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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