The value you sell to your clients
The latest results from South Africa’s largest non-life insurer suggest that all is well in the world of commercial and personal lines insurance, with the firm reporting a 5% increase in gross written premiums, to R32.7 billion, and an 8% net underwriting margin from its conventional insurance business last year. This strong performance contributed to a near-tripling in headline earnings, from 905c/share in 2020 to 2495c/share, though this is off a low base. One of the most heartening bullets contained in the report highlighted the ongoing sustainability of the business, with the insurer’s economic capital coverage ratio safely within its 150-170% target range, at 169%.
The ultimate measure of non-life insurance success
Today’s newsletter delves into some of the information contained in Santam’s 2021 Annual Financial Statement that should offer some motivation to those selling insurance to business and individual clients that the outlook is improving. Our common goal is, after all, to help insureds understand the value that the insurance sector represents within the context of the broader economy, and by association explain the benefit offered each insured, whether business or individual, by having comprehensive asset protection in place.
The starting point for assessing the economic value of an insurer is how much money it injects back into the economy following damage or loss events. Santam, which accounts for around a quarter of the country’s domestic non-life insurance market, reported a record R24.5 billion in claims settlements to its business and individual insureds during 2021, while the total paid for pandemic-related business interruption claims over 2020 and 2021 topped R3.2 billion. But the narrative goes way beyond simply tallying up the ‘claims paid’.
Santam’s 2021 financial statements tell the story of how an insurance firm not only survived the shock of pandemic, but continued to offer vital insurance covers to all sectors of the economy during some of the toughest trading years on record. Through the depths of lockdown in early-2020, to the gradual reopening of the economy in the ensuing months, Santam continued paying claims and underwriting risks without missing a beat. Now, we know this statement is likely to illicit a chorus of “what about the court cases” and the lengthy delays these caused to business interruption pay-outs?
No place for whataboutism here…
This writer does not intend glossing over the court actions that preceded certain pandemic-related non-life insurance pay-outs, nor does he intend dwelling on it. We have set out various pros and cons of insurers’ post-pandemic responses in previous newsletters and believe that the resulting court challenges were a necessary part of a insurance market. Insurers and reinsurers had no choice but to seek clarity on their contractual obligations in the context of their total exposures to this unprecedented global loss event.
Many FAnews readers are involved in the traditional or intermediated non-life insurance sectors, where they serve as insurance brokers or financial or risk advisers. Unfortunately, business has been tough in this market segment, with the insurer reporting muted growth in motor business. “The Santam commercial and personal intermediated business reported low growth in a severely constrained economic environment; but various new initiatives are showing positive prospects, which should assist in igniting future growth,” wrote the insurer, in its media release to accompany the publication of its 2021 numbers.
For now, the brand’s direct-to-consumer business, MiWay, has taken the lead, with a 9% jump in premium and a good showing on the motor book, mostly in the personal lines space. This confirms the flexibility and pricing power that insurers enjoy in the direct-to-consumer market as well as the ongoing trend of consumers transacting for goods and services online. As for commercial cover, there was a strong growth underpin from the liability and transportation classes, with solid performances from the insurer’s specialist lines businesses and its reinsurer, Santam Re. On the flipside, gross written premiums in the accident and health class were hard hit by the impact of Covid-19 travel restrictions on the travel insurance business, contracting by 11%.
Claims, where the rubber hits the road
Your clients usually judge their insurance purchase based on whether or not their claims are paid, and how swiftly such payment is made. For an insurer, the measure of success is whether they collect enough premium to sustainably pay all the claims that they incur, per the policy conditions. Insurers publish this information under the heading ‘underwriting performance’, and will usually share various margins and ratios to let the market know how they are doing in this regard. The insurer’s net claims ratio came in at 61.7% for 2021, which is significantly better than the 68% reported in 2020.
It can take years for significant catastrophe losses to work through an insurer’s books. In Santam’s case, it is still processing the numbers for its pandemic-related contingent business interruption (CBI) exposures. As of 31 December 2021, the insurer had made gross CBI claim payments of more than R3 billion. It was able to reduce its net provision for remaining CBI claims by R450 million, to R2.55 billion, thanks to a lower than forecast claims experience and positive feedback from its reinsurance panel on its catastrophe reinsurance claim. In other words, the insurer’s insurers have come to the party.
Non-life insurers can never rest easy, because no sooner has one disaster played out, than the next emerges on the horizon. By way of example, consider the widespread looting and rioting that caused around R32 billion in insured losses to South African insureds in July 2021, slap bang in the middle of pandemic. Local insurers were fortunate that they were not exposed to these losses, but still played a huge role in assisting the state-owned special risks insurer, Sasria SOC Limited, to process thousands of claims. “Santam Re’s performance was, however, affected by its participation on the Sasria reinsurance programme,” noted the group, with its maximum net exposure being only (sic) R315 million.
Returning to the fire and flood paradigm
Once the catastrophes are out of the way, insurers have to worry about run-of-the-mill fire and flood claims. “The Santam specialist business was impacted by several large fire claims during the first half of 2021, while the wet summer season had a negative impact on both the commercial and personal business and MiWay’s loss ratios,” wrote the insurer. This experience is likely to continue in the coming year, if recent media reports about flood and fire events during the first quarter of 2022 are anything to go by.
Local non-life insurance brokers and insurers face difficult economic conditions, with South Africa struggling against the triple-threat of lacklustre economic growth; rising interest rates on the back of higher inflation; and staggering unemployment. Outgoing Santam Group CEO, Lizé Lambrechts, said that future growth would come from partnerships with non-traditional players and by accessing new markets.
“The growth of cyber insurance and the shift to digital distribution channels are key drivers for insurance growth, with increasing global investment into Insurtech,” she said, closing with the subtlest reminder to those in the intermediated distribution discipline to make sure that their digital platforms are up to speed.
Writer’s thoughts:
One of the clear messages contained in these results is that personal lines consumers prefer going direct when buying non-life insurance cover… And based on the premium growth reported in Santam’s 2021 AFS, insurers prefer that this subset of the market buys direct too. Were you surprised at the premium growth outperformance in the insurer’s direct business versus its intermediated personal lines and commercial segments? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
