Santam Limited · JSE:SNT
Santam — FY2018 Earnings Presentation
61 slides from Santam's earnings presentation, December 2018
Slide 1: Analyst Presentation 2018
ANALYST PRESENTATION 2018 Financial results for the year ended 31 December 2018 Presented by Lizé Lambrechts and Hennie Nel
Slide 2: Contents
CONTENTS The Santam business portfolio Market context Financial results Capital management Group strategy and priorities 2
Slide 3: The Santam Business Portfolio
THE SANTAM BUSINESS PORTFOLIO Santam Santam's Santam Commercial MiWay Santam re Emerging Markets Specialist and Personal Investments Our multi-channel Our specialist Our direct Our reinsurance Our investments in insurance business insurance business insurance business business in emerging markets in
Slide 4: Santam Group
SANTAM GROUP Insurance activities Insurance operating segments What is included? Conventional insurance Conventional insurance business written on insurance licences controlled by the group, consisting of Santam Commercial and Personal, Santam Specialist (niche and agriculture business), credit insu
Slide 5: Market Context
MARKET CONTEXT 5
Slide 6: Insurance Market: material drivers of change
INSURANCE MARKET 10 material drivers of change over the medium term ETHICAL LEADERSHIP / TRUST DEFICIT COLLABORATIVE INCREASING REGULATORY CONSUMPTION RISKS WORKFORCE FOR RISK PROTECTION GAP THE FUTURE OVERARCHING MACRO & MICRO THEMES OF INCREASING CLIMATE / INDUSTRY 4.0 CHANGE ENVIRONMENT RISKS EME
Slide 7: Insurance Market: Outlook to 2020, all markets
INSURANCE MARKET Outlook to 2020 All markets • Intense competition, marked impact of technology / insurtech • New business models and non-traditional competitors emerging, with incumbents remaining strong • Changing client behaviour and expectations par for the course • Intensifying extreme weather
Slide 8: Insurance Market: Outlook to 2020, South Africa
INSURANCE MARKET Outlook to 2020 In South Africa • Economic growth subdued, more positive, yet rising unemployment remains concerning • Improved political environment over last two years • Increased pressure for transformative / inclusive policies; financial inclusion and access will remain high on
Slide 9: Financial Results
FINANCIAL RESULTS 9
Slide 10: Reporting Environment
REPORTING ENVIRONMENT REPORTED RESULTS AFFECTED BY: Insurance events • Absence of significant catastrophe events in contrast with Knysna fire and Gauteng / KZN storms in 2017 • Fewer commercial fire claims • Liability business negatively impacted by Listeriosis outbreak as well as estimate adjustmen
Slide 11: Exchange Rate Volatility
EXCHANGE RATE VOLATILITY CLOSING RATES MOVEMENT AVERAGE RATES MOVEMENT CURRENCY 2018 2017 % 2018 2017 % United States Dollar 14.39 12.34 16.6% 13.17 13.24 (0.5%) Pound Sterling 18.32 16.61 10.3% 17.60 17.13 2.7% Moroccan Dirham 1.51 1.32 14.4% 1.42 1.37 3.6% Malaysian Ringgit 3.49 3.07 13.7% 3.28 3.
Slide 12: Santam 2018 Key Facts
SANTAM 2018 Key facts • Group gross written premium growth of 11% (conventional insurance: 7%) • Underwriting margin of 9.2% (2017: 6.0%) for conventional insurance business • Headline earnings per share increased by 47% • Return on capital of 31.8% • Economic capital coverage ratio of 159% • Final
Slide 13: Conventional Insurance
CONVENTIONAL INSURANCE 13
Slide 14: Conventional Insurance: Net insurance result
CONVENTIONAL INSURANCE Net insurance result 2018 % of 2017 % of 2018/ 5Yr 10Yr R'm NEP R'm NEP 2017 ave % ave % Gross written premium 27 711 25 853 7% 8.3 8.5 Net earned premium 22 371 100.0 20 893 100.0 7% 100.0 100.0 Net claims incurred 13 499 60.4 13 753 65.9 (2%) 63.1 65.1 Net acquisition cost 6
Slide 15: Net insurance results (H1 vs H2)
CONVENTIONAL INSURANCE Net insurance results (H1 vs H2) % of NEP H1 H2 FULL YEAR 2018 Net earned premium 100.0 100.0 100.0 Net claims incurred 62.0 58.7 60.4 Net acquisition cost 29.6 31.3 30.4 Net underwriting margin 8.4 10.0 9.2 Investment return on 2.4 2.4 2.4 insurance funds Net insurance margin
Slide 16: Net underwriting results (H1 vs H2)
CONVENTIONAL INSURANCE Net underwriting results (H1 vs H2) 2 066 1 260 1 150 R million 916 832 428 H1 H2 Full Year 2018 2017 16
Slide 17: Net insurance result as % of net earned premium
CONVENTIONAL INSURANCE Net insurance result AS % OF NET EARNED PREMIUM 12.5 11.4 11.6 2.6 9.4 2.4 8.8 2.4 Percentage 6.6 2.9 2.8 5.2 2.5 9.9 9.2 9.0 2.2 6.5 6.0 4.1 3.0 2012 2013 2014 2015 2016 2017 2018 Net underwriting result Investment return on insurance funds 17
Slide 18: Gross written premium per insurance class
CONVENTIONAL INSURANCE Gross written premium PER INSURANCE CLASS (R MILLION) Miscellaneous 4 8 Guarantee 182 301 Crop 829 729 Accident and Health 482 535 Transportation 714 721 Liability 1 227 1 250 Engineering 1 290 1 335 Property 9 000 10 031 Motor 12 125 12 801 2017 2018 18
Slide 19: Gross written premium (H1 vs H2)
CONVENTIONAL INSURANCE Gross written premium (H1 vs H2) PER INSURANCE CLASS (R MILLION) - Miscellaneous 8 Guarantee 177 124 Crop 642 87 Accident and Health 262 273 Transportation 374 347 Liability 687 563 Engineering 727 608 Property 5 268 4 763 Motor 6 452 6 349 H2 2018 H1 2018 19
Slide 20: Net underwriting surplus per insurance class
CONVENTIONAL INSURANCE Net underwriting surplus PER INSURANCE CLASS (R MILLION) 2 Miscellaneous ( 1) ( 18) Guarantee ( 69) Crop 114 54 Accident and Health 58 82 Transportation 28 29 Liability 85 ( 20) Engineering 296 296 Property ( 165) 519 Motor 860 1 176 2017 2018 20
Slide 21: Net underwriting surplus (H1 vs H2)
CONVENTIONAL INSURANCE Net underwriting surplus (H1 vs H2) PER INSURANCE CLASS (R MILLION) Miscellaneous 7 (8) Guarantee (37) (32) Crop (7) 61 Accident and Health 42 40 Transportation 45 (16) Liability 29 (49) Engineering 169 127 Property 239 280 Motor 663 513 H2 2018 H1 2018 21
Slide 22: Segmental analysis: Gross written premium
CONVENTIONAL INSURANCE Segmental analysis GROSS WRITTEN PREMIUM ― PERSONAL AND COMMERCIAL 8.4% 5.7% 15 809 14 589 11 902 11 264 R million Personal Commercial 2018 2017 22
Slide 23: Segmental analysis: Net underwriting result
CONVENTIONAL INSURANCE Segmental analysis NET UNDERWRITING RESULT ― PERSONAL AND COMMERCIAL 1 146 920 747 R million 513 Personal Commercial 2018 2017 23
Slide 24: Gross written premium from outside South Africa
CONVENTIONAL INSURANCE Gross written premium FROM OUTSIDE SOUTH AFRICA (7%) 61% (22%) 1 197 1 183 1 110 1 046 812 R million 734 17% 262 223 Namibia Rest of Africa Southeast Asia, India and Other Middle East 2018 2017 Excludes Santam’s share of the gross written premium derived from its SEM partner b
Slide 25: Acquisition cost ratio
CONVENTIONAL INSURANCE Acquisition cost ratio AS % OF NET EARNED PREMIUM 30.4 27.7 28.2 28.3 28.5 28.6 28.1 1.0 1.2 1.4 1.0 0.9 0.9 0.8 15.4 17.0 Percentage 13.5 13.9 16.4 15.8 15.2 13.0 12.9 11.8 12.3 12.1 12.4 10.9 2012 2013 2014 2015¹ 2016 2017 2018 Commission Management expenses Strategic projec
Slide 26: Reinsurance
CONVENTIONAL INSURANCE Reinsurance AS % GROSS EARNED PREMIUM 18.3 18.2 18.6 18.5 18.6 11.8 Percentage 9.9 2012 2013 2014 2015 2016 2017 2018 26
Slide 27: Size of net insurance funds
CONVENTIONAL INSURANCE Size of net insurance funds 7 879 7 489 7 279 6 774 6 978 6 449 6 266 R million 2012 2013 2014 2015 2016 2017 2018 27
Slide 28: Assets backing net insurance funds
CONVENTIONAL INSURANCE Assets backing net insurance funds CURRENCY MIX 7 879 6 978 335 214 99 1 357 381 1 177 R million 5 973 5 320 2018 2017 Rand US Dollar Other currencies (mainly Namibian dollar) Euro 28
Slide 29: MiWay
CONVENTIONAL INSURANCE MiWay 2018 2017 CHANGE Gross written premium (R’m) 2 496 2 319 7.6% Gross underwriting result, net of CAT recoveries (R’m) 334 317 5.4% Gross claims incurred ratio, net of CAT recoveries 55.2% 56.9% Gross acquisition cost ratio 31.3% 29.3% Gross underwriting margin 13.5% 13.8%
Slide 30: Alternative Risk Transfer
ALTERNATIVE RISK TRANSFER 30
Slide 31: Alternative Risk Transfer Insurance (ART)
ALTERNATIVE RISK TRANSFER INSURANCE (ART) Includes the results from: • Centriq Insurance • Santam Structured Insurance, excluding credit insurance business (acquired March 2017) Types of business • Risk finance • Underwriting managers • Affinity business • Structured insurance 31
Slide 32: Centriq
ALTERNATIVE RISK TRANSFER Centriq 2018 2017 2018/ R'm R'm 2017 Gross written premium 4 099 2 799 46% Net insurance result 61 83 Investment income 38 15 Income from associates - 6 Profit before tax 99 104 32
Slide 33: Santam Structured Insurance (SSI)
ALTERNATIVE RISK TRANSFER Santam Structured Insurance (SSI) (excluding credit insurance) 2018 2017 2018/ R'm R'm 2017 Gross written premium 1 350 1 068 26% Net insurance result 35 7 Investment income 29 18 Income from associates - (3) Profit before tax 64 22 33
Slide 34: Combined operating result
ALTERNATIVE RISK TRANSFER Combined operating result 2018 2017 2018/ R'm R'm 2017 Gross written premium 5 398 3 867 40% Net insurance result 96 84 Investment income 67 33 Income from associates - 3 Profit before tax 163 120 34
Slide 35: SEM Partner Businesses
SEM PARTNER BUSINESSES 35
Slide 36: SEM Partner Businesses: Saham Finances
SEM PARTNER BUSINESSES Saham Finances • Effective interest of 10% held through SAN JV • Operates in 26 countries in Africa and the Middle East • Main insurance business: • Morocco • Lebanon • Ivory Coast • Angola • Mauritius SEM participation investments • SGI (India) • P&O (Malaysia) • 12 investmen
Slide 37: SEM Partner Businesses holdings
SEM PARTNER BUSINESSES DOMICILE SANTAM SANTAM EFFECTIVE HOLDING EFFECTIVE HOLDING DEC 2018 DEC 2017 SAN JV (Saham Finances) Morocco 10.0 7.0 Pacific and Orient Insurance Company Berhad Malaysia 15.4 15.4 Shriram General Insurance Company Ltd India 15.0 15.0 BIHL Insurance Company Ltd Botswana 21.2 2
Slide 38: SEM General Insurance (excluding Saham)
SEM GENERAL INSURANCE (EXCLUDING SAHAM) Analysis of Santam’s share of net insurance result before taxation and minorities 2018 2017 2018/ % of NEP % of NEP R’m R’m 2017 Gross written premium 1 265 1 267 0% Net earned premium 923 100.0 881 100.0 5% Net claims incurred 679 73.6 723 82.1 (6%) Net acqui
Slide 39: Saham Finances
SAHAM FINANCES Analysis of 100% of Saham Finances’ operating result before taxation and minorities 2018 2017 2018/ % of NEP % of NEP R’m R’m 2017 Gross written premium 16 569 15 975 4% Net earned premium 13 843 100.0 12 723 100.0 9% Net claims incurred 9 448 68.3 8 537 67.1 11% Net acquisition costs
Slide 40: Saham Finances normalised comprehensive income
SAHAM FINANCES Analysis of 100% of Saham Finances’ normalised comprehensive income R million 2018 2017 Comprehensive income 578 1 282 Operational adjustments 68 - Prior year tax adjustment 49 - Post-acquisition incentives 28 - Profit on disposal of subsidiary (80) - Net reduction in funding cost pos
Slide 41: Santam Group
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Slide 42: Santam Group: Net insurance result
SANTAM GROUP Net insurance result R million 2018 2017 CHANGE Conventional insurance 2 598 1 844 41% Alternative risk transfer insurance 96 84 14% SEM partner businesses 283 244 16% INSURANCE OPERATING RESULT 2 977 2 172 30% SEM partner businesses (283) (244) INSURANCE OPERATING RESULT BEFORE 2 694 1
Slide 43: Reconciliation to headline earnings
SANTAM GROUP Reconciliation to headline earnings R million 2018 2017 CHANGE Net profit attributable to ordinary shareholders 2 427 1 667 46% Per share 2 198 1 511 Impairment of goodwill and other intangible assets - 8 Impairment of associates and joint ventures 12 3 Profit on disposal of associate (
Slide 44: Growth Diversification
GROWTH DIVERSIFICATION Including SEM partner businesses GWP 2018 GWP 2017 4% 4% 4% 3% 12% 15% 33% 35% Personal Personal Commercial Commercial ART ART SEM SEM Saham Saham 46% 44% 44
Slide 45: Geographic Diversification
GEOGRAPHIC DIVERSIFICATION Including SEM partner businesses GWP 2018 GWP 2017 6% 1% 5% 1% 10% 12% South Africa South Africa Rest of Africa Rest of Africa Southeast Asia, India and Middle East Southeast Asia, India Other and Middle East Other 82% 83% 45
Slide 46: Asset / Liability Matching
ASSET / LIABILITY MATCHING Group consolidated assets at 31 December 2018 3.1 9.0 9.9 5.5 4.1 33.0 14.9 15.0 66.5 Percentage 29.6 71.0 48.0 14.3 67.0 33.5 28.9 20.1 24.3 (0.1) 2.4 Insurance funds ART Sub debt SH funds Total Cash and money market instruments Interest bearing instruments and preference
Slide 47: Shareholder Funds: Asset mix
SHAREHOLDER FUNDS Asset mix 9.9 6.4 14.7 14.9 18.8 29.6 Percentage 22.2 14.3 28.9 35.8 2.4 2.1 2018 2017 Cash and money market instruments Interest-bearing instruments and preference shares Listed equities Investment in Saham Finances SEM participation investments Other assets 47
Slide 48: Shareholder Funds: Currency mix
SHAREHOLDER FUNDS Currency mix1 3.0 7.7 14.9 14.7 4.7 29.6 Percentage 18.8 10.0 19.0 44.1 33.5 2018 2017 Rand US Dollar Dirham (investment in Saham Finances, via SAN JV) Pound Sterling SEM (various currencies) Other currencies (mainly Namibian dollar) 1) Includes foreign denominated assets, as well
Slide 49: Investment Returns
INVESTMENT RETURNS On shareholders’ funds 1 105 443 1 012 132 11 23 168 R million 229 751 674 ( 280) ( 34) 2018 2017 Interest and dividends MV movements SEM fair value movement and dividends Derivatives Forex gains and losses (incl. SEM & Santam Int FCTR) 49
Slide 50: SEM Partner Businesses: Share of net investment
SEM PARTNER BUSINESSES Analysis of Santam’s share of net investment REGION CARRYING ADDITIONS/ FAIR VALUE MOVEMENTS CARRYING VALUE 2017 (DISPOSALS) VALUE 2018 CHANGE IN CHANGE IN EXCHANGE VALUATION RATES R’m R’m R’m R’m R’m Africa 226 - 28 10 264 Southeast Asia 187 - 26 - 213 India 676 - 50 120 846
Slide 51: Capital Management
CAPITAL MANAGEMENT 51
Slide 52: Return on Capital
RETURN ON CAPITAL Net income expressed as % of weighted average shareholders’ funds 32.5 31.8 24.7 10.8 7.2 22.6 23.6 20.0 3.9 5.1 Percentage 15.9 8.6 9.0 24.6 20.8 21.7 17.0 18.5 14.0 11.0 (1.1) 2012¹ 2013 2014 2015 2016² 2017 2018 Insurance ROC Investment ROC 1) Tax adjusted for STC (R96m) and CGT
Slide 53: Capital Management
CAPITAL MANAGEMENT • Group economic capital coverage ratio target of 130% - 170% • Economic capital coverage ratio for the Group as at 31 December 2018 of 159% • Capital requirements under SAM – will be confirmed through the Internal Model Approval Process (IMAP) 53
Slide 54: Dividend per Share
DIVIDEND PER SHARE 1 028 + 8% 952 Cents per share 665 616 363 336 2018 2017 Interim Final 54
Slide 55: Group Strategy and Priorities
GROUP STRATEGY AND PRIORITIES 55
Slide 56: 2020 Vision
2020 VISION MADE SOLID PROGRESS ON OUR 5 FOCUS AREAS OVER THE 5 YEAR PLANNING HORIZON OUR METRICS: Insurance good • Net insurance result and return on capital and proper • International diversification The right people • Citizenship and Transformation Growth IN CONTEXT OF: through innovation and • T
Slide 57: Priorities for 2019
PRIORITIES FOR 2019 • Finalise and finetune our “future fit” strategy • Innovation and technology • Clients, markets and new business models • International growth and footprint • People • ESG factors • Given economic and political context profitable growth and optimal cost ratio is non-negotiable 5
Slide 58: Priorities for 2019
PRIORITIES FOR 2019 • Maintain our focus on the quality of the risk pool and treating our customers and business partners fairly • Santam to be actively involved to develop Pan-African specialist business with Saham Finances • Deepen and strengthen our work with partners to reduce risk and improve r
Slide 59: Doing More Than Just Insurance
DOING MORE THAN JUST INSURANCE Launched Skills Development Trusted by 85 of the JSE’s top 100 Creating employment for Academy to train young people companies to insure their assets 6 043 people in scarce and critical skills Achieved Level 1 B-BBEE rating Included in the FTSE 4 Good index and FTSE/JS
Slide 60: Insurance good and proper
Santam, Insurance good and proper then. Insurance good and proper now. Insurance good and proper always. 60
Slide 61: We Do Insurance Properly
WE DO INSURANCE INSURANCE GOOD AND PROPERLY PROPER 61