Operational update for the three months ended 31 March 2025

This is a general communication to Santam shareholders and noteholders (collectively the "Security holders") covering the operational performance of the Group for the three months ended 31 March 2025 (the "period"). Unless the context indicates otherwise, references to the comparable period are to the three months ended 31 March 2024.

The Group delivered a strong performance during the period, exceeding the longer-term targets for all key financial performance indicators. Particularly pleasing were double-digit growth in gross written premiums, an underwriting margin above the upper end of the 5% to 10% target range and annualised return on capital in excess of 30%.

The operating environment in South Africa, our dominant market, remained challenging. Low economic growth and pressure on personal disposable income continued to dampen growth prospects, aggravated by the persistent deployment of insurance capacity in specific lines of specialist business at unsustainable rates. Emerging global geopolitical tensions suppressed business and consumer confidence.  

However, the Group's FutureFit 2030 strategy is geared towards operating under challenging conditions, laying a foundation for operational resilience that supports the financial performance and value creation for all stakeholders. Our diversification across market segments, insurance classes and geographical reach continues to stand us in good stead. The various underwriting actions implemented over the past two years continue to bear positive results, including in the property book, which delivered good underwriting results within the 5% to 10% target range.

Conventional insurance business

The conventional insurance business achieved gross written premium growth of 11%, with solid contributions from all businesses. Highlights include double-digit growth at MiWay, the combination of excellent growth in business insurance and continued acceleration in personal lines new business. Santam Re also achieved strong double-digit growth, supported by whole-account quota share business from strategic partnerships. Within Specialist Solutions, casualty lines achieved muted growth amid aggressive pricing, and Agri business volumes declined due to inherent timing differences early in the year. Net earned premium growth of 17% exceeded growth at a gross level due to timing differences, which is expected to normalise over the year with full-year growth in NEP to be closer aligned to GWP.

The underwriting performance for the period benefited from the various underwriting actions implemented over the past two years, which improved the underlying rating strength and profitability of the in-force book. Favourable attritional loss experience and an absence of significant loss events year-to-date also contributed. The overall Group underwriting margin for the period exceeded the 5% to 10% target range, a substantial improvement on the comparable period.

Favourable interest-rate market returns and an outperformance of benchmarks by the Group's investment managers supported investment return earned on insurance funds, which amounted to 2.5% of net earned premium, slightly exceeding the comparable period.

Alternative Risk Transfer ("ART") business

The ART business segment reported excellent operating results, with solid growth in fee income, underwriting results and investment margins.

Shareholder investment returns

The investment return earned on the Group's capital portfolios was below expectations and that of the comparable period. This was mainly due to foreign currency translation losses on the foreign exposure in the portfolio following a strengthening of the Rand since 31 December 2024.

Capital position

The Group's economic capital cover ratio remained well within the 145% to 165% target range following the final dividend payment in March 2025.

Prospects

Global markets were gripped by a sharp increase in geopolitical and economic risk since the end of the first quarter, fuelled by a substantial increase in import tariffs by the United States, which was met by reciprocal responses. Volatility indices rose as markets tried to price for the potential second-order effects on global trade, economic growth and inflation.

Santam's balance sheet remains resilient and weathered the investment market volatility during April very well, given the Group's conservative investment philosophy.

However, the current global political tensions enhance the risk of supply chain disruptions, which, together with a weaker Rand exchange rate, can contribute to higher claims inflation and a commensurate negative impact on underwriting results. Under these conditions, general inflation will likely rise in South Africa, eroding consumer disposable income and growth conditions. We monitor conditions as they unfold but take proactive measures to mitigate against the potential headwinds. These include increased focus on diligent expense management and accelerating strategic growth initiatives through our direct and partnership channels in South Africa and our international growth pillar. The recent finalisation of the MultiChoice transaction adds a substantial customer base to the Group, further enhancing growth potential.

The Group did not experience any notable claims from the recent wildfires in Cape Town. The conventional insurance underwriting performance for the remainder of the year remains susceptible to adverse weather-related and other significant loss experience. Investment market performance is also expected to remain volatile and uncertain, potentially impacting the investment return earned on insurance funds and the shareholder capital portfolio. The strong financial performance in the second half of the 2024 financial year furthermore sets a high comparative base. These, together with the potential second-order effects of geopolitical tension on inflation and disposable income, may impact earnings growth for the full year.

Global reinsurance rates continue to soften with the Group realising improved pricing for its 1 January 2025 renewals.

The strength of our client and intermediary relationships and a superior distribution footprint positions us well to maintain a solid financial performance as we head into an uncertain operational environment. Profitable growth remains a key focus area for all businesses.

The financial information included in this announcement has not been reviewed or reported on by Santam's external auditors.

Shareholders and noteholders are further advised that Santam's results for the six months ending 30 June 2025 are expected to be released on SENS on or about 1 September 2025.