Santam Limited · JSE:SNT
Santam — H1 2020 Earnings Presentation
57 slides from Santam's earnings presentation, September 2020
Slide 1: Analyst Presentation: Interim Financial Results six months ended 30 June 2020
2020 ANALYST PRESENTATION INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020 Presented by: Lizé Lambrechts and Hennie Nel
Slide 2: Contents
CONTENTS 1 5 The Group Santam strategy business and portfolio 2 4 priorities Market Capital context management 3 Financial results
Slide 3: The Santam Business Portfolio
THE SANTAM BUSINESS PORTFOLIO Santam’s Santam Santam Strategic Investment Commercial Santam Alternative Risk Partnerships inclusive and Personal Specialist Santam re MiWay Transfer of Saham Our multi-channel Our specialist Our reinsurance Our direct Our alternative risk Our investments insurance bus
Slide 4: Santam Group Insurance Activities
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 • Credit insurance written by Santam Stru
Slide 5: Market Context
MARKET CONTEXT 3
Slide 6: Insurance Market Outlook: All Markets
INSURANCE MARKET OUTLOOK All markets • COVID-19 pandemic has placed significant pressure on the global economy and insurance demand • Global premium growth expected to shrink in 2020, however recovery is expected in 2021, largely driven by emerging markets in particular China, albeit at low rates •
Slide 7: Insurance Market Outlook: South Africa
INSURANCE MARKET OUTLOOK South Africa • The severe lockdown expected to have devastating impact on the economic activity • Economic growth revised further downward with high unemployment rate expected to persist • Premium growth expected to turn negative in 2020, in line with the economy • Pressure
Slide 8: Contingent Business Interruption Cover
CONTINGENT BUSINESS INTERRUPTION COVER CURRENT STATUS • Santam’s position is that cover is provided for losses due to an insured peril in the policy contract. This requires that any interruption of an insured’s business must be directly attributable to a localised COVID-19 infection and not for any
Slide 9: Santam June 2020 Key Facts
SANTAM JUNE 2020 KEY FACTS • Return on capital of 11.6% • Economic capital coverage • Group gross written ratio of 150% premium growth of 7% • No interim dividend • Conventional insurance declared gross written premium growth of 4% • Underwriting margin of 4.3% (2019: 5.3%) for conventional insuranc
Slide 10: Financial Results
- i Santam FINANCIAL RESULTS
Slide 11: COVID-19 Impact on Reporting Environment
COVID-19 IMPACT ON REPORTING ENVIRONMENT Reported results affected by: Insurance events • COVID-19 lockdown impacted positively on the motor book • Provided premium relief to personal and commercial policyholders amounting to R310 million • Contingent business interruption claims provision of R1 290
Slide 12: Exchange Rate Volatility
EXCHANGE RATE VOLATILITY CLOSING RATES AVERAGE RATES Currency Jun 2020 Dec 2019 % change H1 2020 H1 2019 % change United States Dollar 17.37 13.98 24.3 16.46 14.18 16.1 Pound Sterling 21.47 18.52 15.9 20.79 18.35 13.3 Moroccan Dirham 1.78 1.47 21.1 1.70 1.49 14.1 Malaysian Ringgit 4.05 3.44 17.7 3.9
Slide 13: Conventional Insurance
CONVENTIONAL INSURANCE 11
Slide 14: Conventional Insurance Net Insurance Result
CONVENTIONAL INSURANCE CONVENTIONAL NET INSURANCE RESULT INSURANCE NET INSURANCE RESULT Jun 2020 Jun 2019 % change 5 Yr 10 Yr % of NEP % of NEP R'm Jun 2020 R'm Jun 2019 2020/2019 % change ave % 5 Yr ave % 10 Yr % of NEP % of NEP Gross written premium 14 R'm 812 14 R'm 220 2020/2019 4 ave %1 7.0 ave
Slide 15: Net Insurance Result as % of Net Earned Premium
CONVENTIONAL INSURANCE NET INSURANCE RESULT As % of net earned premium 14 12.5 12 11.4 11.6 2.6 10.1 2.4 2.4 Percentage 10 9.4 8.8 7.8 2.4 8 2.9 2.8 6.6 2.5 6 2.3 9.9 9.2 9.0 4 7.7 6.5 6.0 5.3 2 4.3 - Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19 Dec-19 Jun-20 Net underwriting result Investment return o
Slide 16: Gross Written Premium per Insurance Class
CONVENTIONAL INSURANCE GROSS WRITTEN PREMIUM Per insurance class (R million) 12 (192%) Miscellaneous 115 Guarantee 37 (68%) 89 80% Crop 160 306 10% Accident and Health 337 376 3% Transportation 386 627 (2%) Liability 614 824 (4%) Engineering 791 5 322 12% Property 5 976 6 549 0% Motor 6 522 6 832 4%
Slide 17: Net Underwriting Surplus per Insurance Class
CONVENTIONAL INSURANCE NET UNDERWRITING SURPLUS Per insurance class (R million) Miscellaneous 2 3 Guarantee (17) (21) Crop (88) 5 Accident and Health 3 41 Transportation (23) 28 Liability 117 2 Engineering 143 167 Property (770) (128) Motor 593 1 050 (800) (600) (400) (200) - 200 400 600 800 1 000 1
Slide 18: Segmental Analysis: Personal and Commercial GWP
CONVENTIONAL INSURANCE SEGMENTAL ANALYSIS – PERSONAL AND COMMERCIAL Gross written premium 10 000 6.0% 8 491 8 008 1.8% 7 500 6 321 6 212 R million 5 000 2 500 - Personal Commercial Jun-20 Jun-19 16
Slide 19: Segmental Analysis: Net Underwriting Result
CONVENTIONAL INSURANCE SEGMENTAL ANALYSIS – PERSONAL AND COMMERCIAL Net underwriting result 1 200 1 004 1 000 800 600 389 R million 400 213 200 - (200) (400) (600) (499) Personal Commercial Jun-20 Jun-19 17
Slide 20: Gross Written Premium from Outside SA
CONVENTIONAL CONVENTIONAL INSURANCE INSURANCE GROSS GROSS WRITTEN WRITTEN PREMIUM PREMIUM FROM FROM OUTSIDE OUTSIDE SA SA 1 6001 600 49.2%49.2% 1 2001 200 1 1591 159 R million R million 33.3%33.3% 777 777 800 800 (5.4%)(5.4%) 501 501 537 537 474 474 403 403 0.7% 0.7% 400 400 154 154 153 153 - - Nami
Slide 21: Net Acquisition Cost Ratio
CONVENTIONAL INSURANCE NET ACQUISITION COST RATIO As % of net earned premium 35 30.4 30.2 30.2 30.2 30 28.3 28.5 28.6 28.1 0.3 1.0 0.8 1.0 1.0 0.9 0.9 0.8 25 Percentage 17.0 16.2 16.7 16.9 20 15.8 15.4 15.2 16.4 15 10 11.8 12.3 12.1 12.4 13.2 12.5 13.0 5 10.9 - Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun
Slide 22: Reinsurance as % of Gross Earned Premium
CONVENTIONAL INSURANCE REINSURANCE AS % OF GROSS EARNED PREMIUM 25 20.0 20.6 20 18.6 18.6 19.2 18.3 18.2 18.5 Percentage 15 10 5 - Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19 Dec-19 Jun-20 20
Slide 23: Size of Net Insurance Funds
CONVENTIONAL INSURANCE SIZE OF NET INSURANCE FUNDS 12 000 9 930 10 000 8 220 7 879 R million 8 000 7 489 7 279 7 194 6 774 6 978 6 000 4 000 2 000 - Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19 Dec-19 Jun-20 21
Slide 24: Assets Backing Net Insurance Funds
CONVENTIONAL INSURANCE ASSETS BACKING NET INSURANCE FUNDS Currency mix 9 930 244 10 000 8 220 225 284 1 767 8 000 193 1 435 R million 6 000 4 000 7 694 6 308 2 000 - Jun-20 Dec-19 ZAR USD EUR Other currencies (mainly Namibian Dollar) 22
Slide 25: MiWay
CONVENTIONAL INSURANCE MIWAY Jun 2020 Jun 2019² Change Gross written premium (R million) 1 428 1 324 8% Gross underwriting result, net of CAT recoveries (R million) 308 203 52% Gross claims ratio, net of CAT recoveries 45.9% 54.2% Gross acquisition cost ratio 32.5% 30.5% Gross underwriting margin 21
Slide 26: Alternative Risk Transfer
ALTERNATIVE RISK TRANSFER 24
Slide 27: Alternative Risk Transfer Insurance (ART)
ALTERNATIVE RISK TRANSFER INSURANCE (ART) Includes the results from: • Centriq • Santam Structured Insurance, excluding credit insurance business Types of business: • Risk finance • Underwriting managers • Affinity business • Structured insurance 25
Slide 28: Centriq
ALTERNATIVE RISK TRANSFER INSURANCE CENTRIQ Jun 2020 Jun 2019 2020/2019 R'm R'm Gross written premium 2 798 2 087 34% Income from clients 101 102 (1%) Participation in underwriting results 23 19 21% Administration expenses (67) (71) (6%) Operating result 57 50 14% 26
Slide 29: Santam Structured Insurance
ALTERNATIVE RISK TRANSFER INSURANCE SANTAM STRUCTURED INSURANCE Jun 2020 Jun 2019 2020/2019 R'm R'm Gross written premium 672 735 (9%) Income from clients 50 64 (22%) Participation in underwriting results 1 11 (91%) Administration expenses (54) (53) 2% Operating result (3) 22 (114%) 27
Slide 30: ART Combined Results
ALTERNATIVE RISK TRANSFER INSURANCE COMBINED RESULTS Jun 2020 Jun 2019 5 Yr 10 Yr 2020/2019 R'm R'm ave % ave % Gross written premium 3 446 2 798 23% 28.8¹ 15.1¹ Income from clients 151 166 (10%) Participation in underwriting results 24 30 (20%) Administration expenses (121) (124) (2%) Operating res
Slide 31: SEM Partner Businesses
SEM PARTNER BUSINESSES 29
Slide 32: SEM Partner Businesses: Saham and Participations
SEM PARTNER BUSINESSES Saham • Operates in 26 countries in Africa and the Middle East • Santam’s effective interest of 10% held through SAN JV Main Saham territories: • Morocco • Ivory Coast • Mauritius • Angola • Lebanon SEM general insurance participation investments • SGI (India) – 35% participat
Slide 33: Santam Effective Holding
SEM PARTNER BUSINESSES SANTAM EFFECTIVE HOLDING Domicile Jun 2020 Dec 2019 SAN JV (Saham) Morocco 10.0 10.0 Pacific and Orient Insurance Company Berhad Malaysia 15.4 15.4 Shriram General Insurance Company Ltd India 15.0 15.0 NICO Holdings general insurance subsidiaries Malawi and Zambia 5.6 5.6 Sanl
Slide 34: SEM General Insurance Participation Investments
SEM GENERAL INSURANCE PARTICIPATION INVESTMENTS ANALYSIS OF SANTAM’S SHARE OF NET INSURANCE RESULT BEFORE TAXATION AND NON-CONTROLLING INTERESTS (EXCLUDING SAHAM) Jun 2020 Jun 2019 % of NEP % of NEP 2020/2019 R'm R'm Gross written premium 654 574 13.9% Net earned premium 505 100.0 429 100.0 17.7% Ne
Slide 35: Saham
SAHAM ANALYSIS OF SANTAM’S SHARE OF SAHAM GENERAL INSURANCE AND REINSURANCE NET INSURANCE RESULT BEFORE TAXATION AND NON-CONTROLLING INTERESTS Jun 2020 Jun 2019 % of NEP % of NEP 2020/2019 R'm R'm Gross written premium 1 044 891 17.1% Net earned premium 652 100.0 592 100.0 10.1% Net claims incurred
Slide 36: Analysis of Insurance Funds
ANALYSIS OF INSURANCE FUNDS SEM PARTICIPATION INVESTMENTS AND SAHAM INSURANCE FUNDS AT 30 JUNE 2020 100 5 6 80 45 45 Percentage 60 79 40 39 55 20 12 10 - 4 Santam SEM participation businesses Saham Cash, deposits and similar securities Interest-bearing securities Investment properties Equities and s
Slide 37: Reconciliation of SAN JV Carrying and Fair Value
SAHAM RECONCILIATION OF SAN JV CARRYING AND FAIR VALUE AS AT 30 JUNE 2020 R million Carrying value at 1 January 2020 2 323 Dividend - restructure (46) Equity accounted loss (787) Attributable earnings (58) VOBA amortisation after tax (20) Impairment of intangible assets (690) Other – consolidation a
Slide 38: Santam Group
SANTAM GROUP 36
Slide 39: Net Operating Income
SANTAM GROUP NET OPERATING INCOME R million Jun 2020 Jun 2019 2020/2019 Conventional insurance 776 891 (12.9%) Alternative risk transfer insurance 54 72 (25.0%) SEM partner businesses 171 290 (41.0%) Net operating income including SEM partner businesses 1 001 1 253 (20.1%) SEM partner businesses (17
Slide 40: Reconciliation to Headline Earnings
SANTAM GROUP RECONCILIATION TO HEADLINE EARNINGS Jun 2020 Jun 2019 2020/2019 Net profit attributable to ordinary shareholders (R million) 26 1 094 (98%) Per share (cents) 24 990 Impairment of joint venture 15 - Share of associates' impairment of intangible assets 726 - Tax charge on share of associa
Slide 41: Growth Diversification
GROWTH DIVERSIFICATION INCLUDING SEM PARTNER BUSINESSES 5% 5% 3% 3% 32% 15% 17% 34% GWP GWP June June 2020 2019 43% 43% Personal Commercial ART SEM Saham 39
Slide 42: Geographic Diversification
GEOGRAPHIC DIVERSIFICATION INCLUDING SEM PARTNER BUSINESSES 1% 1% 9% 6% 11% 10% GWP GWP June June 2020 2019 80% 82% South Africa Rest of Africa SE Asia, India and Middle East Other 40
Slide 43: Asset / Liability Matching
ASSET / LIABILITY MATCHING GROUP CONSOLIDATED ASSETS AT 30 JUNE 2020 100 2.3 7.5 9.6 4.2 5.8 25.2 16.5 6.6 80 45.2 Percentage 60 22.1 71.9 52.9 14.1 40 74.8 54.8 20 37.3 28.2 20.6 0.4 - Insurance funds ART Sub debt SH funds Total Cash and money market instruments Interest-bearing instruments and pre
Slide 44: Shareholder Funds Asset Mix
SHAREHOLDER FUNDS ASSET MIX 100 9.6 10.6 80 16.5 15.5 Percentage 60 22.1 24.4 14.1 14.6 40 20 37.3 34.8 0.4 0.1 - Jun-20 Dec-19 Cash and money market instruments Interest-bearing instruments and preference shares Listed equities Investment in Saham SEM participation investments Other assets 42
Slide 45: Shareholder Funds Currency Mix
SHAREHOLDER FUNDS CURRENCY MIX 100 6.3 5.7 13.6 12.9 80 22.1 24.4 Percentage 60 17.3 13.8 40 20 40.7 43.2 - Jun-20 Dec-19 Rand US Dollar Moroccan Dirham (investment in SAN JV) Indian Rupee (investment in SEM) Other currencies (mainly Namibian Dollar and Malaysian Ringgit) 43
Slide 46: Investment Return on Shareholders' Funds
INVESTMENT RETURN ON SHAREHOLDERS’ FUNDS 1 582 1 100 800 700 647 285 R million 140 300 451 400 (100) (375) (25) (500) (141) Jun-20 Jun-19 Interest and dividends Market value movements SEM fair value movements and dividends Forex gains and losses (incl. SEM) 1 Net of finance costs and investment mana
Slide 47: Investment in SEM Partner Businesses
INVESTMENT RETURN ANALYSIS OF SANTAM'S SHARE OF NET INVESTMENT IN SEM PARTNER BUSINESSES (EXCL. SAHAM) Change in Carrying value Change in Carrying value Additions exchange Dec 2019 valuation Jun 2020 R’m rates Region R’m R’m R’m R’m Africa 91 30 9 (12) 118 Southeast Asia 157 - 25 (39) 143 India 1 22
Slide 48: Capital Management
CAPITAL MANAGEMENT 46
Slide 49: Return on Capital – Restated
RETURN ON CAPITAL – RESTATED1 TOTAL COMPREHENSIVE INCOME EXPRESSED AS % OF WEIGHTED AVERAGE SHAREHOLDERS’ FUNDS 40 36.1 33.5 30 14.4 8.9 26.5 24.8 21.9 22.2 Percentage 4.0 20 8.2 3.4 10.9 3.1 11.6 21.7 24.6 10 20.8 18.5 19.1 17.0 15.6 11.6 0 (8.8) (10) Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19 Dec-1
Slide 50: Capital Management
CAPITAL MANAGEMENT • Group economic capital requirement based on the internal model R7.5 billion (Dec 2019: R7.3 billion) • Current Group economic capital coverage ratio as at 30 June 2020 of 150% (Dec 2019:160%) • Partial internal model approval granted by the Prudential Authority • Initial capital
Slide 51: Interim Dividend
INTERIM DIVIDEND • Current Group economic capital coverage ratio as at 30 June 2020 of 150% • No interim dividend declared given the current uncertainty around the eventual outcome of COVID-19 related claims. • To consider position at full year 49
Slide 52: Group Strategy and Priorities
GROUP STRATEGY AND PRIORITIES 50
Slide 53: FutureFit Santam
FUTUREFIT SANTAM OUR BUILDING BLOCKS FOR CREATING STAKEHOLDER VALUE Key focus areas: • Continue to build a responsible business: Insurance good and proper • Continue to help build resilient societies • Extend our overall leadership position in South Africa • Build a Pan-African specialist class busi
Slide 54: Strategic Priorities 2H2020
STRATEGIC PRIORITIES 2H2020 • Effectively manage the impact of COVID-19 on the business • Bed down and implement Santam Group’s FutureFit strategy • Continue to balance profitable growth with an optimal underwriting margin and cost ratio > Digital E2E insurance > Be the best broker enabler > Partner
Slide 55: More Than Just Short-Term Insurance
MORE THAN JUST SHORT-TERM INSURANCE Certified Top Employer for the fourth Continued with the Black Broker Creating employment for consecutive year Development programme more than 6 000 people Continued as the constituent of the FTSE/JSE Responsible We settled R9.3 bn in claims in 2020. Investment To
Slide 56: Santam, Insurance good and proper
Santam, Insurance good and proper then. Insurance good and proper now. Insurance good and proper always. 54
Slide 57: We Do Insurance Properly
WE DO INSURANCE INSURANCE GOOD AND PROPERLY PROPER 55