Annual Report 2002 - Sanlam Shared Documents... · (4)LTRR headline earnings adjusted for the...

T h i n k i n g a h e a d

A n n u a l R e p o r t 2 0 0 2

Contents

2 Business Structure

3 Salient Features

10 Non-executive Directors

12 Report of the Chairman and acting

Chief Executive

22 Executive Committee

24 Statement on Corporate Governance

38 Introductory Sustainability Report

48 Financial Review

58 Business Reviews

• Sanlam Life

• Sanlam Investment Management

• Sanlam International

• Gensec Bank

• Santam

84 Annual Financial Statements

147 Report on the Sanlam

Group Embedded Value

151 Definitions and Glossary of

Technical Terms

152 Notice of Annual General Meeting

154 Shareholding and Administration

New business embedded value margin increased from 13,2% to

14,7%

Embedded value of new business increased by 10% to

R320 million

Operating profit of R2149 million

• Excellent underwriting results from Santam: up 46%

•11%growth in Sanlam Life operating profit

LTRR headline earnings of R3 227million(122,7 cents per share)

14%growth in Comparable LTRR headline earnings

(cents per share)

Dividend increased to 37cents per share

Page 1

Highlights

Page 2

Business Structure

Sanlam LifeSanlam Life is a major provider of life

insurance, retirement annuities, savings

products, unit trusts and trust services

to individuals and the second largest provider of

investment and risk products to group funds

and schemes in South Africa. It also provides

administration, actuarial and consulting

services to the group retirement industry and

money transfer services.

Sanlam Investment Management ServicesSIM is South Africa’s second largest investment

manager measured by assets under manage-

ment, providing traditional and alternative

investment products to institutional

and retail clients.

Sanlam InternationalSanlam International operates an integrated

business complex targeting affluent and

institutional markets, combining

actuarial and investment consulting,

manager of managers investment

management, stockbroking, discretionary

investment management and independent

financial advisory services.

Gensec BankGensec Bank provides investment banking

solutions for the South African savings

industry, public sector enterprises and

corporates.

Gensec Property ServicesGensec Property Services undertake letting,

rental collection, marketing, contracting and

administration services.

Santam – 54,1% (strategic investment)Santam is the largest short term insurance

company and market leader in the motor and

personal insurance sector in South Africa

(43,8% held by shareholders’ funds).

Absa – 23,0% (associated company)Absa is one of the largest commercial banks

in South Africa (19,2% held by

shareholders’ funds).

Page 3

Salient Features

for the year ended 31 December 2002 2002 2001

SANLAM LIMITED GROUP

Operating profit before tax R million 2 149 2 092(1)

Headline earnings(2) R million 2 280 2 628

Headline earnings based on the LTRR(3) R million 3 227 3 534

Net operating profit per share cents 56,3 62,9

Headline earnings per share cents 86,7 99,1

Headline earnings per share based on the LTRR(3) cents 122,7 133,2

Comparable LTRR headline earnings per share(4) cents 134,4 117,6

New business volumes R million 32 257 36 581

Net outflow of funds R million (3 934) (950)

Embedded value of new business R million 320 290

Life insurance new business APE(5) R million 2 179 2 204

New business embedded value margin % 14,7 13,2

Embedded value per share cents 1 032 1 167

Dividend per share cents 37 35

FINANCIAL RATIOS

Return on average monthly shareholders’ funds

– Operating profit after tax % 7,2 8,2

– Headline earnings % 11,0 12,9

– LTRR Headline earnings % 15,6 17,4

Return on embedded value(6) % (8,9) 12,3

Group administration cost ratio(7) % 34,4 35,2

Group operating margin(8) % 17,0 18,4

SANLAM LIFE INSURANCE LIMITED

Shareholders’ funds to total policy liabilities % 13 14

Shareholders’ funds to non-market-related policy liabilities % 20 22

Capital adequacy requirements covered times 1,7 2,8

Notes(1)Operating results for 2001 have been reclassified to reflect the current reporting structure.(2)Headline earnings = Net operating profit and investment income.(3)LTRR headline earnings = Net operating profit and total investment return based on an expected long term rate of return.(4)LTRR headline earnings adjusted for the impact of Absa’s Unifer losses, capital gains tax, reversal of surplus tax provision and a change

in the recognition of currency translation differences. (5)APE = Annual premium equivalent and is equal to new recurring premiums (excluding indexed growth premiums) plus 10%

of single premiums.(6)Growth in embedded value (with dividends paid added back) as a percentage of embedded value at the beginning of the year.(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.

Page 4

innovaLeadership through

✓18 new products launched in 2003

✓Gensec Bank concludes innovative joint venture with

Imperial Holdings to form Safair Lease Finance

✓Established the Sanlam Development Fund of Funds

✓Launched “Aggressive Ideas for Innovation” programme

among all staff

✓Launched Investment Development Programme

for black professionals

Page 5

tion

Page 6

investLeadership through

✓Generally improved performances from Sanlam

Investment Management

✓Attracted some of the best investment professionals in

the country to Sanlam Investment Management

✓Raging Bull Award for Sanlam Global Trust

✓29% of Sanlam unit trusts in top quartile and 76% in the

top half over a 12-month period by year-end

✓Sanlam Investment Management moves from 8th to 6th

position on Alexander Forbes Large Manager Watch

Page 7

ment

Page 8

transfoLeadership through

✓Black Economic Empowerment Committee of

Board established

✓Procurement programme finalised

✓Actively involved in industry deliberation on an equity

charter for the finance sector

✓Steady progress in the participation of empowerment

groups in ownership and control structures

✓Solid progress on employment equity – more than 30%

of staff are black and more than 60% female

✓One third of advisors corps is black

✓Corporate Social Investment Programme realigned

Page 9

rmation

Page 10

Non-executive Directors as at the date of this report

T Vosloo (Ton) (65)D Phil (hc) UOFS; DEcon (hc) US

Appointed 1989Chairman since 2002Chairman of Naspers Limited, MIH HoldingsLimited, MIH Limited, WWF SA and Cape Philharmonic Orchestra and director of several other companies

JPL Alberts (Johan) (60)SASS, BCom, CA (SA), IAMP (Geneva)

Appointed 1995Businessman and director of Sanlam LifeInsurance Limited and several other companies

DC Brink (Dave) (63)MSc Eng (Mining), DCom (hc) (UPE)

Appointed 1994Chairman of Murray and Roberts HoldingsLimited and Unitrans Limited, Deputy Chairmanof Absa Limited and director of BHP/Billiton Limited, Billiton PLC and Sappi Limited

AS du Plessis (Attie) (59)BCom, CA (SA), Adv Dip Tax Law, AMP(Harvard), AEP (Unisa)

Executive director (until 28 February 2002)Non-executive director (from 1 March 2002)Chairman of Gencor Limited, Director of AbsaLimited and several other companies

TS Gcabashe (Thulani) (45)BA

Appointed 2001Director of Eskom Enterprises (Pty) Limited

VP Khanyile (Vusi) (52)BCom (Hons)

Appointed August 2002Chairman Thebe Investment Corporation Limitedand chairman/director of several other companies

CE Maynard (Carmen) (50)MCom (Wits)

Appointed 2001Director of Sanlam Investment Management,Trans Caledon Tunnel Authority and othercompanies

DNM Mokhobo (Dawn) (54)BA (Social Sciences)

Appointed 1996Managing Director of MBM Change Agents(Pty) LimitedChairperson of Tsebo Outsourcing GroupDirector of Nozala Investments (Pty) Limited,Engen Limited, Sanlam Life InsuranceLimited and other companies

Prof AF Perold (André) (50)PhD, Mms, BSc (Hons)

Appointed 2001George Gund Professor at Harvard Business SchoolDirector of Merrill Lynch InvestmentManagers Mutual Funds, Genbel SecuritiesLimited and Gensec Bank LimitedUSA Citizen

GE Rudman (George) (59)BSc, FFA, FASSA, ISMP (Harvard)

Appointed 2001Chairman of Sanlam Life Insurance Limitedand director of Santam Limited

PEI Swartz (Peter) (61)Ad Ed Dip

Appointed 1994Director of Absa Limited, Distell Limited,Ellerine Holdings Limited, New ClicksHoldings Limited, Sancino Project Limitedand other companies

E van As (Eugene) (64)

Appointed 15 January 2003 Chairman of Sappi Limited (RSA) anddirector of several other companies

JJM van Zyl (Boetie) (64)Pr Eng, BSc Eng

Appointed 1995Lead DirectorDirector of Sanlam Life Insurance Limited,Naspers Limited, Murray and Roberts Holdings Limited and other companies

Audit and Risk committeeJPL Alberts (Chairman)

GE Rudman

Prof AC Bawa (resigned 31 March 2002)

PEI Swartz

CE Maynard (from 1 March 2002)

Human resources committeeT Vosloo (Chairman)

DC Brink

JJM van Zyl

Nomination committeeDC Brink (Chairman)

DNM Mokhobo

BP Vundla (resigned 31 March 2002)

Black economicempowerment committee DC Brink (Chairman)

T Gcabashe

DNM Mokhobo

Special committeeAll non-executive directors, apart from thechairman and any directors who served in anexecutive capacity less than three years ago(AS du Plessis and GE Rudman).

From left to right (front): Carmen Maynard, Dave Brink, Attie du Plessis, Ton Vosloo, Dawn Mokhobo, George Rudman,

Johan Alberts, Boetie van Zyl

From left to right (back): Vusi Khanyile, Peter Swartz, Eugene van As, Thulani Gcabashe, André Perold

Page 11

Dear shareholders

We report on our results and activities during the

past year, which contains a combination of solid

achievements, innovative actions and developments and

also some results that were less than satisfactory.

A number of forces coalesced to make the past year

one of the most demanding periods in Sanlam’s recent

business history. The negative trends in the global

economy which had an impact locally, as well as the

problems the brutal equity markets have created on the

balance sheets of the international insurance industry,

particularly companies in the United Kingdom, were

among the challenges the Group had to face. At the

same time, Sanlam recognised that the dynamics of

South Africa and the rapidly changing financial services

industry within this country, require that to succeed an

organisation must evolve, anticipating the trends and

the demands of the market. To do this called for

renewed focus and some repositioning.

Sanlam, which today is one of the largest financial

services groups based in South Africa with assets under

management of R246 billion, has been at the forefront

of a change process and this report highlights our

results and achievements.

Operating environment

The results were recorded against a background of a

weak global economy and a rise of 4 percentage points

in the domestic prime overdraft rate during the course

Report of the Chairman and Acting Chief Executive

Page 12

The Sanlam BusinessStrategyOur business strategy is underpinned bythe three themes of

• Domestic growth to increase our share of the market in South Africa.

• Client relationships to build strong and mutually beneficial relationshipswith all our clients in order to ensuretheir loyalty to us.

• Internationalisation to become a South African financial servicesorganisation with an international focus by identifying new and profitableopportunities in the global market-place.

Ton Vosloo (left) Chairman

Flip Rademeyer (right) Acting Chief Executive

Page 13

range of financial products and remains determined to

provide them with access to products typically sourced

from banks.

Overview of results

In spite of securing a 3% increase in operating

profit, the results are disappointing. They are in line

with the indications given in the trading update in

December 2002 and reflect the impact of weak

global markets on a financial services business,

which derives much of its income from investment

returns.

In summary Sanlam Life, which constitutes the

bulk of our business, turned in a sterling performance

in the challenging trading conditions, as did short term

insurer, Santam. However these results were offset by

unsatisfactory performances from Gensec Bank, in spite

of some improvement in the second half of the year and

from Sanlam International. Sanlam Investment

Management maintained its performance level with

encouraging signs of improvement towards the end of

the year.

Reflecting our continuing drive to bolster topline

growth, we succeeded in increasing financial services

income by 11% to R12,7 billion. A 17% increase in

risk underwriting claims at Sanlam Life and Santam

and the 9% rise in administration expenditure,

although well contained in an environment where the

Group invested heavily in building its international

of the year as well as extreme exchange rate volatility.

The South African economy demonstrated its resilience

in spite of the rand/dollar exchange rate appreciating by

28% during the year.

South African equity prices largely followed

movements in international markets, which took their

cue from Wall Street. While the JSE Securities

Exchange (JSE) outperformed Wall Street in the first six

months of 2002, this performance was reversed in the

second half of the year as resources stocks came under

pressure from the sharp appreciation in the rand and

concerns surrounding the impact of government’s

policy on black economic empowerment on the mining

sector. In all it was a volatile period for the financial

services industry with perhaps the most notable trend

being the continued desire of investors to move towards

more liquid, short term investments rather than longer

term life products. This checked the growth of our

individual life business.

Among other things, management was occupied

with evaluating the most appropriate way of harnessing

the Group’s 23% investment in ABSA, the imperative

being that the solution had to benefit both businesses

and deliver value to shareholders. Towards the end of

the financial year it was concluded that a full merger of

the two groups would not achieve the desired objective

of delivering value to shareholders and discussions on a

co-operation model are being pursued. Sanlam

acknowledges that its clients require a more complete

Page 14

Report of the Chairman and Acting Chief Executive (continued)

have directly, as well as in partnership with the rest

of the industry through the Life Offices’ Association

(LOA), launched consumer education programmes

to encourage more realistic expectations of benefit

returns.

The impact of the weak financial markets which

gave rise to lower investment values was also felt on

the Group’s embedded value, which at

R27,1 billion or 1 032 cents a share was below that

of the previous year. However, the new business

embedded value margin improved to 14,7%, and

moved closer to our stretch objective of an 18%

margin.

Strategy

Much energy and many Group resources were

devoted to progressing the Group strategy in the

period and this investment is starting to pay

dividends. To recap, our vision – to be the leader in

wealth creation – supports the definition of Sanlam

as a group of businesses focussed on building,

preserving and growing wealth for our clients.

The vision is founded on three themes:

• Superior client relationships,

• Domestic growth and

• International growth.

In the area of superior client relationships, we

aim to live the Sanlam brand and provide trusted

advice and innovative solutions to our clients. In

capacity, resulted in gross operating profit of

R2,1 billion, 3% ahead of last year’s figure.

Headline earnings per share, based on a long

term rate of investment return of 13% per annum,

totalled 122,7 cents, an 8% decline on the previous

year’s 133,2 cents. On a comparable basis we

achieved an increase of 14%. As a Group we favour

this method of earnings calculation – the

recommended practice for long term insurers in the

United Kingdom – as it provides investors with a

superior measure of sustainable long term results.

Based on the sustainability of our long term

earnings and the fact that we have completed most

of the Group’s re-positioning and will concentrate

on delivering results as we move forward the board

has declared an increased annual dividend of

37 cents a share (2001: 35 cents a share).

It is pleasing to report that individual life

business performed well and new business inflows

rose by 5%, largely as a result of single premium

business, but this did not stem the net outflow from

our business. New Group business at R32,2 billion

was 12% lower than for the 2001 financial year.

We are acutely aware of, and have empathy with

some clients’ disillusionment with the effective

returns versus the projected returns on some of their

long term investments and bonus declarations. This

is an industry-wide experience and is directly linked

to declining investment markets world-wide. We

Page 15

The growth markets for Sanlam

Individual/retail • Retired

• Entry level

• Middle market

• Affluent

Self-employed/owner businesses • Entrepreneurs

• Small businesses

Employee benefits market • Public sector

• Medium sized

businesses

• Large businesses

• New economy

Throughout the Group, we have embarked on a

unified approach to tap into these clearly identified

growth market segments and can report great success in

this initiative. Our detailed analysis shows that the

small business segment contributes almost 35% to gross

domestic product and represents 55% of formal, private

sector employment. The Sanlam Nexus solution

offering was specifically developed to address this

market opportunity.

At the other end of the spectrum, the affluent

market (with a monthly household income of R30 000

plus) represents only 0,6% of the population but invests

13% of household expenditure on insurance and

savings. This is a key target market for our Innofin

products and Sanlam Personal Investments.

We are also urgently applying our minds to the fact

that our clients undoubtedly need access to certain

banking products. We recognise that to fulfil our vision

of being the leader in wealth creation, we must add

the recent past the Group has concentrated on

improving its customer relationship management

systems and integrating a lifetime value

management programme for clients. We continue

to focus on developing and delivering appropriate

client solutions that address the needs of clients in

different market segments as effectively as possible.

Products and services are sourced from across the

Sanlam Group, and draw on the resources of the

individual life, employee benefit and unit trust

business units. Our brand and distribution

capability are key strengths of the Group.

Research has shown that in 2001, for the first

time, the disposable income of black South Africans

overtook that of white South Africans. Sanlam has

identified that 43% of its target market is black and

that 57% of that market segment currently has no

insurance. Much energy has therefore been, and will

continue to be, devoted to developing our interface

with this important sector of the market.

It is significant to note that in 2002 the number

of black advisors in Sanlam increased by 64% from

400 to 655, a third of our advisor corps. Black

advisors were responsible for 35% of sales in

recurring premiums and black clients represented

44% of new recurring policies in 2002.

Page 16


As we consolidate our position in the competitive

investment arena and achieve improved investment

performance figures, we will progress towards our

objective of elevating operational excellence and

expanding our presence in and share of the middle

market. In this regard a number of innovative products

and services have already been launched in response to

client needs.

It is our longer-term objective to broaden our

market base to encompass the segments of the market

that we have identified as having above average growth

potential.

On the international front, we can report

satisfactory progress. By 31 December 2002, our

international business, which was affected by a

strengthening rand and expenditure incurred in

expanding the platform, contributed 8% of Group

operating profit. Our internationalisation plan is to

build and/or buy businesses that match our niche

strategy to provide products and services to the

corporate and high net worth retirement and savings

market. The structure of our international business is

founded on providing actuarial and investment

consulting services via Punter Southall and PSolve. The

investment options we offer clients include multi-

management (via io Investors), private client asset

management (via Hichens Investment Management)

and brokerage services (via Hichens Harrison). We aim

to extend the reach of this business, by utilising

these products to our offering. We are pursuing

discussions with ABSA on a co-operation model that

will add value to both organisations.

In light of the challenging market conditions, the

Group paid considerable attention to innovative ways

of stimulating domestic growth for our products and

regaining market share. Immediate consideration was

given to improving investment performance, a key

success factor in stimulating domestic growth. With the

appointment of Johan van der Merwe as chief executive

officer at Sanlam Investment Management and a

refined investment process, a number of exceptional

investment professionals were inspired to join the

re-invigorated team.

While the Morgan Stanley World Index declined by

42,7% in rand terms during the year and the South

African All Share Index fell by 8,4% over the same

period, it is pleasing to report that the portfolios of

Sanlam Investment Management on a relative basis,

reflected generally improved performances. By the

year-end, 29% of Sanlam’s unit trusts were in the top

quartile and 76% in the top half, when measured over

a 12-month period. Sanlam Investment Management

has also moved up from 8th position to 6th position in

the Alexander Forbes Large Manager Watch over the

past year.

These heartening trends should start to translate into

improved fund flows in the year ahead but in the year under

review, the Group experienced net outflows of R4 billion.

Page 17

synergies with the life business can be further exploited

to develop appealing products for the corporate market.

At the time of writing, it appears as if the

international financial markets will remain mired in a

bear market, stifled by weak economies and the threat

of a war in the Middle East. Naturally this will have a

negative impact on investment performance in spite of

the fact that the outlook for our local markets is

reasonably optimistic. The test of our recently

strengthened and energised investment team will be to

seek those opportunities, both in the markets and via

innovative new products, that will deliver superior

returns on an appropriate risk-adjusted basis.

The investment team is well aware of the strategic

importance of delivering improved performance and is

capable of meeting that challenge.

In the area of establishing Sanlam’s integrated

business model, excellent progress has been made at

Sanlam Life. The essence of our business remains

wealth creation for our clients and that motivates our

relentless focus on providing clients with trusted advice

and superior client service from across our businesses.

The drive to broaden the product range to satisfy

all of the clients’ wealth creation needs, will also

continue.

One of our competitive advantages is our solid

distribution channel. This, coupled with our powerful

brand, are great value drivers and we will be optimising

these assets to deliver significant benefits.

independent financial advisors as the distribution

network. As in South Africa, our international business

is driving towards delivering superior risk-adjusted

returns to clients. Demonstrating the success of our

formula, the funds under advice more than doubled

to in excess of $24 billion and the number of

continuing institutional client relationships in the

consulting business increased from 310 to 450.

This provides a strong platform for our expansion

into Europe.

Focus areas for 2003

With much of the Group’s strategy now in place, our

focus for the year ahead will be on delivering value.

We have four clear areas on which we will concentrate:

• Operational performance

• Investment performance

• Harnessing the values inherent in our integrated

business model, including banking products

• Developing the four pillars of Black Economic

Empowerment

From an operational point of view we need to

address a number of issues such as improving the

Group’s operating margin through regaining lost

business and adding and retaining new business across

all the business units as well as through containing and

ultimately reducing the cost of acquiring new business.

To this end attention will be paid to the employee

benefits division where the current meaningful

Page 18


Builder Fund on which we reported last year, as well as

the launch of the Sanlam Development Fund-of-Funds,

South Africa’s first private equity fund-of-funds, have

become the blue print for similar initiatives which will

be announced in the year ahead. We continue to

introduce innovative products and services that will

reach the broadest segment of our population and

satisfy their wealth creation needs.

Corporate governance

Corporate governance fell under the spotlight during

the year, in the light of corporate failures both globally

and here in South Africa. Investors, regulators and the

media focused their attention on corporate

wrongdoings and lifted the veil on many unacceptable

practices. As a Group we welcome greater shareholder

activism and accept our responsibility to be accountable

to all our stakeholders.

A detailed report on corporate governance can be

found elsewhere in this report, and we would like to draw

shareholders’ attention to the progress that has been made

within the Group in this area. We embrace the principles

of the Code of Corporate Practices and Conduct as set

out in the King Committee Report on Corporate

Governance (King II) and have taken a number of steps

towards improved compliance. A particular achievement

is the fact that a non-executive director now chairs every

subsidiary in the Group and each subsidiary’s audit

committee also has a non-executive chairman.

As is appropriate for one of South Africa’s leading

companies, Black Economic Empowerment remains

high on the agenda at Sanlam and we elaborate on our

initiatives elsewhere in this report.

Throughout the Group, employment equity will

continue to be encouraged, building on the successes

already attained. We also aim to introduce new black

shareholders into the Group and any participation will

be based on the value they are able to add to Sanlam.

The Group’s procurement policy was finalised and was

initiated during the year. It aims to ensure that our

suppliers are diverse in terms of race, gender and

disability status. In particular, Sanlam service providers

will be actively encouraged to utilise the skills of

historically disadvantaged individuals. We remain an

active participant in the economic development of the

country, not only in the economic debate and policy

formulation, but also through direct financial

investment. Initiatives such as the R2,2 billion Sanlam

Development Fund and the R500 million Community

The Values of SanlamAt Sanlam, we…

• Grow shareholder value throughinnovation and superior performance

• Lead with courage

• Serve with pride

• Care because we respect others

• Act with integrity and accountability

Page 19

The sluggish recovery in the global economy is

evident in renewed weakness in the USA, which

impacts on other regions via foreign trade links, and

weak domestic demand in the Euro zone and Japan. In

addition, at the time of writing, the uncertainty created

by the risk of war in Iraq is having a negative effect on

business confidence, but once this issue is resolved,

global economic activity could resume positively.

While South Africa’s economic outlook is robust

with inflation set to fall rapidly, creating room for

interest rates to decline during the latter half of the year,

the domestic financial markets, which tend to mirror

international bourses, are likely to remain under

pressure. Naturally this will impact on investment

performance. However we are confident that as a result

of the Group’s realignment and greater focus, our

businesses are more resilient and better able to

withstand negative pressures.

As the nation’s wealth grows, so does the pool of

savings that can fund not only Sanlam’s continued

growth, but also that of the country. The rigorous

discipline imposed on the South African economy by

the Department of Finance under the leadership of

Minister Trevor Manuel, and the Reserve Bank led by

Governor Tito Mboweni, gives us great comfort.

Mr Manuel deserves particular credit for his well-balanced

and dynamic national budget proposals for 2003.

Further measures to improve the country’s

personal savings ratio from its currently

Corporate social investment

Sanlam views corporate social investment as an

important element of a broader transformation agenda.

Investments are made in conjunction with other

initiatives such as employment equity and

developmental procurement. The Group devotes 1% of

its net operating profit (after tax) to form the basis for

its corporate social investment budget which means

that the budget for the 2003 financial year will be in

the vicinity of R15 million.

The Group’s guiding principles influence the way

investments are made. Common themes at Group level

encompass education, economic development (or

entrepreneurship), HIV/Aids and social development

(or poverty alleviation). These themes are strictly

aligned with the Group’s core values of wealth creation

and transformation.

A more comprehensive report on our corporate

investment programme is published elsewhere in this

document.

Economic outlook

One of the most important features of the performance

of the South African economy in 2002 was that the

growth dynamics showed signs of a shift. Although still

tentative, the ability of government to embrace a more

expansionary policy on a sustainable basis could cement

this change in the behaviour of the economy. We

therefore start 2003 on a relatively optimistic note.

Page 20


to thank him, and Prof Ahmed Bawa who also

resigned as a non-executive director on that date,

for their contributions to our deliberations. We are

delighted that Vusi Khanyile, the chairman of

Thebe Investment Corporation and Eugene van As,

the executive chairman of Sappi Limited, accepted

the invitation to join the Sanlam board as non-

executive directors. The contribution made by our

non-executive directors, the custodians

of the governance process, is immense and we thank

them for their wise counsel and active participation

in our debates.

The executive team within the Group was

strengthened during the year with a number of

appointments, aligning the management reporting

lines with our restructured businesses. Adding

weight to our commitment to internationalisation,

Angus Samuels was appointed chief executive of

Sanlam International, and Johan van der Merwe

took the helm at Sanlam Investment Management

in his stead. Lizé Lambrechts was appointed chief

executive of Sanlam Life and Yvonne Themba was

appointed chief executive of Corporate Affairs – the

first black woman on Sanlam’s executive team.

Appreciations

To the men and women of Sanlam, thank you. In a

year as challenging as the year just past it is always

difficult to remain focused. We would therefore like

disappointingly low level of 0,5% would, however

be welcomed, as increased savings would bolster the

economy. As personal savings is in the first instance

dependable on income, consideration should be

given to further reduce the direct taxation on

households so as to increase disposable income.

Prospects

Sanlam enters the new financial year positively and

with most of the vital elements in place to allow our

teams to concentrate on delivering value. Provided

investment markets are fair, we anticipate that the

Group’s results for the 2003 financial year will show

a satisfactory improvement on those for 2002.

Directorate and Executive

During the period Leon Vermaak, the Group’s chief

executive, left Sanlam to pursue his own business

interests and a rigorous process of appointing a

successor is underway. Flip Rademeyer, financial

director, was appointed acting chief executive with

the brief to refocus the businesses on improved

performance, particularly in respect of investment

results and business growth. It is gratifying to report

that these areas of concern are being tackled head-

on and, as has been reported, progress is being

achieved. Peter Vundla, a non-executive director,

resigned from the board of directors from 31 March

2002 due to a conflict of interest and we would like

Page 21

We are also indebted to our shareholders,

analysts and brokers for their sustained interest in

our endeavours and to the media for reporting on

our activities so diligently.

It was the resolute determination of everyone in

the Group to embrace our shared vision and to

implement our strategies that carried us to the point

where we embark on the new year far stronger and

better positioned.

to pay tribute to our colleagues throughout the

Sanlam Group for their loyalty and dedication. The

results that were achieved in 2002, an exacting

period for us all, reflect their commitment and

endeavours as well as the progress that Sanlam has

made in its goal of becoming the employer of

choice in the financial services industry.

As always our sales brokers and advisors played

an important role in the success of our business and

we are grateful for their continued support and

value our trusted relationships. To our suppliers,

thank you for measuring up to our exacting

standards.

Ton Vosloo

Chairman

Flip Rademeyer

Acting chief executive

5 March 2003

Page 22

Executive Committeeas at the date of this report

JAA Samuels (Angus) (52)

Appointed to Exco: October 2000

Chief Executive: Sanlam International

UK citizen

Sanlam service: 4 years

Alternate director: Sanlam Limited

CG Swanepoel (Chris) (52)

BSc (Hons), FIA, FASSA


Chief Actuary



Y Themba (Yvonne) (37)

BA, MBA


Chief Executive: Corporate Affairs

Sanlam service: 11 months

JHP van der Merwe (Johan) (38)

MCom, M.Phil, CA (SA)

Appointed to Exco: July 2002

Chief Executive: Sanlam Investment Management

Sanlam service: 8 months

V van Vuuren (Vic) (45)

BJuris (Unisa), AEP (Unisa)


Chief Executive: Human Resources


J van Zyl (Johan) (46)

PhD, DSc (Agric)

Appointed to Sanlam Exco: August 2001

Chief Executive: Santam

Santam service: 1 year

Executive director: Sanlam Limited

From left to right (front): Nick Christodoulou, Lizé Lambrechts, Charl le Roux, Bonang Mohale, Johan van der Merwe,

Flip Rademeyer, Vic van Vuuren, Yvonne Themba, Johan van Zyl

From left to right (back): Marius Ferreira, Chris Swanepoel, Angus Samuels

P de V Rademeyer (Flip) (55)

CA (SA), SEP (Stanford)


Acting Chief Executive

Financial Director



NT Christodoulou (Nick) (55)

BSc Eng (Ind), MBA


Chief Executive: Sanlam Strategy and Business Development



M Ferreira (Marius) (48)

BCom (Hons)

Appointed to Exco: November 2001

Chief Executive: Gensec Bank



L Lambrechts (Lizé) (39)

BSc (Hons), FIA

Appointed to Exco: April 2002

Chief Executive: Sanlam Life


PC le Roux (Charl) (48)

BSc




BF Mohale (Bonang) (41)

CM (SA), Pr IMM, P Gr Dip Mkt (IMM)

Appointed to Exco: September 2001

Chief Executive: Shared Services and Associated Businesses

Sanlam service: 1 year


Page 23

Page 24

Statement on Corporate Governance

The Board of Sanlam Limited (“Sanlam”) endorses

and is fully committed to complying with the

principles of the Code of Corporate Practices and

Conduct as set out in the King Committee Report

on Corporate Governance (“King II”).

The directors have considered the implications of

King II and are of the opinion that Sanlam has

complied substantially with the requirements of King

II during the period under review. Areas requiring

further enhancement will be considered during the

2003 financial year. In supporting the code, the

directors recognise the need to conduct the enterprise

with integrity and in accordance with generally

accepted corporate practices.

The Sanlam group (“Group”) operates within a

decentralised business model environment. Each

business has its own governance structures. Clear

approval frameworks and agreed upon principles are

in place to ensure a coherent governance approach

throughout the Group.

As recommended by King II, the Board is

currently reviewing its existing charter regulating how

business is to be conducted by the Board in

accordance with the principles of good corporate

governance. The charter will set out responsibilities

to be discharged by board members collectively as

well as the individual roles they are expected to fulfil.

The existing annual critical self-evaluation process of

the effectiveness of the Board, its committees and

individual directors will be enhanced. Many existing

governance practices that have been in place in

Sanlam for a number of years will be codified into

the Board charter.

The Group monitors developments in the

corporate governance arena, both nationally and

internationally, with a view to reviewing and

adapting corporate governance structures and

practices where appropriate.

The Board of Directors of Sanlam

Composition

Details of the directors on the Sanlam Board appear

on pages 10 and 22 of this report. At the end of the

period under review the Board comprised of an

independent chairman, 12 non-executive directors

(10 of whom are independent) and three executive

directors.

Page 25

Current Board Representation by Race and Gender

Male Female Total

Black 3 1 4

White 11 1 12

Total 14 2 16

Independent Non-exec Exec Total

Black 4 — — 4

White 7 2 3 12

Total 11 2 3 16

The chairman and the lead director are

independent directors. The Board is ultimately

accountable and responsible for the performance and

affairs of the company. The company does not have a

controlling shareholder or group of shareholders. There

is also not any specific minority shareholding

representation on the Board. A third of all board

members retire every year at the company’s annual

general meeting.

The Board meets at least five times a year to

consider business philosophy and strategic issues, set

risk parameters, approve budgets and to monitor that

the implementation of delegated responsibilities is

properly executed. Feedback from its committees is

also considered. The Board considers a number of key

performance indicators, variance reports and industry

trends. A range of non-financial information is also

provided to the Board to enable it to consider

qualitative performance factors.

The independent and non-executive directors on

the Sanlam Board are high-calibre individuals with the

necessary integrity, skills and experience to bring

judgement to bear on various key issues relevant to the

business of the company, independent of management.

Senior members of management attend/are invited to

board meetings. Possible conflicts of interest are

regularly declared. Non-executive sessions are held at

the end of all board meetings.

The major operating companies in the Group

each have their own board structures comprising

both executive and non-executive directors as well as

appropriate committees. Further details on these

boards and their respective committees are provided

in the business reviews on pages 58 to 83.

The positions of chairmen of the boards of these

companies as well as the chairmen of their audit

committees were recently reviewed to bring them in

line with King II.

Board Committees

Audit and Risk Committee

Male Female Total

Black 1 — 1

White 2 1 3

Total 3 1 4

The committee comprises three independent

directors and one non-executive director, all of whom

are financial literate and the majority has financial

expertise. The chairman is an independent director.

The committee meets at least three times a year.

Members of senior management, the Chief Internal

Auditor and the External Audit partners attend

meetings of the committee.

Page 26

Statement on Corporate Governance (continued)

the use of the external auditors for non-audit services

are reviewed annually.

The committee has reviewed its activities during

the period under review and is satisfied that it has

fulfilled its responsibilities in compliance with the

terms of reference that governs its activities.

Human Resources Committee

Male Female Total

Black — — —

White 3 — 3

Total 3 — 3

Three independent directors constitute this

committee.

The Group Human Resources Committee is

charged with the responsibility of managing the

Group’s intellectual human capital and transformation

processes. In particular, the committee approves

executive appointments and reviews succession

planning (including for the CEO). The committee is

further responsible for the remuneration strategy of

the Group, the approval of guidelines for incentive

schemes and the annual determination of Board and

Sanlam Executive Committee remuneration packages

relative to local and international industry

benchmarks. In doing so, the committee ensures that

the incentive schemes are in line with good business

practice and ensures reward for excellent performance.

The performance of the members of the Executive

Committee (including the CEO) is evaluated annually

to coincide with the consideration of performance

based bonuses by the committee.

The Audit and Risk committee has recently

reviewed its charter to be in line with the

requirements of King II and international best

practice.

The main responsibilities of this committee are

to assist the Board in fulfilling its oversight

responsibilities by:

• Setting and overseeing the overall standard for

financial reporting, risk management, internal

controls and ethical conduct within the Group;

• Monitoring the effectiveness of business risk

management processes in the Group;

• Reviewing and assessing the quality of the work

done by the professionals responsible for financial

reporting and internal control;

• Engaging in discussions with external and internal

auditors on the quality and acceptability of the

control environment and reporting structures; and

• Maintaining compliance with legal and statutory

requirements.

The Sanlam Board has authorised the committee

to investigate any activity within its terms of

reference. The committee is authorised to seek any

information it requires from any employee in the

Group, and all employees are expected to co-operate

with any request made by the committee.

The committee is entitled to obtain outside legal

or other independent professional advice via the

Company Secretary of Sanlam.

South African GAAP is followed for financial

reporting and, where appropriate, information is also

given in terms of international GAAP.

Executive sessions with the internal and external

auditors are held regularly. Materiality levels as well as

Page 27

The committee has also been authorised by the

Board to search for and make recommendations to

the Board regarding the appointment of a new chief

executive officer. External consultants have been

engaged to assist in the process.

Nominations Committee

Male Female Total

Black — 1 1

White 1 — 1

Total 1 1 2

Both committee members are independent

directors.

The Nominations Committee is responsible for

identifying fit and proper candidates who could be

appointed to the Board and evaluating them against

the specific disciplines and areas of expertise

required on the Board. The interests of different

stakeholders are considered as well. A shortlist of

suitable candidates is regularly updated especially

with regard to other (possibly conflicting) board

positions they have accepted or resigned from.

Proposals are presented to the Board for final

decisions thereon.

Special Committee

Male Female Total

Black 3 1 4

White 5 1 6

Total 8 2 10

The Special Committee comprises all independent

directors with the exclusion of the chairman of the

Board. The lead director is chairman of the committee.

This committee is responsible for evaluating the

effectiveness of the chairman of the Board on an

annual basis. Before the appointment or re-

appointment of the chairman of the Board, the

committee must discuss the matter in detail and make

a recommendation to the Board.

Black Economic Empowerment Committee

Male Female Total

Black 1 1 2

White 1 — 1

Total 2 1 3

The Black Economic Empowerment committee

was established on 4 September 2002 and comprises

3 independent directors.

The main responsibilities of the committee are to

recommend, monitor and advise on matters pertaining

to black economic empowerment throughout the

Group.

More background on Sanlam’s initiatives on Black

Economic Empowerment appears on page 38 of this

report.

Ad Hoc Board Committees

The Board has the right to appoint special ad hoc

board committees from among its members and

authorise them to perform specific tasks. During the

period under review seven such committee meetings

took place.

Page 28


Record of attendance at meetingsAudit Human

Board and Risk Resources BEE

Meetings planned 5 4 3 1

Meetings held 6 4 4 1(1 special) (1 Round

Robin)

Non-executive directorsVosloo T 6 4Alberts JPL 4 3Bawa AC (Resigned

31/3/2002)Brink DC 5 4 1

(1 Recused)Du Plessis AS 6Gcabashe TS 4Khanyile V 2

(Appointed7/8/2002)

Maynard CE 6 3 (Appointed

1/3/2002)Mokhobo DNM 5 1Perold AF 4Rudman GE 6 4Swartz PEI 5 4

(1 Recused)Van Zyl JJM 5 3Vundla BP 1

(Resigned31/3/2002)

Executive directorsVermaak L 6Le Roux PC 6Rademeyer P de V 6Van Zyl J 6

Alternate directorsChristodoulou NT 5Ferreira M 5Mohale BF 5Samuels JAA 5Swanepoel CG 5

The executive and alternate directors are not members of the various Board Committees, but do attend the meetings ona regular basis where appropriate on invitation. The Special Committee did not meet during 2002 as Mr Vosloo wasonly appointed as Chairman of the Board on 1 January 2002. The Nomination Committee met informally on anumber of occasions and gave feedback to the Board on their nominations and recommendations.

Page 29

The Executive Committee

Male Female Total

Black 1 1 2

White 9 1 10

Total 10 2 12

This committee, which functions under the

leadership of the chief executive officer, is charged with

the responsibility of the operational management of the

Group.

The committee comprises the business heads, the

chief financial officer, the chief actuary and the heads of

corporate functions. Three of the members are also

executive directors and five are alternate directors.

The committee normally meets every fortnight.

The member’s and the committee’s authority is

limited to those powers delegated to them by the

Board.

Company secretary and professional adviceAll directors have unlimited access to the services of the

Company Secretary, who is responsible to the Board for

ensuring that proper corporate governance principles

are adhered to. Board orientation or training is done

when appropriate.

All directors are entitled to seek independent

professional advice concerning the affairs of the Group,

at Sanlam’s expense.

The Sanlam Board appointed the Company

Secretary who is also the Public Officer, Compliance

Officer, the delegated Information Officer of Sanlam

and is responsible for the execution of all the different

statutory requirements applicable to those positions.

Relations with shareholders The Board understands the information needs of

shareholders and places great importance on

meaningful dialogue with shareholders and ensures that

they are kept appropriately informed on matters

affecting the Group and that they have access to the

Group. Reports and announcements, meetings with

analysts and journalists and the Sanlam website are used

extensively to provide relevant information to

shareholders. Open lines of communication are

maintained and the chief executive officer and the

business executives meet with shareholders on an

ongoing basis to ensure transparency. All Board

members are requested to attend Sanlam’s Annual

General Meeting, to which all shareholders are invited.

The Group’s financial results will continue to be

published in the financial media, notwithstanding the

proposed relaxation of this requirement by the JSE

Securities Exchange, so as to maximise its

communication efforts to its relatively large number of

individual shareholders. A comprehensive programme

of meetings with major shareholders and investment

analysts follows the release of final and interim results.

Shareholders are encouraged to contact Sanlam with

questions or concerns and, subject to price sensitivity,

management seeks to provide rapid responses.

Sanlam is committed to transparency and disclosure

of relevant and appropriate information in its Annual

Report and through other communication channels.

This is aimed at providing a full and proper evaluation

of Sanlam and its share price and as a means of

monitoring management’s performance. This is

pursued continuously, notwithstanding the complex

nature of life insurance business and the challenge of

meeting best practice standards, both locally and

internationally.

Share dealingsIn terms of Sanlam’s “closed period” policy, directors,

officers, participants in the share incentive scheme and

staff who may have access to price sensitive

information, are precluded from dealing in Sanlam

shares for approximately two months prior to release of

Page 30


impact and likelihood of a particular risk occurrence.

Risks with a low likelihood of occurring, but with a

potentially catastrophic impact are regarded as

unacceptable. The policy dictates that each business

institutes maximum loss limits as part of their business

strategy. Furthermore, the responsibilities of all the role

players in the SRM process are clearly defined within

the SRM policy.

The Audit and Risk committee charter has been

amended to specifically include risk management in its

scope. This enables the Board to monitor and evaluate

the risk management process and the resultant risks

identified on a regular and continuous basis.

A Group Risk Management function has been

established to give effect to the SRM policy on a group-

wide basis. Regular interaction between the business

units and the Group Risk Management function has

been formalised. The SRM policy for the Sanlam group

has been adopted and implemented by the various

decentralised businesses. Some have, due to their

specific business environments, implemented even more

rigorous risk and compliance policies, procedures and

methodologies.

The risk reporting and identification process in

each business unit flows into the respective Boards and

Audit and Risk committees. The identified risks are

collated and discussed at group level via the formal

interaction with the Group Risk Management function.

The outcome of this process is reported to the Sanlam

Limited Audit and Risk Committee and Board.

Risk management is an ever-evolving process. SRM

in the Group is striving towards increased integration of

the management of risks. In this process there is a

commitment to best practice techniques.

Documented and tested processes are in place,

aimed at ensuring business continuity in all critical

areas in the event of a disaster.

An independent quality assurance review of the risk

management process in the Sanlam group has been

the Group’s interim and final results. Details of

directors’ dealings in Sanlam shares are disclosed to the

JSE Securities Exchange through the Stock Exchange

News Service (SENS). In addition, more stringent

trading policies regarding all personal transactions in all

financial instruments are in force at Sanlam Investment

Management and at Gensec Bank.

Going concernThe Board has considered and recorded the facts and

assumptions on which it relies to conclude that Sanlam

will continue as a going concern in the financial year

ahead. The directors are of the opinion that Sanlam will

be a going concern in the year ahead and their

statement in this regard is also contained in the

statement on the responsibility of directors for annual

financial statements.

Strategic risk managementAlthough the Board has ultimate responsibility for risk

management, the responsibility and authority for day-

to-day management of risks have been delegated to

specialist committees and executive management with

regular feedback to the Audit and Risk Committee.

The primary objective of strategic risk management

is to optimise the Group’s risk adjusted return in

support of sustained real earnings growth per annum.

Risk management is not necessarily about avoiding

risk, but managing risk within acceptable and/or

prescribed parameters. In conducting business

operations, it is important to correctly identify and have

the ability to absorb certain risks. The current risk

management process recognises this dynamic by

managing the three elements of risk, namely

opportunity, hazard and uncertainty.

A comprehensive Strategic Risk Management

(SRM) policy for Sanlam group is in place and

addresses the significant risk categories facing the

Group. Risk evaluation is defined as a combination of

Page 31

completed by an external service provider. This

included an evaluation of the effectiveness of the risk

management activities and measurements against best

practice. The external service provider found that the

risk management activities are effective.

Internal auditThe Group’s internal audit function operates from a

board approved mandate and the authority, resources,

scope of work and effectiveness of the function are

reviewed annually. The Chief Internal Auditor is

appointed in consultation with the chairman of the

Audit and Risk Committee.

Internal audit operates to audit plans approved by

the audit committee of each business and that is based

on a formal risk assessment as well as issues highlighted

by the audit committee and senior management.

The audit plans are of a continuous nature in order to

identify emerging risk areas. Internal audit co-ordinates

their work with other assurance providers (external

audit, risk management, compliance and forensic

investigations) to ensure proper coverage of financial,

operational and compliance controls and to minimise

duplication of effort.

Internal audit provides assurance that the

management processes are adequate to identify and

monitor significant risk and that the internal control

systems are effective. Control breakdowns are

reported in terms of an escalation policy, audit

committee minutes and through the chairmen of

subsidiary audit committees, to the appropriate level

of risk management and audit committees, where

management actions and progress are monitored.

The Chief Internal Auditor has ready and regular

access to the chairman of the Board and of the Audit

and Risk Committee.

No significant internal financial control

breakdowns occurred in the Group during the 2002

financial year.

Statutory actuaryThe Chief Actuary of Sanlam Limited, who is the

statutory actuary of Sanlam Life Insurance Limited,

is subject to the disciplines of professional conduct and

guidance and reports to the directors of Sanlam Life

Insurance Limited and the regulatory authorities.

He has unfettered 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.

He is the ultimate guardian of the interests of the life

insurance policyholders of the Group.

Business ethicsThe Sanlam group is committed to the highest

standards of integrity and ethical conduct in dealings

with all its stakeholders. A central representative

Ethics Committee monitors adherence to the

precepts of the Code of Ethics, and investigates

matters brought to its attention when necessary.

Stakeholders were consulted in the original drafting

of the Code before its implementation. Sanlam’s

Code of Ethics was again distributed to each

employee during December 2002 to commit each

Sanlam employee to high ethical and performance

standards. The Code and its processes are regularly

measured against best practice.

The Ethics Committee is chaired by an Executive

Committee member and consists of:

Male Female Total

Black 1 1 2

White 2 1 3

Total 3 2 5

The same Executive Committee member is also

responsible for the Forensic Investigations department

which, among other things, administers a hotline

outsourced to an independent service provider.

Page 32


❑ A clear and meaningful distinction is made between

high performers, average performers and under

performers and remuneration is distributed

accordingly.

❑ Strong incentives are created for superior

performance by individuals and teams.

❑ Top contributors are awarded significantly higher

bonuses.

❑ Under performers are not rewarded and active steps

are taken to either encourage the individual to

improve performance or the individual must leave

the company, in line with accepted practices.

• Executive and alternate directors

The package for executive and alternate directors

includes a base salary, a variable performance linked

bonus and an allocation of share options. All of these

are established in terms of the principles above. The

remuneration is reviewed annually by the Group

Human Resources Committee in line with the Group

Remuneration Philosophy after evaluating each

executive director’s performance, including that of the

chief executive officer.

• Non-executive directors

Non-executive directors receive an annual fee for

making their knowledge, experience and insight

available to the boards and board committees of which

they are members. A further fee is paid for attending

and contributing to board meetings. The company

pays for all travelling and accommodation costs. The

chairman receives a fixed annual all-inclusive fee. Fee

structures are recommended by the Group Human

Resources Committee to the Board and are reviewed

annually with the assistance of external service

providers. In doing so the Committee takes cognisance

of market norms and practices as well as the additional

responsibilities placed on board members by new acts,

regulations and corporate governance guidelines.

Adequate grievance and disciplinary procedures are in

place to ensure the enforcement of the Code.

Compared to previous years and measured against

the established levels of materiality, no incidence of

such importance occurred that it had to be escalated

to the Ethics Committee for consideration and

clearance.

Employee participationThe Executive Committee has committed itself to an

ongoing process of transparency, consultation and

inclusivity to staff. To this end, issues that materially

affect employees follow a participative process that is

designed to promote good employer/employee

relations.

Effective communication through various media is

continually improved to ensure that employees are well

informed and able to share their views, thoughts and

opinions proactively at all levels within the Group.

Remuneration philosophyThe Group Human Resources Committee is

responsible for the remuneration strategy of the Group,

the approval of mandates for incentive schemes within

the Group and the determination of Sanlam Directors’

and executive committee members’ remuneration

packages relative to local and international industry

benchmarks.

The establishing of appropriate remuneration is

inextricably linked to the further development and

retention of executives and to attract people of the

highest calibre.

• Employees in general

The following principles are paramount in

determining the proper remuneration levels:

❑ All remuneration practices are structured in such a

way that they provide for clear differentiation

between individuals with regard to performance.

Page 33

Directors’ and officers’ emoluments for the year ended 31 December 2002

Company

Salary/ contribu- Other

Months fees Bonus tions benefits Total

Name in office R000 R000 R000 R000 R000

Executive directors

L Vermaak(1) 12 2 024 — 403 2 500 4 927

AS du Plessis(2) 2 257 — 39 — 296

P de V Rademeyer 12 1 360 — 187 — 1 547

PC le Roux 12 1 965 272 205 — 2 442

J van Zyl 12 1 454 48 186 — 1 688

Total executive directors 7 060 320 1 020 2 500 10 900

Officers

JP Bester(3) 5 279 — 66 — 345

NT Christodoulou 12 1 020 — 218 — 1 238

M Ferreira 12 1 142 — 171 — 1 313

L Lambrechts(4) 9 702 131 115 — 948

BF Mohale 12 1 105 — 154 — 1 259

XB Motswai(5) 8 303 — 54 — 357

JAA Samuels(6) 12 3 906 1 166 694 390 6 156

CG Swanepoel 12 1 193 — 181 — 1 374

Y Themba(7) 3 113 — 12 — 125

V van Vuuren 12 831 — 130 — 961

JHP vd Merwe(8) 6 684 2 000 100 30 2 814

Total officers 11 278 3 297 1 895 420 16 890

Bonuses reflected are payable in 2003, based on the 2002 results and the formulae applicable for the different businesses, apart from J van Zyl atSantam where the actual payment in 2002 is reflected.Refer to the Directors’ Report on page 88 for details of changes in directorships.(1)Resigned 31 December 2002(2)Executive director until 28 February 2002, appointed non-executive director from 1 March 2002(3)Appointed 7 August 2002(4)Appointed 1 April 2002(5)Resigned 31 August 2002(6)Payment is made in pound sterling. Conversion to rand was done at the average exchange rate for the year(7)Appointed 1 October 2002(8)Appointed 1 July 2002

Page 34


Directors’ and officers’ emoluments for the year ended 31 December 2001

Company

Salary/ contribu-

Months fees Bonus tions Total

Name in office R000 R000 R000 R000

Executive directors

HSC Bester 12 1 735 — 259 1 994

AD Botha 4 2 123 — 215 2 338

MH Daling 12 3 054 2 000 439 5 493

AS du Plessis 12 1 489 1 500 236 3 225

P de V Rademeyer 12 1 215 1 000 187 2 402

GE Rudman(1) 3 261 — 39 300

J van Zyl(2) 10 667 48 73 788

L Vermaak(3) 12 1 612 1 000 264 2 876

Total executive directors 12 156 5 548 1 712 19 416

Officers

NT Christodoulou 12 962 1 000 154 2 116

M Ferreira 12 974 800 226 2 000

PC le Roux 12 1 218 1 820 182 3 220

BF Mohale 4 345 200 56 601

CG Swanepoel 12 1 075 800 177 2 052

JAA Samuels(4) 12 2 745 1 022 637 4 404

V van Vuuren 12 634 900 114 1 648

X Motswai 6 208 49 42 299

Total officers 8 161 6 591 1 588 16 340

(1)Became a non-executive director on 1 September 2001 after resigning as executive director at 31 March 2001(2)Appointed as a non-executive director on 7 March 2001 and became an executive director on 1 August 2001(3)Includes service at Santam (4 months) and Sanlam (8 months)(4)Payment is made in pound sterling. Conversion to rand was done at the average exchange rate for the year

Page 35

Directors’ and officers’ emoluments for the year ended 31 December 2002Other Fees from

Fees Committees fees group TotalName R000 R000 R000 R000 R000Non-executive directorsJPL Alberts 126 70 — — 196AC Bawa(1) 23 13 — — 36DC Brink 126 20 — — 146AS du Plessis(2) 111 54 688 630 1 483TS Gcabashe 111 20 — — 131V Khanyile(3) 67 20 — — 87CE Maynard 111 72 — — 183DNM Mokhobo 126 52 — — 178AF Perold(4) 460 34 — 515 1 009GE Rudman 111 62 — 66 239PEI Swartz 126 30 — — 156JJM van Zyl 126 80 — — 206T Vosloo 630 — — — 630BP Vundla(5) 8 — — 22 30Travel and subsistence 410 — — — 410Total non-executive directors 2 672 527 688 1 233 5 120(1)Resigned 31 March 2002(2)Executive director until 28 February 2002, appointed non-executive director from 1 March 2002(3)Appointed 7 August 2002 (4)Payment is made in US dollars. Conversion to rand was done at the applicable exchange rates on payment dates(5)Resigned 31 March 2002

Directors’ and officers’ emoluments for the year ended 31 December 2001Fees from

Fees Committees group TotalName R000 R000 R000 R000Non-executive directorsJPL Alberts 93 76 — 169AC Bawa 93 74 — 167DC Brink 93 26 — 119TS Gcabashe(1) 77 — — 77WM Grindrod(2) 23 12 — 35K Jowell(2) 23 69 — 92DL Keys(3) 56 — — 56CE Maynard(4) 39 — 22 61DNM Mokhobo 93 20 — 113AF Perold(5) 333 — 444 777GE Rudman(6) 31 9 68 108P Smit(2) 23 108 — 131PEI Swartz 93 27 — 120JJM van Zyl 93 55 — 148T Vosloo 139 53 — 192BP Vundla(1) 77 — — 77Travel and subsistence 352 — — 352Total non-executive directors 1 731 529 534 2 794(1)Appointed 7 March 2001(2)Resigned 7 March 2001(3)Resigned 31 August 2001 (4)Appointed 1 August 2001(5)Payment is made in US dollars. Conversion to rand was done at the applicable exchange rates on payment dates(6)Became a non-executive director on 1 September 2001 after resigning as executive director on 31 March 2001

Page 36


Interest of directors and officers in share capital at the date of this report

Non-

Number of shares Beneficial beneficial Options

Executives

P de V Rademeyer 52 657 24 061 1 246 327

P C le Roux 726 728 — 1 250 000

J van Zyl 1 051 — —

Total executives 780 436 24 061 2 496 327

Non-executives

JPL Alberts 23 294 — —

DC Brink 38 899 — —

AS du Plessis — — 666 666

TS Gcabashe 300 — —

V Khanyile — — —

CE Maynard — — —

DNM Mokhobo 20 780 — —

AF Perold — — —

GE Rudman 128 661 90 000 728 750

PEI Swartz 41 402 — —

JJM van Zyl 9 559 — —

T Vosloo 12 976 — —

Total non-executives 275 871 90 000 1 395 416

Officers

NT Christodoulou 13 116 40 319 947 162

M Ferreira 558 043 — 2 758 213

BF Mohale — — 643 369

CG Swanepoel 409 998 — 895 395

JAA Samuels 274 204 — 2 544 451

V van Vuuren 14 341 — 480 045

JHP van der Merwe 1 168 — 4 100 000

JP Bester 322 714 — 356 173

Y Themba — — 36 319

L Lambrechts 15 203 — 508 142

Total officers 1 608 787 40 319 13 269 269

Total 2 665 094 154 380 17 161 012

Page 37

Directors’ and officers’ share incentivesDetails regarding the directors’ and officers’ restricted shares and share options held under the Sanlam Limited Share Incentive Scheme and the financial years during which they become unconditional, are as follows (in thousands):

Total Becoming unrestricted in31 Dec Re- 31 Dec Unre-

2001 leased New 2002 stricted 2003 2004 2005 2006 2007 2008 Strike price Average

EXECUTIVE DIRECTORSP de V Rademeyer– restricted fully paid shares — — — — — — — — — — — — —– share options 936 — 310 1 246 188 261 225 349 99 62 62 R6,00 – R8,26 R7,07PC le Roux– restricted fully paid shares 643 76 22 589 — 228 201 60 — — — — —– share options — — 1 250 1 250 — — — 500 250 250 250 R8,26 R8,26

Totals: executive directors– restricted fully paid shares 643 76 22 589 — 228 201 160 — — —– share options 936 — 1 560 2 496 188 261 225 849 349 312 312

NON-EXECUTIVEDIRECTORSAS du Plessis– restricted fully paid shares — — — — — — — — — — — — —– share options 1 122 455 — 667 667 — — — — — — R6,00 R6,00GE Rudman– restricted fully paid shares — — — — — — — — — — — — —– share options 729 — — 729 729 — — — — — — R6,00 – R7,35 R6,38

Totals: non-executive directors– restricted fully paid shares — — — — — — — — — — —– share options 1 851 455 — 1 396 1 396 — — — — — —

OFFICERSNT Christodoulou– restricted fully paid shares 19 9 — 10 — 10 — — — — — — —– share options 807 — 140 947 291 211 146 203 40 28 28 R6,00 – R8,26 R6,77M Ferreira– restricted fully paid shares 443 — — 443 158 122 89 41 33 — — — —– share options 2 646 — 112 2 758 734 692 580 369 287 74 22 R8,20 – R9,23 R8,30BF Mohale– restricted fully paid shares — — — — — — — — — — — — —– share options 595 — 48 643 — — 238 138 129 129 9 R8,26 –R9,07 R9,01CG Swanepoel– restricted fully paid shares 108 28 3 83 — 54 29 — — — — — —– share options 815 10 90 895 240 213 169 182 55 18 18 R6,00 – R8,26 R7,09JAA Samuels– restricted fully paid shares 274 — — 274 — 110 55 55 54 — — — —– share options 2 367 — 177 2 544 270 580 590 544 374 151 35 R8,20 – R9,23 R8,44V van Vuuren– restricted fully paid shares 9 3 — 6 — 3 3 — — — — — —– share options 288 58 250 480 6 93 79 137 65 50 50 R6,00 – R8,26 R7,58JHP van der Merwe– restricted fully paid shares — — — — — — — — — — — — —– share options — — 4 100 4 100 — — — 1 640 820 820 820 R7,49 R7,49JP Bester– restricted fully paid shares 133 21 4 116 — 94 22 — — — — — —– share options 296 — 60 356 120 81 47 59 25 12 12 R6,00 – R8,26 R6,92Y Themba– restricted fully paid shares — — — — — — — — — — — — —– share options — — 36 36 — — — 15 7 7 7 R8,26 R8,26L Lambrechts– restricted fully paid shares 7 3 — 4 — 4 — — — — — — —– share options 504 96 100 508 17 150 115 148 38 20 20 R6,00 – R8,26 R7,02

Totals: Officers– restricted fully paid shares 993 64 7 936 158 397 198 96 87 — —– share options 8 318 164 5 113 13 267 1 678 2 020 1 964 3 435 1 840 1 309 1 021

GRAND TOTALS– restricted fully paid shares 1 636 140 29 1 525 158 625 399 256 87 — —– share options 11 105 619 6 673 17 159 3 262 2 281 2 189 4 284 2 189 1 621 1 333

Note: J van Zyl (executive director) only participates in Santam’s share incentive scheme.

Page 38

Introductory Sustainability Report

With our unconditional endorsement of the

principles of King II, we will be publishing our first

comprehensive sustainability report later this year.

As an introduction, the section below highlights our

progress with some of those corporate issues that are

not covered elsewhere in this report.

Black Economic EmpowermentSanlam’s Black Economic Empowerment (BEE)

drives are pursued through four avenues:

employment equity, participation in the economic

development of South Africa, procurement and

service providers, as well as ownership and

participation in Sanlam’s control structures.

• Employment equity

Sanlam promotes Employment Equity (EE) by

fostering a working environment in which

opportunities, treatment and expectations are based

on practices that do not relate to race, religion,

gender or any other unfair discriminatory ground.

We have continued with a number of initiatives

in 2002. These include the aggressive drive to

address staff composition across all levels; a

transparent process in staff recruitment, promotion

and placement; accelerated training and

development programmes; anti-racism and diversity

management training; linking incentive bonuses to

employment equity targets and providing reasonable

accommodation of designated groups by modifying

job or working environments to provide historically

disadvantaged individuals access and opportunities

to participate and advance in employment.

The required EE reports for the Group have

been filed with the Department of Labour and a

compliance certificate has been issued.

More information is provided in the section on

transformation below.

• Participation in the economic development of

South Africa

Our pioneering launch of the Sanlam Development

fund in 1996 has financed economic development

projects to the value of more than R2,2 billion.

The fund provides equity and loans that are

financed by investments from retirement funds and

other institutional investors. The sectors in which

the fund has invested include small business

entrepreneurs, special purpose vehicles to empower

previously disadvantaged individuals to acquire

ownership of companies, direct investments in black

economic empowerment companies and basic

infrastructure.

Another funding vehicle established by Sanlam

to participate in the economic development of South

Africa is the Community Builder Fund. This fund

invests in community infrastructure, the provision of

services, job creation and economic empowerment.

Sanlam Development Investments at SIM

manages these funds.

37%

63%

32%

68%

Male Female Black White

Staff numbers on 31 December 2002

Page 39

During 2002, Sanlam Development Investments

was enhanced with the inauguration of a Board of

Governors and with the launch of Sanlam

Development Fund-of-Funds: South Africa’s first

private equity fund-of-funds. It has already attracted

commitments of R303 million.

The new Sanlam Development Fund-of-Funds

leverages the strengths of the original Development

Fund and Community Builder initiatives and was

created in response to three compelling market

needs: to deliver market-competitive returns to

investors, to enjoy greater diversification of risk and

to promote empowerment in meaningful ways

irrespective of the size of the contribution by an

individual institutional investor.

We are pleased that our investment of

R278 million in 1999 in the Government’s

Umsobomvu Fund that addresses job creation in the

country has finally started to pay dividends with the

implementation of some projects during 2002. This

investment, in the form of a special demutualisation

levy, followed the largest individual empowerment

and broad economic development exercise in the

country when Sanlam demutualised and listed in

1998, which for the first time introduced a large

number of our then two million policyholders to the

equity investment arena.

We continue to develop and provide sustainable

and affordable contractual saving schemes to the

mass market such as the Halala Savings Plan, so as to

provide entry mechanisms to this cornerstone of

economic development.

Sanlam plays an active role in the economic

debate and policy formulation in the country.

During 2002 we co-sponsored the Africa Economic

Summit of the WEF, and continued to participate in

other economic structures like Business South

Africa, the Nelson Mandela Foundation, the Black

Management Forum and the Africa Institute.

Sanlam is also an active participant in the

development of a BEE charter for the Financial

Services Industry.

Our Corporate Social Investment Programme as

an element of BEE and the economic development

of South Africa is discussed on page 44 of this

report.

• Procurement

Sanlam strives to ensure that its suppliers are diverse

in terms of race, gender and disability status. In

particular, the participation of historically

disadvantaged individuals is actively promoted

through the Sanlam service providers.

Sanlam welcomes the emergence of Small,

Medium and Micro Enterprises (SMME) and BEE

groups in the South African business world. As part

of our commitment to these groups, an

organisational culture is being developed in the

Sanlam group that encourages an understanding of

and appreciation for diversity with regard to the

providers and suppliers of goods and services. Some

of Sanlam’s support services have been outsourced to

SMME and BEE groups during the last few years.

The Sanlam group therefore endeavours to

implement initiatives for the accelerated

development and empowerment of these designated

business groups, not only to improve the existing

provider base, but also to avail us of the goods and

services provided by these groups.

This policy applies to all Sanlam wholly owned

subsidiaries and serves as a guideline to all partly

owned subsidiaries.

• Ownership and participation in control

structures

We have embarked on a comprehensive approach to

advance black ownership and the participation in

the control structures of Sanlam.

Page 40

Introductory Sustainability Report (continued)

Succession planning

Sanlam has a well-developed, internationally

benchmarked, succession planning process in place that

spans all businesses within the Group.

The quality of the company’s succession pools are

reviewed twice a year to ensure that there are sufficient

resources to deal with the Group’s future requirements.

During this process information on individual

succession pool candidates is updated and individual

development plans monitored.

Given the complexities of a large corporation

Sanlam is following a comprehensive process in the

identification and appointment of a Chief Executive

Officer. This process is aligned with the internal

succession plan.

Leadership and executive development

Leadership and executive development initiatives in

Sanlam are not only aimed at improving the strength of

the leadership in Sanlam to international standards, but

also to create a learning culture within the leadership of

the Group. To this end programmes are structured in

such a way to give participants the opportunity to

interact with the executives of the Group as well as

participants who have already completed the

programmes. In this way an ever-increasing group of

people are in development on an ongoing basis.

The Sanlam Executive Development programme,

which is an international programme accredited by

Manchester Business School, is the flagship of the

Leadership and Executive Development initiative. The

consistent exceptionally good ratings and status this

programme enjoys is the result of continuous effort to

update the programme and make it relevant to the

changing Sanlam business environment.

To address the need for middle and senior

management development, a customised Sanlam Senior

Management Development Programme was designed in

conjunction with a local Business School. The focus of

this programme is the South African business

The first aim is to try and achieve this at the

Sanlam group level by firstly introducing new black

shareholders where possible, and secondly by

converting the existing black shareholders of Sanlam

from passive to active participants.

The promotion of new black ownership and

control could be at corporate or at subsidiary level.

If the role of the subsidiary is core in the execution of

the vision, then Sanlam will retain sufficient control

and flexibility of the subsidiary. It is preferred that,

notwithstanding the participation by the BEE group

in the control structures of the subsidiary, the

ownership should be at the Group level.

The existing black shareholders can be divided

into two groups. The first, institutional shareholders,

comprises retirement funds and institutions that are

black controlled, or represent a black majority. The

objective here is to stimulate their active participation

in the control structure.

The second group is the individual black

shareholders where the aim is to support their

collective participation. A consideration in support of

this is some shareholder club that, in addition, will

also serve as a vehicle for training and development in

shareholder matters.

Management of human intellectual capitalEmployer of choice

Striving to become an employer of choice remains

one of the cornerstones of human resource practice

within the Sanlam group. A number of initiatives

have been launched in this regard e.g. the

introduction of flexible remuneration modelling as

well as benchmarking Sanlam practices against other

South African Companies. The strength of the

Group’s employment brand is apparent from its

ability to attract top calibre personnel. This was

evident especially in the second half of the year in the

area of investment management.

Page 41

environment. A pilot programme was launched in 2002

and two programmes have been scheduled for 2003.

In addition to individual learning plans that form

part of the performance management process

throughout the Group, the initiative aimed at group

development for high potential and succession pool

members was repositioned. This group, the Sanlam

Future Leadership Group, attend an annual two-day

workshop where they have the opportunity to engage

with the CEO about the strategy and other key issues.

Part of this programme also involves a series of lectures

by international experts on strategically relevant topics.

As part of the Leadership and Executive Development

initiative Sanlam also sends selected individuals to

programmes at a variety of international Business

Schools including Harvard, Insead and Ashridge.

Corporate Recruitment and Skills Development

A number of initiatives have been launched not only to

ensure access to the required skills for the Group, but

also to address the area of corporate social investment.

These initiatives include bursaries and scholarships at

school, technikon and university level and the

sponsoring of the Chair in Investment Management at

the University of the Western Cape. Sanlam is also one

of the main sponsors of the Brightest Young Minds

initiative that draws together the top final year students

from the various universities around the country.

TransformationEmployment Equity

Sanlam views Employment Equity (EE) as an integral

part of its overall transformation strategy. The Group

accepts the necessity to enact legislation for the removal

of economic legacies of structural inequality, and views

EE as an opportunity to strategically position itself to

achieve its business objectives.

During 2002 the Group aggressively pursued EE

targets. Reward systems were linked to these targets,

and the company profile reflected more than 30% black

Leadership and executive development

• 67 senior managers participated in

structured customised development

programmes during 2002.

• During 2002, forty executives participated

in the Sanlam Internationally Accredited

Executive Development Programme. 27%

of them were black compared to 3% at the

first intake in 2001 and 14% at the second

intake in 2001/2002. Females represented

27% in 2002 compared with 7% and

17% at the first two intakes.

• Of the 54 participants in the 2002

Management Development Programme,

34% were black and 34% female.

• 162 staff members (30% female and

20% black) participated in the Sanlam

Future Leadership workshops.

Skills Development

Since the inception of the skills development

legislation, Sanlam has aligned its training

and development initiatives to ensure

compliance. During the first year, 1 April

2000 to 31 March 2001, Sanlam recovered

the maximum of 50% of the levies paid in

the form of skills grants. In the second year,

1 April 2001 to 31 March 2002, the

maximum of 75% of levies were recovered.

Page 42


• A series of 30 individual interviews with Sanlam

and Business Exco members.

• Six workshops with 300 Sanlam managers across

the country and in Namibia.

• A three-day workshop with Sanlam Future

Leaders, who will become leaders of the change

process.

• Feedback sessions to the Sanlam Exco.

HIV and AidsSanlam’s corporate efforts to deal

with the devastating effects of the

Aids pandemic are driven by a

special HIV/Aids unit. This unit

forms part of Sanlam’s

transformation division.

Sanlam’s Exco

ratified an Aids

strategy towards the

end of 2001, after which

the Aids unit embarked on an extensive group-

wide implementation process during 2002. The

following Aids initiatives were successfully

implemented:

Internal initiatives

Several initiatives were undertaken during the year:

• Sanlam conducted a KAP (Knowledge, Attitudes

and Perceptions) study amongst its employees.

• The Sanlam Exco and the Sanlam Business Exco

attended Aids education sessions that covered issues

related to disease and impact on business.

• The Exco’s of Sanlam Life, SIM and Tasc attended

sessions highlighting the Group’s initiatives and the

business imperatives thereof.

• SIM, Sanlam Wealth Management and Innofin

employees attended Aids training sessions.

• Sanlam trained employees to become Aids

educators. They will co-facilitate Aids education

workshops within the Group. Following

employees; a first in Sanlam’s history. Recognising the

potential for a revolving door syndrome, Sanlam

implemented various affirmative action measures to

change the Group culture and thus ensure the retention

and development of designated groups.

On numerous places in the rest of the report

information is given of women and blacks that have

been appointed to boards and executive

committees.

As Sanlam has invested substantial human and

financial resources in its EE drive over the

past eight years, the Group contracted an

external consultant to objectively assess:

• The success of EE implementation

within Sanlam, with specific reference

to black employee perceptions and

experiences.

• The gap between the Sanlam barrier report

recommendations and current EE

practices.

• Sanlam’s EE performance against the EE Act.

• An international perspective on Sanlam’s

EE successes and failures.

The research results serve as guide for further

Sanlam EE interventions.

Sanlam’s top management actively supported all

EE initiatives, with the CEO hosting monthly EE

focus groups with randomly selected staff members.

Numerous research and organisational development

projects have emerged from these focus groups.

Truly South African Company

In an effort to facilitate and expedite transformation

within the Group, Sanlam launched a project,

Sanlam as a truly South African Company, to

clearly define what it means to be a successful South

African company in a rapidly shifting, democratic

and transformed macro environment.

The project involved the following and will

continue in 2003:

Page 43

international best practice, Sanlam has become the

first company in the insurance sector to train

employees as Aids peer counsellors to provide

crisis intervention to fellow employees. They work

in close association with the Sanlam medical

department. External parties have expressed

interest in using this counsellor model as a

blueprint for training of counsellors in the

insurance industry.

• All employees, who are members of Sanlam’s medical

aid schemes, and their dependents have access to

professional counsellors via the Aid for Aids programme.

• This Aid for Aids programme also provides anti-

retroviral medication to all HIV positive employees

and their dependents.

• All new Sanlam employees attend an Aids education

session during the monthly induction programme.

• As part of its Aids awareness campaign, Sanlam has

provided Industrial Theatre Performances for its

employees in Cape Town, Johannesburg, Durban and

Windhoek.

• On World Aids Day, various Sanlam offices around

the country conducted Aids awareness and education

programmes.

External partnerships

• Takalani Sesame: The educational television

children programme, Takalani Sesame, with Sanlam

as corporate sponsor, has joined the fight against Aids

with a new HIV positive muppet. Kami, the new

muppet, will inform toddlers about the dreaded

disease in a sensitive manner and according to

guidelines that have been formulated with major

input from the Department of Education.

• The South African Business Council on HIV and

Aids: Sanlam is a co-sponsor of this council, whose

primary function is to assist SMMEs in developing

Aids interventions and Sanlam also hosted the

council’s AGM in 2002.

• COSATU: Sanlam has embarked on an extensive

Aids home-based caregiver initiative with COSATU.

This initiative will be piloted in a rural South African

community during 2003.

• Santos Football Club: Sanlam has trained local

soccer players from Santos (2002 Premier Soccer

League champions) to become Aids peer educators at

schools. This project which allows sports heroes

to bring the Aids messages to young supporters,

is done in conjunction with the United Sports

Association of South Africa and LoveLife

South Africa.

Other initiatives

• Sanlam has contracted a legal expert to audit all

HR policies against relevant legislation, including

the SA Constitution.

• Condocans have been installed in selected Sanlam

buildings throughout the country.

• Sanlam sponsors various Aids primary health

care initiatives such as the Aids Counsellor at

Tygerberg Hospital.

Sanlam’s Aids initiatives received international

recognition from the Jimmy Carter, Bill Gates

and Kaiser Foundations during 2002.

Page 44


Corporate Social Investment

Sanlam was established in 1918. The first record of

its corporate social investment (CSI) is found in the

Directors’ Minute Book of 1920, when donations

to three institutions were approved – the Children’s

Missionary Home in Cape Town, the Home for

Orphan Coloured Boys and the University of

Stellenbosch.

In the following 83 years, the Group has

continued at a progressive pace to be one of the

leading contributors to community projects and

programmes that aim to build the wealth of the

South African nation.

We do so because we view our CSI as a business

imperative. The history of the programmes and

projects we supported through CSI and our

positioning as a truly

South African company emphasise our total

commitment to the country and its people. Their

development and growth are essential for our future

as a financial services company.

During 2002, we produced a history of Sanlam’s

social investment under the title, Shaping the

Rainbow. Copies are available on request.

The Mgwali Mission near Stutterheim in the Eastern Cape was the scene of

celebrations when the renovated church and adjacent school were

ceremonially opened in December last year. The mission was the winner of

Sanlam’s Restoration Award for 2001, and the prize-money enabled the

local community to complete its extensive restoration project.

From 2003 our focalareas for CSI includeeducation, economicand entrepreneurialdevelopment,HIV/Aids and socialdevelopment

Page 45

Realigning our efforts

The businesses in the Sanlam group address CSI

according to their own priorities and in view of

communities they serve. During 2002 our overall

CSI objectives were realigned to more effectively

accommodate the social, economic and business

priorities that guide our activities.

Value has been added by co-ordinating the CSI

programmes of the businesses at group level, thus

exploiting synergies through central systems,

allowing for greater impact and combined reporting

without compromising the individual needs of the

companies in the Group.

Focal areas for CSI at a group level now include

education, economic development (including

entrepreneurship), HIV/Aids and social

development. These are aligned to core group

values, like wealth creation and transformation.

CSI is now an important part of a broader

transformation agenda and considered and

implemented with other initiatives such as

employment equity and developmental

procurement.

The first three contestants at the launch of Sanlam’s reality TV programme,

Sanlam Money Game. Sanlam’s sponsorship of the popular series is aimed

at promoting entrepreneurial awareness and skills and will continue in

2003. In each weekly episode three contestants are challenged to make the

most money in a three-day period with only the clothes on their backs, their

driver’s licences and R30 000 in cash as venture capital. As part of this

initiative, the TV series is supplemented with a number of workshops

throughout the country, where leading entrepreneurs share their experiences

and business solutions with aspiring entrepreneurs.

Yvonne Themba (left), chief executive: corporate affairs, with

senior officials of the Tygerberg Hospital at the renewal of

Sanlam’s partnership with the hospital’s Infectious Diseases

Clinic which provides counselling services to HIV patients and

their families.

Page 46


Guiding principles

A set of guiding principles influence the way

investments are made. All requests and proactive

investments in the abovementioned focal areas that

are evaluated for funding must show strong

developmental and transitional benefits to build

sustainable projects and partnerships in line with

the Group’s mission.

As part of the evaluation there is also

an effort to leverage funds by playing a

catalytic role and through

the establishment of working

partnerships.

A distinction is also drawn between

CSI and sponsorships. In addition to the

development impact, the latter also aims

at the marketing and sales benefits from

the support.

Elmo, one of the characters in Takalani Sesame, a multimedia educational

programme for pre-school children sponsored by Sanlam, brings a little

happiness to one of the patients at the Burns Unit in the Red Cross

Children’s Hospital in Cape Town. Sanlam also sponsored a new pamphlet

on the causes, prevention and treatment of burns in co-operation with the

Child Accident Prevention Foundation of Southern Africa.

A performance by members of the Sanlam Choral Training Programme. Sanlam is a corporate

sponsor of Cape Town Opera.

Funding

Sanlam has committed to contributing one percent

of the Group’s net operating profit after tax as

a basis for determining the CSI budget. Based on

this formula, the budget for 2003 is R15 million.

Sanlam Life mainly drives sponsorships and

R30 million was budgeted for 2002 and

R35 million for 2003.

CSI in 2002

The Sanlam group was involved with 38 new

projects during 2002.

Full details of the projects supported by the

businesses in the Group will be incorporated in

Sanlam’s first sustainability report, to be released

later this year.

For the first time in the 14 years of the national Sanlam Music

Competition for Primary School Learners, top honours were shared last

year by twelve-year-old pianists Misha Meyer and Yasheen Modi.

AmaZulu and Classic Chiefs meet in the finals of

the Halala Cup in 2002. Women’s soccer is one of

the fastest-growing sports in

the world and Sanlam sponsors the National

Women’s Soccer League, in which more than 400

clubs participate.

38Sanlam was

involved in new

CSI projects during 2002

Page 47

Some areas of excellent operationalperformances in a difficult trading environment

Detailed reviews that cover the operational

performance of the different Group businesses are

provided from page 58. This report expands on the

Group financial results and provides an analysis of

the financial information.

Summary of results

Weak equity markets severely impacted on Sanlam’s

2002 financial year. Given the difficult market

conditions, most of the Group companies

performed admirably and recorded satisfactory

operating results. Investment returns were, however,

disappointing and substantially contributed to a

sharp decline in the Group’s attributable earnings

for the year.

Earnings per share, based on a long term rate of

investment return, of 122,7 cents per share were

down 8% (up 14% on a comparable basis)

compared to the 133,2 cents per share achieved in

2001.

Financial services income – the aggregate of

fees, risk premiums and other revenue – increased

by 11% to R12 668 million. The Group

administration expense ratio improved from 35,2%

to 34,4%. Local expenditure was well contained

and down 2% compared to 2001. An expansion of

international capacity, however, caused a 9% overall

increase in administration expenditure.

Underwriting policy benefits in Santam and Sanlam

Life rose by 17%. This relatively high increase in

claims limited the improvement in gross operating

profit. The overall gross profit margin for the

Group at 17,0% was down on the 18,4% achieved

in 2001.

A disproportionate rise in tax and minorities

caused a 11% fall in net operating profit. The

Page 48

Financial Review

Kobus Möller Group Executive Finance

Acting Chief Financial Officer

Page 49

Group’s effective tax rate on operating profit was

25,6% in 2002, marginally up on the 24,6% in

2001. In addition, the 2001 tax charge was lowered

by a R185 million one-off release of surplus tax

provisions. A 28% increase in minority interest is

due to an increase in Santam’s relative contribution

to the Group’s operating profit.

Investment income of R798 million earned on

the shareholders’ funds’ investment portfolio is 17%

lower than in 2001. It includes equity-accounted

earnings of R396 million, which was 11% lower

than in 2001. This comprises Sanlam’s effective

interest in Absa’s attributable earnings for the

12 months to September 2002. The reduction in

Absa’s contribution is due to the losses incurred in

their micro lending operation, Unifer. Net

investment income for 2001 included a

R99 million release of surplus tax provisions.

The negative net investment surpluses of

R2 621 million on the shareholders’ funds’

investment portfolio reflects the year’s movement in

equity markets. The JSE All Share Index lost some

8,4% of its value, while the 28% stronger rand

exacerbated the impact of already weak

international equity markets.

The shareholders’ fund provided financial

assistance of R153 million from its investment

funds to improve the funding level of the

Participating Annuity portfolios. The funding levels

of these portfolios still meet the prescribed

requirements in terms of the Long Term Insurance

Act and the professional guidelines of the ASSA on

the elimination of underfunded positions. The

underfunded positions should improve in line with

a recovery in equity markets.

LTRR headline earnings

‘LTRR headline earnings’ based on a long term

investment return assumption, is aimed at

eliminating the earnings volatility caused by short

term market movements. Based on an average pre-

tax long term return of 13% per annum, the

expected investment return for 2002 amounted to

R1 745 million. This is 6% lower than in 2001 due

to a lower (monthly) asset base on which the

expected return is calculated. We maintain that the

earnings figure derived on the LTRR basis provides

a measure of sustainable long term results for the

industry. It is also the recommended practice of

disclosure for long term insurers in the United

Kingdom. Following the recent developments in

respect of the presentation of Headline earnings,

SUMMARY OF RESULTS

R million 2002 2001

Financial services income 12 668 11 380 11%Underwriting benefits (6 162) (5 285) (17%)Admin expenditure (4 357) (4 003) (9%)

Gross operating profit 2 149 2 092 3%Taxation (549) (330) (66%)Minorities (118) (92) (28%)

Net operating profit 1 482 1 670 (11%)Net investment income 798 958 (17%)

Headline earnings 2 280 2 628 (13%)Net investment surpluses (2 621) 1 596Goodwill amortisation (259) (215)

Attributable earnings (600) 4 009 (115%)

Net operating profit 1 482 1 670 (11%)LTRR investment return 1 745 1 864 (6%)

LTRR headline earnings 3 227 3 534 (9%)

Cents per shareAttributable earnings (22,8) 151,1 (115%)Headline earnings 86,7 99,1 (13%)LTRR headline earnings 122,7 133,2 (8%)

Page 50

Financial Review (continued)

performance. Excluding the impact of these items,

net operating profit is in fact 12% higher, while

headline earnings (on a LTRR basis) improved by

14%. The reversal in 2001 of surplus tax provisions

of R284 million (R185 million in respect of

operating profit) constitutes the major single

adjustment. Excluding this, net operating profit

and LTRR earnings remained substantially

unchanged from 2001 – in line with the trading

statement issued in December 2002.

Other adjustments include the effective

R189 million impact on Sanlam’s earnings of the

losses incurred by Absa during the year in respect of

their Unifer micro lending business. Capital Gains

Tax (‘CGT’) was introduced with effect from the

fourth quarter of 2001. CGT recovered against the

long term investment return amounted to

R120 million for the full 2002, compared

to R28 million for only the last quarter in 2001.

In 2001 Gensec Bank’s international operations

functioned as an integral part of the local

operations. During that year a currency gain of

R158 million was realised on the translation of inter

company balances and accounted for in operating

profit. The management structure of these

operations has since been adjusted to be consistent

with the rest of Sanlam’s international operations.

In terms of Sanlam group policy all international

businesses now operate and are accounted for as

stand alone businesses. As a consequence, in terms

of Generally Accepted Accounting Practice

(AC112), foreign currency gains or losses on the

capital invested in these entities are not accounted

for in operating profit, but transferred to a

non-distributable reserve.

we now also present a headline earnings figure that

is based on operating profit and actual investment

income earned for the period. Headline earnings

calculated on this basis amounts to R2 280 million,

compared with R2 628 million in 2001. The

Johannesburg Securities Exchange (JSE) expressed

their preference for this definition of earnings, as

apposed to LTRR headline earnings, and indicated

that they would in future, for their record purposes,

use it as the official “headline earnings” for Sanlam

(and for all other long term insurance companies).

The official “headline earnings” could vary

materially depending on the policies adopted by

insurers. The lack of reporting consistency in the

industry may limit any constructive use of certain

resultant JSE statistics, e.g. Price/Earnings ratios.

Users of these JSE statistics should therefore exercise

caution when using it.

On implementation of the LTRR it was decided

to determine the rate of return on a longer term

perspective with the intention not to change unless

market factors necessitated such action. The rate is

reviewed on an annual basis and is predominantly

influenced by the investment return assumptions

used in the determination of the embedded value.

Since 2000 we have assumed a 13% rate of return

before tax, based on the expected return on a

balanced portfolio. Given the recent reduction in

long term interest rates, and in line with lower

actuarial assumptions, it has been decided to adjust

the rate used in 2003 to 12% per annum.

Comparable earnings

One-off items included in both the 2001 and 2002

results complicate a true evaluation of the year’s

Page 51

Business volumes

Adverse equity market results had a marked impact

on business volumes for the year. Total new business

inflows were down by R4 billion (12%) on 2001,

mostly due to lower investment inflows. New third

party investment funds were R2,8 billion lower

than in 2001, while Unit Trust inflows were down

by R1,4 billion. The white label facility offered to

third parties also attracted R1,5 billion less inflows.

Innofin managed to attract investment funds of

some R4 billion, 22% more than in 2001. The bulk

of this was in respect of money market funds.

Santam performed well to increase its gross

premium income by 17%.

New life business inflows of R13,1 billion were

only marginally down on 2001. Given the market

conditions, individual life business performed

admirably and new business inflows rose by 5%,

substantially due to a 16% rise in single premium

business. Products offering investment guarantees

provided the bulk of this growth. New group life

business, however, was down by 17%. Lower

investment-linked inflows were the major

contributor to the lack of new business inflows.

Embedded value added by new life business rose by

10% to R320 million, while the new business

embedded value margin improved from 13,2%

to 14,7%. This reflects improved efficiencies

and the quality of new business. We remain on

track to achieve our longer term target margin of

some 18%.

The lower investment inflows also impacted

on net fund flows. Total funds received amounted

to R42 billion which is R4 billion (9%) lower

than in 2001. On the positive side, outflows were

well contained. Life policy benefit payments were

COMPARABLE EARNINGS

R million 2002 2001

Net operating profit 1 482 1 670 (11%)Tax reversal — (185)

Excluding tax reversal 1 482 1 485 0%Currency translation — (158)

Comparable net operating profit 1 482 1 327 12%

LTRR earnings 3 227 3 534 (9%)Tax reversal — (284)

Excluding tax reversal 3 227 3 250 (1%)Currency translation — (158)Absa/UniFer impact 189 —Introduction of CGT 120 28

Comparable LTRR headline earnings 3 536 3 120 13%

cps 134,4 117,6 14%

BUSINESS VOLUMES: NEW BUSINESS

R million 2002 2001

Life business 13 123 13 297 (1%)Investment business 13 586 17 977 (24%)Short term insurance 5 548 4 760 17%

32 257 36 034 (10%)Health care — 547

New business inflows 32 257 36 581 (12%)

Life business APE 2 179 2 204 (1%)New business embedded value 320 290 10%New business embedded value margin 14,7% 13,2%

BUSINESS VOLUMES: NET INFLOWS

R million 2002 2001

Life business (4 932) (6 094) 19%Investment business (625) 3 691 (117%)Short term insurance 1 623 1 393 17%

(3 934) (1 010) (290%)Health care — 60

Net inflows (3 934) (950) (314%)

Total inflows 42 098 46 124 (9%)Total outflows (46 032) (47 074) 2%

Page 52


• Sanlam Namibia’s results are now included with

Sanlam Life;

• Sanlam Property Asset Management’s results are

included with SIM and no longer with Gensec

Properties;

• Sanlam International’s results are now being

reported separately from SIM;

• Tasc’s results are now included with SIM;

• The wholesale unit trust business was transferred

from Sanlam Life to SIM;

• Sanlam Life’s operating profit and corporate

expenses for 2001 have been restated to reflect

the transfer of corporate expenditure, that is

directly associated with the Life business, to

Sanlam Life. This now aligns the accounting

treatment with that used in the past for

embedded value purposes;

• Income on Santam’s free float, or working capital,

has been reallocated from investment return to

operating profit, to bring it in line with the basis

followed in the rest of the Group. Santam reports

its results on the same basis.

The 3% growth in gross operating profit to

R2 149 million falls well short of our long term

growth target, but is in line with the forecast of

moderate growth made in the December 2002

trading statement. Satisfactory growth from both

Santam and Sanlam Life was substantially offset by

lower contributions from Gensec Bank and from

Sanlam International.

Sanlam Life still provides the major share

(71%) of the Group’s operating profit and

increased its contribution by 11% to

R1 533 million. These results are mainly due to an

increase in net interest earned on its working

capital and in other market linked income sources.

down by 3%, while fund withdrawals and policy

surrenders were R1,2 billion (11%) lower than in

2001. This was, however, not sufficient to

counter the lower inflows and to prevent an

overall net outflow of R3,9 billion. Net short

term insurance business flows improved by some

R230 million on 2001 and recorded a

R1,6 billion net inflow of business. Life business

recorded a net outflow of R4,9 billion, the bulk

of which was in respect of group business.

Although not satisfactory, this was still

a substantial improvement on the R6,1 billion

net outflow of 2001. Net investment business

outflows of R1,6 billion were in total due to the

loss of third party funds, as Sanlam Unit Trusts

recorded net inflows of R1 billion for the year.

Operating results

During the course of the year certain changes in

reporting structures were effected, based on the

changes in management structures. These are

summarised below to indicate the changes

compared to the 2001 financial statements

(2001 figures have been restated accordingly).

With the exception of the treatment of Tasc all of

these were already implemented at the interim

results stage.

• Innofin's results are not presented separately

anymore. These results have been incorporated

into Sanlam Life. The basis of accounting for the

results from the 67% interest has also changed:

100% of their profit is now included in gross

operating profit, with the minority share being

subtracted separately. In the past their

contribution was accounted for on

a net basis;

Page 53

Risk underwriting margins, in particular in respect

of group business, deteriorated somewhat from the

high levels of the past few years. Administration

profits were marginally better than in 2001. A

lower asset base and stagnant new business volumes

limited the increase in fee income. In another

year of exceptional cost control, Sanlam Life’s

administration expenditure reduced by 4%.

Santam contributed R257 million (12%) to the

Group operating profit, an increase of 37% on

2001. Underwriting profit increased by 46% to

R142 million, despite having to account for several

major weather related events in the last half of the

year. Santam’s operating income now also includes

interest of R115 million earned on its free float.

In the past this has been reported as investment

income. The 2001 comparable figures have been

adjusted accordingly.

In a difficult environment for investment

managers SIM did well to repeat its 2001 profit

contribution. After a disappointing first half

performance Gensec Bank recovered somewhat in

the second half of 2002. Certain parts of the bank

performed very well and in some instances showed

substantial revenue increases. The overall

performance of the bank, however, mirrored the

very difficult market conditions and it was

especially their equity related activities that resulted

in the substantial underperformance of the bank.

Sanlam International was successful in

expanding its base substantially during the

financial year, but recorded disappointing

financial results. A combination of lower

international equity markets, substantially higher

expenditure on increased capacity and the negative

impact of the strong rand, resulted in only a

marginal contribution in the second half and a

27% decline in its contribution for the year.

Revenue grew in excess of 50% but this was more

than offset by a doubling of expenditure. The total

operating profit contribution from the Group’s

international operations, including that of Gensec

Bank, declined from R197 million (9,4% of total)

in 2001 to R179 million (8,3% of total).

Corporate expenditure of R138 million was

10% higher than in 2001. The increase was

mainly due to one-off costs incurred on strategic

analyses.

Embedded value

At the end of December 2002, Sanlam’s embedded

value amounted to R27,1 billion (1 032 cents per

share). Taking into account the dividend of

R921 million paid during the year, it represents a

reduction in value of some R2,7 billion (- 8,9%) on

the R30,7 billion as at the end of December 2001.

This negative return in embedded value is due to

OPERATING RESULTS

R million 2002 2001

Sanlam Life 1 533 1 375 11%Santam 257 188 37%Gensec Bank 112 191 (41%)SIM 185 184 1%Sanlam International 75 103 (27%)Other 125 143 (13%)Sanlam Health — 33 (100%)

2 287 2 217 3%Corporate expenses (138) (125) (10%)

Gross operating profit 2 149 2 092 3%

Southern Africa 1 970 1 895 4%International 179 197 (9%)

Page 54


management responsibilities. The restructuring did

not have any effect on the Group results. The

essence of the restructuring was:

• Sanlam Life exchanged its 58% interest in Genbel

Securities Limited (Gensec) for a 100% interest

in SIM, certain private equity and underwriting

assets, Sanlam Unit Trusts, Multi Data and

Sanlam Trust, the balance (33,3%) of the Group’s

interest in Innofin, a 15,5% interest in Santam

and sundry other assets.

• Gensec transferred its interest in SIM to Sanlam

Life, its interest in Sanlam Netherlands Holdings,

Tasc and Gensec Property Services to Sanlam

Limited, leaving Gensec as the bank controlling

entity with only the local and offshore banking

interests of Gensec Bank.

• Sanlam Limited now holds 100% of Gensec

(Bank) and Sanlam Netherlands Holding BV,

which serves as the controlling entity for offshore

expansion and the holding company for the

offshore corporate assets.

Individual group businesses are tasked with the

responsibility for the total return earned on their

capital base. Specific constraints in Sanlam Life’s

capital portfolio, however, complicate the full

realisation of this objective. Constraints include an

overweight position, as well as a lack of liquidity, in

certain assets, such as the investments in Absa,

Santam, SIM and investment properties. The longer

term objective remains to improve both the balance

and the liquidity of the portfolio that will allow

Sanlam Life full autonomy in the management of

its capital.

At 31 December 2002 the total capital allocated

to Sanlam Life amounted to R17 billion. This is

within a calculated range for Sanlam Life’s optimal

a reduction of R3,6 billion in the value of the

Group’s net assets. Listed entities were valued at the

lower prevailing market prices, while a prudent

assessment of the value of the unlisted non-life

group operations, using current market indicators,

necessitated a R1,7 billion overall reduction in

valuation. These operations, valued at R3,9 billion,

comprise 14% of the total embedded value of the

Group. A R600 million net fair value adjustment

reflects the present value of future corporate

expenses not accounted for in either Sanlam Life or

in the other group business valuations. The value of

Sanlam Life’s in-force book of business amounted

to R6,7 billion at year end, after taking into

account the cost of capital at risk (R1,5 billion).

Growth from life business, based on the starting

value of the in-force life business less the release of

current year operating profit, amounted to 13%.

New business for the year contributed R320 million

to the growth, while Life’s actual operating

performance exceeded the actuarial assumptions

underlying the calculation of the in-force value.

Capital efficiency

The effective and efficient utilisation of Sanlam’s

available capital is a key business driver.

A restructuring of the Group capital structures

was implemented with effect from 1 January 2002.

This formalised the capital optimisation process

that was started during 2001. The restructuring is

aimed at the most effective use of capital in its

allocation to group businesses, while taking

cognisance of the Financial Services Board’s

requirements in respect of qualifying capital for

statutory purposes. The process was also used to, as

far as practicable, align statutory structures with

Page 55

capital. The latter is determined on a regular basis

by using a stochastic model that stress tests various

financial downside scenarios at different confidence

levels, taking into account expected business levels

and statutory or regulatory constraints and

assuming a balanced portfolio with appropriate

liquidity levels.

Participating life products are designed to

stabilise short term investment return volatility over

the lifetime of the products by smoothing its annual

return (bonuses). Actual market returns earned on

the underlying assets in these product portfolios

may therefore result in short term positive or

negative funding positions on any specific reporting

date. Given reasonable policyholder return

expectations and the realisation of expected long

term investment performance, all positive or

negative funding positions should be eliminated

over the lifetime of the product. Given the recent

adverse equity market returns Sanlam Life’s funds

were in a negative funding position on

31 December 2002. The negative funding level of

the Group Participating Annuity portfolio and

Monthly Bonus Fund (10,0% and 11,1% of assets

respectively) required specific disclosure in terms of

the Actuarial Society of South Africa’s (ASSA)

guidelines. The statutory capital adequacy

requirement (‘CAR’) of the life business amounted

to R9,9 billion at the end of 2002. Shareholders’

capital held by Sanlam Life covered this

requirement 1,7 times (2,8 at the end of 2001).

The capital allocated to Gensec Bank amounted

to R2 billion on 31 December 2002. This is in

excess of its current regulatory requirements. To

support the bank’s external rating and to ensure its

competitive market position, Sanlam agreed to also

RETURN ON EQUITY

Shareholder Embedded Return per annum return value growth

1 year from 1.1.2002 (13,3%) (8,4%) 2 years from 1.1.2001 (6,8%) 3,2%3 years from 1.1.2000 0,0% 4,1%4 years from 1.1.1999 10,1% 8,2%

EMBEDDED VALUE

R million 2002 % EV 2001

Group operations at fair value 5 447 20% 7 262 (25%)

Santam 1 581 1 709 (7%)SIM 1 289 2 166 (40%)Gensec Bank 1 186 1 442 (18%)Sanlam International 1 071 1 539 (30%)Other 320 406 (21%)

Absa 3 957 15% 4 036 (2%)Other net assets 11 543 43% 13 101

NET ASSET VALUE (businesses reflected at fair value) 20 947 77% 24 399 (14%)Fair value adjustment ( 600) (603) 0%Value of in-force 6 740 25% 6 941 (3%)

EMBEDDED VALUE 27 087 30 737 (11%)

Sanlam Life 23 741 26 850 (12%)Other 3 346 3 087 11%

NAV cents per share 798 927 (14%)EV cents per share 1 032 1 167 (12%)

Page 56


Except for some short periods in the past, the

Sanlam share price trades at a substantial discount

to the underlying (embedded) value of the

company. A narrowing of the current discount

provides substantial upside potential for Sanlam

shareholders and a challenge to management to

substantiate the embedded value of the company by

delivering sustained growth in the value of its

underlying components. The table on page 55

provides the recent history of embedded value

growth (including dividends paid to shareholders).

A combination of operational performance and

investment returns is needed to achieve the required

growth in value. The focus of the different group

businesses is to maximise their operational

performance. The optimal utilisation (and

investment) of the Group’s investment portfolio is

an imperative to maximise Group value.

Appropriate investment strategies are reviewed on

an ongoing basis.

Ongoing analyses are being done to set

appropriate targets for the different group

businesses in order to measure operational

performance, whilst taking full cognisance of risk

and capital utilised. Meeting risk-adjusted return

targets is a key in evaluating operational

performance as well as a prerequisite for new

investment propositions. Significant progress

provide a capital maintenance guarantee of

R5 billion to the bank. This contributed greatly in

addressing any market concerns after the reduction

of the bank’s formal capital as part of the

restructuring exercise.

Equity markets have deteriorated since the

balance sheet date. This has an adverse impact on

the Group’s reported capital and the funding levels

of Sanlam Life’s portfolios. Notwithstanding, the

financial position of the Group remains sound.

Return on equity

Several return measures are used at different levels

in the organisation to govern and assess the Group’s

performance. These measures are ultimately all in

support of the goal to provide a competitive return

on investment to the Sanlam shareholder. Over

different periods an investment in Sanlam yielded

returns set out in the table on page 55 (measured in

share price growth and dividends). The negative

effect of recent equity market movements is evident

in the returns.

The Sanlam share price lost some 17% during

the year. This is in line with the performance of

both the FINDI30 and the Insurance Index on the

JSE. The share price discount to embedded value

widened from 21% at the end of December 2001

to 26% at the end of 2002.

Page 57

has been made by Gensec Bank in particular to

measure the performance and contribution of its

business activities on a risk-adjusted return on

capital basis.

The Sanlam group achieved an after tax

operating return of 7,2% on average capital

employed in 2002.

Contingency

Shareholders had been advised earlier (initially in

the announcement of the 2001 interim results in

September 2001) that the South African Revenue

Services (“SARS”) had issued revised assessments

in respect of the 1997, 1998 and 1999 tax years

of a subsidiary of Genbel Securities Limited (“the

company”). As was reported, in terms of the revised

assessments certain significant surpluses arising

from the disposal of certain assets are subjected to

full tax as SARS contends that such surpluses are

not of a capital nature.

The company lodged objections in respect of all

three revised assessments. The company’s objections

that these amounts are in fact of a capital nature

have been disallowed and penalties and interest

were imposed in addition to the tax payable. SARS

afforded the company the opportunity to make

representations with respect to the imposition of

penalties and interest. No resolution has as yet been

reached on this matter. Gensec intends to challenge

the assessments in court should the ongoing

discussions with SARS on the merits of their case

not be successful.

Dividend

The Board has declared a dividend of 37 cents per

share payable on 7 May 2003 to shareholders

registered on 11 April 2003. This represents an

increase of 6% over the 35 cents per share

dividend declared in respect of 2001. The

dividend is covered 3,3 times by LTRR headline

earnings. This represents a relaxation of our stated

target cover of between 3,5 and 4,5 times.

Our dividend philosophy adopted since

demutualisation is one of stable growth in

dividends. The dividend pattern will therefore not

strictly follow the earnings pattern.

Page 58

SanlamBusiness reviews

Santam’s underwriting surplus of

R142 million benefited from both

improved underwriting margins and

increased business volumes

The containment of

costs by Sanlam Life

resulted in estimated

savings in costs since

1999 compared to the

CPIX of approximately

R430 million

Page 59

We are confident that SIM now

has a highly skilled and

motivated investment team in

place that can meet the

investment requirements of our

diverse client base

We believe that the UK

operations provide a strong

foundation for further expansion

in Europe

Several new innovative products

launched by Sanlam Life

The most important

influence on the future of

Gensec Bank will continue

to be the macro investment

banking environment

Page 60

Sanlam Life

Service rating of

90% and 93%

respectively for

individual life

and unit trust

business

from left to right (front): André Zeeman, Lizé Lambrechts (Chief Executive), Anton Gildenhuys, Estelle Morkel

from left to right (back): Heinie Werth, Andy Baxter, Themba Siyolo, Fanie Lategan, Deon Lessing, Hennie de Villiers, Francois Venter, Shaun Woodman

Salient features

• 11% growth in operating profit

• New business embedded value margin increased

from 13,2% to 14,7%

• Administration costs reduced by 4%

Nature of business

Sanlam Life’s business is to provide innovative solutions

and services to its clients, who are either individual

clients or groups of individuals.

The products and services provided by Sanlam Life,

include life insurance, unit trust, trust and linked

product business, and include:

• Risk cover and guarantees (death, disability, trauma

and investments)

• Investments and savings products

• Administration services

• Advice/Consulting

• Loan finance

Page 61

Sanlam Life group profile

Vision and strategy

Sanlam Life shares the Sanlam group’s vision to be

the leader in wealth creation. To achieve our vision

we provide trusted advice and innovative solutions

and build long term relationships with clients. We

foster a culture of passion for our clients, valuing

diversity and differentiation, and encourage

innovation, aiming to create a success friendly

environment.

Our objective is to achieve consistent bottom

line growth and improved new business margins by

focusing on:

• Top line growth

• Retention of funds

• Cost-effectiveness

• Finding new revenue sources

Business environment

The volatile local and global investment markets of the

past few years continued during 2002, influencing the

savings behaviour of clients towards products that

provide a more stable return, such as guaranteed and

cash linked products. Several new innovative products

were launched during 2002 to address these needs.

(Refer to table on page 66 for new products launched.)

The fortunes of the rand had a mixed impact on our

business. The sharp fall in the rand during 2001 was

largely responsible for the increase in CPIX inflation

from 5,8% in September 2001 to 12,7% in November

2002, which led to a 4% increase in interest rates during

the year. This positively impacted on products linked to

interest rates, but also put pressure on consumers’

disposable income and therefore their ability to save.

The appreciation of the rand during the second half

of the year, together with poor offshore equity market

performance, had a negative impact on the demand for

investments linked to our offshore products. This was

aggravated by increased administrative procedures for

offshore investments introduced by the South African

Revenue Service (SARS). These issues were resolved

with SARS towards the end of the year and the current

favourable exchange rate of the rand should attract

clients back to these products.

The above conditions support more liquid, short

term investments rather than the longer term life

products and put pressure on the growth in our life new


Multi-Data (Pty) LimitedMoney transfer

Sanlam Customised Insurance LimitedCell captive

Sanlamtrust Managers LimitedRetail Unit Trusts

Sanlam Trust LimitedEstates and trusts

Sanlam Namibia GroupFinancial Services in Namibia

InnofinLinked products and cash management

Sanlam LifeIndividual life and group life insurance

Direct AxisPersonal Loans

Total Care StrategyGroup Retirement Fund Administration

100%

100%

100%

100%

100%

100%

67%

60%

70%

Page 62

Sanlam Life (continued)

towards its good growth. This was offset by

disappointing inflows into our longer term life and unit

trust products. Inflows into individual life products

grew by only 5% to R9 181 million, employee benefits

business decreased by 17% to R2 642 million and unit

trust inflows reduced by 11% to R4 388 million.

The volatile equity markets boosted inflows into

individual life guaranteed products, which increased

by more than 40%, but had the opposite effect on

market-related savings products that, together with the

reduction in offshore inflows, offset this increase.

Continuations (where clients continue their policies

with Sanlam after they mature), which declined by

18%, were further influenced by the introduction of

capital gains tax during the second half of 2001, which

made certain second-hand policies unattractive owing

to double tax implications. Notwithstanding the

reduction in continuations, we were able to retain

52% of individual life maturity benefit payments

within other life and non-life products offered by the

Sanlam group. This retention rate is in line with that

achieved last year. The establishment of a unit that

focuses on customised investment solutions for unique

client needs for both the individual and group life

business, has resulted in individual life institutional

single premiums increasing significantly from

R123 million to R752 million.

Employee benefits inflows were influenced largely

by unsatisfactory investment performance but this was

countered to some extent by new products, which

offered the services of several asset managers.

Inflows into interest related unit trust funds

increased by 16% owing to the higher interest rates and

volatile equity markets. However, these conditions,

together with an unsatisfactory investment performance

for most of the year, resulted in a 54% decrease in

inflows into equity-based unit trust funds.

New products such as the capital protection and

business. It is also reflected in industry statistics, which

show a slowdown in the growth of individual life

business over the past two years and a growth in shorter

term non-life products.

In response to our clients’ need for more variety and

flexibility we have countered this to some extent by the

introduction of several new products, particularly on the

employee benefits side, which offer the choice of several

asset managers. The improvement of our investment

performance is our most important strategic issue.

We are confident that the recent appointment of senior,

highly qualified investment professionals, together with a

world-class investment process at Sanlam Investment

Management, will ensure a return to sustainable

competitive investment results. Positive results are already

evident in the recent market performance statistics.

Financial reviewSummary of results

Sanlam Life achieved satisfactory overall results

notwithstanding the difficult operating conditions

discussed above. Operating profit increased by 11%,

new business embedded value margin increased from

13,2% to 14,7%, administration costs were reduced

by 4% and Innofin’s new business volumes increased

by 22%.

New business

Total new business increased by 2% to

R21 604 million. Innofin’s volumes increased by a

satisfactory 22% to R5 393 million, as the business

environment during 2002 suited its more flexible

shorter term products, which offer access to a variety of

asset managers. Innofin’s well-established products, such

as its linked administration offering and wrap funds,

supported by new offerings such as multi-manager

products and money market funds as well as

enhancements to its existing product range, contributed

Page 63

inflation protection plans were introduced towards the

end of the year to provide clients with protection in

these market conditions.

Net flow of funds

A total net inflow of funds of R1 071 million was

achieved. Innofin achieved a very satisfactory

R2 799 million net inflow of funds, which is a 16%

improvement on last year. This was largely as a result of

the good inflows discussed above. Although individual

life total inflows increased by only 5% to

R16 275 million, this was higher than the 4% increase

in benefits paid and resulted in a slight improvement on

last year’s net outflow of R1 019 million. Benefits paid

include surrenders, which increased by 16%,

contributing to this increase are several large

institutional surrenders of approximately R1 billion.

If these are excluded, the net outflow of funds in the

individual life business would have reversed.

The outflow of funds from our employee benefits

business deteriorated from R796 million to

R1 388 million, mainly as a result of the decrease in

inflows mentioned above. Notwithstanding difficult

conditions, our success in retaining clients is reflected in

the 9% reduction in fund terminations.

Although inflows into unit trusts decreased by 11%,

ouflows were contained and reduced by 9%, resulting in

a R168 million decrease in their net inflow to

R676 million. There was a net inflow into interest related

unit trusts of R750 million, while equity funds showed

a net outflow of R74 million in unfavourable markets.

Operating profit

The 11% increase in operating profit to

R1 533 million is an exceptional performance taking

into consideration the difficult business conditions

during 2002. This performance is even more

remarkable when considering that the life business,

NEW BUSINESS

R million 2002 2001

Individual Life 9 181 8 770 5%

Recurring 1 540 1 532 1%Single 5 839 5 044 16%Continuations 1 802 2 194 (18%)

Employee Benefits 2 642 3 178 (17%)

Recurring 156 171 (9%)Single 2 486 3 007 (17%)

Innofin 5 393 4 415 22%Unit Trusts 4 388 4 908 (11%)

Total 21 604 21 271 2%

TOTAL RECURRING LIFE PREMIUMS

R million 2002 2001

Individual Life 8 634 8 336 4%Employee Benefits 2 565 2 305 11%

Total 11 199 10 641 5%

BENEFITS PAID

R million 2002 2001

Individual Life 17 291 16 593 4%

Death and disability 1 587 1 552 2%Maturities 8 082 7 866 3%Annuities 2 755 2 989 (8%)Surrenders 4 867 4 186 16%

Employee Benefits 6 439 6 108 5%

Benefit payments 4 406 3 868 14%Terminations 2 033 2 240 (9%)

Innofin 2 594 2 003 30%Unit Trusts 3 712 4 064 (9%)

Total 30 036 28 768 4%

NET CASH FLOW

R million 2002 2001

Individual Life (1 016) (1 019) —Employee Benefits (1 388) (796) (74%)Innofin 2 799 2 412 16%Unit Trusts 676 844 (20%)

Total 1 071 1 441 (26%)

Page 64


system development costs incurred in 2002 was for the

development of our new administration platform for

individual life products.

Our operating margin improved from 25,4% last

year to 26,4% which reflects the results of the more

efficient management of our operations.

Life business operating profit increased by 10% to

R1 471 million and comprises 96% of the Sanlam Life

group profits. Unit trust profits decreased by 8% to

R56 million, largely due to reduced working capital

levels, and therefore lower interest income earned from

this source. Innofin, in its third year of operation,

exceeded its objective to break even in 2003 a year

earlier, posting a R2 million profit.

New business embedded valueNew business embedded value increased by 10% to

R320 million and the new business embedded value

margin increased to 14,7% from 13,2% in 2001. The

growth in new business embedded value was largely

driven by an increased focus on higher quality business

and the containment of costs rather than growth in new

business volumes, which decreased by 1% (measured on

the Annual Premium Equivalent basis), owing to

difficult market conditions discussed above.

Technical reasons such as a change in the actuarial

mortality assumptions and the reduction in the risk

discount rate of 1% also contributed towards the

growth in new business embedded value. Our objective

is to further improve our new business embedded value

margin over the next three years to be more in line with

the industry average, hence our continued emphasis on

optimising costs and writing profitable new business.

Funding position of participating portfoliosThe purpose of participating portfolios is to stabilise

the short term volatility in investment performance

over time to declare smoothed annual bonuses.

which contributes approximately 96% of these profits,

was the most affected by the adverse trading conditions.

Profits generated from funds management

increased by 37% to R944 million. The main

contributors to this growth were improved profits from

the management of our working capital, partly due to

higher interest rates, and also good growth in profits

earned from the non-profit sharing portfolio (where we

carry the underlying investment risk). The last

mentioned profit was boosted by the non-recurrence of

a strengthening in actuarial reserves in 2001.

Risk profits declined by 14% to R589 million, as

underwriting margins decline from the high levels of

the past few years. Although both individual life and

employee benefits’ risk profits declined, the employee

benefits’ profits were more severely impacted by a

higher claims experience. Although we will maintain

our strict underwriting procedures during 2003, the

current margins will remain under pressure.

Our objective to increase administration efficiency has

paid dividends and administration costs have decreased

by 4% from R2 124 million to R2 033 million. System

development costs, which dropped from R192 million

to R101 million, contributed significantly to the

decrease and the remaining costs were contained to the

same level as last year and are in line with our new

business growth and in-force book. The reduction in

our administration costs has led to a marked

improvement in our administration cost ratio from

39,2% last year to 35%. Since 1999 our administration

expenses (excluding restructuring costs but including

system development costs) have increased on average by

3% per annum, which converts to an estimated saving

in these costs of approximately R430 million when

compared with the CPIX inflation rate over this period.

We consider our current level of system development

costs to be at the minimum level required to fund our

continued system renewals. A high percentage of the

Page 65

The short term funding levels of this business may

therefore be in a temporarily positive or negative

position on the annual reporting date depending on

prevailing investment market conditions, the

investment performance achieved during the year and

bonus rates declared. Based on the reasonable

expectations of policyholders and the expected long

term investment performance of these portfolios,

positive or negative funding positions are expected to be

eliminated within the next three bonus declarations.

On 31 December 2002 our employee benefits

participating pension portfolios and Monthly Bonus

Fund were in underfunded positions resulting in their

disclosure according to the guidelines of the Actuarial

Society of South Africa (ASSA). The shareholders’ fund

provided financial assistance of R153 million from its

investment funds to the Bonus Pension portfolio, which

will be repayable should the funding position recover

sufficiently. We have met the prescribed requirements

in terms of the Long Term Insurance Act and the

professional guidance of ASSA on eliminating the

underfunded positions in these portfolios and, as our

investment returns improve, underfunded positions will

improve.

Other achievementsExcellent client service is a key element of our business

and in surveys conducted during 2002 we achieved

satisfactory service ratings of 90% and 93% respectively

for our individual life and unit trust business. Although

our rating of 78% for employee benefits business is

among the best in the industry, it is not satisfactory and

we aim to improve it. Service level targets also form part

of our performance bonus in 2003. Our good

individual life service ratings are confirmed by the

award we received in 2002 for the Best Contact Centre

Solution in Africa. Surveys show that our brand

awareness is one of the highest in the industry.

INCOME STATEMENT

R million 2002 2001

Financial services income 6 961 6 515 7%Sales remuneration (1 158) (1 098) (5%)

Income after sales remuneration 5 803 5 417 7%Underwriting policy benefits (2 237) (1 918) (17%)Administration costs (2 033) (2 124) 4%

Operating profit before tax 1 533 1 375 11%

Admin cost ratio 35,0% 39,2%Operating margin 26,4% 25,4%

OPERATING PROFIT – SUMMARY PER TYPE

R million 2002 2001

Funds management 944 690 37%Risk profit 589 685 (14%)

1 533 1 375 11%

PROFIT – SUMMARY PER BUSINESS

R million 2002 2001

Life business 1 471 1 335 10%Unit Trusts 56 61 (8%)Innofin 2 (19) 111%Other 4 (2) —

1 533 1 375 11%

RISK PROFIT – SUMMARY PER BUSINESS

R million 2002 2001

Individual Life 427 446 (4%)Employee Benefits 162 239 (32%)

Total 589 685 (14%)

LIFE NEW BUSINESS EMBEDDED VALUE

R million 2002 2001

Annual Premium Equivalent (APE)– Individual Life* 1 774 1 737 2%– Employee Benefits 405 467 (13%)

Total 2 179 2 204 (1%)

New business embedded value– Individual Life* 247 208 19%– Employee Benefits 73 82 (11%)

Total 320 290 10%

New business embedded value margin– Individual Life* 13,9% 12,0%– Employee Benefits 18,0% 17,6%

Total 14,7% 13,2%

*Includes Sanlam Namibia Limited

Page 66


the medium to longer term in a fairly mature life

industry. This ongoing client focus, combined with

improvements in operational excellence and our efforts

to unlock new revenue sources, should assist sustainable

profit growth in the longer term.

Profit growth in 2003 is very much dependent

on improved investor sentiment which will follow on

market stability and sustained competitive investment

performance. Lower interest rates and pressure

on underwriting margins will limit the potential

for growth.

Employment equity is a business imperative and

also forms part of our performance bonus targets.

We have made progress in this area when compared

with 2001, and aim to improve further in 2003. Focus

is also placed on providing an environment of equity in

the workplace and on valuing diversity.

ProspectsOur renewed focus on the client and client service,

together with our high brand awareness, indicates that

we are well positioned to strengthen our position over

New products launched during 2002

Product Description

Individual Life

Stratus International RA and Stratus International Retirement annuity and savings product with foreign Endowment exposure and offshore proceeds through the R750 000

allowance for individuals

Stratus International Investment Linked Life Annuity Investment linked life annuity option for the proceeds of the Stratus International RAs

Stratus International Money Market Funds Money market funds as a safe haven during volatileequity market conditions

Low volatility hedge funds Alternative investment choice available for offshore andinternational products

Matrix risk cover New generation risk product

Unit Trusts

Capital and inflation protection plans Initial capital back protection and inflation linkedguarantee

Inflation Linked Fund Return linked to inflation

Innofin

Flexi Guarantee Living Annuity Combination of investment linked life and guaranteedannuity in one policy

Hedge funds An alternative investment option for investment andretirement fund policies

Multi Manager Funds Fund of fund unit trust investments managed by a multi manager

Employee Benefits

Cell Captive Insurer Subsidiary in which the clients participate in the profitsthrough co-ownership

Page 67

Executive CommitteeL Lambrechts (Lizé) (39)BSc (Hons), FIAChief Executive Officer(17 years’ service)

HC Werth (Heinie) (39)CA (SA), MBA – Finance (4 years’ service)

AP Zeeman (André) (42)FIA – Actuarial (21 years’ service)

EA Morkel (Estelle) (34)BA LLB – Human Resources (5 years’ service)

JH de Villiers (Hennie) (38)BCom (Hons), FFA – Individual Life (14 years’ service)

A Baxter (Andy) (51)BA (Oxon) ACA – IT Delivery (2 years’ service)

PJF Venter (Francois) (45)BCom (Hons) NDT (Elec) – Business Solutions (5 years’ service)

SR Woodman (Shaun) (36)BBusSc (IS Hons) (UCT) – Employee Benefits (2 years’ service)

D Lessing (Deon) (43)DCom – Marketing (5 years’ service)

A Gildenhuys (Anton) (28)BCom (Hons) FIA – Client Solutions (6 years’ service)

T Siyolo (Themba) (39)IRDP, SEP (Harvard) – Distribution (4 years’ service)

SA Lategan (Fanie) (51)BCom (Hons), MBA – Sanlam Unit Trusts (26 years’ service)

Audit Committee

JPL Alberts (Johan) (Chairman)

P de V Rademeyer (Flip)

CG Swanepoel (Chris)

GE Rudman (George) (resigned 26 February 2003)

Executive Directors

L Lambrechts (Lizé)

PC le Roux (Charl)

D Lessing (Deon)

HC Werth (Heinie)

AP Zeeman (André)

Non-executive Directors

GE Rudman (George) (appointed as Chairman

27 February 2003)


CG Swanepoel (Chris)

DNM Mokhobo (Dawn)

JJM van Zyl (Boetie)

JPL Alberts (Johan)

JP Möller (Kobus) (alternate)

Dr L Vermaak – resigned 31 December 2002

Page 68

Sanlam Investment Management

Salient Features

• Attracted highly regarded equity specialists

• Improved unit trust investment performance

• Successful integration of private client business of

Merrill Lynch

• Sanlam Development Fund of Funds launched

successfully

Nature of Business

Sanlam Investment Management (SIM) concentrates

on delivering investment solutions to South African

clients and utilises its fellow subsidiaries, io Investors

Limited and Octane Management Limited BVI, for all

offshore investment management activities.

Our areas of expertise cover traditional asset

management, alternative investment products, property

asset management, private client stockbroking and

portfolio management. We also developed and are

independently running the manager-of-managers

operation called Sanlam Multi-Manager.

Independent

investment

consultants are in

agreement that our

investment process

is of a world-class

standard

from left to right (front): Johan van der Merwe (Chief Executive), Temba Muvsi

from left to right (back): Thando Mhlambiso, George Howard, Steve Mills, Banus van der Walt, Raymond Schkolne, Anton Raath

Page 69

As from 1 July 2002 SIM no longer manages or

controls the international holding company Sanlam

Financial Services BV (SFS). Responsibility for this part

of the Group now lies with Sanlam International.

Business Environment and

Operational Review

To say that world markets took a hammering in 2002 is

an understatement, particularly from a South African

perspective because of the dramatic swing in the value

of the rand. An indication of just how tough the

markets were, is indicated by the decline in the Morgan

Stanley World Index by 42,7% in rand terms. The

South African All Share Index, while also ending the

year in negative territory, fell by 8,2% only. The rand

started the year at R/$11,95 and ended at R/$8,60 –

an appreciation of 28%. This dramatic improvement

meant that many of those shares that benefited from

the rand’s decline in 2001 more than gave back their

gains over the last few months of the year.

It is against this background that SIM strived to

deliver an acceptable performance for all its clients.

Following Angus Samuels’ move to Sanlam to take

on the role of head of Sanlam International, Johan van

der Merwe was appointed as CEO. High-profile

recruitments followed, with George Howard joining as

chief investment officer and the appointment of other

highly regarded equity specialists. The new recruits have

all fitted in extremely well and are all making valuable

contributions in their respective teams and the

company as a whole. Management is confident that

SIM now has a highly skilled and motivated

investment team in place that can meet the

investment requirements of our diverse client

base.

The investment process was refined and

adjusted as the year progressed to take into account

issues such as the move to the FTSE free-float basis of

indexation and the collective input of newly acquired

investment skills. Independent investment consultants

agree that this process is of a world-class standard and

the improved unit trust performances bear testimony to

this, while over the last six months institutional

performance, albeit short term, is showing an

improvement.

Employment equity is an initiative that will impact

on all who run businesses in South Africa and we at

SIM are committed to embracing the challenge of

improving our diversity. To this end we have met our

employment equity targets and have developed an

SANLAM INVESTMENT MANAGEMENT

R million 2002 2001

Fee income 419 405 3%Brokerage 45 16 181%Net interest income 22 13 69%

Financial services income 486 434 12%Administration cost (301) (250) (20%)

Operating profit before tax 185 184 1%Tax (60) (53) (13%)

Operating profit after tax 125 131 (5%)

Page 70

Sanlam Investment Management (continued)

and the increase in staff to service the new business

generated by Tasc and Sanlam Property Asset

Management. SIM Wholesale managed to maintain

expenses at the same level as 2001, despite expenditure

incurred in expanding our private equity capability.

We expect some significant inflows and fee income as a

result of these investments.

Prospects

With inflation now seemingly on a downward trend,

improving corporate profits and the prospect of some

interest rate cuts, we expect better local markets in

2003. The one big shadow hanging over positive

returns for 2003 is the ongoing threat of war in the

Middle East. A protracted war and ensuing global

instability could have a major impact on the First

World economies and, as always, the developing

economies will suffer.

We will continue to focus on delivering quality

investment performance for our clients and on

responsible cost control, while searching for value-

adding ventures for both clients and shareholders.

We will be launching a series of new products in

2003 that are specifically aimed at meeting the

needs of existing and potential clients. SPI will

use its size and reach to consolidate its position

in the market and to attract high-quality, long term

business through professional service and consistently

good returns.

Tasc has firmly established itself in the local market

and is now also well placed to offer its services in both

the UK and European markets, where it will be

focusing its marketing efforts.

Sanlam Property Asset Management will continue

to winnow its portfolio over the next year while making

the most of value-adding opportunities in the ever-

diversifying field of property management.

exciting programme aimed at fast-tracking high-

potential candidates from previously disadvantaged

communities into becoming respected investment

professionals. This intensive programme started in early

January 2003 and the first “graduates” are expected to

complete the programme by mid-2004. Each candidate

will have a highly qualified staff member as a mentor to

assist in his or her development. They will also be

exposed to all aspects of asset management on a

rotation basis.

The acquisition by Sanlam Private Investments

(SPI) of a major portion of the private client business of

Merrill Lynch, which was announced in last year’s

report, took place in March 2002. The integration of

the business with our existing operations went

extremely well. With assets under management and

administration of in excess of R11 billion, SPI now has

the critical mass to generate profits even in the

depressed market experienced in 2002.

Financial Review

The SIM group’s operating profit after tax declined to

R125 million from R131 million in 2001.

Group revenue increased by 12% owing to SPI’s

acquisition of the major portion of the Merrill Lynch

private client business and organic growth achieved by

our administration service provider, Tasc (mainly

offshore) and by Sanlam Property Asset Management.

Other income declined by R20,6 million, mainly

due to currency profits reported in 2001, that were not

repeated in 2002. These currency profits originated

from loan funding provided to the SFS group. The loan

funding was transferred to Sanlam Corporate at the

time when the operational responsibility of the SFS

group was moved to Sanlam International.

Administration costs increased by 20%, mainly as a

result of the acquisition of the Merrill Lynch business

Page 71

Executive CommitteeJHP van der Merwe (Johan) (38)MPhil Finance (Cambridge), M Com Income Tax, CA (SA) Chief Executive Officer(9 months’ service)

AA Raath (Anton) (47)CA (SA)Chief Operating Officer(3 years’ service)

T Mhlambiso (Thando) (41)Juris Doctorate Columbia University School of LawMBA (Finance) Columbia University School of BusinessBA (Biology) – Brown UniversityAdmitted to the New York State BarChief of Private Equity Groups(1 year’s service)

G Howard (George) (46)BCom (SA), ACMA (UK), CFA (USA)Chief Investment Officer(7 months’ service)

S Mills (Steve) (45)BSc (Engineering), BCom (Hons), MBAHead: Portfolio Investments(1 year’s service)

RT Schkolne (Raymond) (45)B Bus Sc (Hons) (Personnel Management)Diploma in Datametrics (Statistics)BSc (Information Systems and Operations Research)Head: Human Resources(3 years’ service)

TJ Mvusi (Temba) (48)BA (Unisa)Diploma in International Relations (University of New Delhi, India)Management Advancement Programme (Wits Business School)Head: External Interface(4 years’ service)

UJ van der Walt (Banus) (53)BEcon (Hons)Advanced Executive Programme (Unisa)CEO Sanlam Property Asset Management(34 years’ service)

Audit Committee

AS du Plessis (Attie)

D Ladds (David)

DR Geeringh (Div)


Directors

JHP van der Merwe (Johan) (CEO)

AD Botha (Anton)

PJ Cook (Peter)


DR Geeringh (Div)

D Ladds (David)

CE Maynard (Carmen)

JD Punter (Jonathan)


R Masson (Ronnie)

AA Raath (Anton)

Page 72

Sanlam International

Salient features• Establishing Sanlam International to provide the

impetus in developing a meaningful international

financial services business

• Laying the foundations for higher levels of profit

generating capacity through a build and buy

program with a marked increase in fee income

• Growing the significant continuing institutional

client relationships in our consulting business

from 310 to 450 clients

• Funds under advice increased from US$10 billion

to US$24 billion

• Building Hichens Investment Management, a June

2002 start-up, with US$75 million in new funds

under management

Business and strategic overviewSanlam International (SI) was established as a business

on 1 July 2002 to provide the impetus in developing a

meaningful international financial services business.

Our vision builds on the Group’s South African vision,

The dominant

thrusts in 2003 will

be to firstly convert

existing assets

under advice to

assets under

management and

secondly to gain

new assets under

management

from left to right (back): Kenneth McKelvey, Gerald Gonzenbach, Lukas van der Walt

from left to right (front): Jonathan Punter, Angus Samuels (Chief Executive)

Page 73

namely to be a leader in wealth creation wherever we

operate. As part of the Group’s corporate restructuring

process, Sanlam Netherlands Holdings BV was established

as the Group’s international holding company. Sanlam

Financial Services BV (SFS), which previously reported

to Sanlam Investment Management (SIM), forms the

backbone of SI’s current international operations.

A business development unit independent of SFS was

established to implement SI’s strategy of gradually

expanding Sanlam’s international business on a selected

regional basis. Sanlam’s internationalisation is not simply

a matter of currency and portfolio diversification – the

intention is to build a sustainable business complex with

a distinct distribution bias. Our primary financial objective

is to render a consolidated rolling return on invested

capital that exceeds the appropriate risk-adjusted weighted

average cost of capital. While our focus is currently on

the UK we will, when opportune, consider expanding

our business to other identified countries in Western

Europe, Asia and the rest of Africa. We believe that our

UK operations provide a strong foundation for further

expansion in Europe. Market dynamics in Asia are

considered attractive but, given that we have no presence

there yet, our task is to develop and implement an

appropriate entry strategy.

The SFS business model combines financial consulting

and manager-of-managers investment management with

the various client-facing consulting entities in SFS,

creating either:

a) the opportunity for direct conversion of established

assets under advice to assets under management or

b) enhanced opportunities for the sale of assets-under-

management services.

SFS concentrates on institutional and high net

worth/affluent individuals.

Business environment and operationalreview – SFSFor the third year in a row world stock markets have

fallen, reflecting the geopolitical risks, corporate malfeasance,

overvaluation of markets and a return to cyclical downturns

in the Western economies, leading to lower and

potentially negative rates of growth. Our businesses

have not been immune to the impact and this is

reflected in our reported reduction in profit after tax.

We have, however, moved against the tide in some areas

and, in a countercyclical manner, have capitalised on

depressed market conditions to further expand and

strengthen our position in certain markets at significantly

lower prices and investment costs. The formal signing

and integration of Hichens Harrison was achieved in

February, BGJ joined the Group in May and Tresman

became an important pillar within PSFM in September.

In addition to this, just before the end of the financial

SANLAM INTERNATIONAL STRUCTURE

Principalsubsidiaries:

Punter Southall & Co LtdBGJ Punter Southall Ltd(including PSolve)

io Asset Management Ltdio Investors LtdOctane management Ltd BVI

Hichens Harrison Ltd(including HIM)

PSFM Ltd (includingTresman)

Business lines

Sanlam Netherlands Holdings BV

Other subsidiaries Sanlam Financial Services BV

Actuarial and InvestmentConsulting

Manager-of-managersinvestment management

Private Client and Brokerage

Independent FinancialAdvisory

Page 74

Sanlam International (continued)

Investment Management (HIM). The steep fall in equity

markets and a resulting collapse of investors’ confidence

led to a dramatic decrease of more than 55% in fee

income, although this was partially mitigated by a major

cost reduction exercise.

HIM was started up in June 2002, with the objective

of building a discretionary private client business

alongside the HH broking licence. Significant costs were

incurred in the build-up of HIM. It is, however, our

pleasure to report that the business is performing in line

with its ambitious plan, which is evidenced by the

acquisition of US$75 million in new funds managed

under the HIM banner.

Independent Financial Advisory1

Tough conditions were experienced by the IFA businesses,

with the advisory market bombarded by proposals for

structural reform, while adverse market conditions made

it difficult to persuade investors to take any action. In

addition, there has been a deliberate policy to broaden the

platform, with an associated increase in the underlying cost

base. Although revenue increased by 19%, costs increased

by 56%, reflecting the delay in revenue generation, before

the new sales force reached productive status. The profit

contribution fell to zero for the year under review.

Financial review – Sanlam InternationalProfit after tax for 2002 is 26% lower than the 2001 result.

A number of factors were responsible for the lower level of

profits. These included the following: significantly worse

than expected equity markets, which lead to lower funds

under management, added corporate governance and

business development costs and an aggressive build

programme with an immediate increase in staff, technology

and office expenses as opposed to deferred revenue benefits.

Focus areas and prospects for 2003Sanlam International will continue to execute the Group

internationalisation strategy in accordance with agreed

principles, focusing on identifying and acquiring

year we signed the basic agreements with the Octane

Management Limited company to build a global

platform for distributing tailored hedge fund solutions.

Our build process is evidenced by our increasing

number of employees from 280 to a current complement

of 456, which includes a 35% increase in senior sales

development staff. The overall Group performance

reflects the combination of lower equity values and

depressed market conditions, together with considerable

investments in new businesses.

Actuarial and Investment Consulting1

In the UK pensions market, continued regulatory

changes, coupled with the challenges arising from poor

investment returns, have enabled the actuarial business

to continue to grow against the market trends. Revenue

grew by 32% while costs increased by 27%, particularly

as a result of staff increases. Profit before taxation

increased by 76% year on year, excluding the positive

impact of BGJ, which was acquired during the year.

PSolve, our newly established investment consultancy

business, made extremely good progress in establishing

its identity and credentials in the highly competitive

institutional market. The business has been acquiring

new clients at a rate that is beyond all expectations and

currently acts for over 50 pension funds, including

recent breakthroughs in the local authorities market.

Manager-of-managers investmentmanagement1

In line with industry trends the business suffered a drop

in earnings of 13%, resulting in a decrease in profits

before tax of 30%. The collapse of the global equity

markets and low inflows of new funds from South

Africa and the UK led to a decrease in funds under

management from US$2,79 billion to US$2,35 billion.

Private client and brokerage1

Hichens Harrison (HH), an acquired brokerage

company, reported a loss post consolidation of Hichens

1Percentage increase/decrease is based on US$ reporting currency of the business

Page 75

carefully selected new business opportunities in

Western Europe and Asia.

Despite some disappointments in 2002, we are

convinced that the foundation has been laid to

increasingly reap the benefits of our investments so far.

Our strategy for 2003 reflects a continuation of the

growth strategy to invest in revenue-generating capacity

with its consequential negative effect on short term

profit. This will nevertheless translate into higher levels of

profit capacity from 2004 onwards. To harvest the

benefits of our development efforts and investments, the

dominant thrusts in 2003 will be to firstly convert

existing assets under advice to assets under management

and secondly to gather new assets under management,

both through direct sales to clients and through contacts

developed through the consulting businesses. We will

also complete the various start-up elements in our

business model, including the construction of the

solutions platforms targeted for completion early in 2003.

Executive Committee

JAA Samuels (Angus) (52)Chief Executive Officer SNH BV(4 years’ service)

L van der Walt (Lukas) (42)CA (SA)Chief Operating and Finance Officer SNH BV(4 years’ service)

JD Punter (Jonathan) (44)FIA, BScChief Executive Officer SFS BV(2 years’ service)

KJ McKelvey (Kenneth) (44)FIA, BSc, MBAChief Operating Officer SFS BV(2 years’ service)

GC Gonzenbach (Gerald) (48)PhD Law, MBAChief Financial Officer SFS BV(4 years’ service)

Sanlam Netherlands Holdings BV

Non-executive directorsAS du Plessis (Attie)W Hogeweg (Wilhelm)P de V Rademeyer (Flip)

Executive directorsJAA Samuels (Angus)L van der Walt (Lukas)JD Punter (Jonathan)

Audit committee (a subcommittee of Sanlam Financial Services BV)AS du Plessis (Attie) (Chairman)JAA Samuels (Angus)L van der Walt (Lukas)W Hogeweg (Wilhelm)JL Walker-Haworth (John)

INCOME STATEMENT

R million 2002 2001

Fee income 639 433 48%Net interest and other income 33 5 560%

Financial services income 672 438 53%Investment managers fees paid (45) (53) 15%Administration costs (552) (282) (96%)

Operating profit before tax 75 103 (27%)Tax (13) (19) 32%

Operating profit after tax 62 84 (26%)

Page 76

Gensec Bank

Many parts of the bank

performed very well and

in certain instances

showed substantial

revenue increases,

while equity-related

activities in particular

resulted in a substantial

underperformance for

the bank as a whole

Salient features

• Successful year for our in-house broker, Gensec

Trading

• Excellent performance of fixed-interest business

• Innovative and good performance of structured

products division

• Underperformance of all equity-related businesses

• Successful conclusion of the Safair Lease Finance

transaction with Imperial Group as 50% partner

Business environment

The environment for investment banking, which

deteriorated rapidly in 2001, remained difficult during

2002. The main drivers for this were the uncertain

international economic outlook, weak and volatile

equity markets and the threat of war in the Middle

East. The Enron and WorldCom corporate accounting

scandals in particular negatively impacted global equity

from left to right (back): Mike Brown, Mark Murning, Francois Oosthuizen, Marius Ferreira (Chief Executive), Steve Müller, Khanyisa Magwentshu,

Johan Latsky, Peter Cook

from left to right (front): Steve de Bruyn, Nico Siebrits, Sabir Munshi, Gerhard Erasmus

markets. Locally the effects were evident as several

smaller banks either handed back their banking licences

or were absorbed into bigger groups.

Early in the year most forecasters were anticipating

real GDP growth of close to 3% for the developed

economies, yet, only half this growth rate was achieved.

Locally, the South African economy continued to expand

and expectations are that growth in 2002 will be slightly

higher than 3%. Nevertheless, South Africa’s growth

potential remained constrained by issues such as the

developments in Zimbabwe, HIV/Aids, skills shortages,

exchange rate fluctuations and investor perceptions.

The overall performance of the bank was affected

by the market conditions and it was our equity-related

activities in particular that resulted in a substantial

underperformance for the bank as a whole. However,

many parts of the bank did perform very well and in

certain instances showed substantial revenue increases,

e.g. Gensec Trading, our discount stockbroker, fixed-

interest activities and structured products.

The progress made in resolving the banking group’s

capital structure, including the provision of a R5 billion

capital maintenance guarantee

from Sanlam,

contributed

greatly to

addressing

certain

concerns

from the

marketplace.

Operational review

Treasury

Treasury is responsible for the funding of the bank and

all client related financial market activities. The fixed-

interest unit made substantial changes to its business

model and shifted its focus to delivering structured

solutions to both the corporate and institutional

investor markets. Performance was very

satisfactory and revenue

was well above budget.

The money market

and foreign exchange

activities performed in line

with expectations. The

volatility in the equity

markets severely affected the

performance of our derivative

INCOME STATEMENT

R million 2002 2001

Operating income 309 462Net interest income 93 46

Financial services income 402 508 (21%)Administration expenses (311) (317) (2%)

Operating profit (excl Fieldstone) 91 191 (52%)Fieldstone operating profit 21 —

Operating profit 112 191 (41%)

FINANCIAL RATIOS

2002 2001

ROE % 11 17Administration cost ratio (excl Fieldstone) % 77 62Revenue per average number of employees (R 000) 1 318 1 658

Page 77

Page 78

Gensec Bank (continued)

Private Equity performed in line with expectations

and has started a number of initiatives to increase assets

under management. These include the launching of

new funds as well as expanding existing funds where

our partners have indicated a willingness to do so.

Risk Management Solutions

Deal flow in the structured products division remained

good, with a number of new initiatives, both locally

and internationally. The unit continued to undertake

significant product development in its traditional

investment markets and extended its business to the

commodity and alternative risk transfer areas, where the

focus is on assisting corporations in dealing with risks

that have traditionally been difficult to manage.

The other drive was to be at the forefront of the

convergence of the insurance and capital markets.

The weather derivative initiative is our exploratory

product in this regard, i.e. transfer of risk traditionally

underwritten by the insurance market to the capital

market.

Gensec Trading is a discount broker that was

established to handle equity transactions within the

group. Performance over the past year was exceptional

and it has increased its market share through non-group

clients and product growth.

Arbitrage

Trading conditions remained difficult, as volatility in

the markets remained high and geopolitical concerns

persisted. However, a number of opportunities did

present themselves and the South African team

performed exceptionally well in capitalising on these.

The Dublin team, in its first full year of operation, was

activities and this, together with a lower demand for

products from investors, resulted in this unit reporting

a loss, compared to an exceptionally high profit in the

previous year.

Investment Banking

Corporate finance had a difficult year due to the low

level of advisory mandates available in the industry.

This unit nevertheless secured a number of key

mandates and although revenues were down on the

previous year, substantial progress was made in building

our advisory capacity. Our corporate finance

professionals were an important link to clients and

contributed to deal flow in other divisions.

The flat performance of the underwriting division

mirrored the conditions in the market.

The debt division continued its good performance

of last year and produced operating revenue in

accordance with budgets, being well up on last year. Its

overall performance for the year was however pulled

down as a result of a provision made in connection with

an equity backed transaction entered into in the 2001

financial year. The bank was awarded the mandate

to be the lead arranger for the Land Bank’s R2 billion

bond issue and Gensec was also appointed as a dealer

for Sasol’s R4 billion commercial paper programme.

In line with our strategy to diversify earnings to

include more annuity-type income, the bank

was successful in securing a 50% interest in the

Safair Lease Finance business.

The public sector finance unit was restructured and

integrated into the overall investment banking division.

Success will be closely linked to its ability to collaborate

with other units within the bank.

Page 79

significantly more exposed to the international

environment and only made a marginal contribution

to revenue.

Investments

Fieldstone, a specialised advisory firm, was acquired

with effect from 1 July 2001. The business was also

negatively affected by the decline in international

investment banking activity and more specifically

the problems in the energy sector. Despite these

circumstances, Fieldstone made a positive contribution

during 2002 and has a good pipeline of mandates.

The Safair Lease Finance partnership with Imperial

Holdings commenced with effect from July 2002

and good progress was made in acquiring aircraft

and the accompanying financing. Unfortunately,

the strengthening of the rand negatively affected the

partnership’s income, which is largely denominated

in US dollars.

Financial Review

The bank’s financial performance reflected the generally

unfavourable market conditions, but was additionally

impacted by the negative performance of our equity

business which overshadowed the good performance of

the other divisions in the bank. Revenue decreased by

21% and although expenses were contained to below

last year’s level, the overall result was a further decline in

operational income compared to the previous year.

Management has implemented measures to resolve the

problems in the equity-related activities and current

performance indicates a more promising 2003.

While operational efficiency has improved,

expenditure over the past few years on system

REVENUE DISTRIBUTION

development, added to management’s critical focus on

our cost structure, are expected to yield further benefits

during 2003. Return on equity was 11% against a

longer term objective of 20%. The higher IT charges

together with lower revenue was primarily responsible

for a deterioration in the administration cost ratio.

Prospects for 2003

It is recognised that the most important influences on the

future of Gensec Bank in the year ahead will continue to

be the macro investment banking environment and the

direction of the Sanlam banking strategy. This strategy

is expected to crystalise during the first half of the year.

We believe that the investment banking environment

will continue to be dominated by economic

uncertainties and volatile markets. Consequently, we do

not anticipate a buoyant year for the industry, but

expect that the bank will show improved performance.

32%

13%33%

22%

25%

15%

9%51%

Revenue per business�for the year 2002

Investment�bankingArbitrageRisk management�solutionsTreasury

Revenue per business�for the year 2001

Investment �bankingArbitrageRisk management�solutionsTreasury

Page 80

Gensec Bank (continued)

S de Bruyn (Steve) (42)CA (SA)Debt Finance (3 years’ service)

NA Siebrits (Nico) (43)CA (SA) Chief Financial Officer (11 years’ service)

S Munshi (Sabir) (41)BScChief Information Officer (6 years’ service)

Audit Committee

TL de Beer (Tom) (Chairman)


DR Geeringh (Div)

D Ladds (David)


Directors

AD Botha (Anton) (Chairman)

DR Geeringh (Div) (Deputy Chairman)

PJ Cook (Peter)

TL de Beer (Tom)


M Ferreira (Marius)

D Ladds (David)

Prof AF Perold (André)


Prof S Vil-Nkomo (Sibusiso)

Dr L Vermaak (Leon) – Resigned 31 December 2002

P Mabena (Pindi) – Resigned 25 June 2002

Alternate Directors

MS Murning (Mark)

SH Müller (Steve)

Executive CommitteeM Ferreira (Marius) (48)BCom (Hons) Chief Executive Officer(8 years’ service)

PJ Cook (Peter) (56)MBA, BSc Eng (Mining)Deputy Chief Executive Officer(5 years’ service)

MF Brown (Mike) (54)BA (Hons)Marketing and Distribution (4 years’ service)

G Erasmus (Gerhard) (38)CA (SA)Structured Products (7 years’ service)

J Latsky (Johan) (47)BA LLBSpecial Projects (4 years’ service)

MS Murning (Mark) (43)BComRisk Management Solutions and Treasury (6 years’ service)

FJ Oosthuizen (Francois) (43)BCom (Hons)Arbitrage(17 years’ service)

SH Müller (Steve) (42)CA (SA)Investment Banking (8 years’ service)

AI Gouveia (Tony) (35)CA (SA), MSc (Mathematics)Chief Risk Officer (8 years’ service)

KN Magwentshu (Khanyisa) (37)BJuris, LLBPublic Sector & Empowerment Finance (3 years’ service)

Page 81

Santam

The group

generated

R991 million in

cash from its

operating and

investment

activities,

reinforcing its

healthy financial

position

Salient features

• 32% increase in gross written premiums

• 46% improvement in underwriting surplus

• 39% increase in operating income

• 16% increase in earnings based on long term

rate of return

Nature of business

Following the takeover of Guardian National

Insurance Company in 2000, Santam became the

leading short term insurer in South Africa, with a

market share nearing 30%. With total assets

exceeding R8,9 billion, a countrywide infrastructure,

broker network and more than 650 000 personal

policyholders, its yellow umbrella is truly covering

South Africa. Santam holds strategic investments

in various companies in the insurance industries

in South Africa, Namibia and United Kingdom,

and has business interests in Zimbabwe, Malawi

and Zambia.

Santam offers clients a wide variety of highly

specialised products and services. Its core business

has been the same for more than eight decades – to

take care of its clients’ insurance needs. This is

embedded in providing short term insurance

products and services aimed at specific markets, as

well as utilising and optimising its broker network as

the main delivery channel.

Santam focuses on the corporate, commercial

and personal markets.

Page 82

Santam (continued)

amounting to R30 million were exercised in

relation to certain Africa Group companies, which

adversely affected this line of business. Santam

subsequently took control of four Africa Group

companies which are involved in short term

insurance activities.

The Group’s investment portfolio did not

escape the torrid market conditions and compared

with the exceptional performance in 2001, when

the capital value increased by R311 million, the

market values decreased by R22 million. However

on a relative basis, the portfolio performed

satisfactorily. As a consequence of the poor short

term performance of the investment portfolio,

attributable earnings decreased by 47% despite the

favourable operating results. Applying the long term

rate of return, which eliminates the short term

volatility, earnings have increased by 16% from

R444 million to R516 million.

The Group generated R991 million in cash

from its operating and investment activities,

reinforcing its healthy financial position. Favourable

crop insurance results during the last quarter, as

well as new businesses acquired during the year,

have impacted favourably on cash flow. The

solvency margin remained a healthy 60%, down

from 71% at the end of 2001, mainly as a result of

increased premium volume.

Business Environment and

Financial Review

Operating income increased by an impressive 39%

for the year under review. The underwriting surplus

of R142 million benefited from both improved

underwriting margins and increased business volumes.

Higher short term interest rates and improved cash

flow management contributed towards the increased

investment return on insurance funds.

Climatic conditions in the second half of the

year were rather trying. After a virtually storm-free

first half, severe snow storms and floods in the

Eastern Cape, as well as hailstorms in Gauteng and

the Western Cape late in the year caused significant

damage during this period. Conversely, 2002 was a

good year for the crop insurance business where far

less hail damage was experienced, particularly in the

first half of the summer season.

Gross written premiums increased significantly

by 32% compared to an increase of 23% at net

written premium level. The difference in growth is

mainly due to reinsurance arrangements to protect

the Group from concentration risk in certain

business areas.

The Lion of Africa, in which Santam holds

50%, reported very pleasing results for the year with

earnings of R19,4 million, compared to a loss of

R13,5 million in 2001. Financial guarantees

Page 83

Prospects

It is expected that the short term insurance market

will remain favourable for 2003. The cost of

reinsurance is, however, expected to increase in line

with market trends and reduced capacity.

During January 2003 the Group successfully

concluded the acquisition of the British niche insurer

Westminster Motor Insurance Association Limited,

which specialises in insurance for taxis and private

vehicle rental companies. The purchase of

GBP23,3 million was funded from own resources, and

is seen as an important strategic step for diversifying the

Group’s income base, especially in view of its dominant

position in the South African market.

The focus for 2003 will be on improved

productivity and cost reduction. There will be an

increased effort to reduce the cost of

reinsurance without exposing the

Group to undue risks. Owing to the

foreign acquisition and planned

adjustment in the reinsurance programme,

it is anticipated that capital utilisation will

improve further with solvency margins

reducing mildly in 2003. It is expected that

equity markets will remain unsettled for 2003, directly

affecting investment results.

INCOME STATEMENT

R million 2002 2001

Net earned premium 5 548 4 760 17%Claims incurred (3 925) (3 367) (17%)Net commission (698) (635) (10%)Management expenses (783) (661) (18%)

Underwriting surplus 142 97 46%Investment return on

insurance funds 115 88 31%

Operating income 257 185 39%Investment return 178 540 (67%)

Income before taxation 435 725 (40%)Taxation (116) (142) 19%Minority interest (14) (12) (14%)

Attributable earnings 305 571 (47%)

Santam is listed on the JSE Securities Exchange.More comprehensive information is available in their published annual report.

Page 84

Sanlam Limited GroupAnnual Financial Statements

CONTENTS

85 Directors’ Responsibility for Financial Reporting

85 Certificate by Company Secretary

86 Report of the Statutory Actuary

87 Report of the Independent Auditors

88 Directors’ Report

89 Basis of Presentation and Accounting Policies

98 Group Income Statement

99 Group Balance Sheet

100 Group Statement of Changes in Equity

101 Group Cash Flow Statement

102 Notes to the Group Financial Statements

123 Statement of Actuarial Values of

Assets and Liabilities

127 Sanlam Limited Financial Statements

130 Principal Subsidiaries

131 Financial Information for

the Shareholders’ Funds

Page 85

Directors’ Responsibility for Financial Reporting

The Board of Sanlam Limited accepts responsibility for the integrity, objectivity and reliability of the group and company financial

statements of Sanlam Limited. Adequate accounting records have been maintained. The Board endorses the principle of

transparency in financial reporting. The responsibility for the preparation and presentation of the financial statements has been

delegated to management.

The responsibility of the external auditors is to express an independent opinion on the fair presentation of the financial

statements based on their audit of Sanlam Limited and its subsidiaries.

The audit committees have 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 Board is 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 Board of Sanlam Limited accepts responsibility for the integrity, objectivity and reliability of the Report on the Sanlam

Group Embedded Value. The responsibility for the preparation and presentation of the Report on the Sanlam Group Embedded

Value has been delegated to management.

The responsibility of the appointed external auditors, Ernst & Young, is to express an independent opinion on the fair

presentation of the Report on the Sanlam Group Embedded Value.

The Board is of the opinion that Sanlam Limited is financially sound and operates as a going concern. The financial statements

have accordingly been prepared on this basis.

The financial statements on pages 88 to 143 and the Report on the Sanlam Group Embedded Value on pages 147 to 151 were

approved by the Board and signed on its behalf by:

Ton Vosloo Flip Rademeyer

Chairman Acting Chief Executive

5 March 2003

Certificate by Company Secretary

In my capacity as Company Secretary, I hereby certify, in terms of the Companies Act, that for the year ended 31 December 2002,

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.

Johan Bester

Company Secretary

5 March 2003

Page 86

Report of the Statutory Actuary of Sanlam Life Insurance Limited

The Sanlam Life Insurance Limited group has been consolidated in the Sanlam Limited group financial statements set out on pages 88 to 143.

My opinion hereunder is in respect of the financial soundness of the Sanlam Life Insurance Limited group, as set out in the Statement of

Actuarial Values of Assets and Liabilities on pages 123 to 126.

FINANCIAL SOUNDNESS VALUATION

I certify that:

• the valuation of Sanlam Life Insurance Limited group as at 31 December 2002, has been performed on the bases as set out on pages 95 to 97.

The valuation has been prepared and the results are presented in accordance with the guidelines (Professional Guidance Notes 103 and 104)

of the Actuarial Society of South Africa;

• the Statement of Actuarial Values of Assets and Liabilities fairly presents the financial position of the Sanlam Life Insurance Limited group;

• Sanlam Life Insurance Limited group was financially sound as at the valuation date, and in my opinion is likely to remain financially sound

for the foreseeable future; and

• the management actions assumed for the calculation of the capital adequacy requirements have been approved by the Board of Directors of

Sanlam Life Insurance Limited and I expect that these actions would be taken if the corresponding risks were to materialise.

EMBEDDED VALUE

In my view the Sanlam Limited group embedded value and the value of the new life insurance business, as set out on pages 147 to 151, fairly

present these values as defined. The embedded value and the value of new life insurance business have been calculated and presented in

accordance with the applicable guidelines (Professional Guidance Note 107) of the Actuarial Society of South Africa.

CG Swanepoel FIA, FASSA

Statutory Actuary

Sanlam Life Insurance Limited

5 March 2003

TO THE MEMBERS OF SANLAM LIMITED

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

31 December 2002 as set out on pages 88 to 143. These annual financial statements are the responsibility of the directors of Sanlam 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 misstatements.

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 and the group annual financial statements of Sanlam Limited fairly present in all material

respects the financial position of the company and group at 31 December 2002 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 PricewaterhouseCoopers Inc

Chartered Accountants (SA)

Registered Accountants and Auditors

Cape Town

5 March 2003

Page 87

Report of the Independent Auditors

Page 88

Directors’ Reportfor the year ended 31 December 2002

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 2.

CORPORATE GOVERNANCE

The Board of Sanlam endorses the Code of Corporate Practice

and Conduct recommended in the King II Report on Corporate

Governance and has satisfied itself that Sanlam has made

substantial progress towards complying with the Code during

2002 and is now compliant in almost all material aspects.

GROUP RESULTS

Headline earnings based on the long term rate of return basis

decreased from R3 534 million (133,2 cents per share) in

2001 to R3 227 million (122,7 cents per share) in 2002.

Further details regarding the Group’s results are included in

the financial review and the business reviews. The

information in the financial review and corporate governance

statement, requiring disclosure in the directors’ report in

terms of the Companies Act, has been audited.

SHARE CAPITAL

There were no changes in the authorised and issued share

capital of the company during the financial year. Shares with

a cost of R59 million were purchased by a subsidiary, Sanlam

Life Insurance Limited, as part of its normal balanced

portfolio holding.

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 37 cents per share (2001: 35 cents), payable on

7 May 2003, to shareholders registered on 11 April 2003.

SUBSIDIARIES

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

page 130.

DIRECTORS’ INTEREST IN CONTRACTS

No material contracts involving directors’ interests were

entered into in the year under review.

INTEREST OF DIRECTORS AND OFFICERS IN

SHARE CAPITAL

Details of the shareholding by directors and officers at the

date of this report are provided in the Statement on

Corporate Governance on page 36.

DIRECTORS AND SECRETARY

Particulars of the directors and secretary of the company at

the date of this report, are set out on pages 10, 22 and 156.

The following changes in directorships occurred during

the period under review:

Prof AC Bawa resigned 31 March 2002

BP Vundla resigned 31 March 2002

V Khanyile appointed 7 August 2002

Dr L Vermaak resigned 31 December 2002

E van As appointed 15 January 2003

POST-BALANCE SHEET EVENTS

Since the balance sheet date the local share prices have on

average decreased by more than 10%. This has impacted inter

alia on the funding levels of participating policyholder

portfolios. Sanlam Life Insurance Limited however remains in

a financially sound position.

During January 2003, Santam successfully concluded the

acquisition of the British niche insurer Westminster Motor

Insurance Association Limited, which specialises in insurance

for taxis and private motor rental companies. The purchase

price of GBP23,3 million was financed from own resources,

and is seen as an important strategic step for expanding the

Group’s income base.

No other 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 as

reflected in these financial statements.

By order of the Board

Johan Bester

Secretary

5 March 2003

Page 89

Basis of Presentation and Accounting Policies

BASIS OF PRESENTATION

POLICYHOLDERS’ AND SHAREHOLDERS’

ACTIVITIES

The assets, liabilities and activities of the policyholders

and shareholders in respect of the life insurance business

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, generally accepted actuarial practice and the

stipulations contained in the demutualisation proposal.

The valuation bases in respect of policy liabilities and

profit entitlement of shareholders are set out on

pages 95 to 97.

The group financial statements set out on pages 98 to

122 include the consolidated activities of the

policyholders and shareholders. Separate financial

information on the activities of the shareholders of the

Sanlam Limited group is disclosed on pages 131 to 143.

The Statement of Actuarial Values of Assets and

Liabilities of the life insurance business of the Group is

disclosed on pages 123 to 126.

ACTUARIAL VALUES OF ASSETS AND

LIABILITIES

The actuarial values of assets and liabilities are the

consolidated financial position of the Sanlam Life

Insurance Limited group, excluding Sanlam Investment

Management (Proprietary) Limited and Sanlam Trust

Managers Limited, which are included at fair value as

determined by the Board of Directors. Associated

companies are treated as investments and are not equity

accounted for.

FUNDS RECEIVED FROM CLIENTS

Funds received from clients consist of single and

recurring long term and general insurance premium

income, which are included in the financial statements, as

well as 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. Transfers between

the various types of business, other than those transacted

at arm’s length, are eliminated.

NEW BUSINESS

In the case of long term insurance business the value of all

new policies that have incepted during the financial year

and have received at least one premium is regarded as new

business.

All segregated funds inflows, unit trust inflows and

general insurance premiums are regarded as new business.

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 general insurance business, including

income earned on working capital;

• income from banking activities such as realised and

unrealised gains or losses on trading accounts,

unsecured corporate bonds and money market assets and

liabilities, other securities’ related income and fees, and

commissions; and

• income from other financial services such as 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.

CHANGES IN REPORTING STRUCTURES AND

ACCOUNTING POLICIES

A component of expenditure incurred by the Sanlam

corporate office relates to the Sanlam Life business. Prior

to 31 December 2001 these costs were not identified and

allocated as such, but most of the corporate costs were

recognised for embedded value purposes. The specific

costs associated with Sanlam Life’s business have now

Page 90

Basis of Presentation and Accounting Policies (continued)

been identified and are accounted for directly in the

Sanlam Life operating results and in the Life company’s

embedded value calculations.

The segmental reporting of business information

follows the current management responsibility

assignment.

Conforming to Group practice, Santam has

reallocated the reporting of income on its free float

(or working capital) from investment income to operating

profit.

Comparative figures have been adjusted to conform

with the abovementioned changes in presentation in the

current year.

Based on their autonomous and independent

functioning, all international operations of the Group are

now accounted for as foreign entities in terms of South

African Statements of Generally Accepted Accounting

Practice. Currency translation differences arising on the

consolidation of foreign businesses are therefore no longer

reflected in operating income. In 2001 the foreign

businesses of Gensec Bank were accounted for as

integrated operations.

Owner-occupied buildings are treated in accordance

with AC123 (Property, Plant and Equipment) with effect

from 1 January 2002.

HEADLINE EARNINGS

Following the recent developments in respect of the

presentation of headline earnings, we now also present a

headline earnings figure that is based on operating profit

and actual investment income earned for the period.

Accounting standard (AC133) on the measurement and

recognition of financial instruments will be effective from

Sanlam’s 2003 financial year. The intended

implementation of the standard requires that investment

surpluses be recognised against equity in future.

ACCOUNTING POLICIESThe Sanlam 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.

BASIS OF CONSOLIDATION

The results of consolidated subsidiaries are included from

the effective dates of acquisition to the effective dates of

disposal. Inter-company profits and losses are eliminated

from the Group results. Inter-company transactions at

arm’s length, which do not influence the Group’s net

earnings, are not eliminated from the results.

Shares held in Sanlam Limited by subsidiary

companies are eliminated against equity on consolidation

where these shares are held by the shareholders’ funds 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.

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

interest in consolidated subsidiaries is held by the

policyholders’ fund 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 is recognised in the group balance sheet as equity

investments.

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.

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. Where

the associate is held as an investment, 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 in respect of the

investment in Absa Limited.

JOINT VENTURES

A joint venture is a contractual arrangement whereby two

or more parties undertake an economic activity that is

Page 91

subject to joint control. The results of joint ventures have

been accounted for using the equity method of

accounting, where the Group’s share of the joint ventures’

earnings before dividends is included in earnings.

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. Where applicable, goodwill is translated to

South African rand using historical rates. Goodwill is

written off on a straight-line basis over the lesser of its

estimated useful life or twenty years. The carrying

amount of goodwill is reviewed annually and written

down for impairment where this is considered necessary.

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.

FINANCIAL INSTRUMENTS

Financial instruments carried on the balance sheet

include cash and bank balances, investments, receivables

and trade creditors. These instruments are generally

carried at their fair value. The particular recognition

methods adopted are disclosed in the individual policy

statements associated with each item.

OWNER-OCCUPIED PROPERTY

Owner-occupied property is property held for use in

the supply of services or for administration purposes.

These properties are valued at carrying amount less

provisions for impairment in value, where appropriate.

Depreciation is provided against the gross carrying

amount of the properties.

INVESTMENTS

Investments are reflected at fair value, which has been

determined on the following bases:

• The value of fixed properties, 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 bonds are valued at the stock exchange prices;

• Listed derivative instruments are valued at the South

African Futures Exchange prices and the value of

unlisted derivatives is determined by the directors using

generally accepted valuation models; and

• Loans of investment script to and from third parties

are not treated as sales and purchases.

DERIVATIVE INSTRUMENTS

Derivative financial instruments include foreign exchange

contracts, interest rate futures, forward rate agreements,

currency and interest rate swaps, currency, interest rate

and equity options and other derivative financial

instruments that are marked to market. Fair values are

obtained from quoted market prices, discounted cash

flow models and option pricing models, as appropriate.

Accounting for these instruments is dependent upon

whether the transactions are undertaken for trading or

non-trading purposes.

Trading transactions include transactions undertaken

for market making, to service customer needs and for

proprietary purposes, as well as any related hedging

transactions. These transactions are marked to market

(fair values) and any profits or losses arising are

recognised in the income statement as operating profit or

loss on dealing activities, after appropriate deferrals for

unearned credit margins and future servicing costs.

The fair values related to such contracts and

commitments are reported on a gross basis in the balance

sheet as positive replacement values and negative

replacement values.

Non-trading transactions are those which are held for

hedging purposes as part of the Group’s risk management

strategy against assets, liabilities, positions or cash flows

measured at fair value as well as structures incorporated in

Page 92


the product design of policyholder products. Derivative

financial instruments used for hedging purposes are

marked to market and any gains or losses are recognised

in the income statement as net investment surpluses.

Gains and losses on derivative financial instruments

incorporated in policyholder products are included in

policy liabilities.

FOREIGN CURRENCY TRANSLATION RESERVE

The exchange differences arising on the translation of

foreign entities are transferred to the non-distributable

foreign currency translation reserve. On disposal of the

net investment, the income is released to the income

statement. A negative foreign currency translation reserve

will not be created.

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. Realised and unrealised

investment surpluses attributable to policyholders are

included in policy liabilities.

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.

PROVISIONS

Provisions are recognised when the Group has a present

legal or constructive obligation as a result of past events,

it is probable that an outflow of resources embodying

economic benefits will be required to settle the obligation

and a reliable estimate of the amount of the obligation

can be made.

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 and estimated

useful lives of the assets, which vary from two to twenty

years.

LEASES

Leases of assets, under which all the risks and benefits of

ownership are effectively retained by the lessor, are

classified as operating leases. Payments made under

operating leases are charged to the income statement on a

straight line basis over the period of the lease. When an

operating lease is terminated, any payment required by

the lessor by way of penalty is recognised as an expense in

the period in which termination takes place.

INVESTMENT RETURN

Investment income

Interest and rental income is accounted for on an accrual

basis. Rental income 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. Dividend income from subsidiaries is

recognised when the dividends are declared by the subsidiary.

Investment income earned on working capital is

included in operating profit.

Investment surpluses

Investment surpluses consist of net realised surpluses

and deficits on the sale of investments and net unrealised

surpluses and deficits on the valuation of investments at

fair value. These surpluses are recognised in the income

statement or policy liabilities on the date of sale or on the

valuation to fair value date.

LONG TERM RATE OF RETURN

The long term rate of return (LTRR) is determined at the

beginning of the year by the directors and is primarily

based on the actuarial assumptions, taking into account

historical experience and current market conditions

having regard to inflation expectations and consensus

economic and investment forecasts. The directors have

selected this rate with a view to ensuring that investment

returns credited to LTRR headline earnings are consistent

with the actual returns expected to be earned over the

long term.

The long term investment return is calculated on a

monthly basis on the fair value of the investments held in

the shareholders’ funds and holdings in subsidiaries and

associated companies.

Page 93

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 in terms of their policy contracts

accounted for when due.

Group life insurance premiums are accounted for

when receivable. Where premiums are not determined in

advance they are accounted for upon receipt.

General insurance premiums are accounted for when

receivable, net after a provision for unearned premiums

relating to risk periods that extend to the following year.

Premiums outstanding for more than sixty days are not

accounted for. Inward general reinsurance agreement

premiums are accounted for on an intimated basis.

Gross premium income is reduced by reinsurance

premiums applicable to the same period.

CONSULTING FEES EARNED

Consulting fees are accounted for on the accrual basis.

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 include the change in the

corresponding actuarial liabilities.

Policy benefits are reflected net of amounts recovered

from reinsurers.

SALES REMUNERATION

Sales remuneration consists of commission payable to

non salaried sales staff on long term and general insurance

business and expenses directly related thereto, bonuses

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

retirement and medical aid funds.

Commission on long term insurance business is accounted

for in the financial period during which it is incurred.

Acquisition cost for general insurance business are

deferred over the period in which the related premiums

are earned.

ADMINISTRATION COSTS

Administration costs include, inter alia, indirect taxes

such as revenue stamps payable on insurance policy

contracts and VAT, property and administration expenses

relating to owner-occupied property, 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 normal income tax is provided at current tax

rates 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.

Deferred capital gains tax balances are reflected at

current values and have not been discounted. Deferred

capital gains tax relating to the assets underlying the

policyholders’ funds is included in policy liabilities.

FOREIGN CURRENCIES

Transactions and balances

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 are 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 entities

All foreign subsidiaries are regarded as foreign entities due

to the nature of their relationship with the holding

company. Income statement items of foreign subsidiaries

are converted to South African rand at the weighted

average exchange rates for the financial year. The closing

rate is used for the assets and liabilities. At acquisition,

equity is translated at the rate ruling on the date of

acquisition. Post-acquisition equity is translated at the

rates prevailing when the change in equity occurred.

Exchange differences arising on translation of foreign

Page 94


entities’ results are transferred to a non-distributable

reserve until the disposal of the net investment when it is

transferred to retained income.

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 the pension fund valuator.

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.

A valuation in accordance with AC116 is performed on

the balance sheet date. For the purpose of calculating

pensions, medical contributions are deemed to be a part

of pensionable salary. Retirement fund contributions are

made on the pensionable salary. Therefore, pensioners

fund post-retirement medical contributions themselves

from their increased pensions. The Group has provided in

full for its medical contribution commitments in respect

of pensioners and disabled members who are not covered

under the current scheme.

Defined benefit plans

The schemes are valued using the valuation basis for past

service cost, and the attained age method for future

service cost. Any deficits advised by the actuaries are

funded either immediately or through increased

contributions to ensure the ongoing soundness of the

schemes. Contributions are expended during the year in

which they are funded. The net surplus or deficit in the

benefit obligation is the difference between the present

value of the funded obligation and the fair value of plan

assets. The Group recognises the estimated liability using

the projected unit credit method. The present value of the

overfunded portion of these schemes is recognised as an

asset to the extent that there are material benefits available

in the form of refunds and reductions in contributions.

Defined contribution plans

Group contributions to the pension and provident funds

are based on a percentage of the payroll and are charged

against income as incurred.

Medical aid benefits

Group contributions to medical aid funds are charged to

the income statement in the year in which they are

incurred.

Post-retirement medical aid benefits

The present value of this post-retirement medical aid

obligation is actuarially determined annually and any

deficit or surplus is immediately recognised in the income

statement. The Group recognises the estimated liability

using the projected unit credit method. The Group has

no significant exposure to any other post-retirement

benefit obligation.

EQUITY COMPENSATION PLANS

Sanlam operates a staff share incentive scheme through

Sanlam Limited Share Incentive Trust. Shares are offered

on a combined option and deferred delivery basis, which

staff can take up in tranches over a period of up to six

years. The beneficiaries under the scheme are executive

directors, management and sales advisors employed on a

full time basis. There is currently no income statement

effect when such benefits are granted.

SEGMENTAL REPORTING

For management purposes, the Group is organised into a

number of business areas based on the operating activities

of these businesses.

The primary segments are based on the type of

business, namely life insurance, investment management,

banking activities and general insurance. The secondary

segments are based on the geographical segmentation.

The significant geographical regions are Southern Africa

and International (comprising mainly of the United

Kingdom and Republic of Ireland).

DIVIDENDS

Dividends proposed or declared after the balance sheet

date are not recognised at the balance sheet date.

Page 95

POLICY LIABILITIES AND PROFITENTITLEMENTINTRODUCTION

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.

The underlying philosophy is to recognise profits prudently

over the term of each contract consistent with the work done

and risk borne.

Assets are valued at fair value as set out in the accounting

policy for investments. There are no intangible assets

included in the assets of the life insurance business of the

Group. 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.

APPLICATION OF VALUATION METHODOLOGY

The valuation methodology has been consistently applied for

2001 and 2002. The changes in the discount rates, bonus

rates and other assumptions in general did not have a

material effect on the total liabilities and earnings reported

for 2002. The same valuation methodology is applied for

Sanlam Namibia Limited, for which separate asset funds are

held.

BEST ESTIMATE OF FUTURE EXPERIENCE

The best estimate of future experience is determined as

follows:

• Future investment return assumptions are derived from

market-related interest rates on fixed-interest securities.

The asset composition of the various asset funds,

investment management expenses, taxes at current tax rates

and charges for investment guarantees are taken into

account;

• Unit expenses are based on the 2002 experience of Sanlam

Life Insurance Limited on a going-concern basis and

escalated at estimated expense inflation rates per annum; and

• Assumptions with regard to future mortality, disability

and disability payment termination rates are consistent

with the experience for the four and a half years up to

30 June 2002. Mortality and disability rates are

adjusted to allow for expected deterioration in

mortality rates as a result of Aids and for expected

improvements in mortality rates in the case of annuity

business. Surrender and lapse rates are based on the

experience for the three and a half years up to

30 June 2002.

ASSET FUNDS

Separate asset funds are maintained for each of the

major lines of business. Bonus rates are declared for

each class of participating business in relation to the

funding level of each portfolio and the expected future

net investment return 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 the Statutory Actuary expects will be

recovered through the declaration of lower bonuses

during the ensuing three years, if market values of assets

do not recover.

PROVISION FOR FUTURE BONUSES

It was assumed for reversionary bonus business that the

last declared bonus rates would be maintained over the

lifetime of the policies, except that part of the non-vested

bonuses, equal in total to 5,9% of liabilities, would be

cancelled during the next three bonus declarations if

investment conditions do not improve.

For the remainder of the participating business the

last declared bonus rates were assumed for the next three

bonus declarations and bonus rates equal to the assumed

future investment returns less provision for expense

recoveries thereafter.

Page 96


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 the bonus rate as set out in the

previous paragraph, and allowing for the shareholders’

share of a maximum of one-ninth of the cost of these

bonuses.

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 where 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 at the present value of expected future benefits

and expenses less future premiums at the relevant

discount rates.

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 ANNUITIESThe liabilities are equated to the fair value of theretrospectively accumulated underlying assets. This is

equivalent to a best estimate prospective liabilitycalculation allowing for future bonus rates as describedabove and expected future investment returns.Shareholder entitlements emerge on a fees minusexpenses basis consistent with work done and risks borneover the lifetime of the annuities. The present value of theshareholders’ entitlement is sufficient to cover themargins prescribed in the ASSA guidelines for thevaluation of policy liabilities. The prescribed margins arethus not provided for in addition to the shareholders’entitlement.

NON-PARTICIPATING ANNUITY BUSINESSNon-participating life and term annuity instalments andfuture expenses in respect of these instalments arediscounted at market-related interest rates. All profits orlosses accrue to the shareholders when incurred.

GUARANTEED PLANSGuaranteed maturities and expected future expenses arediscounted at market-related interest rates. All profits orlosses accrue to the shareholders when incurred.

OTHER NON-PARTICIPATING BUSINESSThe majority of the other non-participating businessliabilities is valued on a retrospective basis. The remainder(less than 2% of policy liabilities) is valued prospectivelyand contains second-tier margins via an explicit interestrate deduction of approximately 2,75% on average.

For non-participating business other than life andterm annuity business and guaranteed plans, an assetmismatch provision is maintained. The interest and assetprofits arising from the non-participating portfolio areadded to this provision. The asset mismatch provisionaccrues to shareholders at the rate of 1,33% monthly,based on the balance of the provision at the end of theprevious quarter. The effect of holding this provision is todampen the impact on earnings of short term fluctuationsin fair values of underlying assets. The asset mismatchprovision represents a second-tier margin. A negative assetmismatch provision will not be created, but such shortfallwill accrue to shareholders in the year in which it occurs.

HIV/AIDSA specific provision for HIV/Aids-related claims ismaintained. The provision for individual policies (more

Page 97

than 85% of the total HIV/Aids provision) is built up byincreasing the opening provision by the HIV/Aids riskpremiums and investment returns on the underlyingassets. It is then reduced by claims attributed toHIV/Aids. This retrospectively built-up provision ishigher than a prospective calculation done according tothe ASSA guidelines allowing for possible increases infuture HIV/Aids risk premiums. This difference can beregarded as a second-tier margin. It is the intention of theGroup to re-rate premiums as experience develops.

Premium rates for group business are reviewed morefrequently. The HIV/Aids provision is based on theexpected Aids claims in a year and the time that mayelapse before premium rates and underwriting conditionscan be suitably adjusted should actual experience beworse than expected.

PROVISIONS FOR MINIMUM MATURITY VALUEGUARANTEESIn addition to the liabilities described above, provision ismade for the possible cost of minimum maturity valueguarantees provided by some participating policies.Stochastic asset modelling techniques are used todetermine the appropriate amount for this provision.

WORKING CAPITALTo the extent that the management of working capitalgives rise to profits, no credit is taken for this indetermining the policy liabilities. This could be viewedas a second-tier margin.

CAPITAL ADEQUACY REQUIREMENTSThe excess of assets over liabilities of life insuranceoperations is sufficient to cover its capital adequacyrequirements in terms of PGN 104. The capital adequacyrequirements provide a buffer against experience worsethan that assumed in the financial soundness valuation.On the valuation date the ordinary capital adequacyrequirements (OCAR) were used as they exceeded thetermination capital adequacy requirements (TCAR).The largest element of the capital adequacy requirementsrelates to stabilised bonus business.

Consistent with an assumed fall in the fair value of theassets (the resilience scenario), which is prescribed in theASSA guidance notes, the calculation of the capital adequacyrequirements takes into account a reduction in non-vestingbonuses and future bonus rates and for the capitalisation ofsome expected future profits (held as part of the liabilities assecond-tier reserves).

Page 98

Sanlam Group Income Statementfor the year ended 31 December 2002

2002 2001Note R million R million

FUNDS RECEIVED FROM CLIENTS 1 42 098 46 124

Financial services income 2 14 524 13 114Sales remuneration (1 856) (1 734)

Income after sales remuneration 12 668 11 380

Underwriting policy benefits 3 (6 162) (5 285)

Administration costs 4 (4 357) (4 003)

Operating profit before tax 5 2 149 2 092

Tax on operating profit 6 (549) (330)

Operating profit from ordinary activities after tax 1 600 1 762

Minority shareholders’ interest (118) (92)

NET OPERATING PROFIT 1 482 1 670

Net investment income 402 515

Investment income 7 620 644

Tax on investment income 6 (110) (10)Minority shareholders’ interest (108) (119)

Net equity-accounted earnings 8 396 443

Equity-accounted earnings 471 621

Tax on equity-accounted earnings 6 (75) (178)

HEADLINE EARNINGS 2 280 2 628Net investment surpluses (2 621) 1 596

Investment surpluses 7 (2 822) 1 999Tax on investment surpluses 6 177 (249)

Minority shareholders’ interest 24 (154)

Amortisation of goodwill 16 (259) (215)

ATTRIBUTABLE EARNINGS (600) 4 009

Diluted earnings per share: Cents Cents

• Net operating profit from ordinary activities 12 56,3 62,9

• Headline earnings 12 86,7 99,1• Attributable earnings 12 (22,8) 151,1

Dividend per share 13 37,0 35,0

PRO FORMA LTRR HEADLINE EARNINGS (R million) 9 3 227 3 534Pro forma headline earnings based on the long term rate of return (LTRR) (cents per share) 12 122,7 133,2

Page 99

Sanlam Group Balance Sheetat 31 December 2002


ASSETSNon-current assets

Fixed assets 14 260 295Owner-occupied properties 15 381 —Goodwill 16 1 992 1 840Investments 17 149 276 165 842

Investment properties 11 128 12 011Equities 78 368 96 209Public sector stocks and loans 31 052 31 299Debentures, insurance policies and other loans 13 246 9 293Cash, deposits and similar securities 15 482 17 030

Deferred tax 18 237 146General reinsurance provisions 19 2 072 1 647

Current assets 29 339 30 375

Trade and other receivables 20 16 614 20 066Cash, deposits and similar securities 12 725 10 309

Total assets 183 557 200 145

EQUITY AND LIABILITIESCapital and reserves

Share capital and premium 21 3 455 3 514Non-distributable reserves 9 415 9 415Investment reserve — 2 145Retained income 7 781 7 157

Shareholders’ funds 20 651 22 231Minority shareholders’ interest 1 624 1 503Non-current liabilities

Long term policy liabilities 23 129 329 145 248Term finance 24 5 382 4 936Deferred tax 18 35 346General insurance provisions 19 4 226 3 296

Current liabilities 22 310 22 585

Trade and other payables 25 21 584 22 041Taxation 726 544

Total equity and liabilities 183 557 200 145

Segregated funds not included in the above balance sheet 62 396 56 251Total assets under management and administration 245 953 256 396Tangible net asset value per share (cents) 28 798 927

Page 100

Sanlam Group Statement of Changes in Equityfor the year ended 31 December 2002

Nondistri-

Share Share Investment butable RetainedR million Note capital premium reserve reserve(1) income Total

Balance at 1 January 2001 27 3 487 487 9 415 5 596 19 012Attributable earnings for the year — — — — 4 009 4 009

Transfer to investment reserve 11 — — 1 658 — (1 658) —

Dividends paid — — — — (790) (790)

Balance at 31 December 2001 27 3 487 2 145 9 415 7 157 22 231Attributable earnings for the year — — — — (600) (600)Transfer from investment reserve 11 — — (2 145) — 2 145 —Dividends paid — — — — (921) (921)

Cost of treasury shares acquired — (59) — — — (59)

Balance at 31 December 2002 27 3 428 — 9 415 7 781 20 651

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

Page 101

Sanlam Group Cash Flow Statementfor the year ended 31 December 2002


Net cash flow from operating activities 3 192 1 478

Cash generated from operations before working capital changes 33.1 1 352 1 435Working capital changes 2 353 646

Interest received 2 432 1 567

Interest paid (1 613) (1 155)Taxation (549) (330)

Dividends received 138 105Dividends paid (921) (790)

Net cash flow from investment activities (1 130) 1 959

Net (acquisition)/disposal of investments (1 814) 1 447Interest received 332 318

Taxation 57 (249)

Dividends received 390 388Rental income received 65 80

Acquisition of subsidiaries 33.2 (101) (25)

Acquisition of treasury shares (59) —

Net cash flow from financing activitiesNet term finance raised/(repaid) 354 (164)

Cash flow from movement in policyholders’ funds — —

Cash utilised in policyholders’ activities 33.3 (9 353) (11 745)Taxation 23.1 (228) (414)

Interest received 23.3 4 267 4 561

Dividends received 23.3 2 249 2 070Other investment income 23.3 1 223 1 471

Net realised and unrealised investment surpluses 23.3 (14 077) 15 353

(Increase)/decrease in policyholders’ investments (15 919) 11 296Increase/(decrease) in policy liabilities 15 919 (11 296)

Net increase in cash and cash equivalents 2 416 3 273Cash, deposits and similar securities at beginning of year 10 309 7 036

Cash, deposits and similar securities at end of year 12 725 10 309

Page 102

Notes to the Group Financial Statementsfor the year ended 31 December 2002

2002 2001R million R million

1. FUNDS RECEIVED FROM CLIENTSAnalysis per product (Refer to page 139 for analysis per business)

Insurance business – Premium income 28 512 27 600

Long term insurance (note 23.2) 22 990 22 915

Transfer to segregated funds (26) (75)General insurance 5 548 4 760

Other business 13 586 18 524

Unit trusts 7 884 10 772

Linked products 4 199 3 450

Segregated funds – Sanlam Investment Management 673 3 479Segregated funds – Sanlam International 830 276

Health care — 547

Total funds received from clients 42 098 46 124

The funds received from clients are disclosed net of the following reinsurance premiums:Life business 151 160

General insurance 2 562 1 632

2. FINANCIAL SERVICES INCOME Analysis per product

Long term insurance 7 264 6 837


Other financial services 1 597 1 358

Total financial services income 14 524 13 114

Included in financial services income isDividend income 145 140

Interest received 2 317 1 635

Interest paid and term finance costs (1 613) (1 155)

3. UNDERWRITING POLICY BENEFITSLong term insurance: death, disability and cash bonuses 2 237 1 918

Individual insurance 1 084 959Group life insurance 1 153 959


Total underwriting policy benefits 6 162 5 285

Page 103


4. ADMINISTRATION COSTS INCLUDE:Directors’ remunerationTotal remuneration paid by Sanlam Limited and its consolidated subsidiaries to its present and previous directors:

PresentDirectors’ fees 4,7 2,3Other services (basic remuneration, pensions and bonuses) 16,4 16,1

PreviousDirectors’ fees 0,2 0,6Other services (basic remuneration, pensions and bonuses) 4,8 7,5

Total directors’ remuneration 26,1 26,5

Analysis of directors’ remunerationExecutive directors 21,0 23,7Non-executive directors 5,1 2,8

Total directors’ remuneration 26,1 26,5

Directors’ remuneration paid by subsidiaries 22,2 23,6

Auditors’ remunerationAudit fees 22 21Other services 14 8

Total auditors’ remuneration 36 29

Depreciation 96 107Operating leases 158 141Consultancy fees 198 276Technical, administrative and secretarial fees 27 62Office staff costs 2 176 1 916Office staff (number of persons) 9 716 10 024

5. ANALYSIS OF OPERATING PROFITSanlam Life 1 533 1 375Sanlam Investment Management 185 184Sanlam International 75 103Gensec Bank 112 191Santam 257 188Gensec Properties 24 48Corporate income 96 98Corporate costs (138) (125)Other 5 (3)Sanlam Health — 33

Total operating profit 2 149 2 092

Geographical analysisSouthern African 1 970 1 895International 179 197

Total operating profit 2 149 2 092

Page 104

Notes to the Group Financial Statements (continued)for the year ended 31 December 2002


6. TAXATION: SHAREHOLDERS’ FUNDSAnalysis of income tax on earnings of shareholders’ fundsOperating profit 549 330

current year 556 515

prior year (7) (185)

Investment income 110 10

current year 110 109

prior year — (99)

Equity accounted earnings 75 178

Investment surpluses (177) 249

Net investment surpluses – normal 15 18

– capital gains tax (182) 221

Investment surplus on investment in associated company – capital gains tax (10) 10

Income tax on earnings 557 767

Income taxNormal income tax 858 703

RSA – current year 781 686Foreign 37 17

Capital gains tax 40 —

Deferred tax (376) (114)

Normal tax – current year (144) (67)

– prior year — (278)Capital gains tax (232) 231

Share of associated company’s tax charge 75 178

Taxation 557 767

In addition, the shareholders’ funds paid the following indirect taxes and levies, which are included in the appropriate items in the income statement

Included in administration costs 167 178

Included elsewhere 48 40

215 218

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 R228 million (2001: R414 million) was also paid on policyholders’ funds (refer note 23.5).

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2002 2001% %

6. TAXATION: SHAREHOLDERS’ FUNDS (continued)Reconciliation of tax rate on operating profitStandard rate of taxation 30,0 30,0

Adjusted for:Non-taxable income (3,2) (4,3)

Prior year adjustments (0,3) (9,1)Foreign tax rate differential (1,1) (2,9)

Other 0,2 2,1

Effective tax rate on operating profit 25,6 15,8

Reconciliation of tax rate on investment returnStandard rate of taxation 30,0 30,0

Adjusted for:Non-taxable income 4,6 (2,6)

Investment surpluses (38,7) (10,8)

Prior year adjustments — (3,0)Equity accounted earnings 3,9 (0,2)

Other (0,3) —

Effective tax rate on investment return (0,5) 13,4

R million R million

7. INVESTMENT RETURN: SHAREHOLDERS’ FUNDSInvestment income 620 644

Interest-bearing investments 319 316Equities 236 248Properties 65 80

Investment surpluses (2 822) 1 999

Realised and unrealised investment surpluses (2 193) 1 728

(Deficit)/surplus on investment in associate company (629) 333

Change in accounting policy by subsidiary — (62)

Investment return: shareholders’ funds (2 202) 2 643

8. NET EQUITY-ACCOUNTED EARNINGSInvestment surplus and dividends received on investment in associated company (223) 766

Less: Balance over equity-accounted earnings transferred (from)/to net investment return (619) 323

Investment surplus (629) 333

Capital gains tax 10 (10)

Net equity-accounted earnings 396 443

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9. PRO FORMA LONG TERM RATE OF RETURN HEADLINE EARNINGSLong term rate of return (LTRR) headline earningsNet operating profit 1 482 1 670

LTRR investment return 1 745 1 864

Net equity accounted earnings 396 443

Investment return after taxation 1 349 1 421

LTRR headline earnings 3 227 3 534

Reconciliation of headline earnings and LTRR headline earningsHeadline earnings per income statement 2 280 2 628

Net investment surplusses (2 621) 1 596Net LTRR adjustment 3 568 (690)

LTRR headline earnings 3 227 3 534

Analysis of net LTRR adjustmentInvestment return 4 054 (877)

Equities 3 081 (488)Deficit/(surplus) on investment in associated company 629 (333)

Interest bearing investments 301 (144)

Properties 43 88

Tax (364) 126

Minority shareholders’ interest (122) 61

Net LTRR adjustment 3 568 (690)

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 3 964 5 787Longer term returns (7 528) (5 783)

(Deficit)/excess aggregate short term fluctuations (3 564) 4

Page 107


9. PRO FORMA LONG TERM RATE OF RETURN HEADLINE EARNINGS (continued)A reconciliation of the investments included in the calculation of the LTRR is as follows:Investments per shareholders’ funds balance sheet (refer page 136) 24 026 25 095Less: Investment in Absa 3 957 4 036

Investments held in respect of term finance 4 731 4 029

Investments held in respect of banking activities 1 544 915Non-cash free float assets of subsidiary 38 260

Other 161 726

LTRR investments 13 595 15 129

Analysis of LTRR investmentsEquities 8 472 9 471Securities 2 238 2 624

Cash, deposits and similar securities 2 226 1 790

Properties 659 1 244

LTRR investments 13 595 15 129

10. CONSOLIDATION OF FOREIGN SUBSIDIARIESAt the beginning of 2002 the foreign businesses of Gensec Bank were reclassified as foreign entitiesto reflect the greater independence of the offshore operations. This change resulted in the currencytranslation differences arising on consolidation no longer affecting operating profit.

Currency translation profits of R158 million were included in the 2001 operating results.

11. TRANSFER (FROM)/TO INVESTMENT RESERVENet investment surpluses (note 7) (2 822) 1 999

Tax on net investment surpluses (note 6) 177 (249)

Minority interest in net investment surpluses 23 (154)Change in accounting policy by subsidiary (note 7) — 62

Negative reserve transferred to retained income 477 —

Transfer (from)/to investment reserve (2 145) 1 658

Similar to the transfer of a negative investment reserve to retained earnings, a negative foreign currency reserve is not created. At year-end a negative currency reserve is kept in retained earnings.

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12. DILUTED EARNINGS PER SHAREFor 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 as well as treasury shares held bysubsidiaries. Diluted earnings per share is calculated by dividing earnings by the adjusted weightedaverage number of shares in issue.

Net operating profit from ordinary activities 1 482 1 670

Headline earnings 2 280 2 628

Headline earnings based on the long term rate of return 3 227 3 534

Attributable earnings (600) 4 009

Number of ordinary shares in issue million 2 655 2 655Add: Incentive shares not issued million 5 20

Less: Sanlam shares held by subsidiary companies (note 21) million (29) (22)

Adjusted weighted average number of shares million 2 631 2 653

Diluted earnings per shareNet operating profit from ordinary activities cents 56,3 62,9Headline earnings cents 86,7 99,1

Headline earnings based on the long term rate of return cents 122,7 133,2

Attributable earnings cents (22,8) 151,1

13. DIVIDENDSA dividend of 37 cents per share (2001: 35 cents per share) was declared in March 2003.

It is envisaged that the company will have sufficient Secondary Tax on Companies (STC) credits not to incur any STC liability when the dividend is paid.

14. FIXED ASSETSLand and buildings 29 76

Computer equipment 80 82

Cost 334 306Accumulated depreciation (254) (224)

Furniture, equipment and vehicles 151 137

Cost 333 281

Accumulated depreciation (182) (144)

Total fixed assets 260 295

The reconciliation of the movement in the book value of fixed assets is not provided, as it is notconsidered material in relation to the Group’s activities.

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15. OWNER-OCCUPIED PROPERTIESBalance at beginning of year — —Transfer from fixed assets at depreciated value 52 —Transfer from investment properties at fair value 333 —Net expenditure expensed (4) —

Balance at end of year 381 —

Depreciation is provided for over the useful life of owner-occupied properties, taking into accountan expected residual value. If the expected residual value is equal to or greater than the carryingvalue, no depreciation is provided for.

16. GOODWILLBalance at beginning of year 1 840 1 711Additions during the year 411 344

Net consideration paid 411 365Fair value of net assets acquired — 21

Amortisations (259) (215)

Balance at end of year 1 992 1 840

The estimated useful life of goodwill is between five and ten years and it is amortised with effectfrom the acquisition dates. The additions to goodwill during 2002 arose from the acquisition of actuarial consulting, privateclient and investment management businesses, mainly in the UK.

% %

17. INVESTMENTSSpread of investments in equities listed on JSE by sectorIndustrial 39 39Financial 28 27Resources 33 34

100 100

Unlisted equity investmentsAs a percentage of the total investment in equities 5 3

R million R million

Direct offshore investmentsEquities 14 770 21 999Interest-bearing investments 6 220 11 342

Total offshore investments 20 990 33 341

Shares held in holding companySanlam Limited shares held by policyholders’ fundsNumber million 143 140Fair value R million 1 089 1 288

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2002 2001

17. INVESTMENTS (continued)

Investment in associated company(1)

Absa LimitedFair value of interest R million 4 741 5 248Number of shares held 000s 150 059 149 512Interest in issued share capital %

Shareholders’ funds 19,2 17,7Policyholders’ funds 3,8 5,4

Share of earnings after tax for current year R millionShareholders’ funds 396 443Policyholders’ funds 82 172

Distributions received R millionShareholders’ funds 153 136Policyholders’ funds 46 67

Aggregate post-acquisition reserves attributable to shareholders R million 1 138 895

The financial year-end of Absa Limited is 31 March. The equity-accounted earnings for AbsaLimited included in the Sanlam Limited group results are for the 12 month period ended 30 September and were derived from their published annual financial statements and their interimresults. The Sanlam group’s share of these earnings is included in investment income.

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

R million R million

Investment in joint ventureThe Group holds a 50% stake in a joint controlled entity, Safair Lease Finance (Proprietary)Limited. The interest is accounted for on an equity-accounted basis.Carrying value of interest 408 —Share of earnings after tax 8 —Share of aggregate assets 1 505 —Share of aggregate liabilities 1 112 —

Register of investmentsA register containing details of all investments, including fixed property investments, is availablefor inspection at the registered office of Sanlam Limited.

Term loans and deposits of R278 million (2001: R546 million) are encumbered as detailed in note 24.

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18. DEFERRED TAX AND PROVISIONSDetails of the deferred tax balances and provisions are as follows

Deferred tax ProvisionsAsset Liability

R million R million R million

Balance at 1 January 2001 115 (284) (387)

Charged to income statement 31 87 (170)

Additional provisions – normal 31 33 (170)– capital gains tax — (230) —

Unused amounts reversed — 284 —

Prior year adjustment by subsidiary — (149) —

Utilised during the year — — 56

Balance at 31 December 2001 146 (346) (501)Charged to income statement 77 299 (120)

Additional provisions – normal 74 70 (120)– capital gains tax 3 229 —

Prior year adjustment by subsidiary — 12 —

Acquisition of subsidiaries 14 — —

Utilised during the year — — 54

Balance at 31 December 2002 237 (35) (567)

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


19. GENERAL INSURANCE PROVISIONSGeneral insurance provisions 4 226 3 296

Gross outstanding claims 2 392 2 150

Gross provision for unearned premiums 1 695 1 046Deferred reinsurance acquisition revenue 139 100

Less: General reinsurance provisions 2 072 1 647

Outstanding claims 1 093 1 101

Unearned premiums 834 451

Deferred acquisition cost 145 95

Net general insurance provisions 2 154 1 649

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20. TRADE AND OTHER RECEIVABLESPremiums receivable 4 499 4 366

Accrued investment income 1 080 1 094

Trading account and money market investments 6 459 10 335

Accounts receivable 4 576 4 271

Total trade and other receivables 16 614 20 066

Cash, deposits and similar securities of R43 million (2001: R681 million) and trading accountinvestments of R980 million (2001: R1 261million) are encumbered as detailed in note 25.

21. SHARE CAPITAL AND PREMIUMAuthorised share capital

4 000 million ordinary shares of 1 cent each 40 40

Issued share capital and premiumNumber of ordinary shares in issue

Total shares in issue million 2 654,6 2 654,6

Shares held by subsidiaries million (29,2) (22,2)

Balance at end of year million 2 625,4 2 632,4

Nominal value and share premium

Nominal value of 1 cent per share R million 27 27

Share premium R million 3 487 3 487

Treasury shares (held by subsidiaries) R million (59) —

Total nominal value and share premium R million 3 455 3 514

Authorised and unissued sharesSubject to the restrictions imposed by the Companies Act, the authorised and unissued shares areunder the control of the directors until the forthcoming annual general meeting.

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2002 2001000s 000s

21. SHARE CAPITAL AND PREMIUM (continued)Executive share incentive schemeRestricted shares and share options at the beginning of the year 130 195 137 197

New options granted 37 581 30 334Restricted shares cancelled and options granted for the conversion of the Gensec share scheme — (3 811)

Unconditional options and shares released, available for release, or taken up (41 316) (24 375)Options lapsed or cancelled (9 972) (9 300)

Cash dividends received on restricted shares and converted into shares 124 150

Restricted shares and share options at the end of the year 116 612 130 195

Restricted and unrestricted share options as a percentage of total issued shares 5,8% 5,2%

Details regarding the restricted shares and share options outstanding on 31 December 2002 andthe financial years during which they become unconditional, are as follows:

Number of AverageShares Options option price

Unconditional during year ended 000s 000s R

31 December 2003 3 054 20 986 7,50

31 December 2004 2 401 25 660 7,88

31 December 2005 981 29 196 8,05

31 December 2006 306 15 734 8,35

31 December 2007 — 11 198 8,45

31 December 2008 and later 4 7 092 8,15

22. CONTINGENCY RESERVESContingency reserves in respect of general insurance business of R227 million are included inshareholders’ reserves (2001: R189 million) and R53 million (2001: R75 million) in the netassets underlying policy liabilities.

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23. LONG TERM INSURANCE POLICY LIABILITIES23.1 Analysis of movement in policy liabilities

Income 16 652 46 370

Premium income (note 23.2) 22 990 22 915

Investment surpluses (note 23.3) (6 338) 23 455

Outflow 32 571 35 074

Policy benefits (note 23.4) 21 136 20 630

Retirement fund terminations 4 523 6 385Transfer to segregated assets 109 1 412

Taxation (note 23.5) 228 414

Fees, risk premiums and other payments to shareholders’ funds 6 575 6 233

Net movement for the year (15 919) 11 296Balance at beginning of the year 145 248 133 952

Balance at end of the year 129 329 145 248

23.2 Analysis of premium incomeIndividual insurance 17 469 16 539

Recurring 8 634 8 336

Single 7 033 6 009Continuations 1 802 2 194

Group business 5 521 6 376

Recurring 2 903 2 910

Single 2 618 3 466

Total premium income 22 990 22 915

23.3 Investment return: policyholders’ fundsInvestment income

Interest-bearing investments 4 267 4 561

Equities 2 249 2 070

Properties 1 128 1 230

Total investment income 7 644 7 861Equity-accounted earnings 95 241

Net investment surpluses (14 077) 15 353

Total investment return (6 338) 23 455

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23. LONG TERM INSURANCE POLICY LIABILITIES (continued)23.4 Analysis of long term insurance policy benefits

Individual insurance 16 521 15 863

Maturity benefits 8 082 7 866

Surrenders 4 867 4 186

Life and term annuities 2 872 3 011Death and disability benefits(1) 593 666

Cash bonuses(1) 107 134


Withdrawal benefits 2 061 2 152

Pensions 1 378 1 310Lump-sum retirement benefits 877 1 010

Taxation paid on behalf of certain retirement funds 161 167

Death and disability benefits(1) 96 85Cash bonuses(1) 42 43

Total long term insurance policy benefits 21 136 20 630

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

23.5 Taxation: policyholders’ fundsNormal tax – RSA 4 70

– Foreign 7 9

Share of associated company’s tax charge 13 69Other 204 266

Taxation on retirement funds 114 196

Withholding tax on foreign investments 65 46

Indirect taxation 25 24

Total taxation: policyholders’ funds 228 414

A deferred tax asset has not been recognised for estimated assessed losses in thepolicyholders’ tax funds as it is uncertain whether and when these losses will be utilised.

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23. LONG TERM INSURANCE POLICY LIABILITIES (continued)23.6 Composition of policy liabilities

Individual insurance 92 342 101 427

Market-related liabilities 27 919 32 549

Stable bonus fund 26 564 32 235

Reversionary bonus policies 8 376 10 294Non-participating annuities 13 797 11 923

Other non-market-related liabilities 15 686 14 426


Market-related liabilities 15 110 20 421

Stable bonus portfolios 10 807 12 596Participating annuities 7 823 8 044

Non-participating annuities 2 038 1 636

Other non-market-related liabilities 1 209 1 124

Total policy liabilities 129 329 145 248

23.7 Policy liabilities include the following:HIV/Aids reserve 1 799 1 711

Reduction in earnings caused by using a retrospective HIV/Aids valuation basis instead of a prospective valuation basis (71) (22)Asset mismatch reserve 494 651

Deferred capital gains tax 76 498

24. TERM FINANCERedeemable 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 2012 4 094 3 905

Obligation for post-retirement medical fund contributions in respect of clients – matched by assets held in this regard 201 78

Secured bank loans at interest rates of between 6,4% and 19,85% (2001: 8,45% and 19,85%) and repayable in equal monthly and six-monthly instalments over three to thirteen (2001: four to fourteen) years. Secured by term loans and deposits included in investments 278 546

Unsecured debt securities with interest rates varying between 13% and 16% 311 —

Secured loan notes in the amount of CHF67 million and GBP4 million, bearing interest at variable interest rates. At year-end these rates were 1,56% and 2,08% (2001: 3,3%). The loan notes are ultimately repayable on 30 September 2005 and 31 December 2004 respectively 475 400

Other 23 7

Total term finance 5 382 4 936

Portion potentially repayable within one year included above 1 958 2 087

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25. TRADE AND OTHER PAYABLESTrading account and money market liabilities 14 283 12 793

Accounts payable 4 980 7 090

Policy benefits payable 1 631 1 509

Claims incurred but not reported 690 649

Total trade and other payables 21 584 22 041

Trading assets with a total value of R980 million (2001: R1 261 million) and cash of R43 million(2001: R681 million) have been pledged as security for trading account liability positions ofGensec Bank (refer note 20).

26. PAYMENTS TO CLIENTSAnalysis per product(Refer to page 140 for analysis per Sanlam business.)Insurance business – policy benefits paid 27 298 25 915

Long term insuranceUnderwriting (note 3) 2 237 1 918

Other (note 23.4) 21 136 20 630

General insurance (note 3) 3 925 3 367

Other payments 14 211 14 774

Unit trust repurchases 6 907 8 094Segregated funds withdrawn 5 024 4 416Linked products withdrawn 2 280 1 777

Health care — 487

Retirement fund terminations (note 23.1) 4 523 6 385

Total payments to clients 46 032 47 074

The payments to clients are disclosed net of the following reinsurance claims:Life business 143 112


27. FINANCIAL INSTRUMENTSDerivative financial instrumentsIn connection with its current operating activities, the Group is exposed to various financial risks,such as foreign currency risk, interest rate risk, credit risk, market risk and liquidity risk. For themanagement of financial risks, the Group uses derivative financial instruments as follows:• Gensec Bank, 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,to benefit from price differentials between instruments and markets.

• Sanlam Life primarily uses derivative financial instruments for the preservation of its capitalbase.

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27. FINANCIAL INSTRUMENTS (continued)Derivative financial instruments (continued)

Residual term to contractual maturity Analysed by useAsset Total

Total liability fairnotional manage- value of

R million < 1 year 1-5 years > 5 years amounts Trading ment amounts

Interest rate products over the counterSwap contracts (2 963) (1 803) (241) (5 007) (5 007) — (48)Purchased options 235 — — 235 235 — 3Written options (236) — — (236) (236) — 3

Total interest rate products (2 964) (1 803) (241) (5 008) (5 008) — (42)

Market risk productsCliquet structures — 656 — 656 — 656 57Forward sale 100 — — 100 — 100 19Collar structures — 419 — 419 — 419 (83)Forward purchase of shares

Local 14 — — 14 — 14 13International — 102 — 102 — 102 62

Fence structuresLocal 350 — — 350 — 350 13International 261 — — 261 — 261 (12)

Total market risk products 725 1 177 — 1 902 — 1 902 69

Foreign exchange products over the counterSpot and forward contracts (purchases) 1 170 — — 1 170 1 170 — 1 170Spot and forward contracts (selling) (1 097) — — (1 097) (1 097) — (1 097)Currency hedges 300 — — 300 — 300 14

Total foreign exchange products 373 — — 373 73 300 87

Securities lending The Sanlam group conducts securities 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’ funds of Sanlam Life Insurance Limited and collateral securityand 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 inmarket interest rates. Policyholders’ and shareholders’ investments in equities are valued at fair value and are therefore susceptible to marketfluctuations. Shareholders’ investments in listed subsidiaries are reflected at net asset value based on the market value of theunderlying investments. Investments subject to equity risk are analysed in the balance sheet and in note 17.

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 toacceptable levels within the framework of statutory requirements.

Continuous monitoring takes place to ensure that appropriate assets are held where the liabilities are dependent upon theperformance of specific portfolios of assets and that a suitable match of assets exists for all non-market-related liabilities.

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27. FINANCIAL INSTRUMENTS (continued)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 andshareholders for the purpose of seeking desirable international diversification of investments. Exposure to different foreigncurrencies is benchmarked against the currency composition of the Morgan Stanley Capital International World Equity Indexand 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 contractualobligations.The Sanlam group’s financial instruments do not represent a concentration of credit risk because the Group deals with avariety of major banks and its accounts receivable and loans are spread among a number of major industries, customers andgeographic areas.

Amounts receivable in terms of long term insurance business are secured by the underlying value of the unpaid policy benefits interms of the policy contract. General insurance premiums outstanding for more than 60 days are not accounted for in premiums. An appropriate level of provision is maintained. Exposure to outside financial institutions concerning deposits and similartransactions is monitored against approved limits.

Liquidity riskLiquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financialinstruments. Approximately 90% of term finance liabilities are backed by appropriate assets with the same maturity profile. Details of termfinance liabilities are provided in note 24 and current liabilities in note 25. The Group has significant liquid resources andsubstantial unutilised banking facilities.

Underwriting riskUnderwriting risk is the risk that the actual exposure to mortality, disability and medical risks in respect of policyholder benefits willexceed prudent exposure. The statutory actuary of Sanlam Life Insurance Limited reports annually on the financial soundness of the premium rates inuse and the profitability of the business taking into consideration the reasonable benefit expectation of policyholders. All newrate tables are approved and authorised by the statutory actuary prior to being issued. Regular investigations into mortality andmorbidity 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 againstestablished standards. Specific testing for HIV/Aids is carried out in all cases where the applications for risk cover exceed a setlimit. 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 ofthe 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 thanthat which has been assumed in the financial soundness valuation. Capital adequacy requirements were covered 1,7 times at 31 December 2002 (2001: 2,8 times).

28. TANGIBLE NET ASSET VALUE PER SHARETangible net asset value per share is calculated on the Group shareholders’ funds of R20 947 million (2001: R24 399 million),after adjusting for the shareholders’ interest in Santam, Gensec Bank, Sanlam Investment Management, Sanlam International,Gensec Property Services and Sanlam Unit Trusts from net asset value to fair value, divided by 2 625 million (2001: 2 632 million) shares (refer note 21).

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29. RETIREMENT BENEFITS FOR EMPLOYEES Retirement provisionThe Sanlam group provides for the retirement benefits of full-time employees and for certain part-time employees by means ofdefined benefit and defined contribution pension and provident funds. These funds are governed by the Pension Funds Act.

Defined contribution fundsThere are separate defined contribution funds for advisors, full-time and part-time office staff. The Sanlam group contributedR156 million to these funds during 2002 (2001: R133 million).

Defined benefit funds The Sanlam group has three defined benefit funds. These funds relate to the office staff that did not elect to transfer to thedefined contribution funds and are closed to new entrants. The Sanlam group contributed R9 million during 2002 to these funds (2001: R7 million). These contributions relate to current service costs and are included in administration costs.According to the latest valuation in accordance with AC116 as at 31 December 2002 the funds were financially sound.

Principal actuarial assumptions at 31 December 2002 were as follows:Pre-retirement discount rate 12% per annumPost-retirement discount rate 8% per annumFuture salary increases 9% per annumExpected return on assets 12% per annumMedical cost rates 12% per annum

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.

Medical aid fundsThe actuarially determined present value of medical aid obligations for disabled members and certain pensioners is fully providedfor at year-end. The Group has no further unprovided post-retirement medical aid obligations for current or retired employees.

Post-retirementDefined benefit funds Medical aid

2002 2001 2002 2001R million R million R million R million

Funded statusThe funded status of the funds were as follows:Actuarial value of fund assets 617 585Present value of accrued retirement benefits 569 554Present value of unfunded obligation — — (84) (44)

Net assets 48 31 (84) (44)Unrecognised surplus (48) (31) — —

Net liability included on balance sheet — — (84) (44)

Movements in the net liability recognised in the balance sheet are as follows:Net liability at start of year — — (44) (38)Net expenses recognised in the income statement — — (42) (7)Contributions — — 2 1

Net liability at end of year — — (84) (44)

The actual return on the market value of the assets as at 31 December 2002 was – 4,12%.The above value of fund assets includes an investment of R11 million in Sanlam shares.The actuarial surplus is currently not recognised as an asset by the Group, as the extent of the surplus available to the companycannot be determined with certainty.The valuation of the defined benefit funds for 2001 was performed on 1 April 2001.

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30. BORROWING POWERS In terms of the articles of association of Sanlam Limited, the directors may at their discretion raise or borrow money for thepurpose of the business of the company without limitation. Material borrowings of the Sanlam Limited group are disclosed in note 24.

31. COMMITMENTS AND CONTINGENCIES The Group has a commitment in respect of private equity investments amounting to R168 million (2001: R150 million). The Group has the following future operating lease commitments:


Lease rentals due within one year 111 84Lease rentals due within two to five years 152 307Lease rentals due within more than five years 29 —

Total operating lease commitments 292 391

Shareholders were advised in the 2001 annual report that the South African Revenue Services (“SARS”) had issued revisedassessments in respect of the 1997, 1998 and 1999 tax years of a subsidiary of Genbel Securities Limited (“the company”). In terms of the revised assessments certain significant surpluses arising from the disposal of the assets of the company aresubjected to full tax as SARS contends that such surpluses are not of a capital nature. The company lodged objections inrespect of all three revised assessments. SARS also imposed penalties in respect of the aforementioned taxes due for these years.The company lodged objections in respect of the additional taxes levied. SARS has requested additional information in respectof certain transactions, which has been furnished to them. In the event that the objections are disallowed the companyproposes to appeal against it.

Sanlam embarked on a restructuring of the group of companies during 2002, the result of which being that the capital andreserve funds of Genbel Securities Limited (Gensec) was reduced. Gensec is registered as the Controlling Company of GensecBank in terms of the Banks Act and required a guarantee to maintain its allocated capital and reserve funds in order to conductand grow the business of Gensec and the bank in a competitive manner.An agreement was entered into, in terms of which the Boards of the companies approved that an amount of R2 billion beassigned as capital to Gensec and that Sanlam Limited will provide a capital maintenance guarantee of R5 billion.Gensec has in turn provided an unconditional guarantee in favour of the creditors of Gensec Bank Limited.

Future commitments attributable to Gensec’s 50% stake in the Safair Lease Finance aviation joint venture, amount to R370 million.Gensec has subordinated their investment in the joint venture to third parties’ liabilities.

There are no other material commitments or contingencies.

32. RELATED PARTY TRANSACTIONSDuring the year the company and its subsidiaries in the ordinary course of business entered into various transactions with othergroup companies, associated companies and other stakeholders. These transactions occurred under arm’s length terms.

Associated companiesDetails of investments in associated companies are disclosed in note 17.

SubsidiariesDetails of investments in subsidiaries are disclosed on page 130.

Other stakeholdersDetails of transactions between the policyholders of Sanlam Life Insurance Limited and the shareholders’ funds of the SanlamLimited group are disclosed in note 23.1.

DirectorsAll directors of Sanlam Limited have notified that they did not have a material interest in any contract of significance with thecompany 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 their shareholdings in the company are disclosed in thecorporate governance report on page 36.

Page 122



33. NOTES TO THE CASH FLOW STATEMENT33.1 Cash generated from operations

Operating profit before tax per income statement 2 149 2 092Non-cash items 96 107Items disclosed separately (849) (620)Net purchase of fixed assets (44) (144)

Cash generated from operations before working capital changes 1 352 1 435

33.2 Acquisition of subsidiariesDuring the year, various subsidiaries were acquired within the Group. The fair value of assets acquired were as follows:Fixed assets 17 2Investments 2 —Deferred tax 14 —Trade and other receivables 863 20General reinsurance provisions 315 —Cash, deposits and similar securities 228 20Current liabilities (1 026) (1)General insurance provisions (398) —Goodwill 416 344Minority shareholders’ interest (22) (7)

Total purchase price 409 378Less: Increase in long term liabilities (80) (333)

Cash, deposits and similar securities acquired (228) (20)

Cash component of acquisition of subsidiaries 101 25

33.3 Cash utilised in policyholder activitiesPremium income 23.1 22 990 22 915Policy benefits 23.1 (21 136) (20 630)Retirement fund terminations 23.1 (4 523) (6 385)Transfer to segregated assets 23.1 (109) (1 412)Payments to shareholders 23.1 (6 575) (6 233)

Cash utilised in policyholders’ activities (9 353) (11 745)

Page 123

Statement of Actuarial Values of Assets and Liabilities of Sanlam Life Insurance Limited Group

as at 31 December 2002


ASSETSFair value of the assets of Sanlam Life Insurance Limited group 155 998 174 376

LESS: LIABILITIES 138 997 154 467

Actuarial value of policy liabilities (per note 23.1) 129 329 145 248

Long term and current liabilities of Sanlam Life Insurance Limited group 9 668 9 219

Excess of assets over liabilities 2 17 001 19 909

ANALYSIS OF MOVEMENT IN EXCESS OF ASSETS OVER LIABILITIESOperating profit 3 1 476 1 294

Investment return on excess of assets over liabilities (3 175) 2 344

Investment income 474 450

Capital (depreciation)/appreciation 4 (3 496) 1 894

Financial assistance provided to policyholders 5 (153) —

Taxation (309) (369)

Income tax (496) (139)Capital gains tax 187 (230)

Normal dividends paid (900) (660)

Movement in excess assets 6 (2 908) 2 609

CAPITAL ADEQUACY AND RATIOSCapital adequacy requirements (CAR) before management actions 22 425 17 697

Management actions assumed 7 (12 525) (10 595)

CAR after management actions assumed 9 900 7 102

Times CAR covered by excess of assets over liabilities 1,7 2,8

Excess of assets over liabilities as percentage of:Policy liabilities 13% 14%

Non-market-related policy liabilities 20% 22%

Page 124

Notes to the Statement of Actuarial Values of Assets andLiabilities of Sanlam Life Insurance Limited Groupas at 31 December 2002

1. SANLAM LIFE INSURANCE LIMITED GROUP All information presented is in respect of the Sanlam Life Insurance Limited group. As such the actuarial values of assets andliabilities relating to Sanlam Namibia Limited are included in the Statement on Actuarial Values of Assets and Liabilities.

2. EXCESS OF ASSETS OVER LIABILITIESRefer to page 137 for an analysis of the Sanlam Life Insurance Limited group shareholders’ funds at fair value (SanlamInvestment Management and Sanlam Unit Trusts not consolidated, but reflected at fair value).

3. OPERATING PROFITChanges in the valuation bases and assumptions did not have a material effect on the operating profit for 2002 and 2001.

4. CAPITAL DEPRECIATION/APPRECIATIONA special dividend, relating to extraordinary investment surpluses realised during the rationalisation of group companies, was paid to Sanlam Limited and is included in capital depreciation/appreciation above.

5. FINANCIAL ASSISTANCE PROVIDED TO POLICYHOLDERSA prudent valuation of the financial position of the Participating Annuity Portfolio in terms of prevailing actuarial guidelines,indicated the need to bolster the funding level of the portfolio by R153 million. The permanent nature of this support will bedetermined by the future performance of its underlying assets and will be reviewed on a regular basis.


6. MOVEMENT IN EXCESS ASSETSThe movement in the excess assets can be reconciled to the attributable earnings per the segmental income statement on page 132, as follows:

Attributable earnings of Sanlam Life business (2 836) 2 714

Net corporate income after tax (72) (105)

Movement in excess assets (2 908) 2 609

7. MANAGEMENT ACTIONSThe management actions assumed to offset the negative impact on the capital adequacyrequirements should the resilience scenario occur, are set out below. The resilience scenarioassumes that equity values decline by 30%, property values by 15% and that fixed interest yieldsincrease or decrease by 3% (whatever gives the worst result) on the valuation date and do notsubsequently recover within the short term.

Reduction in non-vested bonuses

Reversionary Bonus business 678 571Reduction in future bonus rates

Individual Stable Bonus business 2 999 2 343

Group Stable Bonus and Alpha Bonus business 1 153 975Monthly Bonus Fund 883 552

Participating annuities 880 1 027Capitalisation of future profits 2 611 2 298

Reduction in grossing up to allow for the composition of the assets covering CAR 3 497 3 231

Independence credits (176) (402)

Total management actions 12 525 10 595

Page 125

2002 2001% %

8. ASSET COMPOSITIONThe assets backing the capital adequacy requirements, used for the purpose of grossing up the intermediate ordinary capital adequacy requirements (as defined in PGN 104) to determine the ordinary capital adequacy requirements, were invested as follows:

Cash 5 3

Fixed-interest securities 8 10

Hedged equities 19 24Property 7 17

Equities 61 46

100 100

9. INVESTMENT RETURN AND INFLATION ASSUMPTIONSPre-tax investment returns by major asset category and inflation assumptions were as follows:

Fixed-interest securities 10,8 11,8

Equities and offshore investments 12,8 13,8

Property 11,8 12,8Cash 8,8 9,8

Future expense inflation (including margin) 7,0 8,0

Consumer Price Index inflation for premium indexation 4,8 5,8

10. DISCOUNT RATES USED IN CALCULATING PROSPECTIVE POLICY LIABILITIESReversionary bonus business

Retirement annuity business 10,8 11,7

Individual policyholder business 10,2 11,1Individual stable bonus business

Retirement annuity business 10,7 11,6

Individual policyholder business 10,1 11,0Non-taxable business 11,6 12,5

Corporate policyholder business 9,7 10,5

Individual market-related businessRetirement annuity business 11,1 12,0

Individual policyholder business 10,4 11,3

Non-taxable business 12,0 13,0Corporate policyholder business 10,0 10,8

Participating annuity business 10,3 11,6

Non-participating annuity business* 10,0 11,5

Guaranteed plans 11,0 10,4

*The calculation of policy liabilities is based on discount rates derived from the zero-coupon yield curve. This is the average rate producing the same result.

Page 126

Notes to the Statement of Actuarial Values of Assets andLiabilities of Sanlam Life Insurance Limited Group (continued)as at 31 December 2002

11. BONUS STABILISATION RESERVES The following portfolios had negative bonus stabilisation reserves which exceeded 7,5% of the relevant investment accounts at31 December 2002:

Investment accounts Deficit

R million R million %

Monthly Bonus Fund 5 118 568 (11,1)Participating Annuity Portfolio 8 732 873 (10,0)

The deficits are the result of weak investment performance, mainly due to poor market conditions.

The bonuses for the Monthly Bonus Fund are determined on a monthly basis according to a formula which will ensure thatthe negative bonus stabilisation reserve will be eliminated within three years, provided that investment returns are in line withour long term assumptions.

Bonuses for the Participating Annuity Portfolio are determined according to a bonus philosophy that has been approved by theBoard of Sanlam Life Insurance Limited. The negative bonus stabilisation reserve will be eliminated during the next threebonus declarations if investment returns are in line with our long term assumptions and bonuses are determined according tothe bonus philosophy.

Page 127

Sanlam Limited Financial Statements


BALANCE SHEET AT 31 DECEMBER 2002


Investment in group companies 2 14 687 13 771Investment in joint venture — 30

Current assets 1 451 511

Loans to subsidiaries 2 1 397 502Accounts receivable 54 9

Total assets 16 138 14 312

EQUITY AND LIABILITIESShare capital and premium 3 3 514 3 514Non-distributable reserves 4 9 342 9 342Retained income 1 340 980

Shareholders’ funds 14 196 13 836Current liabilities 1 942 476

Loans from subsidiaries 2 1 885 442Accounts payable 57 34


INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002

Dividends received 5 1 348 812Dividends paid (929) (797)Investment surpluses (54) —Expenditure (5) (2)

Retained income for the year 360 13Retained income at beginning of the year 980 967

Retained income at end of the year 1 340 980

Page 128

Sanlam Limited Financial Statements (continued)for the year ended 31 December 2002


CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002

Cash flow from operating activitiesCash utilised in operations 9 (81) (9)Dividends received 1 348 812Dividends paid (929) (797)Cash flow from investing activitiesInvestment in subsidiary companies (916) (21)Investment in joint venture 30 (10)

Decrease in cash and cash equivalents (548) (25)Net loans to subsidiaries – beginning of the year 60 85

Net loans to subsidiaries – end of the year (488) 60

1. ACCOUNTING POLICIESThe accounting policies of the Sanlam Limited group as set out on pages 89 to 94 are also applicable to Sanlam Limited except for investments in subsidiary companies which are reflected at cost price or at a lower value if there is an impairment in value.


2. SUBSIDIARY COMPANIESInvestment in group companies 14 687 13 771

Shares at cost 14 687 10 373Amounts owing by subsidiaries — 3 398

Current loans with group companies (488) 60

Loans to subsidiaries 1 397 502

Loans from subsidiaries (1 885) (442)

Book value of interest in subsidiaries 14 199 13 831

Fair value of net investment in subsidiaries 21 175 24 610

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 130.

Fair value of subsidiaries are determined on the following bases:

• Listed subsidiaries at stock exchange prices;

• Sanlam Life Insurance Limited at net asset value; and

• Other unlisted subsidiaries at the directors’ valuation.

Notes to the Sanlam Limited Financial Statementsfor the year ended 31 December 2002

Page 129


3. SHARE CAPITAL AND PREMIUMDetails of share capital and premium are reflected in note 21 on page 112 of the Sanlam Limited group financial statements.

4. NON-DISTRIBUTABLE RESERVESPre-acquisition reserves arising on acquisition of subsidiaries 9 342 9 342

5. DIVIDENDS RECEIVEDThe rationalisation of group companies in 2002 resulted in extraordinary investment surpluses being realised by certain subsidiaries, which were subsequently distributed as special dividends.

Normal dividends Sanlam Life Insurance Limited 900 660

Sanlam Trust Managers Limited 350 —

Other 98 152Special dividends

Sanlam Life Insurance Limited 3 596 —

Genbel Securities Limited 1 799 —Reversal of extraordinary investment surpluses in excess of book values

Sanlam Life Insurance Limited (3 596) —

Genbel Securities Limited (1 799) —

Total dividends received 1 348 812

6. DIVIDENDS PAIDDetails of dividends paid are reflected in the directors’ report on page 88 and in note 13 of the Sanlam Limited group financial statements.

7. REPORT OF THE DIRECTORSThe directors’ report is included on page 88 of the Sanlam Limited group financial statements.

8. COMMITMENTS AND CONTINGENCIESAs detailed in note 31 of the Sanlam Limited group financial statements, the company provided a capital maintenance guarantee of R5 billion to Genbel Securities Limited.

9. CASH UTILISED IN OPERATIONSRetained income for the year 360 13

Items separately disclosed – dividends received (1 348) (812)– dividends paid 929 797

Increase in accounts receivable (45) (9)

Increase in accounts payable 23 2

Cash utilised in operations (81) (9)

Page 130

Principal Subsidiariesas at 31 December 2002

Issued Fair value of interest in subsidiariesordinary

capital Shares Loans% 2002 2002 2001 2002 2001

interest R million R million R million R million R million

Long term insuranceSanlam Life Insurance Ltd 100 5 000 17 001 19 909 (182) (147)Investment bankingGenbel Securities Ltd 100 253 2 327 (1) (511) (1)

Investment management and consultingSanlam Investment Management (Pty) Ltd 100 (2) (2) (1) (2) (1)

Sanlam Netherlands Holdings BV(5) 100 1 093 2 042 — — —Property managementGensec Property Services (Pty) Ltd 100 (4) 60 (1) — (1)

Investment administrationTasc Administration (Pty) Ltd 100 (4) 12 (1) — (1)

General insuranceSantam Ltd (Listed) 5 3 607 189 (1) — (1)

Investment companiesBeldiv Investments (Pty) Ltd 100 (3) 65 404 (57) 3 331Sanlam Health (Pty) Ltd 100 (3) (29) 396 258 1Money transfer businessMulti-Data (Pty) Ltd 100 (2) (2) — (2) 68Management of unit trust schemesSanlam Trust Managers Ltd 100 (2) (2) 874 (2) (228)Trust servicesSanlam Trust Ltd 100 (2) (2) — (2) 2Other (4) — 4 —

Total 21 663 21 583 (488) 3 027

(1)In 2001 the interest in Santam and Gensec was held indirectly by Sanlam Life Insurance Limited and Beldiv Investments (Pty) Limited. In 2002 a portion ofthe interest in Santam was held indirectly by Sanlam Life Insurance Limited (see below).

(2)The interest is held indirectly by Sanlam Life Insurance Limited.(3)Issued share capital is R100.(4)Issued share capital is R1 000.(5)Incorporated in The Netherlands.

A register of all subsidiary companies is available for inspection at the registered office of Sanlam Limited. All investments above areunlisted and incorporated in South Africa, unless otherwise indicated.

Analysis of the Group’s holding in Santam: 2002 2001% %

Shareholders• Sanlam Life Insurance Limited 39 21• Sanlam Limited 5 21

Policyholders• Sanlam Life Insurance Limited 10 17

54 59

Page 131

Sanlam Limited GroupFinancial Information for the Shareholders’ Funds

CONTENTS

132 Segmental Income Statement

134 Segmental Balance Sheet

136 Balance Sheet with all businesses consolidated at

Net Asset Value

137 Balance Sheets with businesses not consolidated,

but reflected at Fair Value

138 Notes to the Financial Statements

144 Eight-Year Review

145 Stock Exchange Performance

146 Auditors’ Report on the Group Embedded Value

Report

147 Report on the Sanlam Group Embedded Value

Page 132

Sanlam Limited Segmental Income Statementfor the year ended 31 December 2002

Sanlam Life Sanlam InternationalR million 2002 2001 2002 2001

Financial services income 6 961 6 515 627 385Sales remuneration (1 158) (1 098) — —

Income after sales remuneration 5 803 5 417 627 385Underwriting policy benefits (2 237) (1 918) — —Administration costs (2 033) (2 124) (552) (282)

Operating profit before tax 1 533 1 375 75 103Tax on operating profit (428) (183) (13) (19)

Operating profit after tax 1 105 1 192 62 84Minority shareholders’ interest — 10 (10) (13)

NET OPERATING PROFIT 1 105 1 202 52 71

Net investment income 421 501 — —

Investment income 474 452 — —Tax on investment income (53) 49 — —Minority shareholders’ interest — — — —

Net equity accounted earnings — — — —

HEADLINE EARNINGS 1 526 1 703 52 71Net investment surpluses (3 462) 1 671 268 —

Investment surpluses (3 649) 1 901 268 —Tax on investment surpluses 187 (230) — —Minority shareholders’ interest — — — —

Long term rate of return adjustment 3 818 (672) (268) —

LTRR HEADLINE EARNINGS 1 882 2 702 52 71Short term investment fluctuations after tax and minorities (3 818) 672 268 —Goodwill written off — — (69) —

ATTRIBUTABLE EARNINGS (1 936) 3 374 251 71Dividends (net of rationalisation adjustment) (900) (660) — —

NET EARNINGS (2 836) 2 714 251 71

RatiosAdmin ratio(1) 35,0% 39,2% 88,0% 73,2%Net operating margin(1) 26,4% 25,4% 12,0% 26,8%

Net operating profit epsAdjusted weighted average number of shares (million)Net operating profit 42,0 45,3 2,0 2,7

Return on equityMonthly average capitalOperating profit before taxOperating profit after tax

(1)Calculated as a percentage of income earned by the shareholders’ funds less sales remuneration.

Page 133

Sanlam InvestmentManagement Gensec Bank Gensec Properties Santam Corporate and other Total

2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001

486 434 553 508 128 171 5 663 4 851 106 250 14 524 13 114— — — — — — (698) (636) — — (1 856) (1 734)

486 434 553 508 128 171 4 965 4 215 106 250 12 668 11 380— — — — — — (3 925) (3 367) — — (6 162) (5 285)

(301) (250) (441) (317) (104) (123) (783) (660) (143) (247) (4 357) (4 003)

185 184 112 191 24 48 257 188 (37) 3 2 149 2 092(60) (53) 53 18 (4) (14) (85) (57) (12) (22) (549) (330)

125 131 165 209 20 34 172 131 (49) (19) 1 600 1 762— — — — — — (108) (89) — — (118) (92)

125 131 165 209 20 34 64 42 (49) (19) 1 482 1 670

— — — — — — 81 77 (100) (63) 402 515

— — — — — — 218 230 (72) (38) 620 644— — — — — — (29) (34) (28) (25) (110) (10)— — — — — — (108) (119) — — (108) (119)

— — — — — — (1) 2 397 441 396 443

125 131 165 209 20 34 144 121 248 359 2 280 2 628(12) (83) (230) — — — (18) 41 833 (33) (2 621) 1 596

(16) (83) (230) — — — (39) 245 844 (64) (2 822) 1 9994 — — — — — (2) (50) (12) 31 177 (249)

— — — — — — 23 (154) 1 — 24 (154)

12 83 230 — — — 92 12 (316) (113) 3 568 (690)

125 131 165 209 20 34 218 174 765 213 3 227 3 534(12) (83) (230) — — — (92) (12) 316 113 (3 568) 690(10) (44) (6) — — — (3) — (171) (171) (259) (215)

103 4 (71) 209 20 34 123 162 910 155 (600) 4 009(62) — — — — — — — 41 (130) (921) (790)

41 4 (71) 209 20 34 123 162 951 25 (1 521) 3 219

61,9% 57,6% 79,7% 62,4% 81,3% 71,9% 15,8% 15,7% 134,9% 98,8% 34,4% 35,2%38,1% 42,4% 20,3% 37,6% 18,8% 28,1% 5,2% 4,5% (34,9%) 1,2% 17,0% 18,4%

2 631 2 6534,8 4,9 6,3 7,9 0,8 1,3 2,4 1,6 (1,9) (0,7) 56,3 62,9

20 701 20 35110,4% 10,3%7,2% 8,2%

Page 134

Sanlam Limited Shareholders’ Funds – Segmental Balance Sheet(All businesses consolidated at Net Asset Value)

at 31 December 2002

Sanlam Investment SanlamSanlam Life Management International

R million 2002 2001 2002 2001 2002 2001

ASSETS

Non-current assetsFixed assets 120 106 34 20 30 28Owner-occupied properties 333 — — — — —Goodwill — — 40 16 438 277Investments 20 315 23 455 — — 413 —

Investment properties 659 1 241 — — — —Equities 12 778 15 759 — — — —Public sector stocks and loans 1 473 1 781 — — — —Mortgages, debentures and other loans 1 993 1 385 — — 386 —Cash, deposits and similar securities 3 412 3 289 — — 27 —

Net deferred tax (1) (230) 16 13 3 —Net current assets 925 908 150 197 64 542

Total assets 21 692 24 239 240 246 948 847

EQUITY AND LIABILITIES

Capital and reservesShareholders’ funds 17 001 19 909 223 245 439 291Minority interest — — — — 34 157Term finance 4 691 4 330 17 1 475 399

Total equity and liabilities 21 692 24 239 240 246 948 847

Page 135

Gensec Corporate ConsolidationGensec Bank Santam Properties and other entries Total

2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001

19 33 41 36 5 25 11 47 — — 260 29526 — — — — — 22 — — — 381 —

112 7 33 — — — 1 369 1 540 — — 1 992 1 8401 544 915 3 424 3 600 — — 1 750 3 376 (3 420) (6 251) 24 026 25 095

— — — 3 — — — — — — 659 1 244408 87 2 654 2 280 — — 137 1 374 (3 420) (6 251) 12 557 13 249

— — 133 612 — — 147 86 — — 1 753 2 4791 136 828 421 705 — — — 274 — — 3 936 3 192

— — 216 — — — 1 466 1 642 — — 5 121 4 931

149 62 (20) (116) 4 6 50 65 — — 201 (200)198 972 (64) (258) 40 44 (171) (230) — 11 1 142 2 186

2 048 1 989 3 414 3 262 49 75 3 031 4 798 (3 420) (6 240) 28 002 29 216

1 459 1 444 1 479 1 370 49 75 3 031 4 797 (3 030) (5 900) 20 651 22 231— — 1 935 1 892 — — — — — — 1 969 2 049

589 545 — — — — — 1 (390) (340) 5 382 4 936

2 048 1 989 3 414 3 262 49 75 3 031 4 798 (3 420) (6 240) 28 002 29 216

Page 136

Shareholders’ Funds Balance Sheet(All businesses consolidated at Net Asset Value)

at 31 December 2002



Fixed assets 260 295Owner-occupied properties 381 —

Goodwill 1 992 1 840Investments 7 24 026 25 095

Investment properties 659 1 244

Equities 12 557 13 249Public sector stocks and loans 1 753 2 479

Mortgages, debentures and other loans 3 936 3 192


Deferred tax 236 146

General reinsurance provisions 8 2 072 1 647Current assets 24 839 25 394

Trade and other receivables 9 12 114 15 085


Total assets 53 806 54 417

EQUITY AND LIABILITIESCapital and reserves

Share capital and premium 10 3 455 3 514Non-distributable reserves 9 415 9 415

Investment reserve — 2 145

Retained income 7 781 7 157

Shareholders’ funds 20 651 22 231

Minority interest 1 969 2 049

Outside shareholders 1 623 1 503

Sanlam policyholders 346 546

Non-current liabilities

Term finance 5 382 4 936

Deferred tax 35 346Gross general insurance provisions 8 4 226 3 296

Current liabilities 11 21 543 21 559


Page 137

Shareholders’ Funds Balance Sheets at Fair Valueat 31 December 2002

(Santam, Sanlam Unit Trusts, Sanlam Investment Management, Sanlam International, Gensec Bank and Gensec Properties notconsolidated, but reflected as investments at fair value)

Sanlam LifeSanlam Limited Insurance Limited

2002 2001 2002 2001Note R million R million R million R million

ASSETSFixed assets 153 158 120 107

Owner-occupied properties 333 — 333 —

Investments Sanlam businesses 6 5 447 7 262 2 941 5 691

• Sanlam Investment Management 1 289 2 166 1 289 —

• Sanlam International 1 071 1 539 — —• Gensec Bank 1 186 1 442 — —

• Gensec Properties 60 65 — —

• Sanlam Unit Trusts 260 341 260 —• Gensec group (58%) — — — 4 833

Strategic investment – Santam 1 581 1 709 1 392 858

Associated company – Absa 3 957 4 036 3 957 4 033Other investments

• Other equities 5 772 6 990 5 967 6 028

• Public sector stocks and loans 1 611 1 859 1 464 1 781• Investment properties 659 1 241 659 1 241

• Other interest-bearing investments 6 859 7 035 5 393 4 674

Deferred tax 50 88 — —

Current assets 5 028 4 531 5 033 4 557

Total assets 29 869 33 200 25 867 28 112

EQUITY AND LIABILITIESShareholders’ funds 20 947 24 399 17 001 19 909Term finance 4 581 4 331 4 691 4 330Deferred tax 1 244 1 230

Current liabilities 4 340 4 226 4 174 3 643

Total equity and liabilities 29 869 33 200 25 867 28 112

Page 138

Notes to the Shareholders’ Funds Financial Statements for the year ended 31 December 2002

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 SanlamLimited group are the same as set out on pages 89 to 94.

Basis of consolidationSantam, Sanlam Unit Trusts (SUT), Sanlam Investment Management, Sanlam International, Gensec Bank and Gensec PropertyServices are consolidated in the Sanlam Limited group shareholders’ financial statements at net asset value. The policyholders’and outside shareholders’ interests in these companies are treated as minority shareholders’ interest on consolidation. A separatebalance sheet reflecting the investment in these companies at fair value is presented for information purposes.

Total Life Insurance* Life Licence* OtherR million 2002 2001 2002 2001 2002 2001 2002 2001

2. ANALYSIS OF NEW BUSINESS

Sanlam Life 21 604 21 271 11 823 11 948 1 194 965 8 587 8 358

Individual Life 9 181 8 770 9 181 8 770 — — — —

Recurring 1 540 1 532 1 540 1 532 — — — —

Single 5 839 5 044 5 839 5 044 — — — —Continuations 1 802 2 194 1 802 2 194 — — — —

Unit Trust 4 388 4 908 — — — — 4 388 4 908

Group Life 2 642 3 178 2 642 3 178 — — — —

Recurring 156 171 156 171 — — — —

Single 2 486 3 007 2 486 3 007 — — — —

Innofin 5 393 4 415 — — 1 194 965 4 199 3 450

Sanlam Investment Management 2 300 6 245 — — 106 384 2 194 5 861

Life 106 384 — — 106 384 — —

Recurring — — — — — — — —

Single 132 459 — — 132 459 — —Less: Intergroup switches (26) (75) — — (26) (75) — —

Unit Trust wholesale business 1 521 2 382 — — — — 1 521 2 382

Segregated funds 673 3 479 — — — — 673 3 479

Total inflow 756 4 818 — — — — 756 4 818

Less: Intergroup switches (83) (1 339) — — — — (83) (1 339)

Sanlam International 830 276 — — — — 830 276

Sanlam Health — 547 — — — — — 547

Santam 5 548 4 760 — — — — 5 548 4 760

Unit Trust White Label 1 975 3 482 — — — — 1 975 3 482

Total new business 32 257 36 581 11 823 11 948 1 300 1 349 19 134 23 284

*Life licence business relates to investment products provided by Sanlam Investment Management and Innofin by means of a life insurance policy where there is very little or no insurance risk.

Page 139


3. ANALYSIS OF GROSS FUNDS RECEIVED FROM CLIENTSSanlam Life 31 107 30 209 21 326 20 886 1 194 965 8 587 8 358Individual Life 16 275 15 574 16 275 15 574 — — — —

Recurring 8 634 8 336 8 634 8 336 — — — —Single 7 641 7 238 7 641 7 238 — — — —

Unit Trust 4 388 4 908 — — — — 4 388 4 908

Group Life 5 051 5 312 5 051 5 312 — — — —

Recurring 2 565 2 305 2 565 2 305 — — — —

Single 2 486 3 007 2 486 3 007 — — — —

Innofin 5 393 4 415 — — 1 194 965 4 199 3 450

Sanlam Investment Management 2 638 6 850 — — 444 989 2 194 5 861Life 444 989 — — 444 989 — —

Recurring 338 605 — — 338 605 — —Single 132 459 — — 132 459 — —

Less: Intergroup switches (26) (75) — — (26) (75) — —

Unit Trust wholesale business 1 521 2 382 — — — — 1 521 2 382Segregated funds 673 3 479 — — — — 673 3 479

Total inflow 756 4 818 — — — — 756 4 818Less: Intergroup switches (83) (1 339) — — — — (83) (1 339)


Sanlam Health — 547 — — — — — 547Santam 5 548 4 760 — — — — 5 548 4 760

Unit Trust White Label 1 975 3 482 — — — — 1 975 3 482

Gross funds received 42 098 46 124 21 326 20 886 1 638 1 954 19 134 23 284


Page 140

Notes to the Shareholders’ Funds Financial Statements (continued)for the year ended 31 December 2002

Total Life Insurance(1) Life Licence(1) OtherR million 2002 2001 2002 2001 2002 2001 2002 2001

4. ANALYSIS OF PAYMENTS TO CLIENTS

Sanlam Life 30 036 28 768 23 730 22 701 314 226 5 992 5 841

Individual Life 17 291 16 593 17 291 16 593 — — — —

Surrenders 4 867 4 186 4 867 4 186 — — — —

Other 12 424 12 407 12 424 12 407 — — — —

Unit Trust 3 712 4 064 — — — — 3 712 4 064

Group Life 6 439 6 108 6 439 6 108 — — — —

Terminations(2) 2 033 2 240 2 033 2 240 — — — —

Other benefits 4 406 3 868 4 406 3 868 — — — —

Innofin 2 594 2 003 — — 314 226 2 280 1 777

Sanlam Investment Management 10 717 14 071 — — 3 852 6 007 6 865 8 064Life 3 852 6 007 — — 3 852 6 007 — —

Terminations(2) 2 760 5 723 — — 2 760 5 723 — —

Other benefits 1 201 1 696 — — 1 201 1 696 — —Less: Intergroup switches(3) (109) (1 412) — — (109) (1 412) — —

Unit Trust wholesale business 1 841 3 648 — — — — 1 841 3 648Segregated funds 5 024 4 416 — — — — 5 024 4 416

Total outflow 5 045 4 416 — — — — 5 045 4 416

Less: Intergroup switches (21) — — — — — (21) —

Sanlam International — — — — — — — —

Sanlam Health — 487 — — — — — 487

Santam 3 925 3 367 — — — — 3 925 3 367

Unit Trust White Label 1 354 381 — — — — 1 354 381

Total payments to clients 46 032 47 074 23 730 22 701 4 166 6 233 18 136 18 140

(1)Life licence business relates to investment products provided by Sanlam Investment Management and Innofin by means of a life insurance policy where there is very little or no insurance risk.

(2)Includes taxation paid on behalf of certain retirement funds.(3)Included in terminations.

Page 141


5. ANALYSIS OF NET (OUTFLOW)/INFLOW OF FUNDS

Sanlam Life 1 071 1 441 (2 404) (1 815) 880 739 2 595 2 517Individual Life (1 016) (1 019) (1 016) (1 019) — — — —

Unit Trust 676 844 — — — — 676 844

Group Life (1 388) (796) (1 388) (796) — — — —Innofin 2 799 2 412 — — 880 739 1 919 1 673

Sanlam Investment Management (8 079) (7 221) — — (3 408) (5 018) (4 671) (2 203)Life (3 408) (5 018) — — (3 408) (5 018) — —

Total (3 491) (6 355) — — (3 491) (6 355) — —Less: Intergroup switches 83 1 337 — — 83 1 337 — —

Unit Trust wholesale business (320) (1 266) — — — — (320) (1 266)

Segregated funds (4 351) (937) — — — — (4 351) (937)

Total (4 289) 402 — — — — (4 289) 402Less: Intergroup switches (62) (1 339) — — — — (62) (1 339)


Sanlam Health — 60 — — — — — 60

Santam 1 623 1 393 — — — — 1 623 1 393

Unit Trust White Label 621 3 101 — — — — 621 3 101

Total net outflow (3 934) (950) (2 404) (1 815) (2 528) (4 279) 998 5 144


Page 142

Notes to the Shareholders’ Funds Financial Statements (continued)for the year ended 31 December 2002

6. EXCESS OF FAIR VALUE OVER NET ASSET VALUE OF SUBSIDIARIES

The shareholders’ funds balance sheets at fair value include the value of the companies below based on directors’ valuation, apart from Santam which is valued according to ruling share prices.

2002 2001

R million R million

Fair value of businesses per the fair value balance sheet 5 447 7 262Less: Tangible Net Asset Value 3 782 3 537

Sanlam Investment Management 223 245

Sanlam International 439 291

Gensec Bank 1 459 1 444Gensec Properties 49 75

Sanlam Unit Trusts 133 112

Santam 1 479 1 370

Less: Goodwill in respect of above businesses 1 369 1 540

Deferred capital gains tax on investments at fair value — 17

Revaluation adjustment of interest in businesses to fair value 296 2 168

2002 2001

% %

7. INVESTMENTS

Spread of investments in equities by sector(1)

Industrial 25 19

Financial 52 59

Resources 23 22

100 100

(1)Excludes offshore equities, derivatives, unit trusts and unlisted investments and includes the appropriate underlying investments of Santam.

R million R million

Offshore investmentsEquities 1 457 2 696

Interest-bearing investments 1 901 2 372

Total offshore investments 3 358 5 068

Unlisted equity investmentsAs a percentage of total investment in equities 8,6% 8,5%

Page 143

R million R million

8. GENERAL INSURANCE PROVISIONS

Details of general insurance provisions are reflected in note 19 on page 111 of the Sanlam Limited group financial statements.

9. TRADE AND OTHER RECEIVABLESPremiums receivable 930 615

Accrued investment income 217 339Trading account and money market investments 6 459 10 335

Accounts receivable 4 508 3 796

Total trade and other receivables 12 114 15 085

10. SHARE CAPITAL AND PREMIUMDetails of share capital and premium are reflected in note 21 on page 112 of the Sanlam Limited group financial statements.

11. CURRENT LIABILITIESTrading account and money market liabilities 14 284 12 793Accounts payable 4 902 6 715

Policy benefits payable 1 631 1 509

Taxation 726 542

Total current liabilities 21 543 21 559

Page 144

Eight-year Review

Averageannual

2002 2001 2000 1999 1998 1997(1) 1996(1) 1995(1) growthR million R million R million R million R million R million R million R million rate %

EXTRACTS FROM FINANCIAL STATEMENTSOperating profit 2 149 2 092 1 656 1 722 1 237 1 026 1 070 1 079 10Headline earnings 2 280 2 628 2 406 1 955 — — — — —Headline earnings basedon the LTRR 3 227 3 534 3 495 2 721 — — — — 6Shareholders’ funds 20 651 22 231 19 012 18 075 14 904 10 172 9 005 7 182 16Policy liabilities 129 329 145 248 133 952 134 319 114 176 119 506 114 647 107 839 3Total assets under management 245 953 256 396 224 911 215 924 176 792 166 382 147 969 135 984 9Tangible net asset value per share (cents)(2) 798 927 831 810 630 528 466 376 11Group administration cost ratio (%) 34,4 35,2 32,3 29,8 27,8 — — — —Group operating margin (%) 17,0 18,4 16,5 17,9 12,9 — — — —

NEW BUSINESSLong term insurance businessIndividual insurance 10 375 9 735 9 795 7 704 6 319 7 743 6 733 7 244 5

• Recurring premiums – indexed growth 564 558 525 527 500 500 425 385 6– other 976 974 1 149 749 830 1 039 1 301 1 366 (5)

• Single premiums 7 033 6 009 5 881 4 804 3 107 5 458 4 376 4 862 5• Continuations 1 802 2 194 2 240 1 624 1 882 746 631 631 16

Group Life 2 748 3 562 4 399 2 633 5 247 5 154 3 503 2 252 3

• Recurring premiums 156 171 219 139 137 — (3) — (3) — (3) —• Single premiums

– gross 2 618 3 466 4 180 2 494 5 110 5 154 3 503 2 252 2– intergroup switches (26) (75) — — — — — — —

Total long term insurance business 13 123 13 297 14 194 10 337 11 566 12 897 10 236 9 496 5Other business 19 134 23 284 23 506 15 473 18 280 12 214 8 757 5 978 18

• Unit trusts 4 388 4 908 9 342 8 154 8 266 2 957 1 164 890 26• Linked products 4 199 3 450 1 687 1 706 1 423 431 — — 58• Segregated funds –

Sanlam Investment Management 673 3 479 7 973 2 310 4 498 5 519 4 666 2 714 (18)

• Segregated funds – Sanlam International 830 276 — — — — — — —

• SIM – Unit Trust wholesale business 1 521 2 382 — — — — — — —

• General insurance 5 548 5 307 4 504 3 303 4 093 3 307 2 927 2 374 13• Unit Trust White Label 1 975 3 482 — — — — — — —

Total new business 32 257 36 581 37 700 25 810 29 846 25 111 18 993 15 474 11

RECURRING PREMIUMSLong term insurance business

Individual insurance 8 634 8 336 8 455 8 344 8 496 8 354 7 781 6 961 3Group Life 2 903 2 910 3 050 3 029 2 740 3 000 2 958 2 579 2

Total recurring premiums 11 537 11 246 11 505 11 373 11 236 11 354 10 739 9 540 3

STAFFOffice staff (excluding marketing staff) 9 716 10 024 9 709 10 159 11 669 12 756 12 635 12 406 (4)

(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.

Page 145

Stock Exchange Performance

2002 2001 2000 1999 1998(1)

Number of shares traded (million) 1 531 1 118 1 030 1 463 350Value of shares traded (R million) 12 807 10 780 8 578 9 451 2 035

Percentage of issued shares traded (%) 58 42 39 55 13Price/LTRR earnings ratio (times) 6,2 6,9 7,3 8,4 —

Return on Sanlam share price since listing(2) (%) 9 17 27 41 —

LTRR headline earnings return on equity (%) 15,6 17,4 18,7 16,3 —Market price per share (cents)• Year-end closing price 760 919 956 860 585

• Highest closing price 1 000 1 145 1 000 890 599• Lowest closing price 700 830 675 440 567

Net asset value per share (cents) 798 927 831 810 630

Embedded value per share (cents) 1 032 1 167 1 067 1 004 827Market capitalisation at year-end (R million) 20 175 24 192 25 381 22 833 15 531

Sanlam share price relative to

• Financial index 9,22 9,71 8,87 8,02 6,94

• Life insurance index 8,33 8,83 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.

Share price vs embedded value

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600

800

1 000

1 200

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Sanlam share price relative to FINDI30*

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Page 146

Report of the independent auditors on the Sanlam Group Embedded Value Report

TO THE DIRECTORS OF SANLAM LIMITED

We have audited the Report on the Sanlam Group Embedded

Value for the year ended 31 December 2002 on pages 147 to 151

which has been prepared in accordance with the applicable

guidelines of the Actuarial Society of South Africa (PGN107)

and the policies of the Group set out on pages 89 to 94. This

report should be read in conjunction with the audited annual

financial statements where the policy liabilities, calculated on

the financial soundness valuation basis, and the profit

entitlement rules are set out on pages 95 to 97.

Respective responsibilities of directors and auditors

The directors are responsible for the annual financial

statements, as described on page 85, as well as the Report on the

Sanlam Group Embedded Value. Our responsibilities in relation

to the annual financial statements are set out on page 87.

Our responsibilities, as independent auditors, in relation to

the Report on the Sanlam Group Embedded Value are to

report to the Board of Directors our opinion as to whether the

embedded value and the value of new life insurance business

were calculated in accordance with the applicable guidelines of

the Actuarial Society of South Africa and the policies of the

Group as set out in the Report on the Sanlam Group

Embedded Value.

Scope of audit

We conducted our audit in accordance with Statements of

South African Auditing Standards. Those standards require

that we plan and perform the audit to obtain reasonable

assurance that the Report on the Sanlam Group Embedded

Value is free of material misstatement.

Our audit included:

• an examination, on a test basis, of evidence supporting the

amounts and disclosures in the Report on the Sanlam Group

Embedded Value;

• an assessment of the significant assumptions, estimates and

judgements made by management in the preparation of the

Report on the Sanlam Group Embedded Value, and of

whether the guidelines of the Actuarial Society of South

Africa, the methodologies and the policies of the Group,

were consistently applied and adequately disclosed; and

• an evaluation of the overall adequacy of the presentation of

information in the Report on the Sanlam Group Embedded

Value in accordance with the guidelines of the Actuarial

Society of South Africa.

We believe our audit provided a reasonable basis for our

opinion.

Opinion

In our opinion the Group embedded value and the value of the

new life insurance business at 31 December 2002 and the

embedded value earnings and analysis of earnings for the year

then ended fairly present, in all material respects, these values

in accordance with the guidelines of the Actuarial Society of

South Africa for the preparation and presentation of such a

report and the policies and assumptions of the Group as set out

on pages 147 to 149 of the Report on the Sanlam Group

Embedded Value.

Ernst & Young

Chartered Accountants (SA)

Registered Accountants and Auditors

Cape Town

5 March 2003

Page 147

INTRODUCTION

The life policy liabilities in the financial statements are based

on the financial soundness valuation. The financial soundness

valuation includes both prescribed and discretionary margins,

which can be expected to emerge as profits in the future. The

value placed on these future expected profits after taxation is

the value of the in-force life business.

The embedded value is defined as the net assets of the

shareholders, plus the value of the in-force business less the

cost of capital at risk.

The economic value of the company is then derived by

adding to the embedded value an estimate of the value of

the future sales of new life insurance business, often

calculated as a multiple of the value of new business

written over the past year.

PRESENTATION

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.

BASIS OF PREPARATION

The embedded value is determined in accordance with

generally accepted actuarial practice described by the

Actuarial Society of South Africa, as set out in its Professional

Guidance Note (PGN) 107.

The value of the in-force business, the cost of capital at risk

and the value of new business are based on the best estimate

assumptions used for determining the financial soundness

value of the policy liabilities in the financial statements. The

embedded value does not place a value on future new business.

The embedded values are net of company tax and do not

allow for the tax position of an investor in Sanlam Limited.

Value of in-force business

The value of in-force business is calculated as the discounted

value, using a risk-adjusted discount rate, of the projected

stream of future after-tax profits. The profits are determined

on the financial soundness valuation basis for life business in

force at the valuation date. This value excludes the discounted

value of the release of the risk capital over the life of the in-

force business.

Cost of capital at risk

The cost of capital at risk is calculated as the capital at risk at

year-end less the discounted value, using a risk-adjusted

discount rate, of the expected annual release of the capital

over the life of the in-force business, allowing for the after-tax

investment return on the expected level of capital held in

each year.

Net assets of shareholders

The net assets of the shareholders equal the excess of

the assets at fair value over liabilities on the financial

soundness valuation basis. The net assets are adjusted

for the following:

• Subsidiaries, other than life insurance subsidiaries, are

included at fair value (refer to shareholders’ funds balance

sheet on page 137).

• A delay before incurring the capital gains tax liability

included in the fair value.

• The present value of corporate expenses by multiplying the

cost after tax by the market price per share of Sanlam

Limited and dividing it by the headline earnings per share

based on the long term rate of return.

Value of new business

The value of new business is calculated as the discounted

value at point of sale, using a risk-adjusted discount rate,

of the projected stream of after-tax financial soundness

valuation profits for new business issued during the

financial year-end under review. The value of new

business is reduced by the cost of capital at risk over the

life of this business to obtain the net embedded value of

new business.

Report on the Sanlam Group Embedded Valuefor the year ended 31 December 2002

Page 148

Report on the Sanlam Group embedded value (continued)for the year ended 31 December 2002

In determining the value of new business:

• a policy is only taken into account if at least one premium

that was not subsequently refunded was recognised in the

financial statements;

• premium increases that are allowed for in the value of in-force

business are not counted again as new business at inception;

• premium increases in existing recurring premium contracts

associated with indexation arrangements are not included,

but instead are allowed for in the value of in-force business;

• the expected value of future premium increases resulting from

premium indexation on the new recurring premium business

written during the financial year under review is included;

• continuations of individual policies and deferrals of

retirement annuity policies after the maturity dates in the

contracts are treated as new business if they have been

included in the exits at their respective maturity dates;

• for group business, increases in business from new schemes

or new benefits on existing schemes are included and new

members or salary-related increases under existing schemes

are excluded and form part of the in-force value;

• the renewable recurring premiums under group insurance

contracts are treated as in-force business.

Profitability of new business is measured by the ratio of the

net value of new business to the annual premium equivalent

(APE). The APE is calculated as new recurring premiums

excluding indexed growth premiums plus 10% of single

premiums.

Embedded value earnings

The return on embedded value is the embedded value

earnings as a percentage of the embedded value at the

beginning of the year.

The growth from life business is expressed as a percentage

of the value of in-force business at the beginning of the year.

Sensitivity analysis

Sensitivities have been determined at the indicated risk

discount rate. The risk discount rate appropriate to an investor

will depend on the investor’s own requirements, tax position

and perception of the risk associated with the realisation of the

future profits of Sanlam Life Insurance Limited (Sanlam Life).

For each sensitivity, all other assumptions have been left

unchanged. The different sensitivities do not indicate that they

have a similar chance of occurring.

Share incentive scheme

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.

ASSUMPTIONS

Investment return and inflation

The investment return on assets supporting the capital at risk

is based on the long term asset mix for these funds.

Inflation indexation for individual life premiums is

assumed to be equal to consumer price index inflation, while

that for group business is assumed to equal expected salary

inflation. Unit cost inflation is assumed to be at the same level

as salary inflation.

Cost of capital at risk

The assumed composition of the assets backing the capital at

risk is consistent with Sanlam’s practice and with the asset

distribution assumed when calculating the capital

requirements.

Decrements, expenses and bonuses

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 that were supportable by the assets backing

the respective product asset funds at the respective valuation

Page 149

dates.

Sanlam Life’s current surrender and paid-up bases were

assumed to be maintained in the future.

HIV/Aids

Allowance was made, where appropriate, for the impact of

expected HIV/Aids-related claims, consistent with the

recommendations of the Actuarial Society of South Africa as

set out in its latest proposed Professional Guidance

Note (PGN) 105.

Premiums were assumed to be rerated, where applicable, in

line with deterioration in mortality, with a three-year delay

from the point where mortality losses would be experienced.

Recurring expenses and project costs

Future investment expenses were based on the current scale of

fees in place between Sanlam Investment Management

(Proprietary) Limited and Sanlam Life. To the extent that this

scale of fees includes profit margins for Sanlam Investment

Management, these margins have not been included in the

value of in-force and new business.

In determining the value of in-force business, the value of

expenses for certain planned projects focusing on both

administration and distribution aspects of the life insurance

business has been deducted. 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.

Taxation

Projected corporate tax was allowed for at a rate of 30%.

Allowance was made for capital gains tax. The assumed

rollover period for realisation of investments is five years for

property and equity assets supporting capital at risk and

policy reserves. For strategic equity assets the assumed

rollover period is ten years.

Allowance for secondary tax on companies was made by

placing a present value on the tax liability generated by the net

cash dividends paid that are attributable to the life company. It

was assumed that over the long term the proportion of cash

dividends paid would fall to a level of 50% from the current

100% level.

Sensitivity analysis

Risk premiums relating to mortality are assumed to be

increased consistent with mortality experience (where

appropriate).

Mortality of annuities is assumed unchanged because a

decrease, rather than an increase, in mortality increases the

mortality risk on annuities.

EMBEDDED VALUE METHODOLOGY

The embedded value methodology applied in preparing the

embedded value report is consistent with the methodology

used in the previous year.

SANLAM GROUP EMBEDDED VALUE

TABLE 1 2002 2001

Risk discount rate 13,3% 14,3%

Notes R million R million

Shareholders’ assets at fair value(refer to page 137 for the shareholders’ funds balance sheet at fair value) 20 947 24 399Adjustment for discounting capital gains tax — 61Present value of corporate expenses (1) (600) (664)

Adjusted shareholders’ net assets at fair value 20 347 23 796Value of in-force 8 251 8 756

Individual business 7 011 7 354Group business 1 240 1 453Corporate — (51)

Cost of capital at risk (1 511) (1 815)

Individual business (1 056) (1 210)Group business (455) (605)

Sanlam group embedded value 27 087 30 737Embedded value per share (cents) 1 032 1 167Number of shares (million) 2 625 2 632

Notes:(1) The value was calculated by multiplying the corporate costs after

tax of R97 million (2001: R96 million) by the market price pershare of 760 cents (2001: 919 cents) and dividing this by theheadline earnings per share based on the long term rate of returnof 122,7 cents (2001: 133,2 cents).

Page 150

Report on the Sanlam Group embedded value (continued)for the year ended 31 December 2002

EMBEDDED VALUE EARNINGS

TABLE 2 2002 2001Notes R million R million

Net value of new business 320 290Earnings from existing life insurance business 1 353 1 111

Expected return 1 208 1 204Operating experience variations (1) 96 32Operating assumption changes (2) 49 (125)

Embedded value earnings from operations 1 673 1 401Economic and other assumption changes 117 105Tax changes — (613)Investment variances (907) 200

Growth from life insurance business 883 1 093Adjusted investment return on net assets (3) (3 612) 2 356

Total embedded value earnings (2 729) 3 449Dividends paid (921) (790)

Increase in the Sanlam group embedded value (3 650) 2 659

Return on embedded value (8,9%) 12,3%Growth in life business 883 1 093

Value of in-force business at end of the year 6 740 6 941

Plus: Net operating profit for the year (4) 1 084 1 134

Less: Value of in-force business at beginning of the year (6 941) (6 982)

Percentage growth in life business 12,7% 15,7%

Notes:(1) The main contributor to the operating experience variation was

positive risk experience of R140 million.(2) The main contributor to operating assumption changes was

changes to assumed future mortality. (3) The investment return experience includes the effect of realised

and unrealised investment surpluses, which was negativelyinfluenced by stock market conditions and exchange ratemovements in 2002.

(4) Sanlam Life segmental net operating profit of R1105 million(2001: R1 202 million) less net operating profit from subsidiariesof R21 million (2001: R68 million).

VALUE OF NEW LIFE INSURANCE BUSINESS

NEW BUSINESS PREMIUMS

TABLE 4 2002 2001R million R million

Financial statementsNew business premiums (refer eight year review on page 144) 13 123 13 297Less: Premium increases (index growth) (564) (558)Plus: Optional reduction in premiums 34 39Less: Other life business (1) (1 300) (1 396)

Premiums used in the calculation of annual premium equivalent 11 293 11 382

New business embedded value premiumsRecurring premiums 1 166 1 184Single premiums 10 127 10 198

Premiums used in the calculation of annual premium equivalent 11 293 11 382

Notes:(1)The majority of profits in respect of these premiums accrue to Sanlam

Investment Management and Innofin (refer to page 138).

TABLE 3 2002 2001R million R million

Value of new business 365 359

Individual business 266 228Group business 99 131

Cost of capital at risk (45) (69)

Individual business (19) (20)Group business (26) (49)

Net value of new business 320 290

Net value of new business as a percentage of the annual premium equivalent:

Annual premium equivalent (APE) 2 179 2 204

Individual business 1 774 1 737Group business 405 467

Net value of new business 320 290

Individual business 247 208Group business 73 82

APE margin 14,7% 13,2%

Individual business 13,9% 12,0%Group business 18,0% 17,6%

Page 151

ASSUMPTIONS

TABLE 6 2002 2001% p.a. % p.a.

Fixed-interest securities 10,8 11,8Equities and offshore investments 12,8 13,8Hedged equities(1) 9,8 10,8Property 11,8 12,8Cash 8,8 9,8Risk discount rate 13,3 14,3Return on capital at risk(2) 11,9 12,7Unit cost and salary inflation 6,3 7,3Consumer price index inflation 4,8 5,8

Notes:(1)The assumed future return for these assets is lower than that of

equities, which are not hedged, reflecting the cost of derivativeinstruments.

(2)The investment return on assets supporting the capital at risk is basedon the long term asset mix for these funds (refer in Table 7).

LONG TERM ASSET MIX FOR ASSETS SUPPORTING

THE CAPITAL AT RISK

TABLE 7 2002 2001% %

Equities and offshore investments 58 54Hedged equities 18 18Property 12 16Fixed-interest securities 10 10Cash 2 2

100 100

SENSITIVITY ANALYSIS AT 31 DECEMBER 2002

TABLE 5 Gross value Cost of Net value ofof in-force capital in-force

business at risk business %R million R million R million change

VALUE OF IN-FORCE BUSINESSBase value 8 251 (1 511) 6 740Increase risk discount rate by 1,5% to 14,8% 7 607 (2 016) 5 591 (17%)Decrease risk discount rate by 1,5% to 11,8% 9 016 (913) 8 103 20%Increase investment return (and inflation) by 1,5%, coupled with an increase in risk discount rate of 1,5% to 14,8%, and with bonus rates changing commensurately 8 177 (1 578) 6 599 (2%)Increase expense inflation by 1,5%, without adjustment to nominal investment return 8 246 (1 525) 6 721 (0%)Non-commission expenses (excluding investment expenses) increase by 10% 8 012 (1 506) 6 506 (4%)Discontinuance rates increase by 10% 8 073 (1 460) 6 613 (2%)Increase mortality of products providing death benefits by 10%(1) 8 006 (1 498) 6 508 (4%)

VALUE OF NEW BUSINESSBase value 365 (45) 320Increase risk discount rate by 1,5% to 14,8% 320 (59) 261 (18%)Decrease risk discount rate by 1,5% to 11,8% 415 (27) 388 21%Increase investment return (and inflation) by 1,5%, coupled with an increase in risk discount rate of 1,5% to 14,8%, and with bonus rates changing commensurately 348 (51) 297 (7%)Increase expense inflation by 1,5%, without adjustment to nominal investment return 362 (45) 317 (1%)Non-commission expenses (excluding investment expenses) increase by 10% 299 (44) 255 (20%)New business volumes decrease by 10% 298 (40) 258 (19%)Increase mortality of products providing death benefits by 10%(1) 337 (42) 295 (8%)

Notes:(1)Mortality of annuities is assumed unchanged because a decrease, rather than an increase, in mortality increases the mortality risk on annuities.

Page 152

Definitions and Glossary of Technical Terms

“billion” – one thousand million;

“bonus pension” – a bonus pension is a policy which provides immediate annuities, the benefits of

which are increased annually with bonuses declared;

“capital adequacy” – 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;

“embedded value” – 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 capital at risk in relation to this

business;

“immediate annuity” – a policy providing a series of regular benefit payments for a defined period, in

consideration for a single premium.

“linked policy” – 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 less the value of unrecouped expenses;

“market-related policy” – 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;

“non-participating policy” – 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;

“participating policy” – 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;

“policy” – 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;

“reversionary bonus policy” – a conventional participating policy which participates in reversionary bonuses, i.e.

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;

“Sanlam Life” – a business consisting of Sanlam Life Insurance Limited, Sanlam Unit Trust, Sanlam

Trust and Multi Data.

“Sanlam Life Insurance Limited” – a wholly-owned subsidiary of Sanlam Limited conducting mainly life insurance

business;

“Sanlam Limited” – the holding company listed on the JSE Securities Exchange South Africa and the

Namibian Stock Exchange;

“Sanlam” and “Sanlam group” – Sanlam Limited and its subsidiaries;

“stable bonus policy” – a participating policy under which bonuses tend to stabilise short term volatility in

investment performance; and

“surrender value” – 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.

Page 153

Notice of Annual General Meeting

SANLAM LIMITED

(Incorporated in the Republic of South Africa)

(Registration No 1959/001562/06)

Notice is hereby given that the fifth annual general meetingof the members of Sanlam Limited (“the company”) will beheld on Wednesday, 4 June 2003 at 09:00 in the SandtonSun, 5th Street, Sandhurst, Sandton for the followingpurposes:

1. To consider and adopt the annual financial statementsand the group annual financial statements of thecompany for the year ended 31 December 2002.

2. To re-appoint the auditors of the company.

3. To elect the following retiring directors* appointed bythe Board of Directors of the company (“the Board”) incasual vacancies or as additional directors in terms ofarticle 13.2 of the company’s articles of association (“thearticles”), and who are eligible and offer themselves forre-election:E van AsVP Khanyile

4. To elect the following directors* of the company, retiringin terms of article 14 of the articles, and who are eligibleand offer themselves for re-election:DC BrinkPEI SwartzJ van ZylT Vosloo

5. To authorise the Board to determine the remuneration of the auditors.

6. To table and approve the total amount of directors’remuneration.

7. To consider and, if approved, to pass, with or withoutmodification, the following ordinary resolution number 1:

“Resolved that the authorised but unissued ordinaryshares in the share capital of the company be and arehereby placed at the disposal and under the control of

the Board, and such directors are hereby authorised andempowered to allot, issue or otherwise dispose thereof tosuch person or persons and on such terms andconditions as the directors may from time to timedetermine, but subject to the provisions of theCompanies Act, No 61 of 1973, as amended (“theCompanies Act”), the requirements of the JSE SecuritiesExchange South Africa (“the JSE”) and any other stock exchange upon whichthe shares of the company may be quoted or listed fromtime to time.”

8. To consider and, if approved, to pass, with or withoutmodification, the following special resolution number 1:

“Resolved that the Board of Directors of the companyand any subsidiary of the company be authorised by wayof a general authority, up to and including the date ofthe following annual general meeting of the company, toapprove:(a) the purchase of any of its securities by the company

or its subsidiaries, including ordinary shares of R0,01each in the capital of the company; and

(b) the purchase of such securities by the company inany holding company of the company, if any, andany subsidiary of any such holding company,

subject to the provisions of the Companies Act andthe requirements of the JSE and any other stockexchange upon which the shares of the company may bequoted or listed from time to time, and subject to suchother conditions as may be imposed by any otherrelevant authority, provided that:• the general authority shall only be valid until the

company’s next annual general meeting, provided thatit does not extend beyond 15 months from the date ofthis resolution;

• the general authority to repurchase be limited to amaximum of 10% of the relevant company’s issuedshare capital of that class at the time the authority isgranted; and

• repurchases must not be made at a price more than5% above the weighted average of the market value ofthe securities for the five business days immediatelypreceding the date of the repurchases.”

(*)Brief curricula vitae appears on pages 10 and 22.

The reason for and effect of special resolution number 1is to grant the directors a general authority to enable thecompany to acquire shares which have been issued by it, or itsholding company, if any, and any subsidiary of any suchholding company.

Statement of intentThe Board shall implement a general repurchase of thecompany’s shares, only if prevailing circumstances (includingthe tax dispensation and market conditions) warrant same,and should they be of the opinion, after considering the effectof such repurchase of shares, that the following requirementshave 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, arein 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.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 form is enclosed for use by members who are

unable to attend the meeting. Same is also obtainable fromthe registered office of the company. Duly completed proxyforms must be received by the company no later than48 hours before the time of the meeting.

The said proxy forms must be lodged as follows:• Proxy forms from holders of share certificates or holders of

share account statements from Sanlam Share Account(Proprietary) Limited or Sanlam Fundshares Nominee

(Proprietary) Limited must be lodged with or posted to thecompany’s registered office at 2 Strand Road, Bellville,7530 (PO Box 1, Sanlamhof, 7532), or at ComputershareInvestor Services, 70 Marshall Street, Johannesburg 2001(Private Bag X105, Marshalltown 2107).

• Proxy forms from all other shareholders must be lodged viatheir chosen CSDP’s.

A person representing a corporation/company is not deemed to be a proxy as such corporation/company canonly attend a meeting through a person, duly authorised byway of a resolution to act as representative. A notariallycertified copy of such power of attorney or otherdocumentary evidence establishing the authority of theperson signing as proxy must be attached to the proxy form.Such person enjoys the same rights at the meeting as theshareholding corporation/company.

A member whose shares are held by Sanlam ShareAccount (Proprietary) Limited or Sanlam FundsharesNominee (Proprietary) Limited is empowered by suchrelevant nominee company to act and vote at the meeting.

By order of the Board

JP Bester

Company Secretary

Bellville

10 March 2003

Page 154

Notice of Annual General Meeting (continued)

Shareholding and AdministrationAnalysis of shareholders

on 31 December 2002

Shareholders Shares held

Number % Number %

DISTRIBUTION OF SHAREHOLDING

1 – 1 000 591 749 82,00 243 987 393 9,19 1 001 – 5 000 114 119 15,82 227 763 378 8,58 5 001 – 10 000 10 133 1,40 69 346 831 2,61

10 001 – 50 000 4 421 0,61 77 216 677 2,91 50 001 – 100 000 245 0,03 17 756 007 0,67

100 001 – 1 000 000 697 0,10 256 435 567 9,66

1 000 000 and over 259 0,04 1 762 064 814 66,38

721 623 100,00 2 654 570 667 100,00

Public and non-public shareholders % Shareholder structure %

Institutional shareholdingPublic shareholders 98,81 – Offshore 19,82Non-public shareholders – South Africa 53,38– Directors’ interest 0,04 Individuals 20,84– Employee pension fund 0,38 Demutualisation Trust 2,38

– Sanlam Limited Share Incentive Trust 0,77 Other SA shareholding 3,58

Total 100,00 Total 100,00

HOLDINGS OF FIVE PERCENT OR MORE– Public Investment Commissioner (SA) 9,65%

Page 155

Shareholders’ Diary and Administrationfor the year ended 31 December 2002

SHAREHOLDERS’ DIARY

Financial year-end 31 DecemberAnnual general meeting 4 June 2003

REPORTS– Interim report for

30 June 2003 September 2003– Announcement of the

results for the year ended 31 December 2003 March 2004

– Annual report for year ended 31 December 2003 April 2004

DIVIDENDS– Dividend for 2002 declared 5 March 2003– Last date to trade for

2002 dividend 4 April 2003– Shares will trade

ex-dividend from 7 April 2003– Record date for

2002 dividend 11 April 2003– Payment of dividend

for 2002 7 May 2003– Declaration of dividend

for 2003 March 2004– Payment of dividend

for 2003 May 2004

To allow for the dividend calculation, Sanlam’s share register (includingSanlam’s two nominee companies namely Sanlam Share Account (Pty)Limited and Sanlam Fundshares Nominee (Pty) Limited) will be closed forall transfers, off market transactions and de- or rematerialisations between29 March 2003 and 11 April 2003, both dates included. Transactions on the JSE via STRATE are not affected by this arrangement.

ADMINISTRATION

SANLAM LIMITED

Registration No 1959/001562/06

Incorporated in South Africa


Registration No 1998/021121/06

GROUP SECRETARY

JP Bester

REGISTERED OFFICE

2 Strand Road, Bellville, South Africa

Telephone 021 947 9111

Telefax 021 947 3670

POSTAL ADDRESS

PO Box 1

Sanlamhof

7532

South Africa

INTERNET ADDRESS

http://www.sanlam.co.za

[email protected]

INVESTOR RELATIONS

H Malherbe

[email protected]

TRANSFER SECRETARIES

Computershare Investor Services Limited

(Registration No 1958/003546/06 )

70 Marshall Street

Johannesburg

2001

South Africa

PO Box 61051

Marshalltown

2107

South Africa

Telephone 011 370 5320

Telefax 011 370 5486

Page 156

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