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Santam reports 9.5% increase in 2012 gross written premium; extreme weather puts pressure on underwriting

27 February 2013 Ian Kirk, Santam
Ian Kirk, Santam CEO

Ian Kirk, Santam CEO

SANTAM, South Africa’s largest short-term insurer, today reported a 9.5% increase in annual gross written premium, significantly above the industry growth rate, amid tough underwriting conditions that saw a surge in claims tied to catastrophe events in 20

Key highlights of Santam’s full year results:

­ Growth of 9.5% in gross written premiums
­ Settled close to 600,000 claims to the value of R11.3 billion in 2012
­ Catastrophe claims of almost R400 million, more than triple the annual average
­ Cash generated by operations R2,3 billion
­ Group solvency ratio at 41%
­ Achieved normalised return on capital of 22.6%
­ Net underwriting margin of 4.0% and net insurance margin of 6.7%
­ MiWay gross written premiums up 38% to over R1 billion
­ Headline earnings per share of 995 cents vs. 1 216 cents for the prior year
­ Final dividend of 410 cents per share

Income before tax of R1.7 billion was 10 percent below 2011, largely due to catastrophe claims of almost R400 million – more than three times the average annual catastrophe claims registered by the group over the past 12 years. The increase in these claims came primarily from the floods in Mpumalanga in January 2012, a number of significant hail storms in Gauteng during October and November and a devastating fire at St Francis Bay in November 2012.

“Despite the high claims volumes experienced following these events, we are proud to have met our obligations to our policyholders,” said Ian Kirk, Santam CEO. “Santam is committed to meeting the needs of our policyholders when disasters strike. We settled close to 600,000 claims to the value of R11.3 billion in 2012; allowing business and individuals to recover from unexpected losses, and keeping our economy on track for continued growth.

The negative financial impact of the tough underwriting conditions was partially off-set by the excellent investment market returns in 2012. The income tax charge increased by 28%, mainly due to a secondary tax on companies charge of R96 million on the special dividend paid in the first half of the year and an increase of R80 million in the deferred tax provision on fair value movements of equities due to the increase in the capital gains tax inclusion rate effective from 2013.

Headline earnings decreased by 18% compared to 2011. Cash generated from operations amounted to R2.3 billion while the solvency margin of 41% remains within Santam long-term target range of 35% to 45%. Return on capital was impacted by the adverse underwriting conditions and normalised return on capital was 22.6% compared to 25% in 2011.

Santam’s net claims margin was 68.3%, compared to 64.2% a year earlier. The 2012 underwriting result of R623 million and net underwriting margin of 4.0% was significantly impacted by the catastrophe events, resulting in the net underwriting margin dropping to below the medium-term target of 5% to 7%.

Positive growth was achieved across all significant insurance classes, with MiWay reaching gross written premiums of over R1 billion, an increase of 38% compared to 2011.

Investment returns on insurance funds of R415 million increased from the R388 million earned in 2011, resulting mainly from higher float levels despite lower interest rates in 2012. The combined effect of insurance activities resulted in a net insurance income of R1 038 million or a 6.6% margin, compared to R1 574 million and a margin of 10.7% in 2011.

Following the strong equity markets, investment income, including dividends and interest received, increased to R787 million in 2012 compared to the R355 million generated in 2011.

“Our investment portfolio performance compared favourably to the benchmarks set,” says Kirk.

“We are positioned to manage increases selectively through our market and risk segmentation approach across the group. In addition, our growth through diversification strategy positions the group well to leverage for growth in high-growth segments and territories.”

The weakening of the rand during 2012 and the early part of 2013 will put further pressure on claims cost, most notably on the cost of motor vehicle repairs due to the increased cost of imported vehicle parts.

“We are optimistic that our continued efforts to drive efficiency in the value chain and our overall focus on cost efficiency in the group will offset some of the impact of the cost pressure.” Kirk said.

The Santam board has declared a final dividend of 410 cents per share.

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