Some of South Africa’s biggest insurance companies have recalibrated their models to try to cushion the impact of future climate disasters.
This week Old Mutual said such events were a “key” concern, although there had been fewer severe weather shocks in 2024 than in some previous years.
Speaking to Business Times following the release of the group’s 2024 financial results this week, CEO Iain Williamson said climate change was a risk for insurance companies globally and all they could do was assess the risks, plan for them and price for them.
Williamson said the group was extending its wildfire and other risk models, particularly for floods and hailstorms. Old Mutual had built “sophisticated” flood models for South Africa that analysed the risk down to street level.
“We are using those models both for the commercial side in our business as well as to have conversations with local authorities around how they think about urban planning, town planning, building permissions, to try to make sure responsible decisions are taken around not exacerbating the risk of flooding,” Williamson said.
Old Mutual Insure reported a net underwriting margin of 6.2% for the year, better than its target of between 4% and 6%.
Williamson, who is preparing to step down from the group after 35 years of service, said while short-term insurance will always go through cycles, 2024 had been a “great” year. The short-term insurance business was in better shape than it had been historically. “It is not what it was a few years ago.”
“We have not really achieved our underwriting margin target range historically and last year we flew to the top of the target and got 6.2%, so that was a really excellent result. We are encouraged by the fact that all the business units in Old Mutual Insure contributed to the result. All of them were positive, made a substantial contribution.”
He said the weather was always going to cause volatility in a short-term insurer’s business and a lot of work had been done over the past few years to diversify the risk.
We are still exposed to weather materially but not to the same extent as a proportion of the total book. We try to grow the book in spaces that are not exposed to weather
— Iain Williamson, Old Mutual CEO
“We are still exposed to weather materially but not to the same extent as a proportion of the total book. We try to grow the book in spaces that are not exposed to weather.
“So, our trade credit book is a lot bigger, some of our speciality lines of the business are not as weather exposed as others. That has been a deliberate strategy of saying, ‘How do we diversify the risks that we take on so that we don’t have that much volatility when we get bad weather?'”
In its integrated annual report released last month, rival Santam, South Africa’s biggest short-term insurer, listed the increasing severity of extreme weather events as a risk.
The group said its property book had underperformed due to an increase in the frequency and severity of weather-related and fire losses, and power surge claims resulting from load-shedding.
Santam paid R748m in weather-related claims in 2024, with weather events widespread across the Western Cape, Eastern Cape and KwaZulu-Natal.
“The frequency and severity of claims from inclement weather conditions have increased substantially over the past decade, including in South Africa, which has traditionally been seen as a benign catastrophe environment,” said Santam.
The group said weather had become a key element of its pricing and underwriting frameworks.
“Santam performs scenario modelling where the impact of an increase in the frequency and severity of climate-related events on the income statement and balance sheet, both gross and net of reinsurance, is quantified.”
An underwriting margin of 7.6% was achieved for 2024, compared with 3.5% in 2023 and within the underwriting margin of between 5% and 10%.
Outsurance said last week natural peril claims in South Africa and Australia had moderated year on year in the six months ended December 2024, which had helped profitability. It noted that just one or two major natural peril events can have a big impact on half-year results.
Old Mutual reported robust financial results for 2024 including a 17% increase in headline earnings a share to 150.6c. The group’s total dividend per share rose 6% to 86c, while funds under management increased 10% to R1.5-trillion.
The group said it was ready to launch its digital-first banking service, OM Bank, after it received its banking licence from the Prudential Authority last week.
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