Capitec goes it alone after terminating life insurance deal with Sanlam

Financial services group Sanlam and Capitec have terminated their funeral product co-operation agreement as the Stellenbosch-based lender’s fledgling insurance business takes on a life of its own through the imminent launch of Capitec Life. 

Sanlam said on Monday the termination will come into effect in October 2024 and until then, it will continue to provide reinsurance and administration services as per the agreement.

“As a result of the termination of the Funeral Product Co-Operation Arrangement, a reinsurance recapture amount of R1.9bn is payable on or before the termination date to the relevant Sanlam entities,” Sanlam said.

“The reinsurance recapture amount represents the loss to the Sanlam group for its 30% participation in the Funeral Product Co-operation Arrangement expected to be inforce at October 31 2024.”

Capitec released a similar statement and said the notice to terminate the deal was in line with the provisions of the agreement entered into in 2017.

“Capitec Life Limited, a newly licensed insurer forming part of the Capitec group, will take over the administration of the in-force insurance book pursuant to the terms of the relevant agreements, and will commence writing new funeral business on its own insurance license,” Capitec said.

The bank made a foray into the lucrative life insurance business in 2018 following its agreement with Sanlam. It has been offering credit life and funeral policies through two cell captive agreements, with the underlying policies underwritten by licensed cell captive insurers.

Capitec has 21-million customers to which to market and sell its products, providing it with a substantial base to compete with the established insurers. 

The termination is not entirely surprising as the Prudential Authority last year granted Capitec a licence to conduct life insurance business in SA, opening the door for the company to start underwriting its own life and funeral insurance products.

It immediately began underwriting its own policies in May, with 248,224 policies underwritten by the end of August, its latest results show.

“We have reaped the benefits of our investment in our own insurance team. Improvements made to our insurance products by this team contributed to the growth in policy sales and insurance income,” the bank said in its results for the six months to end-August, released at the end of September.

Over the years Capitec has diversified from a lender and a bank to offering business banking, insurance, payment services and telecommunications.

Retail banking still accounts for the bulk of the group’s profit at 62.5%, followed by insurance at 32.5%, with the rest coming from business banking.

Khumalok@businesslive.co.za