Santam, South Africa’s largest general insurer, reported robust financial results for the first half of 2024 amid what it described as a challenging claims environment.
Headline earnings per share and earnings per share increased by 34.9% to 1 578 cents per share (2023: 1 170 cps) and by 33.9% to 1 567 cps (2023: 1 170 cps), respectively, in the six months to the end of June 2024.
The JSE-listed company declared an interim dividend of 535 cps, which was 8.1% up from the 495 cps in the corresponding period in 2023.
Net income increased by 34% to R1.718 billion, supported by a 29% increase in the earnings from conventional insurance to R2.05bn and a 63% rise in earnings from alternative risk transfer (ART) to R326 million.
Despite a significant rise in the frequency and severity of losses because of inclement weather conditions, the group achieved an 8.1% increase in gross written premium (GWP) and a 7.1% growth in net earned premium (NEP).
Santam paid R14.2bn in gross claims in the period under review, marginally lower than the R14.6bn in the prior period.
Santam offset R607m (net of reinsurance) in weather-related catastrophe losses during the first half of 2024. This was a substantial increase from R150m in similar losses in the previous year.
Other significant losses (net exposure of more than R10m per event after reinsurance) amounted to R98m, declining from R358m in 2023.
The surge in weather-related claims was met with underwriting actions, focusing on key areas such as motor insurance and property coverage.
Group chief executive Tavaziva Madzinga said the claims environment has been under pressure for the entire general insurance industry.
“The frequency and severity of losses from inclement weather conditions have increased substantially over the past decade, including in South Africa, which has traditionally been seen as a benign catastrophe environment,” he said.
“We have, as a result, remained steadfast in implementing a number of underwriting actions in response to the elevated levels of claims frequency, severity, and inflation experienced over the past number of years. We have also successfully addressed power surge losses, which in part was aided by an improved Eskom performance and the profitability of the motor book,” Madzinga said.
Santam said its refreshed FutureFit 2030 strategy has been pivotal in navigating the difficult operating environment, enabling it to achieve a more normalised underwriting performance.
Santam Re, the group’s reinsurance arm, concluded a strategic restructuring of its portfolio in 2024, creating a more diversified and lower-risk base for future growth. This restructuring led to double-digit growth in Santam Re, as the cancellation of underperforming business in 2023 paved the way for improved profitability in 2024.
Investment returns also contributed positively, with the group achieving a 2.3% return on insurance funds, slightly up from 2.2% in 2023. This increase was supported by solid returns on local and global fixed-income investments, buoyed by favourable market conditions following the formation of the Government of National Unity.
Underwriting performance
Santam’s underwriting profit surged by 82%, achieving a margin of 6.5%, within the group’s target range of 5% to 10%, compared to a margin of 3.8% in 2023.
The property class was heavily impacted by weather-related events, resulting in a net loss of R203m (2023: net loss of R203m). However, enhanced risk selection and the accelerated roll-out of geo-coding technology improved the group’s ability to assess and price risks accurately, preventing losses of more than R150m.
Motor insurance also showed a strong recovery, with all business units contributing to the positive performance on the back of lower claims frequency. Net profit surged from R130m to R829m. Santam said the group’s approach to managing claims inflation, particularly in motor repairs, has kept costs under control despite industry-wide inflationary pressures.
The engineering class, another significant component of Santam’s portfolio, delivered robust growth in underwriting results, benefiting from a decline in the frequency of large losses. Net profit grew by 71.7%, from R138m to R237m.
The liability class declined from R373m to R127m, “but achieved margins in line with expectations for the year”.
Transportation profits declined from R60m in 2023 to a loss of R16m in 2024. A “solid contribution” from Heavy Haulage was offset by several large claims in Marine, Santam said.
Crop insurance also fell into a loss of R26m after a profit of R52m in the prior period because of an increase in hail-related claims and some drought-related claims in 2024.
Growth across business units
All business units contributed to the growth in GWP, except for Specialist Solutions, which experienced a marginal decline in business volumes.
“Casualty business was negatively affected by aggressive competitor pricing and business being placed directly in the global market. Protecting the group’s profitability is paramount, and we were not prepared to follow the market’s pricing levels,” Santam said.
The property class experienced a 12% increase, driven by rate strengthening in the Broker Solutions and Client Solutions portfolios and the MTN partnership in Partner Solutions.
The motor insurance class grew by 5%. However, the broader growth potential in motor insurance was tempered by weak new vehicle sales trends in South Africa, reflecting ongoing economic pressures in the local market, Santam said.
The Partner Solutions division, buoyed by the transfer of the MTN in-force book to the Santam licence, showed strong growth from a low base.
MiWay, a key component of Santam’s growth strategy, reported a 7% overall growth, a notable improvement from the 4% growth in the first half of 2023. MiWay’s business insurance segment, in particular, benefited from the company’s new inbound and tied agency strategies, achieving growth of more than 30%.
Contribution from international operations
Santam’s South African business remains the most significant contributor to the group’s GWP, accounting for 82% of total GWP, with business from this market increasing by 7% to R15.7bn.
Santam’s international operations also contributed to the group’s growth, with GWP from outside South Africa increasing by 11% to R3.4bn, representing 18% of the total GWP. This international expansion aligns with Santam’s strategy to diversify its revenue base and reduce its reliance on the South African market, where economic conditions remain challenging.
The partnership with SanlamAllianz across Africa in specialist business continued to deliver positive results, with GWP growth of 33% to R379m (June 2023: R286m).
Outlook for 2024 and beyond
Santam said it is cautiously optimistic about the remainder of 2024. Although it does not expect general operating conditions to improve significantly, investor and business sentiment has been buoyed by recent political developments in South Africa and an improvement in Eskom’s electricity availability factor. These factors, along with Santam’s ongoing strategic initiatives, provide a foundation for continued growth.
However, challenges remain. The expected La Niña effect in the third quarter of 2024 could lead to increased rainfall and heightened risk during the traditional hail season in the fourth quarter. These factors add a layer of volatility to the group’s underwriting margin, requiring continued vigilance and proactive risk management.
Nonetheless, Madzinga said Santam’s FutureFit 2030 strategy, coupled with the management actions already in place, have positioned the group well to navigate these challenges.
