Weather alerts let Santam avoid costly disasters

Cape Town. Santam HQ in Bellville. Picture Henk Kruger

Cape Town. Santam HQ in Bellville. Picture Henk Kruger

Published Feb 27, 2014

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Johannesburg - Weather alert technology saved Santam from what could have been its worst year for claims, it said yesterday.

The country’s largest short-term insurer saw gross claim payouts on weather-related catastrophe events exceeding R400 million for a second consecutive year during 2013.

However, the total claim costs of R500m were down from 2012, when they exceeded R600m. Santam managed to reduce its claim costs on catastrophic weather events while the industry as a whole suffered claims ahead of the previous year due, exacerbated by further devaluation of the rand.

“Our claims would also have been ahead of 2012… We introduced the weather alert. It has made a difference,” chief executive Ian Kirk said.

Santam was also saved by additional reinsurance cover that it took out during 2013. Its net of reinsurance loss declined to R215m from R361m in 2012.

But although the insurer was able to cut some loses, Kirk said 2013 was one of its most difficult years.

Between 2001 and 2011, Santam’s gross claims costs had averaged less than R100m a year. “What makes things more difficult is that the claims costs are rising at a much higher rate than we are able to increase the premiums,” he said.

Weather-related claims took 2.5 percentage points off Santam’s net underwriting margin. The group achieved a 2.8 percent margin, down from 4 percent in 2012. Its target margin is between 5 percent and 7 percent. Kirk said it was aiming to return to that range in this financial year.

Due to weather catastrophes, it recorded a R142m net underwriting loss in crop insurance alone. Kirk said this was the segment which had most losses in Santam’s insurance book and was the most difficult market to be in at present.

Total claims for the industry as a result of bad weather events are estimated to be more than R1.6bn.

Kirk said the next most difficult short-term insurance segment to be in at the moment was the personal lines intermediated business, given the rapid devaluation of the rand.

The rand’s depreciation by 24 percent against the dollar since January last year meant that Santam and other motor insurers paid 30 percent more on vehicle claims than they did two years ago.

On Santam’s motor book, 70 percent of claims were accident related and required parts that were imported. Only 30 percent of the claims related to theft.

Kirk said, so far, the supply chain had absorbed most of the costs that rand depreciation had added. The rand depreciation only affected Santam’s underwriting margin by 1 percentage point and consumers were still seeing single-digit increases on their premiums.

But not for much longer. “The supply chain can’t absorb [the increases] any further.”

The insurers and consumers will start to feel the impact of the currency devaluation more and Kirk said it had already started to “really hurt” insurers last year.

In the year to December 2013, Santam’s gross written premiums exceeded R20bn for the first time. The company’s headline earnings increased by 4 percent to R1.18bn.

Santam declared a final dividend of R4.33 a share, 5.6 percent higher than in 2012.

Shares climbed 2.8 percent to close at R169.20 yesterday. - Business Report

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