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2 December 2015
Economic conditions in the markets where the Group operates remained challenging, with the commodity-based economies experiencing pressure on domestic economic growth as well as currency volatility. South Africa, the Group’s largest region, is no exception with a poor economic growth outlook for 2015 and a marked weakening of the Rand against developed market currencies since the end of June 2015.
The broader trends underlying the Group’s performance for the 10 months to 31 October 2015 are in line with those of the first half of 2015.The large R8.3 billion policy written by Sanlam Employee Benefits in the third quarter of 2014 (“the SEB policy”) affects the comparability of new business volumes, value of new life business (VNB) and net result from financial services.
The salient features of the Group’s performance for the 10 months to 31 October 2015 are:
All of the Group operations remain well capitalised. Sanlam Life Insurance’s statutory capital covered its Capital Adequacy Requirements 5 times on 30 September 2015.
The Group had excess capital of R4.6 billion available for redeployment at the end of June 2015. Utilisation since then has been limited to a number of small transactions. Including investment return earned on the portfolio and the release of some illiquid capital, discretionary capital amounted to R4.8 billion on 31 October 2015. As indicated before, a major portion of the available discretionary capital has been earmarked for transactions in the process of completion.
The Group followed a prudent approach in the allocation of capital to its operations in anticipation of the implementation of Solvency Assessment and Management (SAM) in South Africa. With increased certainty regarding the final outcome of the SAM regime, the Group is identifying opportunities to improve the efficiency of capital allocation. Being a diverse Group, one of the opportunities is to cover part of the life operations’ capital requirement with the investments held in other Group operations. This is referred to as internal capital diversification that creates some additional capacity for strategic investments. Combined with the existing discretionary capital pool, this will enable the Group to cover the funding requirements of all the recently announced transactions, including the proposed acquisition of an interest in the Saham Finances Group, from internal resources. An update on the Group’s capital position will be provided in the 2015 annual results announcement in March 2016.
We expect that the economic and operating environment will remain challenging for the remainder of 2015 with a resulting impact on the Group’s key operational performance indicators. Shareholders also need to be aware of the impact of the level of interest rates and financial market returns and volatility on the Group’s earnings and Group Equity Value. Relative movements in these elements may have a major impact on the growth in normalised headline earnings and Group Equity Value to be reported for the financial year ending 31 December 2015. Relatively strong operating earnings and new business growth experienced in the latter part of 2014 also cause an increase in the comparable base.
The 2015 financial year has been particularly challenging to date with a number of headwinds contributing to lower than expected performance in a number of key metrics. These are short-term pressures and we remain confident that the Group’s strategy is appropriate to deliver on our longer term growth targets.
The information in this operational update has not been reviewed and reported on by Sanlam's external auditors. Sanlam’s financial results for the year ending 31 December 2015 are due to be released on 10 March 2016. Shareholders are advised that this is not a trading statement as per paragraph 3.4(b) of the JSE Limited Listings Requirements.
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