5 September 2019
Sanlam Group today announced its operational performance for the six months ended 30 June 2019. The Group achieved a pleasing performance, despite weak operating environments in South Africa and Namibia, as well as the general adverse effect of international political and economic rifts on emerging markets.
The performance was fairly broad based driven by solid organic growth, augmented by the SAHAM Finances’ corporate activity in the second half of 2018, contributing to a 13% increase in net result from financial services, 19% growth in the value of new covered business (VNB) written and 19% higher net fund inflows. Annualised adjusted Return on Group Equity Value (RoGEV) per share of 8.9% was achieved.
In the main, net result from financial services (net operating profit) of R5 billion increased by 13% compared to the first six months of 2018, a credible performance.
The overall picture regarding new business volumes shows an increase of some 4% despite low investor confidence in South Africa and lower investment inflows in Namibia and Kenya. SAHAM Finances’ corporate activity increased growth by some 3%. Life insurance new business volumes increased by 2%, investment business inflows were in line with 2018, and general insurance earned premiums increased by 25%.
On capital management, the Group started the year with negative discretionary capital of R3.7 billion, after payment for the SAHAM Finances acquisition. The B-BBEE transaction raised a net R4.5 billion. Several transactions during 2019 affected the balance of available discretionary capital, which amounted to R570 million at 30 June 2019.
Key features of the performance included:
Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with the performance considering the weak operating environment. The results reflect the resilience of our diversification strategy. We will remain focused on delivering synergies from the SAHAM Finances transaction as well as deliver value from the implementation of the package of B-BBEE transactions approved in December 2018. We are confident that we have the necessary depth of talent to continue delivering value to our shareholders and other stakeholders despite the current headwinds.”
Sanlam Personal Finance (SPF) grew its net result from financial services by 9%, attributable to strong earnings growth at Glacier and Sanlam Sky. A prior year tax adjustment of R70 million at Sanlam Personal Loans (SPL) had a positive impact on the after-tax results. Excluding higher new business strain and the tax adjustment, net result from financial services increased by 12%.
Sanlam Sky grew its gross result from financial services by 8%; up 24% excluding additional new business strain incurred as a result of strong growth in its new business volumes.
Glacier, which incorporates single premium life investments and the Linked Investment Savings Plan platform (LISP) recorded a 32% increase in gross result from financial services, the combined effect of an 11% rise in profit from the LISP platform and 47% from life investments.
SPF new business sales declined by 9%, attributable to lower volumes at Glacier.
Sanlam Sky’s new business increased by 3%, up 96% excluding the Capitec Bank credit life business of R566 million that did not repeat in 2019. The Capitec Bank funeral product, launched in May 2018, continues to exceed expectations.
The pressure on Glacier new business sales persisted into 2019, with life and investment business declining by 12% and 9% respectively, reflective of depressed investor confidence.
The Recurring premium business achieved 3% growth in new business sales. Healthy demand for annuities was offset by lower volumes across most other lines of business.
The decline in single premium business had a major negative impact on SPF’s net fund inflows, which decreased by 47% from R6.8 billion in 2018 to R3.6 billion in 2019.
Sanlam Emerging Markets (SEM) grew its net result from financial services by 50% including structural activity and exchange rate differences. Organic growth in constant currency amounted to 18%.
Namibia’s gross result from financial services declined by 2%, due to a lower profit contribution from general insurance. Claims experience normalised in the first six months of 2019, contributing to a decline in the underwriting margin to 6.5% and commensurately lower operating profit. The life insurance businesses achieved good profit growth, supported by an improvement in group life claims experience.
Botswana operations’ contribution to gross result from financial services increased by 10%. Life insurance earnings increased by 2% in constant currency, impacted by mismatch losses in the annuity portfolio.
SAHAM Finances’ gross result from financial services more than doubled in 2019, supported by the corporate activity in the second half of 2018.
The other African operations achieved a good turnaround in profitability. The results include a R83 million one-off impact (R33 million after tax and minorities) relating to a relaxation in the regulatory reserving basis in Kenya. Excluding this, gross result from financial services increased by189%, with most regions contributing good growth.
Gross result from financial services in India more than doubled to R1.1 billion. The credit businesses achieved strong growth of 45%, benefiting from good growth in the size of the loan books. Shriram General Insurance achieved exceptional growth of some 200% from R176 million in 2018 to R529 million in 2019. This is due to a major improvement in the performance of the third-party book. Life insurance profit was negatively affected by lower new business generated from the credit businesses’ client bases, in line with the lower level of disbursements in the last quarter of 2018.
High claims experience in both the Malaysian life and general insurance businesses, combined with higher new business strain in the life business, contributed to a soft operating profit result.
SEM new business volumes increased by 36%.
New business volumes in Namibia declined by 12%. New life business increased by 72%, with persistent strong growth in the entry-level market, augmented by an improvement in affluent market sales in recent months. New investment business, volatile by nature, decreased by 31% from a high base in 2018.
In Botswana, new investment business increased strongly by 42%. New life business also achieved healthy growth of 17%, but with a change in mix to less profitable savings business. Overall new business sales were up 34%.
Other African operations new business volumes grew by 81%. SAHAM Finances outperformed targets with the exception of SAHAM Assistance and Continental Re. New life insurance business written by SAHAM Finances increased from R61 million in 2018 to R823 million, which includes strong organic growth as well as structural activity. SAHAM Finances general insurance net earned premiums more than doubled, supported by structural growth. New business written in the other African regions, excluding Kenya’s investment business, increased by 18%. All key regions contributed to this growth. New investment business flows in Kenya underperformed.
New business at the Indian life insurance business was under pressure as a result of the liquidity crunch in India and increased by only 6% on 2018. The general insurance business experienced much stronger growth of 21%, contributing to overall constant currency growth of 7% on the first half of 2018.
The turnaround at the Malaysian businesses is persisting with overall growth of 49% in new business volumes. The life business grew new business volumes by 76%, with an improvement in the mix of business to the more profitable non-participating lines of business. General insurance new business increased by 16%, though this is below expectations.
Net fund flows increased by 72% from R3.2 billion in 2018 to R5.5 billion in 2019, with Namibia, SAHAM Finances and India the main contributors.
SanIam Investment Group’s (SIG) net result from financial services increased by 7%, a satisfactory performance under challenging conditions.
The Sanlam Investments 3rd party asset manager’s gross result from financial services increased by 72%. Excluding a few distinct transactions, the business achieved strong growth of 19% despite lower average equity markets over the period. Performance fees, stringent cost control and solid net fund inflows supported fee income.
Wealth Management gross result from financial services increased by 13%. Fee income rose by some 14%, attributable to a favourable change in mix of business from the prior year, augmented by good cost control. Brokerage income lagged due to lower overall trading levels in the uncertain environment.
The International business was impacted by lower brokerage income in the wealth business and bad debt provisions of some R30 million. This largely offset an otherwise strong underlying performance, with Nucleus performing strongly and the asset management businesses benefiting from higher assets under management.
Sanlam Specialised Finance had a difficult first six months in 2019. Lower average equity markets had a negative impact on the asset base and fee income of the Sanlam Asset Management business (incorporating Sanlam Portfolio Management and Sanlam Structured Solutions). The Central Credit Manager (CCM) raised provisions of some R140 million against a number of South African credit exposures (excluding Mayfair), reflective of heightened credit risk. The exposure to Mayfair declined from some R800 million at the time of the collapse of the Steinhoff share price in 2017 to R262 million at 30 June 2019.
SIG new business volumes increased by 3%, the aggregate of 11% growth at the South African asset management business, partly offset by a lower contribution from the international businesses and a flat performance from wealth management. New business performance was broad based in the South African asset management business, with pleasing institutional, retail and alternative flows. Wealth management flows reflected the lack of investor confidence in the target market. Net fund inflows increased by 86% to R10 billion.
Santam’s net result from financial services declined by 13%.The benign claims environment in the first half of 2018 did not repeat in 2019. The liability line of business recorded a strong recovery, which included claims relating to the listeriosis outbreak early in 2018 in the comparable base. The core motor book and engineering lines of business also continued to perform well. This was, however, partly offset by a significant weakening in the property and agricultural lines, which were impacted by a number of fire, flooding and hail events in 2019. Underwriting margin for conventional insurance declined from 8.4% in 2018 to 5.3% in 2019 as a result, but remained within the 4% to 8% target range. The underwriting result commensurately declined by 34% from R941 million in 2018 to R623 million in 2019.
Gross written premiums increased by 9%. Motor and property, which contributes 70% of total gross written premiums, increased by a combined 7% in a challenging environment of low economic growth and competitive pressures. Motor business increased by 3%, largely reflective of marginal growth in the commercial book. MiWay achieved growth of 9%. The Property business (12%), Engineering (36%), Liability (11%), Accident and Health (12%) and Alternative risk (13%) reported strong growth.
Sanlam Corporate experienced an 18% decline in net result from financial services, as a result of weaker group risk claims experience as well as a lower contribution from Sanlam Employee Benefits Investments from a high base in 2018. Early signs of an improvement in group risk claims experience emerging in the last few months should support results in the second half of the year if sustained. ACA continues to perform well, contributing R25 million in the first half of 2019. Afrocentric maintained its earnings in line with 2018, despite pressure on its cost base.
New business volumes grew by 32%, the combination of 24% growth in life business and a 53% increase in new investment business. The umbrella fund and non-life investment lines of business contributed most of the growth. New business growth accelerated in the second half of 2018, with a few large mandates won after June 2018. This has resulted in an increasing comparative base for the remainder of the year, with the current level of growth commensurately not expected to persist.
Overall Group net fund inflows of R22.9 billion in 2019 demonstrated a satisfactory performance given the challenging market conditions.