Santam pauses dividend payment as Covid-19 fallout continues

SOUTH Africa’s largest short-term insurer, Santam, yesterday parked its final dividend payment on continuing uncertainties around the final Contingent Business Interruption (CBI) payout for policy holders affected by Covid-19.

Santam said it withheld the dividend despite an economic capital requirement of R7.4 billion at the end of December 2020, which equated to an economic capital coverage ratio of 161 percent slightly above the midpoint of the capital target range of 150 percent to 170 percent.

Group chief financial officer Hennie Nel said that there were a number of uncertainties around the CBI provision of R2bn raised at year end.

“Those things could still significantly result in a higher or lower actual provision or claims payment. Because of that we believe that in the context of our capital management, it is prudent not to pay the dividend,” said Nel.

Santam raised R3bn net provisions for CBI claims, with R1bn already paid last August. Nel said the uncertainties were around the extent of the insurance recoveries, the outcome from the Ma-Afrika Hotels court judgment and the actual claims compared with the insurer’s reserve modelling.

Santam was granted leave to appeal the Ma-Afrika Hotels judgment in relation to the indemnity period for its policy.

The Western Cape High Court ruled last year that Santam was liable for losses suffered by Ma-Afrika

Hotels and Stellenbosch Kitchens due to Covid-19 after the insurer initially refused to payout.

Whereas Santam believed that the indemnity period was three months, the court ruled the insurer was liable to cover losses for 18 months without limitations.

Chief executive Lizé Lambrechts said the group had been processing CBI claims since January this year.

“It is a complex process, these are complex claims but we have generated adequate capacity and we are making significant progress,” said Lambrechts.

Lambrechts said there had not been irreparable harm to the Santam brand due to the CBI claims.

“CBI affected 4 000 out of 1 million clients, it was a relatively small group of clients impacted. and we continued to pay claims. The fact that we paid the interim relief in August helped manage the reputation. The fact that we are quickly assessing and paying claims will also help,” she said.

Santam paid R21bn in claims during 2020, the largest in its history from R18.9bn a year earlier.

The group’s conventional insurance book achieved Gross Written Premium grew 5 percent from 7 percent a year earlier and a net underwriting margin was 2.5 percent from 7.7 percent below the group’s target range of 4 percent to 8 percent.

Totala premium relief of R310 million was provided to motor policyholders. MiWay achieved a 7 percent growth in the current operating environment, despite R40 million of premium relief provided to policyholders.

Santam shares closed 4.33 percent higher at R259.03 on the JSE yesterday.