Santam warns of hit from power surges, adverse weather

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SA's biggest short-term insurer Santam warned on Tuesday its profit margins fell below the bottom end of its target range in its first quarter to end-March, hit by claims from adverse weather as well as load shedding-related power surges.

Overall, the net underwriting margin for the period in its conventional insurance was below the bottom end of the target range of 5% to 10%, Santam said in a trading update, referring to the profit margin that an insurer makes on its policies.

Santam, valued at more than R30 billion on the JSE, had reported a net underwriting margin of 5.1% in its 2022 year, down from 8% in the prior year, taking a hit from flooding in KwaZulu-Natal in April 2022.

In February 2023, the Presidency had declared a state of disaster after flooding hit Mpumalanga, the Eastern Cape, Gauteng, KwaZulu-Natal, Limpopo, the Northern Cape, and North West.

The company said on Tuesday that despite this, the group showed "operational resilience and achieved sound financial results for the period". The conventional insurance business achieved gross written premium growth of 6%, from 8% in 2022, with its specialist solutions business seeing strong demand in terms of marine, aviation and travel. Direct short-term insurer MiWay saw subdued growth, due to competition and pressure on consumers, it said.

Santam CEO Tavaziva Madzinga said during an investor call on Tuesday that there was some optimism as the company embeds its new operating model - which among other things has seen its commercial and personal multi-channel business restructured into three business units.

"The significant drag on the underwriting margin has largely been as a result of attritional weather losses, with some power surge coming through. But we believe that the power surge and grid failure, with our actions and exclusion, should largely be manageable. We have seen good turnaround coming through in the motor book, so with the exclusion of weather, the core book is certainly within the underwriting range."

"We optimistically expect improving performance, but we are clearly very mindful of the broader systemic risks within the SA macro," he said.

"Operating conditions during the period remained challenging, with insurance growth prospects dampened by the impact of electricity supply disruptions on economic growth and pressure on personal disposable income from elevated inflation and higher interest rates", Santam said.

"South Africa also remains a highly competitive insurance market. Underwriting conditions during the period were characterised by adverse claims experience, particularly from inclement weather conditions and ongoing power surge claims impacting the property class of business."

This article has been updated with additional comment.