Santam profit up despite fire, floods and hail

Increased incidents of fire combined with more expensive reinsurance premiums have seen Santam cut about R1.3bn in unprofitable business last year.

This paid off for South Africa’s largest short-term insurer, which saw its return on capital jump to 28.5% from 24% and dividend payout increase by 7%. Combined with a 91% increase in investment return on capital, Santam was in a position to pick and choose who it wanted to insure.

“We faced adverse weather- and fire-related claims, exposure to the Türkiye earthquake losses and elevated claims inflation, among others,” says Santam CEO Tavaziva Madzinga.

Losses in the international reinsurance business led Santam to take out the shears. “The international reinsurance book wasn’t performing profitably,” chief risk officer Charisse Ras tells the FM. “Though we target growth, the focus is [on] profitable growth.

“It was a year in which we took tactical decisions and decisive action to cancel a loss-making business,” says Madzinga. “Outside the loss-making businesses, growth would certainly have been higher at 8%.” Gross written premiums increased by 5.5% in the year to end-December, compared with 8.2% a year earlier.

“The underwriting margin came under pressure due largely to the Western Cape floods, the fires we’ve seen in our commercial portfolio and the hail in the Gauteng region,” Madzinga says. “We’ve also suffered from a higher frequency and severity of large fire losses in our commercial property book, and losses coming through in our proportional international business.”

More fire incidents in insured commercial properties have driven Santam to introduce stricter precautionary measures in buildings before they will be considered for insurance.

“What we’re seeing is not so much wildfires, it’s rather that we have large commercial properties that catch fire,” says Ras. “This year, our focus of surveillance is to make sure the electrical wiring of buildings is up to standard.”

Santam paid out R422m in fire-related claims last year, compared with R403m relating to the Western Cape floods and R180m from the Gauteng hailstorm. After the 2022 floods, Santam is “worried” about its property book’s underwriting margin performance.

To address the risk to its property book, Santam is expanding its geocoding initiative which gives the insurer better data regarding the risk it must insure across different sites in the country.

“It’s a positive for us and the consumer,” Madzinga says. “For instance, you may not know that your house is situated in a floodplain or close to sinkholes.”

Santam, and other insurers, must also contend with more expensive reinsurance. According to Santam CFO Wikus Olivier, catastrophe-related reinsurance premiums jumped 78% since 2019 as natural disasters across the world weighed on the insurance market.

Between the 2018 and 2022 fiscal years, Santam’s reinsurance cost as a percentage of gross earned premium increased from 18.6% to 22.1%. Last year, due to the growth in gross written and earned premiums, reinsurance cost declined marginally to 20.9%, Olivier said at the company’s results presentation.

Outside the loss-making businesses, growth would certainly have been higher at 8%

—  Tavaziva Madzinga

“From a positive perspective, we’ve gone through our January 2024 renewal where we’ve actually experienced single-digit increases compared to double-digit increases [in reinsurance premiums] in the prior year,” Olivier said.

Luckily, not everything consisted of fire and hail for Santam last year.

The company’s partnership with MTN is yielding good results, Madzinga tells FM. “We are very proud of the partnership,” he says, and adds that it allows Santam to cross-sell other products to MTN customers. The more than 151,000 policies sold through the partnership generate “an underwriting margin in the healthy double digits”, Madzinga tells FM.

On the struggling MiWay, Santam has been putting a lot of energy into turning the low-cost insurer around.

“That book comes from a very low growth base of 2.5% now heading to 5%,” Madzinga says. However, Santam is “mindful it is operating in a segment of the market where we do see pressure on the consumer”. He says: “It’s a segment of the market where we are typically seeing an increase in rejection of debit orders.”

To address this, Santam “tries to put through double-digit increases, but the sensitivity of that book does mean that when you try to put through a 12%-14% increase, you’re achieving on that base a slightly below-10% growth,” Madzinga says.