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The group said that from an underwriting perspective, growth and underwriting profit in southern Africa were satisfactory. Overall earnings for the group were however well below the 2007 levels, mainly attributable to poor investment results.
Headline earnings of R100m were 89% lower than the same period in 2007, equating to a headline earnings per share of 89c compared to 803c in 2007.
The group maintained its interim dividend at 166c per share.
"The group's southern African operations achieved an 8% increase in gross written premiums which was pleasing, given the softer market and the corrective action taken by Santam to procure and retain quality business. Growth was achieved across most classes of business," Santam said.
As expected, however, the net underwriting result for the continuing operations declined during the first half of the year to R326m from R469m in 2007. The overall net underwriting margin remained healthy at 5.7%.
"Underwriting performance of the personal and commercial business, as well as the specialist classes, met or exceeded expectations in the first six months, despite several catastrophic flooding events in KwaZulu Natal.
However, in line with industry experience, Santam incurred a number of large industrial accident-and-fire related claims during this period which adversely affected the underwriting margin in the corporate business unit, contributing to the negative property class performance.
"Although this unit recorded a loss for the six months compared to a profit in the corresponding period, the diversification of Santam across business lines as well as the current reinsurance programme kept the overall underwriting margin healthy," the insurer said.
Of the specialist classes, the liability and engineering businesses performed well while the crop business experienced a return to profitability. The net acquisition cost ratio of 25.1% increased slightly from the 24.9% for the same period in 2007 due to expenditure on the strategic projects aimed to reposition the company.
Equity portfolio
The combined effect of the insurance activities of the continuing operations resulted in a net insurance margin of 8% for the past six months compared to 11.9% for the comparable period in 2007.
Continuing the trend set in the last quarter of 2007, the performance of the investment portfolio was under pressure during the first six months of 2008. Although the higher interest rates had a positive impact on cash related investments, the equity portfolio performed significantly below the exceptional performance in the first half of 2007, especially due to a severe reduction in the value of financial and industrial stocks.
Looking ahead, Santam said that underwriting margins are expected to remain under pressure due to the softer market, both in commercial and personal lines, and could be especially challenging considering the anticipated deterioration in global and domestic economic conditions.
"Of particular concern is the increased inflationary environment, reduction in disposable income of individuals and deteriorating public infrastructure in some areas. Having the benefit of diversification, Santam is well positioned to face these challenges," the group stated.
Under pressure
"In light of the volatility of global and local financial markets, the capital growth of our investment portfolio during 2008 could be under further pressure. Taking cognisance of our capital levels, we need to maintain appropriate exposure to the various asset classes. In line with general consensus we expect interest rates to remain at current levels for the foreseeable future, which will have a positive impact on our cash-related investment returns," Santam added.
- I-Net Bridge
