Sanlam Limited (SLM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Sanlam Limited Group 4-Month Operational Update ended 30 April 2020. [Operator Instructions] Please also note that this call is being recorded. I would now like to turn the conference over to Ian Kirk. Please go ahead, sir.

Afternoon, ladies and gentlemen. Thank you for joining us on the conference call. I'm joined on the call by colleagues from finance and actuarial, Wikus Olivier, Anton Gildenhuys and Patrick Hartnic. Dealing first now with overview of the results, we released the results for the 4-month period earlier this afternoon. Just a couple of comments from my side before we get going with the questions. It's undeniable that 2020 turned out to be much more challenging than anybody anticipated. We had a very solid start to the year, as we communicated in the COVID-19 update, which we released at the end of March. And that was really most of the operational trends, which we experienced in the second half of 2019, persisted in the first 2 months. However, the operating environment deteriorated substantially since the end of February as governments globally responded to control the spread of the COVID virus through lockdowns and curfews. Global growth estimates were revised down sharply in an environment where both demand and the supply side of the economies were severely disrupted. Of course, this drove significant volatility in investment markets, which significantly impacted our earnings for the 4 months to April. We are thankful that there's been a considerable recovery in markets in April and May. Lockdowns and curfews also prevented face-to-face sales in most of our businesses, but particularly in the life insurance business. And therefore, since the end of March, new business volumes declined commensurately. Despite the headwinds, we received, we achieved exceptional results for the 4 months to date, April. And that's a testament to the resilience of the diversified operations and obviously, the commitment and the expertise of our people. Some of the salient features in the performance are as follows. New business volumes, ZAR 96 billion, up 33% on the first 4 months of 2019 financial year. Now when considering this, it should be noted that the impact of the lockdown and the curfews are not fully reflecting because of the timing differences between writing and recognition of new business. As an example, new business production in South Africa in April and May was down between 50% and 70% lower than our targets. And obviously, the Sky intermediate channel was the hardest hit, and that declined by some 90% for those 2 months because the worksites are not open. That's just on the life insurance side. Net value of new life business, or VNB, decreased by 18% on a constant economic basis, largely due to lower life business sales during the lock down period. And we expect lower sales for the rest of the year, and therefore, higher unit costs. Higher-margin businesses such as Sanlam Sky were more severely affected. And that obviously impacted the VNB margins. Overall, net fund inflows of ZAR 14 billion was 17% lower than the $16 billion we achieved in the comparable 4-month period. Because in the month of March, we had some large withdrawals at Sanlam Investment. Thankfully, we had substantial inflows in May -- in April and in May to more than counteract those flows. But May was -- sorry, March was difficult in terms of outflows at SIG. No real changes in persistency trends we experienced in the first 4 months of 2020, and we continue to watch this. Net results from financial services declined by 21% on the 4-month period. However, excluding the negative investment market impact, which I referred to earlier, net results from financial services increased by a very pleasing 13%, which is in line with what we saw for the first 2 months, and obviously, the second period of last year. Headline earnings increased by 40%, but that was impacted by the one-off BEE accounting cost of ZAR 1.7 billion in 2019. Our capital position in Sanlam Life, which is our largest regulator entity was protected by the hedge equity structure we've got place -- in place there, and therefore, we didn't have a negative on that. The Sanlam Group solvency capital requirement, or SCR, covered ratio remained healthy. It was at 201% on March 31, 2020. But obviously, that would have increased since the end of March because markets recovered from their lows. Funding levels in the smoothed bonus and the participating annuity portfolios, for the larger portfolios, were between 84% and 94%, 31 March, 2020. But that has since recovered and at the end of April, it was between 92% and 101%. And obviously, the position now is even better than that. So overall, I'm satisfied with the performance for the 4 months to end April, reflects the resilience of Sanlam and ability to maintain value creation for our shareholders in the difficult times. Looking forward, it's difficult because, obviously, things are still playing out. And we're continuing to actively manage the consequences of the pandemic. Our priority remains the health and safety of our employees. And obviously then as well, continuing to provide support to our clients, joint intermediaries and the more vulnerable suppliers across our businesses to ensure the sustainability of the system. And we've been doing substantial work there. I think we're well positioned to weather the headwinds. We've got a robust balance sheet. Our solvency position is strong. We've got unique diversification across the geographies. We've got some very strong businesses and some dominance in market segments and of course, deep skills in our businesses. We are a necessity, I think, like most businesses, cautious about prospects for the remainder of the 2020 financial year, given that there is uncertainty around the eventual impact. So we're doing various scenarios. But of course, a number of factors will have an impact on that performance, up until the short term, up until the end of June as well as the full financial year, and we've set that out in the operational update. And of course, as I said, these -- the current situation is quite fluid. We remain positive. We'll get through these difficult conditions. And I think, again, we'll continue to outperform on a relative basis. So I think that's it for me. So I'll open the call now for any questions that you may have on the operational update.

[Operator Instructions] Our first question is from Michael Christelis of UBS.

Three questions, if I can. Firstly, the lag between new business production and that being actually recorded as new business in your financials. I wonder if you can give us just sort of some clarity as to, is that sort of 6 weeks? Is it 2 months, 3 months, for each core business unit? Clearly trying to sort of assess the, sort of, impact on half 1 versus half 2 and which months will fall where, basically. That's the first question. The second question, Saham Morocco reported a couple of weeks ago, basically saying that lifestyles were down 35% for the first quarter. I mean, maybe if you just give us some comment on that and sort of what's driving it and what we should be expecting from the life business there. And as well as the non-life business only growing at about 1%, I'm trying to understand, you've previously given us targets of sort of 12%, 13%, I think that's growth. I'm just trying to understand what is the new targets, ignoring COVID, I guess? And then lastly, just around your expectations for maybe just your base case for economic growth and job losses for this year and whether or not you would use June as an opportunity to make material assumption changes if you felt that lapses were going to deteriorate in half 2? Or would you wait for that to emerge and only make significant basis changes at the full year?

Yes. Okay, Michael. Anton, maybe you can deal with the first one and Wikus the second one. And then Anton, you maybe come back on the third one around the -- how we're looking at lapse assumptions at half year.

All right. Wikus, you should actually help me here. My understanding is an operational update. We are reporting the accounting new business production numbers.

Just the accounting numbers, Anton.

Yes. So the lag, typically, if a policy is written at same SPF today, it will typically, on average, pop up 3 to 5 weeks later in accounting. And I was going to say the first payment made around towards the end of the month.

Is that on Sky as well, Anton?

Yes. That's also where the lag can actually be even more. Of course, you've got stop order business, and the stop orders are then loaded onto the system of the employer. So you could have a 6-week lag, also on average. So there is a bit of a lag between the production and when it hits accounting. But the numbers we've reported in operational update is the accounting numbers.

Okay.

And then Saham Morocco. Michael, I don't want to comment too much on them. As you're aware, a separate listed entity. We're just going to say that the comment that I made today, for it to turn over, which is not necessarily the same as new business volumes in our definition. So I'd rather refer to across in Northwest Africa region in total, where for the first 4 months, the life business growth was actually very good. On the non-life side, again, I'd rather refer to the region than Morocco, specifically. But for this year, we did set them lower growth targets. So focusing then to look at the quality of the new business. So for the region, the targeted growth for this year is in the single digits.

All on the assumption changes, it's very unlikely that we'll do mortality assumption changes for 2 reasons. The first one is we haven't seen significant COVID-19 claims yet. And the integrated agreement, if they come through, we've got a pandemic reserve to deal with those. So it's unlikely for us to see a mortality change. As for persistency, it's an interesting one. Because of Sanlam's prudent reserving basis, if we actually weaken our persistence or strengthen our lapse assumptions, market will result where we actually see our reserves slowing. That is because we generalize our negative reserves. So for onerous policies, we set up positive reserves and if we increase the lapse assumptions for those policies, that all result in the reserves reducing. So we are thinking about potentially doing some out of model, just the easy adjustments to allow for a short-term impact of persistency. We don't think, as to the global financial crisis, that there will be a permanent shift in persistency. If there is a shift, it will be in the shorter term. We just want to first consider the experience towards the end of June as well. [indiscernible] a better feeling of where the trends are going, and then we may or may not introduce out-of-model adjustment.

Yes. It's early days, Michael. I would say that April and May were probably better than we expected. So we'll have to give ourselves 1 or 2 more months just to see if there's anything there. So we're watching it very, very carefully. And obviously, with our banking partners.

But you would make assumption changes if you felt things would deteriorate, right?

Yes, yes, yes.

I just thought that you would wait for year-end.

No, no, no, we would. But you just want to be -- also, we have the opportunity when we can talk to our banking partners as to what their experience is. So we need a bit of a better feel. We -- as we close to the banks, we're not seeing a consistent message yet. It's quite early days.

The next question is from Warwick Bam of Avior Capital Markets.

Three questions from my side. How do you foresee the shape of the recovery in adviser productivity as the lockdown regulations ease? Second one, are you considering any tactical changes to your strategy to manage the current environment, especially around cost-cutting or enhancing your focus on digital sales channels? The third one, you've got a very healthy balance sheet, and I appreciate you may not have as much discretionary capital available to deploy. But my question is really around the prudential authority and whether you're under any pressure to retain capital in the current environment.

Okay. Anton, maybe you can have a look at this one, the first one. I'll talk about the second one, and maybe a bit about the first one as well. But you can have a go at that one. And then I'll talk a little bit about the third one then as well. And maybe, Wikus, you can also chip in on the third one. Have a go at the first one there, Anton.

Thanks, Ian. I think they said very specifically on productivity would depend heavily on the nature of the lockdown regulations now they are being eased. We know that government knows and expects the infection rate and the death rate to increase. The whole purpose of a lockdown was not to try and dodge the pandemic, but it's only around preparing the health care systems and flattening the curve so that we can cope with it. So we should get increase, and that shouldn't deter governments from the easing of a lockdown, unless even their projections are being exceeded by the actual experience. And that will, of course, then lead to a reversion of the lockdown easing and will have a significant impact. So in the Midland asset market, our productivity, even though the lockdown levels may ease, we may still have a situation where some of our clients remain anxious, and they are more keen to engage with intermediaries with via telephone or digital means. So that may have a longer-term impact on productivity. In terms of entry-level market, we are very heavily dependent on, not only worksites opening, but the employees being present in those worksites. And for that, you would need, I would guess, at least a level 2, but probably level 1 type of lockdown for productivity to revert back to normal.

Warwick, let me come in here. It's -- I'm not trying to kick for touch, but it's quite difficult. I'm sure you read all the stuff, the economic stuff and the scenarios around that. So that doesn't -- I won't comment on that. But that would shape our thinking. So we would be expecting this thing to take -- to be very negative. But actually, when we look at the -- on the ground, in our own business, outside of the life business, in particular, the bottom end where the worksites have closed, we're actually doing better than we would have expected. When we talk to our banking partners, things are not as bad actually at the moment as they would have expected. When we talk to the retailers, there's quite a lot of activity. So it's a little bit counterintuitive. So we're having to watch this thing fairly carefully. So what we're doing -- and remember, our business is quite diverse. So what we're seeing in South Africa in the middle market and in the entry level is not the same. What we're seeing in some of the regions is not the same. What we're seeing in India is not the same as in Africa. So it's very, very difficult. So what we're doing in Sanlam, we're doing scenarios. We've got a base scenario, and then we've got one that's kind of worse than the base scenario. And then we've got a scenario that says we're going to have a second lockdown, which is a really negative scenario. And that's all, quite honestly, we can do for you at this stage. I think we'll be in a better position at the end of June. So I mean, we find -- we're going to get through -- we're down a little bit on the earnings side. We'll have to see where that -- we would hope that we could sort of recover some of that -- the markets have recovered strongly in May. I think the pickup will probably be in South Africa, a little bit better than we were expecting. We'll just have to see. Now the next question is around -- so what does this do? Well, some of the stuff that we were busy with, we can really push ahead quite quickly in terms of the operational side. I mean, if you said to me today that we can run Sanlam 80% of the people remotely, I would have said it's impossible. We're doing it. And we've been doing it -- we had 87% of people away in the first 5 weeks. We now have 80%. I mean it's extraordinary. A heck of a lot of those people are not going to come back to work on a regular basis. They'll come back for meetings. We're going to be able to push a lot of the stuff around new ways of working that we never ever could have seen before. The impact on how we work, the efficiency of how we work, the productivity, the type of people we need, the headcount that we need, the real estate that we need. There's going to be some fundamental changes there. And this is not unique to Sanlam, it's the same stuff that we're seeing in our discussions with other insurance companies around the world. So it's really going to give us a lot of opportunity to really look at the cost base. And I'm not talking about wholesaler retrenchments, not at all. But the way -- the type of people we employ, the numbers of people over a period of time, and the way we operate is going to be very different. The second thing, of course, is the digital transformation stuff that we were busy with, and Anton was driving that project for us with Wikus there as well. We're really able to push hard on that because of what we've seen. The intermediaries' adoption of digital is going to be much, much better than we ever thought because the face-to-face guys who hadn't got the digital were struggling through the 6 week. Your third question is around the balance sheet and the opportunities and the capital. We're not concerned about the lack of capital. There are sources we've got available that -- it doesn't really concern us. However, one must look at the things strategically because there's not big stuff on the table strategically for us. So most of the stuff that have been done, we'll have some bolt-ons in Africa. There may be some opportunities in India that come through this thing. So what you're saying is, will there be opportunities? Will be a likely of the opportunities. And if we need the capital for the opportunities, we'll raise the capital. So that's the way I would look at it. Nothing on the table, but we have eyes wide open. Wikus, what would you say?

No, I agree with that. Ian. I mean, I think part of the question was also around pressure from the PA. Yes, I think from that perspective, you've seen the communication, the joint communication that's come up from the Prudential Authority and as the regulator for the industry, yes, they should be concerned about the solvency of the industry delta. But at this stage, I can see that if you are solvent and are comfortable with your solvency levels that they won't -- that they will prevent you from deploying capital or even paying dividends. But it will, of course, be an engagement process with them. You won't simply do something without their knowledge to take them along on the journey.

Yes, look, if they got to a situation where they were giving us regulatory relief in Sanlam to support the business, right, they would correctly say, "Guys, when are your shareholders coming to the party? We're coming to the party. Where are your shareholders?" We've not been in that situation. We had those discussions with our final dividend. Our final -- as you know, our dividend is driven off the cash operating earnings. It's not driven off the capital base. So the 2 things are independent. So if the operating earnings are there and the capital position is strong, we'll pay the dividend. And that's basically how we see it.

Next question is from Larissa Van Deventer of Barclays (sic) [ Mazi Macquarie ].

0 Two quick questions. The first one on Sanlam Sky, you gave a very helpful table, and thank you for that, on the extent to which movements are down in April versus the first 2 months, but then you mentioned that Sanlam Sky was down 90% relative to target. Can you tell us what it was down relative to the same period last year? And then on the hedges, you mentioned that the mark-to-market impact were lessened by the hedge program in place. Can you please give a sense of what hedges you have in place and when there's [ deal renewal ]? And how you are currently thinking about your hedge situation?

Okay. Anton, will you have a go at those 2. I'll come back on one at the end.

Yes. A bit smart to ask the reduction compared to last year. Of course, it will be a bit less than 90%, given that we expect growth in our target. Hedges, we've got the 0 premium collars, so the ZAR 8 billion capital is still intact. In fact, it is still contributing a little bit to discretionary capital every quarter. And we continue to roll those collars at the moment. So there's not a significant change in that strategy.

And where's your collars take?

So we do it on a monthly basis. So every month, you'll have some of those collars maturing. And then, of course, they will sit at the 100% to, say, 105%. So we will always have full capital protection. And then we give away upside to pay for that full capital protection, and we always retain the dividend. So in the current environment, the dividend yields are high, which is assisting in the returns on the ZAR 8 billion. And then of course, if there's capital growth, we will capture all of that up to the cap of the structure.

Where is the cap?

It depends on the market conditions when you implement. So at this time last year, the caps would have been, gee, 7%, 8% for the 12-month collar. Currently, it's significantly lower because of increased [indiscernible]. So we will depend more on the dividends to provide us with the return at the moment. And then as conditions -- as the volatility comes down even next year or so, we expect those pricing to improve again.

And downside protection, Anton?

Yes, it's all downside protection.

Full downside?

Yes. Yes.

Wikus on the Sky?

Yes. I think Anton covered it, so I don't want to communicate our targets. But I think the 90% that we got, just to give you indication, is a substantial decrease. And then actually, we expressed it as reduced targets last year, the actual reduction in the month was really insignificant, to be honest, the 10% remaining.

Larissa, let me just explain it now. The first thing we would say to you is that we would have had a low double-digit projected target for the business, for the traditional Sky business. So you can work that back off that to the 90%. What we were saying was that in the traditional Sky business, for those months when the work sites were closed, we saw a substantial falloff. But when you look at Sky, it's not just the traditional face-to-face operation. We also have the Capitec operation, which writes a lot of volumes. And we also have the group scheme. Now they are not quite impacted the same way. So the worst impact was on the Sky traditional agency. The other ones are not as impacted to the same extent at all.

The next question is from Greg Wood of Melville Douglas.

Just 2 very quick ones. The first one's probably for Wikus and the second one is probably for Anton. Just in terms of the difference between the down 21% net financial results versus up 13%, can you just explicitly explain where -- what you took out? And I assume this a [ hand flat ]. Have you also included the live participation. And then I assume on Sanfin, maybe the mark to market on prep shares. If you could maybe just give us more color on what exactly is excluded to get to the 2 different numbers? And then Anton, just on new business strength, I suppose this is the benefit for the way you guys account when you cash account for new business trends, where some of your competitors are obviously going to have new business trends leading to the income statement, when they're not actually selling anything. Can I kind of assume -- I know there's a bit of a mix difference. But can I kind of assume that new business trend and variable cost will largely move in line with new sales for the year?

On your first question, Greg, the table that we provided in the operational update, that's got the ZAR 790 million net negative impact versus ZAR 279 million for the prior year. Those are the numbers that we've adjusted to calculate the difference between 13% and 21%.

As you say, the credit spreads at Sanfin, which was ZAR 328 million. The mark-to-market on the listed [ perhaps ] is 100. Participating fee income is 58. And then the float in Sanlam pan-Africa in general, 304. But obviously, those numbers are volatile. They were worse at March. They were better in April. Obviously, there was an improvement again in May. Anton?

Anton, are you still on line?

Sorry, I've been on mute there. As for the new business trend, clearly, some of the commission costs, where we don't have a [ deck ] would be fully variable. But let's call it the Sanlam distribution management and that kind of infrastructure. There's a quite a high degree of a fixed component in there. And that is why you can see that the average impact in our VNB margins. Now as the volumes come down, the VNB margin will also contract because of the fixed component coming through in the new business trends. So now there is quite an unfortunate -- well, it's unfortunate in a declining environment that you've got a fixed cost. But of course, if you've got growth, then you see an expansion in the margin.

The next question is from [indiscernible] of [indiscernible].

Two questions. One on SIG International and the other on India. On the first -- I apologize if I referred to last year's numbers, but the full year RoGEV was doing quite nice on the half year number. And the full year number even better at 7.5% [ or 7.6% ] versus your sort of target, which is sort of 13.5%. How much will the rand depreciation against the international SIG business translate to your net results from financial services? And on India, it's a big oil-importing country, so obviously, some good savings on fuel during lockdown. But you have a large loan book there, and you take it by the 7.9% hit on currency appreciation last year. And I imagine against the rupee, the last sort of 2 months, you've actually depreciated quite nicely. So you made some reference to exchange -- ForEx gains coming through on India. How big is that in the scheme of things?

Wikus, that's for you and Patrick, yes?

Yes, I think on the first one, SIG International, that's only so translated to average exchange rate. So if you look at the 4 -- first 4 months of this year, it's about a 10% positive impact on the translated earnings of SIG International. From a GEV or RoGEV perspective, of course, that works from spot to spot. And the full weakening of the rand exchange rate over the period will come through as part of your RoGEV earnings.

India?

On India, if I may?

Okay. So I can talk about the operational side, maybe Wikus on the numbers. The issue in India is that because of the payment on that have been legislated, the collections in the 2 credit businesses are impacted. And that's now been extended. So they, in turn, of course, get extension on their funding. But the pressure's on there, so we can anticipate a weakening or additional provisioning, and we can anticipate some reduction in advances. So operationally, those 2 businesses will be under pressure. And I think we just make the point again that we have lag accounting. So we bring in through very strong result from India, and we're just cautioning that -- we'll have to see if those continue -- we would actually anticipate they won't continue because of the pressure. So we've been through this with India many times in my time here -- and they always recover very, very nicely. So we'll just have to see. But from a currency point of view, once again, we've had about a 10% improvement there.

Similar to...

Yes. Maybe a bit less, maybe about 8%.

India, plus 15%.

Yes. So we'll have a positive on that. But we're going to have to have a close look at the values for GEV purposes at the end of June.

[Operator Instructions] The next question is from [indiscernible] of Business LIVE.

I just have one question on business interruption insurance. Have you got clients lined up for that? And I'm not guessing, you would be rejecting them. If you could just give me a sense as to why -- if you are rejecting them on what grounds?

Well, these are policy conditions. The policy contracts, I think, are pretty clear. I'm not dealing with it on a daily basis like the Santam people. But I mean, I know how the thing works because I was across there. So if you've got clients that have taken the -- have got the cover for the pandemic and they have a particular incident in their business, so in other words, they had to close down because a customer came in or employee came in that was infected, they had to close it down, we'll cover that. We've had claims like that. We'll cover that. But if the business has had losses -- business interruption losses because we have a global pandemic, and we have lockdowns applied country by country by country, I mean, that was never anticipated in the contract. It's not covered in the contract, and therefore, it's impossible. We're happy to bear some of the risk in this thing and do the right thing for the clients and help out where we can, but you can't have a situation that the entire cost of the COVID pandemic in the economy gets transferred across to the short-term insurers because someone thinks, "Why not, they've got some kind of cover." So one has to be very careful in how one goes about this thing. I can tell you that the Santam folks have looked at it very carefully. They've looked at it with the industry association. They've have looked to with the regulators. They've looked at it with the intermediaries, they've looked at it with the reinsurers, and they'll be very responsible and do -- you'll obviously apply the contract conditions, but you'll also look and see what the right thing will be to do for clients. It's early days on this thing. It really is early days. Because clients, they will have to formulate claims, they will have to look at their own policies, they'll have to get the brokers involved. This thing will play out over a period of time. But we will do the right things for the clients. I can assure you that at Santam. And of course, it's a very small percentage of the commercial clients who've got this cover anyway. Most of them don't take cover for that. And actually, when you look at the insurance business that we write in Africa and in India, it's not covered at all. So this is a -- it's not really a very significant thing in a Santam context. It's a much more serious thing, for example, in the U.K. and in America, where the policy contracts are worded differently.

The next question is from Sarine Barnard of Ninety One.

Just a couple of questions from our side. So firstly, the table on Page 7, where you showed the April production versus the average for the 3 months to March 2020. So was that a deduction or was that on an accounting basis?

That's on an accounting basis, Sarine.

Okay. Okay. So the comment on the 50% to 70% is production, but that table is on an accounting basis, correct? Then I wanted to ask, so what percentage of the Sky business is ripping through work sites? And can you give us an indication on [indiscernible] government employees?

I can give you the volume. You want the percentages?

Yes, I'll take add that one because -- I think if you look at the Sanlam Sky book, just more than half of the book is government employees. For work site perspective, to be honest, I actually don't have the percentage top of mind, but it's a smaller part of the business. They still write a significant portion, of course, with Capitec these days, and then also through the intermediary base and group schemes.

Okay, great. And then for the Saham float, you referenced the fact that quite a substantial piece is invested in properties. So did you do a full property evaluation at the end of the period? Just to get an idea of how much of the paying is already in the number and how much of the paying is still to come in terms of property values.

The biggest part of the impact in the 4-month results comes from equities. There is some allowance for a cut on property valuations, but it was a more high-level estimate at this stage. For the June results, we go through proper valuation of the properties. So there may be a difference end of June.

Okay. Usually, they talk to variations on an annual basis or so. And then I just wanted to confirm, on your comments on the persistency. So you said the trends in the first 4 months of this year was consistent with last year. And then you also commented that the April persistency was better than you expected. So did you see a significant drop down -- sorry, you said May was better than you expected. Did you see a significant drop down in May from the sort of January to April levels?

No. No, we didn't. And that's what I was saying earlier, Sarine. We were kind of expecting that and didn't see it. And we're also not seeing it with our banking partners. So that's why we're just being a bit cautious.

And is it across the book? Is there specific areas that's carrying risk and others?

No, no. No, no. There's not one specific area that we're worried about. And we're also not seeing it yet in Africa, where we're also concerned. But it's early days, Sarine.

Yes. I think one factor that must be taken into account is that we do have clients that took premium holidays. So I think they always run those, and whether they will continue paying or whether then you make a lapse at that point and [indiscernible] at that point in time.

What has the take-up been on the holidays that you offered?

[indiscernible] It's been fair, but it's not a substantial part of book.

No, again, again, less than we anticipated. The thing about it is, obviously, there's pressure with consumers. But when you go through a thing like this, the people say, "Gee, I'm going to keep my life cover going. I've got to keep my funeral plan in place. And I've got to also look after my short-term insurance." So it's almost like the awareness of health and safety stuff. They're aware of it. And of course, the brokers are speaking to them as well. So it's in a time like this, that the value of what we do should come through and may well be coming through. We understand the pressure. We really -- we are aligned to the pressure that people are under, and particularly where people get retrenched. But to answer your question, we had less people coming to us on the premium holidays than we expected.

Yes, I think you have a situation here, where you've got fairly strong forces pulling in different directions. So what Ian talked about is people being retrenched or business owners losing their income, even if it's small business owners. And then, of course, their employees are also being affected. And that will clearly lead to lapses. I mean, it doesn't matter what your intentions are. If you don't have an income, it's impossible to maintain those policies. But on the other hand, you've got a lot of salary earners in South Africa. A lot of the salary earners who work will just sit at home and their expenditure base has reduced significantly, not only because the transport costs are down and so on, but the mortgage repayments are down because the prime interest rate has been slashed by pretty much 1/3 or close to 1/3. So you've got actually more disposable income with your salary owners. And then on top of that, there's certainly less churning going on in the industry because in the Middle East, especially in the entry-level market, precluded from entering the industry as well. So you've got all of these forces. And that's why coming back to Michael's point earlier, we try to understand those trends to have a bit more of an informed decision on what the overarching adjustment should be. That all being said, I think it is naive -- it will be naive to think that there will be no impact on our persistency. If the economy shrinks by, let's say, 7.5% for the year.

Yes, absolutely. That's great. That's very useful. And then lastly, talked about the fixed cost element of the new business strain. Can you give us a sort of a rule of thumb for what sort of volume decline would result in the sort of sensitivity for the VNB margin? So what sort of volume decline will result in 0 VNB to get a feel for that sensitivity? Or anything along those lines? Just to give us a feel for how sensitive it is?

Anton, you want to have a go at that's one?

Yes. I would say that you would need at least more than 50% decline in volumes for the VNBs to become negative.

We don't have a scenario like that, Sarine.

The final question is a follow-up from Michael Christelis.

I'm sorry. Just a quick one on your Sanlam personal loans book. I see you've increased your provision there or you've raised the provision for ZAR 50 million. I mean can you talk a little bit about what's happening in that book, specifically on nonperforming loans? And what your expectations there are?

At this stage, Michael, the provision that we've made doesn't reflect actual defaults. So we do have some clients within that book that also took repayment holidays. At this stage, it's simply the IFRS 9 provisioning model that simply kicks out an increased provision based on delaying in payments by clients. I think eventually, the effect will be determined by actual defaults that come through, which is uncertain at this stage.

Do you expect a material pickup in credit losses there, though?

No, that's not our base case at this stage.

Thank you very much. So we have no further questions in the queue, on to any closing comments.

Thank you. Sorry, let me just get my-- yes. Thank you very much. Thanks for your continued interest in the business. I'd like to thank you for participating in the call and for your interest. As you know, this will be -- actually, this is going to be the last time I'm going to talk to as the CEO. Paul will be taking over, but he's well into the business now. And Paul and Anton, Patrick and Wikus will be dealing with the results in September. We look forward to that. Thank you.

Thank you very much, sir. Ladies and gentlemen, that concludes this call, and you may disconnect your lines.