Sanlam returns to normal growth trends after three challenging years

Sanlam offices in FloraCliffe, Johannesburg. Picture: Karen Sandison/African News Agency (ANA)

Sanlam offices in FloraCliffe, Johannesburg. Picture: Karen Sandison/African News Agency (ANA)

Published Sep 8, 2023


Sanlam said its earnings trends were back on track in the six months to June 30 after a series of what its management described as one-in-25 or one-in-100-year events between 2020 and 2022, highlighted by the Covid-19 pandemic.

The performance was broad-based – strong profitability was reported in life insurance, credit and general insurance, and investment management was steady – the group said in its interim results yesterday.

CEO Paul Hanratty said the operational performance and earnings growth had been robust.

“This growth from the pre-pandemic basis indicates the underlying growth engine of Sanlam remains intact. It underscores the strength and resilience of our diversified operations. Our delivery on strategy amid challenging operating conditions is testimony,” he said.

Sanlam CEO Paul Hanratty

The first half performance last year was negatively impacted by weak investment markets and a lower performance from general insurance operations, while the second half of 2022 saw a turnaround in earnings. As a result, the growth in the second half of 2023 was unlikely to be as strong as the first half growth rate, the group said in a statement.

Sanlam’s measure of underlying earnings performance, net results from financial services, increased 26%. The general insurance line of business increased 38%, life insurance by 28% and credit and structuring 36%.

The investment management operations increased by 2% and would be 9% higher when excluding the earnings from disposed UK businesses in the 2022 base. The group’s key earnings metric, cash net results from financial services, increased by 30%.

Cratos Asset Management (@CratosAM) said on X: “Sanlam posted a solid set of results for HY ‘23 (half-year 2023), as improvements in equity markets and a weakening of the rand boosted H1 returns ... Shares have been making 52-week highs”.

Martin Rodgers (@SAValueInvestor) said on X: “Solid update on Sanlam’s interim results for FY2023. So much detail with these insurance companies you will need a blue tick to get it all in one tweet.”

Sanlam said it had made progress on actions to fortify it’s position in South Africa. The 60% acquisition of AfroCentric, a leading health insurance provider, was completed in the first half.

Sanlam also concluded a deal with Capital Legacy, which will allow the group to provide innovative wills and estate services to South African clients.

The group also concluded the buyout of remaining shareholders in BrightRock, an insurer in the affluent market in South Africa. Sanlam expected significant synergies over time within this business.

The Absa asset management and AlexForbes transactions completed in 2022 and 2023 had contributed positively to earnings and new business volume growth over the period.

On the pan-African front, Sanlam announced the conclusion of the transaction with global group Allianz this week to form an Africa-wide insurance joint venture, having received all the necessary regulatory approvals.

In Asia, the Indian economy had recovered well from the pandemic and the group is positive about the medium- and long-term prospects of the Indian operations.

Sanlam’s primary performance target for measuring long-term shareholder value creation is return on group equity value (RoGEV). RoGEV per share was 12% and group equity value per share was R67.85 on June 30, 2023. Its shareholders appear to be valuing the group fully, with the JSE share price trading at R67.43 yesterday afternoon.

RoGEV benefited from robust contributions from value of new business, improved performance and outlook in Sanlam’s credit business in India, as well as a strong contribution from Santam, the short-term insurer.

Strong investment markets and a weakening of the rand relative to the main valuation currencies in the non-South African operations also contributed to the higher return for the first six months of 2023.

Total new business volumes increased 19% to R191 billion, driven by strong investment business sales. Life insurance new business volumes increased by 4% on a present value of new business premiums basis, with value of new covered business (VNB) of R1.3bn, 21% higher than the first six months of 2022. VNB benefited from expense efficiency and product mix shifts.

Net client cash inflows of R11.4bn remained solid, albeit lower than the first six months of 2022, due to an increase in outflows from savings products in life insurance as well as the investment management operations, reflecting the challenging consumer environment.