Johannesburg - Santam’s net underwriting margin shrank to only 1.3 percent in the six months to June from 6.1 percent a year earlier and this adversely affected the insurer’s underwriting result.
The short-term insurer generated net income after tax of R422 million, 15 percent less than a year earlier. Headline earnings fell by 12 percent to R416m, while the return on capital was only 14.9 percent, negatively affected by the difficult underwriting conditions.
Santam was affected by high levels of claims for hail damage to farms in the eastern region and drought in the central and western regions, while the company had to pay more on motor claim costs due to the weak rand exchange rate.
“Premium increases will become more of a feature now than they were a few years ago. We’ve had 25 percent cost increases in motor claims and consumers don’t have the ability to stomach those increases. So it takes us two to three years to re-price for the effect of the rand,” Santam chief executive Ian Kirk said.
Santam has begun implementing various underwriting measures, such as segmented premium increases on policy renewal and risk reviews to address the underwriting performance. Segmented rate adjustments on motor insurance policies began last year and was solely driven by the weak rand exchange rate.
But the slide in the rand has become worse since then and Kirk said this meant that premiums for bad risks could increase even more.
In the crop insurance business, Santam suffered a net underwriting loss of R112 million compared with a profit of R34m last year and the division’s net underwriting margin fell by 1.8 percentage points.
In property insurance, the group experienced a small underwriting loss, as claims frequency and severity were exacerbated by floods in Limpopo in January.
But despite the challenging conditions, Santam’s gross written premiums grew by 9 percent in the period. Its MiWay subsidiary grew gross premiums by 26 percent and achieved profitable trading results.
The group was also boosted by positive returns on its investments.
Santam said the gains were mainly driven by lower exposure to the local bond market and the upward fair value adjustment of R58m in the Sanlam emerging markets preference share linked to its recent Indian acquisition, Shriram General Insurance.
“Thankfully we had [a] very good investment result because if you have bad investment results and [a] bad underwriting result, then that’s catastrophic,” Kirk said.
The shares lost 2.67 percent to close at R182 yesterday. - Business Report