The industry is resilient and well run - #proofinthepudding

Santam Chief Executive Lizé Lambrechts

Against the backdrop of a tough economic landscape and a substantial amount of catastrophic claim events, for example, the heavy rainfalls and flash floods experienced at the end of last year causing damage to cars, buildings and homes, Santam reported solid underwriting results and acceptable growth for the year ended December 2016.

Santam noted that the group paid out R16.1 billion in claims over the period, including more than R500 million in claims for catastrophic events such as flash floods and hail storms.

Being resilient

Santam Chief Executive Lizé Lambrechts said the group’s underwriting results which remained on par with the 10-year average of 6% were achieved in highly competitive market conditions.

“The prolonged tough economic conditions and low GDP growth continue to provide challenges, but the business is resilient and has maintained its growth trajectory,” continued Lambrechts.

Steady growth trajectory

In a low-growth economic environment, the group reported gross written premium growth of 7% and a net underwriting margin of 6.4% (2015: 9.6%, which was exceptional) – well within the target range of 4% to 8%.

The lower underwriting profits and significantly lower investment results reduced headline earnings per share by 41% compared to December 2015. An annualised return on capital of 15.9% was achieved. Normalising the results for the impact of the foreign currency gains and losses in 2015 and 2016, headline earnings per share would have decreased by 14%, while return on capital would have improved to 18.5%. The economic capital coverage ratio was 155%, close to the midpoint of the target range of 130% to 170%.

According to the results the motor class of business was positively impacted by continued disciplined underwriting, including a significant improvement in the underwriting results from business on outsourced platforms. The impact of the catastrophic hail events and flash floods during 2016 was significantly reduced by recoveries from the catastrophe and sideways reinsurance programmes.

The motor class benefitted from the 19% growth reported by MiWay (gross written premium of R2 101 million; 2015: R1 771 million). MiWay reported a claims ratio of 63.6%, up from 60.9% in 2015, mainly due to the impact of new business growth and an increase in motor parts cost following the weakening of the rand in 2015. MiWay contributed an underwriting profit of R160 million (2015: R163 million).

According to the results, investment income of R832 million was significantly lower compared to R1 445 million in 2015. The South African investment portfolio performed better than the market. Foreign currency exchange losses, however, had a negative impact on investment returns following the relative strengthening of the rand since December 2015.

Santam’s focus on international diversification continued to reflect positive growth results with gross written premium from the rest of Africa, India, South-East Asia and China of R1 431 million for the period (2015: R1 354 million). In addition, Santam’s portion of the gross written premium from SEM insurance businesses increased to R1 939 million (2015: R675 million).

Lambrechts said following the severe drought conditions during the 2015 / 2016 crop season which resulted in lower production, the crop insurance business showed significant growth of 17%. Gross drought claims of R231 million were incurred during 2016. The crop business achieved a net underwriting profit of R69 million (2015: R131 million). “This was as a result of disciplined underwriting and fewer hail-related claims during the crop season due to the drought.”

Taking out the positives

According to Lambrechts one of the biggest challenges we face is the increase of extreme weather events which result in large catastrophic claims and payouts. “Making sure the underlying business is sound and can survive these events is critically important to the survival of any short term insurer. Regulatory demands also continue to weigh heavily on the execution of any strategies. At the same time the industry needs to transform itself and be more inclusive. Lastly, it remains that trust is our main commodity and this is something the industry must work hard to protect. Our credibility rests on this.” 

FAnews asked Lambrechts what this means for the insurance industry in 2017, and going forward. Lambrechts responded, “The economic conditions remain tough for everybody in the industry; insurers will have to make sure that they have a solid strategy in place that makes sense for their respective business models. The sector is experiencing disruption on all aspects of how we do business and insurers have to be nimble and adaptable and be making the right investments in time, people and money to keep their business relevant - always with the client in mind.”

“We are seeing a great degree of competition and innovation and this re-energises everyone. The responses to the challenges we face mean that we are constantly improving how we work…whether it be opening new markets at home or abroad, investing in new technologies and distribution channels, and helping more South Africans have more access to insurance. This can only be good for the sector in general,” she continued.

Looking ahead

Santam’s associated brands SHA Specialist Underwriters and Emerald Risk Transfer shared in the sentiment of how pleased and honoured they are to have made a meaningful and positive contribution to the results and the group.

Lambrechts emphasized that the group’s focus remains on balancing profitable growth with a continued efficiency drive to optimise cost ratio – both in South Africa and emerging markets.

Editor’s thoughts:
The good news is that this once again shows that the industry is resilient and well run. On another note we ponder the thought of whether consumers will still cease to question the value of insurance in times of catastrophes? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za