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Delivering growth in a tough short-term environment

24 August 2007 Gareth Stokes

Hot on the heels of giant life companies Liberty and Old Mutual, one of South Africa's leading short-term insurers posted half year results. Santams numbers prove that despite declining margins, the short-term insurance industry still has plenty to offer

Gross written premiums improved nicely and posted a 13% increase. The group was happy with the performance of its southern African operations and also reported improvements from Santam Europe and the Westminster Motor Insurance Association (WMIA).

Squeezing value from personal lines

Santam identified potential difficulties in the personal lines business some time ago, and believes the corrective actions taken in this regard have helped boost results in the current reporting period.

Despite improvements in the personal lines business, group profitability was hampered by "the continued softening of premiums, large marine losses and high claims in the crop environment due to severe drought in the summer rainfall areas of South Africa." Poor weather in Europe also resulted in a disappointing underwriting performance from the group's international operators. "Both WMIA and Santam Europe were significantly affected by the unusually wet weather experienced in the United Kingdom and in Ireland, culminating in increased claims with resultant underwriting losses for these operations."

Fortunately the bad weather did not impact the bullish performance from local equities in the period under review. This resulted in a 17% boost in investment-related income over the already impressive 2006 number.

A bright future for short-term insurers

Although underwriting margins will remain under pressure in the foreseeable future, Santam is confident it will be able to maintain its margins above the long term average. The group will focus on gaining market share, maximising returns from international investments and improving capital efficiency.

Santam expressed concerns that the current volatility on global equity markets could be detrimental to capital growth in the second half of 2007. Similar fears have been mentioned by a number of other listed companies in their latest earnings reports. Readers might like to familiarise themselves with the interim results of Woolworths and Massmart in this regard.

While consumers are unlikely to welcome the recent scourge of interest rate hikes, investors may find some solace in the fact that cash investments will reap the benefit in coming months.

All is quiet on the low-income front

Santam's 2006 full year results statement included a number of references to social responsibility, education and making inroads into the low income segments of the insurance market: "Being a leader requires innovation and agility, traits that Santam demonstrated when we became the first short-term insurer to offer home and household insurance to the entry level market (LSM 3 to 5).

"We continue to focus our corporate social investment initiatives at this end of the market and direct them specifically towards LSM 1 and 2."

This focus was re-iterated by then Santam CE, Steffen Gilbert. In a press release titled "Short-term insurance industry facing numerous challenges in 2007" Gilbert stated that the foremost challenge facing the short-term insurance industry in 2007 was  education and the affordability of insurance products for entry-level consumers.

Apart from a detailed discussion of the impact of BEE transactions in coming months the 2007 half-year results made little mention of the groups successes or failures in breaking into the low income market. 

Results support the 'Gilbert was pushed' theory

As it turned out, Gilbert was replaced as head of Santam by Ian Kirk. The surprise announcement was made toward the middle of June 2007 and Kirk took the reins from 14 June 2007.

When Gilbert's departure was announced, FAnews Online was among those in the media questioning the sudden departure. We thought that the flowery phrases included in the announcement were indicative of internal strife. Terms such as "a decision made by mutual agreement" and "a fresh approach is required" seem to have little to do with an executive's on-the-job performance.

What Santam's impressive interim results do is raise a few more questions about Gilbert's departure. It seems we are a little closer to answering whether Gilbert left Santam of his own accord or whether he was pushed. There must have been enough knowledge to suggest the group was performing well when the announcement was made, so clearly the decision to terminate his services was not motivated by poor performance.

Editor's thoughts:
Santam has proved that a company can make headway in difficult market conditions. Despite a softening of short-term insurance margins and an increase in weather related claims, locally and abroad, the company managed to post significant improvements in the first half of 2007. Do you expect conditions in the short-term insurance industry to remain difficult in coming years? Send your comments to


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