The country’s largest short-term insurer has attributed the 47% increase in its profits to stricter underwriting and to not chasing new policies at the expense of profits.
Santam, which has 1-million policyholders and commands over 22% of the short-term insurance market in SA, increased headline earnings for the year to December to R2.3bn from R1.6bn in 2017.
The highlight of the results was an increase in conventional insurance underwriting margin to 9.2% from 6% in 2017. This was above Santam’s own target range of between 4% and 8%. Underwriting margin shows the percentage of collected premiums the insurer kept after paying claims and other expenses.
Santam benefited from a 7% increase in gross written premiums in the general insurance business, while gross claims paid decreased to R18.4bn compared to R19bn in 2017.
In 2017, the company experienced a surge in claims after severe catastrophic events, including Knysna fires and floods. It paid R2bn in claims for these events alone in 2017.
While fewer catastrophe claims helped improve the underwriting margin in 2018, Santam also became more stringent in its risk assessment.
"We’ve always been disciplined in our underwriting to understand the extent of risks we are covering and how to manage them. But we increased our discipline even more, sending people out for commercial risks to understand what fire mitigation clients have and if they need to be improved," said Santam CEO Lizé Lambrechts.
Santam did get more claims in its specialist insurance businesses, most notably the liability business because of product recall claims related to the listeriosis outbreak.
Almost all of Santam’s insurance segments recorded growth in gross written premiums. The motor insurance business grew by 6%, with MiWay reporting 8% growth to R2.5bn in gross written premiums.
The property class had 11% growth in premiums, mainly because of strong corporate property insurance demand.
The exceptions were crop insurance and the Namibian operations. Crop insurance premiums contracted by 12%, while Namibia declined by 7%. As far as crop insurance is concerned, Santam wrote fewer new policies to reduce its exposure in drought-stricken areas.
In Namibia, Santam CFO Hennie Nel said the country’s negative economic growth was making it difficult to sell insurance. "The country itself is under a lot of strain and it’s really a very challenging environment because there are less insurable assets that insurance companies compete for.
"Our philosophy in Namibia is the same as in SA. We always want to write premiums at a level where we believe there’s a reasonable chance for a profitable margin. We don’t just write policies for the sake of it. That also affected our growth," said Nel.
Although Namibia is a small contributor to Santam’s profits, contributing just over R1bn in conventional insurance premiums a year, the insurer said it remains committed to that country as it wants to grow its business flows from outside SA.
Only 7% of Santam’s business flows are generated outside of SA. The insurer is banking on its new partnership with Moroccan insurer Saham, which Santam parent Sanlam took over in 2018. Santam now holds a 10% stake in Saham.
Lambrechts said the insurer will be working with Saham to "substantially" increase its market share in specialist insurance outside of SA. "We are still finalising the operating model between us and Saham on how we are going to operate as one team in Africa so that we can really own Africa."