Santam's head office located in Bellville in the Western Cape, South Africa. Picture Leon Lestrade (ANA).
Leading short-term insurer Santam said its net operating results more than halved from R1.2 billion to R429 million in the six months to June 30 after a challenging underwriting period that included floods in KwaZulu-Natal (KZN) saw it paying out much higher claims.
Chief executive Tavaziva Madzinga said in an interview that after the civil unrest in KwaZulu-Natal, the floods, and the impact of the Covid-19 pandemic, all of this taking place within a global context where natural catastrophes were also at an all-time high, it was becoming more expensive for insurers to obtain reinsurance in South Africa.
He said, however, that Santam was working hard to mitigate the impact of inflationary and other cost pressures on its clients through, for example, working with motor parts manufacturers and suppliers for targeted pricing on motor claims.
He the floods in KZN in April 2022 were the biggest natural catastrophe in Santam’s history. The company paid out R14.2bn in claims in the first half of the year, R4.4bn of which was for the floods, although significant adjustments might still occur.
Apart from the increased reinsurance rates, Madzinga said their expectation was that economic activity would, in the short to medium term, be constrained by weak consumer spending. The high-inflation environment had put pressure on claims costs, while load shedding in the first half had resulted in increased power surge claims.
The group’s net underwriting margin for conventional insurance was 2.3 percent, well down from 6.7 percent at the same time a year before. A big contributor to the lower underwriting margin was the floods, offset to some extent by reduced Covid-19-related contingent business interruption claims provisions.
Santam’s reinsurance programme had provided protection against the natural catastrophe, limiting the net impact on the group to R566m.
Santam’s conventional insurance operations were also impacted by the normalisation of claims trends for the motor class, with an increase in vehicle accidents compared to the experience during the lockdowns of 2020 and 2021.
The higher motor claims ratio was also impacted by bad weather, an increase in the severity of motor claims, as well as higher instances of vehicle theft.
Santam’s headline earnings fell to 409c per share from 863c, owing to the weaker operating results and lower investment income attributable to shareholders.
The interim dividend of 462c was 7 percent higher than the half-year dividend declared last year.
Net investment income attributable to shareholders, inclusive of the investment return on insurance funds, fell to R225mfrom R355m.
Chief financial officer Hennie Nel said the investment performance fell because of a pull-back of the JSE equity market during the six months, and also because of significant volatility in the bond market, particularly in emerging-market bond portfolios. He said measures had been put in place to reduce the impact of the volatility of the bond market on the group, without reducing the upside potential.
Gross written premium growth increased 7 percent compared with 5 percent last year.
Progress continued on the remaining contingent business interruption claims and reinsurance recoveries relating to the Covid-19 lockdown, and as at June 30 R4.3bn, or more than 70 percentof eligible claims, had been paid.
edward.west@inl.co.za
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