Implementing a 2010 vision

FAnews spoke to Ian Kirk, Chief Executive of Santam, to find out more about his first three months at the helm and the likely challenges in the coming year.

FAnews: What priorities have you set yourself in your new position?

Kirk: My main priority is to effectively implement the 2010 vision, which has been developed by Santam over the last three years. Within this 2010 vision there are a number of priorities relating to furthering our leadership position in South Africa and our desire to be recognised as the best in everything we choose to do.

FAnews: What challenges will you face as you head Santam through the next few years?

Kirk: We did not do so well on what we call portfolio management, which is essential personal lines business administered by the large brokers. We face some challenges there to move that business to an acceptable level of underwriting profit.

We also face challenges in our business in the UK and Northern Ireland. We are not making our returns there and we are taking strong measures.

The investment markets are a big driver of our overall insurance results, and have been very volatile. We've got our work cut out for the next six months to deal with the challenges.

FAnews: Have direct insurers had a big impact on the industry and on broker's businesses?

Kirk: It is the experience in the developed world, and in the UK in particular, that the direct players capture a substantial part of the personal lines market over time. The value proposition is such that they can offer a better rate for certain selected risks. They argue that the commission paid to the intermediary is not justified. We don't agree and we will continue to play in the intermediary space. So yes, they have had an impact but they won't get all the business. They will get a certain percentage, perhaps even as high as 50%. We've taken the view that the intermediary in the personal lines market will still have a valuable role to play going forward.

FAnews: Will the 2010 Soccer World Cup have a big impact on the insurance business?

Kirk: The Soccer World Cup is an important part of the infrastructure development that is taking place in this country. It has also been a rallying point for the economy and for South Africa to say, 'The World Cup is coming, let's make sure we've got our house in order.' We also don't envisage a scenario in which after the World Cup is over, everyone goes home and then the country slides into recession.

FAnews: There has been tremendous growth in the number of SMEs in recent years, have you seen growth in your book?

Kirk: We have ! And it's a particularly strong part of our business. In commercial lines, the intermediaries play a vital role, because this business cannot be written directly, even though some of the direct players think it can be done. In addition, whilst there is extensive growth in the major metropolitan areas, it does spin out into rural areas as well.We've picked up quite a lot of this business because we are a countrywide operation and we're intermediary driven.

FAnews: Insurance margins have come under pressure in recent times. What are your views?

Kirk: The market remains soft. We had a poor year last year in corporate. We've had better results in first half of this year, but I am not certain we are going to have a great outcome for the year in the corporate market. We're doing better in commercial, and particularly well in the specialist lines, because of the infrastructure boom we are experiencing at the moment.

In personal lines, there is some hardening of the rates. We shed some business last year because we did not feel comfortable with the rates at which this business was priced. Some of the companies who picked this business up, have taken knocks and are now taking pricing action. We'll also be more selective on the pricing action going forward.

We'll also be more selective on the pricing action going foward. There is no simple answer, but we are not in a great part of the cycle. Conditions were more positive two or three years ago. One has to take a medium- to long-term view.

FAnews: Do you have any comment on the many management changes in the short-term insurance industry in recent months ? For example Bruce Campbell's move from M & F to Alexander Forbes, Paolo Cavalieri's departure as CEO at Hollard and Steffen Gilbert's exit from Santam?

Kirk: Each of them involves individual circumstances. Bruce Campbell got a great opportunity with Alexander Forbes. For Paolo Cavalieri the opportunity came along to run a different and more independent business. He had indicated for some time that he would move on. Our own situation was a bit different. The board felt there was a need for focussed, hands-on driving of implementation, as opposed to development, of strategy. Steffen felt it was not something he really wanted to do. There is nothing sinister in it.