Up from 7.4% in 2014, the underwriting performance was influenced by the positive impact of disciplined underwriting actions and a favourable claims environment during the second quarter of 2015. The company reported growth in gross written premiums of 8% (excluding cell captive insurance business) despite difficult market conditions.
Santam also noted the unwinding of its Emthunzini broad-based black economic empowerment (B-BBEE) scheme, which will result in the distribution of Santam shares and cash valued at R1.1bn to beneficiaries including black employees and strategic partners. The unwinding of the B-BBEE scheme will result in a minimal reduction of Santam's black ownership.
Santam chief executive, Lizé Lambrechts, said the motor and property classes of Santam's business delivered substantially improved underwriting results compared to 2014. "The claims environment during the second quarter was relatively benign, but the loss ratio was impacted by the catastrophic hail event in Pietermaritzburg in February 2015, as well as a number of large property losses in the first quarter of 2015."
Lambrechts said the improved underwriting results were a consequence of corrective underwriting actions, with specific focus on previously underperforming portfolios. MiWay, Santam's direct insurance business, achieved growth in gross written premiums of 17% and an underwriting profit of R76m, compared to R52m in the 2014 comparative period.
The underwriting profit of the engineering class of business showed a significant increase compared to 2014. Despite severe drought conditions, the crop insurance business achieved solid underwriting results. "The underwriting profit of R53m is significantly lower than the exceptional figure in the 2014 comparative period of R187m. Given the adverse weather conditions however, we believe R53m is a satisfactory result," Lambrechts said.
Gross written premium growth of 8%, excluding the impact of cell insurance business, was lower than the 10% achieved in the corresponding period in 2014, reflecting the impact of competitive market conditions and the continued focus on underwriting profitability. The property class reported low growth due to market pressures in the specialist corporate property market in particular. The motor class benefited from the 17% growth reported by MiWay (gross written premium of R835m).
Headline earnings per share increased by 11%, while a return on capital of 24.1% on a rolling 12 month basis was achieved. The solvency margin of 43% is at the upper end of the target range of 35% to 45%. Cash generated from operations of R1.2bn increased from the R0.9bn reported in the comparative period in 2014, mainly due to the improved underwriting results.
Looking ahead, Lambrechts said trading conditions in the South African insurance industry remain highly competitive in a low growth economic environment. The rand has weakened significantly against the US dollar since January 2015, which is expected to impact negatively on motor claims costs. "Santam will continue to focus on the optimisation of the claims and procurement value chains to increase efficiency and counter the impact of the weakening rand."
She added that Santam has intensified its focus on cost efficiencies to improve the management expense ratio over the medium-term. "Good progress has been made with the implementation of our new underwriting and administration platform. MiWay will continue to focus on growing its retail client base and its recently launched direct life insurance initiative in conjunction with Sanlam Life."
Another strong focus for Santam will be on increasing its international diversification and the development of the Sanlam Emerging Markets (SEM) general insurance businesses. "Santam now has an international footprint in 12 countries outside South Africa. At 30 June 2015, the SEM investments had a fair value of R866m, which now accounts for 12.8% of Santam's shareholder funds. International diversification will remain a focus area in the year ahead through our SEM collaboration and opportunities that this presents for Santam Specialist and Santam Re," Lambrechts concluded.
The Santam board has declared an interim dividend of 288 cents per share, up 10% on 2014.
