BUSINESS LIVE / 05 SEPTEMBER 2019 - 08.30 / LONDIWE BUTHELEZI UPDATED 06 SEPTEMBER 2019 - 19:55
SA’s largest insurer grows new business volumes as new sales in Personal Finance unit shrink
SA’s largest insurer Sanlam says a tough economic climate in SA has piled pressure on brokers to up efforts to keep customers, while selling has been limited by people’s reluctance to invest in long-term products.
Sanlam recorded a 4% increase in new business volumes to R111bn in the first six months of 2019.
New sales in its largest business unit, Sanlam Personal Finance, shrank 9%, despite the value of new life insurance products sold rising 11% and the profit margin improving.
“The problem is not the sector — life insurers are getting more innovative, intermediaries are working hard — but what happens in tough times is that intermediary activity is spent mostly on retention,” Sanlam CEO Ian Kirk said.
Sanlam acting CFO Wikus Olivier said the insurer’s persistency rates, which indicate business that insurers are able to retain, remained in line with 2018 but there was a slight increase in lapses in the entry-level market.
The strain in the low-income segment was also echoed by Clientele when it reported its results in August. Clientele said withdrawals were worse than its expectations in the year to June due to the dire state of the economy affecting its clients.
Sanlam joins peers such as Liberty and Old Mutual in reporting lower single-digit increase on new business volumes.
“There’s not a lot of new business around. Discretionary money is not available. People sit with their money in bank accounts because they don’t have confidence,” Kirk said.
Despite the lukewarm growth in new business volumes, Sanlam posted a 15% increase in operating profit.
Headline earnings were down 32% solely because of the R1.7bn charge the insurer incurred to conclude the empowerment deal through which it increased direct black ownership in the company to more than 18% in the first quarter of 2019.
Kirk said that despite the challenging economic environment in SA, the country “has done very well for Sanlam” and he believes recovery is on the way.
Outside SA, Sanlam — which has a presence in 34 other African countries, a few markets in Asia and in developed countries including the US and UK — reported much better performance.
Sanlam Emerging Markets increased new business volumes 36% and operating profits 50%. And it was not just because of the inclusion of Saham Finances, the Morrocan insurer that Sanlam took over in 2018.
“All our businesses in Africa did a little bit better. The organic growth is close to 20% but the impact of the Saham deal drove profit up to 50%,” Kirk said.
A total 40% of Sanlam’s R142bn group’s equity value and 30% of its profits now come from outside SA, he said, forecasting that it will move towards a 50/50 split in a few years.
Ethiopia and Egypt
The profit growth rate outside SA will eventually “exceed the rate of growth in SA”, Kirk said, explaining that economic growth rates in other countries where Sanlam operates have been higher than in SA.
Sanlam wants to expand its presence to Ethiopia and Egypt. Sanlam dipped its toes into the first-mentioned market a few years ago through a partner arrangement but is now looking to invest in a direct presence. Kirk said it will probably do so before 2021.
In Egypt, the insurer is looking for a partner through which it can establish its initial presence.
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