The life industry must be hoping for a less eventful 12 months. It has been a year in which we have said goodbye to a number of medium-sized companies and top executives.

The demise of Capital Alliance and Sage had been expected a year ago. There was speculation that African Life would be a target for Sanlam, but it took until August for Sanlam's Johan van Zyl to agree to a price from Momentum's then MD Hillie Meyer. In his last major decision as MD, Meyer sold the stake to Sanlam for R882m, which valued the entire business at R2,6bn.

But Momentum kept African Life Health, which it bought for R175m.

Aflife was in limbo for as long as its controlling shareholder, Momentum (which had a 34% stake) considered Aflife a passive holding. Momentum had no intention of expanding through a traditional life business into the entry-level market.

Meyer and his successor, E B Nieuwoudt, have put their faith in the branch network of sister company First National Bank as the most efficient distribution platform into the mass market.

But Van Zyl at Sanlam has a multichannel approach to the mass market. Barely was the ink dry on the Aflife purchase, than he bought 50% of Channel Life, a specialist in direct marketing to the mass market, which uses television infomercials and makes calls to lists of prepaid cellphone users.

Sanlam has promised a "light touch" approach to its acquisitions. Its attempt to build a business in the entry-level market, Sanlam Group Solutions, was not a success, so it is prepared to learn how to run a traditional commission-based sales business in the entry-level market from Aflife and to learn direct marketing from Channel - where PSG remains a shareholder and entrepreneurial CEO Rene Otto is still firmly in charge.

Sanlam took the view that it did not need to own a bank to distribute through banks. It sold its Absa stake to Barclays for R10bn, and distributed R4bn to shareholders - and in fact its sales through Absa have increased substantially.

Old Mutual is firmly convinced of the value of owning Nedbank, though it shows no desire to replicate its waterfront approach to financial services elsewhere. But it has finally achieved its three-territory strategy - a strong presence in SA, the US and Europe.

Last year (Top Companies June 24 2005) Old Mutual still saw the way forward in terms of buying a closed UK life book to complement its small asset management and fund administration businesses there. But in the end Old Mutual was much more ambitious - it bid for Skandia, which was finally acquired on February 1 this year after a nine-month battle, increasing the market cap of the business by a third.

Old Mutual CEO Jim Sutcliffe says he was attracted by Skandia's focus on modern, open architecture products (in which investors are not tied to a specific asset manager) which have the highest potential for growth in Europe.

It makes Old Mutual even less dependent on the SA life industry, which is certainly at the crossroads. When we wrote Top Companies last year, the industry had hoped that the pension funds adjudicator (PFA) would be defeated in the courts. A few of his decisions were reversed, including the De Beers ruling, in which he insisted that Sanlam's Central Retirement Annuity Fund pay an annuity of R25 000 when it had quoted one for R11 000.

But Judge Dennis Davis, who presided over the case, also insisted that the PFA had full jurisdiction over retirement annuities.

The reputation fallout from the dispute was huge. The industry could not have had worse publicity when people who prematurely ended payments on RAs were stripped of 80% of their savings.

There was heavy criticism from finance minister Trevor Manuel and the industry had to negotiate a settlement with national treasury.

Just before the Christmas holidays a "statement of intent" was announced in which minimum payments would be promised for people who stopped or reduced payments to RAs and endowments before the end of their term. Now at least 70% of the accumulated value of RAs or endowments will be paid out.

There is a lot of soul-searching going on in the life industry about the way it has conducted business. In particular, it would not be economical to continue to pay upfront commissions now that it is obliged to pay out minimum values.

Paul Hanratty, the new MD of Old Mutual SA, says there is a fine balance between giving value for money to clients and motivating salesmen to service them, particularly in the middle and lower market.

"We need to encourage more savings in SA. People do not get up in the morning and decide that they want to save, they need somebody to sell the idea to them."

Hanratty says since life offices in the UK and Australia disbanded their sales forces there is so much paperwork for brokers that much of the market is not being serviced.

Bruce Hemphill, the new MD of Liberty, says the issues raised in the statement of intent relate only to a small and specific part of the life assurers' business.

"Those who take out and maintain an RA or endowment which they see through to maturity will have invested wisely and at reasonable cost."

Many do not believe him yet. But government still has to work with the life industry, as it is the main mobiliser of savings. The unit trust industry (in which the life companies all have an offering in any case) barely features when it comes to recurring premium sales, which are R1,2bn compared with R30bn for the life industry.

The life industry's sales method, in which sales people are entirely remunerated by commission, has been robust. One might have expected sales to fall dramatically last year on the back of all the bad publicity. But in fact there was a 17% increase in new recurring "ordinary" business (life policies rather than RAs) to R4bn for the half year to December. RAs were hit, though, and sales fell by 6% - but it still remained a credible product, with R652m of new recurring sales in the half year to December.

Sanlam and Liberty have been the worst hit, as RA sales are a relatively more important part of their total sales than either Old Mutual, with its large international diversification, or Metropolitan, as RAs are small in its low- to middle-income target market.

Under CE Peter Doyle, Metropolitan has only expanded modestly geographically, into Namibia and Botswana. But it has expanded by product line, most successfully into health care, where it recently won the administration contract for the Government Employees' Medical Scheme.

Metropolitan is still often quoted as the most likely life office to be bought out. But its most likely suitor, Sanlam, recently shifted its attention internationally. It is looking at a R5bn bid for General Electric's UK life business.