Picture: SANTAM
Picture: SANTAM

Much of the insurance game is about luck, for both the insurer and the client.

Many customers of market leader Santam — which has about a 22% market share — would have insured for 2017’s catastrophes such as the Knysna fire and widespread hailstorms in Gauteng. The key measure for short-term insurers is the underwriting ratio, or the surplus left over once claims and expenses have been paid. For Santam this increased from 6% in 2017 to 9.2% in the year to December 2018.

Insurers can reduce the volatility of returns through reinsurance, which Santam has maintained at about 18.5% of premiums, mainly for catastrophe cover.

Santam CEO Lizé Lambrechts says: "We also helped our returns … by helping our clients manage their commercial fire risks, and by cancelling cover in the most risky cases."

She says that there is still a sizeable risk protection gap; it is estimated that only a third of the cars on SA’s roads are insured.

Yet gross written premium was up a modest but satisfactory 7%, to R27.7bn.

Even the wholly owned direct motor insurer MiWay was in line, with 7.6%; this is still a couple of percentage points ahead of arch-rival Outsurance.

"The direct insurers have more or less played out," says Jan Meintjes, portfolio manager at Denker Capital. "MiWay and Outsurance are both [now] much more mature."

The motor book as a whole had a strong year, with the surplus up 37% to R1.18bn.

But liability, usually one of the strongest contributors, made a R20m loss, hurt by listeriosis-related claims from food industry players such as Tiger Brands. Because of far fewer fires, the property book swung from a R165m loss to a R519m surplus. The total surplus was balanced between personal lines at R1.15bn and commercial business at R920m.

Santam still gets 82% of its premiums from SA. Its biggest other market is Namibia, where it has 30% market share. Yet premiums there were down 7% to R1.11bn.

The business written on its own licence in the rest of Africa was down 22% to R812m, but it has done well in the rest of the emerging markets, with income in Southeast Asia, India and the Middle East up 61% to R1.18bn.

Much of this came from the success of the Mirabilis Engineering team in insuring construction projects.

Lizé Lambrechts: Unnaturally high underwriting margin. Picture: TREVOR SAMSON
Lizé Lambrechts: Unnaturally high underwriting margin. Picture: TREVOR SAMSON

Lambrechts says Santam is committed to a multichannel distribution strategy: "Brokers play an important role handling claims and act as an extra pair of eyes to monitor risk. A simple transaction such as insuring a car can be done on an app, but when it comes to a couple of vehicles, a holiday home, a small business and a primary residence, a broker makes sense."

Lambrechts argues that with very little trust in financial services, Santam is proud of its reputation of paying all valid claims.

"We do proper underwriting upfront and don’t do underwriting at claims stage [looking for reasons not to pay]," she says.

Santam’s main international initiative is in partnership with parent Sanlam in Africa and certain Asian markets. Santam CFO Hennie Nel says it aims for 10% exposure in both Morocco-based Saham Finances, which Sanlam took over last year, and the Sanlam Emerging Markets (SEM) partner businesses.

Short-term insurance is still substantially larger than life across the rest of Africa.

Nel says Saham includes relatively large short-term insurers in Morocco and the Ivory Coast. The main opportunity for Santam will not be in the vanilla motor and property sectors but in specialist sectors such liability, engineering, alternative risk transfer and reinsurance.

Nel says Santam has only a limited appetite for African exposure, given its much tighter balance sheet than Sanlam’s.

The Saham and SEM investments involve 45% of shareholders’ funds and conventional listed equities make up less than 15%.

"But we don’t want to become an investment trust," says Lambrechts. "We would rather put our shareholders’ funds to work or pay the money back to our shareholders through a special dividend."

But Meintjes says that after the Saham deal Santam will have to rebuild cash resources for now; a special dividend is at least another year away.

Santam is the only full-service short-term insurer on the JSE. But few unlisted insurers can match its 32% return on capital.

It doesn’t come cheap, with a p:e of 17 and a dividend yield of 3.2%, but it is arguably the best business in the financial sector, delivering the kind of performance that we hope to see from Discovery one day.