Sanlam to stage comeback by slashing costs

Posted On Friday, 05 September 2003 02:00 Published by
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Net inflow of R558m for premier life assurer

Financial Services Correspondent

SANLAM'S 14% increase in operating profit for the first six months of this year shows its bid to reassert itself as a premier life assurer is bearing fruit although a major task remains to revitalise its core life assurance business.

Perched at the apex of SA's life assurance sector, Sanlam's share price has suffered over the past two years due to confusion over its sprawling banking business and poor investment performance.

But CEO Johan van Zyl has made headway on these issues since he was appointed in May and yesterday said he would slash costs by R250m to boost flagging returns in its life assurance business.

Sanlam yesterday reported a 30% increase in headline earnings, but this was boosted by sterling contributions from short-term insurer Santam and Absa Bank, in which it holds a 23% stake.

Importantly, Sanlam showed a net inflow of R558m for the six months, after outflows of nearly R4bn the previous year. But these gains also masked a drop in new life assurance business.

Its core operation struggled as the embedded value of new life assurance business dropped to R100m from R146m the combined effects of grim market conditions and the residue of negative sentiment towards Sanlam.

Van Zyl said that while Sanlam was powerless to tackle volatile markets, the drop in embedded value from new business could be addressed by cutting costs .

"There is a lot of spare capacity in the system. We plan to cut 15% of our costs on the life side, which will have an effect on our embedded value and new business embedded value margins," he said.

This drive will see Sanlam shave costs, inevitably resulting in retrenchments.

"Sustainability is hugely dependent on cutting costs. You can't sustain a system that has been set up for a much larger market share than we would could hope to get," he said.

Progress has also been made in tackling other vulnerable points weak returns from Sanlam Investment Management (SIM) and an unwieldy banking business in Absa and Gensec.

Until recently, SIM was one of the worst-performing money managers but it has hauled itself out of the bottom quarter of large managers into the top half over the last year, according to Alexander Forbes rankings.

Van Zyl said: "The key is to build a long-term performance track record . "

Sanlam's banking strategy has also recently assumed coherence.

Two weeks ago, the group said a restructuring of Gensec was likely to lead to it handing in its banking licence, while a partnership and distribution agreement with Absa was also announced last week. The deal with Absa will help address another key concern: wooing people back to its life assurance products.

To do this, Van Zyl said Sanlam would become more focused, moving away from a "shotgun-type approach", with a narrower focus in its market segments.

But analysts are wary of bestowing kudos on Sanlam until its core life assurance business is back on track.

"To convince the public and brokers to buy Sanlam again will be a slower process. Part of this will be an improved investment performance and improved distribution network through the Absa brokers," said one analyst who asked not to be named.

"But Sanlam is still ultimately a well recognised brand ," he said.

The Bottom Line: Page 12

Sep 05 2003 07:39:59:000AM Rob Rose Business Day 1st Edition

Publisher: Business Day
Source: Business Day

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