Santam profit skyrockets amid high interest rates

Santam’s profit more than doubled in the first half of this year as its investments benefitted from South Africa’s high interest rates and the weak rand.

South Africa’s largest short-term insurer released its results for the six months ended 30 June 2023 today, which revealed a significant increase in profit and earnings.

The insurer’s profit for the period increased from R568 million in H1 2022 to R1.35 billion in H1 2023.

Santam’s headline earnings per share also jumped 146%, while its basic earnings per share increased by around 139%.

Gross written premium increased by 7% year-on-year while insurance revenue was up more than a tenth to R22.5 billion. 

The gross claims paid out amounted to R14.6 billion, up from R14.2 billion a year earlier.

The insurer’s net underwriting margin increased to 3.8% in the period, which is lower than Santam’s long-term target range of 5% to 10% of net earned premiums.

The company said adverse weather conditions, exposure to the Turkey earthquakes, run-off losses regarding cancelled loss-making business, and large fire claims impacted this margin.

However, the insurer said this was somewhat offset by a release of the Covid-19-related contingent business interruption claims provisions. 

In addition, strong returns on local money-market and fixed-interest portfolios and decreased foreign bond market volatility were key contributors to Santam’s investment performance.

Foreign currency gains following a weaker rand exchange rate and South Africa’s high interest rate environment supported this impressive investment performance.

The insurer’s net investment and other income increased from R445 million in H1 2022 to R2.57 billion in H1 2023.

Despite these strong half-year results, Santam warned that “operating conditions are not expected to improve” in H2.

“Economic growth and employment levels are expected to remain suppressed in South Africa, our main market, given structural limitations, in particular electricity supply and transport constraints that place severe pressure on economic activity and investor confidence,” the company said.

“High interest rates and inflationary pressures will also continue to impact disposable income and claims inflation in South Africa. Under these conditions, competitive pressures will remain at elevated levels.”

Santam declared an interim dividend of 495 cents per share, up from 462 cents the previous year.