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Sanlam slides on earnings update

Warns that operating environment will hurt 2016 performance.

JOHANNESBURG – Sanlam gave up 5.07% on Wednesday to close at R63.70, following a trading update that left market participants worried about growth prospects for the insurer’s earnings this year.

Citing challenging operating conditions across most of the markets where the group operates, Sanlam said that weak economic growth in South Africa in particular made it a tough four months.

Coupled with inflationary pressures and the competitive environment, new business volumes have been under severe strain, said CEO, Ian Kirk via a conference call.

For the four months to April, Sanlam grew new business volumes 9% to R74 billion on the comparable period in 2015.

Sanlam Personal Finance (SPF) grew new business sales by 11%, with new recurring premiums increasing 16% off the back of strong growth in its risk business.

Sales were driven by new benefits, including the integration of its rewards programme, Reality, said chief actuary, Anton Geldenhuys. “We haven’t changed mortality assumptions or profitability targets per policy,” Geldenhuys said in response to a question.

Sanlam Sky, the group’s offering for the entry-level market, saw weak growth in its individual life recurring premium business, due to increasing pressure on consumers in this market segment, the insurer said.

Sanlam Employee Benefits also came under pressure from increased competition in the market for group risk business.

Supported by a weaker rand, Sanlam Emerging Markets (SEM) achieved new business growth of 53%.

Net value of new life business (VNB) increased 7%, with Sanlam Personal Finance’s VNB “depressed by the inclusion of the lower margin tax free savings product in the Sanlam Sky business mix”, which was included after April 2015, Sanlam said.

Despite significantly higher net fund inflows of R16 billion (2015: R3 billion), lower average market levels – and investment market volatility – hurt fund-based fee income in Sanlam Investments.

“Movements in the market play a much bigger role in terms of changes to assets under management than net inflows,” commented Sanlam FD, Kobus Möller.

Sanlam has R3.1 billion in discretionary capital to deploy. “We want to accelerate an organic growth plan, which is working on the footprint we’ve established. There are still opportunities to increase stakes in the businesses we’ve got and bolt-on [acquisitions],” said Kirk.

Included in that footprint is its 30% stake in Morocco-based Saham Finances, which has doubled the group’s presence in Africa, as well as its share in India’s Shriram General Insurance, which it is currently taking to 49%.

Sanlam said normalised headline earnings per share were down 13% compared to the first four months of 2015.

“We do not expect any major improvement in operating conditions, apart from in India and Malaysia where things are looking up a bit. Our medium- and long-term growth prospects remain intact and we are confident we will continue to deliver value to shareholders in executing our strategy,” Kirk said.

Risto Ketola, an analyst at Standard Bank Securities, said on Wednesday’s conference call, “The conclusion I’m drawing here is that earnings growth is going to be pretty tough to get this year”.

The JSE’s Life Insurance Index ended the day 1.7% weaker, led lower by Sanlam (-5.07%), MMI Holdings (-1.73%) and Old Mutual (-0.17%).

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