Good afternoon, ladies and gentlemen, and welcome again to the second afternoon of our capital markets day here at Sanlam. Yesterday, Heinie Werth and his team from the SanlamAllianz joint venture spent a bit of time sharing their plans and vision and some of the targets for the new joint venture. We heard a little bit about Egypt, Morocco, and the reinsurance business. Today, you have a chance to ask some questions of the panel that are with me here on the stage. You can probe and ask a few more questions that maybe have come to mind around the new joint venture. I also want to mention that we do have Chris Townsend, Executive Director of Allianz and the chairman of the new joint venture, online from Munich. Chris, welcome.
I'm gonna say a few more words in a moment to you, but he is in the office and not at the Allianz Stadium. I'm pleased to say. We will then have an absolutely riveting session on IFRS 17, which I'm sure everybody has been lining themselves up for months and arranging their diaries around. So, we look forward to that session. And we'll also give you an opportunity to be a little bit exposed to some of the more recent transactions in the South African portfolio, and to get a little bit of a better idea about where those fit in and what they mean for the group.
But before we begin, and I hand over to Grant Davids, the Head of Investor Relations, who will orchestrate and manage the session, I wanted to say a very warm welcome, Chris, to you. To thank you very much for you and your team and everybody at Allianz's help in getting us from where we were to where we are today. I also want to thank Oliver Bäte very much as well, who, alongside Chris, has played a pivotal role in making this happen. I think it's fair to say that we really look forward to working with Chris and Oliver and the whole Allianz team. We feel very much at home and aligned around the way we work and we do business together.
Chris, we know that you have a lot, you and your team have a lot to offer us, and we're very happy about the partnership. So thank you for making the time, and I'm sure there will be some questions for you as well, that Grant will direct, and hopefully the technology will work. So with that, Grant, I'm going to hand over to you to begin.
Thanks very much, Paul, and again, thank you to Chris for joining us. I thought it would be a good place to start. Many of the investors in the room and online wouldn't have met or known Chris previously, so I thought it would be a good place for us to start, Chris, maybe just to for you to share briefly your background and history with Allianz, and then we can pick it up from there. Thanks.
Yeah. Okay. Thank you, Grant. Hope you can hear me well, and Paul, thank you for your words. You're very gracious and kind. So, look, as Paul mentioned, I'm one of the executive directors or members of the board of management of Allianz Group. There's nine of us that sit on that, and my responsibilities are around the global insurance business, the reinsurance business, and then all of the commercial business globally. And I look after a lot of the geographies for Allianz, including everything we've got in, or had in, our Africa business.
And what Paul didn't say is that I, when I joined Allianz 3 years ago, on January 1, I actually spent my first Valentine's Day evening in the company with Paul on a WebEx, being introduced to each other, and that was in, on, the 14th of February, 2021. So we've got to know each other, quite well over that period of time. And I've got to say, it's been an amazing journey for us. We're very excited about this, this venture, and it fits perfectly in terms of what we, wanted to do, across Africa.
Thanks very much, Chris. Just following on from that, can you talk a bit about the history of Allianz in Africa, the commitment to the continent, and then also why Allianz chose to partner Sanlam on the continent?
Sure. By all means. So we actually started in Africa over 100 years ago, and we bought some businesses that came with us from the acquisition of AGF, the French organization. So I think our first business was in 1912 on the African continent, and we were predominantly and historically in North and West Africa. We developed those businesses over a period of time, and then we had a review of where we were in 2015, and since then, we totally redoubled our efforts across the continent. So for instance, we bought a business in Morocco, we bought a business in Nigeria, we bought a business in Kenya, we bought a share of Africa Re.
We invested heavily into the Egyptian business, and you can see the results of that from how Ayman presented it yesterday. Then in 2020, we bought the Jubilee business, which is across five countries in East Africa. Then obviously, this culminated in the joint venture we have with Sanlam, which we originally signed back in May of 2022. So this is really for us, you can see, like, a long track record we've had in Africa. We've got, I think, deep experience on the continent, but this was the obvious next step for us in terms of writing really the next chapter of our history in Africa.
Sanlam, we came together, as I said, we started to talk about this, a good period of time ago, but the facilities and benefits of partnering up together and building a business together across Africa are really clear for all. And we. There is just a lot to like about Sanlam. So if I rattle off a few of the things that we found attractive, it starts with the values, and I think Heinie spoke a bit about this yesterday. We really are super aligned across the way we both run our organizations, and the North Star, which guides a lot of the decisions that both our organizations make. So that's point number one. Second is the brand that Sanlam has across Africa.
Deep experience across the continent, a proven track record, depth of capabilities, and then, you know, that track record is really helpful for all of us, obviously. And then what we really like is the leadership. So we've got to know them well over the past couple of years, and with Paul, with Heinie and Robert, we feel super comfortable in terms of the investment and commitment we made. And, Grant, you mentioned investment earlier. You know, other people have looked at us and said, "What, is you two getting out of Africa?" And it's absolutely, totally the opposite of that. You think about what this venture means for us. First of all, we had to buy a stake off the joint venture from Sanlam.
Secondly, we had to put money in, in terms of the Morocco business. There'll be more in terms of the MTO, and then we have a broader ambition in terms of moving up from 40-49 over a period of time. So it's, it's very much a commitment to Africa from Allianz.
Thanks very much, Chris. Paul, if we could come to you. Just following on from what Chris has said, you have been intimately involved in the discussions with Allianz from quite early in the process. How do you see the alignment of cultures between the two organizations, and from your perspective, why you believe that Allianz is the right partner for Sanlam?
Yeah, so, Grant, I think, you know, cultures are very difficult things to talk about and to articulate clearly. But I suppose for me, you know, when we look at Allianz and get a steer on the culture there, it's really people like Chris, Oliver, Renata, that we've worked with, and then people like Delphine, Amon, and so on, that we've met over time. And I can say, you know, unreservedly that, you know, we feel that they have a very similar approach to business. I mean, everybody knows that we're not racehorses at Sanlam. We tend to be steady, very prudent, quite risk-averse. And I hope those are not negative labels to attach to Allianz.
But we found some of the same, you know, commitment and prudence and steadfastness, and a deep commitment to the continent. So when we set out, we felt that in order to really build a franchise across the continent, we would have to literally partner up with someone with a portfolio of businesses. Because to do a build, business by business, I mean, Chris has described, you know, the long and arduous path taken on the Allianz side to do that. It's very time-consuming, and it's a long, hard road. But when you choose somebody to partner with, you want somebody that you feel is going to be able to approach decisions and so on in a way that is consistent with how you'll tackle it.
So their values is one thing, but their commitment and feeling for the continent is another. And, I think not everybody in the world is a massive fan of Africa. I think that's fair to say. But what I can say is that in Oliver and in Chris, we have people who, you know, genuinely do believe in the future of our continent and can see the opportunity and see that this is not a 1 or 2-year shot, but it's a 20- to 50-year program we're on. And, you know, I said to Heinie at the start of all of this, because I think it's sort of common cause that Heinie and I are not the youngest people, and we had some jokes being made about us yesterday.
You know, for us, it's about how do we set the path, you know, for the future? And we see in Allianz the absolutely perfect partner, and who can make a deep commitment, because that's what it takes to get this thing done.
Thanks, Paul. We did have a little bit of time for questions after Heini's presentation yesterday. So I do want to just remind everyone, we will be taking questions from the audience here, and if there are any questions from the webcast, please do post those questions, I will be picking them up on the tablet here. Heinie, if I could just pick up from where you left off yesterday in your presentation. You laid out your priorities yesterday, and you spoke quite a bit about the areas that you would want to strengthen the portfolio in. How do you see M&A playing out in the areas that you identified, or the gaps that you identified? Would it... Is that a priority in the shorter term?
Would it be opportunistic, or are there very specific targets that you are focusing on filling those gaps?
Look, I must be careful in this answer, given Paul's reference to age, meaning I don't have a lot of time. So, from that regard, no, the top priority is really to stabilize what we have, to really integrate. I mean, effectively, you can say with the overlap in 11 countries, it's 11 mergers you talk about. I know it's friendly parties, but there are minorities involved, there are regulators involved, there are people involved, staff, so that's going to be a lengthy process. But at the same time, we would like, I want to say sooner than later, start to look at Ghana, Nigeria and Kenya. There are parts of the business where we are not where we want to be.
Having said that, we're not running around at this stage and sending people out to go and look for opportunities, but we are being made aware of opportunities that comes along in the market, and we won't pass them if they make sense for us.
Thanks, Heinie. In some of the discussions I've had after yesterday's presentation with investors, there was just some questions maybe around the dividend rate, 65%-75% that you spoke about. Does this vary from country to country, or how do you get that rate? And why do you believe that it's not too high, given the growth opportunity in the continent?
Yeah, we had that question quite in every meeting, I must say today. So Johannes got quite into it, to answering it, but basically, the long and the short is, and I should have qualified it yesterday. Obviously, there could be, and I think Michael asked me the question afterwards, if there's issues in the country to repatriate Forex, that could impact it. Obviously, we will look at best ways to do it. We see it as short-term hiccups, normally when there's issues with Forex, but that could have an impact, so I should have qualified that. But for the rest, the size of the country, the country's maturity will more determine what level of dividends they can pay. So some of our more mature companies will pay more, some of the more growing companies less, and that 65-75 is the average overall.
As Johannes have said this morning, our indication says that if you retain 20%-30% for organic growth, that will be more than sufficient. We've also said, if there's big deals, like, let's say, or bigger deals like Nigeria, Ghana, or Kenya, then the agreement is we go back to the shareholders. Paul and Chris have referred to, the values are the same. They are quite tight on money, so we have to go ask for money. So we'll go and ask politely, and hopefully we will get the right answers. I'm sure we will, because you can imagine talking about the future strategy was a key part before the formation of the JV, to ensure we are aiming at the same stuff going forward. Chris, we must just come back to your nationality a bit later, but let's leave that for the moment.
We'll come, we'll conclude with that.
Yes, we'll come to that. I just want to check if there's any questions from the room, if anyone has. We do have a question here at the back.
Thanks. Warwick Bam from RMB Morgan Stanley. Just following on the topic of the dividend payout ratio, I guess you mentioned the mature businesses relative to the immature businesses, and there will be a difference in the payout ratio. Which businesses do you currently consider mature?
If we look at, and [audio distortion] part of the portfolio, but we are very confident that it will be part of the portfolio next year. So Namibia is definitely more mature. Botswana, smaller country like Malawi. If you look at Morocco, a very stable payout ratio. So... And then, I have to say, Egypt makes good money, but, yeah, that is where we currently may have a bit of short-term pressure on taking money out.
Another question?
It's Corné from Sal, from Sanlam Investments. I just want to understand, with a lot of the businesses being GI, and Sanlam effectively selling their stake to Allianz, what is Sanlam's input into the Allianz-Sanlam JV? That's my first question, because I think that there would be a lot to add from Sanlam's point of view. I mean, it's one of the best general insurance companies in my view. You know, in at least South Africa, definitely in the world, I think it's stacked very well as well. And then the second question that I have is around the targets that you've put out. Those are Sanlam type targets, ROEV, you know, growing EV, et cetera.
How does that stack up with the type of targets that Allianz would put out, which I would imagine would not be EV focused? Maybe if you could also then bring into account, given that there's a large GI business in this, GI businesses are not normally managed on those type of targets. They would be managed on maximizing ROE, for example.
Yes.
Could you maybe give some color on those? Thanks.
So perhaps I can start on the latter, and when we get to Sanlam's role, I'll speak a bit, little bit about it, but then I'll also ask Paul. So in terms of the KPIs, what you call lastly, Sanlam KPIs. So June 2022, remember, this was a long deal. Was it June? Yeah, June 2022, we had a joint strategy session, and we agreed KPIs between Sanlam and Allianz. And that's - it's a simple example, but that's why you saw yesterday also growth within premium. We at Sanlam have less focus on that. On that request, we also put that in. So the targets are quite aligned, and then internally, we do put... And you can ask Delphine already, she's new, but we do put quite a bit of focus on ROI, on our GI entities as well.
So we try to keep it simple by when we report to the outside world, but internally, it is easier when we communicate to the countries and just talk about return on equity rather than RoGEV, which is not such an easy concept for everybody. So yeah, it was agreed, and you are right, there is other measurements, especially around ROE, that we do, do keep track in the background. The ROE is just sometimes still a bit low, so we have to work on that, so we can't communicate that one too heavily. Now, and then on the first question is, you're right, Sanlam do have a lot of skills, and they are a very good company, but really, there's really good people, and Delphine can elaborate also in SanlamAllianz on both sides, and it's more a case of working with them.
So we've got an agreement with them on larger specialist business deals or where they are looking for, where they get aware of deals in Africa, we will work together, and then the skills will be cross-utilized. Delphine, perhaps you can just... But I mean, that's the whole concept. It's not excluding them, it's working with them, and then they will also get part of the placement of the business that we do in Africa. Paul, I don't know whether you or Delphine?
No, I would agree with you, Heinie, completely. And in fact, although I obviously will agree with you, Corné, that Santam is a fantastic company. I think one of the problems that many South African companies have in Africa is that they assume that you can just do what you do in South Africa and roll it out, and it tends not to work. Whereas we've taken a deliberately different approach, where we partner up with people in country. We have local management teams, and if the Santam guys will tell you, there's actually a hell of a lot they can learn as well from some of our, you know, GI businesses in Africa. And yeah, we're also looking increasingly over time at, you know, moving people around between the businesses.
So that's a, you know, that's a useful way of coordinating things. But as Heinie said, you know, we've now got this agreement where actually on specific pieces of business, we will work together and collaborate. And I think that's where it's really going to make a difference. I think the truth is, you know, can Santam make a massive difference in the motor business in Morocco? The answer is probably not, right, truthfully. At the margin, they may be able to, but market practices and everything are actually so different, that you can't always translate what we do here to a different market.
Maybe I'll add, I'll add a few quickly. It's also important, yes, Sanlam is, Santam is a very strong GI company. The partnership with Santam obviously will continue. The one thing to also keep in mind is that Allianz is coming into this JV with quite a strong GI skills and expertise in the team. Over the past few years, Sanlam Emerging Markets with Sanlam Re has also built up skills on the GI side. When you bring the Allianz team, plus the Sanlam Re team that has built up the skills in the past few years, it makes us quite a strong GI business across Africa. However, we are still working with Santam.
I think one of the first meeting that we had after we closed was with the whole Santam team, to see how is the partnership going to continue going forward. There's a lot of business in Africa that need the capacity. The JV is not always able to provide full capacity, so we will be using Santam quite heavily on those.
Mike, go ahead.
Thanks. Mike Christelis, UBS. The first question is around the Sanlam Re business, where, you know, you talk about underwriting margin 25%. Clearly, you can either make underwriting margin in country or you can make underwriting margin in the reinsurance entity. How do you incentivize local management if they're giving away some of their profits to the reinsurance business? So how does that work? How do you know whether in country you've done a good or a bad job because the reinsurer is making more money?
Look, in the end, we do a bit of back solving and look at where did the business come from, and we reallocate some of the money, profits made by Allianz back, too. So that we know, look, it comes out of that country or that country. So we, we do keep track of that as well. But I think overall, the countries are limited by their capital. Their capital will determine what risk can they take. Their own profits will determine what risk appetite. So we do not try to strip profits or move profits. We really look, what can they, within acceptable risk limits, retain? Remember, we are being watched by minority shareholders, we are being watched by local regulators, who are really strict on transfer pricing and stuff. So you have to show that you are doing arm's length reinsurance.
So there's a lot of disciplines. And then, on that portion that the country retained, they will make a good profit, the same like Elias. If both sides make a good... If the deal is a good deal, both will benefit. But it's really country capital that determine what you can retain.
Do you have a number for how much reinsurance premium Allianz has paid over the last, say, twelve months, that you think you can retain within your reinsurer? A little of the uplifting in GWP for the reinsurer from the Allianz side of the business.
I think Johannes indicated this morning, the indications is about 25% of his current book.
Is that, and that's from January?
From January, Delphine, we will-
Yeah.
Then the last question, maybe, just philosophically. I mean, my understanding is Allianz has never really been much of a partnership model. It's more you like to own, you know, own your businesses, and in the same way, Sanlam's always preferred to be majority shareholders and typically very large majority shareholders, you know, 70+. So what makes you think you can do 50/50 partners? I know it's, maybe it's a difficult question to answer.
That question is aimed at Chris, I suspect.
That should be to Chris and all. But in country, I'd rather say in country, we also had this discussion beforehand, and we've agreed that, look, where it makes business sense, we will bring in minorities. Like Allianz partnered with Jubilee across East Africa, where they've got about 30%-40% minorities. So I would like to think Allianz also look at it pragmatically. Where it really makes sense, you bring in a local partner. But Chris, perhaps you can, why will a 50/50 or 60/40 work for you?
Yes. Yeah. Well, yeah, it is a 60/40 now, we have the intention of making it a 51/49. And we actually have quite a good pedigree of partnering with other companies. We do this very much in India. We've been in India for 20 years as partners. We've built number 2 and the number 5 general insurance and life business there in the country. So it's proven model. So long as we do our diligence right with the partner, it's proven to be a good way for us to proceed, and we're very much of the view that in Africa, we're better together. A lot of my own personal experience has been in Asia, and I saw that the winners in that market are the ones who could get to scale quickly.
With this venture, with the partnership with Sanlam, I think we're multiples of the next player outside South Africa. So that gives us a real edge, and the strength of what we've got together, will, we believe, be a winning combination. We found Sanlam to be pragmatic and realistic in terms of expectations, and I think we're very much of a similar view. And as you know, we've sort of locked arms here for at least 10 years. So this isn't a knee-jerk reaction to something. It's well thought out, well considered, and set for the long term.
As well, from our side, because, Michael, you're right, we tend to have majority shareholdings. And I think it'll be the same as for Allianz. You know, very often you're on the hook from a regulatory point of view, and that's why it's very important to be able to have control and so on. But I think this is a somewhat different situation to owning an individual company. Actually, we're equal partners. The 60/40 or 51/49 doesn't make any difference. We've approached this as equal partners managing, you know, a portfolio of businesses. And clearly, here, we're dealing with... In our case, we're dealing with Allianz that we regard as an extremely blue chip company, with policies and procedures and a regulatory environment that's, you know, sound.
So we don't have some of the same fears that we would have in having a, you know, a local partner in a single business in a country, you know, who may not have the breadth of skills, processes, risk management, regulatory oversight. So I think it is a very different thing, managing a portfolio, which is what we're doing in partnership with somebody who's obviously extremely competent at doing it. And I would hope that they probably feel the same way. Yeah.
We do have some more questions focusing on the GI business that have come through on the webcast. Before we get into them with Delphine, I thought it might also be just a good opportunity for you to do a brief just background introduction on yourself for our investors, just to get a better sense of your experience and history with Allianz.
So of my almost 28-year career in insurance, I've spent almost 20 with Allianz. I was 10 years in the U.S., in the U.S. insurance market as an underwriting expertise, and I joined Allianz 10 years after that in Canada. So ran Canada Underwriting on the P&C side for 2 years, then took over as head of business development and marketing in Canada. And then came to South Africa to run the commercial business of Allianz here. I was in South Africa here for about 8 years, and then joined the Allianz Africa team first as COO and then as CEO, as we were coming into the partnership with Sanlam. So in quick, that's-
Good.
almost 20 years with the group now.
Thanks very much, Delphine. A question from the webcast relating to some of the numbers that we discussed yesterday. We showed ZAR 27 billion of gross written premium for the GI business, and then ZAR 17 billion of net written premium. So this, again, we're talking to the reinsurance and Saham Re, specifically. How much of the gap between the 17 billion, so that ZAR 10 billion gap between the 17 billion and 27 billion, how much of that can be captured by Saham Re over time?
I think one thing that's clear, we share Saham Re's retention plan. So we said right now at 55 up to 60. We don't want to get into a situation where all the GI business is concentrated on Saham Re, because it gives us. It exposes us on the bottom line as well. So it's also important for Saham Re to buy some retrocession in the background, to make sure that we're also protecting the bottom line for Saham Re. So it's important that, you know, over time, maybe another 2, 3, 4% of that ZAR 10 billion, but the idea is not to retain all of it within the GI, because it exposes the portfolio much more.
Thanks, Delphine. Just, we did touch on Santam earlier. Paul, there was a question on that. This one may be following up on that, is that: Where does Santam Re fit into the equation, considering that we have Saham Re?
Yeah. So I think, Santam Re is a completely different business model or animal, I suppose, to Saham Re. So Santam Re is a business that targets business from outside the group and from outside Santam. And it is writing business actually globally, not just in Africa or South Africa. And it tends to participate in the reinsurance of a whole very, very diverse book, and we're often just one tiny sliver of exposures around the world. And it's a business that has been growing quite quickly, and it arises from the demand out there in the market, where people are beginning increasingly to move away from trying to just reinsure with the top sort of ten well-known names in the world.
We are very much in—Santam Re is in that second tier of kind of the 10-50, not the top 10. And so it's really a niche player, but it's completely different. Whereas the Saham Re business that you heard about yesterday is a captive. It's about capturing our own internal reinsurance needs. And in fact, it's just a way-
... of getting to scale, if you like, because that thing, insurance only works when you've got really big, diverse portfolios. And our individual countries in Africa would not be able to get to that scale and size of portfolios. So Sanlam Re is a very clever solution to creating that, but Santam Re is a different business.
Thank you, Paul. The next question on the webcast, I'll direct at both Delphine and Robert. Why do you see the low insurance penetration rates, so life and non-life, as an opportunity when it has not been changed for many years? Is your expectation that it will increase to similar levels as developed markets over time? Robert, do you want to take the life part?
Look, I think... I mean, I answered it this to one of the, in one of the sessions. I think in my mind, or what I tell our businesses or our CEOs out there is if we have 69% market share in the market, and the market is not growing, it's our fault. We're not doing our job properly. In a lot of the other markets, what's been happening is we've been growing by taking market share away from our competitors, which is always the easiest thing to do, because the market is already developed, and you're taking clients away that is already in the net and understands insurance.
But as we get to that point where it's becomes more difficult or impossible to take market share away, I think on the life side, the issue is really the distributing to clients that is not in the traditional way. So an agent for an agent to sell a product, it needs to be a certain ticket size because you have to remunerate the agent. And that cost of distribution, you need to have certain policy sizes to do that. So that precludes that agent from selling to a certain strata of the population. Then there's bank insurance. Everyone is not banked, so that excludes a strata of the population again. What we're experimenting a lot with now is those people that does not have a bank, but they have a money market account.
So that's where the MTN joint venture comes in. That's where a lot of work that we do on the innovation and growth side comes in, trying to get that market segment. So it's banks, it's people that belongs to what we call in South Africa, stokvels. So you have different forms of that across the continent, and adding value to that, to those kind of organizations. The other thing that I think is that people. I don't think it's education necessarily, always that's the issue. People understand the risks that they have. Even if they're poor, they understand if something happens to a family member, they're going to struggle. And they have ways of covering themselves.
It's either through the village all contributing or the family contributing or someone that's offshore has to remit money to contribute to helping the family. Our challenge, I think, is to add value in that chain, to understand that chain and to add efficiencies and do it better than people can do it for themselves. And then I think we'll be successful in growing the markets on the life side.
Thanks, Robert. Delphine.
To add, I'll speak on the overall insurance side. I think in addition to what Robert said, our responsibility as an insurer is to also provide a product that is affordable, a distribution channel that we can access people that have been uninsured before. So that is a responsibility on our side. But also another responsibilities, as we are now SanlamAllianz, the largest insurer in Africa, outside of South Africa, is to make sure that we are also working quite well with the regulators. Heinie was in Abidjan last week, and one of the exciting news that he heard was that the insurance market in Côte d'Ivoire is growing faster than the economy.
His question to the team was, "Well, why?" The reason why is also because there's some regulation that are helping shift the market, and some of our people are part of building, the change with the regulator. So it will be our responsibility across all 27 countries, that we have people that are representing us in front of the regulator, to also make sure that there's, guidelines that are out there to also help build, the market. It's making progress. It's not as fast, but I think it's also our responsibility as a joint venture now to, to help.
Yeah. And I think, Delphine, I mean, people, I think, underestimate the sophistication of some of the regulators in our markets. I mean, there's a lot of sandboxes and experimentation happening, where the regulators create these environments where insurance players can experiment with lesser regulations around small ticket size microinsurance type products. So it's not that nothing's happening. In fact, there's quite a lot happening once you start scratching the surface.
Thanks, Robert and, Delphine. I do just wanna follow on with the introductory team and come to Johannes. Johannes, you are the CEO, CFO of the JV, sorry, Heinie. The CFO of the JV. Could you just give us very briefly some of your background and, VC with Allianz?
Yeah. So, I have a strong background in consulting, and around 12 years ago, I joined Allianz, doing on the first part of my journey with Allianz, a lot of strategy work.... always linked to creating and transforming businesses in Allianz. And with this, I joined the Allianz's global line for assistance and travel insurance. And in this journey, I worked then as a CFO in Asia for our Asian business, but also in Europe. And then I joined around 2 years ago Allianz Africa as a CFO based in Casablanca.
When I review what I have done over the years, I think I'm very good in orchestrating multinational finance organizations, ensuring that we have a strengthened KPI set rolled out, and that we everywhere talk the right and the same language on the finance side, and then leverage this to continuously manage our portfolios, steer the portfolios, and do performance management from the finance perspective.
Any other key priorities that you can touch on from a finance perspective?
So obviously, a finance organization in the start of a joint venture is very heavily involved to make the basics right. Meaning opening balance, having the first quarter, closing year-end, closing right. But what we have then to establish, and that's where my experience comes in, that we have one finance organization for the joint venture. One language on the finance side we talk. We already touched, there are different languages used, so we need to develop on an operational level, our language we wanna use as a joint venture on the finance side, and then use this to steer the business. And I think that's the second topic, where, as a CFO, I will help Heinie to steer, to manage the portfolio, to help him on getting the right KPI, so that we can go in the right direction.
What we also need to do jointly as a management team, and we discussed this today a few times, when it comes to dividend payout, to ensure that we have very minimum slack in the legal structure in our organization, that we can harmonize as fast as possible, also from a finance side, our structure, so that our dividend stream can speed up.
Thanks very much. I'll just go to the webcast now. The next question I'll direct at the CEO of the JV, Heinie. The question is, Sanlam has, SanlamAllianz has top three market positions in 16 of the 25 GI markets and 16 of the 22 life markets. Is the expectation that you can be top three in all of these markets over time? And if this is not achievable, would you expect to exit any of these markets over time that where you are not top three?
Yes, in my view, look, and as we said yesterday, we don't just want to be top three for the sake of it. We want it to be profitable, and we want it to be because clients choose us to do business with us. But I've said it this morning as well, my mind is SanlamAllianz brand is so strong, and we've got really strong shareholders behind us, the A-rated paper from Allianz. There should be really no reason, if I look at any African market, that we should not be a top three player. If we're not a top three player, we will have to make a decision, and we've done it in the past, do we change management? Possibly you change management if one, once or twice.
But you may also come to the conclusion the market may not really be worthwhile or, you know, really big enough to really make a difference over time. So it's a combination, but if you have the right management in the country and then with the backing, I want to say, of SanlamAllianz , Chris will like it. I've said it a few times, I've been a few, few places now, and it was for me, amazing how strong the moment you mention Allianz's name. It's like opening the door a bit further. We were already in, but now they welcome you. So, no, it's a very—it's an amazing, strong brand. I, I never realized it was that strong.
Thanks, Heinie. We'll move to the next question, which I'll direct at Delphine. Focusing on climate change, the question is: Can you discuss your views on climate change, and how it is impacting the business strategy? I suppose we could get a number of people to answer that, but, Delphine, your thoughts?
Climate change is impacting Africa more than the rest of the world, right? We are heating up faster than the rest of the world. Natural catastrophes are more and more present. We had 80 events just in one year. So from us, from the insurance side, I think it's important that we also find a way to support climate change, support the reduction of climate change by investing into renewable energies or whether it's hydropower. We also need to make sure that we have the products to insure the construction of these businesses going forward. Adaptation is a big issue for us in Africa. So it's also important for us to provide products especially for the agricultural sector, for example, who has been affected by floods and droughts, and things like that.
So when we look at Africa, we are impacted quite heavily. We don't always have the infrastructure also to help us reduce CO2 emission, and we don't always have the products to be able to support the construction of these infrastructure projects. And I think this is where this joint venture can come in on SanlamAllianz. At some point, we'll need to stop calling it joint venture. It'll take us a few more weeks for that, but this is where SanlamAllianz comes into the picture.
... Thanks, Delphine. The next question is on another JV, MTN. Heinie, maybe I'll direct that one to you. How important is Sanlam's partnership with MTN going to be for SanlamAllianz, considering MTN's Fintech business in Africa, particularly in tapping the uninsured market?
Look, MTN, as we said in the past, Grant, has got a huge footprint across Africa. I think more than 200 million subscribers, close to 1 million agents, selling airtime. I think more than 60 million mobile money accounts. And what Robert referred to is, how do we get to new clients with smaller premiums, affordability issues, all of that. So it gives us that ability to, in a different way, reach clients that we could possibly not have done before. But at the same time, I have to say, it is new, unproven models. MTN is also still rolling out some of its financial services in different territories, so it's going the path with them. And we'll try different models, but the potential is there. The potential is definitely there. It's finding the model that can make it work.
Thanks. Next question: While stabilizing the JV and managing the overlap is your first priority, where do you see the low-hanging fruit to increase market share or revenues over the next 2-3 years, while concurrently driving the integration? Or would management bandwidth be too constrained by integration efforts?
No. In my mind, they should do. We will do both. We can't take the eye off the ball due to integration. Your competition will start to come into your space, so you have to drive both, but responsibly. I mean, we're also not unrealistic. We've got capacity constraints in countries, but, you have to drive both. And the countries where the opportunities is there, where we don't yet have the same market share.
Yeah.
Um.
Just a question on opportunity and strategy in Nigeria. The comment says that the FBN Nigeria business hasn't really delivered. Robert, maybe you can just touch on that point. But then also, more broadly, just Nigeria and the fact that other companies in Nigeria have generally struggled.
Yeah, I think, Robert... It's largely a life business at this stage. Robert?
I don't know why they say it doesn't, but.
No, it actually delivered very well.
It, I mean, it was a start-up 11 years ago, and it's the number 2 player in the market at the moment. But Nigeria, yeah. I mean, Nigeria is a difficult place to operate in. We went with First Bank of Nigeria in the beginning, and the model was based on bank insurance, and then the regulator outlawed bank insurance the next year. So, we had to change the whole model and adopt it. And we went into a retail business there, and I think it's a very strong retail business at the moment. Well, that's the market where we have most of our agents. But I mean, Nigeria went through elections the beginning of this year.
They were clamping back on trying to change the currency into new notes. You have the devaluation of the currency. You have huge inflation rates, high interest rates. So it's a tough environment to do business in, but we really have a strong team. In my mind, we have the best team in the market there. We recently hired a CEO and went through a whole process, almost interviewed all the CEOs in the market. And I really think we have a very strong management team there. So I'm confident in that business going forward. I see South Africa is going to have a bigger GDP now for a short while.
Short while.
than Nigeria. But there's still... I mean, the insurance penetration there is still extremely low. So... And that's where MTN is extremely strong. I mean, they dominate that market, so there must be opportunities to work together there.
Look, Grant, I would like to add to what Robert says. I really believe Nigeria is one of our success stories, actually, in terms of taking the greenfields and taking it to a group. The country dynamics takes a lot of the value away at the same time, unfortunately.
Heidi, just continuing with you. A question on the future operating model. Is your model going to be moving to common practices and platforms across all markets, or do you see each country as a standalone business with separate operating models?
Look, if you're part of a group, and we've been doing this all the years, and I think the same with Allianz. So we've got certain, or our group authorization framework, which is all our type principles. We roll it out to the countries. So these type of minimum standards, we expect all our businesses to adhere to, and this is because you're part of the larger group and help us on the risk management, achieving our objectives. But then, we always tell the countries, "So that set the boundaries for you. Within that boundaries, you're free to run a proper business." We are not running branches. We want them to use their local knowledge, their local skills, but within this governance framework that the group or standards or practices that you call, because that is, to bring some discipline and consistency.
And then on top of that, yes, we do believe you should standardize as far as possible on systems, but we also say you use, like, 80% standardization. Every country has got unique futures, and you should allow for that. The same if we have to roll out all the governance of Sanlam and Allianz... And now SanlamAllianz, you kill people. So we also take what we call a fit for purpose, which achieve all the minimum standards that a group expect of us, where it's really a smaller business. But we don't try to take literally 40, 50 policies at the same time. But no, so the overarching answer is, yes, there is standards to adhere to, but we entrust local management then to work with that and run proper businesses.
Yeah, and I think, I mean, in terms of the standardization of the platform, I don't think it's just for the sake of it. What we found over the years, and especially again, on the life side, is that you have some businesses who's chosen a very good system that is internationally recognized and that big companies are running off. But because our businesses are generally so relatively small, in the worldwide context, to get support from those suppliers is very difficult. But if you standardize your system and you use the same system across the continent, you suddenly become important to that system vendor. And that's really what we're experiencing, is, we have one or two businesses with different systems to ours, historically.
Very good systems that's used in Europe and in. But they don't get the support because they're just too small, and they're not important enough for that vendor. So there's really a benefit to our businesses also to be on that system in terms of sustainability of the support going forward. And then learning from each other. I mean, something that we've just launched a product in Nigeria from our Ghana business. Now, if you have the same system and the same processes, it's very easy to just teleport that across.
Thanks. I'm just conscious of the time. Before I pose the last question to Chris, I just want to check if there's any further questions from the room here. There are none. Chris, just coming to you before we end the session, and you wanted, I need to touch a bit on the governance. If we look at the makeup of the board, you are the chairman of the board. What is the split of the board between Sanlam and Allianz? Who are the board members, and maybe just touching on the rotation of the chairmanship as well.
Sure. So it's a board of seven. And I think we've got the right sort of balance there in terms of experience, knowledge of Africa and, I guess, heft across both organizations as well. So the split is four, three. So four for Sanlam, three for Allianz. So we have two executives on there, which is Heinie and Johannes. And then, on the Sanlam side, you have Johan van Zyl and Andrew Birrell, who are two non-executive directors of the Sanlam Group, plus yours truly, Mr. Paul Hanratty there, as the group CEO, sits on the board as well. And then on the Allianz side, it's myself and then our own group CEO, Oliver Bäte.
So I think it's a great sign of the commitment that both organizations have to the joint venture, that both group CEOs sit on the board. The board will meet a number of times in Cape Town, a number of times in Munich, and then we'll spend some time in some of the individual more prominent markets as well. We'll work that out. The board will basically execute the risk appetite and the governance framework that Heinie has spoken to, and there's a range of subcommittees that sit underneath the board. Then to your question, in terms of the tenure, Allianz has the chair role for the first two years, and then it will rotate. So it's a two-year rotating chair position. So that's how we're gonna run it.
Thanks very much, Chris. I think that brings us to the end of the session. Paul, do you just wanna make some final closing comments to-
Before we must just hear on a more serious note.
Oh, Heinie, you can't do this.
No, no, but look, we obviously know... For the people who don't know, Chris is from England. Nothing against-
Well, Chris, it's a lot better than being from Australia at the moment.
He's a very concerned man at this stage. He loves rugby, but I... He looks concerned.
Do you want an invitation again to?
No, no. I want to know his predictions of... I want to know his prediction for Saturday. But Chris, you can WhatsApp it to me.
You should have said something about, let the best team win or something, right?
Okay. Okay.
You're a gentleman, Chris. Thanks so much, Chris, and thanks very much for making the time to join us, and yeah.
Yeah. Thanks very much, Paul. That brings us to the end of the session. Thanks very much to all the panelists as well. We will have a... I'll make it a 9-minute break. It was meant to be a 10-minute, so if you could come back just 25 minutes before 3. Thanks very much, Paul.
Cheers.
Thank you.
Bye.
Thank you.
Welcome back, and once again, thanks for joining us. We are into the final two sessions of today. We will kick off with IFRS 17 presentation. I was just chatting to some of the guys outside while everyone was lining up for some coffee. So I hope everyone online has managed to get a double dose of coffee for one of the most interesting sessions, which is our IFRS 17 session. So I'll invite Sanlam's Head of Actuarial Function, Barry Gillmer, to take us through the IFRS presentation, and then we will have a Q&A session. Thanks, Barry.
Thank you, Grant, and good afternoon, everyone. Glad to see you.
Thank you for the IFRS 17 session.
The introduction of IFRS 17 marks a major shift in the financial reporting of insurers. Sanlam published its first IFRS 17 results a month ago, for the first six months of 2023. We'd like to spend the next few minutes unpacking some of the significant questions that the new accounting standards raises. We'll set out four key messages and then go into the... a little bit of detail on each one of those. The first message is that, for Sanlam, group equity value remains the best measure of group value. We'll see that because GEV is based on, discounting cash earnings, there's limited impact from IFRS 17.
Because GEV is based on those discounted cash flows, it also means that it does a better job in IFRS 17 of taking into account when earnings become available for dividend purposes. Unlike IFRS 17, which only applies to insurance contracts, GEV applies to all of Sanlam's operations. The second message is that we don't expect IFRS 17 to impact on our ability to grow earnings. We will look at some of the reasons why CSM and GEV earnings may not be aligned, and we'll see that even for insurance business, the CSM is only one element of the value of in-force, and we'll illustrate the significance of that. The third message is that IFRS 17 is meant to improve comparability between insurers, and in some ways, it certainly does that.
But there are several factors that influence the comparability of CSM metrics. The IFRS 17 transition method used, the mix of business, including the mix by term, the basis chosen by the insurer for releasing the CSM, the risk adjustment, and the interest rate environment. And the fourth message is that, Sanlam has set up several shareholder fund reserves, which we'll describe in a little bit more detail. But it's important to note that the objective of shareholder fund reporting of determining sustainable operating results has remained unchanged. Only some of the mechanics have had to change due to the introduction of the new standard. These shareholder fund reserves support a stable pattern of cash earnings by absorbing short-term market volatility, non-economic mismatches, and some non-cash items. If we live...
Moving along to the impact of IFRS on GEV, the basic message is that GEV continues to be the best method of valuing the cash earnings profile of the group. If one looks at the colored blocks in the middle of the slide, you see the various elements of Sanlam's business. You see that 55% of the GEV is not affected by IFRS 17. In that 55%, we include Santam, although Santam is reporting on an IFRS 17 basis. For GEV purposes, we bring that in at its listed value. With only 45% of it affected, we see that it's essentially in respect of covered business insurance contracts, shareholder fund reserves, which again, we will discuss in a little bit of detail, and the emerging markets GI businesses.
Those shareholder fund reserves were previously in policyholder funds as discretionary margins, but now with the introduction of IFRS 17, have been set up as distinct shareholder fund reserves. What we see from this is that there's a limited impact on GEV and on expected cash earnings. In fact, the only impact worth mentioning is the tax impact on SA Life Insurance business, which amounted to approximately 1% of GEV. That tax impact relates to the fact that on transition, there was a release of liabilities from policyholder funds to shareholder funds, and then taxes payable on that over a period of six years. Also, there is additional tax on the investment returns earned on shareholder funds, which many of which were previously held in untaxed policyholder funds.
Given that this impact is now reflected in our GEV, it's essentially behind us in terms of valuation. If we move along to understanding earnings growth and comparing the CSM and GEV. We can start by looking at the value of in-force of covered business, so essentially business that's written on a long-term insurance license, and seeing the proportion that's in respect of the CSM. First, we see that roughly one-third of our IFRS in respect of investment contracts that are written on a long-term insurance license, but which do not fall under IFRS 17. And of the remaining 67%, only roughly half, or 34% of the total VIF, is in respect of the CSM. The remainder comprised of the risk adjustment, the shareholder fund reserves, and PAA contracts, and some other minor items.
This small proportion of CSM as a total of the total VIF, again, speaks to our preference for GEV over CSM. In the following slide, we'll compare CSM and GEV metrics. But to make them comparable, we need to make some adjustments to the CSM. So we start with the 30 June CSM of ZAR 30.8 billion, and we remove Santam, which, as I mentioned previously, for GEV purposes, is included at its listed value. And then we include the SEM entities, which now form part of the SanlamAllianz transaction. In line with IFRS requirements, at 30 June, these were categorized as held for sale and were therefore excluded from the CSM. So if we add that back, we get to the CSM at 30 June of ZAR 29.9 billion.
Obviously, for the more pragmatic GEV approach, these SanlamAllianz entities were included in GEV. Based on this adjusted CSM, we can now see a build-up of the CSM over the first six months of the year. We see a new business contribution of ZAR 1.3 billion, interest accretion of ZAR 1.2 billion, and a small impact from experience variances and assumption changes of ZAR 0.3 billion. And then finally, the release of ZAR 2.6 billion CSM to get to this adjusted CSM, at the thirtieth of June of ZAR 29.9 billion, a slight increase over the six-month period. One thing you should note is that, in this ZAR 1.2 billion interest accretion, we've included the unwind of interest on the variable fee for VFA business.
This change in CSM is now more comparable to the change in embedded value, embedded value. Here we look at 2022, and the first six months of 2023, and compare the growth in VIF from three primary sources to the growth in our adjusted CSM from comparable sources. We see that the contribution from new business as a percentage of the opening balance is quite similar. So for the value of new business as a percentage of the VIF, 11% for 2022, 5% for the first six months of 2023. Under the CSM metrics, the new business increment to as a percentage of that opening CSM was also 10% and 4% for the two periods. The impact of profit releases is also similar.
The expected transfer of profit to adjusted net worth was 16% and 9% for the two periods, very similar to the release of CSM as a percentage of that opening balance of also 16% and 9%. And so we can see that the difference between the growth in VIF and the growth in CSM is essentially coming from the difference in the unwind of the interest at the risk discount rate and the interest accretion for the CSM. As we see, the unwind of the risk discount rate was 12% and 7% for the period, significantly higher than the interest accretion of 7% and 4%.
Now, of course, there are reasons for this difference, but one thing that's worthwhile to note is that the interest accretion on the CSM is unfortunately based on locked-in interest rates, historical interest rates, rather than current yields. The interest accretion on the CSM is basically determined based on the historical yield curves of interest rates. Given that Sanlam has opted to use a fair value transition basis for much of its business, the interest rates used are taken from the short end of the curve. Given the upward-sloping nature of the curve in recent years, that also means that the rate of interest accretion is expected to increase over the next few years. So, in our view, IFRS 17 has not significantly impacted the VIF growth.
One can see that by comparing the 2022 growth in the VIF to the first six months of this year. So Sanlam continues to focus on growth in GEV earnings. If you consider the comparability of CSM metrics, it can be difficult to reconcile why different insurers support different CSM metrics, such as CSM growth or CSM releases. There are a number of reasons, which we'll go through, why these may differ between insurers. The first is the proportion of business, which is measured at fair value on transition. We see that those fair value cohorts would, at least in a South African environment, generally have lower CSM growth and a higher CSM release. And certainly, that's what we would expect from our fair value tranche for Sanlam.
And given the large proportion of our book, which is valued at a fair value on transition, we can certainly expect this impact to come through. The second factor is the product mix. Certainly for shorter duration business, one expects the CSM to release quicker than for longer duration business. For closed book business, a similar sort of pattern, given the shorter outstanding term of that business. Again, if you look at two of the major product categories sold in South Africa, guaranteed annuities and risk business, one expects a significantly slower release of the CSM from annuity business, given the fact that there aren't lapses and surrenders involved.
And finally, the proportion of business with increasing benefits and coverage units, which we'll look at in a little bit more detail in a few minutes. In terms of Sanlam, if we look at our complete mix of business, we expect this to mean that our CSM release is somewhat accelerated compared to some of our peers. The third factor is the basis for discounting of coverage units. The interest rate that is applied in discounting coverage units has a certain impact, which means that there's a faster CSM release for higher interest rates. And, again, for Sanlam, we certainly think that this could be a reason why our CSM release is accelerated compared to peers. The fourth factor is to do with the risk adjustment.
The calibration of the risk adjustment affects the size of that risk adjustment and directly impacts on the size of the CSM, so the higher the risk adjustment, the lower the CSM. But for Sanlam, we don't expect to be out of line with our peers in terms of our calibration. Finally, the interest rate environment, which we'll look at in a little bit more detail in a few moments. One would see that in a higher interest rate environment, one expects a faster CSM release and a slower CSM runoff. Again, given that Sanlam's businesses typically operate in higher interest rate environments, that's the sort of pattern that we can expect to see from Sanlam.
To illustrate how the mix of business can affect the CSM metrics, here we show the CSM interest accretion and release percentages for Sanlam Life and Savings for a breakup of some broad product types. The top block of figures on the table shows the CSM interest accretion as a percentage of the opening balance, while the bottom block shows the CSM release percentages. We can note a few points from these figures. Firstly, the interest rate accretion and release percentages differ significantly by product. The ringed figures in the slide highlight some products with particularly high CSM release percentages.
So an insurer can report significantly different CSM metrics depending on its mix of business, or if it draws the line between investment business and IFRS 17 business in a different place. Secondly, we can see that, Sanlam's interest accretion and release percentages are currently increasing, due to the locked-in interest rates having an upward slope, which means that we apply a higher interest rate to in-force business in each successive period. That's expected to stabilize as the mix of new business and business in place of transition stabilizes. I won't go into too much detail on this slide, but it illustrates the effect on CSM growth of the interest rate environment. Note that these are not actual figures, these are, illustrative figures of a theoretical book of business.
But what we see is that, for the high interest rate environment, we've used an 11% discount rate to reflect a South Africa type environment. The first scenario shows the situation where we have policy benefits and coverage units that are increasing, and where a similar gap is maintained between those policy increases and discount rates applied to the coverage units. And on the CSM release percentages, you can't actually see that those graphs are very much on top of each other. So in a higher and lower interest rate environment, we expect similar CSM release percentages, but significantly slower releases of runoff of the CSM in a high interest rate environment because of the higher interest accretion that operates in those markets.
The second scenario shows the situation where there's a larger gap in the interest rate environment, for example, due to benefits or coverage units being fixed level policy benefits, which is what we're showing below. Or it's a situation where there are higher real interest rates for increasing benefits and coverage units. And we think that the second scenario is probably close to what we're seeing in the current South African environment. And what we see here is a CSM release percentage that is higher for high interest rate environments, but with the runoff still being slower due to that higher interest accretion, but less so than in the first example.
What this implies is that the CSM metrics will differ between high interest rate environments, such as the markets in which Sanlam operates, and lower interest rate environments, such as the UK and Europe. The fourth key message relates to Sanlam's shareholder fund accounting. For those not familiar with the shareholder fund accounting, what it is is a separate income statement, which is essentially a different presentation of the IFRS information, and essentially represents management's view of the underlying performance from the different businesses. But it's important to note that these principles that we apply in the shareholder fund accounting have not changed, haven't been affected by IFRS 17, but we have had to set up certain shareholder fund reserves and make new shareholder fund adjustments to achieve the same objectives as we have had in the past.
We apply the shareholder fund reporting because Sanlam's dividend policy is supported by sustainable cash earnings. What that means is that in each period, we adjust the earnings for short-term volatility, such as market volatility, non-economic mismatches, and some non-cash impacts, such as the capitalization and amortization of certain projects, and the changes in certain insurance contract assets. What we see is that there are certainly controls in place. For example, making sure that the attributable earnings on the shareholder fund income, income statement is equal to the profit after tax attributable to shareholders in the IFRS income statement, as well as validations that are in place. Recons that take place between the shareholder fund reporting and the IFRS income statement, which enhances disclosure to the market.
Incidentally, the disclosure of movements in specific shareholder fund reserves will be enhanced for year-end reporting to allow for greater transparency. Finally, assurance. Even though the shareholder fund reporting is Sanlam-specific information, it is audited by our external auditors. And this chart shows the split of reserves, shareholder fund reserves, with a total of 30 June being ZAR 12.4 billion. And we see 52% of that total is in respect of asset mismatch reserves, 11% in terms of future project expense reserves that have been set aside, 5% for pandemics, and 32% for other reserves backed by insurance contract assets. For GEV purposes, we don't include the value of these reserves, but we do include VIF related to the expected future releases from some of these reserves.
So for the asset mismatch reserves, we put a VIF on that based on a release pattern of approximately 10% per year. For the Future Fit IFRS project expense reserve, we don't place a value on that, given that we expect to use all of those funds for those projects which have been earmarked. For the pandemic reserve, we essentially assume that that reserve that's set aside will remain constant throughout time. But we do place a value on the investment returns that we expect to earn and release on those underlying assets each year. And then, in terms of the other shareholder fund reserves, we do place the VIF on the backing insurance contract assets. In other words, the negative insurance liabilities under IFRS 17.
So, to conclude, IFRS 17 has had a very limited impact on our GEV metrics, and by definition, it's mostly unchanged, except, except for the small tax impact that we've discussed. Secondly, Sanlam continues to drive the business and manage the business on cash earnings, which are largely unaffected by IFRS 17. Our profits and, the value of our business continues to be driven by new business growth, experience variances, and our impacts from the market. Finally, Sanlam's IFRS 17 implementation does differ from, the broader market in a few key ways. Certainly, we have fewer contracts which are affected by IFRS 17, as a lot of our investment products are still, reported under IFRS 9.
The high interest rate environment in South Africa and Africa certainly affects the CSM release path, as we've seen, compared to international peers. I think I will leave you with that, and at that point, pass back to Grant.
Thanks, Barry. For the Q&A session, we'll invite Patrick Gillmer, the Head of Group Financial Reporting, and then Gert van der Merwe, the Head of Group Risk, back to... And back to be able to help address with some, some of the questions. Let's start in the room, if there are any questions here, and then we will also go online. Go ahead.
Thanks. Thanks, this is very useful. Can you maybe explain or, or tell me if you think that, IFRS 17 and the CSM releases and the, the sort of relevance of interest rate environments, does this change in any way, how the market should think about how the company should react in, in different interest rate environments? I mean, higher for longer, cutting interest rate environment. I know that it won't affect GEV, but it does affect earnings. And does this fundamentally change maybe the sensitivity that the market puts on a stock like Sanlam, relative to interest rate movements?
I think I'll give it a stab, and then my colleagues can add. I guess it depends on the valuation model that you use to value the stock. So as we've actually shown there, the... From a GEV perspective, we don't think that there is such a big impact. There might be a slight change in the run-off patterns. However, what the IFRS 17 does provide us is with an opportunity to actually match our balance sheets better. We have different balance sheets, the SA balance sheet, or our first balance sheet, the EV balance sheet.
Because of the way that the liabilities are now broken up into the various components, it does give us an opportunity to actually match our the different components of the liabilities across all of the balance sheets are more aligned to your best estimate liabilities, and that does give us an opportunity to match even better. So from that sense, we get less. We'll expect less volatility to come through, not directly as a result of IFRS 17, but because of the opportunity that we're taking to implement better ALM. I don't know if anyone wants to add something.
No? Nothing else. Okay. Mike.
Thanks, guys. Mike Christelis. Just two things. So, you're smoothing the fitting in the shareholder fund reserves. Firstly, you talk about cash earnings, but when markets are going down and you've got assets that are going down and you smooth it out, you're actually deviating from what we call cash earnings, right? So, are you not concerned that you actually moving away from cash in a situation of volatile investing markets by smoothing out all these returns?
It depends on the type of business that you're looking at. If you look at risk business, you do need to hold reserves to back that. But the changes in the interest rate environment and in the markets. It really doesn't affect your long-term expected cash profits. So, for a lot of the business, which is profitable, you actually expect, from a business perspective, to run it at zero liabilities and essentially have your premiums less cash, less expenses come out in a particular period. So what's happening with the negative liabilities and from one period to the next, as long as you're properly matched and hedged, shouldn't really be impacting on that long-term view of what we would expect as cash profits from risk business.
Okay, and then the second question, just around EV and GEV reporting. You know, we've already seen one of your local peers stop reporting EV, a year ago. Globally, very few companies have maintained EV reporting. South Africa seems to be the only market which is holding on for dear life. I mean, do you see a world where you can continue to use EV as your key and core metric, in the face of a market that seems to be going the other way?
Perhaps, I mean, it is our key, as we said, the key metrics that we've used to measure the business. Can that change? Obviously, that can be reviewed. However, I think it's important to stress that we actually do report on all of these bases, and we do re-reconcile between all of them. From our perspective, if you just look at the book, the total book, so that's insurance contracts, investment contracts, GI businesses, credit structuring businesses, admin businesses, you need a metric that, you know, one metric that you can use to measure everything on. In a session earlier today, Heinie also mentioned when the question around ROEs came up, you know, why would... Well, aren't we looking at ROEs? We are looking at ROEs for GI businesses.
So it's not a question of, you know, is it—it's the overall metric that we currently using to measure shareholder value creation, and importantly, it links directly to our second most important or second or third most important, or equally important, performance metrics, which is cash, earnings, and dividend growth. So I hope that answers your question.
Okay, thanks.
Any other questions from the room? No other questions from the room. There is one question that has come through on the webcast, which I will read. Many insurance companies have said that the growth in the CSM from year to year is a good proxy for future earnings growth potential. Does a fair value transition approach, where interest accretion for legacy business is modeled off lower short-term rates, mean this CSM earnings growth prediction is not true for Sanlam?
I'll give it a stab then, but I think Barry's last part of Barry's presentation does speak exactly to that. So we're not saying that it's the fair... The fact that we're using fair value, we're forced to use the lock-in rates, that is just, you know, a fact. And, you know, that a large part of the book is in South Africa, where at the transition date, we had this short increasing yield curve. So it. And that's just all the whole IFRS 17 measurement model has been developed, and that's how it will play out. So maybe those comments are coming from companies and organizations and audit firms and advisory firms and analysts, you know, in low interest rate environments.
That's the only thing I could think. But for, in terms of our local peers, we would want, we'll probably expect to see sort of a similar development. Although the fact that companies that have gone for full retrospective approach, going much further, much right, that they might have much more of a weighted average yield curve that they used to for ALM purpose. I don't know if Barry... I think if you want to add anything.
Yeah. So I think that you could have two different insurers, which have a different mix of business in terms of how much is being transferred on a fair value basis and not. And what that means is you'll see different interest accretion for those two businesses. What's going to be important is to really understand for those insurers to communicate the actual returns that they're having on those underlying books, compared to what they're seeing in the unwind of the CSM. Because the CSM unwind is a useful accounting measure, but one really needs to understand the economic impact of those periods as well.
Thanks, guys. There are no more questions that have come through on the webcast. Just one more sweep here. No questions there, so I'll thank you very, thank you very much for the presentation, Barry and Piers and Patrick. We will take a break now. If we could maybe gather in 15 minutes time, at 3:25 P.M. for our final session. Thanks very much.
Thanks.
... Welcome back. Thanks very much for joining us again. In the previous session, we focused on the African operations with SanlamAllianz, and then looked at the IFRS 17 numbers. For this session, the final session of the day, we will focus on, or we will bring the focus back to the South African operations and get some insights into our recent transactions. So we're joined on stage by the CEO or the incoming CEO of Afrocentric, Gerald van Wyk. Next to him is Kanyisa Mkhize , the CEO of Sanlam Corporate. We also have Carl Gillmer, the CEO of Sanlam Investment Group, where the recent asset management transaction took place. Online is Schalk Malan, the CEO of BrightRock, where we also had a recent transaction. The CEO of Capital Legacy, Alex Simeonidis, was unable to join us today.
I did, however, catch up with Alex last week and just get some of his insights into the transaction, and, we have recorded that video, which we'll play now. Thanks. I'd like to welcome Alex Simeonidis. Alex, welcome to the Sanlam Capital Markets Day, and thanks very much for joining us. I thought we could begin just by giving some background, just a brief overview of Capital Legacy. Many of our investors wouldn't be that familiar with the business, how the business came about, just a sense of the size of the business and some of the very strong growth rates you've been experiencing.
Well, firstly, thanks all for having the chat with me, with me, Grant. To put Capital Legacy into a nutshell, I'd say we're a fiduciary business first. Business that does wills and estates, that uses insurance to solve the costs of the wills and estates in this country. From a business growth point of view, we're a business that currently does about 130,000 new wills every year. That's before the Sanlam transaction. We currently employ about 1,600 people. Most of those people are in the field doing the wills and the policy that we do sell. We're going for 11 years now, so it's been quite a steep growth curve for us.
We're obviously a national business, so we can reach the whole of the country.
Thanks very much. Can you maybe just give us some color around Sanlam and what attracted you to Sanlam, the partnership that you, that you have with Sanlam, and what that brings to your business?
So at the center of the Sanlam transaction between ourselves and Sanlam was Sanlam Trust, the business that is Sanlam Trust, that we acquired. Sanlam Trust has an amazing estate and wills operation. We believe the technology we have in and around the wills and estates could be injected into that operation to enhance it and bring value to the Sanlam distribution channels. So that was the first thing that attracted us. The other element is that in Sanlam Trust, it has a well-established beneficiary fund and trust business, something that's new to Capital Legacy. Now, Capital Legacy is a business that focuses on fiduciary solutions. How do we help solve for the beneficiary who's lost a loved one?
We believe we can make a serious impact in terms of those fiduciary solutions that are there for both businesses. On the flip side, there's also the commercial aspect of what Sanlam presents to Capital Legacy in the form of reinsurance. So there was an obvious opportunity for Sanlam Re to reinsure the Capital Legacy product that is just released, and not just the product that'll go into Sanlam itself, but also into the wider Capital Legacy group. And I think lastly, it's about credibility. Having Sanlam as one of your material shareholders does certainly help us in our positioning in the marketplace, and we were now friends, not foes.
Thanks, Alex. With Sanlam Trust incorporated in your business now and Sanlam as a key partner, can you tell us about the future growth prospects of the business?
So they've been amplified. Capital Legacy is a business that was doing... Well, probably the leader in terms of wills being done in the country. Second to us was probably Sanlam Trust, which is now a combined force. So in terms of going forward, we believe we currently should do about 130,000 clients with wills this year. That's before consideration for what is the Sanlam distribution opportunity. For next year, we believe we have about another opportunity of at least 30,000 new clients we can welcome into the offering, and this is off a base of a book of about 300,000 in-force clients. So immediately you can see that there's some good growth prospects in the business. That's from a volume point of view.
From a value point of view, the product itself is still a good margin product that we sell with the will. It's recently had an update to it, which has been very well received by the end clients and the market, predominantly because of how it addresses some premium increase issues in the later years of one's life. Because at the end of the day, it is a product that needs to be there to look after the costs that are associated with the will.
Thanks. You spoke about the client, and it does sound like client centricity is quite core to the business. I mean, that's something that's really important for Sanlam. Can you maybe just unpack that a bit more and just talk about client centricity in general in your business?
The client is at the center of what we do and through a lens of how to make the loss of a loved one easier. That means that we also need to look at the beneficiaries. When someone loses a loved one, there are costs that are involved. The plan that we sold - we sell to solve for those costs, relatively speaking, in terms of the premium, is much cheaper than traditional life insurance. This is why the product and the offering has got such great traction in the market, because if it was a poor comparison to, say, just taking life cover or paying for one's estate, we would never have got off the ground.
Every quarter, we monitor that ratio of what is the client's value in terms of what they would normally pay in costs or fees versus the premium that we're charging. Every single time it comes out that it's definitely clients in the client's interest, and this is the center of what we do.
Lastly, just to touch on the governance structures, can you just talk to how the governance structures in your business have aligned to Sanlam since Sanlam has come on board as a partner?
Well, I like your use of word align. I would say it's more been a learning curve for a business of our nature. We've matured very quickly with the Sanlam transaction, and we've had some welcome injections of governance that have come in. We've recently just inserted a new board by virtue of the Sanlam transaction, and are now establishing the subcommittees to that board to help it with its work that it needs to do. On the other side of it, we're also really enjoying the oversight that we get from the people from Sanlam and involved our governance structures through a lens of what the Prudential Authority sees.
At the moment, as you'll know, we are a sole captive, and now we're learning new ways of seeing how insurance needs to be or can be done through the lens of those at Sanlam. So that's been fantastic help.
Good. Alex, thank you so much for joining us, and all the best for the remainder of this year and for your partnership with Sanlam.
Thanks.
Thank you. That was Alex Simeonidis, the CEO of Capital Legacy, one of the latest transactions that we've closed. One of the earlier ones we closed was the Absa Investments transaction, and I'll just come to call. I think many market commentators have spoken about the difficulty of, of M&A in the asset management space. Can you tell us how the Absa integration has gone, what has been achieved to date, and what work still lies ahead?
Yeah, thank you. Good afternoon, everyone. So I think the transaction for us has gone very well, if I can say that. We obviously, in the industry, you don't see a lot of successes or, you know, in mergers between asset managers. And I think there's a couple of reasons why I think it's going well so far. We did the transaction end of last year effective December 2022, so nearly 12 months on. I think first, what makes it successful is that I think the cultures are very, very similar in terms of the investment cultures between Sanlam and Absa. And we were shareholders in the businesses many years ago. So I think, first of all, from a culture perspective, it was a good fit.
Secondly, I think from a client perspective, there was not a big overlap between clients. It's not that you have exposure, for example, in a client, we have 10% and Absa have 10%, and then maybe if you consolidate you know, you only have 12 or 13% exposure. So I think that worked very well for us. So far to date, we haven't lost any large clients, you know, in that transaction either. So I think those are three very positives for me. Year to date, we've integrated all the systems between the two businesses into our Sanlam. We've integrated the investment teams and consolidated those teams. We've integrated the investment processes and philosophies in the businesses.
So, and we at about the next couple of months going to consolidate those funds in line with discussions with clients. And the big thing that's still left for us to do is the integration of Absa fund managers and our Satrix and Core business. That will happen by April next year. And I think once we're done with that integration, then this will be a fully integrated business. And I think the biggest success then also is that, I think for the clients, hopefully, you know, they still get a very good investment return through this whole process.
Hopefully, all the Absa clients get an enhanced and more depth and breadth and research in what they experience as a client, so we can grow that business. But also, I think so far, we've achieved all the synergies. So when we did the transaction, we set out exactly what we want to achieve and to get an uplift of more than ZAR 1 billion in value, and we're very much on track with all the synergies that we're looking for as well. The big upside for us then obviously is the distribution network that we will have from Absa. So we have a 10-year agreement, as everyone's aware of.
I think for our expertise in Sanlam to build product, and we're quite used to building product for all our advisors and clients. If we can use that skill set and the way we do our portfolio construction for the Absa client base, then I think we can hopefully accelerate that distribution and bring more clients and more flows into this combined merger.
Thank you very much, Paul. Just over to Schalk. Schalk, thanks again for joining us from Cape Town. And we know you are traveling. With BrightRock, can you just touch on how you see the growth prospects for BrightRock in the affluent trust market in South Africa and how this is complementary to Sanlam's position in that market?
Yeah, Grant, thank you for the opportunity, and yeah, good afternoon to everybody. Yeah, there's a couple of things to consider when talk about growth prospects. I think the first one is just an interesting stat to share with everybody here. We recently conducted a study with NMG consultancy, just to get a handle around this idea of BrightRock and Sanlam with a Matrix product, both competing in the same market at the moment from an IFA perspective. And really just to understand what is that overlap in support that companies are getting or both of these companies are getting.
That number sits around 9%, so less than 10% overlap, which means the strategy for the transaction, the strategy of, you know, Sanlam and BrightRock operating alongside within the same group in this target market, is definitely working. It is a two horse in one race. If you look then also at the collective penetration within the broker, independent broker market, that number sits just below 60%, from that same study. So that talks to a very synergistic potential partnership. What's also interesting is BrightRock sits at the moment with around a 12% market share in this in the IFA market, in that fourth position. And that means also, firstly, that BrightRock has seen significant success over the last number of years.
But there, there's definitely a lot of potential for further growth in this space. And if we look at what BrightRock is offering to our clients, to the advisor, it's really a very different value proposition to a number of other insurers. It's a product concept that we term our needs-matched insurance offering. And in this situation, where clients are feeling more under strain, they're feeling that their rands must work harder when it comes to life insurance, we do believe with our efficiency and our product, being able to offer clients up to double the cover for the same premium by pricing the needs more accurately. We are able to really step into that space to support advisors wanting to really find a potential better deal for their clients.
So Grant, yeah, I mean, we're very excited where we are at. I mean, the Sanlam partnership, the recent transaction, really bodes well. It gives us extra credibility in the market, which, which is for us, you know, we draw a lot of strength from that. And, and yeah, I think there's, there's a number of good prospects going forward.
Thanks very much, Schalk. Before we open up for questions, I just wanted to touch on Afrocentric and Sanlam's healthcare strategy more broadly. Gerald, you are the incoming CEO of Afrocentric. Can you share your initial observations of the business, where the key strengths are, and which areas you think you need to focus on?
Yeah. Thanks, Grant, and good afternoon, everyone. I'm definitely enjoying getting stuck in and, and learning about our business through the perspectives of our members, our scheme clients, our staff, the respective management teams, as well as our shareholders and, and our stakeholders. But ultimately, also through our own performance, relative to that of our competitors and where we think the potential is, for this particular business.
It's a business that has a strong market presence and an established track record, especially in our core, which is medical scheme administration, managed care, and technology service enablement, where we hold a 39% market share, and where we manage over 3.9 million lives that are under our care through a multi-tenant, you know, scheme model, where we have two open schemes in Fedhealth and Bonitas that we support, as well as 10 restricted schemes, of which the Government Employees Medical Scheme and the South African Police Service Medical Scheme are some of our anchor schemes from that perspective. But we also lead in other key areas, through our diversified play into healthcare services, like pharmaceutical, as well as non-medical scheme businesses that we believe are complementary to our core business.
In the pharmaceutical side, we are the largest distributor of chronic medication across the country in the public sector, where we distribute now over 1.3 million scripts on a monthly basis across five provinces on behalf of the National Department of Health. And then on the non-medical scheme side, we have a number of fledgling businesses that are well-poised for growth going forward, especially where we see the emerging opportunities to focus on preventative care through wellness, as well as affordable healthcare through primary health or low-cost benefit type solutions. So yes, Grant, from that perspective, really a good business with some key assets that this partnership with Sanlam can help us now augment.
I guess the challenge for us now as the incoming leadership core, is: How do we solidify these assets and, focus, in the areas of strength where we have a right to win and where it would be difficult for our competitors to follow? And, you know, this process of now unpacking that and crystallizing, our priorities is also now well underway. So quite excited to be joining the business at this particular juncture.
Thanks very much, Gerald. Kanyisa, from a Sanlam Corporate perspective, can you just talk about the healthcare strategy more broadly, and bringing Afrocentric into the Sanlam stable and how you'll use that for the corporate client benefit?
Thanks, Grant. I suppose we've always spoken about how important healthcare is to the consumer, and that it was quite anomalous for us not to have a solution to our clients. So we definitely see and plan to roll out health, not only to institutional clients, but really to all of our clients across the group, really to close out that proposition gap and honestly to close off what is, I think, quite a critical entry point for our competitors. If I reflect on the institutional business, we've already started to integrate, you know, quite critical parts of the health proposition into our umbrella fund. I think to date, we've got four points of integration. We've integrated gap cover, primary care, virtual doctor consultations, and EAP to our participating employers on the umbrella side.
I think we've been able to do that because we can offer preferential pricing and discounted rates. So I think the responses from our participating employers have been really positive, because our focus is really much on simplicity and convenience. That's something that we're looking to build on into the future. I think there are tons of opportunity, even in the retail context, and that's a space where we really are looking to leverage off of our broad capability to drive even more integration.
Thanks very much, Kanyisa. Can we take any questions that we have in the room? Do we have any? There's one here.
Thanks. Mike Christelis from UBS. Maybe, Schalk, starting with you, BrightRock volumes, new business volumes versus, say, 2019 pre-COVID. You know, my sense is that the industry is sitting about 10% down in nominal terms. Are you at a similar level?
Sorry, was it Michael?
Yeah, that's right.
Yes, Michael. No, so we've actually seen quite a good recovery from pre-COVID. I mean, we're probably about 10-15% level up pre-COVID. What we saw, what was interesting is, during COVID, we saw quite an increase in our new business, actually. Some of that's now been tracking back a little bit. Just to give you a sense, in the height of COVID, around 2021, just post-COVID, we were sitting at around a 14+% market share. That's gone down a little bit, as I said earlier. So we're probably about, as I said, 10%-15% above pre-COVID levels of new business. It means we're gaining market share.
I think also, during COVID, our value proposition being very digitalized, being very much a as I said earlier, the value propositions running free around other product features that brokers could use, free of underwriting, et cetera, helped us a lot during COVID, this COVID period.
Great, thanks. Maybe just if I can see one more in on the Absa deal. There was an announcement at the time about the LISP business being bought and merged with Glacier. Has that happened? That's gone - I haven't seen that, or where are we on that transaction?
I think they're in the final, final approval process, Paul. That is on the Glacier side, and so that's happening, yes.
Okay.
I think it happened on the first of November, Michael, so around about then.
Okay.
There've been some regulatory processes we've been going through.
Okay, perfect. Thank you.
There's one question we have on the webcast: do you, and Carl, this one's directed at you: do you see more opportunity for industry consolidation in asset management space in South Africa?
In South Africa?
Yeah. And then a similar question on broader financial services market in the same report.
So I think, obviously, if you go internationally, a significant amount of consolidation in the industry, specifically in Europe and US. And I think you will probably see the same thing in South Africa, but maybe at a lower scale. But if you think about all the pressure that in terms of active asset management, where the fees are going, there was a bit of a cycle. So I think, 15, 20 years ago, it was all about the large asset managers, and then it, the cycle moved a little bit to boutique asset management.
I think now with Regulation 28, the pressure on the South African economy, pressure on fees, I think those boutique managers that did quite well, I think you will definitely see some consolidation over the next, probably 3-4 years.
Thanks, Carl. Paul, on the broader financial services space in South Africa, consolidation?
Yeah, look, I think, you know, Grant, whenever you have a mature industry and you have relatively lower rates of growth, you are going to have some people trying to consolidate. And in fact, if you look at all of these transactions we've spoken about today, you know, Sanlam has basically done them. Why? Because we're trying to strengthen our core business and build a fortress. And we take the view that even in a tough macro in South Africa, if you are the biggest and the best and the most efficient, you're still gonna be able to make good money. So for us, relative competitive position is really important. So from our side, of course, yeah, we'll say we, you know, opportunistically, we'll do it.
But I would also hope that, you know, South Africa is an entrepreneurial country, and that we'd also see you know, people doing, you know, not just consolidation, but also innovating and so on. And in fact, I mean, here today, we've got two people with us. I think Alex has designed, you know... I always say to people, trust and wills are the most, single most boring business in the world. And for those who are online, if you don't believe me, next time you're with a bank CEO, ask him who runs his trust department. Chances are he can't name them. But Alex found a way to crack a need in an unbelievably innovative way, right? And build a hell of a business.
And I probably also wouldn't have known who Sanlam Trust was run by if it hadn't been for meeting Alex, right? So I shouldn't only criticize the banks. And then, you know, take Schalk. Schalk's also built, you know, an unbelievable business. I think the thing that he didn't talk about is I think they offer a completely different, product, and solution and proposition that nobody else in the market, you know, provides, and that's why they've been successful. So I think there is room for consolidation, but equally, I would hope that there's room for, you know, innovation and partnership as well. And certainly, from our perspective, we're interested in both.
Thanks very much, Paul. Question, Grant?
Thanks. Warwick Bam from RMB Morgan Stanley. Just on Afrocentric, I mean, obviously, it's the partnership's been there for quite a long time. The change in shareholding is new. Just give us a sense of the challenges in terms of an employee benefit space, specifically of integrating Afrocentric in the past, in terms of why you think you might be solving them now.
Yeah.
Mm-hmm.
I think what we've seen over the past, maybe 5-10 years, is from an EB perspective, there's quite a significant trend around the consolidation and moving away from standalone to umbrella funds. I think what you had in the standalone context is, you know, quite distinct decision-makers on the health side versus the EB side. So, that distinction now has actually been removed a bit. A lot of the people that will influence the decision around health and EB will be the same person, an FD, a human capital director. I suppose they will then look at the context around what value and what benefit is created through an integrated proposition, where those conversations weren't necessarily there in the past.
I do think there is quite a significant opportunity to make quite a lot of headway or in the context of an integrated solution.
Thanks. And then, you mentioned, the reward scheme.
Yeah.
Can you just elaborate on how that might be evolving?
Yeah, I think, you know, there's a lot of work that we're doing in Sanlam in terms of, you know, revisiting and revamping our rewards capability. I do think it creates quite a significant platform around how we can drive a lot more of this product integration and create then a better client experience across, I suppose, the institutional space and the retail space. So I do think that there's quite an opportunity there. Our rewards program isn't where it needs to be, but there's a lot that we're investing in making sure that it gets to that place. I think our partner schemes also see quite a lot of value in a competitive rewards program that will allow them to strengthen their proposition quite a bit.
So we're working very closely with them to see what would make sense in their context.
... Maybe just to add, or if you can imagine that when we weren't shareholders, there was very little incentive for us to extend our rewards program, you know, there, because there is a cost, there's a benefit. But actually, you're happy to save some cost if you are deriving the benefit. Now, clearly, we're gonna be able to derive benefit. And I think we can also say, I mean, Kanyisa spoke about us, where we are redesigning what is not a good rewards program, if we're honest. No, no disrespect to our colleagues who run it. And we have recently appointed the previous head of eBucks, and he's just joined us at the beginning of this month, and he'll be driving the, you know, the program for us. So we're very committed to it.
As Kanyisa said, I think, you know, the environment has changed, and, you know, we're gonna give it a shot.
Mm-hmm.
All right?
And Warwick, if I could also add, working with Johan, who's coming in, I think we are also taking the view from an Afrocentric perspective that a health-led rewards platform for the Sanlam Group gives us a unique right to win, in the sense that we are a lifestyle-oriented product. I mean, we have significant frequency of touchpoints with our clients. So, you know, bringing that to the platform and allowing all the other product houses, you know, to plug into that gives us a unique opportunity to now drive product integration value on the one end, but also actually create the engagement and the attraction to the platform.
And so from that perspective, I think, you know, we, we're quite excited, and we're leaning in strongly to it, and so does our schemes that we support. So I do think the foray into the rewards and loyalty platform this time around should be something quite compelling now that there's alignment across the various businesses.
Thanks, very insightful.
Any further questions in the room? Just on the webcast, Gerald, just sticking with you. A question on national health insurance. What are your views on national health insurance and how it's likely to impact Afrocentric?
Yeah. Thanks, Grant. It's something that obviously keeps me busy a lot. Today is, in fact, day 18 in the job. And we are participating, obviously, through various industry platforms to drive the social discourse around this. I think the important point to make from an Afrocentric perspective is we fully support the principles of universal healthcare. In fact, you know, if you look at what drives our purpose, it's providing high quality and affordable and accessible healthcare to everybody in the markets that we choose to operate in. The challenge that we have is in how it's intended to be executed in terms of the NHI bill in its current form. Our view of that is that it's unsustainable.
If you look at how the government is proposing to fund this, their last estimates, which is now fairly outdated, about 7-8 years old, is that you'll essentially need ZAR 200 billion to fund the current form of the NHI bill. Now, if you take that, you know, our estimates are, as a collective industry, consideration, is that it's probably significantly understated. You might probably need ZAR 500 billion to fund NHI in its current form. And the sustainability comes in that you'd most likely then have to either increase personal tax by 30% or increase the VAT levy from 15%-21%, which makes it quite unsustainable from that perspective.
And then, you know, closer to home, from a medical schemes perspective, we also believe that the inclusion of Section 33, which ultimately limits the role of medical schemes once the scheme becomes fully implemented, is also unreasonable and probably unnecessary, in the context that if you take that same ZAR 200 billion funding need, what that will do is essentially increase the available spend in the public sector to, in terms of, per patient contribution from ZAR 425-ZAR 685. So while there's a significant increase in the public spend, it will reduce the spend in the private sector from ZAR 2,340 by 70%.
And so that imbalance is also something that we feel, you know, takes away the ability from government to partner with the private sector, which is quite robust, and that has a lot to offer in actually delivering a sustainable NHI framework, from that perspective. So from our side, we're pragmatic. We think Afrocentric Group is well-positioned to participate in the discourse and influence for a more sustainable, pragmatic outcome. And then to also continue our diversified opportunity of being an enabling partner in a NHI environment that makes sense, and that doesn't put any significant pressure on the fiscus as well.
Grant, maybe I can add a few points if it's all right with you.
Yeah.
So, let me start by caveating that I'm probably the least knowledgeable person on this topic, but I think Gerald has addressed the, you know, the NHI and the medical scheme, and I think a lot has been said about that. I think it's probably common cause that to get the economics to work is going to be very challenging in the way that it's been articulated. But let me say that I think that firstly, there's a constitutional requirement in South Africa for universal healthcare. I think there's probably also a political strong imperative to deliver something. And I think that when we talk about national health - a national health scheme, the thing will be, what are the benefits under it?
So if the benefits are very minimal, then the cost, funding cost will be extremely low. And at this point in time, my understanding is that there is no set yet, minimum set of benefits that's been articulated. In fact, one of the challenges to the bill is that the definition of what is prescribed minimum benefits or as part of the NHI plan will be driven by one person, and one person only, and that's the Minister of Health. Which is obviously very dangerous, with that one person sitting and writing something that has got massive ramifications for the national fiscus. So my own view is that something in this space is inevitable, but that ultimately, the economic reality will shape the form of it.
I also have to say that I think that, not, not the whole private sector is opposed to this. So, the interesting thing is, you hear people saying that we have enough beds in this country, factually, for every man, woman, and child of the 60-odd million people. Our problem is the allocation of resources and the inefficient allocation. It's actually cheaper to provide a bed in the private sector in South Africa than in the government sector, which, if you think about it, is a pretty extraordinary situation. So many parts of the private sector who are in the provision part of the value chain, as opposed to the insurance part of the value chain, are, are see this as a massive opportunity to actually to, to deliver benefits on a wider scale.
And actually, Afrocentric is quite interesting because as Gerald explained, we are on-- we've got one foot in the in the health insurance business. We've got a big foot in the managed care, and we've got another big foot in the health delivery pharmaceutical piece. So actually, when we looked at it as a board, we can see that actually, whilst if we were a pure health insurer, we might take a very negative view of it. Actually, there may be more opportunities and more money to be made than downsides. So I just wanted to put that sort of balance. I'm not ideological about this thing at all, but I think there are different perspectives, is all I would caution, as opposed to only one narrative at work.
It's a complex situation, and I think eventually, as everything in South Africa, we eventually will arrive at something that gets sufficient buy-in from all parties.
Correct.
Thanks. Just turning to BrightRock, another question from the, from the webcast, and it links to, I think, some of the earlier points we were discussing around, around, the risk market in South Africa and the lack of growth. Schalk, for BrightRock, it seems that there isn't a lot of real growth in the market in South Africa, and this would be the retail affluent market, for insurance. Does that change the way you think about your growth strategy?
Grant, no. I mean, I think firstly, it is true. I mean, we haven't seen significant real growth. I mean, the overall market hasn't yet recovered to pre-COVID levels, in line with the previous question. If I look at BrightRock, and it speaks to Paul's point on the value proposition, you know, BrightRock really offers advisors something quite unique in being able to go back to either existing clients or, you know, new clients, that they want to advise on. And utilize the product technology of unbundling the actual client's needs, and the product responds to those needs in a very efficient manner to save clients money.
To be able to also flexibly adjust the product over time without the traditional underwriting burdens that comes with a traditional life product. So we believe just in that, the value proposition, allowing advisors to go back to those clients that might be under financial duress or looking for a better alternative, we offer that home for those clients. I think coupled to that point is also, if you look at BrightRock's market share, I mean, we've grown significantly. I mean, the business is over 12 years old, but I mean, compared to our peers and our competition, we're pretty much still a youngster in this market. To a business that's now at ZAR 2 billion a year in an income business.
But the market share that we capture is still relatively small. I mean, that 12% market share puts us in that fourth position. So we're looking at saying we still have huge growth opportunity for growth in the IFA markets. And keep in mind, I mean, BrightRock at the moment has got no presence in the agency space. And so there's a big market still for us to continue growing, irrespective of the macro market conditions and the overall condition. Having said that, I mean, is it a challenging environment? Yes, absolutely, for a smaller insurer like BrightRock, relative to our peers, you know, things like underwriting, reliance on reinsurers have tightened over time.
And that just simply means one's got to work harder for every single case, you know, that you activate or commence. But in short, I mean, our growth aspirations is very real and very strong in the next number of years that we can see forward to.
Thanks a lot, Schalk. Just coming back to the asset management business, have we seen any benefits from the transactions that have transformed us into the largest black-owned asset management business? Is there anything we can demonstrate?
... So I think, first of all, it was very important for us to do that transaction, I think, for a couple of reasons. One, from an industry perspective, it's important for us to participate in the transformation of the industry and South Africa, and how we help South Africa transform and become a more inclusive asset management industry. Secondly, there's, if you look at the industry in a way, the big allocators start allocating. So first of all, everyone's a level one, so you need to start differentiating, I think, in front of your clients in terms of what else do you offer as an asset manager? And by doing that transaction, I think it was early, so it would give us first-mover advantage.
And we do see more if you look at allocators like the PIC, Alexander Forbes. So there's a significant premium or that they now ask of asset managers to increase their physical shareholding, not just their scorecard. So by doing that transaction, I think it puts us on the forefront to really sit in front of clients and be, you know, pro- the largest Black-owned asset manager, and hopefully it will allow us to win more money in the industry. And I think the industry will start catching up with that. So, we are successful, but we haven't seen that real growth yet, but I definitely think we're probably a year or two away from seeing that growth.
Also, just maybe if I can bring back the transaction and the way we did the asset transaction, is we wanted then to preserve our Black ownership. So the way we structured that transaction is to make sure that we, with the scale that Absa provides us with, with the merger, that we're still Black-owned. But that scale also allow you to invest in your, in product, it allows you to have a much better bargaining power in your multi-manager. For example, we start negotiating pricing with other asset managers. So we're bringing the price of providing investment products to our clients down significantly. And that obviously, you know, the benefit goes to your shareholders, and the benefit goes to your end clients.
So I think by being the largest Black-owned, plus the scale that we have, and to invest in our systems, to invest in people, you know, to invest in our capabilities, to invest in more in offshore asset management capabilities, I think really puts us, I think, in a, in a very, very strong position to grow our, our market share. And again, maybe just to add to some of the transactions that we've done, but in our single active asset manager, we're now top 5 in South Africa. In passive, we have 37%, by far the largest participants, and our multi-manager, 30%, but, you know, just after Alexander Forbes, a 37% market share, and we're also growing alternative business quite strong.
We're already dominant, but this, I think, really allows us to really bring all of that, that together to, to even strengthen our position and win, win more market share.
Thanks, Carl. Just a question for Kanyisa on the corporate in the corporate space. With the healthcare offering in place now, are there any relatively short-term, quick wins that in your business from bringing in the healthcare space? Or do you think that's a much longer-term game in extracting benefits?
Yeah. Look, I mentioned the points of integration already on the umbrella fund. I think that's gone well. I think in the distribution space, I think we're working really well, in terms of from an advisory capability with Simeka and with other health brokerages, in terms of, you know, driving quite significant cross-sell between EB and health. So I think that's a, that's been a good success for us. You know, on the retail side, our colleague, Jaco, always tells me that it takes a long time to invest in kind of new product in the retail distribution channels. But there we've also started to see, you know, quite strong year-on-year growth.
I mean, it's the base that we're coming off of is quite small, but I think when I think about the retail distribution channel, the health production has increased by about 50% year-on-year. And we're forecasting to do quite well at the end of this year. So I think those were, on the distribution side, some quick wins. I think in the medium term, our focus, like I mentioned earlier, is just how we drive better health integral rewards, and integration and product development through that side. I'm quite excited to see the energy from the schemes, and our product development teams just around how we can create more value for our clients, and also improve the client experiences through product integration and product development.
Thanks, Kanyisa. I'll just do one more check in the room if there are any questions. Nothing. There's nothing further that's come through on the webcast, so I think we are ready to leave it there. Paul, if you have any.
No, Grant, just to thank you and your team very much for putting this together. I really thank all of our investors and people who joined us over the last 2 days. It's an enormous commitment of time, and the fact that many of you sat through there for 17 is a bit of a medal for that. So thank you very much, and all the best to all of you, and we look forward to talking to you again. Please give us some feedback. Let Grant and his team know what worked and what didn't work, and we'll endeavor always to fine-tune. So thanks very much.
Thanks very much, Paul. We'll leave it there. Thanks.
Thank you.
Thank you.
Thank you.