SANLAM: A Rock for People During Difficult Times

“The funny thing is, as much as people say ‘it must be a terrible time to be in the insurance industry’, if you think about it, that’s why we’re here,” smiles Sanlam CEO Paul Hanratty, reminiscing on the tempestuous year of 2020 and the ongoing fallout in 2021.

A global pandemic; death, illness, fear, joblessness and uncertainty – Covid-19 ruined life for many. In March 2020, South Africa sank into lockdown, yet to emerge fully. Then, in July 2021, riots and looting across major metros destroyed businesses as the country realised negativity that required military intervention.

But at JSE-listed Sanlam – a diversified financial services group headquartered in SA, operating across various global markets – more than a century of experience has helped the company to provide calm and reassurance for clients in perhaps one of the country’s toughest years.

“These are the times we’re here for,” says Hanratty. “I’ve been in this industry for more than 35 years and there’s so many things that have happened. They come along every few years and you think ‘I never would have imagined that’, but you find a way through and, ultimately, that’s why we’re all there. There’s also why we have capital requirements and why regulators worry about who is well capitalised and who isn’t, and I must say that is the beauty of being in a place like Sanlam. The company is so well run and it’s so well capitalised that you feel you can be a rock for people.”

Interim results for the six months ending 30 June 2021 saw company performance boom. Paying out mortality claims of R8 billion in South Africa and R2 billion across the rest of its operations in the first six months of 2021, alongside sizeable pay-outs for contingent business interruption claims, Sanlam still recorded growth in operating profits, exceptional growth in the value of new business (94% higher than in 2020), and substantial growth in new business volumes (12% higher than 2020, with life insurance premiums up over 50%).

This, in a time where Sanlam, like most, was wading through confusion and doubt – it’s proof of a sound business.

“With Covid, we had to adapt very quickly. Getting people to work from home was pretty easy. We got our IT configured and we got people set up super quickly. It’s probably impacted our service a little bit but nothing really dramatic.

“I think the biggest issue for us in the early stages last year of lockdown was how do our salespeople and our financial advisors get to see customers? That became impossible and in certain segments of the market, people adapted very quickly to using FaceTime, Zoom and Teams. But in the middle and lower-middle part of our market it had a very big impact on sales and the ability for financial advisors to see people – that was probably the single biggest operational challenge,” says Hanratty.

DOUBLE BLOW

All of the large professional services firms highlighted the issues that insurers had to navigate. Deloitte said: “Claims costs will likely be specific to the class of business an insurer writes and their policy wording. However, the bigger picture concern is how the outbreak might affect the economic environment – specifically, prospects for growth and profitability in insurers’ underwriting and investment portfolios.”

KPMG highlighted the technological challenges, saying: “A further challenge for insurers is to respond to the increased risk of protecting the confidentiality of business information. In order to mitigate this risk, it is essential to have a forensics and IT team work closely in developing and implementing strict remote connectivity protocols and monitoring these controls for any unexpected or unusual activity.

McKinsey & Company talked about the length of the problem to come: “The pandemic’s negative impact on the insurance-premium pool is expected to be roughly double that of the 2008–09 recession—and the sector will take twice as long to bounce back.”

PwC found that the big businesses managed to deliver good performance. “Despite the challenging macroeconomic uncertainty, the major insurers remained resilient and delivered credible financial results.”

S&P also spoke of the small rays of hope, stating: “The South African Insurance Sector is bruised but not beaten by the pandemic.”

But, unlike other global economies, South Africa was dealt a debilitating combo when unrest began smashing a nervous investment climate.

 “It was very unfortunate timing because the economy was just beginning to show some real green shoots and, in fact, almost every business associate I spoke to, in whatever industry they’re in was quite positive, saying things are going much better than they thought. They were seeing better day-by-day, month-by-month, quarter-by-quarter performance than we all anticipated, so things were definitely going better, consumer confidence was up and business confidence was rising,” says Hanratty.

Sanlam-owned Santam warned in July that the looting could impact the cost of insurance in the long-term thanks to a surge in new claims on top of the billions already paid out in relation to Covid and lockdown.

“There is no question that it will have negative impacts for some time,” confirms Hanratty. “Our economists did some calculations and we expect that it will take something like 0.3% off the GDP growth for the current year. That might sound small but it is a big deal when you’re recovering from a low base. It was definitely a setback.”

Even with this further setback, Sanlam continues to support initiatives that will drive the country’s economic development, allowing the business community to thrive. The company is heavily involved in initiatives that will continue to improve on efficacy and volume in the vaccine rollout. It has also committed to assisting Sasria, South Africa’s state insurer that covers civil commotion, in the process when it comes to processing claims resulting from the unrest in a timely manner so that business can rebuild.

Paul Hanratty is confident about the future and says that recent times have forced people to reshape their relationship with insurance.

“I think people are taking things a lot more seriously and they’re able to take them more seriously because they’re not spending money on travel, entertainment and restaurants etc. I think there has been a shift – definitely a shift in spending patterns and in people’s demand for financial security.

“We’ve had very strong new business so, ironically, we thought things would be very tough with economies contracting but actually people’s savings rates have gone up very strongly. So, while a lot of people have lost their jobs, those who still have jobs and their businesses are still running, they were saving a lot because they were not spending on other things.

Demand has been heightened because suddenly everybody knows people who are getting really sick or people who have either died or have come close to dying, so it brought that home and it’s of course made people even more aware about funding for retirement and so on because they’ve seen the fragility,” he says.

“I guess people are adapting to the new reality and this is the weird world we live in,” he adds.

ACQUIRING GROWTH

Despite all challenges, Sanlam has pushed for growth and continued with a strategy of acquisition, diversifying its geographic reach and creating a pan-African brand that is respected and powerful.

In June 2020, Sanlam took full ownership of FBN Insurance in Nigeria, strengthening presence in this important market. Sanlam stated that it viewed Nigeria as a key market on the continent.

August 2020 saw the company team with African Rainbow Capital Financial Services to build a black-empowered asset management business. Upon completion and regulatory approval, ARC FS took approximately 25% economic interest in Sanlam’s South African third-party asset management business other than the investment management business conducted by Sanlam Private Wealth Proprietary Limited and the Sanlam Specialised Finance division.

This is a milestone transaction for Sanlam and opens new avenues for growth, improving competitiveness and further entrenching transformation as part of the group strategy. Patrice Motsepe, founder and chairman of Ubuntu-Botho Investments said: “ARC Financial Services through its parent company Ubuntu-Botho Investments (UBI) has been Sanlam’s partner for more than 15 years. Over this period, both partners have created significant value for their respective shareholders, as well as for thousands of other stakeholders. The partners benefitted as a result of their respective value add and contributions to the consistent growth achieved in their respective businesses.

“With the latest transaction, I am of the firm belief that it will enhance Sanlam’s business as a serious contender in this highly competitive asset management space. As before, UBI via ARC FS will competitively position and support Sanlam management to seize growth opportunities – to the benefit of both Sanlam and Ubuntu-Botho Investments stakeholders.”

Hanratty agreed, highlighting the BBBEE accreditation that comes with the transaction. “In South Africa, your empowerment credentials are a competitive factor in certain parts of the market and particularly for institutional asset management. If you’re talking to a pension fund, you have to know about the empowerment levels of the provider. By doing this deal, we’ve managed to put that business into a black-owned asset manager and that gives it some added competitive advantage. Obviously, you need to be a good business and have good investment performance and good investment processes and products, but it adds a string to our bow, and we’ve indeed seen some good flows into that business post deal completion. It’s a coming together of what’s in our business interest, while also helping to promote the idea of moving wealth into black hands.”

Another important transaction was completed in 2018 is now seeing the Sanlam brand grow further. SAHAM Finances was acquired to bolster property and casualty insurance portfolio in Africa, outside of South Africa. SAHAM Finances was rebranded as Sanlam Pan Africa (SPA) General Insurance and is based in Casablanca.

“We’ve got a very good listed business in Morocco and we’ve got local shareholders. There was one big shareholder and he approached us because he wanted to elevate his investment from the Moroccan level to the group level. For us, it was an opportunity to increase our exposure to what we think is a good business while keeping him in as an investor at group level,” says Hanratty, highlighting Sanlam’s commitment and confidence in the transaction.

Sanlam waited to undertake the rebranding exercise so that the SAHAM business could be connected to the Sanlam culture and there was no chance of damaging any valuable client relationships.

“Our general insurance across Africa has been really good in 2020 and again we’re seeing continued good performance in 2021, whereas 2018 and 2019 were relatively weak years in the history that business,” details Hanratty. “We’re very pleased that we’ve had good performance, and a lot of people said maybe we had a good year because of lockdown and people couldn’t drive cars so I have to point out we don’t only do car insurance. We wanted to see how this year would be and again we’re seeing great performance, so we’ve rebranded most of our businesses to Sanlam. People asked why we didn’t do this straight away. When you buy a business, you should introduce a new brand gradually. We’ve got to do these things carefully, so we wanted to test whether the Sanlam brand would work. We’ve got a new promise and execution so it was about timing and getting things to coincide at a sensible time. We tested the market and we think the Sanlam brand will be well accepted, and so we’re effectively rolling out our new brand promise with the rebranding of our businesses across the continent, and I think it’ll go well.”

The new brand promise is all about providing financial confidence for everyone on the continent. Sanlam is committed to this promise and wants clients to be prepared the challenges life can bring, helping them to open doors and unlock dreams. By continuing to establish itself on the continent, delivery of this promise becomes more realistic. 

“We will continue to consider opportunities that support our strategy across the continent,” confirms Hanratty. “People ask us why we don’t do greenfield projects but that’s actually very difficult and our philosophy is to partner with local people. It’s much easier to buy an existing business with local partners, local management; and then we try and bring something to the party in the way of technical skills, capital etc to enhance it, but not to change it fundamentally. We think that the future of the continent is bright and good for our industry so we will do it over time as opportunities present themselves. We’re always looking at things. Because times are tough, there are likely to be opportunities.”

THOROUGH ESG

In Sanlam’s 2020 governance report, a key focus area for the financial year was incorporating Environmental, Social and Governance (ESG) principles into risk management, asset management, and investing. In the past 18 months, interest and action around ESG has skyrocketed as those with money look to ensure their spend is ethical, moral and efficient. As a diversified financial services provider with global exposure, Sanlam has a responsibility to champion ESG principles for its clients, and Hanratty claims that the company is now giving this area more attention.

“For our investment activities, particularly with institutional clients, ESG is now a very big focus area. We’ve partnered with Robeco and we are rolling very thorough ESG into all of our investment processes. We’ll be able to say to every single client ‘in your portfolio, this is kind of the contribution, positive or negative, that you’re making on this front’. It’s not a black and white thing. It’s a question of whether people are exercising judgment and weighing things up – that’s what is required. I think everyone at every level has to do better and for us it’s no different.

“If you want people to buy your shares in your company, your company itself now has to have a very strong ESG track record,” he adds. “It really is the ES and G – it’s all three. It’s an area that we are very conscious of because when foreign shareholders come looking for stocks on the JSE, Sanlam is a bellwether and it’s the single biggest stock in our sector so we must have good credentials.”

The UN’s Principles for Responsible Investment (PRI) details six elements that must be considered to ensure a more sustainable global financial system. All surround incorporating ESG into decision and policy making within organisations. At Sanlam, this is happening and helping the business to achieve its purpose of empowering generations to be financially confident, secure and prosperous.

“If you look at insurance penetration rates in South Africa, they are actually some of the highest in the world,” says Hanratty.

“Our focus will remain on consistently serving our customers, executing our strategy, maintaining the welfare of our employees, maintaining an extremely strong financial position and driving value creation from the diverse operations of the Group, to continue delivering value to our stakeholders despite the challenging operating environment,” he concludes.

Certainly, now is a time when quality, appropriate insurance and financial confidence has been in demand – rightly so. And even some of the biggest have struggled to deliver when it is needed most. Fortunately, Sanlam continues to stand strong, providing that shoulder to lean on, and working hard to produce fantastic results to the delight of clients and shareholders. Right now, you can confidently and wholeheartedly trust Sanlam.