Key Performance Indicators for the six months ended 30 June 2021
- 5% growth in conventional insurance gross written premium (2020: 4%)
- Net underwriting margin of 6.7% (2020: 4.3%) for conventional insurance
- Net operating results of R1 203 million (2020: R830 million)
- Return on capital of 18.1% (2020: 11.6%)
- Headline earnings increase of 30% to 863 cents
- Interim dividend 432 cents
Santam, South Africa’s largest short-term insurer, has reported solid operating results for the first six months of the 2021 financial year, with the group’s conventional insurance book achieving gross written premium (GWP) growth of 5% and a net underwriting margin of 6.7% (2020: 4.3%), which is above the midpoint of the company’s 4%-8% target range.
Headline earnings increased by 30% to 863 cps (2020: 663 cps). Improved operating results, partly offset by reduced investment income attributable to shareholders, contributed to the increase in earnings. A return on capital of 18.1% was achieved, below the group’s target of 20% for 2021. This was due to the higher capital retained by the group.
Lizé Lambrechts, Santam Group CEO said extending the company’s leadership position in South Africa remained one of the key strategic priorities for the Santam Group.
“We have made good progress during the reporting period with the implementation of our FutureFit strategy. In addition, we launched new cross-selling initiatives with Sanlam and developed products for new markets. We have also made good strides in our drive towards embracing digital innovation, as was evidenced by the launch of MiWay Blink, the end-to-end digital insurance offering” she said.
Net investment income attributable to shareholders, inclusive of the investment return on insurance funds, was lower at R355 million (2020: R582 million), mainly because of the lower interest rate environment and stronger rand.
Santam continues to make good progress in the processing of Contingent Business Interruption (CBI) claims. As at end of August 2021 the company had paid approximately R700 million to policyholders, in addition to the R1 billion paid in interim relief in August 2020, bringing the total CBI payments to date to R1.7 billion.
Lambrechts said that Santam was making good progress to finalise the settlement of CBI claims.
CONVENTIONAL INSURANCE: GROSS WRITTEN PREMIUM GROWTH
The Santam Commercial and Personal intermediated business reported positive growth following new business acquisition and improved business retention rates. Various growth initiatives started to show positive results.
The Santam Specialist business experienced overall negative growth, mainly due to significantly lower premiums in the corporate property business. In addition, the heavy haulage and travel businesses continued to be negatively impacted by COVID-19. In contrast, the aviation and marine businesses returned to positive growth, whilst the engineering and liability businesses continued to report satisfactory growth.
MiWay achieved excellent growth of 11% in the current operating environment.
Gross written premiums from outside South Africa written on the Santam Ltd and Santam Namibia Ltd licences grew by 19% to R2 766 million (2020: R2 324 million). Strong growth was achieved by the reinsurance business (Santam Re) and the Santam Specialist engineering business in Africa, Southeast Asia, and India. Weak economic conditions impacted Santam Namibia’s growth.
CONVENTIONAL INSURANCE: UNDERWRITING PERFORMANCE
A more normalised claims environment characterised the current reporting period. The positive impact of limited natural catastrophes on the loss ratio was partly offset by a number of large corporate fire claims and an increased motor loss ratio compared to the 2020 hard lockdown period.
The motor class achieved satisfactory underwriting performance in the intermediated and direct distribution channels. Following reduced lockdown restrictions in February 2021, claims frequency and severity increased and the motor loss ratio returned to more normalised levels. MiWay reported acceptable underwriting results for the period, with a loss ratio of 58.2% (2020: 45.9%) and an underwriting profit of R159 million (2020: R308 million).
The underwriting performance of the property class also normalised after the CBI claims in 2020, although negatively impacted by a number of large fire claims during 2021.
Santam’s appeal against the Ma-Afrika judgment with respect to the length of the indemnity period of contingent business interruption (CBI) claims, was heard by the Supreme Court of Appeal (SCA) on 27 August 2021. This issue only relates to policies with a CBI extension, issued by Santam’s Hospitality & Leisure division (H&L), making up less than a third of total policies with CBI extensions.
The group remains well capitalised, with an economic capital coverage ratio of 160% (December 2020: 161%), which is at the midpoint of the capital target range of 150% to 170%.
Trading conditions in South Africa and globally remain very competitive in a constrained economic growth environment. Despite the steady improvements in vaccination rates, it is expected that economic activity will, in the short to medium-term, continue to be significantly constrained by weak consumer spending due to the impact of COVID-19, as well as the likelihood of further load shedding. Investment markets are likely to remain uncertain and volatile.
Santam has joined the Task Force on Climate-related Financial Disclosures (TCFD), the initiative to build a more resilient financial system by safeguarding against climate risks through better disclosures. Supporters of the TCFD span the public and private sectors and include national governments, central banks, stock exchanges, credit rating agencies, financial organisations and private sector businesses from a variety of industries.
The TCFD recommendations are designed to solicit consistent, decision-useful, forward-looking information on the material financial impacts of climate-related risks and opportunities, including those related to the global transition to a lower-carbon economy.
“Signing up to TCFD, signals Santam’s continued commitment to sustainability practices and good corporate governance,” Lambrechts said.
Santam’s board declared an interim dividend of 432 cps.