“The Santam group experienced another very challenging underwriting year, characterised by a number of significant adverse weather events and exacerbated by the sharp decline in the rand-dollar exchange rate,” said [DATA SNT:SANTAM LTD.] in a statement.
“For the second consecutive year, weather-related catastrophe events significantly impacted insurers. The most notable events were the floods in Limpopo and in the Western Cape and two significant hailstorms in Gauteng during November 2013, the second being one of the most severe catastrophe events experienced in South Africa to date, with total claims for the industry estimated to exceed 1.6 billion rand.”
The short term insurance company added that other challenges such as poor gross domestic product growth for South Africa and low interest rates also negatively impacted their results.
Santam achieved a 2.8 percent increase in net underwriting margin, compared to the previous period of 4 percent.
Gross written premium grew by 6 percent, which was impacted by lower cell insurance business and significant cell captive business not recorded.
“Total gross claims from these catastrophe events for the Santam group exceeded 400 million rand for a second year in a row. However, the net of reinsurance loss for the group was reduced to 215 million rand following the prudent purchase of additional reinsurance cover during 2013,” added the company.
Headline earnings increased slightly by 4 percent while a final dividend of 433 cents per share was declared, an increase of 5.6 percent from the previous period.
Cash generated by operations however declined to 1.6 billion rand following the increase in claims being paid during 2013.
Underwriting results were further negatively affected by a net underwriting loss in crop insurance of 142 million rand due to significant hail damage to summer crops in the eastern region of South Africa, and drought-related input losses in the central and western regions in the first half of 2013.
“The reality of the upward movement in interest rates, the depreciating rand, increasing fuel, energy and food prices coupled with the need for us to increase premiums continues to make it a tough environment for the South African consumer and for our business,” said the company.
“As a group, our biggest challenge in the short term will therefore be to balance growth and profitability and return to the target margin. We expect sluggish economic growth for the next financial year and uncertain investment returns, driving even more focus on the improvement of underwriting margins.”
Despite the financial strain on clients, Santam believes that penetration and diversification in South Africa will continue growing the total market.
“In addition to our premium actions we also intend to intensify our approach to addressing multi-claimants, acting on policies with below minimum rates and reviewing the underwriting of poorer risks,” added the company.