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Cluster Report 2018: Santam

About Santam

Santam is the leading general insurance group in South Africa that writes insurance business in Africa, India, South-East Asia and other emerging markets through its business units:

  • Santam Commercial and Personal
  • Santam Specialist
  • MiWay
  • Santam re
  • Santam Emerging Markets Investments

Santam contributed 13% to the Group net result from financial services and 15% to GEV. Santam has a market share of more than 22% in South Africa.

Key Facts and Figures

Net result from financial services

R1 196 million (2017: R851 million)

Contribution to Group net result from financial services

13% (2017: 10%)

Underwriting margin

9,2% (2017: 6%)

Client wealth protected

R13,8 billion (2017: R14,2 billion)

Number of employees

6 076 (2017: 5 990)

Employment Equity indicator

6,78 out of 12 as defined in the FSC

Key Strengths

  • Santam is a 100-year-old, leading South African general insurer with a presence in selected emerging markets, listed on the JSE since 1964.
  • We provide products and services through a network of over 3 600 intermediaries and direct channels.
  • The group’s more than 1 million policyholders range from individuals to commercial and specialist business owners and institutions.

Strategic Intent: Entrenching Leadership through Value Creation and Growth

Santam is building a diversified business in emerging markets through its specialist risk and reinsurance offerings. In South Africa, efforts to transform from a largely intermediated distribution model to omni-channel capabilities continue. This includes protecting profitable growth through enduring focus on the quality of risks in the pool as well as making use of data and analytics to improve underwriting capability. Santam will continue to build its “Insurance good and proper” reputation by working with stakeholders to increase community resilience and through its sustainable business practices, as well as a relentless focus on client-centricity.

Santam’s five strategic focus areas

In 2015, Santam set an ambitious target – Vision 2020: to be the leading general insurer in South Africa with a presence in selected emerging markets. The cluster identified five strategic focus areas to facilitate value creation and achieve this target:

Deliver on the promise to clients in a way that creates value for all stakeholders

Achieve responsible, profitable and sustainable growth in South Africa and internationally

Ensure proactive sustainable risk management while promoting dialogue and collaboration on risk and resilience

Maintain high standards of operational efficiency, ultimately creating more robust and sustainable stakeholder outcomes

Influence and enable successful execution of the Santam strategy through engaged and competent people and partners

2018 Operational Performance Overview

The 2018 financial year was characterised by fewer large commercial property and catastrophe claims events than experienced in 2017, which from a claims perspective was the worst in over 100 years.

A combination of tighter underwriting practices in commercial property and a relatively benign claims environment contributed to good underwriting margins, which increased from 6% in 2017 to 9,2%. Santam Commercial and Personal delivered strong results. Conversely, some of the Santam Specialist businesses saw higher claims ratios, which led to underperformance relative to historic results. The most notable of these are listeriosis claims in Stalker Hutchinson Admiral (SHA), Santam’s liability business. Despite the tough economic conditions in South Africa, Santam achieved satisfactory growth.

The group currently generates 10% of its premiums from outside South Africa and has a strategic goal to grow this contribution significantly through the Santam Emerging Markets Investments, Santam re and Santam Specialist business units.

After the high volume of catastrophe events and commercial fires in 2017 increased Santam’s reinsurance premium rates, risk survey and underwriting capacity was increased and the focus on risk selection tightened. The aim was to contain and manage exposures better and to improve risk management practices. This resulted in an immediate and significant saving on known avoided fire claims this year.

Santam continues to invest in ways to penetrate new and non-traditional markets. Consumer financial education was identified as one of the most effective ways in which Santam creates new market opportunities.

The cluster proactively addresses the social and empowerment challenges in South Africa by increasing procurement from black-owned suppliers.

The money that Santam has invested in the ASISA Enterprise and Supplier Development (ESD) fund creates access to loan funding for new and small BBBEE suppliers in the sector. Now in its fourth year, the programme runs over a 12-month period that includes business assessment and incubation and aims to prepare small black businesses for targeted procurement spend from the group.

2018 salient features

  • Santam delivered strong underwriting performance in South Africa.
  • We concluded increased participation by Santam in Saham Finances, in terms of which Santam’s effective stake in Saham Finances increased from 7% to 10%.
  • All transformation initiatives are running well, and Santam is confident of retaining an industry-leading level 2 BBBEE status for 2018.
  • Santam maintained its leading position in the South African short-term insurance sector with various accolades that include recognition in the 2018 Sunday Times Top Brands Survey as a top business insurer. Other accolades include certification as Top Employer in South Africa for the third year running and inclusion in the JSE/FTSE Responsible Investment Top 30 Index, which recognises sustainability practices by corporates.

Read more about Santam’s financial performance in the Financial Review.

The business unit serves both retail and commercial markets by providing appropriate insurance solutions that suit the needs of entrepreneurs and businesses. For personal insurance, it offers a multiproduct and multichannel distribution portfolio covering eight classes of general insurance.

2018 has been a relatively benign year in terms of claims severity due partly to an absence of major catastrophe losses. The business unit performed well from an underwriting perspective, but growth in premium was tempered.

Tough economic conditions impacted small businesses, resulting in negative growth in the lower annual premium segment. On the other hand, a consistent approach to rating and underwriting over time and continued access to reinsurance markets benefited the higher value segments. Santam Commercial and Personal established a dedicated business unit to service and manage commercial business in this segment.

The business unit transferred a percentage of risk to medium to large commercial and corporate clients through more stringent requirements for smoke detection, sprinkler protection, pressurised water tanks and rational building design. A turnaround in the profitability of the property portfolio stemmed from an increase in new business rates in previously unprofitable property sections.

Outsourced business channels exceeded profit targets for the third consecutive year.

The investment in the use of big data and predictive analytics continued and forms the core of Santam Commercial and Personal’s pricing approach. The personal lines part of Santam’s move away from legacy systems to new software is almost complete. By the end of 2018, deployment was completed to all South African intermediaries in commercial lines and approximately 30% of all policies were migrated from legacy systems to the new system. The business unit plans to have the data migration process completed by the end of 2019.

The Santam Specialist business focuses on the insurance of large and complex risks in niche market segments in South Africa, rest of Africa and Asia. Products are client-driven and supported by specialist underwriting. This demonstrates an understanding of the unique risk environment.

Santam Specialist performed well in terms of overall growth, but underwriting performance was challenging. This is largely due to high claims activity in Stalker Hutchison Admiral (SHA) and strong competition from local and overseas markets.

Reduced property capacity and higher costs were positive for the property market, since rates hardened throughout 2018 with increased focus on risk management improving the long-term sustainability of our property book. Overcapacity in many specialist lines contributed to increased competition and lowered rates.

Outside of South Africa, emerging markets enjoyed strong growth and infrastructure development. However, changes in insurance legislation towards increased localisation of insurance premiums across Africa have put pressure on premium revenue into South Africa.

The weakening rand is positive for growth outside of South Africa, however, it can cause claims pressure in the aviation and travel sectors, where parts and medical claims are priced in US dollar. Similarly, while the increased oil price has a negative economic impact on our clients, it has a positive impact on oil-based economies in Africa such as Angola, creating growth opportunities.

The opportunity that Santam’s stake in Saham Finances presents in Africa is key to Santam Specialist’s growth strategy on the continent.

MiWay is a direct insurer that underwrites predominantly personal lines general insurance business through direct acquisition. This is supported by a smaller intermediated personal lines business and a suite of direct business insurance products.

MiWay’s gross written premium growth was under pressure, impacted by competitive market conditions and the poor economic climate, which resulted in a decrease in premium collections.

As a direct business, MiWay incurs all the cost of acquiring new business upfront, except for intermediary commission that is paid over the life of the policy. As a result, the increase in premium cancellations had a negative impact on MiWay’s acquisition cost ratio.

MiWay initiated the use of telematics technology to manage and mitigate the risk of theft and accidents. An emergency alert service was launched to all existing and new clients early in 2018. Telematics technology in the vehicle sends instant crash alerts to the MiHelp call centre, including severity estimates determined by artificial intelligence, allowing MiHelp agents to dispatch ambulance and assistance services to clients in distress without them having to call first.

The 24/7 MiHelp contact centre for roadside emergencies now allows clients to communicate via WhatsApp after the initial interaction, making the identification of incident locations, service provider dispatches and follow-ups more efficient and improving the overall client experience.

MiWay successfully refreshed its brand towards the end of 2018 and will continue to refine the process to unlock more efficiencies during 2019.

Santam re is a wholesale reinsurance service provider for the Sanlam Group general insurance businesses and independent general insurers in South Africa, Africa, the Middle East, India and Asia (including South-East South Korea). Santam re operates under the Santam general insurance licence, which enables it to optimise the size, quality and diversity of the overall risk pool relative to capital resources and risk appetite.

Santam re continues to contribute to the Santam group’s diversification strategy and its ability to create long-term value and remains an important vehicle for group reinsurance optimisation and services.

Santam re’s underwriting result deteriorated because of poor past run-off losses and a more conservative underwriting approach to reserving.

Strategically, the business unit focused on developing junior underwriters by exposing them to their markets through visits, conferences and engagements with clients. It also initiated projects to improve processes.

Santam re will continue to build partnerships with international reinsurers with portfolios of good standing to secure good new business flows from international partner cessions that cover the developed world geographies. This will provide further balance and diversity to the international portfolio.

Santam’s increased effective interest in Saham Finances is underpinned by the opportunity, in conjunction with SEM and Saham Finances, to use its expertise to play a leading role in expanding and managing the general insurance specialist portfolio in Africa and to become the leading Pan-African specialist insurance provider.

Saham Finance’s expertise in motor assistance, through Saham Assistance, presents significant business growth opportunities. Further synergies exist across several technology initiatives.

Strategic Short- to Medium-term Priorities

  • Remaining focused on profitable growth in South Africa, and increasing international diversification through the Santam Specialist business and Santam re
  • Realigning interests in SEM investments with focus on reinsurance and specialist
  • Further focus on cost efficiencies and optimising the claims and procurement value chains
  • Implementing omni-channel strategy across key businesses
  • Focusing on underwriting management activity

Case Study: Partnership for Risk and Resilience (P4RR) Builds Capacity

Santam mitigates risk and builds resilience in the societies it operates in. To reduce the risk for the cluster and its clients, Santam engages with government, municipalities, universities and other stakeholders to initiate projects to better understand and manage these risks.

The objective of the P4RR project is to strengthen local municipalities. Municipalities are selected based on vulnerability levels related to government requirements as well as potential impacts on the business in terms of fire, flood and storm surge perils.

Since 2012, Santam has invested more than R15 million in municipalities to better respond to the risk of fires and floods. The P4RR programme currently supports 43 municipalities. In 2018, through P4RR initiatives, investments and interventions, the following impacts were achieved:

  • Santam donated firefighting equipment to capacitate the Namakwa and Thabo Mofutsanyane district municipalities to deal with fire risks. The donations provide poorly equipped fire stations with the necessary equipment to reduce the loss of life and damage to property resulting from fires. Firefighting equipment provided includes fire hoses, communication radios, protective fire suits, breathing apparatus and smoke alarms.
  • Santam made a donation towards firefighter training in the Sarah Baartman and Sedibeng district municipalities, as well as in metropolitan areas in Gauteng. The courses included fire officer, fire instructor, breathing apparatus, confined space entry and rescue and incident command training.
  • Santam provided disaster decision support tools, associated smart devices, training and computer applications in the Sarah Baartman and Ehlanzeni district municipalities. These tools improve the management of important data related to municipal risks and assets and aid disaster management decisions, contributing to reduced loss of life and damage to property.
  • A key imperative for municipalities is to conduct regular risk assessments to better understand their risk profiles and take the necessary steps to mitigate risks. Generally, local municipalities spend plenty of money obtaining risk assessments from consultants. In 2018, Santam donated R850 000 to build risk assessment capacity and map flood risks within 10 local municipalities.
  • After the unprecedented wildfires in Knysna and surrounding areas in 2017, Santam initiated the National Fire Resilience Roundtable. The roundtable consists of 30 stakeholders, including national and provincial disaster management centres, Working on Fire, the Red Cross, private sector companies and non-governmental organisations (NGOs). Through the roundtable, Santam commissioned research by Stellenbosch University and the Council for Scientific and Industrial Research (CSIR) into the causes of the fires, the firefighting effort and post-fire recovery. The research report, published in February 2019, highlights potential fire hotspots in South Africa and includes recommendations to improve stakeholders’ understanding of fire risk, as well as actions to mitigate the increasing risk of fires at the urban-wild interface.
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