Wrap Text
Operational Update for the three months ended 31 March 2024
SANTAM LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1918/001680/06
LEI: 37890092DC55C7D94B35
JSE Share Code: SNT & ISIN: ZAE000093779
A2X Share Code: SNT
NSX Share Code: SNM
Bond company code: BISAN
("Santam" or "the Group")
OPERATIONAL UPDATE FOR THE THREE MONTHS ENDED 31 MARCH 2024
This is a general communication to Santam shareholders and noteholders (collectively
the "Securityholders") covering the operational performance of the Group for the three
months ended 31 March 2024 (the "period").
The Group delivered a strong performance during the period, with a pleasing
underwriting result within the 5% to 10% target range.
The operating environment in South Africa, our dominant market, remained
challenging. Weak economic growth and pressure on personal disposable income
continued to dampen growth prospects. South Africa also remains a highly competitive
insurance market. Inclement weather conditions and exposure to some significant
property losses impacted the underwriting performance for the period. Hardening
insurance rates over the past two years are supportive of growth prospects outside of
South Africa.
Despite these conditions, the Group showed operational resilience and achieved
strong growth in gross written premiums, net insurance result and net income after
tax. Our diversification across market segments, insurance classes and geographical
reach continues to stand us in good stead. Our various underwriting actions over the
past year continue to bear positive results. Good progress has also been made with
the implementation of additional underwriting actions aimed at addressing the
underperformance in the property book.
Conventional insurance business
The conventional insurance business achieved net earned premium growth of 7%,
with satisfactory contributions from all major businesses. Timing differences in the
recognition of unearned premiums early in the year resulted in lower growth in net
earned premiums relative to gross written premiums, particularly in respect of the
reinsurance business. These timing differences are expected to reverse during the
year.
The gross written premium increased by 10%, with solid growth across all major
insurance classes. The exceptions were crop, where weather conditions delayed
planting, whereas liability was impacted by highly competitive market pricing
conditions where we chose not to follow unsustainable terms.
The Santam Client Solutions and Broker Solutions businesses achieved good growth
in gross written premium and net earned premium. The premium-related actions taken
in response to high claims inflation and frequency continue to be realised.
New business written through the MTN partnership in Santam Partner Solutions
continued to outperform expectations. The transfer of the in-force book of MTN device
insurance in January 2024 benefited growth in gross written premium and net earned
premium.
The Santam Specialist Solutions business recorded acceptable growth in net earned
premium, with corporate property, engineering and crop being the main contributors.
Net earned premium from crop insurance was supported by unearned premium
reserve releases relating to the strong business volumes written towards the end of
2023. The gross written premium was in line with the first three months of 2023, with
notable growth in corporate property and engineering business offset by lower crop
and liability volumes due to the factors mentioned earlier.
The improvement in growth trends at MiWay continued into 2024. Business insurance
and value-added services products achieved strong growth, contributing to an overall
increase of 7% in gross written premium. The roll-out of MiWay's new inbound and
tied agency strategic growth initiatives are showing positive results.
Santam Re had a positive start to the year, achieving double-digit growth in gross
written premiums. Net earned premium declined compared to the first quarter of 2023
due to timing differences in recognising unearned premium reserves.
Conventional insurance underwriting results were impacted by weather-related and
fire losses of some R200 million. Most weather-related losses emanated from the
KwaZulu-Natal flooding early in the period. Better than-expected attritional loss ratios
at Santam Broker Solutions, Santam Client Solutions and MiWay, together with a
decline in claims frequency at Santam Specialist Solutions, largely offset these
significant losses, contributing to an overall Group underwriting margin for the period
that was within the 5% to 10% target range. This is a substantial improvement
compared to the first three months of 2023, which featured higher weather-related
losses, adverse claims experience in the motor book and power-surge losses. The
underwriting actions implemented during 2023 successfully addressed the motor and
power-surge experience, while the roll-out of geo-coding is having a positive impact
on weather-related losses.
Our exposure to the Western Cape storms and related fires in April 2024 amounts to
an estimated R300 million net of reinsurance, which remains within our catastrophe
and large loss budget for the year.
Favourable interest-rate markets supported the investment return earned on
insurance funds, which amounted to 2.3% of the net earned premium, in line with the
comparable period.
Alternative Risk Transfer ("ART") business
The ART business segment reported solid operating results, with excellent growth in
fee income and underwriting results compared to the first quarter of 2023.
Shareholder investment performance
The investment return earned on the Group's capital portfolios exceeded expectations.
This was mainly due to the combined effect of foreign currency translation gains
following the weakening of the Rand against the US Dollar since 31 December 2023
and good returns on interest-bearing investments.
Capital position
The Group's economic capital remained within the 145% to 165% target cover range
following the final dividend payment in March 2024.
Prospects
The challenging operating conditions are expected to persist for the remainder of the
year, impacting growth prospects. Profitable growth is a key focus area for all
businesses to ensure we meet our growth target of 1% to 2% above nominal economic
growth.
We are, furthermore, implementing various actions to address the underperformance
in the property book. These include improving the underlying rate strength, increasing
excess amounts, improving risk selection through the continued roll-out of geo-coding,
strengthening our surveying capacity and targeted utilisation of reinsurance. These
actions are expected to improve underwriting results in the property book over the next
twelve months as the book progresses through the renewal cycle. However, the
conventional insurance underwriting performance for the remainder of the year is
susceptible to higher-than-expected adverse weather- and fire-related experience.
Investment market volatility can, furthermore, impact the investment return earned on
insurance funds and the shareholder capital portfolio.
We believe our firm foundation, our refreshed FutureFit strategy and our new operating
model will continue to enable us to respond to these challenges and deliver superior
results. The new operating model is fully vested, and we are making good progress
with strategic execution across all pillars underpinning our FutureFit strategy.
The financial information included in this announcement has not been reviewed or
reported on by Santam's external auditors. Santam's results for the six months ending
30 June 2024 are expected to be released on SENS on or about 29 August 2024.
14 May 2024
Equity Sponsor: Investec Bank Limited
Debt Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)
Date: 14-05-2024 02:00:00
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