Good afternoon, ladies and gentlemen, and welcome to the Sanlam Group first quarter operational update. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star then zero. Please note that this call is being recorded. I would now like to turn the conference over to Group Chief Executive Officer, Paul Hanratty. Please go ahead, sir.
Denay, thank you very much, and good afternoon, ladies and gentlemen, and thank you very much for joining us on this call. I'm joined today by our Group Finance Director, Abigail Mukhuba, Chief Risk Officer and Chief Actuary, Lotz Mahlangeni, and the Head of Investor Relations, Grant Davids. Earlier this afternoon, we released our first quarter of 2024 operational update. I'll give you a few comments on the strategic and operational progress before we open up to questions and answers. From a strategic perspective, we're pleased that our offer to acquire Assupol was accepted by Assupol shareholders. We expect this transaction to complete in the second half of the year. This is an important transaction for the group as it bolsters our position in the entry-level market segment in South Africa for the long term.
The entry-level market remains the long-term growth engine for the South African economy, and Sanlam will have a strong presence in this segment post the transaction. Also in South Africa, the final step in the integration of Absa Asset Management into Sanlam's investment operations took place with the merger of the Absa Fund Managers platform into the Sanlam Collective Investments platform in March 2024, unlocking further cost synergies going into the future. On the Pan-African front, the Sanlam Allianz joint venture integration is also progressing well, with a focus now on operational synergies within several markets to the extent that regulatory approvals will permit. First regulatory approvals were received in Côte d'Ivoire and Senegal.
In Asia, we announced the proposed transaction to increase our shareholding to more than 50% in Shriram Life and General Insurance entities, in line with the group's strategy to strengthen our position in the fast-growing Indian insurance sector. We believe that these transactions will significantly strengthen Sanlam's long-term growth profile. From an operational perspective, the group's strong performance momentum from 2023 continued into the first quarter of 2024. The group achieved growth of 14% in the net result from financial services and the cash net result from financial services for the first three months. Life insurance recorded double-digit growth in earnings and new business volumes. Value of new business grew 10%, and the new business margin remained at a robust 2.85% on a constant economic basis. There was good performance from South Africa, Pan-Africa, and Asian operations in life insurance.
The group's general insurance operations recorded satisfactory growth with a rebound in sometimes underwriting margin, robust underlying performance from the Pan-African operations on a comparable basis and continued strong performance in India. Credit and structuring recorded improved growth, while investment management was muted. Group net client cash flows increased by 14% to ZAR 8.8 billion as a result of a strong turnaround in the life insurance performance. We've been pleased to see an improvement in persistency within the retail mass segment in South Africa. Although new processes and remuneration structures have become effective only from March 1st, 2024, the first quarter has already seen an improvement in early duration persistency. The focus on persistency in the retail mass segment will continue throughout the year. The group's solvency position remains strong and within target ranges on March 31st, 2024.
The group's discretionary capital balance increased to ZAR 3.7 billion at March 31st, up from ZAR 2.7 billion at December 31st, 2023. The increase is due to the net proceeds received from the sale of a portion of Sanlam's direct holding in Shriram Finance Limited, which was partially reduced by ZAR 1.7 billion, relating mainly to the mandatory offer to minority shareholders in Sanlam Maroc. Overall, the core businesses across the group are performing strongly, and we would expect this momentum to continue. We do, however, caution that the group's earnings remain sensitive to significant moves in global investment market levels, and the first quarter's earnings growth rate is not representative necessarily of the rate of growth we would expect for the balance of the year.
In conclusion, I would say that our strong performance for the first three months of 2024 reinforces our confidence in the prospects for the group. The group is well-positioned to successfully navigate the ongoing challenging operating environment. At this point, I'd like to open the call up for questions, and Denay will help you. If you wouldn't mind just indicating that you want to ask a question, and always give us your name and the company you work for. Thanks very much.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star and then one now. If you decide to withdraw your question, please press star and then two. Again, if you would like to ask a question, please press star and then one now. The first question we have comes from Warwick Bam of RMB Morgan Stanley. Please go ahead.
Good afternoon, Paul, Abigail, Lotz, and Grant. Thanks for the detailed update. And three questions for now: Can you elaborate on the underperformance of the general insurance business in Côte d'Ivoire? And then you mentioned receiving regulatory approvals in Côte d'Ivoire and Senegal. I'm assuming to merge the businesses in the SanlamAllianz negotiation. And have these regulatory approvals come with any restrictions? And do you have any feedback elsewhere in terms of process and progress? And then, lastly, you mentioned the life business benefiting from mortality profits of a larger book of business. Are you implying that mortality profits are similar to the prior period in relative terms, or has there been an improvement in mortality rates, which may suggest a favorable basis change at year-end? Thanks.
Thank you, Warwick. Thank you very much. So, Côte d'Ivoire, you know, you can appreciate that when we are merging businesses, Côte d'Ivoire, in many ways, was one of the more challenging markets in the sense that we had two very similar sized and positioned businesses. So we just haven't seen the kind of new business growth. I think both of those businesses have been distracted by issues of merger. In terms of regulatory approval, yes, we are referring to the fact that we'd be allowed to merge the in-country businesses, obviously drive out synergies, which is exactly what gives rise to difficulties in a place like Côte d'Ivoire from an operational perspective in the short term. You know, we'll keep you updated as we get approvals in other areas.
And there are no restrictions of particular importance in those approvals other than, you know, the normal ones that one would expect to see. And then around mortality, clearly the book of business has grown bigger. And so we worded it very carefully. So it's not that the mortality is necessarily improved at the underlying level, but it is still good, and you've got a bigger book of business. So you shouldn't anticipate positive basis changes on mortality. And quite a bit of that would relate, in any event, to group risk business, where basis changes wouldn't be relevant. I hope that answers your questions. And Lotz, in particular, please feel free, 'cause you probably understand that last one, the best of all of us.
Nothing further to add, Paul.
Thanks. Thanks, Paul. Very clear.
Thank you. The next question we have comes from Michael Christelis of UBS. Please go ahead.
Good afternoon, everyone. Thanks for the time, as always. Maybe a couple of questions from me. Firstly, the African GI top line of, you quote of 9% on a comparable basis and constant currency basis. Can you elaborate a bit there? That seems a little bit low to me for a business, which, if I remember correctly, you were guiding to, targeting somewhere between 15%-20%. I mean, are there any one-offs in there or, you know, what's driving that a little bit lower? Maybe is the one, the first question. Second question, just around your really strong new business volumes or what I assume is still a really robust base from last year in South Africa.
You haven't given us the number, but it's clearly more than 16% based on your disclosure. Can you just talk about, like, what in there is one-off or what's driving it? I mean, is there a lot of inorganic sort of addition that's come through from maybe Capital Legacy or BrightRock or something that I'm not thinking about? It does seem like a really strong new business number. Then on persistency, you mentioned the changes since 1 March. Can you comment a little bit about how those changes have impacted the trends from 1 March? Was there a step down in lapse rates from 1 March, or is it too soon to quantify any of that?
And then, if I can get a fourth one in, I think it'd be remiss of me not to ask you your thoughts around NHI, given this week's events and, and clearly your increased investment in AfroCentric. Maybe any comments you can give us on your thoughts there. Thank you.
Okay. Great, Michael. Thank you very much. Abigail, do you want to take the question on the general insurance growth in Africa? And, there was a second question on the back of that. The lapse rates and the NHI, I'm happy to answer. Abigail, do you-
Persistency since 1 March.
Yeah, on persistency.
Yeah.
obviously. What was your second question, Michael? The first one was about the new business.
I'm sorry. The sales, the new business volumes.
Volumes-
Yeah.
- in South Africa. Okay. Abigail, do you wanna start?
There's one more question.
Let's just go through them one by one. Abigail, do you wanna do the first one?
Yeah, sure. Thank you, Paul. Michael, good afternoon. So in terms of GI, yes, we did, what you call? You're talking about the percentage increase seeming to be slightly lower than what, we had, guided for. Remember, and this is where we're talking about the accounting entry that we have processed, during this time. We adopted the whole asset mismatch reserve principle or accounting policy, where we adjust or, smooth our, floating investment returns. We used to do it in life. We didn't do it in the, in the sales. We used to do it mainly in the South African business, in the, in the life business. We did not necessarily do it in the, spa business in GI.
So in last year's numbers, in the first quarter of last year, that asset mismatch reserve was not in place yet, whereas in this quarter, it's in place. So you're correct to say the expected percentage increase that you have. The range sounds reasonable, but because of our investment returns being put into the reserve, and then you have that smoothing effect, you end up releasing much less. So that's what appears to have then not some of that return over this time. So you're not really comparing in terms of your Q1 versus Q1 for GI on the African portfolio. That accounting entry does have an-
Apologies.
I think, I think Michael was asking about—
Sorry, Abigail. I was referring to the top line. Yeah.
Yeah, new business, Abigail, not the—
Oh, sorry. Sorry, I missed that. So in terms of the overall, we had obviously, we did discuss earlier about the Sanlam, the Ivory Coast, business that we already discussed. That was the major part of the impact on that.
Perfect. Thank you.
Yeah. I think it's just quite important to remember that on an actual currency basis, it's obviously gonna look worse, Michael. Your second question was about new business. In South Africa, and I guess there's no question that, you know, I guess even we've been surprised on the upside by, you know, the levels of new business, and clearly growth rates like that. You know, the macro we've got are likely to continue. But if they... You know, you asked if there were any one-off. So I think the things that are helping in this particular period are not life, but the LISPs, obviously. The other, Absa and the Alexander Forbes LISPs are in now. They wouldn't have been in the previous period.
Those had, you know, had some positive impact. But for the rest, they weren't really one-offs. There's just been an extraordinarily strong volume of new business, both singles actually, and even recurrings. So, you know, I guess we're all gonna have to watch this, you know, this area and just see for how long, you know, this holds up. What I can say in at a detailed level is that annuity sales are still high. And I guess that's reasonable, given interest rates. So one would assume that that's just money that would normally have gone somewhere else, is benefiting from higher interest rates. And again, the minute long bond yields come off, you'd expect that to start tapering off.
I don't know if my colleagues want to add anything on that second point before we move to the lapses?
No, boss.
Okay. If not, Michael, on persistency and so on. So, you know, we've obviously been talking to our people about the changes that are going to come into effect from... We started talking to them last year. But we only implemented changes from March 1st to remuneration. But we did start seeing some impact before March 1st, a lot less churn in the numbers. And we've seen, you know, much better early persistency, but it is too early for us to have a really good insight into what's happened to the overall level of persistency.
So when you talk about, you know, the big, the big-ticket item, which would be basis changes on persistency, someone like Lotz would not be any, in any position at this point in time to judge whether his basis, his underlying basis is, is sound or not. And You know, I had originally hoped that by June... And of course, we'll only talk to you about June results in probably September, guessing that we'd have a pretty clear idea by then. I, I hope we do have a better idea. I think we'll have a great idea by the end of the year, but it's gonna take a while for it to unfold.
Early signs are extremely encouraging with the churn down, and the actual. The real thing that matters is the size of the book, and the book itself has been growing very nicely early in the year. So I think it's too early, really, to be sure, but good positive signs. And then NHI. You know, my own view on NHI is that for our particular business, the NHI itself, it's still got so much definition and structure that's required around it to really judge what it means, that it is quite difficult to say. And, you know, we've obviously done our own analysis on this, and it's not really clear that it's necessarily a negative for the AfroCentric business. So we sort of sit a bit on the fence, to be honest.
You know, and I don't really want to comment on it more widely, because I think there's enough commentary out there on that. People must make their own minds up on it, but it's, we, you know, we're sitting a bit on the fence as to whether it's good or bad for us. One of our core businesses in AfroCentric is actually provision of medical services, and so this thing potentially opens up some quite big opportunities for us.
Perfect. Thank you, Paul.
Thank you. Ladies and gentlemen, just a final reminder, if you would like to ask a question, please press star and then one now. We'll pause a moment to see if we have any further questions. We have a follow-up question from Warwick Bam. Please go ahead, sir.
Thanks. I'm just coming back to the point you made about the sensitivity of earnings to investment returns.
Mm-hmm.
And I guess, I mean, is there anything specific in the first quarter that you may be able to call out to us just in terms of that sensitivity in particular? And maybe, you know, just-
Yeah.
Assumption, um-
Look, Warrick-
Investment returns similar to the rest of the year, do you expect similar kind of growth rates to what you've printed today?
Sorry, just repeat the last bit. If we get what? Investment returns.
Assuming investment returns are similar to what you experienced in the first quarter-
Mm.
Does the growth in earnings for the full year look similar to what you printed in the quarter?
No. Um-
Okay.
So I think you yourself wrote a note today where... And I glanced at it very quickly, where you forecast earnings for the full year. So, you know, while we're on this point, sort of stating the obvious, you know, this is a growth rate over Q1 of last year, and so to apply the growth rate from Q1 of this year or to Q1 of last year to the full year, I think would not make sense, you know, in any event. And as you know, the profits during the year, it's not a retailer like Pick n Pay. There are lots of moving parts.
Certainly basis changes, or, you know, you would be aware of the one thing that bring, you know, very large changes, and those generally, and I say generally, should only happen at the end of the year. So we've got to be very, very cautious in applying one quarter's growth to last year's profit, full year profit number, and, you know, that's just a general point. But, you know, coming back to the specifics of investments, you know, our business and Lotz, you can correct me, what about the percentage of our profits that are affected by markets. But, you know, if you think about when we talk about investment markets, we're talking about interest rates, currencies, equity markets, local and foreign.
And I mean, if you just look at this first quarter, in rand terms, we've had a very large increase in the value of offshore assets, but a decline in the value of South African equities. We've had a 100-odd basis points rise in the long bond yield. So there are lots and lots of, you know, moving parts. Now, to some degree, I think our results are a little bit buffered by, you know, the asset mismatch reserve. There's no question that that helps to smooth things out. But we do. We wanted to make the point that you can't apply 14% to the whole year, firstly. And clearly, people like yourself do understand that, but maybe not everybody would.
And then the second thing is, you know, there's quite a sensitivity around markets, and, I mean, everybody on this call is highly aware that, you know, we've got an election in South Africa. We've got elections around the world. We've got, you know, a couple of big wars going on, and most people are finding it very difficult to assess when interest rates and inflation will subside. So, you know, I think it's just smart to, you know, for a stock where some of our earnings are definitely dependent, and lots... Would it be fair to say, you know, that 50% of our earnings is, are very directly affected by market levels? And that's before we even get to the currencies and so on.
That is correct, Paul. That would be fair.
Yeah.
Thank you, sir. Thank you, sir. The next question we have comes from James Shuck of Citi. Please go ahead.
Hi there. Good afternoon, Paul. I just had a couple of questions, really kind of on your discretionary capital. Can you just with the pro forma level? So I think that's kind of ZAR 3.7 billion is the number at Q1. Just keen to understand where that settles after various things close, and kind of linked to that, what your debt issuance plans are. I think you had a target level of between ZAR 1 billion-ZAR 3 billion, so is the aim to kind of stay within that level after that issuance? And then secondly, just in terms of M&A, more broadly, and potential for disposals, I kind of thought you were nearing the end of your acquisition spree, if you like.
You still seem to be doing deals. Where are you in terms of kind of the overall shape of the book of business at this point? You've obviously got lots of things to integrate, which are gonna detract, take away for quite a lot of management time. So just keen to see whether you still have appetite. Thank you very much.
Okay, Abigail or Lotz, do you want to deal with the discretionary capital and the debt issuance?
Yes, of course, Paul. So for the discretionary capital, I think obviously the two major impacts that would follow would be, which we have already announced. The India transaction that we announced, we said that part of it would be funded from the proceeds of the SFL, part sale or partial sale, and then the remainder of which we would need to fund. So, what levels of discretionary capital that we have now, that three point seven billion that you're referring to, would partly go into funding that. We also have Astec, or rather, I apologize. We also have Assupol, which we have already publicly announced as well, that that's going to require ZAR 6.5 billion, and for that, we also indicated that we would probably raise debt, for funding that transaction.
So in terms of where the discretionary capital would be mostly directed to, would be to those two announced transactions. And then, in terms of, of future transactions, I think, I mean, Paul can talk to future transactions, but-
No, I'm happy, I'm happy, I'm happy to pick that up, Abigail. It's just important to remind James that, we do, we do have the likelihood of an exercise of an option by Allianz,
By Sanlam Allianz, yes.
Yeah, which will generate quite a significant portion of capital as well. So, you know, on the debt front, you know, we've got quite modest issuance planned, and Lotz has already raised some debt. And factually, we've got very low level leverage in the company.
Just before we move on to the second part of the question, I mean, if I heard you correctly, and apologies, it sort of, I think you said, India is half fully funded from the proceeds from SFL, but, are you able just to give me a pro forma number? It'll just make my life a little bit easier.
On the rounded numbers, about ZAR 2 billion.
ZAR 2 billion. Perfect.
Yes.
Thank you for that.
On the M&A front, you know, we wouldn't describe it as an acquisition spree. In fact, if you look at how we've... Well, in fact, if you just go to the capital point, we haven't really raised debt, and we haven't raised equity. So, what we have done is we've recycled capital from-
Sorry, could people please mute their lines? It's very difficult otherwise for everybody to hear. So we've basically recycled capital in order to dispose of, you know, less attractive businesses and acquire more attractive businesses. And, you know, I think we've been relatively clear that insofar as South Africa is concerned, we, you know, we think that we've done as much as what's reasonably possible, to do. We think the business is in great shape. I think you can see it in the operational performance and the numbers. Doesn't mean we won't do other things, but, you know, our appetite's relatively low. We said that we had appetite for India. We've done something. You know, and Africa, you can understand that right now we've got some integration work that needs to be done.
But again, we've been very open about the fact that in the long run, we have some gaps in our portfolio or areas of weakness that we'd like to bolster. And so when the chance comes, you know, we'll do that. And I always think about it, it's like a, you know, it's like a property portfolio. You know, things need... The less attractive ones need to be exited, and you need to refresh from time to time and make sure that you've got a, you know, good businesses that are winning in the competitive space, because that's how you get returns. So yeah, we're probably going through a slightly quieter period.
Yeah. Understood. Thank you very much.
Pleasure.
Thank you, sir. Ladies and gentlemen, we have reached the end of our question and answer session. I will now hand back to Mr. Hanratty for closing comments. Please go ahead, sir.
Well, just thank you very much to everybody who joined the call, and as usual, we wish you all the best, and may the markets be kind to you, and particularly hoping that the election doesn't bring any disruptions to the market. So thanks very much, and I really appreciate the time and the effort that you all make. Thank you.
Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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