Sanlam posts Sh171m loss on portfolio decline, taxes

The listed insurer had recorded a net loss of Sh9 million the year before. The company posted a loss of Sh180.9 million in its investments in the review period, reversing a gain of Sh631.5 million a year earlier.

Sanlam also paid a tax of Sh117.2 million on its pre-tax loss of Sh54.7 million, underlining the impact of the obligation to the Kenya Revenue Authority (KRA).

This represented a larger tax liability compared to the year before when the company paid KRA Sh122.2 million on pre-tax earnings Sh113.1 million.

Sanlam did not publish a breakdown of the components of the investment losses. The company, however, holds rental properties, government debt securities and listed equities.

The assets sometimes show paper losses in the case of falling share prices for equities and rising interest rates on Treasury bonds.

Interest rates on new auctions of bonds have been rising in recent months to nearly 17 percent, lowering the market value of securities bought earlier at lower coupons.

The stock market has also seen a downward trend led by major companies such as Safaricom whose stock has dropped in the wake of low earnings and high capital use in Ethiopia.

Other insurers with a major exposure to the bond and stock market are expected to report similar pressures.

Besides a higher tax burden and investment losses, the company also incurred larger finance costs.

Sanlam has started the implementation of the International Financial Reporting Standard (IFRS) 17 which requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts.

In June this year Sanlam General Insurance pledged its shares to secure a Sh1 billion loan it took from a subsidiary of Sanlam Limited in an agreement that could see the South African multinational take a major stake in the Kenyan insurer if it defaults.

The loan was disbursed in May last year to boost the insurer’s capital adequacy ratios, bringing it to compliance at 100 percent compared to the previous negative 81 percent.

The terms of the debt, which was provided by Sanlam Emerging Markets (Pty) Limited, have been disclosed by the general insurer’s parent firm Sanlam Kenya in its latest annual report.

“The loan agreement … provides that if the borrower fails to repay any principal or any interest outstanding when due under the agreement, the lender may elect to issue a notice to the borrower of the lender’s intention to procure the settlement or all or part of the outstanding principal and interest amounts of the loan by the issuance of ordinary shares of the borrower to the lender on such terms as are set out in the notice from the lender,” the company says in the report.

Sanlam Kenya currently owns 71.86 percent of the general insurer, valuing the stake at Sh94.6 million as at December 2022.

The Nairobi Securities Exchange-listed firm had written off Sh606.3 million of its investment in the subsidiary in 2021.

Its most valuable subsidiaries are Sanlam Life Insurance Limited and Sanlam Securities Limited which it carries at Sh873.3 million and Sh483.8 million respectively. It fully owns the two subsidiaries.

The loan advanced to Sanlam General matures in 18 months (in October, 2023). It has an interest rate of three percent per annum.

The credit facility helped the insurer meet regulatory capital requirements as it seeks a path to profitability.

“As at December 2022, Sanlam Life Insurance Limited and Sanlam General Insurance had complied with the external capital requirements … of 212 percent and 100 percent respectively,” Sanlam Kenya says in the report.

“This was because of Sanlam General Insurance receiving Sh1.08 billion from Sanlam Emerging Markets on May 5 2022.”

The general insurer narrowed its net loss to Sh151.6 million in the year ended December 2022 compared to Sh500.9 million a year earlier.

If the company fails to repay the loan, it will issue a substantial stake to Sanlam Emerging Markets which is in turn owned by Sanlam Limited –the ultimate parent firm of Sanlam Kenya.

The South African multinational owns a 57.14 percent stake in the NSE-listed firm. The loan taken by Sanlam General is among the major credit facilities outstanding within the Kenyan operations.

Sanlam Kenya separately said its shareholders will be required to provide new capital to settle a Sh4 billion loan from Stanbic Bank which the insurer has been unable to repay from ongoing operations amid losses.