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Durban - As the industry goes through one of the toughest cycles in many years, interim results from South Africa's largest short-term insurer Santam suggested the cycle may have bottomed.
"I think it has," said CEO Ian Kirk. "But looking at the underlying conditions in the industry, recovery could be 12 to 18 months away."
Strong earnings growth was carried by improved investment income at Santam. Portfolio management has been shrewd. Santam kept its exposure to equities at about 60% of the portfolio, but put in downside protection through derivative instruments.
"We're giving away some of the upside to protect the downside. What we don't want is for underwriting to go negative and be hit by investment losses at the same time. That's what killed some insurance companies overseas."
But underwriting at Santam is under stress, as it is for the industry in general.
Reported interim results from Mutual & Federal (M&F) showed improvement after losses in the previous financial year, but also clear signs of strain.
M&F responded by shedding unprofitable group schemes, largely around the motor book, which MD Keith Kennedy said turned the previous interim motor underwriting loss of R34m to a profit of R38m.
However, underwriting margins for Santam's personal lines motor book turned negative. This was also the case for property, due to the large number of commercial - mainly fire - claims.
The net underwriting margin stands at a low 1.4%, compared to an industry average of between 3% to 4%. "We're not pleased with where we are. We want our underwriting margin to be above the industry average," said Kirk.
But while Santam was hammered on underwriting - though at R88m it was still positive, compared to the underwriting profit of R326m in the previous interim - it maintained its interim dividend at 166 cents per share. That should be read as a sign of confidence, especially after M&F passed its dividend.
- Fin24.com
