Risk focus pays off as non-life premiums and profitability rise
The country’s largest short-term insurer posted an impressive full-year 2024 result, with an 11% increase in gross written premium (GWP) from its conventional insurance business, topping R41.3 billion. Santam Insurance reported R32.2 billion in net earned premium (NEP) from this segment and was nicely within its 5% to 10% target range for net underwriting margin, at 7.6%.
Feel good trumps profit, every time
Other headline numbers include R3.714 billion in group operating earnings, R34.77 headline earnings per share (HEPS), R9.85 dividend per share, and an impressive 31.9% return on capital.
As your writer paged through the insurer’s 2024 Integrated Report, it became clear that delivering value, ‘freedom to live’, and sustainability was as important as profit. Why else would the insurer delay a snapshot of its excellent group financial performance to page nine? “Though our global context continues to change, our promise to do insurance good and proper has not; through the delivery of this promise, we ensure our stakeholders have the freedom to live life fully,” the insurer writes.
Today’s newsletter unpacks some of the insurer’s results alongside insights from some of the executive team. Nombulelo Moholi, Chairperson of the Board, commented that the insurer’s part in creating a prosperous, safe, and empowered society hinged on “delivering reliable insurance services and engaging in initiatives that promote freedom for everyone.” In case you were wondering, the integrated report’s obsession with ‘freedom’ stems from the group’s recent brand refresh.
The value of insurance
The value of insurance is reflected in the R28.6 billion in legitimate claims paid during a year dominated by cost-of-living challenges, extreme weather events (though not as extreme as some had feared), geopolitical tensions, and intense competition.
Moholi noted major loss events such as the Western Cape storms in July 2024, the Shelley Point fire, and the Taiwan earthquake that impacted the group’s Santam Re result. Despite the latter event, the Chairperson reported that a successful restructuring of Santam Re and ongoing “prudent decision-making” had contributed to a more diversified and lower-risk foundation.
“There was a strong emphasis on enhancing underwriting performance this year, particularly within property and motor portfolios. This included a focus on understanding the changing nature of the risk landscape and appropriately pricing for the risk to enhance the performance of the group,” Moholi wrote. The insurer’s 7.6% underwriting margin was more than double its 2023 figure of just 3.5%. Group CEO Tavaziva Madzinga attributed the improvement to actions taken to limit power surge-related claims in the first half of the year, enhanced motor underwriting requirements, and the rollout of geocoding and geo-mapping in the property class.
Clearer view of flood and fire risk
Your writer was impressed with the progress in the property space. According to the 2024 Integrated Report, Santam has already geocoded 81% of its property class, allowing it to improve risk selection and manage exposure through expanded surveying efforts and segmented premium increases. “These property-focused underwriting measures are already benefiting our financial performance,” Madzinga said.
Global insured losses from natural disasters continued to rise last year, resulting in elevated reinsurance rates. The insurer addressed the rising risk paradigm by derisking through acute risk selection, increased deductibles, and repricing. These techniques will be quite familiar to the non-life brokers among FAnews’ readers. The CEO offered a less-than-rosy picture for the domestic macroeconomic landscape where concerns included heightened competition, political uncertainty, and volatile investment markets. “The formation of a Government of National Unity (GNU) in late June was positively received,” Madzinga wrote.
Viewed through an operational lens, the insurer struggled with ailing infrastructure, increasing regulatory pressures, lacklustre economic growth, repair cost inflation, and unemployment. Although positive about improvements in electricity supply and transport infrastructure, Santam said the pace of infrastructure reform had been slower than hoped.
Getting to the heart of the 2024 result
The ‘meat’ of the report starts from page 90, titled ‘Financial and Operational Review’, and produced by an upbeat Group CFO, Wikus Olivier. “The group achieved a strong performance in 2024 across all key performance indicators; our underwriting margin more than doubled despite continued losses from extreme weather conditions,” he said.
Santam offered some useful definitions before diving into its 2024 business volumes. They explained GWP as a measure of the group’s distribution capacity rather than its earnings capacity: it is the size of the business written by the group’s distribution channels before allowing for reinsurance premiums paid. And NEP relates to the portion of GWP after deducting reinsurance costs recognised in the current reporting period. GWP increased by 10.5% in the latest year, and NEP by 9.7%.
The CFO revealed that all business units contributed to the growth in GWP, except for Specialist Solutions which experienced a marginal decline. The group’s direct insurance play was on the front foot. “MiWay’s new inbound and tied agency strategies gained traction in the second half of the year, with overall double-digit growth in GWP in the last quarter of 2024,” Santam writes. Business insurance performed exceptionally well too, supported by inbound and tied agency strategies. Those who are interested can download the Santam 2024 Integrated Report to read more about the insurer’s business volume and underwriting performances by non-life insurance class and group division.
A similar ‘large loss’ experience
This section of the Integrated Report also offered a deep dive into the underwriting result. “The underwriting margin was well within our 5% to 10% target range, despite weather-related and other large losses of R986 million in 2024 (2023: R1.3 billion),” they write. “Both personal and commercial lines delivered solid underwriting margins within the target range.” Santam revealed it had experienced a similar number of large loss events in 2024 compared to the prior year, with the total loss from these events jumping from R583 million to R652 million. A large loss event is described as a single event resulting in claims exceeding R100 million.
“Cumulative claims from all events categorised as catastrophes were in line with 2023 at R748 million (2023: R744 million); these losses were all within the group’s retention limits, and no reinsurance offsets applied,” Santam writes. And in more good news, other non-catastrophe large losses declined from R536 million in 2023 to just R238 million. According to Santam, these were mostly fire-related losses.
What does the future hold?
There are some positive signs that the domestic economy could improve, with 2025 GDP growth forecast at around 1.5% versus the South African Reserve Bank’s (SARB) latest 1.1% estimate. “Together with easing pressure on personal disposable income and our strategic focus on higher growth areas in the direct, partnership, and international space, we are upbeat about our growth prospects in 2025,” Olivier said. He noted that the underwriting actions implemented across the group would help it weather persistently volatile weather conditions.
This positive assessment was reiterated by the Chairperson. “We have confidence that our strategy, supported by a diverse and talented executive team and workforce, will lead Santam toward a successful and sustainable future,” Moholi concluded.
Writer’s thoughts:
Santam’s underwriting strategy shows how data and risk selection can improve profitability, even in a tough market. Are brokers keeping pace with these changes, or is the industry moving too fast? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.
