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Santam well set to settle massive fire claims

Interims. In this economy ‘if people don’t buy new insurable property, we can’t grow our business,’ says CEO Lizé Lambrechts.

NASTASSIA ARENDSE:  Santam released their interim numbers today, but their half-year underwriting margin was hit by the claims from the Cape Storm and that devastating fire that hit Knysna in June.

I am joined now by Lizé Lambrechts, who is the CEO of Santam. Lizé, thank you so much for your time

LIZÉ LAMBRECHTS:  We are very pleased with the results, given that it was a very unusual claims-activity six months for our industry. From a growth viewpoint we grew at 14% gross written premium, which is much higher than we’ve been able to do in the last couple of years. And then from an underwriting viewpoint, which is where we really make our profit, we are still, although at the bottom end, within our target range.

So, given that it’s been a difficult year so far with claims, we are very happy with the result.

NASTASSIA ARENDSE:  When you look at the different parts of the segments within the business, how did they perform and which areas would you be focusing on with your team?

LIZÉ LAMBRECHTS:  In general we are happy from a growth side that all the businesses actually performed and did very well. From an underwriting viewpoint, the one area that we are not comfortable with is the business class that we call commercial property. We’ve had a number of large fire claims – and this is not the Knysna claim I’m actually referring to. It’s fairly big commercial properties that we’ve had fire claims for. There the frequency is higher than we would expect or want it to be. So we will be putting a lot of focus in the next couple of months and years on how we can help our commercial clients improve their risk mitigation, so that we have fewer of these fire claims.

NASTASSIA ARENDSE:  In terms of the fire claims, and in particular the Knysna fire that damaged extensive property across Cape Town and the different environs, how do you plan for an event like that because, yes, you are in the insurance business and anything can happen. But when you look at what’s going on in Knysna and the possibility that it may happen, say, in the next ten years or so, wherever the case may be, how do you plan for that for the business? Is that even possible?

Read: What could go wrong?

LIZÉ LAMBRECHTS:  Knysna is exactly why we are in business, for an event like that. That’s why people need insurance. It is the unexpected that happens. We plan for a certain level of catastrophes in every year. We don’t expect a Knysna event to happen every year. It is what we call in insurance terms a “1-in-200-year event”. So hopefully it won’t happen again in my lifetime.

But that is why we as insurers have reinsurance, which is really our insurance. So we take out reinsurance to help us cover these big catastrophe losses.

NASTASSIA ARENDSE:  A lot of the CEOs who have delivered results over the past couple of days or weeks talk about the South African environment and what’s happened to it. When you look at it, probably taking into account your experience in the insurance business, what affects you as a CEO who runs a business like this, and what keeps you up at night when you constantly have to deliver good returns for shareholders and also at the same time keep your clients happy and keep the business going?

LIZÉ LAMBRECHTS:  There are two things that really keep me awake in the South African context. The first is the overall state of our economy. As an insurance industry we can only really grow the whole insurance pie if the economy grows, because our growth is absolutely correlated to the economy. If people don’t buy new insurable property, then we can’t grow our business. The South African economy – we all know the state of the economy, so that is a bit worrying for me. At the moment we are really growing by taking business off each other, and that’s not a healthy state. In the end you want to grow the overall pot. But for that we need the economy to grow.

And then the second one that keeps me awake is in these tight economic times both private business owners, I suppose, and maybe local government – the first thing they do when they have to tighten the belt is to reduce their risk-mitigation costs or effort. So if you have to decide between paying salaries for your staff or installing a new sprinkler system, for instance, you have to salaries to you staff. So risk mitigation I think in general is being reduced at the moment, and that has a direct impact for us on the risks that we insure. That’s really what keeps me awake about South Africa.

NASTASSIA ARENDSE:  Another common theme that seems to come out of a lot of the results as well is the international diversification – whether you are a retailer or you are involved in property. Is it the same with you with insurance? Would you be looking at increasing your diversification through your Santam specialist business, or perhaps even Santam Re?

LIZÉ LAMBRECHTS:  Yes, actually this is not new. We’ve been doing this now for a while. We increase our international business, both business written internationally and last year on the African continent on our South African Santam licence. But then also we’ve been co-investing with Sanlam in all the general insurance businesses on the continent and in India and Malaysia for the past three, four years. So we are definitely also following that trend and expanding our international footprint.

NASTASSIA ARENDSE:  And prospects for the rest of the year?

LIZÉ LAMBRECHTS:  From an economic viewpoint we are cautious. We don’t see a sudden recovery. From a Santam viewpoint this is a very volatile industry, so anything can happen. We could have hail – the hail season is coming up – but I’m very comfortable that we have a very solid base in Santam and that we do the fundamental things right. So I’m also cautiously optimistic.

NASTASSIA ARENDSE:  Alright, Lizé, thank you so much for your time.

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