Santam has reported a two-fold jump in claims for natural catastrophes over the past two decades, underscoring the escalating effect of climate-change induced disasters such as floods on the insurance industry.
In its full-year earnings report for the year to end-December, SA’s largest short-term insurer showed that the average annual claims for natural disasters rose from less than R1bn in the 2005-15 period to about R2bn in the past 10 years. It highlights the heightened frequency and severity of extreme weather events.
Africa’s southeastern coast bears the brunt of severe seaborne weather systems due to climate change. In the past decade, Mozambique has suffered numerous cyclones and floods, while KwaZulu-Natal suffered its worst flooding on record in 2022, when more than 400 people were killed.
In 2024, Santam paid out R748m in claims from weather-related catastrophes, a slight increase from R744m in 2023. The Western Cape, Eastern Cape and KwaZulu-Natal were particularly hard hit by flood losses.
Still, Santam CEO Tavaziva Madzinga is confident that the company, which is majority owned by Sanlam, is in a strong position to absorb the escalating claims. In the past two years, it has pushed through segmented premium hikes and raised excessive amounts for specific risks in property categories.
It has stepped up the rollout of geocoding to identify areas prone to disasters and expanded property risk surveys.
“The theme of weather-related losses continues to impact the property portfolio performance,” Madzinga said in an interview with Business Day. “But what we have done on our end is to work with customers, particularly around ensuring that we understand the risks.
“We also work with municipalities, using some of our data and risk management techniques around town planning, where houses should or should not be in relation to what we call flood nodes.”
Madzinga was speaking shortly after the company issued its annual results, which showed a 51% rise in headline earnings per share to R34.77, or R52.3bn — an increase of more than one-fifth. The group declared a final dividend per share of R9.85, up 9%.
Santam reported conventional insurance net earned premium growth of 10% to R32.2bn, with most of its conventional insurance businesses contributing positively to premium and profit growth. Its conventional insurance net underwriting margin was 7.6% from 3.5% a year ago. The underwriting margin was well within Santam’s 5%-10% target range, despite weather-related and other large losses of R986m in 2024.
Its alternative risk transfer profit before tax rose to R781m from R516m a year ago. The alternative risk transfer business, consisting of Santam Structured Insurance and Centriq, increased its profit contribution, supported by growth across all revenue lines.
In its international businesses, Santam’s share of the gross written premium of Shriram General Insurance (SGI) in India and Pacific & Orient Insurance Co in Malaysia grew 20%, but net insurance results declined by 3% from a high base. SGI benefited from book growth and a favourable claims ratio, offset by lower investment returns, Santam said.
The group said it delivered a strong performance in 2024, despite a challenging operating environment, shaped by extreme weather events, and social, economic and geopolitical forces that were intricately linked and changing at an accelerated pace.
Progress had been made in addressing the structural constraints to economic growth in SA, albeit at a slower-than-expected pace, Santam said.
However, consumer personal disposable income remained under pressure amid high inflation and elevated interest rates, and persistently high unemployment levels also suppressed any real growth in the size of the consumer base. This had a negative effect on the affordability of insurance premiums, as well as new-vehicle sales, a driver of growth in Santam’s largest line of business.
As inflation started to ease over the past few months and interest rates declined, this provided some relief to consumers.
“These conditions limited our growth potential due to the high level of penetration in the traditional insurance markets in SA, with these segments closely coupled to the performance of the economy and employment levels. Our refreshed strategy aligns with these trends through enhanced focus on our direct channels, where we do not have a commensurate market share, and the non-traditional segments, which are much less penetrated and provide good prospects for accelerated growth while driving enhanced financial inclusion,” it said.
Opportunities for growth outside SA were more favourable, with the group’s low market share in global markets providing enhanced growth opportunities.
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