Twenty years ago, on Monday November 30 1998, Sanlam’s debut on the JSE was treated as a dress rehearsal for a much larger one to follow in July 1999: that of Old Mutual, then the most powerful life and investment business in Africa. At the time, you’d have given long odds to anyone who believed that Sanlam would add more value than the Big Green over the next 20 years and prove to be a better investment, into the bargain.
Yet this is exactly what happened.
There was no clue of this when Sanlam listed on the JSE, creating 2-million new investors overnight as its policyholders were also given free shares.
At the atrium in Sanlam’s head office in Bellville, trapeze artists flitted about on high wires, while its staff drank champagne.
"I don’t think there has been a demand for it," said Investec insurance analyst Andrew McNulty at the time.
And yet Sanlam, which had a market value of just R15.7bn on that Monday, is now worth more than 10 times that, at R172bn.
Back in 1998, you’d also have got long odds that two decades down the line, the company that started as the ultimate Afrikaner empowerment vehicle in 1918, would be headed by a Dublin-born Irishman Ian Kirk.
Kirk first came to SA in 1981 in his early 20s, on an exchange programme at his accounting firm Price Waterhouse. But it was at Capital Alliance Life, which he joined in 1995, that he made his mark, reshaping it into a specialist administrator, before selling it to Liberty in 2004.
In the early years of the 21st century, Kirk watched from afar as Sanlam dithered and watched its rivals grab its market share. Then, in 2003, Sanlam hired a former academic — agricultural economist Johan van Zyl — as its CEO, and its fortunes changed.
"I could see from the outside what a rudderless group Sanlam was before Johan van Zyl took over," Kirk says today, in an interview with the FM.
In 2006 Kirk teamed up with Van Zyl, as head of strategy, to shape Sanlam’s future. Within a short time, he recommended the launch of MiWay (something of a second-generation Outsurance) and was party to the debate over where to invest: the group decided in favour of India (which was proficient in English) rather than China. It also decided that the strategy of trying to sell the Santam Multiplex policy in Europe was not a fantastic way to use its capital.
The thing is, it worked, in a way that few other life companies have. Sanlam’s market capitalisation is now the highest in the life sector, with its share price having grown 352% over the past decade.
Old Mutual is worth R116bn, a listless Liberty is worth R31bn and MMI R27bn. And it’s a darling of foreign investors — no less than 44% of Sanlam’s shares are held by overseas investors.
It marks a triumphant centenary since Sanlam and Santam were formed in 1918 by six Afrikaner lawyers and politicians and one Scot — ostensibly as an insurance company for Afrikaners who had been squeezed out of the English-controlled insurance sector.
Sanlam opened its doors with capital of just £25,000, controlled by Santam.
For much of its time Sanlam seemed like the economic arm of the National Party.
Willie Hofmeyr, chair of Sanlam for its first 35 years, was the founder of Nasionale Pers (Naspers), while deputy chair Piet Malan was a founder of the National Party itself. But it also had some independent thinkers, such as Andreas Wassenaar, author of books such as Assault on Private Enterprise and Squandered Assets, which chipped away at apartheid.
Wassenaar’s successors as chair, Fred du Plessis and Marinus Daling, were less public in their criticism but neither was a National Party stooge by any means.
All of them would have been surprised to see Sanlam eclipse Old Mutual.
Lizé Lambrechts, now head of short-term insurer Santam, is a veteran of the group, having been there since 1985. She believes it has never wavered from its values.
"We believe in doing what’s right. And in getting things done. I don’t think we waste much time with internal politics," she says.
Today, the Kirk/Van Zyl partnership is thriving. Though Van Zyl stepped down as CEO in June 2015, after a stint during which the share price rocketed from R7.69 to R66.34, Kirk replaced him as CEO. Then, in January 2017, in a by-no-means-perfect example of corporate governance, Van Zyl returned as Sanlam’s chair.
It’s a partnership the market evidently likes. JPMorgan, in a research report on the company last month, says Sanlam "remains one of the more compelling investment options into the SA insurance or financial services sector".
It says the company is in the "best capital position", which gives it "some degree of defensiveness and flexibility".
This is partly why JPMorgan calls Sanlam a "buy", with a target price of R90 a share (its current level is R77 a share).
Overall, Sanlam is rated a "hold" by the majority of analysts, with a target price of R83.33 — about 7.2% above its current levels. Nonetheless, some fund managers such as Allan Gray have sold their stake, believing Sanlam’s price had now exceeded fair value.
Innovation isn’t unique to the Van Zyl and Kirk years. Sanlam was a pioneer of universal life products, which flexibly combine risk and investment as well as lump sum disability benefits.
But Lambrechts says that in those days Sanlam was very much an SA business, rather than offshore-focused (with some insiders even considering Gauteng as a foreign country!)
Today, Sanlam is a far different beast, diverse both in terms of business and in geographies.
For example, it has recently paid its final $1bn for control of Saham Finances in Morocco, for which it incurred debt of R4bn. (That debt should be wiped out if shareholders approve its new share issue on December 12.)
In an interview with the FM, Kirk says Sanlam’s plan to issue new shares gives it an opportunity to strengthen its empowerment credentials even more.
Ubuntu-Botho, led by Patrice Motsepe, will have a shareholding of 18%, overtaking the Public Investment Corp as the largest shareholder in the group. A company that started as a vehicle for Afrikaner empowerment is now doing the same for black empowerment.
However, it hasn’t been a smooth ride. Until the late 1990s it was short of capital, which is why it decided to list on the JSE.
It had been losing market share in the 1980s and 1990s to young pretenders such as Liberty and Momentum, and had destroyed value through a series of ill-fated strategic buys such as Checkers, Bankorp and Nissan.
When the market found out in 1999 that Sanlam’s powerful executive chair, Daling, had terminal cancer, the leadership vacuum was immense. His place as CEO was taken by Leon Vermaak, who had a doctorate in marketing. Vermaak constantly clashed with the board, and was dismissed at the end of 2002. The board, it seemed, did not much like his plans to open merger discussions with Absa.
Several more rudderless months followed, with various industry heavyweights touted for the CEO job. These included Mike Jackson of Liberty, Monty Hilkowitz of Discovery and Peter de Beyer of Old Mutual.
Instead, Sanlam picked Van Zyl as the new CEO. It was a risky bet: he had no life industry experience and just a couple of years at short-term insurer Santam. He was an agricultural economist, though he’d sat on the Sanlam board while vice-chancellor of the University of Pretoria.
But he was ably assisted when it came to the detail of life insurance by finance director Kobus Möller and chief actuary André Zeeman. Speaking to the FM now, Van Zyl says: "I would have liked to move faster in our international expansion, but Kobus and André taught me that there needs to be a balance between growth and risk."
Van Zyl called his approach "back to basics" and soon abandoned any grandiose bancassurance plans with Absa. "I am not against bancassurance in principle, but I do object to getting together with an unwilling partner. In fact, at the time it was more likely that Absa would swoop on us," he says.
Much of what Van Zyl did could have applied to any inefficient business. "We were way too top-heavy, especially in the core life business. And there were too few incentives to do good work, with little differentiation in bonus levels."
In the early 2000s, Sanlam was on the brink of an overseas expansion, in something of an imitation of Old Mutual. It already owned a UK consulting business, Punter Southall, which it hoped to turn into a distributor of its international multimanager business, an imitation of the highly successful Alexander Forbes and Investment Solutions model.
But in the UK market consultants value their independence more than their SA counterparts do.
Warwick Bam, head of research at Avior Capital, says Sanlam’s stock has benefited, as the company was able to show it could consistently generate earnings growth at lower volatility than its SA peers.
Bam adds that a key advantage was its widely admired capital allocation model, which prevented the sort of capital destruction which troubled Old Mutual during its ambitious overseas expansion. He says that it helps investors that Sanlam’s accounts are conservative and transparent.
But Van Zyl’s task was also to expand Sanlam’s brief from its core Afrikaans middle market. So he set up a group market development department under Temba Mvusi, now head of the corporate business. Mvusi was not the first black member of the Sanlam executive committee — that was John Moalusi of employee benefits in 1999.
There is still room for growth here. Sanlam still punches below its weight in the corporate market. It is only the fourth-largest umbrella fund provider, for example. Mvusi is looking for ways to translate its expertise in the retail market to the corporate sector.
Patrice Motsepe, as head of the Ubuntu-Botho consortium, built up solid relationships with Van Zyl, as well as with Sanlam’s former head of investments Johan van der Merwe, who became joint CEOs of Motsepe’s conglomerate African Rainbow Capital (ARC) after leaving Sanlam in 2015.
Van Zyl concedes that luck played its part in Sanlam’s success.
By the time he sold Sanlam’s 19% stake in Absa to Barclays in 2006, the bank’s share price had doubled to R82.50. This gave Sanlam additional firepower and, in another strike of good fortune, when Sanlam was looking to deploy excess capital in emerging markets in 2008, prices of good assets had tumbled. This meant that unlike Old Mutual, Sanlam was still able to pay a dividend at the height of the financial crisis.
The years of sweat paid off. For the past full-year, Sanlam produced earnings growth of 18%, with its investment returns growing by more than 100%. As analysts from SBG Securities put it in a research report at the time, "steady wins the race".
One of Van Zyl’s goals was to build a presence in the low-income end of the market. But it was tricky: Sanlam had a 10-year "noncompete clause" after it sold Metropolitan Life (which already catered to that market) to New Africa Investments in 1993.
During those years, Old Mutual acquired a dominant position in that market. It means that even today, Sanlam is way behind.
"Old Mutual made hay in the entry-level market when we were under restraint from Metropolitan," says Kirk. "I have always had the greatest respect for Mutual and now that it has refocused on Africa it is even stronger."
But it doesn’t mean Sanlam has given up trying to break into that market. When he bought African Life, Van Zyl acquired an infrastructure in that entry-level market, as well as immediately becoming the dominant insurer in Botswana, having a second business in Namibia, and a presence in Malawi, Ghana, Tanzania and Kenya.
Rather surprisingly, Van Zyl says that at least half of Sanlam’s entire bottom line is generated by businesses which have either been bought or created in the past 15 years.
For example, MiWay, the direct insurer, is now a significant contributor to Santam. Equally, Sanlam Personal Finance was also tiny in the entry-level market before the African Life purchase, while at the top end, the current Glacier linked-investment service provider boasted R28bn in new business in the six months to June.
Jurie Strydom, head of Sanlam Personal Finance, says that business is expanding. In the half-year to June, new inflows increased by 8% to R31bn.
Strydom argues that Sanlam aims to remain relevant. "There has been a strong interest in guarantees in the middle and upper markets, while in the entry-level market, the focus remains on funeral policies, which are now also distributed through Capitec branches."
There is also a new joint venture with Motsepe’s ARC on the cards.
At the other end of the income spectrum, Sanlam has taken a controlling interest in BrightRock — an insurance company started by four ex-Discovery executives, aiming to target intermediaries looking for more complex risk solutions.
Strydom says that selling advice remains central to Sanlam’s value proposition. Its agency force of brokers is tightly managed and has low turnover. But over the past two years it has set up a new company called Indie, to look at new ways to interact with clients. "Many of our clients are self-directed and like to do their own research. And the fact that we have these direct capabilities played a big part in winning the partnership with Capitec," he says.
But Sanlam has still to be doing the basics right. Kirk says that even in the age of social media, few people are prepared to buy insurance without at least contacting a call centre. Which means that for now, call centres need to be part of the mix.
When it comes to investments, Sanlam has also grown from virtually nowhere.
Sanlam Investment Group’s former CEO Van der Merwe says Sanlam had a traditional asset manager but little else in 2003 with several years of bottom quartile performance. Today, it has a full scale private wealth business with R150bn under management and a multimanager with R100bn under its steward ship. It has also consolidated its private equity investments under its investment umbrella, though this arm is substantially smaller than Old Mutual in that space.
That asset manager, the traditional Sanlam Investment Management SIM, makes up only 25% of the profits of the investment cluster, which illustrates how Sanlam has sharply expanded its other investment products. ARC plans to take a 25% stake in Sanlam Investments, which will lift the asset manager's black ownership above 50%.
Speaking of Van Zyl’s tenure, he says: "Johan gave us full accountability and encouraged us to look for new opportunities. We made some mistakes but certainly added to the group overall."
It certainly did make mistakes. It is doubtful if Sanlam’s various forays into hedge funds, with businesses such as Blue Ink and Octane, made any sizeable return on capital.
Van der Merwe is encouraged to see that after he left to become co CEO of ARC three years ago, Sanlam split its investment team with one team focused entirely on the Sanlam balance sheet and another, Sanlam Investments, on third parties.
Robert Roux, who now runs Sanlam Investment Group, says its UK business showed there would be demand for a service to build portfolios for financial advisers.
So Sanlam set up Glacier Invest as a joint venture between Glacier and Sanlam Multi-Manager, which provides services to financial advisers and brokers.
Roux argues that Sanlam is highly competitive in some areas of investment, such as its Inflation Plus run by Natasha Narsingh and Top Choice equity run by Patrice Rassou. It also has the largest provider of index funds in SA as well as the leading brand of low cost exchange traded funds (ETFs) in Satrix.
Index funds and ETFs are a favourite for passive investors, who are simply buying the performance of the wider market such as the JSE all share, at a low cost. Right now, passive investing is still relatively small in SA, but Sanlam recently got Rlbn in its new Balanced Index Fund from retail investors.
Capital deployment has been the key in turning ugly duckling Sanlam into a swan
— What it means
What's clear is that there is scope for Sanlam to grow in the investments business. For the recent half year results, earnings in Sanlam Investments dropped by 8%.
As JPMorgan put it last month, Sanlam Investments has recently had "relatively poor investment performance", but the analysts believe there is a "credible plan" to fix this.
There are other areas where it could get much stronger too. For example, medical aids haven’t been a priority for Sanlam until now. But Discovery poses a big threat, as it could use its dominant position in medical aids to tackle Sanlam in the wider financial services sphere.
Sanlam does own 28% of a company called Afrocentric, which controls medical aid brands Bonitas and Fedhealth. But both of those medical schemes trail Discovery.
Kirk says that health is one of four areas where he would like to see Sanlam bolster its presence. The other three are third-party asset management (where the deal with Motsepe should help); the entry-level market where it will clash with Old Mutual; and employee benefits, where it may have to make selective acquisitions.
Insiders say the Kirk/Van Zyl partnership is soaring. Van Zyl says Kirk is far more democratic than he ever was, and consults more widely. But the key pillars of Sanlam’s strategy remain in place.
* This article has been modified from the original to correct confusion between Sanlam Investments, and Sanlam Investment Management (SIM). Also, we incorrectly stated that earnings within Sanlam Investments fell 8% for the last full year, when actually this was the performance for the half-year to June.
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