Reinsurance News

Santam passes most of $257m flood loss to reinsurers

1st September 2022 - Author: Matt Sheehan

South African insurer Santam has reported its results for the first six months of 2022, which include a gross exposure of R4.4 billion (USD 257 million) to flooding in the KwaZulu-Natal province.

However, the company’s net impact from the floods was limited to R566 million (USD 33 million) thanks to its reinsurance program, meaning reinsurers absorbed some 87% of the total loss.

Santam notes that the KZN floods were the “most significant natural catastrophe” in its history, and also stipulated that significant adjustments to the estimates for its gross exposure could still occur.

Despite passing on the majority of its flood loss to reinsurers, the company’s underwriting results were still significantly impacted by adverse weather conditions through H1.

In particular, underwriting performance of the property class was severely impacted by the KZN floods, which was partially offset by the release of COVID business interruption (CBI) claims provisions of R397 million, resulting in an underwriting loss of R328 million, compared to a loss of R109 million for the H1 period in 2021.

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Santam says it has made good progress in finalising the remaining claims and associated reinsurance recoveries relating to the COVID-19 lockdown, with effected gross CBI payments of R4.3 billion at June 30th, which equates to more than 70% of projected eligible claims.

Considering the claims payment experience, Santam reviewed its provisions for CBI claims, the level of claims aggregating for reinsurance recovery purposes, as well as expected recoveries from applicable reinsurance contracts, and has reduced its net provision for CBI claims by R397 million.

Overall, Santam achieved a 7% growth in conventional insurance gross written premium through H1 2022, versus 5% last year, and a net operating result of R429 million, compared with R1 203 million previously.

Net investment income, inclusive of the investment return on insurance funds, amounted to R225 million, down from R355 million at H1 2021, while cash generated from operations increased to R4.6 billion from R2 billion, mainly due to growth in premiums received on ART policies and dividends received during this period.

“We had a turbulent market environment during the first half of 2022. Our expectation is that economic activity will, in the short to medium term, be constrained by weak consumer spending,” said Santam Group CEO Tavaziva Madzinga.

“The high inflation environment also puts pressure on claims costs, while loadshedding in the first half resulted in increased power surge claims. In addition, there has been a significant increase in reinsurance premium rates, following several large global and local catastrophe events,” he continued.

“Despite these headwinds, we are confident that the corrective actions we have implemented will start to show a positive impact towards the latter part of 2022. These are primarily in the form of underwriting actions to address the impact of increased claims costs and reinsurance rates. They include procurement efficiencies, segmented premium increases, and higher claim excesses.”

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