Santam is the only broad-based short-term insurer left on the JSE. It is not, however, the largest general insurer by market cap; that honour belongs to Outsurance, with a R73.3bn market cap, third only to Sanlam and Discovery on the insurance board.
Outsurance remains focused on personal lines, and motor insurance in particular, and operates as a direct writer — except in commercial insurance where it has some tied agents.
In contrast, Santam has a wide spread of business. For a start, 18% of its business is outside South Africa. This is likely to increase as it leverages off the recently concluded SanlamAllianz joint venture.
The lion’s share of Santam’s underwriting profit comes from the commercial and corporate sector. It has the most recognised names in specialist classes such as liability, through SHA; commercial property, through Emerald; and engineering, through Mirabilis. These were built up by entrepreneurs as underwriting managing agencies but, over time, Santam has increased its stake and they are now wholly owned Santam divisions.
Santam CEO Tavaziva Madzinga tells the IM the entrepreneurial culture in these divisions is still strong. They all have dominant market shares in their sectors. In the six months to June 2024, the gross written premium for liability increased 20% to R1.09bn, for engineering by 11% to R1.14bn and for property by 12% to R7.41bn. Motor remains the largest class, but it grew a modest 5% to R8.19bn. The earnings from conventional insurance were up a solid 29% to R2.05bn.
The claims ratio fell materially from 66% to 62.3%, though the acquisition cost ratio, which includes the expenses of running the business, crept up by a percentage point to 31.2%. This led to a much better underwriting margin, which widened from 3.8% to 6.5%.
The less well-known part of the business is alternative risk transfer, often referred to as a cell captive facility, which it conducts through Centriq and Santam Structured Insurance.
Momentum’s Guardrisk is the largest player in this sector. Its pretax profit was up 63% to R326m. This business makes only about 20% of its pretax profit from underwriting, the rest from fee income or investment margin.
Santam operates in India and Malaysia through its insurance venture with Shriram Group in Chennai and other channels. This business makes almost all its profit from the investment return on insurance funds (the free float) and breaks even or makes a small loss on its underwriting.
Priorities for the rest of the year include building the direct business to scale. Its direct motor insurer MiWay remains the poor relation to market leader Outsurance — but the profitable client base is increasing — Tavaziva Madzinga
It proved to be a strong first half for Santam, as the insurance return on capital of 22.3% was the best since 2018. The 11.3% investment return on capital, however, despite high interest rates, was behind 2023 levels, though comfortably ahead of any period between 2018 and 2022.
Santam likes to avoid carrying excess capital. It has paid out special dividends several times over the past few years. And it increased its interim dividend well ahead of inflation, by 8.1% to 535c.
Madzinga says priorities for the rest of the year include building the direct business to scale. Its direct motor insurer MiWay remains the poor relation to market leader Outsurance — but the profitable client base is increasing, he says.
The property class is still Santam’s achilles heel. Its underwriting loss of R203m did, however, improve on the loss of R317m in the first half of 2023. Madzinga says fixing the property portfolio will also get special attention.
Santam plans to scale its reinsurer, Santam Re, and its specialist businesses. Madzinga says there is considerable opportunity to build up these businesses in Africa. Unlike personal lines, they do not require in-country infrastructure or branch networks.
Sanlam owns a majority of Santam’s equity, but it has not gone as far as Old Mutual, which bought out the minorities in Mutual & Federal (now called Old Mutual Insure). Madzinga says there is plenty of runway for cross-selling. Sanlam agents, for example, can sell Santam short-term insurance once they have the right qualifications, but not many do — and this will not be easy as the intermediary world has become more specialised over the years.
On a historic p:e of 12.9 Santam does not look that expensive, particularly compared with its parent company’s 16.1. Santam dominates general insurance even more than Sanlam dominates the life insurance sector, not to mention investments and corporate business, where Sanlam is not yet best in class.
Sanlam talks of buying the minorities in Santam from time to time but it already has management control. When Old Mutual delisted Mutual & Federal it didn’t improve the business — if anything, M&F lost much of its entrepreneurial spirit and adopted a more bureaucratic culture. And for investors, it would be a shame to lose the last listed full-service general insurer.
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