Santam Limited · JSE:SNT
Santam — Debt Investor Presentation (March 2023)
55 slides from Santam's debt investor presentation, March 2023
Slide 1: Subordinated Debt Issuance
Subordinated Debt Issuance R4 BILLION UNSECURED SUBORDINATED CALLABLE NOTE PROGRAMME MARCH 2023 PRESENTED BY: HENNIE NEL AND ASHER GREVLER
Slide 2: Content
CONTENT 1. The Santam Business Portfolio 2. Market context 3. Group strategy and priorities 4. Environmental, Social & Governance 5. Financial performance 6. Capital management 7. Risk management 8. Impact of IFRS 17 transition 9. Debt capital market offering
Slide 3: The Santam Business Portfolio
THE SANTAM BUSINESS PORTFOLIO Sanlam Emerging Markets Conventional Insurance Alternative Risk Transfer (ART) (SEM) partner businesses • Santam Commercial • Centriq Insurance Santam’s investments and Personal • Santam Structured through SEM in India and • Santam Specialist Insurance (SSI) Malaysia •
Slide 4: Market Context
MARKET CONTEXT
Slide 5: Insurance Market Environment - Global
INSURANCE MARKET ENVIRONMENT - GLOBAL FACTORS INDUSTRY IMPACT Macro-economic • Claims inflation • Rising inflation • Investment losses • Rising interest rates/ yields • Market volatility • Improved float return prospects Geopolitical • Global economic uncertainty • Russia/ Ukraine • Supply chain dis
Slide 6: Insurance Market Environment - SA
INSURANCE MARKET ENVIRONMENT - SA FACTORS INDUSTRY IMPACT Macro-economic • Rising inflation • Consumer pressure • Rising interest rates/ yields • Claims inflation • Market volatility • Competitive pressure • Exchange rates • Weak investment return / improved float return prospects Infrastructure • L
Slide 7: Operating Environment Impacting Results
OPERATING ENVIRONMENT IMPACTING RESULTS REPORTED RESULTS AFFECTED BY: • Weather – KZN Floods best estimate of gross claims is R4.4 billion and net loss of R567 million (inclusive of reinstatement premiums of R381 million) • Inflation – premium increases lagged average cost per claim • Market volatil
Slide 8: Catastrophe Claims: Santam
CATASTROPHE CLAIMS: SANTAM GROSS TOTAL CATASTROPHE CLAIMS: ALL PERILS All years expressed in equivalent values as at 31 December 2022 6 000 5 500 5 000 4 500 4 000 3 500 R million 3 000 2 500 2 000 1 500 1 000 500 - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 9: Operating Environment: Underwriting Response
OPERATING ENVIRONMENT: UNDERWRITING RESPONSE • Weather – reinsurance programme responded, geocoding • Inflation – segmented premium increase, excess management, limited churn, supplier management • Market volatility – mandate adjustments, equity hedge expired (loss of R90 million) • Loadshedding – p
Slide 10: Group Strategy and Priorities
GROUP STRATEGY AND PRIORITIES
Slide 11: Refreshed strategy anchored around three growth drivers
OUR REFRESHED STRATEGY IS ANCHORED AROUND THREE KEY STRATEGIC GROWTH DRIVERS WHILST EMPLOYING A DATA AND ANALYTICS CENTRIC STRATEGY PURPOSE: Safeguard what is important to our clients Narrow the risk protection gap in the markets where we do business through collaborative, proactive risk management
Slide 12: New Operating Model to Support the Growth Strategy
NEW OPERATING MODEL TO SUPPORT THE GROWTH STRATEGY Old Operating Model New Operating C&P split Santam Re & Specialist MiWay Model International Solutions Client Broker Partner Solutions Solutions Solutions ART Centriq, SSI Shared Services: Information Technology, Human Resources, Procurement, Transf
Slide 13: Strategic Priorities for 2023
STRATEGIC PRIORITIES FOR 2023 EXECUTING THE REFRESHED FUTUREFIT STRATEGY • Bedding down the new operating model • Continue to implement corrective underwriting actions • Managing increased volatility in insurance results • Executing and implementing on growth initiatives • Strengthen our digital and
Slide 14: Environmental Social Governance
ENVIRONMENTAL SOCIAL GOVERNANCE
Slide 15: Our ESG Commitments
OUR ESG COMMITMENTS SUPPORTING COMMUNITY RESILIENCE AND ESG COMMITMENTS SUPPORTING THE COMMUNITIES CLAIMS PAYING CAPACITY We have been Promote a diverse certified as a top We processed more We paid more than than 6 000 claims and inclusive employer for the R1.5 billion in related to the KZN We settl
Slide 16: Financial Performance
I FINANCIAL ae ce : Santam is an authorised financial se ovider (FSP 34 c Y controlling company for its group companies.
Slide 17: Santam December 2022 Key Facts
SANTAM DECEMBER 2022 KEY FACTS • Conventional insurance gross written premium growth of 8% (2021: 5%) • Underwriting margin for conventional insurance business of 5.1% (2021: 8.0%) • Alternative Risk Transfer operating result of R306 million (2021: R276 million) • Headline earnings per share decreas
Slide 18: Conventional Insurance: Net Insurance Result
CONVENTIONAL INSURANCE NET INSURANCE RESULT 2022 2021 2022/ 5 Yr 10 Yr % of NEP % of NEP R'm R'm 2021 ave % ave % Gross written premium 35 418 32 745 8% 6.5 7.6 Net earned premium 27 221 100.0 25 858 100.0 5% 5.4 6.0 Net claims incurred 17 588 64.6 16 023 62.0 10% 63.5 64.1 Net acquisition cost 8 24
Slide 19: Conventional Insurance: Net Insurance Result (H1 vs H2)
CONVENTIONAL INSURANCE NET INSURANCE RESULT (H1 vs H2) H1 2022 H2 2022 Total 2022 % of NEP % of NEP % of NEP R'm R'm R'm Gross written premium 16 543 18 875 35 418 Net earned premium 13 018 100.0 14 203 100.0 27 221 100.0 Net claims incurred 8 817 67.7 8 771 61.8 17 588 64.6 Net acquisition cost 3 9
Slide 20: Gross Written Premium vs CPI + GDP Growth
CONVENTIONAL INSURANCE GROSS WRITTEN PREMIUM VS CPI + GDP GROWTH 13 10.0 10 9.4 9.1 8.2 7.2 7.3 6.5 6.7 6.7 7 5.4 5.3 4.3 4.6 4 Percentage 1 ( 2) (3.7) ( 5) 2016 2017 2018 2019 2020 2021 2022* Growth in GWP GDP growth + CPI inflation *Expected 2022 GDP of 2.2% CPI of 6.9%
Slide 21: Conventional Insurance: Net Insurance Result
CONVENTIONAL INSURANCE NET INSURANCE RESULT As % of net earned premium 13 11.6 9.4 2.4 10.1 9.5 Percentage 10 8.8 2.4 1.5 2.9 8 2.8 6.4 4.6 1.3 5 9.2 7.7 8.0 6.5 2.1 6.0 3 5.1 2.5 - 2016 2017 2018 2019 2020 2021 2022 Net underwriting result Investment return on insurance funds Target net underwritin
Slide 22: Alternative Risk Transfer Insurance
ALTERNATIVE RISK TRANSFER INSURANCE COMBINED RESULTS NET OF NON-CONTROLLING INTEREST (CENTRIQ, SSI) 2022 2021 5 Yr Ave 10 Yr Ave 2022/2021 R’m R’m % % Gross written premium 14 209 9 835 44% 30% 22% Income from clients 518 470 10% Participation in underwriting results 72 70 3% Administration expenses
Slide 23: Historical Earnings
HISTORICAL EARNINGS SOLID PERFORMANCE OVER TIME 3 000 2 745 2 427 2 199 1 990 2 000 R million 1 667 1 212 1 000 327 2 - 2016 2017 2018 2019 2020 2021 2022 1 Historical earnings consist of profit for the year, after tax and non-controlling interest 2 The 2020 earnings were impacted by net CBI claims
Slide 24: Geographic Diversification
GEOGRAPHIC DIVERSIFICATION CONVENTIONAL INSURANCE 1% 1% 8% 8% 6% 7% GWP GWP 2022 2021 85% 84% South Africa Rest of Africa Southeast Asia, India, Middle East Other
Slide 25: Asset Liability Matching
ASSET LIABILITY MATCHING GROUP CONSOLIDATED ASSETS AT 31 DECEMBER 2022 23 367 2 539 45 481 8 646 10 929 1 100 8 9 4 4 24 8 15 80 54 16 Percentage 60 73 60 15 40 76 20 46 45 19 23 - Insurance funds ART Sub debt SH funds Total Other assets SEM participation investments Investment in SAN JV Listed equi
Slide 26: Shareholder Funds: Asset Mix
SHAREHOLDER FUNDS ASSET MIX 100 9 7 15 15 80 16 16 Percentage 60 15 15 40 45 47 20 - 2022 2021 Other assets SEM participation investments Investment in SAN JV Listed equities Interest-bearing instruments and preference shares
Slide 27: Shareholder Funds: Currency Mix
SHAREHOLDER FUNDS CURRENCY MIX 100 5 6 13 12 80 16 16 Percentage 60 16 18 40 48 50 20 - 2022 2021 Other currencies (mainly Namibian Dollar and Malaysian Ringgit) Indian Rupee (investment in SEM) MAD (investment in SAN JV) Euro (investment in SAN JV) US Dollar Rand
Slide 28: Return on Capital
RETURN ON CAPITAL TOTAL COMPREHENSIVE INCOME EXPRESSED AS % OF WEIGHTED AVERAGE SHAREHOLDERS’ FUNDS 40 33.5 30 28.5 8.9 21.9 22.2 9.9 18.8 Percentage 20 8.2 3.4 3.1 5.0 24.6 8.0 10 18.5 19.1 18.6 17.0 13.8 8.8 - (8.8) (0.8) ( 10) 2016 2017 2018 2019 2020 2021 2022 Insurance ROC Investment ROC
Slide 29: Interest Coverage
INTEREST COVERAGE CASH GENERATING BUSINESS THROUGH THE CYCLES 6 000 4 667 4 191 4 000 R million 2 805 2 171 2 243 2 036 1 890 2 000 160 213 199 198 170 182 203 - 2016 2017 2018 2019 2020 2021 2022 Net cash from operating activities* Interest expense - subordinated debt * Net cash from operating acti
Slide 30: Capital Management
CAPITAL MANAGEMENT
Slide 31: Capital Requirements: Short Term Insurers
CAPITAL REQUIREMENTS: SHORT TERM INSURERS The Prudential Authority implemented the SAM framework during the second half of 2019: • Insurance industry uses the standard formula to calculate its regulatory capital requirements • Solvency capital requirement set at a 1-in-200-year loss level over a 1-y
Slide 32: Santam Capital Bases
SANTAM CAPITAL BASES Santam uses two capital bases to guide capital management decisions Economic Internal Model (EIM): • Based on own assessment of risk • Determined using own internal model Regulatory Internal Model (RIM): • Underlying structure based on SAM standard formula • Use economic assessm
Slide 33: Capital Management Philosophy
CAPITAL MANAGEMENT PHILOSOPHY • Ensuring policyholder security is the highest priority • Maximising the return on shareholders’ capital within an appropriate risk appetite framework • Other considerations include: – Buffer over current regulatory capital requirements – Maintaining Santam’s insurer f
Slide 34: Economic Internal Model
ECONOMIC INTERNAL MODEL SANTAM LTD MODEL STRUCTURE
Slide 35: Capital Coverage Ratios
CAPITAL COVERAGE RATIOS • The capital coverage ratios for the Santam Group and Santam Limited license at 31 December 2022: Economic Capital Santam Group Santam Ltd Available Own Funds in R’m 13,471 12,010 Solvency Capital Requirement in R’m 8,625 7,724 Capital Coverage Ratio 156% 155% • Regulatory c
Slide 36: Economic Capital Requirement
ECONOMIC CAPITAL REQUIREMENT SANTAM LTD - 31 DECEMBER 2022 Risk Module Capital R’m Capital % Market Risk 3,214 30% Underwriting Risk 3,763 36% Reserve Risk 1,064 10% Credit Risk 1,493 14% Operational / Other Risk 1,038 10% Sub-total 10,572 100% Diversification Benefit (2,848) Economic Capital 7,724
Slide 37: Dividend Payments
DIVIDEND PAYMENTS • Santam declared a final dividend of R8.45 per share for the 2022 financial year • Greater certainty on ultimate net liability for CBI claims ‒ 96% of claims settled ‒ Net ultimate liability reduced from R2.5 billion at 31 December 2021 to R1.8 billion at 31 December 2022 • Final
Slide 38: Capital Management History
CAPITAL MANAGEMENT HISTORY During 2022, Santam’s target economic coverage ratio band was reduced from “150% to 170%” to “145% to 165%”.
Slide 39: Stress Testing
STRESS TESTING • Comprehensive stress and scenario testing framework applied at Santam: ID Description Capital Coverage Change from Ratio Base 2022 Base 155% ST02 10% increase in attritional loss ratio mean 130% -25% ST06 50% increase in earthquake modelled losses 135% -20% ST10 1 notch rating downg
Slide 40: Capital Structure
CAPITAL STRUCTURE • Santam Group capital structure at 31 December 2022: Capital R’m Capital % Tier 1: Shareholder Funds 10,932 81% Tier 2: Subordinated Debt 2,539 19% Capital resources 13,471 100%
Slide 41: Financial Leverage
FINANCIAL LEVERAGE • R2.5bn subordinated debt in issue • Regulatory scope to increase this to R4.9bn (50% of SCR), but this is not our intention • Aim to maintain debt/equity ratio between 25% - 30%
Slide 42: Risk Management
id ‘Ng mr authorised financial s .ed non-life insurer and c¢ ng company for its group companie:
Slide 43: Key Risk Themes
KEY RISK THEMES Underwriting risk: Credit risk: ▪ R85m per risk; R505m per event ▪ Reinsurance and asset counterparties ▪ Comprehensive reinsurance program ▪ Minimum international credit rating of A- for ▪ Diversification – classes of business; geography reinsurance counterparties ▪ Risk appetite li
Slide 44: Eskom – Operational Considerations
ESKOM – OPERATIONAL CONSIDERATIONS Exposure Management • Grid failure exclusion to be implemented on all policies from 1 June 2023 Business Continuity • Internal scenario planning: Fully operational up to Stage 8 • Plan focuses on maintaining critical buildings, facilities, and emergency power to ac
Slide 45: Reinsurance Program
REINSURANCE PROGRAM • Extensive per risk and per event reinsurance program • Maximum exposure per risk of R85 million • The placement of the 2023 catastrophe program proved to be extremely difficult: • Reinsurers’ poor loss experience since 2020 – CBI, Riots and KZN floods • Withdrawal of capacity f
Slide 46: Risk Framework
RISK FRAMEWORK • Heavy focus on risk management across all areas of the Santam Group • Risks are quantified and understood with appropriate controls, limits and mitigation actions • Risk appetite framework is key tool for managing risk: – Covers all risk areas of the business – Risk appetites for al
Slide 47: Impact of IFRS 17 Transition
IMPACT OF IFRS 17 TRANSITION
Slide 48: Impact of IFRS 17 Transition – 1 January 2022
IMPACT OF IFRS 17 TRANSITION – 1 JANUARY 2022 • The simplified Premium Allocation Approach (PAA) is applied to general insurance businesses • Claim reserves discounted Insurance Insurance liabilities Discounting liabilities • Unallocated loss adjustment expenses (ULAE) are now added to claim reserve
Slide 49: Debt Capital Market Offering
DEBT CAPITAL MARKET OFFERING
Slide 50: Key Features of the Programme
KEY FEATURES OF THE PROGRAMME Issuer Santam Limited Programme Type Unsecured Subordinated Callable Note Programme Programme Size R4 billion The Issuer is required to defer payment of principal if a Regulatory Deficiency Redemption Deferral Event has Deferral of Principal occurred, subject to conditi
Slide 51: Santam Credit Rating
SANTAM CREDIT RATING • Santam is currently rated by S&P • The subordinated notes for the upcoming issuance will also be rated by S&P S&P Issuer South Africa National Scale Rating zaAAA Subordinated notes [zaA+] • Current notes in issue: Instrument Amount Call Date Rating STN03 (to be replaced with n
Slide 52: Indicative Issuance Terms
INDICATIVE ISSUANCE TERMS Issuer Santam Limited Issuer zaAAA (S&P) Credit rating Subordinated Debt TBC (S&P) Programme ZAR4 billion Unsecured Subordinated Callable Note Programme, registered on the JSE Indicative target issue size ZAR1 billion Indicative tenor 5-years Interest profile Floating, with
Slide 53: Indicative Timeline
INDICATIVE TIMELINE Indicative date Action 9 – 10 March 2023 Investor virtual roadshow 20 March 2023 Term sheet, draft applicable pricing supplement and auction details released to investors 27 March 2023 Updated term sheet with price guidance released to investors [29 March 2023] S&P Indicative Rat
Slide 54: Questions?
| QUESTIONS?’ es Santam is an authorised financial service’ provider(ESR 3416), a licensed nér-lifeingu controlling company forits group companies,” . ' ‘
Slide 55: autem i’an authorise hancial services provider(FSP. 340,
autem i’an authorise hancial services provider(FSP. 340, controlling Company fer Cor Gpropantes