Sanlam has owned most of Santam for years, and one ratings agency has never really counted it. S&P Global Ratings left Santam out when it judged the strength of Sanlam's business, because the short-term insurer was run at arm's length and kept off the group's consolidated books. Earlier this month Sanlam offered to buy the Santam shares it does not own, and S&P, in comments carried by Business Day, says that changes the picture.
Why owning all of Santam counts for more
Santam is South Africa's biggest short-term insurer, the kind that covers cars and homes, and Sanlam is the country's largest insurer overall. Owning Santam outright, S&P says, will let Sanlam solidify its standing in both life and short-term insurance, in what it calls the largest insurance market on the continent. It expects the deal, once complete, "to strengthen Sanlam's business risk profile", the agency's measure of how sturdy the business itself is.
The price is R505 a share in cash, which Business Day puts at about R21 billion for the 37.3% Sanlam does not already hold. Santam's shares jumped 19% when the offer was announced.
A capital cushion that has been thinning since 2018
The cost lands on Sanlam's capital, the money an insurer keeps back so it can still pay claims in a bad year. S&P expects the purchase to "temporarily strain capital", but it also expects Sanlam's finances to stay resilient, with capital and earnings "within acceptable limits for the ratings".
That cushion was already getting thinner. Sanlam's solvency ratio, which compares what it holds with what it might owe, has fallen since 2018 to 177% at the end of June, after a run of acquisitions and joint ventures. Sanlam has committed to keeping it between 150% and 190%, and S&P expects the group to remain comfortably within it.
The agency's comfort comes with a condition: it assumes Sanlam will be "prudent in its organic growth and disciplined in managing its capital resources". Over the past three years the same group has bought Assupol, AfroCentric and BrightRock, and lifted its stake in India's Shriram above 50%. S&P's own description of Sanlam is "highly acquisitive".
This is a view on the deal, not a change to Sanlam's rating. The scheme still needs at least 75% of the votes cast by Santam's minority shareholders, and the circular explaining it is due on or about 3 November. If it passes, the deal is expected to complete in the first quarter of 2027, and Santam's 62 years on the JSE end with it.
