Santam’s profits from underwriting activities in its conventional insurance business fell below its target range in its first quarter to the end of March, impacted by weather-related and power surge claims.
The net underwriting margin for the period was below the group’s target range of 5% to 10%, Santam said in a trading update on 16 May.
Santam, valued at more than R30 billion on the JSE, reported a net underwriting margin of 5.1% in its 2022 year, down from 8% in the previous year, largely because of claims related to the floods in KwaZulu-Natal in April 2022.
“Operating conditions during the period remained challenging, with insurance growth prospects dampened by the impact of electricity supply disruptions on economic growth and pressure on personal disposable income from elevated inflation and higher interest rates. South Africa also remains a highly competitive insurance market,” the group said.
“Underwriting conditions during the period were characterised by adverse claims experience, particularly from inclement weather conditions and ongoing power surge claims impacting the property class of business.”
In February 2023, the Presidency declared a state of disaster after flooding in Mpumalanga, the Eastern Cape, Gauteng, KwaZulu-Natal, Limpopo, the Northern Cape, and North West.
Despite the difficult operating conditions, Santam said the group “showed operational resilience and achieved sound financial results for the period. The corrective underwriting actions implemented to date have had a positive effect, with further benefits expected in the coming months. The underwriting performance of the motor class showed significant improvement compared to the comparative period in 2022.”
The conventional insurance business achieved gross written premium (GWP) growth of 6%, from 8% in 2022.
The specialist solutions business experienced strong GWP growth, with the main contributions coming from marine, aviation, and travel.
Direct insurer MiWay saw subdued GWP growth because of financial pressure on consumers and a highly competitive market.
“Underwriting actions implemented in 2022 and 2023, which include procurement efficiencies, segmented premium increases, and higher claim excesses, are, however, showing positive results but will only be in full effect at the end of the renewal cycle for all policies during the latter part of 2023. Additional underwriting actions to further address the increase in power surge claims will become effective on 1 June 2023,” Santam said.
MTN device transaction
During its first quarter, Santam received approval from the Competition Tribunal to acquire MTN’s device insurance book in South Africa. The transaction will enable Santam to retain sufficient underwriting profit to achieve its required return on capital, the group said.
“Santam commenced writing new device insurance business through this arrangement during April 2023. Growth prospects for the venture are promising, to be augmented over time by the roll-out of additional products.
“The transfer of the in-force book of business, which will add some 400 000 policies to the Santam licence and annual GWP of nearly R400 million, remains subject to regulatory approval, which is expected during the third quarter of 2023. Santam’s net capital outlay for the acquisition amounts to approximately R60m,” Santam said.
