Chief executive officer’s report
A momentous year
On 1 May 2018, Santam celebrated its 100th anniversary. The celebration was an occasion to meet with all our stakeholders, particularly employees and intermediaries, and to herald the success, resilience and dynamism of our people. It was also an opportunity to reflect on what made us successful for 100 years and what we need to do to ensure another successful 100 years going forward.
During the year we concluded a further investment in Saham Finances, increasing our effective interest from 7% to 10%. The relationship with Saham Finances offers us an opportunity to be part of a truly Pan-African financial services group. It will see Santam playing a significant role in the specialist and reinsurance businesses of Saham Finances.
The reporting period has been one characterised by fewer large commercial property and catastrophe claims events than experienced in 2017 which, from a claims perspective, was the worst in over 100 years.
A combination of tighter underwriting practices in commercial property and a benign claims environment contributed to good underwriting margins, which increased from 6.0% in 2017 to 9.2% in 2018. We saw 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 are listeriosis claims in SHA, our liability business. Despite the tough economic conditions in South Africa the group achieved satisfactory growth.
We demonstrated our leading position in the South African general insurance sector with various accolades that include recognition in the 2018 Sunday Times Top Brands Survey as a top business insurer and a leading rating in the SAcsi 2017 index for general insurance. Other accolades include certification as Top Employer in South Africa for the third year running and inclusion in the JSE/FTSE Responsible Investment Top 30 Index, which recognises sustainability practices by corporates.
Detailed performance reports for each of the business units in our business portfolio are given in the Key data about Santam section.
Despite the positives, there have also been challenges. For the first time since 2009, the country slipped into a technical recession. To bolster state revenue, Value Added Tax was increased by 1% to 15%. There has also been a steep rise in fuel prices which, combined with the persistent policy uncertainty, has resulted in low client and business confidence. These macro-economic factors resulted in a tougher growth environment.
Santam acknowledges that, as the leading general insurer in South Africa, it is our responsibility and ongoing challenge to hasten transformation and insurance penetration. We view this responsibility as an opportunity to be a good corporate citizen of the country.
We provide affordable insurance to clients through various distribution channels, invest in consumer financial education to improve potential clients’ understanding of the need for insurance, and inform them of available products. Santam invested R249 million (2017: R104 million) in skills development in 2018 and we continue to make progress in meeting our employment equity targets. We also investigate and invest in alternative distribution models that will increase access to our products. For more detail on these and other transformation initiatives, see the transformation under Our role as insurance providers.
The risk management capabilities of many South African municipalities continue to be of concern. The deterioration of infrastructure and lack of service delivery impacts society’s ability to manage risk. We continue to assist municipalities through P4RR and engage with all stakeholders to develop a strategy to improve the resilience of South African municipalities.
Outlook and appreciation
Although the difficult economic conditions, the competitive environment and an increase in policy lapses impact our ability to grow gross written premium, challenging environments and lower growth scenarios are strong drivers for innovation and efficiency.
2019 will be the final year of our Vision 2020 strategy. We will also use the period to define our new strategy for 2020 and beyond. Our strengths remain our diversified footprint, capital strength, recognised brand, technical expertise and our ability to grow business flows outside 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.
With Santam’s increased stake in Saham Finances, increased focus will be placed on African operations and closer working relationships will be fostered between Saham Finances, Santam and SEM.
We must also anticipate and leverage emerging trends related to climate change, urbanisation, new technology and changing client behaviour. Santam has done a lot of work in identifying these trends and researching the impacts of ESG issues on our company and the impacts we have in this regard. Our next strategy cycle will prioritise embedding this knowledge into our core business practices.
Technology plays a major role across the insurance value chain. Client expectations are causing a shift away from traditional means of insurance towards the newer, more evolved methods necessary for keeping pace in a fast-changing, always-on and connected world. Santam takes a measured and long-term approach to technological advancements. During 2019 we will further embrace the value of technology to create better experiences for our clients and intermediaries. Most importantly, we will continue to be there for our clients and business partners when they need us.
Santam remains confident of our future as a company and the future of our country. As South Africans, we have an innate ability to rise to challenges and I therefore do not doubt that with focus, persistence and hard work, we will continue to achieve our objectives.
On behalf of the Santam board and executive committee, I want to thank our employees for their relentless contribution to making our company the success it has become, and our business partners and clients for their loyal support. I would also like to thank the Santam board and management for their wisdom and support during 2018. I am proud of what we have achieved in our centenary year.
Chief executive officer