Sanlam reports strong 2021 interim results
Cape Town - Sanlam, Africa's biggest insurance company today reported strong interim financial results for the six months ended 30 June 2021. The Group said its performance reflected the strength of each of its businesses and underlined the Group’s continued commitment to its stakeholders, amid the ongoing devastating impact of the COVID-19 pandemic on the economies and communities in all the countries in which the Group operates.
The first six months of 2021 saw Sanlam continuing to execute on its operational and strategic objectives including fulfilling sizable customer claims; deploying funds to support economic recovery efforts post the pandemic; launching Sanlam Investments’ climate fund; and announcing a strategic InsurTech initiative in partnership with MTN to support Sanlam’s goal of reaching 50 million customers by 2025.
Furthermore, the Group announced:
- The appointment of two Board members: Mr Ebenezer Essoka, who brings deep knowledge of business on the African continent, and Mr Willem van Biljon, who brings a wealth of expertise in technology and digital transformation; and
- The appointment of Mr Carl Roothman as the new Chief Executive Officer (CEO) of Sanlam Investment Group with effect from 1 January 2022. Mr Roothman’s previous roles include Chief Executive of Sanlam Investments Retail and subsequently CEO of Sanlam Private Wealth. This appointment underlines the depth of talent within the Sanlam Group.
Sanlam said it welcomes the new Board members and congratulates Mr Roothman on his appointment, and the Group looks forward to benefiting from the collective experience and expertise of these individuals.
The Group said it honoured its promise to be there for its clients during their most challenging times, paying mortality claims of R8 billion in South Africa and R2 billion of mortality claims in the rest of its operations in the first six months of 2021, with cumulative payments of over R22 billion since the start of 2020. It said Santam continued to settle contingent business interruption (CBI) claims and paid R700 million to policyholders in addition to the R1 billion paid in interim relief in August 2020, bringing the total CBI payments to R1,7 billion at 31 August 2021.
Key performance indicators:
- Robust growth in operating profits. Net result from financial services increased by 16% in 2020.
- Exceptional growth in the value of new business, which was 94% higher than in 2020.
- Substantial growth in new business volumes which are 12% higher than 2020, with life insurance premiums up over 50%.
- Net fund inflows of R38 billion were 13% higher than 2020.
- The group solvency ratio of 175% remained strong and comfortably within the target range of 160% to 200%.
Sanlam Group Chief Executive Officer, Mr Paul Hanratty said: “We are extremely proud of the work done by our people under extremely difficult circumstances. Our staff have served our customers unwaveringly and the Group’s efforts on behalf of clients have been repaid through our clients’ loyalty and commitment to Sanlam. We have maintained the strongest possible financial position to give peace of mind to all our customers and to deliver excellent returns to shareholders.”
Return on Group Equity Value (RoGEV)
Adjusted RoGEV, the Group’s primary indicator of long-term value creation amounted to 6,2%. This is slightly below the target of 6,6% despite the positive contribution from strong life new business and strong operating performance across the various non-life businesses. The very high level of mortality claims meant the Group could not quite achieve its long-term target.
Growth in the Group’s operating earnings benefited from higher equity market levels that supported fund-based fee income, the contraction of credit spreads, lower levels of provisions for doubtful debts, improved return on insurance funds in Sanlam Pan Africa General Insurance (SPA GI) and an improved underwriting performance from Santam. COVID-19 related mortality claims had a significant negative impact on earnings during the period, but this was largely offset by the release of discretionary reserves in the South African life insurance operations.
The Group will consider further discretionary reserve releases during the second half of 2021 based on actual experience.
Based on current estimates, the Group expects that existing reserves should largely mitigate the COVID-19 related excess mortality impact on operating profit for 2021. There however remains a significant amount of uncertainty regarding the impact of future waves, possible variants and the progress made with the vaccination rollout. The Group expects to retain modest reserves to mitigate any mortality losses after 2021.
Sanlam has identified several initiatives aimed at limiting the future impact of COVID-19 on future mortality losses in its operations. These include fair and appropriate increases in annually renewable group risk premiums, some of which have already been implemented. The Group will also implement underwriting changes in the latter part of 2021, by following a risk-based approach that takes vaccination status into account for certain product lines for those clients with particular risk profiles.
New Business Volumes
New business volume growth was strong across most business clusters. The South African life insurance businesses recorded particularly strong growth, with all market segments contributing. Sanlam’s digital channels have grown in importance and continue to deliver strong growth. Single premiums underpinned growth in the affluent market as increased early retirements and higher long-term yields boosted demand for life annuities. The mass-market business continued its robust recovery, supported by an acceleration in growth from the Capitec funeral JV due to its digital platform.
In the Pan-Africa operations, initiatives to cross-sell into the large general insurance customer base are bearing fruit, with very strong growth in life sales across the portfolio. India and Malaysia also achieved pleasing growth in new life business. General insurance volumes were constrained by the economic environment, with the Indian operations additionally affected by no increase in prescribed motor third-party premium rates for 2020 and 2021.
The Group continued to implement its strategy during the period. Key developments include:
- South African operations will be strengthened by the proposed acquisition of the Alexander Forbes group risk and retail life businesses.
- African operations outside of South Africa will be strengthened by the intended acquisition of a further 22,8% of Saham Assurance Maroc for some R2 billion, allowing Sanlam to deepen its direct presence in North and West Africa and explore broad partnerships in the long term.
- The Group announced the establishment of an InsurTech strategic alliance with MTN to take the benefits of Sanlam’s insurance and investment products to the African continent’s consumers. This will significantly enhance the financial inclusion of consumers that are currently not reached through traditional distribution channels.
- The Group received proceeds of GBP 75 m from the sale of its stake in the UK platform business Nucleus during August.
The solvency position of the Group and the main operating entities has remained strong and comfortably within target ranges. The Sanlam Group solvency ratio was 175% at 30 June 2021 (31 December 2020: 186%) and the Sanlam Life solo solvency ratio was 232% at 30 June 2021 (31 December 2020: 257%).
The near-term economic outlook in South Africa deteriorated at the beginning of the third quarter of 2021 related to the onset of the third wave of COVID-19 and the civil unrest in Gauteng and KwaZulu-Natal that resulted in loss of lives, livelihoods and damage to property. There is likely to be a negative impact on consumer and business confidence as a result of these events, so that although the South African economy will continue to recover, the recovery has suffered a setback. The rate of rollout of vaccinations also has a significant bearing on the prospects for the economic recovery. Sanlam is strongly supporting initiatives aimed at improving the efficacy of the vaccine rollout programme.
The impact of COVID-19 on mortality experience in the Group’s Africa operations, where excess reserves are more limited, increased over the first six months of 2021. This trend is expected to continue for the remainder of the year.
From an operating environment perspective in general, average investment market levels, credit spread movements, potential credit defaults and the relative strength of the Rand exchange rate are some of the other key factors that may have an impact on the growth in net result from financial services, headline earnings and Group Equity Value to be reported for 2021 full year.
“Our focus will remain on consistently serving our customers, executing our strategy, maintaining the welfare of our employees, maintaining an extremely strong financial position and driving value creation from the diverse operations of the Group, to continue delivering value to our stakeholders despite the challenging operating environment,” said Mr Hanratty.