“We need to start turning [things] around in South Africa,” Sanlam CEO Paul Hanratty tells the FM.
Hanratty’s feeling is clearly shared by almost every business leader in South Africa as the economy buckles under rolling blackouts, high inflation (and its counterweight: elevated interest rates) and incessant high unemployment. Joining the growing choir that includes Standard Bank CEO Sim Tshabalala, African Rainbow Minerals’s Patrice Motsepe and Pick n Pay chair Gareth Ackerman, businesses are increasingly worried about the financial health of South African consumers.
Nowhere was that clearer than in the life insurer’s recent reporting on persistency — a term which refers to the rate at which policies remain in force and don’t lapse. Weaker persistency means higher lapses and lower future profits.
“Obviously, the worrying thing is the consumer who is under pressure,” Hanratty says.
In the first six months of Sanlam’s financial year to end-June, its life insurance business took a R647m hit. This was especially the case in the lower- and mid-income retail and mass operations. Worryingly, some lapses also occurred in corporate policies.
But it isn’t just its life division where cracks are showing. “In general insurance, South Africa didn’t do as well as we’d like,” Hanratty says.
The life insurer’s relentless expansion abroad and into other sectors should ensure its resilience as the local economy drags along
Still, the insurer’s relentless expansion abroad and into other sectors should ensure its resilience as the local economy drags along.
“Remember, only about half of Sanlam’s business is in South Africa,” says Anchor Capital CEO Peter Armitage. “When the economy turns weaker, it is inevitable that persistency becomes a problem.
“We like Santam and the Indian business,” he says. Sanlam’s short-term insurer, the separately listed Santam, earlier this month reported a 7% increase in gross written premiums for the half-year to end-June, and more than doubled headline earnings to R11.70 a share even as global reinsurers, beset by catastrophe claims, increased premiums.
“We’re in a hard reinsurance market,” Santam CEO Tavaziva Madzinga tells the FM. One ray of light, however, was the turnaround in the group’s motor insurance book, thanks to repriced premiums.
Despite weaker persistency, Sanlam managed to grow the result from financial services — a key metric for the company — by 26% and increase its net operating profit by 64%. That means the cash available for a dividend jumped 30% compared with the previous half-year to R6.08bn.
Investors could have done worse than buy Sanlam shares over the past year. The stock is up 19.7%, compared with the JSE financial 15 index’s 11.5% rise. Sanlam trades at a p:e of 12.7 and a dividend yield of 5.2%, compared with competitor Old Mutual’s p:e of 7.1 and dividend yield of 6%.
“Sanlam is our top pick in the insurance sector,” says Armitage, even though he believes local life insurers have little runway for future growth. “The life insurance market is basically ex-growth. Despite that, Sanlam has a good growth outlook.”
One reason is the joint venture (JV) it concluded with German firm Allianz last year, which covers several countries in the rest of Africa.
“This is a long-term strategic project for us,” says Hanratty. “It will be two to three years [before] we will start to see real synergies. The purpose of the JV was never to generate short-term gains.”
The JV means two of the continent’s largest insurers are providing their services in growing African markets, including East and West Africa.
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