Sanlam CEO Ian Kirk, who will be leaving the company at the end of the year, delivers the company’s annual financial results, March 12 2020. Picture: FREDDY MAVUNDA
Sanlam CEO Ian Kirk, who will be leaving the company at the end of the year, delivers the company’s annual financial results, March 12 2020. Picture: FREDDY MAVUNDA

Sanlam, one of the country’s largest insurers, says it will acquire smaller companies on the continent as it strives to cement its prime position in Africa.

Sanlam, whose CEO Ian Kirk and chair Johan van Zyl will be leaving the company at the end of the year, reported an 18% decline in headline earnings to R7.4bn for the year to December, owing largely to the cost of its new BEE scheme.

Van Zyl, who was Kirk’s predecessor, laid the groundwork for the insurer’s expansion across the continent, as well as into India and Malaysia.

“We think there are opportunities to consolidate some of the more fragmented industries on the continent like in Kenya and West Africa with smaller bolt-on acquisitions where changes to capital requirements might provide the scope to do so,” said Sanlam CFO Wikus Olivier.

An increase in capital requirements could see competitors looking to increase in size through M&A to meet the new regulations. This motivation to undertake corporate activity presents Sanlam, through its wholly-owned subsidiary Saham, with an opportunity to acquire and merge with other competitors.

Besides meeting capital requirements, size is also important for other reasons, according to Olivier.

“You need to be one of the top three largest insurers in each country in order to demonstrate to multinational companies that you can satisfy their requirements across the continent,” he said.

Being able to act as a one-stop-shop for the hundreds of multinationals active in Africa is considered a valuable proposition and is a strategy already being pursued by a number of South African financial institutions that include the likes of Standard Bank and, more recently, Absa.

Sanlam’s acquisition of Moroccan-based insurer Samah, which was conducted in three stages and completed in 2018, gave the company a presence in more than 30 African countries and meant that Sanlam is considered one of the most diversified and established insurers on the continent.

“We have by far the biggest footprint in Africa, and we just haven’t seen developed market competitors attempting to build a presence on the continent on the same scale. We thought our South African peers would follow us, but for various reasons this has slowed down,” says Olivier.

He says Sanlam has a “window of opportunity” in which it can consolidate its dominant position as the largest insurer on the continent and is patiently waiting to enter two new markets, Ethiopia and Egypt.

The group is awaiting the lifting of restrictions in Ethiopia which would allow the group as a “foreign investor” to participate in the local insurance industry, while an entrance into Egypt is also being planned with a partner that has already been identified.

Sanlam’s earnings for the 2019 financial year increased by 14% to R10.7bn, with Sanlam Emerging Markets being the standout performer by increasing operational earnings by 17% to R2.3bn.

The announcements for the new CEO and chair are still to be made.

The new CEO must ensure Sanlam focuses on its core capabilities to maintain its leading market position, said Lester Davids, a trading desk analyst at Unum Capital. “Kirk’s tenure could be described as ensuring that the group takes a leap in the next potential growth areas,” he said.

“Having held the position at a time when SA faces deteriorating economic prospects, the results have proved that he certainly had the leadership capabilities the group required.”

The firm is also looking for a full-time financial director with  Olivier having acted in the position since August, after a previous management revamp. /With Bloomberg

thompsonw@businesslive.co.za