Sanlam Group today announced its operational performance for the six months ended 30 June 2019. The Group achieved a pleasing performance, despite weak operating environments in South Africa and Namibia, as well as the general adverse effect of international political and economic rifts on emerging markets.
The performance was fairly broad based driven by solid organic growth, augmented by the SAHAM Finances’ corporate activity in the second half of 2018, contributing to a 13% increase in net result from financial services, 19% growth in the value of new covered business (VNB) written and 19% higher net fund inflows. Annualised adjusted Return on Group Equity Value (RoGEV) per share of 8.9% was achieved.
In the main, net result from financial services (net operating profit) of R5 billion increased by 13% compared to the first six months of 2018, a credible performance.
The overall picture regarding new business volumes shows an increase of some 4% despite low investor confidence in South Africa and lower investment inflows in Namibia and Kenya. SAHAM Finances’ corporate activity increased growth by some 3%. Life insurance new business volumes increased by 2%, investment business inflows were in line with 2018, and general insurance earned premiums increased by 25%.
On capital management, the Group started the year with negative discretionary capital of R3.7 billion, after payment for the SAHAM Finances acquisition. The B-BBEE transaction raised a net R4.5 billion. Several transactions during 2019 affected the balance of available discretionary capital, which amounted to R570 million at 30 June 2019.
Key features of the performance included:
New business volumes increased by 4% to R111 billion
Net fund inflows of R23 billion compared to R19 billion in 2018
Sanlam Group SAM cover percentage of 205%; Sanlam Life Insurance Limited SAM cover percentage for covered business of 214%
Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with the performance considering the weak operating environment. The results reflect the resilience of our diversification strategy. We will remain focused on delivering synergies from the SAHAM Finances transaction as well as deliver value from the implementation of the package of B-BBEE transactions approved in December 2018. We are confident that we have the necessary depth of talent to continue delivering value to our shareholders and other stakeholders despite the current headwinds.”
Sanlam Personal Finance (SPF) grew its net result from financial services by 9%, attributable to strong earnings growth at Glacier and Sanlam Sky. A prior year tax adjustment of R70 million at Sanlam Personal Loans (SPL) had a positive impact on the after-tax results. Excluding higher new business strain and the tax adjustment, net result from financial services increased by 12%.
Sanlam Sky grew its gross result from financial services by 8%; up 24% excluding additional new business strain incurred as a result of strong growth in its new business volumes.
Glacier, which incorporates single premium life investments and the Linked Investment Savings Plan platform (LISP) recorded a 32% increase in gross result from financial services, the combined effect of an 11% rise in profit from the LISP platform and 47% from life investments.
SPF new business sales declined by 9%, attributable to lower volumes at Glacier.
Sanlam Sky’s new business increased by 3%, up 96% excluding the Capitec Bank credit life business of R566 million that did not repeat in 2019. The Capitec Bank funeral product, launched in May 2018, continues to exceed expectations.
The pressure on Glacier new business sales persisted into 2019, with life and investment business declining by 12% and 9% respectively, reflective of depressed investor confidence.
The Recurring premium business achieved 3% growth in new business sales. Healthy demand for annuities was offset by lower volumes across most other lines of business.
The decline in single premium business had a major negative impact on SPF’s net fund inflows, which decreased by 47% from R6.8 billion in 2018 to R3.6 billion in 2019.
Sanlam Emerging Markets (SEM) grew its net result from financial services by 50% including structural activity and exchange rate differences. Organic growth in constant currency amounted to 18%.
Namibia’s gross result from financial services declined by 2%, due to a lower profit contribution from general insurance. Claims experience normalised in the first six months of 2019, contributing to a decline in the underwriting margin to 6.5% and commensurately lower operating profit. The life insurance businesses achieved good profit growth, supported by an improvement in group life claims experience.
Botswana operations’ contribution to gross result from financial services increased by 10%. Life insurance earnings increased by 2% in constant currency, impacted by mismatch losses in the annuity portfolio.
SAHAM Finances’ gross result from financial services more than doubled in 2019, supported by the corporate activity in the second half of 2018.
The other African operations achieved a good turnaround in profitability. The results include a R83 million one-off impact (R33 million after tax and minorities) relating to a relaxation in the regulatory reserving basis in Kenya. Excluding this, gross result from financial services increased by189%, with most regions contributing good growth.
Gross result from financial services in India more than doubled to R1.1 billion. The credit businesses achieved strong growth of 45%, benefiting from good growth in the size of the loan books. Shriram General Insurance achieved exceptional growth of some 200% from R176 million in 2018 to R529 million in 2019. This is due to a major improvement in the performance of the third-party book. Life insurance profit was negatively affected by lower new business generated from the credit businesses’ client bases, in line with the lower level of disbursements in the last quarter of 2018.
High claims experience in both the Malaysian life and general insurance businesses, combined with higher new business strain in the life business, contributed to a soft operating profit result.
SEM new business volumes increased by 36%.
New business volumes in Namibia declined by 12%. New life business increased by 72%, with persistent strong growth in the entry-level market, augmented by an improvement in affluent market sales in recent months. New investment business, volatile by nature, decreased by 31% from a high base in 2018.
In Botswana, new investment business increased strongly by 42%. New life business also achieved healthy growth of 17%, but with a change in mix to less profitable savings business. Overall new business sales were up 34%.
Other African operations new business volumes grew by 81%. SAHAM Finances outperformed targets with the exception of SAHAM Assistance and Continental Re. New life insurance business written by SAHAM Finances increased from R61 million in 2018 to R823 million, which includes strong organic growth as well as structural activity. SAHAM Finances general insurance net earned premiums more than doubled, supported by structural growth. New business written in the other African regions, excluding Kenya’s investment business, increased by 18%. All key regions contributed to this growth. New investment business flows in Kenya underperformed.