Santam posts solid 2018 annual results
Key highlights of Santam’s results to 31 December 2018:
- Growth of 7% in Conventional insurance gross written premiums to R27.7 billion
- Conventional insurance underwriting margin of 9.2%
- R18.4 billion in gross claims incurred,
- Return on shareholders’ funds of 31.8%
- Economic capital coverage ratio at 159% (target range 130% - 170%)
- Headline earnings per share increased by 47% to 2 099 cents
Santam - South Africa’s largest general insurer – has once again delivered strong annual results that show a solid 9.2% underwriting margin, which outstripped the group’s target range of 4% to 8%, and a 7% gross written premium growth for the conventional insurance business.
Lizé Lambrechts, Santam Group CEO, said the 2018 financial year had been one characterised by fewer large commercial property and catastrophe claims and that the group was in a very good shape and well geared to tackle opportunities - despite concerns about the global and South African economy.
“In comparison, 2017 was from a claims perspective the worst in over 100 years. Total claims paid in 2017 in relation to the devastating Knysna fires and the floods in Durban and Gauteng amounted to approximately R2 billion. A combination of tighter underwriting practices in commercial property and a benign claims environment contributed to excellent underwriting margins for the 2018 financial year,” she said.
“We saw a strong performance in Santam Commercial and Personal. Conversely, some of the Santam Specialist businesses saw higher claims ratios, which led to underperformance relative to historic results. The most notable of these were in SHA, our liability business, where a number of large claims, including product recall claims relating to the Listeriosis outbreak, negatively impacted the results. Despite the tough economic conditions, the group achieved solid growth,” Lambrechts added.
The Alternative Risk Transfer (ART) insurance segment grew gross written premium by 40% (26% excluding the impact of the Santam Structured Insurance acquisition) and reported operating results of R96 million (2017: R84 million).
Net investment income attributable to shareholders, inclusive of investment return on insurance funds amounted to R1 105 million (2017: R1 012 million). A positive movement in foreign exchange differences of R376 million (2017: loss of R116m) was a key contributor to the improved performance. The 2017 results included the release of the foreign currency translation reserve of R175 million relating to the unwinding of the Santam International investment.
Cash generated from operations increased to R5.45 billion (2017: R3.3 billion), positively impacted by the improved claims experience. The key drivers of the 47% increase in headline earnings per share from 1 425 cps in 2017 to 2 099 cps in 2018 were the significant improvement in the underwriting and investment results.
A return on capital of 31.8% was achieved. The economic capital coverage ratio was 159% – slightly above the mid-point of the target range of 130% to 170%.
Conventional Insurance reported satisfactory growth of 7%. The intermediated personal and commercial lines business and MiWay experienced growth pressure in the difficult economic conditions, while strong growth was achieved in the specialist business and Santam re.
Gross written premium growth from the rest of Africa was strained. Santam Namibia reported a contraction in GWP of 7% in a low growth competitive market. Specialist Business benefitted from a once off construction project in 2017 which did not reoccur in 2018. Santam re achieved strong growth in Southeast Asia, India and the Middle East. The net effect was a 5% increase in premiums from outside of South Africa written on the Santam Ltd and Santam Namibia Ltd licenses (2018: R3 367 million; 2017: R3 200 million). During the period Santam also increased its effective shareholding in Saham Finances, which has a foothold in the Middle East and across North and West Africa, from 7% to 10%.
The property class reported growth of 11% on the back of strong growth in the corporate property business following lower reinsurance capacity available in the market. Crop Insurance gross written premiums contracted by 12% following lower take up of crop insurance in the 2018/2019 crop year.
The motor class grew by 6%, with MiWay reporting 8% growth (gross written premium of R2 496 million; 2017: R2 319 million). MiWay reversed the slowdown in growth reported during the first half of the year with a strong performance during the second half of the year following focused management actions. The commercial and personal lines intermediated business experienced a slowdown in growth of the motor book in competitive low growth market conditions.
The liability class continued to experience significant competitive pressure and focused on improving profitability, resulting in growth of only 2% reported during the period. The engineering class also reported low gross written premium growth of 3%, reflecting the impact of fewer large construction projects and the uncertainties impacting the construction sector.
Transformation and Outlook
The year 2018, which saw Santam celebrate its’ centenary, was also about delivering more than just solid insurance to the company’s 1 million odd policyholders. The general insurance group also contributed to corporate citizenship and was recognised as a catalyst for change in driving client value, community partnerships, BEE transformation and contributing to a sustainable environment.
The company was also certified as a Top Employer in South Africa for the third year running and achieved a Level 1 B-BBEE rating according to the Financial Sector Charter.
“The 2019 period will be the final year of our Vision 2020 strategy. We will use the period to define our new strategy for 2020 and beyond. Our strengths remain our diversified footprint, people, capital strength, recognised brand, technical expertise and ability to grow business flows outside of South Africa. We will continue to focus on profitable growth, cementing our leadership position in South Africa and exploring the opportunities presented by our emerging markets footprint,” said Lambrechts.
“The relationship with Saham Finance, through our partnership with Sanlam, offers us an opportunity to be part of a truly pan-African financial services group. Santam will be actively involved in growing the pan-African specialist business with Saham Finance in 2019,” she added.
The Board of Directors declared a final dividend per share of 665c (2017: 616c).