Santam : posts solid half-year results

Santam posts solid half-year results

Published: 29 August 2019

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Key highlights of Santam's interim results for the six months ended 30 June 2019:

• 8% growth in gross written premiums for conventional insurance;
• Conventional insurance underwriting margin of 5.3% (2018: 8.4%) remains within target range;
• Investment return increase to R800 million (2018: R580 million);
• Return on capital of 25.4% achieved;
• Gross claims paid of R9.7 billion;
• Headline earnings per share down 3%;
• Interim dividend of 392 cents per share, up 8%.

Santam, South Africa's largest short-term insurer - has reported solid operational results for the six-month period ended 30 June 2019, in an environment characterised by tough trading conditions for short-term insurers. The group achieved Gross Written Premium (GWP) growth of 8% on its conventional insurance book and a net underwriting margin of 5.3% (2018: 8.4%), comfortably within the group's 4%-to-8% target range.

Lizé Lambrechts, Santam Group CEO, said the beginning of 2019 saw more significant catastrophic events compared to the same period in 2018.

'The underwriting results in the current period were negatively impacted by multiple catastrophe events that included the Betty's Bay fires, hailstorms and floods in Kwazulu-Natal. These resulted in higher catastrophe claims compared to 2018, compounded by losses incurred on the crop business due to hail damage,' she said.

'Additionally, South Africa's structural economic challenges continued to impact trading conditions. Within this context, we are pleased with this solid set of results, and in particular, our strong growth,' Lambrechts added.

Growth and profitability

The Santam Specialist business experienced strong growth in the property and engineering classes. The Santam Personal and Commercial business achieved below expectation growth in the difficult economic climate in South Africa, while MiWay maintained its' strong growth momentum from the second half of 2018 and reported GWP growth of 9%.

The property class reported growth of 12% on the back of strong growth in the corporate property business following lower reinsurance capacity available in the market and strengthening of premium rates.

The motor class grew by 3%, with growth in the commercial segment under strain due to difficult market conditions.

The specialist classes reflected good GWP growth with liability reporting 11% growth, transportation 8% and accident and health 12%. The engineering class benefited from a number of large construction projects mainly outside of South Africa, and reported excellent growth in GWP of 36%.

'Gross written premiums from outside South Africa increased by 21%, benefitting from strong growth in the corporate property and engineering businesses on the African continent, as well as from Santam Re in South East Asia, India and the Middle East. Good progress was made in establishing a Pan-African Specialist Insurance business with Saham Finances and the benefits from co-operation should start to realise from 2020 onwards,' Lambrechts said.

The Santam Commercial and Personal intermediated business reported solid underwriting results, although lower than its exceptional 2018 results. The motor class reported strong underwriting performance in the intermediated and direct distribution channels. The MiWay underwriting results were not significantly impacted by the catastrophe events during the period, resulting in an improved loss ratio of 54.2% (2018: 55.7%) and an underwriting profit of R203 million (2018: R159 million).

Large claim losses in the corporate property and marine businesses negatively impacted the Santam Specialist business, while the trade credit business incurred higher-than-anticipated loss ratios. The engineering class of business achieved strong underwriting results with limited claims activity during the period. The liability results improved significantly from the 2018 position, which was negatively impacted by the product recall claims relating to the listeriosis outbreak.

Santam's share of the GWP from the Sanlam Emerging Markets businesses increased by 28% to R1 577 million (2018: R1 231 million) following the increase of its effective shareholding in Saham Finances from 7% to 10% in October 2018 as well as good growth achieved in the Shriram General Insurance business in India.

The Alternative Risk Transfer (ART) business reported solid operating results of R72 million (2018: R63 million). Centriq and Santam Structured Insurance benefited from increased fee income and improved investment margins.

Listed equities achieved a return of 9% for the six months ended 30 June 2019, relative to the SWIX benchmark (60% SWIX and 40% capped SWIX), which delivered a return of 8.2%. Santam achieved an investment return on insurance funds of 2.5% of net earned premium compared to 2.4% reported in 2018.

Overall the group achieved R621m in net underwriting result, with net investment income attributable to shareholders at R800m, contributing to an overall profit before tax of R1 576 million.

Outlook for the rest of 2019

Trading conditions remain very competitive in a low-growth South African economic environment. It is expected that economic activity will, in the near term, be constrained by weak consumer spending.

Lambrechts said 2019 was the final year of Santam's Vision 2020 strategy.

'The group remains focused on delivering our goals and brand promise of Insurance good and proper. During the first half of 2019 we have carefully considered the changes required to the strategy to make Santam 'future fit' and we will finalise these by November 2019,' she said.

She added that the group's focus during the second half of 2019 would remain on achieving the company's transformation objectives, profitable growth and the Pan-African strategy in partnership with Saham Finances and Sanlam.

The Board of Directors declared a gross interim dividend of 392 cents per share (2018: 363.00).