Sanlam, the largest non-bank financial services group in Africa, saw its net result from financial services increase by 8% to a record high of R10.191 billion in 2022.
Sanlam’s headline earnings rose 2.8% to R9.294bn for the year to the end of December 2022. It declared a dividend of 360c per share, 8% more than the 334c per share in the previous year.
The group said it produced an “exceptional” set of results for 2022 despite the challenging operating environment.
“Although the worst of the pandemic receded, the year was characterised by significant investment market volatility, the far-reaching impacts of the Russia-Ukraine conflict, surging inflation and energy prices, supply chain disruptions and hardship for consumers,” it said.
Earnings from life insurance increased by 25% to R6.159bn and from credit and structuring operations by 19% to R1.66bn, while earnings from investment management operations fell 1% to R869 million (although earning were 18% higher if Sanlam’s disposed businesses in the United Kingdom were excluded).
However, earnings from Sanlam’s general insurance operations declined by 32% to R1.728bn, and in South Africa, Santam’s earnings fell 26% to R1.026bn.
Sanlam attributed the decline to significant claims inflation, volatile investment markets – which impacted returns on insurance funds – elevated claims for power surges and vehicle thefts, as well as adverse weather conditions and the floods in KwaZulu‑Natal.
Read: Santam pays record R29.8bn in claims in 2022
Life sales down, but non-life sales up
Despite the group’s robust performance in 2022, new business volumes in its life insurance operations (local and international) fell 10% (or 5% adjusted for disposals in the UK) to R64.812bn, although Sanlam said volumes remained “well above” pre-pandemic levels.
Sanlam said the decline should be seen in the context of an “exceptional” 2021 when savings rates were high because of the lockdowns. Net client cash flows from life insurance (R21.6bn) were 70% higher than in 2021, due to lower death claims and strong absolute levels of new business.
General insurance new business volumes increased by 7% (or 8% excluding reinstatement premiums at Santam). General insurance net client cash inflows were 3% higher, despite the significant claims related to the KwaZulu-Natal floods.
Investment management net client cash inflows were R21.976, 56% lower than in 2021. The South African investment management, retail affluent and corporate operations recorded strong inflows, while the international business recorded outflows.
SA life new business volumes down 6%
Most (88%) of the R6.159bn in group earnings from life insurance business came from operations in South Africa, where earnings were up 21% (R5.39bn) compared to 2021. All areas of the local business benefited from the decline in death claims and the overall growth in the book. The value of total death claims decreased from nearly R22bn in 2021 to R16.5bn in 2022.
Nevertheless, Sanlam flagged high lapse rates among lower-income consumers as a problem.
New business volumes were down 6% (R53.64bn) in the group’s South African life insurance business, with the retail affluent segment struggling to write new business: volumes were down 11% (R40.269bn). On the other hand, the retail mass business segment grew 3% (R3.983bn).
In the retail affluent segment, new business volumes were dampened by lower single-premium sales of international products on the Glacier platform. Sales of guaranteed annuities, however, improved in the second half of 2022 and ended the year in line with 2021, while guaranteed plan sales also recorded “robust” growth.
“Recurring-premium sales were in line with 2021 due to growth of retirement annuity and endowment sales in the savings business, which offset lower risk sales in BrightRock and the direct channels. The direct channels come off a period of rapid growth over the past few years,” Sanlam said.
“Individual life risk sales were in line with 2021, with sales trends improving in the second half of 2022. Sales in broker channels showed solid growth, while the tough economic environment reflected in agency channel sales, where lower average premium sizes were recorded.”
Corporate’s new business volumes increased by 14% thanks to a 21% rise in single-premium investment products. But recurring-premium volume slumped 46% on the back of lower group risk sales.
“The hardening of pricing in the group risk business in 2021 resulted in lower new recurring sales in the first half of 2022. A pick-up in sales was experienced in the second half of the year,” Sanlam said.
Challenging past two years
Sanlam described the past two years as one of the most challenging periods in its history. The Covid-19 pandemic had a very significant impact on life insurance claims over the period, while the pandemic and the global economic turmoil resulting from the Russia-Ukraine conflict had a very negative impact on the value of assets managed by the group. The global economy has seen a surge in inflation and interest rates not seen for many years, it said.
The pandemic’s impact on many of its clients’ businesses, which resulted in “material” contingent business interruption (CBI) claims at the group’s South African general insurance operations (Santam), followed by the “disastrous” floods in KwaZulu-Natal, meant that Santam experienced its two largest catastrophes in history in consecutive periods, with events of this impact likely to occur once in 25 or 100 years.
Sanlam said that between 2020 and 2022, it has paid death claims of R50bn, CBI claims of R4.7bn, and KwaZulu-Natal flood claims of R4.4bn (all amounts gross of reinsurance).
‘Well positioned for a recovery’
Chief executive Paul Hanratty said Sanlam has emerged from a period of extreme turbulence “in an exceptionally strong position competitively and financially”.
Sanlam believes the global economy will start to recover in late 2023 or 2024, and the group is well placed to perform strongly when this recovery occurs.
“The group expects the consumer environment to remain challenging. However, historically, personal disposable income growth has usually exceeded inflation, especially once wage demands lift in response to higher prices. The group therefore expects personal disposable incomes, as well as insurance premiums, to adjust to higher rates of inflation. Clients are therefore likely to restore levels of cover, which will support premium growth in the medium term,” Hanratty told investment analysts last week.
