This week Ian Kirk, Santam’s CEO, warned that premiums are set to increase in the long term due largely to the fact that the industry has suffered subdued growth and faces increasing costs. He said he was surprised to see how weak the industry growth was for the first six months of the year. (The short term insurance sector achieved a mere two percent growth in gross written premiums for the first six months of the year). “That says to me that the market is soft [in the rates], but with cost drivers such as reinsurance costs and claims and expenses rising ahead of inflation, insurers are not making great margins. So rate should drive up northwards,” said Kirk.
His comments came as Santam, South Africa's largest short-term insurer, reported its results for the six months, ending June 2012. The insurer saw gross written premiums (GWP) increase by 10% for the six months ending June 2012 compared with the previous period. Kirk said: “I am very pleased with the 10% growth of GWP, we wrote business at an acceptable level.”
The insurer, however, did experience some knocks. Santam’s underwriting margin now stands at 6.1%, down from 8.4% a year ago and 7.1% for the second half of 2011. The net insurance margin was 8.8% against 11.2% for the comparative period in 2011 and 9.6% in the second half of 2011.
Flooding in Mpumalanga in January and some large fire claims resulted in the insurer’s net underwriting result falling down 21% from the first half of 2011 to R471 million. "Our diverse book of business, together with a continuous focus on risk management to further improve the quality and diversity of the risk pool, provided relief from this impact," Kirk said.
Income before tax of R926 million was up one percent on the previous year. Income taxes doubled over the first half of 2011 due to Secondary Tax on Companies of R96 million on the special dividend paid in the first half and a Capital Gains Tax provision of R59 million due to the increased inclusion rate.
As a result, headline earnings fell by 29% to 419 cents per share compared to 593 cent per share for the same period last year. An interim dividend of 230 cents per share has been declared, up 15% from the previous period, including once-off adjustment of 7% to account for the STC saving for the company following the introduction of dividends tax.