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Showing Anglo the finger! Santam pays a final dividend

27 February 2009 Gareth Stokes

Short-term insurer Santam deserves praise for keeping the business on track in the latest 12-months. And shareholders perusing results for the year to 31 December 2008 will certainly breathe a sigh of relief. They will have scanned the usual upbeat gloati

Market detracts from solid South African performance

The group’s headline earnings declined 35% to R659m, with headline earnings per share down form 906c in 2007 to just 586c. The reason: “Overall earnings for the group were below 2007, attributable to lower investment returns as a result of the continued turmoil and substantial decline in equity markets.” Santam posted a net loss on financial assets (at fair value) of R721m – a massive swing from the R454m earned in 2007. This collapse echoes the R1bn reversal of investment fortunes suffered at Mutual & Federal in the same year.

Market turmoil aside the country’s leading short-term insurer did good business in 2008. Gross written premium was 8% higher at R14.179bn, with improvements across most classes of business. Commercial insurance remains the largest contributor with R7.176bn followed by personal insurance at R5.277bn. The balance of premium was earned from alternative risk. It’s also worth noting the significant contribution by premium earned from motor (R5.535bn) and property (R3.859bn) insurance.

Santam reported an 11% improvement in the underwriting result to R739m despite a negative performance in the property class. And Santam says “the personal and commercial business classes outperformed 2007, despite several catastrophic flooding events in KwaZulu-Natal and Southern Cape…” The significant decline in the number of large commercial fire claims which afflicted the local short-term industry in the first half also contributed to the moderate jump in underwriting margin, from 6.2% in 2007 to 6.4%.

What will 2009 bring?

At the outset Santam warns that underwriting margins will remain under pressure this year. They say the 6.4% achieved in 2008 will not be easy to replicate. This assertion is made in light of the numerous challenges facing the industry. Insurers will have to contend with the “softer market” for short-term insurance which will impact business in both commercial and personal lines. New business will be hard to come by as personal net disposable income and corporate earnings suffer through 2009. Then there’s the well-worn “deterioration in global and domestic economic conditions” which appears in the prospects column of almost every set of financial reports these days. “The continuing financial and economic climate could impact capital growth on our investment portfolio during 2009,” says Santam.

Fortunately there are some positives to focus on. Santam’s major weapon in these difficult times will be its diverse portfolio of products which should help it meet industry challenges head on. The company says it should benefit “from moves by clients to place business with insurers with sound financial standing!” Corporations become particularly fussy about the financial stability of banks and insurers during turbulent times. To this end Santam’s 44% solvency ratio will impress.

It will also be easier to manage investments in the coming 12 months as “the market will be less volatile” though the equity market returns witnessed between 2003 and 2007 are unlikely to be repeated. And of course earnings on cash-related investments will suffer in line with the falling interest rates. The market seems happy with Santam’s progress. Shares in the company have risen from around R63 per share in December last year to R80 today, making Santam one of the best performers on the JSE this year (to date).

Editor’s thoughts:
Santam produced a solid performance in the latest year. Operational achievements included an 8% increase in gross written premium and a quiet exit from its European insurance business. Do you believe you’ll write more short-term business in 2009 than the year before? Add your comments below, or send them to gareth@fanews.co.za

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