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Audited Financial Results for the Year Ended 31 December 2013
Santam Limited
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
AUDITED SUMMARY FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013
- Gross written premium exceeded R20 billion for the first time
- Gross written premium growth:
- including cell insurance 6%
- excluding cell insurance 9%
- Underwriting margin of 2.8% significantly impacted by difficult underwriting conditions
- Positive investment returns in a volatile market
- Headline earnings increased by 4%
- Group solvency ratio of 42%
- Cash generation impacted by settlement of 2012 and 2013 catastrophe event claims
- Geographic diversification into emerging markets
- Final dividend of 433 cents per share, up 5.6%
FINANCIAL REVIEW
The Santam group experienced another very challenging underwriting year, characterised by a number of significant adverse weather events
and exacerbated by the sharp decline in the rand-dollar exchange rate. Under these tough operating conditions, the group achieved a 2.8%
(2012: 4.0%) net underwriting margin. While gross written premium (GWP) grew by 6%, this was impacted by lower cell insurance business
and significant cell captive business not recorded as part of GWP. If cell insurance is excluded, GWP grew by 9% on a comparative basis.
The investment portfolio performed in line with the positive market movements experienced during 2013, although the performance was limited
by the downside protection over equities.
The income tax charge decreased by 52% compared to 2012. The 2012 tax charge was significantly impacted by a non-recurring secondary tax
on companies charge and the effect of the increase in the capital gains tax inclusion rate.
Headline earnings increased by 4% compared to 2012. Cash generated from operations declined to R1.6 billion (2012: R2.4 billion) following
increased claims being paid during 2013. The solvency margin of 42% remains within the long-term target range of 35% to 45%. The return on
capital of 20% was affected by the adverse underwriting conditions.
The economic environment in South Africa in 2013 provided tough operating conditions with a combination of poor GDP growth and historically
low interest rates. The rand-dollar decline of 24% since January 2013 posed a significant strain on the claims cost, and the motor claims
cost in particular.
For the second consecutive year, weather-related catastrophe events significantly impacted insurers. The most notable events were the
floods in Limpopo (January 2013) and in the Western Cape (November 2013) and two significant hailstorms in Gauteng during November 2013,
the second being one of the most severe catastrophe events experienced in South Africa to date, with total claims for the industry
estimated to exceed R1.6 billion. Total gross claims from these catastrophe events for the Santam group exceeded R400 million for a second
year in a row. However, the net of reinsurance loss for the group was reduced to R215 million (2012: R361 million) following the prudent
purchase of additional reinsurance cover during 2013.
The underwriting results were further negatively affected by a net underwriting loss in crop insurance of R142 million (2012: profit of
R38 million), mainly following significant hail damage to summer crops in the eastern region of South Africa, and drought-related input
losses in the central and western regions in the first half of the financial year.
Following the weak underwriting performance of the Santam Commercial and Personal lines intermediated business unit during the six-month
period to June 2013, due to the weather and rand factors, various underwriting measures, such as segregated premium increases on policy
renewal and risk reviews have been put in place. The positive impact of these actions was evident in the results of the motor and property
classes during the second half of 2013. There is continued focus on further process efficiencies, risk reviews, and premium actions to
achieve target margins in this business unit. The group achieved satisfactory gross written premium growth in this business unit.
The specialist business classes had solid results compared to 2012, with acceptable margins across the various niche segments but on
reduced growth. The engineering and accident and health classes reported significantly improved margins. Transportation reported lower
underwriting results compared to an exceptional performance during the corresponding period in 2012. The liability class also reported
reduced results, following competitive pressures and reduced exposures to certain risks.
MiWay supported the growth in the motor book of business with an increase in gross premiums of 22%, while achieving profitable underwriting
results despite the severe Gauteng hail events in November.
In Centriq, growth was negatively impacted by lower cell business premiums as well as increased investment contract premiums, which are not
recorded as gross written premium for IFRS purposes. Total Centriq gross premiums, including investment business, grew by 6% compared to
2012 and operating results were on target in this business unit.
Third-party business written by Santam Re increased by 27% to R669 million (2012: R526 million), which includes international reinsurance
business of R227 million. The Santam Re underwriting results were negatively impacted by the adverse weather conditions in South Africa and
some significant international catastrophe events combined with the first year premium paid on the international retrocession programme. We
remain confident about the prospects for this business and the future diversification benefits to the Santam group.
Continued investments in a number of strategic projects have been undertaken to improve efficiency and service delivery. Significant
start-up costs were incurred during the first phase of the strategic project to develop a new underwriting and product management system
for the Santam Commercial and Personal business. This resulted in a project cost ratio of 1.4% of net earned premium, exceeding the target
of 1% and contributing to the increase in the net acquisition cost ratio to 27.9% (2012: 27.7%). The first development phase of the project
was successfully completed in December 2013 and direct development costs of R56 million were capitalised during the second half of 2013. We
are confident that these projects will add to Santam’s future competitive advantage and improved cost efficiency.
Investment returns on insurance funds of R374 million decreased from the R415 million earned in 2012, resulting mainly from low interest
rates, the negative performance of the bond market and reduced float margins on the alternative risk transfer business.
The combined effect of insurance activities resulted in a net insurance income of R851 million or a 5.0% net insurance margin, compared to
R1 038 million (6.6% net insurance margin) in 2012.
Santam achieved satisfactory investment results relative to the market. Santam entered into three derivative fence structures with downside
protection of 10% and upside participation of between 9.5% and 9.7% on equities to the value of R2 billion between March and May 2013. This
arrangement will act as further protection against equity market volatility in 2014. An unrealised fair value loss of R204 million was
recorded on the structure. The investment results were supported by a preference dividend of R51 million that was received on the Sanlam
Emerging Markets (SEM) preference share linked to the Shriram General Insurance (SGIC) business in India, and foreign exchange gains
totalling R91 million (2012: R14 million).
Net earnings from associated companies of R86 million was on par with 2012, with significant contribution from Credit Guarantee Insurance
Corporation of Africa Ltd.
Santam entered into a series of transactions with Sanlam Emerging Markets in December 2013, in terms of which Santam acquired participation
interests in SEM’s emerging markets short-term insurance investments in India, Malaysia, Botswana, Malawi, Zambia, Tanzania and Uganda for
R509 million, by subscribing for shares of separate classes in SEM with each separate class linked to a specific participation interest.
As part of the transaction, SEM obtained a 37.4% participatory interest in Santam Namibia for R277 million, and Santam disposed of its
25.1% direct interest in NICO Holdings to SEM for R64 million. The group realised a non-headline loss of R18 million on the sale due to the
reclassification from equity to earnings of a debit foreign currency translation reserve of R34 million, relating to the depreciation of
the Malawian kwacha against the rand.
Santam will render technical services to the SEM short-term insurance partner companies. The transaction enables Santam to share in the
economic interest of the current and future short-term insurance expansion by SEM in these markets. In principle, SEM and Santam will
participate on a 65%/35% basis respectively in the Sanlam Group’s short-term insurance businesses in emerging markets.
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 continue building its leadership position through its relationships within the travel market and leverage off
Santam’s support.
Santam also acquired a 40% interest in Western Group Holdings Ltd, a short-term insurance business, from PSG Konsult for R88 million in
September 2013.
The board would like to extend its gratitude to Santam’s management, employees, intermediaries and other business partners for their
efforts and contributions during the past year.
Prospects
The reality of the upward movement in interest rates, the depreciating rand, increasing fuel, energy and food prices coupled with the
need for us to increase premiums continues to make it a tough environment for the South African consumer and for our business.
The claims from weather-related events in 2013 reduced the group’s net underwriting margin by 2.5%. Rand pressure on the cost of motor
vehicle repairs relative to premium increases further depressed underwriting margins with the result that we have not achieved our
medium-term targeted net underwriting margin of 5% to 7% in 2013. As a group, our biggest challenge in the short term will therefore be to
balance growth and profitability and return to the target margin. We expect sluggish economic growth for the next financial year and
uncertain investment returns, driving even more focus on the improvement of underwriting margins.
The exchange rate will still be a critical factor in determining future performance – the impact of which can be mitigated by improved
procurement practices and segregated premium increases and through our international expansion plans – particularly where we have partnered
with SEM. Despite the financial strain on clients, we are confident that penetration and diversification in South Africa will continue
growing the total market. In addition to our premium actions we also intend to intensify our approach to addressing multi-claimants,
acting on policies with below minimum rates and reviewing the underwriting of poorer risks.
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 reporting date.
Declaration of dividend (Number 120)
Notice is hereby given that the board has declared a final dividend of 433.0000 cents per share (2012: 230 cents). Shareholders are
advised that the last day to trade “cum dividend” will be Thursday, 20 March 2014. The shares will trade “ex dividend” from the
commencement of business on Monday, 24 March 2014. The record date will be Friday, 28 March 2014, and the payment date will be Monday,
31 March 2014. Certificated shareholders may not dematerialise or rematerialise their shares between 24 March 2014 and 28 March 2014,
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 R4 374 601.48061 STC credits available for utilisation. Accordingly the Secondary Tax on Companies (STC) credit available is
3.66547cents per share. The amount per share subject to the withholding of dividends tax at a maximum rate of 15% is therefore 429.33453
cents per share. A net dividend of 368.59982 cents per share will apply to shareholders liable for dividends tax at a rate of 15% and
433.00000 cents per share for shareholders that qualify for complete exemption therefrom. The issued ordinary share capital as at
26 February 2014 is 119 346 417 shares. The company’s 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
by a nominee company, stockbroker or Central Security Depository Participant (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.
Auditors’ report
These summary consolidated financial statements for the year ended 31 December 2013 have been audited by PricewaterhouseCoopers Inc, who
expressed an unmodified opinion thereon. The auditor also expressed an unmodified opinion on the annual financial statements from which
these summary consolidated financial statements were derived. The auditors’ report does not necessarily report on all the information
contained in this announcement/financial results. Shareholders are therefore advised that in order to obtain a full understanding of the
nature of the auditors’ engagement they should obtain a copy of the auditors’ report together with the accompanying financial information
from the issuer’s registered office.
A copy of the auditor’s report on the summary consolidated financial statements and of the auditor’s report on the annual consolidated
financial statements are available for inspection at the company’s registered office, together with the financial statements identified in
the respective auditor’s reports.
On behalf of the board
GG Gelink IM Kirk
Chairman Chief Executive Officer
26 February 2014
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
At At
31 Dec 2013 31 Dec 2012
Notes R million R million
ASSETS
Non-current assets
Property and equipment 95 99
Intangible assets 1 072 990
Deferred income tax 188 221
Investments in associates 318 261
Financial assets – at fair value through income
Equity securities 6 4 011 3 551
Debt securities 6 7 306 6 957
Derivatives 6 1 6
Reinsurance assets 7 117 137
Current assets
Cell owners’ interest 15 24
Financial assets – at fair value through income
Short-term money market instruments 6 1 424 917
Reinsurance assets 7 2 227 1 618
Deferred acquisition costs 369 340
Loans and receivables including insurance receivables 6 2 684 2 088
Income tax assets 31 57
Cash and cash equivalents 2 343 2 471
Non-current assets held for sale 8 415 –
Total assets 22 616 19 737
EQUITY
Capital and reserves attributable to the company’s equity holders
Share capital 107 107
Treasury shares (520) (579)
Other reserves 224 77
Distributable reserves 6 321 5 904
6 132 5 509
Non-controlling interest 400 108
Total equity 6 532 5 617
LIABILITIES
Non-current liabilities
Deferred income tax 315 284
Financial liabilities – at fair value through income
Debt securities 6 997 1 034
Investment contracts 6 126 83
Cell owners’ interest 814 712
Insurance liabilities 7 1 595 1 340
Current liabilities
Financial liabilities – at fair value through income
Debt securities 6 24 24
Investment contracts 6 - 12
Derivatives 6 204 –
Financial liabilities – at amortised cost
Collateral guarantee contracts 82 75
Insurance liabilities 7 9 096 8 318
Deferred reinsurance acquisition revenue 171 147
Provisions for other liabilities and charges 84 161
Trade and other payables 2 561 1 886
Current income tax liabilities 15 44
Total liabilities 16 084 14 120
Total shareholders’ equity and liabilities 22 616 19 737
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
At At
31 Dec 2013 31 Dec 2012 Change
Notes R million R million %
Gross written premium 20 631 19 386 6%
Less: Reinsurance premium 3 731 3 564
Net premium 16 900 15 822 7%
Less: Change in unearned premium
Gross amount 334 323
Reinsurers' share (185) (127)
Net insurance premium revenue 16 751 15 626 7%
Investment income 9 782 859 (9%)
Income from reinsurance contracts ceded 600 516
Net gains on financial assets and liabilities
at fair value through income 9 449 480
Net income 18 582 17 481 6%
Insurance claims and loss adjustment expenses 13 807 12 167
Insurance claims and loss adjustment expenses
recovered from reinsurers (2 200) (1 488)
Net insurance benefits and claims 11 607 10 679 9%
Expenses for the acquisition of insurance
contracts 2 721 2 540
Expenses for marketing and administration 2 562 2 349
Expenses for asset management services rendered 29 31
Amortisation and impairment of intangible assets 114 116
Expenses 17 033 15 715 8%
Results of operating activities 1 549 1 766 (12%)
Finance costs (118) (106)
Net income from associates 86 83
Net loss on sale of associate (18) –
Impairment on net investments and loans of
associates (26) (43)
Profit before tax 1 473 1 700 (13%)
Income tax expense 10 (300) (624)
Profit for the period 1 173 1 076 9%
Other comprehensive income
Currency translation differences 143 23
Total comprehensive income for the period 1 316 1 099
Profit attributable to:
– equity holders of the company 1 120 1 027 9%
– non-controlling interest 53 49
1 173 1 076
Total comprehensive income attributable to:
– equity holders of the company 1 263 1 050 20%
– non-controlling interest 53 49
1 316 1 099
Earnings attributable to equity shareholders
Earnings per share (cents) 12
Basic earnings per share 982 904 8%
Diluted earnings per share 973 895 9%
Weighted average number of shares – millions 114.12 113.56
Weighted average number of ordinary shares
for diluted earnings per share – millions 115.12 114.81
SUMMARY 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
year 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 – – – 1 120 53 1 173
Other comprehensive income:
Currency translation differences – – 143 – – 143
Total comprehensive income for the
year ended 31 December 2013 – – 143 1 120 53 1 316
Issue of target shares – – – – 277 277
Sale of treasury shares – 59 – – – 59
Loss on sale of treasury shares – – – (60) – (60)
Transfer to reserves – – 4 (4) – –
Share-based payments – – – 106 – 106
Dividends paid – – – (745) (37) (782)
Acquisition of subsidiary – – – – (1) (1)
Balance as at 31 December 2013 107 (520) 224 6 321 400 6 532
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
At At
31 Dec 2013 31 Dec 2012
Notes R million R million
Cash generated from operations 1 616 2 362
Interest paid (118) (106)
Income tax paid (221) (521)
Net cash from operating activities 1 277 1 735
Cash flows from investing activities
Cash (utilised in)/generated from investment activities (945) 935
Acquisition of subsidiary 11 (105) –
Cash acquired through acquisition of subsidiary 11 15 –
Purchases of equipment (36) (63)
Purchases of software (71) (31)
Proceeds from sale of equipment 1 1
Acquisition of associated companies (88) (6)
Proceeds from sale of associated companies 63 –
Acquisition of book of business (9) (81)
Net cash from investing activities (1 175) 755
Cash flows from financing activities
Proceeds from issue of target shares 277 –
Increase/(decrease) in investment contract liabilities 29 (17)
Increase/(decrease) in collateral guarantee contracts 7 (39)
Dividends paid to company’s shareholders (745) (1 626)
Dividends paid to non-controlling interest (37) (48)
Net increase in cell owners’ interest 111 90
Net cash used in financing activities (358) (1 640)
Net (decrease)/increase in cash and cash equivalents (256) 850
Cash and cash equivalents at beginning of period 2 471 1 598
Exchange gains on cash and cash equivalents 128 23
Cash and cash equivalents at end of period 2 343 2 471
NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL INFORMATION
1. Basis of preparation
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Ltd Listings Requirements for
preliminary reports, and the requirements of the Companies Act applicable to summary financial statements. The Listings Requirements
require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements
of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the
information required by IAS 34 Interim Financial Reporting.
2. Accounting policies
The accounting policies applied in the preparation of the consolidated financial statements from which the summary consolidated financial
statements were derived are in terms of International Financial Reporting Standards and are consistent with those accounting policies
applied in the preparation of the previous consolidated annual financial statements, except for:
The following new IFRSs and/or IFRICs were effective for the first time 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 summary consolidated financial statements identified based on management’s assessment of these standards.
3. Estimates
The preparation of summary consolidated 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 summary consolidated financial statements, the significant judgements made by management in applying the group’s
accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated annual financial
statements for the year ended 31 December 2012.
4. Risk management
The group’s 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 summary consolidated 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 group’s annual financial statements as at 31 December 2013.
There have been no changes in the risk management policies since the previous year-end.
5. Segment information
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 group consists of two core operating segments, i.e. insurance and investment activities.
Insurance activities are all core general insurance and reinsurance underwriting activities directly undertaken by the group and comprise
commercial insurance, personal insurance and alternative risks. Insurance activities are also further analysed by insurance class. The
performance of insurance activities is based on gross written premium as a measure of growth; with net underwriting result and net insurance
result as measures of profitability.
Investment activities are all investment-related activities undertaken by the group. Investment activities are measured based on net
investment income and net income from associated companies.
Given the nature of the operations there is no single external customer that provides 10% or more of the group’s revenues.
The MiWay deferred bonus plan (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, investment or strategic diversification performance of the group. Therefore, these
costs are disclosed as unallocated activities.
Santam Ltd is domiciled in South Africa. Geographical analysis of gross written premium and non-current assets and liabilities are based on
the countries in which the business is underwritten or managed. Non-current assets comprise goodwill and intangible assets, property and
equipment, investments in associates and target shares.
5.1 For the year ended 31 December 2013
Insurance Investment Unallocated Total
Business activity R million R million R million R million
Revenue 20 631 942* – 21 573
Gross written premium 20 631 – – 20 631
Net written premium 16 900 – – 16 900
Net earned premium 16 750 – – 16 750
Claims incurred 11 607 – – 11 607
Net commission 2 121 – – 2 121
Management expenses 2 545 – – 2 545
Underwriting result 477 – – 477
Investment return on insurance funds 374 – 374
Net insurance result 851 – – 851
Investment income net of
Management fee and finance costs – 710 – 710
Income from associates net of
Impairment and losses on sale – 42 – 42
MiWay DBP and Santam BEE transaction costs - - (30) (30)
Amortisation of intangible assets (100) – – (100)
Income before taxation 751 752 (30) 1 473
* Finance cost is not included in 2013 revenue
Insurance activities
The group’s insurance activities are spread over various classes of short-term insurance.
Gross written Underwriting
premium result
R million R million
Accident and health 316 50
Alternative risk 1 931 2
Crop 831 (142)
Engineering 1 010 210
Guarantee 43 11
Liability 1 194 119
Miscellaneous 47 2
Motor 8 887 199
Property 5 832 (2)
Transportation 540 28
Total 20 631 477
Comprising:
Commercial insurance 10 697 520
Personal insurance 8 003 (45)
Alternative risk 1 931 2
Total 20 631 477
Investment activities
For detailed analysis of investment activities refer to notes 6 and 8.
5.2 For the year ended 31 December 2012
Insurance Investment 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 – 40 – 40
MiWay DBP and Santam BEE transaction costs – – (57) (57)
Amortisation of intangible assets (108) – – (108)
Income before taxation 930 827 (57) 1 700
Insurance activities
The group’s insurance activities are spread over various classes of short-term insurance.
Gross written Underwriting
premium result
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
Investment activities
For detailed analysis of investment activities refer to notes 6 and 8.
5.3 Geographical analysis
Gross written Non-current
premium assets
2013 2012 2013 2012
R million R million R million R million
South Africa* 19 585 18 665 1 393 1 310
Rest of Africa** 845 695 117 40
South East Asia and India 123 18 484 –
China 78 8 – –
Group Total 20 631 19 386 1 994 1 350
* Included all gross written premiums managed by specialist business units
** Included gross written premium relating to Santam Namibia of R812 million (2012: R682 million)
6. Financial assets and liabilities
At At
31 Dec 2013 31 Dec 2012
R million R million
The group’s financial assets are summarised below by measurement category.
Financial assets at fair value through income 12 742 11 431
Loans and receivables 2 684 2 088
Total financial assets 15 426 13 519
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: Input other than quoted prices included within level 1 that is observable for the asset or liability, either directly (that is,
prices) or indirectly (that is, derived from prices)
– Level 3: Input for the asset or liability that is not based on observable data (that is, unobservable input)
There were no transfers between the different levels defined above during the period.
All derivative instruments are classified as investments held for trading. The rest of the investment portfolio is designated as financial
assets at fair value through income based on the principles that the entire portfolio is managed on a fair value basis.
Financial assets at fair value through income
Level 1 Level 2 Level 3 Total
December 2013 R million R million R million R million
Equity securities
Quoted
Listed 3 350 – – 3 350
Unitised funds – 130 – 130
Irredeemable preference shares 2 – – 2
Unquoted – – 529 529
Total equity securities 3 352 130 529 4 011
Debt securities
Quoted
Government and other bonds 1 607 178 – 1 785
Redeemable preference shares - 288 - 288
Money market instruments > 1 year - 1 636 - 1 636
Unquoted
Government and other bonds – 54 – 54
Money market instruments > 1 year – 3 520 – 3 520
Redeemable preference shares – – 23 23
Total debt securities 1 607 5 676 23 7 306
Derivatives
Interest rate swaps 1 1
Total derivatives – – 1 1
Short-term money market instruments – 1 424 – 1 424
4 959 7 230 553 12 742
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
In the current year, the unquoted equity instruments recognised as level 3 instruments consist mainly of the participation instruments
issued by Sanlam Emerging Markets (Pty) Ltd (SEM). The prior year balance consisted mainly of the investment in Cardrow Insurance Ltd, which
has been classified as held for sale.
In December 2013 Santam subscribed in separate classes of target shares issued by SEM, with each separate class linked to a participatory
interest in the target companies listed below. The total fair value of these investment at year-end was R528 million.
a) A 15.4% interest in the fair value of Pacific & Orient Insurance Co. Berhad (P&O), incorporated in Malaysia. P&O is a niche short-term
insurer based in Kuala Lumpur, Malaysia.
b) A 7.0% interest in the fair value of Shriram General Insurance Company Ltd (SGIC), incorporated in India. SGIC is the short-term insurance
business of the Shriram Group, a financial conglomerate based in India. SGIC is positioned to be a market leader in motor insurance.
c) An 18.6% interest in the fair value of BIHL Insurance Company Ltd (BIHL Sure), incorporated in Botswana. BIHL Sure is a subsidiary of
Botswana Insurance Holdings Ltd, a company listed on the Botswana Stock Exchange. BIHL Sure is a start-up short-term insurer providing a
variety of insurance products.
d) An 8.7% interest in the fair value of the short-term insurance subsidiaries of NICO Holdings in Malawi, Zambia and Uganda, and a 5.7% in
Tanzania (collectively the NICO subsidiaries), following the disposal of Santam’s direct interest in NICO Holdings in terms of the NICO
Holdings transaction. The NICO subsidiaries offer predominantly personal and commercial insurance products.
Santam previously held an entitlement to participate in the appreciation of SGIC above agreed minimum hurdle rates through a preference share
issued by SEM, and which has been redeemed at SEM’s election and paid a dividend of R51 million. Santam will now, in terms of the
participation transaction, participate in 7.0% of the economic benefits of SGIC.
The net fair value movements recognised on level 3 instruments amounted to -R196 million for the year ended 31 December 2013
(2012: -R176 million).
The interest rate derivatives represent the fair value of interest rate swaps effected on a total of R108 million (2012: R110 million) of
fixed interest securities held in the investment portfolio underlining the subordinated callable note. The interest rate swaps have the
effect of swapping a variable interest rate for a fixed interest rate on these assets to eliminate interest rate risk on assets supporting
the bond liability. The derivatives mature on 30 September 2016 and 10 June 2017.
Financial liabilities at fair value through income
Level 1 Level 2 Level 3 Total
December 2013 R million R million R million R million
Debt securities 1 021 – – 1 021
Investment contracts – 126 – 126
Derivatives – Fence structure – – 204 204
1 021 126 204 1 352
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.
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 12 months.
At 31 December 2013, the SWIX40 index closed at 9000 and the structures had a fair value of negative R204 million.
At At
31 Dec 2013 31 Dec 2012
R million R million
7. Insurance liabilities and reinsurance assets
Gross
Long-term insurance contracts
– claims reported and loss adjustment expenses 3 –
– claims incurred but not reported 22 14
Short-term insurance contracts
– claims reported and loss adjustment expenses 5 520 4 948
– claims incurred but not reported 1 427 1 311
– unearned premiums 3 719 3 385
Total insurance liabilities– gross 10 691 9 658
Non-current liabilities 1 595 1 340
Current liabilities 9 096 8 318
Recoverable from reinsurers
Long-term insurance contracts
– claims reported and loss adjustment expenses 1 –
– claims incurred but not reported 4 2
Short-term insurance contracts
– claims reported and loss adjustment expenses 1 315 977
– claims incurred but not reported 207 192
– unearned premiums 817 584
Total reinsurers’ share of insurance liabilities 2 344 1 755
Non-current assets 117 137
Current assets 2 227 1 618
Net
Long-term insurance contracts
– claims reported and loss adjustment expenses 2 –
– claims incurred but not reported 18 12
Short-term insurance contracts
– claims reported and loss adjustment expenses 4 205 3 971
– claims incurred but not reported 1 220 1 119
– unearned premiums 2 902 2 801
Total insurance liabilities – net 8 347 7 903
8. Non-current asset held for sale
Santam Ltd initially set-up the Santam International Group to facilitate the expansion into Europe. Santam International Ltd
(Santam International) directly and indirectly held three subsidiaries called Santam UK Ltd, Westminster Motor Insurance Agency Ltd (WMIA)
and Santam Europe Ltd (Europe). The holdings in WMIA and Europe were sold in 2008 and Santam International only retained deferred conditional
rights relating to the sale contracts. WMIA and Europe were renamed subsequent to the sale to Cardrow Insurance Ltd and Beech Hill Insurance
Ltd respectively.
Santam Ltd will release the deferred conditional rights relating to Cardrow and Beech Hill as and when they become undconditional and
therefore these assets have been recognised as held for sale in the group as at 31 December 2013. This process is expected to be concluded
during 2014.
Once the assets have been realised, management will commence a process to unwind the Santam International Group. The investment in Santam
International as well as the loan to Santam International have therefore been classified as current assets on a company level. The completion
of the unwinding process is subject to Regulatory approval.
At At
31 Dec 2013 31 Dec 2012
R million R million
Assets that are classified as held for sale
Financial assets – at fair value through income
Equity securities 299 –
Loans and receivables including insurance receivables 116 –
415 –
In accordance with IFRS 5, the assets held for sale were recognised at their fair value less costs to sell. This is a non-recurring fair
value based on the net asset value of the business and related costs that will be incurred in order to conclude the unwinding process. It
was herefore also recognised within level 3 of the fair value hierarchy.
At At
31 Dec 2013 31 Dec 2012
R million R million
9. Investment income and net gains/(losses) on financial assets and liabilities
at fair value through income
Investment income 782 859
Dividend income* 177 342
Interest income 514 503
Foreign exchange differences 91 14
Net realised gains on financial assets 368 358
Net fair value gains on financial assets designated as at fair value through income 240 360
Net fair value gains/(losses) on financial assets classified as held for sale 13 (166)
Net fair value losses on short-term money market instruments (3) -
Net realised/fair value (losses)/gains on derivatives (209) 5
Net fair value gains on financial liabilities designated as at fair value through income 40 (77)
Net fair value gains/(losses) on debt securities 37 (70)
Net fair value gains/(losses) on investment contracts 3 (7)
1 231 1 339
* 2012 dividend income includes a dividend of R181 million from Santam’s International run-off business.
Audited Audited
At At
31 Dec 2013 31 Dec 2012
R million R million
10. Income tax
South African normal taxation
Current year 259 499
Charge for the year 258 360
STC 1 139
Prior year (4) 10
Recovered from cell owners (66) (66)
Foreign taxation 40 38
Income taxation for the year 229 481
Deferred taxation 74 143
Current year 75 139
STC – 4
Prior year (1) –
Income tax recovered from cell owners (3) –
Deferred taxation for the year 71 143
Total taxation as per statement of comprehensive income 300 624
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0
Adjust for
– Exempt income (3.4) (2.6)
– Investment results (2.0) (3.2)
– Change in CGT inclusion rate – 4.7
– STC 0.1 8.4
– Disallowable expenses 0.9 1.0
– Income from associates (1.6) (0.7)
– Prior year (overs)/unders (0.3) 0.6
– Other (1.3) 0.5
Net (reduction)/increase (7.6) 8.7
Effective rate 20.4 36.7
11. Business combinations
2013
Additions
Travel Insurance Consultants (Pty) Ltd
Santam Ltd 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 have been in operation for over 25 years. The purchase price amounted to R95
million. The goodwill of R76 million arises from a number of factors such as obtaining economies of scale and unrecognised assets such as
the workforce. Key business relationships of R16 million, brandname of R1 million and an additional deferred tax liability of R6 million
were recognised on acquisition.
At
31 Dec 2013
R million
Details of the assets and liabilities acquired at fair value are as follows:
Intangible assets 22
Loans and receivables (including tax receivables) 1
Cash and cash equivalents 15
Deferred taxation (7)
Trade and other payables (12)
Net asset value acquired 19
Goodwill 76
Purchase consideration paid 95
Beyonda Group (Pty) Ltd
Centriq Insurance Holdings Ltd acquired the additional 51% of the shareholding in Beyonda Group (Pty) Ltd for an amount of R8 million with
effect 1 March 2013. Intangible assets of R15 million, net assets of R1 million as well as a profit on the sale of the investment in
associate previously held of R1 million was recognised. The fair value of the investment in associate previously held was R7 million.
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.
Disposals
Stilus Underwriting Managers (Pty) Ltd
On 1 January 2012, the Santam Group sold its 60% interest in Stilus Underwriting Managers (Pty) Ltd.
At
31 Dec 2012
R million
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 –
Audited Audited
At At
31 Dec 2013 31 Dec 2012
R million R million
12. Earnings per share
Basic earnings per share
Profit attributable to the company’s equity holders (R million) 1 120 1 027
Weighted average number of ordinary shares in issue (million) 114.12 113.56
Earnings per share (cents) 982 904
Diluted earnings per share
Profit attributable to the company’s equity holders (R million) 1 120 1 027
Weighted average number of ordinary shares in issue (million) 114.12 113.56
Adjusted for share options 1.00 1.25
Weighted average number of ordinary shares for diluted earnings per share (million) 115.12 114.81
Diluted basic earnings per share (cents) 973 895
Headline earnings per share
Profit attributable to the company’s equity holders 1 120 1 027
Adjust for:
Impairment on net investment and loans of associates 26 43
Impairment of goodwill 5 35
Impairment of software – 25
Net loss on sale of investment in associate 18 –
Tax charge 9 –
Headline earnings (R million) 1 178 1 130
Weighted average number of ordinary shares in issue (million) 114.12 113.56
Headline earnings per share (cents) 1 033 995
Diluted headline earnings per share
Headline earnings (R million) 1 178 1 130
Weighted average number of ordinary shares for diluted earnings per share (million) 115.12 114.81
Diluted headline earnings per share (cents) 1 023 984
13. Dividends per share
Dividend per share (cents) 675 640
Directors
Executive directors
IM Kirk (Chief Executive Officer), HD Nel (Chief Financial Officer), Y Ramiah
Non-executive directors
GG Gelink (Chairman), B Campbell, MD Dunn, MP Fandeso, BTPKM Gamedze, MLD Marole, JP Möller, MJ Reyneke, J van Zyl
Sponsor
Investec Bank Ltd
Company secretary
Masood Allie
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
Registered office
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: 26/02/2014 02:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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