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KZN floods worst natural catastrophe in Santam’s 104-year history

KZN floods worst natural catastrophe in Santam’s 104-year history
(Photo: Gallo Images / Jacques Stander)

Every year seems to be more eventful than the last – from an insurance perspective at least. The country’s largest short-term insurer, Santam today announced that it paid out an unprecedented R14.2-billion in claims for the first half of the year. Shareholders, however, will take home an interim dividend of 462 cents a share, up marginally from last June’s interim dividend of 432 cents a share.

Group chief executive, Tavaziva Madzinga says the market environment for the first six months of the year was “turbulent”, but management expects economic activity, in the short to medium term, to be constrained by weak consumer spending. “The high inflation environment also puts pressure on claims costs, while loadshedding in the first half resulted in increased power surge claims. In addition, there has been a significant increase in reinsurance premium rates, following several large global and local catastrophe events,” he says.

 The torrential floods that swept KwaZulu-Natal in April are officially the most significant natural catastrophe in the insurer’s 104-year history. Madzinga says this was, however, offset to some extent by a reduction in the COVID-19 related contingent business interruption (CBI) claims provisions. The current estimate of Santam’s gross exposure to the KZN floods is R4.4-billion, however, significant adjustments to gross exposures may still occur. The company’s reinsurance programme has provided effective protection against this natural catastrophe, limiting the net impact to R566-million, including reinsurance reinstatement premiums.  

“Despite these headwinds, we are confident that the corrective actions we have implemented will start to show a positive impact towards the latter part of 2022. These are primarily in the form of underwriting actions to address the impact of increased claims costs and reinsurance rates. They include procurement efficiencies, segmented premium increases, and higher claim excesses,” he added.

When Business Maverick queried the “segmented premium increases and higher claim excesses”, Madzinga was quick to caution that this would not be a blanket action. In other words, not every Santam policyholder will see a higher excess or premium increase. 

“’We’ve seen an inflation surge across the board, as well as supply chain disruption and investment volatility. One aspect is about working with our supply chain, such as original equipment manufacturers and car body repair shops to keep that inflation from seeping through into claims and consequently to clients. We are mindful that customers face an economic reality with their own economic pressures,” he says.

Madzinga says when it comes to premium and excess increases the insurer will be looking at each client’s risk profile, sum insured, excess payable so that it is not an across-the-board inflationary increase.

During the period under review, headline earnings plummeted 52% to 409 cents a share from 863 cents last June, due to weaker operating results and lower investment income attributable to shareholders.

The alternative risk transfer (ART) business, comprising Centriq and Santam Structured Insurance, reported satisfactory operating results, net of non-controlling interests, of R111-million positively impacted by excellent growth in fee income despite weaker investment performance. The net insurance result from Santam’s share of Sanlam Emerging Markets general insurance businesses increased 18% to R85-million.

Cash generated from operations increased to R4.6-billion, mainly due to growth in premiums received on ART business and dividends received during this period. MiWay achieved subdued growth of 3%, following an increase in premium defaults and lower new business volumes, reflecting the subdued economic environment. The impact of low premium increases during 2021 also contributed to lower growth in the existing book of business.  Management is maintaining a strong focus on growth initiatives and looking specifically to strengthen its digital efficiency. BM/DM






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