South African insurer Santam on Tuesday reported a 61% increase in headline earnings per share to 803 cents for the six months ended June from 498 cents a year ago. Diluted headline earnings per share were up 63% to 793 cents from a previous 488 cents.
An interim dividend of 166 cents per share was declared, compared with 118 cents a year ago.
Underwriting profit grew by 126% to R401-million, while headline earnings were up 59% to R927-million.
The group said it had experienced an excellent first half, both from an underwriting and investment income perspective, generating an annualised return on weighted average shareholders’ funds of 27,4% compared with 21,6% for June last year.
Following on the growth momentum of last year, Santam achieved a 13% increase in gross written premiums to R6,7-billion in the first half of 2007.
Growth at 12% in its Southern African operations was pleasing, given the competition in the market and the corrective action taken to retain and procure only quality and profitable business, the group said.
International premiums increased by 36%, largely due to significant inflows in Santam Europe, while the Westminster Motor Insurance Association also experienced healthy double-digit growth, Santam said.
The underwriting result of R401-million, compared with R177-million in the same period a year ago, exceeded expectations with the overall net underwriting margin being double that achieved during the first half of 2006.
“The timely corrective action taken regarding the personal lines business yielded significantly improved results compared to 2006 despite us operating in a very competitive market. Profitability varied in the specialist underwriting classes,” it added.
While results were affected favourably by the downward estimation of large corporate claims, profitability was negatively affected by the continued softening of premiums, large marine losses and high claims in the crop environment due to severe drought in the summer rainfall areas of South Africa, it said.
During April, through a voluntary share buy-back, Santam bought 5,88% of its issued shares at R102 per share. This resulted in a reduction in share capital of R713-million, translating into a 6% reduction in the solvency ratio at that time.
During May, Santam issued unsecured subordinated callable notes to the value of R600-million on open tender as alternative capital in terms of its strategy to optimise its capital structure.
These changes in the capital structure, as well as the high profitability of the first half of the year, resulted in a solvency ratio of 64% at the end of June, compared with 62% at the end of 2006. Net asset value per share increased from 5 634 cents at the end of 2006 to 5 894 cents.
The group noted that significant progress was made in finalising the Santam broad-based black economic empowerment structures following the compulsory 10% share buy-back at R82 per share during May.
Looking ahead, Santam said that, building on the strong base of healthy underwriting business, it will aim to maintain margins above long-term averages.
Underwriting margins are expected to remain under pressure due to the softer market both in the commercial and personal lines environments, but corrective action continues to be taken in those areas — that is, portfolio management — where profitability is not yet at acceptable levels.
There is ongoing focus on optimising the return generated by its international investments.
“Santam will endeavour to continue to grow its market share without compromising sustainable profitability. Significant progress has been made in the capital restructuring of the company with actions continuing to improve capital efficiency even further,” it said.
In light of the recent volatility and uncertainty in worldwide equity markets, the South African market is being affected similarly; consequently, the achievement of significant capital growth during the second half is uncertain, it noted.
Anticipated higher interest-rate levels, however, would have a favourable effect on cash-related investments. — I-Net Bridge