Sanlam Ltd.

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Sanlam Ltd.

2 Strand Road
Bellville, Western Cape 7532
South Africa
Telephone: ( +27) 21-947-9111
Fax: ( +27) 21-947-3670
Web site: http://www.sanlam.co.za

Public Company
Incorporated: 1918
Employees: 10,700
Total Assets: ZAR 10 billion ($1.5 billion) (2003)
Stock Exchanges: Johannesburg
Ticker Symbol: SANLAM
NAIC: 523120 Securities Brokerage; 524113 Direct Life Insurance Carriers; 524114 Direct Health and Medical Insurance Carriers; 524126 Direct Property and Casualty Insurance Carriers;

Sanlam Ltd. is South Africa's second-largest life insurance and financial services group, behind Old Mutual. Sanlam is organized into four primary business clusters: Life Insurance is the group's largest component, with a full range of life insurance, pension plans, and savings and investment products through subsidiaries that include Sanlam Personal Finance. Short-term Insurance is conducted largely through the company's 53 percent stake in Santam, South Africa's leading short-term insurer with operations in the corporate, commercial, and personal sectors. The Investment cluster groups Santam's asset management, stockbroking, and related operations, including the company's Gensec subsidiary and stockbroker Hichens, Harrison & Co., acquired in 2003. Lastly, the Independent Financial Services markets Sanlam products for sale through independent agents and includes the group's Sanlam Capital Markets. Unlike many other South African financial groups, Sanlam has chosen to focus its operations primarily on the South African market. Nonetheless, the group is also active in Namibia through its Life Insurance cluster and has investments in Namibia, Malawi, Zimbabwe, and Zambia through Santam. In 2003, Sanlam extended its life insurance business into the United Kingdom as well, acquiring that country's Merchant Investors Insurance Company. Sanlam, formerly the insurance arm of the Afrikaner National Party, has taken the lead in the Black Enterprise Empowerment (BEE) initiative. In 2004, the company sold 10 percent of its shares to the Ubuntu-Botho empowerment consortium. Sanlam is listed on the Johannesburg Stock Exchange.

Post-World War I Afrikaner Empowerment

Following its defeat in the Boer War, South Africa's Afrikaner population found itself impoverished and generally treated as second-class citizens. Although the Afrikaners managed to regain control in the years leading up World War I, the country's economy lay firmly in the hands of its English-speaking population. The transition of the South African economy from a largely agrarian, Afrikaner-dominant basis to an industrialized economy dominated by English interests had led to the marginalization of huge segments of the Afrikaner population.

By the end of the first decade of the 20th century, many Afrikaners had been forced from their land and into the urban regions. With industry dominated by the English-speakers, however, Afrikaners found themselves shut out from skilled labor jobs, as well as from jobs in the commercial sector. The English-controlled banks also refused to lend to most Afrikaners. Among the only jobs open to the Afrikaner population were dangerous, unskilled jobs in the growing number of South African mines. Large portions of the Afrikaner population sank into poverty.

The country's decision to enter World War I on the side of the Allies led to the opening of a new schism in South Africa. Many Afrikaners favored the Germans—who had given them support during the Boer War—over the British. In opposition, a number of Afrikaners split from the government and formed a new political party, the Nasionale Pers ("National Party"). A failed coup, meant to topple the government led by Louis Botha, led to an armed uprising among Afrikaners.

The suppression of that uprising by the South African army exacerbated the Afrikaner population's economic misery. Yet the need to come to assistance of the rebels and their families gave rise to a new initiative among the Afrikaners, the informally adopted idea of "helpmekaar" (literally "help each other"), giving rise to new mutual aid efforts.

As World War I began to wind down, a number of prominent Afrikaners, for the most part wealthy vineyard owners living in the western Cape region, launched more formal efforts to raise the status of the Afrikaners. In December 1917, a group of men, including National Party founders Willie Hofmeyr, Fred Dormehl, and Pieter Malan, joined together to establish a new mutual aid society. The group decided to create a short-term insurance business in order to provide loans and credits to Afrikaners shut out by the country's English-controlled banks.

The new business was to be entirely funded by Afrikaners, and its operations restricted to the Afrikaner population. Called Suid-Afrikaanse Nasionale Trust en Assuransie Maatskappij, or Santam, the new company was formally registered in March of 1918. The new credit association was initially intended to include life insurance products. However, the company's backers soon decided to establish a second company for those operations. In June 1918, the life insurance business was incorporated as The Suid-Afrikaanse Nasionale Lewens Assuransie Maatskappij Beperk ("South African National Life Insurance Company Limited"), or Sanlam.

Sanlam faced a crisis from the start as the outbreak of Spanish Flu in 1918 brought a huge number of claims against the new company. Nonetheless, Sanlam managed to remain profitable that year and by the beginning of the 1920s was ready to expand its operations. Originally focused on the rural Afrikaner population, Sanlam soon moved to cover the growing number of Afrikaans-speaking city dwellers. In 1928, the company extended its reach to include South West Africa, then a protectorate of South Africa and later to be known as Namibia. In 1943, a formal independent branch office, which became Sanlam Namibia, was established there.

Investment Driven in the 1940s

By the mid-1930s, Sanlam had become the dominant partner of the Sanlam-Santam tandem. This fact was recognized by the transfer of Santam's own life insurance operation, African Homes Trust, later renamed Metropolitan Life, to Sanlam. Santam meanwhile remained Sanlam's majority shareholder.

Sanlam also expanded its scope of operations in order to fulfill its mission of providing jobs and economic empowerment to the Afrikaner population. In 1940, Sanlam launched the Federale Volksbeleggings (FVB), which used the funds generated through the company's policy holders to invest in the country's industrial and commercial sphere. As such, Sanlam built up significant stakes in most of South Africa's major Afrikaner-backed corporations, including the creation of mining giant Gencor in the 1950s. In 1946, Sanlam created a second investment vehicle, Bonuskor, which used policy bonuses as the basis for providing capital for establishing and expanding Afrikaner-led businesses. Another company possession was the National Party newspaper Die Burger, founded by Hofmeyer in 1915.

The National Party gained control of the South African government in 1948, sparking a new era of growth for Sanlam. The company became still more closely associated with the National Party (and with its apartheid politics). As such, Sanlam built up a significant assets management operation, which included the Volkskas, as a banking vehicle for the South African government. Sanlam also gained control of the government's pension funds. Other Sanlam investments included Gencor and the distribution vehicle Tradegro. The latter company oversaw one of Sanlam's largest and most profitable investments, the Checkers retail empire.

The Sanlam-Santam relationship was turned upside down in the mid-1950s. In 1954, the two companies entered negotiations in order to convert Sanlam to the status of a mutual life insurance company. As a result of the negotiations, Sanlam became Santam's majority shareholder.

The growth of Sanlam's Bonuskor business led it to create a second investment vehicle in 1960. The new company, Sankor, targeted large-scale developments for its investments. The company remained a player in the funding of major developments, and in 1985 launched a new business, Sankorp, in order to extend its development investments. At its height, Sankorp's investment portfolio was worth some ZAR31 billion and included the company's shares in Gencor, Billiton, Murray & Roberts, Sappi, and Genbel, to name a few.

De-Mutualized Financial Services Group in the 1980s and 1990s

By the early 1980s, Sanlam had begun an effort to expand its business beyond the Afrikaans-speaking population. This effort, however, was only mildly successful. The company had by then entered into a period of decline. The company's Tradegro group crashed after the Checkers chain was crushed by rival Pick n' Pay. In the 1980s, also, Sanlam's Bankorp collapsed, requiring a government bailout that cost the company's policyholders more than ZAR1 billion. Following the bailout, Sanlam sold Bankorp to ABSA in exchange for a 25 percent stake in the South African bank.

Company Perspectives:

Our vision: To be the leader in wealth creation. The vision clearly defines the ultimate goal of Sanlam to be a group of businesses focused on building, preserving and growing wealth for all our clients. Building wealth is about providing our clients with access to savings and credit products.

Preserving wealth is our traditional business of providing guaranteed products for investment market risks and contingency risks such as life, health, property, casualty and liability.

Growing wealth comprises investment management through various investment vehicles. Our values: At Sanlam, we . . . Grow shareholder value through innovation and superior performance . . . Lead with courage . . . Serve with pride . . . Care because we respect others . . . Act with integrity and accountability.

Sanlam, with its close ties to the government, appeared to have sunk into complacency throughout the 1980s. The end of apartheid and the collapse of the Afrikaner government soon provided a wake up call for Sanlam. With the end of its political patronage, Sanlam was forced to reinvent itself in order to shake its image as the financial wing of the National Party. When the new ANC-led government switched its pension fund deposits, Sanlam's Volkskas, once one of the country's major financial institutions, suddenly ceased to exist.

Throughout the 1990s, Sanlam continued reinventing itself as a financial services group. As part of this process, the company began unbundling many of its investments, such as Gencor, which were split off as separate companies. The company divested Tradegro, broke apart Federale Volksbeleggings, and dismantled another of its major "pyramid" holdings, Malbak, which had controlled the company's stakes in Foodcorp, SA Druggists, Tedelex, Ellerines, Haggie, Kohler, and other concerns. As then chairman of Sanlam told The Business Times: "We will gradually unbundle our non-financial service interests but in a way which will add value to stakeholders and our policyholders."

As it shed these holdings, Sanlam began to build up new areas of operations in the assets management, estate and trust planning, unit trusts, and other financial services. In 1998, the company moved to simplify its structure, transferring its assets management business to Genbel Securities, or Gensec. The move raised Sanlam's stake in Gensec to more than 66 percent.

That deal came ahead of a more significant milestone in the company's history. In October 1998, Sanlam voted to demutualized and list as a public company on the Johannesburg Stock Exchange. That step was completed in November of 1998 in what was then South Africa's largest ever initial public offering.

Combining Social and Business Concerns in the 2000s

Sanlam's restructuring continued as it began a reorganization to regroup its operations around its four primary clusters in the early 2000s. That restructuring was largely completed by 2004. At the same time, Sanlam had also been undergoing a more surprising transition.

Starting in the early 1990s, Sanlam—the former financial and investment wing of the South African apartheid government—emerged as one of the spearheads of the country's Black Economic Empowerment (BEE) scheme. The company became one of the first to participate in the initiative, which was meant to shift a share of the country's wealth to its black population. In 1993, the company transferred a controlling stake in Metropolitan Life to Metlife Investment Holdings, a black-controlled vehicle. The transfer resulted in the creation of a new company, New Africa Investments Limited, or NAIL, which remained a partner in Sanlam's BEE initiatives through the turn of the 21st century.

Sanlam's embracing of the BEE appeared surprising. Yet a number of observers pointed out the similar circumstances of the Afrikaners at the turn of the 20th century and the country's black population at the turn of the 21st century. For these observers, it seemed only fitting that Sanlam, founded as an empowerment initiative for the country's Afrikaners, should now do the same for the country's blacks.

While most of Sanlam's competitors, including Old Mutual, had turned to the international market for the growth in the 1990s and early 2000s, Sanlam focused on developing its operations in its newly expanded domestic market. The company's international move remained largely limited to its acquisition of Merchant Investors, a Bristol, England-based life insurance and asset management group.

Meanwhile, as part of its domestic expansion, Sanlam became one of the first companies in the country to meet the government's black ownership guidelines, which called for all companies to achieve minimum black ownership levels of 10 percent by the end of the first decade of the century. In 2004, the company sold a 10 percent stake in itself to the empowerment black consortium Ubuntu-Botho. Sanlam hoped to reestablish its place a central figure in South Africa's economy in the new century.

Principal Subsidiaries

Fundamo; Gensec Bank; Gensec Property Services; Hichens Harrison Ltd; Innofin; Io investors; Merchant Investors; Punter Southall; Sanlam Collective Investments; Sanlam Employee Benefits; Sanlam Investment Management; Sanlam Life; Sanlam Multi Manager Portfolios; Sanlam Namibia; Sanlam Personal Portfolios; Sanlam Private Investments; Sanlam Property Asset Management; Sanlam Trust; Santam.

Key Dates:

1918:: Founding of Suid-Afrikaanse Nasionale Lewens Assuransie Maatskappij Beperk, or Sanlam, as a life insurance and investment group in order to fund economic development of Afrikaner population in South Africa.
1928:: The company establishes a branch office in South West Africa (Namibia).
1935:: Sanlam acquires African Homes Trust (renamed Metropolitan Life) from parent company Santam.
1940:: The company forms Federale Volksbeleggings investment operation.
1946:: Bonuskor investment vehicle is created.
1954:: Sanlam converts to a mutual life insurance company and becomes a majority shareholder of Santam.
1960:: Sankor development arm is formed.
1985:: Sankorp, which becomes Sanlam's central investment holding company, is created.
1993:: Control of Metropoliltan Life is transferred to NAIL.
1998:: Sanlam de-mutualizes and lists stock on the Johannesburg Stock Exchange.
2003:: Merchant Investors, a life insurance and assets management business based in Bristol, England, is acquired.
2004:: Sanlam sells a 10 percent equity stake to Ubuntu-Botho, a black empowerment consortium.

Principal Competitors

J.P. Morgan Chase and Co.; Fortis N.V.; General Electric Capital Services Inc.; Prudential Financial Inc.; AEGON N.V.; CDC IXIS Capital Markets; Westpac Banking Corp.; Landesbank Berlin-Girozentrale; Northwestern Mutual Life Insurance Co.; Power Corporation Of Canada; Lincoln National Corp.; DnB NOR ASA; Standard Chartered Bank Singapore; Td Securities Inc.; Citigroup Inc.