Sanlam’s mortality claims doubled during second wave of Covid-19, says FD Abigail Mukhuba

The insurer has paid mortality claims of R8 billion in South Africa and R2 billion in the rest of its operations.

Sanlam has reported strong interim financial results for the six months ended 30 June 2021, with the net result from financial services increasing by 16 percent and new business being reported as 94 percent higher.

Substantial growth in new business volumes are 12 percent higher than 2020, with life insurance premiums up over 50 percent. Net fund inflows were R38 billion and the group solvency ratio of 175 percent was comfortably within the target range of 160 percent to 200 percent.

In terms of the impact of Covid-19, the group noted that it had paid mortality claims of R8 billion in South Africa and R2 billion in the rest of its operations in the first six months of 2021, with cumulative payments of more than R22 billion since the start of 2020. Santam continued to settle contingent business interruption (CBI) claims and paid R700 million to policyholders in addition to the R1 billion paid in interim relief in August 2020, bringing the total CBI payments to R1.7 billion at 31 August 2021.

Sanlam CFO Abigail Mukhuba, who joined the insurer in October 2020, said: “In the first wave, we had a lot of retail mass [low-income market] that was impacted. And now, with the second wave, it was mostly retail affluent as well as the corporate business.”

She said Sanlam's mortality rate doubled during the second wave.

“Also, for the emerging markets, you’ve got a lot of delayed reporting. In India, we report with a three-month lag. And then in Africa, outside South Africa, we don’t always have real-time data. So we’re expecting to still get a bit more in the next month or two,” she added.

Increases in annually renewable group risk premiums, underwriting changes and a risk-based approach that takes vaccination status into account for certain product lines are some of the initiatives that Sanlam has identified to limit the impact of Covid-19 on future mortality losses in its operations.

Abigail said, “It’s not a case of asking, are you vaccinated or not, and then automatically you get an increase in your premium, no. We have to do an assessment to see if it is a high-risk person.”

Adjusted Return on Group Equity Value (RoGEV), the primary indicator of long-term value creation, was recorded at 6.2 percent, slightly below the targeted 6.6 percent, due to the very high level of mortality claims.

Growth in the group’s operating earnings benefited from higher equity market levels that supported fund-based fee income, the contraction of credit spreads, lower levels of provisions for doubtful debts, improved return on insurance funds in Sanlam Pan Africa General Insurance (SPA GI) and an improved underwriting performance from Santam. Once again Covid-19 related mortality claims were a factor that negatively impacted on earnings during the period, but this was largely offset by the release of discretionary reserves in the South African life insurance operations.

The group will consider further discretionary reserve releases during the second half of 2021 based on actual experience.

Based on current estimates, the group expects that existing reserves should largely mitigate the Covid-19 related excess mortality impact on operating profit for 2021, despite the uncertainty regarding the impact of future waves, possible variants and the progress made with the vaccination rollout.