South Africa’s largest short-term insurer Santam faced another tough year of weather-related claims, putting the company’s underwriting margins under pressure for its full year ended December.

Santam’s underwriting margin of 2.8% for the full year remains below the insurer’s medium-term target of 5%-7%, it said on Wednesday. The underwriting margin is a key measure of financial performance in an insurance firm.

However, the insurer grew diluted headline earnings per share from R9.84 to R10.23 last year, while it paid more than R13bn in claims.

This was the second year in a row insurers faced difficult conditions, with extreme hail storms and flooding resulting in a high number of claims, while the 24% decline in the rand-dollar exchange rate raised the cost of imported car parts.

Santam CEO Ian Kirk said weather-related costs made up 2% of the underwriting margin, while a weaker rand cost 1.5% of the margin. "We made 3%, so if you added these together we would have achieved 6.5% underwriting margin, well within our target," said Mr Kirk.

Floods in Limpopo in January last year and in the Western Cape in November, together with major hail storms in November, the second of which was said to have been the most severe yet experienced in South Africa, cost the insurance industry more than R1.6bn in claims.

Santam’s total gross claims for these catastrophes were more than R400m, for the second year in a row.

However, the net reinsurance loss for the group was only R215m, as it purchased additional reinsurance cover last year.

Mr Kirk said that Santam sent SMS warnings to clients about approaching hail storms, which made a difference.

A Johannesburg-based analyst said the short-term insurance industry would continue to face tough conditions as the rand remained volatile in a highly competitive sector that cannot raise premiums easily without losing customers.

The insurers’ gross written premium was more than R20bn.

Santam’s underwriting margin was also hurt by a R142m underwriting loss in crop insurance, compared with a R38m profit the previous year.

Source - http://www.bdlive.co.za/