chief executive of Mattfin Money Matters explains that Mattfin steps in and helps clients by settling their debt via funds that are placed in an attorney’s trust account. The SRI Fund is one of the funders that supports Mattfin in assisting overindebted consumers. To date, Mattfin has managed to help 38 families using this funding, working towards a scenario where they are no longer overindebted and can use their money to build their assets instead. Mattfin negotiates reduced settlements with the client’s creditors and the client pays back a single loan at a lower interest rate than that of a credit card or personal loan. Once all the debts have been settled, Mattfin helps the client by contacting the credit bureaus and updating their credit records. “Once the client has a healthy credit record again, we help them apply for a new home loan on their property, which then gets transferred back into their name,” Sinclair says. Ghadija calls the management at Mattfin her angels and says she is so much more relaxed now, knowing that her household finances are under control and she no longer has to worry about debt collectors. “From beginning to end, Mattfin helped us through the whole process. It took us six months to a year to get out of debt. Mattfin helped us find a sustainable solution, where we were able to pay off our debt and, at the same time, have money to live on each month,” she says. She has also reaped the benefits of Mattfin’s follow-up consumer financial education programme, which ensures that rehabilitated clients do not fall into the debt trap again. The SRI Fund targets investments based on Santam’s ESG needs or focus, including investments into companies or organisations with the intention to generate social and environmental impact while generating a sustainable financial return. Ghadija’s family is an example of the way in which the fund enables stability, financial literacy and, ultimately, grows the assets of a family that will soon be in a position to insure these – with a positive impact on future generations.

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INNOVATIVE PLATFORMS TO INSPIRE ENTREPRENEURS In a world where technology is constantly evolving and blockchain threatens to disrupt conventional financial systems, there is huge scope for entrepreneurs to step forward with solutions that address the needs of the future. Ntsako Mgiba is one such individual. He visited his aunt in the township of Emalahleni last July, and was disturbed when her home and five other houses in the same street were burgled on the same night. The criminals got away with R50 000 worth of goods from one home alone. Although the police were notified, it took them three hours to get to the scene, by which time the criminals were long gone. Mgiba brainstormed with his friends, Ntandoyenkosi Shezi and Kabir Prema at college, and the three came up with the idea of Jonga, which means “we are watching”. Shezi says the sad reality is that modern security systems are very expensive and come with hefty maintenance costs. “The average household income in township communities is around R3 200, so it is unrealistic to get such expensive systems into the townships. The situation is exacerbated because neighbours often aren’t aware of what is going on until it is too late and police response times are ridiculously slow,” he says. Jonga is a low-cost alert system “dedicated to getting communities connected and getting them protected”. It involves the use of a motion sensor in the home that sends a signal to an app if a perimeter is breached. The app in turn alerts the residents and neighbours, who can then take action to secure the property. The overall cost of the system was estimated at R800 for the motion sensor and the app, with plans to roll it out to the public in February 2017. Jonga was subsequently selected as a finalist in the Santam Safety Ideas campaign in 2016. The recognition inspired Shezi, who wants to become an entrepreneur when he graduates. “I believe in the future of Africa, so I would love to be at the forefront of developing ideas and establishing companies that will change our continent. I also believe that job creation will only happen in South Africa when there are more entrepreneurs,” he says. Santam believes the programme creates a platform for improving people’s lives and protecting their livelihood, one idea at a time. Entrants had to submit a short video entry online outlining their idea and register online to secure a slot to pitch their idea. Finalists were chosen based on the originality, applicability, market attractiveness, and estimated length of time to take the product to market. Prototypes and high-level business plans were developed for the 10 best concepts during an intensive 14-week LaunchLab Knowledge Acceleration Programme. The programme underlines Santam’s commitment to keeping South Africans safe while providing Insurance good and proper. Another young South African who benefitted from an innovative initiative by Santam was Jonathan Jardim, a software developer for SilverBridge, who participated in the Santam 24-hour Blockchain Hackathon in September 2016. Insurance fraud in South Africa amounts to a staggering R3.6 billion per year. This results in huge losses for insurers, and negatively affects consumers. The problem is experienced industry-wide and to date no effective solutions have been found. “SilverBridge had been investigating the new world of cryptocurrencies and blockchain, and when we heard about the Santam Hackathon, we decided it would be an awesome opportunity to learn more about this new technology. This was a whole new experience as it was the first hackathon I participated in. Obviously, the biggest challenge is trying to stay awake for over 30 hours, as it is very difficult to concentrate when you are beyond exhausted. With regard to the actual problems that I needed to solve, I think they got them spot on. These problems were not so specific that you were tied down, but they were broad enough to allow out-of-the-box thinking, but not so broad that people went completely off topic. A difficult part was coming up with an initial solution, but once I had this, and I started bouncing ideas off the professionals that were there, it became a simple process,” Jardim says. More than 80 hackers participated, including entrepreneurs, software geeks, website developers and blockchain enthusiasts. The hackers used blockchain and other technologies to identify solutions to four challenges, predetermined by Santam, with the ultimate goal of combating insurance fraud. For Santam, the hackathon served to explore how crowdsourcing and innovative technology solutions can be used to reduce or even remove fraud from the general insurance industry. Innovative use of blockchain can, for example, create smart contracts, secure payments and enable the tracking of insured assets.

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SEM

WE GROW THROUGH DIVERSIFICATION. Our partnership with Sanlam Emerging Markets (SEM) is part of our international diversification strategy. We support SEM through our specialised general insurance, ensuring that, no matter what the business requires, it is delivered with the highest level of expertise. The partnership enables us to have economic participation in 31 countries in Africa, India, Southeast Asia and China.

LEADERSHIP REPORT

LEADERSHIP REPORT

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Santam’s performance returned to normal following an exceptional 2015. The impact of soft pricing and intensifying competition was evident across the group, but particularly in the Santam Specialist businesses. Claims costs and frequencies in Santam Commercial and Personal, Santam Specialist and MiWay increased, with the weakened rand putting pressure on the profitability of most of these businesses. The higher procurement costs on imported motor parts negatively impacted the motor books. The group remains in good shape, but shares the collective concern about the global and South African economy, and the challenging conditions under which our current and potential policyholders want to safeguard their assets and businesses.

Last year, mild weather conditions and strong investment returns



We received approval from the Financial Services Board (FSB) to

worked in our favour. This year, the group absorbed more significant

launch a formal internal model approval process in preparation

claims, including catastrophe hail events in Gauteng and North West

for the risk-based solvency assessment and management (SAM)

in January, a few large commercial property claims and flash flooding in Gauteng in November. Investment income was significantly negatively impacted by

regulatory regime that will soon be implemented in South Africa −

The group successfully issued R1 billion of subordinated debt



Santam was certified as a Top Employer for 2017



foreign exchange losses, following the relevant strengthening of the rand since December 2015, and the negative performance of the SEM investment portfolio.

A new agreement was concluded with Munich Re of Africa for certain Santam businesses to use its AA- S&P credit rating from 1 January 2017



Santam made a R2 million commitment to the new South African SME fund, an additional R30 million allocation to the ASISA

These factors are mostly out of our control. However, Santam’s

enterprise and supplier development fund, R228 000 to the

almost 100 years’ experience through cycles and catastrophe events

Agri Securitas Trust Fund and a R2 million donation to the

has equipped the management team to be able to manage and mitigate challenges effectively. We significantly reduced claims’

National Drought Disaster Relief Fund −

impact through reinsurance and continued to manage costs downward through efficiency initiatives.

following the uncovering of financial irregularities −

SALIENT FEATURES OF 2016 −

The group made the following acquisitions: • •

The completion of the acquisition of a 7.5% interest in Saham Finances for R1.4 billion, through a 25% shareholding in SAN JV



A further R49 million participatory investment in SEM general insurance businesses in Botswana and Zimbabwe



The purchase of a 49% shareholding in PST for R55 million in cash in March 2016. During November 2016, a pro rata



40

The board declared a special interim dividend of 800 cents, with the dividend for the year at 881 cents – up 8% on 2015



The acquisition of 100% of the issued share capital of RMB-SI, a specialised insurance business, is still pending, subject to the

A further economic stake of 8% in SGI through SEM at a purchase price of R251 million, taking our full stake to 15%

A further R36 million capital contribution to SORAS Assurances Générales Ltd (SORAS), our investment with SEM in Rwanda,

fulfilment of certain conditions precedent –

The acquisition of a further 16.6% interest in Saham Finances via SAN JV by SEM and Santam for a total subscription consideration of US$329 million plus transaction costs. The subscription consideration includes Santam’s contribution of US$7.35 million plus transaction costs. The transaction is still pending, subject to regulatory approval

recapitalisation took place in terms of which Santam

2016 PERFORMANCE

injected a further R10 million into the company

Santam achieved gross premium growth of 7% (2015: 7%) on the back

The acquisition of the Absa Intermediated Commercial

of a diversified geographic presence and product offering. Following

Lines Business from Absa Insurance Company Ltd for

the SAN JV (Saham Finances) transaction, which was effective during

R13.2 million in cash, including contingent payments

the first quarter of 2016, we have started exploring opportunities to

estimated at R28 million

expand and diversify into further new territories.

LEADERSHIP REPORT

The net underwriting margin at 6.4% was lower than the exceptional

Soft market conditions and increased local and international

9.6% of 2015, but still within the group’s target range over the long

competition continued to strain growth and profitability for Santam

term of 4% to 8%.

Specialist. The business unit’s underwriting results were negatively impacted by large property claims in Emerald and lower premium

The impact of soft pricing and intensifying competition are being

growth in Mirabilis.

felt across the group, but particularly in the Specialist businesses. Claims impact and frequencies in Santam Commercial and Personal

The complexity of some of these claims tested the robustness of

and MiWay increased, with the weaker rand putting pressure on the

the business unit’s relationships with intermediaries, with positive

profitability of most of these businesses. The higher procurement

outcomes and recognition of the quality of service on both sides.

costs on imported motor parts negatively impacted the motor books.

SANTAM COMMERCIAL AND PERSONAL

impacted by investment performance. Centriq continues to hold a

Sustained performance of Santam Commercial and Personal relies

material share of the cell captive market, with a business model that

on understanding and meeting clients’ changing needs. This was evidenced by good growth delivered by Santam Direct, which was launched in response to client behaviour shifts. Despite the growth in this segment, Santam Commercial and Personal continues to rely on strong relationships with intermediaries as the foundation of its

is difficult to replicate – positioning it as strategically important to the group. Santam Specialist’s acquisition costs increased due to higher gross commission paid on business from outside South Africa, lower

business model.

reinsurance profit commission and pressure on premium growth.

The tied agent initiative with Sanlam is progressing particularly

The crop portfolio was under pressure due to the continued drought

well. Competitive pressures and the impact of the weak economic environment were the key drivers for the lower-than-expected growth

across the region, but delivered a positive underwriting margin. Santam crop delivered a net underwriting result of R69 million

rates in the rest of the business unit.

(2015: R131 million). Santam Specialist continues to explore

Underwriting results for Santam Commercial and Personal were

offering, especially in central and eastern Africa.

negatively impacted by a higher number of catastrophe events compared to 2015. These included hailstorms in Johannesburg and the North West Province in January, and severe storms in KwaZulu-Natal and Gauteng in July and again in November, resulting in extensive flood damage. This was exacerbated by a number of large property claims due to fire losses.

opportunities to expand its crop insurance footprint and product

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Centriq showed solid growth and profit well ahead of 2015, positively

Despite challenging business conditions, the business still delivered good returns and will benefit from the agreement with Munich Re of Africa for certain Santam Specialist underwriting managers to use its AA- S&P credit rating from 1 January 2017.

MIWAY

Claim frequencies increased by 11.9% this year. The average cost per

MiWay’s direct client relationships, enabled by an effective digital

claim increased by 8.1%. Cost containment efforts were challenged

platform and strong brand, continue driving sustained growth. The

by a volatile exchange rate leading to rising prices of motor repairs,

business unit reported a gross written premium of R2.1 billion

an increase in fees and settlement amounts, more catastrophe claims

(2015: R1.8 billion), which is 19% higher than last year and an 8%

and capacity constraints due to higher levels of claims incidents.

contribution to the group’s GWP (2015: 7%).

Progress with the roll-out of the new administration platform,

The business unit delivered strong growth on the back of new

combined with the new system ability to develop innovative products

business offerings that were launched in the past few years,

and offerings, will drive future growth and efficiency.

including direct life and business insurance. Growth was supported by good cost management, which impacted the underwriting

SANTAM SPECIALIST Santam Specialist has a leadership position across most segments in which it does business and leverages this position across the Santam distribution channels and specialist intermediaries. The business unit continues to diversify and grow its footprint outside South Africa. 19% (2015: 18%) of the niche business’s gross written premium was

margin positively. As a result of an increase in the cost of motor parts, which followed the weakening of the rand in 2015 and the impact of new business growth, MiWay reported a claims ratio of 63.6%, up from 60.9% in 2015.

earned beyond South Africa this year.

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LEADERSHIP REPORT

The acquisition cost ratio reduced to 28.7% (2015: 29.8%). MiWay

SEM businesses in Tanzania and Uganda performed well, with SGI

ended 2016 with 278 000 clients (2015: 242 000) (excluding value-

in India experiencing higher-than-anticipated volumes for all product

added products) and 1 551 employees (2015: 1 311).

lines. Operations in Kenya, Malawi and Zambia were under pressure.

An in-depth rerating process evaluated pricing against risk exposure

Santam and SEM respectively holds 25% and 75% of the shareholding

and resulted in increases in selected areas. Although this had a

in SAN JV, which acquired a 30% interest in Saham Finances during

short-term impact on conversion rates, it will result in an improved

the first quarter of 2016.

loss ratio and ensure profitable growth going forward. Saham Finances results for the nine months to September 2016

SANTAM RE

fell somewhat short of expectation. The results were negatively

Santam re continues to contribute to the group’s diversification

impacted by the economic conditions prevailing in Angola and Syria.

strategy and the ability to create long-term value. The business unit delivered higher-than-expected growth at an acceptable

Furthermore, the decline in oil prices impacted activities in Nigeria, Ghana and Gabon. The notable strengthening of the Moroccan dirham

underwriting margin.

against the Nigerian naira and the Angolan kwanza further depressed

Progress in exploring combined initiatives with Saham Finances

Assurance Morocco, still contributing the bulk of premiums and

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

included shared training and facilitation agreements in various territories to enhance reinsurance business flows to the

results. This was partly offset by strong performance from Saham earnings for Saham Finances.

Saham Finances.

The group takes a long-term view of the SEM partner businesses and

Santam re remains the main vehicle for group reinsurance

growth than anticipated.

optimisation. It continues to build partnerships with international

will continue investing in technical support capacity, despite slower

reinsurers with portfolios of good standing and has been able to

MULTIPLE WAYS OF MANAGING RISKS

secure good new business flows from international partner cessions.

Santam’s risk approach takes many forms. This year, we conducted a risk assessment survey, which involved 188 participants, assessing

The business unit increased its business intelligence capability and

20 risks across operational, financial and strategic risk categories.

is now able to automate and access rich sources of management

Ethics and compliance risks received the lowest risk rating scores.

information. This will enable it to identify improvement opportunities

The highest velocity risks included extreme weather events

and further encourage future cross-selling in the group.

(e.g. floods, drought) and financial health/economic uncertainty (including risk of downgrade). This means that they can be expected

SANTAM EMERGING MARKETS INVESTMENTS

to occur in a short time frame with high impact.

Santam continues to provide comprehensive technical support to SEM business partnerships. This includes product, pricing,

The group and business units each have a detailed risk appetite

underwriting and reinsurance input and resulted, for example, in

policy with criteria that consider financial and non-financial risk

tenders won in India. Negotiations on a bancassurance distribution

categories. All this indicates how much risk Santam is willing to take

agreement for general insurance products in Africa have been

in the pursuit of achieving its strategic and operational objectives, and

successfully concluded.

quantifies the amount of capital the group is willing to put at risk in the pursuit of value creation.

A lowlight for the year was the identification of financial misstatements related to pre-acquisition periods at SORAS in

When a risk event occurs – despite mitigating and preventative

Rwanda. Immediate corrective action was taken and the Santam

measures – constructive action is taken. An example was the

manager of operational finance was seconded to Rwanda for a

financial irregularities identified at SORAS in Rwanda relating to

four-month period to assist with the implementation of improved

prior financial years. Corrective measures were immediately taken

controls for the business.

to address these irregularities.

The Pacific & Orient Insurance Co. Berhad (P&O) business in Malaysia experienced lower premium growth due to competitive market conditions. There is a significant focus on expanding the current P&O product offering, and growth reported in the non-motor business line was positive.

42

and severity in the past year:

LEADERSHIP REPORT

The risk table below provides a summary of strategic risks – all rated as high-ranking – and indicates where these have increased in probability

MATERIAL FACTORS STRATEGIC RISKS

DELIVERY ON GROWTH TARGETS THROUGH MULTIPLE DISTRIBUTION CHANNELS

RISKS ASSOCIATED WITH INTERNATIONAL DIVERSIFICATION

INVESTMENT PERFORMANCE

REALISING BENEFITS IN DEVELOPMENT OF A NEW CORE UNDERWRITING, ADMINISTRATION AND PRODUCT MANAGEMENT PLATFORM

TREND

Growth outside South Africa remains a key strategic focus, while maintaining our local leadership position. Country-specific initiatives between SEM, Santam Specialist and Santam re include increasing business visibility, quote volumes and sales capability, while managing acquisition cost. We continue to explore acquisition opportunities that can add to our product offering and generate profitable premiums.

South Africa’s low growth is exacerbating already high unemployment, inequality, and macro vulnerabilities. Inflation will impact consumer spending, which may result in an increase in cancellations and return debits. Investing in other regions allows the group to better manage its South African exposure. The agreement with Munich Re of Africa to use their AA- international credit rating should support growth strategies for Santam Specialist and Santam re businesses.

Santam is expanding in multiple territories through SEM, the Santam re and Santam Specialist businesses. This diversification introduces additional operational risks, specifically in the underwriting process and through reliance on intermediaries within these territories. Technical support is critical in some areas, combined with specific operational controls around underwriting processes.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

OUTSIDE-IN FACTORS: POLITICAL, ECONOMIC, SOCIAL AND COUNTRY RISK (INCLUDING THE RISK OF A SOVEREIGN DOWNGRADE)

DESCRIPTION AND SANTAM RESPONSE

Investment performance is most significantly impacted by the group’s exposure to volatile investment markets. The group actively manages its investment portfolio to optimise the investment return within the agreed risk appetite. Appropriate rebalancing of investment assets is managed with the payment of ordinary and special dividends.

The business has to migrate to new operational environment and technology platform without compromising stability to optimise efficiency. The Santam Commercial and Personal business unit is currently undergoing such an implementation, which is tightly managed and monitored by formal project and oversight structures. Potential delays in the further deployment and migration might result from capacity constraints, complexity and competing business priorities. Progress and risks are monitored at board level, given the size of the investment. Good progress and high confidence levels highlight the overall downward trend of this risk over time. Management remains confident about the delivery of this project.

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LEADERSHIP REPORT

STRATEGIC RISKS

DESCRIPTION AND SANTAM RESPONSE

INNOVATION/NEW THINKING TO INCREASE EFFICIENCY/ PRODUCTIVITY AND REDUCE COST BASE IN MEDIUM TERM

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

REGULATORY REFORM CHANGES, UNCERTAINTY AND IMPACT

CYBER SECURITY

The ability to create strategic agility, considering the potential future business contexts facing insurers, will be critical for Santam to remain competitive. The fourth industrial revolution is disrupting almost every aspect of business, transforming entire systems of production, management and governance. This is creating a peer economy of sharing, collaborative consumption and commercial peer-to-peer mutualisation systems. It will also result in greater availability of data, which can allow for more effective pricing and risk underwriting, given access to the appropriate skills and analytical capability.

Regulatory change remains at the top of the agenda for the financial services industry. Delays in the implementation of SAM and Retail Distribution Review (RDR) continue to have cost and efficiency impacts which are managed as effectively as possible.

Any financial loss, business disruption or reputational damage that results from the failure of Santam’s information technology (IT) systems contributes to cyber risk. To understand and manage this risk, a cyber-resilience framework and risk assessment was concluded to identify the necessary process and toolkit to safeguard the group. A cyber-crisis learning intervention also contributed to an update of the Santam crisis management guide to cater for cyber scenarios. Read more about the Santam hackathon on page 37.

Risk movement indicators: Risk has increased

Risk has remained the same

New risk

READ MORE ABOUT OUR RISK MANAGEMENT APPROACH IN THE RISK REPORT ON PAGE 88.

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TREND

Santam’s approach to business transformation is directly aligned to the vision and the brand promise of Insurance good and proper. We understand the value of diversity and an inclusive approach to drive superior and sustainable business results. Santam’s progress in transforming the business – and contributing to transformation in the industry and the economy – has created significant value for our stakeholders.



Finding and developing a viable and affordable offering for the lower market segments in South Africa remains challenging. R8.3 million was invested in consumer financial education across business channels and more than 129 000 policies were sold as access products in South Africa through 75% FSC-approved products READ MORE ABOUT OUR PROGRESS WITH CONSUMER FINANCIAL EDUCATION INITIATIVES IN THE STORY ON PAGE 36 AND TRANSFORMATION IN THE REPORT ON PAGE 98.

RESPONSIBLE COLLABORATION

new, focused transformation strategy was adopted to ensure delivery

We continue to expand our collaboration with Sanlam where it makes

on the following objectives:

sense for us to do so. This includes, for example, our support of



Driving high-impact transformation initiatives for business and

Sanlam’s group chief executive, Ian Kirk, who represented the wider

societal value

group in recent engagements with government and inter-ministerial



Creating a diverse and inclusive culture

teams to develop solutions for South African job creation, economic



Driving transformation through innovation

stability and growth.



Leading transformation compliance Where Santam enters into transactions with Sanlam through SEM

We have developed specific initiatives and actions for each objective,

Investments, these are governed and at arm’s length, with specific

with the executive team taking responsibility for the implementation,

involvement of Santam’s independent directors.

monitoring and evaluation of the transformation agenda across Collaboration with Sanlam further entails participation in the governance roll-out through SEM. Following the fraud uncovered in Salient transformation features for 2016 include:

Rwanda, there is even more focus on ensuring that all subsidiary



Diversifying our supplier network by investing a further

boards and partners subscribe to the group’s ethics, anti-bribery and

R30 million into the ASISA Edge Growth fund (a total of

anti-corruption policies. We have also done further work in developing

R40 million to date) to create access to loan funding for new

risk appetites in collaboration with the management teams in

and small BBBEE suppliers in the sector

different territories – all to prevent future reputational damage.





S A N TA M I N T E G R AT E D R E P O R T 2 0 16

For the South African businesses, BBBEE remains a key priority. A

the group.

LEADERSHIP REPORT

TRANSFORMING FOR GROWTH IN SOUTH AFRICA

11 of the 19 participating suppliers in the Sanlam Santam Enterprise Development Programme in partnership with ASISA

Collaboration between Santam, the Department of Cooperative

are Santam-specific suppliers

Governance and Traditional Affairs and the Emthunzini Broad-based

Improvement in the mechanisms used to grow our footprint into

Black Economic Empowerment Community Trust has resulted in an

the South African entry-level market include the establishment

acceleration of the Partnership for Risk and Resilience programme,

of “Lemon” (lateral emerging market opportunity network)

which will now be extended from five to 53 local municipalities over

to provide the different business units with a formal platform

the next five years.

to share, explore and identify strategies and actions to create access to and for this market. These include, for example, Santam Agri, Santam Direct and VUM, and provide a central reporting facility for targets set on consumer financial education

READ MORE ABOUT THE IMPACTS OF THIS PARTNERSHIP ON PAGE 50.

initiatives, activation and impact −

Santam achieved a level 2 BBBEE status based on the new FSC requirements. The group has been able to retain its ownership score after the unwinding of the BBBEE scheme in 2015

45

LEADERSHIP REPORT

OUTLOOK

APPRECIATION

We focus on the future to ensure that our board and management

Many people contributed to the good management and stability

teams are attuned to what might happen – and how quickly things

at Santam in a challenging year. We recognise the efforts of our

are changing. Agility will be our most important capability when

employees, intermediaries and old and new business partners. We

considering future business contexts. This will also enable us to

also thank the board for their support and ability to steer the group

respond to what matters most to our stakeholders, as we recognise

on its journey towards our vision for 2020. The executive management

that this matters most to us.

team has again proven their tenacity and commitment to the group, industry and all its stakeholders. We are confident in the ability of our

South African trading conditions remain competitive in a low-growth

people to create opportunities in the face of a challenging 2017.

economic environment, which translates into almost no growth of insurable assets for the insurance industry.

Grant Gelink Chairman

The group’s focus remains on profitable growth in South Africa and to increase its international diversification through the Santam

Lizé Lambrechts

Specialist business and Santam re. Santam continues to focus

Chief executive officer

strategically on supporting the development of the SEM general

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

insurance businesses in emerging markets by allocating appropriate technical resources. In South Africa, focus areas include developing Santam’s full multichannel capability and MiWay’s business insurance and broker-direct offerings, and the MiWay Life insurance initiative with Sanlam Life. We continue to focus on the optimisation of the claims and procurement value chains to increase efficiency and counter the impact of the weakening rand. The group will also maintain its focus on cost-efficiencies to improve the management expense ratio over the medium term. The investment market is likely to remain uncertain. The higherinterest-rate environment will result in increased interest income for the group but higher volatility is expected on interest-bearing instruments. The increased exposure to non-rand-denominated business further increases foreign exchange volatility. With our new transformation strategy for the South African business units contracted and firmly on track, we expect improvements to become visible and measurable as we create a diverse workforce, intermediary and supplier base, enable access for non-traditional markets to products and services and make further impactful investments into communities.

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LEADERSHIP REPORT

STRATEGY REVIEW The five focus areas of the Santam strategy remain relevant to all group entities and territories. However, the implementation emphasis is at different levels of maturity in different areas of the business. A group dashboard tracks operational progress on a quarterly basis, and continuously evolves to include reporting from new territories, acquisitions or ventures. The strategy report below is still weighted towards the South African business units, and provides examples of how the strategic focus areas are being implemented across the group.

INSURANCE GOOD AND PROPER

GROWTH THROUGH INNOVATION AND DIVERSIFICATION

MANAGE THE RISK POOL

CONTINUOUSLY INCREASE EFFICIENCY

THE RIGHT PEOPLE

Achieve responsible, profitable and sustainable growth in South Africa and internationally

Ensure proactive sustainable risk management while promoting dialogue and collaboration on risk and resilience

Maintain high standards of operational efficiency, ultimately creating more robust and sustainable stakeholder outcomes

Influence and enable successful execution of the Santam strategy through engaged and competent people and partners

INSURANCE GOOD AND PROPER Santam’s products and services continue to be designed, marketed and delivered in a way that is fair, respects others and adds to the well-being of clients and broader stakeholder groups. However, Insurance good and proper goes beyond products and services to include Santam’s commitment to: −

building a successful and sustainable business in Africa;



actively contributing to transformation and economic development in South Africa and Africa through successful community partnerships, investments and sustainable business initiatives; and



progressively improving the social and economic well-being of its stakeholders and customers by reducing risk when it comes to insuring the needs of its customers.

A CLIENT-CENTRIC GROWTH CULTURE The claims experience is a policyholder’s opportunity to test Santam’s delivery on the brand promise of Insurance good and proper. Therefore, client satisfaction is an important measure for the brand. Santam Commercial and Personal measures client satisfaction on three levels: −

Directly with clients after every interaction – from quotation through to the claims process. A benchmarking score of 80% must be achieved on a client satisfaction scale



S A N TA M I N T E G R AT E D R E P O R T 2 0 16

THE LEADING GENERAL INSURER IN SELECTED EMERGING MARKETS

Deliver on the promise to clients in a way that creates value for all stakeholders

A client diagnostic measure of overall satisfaction according to future intent



An external credible independent measure called the South African Customer Satisfaction Index (SAcsi)

SAcsi is an independent national benchmark of customer satisfaction of the quality of products and services available to household consumers in South Africa. According to the 2016 SAcsi results, Santam retained its leadership position in the short-term insurance industry, increasing its client satisfaction score from 77.3 to 80.0. The survey indicated that the competitive practice of lowering premiums by cutting out intermediaries, is no longer carrying favour from customers, as reflected in a marked drop in expectations, perceived quality and perceived value. A further external measure of client satisfaction is the Ombudsman for Short-Term Insurance (OSTI) annual report statistics. The 2016 report (relating to 2015 data) indicated that Santam received the highest share of claims (FSB statistics) in the industry at 12.11% due to its leading market position, whereas its share of OSTI claims were only 7.29%. In 30% of the finalised OSTI cases against Santam, the policyholder received some benefit, just slightly above an industry average of 27%. This means that 70% of claims (71% in 2015) were awarded in favour of Santam. 3.05% of ombudsman claims related to MiWay claims and 86.2% (2015: 77.4%) were upheld in favour of MiWay.

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LEADERSHIP REPORT

MiWay measures client satisfaction for nine touchpoints, based on

The risk of fraud and crime, which directly undermines the brand

TCF principles. The nine elements include feedback on premium

promise, is further mitigated by collaborative internal efforts. An

changes, new policy activation, quotations not accepted, emergency

example of this is the newly established Business Integrity Forum,

assistance, claims experience and retention. In the past year, the

which was set up to enable easy transfer and sharing of information

business unit received highest monthly scores from clients who

between Santam subsidiaries. These efforts are all aligned to protect

activated new policies or went through the retention process, which

the Santam brand and reputation.

indicates a high understanding of the product, related service and their experience of the take-on/retention process. Lowest scores were measured in the dispute and complaints categories, where

READ MORE ABOUT ETHICS RISK MANAGEMENT ON PAGE 77.

small samples are dominated by clients who are not satisfied with the outcome of their complaint. A dedicated team focuses on improving these clients’ experiences. Santam won the Financial Intermediaries Association of Southern Africa’s (FIA) Short-Term Insurer of the Year: Personal Lines award for the sixth time since 2007. The FIA awards are one of the most

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

comprehensive total industry broker satisfaction benchmarks produced in South Africa. It awards insurers that provide the best support to the country’s financial advisers and insurance brokers.

Santam also recently joined the Coalition for the promotion of Ethical Operations (the CEO initiative) showing support to promoting ethical business and good governance in the sub-Saharan African region. Due to its presence in the region through SEM, Santam is in a position to share best practices to reduce corruption, to promote training for SMEs and engage in collaborative action. READ MORE ABOUT SANTAM’S INITIATIVES TO ALIGN ETHICAL CULTURES AND LEADERSHIP IN “THE RIGHT PEOPLE” ON PAGE 53.

These accolades strengthen the credibility in the Insurance good and proper proposition.

SUPPORTING THE SANTAM BRAND PROMISE

TREATING CUSTOMERS FAIRLY Santam is committed to embedding the principles of Treating Customers Fairly (TCF) into its strategy and culture as the

As part of strengthening the Insurance good and proper positioning

cornerstone of the brand promise, Insurance good and proper.

and driving innovation, Santam launched a safety ideas initiative this

A pragmatic approach is applied for TCF implementation,

year. The campaign invited submission of safety ideas and concepts

balancing outcomes and fairness with business sustainability

for the public with the winning concepts going through an incubation

and commercial imperatives.

process for further development into prototypes to further stand the chance of being turned into viable businesses. This initiative

Quarterly TCF forum meetings are held to monitor implementation

strengthens our association with safety and risk management creates

and progress, with a TCF dashboard part of scheduled input to

opportunities for enterprise development and investment, and

the board.

ultimately supports Santam’s commitment to manage the risk pool and reducing systemic risk.

The focus this year was on maturing the TCF management information. This included improving complaints data reporting and

A further initiative to entrench the brand promise related to Santam

developing product risk assessment matrices. The need for more

suppliers: training was undertaken with 32 motor body repairers

product training for intermediaries was identified as a focus area

on Santam’s code of ethics, the Business Integrity policy and

going forward.

preventative measures for reducing the risk of misconduct within their own businesses. They were also encouraged to participate in International Fraud Awareness Week. Santam’s internal Staff Reporting Initiative celebrates 10 years of reporting. It provides employees with a platform for safe reporting of misconduct through a range of whistle-blowing channels, including an internal fraud line, hotlines (in South Africa and Namibia), SMS, WhatsApp and e-mail facilities. Whistle-blowers are ensured of being protected as they are able to make disclosures in a safe and confidential environment. The initiative dealt with 4 000 reports, reported 1 150 criminal cases and secured 300 convictions over the 10-year period. Leads originated from employees, suppliers, intermediaries and policyholders.

48

Santam is the largest South African insurer and the most diversified among its peers. The group currently generates 10% of its premiums from outside of South Africa and has a strategic goal to grow this contribution significantly through the Santam Emerging Markets Investments, Santam re and Santam Specialist business units.

GEOGRAPHIC DIVERSIFICATION The group has a presence in 31 countries following recent acquisitions. Growth in South Africa remains challenging due to economic conditions and Santam’s leading market position, which limits acquisition opportunities. The group’s main growth options are international.

We continue to invest in ways to penetrate new and non-traditional markets. Consumer financial education has been identified as one of the most effective ways in which Santam creates new market opportunities. This requires specific and targeted initiatives and platforms to provide access and to meet the needs of previously underserved individuals and communities. These initiatives transfer knowledge and skills to potential clients by creating an understanding of insurance products and services. This enables Santam’s potential client target market to make informed decisions about their finances and lifestyle. For example, we targeted individuals through the Twelve Apostles Church in Christ (TACC) CE Awareness campaign, as well as through small enterprise and business education. Another example is Santam Specialist partnering with The Box Shop, a recently established retail outlet and business incubator situated within the Vilakazi Street precinct of Soweto. The business embarked on a pilot programme to set up a learning hub, providing specialist consumer financial education for entrepreneurs. The focus is on interactive teaching, covering concepts such as the

GROWTH THROUGH INNOVATION

basics of financial planning, business budgeting, insurance do’s and

Technology and the availability of data create many novel insurance

don’ts and the risks faced by entrepreneurs. As at the end of 2016,

options, such as pay-as-you-go packages. Although Santam

426 entrepreneurs were trained.

continuously explores innovative solutions, the associated risks in terms of fraud and regulatory complexities, challenge the viability of these offerings.

READ MORE ABOUT SANTAM’S EMERGING FARMER EDUCATION INITIATIVE ON PAGE 31.

Telematics as a way to measure various aspects of vehicle location and driver behaviour, continue to be a value add option for motor insurance. However, given the fact that South Africa’s safety and security considerations – related to theft and hijacking – remain a priority, the cost does not yet justify perceived benefits

The development of a value proposition for the lower-income market remains challenging. This will receive attention in the next

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

FIND THE DETAIL OF CURRENT GEOGRAPHIES ON PAGE 28 AND READ MORE ABOUT ACQUISITIONS IN THE LEADERSHIP REPORT FROM PAGE 40.

GROWTH THROUGH NEW MARKET SEGMENTS

LEADERSHIP REPORT

GROWTH THROUGH INNOVATION AND DIVERSIFICATION

financial year.

for policyholders. Nevertheless, Santam offers an approved vehicle recovery or telematics system which can help clients limit their exposure to vehicle accidents and thereby reduce insurance premiums. Santam and Sanlam created a tied agency model in 2015 to contribute to the group’s multichannel strategy and proactively respond to the pending RDR legislation. This new distribution channel will restrict agents to a range of Santam, Santam Specialist and MiWay products, in exchange for a more favourable remuneration structure. Early adopters were provided with incentives, which resulted in significant new business. Santam’s direct business is a further element of channel diversification and is performing to expectation. The focus remains on understanding the market, customer experience and expectations, and finding best practices to meet these proactively.

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LEADERSHIP REPORT

MANAGE THE RISK POOL

BUILDING PARTNERSHIPS FOR RISK AND RESILIENCE

Through managing our risk pool, we ensure proactive sustainable risk

We remain mindful of the challenges South Africa faces that require

management while we diversify.

strong partnerships to meet the sustainable development goals and make the National Development Plan (NDP) a reality. Santam

Risk pooling is integral to the efficient functioning of markets,

has heeded the call to improve the resilience of communities and

economies and society. As the risk landscape evolves, spawning

continues to secure significant successes with our holistic, shared

new and complex risks, Santam continuously monitors trends and

risk management partnerships with a wide range of stakeholders,

changes that can materially impact risk profiles and claims patterns.

including business, land owners and local government. Our Partnership for Risk and Resilience, previously known as Business-

Santam’s approach encompasses end-to-end risk management, and

Adopt-a-Municipality (BAAM), continues to gain momentum.

includes assisting policyholders in managing their own risks better – often through incentives linked to proactive measures.

Partnerships are key to reduce risk on the ground. This includes disaster risks, such as floods and fires, which can have a significant

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

An example of responsive product development was the inclusion

impact on communities and businesses. The creation of the

of extended cover for solar panel installations. As more individuals,

Partnership for Risk and Resilience attempts to include both the work

business and farmers started securing independent power sourcing

done under BAAM since 2011 and the work done under the Santam

options as a more reliable and cost-effective option, Santam

High Risk Node initiative to address climate and systemic risk.

recognised that these installations are also susceptible to theft or weather damage. In the agricultural sector, in particular, this can

Santam expanded and accelerated the programme in response

take the form of critical power generation for farm equipment or

to government’s request for increased assistance to support

machinery such as windmills or water pumps or to the main farm

municipalities that are dysfunctional and at risk. The needs

buildings as a source of additional power or heat.

of vulnerable communities have also been increasing in these municipalities.

Santam is the only South African insurer with a scientific experimental farm that conducts accurate, in-depth hail simulation

The Emthunzini Broad-based Black Economic Empowerment

research on crops to ensure accurate damage assessments. The

Community Trust was approached for increased funding over

research entails specific analyses of crop damage at different growth

the next five years to expand the programme from five to

stages that are unique to South Africa’s climate, soil and cultivars.

53 local municipalities.

The research results enable us to differentiate between new varieties introduced in the past few years in terms of recovery potential

The Partnership for Risk and Resilience programme has the potential

following physical damage from weather events. More accurate

to positively impact the lives of over five million South Africans as

damage assessments also assist the group in adjusting risk rating

it addresses the issues of disaster risk management, job creation,

levels more accurately.

installation of early warning systems and ensuring capacity in municipalities to improve service delivery. The following municipalities were targeted in 2016: − −

Ehlanzeni District Municipality (five local municipalities) Sarah Baartman District Municipality (seven district municipalities)



Sedibeng District Municipality (five local municipalities)

The objective is to target three district municipalities per annum until 2020. Santam will endeavour to bring various partners on board to support the programme.

READ MORE ABOUT SMOKE ALARMS AS A WAY TO REDUCE RISK IN TARGETED MUNICIPALITIES ON PAGE 34.

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MANAGING CLIMATE RISKS Weather patterns are becoming difficult to predict in the context of

sufficient over the longer term. This is good for business and

global warming, exacerbated by urbanisation and the impact

has a positive impact on the economy. Santam’s corporate social

of increased concentration in big cities.

LEADERSHIP REPORT

CSI BRINGS FURTHER RISK SUPPORT Investing in communities makes them more resilient and self-

investment strategy is directed primarily at building resilience in communities in the targeted high-risk municipalities (Ehlanzeni,

Santam has been a member of ClimateWise since 2009. We are

Sarah Baartman and Sedibeng).

committed to forward action on climate risk and to find ways for our actions, products and solutions to effect positive change, build

Focus areas include:

resilience and to reduce the risks that the climate poses for our



industry, our business and society at large.

Driving community risk awareness through partnerships to address the drivers of risk and inculcate appropriate risk

− −



Santam uses the PwC ClimateWise Principles Independent Review

Partnering with appropriate entities to increase capacity for

to track its progress in addressing climate risk. The ClimateWise

disaster response and disaster relief in vulnerable communities

Principles provide an international standard tailored specifically to

Assisting with the improvement of technology to enable

the insurance sector. Adherence to these principles demonstrates

communities to use early warning systems to drive proactive risk

a commitment to orientate business practice towards a resilient,

management behaviour

low-carbon economy.

Addressing the causes of fire risks in communities by providing safer alternatives, for example replacing candles with solar

Santam has improved its ranking among ClimateWise members from

candles, heat and smoke sensors, etc.

14th in 2015 to 12th place. The group achieved an overall score of 56%

Where appropriate, assisting neighbourhood watches with

(2015: 49%).

necessary equipment to improve their service to communities −

Focusing on hotspots in the high-risk communities and address

A number of initiatives have been implemented to account for the

high-risk activities through partnerships and programmes, for

impact of climate challenges, including geocoding, actuarial pricing

example eradication of alien vegetation projects for job creation

and providing support to local authorities. Santam investigated the

purposes, firebreaks, etc.

impact of water scarcity on underwriting. This was typically residually rated as low, as policy wording in most instances excluded cover in

Santam invested R21 million in CSI projects, including consumer

water scarcity scenarios. It is now included in the top lists of risks

financial education (CFE) (2015: R16 million), with the majority

and is being actively monitored to determine mitigating actions and

allocated to environmental and development programmes.

potential interaction with other perils due to the potential wider impact of water scarcity.

READ MORE ABOUT SANTAM’S CSI INITIATIVES ONLINE.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16



response behaviour

The group continues to engage with policymakers nationally and internationally to improve systemic resilience. Santam participated in the PSI GRP and signed the Sendai Statement for disaster risk management. The group is a member of the stakeholder council of the Global Infrastructure Basel (GIB) voluntary Standard for Sustainable and Resilient Infrastructure and was a signatory to the Paris Pledge for Action in support of achieving and exceeding the implementation ambitions of the final COP21 agreement in 2015. READ MORE ABOUT COLLABORATION REGARDING INFRASTRUCTURE AT RISK DUE TO CLIMATE RISK IN THE REAL-LIFE STORY ON PAGE 33.

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LEADERSHIP REPORT

MULTINATIONAL RISK MANAGEMENT

CONTINUOUSLY INCREASE EFFICIENCY

Santam is building capacity to improve the understanding of risk

We maintain high standards of operational efficiency, ultimately

exposures in the geographical markets where we invest. The failure

creating more robust and sustainable stakeholder outcomes by

rate has been high for multinationals penetrating African markets

continuously increasing efficiency.

without a deep understanding of local dynamics, skills and conditions. Santam develops an understanding of market dynamics

Santam’s willingness to invest in large, long-term projects to provide

through research and relationships and by recognising that Africa

data capabilities and agility for future business contexts is delivering

is made up of 54 sovereign states that cover a range of natural

the anticipated benefits. An investment in technology of R212 million

ecosystems and an even more vast range of cultures, with about

capitalised since inception has, for example, enabled Santam

2 000 languages spoken.

Commercial and Personal to improve productivity measurably. The investment assists the business unit in implementing the strategy

READ MORE ABOUT HOW WE APPROACH RESPONSIBLE DIVERSIFICATION ON PAGE 54.

and being competitive in a world of digital disruption. It provides optionality in optimising current processes and accessing new business models. In practice, this means that intermediaries and

DATA AND SYSTEMS SUPPORTING RISK MANAGEMENT Santam’s multiyear investment in a new policy administration system

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

is enabling the business to improve risk assessment, pricing and underwriting. The new system, which has been implemented for personal policies and is at the policy migration phase for commercial, also improves the group’s ability to respond quickly to the market from a product perspective. It helps streamline and improve processes and system infrastructure, and enables us to interact with customers through a variety of channels. READ MORE ABOUT SANTAM’S INVESTMENT IN NEW SYSTEMS IN “CONTINUOUSLY INCREASE EFFICIENCY” ON PAGE 52.

Santam’s claims experience over the last few years reflects rising levels of flood, fire and storm events. The group has been investing in data access and quality to improve our understanding of these phenomena.

RISK MANAGEMENT THROUGH THE INTERNAL CAPITAL MODEL With the implementation of SAM now scheduled for 2017, Santam

policyholders can select their Santam interface, offering and profile seamlessly – at any time, from anywhere. The majority of personal line policies have been migrated to the new system. This is expected to be completed in 2017. New business is already being written on the system. Commercial policies have been migrating since June 2016.

TRANSFORMING SUPPLY RELATIONSHIPS Santam’s suppliers form an integral part of the claims management process and the group’s ability to deliver on its promise to clients. Procurement and sourcing have been centralised for the Sanlam Group, including Santam, but subsidiaries still have the option to manage their own sourcing, for example at MiWay. Suppliers encompass functional elements that include claims assessment, contact centres, drive-in centres, a variety of technical specialists, repairers and the internal arbitrator. The robustness of the supplier network is tested for efficiency, cost-effectiveness and reliability by catastrophe events, such as floods in Johannesburg this year. Total claims incurred for the year amounted to R12.9 billion (2015: R11.5 billion).

has entered the next phase in the approval of its internal capital model. Santam operates an internal capital model that is in line with

The supplier network is also an area of high impact through

best practice, to assist with capital management, risk quantification

empowerment initiatives, with the opportunity to encourage local

and decision-making. The group has been engaging with the FSB

employment and sourcing. In collaboration with the Sanlam

for several years to establish the suitability of the internal model

Group, Santam continued its participation in the Sanlam Santam

for regulatory use once SAM is enacted. The FSB has evaluated the

Enterprise Development Programme in partnership with ASISA.

internal dimensions of the model through thematic reviews, and

Santam has contributed R40 million over two years by investing in

has now given the go-ahead for Santam to enter the formal

the sustainability of small and medium-sized enterprises in the

application phase.

group supply chain. The programme assisted 81 small and medium enterprises that support 264 jobs, including 67 new jobs.

52

suppliers, of which 43.9% (2015: 41.3%) are qualifying small enterprises or exempt micro-enterprises. Santam also engages regularly with stakeholders such as the South African Auto Repairer and Salvage Association (SAARSA) and South African Building Contractors and Civils Association (SABCCA) to find ways to increase its support of supplier development initiatives and direct its spend to enable empowerment.

CONTINUOUS COST MANAGEMENT A weaker currency has a direct impact on Santam’s claims costs in South Africa. To mitigate and manage this risk, Santam has implemented a value-based decision model that directs spend to the most suitable suppliers based on their value offering to the group. This entails an assessment based on quality, service, price and

The group continues to explore initiatives to contain costs, as this contributes positively to Santam’s loss ratio and supports affordable insurance premiums. Some progress has been made in contracting direct supply of parts to motor body repairers through original equipment manufacturers. This is a long-term initiative with engagements at different stages of maturity, and overall good interaction with dealer groups. The Santam claims card is functioning well with further functional enhancements implemented to support flexible, client-centric claims fulfilment processes. Further roll-out of the card mechanism and leveraging of the supply base in this regard is planned for 2017. Santam’s internal cost management process includes quarterly expense forum meetings, which monitor expense trends and drive savings. This is approached holistically, considering cost management from policy formulation through to cultural drivers. We believe in constantly making small improvements to deliver long-term optimisation.

For the past 99 years, people have been at the heart of Santam’s business and its success. Our strategic focus on “the right people” ensures that we have the right people in the right positions to deliver on our chosen strategies. Our achievements include the continuous adjustment to a diverse employee complement that is suited to the contexts in which we do business, and progress towards meeting our transformation targets.

THE RIGHT PEOPLE FOR A MULTINATIONAL CONTEXT Santam’s expansion outside South Africa requires building people capabilities to manage increasing size, scale and complexity. With a growing presence in South Africa, sub-Saharan Africa, India and Malaysia, the group has to take the development of leadership skills beyond the traditional to include traits such as the ability to influence, cultural intelligence and an understanding how to manage and lead in different environments. Our leadership programmes – at junior, middle and senior management levels – have a strong leaning towards managing diversity, leading and managing change, innovation across different geographies and collaboration with global partners. These programmes are designed and facilitated in partnership with external parties and business schools. Our business, and that of our partners in other geographies, also requires key technical skills that include general insurance, specialist underwriting, actuarial, operational and finance. For example, through SEM, we are in the process of rolling out a surveyor training

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

transformation criteria.

THE RIGHT PEOPLE

LEADERSHIP REPORT

In total, 88.7% (2015: 96.9%) of the group’s spend is with BBBEE

e-learning course, with the necessary on-site support. To support the business partners where we invest, we have employees in medium-term secondments (one to three years) and short-term (three to six months) assignments. This creates the opportunity for talent mobility and development across the business. We also have partnerships through which our business partners in international markets assign their employees for training and knowledge sharing in the Santam South African businesses. It is vital that we are able to “export” the Santam culture, underpinned by the values of integrity, passion, humanity, innovation and excellence. These engender trust in the Santam brand wherever we operate.

53

LEADERSHIP REPORT

THE RIGHT PEOPLE FROM A TRANSFORMED PERSPECTIVE

THE RIGHT PEOPLE FROM AN ORGANISATIONAL PERSPECTIVE

At Santam, transformation is embedded and integrated into the way

Santam participated in the Top Employer Certification Programme

our business operates and across our stakeholder value chain.

for the first time and was subsequently certified as a Top Employer for 2017.

Our focus remains on the diversification of our South African workforce, intermediary and supplier network, providing opportunities

Attracting and securing new talent remains a challenge for Santam

for non-traditional markets to access Santam’s products, as well as

and the insurance sector as a whole. Santam invests funds and

investment in the communities in which Santam employees live and

resources in the form of subsidised study assistance for employees,

where the group does business. Transformation initiatives reinforce

leadership programmes, graduate development programmes and the

the brand promise of Insurance good and proper.

Black Broker learnership programme (the biggest general insurance learnership in South Africa). As a prospective employer, Santam

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

A new diversity strategy was launched in April 2016 to ensure that the

provides cross-border mobility and opportunities in diverse fields,

Santam culture supports sustainable transformation.

such as aviation, agriculture, marine and transport insurance.

To ensure future availability of black intermediaries for the

Santam is also making progress with the implementation of the

industry, and as a critical element of Santam’s business model and

Strategic Resourcing Plan (SRP), which is creating additional roles to

transformation priorities, the Santam Black Broker Development

mitigate critical skills needs. Santam’s talent management strategy

programme, which focuses predominantly on developing skilled black

supports the plan: high-potential successors for senior and middle

people as intermediaries, has delivered 166 black learners in 2015

management have been identified and talent pools have been created

and 2016. The learners have graduated from the programme with

for critical skills, such as assessors and underwriters.

a full insurance qualification and are now contributing to the South African economy.

The Santam group annual recognition awards are targeted at individuals and teams who have made an exceptional contribution

The programme has been expanded to smaller cities like

to the business and had an impact on the Santam strategy.

Pietermaritzburg and Bloemfontein to provide broader access. The goal is to expand the programme to youth in rural towns. Efforts to

Santam drives performance excellence through a culture of

increase the placement of Black Broker Development graduates in

performance accountability, employee engagement, reward and

permanent employment are progressing, following the establishment

recognition. A project to review Santam’s total rewards framework

of a central structure in Santam to encourage and promote cross-

is in progress to ensure that our total rewards approach effectively

selling opportunities and generate business leads across various

supports talent attraction and retention.

distribution channels. All group employees have performance contracts in place for each As part of Santam’s effort to build a pipeline of new entrants into the

year, with clear key performance indicators (KPIs), weightings,

insurance industry, a concerted effort is made to place as many of the

targets and measurements set for that period. These KPIs align

Black Broker Development graduates with either intermediaries or

with the group strategy and the business unit and team focus areas.

Santam. Twelve per cent of the graduates of the class of 2015 have

In this way, the strategy is deployed into executive and business

been placed.

unit scorecards, and ultimately cascaded to individual performance contracts. Employees are formally appraised twice a year and given

54

Santam’s learnership programmes for 2016 included:

informal feedback on an ongoing basis. A four-level recognition



The Santam general insurance learnership programme

framework and online 360-degree evaluation functionality was



The Santam motor assessor learnership programme

implemented to support the culture of performance excellence.



The Santam Black Broker Development programme



The empowerment incubator (Uyanda STI Careers)

READ MORE ABOUT PERFORMANCE INCENTIVES IN THE REMUNERATION REPORT ON PAGE 93.

LEADERSHIP REPORT

The 2016 Santam culture and engagement survey had an 86% response rate (2014: previous survey 89%) from a much wider range of participants, which included the Santam branded business units, MiWay, Brolink and several UMAs. Employee engagement scores confirmed that employees care about their work and Santam, and that their level of motivation will facilitate growth in performance. The retention risk indicator, which measures the level of employee flight risk, indicated an overall medium retention risk, with some employees reporting that they are considering or are actively seeking alternative employment. It is our people who, through their strong understanding of our clients, their personal and business challenges and associated risks, package general insurance solutions that contribute to the success of the company and the economy.

the following: Black Female

White Male

2016

2015

2016

Headcount

2 294

1 991

Percentage

39.91

37.47

Female

Male

2015

2016

2015

1 592

1 351

1 093

1 223

27.69

25.43

19.02

23.02

2015

Total 2016

Total 2015

770

748

5 749

5 313

13.38

14.08

100

100 1 151

2016

Terminations

505

513

402

396

113

161

89

81

1 109

Appointments

726

661

584

506

77

151

96

95

1 483

1 413

22.01

25.76

25.25

29.31

10.33

13.16

10.82

1.46

19.29

21.66

Turnover (%)

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

THE RIGHT PEOPLE IN NUMBERS Santam’s employee demographics at the end of the year constituted

The significant headcount movement noted above is largely as a result of the inclusion of employees with fixed-term contracts of three months or more and labour broker contractors in 2016, as required by the South African Department of Labour.

55

WE KNOW FARMERS VALUE MORE THAN JUST THEIR FARMS. Our agriculture business understands that today’s farmers know more than just farming. They have to take care of their farms, their families and their workers. That’s why we help lighten the load by offering insurance that covers their farms, crops and livestock, as well as their personal assets, under one umbrella.

CHIEF FINANCIAL OFFICER’S REPORT

CHIEF FINANCIAL OFFICER’S REPORT

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

OVERVIEW

ECONOMIC ENVIRONMENT

The Santam group reported underwriting results for the

Real annual GDP was a low 0.7% for 2016 with inflation (average

2016 financial year well within the target range of 4% to 8% with

CPI) of 6.4%, which equates to low growth of insurable assets for

a net underwriting margin of 6.4% compared to the exceptional 9.6%

the insurance industry. The repo rate increased by a further 75 basis

in 2015. The negative impact of a number of large property claims and

points in 2016, following the 50 basis points increase in 2015, which

the drought on the crop insurance business was set off by disciplined

resulted in more pressure on consumers and increased interest

underwriting actions in the Commercial and Personal business,

income for the group.

as well as a strong performance by the liability business and MiWay. Significant catastrophe claims were contained through

The rand appreciated by 12% against the US dollar since

reinsurance recoveries.

January 2016 following the significant weakening in December 2015, which resulted in significant currency losses on foreign assets in

Acceptable gross written premium growth of 7% was achieved

2016. The rand is, however, still weaker than pre-2014 levels, which

(6% excluding the impact of cell captive insurance business)

continues to have a negative impact on claims cost (mainly imported

in the current low-growth economic environment.

motor parts). Santam continues to focus on the optimisation of the claims and procurement value chains to increase efficiency and

Investment income, net of fair value movements on financial assets and liabilities, of R832 million was significantly lower compared to R1 445 million in 2015. The South African investment portfolio performed better than the market. The relative strengthening of the rand during 2016, compared to the very weak position at December 2015, resulted in significant foreign currency losses of R372 million (including the SEM investment portfolio) compared to gains of R467 million included in investment income in 2015. In addition, the value of the SEM general insurance business portfolio showed negative unrealised fair value movements following tough trading conditions in certain emerging markets. Headline earnings per share decreased by 41%, while a return on capital of 15.9% on an annualised basis was achieved. Normalising the results for the impact of the foreign currency gains and losses in 2015 and 2016, headline earnings per share would have decreased by 14%, while return on capital would have improved to 18.5%. Cash generated from operations decreased to R2.2 billion (2015: R3.7 billion) impacted by the normalised underwriting performance in 2016 compared to 2015. The economic capital coverage ratio of 155% was close to the midpoint of the target range of 130% to 170%.

FINANCIAL RESULTS

counter the impact of the weakening rand.

CREDIT RATING AGREEMENT South Africa’s foreign currency sovereign rating was affirmed at BBB(negative outlook) in December 2016. S&P, however, lowered its local currency rating on South Africa to BBB from BBB+, reflecting their view of South Africa’s weakening debt position and continued low GDP growth. As a result of this downgrade Santam’s international counterparty credit and insurer financial strength rating was also lowered to BBB from BBB+ as it is limited to the level of the S&P local currency sovereign credit rating. The revised rating was a reflection of S&P’s view on South Africa and was not driven by any change in the financial performance of Santam. In order to compete in the international insurance market an A- or better international credit rating is often required. Santam has therefore entered into an agreement with Munich Reinsurance Company of Africa Ltd (Munich Re of Africa) in October 2016 in terms of which selected Santam business units will be able to use the reinsurer’s S&P AA- credit rating to write inwards international reinsurance business on Munich Re of Africa’s licence. This will enable Santam to further the group’s strategic objective to profitably

A summary set of financial statements for 2016, prepared in

grow its business flows from territories outside South Africa in

accordance with IAS 34, is included in this integrated report.

situations where an international credit rating of A- or better is

The full annual financial statements are available on our website

required. The agreement between Santam and Munich Re of Africa

at www.santam.co.za or in printed format on request from the

is effective 1 January 2017.

company secretary. The agreement with Munich Re of Africa replaces a credit rating READ MORE ABOUT THE KEY FINANCIAL STATISTICS ON PAGE 22.

agreement with another international reinsurer which expired on 31 December 2016, in terms of which Santam could use that insurer’s licence for business which was dependent on a minimum

58

international scale rating.

achieved in 2015. In addition, Santam’s portion of the gross written premium from SEM insurance businesses increased to R1 939 million

UNDERWRITING PERFORMANCE

(2015: R675 million).

The net underwriting margin of 6.4% decreased from the exceptional margin of 9.6% achieved in 2015. It is on par with the 10-year average

The motor and property classes of business were positively

of 6.4%.

impacted by continued disciplined underwriting, including a significant improvement in the underwriting results from business

Gross written premium growth of 7% (6% excluding the impact of

CHIEF FINANCIAL OFFICER’S REPORT

INSURANCE RESULTS

on outsourced platforms. The impact of the catastrophe hail events

cell insurance business), was on par with the 7% (7% excluding cell

during 2016 was significantly reduced by recoveries from the

business) achieved in the corresponding period in 2015, impacted

catastrophe and sideways reinsurance programmes, resulting in

by competitive market conditions and the economic slowdown in

the net impact of 2016 catastrophe events to be in line with 2015. A

South Africa.

number of large corporate property claims reduced the underwriting results in the property class of business. MiWay reported a claims

The property class achieved strong growth of 11% on the back of

ratio of 63.6%, up from 60.9% in 2015, mainly due to the impact of

increased corporate property business written in the rest of Africa

significant new business growth and an increase in motor parts cost

and Asia and good growth achieved by the Santam re property

following the weakening of the rand in 2015. MiWay contributed an

portfolio. The motor class benefitted from the 19% growth reported

investment in the expansion of Santam Direct, MiWay Business

unprofitable books of business on outsourced platforms.

Insurance and MiWay Broker Direct reduced the net underwriting margin in 2016. These new initiatives however performed in line with

The liability and transport classes experienced significant

their business plans to generate future profitable growth.

competitive market pressure and reported a decline in gross written premiums of 9% and 1% respectively. The engineering business for

The underwriting profit of the engineering class of business showed a

large construction contracts was under strain following reduced

decrease compared to 2015, mainly due to the impact of competitive

construction activity in the current economic climate, reflecting

market conditions. The liability class reflected a significant

growth of only 2%.

improvement in underwriting results following claims estimate releases and the absence of large claims during 2016.

The crop insurance business showed significant growth of 17% following the low premium growth in 2015 due to prevailing drought

Despite the severe drought conditions during the first half of 2016,

conditions. Acceptable growth of 7% was achieved in the alternative

the crop insurance business achieved a net underwriting profit of

risk class.

R69 million (2015: R131 million). This was as a result of disciplined

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

underwriting profit of R160 million (2015: R163 million). The continued

by MiWay, but was negatively impacted by corrective actions on

underwriting and fewer hail-related claims during the crop season.

The group’s focus on international diversification continued to

Gross drought claims of R231 million were incurred during 2016.

reflect positive growth results with gross written premium from the

The transportation class was negatively impacted by a number of

rest of Africa, India, Southeast Asia and China of R1 431 million for

significant aviation claims. Santam re delivered satisfactory results

the period (2015: R1 354 million). Santam Namibia reported gross

on third-party business.

written premium of R1 118 million (2015: R1 056 million), resulting in total gross written premium from outside South Africa for 2016

There were no significant changes to the group’s reinsurance

increasing to R2 549 million compared to the R2 410 million

programme for 2016 as the soft reinsurance market continued to provide opportunities to optimise reinsurance placements.

NET INSURANCE RESULTS UNPACKED 2016

5-year average

2015

10-year average

R million

% of NEP

R million

% of NEP

%

%

Net earned premium (NEP)

19 826

100.0

18 523

100.0

100.0

100.0

Claims incurred

12 911

65.1

11 510

62.1

65.6

66.3

Acquisition costs

5 647

28.5

5 234

28.3

28.1

27.3

Underwriting surplus

1 268

6.4

1 779

9.6

6.3

6.4

619

3.1

499

2.7

2.6

2.9

1 887

9.5

2 278

12.3

8.9

9.3

90.4

93.7

93.6

Investment return on insurance funds Net insurance result Combined ratio

93.6

59

CHIEF FINANCIAL OFFICER’S REPORT

The net acquisition cost ratio of 28.5% increased from 28.3% in 2015. The management expense ratio decreased from 17.5% in 2015 to 16.5% in 2016. The 2015 comparatives included the management expenses of Indwe Broker Holdings Group (Pty) Ltd (Indwe). Following the sale of the controlling stake in Indwe in December 2015, the management expenses of Indwe are no longer consolidated in 2016. The adjusted ratio excluding Indwe for 2015 was 16.9%. Management expenses growth was well contained despite new growth initiatives. Strategic project costs, included as part of management expenses, amounted to 0.8% of net earned premium (2015: 0.9%). These costs mainly relate to the continued development of a new core underwriting, administration and product management platform for the Santam intermediated business. The project is progressing according to plan with the majority of personal lines policies

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

now migrated to the new system. The development phase of the commercial business product was completed in June 2016 and the migration processes has commenced. Development costs of R17 million were capitalised in 2016, bringing the total amount

INVESTMENT RETURN ON INSURANCE FUNDS The assets backing the net insurance funds (excluding Centriq group) decreased from R7.5 billion in December 2015 to R7.3 billion as at 31 December 2016, mainly due to lower technical reserves at the end of 2016 compared to 2015. The assets backing the net insurance funds (excluding Centriq group) were invested as follows:

ASSETS BACKING NET INSURANCE FUNDS (excl CENTRIQ GROUP) % 76.7

80

67.3

70 60 50 40

32.7

capitalised since inception to R212 million. Santam will maintain its focus on cost-efficiencies to improve the management expense ratio

30

over the medium term.

23.3

20 The net commission ratio was 12.0% (2015: 10.8%). The comparative ratio in 2015 excluding Indwe was 11.5%. A decrease in the

10

commission ratio due to the growth in MiWay, where limited commission expenses are incurred, was offset by lower reinsurance commissions earned, mainly on crop and corporate property business, following relatively worse loss ratios compared to 2015. Furthermore, commission on inwards reinsurance business from Santam re, as well as business written in Africa, typically carries higher commission rates than South African business. In managing Santam’s risk pool, the aim is to retain the optimum amount of risk after reinsurance, taking into account the group’s risk appetite and the cost of reinsurance. The level of reinsurance earned premium as a percentage of gross earned premium increased somewhat from 19.0% in 2015 to 19.8% in 2016 on a comparable basis, excluding the impact of cell business. Favourable reinsurance terms on specialist business lines, and increased reinsurance ceding by Centriq, were key drivers for the increase.

0 Cash and money market

Interest-bearing instruments

2016 Currency mix of assets backing net insurance funds (excl Centriq group) Rand Cash and other US dollar short-term interestbearing instruments Other currencies Rand Debt securities US dollar Total

2015

2016 R million 5 959 605

2015 R million 6 255 459

324 – 391 7 279

315 52 408 7 489

The investment return on insurance funds increased to R619 million (2015: R499 million) supported by a 75 basis points increase in interest rates during 2016, higher-average insurance funds for the year, as well as the good investment performance of the investment portfolios backing the insurance funds.

60

19.4

20

of R75 million, increasing the total return of the listed equity

15.1

15

12.4

entered into for the period May to December 2016 realised a profit

12.4

benchmark of 4.1%. A hedge structure over R1 billion of equities

18.7

Listed equities achieved a return of 3.3%, lagging the SWIX

25

16.4

currency losses and the performance of the SEM investments.

20.5

however, the investment results were negatively impacted by foreign

20.9

The South African investment portfolio achieved good returns in 2016;

25.0

25.8

SHAREHOLDER FUNDS ASSET MIX % 30

CHIEF FINANCIAL OFFICER’S REPORT

INVESTMENT RESULTS INVESTMENT INCOME

portfolio to 8.4%. The Santam group’s interest exposure is managed 10 5.5

portfolios include exposure to bonds and longer-dated instruments

7.9

in enhanced cash and active income portfolios. The active income and had about R7 billion invested in line with this strategy across the

5

group during 2016. The active income portfolios achieved a strong performance of 10.6% for the year, comfortably exceeding the

Southeast Asia had a further negative impact on the investment performance. The following were key drivers of the fair value movements of Santam’s share of the SEM investment portfolio:

2016 1

– A downward adjustment to the value of the P&O business in Malaysia of R88 million due to lower premium growth in competitive market conditions. There is a significant focus

Other assets

Investment in Saham Finances via SAN JV1

interest in SEM’s general insurance businesses in Africa, India and

SEM participations

of R67 million (2015: positive movement of R47 million) in Santam’s

Listed equities

Negative fair value movements (excluding foreign currency losses)

Interest-bearing instruments and preference shares

Cash and money market

0

2015

2016 includes US$10 million cash designated for the further subscription of shares in Saham Finances via SAN JV, and 2015 included US$100 million cash designated for the initial subscription.

SHAREHOLDER FUNDS CURRENCY MIX %

reported in non-motor business lines was positive.

50 41.8

– A reduction in the value of the investment in SORAS in Rwanda of R47 million following financial irregularities identified during 2016 relating to prior years. Corrective measures were taken to

46.7

on expanding the current P&O product offering, and growth

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

STeFI-related benchmark.

40

address these irregularities, and the business was recapitalised 27.1

during the second half of 2016. – An increase in the value of SGI of R51 million was

30

mainly attributed to good growth achieved in the Indian 20

6.6

in SAN JV, which contributed earnings of R43 million in 2016.

5.0

10

6.4

of the Saham Finances investment through a 25% shareholding

7.2

from the R53 million reported in 2015 following the acquisition

12.4

12.9

Net earnings from associated companies of R67 million increased

16.4

17.5

insurance market.

No earnings were recognised from Credit Guarantee Insurance Corporation of Africa Ltd in 2016 (2015: R31 million) following

2016 1

Other currencies (mainly Namibian dollar)

SEM (various currencies)

Dirham (investment in Saham Finances via SAN JV)

Pound sterling

Rand

Dollar1

0

the sale of this investment in 2015.

2015

Includes cash designated for the Saham Finances transactions via SAN JV.

61

CHIEF FINANCIAL OFFICER’S REPORT

INVESTMENT APPROACH

SEM PARTICIPATION INVESTMENTS

Santam follows a policy of managing its investment portfolios in

Santam entered into a series of transactions with SEM in

a diversified manner. Our aim is to optimise investment income

December 2013, in terms of which Santam acquired participation

within the approved risk appetite profile. Detail on risk management

interests in SEM’s emerging markets general insurance investments.

practices can be found in note 3 to the annual financial statements.

The co-investment arrangement positions SEM as a single investor for the Sanlam Group’s general insurance businesses in emerging

The asset allocation is also managed and monitored from an asset/

markets, while enabling Santam to share in the economic interest of

liability perspective. This ensures that there are sufficient liquid funds

the current and future general insurance expansion in these markets.

available to meet Santam’s insurance liabilities to ensure that the subordinated debt obligations are adequately covered by matching

In principle, SEM and Santam participate on a 65%/35% basis,

interest-bearing instruments, and that the shareholders’ funds are

respectively, in the Sanlam Group’s general insurance businesses

not unduly exposed to investment risk. Foreign currency assets are

in emerging markets. Through this participation, Santam obtains

also held to back foreign currency insurance business conducted by

exposure to the Indian, Malaysian and African emerging markets,

Santam in order to manage the currency risk.

and has the opportunity to participate in the Sanlam Group’s future emerging markets general insurance investments. Santam renders

As at 31 December 2016, funds to the value of R1.7 billion

technical services to the SEM general insurance partner companies.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

(2015: R1.4 billion) backing the insurance liabilities and capital relating to the business written in foreign currency were invested in

Santam has subscribed for shares of separate classes in

foreign currency bank accounts and global fixed income portfolios.

SEM with each separate class linked to one of the following participation interests:

Investment management is mostly outsourced to Sanlam Investment Management, an external fund manager under predetermined mandates, which consists of a combination of various benchmarks, inter alia, SWIX and STeFI-related benchmarks. The overall performance of the fund manager against the mandates is monitored and tracked by management and reported to the Santam investment committee and board on a quarterly basis. The mandate guidelines include performance objectives, market risk limitations such as tracking error and duration, asset allocation, credit and exposure limitations, the use of derivative structures and compliance with relevant FSB regulations.

SEM INVESTMENT HOLDINGS

Incorporated in

62

Santam effective holding 2016 %

Santam effective holding 2015 % 15.4

P&O

Malaysia

15.4

SGI

India

15.0

7.0

BIHL Insurance Company Ltd

Botswana

21.2

20.5

NICO Holdings general insurance subsidiaries

Malawi and Zambia

19.8

21.6

NICO Holdings general insurance subsidiaries

Uganda

28.6

29.3

NICO Holdings general insurance subsidiaries

Tanzania

17.4

18.1

SORAS

Rwanda

26.1

22.1

SOCAR s.a. Burundi

Burundi

8.6

7.3

FBN General Insurance Ltd

Nigeria

12.3

12.3

Enterprise Insurance Company Ltd

Ghana

14.0

14.0

Sanlam General Insurance Ltd (previously Gateway Insurance Company Ltd)

Kenya

10.9

10.9

Botswana Insurance Company Ltd

Botswana

10.3



Zimnat Lion Insurance Company Ltd

Zimbabwe

14.0



Grand Reinsurance Company (Private) Ltd

Zimbabwe

14.0



During the second half of the year, Santam contributed R36 million to

financial instruments; the changes in market value are included in

the recapitalisation of SORAS.

the statement of comprehensive income. The SEM investments accounted for 16.4% (2015: 12.4%) of the Santam increased its participatory interest in SGI during the second

Santam group’s shareholder funds.

half of 2016 by 8% to 15% at a cost of R251 million.

CHIEF FINANCIAL OFFICER’S REPORT

Santam accounts for these investments as fair value through income

SEM PARTICIPATION INVESTMENTS Fair value movements

2015 R million

Additions R million

Change in exchange rates R million

Africa

271

83

(54)

(30)

270

Southeast Asia

382



(49)

(88)

245

Region

India

Change in valuation R million

2016 R million

352

251

(42)

51

612

1 005

334

(145)

(67)

1 127

2016 R million

2015 Key ratios (%)

R million

Key ratios (%)

Gross written premium

962

Net written premium

688

Net earned premium

665

100

499

100

Net claims incurred

484

73

397

80

32

5

19

4

162

24

103

21

Net commission Management expenses

675 494

Underwriting result

(13)

(2)

(20)

(4)

Investment return on insurance funds

119

18

79

16

Net insurance result

106

16

59

12

The acquisition of a 30% shareholding in Saham Finances, together with SEM, was finalised during the first quarter of 2016. SEM and Santam’s respective 75% and 255 acquisitions were structured through SAN JV. In December 2016, SEM and Santam announced a further acquisition

ANALYSIS OF SANTAM’S SHARE OF THE UNDERWRITING PERFORMANCE OF THE SAHAM FINANCES INVESTMENT, THROUGH SAN JV, FOR THE 10 MONTHS TO 31 DECEMBER 2016 2016

of a 16.6% interest in Saham Finances via a subscription for new shares for US$325 million, which are still subject to regulatory approval. Santam’s share of the purchase price is US$7.35 million plus transaction costs. Santam’s ability to participate in the transaction was limited due to the size of the investment already held in Saham Finances through SAN JV. The investment in Saham Finances comprised more than 17.5% of Santam’s shareholder funds at 31 December 2016, making it the most significant strategic

R million Gross written premium

977

Net written premium

789

Key ratios (%)

Net earned premium

749

100

Claims incurred

498

67

Net commission

89

12

Management expenses

185

25

Underwriting result

(23)

(3)

therefore dilute to 15% (previously 25%). The dilution of Santam’s

Investment return on insurance funds

61

8

interest in SAN JV will, however, not affect any of its existing

Net insurance result

38

5

investment held by Santam. Santam’s interest in SAN JV will

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

ANALYSIS OF SANTAM’S SHARE OF THE UNDERWRITING PERFORMANCE OF THE SEM INVESTMENTS

shareholder rights.

63

CHIEF FINANCIAL OFFICER’S REPORT

CAPITAL MANAGEMENT AND SOLVENCY

In 2016, a review of optimal capital levels and the targeted solvency

CAPITAL MANAGEMENT PHILOSOPHY

range was performed. This review took into account the current and

Santam’s capital management philosophy is to maximise the

implementation of SAM as well as the structural change to the

return on shareholders’ capital within an appropriate risk appetite framework. The aim is to increase shareholder wealth by actively managing the following: –

The amount and sources of capital in the business. This is also linked to the current and future regulatory capital requirements in terms of the existing and the newly formulated solvency assessment and management regime (SAM).



The allocation of capital to business units or new business ventures/acquisitions.



The amount and type of risk that the company is willing to assume in the pursuit of value creation.



The reinsurance programme and asset allocation to optimise economic capital requirements.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Santam targeted a threshold return on capital hurdle rate of 24% in 2016. Capital is allocated to the various businesses in the group and the returns on these businesses are measured against the threshold hurdle rate.

future regulatory solvency requirements, the impact of the delayed statement of financial position following strategic investments made and further potential acquisitions. Following this review, the board of directors decided to reduce the Santam group’s capital level by R880 million through the payment of an R8 per share special dividend in September 2016. We remain committed to efficient capital management.

REGULATORY SOLVENCY AND CAPITAL REQUIREMENTS One of the most important regulatory developments is the SAM that the FSB is in the process of developing for the South African longterm and general insurance industries to be in line with international standards. SAM will adopt the principles of the Solvency II, adapted to South African circumstances specifically, where necessary. The target date for implementation of the final requirements under the new regime, including the internal model approach for general insurers, is expected to be early 2018.

UNSECURED SUBORDINATED CALLABLE NOTE PROGRAMME

As previously reported, Santam operates an internal capital model

Santam Ltd established a new R4 billion unsecured subordinated

management, risk quantification and decision-making.

callable note programme on 29 February 2016. The group successfully issued R1 billion of subordinated debt under this programme in April 2016 with the purpose of investing the proceeds in an interest-bearing investment portfolio in order to enhance the group’s regulatory position and to achieve economic benefits.

DISCRETIONARY CAPITAL AND SOLVENCY LEVEL

in line with best practice to assist management with capital

Santam is in the process of applying to the FSB to use this internal model for determining its capital requirements once SAM is enacted.

DIVIDENDS The company paid an interim dividend of 311 cents per share, which was 8% higher than the 288 cents per share in 2015. Santam declared

Santam’s board of directors targets an economic capital coverage

a final dividend of 570 cents per share for 2016 (2015: 528 cents per

ratio of between 130% and 170%. In addition, the regulatory capital

share), resulting in a total dividend of 881 cents per share for the year

coverage ratio must exceed predefined threshold levels.

(2015: 816 cents per share). This represents an increase of 8%. A special dividend of 800 cents per share was furthermore declared

The group economic capital requirement at 31 December 2016 based

in 2016 (2015: zero)

on the internal model amounted to R5.8 billion or an economic capital coverage ratio of 155%. Excess capital is maintained for the

Santam’s dividend policy aims for stable dividend growth in line

following reasons:

with the company’s long-term sustainable business growth. When



to make an allowance for model risk based on the complexity

special dividends are being considered, we take into account capital

of the underlying business;

levels, regulatory capital requirements and potential investment

to maintain a margin over the current regulatory capital

opportunities.



requirements; −

to maintain Santam’s insurer financial strength credit ratings; and



64

to fund business growth and allow for any corporate actions.

In November 2016, Santam purchased the Absa Intermediated Commercial Lines Business from Absa Insurance Company Ltd

R55 million. PST is an independent short-term insurer focusing on

for R13.2 million in cash, including contingent payments estimated

providing short-term insurance solutions exclusively to Graduate

at R28 million.

Professionals including the PPS Group’s client base of more than 200 000 professionals. A pro rata recapitalisation in line with the

Full details of the company’s holdings in subsidiaries, associated

business plan took place during the last quarter of 2016, in terms

companies and joint ventures are contained in notes 10.1 and 12.1 to

of which Santam injected a further R10 million into PST.

the annual financial statements.

In August 2016, Santam announced the acquisition of RMB-SI

Hennie Nel

Investments (Pty) Ltd (RMB-SI). The transaction, which is still

Chief financial officer

CHIEF FINANCIAL OFFICER’S REPORT

OTHER CORPORATE ACTIONS During February 2016, Santam acquired a 49% stake in PST for

subject to the fulfilment of certain conditions precedent, will entail Santam acquiring 100% of RMB-SI’s specialist insurance structuring business. RMB-SI offers insurance structuring solutions across jurisdictions including local and offshore insurance licences in Mauritius and Ireland.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

65

IT TAKES A SPECIALIST TO COVER ONE. Specialist insurance offers unparalleled technical expertise across a vast variety of industries, from engineering and corporate property to travel and tourism. That is because we understand that some businesses require insurance solutions with the highest level of expertise.

CORPORATE GOVERNANCE REPORT BOARD OF DIRECTORS AS AT 31 DECEMBER 2016

Standing (from left): Bruce Campbell (66), Machiel Reyneke (59), Heinie Werth (53), Hennie Nel (48), Tantaswa Nyoka (née Fubu) (45), Grant Gelink (67) Seated (from left): Dawn Marole (56), Themba Gamedze (58), Lizé Lambrechts (53), Ian Kirk (59) Absent: Monwabisi Fandeso (58), Yegs Ramiah (49)

68

69

C O R P O R AT E G O V E R N A N C E R E P O R T

BOARD PROFILES AT 1 MARCH 2017

GG GELINK (67)

IM KIRK (59)

Independent non-executive chairman

Non-executive director

CA(SA), HED, BAcc (Hons)

FCA (Ireland), CA(SA), HDip BDP (Wits)

Appointed 1 June 2012

Appointed 14 June 2007

Director of FirstRand Ltd, Grindrod Ltd, Allied Electronics

Chief executive officer of Sanlam Ltd and Sanlam Life Insurance Ltd.

Corporation Ltd (Altron) and MTN Zakhele. Chief executive officer

Previous chief executive officer of Santam Ltd from 2007 to 2014.

of Deloitte Southern Africa from 2006 to 2012.

Director of Channel Life Ltd, Genbel Securities Ltd, Sanlam Capital Markets Ltd, Sanlam Developing Markets Ltd, Sanlam Emerging

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

B CAMPBELL (66)

Markets (Pty) Ltd, Sanlam Investment Holdings Ltd, Sanlam UK Ltd,

Independent non-executive director

Shriram Capital, Sanlam Netherlands Holding BV and WWF South

BA, MBL, ACII & FCII (UK)

Africa. Chairman of Association of Savings and Investment

Appointed 4 October 2010

South Africa and Vumelana Advisory Fund NPC.

Previous managing director of Mutual & Federal Insurance Holdings Ltd and previous group chief executive officer of Alexander Forbes.

L LAMBRECHTS (53)

MP FANDESO (58)

BSc (Hons), FIA (1992), EDP (Manchester)

Independent non-executive director

Appointed 1 January 2015

BSc (Hons), MBA

Director of Stalker Hutchison Admiral (Pty) Ltd, Centriq group

Appointed 10 October 2011

of companies, MiWay group of companies, Emerald Risk Transfer

Director of South African Breweries (Pty) Ltd and SABSA

(Pty) Ltd and chairperson of SAIA. Non-executive director of

Holdings Ltd. Previous chief executive officer of the Land and Agricultural Development Bank of South Africa. T NYOKA (NÉE FUBU) (45) Independent non-executive director

Saham Finances SA. MLD MAROLE (56) Independent non-executive director BComm, Dip Tertiary Education, MBA

BAdmin (Hons), HDip in Banking Law, CA(SA)

Appointed 13 December 2011

Appointed 1 January 2015

Director of MTN Group Ltd, Mobile Telephone Networks Holdings

Director of Grindrod Ltd, Grindrod Bank Ltd, Public Investment

(Pty) Ltd, MTN International (Pty) Ltd, South African Post Office

Corporation Ltd and former executive partner at KPMG. BTPKM GAMEDZE (58) Non-executive director BA (Hons), MSc, FASSA Appointed 16 October 2006 Director of Sanlam Emerging Markets (Pty) Ltd and Sanlam Investment Management (Pty) Ltd. Immediate past president of the Actuarial Society of South Africa and trustee of the Government Employees Pension Fund.

70

Chief executive officer

SOC Ltd, Richards Bay Minerals (Pty) Ltd and Development Bank of Southern Africa.

C O R P O R AT E G O V E R N A N C E R E P O R T

NV MTETWA (37)

MJ REYNEKE (59)

Independent non-executive director

Independent non-executive director

CA(SA)

CA(SA)

Appointed 8 February 2017

Appointed 26 August 2003

Previous managing executive of finance at Vodacom

Director of African Rainbow Capital (Pty) Ltd, Indwe Broker

South Africa. Served as managing committee member and partner

Holdings (Pty) Ltd, Central Plaza Investments 112 (Pty) Ltd,

at PricewaterhouseCoopers. Independent non-executive director

Santam International Ltd, Uyanda STI Careers (Pty) Ltd,

and audit committee chair of the Development Bank of

Indwe Risk Services (Pty) Ltd

Southern Africa. Independent non-executive director of Aviation Co-ordination Services (Pty) Ltd.

PE SPECKMANN (60) CA(SA)

Chief financial officer, executive director

Appointed 8 February 2017

CA(SA)

Previous Group Financial Director of MMI Holdings group. Former

Appointed 17 September 2012 Director of Centriq group of companies, Emerald Risk

roles include senior finance positions at Old Mutual, Pepkor Group and Seagram SA and audit partner at PricewaterhouseCoopers.

Transfer (Pty) Ltd, MiWay group of companies, Stalker Hutchison Admiral (Pty) Ltd, Central Plaza Investments 112 (Pty) Ltd,

HC WERTH (53)

Swanvest 120 (Pty) Ltd, Brolink (Pty) Ltd, Sanlam Emerging Markets

Non-executive director

(Pty) Ltd, Mirabilis Engineering Underwriting Managers (Pty) Ltd,

CA(SA), MBA, EDP (Manchester)

First Bank Nigeria Insurance Ltd, Guardian National Insurance

Appointed 13 September 2016

Company Ltd and Indwe Broker Holdings Ltd.

Director of Sanlam Ltd and Sanlam Life Insurance Ltd, Sanlam

Y RAMIAH (49) Non-executive director BA LLB, MBA, AMP (Harvard), HDip Tax (Admitted Attorney) Appointed 13 December 2011

Emerging Markets (Pty) Ltd, Genbel Securities Ltd, Sanlam Capital Markets Ltd and Sanlam Investment Holdings Ltd. Former

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Independent non-executive director HD NEL (48)

chief executive officer of Sanlam Emerging Markets (Pty) Ltd from 2005 to 2016.

Director of Sanlam Ltd, Sanlam Life Insurance Ltd, Sanlam

M ALLIE (41)

Investment Management (Pty) Ltd, Sanlam Investment Holdings Ltd

Company secretary

and Adopt a School Foundation.

BA, LLB Appointed as company secretary on 1 February 2011 Admitted attorney with experience in corporate and commercial law, litigation and corporate governance. Former roles include company secretary of Oceana Group Ltd and Group Legal and Regulatory Affairs Manager of Parmalat SA (Pty) Ltd.

71

C O R P O R AT E G O V E R N A N C E R E P O R T

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

72

EXECUTIVE MANAGEMENT AT 1 MARCH 2017

LIZÉ LAMBRECHTS (53)

HENNIE NEL (48)

EBRAHIM ASMAL (52)

MOKAEDI DILOTSOTLHE (47)

EDWARD GIBBENS (47)

QUINTEN MATTHEW (53)

C O R P O R AT E G O V E R N A N C E R E P O R T

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

JEANETT MODISE (53)

RENÉ OTTO (58)

KEVIN WRIGHT (51)

TEMBA MVUSI (61) JOHN MELVILLE (51)

73

C O R P O R AT E G O V E R N A N C E R E P O R T

EXECUTIVE PROFILES AT 1 MARCH 2017

LIZÉ LAMBRECHTS (53)

MOKAEDI DILOTSOTLHE (47)

Chief executive officer

Brand and marketing

BSc (Hons), FIA (1992), EDP (Manchester)

BComm (Hons), MBA

Appointed January 2015

Appointed 2016

Responsible for executing strategic plans and policies approved by

Responsible for the management of the Santam Brand, corporate

the board of directors; provides leadership and direction in realising

communication, developing and implementing strategic brand

the company’s philosophy and achieving its mission, strategy, annual

initiatives relating to change in distribution channels and ensuring

goals and objectives; and ensures the group meets or exceeds its

that the Santam brand is well positioned across all of the target

targets, thereby growing profitability and sustainability over the

market segments.

medium to long term.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

EDWARD GIBBENS (47) HENNIE NEL (48)

Santam Commercial and Personal

Chief financial officer

AIISA, BComm, MBA, AMP (Insead)

CA(SA)

Appointed 1992 (appointed to executive management in 2005)

Appointed 2012

Responsible for growing gross premium income and underwriting

Responsible for financial reporting, corporate finance, investments

profit through the company’s commercial and personal lines

(including SEM partnership investments), internal audit, enterprise

distribution channels under the Santam brand; manages the efforts

risk management and corporate legal services.

of business partners and distribution employees, analyses the competitive environment and develops future strategies to strengthen

EBRAHIM ASMAL (52)

the company’s competitive position.

Claims and group sourcing Appointed 2009 (appointed to executive management in 2012)

QUINTEN MATTHEW (53)

Responsible for the management of the claims value chain, including

Santam Specialist

assessments services and quality assurance. Also responsible for

FIISA

group sourcing and facilities, leveraging the group’s procurement

Appointed 2003 (appointed to executive management in 2010)

spending power to manage efficiency in the supply chain and drive

Responsible for developing and expanding the underwriting manager

opportunities related to new initiatives.

model, niche segments, affinity markets and specialist insurance (including Centriq); provides strategic input to each business; promotes growth and profit objectives; focuses on growing individual businesses by advancing entrepreneurship and specialist skills through partnerships, building on the synergy and support of Santam; and expands SEM partner business specialist capabilities.

74

C O R P O R AT E G O V E R N A N C E R E P O R T

JOHN MELVILLE (51)

RENÉ OTTO (58)

Risk services

Chief executive officer of MiWay

BBusSc (Hons), FIA, FASSA, MCR (IMD)

BLC LLB, LLM, Admitted Advocate of the Supreme Court

Appointed 2010

Appointed 2007 (appointed to executive management in 2012)

Responsible for the underwriting function (including strategy and

Responsible for executing strategic plans and financial performance

pricing); product solutions; actuarial services (including rating, capital

of MiWay as founding head and current chief executive officer.

modelling and solvency management); developing and implementing KEVIN WRIGHT (51)

profit contributor for the group. Oversees the development and

Operations and IT

maintenance of systems and processes to support the operation of

BComm, Fellow of the South African Institute of Chartered

these functions and technical support to SEM partner businesses.

Secretaries and Administrators, FCIS Appointed 2014

JEANETT MODISE (53) People and transformation BComm, MDP, MBL, SEP (Harvard), AMP (Insead) Appointed 2014 (appointed to executive management in 2015)

Responsible for client services, ensuring efficient policy administration, operation of sales and administration contact centres. Also responsible for information technology and business change to bolster the business strategy by leveraging information

Responsible for human resources and transformation; leads

and technology; overseeing the building of systems capabilities to

and manages people strategy in line with best practice to enable

enhance Santam’s agility and operational effectiveness.

successful execution of the Santam business objectives through engaged and competent people in an enabling work environment. TEMBA MVUSI (61) Market development – CSI BA, ELP (Wharton School of Business), MAP (Wits), PDP (UCT)

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

reinsurance strategy; and developing Santam re into a growth and

Appointed 2008 Responsible for strategic stakeholder relations; provides strategic input into developing and growing the company in new markets and explores new intermediary opportunities in unserviced markets; drives group-wide transformation to ensure company sustainability, setting targets and ensuring the company meets its BBBEE responsibilities; and corporate social investment.

75

C O R P O R AT E G O V E R N A N C E R E P O R T

MESSAGE FROM THE CHAIRMAN The recently launched King IV Report on Corporate Governance™ for South Africa, 2016 (King IV™) highlights the changed world of business in terms of financial instability, technological disruptions, stakeholder activism and climate risk. As we reflect on our role and responsibilities as board members, we consider lessons learnt in the past, and we look towards future

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

opportunities and challenges. Santam is a leader in South Africa’s insurance industry, and is expanding its footprint in Africa, India and Southeast Asia. Therefore, we are in a position to influence ethical and governance practices broadly and directly, in a way that will create value sustainably. We remain committed to good governance practices, which includes effective leadership, clarity of roles and independent judgement. As chairman of the nominations committee, I am involved in the evaluation of each board member, the board as a whole and every committee. This ensures that we improve continuously and ensure the board composition is appropriate for the nature, complexity and insight of decision-making that is required.

CHANGES TO THE BOARD − − −





A GOVERNANCE LANDSCAPE SHAPED BY REGULATORY CHANGES The global and local markets for general insurance continue to face increasing regulatory requirements. These are a priority for the board and its committees, as we acknowledge the importance of compliance with all regulatory frameworks affecting operations, and our accountability to all stakeholders. The compliance resources across the group were reviewed, taking into account the growing scale of the group, the nature and complexity of the licensed entities’ businesses within the group, and the additional expansion of the compliance obligations under the newly proposed twin peaks model of supervision. This resulted in additional capacity being created. Although Santam welcomed government’s adoption of the twin peaks regulatory supervision approach, the ensuing period of uncertainty regarding the implementation, enforcement and consistent application of regulations remains. Santam ultimately believes that the current suite of regulatory reforms is necessary and in the best interest of policyholders, shareholders and the regulator. While the effort of meeting these regulatory changes is high in terms of

2 March 2016: Yegs Ramiah’s designation changed from

financial costs and human resources, the group has managed the

executive to non-executive director

process to date in an appropriate and effective manner.

30 May 2016: Clement Booth resigned as an independent non-executive director

Legislation that is in process and will potentially affect

1 June 2016: Malcolm Dunn retired as an independent

Santam includes:

non-executive director, having reached retirement age in terms



Amendments to the FAIS fit and proper requirements

of the company’s memorandum of incorporation (MOI)



Financial Intelligence Centre Act (FICA), 38 of 2001: Schedule 1

13 September 2016: Kobus Möller resigned as a non-executive



Twin Peaks Financial Sector Regulation Bill

director upon retiring from his executive role at Sanlam Ltd and



Reinsurance Regulatory Review Position Paper

was replaced by Heinie Werth, his successor at Sanlam Ltd, as



Insurance Bill 2015

a non-executive director



Draft Market Conduct Policy Framework for South Africa

8 February 2017: Gugu Mtetwa and Preston Speckmann joined



Retail Distribution Review (RDR)

the board as independent non-executive directors



Proposed amendment to the binder regulations under the Short-term Insurance Act, 53 of 1998, and Long-term Insurance

We would like to extend our heartfelt appreciation to Clement Booth, Malcolm Dunn and Kobus Möller, who served on the board for one,

Act, 52 of 1998 −

Protection of Personal Information (POPI) Act, 4 of 2013

six and 10 years respectively. Their contributions and commitment were valued by all.

In 2017, the board will continue to ensure that there is holistic oversight of risks facing the group, that the strategy remains appropriate and that we attract, upskill and reward the right people to sustain business growth. We are also cognisant of South Africa’s unique challenges, and recognise that Santam has a responsibility in supporting its stakeholders towards a healthy, prosperous, safe and empowered society. Grant Gelink Chairman

76

GOVERNANCE STATEMENT OF COMMITMENT

Santam is responsible for conducting its affairs with prudence and

Santam’s board of directors aims to achieve high standards of

The board is, inter alia, accountable for:

effective corporate governance, integrity and ethics. The board is assisted by senior management in ensuring that the business

safeguarding the interests of all its stakeholders.



The board endorses the principles contained in King III and applied

monitoring legislative, regulatory and governance requirements; − −

recommendations, the rationale is explained in the relevant sections of this report. The board has welcomed the shift in King IV™ towards integrated thinking.

ensuring there are clear and formal procedures in key areas so that regulators and auditors can readily review decisions and

the principles contained in chapter 2 of King III during 2016. In instances where the company has elected not to apply certain

allocating major roles and responsibilities according to the company’s delegation of authority framework;

actions, both internally and externally; and −

conducting business in accordance with the company’s code of ethics.

Santam’s response to increasing levels of economic crime is entrenched in its enterprise risk management (ERM) and is based on

FIND THE REGISTER DETAILING SANTAM’S APPLICATION OF ALL THE KING III PRINCIPLES ON THE WEBSITE.

King III requirements and codified in its business ethics and economic crime (BEEC) policy. The group has expanded its efforts to curb the problem by engaging with stakeholders and creating appropriate

In terms of King III, the integrated report should disclose the terms

structures and forums to help govern the management of ethics

of reference of all the board committees. Only a summary of these

and fraud.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

basis in order to reflect best practice.

approving strategic plans, monitoring operational performance, ensuring effective risk management and internal controls, and

complies with the regulatory landscape to ensure the sustainability of the business. Governance processes are reviewed on a regular

C O R P O R AT E G O V E R N A N C E R E P O R T

CORPORATE GOVERNANCE REPORT

terms of reference have been included in this report. Santam’s code of ethics prescribes that all employees must comply FIND THE COMPLETE TERMS OF REFERENCE OF ALL THE BOARD COMMITTEES ON THE WEBSITE.

strictly with all relevant legal requirements and regulations that apply to their area of work. The code of ethics also regulates conflict of interest and key ethical risks in the company.

The board is of the opinion that Santam applied the significant governance principles in King III and complied with the JSE Listings Requirements and Companies Act, 71 of 2008, as amended,

FIND SANTAM’S POLICY ON BUSINESS ETHICS ON THE WEBSITE.

during 2016. Santam advocates zero tolerance towards fraud and corruption. During the year, Santam further reviewed its governance processes

Employees are kept apprised of the latest trends in fraud and crime,

to enhance alignment with legislative and regulatory changes and

locally and internationally, through its Integrity publication.

to reflect best industry practice. The board gender diversity policy was approved by the board, in accordance with the JSE Listings Requirements. The board and board committee charters were all also subjected to annual reviews as recommended by King III.

READ MORE ABOUT SANTAM’S FRAUD REPORTING DETAILS UNDER THE ADMINISTRATION SECTION ON PAGE 134.

Santam’s commitment to good governance is formalised in its charters, policies and operating procedures. Governance processes are regularly reviewed to take the evolving regulatory environment and best practice into account. The board’s committees all fulfil key roles to ensure good corporate governance is applied at Santam.

77

C O R P O R AT E G O V E R N A N C E R E P O R T

SANTAM BOARD COMMITTEES

RISK COMMITTEE

AUDIT COMMITTEE

INVESTMENT COMMITTEE

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

DISPUTE RESOLUTION At this stage, the board does not intend to institute a formal dispute resolution process as recommended by King III. The existing processes operate satisfactorily and do not require a more formal mechanism. In the event that disputes with shareholders should arise, shareholders have remedies in terms of the Companies Act at their disposal.

HUMAN RESOURCES AND REMUNERATION COMMITTEE

NOMINATIONS COMMITTEE

SOCIAL, ETHICS AND SUSTAINABILITY COMMITTEE

Directors have unrestricted access to all company information, and access to the advice and services of the group company secretary. Directors are entitled to seek independent professional advice, at the company’s expense (after consultation with the chairman of the board), as and when required, in fulfilling their duties. No directors exercised this right during the period under review. As at 31 December 2016, the board comprised 12 directors, of whom

BOARD AND COMMITTEES

two are executive directors. Of the 10 non-executive directors,

The board is responsible for directing, administering and controlling

Preston Speckmann, both independent directors, were appointed

the affairs of the company in a transparent, fair and responsible

to the board. There is a formal, transparent board nomination

manner. The board recognises its responsibility to shareholders,

process in terms of a policy detailing procedures for appointment

employees and the community to uphold high standards in managing

to the board. This policy is reviewed annually. Appointments to the

economic, social, environmental and ethical matters and ensuring the

board are formal and transparent and are a matter for the board

company conducts its activities according to best practice.

of directors as a whole, assisted by the nominations committee, as

six are independent. On 8 February 2017, Gugu Mtetwa and

required by section 3.84 of the JSE Listings Requirements. Directors The board has delegated specific functions to committees to assist

are appointed, subject to re-election by the shareholders at the

it in meeting its oversight responsibilities. This ensures that the

company’s annual general meeting (AGM) and to the Companies Act

activities of the company are managed in a manner that is consistent

provisions relating to their removal. The board charter depicts a clear

with the ethical leadership and values of Santam. The roles and

division of responsibilities and authority at board level to ensure that

responsibilities of each board committee are set out in terms of

no individual director has unfettered powers of decision-making or

references that are reviewed annually by the board. The directors

influence over the board.

confirm that the committees have functioned in accordance with these terms of reference during the year.

The chairman, who is an independent non-executive director, is principally responsible for the effective operation of the board. There

All committees are chaired by independent non-executive directors,

is a clear division of authority between the various roles within the

except for the human resources and remuneration committee,

company’s corporate governance structure. The responsibilities of the

which is chaired by a non-executive director who is not independent,

chairman and chief executive officer have been clearly defined and

Ian Kirk. Although he is not independent, the board is supportive

are separate.

of his chairmanship of this committee given his knowledge of the business, his commercial experience and the necessity to align the

The non-executive directors on the Santam board can all influence

company’s remuneration approach with the corporate strategy.

decision-making. The non-executive directors bring a diverse range of skills and experience to the board and have the integrity, skills

There are well-entrenched governance structures within Santam that

and experience to provide insight and to add value to board meetings.

ensure proper assurance is given to materially significant strategic and operational matters.

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READ MORE ABOUT BOARD MEMBERS IN THE PROFILES FROM PAGE 70.

C O R P O R AT E G O V E R N A N C E R E P O R T

Name

C O R P O R AT E G O V E R N A N C E R E P O R T

THE SANTAM BOARD

DIRECTORS

AT 31 DECEMBER 2016 Executive

NonIndependent executive non-executive

B Campbell

*

MP Fandeso

*

BTPKM Gamedze

*

GG Gelink (chairman)

*

IM Kirk

2 EXECUTIVE

4 NON-EXECUTIVE

6 INDEPENDENT NON-EXECUTIVE

*

L Lambrechts

*

MLD Marole HD Nel

* *

T Nyoka (née Fubu) Y Ramiah

*

4 FEMALE

*

MJ Reyneke HC Werth

8 MALE

* * 3 BLACK MALE

5 WHITE MALE

3 BLACK FEMALE

1 WHITE FEMALE

It is their responsibility to ensure their judgement is exercised

The board charter prescribes that directors should conduct

freely and independently. In the board’s opinion, there is no business

themselves in the best interest of the company and take special care

or other relationship within the current structure that could

to ensure that there is no conflict between their own interest and the

materially interfere with the impartial judgement of any of the

company’s interest. All board members are required to declare any

non-executive directors.

potential conflict of interest between their obligations to the company and their personal interests. In the event that a potential conflict

When appointing directors, the board takes cognisance of its needs in

of interest arises, an affected director is required to recuse him or

terms of different skills, experience, diversity, size and demographics.

herself accordingly from the part of the meeting where the matter

The effectiveness of the board composition and the performance of all

in which he/she has an interest is discussed.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

READ MORE ABOUT BOARD MEMBERS IN THE PROFILES FROM PAGE 70.

its directors are assessed annually. Through its charter, the board has reserved matters specifically

BOARD CHARTER The board’s responsibility to ensure best practice in company conduct is entrenched in the board charter, which is reviewed annually to ensure alignment with the principles of good governance. The charter delineates the powers of the board, which ensures an appropriate balance of power and authority. The board charter sets out, inter alia, the composition, meeting frequency and the specific responsibilities to be discharged by the board as a whole and by the directors, executives and officers individually. These responsibilities are determined in terms of: −

the company’s MOI;



the Companies Act, 71 of 2008, as amended;



the JSE Listings Requirements;



King III Report on Corporate Governance for South Africa, 2009; and



for its attention to ensure it exercises full control over significant matters, including strategy, finance and compliance. The board is regularly advised and updated on the activities of the company. An ongoing director development programme focuses on existing board members and aims to create an evolving understanding of the business, governance and the compliance environment in which it operates. The director development programme includes regular training updates and information sessions. New directors complete a formal induction programme and receive appropriate training, reading material and guidance on their duties, responsibilities, Santam’s business environment and sustainability issues relevant to the business. The induction programmes are tailored to the needs of individual appointees.

FIND A COPY OF THE BOARD CHARTER ON THE COMPANY’S WEBSITE.

the Short-term Insurance Act, 53 of 1998.

These documents are a reference point for directors, executives and officers on how to conduct their affairs and dealings with respect to, and on behalf of, the company.

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C O R P O R AT E G O V E R N A N C E R E P O R T

SALIENT FEATURES OF THE BOARD CHARTER The board’s key purpose is to ensure the company’s prosperity by collectively directing its affairs, while acting in the best interests of its stakeholders.

delegated authorities annually. There are a number of governance policies which complement the delegation of authority, and are reviewed on a regular basis by the board.

CHAIRMAN

The MOI sets out the powers of the board of directors, while the

The chairman provides overall objective leadership of the board

Companies Act and the delegation of authority document govern

of directors. The chairman’s primary function is to preside over

the exercise of these powers.

meetings of directors and shareholders, and to ensure the smooth functioning of the board and that it receives timely and accurate

The matters reserved for the board include: −



the company’s vision and values;

CHIEF EXECUTIVE OFFICER



the company’s strategic objectives, business plans, annual

The chief executive officer reports to the board and is responsible for

budget, dividend policy and the monitoring of the company’s performance against set objectives;

S A N TA M I N T E G R AT E D R E P O R T 2 0 16



all dividends;



the integrated report and annual financial statements;



circulars to shareowners, including notices of shareholder meetings;



financial risk management and capital policies, including funding and the issue of ordinary shares and loan capital;



capital expenditure, acquisitions, joint ventures and disposals in excess of the limits set out in the delegation of authority document and the MOI; and

• −

significant changes in accounting policy.

Recommending changes to the MOI of the company, remuneration of directors, and remuneration policy to shareholders for approval



Composition of the board committees, electing a chairman of the board, approval of the appointment of the chief executive officer, executive directors and the company secretary



Monitoring of and reporting on sustainability management



Ultimate responsibility for IT governance



information for the directors to perform effectively.

Approval of:

Commencing business rescue proceedings as soon as the company is financially distressed

During 2016, the board approved the strategy and budget for 2017. Material issues relating to the execution of strategy were considered.

managing the execution of the strategic direction of the company as approved by the board. Board authority conferred on management is delegated through the chief executive officer in terms of approved authority levels.

EXECUTIVE AND NON-EXECUTIVE DIRECTORS The directors have a fiduciary duty to exercise due care and skill in carrying out their mandate as directors of the company. In doing so, the directors will ensure that they act in the best interest of the company at all times, and do not derive any profit as a result of their fiduciary relationship with the company.

BOARD COMMITTEES The committees assist the board in discharging its duties and responsibilities. Ultimate responsibility rests with the board and the board does not abdicate its responsibility to the committees. The committees report to the board quarterly as to how they have carried out their responsibilities and the minutes of the committee meetings are provided to all board members. Notwithstanding the delegation of functions to the committees, the board remains ultimately accountable for the proper fulfilment of such functions, except for the statutory functions of the audit committee relating to the appointment, fees and terms of engagement of the external auditor.

The board approved the interim and year-end financial results and

COMPANY SECRETARY

the 2016 integrated report. The board also approved the appointment

The company secretary provides guidance to the board collectively

of the new directors. The board is satisfied that it has discharged its

and to individual directors on how to discharge their responsibilities

duties and obligations as contained in its charter.

properly in terms of applicable legislation and regulations, and in the best interests of the company. The directors have unlimited access

RESPONSIBILITY AND ACCOUNTABILITY DELEGATION OF AUTHORITY The company’s delegation of authority provides an approval framework to ensure the company is optimally managed within a decentralised management environment. The board delegates the power to run the day-to-day affairs of the company to the chief executive officer, who may delegate some of these powers. The delegation of authority document codifies and regulates any such delegation of authority within the company. The board reviews its

to the advice and services of the company secretary. The company secretary plays a pivotal role in the company’s corporate governance and ensures that, in accordance with the pertinent regulations, the proceedings and affairs of the board, the company itself and, where appropriate, shareholders, are administrated properly. The company secretary monitors directors’ dealings in securities to ensure adherence to the directors’ dealings in securities policy. The company secretary attends all board and committee meetings and is responsible for director training and induction, as well as the annual board evaluation process. The company secretary is not a director of the company.

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C O R P O R AT E G O V E R N A N C E R E P O R T

to consider and satisfy itself, on an annual basis, of the competence, qualifications and experience of the company secretary. The board conducted a formal evaluation of the company secretary during the year and is satisfied that he has the necessary competence, qualifications and experience to carry out the required responsibilities of a secretary of a public company. The board is further satisfied that an arm’s-length relationship exists between the company secretary and the board. The directors are satisfied that the company secretary provides a central source of guidance and advice to the board and within the company on matters of good governance. The company secretary also acts as secretary for the committees of the board.

DEALING IN SECURITIES In accordance with the JSE Listings Requirements, Santam has adopted a policy that sets out the procedure directors have to follow before they, or any of their associates, deal in the company’s securities.

C O R P O R AT E G O V E R N A N C E R E P O R T

In terms of the JSE Listings Requirements, the board is required

Directors and the company secretary must obtain prior written authorisation from the chairman to deal in company securities. The company secretary retains a record of all such share dealings and approvals. Senior management and designated employees that are exposed to unpublished, price-sensitive information in relation to the company’s shares by virtue of their positions, are prohibited from trading in Santam securities during the company’s closed periods and require written approval from the CEO to deal in Santam shares

READ MORE ABOUT THE COMPANY SECRETARY’S QUALIFICATIONS ON PAGE 71.

at all times.

The board recognises that there are qualitative issues that influence

The efficacy of the board depends on its composition. There is an

the company’s ability to create value in the future. These relate to

appropriate balance of skills, power and authority on the board. The

investment in human and other intellectual capital, the extent of

independent non-executive directors have a standing closed-session

the company’s social transformation, ethical, safety, health and

agenda item at every board meeting to deliberate on any issues that

environmental policies and practices.

they may want to discuss with the chairman or the chief executive officer and/or any other directors.

The social, ethics and sustainability committee convenes regularly and reports directly to the board on, inter alia, the issues listed above.

Ongoing director development includes regular updates and information sessions on legislature and regulatory change.

BOARD EVALUATION

LEGAL COMPLIANCE Santam acknowledges the importance of compliance with the regulatory framework affecting its operations, and its accountability

The board reviews the range of skills, experience and effectiveness

to all its stakeholders in this regard. The company has given

of its directors annually. This is done using a formal evaluation

substantial focus to legislative compliance during the year.

process developed according to the recommendations of King III.

Santam’s legal compliance philosophy encapsulates integrity, fair

The nominations committee considers the results of the evaluation

dealing, accountability, objectivity, independence, good governance,

and makes recommendations to the board as appropriate.

transparency and collaboration.

The evaluation for 2016 included an effectiveness assessment of the

Due to the regulatory environment within which it operates,

board itself collectively, and an appraisal of the board committees and

Santam has a dedicated legal compliance function in place, which

the chairman. The evaluation was conducted by an external service

is responsible for implementing the legal compliance framework.

provider. The evaluation found no significant matters or material

The compliance function identifies legislation applicable to the

concerns in respect of the board and board committee performance.

group, informs business of pertinent regulatory requirements (and

The results indicated that the board was functioning effectively and

amendments thereto), analyses their impact on business operations,

that the core board processes were working well and that the board

facilitates the introduction of controls aimed at ensuring compliance

was well balanced. Specific training needs for individual directors

and monitors compliance. For increased efficiency and effectiveness,

were identified. The directors believe that board meetings were well

the legal compliance function collaborates with other risk assurance

organised and efficiently run and that all relevant aspects of the

providers on certain matters, and works closely with other entities

company’s business were dealt with by the board and its committees.

within the group. In implementing the compliance framework,

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

SUSTAINABILITY MATTERS

BOARD COMPOSITION AND MIX

a risk-based approach is adopted. In addition, Santam complies The nominations committee conducted a review on the individual

with mandatory industry codes.

directors during February 2017. The results of the evaluation were shared and discussed with the board. The board is satisfied with the performance of its members. The performance of all directors

READ MORE ABOUT RISK MANAGEMENT IN THE REPORT ON PAGE 88.

standing for election at the AGM in June 2017 has been considered by the board, and their re-election is supported.

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C O R P O R AT E G O V E R N A N C E R E P O R T

BOARD AND COMMITTEE MEETINGS

Santam has a legal compliance framework that involves preparing and maintaining inventories of material laws and regulations,

The board met five times at scheduled meetings in 2016. One ad hoc

implementing policies based on these laws and establishing

board meeting was also held during the year. The board meets at

procedures to supervise compliance and mitigate risks.

least once every quarter and holds a strategy meeting annually in August to approve the strategic direction of the company.

Given the resources that strict compliance with non-mandatory industry codes would require, Santam adopts such codes,

Details of attendance at board and committee meetings were

to the extent that they enhance good governance, efficiency

as follows:

and effectiveness.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

NUMBER OF MEETINGS HELD DURING 2016

Board

Audit committee

Risk committee

Human resources and remuneration committee

Investment committee

6

4

4

4

4

4

3

CB Booth

1 (100%)













B Campbell

6 (100%)

4 (100%)

4 (100%)







3 (100%)

MD Dunn

2 (100%)

2 (100%)

2 (100%)









0 (0%)

3 (75%)

3 (75%)









MP Fandeso BTPKM Gamedze

6 (100%)



4 (100%)







2 (67%)

GG Gelink

6 (100%)

4 (100%)

4 (100%)

4 (100%)

4 (100%)

4 (100%)



IM Kirk

6 (100%)





4 (100%)

4 (100%)





L Lambrechts

6 (100%)



4 (100%)





4 (100%)



MLD Marole

6 (100%)





4 (100%)

4 (100%)



3 (100%)

JP Möller

4 (100%)



3 (100%)





3 (100%)



HD Nel

6 (100%)



4 (100%)





4 (100%)



T Nyoka (née Fubu)

6 (100%)

4 (100%)

4 (100%)









3 (50%)











3 (100%)

MJ Reyneke

6 (100%)

2 (100%)

4 (100%)





4 (100%)



HC Werth

1 (100%)



1 (100%)





1 (100%)



Y Ramiah

Key: – Not a member of the committee. Clement Booth retired as a director effective 30 May 2016. Machiel Reyneke was appointed as the chairperson of the audit committee and risk committee on 1 June 2016. Malcolm Dunn retired from the board on 1 June 2016. Kobus Möller retired from the board on 13 September 2016. Heinie Werth was appointed as a director on 13 September 2016.

82

Nominations committee

Social, ethics and sustainability committee

C O R P O R AT E G O V E R N A N C E R E P O R T

The nominations committee ensures that the board’s composition

The functions of the risk committee include assisting the board in ensuring that: −

reflects demographic and gender diversity, and the appropriate mix of skills and experience.

achieve its strategic objectives; −

new directors for appointment – or re-appointment in the case of

improved as required; −

these key risks is appropriately defined and resolved by

Directors do not have a fixed term of appointment. In accordance must retire at the AGM annually. Non-executive directors are subject to retirement, by rotation, every three years. In line with company policy, executive directors retire on the third anniversary of their board after the AGM are required to retire at the following AGM and stand for election by shareholders. Shareholders have the opportunity to nominate a director and five other shareholders must second the nomination. An abridged CV of the nominated director is sent with the notice of AGM. Therefore, the company’s shareholders have the opportunity to participate continually in the election and re-election process of directors. At the AGM, shareholders vote by a single resolution to determine whether the director will be appointed. The appointment of non-executive directors is formalised by a letter of appointment between the company and the non-executive director.

BOARD COMMITTEES RISK COMMITTEE

management; and −

the disclosure regarding risk is comprehensive, timely and relevant.

The committee met four times during the year. Details of attendance at meetings are provided on page 82. The risk committee is satisfied that it has fulfilled its responsibility in terms of its charter. The committee is satisfied with the adequacy of governance, compliance and risk management structures and processes in place at Santam.

AUDIT COMMITTEE The audit committee is chaired by Machiel Reyneke. The committee is constituted as a statutory committee of Santam with respect to its duties in terms of the Companies Act and a committee of the Santam board with respect to all other duties assigned to it by the board. During 2016, the committee consisted of five independent non-executive directors. The committee ensures, inter alia, that the company’s financial standing is sound and that the internal financial controls and processes are effective. The committee reviews the

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

appointment or re-election to the board. Directors appointed by the

the overall risk profile, including significant risks Santam faces, are monitored and reviewed and the response to address

existing directors – and makes recommendations to shareholders. with the company’s MOI, one-third of the non-executive directors

the maturity and effectiveness of the risk management processes and activities are continuously monitored, maintained and

Based on the recommendation from the remuneration and nominations committee, the board considers the nomination of

the company has implemented an effective policy and plan for risk management that will enhance the company’s ability to

C O R P O R AT E G O V E R N A N C E R E P O R T

APPOINTMENT AND RE-ELECTION OF DIRECTORS

overall quality and integrity of financial reporting and integrated and sustainability reporting disclosures.

The risk committee is chaired by Machiel Reyneke. The committee assists the board in fulfilling its governance (from a risk and control

The Santam audit committee also acts as the audit committee of the

perspective), compliance and risk management responsibilities.

MiWay group of companies and the Centriq group of companies.

The committee is chaired by an independent non-executive director and is responsible for ensuring that all significant risks are identified,

The audit committee is appointed by shareholders at the AGM. Its

evaluated and effectively managed, and that there is adequate

primary function, in addition to those required by the Companies

oversight of Santam’s own risk and solvency assessment and internal

Act, is to help the board oversee financial matters. The committee

model processes. Compliance with relevant laws and regulations

operates in terms of a formal charter and annual work plan approved

is integral to Santam’s risk management process and is monitored

by the board. The audit committee is chaired by an independent

on a continuous basis. The committee operates in terms of a formal

non-executive director. The independent chairman of the board,

charter approved by the Santam board.

Grant Gelink, is a member of the audit committee. Although this is not in line with the recommendation contained in chapter 3 of King III, the board is supportive of his membership, given his substantial experience in audit process, international financial reporting standards and internal financial controls. Mr Gelink does not chair the audit committee. The committee also consisted of four other independent non-executive directors during 2016, exceeding the minimum recommended number of members.

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C O R P O R AT E G O V E R N A N C E R E P O R T

The functions of the audit committee include:

Audit committee members are encouraged to keep up to date with



Overseeing integrated reporting

developments that affect their required skill set. The audit committee



Reviewing and recommending for approval by the board the

has considered factors and risks that may affect the integrity

annual financial statements, the interim reports, preliminary or

of the Santam integrated report and has reviewed the disclosure

provisional result announcements, integrated report, any other

of sustainability issues in the report to ensure that it is reliable and

intended release of price-sensitive information and prospectuses,

does not conflict with the financial information. The audit committee

trading statements and similar documents

has not recommended the engagement of an external assurance

Reviewing and recommending the disclosure of sustainability

provider on material sustainability issues to the board as it is of the

issues in the integrated report for approval by the board to ensure

view that the assurance provided is adequate, given the maturity of

that it is reliable, does not conflict with the financial information,

the processes in place.



and provides a balanced view − −

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

− −

Recommending to the board whether or not to engage an

The committee met four times during the financial year. Details

external assurance provider on material sustainability issues

of attendance at meetings are provided on page 82. The audit

Reviewing accounting policies and practices and considering

committee is satisfied that it has fulfilled its responsibility during

any significant changes to or departure from accounting policies

the year in terms of its charter. The committee believes that it

and practices

has complied with its legal and regulatory responsibilities for the

Reviewing the basis on which the company has been determined

year. The committee reviewed the company’s integrated report and

a going concern

recommended it to the board for approval.

Considering changes to the dividend policy and recommending dividend declarations to the board



Nominating the external auditor of the Santam group and its subsidiaries (who, in the opinion of the committee, is independent of the company) for appointment by the shareholders



Approving the terms of engagement and remuneration for the external audit and ensuring that the appointment of the auditor complies with the provisions of the Companies Act and any other legislation relating to the appointment of auditors



Defining a policy for non-audit services to be rendered by the external auditor to the company or a related company and pre-approving the contracts for non-audit services to be rendered by the external auditor



Assisting the board in carrying out its IT responsibilities

During the year, the audit committee reviewed communication from the external auditors and, after conducting its own review, confirmed the independence of the auditors. The committee also considered and determined the external auditors’ fees and terms of engagement. As required by JSE Listings Requirement 3.84, the audit committee considered the expertise and experience of the executive financial

HUMAN RESOURCES AND REMUNERATION COMMITTEE The human resources and remuneration committee (HRRC) is chaired by Ian Kirk. The committee comprises only non-executive directors. The chief executive officer and certain members of management attend committee meetings by invitation, but excuse themselves at the appropriate times. The HRRC is responsible for, inter alia, the development and implementation of the group’s remuneration philosophy. The total reward of executives is designed to ensure that a substantial portion is dependent on performance – both company performance and individual performance. The attainment of appropriate individual and group targets governs the eligibility of executives for annual performance bonuses and the vesting of their long-term incentive awards. The HRRC is responsible for and has the authority to consider and make recommendations on the following, among others: −

director during November 2016. The committee is satisfied that the appropriate level of expertise and experience to manage the responsibilities of that position have been met, as required by the JSE. The audit committee is also satisfied with the finance function’s expertise and adequacy of resources. The external and internal auditors attend committee meetings and have unrestricted access to the committee and its chairman, ensuring that their independence is in no way impaired. Both the external and internal auditors have the opportunity to address the audit committee at each meeting without the presence of management.

84

Determining and approving the general remuneration policy that must be tabled at each AGM for a non-binding advisory vote by shareholders.



Preparing an annual remuneration report for inclusion in the company’s integrated report.



Developing the remuneration strategy for executive directors and members of the executive committee.



Developing short-term incentive plans for board approval. It sets annual targets, monitors progress towards targets and reviews the incentive plans regularly to ensure that a strong link with performance is maintained.

C O R P O R AT E G O V E R N A N C E R E P O R T

Developing long-term incentive schemes for board approval. It sets individual and group performance hurdles, as well as guidelines for annual allocations. It performs regular reviews of the structure of the schemes.



Developing, monitoring and testing of appropriate performance drivers for both short-term and long-term incentives.



Managing the contracts of employment of executive directors and executive committee members, ensuring that their terms are compliant with good practice principles.



Considering the individual remuneration packages for executive directors and executive committee members, including incentive schemes and increases to ensure they are appropriate.



Considering the remuneration of non-executive directors of the board and its committees. Proposals are made to the board for final approval by shareholders at the annual general meeting. Succession planning.



Human capital imperatives.

The HRRC met four times during the financial year. Details of attendance at meetings are provided on page 82. The HRRC is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the year. In accordance with King III recommendations, the company’s remuneration policy is to be tabled for shareholders to make a non-binding advisory vote at the AGM in 2017. This vote enables the shareholders to express their views on the remuneration policies adopted and their implementation. During 2016, the HRRC considered the following matters: −

Benchmarking of remuneration levels and practices with local comparator groups for employees, executives as well as non-executive directors.



Monitoring of people-related metrics, such as head count, employee turnover and transformation.



Recruitment and appointment of executive employees.



Contracted deliverables of the executive directors.



Talent management strategy and succession planning.



People-related risks identified and the measures taken

The nominations committee is chaired by Grant Gelink. The committee considers board succession and recommends candidates for board vacancies based on skill, experience and the need to ensure diversity and balance in the composition of the board. The committee comprises only non-executive directors and is chaired by the chairman of the board. The chief executive officer attends committee meetings by invitation. The committee met four times during the financial year. Details of attendance at meetings are provided on page 82. The committee has considered and applied the policy on board gender diversity in the nomination of new directors to the board. As part of the process of reviewing the composition of the board, the committee considered the benefits of all aspects of diversity, including gender diversity. The board’s aim is to ensure that at least 33% of the board is made up of women by the end of 2016, and for that position to have exceeded 40% by the end of 2019. As at 31 December 2016, four of the 12 directors were women. The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the period under review.

SOCIAL, ETHICS AND SUSTAINABILITY COMMITTEE REPORT The group’s social, ethics and sustainability committee is chaired by Dawn Marole. The committee is constituted in terms of the Companies Act and has an independent role. The committee assists the board in monitoring the group’s activities in terms of legislation, regulation and codes of best practices relating to ethics, empowerment and stakeholder engagement. The committee also assists the board in ensuring that the sustainability strategy and objectives are effectively integrated into the business. The committee, in addition to performing the function for Santam Ltd, accepted the role of the social and ethics committee for all Santam’s South African subsidiaries who have the requisite public interest score. The responsibilities of the committee are as follows: −

Review of Santam’s STI plan.



Monitoring of actions taken with regard to fit and proper requirements.



Monitoring and approval of STIs (performance bonuses) and LTIs.



BBBEE transformation scorecard progress.  

Monitoring Santam’s activities relating to social and economic development, BBBEE, and employment equity.



Monitoring good corporate citizenship, including the promotion of equality, corporate social responsibility, ethical behaviour, and

to mitigate them. −

S A N TA M I N T E G R AT E D R E P O R T 2 0 16



NOMINATIONS COMMITTEE

C O R P O R AT E G O V E R N A N C E R E P O R T



managing environmental impact. − −

Monitoring changes in empowerment charters and codes. Monitoring functions required in terms of the Companies Act and its regulations.



Actively managing the material matters that affect the sustainability of the company, including: •

Minimising the risk associated with social, economic and environmental impact, including stakeholder activism and government regulation.



Ensuring that the business aligns with legislative requirements, such as King III, the JSE Listings Requirements, BBBEE, and other applicable legislation.

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C O R P O R AT E G O V E R N A N C E R E P O R T



Adding value by monitoring and guiding management on: •

Developing and retaining a sustained client base.



Developing solutions to accommodate change – inclusive of societal and environmental change.



Developing and retaining a sustained supplier base.



Having appropriate human capital processes and systems in place.



Having a transformed business.



Cultivating an ethical culture and combating/curbing economic crime effectively.





Applying environmental impact management and practices.



Having a sustained intermediary base.



Extending influence to the benefit of society.



Applying responsible investment practices.

The mandate of the committee also includes monitoring the impact the conduct of the group has on its customers since the

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

conduct of the organisation has both a direct and an indirect relationship to the group’s sustainability. The committee is, therefore, responsible for reviewing and monitoring strategic decisions impacting clients and ensuring that the conduct of the organisation results in fair outcomes to customers. The committee reviewed the strategy, plans and progress made towards achieving Santam’s transformation targets. The committee

INVESTMENT COMMITTEE The investment committee is chaired by Grant Gelink. The committee meets to evaluate and monitor the investment portfolio and the performance of investment managers. These meetings comprise quarterly feedback sessions with investment analysts and four formal investment committee meetings a year. The investment committee guides the board on the mandates of investment managers, and makes recommendations regarding the company’s investment philosophy. The committee reviewed the Santam group investment policy during 2016, which was approved by the board. The committee is chaired by an independent non-executive director. The committee met four times during the financial year. Details of attendance at meetings are provided on page 82. The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the year.

AD HOC SUBCOMMITTEES The board has the right to appoint and authorise special ad hoc board committees to perform specific tasks from time to time. The relevant board members make up these committees.

OTHER COMMITTEES

further reviewed the report compiled by the company’s appointed

EXECUTIVE COMMITTEE

BBBEE verification agency. The committee also monitored Santam’s

Executive management and the board work closely in determining

sustainability performance regarding the FTSE/JSE Responsible

the strategic objectives of the group. The board delegates authority

Investment Index.

to the chief executive officer and the group executive committee for the implementation of the strategy and the ongoing management of

The committee comprises four suitably skilled and experienced

the business. The chief executive officer, assisted by the executive

directors, and is chaired by an independent non-executive director.

committee, is mandated by the board, through the company’s

At 31 December 2016, all members of the committee are

delegation of authority, to deal with the day-to-day running of the

non-executive directors. The committee is supported in its tasks

company’s affairs. The chief executive officer chairs the committee,

by members of the executive committee and senior management.

which comprises the executive management of all the significant

According to its terms of reference, the committee meets formally

business units of the company. It meets and deals with all matters

at least twice per annum, or as required for the effective performance

relating to:

of its duties. The committee met three times during 2016. Details



the implementation of agreed strategy;

of attendance at meetings are provided on page 82. The social,



the monitoring of performance; and

ethics and sustainability committee is satisfied that it has fulfilled



the consideration of the company’s policies.

its responsibilities in accordance with its charter for the year. In the execution of its duties, the committee reviewed, inter alia, ethics,

The board regularly reviews the levels of delegated authority to the

compliance, stakeholder relations, HR and CSI reports submitted

chief executive officer.

by management. The committee members believe that the group addresses the issues the committee is required to monitor in terms of the Companies Act. The committee, together with the audit committee, reviewed the sustainability disclosures contained in the integrated report and recommended it for approval to the board.

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C O R P O R AT E G O V E R N A N C E R E P O R T

Various methods of communication are used to keep employees, and other stakeholders, informed of company and group activities.

The Santam information security charter expands on the IT charter by describing the governance of information security. This charter sets out the information security principles, governing bodies and role players to enable the implementation of an information security management system with the core purpose of protecting Santam’s

READ MORE ABOUT SANTAM’S STAKEHOLDERS ON PAGE 98.

information assets.

C O R P O R AT E G O V E R N A N C E R E P O R T

STAKEHOLDER RELATIONS

The group IT strategy aims to develop and implement business The board encourages shareholders to attend the AGM and provides

application platforms that will enable the overall Santam strategy

a full explanation of the implications of the proposed resolutions.

to deliver products more speedily, reduce Santam’s exposure due to

IT GOVERNANCE The Santam board is responsible for the governance of IT, as recommended by King III. The board has mandated the executive team to implement the Santam IT governance framework and reporting system to monitor the risks and effective control of IT within

through different user experience platforms, and reduce the overall operational cost of contact centres. Furthermore, from a group perspective, there is a significant focus from the business to increase operating profit and reduce operational expenses. The IT strategy is also aligned with this strategic focus by reducing the complexity and number of applications within Santam, which should ultimately

the audit committee of the effectiveness of IT governance.

reduce the total cost of ownership of IT by 2018.

The IT governance framework is directed by the Santam IT charter,

The major IT investments for 2017 will be developing and delivering

which describes the IT governance mechanisms, principles and responsibilities within the group. Santam IT reviewed and aligned a number of IT policies with the Sanlam Group policy standards.

further strategic solutions.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

the group. Internal audit also provides assurance to management and

incorrect risk calculations, move closer to our partners and clients

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C O R P O R AT E G O V E R N A N C E R E P O R T

RISK MANAGEMENT REPORT Santam’s board recognises and acknowledges that it is accountable for the establishment and maintenance of an effective risk management system, including the system of internal control. The board is of the opinion that the risk processes at Santam are

The board reviewed and approved the Group Internal Control Policy

effective in continuously identifying and evaluating risks and ensuring

in the year under review.

that these risks are managed in line with the business strategy and within the board-approved risk appetite.

Management is responsible for the identification and evaluation of significant risks applicable to their areas of business, in addition to

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

RISK MANAGEMENT, INTERNAL CONTROL AND COMPLIANCE PROCESSES INTERNAL CONTROL As part of the overall management of risk, management has implemented a system of internal control. The internal control system provides the board with reasonable assurance that the business is operated consistently with: −

the strategy as determined by the board;



the business objectives;



the policies and processes; and



the laws and regulations that apply to the group.

The system aims to detect and prevent any significant risk from materialising and to mitigate any adverse consequences thereof. The board is supported by the control functions within Santam, which include the internal audit, enterprise and financial risk management and compliance functions. The functions are reviewed regularly, as agreed with the board of directors. A number of business units have quality assurance functions in place. This is a management control to continuously identify specific control weaknesses that need to be addressed. Both the risk and audit departments work closely with these functions to ensure appropriate controls are in place.

SYSTEM OF INTERNAL CONTROL The board is ultimately responsible for and reviews the effectiveness of the group’s system of internal control, which includes internal financial controls. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The board confirms that the process for identifying, evaluating and managing the significant risks faced by the group is ongoing. This process has been in place for the year under review and up to the date of approval of the integrated report, and this process is regularly reviewed by the board.

the design and operation of suitable internal controls. These risks are assessed continually. A control process of self-assessment and hierarchical reporting has been established, which generates for a documented and auditable trail of accountability. These procedures are relevant across group operations, and provide for successive assurances to be given at increasingly higher levels of management and, finally, to the board. This process is facilitated by Enterprise Risk Management and Group Internal Audit that, together, also provides a degree of assurance as to the operationality and validity of the system of internal control. Planned corrective actions are monitored independently for timely completion.

INTERNAL FINANCIAL CONTROLS The board has confirmed that effective systems of internal control and risk management are being maintained. There were no breakdowns in the functioning of the internal financial control systems during the year, which had a material impact on the Santam Ltd Group annual financial statements. The board is satisfied that the annual financial statements fairly present the financial position, changes in equity, results of operations and cash flows for the group in accordance with International Financial Reporting Standards and are supported by reasonable and prudent judgements that has been consistently applied.

INTERNAL ASSURANCE PROVIDERS The main internal independent assurance provider in Santam is the internal audit unit. Internal audit provides objective and independent assurance to management and the board of Santam through the audit committee about risk management, control and governance processes. Internal audit is governed by an internal audit charter, approved by Santam’s audit committee and reviewed annually. The charter defines the purpose, authority and responsibility of the function. The head of internal audit provides a report at each audit committee meeting; including an annual written assessment of their scope and findings; and reports to the chairman of the audit committee, with

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administrative reporting to the chief financial officer and unrestricted

entities. It also sets out the services that may not be performed by

access to the chief executive officer and/or any other member

the auditor. The services rendered by the auditors are monitored

of executive management.

by the audit committee on a quarterly basis. Non-audit services rendered by the group’s external auditors amounted to R3.8 million. This includes R0.2 million for assurance-related services,

operations is detailed in the board-approved Santam group

R1.1 million for regulatory-related services and R2.5 million

governance framework (framework). In the framework, it is

for other services. The external and internal auditors attend

acknowledged that the Santam group at any time holds material

committee meetings and have unrestricted access to the committee

equity investments (in terms of the level of shareholding and/or

and its chairman at all times, ensuring that their independence is

the value of the investment) in a number of entities, either through

in no way impaired. Both the external and internal auditors have

statutory (legal) entities or other corporate/business arrangements.

the opportunity of addressing the audit committee at each of the

Internal audit has developed an audit strategy for each category

meetings without management being present.

of entities.

OTHER ASSURANCE Internal audit plans ensure that all entities are adequately considered in the audit plan based on their size, complexity and risk profile, as well as specific legal entity governance requirements. The annual internal audit plan is reviewed regularly to ensure it remains relevant and responsive to changes in the operating environment. The Santam audit committee approves the internal audit plan for the group. Detailed audit plans for subsidiaries with separate licences are approved by their respective finance and risk committees. Internal audit proactively reviews its practices and resources for adequacy and appropriateness, to meet the ever-increasingly demanding corporate governance and regulatory environment, including the requirements of King III and the FSB’s SAM project. Board Notice 158 has been implemented and the relevant notifications and applications were submitted and approved by the regulator during 2015. The head of the internal audit control function was appointed at a group level and was outsourced to MiWay Insurance Ltd, Centriq Insurance and Centriq Life.

EXTERNAL AUDIT The external auditors, PricewaterhouseCoopers Inc, are engaged to provide stakeholders with an independent opinion on whether the annual financial statements fairly present, in all material respects, the financial position of the company and the group. To ensure that there is no duplication of effort, there is regular communication with internal audit to understand the scope of their work and the results of their audits. Santam has a formal pre-approval policy on the use of external auditors for non-audit services. The policy provides guidelines on dealing with audit, audit-related, tax and other non-audit services that may be provided by the independent auditor to Santam and its

There is regular interaction and consultation between internal audit and other internal assurance providers and control functions, for example the quality assurance functions in the distribution, claims and underwriting business units, and the heads of risk management and compliance control functions.

RISK MANAGEMENT The objective of risk management is to create and protect value for legitimate stakeholders, improve decision-making and contribute to retaining and building Santam’s leadership position in terms

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

The Santam group’s approach to the governance of its group

of financial performance, reputation/brand, market share and the protection of policyholders. The board also ensures that the risk management, internal control and compliance systems are reviewed regularly for effectiveness. While the board is responsible for the overall governance of risk, it is assisted by the risk committee in discharging this responsibility. Risk management is an important component of operational governance due to the risks that the group is exposed to through its business model. The Santam board adopted the three lines of defence model for managing these risks. This model defines the roles, responsibilities and accountabilities for managing, reporting and escalating risks and other matters throughout the group. The model incorporates the oversight, management and assurance of risk management, essentially giving three independent views of risk. This approach ensures that risk management is embedded in the culture and daily activities of business units and provides assurance to the board and executive committee that risks are managed effectively. The group operates within a decentralised business model environment. In terms of this philosophy, the Santam board sets the group ERM policies and frameworks and the individual businesses

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Santam board Responsible for the group’s risk management strategy, framework and policy, as well as monitoring the effectiveness and disclosure thereof, in accordance with best practice

Santam board committees (including risk, human resources, social, ethics and sustainability, investment and audit) Assist the Santam board to fulfil its responsibilities

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Business-level (and sub-businesses)

Business-level management committees

Business-level risk and/or audit committees/forums

Risk management identifies and manages risks faced by the business (e.g. operations/risk services/ underwriting managers)

Additional committees that may be established by a business to assist their executive committee in certain areas of risk management (e.g. Santam information security committee)

Assist the business-level board in fulfilling its responsibilities to the Santam group (e.g. MiWay and Centriq finance and risk committees)

Santam executive risk forum (ERF) A forum for executive management and control functions to discuss and review risk

Group risk management Develops group risk management framework, policy and guidelines for approval by the Santam board; coordinates reporting responsibilities and improves risk management across the group

take responsibility for all operational and risk-related matters

ERM conducts a quarterly analysis of the executive committee’s

on a business level, within the limits set by these policies and

top strategic risks, and operational risk work provides a bottom-up

frameworks. The above diagram generically depicts the flow

perspective to inform the relevant risk profiles. Research, one-on-one

of risk management information from the individual businesses

interviews, risk indicators, surveys, loss event management as well

to the Santam Ltd board.

as group workshops and interviews with the executive committee and selected management are techniques applied to assist in gathering

In compliance with the FSB’s Board Notice 158, the heads of all the

the necessary information. The process includes “deep dives” and

required control functions remain intact at a group level, and these

discussion of new and emerging risks.

roles are outsourced to MiWay and Centriq. The heads of risk and compliance control functions are supported by relevant functional

This year, an assessment was performed across the business and

teams at both MiWay and Centriq and via various “risk custodians”

with key stakeholders to assess key risks for the group. A survey

within the business units to ensure adequate on-the-ground

was conducted in collaboration with the Corporate Executive Board

expertise and knowledge of the business. The risk management and

(CEB) Risk Management Leadership Council to obtain input on

compliance policies form part of the group’s governance framework

various stakeholders’ views of Santam’s top residual risks, specifically

and encompasses the totality of strategies, policies and procedures

looking into the future. The survey highlighted the compliance and

for identifying, measuring, monitoring, managing and reporting all

ethics risks assessed as the lowest risks. Strategic risks, in general,

material risks to which the group may be exposed.

were rated the highest. These risks aligned well with the current top strategic risk view with most of the identified risks being risk drivers/

Alignment between risk management and other assurance

causes for growth and earnings challenges. These remain the top

providers, including internal and external audit, compliance and

risks for the Santam group from a strategic perspective. The top

quality assurance functions, remains a key part of the ERM plan.

residual risk themes identified included financial health/economic

The combined assurance framework brings role players together

uncertainty (including risk of sovereign downgrade), extreme weather

to review and update significant risks and establish potential

events (e.g. floods, drought), attraction and retention of skills,

assurance/oversight gaps that are escalated to the audit committee.

competition and sovereign/political.

READ MORE ABOUT THE STRATEGIC RISKS ON PAGE 43.

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RISK MANAGEMENT REPORT



with overall oversight and review provided by the risk committee. The risk appetite remains a key tool to review and measure to what extent

Changes in South African regulations are monitored by the group compliance function within the group risk management function.



These functions are actively involved in commenting on proposed

risks are managed within risk appetite. Risk appetites are in place for

regulatory changes directly and through industry bodies, and

the main strategic business units, which are reviewed at a board level.

are also responsible to coordinate the implementation of new

Risk reports are discussed quarterly by the various committees and

regulations across affected businesses. Similar functions operate

boards, ultimately feeding into the overall group risk appetite, which

within the group’s operations outside South Africa. The scope of

is discussed and reviewed by the Santam risk committee.

the centralised regulatory unit will be extended over time

C O R P O R AT E G O V E R N A N C E R E P O R T

The relevant board committees and forums monitor specific risks

to include non-South African businesses.

RISK DISCLOSURE The integrated ERM process is mature and is applied consistently throughout the group. Based on independent reviews and maturity assessments presented to the risk committee, the board is confident that the integrated ERM programme is adequate in identifying



Regulatory compliance remains the responsibilities of business management.

The insurance industry faces major regulatory changes, which currently require more diligent attention.

current and emerging risks and ensuring that these risks are managed appropriately.

COMPLIANCE The group operates in a highly regulated environment due to

BUSINESS CONTINUITY

the nature of its financial services operations. Long-term

A key operational risk, which spans Santam’s business, is the

sustainability is inextricably linked to compliance with all applicable

potential impact of a major disaster and/or disruption. The group

regulations and maintaining a productive relationship with regulators,

has responded to this threat by continually improving the group-wide

who grant operating licences to the group’s businesses. Regulatory

business continuity framework to ensure that people are prepared,

compliance is therefore a particularly important operational

crisis infrastructure is tested, and meaningful recovery plans are in

governance focus area:

place. A steering committee is responsible for overseeing, reviewing



The Sanlam board is ultimately responsible for regulatory

and monitoring Santam’s business continuity capability, specifically

compliance. The responsibilities of the risk committees

the prioritisation of business recovery plans. This year saw the first

at the various business units include monitoring of

integrated disaster recovery and business recovery tests conducted

regulatory compliance.

at Santam’s off-site premises. The test was successful and learnings

Quarterly reports to these committees and the Santam board

have been incorporated into business recovery plans.



S A N TA M I N T E G R AT E D R E P O R T 2 0 16

READ MORE ABOUT THE REGULATORY ENVIRONMENT IN WHICH THE GROUP OPERATES ON PAGE 81.

include updates on regulatory developments, augmented by





regular training sessions to ensure that members of the board

A cyber crisis learning intervention session was also held at Sanlam

and these committees stay abreast of all legislation applicable

with the various business unit heads taking part in a simulated

to the group.

cyber incident. The objective was to display how a cyber crisis is

Quarterly reporting also includes compliance reports that provide

handled differently to a “normal” crisis which previous scenarios

information on the group’s overall regulatory compliance, any

used. Outputs from the event will be used to update the Santam’s

significant breaches detected by the group, and business unit

crisis management guide to cater for cyber events. The exercise

compliance functions. The terms of reference of cluster and

involved the Santam group recovery director (and chief information

business unit level boards and risk forums similarly include

officer), the chief financial officer and ERM. The exercise provided

monitoring of regulatory compliance.

participants with practical insight and a cyber-specific crisis

Compliance functions with dedicated compliance officers

management capability.

are established at both group and licensed entity level. The terms of reference for these functions focus specifically on regulatory compliance.

READ MORE ABOUT THE HACKATHON IN THE REAL-LIFE STORIES ON PAGE 37.

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REMUNERATION REPORT INTRODUCTION Santam’s remuneration philosophy and policy support the business strategy by aligning agreed strategic goals with the behaviour required to meet and exceed these goals. The policy is reviewed annually to ensure alignment with changes in the remunerationrelated legislative and regulatory requirements. Short- and long-term strategic objectives are measured and rewarded and this approach mitigates excessive risk-taking and balances longer-term strategic

strategy by implementing processes that align agreed strategic objectives with the behaviour required to meet and exceed these objectives. These processes include performance contracting, performance measurement and the linking of rewards to performance. Reward structures are created taking into account prevailing economic conditions, national and international governance principles and the management of risk in the context of both short

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

objectives with short-term gains.

and long-term incentive awards.

In setting up the reward structures, prevailing economic conditions

The Santam board recognises certain industry-specific and

and local governance principles are taken into account – specifically to correctly position the nature and the scale of remuneration at all levels of the organisation relative to relevant benchmarks

other relevant differences between group businesses and, where appropriate, allows the business units relative autonomy in positioning themselves to attract, retain and reward their employees

and best practice.

appropriately within an overarching framework. In this regard, there

Alignment with applicable regulatory and governance requirements

the protection of shareholder interests and those of the Santam brand

is ensured, while also conforming to the principles contained in the codes of good practice which support Employment Equity legislation, and notably for purposes of this policy, those that deal

are some areas where the dictates of good corporate governance, or corporate identity require full disclosure, motivation and approval by the HRRC, either at group or business unit level.

with remuneration.

The principle of management discretion, with regard to individual

Santam is the sole or part owner of a number of businesses.

that all rewards are based on merit. However, the overarching

Although compliance with Santam’s remuneration strategy and policy is primarily targeted at Santam group companies or subsidiaries, Santam encourages the application of sound remuneration practices

employees, is central to the remuneration philosophy on the basis principles and design of the remuneration structure are consistent, to support a common philosophy and to ensure good corporate governance, with differentiation where appropriate. In other

in those businesses where it does not hold a controlling interest.

instances, the Santam remuneration philosophy implies that the

REMUNERATION PHILOSOPHY AND STRATEGY

that their own remuneration/human resources committees will play

The board recognises that appropriate remuneration for executive directors, members of its executive committee and other employees is inextricably linked to the development and retention of top-level talent and intellectual capital within the group. Given the current economic climate, changes in the regulatory requirements and the ongoing skills shortage, it is essential that adequate measures are implemented to attract and retain the required talent.

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Santam’s reward philosophy and strategy support the business

businesses are mandated to apply their own discretion, given the role in ensuring good governance.

C O R P O R AT E G O V E R N A N C E R E P O R T

The group has continued to apply a total reward strategy for its



Share participation – High-performing employees are

employees. This offering comprises remuneration (which includes

encouraged to identify with the success of the business through

cash remuneration, short-term incentives and long-term incentives),

share participation, establishing a clear link between their

benefits (retirement funds, group life, etc.), learning and development,

individual efforts and the group’s long-term success. For

an attractive working environment and a range of lifestyle benefits.

employees of the unlisted entities of the group, deferred bonus

In applying the remuneration philosophy and implementing the total

plans are used. Net insurance result (NIR) is used as the key

reward strategy, a number of principles are followed:

performance driver and vesting is partially dependent on the



Pay for performance – Performance is the cornerstone of

achievement of a minimum performance hurdle. Vesting in all

the remuneration philosophy. On this basis, all remuneration practices are structured in such a way as to provide for clear

processes to determine individual pay levels strive to be both

Leverage and alignment – The reward consequences for all

consistent and transparent and are communicated effectively

levels of employees are, as far as possible, aligned with, linked

to all employees. A range of channels is used to increase

to and influenced by:

employees’ understanding of pay practices and appreciation



the interests of Santam’s shareholders;



sustainable performance of the group;



the performance of the business unit or function; and



the employee’s own contribution.

of the total rewards offering. −

remuneration packages of all levels of employees. Clawback – Where performance achievements are subsequently

Excessive risk-taking is mitigated against in the design of

found to have been significantly misstated so that the bonuses

incentive plans, for instance through the inclusion of hurdles

and other incentives should not have been paid, provision is made

and vesting periods.

for redress in appropriate instances.

Consistency and fairness – The remuneration philosophy

REMUNERATION STRUCTURE

strives to be both consistent and transparent. Where there is

The various components of reward are summarised in the table on

differentiation between employees performing similar work, the differentiation is required to be fair and rational. Market comparison methodology makes provision for benchmarking specialist skills groups as well as roles of a more general nature on all levels. −

Regular review – Current market information and trend information is used on an annual basis to determine individual





Communication – The remuneration philosophy, policy and

differentiation between individuals with regard to performance.

Competitiveness, attraction and retention – A key objective of the remuneration philosophy is that total reward should

page 94. A detailed description of each component follows in the next section. Where applicable, the quantum of the different components of the package is determined as follows: −

organisation. Reward in this regard is viewed in a holistic manner,

and potential. −

Pay practices are underpinned by globally recognised job evaluation processes, enabling Santam to draw valid

The short-term incentive component of remuneration is based on individual performance, after taking into account business

comprising a range of monetary (fixed and variable) and non-monetary components of the employee value proposition.

The guaranteed component is based on market relatedness in conjunction with the individual’s performance, competence

enable the group and its business units to attract and retain talented individuals in order to ensure the sustainability of the

S A N TA M I N T E G R AT E D R E P O R T 2 0 16



cases occurs over a five-year period. −

performance in determining the quantum of the bonus pool. −

The long-term incentive component is based on the individual’s performance, potential and overall value to the group.

comparisons to reputable surveys. In line with market practice, the variable pay component of total reward increases with seniority (organisational level), as the ability to impact business results increases. This is reflected in higher-incentive opportunities (both short- and long-term) offered on more senior levels compared to junior employees.

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REMUNERATION COMPONENTS

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Element

Purpose

Performance period and measures

Operation and delivery

Total guaranteed package

Core element that reflects market value of role and individual performance.

Reviewed annually based on performance against contracted output and market surveys. Benchmarked against comparator group and positioned on average on the median.

Guaranteed package is delivered to the employee as a cash salary and a mix of compulsory and discretionary benefits.

Short-term incentives (STI) (performance bonus)

To drive achievement of sustainable results and encourage behaviours that are consistent with the Santam values and aligned with the best interests of our stakeholders.

Based on short-term performance measured over a 12-month period with the aim to remunerate outstanding performance in excess of market mean.

Performance is measured at company, business unit and individual level against predetermined performance targets. The bonuses of all employees are funded from bonus pools that are based on financial targets agreed at board level.

Annual grants vesting over either five or six years. Part early vesting is allowed from the third year provided that all the vesting conditions have been met.

Awards are made annually based on key eligibility criteria, including leadership and those individuals key to driving the business strategy, talent management and succession planning, retention of critical talent and contribution.

To create a high-performance culture through an annual cash bonus linked to performance against contracted deliverables, with due regard to preventing excessive risk-taking. The STI scheme supports collaboration and teamwork across business units and various businesses. To attract, retain and motivate key talent. The criteria and quantum of the STI are benchmarked to the market. Long-term incentives (LTI)

To increase employee motivation and create alignment between employee interests and shareholder interests. To attract and retain the services of valuable and highly skilled individuals who are performing exceptionally.

Outperformance Plan (OPP)

94

To incentivise exceptional performance of senior leaders in the business, over a three-to-five-year measurement period.

The quantum of awards aims to maintain an appropriate level of employee retention value. Vesting occurs upon satisfaction of performance hurdles and individual performance targets. For payment to occur, expected growth in net insurance results must exceed the hurdle for the period. Full payment is only made if the stretch performance targets are met. The maximum payment is a multiple of six times annual total guaranteed package over the measurement period.

Awards are made on an ad hoc basis based on role, performance and contribution. The size of awards aims to maintain an appropriate level of incentive towards attaining strategic objectives.

R E M U N E R AT I O N R E P O R T

Vesting levels

TOTAL GUARANTEED PACKAGE (TGP)

The performance bonus plan is a cash-settled plan. Where the

TGP is a guaranteed component of the remuneration offering. It forms the basis of the organisation’s ability to attract and retain the required skills. In order to create a high-performance culture, the emphasis is placed on the variable/performance component of remuneration rather than the guaranteed component. For this reason, TGP is normally positioned on the median of the market. As an integral part of TGP, Santam provides a flexible structure of benefits that can be tailored, within certain limits, to individual requirements.

annual business and individual bonus targets are achieved in full, the on-target bonus percentage will be paid, which is equal to 50% to 70% of the maximum bonus (bonus cap). In instances where expected target goals have been exceeded, the cash component is capped at a percentage of TGP, but in exceptional cases, the total value of the bonus awarded can exceed the capped cash bonus (refer to ex gratia performance bonus rewards below).

These include retirement plans, group life cover and medical aid.

Where the bonus targets are not achieved in full, a reduced bonus

Process and benchmarking

achieved. Where the annual business bonus targets are not achieved,

Average TGP is normally set by reference to the median paid by comparative local companies. The comparator group is made up of a sizeable and representative sample of companies that have similar sector (but not limited only to this sector) and market capitalisation. In terms of the process followed in benchmarking TGP, Santam obtains data from a number of salary surveys. The data is then analysed using Towers Watson’s Global Grading Calculator. In addition to this benchmarking process, Santam also takes into account the skills, potential and performance of the individual concerned, as well as the current consumer price index of the country.

Levels TGP levels are positioned around the median of the comparator market. Where specific skills dictate, TGP levels may be set in

will be paid only if a minimum threshold performance level has been an amount may be set aside to reward exceptional individual performance at the discretion of the chief executive officer. The annual bonus targets at a group and business unit level incorporate a number of financial and non-financial performance measures that are directly linked to the group strategy and KPIs, including net insurance result, GWP, skills development and employment equity. The specific performance targets and relative weighting are determined per business unit based on the unit’s strategic initiatives. The targets of the corporate support functions reflect the overall performance of the group.

Ex gratia performance bonus rewards Where it is determined that an individual has demonstrated exceptional performance within his or her area of expertise that justifies a bonus payment in excess of the maximum cash bonus

excess of the median.

percentage of TGP, the HRRC may award an additional bonus

Governance

mechanism is to encourage retention of high-performing individuals

The HRRC is responsible for remuneration governance as mandated by the board, with its responsibilities defined in the charter. Feedback from the HRRC meetings are presented to the board. The HRRC applies the principles outlined in the remuneration policy with the right to apply discretion in exceptional circumstances should there be a need. Upon conclusion of the benchmarking process, the HRRC is provided with market-related remuneration information and proposals regarding the annual remuneration review for consideration and approval. The HRRC also reviews and approves the adjustments to the total guaranteed package for each of the Santam executive directors and members of the Santam executive committee.

amount to acknowledge such outperformance. The rationale of this

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

characteristics to Santam in terms of being in the financial services

C O R P O R AT E G O V E R N A N C E R E P O R T

DESCRIPTION OF REMUNERATION COMPONENTS

and ensure the sustainability of performance-driven behaviour.

Governance The HRRC’s role with regard to the annual bonus plan is to determine the overall design of the performance bonus plan, to ensure that it provides a clear link to performance, fosters sustainable business performance and is aligned with the group’s business strategy. It also sets the overall principle with respect to thresholds, targets and stretch levels for the annual bonus plan and the percentage of total guaranteed package that can be earned at each level by each group of employees.

SHORT-TERM INCENTIVES

LONG-TERM INCENTIVES

The purpose of the performance bonus plan is to align the

LTIs are an integral part of the company’s approach to competitive

performance of employees with the goals of the organisation

performance-based pay, and are aligned with shareholder returns to

and to motivate and reward employees who outperform the agreed

ensure a clear line of sight between pay and long-term value creation

performance hurdles. No part of the executives’ performance

for shareholders.

bonuses is guaranteed – the full bonus depends on individual and company performance. At executive level, the maximum bonus

Santam currently grants awards under the Deferred Share Plan

that can potentially be earned is 160% of annual TGP for the chief

(DSP), the Performance Deferred Share Plan (PDSP) and Santam

executive officer, 120% for the chief financial officer and 100% for

Outperformance Plan (OPP). With the exception of the OPP, these

the other executives.

LTI plans are equity-settled plans. The OPP is a cash-based plan, which rewards long-term performance.

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With respect to the DSP and the PDSP, Santam’s practice is to make

In addition to the individual remaining employed by the group

awards annually to ensure that the total face value of outstanding

throughout the measurement period and maintaining the agreed-

awards (calculated on their face value at date of grant) is equal to a

upon individual performance hurdles, the vesting of the award is also

set multiple of the individual’s TGP. The set multiples are determined

subject to the following performance conditions:

by reference to the individual’s level in the organisation. In addition,



Santam shares: that the group achieves an implied fair value

transformation considerations and the role and performance of an

to Net Asset Value (NAV) ratio of 1.25 times. For the purposes

individual and the need to attract and/or retain key talent are taken

of calculating the implied fair value to NAV ratio, the return on

into account when determining the final multiple.

capital in excess of the cost of capital will be expressed as a ratio on the following basis: (Return on Capital – g) / (Cost of

In general, the targeted award level ranges from 70% to 245% of annual TGP, but may exceed this in the specific circumstances

Capital – g) = implied fair value to NAV ratio. −

Sanlam shares: that the group’s adjusted Return on Group Equity

referred to above. The vesting of LTI awards granted under the DSP

Value (RoGEV) exceeds the Sanlam Group’s cost of capital for the

is subject to individual performance hurdles. Under the PDSP, it is

relevant measurement period (group performance hurdle). Cost

dependent on business hurdles being achieved.

of capital is defined as the nine-year government bond rate in South Africa plus 300 basis points.

Appropriate LTI plans are designed for Santam’s unlisted

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

subsidiaries. The plans currently in use are share appreciation rights

The exact condition varies by reference to the value of the

schemes or Deferred Cash Bonus Plans. The vesting principles and

performance award as a proportion of the individual’s TGP.

period are aligned to those of the DSP.

The higher the award allocated, the more stretching the vesting conditions thereof.

Participation The LTIs are aimed at attracting and retaining key employees. The

The use of relevant performance conditions is considered appropriate

practice is to target allocations to employees in management or key

as these are the key drivers of the Santam and Sanlam groups’

functional roles. Non-executive directors do not participate in any of

strategies. The use of these measures creates a direct link between

the LTIs.

the LTI reward, group strategy and shareholders’ interests. To the extent that they are not met at the end of this period, the

Deferred Share Plan (DSP)

performance-related awards will lapse. However, awards under

Awards granted under the DSP are conditional rights to acquire

the PDSP can vest prior to the end of the six-year performance

shares for no consideration, subject to vesting conditions being

measurement period on a proportional basis to the extent that all

satisfied. The award has individual performance hurdles attached

the vesting conditions are met earlier, as follows:

to it. The vesting conditions are that the individual remains employed

– After three years from the date of grant – 40% of the award;

by the group throughout the vesting period and maintains agreed

– After four years – 70% less any portion that vested earlier; and

individual performance hurdles. The measurement period is five years

– After five years – 100% less any portion that vested earlier.

and early vesting may occur as follows, provided that all the vesting conditions have been met:

This arrangement is aimed at encouraging performance that will



After three years – 40%;

result in targets being met earlier within the agreed performance



After four years – 70% less any portion vested earlier; and

measurement period. To the extent that the value of performance



After five years – 100% less any portion that vested earlier.

awards falls below the specified multiple of TGP, whether through vesting or due to a promotion or salary increase, an additional

The award granted under the DSP is not subject to the satisfaction

award may be granted on an annual basis to maintain the level of

of the group performance conditions, but does require meeting

performance awards and encourage ongoing long-term performance.

individually contracted performance hurdles. Typically, the award granted under the DSP has a face value of up to 105% of TGP. To the

OUT-PERFORMANCE PLAN (OPP)

extent that this percentage falls, whether through vesting or due to a

From time to time, at the discretion of the HRRC, participation in an

promotion or salary increase, an additional award may be granted on

OPP may be offered to senior leaders in the group. The OPP rewards

an annual basis to maintain the level of participation under the DSP.

superior performance over a three-to-five-year measurement period. No payment is made under the OPP unless the agreed growth target

Performance Deferred Share Plan (PDSP)

over the period is exceeded and full payment is only made if the

To the extent that the face value of the awards granted under the

stretched performance target is met. The maximum payment that

DSP does not satisfy the specified multiple of TGP to be granted as

can be made under the OPP is a multiple of six times the annual TGP

LTI awards, the individual will be granted an award under the PDSP.

in the final measurement year.

Awards granted under the PDSP are conditional rights to acquire Santam and Sanlam shares for no consideration, subject to various vesting conditions being satisfied.

96

R E M U N E R AT I O N R E P O R T

No clauses are included in employment contracts that relate to any

The HRRC’s role as far as the LTI plans are concerned is to ensure

form of payment in the event of a change in control of Santam. In the

that their structure contributes to shareholder value and the long-

event of a change in control, the vesting of share awards will only be

term sustainability of the group. It sets appropriate performance

accelerated if an offer is made that does not substitute unvested LTIs

drivers and takes responsibility for monitoring and agreeing on the

with arrangements on terms similar to the existing terms

level of compliance with those performance drivers.

and conditions.

SHAREHOLDER VOTING The group’s remuneration policy and the implementation thereof are

SERVICE CONTRACTS AND TERMINATION AGREEMENTS

subject to a non-binding advisory vote at the AGM of Santam Ltd.

Executive directors have service contracts with the company,

At the 2016 AGM, a total of 90 859 484 votes (2015: 96 695 636) were

which may be terminated with no less than three months’ notice.

cast on the advisory vote, with the vast majority of shareholders

Non-executive directors do not have service contracts, but serve

supporting the group’s remuneration policy and practices. The result

the company under letters of appointment.

C O R P O R AT E G O V E R N A N C E R E P O R T

Governance

of the voting was as follows: –

For:

87.1%



Against:

12.9%

ROLE OF THE HRRC REGARDING REMUNERATION The HRRC is responsible for developing the remuneration strategy of the group, the approval of guidelines for incentive schemes, and the annual determination of remuneration packages for members

EXECUTIVE CONTRACTS

of the executive committee and Santam heads of control functions.

Santam executive directors and members of the executive committee

In fulfilling this function, the committee takes cognisance of local

are contracted as full-time, permanent employees for employment

industry benchmarks, ensures that incentive schemes are aligned

contracting purposes. As a standard element of these contracts,

with good business practice and that excellent performance

a 12-month restraint of trade is included, which Santam has

is rewarded. It also makes recommendations to the board

the discretion to enforce, depending on the circumstances

regarding directors’ remuneration. In accordance with the King III

surrounding the individual’s departure. Notice periods are

recommendations, the company’s remuneration policy is tabled to

three months’ written notice.

shareholders for a non-binding advisory vote at its AGM.

Bonus payments and the vesting of LTIs that are in place at the

The HRRC has the prerogative to make all remuneration decisions it

time of an individual’s termination of service are subject to the rules

deems appropriate within an approved framework and may propose

of the relevant scheme with some discretion being allowed to the

amendments to any part of the group’s remuneration policy as

HRRC, based on the recommendations of the chief executive officer.

necessitated by changing circumstances.

Executive directors

Date first appointed to the board

Notice period

Termination payment

Restraint of trade

Lizé Lambrechts Hennie Nel

1 January 2015 17 September 2012

Three months Three months

Total guaranteed package is paid for the full notice period.

Executive directors have a 12-month restraint of trade included in their employment contracts. During the restraint period, normal total guaranteed package is paid, should Santam elect to enforce the restraint.

Short-term incentives: Not contractual, but normal practice is to forfeit bonus for the (uncompleted) year in which an employee departs due to resignation. If an employee leaves by reason of retirement, injury, disability, ill health or redundancy, bonus is prorated. Long-term incentives: In the event of a voluntarily resignation or a termination on disciplinary grounds or for reasons of poor performance prior to the vesting of the awarded shares, such shares will be forfeited. In the event of retirement, retrenchment, death or permanent disability, the remaining awarded shares will be deemed to have vested on the date of the termination of services.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

– Abstain: 0%

97

C O R P O R AT E G O V E R N A N C E R E P O R T

TRANSFORMATION REPORT BACKGROUND

KEY STAKEHOLDERS IMPACTED

The private sector is a key player in the acceleration of economic

The stakeholders impacted and affected by Santam’s transformation

transformation of a country, and Santam takes its role seriously in

strategy are diverse and representative of the entire value chain. For

supporting this. The group follows a holistic and integrated approach

the purpose of this strategy, the key stakeholders are:

in applying transformation. This is focused on creating a diverse

− Employees

workforce, intermediary and supplier base, creating access for

− Suppliers

non-traditional markets to products and services, and investment

− Clients

into communities.

− Intermediaries

S A N TA M I N T E G R AT E D R E P O R T 2 0 16



Associated companies

Santam continues to drive this approach across all stakeholder



Business partners

networks – including business partners, clients and employees. This

− Subsidiaries

encourages the sustainable evolution of the business, while building



competitive advantage and enabling successful execution of the

Relevant government departments (dti, Small Business Development Department and National Treasury)

strategy and vision.

APPROACH

TRANSFORMATION DEFINED

Santam’s approach to transformation is directly aligned to its vision

Santam defines transformation as a dynamic process through which

and reinforces the brand promise of Insurance good and proper.

it creates a sustainable culture of diversity and inclusion, with a focus

Through the transformation mission, the group aims to leverage

on its workforce, the workplace and the marketplace.

off diversity and inclusion to drive superior and sustainable business results to provide competitive advantage and create

This is activated through the group’s product/service offering to

value for all stakeholders.

diverse markets, the creation of diverse distribution channels, employee profiles, ideas, race, gender, experience and other

This will be achieved by focusing on Santam’s workforce, workplace

perspectives. In so doing, the business ensures economic inclusion

and marketplace, underpinned by the values of the Santam Way.

and creates value for its key stakeholders across the markets in which it operates, locally and internationally. The Santam transformation journey will continue to focus primarily on the

Transformation mission: To leverage the value of diversity and

South African market.

inclusion to drive superior and sustainable business results, competitive advantage and value for stakeholders. We aim to achieve this by focusing on: − Our workforce: We build a capable, high-performing and diverse workforce that is reflective of the marketplace in which we operate (skills, generation, race, gender, ideas). − Our workplace: We create a culture that values our differences and drives innovation to achieve growth, reduce our risks and create efficiencies. − Our marketplace: We work with our stakeholders (clients, employees, intermediaries, suppliers, business partners, shareholders and communities) to create value and to enable business success in our diverse marketplace.

98

C O R P O R AT E G O V E R N A N C E R E P O R T

IMPLEMENTATION OF THE TRANSFORMATION STRATEGY The organisation has created a framework which will be its focus in 2017 and beyond. This focus will ensure that its efforts in achieving the transformation mission are directed where it can add the most value. Objectives

Initiatives

Outcomes

Drive high-impact transformation initiatives for business and societal value

–– –– –– –– –– ––

Integrated supplier development programme Diverse investment partnerships Diverse distribution channel programme Growth through a diverse SMME approach Partnership for Risk and Resilience Transformation at community and municipal level

1. A shared Santam transformation story

––

–– ––

Establishment of holistic diversity programmes and platforms to support an inclusive culture throughout the workplace, workforce and marketplace Progressive and inclusive products and services Development of our people

Drive transformation through innovation

–– –– ––

Solutions innovation for gaining access to changing markets Investment mandate to drive innovation Innovation in risk management

Lead transformation compliance

–– ––

Compliance leadership in the industry (FSC) Diverse employee base

3. A better connection to and engagement with all stakeholders

Accountability is driven by the respective executives

TRANSFORMATION GOVERNANCE AND MANAGEMENT The governance of the transformation strategy at board level is

The Santam executive committee serves as the overall transformation

driven mainly by the HRRC and reported to the social, ethics and

management committee. In fulfilling this objective, the committee

sustainability committee.

focuses on the implementation, monitoring and evaluation of and

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Drive a diverse and inclusive culture

2. A purpose-driven and integrated approach

reporting on the transformation strategy for the group. The transformation strategy is being fully integrated into current business, functions and responsibilities, thus it leverages off the embedded reporting and management mechanisms. These reporting mechanisms include, among others, the National Employment Equity Forum that looks at employment equity and skills development based on plans and targets.

99

C O R P O R AT E G O V E R N A N C E R E P O R T

Transformation governance elements include the following:

SANTAM BOARD OF DIRECTORS HUMAN RESOURCES AND REMUNERATION COMMITTEE

SOCIAL, ETHICS AND SUSTAINABILITY COMMITTEE

SANTAM TRANSFORMATION STRATEGY

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

SANTAM EXECUTIVE COMMITTEE NATIONAL EMPLOYMENT EQUITY FORUM

The chief executive officer takes key accountability for implementation



of the transformation strategy. Each executive’s transformation

R40 million (2015: R10 million) invested in supplier development through the Sanlam/Santam ASISA Supplier Development

accountabilities are included in his or her respective annual key

Programme

performance areas. The head of transformation and executive heads



are responsible for integration, monitoring and evaluating



the progress made.

R21 million (2015: R16 million) invested in CSI and CFE Socio-economic development strategy expanded to support risk management work, focusing on vulnerable communities (Partnerships for Risk and Resilience, see page 50)

TRANSFORMATION PRIORITIES The Santam transformation journey will continue to focus primarily on the South African market and will later be transitioned to the rest

− −

markets, diverse distribution channels created, employee profiles,

farmers). This will remain a focus going into 2017 −

key stakeholders across the markets in which it operates, both locally

and 12% placed in jobs −

Santam’s transformation highlights continue to strengthen the group’s drive to transform the business across its entire value chain.

for this market −

KEY HIGHLIGHTS*: −

Employee black representation improved by 5% to 68%

Just over 129 000 policies sold as access products in South Africa (2015: 66 000)



Transformation agenda expanded across a further six subsidiaries, with a total of nine subsidiaries now aligned

There are improvements year on year and deeper commitment for 2017 and beyond.

An improved product offering to the emerging markets by increasing the group’s product base of from 10 to 12 options

and internationally.

TRANSFORMATION HIGHLIGHTS FOR 2016

R3.3 million (2015: R3 million) invested in the Black Broker Development programme, with 166 participants in 2015 and 2016

ideas, race, gender, experience and other perspectives. In so doing, the business ensures economic inclusion and creates value for its

Expanded consumer financial education focus on the development of small businesses (inclusive of emerging

of the chosen geographies in emerging markets. This strategy will be activated through the group’s product/service offering to diverse

R8.3 million (2015: R9.3 million) invested in consumer financial education programmes

to the group transformation agenda −

BBBEE rating improved with the achievement of a level 2 (2015: level 3)

* The key highlights cover Santam Ltd and its South African subsidiaries.

(2015: 63%) −

R114 million (2015: R79 million) invested in learning and development for black employees across the group

100

READ MORE ABOUT THE PARTNERSHIP FOR RISK AND RESILIENCE ON PAGE 50.

C O R P O R AT E G O V E R N A N C E R E P O R T

VALUE-ADDED STATEMENT Group 2016 R million

2015 R million

Gross written premium

25 909

24 319

Claims paid and cost of other services

22 022

19 153

3 887

5 166

777

1 840

4 664

7 006

2 543

2 553

524

908

524

908

Value added

Investment income net of fees

Value distributed Government Direct taxation on income Providers of capital Dividends paid Finance cost on subordinated debt

1 966

952

1 806

869

160

83

5 033

4 413

(369)

Retained for reinvestment and future support of business

2 593

95

Depreciation and amortisation of intangible assets Retained income before transfer to reserves Compulsory reserves for future support of business

160

(413)

2 068

(51)

365

4 664

7 006

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Employee benefits

VALUE DISTRIBUTED % 60.0

54.5

50.0

42.2 37.0

36.4

40.0 30.0 20.0

13.6

11.2

13.0

10.0 (7.9) 0.0 (10.0) Employees

Providers of capital

Reinvestment 2016

Government

2015

101

WE REDUCE RISK THROUGH COLLABORATION. Through our Risk and Resilience Programme we work in partnership with municipalities to identify risks such as fire and flooding. This initiative has enabled us to provide 53 local municipalities with disaster management tools. It is a reflection of our enduring commitment to creating better lives for all South Africans.

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

104

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

105

APPROVAL OF SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

106

 REPARATION AND PRESENTATION OF SUMMARY CONSOLIDATED P FINANCIAL STATEMENTS

106

SECRETARIAL CERTIFICATION

107

I NDEPENDENT AUDITOR’S REPORT

108

SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION

109

SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

110

SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUIT Y

111

SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS

112

NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

126

(I) ANALYSIS OF SHAREHOLDERS

127

(II) ANALYSIS OF DEBT SECURIT Y HOLDERS

TO THE SHAREHOLDERS OF SANTAM LTD RESPONSIBILITY FOR AND APPROVAL OF THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS The board of Santam Ltd accepts responsibility for the integrity, objectivity and reliability of the group and company financial statements of Santam Ltd. Adequate accounting records have been maintained. The board endorses the principle of transparency in financial reporting. The responsibility for the preparation and presentation of the financial statements has been delegated to management. The responsibility of the external auditors is to express an independent opinion on the fair presentation of the financial statements based on their audit of Santam Ltd and its subsidiaries. The board has confirmed that adequate internal financial control systems are being maintained. There were no breakdowns in the functioning of the internal control systems during the year that had a material impact on the financial results. The board is satisfied that the summary

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

APPROVAL OF SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

consolidated financial statements fairly present the financial position, the results of the operations and cash flows in accordance with IAS 34 Interim Financial Reporting. The board is of the opinion that Santam Ltd is financially sound and operates as a going concern. The financial statements have accordingly been

The financial statements were authorised for issue and publication by the board and signed on their behalf by:

Grant Gelink

Lizé Lambrechts

Chairman

Chief executive officer

1 March 2017

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

prepared on this basis.

105

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

PREPARATION AND PRESENTATION OF SUMMARY CONSOLIDATED FINANCIAL STATEMENTS The preparation of the summary consolidated financial statements was supervised by the chief financial officer of Santam Ltd, Hennie Nel. The full set of annual financial statements are published on our website, or can be requested from the company secretary.

SECRETARIAL CERTIFICATION In accordance with section 88(2)(e) of the Companies Act, 71 of 2008 (the Act), it is hereby certified that the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Act and that such returns are true, correct and up to date.

Masood Allie Company secretary 1 March 2017

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

106

TO THE SHAREHOLDERS OF SANTAM LTD OPINION The summary consolidated financial statements of Santam Ltd, set out on pages 108 to 125, which comprise the summary consolidated statement of financial position as at 31 December 2016, the summary consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and related notes, are derived from the audited consolidated financial statements of Santam Ltd for the year ended 31 December 2016. In our opinion, the accompanying summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements, in accordance with the JSE Limited’s (JSE) requirements for summary financial statements, as set out in note 1 to the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements.

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS) and the requirements of the Companies Act of South Africa as applicable to annual financial statements. Reading the summary consolidated financial statements and the auditor’s report thereon, therefore, is not a substitute for reading the audited consolidated financial statements

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

INDEPENDENT AUDITOR’S REPORT

and the auditor’s report thereon.

THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND OUR REPORT THEREON We expressed an unmodified audit opinion on the audited consolidated financial statements in our report dated 1 March 2017. That report significance in our audit of the consolidated financial statements of the current period.

DIRECTORS’ RESPONSIBILITY FOR THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS The directors are responsible for the preparation of the summary consolidated financial statements in accordance with the requirements of the JSE’s requirements for summary financial statements, set out in note 1 to the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements.

AUDITOR’S RESPONSIBILITY Our responsibility is to express an opinion on whether the summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 (Revised) – Engagements to Report on Summary Financial Statements.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

also includes communication of key audit matters. Key audit matters are those matters that, in our professional judgement, were of most

PricewaterhouseCoopers Inc Director: Zuhdi Abrahams Registered auditor Cape Town 1 March 2017

107

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION Notes ASSETS Non-current assets Property and equipment Intangible assets Deferred income tax Investment in associates and joint ventures Financial assets at fair value through income Equity securities Debt securities Reinsurance assets Deposit with cell owner Total non-current assets

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Current assets Cell owners’ interest Financial assets at fair value through income Derivatives Short-term money market instruments Reinsurance assets Deposit with cell owner Deferred acquisition costs Loans and receivables including insurance receivables Income tax assets Cash and cash equivalents Non-current assets held for sale Total current assets

6 6 7

6

8

Total assets EQUITY AND LIABILITIES Capital and reserves attributable to the company’s equity holders Share capital Treasury shares Other reserves Distributable reserves Non-controlling interest Total equity Non-current liabilities Deferred income tax Financial liabilities at fair value through income Debt securities Derivatives Cell owners’ interest Insurance liabilities Reinsurance liability relating to cell owners Total non-current liabilities Current liabilities Financial liabilities at fair value through income Debt securities Investment contracts Financial liabilities at amortised cost Collateral guarantee contracts Insurance liabilities Reinsurance liability relating to cell owners Deferred reinsurance acquisition revenue Provisions for other liabilities and charges Trade and other payables including insurance payables Current income tax liabilities Total current liabilities

108

6 6 7

6 6 7

6 6

7

Audited at 31 December 2016 R million

Audited at 31 December 2015 R million

106 885 105 1 536

90 827 140 252

2 581 10 849 140 163 16 365

2 730 9 721 164 187 14 111

7

6

1 1 361 4 349 56 469 3 754 19 2 887 8 12 911

2 2 281 3 514 67 525 3 449 13 3 349 541 13 747

29 276

27 858

103 (472) (41) 7 286 6 876 469 7 345

103 (450) 548 7 880 8 081 466 8 547

101

107

2 005 – 1 153 1 312 163 4 734

974 1 980 1 525 187 3 774

48 101

24 70

123 12 284 56 273 71 4 093 148 17 197

105 11 139 67 280 122 3 412 318 15 537

Total liabilities

21 931

19 311

Total shareholders’ equity and liabilities

29 276

27 858

Notes Gross written premium Less: reinsurance written premium Net written premium Less: change in unearned premium Gross amount Reinsurers’ share Net insurance premium revenue

Audited Year ended 31 December 2016 R million

Audited Year ended 31 December 2015 R million Change 24 319 5 435 18 884

137 (191) 19 826

528 (167) 18 523

777 1 337 42 13 21 995

1 210 1 236 235 – 21 204

Insurance claims and loss adjustment expenses Insurance claims and loss adjustment expenses recovered from reinsurers Net insurance benefits and claims

17 100 (4 189) 12 911

13 980 (2 470) 11 510

12%

Expenses for the acquisition of insurance contracts Expenses for marketing and administration Expenses for investment-related activities Amortisation and impairment of intangible assets Total expenses

3 716 3 247 70 51 19 995

3 240 3 277 53 117 18 197

10%

Investment income Income from reinsurance contracts ceded Net gains on financial assets and liabilities at fair value through income Investment income and fair value losses on financial assets held for sale Net income

Results of operating activities Finance costs Net income from associates and joint ventures Profit on sale of associated companies Profit on sale of subsidiary Profit before tax Income tax expense Profit for the year

9 9 9

11 11 10

Other comprehensive income, net of tax Items that may subsequently be reclassified to income: Currency translation differences Share of associates’ currency translation differences Hedging reserve movement Tax on hedging reserve movement Total comprehensive income for the year Profit attributable to: – equity holders of the company – non-controlling interest

Total comprehensive income attributable to: – equity holders of the company – non-controlling interest

2 000 (212) 67 – – 1 855 (524) 1 331

3 007 (116) 53 413 15 3 372 (908) 2 464

(197) (255) (140) – 739

163 – 134 (37) 2 724

7% 5%

7% (36%)

4%

(33%)

(45%) (46%)

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

25 909 6 137 19 772

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(73%)

1 212 119 1 331

2 348 116 2 464

(48%)

620 119 739

2 608 116 2 724

(76%)

1 100 1 088

2 090 2 065

(47%) (47%)

110.21 111.37

112.34 113.72

Earnings attributable to equity shareholders Earnings per share (cents) Basic earnings per share Diluted earnings per share Weighted average number of ordinary shares (millions) Weighted average number of ordinary shares for diluted earnings per share (millions)

12

109

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

110

SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital R million Balance as at 1 January 2015 Profit for the year Other comprehensive income: Currency translation differences Hedging reserve movement Total comprehensive income for the year ended 31 December 2015 Issue of treasury shares in terms of share option schemes Repurchase of shares (refer to note 14) Transfer to reserves Share-based payment costs Increase in capital contribution reserve (refer to note 14) Dividends paid Interest sold to non-controlling interest Balance as at 31 December 2015 Profit for the year Other comprehensive income: Currency translation differences Share of associates’ currency translation differences Hedging reserve movement Total comprehensive income for the year ended 31 December 2016 Issue of treasury shares in terms of share option schemes Purchase of treasury shares Transfer to reserves Share-based payment costs Dividends paid Balance as at 31 December 2016

107 –

Attributable to equity holders of the company Treasury Other Distributable shares reserves reserves R million R million R million (506) –

Total R million

Noncontrolling interest R million

Total R million

238 –

7 171 2 348

7 010 2 348

430 116

7 440 2 464

– –

– –

163 134

– (37)

163 97

– –

163 97





297

2 311

2 608

116

2 724

– (4) – –

56 – – –

– – 4 –

(56) (797) (4) 124

– (801) – 124

– – – –

– (801) – 124

– –

– –

9 –

– (869)

9 (869)

– (82)

9 (951)

– 548 –

– 7 880 1 212

– 103 –

– (450) –

– 8 081 1 212

2 466 119

2 8 547 1 331





(197)



(197)



(197)

– –

– –

(255) (140)

– –

(255) (140)

– –

(255) (140)





(592)

1 212

– – 3 – – (41)

(76) – (3) 79 (1 806) 7 286

– – – – – 103

76 (98) – – – (472)

620 – (98) – 79 (1 806) 6 876

119 – – – – (116) 469

739 – (98) – 79 (1 922) 7 345

Notes Cash flows from operating activities Cash generated from operations Interest paid Income tax paid Net cash from operating activities

Audited Year ended 31 December 2016 R million

Audited Year ended 31 December 2015 R million 3 656 (110) (1 002) 2 544

(17 594) 17 764 75 70 208 – (60) (50) 2 (1 467) (10) – 509 (553)

(14 086) 13 348 42 – (183) 132 (39) (85) – (2) (28) 625 – (276)

Cash flows from financing activities Purchase of treasury shares Repurchase of shares Proceeds from issue of unsecured subordinated callable notes Increase/(decrease) in investment contract liabilities Increase in collateral guarantee contracts Dividends paid to company’s shareholders Dividends paid to non-controlling interest (Decrease)/increase in cell owners’ interest Net cash used in financing activities

(98) – 1 000 31 12 (1 806) (116) (114) (1 091)

– (801) – (35) 11 (869) (82) 16 (1 760)

Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange (losses)/gains on cash and cash equivalents Cash and cash equivalents at the end of the year

(315) 3 349 (147) 2 887

508 2 561 280 3 349

Cash flows from investing activities Acquisition of financial assets Proceeds from sale of financial assets Settlement of fence Acquisition of business, net of cash acquired Cash received/(disposed of) through sale of subsidiaries Staff trust acquired Purchases of equipment Purchases of intangible assets Proceeds from sale of equipment Acquisition of associated companies and joint ventures Capitalisation of associated companies Proceeds from sale of associated companies Settlement of deferred conditional right relating to non-current assets held for sale Net cash used in investing activities

11 11 14

11

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

2 171 (161) (681) 1 329

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS

111

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS 1.

Basis of preparation The summary consolidated financial statements are prepared in accordance with the requirements of the JSE for summary financial statements, and the requirements of the Companies Act applicable to summary financial statements. The JSE requires summary financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 – Interim Financial Reporting.

2.

Accounting policies The accounting policies applied in the preparation of the consolidated financial statements from which the summary consolidated financial statements were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements, except for: The following new IFRSs and/or IFRICs were effective for the first time from 1 January 2016: –– Amendments to IFRS 10 and IAS 28 – Investment entities: Applying the consolidation exemption –– Amendments to IFRS 11 – Joint arrangements –– IFRS 14 – Regulatory deferral accounts –– Amendments to IAS 1 – Disclosure initiative –– Amendments to IAS 16 and IAS 38 – Clarification of acceptable methods of depreciation and amortisation –– Amendments to IAS 16 and IAS 41 – Agriculture: Bearer plants –– Amendment to IAS 27 – Equity method in separate financial statements –– Annual Improvements 2012 –14 cycle There was no material impact on the summary consolidated financial statements identified.

3.

Estimates

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

The preparation of summary consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing this summary consolidated financial statements, the significant judgements made by management in applying the group’s accounting policies and the key sources of estimation uncertainty are the same as those that applied to the consolidated annual financial statements for the year ended 31 December 2016. There have been no changes since 31 December 2015.

4.

Risk management The group’s activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk, foreign currency risk and derivatives risk), credit risk and liquidity risk. Insurance activities expose the group to insurance risk (including pricing risk, reserving risk, accumulation risk and reinsurance risk). The group is also exposed to operational risk and legal risk. The capital risk management philosophy is to maximise the return on shareholders’ capital within an appropriate risk framework. The summary consolidated financial statements do not include all risk management information and disclosure required in the annual financial statements and should be read in conjunction with the group’s annual financial statements as at 31 December 2016. There have been no material changes in the risk management policies since 31 December 2015.

112

Segment information Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief executive officer, supported by the group executive committee. The group conducts mainly insurance, investment and strategic diversification activities. Insurance activities are all core general insurance and reinsurance underwriting activities undertaken by the group and are analysed by insurance class. Operating segments are aggregated based on quantitative and/or qualitative significance. The performance of insurance activities is based on gross written premium as a measure of growth, with net underwriting result as measure of profitability. Investment activities are all investment-related activities undertaken by the group. Due to the nature of the activities conducted, investment activities are considered to be one operating segment. Investment activities are measured based on net investment income (excluding net investment income generated by strategic activities). Strategic diversification activities relate to all strategic investing activities where the purpose of the activities is to obtain certain diversification benefits. The investments in SEM target shares, associates and joint ventures are included in this segment. This segment was included in 2016, subsequent to the acquisition of the shareholding in SAN JV. The segment report was amended to also provide the comparative information relating to SEM. Strategic diversification activities are measured based on net investment income from SEM target share investments and net income from associated companies and joint ventures.

Given the nature of the operations, there is no single external client that provides 10% or more of the group’s revenues. The investment return on insurance funds is calculated based on the day-weighted effective return realised by the group on the assets held to cover the group’s net insurance working capital requirements. Insurance business denominated in foreign currencies is covered by foreign denominated bank accounts and investment portfolios. Foreign exchange movements on underwriting activities are therefore offset against the foreign exchange movements recognised on the bank accounts and investment portfolios. The Santam BEE transaction costs are unrelated to the core underwriting, investment or strategic diversification performance of the group. Therefore, these costs are disclosed as unallocated activities.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Growth is measured based on the gross written premium generated by the underlying businesses. The underwriting and investment return on insurance funds are provided for each of the underlying components included in the strategic diversification segment for consideration by the chief operating decision-maker. As this information is considered to be a reallocation of fair value movements recognised on the SEM target shares as well as equity-accounted earnings on the investments in associated companies and joint ventures, it is also included as reconciling items in order to reconcile to the consolidated statement of comprehensive income. Overall profitability is measured based on net investment income and fair value movements from SEM target share investments and net income from associated companies and joint ventures.

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

5.

Santam Ltd is domiciled in South Africa. Geographical analysis of the gross written premium and non-current assets and liabilities is based on the countries in which the business is underwritten or managed. Non-current assets comprise goodwill and intangible assets, property and equipment, investments in associates and joint ventures and SEM target shares (included in financial instruments).

113

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

114

5. 5.1

Segment information (continued) For the year ended 31 December 2016

Insurance

Investment

Strategic diversification

Total

Reconciling and unallocated

IFRS total

R million

R million

R million

R million

R million

R million

Revenue Gross written premium Net written premium Net earned premium Net claims incurred Net commission Management expenses (excluding BEE costs) 2 Underwriting result Investment return on insurance funds

25 909 25 909 19 772 19 826 12 911 2 379

418 – – – – –

1 939 1 939 1 477 1 414 982 121

28 266 27 848 21 249 21 240 13 893 2 500

(2 357) (1 939) (1 477) (1 414) (982) (121)

25 909 25 909 19 772 19 826 12 911 2 379

3 268 1 268

– –

3 615 1 232

(347) 36

3 268 1 268

619



180

799

(180)

619

Net insurance result Reallocation of net insurance results1 Investment income/ (losses) net of investment-related fees and finance costs Income from associates and joint ventures Santam BEE costs Amortisation and impairment of intangible assets2 Income before taxation

1 887



144

2 031

(144)

1 887





(144)

(144)

144



136

(205)

(69)



(69)

– –

– –

67 –

67 –

– (9)

67 (9)

(21) 1 866

– 136

– (9)

(21) 1 855

Business activity

347 (36)

– (138)

(21) 1 864



1 Reconciling items consist of the reallocation of net insurance results relating to the underlying investments included in strategic diversification activities for management reporting purposes. 2 Amortisation of computer software included as part of management expenses.

Gross written premium R million

Underwriting result R million

Accident and health Alternative risk Crop Engineering Guarantee Liability Miscellaneous Motor Property Transportation Total

374 2 406 984 1 196 86 1 202 9 11 004 7 972 676 25 909

49 16 69 196 (31) 301 (3) 622 22 27 1 268

Comprising: Commercial insurance Personal insurance Alternative risk Total

13 330 10 173 2 406 25 909

735 517 16 1 268

Insurance activities The group’s insurance activities are spread over various classes of general insurance.

N O T E S T O T H E S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Additional information Investment activities The group’s return on investment-related activities can be analysed as follows: Investment income Net gains on financial assets and liabilities at fair value through income Investment-related revenue Expenses for investment-related activities Finance costs Net total investment-related transactions

150 268 418 (70) (212) 136

For detailed analysis of investment activities, refer to notes 6 and 9.

SEM target shares R million

Other R million

962 962 688 665 484 32 162 (13) 119 106 (106)

977 977 789 749 498 89 185 (23) 61 38 (38)

– – – – – – – – – – –

1 939 1 939 1 477 1 414 982 121 347 (36) 180 144 (144)

(205) – (205)

– 43 43

– 24 24

(205) 67 (138)

South Africa Rest of Africa Southeast Asia, India, Middle East and China

Gross written premium R million

Underwriting result R million

– 1 427 512 1 939

– (18) (18) (36) 36 – 8

Reallocation of net underwriting results1 Investment income Net losses on financial assets and liabilities at fair value through income – Net fair value losses – Net foreign exchange losses Net income from associates and joint ventures Strategic diversification-related loss 1

Total R million

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Strategic diversification activities The group’s return on strategic diversification-related activities can be analysed as follows: Revenue Gross written premium Net written premium Net earned premium Net claims incurred Net commission Management expenses (excluding BEE costs) Underwriting result Investment return on insurance funds Net insurance result Reallocation of net insurance results1 Investment losses net of investment-related fees and finance costs Income from associates and joint ventures (Loss)/income before taxation

SAN JV (Saham Finances) R million

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

R million

(67) (146) 67 (138)

Reconciling items consist of the reallocation of net underwriting results relating to the underlying investments included in strategic diversification activities for management reporting purposes.

Dividend income R million SAN JV (Saham Finances)



SEM target shares Other Total

8 – 8

Net fair value losses R million – (67) – (67)

Net foreign exchange losses R million

Net income from associates and joint ventures R million



43

43

– 24 67

(205) 24 (138)

(146) – (146)

Total R million

115

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

5. 5.2

Segment information (continued) For the year ended 31 December 2015 (restated)

Business activity

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Revenue Gross written premium Net written premium Net earned premium Net claims incurred Net commission Management expenses (excluding BEE costs) 2 Underwriting result Investment return on insurance funds Net insurance result Reallocation of net insurance results1 Investment income net of investment-related fees and finance costs Income from associates including profit on sale Profit on sale of subsidiary Santam BEE costs Amortisation and impairment of intangible assets 2 Income before taxation

Insurance R million

Investment R million

Strategic diversification R million

Total R million

24 319 24 319 18 884 18 523 11 510 2 004

772 – – – – –

675 675 494 499 397 19

25 766 24 994 19 378 19 022 11 907 2 023

(1 447) (675) (494) (499) (397) (19)

24 319 24 319 18 884 18 523 11 510 2 004

3 230 1 779

– –

103 (20)

3 333 1 759

(103) 20

3 230 1 779

499 2 278

– –

79 59

578 2 337

(79) (59)

499 2 278





(59)

(59)

59





603

174

777



777





466

466



466

– –

– –

15 –

15 –

– (71)

15 (71)

(93) 2 185

– 603

– 655

– (71)

(93) 3 372

(93) 3 443

Reconciling and unallocated R million

IFRS total R million

1 Reconciling items consist of the reallocation of net insurance results relating to the underlying investments included in strategic diversification activities for management reporting purposes. 2 Amortisation of computer software included as part of management expenses.

Gross written premium1 R million

Underwriting result1 R million

Accident and health Alternative risk Crop Engineering Guarantee Liability Miscellaneous Motor Property Transportation Total

371 2 248 840 1 176 149 1 327 62 10 247 7 213 686 24 319

60 20 131 216 13 234 11 673 330 91 1 779

Comprising: Commercial insurance Personal insurance

12 665 9 406

1 195 564

Alternative risk Total

2 248 24 319

20 1 779

Insurance activities The group’s insurance activities are spread over various classes of general insurance.

1 The following reclassifications between insurance classes were made as a result of more granular information becoming available: a decrease of R477 million in gross written premium for commercial lines and a corresponding increase of R477 million in gross written premium for personal lines; a decrease of R36 million in underwriting result for commercial lines and a corresponding increase of R36 million in underwriting result for personal lines.

116

N O T E S T O T H E S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Additional information Investment activities The group’s return on investment-related activities can be analysed as follows: Investment income Net gains on financial assets and liabilities at fair value through income Investment-related revenue Expenses for investment-related activities Finance costs Net total investment-related transactions

689 83 772 (53) (116) 603

For detailed analysis of investment activities, refer to notes 6 and 9. SEM target shares R million

Other R million

Total R million

Strategic diversification activities The group’s return on strategic diversification-related activities can be analysed as follows:

South Africa Rest of Africa Southeast Asia, India, Middle East and China Reallocation of net underwriting results1 Investment income Net gains on financial assets and liabilities at fair value through income – Net fair value gains – Net foreign exchange gains Net income from associates and joint ventures Profit on sale of associates Profit on sale of subsidiary Strategic diversification-related revenue

675 675 494 499 397 19 103 (20) 79 59 (59) 174 – – 174

– – – – – – – – – – – – 466 15 481

675 675 494 499 397 19 103 (20) 79 59 (59) 174 466 15 655

Gross written premium R million

Underwriting result R million

– 272 403 675

– (3) (17) (20) 20 – 22

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Revenue Gross written premium Net written premium Net earned premium Net claims incurred Net commission Management expenses (excluding BEE costs) Underwriting result Investment return on insurance funds Net insurance result Reallocation of net insurance results1 Investment income net of investment-related fees and finance costs Income from associates and joint ventures including profit on sale Profit on sale of subsidiary Income before taxation

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

R million

47 105 53 413 15 655

1 Reconciling items consist of the reallocation of net underwriting results relating to the underlying investments included in strategic diversification activities for management reporting purposes.

117

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

5. 5.2

Dividend income R million

Net fair value gains R million

Net foreign exchange gains R million

Net income from associates and joint ventures R million

Total R million

22 – 22

47 – 47

105 – 105

– 481 481

174 481 655

Segment information (continued) For the year ended 31 December 2015 (restated) (continued) SEM target shares Other1 Total

1 Includes profit on sale of associates of R413 million and profit on sale of subsidiary of R15 million.

Gross written premium Restated 31 December 2016 31 December 2015 R million R million

5.3

Non-current assets 31 December 2015 R million

1 126 1 670 857 3 653 – 3 653

1 000 441 733 2 174 – 2 174

Geographical analysis South Africa Rest of Africa1 Southeast Asia, India, Middle East and China2

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

31 December 2016 R million

Reconciling items3 Group total

23 360 3 479 1 009 27 848 (1 939) 25 909

21 909 2 245 840 24 994 (675) 24 319

1 Includes gross written premium relating to Namibia of R1 118 million (Dec. 2015: R1 056 million). 2 Includes gross written premium relating to China of R116 million (Dec. 2015: R140 million). 3 Reconciling items relate to the underlying investments included in strategic diversification activities for management reporting purposes.

6.

Audited at 31 December 2016

Audited at 31 December 2015

R million

R million

14 792 3 754 18 546

14 734 3 449 18 183

2 154 123 4 093 6 370

1 069 105 3 412 4 586

Financial assets and liabilities The group’s financial assets and liabilities are summarised below by measurement category. Financial assets Financial assets at fair value through income Loans and receivables

Financial liabilities Financial liabilities at fair value through income Financial liabilities at amortised cost Trade and other payables

Financial instruments measured at fair value on a recurring basis The table that follows analyses financial instruments, carried at fair value through income, by valuation method. There were no significant changes in the valuation methods applied since 31 December 2015. The different levels have been defined as follows: –– Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. –– Level 2: Input other than quoted prices included within level 1 that is observable for the asset or liability, either directly (that is, prices) or indirectly (that is, derived from prices). Listed bonds that did not trade actively during a financial period are classified as level 2 financial instruments. The fair value of level 2 instruments is predominantly determined using discounted cash flow models based on market observable input. –– Level 3: Input for the asset or liability that is not based on observable data (that is, unobservable input). All government and corporate bonds were transferred from level 1 to level 2 based on management’s current assessment of an active market for debt instruments. There were no significant transfers between level 1 and level 2 during the prior year. All derivative instruments are classified as investments held for trading. The rest of the investment portfolio is designated as financial assets at fair value through income based on the principle that the entire portfolio is managed on a fair value basis and reported as such to the investment committee.

118

N O T E S T O T H E S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Level 2 R million

Level 3 R million

Total R million

1 321 – 2 – 1 323

– 77 – – 77

– – – 1 181 1 181

1 321 77 2 1 181 2 581

– – – – –

2 469 407 268 2 592 244

– – – – –

2 469 407 268 2 592 244

– – – – –

151 10 4 516 163 10 820

– – – 29 29

151 10 4 516 192 10 849

– – – – 1 323

1 – 1 1 361 12 259

– – – – 1 210

1 – 1 1 361 14 792

– – –

2 053 101 2 154

– – –

2 053 101 2 154

1 643 – 2 – 1 645

– 66 – – 66

– – – 1 019 1 019

1 643 66 2 1 019 2 730

1 378 – – –

1 122 190 214 1 799

36 – – –

2 536 190 214 1 799

– – – – 1 378

132 4 459 101 261 8 278

– – 29 – 65

132 4 459 130 261 9 721

– – – 3 023

2 2 2 237 10 583

– – 44 1 128

2 2 2 281 14 734

1 Carrying value as at 31 December 2016 is less than R1 million.

Financial liabilities at fair value through income Debt securities Investment contracts Total financial liabilities at fair value through income

31 December 2015 Financial assets at fair value through income Equity securities Quoted Listed Unitised funds Irredeemable preference shares Unquoted Total equity securities Debt securities Quoted Government and other bonds Collateralised securities Unit-linked investments Money market instruments more than one year Unquoted Government and other bonds Money market instruments more than one year Redeemable preference shares Equity-linked notes Total debt securities Derivative instruments Exchange traded futures Total derivative instruments Short-term money market instruments Total financial assets at fair value through income

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Equity securities Quoted Listed Unitised funds Irredeemable preference shares Unquoted Total equity securities Debt securities Quoted Government and other bonds Collateralised securities Unit-linked investments Money market instruments more than one year Equity-linked notes Unquoted Government and other bonds Collateralised securities Money market instruments more than one year Redeemable preference shares Total debt securities Derivative instruments Exchange traded futures Interest rate swaps1 Total derivative instruments Short-term money market instruments Total financial assets at fair value through income

Level 1 R million

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

31 December 2016 Financial assets at fair value through income

119

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

6.

Level 2 R million

Level 3 R million

Total R million

998 –

– 70

– –

998 70

– – 998

– – 70

1 1 1

1 1 1 069

Equity securities R million

Debt securities R million

Short-term money market instruments R million

Derivatives R million

Total R million

1 019 376 (2) – –

65 – – 44 (90)

44 – – (44) –

(1) – (75) – –

1 127 376 (77) – (90)

(212) 1 181

10 29

– –

76 –

(126) 1 210

820 51 (5) –

56 – – (4)

38 1 (2) 4

– – – –

914 52 (7) –

153 1 019

13 65

3 44

(1) (1)

Financial assets and liabilities (continued) 31 December 2015 Financial liabilities at fair value through income Debt securities Investment contracts Derivative instruments Interest rate swaps1 Total derivative instruments Total financial liabilities at fair value through income 1 Carrying value as at 31 December 2016 is less than R1 million.

The following tables present the changes in level 3 instruments:

31 December 2016

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Level 1 R million

Opening balance Acquisitions Disposals/settlements Transfers between asset classes Transfers to level 1 and/or 2 (Losses)/gains recognised in profit or loss Closing balance 31 December 2015 Opening balance Acquisitions Disposals/settlements Transfers between asset classes Gains/(losses) recognised in profit or loss Closing balance

168 1 127

The unquoted equity instruments recognised as level 3 instruments consist mainly of the participation target shares issued by Sanlam Emerging Markets (Pty) Ltd (SEM). Santam increased its participatory interest in SGI during the second half of 2016 by 8% to 15% at a cost of R251 million. Of the R212 million loss (Dec 2015: R153 million gain) recognised on equity securities, R212 million (Dec 2015: R152 million) relates to the SEM target shares, of which R145 million (Dec 2015: R105 million) relates to foreign exchange losses (Dec 2015: gains), and R67 million (Dec 2015: R47 million) to a decrease (Dec 2015: increase) in fair value in local currency terms. Key drivers of the fair value movements of Santam’s share of the SEM investment portfolio were: –– A downward adjustment to the value of the P&O business in Malaysia of R88 million due to lower premium growth in competitive market conditions. There is a significant focus on expanding the current P&O product offering, and growth reported on non-motor business lines was positive. –– A reduction in the value of the investment in SORAS Assurances Générales Ltd (SORAS) in Rwanda of R47 million following financial irregularities identified during 2016 relating to prior years. Corrective measures were taken to address these irregularities, and the business was recapitalised during the second half of 2016. –– An increase in the value of SGI of R51 million was mainly attributed to good growth achieved in the Indian insurance market. The fair value of the SEM target shares is determined using predominantly discounted cash flow models. The most significant assumptions used in these models are the discount rate, exchange rate and net insurance margin expectations. Should the discount rates increase or decrease by 10%, the cumulative value of the most significant target shares would decrease by R140 million (Dec. 2015: R114 million) or increase by R213 million (Dec. 2015: R172 million), respectively. If the relative foreign exchange rates increase or decrease by 10%, the cumulative fair values will increase or decrease by R85 million (Dec. 2015: R73 million). Should the net insurance margin profile (projected over a period of 10 years) increase or decrease by 10%, the cumulative fair values will increase by R91 million (Dec. 2015: R79 million) or decrease by R90 million (Dec. 2015: R78 million), respectively. At 31 December 2016, the group had exchange traded futures with an exposure value of R345 million (Dec. 2015: R585 million). The group also had interest rate derivative assets as part of the international bond portfolio with a gross exposure asset and liability at 31 December 2016 of R27 million (Dec. 2015: R31 million) and R27 million (Dec. 2015: R31 million). The interest rate derivative liabilities represent the fair value of interest rate swaps effected on a total of R100 million (Dec. 2015: R100 million) of fixed interest securities held in the investment portfolio underlining the subordinated callable notes. The interest rate swaps have the effect of swapping a variable interest rate for a fixed interest rate on these assets to eliminate interest rate risk on assets supporting the bond liability. The derivatives mature on 12 June 2017. The gross exposure asset and liability at year-end amounted to R3 million (Dec. 2015: R10 million) and R3 million (Dec. 2015: R11 million) respectively.

120

N O T E S T O T H E S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

During April 2016, the company issued additional unsecured subordinated callable notes to the value of R1 billion in two equal tranches of fixed and floating rate notes. The effective rate for the floating rate notes amounted to 9.81%, representing the three-month JIBAR (as at 31 December 2016) plus 245 basis points at the time of the issue, while the rate for the fixed rate notes amounted to 11.77%. The floating rate notes have a call date of 12 April 2021 with a final maturity date of 12 April 2026, and the fixed rate notes a call date of 12 April 2023 with a final maturity date of 12 April 2028. Per the conditions set by the Regulator, Santam is required to maintain liquid assets equal to the value of the callable notes until maturity. The callable notes are therefore measured at fair value to minimise undue volatility in the statement of comprehensive income. The fair value of the fixed rate notes is calculated using the yield provided by BESA and adding accrued interest. The fair value of the floating rate notes is calculated using the price provided by BESA and adding accrued interest. In February 2015, a zero cost fence structure was entered into based on the SWIX 40, providing 10% downside protection from the implementation level of 10 443, with upside participation (excluding dividends) of 10.9%. The structure matured on 17 December 2015 (resulting in a realised gain of R42 million) and was not renewed. In May 2016, a zero cost fence structure was entered into based on the SWIX 40, providing 10% downside protection from the implementation level of 10 621, with upside participation (excluding dividends) of 10.3%. The structure matured on 15 December 2016 (resulting in a realised gain of R75 million) and was not renewed. These were economic hedges over R1 billion of the listed equity portfolio. Audited at 31 December 2015 R million

25 42

6 30

6 789 1 873 4 867 13 596

6 273 1 567 4 788 12 664

1 312 12 284

1 525 11 139

6 12

3 7

2 835 329 1 307 4 489

2 220 272 1 176 3 678

140 4 349

164 3 514

19 30

3 23

3 954 1 544 3 560 9 107

4 053 1 295 3 612 8 986

Insurance liabilities and reinsurance assets Gross insurance liabilities Long-term insurance contracts – claims reported and loss adjustment expenses – claims incurred but not reported General insurance contracts – claims reported and loss adjustment expenses – claims incurred but not reported – unearned premiums Total gross insurance liabilities Non-current liabilities Current liabilities Recoverable from reinsurers Long-term insurance contracts – claims reported and loss adjustment expenses – claims incurred but not reported General insurance contracts – claims reported and loss adjustment expenses – claims incurred but not reported – unearned premiums Total reinsurers’ share of insurance liabilities Non-current assets Current assets Net insurance liabilities Long-term insurance contracts – claims reported and loss adjustment expenses – claims incurred but not reported General insurance contracts – claims reported and loss adjustment expenses – claims incurred but not reported – unearned premiums Total net insurance liabilities

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

7.

Audited at 31 December 2016 R million

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

During 2007, the company issued unsecured subordinated callable notes to the value of R1 billion in two tranches. The fixed effective rate for the R600 million issue was 8.6% and 9.6% for the second tranche of R400 million, representing the R203 companion bond plus an appropriate credit spread at the time of the issues. The fixed coupon rate, based on the nominal value of the issues, amounts to 8.25% and for both tranches the optional redemption date is 15 September 2017. Between the optional redemption date and final maturity date of 15 September 2022, a variable interest rate (JIBAR-based plus additional margin) will apply.

121

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

8.

Non-current assets held for sale Santam Ltd initially set up the Santam International group in 2002 to facilitate the expansion into Europe. Santam International Ltd (Santam International) directly and indirectly held three subsidiaries called Santam UK Ltd, Westminster Motor Insurance Agency Ltd (WMIA) and Santam Europe Ltd (Europe). The holdings in WMIA and Europe were sold in 2008 and Santam International only retained deferred conditional rights relating to the sale contracts. WMIA and Europe were renamed subsequent to the sale to Cardrow Insurance Ltd (Cardrow) and Beech Hill Insurance Ltd (Beech Hill), respectively. The deferred conditional rights relating to Cardrow were realised during the first half of 2016 when it paid a dividend of R394 million. The deferred conditional rights relating to Beech Hill were substantially realised during the second half of 2016 with the receipt of an amount of R115 million. The remaining balance of R8 million is expected to be realised during the first half of 2017.

Assets that are classified as held for sale Financial assets at fair value through income Equity securities Loans and receivables including insurance receivables

Opening balance Settlements Dividend income Foreign exchange (losses)/gains Net fair value losses

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Closing balance

Audited at 31 December 2016 R million

Audited at 31 December 2015 R million

– 8 8

390 151 541

541 (509) 394 (37) (381) 8

Audited Year ended 31 December 2016 R million

9.

428 – – 113 – 541

Audited Year ended 31 December 2015 R million

Investment income and net gains/(losses) on financial assets and liabilities Investment income Dividend income Interest income Foreign exchange differences Net gains on financial assets and liabilities at fair value through income Net realised gains on financial assets Net fair value losses on financial assets designated as at fair value through income Net realised/fair value gains on derivative instruments Net fair value gains on short-term money market instruments Net fair value (losses)/gains on financial liabilities designated as at fair value through income Net fair value (losses)/gains on debt securities

777 64 941 (228) 42 284 (300) 75 14

1 210 119 729 362 235 1 010 (850) 43 7

(31) (31)

25 25

Investment income and net losses on financial assets held for sale1 Dividend income Net fair value losses

13 394 (381)

– – –

832

1 445

1 Dividend income for the group includes a dividend of R394 million resulting from the realisation of the value in the non-current assets held for sale relating to Cardrow. This resulted in the net fair value of the related investment being reduced by R381 million. Refer to note 8 for more detail.

122

N O T E S T O T H E S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

10.

Audited Year ended 31 December 2015 R million

Income tax Normal taxation Current year Prior year Recovered from cell owners Foreign taxation – current year Total income taxation for the year Deferred taxation Current year Prior year Total deferred taxation for the year Total taxation as per statement of comprehensive income

Other permanent differences Other taxes Net increase/(reduction) Effective rate (%) 1 The increase in the CGT inclusion rate resulted in an increase in the deferred tax provision on fair value movements of R45 million.

1 077 24 (67) 57 1 091

12 – 12

(170) (13) (183)

524

908

28.0

28.0

0.6 0.4 (1.4) (0.5) 2.4 (1.1) (0.4)

0.7 0.2 (1.2) (0.9) – (1.0) 0.3

0.1

0.7

0.1 0.2 28.2

0.1 (1.1) 26.9

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Reconciliation of taxation rate (%) Normal South African taxation rate Adjusted for: Disallowable expenses Foreign tax differential Exempt income Investment results Change in CGT inclusion rate1 Income from associates and joint ventures Previous years’ (over)/underprovision

553 (8) (89) 56 512

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Audited Year ended 31 December 2016 R million

123

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

11.

Corporate transactions 2016 Acquisitions SAN JV (RF) (Pty) Ltd (Saham Finances) The transaction to acquire a 25% shareholding in SAN JV (with SEM acquiring 75%), announced in November 2015, was finalised during the first quarter of 2016. The total cash consideration was US$400 million. Santam’s share of the purchase consideration, amounting to US$100 million, was funded from internal cash resources. In November 2015, Santam acquired sufficient foreign currency, in addition to existing dollar assets, to cover the purchase consideration before the transaction was concluded. A cash flow hedge was implemented on 24 November 2015 to cover Santam’s foreign currency exposure by designating these US dollar-denominated cash balances to the transaction. The impact of this was that foreign currency gains of R140 million (Dec. 2015: R134 million) recognised on the designated cash balances since implementation date were not recognised in the statement of comprehensive income, but were accounted for as part of the investment in SAN JV. Therefore, the cost price of the investment, net of the cash flow hedge impact, was R1 412 million. Professional Provident Society Short-term Insurance Company Ltd (PST) During March 2016, Santam purchased 49% of PST for R55 million in cash. During November 2016, a pro rata recapitalisation took place in terms of which Santam injected a further R10 million into the company. Absa Intermediated Commercial Lines business During November 2016, Santam purchased the Absa Intermediated Commercial Lines business from Absa Insurance Company Ltd for R13 million in cash, including contingent payments estimated at R28 million. R million Details of the assets and liabilities acquired are as follows:

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Intangible assets – key business relationships Cash and cash equivalents Insurance liabilities Trade and other payables Deferred tax liabilities Net asset value acquired Future contingent consideration payable Purchase consideration paid

59 83 (83) (2) (16) 41 (28) 13

2015 Disposals Indwe Broker Holdings Group (Pty) Ltd On 31 December 2015, Santam Ltd, as well as Swanvest 120 (Pty) Ltd, Main Street 409 (Pty) Ltd and Thebe Risk Services Holdings (Pty) Ltd (all wholly-owned subsidiaries of Santam Ltd) sold 26.34%, 13.82%, 16.8% and 19.04% respectively of their shareholding in Indwe Broker Holdings Group (Pty) Ltd to Sanlam Life Insurance Ltd (25%) and African Rainbow Capital (Pty) Ltd (51%) for R208 million in total. The net profit realised was R15 million and capital gains tax of R5 million was recognised. The remaining 24%, held by Swanvest 120 (Pty) Ltd, was classified as a joint venture and remeasured to fair value, resulting in a gain of R3 million (included in the profit on sale). R million Details of the assets and liabilities disposed of are as follows: Property and equipment Intangible assets Deferred taxation Loans and receivables Cash and cash equivalents Provisions for other liabilities and charges Trade and other payables Current income tax liabilities Net asset value disposed of Profit on sale Less: fair value of remaining investment Less: purchase price receivable Purchase consideration received

23 223 5 6 183 (1) (170) (10) 259 15 (66) (208) –

The purchase consideration was received in 2016. Credit Guarantee Insurance Corporation of Africa Ltd On 9 October 2015, Santam Ltd sold its 33.6% shareholding in Credit Guarantee Insurance Corporation of Africa Ltd for R602 million. Net profit of R392 million and capital gains tax of R73 million (initially recognised as R91 million) was realised. Censeo (Pty) Ltd On 31 May 2015, Swanvest 120 (Pty) Ltd sold its 37.5% shareholding in Censeo (Pty) Ltd for R23 million. The net profit realised was R21 million and capital gains tax of R4 million was recognised. Audited at 31 December 2016 R million Goodwill reconciliation Opening balance Impairment Disposal of subsidiary Closing balance

124

598 (3) – 595

Audited at 31 December 2015 R million 833 (47) (188) 598

N O T E S T O T H E S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Basic earnings per share Profit attributable to the company’s equity holders (R million) Weighted average number of ordinary shares in issue (million) Earnings per share (cents)

1 212 110.21 1 100

2 348 112.34 2 090

Diluted earnings per share Profit attributable to the company’s equity holders (R million) Weighted average number of ordinary shares in issue (million) Adjusted for share options Weighted average number of ordinary shares for diluted earnings per share (million)

1 212 110.21 1.16 111.37

2 348 112.34 1.38 113.72

1 088

2 065

1 212

2 348

3 – – – – (18) 1 197

52 (15) 5 (413) 95 – 2 072

Earnings per share

Diluted basic earnings per share (cents) Headline earnings per share Profit attributable to the company’s equity holders (R million) Adjusted for: Impairment of goodwill and other intangible assets Profit on sale of subsidiary Tax charge on profit on sale of subsidiary Profit on sale of associated companies Tax charge on profit on sale of associated companies Capital gains tax overprovision on sale of associated companies Headline earnings (R million)

13.

Weighted average number of ordinary shares in issue (million) Headline earnings per share (cents)

110.21 1 086

112.34 1 844

Diluted headline earnings per share Headline earnings (R million) Weighted average number of ordinary shares for diluted headline earnings per share (million) Diluted headline earnings per share (cents)

1 197 111.37 1 075

2 072 113.72 1 822

881 800

816 –

Dividend per share Dividend per share (cents) Special dividend per share (cents)

14.

Broad-based black economic empowerment (BBBEE) In May 2007, Central Plaza Investments 112 (Pty) Ltd (Central Plaza) acquired 10% of Santam’s shares with the following beneficiaries: –– Emthunzini Black Economic Empowerment Staff Trust –– Emthunzini Black Economic Empowerment Business Partners Trust –– Emthunzini Broad-based Black Economic Empowerment Community Trust

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Audited Year ended 31 December 2015

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

12.

Audited Year ended 31 December 2016

The scheme matured in February 2015. Of the shares held by Central Plaza Investments 112 (Pty) Ltd, Santam repurchased 38% of the shares (4 215 000 shares at a price of R190 per share for a total consideration of R801 million) and 24% were sold in the market through a successful bookbuild during the unwinding process, and the balance was distributed to participants. The consequent distribution of Santam shares and cash valued at R1.1 billion to the beneficiaries started in September 2015 with R530 million allocated to close to 2 400 Santam and Sanlam employees. Santam shares and cash to the value of R330 million were distributed to 68 black business partners, while the Emthunzini Broad-Based Black Economic Empowerment Community Trust received Santam shares and cash to the value of R275 million. The unwinding of the scheme had a minimal impact on Santam’s black ownership status. The Emthunzini Black Economic Empowerment Staff Trust (staff trust) is also under the control of Santam Ltd since the unwinding of Central Plaza and is therefore consolidated as at 31 December 2015 and 2016. The net impact of the inclusion of the staff trust at 31 December 2015 was an increase in cash of R132 million, the recognition of the capital contribution reserve of R9 million and an increase of 684 482 in treasury shares.

15.

Events after the reporting period There have been no material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial position date.

125

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

(I) ANALYSIS OF SHAREHOLDERS Number of shareholders

Number of shares

% Interest

0.08%

Analysis of shareholders 1 – 100 shares

1 410

21.98%

94 335

101 – 1 000 shares

3 170

49.42%

1 296 242

1.13%

1 001 – 50 000 shares

1 722

26.85%

10 448 118

9.07%

50 001 – 100 000 shares

51

0.80%

3 578 620

3.11%

100 001 – 10 000 000 shares

60

0.94%

32 081 445

27.87%

More than 10 000 000 shares

1

0.01%

67 632 657

58.74%

6 414

100.00%

115 131 417

100.00%

Individuals

4 314

67.26%

3 770 119

3.27%

Companies

538

8.39%

85 790 376

74.52% 10.97%

Total Type of shareholder

Growth funds/unit trusts

193

3.01%

12 626 314

Nominee companies or trusts

1 215

18.94%

3 388 550

2.94%

Pension and retirement funds

154

2.40%

9 556 058

8.30%

6 414

100.00%

115 131 417

100.00%

Total

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

126

% of total shareholders

Shareholders in South Africa Nominal % number Interest Shareholder spread Public shareholders Directors Guardian National Insurance Ltd* Trustees of employees’ share scheme* Holdings of 5% or more Sanlam Ltd Government Employees Pension Fund Total The analysis includes the shares held as treasury shares. * Owners of treasury shares.

Shareholders other than in South Africa Nominal % number Interest

Total shareholders Nominal % number Interest

6 229 7 1 2 2

26.73% 0.03% 4.07% 1.46% 67.71%

173 – – – –

100.00% – – – –

6 402 7 1 2 2

30.85% 0.03% 3.84% 1.37% 63.91%

1 1

62.26% 5.45%

– –

– –

1 1

58.77% 5.14%

6 241

100.00%

173

100.00%

6 414

100.00%

% of total debt security holders

Number of units

% Interest

Analysis of debt security holders 1 – 50 000 units 50 001 – 100 000 units 100 001 – 1 000 000 units 1 000 001 – 10 000 000 units More than 10 000 000 units Total

24 9 57 78 38 206

11.65% 4.37% 27.67% 37.86% 18.45% 100.00%

166 622 841 656 30 065 378 342 149 448 1 626 776 896 2 000 000 000

0.01% 0.04% 1.50% 17.11% 81.34% 100.00%

Type of debt security holder Banks Brokers Endowment funds Insurance companies Investment companies Medical aid schemes Mutual funds Nominees and trusts Pension funds Private companies Public companies Total

4 2 6 15 6 9 101 2 55 4 2 206

1.94% 0.97% 2.91% 7.28% 2.91% 4.37% 49.04% 0.97% 26.70% 1.94% 0.97% 100.00%

74 300 000 53 566 656 14 909 830 196 318 583 164 873 400 36 684 000 802 611 038 1 490 000 581 442 493 64 442 000 9 362 000 2 000 000 000

3.72% 2.68% 0.75% 9.82% 8.24% 1.83% 40.13% 0.07% 29.07% 3.22% 0.47% 100.00%

Nominal number

% Interest

365 996 877 158 663 400 107 400 000 1 367 939 723 2 000 000 000

18.30% 7.93% 5.37% 68.40% 100.00%

Debt security holder spread Government Employees Pension Fund MMI Group Ltd Investec Cautious Managed Fund Other Total

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

Number of debt security holders

S U M M A R Y C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

(II) ANALYSIS OF DEBT SECURITY HOLDERS

127

IT IS WHAT INSURANCE GOOD AND PROPER DOES. Having an in-depth understanding of what is important to our clients makes us the insurer of choice for millions of South Africans. We believe in the simple principle that insurance should add value, not questions and uncertainty, across a wide range of market segments. We have the size, experience, expertise, data, technology, infrastructure and partnerships to deliver insurance that is meaningful.

APPENDICES

SEVEN-YEAR REVIEW SEVEN-YEAR COMPOUND GROWTH %/AVERAGE PERFORMANCE PER ORDINARY SHARE Cents per share Headline earnings Dividends Special dividends Net asset value

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

INSURANCE ACTIVITIES Net claims paid and provided (%) Cost of acquisition (%) Net commission paid (%) Management expenses (%) Combined ratio (%) Underwriting result (%) Earned premium (%)

2015

2014

2013

2012

2011

2010

(3.8) 9.5

1 086 881 800 6 237

1 844 816 – 7 338

1 446 742 – 6 115

1 033 675 – 5 360

995 640 – 4 840

1 216 555 850 5 329

1 367 510 500 4 535

65.2 28.0 12.6 15.4 93.2 6.8

65.1 28.5 12.0 16.5 93.6 6.4 100.0

62.1 28.3 10.8 17.5 90.4 9.6 100.0

63.1 28.2 10.9 17.3 91.3 8.7 100.0

69.3 27.9 12.7 15.2 97.2 2.8 100.0

68.3 27.7 13.0 14.7 96.0 4.0 100.0

64.2 28.1 13.7 14.4 92.3 7.7 100.0

64.1 27.3 15.3 12.0 91.4 8.6 100.0

889

1 041

683

635

722

554

484

42

235

286

449

480

189

537

INVESTMENT ACTIVITIES Interest and dividends net of asset management fees Net gain on financial assets and liabilities at fair value through income RETURN AND PRODUCTIVITY Earnings expressed as % of average shareholders’ funds (%) Pre-tax return on total assets (%) Effective tax rate (%) Gross premium per employee (R000)* * Alternative Risk Transfer premiums excluded.

Avg Avg Avg

24.9 9.5 27.5

15.9 6.3 28.2 4 088

32.5 12.1 26.9 4 154

24.7 9.0 28.4 4 020

20.0 6.5 20.4 3 913

19.3 8.6 36.7 3 680

25.0 10.1 25.7 3 608

37.1 13.7 26.3 5 116

SOLVENCY AND LIQUIDITY Dividend cover (times) Economic capital coverage ratio (%)

Avg

2.4

1.4 155

2.9 177

2.1 –

1.5 –

3.9 –

2.2 –

3.1 –

5 749 67.6 6 414 0.9

5 313 62.9 5 859 0.8

5 163 60.8 5 268 0.8

4 779 59.9 5 530 1.2

4 696 59.8 5 565 1.5

4 375 56.8 5 169 0.8

2 757 54.4 4 616 0.7

23 400 24 997 17 350 25 799 3 020 1 193 21.5 3.8 3.8 110.3 19.6

18 950 24 500 16 750 20 868 2 427 1 183 10.3 2.6 4.3 110.1 25.8

21 500 22 000 19 700 24 647 2 767 1 184 14.9 3.5 3.5 114.6 8.6

18 628 19 074 18 291 21 306 2 384 953 18.0 3.5 3.6 114.4 13.4

19 025 20 112 13 950 21 651 2 437 821 19.1 3.9 5.5 113.8 12.1

14 231 15 500 11 707 17 555 1 967 597 12.7 2.9 3.6 113.3 12.6

13 050 13 547 9 710 14 750 1 640 578 9.5 2.9 3.9 113.0 18.5

17.7 4 325.4

23.4 5 597.4

7.5 1 651.2

11.7 2 538.8

10.6 2 018.6

11.1 1 674.4

16.3 2 039.5

OTHER STATISTICS Number of permanent employees Employee composition (% of black employees) Number of shareholders Corporate social investment spend (% of NPAT)** **  dti codes from 2010 to 2012; Financial Services Sector Charter 2013. SANTAM SHARE PERFORMANCE AND RELATED INDICATORS Market price per share (cents) Closing Highest Lowest Market capitalisation (R million) Santam share price index*** FTSE – JSE financial index*** Closing price/earnings (times) Closing price/equity per share (times) Closing dividend yield (%) Number of shares issued (million) Number of shares traded (million) Number of shares traded as a % of total number of shares in issue Value of shares traded (R million) *** Base year 1992.

130

Avg Avg Avg Avg Avg Avg

2016

STATEMENTS OF COMPREHENSIVE INCOME Gross premium income Net premium income Underwriting result Investment return on insurance funds Net insurance result Investment income and associated companies BEE costs and MiWay deferred bonus plan expense* Amortisation of intangible asset/impairment of goodwill (excluding computer software) Income before taxation Taxation Non-controlling interest Net income attributable to equity holders

8.5 6.5 1.5

(6.0)

APPENDICES

SEVEN-YEAR COMPOUND GROWTH %/AVERAGE

2016

2015

2014

2013

2012

2011

2010

25 909 19 772 1 268 619 1 887 (2) (9)

24 319 18 884 1 779 499 2 278 1 258 (71)

22 710 17 635 1 494 425 1 919 601 (82)

20 631 16 900 477 374 851 752 (30)

19 386 15 822 623 415 1 038 827 (57)

17 707 14 674 1 186 388 1 574 440 (55)

15 855 13 519 1 161 396 1 557 915 (15)

(21) 1 855 524 119 1 212

(93) 3 372 908 116 2 348

(111) 2 327 660 88 1 579

(100) 1 473 300 53 1 120

(108) 1 700 624 49 1 027

(68) 1 891 486 29 1 376

(29) 2 428 639 27 1 762

90 827 140 252 187 14 740 4 203 6 878 541 27 858 8 547 2 249 12 944 4 118 27 858

117 1 086 161 355 – 13 634 3 963 5 440 428 25 184 7 440 2 329 12 274 3 141 25 184

95 1 072 188 318 – 12 757 2 713 5 058 415 22 616 6 532 2 252 10 862 2 970 22 616

99 990 221 261 – 10 538 2 095 5 533 – 19 737 5 617 2 030 9 805 2 285 19 737

80 994 207 274 – 10 057 1 832 5 245 – 18 689 6 141 1 723 8 577 2 248 18 689

88 988 251 211 – 8 090 1 518 6 589 – 17 735 5 219 1 787 7 803 2 926 17 735

2 010 (681) 1 329 245

3 546 (1 002) 2 544 (696)

2 350 (420) 1 930 (781)

1 498 (221) 1 277 (945)

2 256 (521) 1 735 935

2 403 (813) 1 590 201

2 020 (755) 1 265 (270)

(1 467) 70

(2) –

– (28)

(25) (105)

(6) –

– (343)

(17) (357)

208 –

(183) 132

3 –

15 –

– –

3 –

262 –

(108) – – (10)

(124) – 625 (28)

(167) – – (16)

(106) (9) – –

(93) (81) – –

(66) – – –

(27) – – –

509 (553) (98) – –

– (276) – (801) –

– (989) (37) – –

– (1 175) – – 277

– 755 – – –

– (205) (33) – –

– (409) (23) – –

1 000 31 12 (1 922) (114) – (1 091)

– (35) 11 (951) 16 – (1 760)

– (21) 6 (853) 110 – (795)

– 29 7 (782) 111 – (358)

– (17) (39) (1 674) 90 – (1 640)

– (413) – (618) 26 – (1 038)

– 129 – (1 113) 42 (90) (1 055)

(315) 3 349

508 2 561

146 2 343

(256) 2 471

850 1 598

347 1 143

(199) 1 379

(147) 2 887

280 3 349

72 2 561

128 2 343

23 2 471

108 1 598

(37) 1 143

* MiWay deferred bonus plan to replace shareholding matured in 2014.

STATEMENTS OF CASH FLOW Cash generated from operating activities after finance costs Income tax paid Net cash from operating activities Cash generated/(utilised) in investment activities Net (acquisition)/disposal of associated companies and joint ventures Acquisition of business/subsidiaries Cash received/(disposed through sale)/acquired through acquisition of subsidiaries Staff trust acquired Cash utilised in addition to property and equipment and intangible assets (Acquisition)/disposal of book of business Proceeds from sale of associated companies Capitalisation of associated companies Settlement of deferred conditional right relating to non-current assets held for sale Net cash (used in)/from investing activities Net purchase of treasury shares Repurchase of shares Proceeds from issuance of target shares Proceeds from issue of unsecured subordinated callable notes Increase/(decrease) in investment contract liabilities Increase/(decrease) in collateral guarantee contracts Dividends paid (Decrease)/increase in cell owners’ interest Purchase of subsidiary from non-controlling interest Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Translation (losses)/gains on cash and cash equivalents Cash and cash equivalents at the end of the year

10.6

5.9

(0.1)

106 885 105 1 536 163 14 799 4 958 6 716 8 29 276 7 345 3 422 13 869 4 640 29 276

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

STATEMENTS OF FINANCIAL POSITION Property and equipment Intangible assets Deferred tax asset Investments in associates and joint ventures Other non-current assets Financial assets Technical assets Current assets Non-current assets held for sale Total assets Shareholders’ funds Non-current liabilities Technical provisions Current liabilities and provisions Total shareholders’ equity and liabilities

131

APPENDICES

GLOSSARY Acquisition costs

Those costs that are primarily related to the acquisition of new or renewal of insurance contracts, e.g. commissions and management expenses. Acquisition costs are often expressed as a percentage of earned premiums and referred to as the acquisition cost ratio.

Alternative risk transfer (ART)

The use of techniques other than traditional insurance and reinsurance to provide risk-bearing entities with coverage or protection.

Binder

An authority issued by an insurer to another party to: enter into, vary or renew a short-term policy on behalf of that insurer; determine the wording of a short-term policy; determine premiums under a short-term policy; determine the value of policy benefits under a short-term policy; or settle claims under a short-term policy.

Catastrophe

Fire, earthquake, windstorm, explosion and other similar events that result in substantial losses.

Cell captive insurer

An insurer that is structured with separate independent cells. The assets and liabilities of the cells are

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

ring-fenced. Profits and losses from business introduced by the cell owner to the insurer are attributable to the cell owner. Churn rate

The proportion of policyholders who leave a supplier during a given time period.

Claim

A demand to the insurer for indemnification for a loss incurred from an insured peril.

Claims incurred

Claims cost for an accounting period are made up of: – claims paid for the period, including claims handling expenses; and –

outstanding claims at the end of the current accounting period, including IBNR less outstanding claims at the end of the preceding accounting period, including IBNR.

Claims incurred but not

Claims resulting from events that have taken place, but of which the insurer has not received notices

reported (IBNR)

or reports of loss. An estimate is made of the amount of these claims based on previous experience.

Claims ratios

Ratios expressing the relationship between claims and premiums. The net claims ratio expresses claims net of recoveries from reinsurers as a percentage of premiums net of premiums ceded to reinsurance. The gross claims ratio reflects the position before reinsurance is taken into account. Also referred to as loss ratios.

Deferred acquisition costs

Acquisition costs relating to unearned premiums, disclosed as a separate asset on an insurer’s statement of financial position.

Earned premium

The proportions of premium attributable to the periods of risk that relate to the current accounting period. It represents written premium adjusted by the unearned premium provision at the beginning and end of the accounting period.

Economic capital

The economic capital coverage ratio is equal to the available capital resources, comprising shareholder’s

coverage ratio

funds and subordinated debt, divided by the solvency capital requirement as determined by Santam’s internal model.

Financial Sector Charter (FSC)

The FSC is a transformation policy based on the terms of the Broad-Based Black Economic Empowerment Act, 53 of 2003, to promote social and economic integration and access to the financial services sector.

General/short-term insurance

Defined in the Short-term Insurance Act as providing benefits under short-term policies, which means engineering policies, guarantee policies, liability policies, miscellaneous policies, motor policies, accident and health policies, property policies or transportation policies or a contract comprising a combination of any of those policies.

132

APPENDICES

Gross written premium

Premium that an insurer is contractually entitled to receive from the insured in relation to contracts of insurance or from other insurers in relation to inwards reinsurance contracts. These are premiums on contracts entered into during the accounting period or adjustments to premiums from prior years. Also defined as premium written and received but before deduction of reinsurance ceded.

Intermediary

A person who negotiates contracts of insurance or reinsurance with the insurer or reinsurer on behalf of the insured or reinsured.

Net written premium

Gross premium written or received on all business less return premium and premium ceded to reinsurers.

Reinsurance premium

The premium paid by the ceding company to the reinsurer in consideration for the liability assumed by the reinsurer.

Salvage

The amount received by an insurer from the sale of (usually damaged) property on which he has paid a total

Solvency Assessment and

The project launched by the FSB to develop a new solvency regime for the South African long-term and

Management (SAM)

general insurance industries to be in line with international standards and specifically the Solvency II initiative underway in Europe.

Underwriting

The process of examining, accepting, or rejecting insurance risks, and classifying or segmenting those selected, to charge the proper premium for each.

Underwriting result

The underwriting profit or loss calculated by deducting claims incurred, net of commission and management expenses from premiums earned.

Unearned premium provision

The portion of premiums attributable to the periods of risk that relate to subsequent accounting periods and which are carried forward to such subsequent accounting periods.

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

loss to the insured.

133

APPENDICES

ADMINISTRATION

AT 1 MARCH 2017

NON-EXECUTIVE DIRECTORS

SANTAM HEAD OFFICE REGISTERED ADDRESS

B Campbell, MP Fandeso, BTPKM Gamedze, GG Gelink (chairman),

1 Sportica Crescent, Tyger Valley, Bellville 7530

IM Kirk, MLD Marole, NV Mtetwa, T Nyoka (née Fubu), Y Ramiah,

PO Box 3881, Tyger Valley 7536

MJ Reyneke, PE Speckmann, HC Werth

Tel: 021 915 7000 Fax: 021 914 0700

EXECUTIVE DIRECTORS

www.santam.co.za

L Lambrechts (chief executive officer), HD Nel (chief financial officer)

Registration number 1918/001680/06 ISIN ZAE000093779

S A N TA M I N T E G R AT E D R E P O R T 2 0 16

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SPONSOR

JSE share code: SNT

Investec Bank Ltd

NSX share code: SNM

TRANSFER SECRETARIES

REPORT FRAUD

Computershare Investor Services (Pty) Ltd, 70 Marshall Street,

Fraudline (South Africa): 0860 600 767

Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196 South Africa

Fraudline (Namibia): 0800 002 020

Tel: 011 370 5000

Fraudline SMS: 31640

Fax: 011 688 7721

BBM PIN: 25CAFCE7

www.computershare.com

WhatsApp: 076 921 3347 Email: [email protected]

COMPANY SECRETARY M Allie

Santam is an authorised financial services provider (licence number 3416).

GREYMATTER & FINCH # 10736

INSURANCE GOOD AND PROPER www.santam.co.za

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