Sanlam achieves solid results in four months to 30 April given significant impact of volatile invest
Sanlam yesterday reported solid results in the four months to 30 April despite challenging investment market conditions caused by the global impact of the Coronavirus.
The Group had a solid start to the 2020 financial year as communicated to shareholders in the Covid-19 update released on the JSE News Service in March this year. However, the operating environment deteriorated substantially from the end of February as governments around the world implemented strict measures to control the spread of Covid-19. These included the declaration of states of disaster and emergency in several countries where Sanlam operates, as well as severe limitations on people movement and preventing face-to-face sales in most operations. These were in line with similar measures implemented globally. Global growth estimates were revised down sharply, driving significant volatility in investment markets across the world.
The Group’s new business volumes across the board were up on the previous period. However, they were significantly impacted since the last week of March. This was as a result of restrictions on intermediary activity imposed under Covid-19 lockdown regulations. Investment in digital businesses such as MiWay and Sanlam Indie, as well as digital sales tools for Sanlam advisors, alleviated pressure to some extent. The available digital sales tools are, however, targeted at the middle-income and affluent market segments. The Sanlam Sky intermediated distribution channel and many other emerging markets channels are still predominantly based on personal interaction, with a commensurately more pronounced negative impact on new business sales in these areas. The new business slowdown will impact new business volumes for the financial year.
Despite these challenges, Sanlam achieved solid operational results and responded rapidly to the lockdown measures in South Africa, its largest market, from 27 March 2020 as well as the lockdowns and curfews implemented in the Group’s other markets. Close to 90% of office staff were enabled to work from home. The Group is carefully managing the employees’ return to work in line with the amendments to lockdown levels, with the health and safety of staff being the priority.
Sanlam Group Chief Executive Officer, Mr Ian Kirk, said: “We are pleased with our results for the four months to 30 April 2020 in the context of the operating environment we faced. This bears testimony to the resilience of our diversified operations and the skills and exemplary dedication of our employees under challenging conditions.”
Net result from financial services declined by 21% on the first four months of the 2019 financial year. Excluding the negative impact of investment market volatility caused by Covid-19, net result from financial services increased by a pleasing 13%.
Sanlam Personal Finance’s net result from financial services declined by 13%, largely attributable to lower income from life investment products in Glacier where the business shares in the actual return earned on the underlying portfolios, which were depressed by the negative investment market performance in the first four months of the year. Excluding this, net result from financial services increased by 5%.
Risk profits in the Recurring Premium business increased strongly, supported by growth in the size of the book as well as continued positive claims experience. No Covid-19 mortality claims have been received up to the end of April 2020.
The Glacier LISP platform performed well, with the decline in investment markets more than offset by strong net fund inflows.
Sanlam Sky experienced a decline in net result from financial services, attributable to Covid-19 support to advisers, higher new business strain and negative expense assumption changes.
The decline in equity markets in North West Africa adversely affected investment return earned on Sanlam Emerging Markets’ general insurance funds in Africa due to the approximately 40% and 30% respective exposures to equities and properties in the portfolio. Net result from financial services declined by 27% as a result. Excluding the general insurance float returns in Africa, net result from financial services increased by 29%. The Other International region achieved overall strong growth with major businesses contributing to the performance, including continued strong profit growth from Shriram General Insurance in India.
Sanlam Investment Group’s contribution to net result from financial services decreased by 134% (up 19% excluding the impact of investment market volatility on SanFin). The asset management and wealth management businesses achieved sterling growth of 20% despite the pressure on assets under management. Earnings benefited from increased performance fees, strong net fund inflows at Sanlam Multi Manager and Satrix towards the end of 2019 and the start of 2020. SanFin experienced a decline in net result from financial services from R82 million in 2019 to a loss of R350 million in 2020, due to widening credit spreads and marked-to-marked losses on listed preference shares, as well as additional credit-related provisions of R175 million after tax as credit risk rose in the wake of deteriorating economic conditions.
Santam’s earnings for the period were also affected by the Covid-19 pandemic. A number of claims for Events Cancellation and Travel Insurance were covered in terms of its policies and are in the process of being settled in line with the policy conditions.
The management actions implemented by Sanlam Corporate in the past 18 months in respect of the repricing of loss-making schemes and improved claims management continued to yield positive results, with Group Risk profit reflecting a major improvement on the comparable four-month period in 2019. Sanlam Corporate’s net result from financial services increased by a particularly satisfactory 34% as a result.
New business volumes of R96 billion increased by 33% on the first four months of the 2019 financial year. The lockdowns and curfews imposed since the end of March 2020 and throughout April had a significant adverse impact on new business sales performance, which will impact volumes in the full financial year.
The impact of the lockdowns and curfews are not yet fully reflecting in these results due to timing differences between the writing and recognition of new business. New business production in April and May were in general between 50% and 70% lower than targets across many businesses.
Overall new business volumes at Sanlam Personal Finance increased by a healthy 18% in the first four months of 2020.
Sanlam Sky new business sales grew by 19%, supported by the Capitec Bank funeral business and a good start to the year for group recurring business. The lockdown since the end of March 2020 had a severe impact on the traditional individual life intermediated channel, which is primarily focused on worksites and face-to-face sales. New business volumes through this channel declined by 5%, with a further deterioration expected in the months to follow.
The Recurring Premium sub cluster, primarily focused on the middle-income market, reflects the pressure on disposable income in this market segment, aggravated by the Covid-19 lockdown. New business volumes increased by 1%, with strong growth at BrightRock, Sanlam Indie and MiWay Life largely offset by lower sales of traditional risk and savings solutions.
Glacier grew its new business sales by 19%, benefiting from sound demand for traditional life annuities, living annuities and international products.
New business volumes at Sanlam Investment Group increased by 42%, with the value of new mandates awarded to the South African Investment Management business increasing by 33%, while Wealth Management delivered more than doubled the 2019 level of new business. New business at the International businesses exceeded expectations and rose by 59%.
The lockdown and economic slowdown negatively impacted premium growth at Santam. Despite these conditions, satisfactory growth in gross written premium was achieved.
Sanlam Corporate achieved 68% growth in new business volumes for the four months to April 2020 despite a marked slowdown in April 2020 due to the Covid-19 lockdown. Sales were, however, skewed towards low margin business.
Sanlam Emerging Markets recorded overall new business growth of 43%. The African general insurance portfolio exceeded its budget for the period. Life insurance and investment new business volumes in Africa increased markedly on 2019, with the latter benefiting from large new mandates in Kenya and Namibia. North West and East Africa were the main contributors to the growth in new life business. The Other International region achieved double-digit growth in life and general insurance business, exceeding targets for the period.
Capital and solvency
The Group remains well capitalised. The Sanlam Group Solvency Capital Requirement cover ratio amounted to 201% on 31 March 2020.
The Group continues to actively manage the consequences of the Covid-19 pandemic. The priority remains the health and safety of employees, as well as supporting clients, intermediaries and vulnerable suppliers across the businesses.
Mr Kirk said: “We are well positioned to weather the headwinds with a robust balance sheet and solvency position, diversification across geographies, lines of business and market segments, and an admirable depth of skills in our businesses as well as at a Board level.
“We are, however, cautious about prospects for the remainder of the 2020 financial year given uncertainty around the eventual impact of Covid-19 across all our operations. Average investment market levels, the relative strength of the Rand exchange rate, and the level of new business production are some of the key factors that could have an impact on the growth of our key performance metrics to be reported for the six months to 30 June 2020 and the 2020 full year,” Mr Kirk concluded.