Wrap Text
Interim Results for the six months ended 30 June 2015
Santam Limited and its subsidiaries
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2015
- Gross written premium growth including cell captive insurance 7%
- Gross written premium growth excluding cell captive insurance 8%
- Underwriting margin 8.9%
- Cash generation significantly improved
- Group solvency ratio 43%
- Return on capital (rolling 12 months) 24.1%
- Headline earnings increased by 11%
- Interim dividend of 288 cents per share, up 10%
- Unwinding of the broad-based black economic empowerment scheme created a combined value of R1.1 billion to participants
- Share buy-back at R190 per share reduced capital by R801 million
FINANCIAL REVIEW
The Santam group achieved strong underwriting results for the six months ended 30 June 2015, with a net underwriting margin of 8.9% (2014: 7.4%). The underwriting performance was influenced
by an improved contribution from the Santam Commercial and Personal intermediated business following the positive impact of disciplined underwriting actions and a benign claims environment
during the second quarter. Acceptable growth in gross written premium of 8%, excluding the impact of cell captive insurance business, was achieved in the context of the difficult economic
environment.
Investment returns were in line with market movements experienced during the first six months of 2015. Headline earnings per share increased by 11%, while a return on capital of 24.1% on a
rolling 12-month basis was achieved. The solvency margin of 43% post the share buy-back is at the upper end of the target range of 35% to 45%.
The motor and property classes of business delivered substantially improved underwriting results compared to 2014. The claims environment during the second quarter was relatively benign,
but the loss ratio was impacted by the catastrophe hail event in Pietermaritzburg in February 2015 and a number of large property losses in the first quarter of 2015. MiWay, the direct
insurance business, achieved a claims ratio of 60.8% and a gross underwriting profit of R76 million (2014: R52 million).
The underwriting profit of the engineering class of business showed a significant increase compared to 2014 following corrective underwriting action and fewer large claims reported. The
liability class of business reported lower underwriting results compared to 2014, but still reflected acceptable underwriting margins. Despite severe drought conditions, the crop insurance
business achieved solid underwriting results. The underwriting profit of R53 million is, however, significantly lower than the exceptional results of R187 million in the 2014 comparative
period, following the favourable weather conditions experienced in 2014.
Santam Re reported improved underwriting profit compared to 2014, mainly due to the cancellation of the non-performing business in the South African portfolio.
Gross written premium growth of 8%, excluding the impact of cell insurance business, was lower than the 10% achieved in the corresponding period in 2014, reflecting the impact of competitive
market conditions and the continued focus on underwriting profitability. The property class reported low growth due to market pressures in the specialist corporate property market in
particular. The motor class benefited from the 17% growth reported by MiWay (gross written premium of R835 million). The liability class reported growth of 8%, while the engineering and
transportation classes reported no growth over this period.
Growth of 10% was achieved in the Alternative Risk class, following good performance by the risk finance and underwriting management businesses and notwithstanding the impact of the
cancellation of a book of business in the cell insurance business.
As part of managing its exposure to South Africa's sovereign credit rating Santam entered into a three-year alternative risk transfer (ART) quota share agreement with an international insurer
towards the end of 2013, effective 1 January 2014, with an annual reinsurance quota share premium of R1 billion. The agreement includes a facility whereby Santam can use the insurer's
AA-rated licence for business, which is dependent on a minimum international scale rating. The agreement also reduces Santam's net catastrophe exposure.
Reinsurance premium as a percentage of gross premium increased from 13.7% in 2014 to 14.9% in 2015, excluding the impact of the ART quota share reinsurance arrangement and cell captive
insurance business. The key drivers for the increase in the reinsurance premiums were the favourable reinsurance terms on specialist business lines, increasing the attractiveness of
reinsurance, and increased quota share treaties for the crop and Santam Re businesses.
The net acquisition cost ratio of 28.0%, excluding the impact of the reinsurance ART quota share agreement, decreased from 28.4% in 2014. On a similar basis the management expense ratio
decreased by 0.3% to 15.2%. Strategic project costs amounted to 0.7% (2014: 1%) of net earned premium but are expected to increase to about 1% of net earned premium at year-end. The
majority of the strategic project costs relate to the implementation of a new core underwriting, administration and product management platform for the Santam Commercial and Personal
intermediated business. Development costs of R34 million were capitalised during this reporting period, taking the total capitalised amount to date to R171 million. The project is
progressing according to plan.
The net commission ratio increased by 0.2% to 12.1%, excluding the impact of the reinsurance ART quota share agreement. A decrease in the commission ratio due to the growth in MiWay, where
no commission expenses are incurred, was offset by lower reinsurance commissions earned on specialist business lines, including crop, following relatively worse loss ratios reported than
in 2014.
The investment return on insurance funds of R236 million increased from the R222 million earned in 2014, in line with the growth in the business.
The combined effect of insurance activities resulted in a net insurance income of R1 044 million compared to R850 million in 2014.
The performance of the interest-bearing portfolios exceeded the SteFI index, while the listed equities performed in line with the SWIX40 benchmark. The performance of the interest-bearing
and equities portfolios continued to exceed the relative benchmarks over the longer term. The investment portfolio performance benefited from realised gains on the sale of listed equity
investments following the rebalancing of the investment portfolio to effect a share buy-back in June 2015. In February 2015, a zero cost fence structure was entered into, based on the SWIX40
providing 10% downside protection from the implementation level of 10 443, with a capped return (excluding dividends) of 110.9% and a maturity date of 17 December 2015. An unrealised profit
of R9 million was reported on the fence as at end of June 2015. The weakening of the rand during 2015 had a positive impact on the valuation of foreign currency assets of R62 million
(2014: R15 million).
The increase in the fair value of Santam's interest in the Sanlam Emerging Markets (SEM) general insurance businesses in Africa, India and Southeast Asia were lower at R13 million
(2014: R63 million) following the depreciation of a number of African currencies against the rand and increased claims provisioning required in Pacific & Orient Insurance Company Berhad,
the Malaysian general insurance business. Santam invested a further R46 million in participatory investments in SEM general insurance businesses, including a new investment in Kenya. At
30 June 2015, the SEM investments had a fair value of R866 million, which now accounts for 12.8% of the Santam group's shareholder funds.
Net earnings from associated companies increased to R43 million (2014: R17 million) following higher earnings from Credit Guarantee Insurance Corporation of Africa Ltd. A profit of
R21 million before tax was realised on the sale of the group's 37.5% investment in Censeo (Pty) Ltd.
Cash generated from operations of R1.2 billion increased from the R0.9 billion reported in the comparative period in 2014, mainly due to the improved underwriting results.
Headline earnings increased by 11% compared to 2014. Total earnings were negatively impacted by an impairment of intangible assets of R36 million relating to the group's administration
businesses, Original Co-Sourcing SA (Pty) Ltd (Orico) and Riscor Underwriting Managers (Pty) Ltd, following the reorganisation of the group's administration businesses under Brolink (Pty) Ltd.
In May 2007, Santam concluded a broad-based black economic empowerment (BBBEE) transaction in terms of which Central Plaza Investments 112 (Pty) Ltd (Central Plaza) acquired 10% of Santam's
issued ordinary shares in terms of a scheme of arrangement. To facilitate the BBBEE scheme unwind, Santam entered into an agreement with Central Plaza in terms of which Santam repurchased
4 215 000 Santam shares held by Central Plaza at a price of R190 per share for a total consideration of R801 million, effective 30 June 2015.
Following the unwinding of the BBBEE scheme, close to 2 400 Santam and Sanlam black employees will receive Santam shares and cash to the value of R530 million over a 7-year period. The scheme
also had a further 68 black business partners, who will receive Santam shares with a three-year trading limitation and cash to the value of R330 million, while the Emthunzini Community Trust
will receive Santam shares and cash to the value of R275 million.
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 six months.
Prospects
Trading conditions in the South African insurance industry remain very competitive in a low-growth economic environment.
The rand weakened significantly against the US dollar since January 2015, which is expected to impact negatively on motor claims costs. Santam continues to focus on the optimisation of the
claims and procurement value chains to increase efficiency and counter the impact of the weakening rand.
The group's focus will be to maintain its growth momentum, increasing its international diversification and the development of the SEM general insurance businesses. Santam has intensified its
focus on cost-efficiencies to improve the management expense ratio over the medium term. Good progress has been made with the implementation of the new underwriting and administration platform
in the Santam Commercial and Personal intermediated business, which will enable improved underwriting capabilities. MiWay will continue focusing on growing its retail client base, its newly
launched commercial offering and direct life insurance initiative in conjunction with Sanlam Life. International diversification will remain a focus area for Santam Specialist and Santam Re.
The investment market is likely to remain uncertain.
Events after the reporting period
Santam and Mutual & Federal Insurance Company Ltd (Mutual & Federal) have reached agreement in terms of which Santam will sell its current 33.6% equity interest in Credit Guarantee
Insurance Corporation of Africa Ltd for an amount of circa R600 million to Mutual & Federal. The transaction is still subject to regulatory approval, however the investment was classified
as a "non-current asset held for sale" as at 30 June 2015 in terms of IFRS 5.
Declaration of dividend (Number 123)
Notice is hereby given that the board has declared a gross interim dividend of 288 cents per share (2014: 262 cents per share).
Shareholders are advised that the last day to trade "cum dividend" will be Friday, 11 September 2015. The shares will trade "ex dividend" from the commencement of business on Monday,
14 September 2015. The record date will be Friday, 18 September 2015, and the payment date will be Monday, 21 September 2015. Certificated shareholders may not dematerialise or rematerialise
their shares between 14 September 2015 and 18 September 2015, both dates inclusive.
The dividend has been declared from income reserves and will be subject to dividends tax. The amount per share, subject to the withholding of dividends tax at a maximum rate of 15%, is therefore
288 cents per share. A net dividend of 244.8 cents per share will apply to shareholders liable for dividends tax at a rate of 15%, and 288 cents per share for shareholders that
qualify for complete exemption therefrom. The issued ordinary share capital as at 26 August 2015 is 115 131 417 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 independently reviewed financial statements was supervised by the chief financial officer of Santam Ltd, HD Nel CA(SA).
Auditor’s Report
These condensed consolidated interim financial statements for the period ended 30 June 2015 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.
GG Gelink L Lambrechts
Chairman Chief Executive Officer
26 August 2015
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed at Reviewed at Audited at
30 June 2015 30 June 2014 31 Dec 2014
Notes R million R million R million
ASSETS
Non-current assets
Property and equipment 114 88 117
Intangible assets 1 061 1 098 1 086
Deferred income tax 146 181 161
Investment in associates 173 327 355
Financial assets at fair value through income
Equity securities 6 3 375 3 752 3 896
Debt securities 6 8 384 7 538 7 837
Reinsurance assets 7 179 140 144
Total non-current assets 13 432 13 124 13 596
Current assets
Financial assets at fair value through income
Derivatives 6 10 - -
Short-term money market instruments 6 2 118 1 758 1 892
Cell owners' interest 8 16 9
Reinsurance assets 7 3 549 2 372 3 372
Deferred acquisition costs 407 330 447
Loans and receivables including insurance receivables 6 2 720 2 079 2 869
Income tax assets 12 43 10
Cash and cash equivalents 1 882 2 292 2 561
Non-current assets held for sale 8 677 429 428
Total current assets 11 383 9 319 11 588
Total assets 24 815 22 443 25 184
EQUITY AND LIABILITIES
Capital and reserves attributable to the company's equity holders
Share capital 103 107 107
Treasury shares (456) (499) (506)
Other reserves 278 239 238
Distributable reserves 6 858 6 722 7 171
6 783 6 569 7 010
Non-controlling interest 430 411 430
Total equity 7 213 6 980 7 440
Non-current liabilities
Deferred income tax 304 336 301
Financial liabilities at fair value through income
Debt securities 6 992 989 999
Investment contracts 6 76 26 105
Cell owners' interest 947 854 924
Insurance liabilities 7 1 543 1 561 1 528
Total non-current liabilities 3 862 3 766 3 857
Current liabilities
Financial liabilities at fair value through income
Debt securities 6 24 24 24
Financial liabilities at amortised cost
Collateral guarantee contracts 99 87 88
Insurance liabilities 7 10 434 8 912 10 514
Deferred reinsurance acquisition revenue 170 132 232
Provisions for other liabilities and charges 89 79 91
Trade and other payables 2 681 2 274 2 717
Current income tax liabilities 243 189 221
Total current liabilities 13 740 11 697 13 887
Total liabilities 17 602 15 463 17 744
Total shareholders' equity and liabilities 24 815 22 443 25 184
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2015 30 June 2014 Change 31 Dec 2014
Notes R million R million % R million
Gross written premium 11 270 10 525 7% 22 710
Less: Reinsurance premium 2 628 2 465 5 075
Net premium 8 642 8 060 7% 17 635
Less: Change in unearned premium
Gross amount (450) (335) 532
Reinsurers' share 4 (63) (119)
Net insurance premium revenue 9 088 8 458 7% 17 222
Investment income 9 502 377 33% 807
Income from reinsurance contracts ceded 591 522 1 119
Net gains on financial assets and liabilities at
fair value through income 9 265 323 286
Net income 10 446 9 680 8% 19 434
Insurance claims and loss adjustment expenses 7 253 6 721 14 315
Insurance claims and loss adjustment expenses
recovered from reinsurers (1 467) (1 273) (3 437)
Net insurance benefits and claims 5 786 5 448 6% 10 878
Expenses for the acquisition of insurance
contracts 1 562 1 432 2 983
Expenses for marketing and administration 1 577 1 493 3 050
Expenses for asset management services 18 16 31
Amortisation and impairment of intangible
assets 67 15 130
Total expenses 9 010 8 404 7% 17 072
Results of operating activities 1 436 1 276 13% 2 362
Finance costs (47) (48) (93)
Net income from associates 43 17 58
Profit on sale of net investment in associated
companies 21 - -
Profit before tax 1 453 1 245 17% 2 327
Income tax expense 10 (390) (292) (660)
Profit for the period 1 063 953 12% 1 667
Other comprehensive income
Items that may subsequently be reclassified
to income:
Currency translation differences 35 12 8
Total comprehensive income for the period 1 098 965 1 675
Profit attributable to:
- equity holders of the company 995 911 1 579
- non-controlling interest 68 42 88
1 063 953 1 667
Total comprehensive income attributable to:
- equity holders of the company 1 030 923 1 587
- non-controlling interest 68 42 88
1 098 965 1 675
Earnings attributable to equity shareholders
Earnings per share (cents) 12
Basic earnings per share 870 799 9% 1 382
Diluted earnings per share 865 794 9% 1 372
Weighted average number of shares - millions 114.31 114.12 114.26
Weighted average number of ordinary shares for
diluted earnings per share - millions 114.96 114.82 115.09
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-
controlling
Attributable to equity holders of the company interest Total
Distribu-
Share Treasury Other table
capital shares reserves reserves Total
R million R million R million R million R million R million R million
Balance as at 1 January 2014 107 (520) 224 6 321 6 132 400 6 532
Profit for the period - - - 1 579 1 579 88 1 667
Other comprehensive income:
Currency translation differences - - 8 - 8 - 8
Total comprehensive income for the period ended 31 December 2014 - - 8 1 579 1 587 88 1 675
Sale of treasury shares - 51 - (51) - - -
Purchase of treasury shares - (37) - - (37) - (37)
Transfer to reserves - - 6 (6) - - -
Share-based payment costs - - - 123 123 - 123
Dividends paid - - - (795) (795) (58) (853)
Balance as at 31 December 2014 107 (506) 238 7 171 7 010 430 7 440
Profit for the period - - - 995 995 68 1 063
Other comprehensive income:
Currency translation differences - - 35 - 35 - 35
Total comprehensive income for the period ended 30 June 2015 - - 35 995 1 030 68 1 098
Sale of treasury shares - 50 - (50) - - -
Repurchase of shares (4) - - (797) (801) - (801)
Transfer to reserves - - 5 (5) - - -
Share-based payment costs - - - 94 94 - 94
Dividends paid - - - (550) (550) (68) (618)
Balance as at 30 June 2015 103 (456) 278 6 858 6 783 430 7 213
Balance as at 1 January 2014 107 (520) 224 6 321 6 132 400 6 532
Profit for the period - - - 911 911 42 953
Other comprehensive income:
Currency translation differences - - 12 - 12 - 12
Total comprehensive income for the period ended 30 June 2014 - - 12 911 923 42 965
Sale of treasury shares - 54 - (54) - - -
Purchase of treasury shares - (33) - - (33) - (33)
Transfer to reserves - - 3 (3) - - -
Share-based payment costs - - - 41 41 - 41
Dividends paid - - - (494) (494) (31) (525)
Balance as at 30 June 2014 107 (499) 239 6 722 6 569 411 6 980
CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2015 30 June 2014 31 Dec 2014
Notes R million R million R million
Cash flows from operating activities
Cash generated from operations 1 212 930 2 443
Interest paid (47) (48) (93)
Income tax paid (350) (101) (420)
Net cash from operating activities 815 781 1 930
Cash flows from investing activities
Acquisition of financial assets* (4 540) (4 600) (8 040)
Proceeds from sale of financial assets* 4 532 4 725 7 556
Settlement of fence - (297) (297)
Acquisition of subsidiaries 11 - - (28)
Cash acquired through acquisition of subsidiaries 11 - - 3
Purchases of equipment (18) (13) (69)
Purchases of intangible assets (39) (48) (102)
Proceeds from sale of equipment 1 - 4
Capitalisation of associated companies (28) (17) (16)
Proceeds from sale of associated companies 11 23 - -
Acquisition of customer lists (3) - -
Net cash from investing activities (72) (250) (989)
Cash flows from financing activities
Purchase of treasury shares - (33) (37)
Proceeds from shares cancelled (801) - -
Decrease in investment contract liabilities (29) (101) (21)
Increase in collateral guarantee contracts 11 5 6
Dividends paid to company's shareholders (550) (494) (795)
Dividends paid to non-controlling interest (68) (31) (58)
Increase in cell owners' interest 22 40 110
Net cash used in financing activities (1 415) (614) (795)
Net (decrease)/increase in cash and cash equivalents (672) (83) 146
Cash and cash equivalents at beginning of period 2 561 2 343 2 343
Exchange gains on cash and cash equivalents (7) 32 72
Cash and cash equivalents at end of period 1 882 2 292 2 561
* In line with 31 December 2014, the 30 June 2014 cash flows relating to the acquisition and proceeds from the sale of financial assets have been presented
as separate line items.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards, 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 condensed consolidated interim financial statements are in terms of International Financial Reporting Standards and are
consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements, except for:
The following new IFRSs and/or IFRICs were effective for the first time from 1 January 2015:
- Amendment to IAS 19 - Employee benefits
- Annual Improvements 2010-12 cycle
- Annual Improvements 2011-13 cycle
There was no material impact on the condensed consolidated interim financial statements.
3. Estimates
The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the 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 2014.
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 interim financial statements do not include all risk management information and disclosure required in the annual financial statements and should be read
in conjunction with the 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. 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 is 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).
5.1 For the six months ended 30 June 2015
Insurance Investment Unallocated Total
Business activity R million R million R million R million
Revenue 11 270 595 - 11 865
Gross written premium 11 270 - - 11 270
Net written premium 8 642 - - 8 642
Net earned premium 9 088 - - 9 088
Net claims incurred 5 786 - - 5 786
Net commission 971 - - 971
Management expenses 1 523 - - 1 523
Underwriting result 808 - - 808
Investment return on insurance funds 236 - - 236
Net insurance result 1 044 - - 1 044
Investment income net of management fee and finance costs - 466 - 466
Income from associates net of profit on sale - 64 - 64
MiWay DBP and Santam BEE costs - - (66) (66)
Amortisation and impairment of intangible assets (55) - - (55)
Income before taxation 989 530 (66) 1 453
Insurance activities
The group's insurance activities are spread over various classes of general insurance.
Gross written Underwriting
premium result
Insurance class R million R million
Accident and health 169 22
Alternative risk 1 094 10
Crop 67 53
Engineering 539 123
Guarantee 91 8
Liability 588 85
Miscellaneous 29 6
Motor 5 166 324
Property 3 202 136
Transportation 325 41
Total 11 270 808
Comprising:
Commercial insurance 5 745 546
Personal insurance 4 431 252
Alternative risk 1 094 10
Total 11 270 808
Investment activities
For detailed analysis of investment activities refer to notes 6 and 9.
5.2 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 costs - - (20) (20)
Amortisation and impairment of intangible assets (15) - - (15)
Income before taxation 835 430 (20) 1 245
Insurance activities
The group's insurance activities are spread over various classes of general insurance.
Gross written Underwriting
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
Investment activities
For detailed analysis of investment activities refer to notes 6 and 9.
5.3 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
Net 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 costs - - (82) (82)
Amortisation and impairment of intangible assets (111) - - (111)
Income before taxation 1 808 601 (82) 2 327
Insurance activities
The group's insurance activities are spread over various classes of general insurance.
Gross written Underwriting
premium result
Insurance class 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 6 and 9.
5.4 Geographical analysis
Gross written premium
June 2015 June 2014 Dec 2014
R million R million R million
South Africa 10 308 9 892 20 565
Rest of Africa (1, 2) 775 488 1 837
Southeast Asia, India, Middle East and China (1, 3) 187 145 308
Group total 11 270 10 525 22 710
Non-current assets
June 2015 June 2014 Dec 2014
R million R million R million
South Africa 1 414 1 399 1 435
Rest of Africa 405 186 331
Southeast Asia, India, Middle East and China 621 564 599
Group total 2 440 2 149 2 365
(1) Include gross written premium managed by specialist business and Santam Re.
(2) Include gross written premium relating to Namibia of R512 million (June 2014: R458 million/Dec 2014: R1 055 million).
(3) Include gross written premium relating to China of R57 million (June 2014: R48 million/Dec 2014: R88 million).
Reviewed at Reviewed at Audited at
30 June 2015 30 June 2014 31 Dec 2014
R million R million R million
6. Financial assets and liabilities
Financial assets
The group's financial assets are summarised below by measurement category.
Financial assets at fair value through income 13 887 13 048 13 625
Loans and receivables 2 720 2 079 2 869
Total financial assets 16 607 15 127 16 494
Financial instruments measured at fair value on a recurring basis
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 2014. 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. The fair value of the
unlisted money market instruments are determined by using discounted cash flow models using market observable input.
- Level 3: Input for the asset or liability that is not based on observable data (that is, unobservable input)
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
30 June 2015 R million R million R million R million
Equity securities
Quoted
Listed 2 444 - - 2 444
Unitised funds - 50 - 50
Irredeemable preference shares 1 - - 1
Unquoted - - 880 880
Total equity securities 2 445 50 880 3 375
Debt securities
Quoted
Government and other bonds 1 318 946 35 2 299
Collateralised securities - 166 - 166
Redeemable preference shares - 257 - 257
Money market instruments > 1 year - 1 327 - 1 327
Unquoted
Government and other bonds - 65 - 65
Money market instruments > 1 year - 4 191 - 4 191
Redeemable preference shares - 50 29 79
Total debt securities 1 318 7 002 64 8 384
Derivative instruments
Interest rate swaps - - 1 1
Foreign exchange contracts - - - -
Fence - - 9 9
Total derivative instruments - - 10 10
Short-term money market instruments - 2 072 46 2 118
Total financial assets at fair value through income 3 763 9 124 1 000 13 887
Financial liabilities at fair value through income
Level 1 Level 2 Level 3 Total
R million R million R million R million
Debt securities 1 016 - - 1 016
Investment contracts - 76 - 76
Total financial liabilities at fair value
through income 1 016 76 - 1 092
Level 1 Level 2 Level 3 Total
30 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 other bonds 1 495 165 – 1 660
Collateralised securities – – – –
Redeemable preference shares – 244 – 244
Money market instruments > 1 year – 1 521 – 1 521
Unquoted
Government and other 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
Derivative instruments
Interest rate swaps – – – –
Foreign exchange contracts – – – –
Fence – – – –
Total derivative instruments – – – –
Short-term money market instruments – 1 758 – 1 758
Total financial assets at fair value through income 4 503 7 870 675 13 048
Financial liabilities at fair value through income
Level 1 Level 2 Level 3 Total
R million R million R million R million
Debt securities 1 013 – – 1 013
Investment contracts – 26 – 26
Total financial liabilities at fair value through income 1 013 26 – 1 039
Financial assets at fair value through income
Level 1 Level 2 Level 3 Total
31 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
Derivative instruments
Interest rate swap - - - -
Foreign exchange contracts - - - -
Fence - - - -
Total derivative instruments - - - -
Short-term money market instruments - 1 854 38 1 892
Total financial assets at fair value through income 4 251 8 460 914 13 625
Financial liabilities at fair value through income
Level 1 Level 2 Level 3 Total
R million R million R million R million
Debt securities 1 023 - - 1 023
Investment contracts - 105 - 105
Total financial liabilities at fair value through income 1 023 105 - 1 128
The following table presents the changes in level 3 instruments
Equity Debt Short-term
securities securities money market
unquoted unquoted instruments Derivatives Total
30 June 2015 R million R million R million R million R million
Opening balance 820 56 38 - 914
Acquisitions 51 35 1 - 87
Disposals/settlements (5) (21) (11) - (37)
Gains/(losses) recognised in profit or loss 14 9 3 10 36
Transfer - (15) 15 - -
Closing balance 880 64 46 10 1 000
Equity Debt Short-term
securities securities money market
unquoted unquoted instruments Derivatives Total
30 June 2014 R million 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)
Transfer - - - - -
Closing balance 646 29 - - 675
Equity Debt Short-term
securities securities money market
unquoted unquoted instruments Derivatives Total
31 December 2014 R million R million R million R million R million
Opening balance 529 23 - (203) 349
Acquisitions 186 - - - 186
Disposals/settlements - - - 297 297
Gains/(losses) recognised in profit or loss 105 6 - (94) 17
Transfer - 27 38 - 65
Closing balance 820 56 38 - 914
The unquoted equity instruments recognised as level 3 instruments at 30 June 2014, 31 December 2014 and 30 June 2015 consist mainly of the participation instruments issued
by Sanlam Emerging Markets (Pty) Ltd (SEM). 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.
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 R98 million (Dec 2014: R102 million, June 2014: R104 million) or increase by R149 million (Dec 2014: R156 million, June 2014: R162 million), respectively. If
exchange rates increase or decrease by 10%, the cumulative fair values will also increase or decrease by R68 million (Dec 2014: R60 million, June 2014: R56 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 R68 million (2014: R73 million,
June 2014: R66 million) or decrease by R67 million (Dec 2014: R74 million, June 2014: R66 million), respectively.
The interest rate derivatives represent the fair value of interest rate swaps effected on a total of R100 million (Dec 2014: R106 million, June 2014: R106 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.
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 10 443, with a capped
return (excluding dividends) of 110.9% and a maturity date of 17 December 2015.
Reviewed at Reviewed at Audited at
30 June 2015 30 June 2014 31 Dec 2014
R million R million R million
7. Insurance liabilities and reinsurance assets
Gross insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 13 12 13
- claims incurred but not reported 24 23 25
Short-term insurance contracts
- claims reported and loss adjustment expenses 6 612 5 613 6 227
- claims incurred but not reported 1 535 1 459 1 515
- unearned premiums 3 793 3 366 4 262
Total gross insurance liabilities 11 977 10 473 12 042
Non-current liabilities 1 543 1 561 1 528
Current liabilities 10 434 8 912 10 514
Recoverable from reinsurers
Long-term insurance contracts
- claims reported and loss adjustment expenses 6 5 6
- claims incurred but not reported 5 4 5
Short-term insurance contracts
- claims reported and loss adjustment expenses 2 502 1 404 2 266
- claims incurred but not reported 243 219 237
- unearned premiums 972 880 1 002
Total reinsurers' share of insurance liabilities 3 728 2 512 3 516
Non-current assets 179 140 144
Current assets 3 549 2 372 3 372
Net insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 7 7 7
- claims incurred but not reported 19 19 20
Short-term insurance contracts
- claims reported and loss adjustment expenses 4 110 4 209 3 961
- claims incurred but not reported 1 292 1 240 1 278
- unearned premiums 2 821 2 486 3 260
Total net insurance liabilities 8 249 7 961 8 526
8. Non-current asset held for sale
Reviewed at Reviewed at Audited at
30 June 2015 30 June 2014 31 Dec 2014
R million R million R million
Assets that are classified as held for sale
Financial assets at fair value through income
Equity securities 326 309 308
Loans and receivables including insurance receivables 126 120 120
Investment in associates 225 - -
677 429 428
Santam International
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.
Equities that are classified as held for sale are categorised as level 3 instruments in terms of the fair value hierarchy. The following table presents the changes
for the period ended 30 June 2015:
Reviewed at Reviewed at Audited at
30 June 2015 30 June 2014 31 Dec 2014
R million R million R million
Opening balance 308 299 299
Foreign exchange rates 18 13 8
(Losses)/gains recognised in profit or loss - (3) 1
Closing balance 326 309 308
Credit Guarantee Insurance Corporation of Africa Ltd (Credit Guarantee)
Santam Ltd and Mutual & Federal Insurance Company Ltd (Mutual & Federal) have reached agreement in terms of which Santam will sell its current 33.6% equity interest
in Credit Guarantee Insurance Corporation of Africa Ltd ("Credit Guarantee") for an amount of circa R600 million to Mutual & Federal. The transaction is still subject
to regulatory approval. Santam previously classified its investment in Credit Guarantee as an investment in associates. As a result of the transaction, the investment was
reclassified as a "non-current asset held for sale" in terms of IFRS 5.
Reviewed at Reviewed at Audited at
30 June 2015 30 June 2014 31 Dec 2014
R million R million R million
9. Investment income and net gains/(losses) on financial assets and liabilities
Investment income 502 377 807
Dividend income 74 68 127
Interest income 366 294 609
Foreign exchange differences 62 15 71
Net gains/(losses) on financial assets and liabilities at fair value through income 265 323 286
Net realised gains on financial assets 505 430 481
Net fair value losses on financial assets designated as at fair value through income (264) (14) (79)
Net fair value losses on financial assets held for trading - (5) -
Net fair value losses on financial assets held for sale - - (3)
Net realised/fair value (gains)/losses on derivative instruments 9 (93) (93)
Net fair value gain/(losses) on short-term money market instruments 8 (4) (18)
Net fair value gains/(losses) on financial liabilities designated as at
fair value through income 7 9 (2)
Net fair value gains/(loss) on debt securities 7 9 (2)
Net fair value losses/(gains) on investment contracts - - -
767 700 1 093
Reviewed at Reviewed at Audited at
30 June 2015 30 June 2014 31 Dec 2014
R million R million R million
10. Income tax
Normal taxation
Current year 376 283 684
Prior year 14 2 -
Recovered from cell owners (39) (33) (77)
Foreign taxation - current year 29 15 43
Total income taxation for the period 380 267 650
Deferred taxation
Current year 22 35 13
Prior year (12) (10) -
Recovered from cell owners - - (3)
Total deferred taxation for the period 10 25 10
Total taxation as per statement of comprehensive income 390 292 660
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0 28.0
Adjusted for:
Disallowable expenses 1.4 - 1.9
Exempt income (1.6) (1.4) (1.6)
Investment results (1.4) (2.6) (0.6)
Other permanent differences 0.4 (0.5) 0.7
Net (reduction)/increase (1.2) (4.5) 0.4
Effective rate (%) 26.8 23.5 28.4
11. Business combinations
2015
Disposals Censeo (Pty) Ltd
On 31 May 2015, Swanvest 120 (Pty) Ltd (a wholly owned subsidiary of Santam Ltd) sold its 37.5% shareholding in Censeo (Pty) Ltd for R23 million. The net profit
realised was R21 million and capital gains tax of R4.2 million was recognised.
2014
Additions
Brolink (Pty) Ltd and H & L Underwriting Managers (Pty) Ltd
During 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
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.
31 Dec 2014
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.
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2015 30 June 2014 31 Dec 2014
12. Earnings per share
Basic earnings per share
Profit attributable to the company's equity holders (R million) 995 911 1 579
Weighted average number of ordinary shares in issue (million) 114.31 114.12 114.26
Earnings per share (cents) 870 799 1 382
Diluted earnings per share
Profit attributable to the company's equity holders (R million) 995 911 1 579
Weighted average number of ordinary shares in issue (million) 114.31 114.12 114.26
Adjusted for share options 0.65 0.70 0.83
Weighted average number of ordinary shares for diluted
earnings per share (million) 114.96 114.82 115.09
Diluted basic earning per share (cents) 865 794 1 372
Headline earnings per share
Profit attributable to the company's equity holders (R million) 995 911 1 579
Adjusted for:
Impairment of intangible assets 36 - 72
Profit on sale of investment in associated company (21) - -
Tax charge 4 - -
Headline earnings (R million) 1 014 911 1 651
Weighted average number of ordinary shares in issue (million) 114.31 114.12 114.26
Headline earnings per share (cents) 887 799 1 445
Diluted headline earnings per share
Headline earnings (R million) 1 014 911 1 651
Weighted average number of ordinary shares for diluted
headline earnings per share (million) 114.96 114.82 115.09
Diluted headline earnings per share (cents) 882 793 1 435
13. Dividends per share
Dividend per share (cents) 288 262 742
14. Share buy-back
In May 2007, Santam concluded a broad-based black economic empowerment (BBBEE) transaction in terms of which Central Plaza Investments 112 (Pty) Ltd
(Central Plaza) acquired 10% of Santam's issued ordinary shares in terms of a scheme of arrangement. To facilitate the BBBEE Scheme unwind, Santam entered into
an agreement with Central Plaza in terms of which Santam repurchased 4 215 000 Santam shares held by Central Plaza at a price of R190 per share for a total
consideration of R801 million, effective 30 June 2015.
Non-executive directors
CB Booth, B Campbell, MD Dunn, MP Fandeso, T Fubu, BTPKM Gamedze, GG Gelink (Chairman),
IM Kirk, MLD Marole, JP Moller, MJ Reyneke, J van Zyl
Executive directors
L Lambrechts (Chief Executive Officer), HD Nel (Chief Financial Officer), Y Ramiah
Company secretary
M 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: 26/08/2015 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,
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