Santam Limited · JSE:SNT
Santam — H1 2022 Earnings Presentation
56 slides from Santam's earnings presentation, June 2022
Slide 1: Analyst Presentation: Interim Financial Results for the Six Months Ended 30 June 2022
2022 ANALYST PRESENTATION INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022 PRESENTED BY: TAVAZIVA MADZINGA AND HENNIE NEL
Slide 2: Content
CONTENT 1. The Santam business portfolio 2. Market context 3. Financial results 4. Capital management 5. Group strategy and priorities 6. ESG matters
Slide 3: The Santam Business Portfolio
THE SANTAM BUSINESS PORTFOLIO Alternative Risk Transfer Santam’s Strategic Conventional (ART) Investment Partnerships • Santam Commercial • Centriq Insurance Santam’s share of the and Personal • Santam Structured insurance results of the • Santam Specialist Insurance SEM general insurance • Santam R
Slide 4: Market Context
MARKET CONTEXT
Slide 5: Insurance Market Outlook: All Markets
INSURANCE MARKET OUTLOOK All markets • Global economy is expected to continue to slowdown • Inflation continues to surge as supply chain disruptions and high energy prices persist • Current developments in Ukraine/Russia and China/Taiwan add uncertainty to the economic outlook • Rate hardening in co
Slide 6: Insurance Market Outlook: South Africa
INSURANCE MARKET OUTLOOK South Africa • Economic growth outlook is revised upwards • The short-term outlook for the insurance industry remains positive • The surge in inflation, supply chain disruptions and persistent loadshedding will continue to impact claims cost • Weather-related events, civil u
Slide 7: KwaZulu-Natal Floods
KWAZULU-NATAL FLOODS CURRENT STATUS • Gross exposure currently estimated at R4.4 billion • Santam’s net exposure estimated to be R566 million, inclusive of reinstatement premiums • The largest natural catastrophe in Santam’s history • Santam provided on the ground support to its clients during this
Slide 8: Catastrophe Claims
CATASTROPHE CLAIMS GROSS TOTAL CATASTROPHE CLAIMS: ALL PERILS 6 000 Infectious Disease Other 5 000 Hail Flood/Storm Fire 4 000 R million 3 000 2 000 1 000 - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Financial Year All years expresse
Slide 9: Other Underwriting Factors
OTHER UNDERWRITING FACTORS CURRENT STATUS x Adverse weather conditions in Q1 and several smaller weather-related catastrophe events x Claims inflation in excess of premium increases x Large losses x Power surge claims x Increase in motor theft
Slide 10: Contingent Business Interruption Cover
CONTINGENT BUSINESS INTERRUPTION COVER CURRENT STATUS • Santam reviewed its provisions for CBI claims at 30 June 2022 and the net CBI provision was reduced by R397 million mainly due to – actual claims to date being lower than the initial estimates – support from all of Santam’s catastrophe reinsure
Slide 11: Santam June 2022 Business Developments
SANTAM JUNE 2022 BUSINESS DEVELOPEMENTS • April 2022: Santam’s economic interest in SGI diluted from 15% to 14.1% following KKR transaction • 4 May 2022: Sale of 10% interest on SAN JV to Allianz announced for EUR 120.5 million • May 2022: Sub-debt of R1 billion issued to redeem callable sub-debt of
Slide 12: Santam June 2022 Key Facts
SANTAM JUNE 2022 KEY FACTS • Conventional insurance gross written premium growth of 7% • Underwriting margin for conventional insurance business of 2.3% (Jun 2021: 6.7%) • Alternative Risk Transfer operating result of R111 million (Jun 2021: R140 million) • Headline earnings per share decreased to 4
Slide 13: Financial Results
Santam FINANCIAL RESULTS
Slide 14: Reporting Environment
REPORTING ENVIRONMENT REPORTED RESULTS AFFECTED BY: Insurance events • Adverse weather conditions and KZN floods negatively impacted underwriting results • Release of net CBI claims provisions of R397 million Market volatility • Volatile equity and bond markets contributed to negative market value m
Slide 15: Exchange Rate Volatility
EXCHANGE RATE VOLATILITY CLOSING RATES Currency Jun 2022 Dec 2021 % change United States Dollar 16.38 15.96 2.6 Moroccan Dirham 1.61 1.72 (6.6) Indian Rupee 0.21 0.21 (3.5) AVERAGE RATES Currency Jun 2022 Jun 2021 % change United States Dollar 15.40 14.52 6.0 Moroccan Dirham 1.59 1.63 (2.5) Indian R
Slide 16: Conventional Insurance
= santam CONVENTIONAL INSURANCE
Slide 17: Conventional Insurance: Net Insurance Result
CONVENTIONAL INSURANCE NET INSURANCE RESULT Jun 2022 Jun 2021 2022/ 5 Yr 10 Yr % of NEP % of NEP R'm R'm 2021 ave % ave % Gross written premium 16 543 15 498 7% 6.2 7.4 Net earned premium 13 018 100.0 12 791 100.0 2% 4.7 5.7 Net claims incurred 8 817 67.7 8 109 63.4 9% 64.1 64.4 Net acquisition cost
Slide 18: Net Insurance Result as % of Net Earned Premium
CONVENTIONAL INSURANCE NET INSURANCE RESULT AS % OF NET EARNED PREMIUM 14 12 11.6 10.1 2.4 9.5 10 9.4 Percentage 8.8 2.4 8.2 1.5 8 2.9 2.8 1.5 6 4.6 9.2 4 7.7 8.0 6.5 2.1 6.7 0.2 6.0 2.5 2 2.5 2.3 - Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Jun-21 Dec-21 Jun-22 Net underwriting result Investment return on
Slide 19: Gross Written Premium per Insurance Class
CONVENTIONAL INSURANCE GROSS WRITTEN PREMIUM PER INSURANCE CLASS (R MILLION) 20 Miscellaneous 50% 30 59 Guarantee (29%) 42 93 Crop (13%) 81 284 Accident and Health 23% 349 584 Transportation (4%) 560 675 Liability 16% 785 923 Engineering (7%) 857 5 731 Property 8% 6 206 7 129 Motor 7% 7 633 - 2 000
Slide 20: Net Underwriting Result per Insurance Class
CONVENTIONAL INSURANCE NET UNDERWRITING RESULT PER INSURANCE CLASS (R MILLION) (4) Miscellaneous (14) 25 Guarantee 15 75 Crop 63 48 Accident and Health 59 24 Transportation (89) 83 Liability 258 (109) Property (328) 91 Engineering 225 620 Motor 109 ( 500) ( 300) ( 100) 100 300 500 700 Jun-21 Jun-22
Slide 21: Gross Written Premium: Personal and Commercial
CONVENTIONAL INSURANCE GROSS WRITTEN PREMIUM SEGMENTAL ANALYSIS – PERSONAL AND COMMERCIAL 6.9% 10 000 9 421 8 809 6.5% 8 000 R million 7 122 6 689 6 000 4 000 2 000 - Personal Commercial Jun-22 Jun-21
Slide 22: Net Underwriting Result: Personal and Commercial
CONVENTIONAL INSURANCE NET UNDERWRITING RESULT SEGMENTAL ANALYSIS – PERSONAL AND COMMERCIAL 700 (108.9%) 530 500 R million 6.8% 345 323 300 100 ( 100) ( 47) Personal Commercial Jun-22 Jun-21
Slide 23: Gross Written Premium from Outside SA
CONVENTIONAL INSURANCE GROSS WRITTEN PREMIUM FROM OUTSIDE SA 2 000 20.6% 1 734 1 600 1 438 R million 1 200 (6.0%) 800 7.8% 596 634 513 476 400 (39.0%) 218 133 - Namibia Rest of Africa SE Asia, India, Middle East Other Jun-22 Jun-21
Slide 24: Geographic Diversification
GEOGRAPHIC DIVERSIFICATION CONVENTIONAL INSURANCE 1% 2% 10% 9% 7% 7% GWP GWP June June 2022 2021 82% 82% South Africa Rest of Africa SE Asia, India, Middle East Other
Slide 25: Net Acquisition Cost Ratio
CONVENTIONAL INSURANCE NET ACQUISITION COST RATIO AS % OF NET EARNED PREMIUM 35 30.4 30.2 29.9 30.0 30 28.6 29.3 29.0 28.1 1.0 1.0 1.3 1.4 1.6 1.6 0.9 0.8 25 Percentage 17.0 16.7 15.2 15.2 15.0 13.1 20 15.4 15.2 15 10 12.7 13.4 13.4 14.3 12.3 12.1 12.4 12.5 5 - Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Jun
Slide 26: Reinsurance as % of Gross Earned Premium
CONVENTIONAL INSURANCE REINSURANCE AS % OF GROSS EARNED PREMIUM 25 22.1 20.6 20.4 20.7 20 19.2 18.6 18.5 18.6 Percentage 15 10 5 - Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Jun-21 Dec-21 Jun-22
Slide 27: Size of Net Insurance Funds
CONVENTIONAL INSURANCE SIZE OF NET INSURANCE FUNDS 9 910 9 960 10 000 8 606 8 220 8 282 7 879 8 000 7 279 6 978 R million 6 000 4 000 2 000 - Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Jun-21 Dec-21 Jun-22
Slide 28: Assets Backing Net Insurance Funds: Currency Mix
CONVENTIONAL INSURANCE ASSETS BACKING NET INSURANCE FUNDS CURRENCY MIX 10 000 8 606 371 8 282 346 7 500 R million 2 155 2 455 5 000 6 080 2 500 5 481 - Jun-22 Dec-21 ZAR USD Other currencies (mainly Namibian Dollar)
Slide 29: MiWay
CONVENTIONAL INSURANCE MIWAY Jun 2022 Jun 2021 Change Gross written premium (R million) 1 626 1 585 2.6% Gross underwriting result, net of CAT recoveries (R million) 122 159 (23.3%) Gross claims ratio, net of CAT recoveries 61.3% 58.2% Gross acquisition cost ratio 30.2% 31.7% Gross underwriting marg
Slide 30: Alternative Risk Transfer
ALTERNATIVE RISK TRANSFER
Slide 31: Alternative Risk Transfer (ART)
ALTERNATIVE RISK TRANSFER (ART) • Includes the results from: - Centriq Insurance - Santam Structured Insurance • Types of business: - Risk finance - Underwriting managers - Affinity business - Structured insurance
Slide 32: Alternative Risk Transfer: Centriq
ALTERNATIVE RISK TRANSFER CENTRIQ Jun 2022 Jun 2021 2022/2021 R’m R’m Gross written premium 7 177 3 645 Income from clients 148 153 (3%) Participation in underwriting results 17 32 (47%) Administration expenses (75) (73) 3% Operating result 90 112 (20%)
Slide 33: Alternative Risk Transfer: Santam Structured Insurance
ALTERNATIVE RISK TRANSFER SANTAM STRUCTURED INSURANCE Jun 2022 Jun 2021 2022/2021 R’m R’m Gross written premium 1 046 953 Income from clients 67 75 (11%) Participation in underwriting results 7 9 (22%) Administration expenses (53) (56) (5%) Operating result after non-controlling interest 21 28 (25%)
Slide 34: SEM Partner Businesses
Santam SEM PARTNER BUSINESSES
Slide 35: SEM Partner Businesses
SEM PARTNER BUSINESSES • Main SEM territories • SGI (India) – 35% participation • P&O (Malaysia) – 31.5% participation • 11 investments in African partner businesses – 10% participation
Slide 36: SEM Partner Businesses: Santam Effective Holding
SEM PARTNER BUSINESSES SANTAM EFFECTIVE HOLDING Domicile Jun 2022 Dec 2021 Pacific and Orient Insurance Company Berhad Malaysia 15.4 15.4 Shriram General Insurance Company Ltd India 14.1 15.0 NICO Holdings general insurance subsidiaries Malawi and Zambia 5.6 5.6 Sanlam General Insurance (Uganda) Ltd
Slide 37: SEM General Insurance Participation Investments
SEM GENERAL INSURANCE PARTICIPATION INVESTMENTS ANALYSIS OF SANTAM’S SHARE OF NET INSURANCE RESULT BEFORE TAXATION AND NON- CONTROLLING INTEREST Jun 2022 Jun 2021 % of NEP % of NEP 2022/2021 R'm R'm Gross written premium 538 557 (3%) Net earned premium 384 100.0 415 100.0 (8%) Net claims incurred 23
Slide 38: SAN JV: Reconciliation of Carrying Value
SAN JV RECONCILIATION OF SAN JV CARRYING VALUE AS AT 30 JUNE 2022 R’m Carrying value at 1 January 2022 1 848 Equity-accounted loss (14) Statement of changes in equity (66) Foreign currency translation differences (58) Other movements in retained earnings (8) Carrying value at 30 June 2022 1 768 Fair
Slide 39: Santam Group
SANTAM GROUP
Slide 40: Santam Group: Net Operating Income
SANTAM GROUP NET OPERATING INCOME Restated R million Jun 2022 2022/2021 Jun 2021 Conventional insurance 326 1 050 (69%) Alternative risk transfer insurance (before NCI) 103 153 (33%) SEM partner businesses 85 72 18% Net operating income 514 1 275 (60%) SEM partner businesses (85) (72) Net operating
Slide 41: Reconciliation to Headline Earnings
SANTAM GROUP RECONCILIATION TO HEADLINE EARNINGS Jun 2022 Jun 2021 2022/2021 Net profit attributable to ordinary shareholders (R million) 465 952 (51%) Per share (cents) 425 863 Profit on disposal of intangible assets (15) - Tax on profit on disposal of intangible assets 4 - Gain on remeasurement to
Slide 42: Asset Liability Matching
ASSET LIABILITY MATCHING GROUP CONSOLIDATED ASSETS AT 30 JUNE 2022 20 567 2 541 41 307 8 282 9 917 100 2 7 4 8 4 16 7 80 37 70 18 Percentage 60 77 16 65 40 63 20 42 30 16 18 - Insurance funds ART Sub debt SH funds Total Other assets SEM participation investments Investment in SAN JV Listed equities
Slide 43: Shareholder Funds: Asset Mix
SHAREHOLDER FUNDS ASSET MIX 100 8 7 16 15 80 16 18 Percentage 60 15 16 40 47 20 42 - Jun-22 Dec-21 Other assets SEM participation investments Investment in SAN JV Listed equities Interest-bearing instruments and preference shares
Slide 44: Shareholder Funds: Currency Mix
SHAREHOLDER FUNDS CURRENCY MIX 100 6 6 13 12 80 18 16 Percentage 60 16 16 40 47 50 20 - Jun-22 Dec-21 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 45: Investment Return on Shareholders Funds
INVESTMENT RETURN ON SHAREHOLDERS FUNDS 750 225 66 355 26 500 211 77 250 R million 412 373 - (121) (250) (464) (500) Jun-22 Jun-21 Interest and dividends Market value movements (including Derivatives) SEM fair value movements and dividends Forex gains and losses (incl. SEM)
Slide 46: Investment Return: Net Investment in SEM Target Shares
INVESTMENT RETURN ANALYSIS OF SANTAM’S SHARE OF NET INVESTMENT IN SEM TARGET SHARES Carrying Change in Carrying Change in value Dilution exchange value Region valuation Dec 2021 R’m rates Jun 2022 R’m R’m R’m R’m Africa 134 - (2) (3) 129 Southeast Asia 138 - (4) (5) 129 India 1 419 (90) (48) 30 1 31
Slide 47: Capital Management
Santam CAPITAL MANAGEMENT
Slide 48: 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 Percentage 20 8.2 3.4 3.1 18.1 1.3 24.6 8.0 10 18.5 19.1 18.6 7.4 1.7 17.0 16.8 8.8 5.7 - (8.8) (0.8) ( 10) Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Jun-21 Dec-21 Jun-22 In
Slide 49: Capital Management
CAPITAL MANAGEMENT • Group economic capital requirement based on the internal model R7.9 billion (Dec 2021: R8.3 billion) • Current Group economic capital coverage ratio of 157% • Target economic capital coverage ratio band between 145% and 165% • Regulatory internal model capital requirement is R2.
Slide 50: Dividend per Share
DIVIDEND PER SHARE 500 400 Cents per share 300 462 432 200 392 363 336 100 - - Jun-17 Jun-18 Jun-19 Jun-20 Jun-21 Jun-22
Slide 51: Group Strategy and Priorities
GROUP STRATEGY AND PRIORITIES
Slide 52: Strategic Priorities for H2 2022
STRATEGIC PRIORITIES FOR H2 2022 DELIVERING ON FUTUREFIT SANTAM, WHILST REVIEWING THE ROBUSTNESS OF THE STRATEGY • Implementing corrective underwriting actions • Executing and implementing on growth initiatives - Cross-selling initiative with Sanlam - Strategic partnerships - Tactical acquisitions •
Slide 53: Environmental Social Governance
ENVIRONMENTAL SOCIAL GOVERNANCE
Slide 54: Our ESG Commitments
OUR ESG COMMITMENTS SUPPORTING COMMUNITY RESILIENCE AND ESG COMMITMENTS • We settled R14.2 billion in claims during the first half of 2022 • Promote a diverse and inclusive workforce, employing more than 6,000 people • We now support 82 municipalities through Partnership for Risk and Resilience (P4R
Slide 55: Questions?
santam QUESTIONS?
Slide 56: Thank You
santam THANK YOU