Santam dishes on industry trends

By: Financial services journalist Katya Stead

COVER unpacks Santam’s results: exclusive interview with CFO Hennie Nel

A far milder year in terms of CATs saw Santam singing a far less dire tune in its 2018 results release recently, giving the short-term insurer some much-needed good news in its centenary year.

The insurer described its results as “solid”, with a  comfy 9.2% underwriting margin, which outstripped the group’s target range of 4% to 8%, and a 7% gross written premium growth for the conventional insurance business.” Shareholders are doubtless pleased, with return on shareholders’ funds sitting at 31.8 percent, up from the 30.3 percent reported by the insurer in August 2018’s interim results.

Growth prospects

“We are very happy,” Chief Financial Officer Hennie Nel told COVER in an exclusive interview. “For a business the size of Santam where you’ve got a big book to grow the book by 7 percent in a difficult economic environment that was a good outcome and then at a good margin for conventional insurance 9.2 percent In 2018 you definitely get the wind from behind some years it helps and some years it goes against you. We’ve seen the results of actions taken in years before bearing fruit now. We’re happy we’ve achieved good growth in a very difficult environment.”

Out of the fire

What actions were these? Namely toughening up on risk following a particularly CAT-laden year, according to Nel.

“In 2017 we had a significant exposure to catastrophic events, and to a lesser extent 2016 too. In mid-2017 we reported very tough mid-year numbers, largely due to the Knysna fires and commercial fires happening on our side. We had to sort of tighten up on our risk management procures and risk mitigation in terms of commercial operations, so that the policyholder also helps with risk mitigation. We’ve introduced better surveying of risks and better taking action in terms of risk surveyor reports. I think that’s a general trend in the industry too.”

Interest

But 2018 had its own problems. CEO Lizé Lambrechts mentioned the negative impact the listeriosis outbreak had on claims (and, consequently, on cash flow one assumes) while Nel mentioned a different sort of blight plaguing many insurers – that of the current interest rate environment.

We’ve definitely seen the impact of a lower interest rate environment in 2018. Assets supporting the insurance funds have been under pressure – 2.4 percent margin in 2018 compared to 2.9 percent in previous years.”

MiWay in a good way

One subsidiary that seems to be fighting fit in the face of significant financial pressures is Santam’s MiWay – whom the general insurer named several times in its financial results report.

In its tenth year, MiWay outstripped its parent with a 8 percent growth overall compared with Santam’s 7 percent, and achieved gross written premium figures of R2 496 million compared to 2017’s R2 319 million.

“We are definitely happy with MiWay, it’s definitely a business we still expect to grow a lot. They’ve been quite successful in new business they’ve acquired and they managed to keep their loss ratio at 55 percent and maintain that, which we found very impressive. They experienced an unfortunate side effect of have seen the difficult economic environment in 2018, the difficult to retain premiums in a year where consumers are feeling the pinch and so are less likely to pay premiums. That may be a market trend that we see. But we’ve seen a good improvement for the latter part of the 2018 year.

Like us, they’ve also benefitted from a slowdown in growth. 2017 was such a tough year, so to outperform in 2018 was always going to be slightly easier.”

2020 vision

Going forward in 2019, Santam will be continuing its pursuit of footprint expansion across Africa, following last year’s headline-topping SAHAM stake purchased, which saw Sanlam and subsidiary Santam  buy the remaining 53.37percent stake in insurance company Saham Finances at a record-breaking R12.44 billion at this time last year.

“I think it’s an exciting time for insurance digital opportunities the questions how do we really develop partnerships to grow our African business floats. We are asking ourselves, after increasing our stake in Saham in October to 19 percent, ‘how do we build together operational business in Africa?’ Also, we’ll spend a significant part of 2019 putting together our view on what the next five years will be. Our 2020 to 2025 vision is called ‘Future fit 2025’, and we’re focusing on still being relevant adapting to all the changes happening in business by 2025. We present to our board in August.”

Good luck to you, Santam. Here’s to the next 100 years.