Santam ensures joy with special dividend

INSURER Santam surprised shareholders with a special dividend this week, despite a half-year marred by significant erosion in underwriting profits caused mainly by the drought and lower investment income.

Its underwriting margin — the percentage of income from premiums left over after claims and expenses — was higher than expected, which saw its share recover some of the losses incurred since Santam warned shareholders that earnings for the interim period would drop for the first time in three years.

Santam declared a special dividend of 800c a share and an interim dividend of 311c a share.

“Our underwriting margin is a good indicator whether claims came in at the expected level,” said Santam CEO Lizé Lambrechts.

“Our underwriting margin of 6.4% is within our target range of 4% to 8%, and therefore we are comfortable with the level of claims experienced in the group.”

Santam’s profits were hit by crop insurance, where underwriting profits fell by a steep R45-million year on year to R8-million as farmers lodged claims totalling R469million, nearly half of which were drought related.

Its property insurance business also suffered, bringing in R18-million compared with R136-million for the same period last year as a number of large corporate property claims took a toll.

“The different classes of business like crop, engineering, guarantee and liability [insurance] can have big swings in underlying underwriting profits in different reporting periods,” PSG Wealth analyst Adrian Cloete said.

Santam has had fat and lean times in the five interim periods to June, with underwriting margins hitting a high of 8.9% last year and a meagre 1.3% in 2013.

“The fact that we are a well-diversified company helps in this regard as higher-than-expected claims experienced in some classes are compensated for with better-than-expected [figures] in others,” said Lambrechts.

Investment income fell to R555-million from R767million as the rand gained against currencies in key emerging markets in which Santam operates.

Still, Santam must be happy that it sold its remaining shares in the Credit Guarantee Insurance Corporation of Africa to rival Mutual & Federal in the second half of last year.

Mutual & Federal, a unit of Old Mutual Emerging Markets, last month reported an underwriting loss of 1%, mainly owing to high export trade losses in CGIC.