Santam is the only full service property and casualty insurer on the JSE. Its market cap is about half that of Outsurance. But the latter remains predominantly a personal lines motor insurer, with modest exposure into the SME market.
By contrast, 60% of Santam’s gross written premium is in the commercial and corporate sector, where it has benefited from mediocre management and strategic thinking at its main competitors Old Mutual Insure (previously Mutual & Federal) and Bryte Insurance (previously South African Eagle Insurance, then Zurich Insurance), though innovative underwriters such as Hollard Insurance have emerged.
The corporate sector has barely been affected by the rise of direct writers such as Telesure Investment Holdings and King Price Insurance, or fintechs such as Naked Insurance and Pineapple.
In spite of a flat economy and a decline in new vehicle sales, Santam continued to increase market share from a high base. In its annual results for calendar 2024, the group announced a 10.5% increase in gross written premiums.
Short-term insurers’ results are subject to the vagaries of the weather and, in 2024, there was flooding in KwaZulu-Natal and the Eastern Cape, windstorms in the Western Cape and some large fire losses. But on the positive side, management has been improving the quality of the corporate property book. Overall, premiums from the property book increased 10% to R16.8bn.
The motor book remained the largest single part of the Santam book but it was the slowest-growing major class of business, increasing 7% to R15.4bn. This was overshadowed by 43% growth in liability to R2.8bn, engineering 25% to R2.5bn, and transportation 22% to R1.7bn.
Santam also benefits from an insurance partnership with MTN, taking over the network operator’s 400,000-strong device insurance book.
CEO Tavaziva Madzinga says MiWay, which was falling behind competitors, is recovering after management action, and premiums have been increasing quarter on quarter throughout the year. Direct business is stable and accounted for 17% of Santam group sales in both 2023 and 2024.
Madzinga says Santam is shifting to a multichannel model but aims to maintain its dominance in the broker market. “But we are scaling the direct and tied agency channels,” he says.
International business increased its share from 16% to 18%. Santam has only just begun to leverage the SanlamAllianz joint venture in Africa. It dominates in some specialist lines of business such as liability, engineering and crop, and it has its own reinsurance arm Santam Re.
Santam Re and Santam Specialist Solutions are the main drivers of the group’s growth in premium income outside Africa, which increased a healthy 27% to R7.4bn. Santam benefits from parent Sanlam’s holding in Shriram Group companies in India as well as its Pacific & Orient business in Malaysia; the premium income from the territories has increased 20% to R1.1bn.
Santam has been increasing its footprint in the alternative risk transfer market, also known as the cell captive business. This is where third parties make use of the licence of Santam’s subsidiaries Centriq and Santam Structured Insurance for a fee.
Santam takes very little underwriting risk in this unit. Momentum’s Guardrisk has historically dominated this line of business but it has been an important source of new revenue for Santam, which increased income more than 50% to R781m in 2024. Just a quarter of the operating income (R197m) is derived from underwriting profit. More than double this (R487m) is fee income.
The cherry on top for the alternative risk transfer cluster is investment income, which increased 19% to R87m in more favourable investment markets.
Overall, short-term insurers benefit both from the return on capital on their insurance operations and on the returns from their investment portfolios, which include the free float premiums claimed but not yet paid.
Santam aims, conservatively, to keep capital coverage at between 145% and 165%, which is why IM rates it a low-risk share
Santam’s total comprehensive income expressed as a percentage of the weighted average of shareholders’ funds in 2024 was 20% from insurance operations and 11.9% from investments. In 2023, the return from investments was even higher at 15.1%, but it has been negative — in calendar 2020 at the height of the pandemic, for example, when it was a negative 0.8%.
Santam is generously capitalised, and many shareholders no doubt are hoping for a special dividend soon. As CFO Wikus Olivier (a former Sanlam hand) puts it, the group has an economic capital requirement of R9.5bn and covers this by 166%.
Santam aims, conservatively, to keep capital coverage at between 145% and 165%, which is why IM rates it a low-risk share.
A p:e of 11.6 is by no means cheap relative to other groups in the insurance sector, which are on single-digit p:es. But Santam is a well-diversified business between distribution channels — direct and broker — as well as classes of business.
Outsurance, by contrast, remains vulnerable to a more aggressive direct player entering the market. That could potentially be Telesure, with CEO-designate Khaya Gobodo hoping to leverage the Hippo price comparison website. Outsurance already concedes it isn’t always the cheapest option.
A more aggressive MiWay with Santam’s financial muscle could also be a threat. Santam is a lower-risk entry point into the sector because of its diversity.
* This article has been updated to reflect Khaya Gobodo’s title as CEO-designate of Telesure
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