Sanlam Limited (SLM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Sanlam's 2025 9-month Operational Update. [Operator Instructions] Please note that this event is being recorded. I will now hand you over to Abigail Mukhuba. Please go ahead, ma'am.

Thank you, operator. Good afternoon, ladies and gentlemen, and thank you for joining us on the call this afternoon. Firstly, I would like to extend my apologies from Paul Hanratty, our Group CEO, who is away on business travel with different time zones and he is unable to join us today. On the call, I'm joined by our Group Chief Risk Officer and Chief Actuary, Mlondolozi Mahlangeni; and our newly appointed Head of Investor Relations, [indiscernible]. Earlier this afternoon, we released our 9 months operational update for the period ended 30 September 2025. I'll provide a brief overview of our operational and strategic progress before we move to Q&A. The group maintained strong momentum and delivered solid operational results. We sustained the positive financial performance delivered in the first half of 2025 with double-digit growth on key earnings and new business metrics. On a normalized basis, net result from financial services grew by 19%. As communicated at our Capital Markets Day on the 16th of October, we have adopted a new financial reporting framework aligned with IFRS 17 to enhance transparency and simplify our reporting. One of the new KPIs we will focus on effective 1 January 2026 is operating profit. It incorporates unsmooth investment market movements, which introduces greater period-to-period volatility. Although technically only effective from 1 January 2026, we have started to transition by providing in our update the unaudited operating profit movements as well. You will note that we reported the operating -- you will note that the reported operating profit decreased by 3% for the 9 months compared to 2024. Normalized operating profit, as a reminder, this means after excluding the impact of the one-off recapture fee in the 2024 base amongst others and excluding the impact of the investment variances, grew by 18%, in line with the net result from financial services. We will report more detail on the new metric in the full year results in March. Life Insurance recorded double-digit growth in net result from financial services, but was in line with prior year on a normalized operating profit basis. The difference in growth rates was due to a partial reversal of the strong long-duration bond gains that we recorded in 2024, following unfavorable movements at the long end of the yield curve. New business volumes increased by 6% on a normalized basis with VNB margins holding steady at 2.25%, similar to what we reported at half year. General Insurance delivered solid earnings and net earned premium growth across South Africa and Asia with Santam and India maintaining healthy net insurance margins. Investment Management growth was driven by strong performance in the South African multi-manager indexation and alternatives businesses, along with the Pan-African operations. Credit and structuring growth benefited from sustained growth in India and robust structuring activity in South Africa. Group net client cash flow increased by a pleasing 87% to just below ZAR 75 billion, supported by improved flows across all lines of business. The group solvency position remains strong and within target ranges on the 30th of September 2025. We are pleased with the continued progress on our strategic initiatives, especially the integrations at Assupol and SanlamAllianz. The integration of overlapping countries within the SanlamAllianz joint venture is well advanced with 8 out of the 11 countries completed. Kenya and Mauritius are expected to close before the end of the year, while Morocco's integration is targeted for completion in 2026, subject to regulatory approvals. Then the South African component of the Ninety One transaction was approved by the Competition Tribunal in September this year. The transaction remains on track for completion, subject to regulatory approval and the finalization of the reorganization of SIM. Overall, we are pleased with the robust performance and continued strategic execution over the first 9 months of 2025. This performance reflects the commitment of our people and the diversity of our operations. And reinforces our optimism for the remainder of the year. Thank you. With that, we will now open the call for questions. Operator, back to you.

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

Three questions, maybe if I can start. Firstly, can you give me an indication of what guaranteed annuity volumes have done in quarter 3 relative to quarter 3 last year? I know you said at June that they were down 30% to 40% for the first half. So just to get a sense of what's happened since then. The second question is around -- also on volumes on the mass side. So you spoke at half 1 about quite a lot of work that have been done to correct distribution, et cetera, through the convergence of Assupol and the other channels. What does mass volumes run rate look like for quarter 3 relative to, say, quarter 1 and quarter 2? Has there been the expected recovery that you guided to? And then thirdly, I noticed your comment around investment variances being quite a lot lower than they were in last year as a result of some of the longer bond moves. Now we've obviously seen yields come down considerably on the 10-year. And maybe can you give us a sense of what the delta looks like in the variance for 9 months to 9 months in terms of rand millions? And maybe what the direction of that looks like for the quarter 4 to date with the yields continuing to fall?

Thank you, Michael. We'll try to take them one at a time. In terms of the performance on delivery annuities, the life annuities sold in quarter 3 increased by circa 5% relative to quarter 2. So we've seen an increase in life annuities. In terms of the monthly run rate, life annuities, we expect that, that's going to improve over time. Initially, I think the thing maybe to flag is that we did comment that we saw that there was a decline in life annuities mainly due to the market conditions, obviously. I think I just want to confirm also in terms of the actual life and living annuities, the split year-to-date for September, our living annuities was probably about 20% higher than last year in 2024 at the same time September year-to-date. And then in terms of the run rate for retail mass, Q3, we did see an improvement in terms of their sales, particularly the Assupol business. However, in terms of their direct sales or their direct marketing business, that business had been seeing a challenge in the first half. And we're starting to see the management actions, which include outsourcing some of that call center starting to have a turnaround, but it's been quite a short period still to actually see the direct effect. But overall, the volumes are picking up in that business. And then your last question on the investment variances, if I may ask Mlondolozi to address that one.

Thanks so much, Abigail. Yes. So on investment variances, we did flag that the investment variances in the 9 months to date were still positive, but they were lower than last year. So you'll remember that in the first 9 months of last year, the long bond yield, the 2048 dropped by about 150 basis points. In the first 9 months of this year, it only dropped by about 90 basis points. So the delta and the change explains part of the movement. The second aspect is that during the course of this year, we have rebalanced our bond positions in the assets backing the CSM portfolio, and we completed a lot of that rebalance in the earlier in the first half of the year. So there were some unfavorable yield curve movement in the first half of the year, and that is reflected in part of the investment variances that we see now. And going forward, we'll have a derisked bond position. And the third component is the fact that in the tail of the yield curve. You've got a dynamic relating to the 2053 and the 2048, which was unfavorable in the 9 months -- the first 9 months of the year. You'll recall that we do have quite a lot of liabilities in the tail of the yield curve, and that movement does impact it. So in terms of rand figures for the first 9 months of this year, the delta is of the order of about ZAR 400 million to ZAR 450 million. Now the last question is given what we've seen in the yield, particularly in the past month, 1.5 months, and particularly the move that you saw yesterday, there's been a further reduction. So there's been another, say, 80 basis points reduction in the yield curve. We no longer have the large bond position taking the CSM. And so we are both immune as from large movement up or down in the yield curve. So for the remainder of the year, there won't be material movements at least from a level of the yield curve perspective.

Great. Sorry, Abigail, just to clarify, you gave me the living annuity sales higher 20% year -- higher than last year, but the guaranteed annuities relative to last year?

My apologies. The guaranteed relative to last year, Michael, I just want to look for that number. I'll give it to you just now.

Our next question comes from Warwick Bam of RMB Morgan Stanley.

Maybe just to follow-up on Michael's question really just in terms of the investment variances as we move to the full year. I didn't fully understand you there lots just in terms of as we move into the fourth quarter. I think last year, a lot of the bond yield contraction happened in the first 9 months, and there was very limited contraction in the last quarter. So given what we've seen to date, maybe just clarify whether we should see a better full year comparative or slightly sort of softer base as we move to the full year. I just wasn't clear. Obviously, the equity markets similar dynamic. Fourth quarter was quite soft last year. So far, this fourth quarter looks quite robust. And then second question, just in terms of RoGEV commentary, is there anything -- you don't talk about it in the update, but is there anything for us to consider in relation to RoGEV in terms of what you've experienced in the 9 months relative to the first half? Is there anything noteworthy that's changed relative to the first half?

So, Warwick, you are right. I think just maybe to clarify the point is last year, September was actually a low point in the year from a yield perspective in the long end. AR 2048 was 10.66% at that point and it started climbing up another, say, 30, 40 basis points to the end of the year. So the yield actually went up in the last quarter last year, which is a different dynamic that you're seeing now where the yield has gone further down in the quarter to date. So from a comparative perspective, it's important to bear in mind that we're not carrying the same position that we had last year. So from a base perspective, we expect that there won't be further movements from a -- if yields move, we're not carrying that exposure anymore. So we should be able to -- on a comparative basis, given that the yield curve movements were muted in the last quarter of last year, we should be able to see good quarter-on-quarter performance if the yields stay where they are, barring the impact that I referred to earlier about what is happening in the tail of the yield curve. So I hope that gives you further clarification. But if not, please let me know. Then on the next question around RoGEV. So I mean you've seen this year, the equity markets are up close to 30% in South Africa, and we've seen a general reduction in yields across all our various markets. And also, we've looked at what has happened to RoGEV over the 9 months and particularly the third quarter because we reported the first half of the year. There isn't anything material that is of concern for us from a RoGEV perspective. We expect that the RoGEV performance is in line with what we saw in the first half of the year, and we anticipate that will be in line for the remainder of the year. So nothing is concerning on the operational side from a RoGEV performance perspective. And of course, the market is what you see what is happening with equity markets and interest rates and FX.

The next question comes from Marius Strydom of ALG.

I have 3 questions. I think the most pressing one for me is why did your discretionary capital reduce so much over the period, considering the very strong performance in many areas. The second one is the very strong performance, net client cash flows, et cetera, new business on the investment management side, how much of that is related to the Ninety One transaction? In other words, the benefits will be coming through your equity accounting in the future versus for your own account? And the third question is, did your Pan-African P&C business make a loss in the third quarter?

Marius, thank you for your questions. Maybe first to address your discretionary capital. So we had a decrease from about ZAR 9.2 billion that we reported end of June to about ZAR 8.6 billion at 30 September. The majority of that amount was used in our Pan-Africa portfolio to support our [SAZ Re] businesses, credit rating. They go through a process with the credit agents, the rating agents. So we were inputting or putting in support there so that we strengthen their basis for capital rating for regulatory solvency requirement purposes as well. That was about ZAR 500 million of that move. Then on the net client cash flow, maybe first, just to confirm that obviously, with the transaction in regulatory approval processes still and not yet effective, all of the cash flows that we received were obviously within -- totally within the Sanlam stable, not necessarily Ninety One stable. I think one would think that with the transaction happening at the same time, you're likely going to have some disruption and not necessarily secure the same levels of cash flows, but we managed to secure the same levels of cash flows. In terms of how much of it is going to be below the line or within just Ninety One, we haven't shared those numbers publicly, but we should hopefully be able to start sharing them once the transaction is approved and effective. Then I think that was the 2 questions. I did want to get back to Michael before I forget your question on the guarantee. Yes, Marius?

My second question was whether the Pan-African P&C business was loss-making in the third quarter.

Yes. Sorry, I apologize, I forgot that. The Pan-Africa business, the General Insurance business was not loss-making in the third quarter. There was a slowdown in some of its profits. But if you look at -- and I'm not sure the numbers that you're looking at, but if you look at the normalized basis, it's actually, it was -- it performed quite solidly. I think we must just remember that on an actual basis, you do have the dilution because of the SanlamAllianz increase in their shareholding as well as the folding in of the Namibia business into the JV. But no, they did not make losses in the third quarter. And then Michael, the guaranteed annuities, I did check those numbers. So year-on-year, it was circa [indiscernible] down. And then quarter-on-quarter, it was circa 20%.

Our next question comes from [ Zaid Laqwi ] of HSBC.

This is Faizan Lakhani from HSBC. I just wanted to follow up on a few of the questions that have already been answered. One was on the VNB growth in the 9 months versus H1. So I can see VNB growth in South Africa was down minus 10% normalized year-on-year versus H1, down minus 9%. If I've understood correctly, your comments suggest that you've seen a bit of bounce back in life annuities and even guaranteed annuities. Could you explain why that VNB growth is down on a 9-month versus H1? And secondly, sort of on the interest rate moves, I understand that it's fairly neutral to the P&L. But in terms of volume growth, if interest rates stay where they are, what happens to your view in terms of guaranteed annuity sales for Q4?

Thank you. So in terms of the VNB, we did talk about obviously the impact of the fact that structurally, your Assupol business relative to the former Capitec business, you do see the structural shift in that the Assupol business VNB is higher earnings generator, but lower VNB generation. And then in terms of the overall trend of the VNB, we did see that in the retail mass business, there was a decline primarily due to lower sales in the group business segment and a bit of weaker agency sales in the individual life business. And then on the retail affluent business, we saw a decrease in the VNB, mainly driven by, again, the shift in the sales mix at Glacier, where we saw a change in the sales mix from life to living annuities. And this was further impacted by less profitable annuities pricing compared to prior year. Obviously, I think it's reflective of the competitive market that we are operating in. Then from a corporate segment, it was actually the opposite. We saw an offset in that the VNB increased slightly, supported by favorable change in the product mix as well. So those were the main drivers in the decrease for VNB in South Africa. What was your second question?

Sorry, just with that one, was that a Q3 phenomenon? Or are you talking about a 9-month phenomenon?

I'm talking about what you call the slowdown from June to -- from June to September.

Okay. Perfect. And sorry, my second question was if interest rates stay where they are, what's your outlook for guaranteed annuity sales for Q4?

Thanks for that question. So the outlook, there is clearly a correlation between the level of long bond yields and the volumes of life annuities. The slowdown in annuities, you may recall that if you look at last year as a big, the first half of the year was strong annuity volumes and the second half, that's when the slowdown occurred. So what we've seen in the first half of the year, if you look at year-on-year, actually, there's quarter-to-date drop as Abigail indicated, has been slightly better than it was in the first half of the year. So when you look at the outlook, if yields continue to drop, I mean we see now the 2048 is about 9.5% at some point during the day today. So if they stay where they are, that phenomenon where in terms of the mix, therefore there will be slightly lower volumes on the life annuities compared to living annuities. We will expect that phenomenon to play out. And that means that if yields stay where they are, you should be able to see some pressure still on the life annuities. But equally, when we are able to generate good volumes on the living annuity side, particularly given what has been happening to equity markets being up 31% year-to-date, looking at like what happened in the industry, for example. So the pressure on the volumes on the life annuity side will be expected to remain if the yields remain at the current levels or fall even further. And at the same time, equity markets remain very strong. But we are able to provide compelling product propositions for both classes of products. So we expect the fundament to play out as we've observed in the past in so far as correlation is concerned between yields and volumes.

[Operator Instructions] Our next question comes from Francois Du Toit of Anchor Stockbrokers.

Can you hear me?

Yes, we can hear you.

Yes. We can.