Santam reports strong underwriting results, growth of 12% in gross written premiums
Highlights of Santam’s results to 31 December 2014:
- Growth of 12% in gross written premiums (excluding cell insurance business).
- Paid R13.6 billion in claims.
- Net underwriting margin of 8.7% compared to 2.8% in 2013.
- 40% headline earnings growth.
- Final dividend of 480 cents per share.
- Cash generated by operations R2.4 billion (compared to R1.6 billion in 2013).
- Group solvency ratio at 45.6%, marginally exceeding the 35% to 45% target range.
- Return on capital of 24.7%.
- Net acquisition cost ratio of 28.2% (up from 27.9% in 2013).
- MiWay gross written premiums up 14% to R1.5 billion.
- Additional R186 million invested in general insurance businesses in emerging markets.
CAPE TOWN, 2 March 2015 – Santam, South Africa’s largest general insurer, today reported a 12% increase in annual gross written premiums (excluding cell insurance business) in challenging market conditions for the year to end-December. Claims paid amounted to R13.6 billion. The group achieved a net underwriting margin of 8.7% compared to 2.8% in 2013 – well above the target range of 4% to 6%. The results were positively impacted by improved contributions from all business units, as well as a substantial turnaround in the crop insurance business.
In announcing the results, Santam noted that the crop insurance business staged a significant turnaround from a loss-making R142 million in 2013 to an underwriting profit of R251 million in 2014. Net catastrophe claims for 2014 amounted to R187 million compared to R280 million in 2013.
Santam CEO Lizé Lambrechts says if the volatility in the crop insurance results over the past two years is normalised, the net underwriting margin for 2014 would be 6.9%, compared to 3.8% in 2013.
“This improvement can be attributed to more benign weather conditions in 2014, as well as a significant focus by management on process enhancements and corrective actions to improve the operations of all the insurance businesses in the group,” she says.
Santam’s specialist property business delivered a strong performance despite a number of large property claims, due to a positive contribution from the reinsurance programme. Following corrective underwriting actions, with specific focus on previously under-performing portfolios, liability business showed a significant improvement compared to 2013. The engineering class was under some pressure due to competitive forces. MiWay achieved a claims ratio of 57.4%, resulting in an underwriting profit of R159 million (2013: R54 million). Santam Re achieved good profit growth, following lower retro cession costs and corrective action on the South African portfolio.
The net acquisition cost ratio increased marginally to 28.2% from 27.9% in 2013. Investment returns on insurance funds of R425 million increased from the R374 million earned in 2013, supported by increased interest rates as well as a higher average insurance funds balance for the year. The combined effect of insurance activities resulted in a net insurance income of R1,919 million compared to R851 million in 2013.
Lambrechts says the investment portfolio performed in line with the market movements experienced during 2014. The group’s investment performance was negatively impacted by the hedge over equities which expired in May 2014 at a loss of R93 million. It was enhanced by positive fair value movements to the value of R93 million in Santam’s interest in the Sanlam Emerging Markets (SEM) general insurance businesses in Africa, India and South-East Asia.
“During 2014 Santam expanded its international footprint to 11 countries outside South Africa by investing a further R186 million in SEM general insurance businesses, including new investments in Nigeria, Rwanda and Ghana. At year-end the SEM investments had a fair value of R807 million (2013: R528 million) which now accounts for 11.4% of Santam’s shareholder funds,” she says.
Cash generated from operations of R2.4 billion increased from the R1.6 billion reported in 2013 mainly due to the improved underwriting results. Headline earnings increased by 40% compared to 2013. The solvency margin of 45.6% marginally exceeded Santam’s long-term target range of 35% to 45%, while the group achieved a return on capital of 24.7% (2013: 20%).
Looking ahead, Lambrechts says trading conditions in the South African insurance industry remain highly competitive. “GDP growth expectations of around 2% for 2015 will negatively impact growth prospects. The weak Rand exchange rate against other currencies impacts negatively on claims cost”.
“Santam’s focus will be to maintain its growth momentum and simultaneously to achieve underwriting margins within the long term target range of 4% to 6% in each of its businesses. We will continue focusing on the implementation of our new underwriting and administration platform. MiWay will continue to focus on growing its retail client base and the launch of a direct life insurance initiative. International diversification will also remain a focus area in the year ahead through our SEM collaboration and opportunities that this presents for Santam Specialist and Santam Re,” Lambrechts concludes.
The Santam board has declared a final dividend of 480 cents per share, up 10.9% on 2014