Santam, South Africa’s largest short-term insurer, paid a record R29.8 billion in gross claims in 2022, nearly 22% more than the R24.5bn paid in 2021, its latest annual report shows.
Higher claims impacted the group’s net underwriting margin, which fell from 8% in 2021 to 5.1%, which is at the bottom end of Santam’s target range of 5% to 10%.
Santam posted an increase of 6% in net insurance premiums to R28bn, while recoveries from reinsurance came to R11.13bn.
“The 2022 financial year was one of the most challenging underwriting periods in Santam’s history, combined with a turbulent investment market environment. Despite these headwinds, we reported strong gross written premium growth (GWP) and resilient net insurance results,” said Tavaziva Madzinga, Santam’s group chief executive.
The group’s conventional insurance business achieved GWP growth of 8%, at R35.4bn. Its conventional insurance business consists of Santam Commercial and Personal, Santam Specialist, Santam Re and MiWay.
Adverse weather conditions in the first three months of the year and the devastating floods in KwaZulu-Natal during early April 2022 significantly impacted the underwriting results, the group said.
The current estimate of Santam’s gross exposure to the KZN floods is R4.4bn. Reinsurance limited the net impact to about R567 million, including reinsurance reinstatement premiums. The KZN floods were the most significant natural catastrophe in Santam’s history.
Other factors contributing to the lower underwriting margin were increased claims inflation, which escalated ahead of premium increases, higher-than-expected fire losses, and increased power surge and crime-related claims. These were offset to some extent by a reduction in provisions for Covid-19-related contingent business interruption (CBI) claims.
Santam reviewed its provisions for CBI claims at the end of December 2022, considering the underlying exposure, claims payment experience to date, the level of claims aggregating for reinsurance recovery purposes, and expected recoveries from applicable reinsurance contracts. Following this review, Santam reduced its net provision for CBI claims by a further R317m, following the reduction of R397m accounted for in the June 2022 results. The reduction is mainly due to the actual claims to date being lower than initial estimates.
The current estimate of Santam’s gross liability for open CBI claims at the end of December 2022 is R1bn (2021: R3.2bn), and a reinsurance asset of R900m (2021: R3.2bn).
Premium growth by business unit
The Santam Commercial and Personal (C&P) business reported good growth in GWP compared to 2021, specifically in commercial lines and Santam Direct.
The Specialist business achieved overall strong growth, with the crop, travel, liability, marine and corporate property insurance businesses as the main contributors. The growth in the crop business was mainly because of increased commodity prices.
Subsidiary MiWay recorded subdued growth of 2%, following a deliberate focus on profitability, which impacted new business growth. The impact of low premium increases in 2021 and increased premium defaults in 2022 also contributed to lower growth in the existing book.
Santam Re achieved acceptable growth in its third-party business, positively impacted by new business written and a general increase in reinsurance premium rates globally.
Gross premiums by insurance class
GWP in the property class increased by 8% to R13.194bn due to strong growth by Santam Re, as well as “solid” contributions from the corporate property business and the Santam C&P intermediated business.
The motor class reported growth of 5% to R15.124bn, following good growth by Santam Re and the Santam C&P intermediated business, offset to some extent by subdued growth from MiWay.
The liability class grew 12% to R1.743bn, supported by firmer premium rates, growth in the uptake of cyber cover, and increased market share across the independent broker market segment.
The accident and health class jumped 26% to R719m, as the travel insurance business benefited from increased local and international travel and increased business activity post-Covid-19.
The transportation class grew 18% to R1.174bn, which included good growth in the Santam Specialist aviation and marine businesses.
However, GWP in the engineering class saw subdued growth of 2% to R1.759bn, following a slowdown in business flows from outside South Africa.
Difficult outlook
Santam said trading conditions in South Africa and globally were expected to remain “very competitive”. The company also anticipates high interest rates and significant inflationary pressures to continue to decrease disposable income in South Africa.
“It is our view that economic activity will, in the short to medium term, be constrained by weak consumer spending. The high-inflation environment also puts pressure on claims costs, while the ongoing loadshedding will negatively impact economic growth.
“We are facing a significant increase in reinsurance premium rates, following several large global and local catastrophe events. We have implemented a number of underwriting actions to mitigate these challenges, which positions us well for future growth,” said Madzinga.
