Santam turns the corner after huge fire-related underwritings

INSURER Santam has turned the corner after the huge underwritings it had to make a year ago due to the catastrophic Knysna fires, yesterday reporting an uptick in headline earnings per share (Heps) and earnings per share (Eps) in the six months to June.

The insurer said it expects its Heps to be between 1 000 cents per share (cps) and 1 040cps compared with 593cps at the same time last year.

This will be between 69 and 75 percent higher than that reported for the comparative period in 2017.

Eps is also expected to be between 1 000cps and 1 040cps, which is between 46 and 52 percent higher, compared with 683cps recorded in 2017.

The increase in Heps and Eps has been driven by significantly improved underwriting results, compared to the six months ended June 2017.

Santam expected the net underwriting margin to be slightly above the long-term target range of 4 to 8 percent of net earned premiums due to improved underwriting conditions during the reporting period.

Analysts said the insurer’s performance could also be attributed to improved investment results and the foreign currency gains from winding up Santam International.

Co-head at Electus Fund Managers Richard Hasson warned that the investment market’s weak start to the year could affect the insurer’s overall performance.

“Investment markets have been weak in the first half of 2018 and are likely to be a negative in this result,” he said.

During 2017, Santam’s customers claimed R800 million for damage caused by wildfires in Knysna and freak storms in Cape Town.

This was described as the “worst catastrophe event in South African insurance history”.

Hasson said Santam issued a very strong trading update, indicating underwriting margins having recovered significantly from a level of 4.2 percent in the first half of last year to current levels of slightly above 8 percent.

“In the first half of last year they were impacted by more than R700m in catastrophe fire claims, mainly due to the Knysna fires, so the non-recurrence of any major catastrophes has been a key driver of this result together with continually good claims management,” Hasson said.

Earlier this year, Rahima Cassim, a portfolio manager at Ashburton Investments, said while the insurers’ investment returns were a key earnings driver, operational earnings were important.

“While Santam had a boost from investment returns and forex gains, the true measure of performance – the underwriting margin – is close to the midpoint of the 4 to 8 percent targeted range,” he said.

He said while this is not the main driver of the strong earnings growth close to the midpoint, it was a resilient number, given the catastrophe events that they faced.

Santam will release its terim results on August 30.

Santam’s share price gained 2.46 percent on the JSE yesterday to close at R312.50.