India’s economic tailwinds driven by domestic consumption and investments will see Sanlam reap the rewards for years to come, CEO Paul Hanratty says.
This is as Sanlam’s three-pronged strategy to grow its dominance in its home market, expand in the rest of the continent and build a scalable nonbanking financial institution in India takes shape.
Hanratty said India, which is expected to lead global economic growth for the next years, is an important market for the group.
“We have always said we have three legs to our strategy: the first one was to build a fortress position in SA, the second one was to build a strong position on the rest of the continent and the third one was to strengthen our position in India,” Hanratty told Business Day.
“The growth rate in India means that even if we don’t invest further in that country, it will still be a significantly big part of our business. We are very lucky because we probably have the best partnership in India than any of the other foreign players.”
The merger of Shriram City Union Finance and Shriram Transport Finance in India last created one of the largest nonbanking financial institutions in India.
The relationship between Sanlam and Shriram started way back in 2004. At the time, the Cape Town-based group was eager to expand its presence outside Africa and the two countries that came out on top were China and India.
It decided to go ahead with India due to the size of the market and lower penetration. The decision seems to have paid off as the size of the market has since grown to 1.4-billion people and is one of the fastest-growing economies in the world.
The International Monetary Fund expects India’s economy to grow more than 6% over the next few years and will eventually be the world’s third-largest economy.
In the six months to end June, India accounted for R384bn of the group’s R453bn credit book size.
Sanlam reported a surge in interim profit as claims related to Covid-19 and floods in KwaZulu-Natal last year fell sharply.
Santam, the group’s short-term insurance unit, was also blighted by claims related to power-surges and vehicle theft in the six months to end-June of 2022.
The insurance group valued at about R150.7bn on the JSE, reported headline earnings per share (HEPS), a common profit measure in SA that excludes certain items, soared 118% year on year to 339c, at the mid-range of the 331c-374c guidance provided in a recent trading statement.
Headline earnings at Africa’s biggest insurer jumped 117% to R6.9bn and new total business volumes grew 19% to R191bn.
“This growth from the pre-pandemic basis indicates that the underlying growth engine of Sanlam remains intact. It also underscores the strength and resilience of our diversified operations,” Hanratty said.
However, the company raised bad-debt provisions as SA consumers face numerous tailwinds. “We are seeing a deterioration in the risk profile with rising interest rates and inflation. We are not concerned about it as we have always been conservative and prudent in credit extension,” Hanratty said.
The group also reported an increase in outflows from savings products in life insurance as well as the investment management operations.
These outflows saw the company report net client cash inflows of R11.4bn in the six months under review, down from the inflows reported in the comparative period, representing a 70% drop.
“We are in a fundamentally different economic space. If you think about pre-Covid-19, globally we saw very low inflation and very low interest rates, and in a sense people were living in an unreal world. People were able to save and spend quite freely.
“Covid-19 brought enormous strain to corporate and government balance sheets and post-Covid-19, I think we are living in a very different environment. It is going to be very tough for consumers. That is why getting growth back in this economy is vital.”
During the reporting period, Sanlam acquired a 60% stake in the health insurer AfroCentric, added Capital Legacy to provide wills and estate services to local clients, and completed the buyout of the remaining shareholders in insurer BrightRock.
There was also the tie-up of its local investment management business with Absa’s to create a black-owned asset manager with R1-trillion in assets.
These transactions are part of the group’s strategy to fortify its position in SA.
On Tuesday, the group announced a joint venture (JV) — SanlamAllianz — with Europe’s largest insurer, Allianz, that will pool most of their businesses on the continent to create a financial services partnership worth about R35bn.
SanlamAllianz will have a presence in eight of the 10 largest African markets, with the main drawcard for Sanlam being Egypt, a market they have yearned to play in for years.
“The JV is well positioned to benefit from Africa’s economic growth, rising incomes and consequent increase in penetration rates, as well as from the technical and financial support of both Sanlam and Allianz,” Hanratty said.
With Andries Mahlangu
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