Santam is seeing opportunities in rolling out cover for problems arising from power surges, although the insurance company is worried about widespread and systematic failures in the national grid after it reported a 7% growth in gross written premiums for the half year to June 2023.
Although there has been an improvement in power supply by Eskom in the past few weeks, this week, the South African power supply crisis escalated.
Santam CEO Tavaziva Madzinga told Business Report in an interview after the release of the company’s interim financials that there was an investment case in providing cover for “the frequency and the cost of power surges”, describing this as “an insurable risk” opportunity for it.
“There is a need for it, and we believe that we can provide a cover. What we are concerned about is systemic-wide grid failure,” said Madzinga.
However, the company would have to price this opportunity correctly through factoring in “the right exclusions around multiple claimants” as well as “making sure that the benefit” from the cover was not abused.
Wikus Olivier, chief financial officer of Santam, told Business Report that its working relationship with Sanlam was paying off growth in written premiums in the rest of Africa category.
There had been a “sharp increase in new business flowing” from the region, with the “growth opportunity across the continent huge” on the back of better economic growth prospects compared to South Africa.
According to Madzinga, economic pressures in South Africa are affecting the MiWay business unit which focuses on the lower consumer segment.
“We are seeing an increase in rejected order rates in particular segments. But I think just linking it to the overall growth in premiums, I think there's another contracting factor,” said Madzinga.
The company, whose share price on the JSE lowered by 0.46% to close at R296.1, raised its interim dividend for the half year to June from 462 cents to 495 cents.
During the half-year period under review, Santam paid out R14.6 billion in gross claims compared to R14.2bn in the previous contrasting period. This was after the company notched up a 7% growth in conventional insurance gross written premiums at R17.7bn over the same period.
This was on account of “investment market conditions (that) were more favourable” than the first half of 2022. This yielded a return on insurance funds of 2.2% of net earned premiums compared to 0.2% in the previous comparative period.
Santam’s Alternative Risk Transfer (ART) business raised earnings from R117 million to R200m as “growth across all main income lines (fee income, investment margin and underwriting margins)” was recorded. This reflected an “increase in business under administration and improved investment return earned on assets” under management.
The Specialist Solutions division was boosted by the engineering, marine and corporate property insurance businesses segments, while the Broker Solutions business achieved double-digit growth.
Santam is, however, not expecting an improvement in the obtaining business conditions during the second half of the current year. It expects economic growth and employment levels to remain suppressed in the South African market, attributing this to “structural limitations” such as load shedding and transport constraints, which are key factors that exert “severe pressure on economic activity” and investor confidence.
High interest rates and inflationary pressures were also likely to continue to impact on disposable income and claims inflation in South Africa. Under these conditions competitive pressures would remain at elevated levels, the company said.
There were further challenges from climate change, particularly in relation to threats on “the insurability of a range of risks where losses become increasingly” prevalent.
BUSINESS REPORT