Santam boosts earnings – but faces a ‘new car’ problem – BusinessTech

Santam has delivered strong financial performance despite limited growth in its motor business, which is its largest insurance class.

In the group’s interim results for the 12 months ending 30 June 2024, Santam said it delivered an improved performance with pleasing underwriting results despite the weak operating environment.

“Progress with our FutureFit 2030 strategy and our diversification across market segments, insurance classes and geographies enabled the Group to achieve a resilient performance in the first half of 2024,” said the group.

It also welcomed the progress made in addressing the structural constraints limiting economic growth in South Africa, including electricity supply and transportation infrastructure, even if it is at a slower-than-expected pace.

“Economic growth in this, our largest market, remained lacklustre, and unemployment remained at historically high levels,” said the group.

“These conditions influenced our growth potential given the high level of penetration in the traditional insurance markets in South Africa, with these segments closely coupled to the performance of the economy and employment levels.”

“Our strategy is responsive to these conditions, and we, therefore, focus on our direct channels, where we do not have a fair market share, and the non-traditional segments, which are much less penetrated and provide good prospects for accelerated growth while also driving enhanced inclusion.”

“Opportunities for growth outside of South Africa were also more favourable given the group’s low market share in global markets.”

In South Africa, the motor class grew by 5%, with good growth in Broker and Client solutions. This was partly offset by a more muted personal lines performance at MiWay and lower volumes at Santam Re following a portfolio restructuring.

However, the group said weak new vehicle sales trends in South Africa dampen growth potential.

The property class grew by 12% and benefitted from the rate strengthening in the Broker and Client Solutions portfolios and the MTN Partnership in Partner Solutions.

Growth in the Engineering book was mainly driven by strong growth at Santam Re following the restructuring of its portfolio, offsetting the softer period at Specialist Solutions.

Santam also said that the claims environment is also presenting headwinds for the general insurance industry, with the frequency and severity of losses from inclement weather conditions having increased substantially over the last decade.

This includes South Africa, which has traditionally been seen as a benign catastrophic environment.

“We protected the wealth and prosperity of our clients by offsetting R607 million of weather-related catastrophe losses that they incurred in the first half of 2024. Increases in motor repair costs remained above general inflationary levels,” said the group.

The group said that all its major conventional insurance businesses contributed positively to an overall growth in gross written premiums of 8% and a net underwriting margin of 6.5%, within the Group’s target range of 5 to 10%.

Underwriting actions at Broker and Client Solutions and a portfolio restructuring at Santam Re improved the Group’s risk profile and the rating strength of its in-force book.

“This, combined with favourable attritional loss experience, outweighed the impact of weather-related catastrophes and large losses, creating positive earnings momentum.”

The group’s international business, Shiriam General Insurance (SGI) in India, grew strongly from all its distribution channels.

Book growth and a favourable claims ratio boosted SGI’s underwriting performance, but a lower return on insurance funds offset it.

Financials

Overall, the group’s insurance revenue increased by 10% from R22,4 billion to R24.6 billion.

The group’s basic earnings per share and headline earnings per share increased by 34% and 35% to 1,567 cents and 1,578 cents per share, respectively.

The group thus upped its interim dividend by 8% to 535 cents per share.

Read: Cell C owner takes a hit