Santam delivers a solid set of annual results

Ian Kirk, Chief Executive, Santam

- Solid underwriting performance with gross written premiums up by 6% despite challenging market conditions

- Significant improvement in investment returns

- Strong cash flows generated

- Healthy solvency ratio of 44%

- 55% increase in headline earnings per share

- 8.4% increase in total dividend per share

Santam, South Africa’s leading short term insurer has delivered a solid set of annual results for the year ending 31 December 2009, despite challenging local market conditions.

Although the net insurance result was lower at R873-million, its investment income buoyed its results and profit before tax was declared at R1 518-million (2008: R774-million). Headline earnings were higher at R1 022-million, with headline earnings per share up by 55% to 906 cents, compared to 586 cents in 2008. A final dividend of 300 cents per share was declared, bringing the total dividend for the year to 466 cents per share, an increase of 8.4%.

Chief Executive, Ian Kirk, says that although Santam’s underwriting result was under pressure as a result of the current economic climate, the company was still able to deliver gross written premium of R15 billion, representing a 6% increase which is above the rest of the industry. Positive growth was achieved in most of our classes of business; however an appropriate rate for the risk insured remained a challenge.

“Despite a challenging first six months, we had a substantially better second half resulting in a pleasing overall performance for 2009. Santam’s diversified businesses have again stood it in good stead and its speciality classes – liability, engineering and crop business – did particularly well. Our net underwriting margin of 3.5% was however adversely impacted by negative margins in two of our important classes. In the property insurance class we were exposed to large industrial accident and fire-related claims while the motor class was under increased pressure mainly due to soft market prices, increased claims frequency, high cost of repairs, particularly on imported vehicles, adverse weather and the impact of unlicensed drivers. This experience is in line with the rest of the industry.”

The net acquisition cost ratio increased slightly to 25.9% due to the higher net commission ratio as a result of reduced reinsurance commissions earned.

The investment return on insurance funds of R420 million was lower than the R540 million in 2008, mainly as a result of lower interest rates despite higher float balances. The group’s operating activities generated healthy cash flows of R1839-million during the year which reflects a 20% increase compared to the R1527-million in 2008.

The combined effect of insurance activities resulted in a net insurance margin of 6.8% for the year compared to 10.9% in 2008.

Investment performance improved significantly during the year as equity markets strengthened. This was in contrast to the losses sustained during the prior year in which investment markets were severely depressed. The company continued to employ its strategy of proactively hedging its equity investments to minimise capital losses in the event of lower market returns.

Despite a reduction in interest rates during the period, interest earnings were higher in comparison to 2008 due to higher levels of interest bearing instruments. Dividend earnings were lower, in line with market experience.

The group solvency ratio was a healthy 44% at end 2009 and on par with 2008 which is within the long-term target range of between 35% and 45%.

Commenting on the year ahead, Kirk added that underwriting margins are expected to remain under pressure on both the commercial and personal lines due to the soft market conditions.

“The positive sentiment in South Africa in anticipation of the 2010 FIFA World Cup™ as well as signs of a global recovery from one of the worst financial crises should have a positive impact on industry volumes.”

He added though that any economic recovery would be gradual and that Santam remains concerned about the low level of disposable income among individuals and the earnings pressure on businesses which inhibits the insurer’s ability to achieve an appropriate premium for risk assured.

“Our diversification strategy positions us well to face these challenges and we plan to remain focused on our efforts to optimise profitability across the business with a strong focus on risk management and operating efficiencies.”

Subsequent to the period under review, Santam successfully concluded the purchase of the entire shareholding of Emerald Risk Transfer (Pty) Ltd, effective 1 January 2010. The business is a specialist corporate property underwriting manager through which Santam’s corporate property business will be underwritten.

In addition, the group also concluded a transaction to acquire Kagiso’s minority shareholding in Centriq Insurance which will become a wholly owned subsidiary. The transaction is subject to regulatory approval.

The positive results on a relative basis further support the various accolades Santam received in 2009 from consumers, brokers and staff further endorsing Santam as the leading short term insurer in the country. Santam strives to offer a world of certainty to all stakeholders and these solid set of annual results also provide shareholders with the evidence that the business is well managed during tough conditions.