Santam earnings decline on underwriting margin

Santam will have to “box cleverly” to grow its business profitably in tough domestic economic conditions, says CEO Lizé Lambrechts.

“We expect growth to be a little bit better this year, but this will not be growth at any cost,” Lambrechts said, suggesting Santam would maintain its underwriting margin within the 4%-8% target range.

Short-term insurers have struggled to grow premium income in an economy expanding at less than 1%.

Gross written premium growth of 7% (to R25.9bn) for the year to December 2016 was acceptable in the weak economic environment, Santam said. The short-term insurer, majority-owned by Sanlam, reported a 41% decline in headline earnings to R1.2bn for the period, achieving an underwriting margin of 6.4%.

An “unnaturally high underwriting margin” and very high investment returns in the 2015 financial year were the main drivers behind the significant fall in earnings, Lambrechts said.

“We had almost no catastrophe claims in 2015, whereas in 2016 there was drought, hail and flooding in SA.”

A stronger rand had hurt Santam’s investment returns, while also negatively affecting offshore earnings.

Santam was working with Sanlam Emerging Markets to improve businesses outside SA, said finance chief Hennie Nel.

For instance, in Malaysia it was working with management at Pacific & Orient Insurance to diversify the book, following low premium growth in competitive conditions.

African economies, particularly those exposed to oil prices, had also come under pressure.

“It’s more difficult but we are positive about what we can achieve in the medium- to longterm outside SA,” he said.

Santam had achieved a good result, off a high base, but the share was expensive, Ashburton Investments senior portfolio manager Wayne McCurrie said.

The share closed Thursday 0.21% higher at R243.52.