New business volumes surge at Sanlam

Another of South Africa’s largest financial services groups reported on the 2007 year recently. Sanlam enjoyed a solid performance with total new business volumes up 26% to R102bn. The company revealed that all of its divisions contributed to this strong performance. Personal Finance accounted for R27.809bn of the total, with South African operations chipping in R19.137bn. The 22% growth in new business from South African operations is impressive considering it was achieved against the backdrop of rising interest rates and diminishing disposable income. Management says their success is due to “the introduction of more flexible, tailored and transparent solutions assisted in improving the recent negative sentiment towards the insurance industry.”

The annual report mentions that: “Shareholders were rewarded with a return of 29% for the year ended 31 December 2007, which exceeded the performance of the JSE All Share Index by a margin of 10%. This return consists of a R4.45 increase in the Sanlam share price for the year and a 77 cents dividend per share.”

Recurring premiums pip single premiums by 1%

Sanlam grew its new recurring premium life sales by 15% when compared to 2006. Single premiums were up 14%. The single premium business was helped along by the Glacier life-insurance product range which achieved an increase of 28% over the previous period. The group notes that “despite volatility in equity markets during 2007, overall returns were still attractive and supported the sales of single premium business.”

The group’s domestic investment business also enjoyed an impressive year, posting a 31% increase. Again, two products received special mention. Glacier grew its previous contribution to this class of business by 26%; while the Topaz linked investment solution made a solid contribution to overall investment business volume too.

There have been rumblings that life insurance sales would come under pressure as the domestic economy struggles. It seems Sanlam has dispelled this assumption, with a substantial 31% increase in new life insurance business. This took the total new insurance business to R567m. The group achieved a life new business margin of 2.37%

Future prospects

Sanlam echoes the other insurance companies when it comes to challenges in the coming years. They are worried about the South African investment landscape, mentioning that 2008 has continued the upheaval witnessed in the last quarter of 2007. Higher interest rates and continued troubles at Eskom are among their prime concerns. On the international front they fear the tremendous volatility caused by the sub-prime crisis will impact negatively on world markets: “Adding to the negative sentiment is the continued weakness in the US housing market and the potential of a US and European slowdown.” This is confirmed by the falling business confidence numbers, as measured by the Sanlam Investment Management (SIM) Investor Confidence Index.

Dr Johan van Zyl, Group CE of Sanlam adds a number of challenges to this list. These include the Social Security and Retirement Reform process, regulatory issues, volatility in equity markets, increasing inflation and interest rate hikes. “Sanlam as a Group will be impacted by these challenges but we are confident that our robust strategy will make a difference and assist performance in what will be a challenging year.” Management believes Sanlam will ride the storm: “we are confident that our strong focus on diversification will make a difference and assist performance in what will be a challenging year.”

Five pillars for success

Van Zyl summarised the results as follows: “Our solid results in 2007 reflect a company that has started to reap the benefits of a focused business strategy, implemented four years ago. The fact that we reached two important milestones during the 2007 financial year – new business volumes exceeded R100 billion for the first time and core earnings passed the R4 billion mark – is a clear indication that we are on the right track with this strategy.” He continues: “Our strategy continues to centre around five pillars: capital efficiency, earnings, costs and efficiencies, transformation and diversification. However, two of these pillars attracted additional focus last year for strategic reasons, namely transformation with regard to people and diversification. Only five years ago more than three quarters of all inflows were generated by our life insurance business. Last year, less than a fifth of our inflows came from the life side – a direct result of our successful diversification strategy.”

Friday’s Straight Talk article  took a look at the latest Forbes Rich List which prominently featured three South Africa billionaires. It was interesting to note that Patrice Motsepe (who made it to position 503 on the list) attributes part of his fortune to a 5.5% stake in Sanlam. This is held through his interest in Ubuntu-Botho Investments which holds a 9.80% stake as part of Sanlam’s empowerment requirement. Motsepe’s stake was worth approximately R2.343bn at Friday’s closing price.

Editor’s thoughts:
One thing Sanlam’s latest results confirm is that the large life insurance companies are more dependent than ever on non-life business. This year only a quarter of the group’s inflows came from the life insurance business. Is it time to categorise Sanlam as a financial services company rather than a life insurance company? Add your comments below, or send them to gareth@fanews.co.za