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KZN floods wash out Santam’s underwriting margins

KZN floods wash out Santam’s underwriting margins
Neesa Moodley
By Neesa Moodley
2 Mar 2023
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‘The 2022 financial year was one of the most challenging underwriting periods in Santam’s history,’ says Santam group chief executive Tavaziva Madzinga. ‘Despite these headwinds, we reported strong gross written premium growth and resilient net insurance results.’

Adverse weather in the first three months of the year, and the devastating floods in KwaZulu-Natal during April 2022, significantly impacted short-term insurer Santam in the year to end December 2022, leaving the insurer’s net underwriting margin at the bottom end of its target range of 5% to 10%.

Santam currently estimates its gross exposure to the floods at R4.4-billion.

Other contributing factors to the lower underwriting margin included increased claims inflation, which escalated ahead of premium increases, higher-than-expected large fire losses, and an increase in power surge and crime-related claims. 

These were offset to some extent by a reduction in the Covid-related contingent business interruption (CBI) claims provisions.

In November last year, Santam told policyholders that although it did cover accidental spoiling of food in fridges or freezers, caused by a change in temperature, it did not cover actual damage to fridges and freezers; food spoilt after someone adjusted the temperature control; spoiling due to load shedding or electric grid failure, or spoiling as a result of non-payment or non-purchase of power or any type of fuel. 

These exclusions kick in from 1 April this year and were introduced from 1 January for new policyholders.

However, group chief executive, Tavaziva Madzinga, was at pains to point out that although the insurer had seen an increase in power surge claims, this only accounted for a fraction of the R29.8-billion paid out in gross claims over the year. 

“(Load shedding) is a risk that we believe is largely manageable. What we are concerned about, obviously, is the systemic losses that could arise from grid failure. So that’s why you’re seeing those (grid failure) exclusions coming through. But by and large, we still believe that power surges as a risk is insurable. 

“When we look at the frequency, the cost of claims, it does need to be managed, but in the bigger insurance context, it is minuscule. I think it does receive a disproportionate level of attention given everything else going on. (Load shedding) is not the biggest challenge that we’re facing,” he says.

Challenging 2022


“The 2022 financial year was one of the most challenging underwriting periods in Santam’s history, combined with a turbulent investment market environment. Despite these headwinds, we reported strong gross written premium growth and resilient net insurance results,” says Madzinga.  

Headline earnings fell 27% to 1,826 cps on the back of the weaker operating results and lower investment returns attributable to shareholders, with the latter reflecting the subdued investment market performance. 

Santam’s commercial and personal business reported good growth in gross written premium, while the insurer’s specialist business saw growth with the main contributors being the crop, travel, liability, marine and corporate property insurance businesses. 

The growth in the crop business was mainly due to increased commodity prices. 

The insurer reports that the frequency of motor claims has “normalised” post-Covid, with an increase in vehicle accidents compared with the experience during the various levels of lockdown in 2021.

Premium increases


Policyholders can expect segmented premium increases and higher claim excesses, as Santam implements underwriting actions to address the increase in claims frequency and claims inflation.

MiWay recorded subdued growth of 2%, following deliberate focus on profitability, which impacted on new business growth. The impact of low premium increases during 2021 and increased premium defaults in 2022 also contributed to lower growth in the existing book of business; however, management is confident that the current focus on growth initiatives should improve growth prospects for 2023.

The direct insurance business brought in an underwriting profit of R284-million, in line with 2021. Underwriting actions, which included claim efficiencies, segmented premium increases and adjusted risk covers, started to gain traction after the interim reporting period.

Santam reviewed its provisions for CBI claims at the end of December 2022, considering the claims experience and reinsurance recoveries to date, and has reduced its net provision for CBI claims by a further R317-million, following the reduction of R397-million accounted for in the June 2022 results.

Madzinga says the reduction is mainly due to the actual claims to date being lower than initial estimates. There remains some marginal uncertainty about the ultimate liability, which will only be eliminated once the process has been finalised.

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Looking ahead, Santam has restructured its commercial and personal multi-channel business into three business units to focus on the distribution channels where it interacts directly with clients, another on brokers and the third on partnerships. 

“The other customer-facing businesses – MiWay, Santam Specialist and Santam Re – will continue to operate as before and provide growth and diversification benefits. We will also have a business unit focused on managing our shared services. These operating model changes took effect from 1 January 2023,” says  Madzinga.

Santam expects trading conditions in South Africa and globally to remain very competitive. The company also anticipates high interest rates and significant inflationary pressures to continue to decrease disposable income in South Africa.

“It is our view that economic activity will, in the short to medium term, be constrained by weak consumer spending. The high inflation environment also puts pressure on claims costs, while the ongoing load shedding will negatively impact economic growth.

“We are facing a significant increase in reinsurance premium rates, following several large global and local catastrophe events. We have implemented a number of underwriting actions to mitigate these challenges, which positions us well for future growth,” he says.

Shareholders will receive a final dividend of 845 cents, up 7% from last year. The share price has climbed almost 20% in the last three months, moving from R253.75 on 5 December to close at R303.44 on 1 March. BM/DM

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