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It's part of our business, says Santam as claims soar

South Africa’s biggest short-term insurer, Santam, says paying large unexpected catastrophe-related claims is part of the game - and although this is frequently eating into its underwriting profits lately, it will not try to take short cuts.

The insurer, which is owned by Sanlam, saw its basic earnings per share shrink 9% and its headline earnings per share - which exclude one-off capital items - decrease 1% to R20.69 because of another surge in claims.

The rise in catastrophe-related claims is becoming a recurring problem for Santam. In 2017, when South Africa battled flash floods in Durban and Gauteng, and the year ending with widespread fires in Knysna, Santam paid in excess of R2 billion in claims related to these.

When it released its full-year results on Thursday, the insurer said 2019 was characterised by an increase in claims from natural disasters in both South Africa and territories beyond the borders. The insurer paid out R18.9 billion in gross claims and over R800 million of this was for hail and frost-related crop insurance claims alone. This caused its crop insurance business to record a net underwriting loss of R87 million compared to an underwriting profit of R54 million in 2018.

The company has reinsurance to insulate itself from these shocks, limiting its liability to the first R150 million claims. Reinsurance - usually big global insurers who insure many smaller insurers - pays anything above that first R150 million. But still Santam’s net underwriting margin suffers. In 2019, the margin decreased to of 7.7% from 9.2% in December 2018. It is still above the company’s target range of 4% to 8%.

"The reason why we are in business of general insurance is to be there when these catastrophes happen," said Santam CFO, Hennie Nel.

"Yes, it was a really bad year from a Santam perspective but, by paying all those claims, we made sure than the farmers next year would want to buy crop insurance again because they see the benefit of having it."

Nel said Santam is tightening its underwriting by looking at trends. For instance, if there are certain parts of the country that always get flooded or a property that is below the flood line, the insurer weighs its risk and chose not to insure those properties, even though new customers currently don’t come easily in South Africa’s depressed economy.

"But we don’t try and not write business because there might be catastrophes. It’s part of our business," he added.

While Santam’s specialist insurance business that insures things like industrial properties, heavy haulage and engineering classes, recorded strong growth, Nel said the commercial and personal lines only grew in line with inflation because of a difficult economic climate. Motor insurance for instance grew gross written premiums by 4%, and this was mostly because of MiWay, which grew by 10%.

For the group as a whole, including all its different businesses, gross written premium on conventional insurance grew by 7% to R29.7 billion, mostly aided by the specialist insurance business and operations outside South Africa, especially Southeast Asia, India and the Middle East.

Speaking specifically about motor insurance, Nel said: "The intermediated motor insurance business in South Africa is under pressure. There’s lot of competition and very little growth. And currently in South Africa, with this tough economic environment, wat you often find is that at reviewal, the customer would rather increase the excess than their premiums."

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