Sanlam: keeping it simple

New CEO Paul Hanratty has lauded the company’s conservatism, which, so far, has mitigated Covid’s impact

Sanlam has proved to be a lot more durable than its competitors during the Covid crisis — unlike Old Mutual and Liberty it remained profitable, though operating profit was down 22% to R3.9bn.

And it was economic factors rather than mortality rates that tripped the company up in the first half, says new CEO Paul Hanratty.

In Sanlam Investments there was a R171m provision for potential losses on credits (nongovernment bonds) and R95m written off to defaults.

And it took a further R227m loss from widening credit spreads, as the value of corporate bonds fell faster than that of RSA bonds.

“But these are not realised losses,” says Hanratty, and “credit spreads have already moved back in our favour”.

The largest single impairment was the

R581m in Santam’s business interruption policy reserve for clients in the tourism sector. But this

JSE life insurance vs Sanlam – weekly Based to 100

was offset by an extra profit of

R466m from the motor book.

In contrast, the pandemic’s effect on the life book has been limited. “The fall in deaths on the road has more than offset deaths from Covid-19. And the pandemic has mainly affected older clients who usually have life annuities, which stop on death, rather than life insurance, which has to be paid out.”

Hanratty says the group has built up a Covid-19 reserve that should outlive the pandemic.

The largest provision is R151m for increased lapses and R101m for additional payments to intermediaries, because agents in the field need to be compensated for a fall in business.

Hanratty says that unlike competitors such as Discovery, Sanlam writes down profit from expected future fees to zero. Nor does it hold negative rand reserves on its balance sheet.

“We think shareholders and analysts like our conservatism as our earnings are very close to cash earnings.”

Hanratty says Sanlam is simple, well-run and conservative.

Its most controversial acquisition has been Saham in Morocco, which gives the group the largest African footprint of any financial services group.

Within Sanlam Emerging Markets, the biggest hit was from the two Shriram finance businesses in India, which had to make a R445m provision for bad debts.

The Indian government insisted that lenders give customers a six-month payment holiday when the pandemic hit.

Sanlam booked a R7.6bn impairment on the balance sheet of its non-sa operations, and took a R145m loss on the Saham short-term insurance free float.

“Our short-term insurer in Morocco invests its free float in a large property and equity portfolio, while Santam invests it in the money market. We want to rebalance it, but some of Saham’s claims are long tail and only payable after two years,” says Hanratty.

Ashburton chief investment officer Patrice Rassou says Saham itself increased earnings by 10%, which was pleasing.

Its short-term underwriting margins also improved substantially.

Rassou says Sanlam’s results have been substantially better than its competitors: without Covid, group operating profit would have been up 18% to R5.5bn.

Sanlam Personal Finance, the SA life business, remained the largest contributor to profit, though it was down 12% to R2bn.

The division is changing its name to Life & Savings, with three subclusters: retail affluent, run by the current chief actuary, Anton Gildenhuys; corporate, run by Kanyisa Ncemane, a rare outside appointment, from Old Mutual; and SA retail mass, headed by Bongani Madikiza.

“We have too many licences in the mass market. We operate as Sanlam Sky, Safrican and African Rainbow Life. It is time to bring them together,” says Hanratty.

The former head of Sanlam Personal

Finance, Jurie Strydom, will oversee the new super-cluster.

Rassou believes the share is trading at a fair price at R55, a small discount to embedded value of R58. This is the value of the life book plus NAV. Sanlam measures the present value of its life book more conservatively than its peers do.

And 2020 has been the right time to make adequate provision for lapses and market risk.

We think shareholders and analysts like our conservatism as our earnings are very close to cash earnings

Paul Hanratty