R4 Billion in four months

Net inflows to Sanlam hit R4 billion in the first four months of 2007, as the life and investment industry start the year with a bang.

Sanlam has, thus far, been able to continue its strong 2006 operational performance, according to a trading update issued to its shareholders at the Annual General Meeting held on 6 June 2007.

Sanlam reports that all of its group businesses are showing strong growth with overall increases in new business amounting to some 25% over the previous year. The only area of concern is employee benefits, which is lagging somewhat. A possible reason for this is a 'wait and see' attitude as the industry awaits the outcome of various regulatory proposals.

The group was happy with the progress made in the first part of the year. Strong improvements in the investment and insurance markets were achieved despite increasing competitiveness amongst industry players. Despite this, Sanlam warned investors not to expect the full year growth to remain as robust. They said that the full year 2007 would have to be viewed against the significant 2006 performance, with new growth coming off a fairly high base.

Growth in life business continues albeit at a slow pace

Life business, which grew significantly in 2006, continued the trend at a slightly slower pace. A 20% growth in new individual life recurring premium business was recorded in the first four months of this year. Single premium growth showed a more subdued 10% year on year.

According to the trading update, Sanlam believes this slower growth is due to "an overall lower demand for single premium life products, as well as a reduction in single premium sales by African Life South Africa." This fall off was probably due to African Life's decision to focus on recurring premium business in the entry level market.

An area of concern was group life, where sales were significantly down on the same period in 2006. Operations in the group life industry remain difficult, and Sanlam continued to focus on efficiencies in this area.

Investments doing a roaring trade

The Sanlam trading statement confirmed the recently reported strength in the collective investment industry. At the end of April, Sanlam Investment funds under management reached R440 billion. Inflows to new investment business were 15% higher than the similar period in 2006.

The strength in local equities continues to underpin the success in the investment sector of the business. Sanlam ascribed better income performances to a "more conservative asset mix in the shareholder portfolio."

Sanlam continues to repurchase its shares on the open market. This is a strategy often employed by companies who are sitting on loads of spare discretionary capital. The board believes that share buy backs are an effective method of reducing excess capital. A recent voluntary share buy back offer resulted in 17.5 million shares being bought back by Sanlam at a cost of R400 million.

Buoyant investment market will underpin the industry

At present, all indications are that the local economy will continue its recent strong performance through 2007. There might be some threat to consumer spending power in the much talked about interest rate hike which is likely to be announced at the Monetary Policy Committee meeting later today. A half percent interest rate hike might be a bit too much for the local consumer to bear especially when the existing pressures of food and fuel inflation are considered.

However, until these pressures influence consumer spending patterns, the life investment and insurance industries should be able to grow new business inflows. Regardless of increased living costs, each of these areas should be supported as government forces a focus on savings and previously uninsured individuals are brought into the life and investment net.

Editor's thoughts:
Sanlam appears to be firing on all cylinders with employee benefits the only area for concern thus far. Based on your experience, would you agree with Sanlam that new life business is on the increase? Are you aware of significant slowdowns in areas of your business in the first half o 2007? Send your comments to gareth@fanews.co.za