Sanlams share buy back continues

Sanlam has used some R9 billion of excess capital to buy back Sanlam shares. The group raised almost two thirds of this amount through the recent sale of its stake in ABSA to Barclays. While we have the capacity to buy back Sanlam shares, we think its the

The group would continue buying back shares as the opportunity arose. Van Zyl said that a further R6.2 billion of capital was available due to adjustments in capital requirements. Life insurance companies are required by the industry regulator to hold a certain amount of capital in reserve to cover operations.

As proof of the groups continued turnaround, Sanlam managed a 30% surge in new business volumes to R80.6 billion. This is extremely impressive given the tight insurance industry conditions in the last few years. Sanlam posted an increase of 18% in dividend per share at 77c per share for the year. Core earnings were up to 151.7 cents.

Adequate cover for life and short-term business

Sanlam Life Insurance Limited held capital of R34.2 billion at the end of the year. The group stated that all its life insurance business was adequately capitalised. The Capital Adequacy Requirement (CAR) set by the regulator was covered 4.4 times at year end. The group also announced that there were no policyholder portfolios with negative stabilisation reserves.

Individual life sales were up 14% compared with 2005. An 8% increase in the number of advisers helped to increase new recurring premium sales by some 12%.

Short term insurer Santam made a major contribution to the Sanlam performance in the year. Santam contributed 62% of net premiums earned and retained a healthy solvency position.

Meanwhile, Sanlam Investments now manages assets of R406 billion, up 24% from the previous year.

Challenges ahead

There are a number of challenges to the business in coming years.

Sanlam has noticed a trend of new consumers choosing to invest in non-life products. The result is the groups gearing is coming under increasing pressure. To this end, an amount of R2 billion has already been raised as debt funding in Sanlam Life.

This trend was evidenced by the increased contribution made by non-life operations to the group embedded value. In December 2006 the non-life operations were valued at R13.2 billion or 28% of group embedded value.

There is also a call to increase the businesses offshore exposure. At present, 20% of Sanlams business is conducted overseas. The group has already made inroads into Africa, through its activities in African Life. It is also conducting business in Europe and India. The group is investigating further activities in India.

These developments put it on similar ground to Old Mutual which benefited from approximately 19% offshore exposure prior to its purchase of Skandia.

The group benefited strongly from favourable economic conditions and a strong equity performance in South Africa in 2006. Sanlam will continue to focus on improved capital management, client-centric financial solutions and enhanced distribution.

Editors thoughts:
While Sanlams numbers remain strong, it seems new life insurance business is coming under pressure. Sanlams local life business shrank 3%, with the group having to secure growth from African Life and Channel Life offshore.

Do you think this trend will continue in South Africa in the years ahead? Send your thoughts to [email protected].