Sanlam Limited (SLM) Earnings Call Transcript & Summary

Good afternoon, and welcome to Sanlam's 2022 Results Presentation. It is my pleasure to welcome members of the Investment Analyst Society, members of the Sanlam's Board and guests joining us in the auditorium and via the webcast and telephone lines. I am Grant Davids, Head of Investor Relations at Sanlam, and I'll be facilitating today's session. I trust you will find it informative and engaging. We are joined in the auditorium by our Group CEO and Group Finance Director. We are also joined by members of the Executive Leadership Team in the auditorium and online. Paul Hanratty, our Group CEO; and Abigail Mukhuba, Group Finance Director, will present the financial results, and then we will move to a Q&A session. I now invite Paul to begin the presentation.

Grant, thank you very much, and good afternoon, ladies and gentlemen, and welcome to Sanlam's 2022 results presentation. As Grant said, I'm joined here today by Abigail and Lotz Mahlangeni, our Chief Risk Officer. We're going to take a slightly different approach today to the presentation. In 2020, we embarked on a new 5-year group strategy, and we're now at the halfway point of delivering on that journey. For the last 3 years, a variety of circumstances have made it very difficult for our shareholders to fully understand the Group's financial trajectory. First, COVID, then business continuity claims, floods and finally, the war in Ukraine, which has unleashed severe inflation and interest rate rises, coupled with large stock market corrections have conspired to create a storm for our industry. If we were flying it would be like being in a white out and difficult to know which way the aircraft was headed. I'm therefore going to show the progress financially, strategically and competitively from the end of 2019 until early '23. This represents the halfway point, as I said, of our new Group strategy announced in 2020. And I hope that you will have a clear idea of where we're headed in the context of where we've got to in this journey. Abigail will later cover the 2022 results quite briefly. They are sound, solid and unremarkable. She'll also provide a short update on the transition to IFRS 17. The various events and circumstances I referred to that have beset the world in Sanlam itself over the last 3 years have conspired to make this the most difficult period in our Group's history. The Board and I are immensely pleased with how Sanlam has weathered the storm. Aside from paying out an enormous amount in mortality claims over the period, compensating businesses and individuals for business impacts from COVID and floods that represent South Africa's worst ever natural catastrophe and continuing to pay our clients tremendous retirement and maturity benefits we've provided a cash yield of 13% to our shareholders over the last 3 years. Our new strategy has resulted in a recycling of capital from underperforming businesses to those in which we have a real competitive advantage and the prospect of excellent future returns. Despite the large number of transactions involved to reshape our Group for the future and where we hope to get more growth and higher returns, we've been able to free up capital. We've held an unusually high level of discretionary capital during the last 3 years as an extra buffer against the unprecedented level of turbulence that we've been experiencing. This is a prudent approach, and it's a hallmark of how we operate. Despite the Group's focus on reallocation of capital within our operating businesses, we've remained focused on our core business, and we've improved our competitive position in each of our markets and lines of business. We do expect a recovery eventually from the economic conditions over the last few years. Our stronger platforms as a result of our corporate activity and the improvement in each of our businesses' competitive positions means that we are well-placed to capitalize on the recovery when it comes. As I mentioned earlier, we've had a series of very difficult events to deal with over the last few years. Our industry is susceptible to a very wide variety of risks and the pandemic has given rise over-time to some serious economic problems, no doubt exacerbated by the Ukrainian conflict. Furthermore, climate change now seems to be giving rise to a global increase in weather-related insurance events. Judging how the company is performing and most importantly, the future financial trajectory has been very difficult over the last 3 years because of the turbulence in the environment and the industry's volatile financial results. So to get an idea of the Group performance, it's very useful to look at the change in the key financial indicators from 2019 before we had COVID through to the end of '22 without worrying too much about the volatility of the intervening period. The Group set targets in 2020 to try to get back to pre-COVID operating results. And that was before the onset of the warn in Ukraine or the floods in Casaluna town. I'm delighted to say that the Group has, despite all the challenges of the last 3 years, grown our profits by 11% from pre-COVID levels, grown the dividend by 20%, recalling, of course, that the dividend paid in 2020 in respect of the 2019 financial year was reduced by 10% from its previous level. Growth in life insurance new business of 28%, growth in the value of new business by 20%, an improvement in the new business margin from just under 3% to just over 3%, and we managed to raise our discretionary capital post the transactions that we've either done or in flight from virtually zero to ZAR 3 billion. The strategic recycling of capital and related transactions has placed the Group in a much stronger position in many of our businesses and markets. Our asset manager has much greater scale and competitiveness. Our Corporate Benefits business is close to industry leadership and our retail business has been strengthened both in the risk and investment space. I believe that our partnership with Allianz is truly transformational for the group. Africa is a difficult continent in which to achieve consistent performance. This partnership allows us to achieve continental-wide positioning, improving the diversity of earnings, and it will create a much more competitive and profitable business over time. In India, we supported the merger of 2 credit businesses to create one business with much better economics and greater scale. And in time, this will help to drive renewed growth in the insurance business. The demands of dealing with the extreme challenges posed by the last few years and the work involved in the Group's transactions to reshape its capital allocation have imposed significant workloads on all of our people. I'm delighted to say that we have not lost our focus at all despite working from home initially and now transitioning to a hybrid model. Our market shares are a measure of our attractiveness to customers and the strength of our offering. In many cases, our market shares have been lifted by corporate action, but the underlying businesses have each continued to improve their competitive position. We focused on doing the basics well, serving our customers and intermediaries and leveraging off our culture of getting things done. We believe that as the new platform settled down and the acquisitions are fully integrated, we will see a further improvement in our market positions. Our customers will always remain our top priority. However, we're delighted that we've been able to perform relatively well for our shareholders during a difficult period. Although we aim to do a lot better for our shareholders over the long term and our financial targets reflect this, Sanlam has held its own against the competition over the last 3 years. These comparisons on the slide are not exact because of differences in company reporting periods and normalizing for one-off factors, but we believe that the broad trends reflect Sanlam's strong relative financial performance. Our competitiveness has meant that we've been able to generate high volumes of new business and strong profitability of that new business has meant that it's added value for shareholders. While margins have emerged strongly post the pandemic, the underlying profit generation has been modest. But as I said earlier, shareholders have seen a 13% cash return over the last 3 years because of our dividends. They have reflected our ability to stand up to the tough conditions that we experienced. We did struggle to provide guidance on future profits as the COVID pandemic swirled. I'm pleased to say that despite the enormous burden of extra claims and the need to draw on historic reserves, we are merging at the start of 2023 with pandemic reserves that have been restored to severalx the level of those reserves when we entered the pandemic. We believe that maintaining these reserves is sound, both for our clients and our shareholders. In the case of the General Insurance business, we also have to deal with the new force climate change. Globally, we've seen severe weather conditions, and this has had a great impact on insurance claims and reinsurance terms. Sanlam is well placed, having invested heavily in programs to mitigate the impacts of climate change at local government level in South Africa and to accurately assess risks with sophisticated geo-coding. It is fair to say that in the early years of the Saham business, we had great disappointment. But as you can see, we've had steady growth in general insurance premiums after the initial impacts of COVID in 2020. We've managed the business in a difficult environment to achieve underwriting margins within our long-term target range. And the Life Insurance business has been growing very quickly. And in time, this portfolio of business will prove to be really valuable. In fact, if you look at the earnings yield versus our holding value, you'll see that this business is already starting to deliver the kind of yields that are attractive. The General Insurance business still experiences a high degree of volatility in investment earnings, the environment that we've been in has not permitted us yet to rebalance the portfolio of assets as we would ideally like to. Patience is required to ensure that we can do this in a manner that does not destroy value for shareholders. The earnings of the emerging market business would have been around 25% up in 2022 on a comparable basis if you exclude the impact of the Moroccan float volatility and the COVID-19 impacts of 2021. Our operations in India are now beginning to deliver real value for Sanlam, and we remain very committed to our investment in India. I'll talk now about strategy and capital allocation. The strategy that we set out in 2020 was very clear about where the Group would focus, its efforts and how value would be created. We've not deviated from our strategy between 2020 and 2022. But much of what we set out to do has been slow and difficult against the macro backdrop. The Group is on a long journey to develop a culture to support our strategic objectives. Partnership as a philosophy remains core to our way of working. There have been 2 significant new partners introduced to the group over the last 3 years, Allianz and MTN. Each of these partners is vital in helping us achieve our long-term ambitions on the continent. We've also worked incredibly hard with African Rainbow Capital and Ubuntu-Botho, and this has yielded tremendous fruit across our South African business, the development of our asset management business, Corporate Benefits business and the Retail Life business would not have been possible without their support. Digitalization of our business remains a high priority and the appointment of Riaan Van Dyk who's here today sitting at the back is a key step for us in bringing together and harnessing the strength of what we've already built across the group. Although the Group has executed or is in the process of executing many transactions to reposition the Group, the overall impact on capital is modest. You can see in this slide the list of transactions undertaken to give effect to each focus area of our strategy. We've deployed more capital in South Africa to entrench South Africa as a fortress for the Group. In Africa, excluding South Africa, we've exited a number of businesses, tightened operations and concluded a transformative deal with Allianz to create the biggest insurance business on the continent. We believe that only this scale and diversity backed up by strong balance sheets will truly be successful on the continent for the foreseeable future because individual markets are simply of insufficient scale to support successful standalone businesses. India remains a focus for the group, but we've been able to create value without deploying any further capital. The Group exited the UK, for the most part, on favorable terms, and this capital has been used to fund some of the deployments of capital into other areas of the business. We've continued to invest organically in several smaller FinTechs and have made a substantial investment into a JV with MTN. As a rule, we believe FinTechs are best developed through experimentation and the deployment of only modest amounts of capital. However, we do see a future world of financial services that requires digitalization of the business, and Sanlam will keep investing for the future. The group bought back ZAR 1 billion of shares towards the end of 2022 as the opportunity presented itself and the need for the extraordinary buffer of capital receded. We also undertook a series of other capital management actions that resulted in a net release of capital even after allowing for the share buyback. Turning to the future; I'd like to provide some perspective on how we plan to tackle the next few years. Our strategy remains intact, and most of the reallocation of capital required for our strategy has already taken place. Within South Africa, we are now focused on the execution and integration of the transactions already undertaken. We aim to make sure that the deal and synergy benefits that were intended for each and every transaction are fully achieved. And so within this context, we do not envisage a significant further capital deployment in South Africa. The Allianz partnership is transformative, as I mentioned, and management energy will go into first securing the deal and then bedding down the new business and management over the next few years. Our focus will not be on adding to the portfolio in the short term. This does not, of course, preclude adding to the portfolio for suitable opportunity were to arise. And of course, it must be remembered that the partnership does provide Allianz with the option to increase their stake, and that would release capital back to the Sanlam Group. In India, we remain very bullish on both India itself and our business there. And we believe that more value will emerge from the synergies that will flow from the credit business merger. As the stronger credit business will grow as -- and the stronger credit business will grow our insurance business. The new merged credit business is now the largest retail non-bank financial business in India. It's a tremendous platform for our insurance business to leverage off. We will continue to invest organically in our FinTech business. We don't envisage large investments, but rather steady investment into this portfolio. The Group, as you know, is also midstream on our technology renewal program that ultimately will improve operating efficiencies post 2026, which I know is a long way away, but that's where we need to focus in that kind of program. At that point, we will decommission many of our current systems. We have created reserves to finance these IT developments, and that means that we avoid negatively impacting earnings in the intervening years. The Group has looked at its solvency target range post the implementation of IFRS 17, and it's considered the solvency dynamics of the last number of years and the change in the mix of the Sanlam Group business over the last number of years. We've consequently reduced our Group solvency target range to reflect an appropriate long-term corridor for the group. The amelioration of the COVID pandemic during 2022 means that the Group can move forward with a normal level of capital buffer in respect to discretionary capital. The focus of the group for the next few years on bedding down existing transactions and driving organic growth means that the Group is now able to return a small amount of capital to shareholders in due course. And Abigail will provide further detail on this and on the implications of the implementation of IFRS 17. One area that has received considerable focus over the last 3 years has been that of sustainability and governance. The events of the last 3 years have only served to underline the importance of this area of focus. Climate change impacts have been most noticeable in our Santam business. Both at Santam and Sanlam, there have been several actions to try to mitigate these impacts. Although climate change impacts are of a concern to Sanlam, because we are located on the African continent, social progress is a particularly important focus area for us. The creation of jobs, financial inclusion at scale, which does transform lives and the promotion of social justice are critical focus areas for the Group. The Group is focused on developing a sound internal culture. At the end of the day, the only thing that will differentiate us from our competitors is our culture. We measure our culture in detail and implement micro plans to ensure that we can bring about meaningful improvements in each area of our business each and every year. The absence of work during COVID has made the task of developing our culture more difficult, but I'm happy to say that we continue to make progress. One of the most important areas we can make to sustainability is the approach we take to investing on behalf of our clients and also our shareholder assets. Sanlam has worked very hard to establish itself as a leading asset manager in this space. Sanlam's ability to weather the storm of the last 3 years really bears testament to its sustainability as a business. At this point, I'm going to hand over to Abigail and she will take you through the financial results. And then after that, we will open up or I'll come back and then we'll open up to questions after that. Abigail?

Thank you, Paul, and good afternoon, everyone. We are pleased with the Group's resilient financial performance in the face of the 2022 headwinds. And against this background or backdrop, we reached a historic high with Group earnings exceeding the ZAR 10 billion mark. We are very proud of this achievement. Earnings were driven primarily by an excellent performance in the Life Insurance, the Investment Management as well as the Credit and Structuring businesses. Our General Insurance business, unfortunately, had a rough year, impacted by weaker underwriting performance from both Santam, mainly from negative or unrealized investment returns, but as well as unrealized investment return in our Morocco business. Live Client cash flows improved by 70%, and this reflects lower mortality claims, lower terminations of investment business in the Corporate business as well as continued strong levels of overall new business inflows. Life New business volumes and overall Group client cash flows were lower than in 2021. And this was due to an elevated base that we had in 2021, which was an exceptional performance, which in turn, was supported by high savings rate, especially following the period of lockdown. The net value of new business, what we call VNB was affected by the rise in long bond yields used to value new business. However, this was only 1% lower if you look at it on a constant economy basis. This reflected continued solid sales volumes at profitable margins. We are very pleased that our New Life volumes were achieved at solid margins. Our return on group equity value performance of 15.1% was above our hurdle of 14.3% for the 2022 financial year, and I will elaborate on this just now. VNB contributed approximately 1.7% to RoGEV, supported by strong performance across all clusters. There was strong VNB growth in the emerging markets business. However, the South African retail affluent and corporate businesses VNB growth were weaker, primarily due to lower volumes from single premium business as well as product mix changes. RoGEV performance was further supported by net positive operating experience variance and operating assumption changes. This is mainly because of the good risk experience resulting from favorable mortality experience, strong premium growth in PanAfrica GI and good operating performance from the credit business in India. These were then partly offset by poor retail mass persistency experience if you compare it to 2021. The strengthening of mortality and persistency basis for retail mass contributed to negative operating assumption changes during the period. The release of the remaining mass lapse assumption, which was created in 2020 as well as the strengthening of lapse assumptions in the South African retail business, especially in affluent long duration persistency resulted in a net positive persistency operating assumption change. As Paul already noted, we also established future reserves for future pandemics. The market volatility, the yield curve, exchange rates as well as overall combination of economic movements impacted RoGEV negatively, leading to a group actual RoGEV of 4.3%. From a solvency position, the Group remained strong and within the target ranges. Our cover ratio decreased marginally because of the impact of higher bond yields and poor investment market performance. Paul already talked a bit to this that the Board has reconsidered the solvency target ranges for the Group and having considered the resilience of the Group solvency to stresses as well as changes in the composition and business mix of our balance sheet and IFRS NAV composition implications, they decided that they were going to adopt a new solvency target range from the 1st of January 2023. And under the new standards, the Group's shareholder capital base is expected to consist of more tangible and consequently higher quality capital assets than under the previous standard. The makeup of the group's capital base remains prudent with low levels of debt. Since 2020, we have focused on executing our strategic imperative to exit noncore operations. And consequently, our discretionary capital rose to levels above ZAR 5 billion. The group temporarily and intentionally held additional discretionary capital as a buffer against potential future COVID impacts as well as market volatility. We deployed the capital to areas that align with our strategy, including a successful share repurchase, which Paul also alluded to at an average price below ZAR 50 in 2022. We have come a long way in rebuilding reserves to mitigate any future adverse experiences. We also provided for an additional margin for long-term COVID mortality impact. In addition, we have reset solvency targets and are effectively now operating under IFRS 17. The Group having considered all of these factors will now revert to target discretionary capital level of between ZAR 1 billion and ZAR 3 billion. Accordingly, if you work from the December balance of the ZAR 5 billion, we will set aside capital required for transactions we have already announced and return a small amount of available discretionary capital to shareholders in due course. The obvious caveat is unless new significant opportunities arise. And then I will now turn to analyzing the performance by line of business. The life insurance business grew earnings by 25% year-on-year, and this strong rebound was largely due to lower mortality claims and the impacts of COVID having receded if you compare to last year. This performance led to strong risk experience profits augmented by overall book growth across our portfolio. It also more than offset the impacts of the weak equity markets and related returns, the higher new business strain and net negative assumption changes. These relate mostly to creating reserves to mitigate any future material adverse mortality, morbidity and other experiences. On the volume front, life insurance new business volumes remained at satisfactory level albeit they were lower than 2021. 2021, as we keep repeating, was an exceptional year due to the high savings rates linked to the travel restrictions during lockdown. The business has also done very well to sustain the performance in 2022. And then our net value of new business, the comparison that we show on this slide is on a constant economic basis. Net VNB was only 1% lower than 2021, with business written at a margin above 3%. In South Africa, VNB was down 6%. The main parts of this was that retail affluent was impacted by lower single premium volumes and corporate by product mix changes. The retail mass business, VNB, increased by 6% primarily due to volume growth. Emerging markets, on the other hand, the VNB increased by over 20% with a strong contribution across the portfolio. If we look at our life insurance business performance since 2019, volumes have remained above the pre-pandemic level. Our distribution footprint in South Africa has grown strongly and is now in its best position ever. Our value of new business is well above pre-pandemic level, both in South Africa and in emerging markets. The emerging markets business has grown very well to become a meaningful contributor when we look at our VNB. This proves that Sanlam continues to grow and sustain its business profitability in difficult operating environments. Weaker persistency in the South African retail mass business is testament to the tough economic environment affecting customers in the lower LSM. Management actions that have been implemented are expected to boost persistency in 2023. What we have noticed is that the retail affluent persistency remained positive. If I move to general insurance, as I said earlier, they had a tough year, particularly in the first half of the year. But the impact of the corrective management actions that came through in the second half made a huge difference. Both Santam and the PanAfrica GI underwriting performance were within target range for the year. Pan Africa GI performed well on both new business, which was up 13%, and underwriting margin. And this pleasing result reflects again the continued management focus that Heinie and the team have had over the years. Pan -- I'm sorry, this is Tava's business. Then in PanAfrica GI earnings, they were also impacted by primarily unrealized negative float returns. Santam recorded new business volumes growth with the net earned premium of about 7%, excluding reinstatement premiums. The growth in net earned premiums was impacted by reinsurance restatement -- reinstatement premiums due to the impact of the catastrophic events over the period. India's claims ratio improved as the business recovered from the weak performance during the COVID period. However, they experienced high distribution cost from non-Shriram channels, which detracted from some of the performance. And then in addition, in India, they continue to have lower-than-historical average prescribed tariff increases. Earnings from the investment management operations performed well despite significant investment market volatility. And again, this reflects the diversity of the business model. Growth was supported by performance fees in the active asset management business, as well as fund-establishment and private-equity carry fees in the alternatives business. Investment business client cash inflows were lower than the exceptional levels of 2021. The South African investment management business, as well as the investment business in the retail affluent and corporate operations recorded strong inflows. In contrast, the emerging markets and international business recorded net outflows due to lower mandates that were awarded over the period and the volatile investment market, respectively. Institutional business recorded lower inflows at Satrix and Sanlam Multi-Manager, which more than offset strong inflows in the alternatives business. And then lastly, in our line of business analysis, from a credit and structuring perspective, earnings growth was driven by our Indian operations, where performance was supported by continued healthy economic growth. In the SanFin business in South Africa, earnings from the credit and structuring businesses declined from a high base in 2021, and last year reflected the impact of the exceptional equity market returns on equity-linked financing structures coupled with recovery in the listed preference share prices during the year. The current year was also affected by lower transaction volumes. And then earnings from SPL decreased due to a reduced average loan book size because of the lower repeat business from existing clients on book. As Paul alluded, before I hand back to him, I'd like to comment briefly on the impact of IFRS 17 on the group. At our Investor Day in October, we elaborated on the expected impact, particularly on key performance indicators. The stance that we communicated then remains and still holds. The new standard has no impact on the group's strategy or on the non-insurance side of the business. The investment-linked life businesses will continue to be measured under IFRS 9. A marginal change is expected to earnings recognition. The standard accelerates profit on new business for Sanlam, but the overall impact is expected to be muted once prior years' multiple layers of new business are folded in. In South Africa, the tax legislation also changed and, effectively, taxes are expected to accelerate on the in-force book on transition, impacting time value of money. But please note that this acceleration of tax will be funded from the existing balance sheet, with no impact on the income statement. While earnings recognition at the Sanlam level is expected to accelerate marginally, it is not expected to have a material impact on cash flow generation, as the underlying cash flows from the products do not change. There will also be limited impact on other key performance indicators that we usually looked at, whether it be value of new business, RoGEV, the group dividend, as well as the solvency cover. What will change, however, is the measurement and presentation of disclosure for the life and general insurance businesses. Under the new standard, some of the reserves built up over the years as part of assets backing policyholder liabilities will be released to IFRS shareholder capital on transition. That is on January 1, 2022 from an opening balance perspective. The net reduction in liabilities includes the release of asset mismatch reserves as part of discretionary margins from insurance liabilities. This will in future be held as new shareholders' fund reserves in equity. These new shareholder fund reserves will enable us to continue managing the impact of short-term market volatility and they will also remove the mismatches that are introduced by IFRS 17. The group regulatory solvency position will continue to be assessed under the Prudential Authority's Solvency Assessment and Management regime prudential standards. Therefore, the group shareholders' capital base is expected to consist of more tangible and, consequently, higher-quality capital assets. With that, I thank you, and I hand back to Paul.

Abigail, thanks. Thanks very much. I know that you're all riveted by IFRS 17. So turning now to the future. As I mentioned, the group has been very busy with a range of transactions to reallocate capital, and our focus now turns to the next 2 years for execution. We want to continue to compete strongly in each business and line of business and market segments in which we operate. We want to utilize the enhancement to our platforms from the acquisitions that we've already made. A particular focus has also been on efficiency. A wide range of changes, including reducing our office footprint, working in a more hybrid fashion, as well as productivity improvements that we brought about, have meant that our expense base for 2023 is ZAR 500 million per annum lower than this expense base was originally budgeted to be. We're, therefore, focused on delivering the best possible earnings number that we can. Completion of in-flight transactions remains a key focus, and it requires a huge amount of effort and energy from all our people. I also want to warn that, in some cases, it may take us several years for new business models arising out of some of the corporate activity we've undertaken to really bear fruit. Completion of the Allianz transaction is a particularly complex task. There are over 80 separate approvals required, either from financial regulators or competition authorities, and you can see on the chart that we're about halfway in terms of achieving the approvals that we need. We track this on a weekly basis, and we expect to be complete around about the middle of the year. In conclusion, I want to say that our life insurance businesses are in absolutely fantastic shape. We fully restored the necessary buffers post COVID to protect our balance sheet and earnings against future events of the scale. And as we've alluded to, those buffers are probably healthier than they were before we began. Santam has worked incredibly hard under Tava's leadership to adapt to the new environment, and we've seen a strong recovery in early -- early on, and particularly in the second half of 2022, and we would expect that that recovery can continue into 2023. The African general insurance businesses continue to make progress, and I think that once equity markets in those countries finally recover, that business will also be flying. On the asset management side, we have to recognize, of course, that local and global investment markets pose still a very large unknown, and as many of you, I'm sure we don't know whether we are facing a bear or a bull market. It's a bit of a guess at this point. The world will take time to adapt to the new macro of high interest rates and elevated inflation, but the markets in which we operate in are much more accustomed to this scenario, and we believe the premiums and asset values will inflate over time and that our business in real terms will remain the same. As Abigail has mentioned, under IFRS 17 -- she explained it very well, but under IFRS 17, the group will carry many of the reserves that we had previously into NAV rather than holding them as part of our liabilities. The group's balance sheet is truly in fantastic shape, extremely strong, low levels of leverage. A new accounting standard will have absolutely zero impact on the generation of cash earnings or dividends, and we will -- and we've maintained our prudent approach to providing protection against future volatility. And I guess, it's somewhat obvious, because we always reported our profits on a cash basis that, whatever the accounting standard is, it makes zero difference to our cash earnings and dividends going forward. So while we understand that, for the industry and globally, it's a big issue, for us, it's a big cost and it does accelerate the tax payments. But otherwise, we are completely unaffected and we'll continue to run the business in the same way. We're entering 2023 with a strong business, a committed management team, and truly wonderful partners. Having weathered the storm, we are looking forward to delivering to the best of our ability for our clients and our shareholders in 2023 and beyond. So, thank you very much. We're going to ask Abigail and Lotz and Grant, I guess, you will marshal affairs here. So, we can take some questions.

Welcome back, everyone, and thank you to Paul and Abigail. We are now joined, as Paul mentioned, by Lotz Mahlangeni, Sanlam's Chief Risk Officer and Chief Actuary. We'll now go straight to the Q&A session. Before posing a question, I'll ask that you begin by introducing yourself, as well as the organization you represent. We'll begin with the telephone lines. Operator, are there any questions from the telephone lines?

Yes, sir. We do have a question, which is -- the first question is from Warwick Bam of RMB Morgan Stanley.

Grant, Paul, and Abigail, 3 from me. How did the IFRS 17 treat the ZAR 2 billion in reserves you've built up since depleting the pandemic reserves? Question 1. And question 2, does your comment regarding holding sufficient reserves for technology renewal and being tempered in your approach to fintech imply that you've reserved sufficiently for the re-platforming of Glacier, and any, I guess, losses coming through in the MTN-aYo JV over the next 3 years? And then lastly, just on the retail mass business, it's quite remarkable to see how the business has grown headcount -- agent headcount rising 8% and volumes by 15%. You've strengthened persistency assumptions in the segment and you mentioned management actions to mitigate the rising lapse rates. And can you just expand on what these management actions are and how you see persistency playing out in 2023?

I mean, the problem with Warwick is, firstly, he beat Michael. So that's an achievement all by itself. But I think there wasn't one question. We better break them up, Grant.

I think the first one just on the IFRS 17 and the ZAR 2 billion.

On IFRS -- oh, and on the -- so, Lotz or Abigail, you can deal with that.

I can take that question.

Go ahead.

So I think - Warwick, I think the question was how will IFRS 17 impact the reserves that we've set up for future pandemics. And the first point is that for the December 31, 2022 year-end, we are still operating under IFRS 4. The reserve was set up as a combination of prospective reserves and retrospective reserves. So all the reserves that we have set up are not reserves that will be allowed under IFRS 17 and, therefore, when we move into IFRS 17, we'll release some of those reserves, which will transfer to the shareholders side, and some of them form part of our underlying best estimate and they will continue to exist under IFRS 17.

Sorry, Lotz. Just to be clear, we are not releasing anything. They just -- they're just moving. You used the word release. They're not being released, they're just moving to the other side of the balance sheet into the shareholders.

Yes, that is correct.

So you might have noticed, Warwick, that Lotz and Abigail have very neatly sidestepped the problems of IFRS 17. And we'll continue to hold all the reserves we need, just in a different part of the balance sheet.

That is correct, Paul. It will be released from the Poldora fund side, shareholder fund side, but they're not going to be released externally to the balance sheet.

Paul or Abigail, do you want to take the fintech question and reserves?

Yes. So on the -- do you want to take the fintech one?

Yes, of course. Thanks, Paul. So the reserves that we have set aside primarily take care of projects, as you mentioned, the Glacier platform, for example, the investment admin platform. That would be catered for by these reserves. Something like aYo, as an example, it was still in early stages. It is in a different form in the sense that it is a 50-50 JV, and that has different funding structure. So, that's not necessarily included directly in those reserves that we're talking to. But your traditional or your historical type of projects in the legacy business, those ones are provided for.

Maybe, Abigail, just to sort of emphasize that aYo, the losses that you're going to have in the early years are not from technology development. So it's the projects -- actually, IT development cost itself on re-platforming the old legacy things, Warwick, that we've provided reserves for.

Lotz, the question on persistency for retail mass?

Okay. Yes. So I think the question was what other management actions that we have taken and how they impact the persistency going forward. I think, Warwick, if I can remind you, at half year, when we explained what were the drivers of the poor persistency that we were experiencing. The one component was the macros. The second component related to adviser behavior, which was linked to some of the remuneration. And the third component related to some of the issues with the DebiCheck take-on. We've since made a lot of progress in the DebiCheck take-on. And so, we've been able to address permanently that problem. But -- and -- when you go into 2023, that will be largely addressed. The second component relating to adviser behavior, we've made some changes to the adviser behavior that was not desirable relating to some of the chain and some of the replacement policies. And so, we've changed some of the remuneration. We've also changed the remuneration to reflect the different qualities of that business between stop order business and debit order business, and that will come through you when we go into 2023. So we believe those management actions and the significant progress we've made in implementing them will address the persistency issues. And as we indicated, we expect the improvement in 2023.

Warwick, does that address your questions?

It does.

Thank you very much. We have no further questions on the conference call.

Thanks very much. Before we hit to the webcast, I just wanted to come back to the room -- or the auditorium. Are there any questions that we have here? Can we get a microphone?

Thank you very much. Mike Brown from etfSA. Focus on capital -- on the allocation of capital, I think, is great, because I think this is what the group should be doing is allocating capital effectively and efficiently. And congratulations on increasing the reserve to ZAR 2 billion in the insurance business and the ZAR 3 billion capital that's built up. If I understand correctly -- and I apologize for this. The IFRS story is not going to absorb more capital. It's just a case of repositioning that capital. Is that correct? The question I would like to ask is just on the personal loan business -- the credit business. Do you allocate capital to that business? And is it like a bank would allocate capital, or do you have a different type of formula?

So maybe, Lotz, do you want to deal with this?

Yes, I'll deal with that. So the personal loans business -- that's Sanlam Personal Loans. We allocated capital to that business on the economic capital basis using Basel III principles. So we allocate required capital to ensure that we can absorb the losses in that business.

Any more questions from the room? I'll go to the webcast then. We've got a few questions on the webcast. The first one from Marius Strydom from Austin Lawrence Gidon, and the question relates to IFRS 17. The range of ZAR 12 billion to ZAR 15 billion for IFRS 17 equity impact implies some uncertainty. Can you please expand on the shareholders' equity waterfall and indicate which items still need firming up? Could you give -- could you guide us on the level of compulsory and discretionary margins within this waterfall? Lotz or Abigail?

I'll take it. I take the point that it still presents some uncertainty. And if I can be bland, the uncertainty is just the process of auditing. The numbers have not been finalized or audited. So it's not that there's that much more significant firming up if you look at the waterfall, for example, what we presented in October.

Can I add something as a non-accountant and non-specialist? So, Marius, I think we are one of the first people to come out. We -- I can tell you that, internally, these numbers have moved by fractions of decimals for months. But we do feel that it's prudent in the early days just to indicate ranges, and there is no doubt that the whole world will be finding its feet. And it's common practice globally for insurers to provide ranges and not be too precise. The bottom line is that the cash that we're going to talk about in our profit is going to be exactly the same. So yes, I really regard this as a bit of a non-event.

Thanks, Paul. One from Michael Christelis. Can you provide some color on the relative movements between the GEV of the SPA operations and those of the Allianz operations in -- since the deal was announced?

Yes. So we don't have -- I mean, we don't have Allianz' up-to-date GEV numbers. And what Michael is driving at is, have there been depreciations of things like the Egyptian pound. But -- so the answer is no, We don't know what that position is yet, and we'll only know closer to completion date.

A question from Baron Nkomo from JPMorgan on the same new business volumes and margin. In which areas of SIM life are we seeing a bit of a slowdown? So just talking asking about the volumes in the second half, but then also the driver of the strong VNB increasing in SIM. Lotz, you want to take the SIM VNB?

Yes, I'll take the SIM VNB question. So I mean, we have experienced very good growth in the VNB for SIM. And -- but one more separate, that is VNB for SPA life, which is a Rest of Africa business and then the international, which includes India and Malaysia. We've had some good volumes and VNB margins in both India and Malaysia contributing about the -- India, there were ZAR 112 million and Malaysia was close to ZAR 100 million. And in the SPA business, we've had very good volumes across the business. We've had some good growth in Namibia in volumes and margin. We've had also decent volumes in Botswana, but they were slightly lower what was expected, but they were still decent. And also, we had good volumes in Tanzania and Morocco.

Thanks, Lotz. Just a -- another question from Michael Christelis from UBS. Michael just wants us to elaborate on the slowdown in the mass -- South Africa -- SA Retail Mass volumes in the second half of the year, but specifically from a policy count perspective. Presumably, this was larger than the volume decline due to repricing action. I don't know, Paul, if you want to take that one?

No, I don't understand the question. I don't know if somebody else understands the question.

I think he might be comparing second half to first half volume performance for retail mass. We did talk to the issue of the overall economic conditions having an impact, particularly on that class. But we also saw a slowdown in some of our Capitec business, and that also drove some of that volume decrease in the second half.

It's a very detailed thing, but there are -- there are very many moving parts. So you've got this African business, you've got the group business, and the Capitec business, and then you got our core business. And in our core business, there's been absolutely no slowdown. But the ZCC…

There was also that non-repeat, because last year, you had the ZCC as the base.

So I can't fully understand his question, but it's -- there are lot of moving parts. The core business has continued to grow really strongly in the second half. But I suspect it's the ZCC thing that he is referring to.

We can pick that up in our one-on-ones, Michael. There are no more questions from the webcast. Do we have anything from the telephone line?

No questions on the conference call, sir.

Thanks very much. And last round from the room here. No further questions. Okay, we'll leave it there. And thanks very much. It looks like those are all.

Thanks a lot, guys.

Thanks you.

Thanks very much.