Listed short-term insurer Santam has reported a 16% increase in its fully diluted headline earnings per share for the six months to the end of June 2005, to 586 cents from 507 cents the previous year. The group declared an interim dividend of 108 cents per share, up from 95 cents in 2004.
Santam applied International Financial Reporting Standards (IFRS) for the first time in 2005, as well as restating its 2004 results using the new standard.
Announcing its interim results on Wednesday, Santam said headline earnings rose by 17,8% to R694-million, largely due to strong investment results on the back of rising equity markets.
Gross written premiums rose by 14% to R5,03-billion, from R4,4-billion rand a year earlier, while net premiums were up 17% to R4,3-billion. Net income was 18% higher at R4,8-billion, while expenses rose by 20% to R3,9-billion.
This resulted in profit for the year of R706-million, up 23% from R574-million the previous year. Santam’s return on capital improved to 27%.
Looking ahead, the company remains “cautiously optimistic” regarding overall prospects for the remainder of the year. However, it cautioned, it is unlikely that its 2004 results will be repeated.
Santam expects the insurance industry to continue to experience the same trend seen in the first half of the year, with further moderate pressure on underwriting margins due to a softer market, keener pricing and the continued normalisation of claims.
Low interest rates will continue to have an adverse effect on cash-portfolio investment returns, while there is uncertainty over the continuation of the strong equity market.
Internationally, the businesses will remain focused on achieving sufficient growth to ensure the operations will be profitable, while achieving the required return on invested capital.
Returning to the past six months, Santam said it experienced a sharp increase in claims in the personal and commercial lines of business. The net claims ratio rose by 9% to 64% versus the first half of 2004, mainly due to adverse weather conditions, higher-than-normal fire-related incidents and man-made disasters.
This was evident mostly in the property, motor and personal line classes, it pointed out. Generally, the specialist underwriting business classes experienced a very good six months.
The level of reinsurance premiums fell to 14% of gross written premiums versus 16,3% a year earlier, in line with Santam’s ongoing strategy of retaining more business at acceptable risk profiles.
The group’s solvency level fell to 53% from 69% at the end of 2004, after it returned R1,15-billion in surplus capital to shareholders in April.
Cash generated from operations rose sharply to R1,4-billion from R940-million a year earlier, while cash and cash equivalents at period end was only slightly higher at R3,98-billion versus R3,84-billion.
After having acquired structured risk-solution provider Nova Group after period-end, Santam is in the process of finalising the disposal of 33% of its interest in the newly formed Nova Group, which incorporates Santam Risk Finance, to black empowerment group Kagiso Treasury Services, it said. — I-Net Bridge