Post on 28-Jul-2020
Santam Limited
Analyst presentation
Presented by: Steffen Gilbert
20 October 2004
Contents
• Overview of short-term industry
• Financial overview
• Strategy and focus
Overview of short-term industry
Trends
• Underwriting cycle
• Excellent underwriting
• Natural disasters
Industry underwriting cycle
2.3 2.6 2.0 2.6
7.8
16.1
-2-1
12
7
13
10.7
-4
-2
0
2
4
6
8
10
12
14
16
18
1999 2000 2001 2002 Dec-03 Jun-04
Pe
rce
nta
ge
Santam Industry M&F
Underwriting margin as % of net earned premiums
Regulations
• To benefit the consumer/client
• FAIS/FICA/PPA
• Discrimination/Privacy…….
• Deregulation of commercial commission– Net vs. Gross rating
• Financial Sector Charter– Targets
– Council
– Procurement
Broker v Direct• Generation gap• Client choice• Broker vs. Banker• Technology• Client service
– Call Centre• Empowerment• Efficiency• Reward Structures
– SMS– Multi SOS
Sustainable Differentiator
Santam Multi-SOS• Standard with all PL products
• 24/7 Emergency Help line
• Motor/Household/General
• 0860 505 911
• Return to TV – Prior to holiday season
• Don’t leave home without it
• Great for Brokers
• Great for Clients
• Great for Santam!
Financial overview
Salient features
777
843
735
530
7,022
9,513
Dec 2003 Rm
11%3,3253,690Net written premium
91%333635Earnings based in LTRR
188%206593Headline earnings
137%281667Net insurance result
232%174578Underwriting surplus
1%4,3874,414Gross written premium
% change
June 2003 Rm
June 2004 Rm
Segmentation: Local & International
96%
4%
RSA
International
94%
6%
RSA
International
Gross written premium
Dec 2003
June 2004
Segmentation: Local & International
98%
2%
RSA
International
88%
12%
RSA
International
June 2004
Dec 2003
Underwriting result
Gross Written Premium per Insurance Class (R million)
44%
31%
7%
1%1%4%
5%3% 3%1% Motor Property
Liability Crop
Miscellaneous Engineering
ART Transportation
Accident & Health Guarantee
39%
28%
6%
7%
4%
4%4%
3%3% 2%
June 2004
Dec 2003
Underwriting Surplus per Insurance Class (R million)
45%
29%
11%
4%
1%
6%0%
1%2% 1%
Motor Property
Liability Crop
Miscellaneous Engineering
ART Transportation
Accident & Health Guarantee
34%
25%
6%
9%
12%
4%2%
2%1% 5%
Dec 2003
June 2004
Net Insurance Result
735
205
530
1,850
4,375
6,755
Dec 2003 Rm
174578Underwriting surplus
281667Net insurance result
10789Interest on insurance funds
8631,021Acquisition costs
2,1731,997Claims incurred
3,2103,596Net earned premium
June 2003 Rm
June 2004 Rm
Net Insurance Resultmargin analysis
92.2
10.8
3.0
7.8
27.4
64.8
100.0
Dec 2003 %
5.416.1Underwriting surplus
94.683.9Combined ratio
8.718.5Net insurance result
3.32.4Interest on insurance funds
26.928.4Acquisition costs
67.755.5Claims incurred
100.0100.0Net earned premium
Jun 2003 %
Jun 2004 %
Investment Income
117 101209
42
-48
289
-100
0
100
200
300
400
500
600
Jun-04 Jun-03 Jan-Dec 03
R m
illio
n
Interest & dividends MV movements
15953
498
Earnings per share
490
173
718
518
184
751
554
297
692
0
100
200
300
400
500
600
700
800
Jun-04 Jun-03 Jan-Dec 03
Ce
nts
pe
r s
ha
re
Earnings Headline LTRR
So where to from here?Ja
n ‘0
3
Ju
n ‘0
3
Jan
‘04
Ju
n ‘0
4
Jan
‘05
U/W
Mar
gin
2-3%
5-7%
9-11%
13-17% •Economy•Markets•Capacity•9/11•GW
Solvency
%
Rm
cps
Rm
7,0227,391Net written premium*
5659Solvency
3,4823,790NAV per share
3,9564,353Net asset value (NAV)
Dec 2003
Jun 2004
Santam RSA solvency = 53%
* Rolling 12 months
Return on CapitalAnnualised net income expressed as % of average
shareholders’ funds
19
9.2
22
27
14.8 15.6
21
28
0
5
10
15
20
25
30
2001 2002 2003 Jun-04
Per
cen
tag
e
Net income
LTRR
Cash flow generated by operations
940
598
1,510
0
300
600
900
1,200
1,500
Jun-04 Jun-03 Jan-Dec 03
R m
illi
on
Level of Reinsurance(as % of Gross Written Premium)
31.3
24.226.2
16.3
Dec '02 Jun '03 Dec '03 Jun '04
Per
cen
tag
e
Acquisition costs ratioas % of net earned premium
12.1
13.7 13.7
2.0
11.713.0
13.0
0.92.6
0
5
10
15
20
25
30
35
June '04 June '03 Dec '03
Pe
rce
nta
ge
Commission Management expenses Abnormal
27.426.928.4
25.8 26.0 25.4
Strategy and Focus
Long term strategy
• Sustainable delivery of cost of capital plus value
creating premium
• Optimise capital allocation
• Maximise revenue & growth potential
Capital Efficiency
Capital Efficiency• Underwriting risk ∓ 25%
• Current Investment Philosophy ∓ 10%
• Business/Market Opportunity/Risk ∓ 10%
∓ 45%
• Reinsurance/Investment Philosophy
change/Internationalisation + ??%
Exercise completed by announcement of 2004
Financial results
Long term strategy• Revenue growth strategy
– Profitable growth of RSA market share
– Further optimise reinsurance programme
– Expand Santam’s international operations
– Make selected strategic investments
• Continued focus on profitability drivers
– Profitable underwriting and reinsurance
– Cash and working capital management
– Decrease/Efficiency in management expenses
– Procurement initiatives and claims management
– Optimal investment return at acceptable risk levels
Reinsurance• History• Modelling
– Through cycle– Peak top/bottom– 1/100, 1/250– Probability of ruin
• “Newco”– Old dogs and new tricks– Facultative inneficiency and leakage– Central/Internal
• Resilient – Average result must increase significantly more
than the volatility (tested at 1 and 2 SD’s)
Internationalisation
• Not globalisation
• Beazley syndicate
• WMIA (Hire for reward motor Motor)
• Bluesure (Multiplex = One policy/Full service)
• Santam Europe (UK/Ireland Other Eurozone?)
• Future……
Focus/Action areas: 2005/6
• Capital Efficiency
• Planning (Process/Discipline)
• Growth (Gross/Net/Local/International/LSM’s)
• People/Environment/Equity/Performance/Reward
• Innovation (Products/Distribution/Service)
• Partnerships (Intermediaries/Clients)
• Service (Client centricity)
• Detailed project work (P.Comm, “Cost of Direct”, Address slowing growth, Investment philosophy, Cost control and discipline
2010• Started off as cost project
• Muir’s law
Muir’s LawIf you try and treat something in
isolation you very quickly find that it is tied to everything in the
universe
2010• Started off as cost project• Muir’s law
• All encompassing redefinition project• Systems, customer interface, sales/service offering,
claims process/experience, human/other resources, technology,……..
• Staffing (Internal / External)• Scope• Methodology