Sanlam business growth well up, but earnings hurt by R10bn mortality claims
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SANLAM’S earnings took a big hit from the R10 billion of Covid-19-related mortality claims that it paid out in the six months to June 30, but this was offset by the release of discretionary reserves.
“Covid-19 related mortality claims had a significant negative impact on earnings, but this was largely offset by the release of discretionary reserves in the South African life insurance operations,” the group said in its interim results yesterday. Further discretionary reserve releases would be considered for the second half of 2021.
“Based on current estimates, the group expects that existing reserves should largely mitigate the Covid-19 related excess mortality impact on operating profit for 2021. There, however, remains significant uncertainty regarding the impact of future waves, possible variants and the progress made with the vaccination roll-out,” the group said. Modest reserves would be maintained to mitigate mortality losses after the 2021 year.
The group paid mortality claims of R8bn in South Africa and R2bn in the rest of its operations in the first six months of 2021, with cumulative payments of more than R22bn since the start of 2020.
Initiatives to limit the future impact of Covid-19 on future mortality losses in the operations had been identified, including fair and appropriate increases in annually renewable group risk premiums, some of which have already been implemented. Underwriting changes would also be implemented in the latter part of 2021, by following a risk-based approach that takes vaccination status into account for certain product lines for those clients with particular risk profiles. Meanwhile, growth in the group’s operating earnings for the period had benefited from higher equity market levels, that supported fund-based fee income, the contraction of credit spreads, lower levels of provisions for doubtful debts, improved return on insurance funds in Sanlam Pan Africa General Insurance and an improved underwriting performance from Santam.
“The first six months saw Sanlam execute on operational and strategic objectives including fulfilling sizeable customer claims, deploying funds to support economic recovery efforts post the pandemic, launching Sanlam Investments’ climate fund and announcing a strategic insurtech initiative with MTN to support Sanlam’s goal of reaching 50 million customers by 2021,” chief executive Paul Hanratty said.
Operating profit increased robustly, while the net result from financial services increased by 16 percent in 2020.
There had been exceptional growth in the value of new business – it was 94 percent higher than in 2020. New business volumes were 12 percent higher than 2020, with life insurance premiums up more than 50 percent.
Net fund inflows of R38bn were 13 percent higher than in 2020. The group solvency ratio of 175 percent remained strong and comfortably within the target range of 160 to 200 percent. “We have maintained the strongest possible financial position to give peace of mind to all our customers and to deliver excellent returns to shareholders,” said Hanratty.
Adjusted return on group equity value – the group’s primary indicator of long-term value creation, at 6.2 percent was slightly below a target of 6.6 percent due to the high mortality claims, despite the positive contribution from strong life new business and strong operating performance across the various non-life businesses. The South African life insurance businesses recorded particularly strong growth, with all market segments contributing. Sanlam’s digital channels continued to deliver strong growth. Single premiums underpinned growth in the affluent market as increased early retirements and higher long-term yields boosted demand for life annuities.
The mass market business continued its robust recovery, supported by an acceleration in growth from the Capitec funeral JV due to its digital platform.
In the Pan-Africa operations, initiatives to cross sell into the large general insurance customers bases were bearing fruit, with “very strong growth in life sales across the portfolio.” India and Malaysia also achieved “pleasing” growth in new life business.
African operations outside of South Africa would be strengthened by the intended acquisition of a further 22.8 percent of Saham Assurance Maroc for some R2bn, to deepen Sanlam’s direct presence in North and West AfricanershipsSanlam’s share price and closed 1.04 percent lower at R61.82 on the JSE yesterday.