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SANTAM LIMITED - Reviewed Interim Report for 6 months ended 30 June 2013

Release Date: 28/08/2013 13:48
Code(s): SNT     PDF:  
Wrap Text
Reviewed Interim Report for 6 months ended 30 June 2013

Santam Limited
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM

SANTAM LTD AND ITS SUBSIDIARIES
Reviewed interim report for the six months ended 30 June 2013

- Gross written premium growth of 9%
- Underwriting margin of 1.3% significantly impacted by difficult underwriting conditions
- Positive investment returns in a volatile market
- Group solvency ratio of 40%
- Cash generation significantly impacted by settlement of 2012 catastrophe event claims
- Interim dividend of 242 cents per share, up 5%

Financial review

The Santam group experienced difficult underwriting conditions during the reporting period that 
severely impacted the underwriting result, causing a substantially lower net underwriting margin 
of 1.3% compared to 6.1% achieved in the corresponding period in 2012. Satisfactory gross written
premium growth of 9% was achieved in the context of the difficult current economic environment. 

The group delivered positive investment returns in a volatile investment market which contributed
to net income after tax of R422 million for the period, 15% less than the comparative period. The
exceptional taxation charge of R143 million reported in 2012, relating to STC on the special 
dividend paid in March 2012 and the increase in the CGT inclusion rate was non-recurring. 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 following factors contributed to the decrease in underwriting results:

- The crop insurance business was adversely impacted by hail damage to summer crops in the Eastern
  region of South Africa and drought insurance input claims in the Central and Western regions, 
  resulting in a net underwriting loss of R112 million (2012: profit of R34 million) and reducing
  the net underwriting margin by 1.8% compared to 2012.

- The profitability in the traditional Santam intermediated business remained under pressure. A 
  rise in the average cost per claim and the claim severity in motor and property classes was 
  experienced, aggravated by the weakening of the exchange rate, impacting the motor repair costs,
  and a rise in theft-related claims. 

- Start-up costs were incurred during the first phase of the strategic project to develop a new 
  administration, underwriting and product management technology for the traditional Santam 
  intermediated business. This resulted in a strategic project cost ratio of 1.8% of net earned 
  premium, exceeding the groups target of 1% (2012: 0.8%). Software development costs will  
  be capitalised on the successful completion of key milestones in the first development phase.  

The small underwriting loss in the property class and much lower profitability of the motor book 
of business are reflective of the difficult conditions being experienced within the traditional
Santam intermediated business. A continuing high level of claims frequency and severity were 
exacerbated by significant flood related claims in Limpopo during January 2013. Various 
underwriting measures, such as segmented premium increases on policy renewal and risk reviews have
been put in place in the Santam traditional intermediated business to address the underwriting 
performance. The positive impact of these actions is already evident in the results for the second 
quarter of 2013 and should continue into the remainder of the financial year.

The specialist business classes had mixed results compared to 2012 with the accident and health 
and engineering classes reporting improved margins. Transportation reported lower underwriting 
results compared to an exceptional performance during the corresponding period in 2012. The 
liability and corporate property classes reported reduced results; however, still producing above
targeted risk adjusted returns. 

The group achieved satisfactory gross written premium growth of 9%, with positive growth across 
all major classes of business. MiWay continued to support the growth in mainly the motor book of
business with an increase in gross premiums of 26% while achieving profitable trading results 
with a gross loss ratio of below 60%. Net earned premium growth of 5% was impacted by new 
retrocession treaties for Santam Re in emerging markets and the increase in reinsurance programmes
of the crop and specialist business classes. 

The net acquisition cost ratio of 28.1% was higher than the 27.8% reported in June 2012. The 
increase in management expenses from 14.5% in 2012 to 15.5% in 2013 can be ascribed to the higher
than expected strategic project costs. The commission expenses ratio declined by 0.6% to 12.7% 
mainly due to the increased impact of MiWay, where no commission expenses are incurred. 

Investment returns on insurance funds of R195 million were slightly lower than the R204 million 
achieved in 2012, due to lower interest returns in 2013. 

The combined effect of insurance activities resulted in a net insurance income of R297 million or
a 3.7% margin, compared to R677 million and a margin of 8.8% in 2012. 

Santam achieved satisfactory investment results relative to the market during the reporting 
period. This was mainly driven by lower exposure to the South African bond market, which 
experienced a significant downturn during the reporting period, and the positive fair value 
movement of R58 million in the Sanlam Emerging Markets (SEM) preference share linked to the 
Shriram General Insurance business in India. Santam is currently exploring further investment 
opportunities with SEM. The weakening of the rand during 2013 had a positive impact on the 
valuations of our foreign currency assets held by our local operations of R62 million (2012: 
R1 million). 

Net earnings from associated companies of R34 million decreased from R42 million in 2012 mainly 
due to the key contributor, Credit Guarantee Insurance Corporation of Africa Ltd, reporting 
somewhat lower earnings compared to 2012. 

Cash generated from operating activities of R516 million decreased from R1.3 billion in 2012. The
South African insurance industry was significantly impacted by a number of mini catastrophe events
during the last quarter of 2012. A significant portion of these claims were settled in the first
quarter of 2013, negatively impacting cash flows.

Santam concluded the acquisition of a 100% interest in Travel Insurance Consultants (TIC) in June
2013 for R95 million. The transaction will enable TIC to build its leadership position through its
relationships within the travel market and leverage off Santams support. 

The board would like to extend its gratitude to Santams management, staff, brokers and other 
business partners for their efforts and contributions during the past six months.

Prospects

Real GDP growth is expected to be as low as 2% in 2013, only picking up somewhat to 3% in 2014. 
Headline CPI is expected to peak at between 6.5% and 7% in the third quarter of the year before 
slowing to just below 6% at year-end under pressure of the weak rand as well as petrol and food 
price increases. 

Since our 2012 results announcement, a hardening of insurance premium rates was experienced in the
market and is expected to continue in the second half of 2013 which should have a positive impact
on underwriting results, assuming that the adverse weather conditions experienced in the fourth
quarter of 2012 do not recur. Santam manages premium increases selectively through our market and 
risk segmentation approach largely on policy renewal. We will continue to focus on the 
implementation of various underwriting practices and risk management approaches to improve the 
underwriting margin in the traditional Santam intermediated business. In addition, our growth 
through diversification strategy continues to enhance insurance premium growth in high-growth 
segments and territories. 

Nominal interest rates are expected to remain at current levels during the remainder of 2013. The
investment market is likely to remain uncertain in light of global negative sentiment towards 
emerging markets, including South Africa. 

Events after the reporting period

There have been no material changes in the affairs or financial position of the company and its 
subsidiaries since the statement of financial position date. 

Declaration of dividend (Number 119)

Notice is hereby given that the board has declared an interim dividend of 242.00000 cents per 
share (2012: 230.00000 cents). Shareholders are advised that the last day to trade cum dividend
will be Thursday, 19 September 2013. The shares will trade ex dividend from the commencement of
business on Friday, 20 September 2013. The record date will be Friday, 27 September 2013 and the
payment date will be Monday, 30 September 2013. Certificated shareholders may not dematerialise
or rematerialise their shares between 20 September 2013 and 27 September 2013, both dates 
inclusive.

The dividend has been declared from income reserves and will be subject to dividends tax that was
introduced with effect from 1 April 2012. There are R3 430 421.46704 STC credits available for 
utilisation. Accordingly, the secondary tax on companies (STC) credit available is 2.87434 per
share. The amount per share subject to the withholding of dividends tax at a maximum rate of 15% 
is therefore 239.12566 cents per share. A net dividend of 206.13115 cents per share will apply to
shareholders liable for dividends tax at a rate of 15% and 242.00000 cents per share for 
shareholders that qualify for complete exemption therefrom. The issued ordinary share capital as
at 28 August 2013 is 119 346 417 shares. The companys income tax reference number is 
9475/144/71/4.

In terms of the dividends tax legislation, the dividends tax amount due will be withheld and paid
over to the South African Revenue Service (SARS) by a nominee company, stockbroker or Central
Security Depository Participant (CSDP) (collectively Regulated Intermediary) on behalf of 
shareholders. However, all shareholders should declare their status to their Regulated 
Intermediary, as they may qualify for a reduced dividends tax rate or they may even be exempt 
from dividends tax. 

Preparation and presentation of the financial statements

The preparation of the reviewed financial statements was supervised by the chief financial officer
of Santam Ltd, HD Nel. 

Auditors report
The consolidated interim financial statements of Santam Limited for the six months ended 
30 June 2013 have been reviewed by the companys auditor, PricewaterhouseCoopers Inc. In their 
review report dated 28 August 2013, which is available for inspection at the Companys Registered
Office, PricewaterhouseCoopers Inc. state that their review was conducted in accordance with the
International Standard on Review Engagements 2410, Review of Interim Information Performed by the
Independent Auditor of the Entity, and have expressed an unmodified conclusion on the consolidated
interim financial statements. Any reference to future financial performance included in this 
announcement has not been reviewed or reported on by the company's auditor.

On behalf of the board

GG Gelink              IM Kirk
Chairman               Chief Executive Officer

28 August 2013


Consolidated statement of financial position
	                          
                                                   Reviewed       Reviewed       Audited
                                                         At             At            At
                                               30 June 2013   30 June 2012   31 Dec 2012
                                        Notes     R million      R million     R million	

ASSETS			
Non-current assets			
 Property and equipment                                  97             81            99 
 Intangible assets                                    1 082          1 024           990
 Deferred income tax                                    227            196           221
 Investment in associates                               277            257           261
 Financial assets  at fair value 
  through income
    Equity securities                       6         3 274          3 230         3 551
    Debt securities                         6         7 243          6 655         6 957
    Derivatives                             6             1              4             6
 Financial assets  at amortised cost
    Cell owners interest                                17             33            24
 Reinsurance assets                         7           126            149           137

Current assets
 Financial assets  at fair value 
  through income
    Derivatives                             6            10                           
    Short-term money market instruments     6         1 174          1 251           917
 Reinsurance assets                         7         1 936          1 542         1 618
 Deferred acquisition costs                             305            320           340
 Loans and receivables including 
  insurance receivables                     6         2 045          1 492         2 088
 Income tax assets                                       17             44            57
 Cash and cash equivalents                            2 333          1 821         2 471

Total assets                                         20 164         18 099        19 737

EQUITY				
Capital and reserves attributable to the 
 companys equity holders
 Share capital                                           107            107          107
 Treasury shares                                        (526)          (588)        (579)
 Other reserves                                          157             26           77
 Distributable reserves                                5 829          5 602        5 904
                                                       5 567          5 147        5 509
Non-controlling interest                                  99             98          108
Total equity                                           5 666          5 245        5 617

LIABILITIES
Non-current liabilities				
 Deferred income tax                                     276            195          284
 Financial liabilities  at fair value 
  through income
    Debt securities                         6            998          1 005        1 034
    Investment contracts                    6                                       83
 Financial liabilities  at amortised cost				
    Cell owners interest                                739            644          712
 Insurance liabilities                      7          1 452          1 323        1 340

Current liabilities
 Financial liabilities  at fair value
  through income
    Debt securities                         6             24             24           24
    Investment contracts                    6             77             71           12
 Financial liabilities  at amortised cost
    Collateral guarantee contracts                        79             72           75
 Insurance liabilities                      7          8 233          7 214        8 318 
 Deferred reinsurance acquisition revenue                110             93          147
 Provisions for other liabilities and charges		 147            103          161
 Trade and other payables                              2 339 	      2 046        1 886
Current income tax liabilities                            24             64           44
				
Total liabilities                                     14 498         12 854       14 120
				
Total shareholders equity and liabilities            20 164         18 099       19 737



Consolidated statement of comprehensive income

                                              Reviewed       Reviewed       
                                            Six months     Six months                Audited
                                                 ended          ended             Year ended
                                          30 June 2013   30 June 2012   Change   31 Dec 2012
                                  Notes      R million      R million        %     R million

Gross written premium                            9 858          9 050       9%        19 386
Less: Reinsurance premium                        2 089          1 739                  3 564
Net premium                                      7 769          7 311       6%        15 822
Less: change in unearned premium
 Gross amount                                     (204)          (299)                   323
 Reinsurers share                                (123)           (92)                  (127)
Net insurance premium revenue                    8 096          7 702       5%        15 626
Investment income                     8            363            337       8%           859
Income from reinsurance 
 contracts ceded                                   316            245                    516
Net gains on financial assets 
 and liabilities at fair value 
 through income                       8            150            177                    480 
Net income                                       8 925          8 461       5%        17 481

Insurance claims and loss 
 adjustment expenses                             6 878          5 848                 12 167
Insurance claims and loss 
 adjustment expenses recovered from
 reinsurers                                     (1 163)          (759)                (1 488)
Net insurance benefits and claims                5 715          5 089      12%        10 679

Expenses for the acquisition of 
 insurance contracts                             1 344          1 269                  2 540
Expenses for marketing and 
 administration                                  1 270          1 118                  2 349
Expenses for asset management
 services rendered                                  15             16                     31
Amortisation and impairment of
 intangible assets                                  30             24                    116
Expenses                                         8 374          7 516      11%        15 715

Results of operating activities                    551            945     (42%)        1 766
Finance cost                                       (59)           (60)                  (106)
Net income from associates                          34             42                     83
Impairment on net investment of  
 associates                                        (11)                                 (43)
Profit before tax                                  515            927     (44%)        1 700
Income tax expense                    9            (93)          (430)                  (624)
Profit for the period                              422            497     (15%)        1 076

Other comprehensive income					
Currency translation differences                    78            (32)                    23
Total comprehensive income for 
 the period                                        500            465                  1 099

Profit attributable to:
 equity holders of the company                    405            475     (15%)        1 027
 non-controlling interest                          17             22                     49
                                                   422            497                  1 076
Total comprehensive income 
 attributable to:
 equity holders of the company                    483            443       9%         1 050
 non-controlling interest                          17             22                     49
                                                   500            465                  1 099

Earnings attributable to equity
 shareholders
Earnings per share (cents)           11				
    Basic earnings per share                       356            419    (15%)           904
    Diluted earnings per share                     353            415    (15%)           895
					
Weighted average number of shares
  millions                                     113.89         113.33                 113.56
Weighted average number of ordinary
 shares for diluted earnings per
 share  millions                               114.72         114.43                 114.81


Consolidated statement of changes in equity
                                                                                   Non-  
                                        Attributable to equity              controlling           
                                        holders of the company                 interest     Total
                                                                                    
	                                                             Distri-
                                      Share   Treasury      Other    butable
                                    capital     shares   reserves   reserves
	                          R million  R million  R million  R million  R million R million

Balance as at 
 1 January 2012                         107       (635)     1 492      5 072        105     6 141
Profit for the period                                               1 027         49     1 076
Other comprehensive income:
    Currency translation
     differences                                             23                            23
Total comprehensive 
 income for the period
 ended 31 December 2012                                      23      1 027         49     1 099
Sale of treasury shares                            56                                      56
Loss on sale of treasury shares                                       (57)                (57)
Transfer to reserves                                     (1 438)     1 438                   
Share-based payments                                                   50                  50
Dividends paid                                                     (1 626)       (48)   (1 674)
Interest acquired from non-
 controlling interest                                                             2         2
Balance as at 31 December 2012          107       (579)        77      5 904        108     5 617
Profit for the period                                                 405         17       422
Other comprehensive income:
    Currency translation differences                         78                            78
Total comprehensive income for the 
 period ended 30 June 2013                                   78        405         17       500
Sale of treasury shares                            53                                      53 
Loss on sale of treasury shares                                       (53)                (53)
Transfer to reserves                                          2         (2)                  
Share-based payments                                                   42                  42
Dividends paid                                                       (467)       (25)     (492)
Acquisition of subsidiary                                                        (1)       (1)
Balance as at 30 June 2013              107       (526)       157      5 829         99     5 666 
						
Balance as at 1 January 2012            107       (635)     1 492      5 072        105     6 141
Profit for the period                                                 475         22       497
Other comprehensive income:						
    Currency translation differences                        (32)                          (32)
Total comprehensive income for 
 the period ended 30 June 2012                              (32)       475         22       465
Sale of treasury shares                            47                                      47
Loss on sale of treasury shares                                       (46)                (46)
Transfer to reserves                                     (1 434)     1 434                   
Share-based payments                                                   32                  32
Dividends paid                                                     (1 365)       (31)   (1 396)
Interest acquired from non-
 controlling interest                                                             2         2
Balance as at 30 June 2012              107       (588)        26      5 602         98     5 245

Consolidated statement of cash flows

                                              Reviewed       Reviewed       
                                            Six months     Six months       Audited
                                                 ended          ended    Year ended
                                          30 June 2013   30 June 2012   31 Dec 2012
                                  Notes      R million      R million     R million

Cash generated from operations                     516          1 302         2 362
Interest paid                                      (34)           (60)         (106)
Income tax paid                                    (88)          (357)         (521)
Net cash from operating 
 activities                                        394            885         1 735
				
Cash flows from investing
 activities
Cash (utilised in)/generated 
 from investment activities                       (130)           881           935
Acquisition of subsidiary            10             (9)                          
Cash acquired through acquisition
 of subsidiary                       10             15                           
Purchases of equipment                             (17)           (25)          (63)
Purchases of software                               (8)           (14)          (31)
Proceeds from sale of equipment                      1              1             1
Acquisition of associated 
 companies                                                        (3)           (6)
Acquisition of book of business                     (9)           (42)          (81)
Net cash from investing activities                (157)           798           755
				
Cash flows from financing 
 activities
Decrease in investment contract 
 liabilities                                       (19)           (35)          (17)
Increase/(decrease) in 
 collateral guarantee contracts                      5            (45)          (39)
Dividends paid to company's 
 shareholders                                     (467)        (1 365)       (1 626)
Dividends paid to non-
 controlling interest                              (25)           (31)          (48)
Increase in cell owners' interest                   37              8            90
Net cash used in financing 
 activities                                       (469)        (1 468)       (1 640)
				
Net (decrease)/increase in cash 
 and cash equivalents                             (232)           215           850
Cash and cash equivalents at 
 beginning of period                             2 471          1 598         1 598 
Exchange gains on cash and 
 cash equivalents                                   94              8            23 
Cash and cash equivalents 
 at end of period                                2 333          1 821         2 471


Notes to the interim financial information

1. Basis of preparation

   The consolidated interim financial information is prepared in accordance with the requirements
   of the JSE Limited Listings Requirements for interim reports and the requirements of the 
   Companies Act of South Africa. The JSE Limited Listings Requirements require interim reports to
   be prepared in accordance with the framework concepts, the measurement and recognition 
   requirements of International Financial Reporting Standards (IFRS), the SAICA Financial
   Reporting Guides as issued by the Accounting Practices Committee and must also, as a minimum, 
   contain the information required by IAS 34 Interim Financial Reporting. 

2. Accounting policies

   The accounting policies adopted are consistent with those of the previous financial year except
   as described below.

   The following new IFRSs and/or IFRICs were effective for the first time for this interim 
   period from 1 January 2013:

   - Amendment to IFRS 7, Disclosures  Offsetting Financial Assets and Financial Liabilities
   - IFRS 10, Consolidated Financial Statements
   - IFRS 11, Joint Arrangements
   - IFRS 12, Disclosure of Interests in Other Entities
   - IFRS 13, Fair Value Measurement
   - Amendments to IAS 1  Presentation of Items of Other Comprehensive Income
   - Revised IAS 28, Investments in Associates and Joint Ventures

   There was no material impact on the interim financial statements identified based on 
   managements assessment of these standards.

   Taxes on income in the interim period are accrued using the tax rate that would be applicable
   to the expected total annual profit or loss.

3. Estimates

   The preparation of interim financial statements requires management to make judgements, 
   estimates and assumptions that affect the application of accounting policies and the reported 
   amounts of assets and liabilities, income and expense. Actual results may differ from these 
   estimates.

   In preparing these condensed consolidated interim financial statements, the significant 
   judgements made by management in applying the groups accounting policies and the key sources
   of estimation uncertainty were the same as those that applied to the consolidated financial 
   statements for the year ended 31 December 2012.

4. Risk management

   The groups activities expose it to a variety of financial risks: market risk (including price
   risk, interest rate risk, foreign currency risk and derivatives risk), credit risk and 
   liquidity risk. Insurance activities expose the group to insurance risk (including pricing 
   risk, reserving risk, accumulation risk and reinsurance risk). The group is also exposed to 
   operational risk and legal risk.

   The capital risk management philosophy is to maximise the return on shareholders capital 
   within an appropriate risk framework.

   The consolidated interim financial statements do not include all risk management information 
   and disclosure required in the annual financial statements and should be read in conjunction 
   with the groups annual financial statements as at 31 December 2012.

   There have been no changes in the risk management policies since the previous year-end.

5. Segment information

   Segments have been identified by business activity, i.e. insurance activities and investment 
   activities, as these activities mainly affect the groups risk and returns. No geographical 
   segmentation is disclosed as southern Africa is regarded as one reportable segment for 
   management purposes.

   Segments are reported in a manner consistent with the internal reporting provided to the chief
   operating decision-maker. The chief operating decision-maker has been identified as the Chief 
   Executive Officer, supported by the group executive committee.

   The groups internal reporting is reviewed in order to assess performance and allocate 
   resources. The operating segments identified are representative of the internal structure of 
   the group.
  
   Two core activities of the group, i.e. insurance activities and investment activities, are 
   reviewed on a monthly basis. Insurance activities are all insurance underwriting activities 
   undertaken by the group and comprise commercial insurance, personal insurance and alternative 
   risks. Insurance activities are also further analysed by insurance class. Investment activities
   are all investment-related activities undertaken by the group.

   The performance of insurance activities is considered based on gross written premium as a 
   measure of growth; with underwriting result and net insurance result as measures of 
   profitability.

   Investment activities are measured based on net investment income and income from associated 
   companies.

   The MiWay DBP, relating to the compensation of the 10% share previously held by management in
   MiWay, and the Santam BEE transaction costs are unrelated to the core underwriting performance 
   of the group and are therefore not allocated to the operating segments.


5.1 For the six months ended 30 June 2013

                                                   Insurance  Investment 
                                                  activities  activities   Unallocated      Total
    Business activity                              R million   R million     R million  R million
	
    Revenue                                            9 858         282             -     10 140
    Gross written premium                              9 858           -             -      9 858
    Net written premium                                7 769           -             -      7 769
    Net earned premium                                 8 096           -             -      8 096
    Claims incurred                                    5 715           -             -      5 715
    Net commission                                     1 028           -             -      1 028
    Management expenses                                1 251           -             -      1 251
    Underwriting result                                  102           -             -        102
    Investment return on insurance funds                 195           -             -        195
    Net insurance result                                 297           -             -        297 
    Investment income net of management fee 
     and finance costs                                     -         244             -        244
    Income from associates net of impairment               -          23             -         23
    MiWay DBP and Santam BEE transaction costs             -           -           (19)       (19)
    Amortisation of intangible assets                    (30)          -             -        (30)
    Income before taxation                               267         267           (19)       515


                                                                     Gross written   Underwriting
                                                                           premium         result
    Insurance class                                                      R million      R million


    Accident and health                                                        151             31
    Alternative risk                                                         1 153             (8)
    Crop                                                                        55           (112)
    Engineering                                                                529             59
    Guarantee                                                                   26              4
    Liability                                                                  552             67
    Miscellaneous                                                               15              1
    Motor                                                                    4 329             60
    Property                                                                 2 776            (16)
    Transportation                                                             272             16
    Total                                                                    9 858            102

    Comprising:
    Commercial insurance                                                     4 754            119
    Personal insurance                                                       3 951             (9)
    Alternative risk                                                         1 153             (8)
    Total                                                                    9 858            102


5.2 For the six months ended 30 June 2012

                                                   Insurance  Investment 
                                                  activities  activities   Unallocated      Total
    Business activity                              R million   R million     R million  R million

    Revenue                                            9 050         290             -      9 340
    Gross written premium                              9 050           -             -      9 050
    Net written premium                                7 311           -             -      7 311
    Net earned premium                                 7 702           -             -      7 702
    Claims incurred                                    5 089           -             -      5 089
    Net commission                                     1 024           -             -      1 024
    Management expenses                                1 116           -             -      1 116
    Underwriting result                                  473           -             -        473
    Investment return on insurance funds                 204           -             -        204
    Net insurance result                                 677           -             -        677
    Investment income net of management fee
     and finance costs                                     -         234             -        234
    Income from associates                                 -          42             -         42
    MiWay DBP and Santam BEE transaction costs             -           -            (2)        (2)
    Amortisation of intangible assets                    (24)          -             -        (24)
    Income before taxation                               653         276            (2)       927


                                                                     Gross written   Underwriting
                                                                           premium         result
    Insurance class                                                      R million      R million
	
    Accident and health	                                                       137            (12)
    Alternative risk                                                           948              5
    Crop                                                                        76             34
    Engineering                                                                444             48
    Guarantee                                                                    9              3
    Liability                                                                  552             96
    Miscellaneous                                                               10              
    Motor                                                                    4 047            186
    Property                                                                 2 586             66
    Transportation                                                             241             47
    Total                                                                    9 050            473

    Comprising:
    Commercial insurance                                                     4 389            348
    Personal insurance                                                       3 713            120
    Alternative risk                                                           948              5
    Total                                                                    9 050            473

5.3 For the year ended 31 December 2012

                                                   Insurance  Investment 
                                                  activities  activities   Unallocated      Total
    Business activity                              R million   R million     R million  R million

    Revenue                                           19 386         858             -     20 244
    Gross written premium                             19 386           -             -     19 386
    Net written premium                               15 822           -             -     15 822
    Net earned premium                                15 626           -             -     15 626
    Claims incurred                                   10 679           -             -     10 679
    Net commission                                     2 024           -             -      2 024
    Management expenses                                2 300           -             -      2 300
    Underwriting result                                  623           -             -        623
    Investment return on insurance funds                 415           -             -        415
    Net insurance result                               1 038           -             -      1 038
    Investment income net of management fee
     and finance costs                                     -         787             -        787
    Income from associates net of impairment               -          40             -         40
    MiWay DBP and Santam BEE transaction costs             -           -           (57)       (57)
    Amortisation of intangible asset                    (108)          -             -       (108)
    Income before taxation                               930         827           (57)     1 700
					
                                                                     Gross written   Underwriting
                                                                           premium         result
    Insurance class                                                      R million      R million
	
    Accident and health                                                        286             10
    Alternative risk                                                         2 103             (7)
    Crop                                                                       687             38
    Engineering                                                                860            158
    Guarantee                                                                   40              8
    Liability                                                                1 227            206
    Miscellaneous                                                               23              6
    Motor                                                                    8 361             89
    Property                                                                 5 291             32
    Transportation                                                             508             83
    Total                                                                   19 386            623

    Comprising:					
    Commercial insurance                                                     9 660            767
    Personal insurance                                                       7 623           (137)
    Alternative risk                                                         2 103             (7)
    Total                                                                   19 386            623



6. Financial assets and liabilities at fair value through income
   
   Fair value estimation
   
   The table below analyses financial instruments, carried at fair value through income, by 
   valuation method. There were no significant changes in the valuation methods applied since 
   31 December 2012. The different levels have been defined as follows:
   
    Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
    Level 2: Inputs other than quoted prices included within Level 1 that are observable for the 
              asset or liability, either directly (that is, prices) or indirectly (that is, 
              derived from prices)
    Level 3: Inputs for the asset or liability that are not based on observable data (that is,
              unobservable inputs)

   There were no transfers between the different levels defined above during the period. 
				
                                                        Reviewed       Reviewed       Audited
                                                              At             At            At
                                                    30 June 2013   30 June 2012   31 Dec 2012
    Financial assets at fair value through income      R million      R million     R million

    The groups financial assets are summarised 
    below by measurement category.			
					
    Financial assets at fair value through income         11 702         11 140        11 431
    Loans and receivables                                  2 045          1 492         2 088
    Total financial assets                                13 747         12 632        13 519


                                           Level 1       Level 2        Level 3         Total
    June 2013                            R million     R million      R million     R million

    Equity securities
        Quoted
          Listed                             2 830                                    2 830
          Unitised funds                                    118                         118
          Irredeemable preference shares         2                                        2
        Unquoted                                                          324           324
     Total equity securities                 2 832           118            324         3 274
     Debt securities
         Quoted
           Government and public bonds       1 768            62                       1 830
           Redeemable preference shares                     281                         281
           Money market instruments 
            > 1 year                                      1 515                       1 515
         Unquoted
           Government and public bonds                       53                          53
           Money market instruments 
            > 1 year                                      3 535                       3 535
           Redeemable preference shares                                    29            29
      Total debt securities                  1 768         5 446             29         7 243
      Derivatives
          Interest rate swaps                                               2             2
          Foreign exchange contracts                                        1             1
          Fence                                                             8             8
      Total derivatives                                                    11            11
      Short-term money market instruments	          1 174                       1 174
                                             4 600         6 738            364        11 702
					


                                           Level 1       Level 2        Level 3         Total
    June 2012                            R million     R million      R million     R million
	
    Equity securities
        Quoted
          Listed                             2 730                                    2 730
          Unitised funds                                     80                          80
          Irredeemable preference shares         2                                        2
        Unquoted                                                          418           418
    Total equity securities                  2 732            80            418         3 230
    Debt securities
        Quoted
          Government and other bonds         1 647           118                       1 765
          Redeemable preference shares                      269                         269
          Money market instruments 
           > 1 year                                       1 496                       1 496
        Unquoted
          Government and other bonds                         42                          42
          Money market instruments 
           > 1 year                                       2 800                       2 800
          Redeemable preference shares	 	 -                         283           283
    Total debt securities                    1 647         4 725            283         6 655
    Derivatives
        Interest rate swaps                                                 4             4
    Total derivatives                                                       4             4
    Short-term money market instruments                   1 251                       1 251
                                             4 379         6 056            705        11 140

    December 2012				
    Equity securities
        Quoted
          Listed                             3 183                                    3 183
          Unitised funds                                     94                          94
          Irredeemable preference shares         2                                        2
        Unquoted                                                          272           272
    Total equity securities                  3 185            94            272         3 551
    Debt securities
        Quoted
          Government and other bonds         1 644            87                       1 731
          Redeemable preference shares                      275                         275
          Money market instruments 
           > 1 year                                       1 513                       1 513
        Unquoted
          Government and other bonds                         31                          31
          Money market instruments 
           > 1 year                                       3 378                       3 378
          Redeemable preference shares                                     29            29
    Total debt securities                    1 644         5 284             29         6 957
    Derivatives
        Interest rate swaps                      -             -              6             6
    Total derivatives                                                       6             6
    Short-term money market instruments                     917                         917
                                             4 829         6 295            307        11 431



                                           Level 1       Level 2        Level 3         Total
    June 2013                            R million     R million      R million     R million

    Debt securities                          1 022                                    1 022
    Investment contracts                                     77                          77
                                             1 022            77                       1 099

    June 2012

    Debt securities                          1 029                           -         1 029
    Investment contracts                                     71                          71
                                             1 029            71                       1 100

    December 2012

    Debt securities                          1 058                                    1 058
    Investment contracts                                     95              	           95
                                             1 058            95                       1 153 
					
    During 2007 the company issued unsecured subordinated callable notes to the value of 
    R1 billion in two tranches. The fixed effective rate for the R600 million issue was 8.6% and 
    9.6% for the second tranche of R400 million, representing the R203 companion bond plus an 
    appropriate credit spread at the time of the issues. The fixed coupon rate, based on the 
    nominal value of the issues, amounts to 8.25% and for both tranches the optional redemption
    date is 15 September 2017. Between the optional redemption date and final maturity date of 
    15 September 2022, a variable interest rate (JIBAR-based plus additional margin) will apply.
 
    Per the conditions set by the Regulator, Santam is required to maintain liquid assets equal 
    to the value of the callable notes until maturity. The callable notes are therefore measured
    at fair value to minimise undue volatility in the statement of comprehensive income.

    The unquoted equity instruments recognised as level 3 instruments consist mainly of the 
    irredeemable preference shares issued by Sanlam Emerging Markets as well as Santam´s 
    international  run-off business. The net fair value movements recognised on level 3 
    instruments amounted to R56 million for the six months ended 30 June 2013 (2012: -R7 million).

    We continued to employ our strategy of proactively and tactically hedging equity investments.

    During the first half of 2013, Santam entered into three derivative fence structures on 
    28 March 2013, 3 April 2013 and 8 May 2013 covering equities to the value of R700 million, 
    R700 million and R600 million respectively. The implementation level of the first tranche was
    7593 (SWIX40 index) with downside protection of 10% from a market level of 7441 and upside 
    participation of 9.7%. The implementation level of the second tranche was 7515 with downside
    protection of 10% from a market level of 7365 and upside participation of 9.6%. The 
    implementation level of the third tranche was 7694 with downside protection of 10% from a 
    market level of 7540 and upside participation of 9.5%.  The upside participation is calculated
    from the implementation level and the average duration of the structures is twelve months.

    At 30 June 2012, the SWIX40 index closed at 7628 and the structures had a fair value of 
    R8 million.



                                                        Reviewed       Reviewed       Audited
                                                              At             At            At
                                                    30 June 2013   30 June 2012   31 Dec 2012
                                                       R million      R million     R million

7. Insurance liabilities and reinsurance assets
   
   Gross
   Long-term insurance contracts
    claims reported and loss adjustment expenses              7                              
    claims incurred but not reported                         15              9            14 
   Short-term insurance contracts 
    claims reported and loss adjustment expenses          5 071          4 458         4 948
    claims incurred but not reported                      1 423          1 333         1 311
    unearned premiums                                     3 169          2 737         3 385
   Total insurance liabilities  gross                     9 685          8 537         9 658

   Non-current liabilities                                 1 452          1 323         1 340 
   Current liabilities                                     8 233          7 214         8 318 

   Recoverable from reinsurers
   Long-term insurance contracts
    claims reported and loss adjustment expenses              2                           
    claims incurred but not reported                          3              1             2
   Short-term insurance contracts
    claims reported and loss adjustment expenses          1 050            895           977
    claims incurred but not reported                        277            229           192
    unearned premiums                                       730            566           584
   Total reinsurers share of insurance liabilities        2 062          1 691         1 755

   Non-current assets                                        126            149           137
   Current assets                                          1 936          1 542         1 618
			
   Net
   Long-term insurance contracts
    claims reported and loss adjustment expenses              5                           
    claims incurred but not reported                         12              8            12
   Short-term insurance contracts
    claims reported and loss adjustment expenses          4 021          3 563         3 971
    claims incurred but not reported                      1 146          1 104         1 119
    unearned premiums                                     2 439          2 171         2 801
   Total insurance liabilities  net                       7 623          6 846         7 903

                                                        Reviewed       Reviewed       Audited
                                                              At             At            At
                                                    30 June 2013   30 June 2012   31 Dec 2012
                                                       R million      R million     R million

8. Investment income and net gains/(losses) on
   financial assets and liabilities at fair value
   through income
   
   Investment income                                         363            337           859
       Dividend income                                        59             88           342
       Interest income                                       242            248           503 
       Foreign exchange differences                           62              1            14
   Net realised gains on financial assets                    320            322           358 
   Net fair value (losses)/gains on financial 
    assets designated as at fair value through 
    income                                                  (222)          (103)          360
   Net fair value gains/(losses) on financial 
    assets held for trading                                   13             (3)         (166)
   Net realised fair value gains on derivatives                5              3             5 
   Net fair value gains/(losses) on financial 
    liabilities designated as at fair value through
     income                                                   34            (42)          (77)
       Net fair value gains/(losses) on debt
        securities                                            36            (40)          (70)
       Net fair value losses on investment 
        contracts                                             (2)            (2)           (7)

                                                             513            514         1 339 

   * December 2012 dividend income for the group includes a dividend of R181 million from 
     Santam's international run-off business.

9. Income tax
   
   South African normal taxation
       Current year                                           90            319           433
         Charge for the year                                  90            180           294
         STC                                                               139           139
       Prior year                                              2             10            10
   Foreign taxation                                           17             14            38
   Income taxation for the year                              109            343           481
   Deferred taxation                                         (16)            87           143
       Current year                                           (1)            83           139
       Prior year                                            (15)                          
       STC                                                                   4             4 

                                                              93            430           624 
	
    Reconciliation of taxation rate (%)
    Normal South African taxation rate                      28.0           28.0          28.0
    Adjust for			
     Exempt income                                         (3.6)          (2.5)         (2.6)
     Investment results                                    (2.6)          (2.0)         (3.2)
     Change in CGT inclusion rate                                         6.5           4.7
     STC                                                                 15.5           8.4
     Deferred tax not raised in prior years                (2.9)                          
     Other                                                 (0.8)           0.9           1.4
    Net (reduction)/increase                                (9.9)          18.4           8.7  
    Effective rate                                          18.1           46.4          36.7


                                                          Reviewed       Reviewed       
                                                        Six months     Six months       Audited
                                                             ended          ended    Year ended
                                                      30 June 2013   30 June 2012   31 Dec 2012

10. Business combinations				
    
    2013				
    
    Additions				
    
    Travel Insurance Consultants (Pty) Ltd				
    
    Santam Limited has acquired 100% of the shareholding in Travel Insurance Consultants (Pty) Ltd
    (TIC), with effect from 1 June 2013. TIC is one of the leading travel insurance underwriting 
    managers and has been in operation for over 25 years. The purchase price amounted to
    R95 million. The goodwill of R62 million arises from a number of factors including obtaining
    economies of scale and unrecognised assets such as the workforce.

    Provisional accounting has been applied for interim reporting purposes.
					
    Details of the assets and liabilities acquired at fair value 
    are as follows: 				
    Intangible assets                                           32 			
    Loans and receivables                                        7 			
    Cash and cash equivalents                                   15 			
    Deferred taxation                                           (9)			
    Trade and other payables                                   (12)			
    Net asset value acquired                                    33 			
    Goodwill                                                    62 			
    Deferred purchase consideration payable in July 2013       (95)			
    Purchase consideration paid                                   			
				
    Beyonda Group (Pty) Ltd
    
    Centriq Insurance Holdings Limited acquired the additional 51% of the shareholding in Beyonda
    Group (Pty) Ltd for an amount of R9 million with effect 1 March 2013.

    2012
    
    Additions
    
    Riscor Underwriting Managers (Pty) Ltd
    
    The group acquired 100% of Riscor Underwriting Managers (Pty) Ltd (Riscor) on 1 September 2012
    for a nominal amount. Riscor acquired from Topexec Management Bureau (Pty) Ltd and Combined 
    Administration Management Services (Pty) Ltd their broker administration businesses, 
    comprising fixed assets and intangible assets on 1 September 2012 and 1 November 2012 
    respectively. The merged Riscor entity will operate as an independent administration business.

    The total purchase price amounted to R29 million. Intangible assets of R39 million and 
    deferred taxation of R10 million were recognised. Net operating assets amounted to 
    approximately R1 million.

    Sale of subsidiary
   
    Stilus Underwriting Managers (Pty) Ltd			
   
    On 1 January 2012, the Santam Group sold its 60% interest in Stilus Underwriting Managers
    (Pty) Ltd.
	
    Details of the assets and liabilities sold are as follows:			
    Deferred taxation                                                                       (2)
    Trade and other payables                                                                 4 
    Net asset value sold                                                                     2 
    Plus: Non-controlling interest                                                          (2)
    Purchase consideration received                                                          

 
                                                          Reviewed       Reviewed       
                                                        Six months     Six months       Audited
                                                             ended          ended    Year ended
                                                      30 June 2013   30 June 2012   31 Dec 2012

11. Earnings per share
    
    Basic earnings per share
    Profit attributable to the companys equity 
     holders (R million)                                       405            475         1 027
    Weighted average number of ordinary shares 
     in issue (million)                                     113.89         113.33        113.56
    Earnings per share (cents)                                 356            419           904

    Diluted earnings per share
    Profit attributable to the companys equity 
     holders (R million)                                       405            475         1 027
    Weighted average number of ordinary shares 
     in issue (million)                                     113.89         113.33        113.56
    Adjusted for share options                                0.83           1.10          1.25
    Weighted average number of ordinary shares
     for diluted earnings per share (million)               114.72         114.43        114.81

    Diluted basic earnings per share (cents)                   353            415           895

    Headline earnings per share
    Profit attributable to the companys equity 
     holders                                                   405            475         1 027
    Adjust for:
    Impairment charge on net investment of associates           11                          43
    Impairment of goodwill                                                                 35
    Impairment of software                                                                 25
    Tax charge and non-controlling interest                                                 
    Headline earnings (R million)                              416            475         1 130

    Weighted average number of ordinary shares 
     in issue (million)                                     113.89         113.33        113.56
    Headline earnings per share (cents)                        365            419           995

    Diluted headline earnings per share
    Headline earnings (R million)                              416            475         1 130
    Weighted average number of ordinary shares for 
     diluted earnings per share (million)                   114.72         114.43        114.81
    Diluted headline earnings per share (cents)                363            415           984
				
12. Dividends per share
    Dividend per share (cents)                                 242            230           640



NON-EXECUTIVE DIRECTORS
B Campbell, MD Dunn, MP Fandeso, BTPKM Gamedze, GG Gelink (Chairman), ML Marole, MJ Reyneke,
JP Möller, J van Zyl

EXECUTIVE DIRECTORS
IM Kirk (Chief Executive Officer), HD Nel (Chief Financial Officer),Y Ramiah

SPONSOR
Investec Bank Limited

TRANSFER SECRETARIES
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Tel: 011 370 5000
Fax: 011 688 7721
www.computershare.com

COMPANY SECRETARY
Masood Allie

SANTAM HEAD OFFICE AND REGISTERED ADDRESS
1 Sportica Crescent
Tyger Valley
Bellville 7530
PO Box 3881, Tyger Valley 7536
Tel: 021 915 7000
Fax: 021 914 0700
www.santam.co.za
Date: 28/08/2013 01:48:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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