Wrap Text
Audited summary financial results for the year ended 31 December 2014
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 2014
- Gross written premium growth including cell captive insurance 10%
- Gross written premium growth excluding cell captive insurance 12%
- Underwriting margin of 8.7%
- Cash generation significantly improved
- Group solvency ratio of 46%
- Return on shareholders funds of 24.7%
- Positive contribution from international strategic diversification
- Headline earnings increase by 40%
- Final dividend of 480 cents per share, up 10.9%
FINANCIAL REVIEW
The Santam group reported strong underwriting results for the 2014 financial year with a net underwriting margin of 8.7% compared to
2.8% in 2013, significantly above the long-term target range of 4% to 6%. The results were positively impacted by improved contributions
from all business units including a substantial turnaround in the crop insurance business. In addition, the absence of hail-related
catastrophe events during the fourth quarter resulted in a better underwriting performance during the second half of the financial year
compared to 2013. Satisfactory gross premium growth of 10% was achieved (12% when excluding the impact of cell insurance business) in
competitive market conditions.
The investment portfolio performance was in line with market movements experienced during 2014.
The underwriting results of the motor and property business classes continued to benefit from the impact of corrective actions and
segmented premium increases implemented since 2013. The motor and property classes benefited from fewer weather-related catastrophe
events with no significant events in the last quarter of 2014. Santam’s continued focus on optimising the claims and procurement
processes also reduced the effect of the weakening exchange rate on motor claims. Our direct insurer, MiWay, achieved a claims ratio of
57.4% (2013: 62.2%), resulting in an underwriting profit of R159 million (2013: R54 million).
The specialist property business delivered a strong underwriting performance despite a number of large property claims, due to a
positive contribution from the reinsurance programme. Following corrective underwriting actions, with a specific focus on previously
underperforming portfolios, liability business showed a significant improvement compared to 2013. The engineering class was under some
pressure due to competitive forces. The crop insurance business achieved a significant turnaround from a loss-making position of
R142 million in 2013 to an underwriting profit of R251 million in 2014. This business benefited from focused underwriting actions and
benign weather conditions.
Santam Re achieved good profit growth, following lower retrocession costs and corrective action on the South African portfolio.
On a comparable basis, excluding the impact of volatility in the crop results, the 2014 net underwriting margin would be 6.9% compared to
3.8% in 2013. This improvement in the ‘normalised’ underwriting margin is mainly attributed to benign weather-related claims experience
in 2014 and a significant focus by management on process enhancements and corrective actions to improve the profitability of all the
insurance businesses in the group. Net catastrophe claims for 2014 amounted to R187 million compared to R280 million in 2013. The soft
reinsurance market also provided opportunities to optimise reinsurance placements in 2014.
The group reported strong gross written premium growth of 12% in the property class. Corrective underwriting actions as well as
expansion into foreign territories contributed to growth of this class of business. The motor book grew by more than 8%, positively
impacted by an increase in MiWay gross written premiums to R1.5 billion (2013: R1.3 billion).
The specialist insurance classes had mixed fortunes with the liability class showing growth of only 4% following the decision to reduce
risk exposure to medical malpractice business. In contrast, the engineering and transportation classes achieved good growth, mainly
driven by expansion into foreign territories. The crop insurance business also reported growth of 26% through increased exposure and a
change in the crop mix. The growth of cell insurance business in the Alternative Risk class was negatively impacted following the
cancellation of a significant book of business.
Following South Africa’s credit downgrade by global ratings agency Standard & Poor’s (S&P) on 13 June 2014, Santam’s long-term
counterparty credit and insurer financial strength rating was adjusted from A- to BBB+, maintaining its maximum rating of two notches
above the sovereign rating. At the same time, S&P affirmed the ‘zaAA+’ South Africa national scale rating on Santam, leaving our local
policyholders and note holders unaffected. Alternative arrangements to support growth in territories outside of 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 the facility to use an international insurer’s AA-rated licence for such business. 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 earned premiums by R1 billion during this reporting period, reducing growth in net earned premiums to
3%. 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% increased from 27.9% in 2013. On a comparable basis, excluding the impact of the ART reinsurance
quota share arrangement, the management expense ratio increased by 1.2%. Variable incentive costs increased compared to 2013 following
the significant improvement in underwriting performance and were a contributor to the expense ratio increase. Binder fees payable to
intermediaries also increased following changes in regulations in 2013. Strategic project costs amounted to 1% of net earned premium
and relate to continued investment in strategic projects to improve our online interaction capability, to centralise our back-office
processing and to implement a new core underwriting, administration and product management platform for the Santam Commercial and
Personal intermediated business. Development costs of R81 million for the latter project were capitalised in 2014. The project is
progressing according to plan.
The net commission ratio reduced by 0.6% on a comparable basis. The decrease was mainly due to the higher reinsurance profit commissions
and rebates received on specialist and crop insurance business as well as growth at MiWay, where no commission expenses are incurred.
In managing Santam’s risk pool, we aim to retain an optimum amount of risk after reinsurance, taking into account the group’s risk
appetite and the cost of reinsurance. The level of reinsurance earned premium as a percentage of gross earned premium increased from
11.8% in 2013 to 13.7% in 2014 on a comparable basis, excluding the impact of the ART quota share reinsurance arrangement and cell
business. Favourable reinsurance terms on specialist business lines, and increased quota share treaties for the crop and Santam Re
businesses, were key drivers for the increase.
The investment return on insurance funds of R425 million increased from the R374 million earned in 2013, supported by a small increase
in interest rates as well as a higher average insurance funds balance for the year.
The combined effect of insurance activities resulted in a net insurance income of R1 919 million compared to R851 million in 2013.
The performance of the interest-bearing portfolios exceeded the SteFI index, while the listed equities marginally underperformed against
the SWIX40 benchmark in 2014. The performance of the interest-bearing and equities portfolios continue to exceed the relative
benchmarks over the longer term. The group’s investment performance was negatively impacted by the 2013 hedge over equities, which
expired in May 2014 at a loss of R93 million. The weakening of the rand during 2014 had a positive impact on the valuations of our
foreign currency assets held by our local operations of R71 million (2013: R91 million).
Positive fair value movements to the value of R93 million in Santam’s interest in the Sanlam Emerging Markets (SEM) general insurance
businesses in Africa, India and Southeast Asia enhanced the investment performance. During 2014, Santam invested a further R186 million
in participatory investments in SEM general insurance businesses, including new investments in Nigeria (8.7% effective interest),
Rwanda (22.1% effective interest) and Ghana (14% effective interest). At year-end, the SEM investments had a fair value of R807 million
(2013: R528 million), which now accounts for 11.4% of Santam group’s shareholder funds.
Net earnings from associated companies of R58 million lagged the R86 million reported 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 R2.4 billion increased from the R1.6 billion reported in 2013 mainly due to the improved underwriting
results.
Headline earnings increased by 40% compared to 2013. The solvency margin of 45.6% marginally exceeded our long-term target range of 35%
to 45%, while the group achieved a return on capital of 24.7% (2013: 20%).
Santam concluded the acquisition of a 100% interest in Brolink (Pty)Ltd (Brolink) in 2014. Following the acquisition, Santam
consolidated its administration businesses. Original Co-Sourcing SA (Pty)Ltd (Orico), previously owned by Indwe Broker Holdings Group
(Pty)Ltd (Indwe), and the part of the Riscor Underwriting Managers (Pty)Ltd business not operated on Santam's in-house systems were
integrated with Brolink effective 1 October 2014.
The earnings were negatively impacted by an impairment of R69 million in the Indwe investment. The impairment was mainly driven by
reduced growth projections by Indwe in competitive market conditions and the reduced income for the Indwe group following the disposal
of Orico to Brolink.
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
Trading conditions in the South African insurance industry remain very competitive despite some hardening of insurance premium rates in
certain segments following the poor underwriting results reported by industry participants in 2012 and 2013. GDP growth expectations of
around 2% for 2015 will negatively impact growth prospects. The weak rand exchange rate against other currencies negatively impacts
claims cost and will require continued focus by Santam to optimise the claims value chain to increase efficiency.
Santam’s focus will be to maintain its growth momentum with underwriting margins within the long-term target range of 4% to 6% in each
of its businesses. We will continue focusing on implementing our new underwriting and administrative platform, as well as risk
management initiatives to further improve the underwriting margin in the Santam Commercial and Personal intermediated business. MiWay
will continue focusing on growing its retail client base, the investment in the new offering for emerging business and the launch of a
direct life insurance initiative. International diversification will be a focus area again for 2015 through our SEM collaboration and
opportunities that this presents for Santam Specialist and Santam Re.
We will also place continued focus on risk mitigation initiatives at local government level that have the potential to reduce our risk
on the ground.
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 122)
Notice is hereby given that the board has declared a final dividend of 480.00000 cents per share (2013: 433 cents per share). Shareholders
are advised that the last day to trade “cum dividend” will be Friday, 20 March 2015. The shares will trade “ex dividend” from the
commencement of business on Monday, 23 March 2015. The record date will be Friday, 27 March 2015, and the payment date will be Monday,
30 March 2015. Certificated shareholders may not dematerialise or rematerialise their shares between 23 March 2015 and 27 March 2015,
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 R1 156 892.42000 secondary tax on companies (STC) credits available for utilisation. Accordingly the STC credit
available is 0.96936 cents per share. The amount per share subject to the withholding of dividends tax at a maximum rate of 15% is
therefore 479.03064 cents per share. A net dividend of 408.14540 cents per share will apply to shareholders liable for dividends tax
at a rate of 15% and 480.00000 cents per share for shareholders that qualify for complete exemption therefrom. The issued ordinary
share capital as at 2 March 2015 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 audited financial statements was supervised by the chief financial officer of Santam Ltd, HD Nel.
Auditors’ report
These summary consolidated financial statements for the year ended 31 December 2014 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 L Lambrechts
Chairman Chief Executive Officer
2 March 2015
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
At At
31 Dec 2014 31 Dec 2013
Notes R million R million
ASSETS
Non-current assets
Property and equipment 117 95
Intangible assets 1 086 1 072
Deferred income tax 161 188
Investments in associates 355 318
Financial assets - at fair value through income
Equity securities 7 3 896 4 011
Debt securities 7 7 837 7 306
Derivatives 7 - 1
Reinsurance assets 8 144 117
Current assets
Cell owners' interest 9 15
Financial assets - at fair value through income
Short-term money market instruments 7 1 892 1 424
Reinsurance assets 8 3 372 2 227
Deferred acquisition costs 447 369
Loans and receivables including insurance receivables 7 2 869 2 684
Income tax assets 10 31
Cash and cash equivalents 2 561 2 343
Non-current assets held for sale 9 428 415
Total assets 25 184 22 616
EQUITY
Capital and reserves attributable to the company's equity holders
Share capital 107 107
Treasury shares (506) (520)
Other reserves 238 224
Distributable reserves 7 171 6 321
7 010 6 132
Non-controlling interest 430 400
Total equity 7 440 6 532
LIABILITIES
Non-current liabilities
Deferred income tax 301 315
Financial liabilities - at fair value through income
Debt securities 7 999 997
Investment contracts 7 105 126
Cell owners' interest 924 814
Insurance liabilities 8 1 528 1 595
Current liabilities
Financial liabilities - at fair value through income
Debt securities 7 24 24
Derivatives 7 - 204
Financial liabilities - at amortised cost
Collateral guarantee contracts 88 82
Insurance liabilities 8 10 514 9 096
Deferred reinsurance acquisition revenue 232 171
Provisions for other liabilities and charges 91 84
Trade and other payables 2 717 2 561
Current income tax liabilities 221 15
Total liabilities 17 744 16 084
Total shareholders' equity and liabilities 25 184 22 616
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
At At
31 Dec 2014 31 Dec 2013 Change
Notes R million R million %
Gross written premium 22 710 20 631 10
Less: Reinsurance premium 5 075 3 731
Net premium 17 635 16 900 4
Less: Change in unearned premium
Gross amount 532 334
Reinsurers' share (119) (185)
Net insurance premium revenue 17 222 16 751 3
Investment income 10 807 782 3
Income from reinsurance contracts ceded 1 119 600
Net gains on financial assets and liabilities at fair value through income 10 286 449
Net income 19 434 18 582 5
Insurance claims and loss adjustment expenses 14 315 13 807
Insurance claims and loss adjustment expenses recovered from reinsurers (3 437) (2 200)
Net insurance benefits and claims 10 878 11 607 (6)
Expenses for the acquisition of insurance contracts 2 983 2 721
Expenses for marketing and administration 3 050 2 562
Expenses for asset management services rendered 31 29
Amortisation and impairment of intangible assets 130 114
Expenses 17 072 17 033 -
Results of operating activities 2 362 1 549 52
Finance costs (93) (118)
Net income from associates 58 86
Net loss on sale of associate - (18)
Impairment on net investments and loans of associates - (26)
Profit before tax 2 327 1 473 58
Income tax expense 11 (660) (300)
Profit for the period 1 667 1 173 42
Other comprehensive income
Currency translation differences 8 143
Total comprehensive income for the period 1 675 1 316
Profit attributable to:
- equity holders of the company 1 579 1 120 41
- non-controlling interest 88 53
1 667 1 173
Total comprehensive income attributable to:
- equity holders of the company 1 587 1 263 26
- non-controlling interest 88 53
1 675 1 316
Earnings attributable to equity shareholders
Earnings per share (cents) 13
Basic earnings per share 1 382 982 41
Diluted earnings per share 1 372 973 41
Weighted average number of shares - millions 114.26 114.12
Weighted average number of ordinary shares for diluted earnings per share - millions 115.09 115.12
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity Non-
holders of the company controlling
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 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
Profit for the period - - - 1 579 88 1 667
Other comprehensive income:
Currency translation differences - - 8 - - 8
Total comprehensive income for the year ended 31 December 2014 - - 8 1 579 88 1 675
Sale of treasury shares - 51 - (51) - -
Purchase of treasury shares - (37) - - - (37)
Transfer to reserves - - 6 (6) - -
Share-based payments - - - 123 - 123
Dividends paid - - - (795) (58) (853)
Balance as at 31 December 2014 107 (506) 238 7 171 430 7 440
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Audited
Audited At
At 31 Dec 2013
Notes 31 Dec 2014 Restated*
R million R million
Cash generated from operations 2 443 1 616
Interest paid (93) (118)
Income tax paid (420) (221)
Net cash from operating activities 1 930 1 277
Cash flows from investing activities
Acquisition of financial assets (8 040) (7 560)
Proceeds from sale of financial assets 7 556 6 615
Settlement of fence (297) -
Acquisition of subsidiaries 12 (28) (105)
Cash acquired through acquisition of subsidiaries 12 3 15
Purchases of equipment (69) (36)
Purchases of intangible assets (102) (71)
Proceeds from sale of equipment 4 1
Acquisition of associated companies - (88)
Capitalisation of associated companies (16) -
Proceeds from sale of associated companies - 63
Acquisition of book of business - (9)
Net cash used in investing activities (989) (1 175)
Cash flows from financing activities
Purchase of treasury shares (37) -
Proceeds from issue of target shares - 277
(Decrease)/increase in investment contract liabilities (21) 29
Increase in collateral guarantee contracts 6 7
Dividends paid to company's shareholders (795) (745)
Dividends paid to non-controlling interest (58) (37)
Net increase in cell owners' interest 110 111
Net cash used in financing activities (795) (358)
Net increase/(decrease) in cash and cash equivalents 146 (256)
Cash and cash equivalents at beginning of period 2 343 2 471
Exchange gains on cash and cash equivalents 72 128
Cash and cash equivalents at end of period 2 561 2 343
* 2013 comparatives have been restated as described in note 5 - Restatement.
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. 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 IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual
financial statements.
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 IFRS 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 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
- Annual improvements 2010 - 12 cycle
There was no material impact on the summary 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 this 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 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 summary consolidated financial statements do not include all risk management information and disclosure required in the
annual financial statements and should be read inconjunction with the group's annual financial statements as at 31 December 2014.
There have been no changes in the risk management policies since the previous year-end.
5. Restatement
During the year, the group changed the disclosure of cash flows from investing activities. IAS 7 Cash flow statements requires that
major classes of receipts and payments should be reported gross in the statement of cash flows. More detailed and relevant
information became available during the year, which enabled the group to provide enhanced disclosure of the gross proceeds and sales
of financial assets to users of the financial statements.
In accordance with IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) the change has been made retrospectively
and the comparatives restated accordingly.
The table below shows the impact of the change:
Group
2013
Effect on statement of cash flows R million
Cash utilised in investing activities previously reported (945)
Cash utilised in investing activities restated (945)
Acquisition of financial assets (7 560)
Proceeds from sale of financial assets 6 615
Impact of change -
The change had no impact on the statement of financial position, statement of comprehensive income, statement of changes in equity
and earnings or diluted earnings per share (refer to note 13).
6. 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 including 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.
The investment return on insurance funds is calculated based on the day-weighted effective return realised by the group on the
assets held to cover the group's net insurance working capital requirements.
Insurance business denominated in foreign currencies are covered by foreign denominated bank accounts and debt securities. Foreign
exchange movements on underwriting results are therefore offset against the foreign exchange movements recognised on the bank
accounts and debt securities.
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 or investment performance of the group. Therefore, these costs
are disclosed as unallocated activities.
Santam Ltd is domiciled in South Africa. Geographical analysis of the 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).
6.1 For the year ended 31 December 2014
Insurance Investment Unallocated Total
Business activity R million R million R million R million
Revenue 22 710 726 - 23 436
Gross written premium 22 710 - - 22 710
Net written premium 17 635 - - 17 635
Net earned premium 17 222 - - 17 222
Claims incurred 10 878 - - 10 878
Net commission 1 864 - - 1 864
Management expenses 2 986 - - 2 986
Underwriting result 1 494 - - 1 494
Investment return on insurance funds 425 - - 425
Net insurance result 1 919 - - 1 919
Investment income net of management fee and finance costs - 543 - 543
Income from associates net of impairment and losses on sale - 58 - 58
MiWay DBP and Santam BEE transaction costs - - (82) (82)
Amortisation of intangible assets (111) - - (111)
Income before taxation 1 808 601 (82) 2 327
Insurance activities
The group's insurance activities are further analysed over various classes of general insurance.
Gross written Underwriting
premium result
R million R million
Accident and health 350 49
Alternative risk 1 953 15
Crop 1 044 251
Engineering 1 127 169
Guarantee 22 -
Liability 1 246 220
Miscellaneous 53 5
Motor 9 629 524
Property 6 552 221
Transportation 734 40
Total 22 710 1 494
Comprising:
Commercial insurance 12 298 1 177
Personal insurance 8 459 302
Alternative risk 1 953 15
Total 22 710 1 494
Investment activities
For detailed analysis of investment activities refer to notes 7, 9 and 10.
6.2 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
Insurance activities
The group's insurance activities are further analysed over various classes of general 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
6.3 Geographical analysis
Gross written Non-current
premium assets
2014 2013 2014 2013
R million R million R million R million
South Africa 1 20 565 19 585 1 435 1 393
Africa 2, 3 1 837 845 331 117
Southeast Asia and India 3 220 123 599 484
China 3 88 78 - -
Group total 22 710 20 631 2 365 1 994
1 Including all 2013 gross written premium managed by specialist business units.
2 Including gross written premium relating to Santam Namibia of R1 055 million (2013: R812 million).
3 Including 2014 gross written premium managed by specialist business units.
At At
31 Dec 2014 31 Dec 2013
R million R million
7. Financial assets and liabilities
The group's financial assets are summarised below by measurement category.
Financial assets at fair value through income 13 625 12 742
Loans and receivables 2 869 2 684
Total financial assets 16 494 15 426
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 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). Listed bonds that did not trade actively during a
financial period are classified as Level 2 Financial instruments.
- Level 3: Input for the asset or liability that is not based on observable data (that is, unobservable input)
Holdings in securities and other financial instruments of African Bank Investments Ltd and African Bank Ltd were
transferred to level 3 subsequent to these companies being placed into curatorship and the suspension of these
securities by the JSE Ltd.
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 and
reported as such to the investment committee.
Financial assets at fair value through income
Level 1 Level 2 Level 3 Total
December 2014 R million R million R million R million
Equity securities
Quoted
Listed 2 999 - - 2 999
Unitised funds - 75 - 75
Irredeemable preference shares 2 - - 2
Unquoted - - 820 820
Total equity securities 3 001 75 820 3 896
Debt securities
Quoted
Government and other bonds 1 250 492 13 1 755
Collateralised securities - 152 - 152
Redeemable preference shares - 250 - 250
Money market instruments > 1 year - 1 436 15 1 451
Unquoted
Government and other bonds - 24 - 24
Money market instruments > 1 year - 4 127 - 4 127
Redeemable preference shares - 50 28 78
Total debt securities 1 250 6 531 56 7 837
Short-term money market instruments - 1 854 38 1 892
4 251 8 460 914 13 625
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 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
The unquoted equity instruments recognised as level 3 instruments at 31 December 2014 and 2013 consist mainly of the participation
instruments issued by Sanlam Emerging Markets (Pty) Ltd (SEM).
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 R102 million (2013: R93 million) or
increase by R156 million (2013: R147 million), respectively. If exchange rates increase or decrease by 10%, the cumulative fair
values will also increase or decrease by R60 million (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 R73 million (2013: R64 million) or
decrease by R74 million (2013: R62 million), respectively.
The interest rate derivatives represent the fair value of interest rate swaps effected on a total of R106 million
(2013: R108 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 12 June 2017.
The following table presents the changes in level 3 instruments
Equity Debt
securities securities Short-term
unquoted unquoted Money Market Derivatives Total
December 2014 R million R million instruments R million R million
Opening balance 529 23 - (203) 349
Acquisitions 186 - - - 186
Settlements - - - 297 297
Transfer from level 1 and/or 2 - 27 38 - 65
Gains/(losses) recognised in profit or loss 105 6 - (94) 17
Closing balance 820 56 38 - 914
The Investment in Cardrow Insurance Ltd was classified as held for sale during 2013 (refer to note 9). The investment had an
opening balance of R299 million with exchange gains of R8 million and fair value losses of R1 million during the year. The
closing balance at 31 December 2014 amounted to R308 million.
Equity Debt
securities securities
unquoted unquoted Derivatives Total
December 2013 R million R million R million R million
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 held for sale during 2013 (refer to note 9). The investment had an opening
balance of R233 million with exchange gains of R64 million and 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
December 2014 R million R million R million R million
Debt securities 1 023 - - 1 023
Investment contracts - 105 - 105
1 023 105 - 1 128
December 2013
Debt securities 1 021 - - 1 021
Investment contracts - 126 - 126
Derivatives - Fence structure - - 204 204
1 021 126 204 1 351
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 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.
In February 2015 a zero cost fence structure was entered into based on the SWIX40 providing 10% downside protection from the
implementation level of 10 433, with a capped return (excluding dividends) of 110.9% and a maturity date of 17 December 2015.
At At
31 Dec 2014 31 Dec 2013
R million R million
8. Insurance liabilities and reinsurance assets
Gross
Long-term insurance contracts
- claims reported and loss adjustment expenses 13 3
- claims incurred but not reported 25 22
General insurance contracts
- claims reported and loss adjustment expenses 6 227 5 520
- claims incurred but not reported 1 515 1 427
- unearned premiums 4 262 3 719
Total insurance liabilities - gross 12 042 10 691
Non-current liabilities 1 528 1 595
Current liabilities 10 514 9 096
Recoverable from reinsurers
Long-term insurance contracts
- claims reported and loss adjustment expenses 6 1
- claims incurred but not reported 5 4
General insurance contracts
- claims reported and loss adjustment expenses 2 266 1 315
- claims incurred but not reported 237 207
- unearned premiums 1 002 817
Total reinsurers' share of insurance liabilities 3 516 2 344
Non-current assets 144 117
Current assets 3 372 2 227
Net
Long-term insurance contracts
- claims reported and loss adjustment expenses 7 2
- claims incurred but not reported 20 18
General insurance contracts
- claims reported and loss adjustment expenses 3 961 4 205
- claims incurred but not reported 1 278 1 220
- unearned premiums 3 260 2 902
Total insurance liabilities - net 8 526 8 347
9. 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 (Cardrow) and Beech Hill Insurance Ltd (Beech Hill), 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 and 2014. This process is expected to
be concluded in 2015.
Once the assets have been realised, management will commence a process to unwind the Santam International group. The investment in
Santam International and 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 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 308 299
Loans and receivables including insurance receivables 120 116
428 415
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.
At At
31 Dec 2014 31 Dec 2013
R million R million
10. Investment income and net gains/(losses) on financial assets and liabilities at
fair value through income
Investment income 807 782
Dividend income 127 177
Interest income 609 514
Foreign exchange differences 71 91
Net gains on financial assets and liabilities at fair value through income 286 449
Net realised gains on financial assets 481 368
Net fair value (losses)/gains on financial assets at fair value through income (79) 240
Net fair value (losses)/gains on financial assets classified as held for sale (3) 13
Net fair value losses on short-term money market instruments (18) (3)
Net realised/fair value losses on derivatives (93) (209)
Net fair value gains on financial liabilities designated as at fair value through income (2) 40
Net fair value (losses)/gains on debt securities (2) 37
Net fair value gains on investment contracts - 3
1 093 1 231
Audited Audited
At At
31 Dec 2014 31 Dec 2013
R million R million
11. Income tax
South African normal taxation
Current year 684 259
Charge for the year 684 258
STC - 1
Prior year - (4)
Recovered from cell owners (77) (66)
Foreign taxation 43 40
Income taxation for the year 650 229
Deferred taxation 13 74
Current year 13 75
Prior year - (1)
Income tax recovered from cell owners (3) (3)
Deferred taxation for the year 10 71
Total taxation as per statement of comprehensive income 660 300
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0
Adjust for
- Exempt income (1.6) (3.4)
- Investment results (0.6) (2.0)
- Non-resident shareholders' tax 0.1 0.1
- Disallowable expenses 1.9 0.9
- Income from associates (0.7) (1.6)
- Prior year (overs)/unders - (0.3)
- Other 1.3 (1.3)
Net increase/(reduction) 0.4 (7.6)
Effective rate 28.4 20.4
12. Business combinations
2014
Additions
Brolink (Pty) Ltd and H & L Underwriting Managers (Pty) Ltd
On 15 May 2014, Swanvest 120 (Pty) Ltd, a wholly owned subsidiary of Santam Ltd, acquired the remaining 70% of the H & L Underwriting
Managers (Pty) Ltd shareholding and on 1 July 2014, Swanvest 120 (Pty) Ltd acquired 100% of Brolink (Pty) Ltd (Brolink). The purchase
price for these transactions amounted to R28 million. The goodwill of R25 million arises from a number of factors such as obtaining
economies of scale and unrecognised assets such as the workforce. Key business relationships of R15 million, brandname of R1 million
and an additional deferred tax liability of R4 million were also recognised on acquisition.
R million
Details of the assets and liabilities acquired at fair value are as follows:
Intangible assets 16
Loans and receivables 8
Cash and cash equivalents 3
Deferred taxation (4)
Trade and other payables (10)
Net asset value acquired 13
Goodwill 25
Less: Deferred purchase consideration* (10)
Purchase consideration paid 28
* Amount is variable and will be impacted by returns achieved until February 2016 and August 2017.
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 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 and an additional deferred tax liability of R6 million were also
recognised on acquisition.
Details of the assets and liabilities acquired at fair value are as follows:
R million
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.
Audited Audited
At At
31 Dec 2014 31 Dec 2013
R million R million
13. Earnings per share
Basic earnings per share
Profit attributable to the company's equity holders (R million) 1 579 1 120
Weighted average number of ordinary shares in issue (million) 114.26 114.12
Earnings per share (cents) 1 382 982
Diluted earnings per share
Profit attributable to the company's equity holders (R million) 1 579 1 120
Weighted average number of ordinary shares in issue (million) 114.26 114.12
Adjusted for share options 0.83 1.00
Weighted average number of ordinary shares for diluted earnings per share (million) 115.09 115.12
Diluted basic earnings per share (cents) 1 372 973
Headline earnings per share
Profit attributable to the company's equity holders 1 579 1 120
Adjust for:
Impairment on net investment and loans of associates - 26
Impairment of software 72 5
Net loss on sale of investment in associate - 18
Tax charge - 9
Headline earnings (R million) 1 651 1 178
Weighted average number of ordinary shares in issue (million) 114.26 114.12
Headline earnings per share (cents) 1 446 1 033
Diluted headline earnings per share
Headline earnings (R million) 1 651 1 178
Weighted average number of ordinary shares for diluted earnings per share (million) 115.09 115.12
Diluted headline earnings per share (cents) 1 435 1 023
14. Dividends per share
Dividend per share (cents) 742 675
EXECUTIVE DIRECTORS
L Lambrechts (Chief Executive Officer), HD Nel (Chief Financial Officer), Y Ramiah
NON-EXECUTIVE DIRECTORS
B Campbell, MD Dunn, MP Fandeso, T Fubu, BTPKM Gamedze, GG Gelink (Chairman), IM Kirk, MLD Marole, MJ Reyneke, JP Moller, J van Zyl
SPONSOR
Investec Bank Ltd
COMPANY SECRETARY
M 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
SANTAM HEAD OFFICE AND REGISTERED ADDRESS
1 Sportica Crescent
Tyger Valley
Bellville 7530
PO Box 3881, Tyger Valley 7536
Tel: 021 915 7000
Fax: 021 914 0700
www.santam.co.za
Date: 02/03/2015 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
