Santam, leading short-term insurer, said its net operating result fell to R429 million in the six months to June 30 from R1.2 billion after a challenging underwriting period that included floods in KwaZulu-Natal, which saw it paying out much higher claims.
The floods in April 2022 was the most significant natural catastrophe in Santam’s history, a statement said on Thursday. The group paid out R14.2 billion in claims in the first half, R4.4bn of which were for the floods, however, significant adjustments to the figure might still occur.
The group net underwriting margin for conventional insurance was 2.3 percent, well down from 6.7 percent at the same time a year before, and a big contributor to the underwriting were the floods, offset to some extent by reduced Covid-19-related contingent business interruption (CBI) claims provisions.
Santam’s reinsurance programme provided protection against the natural catastrophe, limiting the net impact to the group to R566m, including reinsurance reinstatement premiums.
Santam’s conventional insurance operations were also impacted by the normalisation of motor claims trends, with an increase in vehicle accidents compared to during the various levels of lockdown in 2020 and 2021. The higher motor claims ratio was also impacted by the adverse weather conditions, an increase in the severity of motor claims combined with higher instances of vehicle theft.
Santam’s headline earnings fell to 409 cents per share from 863c per share, due to the weaker operating results and lower investment income attributable to shareholders.
Net investment income attributable to shareholders, inclusive of the investment return on insurance funds, fell to R225m from R355m. An interim dividend of 462c per share was declared.
Gross written premium growth increased 7 percent compared with 5 percent last year. The capital coverage ratio of 157 percent was well within the 145 percent to 165 percent target range.
The alternative risk transfer (ART) business, comprising Centriq and Santam Structured Insurance, reported satisfactory operating results of R111m (R140m), positively impacted by growth in fee income despite weaker investment performance.
The net insurance result from Santam’s share of Sanlam Emerging Markets general insurance businesses (excluding the investment in SAN JV) increased by 18 percent to R85m.
Cash generated from operations increased to R4.6bn (R2bn), mainly due to growth in premiums received on ART business and dividends received.
“Our expectation is economic activity will, in the short to medium term, be constrained by weak consumer spending. The high inflation environment also puts pressure on claims costs, while load shedding has resulted in increased power surge claims.
“In addition, there has been a significant increase in reinsurance premium rates, following several large global and local catastrophe events,” Tavaziva Madzinga, the Santam Group’s chief executive said.
However, he said the group was confident that corrective actions implemented will start to show a positive impact towards the latter part of 2022. These were primarily underwriting actions to address the impact of increased claims costs and reinsurance rates.
Progress continued on the remaining CBI claims and associated reinsurance recoveries relating to the Covid-19 lockdown and as at June 30 2022, R4.3bn or more than 70 percent of projected eligible claims had been paid.
Santam reviewed its provisions for CBI claims at the end of June 2022, the level of claims aggregating for reinsurance recovery purposes, as well as expected recoveries from applicable reinsurance contracts, and its net provision for CBI claims had been reduced by R397m.
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