Wrap Text
Reviewed Interim Report for The Six Months Ended 30 June 2017
Santam Limited and its subsidiaries
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
REVIEWED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2017
- Gross written premium growth of 14%
- Conventional insurance gross written premium growth 12%
- Return on shareholders' funds 20.4%
- Headline earnings per share decreased by 6%
- Conventional insurance underwriting margin 4.2%
- Normalised capital coverage ratio 151%
- Earnings per share increased by 8%
- Interim dividend of 336 cents per share, up 8%
FINANCIAL REVIEW
The Santam group reported excellent growth of 14%, but lower underwriting results, for the six-month period to 30 June 2017.
The group has revised the presentation of its insurance results in the following segments:
- Conventional insurance business written on insurance licences controlled by the group;
- Alternative Risk Transfer insurance business written on insurance licences controlled by the group; and
- Santam's share of the insurance results of the Sanlam Emerging Markets (SEM) general insurance businesses (including Saham Finances).
The group's conventional insurance book achieved excellent gross written premium growth of 12% and a net underwriting margin of 4.2% (2016: 6.4%), which was
at the bottom end of the group's target range of 4% to 8%. The alternative risk transfer insurance segment grew by 28% following the acquisition of RMB
Structured Insurance (rebranded to Santam Structured Insurance) and achieved solid operating results. The SEM general insurance businesses delivered
improved operating results.
Investment income, inclusive of fair value movements on financial assets and liabilities, of R918 million was significantly higher than the R555 million
reported in the comparative period in 2016. The increase was mainly due to foreign currency gains on the winding up of Santam International, increased
interest income following the growth in interest-bearing assets, and the positive fair value adjustments on the listed and unlisted investment portfolios.
The lower underwriting profit compared to 2016 was the key driver of the 6% drop in headline earnings per share. An annualised return on capital of 20.4%
was achieved. The normalised economic capital coverage ratio was 151% - close to the mid-point of the target range of 130% to 170%.
CONVENTIONAL INSURANCE
The conventional insurance business reported a net underwriting margin of 4.2% compared to the 6.4% reported in 2016. The current period margin was impacted by
significant catastrophe claims, as well as several large commercial fire claims, while excellent gross premium growth of 12% (2016: 6%) was achieved, including
a book acquisition, which contributed growth of 1.4%. The focus on international diversification continued to reflect positively on growth with gross written
premium from outside of South Africa written on the Santam Ltd licence increasing by 21% to R1 554 million (2016: R1 288 million).
The property class reported growth of 11% on the back of solid growth in the corporate property business in addition to the acquisition of a new block of
commercial business. The motor class grew by 12%, which benefitted from 15% growth reported by MiWay (gross written premium of R1 148 million; 2016: R1 003 million),
and strong growth in the commercial and personal lines intermediated business.
The liability class reported an increase in gross written premiums of 16% as it was positively impacted by growth in the specialist, commercial and
reinsurance businesses. Engineering also reported double-digit growth of 11%, despite continued economic pressure negatively impacting construction
projects. Growth in business from outside South Africa contributed to this result.
The accident and health class reported growth of 41%, mainly driven by growth in Santam Re as well as the travel insurance business.
On 6 June 2017, and through to 8 June 2017, a severe storm hit the Western Cape that resulted in extensive property damage in Cape Town and
environs, and a devastating fire-storm in the Southern Cape (including large parts of Knysna, Brenton-on-Sea, and parts of Plettenberg Bay) destroyed a
large number of properties in its wake. Nearly 10 000 people were evacuated and seven people died. Over 1 000 firefighters eventually brought the fires under
control. The total insured damage has been estimated at around R3 billion, with economic losses (taking uninsured property into account) at significantly
higher levels.
This was by far the worst catastrophe event in South African insurance history, with Santam client claims totalling around R800 million,
of which R72 million related to the Cape Town property damage. The impact on the group's net underwriting results, including reinsurance reinstatement
premiums, was R234 million. The net underwriting margin, excluding the impact of this catastrophe event, was 6.4%. It was also the most severe wildfire in
South African history since the so-called 'Great Fire of 1869', which, incidentally, burnt a similar region of the Southern Cape. Experts have concluded
that the extreme wind, severe drought conditions, coupled with the extremely hot ambient conditions conspired to create this extraordinary event.
It is during such times of extreme loss and hardship that the real value of insurance comes to the fore. Santam's claims team responded almost immediately
and set up a temporary fit-for-purpose office in Knysna, which sent out mobile assessment vehicles, and was available on the ground to help clients through
the myriad of practical challenges that arise after such a devastating event.
It is Santam's view that it was the same weather system that caused the strong winds and damage in Cape Town that caused the rapid spreading and development
of the extreme bush fires along the Knysna coast. The original cause of the fires, which ignited into vast bush fires as the result of the weather system, is
still the subject of various investigations. This uncertainty creates complications in agreeing these losses with our reinsurance markets as one event or
two events, but it remains Santam's view that these losses are to be treated as one event. Despite our view, given the uncertainty around this event, we have
accounted for the losses as two events in these financial results.
In addition to the catastrophe events, the underwriting performance of the commercial and corporate property class came under pressure after an increase in
large property claims this year. During tough economic times claims often arise as maintenance and safety standards are compromised, public service
delivery falters, and fraud and arson, which are often difficult to prove, increase. While the drivers are not necessarily the same, it is notable that
Santam's Property result also suffered when South Africa went through tough economic times from 2008 to 2009. This challenge is receiving strategic
focus by expanding capacity in the areas of risk management and surveying, implementing premium rate increases, reducing exposure to certain types of risk,
and increasing the level of risk sharing and risk management in collaboration with clients.
The motor class reported strong underwriting performance in both the intermediated and direct distribution channels. MiWay reported excellent results
following an improvement in the claims ratio to 55.4% (2016: 63.1%) as it was positively impacted by disciplined underwriting. The business contributed an
underwriting profit of R179 million (2016: R72 million).
The engineering class of business achieved good underwriting results with limited claims activity during this period. The liability class was impacted by a
number of large claims, but maintained good underwriting results, although these were lower than the excellent results reported in 2016. The crop insurance
business achieved excellent results of R131 million (2016: R8 million), due to the low incidence of hail-related and drought claims during this period.
Santam Re delivered satisfactory results on third-party business, despite the impact of the catastrophe events on the South African book of business.
The group entered into a new reinsurance arrangement to provide sideways cover against multiple catastrophe events, which replaced the previous programme.
In terms of the new arrangement, effective from May 2017, all catastrophe events that exceed R10 million (previously R50 million) and capped at R100 million
are aggregated under this agreement. A deductible aggregate of R300 million (previously R100 million) applies. The total amount that can be claimed is
R135 million (previously R100 million). There were no other significant changes to the group's reinsurance programme.
The net acquisition cost ratio of 27.5% decreased from 28.9% in 2016. The management expense ratio decreased from 16% in 2016 to 15.1% in 2017, after being
positively impacted by a continued focus on improved efficiencies, timing differences relating to marketing and IT spend as well as lower incentive cost due
to the reduced underwriting performance in 2017.
Strategic project costs, included as part of management expenses, amounted to 0.8% of net earned premium (2016: 0.6%). These costs mainly relate to the
continued development of a new core underwriting, administration and product management platform for the Santam intermediated business. The project is
progressing according to plan, with the majority of personal lines policies now being managed on the new platform. The migration process for commercial
business products is underway. Santam will maintain its focus on cost efficiencies to improve the management expense ratio over the medium term.
The net commission ratio was 12.4% (2016: 12.9%), positively impacted by the growth in MiWay, where limited commission expenses are incurred, as well as
lower commission ratios on specialist business lines.
The investment return on insurance funds increased to R296 million (2016: R268 million), supported by higher average insurance funds for the period, as
well as the good investment performance of the investment portfolios backing the insurance funds.
ALTERNATIVE RISK TRANSFER INSURANCE (ART)
Alternative risk transfer business consists of the risk finance, affinity, underwriting management and structuring businesses of Centriq Insurance and the
newly acquired Santam Structured Insurance. During March 2017, the Santam group acquired a shareholding of 100%, with an economic interest of 90%, in RMB
Structured Insurance (rebranded as Santam Structured Insurance) for R193 million in cash.
The ART business reported growth of 28% with gross written premium of R1 710 million (2016: R1 334 million). Centriq reported no gross written premium growth
due to refunds of risk finance premiums. This was set off by the acquisition of the Santam Structured Insurance book of business. The ART business reported
acceptable operating results before tax of R35 million (2016: R41 million).
SANLAM EMERGING MARKETS (SEM) GENERAL INSURANCE BUSINESSES (INCLUDING SAHAM FINANCES HELD THROUGH SAN JV)
The emerging markets general insurance business portfolio includes investments in the Saham Finances Group in Morocco (with subsidiaries in 26 countries in
Africa and the Middle East), Pacific & Orient Insurance Co. Bhd. (P&O) in Malaysia, Shriram General Insurance Company Ltd (SGI) in India and a further 13
general insurance businesses throughout Africa, excluding South Africa and Namibia, which are held in conjunction with SEM.
Santam's share of the gross written premium of these businesses increased by 43% to R1 257 million (2016: R880 million) following the inclusion of the Saham
Finances results for the full six-month period (2016: four months), the additional investment in SGI during the second half of 2016, and the good growth
achieved across the businesses in the portfolio, with the exception of P&O. Saham Finances achieved growth in gross written premium of 8% on a comparative
basis.
Santam's share of the net insurance result of these businesses increased to R101 million compared to R76 million in 2016. The portfolio of businesses
achieved a net insurance margin of 11.6% compared to the 12.8% reported in 2016. The performance of Saham Finances and SGI were in line with the business plans;
however, P&O continues to experience negative growth in competitive market conditions while maintaining an acceptable underwriting margin.
The Sanlam Group entered into an agreement in June 2017 to dispose of its various interests in the Enterprise Group in Ghana. In terms of the co-investment
arrangement with SEM, Santam, which has an economic interest of 14% in Enterprise Insurance Company (EIC), will also dispose of its interest in Enterprise
Insurance Company Ltd for R106 million.
Effective 10 May 2017, SEM and Santam, through SAN JV, acquired a further 16.6% interest in Saham Finances via a subscription for new shares for
US$351 million (R4.8 billion). Santam's share of the purchase price, including transaction costs, was US$11 million (R152 million). Santam's ability to participate
in the transaction was limited due to the size of the investment already held by Santam in SAN JV. The investment in SAN JV comprised 20.4% of Santam's shareholder
funds at 30 June 2017 (December 2016: 17.5%) making it the largest strategic investment held by Santam. Santam's interest in SAN JV therefore diluted to
15% (previously 25%). The dilution of Santam's interest in SAN JV did not affect any of its existing shareholder rights.
INVESTMENT RESULTS
Listed equities achieved a return of 3.9% for the six months to June 2017, thereby outperforming the SWIX benchmark of 3.3%. The Santam group's interest
exposure is managed in enhanced cash and active income portfolios. The interest portfolios comfortably exceeded their STeFI-related benchmarks.
Positive fair value movements (excluding the impact of currency movements) of R104 million (2016: negative movement of R71 million) in Santam's interest in
SEM's general insurance businesses in Africa, India and Southeast Asia contributed to the improved investment performance.
Net earnings from associated companies of R54 million increased from the R45 million reported in 2016. SAN JV (Saham Finances) contributed equity-accounted
earnings of R26 million (2016: R29 million).
During June 2017, the company successfully issued additional unsecured subordinated debt to the value of R1 billion in anticipation of the redemption of the
R1 billion subordinated debt issued in 2007, which is callable in September 2017.
PROSPECTS
Trading conditions remain very competitive in a low-growth economic environment. Real annual GDP contracted by 0.7% in the first quarter following a
contraction in the economy in the fourth quarter of 2016, which resulted in a technical recession. Inflation (average CPI) of 5.1% was reported at the end
of the second quarter. The repo rate was lowered by 25 basis points in July 2017 following the 75 basis points increase in 2016. The decrease in the repo
rate will marginally impact interest income for the group.
In April 2017, Standard & Poor's (S&P) decreased Santam's international counterparty credit and insurance financial strength rating from BBB to BBB-, in line
with their local currency sovereign rating on South Africa (BBB-, negative). On a national scale basis, Santam's counterparty credit rating remained
unchanged at zaAAA following the recalibration of South Africa's National scale ratings by S&P on 3 August 2017.
The group's focus remains on growing profitably in South Africa and to increase its international diversification through the Santam Specialist Business
and Santam Re. International diversification is supported by close collaboration with the SEM general insurance businesses, which
utilises the extensive emerging markets footprint to source new business opportunities. Santam continues to focus strategically on supporting the
development of the SEM general insurance businesses by allocating appropriate technical resources. In South Africa, continued focus is placed on the
development of Santam's full multichannel capability.
Santam will maintain its focus on cost efficiencies to improve the management expense ratio over the medium term. The investment market is likely to remain
uncertain. Continued high volatility is expected on interest-bearing instruments. The increased exposure to non-rand-denominated business further increases
foreign exchange volatility for the group.
The group economic capital requirement at 30 June 2017, based on the Santam internal model, amounted to R5.9 billion. The normalised economic capital
coverage ratio, assuming a sub-debt of R2 billion, was 151%, which was close to the mid-point of the target range of 130% to 170%.
We remain committed to efficient capital management.
EVENTS AFTER THE REPORTING PERIOD
The group entered into a zero-cost collar on 31 July 2017 over R1.2 billion of listed equity investments, and locked in an investment return of 10.5% for
the year to date, with further upside participation (excluding dividends) of 2.2%. The structure matures on 21 December 2017.
There have been no other material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial position
date.
DECLARATION OF ORDINARY DIVIDEND (NUMBER 127)
Notice is hereby given that the board has declared a gross interim dividend of 336 cents per share (2016: 311 cents per share).
Shareholders are advised that the last day to trade "cum dividend" will be Tuesday, 19 September 2017. The shares will trade "ex dividend" from the
commencement of business on Wednesday, 20 September 2017. The record date will be Friday, 22 September 2017, and the payment date will be Tuesday,
26 September 2017. Certificated shareholders may not dematerialise or rematerialise their shares between Wednesday, 20 September 2017 and Friday,
22 September 2017, both dates inclusive.
The interim 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 20%, is therefore 336 cents per share. A net interim dividend of 268.80 cents per share will apply to shareholders liable for
dividends tax at a rate of 20%, and 336 cents per share for shareholders that qualify for complete exemption therefrom. The issued ordinary share capital as
at 30 August 2017 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.
APPRECIATION
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 period.
PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS
The preparation of the independently reviewed interim financial statements was supervised by the chief financial officer of Santam Ltd, HD Nel CA(SA).
GG Gelink L Lambrechts
Chairman Chief executive officer
30 August 2017
INDEPENDENT AUDITOR'S REVIEW REPORT
TO THE SHAREHOLDERS OF SANTAM LTD
We have reviewed the condensed consolidated interim financial statements of Santam Ltd in the accompanying interim report, which comprise the condensed
consolidated statement of financial position as at 30 June 2017 and the related condensed consolidated statements of comprehensive income, changes in equity
and cash flows for the six months then ended, and selected explanatory notes.
DIRECTORS' RESPONSIBILITY FOR THE INTERIM FINANCIAL STATEMENTS
The directors are responsible for the preparation and presentation of these interim financial statements in accordance with the International Financial
Reporting Standard, (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, and for such internal
control as the directors determine is necessary to enable the preparation of interim financial statements that are free from material misstatement, whether
due to fraud or error.
AUDITOR'S RESPONSIBILITY
Our responsibility is to express a conclusion on these interim financial statements. We conducted our review in accordance with International Standard on
Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. ISRE 2410 requires us to conclude
whether anything has come to our attention that causes us to believe that the interim financial statements are not prepared in all material respects in
accordance with the applicable financial reporting framework. This standard also requires us to comply with relevant ethical requirements.
A review of interim financial statements in accordance with ISRE 2410 is a limited assurance engagement. We perform procedures, primarily consisting of
making inquiries of management and others within the entity, as appropriate, and applying analytical procedures, and evaluate the evidence obtained.
The procedures in a review are substantially less than and differ in nature from those performed in an audit conducted in accordance with International
Standards on Auditing. Accordingly, we do not express an audit opinion on these interim financial statements.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements
of Santam Ltd for the six months ended 30 June 2017 are not prepared, in all material respects, in accordance with the International Financial Reporting
Standard, (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.
PricewaterhouseCoopers Inc
Director: Zuhdi Abrahams
Registered auditor
Cape Town
30 August 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed at Reviewed at Audited at
30 June 2017 30 June 2016 31 Dec 2016
Notes R million R million R million
ASSETS
Non-current assets
Property and equipment 125 96 106
Intangible assets 860 837 885
Deferred income tax 63 124 105
Investment in associates and joint ventures 1 782 1 702 1 536
Financial assets at fair value through income
Equity securities 6 4 633 2 788 2 581
Debt securities 6 12 796 10 911 10 849
Reinsurance assets 7 279 164 140
Deposit with cell owner 141 231 163
Total non-current assets 20 679 16 853 16 365
Current assets
Cell owners' and policyholders' interest 8 4 7
Financial assets at fair value through income
Equity securities 6 106 - -
Derivatives 6 6 6 1
Short-term money market instruments 6 2 665 1 981 1 361
Reinsurance assets 7 5 678 3 953 4 349
Deposit with cell owner 48 61 56
Deferred acquisition costs 425 410 469
Loans and receivables including insurance receivables 6 3 997 3 322 3 754
Income tax assets 33 17 19
Cash and cash equivalents 4 118 2 241 2 887
Non-current assets held for sale 8 - 125 8
Total current assets 17 084 12 120 12 911
Total assets 37 763 28 973 29 276
EQUITY AND LIABILITIES
Capital and reserves attributable to the company's equity holders
Share capital 103 103 103
Treasury shares (463) (460) (472)
Other reserves (113) 240 (41)
Distributable reserves 7 374 7 958 7 286
6 901 7 841 6 876
Non-controlling interest 475 461 469
Total equity 7 376 8 302 7 345
Non-current liabilities
Deferred income tax 229 217 101
Financial liabilities at fair value through income
Debt securities 6 2 021 2 005 2 005
Derivatives 6 - 1 -
Cell owners' and policyholders' interest 1 206 1 060 1 153
Insurance liabilities 7 1 701 1 423 1 312
Reinsurance liability relating to cell owners 141 231 163
Total non-current liabilities 5 298 4 937 4 734
Current liabilities
Financial liabilities at fair value through income
Debt securities 6 1 047 48 48
Investment contracts 6 1 639 84 101
Derivatives 6 - 9 -
Financial liabilities at amortised cost
Collateral guarantee contracts 6 134 104 123
Cell owners' and policyholders' interest 1 779 - -
Insurance liabilities 7 15 917 11 577 12 284
Reinsurance liability relating to cell owners 48 61 56
Deferred reinsurance acquisition revenue 214 183 273
Provisions for other liabilities and charges 98 83 71
Trade and other payables including insurance payables 6 4 132 3 407 4 093
Current income tax liabilities 81 178 148
Total current liabilities 25 089 15 734 17 197
Total liabilities 30 387 20 671 21 931
Total shareholders' equity and liabilities 37 763 28 973 29 276
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2017 30 June 2016 31 Dec 2016
Notes R million R million Change R million
Gross written premium 13 795 12 148 14% 25 909
Less: reinsurance written premium 3 709 2 914 6 137
Net written premium 10 086 9 234 9% 19 772
Less: change in unearned premium
Gross amount (257) (532) 137
Reinsurers' share (208) 66 (191)
Net insurance premium revenue 10 551 9 700 9% 19 826
Investment income 9 590 441 34% 777
Income from reinsurance contracts ceded 698 629 1 337
Net gains/(losses) on financial assets and liabilities at fair value through income 9 153 101 42
Investment income and fair value losses on financial assets held for sale 9 175 13 13
Other income 64 - -
Net income 12 231 10 884 12% 21 995
Insurance claims and loss adjustment expenses 10 700 8 488 17 100
Insurance claims and loss adjustment expenses recovered from reinsurers (3 448) (2 199) (4 189)
Net insurance benefits and claims 7 252 6 289 15% 12 911
Expenses for the acquisition of insurance contracts 1 952 1 846 3 716
Expenses for marketing and administration 1 674 1 571 3 247
Expenses for investment-related activities 24 26 70
Amortisation and impairment of intangible assets 37 22 51
Investment return allocated to cell owners and structured insurance products 120 - -
Total expenses 11 059 9 754 13% 19 995
Results of operating activities 1 172 1 130 4% 2 000
Finance costs (127) (77) (212)
Net income from associates and joint ventures 54 45 67
Profit on sale of associates 11 5 - -
Gain on dilution of associate 11 18 - -
Reclassification of foreign currency translation reserve on dilution of associate 11 (90) - -
Profit before tax 1 032 1 098 (6%) 1 855
Income tax expense 10 (224) (336) (524)
Profit for the period 808 762 6% 1 331
Other comprehensive income, net of tax
Items that may subsequently be reclassified to income:
Currency translation differences (161) (114) (197)
Share of associates' currency translation differences 83 (62) (255)
Hedging reserve movement 5 (134) (140)
Total comprehensive income for the period 735 452 63% 739
Profit attributable to:
- equity holders of the company 753 697 8% 1 212
- non-controlling interest 55 65 119
808 762 1 331
Total comprehensive income attributable to:
- equity holders of the company 680 387 76% 620
- non-controlling interest 55 65 119
735 452 739
Earnings attributable to equity shareholders
Earnings per share (cents) 12
Basic earnings per share 683 633 8% 1 100
Diluted earnings per share 677 627 8% 1 088
Weighted average number of ordinary shares (millions) 110.26 110.19 110.21
Weighted average number of ordinary shares for diluted earnings per share (millions) 111.28 111.23 111.37
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the company Non-
Share Treasury Other Distributable controlling
capital shares reserves reserves Total interest Total
R million R million R million R million R million R million R million
Balance as at 1 January 2016 103 (450) 548 7 880 8 081 466 8 547
Profit for the year - - - 1 212 1 212 119 1 331
Other comprehensive income:
Currency translation differences - - (197) - (197) - (197)
Share of associates' currency translation differences - - (255) - (255) - (255)
Hedging reserve movement - - (140) - (140) - (140)
Total comprehensive income for the year ended 31 December 2016 - - (592) 1 212 620 119 739
Issue of treasury shares in terms of share option schemes - 76 - (76) - - -
Purchase of treasury shares - (98) - - (98) - (98)
Transfer to reserves - - 3 (3) - - -
Share-based payment costs - - - 79 79 - 79
Dividends paid - - - (1 806) (1 806) (116) (1 922)
Balance as at 31 December 2016 103 (472) (41) 7 286 6 876 469 7 345
Profit for the period - - - 753 753 55 808
Other comprehensive income:
Currency translation differences - - (161) - (161) - (161)
Share of associates' currency translation differences - - 83 - 83 - 83
Hedging reserve movement - - 5 - 5 - 5
Total comprehensive income for the period ended 30 June 2017 - - (73) 753 680 55 735
Issue of treasury shares in terms of share option schemes - 74 - (74) - - -
Purchase of treasury shares - (65) - - (65) - (65)
Transfer to reserves - - 1 (1) - - -
Share-based payment costs - - - 41 41 - 41
Dividends paid - - - (631) (631) (49) (680)
Balance as at 30 June 2017 103 (463) (113) 7 374 6 901 475 7 376
Balance as at 1 January 2016 103 (450) 548 7 880 8 081 466 8 547
Profit for the period - - - 697 697 65 762
Other comprehensive income:
Currency translation differences - - (114) - (114) - (114)
Share of associate's currency translation differences - - (62) - (62) - (62)
Hedging reserve movement - - (134) - (134) - (134)
Total comprehensive income for the period ended 30 June 2016 - - (310) 697 387 65 452
Sale of treasury shares - 75 - (75) - - -
Purchase of treasury shares - (85) - - (85) - (85)
Transfer to reserves - - 2 (2) - - -
Share-based payment costs - - - 39 39 - 39
Dividends paid - - - (581) (581) (70) (651)
Balance as at 30 June 2016 103 (460) 240 7 958 7 841 461 8 302
CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2017 30 June 2016 31 Dec 2016
Notes R million R million R million
Cash flows from operating activities
Cash generated from operations 1 637 844 2 171
Interest paid (94) (50) (161)
Income tax paid (210) (340) (681)
Net cash from operating activities 1 333 454 1 329
Cash flows from investing activities
Acquisition of financial assets (7 774) (9 505) (17 594)
Proceeds from sale of financial assets 6 799 8 538 17 764
Settlement of fence - - 75
Acquisition of business, net of cash acquired 11 852 - 70
Cash received through sale of subsidiaries 11 - 208 208
Purchases of equipment (20) (26) (60)
Purchases of intangible assets (12) (21) (50)
Proceeds from sale of equipment 1 1 2
Acquisition of associates and joint ventures 11 (152) (1 467) (1 467)
Capitalisation of associates 11 (14) - (10)
Proceeds from sale of associates 11 23 - -
Settlement of deferred conditional right relating to non-current assets held for sale - - 509
Cash proceeds from unwinding of non-current assets held for sale 8 - 394 -
Net cash used in investing activities (297) (1 878) (553)
Cash flows from financing activities
Purchase of treasury shares (65) (85) (98)
Proceeds from issue of unsecured subordinated callable notes 1 000 1 000 1 000
Increase in investment contract liabilities 5 7 31
Increase in collateral guarantee contracts 6 - 12
Dividends paid to company's shareholders (631) (581) (1 806)
Dividends paid to non-controlling interest (49) (70) (116)
(Decrease)/increase in cell owners' and policyholders' interest (38) 120 (114)
Net cash from/(used in) financing activities 228 391 (1 091)
Net increase/(decrease) in cash and cash equivalents 1 264 (1 033) (315)
Cash and cash equivalents at the beginning of the period 2 887 3 349 3 349
Exchange losses on cash and cash equivalents (33) (75) (147)
Cash and cash equivalents at the end of the period 4 118 2 241 2 887
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 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 2017:
Amendment to IAS 7 - Statement of Cash Flows
Amendment to IAS 12 - Income Taxes
There was no material impact on the condensed consolidated interim financial statements identified.
Of the standards that are not yet effective, management expects IFRS 9 and IFRS 17 to have an impact on the group. IFRS 9 addresses classification and
measurement of financial assets and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two
classification categories: amortised cost and fair value. Based on management's current assessment, the impact is not expected to be material.
IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard.
IFRS 17 was issued in May 2017 and applies to annual reporting periods beginning on or after 1 January 2021. Management is currently busy with a detailed
assessment of the impact of this standard.
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 expenses. 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 are the same as those that applied to the consolidated annual financial statements for the year ended
31 December 2016.
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 2016.
There have been no material changes in the risk management policies since 31 December 2016.
5. Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief executive
officer, supported by the group executive committee.
The group conducts mainly insurance and investment activities.
Insurance activities:
The group has revised the presentation of its insurance results in the following segments:
- Conventional insurance business written on insurance licences controlled by the group.
- Alternative risk transfer insurance business written on insurance licences controlled by the group.
- Santam's share of the insurance results of the Sanlam Emerging Markets general insurance businesses, including SAN JV (Saham Finances).
It is further analysed by insurance class. Operating segments are aggregated based on quantitative and/or qualitative significance. The performance of
insurance activities is based on gross written premium as a measure of growth, with net underwriting result as measure of profitability.
As noted above, the presentation of insurance activities has been enhanced subsequent to the acquisition of SSI (refer to note 11). The comparative
information has been restated to provide the information in the same enhanced format.
Investment activities:
Investment activities are all investment-related activities undertaken by the group. Due to the nature of the activities conducted, investment activities
are considered to be one operating segment. Investment activities are measured based on net investment income.
Growth is measured for strategic investments based on the gross written premium generated by the underlying businesses. The underwriting and investment
return on insurance funds are provided for each of the underlying components included in the insurance segment for consideration by the chief operating
decision-maker. With regard to the SEM and SAN JV (Saham Finances) insurance business, this information is considered to be a reallocation of fair value
movements recognised on the SEM target shares as well as equity-accounted earnings on the investments in associates and joint ventures. It is also included
as reconciling items in order to reconcile to the consolidated statement of comprehensive income. Overall profitability is measured based on net investment
income and fair value movements from SEM target share investments and net income from associates and joint ventures.
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 investment portfolios. Foreign exchange movements
on underwriting activities are therefore offset against the foreign exchange movements recognised on the bank accounts and investment portfolios.
The Santam BEE transaction costs are unrelated to the core underwriting and 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 joint ventures and SEM target shares (included in financial assets).
5.1 For the six months ended 30 June 2017
Insurance
Santam’s
Alternative share of
Conventional risk SEM Total
Business activity R million R million R million R million
Revenue 12 085 1 710 1 257 15 052
Net earned premium 10 250 301 870 11 421
Net claims incurred 7 003 249 640 7 892
Net commission 1 273 (18) 59 1 314
Management expenses (excluding BEE costs)(2) 1 546 76 245 1 867
Underwriting result 428 (6) (74) 348
Investment return on insurance funds 296 42 175 513
Net insurance result 724 36 101 861
Other income(3) 41 22 – 63
Other expenses(3) (42) (23) – (65)
Operating result 723 35 101 859
Reallocation of operating result(1) – – (101) (101)
Investment income/(losses) net of investment-related fees – 120 88 208
Investment return allocated to cell owners and structured
insurance products – (120) – (120)
Finance costs – – – –
Income from associates and joint ventures – – 26 26
Gain on dilution of associate – – 18 18
Reclassification of foreign currency translation reserve on dilution
of associate – – (90) (90)
Santam BEE costs – – – –
Amortisation and impairment of intangible assets(2) (18) – – (18)
Income before taxation 705 35 42 782
Reconciling IFRS
Investment Total and unallocated Total
Business activity R million R million R million R million
Revenue 404 15 456 (1 661) 13 795
Net earned premium – 11 421 (870) 10 551
Net claims incurred – 7 892 (640) 7 252
Net commission – 1 314 (59) 1 255
Management expenses (excluding BEE costs)(2) – 1 867 (245) 1 622
Underwriting result – 348 74 422
Investment return on insurance funds – 513 (175) 338
Net insurance result – 861 (101) 760
Other income – 63 – 63
Other expenses – (65) – (65)
Operating result – 859 (101) 758
Reallocation of operating result(1) – (101) 101 –
Investment income/(losses) net of investment-related fees 347 555 – 555
Investment return allocated to cell owners and structured
insurance products – (120) – (120)
Finance costs (127) (127) – (127)
Income from associates and joint ventures 33 59 – 59
Gain on dilution of associate – 18 – 18
Reclassification of foreign currency translation reserve
on dilution of associate – (90) – (90)
Santam BEE costs – – (3) (3)
Amortisation and impairment of intangible assets(2) – (18) – (18)
Income before taxation 253 1 035 (3) 1 032
(1) Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for management
reporting purposes.
(2) Amortisation of computer software included as part of management expenses.
(3) Includes other income and expenses not related to underwriting activities.
5.1 For the six months ended 30 June 2017 (continued)
Gross written Underwriting
premium result
R million R million
Insurance activities
The group's conventional insurance activities are spread over various classes of general insurance.
Accident and health 232 35
Crop 72 131
Engineering 645 114
Guarantee 77 (3)
Liability 566 93
Miscellaneous 5 2
Motor 5 944 459
Property 4 188 (415)
Transportation 356 12
Total 12 085 428
Comprising:
Commercial insurance 6 542 247
Personal insurance 5 543 181
Total 12 085 428
R million
Investment activities
The group's return on investment-related activities can be analysed as follows:
Investment income 308
Net gains on financial assets and liabilities at fair value through income 63
Income from associates and joint ventures 33
Investment-related revenue 404
Expenses for investment-related activities (24)
Finance costs (127)
Net total investment-related transactions 253
For detailed analysis of investment activities, refer to notes 6 and 9.
Santam's share of SEM
The group's return on Santam's share of SEM activities can be analysed as follows:
SAN JV
(Saham
SEM Finances) Total
R million R million R million
Revenue 672 585 1 257
Net earned premium 434 436 870
Net claims incurred 359 281 640
Net commission 14 45 59
Management expenses (excluding BEE costs) 118 127 245
Underwriting result (57) (17) (74)
Investment return on insurance funds 96 79 175
Net insurance result/operating result 39 62 101
Reallocation of operating result(1) (39) (62) (101)
Investment income net of investment-related fees 88 - 88
Income from associates and joint ventures - 26 26
Gain on dilution of associate - 18 18
Reclassification of foreign currency translation reserve on dilution of associate - (90) (90)
Income/(loss) before taxation 88 (46) 42
(1) Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
5.2 For the six months ended 30 June 2016 (restated)
Insurance
Santam's
Alternative share of
Conventional risk SEM Total
Business activity R million R million R million R million
Revenue 10 814 1 334 880 13 028
Net earned premium 9 340 360 596 10 296
Net claims incurred 6 032 257 411 6 700
Net commission 1 209 8 57 1 274
Management expenses (excluding BEE costs)(2) 1 499 77 159 1 735
Underwriting result 600 18 (31) 587
Investment return on insurance funds 268 23 107 398
Net insurance result 868 41 76 985
Other income(3) 41 19 - 60
Other expenses(3) (41) (19) - (60)
Operating result 868 41 76 985
Reallocation of operating result(1) - - (76) (76)
Investment income/(losses) net of investment-related fees - 99 (110) (11)
Investment return allocated to cell owners and structured insurance products - (99) - (99)
Finance costs - - - -
Income from associates and joint ventures - - 29 29
Santam BEE costs - - - -
Amortisation and impairment of intangible assets(2) (11) - - (11)
Income before taxation 857 41 (81) 817
Reconciling
Investment Total and unallocated Total
Business activity R million R million R million R million
Revenue 390 13 418 (1 270) 12 148
Net earned premium - 10 296 (596) 9 700
Net claims incurred - 6 700 (411) 6 289
Net commission - 1 274 (57) 1 217
Management expenses (excluding BEE costs)(2) - 1 735 (159) 1 576
Underwriting result - 587 31 618
Investment return on insurance funds - 398 (107) 291
Net insurance result - 985 (76) 909
Other income - 60 - 60
Other expenses - (60) - (60)
Operating result - 985 (76) 909
Reallocation of operating result(1) - (76) 76 -
Investment income/(losses) net of investment-related fees 348 337 - 337
Investment return allocated to cell owners and structured insurance products - (99) - (99)
Finance costs (77) (77) - (77)
Income from associates and joint ventures 16 45 - 45
Santam BEE costs - - (6) (6)
Amortisation and impairment of intangible assets(2) - (11) - (11)
Income before taxation 287 1 104 (6) 1 098
(1) Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
(2) Amortisation of computer software included as part of management expenses.
(3) Includes other income and expenses not related to underwriting activities.
5.2 For the six months ended 30 June 2016 (restated) (continued)
Gross written Underwriting
premium result
R million R million
Insurance activities
The group's conventional insurance activities are spread over various classes of general insurance.
Accident and health 164 2
Crop 108 8
Engineering 579 81
Guarantee 32 (5)
Liability 489 172
Miscellaneous 22 3
Motor 5 315 300
Property 3 772 18
Transportation 333 21
Total 10 814 600
Comprising:
Commercial insurance 5 853 344
Personal insurance 4 961 256
Total 10 814 600
R million
Investment activities
The group's return on investment-related activities can be analysed as follows:
Investment income 150
Net gains on financial assets and liabilities at fair value through income 224
Income from associates and joint ventures 16
Investment-related revenue 390
Expenses for investment-related activities (26)
Finance costs (77)
Net total investment-related transactions 287
For detailed analysis of investment activities, refer to notes 6 and 9.
Santam's share of SEM
The group's return on Santam's share of SEM activities can be analysed as follows:
SAN JV
(Saham
SEM Finances) Total
R million R million R million
Revenue 489 391 880
Net earned premium 296 300 596
Net claims incurred 212 199 411
Net commission 22 35 57
Management expenses (excluding BEE costs) 83 76 159
Underwriting result (21) (10) (31)
Investment return on insurance funds 42 65 107
Net insurance result/operating result 21 55 76
Reallocation of operating result(1) (21) (55) (76)
Investment loss net of investment-related fees (110) - (110)
Income from associates and joint ventures - 29 29
(Loss)/income before taxation (110) 29 (81)
(1) Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
5.3 For the year ended 31 December 2016 (restated)
Insurance
Santam's
Alternative share of
Conventional risk SEM Total
Business activity R million R million R million R million
Revenue 23 503 2 406 1 939 27 848
Net earned premium 19 245 581 1 414 21 240
Net claims incurred 12 482 429 982 13 893
Net commission 2 374 5 121 2 500
Management expenses (excluding BEE costs)(2) 3 137 131 369 3 637
Underwriting result 1 252 16 (58) 1 210
Investment return on insurance funds 558 61 220 839
Net insurance result 1 810 77 162 2 049
Other income(3) 89 38 - 127
Other expenses(3) (89) (37) - (126)
Operating result 1 810 78 162 2 050
Reallocation of net operating result(1) - - (162) (162)
Investment income/(losses) net of investment-related fees - 202 (213) (11)
Investment return allocated to cell owners and structured insurance products - (202) - (202)
Finance costs - - - -
Income from associates including profit on sale - - 43 43
Santam BEE costs - - - -
Amortisation and impairment of intangible assets(2) (21) - - (21)
Income before taxation 1 789 78 (170) 1 697
Reconciling IFRS
Investment Total and unallocated Total
Business activity R million R million R million R million
Revenue 449 28 297 (2 388) 25 909
Net earned premium - 21 240 (1 414) 19 826
Net claims incurred - 13 893 (982) 12 911
Net commission - 2 500 (121) 2 379
Management expenses (excluding BEE costs)(2) - 3 637 (369) 3 268
Underwriting result - 1 210 58 1 268
Investment return on insurance funds - 839 (220) 619
Net insurance result - 2 049 (162) 1 887
Other income - 127 - 127
Other expenses - (126) - (126)
Operating result - 2 050 (162) 1 888
Reallocation of operating result(1) - (162) 162 -
Investment income/(losses) net of investment-related fees 355 344 - 344
Investment return allocated to cell owners and structured insurance products - (202) - (202)
Finance costs (212) (212) - (212)
Income from associates including profit on sale 24 67 - 67
Santam BEE costs - - (9) (9)
Amortisation and impairment of intangible assets(2) - (21) - (21)
Income before taxation 167 1 864 (9) 1 855
(1) Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
(2) Amortisation of computer software included as part of management expenses. Santam's share of the costs to manage the SEM portfolio of R22 million
has been included in management expenses.
(3) Includes other income and expenses not related to underwriting activities.
5.3 For the year ended 31 December 2016 (restated) (continued)
Gross written Underwriting
premium result
R million R million
Insurance activities
The group's conventional insurance activities are spread over various classes of general insurance.
Accident and health 374 49
Crop 984 69
Engineering 1 196 196
Guarantee 86 (31)
Liability 1 202 301
Miscellaneous 9 (3)
Motor 11 004 622
Property 7 972 22
Transportation 676 27
Total 23 503 1 252
Comprising:
Commercial insurance 13 330 735
Personal insurance 10 173 517
Total 23 503 1 252
R million
Investment activities
The group's return on investment-related activities can be analysed as follows:
Investment income 158
Net gains on financial assets and liabilities at fair value through income 267
Income from associates including profit on sale 24
Investment-related revenue 449
Expenses for investment-related activities (70)
Finance costs (212)
Net total investment-related transactions 167
For detailed analysis of investment activities, refer to notes 6 and 9.
Santam's share of SEM
The group's return on Santam's share of SEM activities can be analysed as follows:
SAN JV
(Saham
SEM Finances) Total
R million R million R million
Revenue 962 977 1 939
Net earned premium 665 749 1 414
Net claims incurred 484 498 982
Net commission 32 89 121
Management expenses (excluding BEE costs) 184 185 369
Underwriting result (35) (23) (58)
Investment return on insurance funds 119 101 220
Net insurance result/operating result 84 78 162
Reallocation of operating result(1) (84) (78) (162)
Investment loss net of investment-related fees (213) - (213)
Income from associates including profit on sale - 43 43
(Loss)/income before taxation (213) 43 (170)
(1) Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
5.4 Geographical analysis (restated)
Gross written premium
30 June 2017 30 June 2016 31 Dec 2016
R million R million R million
South Africa 12 241 10 860 23 126
Rest of Africa(1) 1 960 1 619 3 479
Southeast Asia, India, Middle East and China(2) 737 524 1 009
Other(3) 115 24 234
15 053 13 027 27 848
Reconciling items(4) (1 258) (879) (1 939)
Group total 13 795 12 148 25 909
Non-current assets
30 June 2017 30 June 2016 31 Dec 2016
R million R million R million
South Africa 1 136 1 071 1 126
Rest of Africa 1 915 1 822 1 670
Southeast Asia, India, Middle East and China 882 684 857
Group total 3 933 3 577 3 653
(1) Includes gross written premium relating to Namibia of R560 million (June 2016: R565 million; Dec 2016: R1 118 million).
(2) Includes gross written premium relating to China of R48 million (June 2016: R53 million; Dec 2016: R116 million).
(3) Includes gross written premium predominantly relating to Europe.
(4) Reconciling items relate to the underlying investments included in the SEM and SAN JV (Saham Finances) insurance businesses for management
reporting purposes.
Reviewed at Reviewed at Audited at
30 June 2017 30 June 2016 31 Dec 2016
R million R million R million
6. Financial assets and liabilities
The group's financial assets and liabilities are summarised below by measurement category.
Financial assets
Financial assets at fair value through income 20 206 15 686 14 792
Loans and receivables 3 997 3 322 3 754
24 203 19 008 18 546
Financial liabilities
Financial liabilities at fair value through income 4 707 2 147 2 154
Financial liabilities at amortised cost 134 104 123
Trade and other payables 4 132 3 407 4 093
8 973 5 658 6 370
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 2016. 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 level 2 instruments is predominantly determined using discounted cash flow models based on market observable input.
- Level 3: Input for the asset or liability that is not based on observable data (that is, unobservable input).
All government and corporate bonds were transferred from level 1 to level 2 during the second half of 2016 based on management's assessment of an active
market for debt instruments. There were no significant transfers between level 1 and level 2 during the current period.
All derivative instruments are classified as investments held for trading. The rest of the investment portfolio is designated as financial assets at fair
value through income based on the principle that the entire portfolio is managed on a fair value basis and reported as such to the investment committee.
30 June 2017 Level 1 Level 2 Level 3 Total
Financial assets at fair value through income R million R million R million R million
Equity securities
Quoted
Listed 2 830 - - 2 830
Unitised funds - 632 - 632
Irredeemable preference shares 6 - - 6
Unquoted - - 1 271 1 271
Total equity securities 2 836 632 1 271 4 739
Debt securities
Quoted
Government and other bonds - 3 453 - 3 453
Collateralised securities - 449 - 449
Unit-linked investments - 593 - 593
Money market instruments more than one year - 2 696 - 2 696
Equity-linked notes - 246 - 246
Unquoted
Government and other bonds - 251 - 251
Collateralised securities - 526 - 526
Money market instruments more than one year - 4 372 - 4 372
Redeemable preference shares - 185 25 210
Total debt securities - 12 771 25 12 796
Derivative instruments
Exchange traded futures - 6 - 6
Interest rate swaps(1) - - - -
Total derivative instruments - 6 - 6
Short-term money market instruments - 2 665 - 2 665
Total financial assets at fair value through income 2 836 16 074 1 296 20 206
(1) Carrying value as at 30 June 2017 is less than R1 million.
Financial liabilities at fair value through income
Debt securities - 3 068 - 3 068
Investment contracts - 1 639 - 1 639
Total financial liabilities at fair value through income - 4 707 - 4 707
30 June 2016 Level 1 Level 2 Level 3 Total
Financial assets at fair value through income R million R million R million R million
Equity securities
Quoted
Listed 1 719 - - 1 719
Unitised funds - 113 - 113
Irredeemable preference shares 1 - - 1
Unquoted - - 955 955
Total equity securities 1 720 113 955 2 788
Debt securities
Quoted
Government and other bonds 1 821 1 039 27 2 887
Collateralised securities - 140 - 140
Redeemable preference shares - 220 - 220
Money market instruments more than one year - 2 450 30 2 480
Equity-linked notes - 264 - 264
Unquoted
Government and other bonds - 135 - 135
Collateralised securities - 10 - 10
Money market instruments more than one year - 4 612 33 4 645
Redeemable preference shares - 101 29 130
Total debt securities 1 821 8 971 119 10 911
Derivative instruments
Fence structure - - 6 6
Total derivative instruments - - 6 6
Short-term money market instruments - 1 981 - 1 981
Total financial assets at fair value through income 3 541 11 065 1 080 15 686
Financial liabilities at fair value through income
Debt securities 2 053 - - 2 053
Investment contracts - 84 - 84
Derivative instruments
Interest rate swaps - - 1 1
Exchange traded futures - 9 - 9
Total derivative instruments - 9 1 10
Total financial liabilities at fair value through income 2 053 93 1 2 147
31 December 2016 Level 1 Level 2 Level 3 Total
Financial assets at fair value through income R million R million R million R million
Equity securities
Quoted
Listed 1 321 - - 1 321
Unitised funds - 77 - 77
Irredeemable preference shares 2 - - 2
Unquoted - - 1 181 1 181
Total equity securities 1 323 77 1 181 2 581
Debt securities
Quoted
Government and other bonds - 2 469 - 2 469
Collateralised securities - 407 - 407
Unit-linked investments - 268 - 268
Money market instruments more than one year - 2 592 - 2 592
Equity-linked notes - 244 - 244
Unquoted
Government and other bonds - 151 - 151
Collateralised securities - 10 - 10
Money market instruments more than one year - 4 516 - 4 516
Redeemable preference shares - 163 29 192
Total debt securities - 10 820 29 10 849
Derivative instruments
Exchange traded futures - 1 - 1
Interest rate swaps(1) - - - -
Total derivative instruments - 1 - 1
Short-term money market instruments - 1 361 - 1 361
Total financial assets at fair value through income 1 323 12 259 1 210 14 792
(1) Carrying value as at 31 December 2016 is less than R1 million.
Financial liabilities at fair value through income
Debt securities - 2 053 - 2 053
Investment contracts - 101 - 101
Total financial liabilities at fair value through income - 2 154 - 2 154
The following tables present the changes in level 3 instruments:
Short-term
Equity Debt money market
securities securities instruments Derivatives Total
30 June 2017 R million R million R million R million R million
Opening balance 1 181 29 - - 1 210
Acquisitions 2 - - - 2
Acquisition of subsidiary - (4) - - (4)
Gains recognised in profit or loss 88 - - - 88
Closing balance 1 271 25 - - 1 296
30 June 2016
Opening balance 1 019 65 44 (1) 1 127
Acquisitions 48 - - - 48
Disposals/settlements (2) - - - (2)
Transfers between asset classes - 44 (44) - -
(Losses)/gains recognised in profit or loss (110) 10 - 6 (94)
Closing balance 955 119 - 5 1 079
31 December 2016
Opening balance 1 019 65 44 (1) 1 127
Acquisitions 376 - - - 376
Disposals/settlements (2) - - (75) (77)
Transfers between asset classes - 44 (44) - -
Transfers to level 1 and/or 2 - (90) - - (90)
(Losses)/gains recognised in profit or loss (212) 10 - 76 (126)
Closing balance 1 181 29 - - 1 210
The unquoted equity instruments recognised as level 3 instruments consist mainly of the participation target shares issued by Sanlam Emerging Markets
(Pty) Ltd (SEM). The Sanlam group entered into agreements in June 2017 to dispose of its various interests in the Enterprise Group in Ghana. In terms
of the co-investment arrangement with SEM, Santam will share in the proceeds relating to the disposal of Enterprise Insurance Company Ltd. During the
second half of 2016, Santam increased its participatory interest in Shriram General Insurance Company Ltd (SGI) by 8% to 15% at a cost of R251 million.
Of the R88 million gain (June 2016: R110 million loss; Dec 2016: R212 million loss) recognised on equity securities, an R87 million gain
(June 2016: R110 million loss; Dec 2016: R212 million loss) relates to the SEM target shares, of which R17 million (June 2016: R39 million;
Dec 2016: R145 million) relates to foreign exchange losses, and R104 million to an increase (June 2016: R71 million to a decrease; Dec 2016: R67 million
to a decrease) in fair value in local currency terms. Key drivers of the fair value movements of Santam's share of the SEM investment portfolio were:
- A downward adjustment to the value of the P&O business in Malaysia of R14 million due to lower premium growth in competitive market conditions. There is a
significant focus on expanding the current P&O product offering, and growth reported on non-motor business lines was positive.
- An increase in the value of Shriram General Insurance Company Ltd of R42 million was mainly attributed to good performance achieved in the Indian insurance
market.
- An increase in the value of Enterprise Insurance Company Ltd of R38 million based on the estimated transaction proceeds.
The fair value of the SEM target shares is determined using predominantly discounted cash flow models. The most significant assumptions used in these
models are the discount rate, exchange rate and net insurance margin expectations. Should the discount rates increase or decrease by 10%, the cumulative
value of the most significant target shares would decrease by R151 million (June 2016: R108 million; Dec 2016: R140 million) or increase by R228 million
(June 2016: R159 million; Dec 2016: R213 million), respectively. If the relative foreign exchange rates increase or decrease by 10%, the cumulative fair
values will increase or decrease by R89 million (June 2016: R68 million; Dec 2016: R85 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 R98 million (June 2016: R72 million; Dec 2016: R91 million)
or decrease by R98 million (June 2016: R73 million; Dec 2016: R90 million), respectively.
At 30 June 2017, the group had exchange traded futures with an exposure value of R408 million (June 2016: R561 million; Dec 2016: R345 million). The group
also had interest rate derivative assets as part of the international bond portfolio with a gross exposure asset and liability at 30 June 2017 of R26
million (June 2016: R29 million; Dec 2016: R27 million) and R26 million (June 2016: R30 million; Dec 2016: R27 million) respectively.
The interest rate derivative liabilities represented the fair value of interest rate swaps effected on a total of R100 million (June 2016: R100 million;
Dec 2016: R100 million) of fixed interest securities held in the investment portfolio underlining the subordinated callable notes. The interest rate swaps
had 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 matured on 12 June 2017. The gross exposure asset and liability at 30 June 2016 amounted to R6 million (Dec 2016: R3 million)
and R7 million (Dec 2016: R3 million) respectively.
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. It is the group's intention to redeem both tranches on 15 September 2017.
During April 2016, the company issued additional unsecured subordinated callable notes to the value of R1 billion in two equal tranches of fixed and
floating rate notes. The effective rate for the floating rate notes represents the three-month JIBAR plus 245 basis points, while the rate for the fixed
rate notes amounted to 11.77%. The floating rate notes have an optional redemption date of 12 April 2021 with a final maturity date of 12 April 2026,
and the fixed rate notes an optional redemption date of 12 April 2023 with a final maturity date of 12 April 2028.
During June 2017, the company issued additional unsecured subordinated callable floating rate notes to the value of R1 billion in anticipation of the
redemption of the R1 billion subordinated debt issued in 2007. The effective interest rate for the floating rate notes represents the three-month JIBAR plus
210 basis points. The notes have an optional redemption date of 27 June 2022 with a final maturity date of 27 June 2027.
Per the conditions set by the Regulator, Santam is required to maintain liquid assets equal to the value of the callable notes until maturity. The callable
notes are therefore measured at fair value to minimise undue volatility in the statement of comprehensive income. The fair value of the fixed rate notes is
calculated using the yield provided by BESA and adding accrued interest. The fair value of the floating rate notes is calculated using the price provided by
BESA and adding accrued interest.
In May 2016, a zero-cost fence structure was entered into based on the SWIX 40, providing 10% downside protection from the implementation level of 10 621,
with upside participation (excluding dividends) of 10.3%. The structure matured on 15 December 2016 (resulting in a realised gain of R75 million) and was
not renewed. These were economic hedges over R1 billion of the listed equity portfolio.
On 31 July 2017, a zero-cost collar structure on equities to the value of R1.2 billion was entered into based on the SWIX 40, providing full downside
protection from the implementation level of 10 972, with upside participation (excluding dividends) of 2.2%. The structure will mature on 21 December
2017.
Reviewed at Reviewed at Audited at
30 June 2017 30 June 2016 31 Dec 2016
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 39 8 25
- claims incurred but not reported 44 30 42
General insurance contracts
- claims reported and loss adjustment expenses 9 031 6 972 6 789
- claims incurred but not reported 2 242 1 762 1 873
- unearned premiums 6 262 4 228 4 867
Total gross insurance liabilities 17 618 13 000 13 596
Non-current liabilities 1 701 1 423 1 312
Current liabilities 15 917 11 577 12 284
Recoverable from reinsurers
Long-term insurance contracts
- claims reported and loss adjustment expenses 17 4 6
- claims incurred but not reported 12 7 12
General insurance contracts
- claims reported and loss adjustment expenses 4 304 2 781 2 835
- claims incurred but not reported 467 289 329
- unearned premiums 1 157 1 036 1 307
Total reinsurers' share of insurance liabilities 5 957 4 117 4 489
Non-current assets 279 164 140
Current assets 5 678 3 953 4 349
Net insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 22 4 19
- claims incurred but not reported 32 23 30
General insurance contracts
- claims reported and loss adjustment expenses 4 727 4 191 3 954
- claims incurred but not reported 1 775 1 473 1 544
- unearned premiums 5 105 3 192 3 560
Total net insurance liabilities 11 661 8 883 9 107
8. Non-current assets held for sale
Santam Ltd initially set up the Santam International group in 2002 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.
The deferred conditional rights relating to Cardrow were realised during the first half of 2016 when it paid a dividend of R394 million. The deferred
conditional rights relating to Beech Hill were substantially realised during the second half of 2016 with the receipt of a distribution of R115 million.
The remaining balance of R8 million was realised during the first half of 2017. The winding up of the Santam International group resulted in the release
of the foreign currency translation reserve relating to the investment in Santam International of R175 million (refer to note 9).
Reviewed at Reviewed at Audited at
30 June 2017 30 June 2016 31 Dec 2016
R million R million R million
Assets that are classified as held for sale
Financial assets at fair value through income
Loans and receivables including insurance receivables - 125 8
- 125 8
Opening balance 8 541 541
Settlements (8) (394) (509)
Dividend income - 394 394
Foreign exchange losses - (35) (37)
Net fair value losses - (381) (381)
Closing balance - 125 8
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2017 30 June 2016 31 Dec 2016
R million R million R million
9. Investment income and net gains/(losses) on financial assets and liabilities
Investment income 590 441 777
Dividend income 37 36 64
Interest income 606 451 941
Foreign exchange differences (53) (46) (228)
Net gains on financial assets and liabilities at fair value through income 153 101 42
Net realised gains on financial assets 21 27 284
Net fair value gains/(losses) on financial assets designated as at fair value through income 143 98 (300)
Net realised/fair value gains/(losses) on derivative instruments 5 (5) 75
Net fair value (losses)/gains on short-term money market instruments (2) 12 14
Net fair value losses on financial liabilities designated as at fair value through income (14) (31) (31)
Net fair value losses on debt securities (14) (31) (31)
Investment income and net losses on financial assets held for sale(1) 175 13 13
Dividend income - 394 394
Net fair value losses - (381) (381)
Foreign currency translation reserve reclassified to profit and loss 175 - -
918 555 832
(1) Foreign exchange differences includes R175 million relating to the release of the foreign currency translation reserve relating to Santam
International. Dividend income for the group in prior periods includes a dividend of R394 million resulting from the realisation of the value
in the non-current assets held for sale relating to Cardrow. This resulted in the net fair value of the related investment being reduced by
R381 million. Please refer to note 8 for more detail.
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2017 30 June 2016 31 Dec 2016
R million R million R million
10. Income tax
Normal taxation
Current period 118 228 553
Prior period - - (8)
Recovered from cell owners (41) (54) (89)
Foreign taxation - current period 28 33 56
Total income taxation for the period 105 207 512
Deferred taxation
Current period 121 129 12
Recovered from cell owners (2) - -
Total deferred taxation for the period 119 129 12
Total taxation as per statement of comprehensive income 224 336 524
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0 28.0
Adjusted for:
Disallowable expenses 0.2 0.6 0.6
Foreign tax differential 0.4 0.5 0.4
Exempt income (1.3) (1.5) (1.4)
Investment results (1.3) 0.1 (0.5)
Change in CGT inclusion rate(1) - 4.1 2.4
Income from associates and joint ventures (1.9) (1.3) (1.1)
Exempt foreign currency translation (2.3) - -
Previous periods' overprovision - - (0.4)
Other permanent differences (0.2) 0.1 0.1
Other taxes 0.1 - 0.1
Net (reduction)/increase (6.3) 2.6 0.2
Effective rate (%) 21.7 30.6 28.2
(1) The increase in the CGT inclusion rate resulted in an increase in the deferred tax provision on
fair value movements in prior periods of R45 million.
11. Corporate transactions
2017
Acquisitions
Santam Structured Insurance (Pty) Ltd
During March 2017, the Santam group acquired a shareholding of 100% in RMB-SI Investments (Pty) Ltd (now Santam Structured Insurance (Pty) Ltd (SSI)) for
R193 million in cash. Key SSI management obtained a 10% economic participation interest in SSI at acquisition date for R20 million. The 10% participatory
interest is included as a liability under provisions.
R million
Details of the assets and liabilities acquired (based on provisional purchase price allocation) are as follows:
Property and equipment 15
Investment in associates and joint ventures 17
Financial assets at fair value through income 4 341
Reinsurance assets 391
Deferred acquisition costs 9
Loans and receivables including insurance receivables 519
Cash and cash equivalents 1 045
Deferred income tax (86)
Cell owners' interest (1 849)
Financial liabilities at fair value through income (1 551)
Insurance liabilities (2 242)
Deferred reinsurance acquisition revenue (2)
Provisions for other liabilities and charges (30)
Trade and other payables including insurance payables (350)
Current income tax liabilities (14)
Net asset value acquired 213
Long-term incentive scheme (20)
Purchase consideration paid 193
SAN JV (RF) (Pty) Ltd
Effective 10 May 2017, SEM and Santam through its investment in SAN JV (RF) (Pty) Ltd (SAN JV), acquired a further 16.6% interest in Saham Finances via a
subscription for new shares for US$351 million (R4.8 billion). Santam's share of the purchase price, including transaction costs, was US$11 million (R152 million).
Santam's interest in SAN JV therefore diluted to 15% (previously 25%). As a result of the dilution, R90 million of the foreign currency translation reserve relating
to SAN JV was released to profit or loss. An R18 million gain on dilution was also recognised.
Professional Provident Society Short-term Insurance Company Ltd (PST)
During March 2017 and June 2017 a pro rata recapitalisation took place in terms of which Santam injected a further R8.3 million and R5.4 million
respectively into the company.
Disposals
Paladin Underwriting Managers (Pty) Ltd
During January 2017, the group sold its 40% shareholding in Paladin Underwriting Managers (Pty) Ltd for R23 million. The net profit realised was R5 million
and capital gains tax of R2 million was recognised.
2016
Acquisitions
SAN JV (RF) (Pty) Ltd
The transaction to acquire a 25% shareholding in SAN JV (with SEM acquiring 75%), announced in November 2015, was finalised during the first quarter of
2016. The total cash consideration was US$400 million. Santam's share of the purchase consideration, amounting to US$100 million, was funded from internal
cash resources. In November 2015, Santam acquired sufficient foreign currency, in addition to existing dollar assets, to cover the purchase consideration
before the transaction was concluded. A cash flow hedge was implemented on 24 November 2015 to cover Santam's foreign currency exposure by designating these
US dollar-denominated cash balances to the transaction. The impact of this was that foreign currency gains of R140 million (for the periods ended
31 December 2016 and 30 June 2016) recognised on the designated cash balances since implementation date were not recognised in the statement of comprehensive
income, but were accounted for as part of the investment in SAN JV. Therefore, the cost price of the investment, net of the cash flow hedge impact, was
R1 412 million.
Professional Provident Society Short-term Insurance Company Ltd (PST)
During March 2016, Santam purchased 49% of PST for R55 million in cash. During November 2016 a pro rata recapitalisation took place in terms of which
Santam injected a further R10 million into the company.
Absa Intermediated Commercial Lines business
During November 2016, Santam purchased the Absa Intermediated Commercial Lines business from Absa Insurance Company Ltd for R13 million in cash, including
contingent payments estimated at R28 million.
R million
Details of the assets and liabilities acquired are as follows:
Intangible assets - key business relationships 59
Cash and cash equivalents 83
Insurance liabilities (83)
Trade and other payables (2)
Deferred tax liabilities (16)
Net asset value acquired 41
Future contingent consideration payable (28)
Purchase consideration paid 13
Disposals
Indwe Broker Holdings Group (Pty) Ltd
On 31 December 2015, Santam Ltd, as well as Swanvest 120 (Pty) Ltd, Main Street 409 (Pty) Ltd and Thebe Risk Services Holdings (Pty) Ltd (all wholly-owned
subsidiaries of Santam Ltd) sold 26.34%, 13.82%, 16.8% and 19.04% respectively of their shareholding in Indwe Broker Holdings Group (Pty) Ltd to Sanlam Life
Insurance Ltd (25%) and African Rainbow Capital (Pty) Ltd (51%) for R208 million in total. The net profit realised was R15 million and capital gains tax of
R5 million was recognised. The remaining 24%, held by Swanvest 120 (Pty) Ltd, was classified as a joint venture and remeasured to fair value, resulting in a
gain of R3 million (included in the profit on sale).
R million
Details of the assets and liabilities disposed of are as follows:
Property and equipment 23
Intangible assets 223
Deferred taxation 5
Loans and receivables 6
Cash and cash equivalents 183
Provisions for other liabilities and charges (1)
Trade and other payables (170)
Current income tax liabilities (10)
Net asset value disposed of 259
Profit on sale 15
Less: Fair value of remaining investment (66)
Less: Purchase price receivable (208)
Purchase consideration received -
The purchase consideration was received in 2016.
Reviewed at Reviewed at Audited at
30 June 2017 30 June 2016 31 Dec 2016
R million R million R million
Goodwill reconciliation
Opening balance 595 598 598
Impairment (1) (1) (3)
Closing balance 594 597 595
Reviewed Reviewed Audited
Six months ended Six months ended Year ended
30 June 2017 30 June 2016 31 Dec 2016
R million R million R million
12. Earnings per share
Basic earnings per share
Profit attributable to the company's equity holders (R million) 753 697 1 212
Weighted average number of ordinary shares in issue (million) 110.26 110.19 110.21
Earnings per share (cents) 683 633 1 100
Diluted earnings per share
Profit attributable to the company's equity holders (R million) 753 697 1 212
Weighted average number of ordinary shares in issue (million) 110.26 110.19 110.21
Adjusted for share options 1.02 1.04 1.16
Weighted average number of ordinary shares for diluted earnings per share (million) 111.28 111.23 111.37
Diluted basic earnings per share (cents) 677 627 1 088
Headline earnings per share
Profit attributable to the company's equity holders (R million) 753 697 1 212
Adjusted for:
Impairment of goodwill and other intangible assets 7 1 3
Reclassification of foreign currency translation reserve on dilution of associate 90 - -
Gain on dilution of associate (18) - -
Profit on sale of associates (5) - -
Tax charge on profit on sale of associates 2 - -
Capital gains tax overprovision on sale of associates - - (18)
Foreign currency translation reserve reclassified to profit and loss (175) - -
Headline earnings (R million) 654 698 1 197
Weighted average number of ordinary shares in issue (million) 110.26 110.19 110.21
Headline earnings per share (cents) 593 633 1 086
Diluted headline earnings per share
Headline earnings (R million) 654 698 1 197
Weighted average number of ordinary shares for diluted headline earnings per share (million) 111.28 111.23 111.37
Diluted headline earnings per share (cents) 588 628 1 075
13. Dividend per share
Dividend per share (cents) 336 311 881
Special dividend per share (cents) - 800 800
14. Events after the reporting period
The group entered into a zero-cost collar on 31 July 2017 over R1.2 billion of listed equity investments, and locked in an investment return of 10.5% for
the year to date, with further upside participation (excluding dividends) of 2.2%. The structure matures on 21 December 2017.
There have been no other material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial position
date.
ADMINISTRATION
NON-EXECUTIVE DIRECTORS
B Campbell, BTPKM Gamedze, GG Gelink (chairman), IM Kirk, MLD Marole, NV Mtetwa, Y Ramiah, MJ Reyneke, PE Speckmann, HC Werth
EXECUTIVE DIRECTORS
L Lambrechts (chief executive officer),
HD Nel (chief financial officer)
COMPANY SECRETARY
M Allie
TRANSFER SECRETARIES
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue, Rosebank 2196
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
Registration number: 1918/001680/06
ISIN: ZAE000093779
JSE share code: SNT
NSX share code: SNM
SPONSOR
Investec Bank Ltd
Santam is an authorised financial services provider (licence number 3416).
INSURANCE GOOD AND PROPER
www.santam.co.za
Date: 31/08/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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