SANLAM’S operational update for the first four months of 2022 showed an insurance firm under pressure as it battled the headwind of a decline in global financial markets as the war in Russia-Ukraine rages, the significant hike in global inflation and the “catastrophic” KwaZulu-Natal floods.
Its financial services earnings decreased by 7 percent, largely due to the impact of the catastrophic events at Santam, and the effects of market volatility on credit spread earnings as well as Sanlam Emerging Market’s (SEM) general insurance float returns.
Its general insurance business, which included Santam, saw earnings fall 63 percent.
However, the group maintained that it had posted creditable earnings, with strong results in the life insurance and investment management businesses offsetting weak general insurance and credit business results.
“Although Life Insurance recorded much lower Covid-19 excess mortality claims, Santam was impacted by several weather and fire-related events in the first quarter of 2022, as well as the major weather catastrophe in KwaZulu-Natal in April,” it said.
Its life insurance net result from financial services increased 14 percent driven by a strong improvement in Sanlam Life and Savings earnings.
Sanlam said its operations remained robust, with a strong capital position and further growth in life insurance new business volumes, despite the high base from 2021, as well as satisfactory growth in general insurance new business volumes.
Life insurance new business volumes increased by 8 percent, excluding UK businesses sold, off a high 2021 base, while general insurance new business volumes increased by 4 percent (7 percent excluding reinstatement premiums at Santam).
“The group remains focused on executing its purpose-led strategy. Management has significantly strengthened the business through the agreement to combine Sanlam’s Pan-African operations outside of South Africa with Allianz SE, subject to regulatory and other approvals,” it said, adding that the partnership would support Sanlam’s objectives of creating shared value and driving financial inclusion across the continent.
Sanlam’s net client cash inflows of R26.7 billion were down 5 percent, in line with expected lower investment flows in Sanlam Emerging Markets and Sanlam Investment Group, off high bases from 2021.
Sanlam said it had completed several transactions that finalise its partial exit from the UK, with only a focused international asset management business remaining.
The acquisition of the Alexforbes retail and group life businesses were completed in the period.
Given the uncertainty around Covid-19 and continuous economic and financial market pressures, Sanlam said it believed it was prudent to maintain a higher than usual level of discretionary capital to provide a buffer against any significant weakening in mortality experience and financial markets.
Discretionary capital increased from R2.9bn on December 31, 2021, to some R6.5bn on April 30; including proceeds of £153 million (R2.9bn) from the UK asset sales.
Looking ahead, Sanlam Group CEO, Paul Hanratty, said: “While Sanlam encountered various operating challenges in 2022, I am pleased that we posted creditable earnings, with strong results in the life insurance and investment management businesses. These results demonstrate that Sanlam is a trusted partner that is committed to continue delivering long-term value to all stakeholders.”
Consumers were likely to face increased financial pressure from higher food and transport inflation, as well as higher short term interest rates. This was likely to result in lower savings rates and higher persistency risk as disposable incomes come under pressure.
Sanlam said it expected new business growth rates to be muted over the remainder of the year. The resilience of the South Africa and broader Pan-African economies, especially those benefiting from higher commodity prices, should, however, provide some support.
“Our overall capital strength, diversified portfolio and track record of execution remain key differentiators and we remain well positioned, despite the difficult operating environment that is likely to persist for the remainder of 2022,” said Hanratty.
BUSINESS REPORT