Rise in earnings brings Sanlam back to pre-pandemic levels

‘The crisis in Ukraine and Russia…is likely to have a [big] impact, even on our continent…So we are looking forward to a challenging operating environment’: FD Abigail Mukhuba.

FIFI PETERS: Results coming out of Sanlam today [show] that the insurance group paid around R4.2 billion in excess mortality claims related to the Covid-19 pandemic. This was for the 2021 financial year, yet the country’s top insurer managed to return the business to the same level of profits it made before the pandemic hit.

We’ve got Abigail Mukhuba, the financial director at Sanlam, to walk us through the numbers. Abigail, thanks so much for your time. It’s quite interesting to see how strong South Africa’s corporate sector has been, because what we have seen is quite a number of companies reporting what you have today in the form of returning to pre-pandemic levels a year earlier than you had expected.

So I’d like to find out if this is a function of the economy in and of itself being a lot stronger than what was initially expected, or if companies like yourselves over-provided for the worst-case scenario of Covid-19 that didn’t quite materialise.

ABIGAIL MUKHUBA: Good evening, Fifi. Thank you for very much for hosting and good evening to your listeners. Yes, you are correct. We have gone back to pre-pandemic levels in terms of our performance. You asked if the reason behind it is the economy, or if it’s because of the reserve releases. We’ve actually gone back to pre-pandemic levels when you exclude the impact of excess claims as well. So our performance in general was actually better operationally outside both the positives and the negatives of the impact of the pandemic.

Also, if you look at the economic activity, that also contributed in terms of the recoveries across the regions where we operate, as well as the general impact of economic conditions being favourable in terms of fund flows. We reported that our new business volumes were over R355 billion over the period, and a lot of that was driven by the retailing institutional investments business, and that’s also driven by both economic activity [and] overall general savings levels in the market.

FIFI PETERS: But just on the retail side of the business, just ordinary individuals like you and [me], as it were, what kind of products are they coming to Sanlam for this time around that are little different from before the pandemic hit.

ABIGAIL MUKHUBA: If you look at the product set, I would say the main products that we are seeing a lot of services into are more your preservation funds, as well as your endowments and your international types of product. I think it is also driven by the current environment. If you look over the last year or two, there’s been an increase in retrenchments as well as early retirement. So in terms of uncertainty you find that consumers want to preserve their funds and not be reckless with them, so we’re noticing that the popular products are annuities, particularly preservation funds and endowments.

FIFI PETERS: So, more savings-related products. I’m just wondering if you’re expecting to see a bit of a shift in that trend in the year ahead, as the economy is now reopening and it would seem, by most accounts at national level looking at Stats SA and company level, looking at the numbers that companies like yourselves are reporting, that the worst of the pandemics effects are over. So do you see a change in the kind of product demand from consumers then in the year ahead?

ABIGAIL MUKHUBA: I would say it’s still early stages, because uncertainty is still with us. Covid is still with us. We do think that it will probably turn into an epidemic at some time in the future, but there remains a lot of uncertainty as to whether we get – or when, rather, we get the next wave and how that wave would be [at] the levels of severity on our clients.

So to that extent I would say that for now we’re not seeing too much of a change from a savings perspective in terms of our client behaviour.

But, having said that also, one realises that we’ve got significant challenges in the economy. We’ve got very high levels of unemployment. So I would say that to the extent that there are monies that anybody is wanting to favour an ordinary client, I would say that they’re not necessarily overly spending or changing their spending patterns at this stage because of the uncertainty that remains.

FIFI PETERS: And then how about how yourself as an insurer is looking at risk? We have seen in the industry a repricing of risk as a result of Covid, as a result of even the riots in July that in some corners have made South Africa a riskier place to do business. [Have]any risk adjustments been made by Sanlam in the past year, or could any be forthcoming?

ABIGAIL MUKHUBA: There has been a review in terms of our underwriting standards, particularly as it relates to the risk that is presented by Covid. If you look at some of the stats and the scientific evidence behind, let’s say, people with comorbidities and how Covid [and] the different variants have an impact on those comorbidities, it does impact how we look at our underwriting standards; and that then has an impact on the repricing profile.

We’ve also said earlier that our view is that the market has probably been under-pricing in terms of [the] impact of pandemics on the group risk business. Given the experience that we’ve all had in the last year or two, we’re likely going to see, hopefully, some form of rational repricing into the future – that again depending on the type of business.

So with, for example, the group risk business you would go through your underwriting process, or your reviewing process rather, in terms of your pricing on an annual basis, as and when the scheme gets renewed. So that’s when we will build in a review of the impact of the reviewed underwriting margins on the repricing.

FIFI PETERS: All right. But, just broadly speaking, what are you looking forward to as a group for 2022, and what can your shareholders look forward to from Sanlam?

ABIGAIL MUKHUBA: Well, the group is very well positioned, particularly to capture growth opportunities in Africa. We have a very strong balance sheet which allows us – and gives us the flexibility – to do that.

We are looking forward to also building onto our platform in terms of digital transformation, because we realise that a lot of our business growth has to come from us embracing digital transformation.

On top of that, I think we’ve been very busy with a lot of M&A activity over the last 12 months. So, in the year ahead, we are looking to implementing and integrating some of [that] M&A activity to actually realise the value that we are aiming for as a company.

I think also in terms of uncertainty, we realise that uncertainty remains. As I said earlier, we are seeing that future waves are probably still coming. We’ve got the crisis in Ukraine and Russia, which is likely to have a bigger impact even on our continent as well. So we are looking forward to a challenging operating environment.

However, we know that our business is very well capitalised and our discretionary capital gives us the flexibility to still continue with our growth opportunity and hopefully increase even more of our performance in 2022.

FIFI PETERS: All right, Abigail, we will watch you closely to see if you can manage to reach that outperformance. But we’ll leave it there for now. Thanks, ma’am. Abigail Mukhuba, the financial director at Sanlam.

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