Santam has provided an operational update for the four months ended April 2022. Insurance is a particularly colourful game in South Africa, with a solid combination of natural disasters and civil unrest to keep things “interesting” I suppose.
I’ve gone into the details below, with the overall message being that premium growth is strong, underwriting margins are under pressure (due mainly to the floods) and investment returns have also been knocked by the bear market.
Conventional Insurance
The first segment is called “Conventional Insurance” – perhaps ironic given the issues we’ve dealt with as a country.
Gross written premium growth was strong at 7%. Santam’s exposure to the KZN floods is R3.2 billion, with the net impact limited to R500 million as a result of the reinsurance program. Insurance is all about managing the amount of residual risk carried after paying for reinsurance.
Santam notes that this is a 1 in 25-year event and the largest natural catastrophe in Santam’s history, dwarfing even the PR catastrophe of Santam’s business interruption insurance court case during the pandemic. Ok, I added the second part in.
A negative net underwriting margin has been reported for this period due to the large negative impact in a short period (only four months is being considered here).
Apart from fires and other weather-related claims this year, Santam also notes that there has been an increase in vehicle accidents compared to the lockdown period. This makes sense as people return to work, though I would expect hybrid working trends to have a structural benefit for insurance companies. We are driving a lot less but our premiums haven’t come down.
The Santam Specialist business reported negative growth in gross written premiums, as strong growth in travel insurance was more than offset by the engineering and corporate property business. Underwriting results were solid in this space, though the property side was also affected by the floods.
In other important updates, MiWay had subdued gross written premium growth and experienced pressure on underwriting performance from the floods and weather conditions, while Santam Re had excellent gross written premium growth.
Market volatility negatively impacted the investment return on insurance funds, especially in the US component of the investments.
Alternative Risk Transfer
There wasn’t much to say on this one – the ART segment had strong operating results and lower underwriting results, which seems to be the flavour of the day in the broader group.
Sanlam Emerging Market partner business
The Sanlam Pan Africa General Insurance business achieved net earned premium growth of 7%, or 10% in constant currency. A lower investment return on insurance funds has negatively impacted the results, particularly due to the decline in Moroccan equity markets.
Investing in an insurance business means you carry all kinds of interesting underlying exposures!
Underwriting margins were at the lower end of the 5% – 9% range, adding to the narrative of the rest of the group.
Shriram General Insurance was hit by lower sales, with some relief coming from prescribed third-party premium increases in India. The good news is that the claims experience and investment returns were better year-on-year, contributing to a significantly improved overall result.
Other stuff
There have been some corporate actions, like Santam’s economic interest in Shriram General Insurance diluting from 15% to 14% in April as a leading global investment fund invested in the Indian business. Also in April, Santam became the sole owner of Indwe Broker Holdings by buying the remaining 76% for R125 million.
Then in May, the big news of the Allianz deal at Sanlam level hit the market. This is primarily a Sanlam transaction, with the impact on Santam being a disposal of a 10% interest in SAN JV to Allianz. Santam has hedged the proceeds using a 12-month zero-cost collar structure. This protects Santam against the EUR/ZAR dropping below R16.66 and allows Santam to benefit from rand weakness up to R19.16.
There are some balance sheet movements in terms of issuances and redemptions of subordinated debt, which is business as usual for insurance groups. Importantly, the balance sheet is still strong despite the poor underwriting and investment results.
Results for the six months to June will be released on 1st September, an unusual way to celebrate Spring Day. Despite all of this, the share price is up 5% this year!
