New business volumes declined by 1% amidst pressure on single premiums in South Africa, Namibia and Botswana. Life insurance new business volumes increased by 2%, investment business inflows declined by 5% and general insurance earned premiums increased by 16%. Excluding structural activity, exchange rate differences and the R4,6 billion new mandate received from the BPOPF in 2016, new business volumes increased by 1%.
SPF’s new business sales declined by 5%, with lower discretionary single premium savings volumes concealing a solid recurring premium performance.
Sanlam Sky’s new business increased by 12%. The change in mix between risk and savings business continued to improve in 2017, supporting exceptional growth in VNB (refer below). Individual life recurring premium new business increased by 8%, with a 32% decline in savings business partly offsetting 15% growth in risk business. Group recurring premium sales were supported by a number of large new schemes written by Safrican and the biennial renewal of the Zionist Christian Church (ZCC) scheme, increasing by 26%. Excluding the ZCC scheme, group recurring premium business increased by 9% against a high comparative base, which also included large new schemes at Safrican in 2016.
New business volumes in the Recurring premium sub cluster and Strategic Business Development increased by 10%. Risk business sales grew by 18%, supported by the first-time inclusion of BrightRock from October 2017 and more than 20% growth in credit life business. Excluding BrightRock, new risk business achieved solid growth of 8% against a high comparative base. Savings business sales increased by 8%, the combination of good growth in retirement annuities and lower demand for endowments and tax-free savings products.
Glacier new business declined by 6%. The LISP business was severely impacted by the heightened investor risk aversion, contributing to 9% and 17% declines in discretionary non-life and secondary new business sales respectively. Demand for life licence LISP solutions were more resilient with new business volumes increasing by 3%. Traditional life investment single premiums grew by 1%.
The slowdown in single premium business had a negative impact on SPF’s net fund inflows, which declined from R16,5 billion in 2016 to R8,5 billion in 2017.
SEM new business volumes declined by 8% (up 8% in constant currency, excluding structural activity and the BPOPF mandate in 2016).
New business volumes in Namibia declined by 1%. New life business growth of 12% was more than offset by a 5% decline in the more volatile single premium investment business. The life business growth was, however, skewed towards lower margin lines of business following good entry-level market sales in 2016, contributing to a disappointing VNB performance (refer below).
The Botswana results include the impact of a stronger average rand exchange rate, as well as a high comparative base attributable to the R4,6 billion asset management mandate received from the BPOPF in 2016. Excluding the BPOPF, new business sales grew by 22% in constant currency. The investment manager continued to perform well, growing its new investment mandates by some 27% in constant currency (excluding the BPOPF from the comparable base). New life business sales (up 9% in constant currency) improved in the second half of the year after a major competitor increased its annuity pricing. Annuity volumes were, however, still lower than 2016 and at lower margins, contributing to lower VNB (refer below).
Rest of Africa new business volumes grew by 22% (36% in constant currency). Excluding structural activity, new business volumes decreased by 15% (up 1% in constant currency). All countries in the region contributed growth in excess of 20% in constant currency, apart from Kenya, Zambia and Tanzania. Kenya continued to struggle to gain traction amidst a very competitive market and internal challenges, while in Zambia, focus on the quality of new business written resulted in a decline in recurring premium business, which offset good single premium growth. A decline in agency headcount and lower productivity negatively affected the Tanzania new business performance. A particular highlight is Nigeria’s new business growth of almost 50% in constant currency in a difficult operating environment. Nigeria is now the third largest contributor to Rest of Africa new business volumes after Kenya and Saham Finances. Saham Finances is tracking the business case.
The Indian insurance businesses continued to perform well, growing their new business contribution by 66% in 2017 (6% in constant currency and excluding structural activity). New life and general insurance business sales increased by 51% and 74% respectively. The life business continued to benefit from the investments made in growing its distribution footprint. Business from the Shriram City Union Finance client base exceeded targets, while volumes are also expanding from the Shriram Transport Finance base. Shriram General Insurance exceeded its new business targets for 2017, but the mix of business still needs more attention.
Malaysia’s new business performance continued to disappoint, with both the life and general insurance businesses experiencing some 24% decline in new business volumes (down 13% in constant currency). Progress with diversifying the lines of business still lags behind expectations. Several initiatives are being implemented to address the current under performance.
Net fund flows declined from R10,9 billion in 2016 to R2,1 billion in 2017. This is mainly due to the R4,6 billion BPOPF inflow included in the comparative base, a negative R542 million exchange rate impact and more than R3 billion of investment fund withdrawals in Namibia by the Government pension fund.
SI’s new business growth of 2% in constant currency (flat at actual exchange rate) is a solid performance in an environment of low investor confidence in South Africa. Net fund inflows increased threefold from R5,2 billion in 2016 to R16,1 billion in 2017, a particularly pleasing result. The South African asset manager gained further traction in the institutional market, partly offset by lower retail flows that were to a larger extent impacted by negative investor sentiment. The Wealth Management business recorded net outflows. These relate mainly to R3,2 billion of outflows from low-margin non-annuity products, mostly share incentive scheme mandates. The International business achieved a sterling turnaround in net fund flows, from an outflow of R4,7 billion in 2016 to a net inflow of R3,6 billion in 2017 (some R4 billion in constant currency). Most of the International business units achieved improved net inflows.
Gross written premiums at Santam increased by 15%. Organic growth of 9% was augmented by the first-time contribution from acquisitions. The three main lines of business, being motor, property and alternative risk, achieved double-digit organic growth, a robust performance in a highly competitive market. Net earned premiums grew by 8%, after allowing for reinsurance and reinstatement premiums of R160 million payable in respect of the catastrophe events. Gross written premium per line of business (excluding SEM investments) are analysed in the following graph:
Sanlam Corporate regained some recurring premium risk market share as competitors repriced risk business after a period of weak claims experience, driving exceptional growth of 45% in this line of business. The more volatile single premium business experienced marginally lower volumes than 2016, but with a promising pipeline for the first half of 2018.
Overall net fund inflows of R34,6 billion in 2017 is a satisfactory performance given the challenging market conditions and a high base in 2016.
The discount rate used to determine VNB is directly linked to long-term interest rates. The 20bps and 60bps decline in the South African nine- and five-year benchmark rates respectively during 2017 resulted in a commensurate decline in the risk discount rate, with a 3% positive impact on VNB growth. VNB margins were only marginally affected by the lower discount rate. VNB margins were in general maintained on a per product basis, with the rise in average margins attributable to a change in mix to more profitable product lines, in particular at Sanlam Sky and the Recurring premium sub cluster. Net VNB commensurately increased by 15%, an exceptional performance in a challenging environment.
SPF achieved overall growth of 21% (17% on a comparable basis). The change in business mix in Sanlam Sky contributed to a 46% increase in its VNB contribution (35% on a comparable basis) and an increase in VNB margin from 7,12% in 2016 to 8,88% in 2017. The good growth in new risk business at the Recurring premium sub cluster and strategic business development, similarly supported VNB, which increased by 42% (38% excluding BrightRock). VNB margins in these businesses improved from 2,92% to 3,46%. Glacier’s VNB declined by 7% due to the weak new business performance and the reallocation of administration costs from the Recurring premium sub cluster.
Net VNB at SEM declined by 3% (up 9% in constant currency). Excluding structural activity, VNB increased by 3% in constant currency. All regions contributed strong organic growth, apart from Namibia, Botswana and Tanzania. Namibia VNB was in line with 2016 despite the rise in new life business volumes. This is largely attributable to the change in mix to lower margin business, while the decline in annuity sales in Botswana contributed to a 9% decline in its constant currency contribution. Tanzania also experienced lower VNB in line with the decline in new life business.
The good growth in Sanlam Corporate recurring premium risk business enabled a 14% increase in the cluster’s VNB contribution.