Sanlam is repricing its life insurance policies to try offset the effect of excess mortality claims that have hurt its operating profits, as it continues to battle the ongoing effects of Covid-19, which it says is likely to become “endemic to the world”.
Africa’s biggest insurance group is repricing its retail life insurance products and group risk schemes, implementing new underwriting protocols while also bolstering its discretionary capital buffer in anticipation of the fallout from the fourth wave of Covid-19 infections. Sanlam announced the changes in an operational update for the 10-month period ended October 31, during which it said headline earnings and diluted headline earnings per share increased 8%.
The change in policy pricing and underwriting procedures comes amid ongoing Covid-19 mortality claims payments, which Sanlam said totalled R14bn in the 10-months to end-October across its SA operations. That was an 88% increase over the mortality claim payouts made in the first 10 months of 2020, though it said the bulk of the financial effect was managed through the release of reserves.
“We believe that these management actions should eliminate future mortality losses,” Sanlam said in the operational update published on the stock exchange news service (Sens). “However, a large degree of uncertainty still exists with respect to future Covid-19 impacts. The emergence of the Omicron variant poses new questions for predictions regarding the pandemic and its future impacts. It remains too early to tell if this variant and a fourth wave will require further reserving and pricing actions.”
Sanlam said it expected to have a clearer view of the effect of the fourth wave by the time it published its full-year results in March 2022, but was bolstering its discretionary capital buffer in the meantime in anticipation of ongoing mortality claims. The group had already increased its discretionary capital from R537m on June 30 to R1.9bn on September 30.
It upped that again on October 31 and said it anticipated the level of discretionary capital to be approximately R2.5bn at the end of the financial year but that this was likely to be bolstered further from proceeds from the sale of its UK interests.
“The group will maintain a higher level of discretionary capital than is normal for a period of time to provide a buffer should the management actions prove to be inadequate,” Sanlam said. “The development of the fourth wave and clearer scientific evidence regarding the Omicron variant will inform the group as to a prudent range for such higher discretionary capital.”
Sanlam, which is implementing a mandatory vaccination policy with effect from January 1, said inoculation remained the “most significant means” of controlling Covid-19, which it said would eventually become endemic throughout the world.
Excess mortality claims across all segments of Sanlam’s local life insurance and savings business totalled R3.42bn in the first 10 months of 2021, though that figure was net of tax, reinsurance and annuity and disability offsets. Similarly, Sanlam emerging markets saw excess mortality claims above long-term actuarial assumptions of R536m in the 10 months to end-October, with the group’s southern African region and Indian operations particularly affected in the third quarter.
Yet despite the ongoing mortality claims, Sanlam still experienced strong growth in new business volumes across all its markets. Life insurance business volumes rose 37%, investment volumes increased 15% and general insurance volumes were up 3% in the 10-month period.
Net fund inflows into Sanlam’s investment products totalled R61.4bn for the first 10 months of 2021. That equated to a 21% increase over the comparable 10-month period in 2020 and 41% higher than 2019.
While Sanlam said it remained in a strong capital position with a group solvency ratio of 176% as of September 30, it expected to retain only “modest discretionary reserves” to mitigate any mortality losses after the 2021 financial year given the scale of reserves already released.
“We believe there will be further waves and that the relevant local vaccination programmes will affect the impact that these future waves have on mortality experience,” said Sanlam.
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