Sanlam Limited (SLM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Sanlam Life Insurance Limited 10 Months Operational Update. [Operator Instructions] Also note, the call is being recorded. I would now like to turn the conference over to Mr. Paul Hanratty. Please go ahead, sir.

Chris, thanks a whole lot. Good afternoon, ladies and gentlemen, and thank you for joining us on this conference call. I'm joined today by Finance Director, Abigail Mukhuba; our Chief Actuary and Chief Risk Officer, Lotz Mahlangeni; and the Head of Investor Relations, Grant Davids. Sanlam released our operational update for the 10-month period to 31 October, 2021 earlier this afternoon. I'd like to make a few comments before we proceed to questions. While 2021 continues to be a very challenging year, I'm absolutely delighted that the Sanlam Group has made excellent progress, both operationally and strategically. Our operational results are outstanding, and I believe that our results demonstrate customers value having Sanlam as a trusted partner more than ever before. In every business line and custom segment, we've continued to strengthen our market presence during 2021. From a strategic perspective, the group made significant progress since we announced our interim results in September. The development of Sanlam Investments, as South Africa's leading black-owned asset manager; and the proposed merger with Absa Investment Managers to create a scaled investment platform, offering diverse asset classes, will significantly improve our market position. Strong client cash flows during the period underline the progress in the development of the group's investment platform. The breadth of the offering, the integration of ESG principles into all of our investment processes and the ownership credentials of the business have combined to elevate our investment platforms prominence over the year. We've launched a new set of health insurance offerings in partnership with AfroCentric to provide a more holistic product offering to our clients and to fulfill a market need for affordable health insurance. The proposed transactions with Alexander Forbes that we announced the other day, will enable the group to focus on providing umbrella pension fund solutions to the market and a full range of investment and insurance products to the corporate benefits market. This focus will further strengthen the group's competitive position in the corporate benefits market over time. And as our operational results indicate that Sanlam Group's performance in this market is very strong and improving. We divested from our U.K. operations outside of asset management, informed by our capital allocation framework and strategic intent to develop the leading African insurance and asset management group. We also took steps to further optimize the pan-African portfolio through strengthening our position in key markets and exiting subscale operations. Our pan-African general insurance portfolio recorded a net insurance margin of 19.5%, driven by a higher return on insurance funds and a net underwriting margin within our target range. Our and Life portfolio recorded a strong performance. New business volumes were up by 22% and the value of new covered business by 87% in constant currency. This growth and strong performance, as we integrate the various African operations into the Sanlam Group, is very pleasing and supports our long-term ambitions for the continent. From an operational perspective, the performance of our business in attracting new customers and deepening relationships with existing customers was outstanding. We're particularly pleased with the new business volumes in the life insurance and asset management product lines. Our strong platform and offering meant that we were well positioned to meet client needs in this regard. New business volumes across all product lines was 17% higher than 2020 and 46% higher than 2019. Obviously, asset management and life insurance numbers were much higher than that. The value of new business covered was up by 55% on 2020 and was 23% higher than 2019. The new business margin of 2.65% was higher than 2020 and only very slightly below 2019. Net fund flows were an incredible $61.4 billion, 21% higher than 2020 and 41% higher than 2019. The COVID-19 pandemic continues to impact our business' profitability and return on group equity value. Significant excess mortality claims are recorded in our South African and emerging markets operations. The strength of our balance sheet, however, has enabled us to mitigate much of the impact of this on the earnings of our South African operations. Sanlam Life and Savings paid gross mortality claims of more than ZAR 14 billion in the first 10 months of 2021. This is 88% higher than the same period in 2020, significantly due to the impact of the third wave of COVID-19 in the third quarter of the year. Claims over and above the long-term expected level were ZAR 3.42 billion, net of reinsurance and net of annuity and disability offsets within Sanlam Life and Savings and ZAR 536 million within Sanlam Emerging Markets. As part of a package of basis changes, Sanlam Life and Savings has released discretionary reserves of ZAR 2.85 billion to mitigate the impact of excess claims. Sanlam Emerging Markets holds more limited discretionary reserves and we will only consider releases in this regard at year-end based on full year experience. We have taken very significant actions to mitigate the future impact of COVID on the group's business. These include extensive repricing of group risk business, development of new underwriting standards and amended product design in our retail businesses, accompanied by a full review of actuarial valuation assumptions in the light of the pandemic. The latter will permit us to restore pandemic buffers over the next number of years from higher margins. The net results from financial services increased by 24% on 2020 and was 4% higher than 2019, excluding one-off items. But it's extremely important to note that both 2020 and 2021 years contain quite a lot of very lumpy and unusual quarterly movements. So the current level of growth is, therefore, not expected to be maintained for the full year. We are, however, delighted that the current year profits are in line with 2019 results, since we were targeting to restore profitability to 2019 levels as quickly as possible. Overall, persistency trends remained excellent. The group remains well capitalized with Sanlam Group solvency capital requirement cover ratio at 176% on the 30th of September. Just maybe to point out that we do our valuations quarterly, although we now are reporting a 10-month period, and that's why we're quoting the solvency as of the end of September. Our solvency ratio is well within the target range set by the company. Our operating performance for the 10 months to October reflects the strength of the underlying operations and the ability to maintain value creation for our shareholders in very challenging times. In conclusion, I'd like to say that we continue to actively manage the consequences of the COVID-19 pandemic and the emergence of the fourth wave in South Africa. The group expects to retain modest discretionary reserves to mitigate any mortality losses after the end of the current financial year. The group has, however, as I mentioned, just now implemented far-ranging management actions to deal with the future impacts of the pandemic on mortality experience. On our best estimate assumptions, we believe that these management actions should eliminate future mortality losses. However, as I'm sure you'll appreciate, a large degree of uncertainty still exists with respect to future COVID-19 impact. In addition to the management actions taken, the group will, therefore, maintain a higher level of discretionary capital that is normal for a period of time, and this period may indeed extend to several years. In order to provide a buffer, should the management actions taken proved to be inadequate in dealing with the financial consequences of the pandemic. Over the medium to long term, we remain extremely confident of the growth prospects of all of the group's businesses. Furthermore, we are very confident about the strong ongoing cash generation ability of our businesses, and we expect that we'll be able to continue to deliver value to our shareholders and to other stakeholders. I will now open the call to questions. So please let us have your questions as you're ready.

[Operator Instructions] The first question is from Warwick Bam of Avior Capital Markets.

I'll start with 3 questions. Just the first one in terms of the trend in new business volume growth. It seems to have continued in a similar manner to the first 6 months and in the third quarter. Just can you expand on whether the performance is similar to the first half if you drill down to a product level and distribution channel perspective? Just any color around those trends would be valuable. Second question is just on this 2021 new business volumes as a high base. Can you give us a sense of the chances of agents improving their productivity as to kind of where productivity stands and then certainly in the investment and savings segment of the business that's benefited from the pandemic, but potentially, you can add some color around the risk products and whether there is full capacity to improve sales volumes in 2022? And then third question on the Indian Shriram General Insurance business, there's a -- currently a freeze on the third-party premium increases. Is there any clarity on when that freeze will lift? And what percentage of the book does that third-party freeze effect?

Warwick, thanks very much. I'm going to give you a high level of answer to the first question and see then whether Abigail or Grant or maybe even Lotz can shed any more detail on it. I'll then deal with your second question and I'm not sure whether we have an answer to the third question at hand. But let me start with new volume growth. I mean, as you say, it has continued during the 6-month period. And I think I've been quite consistent in warning that at some point, as the economy goes back to normal in [ terms of ] commerce, we would expect to see that, that coming off. So I will see whether there are any detailed comments from my team because you asked for a bit of color along different product lines. When I look at a high level at the different product lines, and the different market segments, they've actually all been really high. So Sanlam Corporate has done very well. Our Retail Mass business has grown extremely strongly. The investment business, as you pointed out, has grown pretty strongly. The one that's been a bit of a laggard in terms of growth has actually been the risk product sales in the affluent market. But I'll see whether the team want to add anything to that. As far as 2021 being a high base, I think 2021 is an incredibly high base now. So when we look forward, we definitely don't anticipate seeing the same level of growth that we've seen in this year. You asked specifically about agent productivity. We know that in our Retail Mass business, we believe that we can, in fact, lift the productivity and we've got very granular plans around doing that. There's a tremendous difference in the productivity of very experienced agents and those with less experience. And so it's a question of making sure that we nurture and keep people so that they gain experience and that tends to drive up productivity, but we've got a number of measures in that space. But I do take the general point that the base is high. I think it's important to point out that in the long run, of course, growth is really important to us. In the short run, you've got the strange effect that, in fact, slightly lower rate of growth can be helpful from a profit point of view, but not as helpful from a return on group equity point of view. On the Indian GI business, I mean, it's quite interesting. The Life business in India grew 60% and yet the overall business grew 3%, which I guess will give you a sense of what happens to GI. But I don't know whether anyone on this call, I don't know, Grant whether you have or Abigail or Lotz know exactly what proportion of that particular product line, which has its premium set by the government is of the total GI book. So colleagues, does anybody want to come in and add or are we just going to leave Warwick with my answer?

Warwick, it's Grant. Maybe I can just add on the new business trends, it has generally been quite stable or quite good across all lines. So one area in SIM where that was a bit weaker was the asset management business. But as we know, is a high base pay from last year, and their business has tend to be a bit lumpy. But excluding that, all the trends generally across the business have been very strong.

Yes. That's a good point. I actually missed that, Grant. And Grant, do you know the split in the GI business of the -- that business that's regulated, premium-wise or not -- I don't know you to know the answer, but if you do, it's a bonus?

Yes, even the biggest part of the book forward, I can't give you the exact number, but it is...

Maybe you can touch base with Warwick off-line.

Yes, we'll do that.

Yes.

The next question is from Michael Christelis of UBS.

Can you hear me?

Michael, perfectly, yes. Nice to hear you.

Good. Great to hear you, too, Paul. Three questions, if I can. So the first one, just around corporate, maybe if you can give a little bit more color as to what's growing so well? I mean it does seem like a market where all your competitors seem to be struggling, so, I mean, can you maybe just comment on sort of the trends over the last 4 months around whether it's risk business? Is it umbrella business? Is it sort of [ lumpy ] annuity business, and maybe just some sort of guidance there would be great? Then a little bit more technically, I guess, around your discretionary margins. So there's a comment in the pack that talks about repricing and basis changes will largely offset your best estimate of excess claims experienced for the full year in South Africa. Now if I look at your numbers that you've shown us today, it looks like there's about a ZAR 600 million shortfall between your discretionary reserve release and your excess planned. Does that mean there's ZAR 600 million of additional reserve releases coming, which should bolster the run rate of earnings from where we are currently?

Let me help you with that one, Michael, straight away. Of course, now I've forgotten that -- you've always [indiscernible] with me -- those things going to be technical, I think one of the problems with COVID that's been particularly fictitious, I think, for making things easy and understandable, is that it doesn't happen uniformly. So we're obviously through -- so you said premium rates, as you'll understand, for a full year and you pitched that deal with claims over the full year, but the pandemic comes in waves. So we've clearly had the third wave. You would expect that the claims in November and December would be much lighter. And in fact, I mean, that's what we're seeing. And you would know that from the population numbers. Our numbers internally and our patents internally follow the population statistics. You're going to have a better experience of death claims in the last couple of months. And then the other point is that because you're putting through pricing changes as schemes come up for renewal, you've got a bigger base of higher premiums for the last couple of months. So the answer does in the expectation of further reserve releases, but rather the action and the interaction between the expected claims and the pricing. Lotz you may want to help a bit more with that. Michael, I must apologize, I've forgotten your first question. Your first question was about different product lines...

Corporate and new [ build mix ] -- yes.

The thing in corporate businesses, you probably know, is extremely lumpy. So again, it's probably not a good thing ever to look at short-term trends. If something, I think, that you do need to even internally, we always [ tease the needs ] but the fact is you can only look at it over the longer term. But look, we've had good wins in every product line is doing well. I mean I actually wouldn't have minded actually giving up a bit of market share, obviously, in the group risk space. But even there, we've had good performance. But there's been just really good strong [ actually investment ] flows coming in as well as risk flows, annuity flows. So really across the board. You probably had the third or fourth question, and I apologize I cut you off.

No problem at all. I did have one more on that, just on the SEM side where, again, if I read the comment, it talks about discretionary reserves that will consider releases at the end of the year. I mean, does that imply that the ZAR 536 million you quote as your excess debts there or the excess claims there could be lower for the full year if you do release some of those?

Yes, it could be a little bit lower. But again, if you read the whole thing, we have indicated that our margins are modest in that space. We don't have the history of buffers that have been built up over time. So don't count too much good news.

Okay. I appreciate that.

Lotz, I just wanted to ask whether you wanted to add -- you can probably explain the thing better than me. Maybe I even gave the wrong answer. Can you just confirm again the right answer to Michael on the margins versus the position at the end of the year?

Yes, Paul, I can confirm that, that was a correct answer.

Okay, thanks.

The next question is from Francois Du Toit of Anchor Stockbrokers.

Just the first one, most of my questions have been answered, but one quick one here on the Retail Mass and then another one. On Retail Mass volumes up 63% of -- and that's an acceleration from the half year. And obviously, the post -- COVID base period was a bit stronger as well. So where is that acceleration coming from? How much of that is from the Capitec partnership if you can maybe give a bit of color to that for us, please? And then another question more of interest to me, you mentioned that you plan to strengthen your mortality basis mostly to provide for future pandemics and that could have an impact on new business value. Can you maybe give us a sense of what the margin currently is in BrightRock for a typical affluent market protection policy and how is that likely to change with the mortality base strengthening? Just those 2 questions, please.

Okay. So I'll try the first one. So when I look down into the detail of this, and to be honest, it was a few weeks ago, but from memory and, so Grant, if you or Abigail -- you're younger than me, your memory is probably much better. But there is not a lot of difference between the performance coming out of our more traditional Retail Mass business and distribution than there is of Capitec in fact, it's kind of neck-and-neck. So I guess, the pickup is probably because as things have eased and the more traditional channels have adjusted, they've been able to get back, whereas Capitec has produced probably steady performance throughout. On your question on margins and mortality basis changes, again, Lotz, please, you're going to have to come to the rescue here. But I don't believe we'll be making any changes at BrightRock. So what we were referring to applies to the Sanlam balance sheet and business, not to our investment in BrightRock. And I'm not sure that we disclose the margins. We can maybe take that off-line. But Lotz, if you are able to answer it better than me, please have a go?

Yes. Thanks, Paul. I think the question in terms of what the impact of the basis changes we'll be making will be on VNB and VNB margin. As we indicated in the operational update, the basis change is what had a material impact on VNB and VNB margins. So that's where the basis change that we're making in terms of our mortality basis. So those will carry through and don't have an impact on VNB or VNB margins. Then the second question around what is the typical margin for BrightRock. BrightRock as a mainly a risk business, and its margins will be in line with the overall margin that you would see for Retail Affluent risk business.

But I mean I think I'm right in saying we've got no plans to strengthen that mortality basis because that's for that Board of that company to deal with.

That is correct, Paul.

Yes.

Okay. Cool. So maybe just one more quick question on the claims -- excess claims. You mentioned ZAR 3.4 billion of excess claims in Sanlam Life and Savings. That corresponding number at half year was ZAR 1.4 billion, if I'm not mistaken. So an additional ZAR 2 billion in the last 4 months. That's a very meaningful increase. And how much of that would you say was in the first quarter up to 30 September and how much came in after that? Because you gave us some guidance at your results presentation in September, which suggested that you'd only -- and I mean, we were probably past the peak of the wave already there. And I think your guidance was somewhere between ZAR 1.2 billion and ZAR 1.5 billion?

Yes. I think that's right. So it has definitely been well above the top end of what we anticipated. I don't think we should get down into which months things occurred in unless Lotz you more on top of it than I am.

Yes. So Paul, I think what we -- at our Investor Day, we did indicated to the market that the experience that we were seeing from the third wave was far worse than the initial indication that we have provided. And so we did state our downside risk to [ that space that ] we're observing. And what we are releasing now in our 10-month operational update, it is consistent with that downside risk that we had indicated was materializing.

That's fine. I'm just trying to get a sense of whether things are beginning to normalize. In other words, was it very much concentrated during the peak of the wave and getting back to...

The third -- the third wave was very long that go to world, that go to world [indiscernible] they grossed at fantastically well. And you'll see that the third wave was a very extended wave with almost a double peak. The first 2 waves were beautiful and symmetrical, I an artist drew them. The next one wasn't and there are a lot of theories as to why. But I'm pretty sure that the civil unrest and so on probably had a factor to play in this.

Okay. And just in terms of beginning to see things normalize, you care to elaborate maybe?

Well, I think that from the question that Michael asked and the position between October and the end of the year, I suppose it all depends on what you mean by normalized. But COVID claims have and again, you can look at the population statistics have fallen right off and we hope and pray that that continues through to the end of the year.

The next question is from Larissa Van Deventer of Barclays.

How are you, Paul?

Good. You?

I'm very Well.

Excellent.

At the risk of sounding genuine and stupid, and I apologize if I am. From an IFRS perspective on these claims, we had excess claims of ZAR 3.4 billion. We are releasing discretionary reserves of ZAR 2.8 billion. Does that mean that we have an IFRS loss of ZAR 0.6 billion? Or are these EV metrics rather than IFRS metrics?

Okay. Lotz or Abigail, do you want to help answer that question?

Paul. So again, I have answered that question. So the [indiscernible] that we are quoting those figures are all in is earning fees. And these are figures for the 10 months up to 31 October, 2021. So we had an excess claims, net of tax, reinsurance and offsets of ZAR 3.4 billion. And we believe this is a margin of ZAR 2.85 billion. And that's where you get to the figure of the ZAR 600 million that you are referring to. When we look at the remainder of the year, we then have to look at what are going to be the excess claims that we're going to be having for the remainder of the year, taking into account the mitigation actions that have been taken that or referred to. So looking at that number and what we expect to be excess claims for the remainder of the year, then we expect [ experience ] to be positive given the actions that have been taken. So that's risk pricing outcome plus the [ lever leases ] will offset the overall excess risk claims experienced for the year when you look at 2021 in its entirety. So if you look at the excess claims on 31 October, if you look at the reserve releases, you do see that kept the reserve [ ZAR 1 million ] but you must look at it with the remainder of the 2 months for the year, taking into account what will be the outcome of the risk mitigation is not will be taken. So we expect that, that position net-net for the end of the year will be 0, and that's what we indicated in the operational update.

Okay. But a Lotz when we look at net result from financial services being up 24% year-on-year to the 10 months ended October. Does that include the ZAR 600 million loss that you refer to?

Yes.

Okay.

Remember, Larissa, that last year, Santam had a massive hit in quarter 3. And that's -- so your question, by the way, wasn't stupid at all. It comes back a little bit in question that Michael asked and to this point that we're making that we've got '20 and '21 do not have 4 smooth quarters. And therefore, you've got to be very careful in -- when you look at sort of growth or whatever relative to prior year, so that's why we've tried to provide some guidance for you to think through to it on a full year basis.

Okay. You've actually answered 2 of my 3 questions with that. So thank you for the detail. The last one is related on future COVID waves. You spoke a lot about the vaccine hesitancy when you did the half year results, but there is no mention of it in this trading update. Is that a lesser issue? Or are you simply expecting future waves to have a lower impact on mortality? Or how should we think about the future on this and with Sanlam's reserves then?

Okay. So what I would say to you is what I've been saying pretty consistently, is I don't believe anyone who tells you that they've -- they're able to predict the future of COVID. I mean we obviously do try to model. But I think it is extremely difficult. And have something like a new variant comes along, I'm sure you're following it very closely. And you know that we do not know whether it's dangerous or not. We don't know whether it's going to be severe amongst people who haven't been vaccinated. What we do know at this point is what vaccination rates sit at in the country. So we monitor that very closely. What I will say is that -- and I think we've sort of fully document, we have actually outlined that I do believe that by the end of February, we will have a few things. We'll have a much better idea of what this wave is doing. And I think it will be quite critical. Lotz -- Lotz is actually busy doing the modeling. But the modeling is obviously always only as good as the assumptions and therefore, the data. So truthfully, and we do expect to still see a higher level of deaths into next year despite vaccinations. And the pricing changes that we've put through are obviously designed to deal and the underwriting changes are designed to do with that -- to deal with that, sorry. And then it's going to depend on how -- for how long does that sustain and when does it start tailing off. So we still are going to see higher deaths, I believe, for quite some time -- yes, we really -- we don't know the extent of it.

And that is currently in the modeling, is that correct? So there really is an assumption.

Yes.

The next question is from of Akhona Matshoba of Moneyweb.

My question relates to -- sorry, can you hear me?

Perfectly, Akhona, go ahead.

My question relates to the premium charges that Sanlam will be charging unvaccinated new life insurance clients and what position will you be taking there? Will those unvaccinated clients expect higher premiums? And if so, when should this policy start coming into effect?

Yes. So -- and we are not taking a view that we're going to divide you like smokers and nonsmokers into 2 categories with different premium rates. But we know about vaccination is that it's actually more important for people with comorbidities and at older ages. So we're taking very much a risk-based approach to this thing. It's not to say that COVID won't kill you if you are unvaccinated at age 25, but the probabilities of it are much lower than for an older person with comorbidities. So we are pricing at quite a granular level and it isn't as simple you're vaccinated or you're not.

The next question is from Kevin Harding of Investec.

Just one question for myself. Perhaps you're able to comment on whether you know the vaccination status across your various policyholder books and whether you've seen that sort of the vaccination rates improve from the half year? Or if that's just very much an unknown at this stage that data point?

Yes, Kevin. So thanks, nice to hear from you. Look, the fact is we don't know in detail because -- obviously, we don't have access to the data that would enable that. But we do have estimates and I think it's fair to say that the insured population is more heavily vaccinated. But different segments, there isn't just one insured population in inverted commas. I think if you look at this trading update and you just look at the extent of the excess claims coming out of the group risk book, that -- and you compare that to the losses coming out of our affluent book or Retail Mass, that will tell you that those few numbers paint a real picture that this thing is not is by no means evenly distributed. So our view and our modeling is based on the fact that yes, vaccination rates have increased. But clearly, vaccination rates are nowhere near yet where they need to be. I think we all know that we, as a country, need to push hard to get these things. These rates up higher.

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

You intend to beef up the discretionary capital of the group. Does that have any implication on the dividend expectation going forward? Should we expect dividends to perhaps grow at a lower rate than cash earnings for the next year? Or will it come only out of the sales out of the U.K. and the like?

Yes. Great to hear from you. So it's a great question. The simple answer is what we're trying to do is to fill up our discretionary capital bucket with the proceeds of sales. And then continue to grow our profits. And as you know, our policy is to distribute cash and pretty much profit is not far off cash in the Sanlam Group. So our expectation is for dividends to be to grow in line with profits going forward. But to the extent that we have worse mortality experience than is built into the price and the underwriting, we've got a discretionary reserve that can be -- or a discretionary capital that can be used to plug those gaps. So that's really the answer. And I guess -- if I -- your next question in anticipation will be, well, if your pricing assumptions and so, not born-out, what do you do then? We will have to release the discretionary capital back to shareholders. I think you're pretty well aware of the waterfall that we go through to do that, either just special dividends or share buybacks.

The next question follow-up from Warwick Bam.

Just one, just trying to -- can you just explain the nature and materiality of the derivative losses from the hedging instrument that you have in that B-BBE special purpose vehicle? It reduced the headline earnings growth number. I think at the half year, there was any commentary around the reversal of an impairment?

That's a great question, Warwick, because if you get a nice humble answer, now then I'll understand it as well, Abigail, you're still the expert on that.

Thanks, Paul. I just want to make sure I got the question right. You were asking about the B-BBE SPV and the impairment reversals that we marked that we reversed in interim?

No, and the question actually revolves around, look, it's the current operating update, specifically the headline earnings number. It mentions hedging losses from the special purpose vehicle.

I will double check and I'll get back to you. The ones that I'm aware of from the SPV would be only as related to the -- some of the underlying loans that we have with Standard Bank on the entities -- on the SPV entity. So it would be that.

And maybe just one more confirmation. Paul, just to double check your potential basis changes on the embedded value at year-end. Are there any -- is there anything that we should expect beyond mortality?

Yes. Look, I think -- well, we'll do a full review. We've basically done the mortality one. Lotz and his team are still finalizing. But I wouldn't expect a huge amount more. I think we did draw attention to the continuing good persistency. And so that's clearly an area that we're going to have a look at it as well. We don't want to make any commitments in that regard yet.

The next question is from Matthew Pouncett of Laurium Capital.

A simple question from me. The 4% growth off of the 2019 base, you say it excludes one-off items. Would that -- would that then exclude the sort of ZAR 600 million mortality loss or?

No, no, no. There were some big releases at the end of 2019 actually ironically from the general insurance book in India. There were some others, but you're now forcing me to dredge up my memory bank, but that is the one that I recall that stands out. There was a big cleanup of the reserve. I think we've explained to you guys.

Sure, sure.

Yes. There was a bit cleanup in 2019. So there was a big one-off release at the end of 2019 off the back of that. I know there were some other items which Grant or Lotz or Abigail probably will be able to mention.

Okay. So effectively, you're 4% ahead of the 2019 basis, plus ZAR 600 million if we were to look through the COVID impact?

Yes.

And then going forward, with the sort of mortality strengthening at year-end and the repricing, effectively, again, under your current base assumptions, [ COVID ] shouldn't have an earnings impact going forward? I forgot that...

Yes. It shouldn't. It shouldn't. But just again, and I know you're going to say I've told you this, but of course, that is all subject to us being right about the assumptions, and that's the biggest -- and hence the need for a bigger discretionary capital buffer.

The last question is from Sarine Barnard of Ninety One.

You know, Sarine, I wondered what happened to you?

I pressed the button too late. Are you well?

Wonderful, I'd like to yes, even to do well then. Just to -- it's my way that we'll try and help you.

Right. Also a follow-up on the base effect of 2019. So you pointed out that we shouldn't extrapolate the 2021 over 2020 growth rate. So if we compare the normalized plus 4 to the 2019 basis, is there anything else that's funny in the last 2 months of 2019 that we should bear in mind in thinking about the run rate?

Abigail, Lotz, Grant, can you -- I can't think of anything.

Neither, can I Paul, I can't think of anything that would normalize.

Okay. Great. So it's probably better to reference versus 2019 than to try and reference versus 2020 because of all the [indiscernible].

Yes. Yes. Look, I mean it depends on how important it is for you to forecast the earnings to the end of the year. What we didn't want to do was just take 2020 and multiply out by 24, because that would be wrong.

Fair enough. Fair enough. Okay.

Yes.

And then I wanted to ask, so on the rebuild of the pandemic reserves, so that's clearly going to have an impact, as you point out, on the embedded value. So when we think about the order of magnitude in terms of what you want to reestablish, is it fair to think the previous pandemic reserve was about ZAR 760 million but clearly, it wasn't sufficient, so to think of the previous pandemic reserve plus some?

Yes. Look, I think -- yes, this is obviously quite a detailed question. I think it's something that we will deal with quite possibly better at the year-end. But where our thinking is that the kind of margin that we've had historically coming out of our mortality we should think about having twice the size, but instead of releasing it into profits actually keeping half of it and building up a buffer, which I guess is a little bit hoping that the 7 good years come before the years of Sanlam. And that's obviously the problem with pandemics as they come very erratically, But that's kind of the thinking that we're taking on board.

Okay. Great.

And there's -- thinking globally on that. Actually, it's quite difficult to work out. But it seems if you talk to some of the big global reinsurers, that's not a million miles away from where they think the thing should be. The whole world is probably underpriced for pandemics.

But so, if you provide for that pandemic reserve, can we then go back to a situation where Sanlam produced consistent positive mortality experience over time?

Yes, of course.

Okay. Great. And maybe then just a last question. You talked about the excess mortality plans in South Africa. What are you seeing in Africa in terms of the trend?

Okay. So a lot later, that has arrived. It's very patchy. And it is undoubtedly as we've said led to ZAR 0.5 billion of losses, which is quite a lot because the business is obviously -- these are all small businesses that are still growing and building up. So it's significant. I think it gets lost a bit in everybody focusing on situation in SA. My own view is that you're not going to see vaccination programs of any consistency or scale across our other markets. So in a sense, we're just going to have to live with permanently higher mortality and hence, why we've repriced in those markets. Now about that is that those markets are much easier to repricing than in South Africa because the competitors are -- there just isn't the same competitive pressures.

So we do have another follow-up question from Francois Barnard (sic) [Francois Du Toit].

It's Francois here. Just quickly on related to Sarine's last question there also on the competitive environment in South Africa. I mean it does look like certainly in the group risk space, you're getting new business. And I think your commentary suggests you've hiked your prices sufficiently to cover what you expect from COVID next year. So it does look like the competitive environment is such that you can meaningfully increase group risk prices. So one, can you maybe just elaborate or confirm that? And then just maybe a related question in the current environment with interest rates that's going up and [ long bond yield ] that's fairly steep and pricing in quite a bit of risk, where -- are there opportunities? Are you seeing the pricing for annuity business and risk business changed favorably and the new business opportunities on the back of that?

Yes. Okay. So Francois -- sure, sorry. I was thinking about your second question, so I forgot the first question you had. Oh, you asked about whether it's possible to reprice in the group risk market. Look, the group risk market is extremely competitive. And as you know, schemes are -- come up and can be re-wrote every year. So we've obviously pushed through pricing that we think is fair. I guess, whilst it's competitive, if you think of the scale of the losses that we've reported in that line of business, you have to assume that we know what our competitors' totals. We don't know what the split is, but I would suggest that their experience is at least as bad as ours, if not worse. And so while there may be a temptation to price very keenly, I suppose at some point, you run out of money. So anyone who wants to be reckless and irresponsible will -- I can certainly gain market share. Just the question is how much -- how deep are your pockets? And actually, it's a very stupid strategy because at some point, prices will come back down and they will just lose that business to people who haven't made all the losses. So I think that the repricing on an annual basis of that business and the fact that it can move means that people can't be too stupid about their pricing. It doesn't mean they're not, but they shouldn't be. And so I think net-net, I think we've been able to put through the increases. I wouldn't say we haven't lost any clients. But we certainly -- it hasn't been a major problem. Your second question was about do higher yields open up opportunities. I think on the annuity front, of course, people only take an annuity when they retire. So I guess, to some degree, the pool of opportunity is driven by life events rather than by sort of bond yields. I think what is true is that there's been a big switch to the more guaranteed annuity because -- and away from the kind of unit-linked annuity as people have actually understood the value of locking in a guarantee. So I guess you'll see a bit of that switch. But I wouldn't imagine that it will affect the total volume of annuity sold that might just affect the mix of what gets sold.

Excellent. And then how does that mix compare guaranteed annuity more profitable to you higher margins than...

Yes, it's a good question, Lotz, or Grant, do you know the answer to that question? We've put up more capital, of course, but Lotz, do you know the answer to that?

Yes. So I think the current data annuities, we have deployed our balance sheet and bring up capital. So from a margin perspective, they have got a higher margin for us compared to the endowment linked living annuity type products. So the current annuities are higher margins for us.

Yes. But return on capital, of course, is it may be good. But on a pure index-linked annuity, it's infinite or close to?

That is correct, Paul. So when you look at it from a return on capital perspective, they are both very lucrative products for us.

So we have no further questions in the queue. Do you have any closing comments?

No, I just -- firstly, Chris, thank you very much for being a good host. And to thank everybody who called in and for all the people who asked questions. Thank you for your time, and we wish you all a very wonderful holiday. I'm sure everybody needs it. So have a break, and please stay safe and enjoy your time with your families. And thanks very much for all of your support for us at Sanlam.

Thank you very much, sir. Ladies and gentlemen, that then concludes this event, and you may now disconnect.