Insurer Sanlam on Thursday (5 September), reported 31% decline in headline earnings in challenging conditions that saw South Africa’s economy contracting by 3.2% in the first quarter of 2019.
Diluted headline earnings per share was 32% lower to 169 cents per share, from 248.6 cents previously.
On the positive side, net operating profit of R5 billion increased by 13% on the first six months of 2018 – up 10% in constant currency, with good growth at all major businesses, apart from Santam, Sanlam Corporate, Sanfin and Saham Finances.
New business volumes increased by 4% to R111 billion, and net fund inflows of R23 billion compared to R19 billion in 2018. The value of new life insurance business written in the first half of 2019 increased strongly by 19% on the comparable period in 2018.
Sanlam said that solid organic growth was augmented by the Saham Finances corporate activity in the second half of 2018, contributing to a 13% increase in net result from financial services, 19% growth in the value of new covered business (VNB) written and 19% higher net fund inflows.
A favourable change in corporate investment confidence and foreign direct investment flows, key drivers of economic activity and employment, is dependent on confidence in the future policy direction of the newly elected South African government and realistic proposals to resolve the governance, operational and financial challenges faced by state-owned enterprises, in particular Eskom, Sanlam said.
Slower than expected progress on these critical matters, together with persistent political uncertainty, continues to hamper any improvement in business and investor confidence.
Corporate governance failures in the private sector also tarnished South Africa’s investment case as an investment destination for foreigners. Coupled with volatile investment markets, higher unemployment and low growth in household disposable income, these issues severely limited new business growth prospects, the group said.
“This was especially evident in our mass affluent and high net worth client segments, and is consistent with our experience in the last three quarters of 2018. The weak economic conditions also increased credit risk at a number of corporate debt issuers, requiring a strengthening of credit provisions in Sanlam Specialised Finance (Sanfin).”
And while the country’s economy rebounded in the second quarter, Sanlam noted that subdued economic growth of less than 1% is expected for the 2019 year.
“We do not expect a major recovery in economic conditions in the remainder of 2019. New business growth potential will commensurately remain under pressure,” said Sanlam chief executive officer, Ian Kirk.
Investment market volatility is also expected to persist, aggravated by tensions in the trade war between the United States and China, he said.
“A recovery in the South African mass affluent and high net worth new business performance is largely dependent on developments in the political environment.
“New business growth in the South African entry-level market will be impacted by the diminishing base effect from the launch of the Capitec Bank funeral product in May 2018,” he said.