Governance

STATEMENT OF COMMITMENT
Santam's board of directors is committed to the highest principles of effective corporate governance and strives for the highest standards of integrity and ethics in all the company's undertakings. 

During the year under review, a number of governance-related regulations became effective for Santam, of which King III and the Companies Act of 2008 were the most noteworthy. The board endorses the Code of Corporate Practices and Conduct set out in the King III Report on Governance for South Africa ("King III"). The board is of the opinion that Santam has applied the significant governance principles in King III and that the company complies with all significant requirements of the JSE Listings Requirements. In instances where the company has elected not to apply certain recommendations contained in King III the rationale has been explained in the relevant sections of this report. 

The board acknowledges its responsibility to ensure the integrity of the Integrated Report and believes that it addresses all material issues and that it fairly represents the integrated performance of the group.

During 2011 certain amendments were made to Santam's governance structure to ensure compliance with King III and the Companies Act of 2008. Significant changes include the replacement of the financial reporting review committee and statutory audit committee with a single committee, the audit committee. The board has also resolved that the sustainability committee be incorporated into the newly formed social, ethics and sustainability committee from commencement of the 2012 financial year.

Santam's commitment to good governance is formalised in its charters and policies.

COMPLIANCE WITH THE CODE OF CORPORATE PRACTICES AND CONDUCT
As a financial institution, Santam has a responsibility to conduct its affairs with prudence and to safeguard the interests of all its stakeholders.

The board is accountable for:

• allocating major roles and responsibilities according to the company's delegation of authority framework (This ensures that individuals take the interests of all stakeholders into account in the performance of their duties.);
• adopting clear and formal procedures, including a board charter;
• ensuring there are clear and formal procedures in key areas, so that regulators and auditors can readily review decisions and actions, both internally and externally; and
• conducting business in accordance with the company's code of ethics. 

Santam's code of ethics prescribes that all employees must comply strictly with all relevant legal requirements and regulations that apply to their area of work. The code of ethics regulates conflict of interest in the company and further stipulates that company funds, services and products may not be used as contributions to political parties or political candidates. Company facilities may also not be made available to political candidates and campaigns. 

APPLICATION AND APPROACH TO KING III
The JSE Listings Requirements pertaining to King III are effective for financial years commencing on or after 1 March 2010 (i.e. financial year 2011 in Santam's case). During the year under review Santam conducted an analysis of its corporate governance practices compared with those recommended in King III and made recommendations on how the gaps should be addressed. The board and board committee charters were updated to incorporate King III recommendations and to articulate Santam's commitment to good governance. The board formalised the company's IT governance practices incorporating existing standards and frameworks, and the King III recommendations. Progress reports in this regard were presented to the Santam board and its audit and risk committees.

Board and committees
The board is responsible for the company's governance structure and policy. The board recognises its responsibility to shareholders, employees and the community to uphold high standards in managing economic, social, environmental and ethical matters and ensuring the company conducts its activities according to best practice.

Changes during 2011
Messrs le Roux, Rademeyer and Rudman resigned from the board in June 2011.
Mr Gihwala resigned from the board in September 2011.
Mr Fandeso was appointed to the board in October 2011.
Dr Magau resigned from the board in November 2011.
Ms Marole and Ms Ramiah were appointed to the board in December 2011.
Mr Gamedze has become an independent director in terms of King III on 1 January 2012. 

COMPOSITION
As at 31 December 2011, the board comprised 13 directors, of whom three are executive directors. Of the ten non-executive directors, six are independent. There is a formal, transparent board nomination process in terms of a policy detailing procedures for appointment to the board. Such appointments are formal and a matter for the board as a whole, assisted by the human resources committee, which acts as a nominations committee in terms of section 3.84 of the JSE Listings Requirements. Directors are appointed, subject to re-election by the shareholders at the company's annual general meeting and to the Companies Act provisions relating to their removal. They retire by rotation every three years. Reappointment of directors is not automatic.

Effective operation of the board is principally the responsibility of the Chairman who is an independent non-executive director. There is a clear division of responsibility between the various roles within the company's corporate governance structure. The offices of Chairman and Chief Executive Officer are separate.

Non-executive directors are all able to influence decision-making. They come from various industries and possess extensive skills and business experience. It is their responsibility to ensure their judgement is exercised freely and independently. In the board's opinion, there is no business or other relationship within the current structure that could materially interfere with the impartial judgement of any of the non-executive directors.

When appointing directors, the board takes cognisance of its needs in terms of different skills, experience, diversity, size and demographics.

ACCESS TO THE COMPANY SECRETARY
For the board to function effectively, all directors have full and timely access to relevant information to assist them in fulfilling their duties. All directors have access to the advice and services of the group company secretary and may take independent professional advice, at the company's expense, as and when required in fulfilling their duties. The company secretary is responsible for director training and induction.

BOARD CHARTER
Objective
The board's responsibility to ensure best practice in company conduct is entrenched in the board charter. The charter delineates the powers of the board, which ensures an appropriate balance of power and authority.

The board charter and the committee charters were reviewed during 2011 to ensure better alignment with the King III principles and the Companies Act. The board charter includes a formal schedule of the matters it overseas.

The board charter sets out, inter alia, the composition, meeting frequency and the specific responsibilities to be discharged by the board as a whole and by the directors, executives and officers individually. These responsibilities are determined in terms of:

• the company's Articles of Association;
• the Companies Act 2008;
• the Short-term Insurance Act; and
• the JSE Listings Requirements.

These documents are a reference point for directors, executives and officers on how to conduct their affairs and dealings in respect of, and on behalf of, the company.

The board charter prescribes that directors should conduct themselves in the best interest of the company and take special care to ensure that there are no conflicts between their own interest and the company's interest. Every director is required to declare their interests in any contract or proposed contract in writing to the company secretary who shall then bring it to the attention of the other directors. An affected director is required to accordingly recuse himself from the part of the meeting where the item in which he has an interest is being discussed.

Through its charter the board has reserved matters specifically for its attention to ensure it exercises full control over significant matters, including strategy, finance, and compliance. The board is regularly advised and updated on the activities of the company. On appointment, directors complete a formal induction programme and receive appropriate training and guidance on their duties, responsibilities, Santam's business environment and sustainability issues relevant to the business.

A copy of the board charter is available on request from the group secretary.

SALIENT FEATURES
A. Reserved powers of the board
The board's key purpose is to ensure the company's prosperity by collectively directing its affairs, while acting in the best interests of its stakeholders.

The Memorandum and Articles of Association of the company sets out the powers of the board of directors, while the Companies Act 2008, the common law as enforced in the courts of the country and the Delegation of Authority document, which is reviewed annually, govern the exercise of these powers.

The matters reserved for the board include:

1.   Approval of:

• the company's vision, mission and values;
• the company's strategic objectives, business plans, annual budget, dividend policy and the monitoring of the company's performance against set objectives;
• all dividends;
• the Integrated Report;
• circulars to shareholders, including notices of shareholders meetings;
• financial risk management and capital policies, including funding and the issue of ordinary shares and loan capital;
• capital expenditure, acquisitions, joint ventures and disposals in excess of the limits set out in the Delegation of Authority document and the Articles of Association; and
• significant changes in accounting policy.

2.   Recommending changes to the Articles of Association of the company,
      remuneration of directors and remuneration policy to shareholders for 
      approval.

3.   Composition of the board committees, electing a Chairman of the board, 
      approval of the appointment of the Chief Executive Officer, executive 
      directors and the company secretary.

4.   Monitoring of and reporting on sustainability management.

5.   Ultimate responsibility for IT governance.

6.   Commencing business rescue proceedings as soon as the company is 
      financially distressed.

The board reviews its charter annually to ensure alignment with the principles of good corporate governance.

B. Responsibility and accountability
Delegation of authority
The company's Delegation of Authority document provides an approval framework to ensure the company is optimally managed within a decentralised management environment. At the annual general meeting, shareholders grant general authority to the board to collectively manage the company. In turn, the board delegates the power to run the day-to-day affairs of the company to the Chief Executive Officer, who may delegate some of these powers. The Delegation of Authority document codifies and regulates any such delegation of authority within the company. The board reviews all delegated authorities annually. 

Chairman
The Chairman provides firm and objective leadership of the board of directors. The Chairman's primary function is to preside over meetings of directors and shareholders, and to ensure the smooth functioning of the board in the interest of good corporate governance. 

Chief Executive Officer
The Chief Executive Officer is in charge of managing the company. The Chief Executive Officer plays a critical and strategic role in the operational success of the company. 

Executive and non-executive directors
The directors have a fiduciary duty to exercise due care and skill in carrying out their mandate as directors of the company. In doing so, the directors will ensure they act in the best interest of the company at all times, and do not derive any profit as a result of their fiduciary relationship with the company.

Board committees
The committees assist the board in discharging its duties and responsibilities. Ultimate responsibility rests with the board and the board does not abdicate its responsibility to the committees. The responsibilities of the committees are contained in their respective charters, which are approved by the board. The chairperson of each committee makes a presentation to the board on issues tabled for discussion at the committee meeting. All committees are chaired by independent non-executive directors, except for the human resources committee, which is chaired by a non-executive director who is not independent, Dr J van Zyl. Although he is not independent, the board is supportive of his chairmanship of the human resources committee given his knowledge of the business, his commercial experience and the necessity to align the company's remuneration approach with corporate strategy. 

Group secretary
The group company secretary provides guidance to the board as a whole and to individual directors on how to discharge their responsibilities properly in terms of applicable legislation and regulations, and in the best interests of the company. 

C. Board composition and mix
The efficacy of the board depends on its composition. There is an appropriate balance of power and authority on the board. The independent non-executive directors have a standing closed-session agenda item to deliberate on any issues that they may want to discuss with the Chairman or the Chief Executive Officer and/or any other directors due to Sanlam Ltd being a controlling shareholder. 

D. Board evaluation
The board regularly reviews the range of skills, experience and effectiveness of its directors. This is done using a formal evaluation developed according to the recommendations of the King III report. A board-effectiveness evaluation is conducted annually. The human resources committee considers the results of the evaluation process and makes recommendations to the board as appropriate. 

During the year under review the board and all of its committees measured their effectiveness. The directors have the opportunity to convey to the Chairman any concerns they might have in respect of the performance and conduct of their peers. The evaluations include an appraisal of the Chairman of the board or committee being evaluated. The 2011 assessments included an effectiveness assessment of the board itself collectively, an appraisal of the key board committees and the Chairman. The evaluations conducted for the period under review found no material concerns in respect of the board and board committee performance.

E. Dealing in securities
The company has a policy in place that sets out the procedure directors have to follow before they, or any of their associates as defined in the JSE Listings Requirements, deal in the company's securities.

Directors must obtain prior written authorisation from the Chairman to deal in company securities. The company secretary retains a record of all such share dealings and approvals. In terms of the policy, directors and senior management must also comply with JSE Listings Requirements. Employees that are exposed to price-sensitive information by virtue of their position are prohibited from trading in Santam securities during the company's closed periods, which correspond with the preparation and publication of its interim and final financial results. In terms of the policy, directors' dealings in securities are disclosed to the JSE via the company's sponsor, Investec Securities Ltd.

F. Integrated sustainability reporting
The board recognises that there are qualitative issues which influence the ability of the company to create value in the future. These relate to investment in human and other intellectual capital, the extent of the company's social transformation, ethical, safety, health and environmental policies and practices.

During 2011, the sustainability committee convened four times and reported directly to the board on, inter alia, the issues listed above.

G. IT governance
During the year under review, Santam developed an IT governance framework and reporting system to provide the board with a clear view of the IT governance arrangements within the business. The framework enables the board to verify that Santam is deriving value through the appropriate use of IT in line with the strategy of the business and at an acceptable level of risk.

The Santam IT charter assists the board in discharging its IT responsibilities, while also ensuring that engagement between management and the board with regard to IT matters is a bi-directional process. Santam's IT charter embraces the principles contained in chapter 5 of the King III Code. Therefore, the board is responsible for IT governance and has the ultimate responsibility to ensure that information and IT strategies are aligned with the strategies of the business. The audit and risk committees assist the board in carrying out its IT responsibilities.

Santam recognises the strategic role that IT plays in conducting business in a highly competitive environment. IT is deeply entrenched in the way the company conducts its business and is regarded as a strategic asset. At Santam, IT is governed by, inter alia, the following principles:

• Appropriate governance arrangements are established in support of the Santam business model.
• The business strategy is supported by an adequate IT investment portfolio; the intended benefits are formulated and the realisation thereof is measured.
• IT is acquired, used and disposed of validly, guided by organisational values and clearly formulated principles.
• IT risks are managed explicitly and actively, using the company's enterprise risk management framework.
• Business continuity plans are supported with regularly tested disaster recovery plans and capabilities.

H. Legal compliance
Santam has given substantial focus to legislative compliance during the reporting period. Santam acknowledges the importance of compliance with the regulatory framework impacting its operations, and its accountability to all its stakeholders in this regard. Therefore, Santam's legal compliance philosophy encapsulates integrity, fair dealing, accountability, objectivity, independence, good governance, transparency and collaboration.

In response to the regulatory environment within which it operates, Santam has put in place a full-time legal compliance function, which is responsible for the implementation of a legal compliance framework. As part of discharging its foregoing duty, the legal compliance function identifies legislation applicable to Santam, informs business of pertinent regulatory requirements and amendments, facilitates an analysis of their impact on business operations, facilitates the introduction of controls aimed at ensuring compliance, and monitors compliance. For increased efficiencies and effectiveness, the legal compliance function collaborates with other risk assurance providers on certain matters, and works closely with other entities within the Santam group. The legal compliance function follows a risk-based approach with regard to the resources dedicated to specific pieces of legislation, and different business units and entities within the group. In addition, Santam complies with mandatory industry codes. 

Given the resources that strict compliance with non-mandatory industry codes would require, Santam adopts such codes to the extent that they enhance good governance, efficiencies and effectiveness. 

The following legislation received additional focus during the period under review: 

Companies Act 71 of 2008
Santam has had to respond to the provisions of the Companies Act 71 of 2008 ("the Act") during the reporting period. The board and committee charters have been reviewed internally and updated to ensure compliance with the Act and the board has resolved that the social, ethics and sustainability committee be constituted with effect from January 2012. The company has also requested the mandatory shareholder approval required for intercompany loans, as prescribed by the Act.

The company intends to have its Memorandum and Articles of Association replaced by a Memorandum of Incorporation (MOI) approved by the shareholders and other relevant stakeholders at the 2012 annual general meeting. The MOI will bring Santam's constitutional documents in line with the provisions of the new legislation regarding companies. The non-alterable provisions of the Act have been included in the MOI.  

Short-term Insurance Act 53 of 1998
Following the Financial Services Board's issue of Directive 156.A.i (ST), which clarifies the requirements for collection of premiums and authorisation of intermediaries to collect premiums, Santam conducted a gap analysis to establish whether or not its practices and processes needed to be adjusted, with a view of complying with the Directive. Intermediary agreements of certain collection agents, in the underwriting management environment, have had to be reviewed pursuant to that exercise, to ensure that such collection agents are authorised in writing directly by Santam to collect premiums, as required by the directive. Santam is, furthermore, reviewing its process of ensuring continuous validity and adequacy of intermediaries' insurance guarantee facility.

Furthermore and following the commencement of Policy Protection Rule 7.4, Santam reviewed its policy documents, claims processes and systems. This Policyholder Protection Rule requires, inter alia, an insurer to inform a policyholder of its decision on a claim within 10 days of making the decision; to notify the policyholder of reasons for rejecting a claim or disputing the amount of the claim in the rejection letter; and to advise the policyholder of his rights of recourse and the applicable time frames within which to exercise those rights.

Financial Advisory and Intermediary Services Act 37 of 2002
To comply with the General Code of Conduct for authorised services providers and representatives, some amendments to which came into effect during the reporting period, Santam implemented a conflict of interest management policy, made its employees aware of the policy and introduced a system of monitoring expenditure on intermediaries, which the compliance function will audit annually.

To comply with board notice 106 of 2008, which requires key individuals and representatives to pass regulatory examinations by a prescribed period, depending on their date of first appointment, Santam has identified all employees that must pass their regulatory examinations by each cut-off date, contracted the services of a training service provider to prepare its employees for examinations, and enrols relevant employees for examinations at appropriate times. 

Santam has an external FAIS compliance officer, who complements its own endeavours in ensuring compliance with the Act, and files prescribed regulatory reports. 

Financial Intelligence Centre Act 38 of 2001
Santam's rendition of intermediary services in respect of a long-term category A product, necessitated its registration as an accountable institution, and the introduction of controls aimed at ensuring that it discharges its regulatory obligations emanating from being an accountable institution. 

Competition Act 89 of 1998, as amended
Santam has put a compliance programme in place to ensure that it conducts its operations in a manner that promotes competition. The programme entails the allocation of responsibilities and regular compliance audits. 

BOARD MATTERS
Board meetings
The board met five times at scheduled meetings in 2011. The board meets at least once every quarter and holds a strategy session in August.

 
Appointment and re-election of directors
The human resources committee ensures that the board's composition reflects demographic and gender diversity, and the appropriate mix of skills and experience.

In terms of Santam's Articles of Association, executive and non-executive directors are subject to retire by rotation every three years. Shareholders have the right to nominate a director, and five other shareholders must second the nomination. An abridged CV of the nominated director is sent with the notice 14 days before the annual general meeting (AGM).

At the AGM, shareholders vote by a single resolution to determine whether the director will be appointed. Directors appointed after the AGM are required to retire at the following AGM and stand for re-election by shareholders.

BOARD COMMITTEES
The board has established subcommittees to assist it in discharging its duties and responsibilities. Each committee has its own charter/terms of reference that defines its duties and powers. The minutes of the committee meetings are included in the agendas of subsequent board meetings. Notwithstanding the delegation of functions to the committees, the board remains ultimately responsible for the proper fulfilment of such functions, except for the functions of the audit committee relating to the appointment, fees and terms of engagement of the external auditor.

AUDIT AND RISK COMMITTEES
The audit committee is appointed by shareholders, at the AGM, and the risk committee is appointed by the board. Their primary function, in addition to those required for the audit committee in terms of the Companies Act of 2008, is to help the board oversee financial matters and risk management activities. The committees have adopted formal charters and yearly work plans approved by the board. During August 2011, the Santam board resolved that the financial reporting review committee and statutory audit committee (the assurance committees) be incorporated into a single committee, the audit committee. Both the audit committee and the risk committee are chaired by an independent non-executive director. 

 
The functions of the risk committee include assisting the board in ensuring that:

• the company has implemented an effective policy and plan for risk management that will enhance the company's ability to achieve its strategic objectives;
• the maturity and effectiveness of the risk management processes and activities are continuously monitored, maintained and improved as required;
• the overall risk profile, including significant risks faced by Santam are monitored and reviewed and the response to address these key risks are appropriately defined and resolved by management; and
• the disclosure regarding risk is comprehensive, timely and relevant.

The functions of the audit committee include:

• Overseeing integrated reporting
• Reviewing and recommending for approval by the board, the annual financial statements, the corporate governance report, the interim reports, preliminary or provisional result announcements, summarised integrated information, any other intended release of price-sensitive information and prospectuses, trading statements and similar documents
• Recommending the Integrated Report for approval by the board
• Reviewing and recommending the disclosure of sustainability issues in the Integrated Report and the annual comprehensive Sustainability Report, for approval by the board, to ensure that it is reliable, does not conflict with the financial information and provides a balanced view
• Recommending to the board whether or not to engage an external assurance provider on material sustainability issues
• Reviewing accounting policies and practices and consider any significant changes or departure from accounting policies and practices
• Reviewing the basis on which the company has been determined
  a going concern
• Considering changes to the dividend policy and recommending dividend declarations to the board
• Nominating the external auditor to the Santam group and its subsidiaries (who in the opinion of the committee are independent of the company) for appointment by the shareholders
• Approving the terms of engage-ment and remuneration for the external audit engagement and ensuring that the appointment of the auditor complies with the provisions of the Companies Act 2008 and any other legislation relating to the appointment of auditors
• Defining a policy for non-audit services to be rendered by the external auditor to the company or a related company and pre-approving the contracts for non-audit services to be rendered by the external auditor
• Assisting the board in carrying out its IT responsibilities
• During 2011, as required by JSE Listings Requirement 3.84, the audit committee has considered the expertise and experience of the financial director, and the committee has satisfied itself that the appropriate requirements have been met. The audit committee is also satisfied with the expertise and adequacy of resources of the finance function.

External audit:

• During the year under review the audit committee reviewed communication from the external auditors and, after conducting its own review, confirmed the independence of the auditors. The committee also considered and determined the fees and terms of engagement of the external auditors.
• The external and internal auditors attend committee meetings and have unrestricted access to the committee and its chairman at all times, ensuring that their independence is in no way impaired. Both the external and internal auditors have the opportunity of addressing the audit committee at each of the meetings without management being present.

The audit committee members are encouraged to keep up to date with developments affecting their required skills. The audit committee has considered factors and risks that may impact on the integrity of the Santam integrated report and has reviewed the disclosure of sustainability issues in the report to ensure that it is reliable and does not conflict with the financial information. The audit committee has not recommended the engagement of an external assurance provider on material sustainability issues to the board as it is of the view that the assurance provided is adequate, given the maturity of the processes in place.

The audit committee is satisfied that it fulfilled its responsibilities in terms of its charter during the year under review. The committee believes that it has complied with its legal and regulatory responsibilities for the year. The committee reviewed the company's integrated report and recommended it to the board for approval.

Executive and board remuneration is overseen by the human resources committee (HRC), a subcommittee of the Santam board. The HRC combines the roles of a remuneration and nominations committee. The board views these two functions as interrelated and has set the terms of reference of the committee to adequately cover the two functions without compromising governance standards.

The committee comprises only non-executive directors. The Chief Executive Officer attends committee meetings by invitation but excuses himself from all discussions regarding his own remuneration and benefits. The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the period under review. In accordance with King III recommendations, the company's remuneration policy is to be tabled for shareholders to make a non-binding advisory vote at the AGM. This vote enables the shareholders to express their views on the remuneration policies adopted and their implementation.

The committee monitors the development and implementation of the group's remuneration philosophy. The total reward of executives is designed to ensure that a substantial portion is dependent on performance, both company performance and individual performance. The attainment of appropriate group targets governs the eligibility of executives for annual performance bonuses and the vesting of their long-term incentive awards.

The committee has the responsibility and authority to consider and to make recommendations to the board on, inter alia, the following:

• Development of the remuneration strategy for executive directors and members of the Exco
• Development of short-term incentive plans for board approval
  It sets annual targets, monitors progress towards targets and reviews the incentive plans regularly to ensure that a strong link with performance is maintained.
• Development of long-term incentive schemes for board approval
  It sets guidelines for annual allocations and regularly reviews the structure of the schemes.
• Development, monitoring and testing of appropriate performance drivers for both short-term and long-term incentives
• Management of the contracts of employment of executive directors and Exco members ensuring that their terms are compliant with good practice principles
• The individual remuneration packages for executive directors and Exco members, including total cost to company, benefits, short-term incentives, long-term incentives and conditions of employment
• The remuneration of non-executive directors
• Composition of the board and board committees in terms of size, diversity and experience
• Composition of top management in terms of diversity, skills and experience
• The share incentive trust and the various long-term incentive plans
• Succession planning
• Human capital imperatives 

Remuneration policy
The board agrees that competitive, market-related remuneration for executive directors and Exco members is essential for the development and retention of top-level talent and intellectual capital within Santam. Given the current economic climate, changes in the regulatory requirements and the ongoing skills shortage, it is essential that adequate measures be implemented to attract and retain the required skills. Over and above this, the remuneration philosophy is positioned to reward exceptional performance and to maintain such performance over time.

Santam's reward philosophy and strategy supports the business strategy by implementing processes that align agreed strategic objectives with the behaviour required to meet and exceed these objectives. These processes include performance contracting, performance measurement and the linking of rewards to performance. Reward structures are created taking into account prevailing economic conditions, national and international governance principles and the management of risk in the context of both short- and long-term incentive awards. Executive performance contracts include both short-term financial targets and long-term strategic objectives. This dual focus promotes and supports the group's focus on sustainable success.

During 2011, particular focus was given to ensuring alignment with the relevant regulatory and governance requirements and specifically those of King III.

Santam has adopted a total reward strategy for its employees. This strategy offers a value proposition consisting of guaranteed remuneration (including a choice of flexible benefits such as retirement funds, group life cover, two medical aid funds etc.) and short-term and long-term incentives, learning and development opportunities, a supportive work environment and a range of life-style benefits.

In delivering this value proposition a number of principles are applied:

• We pay for performance that is aligned to strategy: Performance is the cornerstone of our reward practices and there is clear differentiation between performers and non-performers. The reward consequences for individual employees are, as far as possible, aligned with, linked to and influenced by the interests of the shareholders, the performance of the company as a whole and the employee's own contribution.
• Consistency: Our reward philosophy strives to be both consistent and transparent. Benchmarking is performed annually using consistent and recognised methodologies and the differential market value of various skill groups and roles is reflected in our pay practices.
• Attraction and retention: We focus on competitive remuneration practices that attract and retain talent to deliver on our business strategy.
• Share participation: We encourage our employees to identify with the success of Santam through share participation as it establishes a clear link between their own efforts and the company's success.
• Best practice: Reward packages and people practices are geared to reflect local and international best practice.
• Communication: We make use of a range of channels to increase our employees' understanding of our pay practices.
• We afford our managers discretion: Management discretion is central to our remuneration philosophy - within the requirement that reward must always be based on merit.

The table below reflects the aggregated details of remuneration paid to the top three earners, who are not executive directors, for the year ended 31 December 2011. The disclosure is deemed sufficient to provide insight into remuneration levels of senior management.

The company recognises the difference between entities in our group and allows the businesses' relative autonomy in positioning themselves to attract, retain and reward their employees appropriately within an overarching framework. However, there are certain aspects of reward that are prescribed and all businesses of which Santam is the sole or part owner should adhere to them. For all other elements a general framework and guidelines for short-term and long-term incentive and retention processes are provided. General guidelines are also offered about how the businesses should apply discretion in their own internal remuneration allocation and distribution. 

An overview of the executive remuneration structure
The various components of executive reward are summarised in the table on page 85. In general terms, the quantum of the different components of the package is determined as follows:

• The guaranteed component is determined with reference to market benchmarks and the individual's performance, competence and contribution.
• The short-term variable component of remuneration (performance bonus) is based on a combination of individual and annual business performance and it is benchmarked regularly.
• The quantum of the long-term award (shares) is based on the individual's seniority, performance, potential and overall value to the business. The eventual value delivered to the employee is dependent on company performance, as reflected in the share price.

The above arrangements will be modified in 2012 should significant changes in operating conditions or governance framework occur.

The full annual financial results on pages 6 to 9 reflect the total earnings and other benefits of executives and non-executive directors in accordance with the requirements of the Companies Act 2008 and the JSE Listings Requirements. The full annual financial results are available on our website, www.santam.co.za or in printed format on request from the company secretary.

Outperformance plan (OPP)
The Santam HRC has extended an OPP to the Santam Chief Executive Officer to reward superior performance over a five-year measurement period. Such an arrangement is available to selected leaders of the Santam group's main operating businesses and is used infrequently. No payment is made under the OPP unless expected growth in net insurance result over hurdle for the period is exceeded and full payment is only made if the stretch performance targets are met. The maximum payment that can be made under the OPP is 200% of annual guaranteed package over the measurement period.

The main function of this committee is to actively manage the material matters that affect the sustainability of the business. These would include:

• Minimising the risk associated with social, economic and environmental impacts, including stakeholder activism and government regulation
• Ensuring that the business aligns to legislative requirements such as King III, JSE Listings Requirements, broad-based black economic empowerment, and other applicable legislation
• Adding value by monitoring and guiding management on:
  • developing and retaining a sustained client base;
  • developing solutions to accommodate change - inclusive of societal and environmental change;
  • developing and retaining a sustained supplier base;
  • having appropriate human capital processes and systems in place;
  • having a transformed business;
  • cultivating an ethical culture and combat/curb economic crime effectively;
  • applying environmental impact management and practices;
  • having a sustained intermediary base;
  • extending influence to the benefit of society; and
  • applying responsible investment practices

The sustainability committee is chaired by an independent non-executive director. The committee is supported in its tasks by members of senior management, including human resources, insurance services, corporate citizenship, the company secretary and finance.

In terms of its charter, the sustainability committee meets formally at least quarterly or as required for the effective performance of its duties. The sustainability committee is satisfied that it has fulfilled its responsibilities in accordance with its charter for the period under review.

SOCIAL, ETHICS AND SUSTAINABILITY COMMITTEE
The board established a social, ethics and sustainability committee with effect from 1 January 2012. In line with the Companies Act of 2008 and King III, this committee will oversee and monitor the company's activities in relation to:

• social and economic development, including the principles of the UN Global Compact, broad-based black economic empowerment, employment equity and the Organisation for Economic Co-operation and Development's recommendations on corruption; and
• good corporate citizenship, including the promotion of equality, corporate social responsibility, ethical behaviour and managing environmental impacts.

The investment committee meets to evaluate and monitor the investment portfolio and the performance of investment managers. These meetings are made up of quarterly feedback sessions with analysts and two formal investment committee meetings a year. The investment committee guides the board on the mandates of investment managers, and makes recommendations regarding the company's investment philosophy. 

The board is in the process of appointing an appropriately qualified independent non-executive director to chair the committee, following the resignation of Mr Rademeyer in June 2011. The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the period under review. 

Ad hoc subcommittees
The board has the right to appoint and authorise special ad hoc board committees to perform specific tasks from time to time. The relevant board members make up these committees. 

OTHER COMMITTEES
Executive committee
The Chief Executive Officer, assisted by the executive committee, is mandated by the board, through the company's Delegation of Authority document, to deal with the day-to-day running of the affairs of the company. The Chief Executive Officer chairs the committee, which comprises the executive management of all the significant business units of the company. It meets and deals with all matters relating to: 

• implementation of agreed strategy;
• monitoring of performance; and
• consideration of the company's policies. 

The board reviews annually the levels of delegated authority to the Chief Executive Officer. 

STAKEHOLDER RELATIONS
Regular communication is maintained with various stakeholders, such as: 

• institutional investors;
• investment analysts;
• shareholders;
• employees; and
• communities at large. 

The board encourages shareholders to attend the AGM and provides a full explanation of the implications of the proposed resolutions. 

Various methods of communication are used to keep employees and other stakeholders informed of company and group activities. 

RISK MANAGEMENT AND INTERNAL CONTROL
Santam's board recognises and acknowledges that it is accountable for the total process of risk management and the system of internal control for the group. It is accountable for the establishment of appropriate risk and control policies and for communicating these policies throughout the group. It also confirms that the process of risk management and the system of internal controls are regularly reviewed for effectiveness.

Enterprise risk management (ERM) process
Objective of ERM
The objective of ERM is to ensure that all material risks are identified, understood and managed to generate and protect value for all stakeholders on a sustainable basis.

Responsibilities for ERM
The board is responsible for reviewing and approving the group's risk appetite, policy and plan. The board also ensures that the risk management process and system of internal control are regularly reviewed for effectiveness. While the board is responsible for the overall governance of risk, it is assisted by the risk committee in discharging this responsibility. Executive management is accountable to the board in ensuring that suitable risk management and internal control processes are embedded and integrated into the strategic and operational management of the company. 

The ERM approach, framework and process
Santam has adopted an ERM approach and framework that are appropriate to the nature, scale and complexity of its business and risks. The group's approach is aligned with the principles of King III, ISO 31000 and the requirements of our majority shareholder, Sanlam. Santam's ERM approach is underpinned by two principles: 

• ERM is concerned with all risks faced by the Santam group.
• ERM is concerned with protecting shareholder value while ensuring that policyholders are adequately protected. 

The Financial Services Board (FSB) continued the development of the solvency assessment and management regime (SAM) for the South African long-term and short-term insurance industries. Santam is participating in the SAM project to ensure, among others, the alignment of the ERM processes with these requirements ensuring an integrated and pragmatic approach to risk and solvency management.

The risk management framework and process are designed to assist the board to ensure that management monitors risks continually and reports back to the risk committee on the status of risks. A formal risk appetite policy has been developed and approved by the board. The risk appetite policy includes parameters for all material risk categories. Although not fully developed yet, some risk tolerances are included in the company's risk appetite framework. Breaches and potential breaches are quarterly reported to and reviewed by the board.

Quarterly reports, outlining progress in terms of the risk management framework, plans and an overview of Santam's risk profile, are tabled at the risk committee and board meetings. Santam's risk profile covers all categories of risk, including strategic, operational, insurance, credit, market, liquidity and reputational risk. The following board committees monitor specific risks: the human resources committee, sustainability committee and the investment committee. Where appropriate, feedback from these committees is incorporated into the quarterly report to the risk committee. The integrated ERM process is mature and is applied consistently throughout Santam. The group will continue to develop and improve its risk management process to ensure it remains resilient, able to achieve good results and preserve value for all its stakeholders.

Improvements to the ERM process in the last year
A combined assurance model has been developed working together with Santam internal audit and other assurance and compliance functions. A summary is provided to the Santam audit committee in terms of Santam's highest inherent risks and the type of assurance provided over these risks. The "lines of defence" concept was adopted to determine that adequate controls, objective review and independent assurance are adequate over key risks faced by Santam. The implementation and roll-out of the combined assurance model and lines of defence concept supports the regulatory measures as currently being defined by the FSB. The process of implementation and refinement of these models and concepts will continue in 2012.

Risk disclosure
The board has implemented a systematic, independent and disciplined approach to evaluate the effectiveness of risk management. Based on previous reviews and maturity assessments presented to the risk committee, the board is confident that the integrated ERM programme is effective in identifying current and emerging risks and ensuring that these risks are managed appropriately. Based on information available through the risk management processes, no material losses were sustained during 2011. No residually significant current or imminent risks that pose a threat to the sustainability of Santam have been identified. The most significant risks currently being managed by executive and senior management, together with key initiatives, are summarised in the table on page 90.

In a corporate context, risk is encountered when goals are pursued. Santam's group strategy is to be the leading general insurance group in South Africa and selected other emerging markets. This is to be achieved by extending Santam's leadership position in the local market and building a reputation as Africa's leading general insurance group. Given the chosen strategy, supported by strategic goals and business plans, a number of risks are being faced by Santam. The key strategic and business risks identified by management, in line with the above strategic statement, supporting goals and plans, are as follows:

Business continuity
A key operational risk, which spans Santam's business, is the potential impact of a major disaster and/or disruption. The company has responded to this threat by developing a group-wide business continuity framework to ensure that people are prepared, crisis infrastructure is tested and meaningful recovery plans are in place. A steering committee is responsible for overseeing, reviewing and monitoring Santam's business continuity capability. Comprehensive scenario testing, involving senior and executive management, is conducted every three years, with more focused testing done annually. The focus during the year under review was on the further improvement of access control and security, crisis communication and integration of the recovery planning. A number of areas will continue to be addressed to ensure that Santam remains resilient to major incidents.

Internal control
To enable the directors to meet their responsibilities, management implemented a system of internal control, comprising policies and standards, procedures, systems and reports, to assist in achieving established objectives and goals. The group's system of internal control is designed and operated to support the identification and management of risks affecting the group and the business environment in which it operates.

As such, it is subject to continuous review as circumstances change and new risks emerge.

 
Self-monitoring mechanisms, the enterprise risk management process and the system of internal control ensure that weaknesses are addressed as and when identified. In conjunction with monitoring by the internal and external auditors, reasonable assurance is provided regarding the reliability of financial information and the presentation thereof in stakeholder communication.

Santam has a corporate governance policy that formally defines how the group should be governed in terms of good governance principles. The framework encourages the efficient use of resources and requires accountability of the stewardship of the companies in the group. It is essentially a function of leadership and direction, appropriate risk management and control over its activities.

The overall system of internal control is designed to mitigate, not eliminate, significant risks faced by the group and was in place for the year under review. It is recognised that such a system provides reasonable, but not absolute, assurance regarding the achievement of organisational objectives with respect to:

• The effectiveness and efficiency of operations
• The safeguarding of the company's assets (including information)
• Compliance with applicable laws, regulations and supervisory requirements
• Supporting business sustainability under normal and adverse operating conditions
• The reliability of reporting
• Behaving responsibly towards all stakeholders

Control opinion
The board reviewed the effectiveness of controls principally through a process of management self-assessment, including formal confirmation per representation letters by executive management. Consideration was given to other relevant input, including combined assurance reports, reports from internal and external auditors, compliance and the enterprise risk management process. 

Where necessary, programmes for corrective action have been initiated. Nothing has come to the attention of the directors, or to the attention of the external or internal auditors, to indicate that any material breakdown in the functioning of the internal controls and systems (which include the internal financial controls) occurred during the year under review. 

Internal financial controls
Internal financial controls are based on established policies and procedures. Management is responsible for implementing internal financial controls, ensuring personnel are suitably qualified, that there is appropriate segregation of duties, and that appropriate reviews are performed. 

Enterprise risk management, internal audit and external audit, performed a combined assurance project, to assess the design adequacy of the internal financial controls in the most significant accounting cycles. No significant deficiencies were found in the adequacy of the controls. Results of this review were reported to executive management and the Santam group audit committee in November 2011. The effectiveness of these controls will be tested by internal audit in 2012.

Assurance providers - internal audit
The main internal assurance provider in Santam is the internal audit and forensic service business units (A&FS). Internal audit provides objective and independent assurance to management and the board of Santam Ltd, via the audit committee, about risk management, control and governance processes.

Internal audit is governed by an internal audit charter, approved by Santam's audit committee, and it is reviewed annually. The charter defines the purpose, authority and responsibilities of the function.

The head of internal audit reports at each audit committee meeting and has a direct reporting line to the chairman of the audit committee. The committee operates independently of executive management but have an administrative reporting line to the financial director and unrestricted access to the Chief Executive Officer and/or any other member of executive management.

The head of internal audit is responsible for co-coordinating internal audit efforts to ensure appropriate coverage, while maximising efficiency.

The business unit follows a risk-based planning approach.

Internal audit conducts a robust planning process which incorporates various criteria to prioritise and classify the subsidiaries, strategic business units and functions in the Santam group.

Subsidiaries and strategic business units which were classified as high-risk were included in the audit universe. Depending on the risk classification all other material subsidiaries and business units will be included in the audit universe on a two- or three-year cycle.

Business functions, which include the governance and risk management functions, were prioritised and included in the audit universe, based on the following factors:

• The top residual risks of the company
• Whether the function can result in a material misstatement of financial information
• The current skill set of the internal audit team.

Outsourced processes were included in the planning process and included in the audit universe, where appropriate.

The annual plan is reviewed regularly to ensure it remains relevant and responsive to changes in the operating environment. The Santam audit committee approves the internal audit plan for the Santam group. Detailed audit plans for subsidiaries with separate licences are approved by their respective finance and risk committees.

Internal audit systematically analysed and evaluated the significant risks and associated controls in the audit universe and, in terms of their agreed scope, they have not identified any material breakdown in internal control.

Significant control weaknesses are reported, in terms of an escalation protocol, to all levels of management, including executive management. The audit committee receives a report on significant issues and actions taken by management on a quarterly basis.

Internal audit also liaises with the external auditors and other assurance providers to enhance efficiencies in terms of combined assurance. Internal audit, in conjunction with ERM, facilitated the implementation of a combined assurance and internal control framework for the group.

Internal audit proactively reviews its practices and resources for adequacy and appropriateness to meet the ever-increasingly demanding corporate governance and regulatory environment, including the requirements of King III and the FSB's Solvency Assessment and Management project.

The internal audit team compromises with well-qualified experienced employees to ensure that the function has the competence to match Santam's diverse requirements. Where specific specialist skills or additional resources are required, these are obtained from third parties. Internal audit resources are subject to review by Santam's audit committee.

The compliance function is incorporated in the Corporate Legal Services business unit. The risk committee approves their assurance plan and findings from examinations.

External audit
The external auditors, PricewaterhouseCoopers Inc, are engaged to provide stakeholders with an independent opinion on whether the annual financial statements fairly present, in all material respects, the financial position, financial performance and cash flows of the company and the group.

To ensure that there is no duplication of effort, regular liaison takes place with internal audit to understand the scope of its work and the results of its audits.

Santam has a formal pre-approval policy on the use of external auditors for non-audit services. The services rendered by the auditors are monitored by the audit committee on a quarterly basis. Non-audit services rendered by the group's external auditors amounted to R3 287 000. This includes R100 000 for assurance-related services, R317 000 for tax-related services and R2 870 000 for other services. Specific approval from the audit committee was obtained when non-audit fees exceeded the pre-approval policy.

During the year under review the audit committee reviewed communication from the external auditors and, after conducting its own review, confirmed the independence of the auditors. The committee also considered and determined the fees and terms of engagement of the external auditors.

The external and internal auditors attend committee meetings and have unrestricted access to the committee and its chairman at all times, ensuring that their independence is in no way impaired. Both the external and internal auditors have the opportunity of addressing the audit committee at each of the meetings without management being present.

Other assurance
There is regular interaction and consultation between internal audit and other internal assurance providers, for example the quality assurance functions in the distribution, claims and underwriting business units, and the compliance officer.

Please refer to the Sustainability Report at www.santam.co.za for more detail regarding Santam's ethical culture.

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