S&P Global Ratings

S&P Global Ratings said that it believes South Africa-based insurer Sanlam's plan to enter a joint venture with Allianz (core operating entities rated AA/Stable/A-1+) provides an opportunity for both groups to reinforce their competitive positions in Africa through pooling their respective African assets. We expect that Sanlam's financial risk profile is unlikely to change because of this anticipated transaction. We believe the Sanlam group, comprising Sanlam Ltd. (core operating entity rated zaAAA/--/--) and Santam Ltd. (BB/Stable/--; zaAAA/--/--), is likely to maintain its 'AA' risk-based capital adequacy, measured using our capital model. Moreover, the economic treatment of the joint venture will have a neutral impact on the group's regulatory solvency ratios.

The transaction remains subject to approval from regulators and competition commissions, and is expected to occur over the next 12-15 months. The initial shareholding split in the joint venture between Sanlam and Allianz will be 60:40 respectively. The joint venture will help further Sanlam's ambition of building out its African portfolio by expanding into countries it has earmarked as a priority. It will also provide growth opportunities for the group's specialist business in general insurance, although earnings diversification will likely remain small, relative to South Africa. Overall, we consider that the planned joint venture won't affect Sanlam's business position, considering that Sanlam Emerging Markets (SEM; covering North, West, and East Africa) makes up a small proportion of Sanlam's overall portfolio (roughly 6.5% of total new business at year-end 2021); the pan-African SEM portfolio represented roughly 18% of the group's equity value at year-end 2021. 

Santam intends to sell its 10% stake in its previous joint venture with Sanlam (SAN JV) in full to Allianz. This shareholding was worth South African rand (ZAR) 1.9 billion, or 16% of shareholder funds as of Dec. 31, 2021. In our view, this divestment would have no significant impact on Santam's earnings. We expect that Santam would use the proceeds from this transaction to manage its capital and regulatory solvency ratios within its targets.