Satisfactory gross written premium growth of 9% to R9.858bn was achieved in the context of a difficult economic environment. The group delivered positive investment returns in a volatile investment market which contributed to net income after tax of R422m for the period‚ 15% less than last year.
Headline earnings decreased by 12%‚ while the return on capital was 14.9%‚ negatively impacted by the difficult underwriting conditions. The solvency margin of 40% is within the targeted range of 35% to 45%.
The crop insurance business which was hurt by hail damage to summer crops in the eastern region of South Africa‚ and drought insurance claims in the central and western regions‚ resulted in a net underwriting loss of R112m compared with a profit of R34m last year and reduced the net underwriting margin by 1.8%. Floods in Limpopo also had an impact on the company's underwriting performance.
In addition‚ the company experienced an increase in the number of claims submitted‚ and the cost per claim in the motor and property classes largely because of the rise in car repair costs and the increase in theft-related claims. This was aggravated by the significant weakening of the rand over the past year.
"Despite very competitive conditions across all our business units‚ management has a firm grasp on strategic growth imperatives and has taken the necessary steps to improve margins if the company gets a respite from adverse weather and catastrophic events‚" said Ian Kirk‚ Santam's chief executive.
"The first quarter of the year was difficult and our business was further affected as we made sure our clients were able to recover from the significant flood and fire claims submitted late in 2012‚" he said.
"During the second quarter‚ conditions improved and we have begun to see the benefits of the segmented premium increases, which will continue to have a positively effect on the business during the year as policies reach their anniversary dates," he added.
Kirk said in terms of the various group operations the reinsurance business performed well internationally‚ but experienced new strains in building reserves.
The specialist businesses services sector delivered mixed results compared with 2012‚ with accident‚ health and engineering classes reporting improved margins‚ while transportation reported lower underwriting results compared with an exceptional performance during the corresponding period last year.The liability and corporate property classes reported reduced results‚ but still above targeted risk adjusted returns.
MiWay grew gross premiums by 26% while achieving profitable trading results with a gross loss ratio of below 60%. Net earnings from associated companies of R34m, down from R42m in 2012, was mainly due to the key contributor‚ Credit Guarantee Insurance Corporation of Africa Ltd‚ reporting somewhat lower earnings compared with the previous year.
"Looking ahead‚ we remain in a low growth economy with interest rates at 40-year lows. Our economy is influenced by an unstable currency outlook. In addition‚ there is increased risk on the ground and insurers face rigorous regulatory pressures‚" said Kirk. "It is important that we manage our business tightly to ensure we meet the challenges before us‚ through effective underwriting and investment management‚ and ensuring our continued diversification," he added.
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