Sanlam Limited (SLM) Earnings Call Transcript & Summary

Good afternoon, and welcome, everyone, joining us for Sanlam's interim results presentation for the 6 months ended [indiscernible] 30 June 2026. My name is Tokelo Mulaudzi, Head of Investor Relations here at Sanlam. I will serve as MC for today's presentation and facilitate the discussion with our Chief Executive Officer, Paul Hanratty; and our Group FD, Abigail Mukhuba. They are joined by members of the Group Executive Committee, who will be available during the Q&A session. Before we begin, a few housekeeping points. Today's presentation will be followed by a Q&A session [Operator Instructions]. The presentation, slides and interim announcements released today are available on Sanlam's Investor Relations website. With that, it is my pleasure to hand over to our Group CEO, Paul Hanratty.

Tokelo, thank you very much, and good afternoon, ladies and gentlemen, and welcome to the presentation of Sanlam's 2026 Annual Interim Results. As Tokelo said, we're joined today by Abigail Mukhuba and Makhenkodwa Mahlangeni, our Chief Actuary. I'll take us through an overview of the 6 months and our strategy, and then Abigail will cover our new reporting framework, our financial results, the business performance in a little bit more detail as well as our priorities and some guidance for the balance of the year. This 2026 first half has been characterized by the impacts of the U.S.-Iran war and its effect on energy prices, inflation and the consumers' cost of living. Global markets have held up during the first half of 2026, although recently, we're seeing markets reacting to government debt levels, ongoing elevated energy prices and fluctuating views on the investment into the broader AI infrastructure. Despite consumers feeling considerable pressure across our markets, our new business flows and net client cash flows have been extremely robust, and this helps with our future profit growth. South Africa, East Africa and Morocco were all subject to abnormally high claims from severe weather events, and this has put the current year earnings under pressure. Strong earnings growth from our life insurance, asset management and credit lines have meant that excluding weather claims and in the general insurance line, some setbacks, the group earnings were in line with our expectations, even after allowing for the loss of the Bonitas contract at AfroCentric and poor earnings out of Malaysia as a result of elevated medical expense insurance claims. The loss of the Bonitas contract will impact second half earnings more than in the first half. The group has also been working extremely hard to improve the efficient use of cash generated in operations. And as a result, the cash conversion during the current year will improve over that in the previous year. This is extremely important as it shields our dividend from the shorter-term earnings impacts that I've just referred to. The first half of 2026 has seen us make excellent strategic progress. In particular, we're delighted with the reshaping of our Indian portfolio and the new partnership with Ninety One in active Asset Management, both sets of transactions having fully completed in the first half of 2026. Both of these transactions set us up for improved growth and performance going forward. Despite the short-term earnings pressure, we've seen a strong value creation in the first half of 2026. Profitable new business, excellent operating experience and uplift in the value of the group from increased value of Shriram Finance stake and our asset management businesses have driven a strong return on group equity value on an adjusted basis. Core earnings grew by just 1% in the first half of 2026 on a comparable basis, eliminating the effects of the stronger rand and changes in corporate structure. We estimate that the true sustainable underlying earnings growth was around 7%, but the weather-related and other abnormal large claims in the general insurance operations in Africa eroded earnings by around 8% and the group stepped up investment in organic growth initiatives that eroded earnings by a further 3%. Changes to the way we are hedging our risk-adjusted nonfinancial risk liabilities improved earnings by about 5% -- and while this will also impact positively in the second half of 2026, these changes to the hedging of the RANFR will not impact earnings materially in subsequent years, although, of course, the whole purpose of it is to reduce the volatility of investment variances going forward. Return on equity on an adjusted basis was 18.4%, and we do expect to be able to lift this by 2030 to above our 20% target as our earnings grow and the cash efficiency in our business improves. The adjusted return on group equity value was 15.5% on an annualized basis, reflecting, as I explained, the strong operational performance of the businesses and the positive impact of strategic initiatives in India and Asset Management. The return on group equity value was dampened by the write-off of the investments -- of the group's investment in AfroCentric and the impairment to the value of the Malaysian business. Group solvency and discretionary capital both remain sound. Despite the tough macro conditions for consumers, in total, new business was 22% up and net client cash flow was ZAR 78 billion, representing a very strong increase in the group's assets under management. We saw decent life insurance growth in South Africa and India with strong growth from the Sanlam Allianz business across the continent. General Insurance also had a good year, but the growth of Sanlam Allianz in the general insurance line remains disappointing, and this is an area for attention going forward. Our asset management business grew strongly and retained assets well despite the shift to the partnership with Ninety One in the active asset management space. In South Africa, we continue to see a shift of life insurance sales to living annuities rather than immediate annuities. And as a result, the value of new business margin was 1.8%. The growth in the living annuity business creates future asset management profits for the group. Turning now to some of the strategic highlights of the half year. India is increasingly becoming an important long-term growth platform for the group. In the first half of 2026, we completed a series of transactions that have strengthened this platform by enhancing its growth trajectory and changing the mix of business within the Shriram ecosystem that Sanlam is exposed to. The introduction of a strong banking partner in the form of MUFG positions the newly capitalized Shriram Finance to strengthen its growth profile by accessing the new vehicle segment of the market, thereby further supporting cross-sell in the insurance businesses. As I said, Sanlam's focus is increasingly on the higher ROE and more cash-generative life insurance, general insurance and capital markets business. And the increased exposure to life in general positions the group well in the fast-growing and underpenetrated Indian insurance market. The continued participation in the broader financial system of Shriram has been strengthened further by increased insurance stakes and the addition of the capital markets business, and it's expected to support future growth in earnings as well as improved capital efficiency and an increase in the overall India return on equity over time. The completion of the transactions of Ninety One in both the U.K. and South Africa has enabled us to focus on being a purely solutions-led wealth and asset manager, positioned to deliver the best possible investment outcomes for our clients throughout our various distribution channels. I'm very pleased to say that we've eliminated the majority of the so-called stranded costs from the business and a combination of focused businesses, a leaner cost structure and very strong flows has created a more valuable business for the group. With the completion of the Morocco in-country merger of Sanlam and Allianz's businesses, the group has finally completed the integration of 2 very large and diverse insurance portfolios across the continent. The operating performance of Sanlam Allianz has been mixed. The life insurance line and asset management line has performed well since inception, but the general insurance line has proved more challenging. Post the integration, we're going to focus hard on driving our businesses with a much greater focus on clients and on operating efficiency. We're delighted that the Sanlam Allianz joint venture has delivered its maiden dividend during 2026. As the structure has matured post the original transaction with Allianz, dividends have worked their way through the corporate structure, and we expect to see dividends now growing steadily over time out of the joint venture. I want to take a moment today just to thank Heinie Werth, in particular, who has been responsible for developing Sanlam's African portfolio over many years and who has led the formation and establishment of the Sanlam Allianz joint venture. Heinie can be very proud about building the leading platform on the continent, and we now have a base to drive growth from for many years to come. Heinie is retiring at the end of 2026, and we have appointed Hennie Nel, previously the Chief Financial Officer at Santam, to succeed Heinie from the 1st of September this year. Santam, as you know, has started to diversify its business into the international markets via the Santam Syndicate 1918, and this has transitioned to a business-as-usual operation following the final approval from Lloyds. The team in London has now been fully capacitated during the first half of 2026, and it has started to write new business. The unusual accounting for Lloyd's syndicates where premiums and profits are only recognized over a longer period, whereas costs are recognized fully upfront in the current year does create a drag on reported group earnings while the syndicate gets to maturity. Turning now to South Africa. Financial services in South Africa are undergoing a profound change, much as in other places in the world. Banks have increasingly entered the insurance market for simple products, requiring limited advice, and we've seen ongoing disintermediation in general insurance personal lines, extensive digital engagement and the growing use of passive investment solutions. Our Indian franchise relies very heavily on an ecosystem approach to servicing its customers across multiple product lines, and we are gradually moving our South African operations to be much more customer-centric. Our partnership with GoTyme has finally had approval to offer banking services to Sanlam clients, and we will extend these in the coming years to offer better value for money to customers and to permit a more integrated approach to financial services, which we are convinced will promote loyalty from our customers. Progress has been slower than we would have liked, but we have established the structures and rolled out a number of branches across the country in anticipation of being -- allowing us to compete in the retail mass market where a combination of digital and physical presence is necessary. We're beginning to train our staff and have started the internal testing of our banking services, and we'll continue to do this for the rest of the year. This will allow us to kick off with confidence early in 2027 as we take our products, systems and processes to our customers. On that note, I'm going to hand over to Abigail and she will take you through the detailed financial results. Abigail, thanks very much.

Thank you, Paul. Good afternoon, everyone. Before turning to the group's financial performance, I want to spend a few minutes on how we're embedding our financial -- our reporting framework, which is being entrenched to provide a clearer, more transparent and more comparable picture of our performance. When we introduced a new earnings framework, we committed to simplifying and evolving our disclosure in line with investor experience. The measure we introduced -- or rather the measures we introduced are critical to answering 3 different but equally important questions, how we are doing and therefore, how we compare, our performance is trending and how sustainable the earnings are in the long term. The framework provides different lenses through which the group's earnings can be assessed more clearly, more comparably and more transparency. We've clarified what each measure shows and how these work together to assess sustainable earnings growth, cash conversion and dividend capacity, returns on capital and value creation through the cycle. IFRS aligned operating profit and dividends remain our anchor for peer comparability, supported obviously by enhanced disclosure on investment returns and performance drivers. Core earnings, the measure we use to manage the business, provides a clearer view of sustainable underlying performance and dividend capacity. The simplest way to think about the 3 earnings measures is operating profit, including investment variances, gives you a basis for comparison with peers. Operating profit before investment variances gives you a view of our performance over time, showing the underlying trend without short-term investment market movements. Core earnings is our sustainable earnings lens. It reflects the underlying earnings performance of the businesses and is the earnings on which we anchor dividend capacity determination. Lastly, adjusted headline earnings includes shareholder investment returns, and it represents the shareholder outcome we have achieved. The targets for operating profit and core earnings are aligned because target setting assumes your expected investment returns. In any reporting period, actual operating profit may differ from core earnings as market returns vary from these assumptions. Core earnings, therefore, provides the clearest reference point for assessing performance against target. It smooths short-term market volatility and reflects the underlying earnings capacity of the business. The evolution of our framework is designed to give you a clearer picture of 3 things: what is operational, what is market-driven and what underpins our dividend capacity. The historical view of net result from financial services is closely aligned with our view of core earnings. The difference now is that we expressly include project expenses in determining core earnings, which was not the case in the past. We have also removed noncash asset mismatch reserves, especially the releases across Pan Africa and India. Operating profit, including investment variances, will, over time, align closely with core earnings, but it is much more volatile and therefore, more difficult to judge progress from year-to-year. I must reiterate that there has been no change in the economics of the business resulting from the change in reporting. And also, there will be ample opportunity to engage with investors on our road shows as well as in the Q&A on the Q&A as well as on the road shows over the next few days. With that, enough of the framework for one afternoon. If we can then turn to the actual financial results. The group created strong value in the first half of '26. We achieved a healthy adjusted return on group equity value, comfortably ahead of our hurdle rate, and the balance sheet remains in good shape with solvency firmly within our target range. New business volumes and net client cash flows were strong with margins intact. So the base of future profits was strengthened in the period. The foundation of growth within the business is in place. And on the back of management's cash generation and remittance focus, we expect to be able to meet our dividend expectations for full year '26. Core earnings, however, came under pressure this period with several factors weighing on the results. I will talk you through these in the next slide. When we look at our businesses, our focus is on sustainable earnings, separating what is specific to this period from underlying earnings generation capacity. On that basis, if we exclude a number of identifiable period-specific items, earnings would have been up 7%. However, several factors weighed on the reported results, a stronger rand, which reduced the contribution from our offshore operations, severe weather events across General Insurance business. Operational underperformance in Sanlam Allianz General Insurance, our South African health business and our noncore operations in Malaysia as well as other deliberate investments in our growth initiatives, a strategic choice we have made to build future earnings capacity. This shows in the near-term losses incurred in credit, banking and rewards investment as well as the investment in diversification of our India distribution and the Syndicate 1918 at Lloyd. The revised approach to asset liability management was undertaken to reduce future volatility in investment variances. This helped reduce some of the drag from the growth initiatives and the general insurance experience. This change is a permanent structural refinement to hedging. We have additional slides in the back of the pack that I won't go through now, but it does give you full reconciliation of earnings for anyone that's interested in the detail. While the weather events and the currency movements were outside management's control, the other factors were within management's control. Management is committed to organic investment as a way to deliver future growth. Areas of weakness in performance are receiving attention. And finally, on top of all this, market movements and strategic project spend weighed on the reported operating profit, which ended at down 7.3%. Looking at performance by line of business also confirms that this pressure is concentrated, not broad-based. Three of our 4 core earnings engines still grew on a comparable basis. General Insurance was the exception where severe weather and large loss events weighed on the results. We also continue to invest in modernizing and improving our client experience systems, and that shows up in the higher corporate expenses and other line. This investment is clearly scoped, governed and tracked and is not representative of unmanaged cost growth, but it's a deliberate choice to build future capability. The earnings pressure is concentrated. General Insurance was impacted by weather and large losses and corporate expenses, on the other hand, reflect deliberate investment for future capability. Let me now turn to the decline in net investment return during the period. The largest single driver was in the Sanlam Allianz business in Pan-Africa, where we saw weaker equity markets, particularly in Morocco, which weighed on returns. The second driver was the unrealized mark-to-market losses on the Ninety One investment following the listed share price decline from levels over ZAR 50 to levels just over ZAR 40 at the end of the reporting period. In India, bond and equity markets were softer, largely on the back of geopolitical tensions in the Middle East. As a reminder, we report our Indian business with a 3-month lag. Partly offsetting all these movements were a number of positives, higher net investment income from stronger interest and dividends across the portfolio, a closed-out rupee hedge position and lower floating rates on funding costs relative to the prior period. These market moves were absorbed by the capital portfolio, while the underlying income streams held up. On this adjusted basis, RoGEV was over 15%, comfortably above our hurdle rate. This is an important outcome because it shows that despite the short-term earnings pressure, the group continued to create real economic value in the first half. The main positive contributors were new business growth, favorable operating experience across the group, the uplift in the SFL valuation and the valuation uplift from the Ninety One transaction. Together, these reinforce the quality of the value created in the period. This was partly offset by the write-downs and weaker non-covered experience in the South African health and credit business, together with pressure in Pan-Africa. Operating experience was positive overall, led by favorable risk experience across the South African Life businesses. This was partly offset by adverse medical claims in Malaysia, which remains an area of active management focus. Persistency remained slightly negative, mainly due to a one-off cleanup of nonpaying policies in the retail mass business. And this was partly offset by stronger experiences in retail affluent, corporate and Pan-Africa. The covered business benefited from healthy working capital and credit spread profits, while noncovered experience was negative, mainly from South African retail credit lending and the Sanlam Investment fund flows. Operating assumption changes were positive overall during this period, supported by contributions from the India credit business as well as Sanlam Investments. These were partly offset by revised Pan-Africa general insurance outlook, adverse South African retail credit assumptions and the health business write-down and modestly negative covered business assumption changes in Malaysia. Santam also contributed positively and it outperformed its return on capital target for the period despite the severe weather claims experienced in the first half. Other earnings were positive, largely driven by the GV uplift on the completion of the Ninety One transaction. Actual RoGEV was lower because of the stronger rand and weaker listed equity prices that we already mentioned. For similar reasons I already described, adjusted return on equity of just over 18% is above our 5-year average performance of just above 17% and is comfortably above our cost of capital. The group is making solid progress towards its longer-term target of 20%. And as the claims experience normalize, the growth in investments begin to deliver returns and cash efficiency improves, we see a credible path to achieving this 20% target. Our solvency remains firmly within target even after the 2025 dividend and the capital that we deployed into growth. We closed the half year at a cover ratio comfortably within our target range, with the position further supported by ZAR 2.4 billion of new subordinated debt that was issued earlier in the year. Discretionary capital reduced from ZAR 8 billion to just over ZAR 2 billion, now back within our target range as well. This is after roughly the ZAR 5 billion that we ring-fenced to increase our interest in the Shriram Life and General Insurance businesses, aligned with our high-growth market positioning ambition. As we previously communicated, the growth vector platforms have largely been built. Our emphasis now shifts to returns, cash conversion and remittance discipline. That is also why the reduction in discretionary capital should not be read as a weakening of the balance sheet. Rather, it reflects the capital being deployed into agreed strategic priorities while the group solvency ratio remains comfortably within the target range. So in short, we have the solvency strength and funding flexibility to keep investing behind the group strategy while maintaining a disciplined balance sheet. As I move into the business performance detail, 6 months can tell you a lot, but not everything should be annualized. So allow me to remind you that our focus is on sustainable underlying earnings, cash generation capacity and separating period-specific items from the underlying earnings base. Our life business was strong -- was a strong contributor to earnings in the period. Core earnings of just below ZAR 5 billion were up on a comparable basis, driven by favorable mortality experience, higher asset fee income, cost efficiencies in South Africa and Pan-Africa, and the RANFR reassessment. New business was up 14% on a comparable basis with net client cash flows up 24%, reflecting generally higher client activity and solid retentions across all regions. If we focus on the quality of the growth, the pressure on VNB was mainly product mix related, particularly market-linked annuities in the South African affluent market with additional pressure from India and Malaysia. India was impacted by regulation changes as we previously advised and the loss of 2 credit life schemes, while escalating medical claims and restricted premium increases continue to put the Malaysia business under pressure. This was partly offset by stronger Retail Mass, corporate and Pan-Africa performance, all contributing strong double-digit growth. Overall client demand remains intact. This line of business earnings growth was further impacted by the headwinds in the health business from the loss of the large contract and subsequent full impairment of the AfroCentric Investment. Looking into the second half, our management focus is clear: to improve product mix in Retail Affluent to improve margins as well as conversion into future fee income and cash. This is in conjunction with repricing and remediation in Malaysia and the rightsizing of the medical schemes administration business in South Africa. At year-end, we committed to reviewing the ALM strategy for the RANFR liability. We have now progressed significantly on that work. We have moved most of the assets backing this liability to fixed rate exposure, materially reducing interest rate sensitivity and improving the stability of operating profit. Post the change, our RANFR interest rate exposure is down by around 60%. Importantly, is that the cash flows and the risk appetite remain unchanged. This is about improving the quality and predictability of reported earnings. If we move to the general insurance business, this is where the pressure on our first half earnings emanated from and it's most visible, though the underlying performance remains strong despite these external pressures. In South Africa, Santam absorbed just below ZAR 700 million of flood and wildfire claims, net of reinsurance, and this was partly offset by ZAR 147 million of general reserve release. Even so, the underwriting margin of this business came in above the midpoint of its target range, supported by favorable attritional claims and disciplined expense management. Santam is also investing deliberately in the Syndicate 1918, which has written just below ZAR 500 million of gross premiums to date and remains on track for full year ZAR 1.3 billion. Pan-Africa GI also deserves a more detailed update. Our main concern is not only the weather impact, obviously, but whether the underwriting discipline and margin recovery are where they need to be. We need to be clear on both the external events and the actions that are under management's control. Weather and large loss events such as flooding in Morocco, cyclone in Madagascar and large losses in Mauritius, totaling just below ZAR 200 million, contributed materially to the underperformance. The result also reflects operational issues in the underwriting discipline, claims management, reinsurance execution and some of the overall controls. Higher prescribed bodily injury claims in Morocco and weaker performance in Ivory Coast added further pressure, taking the net insurance margin down to 9%, which is below the 10% to 15% target range. So the proof points now must be recovering that margin back towards our target range, tighter controls and more consistent cash remittances over the renewal period. There has been real progress. Morocco regulatory integration is complete. Overlapping country integrations are done, and we are pleased that the business has declared its inaugural dividend. The business that remained in the stable after the disposal of the active asset management business to Ninety One, all those businesses are quality operations and have had a stellar performance during this period. Core earnings were up 48% despite transferring just over ZAR 400 billion of assets under management to Ninety One. Net client cash flow increased significantly and new business volumes were also up 29% on a comparable basis. The AUMs closed at around ZAR 1.3 trillion, and this, along with forecast cost efficiencies, lifted the fee income led by our multi-manager and Satrix Index businesses. Pan-Africa, on the other hand, also benefited from strong prior year retail net flows in Kenya and Namibia. Our investment management line of business earnings base is now more focused on solutions, platforms, indexation, alternatives, private wealth and distribution. Any remaining stranded costs are being managed and will be addressed by year-end '26. If we move to the credit and structuring business, it remained resilient on a comparable basis, with India once again our main engine. India's earnings grew 18% on the back of stronger Shriram Finance loan book and improved net interest margin. In Pan-Africa, earnings were weighed down by higher credit write-offs in Southern Africa. A further first half impact was deliberate technology development spend that we put in the South Africa business to support our digital ecosystem through the Sanlam GoTyme credit JV. We expect this business to play an important role in scaling our South African ecosystem strategy, but we're clear that growth must be delivered with appropriate risk discipline. The technology spend is, therefore, a strategic choice to build capability, not evidence of cost slippage. Our focus is disciplined scaling, credit quality, affordability, technology execution and responsible customer acquisition while closely monitoring Southern Africa credit impairments and borrower quality. That covers the financial results and the line of business deep dives. Allow me to now bring this together into the outlook, what gives us confidence, what affected the first half and what management is focused on for the remainder of the year. Our first half was characterized by strong value creation and resilient cash generation despite the earnings pressure from identifiable items. We are proud that new business are up. Net client cash flows are also at ZAR 78 billion. SanlamAllianz has commenced its dividend and cash remittance cycle. All 11 of Pan-Africa regulatory integrations are complete. Santam Syndicate 1918 has gone live. And even with the severe weather storms, Santam continued to declare 10% growth in its interim dividend. Sanlam GoTyme credit JV is up and running. And lastly, that we have received banking approval, which means we are well on our way to offering transactional banking services to our clients through the Sanlam app. Each of the growth engines that are running simultaneously already passed their build gate. For the second half, the management focus is clear: cash conversion, remittances, efficiency and continued disciplined capital allocation. So in summary, underlying growth across our businesses is in place. We don't expect weather-related events of the same severity. We are taking actions to address areas of weaker performance. Cash generation is strong, so the performance in the first half earnings is not expected to affect our dividend capacity. In total, we still expect to meet our guidance for the full year. And that brings us to the end of the formal presentation. Thank you for your time and your continued interest in Sanlam. I'll hand back to Tokelo.

Thank you, Paul and Abigail. We will now open the line for questions. Mlondolozi, will you please join us on stage? I'd just like to go back to housekeeping. [Operator Instructions]. I will start with the questions from the webcast. There are 2 from Baron Nkomo of JPMorgan. He asks, for general insurance in Pan-Africa, please unpack some of the concrete fixes to restore underwriting margin back to the target range. What time line should we expect for recovery? The second question is, to unpack the review and material reduction in RANFR and the resulting increase in CSM.

Okay. Tokelo, thanks very much. Baron, thanks very much for your questions. I think the best person to ask for the second one is Mlondolozi. But on the general insurance line in Pan-Africa, this has clearly been quite a difficult line of business for us for some time. And it is true that we've been quite focused on the integration of businesses. A few things have set us back. One, as you know, we have this model of centralizing everything as far as we can in order to create scale within our SanlamAllianz Re business in Mauritius. And we've been through a very detailed refit of that business. We've had to bring in experts from Munich because that was a business that actually grew very, very quickly over time, but didn't have the underlying systems and control that now has that, and we've moved on to software, the same software that Allianz used to run their reinsurance business. So I think that is in place going forward. So that will help us. One of the things we're doing around underwriting margin is taking a really good hard look at some of the places in which we do business. And we are likely to trim our portfolio quite significantly. So a place like Madagascar would be a good example where we took a very large catastrophe knock for weather events. And if you really look at that, honestly, it's very hard to imagine that you'd ever be able to generate the kind of profits out of a market like that, that would make sense to write that business. So there's a review going on to begin with of the portfolio. The second thing is we're putting a much closer focus now on underwriting standards and driving those hard centrally and actually monitoring them. And I think that with Hennie Nel's appointment as well, we bring someone in who is an expert in the general insurance line. And I do expect that over time to help us to improve. But it's really a question of discipline, focus, eliminating some of the negative areas that we've had, some of the areas of risk that we don't think make good sense in terms of a trade-off. And the other thing that we're going to begin to focus on is where we start getting growth in these businesses as well. So as much as one eliminates areas of loss, you also start having to think about where you grow. Another area that we've identified for rectification is the health line. And I think you're probably aware that for a long time, that has been a drag on underwriting margins. So we're now -- we've tried various things, and now we have to take more severe measures in order to restore a margin in that. So there's a range of actions. I would hope that we'd have a slightly better second half. But if you talk about the time frame for real improvement, I would expect to see very significant improvement in 2027 in that line as some of the actions, management actions begin to take hold. Mlondolozi, do you want to -- I'm not sure how much detail you want to go into on RANFR, but try your best.

Good. Okay. Let me -- thank you, Paul. Good afternoon. Good afternoon, Baron. I won't go into too much detail at this point. I mean, I'll give more detail when we have the one-on-one discussions with Baron. But just to give a picture of what we've done. So there are 2 margins under IFRS 17 that are prudence margins on your liabilities. One is a risk adjustment for bearing nonfinancial risk. The other one is a contractual services margin, which is for the services rendered. At the beginning of the year, we initiated an exercise to review the levels of those margins because they also behave differently in terms of interest rate sensitivity. And as we announced, we are looking at ways to ensure that we have the right level of interest sensitivity on the balance sheet. So what we've done is based on 3 years of experience under IFRS 17, we've reviewed the size of those margins and their levels. So we've reviewed the size of the RANFR, the risk adjustment for bearing nonfinancial risk. And based on the 3 years of experience that we've had and based on some actual analysis, we've rightsized it and we've reduced the size of the RANFR by about ZAR 5.3 billion. What then happens in terms of how it plays out is the CSM increases by some of the reduction in the RANFR. So the CSM increased by ZAR 3.7 billion. And we also took some of the reduction in the RANFR to a reserve that has got a similar release profile like the CSM of another ZAR 800 million. And that relates to the fact that when you make changes to your liability valuations, your adjustment to the CSM has to be done at locked-in rates rather than at market rates. And that net impact of everything that we have done is that the impact on core earnings was of the order of around ZAR 390 million, which takes into account the fact that the RANFR is reduced by about ZAR 5.3 billion. CSM increased by ZAR 3.7 billion. We took some of the reduction in the RANFR to a reserve that behaved in a similar way to the CSM. And then there was just a consequent impact on profit arising from the fact that the release profiles of the RANFR and the CSMs are different. Importantly, what we must point out is that the change that we have implemented, while it might result in a modest impact on operating profit for the current year. For future years, there's no material impact on releases in future years because of the release profile of the CSM as well as the fact that when you add new business, any impact from the release that happened in the current year will be ameliorated. But Veronica can give you more details in the one-on-one sessions. I'll provide that level of detail for now. Thank you.

Thank you, Mlondolozi. I'm going to move on to another rather technical question. Can you please -- this is from Marius Strydom of ALG. He asks, can you please expand a bit on your classification of VIF to NAV in EV and from RA to CSM? The second question is, can you please speak to the lack of core growth in Retail Affluent risk adjustment and CSM and the very modest core growth in Retail Mass? What actions are taking place to avoid a lack of growth translating into weak operating profit growth for these businesses going forward?

I'll take those questions. Just remind me, just -- I think the first one related to the changes that have taken place to the reclassification from VIF to NAV?

Yes.

So when we move to the new reporting framework, under the new reporting framework, we've moved to operating profit. And moving to operating profit, we've ceased the application of the Sanlam-specific shareholder adjustments in terms of arriving at the profit numbers. So you'll recall in the past, we took IFRS operating profit, we applied Sanlam-specific adjustments and then we arrived at net result from financial services. And we have the shareholder fund reserve sitting on the shareholder side of the balance sheet. But for EV purposes, we eliminated those reserves from the shareholder fund side of the balance sheet, and we placed a VIF on them because they were going to emerge as NRFS and we're placing a value on those future profits that will be emerging. With the new reporting framework, those reserves don't get released into operating profit. So to align our embedded value, those reserves now form part of your NAV and they form part of your required capital, and they then have a cost of capital charge aligned to them. But -- so that's what has led to the reclassification. The reserve was sitting on the shareholder fund of the balance sheet before and they were transferred into NRFS, and then you place a VIF on them. In the new world, they sit on the shareholder side of the balance sheet and they form part of the capital that's backing the business and you place a cost of capital on them. On a net basis, there is no change from an embedded value neutral. It's just a classification from which side of the balance sheet they appear in.

And his second question was just to speak to the lack of growth in Retail Affluent RA and CSM and the very modest core growth in Retail Mass. He asked what actions are being taken around that.

So I think if we start with the Retail Affluent, the lack of core growth in Retail Affluent risk adjustment and CSM that will be linked to -- if you look at what the dynamics that are happening in our value of new business, the material impact is on the Retail Affluent segment, particularly the Glacier sub-cluster, where we've had the issue around the changes in mix. So what we are seeing in the lack of core growth would be arising from what we are seeing in the value of new business. Similarly, in the Retail Affluent segment as well, there is also a slight reduction in the value of new business for the risk business. So that would translate into a limited core growth from a CSM and a risk adjustment perspective. So it's just a translation of the dynamics that you are seeing on the VNB side playing out in your stores of value being your CSM and a risk adjustment. If we move to the Retail Mass segment, Retail Mass segment had very good VNB, if you look at our results. So the VNB added quite a lot in terms of the CSM and the risk adjustment. What was a negative on the Retail Mass business was the experience that we had on the persistency side. So that experience on the persistency does then impact your CSM plus risk adjustment, if you look at the margins in totality. So -- because the persistency experience variance does unlock your CSM and then it translates into that. So that's the actions that are being taken on the 2 areas. Firstly, there are actions being taken to improve the margin on the Retail Affluent business, both on the risk business as well as in the Glacier business, including some of the guaranteed business that we write there. And then on the Retail Mass side, there are specific management actions that are being taken to improve persistence in that part of the business, particularly around the distribution channels.

Thank you for that. The next question is from Thapelo Mokonyane at Investec. He asks again about the weather losses in the GI business. He asks how much of the ZAR 728 million weather loss was from South Africa.

Abigail?

It was just over -- I think it was about ZAR 580 million. I just want to check the number.

The majority of it being from South Africa.

South Africa. Yes.

The next question is from Michael Christelis at UBS. He asks what the rationale was for the revaluation of SGI. Are there any liquidity discounts still in these valuations?

Yes. There are still some liquidity discounts in the revaluation of SGI. And I suppose the answer to the first question is what led to the revaluation is what happened is when we increased our stake in that business, we now own 51% stake in that business, which -- and in our valuation framework, we allow for the level of stakes that we own and we apply certain marketability and liquidity discounts arising from that. So we are now in a position where some of those liquidity discounts reduce because we are now in a higher shareholding levels, but there are some still discounts that are remaining in the valuation.

And the weather loss number is ZAR 680 million for South Africa.

Thank you for that, Abigail. Warwick Bam from RMB Morgan Stanley asks, can we expand on the net client cash flow numbers? Which of the group level increases of 42% are organic?

All of them are organic.

Yes, all of them are organic. And Warwick asks the second question. Are you planning to align earnings targets to the core earnings? Or will they remain at operating profit, excluding investment variances?

No. I think Abigail answered that. Yes.

I think I covered that. It's both.

It's the same target for both.

Yes.

And with that, I'll move on to the operator. Operator, please advise if there are any questions on the telephone line.

We have a question from Harry Botha of Bank of America.