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Monday, October 6, 2014 - 08:22
Firm improvements

Santam reports headline earnings per share of 799 cents for the six months ended 30th June 2014. This is 119% above the earnings reported for the prior period. Earnings per share (EPS) were 799 cents, 124% above the June 2013 corresponding period. The company shows a 10% increase in gross written premiums (excluding cell captive insurance business) despite difficult market conditions, and a net underwriting margin of 7.4%, which is above the long-term target range of 4% to 6%. The Santam board has declared an interim dividend of 262 cents per share, up 8.3% from the previous period.

Santam CEO Ian Kirk says the increase in headline earnings and EPS was driven largely by a substantial improvement in underwriting results compared to the comparative period in 2013, as well as an improvement in investment results. “Our results for the period under review are an outlier in the market - we continue to operate in challenging underwriting conditions, with low GDP growth, historically low interest rates and a tough general economic environment. The decline in the Rand-Dollar exchange rate continues to place strain on the motor insurance as well as the property insurance book as the weaker rand puts pressure on the cost of claims. The average claims cost in motor has gone up significantly as the rand has weakened by almost 35% since the start of 2012.”
Santam’s improvement in underwriting results was influenced by a strong turnaround in the crop insurance business, from a loss of R112 million for the six months to June 2013 to a profit of R187 million in the corresponding 2014 period. The company’s specialist division also delivered strong underwriting results.
MiWay improved on its 2013 performance in competitive market conditions with a number of new entrants, with a claims ratio of 58.3%, and increasing gross written premiums by 14% to R714 million. The Santam Re underwriting results improved following lower retrocession costs and corrective action on the South African portfolio. The Santam commercial and personal intermediated business benefited from the impact of corrective actions and segmented premium increases implemented since the first quarter of 2013.
Santam’s investment performance was in line with the market, other than for the negative impact of a R93 million hedge over equities which expired during the period. Positive fair value movements in Santam’s interest in the Sanlam Emerging Markets (SEM) general insurance businesses in Africa, India and South East Asia further enhanced the investment performance. The return on insurance funds of R222 million showed an improvement from the R195 million earned in the prior period following the increase in interest rates in January 2014.
Cash generated from operations amounted to R930 million, an increase from R516 million in 2013 while the solvency margin of 44% is at the upper end of Santam’s long-term target of 35% to 45%. The return on capital was 29.6% compared to 14.9% during the comparative period.
“Despite very competitive conditions across all our business units, they all performed well. Santam’s continued focus on its strategic growth initiatives resulted in positive growth across all significant insurance classes,” says Kirk.
In terms of the various group operations, the specialist businesses delivered strong underwriting results in various business classes including liability, corporate property and transportation. The accident and health class reported a loss due to a softening in market conditions. “Despite large corporate property claims in the short-term insurance industry as a whole, especially in the mining and retail sectors, this did not affect Santam unduly. With regards to liability classes, there have been some very large claims for medical malpractice in the industry, but following a decision to reduce risk exposure during 2013, Santam was not impacted as much as would otherwise have been the case.”
Looking ahead, Kirk says South Africa is likely to remain in a below 2% growth trajectory for the next two or three years, with inflation above the target range. “This will make it a tough environment for the South African consumer and for our business. However, we remain confident in our ability to execute our strategy through continued diversification, effective underwriting and investment management.”
Weather-related claims continue to have an impact on both insurers and policyholders. Severe flooding impacted the northern parts of the country in the first quarter. The total claims for the short-term insurance industry from the 5.5 magnitude earthquake that hit the area of Orkney in the North West on 5 August are anticipated to amount to around R100 million with Santam anticipating a cost of R20 million. The total cost for Santam to date from all catastrophe events in 2014 is approaching R200 million. By comparison, catastrophe events during 2013 – including floods in Limpopo and the Western Cape, and two severe hailstorms in Gauteng – cost the industry an estimated R2.5 billion and Santam almost R600m (R300m net of reinsurance).”
Kirk says the Sanlam/Santam footprint across Africa would be largely in place by mid-2015, and the company will over the next few years focus on building the strength of these businesses, and increasing the extent of business sourced from outside South Africa. “However, we will always be a proudly South African company, and will be there when our clients need us most. With a 23% market share in South Africa, Santam pays more money in claims than any other insurer, and we are committed to working with our clients to help manage their risks in challenging economic times.”
 

Copyright © Insurance Times and Investments® Vol:27.10 1st October, 2014
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