Sanlam, which spent much of 2021 securing a raft of deals to bolster its position as Africa’s largest non-bank financial services group, says it is not done with deal making as it seeks to scale up further and widen its profit margins.
With the group describing its business in SA as a “fortress”, it is chasing further scale at home and abroad through a series of deals that have shaken up the domestic asset management and insurance market. It has exited its UK life insurance, wealth and financial planning businesses, though it retained its international asset management capabilities in that market, and is channelling new revenue from its minority stake in Indian insurance group Shriram.
But while Sanlam is still waiting to finalise many of its local deals, such as the merger between its investment business and that of Absa, CEO Paul Hanratty said the group will be chasing scale for some time to come. Among the deals Sanlam announced in 2021 were an insure-tech joint venture with MTN; transactions with Alexander Forbes; the purchase of Absa’s linked investment service provider; and the launch of health insurance offerings in partnership with AfroCentric, in which Sanlam has a stake.
“Scale truly does matter and I think that will feed through to the bottom line,” Hanratty said after Sanlam released its annual results showing headline earnings rose 27% to R9.04bn in the year to end-December.
“Financial services is a scale business,” he told Business Day. “Over the long run these transactions will make a significant difference and it’s not like we’re going to stop there. We’ll continue to build scale.”
Sanlam issued a cautionary in December saying it was exploring “strategic alternatives” with Allianz that could result in a transaction. Though it offered little detail, Santam, which is part owned by Sanlam, said it was considering various alternatives in relation to its investments on the rest of the continent.
Hanratty did not want to be drawn on the Allianz talks but did say the German insurer’s African business is about half the size of Sanlam’s rest of Africa operations. A possible purchase of that book by Sanlam would bulk up its presence on the continent, particularly in tricky West African markets like Nigeria and Senegal, where Allianz has a presence.
Sanlam is already expanding its footprint in the rest of Africa through its $100m (R1.5bn) joint venture with MTN, which will see it roll out life insurance, phone and car insurance and basic savings products through a fintech offering that leverages the mobile operator’s customer base to reach millions of underserved clients on the continent.
Hanratty said that without the joint venture with MTN it would be far harder to replicate the penetration of the fintech offering because it would require setting up dedicated operations in each market to write policies.
By simply overlaying Sanlam’s licensing network and expertise in financial products it can generate additional profit with minimal capital outlay.
Benefits of scale
“Across Africa ... scale is what helps us,” said Hanratty. “We don’t want to treat our customers like numbers ... but from a financial point of view we do want to get the benefits of scale.”
Adding to that scale will be agreements to buy Alexander Forbes’ group risk and retail life business, while its individual client administration business will also be bought by Sanlam and integrated into its Glacier platform. Sanlam will sell its stand-alone retirement fund administration business to Alexander Forbes as part of its own reorganisation plan.
“The Absa transaction and the Alexander Forbes transaction add enormous scale to what is already a big platform,” Hanratty said. “You’ve got a big cost base but you can grow the revenue line dramatically. Big businesses have massive capital advantages in insurance.”
Sanlam’s plan to launch new health insurance offerings with AfroCentric is perhaps the most exciting. Hanratty said the plan is to challenge Discovery, which has about 58% of the private medical insurance market, by rolling out more affordable alternatives.
“Discovery has built a great proposition but one that is probably targeted at the top end of the market,” he said. “We’re trying to deliver a Toyota rather than a BMW. That might not be for everyone but for the broad market in SA there needs to be a price point for everybody.”
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