Sanlam expects the operating environment to remain “challenging”, putting pressure on asset-based fee income and the ability of lower-income consumers to maintain their policies.
The financial services group’s operational update for the 10 months to the end of October shows that its net client cash flows of R57.4bn were 6% lower than in 2021, largely because net flows in its investment management businesses were down by 32%. Sanlam attributed this to unusually high inflows last year and market volatility this year.
The update indicates that the claims environment is negatively impacting its short-term insurance business. Its life insurance businesses, on the other hand, continue to benefit from lower mortality claims as the impact of Covid-19 diminishes.
The decline in death claims, as well as strong absolute new business flows, saw net client inflows into its life insurance businesses increase by 81% compared to the first 10 months of 2021.
The profitability of general insurance operations was hit by “significant” claims inflation, volatile investment markets and, in South Africa, high claims because of power surges and vehicle thefts, as well as adverse weather conditions and floods in KwaZulu-Natal in the first half of the year.
The group’s net result (which takes into account premiums, claim payments and insurance liabilities) from general insurance operations – including its 61% stake in Santam – fell by 50% compared to the first 10 months of 2021. This was in stark contrast to Sanlam’s other businesses: the operating profit from life insurance increased by 23%, asset management was up 21% (or 1% including UK disposals), and credit and structuring operations rose 17%.
Comparatively lower new life insurance sales
Sanlam said new business volumes from its life insurance operations “remain at very strong levels”, at R54.4 billion. Nevertheless, they were 4% lower compared to those in the 10 months to the end of October 2021.
The net value of new life insurance business, R1.8bn, was 14% lower compared to the first 10 months of 2021, but the net value of new business margin improved from 2.65% to 2.86%.
New business volumes were down 6% in Sanlam Life and Savings (SLS), which sells retail and corporate life insurance and investment products in South Africa.
New business volumes were 10% lower in the cluster’s Retail Affluent division, which sells to middle- and upper-income consumers. Sales of single-premium products, as such life annuities, were down 11%. Recurring-premium sales were up 1% on the back of growth in savings products. However, risk sales volumes remained below those of the comparative period, largely because of lower funeral policy and group risk sales at BrightRock.
New business volumes rose 3% in SLS’s Retail Mass division, with sales growth of 32% in individual life policies and 11% in funeral policies sold through Capitec Bank.
More acquisitions in the pipeline?
Sanlam’s chief executive, Paul Hanratty, said he was pleased with the group’s “robust” performance for the 10 months of 2022. The results reflected Sanlam’s strength and its ability to deliver sustainable value in the most challenging operating environments, he said.
“However, we expect the operating environment to remain challenging for the foreseeable future. We expect inflationary pressures to continue affecting underwriting margins in our general insurance operations in the near term, as corrective actions on repricing will take some time to fully implement across the portfolio.”
He said the strategic transactions completed in 2022 were expected to contribute in 2023, which will support earnings growth while the group’s general insurance operations recover.
It’s been a busy year of corporate action for Sanlam.
It bought Alexforbes’s life book and sold its standalone retirement fund administration business to Alexforbes. Hanratty said the integration of Alexforbes’s life book contributed to the strong performance of the group’s life insurance operations.
Sanlam’s insurtech joint venture with MTN, aYo, launched at the end of October. aYo has more than four million active policies and is operational in Ivory Coast, Ghana, Uganda and Zambia, with three more in the pipeline: Cameroon, Nigeria and South Africa.
This month, Sanlam completed a transaction with Absa that saw the bank exchange its investment management business, Absa Investments, for a stake in Sanlam Investment Holdings.
It said regulatory approvals to merge its African operations outside of South Africa with the German financial giant Allianz were expected to be completed by mid-2023.
Sanlam recently offered to buy a controlling stake in black-owned JSE-listed investment group AfroCentric, which owns medical scheme administrator Medscheme.
The group may embark on more corporate action. Sanlam said it was allocating some of its discretionary capital to “value-enhancing opportunities” and was “evaluating a number of opportunities”.
