Abridged sustainability

INTRODUCTION
Santam's approach to doing business is about doing sustainable business. Since 1918 we have served the short-term insurance market, both in South Africa and abroad. Our ability to adapt to both financial and non-financial change for almost a century shows that as a company we understand what it takes to do business sustainably.

Our long-term strategy includes a thorough analysis of the full spectrum of risks we face and a commitment to respond to the concerns of those involved in or affected by our business. Our approach to environmental, social and governance (ESG) risks and opportunities comes from an appreciation of systemic risk and the way this impacts not only Santam as a company, but also our communities and the country and world we live in. ESG issues and their opportunities form part of our overall systemic risk and enterprise risk management processes. This investment in understanding the long-term significance of each risk and our commitment to be responsive to stakeholder concerns is what has kept our business sustainable and, we believe, will continue to do so into the future.

Our Sustainability Report is informed by the following standards and legislation:

• The King III report on Governance for South Africa, 2009 (King III)
• The Financial Sector Charter (FSC)
• The Department of Trade and Industry's (dti) Code of Good Practice for BBBEE
• The Global Reporting Initiative's (GRI) G3 Sustainability Reporting Guidelines
• The JSE's SRI Index

WHAT SUSTAINABILITY MEANS TO SANTAM
The insurance industry offers one of the clearest demonstrations that non-financial sustainability issues do not stand apart from business issues. What we do and how we behave impact our bottom line and the world around us. Therefore, we believe that it is our responsibility to listen to, engage with and thereby improve the world in which we live and in which we do business. One of the most important vehicles that we can use to influence our environment is our Santam brand. Our brand position of "Insurance, good and proper" further entrenches the approach to what we do. We do insurance properly, with integrity, excellence, single-minded focus, certainty and stature. It is ingrained in the business.

As mentioned earlier in this report, we believe that insurance should add value to people's lives, not questions and uncertainty; hence our renewed approach to be proactive and to minimise the risk of things going wrong. Insurance is a business built on integrity - we sell a promise to be there when things go wrong. Our stakeholders must be able to trust that we will honour our commitments.

It is consequently not surprising that a significant portion of our sustainability management framework links to our brand promise and the element of integrity. Santam has reiterated that its business remains fully committed to the financial security of clients; mutually profitable relationships with intermediaries; and the well-being of employees.

SUSTAINABILITY AND RISK MANAGEMENT
The understanding of the risks created by interlinking and interdependencies in a system - where the failure of a single entity or cluster of entities can potentially bring down the entire system - is core to Santam's pursuit of sustainability. Underwriting success for Santam relies on our ability to accurately price risk, especially in an economic climate where many of our clients are under financial pressure. In 2011, for example, we had to take particular care to demonstrate the value of our products to retain clients.

We are actively involved in various projects that aim to understand the system dynamics between risk and resilience in a socio-economic context. This is exemplified in the Eden project referred to in the Santam Sustainability Report, of which we completed phase 1 during the current reporting year.

Climate change continues to top the list of our environmental risk elements. However, during 2011 crime emerged as one of the fastest growing elements impacting systemic risk.

HOW WE GOVERN AND MANAGE SUSTAINABILITY
The board has delegated responsibility for the implementation of our sustainability strategy to the sustainability committee. This committee meets quarterly to discuss progress on the material issues identified in our sustainability risk log. Issues are discussed according to an annual schedule of report submissions. The chairman of the sustainability committee then reports on these issues to the board of directors.

Sustainability is implemented by a dedicated business unit whose head reports to the executive head of market development to ensure direct access to the executive committee. Senior line managers in the business operations monitor sustainability components in their areas complemented by functions dedicated to Enterprise Development, Environmental Management and Stakeholder Relations.

We have not obtained independent third-party assurance of this Sustainability Report for the 2011 reporting period. Strategic statistical data such as that relating to transformation, broad-based black economic empowerment and our carbon footprint was independently assessed and verified for 2010 - and we intend to repeat this process in 2012 for the 2011 financial year. Our internal audit unit performed a review of selected data and statements reflected in this report. Based on the work performed, the statements and data in the report are in line with the supporting evidence provided by management. We intend to conduct more comprehensive internal audit assurance in 2012.

As the leading South African short-term insurer, Santam is represented on the board of the Ombud for Short-Term Insurance (OSTI). In this role we endeavour to facilitate the improvement of processes to ensure a more efficient resolution procedure in the OSTI office, particularly as this is in the interest of our clients. It is equally important for Santam to understand principles of fairness and equity, and this engagement with the OSTI enhances our approach to the fair treatment of our clients.

OUR MATERIAL SUSTAINABILITY ISSUES
We have identified ten sustainability components which are material to Santam. Each of these covers a number of sub-issues - giving 24 areas in total. These areas are allocated a focus-ranking, monitored in the sustainability material issue log and progress is reported on these components at the quarterly sustainability committee meetings. The table below links these ten components to the promises we make in our brand strategy and indicates how they align to our overall business strategy.

SUSTAINABILITY HIGHLIGHTS
Sustaining our client base

• We introduced an internal arbitrator into the complaints resolution process from the start of March 2011. Where clients are seeking recourse they are given the option to escalate their complaints to the arbitrator to offer a highly experienced opinion on claims disputes.
• The Safend pilot project mentioned in our 2010 report was successfully concluded and is now being rolled out across the company. This software monitors the traffic of data to and from user devices and will help identify possible information theft scenarios.
• Our multi-channel distribution strategy continued to evolve in 2011 and our clients can choose how to access Santam products - through intermediaries, affinity partners or through our direct channels. We acquired a number of new businesses during 2010 and 2011 that has strengthened our positioning in this regard.

A sustained intermediary base

• Broker Services is split into 12 regions with two heads managing the north and south respectively. This enables clearer communication with intermediaries which improves speed of decision-making and access to senior management. Dedicated relationship managers (RMs) interact directly with local intermediaries on a regular basis to update them on product and service developments and to obtain feedback on their service experience and market developments.
• The Santam Black Intermediary Development Initiative (SBIDI) is a joint venture between the sustainability and business development teams with the goal of actively developing black intermediaries. SBIDI was launched mid-2008 and has evolved over time. The initiative takes promising black graduates (we have trained 112 graduates since) and gives them the training they need to become successful short-term insurance professionals with the long-term view of setting up their own intermediary businesses.

A sustained supplier base

• Our preferential procurement score achieved at the end of 2011 was 17.4 out of 20 (unverified). This is a marked improvement from the 15.5 points achieved at the end of 2010.
• We continue to work closely with our suppliers to ensure our clients receive excellent service and that suppliers contract to meet Santam's high standards on ESG issues.

Maintaining an ethical culture and managing economic crime

• Our business ethics and economic crime policy was drafted and approved in February 2011, broadening the previous focus on fraud to include unethical and criminal behaviour. The main aim of this policy is to clarify the accountability for management of unethical behaviour and economic crime. We are in the final stages of revising our code of ethics and a first draft has been circulated for comment.

Solutions aligned to social and environmental needs

• Santam's strategy for servicing the emerging market is driven by the Affinity Markets unit and supported by the Product Development business unit. A new management information system was developed and a complete project methodology implemented to improve speed and cost-efficiency in the implementation of new business opportunities.
• The solar geyser initiative, launched in 2010, gives clients the opportunity to replace damaged geysers with solar geysers, thereby reducing their energy consumption and carbon emissions. Uptake on this initiative has been slower than expected due to the upfront costs involved in the replacement of standard geysers with solar geysers.

Human capital

• Santam spent 1.6% of its total payroll for permanent employees on training in 2011. Of this, black training spend accounts for 1%. We continue to increase the black representation of employees and at the end of 2011 we achieved a 56.8% black representation comparative to 54.4% in 2010.
• As at the end of 2011, R1.4 million was invested in study aid assistance compared with R1.3 million in 2010.

Extending influence for the benefit of society

• Our stakeholder engagements during the year covered three broad areas: interaction with government (through the South African Local Government Association, Department of Energy and various other projects), industry (through the South African Insurance Association, the Insurance Institute of South Africa and Emerging Farmer Support) as well as research institutions such as universities (in particular on the Eden project - see details in the Santam Sustainability Report).
• Santam's Child Art programme is now in its 49th year and has shifted from being an art competition to building capacity among art teachers with a view to encouraging and inspiring children to use their creativity. In partnership with the Ibhabhathane project we have trained more than a thousand art teachers who received practical training on the skills and techniques to implement the new Curriculum Assessment Policy Statements (CAPS).

Transformation including ownership and control

• Santam maintained its BBBEE level 3 status as at the end of 2010 (verified scorecard) which can be found on the Santam website. Our BBBEE unverified score at the end of 2011 shows Santam maintaining its level 3 status by achieving a score of 82.1 out of 100. The focus for 2012 is to apply the same vigilance as in 2011.

Responsible investment

• Santam invests well in excess of the target amount of 3% net profit after tax stipulated in the dti Codes of Good Practice.
• At the end of 2011, R303 million (2010: R396 million) was invested in targeted investments.

Managing impacts on the environment

• The results from our 2011 ClimateWise report, which summarises the actions we have taken based on the six ClimateWise principles, indicated that we have made improvements in terms of both compliance and disclosure. We achieved a score of 85 points (out of a possible 100) compared to 73 in 2010. Our research conducted in the Eden district has been completed in 2011 and the findings were launched at the Santam, UNEP FI and ClimateWise side event at COP17. We intend to take these key learning points forward into 2012.

OUR PRIORITIES FOR 2012

• We will take the insights from the Eden project and implement practical applications.
• We will increase our engagement with key stakeholders such as local governments to promote collaborative risk management on the ground. Our overall preferential procurement strategy is to source mainly from level 4 and higher BBBEE suppliers. Our current focus is on increasing the proportion of black-owned businesses and especially black women-owned businesses we source from.
• Continue to embed SBIDI with the aim to improve our black intermediary representation.
• Retain our top rating in the FIA Broker survey in Commercial and Corporate lines and regain our top rating in the Personal lines category.
• Improve our employment equity score by increasing black employees to 59% of total employee complement.

TALKING SUSTAINABILITY
If you require more information on our sustainability process, have any queries or if you simply wish to comment on the effectiveness of our Sustainability Reporting, please contact:

Ray-ann Sedres
Head: Integrated Sustainability
Ray-ann.sedres@santam.co.za
021 915 7289

The full 2011 Santam Sustainability Report is available on our website at www.santam.co.za.

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