Africa’s biggest life insurer, Sanlam, says some South African clients are accessing savings to fund solar power and back-up energy projects for their homes.
Group finance director Abigail Mukhuba told Business Times after the release of the company’s 2023 annual results that some clients have been drawing on savings to source alternative power.
The company, which has South African, pan-African and Asian operations, has experienced the greatest outflows from its South African market as consumers grapple with high interest rates, rising inflation and a depressed economy.
Mukhuba said some clients were drawing on their guaranteed annuities to install alternative energy solutions to keep the lights on at home. Although Sanlam can’t always see where clients’ money gets channelled after savings have been withdrawn, data suggests it is to alternative energy solutions for homes.
“I think they’re trying to respond to generating their own alternative energy, which in a way, we’re comfortable with because you realise that people are using their savings for something that is actually value-adding and helps in their day-to-day lives. It's not that the funds are being wasted.”
In 2023 Eskom implemented its worst rolling blackouts on record, leaving businesses and households without power for many hours daily. The economy is estimated to be losing around R1bn a day during load-sheding. The trend has continued, with rolling blackouts implemented almost every day of 2024 thus far.
In a way, we’re comfortable with (this) because you realise that people are using their savings for something that is actually value-adding and helps in their day-to-day lives
— Group finance director Abigail Mukhuba
Mukhuba said Sanlam expects the uptake of alternative energy solutions in homes to continue. “I expect that we’re going to see a few more savings withdrawals in the next few years if people continue to build up on alternative methods of generating energy. I actually think it's probably a structural shift in South Africa in terms of the overall industry at large,” she added.
Sanlam posted a total net client cash flow — the difference between a company’s total client cash inflows and outflows — of almost R36bn for the year to December 31, down 41% from the same period a year earlier.
The slump comes from a 99% drop in investment management net client cash flows and a 14% dip in life insurance net client cash flows, but the insurer saw a slight 2% growth in general insurance net client cash flows.
The insurance sector has experienced significant net client cash outflows, Mukhuba said, but Sanlam managed a net inflow position.
“That’s why we said it’s robust, given the economic conditions we’re operating in,” she said in reference to the total net client cash flow achieved. Of the outflows, some were from one-off large mandates, which it does not expect to be repeated.
Despite the drop-off in total net client cash flow, Sanlam achieved record earnings in the 2023 financial year. Its net result from financial services, which the company considers a more accurate profit measure than headline earnings, jumped 18% to R12.4bn.
Its main value creation metric, return on group equity value, was above the company’s minimum acceptable rate of return, or hurdle rate, of 15.5%.
It declared a final gross cash dividend of 400c per share, an increase of 11% from a year earlier.
The insurer still has concerns over inflation and interest rates in 2024. “The operating environment for our industry has been very difficult for several years and we remain cautious about the outlook for inflation and interest rates as well as the overall global macro environment,” group CEO Paul Hanratty said during the company’s results presentation.
The company said in a statement that management actions to “improve resilience to the cyclical economic pressures on clients are being implemented … [which] may negatively impact short-term sales and value of new business in 2024 in the retail mass segment, but will ensure sustainable long-term growth”.
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