Sanlam yesterday reported a solid operational performance in the 10 months to 31 October 2019 amid challenging operating conditions in the largest markets where the Group operates.
Highlights for the four month-period since the end of June 2019 include continued strong net fund inflows at Sanlam Investment Group; improved traction in Glacier’s new business sales; as well as a marked improvement in Sanlam Corporate and Santam’s risk underwriting profits. Overall new business volumes increased by 6% and net result from financial services grew by 12%, contributing to a 16% rise in net operational earnings.
Operating conditions remained challenging in South Africa with no improvement expected in the country’s economic growth in the short to medium term. Economic conditions in the other emerging markets where Sanlam operates remained broadly unchanged from the first half of 2019.
Sanlam CEO Ian Kirk said, “We are satisfied about this performance in the challenging conditions. It is pleasing that we continue to deliver good relative performance across our businesses. This is testimony to the quality of our business and our people, their ability to execute and deliver value for all our stakeholders.”
“We remain focused on our core competencies, which are to deliver shareholder value under challenging conditions while executing future growth strategies. This is founded on our diversified profile and federal management model that supports a dual focus on operational and strategic delivery,” Kirk added.
Salient features of the Group’s performance for the 10 months to 31 October 2019 were:
New business volumes of R199 billion, up 6% on the first 10 months of the 2018 financial year.
Overall new business volumes at Sanlam Personal Finance (SPF) were in line with 2018, a marked improvement compared to the first six months of 2019.
Sanlam Sky new business sales grew by 9%. Sales through the traditional individual life intermediated channel continued to perform well, increasing by a healthy 11%. Sales of Capitec Bank funeral business, launched in May 2018, continue to exceed expectations, contributing some R900 million to new business volumes.
The recurring premium sub cluster, primarily focused on the middle-income market, reflects the pressure on disposable income in this market segment, with new business volumes only marginally up on 2018.
Glacier experienced an improvement in life and non-life sales and new business sales for the 10 months to 31 October 2019 were only slightly down on the previous year.
Sanlam Emerging Markets (SEM) recorded overall new business growth of 37%. Trends were broadly in line with the first-half 2019 performance. Saham continues to outperform its top-line targets by a considerable margin, partly offset by lower investment business flows in Namibia and Kenya.
New business volumes at Sanlam Investment Group (SIG) increased by 6%. The value of new mandates awarded to the South African Investment Management and Wealth Management businesses increased by 14% and 34% respectively. The international businesses experienced a 26% slowdown in new business inflows.
Santam achieved slightly more subdued growth in conventional business gross written premiums compared to the first-half performance.
The comparative base for Sanlam Corporate included large one-off mandates awarded in 2018. These are not expected to repeat in 2019. The cluster’s new business volumes commensurately declined by 20% despite exceeding targets for the period by a healthy margin.
Net Value of New Business (VNB) increased by 13% with all clusters contributing good growth. Overall net VNB margins improved by some 21 basis points on the comparable 2018 period.
Overall net fund inflows of R43.5 billion were 20% higher than the R36.2 billion achieved in the comparable 10-month period in 2018. SIG attracted strong net inflows of R18.5 billion compared to R8.7 billion in the comparable period.
Persistency trends remained in line with the first half of 2019.
Net result from financial services increased by 12% on the first 10 months of the 2018 financial year.
SPF’s net result from financial services increased by 7%, supported by strong growth at Glacier. The improved relative investment market performance in 2019 compared to the first 10 months of 2018 benefited fee income from Glacier’s participating products.
SEM’s net result from financial services increased by 36%. All key regions contributed strong growth, except Namibia, where increased new business strain and lower general insurance earnings limited net profit growth to 2%. Claims experience in Saham remains under pressure, with the overall general insurance underwriting margin below the 5% to 9% target range. Saham continues to implement corrective measures, including repricing and improved claims management. The investment performance has, however, been better than expected, which partly offset the lower underwriting result.
SIG’s contribution to net result from financial services decreased by 6%. The South African asset management and wealth management businesses continued to do well and achieved 30% growth in net result from financial services despite the 5% lower average equity markets in the period that suppressed fee income. One-off income earned in the alternative businesses supported the performance, augmented by improved performance fees in the third-party business and diligent cost management.
Claims experience improved at Santam since the end of June 2019. Underwriting margin within the conventional insurance business moved well above the midpoint of the target range of 4% to 8%.
Repricing of loss-making schemes, combined with improved claims management, are yielding positive results at Sanlam Corporate, with Group Risk profit reflecting a major improvement on the comparable 10-month period in 2018. Actual disability claims experience continued at elevated levels.
Net operational earnings increased by 16%. This is the combined effect of the 12% growth in net result from financial services and a 62% combined increase in net investment return and project expenses. Net investment return benefited from the relatively stronger investment market returns.
Diluted headline earnings per share declined by 20% but increased by 2% per share if the B-BBEE IFRS 2 charge is excluded.
The Group’s operations remain well capitalised. The Sanlam Group Solvency Capital Requirement cover ratio amounted to 216% on 30 September 2019. Discretionary capital available at the end of June 2019 was largely utilised for corporate transactions amounting to some R770 million.
The Group does not expect a major recovery in the economic conditions in South Africa, Namibia, Angola and Lebanon for the remainder of 2019. New business growth potential will commensurately remain under pressure. Investment market volatility is also expected to persist, aggravated by Brexit and the finalisation of a trade deal between the United States and China.
A recovery in the South African mass affluent new business performance will depend on developments in the political and economic environment. Outside South Africa, new business growth in other emerging markets is expected to remain strong, supported by the base effect of the Saham structural impact.
“Our short term focus remains delivering results from Sanlam pan Africa and executing on our organic growth strategies in our SA based business clusters said Kirk.