Sanlam warns of Covid-19 impact on growth, but says it has a R760m pandemic reserve

The Covid-19 pandemic will negatively impact the growth prospects of financial services group Sanlam and its subsidiary Santam, but both businesses say that they are well-capitalised to weather the storm.

Last week, President Cyril Ramaphosa announced a nation-wide 21-day lock down which started on Friday. During this time, only essential service providers such as banks and the JSE, as well as supermarkets and pharmacies, are able to operate. Sanlam and most of its service providers, including Santam, are classified as essential service providers which will continue to operate during the lockdown.

In line with JSE requirements, both Sanlam [JSE: SLM] and Santam [JSE: SNT] on Monday issued shareholder notices on the impact of the Covid-19 outbreak on their operations. Sanlam noted that in many of the markets in which it operates globally, such as Namibia, Morocco, Lebanon, Malaysia, India, the UK and Cote d’Ivoire, lockdowns have been implemented to slow the spread of Covid-19.

“Sanlam is well positioned to weather the current conditions – we have a solid balance sheet, strong operational processes and some of the best expertise available in the market,” the group said.

Both Sanlam and Santam provided an operational update for the first two months of the year and reported solid performance.

Covid-19 claims

Sanlam said that so far it had not been exposed to any major changes in claims.

“The development of claims experience will be dependent on, among others, the infection rate in the markets where we provide cover, the ability of the local healthcare infrastructure to cope with the number of individuals requiring hospitalisation and the eventual mortality rate.

“The swift action taken by many governments, in particular lockdowns, should limit infection rates and mortality experience,” the group said.

The group’s policy liabilities as at 31 December 2019 included a pandemic reserve of R760 million, it was created a number of years ago for an event of this nature, Sanlam said. “This reserve is available to cover increased mortality experience emanating from Covid-19.”

Short-term insurance provider Santam is in a process of reviewing relevant policy wordings, in order to assess the insurance exposure related to Covid-19 pandemic and how best its policies can respond to the related claims.

“The impact of Covid-19 on general insurance claims is, among others, dependent on governments’ response to the pandemic. Some governments are considering requirements for insurers to pay medical costs even if this is not covered under the policy contracts, or to contribute voluntarily to relief funds.

“Despite limited contractual exposure in many instances, measures implemented by governments may therefore still have an impact,” the group said. 

Sanlam said that business interruption insurance only applies to business interruption caused by damage to property such as a fire or machinery breakdown.

As for health insurance, exposure to Covid-19 claims is dependent on policy conditions, which vary between countries. “These conditions in general exclude pandemics and/or pandemics where quarantine is implemented,” Sanlam said.

In a separate notice to shareholders Santam said it was also “adequately capitalised” to withstand the “excessive market volatility”. Santam said it would be able to meet all of its current financial obligations as they fall due.

“The full financial impact of the Covid-19 pandemic on the company can obviously only be determined after the lockdown has been lifted, there is a return to normality and its consequences have been properly assessed,” Santam said. It added that shareholders would be updated on developments.

Earlier this month, Sanlam released its financial results for the year ended 31 December, 2019. Its headline earnings declined 18{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} to R7.5 billion.

At the time, CEO Ian Kirk warned of a tough year ahead, anticipating negative impact of load shedding as well as Covid-19 on economic growth of the markets in which the group has operations, Fin24 previously reported.