Sanlam Limited (SLM) Earnings Call Transcript & Summary

Thanks very much, Paul. That brings us to the end of the session. Thanks very much for all the panelists as well. We will have a -- I'll make it a 9-minute break. It must mean to be 10 minutes so if you could come back just 25 minutes before 3. Thanks very much for [indiscernible].

Thank you. [Break]

Welcome back, and once again, thanks for joining us. We are into the final 2 sessions of today. We will kick off with IFRS 17 presentation. I was just telling to some of the guys outside while everyone was lining up for some coffee, so I hope everyone online has managed to get a double dose of coffee for one of the most interesting sessions, which is our IFRS 17 session. So I'll invite Sanlam's Head of Actuarial Function, Barry Laggar to take us through the IFRS presentation, and then we will have a Q&A session. Thanks, Barry.

Thank you, Grant and good afternoon, everyone. Glad to see [indiscernible] IFRS 17 session. The introduction of IFRS 17 marks a major shift in the financial reporting of insurers. Sanlam published its first IFRS 17 results a month ago for the first 6 months of 2023. We would like to spend the next few minutes unpacking some of the significant questions that the new accounting standard raises. We will set out 4 key messages and then go into a little bit of detail on each one of those. The first message is that for Sanlam, group equity value remains the best measure of group value. We'll see that because GEV is based on discounts in cash earnings, there is limited impact from IFRS 17. And because GEV is based on those discounted cash flows, it also means that it does a better job in IFRS 17 of taking into account when earnings become available for dividend purposes. And unlike IFRS 17, which only applies to insurance contracts, GEV applies to all of Sanlam's operations. The second message is that we don't expect IFRS 17 to impact on our ability to grow earnings. We will look at some of the reasons why CSM and GEV earnings may not be aligned. And we'll see that even for insurance business, the CSM is only one element of the value of in-force, and we will illustrate the significance of that. The third message is that IFRS 17 is meant to improve comparability between insurers and in some ways, it certainly does that. But there are several factors that influence the comparability of CSM metrics. The IFRS 17 transition method used, the mix of business, including the mix by term, the basis chosen by the insurer for releasing the CSM, the risk adjustment and the interest rate environment. And the fourth message is that Sanlam has set up several shareholder fund reserves, which we'll describe in a little bit more detail. But it's important to note that the objective of shareholder fund reporting are determining sustainable operating results has remained unchanged. Only some of the mechanics have had to change due to the introduction of the new standard. These shareholder fund reserves support a stable pattern of cash earnings by absorbing short-term market volatility, non-economic mismatches and some noncash items. If we move along to the impact of IFRS on GEV, the basic message is that GEV continues to be the best method of valuing the cash earnings profile of the group. If one looks at the colored blocks in the middle of the slide, you see the various elements of Sanlam's business. And we see that 55% of the GEV is not affected by IFRS 17. In that 55%, we include Santam, although Santam is reporting on an IFRS 17 basis but for GEV purposes, we bring that in at its listed value. And so with only 45% of that affected, we see that it's essentially in respect of covered business insurance contracts, shareholder fund reserves, which again, we will discuss in a little bit of detail and the emerging markets' GI businesses. Those shareholder fund reserves were previously in policyholder funds as discretionary margins. But now with the introduction of IFRS 17 have been set up as distinct shareholder fund reserves. Now what we see from this is that there's a limited impact on GEV and on expected cash earnings. In fact, the only impact worth mentioning is the tax impact on SA Life Insurance business, which amounted to approximately 1% of GEV. The tax impact relates to the fact that on transition, there was a release of liabilities from policyholder funds to shareholder funds and taxes payable on that over a period of 6 years. And also there is additional tax on the investment returns earned on shareholder funds, which -- many of which were previously held in untaxed policyholder funds. Given that this impact is now reflected in our GEV, it's essentially behind us in terms of valuation. If we move along to understanding earnings growth and comparing the CSM and GEV, we can start by looking at the value of in-force of covered business. So essentially a business that's written on a long-term insurance license and seeing the proportion that's in respect of the CSM. First, we said that roughly 1/3 of VIF is in respect of investment contracts that are written on a long-term insurance license, but which do not fall under IFRS 17. And of the remaining 67% only roughly half or 34% of the total VIF is in respect of the CSM. The remainder comprised of the risk adjustment, shareholder fund reserves and PAA contracts and some other minor items. And this small proportion of CSM is the total VIF, again speaks to our preference for GEV over CSM. In the following slide, we'll compare CSM and GEV metrics. But to make them comparable, we need to make some adjustments to the CSM. And so we start with the 30 June CSM of ZAR 30.8 billion, and we removed Santam, which as I mentioned previously, for GEV purposes is included at its listed value. And then we include the same entities which now form part of the SanlamAllianz transaction, in line with IFRS requirements. Now, these 30 June needs were categorized as held for sale and were therefore excluded from the CSM. So if you add that back, we get to the CSM at 30th of June of ZAR 29.9 billion. Obviously, for the more pragmatic GEV approach, these SanlamAllianz entities were included in GEV. Based on the suggested CSM, we can now see a buildup of the CSM over the first 6 months of the year. We see a new business contribution of ZAR 1.3 billion, interest accretion of ZAR 1.2 billion and a smaller impact from experience variances and assumption changes of ZAR 0.3 billion. And then finally, the release of ZAR 2.6 billion CSM to get to this adjusted CSM at the 30th of June of ZAR 29.9 billion, a slight increase over the 6-month period. One thing you should note is that in this ZAR 1.2 billion interest accretion, we've included the unwind of interest on the variable fee for VFA business. And this change in CSM is now more comparable to the change in embedded value. Here, we look at 2022, in the first 6 months of 2023 and compare the growth in VIF from 3 primary sources to the growth in our adjusted CSM from comparable sources. We see that the contribution from new business as a percentage of the opening balance is quite similar. So for the value of new business as a percentage of the VIF, 11% for 2022, 5% for the first 6 months of 2023. Under the CSA metrics, the new business increment to -- as a percentage of that opening CSM was also 10% and 4% for the 2 periods. The impact of profit releases is also similar. The expected transfer of profit to adjusted net worth was 16% and 9% for the 2 periods, very similar to the release of CSM as a percentage of that opening balance of also 16% and 9%. And so we can see that the difference between the growth in VIF and the growth in CSM is essentially coming from the difference in the unwind of the interest at the risk discount rate and the interest accretion for the CSM. As we see, the unwind of the risk discount rate was 12% and 7% for the period, significantly higher than the interest accretion of 7% and 4%. And now, of course, there are reasons for this difference. But one thing that's worthwhile to note, and so the interest on accretion on the CSM is unfortunately based on locked-in interest rates, historical interest rates rather than current yields. And the interest accretion on the CSM is basically determined based on the historical yield curves of interest rates. And given that Sanlam has opted to use a fair value transition basis for much of its business, the interest rates used are taken from the short end of the curve. And given the upward sloping nature of the curve in recent years, that also means that the rate of interest accretion is expected to increase over the next few years. And so in our view, IFRS 17 has not significantly impacted the VIF growth. One can see that by comparing the 2022 growth in the VIF to the first 6 months of this year. And so Sanlam continues to focus on growth in GEV earnings. If you consider the comparability of CSM metrics, it can be difficult to reconcile why different insurers report different CSA metrics such as CSM growth or CSM releases. There are a number of reasons, which we'll go through. Why these may differ between insurers. The first is the proportion of business, which is measured at fair value on transition. We see that those fair value cohorts would at least on a South African environment, would generally have lower CSM growth and the highest CSM release. And certainly, that's what we would expect from our fair value tranche for Sanlam. And given the large proportion of our book, which is valued at a fair value on transition, we can certainly expect this impact to come through. And the second factor is the product mix. Certainly, for shorter duration business, one expects the CSM to release quicker than for longer duration business, for closed book business, a similar sort of pattern given the shorter outstanding term of that business. Again, if you look at 2 of the major product categories sold in South Africa, guaranteed annuities and risk business. One expects a significantly slower release of the CSM from annuity business, given the fact that there aren't lapses and surrenders involved. And finally, the proportion of business with increasing benefits and coverage units, which we'll look at in a little bit more detail in a few minutes. In terms of Sanlam, if we look at our complete mix of business, we expect this to mean the our CSM releases somewhat accelerated compared to some of our peers. The third factor is the basis for discounting of coverage units. Interest rate that is applied in discounting coverage units has a certain impact, which means that there's a faster CSM release for higher interest rates. And again, for Sanlam, we certainly think that this could be a reason why our CSM releases accelerated compared to peers. The fourth factor has to do with the risk adjustment. The calibration of the risk adjustment affects the size of that risk adjustment and directly impacts on the size of the CSM. So the higher the risk adjustment, the lower the CSM. But for Sanlam, we don't expect to be out of line with our peers in terms of our calibration. And finally, the interest rate environment, which we'll look at in a little bit more detail in a few moments. One would see that in a high interest rate environment, one expects a faster CSM release and a slower CSM runoff. And again, given that Sanlam's businesses typically operate in high interest rate environments, that's the sort of pattern that we can expect to see from Sanlam. To illustrate how the mix of business can affect the CSM metrics. Here, we show the CSM interest accretion and release percentages for Sanlam Life and Savings for a breakup of the -- some broad product types. The top block of figures on the table shows the CSM interest accretion as a percentage of the opening balance. While the bottom block shows the CSM release percentages. And we provide a few points from these figures. Firstly, the interest rate accretion and release percentages differ significantly by product. The ringed figures in the slide highlights some products with particularly high CSM release percentages. And so an insurer can report significantly different CSM metrics depending on its mix of business or if it draws the line between investment business and IFRS 17 business in a different place. Secondly, we can see that Sanlam's interest accretion and release percentages are currently increasing due to the locked-in interest rates having an upward slope, which means that we apply a higher interest rate to in-force business in each successive period. That's expected to stabilize as the mix of new business and business in place to transition stabilizes. I won't go into too much detail on this slide, but it illustrates the effect on CSM growth of the interest rate environment. And note that these are not actual figures. These are illustrative figures of a theoretical book of business. But what we see is that for the high interest rate environment, we've used an 11% discount rate to reflect the South Africa-type environment. The first scenario shows the situation where we have policy benefits and coverage units that are increasing. And where a gap is -- a similar gap is maintained between those policy increases and discount rates applied to the coverage unit. And on the CSM release percentages, you can't actually see but those graphs are very much on top of each other. So in a higher and low interest rate environment, we expect similar CSM release percentages. But significantly slower releases of -- runoff of the CSM in a high interest rate environment because of the higher interest accretion that operates in those markets. The second scenario shows the situation where there's a larger gap in the interest rate environment, for example, due to benefits or coverage units being fixed, level-policy benefits, which is what we've shown below or in the situation where there are higher real interest rates for increasing benefits and coverage units. And we think that the second scenario is probably close to what we're seeing in the current South African environment. And what we see here is a CSM release percentage that is higher for high interest rate environments, but with the runoff still being slower due to that higher interest accretion but less so than in the first example. What this implies is that the CSM metrics will differ between high interest rate environments, such as the markets in which Sanlam operates and lower interest rate environment, such as the U.K. and Europe. The fourth key message relates to Sanlam's shareholder fund accounting. For those not familiar with the shareholder fund accounting, what it is, is a separate income statement, which is essentially a different presentation of the IFRS information and essentially represents management's view of the underlying performance from the different businesses. But it's important to note that these principles that we apply in the shareholder fund accounting have not changed, haven't been affected by IFRS 17, but we have had to set up certain shareholder fund reserves and make new shareholder fund adjustments to achieve the same objectives as we have had in the past. And we apply the shareholder fund reporting because Sanlam's dividend policies is supported by sustainable cash earnings. And what that means is that in each period, we adjust the earnings for short-term volatility, such as market volatility and noneconomic mismatches and some noncash impacts such as the capitalization and amortization of certain projects and the changes in certain insurance contract assets. What we see is that there are certainly controls in place, for example, making sure that the attributable earnings and the shareholder fund income statement is equal to the profit after tax attributable to shareholders in the IFRS income statement as well as validations that are in place, recons that are -- take place between the shareholder fund reporting and the IFRS income statement which enhances disclosure to the market. And incidentally, the disclosure of movements in specific shareholder fund reserves will be enhanced for year-end reporting to allow for greater transparency. Finally, Assurance, even though the shareholder fund reporting is Sanlam-specific information, it is audited by our external auditors. Now, this chart shows the split of reserves, shareholder fund reserves with a total of 30 June being ZAR 12.4 billion. And we see 52% of that total is in respect of asset mismatch reserves at 11% in terms of future-fit project expense reserves that have been set aside, 5% for pandemics and 32% for other reserves backed by insurance contract assets. For GEV purposes, we don't include the value of these reserves, but we do include VIF related to the expected future releases from some of these reserves. So for the asset mismatch reserves, we put a VIF on that based on a release pattern of approximately 10% per year. For the future-fit project expense reserve, we don't place the value on that given that we expect to use all of those funds for those projects which have been earmarked. For the pandemic reserve, we essentially assume that, that reserve that set aside will remain constant throughout time, but we do place a value on the investment returns that we expect to earn and release on those underlying assets each year. And then in terms of the other shareholder fund reserves, we do place the VIF on the backing insurance contract assets, [ not excluding ] the negative insurance liabilities under IFRS 17. And so to conclude, IFRS 17 has had a very limited impact on our GEV metrics. By definition, it's mostly unchanged, except for the small tax impact that we've discussed. Secondly, Sanlam continues to drive the business and manage the business on cash earnings, which are largely unaffected by IFRS 17. Our profits and the value of our business continues to be driven by new business growth, experience variances and our impact from the market. And finally, Sanlam's IFRS 17 implementation does differ from the broader market in a few key ways. Certainly, we have fewer contracts which are affected by IFRS 17 as a lot of our investment products are still reported under IFRS 9. And the high interest rate environment in South Africa and Africa certainly affects the CSM release pattern as we've seen compared to international peers. I think I will leave you with that, and I'll, on that point, pass back to Grant.

Thanks, Barry. For the Q&A session, we'll invite Patrick Hartnic, the Head of Group Financial Reporting; and then Gert van den Berg, Head of Group Risk and Actuarial to help address with some of the questions. Let's start in the room if there are any questions here, and then we will also go online. Go ahead.

It is very useful. Can you maybe explain or tell me if you think that IFRS 17 and the CSM releases and the sort of relevance of interest rate environment, does this change in any way how the market should think about how the company should react in different interest rate environments, I mean higher for longer cutting interest rate environment. I know that it won't affect GEV, but it does affect earnings. And does this fundamentally change maybe the sensitivity that the market puts on a stock like Sanlam relative to interest rate movements?

I think I'll let me give it a stab and then my colleagues can add. I guess it depends on the valuation model that you used to value the stock. So as we've actually shown from a GEV perspective, we don't think that there is such a big impact. There might be a slight change in the runoff patterns. However, what the IFRS 17 does provide us with an opportunity to actually match our balance sheet better. We have built different balance sheets, with the same balance sheet, the IFRS balance sheet, the EV balance sheet. And because of the way that the liabilities are now broken up into the various components, it does give us an opportunity to actually match our different components of the liabilities across all of the balance sheets are more aligned to best estimate liabilities, and it does give us some opportunity to match even better. So from that sense, we get less -- we'll expect less volatility to come through, not directly as a result of IFRS 17 but because of the opportunity that we take in to implement [ ALM ]. I don't know if anyone wants to add something? No?

Nothing else, okay. Mic.

Michael Christelis. Just two things. So you're smoothing, that you're doing in the shareholder fund reserves. Firstly, you talk about cash earnings, but when markets are going down and you've got assets that are going down and you smooth it out, you're actually deviating from what we call cash earnings, right? So you're not concerned that you're actually moving away from cash in a situation of volatile investment markets by soothing out all these returns?

It depends on the side of the business that you're looking at. If you look at risk business, you do need to hold reserves to back that. But the changes in the interest rate environment in the markets, it really doesn't affect your long-term expected cash profits. So for a lot of the business, which is profitable, you actually expect from a business perspective to run it at 0 liabilities and essentially have your premiums less cash less expenses come out in any particular period. So what's happening with the negative liabilities from one period to the next, as long as you're properly matched and hedged, shouldn't really be expect to impact you on that long-term view of what we expect as cash profits from risk business.

Okay. And then the second question, just around EV and GEV reporting. We've already seen one of your local peers stopped reporting EV a year ago. Globally, very few companies have maintained EV reporting, South Africa seems to be only market, which is holding on for dear life. I mean do you see a world where you can continue to use EV as your key and core metric in the face of a market that seems to be going the other way?

Perhaps -- I mean it is the key -- as we said, the key metrics that we use to measure the business. Can that change? Obviously, that can be reviewed. However, I think it's important to stress that we actually do report on all of these basis and we reconcile between all of them. From our perspective, if you just look at the book, the total book, so that's insurance contracts, investment contracts, GI businesses, credit restructuring businesses, admin businesses. You need a metric that -- one metric that you can use to measure everything on. In a session earlier today, Heinie also mentioned when the question around ROEs came up, why aren't we looking at ROEs? We are looking at ROEs for GI businesses. So it's not a question of -- it's the overall metric that we're currently using to measure shareholder value creation. And importantly, it links directly to our second most important or second and third most important or equally important performance metrics, which is cash earnings and dividend growth. So I hope that answers your question.

Any other questions from the room? No other questions from the room. There is one question that has come through on the webcast, which I will read. Many insurance companies have said that the growth in the CSM from year-to-year is a good proxy for future earnings growth potential. Does a fair value transition approach, where interest accretion for legacy business is modeled off lower short-term rates mean the CSM earnings growth prediction is not true for Sanlam.

I'll give it a stab then -- but I think Barry's -- a large part of Barry's presentation speak exactly to that. So we're not saying that it's -- the fact that we're using fair value, we're forced to use the locked-in rates, that is just a fact. And that -- a large part of the book is in South Africa. We -- at the date of transition we had this sharp increasing yield curve. So -- and that's this -- the whole IFRS 17 measurement model has been developed, and that's how it will play out. So maybe those [indiscernible] are coming from companies and organizations and audit firms and advisory firms of analysts in low interest rate environment. That's the only thing I could say. But in terms of our local peers, we would -- we'll probably expect to see sort of a similar development, although the fact that companies that have gone for a full retrospective approach going much further, much back. That -- they might have much more of a weighted average yield curve that they used to, for all our key purposes. I don't know, Barry, Patrick, if you want to add?

Yes. So I think that you could have 2 different insurers which have a different mix of business in terms of how much has been transferred on a fair value basis and not. And what that means is you'll see different interest accretion for those 2 businesses. But what's going to be important is to really understand for those insurers to communicate the actual returns that they're having on those underlying books compared to what they're seeing in the unwind of the CSM because the CSM unwind is a useful accounting measure, but one really needs to understand the economic impact of those periods as well.

Thanks, guys. There are no more questions that have come through on the webcast. Just one more sweep here. no questions there. So thank you very much for the presentation, Barry and Gert and Patrick. We will just take a break now if we could maybe gather in 15 minutes' time at 25 minutes past 3 for our final session. Thanks very much. [Break]

Welcome back. Thanks very much for joining us again. In the previous session, we focused on the African operations with SanlamAllianz and then looked at the IFRS 17 numbers. For this session, the final session of the day, we will focus on -- or we will bring the focus back to the South African operations and get some insights into our recent transactions. So we joined on stage by the CEO or the incoming CEO of AfroCentric, Gerald van Wyk; next to him, Ms. Kanyisa Mkhize, the CEO of Sanlam Corporate. We also have Carl Roothman, the CEO of Sanlam Investment Group with the recent Absa Asset Management transaction took place. Online is Schalk Malan, the CEO of BrightRock will be -- also to had a recent transaction. The CEO of Capital Legacy, Alex Simeonides is unable to join us today. I did however catch up with Alex last week and just get some of his insights into the transaction, and we have recorded that for you which we'll play now.

I'd like to welcome Alex Simeonides. Alex, welcome to the Sanlam Capital Markets Day, and thanks very much for joining us. I thought we could begin just by giving some background. Some -- just a brief overview of Capital Legacy. Many of our investors wouldn't be that familiar with the business, how the business came about, just a sense of, the size of the business and some of the very strong growth rates you've been experiencing.

Obviously, thanks for having the chat with me, Grant. To put Capital Legacy into a nutshell, I'd say we're a fiduciary business first, a business that does wills and estates, that uses insurance to solve the cost of the wills and estates in this country. From a business growth point of view, we're a business that currently does about 130,000 new wills every year. That's before the Sanlam transaction. We currently employ about 1,600 people. Most of those people are in the field doing the wills and the policy that we do sell. We're going for 11 years now. So it's been quite a steep growth curve for us. And we're obviously a national business, so we can reach the whole of the country.

Thanks very much. Can you maybe just give us some color around Sanlam and what attracted you to Sanlam, the partnership that you have with Sanlam and what that brings to your business?

So at the center of the Sanlam transaction between ourselves and Sanlam was Sanlam Trust, the business that -- the Sanlam Trust that we acquired. And Sanlam Trust has an amazing estate and wills operation. We believe the technology we have in and around the wills and estates could be injected into that operation to enhance it and bring value to the Sanlam distribution channels. That was the first thing that attracted us. The other element is that in Sanlam Trust, it has a well-established beneficiary fund and trust business, something that's new to Capital Legacy. Now Capital Legacy is a business that focus on fiduciary solutions, how do we help solve for the beneficiary who's lost a loved one. And we believe we can make a serious impact in terms of those fiduciary solutions that are there for both businesses. On the flip side, there's also the commercial aspect of what Sanlam presents to Capital Legacy in the form of reinsurance. So there was an obvious opportunity for Sanlam Re to reinsure the Capital Legacy product that is distributed, not just the product that will go into to Sanlam itself, but also into the wider Capital Legacy group. And I think lastly, it's about credibility. Having someone as one of your material shareholders does certainly help us in our positioning in the marketplace and where we are now our friends, not foes.

Thanks, Alex. With Sanlam Trust incorporated in your business now and Sanlam as a key partner. Can you tell us about the future growth prospects of the business?

So they've been amplified because Capital Legacy is a business that was doing -- well, probably the leader in terms of wills being done in the country. Second to us was probably Sanlam Trust, which are now a combined force. So in terms of going forward, we believe the -- we currently should do about 130,000 clients with wills this year. That's before consideration for what is the Sanlam distribution opportunity. For next year, we believe we have about opportunity of at least 30,000 new clients we can welcome into the offering. And this is off a base of a book of about 300,000 in-force clients. So immediately, you can see that there is some good growth prospects in the business. That's from a volume point of view. From a value point of view, the product itself is still a good margin product that we sell with the will. It recently had an update to it, which has been very well received by the end client and the market, predominantly because of how it addresses some premium increase issues in the later years of one's life. Because at the end of the day, it is a product that needs to be there to look after the costs that are associated with the will.

You spoke about the client and it does sound like client centricity is quite core to the business. I mean that's something that's really important for Sanlam. Can you maybe just unpack that a bit more and just talk about client centricity in general in your business?

The client is at the center of what we do and through a lens of how to make the loss of a loved one easier. And that means that we also need to look at the beneficiaries. When someone loses a loved one, there are costs that are involved. The plan that we sell -- to sold for those costs, relatively speaking, in terms of the premium is much cheaper than traditional life insurance. This is why the product and the offering has got such a great traction in the market. Because it's always a poor comparison to say just taking life cover or paying for one's estate would never have got off the ground. Every quarter, we monitor that ratio of what is the clients value in terms of what they would normally pay in cost or fees versus the premium that we are charging. And every single time it comes out, that it's definitely clients -- in the client's interest and is at the center of what we do.

Lastly, just to touch on the governance structures. Can you just talk to how the covenant structures in your business have aligned to Sanlam since Sanlam has come on board as a partner?

Well, like you used the word aligned, I would say, it's more been a learning curve for a business of our nature. We've matured very quickly with the Sanlam transaction. And we've had some welcome injections of governance that are coming. We recently just incepted a new Board by virtue of the Sanlam transaction and are now establishing the subcommittees to that Board to help it with its work that it needs to do. On the other side of it, we're also really enjoying the oversight that we get from the people from Sanlam and involved our governance structures through a lens of what the potential authority sees. So at the moment, as you'll know, we are a sole captive. And now we're learning new ways of seeing how insurance needs to be or can be done through the lens of those at Sanlam. So that's been fantastic.

Alex, thank you so much for joining us and all the best for the remainder of this year and for your partnership with Sanlam.

Thank you.

That was Alex Simeonides, he's the CEO of Capital Legacy, one of the latest transactions that we've closed. One of the earlier ones we closed was the Absa investment transaction. And I'll just come to call. I think many market commentators have spoken about the difficulty of M&A in the asset management space. Can you tell us how the Absa integration has gone? What has been achieved to date and what work still lies ahead?

Thank you. Good afternoon, everyone. So I think the transaction for us has gone very well. If I can say that we obviously -- in the industry, you don't see a lot of successes in mergers between asset managers. And I think there's a couple of reasons why I think it's going well so far. We did the transaction end of last year from -- effective December 2022. So nearly 12 months on. I think, first, what makes it successful is that I think the cultures are very, very similar in terms of the investment culture between Sanlam and Absa and we were shareholders in the businesses many years ago. So I think, first of all, from a culture perspective, it was a good fit. Secondly, I think from a client perspective, there was not a big overlap between clients. It's not that you have exposure for example, in the client, we have 10% and Absa 10%. And then maybe if you consolidate, you only have 12% or 13% exposure. So I think that worked very well for us. And so far, to date is what we -- and we haven't lost any large clients in that transaction either. So I think those are 3 very positive for me. Year-to-date, we've integrated all the systems between the 2 businesses into Sanlam. We've integrated the investment teams and consolidated those teams, we've integrated investment processes and philosophies in the businesses. So -- and we add about -- in the next couple of months going to consolidate those funds in line with discussions with clients. And the big thing that's still left for us to do is the integration of Absa fund managers and our Sky [indiscernible] business that will happen in -- by April next year. And I think once we're done with that integration, and this will be a fully integrated business. And I think the biggest success then also is that I think for the clients, hopefully, they still get a very good investment return through this whole process. Hopefully, all the Absa clients get a -- I think an enhanced and more depth and breadth and research in what they experience as a client, so we can grow that business. But also, I think, so far, we've achieved all the synergies. So when we did the transaction, we set out exactly what we want to achieve and to get an uplift of more than ZAR 1 billion ramp in value, and we're very much on track with all the synergies that we're looking for as well. The big upside for us then, obviously, is the distribution network that we will have from Absa. So we have a 10-year agreement this is you're also aware of. And I think for our expertise in Sanlam to build product. And we're quite used to building product for all our advisers and clients so we can use that skill sets in the way we do our portfolio construction for the Absa client, but I think we can hopefully accelerate that distribution and bring more flows into -- more clients and more flows into this combined merger.

Thanks very much, Carl. Just over to Schalk. Schalk, thanks again for joining us from Cape Town, and we know you are traveling. For BrightRock, can you just touch on how you see the growth prospects for BrightRock in the affluent trust market in South Africa. And how this is complementary to Sanlam's position in that market?

Yes, Grant, thank you for the opportunity and good afternoon to everybody. Yes, there's a couple of things to consider when we talk about growth prospects. I think the first one is just an interesting stat to share with everybody. We recently conducted a study with NMG consultancy, just to get a handle around this idea of BrightRock and Sanlam with the Matrix product, both competing in the same market at the moment from an IFA perspective, and really just to understand what is that overlap in support that companies are getting or both of these companies are getting. And that number sits at around 9%. So less than 10% overlaps, which means the strategy for the transaction, the strategy of Sanlam and BrightRock operating alongside within the same group in this target market is definitely working. It is a two horse in one race. If you look then also at the collective penetration within the broker -- independent broker market, that number sits just below 60% from that same study. So that talks to a very synergistic potential partnership. What's also interesting is BrightRock sits at the moment with around 12% market share in this -- in the IFA market in that fourth position. And that means also, firstly, that BrightRock has seen significant success over the last number of years, but there's definitely a lot of potential for further growth in this space. And if we look at what BrightRock is offering to our clients, to the adviser, it's really a very different value proposition to a number of other insurers. It's a product concept that [indiscernible] needs to match insurance offering. And in this situation, where clients are feeling more under strain, they're feeling that the [ rands ] must work harder when it comes to life insurance. We do believe with our efficiency in our product being able to offer clients up to double the cover for the same premium by pricing the needs more accurately, we are able to really step into this space to support advisers wanting to really find a potential -- better deals for their clients. So Grant, I mean we're very excited where we are at. I mean the Sanlam partnership, the recent transaction really bodes well. It gives us extra credibility in the market, which is, for us, we draw a lot of strength from that. And I think there's a number of good prospects going forward.

Thanks very much, Carl. Before we open up for questions, I just wanted to touch on AfroCentric and Sanlam's health care strategy more broadly. Gerald, you are the incoming CEO of AfroCentric. Can you share your initial observations of the business where the key strengths are and what -- which areas you think you need to focus on?

Yes. Thanks, Grant, and good afternoon, everyone. I'm definitely enjoying getting stuck in and learning about our business through the perspectives of our members, our scheme clients, our staff, the respective management teams as well as our shareholders and our stakeholders, but ultimately, also through our own performance relative to that of our competitors and where we think the potential is for this particular business. It's a business that has a strong market presence and an established track record, especially in our core, which is medical scheme administration, managed care and technology service enablement, where we hold a 39% market share and where we manage over 3.9 million lives that are under our care through a multi-tenant scheme model, where we have 2 open schemes in Fedhealth and Bonitas that we support as well as 10 restricted schemes of which the Government Employee Medical Scheme, and the South African Police Services Medical Scheme are some of our anchor schemes from that perspective. But we also lead in other key areas through our diversified play into health care services like pharmaceutical as well as nonmedical scheme businesses that we believe are complementary to our core business. In the pharmaceutical side. We are the largest distributor of chronic medication across the country in the public sector, where we distribute now over 1.3 million scripts on a monthly basis across 5 provinces on behalf of the National Department of Health. And then on the nonmedical scheme side, we have a number of fledging businesses that are well poised for growth going forward, especially where we see the emerging opportunities to focus on preventative care through wellness as well as affordable health care through primary health or low-cost benefit type solutions. So yes, Grant, from that perspective, really a good business with some key assets that this partnership with Sanlam can help us now augment. I guess the challenge for us now is the incoming leadership core, is how do we solidify these assets and focus in the areas of strength where we have a right to win and where it would be difficult for our competitors to follow. And this process of now unpacking that and crystallizing our priorities is also now well underway. So quite excited to be joining the business at this particular juncture.

Kanyisa, from a Sanlam Corporate perspective? Can you just talk about the health care strategy more broadly bringing AfroCentric into the Sanlam stable and how you'll use that for the corporate client benefit?

Thanks, Grant. I suppose we've always spoken about how important health care is to the consumer and that it was quite anomalous for us not to have a solution to our clients. So we definitely see and plan to roll out health not only to institutional clients, but really to all of our clients across the group, really to close out that proposition gap. And honestly, to close up quarters, I think, quite a critical entry point for our competitors. If I reflect on the institutional business, we've already started to integrate quite critical parts of the health proposition into our Umbrella Fund. I think to date, we've got 4 points of integration. We've integrated gap cover, primary care, virtual doctor consultations and EAP to participate in employees on the Umbrella Fund. And I think we've been able to do that because we can offer preferential pricing and discounted rates. I think the responses from our participating employees have been really positive because our focus is really much on simplicity and convenience. And that's something that we're looking to build on into the future. I think there are tons of opportunity even in the retail context. And that's a space where we really are looking to leverage off of our broad capability to drive even more integration.

Thanks very much, Kanyisa. Can we take any questions that we have in the room? Do we have any, there's one here.

Mike Christelis, UBS. Maybe, Schalk, starting with you, BrightRock's volumes, new business volumes versus, say, 2019 pre-COVID. My sense is that the industry is sitting about 10% down in nominal terms. Are you at a similar level?

Sorry, was it Michael?

Yes, that's right.

Yes, Michael. Now so we've actually seen quite a good recovery from pre-COVID. I mean we're probably about 10%, 15% level up recovered. What we saw what was interesting is during COVID, we saw quite an increase in our new business actually. Some of that's now been tracking back a little bit, just to give you a sense in the height of COVID around 2021, just post-COVID, we were sitting at around a 14-plus-percent market share, that's gone down a little bit, as I said earlier. So we're probably about, as I said, 10% to 15% above pre-COVID levels of new business, which means we're gaining market share, and I think also during COVID, our value proposition being very digitalized, being very much -- as I said earlier, the value proposition shining through around other product features that brokers could use, free of underwriting, et cetera, helped us a lot during the COVID period.

Great. And then maybe just if I can sneak one more in on the Absa deal. There was an announcement at the time about the LISP business. being bought and merged with Glacier, has that happened? It's gone -- I haven't seen it. Where are we on that transaction?

I think they're in the final approval process, Paul. And so that's us on the Glacier side. And that's happening, yes.

I think we'll have it on the 1st of November, Michael, or around about that. There have been some regulatory processes we've being going through.

There's one question we have on the webcast. Do you call this one directly? Do you see more opportunity for industry consolidation in asset management space in South Africa?

In South Africa?

Yes. And then similar question on broader financial services marketing is industry you've reported?

So I think, obviously, we go internationally, it's a significant amount of consolidation in the industry. Specifically in Europe and U.S. And I think you will probably see the same in South Africa, but maybe at a lower sale. But if you think about all the pressure that in terms of active asset management, where the fees are going. There was a bit of a cycle. So I think 15, 20 years ago, it was all about the large asset managers and then the cycle moves a little bit to boutique asset management. And I think now with Regulation 28, the pressure on the South African economy, pressure on fees. I think those boutique managers that did quite well. I think you will definitely see some consolidation over the next probably 3 to 4 years.

Paul, on the broader financial services space in South Africa consolidation?

No, look, I think, Grant, whenever you have a mature industry and you have relatively lower rates of growth, you are going to have some people trying to consolidate it. In fact, if you look at all of these transactions we've spoken about today, Sanlam has basically done them, why? Because we're trying to strengthen our core business and build a fortress. And we take the view that even in a tough macro in South Africa, if you are the biggest and the best and the most efficient, you're still going to be able to make good money. So for us, relative competitive position is really important. So from our side, of course, I will say we -- opportunistically, we'll do it. But I would also hope that South African is not entrepreneurial country and that we also see people doing not just consolidation, but also innovating and so on. And in fact, I mean, here today, we've got 2 people with us. I think Alex has designed -- I always say to people, Trust and Wills, the single most boring business in the world. And for those who are online, if you don't believe me, next time you were the bank CEO, asking who runs this Trust department, chances are that he can't name them. But Alex found a way to crack a need in an unbelievably innovative way, right, and build a hell of a business. And I probably also wouldn't have known this and Trust was run by -- before meeting Alex, right. So I shouldn't only criticize the banks. And then it takes Schalk, Schalk also built an unbelievable business. I think the thing that you didn't talk about is I think they offer a completely different product solution and proposition that nobody else in the market that provides, and that's why they've been successful. So I think there is room for consolidation. But equally, I would hope that there is room for innovation and partnership as well. And certainly, from our perspective, we're interested in both.

Thanks very much Paul. Questions?

Warwick Bam from RMB Morgan Stanley. Just on AfroCentric, I mean, obviously, the partnership has been there for quite a long time. The change in shareholding is new. Would you give us a sense of the challenges in terms of an employee benefit space, specifically of integrating AfroCentric in the past in terms of why you think you might be solving them now?

I think what you've seen over the past maybe 5 to 10 years, is, from an EB perspective, there's quite a significant trend around the consolidation and moving away from standalone to [indiscernible]. I think what you had in the stand-alone context is quite distinct decision makers on the health side versus the EB side, that distinction now has actually been removed a bit. A lot of the people that will influence the decision around health and EB will be the same person and if the Human Capital Director. And I suppose they will then look at the context around what value and what benefit has created for an integrated proposition where those concessions weren't necessarily there in the past. So I do think there is quite a significant opportunity to make quite a lot of hedge rotor in the context of an integrated solution.

And you mentioned the reward scheme. Can you just elaborate on how that might be evolving?

Yes. I think there's a lot of work that we're doing in Sanlam in terms of revisiting and revamping our rewards capability. I do think it creates quite a significant platform around how we can drive a lot more of this product integration and create value in a better client experience across a institutional space and the retail space. So I do think that there's quite an opportunity there. Our rewards program isn't really it needs to be. But there's a lot that we're investing in making sure that it gets to that place. I think our partner schemes also see quite a lot of value in a competitive rewards program that will allow them to strengthen their proposition quite a bit. So we're working very closely with it to see what would make sense on their context.

Maybe just to add or you can imagine that we weren't shareholders, there was very little incentive for us to extend our rewards program there -- because there is a cost, there's a benefit. But actually, you're happy to take some costs if you are deriving the benefit now, clearly, we're going to be able to derive benefit. And I think we can also say -- I mean, Kanyisa has talked about us where we are redesigning what is not a good rewards program, if we're honest, no disrespect to your colleagues who run it. . And we have recently appointed the previous head of EB, and he's just joined us at the beginning of this month. And he'll be driving the program for us. So we're very committed to it. And as Kanyisa said, I think the environment has changed and we're going to give it a shot.

I could also add working with Johannes coming in, I think we're also taking the view from an AfroCentric perspective that a health led rewards platform for the Sanlam Group gives us a unique right to win in the sense that we are a lifestyle-orientated product. I mean we have significant frequency of touch points with our clients. So bringing that to the platform and allowing all the other product houses to plug into that give us a unique opportunity to now drive product integration value on the one end, but also actually create the engagement and the attraction to the platform. And so from that perspective, I think we're quite excited, and we're leaning in strongly to it. And so those are schemes that we support. So I do think the foray into the rewards and loyalty platform this time around should be something quite compelling now the days alignment across the various businesses.

Any further questions in the room? Just on the webcast, people are just sticking with your question on National Health Insurance. What are your views on National Health Insurance and how it's likely to impact AfroCentric?

Yes. Thanks, Grant. It's something that obviously keeps me busy a lot today is, in fact, day 18, in the job. And we are participating, obviously, through various industry platforms to drive the social discourse around this. I think the important point to make from an AfroCentric perspective is we fully support the principles of universal health care. In fact, if you look at what drives our purpose, it's providing high-quality and affordable and accessible health care to everybody in the markets that we choose to operate in. The challenge that we have is in how it gets -- how it's intended to be executed in terms of the NHI bill in its current form. Our view of that is that it's unsustainable. If you look at how the government is proposing to fund this, their last estimates, which is now fairly outdated like 7, 8 years old is that you'll essentially need ZAR 200 billion to fund the current form of the NHI bill. Now if you take that our estimates are is a collective industry, consideration is that it's probably significantly understated. You might probably need ZAR 500 billion to fund NHI in it's current form. And the sustainability comes in that you most likely then have to either increase personal tax by 30% or increase the VAT level from 15% to 21%, which makes it quite unsustainable from that perspective. And then closer to home from a medical schemes perspective, we also believe that the inclusion of Section 33, which ultimately limits the role of medical schemes once the scheme becomes fully implemented is also unreasonable and probably unnecessary in the context that if you take that same ZAR 200 billion funding need, what that will do is essentially increase the available spend in the public sector in terms of patient contribution from ZAR 425 to ZAR 685. So while there's a significant increase in the public spend, it will reduce the spend in the private sector from ZAR 2,340 by 70%. And so that imbalance is also something that we feel takes away the ability from government to partner with a private sector, which is quite robust and that has a lot to offer in actually delivering a sustainable NHI framework from that perspective. So from our side, we're pragmatic. We think AfroCentric Group is well positioned to participate in the discourse and influence for a more sustainable pragmatic outcome. And then to also continue our diversified opportunity of being an enabling partner in an NHI environment that makes sense and that doesn't put any significant pressure on the first as well.

Maybe I can add a few points if it's all right. So let me start by caveating then I'm probably the least knowledgeable person on this topic. But I think general has addressed the NHI and the medical scheme, and I think a lot has been said about that. And I think it's probably a common cause that to get the economics to work is going to be very challenging in a way that it's been articulated. But let me say that I think that, firstly, there's a constitutional requirement in South Africa for Universal Health Care. I think there's probably also a political strong imperative to deliver something. And I think that when we talk about a national health scheme, the thing will be what are the benefits under is. So if the benefits are very minimal, then the cost -- funding cost will be extremely low. And at this point in time, my understanding is that there is no set yet, minimum set of benefits that's been articulated. In fact, one of the challenges to the bill is that the definition of what is prescribed minimum benefits or as part of the NHI plan will be driven by one person, one person only, and that's the Minister of Health, which is obviously very dangerous with that one person sitting and writing something that has got massive ramifications for the national fiscus. So my own view is that something in this space is inevitable. But that ultimately, the economic reality will shape the form of it. I also have to say that I think that not the whole private sector as opposed to this. So the interesting thing is you hear people saying that we have enough beds in this country, actually every man, woman and child of the 60-odd million people. Our problem is the allocation of resources and the inefficient allocation. It's actually cheaper to provide a bed in the private sector in South Africa than in the government sector, when you think about it as a pretty extraordinary situation. So many parts of the private sector who are in the provision part of the value chain as opposed to the insurance part of the value chain. I see this as a massive opportunity to actually -- to deliver benefits on a wider scale. And actually, AfroCentric it's quite interesting because as Gerald explained, we've got one foot in the health insurance business. We've got a big foot in the managed care, and we've got another big foot in the health delivery pharmaceutical piece. So actually, when we looked at it as a Board, we can see that actually, whilst if we were a pure health insurer, we might take a very negative view of it. Actually, there may be more opportunities and more money to be made than downside. So I just wanted to put that sort of balance -- I'm not ideological about this thing at all, but I think there are different perspectives, it is all I would caution as opposed to only one narrative at work. It's a complex situation. And I think eventually, as everything in South Africa, we eventually will arrive at something that's workable and that gives sufficient buying from all parties.

Great. Thanks. Just turning to BrightRock, another question from the webcast. And it leads to, I think, some of the earlier points we were discussing around the risk market in South Africa and the lack of growth. So for BrightRock, it seems that there isn't a lot of real growth in the market in South Africa, and this would be the retail affluent market for reinsurance. Does that change the way you think about your growth strategy?

Grant, no. I mean, I think, firstly, it is true. I mean, we haven't seen significant real growth. I mean the overall market hasn't yet recovered to pre-COVID levels in line with the previous question. If I look at BrightRock and speaks to Paul, also points on the value proposition, BrightRock really offers advises something quite unique in being able to go back to either existing clients or new clients that they want to advise on and utilize a product technology of unpatterned the actual clients' needs and the product responds to those needs in a very efficient manner to safe plant's money, to be able to also flexibly adjust the product over time without the traditional underwriting burden that comes with a traditional out product. So we believe just in that the value proposition, allowing advisers to go back to those plants that might be under financial derisk or looking for a better alternative. We offer that own for those clients. I think coupled to that point is also, if you look at BrightRock's market share, I mean we've grown significantly. I mean the business is over 12 years older, I mean, compared to our peers and our competition, we're pretty much still a youngster in this market to a business that's now the ZAR 2 billion a year premium income business. But the market share that we capture is still relatively small. I mean that 12% market share puts us in that fourth position. So we're looking at saying we still have huge growth opportunity for growth in the IFA market. And keep in mind -- I mean, BrightRock at the moment has got no other presence in the agency space. And so there's a big market still for us to continue growing, irrespective of the macro market conditions and the overall condition. Having said that, I mean, is it a challenging environment? Yes, absolutely, for a smaller insurer like BrightRock relative to our peers. Things like underwriting, reliance on reinsurers have tightened over time, and that just simply means one's got to work harder for every single case you know that you activate or commence. But in short, I mean, our growth aspirations is very real and very strong in the next number of years that we can see forward to.

Thanks a lot, Schalk. Just coming back to the asset management business, have we seen any benefits from the transactions that have transformed us into the largest black-owned asset management business? Is there anything we can demonstrate?

I think first of all, it was very important for us to do that transaction. I think for a couple of reasons. One, from an industry perspective, it's important for us to participate in the transformation of the industry and South Africa and how we helps a lot to transform and become a more inclusive asset management industry. Secondly, this -- if you look at the industry in a way, the big allocators start allocating. So first of all, everyone is a little worth. So you need to start differentiating, I think in front of your clients in terms of what else do you offer as an asset manager. And by doing that transaction, I think it was early, that would give us first-mover advantage. And we do see more if we look at allocators like the PRC, Alexander Forbes. So there's a significant premium of whether they now ask of asset managers to increase their physical shareholder, not just a scorecard. So by doing that transaction, I think it puts us on the forefront to really set the front of clients and be probably a largest black-owned asset manager and hopefully, it will allow us to more -- to win more money in the industry. And I think the industry will start catching up with it. So we are successful, but we haven't seen that real growth yet, but I definitely think we're probably a year or 2 away from seeing that growth. Also, just maybe if I can bring back that the transaction and the way we did the asset transaction is we wanted them to preserve our black ownership. So the way we structured that transaction is to make sure that we -- with the scale that -- if so provide us with the mergers that we still black-owned. But that scale also allow you to invest in your products and largely to have a much better bargaining power multi-manager, for example, we start negotiating pricing with other asset managers. So we're bringing the price of providing investment products to our clients down significantly. And that, obviously, the benefit goes to your shareholders and the benefit goes to your plant. So I think by being the largest truck plus the scale that we have and to invest in our systems, invest in people, to invest in our capabilities to invest in more in offshore asset management capabilities, I think, really puts us, I think, in a very, very strong position to grow our market share. And it is -- and again, maybe just to add to some of the procession that we've done within our single active asset manager, we're now top 5 in South Africa. Passive, we have 37% by far, the largest participant and our multi-manager of 30% just after Alexander Forbes a 37% market share. And we're also growing alternative business quite strong. So we're already dominant, but this, I think, really allows us to really bring all of that so that together to even strengthen our position and win more market share.

Thanks, Carl. Just a question for Kanyisa on the corporate space. What's the health care offering in place now? Are there any relatively short and quick wins that you -- that in your business from thinking in the health care space? So do you think that's a much longer-term than in expecting benefits?

Yes. Look, I mentioned the points of integration already on the umbrella fund. I think that's gone well. I think in the distribution space, I think we're working really well in terms of from an advisory capability with the Finnegan and with other health brokerages in terms of driving quite significant cost of between EB and Absa, so I think that's been a good success for us. On the retail side, our colleague [ Yako ] always takes -- tell me that it takes a long time to invest any kind of new product in the retail distribution channels. But there, we've also started to see a quite strong year-on-year growth. I mean the base that we're coming off of is quite small. But I think when I think about the retail distribution channel, the health production has increased by about 50% year-on-year, and we're forecasting to do quite well at the end of this year. So I think those who are on the distribution side, some quick wins. I think in the medium term, our focus, like I mentioned earlier, is just how we drive it health integers and integration and product development through that side. I'm quite excited to see the energy from the schemes and our product development teams just around how we can create more value for our clients and also improve the client experience through product integration and product development.

Thanks, Kanyisa. I'll just do one more check in the room if there are any questions. Nothing. There's nothing further that's come through on the webcast. So I think we are ready to leave it there. Paul, if you want to...

Thank you and your team very much for putting us together, and I really thank all of our investors and people who joined us over the last 2 days, it's an enormous commitment of time. And the fact that many of you sat through the IFRS 17 as they were made only for that. So thank you very much, and all the best to all of you, and we look forward to turning to you again, and please give us some feedback, let Grant and his team know what worked and what didn't work and will endeavor always to fine tune. So thanks very much.

Thanks very much, Paul for this today.

Thank you.

Thank you.

Thank you.