Santam Limited · JSE:SNT
Santam — FY2014 Earnings Presentation
70 slides from Santam's earnings presentation, Mar 3, 2015
Slide 1: 2014 Presentation to Analysts
Slide 2: Directors and company details
Non-executive directors Santam head office and registered address B Campbell, MD Dunn, MP Fandeso, T Fubu, 1 Sportica Crescent BTPKM Gamedze, GG Gelink (Chairman), Tyger Valley IM Kirk, MLD Marole, MJ Reyneke, Bellville 7530 JP Möller, J van Zyl PO Box 3881, Tyger Valley 7536 Tel: 021 915 7000 Execu
Slide 3: Table of contents
Table of contents 4 Market context 8 Financial results 32 Capital management 38 Group strategy and priorities 43 udited summary report for Santam Ltd and its subsidiaries for the A year ended 31 December 2014 P R E S E N T A T I O N T O A N A LY S T S S A N T A M LT D A N D I T S S U B S I D I A R I
Slide 4: Analyst Presentation: Financial Results for the Year Ended December 2014
ANALYST PRESENTATION FINANCIAL RESULTS FOR THE YEAR ENDED 31 December 2014 Presented by Lizé Lambrechts and Hennie Nel 03 March 2015 CONTENT • Market context • Financial results • Capital management • Group strategy and priorities GENE 2
Slide 5: Market context
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Slide 6: Market context: key themes
MARKET CONTEXT MARKET CONTEXT: KEY THEMES 2014 STRATEGY PROCESSES • Profitable growth remains a major challenge in more developed markets • Emerging markets continue to show positive prospects Outside • Persistently low level of trust – client centricity is key South Africa • Regulatory advancement
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Slide 8: Market context: key themes; relative performance
MARKET CONTEXT: KEY THEMES • Profitable growth remains a major challenge in more developed markets • Emerging markets continue to show positive prospects Outside • Persistently low level of trust – client centricity is key South Africa • Regulatory advancement is here to stay • Technological advance
Slide 9: Financial results
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Slide 10: Santam 2014 – Key facts
SANTAM 2014 – KEY FACTS • Gross written premium growth: – 10% including cell insurance – 12% excluding cell insurance • Underwriting margin of 8.7% • Headline earnings increased by 40% • Solvency ratio of 46% • Return on shareholders funds of 24.7% • Positive contribution from international strategi
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Slide 12: Main variances; net insurance result
MAIN VARIANCES 2014 vs. 2013 2 700 2 327 2 200 1 651 1 700 1 579 1 494 1 473 GENE 1 120 1 178 R million 1 200 710 700 543 477 425 374 200 U/Writing result Investment Investment Income before Tax Earnings Headline -300 return on income tax Earnings insurance funds (300) 2014 2013 -800 (660) Non-headl
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Slide 14: Normalised underwriting margin; first versus second half
NORMALISED UNDERWRITING MARGIN 2014 2013 Underwriting margin achieved 8.7% 2.8% Impact GENE of ART Quota Share reinsurance arrangement (0.5%) N/A Impact of crop results normalisation (1.3%) 1.0% Adjusted margin 6.9% 3.8% 2014 ANALYSIS: FIRST VERSUS SECOND HALF FIRST HALF SECOND HALF FULL YEAR 2014 N
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Slide 16: 2014 performance: first versus second half; gross written premium
2014 PERFORMANCE: FIRST VERSUS SECOND HALF NET UNDERWRITING RESULT 1 494 GENE 866 R million 628 477 375 102 First half Second half Full year 2014 2013 GROSS WRITTEN PREMIUM PER INSURANCE CLASS (R MILLION) Guarantee 22 43 2014 2103 Miscellaneous 53 47 Investment contract premium Accident and Health 3
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Slide 18: Net underwriting surplus per insurance class
NET UNDERWRITING SURPLUS PER INSURANCE CLASS (R MILLION) Guarantee 0 11 2014 2013 Miscellaneous 5 2 Accident and Health 49 50 Transportation 40 28 Crop 251 (142) Engineering 169 210 Liability 220 119 ART 15 2 221 Property (2) Motor 524 199 -200 -100 0 100 200 300 400 500 600 UNDERWRITING SURPLUS: FI
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Slide 20: Segmental analysis
SEGMENTAL ANALYSIS GROSS WRITTEN PREMIUM ― PERSONAL, COMMERCIAL AND ART 14 000 12 298 12 000 10 697 10 000 8 459 8 003 8 000 GENE R million 6 000 4 000 284 422 2 000 1 953 1 931 0 Personal Commercial ART 2014 2013 Investment contract premium SEGMENTAL ANALYSIS NET UNDERWRITING RESULT ― PERSONAL, COM
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Slide 22: Acquisition cost ratio; level of reinsurance
ACQUISITION COST RATIO AS % OF NET EARNED PREMIUM 30 28.5 27.3 28.1 27.7 27.9 28.2 25.8 0.8 1.0 1.0 25.2 0.9 1.2 1.4 25 0.8 0.9 11.1 13.6 20 10.0 13.5 13.8 15.4 10.1 16.3 Percentage 15 10 14.3 14.9 15.3 13.7 13.0 12.7 10.9 12.1 5 0 2008 2009 2010 2011 2012 2013 2014 2014 excl ART QS Commission Manag
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Slide 24: Net insurance result; size of insurance funds
NET INSURANCE RESULT AS % OF NET EARNED PREMIUM 20 18 16 14 11.5 GENE 12 11.2 Percentage 11.0 10.3 10.5 10 2.9 2.5 2.6 2.3 4.6 8 6.9 6.6 6 5.0 3.3 2.6 4 8.6 2.2 8.7 8.2 7.7 6.4 2 3.6 4.0 2.8 0 2008 2009 2010 2011 2012 2013 2014 2014 excl ART QS Underwriting Float income SIZE OF INSURANCE FUNDS 8 000
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Slide 26: Insurance funds; investment return
INSURANCE FUNDS AS % OF GROSS EARNED PREMIUM 40.0 37.1 35.6 35.9 35.4 32.7 33.5 Percentage 2008 2009 2010 2011 2012 2013 2014 INVESTMENT RETURN 1 350 1 036 968 92 1 150 51 71 950 114 750 654 286 R million GENE 550 350 591 443 150 -50 (93) (204) -250 2014 2013 Net Interest and dividends MV movements
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Slide 28: Asset/liability matching; asset allocation
ASSET / LIABILITY MATCHING GROUP CONSOLIDATED ASSETS AT 31 DECEMBER 2014 100% 2.7 6.0 14.9 4.5 90% 80% 11.4 17.5 49.9 54.8 70% GENE 60% 43.5 50% 97.3 100.0 44.8 40% 30% 50.1 45.2 20% 18.0 27.2 10% 12.2 0% - Insurance funds Centriq float Cell owners Sub debt SH funds Total Cash and money market Inter
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Slide 30: SEM participation investments
SEM PARTICIPATION INVESTMENTS* FAIR VALUE REGION 2013 ADDITIONS 2014 MOVEMENTS R'm R'm R'm R'm Africa 21 186 2 209 Southeast Asia 301 - 47 348 India 206 - 44 250 528 186 93 807 *In partnership with Sanlam Emerging Markets SEM PARTICIPATION INVESTMENTS SANTAM SANTAM INCORPORATED EFFECTIVE EFFECTIVE I
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Slide 32: Cash generated from operations; MiWay
CASH GENERATED FROM OPERATIONS 3 000 2 500 2 000 R million 1 500 2 443 1 000 1 616 500 0 2014 2013 MIWAY 2014 2013 CHANGE Gross written premium (R’m) 1 485 1 307 14% Gross underwriting result, net of 159 54 194% CAT recoveries (R’m) Gross claims ratio, net of CAT 57.4% 62.2% recoveries Gross acquisi
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Slide 34: Santam Re
SANTAM RE • Santam Re is a wholesale reinsurance service provider for Santam/Sanlam group general insurance businesses and independent general insurers in South Africa, Africa, India and Asia including China and South Korea. • Underwriting results improved following lower retrocession costs and corr
Slide 35: Capital management
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Slide 36: Return on capital; solvency
RETURN ON CAPITAL NET INCOME EXPRESSED AS % OF WEIGHTED AVERAGE SHAREHOLDERS’ FUNDS 45 37.1 35 26.6 13.8 25.0 24.7 25 18.1 22.6 Percentage 5.1 20.0 3.9 11.1 8.6 15 9.0 22.5 23.3 20.8 19.9 15.5 14.0 5 11.0 -4.4 -5 2008 2009 2010 2011 2012 adj* 2013 2014 -15 Insurance ROC Investment ROC *Tax adjusted
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Slide 38: Capital management; dividend per share
CAPITAL MANAGEMENT • Capital efficiency remains critical to Santam • Target solvency range of 35% - 45%: no change (capital coverage ratio 135% -170%) • Group solvency as at 31 December 2014 of 46% (2013: 42%) • FSB interim capital requirements December 2014: 28.5% • Economic capital coverage ratio
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Slide 40: Group strategy and priorities
GROUP STRATEGY AND PRIORITIES 2014 STRATEGY PROCESSES OUR 3-PILLAR GROUP STRATEGY CONTINUES TO DELIVER 38
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Slide 42: Our focus on growth
OUR FOCUS ON GROWTH Santam Santam Specialist MiWay Santam Re International C&P Business diversification GENE • Enhance multi- • Niche: diversify • Organic • Pursue • Strategic channel footprint inside and growth – profitable partnership distribution outside SA – grow enhance growth with a with Sanla
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Slide 44: Thank you
42 THANK YOU
Slide 45: Audited summary report
AUDITED SUMMARY REPORT 43
Slide 46: Table of contents
Table of contents 45 Salient features 46 Financial review 49 Independent auditor’s report 50 Summary consolidated statement of financial position 51 Summary consolidated statement of comprehensive income 52 Summary consolidated statement of changes in equity 53 Summary consolidated statement of cash
Slide 47: Salient features
AUDIT E D SUMMARY REPORT Gross written premium Gross written premium growth including cell captive growth excluding cell captive insurance 10% insurance 12% Underwriting margin Cash generation significantly of 8.7% improved Group solvency ratio Return on shareholders funds of 46% of 24.7% Positive c
Slide 48: Financial review
PRES EN TATI O N TO A NA LYST S 2 0 1 4 FINANCIAL REVIEW The Santam group reported strong underwriting results for the 2014 financial year with a net underwriting margin of 8.7% compared to 2.8% in 2013, significantly above the long-term target range of 4% to 6%. The results were positively impacted
Slide 49: Financial review
AUDIT E D SUMMARY REPORT FINANCIAL REVIEW compared to 2013 following the significant improvement in underwriting performance and were a contributor to the expense ratio increase. Binder fees payable to intermediaries also increased following changes in regulations in 2013. Strategic project costs am
Slide 50: Financial review: prospects
PRES EN TATI O N TO A NA LYST S 2 0 1 4 FINANCIAL REVIEW Prospects Trading conditions in the South African insurance industry remain very competitive despite some hardening of insurance premium rates in certain segments following the poor underwriting results reported by industry participants in 201
Slide 51: Independent auditor's report
AUDIT E D SUMMARY REPORT INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF SANTAM LTD The summary consolidated financial statements of Santam Ltd, set out on pages 50 to 66, which comprise the summary consolidated statement of financial position as at 31 December 2014, and the summary consolidated
Slide 52: Summary consolidated statement of financial position
PRES EN TATI O N TO A NA LYST S 2 0 1 4 SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION Audited Audited At At 31 Dec 2014 31 Dec 2013 Notes R million R million ASSETS Non-current assets Property and equipment 117 95 Intangible assets 1 086 1 072 Deferred income tax 161 188 Investments in associ
Slide 53: Summary consolidated statement of comprehensive income
AUDIT E D SUMMARY REPORT SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Audited Audited At At 31 Dec 2014 31 Dec 2013 Change Notes R million R million % Gross written premium 22 710 20 631 10 Less: Reinsurance premium 5 075 3 731 Net premium 17 635 16 900 4 Less: Change in unearned premium G
Slide 54: Summary consolidated statement of changes in equity
PRES EN TATI O N TO A NA LYST S 2 0 1 4 SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Non- controlling Attributable to equity holders of the company interest Total Distribut- Share Treasury Other able capital shares reserves reserves R million R million R million R million R million R million
Slide 55: Summary consolidated statement of cash flows
AUDIT E D SUMMARY REPORT SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS Audited Audited At At 31 Dec 2013 31 Dec 2014 Restated * Notes R million R million Cash generated from operations 2 443 1 616 Interest paid (93) (118) Income tax paid (420) (221) Net cash from operating activities 1 930 1 277 Cash
Slide 56: Notes: basis of preparation
PRES EN TATI O N TO A NA LYST S 2 0 1 4 NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION 1. Basis of preparation The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Ltd (JSE) for summary financial statements, and the requirements of the Co
Slide 57: Notes: restatement
AUDIT E D SUMMARY REPORT NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION 5. Restatement During the year, the group changed the disclosure of cash flows from investing activities. IAS 7 Cash flow statements requires that major classes of receipts and payments should be reported gross in the s
Slide 58: Notes: business activity 2014
PRES EN TATI O N TO A NA LYST S 2 0 1 4 NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION 6.1 For the year ended 31 December 2014 Insurance Investment Unallocated Total Business activity R million R million R million R million Revenue 22 710 726 – 23 436 Gross written premium 22 710 – – 22 710
Slide 59: Notes: business activity 2013
AUDIT E D SUMMARY REPORT NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION 6.2 For the year ended 31 December 2013 Insurance Investment Unallocated Total Business activity R million R million R million R million Revenue 20 631 942 – 21 573 Gross written premium 20 631 – – 20 631 Net written pr
Slide 60: Notes: geographical analysis; financial assets
PRES EN TATI O N TO A NA LYST S 2 0 1 4 NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION 6.3 Geographical analysis Gross written Non-current premium assets 2014 2013 2014 2013 R million R million R million R million South Africa1 20 565 19 585 1 435 1 393 Africa2, 3 1 837 845 331 117 Southeas
Slide 61: Notes: financial assets at fair value
AUDIT E D SUMMARY REPORT NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION Financial assets at fair value through income Level 1 Level 2 Level 3 Total December 2014 R million R million R million R million Equity securities Quoted Listed 2 999 – – 2 999 Unitised funds – 75 – 75 Irredeemable pre
Slide 62: Notes: level 3 instruments and SEM
PRES EN TATI O N TO A NA LYST S 2 0 1 4 NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION The unquoted equity instruments recognised as level 3 instruments at 31 December 2014 and 2013 consist mainly of the participation instruments issued by Sanlam Emerging Markets (Pty) Ltd (SEM). The fair v
Slide 63: Notes: financial liabilities at fair value
AUDIT E D SUMMARY REPORT NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION Financial liabilities at fair value through income Level 1 Level 2 Level 3 Total December 2014 R million R million R million R million Debt securities 1 023 – – 1 023 Investment contracts – 105 – 105 1 023 105 – 1 128 D
Slide 64: Notes: insurance liabilities and reinsurance assets
PRES EN TATI O N TO A NA LYST S 2 0 1 4 NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION At At 31 Dec 2014 31 Dec 2013 R million R million 8. Insurance liabilities and reinsurance assets Gross Long-term insurance contracts – claims reported and loss adjustment expenses 13 3 – claims incurred
Slide 65: Notes: non-current asset held for sale
AUDIT E D SUMMARY REPORT NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION 9. Non-current asset held for sale Santam Ltd initially set up the Santam International group to facilitate the expansion into Europe. Santam International Ltd (Santam International) directly and indirectly held three s
Slide 66: Notes: income tax
PRES EN TATI O N TO A NA LYST S 2 0 1 4 NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION Audited Audited At At 31 Dec 2014 31 Dec 2013 R million R million 11. Income tax South African normal taxation Current year 684 259 Charge for the year 684 258 STC – 1 Prior year – (4) Recovered from cell
Slide 67: Notes: business combinations
AUDIT E D SUMMARY REPORT NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION 12. Business combinations 2014 Additions Brolink (Pty) Ltd and H & L Underwriting Managers (Pty) Ltd On 15 May 2014, Swanvest 120 (Pty) Ltd, a wholly owned subsidiary of Santam Ltd, acquired the remaining 70% of the H &
Slide 68: Notes: earnings per share
PRES EN TATI O N TO A NA LYST S 2 0 1 4 NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION Audited Audited At At 31 Dec 2014 31 Dec 2013 R million R million 13. Earnings per share Basic earnings per share Profit attributable to the company’s equity holders (R million) 1 579 1 120 Weighted avera
Slide 69: GREYMATTER & FINCH # 8215
GREYMATTER & FINCH # 8215
Slide 70: Insurance good and proper
INSURANCE GOOD AND PROPER www.santam.co.za