Johannesburg - Long-term insurer Sanlam is not keen on expanding into new regions despite sitting on a R3.2 billion cash surplus.
Instead the insurer, whose financial results outperformed most of its rivals in the first half of this year, has earmarked a big chunk of this surplus for bolt-on acquisitions in African countries where it already has operations.
Sanlam chief executive Johan van Zyl said yesterday that the company was also planning to invest more in India, where it bought a stake in Shriram Capital last year, as well as in its operations in south-east Asia.
“We are looking at a number of bolt-on acquisitions to deepen our existing partnerships,” Van Zyl said.
“For example, in Kenya we need to add short-term insurance. In Malaysia we recently completed the acquisition of Pacific & Orient Insurance, which is short-term insurance and we need to add life [insurance business] there.”
He believed the emerging markets would still be winners over a long period and he did not foresee developed markets outperforming them.
In results for the six months to June published yesterday, Sanlam said emerging markets contributed a third to operating profit. This was up from 25 percent in the first half of last year.
Describing the strategy for emerging markets, Van Zyl said Sanlam’s focus was on the lower end of the market and on English-speaking countries.
In the developed markets, Sanlam has been focusing on the high end of the market and has developed new products for this segment.
The diversity of the business has shielded Sanlam in the challenging operating environment facing insurers. And the group’s diversity has not only been derived through geographical variegation.
Van Zyl added that 10 years ago, 80 percent of the group’s business was life insurance but now, life only accounted for half of the operations. During this period, Sanlam has grown at a rate of 22 percent a year.
Sanlam reported a group equity value of R37.47 a share as at June 30, and an annualised return on group equity value of 14.3 percent. This exceeded the group’s annualised target of 10.8 percent, and once again surpassed many investors’ expectations even though Sanlam has been increasing shareholder returns ahead of its peers for the past few years.
Even when adjusted to exclude the impact of investment markets during the period, Sanlam said its return on group equity value was still well in excess of its target.
The group reported a 24 percent increase in net operating profit to R2.4 billion. Its normalised headline earnings jumped to R3.4bn from R2.5bn in the first half of last year.
Normalised diluted headline earnings a share were up 35 percent to R1.69. The group increased new business volumes by 37 percent, including “exemplary” growth of 58 percent at the investment division.
Sanlam experienced net fund inflows of R13bn during the six-month period.
Neo Kgantsi, a portfolio manager at Nedbank Private Wealth, said that the results were ahead of many investors’ expectations.
“The business has a very conservative capital deployment culture, and this has helped them to weather business cycles over time,” Kgantsi said.
“The life business remains strong but, in the short term, we are concerned about deterioration of Santam’s underwriting margins driven by the crop insurance business.
“In the long term, though, Santam has been able to deliver on investors’ expectations.”
Last week short-term insurer Santam reported that its net underwriting margin shrank to only 1.3 percent in the six months to June from 6.1 percent a year earlier as high claims persisted into 2013.
Sanlam shares rose 0.36 percent to R46.96 yesterday. - Business Report