S.African insurer Sanlam sees customer strain receding late 2024

JOHANNESBURG (Reuters) -The CEO of South Africa’s biggest life insurer, Sanlam, said on Thursday the impacts of higher inflation and interest rates were likely to recede, translating into higher premium growth and new business.

South African insurers, which control the largest and the most advanced insurance market in the continent, have been benefiting from higher interest rates as that gives them better returns on investment of premiums collected from clients.

But as interest rates keep increasing, insurers find it difficult to keep collecting premiums and generate new businesses.

“We can see the peak of the curve for the first time. Up until now we’ve been pretty negative,” Sanlam CEO Paul Hanratty said in an interview.

He said provided interest rates come down in tandem with easing inflation, and there are no major shocks in markets or natural disasters, the business would do much better in “late 2024, early 2025”.

Sanlam posted a headline earnings per share – a measure of profit in South Africa – of 3.39 rand for the six-month period ended June 30, more than double the 1.56 rand in the corresponding period last year.

But the company considers net results from financial services as a more accurate measure of profitability to avoid accounting adjustments, and this metric grew by more than a quarter for the six-month period.

This was primarily driven by better market returns on investment of premiums, lower claims and an improved client base.

“Although our financial results are good… middle- and lower-middle-income customers are getting squeezed,” Hanratty said.

This pressure translated into an 70% drop in net client cash flow – an important insurance metric that measures a net of all cash inflow such as premiums, investment income, and outflow such as claims paid and expenses, the company said.

Despite the challenges, the company forecast its second-half earnings to be similar to its first-half numbers, and also had a strong outlook for dividend growth.

Its shares were marginally up in early trading.

(Reporting by Promit Mukherjee; Editing by Clarence Fernandez, Sherry Jacob-Phillips and Gerry Doyle)