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Operational Update – December 2016
Sanlam Limited
(Incorporated in the Republic of South Africa)
Registration number 1959/001562/06
JSE share code: SLM
NSX share code: SLA
ISIN: ZAE000070660
(“Sanlam” or “the Group”)
Operational Update – December 2016
The Group achieved an overall solid operational performance for the first 10 months of
the 2016 financial year. Key trends remained broadly in line with those highlighted in
the Group’s interim results for the six months to 30 June 2016, but with some
improvement in risk business claims experience at Sanlam Personal Finance and
Sanlam Employee Benefits. Recent acquisitions, including Saham Finances and
investments in Zimbabwe, continue to contribute to operational growth in 2016.
The challenging operating conditions experienced in the first six months of 2016
persisted for the 10 months to 31 October 2016 as anticipated. Economic growth in
most markets where the Group operates remains below longer-term potential, with
robust growth in India the exception. Investment and currency markets remain volatile,
reacting to global and country specific developments. Average market levels during the
first 10 months of 2016 were in general lower than the comparable period in 2015,
depressing growth in assets under management and commensurately fee income at
Sanlam Personal Finance and the investment management businesses. The Rand
regained some ground against major currencies, but was still weaker on an average
basis during the first 10 months of 2016 compared to the same period in 2015.
Results
The salient features of the Group’s performance for the 10 months to 31 October 2016
are:
- New business volumes of R195 billion, up 11% on the first 10 months of the 2015
financial year.
o Sanlam Personal Finance achieved growth of 3% in new business sales, with
pressure on discretionary single premium savings sales persisting in both
Individual Life and Glacier. Sanlam Sky new business volumes were in line with
the high base of 2015. The focus on improving the mix of business yielded
positive results, contributing to 11% growth in Sanlam Sky’s individual life risk
business sales, a particularly satisfactory improvement since the end of June
2016. Sales of savings products in Sanlam Sky declined by 38% due to the
realignment of the channels towards more profitable product lines. Group
recurring business at Sanlam Sky was in line with the comparable period due to
the impact of the large one-off scheme written in 2015 and the biennial renewal
of the ZCC scheme that also occurred during 2015. Excluding these, Sanlam
Sky new business volumes increased by 10%. New business volumes in the
Individual Life segment (focussing primarily on the middle-income market)
declined by 1%. Single premium sales remained under pressure and declined by
3%. New recurring premiums increased by a satisfactory 13%, supported by
continued strong growth in risk business. Glacier achieved overall growth of 5%
as demand for discretionary savings products remained under pressure. Glacier
life business sales grew by 16% with strong demand for its offshore and wrap
product solutions.
o Sanlam Emerging Markets achieved overall new business growth of 67%,
supported by a weaker average Rand exchange rate and the impact of corporate
activity. Excluding corporate activity, new business volumes increased by some
50%. All major businesses contributed good growth, apart from Zambia and
Malawi, that continue to struggle in difficult environments, and Malaysia, where
general insurance premium growth are impacted by weak motor cycle sales and
a slower than anticipated diversification of the product set. New life business
volumes increased by 5%, the combined effect of lower annuity sales in
Botswana and good growth in the other regions. Investment business grew by
96%, supported by a R4.6 billion new mandate from the Botswana Public
Officers Pension Fund. General insurance net earned premiums increased by
130% (17% excluding Saham Finances).
o The Sanlam Investments cluster increased its new business volumes by 10%,
with Sanlam Employee Benefits and the SA Investment management businesses
achieving particularly good growth.
o Gross written premium growth at Santam was under pressure, specifically in the
specialist insurance lines, resulting in a lower growth rate compared to June
2016.
o Net value of new life business (“VNB”) on a consistent economic basis increased
by 8% on the comparable period in 2015 (6% up based on actual 31 October
2016 economic basis). VNB margins have been largely maintained on a per
product basis. Sanlam Personal Finance’s overall VNB increased by 7% on a
consistent economic basis, with VNB margins in line with 2015. Sanlam
Emerging Markets’ net VNB grew by a moderate 5% on a consistent economic
basis. Lower individual life new business volumes in Zambia and Kenya resulted
in negative VNB contributions from these regions, offsetting an otherwise solid
performance. Sanlam Employee Benefits achieved an improved performance,
supported by good growth in recurring premium Group Risk business.
o Overall net fund inflows of R32 billion were up from the R11 billion achieved in
the comparable 10-month period in 2015, with most businesses contributing to
the higher net inflows. The comparable 2015 period included the Botswana
Public Officers Pension Fund withdrawal from Sanlam Emerging Markets and
Sanlam Investments as well as the Public Investment Corporation withdrawal
from Sanlam Investments.
o No noticeable deterioration in persistency experience since June 2016.
- Net result from financial services up 10% on the first 10 months of the 2015
financial year.
o Most businesses contributed satisfactory growth, apart from Sanlam Investment
Management where fund-based fee income was impacted by lower average
market levels. Further narrowing of credit spreads and improved commodity
share prices contributed to a more than doubling in Capital Management’s
earnings contribution.
o Sanlam Personal Finance achieved growth of 9%, with trends broadly in line with
the first six months of 2016.
o Growth at Sanlam Emerging Markets slowed down from 40% for the first six
months of 2016 to 26% for the 10 months to 31 October 2016. This is attributable
to a relative strengthening in the average Rand exchange rate since the end of
June, as well as a lower profit contribution from Namibia, where claims
experience in both the life and general insurance businesses are weaker than in
the first 10 months of 2015. Asset mismatch profits were also lower in Namibia
during 2016, while new business strain increased due to strong growth in new
life business.
o The strong performance reported by the Capital Management business
supported growth of 16% in Sanlam Investments’ contribution to net result from
financial services. This level of growth is not expected to continue for the
remainder of the year as it is highly dependent on movements in credit spreads
and the share prices of certain commodity stocks. In addition, the performance
fees earned in 2015 on the Sanlam Life portfolios based on a three-year rolling
investment performance included a particularly strong year of investment
outperformance, which falls away for purposes of the 2016 performance fee
calculation.
o Santam’s net underwriting margin for the 10-month period was slightly below the
midpoint of the target range of 4% to 8%. The personal, commercial and
specialist intermediated business lines were impacted by weather related
catastrophe events in July and October 2016 and a number of large commercial
fire losses. MiWay maintained its growth momentum and Santam Re made a
positive contribution to the underwriting results.
- Normalised headline earnings per share down 8% compared to the first 10 months
of the 2015 financial year.
o Subdued investment returns earned on the capital portfolio relative to the first 10
months of 2015 were further negatively impacted by the strengthening in the
Rand exchange rate since the end of December 2015, which contributed to
negative returns from the offshore exposure in the portfolio.
o Capital utilised for corporate transactions, in particular Saham Finances and the
Shriram Insurance entities, also reduced the capital base on which investment
return is earned relative to the first 10 months of 2015.
- Diluted headline earnings per share, which include fund transfers recognised in
respect of Sanlam shares held in policyholder portfolios, decreased by 9%
compared to the first 10 months of the 2015 financial year.
Capital
All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory
capital covered its Capital Adequacy Requirements 5.5 times on 30 September 2016.
The Group had excess capital of R3.1 billion available for redeployment at the end of
June 2016, after allowing for the Shriram Insurance transactions that concluded in
October 2016. Utilisation since then has been limited to a number of small transactions.
Including investment return earned on the portfolio and the special dividend declared by
Santam, discretionary capital amounted to R3.6 billion on 31 October 2016. The
available discretionary capital remains earmarked for transactions currently under
consideration.
Good progress has been made with capital modelling under the Solvency Assessment
and Management (SAM) regime to be introduced in South Africa during 2017. The
Group will remain well capitalised under the SAM regime. Further information on the
Group’s optimal capital levels will be provided as part of the Group’s 2016 annual
results announcement in March 2017.
Outlook
We expect that the economic and operating environment will remain challenging for the
remainder of 2016 with a resulting impact on the Group’s key operational performance
indicators. A number of factors are likely to impact on the Group’s ability to maintain the
10-month growth rate in net result from financial services for the full 2016 financial year,
including average investment market levels, the strengthening in the Rand exchange
rate and the high comparable 2015 base for performance fees at Sanlam Investments.
Shareholders also need to be aware of the impact of movements in the Rand exchange
rate, the level of interest rates and financial market returns and volatility on the Group’s
investment return and Group Equity Value. Relative movements in these elements may
have a major impact on the growth in normalised headline earnings and Group Equity
Value to be reported for the full 2016 financial year.
The information in this operational update has not been reviewed and reported on by
Sanlam's external auditors. Sanlam’s financial results for the year ending 31 December
2016 are due to be released on 9 March 2017. Shareholders are advised that this is not
a trading statement as per paragraph 3.4(b) of the JSE Limited Listings Requirements.
Conference call
A conference call for analysts, investors and the media will take place at 16h00 (South
African time) today. Investors and media who wish to participate in the conference call
should dial the numbers indicated below.
Audio dial-in facility
A toll free dial-in facility will be available. We kindly advise callers to dial in 5 to 10
minutes before the conference call starts at 16h00.
Access numbers for participants dialing live from their country:
Toll 021 819 0900
South Africa
Toll-free 0800 200 648
USA and Canada Toll-free 1 855 481 5362
UK Toll-free 0 808 162 4061
+27 11 535 3600
Other Countries Toll
+27 10 201 6800
Recorded playback will be available for three days after the conference call.
Access Numbers for Recorded Playback:
Access code for recorded playback: 54477#
South Africa Toll 011 305 2030
USA and Canada Toll-free 1 855 481 5363
UK Toll-free 0 808 234 6771
Other Countries Toll +27 11 305 2030
For further information on Sanlam, please visit our website at www.sanlam.co.za
Cape Town
7 December 2016
Sponsor
Deutsche Securities (SA) Proprietary Limited
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