No Coverage for Budget Cuts

This week has been highly eventful, with the release of inflation numbers and the Monetary Policy Committee announcing the interest rate decision on Thursday. As life becomes unaffordable for South Africans, consumers look at many ways to survive, from downsizing their lifestyles and cancelling insurance policies. The drop in clients is just one of the challenges the insurance sector faces.  

Challenges faced by the insurance sector

The nation’s insurance industry has experienced both man-made and natural disasters. The first is that frequent power outages continue to raise questions about household security and whether or not insurance companies will cover theft and property damage claims caused by load shedding. Many insurers announced in March 2023 that they would stop paying out on claims caused by power surges during load shedding. Extreme weather occurrences like the flooding that forced hundreds of residents to flee their homes in the town of Komani in South Africa’s Eastern Province in February of this year are proof positive of the impact of climate change. Moreso, given that the flood and storm damage claims in KwaZulu-Natal totalled more than R4 billion in 2022 alone.

The inflation rate has been stubborn in its decline, irrespective of the aggressive nature of the South African Reserve Bank raising interest rates. It has to be noted that globally, inflation has been stickier than anticipated, more so in the United Kingdom and the Eurozone. However, in the United States, we have seen a better handle on inflation and a pause in interest rate hikes, even if the Federal Reserve meeting minutes indicate more to come for the remainder of the year. South Africans will still have to wait until tomorrow at 10 am to see in the downward trend of inflation will continue. Analysts have forecasted that they will see the year-on-year CPI (green line) print drop further, from a current 6.3% to 5.6%, and for the Core CPI (purple line) to remain unchanged at 5.2%.

Figure 1: South African Interest Rates compared to the CPI and Core CPI since January 2022

Today’s CPI number is not the only number that the country will be the only rate we will receive this week, as on Thursday at 3 pm, the Monetary Policy Committee will announce the interest rate decision (blue line). Analysts believe that the MPC will follow the United States and pause with rate increases this time, which is at the highest levels since 2009.

Technical Analysis

Pre-pandemic, the chart consistently traded sideways between R71.50 and R82.00 cents per share from 2018. Starting in July 2022, the share price declined and only broke out of that trend on the last day of January 2023. In that period, the share price completed the entire cycle of an Elliot Impulse Wave over seven months. Furthermore, if you are to study the exponential moving averages in the same period, you will observe that the 50-day EMA went below the 200-day EMA, forming a death cross. The two only formed a golden cross shortly after the share price traded above the top declining trend line.  

Figure 2: Sanlam Limited’s daily candle stick chart since March 2021

From May this year, we have seen an upward trend with the share moving in a channel. The charting pattern in the channel newly formed is another Elliot Impulse Wave which is still yet to complete. As of yesterday’s trading day, the potential of the third point of the EIW was formed. If you look closer, you will also see that a typical candle stick pattern formed on Friday, which is the shooting star. The RSI also confirms the previous day’s movement and is currently sitting on the 70% mark and moving out of being overbought but may still move in any direction.

In recent years the significant resistant level has been the R65 share price which has only been tested several times in 2021 and only broken for a brief period in 2022. The current share price trend could see the resistance level broken for the first time in more than a year.


Compared to the All-Share index, as seen in the graph below, insurance has been good so far, with the index rising by 5.59%. Sanlam Limited has had the most significant move to the upside and is currently up 38.25%. In contrast, Old Mutual Limited and Discovery Limited’s share prices are in the mid-20s towards the upside at 25.20% and 21.56%, respectively. Lastly, we have Momentum Metropolitan Holdings Limited, which has gone up the least in comparison by 11.01% year to date.

Figure 3: Normalised performance chart for Sanlam, Discovery,  Momentum, and Old Mutual since the beginning of the year

In analysing the leader of the pack’s financial results for the 2022 financial year, the business grew modestly in a challenging economic environment with year-on-year growth in revenue of 8%.

Including the sold UK businesses, new business volumes in our life insurance operations were 5% lower than in 2021, but they are still significantly higher than pre-pandemic levels. Volume growth shrank due to fewer single premium sales in the corporate business and lower recurring premium sales in the South African retail wealthy sector. The company also has an impressive amount of cash on hand at an amount of R 48 billion to be able to weather the current environment.

Comparative valuation analysis

Figure 4: Comparative valuation for Sanlam Limited

In computing the comparative valuation analysis of Sanlam Limited, we observe that there is still potential for the upside for the share price according to the use of the EV/EBIT ratio of the company. On the right-hand side of the graph, we can also see the 52-week high that the share price reached last Friday. The other two ratios, EV/ Revenue and P/E ratio,  used to calculate the valuation, are leaning towards the downside and are below the current share price.


The current situation for insurance businesses is particularly challenging, and it doesn’t help that South African consumers are cancelling their contracts to make it have more cash on hand for other commitments due to the high interest and inflation rates. In these difficult circumstances, markets have faith in the management of these businesses, as evidenced by the fact that the share prices of all insurance companies have outperformed the JSE All Share Index.

Sources: Sanlam, MoneyWeb, KoyFin,, SABC News, Trading View, and Sanlam

Author: Odwa Magwentshu, FMVA

Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein.  Please consider the risks involved before you trade or invest.