Overall recovery boosts Santam’s profits

Insurance claims reach the highest level in the company’s history.
The insurer declared a final dividend of R7.90 per share and a special dividend of R8 per share. Image: Moneyweb

The single outstanding feature of Santam’s results is that there wasn’t a single line item that was responsible for the huge improvement in profitability that saw attributable earnings increase by nearly 760%. Rather, it was small improvements in all the underlying businesses and each of the profit drivers that boosted earnings to R2.75 billion in the year to December 2021, compared to R327 million in 2020.

Commenting for the last time, Santam’s outgoing CEO Lizé Lambrechts says modest improvements in all the factors that make a short term insurer tick resulted in the net underwriting margin improving to 8%, from the very low 2.5% in the prior financial year. It is at the top end of the group’s target range of an underwriting margin of 4% to 8%.

The income statement shows that gross premiums paid for insurance increased by 10% to R42.1 billion, and that interest income, valuation gains on interest instruments, and investment income increased by more than 50%. Financial markets recovered sharply during 2021.

Expenses increased by less than income and Santam’s tax also increased more slowly than profit.

However, Lambrechts says the most pleasing aspect of the results was that Santam proved its resilience and financial strength by being able to post a massive increase in earnings and table a strong balance sheet, despite the impact of several significant claim events.

She referred in particular to adverse weather conditions during the last months of 2021.

Record payout

“We paid a record amount in claims, a total of R24.5 billion. That is why we exist, to assist clients in times of need,” says Lambrechts.

“Over the past five years, Santam has paid R101 billion in claims. We are very pleased to inject money of this scale back into the economy to help stimulate growth and restore continuity of livelihoods. This is the core purpose of insurance,” she says.

The total amount paid in claims during the past financial year is the highest ever paid in a single year in Santam’s history. The R24.5 billion included catastrophe claims from large-scale fires and adverse weather that significantly affected agriculture, as well as floods in Gauteng and KwaZulu-Natal.

Notes to the results disclose that Santam paid R1.1 billion in agriculture claims following losses due to bad weather conditions.

In addition, management noted that vehicle and personal insurance claims are also back to pre-pandemic levels, a result of life returning to normal.

Controversial business interruption claims matter

Lambrechts indicated that she is relieved that business interruption claims – which exploded into a controversial issue lasting the best part of the last two years – are eventually being completed.

To date, Santam has paid out some R3.2 billion in contingent business insurance (CBI) claims, including the immediate relief payments of R1 billion made in August 2020.

The settlement of claims follows the judgment by the Supreme Court of Appeal which ruled on the length of the indemnity period for which clients, particularly Ma-Afrika Hotels and Stellenbosch Kitchen, could claim loss of income for.

“It provided the legal clarity Santam sought. This was necessary and Santam had to go through to process,” says Lambrechts, explaining that the certainty of the court ruling was important from an international viewpoint and for reasons of reinsurance claims.

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Hennie Nel, chief financial officer, told Moneyweb in an interview that during the process of finalising the CBI claims, Santam reviewed its provisions.

He says Santam decreased its provision for BCI claims by some R450 million after reviewing its exposure following the certainty offered by the court ruling, the claims payment experience to date, the level of claims, reinsurance recoveries, and expectations of further reinsurance recoveries.

“The reduction is mainly due to the actual claims experience to date being lower compared to initial estimates and positive feedback from Santam’s reinsurance panel on its catastrophe reinsurance claim,” says Nel.

However, management warns that there is still uncertainty about the ultimate liability, which will only be eliminated once the process has been finalised.

Dividend, outlook – and a farewell

The strong recovery in profitability prompted Santam to declare a good dividend, as well as a big special dividend.

The final dividend comes to R7.90 per share, while the special dividend amounts to R8 per share.

Nel says the dividends are indicative of the strength of the balance sheet, and that Santam does not want to sit with “too much” capital on its balance sheet.

Lambrechts believes Santam is in a good position to continue to grow over the next few years. “The business is strong and we have seen activity levels picking up in all the businesses. Santam is in a good space.

“I will not be part of the journey,” she adds. Having been CEO of Santam for around seven years, since 2015, she is taking early retirement. “About 18 months early,” she says.

“I worked hard for 36 years. I am going to take a break.”

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