Santam Limited · JSE:SNT
Santam — Debt Investor Presentation (April 2022)
49 slides from Santam's debt investor presentation, April 2022
Slide 1: Subordinated Debt Issuance
SUBORDINATED DEBT ISSUANCE R4 BILLION UNSECURED SUBORDINATED CALLABLE NOTE PROGRAMME APRIL 2022 PRESENTED BY: HENNIE NEL & ASHER GREVLER
Slide 2: Content
CONTENT 1. Introduction to Santam 2. Group strategy and priorities 3. Environmental, Social & Governance 4. Financial performance 5. Capital management 6. Risk management 7. Debt capital market offering
Slide 3: Introduction to Santam
INTRODUCTION TO ALTERNATIVE SANTAM RISK TRANSFER
Slide 4: The Santam Business Portfolio
THE SANTAM BUSINESS PORTFOLIO Santam’s Strategic Investment Partnerships inclusive of SAN Conventional Alternative Risk Transfer (ART) JV (Saham) • Santam Commercial • Centriq Insurance Santam’s share of the and Personal • Santam Structured insurance results of the • Santam Specialist Insurance SEM
Slide 5: Group Strategy and Priorities
GROUP STRATEGY AND PRIORITIES
Slide 6: FutureFit Santam
FUTUREFIT SANTAM OUR BUILDING BLOCKS FOR CREATING STAKEHOLDER VALUE • Extend leadership position in South Africa through intermediary enablement, digital innovation and partnerships • Deliver Insurance good and proper: most trusted, relevant and purpose-driven brand • Client experience: creating int
Slide 7: Strategic Priorities 2022
STRATEGIC PRIORITIES 2022 DELIVERING ON FUTUREFIT SANTAM • Executing and implement on growth initiatives - Cross-selling initiative with Sanlam - Strategic partnerships - Tactical acquisitions • Continue to strengthen our digital and data capabilities - Improving our digital E2E insurance offering -
Slide 8: Environmental Social Governance
ENVIRONMENTAL SOCIAL GOVERNANCE
Slide 9: Our ESG Commitments
OUR ESG COMMITMENTS CONTRIBUTING TO A SUSTAINABLE AND TRANSFORMED ECONOMY Employee safety and wellbeing • We have adopted a hybrid model, with employees transitioning back to the office • Driving and supporting the vaccination adoption and roll-out across the country in partnership with Sanlam and A
Slide 10: Our ESG Commitments
OUR ESG COMMITMENTS SUPPORTING COMMUNITY RESILIENCE AND ESG COMMITMENTS • We settled R24.5 billion in claims during 2021 • We now support 63 municipalities through Partnership for Risk and Resilience (P4RR) • Continued as a constituent of the FTSE 4 Good index series and FTSE/JSE Responsible Investm
Slide 11: Financial Performance
FINANCIAL MARKETPERFORMANCE CONTEXT
Slide 12: Santam - December 2021 Key Facts
SANTAM - 31 DECEMBER 2021 KEY FACTS • Conventional insurance gross written premium growth of 5% • Underwriting margin for conventional insurance business of 8.0% (2020: 2.5%) • Revision of target net underwriting margin to 5% to 10% • Alternative Risk Transfer operating result of R276 million (2020:
Slide 13: Contingent Business Interruption Cover
CONTINGENT BUSINESS INTERRUPTION COVER CURRENT STATUS • Legal clarity obtained on length of indemnity period in October 2021 • Santam reviewed its provisions for CBI claims at 31 December 2021 and the net CBI provision was reduced by R450 million mainly due to – claims experience to date being lower
Slide 14: Conventional Insurance
CONVENTIONAL INSURANCE NET INSURANCE RESULT 2021 2020 2021/ 5 Yr 10 Yr % of NEP % of NEP R'm R'm 2020 ave % ave % Gross written premium 32 745 31 098 5% 6.9 7.8 Net earned premium 25 858 100.0 24 320 100.0 6% 6.1 6.2 Net claims incurred 16 023 62.0 16 593 68.2 (3%) 63.7 64.5 Net acquisition cost 7 7
Slide 15: Gross Written Premium vs CPI + GDP Growth
CONVENTIONAL INSURANCE GROSS WRITTEN PREMIUM VS CPI + GDP GROWTH 15 Growth in GWP GDP growth + CPI inflation 10.0 9.9 10 9.31 7.2 7.3 Percentage 6.5 6.7 6.7 5.4 5.3 5.6 5 4.3 4.6 - ( 5) (3.7) 2016 2017 2018 2019 2020 2021 2020/2021 1 Year-on-year real GDP growth for 2021 of 4.8% per SARB 2 The 2020/
Slide 16: Alternative Risk Transfer Insurance
ALTERNATIVE RISK TRANSFER INSURANCE COMBINED RESULTS NET OF NON-CONTROLLING INTEREST 2021 2020 5 Yr 10 Yr 2021/2020 R’m R’m ave % ave % Gross written premium 9 385 7 175 17% 32% Income from clients 470 385 22% Participation in underwriting results 70 34 >100% Administration expenses (264) (254) 4% O
Slide 17: SAN JV (Saham)
SAN JV (SAHAM) RECONCILIATION OF SAN JV CARRYING VALUE AS AT 31 DECEMBER 2021 R’m Carrying value at 1 January 2021 1 823 Equity accounted profit 8 After tax operating profit 43 Amortisation of other intangible assets (31) Other – consolidation adjustments (4) Statement of changes in equity 18 Foreig
Slide 18: SEM Target Shares
SEM TARGET SHARES ANALYSIS OF SANTAM’S SHARE OF NET INVESTMENT IN SEM TARGET SHARES Carrying Change in Carrying Change in value Additions exchange value Region valuation 2020 R’m rates 2021 R’m R’m R’m R’m Africa 109 1 6 18 134 Southeast Asia 136 - 6 (4) 138 India 1 293 - 88 38 1 419 Total 1 538 1 1
Slide 19: Historical Earnings
HISTORICAL EARNINGS SOLID PERFORMANCE OVER TIME 3 000 2 745 2 427 2 348 2 199 2 000 R million 1 667 1 212 1 000 327 2 - 2015 2016 2017 2018 2019 2020 2021 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 20: Geographic Diversification
GEOGRAPHIC DIVERSIFICATION CONVENTIONAL INSURANCE 1% 1% 8% 8% 7% 7% 84% 84% South Africa Rest of Africa Southeast Asia, India, Middle East Other
Slide 21: Growth Diversification
GROWTH DIVERSIFICATION INCLUDING SEM PARTNER BUSINESSES 2% 4% 4% 3% 30% 17% 31% 21% GWP GWP 2021 2020 43% 45% Personal Commercial ART SEM Saham
Slide 22: Asset Liability Matching
ASSET LIABILITY MATCHING GROUP CONSOLIDATED ASSETS AT 31 DECEMBER 2021 17 253 2 552 39 843 8 606 11 432 1 100 12 7 4 5 15 9 80 36 62 16 Percentage 60 15 73 62 40 64 47 20 38 15 19 - Insurance funds ART Sub debt SH funds Total Other assets SEM participation investments Investment in SAN JV Listed equ
Slide 23: Shareholder Funds Asset Mix
SHAREHOLDER FUNDS ASSET MIX 100 7 9 15 16 80 16 19 Percentage 60 15 15 40 47 20 41 - 2021 2020 Other assets SEM participation investments Investment in SAN JV Listed equities Interest-bearing instruments and preference shares
Slide 24: Shareholder Funds Currency Mix
SHAREHOLDER FUNDS CURRENCY MIX 100 6 7 12 14 80 16 19 Percentage 60 16 17 40 50 20 43 - 2021 2020 Rand US Dollar Moroccan Dirham (investment in SAN JV) Indian Rupee (investment in SEM) Other currencies (mainly Namibian Dollar and Malaysian Ringgit)
Slide 25: Return on Capital
RETURN ON CAPITAL TOTAL COMPREHENSIVE INCOME EXPRESSED AS % OF WEIGHTED AVERAGE SHAREHOLDERS’ FUNDS 40 36.1 33.5 30 28.5 14.4 8.9 21.9 22.2 9.9 Percentage 20 8.2 3.4 3.1 24.6 8.0 10 21.7 17.0 18.5 19.1 18.6 8.8 - (8.8) (0.8) ( 10) 2015 2016 2017 2018 2019 2020 2021 Insurance ROC Investment ROC
Slide 26: Interest Coverage
INTEREST COVERAGE CASH GENERATING BUSINESS THROUGH THE CYCLES 5 831 5 948 6 000 5 461 4 000 3 656 R million 3 289 3 279 2 171 2 000 83 160 213 199 198 170 182 - 2015 2016 2017 2018 2019 2020 2021 Cash generated from operations Interest expense - subordinated debt
Slide 27: Capital Management
Santam CAPITAL MANAGEMENT
Slide 28: 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 29: 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 30: 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 31: Economic Internal Model
ECONOMIC INTERNAL MODEL SANTAM LTD MODEL STRUCTURE
Slide 32: Capital Coverage Ratios
CAPITAL COVERAGE RATIOS • The capital coverage ratios for the Santam Group and Santam Limited license at 31 December 2021: Economic Capital Santam Group Santam Ltd Available Own Funds in R’m 13 985 12 692 Solvency Capital Requirement in R’m 8 255 7 384 Capital Coverage Ratio 169% 172% • Regulatory c
Slide 33: Economic Capital Requirement
ECONOMIC CAPITAL REQUIREMENT SANTAM LTD - 31 DECEMBER 2021 Risk Module Capital R’m Capital % Market Risk 3 345 33% Underwriting Risk 3 470 34% Reserve Risk 881 9% Credit Risk 1 425 14% Operational / Other Risk 966 10% Sub-total 10 087 100% Diversification Benefit (2 703) Economic Capital 7 384 Capit
Slide 34: Dividend Payments 2021
DIVIDEND PAYMENTS 2021 • Santam declared a final dividend of R7.90 per share and a special dividend of R8.00 per share for the 2021 financial year • Greater certainty on ultimate net liability for CBI claims ‒ Net ultimate liability reduced from R3 billion to R2.55 billion at 31 December 2021 • No l
Slide 35: Capital Management History
CAPITAL MANAGEMENT HISTORY Note: 2021(Adj) reflects the Capital Coverage Ratio adjusted for the final and special dividend payments
Slide 36: Stress Testing
STRESS TESTING • Comprehensive stress and scenario testing framework applied at Santam: ID Description Capital Coverage Change from Ratio Base 2021 (Adj) Base 152% ST02 10% increase in attritional loss ratio mean 125% -27% ST06 50% increase in earthquake modelled losses 127% -25% ST10 1 notch rating
Slide 37: Capital Structure
CAPITAL STRUCTURE • Santam Group capital structure at 31 December 2021: Capital R’m Capital % Tier 1: Shareholder Funds 11 433 82% Tier 2: Subordinated Debt 2 552 18% Capital resources 13 985 100%
Slide 38: Financial Leverage
FINANCIAL LEVERAGE • R2.5bn subordinated debt in issue • Regulatory scope to increase this to R3.7bn (50% of SCR), but this is not our intention • Following the final and special dividend payments, the debt/equity ratio is 26% on an adjusted 2021 basis • Aim to maintain debt/equity ratio between 25%
Slide 39: Risk Management
RISK MANAGEMENT FINANCIAL RESULTS
Slide 40: Key Risk Themes
KEY RISK THEMES Underwriting risk: Credit risk: R85m per risk; R150m 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 41: Reinsurance Program
REINSURANCE PROGRAM • Extensive per risk and per event reinsurance program • Maximum exposure per risk of R85 million and per event of R150 million (before reinstatement costs) • Purchase R10.9 billion of catastrophe reinsurance cover (greater than a 1-in-200 modelled earthquake loss based on Santam
Slide 42: 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 43: Debt Capital Market Offering
DEBT CAPITAL MARKET CONVENTIONAL OFFERING INSURANCE
Slide 44: 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 Deferral of Principal has occurred, subject to conditi
Slide 45: 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 TBC • Current notes in issue: Instrument Amount Call Date Rating STN03 R0.5 billion 12 April 202
Slide 46: 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 10 year no call 5 year (“10NC5”) Intere
Slide 47: Indicative Timeline
INDICATIVE TIMELINE Indicative date Action 5 – 11 April 2022 Investor virtual roadshow 20 April 2022 Term sheet, draft applicable pricing supplement and auction details released to investors 2 – 6 May 2022 S&P pre-sale rating released 4 May 2022 Updated term sheet with price guidance released to inv
Slide 48: Questions?
santam QUESTIONS?
Slide 49: Thank You
santam THANK YOU