Insurer Sanlam has a mixed bag of results

Africa’s largest insurer, Sanlam, has released a mixed-bag operational update, with profits in its life businesses showing a marked recovery in the 10 months to end-October as Covid-19-related death claims dwindled, but the volatility in global markets affected its investment returns.

The rise in inflation and interest rates affected global investment markets, and the ability of clients to commit to new insurance and investment products and retain existing arrangements, Sanlam said in a statement on Wednesday.

High levels of claims inflation, electrical power-surge and vehicle theft-related claims blighted its short-term insurance arm, Santam, compounded by adverse weather conditions and the deadly floods in KwaZulu-Natal during the first half of the calendar year.

Headline earnings per share, the main profit measure that strips out exceptional items, were down 6% during the review period year on year.

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While the measure of operating profit from life insurance businesses rose 23%, general insurance plunged 50%, partly reflecting the damaging effect of intermittent load-shedding on appliances, leading to the rise in claims.

Sanlam Pan Africa’s general insurance results were affected by weak investment returns on insurance funds, while claims inflation hit underwriting performance. Group net client cash flows fell 6%, largely due to lower net flows in the investment management businesses affected by the global macro environment.

Investment management recorded net client cash inflows of R26bn, 32% compared to the same period a year ago.

“We expect the operating environment to remain challenging for the remainder of the year, with continued pressure on asset-based fee income,” CEO Paul Hanratty said.

“The outlook for inflation, interest rates and investment markets remain unclear.”

Higher inflation will increase the cost of claims for Santam in particular, while reducing the purchasing power of consumers. The rising consumer prices and interest rates could also result in higher policy lapses, with potential consequences for life businesses.

However, Sanlam said the acquisition of the Alexforbes life book and the Absa investment management transaction completed in this month would support earnings growth.

Life and short-term insurers largely withstood the pandemic through adequate provisioning for excess debts and business interruption-related claims, but profits suffered as a result.

Sanlam’s share price ended 3.3% lower to R51.41 on the JSE, giving it market valuation of R114.5bn.