Sanlam Limited (SLM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Sanlam Group First Quarter Operational Update. [Operator Instructions] Please not that this call is being recorded. I would now like to turn the conference over to Group Chief Executive Officer, Paul Hanratty. Please go ahead, sir.

Thank you very much, and good afternoon, ladies and gentlemen, and thank you very much for joining us on this call. I'm joined today by our Group Finance Director, Abigail Mukhuba, Chief Risk Officer and Chief Actuary, Lotz Mahlangeni; and the Head of Investor Relations, Grant Davids. Earlier this afternoon, we released our first quarter of 2024 operational update. I'll give you a few comments on the strategic and operational progress before we open up to questions and answers. From a strategic perspective, we're pleased that our offer to acquire Assupol was accepted by Assupol shareholders. We expect this transaction to complete in the second half of the year. This is an important transaction for the group as it bolsters our position in the entry-level market segment in South Africa for the long term. The entry-level market remains the long-term growth engine for the South African economy and Sanlam will have a strong presence in the segment post the transaction. Also in South Africa, the final step in the integration of ABSA Asset Management into Sanlam's investment operations took place with the merger of the ABSA fund manager platform into the Sanlam Collective investment platform in March 2024, unlocking further cost synergies going into the future. On African front, the SanlamAllianz joint venture integration is also progressing well with a focus now on operational synergies within several markets to the extent that regulatory approvals will permit. First, regulatory approvals were received in Cote d'Ivoire and Senegal. In Asia, we announced the proposed transaction to increase our shareholder to more than 50% in Shriram Life and general insurance entities in line with the Group's strategy to strengthen our position in the fast-growing Indian insurance sector. We believe that these transactions will significantly strengthen Sanlam's long-term growth profile. From an operational perspective, the Group's strong performance momentum from 2023 continued into the first quarter of 2024. The Group achieved growth of 14% and the net result from financial services and the cash net result from financial services for the first 3 months. Life Insurance recorded double-digit growth in earnings and new business volumes. The value of new business grew 10%, and the new business margin remained at a robust 2.85% on a constant economic basis. There was good performance from South Africa, Pan-Africa and Asian operations in life insurance. Group's general insurance operations recorded satisfactory growth with the rebound in Sanlam underwriting margin, robust underlying performance from the Pan-African operations on a comparable basis and continued strong performance in India. Credit and structuring recorded improved growth, while investment management was muted. Group net client cash flows increased by 14% to ZAR 8.8 billion as a result of the strong turnaround in the life insurance performance. We've been pleased to see an improvement in persistency within the retail mass segment in South Africa, although new processes and remuneration structures have become effective only from the 1st of March 2024. The first quarter has already seen an improvement in early duration persistency. The focus on persistency in the retail mass segment will continue throughout the year. The Group's solvency position remains strong and within target ranges on the 31st of March 2024. Group's discretionary capital balance increased to ZAR 3.7 billion at the 31st of March, up from ZAR 2.7 billion at the 31st of December 2023. The increase is due to the net proceeds received from the sale of a portion of Sanlam's direct holding in Shriram Finance Limited, which has partially reduced by $1.7 billion relating mainly to the mandatory offered to minority shareholders in Sanlam Maroc. Overall, the core businesses across the group are performing strongly, and we would expect this momentum to continue. We do, however, caution of the Group's earnings remain sensitive to significant moves in global investment market levels. And the first quarter's earnings growth rate is not representative necessarily of the rate of growth we would expect for the balance of the year. In conclusion, I would say that our strong performance for the first 3 months of 2024 reinforces our confidence in the prospects for the group. Group is well positioned to successfully navigate the ongoing challenging operating environment. At this point, I'd like to open the call up for questions, and then I will help you, if you wouldn't mind, just indicating that you want to ask a question and always give us your name and the company you work for.

[Operator Instructions] The first question we have comes from Warwick Bam of RMB Morgan Stanley. .

Thanks for the detailed update. Three questions for now. Can you elaborate on the underperformance of the general insurance business in Cote d'Ivoire. And you mentioned receiving regulatory approvals in Cote d'Ivoire and Senegal. I'm assuming to merge the businesses in the SanlamAllianz negotiation. Have these regulatory approvals come with any restrictions? And do you have any feedback elsewhere in terms of process and progress. And then lastly, you mentioned the life business benefiting from mortality profits of a larger book of business. Are you implying that mortality profits are similar to the prior period in relative terms? Or has there been an improvement in mortality rates, which may suggest a favorable basis change at year-end.

Thank you, Warwick. Thank you very much. So Cote d'Ivoire you can appreciate that when we are merging businesses, Cote d'Ivoire in many ways, was one of the more challenging markets in the sense that we had two very similar sized and positioned businesses. And so we just haven't seen the kind of new business growth. I think both of those businesses have been distracted by issues of merger. In terms of regulatory approval, yes, we are referring to the fact that we'd be allowed to merge the in-country businesses, obviously, drive out synergies, which is exactly what gives rise to difficulties in a place like Cote d'Ivoire from an operational perspective in the short term. We'll keep you updated as we get approvals in other areas, and there are no restrictions of particular importance in those approvals other than the normal ones that one would expect to see. And then around mortality, clearly, the book of business has grown bigger. And so we worded it very carefully. So it's not that the mortality is necessarily improved at the underlying level, but it is still good and you've got a bigger book of business. So you shouldn't anticipate a positive basis changes on mobility and quite a bit of that would relate in any event to group risk business where basis changes would not be relevant. I hope that answers your question. And lots in particular, please feel free because you probably understand that last one, the best of all of us.

The next question we have comes from Michael Christelis of UBS. .

Maybe couple of questions from me. Firstly, the African GI top line of Cote d'Ivoire of 9% on a comparable basis and constant currency basis. Can you just elaborate a bit there? That seems a little bit low to me for a business, which, if I remember correctly, you were guiding to targeting somewhere between 15% and 20%. I mean, are there any one offs there or what's driving that a little bit lower? Maybe is the one the first question. Second question, just around your really strong new business volumes of what I assume is still a really robust base from last year in South Africa. You haven't given us the number, but it's clearly more than 16% based on your disclosure. Can you just talk about like what in there is one-off? Or what's driving it? I mean is there a lot of inorganic sort of addition that's come through from maybe capital legacy or BrightRock or something, that I'm not thinking about it, but it does seem like a really strong new business number. Then on persistency, you mentioned the changes since 1 March. Can you comment a little bit about how those changes have impacted the trends from 1 March. Is that a step down in rates from 1 March? Or is it too soon to quantify any of that? And then if I can get a fourth one in, I think it would be remiss of me not to ask you your thoughts around NHI given this week's events and clearly your increased investment in Afrocentric, maybe any comments you can give us some of the thoughts there.

Okay. Great, Michael. Abigail, do you want to take the question on the General Insurance growth in Africa. There was a second question on the back of that. The lapse rates and NHI, I'm happy to answer.

Persistency, since 1 March.

Persistency. Obviously. What was your second question, Michael. The first one was about GI [indiscernible].

The sales and new business volumes. .

Volumes in South Africa. Okay. Abigail, do you want to start this one by one. Abigail, do you want to do the first one?

Yes. Sure. Thank you, Paul. Michael. Good afternoon. So in terms of GI, yes, we did what you call, you're talking about the percentage increase seeming to be slightly lower than what we had guided for. Remember, and this is where we're talking about the accounting entry that we have processed during this time. We adopted the whole asset mismatch reserve principle accounting policy, where we adjust or smooth our floating investment returns. We used to do it in life. We didn't do it in the sale. We used to do it mainly in the South African business in the life business. We did not necessarily do it in the SPA business in GI. So in last year's numbers, in the first quarter of last year, that asset mismatch reserve was not in place yet. Whereas in this quarter it's in place. So you're correct to say the expected percentage increase that you have, the range sound reasonable, but because of our investment returns being put into the reserve and then you have that smoothing effect, you end up releasing much less. So that's what appears to have been not some of that return over this time. So you're not really comparing in terms of your Q1 versus Q1 for GI on the African portfolio, that accounting entry does have an effect.

I was referring to the top line.

Yes. New business Abigail, not the...

Sorry, I missed that. So in terms of the overall, we had -- obviously, we did discuss earlier about Sanlam, the Ivory Coast business that we already discussed. That was the major part of the impact on that.

Yes. I think it's just quite important to remember that on an actual currency basis, it's obviously going to look worse Michael. Your second question was about new business in South Africa. And I guess there's no question that, I guess, even we've been surprised on the upside by the levels of new business and daily growth rates like that imagine the macro, we've got to continue. You asked if there were any one-offs. So I think the things that are helping in this particular period are not life, but [indiscernible] obviously, the other APSA and the Alexander Forbes list in now, they wouldn't have been in the previous period, and those had some positive impact. But for the rest, there weren't really one-offs. There's just been an extraordinarily strong volume of new business, both singles actually and even recurrings. So I guess, we're all going to have to watch this area and just see for how long this holds up. What I can say at a detailed level is that annuity sales are still high. And I guess that's reasonable given interest rates. So one would assume that, that's just money that would normally have gone somewhere else is benefiting from higher interest rates. And again, [indiscernible] long bond yields come off, you'd expect that to start tapering off. I don't know if my colleagues want to add anything on that second point before we move to the lapses.

No Paul.

Okay. If not, Michael on persistency, and so on. So we've obviously been talking to our people about the changes that are going to come into effect from -- we started talking to them last year. But we only implemented changes from the 1st of March to remuneration. But we did start seeing some impact before the 1st of March, a lot less churn in the numbers. And we've seen a much better early persistency, but it is too early for us to have a really good insight into what's happened to the overall level of persistency. So when you talk about the big ticket item, which would be basis changes on persistency. Someone like Lotz would not be in any position at this point in time to judge whether his underlying basis is sound or not. I had originally hoped that by June, and of course, we'll only talk to you about June results and probably using that we'd have a pretty clear idea by then. I hope we do have a better idea. I think we'll have a great idea by the end of the year, but it's going to take a while for it to unfold. Early signs are extremely encouraging with the churn down and the actual. The real thing that matters is the size of the book and the book itself has been growing very nicely early in the year. So I think it's too early really to be sure, but good positive signs. And then NHI, my own view on NHI is that for our particular business, the NHI itself, it's still got so much definition and structure that's required around it to really judge what it means that it is quite difficult to say and we've obviously done our own analysis on this end. It's not really clear that it's necessarily a negative for the Afrocentric business. So we sort of sit a bit on the fence, to be honest. And I don't really want to comment on it more widely because I think there's enough commentary out there on that. People must make their own minds up on us. But it's -- we're sitting a bit on the fence as to whether it's good or bad for us. One of our core businesses in Afrocentric is actually provision of medical services. And so this thing potentially opens up some quite big opportunities for us.