The most catastrophic event in South African insurance history

The Santam group weathered ‘the worst catastrophe event in South African insurance history’, to report growth of 14% for the six-month period ended June 2017.

The group said its conventional insurance book achieved gross written premium growth of 12% and a net underwriting margin of 4.2% (2016: 6.4%), which was at the bottom end of the group’s target range of 4% to 8%.

Santam reported gross written premium growth of 14% to R13.8 billion, while total revenue amounted to R15 billion.

“The lower underwriting profit compared to 2016 was the key driver of the 6% drop in headline earnings per share. An annualised return on capital of 20.4% was achieved.

“The normalised economic capital coverage ratio was 151% – close to the mid-point of the target range of 130% to 170%,” Santam said.

The group resolved to declare an interim dividend of 336 cents per share, up 8%.

Santam noted that on 6 June 2017, and through to 8 June 2017, a severe storm hit the Western Cape that resulted in extensive property damage in Cape Town and environs, and a devastating fire-storm in the Southern Cape (including large parts of Knysna, Brenton-on-Sea, and parts of Plettenberg Bay) destroyed a large number of properties in its wake.

Nearly 10,000 people were evacuated and seven people died, before over 1,000 firefighters eventually brought the fires under control.

Santam noted that the total insured damage has been estimated at around R3 billion, with economic losses (taking uninsured property into account) at significantly higher levels.

“This was by far the worst catastrophe event in South African insurance history, with Santam client claims totalling around R800 million, of which R72 million related to the Cape Town property damage.

“The impact on the group’s net underwriting results, including reinsurance reinstatement premiums, was R234 million,” the group said.

“The net underwriting margin, excluding the impact of this catastrophe event, was 6.4%. It was also the most severe wildfire in South African history since the so-called ‘Great Fire of 1869’, which, incidentally, burnt a similar region of the Southern Cape,” Santam said.

Experts concluded that the extreme wind, severe drought conditions, coupled with the extremely hot ambient conditions conspired to create this extraordinary event.

“It is Santam’s view that it was the same weather system that caused the strong winds and damage in Cape Town that also caused the rapid spreading and development of the extreme bush fires along the Knysna coast.

“The original cause of the fires, which ignited into vast bush fires as the result of the weather system, is still the subject of various investigations,” the insurer said.

In addition to the catastrophe events, Santam said the underwriting performance of the commercial and corporate property class came under pressure after an increase in large property claims.

“During tough economic times claims often arise as maintenance and safety standards are compromised, public service delivery falters, and fraud and arson, which are often difficult to prove, increase,” it said.

“This challenge is receiving strategic focus by expanding capacity in the areas of risk management and surveying, implementing premium rate increases, reducing exposure to certain types of risk, and increasing the level of risk sharing and risk management in collaboration with clients,” Santam said.

Read: Wildfires cause ‘severe devastation’ to at least 12 suburbs in Knysna

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The most catastrophic event in South African insurance history