Santam did exceptionally well to increase its net result from financial services by 5% despite the major catastrophe events highlighted before. Underwriting results increased by 1%, while the contributions from float income and SEM investments grew by 5% and 50% respectively.
An underwriting margin of 6% was achieved in 2017 (6,4% in 2016) including the catastrophe events, which decreased underwriting profit by R156 million after tax and non-controlling interest. The 2017 performance is in the middle of the target range of 4% to 8%, testimony to the resilience of its diversified insurance book. Net earned premiums increased by 8%, while the combined administration cost and float margin ratio remained broadly in line with 2016. The underwriting results of the key lines of business (excluding SEM investments) are reflected in the graph below.
Santam Commercial and Personal experienced the costliest 12 months for natural catastrophe losses in Santam’s history. The business was challenged by the Western Cape storms, devastating Garden Route fires, further large commercial and corporate fire claims and flash flooding, and hail events in Gauteng and KwaZulu-Natal. Underwriting margins were under less pressure than expected due to the benefits of the diversified portfolio and reinsurance support. Santam Commercial and Personal’s year-on-year premium growth showed a significant increase mainly due to book acquisitions and dedicated focus on the Sanlam tied advisers and Santam Direct. There was a sustained focus on improving the profitability of the business, in particular the commercial property business.
Santam Specialist has a leadership position across most segments in which it operates and leverages this position across distribution channels and specialist intermediaries. The Santam Specialist business experienced competitive trading conditions, and underwriting results were negatively impacted by a number of large corporate property claims. The engineering class of business achieved excellent underwriting results with limited claims activity during 2017. The liability class was impacted by a number of large claims and estimate adjustments, and reported underwriting results significantly lower than the strong results achieved in 2016. The crop insurance business was negatively affected by significant hail claims during the weekend of 30 December 2017; it, however, still achieved an excellent underwriting result, mainly due to low incidents of drought claims during this period.
MiWay delivered solid premium growth on the back of new business offerings, although a slowdown in growth occurred during the second half of the year due to the increased focus on profitability during 2017. The disciplined underwriting resulted in excellent underwriting results following an improvement in the claims ratio net of catastrophe reinsurance recoveries to 56,9% (2016: 62,7%).
Santam Re continued to contribute to Santam’s diversification strategy and its ability to create long-term value, and remains the main vehicle for Santam reinsurance optimisation. It continued to build partnerships with international reinsurers with portfolios of good standing.
The growth in float income is largely the function of prevailing short-term interest rates and the level of float balances.
Santam continued to provide comprehensive technical support to SEM business partnerships. This included product, pricing, underwriting and reinsurance input, which together with Saham Finances structural growth contributed to strong earnings growth from the SEM investments.
Read more about Santam’s performance in the Santam Integrated Report.