Sanlam has reported “credible” financial results for the first four months of 2022 though it opted to bolster its discretionary capital as a buffer against possible future mortality claims from Covid-19 and ructions on financial markets due to the war in Ukraine.
The financial services group released an operational update to end-April on Wednesday saying its financial performance in the period was “satisfactory” despite persistent global supply-chain disruptions, volatility in financial markets in the wake of Russia’s invasion of Ukraine and catastrophic flooding in KwaZulu-Natal.
The strong performance of the life insurance and investment management businesses offset weaker results in general insurance and credit.
“While Sanlam encountered various operating challenges in 2022, I am pleased that we posted creditable earnings, with strong results in the life insurance and investment management businesses,” CEO Paul Hanratty said. “Our overall capital strength, diversified portfolio and track record of execution remain key differentiators and we remain well-positioned, despite the difficult operating environment that is likely to persist for the remainder of 2022.”
Sanlam said although its life insurance business recorded much lower excess mortality claims from the easing Covid-19 pandemic, it was severely affected by weather- and fire-related events, particularly the severe flooding in KwaZulu-Natal in April.
Though the group said operations remain robust and that it has a strong capital position, it opted to raise discretionary capital levels as a precaution against the continued uncertainty about the Covid-19 pandemic. Discretionary capital rose from R2.9bn as at end-December 2021 to about R6.5bn at end-April, an amount that includes the £153m in proceeds from the sale of assets in the UK.
Sanlam completed a package of asset sales in the UK to finalise its partial exit from that market where it will be left with only an international asset management business. The Bellville, Cape Town-based group finalised the acquisition of the Alexforbes retail and group life businesses during the first four months of 2022.
The firm said its agreement to combine its pan-African operations outside SA with those of Allianz, Europe’s largest insurer, will significantly strengthen its business on the continent. While the joint venture is still subject to regulatory and other approvals it is expected to create a combined business worth more than R33bn with operations in 29 African markets outside SA.
Sanlam said its net group result from financial services fell 7%, largely due to the effects of weather- and fire-related “catastrophe events”, which hit Santam, the short-term insurer in which it holds a majority stake. The financial market volatility stemming from the Ukraine crisis eroded returns of its Sanlam Emerging Market’s (SEM’s) general insurance float, as well as credit spread earnings.
Without the one-off items, Sanlam’s net result from financial services would have been 8% higher. Nevertheless, its general insurance net result from financial services slumped 62% driven by declines in Santam and SEM, the latter being hurt by declines in Moroccan equity markets.
Plus side
On the plus side, life insurance net result from financial services rose 14% thanks to an improved mortality claims experience in the period. New business volumes also remained robust with life insurance sales climbing 8% (excluding the UK businesses sold) despite coming off a high base in 2021.
General insurance new business volumes rose 7% (excluding reinstatement premiums at Santam), with Pan African general insurance sales up 10% in constant currency.
Net value of new covered business (VNB) was down 16% largely due to product mix changes, with lower sales of risk and guaranteed annuity products in SA. While SEM life operations saw profitable growth in constant currency, with a 2% increase in the period, they were 4% lower at actual exchange rates.
Group net client cash inflows fell 5% to R26.7bn, though this was in line with expected lower investment flows into SEM and Sanlam Investment Group, given the high bases achieved in 2021. Sanlam said its group solvency ratio remained within the target range at 171% at end-March.
Sanlam warned that it expects the disposable incomes and savings of consumers to come under increasing pressure from accelerating food and fuel inflation and rising interest rates.
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