Sanlam: Strategic Momentum Amidst Q1 Weather and Variance Headwinds
A Quarter of Strategic Progress and Weather-Driven Noise
Sanlam's first-quarter operational update (Q1 2026) is best read as a tale of two narratives: a strategic repositioning that is accelerating, and an earnings performance buffeted by factors the company deliberately does not control. CEO Paul Hanratty set the tone early, emphasising that the group is “investing in organic growth” and that “while this puts some short-term pressure on earnings, it underpins future growth.” The headline strategic achievements—closing the Investment variances related Ninety One transaction, receiving the MUFG capital injection into Shriram Finance, and achieving majority shareholding in Indian insurance businesses—were all framed as steps that strengthen the platform for long-term value creation.
We closed the Ninety One transaction in early February. The MUFG capital injection into Shriram Finance took place just after the quarter end, and we now have more than 50% share in each of the Indian insurance businesses and their economics.
Yet the financial noise in the quarter was unmistakable. weather events produced large claims at both Santam and SanlamAllianz, dragging underwriting margins. Investment variances, particularly from ALM hedging and credit spread widening, added further volatility. The company was candid that these are not recurring operational problems but rather expected oscillations within a normal range. As Paul noted, “The weather losses in the first quarter were large compared to the prior year, but within the normal range of what we expect in any given period for this sort of event.”
VNB Margin: A Mix Shift, Not a Quality Deterioration
One of the most discussed topics on the call was the decline in VNB margin. Investors worried whether this signaled a structural deterioration. Mgmt clarified that the drop is a function of product mix, not a compression in product economics. The shift toward capital-light market-linked products means less VNB per rand, but also lower capital requirements. As Paul explained, “If you take something like market-linked business where you get to switch from immediate annuities to market-linked, actually, the VNB doesn't reflect a huge chunk of the profits that you're going to make on that business because it's sitting in your asset management operations.” The mix of immediate annuities fell to 18% of sales (from ~25-30% last year), directly impacting the weighted average margin.
This is a deliberate strategic choice. The company is prioritising capital generation and return on capital over sheer margin percentage. Mlondolozi Mahlangeni, Chief Actuary, explained: “Whilst you are adding lower VNB, covered VNB, because you've got slightly lower margin product, they are also less capital intensive. Therefore, from a surplus generation perspective, your capital requirements are also not growing as much as if you are adding the more capital-intensive products.”
Weather and Investment Returns: The Known Unknowns
The underwriting margin at Santam remained above the midpoint of its target range, but SanlamAllianz fell below. For the balance of the year, management expects margins to stay within range but not recover the Q1 shortfall. On the investment side, the return on shareholder funds suffered from higher bond yields and Moroccan equity weakness. The company guided to a full-year post-tax return of 8-9%, but acknowledged that Q1 was below expectation. “So for the full year, we are expecting to end around, say, 8% to 9% after tax.” — Lotz Mahlangeni, Group Chief Risk Officer and Chief Actuary · 2026-05-23
Importantly, Sanlam does not normalise for credit spread widening in its operating profit adjustments, a stance that adds to the complexity of interpreting quarterly numbers. The CEO highlighted that the earnings guidance—CPI +3% for 2026—excludes investment variances, which are inherently unpredictable.
Outlook: Efficiency and H2 Recovery
Despite the noise, management is confident in the full-year guidance and expects H2 earnings to be stronger than H1, driven by across-the-board efficiency initiatives. The project expense base is being trimmed (potentially below ZAR 500mn for non-prefunded projects), and the group is pushing to restore VNB margins while compensating for weather-related claims. Paul's closing remark captured the tone: “In conclusion, the first quarter of '26 has seen some considerable strategic progress, and we remain confident about meeting the long-term targets we set for the business over time.”
For investors, the quarter is a reminder that Sanlam's transformation is a marathon, not a sprint. The strategic pivots—toward India, capital-light products, and a strengthened balance sheet—are the real story, while the earnings bumps are the cost of doing business in a volatile world.