Picture: SANTAM
Picture: SANTAM

Santam shareholders may soon be in line for another special dividend, despite a series of catastrophic events over the past six months including the Betty’s Bay fires, the KwaZulu-Natal floods and widespread hail in agricultural areas.

Yet the short-term insurer — the last such standalone company on the JSE — was still able to show a 5.3% underwriting profit for the first half ended June.

Underwriting profit is the percentage of premium left over after claims and expenses. In contrast, its archrival, Old Mutual Insure, had a margin of just 0.2%.

Anthony Sedgwick, portfolio manager at Abax Investments, says in spite of the catastrophes, Santam’s earnings were almost unchanged at R1.1bn, and because it has such a strong balance sheet it was able to increase its dividend by 8% to 392c a share.

Sedgwick believes that Santam will soon be in a position to pay another special dividend, though finance director Hennie Nel says the capital coverage ratio of 160% is within its ideal range of 150%-170%.

Sedgwick argues that Santam’s diversity is what makes it so resilient. The pain of the catastrophes was reflected in the R5.3bn property book, in which an underwriting profit of R280m was turned into a R128m loss.

But in a period in which earnings from its conventional insurance fell by 25% to R887m, Santam posted a 14% improvement from its cell captive business Centriq, to R72m, and a doubling of income from its African and Asian associates.

Centriq had a 56% increase in operating profit to R50m thanks to substantial growth in Capitec funeral policy sales, which are written on its licence.

Personal lines insurance in SA and Namibia make up 34% of the Santam portfolio. Of this, nearly a quarter is in the fast-growing direct motor insurer MiWay, which has a significantly higher margin than the broker-based business as it does not pay commission. In the half-year MiWay made a 15.3% underwriting profit.

The bulk of Santam’s premiums, at 43%, flows from the corporate and commercial sector, and within both personal and commercial lines, 45% of its business is in motor insurance.

Santam CEO Lizé Lambrechts says the star performer in writing business was engineering, through its Mirabilis operation, which wrote 36% more business; its underwriting profit grew 13%, to R143m.

Santam’s liability unit, Stalker Hutchison Admiral, also posted a considerable turnaround in which last year’s loss of R49m — due largely to the listeriosis outbreak — was turned into a R117m profit.

In a tough market for even the most hardened JSE investors, Santam managed to produce a return of 9% on its listed equities, against the shareholder weighted index benchmark return of 8.2%. Sedgwick says Santam looks attractive at around R290, well down from its recent highs of R339. With its track record, a p:e of 14 and a dividend yield of 3.5%, the price is hardly demanding.