Santam’s current “best estimate” of its gross exposure to the KwaZulu-Natal floods in April is R3.2 billion. However, reinsurance cover will limit the net impact to about R500 million, it said in a trading update.
South Africa’s biggest short-term insurer said that, based on its internal modelling, April’s floods were a “one in 25-year event” and were “by far” the largest natural catastrophe in its 104-year history.
Santam said it was still assessing the extent of the damage and its insurance exposure.
Its underwriting results for the four months to the end of April were significantly impacted by adverse weather conditions in the first three months of this year and the KZN floods.
The short reporting period of only four months means that a significant catastrophic event has a disproportional impact on the underwriting results, Santam said.
Its Conventional Insurance business saw gross written premium (GWP) growth of 7% “in a challenging economic environment”. But higher claims due to the KZN floods and other events resulted in a negative net underwriting margin (it paid out more in claims than it collected in premiums).
The company said it has made “good progress” in finalising the remaining contingent business interruption claims relating to the lockdown, as well as reinsurance recoveries.
Vehicle claims increase
The Commercial and Personal intermediated business reported that vehicle accident claim trends have “normalised” – in other words, accidents have increased now that the lockdown is over.
“Underwriting actions to address the increase in claims frequency and claims inflation have been implemented since the start of 2022,” the company said.
Although there was “improved growth” in GWP compared to 2021, the business’s underwriting results were negatively impacted by weather-related claims and a number of large commercial fires during the first quarter, as well as the KZN floods.
The Specialist business reported a decline in GWP in the engineering business, because of a slowdown in business from outside South Africa and delayed renewals in the corporate property business.
“Excellent” underwriting results were achieved by the liability, engineering, crop and travel insurance businesses, partly offset by weaker results from the corporate property business, which was also affected by the KZN floods, Santam said.
At MiWay, GWP growth was “subdued” in a “challenging” operating environment. Adverse weather and the KZN floods negatively impacted the underwriting performance.
“The MiWay management team is actively implementing the necessary underwriting actions to improve the loss ratio in addition to a strong focus on growth initiatives,” Santam said without elaborating.
Volatility in the local and global bond and equity markets negatively impacted Santam’s investment portfolio. In addition, the higher US dollar component of the investments backing the insurance reserves earned lower interest and has been affected by rising international bond yields.