Santam earnings hit by crop losses, fires and floods

South Africa’s largest short-term insurer Santam has reported a solid operational results for 2019, recording a 7% Gross Written Premium (GWP) growth and 7.7% underwriting margin (2018: 9.2%) for the conventional insurance business.

However, headline earnings per share decreased by 1% to 2069 cents.

Lizé Lambrechts, the Santam Group CEO, said the group is satisfied with its performance, particularly in the face of the strained South African economy, which challenged growth in premiums over the year.

“Our underwriting margin is at the high-end of our target range of 4% to 8%. Going forward the group will continue focusing on growth, disciplined underwriting actions and managing the risk associated with poor economic conditions,” she said.

Fires, floods and drought devastated various parts of the country during 2019, with Gauteng, KwaZulu-Natal and the Northern Cape taking a particular toll.

Santam paid more than R800 million in Agri related claims during the period under review, it said.

“We’ve seen time and again the impact disasters have on the country’s most vulnerable communities. Therefore, we are continuing to focus on entrenching resilience through sustainable partnerships,” Lambrechts said.

Cash generated from operations increased to R5.8 billion (2018: R5.5 billion), due to better investment returns realised. Headline earnings amounted to 2069 cps, down by 1% from 2099 cps in 2018.

A 22.2% return on capital was attained. The economic capital coverage ratio was 160% – at the midpoint of the target range of 150% to 170%.

The board declared a final dividend of 718 cent per share (2018: 665 cps).

Performance

Following a difficult start to 2019, with a number of catastrophe events (impact of R334 million compared to R114 million in 2018) and significant insurance crop losses, the business experienced a subdued claims environment for the remainder of the year, resulting in a strong underwriting performance.

The Santam Commercial and Personal intermediated business reported excellent underwriting results, although lower than its exceptional 2018 results. The business benefitted from the new underwriting, administration and product platform as well as disciplined underwriting actions.

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: 55.2%) and an underwriting profit of R393 million (2018: R334 million).

The property class reported an underwriting result of R212 million, compared to the R519 million reported in 2018, negatively impacted by catastrophe events in South Africa and in Asia.

The Specialist business benefited from the strong underwriting results achieved by the property and engineering classes of business. The liability results improved significantly from the 2018 position, which was negatively impacted by the product recall claims relating to the listeriosis outbreak.

The Specialist business results were negatively impacted by the continued underwriting losses reported by the Trade Credit Business that is in run-off since August 2019. The crop insurance class was negatively impacted by significant hail and frost-related claims resulting in a net underwriting loss of R87 million (2018: net underwriting profit of R54 million).

The Alternative Risk Transfer (ART) business reported excellent operating results of R171 million (2018: R96 million). Centriq and Santam Structured Insurance benefited from increased fee income and improved investment margins. Strong growth was achieved in the risk finance and alternative distribution businesses.

  • The group reported a 9% growth in the property class on the back of strong growth in the specialist property business, following lower reinsurance capacity in the market.
  • Crop insurance saw 22% growth in gross written premiums, supported by a change in the mix of farming crop types that increased insured values in South Africa, as well as reinsurance partner business.
  • The motor class grew by 4%, with MiWay reporting 10% growth (gross written premium of R2.8 billion; 2018: R2.5 billion).
  • The commercial motor intermediated business had strained growth as a result of difficult market conditions.
  • Conventional insurance saw satisfactory growth of 7%, it said.
  • Gross written premiums from outside South Africa written on the Santam Ltd and Santam Namibia Ltd licences amounted to R3.9 billion (2018: R3.4 billion), equating to 15% growth.
  • This was propelled by strong growth in the corporate property and engineering businesses in Africa, as well as in Santam Re in Southeast Asia, India and the Middle East.
  • Several large construction projects outside South Africa benefitted the engineering class, which grew strongly by 20%. The liability class had growth of 5% (2018: 2%), with a focus on improved profitability in a competitive climate.

Net investment income attributable to shareholders, inclusive of investment return on insurance funds of R1 396 million (2018: R1 105 million) was reported.

The improved performance was as a result of fair value gains on financial assets and increased interest income.

While 2018 saw a positive movement of R376 million in foreign exchange differences, negligible gains were seen in 2019.

Outlook

Santam said it has embarked on a new strategy for the next five years, where it will be focused on harnessing technology to drive of innovation and efficiency, and improve its human capital capabilities.

It will also expand its international business and growing its specialist business, the group said.

“The investment market is likely to remain uncertain. The lower interest rate environment will negatively impact investment performance, while the non-rand-denominated investments increase foreign exchange volatility for the group. Santam will continue to assess the risk and implement appropriate responses, guided by our risk appetite,” Lambrechts said.


Read: Santam results hit by multiple ‘catastrophe events’ – including fires, hailstorms and floods

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Santam earnings hit by crop losses, fires and floods