Sanlam’s original mass market business was Metropolitan Life. This was generally considered the first significant black empowerment deal when in 1993, then Sanlam chair Marinus Daling sold control of the business to a consortium headed by struggle veterans Nthato Motlana and Dikgang Moseneke.
When Johan van Zyl was appointed group CEO in 2003, he said Sanlam had “sold the future” when it sold Metropolitan. Along with the sale, there was a 10-year noncompetition agreement preventing Sanlam from entering the funeral policy market.
After this expired, Sanlam developed a small mass market business, but it was something of an apology compared with Metropolitan and especially with the market leader Old Mutual Group Schemes, later rebranded Old Mutual Mass & Foundation Cluster (MFC).
Instead of simply trying to grow organically through Sanlam Sky, as Van Zyl called the mass market business, he swooped on the only sizeable independent business in the market, African Life, which had also built a good pan-African business (for example, African Life acquired Botswana Life, the dominant life and asset management business in that country).
Heinie Werth, the Sanlam executive who was put in charge of the integration of African Life, both inside and outside South Africa, acquitted himself well in executing the merger — certainly doing a lot better than many in the media had expected.
He decided not to move the head office of what was then called Sanlam Emerging Markets to Bellville. It remained in the old African Life offices in Houghton in Joburg, closer to the core mass market which is predominantly in provinces such as Gauteng, Eastern Cape and KwaZulu-Natal.
The unenviable task of building the South African mass market business now falls on Bongani Madikiza. As the previous head of both Old Mutual’s employee benefits and MFC, he has no illusions about the task ahead.
“The mass market is the one sector in which Sanlam still lags Old Mutual,” Madikiza tells the FM. His target market is employees earning R8,000-R25,000 a month, primarily in stable public sector jobs such as teachers, nurses and police officers.
In the six months to June 30 2024, the Sanlam Retail Mass cluster had new recurring premium income of R2.26bn, just behind Old Mutual’s R2.42bn. But Sanlam’s sales included the distribution of funeral policies through Capitec Bank branch and online channels, an arrangement that has now ended.
Sanlam Retail Mass earnings were a significant R823m. Old Mutual’s earnings from its MFC were R1.1bn, offset by a R131m investment in the new bank, making the total profit for the unit R944m.
The main contributor to Sanlam’s insurance business is what it calls the risk and savings business, recurring premium policies in the traditional, still heavily Afrikaans, Sanlam market.
This has a lengthy “back book” of policies in which clients have been paying premiums regularly, for 40 years or more in some cases. This provided R1.4bn in earnings over the six months. But there is no doubt that this is a mature business in which Sanlam already has a high market share, and therefore limited runway given the competitive nature of the market.
African Life was the breakthrough buy, Assupol another large addition, African Rainbow Life less so
In this area, Sanlam is now well ahead of Old Mutual. Recurring premium risk and savings policies combined with the Glacier by Sanlam unit, which makes up the old “affluent” sector, had earnings of R2bn. The Old Mutual equivalent, which it calls its personal finance and wealth management cluster, had earnings of R1.12bn.
Madikiza says there is a better margin on the mass products than on affluent products, but the lapse rates are higher. Clients stop paying if they come under pressure from increased food and transport costs — interest rates are not as significant as they are in the middle market, because few mass market clients have big mortgages.
The acquisition of Assupol for R6.5bn, a healthy chunk of change even for Sanlam, provides a different kind of growth as it is predominantly a traditional face-to-face distribution channel. It derives its name from its history as the official long-term insurance provider to the South African Police Service.
Madikiza says Sanlam is moving towards aligning the brands and the commission structures, which are different.
Madikiza ran a business controlled by Patrice Motsepe’s African Rainbow Capital called African Rainbow Life. But it was launched just before the outbreak of the pandemic and never gained traction. Retail sales were about R5m a month for much of its time. Paul Hanratty had little difficulty folding it into the core Sanlam mass business.
Sanlam Retail Mass is largely a portfolio of acquisitions, going back to businesses which are relatively small these days, such as Safrican. African Life was the breakthrough buy, Assupol another large addition, African Rainbow Life less so. Certainly, quite different from Old Mutual’s almost entirely organic strategy.
About 90% of the business is either funeral or life insurance; just 10% is savings products. And funeral policies make up 70% of the risk product sales. Funeral policies are attractive to customers, as they require little or no underwriting and cover multiple lives. They also pay out much faster than life policies.
Sanlam hopes to penetrate the mass market’s expected desire for short-term insurance. This will primarily appear on the Santam profit and loss account and/or under the MiWay brand.
“Our target market earns up to R25,000 and it is not monolithic. Our sweet spot is clients earning R10,000-R18,000 a month. But we also serve what Old Mutual calls the foundation market, with customers earning below R6,000 a month who might be in the market for small risk management products, including shack insurance.”
The divorce from Capitec, which provided a valuable source of growth for the Bellville-based colossus, was certainly a setback. It was entirely predictable with hindsight, given Capitec’s ambition to keep growing its earnings. Once Sanlam had taught it the funeral policy business, Capitec was more than happy to drop the pilot.
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