Santam records improved performance in first half of 2024

Key highlights of results:

• 1% increase in Gross Written Premium,
• 1% increase in Net Earned Premium,
• 5% net underwriting margin achieved,
• R698 million investment return on capital, down from R723 million in 2023,
• 9% headline earnings increase to 1 578 cents,
• 535 cents per share interim dividend, up 8.1%

Santam, South Africa’s largest general insurer, has recorded an improved performance for the six-month period ended 30 June 2024, with the group achieving an 8.1% Gross Written Premium (GWP), a 7.1% Net Earned Premium and 6.5% net underwriting margin growth rate.

The net underwriting margin was within the group’s target range of 5% - 10%. Santam also achieved a 33.6% return on capital and a 34% increase in net income attributable to equity holders. The period was also impacted by inclement weather and Santam was able to protect the wealth and prosperity of our policyholders by paying R607 million in weather-related claims during the first half of 2024. During the period, headline earnings per share and earnings per share increased by 34.9% to 1 578 cps (2023: 1 170 cps) and 33.9% to 1 567 cps (2023: 1 170 cps), respectively. Gross claims paid during the first half amounted to R14.2 billion (2023: R14.6 billion).

The Group also achieved an investment return on insurance funds of 2.3% (2023: 2.2%) of net earned premium that benefitted from solid returns on local and global fixed-income investments, the combination of a favourable investment market performance and an out performance of portfolio benchmarks.

Tavaziva Madzinga, the Santam Group CEO, said the claims environment had been under pressure for the entire general insurance industry.

“The frequency and severity of losses from inclement weather conditions have increased substantially over the past decade, including in South Africa, which has traditionally been seen as a benign catastrophe environment,” he said.

“We have, as a result, remained steadfast in implementing a number of underwriting actions in response to the elevated levels of claims frequency, severity and inflation experienced over the past number of years. We have also successfully addressed power surge losses, which in part was aided by an improved Eskom performance and the profitability of the motor book,” added Madzinga.

During the period, Santam made significant progress in executing its refreshed FutureFit 2030 strategy, the new omni-channel operating model, which enabled it to successfully navigate these challenges.

This translated to the achievement of a double-digit growth at Santam Re following a restructuring process and the cancellation of underperforming business in 2023. The alternative risk transfer (ART) businesses also delivered an excellent performance, with a strong 63% growth in profits.

The Broker Solutions and Client Solutions businesses continued to strengthen premium rates. At the same time the Partner Solutions division has grown strongly from a low base, supported by the transfer of the MTN in-force book to the Santam licence. The Specialist Solutions business experienced a marginal decline in business volumes.

MiWay achieved an overall growth of 7%, compared to 4% in the first half of 2023. The company’s new inbound and tied agency strategies benefited business insurance with growth in excess of 30%. The Santam Group remains well-capitalised with an economic capital coverage ratio of 158% (December 2023: 155%), slightly above the midpoint of the capital target range of 145% to 165%.

Conventional insurance: Growth

The motor class grew by 5%, with growth of 12% recorded in the property class. However, weak new vehicle sales trends in South Africa are dampening growth potential.

At 82% (2023: 83%), the South African business continues to be the most significant contributor to Santam’s Group GWP, with business from this market increasing by 7% to R15.7 billion (2023: R14.6 billion). GWP from outside South Africa was 18% (2023: 17%) of total GWP and grew by 11% to R3.4 billion (2023: R3.0 billion).

Conventional insurance: Underwriting performance

Underwriting profit increased by 82% at a margin of 6.5% for 2024, well within our 5% - 10% target range, albeit still below the mid-point. It compares to a margin of 3.8% in 2023. Most business units delivered underwriting margins in excess of 2023. The Specialist Solutions business, however, declined slightly due to a number of large claims in the Crop and Marine businesses, when compared to a more benign claims environment in 2023.

The motor book showed a strong recovery, with all business units contributing to the excellent performance. The property class was impacted by weather-related and other large losses, resulting in a net loss of R203 million. Improved risk selection and underwriting in response to the roll-out of geo-coding, prevented losses in excess of R150 million from these events.

Engineering delivered strong growth in underwriting results, benefiting from a decline in the frequency of significant losses.

Prospects

General operating conditions are not expected to improve markedly in the remainder of 2024. Investor and business sentiment appears to be positive following the general elections in South Africa and an improvement in Eskom’s electricity availability factor. Economic growth and employment levels should benefit over time but will likely remain subdued in the short term while other structural constraints persist. Personal disposable income will remain under pressure in South Africa until policy interest rates enter a declining cycle. The La Nina effect is expected in Q3 2024; this is anticipated to lead to increased rain alongside the traditional hail season in Q4. These factors add some volatility to the underlying underwriting margin.

“As Santam, we remain confident in the Group’s prospects and the potential to deliver enhanced growth and profitability, as our FutureFit 2030 strategy has been tailored for the environment in which we operate. The management actions implemented to date, which we continue to roll out, create positive momentum into the year’s second half,” said Madzinga.

An interim ordinary dividend of 535 cents (2023: 495 cents) per ordinary share, an increase of 8.1%, was declared.