Market cheers Santam’s big, fat dividend

Shares in Santam shot up 1.42% to R222 per share after the group announced a fatter dividend this week.

The insurer is to dish out a dividend of R3.11 per share for the six months ended June 30, 2016, up 8% from the previous corresponding period. It also declared a special gross dividend of R8 per share, after taking current and future solvency requirements into account.

The group’s interim solvency ratio of 51% exceed its target range of 35% to 45% of net written premiums while its economic capital coverage ratio came in 178%.

Santam CEO Lizé Lambrechts said the group was pleased with the 8% growth in gross written premiums in the low-growth environment.

But lower underwriting profits and weaker investment results weighed on earnings, with headline earnings per share falling 29% to R6.33 per share.

Severe drought conditions saw the group’s crop insurance business underwriting profit fall to R8 million from R53 million.

“We’re proud to have paid that out, in terms of making a solid contribution to food security in South Africa,” Lambrechts said.

At the same time, foreign exchange losses, due to the strengthening of the rand from its December 2015 lows, partly contributed to a 28% decline in its investment income to R555 million.

It continues to manage its exposure to South Africa’s sovereign credit rating, having entered into a three-year alternative risk transfer (ART) reinsurance share agreement with an international insurer in 2014.

Should the country’s credit rating be downgraded, the insurer’s own credit rating would be revised in accordance and this would affect the group’s businesses outside of South Africa, explained CFO Hennie Nel.

He said the ART agreement would allow Santam to use the international insurer’s AA-rated licence to do business abroad.