Strong underwriting performance from Santam in a tough economic environment
Key highlights of Santam’s interim results for the six months ended 30 June 2018:
- Growth of 13% in gross written premium
- Conventional insurance underwriting margin of 8.4% (target range – 4% - 8%)
- Return on shareholders’ funds of 30.3%
- Economic capital coverage ratio at 158% (target range 130% - 170%)
- 49% increase in earnings per share
- 72% increase in headline earnings per share
Santam, South Africa’s largest general insurer, has today reported excellent underwriting results and strong growth for the interim period to June 2018. Despite a low-growth economic environment, the group reported gross written premium (GWP) growth of 13%. The group’s conventional insurance book achieved GWP growth of 9% and a net underwriting margin of 8.4%, doubling the 2017 result of 4.2%, and exceeding the group’s target range of 4% to 8%.
Lizé Lambrechts, Santam chief executive, said that despite the challenging trading conditions, the group was very pleased with the results. “Trading is very competitive in the current economic climate. In the first quarter of 2018, the GDP contracted and the South African Reserve Bank reduced its growth forecast. With unemployment approaching a record high and inflation hitting consumer spending hard, we’re satisfied with our growth and excellent underwriting results,” she said.
The strong net underwriting margin performance was partly due to the absence of any significant catastrophe claims in the first half of 2018, contrasting with the severe Knysna fires and large commercial fire claims reported in 2017. Investment income was R705 million compared to R798 million in 2017 as positive movements in foreign exchange gains offset fair value losses of the investment portfolio. Cash generated from operations increased to R2 billion compared to R1.6 billion in 2017, positively impacted by the improved claims experience.
The significant improvement in the underwriting performance was a key driver in the 72% increase in headline earnings per share, from 593 cps in 2017 to 1018 cps in 2018. A return on capital of 30.3% was achieved.
In the period under review, the motor and property classes of business were positively impacted by a benign catastrophe claims environment as well as the underwriting actions implemented in the latter part of 2017. Fewer commercial fires also helped the property class to achieve a significant turnaround from a net underwriting loss of R415 million in 2017 to a R280-million net underwriting profit in 2018. The property class reported 14% premium growth, following strong growth on corporate property business.
MiWay reported 6% premium growth and a claims ratio of 55.7%, with GWP of R1 218 million and underwriting profits of R159 million – down from R179 million in 2017. The company’s growth slowed down due to an increased focus on profitability, and was further impacted by economically-strained consumers. Commercial and personal lines intermediated business experienced a similar slow-down in growth of the motor book. Overall, the motor class grew by 7%, with strong underwriting performance.
In the Santam Specialist business, listeriosis-linked claims and other large claims impacted the liability class, which reported a net underwriting loss of R49 million and no growth in GWP. The engineering class achieved excellent underwriting results due to limited claims, but experienced a GWP contraction of 6%, because of fewer large projects in the construction sector.
The Alternative Risk Transfer (ART) business reported impressive growth of 44%, achieving GWP of R2 469 million against R1 710 million in 2017. This was driven by a growth of 27% in Centriq and strong growth in Santam Structured Insurance, albeit the latter was on books for only 3 months in the comparative 2017 period.
The Sanlam Emerging Markets (SEM) general insurance businesses showed improved operating results, largely due to good contributions from the Saham Finances Group and Shriram General Insurance.
Collectively, Santam’s share of the net insurance result of these businesses increased to R142 million from R101 million in 2017, driven by Saham Finances’ profitability.
Following an earlier announcement in which the Sanlam group indicated its intention to increase its shareholding in Saham Finances to 100%, the Santam Board approved Santam’s participation in this transaction by increasing its effective shareholding in Saham Finances from 7% to 10% (subject to regulatory approvals) for a consideration of R864 million.
“The shareholding increase will enable Santam to play a more significant role in the specialist and reinsurance businesses of Saham Finances,” Lambrechts said.
Prospects for the rest of 2018
Trading conditions remain very competitive in a low-growth South African economic environment, which translates into limited growth of insurable assets for the insurance industry. The group’s focus remains on growing profitably in South Africa and increasing its international diversification through the Santam Specialist Business and Santam re. In South Africa, continued focus is being placed on the development of Santam’s full multichannel capability and growth initiatives at MiWay.
“The focus will remain on appropriate underwriting actions to manage the risk associated with weak economic conditions, also taking the increased reinsurance rates into account. The group will maintain its focus on optimising efficiencies and driving profitable growth,” said Lambrechts.
As a leader in the insurance industry, Santam places significant focus on achieving its transformation objectives. These include the promotion of a diverse workforce, intermediary and supplier base; access to insurance products by non-traditional markets; and further impactful investment in communities. As part of being a good corporate citizen, we also continue to work with municipalities to reduce risk and improve resilience through our Partnership for Risk and Resilience (P4RR) initiative.
Santam’s board declared an interim dividend of 363 cents per share.