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Santam reports improved interim results and declares a special dividend

·         Net underwriting result of R533 million up significantly from R88 million

·         80% increase in headline earnings, of R577 million, and headline earnings per share of 511 cents

·         Net insurance margin of 11%, up from 5%

·         Gross written premiums up 6%, net earned premium up 8%

·         Healthy solvency ratio of 44%

·         Interim dividend of 185 cps and special dividend of 500 cps

Santam has delivered significantly improved results for the six months to end of June, 2010. 

The net underwriting result of R533 million was significantly higher than the R88 million achieved during the first half of 2009.

Both headline earnings of R577 million and headline earnings per share of 511 cents showed an increase of 80% compared to the same period last year. An interim dividend of 185 cents per share has been declared, up 11.4% on 2009 in recognition of overall improving conditions and aligning the split between interim and final dividend with the dividend policy under normal conditions.

The overall net underwriting margin of 8% was favourably impacted by improved margins in the property and motor classes and was particularly influenced by the absence of large industrial accident and fire-related claims in the commercial and corporate business units.

Santam Chief Executive, Ian Kirk said: “It has been an exceptional first half from an underwriting perspective, particularly when compared to the same period in 2009. The net underwriting result for the first six months of the year was very pleasing, showing a continued improvement from the second half of 2009 and all business units performed well.”

“We are encouraged to see that more-and-more South Africans are realizing the value of ensuring their personal safety and that risk management is a key consideration in their financial planning. Santam strives to remain the preferred and trusted insurance provider and will strive to deliver continued excellence to the market,” says Kirk.

Growth in gross written premiums was satisfactory at 6% despite the continuing soft market. Net earned premium increased by 8%. It is expected that the industry will grow below the nominal growth of the economy as a result of continued pressure on disposable income and corporate earnings due to the difficult economic environment.

While positive growth was achieved across the largest classes including motor and property, “achieving an appropriate rate for the risk insured as the domestic economy recovered slowly from recession remains a challenge,” Kirk said.

The combined effect of the insurance activities resulted in a net insurance margin of 11% for the period compared to 5% for the comparable period in 2009.

The group’s operating activities generated healthy cash flows of R825 million, lower than the same period in 2009 due to the settlement of large industrial claims. 

Underwriting performance of the personal and non-specialist commercial businesses such as motor and property also showed positive improvements mainly due to a lower claims frequency and cost. The corporate property and portfolio management, both previously loss making lines, continued to see a turnaround during the past six months, recording positive margins.

Investment returns for the period were under pressure as a result of a volatile equity market, with equity markets closing below the December 2009 levels.

Investment returns on insurance funds of R203 million was slightly below the R218 million for the comparable period in 2009. Despite increased float balances, returns from interest bearing instruments were lower due to lower interest rates.

While financial markets turned positive early in the third quarter, it remains difficult to predict financial markets and interest rates are expected to remain at current or lower levels for the foreseeable future, limiting significant increases in returns on cash-related investments.

At 30 June 2010 the group’s international solvency ratio was at 44% at the upper end of the long-term target range of between 35% and 45%. As a consequence the board has declared a special dividend of 500 cps that will be payable on 27 September 2010. The capital remaining thereafter will be more than sufficient as confirmed by the recent AAA claims paying ability rating of Santam by GCR (Global Credit Rating Co.). 

Commenting on the next six months, Kirk added that the general consensus is that economic growth is expected to be fairly flat for the remainder of the year, with domestic insurance industry premium growth most likely below the nominal growth of the economy.

“We anticipate that the market will continue to be soft, both for commercial and personal lines business as the domestic economy recovers at a slower than expected rate.

“Expectations are that underwriting margins could normalise within the long term target range of between 4% and 6%. However, Santam is well positioned to face current challenges with its unique diversification and scale benefits.”

After the reporting period, Santam exercised its pre-emptive right as a shareholder and partner in order to purchase the remaining shares in Indwe Broker Holdings for a consideration of R263 million to become the 100% shareholder of Indwe.

This transaction is still subject to conclusion of legal agreements and regulatory approval.

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