PA G E 3 0

Business Reviews

• Sanlam Personal Finance

• Sanlam Employee Benefits

• Gensec

• Sanlam Health

• New Business Development

PA G E 6 0

Sanlam Corporate, Support

Services and Namibia

PA G E 6 1

Corporate Social Involvement and

Sponsorships

PA G E 6 4

Annual Financial Statements

PA G E 1 2 0

Definitions and Glossary of

Technical Terms

PA G E 1 2 1

Notice of Annual General Meeting

PA G E 1 2 4

Shareholding and Administration

co

nte

nts

SANLAM IS BASED

IN SOUTH AFRICA

BUT NOT

LIMITED TO IT

PA G E 1

Business Structure

PA G E 2

Salient Features

PA G E 4

Non-executive Directors

PA G E 7

Chairman’s Statement

PA G E 1 5

Executive Committee

PA G E 1 6

Report of the Financial Director

PA G E 2 4

Corporate Governance Statement

PA G E 2 7

Human Resources Report

the benchmark ofOur vision is to be

b u s i n e s s s t r u c t u r e

co

re

b

us

in

es

s

SANTAM – 59,5%s t r a t e g i c i n v e s t m e n t

The largest short term insurance company and

market leader in the motor and personal insurance

sector in South Africa

36,3% HELD BY SHAREHOLDERS

23,2% HELD BY POLICYHOLDERS

ABSA – 23,0%a s s o c i a t e d c o m p a n y

One of the largest commercial banks

in South Africa

14,8% HELD BY SHAREHOLDERS

8,2% HELD BY POLICYHOLDERS

s a n l a m p e r s o n a l f i n a n c e

SPF is a major provider of life insurance, retirement annuities, savings products,

unit trusts and trust services to individuals through Sanlam Life, Sanlam Unit

Trusts and Sanlam Trust.

s a n l a m e m p l o y e e b e n e f i t s

SEB is the second largest provider of investment and risk products to group funds

and schemes in South Africa. It also provides administration, actuarial and con-

sulting services to the group retirement industry and money transfer services.

s a n l a m h e a l t h

Underwriting and risk management to medical schemes.

g e n s e c b a n k

Providing investment banking solutions for the South African savings industry,

public sector enterprises and corporates.

s a n l a m i n v e s t m e n t m a n a g e m e n t

(previously Gensec Asset Management)

South Africa’s second largest asset manager measured by assets under management.

g e n s e c p r o p e r t y s e r v i c e s

Property management services such as letting, rental collection, marketing, con-

tracting and administration.

n e w b u s i n e s s d e v e l o p m e n t

Explores opportunities for investment and for launching new initiatives for the

development of new business in the Sanlam group.

P A G E 1

P A G E 2

s a l i e n t f e a t u r e s

for the year ended 31 December 2000

2000 1999

SANLAM LIMITED GROUP

New business volumes R million 37 700 25 810

Net inflow/(outflow) of funds R million 777 (10 427)

Operating profit before tax R million 1 924 1 722

Headline earnings based on the LTRR(1) R million 3 478 2 721

Headline earnings per share based on the LTRR(1) cents 130,9 102,1

Embedded value of new business R million 209 101

New business embedded value as % of APE(2) % 8,0 5,7

Embedded value per share cents 1 035 1 004

Growth from life business % 24 30

Dividend per share cents 30 25

FINANCIAL RATIOS

Returns

• Operating profit before tax(3) 8,2% 7,7%

• Operating profit after tax(3) 7,2% 6,4%

• Headline earnings based on the long term rate of return(4) 18,7% 16,3%

• Return on embedded value(5) 5,1% 24,4%

• Return on the Sanlam share price(6) 27,0% 41,0%

Group administration cost ratio(7) 29,7% 29,8%

Group operating margin(8) 17,4% 17,9%

SANLAM LIFE INSURANCE LIMITED

Shareholders’ funds to total policy liabilities 12% 12%

Shareholders’ funds to non-market-related policy liabilities 20% 20%

Capital adequacy requirement covered(9) times 2,4 2,7

NOTES

(1) LTRR = Long term rate of return.(2) APE = Annual premium equivalent and is equal to new recurring premiums (excluding indexed growth premiums) plus 10% of single premi-

ums.(3) Operating profit before and after tax as a percentage of the average monthly shareholders’ funds for the year.(4) Headline earnings based on the long term rate of return as a percentage of the average monthly shareholders’ funds for the year.(5) Growth in embedded value (before dividends paid) as a percentage of embedded value at the beginning of the year.(6) Annualised growth rate on the Sanlam share price since listing plus dividends paid.(7) Administration costs as a percentage of income earned by the shareholders’ funds less sales remuneration.(8) Operating profit as a percentage of income earned by the shareholders’ funds less sales remuneration.(9) Represents the times by which the shareholders’ funds of Sanlam Life Insurance Limited cover the capital adequacy requirements (refer to definitions on

page 120).

d e l i v e r i n g o n o u r t a r g e t s

P A G E 3

E X E C U T I V E C H A I R M A N

MARINUS DALING

The growth goals that we set:

REVERSE THE OUTFLOW OF FUNDS

The outflow of funds in 1999 of R10 427 million was reversed and

a net inflow of R777 million was achieved in 2000.

10% REAL GROWTH

Headline earnings based on the long term rate of return grew by

28% – well in excess of our target for 2000 of 18,3%.

Headline return on equity of 18,7% based on the long term rate of

return and calculated on the monthly average net asset value of the

shareholders’ funds, was in line with our target of 18,3%.

RETURN ON EMBEDDED VALUE

The return on embedded value of 5,1% is below our target of a 10%

real return and was affected by the difficult stock market conditions

during 2000. The JSE ALSI was 3% lower in 2000 than in 1999.

However, good growth of 24% was achieved in the value of our existing

life insurance business (value of in-force) for 2000.

NEW BUSINESS EMBEDDED VALUE

We set ourselves the target to achieve new business embedded value in

excess of R200 million by 2001 and achieved R209 million in 2000 –

one year earlier than our target date.

“In our 1999 annual report we identified

growth as one of our key financial focus areas for 2000.

In this year’s annual report we

report back on how we delivered

against these targets.”

P A G E 4

n o n - e x e c u t i v e d i r e c t o r s

JPL Alberts (Johan) (58)

SASS, BCom, CA (SA), IAMP (Geneva)

Appointed 1995

Businessman and director of various companies

Prof AC Bawa (Ahmed) (46)

MSc, PhD

Appointed 1997

Deputy Vice-Chancellor of University of Natal

Director of Atomic Energy Corporation of South Africa Limited

DC Brink (Dave) (61)

MSc Eng (Mining), DCom (hc)

Appointed 1994

Chairman of Murray & Roberts Holdings Limited

Deputy Chairman of Absa and director of other companies

WM Grindrod (Murray) (65)

BA (Mech Sc), DEcon (hc)

Appointed 1993

Chairman of Grindrod Unicorn Group Limited and director of

other companies

K Jowell (Kate) (61)

BSc, MBA

Appointed 1993

Director of Foschini Limited

DL Keys (Derek) (69)

BCom, CA (SA), FIBSA, Dr Econ Sc (hc)

First appointed 1989 to 1991 – Reappointed 1995

Director of Billiton Plc, Munich Reinsurance of Africa and

other companies

DNM Mokhobo (Dawn) (52)

BA (Social Sciences)

Appointed 1996

Managing Director of MBM Change Agents (Proprietary)

Limited, Chairperson of The Fedics Group Limited, Director of

Nozala Investments (Proprietary) Limited, Engen Limited and

other companies

Prof P Smit (Flip) (64)

MA, DLitt et Phil

Appointed 1990

Former Vice-Chancellor and Rector of University of Pretoria

P A G E 5

PEI Swartz (Peter) (59)

Ad Ed Dip

Appointed 1994

Director of Absa, Distell (Pty) Ltd, Ellerine Holdings Limited,

New Clicks Holdings Limited, Sancino Project Limited and

other companies

JJM van Zyl (Boetie) (62)

Pr Eng, BSc Eng

Appointed 1995

Director of Naspers Limited, Murray & Roberts Holdings Limited

and other companies

T Vosloo (Ton) (63)

D Phil (hc)

Appointed 1989

Deputy Chairman since 1998, Chairman of Naspers Limited,

MIH Holdings Limited, MIH Limited and Electronic Media

Network Limited

On 7 March 2001, Messrs TS Gcabashe and BP Vundla and

Professors AF Perold and J van Zyl were appointed as non-

executive directors. Ms K Jowell and Prof P Smit and

Mr WM Grindrod retired as directors on this date.

A U D I T C O M M I T T E E

JJM van Zyl (chairman)

JPL Alberts

Prof AC Bawa

PEI Swartz

H U M A N R E S O U R C E S C O M M I T T E E

T Vosloo (chairman)

DC Brink

K Jowell

N O M I N A T I O N S C O M M I T T E E

Prof P Smit (chairman)

DC Brink

WM Grindrod

DL Keys

S P E C I A L C O M M I T T E E

T Vosloo (chairman)

JPL Alberts

Prof AC Bawa

DC Brink

WM Grindrod

K Jowell

DL Keys

DNM Mokhobo

Prof P Smit

PEI Swartz

JJM van Zyl

BOARD COMMITTEES

P A G E 6

TO ACHIEVE OUR VISION WE WILL . . .

• Be a leading South African group reaching out to new markets

• Continue our culture of empowerment to the benefit of all our stakeholders

• Make innovative use of our experience and our human skills and technological resources to

deliver products and services of a high quality to all our clients

• Establish international structures to support these products and services

• Be performance-driven and passionate about client service, and

• Create a working environment conducive to attracting, training and retaining skilled people

from all sectors of the community

AND IN THIS WAY . . .

• Generate excellent returns for our shareholders

THE VALUES WE UPHOLD . . .

• Integrity

• Respect

• Accountability

Our vision is to be the benchmark

of excellence for financial services

wherever we operate

c h a i r m a n ’ s s t a t e m e n t

P A G E 7

In the period since our listing, from

30 November 1998 to 31 December 2000,

our share price grew by R3,56 from R6,00

per share to R9,56. This growth together

with the dividend of 25 cents paid, yielded

a compound return of 27% per annum for

our shareholders on their initial invest-

ments that represents a real return of

approximately 17% per annum.

I congratulate and welcome

Dr Leon Vermaak as chief executive of

Sanlam Limited with effect from 1 May

2001. We underwent an extensive process

to select the person best suited to accept the

challenge of Sanlam’s strategic needs of the

future and have no doubt that Dr Vermaak

will energetically lead the Group into the

important next phase of our development.

I also take pleasure in welcoming

Mr Thulani Gcabashe, Prof André Perold,

Prof Johan van Zyl, and Mr Peter Vundla to the Board as new

non-executive directors of Sanlam. I have great confidence in the

perspectives and contributions they can bring to Sanlam.

FINANCIAL RESULTS

R e a c h i n g p r i n c i p a l t a r g e t s

We are pleased to report that Sanlam achieved most of the financial

objectives set a year ago and that our focus on improving

operational efficiencies and the performance of our businesses is

paying dividends. This focus has delivered growth in profits in new

business and in a net inflow of funds. A crucial measure of success is

the discount of Sanlam’s share price to embedded value. Although

we have shown progress, particularly recently, we have not yet

convinced the market that our performance and prospects justify a

share price at least equal to Sanlam’s embedded value, let alone a

premium. On 31 December 2000 Sanlam’s share price of 956 cents

reflected a discount of 8% to an embedded value of 1 035 cents per

share. Our approximate embedded value on 28 February 2001

amounted to 1 075 cents per share, which reflects a widening of this

discount to 13%. Eradicating this discount remains the key focus

INTRODUCTION

D e a r s h a r e h o l d e r ,

It is my pleasure to report on the

performance of your investment in Sanlam

over the past year and to highlight certain

of our achievements and activities.

Although we made considerable progress

in several areas and achieved our objectives

for this period, we nevertheless face new

challenges and need to tackle certain areas

that require further attention. It remains

our mission to achieve excellent returns for

our shareholders – our immediate focus

being to produce the results that will

enable the market to convert to a premium

the discount of our current share price to

embedded value.

we achieved mostof the financial objectives

for 2000

E X E C U T I V E C H A I R M A N

MARINUS DALING

the reduction in net outflow of

funds and sound growth in

profits of Sanlam Employee

Benefits. Gensec registered an

improved performance in the

second half of 2000, overcoming

the effects of the weak financial

markets in the first half of the

year. Sanlam Investment

Management (previously Gensec

Asset Management) succeeded in

securing strong inflows from

segregated funds and Gensec

Bank continued to register sound

growth, as it has done since its

launch two years ago.

OTHER ACHIEVEMENTS

Among the significant successes

in 2000 was the conclusion of the

acquisition of Guardian National

Insurance by Santam. The

transaction was implemented and

Santam and Guardian’s operations

were successfully integrated. This

amalgamation strengthens

Santam’s position as the market

leader and provides a sturdy

foundation for future growth.

During the year the Board

and Gensec management

considered the need for the

continued listing of Gensec and

we reached the conclusion that

significant benefits were to be had

if we acquired the interests of

minorities and established Gensec

basis for further improvement in

2001 and thereafter.

New business volumes grew by

46% to R37, 7 billion, improving

the embedded value of new

business for 2000 to R209 million

from R101 million in 1999.

In 2001 we expect to further

improve on this performance.

O p e r a t i o n a l

p e r f o r m a n c e

The performances of each

business are discussed in detail in

the business review section of this

report. All businesses recorded

successes, most notably the

operational performance and

growth in new business volumes

of Sanlam Personal Finance and

We clearly succeeded in exceeding

our target of 10% real growth

in 2000.

N e w b u s i n e s s a n d

f u n d s f l o w

I am pleased to report that we

achieved a net inflow of

R777 million in 2000. During

1999 Sanlam had a net outflow of

funds of R10,427 million.

Management focused on turning

this net outflow around and

although we are certainly not

satisfied with this level of net

inflows, we are confident that this

turnaround has established the

our results must enable themarket to convert to a premium

the discount of our current share price to embedded value

c h a i r m a n ’ s s t a t e m e n t – c o n t i n u e d

P A G E 8

C H I E F E X E C U T I V E O F F I C E R

( F R O M 1 M A Y 2 0 0 1 )

DR LEON VERMAAK (39)

BCom, MBA, PhD (City University, London)

area to unlock value for shareholders. The message from

our shareholders is clear. We need to demonstrate

sustainable growth to improve Sanlam’s rating.

D i v i d e n d

On 7 March 2001 the Board declared a dividend of

30 cents per share for 2000.

Our target of sound real growth in dividends in

2000 was achieved as the dividend increased by 20%

compared with the dividend of 1999.

E a r n i n g s

Shareholders will note that, with effect from this report,

we have decided to use the long term rate of return for

the determination of our earnings. The rationale, its

benefits and the analysis of earnings are discussed in

the Report of the Financial Director. Applying a

long-term return of 13%, our headline earnings for

2000 amounted to R3 478 million, 28% higher

than the earnings of R2 721 million for 1999.

P A G E 9

company in its first full year of a listing on

the JSE Securities Exchange SA (JSE).

I have to commend our financial

director, Flip Rademeyer, for his

contribution towards achieving this award.

We will continue to be transparent and

approachable, thereby improving the

standard of our evaluation by investors and

enabling the market to determine a

realistic value for Sanlam shares.

During 2000 we also succeeded in

influencing the lives of many South

Africans positively through our expanded

corporate social involvement and

sponsorship programmes.

GROWTH STRATEGY

We believe that real growth is the key to

changing the discount of the share price to

embedded value to a premium.

Sanlam has set itself a target of 10%

growth in real terms, as primarily measured

by growth in headline earnings, which in

turn requires similar growth in operating

businesses. This has already been achieved between Gensec Bank’s abilities in

structuring products and Sanlam Personal Finance’s distribution capabilities.

The increasing importance of individual choice in the markets serviced by

Sanlam Employee Benefits offers significant opportunities. Sanlam Employee

Benefits’ people and technological capabilities position it to exploit these

opportunities, and we are therefore targeting this market as a source of future

growth. Providing reliable administration that is able to accommodate the

individual needs of our members, backed up by sound advice, will be

prerequisites for growing our market share.

The re-engineering of the investment process of Sanlam Investment

Management to meet world-class standards has fundamentally transformed the

business. We want to build on our capabilities as managers and will focus on

achieving sound investment returns that out-perform relevant benchmarks, taking

full cognisance of the risk/reward relationship. Improved investment performance

will contribute to our objective of growing funds flow and improving profitability.

S t r u c t u r a l g r o w t h

Since 1998 our focus has been on improving our operational performance in

existing businesses. I believe that our businesses are now ready to start seeking

international opportunities.

as a wholly owned subsidiary. This

transaction, valued at R5 billion, was

completed on 22 December 2000. The

exploitation of potential synergies and the

optimisation of Sanlam and Gensec’s capital

efficiencies are receiving attention.

Henceforth Sanlam Investment Manage-

ment and Gensec Bank will be managed as

separate businesses within the Sanlam

Group. This structure promises to add real

value to shareholders, starting this year.

Our commitment to transparent,

comprehensive and frank communication

with our shareholders was recognised by

the Investment Analysts Society of

Southern Africa last year, when we won

their overall award for Financial Reporting

and Communication. This was the first

time that this award had been made to a

profit and top-line growth. As indicated earlier, the improvement in the flow of

net funds will be an important focus area in the year ahead.

O r g a n i c g r o w t h

Our growth objectives will be achieved by enhancing and expanding Sanlam’s

value proposition to our clients, and ensuring that our product offerings and

client service continue to improve. First indications are that we have started

regaining market share. Our sales force and brokers have done well and the

restructuring of Sanlam’s businesses has positioned the Group to keep on

growing in its targeted market segments. A concerted effort is being made to

achieve greater penetration of the emerging black salaried market. Further

penetration of the higher end of the market is equally important and will be

pursued through Innofin as well as Sanlam Personal Finance.

Since reorganising Sanlam into autonomous businesses in 1998 the first

objective has been to improve each business’ operations within its target

markets. The next phase will be to develop synergies between the various

new business

volumes grew

by 46%

optimisation of the Sanlam and

Gensec capital bases, free up

capital. While the Sanlam share

price trades at a discount to its

embedded value a buy-back of

our shares makes eminently good

sense. We will request shareholders

to renew the existing authority at

our Annual General Meeting on

13 June 2001. A possible buy-back

of shares couldn’t be considered

during the past year owing to the

proposed Metlife merger and the

acquisition of Gensec minorities.

Shareholders will also note

that we are devoting attention to

the returns earned by our

businesses, as discussed in more

detail in the Report of the

Financial Director. Applying

realistic bases is crucial, and we

will therefore hold management

of each business responsible for

operating profit returns on equity.

These will be augmented by the

investment return on Group capital.

The corporate asset manager is

responsible for ensuring that the

targeted investment returns are

achieved. Net asset value

represents about 80% of our

market capitalisation and 75%

of our embedded value, and we

are improving our management

of capital.

Improving returns obviously

starts with enhancing operational

performance and optimising

2001. This will also improve its

ability to attract funds offshore.

CAPITAL EFFICIENCY

The acquisition of the Gensec

minorities has enabled the Group

to increase capital efficiency

through its capital outlay of

R5 billion in exchange for full

control over the Gensec

Corporate capital of R3 billion

and its total profit and cash-flow.

In similar vein, we are revisiting

the capital allocation to all our

businesses to determine whether

the current allocation is still

appropriate. This is being

considered in conjunction with

the deployment of assets backing

the capital, which could with the

Innofin is in the process of

launching its first product aimed

at the high net worth market and,

with SP2, expects to grow its share

of this important market segment.

Sanlam Investment

Management acquired Punter

Southall in the United Kingdom,

which will extend and improve its

capability there. The expansion of

Sanlam Investment Management’s

private client business through

the purchase of the private client

business of ABN Amro South

Africa (now Sanlam Private

Investor Services) will advance its

offering in South Africa and

should contribute to growth in

we have accelerated our efforts in

evaluating international opportunities

c h a i r m a n ’ s s t a t e m e n t – c o n t i n u e d

P A G E 1 0

Sanlam won the

overall award for

financial reporting

and communication

from the Investment

Analysts Society

of Southern Africa

last year

P A G E 1 1

repositioning of Sanlam, we have

concluded that an empowerment

transaction of substance in South Africa

pertaining to our business is unlikely in

the near future. However, in my view,

tremendous potential exists to co-operate

on business projects of relevance to Sanlam

and empowerment organisations.

Our Employment Equity Programme

was submitted to Government and,

although good progress was made in

several areas, results are not yet satisfactory

and will demand a concerted effort

throughout the Group. Mentoring and the

development of empowerment appointees

to the fullest extent of their abilities will

enjoy priority.

EMPLOYER OF CHOICE

The Financial Services industry is particularly

dependent on its people and our future

achievements will be inextricably linked to

the further development and retention of

Initially we aimed at penetrating developing markets because of the particular

suitability of our core competencies to their specific requirements. It has, however,

become clear from our investigations that we may well be able to capitalise on

opportunities in niche markets of developed markets. The information technology,

administrative capabilities and operational efficiencies of Sanlam’s traditional

businesses are of a First World standard and could be deployed outside

South Africa. This could, for instance, provide a low-risk and low-capital

opportunity in the field of third party administration. Both Sanlam Investment

Management and Gensec Bank will continue to focus primarily on developed

markets to satisfy their international aspirations. While we are keen to report

heightened success and progress, we are well aware of the need to avoid the pitfalls

of over-exuberance in initiatives such as these. We remain true to our primary

requirement of achieving a return on equity commensurate with the risk.

ENVIRONMENT

I n d u s t r y r e l a t e d t r e n d s

S t a t u t o r y

There are particular regulatory trends in our industry that will impact on our

industry. On the statutory side the Policyholder Protection Rules and the

margins but ultimately, should a business

or a part of the business prove not able to

deliver sustainable returns, we will sell it or

close it down.

REPOSITIONING

Sanlam is intent on further strengthening

its position as a truly South African

company in the full sense which will

require a measure of repositioning. This

requirement is supported by extensive

market research during 2000, which again

confirms the strength of the Sanlam brand

in all our target markets. This competitive

advantage will be aggressively deployed in

the strengthening of our position as a truly

South African company.

In analysing the proposed Metlife

merger, which would have accelerated the

employees and to attract people of the highest calibre. Success in this area will be

measured by whether Sanlam will be recognised as the employer of choice.

This recognition will depend on creating a culture and working

environment that provide challenging opportunities for all employees. This

process begins with our core philosophy of decentralised management providing

development, stimulation and satisfaction in the working environment. It clearly

also requires compensation commensurate with performance and an alignment

of employees’ objectives with those of our shareholders.

To meet these challenges we are continuously updating our remuneration

policies and placing more emphasis on incentives, including bonuses and share

incentive schemes.

INTERNATIONALISATION

The drive towards the internationalisation of our businesses will come from

their decentralised management teams. Their local operational successes indicate

that they are now ready to pursue international initiatives.

we are strengthening our

position as a truly South African company

and as the employer of choice

and to apply them to the benefit

of our clients and ultimately our

shareholders.

Capital gains tax

Capital gains tax is expected to

come into effect on 1 October

this year and, with the recent

changes in the four-fund

dispensation and the tax on

foreign dividends, it will

negatively affect all savings,

directly or indirectly. The

proposed effective rate of the tax

is acceptably low at the current

rate of inflation, but the potential

of future increases in the rates of

tax and/or inflation is of concern.

Sanlam together with the rest of

the life insurance industry is at

present raising a number of issues

with the authorities. These

include tax cascading or double

taxation where the same gain can

be taxed more than once in

certain group structures.

The legislation on value-

added tax and secondary taxation

on companies eliminated tax

cascading to a large extent. It

would appear that in the apparent

rush to implement capital gains

tax, such elimination has been

overlooked. This will, among

others, also affect retirement

funds, which are currently by

definition exempted from

capital gains tax. Given the

medical cover. These regulations

introduced new risks for medical

schemes by removing some of the

mechanisms they previously used

to manage their exposure to risk.

At the end of 2000 most medical

schemes had to raise their

contributions significantly but it

remains unclear whether the

number of individuals who are

covered by medical schemes has

increased as envisaged.

Our businesses that are

affected by this legislation have

over the past years prepared

themselves for its practical

implementation. I am pleased to

report that we are ready to

comply with the terms of all the

new legislation and regulations

proposed Financial Advisory and

Intermediary Services Bill have

far-reaching implications. The

objectives of this legislation are to

improve disclosure and consumer

protection. We fully support these

goals but believe that in time and

without detracting too much

from the aims of the legislation,

the regulations should be adjusted

to lower the cost of compliance –

a cost ultimately born by consumers.

The Medical Schemes Act

introduced on 1 January 2000

prescribes, among others,

community rating and open

enrolment in an effort to enable

more people to have access to

our businesses areready to comply with

the terms of all relevant newstatutory regulations

c h a i r m a n ’ s s t a t e m e n t – c o n t i n u e d

P A G E 1 2

Peter Vundla (52)

Deputy Executive Chairman: AfricanMerchant Bank

Prof André F Perold (49)

George Gund Professor of Finance andBanking. Graduate School of BusinessAdministration: Harvard University

Prof Johan van Zyl(44)

Vice-Chancellorand Principal:

University ofPretoria

Thulani Gcabashe(43)

Chief ExecutiveOfficer of Eskom

and Chairman ofEskom Enterprises

n e w n o n - e x e c u t i v e d i r e c t o r s

P A G E 1 3

to sustainable economic development.

It is therefore regrettable that the

actions of political leaders such as

President Robert Mugabe of Zimbabwe

and in some other African states seem to

directly oppose the very first element of

President Mbeki’s MAP, namely to promote

peace, security, stability and democratic

governance. As long as these actions remain

unchallenged by the Organisation of

African Unity (OAU) and African leaders

committed to the MAP, the realisation of

our vision for Africa – and South Africa –

will be protracted. South Africa stands out

as a beacon of hope for Africa with our

commitment to democracy and the rule of

law based on our constitution.

Locally, and on a more positive note,

I believe that South Africa is making head-

way in pragmatically addressing its own

problems. While crime remains a banner

issue, President Mbeki’s State of the Nation

Address at the opening of Parliament on

9 February generated welcome impetus to

Government successfully improve service delivery, and should business

confidence further recover, the South African economy could deliver a

pleasant surprise.

Macro-economic stability has largely been achieved, allowing the

emphasis to shift to much needed micro-economic reforms. These include

improved labour relations – i.e. a significant reduction in work days lost as a

result of strikes, addressing the shortage of workforce skills, improving the

execution of government policy, and more effective promotion of the small

business sector. I believe that the Minister of Finance, Mr Trevor Manuel,

comprehensively addressed these elements in his Budget speech on 21 February

this year. The outlook for the South African economy remains positive

although the low personal saving rate of 0,6% in 2000 remains a problem.

We are disappointed that the Budget did not allow more scope for life insurers

to increase their foreign investment from the current ceiling of 15% to 20% of

assets, and thus level the playing fields for all financial institutions. The scope

for life insurers to invest abroad was actually reduced. We appreciate that the

reduction should attract more investments to the JSE , but we believe the long-

term effect of this limitation is to the detriment of South Africans who, for

sound reasons, want the same freedom as citizens of the rest of the developed

world to spread their investments internationally.

acknowledgement by National Treasury

that important policy issues still need to be

clarified, I trust that capital gains tax will

not be implemented until acceptable

solutions have been found.

P o l i t i c a l m i l i e u

South Africa’s prominent political and

economic role in Africa is progressively

and successfully being promoted under the

leadership of President Thabo Mbeki, for

which he deserves credit. The President has

progressed significantly in founding a

specific vision for the continent – the

Millennium African Renaissance

Programme (MAP). His briefing on MAP

to the World Economic Forum in Davos in

January 2001 was a reassuring confirma-

tion of the commitment by African leaders

the local practical implementation of MAP. The attention in his speech to

economic matters was a welcome recognition of the important role of the private

sector in the development of South Africa.

E c o n o m y

In the past year, the South African economy once again demonstrated its resilience

in the face of challenges. Real gross domestic product increased by 3% in 2000,

and it appears the economy will repeat this performance in 2001. The driving

forces behind this will, however, change. Whereas growth was driven by a strong

performance in net exports in 2000, domestic demand will play a dominant role

in ensuring that the economy remains on track in 2001.

If taken into account that government consumption expenditure

declined in real terms in 2000, it is clear that the private sector performed

admirably and is continuing to do so. The decline in confidence levels has

to date not been reflected in household consumption expenditure, nor in

fixed capital formation in the business sector. Therefore, should

our information technology, administrative

capabilities and operational efficiencies

are of a first world standard

been a challenging year in many

ways and I am proud that our

management and staff have

shown what can be done.

A special word of appre-

ciation goes to executive director

George Rudman, who has elected

to retire after 37 years of

commendable service and

achievements. George did a

sterling job in his leadership role

in the demutualisation of Sanlam

in particular and I wish him and

his family a most wonderful and

well-deserved retirement.

Thank you to our shareholders

for investing in Sanlam; analysts

and brokers for your research,

coverage and support; our business

partners for the successes we all

achieved; our sales brokers and

advisers for these results we can

post for 2000; and the media for

objective reporting on our business.

Lastly, a personal thank you for

all the good wishes and the support

I received during my recent

illness. I am responding very well

to treatment and, together with

my medical team, am indeed

positive about the outcome.

Marinus Daling

Executive Chairman

7 March 2001

APPRECIATION

The wise guidance of my fellow

directors, their commitment

and support over the past year

are indeed appreciated.

Ms Kate Jowell, Prof Flip Smit and

Mr Murray Grindrod, who retire

as directors on 7 March 2001,

deserve a special word of

appreciation for their services over

the years. I thank my executive

committee and all our employees

for their continued dedication

and diligence towards meeting the

objective of improving the

performance of Sanlam. It is

gratifying to be able to rely on

such exceptional support to achieve

excellent returns for shareholders

and to serve our clients with the

passion they deserve. This has

We have taken measures to

financially manage the ravaging

effects of this devastating virus

and have set aside an Aids reserve

of approximately R1,5 billion to

cover expected future claims from

existing business. Many of our

policies allow us to increase risk

premiums as needed. We also

revise rates for new business from

time to time, in accordance with

the expected mortality rates for

each business sector. While we are

permitted to properly underwrite

applications for life insurance our

mortality experience should

remain within expectations.

A further factor restraining the South African economy

is the lack of fixed investment, with the ratio of gross fixed

capital formation to GDP running at approximately 15%.

While Government’s stated intention to increase capital and

infrastructure spending will support an improvement in

this regard, the private sector holds the key to putting the

economy onto a higher growth platform. For this to

happen would require the availability of profitable business

opportunities, and the confidence on the part of the

business sector to exploit those opportunities. It would also

be unrealistic to expect foreign investors to take up the

baton of investing in South Africa ahead of local businesses.

A social accord between all the important role players in the

economy, recognising these realities, is a necessary step to

improving the investment climate in South Africa.

A i d s

The Aids pandemic shows no signs of abating. It will

impact on our national economy and overall productivity,

and not only the directly related industries such as health

care and life insurance.

south africa is making headway in

pragmatically addressingits own problems

c h a i r m a n ’ s s t a t e m e n t – c o n t i n u e d

P A G E 1 4

e x e c u t i v e c o m m i t t e e

P A G E 1 5

J Moalusi (John) (48) BProc (Unisa), HDPM (Wits), EDP

(North Western, USA), EDP (GSB, Cape Town)

Deputy Chief Executive of Sanlam Employee Benefits

Years of service: 3

P de V Rademeyer (Flip) (53)* CA(SA), SEP (Stanford)

Financial Director

Years of service: 3

PJ Cook (Peter) (54) BSc Eng (Mining), MBA

Group Risk Manager

Years of service: 3

GE Rudman (George) (57)* BSc, FFA, FASSA, ISMP (Harvard)

Executive Director: Strategy

Years of service: 37

AS du Plessis (Attie) (57)* BCom, CA(SA), Adv Dip Tax Law, AMP (Harvard), AEP (Unisa)

Executive Director of Associated Companies and Services

Years of service: 15

JAA Samuels (Angus) (51)

Chief Executive of Sanlam Investment Management

Years of service: 2

CG Swanepoel (Chris) (50) BSc (Hons), FIA, FASSA

Statutory Actuary of Sanlam Life Insurance Limited

Years of service: 29

PC le Roux (Charl) (46) BSc

Chief Executive of New Business Development

Years of service: 22

HSC Bester (Hendrik) (50)* BCom (Hons),

FIA, FASSA, AMP (Harvard)

Chief Executive of Sanlam Personal Finance

Years of service: 27

AD Botha (Anton) (47)* BProc, BCom (Hons),

SEP (Stanford)

Chief Executive of Gensec

Years of service: 22

NT Christodoulou (Nick) (52) BSc Eng (Ind), MBA

Chief Executive of Sanlam Employee Benefits

Years of service: 5

MH Daling (Marinus) (55)BSc, FFA, FASSA, AEP (Unisa), DCom (hc)

Executive Chairman

Years of service: 34

M Ferreira (Marius) (46) BCom (Hons)

Chief Executive of Gensec Bank

Years of service: 6

*Alternate and executive director

R110 million tax one-offs (after

minorities) in the 1999 earnings,

headline earnings per share still

show satisfactory growth of 20%.

Details on the tax one-offs are

provided in this report.

The change in the definition

of our headline earnings to include

the investment return based on the

long term rate of return reflects

our quest to provide improved

and more valuable information.

In terms of the previous

definition, headline earnings per

share amounted to 90,6 cents a

share, which represents a 23%

growth on 1999. An income

statement based on the previous

headline earnings definition is

R10 427 million in 1999.

Headline earnings per share based

on the long term rate of return

increased by 28% from

102,1 cents to 130,9 cents per

share. Operational earnings

contributed 50,5 cents (growth of

26%) and investment earnings

80,4 cents (growth of 30%)

to these headline earnings.

The embedded value of new

business increased from

R101 million to R209 million

and we achieved a return on

equity based on the long term

rate of return of 18,7%.

If we exclude the one-off

deferred tax reversal of

R354 million in 2000 and

OVERVIEW

In the Chairman’s Statement

reference is made to Sanlam’s

results and the achievement of

most of our key financial targets

for the 2000 financial year. The

results are discussed in more

detail in this report and the

business reviews.

Sanlam’s results for the

financial year ended 31 December

2000 show a sound improvement

on those of 1999. The Group

achieved a dramatic turnaround

in the net flow of funds to a net

inflow of R777 million

compared to a net outflow of

the group achieved adramatic turnaround

in the net flow of funds

r e p o r t o f t h e f i n a n c i a l d i r e c t o r

P A G E 1 6

F I N A N C I A L D I R E C T O R

FLIP RADEMEYER

P A G E 1 7

the earnings of the shareholders’ funds.

These earnings are therefore subject to

short term fluctuations in the stock

markets.

In an attempt to address this short

term volatility in our earnings in the past,

we excluded the realised and unrealised

investment surpluses from our headline

earnings and only included the interest,

dividend and rental income earned.

This largely reduced the volatility of

our earnings but had the following

deficiencies:

• headline earnings were understated due

to the exclusion of investment surpluses

• investment decisions and the headline

earnings reporting model were not

aligned.

We have been reviewing the definition

of headline earnings and in our 1999

annual report and 2000 interim results we

disclosed, as supplementary information,

our headline earnings based on the long

An element of volatility is still inherent in the long term rate of return

model as this return is calculated on the monthly underlying fair value of

investments that are exposed to market volatility.

We believe this will be of value to shareholders and the investment

community in general.

RETURN ON EQUITY

Prior to 1999 the capital of the Sanlam Group was managed at a group

level. In line with our philosophy of decentralised businesses, where the

full responsibility for financial performance lies with the businesses, the

capital requirements of our various core businesses were determined and

allocated in 1999. The investments supporting Sanlam Personal Finance

(SPF) and Sanlam Employee Benefits’ (SEB) capital have been managed

on a pooled basis and the pooled investment return allocated in

proportion to the capital. This was largely because the life activities of

these two businesses were conducted in one statutory company, Sanlam

Life Insurance Limited. This process has borne fruit. However, the need to

improve the efficiency of capital within the Group means the model must

be adjusted.

included on page 111 to facilitate

comparison.

EARNINGS BASED ON THE LONG TERM

RATE OF RETURN

Long term insurance companies are

required to hold significant regulatory

capital adequacy reserves that serve as a

buffer against unfavourable conditions for

the policyholders. These reserves are

provided by the shareholders’ funds and

are invested in a balanced investment

portfolio, which has a large component of

equity investments. These investments are

reflected at fair value and unrealised

investment surpluses arising from their

revaluation as well as realised investment

surpluses constitute an important part of

the investment return and are included in

term rate of return. This basis is recommended by the Statement of

Recommended Practice for long term insurers in the United Kingdom.

In terms of this basis, the investment return based on the long term

investment yield expected to be earned on the underlying investments is

included in current year earnings. (Refer to page 82 for details.)

It is our view that this basis is an appropriate measure of our headline

earnings and have decided to adopt it as the primary measure of headline

earnings. We also believe that it eliminates the deficiencies of the current

definition. In order to ensure appropriate focus on the group shareholders’

funds operational and investment performance, we will disclose net

operating profit (after tax and minorities) separately from the net investment

return based on the long term rate of return (also after tax and minorities) in

the income statement. This action is in our view another step forward in

providing quality information and will facilitate the evaluation of the

performance and contribution of the two major but distinct components

of headline earnings.

we have taken another step

forward in providing

quality information

is used to determine the long

term investment return included

in the headline earnings in the

income statement.

The Group’s headline

earnings return on equity based

on the long term rate of return

target of 10% in real terms will

therefore comprise the aggregate

net operating profit return of the

businesses and the long term

investment return on the

portfolio of investments of the

shareholders’ funds.

This model will increase the

focus on operational and

investment efficiency within the

Group whilst allocating return

responsibility to its line authority.

• operating capital, which is

required in the operating

activities of the businesses.

The individual capital

requirements of the various

businesses in respect of these two

categories will be determined on a

periodic basis with the businesses

and targets will be set, taking risk

into account, for the net

operating return on equity. The

cost of the regulatory capital will

be included in setting the return

targets. The investment of the

Group’s capital will be managed

at the group level with the

objective of achieving appropriate

long term investment returns.

A current long term yield of 13%

The acquisition of the

minority interests in Gensec

which constituted Gensec as a

wholly-owned subsidiary has

brought specific challenges but

also opportunities to improve

capital utilisation to the fore.

Capital falls into two main

categories:

• Regulatory capital, which is

required to provide safeguards

for unfavourable conditions.

This capital is not normally

required in the operating

activities of the businesses and

is available for investment,

and

r e p o r t o f t h e f i n a n c i a l d i r e c t o r – c o n t i n u e d

P A G E 1 8

a unified structure following thegensec transaction will enhance

capital efficiency within the sanlam group

P A G E 1 9

In the determination of embedded

value, a fair value was placed on Gensec,

based on its constituent businesses and

assets, which amounted to R32,48 per

share at 31 December 2000. This value

is determined taking cognisance of

current market values and does not place

the same value on the longer term

strategic value as was required for the

acquisition. The unlisted valuation will

be done monthly.

The rationale for the acquisition was

driven in the first instance by the need to

integrate Group activities, particularly

the core business of Asset Management

and the synergy potential with the Bank.

Under a unified structure, the product

capabilities of Gensec can be used to

further complement the distribution

capabilities of Sanlam and will be

explored in order to create common

objectives, enhance strategic

development and facilitate cross-selling

healthy growth in the embedded value of new business. New business from non-

life activities such as unit trusts, segregated funds and short term insurance

activities grew at an even greater rate of 52% to R23 506 million, largely

owing to the increase in segregated funds from R2 310 million in 1999 to

R7 973 million in 2000. The growth in total new business was as a result of

innovative product offerings and the re-engineering of our investment process to

world class standards.

The substantial growth in new business contributed significantly to the

increase in the gross inflow of funds, which includes recurring inflows in

respect of existing in-force business, for the Group of 31% to R46 926 million

from R35 768 million in 1999. Payments to clients remained fairly constant

at R46 149 million over the two years. This resulted in a net inflow of funds

of R777 million compared to a net outflow of R10 427 million in 1999 – a

significant achievement on which we intend to build in the future. Sanlam

Employee Benefits reduced its net outflow of funds significantly from

R11 542 million in 1999 to R5 348 million in 2000 and aims to continue

its efforts to improve its flows. SIM’s segregated fund activities showed an

excellent improvement and turned its net outflow of funds of R1 215 million

in 1999 around to a net inflow of R3 301 million in 2000.

We are currently in the process of

implementation and will report on

progress in our interim results for 2001.

ACQUISITION OF GENSEC MINORITIES

Sanlam acquired all the shares in Gensec

which it and its subsidiaries did not already

own for R37 per share with effect from

22 December 2000 and for financial

statement purposes with effect from

31 December 2000. The total net

consideration amounted to R4 978 million

and was financed through the utilisation of

existing shareholders’ funds. The value of

R37 per share was determined on an

intrinsic value basis of the sum of the parts

of the businesses in Gensec. The transaction

resulted in net goodwill of R1 711 million,

which will be amortised over ten years.

between the two companies. A unified structure will also enhance capital

efficiency within the Sanlam Group.

The integration of the Gensec businesses into the Sanlam Group has

progressed well. Sanlam Investment Management (SIM) (previously Gensec

Asset Management), Gensec Bank and Gensec Properties will be constituted as

separate core businesses of the Sanlam Group. Underwriting and private equity

activities will be incorporated as part of the investment activities of the

shareholders’ funds and the corporate activities of Gensec will be integrated into

the existing structures of either the Gensec businesses or into the Sanlam Group.

The initial stages of the redeployment of Gensec’s capital within the Sanlam

Group has commenced, but its full implementation will have to be done as part

of the drive towards greater capital efficiency and improving returns.

NEW BUSINESS AND FLOW OF FUNDS

Total new business grew significantly by 46% to R37 700 million. Life insurance

new business grew by 37% to R14 194 million and contributed towards the

innovative product offerings and

the re-engineering of our investment process

resulted in healthy growth

781

1 044

168202

11 15

747

683

59100

(44)

(120)

OPERATING PROFIT BEFORE TAX (R million)

1999

2000

SPF SEB SanlamHealth

Gensec Santam Corporateand other

tax of R411 million, which is

51% higher than the first six

months. Corporate income,

which consists largely of profits

earned on leveraging assets using

structured finance arrangements

and involve the issue of

preference shares by Sanlam

Group subsidiaries, declined by

53% from R197 million in 1999

to R93 million in 2000. This

decrease is largely attributable

to increased competition from

similar products and smaller

margins due to the lower

level of interest rates in 2000

compared to 1999.

These varying successes

resulted in the group operating

These results were tempered

by Gensec’s profits before tax of

R683 million, which showed

a 9% reduction compared to

1999. This is in line with

expectations published at the

interim stage as their results in

the first half of 2000 were

substantially lower than the

corresponding period

in 1999 as a result of the

impact of the difficult financial

market conditions in the first half

on equity trading and its

investments in private equity

and small capitalisation shares.

The second six months

however showed significant

improvement with profits before

OPERATING PROFIT

BEFORE TAX

I wish to refer shareholders

to the business reviews for a

detailed discussion of the

activities and results of the

businesses.

Sanlam Personal Finance

(SPF) experienced a good year

and grew its operating profit by

34% to R1 044 million.

Sanlam Employee Benefits

(SEB) also posted a most

satisfactory 20% growth in its

profits to R202 million and

corporate expenses were

reduced by 22% to

R190 million.

r e p o r t o f t h e f i n a n c i a l d i r e c t o r – c o n t i n u e d

P A G E 2 0

sanlam personal finance experienced a

good year

P A G E 2 1

Administration costs increased by 8%

(14% including Santam), largely owing to

a 26% increase in Gensec’s costs resulting

from building their international capability

and continued growth in Gensec Bank.

The group administration ratio remained

fairly constant at 29,7%.

Group exceptional items decreased by

22% to R368 million and include

restructuring costs of R33 million at

Gensec following the acquisition of the

Gensec minorities and R79 million at SPF

in respect of a further phase of the

restructuring of its sales function. Expenses

for new systems and projects, which are

aimed at improving client service, product

development and administration

capabilities, amounted to R231 million.

The group operating margin was

reduced to 17,4% from 17,9 % in 1999,

largely owing to Gensec’s margin, which

decreased to 49,2% from 59,9% in 1999

but SPF and SEB registered

improvements.

The gross investment return based on the long term rate of

return grew by 23% from R2 120 million to R2 603 million in

2000. A long term investment return of 13% was assumed for

both years. The average monthly fair value of the asset base on

which the long term return is calculated was on average 8%

higher in 2000 compared to 1999 and contributed to this

growth in investment return.

Investment income of R950 million which increased by 3%

compared to 1999 was affected by lower interest rates in 2000.

The creation of an investment provision of R53 million in 1999

and its subsequent reversal in 2000 as it was no longer required,

had a positive impact on the growth for 2000. Please refer below

for details on Absa’s results. (The latter two items are not subject

to the long term return basis.)

The reduction in investment surpluses from a positive

R1 687 million in 1999 to a negative R25 million in

2000 is attributable to the JSE stock market conditions.

The JSE All Share Index was 3% lower at the end of 2000

compared to 1999.

profit increasing by 12% to

R1 924 million.

The discussion below of the elements

of group operating profit excludes

Santam’s figures as they are distorted by

the acquisition of Guardian National and

the inclusion of Guardian’s results with

effect from 1 May 2000.

Group financial services income

increased by only 4% (14% including

Santam) due to an 8% reduction in

Sanlam Health’s income, lower corporate

income referred to above and lower

administration fee income earned by SPF.

Risk benefits remained at the same

levels as in 1999 (20% increase including

Santam) and contributed largely to the

healthy risk profits reported by SPF

and SEB.

GROSS INVESTMENT RETURN BASED ON THE LONG TERM RATE

OF RETURN

The gross investment return based on the long term rate of return earned by the

Sanlam Group is set out below:

R million 2000 1999 Variance

Investment income 950 922 3%

Absa equity accounted earnings 423 327 29%

Investment (deficits)/surpluses (25) 1 687 —

Actual investment return 1 348 2 936 -54%

Adjustment for long term rate of return 1 255 (816) —

Gross long term investment return 2 603 2 120 23%

corporate

expenses reduced

by 22%

57

NEW BUSINESS

EMBEDDED

VALUE

GROWTH

(R million)

1998 1999 2000

101

209 shareholders’ funds interest in

Absa from 13,8% to 14,8%

resulted in a 29% increase in

their equity accounting earnings

contribution to Sanlam.

Since the announcement of

Absa’s results in November 2000,

their share price and price

earnings ratio have outperformed

the banks’ index. Absa is

confident that the growth in

headline earnings achieved at

the interim stage will be

sustained for the financial year.

SANTAM

Sanlam holds a 59% interest in

Santam of which 36% is held by the

The tax reversal of R354 million

for 2000 is in respect of an

overprovision of deferred tax in

respect of our life business.

The provision was raised in prior

years on the financial soundness

valuation basis on the previous

tax dispensation for long term

insurers. This dispensation was

amended with effect from

1 January 2000 to bring the

actual tax charge more in line

with the accounting provision.

The tax one-offs in 1999 relate

to an adjustment of R62 million

on the deferred tax balance

as a result of the change in the

corporate tax rate and

Sanlam shareholders’ funds.

Santam acquired 100% of the

shareholding in Guardian

National Insurance Company

Limited in April 2000 and is now

South Africa’s leading short term

insurer.

Santam’s underwriting

profits increased by 69% to

R100 million and included

non-recurring integration benefits

of R37 million. Their total

contribution to the Sanlam Group

headline earnings on the long term

rate of return basis used by Sanlam,

amounted to R139 million

compared to R107 million in 1999.

The favourable Santam results

achieved in 2000, supported by a

balanced insurance portfolio after

the reversal by Gensec of a

R100 million overprovision for

tax in prior years in respect of one

of its offshore subsidiaries. At

31 December 2000 the remaining

balance of the deferred tax liability

amounted to R284 million, the

application of which will be

considered when outstanding

assessments have been received.

ABSA

Absa’s equity accounted earnings

before tax, based on its earnings

for the twelve months ended

30 September 2000 are included

in the Sanlam Group headline

earnings. Their improved interim

results for 30 September 2000

and an increase in the

INCOME TAX

As a result of the change in presentation of the income

statement and the reversal of tax provisions in prior

years, it is considered appropriate to provide an analysis

of the group income tax charge:

r e p o r t o f t h e f i n a n c i a l d i r e c t o r – c o n t i n u e d

P A G E 2 2

R million 2000 1999 Variance

Income tax before one-offs

• Operating profit 455 347 31%

• Investment return 349 264 32%

Income tax before one-offs 804 611 32%

Tax one-offs (354) (162) 119%

Income tax after one-offs 450 449 0%

Long term rate of

return adjustment 23 21 10%

Income tax on headline

earnings based on the

long term rate of return 473 470 1%

santam’s favourable results for 2000 and

its successful merger with guardian havecreated a solid platform for growth

P A G E 2 3

of R9 million were included in the 2000

results. Sanlam also underwrote the issue

of Santam shares following their acquisition

of Guardian National.

EMBEDDED VALUE

The embedded value of new business

more than doubled to R209 million in

2000 compared to R101 million in

1999. In our 1999 annual report we set

the target to achieve an embedded value

of new business in excess of R200

million by no later than 2001. We are

indeed pleased that this was achieved

one year earlier.

This improvement was achieved largely

as a result of increased new business

volumes (embedded value new business

annual premium equivalent (APE)

increased by 49% over 1999) and increased

margins (new business embedded value as

a percentage of APE was 8,0% compared

to 5,7% in 1999). Our target for 2001 is

to continue this good growth pattern.

a 20% increase over the 25 cents declared in 1999, of which 10 cents was paid

as a special interim dividend in October 1999. The dividend is covered three

times by headline earnings on the previous basis, which is in line with the policy

as stated at the time of our listing. The new earnings basis using the long term

rate of return to determine the investment return requires a revision of the

dividend cover policy to 3,5 to 4,5 times of these earnings. Our dividend policy

is included in the directors’ report on page 67.

PROSPECTS

Sanlam has set itself a target of 10% real growth and is confident of meeting this

target in respect of its net operating profit.

Flip Rademeyer

Financial Director

7 March 2001

the successful merger with Guardian, have

created a solid platform for future growth.

CORPORATE ACTIVITIES

New Business Development, which includes

the Innofin joint venture as well as Sanlam

Personal Portfolios, is discussed in its

separate business review. During the year,

the Fundamo project was initiated which

proposes to use cellular telephony within the

financial services arena. Although still at an

early stage of its development, we are hopeful

that this venture in which we held a 46,3%

equity stake at year end, will prove a success

and yield attractive returns. The Cura

project which used the internet in providing

new generation medical insurance was

discontinued during the year as its viability

could not be proved. Establishment costs

The Sanlam Group embedded value increased by only 2% to

R27 238 million largely because of the poor investment return earned on the

shareholders’ funds net assets due to the difficult stock market conditions in

2000 compared to 1999. However, the embedded value from life insurance

business (value of in-force) grew by a satisfactory 24% during the year.

FINANCIAL INFORMATION ON SHAREHOLDERS’ FUNDS

Additional financial information in respect of the shareholders’ funds which we

believe will be of value to shareholders is provided on pages 102 to 119 and

includes separate balance sheets and cash flow statements for the

shareholders’ funds and a segmental analysis of the income statement

per business.

DIVIDENDS

The Board has declared a dividend of 30 cents per share payable on

16 May 2001 to shareholders registered on 20 April 2001. This represents

the embedded

value of new business

more than doubled

committee, which consists of the

executives of the various

businesses and the heads of

corporate functions, some of

whom are also executive directors

of Sanlam Limited. This

committee functions under the

leadership of the chairman.

RELATIONS WITH

SHAREHOLDERS

The Board places a great deal of

importance on meaningful

dialogue with shareholders to

ensure that they are kept

appropriately informed and have

access to the Group. Much effort

is directed towards providing full

information to shareholders, both

existing and prospective, by way

of reports and announcements as

well as meetings with analysts,

journalists and the group’s web

site. Open lines of communica-

tion are maintained and the

chairman and the business

executives frequently meet with

shareholders on an ongoing basis.

A comprehensive programme

of meetings with shareholders

follows the release of final and

interim results. A computer

database is utilised to monitor

and follow up such meetings and

shareholders are encouraged to

contact the company direct with

questions or concerns and,

experience, insight and

independent judgement on

issues of strategy, performance,

resources, key appointments

and standards of conduct.

The Board meets at least

six times a year to monitor

that delegated responsibilities

are properly executed by

management and to consider

strategic issues. Senior members

of management are present at

Board meetings. The various

committees of the Board meet

regularly for in-depth consideration

of relevant matters.

Management responsibility

for the day-to-day operations of

the Group rests with the executive

evaluates the effectiveness of the

executive chairman. The Sanlam

Board announced the

appointment of Dr L Vermaak as

chief executive officer with effect

from 1 May 2001, resulting in

the separation of the function of

the chairman and chief executive.

In addition to the Sanlam

Limited Board, each of the core

operating businesses in the group

has board structures with both

executive and non-executive

directors. The business reviews on

pages 30 to 63 provide details of

these boards and their committees.

Non-executive directors

bring with them diversity of

PRINCIPLES

The Board of Sanlam Limited endorses the Code of

Corporate Practice and Conduct recommended in the

King Report on Corporate Governance and has satisfied

itself that Sanlam has consistently complied with the

Code during 2000. There are continuing developments

in national and international corporate governance and

the Board will consider for adoption those principles

that most effectively advance corporate governance and

add value within the Group’s field of operations.

DIRECTORS

The composition of the Sanlam Limited Board of

directors appears on pages 4, 5, 12 and 15. The Board

comprises an executive chairman, 12 non-executive

directors and five alternate executive directors.

An independent director serves as the non-executive

deputy chairman, who is also the chairman of a special

committee, consisting of non-executive directors, which

c o r p o r a t e g o v e r n a n c e s t a t e m e n t

P A G E 2 4

the functions ofchairman and

chief executive officerseparated

P A G E 2 5

responsible to the Board for ensuring that

Board procedures are followed.

All directors are entitled to seek inde-

pendent professional advice, at the Group’s

expense, concerning the affairs of the Group.

BOARD COMMITTEES

The Board committees consist of non-

executive directors and their composition

appears on page 5. The principal

committees are as follows:

• A u d i t c o m m i t t e e

The audit committee meets at least

three times a year with the external

and internal auditors and members

of senior management to evaluate

matters regarding accounting

practices, internal control systems,

auditing, financial reporting and

management of critical risk areas.

The audit committee has a clear

mandate and reports to the Board.

• N o m i n a t i o n s c o m m i t t e e

The nominations committee is responsible for proposing new appointments

to the Board. In doing so, it considers the balance of the Board, the demands

made on the Board and its committees and the requirements of good

corporate governance.

STATUTORY ACTUARY

The statutory actuary is subject to the disciplines of professional conduct and

guidance and has a reporting relationship with the directors of Sanlam Life Insurance

Limited and to the regulatory authorities. He has access to the Board and must report

fully and impartially to these bodies on the financial soundness of Sanlam Life

Insurance Limited based on the actuarial valuation of its assets and policy liabilities.

RISK MANAGEMENT

The focus of risk management in the Group is on identifying, assessing, managing

and monitoring all important risk areas of the Group. Management is involved

in a continuous process of developing and enhancing its risk and control

procedures to improve the mechanisms for identifying, monitoring and

managing risks. These risks include technology, competition, corporate

subject to price sensitivity, management

seeks to provide a rapid response.

We are also committed to transparency

and disclosure of relevant and appropriate

information in our Annual Report and

through other communication channels.

This is aimed at a full and proper

valuation of the Sanlam share price and is

a means of monitoring management’s

performance. This is pursued continuously

notwithstanding the complex nature of

Life insurance business and the lack of

appropriate and consistent accounting

standards both locally and internationally.

COMPANY SECRETARY AND

PROFESSIONAL ADVICE

All directors have unlimited access to the

services of the company secretary, who is

The internal and external auditors have unrestricted access to the audit

committee.

Each of the core operating businesses has audit committees, which

operate on a similar basis to the Sanlam committee. This enhances the

control environment and increases the reach and penetration of the Sanlam

committee.

Sanlam has an effective internal audit function that has the respect and

co-operation of both the Board and management. Apart from its access to

the audit committee, it also has direct access to the Chairman and every

Sanlam executive.

• H u m a n r e s o u r c e s c o m m i t t e e

The human resources committee is responsible for the remuneration strategy

of the Group, the long and short term incentives for executives and the senior

executives’ remuneration packages relative to local and international industry

benchmarks.

open lines of

communication are

maintained with shareholders

accepted a code of ethics and

conduct that requires the highest

ethical standards to ensure that

business practices are conducted

in a manner that fosters public

trust and confidence.

EMPLOYMENT EQUITY

Sanlam has recognised the

business imperative of

employment equity and is fully

committed to complying with the

Employment Equity Act. Its

employment equity policy was

ratified by the Board after

extensive consultation with

staff.

EMPLOYEE PARTICIPATION

A broad spectrum of

participative structures exists for

handling issues that affect

employees directly and

materially. These structures are

designed to promote

employer/employee relations

through effective sharing of

relevant information,

consultation and the

identification and resolution

of conflicts.

A range of internal

communication media is used

to help motivate employees,

allow them to gain a better

understanding of the business

and keep them abreast of

important developments.

• the relevant legislation and

regulations are adhered to, and

• adequate internal financial

control systems are developed

to provide reasonable certainty

of the completeness and accuracy

of the accounting records, the

integrity and reliability of the

financial statements and the

safeguarding of assets.

The board is satisfied with

the integrity, objectivity and

reliability of the financial

statements and that all material

relevant legislation has been

adhered to.

CODE OF ETHICS

Management and the Board, in

consultation with staff, have

procedures, and applies risk-

monitoring techniques.

FINANCIAL STATEMENTS

AND INTERNAL FINANCIAL

CONTROLS

The directors’ responsibility for

the financial statements is

described on page 67.

The Board accepts

responsibility for the existence of

internal financial control systems.

Management ensures that

• clear objectives are defined,

• progress in terms of these

objectives is monitored and

reported,

reputation, compliance with regulations and legislation,

money laundering, professional liability and business as

well as general operating and financial risks.

The management of risk is decentralised to the

management and boards of the various businesses but

is in compliance with overall group policies.

All businesses have appointed risk managers and their

own audit committees to consider material risk areas,

plans to manage risks and the adequate implementation

of these plans. A corporate risk function has been

established to monitor group risks on a macro level,

particularly with respect to risks with a significant

financial impact, a negative reputational impact or risks

that could, as a result of the scope, impact negatively

on Sanlam.

Compliance is measured through periodic risk reports,

which are considered by the various audit committees.

At operational level, senior management identifies

critical and major business risks, promotes awareness,

introduces applicable control environments and

c o r p o r a t e g o v e r n a n c e s t a t e m e n t – c o n t i n u e d

P A G E 2 6

risk management is decentralised

to the various businesses

h u m a n r e s o u r c e s r e p o r t

P A G E 2 7

environment. Incentives have been

introduced at all levels in the group but

specifically for key roles. Sustained excellent

performance is rewarded with performance

bonuses and share incentive schemes.

Good progress has also been made

with our transformation strategy. Further

improvement is still required and will be

driven by a concerted effort across the

spectrum of the group.

EXECUTIVE INVOLVEMENT

The executive chairman and chief executives

of the businesses have led the way in

achieving our goals by their direct involve-

ment in a number of key interventions.

H i g h - f l y e r p r o g r a m m e

The executive chairman conducts strategic

planning workshops with selected high-

potential employees. The outcomes of

E m p l o y m e n t e q u i t y

The executive chairman and chief executive are involved in regular

meetings with groups of mostly black, female and disabled employees, who

are selected from various levels and businesses within the group.

The purpose of these meetings is to ensure that important feedback on the

qualitative and quantitative aspects of employment equity reaches the

highest levels of the group and can be translated into action

when required.

O r i e n t a t i o n p r o g r a m m e

A formal orientation programme, hosted by the executive chairman and the

chief executives, was launched in January 2000. The executives meet all new

entrants and introduce them to their fellow employees. The programme has

encouraged a sense of unity amongst employees and has underlined the fact that

every employee is a valued member of a cohesive team.

INTRODUCTION

Sanlam has made good progress during

2000 in its goal to be recognised as the

employer of choice. Emphasis has been

placed on the further development of our

intellectual capital and on creating a

challenging and exciting working

these workshops are taken into account in

the processes to develop the overall group

strategies. The workshops also play an

important role in the personal

development of these employees by

exposing them to strategic thinking at the

highest levels.

EMPLOYER OF CHOICE

“The Financial Services industry is particularly dependent on its

people and our future achievements will be inextricably linked to

the further development and retention of employees and to attract

people of the highest calibre. Success in this area will be measured

by whether Sanlam will be recognised as the employer of choice”

– Marinus Daling, Executive Chairman

employment

equity is a business

imperative

presented by international

experts, has been initiated in

conjunction with the

International Center for

Management Development

and has been customised

according to our requirements.

Senior managers also

participate in a development

programme presented by the

Harvard Business School and the

University of the Witwatersrand.

Furthermore, a management

training programme (Smile), which

focuses on the development of

middle and first-line managers,

has been implemented within the

various businesses.

S u c c e s s i o n p l a n n i n g

Succession planning receives

ongoing attention within the

group to ensure that sufficient

leadership is in place to guide

the group in the future.

This pool of resources is

supplemented when required

by selective recruitment from

external national and

international markets.

whole. Sanlam fully believes that

skills development for its

employees is an investment in the

future and acts accordingly.

D e v e l o p m e n t

Senior executives have attended

internationally acclaimed

advanced management

programmes such as the

programme offered by Harvard

Business School.

In addition, an executive

development programme was

launched at the beginning of the

year. This two-year programme,

MANAGEMENT OF

INTELLECTUAL CAPITAL

A structured programme for the

development of our intellectual

capital is operating successfully.

This programme has been

carefully formulated to ensure the

appropriate development of our

skills base and to equip employees

with the skills required to operate

in an increasingly competitive

and globalised environment.

Skilled people are vital to a

company’s success, and also to the

future growth of the country as a

h u m a n r e s o u r c e s r e p o r t – c o n t i n u e d

P A G E 2 8

succession planning receives

ongoing attention

P A G E 2 9

TRANSFORMATION

E m p l o y m e n t e q u i t y

Sanlam considers employment equity to be

a business imperative. Each business in the

Sanlam Group has embarked on a

thorough consultation process culminating

in the drafting of an employment equity

plan for the group. These plans have been

submitted to the Department of Labour in

line with current legislation.

Consultation forums have been

initiated throughout the group and will

play an important role in monitoring and

providing input into employment equity

initiatives. The appointment, development

P e r s o n s w i t h d i s a b i l i t i e s

After consulting employees with disabilities, a number of structural

adjustments have been made to the Sanlam Head Office building. The

nature of some of the alterations was extensive, such as the renovation and

altering of lifts and toilet facilities, but this has had an enormous impact on

the lives of employees and visitors with disabilities.

LABOUR LEGISLATION

Sanlam acts in accordance with the labour legislative requirements of the

country in such a way that compliance is aligned to the Group’s strategic focus

and also adds value to the business.

B u r s a r i e s

The use of bursaries for the development of

employees and potential employees is a

crucial element of our overall skills

development plan. In most instances,

bursaries are awarded in line with individual

development plans that are aligned to

identified core business skills.

Eleven bursaries for actuarial science and

chartered accounting were awarded at the

beginning of the year (seven to black

students), bringing the total number of

bursaries currently in operation in these

fields of study to 65 (33 to black students).

and promotion of persons from the designated

groups, particularly in key positions, is gaining

momentum and should see Sanlam being

transformed into a truly South African group.

B l a c k e m p o w e r m e n t

A number of internal black empowerment

initiatives were launched during the year.

Non-core services, namely printing and

chauffeur services, were successfully outsourced

to internal black employees.

non-core services

were outsourced in black

empowerment initiatives

NATURE OF BUSINESS

Sanlam Personal Finance (SPF) is

a separate business in the Sanlam

Group aimed at individual clients.

It comprises the operations of

Sanlam Life, Sanlam Unit Trusts

(SUT), and Sanlam Trust, as well

as a multi-channelled distribution

infrastructure and certain

administrative and support

services. SPF aims to generate

excellent returns for Sanlam and

its shareholders, while meeting

the reasonable expectations of all

its other stakeholders.

SPF’s business is to provide

financial insurance to its clients

through empowered staff and

intermediaries. SPF offers quality

financial advice and competitive

life insurance, investment,

guarantee and related products,

s a n l a m p e r s o n a l f i n a n c e

UNLOCKING

WEALTH

C H I E F E X E C U T I V E

HENDRIK BESTER

P A G E 3 0

SALIENT FEATURES

• 34% increase in operating profit

• New business volumes up

• New business embedded value more

than doubled

• Favourable underwriting results continued

• Lapse rate down for third successive year

another successful

embedded value

of new business

increased by 121%

P A G E 3 1

backed up by professional and efficient

administration services. Its vision is to be

the preferred provider of these products

and services in its target markets.

BUSINESS ENVIRONMENT AND

OPERATIONAL REVIEW

SPF sustained its record of consistent real

operating profit growth by producing

another set of good operating results.

Operating profit before tax rose by 34%

on the back of a 13% increase in funds

received from clients, favourable risk

underwriting results, the containment of

administration expenditure, and a

reduction in exceptional expenditure on IT

systems and restructuring. The embedded

value of new business increased by 121%

to R190 million. These results were

achieved notwithstanding certain adverse

market influences.

After a promising start early in 2000

the stock market deteriorated to levels

below those of December 1999. This had a

negative impact on investment income and

other market linked sources of revenue, as

well as the returns offered on investment

products. A strong demand for guarantee

products and foreign investment opport-

unities nevertheless continued in reaction

to the adverse stock market performance

and the deteriorating value of the rand.

High levels of churning and policy surrenders

persisted in the industry. This can, to some

extent, be attributed to the clients’

preference to switch to either potentially

higher yielding foreign investments or the

safe haven of hedged investments.

Life companies are facing increasing

competition for clients’ discretionary

investment funds. Within the financial

services industry various alternative

investment products are on offer, both

from local and international players. This

is forcing a review of product ranges and

higher levels of transparency and product

flexibility. SPF launched its new generation

Stratus product range in response in 1999

and continues to expand on the alternative

products being offered. The introduction of

the South African national lottery as well as

the fast growing cellular phone industry has

had a marked impact on consumer spending,

including savings patterns. Their initial high

attraction of cash flows should stabilise in

due course, but their impact will remain,

albeit at a lower level.

Government action also impacted on the

industry. The decision to discontinue the

collection of stop order premiums from

government employees had a limited effect

on SPF’s new business for the current year.

Discussions are still taking place between

Government and the Life Office Association

and we are fairly confident that an agreement

will be reached that will serve the best

interest of all parties involved. A prudent

provision was raised in the current year’s

results that will cover any potential losses that

may result from lapses as a result of

discontinued premiums on existing policies.

Recent changes to taxation applicable to life

companies had some negative impact on the

profitability and embedded value of certain

life products. The introduction of taxation

on capital gains will further impact on net

investment returns offered to clients.

Sanlam Life had a successful 2000, as

good results were achieved in most of its

operations. The transition from traditional

walk-in centres to the two client contact

centres in Pretoria and Cape Town was

successfully completed. Service excellence is

an ongoing target in this new environment.

2 795

SINGLE

LIFE PREMIUMS

(R million)

1998 1999 2000

4 046

4 989

1 121

NET NEW RECURRING

LIFE PREMIUMS

(R million)

1998 1999 2000

1 112

1 529

three years. After a recent dip in

performance the Balanced Fund

was the best performer over one

year. The Equity Focus Fund still

offers the best return on monthly

investments over a ten year

period, while its one year

performance has improved to a

strong second place.

Sanlam Unit Trusts (SUT)

achieved strong growth in new

funds received. Gross inflows

improved by 14% to more than

R9 billion. The Big Easy range of

funds that was introduced during

the year, and is aimed at

simplifying the investment choice

for individual investors, proved to

be very popular and attracted

R600 million in gross funds for

the year, with a retention rate of

72%, which is well above the

industry average. New funds

launched as part of the Big Easy

range include the International

Fund of Funds and the Asian

Pacific Funds of Funds. An

Enhanced Cash Fund was also

launched, meeting the

requirements of clients with a

preference for a money market

fund that invests in assets with a

longer duration.

After two consecutive years as

top investment performer, SUT

lost its number one position.

Equity funds overall were

outperformed by cash based

funds in the twelve months to

December 2000. Among the

facility was established late in

1999. The introduction of tax on

capital gains has, however, reduced

the economic viability of the latter.

The retention of non-annuity

maturity funds improved from

25% in 1999 to 34% in 2000.

Notwithstanding the

unfavourable market conditions

the Life investment funds

performed well in 2000 compared

to industry peers. The Offshore

Equity Fund retained its first

place for returns on monthly

investments over one, two and

making use of the individual

policyholder’s own foreign

investment allowance. This Stratus

product creates the opportunity

for smaller instalment based

offshore investments, and is

expected to contribute substantially

to new business inflows, in

particular given the failure of the

recent Treasury Budget to increase

the foreign asset capacity of life

companies.

The retention of funds

payable to clients on the maturity

of policies remains an important

focus area. Competitive contin-

uation options are being offered

in the Stratus product range,

while a secondary policy trading

Continuous monitoring and training of staff members,

as well as the optimal use of modern technology,

contributes to an increasing improvement in service

levels. Success already achieved is evident in positive

client feedback, inter alia from the independent brokers

making use of the facility. The streamlining of Sanlam

Life’s back and front office processes led to an 8%

reduction in staff during the year. This has been achieved

without compromising service levels. This created the

potential for a lower future cost base, although

increasing technology expenditure is due to offset most

of these cost savings. The implementation of the new

Life administration system (Lamda) is progressing

according to plan. All new investment products are now

issued on this new platform. A decision on the next

phase of adding risk products to the new system will be

taken shortly.

Product innovation is a competitive imperative.

Sanlam Life introduced several new products throughout

the year. Among these were a property based Stratus

investment product that exposes the policyholder to

the property market, but at the same time offers a

guaranteed return on the investment. Complementing

its existing offshore product range, SPF now also offers

an international endowment product that is unique in

international endowment a popular addition

to the stratus range of products

s a n l a m p e r s o n a l f i n a n c e – c o n t i n u e d

P A G E 3 2

P A G E 3 3

better performing individual funds, the Sanlam

Value Fund and Global Fund were in the top ten

performers of all funds in the industry over two

and three years respectively, while the Income

Trust and Provider Trust received Moneymate

consistency awards for three year performance.

For the last quarter of 2000 the Sanlam Financial

Fund performed best in its category and achieved

a second place overall.

Assets under management increased by 36%

to R17 900 million, raising SUT’s market share of

assets from 11,8% in December 1999 to 14%,

and confirming its position as a major player in

the industry.

SPF Sales had a good year in which consistent

growth in sales volumes was achieved, despite

possible uncertainty created by the next phase of

restructuring of the Advisers’ Channel. Single

premiums rose by 23% and new recurring business

by 38%. With one exception single and new recur-

ring premiums received in every quarter of 1999

and 2000 exceeded the volumes of the corres-

ponding quarter the year before. Monthly new

business volumes achieved a similar growth pattern.

Planning and negotiations regarding structural

changes continued throughout the year, culmi-

nating in the introduction of a new business model

for Sanlam advisers. The creation of 87 separate

distribution business units will result in a substan-

tial reduction in organisational layers (replacing

26 regional and 160 branch managers) and transfer

full responsibility for growth and profitability to

each of these business units. At the same time a

simplified remuneration structure for advisers was

put in place. Administrative support for these units

will be more centralised, aided by the online

electronic selling and administration capabilities

provided by S.net. These changes will become

effective in 2001. During the year agreements were

also concluded with other life companies in terms of

which selected cross selling of products by suitably

qualified general agents is allowed, supplementing

the total product offering to SPF clients.

FINANCIAL REVIEW

F l o w o f f u n d s

Total funds received from clients in 2000 were

13% higher than in 1999, as both the life funds

and unit trusts benefited from a strong demand

for offshore investments. Life inflows improved by

R1 650 million (12%) on 1999.

FUNDS RECEIVED FROM CLIENTS

R million 2000 1999 Variance

Life business 15 630 13 980 12%

Single premiums 4 989 4 046 23%

Continuations 2 240 1 624 38%

Recurring premiums 8 401 8 310 1%

Unit Trust gross inflow 9 074 7 926 14%

Total funds received 24 704 21 906 13%

Net new recurring premiums 1 529 1 112 38%

erosion remained high. Premiums

lost due to policies that reached

maturity were up by 15%. This

was essentially owing to a large

number of five - and ten year

policies that reached the end of

their contractual duration. Policy

surrenders remained at the high

levels of 1999.

The introduction of the

Stratus products on the new

Lamda administration system

led to more prudent profit

recognition. A relatively smaller

fee income component is

recognised up front in respect of

the products on this system, while

premium income, in terms of the

policy contract, is also accounted

for on a monthly basis, once

receivable. In terms of the old

Legacy policy contracts,

premiums are accounted for

annually on the policy

anniversary date. This change

resulted in a notable deferral of

recognised premium income.

Policy benefits paid by

Sanlam Life were marginally up

by R164 million compared to

1999, substantially the result of

increasing maturity benefits.

Outflows as a result of policy

surrenders rose by 7%, causing

an increase of R392 million in

total payments to policyholders.

At the same time the reinvestment

of some of these benefits –

continuations – grew by

R616 million to R2 240 million.

due to lapses during the first

policy year were in fact down by

20%. Similar positive trends were

also evident in second and third

year lapses. The percentage of

policies that lapsed in their first

year decreased for the third

successive year. This positive

trend is attributed to the success

of the ODDS process of

managing lapse probability

through analysis and prior

screening.

Although marginally better

than in 1999, overall premium

benefits. Comparative figures

have been restated accordingly.

In 2000 continuations increased

by 38% to R2 240 million.

• Recurring premiums received

amounted to R8 401 million,

which is marginally better than

the R8 310 million achieved in

1999. Net new recurring

premiums, after allowing for

cancellations and first year

lapses, grew by 38% to

R1 529 million. This includes

an institutional policy with

an annual premium of

R250 million.

While new recurring

premium income grew well in

excess of 30%, premiums lost

• Single premiums grew by 23% to R5 billion, the

result of strong growth in the sale of guaranteed and

offshore investment products.

• Once a policy reaches maturity, the policyholder has

the choice to either withdraw the funds or to continue

to invest with Sanlam. As significant amounts are

reinvested with Sanlam, ‘Continuations’ will in future

be disclosed as a separate funds inflow item, while fund

outflows will be shown gross of continued amounts.

In the past continuations were netted against maturity

R5 billion receivedin single premiums

s a n l a m p e r s o n a l f i n a n c e – c o n t i n u e d

P A G E 3 4

POLICY BENEFITS

R million 2000 1999 Variance

Death & disability claims 1 609 1 645 2%

Maturity and retirement benefits 7 526 7 053 -7%

Annuities 3 145 3 418 8%

12 280 12 116 -1%

Surrenders 3 672 3 444 -7%

Total policy benefits 15 952 15 560 -3%

P A G E 3 5

In total, net flows from policyholders improved

by R1 258 million, and were only marginally

negative.

SUT inflows were up by 14%, mainly as a

result of a 44% increase in equity fund inflows.

The bulk of these inflows were attracted to

international funds. Outflows grew by 28% with

the major portion flowing from cash funds and

local equity funds.

O p e r a t i n g p r o f i t

SPF contributed R1 044 million before tax to

Sanlam’s 2000 operating profit, an improvement

of R263 million or 34% on its performance in 1999.

The administration surplus of R296 million

is 14% lower than in 1999. This accounts for the

difference between fee income and other policy

recoveries and administration costs incurred.

Administration fee income earned, after the

remuneration of intermediaries, was 3% lower

than in 1999. This anomaly, if viewed in the

context of the increase in new business volumes, is

mainly caused by the prudent change in income

recognition for Stratus products that defers a

portion of fee income that is referred to above.

Other items that impacted on the fee base include

the relative product mix, a lower number of

policies sold (higher unit value) and a shorter

average policy duration. Administration

expenditure rose by R85 million or 6%, a

marginal decrease in real terms. Cost savings

realised on the closing of offices and the reduction

of staff partly compensated for volume related,

technology and other inflationary cost increases.

As a result of the exceptional operational

performance, additional incentive bonuses will be

paid to SPF staff. These bonuses account for half

the increase in administration expenditure.

Excluding these bonuses, the administration

expenditure as a ratio to income amounted to

36,1% – marginally lower than in 1999.

Risk profits increased by 15% as the

favourable underwriting results experienced in

1999 continued during the year.

Market related income improved by 23%.

This category of income includes, inter alia, net

interest received on working capital, as well as

income attributable to the non profit sharing

portfolios, i.e. where SPF carries the underlying

investment risk. A major contribution to the

FINANCIAL RATIOS

EMBEDDED VALUE (EV )

OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS

R million 2000 1999 Variance

Administration surplus 296 343 -14%

Risk profits 404 352 15%

Market related income 605 494 22%

Operating profit before exceptionals 1 305 1 189 10%

INCOME STATEMENT

R million 2000 1999 Variance

Financial services income 4 809 4 576 5%

Sales remuneration (1 000) (915) -9%

Income after sales remuneration 3 809 3 661 4%

Underwriting policy benefits (1 089) (1 142) 5%

Administration costs (1 415) (1 330) -6%

Profit before exceptional items 1 305 1 189 10%

Systems/projects (182) (203) 10%

Other exceptional items (79) (205) 61%

Operating profit before tax 1 044 781 34%

Percentage 2000 1999

Admin cost to income 37,1% 36.3%

Operating profit to income 27,4% 21,3%

R million 2000 1999 Variance

EV of new business 190 86 121%

EV of in-force business 6 152 5 857 5%

substantially better than the

R86 million contributed in 1999.

Higher new business volumes and

the control of expenditure

contributed to this achievement.

The embedded value of SPF’s in-

force business grew by

R295 million in 2000 to

R6 152 million.

PROSPECTS FOR 2001

The South African market remains

SPF’s prime focus for growth in

2001. Efforts will be concentrated

on the continued recapturing of

market share, where appropriate,

by extending its current product

range, as well as focusing on new

untapped markets. A thorough

market segmentation approach is

key to SPF’s product develop-

ment, marketing and distribution

strategy. SPF’s infrastructure and

technical capabilities also provide

a strong base that can be capital-

ised on exploiting structural

growth opportunities, even

beyond the South African borders.

These will be pursued in 2001.

SPF’s objective is to grow its

operating profit annually at a real

rate of 10%. Current estimates

indicate that this is an achievable

target for 2001, given favourable

market conditions and sufficient

offshore capacity to meet the

demand for such products.

A sustained upturn in the stock

market and an improvement in

market linked income is a

retrenching sales staff, the closure

of offices and the write-off of

redundant office equipment.

An accrual was also raised for

the transition costs associated

with a simultaneous change to a

simplified remuneration model

for advisers.

SPF identified the improve-

ment of the embedded value

added by new business as a specific

target area for 2000. New business

written during 2000 added

embedded value of R190 million,

somewhat higher than the original

expectations for 2000, but the

additional spending is the result

of a decision to accelerate some

projects. Three major projects,

the new Life administration

system, the electronic sales aid

S.net, and a centralised customer

information management

capability accounted for almost

all of the expenditure.

An amount of R79 million

is accounted for as other

exceptional expenditure in 2000.

This comprises mainly costs

associated with a further phase of

the restructuring of the sales

function and include the cost of

increase came from an improvement in the performance

of the annuity portfolio. During 1999 it was necessary to

incur expenditure to improve the matching of assets and

associated liabilities in the portfolio, and to reduce the

risk of any material future mismatching losses, while lower

interest rates resulted in a reduction in interest earned.

Expenditure on systems and projects continued at a

relatively high level and at R182 million is only 10%

below that of 1999. This level of expenditure is

operating profitincreased by 34%

to exceed R1 billion

s a n l a m p e r s o n a l f i n a n c e – c o n t i n u e d

P A G E 3 6

P A G E 3 7

prerequisite, in part to compensate for a likely

normalising of the current favourable level of

underwriting results. Process improvements

introduced by Sanlam Investment Management

during 2000 should enable them to take advantage

of an improvement in the stock market performance

in 2001. A relatively high level of expenditure on

IT-related projects will continue in 2001, albeit at

a substantially lower level than in 2000. The Life

administration system will account for the bulk of

the IT expenditure.

One of the building blocks of SPF’s strategy is an

empowered employee and sales force. Training and

the retention of key players are receiving ongoing

attention. At the same time, diversity in employ-

ment is proactively encouraged. A programme of

employment equity, supporting and complementing

SPF’s business initiatives, is in place for SPF.

MH Daling (Marinus) (Chairman)

JPL Alberts (Johan)

HSC Bester (Hendrik)

D Lessing (Deon)

JA Marais (Inus)

DNM Mokhobo (Dawn)

JP Möller (Kobus)

P de V Rademeyer (Flip)

CG Swanepoel (Chris)

JJM van Zyl (Boetie)

DIRECTORS

JPL Alberts (Johan) (Chairman)

P de V Rademeyer (Flip)

CG Swanepoel (Chris)

AUDIT COMMITTEE

EXECUTIVE COMMITTEE

JA Marais (Inus)* (42) BA, LLB, ILPA

Sales

(16 years)

JP Möller (Kobus)* (41) BCom (Hons), CA(SA), AMP (Harvard)

Finance

(3 years)

L Lambrechts (Lizé) (37) BSc (Hons), FIA

Sanlam Life

(15 years)

T Siyolo (Themba) (38) BJuris, IRDP, SEP (Harvard)

Human Resources

(2 years)

SA Lategan (Fanie) (49) BCom (Hons), MBA

Sanlam Unit Trusts

(24 years)

L Watkins (Leon) (37) BSc (Hons)

Information Technology

(2 years)

D Lessing (Deon)* (41) DCom

Marketing

(3 years)

AP Zeeman (André) (40) BCom, FIA

Risk Management

(19 years)

* Executive directors of Sanlam Personal Finance Limited

DESCRIPTION OF BUSINESS

Sanlam Employee Benefits (SEB)

is an independent business in the

Sanlam group focusing on

corporate clients in terms of

primary decision making,

premium collection and

communication, but with

individual member access to

facilitate individual choice and

flexibility. Its main product lines

include:

• risk products consisting of

group life and disability cover

provided to group funds and

schemes;

s a n l a m e m p l o y e e b e n e f i t s

CONTINUED

GROWTH

C H I E F E X E C U T I V E

NICK CHRISTODOULOU

providing quality

P A G E 3 8

SALIENT FEATURES

• 69% increase in single premiums

• 50% reduction in net outflow of funds

• 20% increase in operating profit

P A G E 3 9

• investment products consisting of

smoothed bonus products, participating

annuities and market linked investment

policies for group funds;

• administration business consisting of

retirement fund administration, money

transfer business and payroll

administration;

• actuarial and consultation services to the

retirement fund industry.

THE BUSINESS ENVIRONMENT

AND OPERATIONAL REVIEW

The trend that large independent

intermediaries are becoming product

competitors in traditional insurance

business has further increased competition

in the already highly competitive industry.

small, an increase of more than 50% was

achieved, which is significant when

measured against the ability to leverage

other services from this base.

On the investment side, our Monthly

Bonus Fund, launched during 1999,

remains the ideal investment vehicle when

investment guarantees are required.

Bonuses on this product are declared

monthly in advance, and vest in full.

During 2000 the bonuses on this product

remained the highest in the industry,

making it a very attractive option for

trustees and members. In addition, the

Enhanced Capital Guaranteed Fund was

launched during the year, providing for the

needs of large funds seeking a capital

guarantee while having the flexibility of

monthly fund flows.

Our risk products were extended this

year. Trauma benefits were improved, a

new group risk product was launched,

specifically designed to assist those with

HIV/Aids and other terminally ill people

to cope with this difficult stage of their

disease, and our Managed Disability

Benefits unit saw good growth on the

previous year in the number of employers

opting for this product. A risk benefit plan

for executives was also launched.

During the past few years there has

been a gradual move towards individual

reduction in

net outflow by 50%

This year saw an increased

uncertainty in the handling of surpluses in

retirement funds, especially in respect of

the ownership and treatment of past

members. SEB’s view has been that each

case should be assessed on its merits with

an equitable handling of all stakeholders.

As a result of this uncertainty, and the low

funding levels in retirement funds owing

to the low return on equities achieved

during 2000, fund trustees have been wary

of moving assets into other insurance

products, especially insured annuities.

When the surplus issue is resolved and

markets improve, we foresee a renewed

potential for the outsourcing of bulk

annuities to insurers.

SEB has embarked on a strategy of

enhancing its consulting capacity, with

further improvements during the year.

Although the revenue from this source is

14

RISK PROFIT

(R million)

1998 1999 2000

59

80

115

OPERATING

PROFIT

(R million)

1998 1999 2000

168

202

tion in a secure web-enabled

environment on the back of our

Wiz@rd and HRP@c platforms,

and the benefits to be derived

from dealing with such

individuals, was also initiated

during the year.

FINANCIAL REVIEW

Recurring premiums increased by

only 1% to R2 883 million.

The low growth follows two years

of fairly high fund dissolutions,

which impacted on the recurring

premium levels, notwithstanding

a 58% increase in new recurring

premiums to R219 million. With

the reversal of this outflow, future

growth should return to normal

consultation is offered and a

professional group of trustees is

also a feature of this product.

SEB has progressed well with

the development of its Internet-

based human resources

administration system HRP@c to

meet the needs of employers who

wish to outsource these services.

Our e-business strategy,

which is built around retirement

fund members and employees

being able to access their informa-

funds to its new Wiz@rd admin-

istration platform. This system

was specifically developed to cater

for member choices and is thus

well placed to gain market share

due to its administration

capabilities. An Internet-based

front-end was also developed,

further enhancing the capabilities

of the Wiz@rd system.

A new generation umbrella

fund was designed for the middle

market as a packaged product

providing flexible risk and

investment options on our

modern administration platform.

Appropriate advice and

investment and risk benefit

choice within retirement funds.

The trend has been slower than

originally anticipated, partly

owing to the necessary

administration platforms not

being available. During 2000 SEB

successfully migrated its first

20% increasein operating profit

s a n l a m e m p l o y e e b e n e f i t s – c o n t i n u e d

P A G E 4 0

FINANCIAL RATIOS

EMBEDDED VALUE (EV )

OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS

R million 2000 1999 Variance

Risk business 80 59 36%

Investment business 125 103 21%

Administration business 19 28 -32%

Consulting unit 6 4 50%

Operating profit before exceptionals 230 194 19%

FUNDS RECEIVED FROM CLIENTS*

R million 2000 1999 Variance

Recurring premiums 2 883 2 850 1%

Single premiums 4 146 2 449 69%

Total premiums 7 029 5 299 33%

New recurring premiums 219 139 58%

PAYMENTS TO CLIENTS*

R million 2000 1999 Variance

Policy benefits 5 765 6 311 9%

Funds terminations 7 271 11 060 34%

Total payments 13 036 17 371 25%

INCOME STATEMENT

R million 2000 1999 Variance

Financial services income 1 558 1 426 9%

Sales remuneration (43) (32) -34%

Income after sales remuneration 1 515 1 394 9%

Underwriting policy benefits (984) (929) -6%

Administration costs (301) (271) -11%

Profit before exceptional items 230 194 19%

Systems development expenditure (32) (20) -60%

Other exceptional items 4 (6) 167%

Operating profit before tax 202 168 20%

Percentage 2000 1999

Admin cost to income 19,9% 19,4%

Operating profit to income 13,3% 12,1%

R million 2000 1999 Variance

EV of new business 70 64 9%

EV of in-force business 897 720 25%

P A G E 4 1

levels. Single premiums of R4 146 million are a

69% improvement on 1999, mainly due to large

single premium pre-retirement investments

capitalising on new and improved product

offerings on an ongoing basis. The post-

retirement investments are still at low levels

owing to the caution of trustees to invest in

insured annuities before there is clarity on the

surplus issue.

Policyholder benefits (consisting of benefits

paid or payable in terms of insurance contracts)

decreased by 9% to R5 765 million mainly

owing to lower withdrawal benefits paid

resulting from fewer retrenchments and

resignations by fund members compared with

previous years. Fund terminations reduced by

34% to R7 271 million (R11 060 million in

1999). The resulting net R6 007 million outflow

of funds is a 50% improvement on 1999’s

R12 072 million net outflow. This positive trend

is expected to gain momentum in future.

SEB has achieved a 20% increase in its

operating profit before tax from R168 million in

1999 to R202 million in 2000. Over the two-

year period a 38% average growth per annum

has been achieved.

Income after variable sales remuneration

increased by 9% as a result of increased fees

following good flows into our guaranteed

products. This increase combined with fairly low

increases in insured policy benefits from

R929 million in 1999 to R984 million in 2000

saw operating profits before exceptional items

increasing by 19% to R230 million notwith-

standing administration expenditure increasing

11% as a result of higher expenditure in sales

and marketing.

Systems development expenditure still

reflects the implementation of our Wiz@rd fund

administration system as well as the develop-

ment of the web-enabled HR outsourcing

system, HRP@c. These investments are planned

to contribute to the bottom line from 2001

onwards.

* Includes intergroup transactions

expanding its consultancy

capacity, enhancing its

multimanager product,

aggressively selling its new

generation umbrella fund in the

middle market, and building on

its successes in its risk business.

These, together with a focus

on improving the efficiencies in

our more mature business areas as

well as building on the success of

continuous product innovation,

should enable SEB to provide a

steady growing operating profit in

order to optimise returns on

equity and embedded value.

a 9% improvement on 1999’s

R64 million. The value of in-

force business grew by 25% from

R720 million at 31 December

1999 to R897 million at

year-end.

PROSPECTS FOR 2001

SEB will position itself for

continued growth in 2001 by

using its new e-business

administration platforms,

Administration business

profit decreased mainly as a result

of losses incurred in the provision

of HR services within the Sanlam

group, which have since been

outsourced to the various

businesses, and the lower than

expected income from the money

transfer business.

The consulting unit increased

income by 50%, although still

small, this is a strategic thrust to

position SEB better in its target

markets.

Embedded value added by

new business written during 2000

amounted to R70 million,

The administration cost to

income ratio has increased slightly

to 19,9%, as a result of higher

sales and marketing expenses,

which is designed to provide

better access to clients in future.

Operating profit to income has

improved from 12,1% to 13,3%,

following excellent risk profits.

The table on the previous

page shows that the growth in

operating profit is mainly due to

profits from the risk business

increasing by 36%. Continued

product improvement, repricing

and claims management

contributed to this increase.

Investment business profits

increased by 21%, mainly as a

result of improved inflows in

some of our higher margin

product portfolios.

wiz@rd administrationplatform successfully

launched

s a n l a m e m p l o y e e b e n e f i t s – c o n t i n u e d

P A G E 4 2

P A G E 4 3

In addition to optimising its current

products and position in the South African

market, emphasis is being placed on redirecting

our focus towards high growth markets and

products so that our growth and return

objectives can be sustained over the longer term.

SEB is searching for opportunities, locally and

abroad, to expand its client base using its

traditional skills, but is also considering

alternative strategies to reduce its dependency on

its traditional risk and guaranteed business.

In all of this, SEB’s staff are highly valued

and will be developed to support SEB’s objective

of providing quality service to a diversified

South African market. SEB’s success in growing

its profits steadily over the last few years is

directly attributable to the quality of its staff and

the emphasis on servicing its markets and clients

with excellent resources.

MH Daling (Marinus) (Chairman)

Prof AC Bawa (Ahmed)

NT Christodoulou (Nick)

K Jowell (Kate)

J Moalusi (John)

P de V Rademeyer (Flip)

CG Swanepoel (Chris)

TW Thom (Wouter)

HC Werth (Heinie)

BOARD OF DIRECTORS

P de V Rademeyer (Flip) (Chairman)

Prof AC Bawa (Ahmed)

CG Swanepoel (Chris)

AUDIT COMMITTEE

EXECUTIVE COMMITTEE

PJF Venter (Francois) (43) BCom (Hons)

Information Technology

(3 years)

TW Thom (Wouter)* (44) BCom (Hons), FIA

Risk & Investment Products

(22 years)

* Executive directors of Sanlam Employee Benefits Limited

HC Werth(Heinie)* (37)

CA(SA), MBA

Finance

(3 years)

E ten Oever (Erika) (36)BCom, MBA

E-Business

(1 year)

TMM Nkone (Theo) (40) BA, BSc

Multi-Data

(1 year)

DG Steyn (Douw) (54)

Retirement Fund Administration

(33 years)

S Lagerdien (Safia) (39)BA (Hons), MA (Ind Psych)

Human Resources

(3 years)

CP Pretorius (Neels) (43) BCom, FILPA, CAT

Product Research & Development

(22 years)

J de Villiers (Jacques) (46) BCom, FIA

Consulting Services

(24 years)

GR Perils (Godwin) (35) Nat Dipl Marketing

Marketing

(1 year)

J Moalusi (John)* (48) BProc, HDPM, EDP

Deputy Chief Executive

(3 years)

BX Nomvete (Bax) (47) Dip Comp Science (UK)

Distribution

(3 years)

National Treasury’s Medium Term

Budget Policy Statement included

expected receipts on privatisation

that were both lower and later

than market expectations,

impacted negatively on the

financial sector.

Internationally, markets

were under pressure for the last

six months of the year, with the

benchmark Morgan Stanley

World Index down by 11% and

the technology-dominated

NASDAQ Index down by 38%.

The Dow Jones Industrial Index

rose by a marginal 3% as

investors directed their cash

flows towards the old economy

stocks.

g e n s e c g r o u p o v e r v i e w

INTEGRATED GROUP

ACTIVITIES FOR

GLOBAL GROWTH

C H I E F E X E C U T I V E

ANTON BOTHA

P A G E 4 4

control relaxation. As a result,

share prices on the JSE declined

sharply. The prices of growth and

small capitalisation shares were

particularly weak.

During the second half of the

year the JSE recovered some of its

losses and the All Share Index

rose by 8% on the back of a 22%

rise in the Resources Index. In

contrast, the Financial and

Industrial Index at the end of

December was only 1% higher

than its 30 June 2000 level. The

South African Reserve Bank’s 25

basis points increase in the repo

rate in October, and the fact that

transaction. The Gensec

businesses have subsequently

been integrated into the

Sanlam Group.

BUSINESS ENVIRONMENT

At the time of the release of its

half-year results Gensec reported

that a number of factors had

negatively influenced the South

African financial markets during

the first half of 2000. These

included, inter alia, rising global

interest rates, rand weakness,

soaring international oil prices,

the political turmoil in Zimbabwe

and increased foreign investment

by South African asset managers

following further exchange

NATURE OF BUSINESS

Gensec (Genbel Securities

Limited) is a South African

financial services group providing

knowledge-based financial

solutions to clients in four principal

areas, namely asset management,

investment banking, property

services and equity underwriting.

During December 2000,

Sanlam acquired all the shares in

Gensec that it did not already

own and Gensec was delisted

from the Financial Services sector

of the JSE. Refer to the Report of

the Financial Director on page 16

for further details of this

providing knowledge –

P A G E 4 5

FINANCIAL RESULTS

The Gensec group results for the full year

were well below management’s initial

expectations, but were in line with the

outlook published in the interim report.

As a result of the weak financial markets,

the first half ’s results were well down on

the corresponding period of the previous

financial year. The second six months,

however, showed a significant

improvement with earnings after tax of

R343 million, 31% higher than the first

half ’s earnings and only 2% lower than

the second half of the previous year.

Earnings after tax for the full year

amounted to R604 million, 23% lower

than the R788 million earned

in 1999.

Financial services income of

R1 387 million (1999: R1 247 million)

was up by 11%, but with administration

costs which increased by 26% to

R631 million (1999: R500 million) and

exceptional items of R73 million,

operating profit before tax was 9% lower

at R683 million (1999: R747 million).

The significant increase in administration

costs related particularly to staff costs,

which accounted for 47% of the total and

were mainly due to the establishment of

Gensec’s international operations and the

continued strong growth of Gensec Bank.

Refer to the separate Gensec divisional

reviews in respect of Gensec Bank, Sanlam

Investment Management (SIM) and

Gensec Property Services which follow for

a further analysis of their activities and

results. The taxation charge for the year

under review was R79 million, whereas in

1999 taxation contributed a net

R41 million to earnings. This swing,

which was the result of a R100 million

write-back of a tax provision on foreign

operations during 1999, contributed

further to the reduction in the Gensec

group earnings in relation to 1999.

GENSEC GROUP INCOME STATEMENT

R million 2000 1999 Variance

Financial services income 1 387 1 247 11%

Administration costs (631) (500) -26%

Profit before exceptional items 756 747 1%

Exceptional items (73) — —

Operating profit before tax 683 747 -9%

Tax (79) 41 -293%

Operating profit after tax 604 788 -23%

the second

six months’ results showed a

significant improvement

GENSEC GROUP SEGMENTAL CONTRIBUTION TO EARNINGS

R million 2000 1999 Variance

Sanlam Investment Management 205 211 -3%

Bank 234 183 28%

Property Services 39 52 -25%

Underwriting, corporate and other 126 342 -63%

Earnings after tax 604 788 -23%

FINANCIAL RATIOS

Percentage 2000 1999

Admin cost to income 45,5% 40,1%

Operating profit to income 49,2% 59,9%

grew by 137% and 39%

respectively. The specialist approach

used to manage these products is

core to the re-engineered invest-

ment process, the goal of which

remains delivering consistent long-

term positive investment returns.

The transparency, scaleability and

consistency of the investment

process have been improved

significantly through the

implementation of internationally

acclaimed technology.

The concept of specialisation

has also been incorporated within

client services and has resulted in

greater client focus. Technology

has been introduced to support

service levels, most notably the

availability of client reports via

secure and controlled web access

and the introduction of a leading

edge client relationship

management system.

Efficiency is a key

differentiator in the highly

competitive and margin sensitive

global asset management

industry. During the year SIM

undertook a fundamental review

of efficiency to bring resources in

line with the re-engineered

processes and to increase efficiency.

This led to an increase in assets

under management per employee

from R794 million in 1999 to

R937 million in 2000 but

BUSINESS ENVIRONMENT AND

OPERATIONAL REVIEW

The business environment in 2000

was dominated yet again by volatil-

ity, in the local markets throughout

the year and internationally for the

second half of the year. This clearly

impacted on trading conditions

and market values remained sub-

stantially at previous year levels.

Despite this harsh environ-

ment, funds continued to flow

into the large cap and cash

management products, which

SIM’s vision is to become the

Leader in Wealth Management.

In order to achieve this vision

the business will focus on

the following key strategic

areas:

• Investment performance

• Efficiency

• Distribution, marketing and

sales

• Building the international

credentials

• Strengthen the retail

proposition

• Human capital development

DESCRIPTION OF BUSINESS

Sanlam Investment Management (SIM) is the second

largest investment manager in South Africa providing

the full spectrum of investment management services.

This encompasses the manufacturing, distribution and

servicing of investment products to individuals,

intermediaries and institutions.

sanlam investment management buys british group

for global growth

s a n l a m i n v e s t m e n t m a n a g e m e n t( p r e v i o u s l y g e n s e c a s s e t m a n a g e m e n t )

P A G E 4 6

C H I E F E X E C U T I V E

ANGUS SAMUELS

P A G E 4 7

unfortunately led to the retrenchment of a number

of staff members.

In 2000 SIM Namibia was launched and had a

number of successes, including the appointment as

sole asset manager for the development capital

portfolio of the largest retirement fund in

Namibia. This consolidated its position as the

largest asset management business in Namibia.

In line with the strategic intent of internation-

alisation, a number of important initiatives were

undertaken during the year at Gensec International

Asset Management. The most significant initiatives

relate to products and resources.

The product range was substantially enhanced

with the restructuring of the Dublin based funds

to increase the number of funds from five to twelve.

This greatly increases client choice as the funds

can be used in combination to create bespoke

solutions. This process involved proprietary market

segmentation and manager combination analyses.

The human and technical resource base was

strengthened considerably during the year and now

includes risk management and performance

attribution analysis, asset allocation and solutions

capabilities and transition management services.

FINANCIAL REVIEW

Despite the tough trading conditions during

2000, SIM experienced a net inflow of funds,

reversing the previous year’s outflow.

The majority of inflows occurred in third

party segregated portfolios and specifically the

specialised product portfolios developed as

part of the redesigned investment process.

This resulted in a 2% increase in assets under

management compared to 1999.

Operating profit after tax grew by 9%,

notwithstanding the low growth in financial

markets.

Fee income increased by 15% partly due to

the increase of funds under management and

partly due to a larger component of

internationally managed funds at higher fees.

The net inflows into the South African

specialised mandates resulted in fee income from

third parties increasing by 35% representing

20% of South African fee income.

INCOME STATEMENT

ASSETS UNDER MANAGEMENT

R million 2000 1999

Market value – beginning of year 197 867 161 996

Net contributions 2 263 (7 402)

Segregated funds 2 218* (1 745)

Sanlam portfolios (8 728) (15 173)

Investment income 8 773 9 516

Market value appreciation 1 857 43 273

Market value – end of year 201 987 197 867

*includes intergroup transactions

R million 2000 1999 Variance

Fee income 496 430 15%

Administration costs (239) (185) -29%

Profit before exceptionals 257 245 5%

Exceptional items (14) — —

Profit after exceptionals 243 245 -1%

Tax (52) (69) 25%

Operating profit after tax 191 176 9%

Interest after tax 14 35 -60%

Operating profit after interest 205 211 -3%

Admin cost to income ratio 48,2% 43,0% —

the Satrix range and will also be

well positioned to participate in

other joint ventures or white label

manufacturing initiatives.

The focus on retail will

continue, in particular the private

client business. The recent

acquisition of the private client

business of ABN Amro South

Africa introduces a further

23 000 clients and R2 billion of

assets to the existing private client

business of SIM. The range of

services offered is also enhanced

by the addition of retail

stockbroking capabilities.

The strong branch network will

give clients access to one of the

largest research, portfolio, risk and

administration teams in the

country, offering local and

international services. Clients will

also be able to access these services

through the vast network of Sanlam

advisers and independent brokers.

I n t e r n a t i o n a l

On the international front the

credentials have been substantially

strengthened by the acquisition of

one of the top British-based firms

of consulting actuaries and

financial advisers, Punter Southall

& Company. The deal enhances

the international expansion

plans of SIM by increasing its

international offering

D o m e s t i c

The communication and

promotion of the investment

process will continue in 2001.

The transparency of the invest-

ment process is already finding

favour in the market. In addition,

the launch of a new product

range should also be well received

by clients and consultants.

Following on from the

success of Satrix 40, it is

anticipated that SIM will be

supporting additional products in

SIM had substantial surplus

capital in 1999, which was

returned to the Gensec Group at

the end of that year. This resulted

in higher interest income in 1999

compared to 2000. For

comparative purposes the interest

income should be excluded from

the operating profit.

PROSPECTS FOR 2001

The prospects for 2001 look

positive on both the domestic

and international fronts

supporting the real target profit

growth of 10% given favourable

market conditions.

The 29% increase in administrative costs can be

explained as follows:

• The administration function of asset management

was established as an independent business (TASC)

from 1 January 2000. This resulted in higher and

more market related administration costs.

• Salaries and incentives were brought into line with

market practice.

• The year 2000 was the first full year that the

international business operated on a stand-alone

basis.

Exceptional items include the following costs:

• The efficiency review and the resultant

retrenchment costs.

• The implementation of the new investment

process technology.

The effective tax rate declined during 2000, mainly

owing to the international business, where lower

marginal tax rates apply.

despite a harsh environment, funds continued to flow

into the large cap and cash management products

s a n l a m i n v e s t m e n t m a n a g e m e n t – c o n t i n u e d

P A G E 4 8

P A G E 4 9

and providing interesting new products and

distribution opportunities.

As one of the leading independent UK firms

of consulting actuaries, Punter Southall has a

substantial base of client funds.

The deal will provide an integrated service

combining the multimanager approach to asset

management with independent actuarial expertise

to create products for selected target markets as

well as to provide the new group with additional

distribution capabilities.

The new international group offers four

distinct businesses:

• multimanager asset management services,

• actuarial consulting,

• financial advice to high net worth individuals, and

• investment solutions.

A unique combination of traditional actuarial

consulting with product driven asset management,

including asset liability matching.

AS du Plessis (Attie) (Chairman)

DR Geeringh (Div)

D Ladds (David)

AUDIT COMMITTEE

MH Daling (Marinus) (Chairman)

AD Botha (Anton)

AS du Plessis (Attie)

PJ Cook (Peter) (Alternate to AS du Plessis)

DR Geeringh (Div)

D Ladds (David)

R Masson (Ronnie)

Prof AF Perold (André)

JD Punter (Jonathan)

AA Raath (Anton)

JAA Samuels (Angus)

BOARD

EXECUTIVE COMMITTEE

– SOUTH AFRICA

AA Raath (Anton) (45) BCom, CA(SA)

Retail & Operations

(1 year)

RT Schkolne (Raymond) (43) BSc, BBus Sc

Human Development Capital

(1 year)

RB Goldblatt (Raymond) (41) CFA

Marketing & Sales

(3 years)

CA Teague (Carol) (34) BA (Hons), CA(UK)

Strategic Development

(2 years)

C Greyling (Chris) (40)BCom (Hons), (Economics)

Chief Investment Officer

(2 years)

KJ McKelvey (Kenneth) (44) BSc MBA, FIA

Chief Operating Officer: Gensec Financial Services bv

JD Punter (Jonathan) (43) BSc, FIA

Chief Executive Officer: Gensec Financial Services bv

SM Southall (Stuart) (43) MA, FIA

Chairman: Punter Southall & Company

W P Wormley (Wallace) (53) BSc, MA Harvard, PhD (Harvard)

Chief Investment Officer: Gensec Financial Services bv

EXECUTIVE COMMITTEE

– INTERNATIONAL

BUSINESS ENVIRONMENT

The wide fluctuations in interest

rate levels and the Reserve Bank’s

tightening of liquidity in response

to such financial market

disruptions resulted in a relatively

harsh operating environment for

our industry. The anticipated

Y2K problems meant that

liquidity conditions were tough

right from the beginning of 2000

and never really eased materially

during the course of the year. A

number of smaller banks

experienced financing problems

and were forced to close or to be

absorbed by other institutions in

rescue packages. At the same

time, the bigger banks, stock-

brokers and foreign financial

foreign exchange and equity

markets, with specific focus on

derivative based products.

Our focus on new generation

financial products currently

includes securitised debt, collateral

bond and loan obligations and

credit derivatives. We also manage

financial risk on behalf of our

clients and advise on and execute

mergers and acquisitions, listings,

restructures, unbundlings and

international capital raising.

NATURE OF BUSINESS

Gensec Bank is a specialist banker

for the South African savings

industry, public sector enterprises

and corporates.

The Bank provides products,

services and skills across the broad

spectrum of money, capital,

the bank provides products, services and skills across the broad spectrum of money,

capital, foreign exchange and equity markets

P A G E 5 0

C H I E F E X E C U T I V E

MARIUS FERREIRA

g e n s e c b a n k

SALIENT FEATURES

• Growth in revenue of 22%

• Raised international capital of R2 billion

on behalf of SA corporations

• Launch of Satrix 40, Kiwane CDO fund

and warrants

P A G E 5 1

institutions progressively encroached on the

business territory targeted by Gensec Bank and its

counterparts, as they sought to diversify their

income base.

OPERATIONAL REVIEW

M a r k e t a c t i v i t y

Gensec Bank, in recognising the increased market

risk in its chosen business environment, has sought

to be proactive in adapting to the prevailing

conditions. We have progressively moved away

from our early business model based upon

proprietary trading. During the course of 2000, we

closed down our equity trading desk; consolidated

the treasury and interest rate trading desks under a

single operational entity; significantly reviewed and

prescribed the trading mandates for our interest

rate and equity derivatives units and combined our

arbitrage activities in a single specialised division

managed separately from the trading floor.

Risk management, control and measurement

have been and will continue to be the object of

much attention and expense. Although the Bank

and its clients are exposed to market conditions,

volatility and flows, these risks can be defined,

quantified and controlled. The South African

markets are developing rapidly in sophistication

concerning investment vehicles and opportunities

to hedge, sell off or otherwise share credit or

market risk and we are well placed to participate in

the growth of this market.

I n v e s t m e n t b a n k i n g

With the Bank shifting its focus from proprietary

trading to seeking client based and fee income

business, the diversification of income has received

priority. The absorption of Gensec’s corporate

advisory, private equity and equity fund raising

activities into the Bank has been a critical element

towards achieving this objective. Over 50% of the

investment banking division’s revenue in 2000 was

derived from corporate fund raising activities and

this division has focused on bringing merger and

acquisition opportunities to a growing number of

clients. Specialist teams concentrating on specific

industries are a unique approach in South Africa to

Equity Financing and have proved successful.

FINANCIAL RATIOS

2000 1999

Admin cost to income ratio % 50% 46%

Revenue per employee R’000s 2 020 1 807

25%

54%

3%

18%

REVENUE PER BUSINESS

FOR THE YEAR 2000

Investment banking

Risk management solutions

Market activity

Arbitrage

36%

39%

4%

21%

REVENUE PER BUSINESS

FOR THE YEAR 1999

Investment banking

Risk management solutions

Market activity

Arbitrage

REVENUE DISTRIBUTION

INCOME STATEMENT

R million 2000 1999* Variance

Revenue 481 394 22%

Administration costs (242) (182) -33%

Operating profit 239 212 13%

*The 1999 comparative figures have been restated to afford a better comparison.

The effect on operating profit is an increase of R12 million from R200 million as

previously reported to the restated amount of R212 million. Consolidated Gensec

and Sanlam comparatives for 1999 were not revised as the effect at group level is

not significant.

a necessary but adverse impact on

administration costs, the objective

is to not exceed an administration

cost to income ratio of 50%.

PROSPECTS FOR 2001

We have adopted the following

strategies for the coming year:

• Strengthening and evolving our

core business model by

diversifying our income base

through exploring synergies in

the Sanlam group, adding new

products, seeking additional

clients and expanding our

geographical reach.

• Focusing our business on

servicing the needs of our

clients by concentrating on

managing customer

relationships through constant

communication with our

clients so as to establish their

needs and to understand their

businesses. Client database

systems, CRM processes and

structures to provide consistent

communication within the

Bank on client contacts and

service have been implemented

for this purpose.

• Expanding our business

internationally with the

objective of servicing our

existing and new clients

globally and adapting our

FINANCIAL REVIEW

Although the growth in revenue

of 22% is particularly pleasing,

the longer term objective is to

achieve revenue and operating

profit growth of 25%. The

process of diversifying revenue

streams and reducing the relative

contribution of proprietary

trading to total revenue gained

momentum during 2000.

Operational efficiency is currently

and will continue to be a focus

area. Although this obviously has

The combination of

initiatives such as packaging,

structuring, the introduction of

new asset classes, seeking cross

market opportunities and

utilising derivatives where

physical assets are scarce, forms

the foundation of these products.

In 2000, we were able to

introduce new products to the

local markets such as the Kiwane

Collateralised Debt Obligation

Fund, the first CDO fund in

South Africa and Satrix 40, a

highly successful listed Exchange

Traded Fund tracking the JSE

ALSI 40 index, a first in emerging

markets.

R i s k m a n a g e m e n t

s o l u t i o n s

The Structured Products team has

focused on developing new

products, on seeking a wider

client base and quantitative invest-

ment solutions, not only for fund

management, but also for cash flow

problems. Such products are being

successfully marketed. Smaller

business units have been

established to broaden the income

base in the fields of stockbroking,

debt origination and retail

warrants. A meaningful

contribution to income from

these units is expected in the

coming year.

We are working on a number

of pioneering products for the

South African markets.

we are working ona number of pioneering

products for the south african markets

g e n s e c b a n k – c o n t i n u e d

P A G E 5 2

P A G E 5 3

products to markets comparable to

South Africa.

• Improving operational efficiencies with a view

to implementing trading, accounting, risk

management and reporting systems that are

globally compatible and competitive.

• Implementing a human resources strategy to

support our corporate vision. Our people are

our major resource and we are committed to

developing their skills and to providing a

working environment that makes Gensec Bank

an employer of choice.

The investment banking environment will

remain extremely competitive in the year ahead

as global banks continue to expand activities

and corporate activity of South African based

organisations remains subdued. This, together with

volatile financial markets will result in an

extremely challenging 2001.

AD Botha (Anton) (Chairman)

DR Geeringh (Div) (Vice-Chairman)

M Ferreira (Marius)

PJ Cook (Peter)

TL de Beer (Tom)

AS du Plessis (Attie)

JH Fouche (Jaco)

D Ladds (David)

Prof AF Perold (André)

DIRECTORS

A S du Plessis (Attie) (Chairman)

TL de Beer (Tom)

DR Geeringh (Div)

D Ladds (David)

AUDIT COMMITTEE

PJ Cook (Peter) (Chairman)

TL de Beer (Tom)

AS du Plessis (Attie)

M Ferreira (Marius)

D Ladds (David)

CREDIT COMMITTEE

DIVISIONAL HEADS

SH Müller (Steve) (40) CA(SA)

Investment Banking

(6 years)

K Magwenthsu (Khanyisa) (35) BJuris, LLB

Corporate Services (1 year)

FJ Oosthuizen (Francois)(41) BCom (Hons)

Arbitrage (15 years)

J Latsky (Johan) (41) BA, LLB

Special Projects

(2 years)

MS Murning (Mark) (41) BCom

Risk Management Solutions and Market Activity(18 years)

G Erasmus (Gerhard) (36) CA (SA)

Finance

(4 years)

standard portfolio management

fees earned. The reduction in

profits before tax compared to

1999 is due to reduced interest

income resulting from lower

levels of capital together with

lower interest rates and increased

staff and restructuring costs.

OUTLOOK FOR 2001

Prospects for the property market

during 2001 are still unfavourable.

Competitive opportunistic

investors are building up-market

properties in new development

nodes and are attracting tenants

from existing properties. Sanlam’s

strategy of reducing its exposure

to property investments has placed

more pressure on the property

portfolio and therefore on Gensec

Property Services’ profitability.

During 2001 we want to build

on our vision to become a leading

property management group with

a broad client base, diversified

revenue streams and consistent

growth in profits.

FINANCIAL AND

OPERATIONAL REVIEW

Gensec Property Services’ main

source of revenue continues to be

generated from the management

of the Sanlam property portfolio.

However, our continued drive to

obtain business from other

sources resulted in an increase in

our revenue from external sources

to 10% of total income. Good

progress has been made in diver-

sifying sources of revenue with

the acquisition of a company that

delivers property-related services.

The performance of the Sanlam

property portfolio and therefore

also Gensec Property Services

came under pressure due to poor

market conditions and the general

overprovision of lettable space.

Operating profit before tax of

R59 million was 18% lower than

1999 but exceeded our target for

2000. The positive variance

compared to the target is mostly

due to an increase in fee income

owing to increased incentive and

NATURE OF BUSINESS

Gensec Property Services is a property management

company, whose activities include letting, rental

collection and marketing through to contracting and

administration. Other services include asset management,

investment analysis, investment structuring, project

management, lease administration, market research and

Geographical Information Systems (GIS).

good progress made in diversifyingsources of revenue

g e n s e c p r o p e r t y s e r v i c e s

P A G E 5 4

INCOME STATEMENT

R million 2000 1999 Variance

Fee income 170 146 16%

Net interest income 14 23 -39%

Financial services income 184 169 9%

Administration costs (111) (97) -14%

Operating profit before exceptional items 73 72 1%

Exceptional items (14) — —

Operating profit before tax 59 72 -18%

Tax (20) (20) 0%

Operating profit after tax 39 52 -25%

AD Botha (Anton)

PJ Cook (Peter)

NA Siebrits (Nico) (Alternate to PJ Cook)

ERM Field (Eric)

R Masson (Ronnie)

AL Müller (Dolf )

DK Smith (Desmond)

Prof S Vil-Nkomo (Sibusiso)

DIRECTORS

ERM Field (Eric)

AL Müller (Dolf )

NA Siebrits (Nico)

AUDIT COMMITTEE

M A N A G I N G D I R E C T O R

BANUS VAN DER WALT (50)

BEcon (Hons)

(32 years)

g e n s e c u n d e r w r i t i n g ,

c o r p o r a t e a n d o t h e r

a c t i v i t i e s

P A G E 5 5

In its equity underwriting business, Gensec utilises its own

capital for selective underwriting of large transactions and

bought deals both locally and internationally. Our clients are

mainly large South African corporates and investment banks.

Generally, the capital markets were very quiet during

2000 as corporate clients waited for stronger markets to

raise capital. Profits realised on positions held at the start

of the year and Gensec’s participation in a limited number

of successful underwriting transactions, contributed

R168 million to the net divisional profit before

exceptionals of R163 million for the year.

The Corporate division, which consisted of trading, private

equity investments, corporate cash and corporate expenses,

incurred a loss of R5 million before exceptional items. At

31 December 2000, corporate assets of the Gensec group

consisted of a portfolio of private equity investments

(R756 million) and other local investments (R918 million)

and international (R919 million) cash and near cash

holdings.

The trading activities, which incurred a

R102 million loss in the first half of the year, were

discontinued and the entire portfolio liquidated.

The selling off of this portfolio rendered a small profit

of R6 million in the second half of the year. Losses of

R131 million were incurred during the first half of the

year on private equity investments but recovered during

the second half with a profit of R67 million resulting in a

loss for the full year of R64 million. The international

cash holdings benefited in Rand terms from the

depreciation of the South African currency and boosted

interest income on cash holdings to R164 million.

Included in administration costs are the corporate

expenses of the Gensec group of R9 million. Exceptional

costs of R41 million include restructuring costs resulting

from the acquisition of the Gensec minorities by Sanlam

and expenses related to international acquisitions.

GENSEC PROPERTY SERVICES –

EXECUTIVE COMMITTEE

G van Zyl (Gerhard) (41)BSc Eng (Hons), MBA

Executive Director

(9 years)

HJ Mocke (Hugo) (45)BCom, MBA

Asset Management

(25 years)

A le Roux (Alan) (41) BSc, Eng (Hons)

Western Cape Region

(8 years)

M de K Rall (Kokkie) (53) BJuris

Facilities

(17 years)

G Kirchner (Gerhard) (48) MSc, Eng

Portfolio Management

(11 years)

S Pieterse (Steyn) (55) BCom, BSc Building Management

Gauteng North region

(1 year)

V de Stadler (Vic) (41)

Gauteng South region

(20 years)

TI Mvusi (Themba) (46) BA

Marketing

(2 years)

E van Niekerk (Rassie) (47)BEcon

KwaZulu Natal region

(21 years)

M van der Walt (Marna) (32) CA(SA), MCom

Finance

(5 years)

INCOME STATEMENT

R million 2000 1999 Variance

Fee income 3 29 -90%

Investment profits 163 305 -47%

Net interest income 40 (118) 134%

Financial services income 206 216 -5%

Administration costs (43) (36) -19%

Profit before exceptional items 163 180 -9%Exceptional items (41) — —

Operating profit before tax 122 180 -32%

Tax 4 162 -98%

Operating profit after tax 126 342 -63%

facilities on the Web. Sanlam

Health developed a new low-cost

product for Topmed to fill the

gap in the market for affordable

but quality health care and plan

to market this product

aggressively in the coming year.

FINANCIAL REVIEW

Income decreased by 8% as a

result of membership losses in the

retail business (Topmed and

Selfmed). Quality health-care

management and administration

contributed to the slight

improvement in the claims ratio

to 95,8% (1999: 96,1%). Due to

s a n l a m h e a l t h

PURSUING GROWTH

OPPORTUNITIES

C H I E F E X E C U T I V E

JOHAN DU PREEZ (35)

MPharm, MBA

(4 years)

P A G E 5 6

role player in the wholesale

market during the year by

applying its knowledge-based

skills and systems to enhance its

products in order to meet market

demands. Sanlam Health’s core

competency in this area provides

a competitive advantage and will

support the growth of its client

base in the future. Notable value-

added client services initiatives for

the year include Sanlam Health’s

WAP-enabled provider directory,

comprehensive online interaction

for members and intermediaries

with scheme administrators as

well as pre-authorisation tracking

OPERATIONAL REVIEW

The medical scheme industry has

undergone significant changes in

the past year. Amendments to the

Medical Schemes Act introduced

community rating and open

enrolment, which are threatening

the solvency of schemes. A key

focus area was to provide

innovative risk management

services to scheme clients to

protect their solvency. Sanlam

Health positioned itself as a key

NATURE OF BUSINESS

Sanlam Health focuses on

providing medical risk

management services to

medical schemes (wholesale

business). Its Solutio product

takes managed health care a

step further by guaranteeing

the outcome of managed care

initiatives and thereby capping

the risks of certain major

medical expenses of schemes.

Sanlam Health also provides

administration, scheme

management and marketing

services to Topmed and

Selfmed (retail business).

P A G E 5 7

effective cost management, the administration

cost ratio improved from 19,3% in 1999 to 16,3%

in 2000. The surplus of outsourcing and

restructuring provisions created in the past was

reversed and an Aids reserve of R5 million was

created. An operating profit of R15 million was

achieved for the year (1999: R11 million).

PROSPECTS FOR 2001

Although profitability was maintained with

Sanlam Health’s current business volumes, Sanlam

Health’s key focus area for 2001 is to grow its

wholesale client base and to increase margins on

current and new business. Further challenges are

to convert Sanlam Health’s extensive knowledge

capital into new revenue streams and to pursue

structural growth opportunities.

INCOME STATEMENT

R million 2000 1999 Variance

Underwriting risk premiums 668 700 -5%

Fee income 93 109 -15%

Interest income 22 45 -51%

Financial services income 783 854 -8%

Underwriting policy benefits (640) (673) 5%

Administration costs (128) (165) 22%

Profit before exceptional items 15 16 -6%

Exceptional items — (5) 100%

Operating profit before tax 15 11 36%

FINANCIAL RATIOS

Percentage 2000 1999

Claims ratio 95,8% 96,1%

Admin costs to income 16,3% 19,3%

Operating profit to income 1,9% 1,3%

EXECUTIVE COMMITTEE

RW Schnetler (Rudolf ) (40) BCom

Information Technology

(12 years)

DC Steyn (Dirk) (32) BCom (Hons)

Strategic Initiatives

(8 years)

K White (Kobus) (40) BCom (Hons)

Medical Schemes

(7 years)

DG Fredericks (Desmond) (35) BAdmin

Scheme Marketing and Sales

(1 year)

H Louw (Hanneke) (29) CA(SA)

Finance

(4 years)

GE Rudman (George) (Chairman)

J v D du Preez (Johan)

P de V Rademeyer (Flip)

PC le Roux (Charl)

PEI Swartz (Peter)

Prof P Smit (Flip)

DIRECTORS

P de V Rademeyer (Flip) (Chairman)

PC le Roux (Charl)

GE Rudman (George)

AUDIT COMMITTEE

1 574

SP2 FUNDS

UNDER

MANAGEMENT

(R million)

1998 1999 2000

3 618

4 907 linked product business into

Innofin. SP2, previously one of

the product providers of SPF, was

managed as a separate business

during 2000 and formed part of

New Business Development.

SP2 embarked on several

successful product initiatives

during the year to meet market

demands. Included in these

initiatives is a unique combina-

tion of private share portfolios

with retirement funds and living

annuities, a combination of

guarantees with unit trust funds,

the launch of offshore wrap

Innofin will be a South African

investment and portfolio

management services business

targeting the high net worth

market. This will focus on

innovative products and excep-

tional service to clients. The

launch of the first product is

planned for the first half of 2001.

SANLAM PERSONAL

PORTFOLIOS (SP2)

Sanlam Personal Portfolios (SP2),

is the linked product provider in

the Sanlam group. It is the

intention to incorporate the

INNOFIN

New Business Development was

established to increase Sanlam’s

focus on growth in the high net

worth individual market. A joint

venture agreement with

Macquarie Bank was signed on

27 February 2000 to form

Innofin (Pty) Ltd. Macquarie

Bank is a leading Australian

financial services group that has

developed extensive expertise

and a strong reputation in

Australia for product innovation

and excellent client service.

targeting the high net worth market with

innovative products and expert service

n e w b u s i n e s s d e v e l o p m e n t

P A G E 5 8

funds, an automatic fee discount for existing

clients and combined reporting of all products

per client on one statement.

SP2 will continue with new initiatives in

2001. New offshore products will be developed

and launched during the year to further address

market demand. The introduction of interactive

voice response technology in the new call centre

is planned in order to further improve service to

clients and intermediaries. Increased focus on

tools for intermediaries to assist them with

improved service to their clients and further

improvement in Internet functionality to enable

those clients and intermediaries

who want to transact on-line with SP2.

SP2/Innofin are creating a work

environment conducive to innovation and

excellent customer service by attracting and

developing a diverse group of people.

Employment equity is a business imperative

to build our human resource capabilities and

competitive business.

Despite volatile market conditions, inflows

to SP2 increased by 4% to R2 449 million

compared to 1999. Market share of net inflows

remained at the high levels of 1999 resulting in

continuous growth of market share in respect of

funds under management.

Exceptional items consist of systems and

development costs relating to the set-up and

development costs in respect of Innofin and to a

lesser extent SP2.

INCOME STATEMENT – SP2 AND INNOFIN

R million 2000 1999 Variance

Fee and other income 59 43 37%

Sales expenses (18) (13) -38%

Administration expenses (35) (24) -46%

Operating profit before exceptional items 6 6 —

Exceptional items (29) (4) —

Operating profit before tax (23) 2 —

P A G E 5 9

SUPPORT SERVICES

AS du Plessis (Attie) (57)

CA(SA), Adv Dip Tax Law,

AMP (Harvard), AEP (Unisa)

Executive Director

(15 years)

JD Venter (Kobus) (41)

BSc

Group IT

(17 years)

PJ Cook (Peter) (54)

BSc.Eng (Mining), MBA

Group Risk Manager

(3 years)

JP Bester (Johan) (48)

BCom (Hons), CA(SA), AEP (Unisa)

Company Secretary

(20 years)

V van Vuuren (Vic) (43)

BJuris, AEP (Unisa)

Human Resources

(4 years)

NAMIBIA

VR Rokoro (Vekuii) (46)

LLM

Managing Director:

Sanlam Namibia Limited

CORPORATE

• A c t u a r i a l

CG Swanepoel (Chris) (50)

BSc (Hons), FIA, FASSA

Chief Actuary

(29 years)

• F i n a n c e

P de V Rademeyer (Flip) (53)

CA(SA), SEP (Stanford)

Financial Director

(3 years)

DG Claassen (Danie) (36)

CA(SA), BCom (Hons) (Taxation)

Tax Services

(9 years)

L van der Walt (Lukas) (40)

BCom (Hons), CA(SA)

Corporate Finance

(2 years)

WJ Harris (Wally) (41)

CA(SA)

Financial Accounts

(13 years)

HS Malherbe (Helet) (31)

CA(SA)

Investor Relations

(6 years)

AC Nortier (André) (30)

CA(SA)

Chief Internal Auditor

(5 years)

• P u b l i c A f f a i r s

L Koen (Leon) (57)

BA, STD (US) B.Ed (UPE),

MPA (UPE), APR

(17 years)

s a n l a m c o r p o r a t e , s u p p o r t s e r v i c e s a n d n a m i b i a

P A G E 6 0

Sanlam joined hands with the

Eastern Cape community to develop

an Aids education programme

Ernie Els is patron of the Sanlam Cancer Golf Challenge through which

R1 million is donated to the National Cancer Association annually

c o r p o r a t e s o c i a l i n v o l v e m e n t a n d s p o n s o r s h i p s

P A G E 6 1

Big guy Moshe

leading his cast in

Takalani Sesame

The Sanlam Rescuer

is operated by the

National Sea Rescue

Institute in

Gordons Bay

The Sanlam Restoration

Programme restored this

fisherman’s cottage at

Waenhuiskrans to its

original state

The main thrust of our endeavours in this field is the empowerment of people. During the past year

we expanded our major initiatives to support the development of school readiness through the

television, radio and outreach programme Takalani Sesame – a South African version of the world

acclaimed TV series Sesame Street. Entrepreneurship is being developed through the Sanlam

Foundation for Future Business Leaders. In addition, we are a substantial contributor to The

Business Trust that works closely with partner organisations to create employment opportunities, to

develop education and to reduce crime.

Sanlam supported numerous projects and programmes last year and we remain committed to

allocating available resources to initiatives that will positively influence the lives and aspirations of all

South Africans.

Golf

Dig

est

P A G E 6 2

c o r p o r a t e s o c i a l i n v o l v e m e n t a n d s p o n s o r s h i p s

c o n t i n u e d

Former President

Nelson Mandela

officially opened

the centre for

disabled children

in Umtata which

was funded

by Sanlam

In search of South Africa’s Tiger Woods.

Sanlam is a major sponsor of the SA

Golf Development Board

Young entrepreneurs were

awarded for their business ideas

at the convention of the

Sanlam Foundation for

Future Business Leaders

Sanlam was the official sponsor of the

African Cup of Nations for Women in 2000

The Sanlam/Burger annual

cycling tour attracts

thousands of entries

P A G E 6 3

Sanlam is one of South Africa’s major

corporate art collectors with more than

1 500 works. These are regularly exhibited

nationally and at the Sanlam Art Gallery

in Bellville.

Published manuscripts

of finalists in the

Sanlam Competition

for Youth Literature

The annual Sanlam Music

Competition for Primary Schools

draws many talented entries from

across the country

Thomas Bains

Gerard Sekoto

PA G E 7 5

Group Balance Sheets

PA G E 7 6

Group Statements of Changes in

Equity

PA G E 7 7

Group Cash Flow Statements

PA G E 7 8

Notes to the Group Financial

Statements

PA G E 9 9

Principal Subsidiaries

PA G E 1 0 0

Sanlam Limited Financial

Statements

PA G E 1 0 2

Financial Information for the

Shareholders’ Funds

co

nte

nts

A FUTURE

FILLED WITH

GROWTH

Sanlam Limited andSanlam Life

Insurance LimitedPA G E 6 5

Directors’ Responsibility for

Financial Reporting

PA G E 6 5

Certificate by Company Secretary

PA G E 6 6

Report of the Statutory Actuary

PA G E 6 6

Report of the Independent

Auditors

PA G E 6 7

Directors’ Report

PA G E 6 8

Basis of Presentation and

Accounting Policies

PA G E 7 4

Group Income Statements

a n n u a l f i n a n c i a l s t a t e m e n t s

P A G E 6 4

d i r e c t o r s ’ r e s p o n s i b i l i t y f o r f i n a n c i a l r e p o r t i n g

The Boards of Sanlam Limited and Sanlam Life Insurance Limited accept responsibility for the integrity, objectivity and

reliability of the group and company financial statements of Sanlam Limited and Sanlam Life Insurance Limited respectively.

Adequate accounting records have been maintained. The Boards endorse 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 Sanlam Limited, Sanlam Life Insurance Limited and their subsidiaries.

The audit committee has confirmed that adequate internal financial control systems are being maintained. There were no

material breakdowns in the functioning of the internal financial control systems during the year. The Boards are satisfied that the

financial statements fairly present the financial position, the results of operations and cash flows in accordance with relevant

accounting policies, based on South African Statements of Generally Accepted Accounting Practice.

The Boards are of the opinion that Sanlam Limited and Sanlam Life Insurance Limited are financially sound and operate as

going concerns. The financial statements have accordingly been prepared on this basis.

The financial statements on pages 67 to 111 were approved by the Boards and signed on their behalf by:

MH Daling P de V Rademeyer

Executive Chairman Financial Director

7 March 2001

P A G E 6 5

c e r t i f i c a t e b y c o m p a n y s e c r e t a r y

In my capacity as Company Secretary, I hereby certify, in terms of the Companies Act, 1973, that for the year ended

31 December 2000, the company has lodged with the Registrar of Companies all such returns as are required of a public company

in terms of this Act, and that all such returns are, to the best of my knowledge and belief, true, correct and up to date.

JP Bester

Company Secretary

7 March 2001

r e p o r t o f t h e s t a t u t o r y a c t u a r y

FINANCIAL SOUNDNESS VALUATION

I have valued the policy liabilities on bases (set out on pages 71 to 73 and note 19 on pages 89 to 92) consistent with the fair value

of the corresponding assets. The valuation was conducted in accordance with the applicable guidelines of the Actuarial Society of

South Africa. As at 31 December 2000, the operations of Sanlam Life Insurance Limited were financially sound and the excess of

the assets over the liabilities of Sanlam Life Insurance Limited was more than sufficient to cover its capital adequacy requirements.

In my view, the financial statements fairly present the financial position of Sanlam Life Insurance Limited as at 31 December 2000.

EMBEDDED VALUE

In my view, the Sanlam Group embedded value and the value of new life insurance business as set out on pages 114 to 118, fairly

present these values as defined.

CG Swanepoel FIA, FASSA

Statutory Actuary

Sanlam Life Insurance Limited

7 March 2001

r e p o r t o f t h e i n d e p e n d e n t a u d i t o r s

TO THE MEMBERS OF SANLAM LIMITED AND SANLAM LIFE INSURANCE LIMITED

We have audited the annual financial statements of Sanlam Limited and the group annual financial statements of Sanlam Limited

and Sanlam Life Insurance Limited for the year ended 31 December 2000 as set out on pages 67 to 111. These annual financial

statements are the responsibility of the directors of Sanlam Limited and Sanlam Life Insurance Limited. It is our responsibility to

express an opinion on these financial statements based on our audit.

SCOPE

We conducted our audit in accordance with statements of South African Auditing Standards. These standards require that we

plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.

An audit includes:

• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;

• assessing the accounting principles used and significant estimates made by management; and

• evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

AUDIT OPINION

In our opinion, the annual financial statements of Sanlam Limited and the group annual financial statements of Sanlam Limited

and Sanlam Life Insurance Limited fairly present in all material respects the financial position of the company and groups at

31 December 2000 and the results of their operations and cash flows for the year then ended in accordance with South African

Statements of Generally Accepted Accounting Practice, and in the manner required by the Companies Act in South Africa.

Ernst & Young Chartered Accountants (SA) PricewaterhouseCoopers Inc.

Registered accountants and auditors

Bellville

7 March 2001

P A G E 6 6

d i r e c t o r s ’ r e p o r t

for the year ended 31 December 2000

NATURE OF BUSINESS

The Sanlam Group is one of the largest established financial

services groups in South Africa. Its core activities are set out

on page 1.

CORPORATE GOVERNANCE

The Board of Sanlam endorses the Code of Corporate

Practice and Conduct recommended in the King Report on

Corporate Governance and has satisfied itself that Sanlam

consistently complied with the Code during 2000. The

corporate governance statement is set out on pages 24 to 26.

GROUP RESULTS

Headline earnings based on the long term rate of return basis

increased from R2 721 million (102,1 cents per share) in

1999 to R3 478 million (130,9 cents per share) in 2000.

Further details regarding the Group’s results are included in

the report of the financial director on pages 16 to 23 and the

business reviews on pages 30 to 59.

SHARE CAPITAL

There were no changes in the authorised and issued share

capital of the company during the financial year.

DIVIDENDS AND DIVIDEND POLICY

It is the Board’s intention to declare only annual dividends

and to maintain a three and a half to four and a half times

dividend cover on headline earnings based on the long term

rate of return. The objective of the Board is to achieve stable

growth in dividend payments and the dividend pattern will

therefore not strictly follow the earnings pattern. The Board

has declared a dividend of 30 cents per share payable on

16 May 2001 to shareholders registered on 20 April 2001.

SUBSIDIARIES

Details of the company’s principal subsidiaries are set out on

page 99.

DIRECTORS’ INTEREST IN CONTRACTS

No material contracts involving directors’ interest were

entered into in the current year.

INTEREST OF DIRECTORS AND OFFICERS IN

SHARE CAPITAL

The shareholdings, direct and indirect, of the directors and

officers holding office at the date of this report are as follows:

Ordinary shares

Non-

Beneficial beneficial Options

Number of shares 3 087 974 3 575 847 18 718 944

Comprising

Non-executive directors 211 520 8 860 —

Executive directors 1 281 530 3 217 855 11 804 086

Officers 1 594 924 349 132 6 914 858

Disclosures by the directors indicate that at 31 December 2000

and at the date of this report, their interests did not, in

aggregate, exceed 5% in respect of either the share capital or

voting control of the company. No material change in the

foregoing interests has taken place between 31 December 2000

and the date of this report.

DIRECTORS AND SECRETARY

Particulars of the directors and secretary of the company are

set out on pages 4, 5, 12, 15 and 124.

POST-BALANCE-SHEET EVENTS

No material facts or circumstances have arisen between the

dates of the balance sheet and this report which affect the

financial position of the Sanlam Limited group and the

Sanlam Life Insurance Limited group as reflected in these

financial statements.

By order of the Board

JP Bester

Secretary

7 March 2001

P A G E 6 7

b a s i s o f p r e s e n t a t i o n a n d

a c c o u n t i n g p o l i c i e s

BASIS OF PRESENTATION

POLICYHOLDERS’ AND SHAREHOLDERS’ ACTIVITIES

The activities of the policyholders and shareholders in respect

of life insurance business are conducted in Sanlam Life

Insurance Limited. The assets, liabilities and activities of these

two groups of stakeholders are managed separately and are

governed by the valuation bases for policy liabilities and

profit entitlement rules which are determined in accordance

with prevailing legislation and generally accepted actuarial

practice and the stipulations contained in the demutuali-

sation proposal. The accounting policies in respect of policy

liabilities and profit entitlement are set out on pages 71 to 73.

The group financial statements set out on pages 74 to 98

include the consolidated activities of the policyholders and

shareholders of Sanlam Life Insurance Limited. Separate

financial information on the activities of the shareholders of

the Sanlam Limited group is disclosed on pages 103 to 119.

FUNDS RECEIVED FROM CLIENTS

Funds received from clients consist of single and recurring

long- and short-term insurance premium income which is

included in the financial statements and unit trust

contributions, inflow for assets managed and administered

on behalf of clients and non-life insurance linked-product

contributions, which are not included in the financial

statements as they are funds held on behalf of and at the

risk of clients. Internal transfers between the various types

of business, other than those transacted at arm’s length,

are eliminated.

FINANCIAL SERVICES INCOME

Financial services income for the shareholders consists of:

• income earned from long-term insurance activities such as

investment and administration fees, risk underwriting

premiums, asset mismatch profits or losses and income

earned on working capital;

• income from short-term health, medical insurance and

general insurance business; and

• income from other financial services such as banking,

equity and underwriting activities, unit trust

administration, trust services and linked-product business.

SEGREGATED FUNDS

Sanlam also manages and administers assets for the account of

and at the risk of clients. As these are not the assets of the Sanlam

Group, they are not reflected in the Sanlam Group balance

sheet but are disclosed in a footnote to the balance sheet.

TERM FINANCE

The portion of term finance which is repayable within one

year is not transferred to current liabilities. This is consistent

with the treatment of investments redeemable within one

year that are not included in current assets.

COMPARATIVES

Where necessary, comparative figures have been adjusted to

conform with changes in presentation in the current year.

ACCOUNTING POLICIES

The Sanlam Limited group and Sanlam Life Insurance

Limited group financial statements are prepared applying the

principal accounting policies below, which are in accordance

with and comply with South African Statements of Generally

Accepted Accounting Practice, and some of which apply

specifically to the life insurance industry. The accounting

policies applied in preparing the financial statements are

consistent with those of the previous year except for the

treatment of goodwill, the introduction of the long term rate

of return adjustment and equity accounting the interest in

Santam and Gensec by Sanlam Life Insurance Limited

described below.

BASIS OF CONSOLIDATION

The results of consolidated subsidiaries are included from the

effective dates of acquisition to the effective dates of disposal.

All material inter-company profits and losses are eliminated

from the group results. Inter-company transactions at arm’s

length and where there is no effect on the Group’s net

earnings, are not eliminated from the results.

Sanlam Limited and its subsidiaries acquired all of the

shares in Gensec which it and its subsidiaries did not already

own with effect from 31 December 2000. (Refer to page 19

for details of this transaction.) As a result, Sanlam Life

Insurance Limited holds a controlling interest in Gensec.

This controlling interest is intended to be temporary

pursuant to the integration of the Gensec operations into the

Sanlam Group and therefore has not been consolidated in the

Sanlam Life Insurance Limited group financial statements

and is treated as an unlisted associated company.

ASSOCIATED COMPANIES

An associated company is a company, not being a subsidiary,

in which the Sanlam Group has a long-term investment and

over which it has the ability, because of the extent of its

investment, to exercise significant influence.

P A G E 6 8

The results of associated companies have been accounted

for using the equity method of accounting, where the Group’s

share of the associated companies’ earnings before dividends

is included in earnings. The equity-accounted earnings are

included in investment income with a corresponding

adjustment to the carrying value of the investment in

associated companies. This carrying value is adjusted to fair

value with a corresponding adjustment to investment

surpluses on the investment in associated companies in the

income statement.

The above policy has been applied by Sanlam Life

Insurance Limited in respect of its interest in Santam, Gensec

and ABSA. Previously its interests in Santam and Gensec

were treated as equity investments. The effect of this change

in the income statement is that investment income as

previously disclosed has been increased and investment

surpluses on the investment in associated companies has been

decreased by a corresponding amount.

GOODWILL

Goodwill may arise on the acquisition or change in the

holding ("adjustment") in a subsidiary company. It represents

the excess of the cost of an acquisition or adjustment over the

fair value of the Group’s share of the net assets of the

subsidiary at the date of acquisition or adjustment.

The accounting policy in respect of goodwill has been

changed during the current year to comply with the new

Accounting Statement implemented in South Africa (AC 131)

and it is now written off on a straight-line basis over the lesser

of its estimated useful life or twenty years. This policy has

been applied prospectively. In the past goodwill was written

off against share premium where the acquisition or

adjustment was financed by a share issue and in all other cases

it was written off against unrealised investment surpluses.

The carrying amount of goodwill is reviewed annually

and is written down for impairment where this is considered

necessary.

In certain instances, a portion of the Sanlam Group’s

interest in consolidated subsidiaries is held by the

policyholders’ fund of Sanlam Life Insurance Limited to fund

future benefits in terms of its policyholders’ contracts. The

excess of the fair value of the policyholders’ interest in these

consolidated subsidiaries over their proportionate share of the

subsidiaries’ net assets (including unamortised purchased

goodwill) included in the group financial statements, is

recognised in the group balance sheet as equity investments.

INTANGIBLE ASSETS

No value is attributed to internally developed trademarks or

similar rights and assets. Costs incurred on these items,

whether purchased or created by the Group, are charged to

the income statement in the period in which they are incurred.

INVESTMENTS

Investments are reflected at fair value, which has been

determined on the following bases:

• The value of fixed property, including the Head Office

building, which generates income is determined by

discounting expected future cash flows at appropriate

market interest rates. Other fixed property is valued at cost

less provision for impairment in value, where appropriate;

• Listed shares and units in unit trusts are valued at the stock

exchange and repurchase prices respectively. The value of

unlisted shares is determined by the directors using

appropriate valuation bases;

• Interest-bearing investments are valued by discounting

expected future cash flows at appropriate market interest rates;

• Listed derivative instruments are valued at the South

African Futures Exchange price and the value of unlisted

derivatives is determined by the directors using generally

accepted models.

Loans of investment scrip to and from third parties are

not treated as sales and purchases.

Shares held in Sanlam Limited by subsidiary companies

are eliminated on consolidation where these shares are held

by the shareholders’ fund of the Sanlam Limited group.

Where these shares are held as investments for policyholder

benefits they are not eliminated on consolidation but

reflected at fair value as equity investments in the

balance sheet.

INVESTMENT RESERVE

Net realised and unrealised investment surpluses on the

revaluation or sale of investments attributable to shareholders

are transferred to an investment reserve. However, the Board

may transfer realised investment surpluses to retained

income. A negative investment reserve will not be created and

any shortfall will remain in retained income. Unrealised

investment surpluses in the investment reserve in respect of

investments held for resale are released to operating income

on realisation of these investments.

Realised and unrealised investment surpluses attributable

to policyholders are included in policyholders’ liabilities.

P A G E 6 9

b a s i s o f p r e s e n t a t i o n a n d

a c c o u n t i n g p o l i c i e s – c o n t i n u e d

INVESTMENTS HELD FOR RESALE

Investments held for resale which are expected to be realised

in the longer term, are reflected at fair value, which is

determined on the bases set out above for investments. When

the Group’s holding in equity investments in a particular

security exceeds what the directors regard as being disposable

within a reasonable time horizon, an appropriate liquidity

adjustment is made to determine the fair value.

TRADING ACCOUNT AND MONEY MARKET ASSETS AND

LIABILITIES

Trading account and money market assets and liabilities are

reflected at fair value, which is determined on the bases set

out above for investments.

FIXED ASSETS

Fixed assets are reflected at their depreciated cost prices.

Depreciation is provided for on a straight-line basis, taking

into account the residual value of estimated useful lives of the

assets, which vary from two to twenty years.

PREMIUM INCOME

The full annual premiums on individual insurance policies

that are receivable in terms of the policy contracts are

accounted for on policy anniversary dates, notwithstanding

that premiums are payable in instalments. The monthly

premiums in respect of certain new products are accounted

for when due.

Employee benefits premiums are accounted for when

receivable. Where premiums are not determined in advance

they are accounted for upon receipt.

Short term insurance premiums are accounted for when

receivable, with an appropriate adjustment for unearned

premiums.

Gross premium income is reduced by reinsurance

premiums applicable to the same period.

INVESTMENT RETURN

Investment income

Rental income, including rentals in respect of space occupied

in owned buildings, is reflected net of property expenditure.

Dividend income is recognised once the last day for

registration has passed. Capitalisation shares received in terms

of a capitalisation issue from reserves, other than share

premium or a reduction in share capital, are treated as

dividend income.

Investment income earned on working capital is included

in operating profit.

Investment surpluses

Investment surpluses consist of net realised surpluses on the

sale of investments and net unrealised surpluses on the

valuation of investments to fair value. These surpluses are

recognised in the income statement and policy liabilities on

the date of sale or on the valuation to fair value date.

LONG TERM RATE OF RETURN ADJUSTMENT

The long term rate of return adjustment represents the

difference between the actual investment income and surpluses

earned on shareholders’ funds during the year and the long

term investment return calculated on the basis described

below. The long term investment return is determined by the

directors and is based on historical experience and current

market conditions having regard to inflation expectations and

consensus economic and investment forecasts.

The long term investment return of 13% is calculated on

a monthly basis on the fair value of the investments held in

the shareholders’ fund excluding holdings in subsidiaries and

associated companies. The directors are of the opinion that

this rate of return is prudent and has been selected with a

view to ensuring that investment returns credited to

earnings are consistent with the actual returns expected to

be earned over the long term. (Also refer to page 17 for

further details.)

POLICY BENEFITS

Policy claims received up to the last day of each financial

period and claims incurred but not reported (IBNR) are

provided for and included in policy benefits. Past claims

experience is used as the basis for determining the extent of

the IBNR claims.

Underwriting policy benefits in respect of long-term

insurance business also include the movement in the actuarial

liabilities backing the risk underwriting business.

Policy benefits are reflected net of amounts recovered from

reinsurers.

SALES REMUNERATION

Sales remuneration consists of commission payable to

non-salaried sales staff on new insurance business, including

renewal commission, and expenses directly related thereto,

bonuses payable to sales staff and the Group’s contribution to

their retirement and medical aid funds.

Commission is generally payable in the first and second

year of a policy’s existence. Commission is accounted for in

the financial period during which it is incurred.

P A G E 7 0

ADMINISTRATION COSTS

Administration costs include, inter alia, indirect taxes such as

revenue stamps payable on insurance policy contracts and

VAT, rental of space occupied in own buildings which are

held mainly as property investments of policyholders,

property and investment expenses related to the management

of the policyholders’ investments, product development and

training costs. Internal systems development costs and

purchased systems costs are included in administration

expenses when incurred.

DEFERRED INCOME TAX

Deferred income tax is provided at current tax rates using the

liability method for all temporary differences arising between

the tax bases of assets and liabilities and their carrying values

for financial reporting purposes. Deferred tax assets relating

to unused tax losses are recognised to the extent that it is

probable that future taxable profit will be available against

which the unused tax losses can be utilised.

FOREIGN CURRENCIES

Assets and liabilities in foreign currencies are converted to

South African rand at exchange rates ruling at the financial

period end. Differences arising from this translation is

included in investment surpluses as substantially all foreign

assets and liabilities are in respect of investments. Foreign

currency income items are translated at the weighted average

exchange rates for the period.

FOREIGN OPERATIONS

Income statement items of foreign operations are translated

into South African rand at the rates of exchange ruling at the

dates the income and expenses and cash flows are incurred. The

rate of exchange ruling at the transaction date is used for non-

monetary balance sheet items and the closing rate for monetary

items. Differences arising on translation are recognised in the

income statement in the year in which they arise.

RETIREMENT BENEFITS

Retirement benefits for employees are provided by a number

of defined benefit and defined contribution pension and

provident funds. The assets of these funds, including those

relating to any actuarial surpluses, are held separately from

those of the Group. The retirement plans are funded by

payments from employees and the relevant group companies,

taking into account the recommendations of independent

actuaries. The Group’s contributions to the defined

contribution and defined benefit funds are charged to the

income statement in the year in which they are incurred.

For the purpose of calculating pensions, medical

contributions are deemed to be a part of pensionable salary.

Retirement fund contributions are made on these increased

amounts. Therefore pensioners will fund post-retirement

medical contributions from the increased pensions. The

Group has provided in full for its medical contribution

commitments in respect of a small number of employees who

are not covered by the last mentioned. The group’s

contributions to medical funds are charged to the income

statement in the year in which they are incurred.

EQUIVALENT CASH FLOWS

Unrealised investment surpluses arising on the valuation to fair

value of investments have the same nature and financial effect

as realised investment surpluses, as investments are reflected at

fair value in the financial statements. For the purposes of the

cash-flow statement and consistent with the treatment of

realised investment surpluses, unrealised investment surpluses

arising on the valuation to fair value of investments and

investments held for resale are treated as equivalent cash flows.

POLICY LIABILITIES AND PROFIT

ENTITLEMENT

INTRODUCTION

The valuation bases used to calculate the policy liabilities

of all material lines of long-term insurance business and

the corresponding shareholder profit entitlement are set

out below.

The actuarial valuation of the policy liabilities is

determined using the financial soundness valuation method.

Under this method either a retrospective or prospective

approach can be used. The underlying philosophy is to

recognise profits prudently over the term of each contract

consistent with the work done and risk borne.

Policy liabilities are valued on bases consistent with the

fair value of assets. The liabilities exceeded the minimum

requirements in terms of actuarial guidance note PGN 104

issued by the Actuarial Society of South Africa ("ASSA").

In the valuation of liabilities, provision is made for:

• The best estimate of future experience;

• The margins prescribed in the ASSA guidelines; and

• Second-tier margins determined to release profits to

shareholders consistent with policy design and company policy.

No provision has been made for capital gains tax in the

financial soundness valuation.

P A G E 7 1

b a s i s o f p r e s e n t a t i o n a n d

a c c o u n t i n g p o l i c i e s – c o n t i n u e d

APPLICATION OF VALUATION METHODOLOGY

The valuation methodology has been consistently applied for

1999 and 2000. The changes in the discount rates, bonus rates

and other assumptions in general did not have a material net

effect on the liabilities and the earnings reported for 2000.

BEST ESTIMATE OF FUTURE EXPERIENCE

The best estimate of future experience is determined as follows:

• Unit expenses are based on the recent experience of Sanlam

Life Insurance Limited on a going-concern basis and

escalated at estimated inflation rates per annum;

• Assumptions with regard to future surrender, lapse,

mortality, medical claim, disability and disability payment

termination rates are consistent with the rates experienced

over the recent past; and

• Future investment return assumptions are consistent with

market-related interest rates.

REVERSIONARY BONUS BUSINESS

The liability is set equal to the fair value of the underlying

assets. This is equivalent to a best estimate prospective

liability calculation using a bonus rate supportable by the

underlying assets and expected future investment returns,

and allowing for the shareholders’ share of a maximum of

one-ninth of these costs of the bonus.

The present value of the shareholders’ entitlement is

sufficient to cover the margins prescribed in the ASSA

guidelines for the valuation of policy liabilities. The

prescribed margins are thus not provided for in addition to

the shareholders’ entitlement.

INDIVIDUAL STABLE BONUS AND MARKET-

RELATED BUSINESS

For investment policies for which the bonuses are stabilised

or directly related to the return on the underlying investment

portfolios, the liabilities are equated to the retrospectively

accumulated fair value of the underlying assets less any

unrecouped expenses. These retrospective liabilities are higher

than the prospective liabilities calculated as the present value

of expected future benefits and expenses less future premiums

at market-related interest rates, net of expected income tax.

The prospective liabilities provided for bonus rates which are

supportable by the underlying assets and expected future

investment returns.

To the extent that the retrospective liabilities exceed the

prospective liabilities, the basis contains second-tier margins.

The valuation methodology results in the release of these

margins to shareholders on a fees minus expenses basis

consistent with the work done and risks borne over the

lifetime of the policies.

GROUP STABLE BONUS AND LINKED BUSINESS

In the case of group linked business and group policies where

bonuses are stabilised, the liabilities are equated to the fair

value of the retrospectively accumulated underlying assets.

To the extent that future fees exceed expenses, including

allowance for the prescribed ASSA margins, the basis contains

second-tier margins. These margins are released to

shareholders consistent with the work done and risks borne

over the lifetime of the policies.

PARTICIPATING ANNUITIES

The liabilities are equated to the fair value of the

retrospectively accumulated underlying assets. This is

equivalent to a best estimate prospective liability calculation

allowing for future growth in annuity instalments supportable

by the underlying assets and expected future investment

returns. This approach implicitly allows for the effect of the

margins prescribed in the ASSA guidelines.

Shareholder entitlements emerge on a fees minus

expenses basis consistent with work done and risks borne over

the lifetime of the annuities.

NON-PARTICIPATING ANNUITY BUSINESS

Non-participating life and term annuity instalments and

future expenses in respect of these instalments are discounted

at market-related interest rates. All profits or losses accrue to

the shareholders when incurred.

GUARANTEED PLANS

Guaranteed maturities are discounted at market-related

interest rates. All profits or losses accrue to the shareholders

when incurred.

OTHER NON-PARTICIPATING BUSINESS

The majority of the other non-participating business liabilities

is valued on a retrospective basis. The remainder (less than 1%

of Sanlam Life Insurance Limited’s liabilities) is valued

prospectively and contains second-tier margins via an explicit

interest rate deduction of approximately 2,75% on average.

For non-participating business other than life and term

annuity business, an asset mismatch provision is maintained.

The interest and asset profits arising from the non-

participating portfolio are added to this provision. The asset

P A G E 7 2

mismatch provision accrues to shareholders at the rate of

1,33% monthly, based on the balance of the provision at the

end of the previous quarter. The effect of holding this

provision is to dampen the impact on earnings of short-term

fluctuations in fair values of underlying assets. The asset

mismatch provision represents a second-tier margin.

A negative asset mismatch provision will not be created.

The shortfall will accrue to shareholders in the year in which

it occurs.

HIV/Aids

A specific provision for HIV/Aids-related claims is

maintained. The provision for individual policies (more than

85% of the total HIV/Aids provision) is built up by

increasing the opening provision by the HIV/Aids risk

premiums and investment returns on the underlying assets.

It is then reduced by claims attributable to HIV/Aids.

This retrospectively built-up provision is higher than a

prospective calculation done according to the ASSA

guidelines allowing for possible increases in future HIV/Aids

risk premiums. This difference can be regarded as a second-

tier margin. It is the intention of Sanlam Life Insurance

Limited to re-rate premiums as experience develops.

Premium rates for group business are reviewed more

frequently. An HIV/Aids provision equivalent to twice the

expected Aids claims in a year is maintained for group

business as up to two years may elapse before premium rates

and underwriting conditions may be suitably adjusted.

WORKING CAPITAL

To the extent that the management of working capital gives rise

to profits, no credit is taken for this in determining the policy

liabilities. This could be viewed as a second-tier margin.

ASSET FUNDS

Separate asset funds are maintained for each of the major

lines of business. Operating costs are allocated to the major

lines of business by reference to the accounting records.

Bonus rates are declared for each class of participating

business in relation to net investment return earned on the

assets of the particular investment portfolio.

BONUS STABILISATION RESERVES

The group and individual stabilised bonus portfolios are

valued on a retrospective basis. If the fair value of the assets in

such a portfolio is greater than the net premiums invested

plus declared bonuses, a positive bonus stabilisation reserve is

created which will be used to enhance future bonuses.

Conversely, if assets are less than the net premiums invested

plus declared bonuses, a negative bonus stabilisation reserve is

created. A negative bonus stabilisation reserve will be limited

to the amount that will be recovered through the distribution

of lower bonuses during the ensuing three years, provided

that the Statutory Actuary is satisfied that, if market values of

assets do not recover, future bonuses will be reduced to the

extent necessary.

CAPITAL ADEQUACY REQUIREMENTS

The excess of assets over liabilities of Sanlam Life Insurance

Limited’s operations is sufficient to cover its capital adequacy

requirements. The capital adequacy requirements provide a

buffer against experience worse than that assumed in the

financial soundness valuation. Consistent with an assumed

fall in the fair value of the assets, which is prescribed in the

ASSA guidance notes, the calculation of the capital adequacy

requirements takes into account a reduction in non-vesting

bonuses and future bonus rates. The assumed reduction in

bonuses and other assumed management actions varied

at the 1999 and 2000 year-ends, according to the level of

the fair value of assets at these dates relative to the expected

asset values.

The largest element of the capital adequacy requirements

relates to stabilised bonus business.

For individual stabilised bonus business the assumed

management actions will be to eliminate within three years

the larger of (in absolute terms):

• any negative bonus stabilisation reserve; and

• 35% of the aggregate value of the bonus stabilisation

reserve plus the effect of the assumed asset drop where the

assumed asset drop is taken as a negative figure.

No such management action will apply if the positive

bonus stabilisation reserve exceeds the assumed asset drop.

For group stabilised bonus business the aim is to

eliminate within three years the absolute value of any negative

bonus stabilisation reserve, including the increase that results

from the resilience scenario, by way of a reduction in future

bonus rates. The extent to which reductions in future bonuses

can be used for management actions is assumed to be limited

to 60% of the expected long-term bonus rate declared for a

fully funded position.

P A G E 7 3

g r o u p i n c o m e s t a t e m e n t s

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

Note R million R million R million R million

Funds received from clients 1 46 926 35 768 25 107 22 001

Net operating profit

Financial services income 2 12 566 10 988 6 347 6 057

Sales remuneration 1 505 1 353 1 052 963

Income after sales remuneration 11 061 9 635 5 295 5 094

Underwriting policy benefits 3 5 480 4 569 2 077 2 073

Administration costs 4 3 289 2 875 1 879 1 775

Profit before exceptional items 2 292 2 191 1 339 1 246

Exceptional items 5 368 469 277 452

Operating profit before tax 6 1 924 1 722 1 062 794

Tax on operating profit 7 225 204 93 192

Operating profit from ordinary activities after tax 1 699 1 518 969 602

Minority shareholders’ interest 357 451 — —

Net operating profit 1 342 1 067 969 602

Net investment return based on the

long-term rate of return

Investment return 8 1 348 2 936 1 349 2 796

Tax on investment return 7 (225) (245) (157) (167)

Minority shareholders’ interest (36) (190) — —

Net long-term rate of return adjustment 9 1 049 (847) 835 (1 031)

Net investment return based on the

long-term rate of return 2 136 1 654 2 027 1 598

Headline earnings based on the

long-term rate of return 3 478 2 721 2 996 2 200

Short-term investment fluctuations 9 (1 049) 847 (835) 1 031

Other net investment (deficits)/surpluses 10 (220) (199) (1 015) 149

Accounting policy change by subsidiary — 68 — —

Attributable earnings 2 209 3 437 1 146 3 380

Diluted earnings per share: cents cents

• Net operating profit from ordinary activities 12 50,5 40,1

• Headline earnings based on the long-term rate of return 12 130,9 102,1

Attributable earnings per share 12 83,1 129,0

Dividend per share 30,0 25,0

The financial statements of Sanlam Limited are included on pages 100 to 101. The group income statement on the basis as presented previously is included on page 111.

P A G E 7 4

g r o u p b a l a n c e s h e e t s

at 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

Note R million R million R million R million

ASSETS

Non-current assets

Fixed assets 13 256 328 103 101

Goodwill 14 1 711 — — —

Investments 15 150 452 151 635 151 830 150 953

Properties 12 453 12 432 12 452 12 432

Equities 87 027 90 903 91 036 91 812

Public sector stocks and loans 28 469 29 221 27 365 28 530

Mortgages, debentures and other loans 7 736 6 746 7 400 6 721

Cash, deposits and similar securities 14 767 12 333 13 577 11 458

Deferred tax 23 115 37 — —

Investments held for resale 1 213 1 460 — —

Current assets 16 24 318 22 108 9 143 9 651

Total assets 178 065 175 568 161 076 160 705

EQUITY AND LIABILITIES

Capital and reserves

Share capital and premium 17 3 514 3 514 5 000 5 000

Non-distributable reserves 9 415 10 289 5 429 5 429

Investment reserve 395 592 2 914 3 834

Retained income 4 898 3 282 3 297 1 891

Shareholders’ funds 18 222 17 677 16 640 16 154

Minority shareholders’ interest 1 215 2 387 — —

Non-current liabilities

Policy liabilities 19 133 952 134 319 133 952 134 319

Term finance 20 4 698 4 062 4 796 4 807

Deferred tax 23 284 693 284 663

Current liabilities 21 19 694 16 430 5 404 4 762

Total equity and liabilities 178 065 175 568 161 076 160 705

Segregated funds not included in the above balance sheet 45 572 40 356

Total assets under management and administration 223 637 215 924

Tangible net asset value per share (cents) 25 779 771

P A G E 7 5

s a n l a m l i m i t e d g r o u p s t a t e m e n t o f c h a n g e s i n e q u i t y

for the year ended 31 December 2000

Non-

Share Share Investment distributable Retained

R million Note capital premium reserve reserve(1) income Total

Balance at 1 January 1999 27 3 487 — 10 289 1 101 14 904

Attributable earnings for the year — — — — 3 437 3 437

Transfer to investment reserve 11 — — 592 — (592) —

Dividends paid and payable — — — — (664) (664)

Balance at 31 December 1999 27 3 487 592 10 289 3 282 17 677

Attributable earnings for the year — — — — 2 209 2 209

Transfer from investment reserve 11 — — (197) — 197 —

Transfer to goodwill 14 — — — (874) — (874)

Dividends paid and payable — — — — (790) (790)

Balance at 31 December 2000 27 3 487 395 9 415 4 898 18 222

(1)Non-distributable reserve arising on acquisition of subsidiaries.

s a n l a m l i f e i n s u r a n c e l i m i t e d g r o u p s t a t e m e n t o f

c h a n g e s i n e q u i t y

for the year ended 31 December 2000

Non-

Share Share Investment distributable Retained

R million Note capital premium reserve reserve(2) income Total

Balance at 1 January 1999 1 4 999 1 957 5 429 1 004 13 390

Attributable earnings for the year — — — — 3 380 3 380

Transfer to investment reserve 11 — — 1 877 — (1 877) —

Dividends paid and payable — — — — (616) (616)

Balance at 31 December 1999 1 4 999 3 834 5 429 1 891 16 154

Attributable earnings for the year — — — — 1 146 1 146

Transfer from investment reserve 11 — — (920) — 920 —

Dividends paid and payable — — — — (660) (660)

Balance at 31 December 2000 1 4 999 2 914 5 429 3 297 16 640

(2)Arising on the transfer from the Sanlam mutual capital fund on demutualisation.

P A G E 7 6

g r o u p c a s h - f l o w s t a t e m e n t s

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

Note R million R million R million R million

Net cash flow from operating activities 4 954 23 040 927 22 172

Cash utilised in operations 30.1 (8 047) (15 934) (9 777) (16 479)

Decrease/(increase) in net current assets 30.2 3 192 (1 213) 887 (1 169)

Decrease in investments held for resale 119 436 — —

Fixed assets – additions and replacements (20) (137) (52) (25)

Cash flow from operations (4 756) (16 848) (8 942) (17 673)

Cash flow from investment return 30.3 11 280 39 613 10 219 40 111

Cash flow from operating activities 6 524 22 765 1 277 22 438

(Decrease)/increase in minority shareholders’ interest (1 172) 541 — —

Dividend paid (398) (266) (350) (266)

Cash flow from investment activities (1 328) (21 888) (462) (21 544)

Net sale of investments 5 912 8 571 965 9 426

Net realised and unrealised growth in investments(1) 30.4 (2 262) (30 459) (1 427) (30 970)

Acquisition of Gensec minorities (4 978) — — —

Cash flow from financing activities

Net term finance raised/(repaid) 628 (1 536) (11) (874)

Net increase/(decrease) in cash and cash equivalents 4 254 (384) 454 (246)

Cash, deposits and similar securities at beginning of year 4 870 5 254 2 158 2 404

Cash, deposits and similar securities at end of year 16 9 124 4 870 2 612 2 158

(1)Refer to the basis of Presentation and Accounting Policies on page 71 regarding the treatment of unrealised growth in investments as equivalent cash flows.

P A G E 7 7

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

1. FUNDS RECEIVED FROM CLIENTS

– Analysis per product (Refer to page 106 for analysis

per Sanlam business.)

Insurance business

Premium income 27 924 23 598 23 420 20 295

Long-term insurance (note 19.2)(1) 23 806 20 295 23 806 20 295

Transfer from segregated funds (386) — (386) —

Short-term insurance 4 504 3 303 — —

Other business 19 002 12 170 1 687 1 706

Unit trusts 9 342 8 154 — —

Segregated funds(1) 7 973 2 310 — —

Linked products(1) 1 687 1 706 1 687 1 706

Total funds received from clients 46 926 35 768 25 107 22 001

The funds received from clients are disclosed net of

the following reinsurance premiums:

• Life business 154 136 154 136

• Short-term insurance 803 187 — —

(1) Included in long-term insurance business single premiums is R762 million (1999: R640 million) in respect of linked-product business and R176 million

(1999: R224 million) in respect of segregated fund business.

2. FINANCIAL SERVICES INCOME

Analysis per product

Long-term insurance 6 674 6 355 6 244 5 995

Short-term insurance 4 526 3 348 — —

Other financial services 1 366 1 285 103 62

Total financial services income 12 566 10 988 6 347 6 057

Included in financial services income is

Dividend income 159 151 1 —

Interest received 1 171 1 546 808 1 144

Interest paid and term finance costs (766) (961) (544) (691)

564 736 265 453

P A G E 7 8

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

3. UNDERWRITING POLICY BENEFITS

Long-term insurance: death, disability and cash bonuses 2 077 2 073 2 077 2 073

Individual insurance 1 093 1 144 1 093 1 144

Employee benefits 984 929 984 929

Short-term insurance 3 403 2 496 — —

General insurance benefits 2 763 1 823 — —

Medical insurance benefits 640 673 — —

Total underwriting policy benefits 5 480 4 569 2 077 2 073

4. ADMINISTRATION COSTS AND

EXCEPTIONAL ITEMS INCLUDE:

Directors’ remuneration

Total remuneration paid by Sanlam Limited and its consolidated

subsidiaries to its present, retired and previous directors:

Directors’ fees 2,4 2,4

Other services (basic remuneration, pensions and bonuses) 20,5 15,0

Total directors’ remuneration 22,9 17,4

Analysis of directors’ remuneration

Executive directors 20,9 15,4

Non-executive directors 2,0 2,0

Total directors’ remuneration 22,9 17,4

Directors’ remuneration paid by subsidiaries 20,8 15,6

Auditors’ remuneration

Audit fees 14,2 11,5 9,0 8,2

Other services 10,6 10,8 5,5 2,8

Total auditors’ remuneration 24,8 22,3 14,5 11,0

Depreciation 101 133 51 24

Operating leases 76 99 8 48

Consultancy fees 249 177 237 170

Fees paid

Technical, administrative and secretarial fees 86 81 16 17

Office staff costs 1 666 1 433 828 872

P A G E 7 9

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

5. EXCEPTIONAL ITEMS

Restructuring of businesses 112 236 79 236

Systems and projects 231 231 201 214

Other 25 2 (3) 2

Total exceptional items 368 469 277 452

6. SEGMENTAL ANALYSIS OF

OPERATING PROFIT

Sanlam Personal Finance 1 044 781 944 677

Sanlam Employee Benefits 202 168 206 163

Gensec 683 747 — —

Sanlam Health 15 11 — —

New Business Development (23) 2 (3) —

Santam 100 59 — —

Corporate income 93 197 103 200

Corporate costs (190) (243) (188) (246)

Total operating profit 1 924 1 722 1 062 794

7. TAXATION: SHAREHOLDERS

Normal income tax: RSA 538 467 411 250

current year 540 459 409 250

prior year (2) 8 2 —

Deferred tax (267) 109 (304) 112

current year 88 214 50 112

prior year (355) (105) (354) —

Effect of change in tax rate — (47) — (62)

Share of associate companies’ tax charge 111 63 143 59

Taxation 382 592 250 359

In addition, the shareholders’ funds paid the following indirect

taxes and levies which are included in the appropriate items

in the income statements:

Included in administration costs 195 173 191 172

Included elsewhere 52 79 52 76

247 252 243 248

Indirect taxes and levies include value-added tax, revenue stamps paid on insurance policy contracts and statutory levies

payable to the Regional Services Councils and the Financial Services Board.

Tax of R283 million (1999: R336 million) was also paid on policyholders’ funds (refer note 19.5).

P A G E 8 0

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

7. TAXATION: SHAREHOLDERS (continued)

Analysis of taxation of shareholders

Operating profit 225 204 93 192

current year 452 301 322 192

prior year (227) (97) (229) —

Investment return 225 245 157 167

Investment income 79 182 14 108

current year 202 182 137 108

prior year (123) — (123) —

Net investment surpluses – current year 35 — — —

Equity accounted earnings 111 63 143 59

Unrealised surpluses on investments held for resale (note 10) (68) 143 — —

Income tax on earnings 382 592 250 359

Reconciliation of tax rate on operating profit

Standard rate of taxation (30,0%) (30,0%) (30,0%) (30,0%)

Adjusted for:

Non-taxable income 3,7% 8,2% — —

Prior year adjustments 12,0% 5,6% 21,7% —

Effect of changes in tax rate — 1,4% — 5,4%

Foreign tax rate differential 5,5% 3,3% — —

Other (2,9%) (0,3%) (0,5%) 0,4%

Effective tax rate on operating profit (11,7%) (11,8%) (8,8%) (24,2%)

Reconciliation of tax rate on long-term investment return

Standard rate of taxation (30,0%) (30,0%) (30,0%) (30,0%)

Adjusted for:

Non-taxable income 2,8% 2,2% 1,9% 1,4%

Investment surpluses (1,6%) 24,1% 1,3% 28,8%

Prior year adjustments 4,8% — 5,6% —

Effect of changes in tax rate — 1,0% — 1,1%

Equity accounted earnings — 1,7% 2,4% 6,1%

Long-term rate of return adjustment 13,6% (12,8%) 9,8% (18,6%)

Other 0,9% 1,3% (0,1%) (0,1%)

Effective tax rate on long-term investment return (9,5%) (12,5%) (9,1%) (11,3%)

P A G E 8 1

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

8. INVESTMENT RETURN: SHAREHOLDERS

Interest bearing investments 667 724 370 364

Equities 214 135 157 80

Properties 69 63 69 63

Equity-accounted earnings 423 327 658 561

Investment income 1 373 1 249 1 254 1 068

Net investment (deficit)/surpluses (25) 1 687 95 1 728

Investment return: shareholders 1 348 2 936 1 349 2 796

9. NET LONG TERM RATE OF RETURN

ADJUSTMENT

Analysis of net long term rate of return adjustment

Gross investment return 1 255 (816) 881 (995)

Equities 1 228 (825) 730 (1 074)

Interest bearing investments 12 (189) 135 (119)

Properties 15 198 16 198

Tax (23) (21) (46) (36)

Minority shareholders’ interest (183) (10) — —

Net long term rate of return adjustment 1 049 (847) 835 (1 031)

A comparison of the aggregate actual and calculated longer term returns (after tax and minorities) since 1 January 1999 is set out below.

Actual returns 3 588 2 501 3 821 2 629

Longer term returns 3 790 1 654 3 625 1 598

(Deficit)/excess aggregate short term fluctuations (202) 847 196 1 031

A reconciliation of the investments included in the calculation of the long-term rate of return is as follows:

Investments per shareholders’ balance sheet (refer page 104) 20 923 23 325 21 620 21 480

Less: Investment in Absa 2 751 2 444 2 740 2 428

Investment in Gensec — — 4 906 2 488

Investment in Santam — — 508 256

Investments held in respect of term finance 3 919 3 026 4 344 4 135

Investment in Guardian National — 1 108 — —

Free float assets of subsidiary 1 814 611 — —

Other 923 (156) 571 483

Long term rate of return investments 11 516 16 292 8 551 11 690

Analysis of long term rate of return investments

Equities 7 522 9 110 5 510 7 227

Public sector stocks and loans 2 111 3 617 1 696 2 981

Other interest bearing investments 809 2 701 271 618

Properties 1 074 864 1 074 864

Long term rate of return investments 11 516 16 292 8 551 11 690

P A G E 8 2

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

10. OTHER NET INVESTMENT (DEFICITS)/SURPLUSES

Investment (deficits)/surpluses on investments held for resale (112) 48 — —

Unrealised investment (deficits)/surpluses (294) 275 — —

Income tax (note 7) 68 (143) — —

Minority shareholders’ interest 114 (84) — —

Net investment (deficits)/surpluses on investment in

associated companies (108) (247) (1 015) 149

Total other net investment (deficits)/surpluses (220) (199) (1 015) 149

11. TRANSFER TO/(FROM) INVESTMENT

RESERVE

Net investment (deficits)/surpluses (note 8) (25) 1 687 95 1 728

Tax on investment surpluses (note 7) (35) — — —

Minority interest in net investment deficits/(surpluses) 83 (74) — —

Net investment surpluses 23 1 613 95 1 728

Other net investment (deficits)/surpluses (note 10) (220) (199) (1 015) 149

(197) 1 414 (920) 1 877

Investment deficits previously included in retained income — (822) — —

Transfer (from)/to investment reserve (197) 592 (920) 1 877

12. DILUTED EARNINGS PER SHARE

For the diluted earnings per share the weighted average number of ordinary shares is adjusted for the shares not yet issued

under the Sanlam share incentive scheme. Diluted earnings per share is calculated by dividing earnings by the adjusted

weighted average number of shares in issue.

Sanlam Limited

2000 1999

Net operating profit from ordinary activities R million 1 342 1 067

Headline earnings based on the long term rate of return R million 3 478 2 721

Attributable earnings R million 2 209 3 437

Number of ordinary shares in issue million 2 655 2 655

Add: Incentive shares not issued million 24 9

Less: Sanlam shares held by subsidiary company (note 17) million (22) —

Adjusted weighted average number of shares million 2 657 2 664

Diluted earnings per share

Net operating profit from ordinary activities cents 50,5 40,1

Headline earnings based on the long-term rate of return cents 130,9 102,1

Attributable earnings per share cents 83,1 129,0

P A G E 8 3

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

13. FIXED ASSETS

Land and buildings 37 17 — —

Computer equipment 114 167 58 16

Cost 385 652 165 54

Accumulated depreciation (271) (485) (107) (38)

Furniture, equipment and vehicles 105 144 45 85

Cost 236 293 127 195

Accumulated depreciation (131) (149) (82) (110)

Total fixed assets 256 328 103 101

The reduction in the computer equipment in 2000 relates largely to the sale of the mainframe computer resulting from the

outsourcing of the IT Infrastructure Services to debis during the year.

The reconciliation of the movement in the book value of fixed assets is not provided as it is not considered meaningful or

material in relation to the Group’s activities.

14. GOODWILL

The Sanlam shareholders’ fund acquired the remaining shares in Gensec which it and its subsidiaries did not already own,

for a consideration of R37 per share with effect from 31 December 2000 for financial statement purposes. (Refer to

page 19 for details.) Details of the net assets acquired and goodwill are as follows:

Sanlam Limited

R million

Net cash purchase consideration paid to 4 978

minorities 3 625

policyholders 1 353

Fair value of net assets acquired (2 393)

Goodwill on acquisition 2 585

Transfer from non-distributable reserve (874)

Goodwill 1 711

The estimated useful life of this goodwill is ten years and will be amortised with effect from 1 January 2001.

The transfer from the non-distributable reserve relates to the negative goodwill which resulted from the acquisition of a

controlling interest in Gensec by Sanlam in 1998 pursuant to the sale of Sanlam’s asset management activities to Gensec.

P A G E 8 4

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

15. INVESTMENTS

Spread of investments in equities by sector (1) (2) (2) (3) (3)

Industrial 40% 45% 40% 43%

Financial 38% 35% 38% 37%

Resources 22% 20% 22% 20%

Total spread of investments in equities 100% 100% 100% 100%

(1)Spread of investments in equities per sector excludes offshore equities, derivatives, unit trusts and unlisted investments.

(2)Includes the appropriate underlying investments of Santam.

(3)Investment in Santam and Gensec excluded.

Unlisted equity investments

As a percentage of the total investment in equities 7% 4% 6%(1) 4%

(1)Excludes unlisted interest in Gensec

Offshore investments R million R million R million R million

Equities 14 846 14 902 14 791 14 902

Interest bearing investments 8 613 5 543 8 610 5 543

Total offshore investments 23 459 20 445 23 401 20 445

Shares held in holding company

Sanlam Limited shares held by policyholders

Number million 159 169 159 169

Fair value R million 1 523 1 453 1 523 1 453

Investment in associated companies(1)

Absa

Fair value of interest R million 4 277 4 195 4 266 4 179

Number of shares held 000s 149 532 151 985 149 162 151 380

Interest in issued share capital %

Shareholders 14,8 13,8 14,4 13,8

Policyholders 8,2 9,9 8,2 9,9

Share of earnings after tax for current year R million

Shareholders 309 263 309 263

Policyholders 200 199 200 199

Distributions received R million

Shareholders 96 83 96 83

Policyholders 72 62 72 62

Aggregate post-acquisition reserves

attributable to shareholders R million 590 377 590 377

The financial year-end of Absa is 31 March. The equity-accounted earnings for Absa included in the Sanlam Limited group

results are for the twelve-month period ended 30 September and were derived from their published annual financial

statements and their interim results. The Sanlam Group’s share of these earnings is included in investment income.

(1) Interest in associated companies exclude segregated funds’ interest.

P A G E 8 5

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

15. INVESTMENTS

Investment in associated companies (continued)

Santam

Fair value of interest R million 1 321 800

Number of shares held 000s 41 294 26 423

Interest in issued share capital %

Shareholders 14,4 11,6

Policyholders 23,2 24,7

Share of earnings after tax for current year R million

Shareholders 59 39

Policyholders 98 84

Distributions received R million

Shareholders 15 11

Policyholders 31 29

Gensec

Fair value of interest R million 4 906 4 026

Number of shares held 000s 151 031 103 784

Interest in issued share capital %

Shareholders 57,9 25,4

Policyholders — 15,7

Share of earnings after tax for current year R million

Shareholders 147 200

Policyholders 90 145

Distributions received R million

Shareholder 67 28

Policyholders 53 24

Register of investments

A register containing details of all investments including fixed property investments is available for inspection at the

registered office of Sanlam Limited.

16. CURRENT ASSETS R million R million R million R million

Premiums receivable 4 704 4 556 4 314 4 455

Accrued investment income 1 118 1 495 1 059 1 460

Trading account and money market investments 7 498 8 068 — —

Accounts receivable 1 874 3 119 726 1 473

Amounts owing by group companies — — 432 105

Cash, deposits and similar securities 9 124 4 870 2 612 2 158

Total current assets 24 318 22 108 9 143 9 651

Cash, deposits and similar securities of R793 million (1999: R367 million) and trading account investments of

R316 million (1999: R636 million) are encumbered as detailed in note 21.

P A G E 8 6

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

17. SHARE CAPITAL AND PREMIUM

Authorised share capital

4 000 million ordinary shares of 1 cent each 40 40

100 million ordinary shares of 1 cent each 1 1

Issued share capital and premium

Number of ordinary shares in issue

Balance at beginning of year million 2 654,6 2 654,6 50 50

Shares held by subsidiary million (22,2) — — —

Balance at end of year million 2 632,4 2 654,6 50 50

Nominal value and share premium

Nominal value of 1 cent per share R million 27 27 1 1

Share premium R million 3 487 3 487 4 999 4 999

Total nominal value and share premium R million 3 514 3 514 5 000 5 000

In terms of the Demutualisation Proposal of 1998, a number of shares were held by the Sanlam Demutualisation Trust to

enable adjustments to be made in the event of errors in the allocation of free shares. The period within which adjustments

could be made expired on 22 October 1999. The remaining 22,2 million shares held for this purpose were returned to

Sanlam Limited and are currently held as treasury stock by a wholly-owned subsidiary. These inter-group holdings are

eliminated on consolidation of the Sanlam Group results.

Sanlam Limited

2000 1999

000s 000s

Executive share incentive scheme

Restricted shares and share options at the beginning of the year 55 544 46 029

New options granted 18 359 19 322

Restricted shares purchased and options granted for the conversion of the Gensec share scheme 75 962 —

Unconditional options and shares released, available for release, or taken up (12 324) (8 477)

Options lapsed or cancelled (510) (1 536)

Cash dividends received on restricted shares and converted into shares 166 206

Restricted shares and share options at the end of the year 137 197 55 544

Restricted and unrestricted share options as a percentage of total issued shares 4,8% 2,0%

P A G E 8 7

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Executive share incentive scheme (continued)

Details regarding the restricted shares and share options outstanding on 31 December 2000 and the financial years during

which they become unconditional, are as follows:

Unconditional during Number of` Average

year ended Shares Options option price

000s 000s R

31 December 2001 4 096 13 994 7,94

31 December 2002 3 847 22 419 7,61

31 December 2003 5 599 27 838 7,58

31 December 2004 3 720 30 113 6,91

31 December 2005 2 868 15 815 7,47

31 December 2006 and later 1 174 5 714 7,95

21 304 115 893

Following the acquisition of the Gensec minorities, the Gensec share incentive scheme was converted to the Sanlam scheme

by accelerating a small number of existing Gensec options, using the net proceeds of the balance to purchase Sanlam shares

to be held in terms of the Gensec scheme until the original vesting periods expire (“restricted shares”) and offering new

Sanlam options for participants’ unexpired vesting period.

In terms of the rules of the Sanlam Scheme, a maximum of 5% of the issued share capital of Sanlam Limited may be used

for this purpose. However, as a result of the acquisition of the Gensec minorities and the conversion of the Gensec share

incentive scheme, this limit is fully exhausted. Shareholders will be requested to increase this limit to 7,5% at the

forthcoming annual general meeting.

Authorised and unissued shares

Subject to the restrictions imposed by the Companies Act, the authorised and unissued shares are under the control of the

directors until the forthcoming annual general meeting.

18. CONTINGENCY RESERVES

Contingency reserves in respect of short-term insurance business of R208 million are included in shareholders’ reserves

(1999: R160 million) and R90 million (1999: R65 million) in policy liabilities.

P A G E 8 8

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

19. POLICY LIABILITIES

19.1 Analysis of movement in policy liabilities

Income 33 842 57 716 33 842 57 716

Premium income (note 19.2) 23 806 20 295 23 806 20 295

Investment return (note 19.3) 10 036 37 421 10 036 37 421

Outgo 34 209 37 573 34 209 37 573

Policy benefits (note 19.4) 20 019 20 053 20 019 20 053

Retirement fund terminations 6 585 10 812 6 585 10 812

Transfer to segregated assets 1 093 637 1 093 637

Taxation (note 19.5) 283 336 283 336

Fees, risk premiums and other payments to shareholders 6 229 5 735 6 229 5 735

Net (outflow)/income for the year (367) 20 143 (367) 20 143

Balance at beginning of the year 134 319 114 176 134 319 114 176

Balance at end of the year 133 952 134 319 133 952 134 319

19.2 Analysis of premium income

Individual insurance 16 576 14 772 16 576 14 772

Recurring premiums 8 455 8 344 8 455 8 344

Single premiums 5 881 4 804 5 881 4 804

Continuations 2 240 1 624 2 240 1 624

Employee benefits 7 230 5 523 7 230 5 523

Recurring premiums 3 050 3 029 3 050 3 029

Single premiums 4 180 2 494 4 180 2 494

Total premium income 23 806 20 295 23 806 20 295

19.3 Investment return: policyholders

Investment income

Net interest bearing investments 4 512 5 274 4 512 5 274

Equities 1 445 1 339 1 445 1 339

Properties 1 238 1 234 1 238 1 234

Total investment income 7 195 7 847 7 195 7 847

Equity-accounted earnings 494 481 494 481

Net investment surpluses 2 347 29 093 2 347 29 093

Total investment return 10 036 37 421 10 036 37 421

P A G E 8 9

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

19.4 Analysis of long-term insurance policy benefits

Individual insurance 15 080 14 522 15 080 14 522

Maturity benefits 7 539 7 060 7 539 7 060

Surrenders 3 714 3 460 3 714 3 460

Life and term annuities 3 103 3 278 3 103 3 278

Death and disability benefits (1) 576 549 576 549

Cash bonuses (1) 148 175 148 175

Employee benefits 4 939 5 531 4 939 5 531

Withdrawal benefits 2 263 2 980 2 263 2 980

Pensions 1 175 1 163 1 175 1 163

Lump-sum retirement benefits 1 232 1 089 1 232 1 089

Taxation paid on behalf of certain retirement funds 164 207 164 207

Death and disability benefits (1) 69 63 69 63

Cash bonuses (1) 36 29 36 29

Total long-term insurance policy benefits 20 019 20 053 20 019 20 053

(1)Excludes death and disability benefits and cash bonuses underwritten by the shareholders (refer note 3).

19.5 Taxation: policyholders

Normal tax – foreign 8 9 8 9

Deferred (74) (44) (74) (44)

current year — — — —

prior year (74) (44) (74) (44)

Share of associated companies’ tax charge 106 53 106 53

Other 243 318 243 318

Taxation on retirement funds 187 261 187 261

Withholding tax on foreign investments 39 23 39 23

Indirect taxation 17 34 17 34

Total taxation: policyholders 283 336 283 336

A deferred tax asset has not been recognised for estimated assessed losses in the policyholders’ tax funds as it is uncertain

whether and when these losses will be utilised.

P A G E 9 0

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

19.6 Composition of policy liabilities

Individual insurance 89 775 86 339 89 775 86 339

Market-related liabilities 28 085 25 699 28 085 25 699

Stable bonus fund 30 266 32 905 30 266 32 905

Reversionary bonus policies 9 614 10 060 9 614 10 060

Non-participating annuities 10 697 9 954 10 697 9 954

Other non-market-related liabilities 11 113 7 721 11 113 7 721

Employee benefits 44 177 47 980 44 177 47 980

Market-related liabilities 24 457 28 702 24 457 28 702

Stable bonus portfolios 10 283 10 530 10 283 10 530

Participating annuities 7 272 6 975 7 272 6 975

Other non-market-related liabilities 2 165 1 773 2 165 1 773

Total policy liabilities 133 952 134 319 133 952 134 319

19.7 Capital adequacy and ratios

Capital adequacy requirements (CAR) R million 6 996 5 925

Shareholders’ funds(1) R million 16 640 16 154

Times CAR covered by shareholders’ funds times 2,4 2,7

Shareholders’ funds as percentage of:

Policy liabilities % 12 12

Non-market-related liabilities % 20 20

(1)Assets of the shareholders’ funds include an investment in Gensec of R4 906 million.

% % % %

19.8 Discount rates used in calculating prospective policy liabilities

Reversionary bonus business

Retirement annuity business 12,9 14,0 12,9 14,0

Taxable business 12,7 13,7 12,7 13,7

Individual stable bonus business

Retirement annuity business 12,8 13,5 12,8 13,5

Taxable business 12,6 13,3 12,6 13,3

Individual market-related business

Retirement annuity business 13,2 13,9 13,2 13,9

Taxable business 13,0 13,7 13,0 13,7

Participating annuity business 12,6 13,6 12,6 13,6

Non-participating annuity business 12,8 14,0 12,8 14,0

Guaranteed plans 11,3 12,1 11,3 12,1

Future expense inflation rate assumptions 7,3 8,4 7,3 8,4

P A G E 9 1

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

19.9 Provisions included in policy liabilities

HIV/Aids provision 1 465 1 266 1 465 1 266

Reduction in earnings caused by using a retrospective

HIV/Aids provision instead of a prospective provision (136) (2) (136) (2)

Asset mismatch provision 532 419 532 419

20. TERM FINANCE

Redeemable cumulative non-voting preference shares

issued by subsidiary companies with dividend terms

which are linked to prime interest rates and with

different redemption dates up to 2005 3 886 3 163 4 311 4 272

Obligation for post-retirement medical fund

contributions in respect of clients 176 220 176 220

Unsecured loan from an associated company at

17% per annum interest and repayable on 30 September 2001 300 300 300 300

Unsecured bank loan — 231 — —

Secured bank loans of R132 million and R195 million

at interest rates of 19,85% and 8,45% and repayable in

equal monthly and six-monthly instalments over fifteen

and five years respectively. 327 124 — —

Other 9 24 9 15

Total term finance 4 698 4 062 4 796 4 807

Portion potentially repayable within one year included above 2 532 1 269 2 761 2 139

21. CURRENT LIABILITIES

Trading account and money market liabilities 8 645 7 263 — —

Accounts payable 6 431 5 759 2 116 2 130

Policy benefits payable 2 278 1 656 1 534 1 322

Claims incurred but not reported 1 028 842 597 505

Taxation 522 512 497 455

Shareholders for dividend 790 398 660 350

Total current liabilities 19 694 16 430 5 404 4 762

Trading assets with a total value of R1 109 million (1999: R1 003 million) have been pledged as security for trading

account liability positions of Gensec (refer note 16).

P A G E 9 2

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

22. PAYMENTS TO CLIENTS

Analysis per product (Refer to page 107 for

analysis per Sanlam business.)

Insurance benefits paid

Policy benefits 25 499 24 622 22 096 22 126

Long-term insurance(1)

Underwriting (note 3) 2 077 2 073 2 077 2 073

Other (note 19.4) 20 019 20 053 20 019 20 053

Short-term – medical and general (note 3) 3 403 2 496 — —

Other payments 14 065 10 761 987 674

Unit trust repurchases 8 728 6 769 — —

Segregated funds withdrawn(1) 4 350 3 318 — —

Linked products withdrawn(1) 987 674 987 674

Total payments 39 564 35 383 23 083 22 800

Retirement fund terminations (note 19.1) 6 585 10 812 6 585 10 812

Total payments to clients 46 149 46 195 29 668 33 612

(1)Included in long-term insurance policy benefits is R146 million (1999: R63 million) in respect of linked-product business and R498 million

(1999: R431 million) in respect of segregated fund business.

23. DEFERRED TAX AND PROVISIONS

Details of the deferred tax balances and provisions of the Sanlam Limited group are as follows:

Deferred tax

Asset Liability Provisions

R million R million R million

Balance at 1 January 2000 37 (693) (292)

Charged to income statement (68) 335 (60)

Additional provisions (68) (20) (60)

Unused amounts reversed — 355 —

Utilised during the year — — 46

Unused amounts reversed to policy liabilities — 74 —

Arising on acquisition of subsidiary 146 — —

Balance at 31 December 2000 115 (284) (306)

Provisions

None of the items included in the provisions is individually material.

P A G E 9 3

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

24. FINANCIAL INSTRUMENTS

Derivative financial instruments

Derivative financial instruments are used by the Sanlam Group for hedging purposes to mitigate risk.

Gensec, in its trading activities, acts as a dealer in derivative instruments to satisfy the risk management needs of its clients

and assume trading positions based on its market expectations, and to benefit from price differentials between instruments

and markets.

Scrip lending

The Sanlam Group conducts scrip-lending activities in respect of some of its listed equities and bonds. The exposure to

these activities was limited to less than 25% of the shareholders’ fund of Sanlam Life Insurance Limited and collateral

security and guarantees of between 105% and 150% of the value of the loaned securities are held.

Market risk – interest and equities

Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices or changes in

market interest rates.

Policyholders’ and shareholders’ investments in equities are valued at fair value and are therefore susceptible to market

fluctuations. Shareholders’ investments in listed subsidiaries are reflected at net asset value based on the market value of the

underlying investments. Investments subject to equity risk are analysed in the balance sheet and in note 15.

The acquisition of policyholders’ assets is based on the contract entered into and the preferences expressed by the

policyholder. Within these parameters, investments are managed with the aim of maximising policyholder returns while

limiting risk to acceptable levels within the framework of statutory requirements.

Continuous monitoring takes place to ensure that appropriate assets are held where the liabilities are dependent upon the

performance of specific portfolios of assets and that a suitable match of assets exists for all non-market-related liabilities.

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate in rand owing to changes in foreign exchange rates.

The Group’s exposure to currency risk is mainly in respect of foreign investments made on behalf of policyholders and

shareholders for the purpose of seeking desirable international diversification of investments. Exposure to different foreign

currencies is benchmarked against the currency composition of the Morgan Stanley Capital International World Equity

Index and the JP Morgan Government Bond Index.

Credit risk

Credit risk arises from the inability or unwillingness of a counterparty to a financial instrument to discharge its contractual

obligations.

The Sanlam Group’s financial instruments do not represent a concentration of credit risk because the Group deals with a

variety of major banks and its accounts receivable and loans are spread among a number of major industries, customers and

geographic areas.

Amounts receivable in terms of long-term insurance business are secured by the underlying value of the unpaid policy

benefits in terms of the policy contract.

An appropriate level of provision is maintained. Exposure to outside financial institutions concerning deposits and similar

transactions is monitored against approved limits.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial

instruments.

Approximately 90% of term finance liabilities are backed by appropriate assets with the same maturity profile. Details of

term finance liabilities are provided in note 20, and current liabilities in note 21. The Group has significant liquid resources

and substantial unutilised banking facilities.

P A G E 9 4

Underwriting risk

Underwriting risk is the risk that the actual exposure to mortality, disability and medical risks in respect of policyholder benefits

will exceed prudent exposure.

The statutory actuary reports annually on the actuarial soundness of the premium rates in use and the profitability of the

business taking into consideration the reasonable benefit expectation of policyholders. All new rate tables are approved and

authorised by the statutory actuary prior to being issued. Regular investigations into mortality and morbidity experience

are conducted. Catastrophe insurance is in place for single-event disasters.

All applications for risk cover in excess of specified limits are reviewed by experienced underwriters and evaluated against

established standards. Specific testing for HIV/Aids is carried out in all cases where the applications for risk cover exceed

a set limit. All risk-related liabilities in excess of specified monetary or impairment limits are reinsured.

Legal risk

Legal risk is the risk that the Group will be exposed to contractual obligations which have not been provided for.

During the development stage of any new product and for material transactions entered into by the Group, the legal

resources of the Group monitor the drafting of the contract document to ensure that rights and obligations of all parties

are clearly set out.

Capital adequacy risk

Capital adequacy risk is the risk that there are insufficient reserves to provide for variations in actual future experience worse than

that which has been assumed in the financial soundness valuation.

Capital adequacy requirements were covered 2,4 times at 31 December 2000 (1999: 2,7 times).

25. TANGIBLE NET ASSET VALUE PER SHARE: SANLAM LIMITED GROUP

Tangible net asset value per share is calculated on the group shareholders’ funds of R20 512 million (1999: R20 463 million),

after adjusting for the shareholders’ interest in Santam and Gensec from net asset value to fair value, divided by

2 632 million (1999: 2 655 million) shares issued at the year-end.

26. RETIREMENT BENEFITS FOR EMPLOYEES

Retirement provision

The Sanlam Limited Group provides for the retirement benefits of full-time employees and for certain part-time employees

by means of defined benefit and defined contribution pension and provident funds. These funds are governed by the

Pension Funds Act.

Defined contribution funds

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

contributed R171 million to these funds during 2000 (1999: R150 million).

Defined benefit funds

Sanlam has two defined benefit funds. These funds relate to the office staff and advisers who did not elect to transfer to the

defined contribution funds. These funds are closed to new entrants. The Sanlam Limited Group contributed R8 million to

these funds during 2000 (1999: R9 million). According to the latest actuarial valuations as at 1 April 1999 the funds were

financially sound.

The present value of accrued retirement benefits in respect of past services at the valuation date was R704 million and the

actuarial value of the assets of the funds was R761 million. Based on reasonable actuarial assumptions about future

experience, the employers contribution as a fairly constant percentage of the remuneration of the members of the funds

should be sufficient to meet the promised benefits of the funds.

P A G E 9 5

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

27. BORROWING POWERS

In terms of the articles of association of Sanlam Limited, the directors may at their discretion raise or borrow money for the

purpose of the business of the company without limitation.

The directors of Sanlam Life Insurance Limited have the same discretion as Sanlam Limited, subject to the prior approval

of the Registrar of Long-term Insurance.

Material borrowings of the Sanlam Limited group are disclosed in note 20.

28. COMMITMENTS AND CONTINGENCIES

Gensec has a commitment in respect of underwriting and private equity commitments amounting to R185 million

(1999: R271 million) and has future operating lease commitments of R223 million (1999: R28 million).

There are no other material commitments or contingencies.

29. RELATED PARTY TRANSACTIONS

During the year the company and its subsidiaries in the ordinary course of business entered into various transactions with

other group companies, associates and other stakeholders.These transactions occurred under terms that are no less

favourable than those arranged with third parties.

Associates

Details of investments in associates are disclosed in note 15.

Subsidiaries

Details of investments in subsidiaries are disclosed on page 99.

Other stakeholders

Details of transactions between the policyholders of Sanlam Life Insurance Limited and the shareholders’ funds of the

Sanlam Limited group are disclosed in notes 2 and 19.1.

Directors

All directors of Sanlam Limited and Sanlam Life Insurance Limited have notified that they did not have a material interest

in any contract of significance with the company or any of its subsidiaries which could have given rise to a conflict of

interests during the year.

Details relating to directors’ emoluments are included in note 4 and shareholdings in the company are disclosed in the

directors’ report on page 67.

P A G E 9 6

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

30. NOTES TO THE CASH-FLOW STATEMENTS

30.1 Operating profit on ordinary activities 1 342 1 067 969 602

Decrease in policy liabilities before investment return (10 403) (17 278) (10 403) (17 278)

Net (decrease)/increase (note 19.1) (367) 20 143 (367) 20 143

Less: Investment return (note 19.3) (10 036) (37 421) (10 036) (37 421)

Adjustment for non-cash items 1 014 277 (343) 197

Cash utilised in operations (8 047) (15 934) (9 777) (16 479)

30.2 Decrease/(increase) in net current assets

Current assets 418 (4 616) 527 (549)

Premiums receivable (148) (57) 141 (70)

Accrued investment income (183) (39) (46) (53)

Trading account and money market investments (93) (3 832) — —

Accounts receivable 842 (688) 759 (552)

Amounts owing by group companies — — (327) 126

Current liabilities 2 774 3 403 360 (620)

Trading account and money market liabilities 1 382 3 229 — —

Accounts payable 587 1 009 14 6

Policy benefits payable and claims incurred but

not reported 808 (867) 304 (678)

Taxation (3) 32 42 52

Decrease/(increase) in net current assets 3 192 (1 213) 887 (1 169)

P A G E 9 7

n o t e s t o t h e g r o u p f i n a n c i a l s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

30.3 Cash flow from investment return

Per income statement

• Net investment return 2 136 1 654 2 027 1 598

• Adjustment for net long-term rate of return (1 049) 847 (835) 1 031

• Other net investment (deficits)/surpluses (220) (199) (1 015) 149

Net investment return attributable to shareholders 867 2 302 177 2 778

Net investment return attributable to policyholders (note 19.3) 10 036 37 421 10 036 37 421

Non-cash items 377 (110) 6 (88)

Cash from investment return 11 280 39 613 10 219 40 111

30.4 Net realised and unrealised growth in investments

Net investment (deficits)/surpluses attributable to

shareholders (note 11) (197) 1 414 (920) 1 877

Adjustment for surpluses/(deficits) on investments held

for resale (note 10) 112 (48) — —

Net investment surpluses attributable to policyholders

(note 19.3) 2 347 29 093 2 347 29 093

Net realised and unrealised growth in investments 2 262 30 459 1 427 30 970

P A G E 9 8

p r i n c i p a l s u b s i d i a r i e s

for the year ended 31 December 2000

Issued Fair value of

ordinary interest in subsidiaries

capital Shares Loans

% 2000 2000 1999 2000 1999

interest R million R million R million R million R million

SANLAM LIMITED

Long-term insuranceSanlam Life Insurance Limited 100 5 000 16 640 16 154 (85) —

Asset management, equity activities and bankingGenbel Securities Limited (Gensec) 100 1 952,5 (3) (3) (3) (3)

Short-term insuranceSantam Limited (listed) 59 1 045,6 (3) (3) (3) (3)

Investment companyBeldiv Investments (Proprietary) Limited 100 (1) 356 687 3 278 2 893

Computer hardware holding companySanlam Computer Holdings (Proprietary) Limited 100 (1) — 1 — (7)

Money transfer businessMulti-Data (Proprietary) Limited 100 (4) — 3 48 —

Managed health care(5)

Sanlam Health (Proprietary) Limited 100 (1) 237 435 34 293

Management of unit trust schemesSanlam Trust Managers Limited 100 2,6 389 318 (184) (184)

Trust servicesSanlam Trust Limited 100 1,0 — — — 2

Management companiesSanlam Personal Finance Limited 100 (1) — — — —Sanlam Employee Benefits Limited 100 (1) — — — —

Total 17 622 17 598 3 091 2 997

SANLAM LIFE INSURANCE LIMITED

Investment companiesU.R.D. Investments (Proprietary) Limited 100 81,0 32 611 30 989 (14 096) (8 974)Electra Investments (South Africa) Limited 100 76,0 8 645 8 347 (5 216) (4 050)

Property investment companyRycklof Investments (Proprietary) Limited 100 (2) 3 902 3 579 4 202 4 337

Management of Namibian businessSanlam Namibia Limited 100 5,0 113 101 (9) (11)

Other 493 1 018 268 330

Total 45 764 44 034 (14 851) (8 368)

(1) Issued share capital is R100.(2) Issued share capital is R2 000.(3) The interest in Santam and Gensec is held indirectly by Sanlam Life Insurance Limited and Beldiv Investments (Pty) Limited.(4) Issued share capital is R2.(5) The fair value of the shares and loan account represents the value of the underlying companies in the Sanlam Health (Pty) Limited group.

A register of all subsidiary companies is available for inspection at the registered office of Sanlam Limited. All investments above are unlisted unless otherwise

indicated.

Gensec Santam

Analysis of the Group’s holding in Santam and Gensec 2000 1999 2000 1999

Shareholders• Sanlam Life Insurance Limited 58% 25% 14% 12%• Sanlam Limited 42% 24% 22% 20%

Policyholders• Sanlam Life Insurance Limited — 16% 23% 25%

100% 65% 59% 57%

P A G E 9 9

s a n l a m l i m i t e d f i n a n c i a l s t a t e m e n t s

for the year ended 31 December 2000

BALANCE SHEET AT 31 DECEMBER 2000

2000 1999

Note R million R million

ASSETS

Non-current assets

Investment in group companies 2 13 750 12 547

Investment in joint venture 20 —

Current assets 1 262 1 723

Loans to subsidiaries 452 1 373

Dividends receivable 810 350

Total assets 15 032 14 270

EQUITY AND LIABILITIES

Share capital and premium 3 3 514 3 514

Non-distributable reserves 4 9 342 9 342

Retained income 980 737

Shareholders’ funds 13 836 13 593

Current liabilities 1 196 677

Loans from subsidiaries 367 191

Accounts payable 32 88

Shareholders for dividend 797 398

Total equity and liabilities 15 032 14 270

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2000

Unlisted dividends received 1 042 666

Dividends paid and proposed 5 (797) (664)

Expenditure (2) (2)

Retained income for the year 243 —

Retained income at beginning of the year 737 737

Retained income at end of the year 980 737

CASH-FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2000

Cash flow from operating activities 7 146 65

Cash flow from investing activities

Investment in subsidiary companies (1 203) (437)

Investment in joint venture (40) —

Decrease in cash and cash equivalents (1 097) (372)

Net loans to subsidiaries – beginning of the year 1 182 1 554

Net loans to subsidiaries – end of the year 85 1 182

P A G E 1 0 0

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2000

1. ACCOUNTING POLICIES

The accounting policies of the Sanlam Limited group as set out on pages 68 to 71 are also applicable to Sanlam Limited

except as indicated below.

Investments

Investments in subsidiary companies are reflected at book value or at a lower value if there is an impairment in value.

2000 1999

R million R million

2. SUBSIDIARY COMPANIES

Investment in group companies

Shares at cost 10 374 10 374

Amounts owing by subsidiaries 3 376 2 173

Total investment in group companies 13 750 12 547

Current loans with group companies

Loans to subsidiaries 452 1 373

Loans from subsidiaries (367) (191)

Book value of interest in subsidiaries 13 835 13 729

Fair value of investment in subsidiaries 20 713 20 595

The loans to subsidiaries are unsecured and not subject to any fixed terms of repayment. No interest is charged but these

arrangements are subject to revision from time to time. Details regarding the principal subsidiaries of Sanlam Limited are

set out on page 99 of the Sanlam Limited Group financial statements.

3. SHARE CAPITAL

Details of share capital are reflected in note 17 on page 87 of the Sanlam Limited Group financial statements.

4. NON-DISTRIBUTABLE RESERVES

Pre-acquisition reserves arising on acquisition of subsidiaries 9 342 9 342

5. DIVIDENDS

Details of dividends paid are reflected in the directors’ report on page 67 of the Sanlam Limited Group financial statements.

6. REPORT OF THE DIRECTORS

The directors’ report is included on page 67 of the Sanlam Limited Group financial statements.

7. CASH FLOW FROM OPERATING ACTIVITIES

Retained income for the year 243 —

Non-cash items – dividend receivable (810) (350)

– dividend payable 797 398

– provision against investment 20 —

Decrease in accounts receivable 350 5

Increase in accounts payable (454) 12

Cash flow from operating activities 146 65

P A G E 1 0 1

P A G E 1 0 2

PA G E 1 1 1

Income Statement

(as previously disclosed)

PA G E 1 1 2

Six-Year Review

PA G E 1 1 3

Stock Exchange Performance

PA G E 1 1 4

Report on the Sanlam Group

Embedded Value

co

nte

nts

PA G E 1 0 3

Income Statement per Business

PA G E 1 0 4

Balance Sheets

PA G E 1 0 5

Cash Flow Statements

PA G E 1 0 6

Notes to the Financial Statements

f i n a n c i a l i n f o r m a t i o n f o r t h e s h a r e h o l d e r s ’

f u n d s

for the year ended 31 December 2000

s a n l a m l i m i t e d s h a r e h o l d e r s ’ f u n d s – s e g m e n t a l

i n c o m e s t a t e m e n t

for the year ended 31 December 2000

Corporate Investment

SPF SEB Health Gensec Santam and other return(1) Total

R million 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999

Financial services income 4 809 4 576 1 558 1 426 783 854 1 387 1 247 3 836 2 603 193 282 — — 12 566 10 988

Sales remuneration 1 000 915 43 32 — — — — 444 390 18 16 — — 1 505 1 353

Income after sales

remuneration 3 809 3 661 1 515 1 394 783 854 1 387 1 247 3 392 2 213 175 266 — — 11 061 9 635

Underwriting policy

benefits 1 089 1 142 984 929 640 673 — — 2 763 1 823 4 2 — — 5 480 4 569

Administration costs 1 415 1 330 301 271 128 165 631 500 529 331 285 278 — — 3 289 2 875

Profit before exceptionals 1 305 1 189 230 194 15 16 756 747 100 59 (114) (14) — — 2 292 2 191

Exceptional items 261 408 28 26 — 5 73 — — — 6 30 — — 368 469

Operating profit before tax 1 044 781 202 168 15 11 683 747 100 59 (120) (44) — — 1 924 1 722

Tax on operating profit (105) (211) (5) (34) — — (79) 41 (21) (15) (15) 15 — — (225) (204)

Operating profit after tax 939 570 197 134 15 11 604 788 79 44 (135) (29) — — 1 699 1 518

Minority interest — — — — — — (301) (421) (56) (30) — — — — (357) (451)

Net operating profit 939 570 197 134 15 11 303 367 23 14 (135) (29) — — 1 342 1 067

Investment return

based on LTRR(3)

Investment return — — — — — — — — 155 320 — — 1 193 2 616 1 348 2 936

Tax on investment return — — — — — — — — (95) (46) — — (130) (199) (225) (245)

Minority interest — — — — — — — — (36) (190) — — — — (36) (190)

Net LTRR(3) adjustment — — — — — — — — 92 9 — — 957 (856) 1 049 (847)

Net investment return

based on LTRR(3) — — — — — — — — 116 93 — — 2 020 1 561 2 136 1 654

Headline earnings

based on LTRR(3) — — — — — — 303 367 139 107 — — 2 020 1 561 3 478 2 721

Short-term investment

surpluses — — — — — — — — (92) (9) — — (957) 856 (1 049) 847

Net investment surpluses on:

trade investments — — — — — — (112) 48 — — — — — — (112) 48

investment in associate — — — — — — — — — — — — (108) (247) (108) (247)

Accounting policy change — — — — — — — — — 68 — — — — — 68

Attributable earnings — — — — — — 191 415 47 166 — — 955 2 170 2 209 3 437

Ratios

Admin ratio(2) 37,1% 36,3% 19,9% 19,4% 16,3% 19,3% 45,5% 40,1% 15,6% 15,0% — — — — 29,7% 29,8%

Operating margin(2) 27,4% 21,3% 13,3% 12,1% 1,9% 1,3% 49,2% 59,9% 2,9% 2,7% — — — — 17,4% 17,9%

Return on equity

Operating profit before tax — — — — — — — — — — — — — — 8,2% 7,7%

Operating profit after tax — — — — — — — — — — — — — — 7,2% 6,4%

Headline earnings based

on LTRR(3) — — — — — — — — — — — — — — 18,7% 16,3%

(1) Represents the investment return earned on the Sanlam Group investments excluding Santam’s underlying investments.(2) Calculated as a percentage of income earned by the shareholders less sales remuneration.(3) LTRR = Long term rate of return.

P A G E 1 0 3

s h a r e h o l d e r s ’ f u n d s b a l a n c e s h e e t s

at 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

Note R million R million R million R million

ASSETS

Non-current assets

Fixed assets 256 328 103 101

Goodwill 1 711 — — —

Investments 20 923 23 325 21 620 21 480

Properties 1 074 864 1 074 864

Equities 4 10 337 12 712 13 664 12 399

Public sector stocks and loans 2 958 3 886 1 854 3 246

Mortgages, debentures and other loans 2 106 1 394 1 770 1 444

Cash, deposits and similar securities 4 448 4 469 3 258 3 527

Deferred tax 115 37 — —

Investments held for resale 1 213 1 460 — —

Current assets 5 19 729 16 398 4 554 3 952

Total assets 43 947 41 548 26 277 25 533

EQUITY AND LIABILITIES

Capital and reserves

Share capital and premium 6 3 514 3 514 5 000 5 000

Non-distributable reserves 9 415 10 289 5 429 5 429

Investment reserve 395 592 2 914 3 834

Retained income 4 898 3 282 3 297 1 891

Shareholders’ funds 18 222 17 677 16 640 16 154

Minority interest 1 897 3 543 — —

Outside shareholders 1 215 2 387 — —

Sanlam policyholders 682 1 156 — —

Non-current liabilities

Term finance 4 698 4 062 4 796 4 807

Deferred tax 284 693 284 663

Current liabilities 7 18 846 15 573 4 557 3 909

Total equity and liabilities 43 947 41 548 26 277 25 533

P A G E 1 0 4

s h a r e h o l d e r s ’ f u n d s c a s h f l o w s t a t e m e n t s

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

Note R million R million R million R million

Net cash flow from operating activities 3 834 3 797 290 2 841

Cash generated by operations 8.1 2 356 1 344 626 799

Decrease/(increase) in net current assets 8.2 2 237 (218) (115) (220)

Decrease in investments held for resale 119 436 — —

Fixed assets – additions and replacements (20) (137) (52) (25)

Cash flow from operations 4 692 1 425 459 554

Cash flow from investment return 8.3 1 186 2 057 181 2 553

Cash flow from operating activities before 5 878 3 482 640 3 107

(Decrease)/increase in minority shareholders’ interest (1 646) 581 — —

Dividend paid (398) (266) (350) (266)

Cash flow from investment activities (208) (2 642) 175 (2 210)

Net sales/(purchases) of investments 4 685 (1 276) (745) (333)

Net realised and unrealised growth in investments 8.4 85 (1 366) 920 (1 877)

Acquisition of Gensec minorities (4 978) — — —

Cash flow from financing activities

Net term finance raised/(repaid) 628 (1 536) (11) (874)

Net increase/(decrease) in cash and cash equivalents 4 254 (381) 454 (243)

Cash, deposits and similar securities at beginning of year 4 870 5 251 2 158 2 401

Cash, deposits and similar securities at end of year 5 9 124 4 870 2 612 2 158

P A G E 1 0 5

n o t e s t o t h e s h a r e h o l d e r s ’ f u n d s f i n a n c i a l

s t a t e m e n t s

for the year ended 31 December 2000

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The basis of presentation and accounting policies in respect of the financial statements for the shareholders’ funds of the

Sanlam Life Insurance Limited group and Sanlam Limited group are the same as set out on

pages 68 to 73.

Basis of consolidation

Santam and Gensec are consolidated in the Sanlam Limited group shareholders’ financial statements. The policyholders’ and

outside shareholders’ interests in these companies are treated as minority shareholders’ interest on consolidation.

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

2. FUNDS RECEIVED FROM CLIENTS

(analysis per business)

Sanlam Personal Finance 24 704 21 906 15 630 13 980

Individual insurance 15 630 13 980 15 630 13 980

Recurring premiums 8 401 8 310 8 401 8 310

Single premiums 4 989 4 046 4 989 4 046

Continuations 2 240 1 624 2 240 1 624

Unit trust inflows 9 074 7 926 — —

SP2 (linked products) 2 449 2 346 2 449 2 346

Sanlam Employee Benefits 6 658 5 299 6 658 5 299

Recurring premiums 2 883 2 850 2 883 2 850

Single premiums 4 146 2 449 4 146 2 449

7 029 5 299 7 029 5 299

Transfer from segregated funds (371) — (371) —

Santam 3 836 2 603 — —

Sanlam Health 668 700 — —

SIM segregated funds 8 149 2 534 176 224

Sanlam Namibia Limited 462 380 194 152

Total funds received from clients 46 926 35 768 25 107 22 001

P A G E 1 0 6

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

3. PAYMENTS TO CLIENTS

(analysis per business)

Sanlam Personal Finance 24 521 22 258 15 952 15 560

Individual insurance 15 952 15 560 15 952 15 560

Surrenders 3 672 3 444 3 672 3 444

Death, maturity, disability and annuity benefits 12 280 12 116 12 280 12 116

Unit trust outflows 8 569 6 698 — —

SP2 (linked products) 1 133 737 1 133 737

Sanlam Employee Benefits 12 006 16 841 12 006 16 841

Fund terminations 7 271 11 060 7 271 11 060

Death, retirement, pension, disability and

withdrawal benefits 5 765 6 311 5 765 6 311

13 036 17 371 13 036 17 371

Transfer to segregated funds (1 030) (530) (1 030) (530)

Santam 2 763 1 823 — —

Sanlam Health 640 673 — —

SIM segregated funds 4 848 3 749 498 431

Sanlam Namibia Limited 238 114 79 43

Total payments to clients 46 149 46 195 29 668 33 612

4. INVESTMENTS

Analysis of equity investments (1) (1) (2) (2)

Absa 2 751 2 444 2 740 2 428

Gensec — — 4 906 2 488

Santam (1) (1) 508 256

Other equities

Local 5 648 8 368 3 627 5 327

Offshore 1 938 1 900 1 883 1 900

Equity investments 10 337 12 712 13 664 12 399

(1) Includes the underlying investments of Santam which are consolidated in the Sanlam Limited group results.

(2) Interest in Santam and Gensec reflected as investments in associated companies and not consolidated.

P A G E 1 0 7

n o t e s t o t h e s h a r e h o l d e r s ’ f u n d s f i n a n c i a l

s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

4. INVESTMENTS (continued)

Spread of investments in equities by sector (1) (2) (2) (3) (3)

Industrial 28% 37% 23% 25%

Financial 55% 48% 61% 64%

Resources 17% 15% 16% 11%

Total spread of investment in equities 100% 100% 100% 100%

(1) Spread of investments in equities per sector excludes offshore equities, derivatives, unit trusts and unlisted investments.

(2) Includes the appropriate underlying investments of Santam.

(3) Investment in Santam and Gensec excluded.

Offshore investments

Equities 1 938 1 900 1 883 1 900

Interest-bearing investments 1 068 726 1 065 726

Total offshore investments 3 006 2 626 2 948 2 626

Unlisted equity investments

As a percentage of total investment in equities 2% 1% 1% (1) 1%

(1) Excludes unlisted interest in Gensec.

5. CURRENT ASSETS

Premiums receivable 930 411 540 310

Accrued investment income 242 536 183 502

Trading account and money market investments 7 498 8 068 — —

Accounts receivable 1 935 2 513 787 877

Amounts owing by group companies — — 432 105

Cash, deposits and similar securities 9 124 4 870 2 612 2 158

Total current assets 19 729 16 398 4 554 3 952

6. SHARE CAPITAL AND PREMIUM

Details of share capital are reflected in note 17 on page 87 of the Sanlam Limited group financial statements.

P A G E 1 0 8

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

7. CURRENT LIABILITIES

Trading account and money market liabilities 8 645 7 263 — —

Accounts payable 6 180 5 407 1 866 1 782

Policy benefits payable 2 278 1 656 1 534 1 322

Claims incurred but not reported 431 337 — —

Taxation 522 512 497 455

Shareholders for dividend 790 398 660 350

Total current liabilities 18 846 15 573 4 557 3 909

8. NOTES TO THE CASH-FLOW STATEMENTS

8.1 Cash generated by operations per income statement 1 342 1 067 969 602

Adjustment for non-cash items 1 014 277 (343) 197

Cash generated by operations 2 356 1 344 626 799

8.2 Decrease/(increase) in net current assets

Current assets (546) (3 997) (481) 217

Premiums receivable (519) 93 (230) 79

Accrued investment income (109) 51 (26) 51

Trading account and money market investments (93) (3 832) — —

Accounts receivable 175 (309) 102 (38)

Amounts owing by group companies — — (327) 125

Current liabilities 2 783 3 779 366 (437)

Trading account and money market liabilities 1 382 3 229 — —

Accounts payable 688 1 442 112 235

Policy benefits payable and claims incurred but not reported 716 (924) 212 (724)

Taxation (3) 32 42 52

Decrease/(increase) in net current assets 2 237 (218) (115) (220)

P A G E 1 0 9

n o t e s t o t h e s h a r e h o l d e r s ’ f u n d s f i n a n c i a l

s t a t e m e n t s – c o n t i n u e d

for the year ended 31 December 2000

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

8.3 Cash flow from investment return

Per income statement

• Net investment return per income statement 2 136 1 654 2 027 1 598

• Adjustment for net long-term rate of return (1 049) 847 (835) 1 031

• Other net investment (deficits)/surpluses (220) (199) (1 015) 149

Net investment return attributable to shareholders 867 2 302 177 2 778

Non-cash items 319 (245) 4 (225)

Cash from investment return 1 186 2 057 181 2 553

8.4 Net realised and unrealised growth in investments

Net investment (deficits)/surpluses (note 11 on page 83) (197) 1 414 (920) 1 877

Adjust for surpluses/(deficits) on investments held for resale

(note 10 on page 83) 112 (48) — —

Net realised and unrealised growth in investments (85) 1 366 (920) 1 877

P A G E 1 1 0

g r o u p i n c o m e s t a t e m e n t s

for the year ended 31 December 2000 (on previous basis of disclosure)

Sanlam Life

Sanlam Limited Insurance Limited

2000 1999 2000 1999

R million R million R million R million

Operating profit after exceptional items 1 924 1 722 1 062 794

Investment income (refer note 8 on page 82) 1 373 1 249 1 254 1 068

Headline earnings before taxation 3 297 2 971 2 316 1 862

Tax on headline earnings (415) (449) (250) (359)

Headline earnings after taxation 2 882 2 522 2 066 1 503

Minority shareholders’ interest (476) (567) — —

Headline earnings 2 406 1 955 2 066 1 503

Net investment surpluses (refer note 11 on page 83) (197) 1 414 (920) 1 877

• Investment surpluses (427) 1 715 (920) 1 877

• Income tax 33 (143) — —

• Minority shareholders’ interest 197 (158) — —

Accounting policy change by subsidiary — 68 — —

• Accumulated prior years’ effect of policy change — 212 — —

• Minority shareholders’ interest — (144) — —

Earnings attributable to shareholders 2 209 3 437 1 146 3 380

Diluted attributable earnings per share (cents) 83,1 129,0

Diluted headline earnings per share (cents) 90,6 73,4

P A G E 1 1 1

s i x - y e a r r e v i e w

Average

annual

2000 1999 1998 1997(1) 1996(1) 1995(1) growth

R million R million R million R million R million R million rate %

EXTRACTS FROM FINANCIAL STATEMENTS

Operating profit 1 924 1 722 1 237 1 026 1 070 1 079 12%

Headline earnings based on long-term rate of return 3 478 2 721 — — — — —

Shareholders’ funds 18 222 17 677 14 904 10 172 9 005 7 182 20%

Policy liabilities 133 952 134 319 114 176 119 506 114 647 107 839 4%

Total assets under management 223 637 215 924 176 792 166 382 147 969 135 984 10%

Net tangible asset value per share (cents) (2) 779 771 630 528 466 376 16%

Group administration cost ratio (%) 29,7% 29,8% 27,8% — — — —

Group operating margin (%) 17,4% 17,9% 12,9% — — — —

NEW BUSINESS

Long-term insurance business

Individual insurance 9 795 7 704 6 319 7 743 6 733 7 244 6%

• Recurring premiums – indexed growth 525 527 500 500 425 385 6%

– other 1 149 749 830 1 039 1 301 1 366 –3%

• Single premiums 5 881 4 804 3 107 5 458 4 376 4 862 4%

• Continuations 2 240 1 624 1 882 746 631 631 29%

Employee benefits 4 399 2 633 5 247 5 154 3 503 2 252 14%

• Recurring premiums 219 139 137 — (3) — (3) — (3) —

• Single premiums 4 180 2 494 5 110 5 154 3 503 2 252 13%

Total long-term insurance business 14 194 10 337 11 566 12 897 10 236 9 496 8%

Other business 23 506 15 473 18 280 12 214 8 757 5 978 32%

• Unit trusts 9 342 8 154 8 266 2 957 1 164 890 60%

• Segregated funds 7 973 2 310 4 498 5 519 4 666 2 714 24%

• Linked products 1 687 1 706 1 423 431 — — 58%

• Short-term insurance 4 504 3 303 4 093 3 307 2 927 2 374 14%

Total new business 37 700 25 810 29 846 25 111 18 993 15 474 19%

RECURRING PREMIUMS

Long-term insurance business

Individual insurance 8 455 8 344 8 496 8 354 7 781 6 961 4%

Employee benefits 3 050 3 029 2 740 3 000 2 958 2 579 3%

Total recurring premiums 11 505 11 373 11 236 11 354 10 739 9 540 4%

STAFF

Office staff (excluding marketing staff ) 9 709 10 159 11 669 12 756 12 635 12 406 -5%

(1) Pro forma figures to reflect the demutualisation and restructuring of Sanlam in 1998.(2) Shareholders’ interest in Santam and Gensec adjusted from net asset value to fair value.(3) Figures not readily available as the definition of new business was only introduced in 1999.

P A G E 1 1 2

s t o c k e x c h a n g e p e r f o r m a n c e

2000 1999 1998(1)

Number of shares traded (million) 1 030 1 463 350

Value of shares traded (R million) 8 578 9 451 2 035

Percentage of issued shares traded (%) 39 55 13

Price: earnings ratio (times) 7,3 8,4 —

Shareholders’ return since listing(2) (%) 27 41 —

Headline earnings return on equity (%) 18,7 16,3 —

Market price per share (cents)

• Year-end closing price 956 860 585

• Highest closing price 1 000 890 599

• Lowest closing price 675 440 567

Net asset value per share (cents) 779 771 630

Embedded value per share (cents) 1 035 1 004 827

Market capitalisation at year end (R million) 25 381 22 833 15 531

Sanlam share price relative to

• Financial index 8,87 8,02 6,94

• Life insurance index 7,92 7,07 6,85

(1) Sanlam Limited was listed on 30 November 1998.(2) Annualised growth in the Sanlam share price since listing plus dividends paid.

P A G E 1 1 3

SHARE PRICE vs EMBEDDED VALUE

Share price

Embedded value

400

550

700

850

1 000

1 150

Dec2000

Oct2000

Aug2000

Jun2000

Apr2000

Feb2000

Dec1999

Oct1999

Aug1999

Jun1999

Apr1999

Feb1999

Dec1998

SANLAM SHARE PRICE RELATIVE TO FINANCIAL INDEX

4

5

6

7

8

9

Dec2000

Oct2000

Aug2000

Jun2000

Apr2000

Feb2000

Dec1999

Oct1999

Aug1999

Jun1999

Apr1999

Feb1999

Dec1998

r e p o r t o n t h e

s a n l a m g r o u p e m b e d d e d v a l u e

for the year ended 31 December 2000

DEFINITIONS

In estimating the economic value of a life insurance company,

it is common to use a concept known as the “embedded

value” of the company. The embedded value represents the

shareholders’ net assets plus the value of the life insurance

business in force (VIF), net of the cost of holding prudential

reserves (CPR) in relation to this business. The economic

value of the company is then derived by adding to the

embedded value an estimate of the value of future sales of

new life insurance business, sometimes calculated by applying

a multiple to the value of one year’s sales. The value of one

year’s sales is a measure of the economic value added by a life

insurance company during the course of the year as a result of

writing new business.

This report presents the embedded value of the Sanlam

Group, rather than that of Sanlam Life Insurance Limited. In

addition, the report also presents the net value of new life

insurance business (VNB).

The VIF is calculated as the discounted value, using a

risk-adjusted discount rate, of the projected stream of future

after-tax profits determined on the financial soundness

valuation (FSV) basis for business in force at the valuation

date. This value excludes the discounted value of the release

of prudential reserves over the life of the in-force business.

The CPR with respect to the in-force life insurance

business is calculated as follows:

• the amount of prudential reserves at the valuation date, less

• the discounted value, using a risk-adjusted discount rate, of

the expected annual release of these reserves over the life of

the in-force business, allowing for the after-tax investment

return on the expected level of reserves held in each year.

The VNB is calculated as the discounted value at issue,

using a risk-adjusted discount rate, of the projected stream of

after-tax FSV profits for new business issued during the

twelve months prior to the valuation date. The VNB is

reduced by the CPR over the life of this cohort of business, to

obtain the net VNB.

SANLAM GROUP EMBEDDED VALUE (EV)

Ta b l e 1 2000 1999

Risk discount rate 15,6% 16,1%

(R million)

Sanlam Group shareholders’

net assets 18 222 17 677

Revaluation to fair value(1) 2 290 2 786

Sanlam Group shareholders’

adjusted net assets 20 512(2) 20 463

Net VIF 6 726 6 193

Gross VIF 7 900 7 774

Less: CPR (1 174)(3) (1 581)

Sanlam Group EV 27 238 26 656

EV per share (cents) 1 035 1 004

Number of shares (million)(4) 2 632 2 655

VALUE OF NEW LIFE INSURANCE BUSINESS (VNB)

Ta b l e 2 2000 1999

(R million)

Net VNB(5) 209 101

Gross VNB 245 132

Less: CPR (36) (31)

The above values are net of company tax and do not

include allowance for the tax position of an investor in

Sanlam Limited.(1) Interest in Santam and Gensec adjusted from net asset value to fair value.

A fair value of R32,48 per share was placed on Gensec at

31 December 2000 based on its constituent businesses and assets. This

value is determined taking cognisance of current market values and does

not place a value on the longer term strategic value as was required for the

acquisition of the Gensec minorities.

(2) Includes 100% interest in Gensec (1999: 49%) as a result of the

acquisition of the Gensec minorities during December 2000.

(3) Decrease is largely due to changes in the asset composition underlying

prudential reserves and changes in economic assumptions and

risk discount rate.

(4) Refer note 17 on page 87 of the financial statements.

(5) Based on sales volumes, business mix and acquisition expenses for the

respective years and assumptions at the respective year-ends.

P A G E 1 1 4

ANALYSIS OF NET VIF BUSINESS

Ta b l e 3 2000

Gross Net

(R million) VIF CPR VIF

Sanlam Personal Finance 7 036 (884) 6 152

Sanlam Employee Benefits 1 187 (290) 897

Corporate(1) (323) — (323)

Sanlam Group 7 900 (1 174) 6 726

1999

Gross Net

(R million) VIF CPR VIF

Sanlam Personal Finance 7 102 (1 245) 5 857

Sanlam Employee Benefits 1 056 (336) 720

Corporate (384) — (384)

Sanlam Group 7 774 (1 581) 6 193

(1) Includes R20 million for Sanlam Namibia Limited.

ANALYSIS OF NET VNB

Ta b l e 4 2000

Gross Net

(R million) VNB CPR VNB

Sanlam Personal Finance 198 (8) 190

Sanlam Employee Benefits 98 (28) 70

Corporate(1) (51) — (51)

Sanlam Group 245 (36) 209

1999

Gross Net

(R million) VNB CPR VNB

Sanlam Personal Finance 101 (15) 86

Sanlam Employee Benefits 80 (16) 64

Corporate (49) — (49)

Sanlam Group 132 (31) 101

(1) Includes R5 million for Sanlam Namibia Limited.

Sanlam Personal Finance’s increase in VNB was mainly due to

a significant increase in new business and an overall

improvement in margins. Sanlam Employee Benefit’s increase

in VNB is the net result of

• a substantial increase in new business, and

• a relatively larger allocation of SEB corporate and marketing

expenses in 2000 (an additional R34 million in 2000),

owing to the refinement of the expense analysis.

MARGINS

Profitability of new business can be measured by the ratio of

the net value of new business to the annual premium

equivalent (APE).

NET VNB AS A PERCENTAGE OF APE

Ta b l e 5 2000

Net

(R million) VNB APE(1) Margin

Sanlam Personal Finance 190 1 948 9,8%

Sanlam Employee Benefits 70 629 11,1%

Corporate (51) 41(2) —

Sanlam Group 209 2 618 8,0%

1999

Net

(R million) VNB APE(1) Margin

Sanlam Personal Finance 86 1 391 6,2%

Sanlam Employee Benefits 64 366 17,5%

Corporate (49) — —

Sanlam Group 101 1 757 5,7%

(1) Annual Premium Equivalent (APE) is new recurring premiums

(excluding indexed growth premiums) plus 10% of single premiums.

(2) The APE for Sanlam Namibia Limited was R41million.

EMBEDDED VALUE EARNINGS

Ta b l e 6 2000 1999

(R million)

Net VNB 209 101

Earnings from existing life

insurance business 1 330 1 056

• Expected return 1 173 1 219

• Operating experience variations 137(1) (101)

• Operating assumption changes 20 (62)

Embedded value earnings

from operations 1 539 1 157

Economic and other assumption

changes 289(2) 521

Tax changes (22) (512)

Investment variances (304) 408

Growth from life insurance

business 1 502 1 574

Investment return on adjusted

net worth (130)(3) 3 794

Total embedded value earnings 1 372 5 368

Dividends paid or proposed (790) (664)

Increase in Sanlam Group

embedded value 582 4 704

Return on embedded value 5,1%(4) 24,4%

P A G E 1 1 5

r e p o r t o n t h e

s a n l a m g r o u p e m b e d d e d v a l u e – c o n t i n u e d

for the year ended 31 December 2000

The above values are based on the assumptions at the respective year ends.

(1) Profit and losses were incurred due to better or worse than expected expense

and demographic experience on all products. The main contributor to

the positive operating experience was R193 million in respect of risk

underwriting. The positive values were reduced by project expenses of

R68 million that were not foreseen at the previous year-end.

(2) The R289 million resulting from economic and other assumption changes is

due to:

• R97 million in respect of the net effect of changes in the asset mix for

prudential reserves resulting in an increase in unprotected equities to

54% (see Table 9) and following from this, an increase in the risk

discount rate to 0,5% above equity returns.

• R192 million mainly in respect of the 1% reduction in assumed investment

returns (see Table 8).

(3) The investment return experience includes the effect of realised and

unrealised investment surpluses which were negatively influenced by the

difficult stock market conditions in 2000.

(4) The return on embedded value is the embedded value earnings as a

percentage of the embedded value at the beginning of the year.

GROWTH FROM LIFE BUSINESS

Ta b l e 7 2000 1999

(R million)

VIF at end of year 6 726 6 193

Plus: net operating profit transferred

to current year’s earnings(1) 969 602

Less: VIF at beginning of year (6 193) (5 221)

Growth in life business 1 502 1 574

Growth in life business(2) 24,3% 30,1%

(1) Net operating profit after tax.

(2) Growth from life business expressed as a percentage of VIF at the beginning

of the year.

DISCOUNT RATE

The long-term investment objectives for the Sanlam Life

Insurance Limited’s shareholders investment portfolio were

reviewed and the proportion of equities was increased. This

increased the expected return and volatility of investment

returns. The required rate of return on shareholders’ capital,

as represented by the risk discount rate, was increased as a

result. At 31 December 1999 the risk discount rate was equal

to the assumed long-term equity return, whereas at

31 December 2000 it was set at 0,5% higher than the long-

term equity return (see Table 8).

PRINCIPAL BASES AND ASSUMPTIONS

The assessment of the VIF business, the CPR and the VNB

is based on the “best estimate” assumptions used for

determining the FSV policy liabilities excluding

any margins.

The principal bases and assumptions used in the

calculations are described below.

Investment return and inflation

The investment assumptions used in the EV and the FSV

basis have been the same since 1999.

The assumed pre-tax investment returns by major asset

category and assumed inflation were based on the market

yield of fixed-interest securities, and are:

GROSS INVESTMENT RETURN AND INFLATION

ASSUMPTIONS

Ta b l e 8 2000 1999

% %

Fixed-interest securities 13,1 14,1

Equities and off-shore investments 15,1 16,1

Hedged equities(1) 12,1 13,1

Property 14,1 15,1

Cash 11,1 12,1

Risk discount rate 15,6 16,1

Prudential reserves asset returns(2) 14,1 14,5

Inflation(3) 6,6 7,6

(1) The assumed future return for these assets is lower than that of equities

which are not hedged, reflecting the cost of the derivative instruments.

(2) The investment return on assets supporting the prudential reserves shown in

Table 9, is based on the assumed long-term asset mix for these funds.

(3) The inflation assumption is used for both expense inflation and for

premium indexation.

Prudential reserving

The following asset mix was assumed for funds supporting

Sanlam Life Insurance Limited’s prudential reserves.

P A G E 1 1 6

ASSUMED LONG TERM ASSET MIX FOR FUNDS

SUPPORTING PRUDENTIAL RESERVES

Ta b l e 9 2000 1999

% %

Equities 54 32

Hedged equities 18 17

Property 16 10

Fixed-interest securities 10 33

Cash 2 8

Total 100 100

Sanlam is satisfied that its capital adequacy requirement cover

allows it to increase the risk profile of the assets underlying the

prudential reserves. The long-term asset mix for prudential

reserves in 2000 largely reflects the actual change in asset mix,

which occurred simultaneously with the acquisition of the

Gensec minorities.

Assets held in the shareholders’ fund of Sanlam Life

Insurance Limited in excess of the prudential reserves are

assumed to be invested in local equities or in foreign assets.

It was assumed that the current prudential reserving basis

would be maintained in the future and has not changed since

the 1999 valuation.

Other decrements and bonuses bases

The bases for these elements were as follows:

• Future mortality, morbidity and discontinuance rates and

future expense levels were based on recent experience where

appropriate.

• Future rates of bonuses for traditional participating

business, stable bonus business and participating annuities

were set at levels which were supportable by the assets

backing the respective product sub-funds at the respective

valuation dates.

• Sanlam Life Insurance Limited’s current surrender and

paid-up bases were assumed to be maintained in the future

and have not changed since the December 1999 valuation.

HIV/Aids

Allowance for the impact of expected HIV/Aids-related

claims, where appropriate, was made consistent with the

recommendations of the Actuarial Society of South Africa as

set out in its Professional Guidance Note (PGN) 105.

Premiums were assumed to be rerated, where applicable, in

line with deteriorations in mortality, with a three-year delay

from the point where mortality losses would be experienced.

Recurring expenses and project costs

The expense bases were as follows:

• Future investment expenses were based on the current scale

of fees in place between Sanlam Investment Management

and Sanlam Life Insurance Limited. To the extent that this

scale of fees includes profit margins for Sanlam Investment

Management, these margins have not been included in the

assessment of the VIF business and the VNB.

• In determining the VIF business, the value of expenses for

certain planned projects focusing on both administration

and distribution aspects of Sanlam’s life insurance business

has been deducted. These projects are of a short-term

nature, although similar projects may be undertaken from

time to time. No allowance has been made for the expected

positive impact these projects may have on the future

operating experience of Sanlam Life Insurance.

New business premiums

• In determining the VNB with regard to new recurring

premiums, increases in existing recurring premium

contracts associated with indexation arrangements were not

included, but instead were allowed for in the VIF business.

• The VNB includes the expected value of future premium

increases resulting from premium indexation on the new

recurring premium business written during the year to

31 December 2000.

• The value of individual policies that matured during the

year and were subsequently continued, has been included

in the VNB.

• The new Millennium and Stratus products of Sanlam

Personal Finance, are taken into account as open-ended

policies.

Taxation

• Projected corporate tax was allowed for at 30% for both

1999 and 2000. The values for these years were calculated

on the revised four-fund tax basis for life insurers which

came into effect from 1 January 2000.

• Allowance has been made for the change in taxation of

overseas dividends, as announced by the Minister of

Finance in his February 2000 budget speech.

• No allowance was made for capital gains tax owing to

uncertainty regarding the implementation of this tax.

P A G E 1 1 7

r e p o r t o n t h e

s a n l a m g r o u p e m b e d d e d v a l u e – c o n t i n u e d

for the year ended 31 December 2000

Other factors

The embedded values do not include an allowance for the

cost of the share incentive scheme. In respect of share

options, where shares have not yet been issued, the number of

shares used to calculate the embedded value per share will be

increased as and when these options are granted. Granting

share options will therefore influence the embedded value per

share negatively in future.

SENSITIVITY ANALYSIS

To illustrate the effect of using different assumptions, the

sensitivity of the values is shown in Table 10. Sensitivities

have been determined at a risk discount rate of 15,6% per

annum (except where indicated otherwise). The risk discount

rate appropriate to an investor will depend on the investor’s

own requirements, tax position and perception of the risks

associated with the realisation of the future profits of Sanlam

Life Insurance Limited. For each sensitivity illustrated, all

other assumptions have been left unchanged. Note that the

different sensitivities do not indicate that they each have a

similar chance of occurring. The sensitivities are illustrative.

SENSITIVITY ANALYSIS – 31 December 2000

Ta b l e 1 0

Value of in force Gross Net

(R million) VIF CPR VIF %(1)

Base value 7 900 (1 174) 6 726 —

Increase risk discount rate

by 1,5% to 17,1% 7 321 (1 666) 5 655 –16%

Decrease risk discount

rate by 1,5% to 14,1% 8 575 (586) 7 989 19%

Increase investment return

and inflation by 1,5%,

coupled with an increase in

risk discount rate of 1,5%

to 17,1%, and with bonus

rates changing commensurately 7 809 (1 194) 6 615 –2%

Increase inflation by 1,5%,

without adjustment in

nominal investment return,

but with index-linked

premiums increased by

1,5% as well 7 894 (1 180) 6 714 0%

Increase non-commission

expenses (excluding

investment expenses) by 10% 7 667 (1 172) 6 495 –3%

Increase discontinuance rates

by 10% 7 770 (1 132) 6 638 –1%

Increase mortality of

products providing death

benefits by 10%(2) 7 743 (1,166) 6 577 –2%

SENSITIVITY ANALYSIS – 31 December 2000

Ta b l e 1 1

Value of new business Gross Net

(R million) VNB CPR VNB %(1)

Base value 245 (36) 209 —

Increase risk discount rate

by 1,5% to 17,1% 209 (50) 159 –24%

Decrease risk discount rate

by 1,5% to 14,1% 286 (18) 268 28%

Increase investment return

and inflation by 1,5%,

coupled with an increase in

risk discount rate of 1,5% to

17,1%, and with bonus rates

changing commensurately 232 (37) 195 –7%

Increase inflation by 1,5%,

without adjustment in nominal

investment return, but with

index-linked premiums

increased by 1,5% as well 241 (37) 204 –2%

Increase non-commission

expenses (excluding investment

expenses) by 10% 182 (35) 147 –30%

Decrease new business volumes

by 10%, but acquisition

expenses remain unchanged 187 (35) 152 –27%

Increase mortality of products

providing death benefits

by 10%(2) 227 (35) 192 –8%

(1) Percentage change from base value.(2) Risk premiums are assumed to be increased accordingly (where

appropriate), but only after a three year lag. Mortality of annuities is

assumed to be unchanged, because a decrease rather than an increase in

mortality, increases the mortality risk on annuities.

P A G E 1 1 8

c o n s u l t i n g a c t u a r i e s r e p o r t

for the year ended 31 December 2000

P A G E 1 1 9

7 March 2001

The Directors

Sanlam Limited

2 Strand Road

Bellville

South Africa

Ladies and Gentlemen

Embedded Value of the Sanlam Group

The embedded value of the Sanlam Group, an analysis of the change in this embedded value over the twelve months to

31 December 2000 and the value of one year’s new life insurance business, are set out on pages 114 to 118 of these accounts.

We have reviewed the calculation of the Sanlam Group embedded value and the value of one year’s new life insurance business

and the methodology and assumptions underlying those calculations. Based on this work, we are satisfied that the results have been

prepared with due care and using sound actuarial principles, and the methodology and assumptions are appropriate for the purpose of

reporting the results of the Sanlam Group. Further, the methodology has been consistently applied at each valuation date, and the

analysis of change in embedded value is a fair representation of the experience over 2000.

In performing our work, we have relied on audited and unaudited information supplied to us by, or on behalf of, Sanlam

Limited for periods up to 31 December 2000 and on information from other sources. The information included the amount of

the adjusted shareholders’ net assets of the Sanlam Group as shown on page 114 of this report, and statistical data relating to

current and recent operating experience. We have reviewed this information for overall reasonableness and consistency with our

knowledge of the industry but we have not carried out independent checks of the data and other information supplied to us.

Yours faithfully

Mike Davies Joanne Atkinson

Fellow of the Institute of Actuaries Fellow of the Institute of Actuaries

Fellow of the Actuarial Society of South Africa Fellow of the Actuarial Society of South Africa

Towers, Perrin, Forster & Crosby (Inc in Pennsylvania, USA)

Registered in South Africa, Registration number 97/20979/10

3rd Floor, Safmarine House, 22 Riebeek Street, Cape Town 8001, South Africa

d e f i n i t i o n a n d g l o s s a r y o f t e c h n i c a l t e r m s

“ b i l l i o n ” – one thousand million;

“ b o n u s p e n s i o n ” – a bonus pension is a policy which provides immediate annuities, the benefits of which

are increased annually by the bonuses declared;

“ c a p i t a l a d e q u a c y ” – capital adequacy implies the existence of a buffer against experience worse than that

assumed in the financial soundness valuation. The sufficiency of the buffer is

measured by comparing available capital with the capital adequacy requirement. The

main element in the calculation of the capital adequacy requirement is the

determination of the effect of an assumed fall in asset values on the excess of assets

over liabilities;

“ e m b e d d e d v a l u e ” – embedded value represents the net assets of a life company together with the value of

the portfolio of business in force, net of the cost of holding prudential reserves in

relation to this business;

“ i m m e d i a t e a n n u i t y ” – a policy which provides that, in consideration for a single premium, a series of regular

benefit payments will be made for a defined period;

“ l i n k e d p o l i c y ” – a non-participating policy which is allotted units in an investment portfolio. The

value of the policy at any stage is equal to the number of units multiplied by the unit

price at that stage;

“ m a r k e t - r e l a t e d p o l i c y ” – a participating policy which participates in non-vesting investment growth. This

growth reflects the volatility of the market value of the underlying assets of the policy;

“ n o n - p a r t i c i p a t i n g p o l i c y ” – a policy which provides benefits that are fixed contractually, either in monetary terms

or by linking them to the return of a particular investment portfolio, eg a linked or

fixed-benefit policy;

“ p a r t i c i p a t i n g p o l i c y ” – a policy which provides guaranteed benefits as well as discretionary bonuses. The

declaration of such bonuses will take into account the return of a particular

investment portfolio. Reversionary bonus, stable bonus, market related and bonus

pension policies are participating policies;

“ p o l i c y ” – unless the context indicates otherwise, a reference to a policy in this report means an

insurance policy issued by Sanlam Life Insurance Limited in accordance with the

Long-term Insurance Act;

“ r e v e r s i o n a r y b o n u s p o l i c y ” – a conventional participating policy which participates in reversionary bonuses,

ie bonuses of which the face amounts are only payable at maturity or on earlier death

or disability. The present value of such bonuses is less than their face amounts;

“ S a n l a m L i f e ” – a business of Sanlam Personal Finance mainly conducting life insurance business for

individuals;

“ S a n l a m L i f e – a wholly-owned subsidiary of Sanlam Limited conducting mainly life insurance

I n s u r a n c e L i m i t e d ” business;

“ S a n l a m L i m i t e d ” – the holding company listed on the JSE Securities Exchange, SA and Namibian Stock

Exchange;

“ S a n l a m” o r “ S a n l a m G r o u p ” – Sanlam Limited and its subsidiaries;

“ s t a b l e b o n u s p o l i c y ” – a participating policy under which bonuses tend to stabilise short-term volatility in

investment performance;

“ s u r r e n d e r v a l u e ” – the surrender value of a policy is the cash value, if any, which is payable in respect of

that policy upon cancellation by the policyholder.

P A G E 1 2 0

n o t i c e o f a n n u a l g e n e r a l m e e t i n g

SANLAM LIMITED

(Incorporated in the Republic of South Africa)

(Registration No 1959/001562/06)

Notice is hereby given that the third Annual General

Meeting of the Members of Sanlam Limited (“the company”)

will be held on Wednesday 13 June 2001 at 09:00 in the

CR Louw Auditorium, Sanlam Head Office, 2 Strand Road,

Bellville, for the following purposes:

1. To consider and adopt the annual financial statements

and the group annual financial statements of the company

for the financial year ended 31 December 2000.

2. To re-appoint the auditors of the company.

3. To elect the following retiring directors appointed by the

board of directors of the company (“the Board”) in casual

vacancies or as additional directors in terms of article 13.2

of the company’s articles of association (“the articles”),

and who are eligible and offer themselves for re-election:

TS Gcabashe, Prof AF Perold, Prof J van Zyl and

BP Vundla

4. To elect the following directors retiring after having held

office for a period of three years since their last election in

terms of article 14.1 of the articles, and who are eligible

and offer themselves for re-election:

DL Keys, DNM Mokhobo and JJM van Zyl.

5. To authorise the directors to determine the remuneration

of the auditors.

6. To table and approve the total amount of directors’

remuneration.

7. To consider and, if deemed fit, to pass, with or without

modification, the following ordinary resolution number 1:

“That the authorised but unissued ordinary shares in

the share capital of the company be and are hereby placed

at the disposal and under the control of the Board, and such

directors are hereby authorised and empowered to allot,

issue or otherwise dispose thereof to such person or persons

and on such terms and conditions as the directors may

from time to time determine, but subject to the provisions

of the Companies Act, No 61 of 1973, as amended (“the

Companies Act”), the requirements of the JSE Securities

Exchange South Africa (“the Securities Exchange”), and

any other stock exchange upon which the shares of the

company may be quoted or listed from time to time”.

8. To consider and, if deemed fit, to pass, with or without

modification, the following ordinary resolution number 2:

“1. That in terms of clause 27.1.3 of the trust deed (“the

Trust Deed”) of the Sanlam Limited Share Incentive

Trust (“the Sanlam Share Scheme”) the Trust Deed be

and is hereby amended in the following manner:

1.1. Pursuant to the acquisition by the company of

all of the ordinary shares for cash in Genbel Securities

Limited (“Gensec”), the reference to “5% (five percent)”

in the definition of “scheme allocation” in clause 1.2.34

shall be amended to “7,5% (seven comma five percent)”

in order to allow previous participants of the Genbel

Securities Limited Share Trust (“the Gensec Share

Incentive Scheme”) to participate in the Sanlam

Share Scheme, which shall amount to 199,1 million

of the 2 654,6 million current issued shares.

1.2 In order to bring the Sanlam Share Scheme

in accordance with current market practice, clause 17.2,

which deals with the release periods before which

beneficiaries can dispose of their shares acquired under

the Sanlam Share Scheme, shall be amended as follows:

“• 40% (forty percent) of each tranche on or after

the third anniversary as from the offer date or the

option date, as the case may be;

• 20% (twenty percent) of each tranche on or after

the fourth anniversary as from the offer date or

the option date, as the case may be;

• 20% (twenty percent) of each tranche on or after

the fifth anniversary as from the offer date or the

option date, as the case may be;

• 20% (twenty percent) of each tranche on or after

the sixth anniversary as from the offer date or the

option date, as the case may be;”

P A G E 1 2 1

n o t i c e o f a n n u a l g e n e r a l m e e t i n g – c o n t i n u e d

1.3 In order to protect beneficiaries against fluctuations

in the share price and to compel them to pay the

share debt in respect of shares acquired in the event

of death, retirement, early retirement, retrenchment

or disability earlier, the provisions of clause 18.2.1

shall be amended as follows:

“18.2.1 the share debt in respect of shares will become

payable within 24 (twenty four) months after

the termination date, provided, however, that if

the current market price (as defined in clause

1.2.25, mutatis mutandis) of the shares is lower

than the purchase price at the termination date,

the trustees shall have the discretion to make an

offer to acquire the shares concerned at their

original purchase price, including any interest

accrued on the purchase price and to set off

such purchase price against the outstanding

share debt on the termination date, provided,

however, that should the individual elect not to

accept such offer from the trustees, any

fluctuation of the share price thereafter shall be

for the risk and/or benefit of the individual

concerned.”

1.4 In order to provide for individuals who accept

retirement or early retirement but continue to render

services thereafter to the company, a new clause

18.2.3 is inserted into the Trust Deed on the basis

that the same restrictions pertaining to the ability of

those individuals to deal with their shares acquired in

the company, shall continue to apply consistently in

accordance with the purpose of the Sanlam Share

Scheme, as follows –

– the deletion of the word “and” at the end of clause

18.2.1;

– the deletion of the full stop at the end of clause

18.2.2 and the substitution thereof with “and”;

– the introduction of a new clause 18.2.3, which

reads as follows:

“18.2.3 where individuals continue to render services to

the company in circumstances where they have

accepted retirement or early retirement, the

provisions of clause 18.2.1 and clause 18.2.2

shall apply only to the extent that the trustees

have decided to invoke those provisions in their

sole and absolute discretion at the date of

retirement, provided that these individuals will

otherwise be deemed to be employees and not

retired employees for purposes of the scheme.”.

2. That the trustees of the Sanlam Share Scheme be

authorised to offer a maximum of 8 (eight) million

options in respect of shares in the company to previous

participants of the Gensec Share Incentive Scheme at a

price equal to R8,20 (eight rand twenty) per ordinary

share of the company, it being recorded that

• this was the price at which shares in the company

traded at the date that the intention by the company

to acquire all of the ordinary shares in Gensec was

made public;

• in order to confer upon the participants of the

Gensec Share Incentive Scheme the same rights and

obligations as they had under the Gensec Share

Incentive Scheme, participants under the Gensec

Share Incentive Scheme were thus offered new

company options in the Sanlam Share Scheme at an

option price of R8,20 (eight rand twenty) per

ordinary share of the company, of which

approximately 88% (eighty eight percent) have

already been accommodated within the current

restrictions of the Sanlam Share Scheme;

• such course of conduct has been approved by the

Securities Exchange.”

9. To consider and, if deemed fit, to pass, with or without

modification, the following Special Resolution number 1:

“That the boards of directors of the company and any

subsidiary of the company be authorised by way of a

general authority, up to and including the date of the

following annual general meeting of the company, to

approve

(a) the purchase of any of its securities by the company or

its subsidiaries, including ordinary shares of R0,01

each in the capital of the company; and

(b) the purchase of such securities by the company in any

holding company of the company, if any, and any

subsidiary of any such holding company,

subject to the provisions of the Companies Act and the

P A G E 1 2 2

requirements of the Securities Exchange and any other

stock exchange upon which the shares of the company

may be quoted or listed from time to time, and subject

to such other conditions as may be imposed by any

other relevant authority,

provided that:

• the general authority shall only be valid until the

company’s next annual general meeting, provided that

it does not extend beyond 15 months from the date of

this resolution;

• the general authority to repurchase be limited to a

maximum of 10% of the relevant company’s issued

share capital of that class at the time the authority is

granted; and

• repurchases must not be made at a price more than

5% above the weighted average of the market value of

the securities for the five business days immediately

preceding the date of the repurchases.”

The reason for and effect of Special Resolution number 1

is to grant the directors a general authority to enable the

company to acquire shares which have been issued by it, or

its holding company, if any, and any subsidiary of any such

holding company.

STATEMENT OF INTENT

The Board shall implement a general repurchase of the

company’s shares, only if prevailing circumstances (including

the tax dispensation and market conditions) warrant same,

and should they be of the opinion, after considering the

effect of such repurchase of shares, that the following

requirements have been and will be met:

• the company will be able to pay its debts in the ordinary

course of business;

• the consolidated assets of the company, fairly valued in

accordance with generally accepted accounting practice,

are in excess of the consolidated liabilities of the company;

• the company will have adequate capital; and

• the working capital of the company will be sufficient for

the company’s requirements for the year ahead.

P A G E 1 2 3

PROXIES AND REPRESENTATIVES

1. A member entitled to attend and vote at the meeting may

appoint a proxy to attend, speak and vote in his or her

stead. A proxy includes a person appointed under a

general or special power of attorney. A notarially certified

copy of such power of attorney or other documentary

evidence establishing the authority of the person signing

as proxy must be attached to the proxy form.

2. A proxy form is enclosed for use by members who are

unable to attend the meeting. Same is also obtainable

from the registered office of the company. Duly

completed proxy forms must be deposited at the

registered office of the company not less than 48 hours

before the time of holding the meeting.

3. The proxy need not be a member of the company.

4. A person representing a corporation/company is not

deemed to be a proxy as such corporation/company can

only attend a meeting through a person, duly authorised

by way of a resolution to act as representative. Such person

enjoys the same rights at the meeting as the shareholding

company and must at least 48 hours before the meeting

provide the company with satisfactory documentary

evidence (the resolution) that he or she is entitled to act.

5. A member whose shares are held by Sanlam Share Account

(Proprietary) Limited or Sanlam Fundshare Nominee

(Proprietary) Limited is empowered by such relevant

nominee company to attend and vote at the meeting.

By order of the Board

JP Bester

Company Secretary

12 March 2001

s h a r e h o l d i n g a n d a d m i n i s t r a t i o n

ANALYSIS OF SHAREHOLDERS ON 31 DECEMBER 2000

Shareholders Shares held

Number % Number %

DISTRIBUTION OF SHAREHOLDING

1 – 1 000 876 427 84,47 353 607 319 13,32

1 001 – 5 000 143 664 13,85 283 105 393 10,66

5 001 – 10 000 11 990 1,16 81 327 594 3,06

10 001 – 50 000 4 957 0,48 82 077 536 3,09

50 001 – 100 000 179 0,02 12 588 708 0,47

100 001 –1 000 000 224 0,02 59 172 916 2,23

1 000 000 and over 44 0,00 1 782 691 201 67,17

1 037 485 100.00 2 654 570 667 100,00

PRINCIPAL SHAREHOLDINGS

Individuals 1 021 984 98,50 778 194 738 29,31

Companies 9 412 0,91 65 076 337 2,49

Pension and retirement funds 5 765 0,56 113 714 256 4,28

Nominee companies 250 0,02 1 694 971 473 63,85

Insurance companies 7 0,00 932 074 0,04

Other 67 0,01 1 681 789 0,03

1 037 485 100,00 2 654 570 667 100,00

PUBLIC AND NON-PUBLIC SHAREHOLDERS

Public shareholders 98,09

Non-public shareholders

• Directors’ interest 0,18

• Employee pension fund 0,51

• Sanlam Limited Share Incentive Trust 1,22

100,00

SHAREHOLDERS’ DIARY

FINANCIAL YEAR-END 31 December

ANNUAL GENERAL MEETING 13 June 2001

REPORTS

• Interim report for 30 June 2001 September 2001

• Announcement of the results

for the year ended 31 December 2001 March 2002

• Annual report for year ended 31 December 2001 April 2002

DIVIDENDS

• Dividend for 2000 declared 7 March 2001

• LDR for 2000 dividend 20 April 2001

• Payment of dividend for 2000 16 May 2001

• Declaration of dividend for 2001 March 2002

• Payment of dividend for 2001 May 2002

ADMINISTRATION

SANLAM LIMITED

Registration no

1959/001562/06

SANLAM LIFE INSURANCE

LIMITED

Registration no 1998/021121/06

GROUP SECRETARY

JP Bester

REGISTERED OFFICE

2 Strand Road, Bellville

Telephone (021) 947-9111

Fax (021) 947-3670

POSTAL ADDRESS

PO Box 1

Sanlamhof

7532

South Africa

INTERNET ADDRESS

http://www.sanlam.co.za

webmaster@sanlam.co.za

TRANSFER SECRETARIES

Mercantile Registrars Limited

(Registration no 1987/003382/06)

10th Floor

11 Diagonal Street

Johannesburg

2001

South Africa

PO Box 1053

Johannesburg

2000

South Africa

Telephone (011) 370-5320

Fax (011) 370-5486

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