R million
Net operating profit
New business flows
13 550
Adjusted RoGEV
Share offering
Business profile
Santam underwrites all classes of risk

Insurance classes

% contribution to gross written premium

Alternative risk
Accident and health
“Santam’s 93-year history is eloquent testimony to the company’s ability to adapt to social, environmental and economic shifts over the long term.” 

Salient features

> 51% increase in headline earnings per share.
> Significant improvement in underwriting margin from 3,5% to 8,5%. 
> Return on weighted average shareholders’ funds of 37%.
> Strong cash flows generated.
> Healthy solvency ratio of 45%.
> Total dividend of 510 cents per share.

Who we are and our business environment

Santam is a proudly South African company specialising in short-term insurance products for a diversified market. This includes personal, commercial, agricultural and specialised insurance products.

Santam is primarily an intermediated business. The company reaches most of its clients through its trusted broker network and through other distribution partners. Santam is the leading short-term insurer in South Africa with a market share of over 22% and a book which includes many of the top companies listed on the JSE Limited.

In the year under review, Santam’s operational excellence was recognised by a cross-section of its stakeholders. Accolades included:
> Best Personal, Commercial and Corporate Insurer as voted by the Financial Intermediaries’ Association (FIA) for the second year in a row; 
> Ranked the company in the industry with the most technically competent staff by a wide margin, as voted by senior executives of South African insurance companies in PWC’s 2010 peer review ranking survey. 
The environment in which Santam operates is ever changing and unpredictable, and risk is often a moving target. Despite this, Santam has evolved, staying abreast of client needs and offering its clients certainty and peace of mind. Santam has moved with the times, by being focused and listening to its clients. In meeting their needs with integrity and excellence, Santam has earned their trust over and over.

Following the Sanlam Group’s decision to better co-ordinate its efforts across consumer market segments and to consolidate its short-term business interest into a single cluster, Santam acquired 100% interest in MiWay Group Holdings (Pty) Limited.

MiWay is a direct insurer, underwriting predominantly personal lines short-term insurance business. It launched in 2008 and has reached critical mass in a remarkably short time given the subdued environment following the global financial crisis. The company leverages off state-of-the-art call centre and information technology. Current services include short-term insurance, motor warranty and credit life. Its intention is to expand its product offering in the longer term to become a diversified direct financial services provider. 

Sustainability at Santam

To live in harmony with nature requires that economic, social and ecological considerations be viewed in tandem. This is not necessarily very easy to achieve.
Santam’s 93-year history is eloquent testimony to the company’s ability to adapt to social, environmental and economic shifts over the long term. Today’s reality is that South Africa is undergoing a significant transformation, both socially and economically, with clients more informed and empowered, and environmental resources becoming increasingly constrained. By taking the broader context of its operations into its core business through its sustainability strategy, Santam will continue its tradition of responsiveness and resilience in the future.

Key to Santam’s understanding of risk is the concept of systemic risk: this is a systems methodology approach to viewing our world and addressing how that world impacts what the company does and how it does it. The initiatives and policies that fall under the banner of sustainability feed into the company’s management of systemic risk, strengthening Santam’s overall approach to risk management.

Santam uses sustainability as a lens across all parts of the business. The company believes that its resilience through a tough economic climate can be attributed to its robust and mature systems and processes. Sustainability has become entrenched in Santam because of internal reporting mechanisms which feed into each other and ultimately into strategy design.

Sustainability works at Santam because structurally sustainability is guided by clear policies and strategies at the board level, guiding the rest of the corporation. The impact is enhanced by the close collaboration across key divisions and the corporate office. The risk management, the sustainability and strategy units work as a team to ensure that Santam has a coherent strategy that runs through every business entity in the organisation. 

Financial review 2010

Freshwater ecosystems are declining at an alarming rate. Altogether 84% of South Africa’s freshwater systems are threatened and of this more than 40% are in a critical condition.
The Santam Group achieved excellent underwriting and investment results in 2010. Overall earnings showed a significant improvement with headline earnings of R1 545 million, 51% higher than 2009. This equates to headline earnings per share of 1 367 cents compared to 906 cents in 2009. The 37% annualised weighted return on shareholders’ funds is particularly pleasing.

The overall net underwriting margin increased substantially from 3,5% in 2009 to 8,5% in 2010. This culminated in a net underwriting result of R1 146 million, 153% higher than the R453 million in the comparative period. Investment income delivered similar results to those of 2009.

Market conditions in the short-term insurance industry remained tight in 2010 with estimated gross written premium growth in line with CPI and little real growth. Against this backdrop, Santam’s gross written premium growth of 6% represents a solid performance.

Underwriting performance of the crop business came under pressure due to weather-related claims. Margins in all other classes were satisfactory with excellent turnaround in the personal lines motor and property from the negative returns in 2009. Ongoing management intervention paid off for business sourced through the portfolio management business unit. Results from this area showed a significant turnaround from a loss-making position in 2009 to an acceptable profit margin.

The turnaround in the property portfolio was mainly due to the lower level of large industrial accident and fire-related claims. Of the specialist classes, the liability, engineering and transportation businesses performed particularly well. In general, lower average claim costs and our continuous focus on risk management to improve the quality and diversity of the risk pool impacted underwriting margins positively. The net acquisition cost ratio of 27,4% increased from 26% in 2009 mainly as a result of an increase in the net commission costs and performance bonuses. Santam also increased its spend on strategic re-engineering initiatives by 19% from 2009.

Investment returns on insurance funds of R396 million declined from R420 million earned in 2009. These lower returns resulted from lower interest rates despite substantially increased float balances. The Group’s operating activities generated healthy cash flows of R2,1 billion during the year – 17% higher than the R1,8 billion in 2009.

The reduction in interest rates adversely affected the yield on cash and money-market instruments, but assisted bond returns. Dividend income was still somewhat suppressed. However, equity markets had a strong run towards the end of the year. This followed on a lacklustre performance during the first half of the year and impacted the investment results positively. We continued to employ our strategy of proactively and tactically hedging equity investments.

The Group solvency ratio of 45% at 31 December 2010 was at the higher end of the long-term target range of 35% to 45%, and higher than the 42% reported at the end of 2009. Santam’s capital management philosophy is to maximise the return on shareholders’ capital within an appropriate risk framework. Special dividends are considered taking account of capital levels as informed by the solvency margin targets of 35% to 45% and investment opportunities. At this point in time it is not considered appropriate to declare a special dividend but it will remain under constant consideration.

The Group concluded the acquisition of the remaining 33,33% holding in Centriq Insurance Company Limited on 1 January 2010 following Kagiso Risk Solution’s decision to disinvest from the specialist insurer. On 1 January 2010, 100% of the voting equity interest in Emerald Risk Transfer (Pty) Limited was acquired to obtain specialist underwriting skills in the corporate property environment. On 1 September 2010, the Group increased its effective shareholding in Indwe Broker Holdings (Pty) Limited from 37,8% to 100%. The company is being independently managed as an intermediary. On 31 December 2010, the Group increased its shareholding in MiWay Group Holdings (Pty) Limited from 31,3% to 100% when Sanlam Limited opted to restructure its shareholdings in the general insurance cluster in South Africa. MiWay will continue to be managed independently, servicing the direct segment of the market.

Further unit allocations were made to black staff in terms of Santam’s broad-based black economic empowerment (BBBEE) scheme.   

Expectations and priorities for 2011

Santam expects the economic recovery to continue during 2011 – albeit at a slow pace with a low interest and inflation environment during the first half of the year. The company expects to see an increase in interest rates and inflation in the latter half of the year. Average GDP for 2011 is expected to be somewhat higher than for 2010. However, the company expects premium increases in 2011 to remain subdued and growth to be a challenge – especially during the first half of the year. Upward pressure on premiums can be expected should underwriting margins normalise towards lower levels during the course of 2011. Santam is positioned to manage increases selectively through its market and risk segmentation approach.

Claim costs are expected to come under pressure from the flooding throughout the country early in 2011, but Santam’s diversity of risk and reinsurance protection will ensure that losses are contained. The expected weakening of the rand from current high levels in excess of its purchase price parity is likely to increase the cost of claims. This is particularly the case with motor claims where the import cost of parts is impacted by the strength of the currency. Therefore underwriting margins are expected to decrease in 2011, reverting back to the normalised range of 4% to 6%.

Santam’s diversified business lines position it well to face these challenges. Santam will also continue its efforts to optimise profitability across the business with a strong focus on risk management and operating efficiencies.

Interest rates are expected to remain at current levels during the first half of 2011, but could increase during the latter half of the year. The net effect is likely to be a lower return on insurance funds than in 2010. The fundamentals of the market are in place for another year of investment performance. However, it is unlikely that the company will experience a repeat of the stellar returns seen in the latter half of the 2010 financial year in the bond and equity markets. Investment performance is expected to show returns in the mid-teens. 

Santam’s leadership

Executive committee

Ian Kirk Chief Executive
Machiel Reyneke Chief Financial Officer
Jan de Klerk Information Management
Edward Gibbens Broker Distribution
Quinten Matthew Specialist Business
John Melville Risk Services
Temba Mvusi Market Development
Hendri Nigrini Specialist Projects
Hennie Nortje Insurance Services
Yegs Ramiah People and Brand Services

Board members and committee membership 

Vusi Khanyile Chairman, Human Resources
Bruce Campbell Risk, Financial Reporting Review 
Malcolm Dunn Risk, Financial Reporting Review, Statutory Audit 
Themba Gamedze  
Dines Gihwala Risk, Financial Reporting Review, Statutory Audit 
Jannie le Roux Human Resources, Sustainability
Namane Magau Human Resources, Sustainability
Kobus Möller Risk, Financial Reporting Review, Investment 
Yvonne Muthien Sustainability
Flip Rademeyer Risk, Financial Reporting Review, Investment, Statutory Audit 
George Rudman Risk, Financial Reporting Review 
Johan van Zyl Human Resources
Peter Vundla Sustainability

Executive directors

Ian Kirk Risk, Investment
Machiel Reyneke Risk, Investment