Sanlam shifts its focus to higher-margin products
High unemployment in mass affluent segment reduces new business volumes in first half, but value rises 11%
Sanlam has shifted its focus to selling higher-margin products as SA faces its highest unemployment levels to date, which has affected insurers’ ability to sell policies.
The insurance giant’s new business volumes shrank 4% to R110bn in the half-year to June, but CEO Ian Kirk’s team made up for this with an increase of 11% in the value of new business, which stood at R782m by the end of June.
Sanlam’s mass affluent segment struggled to sign on new single-premium policies — in line with rival insurers Old Mutual and Liberty, which also had trouble in the segment — but the contagion spread to Sanlam’s high net-worth individuals at its Private Wealth cluster.
This, along with lower investment inflows in SA, Namibia and Malaysia, led to the decline in new business.
"It’s all the same in the market … we are dealing with low economic growth, retrenchments, lower consumer confidence," Kirk said after the release of the results on Thursday. Insurers had been affected across the board.
Sanlam responded by selling more high-margin products, which pushed its margin to 2.7%, from 2.4%.
PSG Wealth portfolio manager Adrian Cloete said new business volumes at Glacier, the mass affluent segment, fell 10%.
"As new life [insurance] business volumes were in line with the first half of 2016, this decline was caused by the investment business inflows that declined by 16%," said Cloete. "Clients are still prepared to buy protection (risk) products, hence these volumes were stable in the individual life segment."
The group’s lower-and middle-income customers have not given up their policies. Policy lapses and surrenders among middle-income customers fell to 2.9%, compared with 3% in 2016, and was better than the 3.9% observed during the 2008 financial crisis. Lower-income customers had a 9.2% policy lapse rate, marginally up from 9.1%. Kirk said lower-income clients had less job security.
Ashburton Investments portfolio manager Rahima Cassim said the lapse rate among low-income client segments showed surprising resilience. "Where the other insurers are seeing weakness in the mass affluent [category], management noted that their low-and middle-income markets have been surprisingly resilient," Cassim said.
"The problem with high net-worth clients is more one of consumer confidence. They are parking cash in money-market type products in the near term, rather than investing in the broader market."
Cassim said the outcome of the ANC’s December elective conference could change consumer confidence levels in the high net-worth market.