Sanlam CEO Paul Hanratty says that while the bleak global economic backdrop is a concern, it also gives the insurance group the opportunity to pick up assets at cheaper prices as the combination of weak growth and accelerating pressure drives down valuations.
Hanratty made the comments after the group published its results for the six months to end-June, which showed headline earnings fell 8% to R3.68bn.
After a fiscal first half that saw Sanlam’s general insurance operations suffer from adverse weather conditions and rising claims costs driven by inflationary pressures, Hanratty said he was nevertheless optimistic about the group’s prospects, despite concerns about much of the world heading into a stagflationary quagmire.
“These are exactly the moments you wait for because depressed asset prices, lots of cash, lots of strength on the balance sheet is a perfect recipe for us — very happy days,” Hanratty told Business Day in an interview. “It’s much better for us to be trying to buy assets in a depressed environment than it is when there’s a full-on bull run under way.”
Sanlam, Africa’s biggest nonbank financial services group, has been involved in a number of high-profile corporate deals in the past year, with the agreement with Absa to combine the two firms’ investment management businesses arguably the most significant. It has also concluded deals with Alexforbes, MTN and Allianz, though its attempt to increase its 61.7% stake in Morocco’s Saham Assurance Maroc by a further 22.8% failed.
Hanratty also emphasised the inherent resilience of the insurance industry despite increasing cost pressures on consumers as premium growth tended to rise in lockstep with inflation over time.
He said the group’s decision to use inflation-linked fixed-interest investments to back its nominal liabilities helped mitigate the impact of rising interest rates and inflation rates.
“Our industry is probably one of the most inflation-proof that you can invest in,” he said.
“This industry, if you manage it well, is one of the very best in the medium to long term against inflation. We’ve invested significantly in inflation-linked bonds so the surge in inflation is no problem for us, happy days.”
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