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Reviewed Condensed Consolidated Interim Report for the six months ended 30 June 2014
Santam Ltd and its subsidiaries
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
REVIEWED CONDENSED CONSOLIDATED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2014
- Gross written premium growth:
including cell captive insurance 7%
excluding cell captive insurance 10%
- Underwriting margin of 7.4%
- Positive contribution from international strategic diversification
- Group solvency ratio of 44%
- Significantly improved cash generation
- Return on shareholders' funds of 29.6%
- Interim dividend of 262 cents per share, up 8.3%
FINANCIAL REVIEW
The Santam group reported considerably improved underwriting results for the six months ended June 2014
compared to the corresponding period in 2013, influenced by a substantial turnaround in the crop insurance
business and an improved contribution from all major business units. Satisfactory gross written premium growth
of 10%, excluding cell captive insurance business, was achieved in the context of a difficult economic
environment.
Investment returns improved compared to the corresponding period following positive market movements and an
increase in interest rates in January 2014. Headline earnings per share increased by 119%, while a return on
capital of 29.6% was achieved compared to the 14.9% of the comparative period. The solvency margin of 44% is
at the upper end of the target range of 35% to 45%.
The net underwriting margin of 7.4%, which is above the long-term target range of 4% to 6%, was positively
impacted by the turnaround in the crop insurance business from a loss of R112 million for the six months to
June 2013 to a profit of R187 million in the corresponding 2014 period.
The Santam Commercial and Personal intermediated business benefited from the impact of corrective actions and
segmented premium increases implemented since the first quarter of 2013. The Santam Specialist division
delivered strong underwriting results in various business classes including liability, property and
transportation. The accident and health class reported a loss due to a softening in market conditions. MiWay
improved on its 2013 performance with a claims ratio of 58.3%, while the Santam Re underwriting results
improved following lower retrocession costs and corrective action on the South African portfolio.
The group achieved satisfactory gross written premium growth of 10% excluding cell insurance business and 7%
inclusive of cells. The growth of cell captive insurance business in Centriq was under pressure following the
cancellation of a significant book of business in 2013. The Specialist insurance classes had mixed fortunes
with the engineering class achieving 2% growth in competitive market conditions and the liability class showing
negative growth following the decision to reduce risk exposure to medical malpractice and underrated liability
business. In contrast, the corporate property business and the transportation business achieved good growth.
MiWay increased gross written premiums by 14% to R714 million. Santam Re's growth from third-party business was
negatively impacted by the cancellation of an unprofitable South African book of business. The international
business of Santam Re more than doubled to R174 million.
Following South Africa's credit downgrade by global ratings agency Standard & Poor's (S&P) on 13 June 2014,
Santam's international long-term counterparty credit and insurer financial strength rating has been adjusted
from A- to BBB+, maintaining a rating of two notches above the sovereign rating. At the same time, S&P affirmed
the `za AA+' South Africa national scale rating of Santam, leaving our local policyholders and noteholders
unaffected. Alternative arrangements to support growth in territories outside South Africa, in situations
where this is dependent on Santam's S&P international scale rating, were put in place towards the end of 2013.
In terms of these arrangements, Santam has facilitated the use of an international insurer's AA-rated licence
for such business, if required. As part of the arrangement with the international insurer, Santam entered
into an alternative risk transfer (ART) quota share agreement effective 1 January 2014, which reduced net
written premiums by R500 million during this reporting period, reducing growth in net earned premiums to 4%.
The agreement will generate dollar-denominated collateral to support Santam's use of the international
insurer's AA-rated licence The agreement also reduces Santam's net catastrophe exposure, resulting in lower
catastrophe reinsurance premiums.
The net acquisition cost ratio of 28.2% is in line with the June 2013 ratio. On a comparable basis, excluding
the impact of the reinsurance quota share agreement, the management expense ratio increased by 1.1%. Higher
levels of binder fees payable to intermediaries following changes in regulations in 2013 contributed to this
increase. The provision for incentives exceeding that of the comparable period following the significant
improvement in underwriting performance and a once-off provision for cost associated with the planned
relocation of the Johannesburg office also impacted management expenses. Strategic project cost amounted to
1% of net earned premium. Development costs of R41 million relating to the strategic project to develop a
new administration, underwriting and product management technology for the traditional Santam intermediated
business was capitalised. It is pleasing to report that the project is progressing according to plan.
The net commission ratio reduced by 0.8% on a comparable basis. The decrease was mainly due to the growth in
MiWay, where no commission expenses are incurred, as well as reinsurance profit commissions received on
specialist and crop insurance business.
Investment returns on insurance funds of R222 million were 14% higher than the R195 million achieved in 2013,
following good investment performance and the increase in interest rates in January 2014.
The combined effect of insurance activities resulted in a net insurance income of R850 million compared to
R297 million in 2013.
The group's investment performance was in line with the market, other than the negative impact of the
hedge over R2 billion of equities, which expired in May 2014. A loss of R93 million was incurred on this
hedge during the six months to 30 June 2014. The hedge was not renewed after the final tranche expired in
May 2014. Positive fair value movements to the value of R63 million in Santam's interest in the Sanlam
Emerging Markets (SEM) general insurance businesses in Africa, India and Southeast Asia enhanced the
investment performance. The group invested a further R40 million in the SEM general insurance businesses
by increasing its economic participation in the NICO Holdings general insurance businesses in Malawi,
Uganda and Zambia to 22% and acquiring a 9% economic participation in Oasis Insurance in Nigeria.
Net earnings from associated companies of R17 million decreased from R34 million in 2013, mainly due to the
key contributor, Credit Guarantee Insurance Corporation of Africa Ltd, reporting lower earnings compared
to 2013.
Cash generated from operations of R930 million increased from R516 million in 2013, mainly due to the
improved underwriting results.
The board would like to express its gratitude to Santam's management, staff, intermediaries and other
business partners for their efforts and contributions during the past six months.
Prospects
Trading conditions in the South African insurance industry remain tough despite some hardening of insurance
premium rates following the poor underwriting results reported by industry participants in 2012 and 2013.
Difficult economic conditions with low gross domestic product growth and higher interest rates are expected
to have a negative impact on consumers.
Santam continues to manage premium increases selectively through our market and risk segmentation approach
on policy renewal. We will also continue focusing on the implementation of various underwriting practices and
risk management approaches to improve the underwriting margin in the traditional Santam intermediated business.
We continue with our growth initiatives with a specific focus to achieve further international diversification
in the Santam Specialist division and Santam Re.
Nominal interest rates are expected to increase further towards the end of the year, positively impacting
return on insurance funds. The investment market is likely to remain uncertain.
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 121)
Notice is hereby given that the board has declared an interim dividend of 262 cents per share (2013: 242 cents).
Shareholders are advised that the last day to trade cum dividend will be Friday, 12 September 2014. The
shares will trade ex dividend from the commencement of business on Monday, 15 September 2014. The record date
will be Friday, 19 September 2014, and the payment date will be Monday, 22 September 2014. Certificated
shareholders may not dematerialise or rematerialise their shares between 15 September 2014 and 19 September
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 646 765.90793 secondary tax on companies (STC) credits available
for utilisation. Accordingly the STC credit available is 3.89351 per share. The amount per share subject to the
withholding of dividends tax at a maximum rate of 15% is therefore 258.10649 cents per share. A net dividend
of 223.28403 cents per share will apply to shareholders liable for dividends tax at a rate of 15% and
262.00000 cents per share for shareholders that qualify for complete exemption therefrom. The issued ordinary
share capital as at 27 August 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 (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 interim financial statements was supervised by the chief financial officer of
Santam Ltd, HD Nel.
Auditors’ Report
These condensed consolidated interim financial statements for the period ended 30 June 2014 have been reviewed
by PricewaterhouseCoopers Inc., who expressed an unmodified conclusion thereon. A copy of the auditor’s report
on the condensed consolidated interim financial statements is available for inspection at the company’s
registered office, together with the financial statements identified in the auditor’s report. The auditor's
report does not necessarily report on all of the information contained in these financial results. Shareholders
are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement
they should obtain a copy of the auditor's report together with the accompanying financial information from
the issuer's registered office.
On behalf of the board
GG Gelink IM Kirk
Chairman Chief Executive Officer
27 August 2014
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Reviewed Audited
At At At
30 June 2014 30 June 2013 31 Dec 2013
Notes R million R million R million
ASSETS
Non-current assets
Property and equipment 88 97 95
Intangible assets 1 098 1 082 1 072
Deferred income tax 181 227 188
Investment in associates 327 277 318
Financial assets at fair value through income
Equity securities 6 3 752 3 274 4 011
Debt securities 6 7 538 7 243 7 306
Derivatives 6 1 1
Cell owners' interest 17
Reinsurance assets 7 140 126 117
Current assets
Cell owners' interest 16 15
Financial assets at fair value through income
Derivatives 6 10
Short-term money market instruments 6 1 758 1 174 1 424
Reinsurance assets 7 2 372 1 936 2 227
Deferred acquisition costs 330 305 369
Loans and receivables including insurance receivables 6 2 079 2 045 2 684
Income tax assets 43 17 31
Cash and cash equivalents 2 292 2 333 2 343
Non-current assets held for sale 8 429 415
Total assets 22 443 20 164 22 616
EQUITY
Capital and reserves attributable to the company's
equity holders
Share capital 107 107 107
Treasury shares (499) (526) (520)
Other reserves 239 157 224
Distributable reserves 6 722 5 829 6 321
6 569 5 567 6 132
Non-controlling interest 411 99 400
Total equity 6 980 5 666 6 532
LIABILITIES
Non-current liabilities
Deferred income tax 336 276 315
Financial liabilities at fair value through income
Debt securities 6 989 998 997
Investment contracts 6 26 126
Cell owners' interest 854 739 814
Insurance liabilities 7 1 561 1 452 1 595
Current liabilities
Financial liabilities at fair value through income
Debt securities 6 24 24 24
Investment contracts 6 77
Derivatives 6 204
Financial liabilities at amortised cost
Collateral guarantee contracts 87 79 82
Insurance liabilities 7 8 912 8 233 9 096
Deferred reinsurance acquisition revenue 132 110 171
Provisions for other liabilities and charges 79 147 84
Trade and other payables 2 274 2 339 2 561
Current income tax liabilities 189 24 15
Total liabilities 15 463 14 498 16 084
Total shareholders' equity and liabilities 22 443 20 164 22 616
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Reviewed
Six months Six months Audited ended ended Year ended
30 June 2014 30 June 2013 Change 31 Dec 2013
Notes R million R million % R million
Gross written premium 10 525 9 858 7% 20 631
Less: Reinsurance premium 2 465 2 089 3 731
Net premium 8 060 7 769 4% 16 900
Less: change in unearned premium
Gross amount (335) (204) 334
Reinsurers' share (63) (123) (185)
Net insurance premium revenue 8 458 8 096 4% 16 751
Investment income 9 377 363 4% 782
Income from reinsurance contracts ceded 522 316 600
Net gains on financial assets and liabilities
at fair value through income 9 323 150 449
Net income 9 680 8 925 9% 18 582
Insurance claims and loss adjustment expenses 6 721 6 878 13 807
Insurance claims and loss adjustment expenses
recovered from reinsurers (1 273) (1 163) (2 200)
Net insurance benefits and claims 5 448 5 715 (5%) 11 607
Expenses for the acquisition of insurance contracts 1 432 1 344 2 721
Expenses for marketing and administration 1 493 1 270 2 562
Expenses for asset management services rendered 16 15 29
Amortisation and impairment of intangible assets 15 30 114
Expenses 8 404 8 374 0% 17 033
Results of operating activities 1 276 551 132% 1 549
Finance cost (48) (59) (118)
Net income from associates 17 34 86
Net loss on sale of associate (18)
Impairment on net investment of associates (11) (26)
Profit before tax 1 245 515 142% 1 473
Income tax expense 10 (292) (93) (300)
Profit for the period 953 422 126% 1 173
Other comprehensive income
Currency translation differences 12 78 143
Total comprehensive income for the period 965 500 1 316
Profit attributable to:
equity holders of the company 911 405 125% 1 120
non-controlling interest 42 17 53
953 422 1 173
Total comprehensive income attributable to:
equity holders of the company 923 483 91% 1 263
non-controlling interest 42 17 53
965 500 1 316
Earnings attributable to equity shareholders
Earnings per share (cents) 12
Basic earnings per share 799 356 125% 982
Diluted earnings per share 794 353 125% 973
Weighted average number of shares millions 114.12 113.89 114.12
Weighted average number of ordinary shares
for diluted earnings per share millions 114.82 114.72 115.12
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-
Attributable to equity holders of the controlling
company interest Total
Distribut-
Share Treasury Other able
capital shares reserves reserves
R million R million R million R million R million R million
Balance as at 1 January 2013 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 period
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
Profit for the period 911 42 953
Other comprehensive income:
Currency translation differences 12 12
Total comprehensive income for the period
ended 30 June 2014 12 911 42 965
Purchase of treasury shares (33) (33)
Sale of treasury shares 54 (54)
Transfer to reserves 3 (3)
Share-based payments 41 41
Dividends paid (494) (31) (525)
Balance as at 30 June 2014 107 (499) 239 6 722 411 6 980
Balance as at 1 January 2013 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)
Interest acquired from non-controlling
interest (1) (1)
Balance as at 30 June 2013 107 (526) 157 5 829 99 5 666
CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Reviewed
six months six months Audited
ended ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
Notes R million R million R million
Cash generated from operations 930 516 1 616
Interest paid (48) (34) (118)
Income tax paid (101) (88) (221)
Net cash from operating activities 781 394 1 277
Cash flows from investing activities
Cash generated from/(utilised in) investment activities 125 (130) (945)
Settlement of fence derivative (297)
Acquisition of subsidiary 11 (9) (105)
Cash acquired through acquisition of subsidiary 11 15 15
Purchases of equipment (13) (17) (36)
Purchases of software (48) (8) (71)
Proceeds from sale of equipment 1 1
Acquisition of associated companies (88)
Capitalisation of associated company (17)
Proceeds from sale of associated companies 63
Acquisition of book of business (9) (9)
Net cash from investing activities (250) (157) (1 175)
Cash flows from financing activities
Purchase of treasury shares (33)
Proceeds from issue of target shares 277
(Decrease)/increase in investment contract liabilities (101) (19) 29
Increase in collateral guarantee contracts 5 5 7
Dividends paid to company's shareholders (494) (467) (745)
Dividends paid to non-controlling interest (31) (25) (37)
Increase in cell owners' interest 40 37 111
Net cash used in financing activities (614) (469) (358)
Net decrease in cash and cash equivalents (83) (232) (256)
Cash and cash equivalents at beginning of period 2 343 2 471 2 471
Exchange gains on cash and cash equivalents 32 94 128
Cash and cash equivalents at end of period 2 292 2 333 2 343
NOTES TO THE INTERIM FINANCIAL INFORMATION
1. Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with International Financial
Reporting Standard (IFRS), IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting
Standards Council and the requirements of the Companies Act of South Africa.
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.
The following new IFRSs and/or IFRICs were effective for the first time from 1 January 2014:
Amendments to IFRS 10, IFRS 12 and IAS 27, Investment entities
Amendment to IAS 32, Offsetting Financial Assets and Financial Liabilities
Amendment to IAS 36, Recoverable amount disclosures for non-financial assets
Amendment to IAS 39, Novation of derivatives and continuation of hedge accounting
IFRIC 21, Levies
There was no material impact on the summary financial statements identified based on management's assessment
of these standards.
3. Estimates
The preparation of condensed 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 condensed 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 2013.
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 condensed 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 are 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 other than strategic
diversification activities. 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 client that provides 10% or more of the group's
revenues.
Insurance business denominated in foreign currencies is covered by foreign denominated bank accounts. Foreign
exchange movements on underwriting results are therefore offset against the foreign exchange movements
recognised on the bank accounts.
The MiWay deferred bonus plan (DBP), relating to the compensation of the 10% share previously held by
management in MiWay and the Santam black economic empowerment 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 is 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 SEM target
shares (included in financial instruments).
5.1 For the six months ended 30 June 2014
Insurance Investment Unallocated Total
Business activity R million R million R million R million
Revenue 10 525 495 11 020
Gross written premium 10 525 10 525
Net written premium 8 060 8 060
Net earned premium 8 459 8 459
Claims incurred 5 448 5 448
Net commission 910 910
Management expenses 1 473 1 473
Underwriting result 628 628
Investment return on insurance funds 222 222
Net insurance result 850 850
Investment income net of management fee and finance costs 413 413
Income from associates net of impairment and losses on sale 17 17
MiWay DBP and Santam BEE transaction costs (20) (20)
Amortisation of intangible assets (15) (15)
Income before taxation 835 430 (20) 1 245
The group's insurance activities are further analysed over various classes of short-term insurance.
Under-
Gross written writing
premium result
Insurance class R million R million
Accident and health 160 (3)
Alternative risk 992 (13)
Crop 70 187
Engineering 538 69
Guarantee 14 2
Liability 544 119
Miscellaneous 26 1
Motor 4 715 199
Property 3 103 36
Transportation 363 31
Total 10 525 628
Comprising:
Commercial insurance 5 319 582
Personal insurance 4 214 59
Alternative risk 992 (13)
Total 10 525 628
5.2 Investment activities
For detailed analysis of investment activities refer to notes 6 and 8.
5.3 Geographical analysis
Gross written Non-current Gross written Non-current
premium assets premium assets
June 2014 June 2014 Dec 2013 Dec 2013
R million R million R million R million
South Africa (1) 9 892 1 399 19 585 1 393
Africa (2) 488 186 845 117
Southeast Asia and India 97 564 123 484
China 48 78
Group total 10 525 2 149 20 631 1 994
(1) Includes all gross written premium managed by specialist business units.
(2) Includes gross written premium relating to Santam Namibia of R458 million (Dec 2013: R812 million).
5.4 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 23 23
MiWay DBP and Santam BEE transaction costs (19) (19)
Amortisation of intangible assets (30) (30)
Income before taxation 267 267 (19) 515
Under-
Gross written writing
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
5.5 For the year ended 31 December 2013
Insurance Investment
activities activities 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 16 751 16 751
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 42 42
MiWay DBP and Santam BEE transaction costs (30) (30)
Amortisation of intangible asset (100) (100)
Income before taxation 751 752 (30) 1 473
Under-
Gross written writing
premium result
Insurance class 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
Reviewed Reviewed Audited
At At At
30 June 2014 30 June 2013 31 Dec 2013
R million R million R million
6. Financial assets and liabilities at fair value through income
Financial assets at fair value through income
The group's financial assets are summarised below by
measurement category.
Financial assets at fair value through income 13 048 11 702 12 742
Loans and receivables 2 079 2 045 2 684
Total financial assets 15 127 13 747 15 426
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 2013. 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 principle 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
June 2014 R million R million R million R million
Equity securities
Quoted
Listed 3 006 3 006
Unitised funds 98 98
Irredeemable preference shares 2 2
Unquoted 646 646
Total equity securities 3 008 98 646 3 752
Debt securities
Quoted
Government and public bonds 1 495 165 1 660
Redeemable preference shares 244 244
Money market instruments > 1 year 1 521 1 521
Unquoted
Government and public bonds 47 47
Money market instruments > 1 year 3 987 3 987
Redeemable preference shares 50 29 79
Total debt securities 1 495 6 014 29 7 538
Derivatives
Interest rate swaps
Foreign exchange contracts
Fence
Total derivatives
Short-term money market instruments 1 758 1 758
4 503 7 870 675 13 048
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
December 2013
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 public bonds 1 607 178 1 785
Redeemable preference shares 288 288
Money market instruments > 1 year 1 636 1 636
Unquoted
Government and public 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
The following table presents the changes in level 3 instruments
Debt
securities
unquoted
Equity redeemable
securities preference
unquoted shares Derivatives Total
June 2014 R million R million R million R million
Opening balance 529 23 (203) 349
Acquisitions 41 41
Disposals/settlements 297 297
Gains/(losses) recognised in profit or loss 76 6 (94) (12)
Closing balance 646 29 675
The investment in Cardrow Insurance Ltd was classified as held for sale during 2013 (refer to note 8). The
investment had an opening balance of R299 million with exchange gains of R13 million and unrealised fair value
losses of R3 million during the year. The closing balance at 30 June 2014 amounted to R309 million.
June 2013
Opening balance 272 29 6 307
Acquisitions 1 1 2
Disposals (40) (40)
Exchange rate differences 23 23
Gains/(losses) recognised in profit or loss 68 4 72
Closing balance 324 29 11 364
Unquoted equity securities consist mainly of the investment in Cardrow Insurance Ltd. This investment was
classified as non-current assets held for sale in December 2013.
December 2013
Opening balance 272 29 6 307
Acquisitions 511 511
Interest and dividends capitalised 1 1
Disposals (39) (39)
Classified as held for sale (299) (299)
Exchange rate differences 64 64
Gains/(losses) recognised in profit or loss 19 (6) (209) (196)
Closing balance 529 23 (203) 349
The investment in Cardrow Insurance Ltd was classified as non-current assets held for sale during 2013 (refer to
note 8). The investment had an opening balance of R233 million with exchange gains of R64 million and
unrealised fair value gains of R2 million during the year. The closing balance at 31 December 2013 amounted to
R299 million.
Financial liabilities at fair value through income
Level 1 Level 2 Level 3 Total
June 2014 R million R million R million R million
Debt securities 1 013 1 013
Investment contracts 26 26
1 013 26 1 039
June 2013
Debt securities 1 022 1 022
Investment contracts 77 77
1 022 77 1 099
December 2013
Debt securities 1 021 1 021
Investment contracts 126 126
Derivatives
Fence 204 204
1 021 126 204 1 351
In June 2014 and December 2013, the unquoted equity instruments recognised as level 3 instruments consist
mainly of the participation instruments issued by SEM. The June 2013 balance consisted mainly of the investment
in Cardrow Insurance Ltd, which has been classified as held for sale.
The fair value of the SEM target shares is determined using discounted cash flow models. The most significant
assumptions used in these models are the discount rate, exchange rate and net insurance margin profile
expectations. Should the discount rates increase or decrease by 10%, the cumulative value of the most
significant target shares would decrease by R104 million (December 2013: R93 million) or increase by
R162 million (December 2013: R147 million) respectively. If exchange rates increase or decrease by 10%, the
cumulative fair values will also increase or decrease by R56 million (December 2013: R50 million). Should the
net insurance margin profile (projected over a period of 10 years) increase or decrease by 10%, the cumulative
fair values will increase by R66 million (December 2013: R64 million) or decrease by R66 million
(December 2013: R62 million) respectively.
The interest rate derivatives represent the fair value of interest rate swaps effected on a total of R106
million (December 2013: R108 million; June 2013: 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.
During the first half of 2013 Santam entered into three derivative fence structures between 28 March 2013 and
8 May 2013 covering equities to the value of R2 billion. All three tranches had downside protection of 10% with
upside participation of 9.7%, 9.6% and 9.5% respectively. The implementation levels were 7593 (SWIX40 index),
7515 and 7694 respectively. A negative fair value of R204 million was recorded as at 31 December 2013 and a loss
of R93 million was incurred during the six months to 30 June 2014. The final tranche expired in May 2014 and the
hedge was not renewed.
Reviewed Reviewed Audited
At At At
30 June 2014 30 June 2013 31 Dec 2013
R million R million R million
7. Insurance liabilities and reinsurance assets
Gross
Long-term insurance contracts
claims reported and loss adjustment expenses 12 7 3
claims incurred but not reported 23 15 22
Short-term insurance contracts
claims reported and loss adjustment expenses 5 613 5 071 5 520
claims incurred but not reported 1 459 1 423 1 427
unearned premiums 3 366 3 169 3 719
Total insurance liabilities gross 10 473 9 685 10 691
Non-current liabilities 1 561 1 452 1 595
Current liabilities 8 912 8 233 9 096
Recoverable from reinsurers
Long-term insurance contracts
claims reported and loss adjustment expenses 5 2 1
claims incurred but not reported 4 3 4
Short-term insurance contracts
claims reported and loss adjustment expenses 1 404 1 050 1 315
claims incurred but not reported 219 277 207
unearned premiums 880 730 817
Total reinsurers' share of insurance liabilities 2 512 2 062 2 344
Non-current assets 140 126 117
Current assets 2 372 1 936 2 227
Net
Long-term insurance contracts
claims reported and loss adjustment expenses 7 5 2
claims incurred but not reported 19 12 18
Short-term insurance contracts
claims reported and loss adjustment expenses 4 209 4 021 4 205
claims incurred but not reported 1 240 1 146 1 220
unearned premiums 2 486 2 439 2 902
Total insurance liabilities net 7 961 7 623 8 347
8. Non-current assets 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 realise the deferred conditional rights relating to Cardrow and Beech Hill as and when they
become unconditional 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 by no later than June 2015.
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.
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 therefore also recognised within level 3 of the fair
value hierarchy.
Reviewed Audited
At At
30 June 2014 31 Dec 2013
R million R million
Assets that are classified as held for sale
Financial assets at fair value through income
Equity securities 309 299
Loans and receivables including insurance receivables 120 116
429 415
Reviewed Reviewed Audited
At At At
30 June 2014 30 June 2013 31 Dec 2013
R million R million R million
9. Investment income and net gains/(losses) on financial
assets and liabilities at fair value through income
Investment income 377 363 782
Dividend income 68 59 177
Interest income 294 242 514
Foreign exchange differences 15 62 91
Net gains on financial assets and liabilities at fair value
through income 323 150 449
Net realised gains on financial assets 430 320 368
Net fair value (losses)/gain on financial assets
designated as at fair value through income (14) (222) 240
Net fair value (loss)/gains on financial assets held for trading (5) 13 13
Net realised/fair value (losses)/gain on derivatives (93) 5 (209)
Net fair value losses on short-term money market instruments (4) (3)
Net fair value gains on financial liabilities designated as
at fair value through income 9 34 40
Net fair value gains on debt securities 9 36 37
Net fair value (loss)/gain on investment contracts (2) 3
700 513 1 231
10. Income tax
South African normal taxation
Current year 283 122 259
Charge for the year 283 122 258
STC 1
Prior year 2 2 (4)
Recovered from cell owners (33) (32) (66)
Foreign taxation 15 17 40
Income taxation for the year 267 109 229
Deferred taxation 25 (14) 74
Current year 35 1 75
Prior year (10) (15) (1)
Recovered from cell owners (2) (3)
292 93 300
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0 28.0
Adjust for
Exempt income (1.4) (3.6) (3.4)
Investment results (2.6) (2.6) (2.0)
STC 0.1
Deferred tax not raised on prior year changes (2.9)
Other (0.5) (0.8) (2.3)
Net reduction (4.5) (9.9) (7.6)
Effective rate 23.5 18.1 20.4
11. Business combinations
2014
There were no material business combinations during the six months ended 30 June 2014.
2013
Additions
Travel Insurance Consultants (Pty) Ltd
Santam Ltd 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 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 also recognised on acquisition.
Provisional accounting was applied for the six months to 30 June 2013.
Reviewed
Six months Audited
ended Year ended
30 June 2013 31 Dec 2013
Details of the assets and liabilities acquired at fair value are as follows:
Intangible assets 32 22
Loans and receivables 7 1
Cash and cash equivalents 15 15
Deferred taxation (9) (7)
Trade and other payables (12) (12)
Net asset value acquired 33 19
Goodwill 62 76
Deferred purchase consideration payable in July 2013 (95)
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 were recognised. The
fair value of the investment in associate previously held was R7 million.
Reviewed Reviewed
Six months Six months Audited
ended ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
12. Earnings per share
Basic earnings per share
Profit attributable to the company's equity holders (R million) 911 405 1 120
Weighted average number of ordinary shares in issue (million) 114.12 113.89 114.12
Earnings per share (cents) 799 356 982
Diluted earnings per share
Profit attributable to the company's equity holders (R million) 911 405 1 120
Weighted average number of ordinary shares in issue (million) 114.12 113.89 114.12
Adjusted for share options 0.70 0.83 1.00
Weighted average number of ordinary shares for
diluted earnings per share (million) 114.82 114.72 115.12
Diluted basic earnings per share (cents) 794 353 973
Headline earnings per share
Profit attributable to the company's equity holders 911 405 1 120
Adjust for:
Impairment charge on net investment of associates 11 26
Impairment of goodwill 5
Net loss on sale of investment in associate 18
Tax charge 9
Headline earnings (R million) 911 416 1 178
Weighted average number of ordinary shares in issue (million) 114.12 113.89 114.12
Headline earnings per share (cents) 799 365 1 033
Diluted headline earnings per share
Headline earnings (R million) 911 416 1 178
Weighted average number of ordinary shares for diluted
earnings per share (million) 114.82 114.72 115.12
Diluted headline earnings per share (cents) 794 363 1 023
13. Dividend per share
Dividend per share (cents) 262 242 675
NON-EXECUTIVE DIRECTORS
B Campbell, MD Dunn, MP Fandeso, BTPKM Gamedze, GG Gelink (Chairman), MLD Marole, MJ Reyneke, JP Möller, J van Zyl
EXECUTIVE DIRECTORS
IM Kirk (Chief Executive Officer), HD Nel (Chief Financial Officer), Y Ramiah
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
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
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
SPONSOR
Investec Bank Ltd
Date: 27/08/2014 01:22:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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