Short-term insurer Santam on Wednesday reported a 181% increase in its interim headline earnings per share to 518 cents for the half-year ending June 2004, up from 184 cents in the same period in 2003.
The group also declared an interim dividend per share of 95 cents, up 32% from 72 cents in the previous comparative period.
Gross written premium for the half-year totalled R4,414-billion, up from R4,387-billion in the same period in 2003.
During the period under review, the South African short-term insurance industry experienced a continuation of favourable underwriting conditions, Santam said in a statement.
“Although total gross written premium was only marginally up from the corresponding period, premium growth for personal and commercial lines increased by 7,5%,” the group added.
On the other hand, growth in the corporate market came under severe pressure as international players increased activity in the market, resulting in significant premium discounting.
New entrants into the crop market, together with lower levels of insurance due to climatic conditions, hampered growth in this segment, Santam said.
Despite the strengthening of the rand against sterling, international gross written premiums increased by 4,7% in rand terms compared with the corresponding period in 2003.
The level of reinsurance premiums reduced considerably, largely due to the company’s strategy to retain more business at acceptable risk profiles.
In addition, the slowing of crop and corporate business further contributed to the lower levels of reinsurance.
Lower claims ratio
The largest factor contributing to the substantial increase in underwriting profits was the lower claims ratio experienced in Southern Africa across most classes of insurance, Santam said.
The group’s net claims ratio of 55,5% was 12,2% lower than the equivalent period in 2003 due to favourable climatic conditions, a lower frequency of motor accidents as well as a reduction in theft claims.
On the international front, Westminster Motor Insurance Association is now in its second year of operation under the Santam umbrella.
“This business has performed satisfactorily, despite increased competition. Its net underwriting margin for the six months was adversely affected by an adjustment to reinsurance provisions,” Santam said.
Management expenses increased due to higher performance bonuses and fees paid to administrators.
Continued focus on cash and working capital management yielded positive results, with the float (funds generated by insurance activities) up 10% from December 31 2003.
However, lower interest rates negated the positive effect of the higher float level, causing investment income on insurance funds to decrease by 17%.
The combined effect of all insurance activities resulted in a net insurance margin of 18,5% against 8,7% for the corresponding period.
The equity market continued its bull run for the first two months of 2004, but moved sideways for the remainder of the reporting period.
This, coupled with healthy increases in interest and dividend income, resulted in a 200% increase in total investment income from 2003 levels.
As a result of increased profitability, cash generated by operating activities totalled R940-million, an increase of 57% from 2003.
The solvency level increased from 56% at the end of 2003 to 59%.
Looking forward
Turning to prospects, Santam said it is anticipated that underwriting margins could come under pressure.
“Anticipated low interest rates for the remainder of 2004 will continue to have an adverse effect on cash portfolio investment returns,” the group added.
“The direction of equity markets looks rather undecided, but with a firm first-half performance as a base, the board remains cautiously optimistic regarding prospects for the remainder of the year,” Santam concluded.
Santam also announced that the Irish regulatory body, or IFSRA, granted a short-term insurance licence to Santam Europe in July, which will underwrite the future business generated by Bluesure.
“It paves the way for Santam to gradually advance with its strategy of marketing and underwriting the Multiplex insurance concept in the United Kingdom and Europe,” Santam said. — I-Net Bridge