Sanlam : Operational Update - June 2017

7 June 2017

The Group maintained a resilient operational performance for the first four months of the 2017 financial year. The key trends emerging during the 2016 financial year persisted into 2017.

Strong growth in the more profitable recurring premium risk business in South Africa supported sterling growth in the value of new life business at a higher overall margin. Embedding client centricity and a stringent focus on new business quality in Sanlam's culture over many years has been a key driver of the Group's new business performance and is also supporting persistency levels. Satisfactory growth was achieved in net result from financial services despite a marked increase in new business strain recognised pursuant to the increase in new risk business, as well as the negative impact of a stronger average Rand exchange rate against the major currencies where the Group operates. The operational performance of Saham Finances, the major new acquisition concluded during 2016, remained in line with the business plan.

The first four months of 2017 was a very eventful period for South Africa. An unexpected cabinet reshuffle and removal of the Minister of Finance at the end of March were followed by downgrades of South Africa's foreign currency rating to below investment grade by two rating agencies, with one also downgrading the local currency rating to below investment grade. Investment market reaction to these events were not as adverse as anticipated, as it coincided with renewed emerging market interest from global investors, providing support to the Rand, equity markets and long-term interest rates. The renewed political and policy uncertainties were, however, detrimental to investor, business and consumer confidence, which impacted on the Group's new business growth in the mass affluent and high net worth segments, and will also delay any meaningful improvement in economic and employment conditions. The South African operating environment therefore remained particularly challenging for our businesses.

Economic conditions in Namibia continue to be impacted by liquidity constraints emanating from its twin deficit, while the economies and currencies of Nigeria and Angola remained under pressure from low oil prices. The economic outlook in the other Africa regions where the Group operates is slowly improving. Economic conditions in India and Malaysia remain robust, with the short-term impact of demonetisation in India negatively impacting on the results of the Shriram credit businesses, as anticipated.

Despite volatility in the Rand exchange rate during the four-month period to 30 April 2017, the average exchange rate of the Rand against the major currencies where the Group operates was significantly stronger during the first four months of 2017 compared to 2016. This had a major negative effect on the translated Rand results of Sanlam Emerging Markets as well as Sanlam Investments' international operations.

Globally, investor concern around geopolitical risk subsided somewhat following the Dutch and French election results, supported by anticipated stimulative economic measures in the United States and improving leading economic indicators in China and Europe. This drove a rally in global equities and a return of demand for emerging market investments. These conditions provided some support to the South African investment markets as highlighted above, and commensurately investment return earned on the Group's capital portfolio.