Lize Lambrechts. Picture: HETTY ZANTMAN

Lize Lambrechts. Picture: HETTY ZANTMAN

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The environment for Santam’s interim results looked a long way from promising.

Its main rival in SA short-term insurance, Mutual & Federal, which seemed to be on the mend last year, had reported a R44m underwriting loss.

The main culprit was not the usual one for SA short-term insurers — the personal lines motor book — but commercial and corporate property risk, where losses were R50m above the long-term average, and losses at Credit Guarantee, the trade credit insurer, which were R140m worse.

Santam sold its share in Credit Guarantee last year and it still has to establish a sizeable trade credit business.

But it suffered in other areas — though most of its competitors would love to have the same experience Santam goes through in a bad year. It still achieved a premium growth of 8% and an underwriting margin of 6,4%.

This is below the 9% margin shown for the typical insurers in the Financial Services Board report for the three months to March 2016, but the figure is skewed by the double-digit margins from direct writers such as Outsurance.

Santam’s margin was also below the 8,9% achieved last year, but nevertheless well above the 4% predicted by most analysts in the wake of the Mutual & Federal catastrophe.

Santam finance director Hennie Nel says that in some years Santam has battled to get a 1% margin on its personal business, but this year personal underwriting profit was stable at R256m, at a margin above 5%. Mutual & Federal’s experience was echoed in a 36% fall in commercial (including corporate) underwriting profit to R344m.

The figure should look stronger once Santam has bedded down the Absa commercial book it acquired in April.

The property book’s profit fell by more than 85% to R18m. The star performer was liability, in which Santam remains dominant through its Stalker Hutchison Admiral subsidiary.

Its profit doubled to R172m. The unit has virtually exited from highly unprofitable medical malpractice lines.

Santam CE Lizé Lambrechts says that in the current agricultural conditions she was relieved that there was still an R8m profit on the crop book, down from R53m.

Her main worry has been in an area not entirely in her control — the businesses held jointly with Sanlam Emerging Markets.

Lambrechts says she is positive about Africa in the long term and any risk it presents is mitigated by the wide spread of countries.

But Santam was forced to write down its investment in Rwanda’s Soras Assurances Générales by R46m, as the financial results were misstated this year and in prior years. The top management team has been replaced.

Ironically, Rwanda is often considered one of Africa’s high points of corporate governance.

There was also a write-down of R37m at P&O Insurance in Malaysia, as the growth assumptions looked optimistic.

P&O will expand from its motorcycle insurance niche into a broader market, with Santam providing technical assistance.

Santam continues to suffer surprisingly little cannibalisation from its direct insurer MiWay. MiWay’s premium income surpassed R1bn over the six months, but barely 3% of this comes from former Santam clients. About 20% is from other intermediated insurers, and the rest from other direct players or brand-new insurance clients.

But clients are today spoilt for choice: MiWay now has a broker sales unit, and Santam has revitalised its moribund Santam Direct as part of its commitment to a multichannel approach.

Santam has successfully uploaded entrepreneurs into its business in the past, including the Mirabilis engineering and Emerald property teams. It should prove to be a suitable home for RMB Structured Insurance, which it is buying from Rand Merchant Investment (RMI) Holdings.

RMI’s Herman Bosman says a number of RMB Structured Insurance (RMB SI) business lines, which include risk finance and credit insurance, require a scalable and efficient operational platform that only a large insurance group can provide — and he is confident that the RMB SI team will retain its entrepreneurial culture and independence with Santam.

In spite of the RMB SI and Absa commercial book acquisitions, Santam still paid out an 800c special dividend. The timing surprised most analysts as Santam prepares for new solvency rules.

Santam’s full-year results remain anyone’s guess, as the company still has to go through its toughest test — the spring hailstorm season in Gauteng.