SA’s largest short-term insurer, Santam, reported a 64% surge in full-year net profit as favourable investment markets more than compensated for its underwriting margins, which came under pressure from claims related to floods in the Western Cape and other natural disasters.
Net income surged to R3.25bn in the year ended December from R1.98bn a year earlier as global bond and equity markets perked up in 2023 compared with a year ago when investors agonised over the effects of the Russia-Ukraine war.
Investment return on capital nearly doubled to R1.1bn, more than making up for its conventional underwriting profit. That declined 26%, affected by floods in the Western Cape, hailstorms in Gauteng and the earthquake in Turkey, as well as fires in SA that affected the profitability of the property class of business.
The impact of weather-related claims was felt mostly in the Broker Solutions and Client Solutions businesses.
Stripping out the disaster-related incidents, Santam would have achieved an underwriting margin of 8.4% compared with 6% in the same period a year ago.
To mitigate the effects of future hazards, Santam under CEO Tavaziva Madzinga is applying advanced technologies such as a geocoding initiative, which creates a comprehensive risk-based view of property locations in SA.
“We gained significant traction in implementing geocoding, with approximately 86% of the core property book covered to date. We have seen the benefits with several losses avoided during the Western Cape floods through risk-mitigating actions we took in response to the geocoding initiative,” Madzinga said in a statement.
“We continue to drive diversified growth, evidenced by a substantial profit contribution from the Specialist Solutions business that provided welcome relief to the adverse claims experience in the Broker Solutions, Client Solutions and Santam Re businesses.”
The frequency and intensity of weather-related disasters pose a challenge to insurance companies, which may be forced to increase premiums to cope with the commensurate increases in costs.
Madzinga is also behind the refreshed strategy known as FutureFit2030, which seeks new growth opportunities.
During the review period, Santam acquired MTN SA’s device insurance book as part of the broader strategic alliance between parent company Sanlam and the mobile operator. Santam has sold 151,339 policies since the deal became effective in April.
Santam’s gross written premiums, an indicator of the size of the business written before reinsurance, rose by 6%, and by 9% excluding the effects of the risk management actions.
Claims incurred rose to R19.4bn from R18bn a year ago.
The company declared a final dividend of R9.05 per share, up 7% from a year ago.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.