Santam reports

26 August 2004 Angelo Coppola

(26.8.04) Santam has benefited from a favourable period and reported a 181% jump in headline earnings per share for the 6 months to the end of June 2004.

The results follow an excellent past year due to the favourable underwriting cycle and strong investment performance, pushing earnings per share to 518c from 184c for the comparative period.

Santam CE Steffen Gilbert says the net insurance result was 137% up from R281m to R667m and a 57% increase in cash to R940m was generated by operating activities in the past six months.

An interim dividend of 95c a share, 32% up on last year’s interim dividend of 72c, has been declared.

Gilbert says the largest factor contributing to the substantial increase in underwriting profits was the lower claims ratio experienced in Southern Africa across most classes of insurance.

The group’s net claims ratio of 55.5% was 12.2% points lower than the equivalent period in 2003 due to favourable climatic conditions, a lower frequency of motor accidents as well as a reduction in theft claims.

The level of reinsurance premiums reduced considerably, largely due to the company’s strategy to retain more risk. In addition, the slowing of crop and corporate business further contributed to the lower levels of reinsurance.

However, lower interest rates negated the positive effect of the higher float level, causing investment income on insurance funds to decrease by 17%.

The combined effect of all insurance activities resulted in a net insurance margin of 18.5% against 8.7% for the corresponding period.

Gilbert says underwriting margins may come under pressure during the second half of 2004 due to increased competition and the likely normalisation of claims.

“And we are continuing our offshore expansion, which could become a significant source of additional income for the business.

“We are pleased to report that the relevant Irish regulator granted a short-term insurance licence to Santam Europe in July.

"In addition to the future business generated by Bluesure, Santam Europe will also underwrite personal lines business from other distributors in the UK and Ireland."

The offshore operation is regarded as an important strategic step in expanding Santam’s income base, given the limited opportunities for organic growth in the SA market.

In the past six months, premium growth for personal and commercial lines increased by 7.5% although total gross written premium was only marginally up on the corresponding period.

Gilbert says, “The pricing structure is appropriate for the risk we have to manage and we have not introduced a general rate increase across the total business.”

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