- Sanlam has reported a 10% increase in headline earnings in the first half of the year.
- The insurer benefitted from not having to raise Covid-19 provisions, because its actuarial models provided for the current scenario.
- Sales volumes were up 40% while the rest of the industry was down, thanks to inflows from asset managers.
Sanlam has become the only South African life insurer so far to post a growth in profits in the first half of the year to June.
While Covid-19 wreaked havoc in the much of the insurance sector, Sanlam grew headline earnings – a measure of profit that focuses only on day-to-day operations – by 10%.
By comparison, in the first half of the year Liberty Group posted a R2.2 billion loss, Old Mutual's adjusted headline earnings tanked 67% to R1.7 billion and Momentum Metropolitan Holdings' normalised headline earnings – albeit for 12 month period – were down 51% to R1.5 billion.
These insurers' profits took a huge knock from Covid-19 provisions – money set aside for expected death claims, policy lapses and investment withdrawals among other things. But Sanlam CEO, Paul Hanratty told Fin24 that Sanlam did not have to make any provision for those possibilities when calculating its earnings.
Modelling a pandemic
"The reason for that is, we have a much more conservative approach to the valuation of our liabilities than our competitors," said Hanratty.
What this means is that in good times SA's biggest life insurer's earnings don't shoot through the roof. But it also means that in tough times they tend to be more resilient than the rest of the industry.
Warwick Bam, head of research at Avior Capital Markets, said that fact that Sanlam did not have to raise provisions is positive, as it means their existing actuarial models made allowance for the current scenario.
Bam said he was surprised by the limited impact of Covid-19 on mortality and disability claims. Sanlam Personal Finance only had R15 million in claims from Covid-19 up to 30 Jun 2020.
Sanlam did, however, feel the heat of the Covid-19 lockdown restrictions like the rest of the industry. The company noted a R3 billion Covid-19 impact on its operations which included its share of the provisions that its short-term arm, Santam, has made for business interruption claims.
Business volumes were up, but it's complicated
When it came to selling life insurance products, particularly in the low-income segment, Hanratty said Sanlam Sky still performed better than Old Mutual's Mass and Foundation Cluster which also serves the entry-level market. Sanlam Sky recorded just over R1 billion in new business volumes, 14% lower than the first six months of 2019.
But overall, Sanlam's new business volumes were up 40% to R157.5 billion when the rest of the industry was down. Hanratty said this was, however, not a reflection that the insurer was immune to challenges faced by its peers such as being unable to sell during the hard lockdown. Instead, Sanlam benefitted from large institutional flows from investors like pension funds and asset managers.
"We had a very good first quarter. When Covid came around, we had some good inflows of asset management mandates. But institutional flows are very lumpy, and they cannot be used as a guide to what's going on in the real economy," he explained.
Life insurance sales to retail clients were a better reflection of how customers struggled, he said. Sanlam's life insurance sales to the retail market were up 10%. But the value of new business declined 29%.