By Adelaide Changole.
Sanlam’s $1.2 billion bid to take full ownership of Santam will give Africa’s top insurer more freedom to deploy capital across the continent, India and the Lloyd’s of London market, the latest step in an expansion that will soon include banking.
Cape Town-based Sanlam, which operates in about 29 countries, has been on a years-long dealmaking spree to bolster its South African business and expand elsewhere, including combining its continental operations with those of Allianz SE and building a presence in India through investments in Shriram Group’s life- and general-insurance units.
Its cash offer of about R20.7 billion ($1.2 billion) on Monday to buy the 37.3% of Santam it doesn’t already own would further consolidate two companies at the centre of a regional insurance industry that remains heavily concentrated in South Africa. The continent’s biggest economy provides Sanlam with a strong base from which to pursue growth elsewhere in Africa, where insurance penetration remains low.
Chief Executive Officer Paul Hanratty, who took the helm at Sanlam in 2020 and is due to step down at the end of 2027, says the deal is a natural simplification.
It “creates a clearer platform from which to execute,” he said at an investor briefing. “When you sit at Sanlam level and you’re trying to work out whether to allocate a rand to India, to Lloyd’s or to Africa, the position of minorities in Santam actually muddies that decision making and that clarity on where best to allocate capital.”
The deal would complete a century-old reversal of roles between the companies. Santam was founded in 1918 to foster Afrikaner participation in South Africa’s economy and established Sanlam to provide life cover and pensions. The latter eventually outgrew its parent to become the larger financial-services group and Santam’s controlling shareholder.
Sanlam is making the move just as it prepares to roll out transactional-banking services in the first quarter of next year. Rather than build a lender itself, it plans to use a partnership with GoTyme Bank, a digital lender backed by billionaire Patrice Motsepe, to offer products including deposits and unsecured personal loans alongside life cover.
Santam, which is South Africa’s biggest general insurer, will be able to tap Sanlam’s bigger balance sheet to support Syndicate 1918 — its new underwriting operation at Lloyd’s of London, the specialist-insurance marketplace — as it seeks to accelerate international growth.
Syndicate 1918 began on January 1 and had R1.3 billion of gross written premiums in the six months through June. Santam sees the business breaking even in 2027.
Like its biggest shareholder, Santam is also looking to India, where it secured a license to open a reinsurance branch at Gujarat International Finance Tec-City, focusing on property, engineering, marine and liability. It also set up a specialist business that will provide risk-placement solutions.
In March, Santam CEO Tavaziva Madzinga said the company plans for its operations in India and the UK to comprise about a third of gross written premiums by the end of the decade.
Sanlam’s offer corresponds to 11.7 times forward earnings for Santam, Hanratty said on Monday. The target firm’s so-called forward price-to-earnings multiple was 10 before the announcement, which matches the valuation for the Johannesburg bourse’s Top 40 index.
Sanlam “was being opportunistic” with its move, said Radebe Sipamla, a co-portfolio manager at Mergence Investment Managers, which holds Sanlam shares on behalf of clients.
While Sanlam will pay what the market considers fair value for Santam’s share, the increased stake will not yield immediate accretive value for the insurer in the near term and the firm could have used the funds for opportunities in India or Africa to generate a bigger benefit in the near term, he said.
“There are better growth opportunities,” Sipamla added. “We need to see what this translates to for Sanlam. We need to see evidence of all of the benefits that they mentioned, even in terms of the cross-sell opportunities by advisers.”
Sanlam has 10 million customers in South Africa, and almost 96 million clients across Africa and Asia, while Santam serves more than 1 million policyholders in its home market and Namibia, and nearly 2.5 million globally.