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Audited Summary Consolidated Financial Statements For The Year Ended 31 December 2017
Santam Limited and its subsidiaries
Incorporated in the Republic of South Africa
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
SANTAM LTD
AND ITS SUBSIDIARIES
AUDITED SUMMARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 2017
Group gross written premium growth 15%
Conventional insurance gross written premium growth 10%
Conventional insurance underwriting margin 6.0%
Group underwriting margin 6.0%
Capital coverage ratio 158%
Return on shareholders' funds 23.6%
Earnings per share increased 37%
Headline earnings per share increased 31%
Final dividend of 616 cents per share, up 8%
FINANCIAL REVIEW
The Santam group reported excellent growth of 15%, and delivered a solid underwriting result under difficult circumstances.
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 consists of Santam Commercial and Personal, Santam Specialist
(niche business and agriculture), credit insurance written by Santam Structured Insurance (SSI), Santam re and MiWay.
- Alternative risk transfer (ART) insurance consists of business written on the insurance licences of Centriq Insurance and Santam Structured Insurance.
- Santam's share of the insurance results of the Sanlam Emerging Market (SEM) general insurance businesses (including Saham Finances).
The group's conventional insurance book achieved excellent gross written premium growth of 10% and a net underwriting margin of 6%
(2016: 6.5%), which was at the midpoint of the group's target range of 4% to 8%. The ART insurance segment grew by 61%
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, with good contributions from the Saham Finances Group and Shriram General
Insurance in India.
Investment income, inclusive of fair value movements on financial assets and liabilities, of R1 374 million (net of return allocated to cell
owners and policyholders) was significantly higher than the R832 million reported in the comparative period in 2016. The increase was mainly due
to the positive fair value adjustments on the investment portfolios and the release of foreign currency gains on the winding up of Santam International.
Cash generated from operations increased to R3.3 billion (2016: R2.2 billion), positively impacted by an improvement in investment income and working
capital levels.
The key driver of the 31% increase in headline earnings per share from 1 086 cps in 2016 to 1 425 cps in 2017 was the increase in investment
income. A return on capital of 23.6% was achieved.
CONVENTIONAL INSURANCE
The conventional insurance business reported a net underwriting margin of 6.0% compared to the 6.5% reported in 2016. The current period
margin was impacted by significant catastrophe claims, as well as several large commercial fire claims during the first half of 2017. Excellent
gross premium growth of 10% (2016: 6.5%) was achieved, including a book acquisition, which contributed growth of 1.0%. The focus on
international diversification continued to reflect positively on growth with, gross written premiums from outside of South Africa written on the
Santam Ltd and Santam Namibia Ltd licences increasing by 15% to R3 200 million (2016: R2 783 million).
The property class reported growth of 13% on the back of strong organic growth on the personal lines and commercial portfolios, as well
as the acquisition of a new block of commercial business. The motor class grew by 10%, with MiWay reporting 10% growth (gross written
premium of R2 319 million; 2016: R2 101 million). MiWay saw a slowdown in growth in the second half of the year due to the increased focus
on profitability during 2017. The commercial and personal lines intermediated business reported strong growth in the motor class in difficult
economic conditions.
The liability class came under significant competitive pressure and reported premium growth of only 2%. Engineering reported growth of 8%,
despite the negative impact of fewer large construction projects.
The accident and health class reported growth of 29%, mainly driven by growth in Santam Re as well as the travel insurance business. The crop
business reported a contraction in premium of 16%, impacted by less hectares being planted given prevailing weather conditions and lower
commodity prices.
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 firestorm in the Southern Cape (including large parts of Knysna) destroyed a large number of properties in its wake.
Santam incurred gross claims of R823 million and R174 million on a net basis including reinsurance reinstatement premiums.
Santam's ability to support clients in trying times was again put to the test in October 2017 when severe storms hit Gauteng and
KwaZulu-Natal, resulting in significant flood damage. The impact on gross claims of this event was R1 096 million with a net impact, after
reinstatement premiums, of R186 million. The normalised net underwriting margin, excluding the impact of these two catastrophe events, was 7.7%.
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 during the first half of 2017. 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. The poor underwriting
performance of the property book has been receiving strategic focus during the second half of 2017 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. These actions, as well as a lower incidence of large property claims, have resulted in an
improvement of the property underwriting results during the latter part of 2017.
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 net of catastrophe reinsurance recoveries to 56.9% (2016: 62.7%) as it was positively impacted
by disciplined underwriting. The MiWay business contributed an underwriting profit of R317 million (2016: R178 million).
The engineering class of business achieved excellent underwriting results with limited claims activity during 2017, while the guarantee class of
business was negatively impacted by the challenging economic environment. The liability class was impacted by a number of large claims and estimate
adjustments, and reported underwriting results significantly lower than the strong results reported in 2016. The crop insurance business was negatively
impacted by significant hail claims during the weekend of 30 December 2017; it, however, still achieved excellent net underwriting results of R114 million
(2016: R69 million), mainly due to the low incidence of drought claims during this period.
Santam re delivered excellent growth and good underwriting results on third-party business, despite the impact of the catastrophe events on the
South African book of business.
Following the significant losses incurred by the reinsurance market during 2017, Santam's deductible per catastrophe event increased to
R150 million (2017: R100 million) for the 2018 financial year.
The net acquisition cost ratio of 28.1% decreased from 28.6% in 2016. The management expense ratio decreased from 16.3% in 2016 to 16.0%
in 2017, after being positively impacted by a continued focus on improved efficiencies, partially offset by the growth initiatives relating to MiWay
Business Insurance and Santam Direct.
Strategic project costs, included as part of management expenses, amounted to 0.8% of net earned premium (2016: 0.9%). 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 most of personal lines policies now being managed on the new platform, as well
as majority of new business quotes for commercial business products. The migration process for commercial business products is also well
underway. Santam will maintain its focus on cost efficiencies to improve the management expense ratio over the medium term.
The net commission ratio was 12.1% (2016: 12.3%), positively impacted by reinsurance profit commission on treaty and facultative arrangements.
The investment return on insurance funds increased to R584 million (2016: R558 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)
During March 2017, the Santam group acquired a shareholding of 100% (economic interest of 90%) in RMB Structured Insurance (rebranded as
Santam Structured Insurance) for R193 million in cash.
The ART business reported growth of 61% with gross written premium of R3 867 million (2016: R2 406 million). Centriq reported excellent growth
of 16%. The acquisition of the Santam Structured Insurance book of business contributed R1 billion to the ART business. The ART business
reported solid operating results before tax and minority interests of R84 million (2016: R78 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 12 general insurance businesses throughout Africa, which are held in conjunction with SEM.
Santam's share of the gross written premium of these businesses increased by 23% (5% on a comparative basis) to R2 382 million
(2016: R1 939 million) following the inclusion of the Saham Finances results for the full year (2016: ten months) and the additional 8% investment
in SGI during the second half of 2016. Good growth was achieved across the other businesses in the portfolio, with the exception of P&O.
Saham Finances achieved growth in gross written premium of 8% (on an annualised GWP basis) and SGI of 24%.
Santam's share of the net insurance result of these businesses increased to R244 million compared to R162 million in 2016. The portfolio of
businesses achieved a net insurance margin of 13.6% compared to the 11.5% reported in 2016. The performance of Saham Finances and SGI were
in line with the business plans. Santam's share of the SGI results was also positively impacted by R33 million of net realised profits recognised
on the disposal of held-to-maturity fixed interest instruments included in the investment returns on investment funds. P&O continues to experience
negative growth in competitive market conditions while maintaining acceptable underwriting margins.
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 had an economic interest of 14% in Enterprise Insurance Company (EIC), disposed of its
interest in EIC with a carrying value of R68 million for R105 million.
INVESTMENT RESULTS
Listed equities achieved a return of 19.7% for the year in relation ending 31 December 2017, relative to the SWIX benchmark of 21.2%. The lag in
performance was mostly as a result of the fund's overweight position in relation to the Steinhoff Group.
After experiencing challenging underwriting conditions in the first half of 2017, on 31 July 2017, the group entered into a zero cost collar on
equities to the value of R1.2 billion, based on the SWIX 40, providing full downside protection from the implementation level at the time, with
upside participation (excluding dividends) of 2.2%. The SWIX 40 delivered a return of 7% between implementation and the maturity date of
21 December 2017 and Santam had to pay a settlement amount of R58 million. Santam's annualised equity performance, net of the hedge
settlement amounted to 15%.
The Santam group's interest exposure is managed in enhanced cash and active income portfolios. The interest portfolios comfortably exceeded
their STeFI-related benchmarks.
Exchange rate volatility due to the strengthening of the Rand in 2017 continued to impact the investment results resulting in a foreign exchange
loss of R116 million (2016: R228 million).
Positive fair value movements (excluding the impact of currency movements) of R122 million (2016: negative movement of R67 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 R110 million increased from the R67 million reported in 2016 following the inclusion of the results
of Saham Finances for the full year (acquired March 2016), which contributed earnings of R65 million in 2017 (2016: R43 million). The other key
contributor to earnings from associated companies was Western Group Holdings Ltd.
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 was redeemed in September 2017.
PROSPECTS
Trading conditions remain very competitive in a low-growth economic environment, which translates into limited growth of insurable assets for
the insurance industry. Real annual GDP of 0.8%, by the end of quarter 3 of 2017, and inflation (average CPI) of 4.7% was reported in 2017.
We are, however, hopeful that new political leadership in South Africa will create an environment in which economic stagnation is arrested and,
in time, turned around. A rebound in the economy will not only enhance growth prospects, but also potentially reduce levels of crime, arson, and
fraud - all of which have put pressure on claims costs in recent years.
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.
Following the significant catastrophe events experienced during 2017, reinsurance rates have increased in 2018. Underwriting actions will continue
to focus on the commercial and corporate property class of business, taking the increased reinsurance rates into account. We will continue to work
with local municipalities to reduce risk and improve resilience.
The group remains focused on balancing profitable growth with efficiency to improve the management expense ratio over the medium term, and to
optimise the claims and procurement value chains.
The investment market is likely to remain uncertain. The increased exposure to non-rand-denominated business further increases foreign
exchange volatility for the group.
The calls for transformation and economic inclusivity demand a deeper and fresher way of thinking to build an inclusive and cohesive society. The
group's transformation priorities are focused on the promotion of a diverse workforce, intermediary and supplier base; access to insurance products
by non-traditional markets; and further impactful investment in communities.
The group economic capital requirement at 31 December 2017, based on the Santam internal economic model, amounted to R6 billion
(2016: R5.8 billion). This resulted in an economic capital coverage ratio of 158% (2016: 155%), slightly above the midpoint of the target range of
130% to 170%.
We remain committed to efficient capital management.
EVENTS AFTER THE REPORTING PERIOD
There have been no material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial
position date.
DECLARATION OF ORDINARY DIVIDEND (NUMBER 128)
Notice is hereby given that the board has declared a gross final dividend of 616.00 cents per share (2016: 570 cents per share), 492.80 cents net of dividend
withholding taxation, where applicable, per ordinary share for the year ended 31 December 2017 to those members registered on the record date,
being Friday, 23 March 2018.
The dividend has been declared from income reserves. A dividend withholding taxation of 20% will be applicable to all shareholders who are
not exempt.
Share code: SNT
ISIN: ZAE000093779
Company registration number: 1918/001680/06
Company tax reference number: 9475/144/71/4
Gross cash dividend amount per share: 616.00 cents
Net dividend amount per share: 492.80 cents
Issued shares at 1 March 2018: 115 131 417
Declaration date: 1 March 2018
Last day to trade cum dividend: Monday, 19 March 2018
Shares trade ex-dividend: Tuesday, 20 March 2018
Record date: Friday, 23 March 2018
Payment date: Monday, 26 March 2018
Share certificates may not be dematerialised or rematerialised between Tuesday, 20 March 2018, and Friday, 23 March 2018, both days inclusive.
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. Shareholders should seek their own advice on the tax consequences associated with the dividend and are particularly
encouraged to ensure their records are up to date so that the correct withholding tax is applied to their dividend.
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 year.
PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS
The preparation of the audited financial statements was supervised by the chief financial officer of Santam Ltd, HD Nel CA(SA).
Auditor’s report
These summary consolidated financial statements for the year ended 31 December 2017 have been audited by PricewaterhouseCoopers Inc., who expressed
an unmodified opinion thereon. The auditor also expressed an unmodified opinion on the annual financial statements from which these summary
consolidated financial statements were derived.
A copy of the auditor’s report on the summary consolidated financial statements and of the auditor’s report on the annual consolidated financial
statements are available for inspection at the company’s registered office, together with the financial statements identified in the respective
auditor’s reports.
The auditor's report does not necessarily report on all of the information contained in this announcement/financial results. Shareholders are
therefore advised that in order to obtain a full understanding of the nature of the 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
28 February 2018
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
As at As at
31 December 2017 31 December 2016
Notes R million R million
ASSETS
Non-current assets
Property and equipment 135 106
Intangible assets 841 885
Deferred income tax 91 105
Investment in associates and joint ventures 1 789 1 536
Financial assets at fair value through income 6 17 554 13 430
Reinsurance assets 7 202 140
Deposit with cell owners 129 163
Total non-current assets 20 741 16 365
Current assets
Cell owners' and policyholders' interest 10 7
Financial assets at fair value through income 6 2 182 1 362
Reinsurance assets 7 5 622 4 349
Deposit with cell owners 45 56
Deferred acquisition costs 537 469
Loans and receivables including insurance receivables 6 5 253 3 754
Income tax assets 17 19
Cash and cash equivalents 4 321 2 887
Non-current assets held for sale 8 - 8
Total current assets 17 987 12 911
Total assets 38 728 29 276
EQUITY AND LIABILITIES
Capital and reserves attributable to the company's equity holders
Share capital 103 103
Treasury shares (470) (472)
Other reserves (214) (41)
Distributable reserves 7 999 7 286
7 418 6 876
Non-controlling interest 506 469
Total equity 7 924 7 345
Non-current liabilities
Deferred income tax 87 101
Financial liabilities at fair value through income
Debt securities 6 2 031 2 005
Investment contracts 1 583 -
Cell owners' and policyholders' interest 3 227 1 153
Insurance liabilities 7 1 789 1 312
Reinsurance liability relating to cell owners 129 163
Total non-current liabilities 8 846 4 734
Current liabilities
Financial liabilities at fair value through income
Debt securities 6 25 48
Investment contracts 6 120 101
Financial liabilities at amortised cost
Collateral guarantee contracts 130 123
Insurance liabilities 7 16 059 12 284
Reinsurance liability relating to cell owners 45 56
Deferred reinsurance acquisition revenue 326 273
Provisions for other liabilities and charges 106 71
Trade and other payables including insurance payables 6 4 953 4 093
Current income tax liabilities 194 148
Total current liabilities 21 958 17 197
Total liabilities 30 804 21 931
Total shareholders' equity and liabilities 38 728 29 276
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
Year ended Year ended
31 December 2017 31 December 2016
Notes R million R million Change
Gross written premium 29 720 25 909 15%
Less: reinsurance written premium 8 027 6 137
Net written premium 21 693 19 772 10%
Less: change in unearned premium
Gross amount 648 137
Reinsurers' share (285) (191)
Net insurance premium revenue 21 330 19 826 8%
Investment income 9 1 335 777 72%
Income from reinsurance contracts ceded 1 794 1 337
Net gains on financial assets and liabilities at fair value through income 9 427 42
Investment income and fair value losses on financial assets held for sale 9 175 13
Other income 127 -
Net income 25 188 21 995 14%
Insurance claims and loss adjustment expenses 20 466 17 100
Insurance claims and loss adjustment expenses recovered from reinsurers (6 400) (4 189)
Net insurance benefits and claims 14 066 12 911 9%
Expenses for the acquisition of insurance contracts 4 218 3 716
Expenses for marketing and administration 3 652 3 247
Expenses for investment-related activities 67 70
Amortisation and impairment of intangible assets 71 51
Investment return allocated to cell owners and structured insurance products 563 -
Total expenses 22 637 19 995 12%
Results of operating activities 2 551 2 000 28%
Finance costs (295) (212)
Net income from associates and joint ventures 110 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) -
Impairment of associates (3) -
Profit before tax 2 296 1 855 24%
Income tax expense 10 (489) (524)
Profit for the year 1 807 1 331 36%
Other comprehensive income, net of tax
Items that may subsequently be reclassified to income:
Currency translation differences (3) (197)
Release of translation differences on financial assets held for sale (175) -
Share of associates' currency translation differences (41) (255)
Reclassification of foreign currency translation reserve on dilution of associate 90 -
Hedging reserve movement 6 (140)
Total comprehensive income for the year 1 684 739 128%
Profit attributable to:
- equity holders of the company 1 667 1 212 38%
- non-controlling interest 140 119
1 807 1 331
Total comprehensive income attributable to:
- equity holders of the company 1 544 620 149%
- non-controlling interest 140 119
1 684 739
Earnings attributable to equity shareholders
Earnings per share (cents) 12
Basic earnings per share 1 511 1 100 37%
Diluted earnings per share 1 496 1 088 38%
Weighted average number of ordinary shares (millions) 110.30 110.21
Weighted average number of ordinary shares for diluted earnings per share (millions) 111.43 111.37
SUMMARY 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 year - - - 1 667 1 667 140 1 807
Other comprehensive income:
Currency translation differences - - (3) - (3) - (3)
Release of translation differences on
financial assets held for sale - - (175) - (175) - (175)
Share of associates' currency
translation differences - - (41) - (41) - (41)
Reclassification of foreign currency
translation reserve on dilution
of associate - - 90 - 90 - 90
Hedging reserve movement - - 6 - 6 - 6
Total comprehensive income for
the year ended 31 December 2017 - - (123) 1 667 1 544 140 1 684
Issue of treasury shares in terms
of share option schemes - 78 - (78) - - -
Purchase of treasury shares - (76) - - (76) - (76)
Release of contingency reserve - - (50) 50 - - -
Share-based payment costs - - - 77 77 - 77
Dividends paid - - - (1 003) (1 003) (103) (1 106)
Balance as at 31 December 2017 103 (470) (214) 7 999 7 418 506 7 924
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
Year ended Year ended
31 December 2017 31 December 2016
Notes R million R million
Cash flows from operating activities
Cash generated from operations 3 289 2 171
Interest paid (252) (161)
Income tax paid (543) (681)
Net cash from operating activities 2 494 1 329
Cash flows from investing activities
Acquisition of financial assets (20 322) (17 594)
Proceeds from sale of financial assets 20 054 17 764
Settlement of zero cost collar (58) 75
Cash acquired through acquisition of business, net of cash paid 11 852 70
Cash received through sale of subsidiaries 11 - 208
Purchases of equipment (68) (60)
Purchases of intangible assets (27) (50)
Proceeds from sale of equipment 3 2
Acquisition of associates and joint ventures 11 (152) (1 467)
Capitalisation of associates 11 (23) (10)
Proceeds from sale of associates 11 23 -
Settlement of deferred conditional right relating to non-current assets held for sale - 509
Net cash from/(used in) investing activities 282 (553)
Cash flows from financing activities
Purchase of treasury shares (76) (98)
Proceeds from issue of unsecured subordinated callable notes 1 000 1 000
Redemption of unsecured subordinated callable notes (1 000) -
(Decrease)/increase in investment contract liabilities (32) 31
(Decrease)/increase in collateral guarantee contracts (1) 12
Dividends paid to company's shareholders (1 003) (1 806)
Dividends paid to non-controlling interest (103) (116)
Decrease in cell owners' interest (51) (114)
Net cash used in financing activities (1 266) (1 091)
Net increase/(decrease) in cash and cash equivalents 1 510 (315)
Cash and cash equivalents at the beginning of year 2 887 3 349
Exchange losses on cash and cash equivalents (76) (147)
Cash and cash equivalents at end of year 4 321 2 887
NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE for summary financial
statements, and the requirements of the Companies Act applicable to summary financial statements. The JSE requires summary financial
statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International
Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required
by IAS 34 Interim Financial Reporting.
2. Accounting policies
The accounting policies applied in the preparation of the consolidated financial statements from which the summary consolidated financial
statements were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous
consolidated annual financial statements, except for those referred to below:
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
- Annual improvements 2014 - 2016
There was no material impact on the summary consolidated financial statements identified.
Of the standards that are not yet effective, management expects IFRS 9, IFRS 17 and IFRS 15 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 assessment, the impact is not material.
The summary consolidated financial statements do not include the full impact analysis and should be read in conjunction with the group's annual
financial statements for the year ended 31 December 2017.
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. The group is
currently facilitating a programme to review the impact of the implementation and ensure a seamless transition.
IFRS 15 Revenue from Contracts with Customers introduces a single, principles based five-step model to be applied to all contracts with customers.
IFRS 15 does not apply to insurance contracts within the scope of IFRS 4 Insurance Contracts, where IFRS 4 already provide guidance on how to
separate and/or initially measure revenue from contracts with customers. Based on management’s current assessment, the impact on the net results
is not expected to be material.
3. Estimates
The preparation of summary consolidated financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these
estimates.
In preparing these summary consolidated financial statements, the significant judgements made by management in applying the group's
accounting policies and the key sources of estimation uncertainty are the same as those that applied to the consolidated annual financial
statements for the year ended 31 December 2017. There have been no changes since 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 summary consolidated financial statements do not include all risk management information and disclosures required in the annual
financial statements and should be read in conjunction with the group's annual financial statements for the year ended 31 December 2017.
There have been no material changes to 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 the 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, consisting of Santam Commercial and Personal,
Santam Specialist (niche business and agriculture), credit insurance written by Santam Structured Insurance (SSI), Santam Re and MiWay;
- Alternative risk transfer insurance business written on insurance licences of Centriq and SSI; and
- Santam's share of the insurance results of the Sanlam Emerging Markets (SEM) general insurance businesses, including SAN JV
(Saham Finances).
Conventional insurance 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 operating result as
measure of profitability.
Growth is measured for SEM GI businesses based on the gross written premium generated by the underlying businesses. 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 for the investment in SAN JV.
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.
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.
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.
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.
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 year ended 31 December 2017
Insurance
Business activity Santam's Reconciling IFRS
Conventional Alternative risk share of SEM Total Investment Total and unallocated Total
R million R million R million R million R million R million R million R million
Revenue 25 853 3 867 2 382 32 102 689 32 791 (3 071) 29 720
Net earned premium 20 893 437 1 790 23 120 - 23 120 (1 790) 21 330
Net claims incurred 13 753 313 1 344 15 410 - 15 410 (1 344) 14 066
Net commission 2 526 (102) 125 2 549 - 2 549 (125) 2 424
Management expenses (excluding BEE costs) (1) 3 354 206 433 3 993 - 3 993 (433) 3 560
Underwriting result 1 260 20 (112) 1 168 - 1 168 112 1 280
Investment return on insurance funds 584 64 356 1 004 - 1 004 (356) 648
Net insurance result 1 844 84 244 2 172 - 2 172 (244) 1 928
Other income (2) 84 43 - 127 - 127 - 127
Other expenses (2) (86) (43) - (129) - (129) - (129)
Operating result before non-controlling interest and tax 1 842 84 244 2 170 - 2 170 (244) 1 926
Reallocation of operating result (3) - - (244) (244) - (244) 244 -
Investment income/(losses) net of investment-related fees - 563 84 647 575 1 222 - 1 222
Investment return allocated to cell owners
and structured insurance products - (563) - (563) - (563) - (563)
Finance costs - - - - (295) (295) - (295)
Income from associates and joint ventures including
profit on sale and impairment - - 65 65 47 112 - 112
Gain on dilution of associate - - 18 18 - 18 - 18
Reclassification of foreign currency translation
reserve on dilution of associate - - (90) (90) - (90) - (90)
Santam BEE costs - - - - - - (3) (3)
Amortisation and impairment of intangible assets (1) (31) - - (31) - (31) - (31)
Income before taxation 1 811 84 77 1 972 327 2 299 (3) 2 296
1 Amortisation of computer software included as part of management expenses. Santam's share of the costs to manage the SEM portfolio of R33 million has been
included in management expenses.
2 Includes other operating income and expenses not related to underwriting results.
3 Reconciling items consist of the reallocation of net insurance results relating to the underlying investments included in strategic diversification activities
for management reporting purposes.
For the year ended 31 December 2016 (restated)
Insurance
Santam's Reconciling IFRS
Conventional Alternative risk share of SEM Total Investment Total and unallocated Total
Business activity R million R million R million R million R million R million R million R million
Revenue 23 503 2 406 1 939 27 848 449 28 297 (2 388) 25 909
Net earned premium 19 245 581 1 414 21 240 - 21 240 (1 414) 19 826
Net claims incurred 12 482 429 982 13 893 - 13 893 (982) 12 911
Net commission 2 374 5 121 2 500 - 2 500 (121) 2 379
Management expenses (excluding BEE costs) (1) 3 137 131 369 3 637 - 3 637 (369) 3 268
Underwriting result 1 252 16 (58) 1 210 - 1 210 58 1 268
Investment return on insurance funds 558 61 220 839 - 839 (220) 619
Net insurance result 1 810 77 162 2 049 - 2 049 (162) 1 887
Other income (2) 89 38 - 127 - 127 - 127
Other expenses (2) (89) (37) - (126) - (126) - (126)
Operating result before non-controlling interest and tax 1 810 78 162 2 050 - 2 050 (162) 1 888
Reallocation of operating result (3) - - (162) (162) - (162) 162 -
Investment income/(losses) net of investment-related fees - 202 (213) (11) 355 344 - 344
Investment return allocated to cell owners
and structured insurance products - (202) - (202) - (202) - (202)
Finance costs - - - - (212) (212) - (212)
Income from associates including profit on sale - - 43 43 24 67 - 67
Santam BEE costs - - - - - - (9) (9)
Amortisation and impairment of intangible assets (1) (21) - - (21) - (21) - (21)
Income before taxation 1 789 78 (170) 1 697 167 1 864 (9) 1 855
1 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.
2 Includes other operating income and expenses not related to underwriting results.
3 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 Additional information on insurance activities
2017 2016
Gross written Underwriting Gross written Underwriting
premium result premium result
R million R million R million R million
Insurance activities
The group's conventional insurance activities are spread over various
classes of general insurance.
Accident and health 482 58 374 49
Crop 829 114 984 69
Engineering 1 290 296 1 196 196
Guarantee 182 (18) 86 (31)
Liability 1 227 85 1 202 301
Miscellaneous 4 2 9 (3)
Motor 12 125 860 11 004 622
Property 9 000 (165) 7 972 22
Transportation 714 28 676 27
Total 25 853 1 260 23 503 1 252
Comprising:
Commercial insurance 14 589 513 13 330 735
Personal insurance 11 264 747 10 173 517
Total 25 853 1 260 23 503 1 252
5.3 Additional information on investment activities 2017 2016
R million R million
Investment activities
The group's return on investment-related activities can be analysed as follows:
Investment income 557 158
Net gains on financial assets and liabilities at fair value through income 85 267
Income from associates and joint ventures 47 24
Investment-related revenue 689 449
Expenses for investment-related activities (67) (70)
Finance costs (295) (212)
Net total investment-related transactions 327 167
For detailed analysis of investment activities refer to notes 6 and 9.
5.4 Additional information on Santam's share of SEM
The group's return on Santam's share of SEM activities can be analysed as follows:
For the year ended 31 December 2017
SAN JV
(Saham
SEM Finances) Total
R million R million R million
Revenue 1 267 1 115 2 382
Net earned premium 881 909 1 790
Net claims incurred 723 621 1 344
Net commission 30 95 125
Management expenses (excluding BEE costs) 236 197 433
Underwriting result (108) (4) (112)
Investment return on insurance funds 234 122 356
Net insurance result/operating result 126 118 244
Reallocation of operating result (1) (126) (118) (244)
Investment income net of investment-related fees 84 - 84
Income from associates and joint ventures - 65 65
Gain on dilution of associate - 18 18
Reclassification of foreign currency translation reserve on dilution of associate - (90) (90)
Income/(loss) before taxation 84 (7) 77
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.
For the year ended 31 December 2016
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 results 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.
5.5 Geographical analysis
Gross written premium
31 December 2017 31 December 2016
R million R million
South Africa 26 520 23 126
Rest of Africa (1) 3 810 3 479
Southeast Asia, India, Middle East and China (2) 1 549 1 009
Other (3) 223 234
32 102 27 848
Reconciling items (4) (2 382) (1 939)
Group total 29 720 25 909
Non-current assets
31 December 2017 31 December 2016
R million R million
South Africa 1 125 1 126
Rest of Africa 1 967 1 670
South east Asia, India, Middle East and China 886 857
3 978 3 653
1 Includes gross written premium of R1 197 million (Dec 2016: R1 118 million) relating to Namibia.
2 Includes gross written premium of R119 million (Dec 2016: R116 million) relating to China.
3 Includes gross written premium predominantly relating to Europe.
4 Reconciling items relate to the underlying investments SEM and SAN JV (Saham Finances) for management reporting purposes.
Audited Audited
As at As at
31 December 2017 31 December 2016
R million R million
6. Financial assets and liabilities
The group's financial assets are summarised below by measurement category.
Financial assets
Financial assets at fair value through income 19 736 14 792
Loans and receivables 5 253 3 754
24 989 18 546
Financial liabilities
Financial liabilities at fair value through income 3 759 2 154
Financial liabilities at amortised cost 130 123
Trade and other payables 4 953 4 093
8 842 6 370
Financial instruments measured at fair value on a recurring basis
The table that follows 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, by prices) or indirectly
(that is, derived from prices). 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 year.
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.
31 December 2017
Level 1 Level 2 Level 3 Total
R million R million R million R million
Financial assets at fair value through income
Equity securities
Quoted
Listed 2 086 9 - 2 095
Irredeemable preference shares 2 - - 2
Unquoted - 36 1 143 1 179
Total equity securities 2 088 45 1 143 3 276
Debt securities
Quoted
Government and other bonds - 3 776 - 3 776
Collateralised securities - 541 - 541
Money market instruments more than one year - 4 094 - 4 094
Unquoted
Government and other bonds - 184 - 184
Money market instruments more than one year - 3 367 - 3 367
Redeemable preference shares - 157 25 182
Total debt securities - 12 119 25 12 144
Unitised investments
Quoted
Underlying equity securities - 1 765 - 1 765
Underlying debt investments - 369 - 369
Total unitised investments - 2 134 - 2 134
Derivative instruments
Exchange traded futures - 8 - 8
Interest rate swaps (1) - - - -
Total derivative instruments - 8 - 8
Short-term money market instruments - 2 174 - 2 174
Total financial assets at fair value through income 2 088 16 480 1 168 19 736
1 Carrying value as at 31 December 2017 is less than R1 million.
Financial liabilities at fair value through income
Debt securities - 2 056 - 2 056
Investment contracts - 1 703 - 1 703
Total financial liabilities at fair value through income - 3 759 - 3 759
31 December 2016
Financial assets at fair value through income
Equity securities
Quoted
Listed 1 321 - - 1 321
Irredeemable preference shares 2 - - 2
Unquoted - - 1 181 1 181
Total equity securities 1 323 - 1 181 2 504
Debt securities
Quoted
Government and other bonds - 2 469 - 2 469
Collateralised securities - 407 - 407
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 - 10 552 29 10 581
Unitised investments
Quoted
Underlying equity securities - 77 - 77
Underlying debt securities - 268 - 268
Total unitised investments - 345 - 345
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 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 table presents the changes in level 3 instruments:
Short-term
Equity Debt money market
securities securities instruments Derivatives Total
31 December 2017 R million R million R million R million R million
Opening balance 1 181 29 - - 1 210
Acquisitions 2 - - - 2
Business combination - (4) - - (4)
Disposals (106) - - - (106)
Settlements - - - 58 58
Gains/(losses) recognised in profit or loss 66 - - (58) 8
Closing balance 1 143 25 - - 1 168
31 December 2016
Opening balance 1 019 65 44 (1) 1 127
Acquisitions 376 - - - 376
Disposals (2) - - - (2)
Settlements - - - (75) (75)
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, which had an economic interest of 14% in Enterprise Insurance Company Ltd (EIC), disposed of its interest in EIC for R105 million.
Of the R66 million gain (Dec 2016: R212 million loss) recognised on equity securities, a R65 million gain (Dec 2016: R212 million loss) relates to the SEM target
shares, of which R57 million (Dec 2016: R145 million) relates to foreign exchange losses, and R122 million to an increase (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 Pacific & Orient Insurance Co. Berhad (P&O) business in Malaysia of R58 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 R88 million was mainly attributed to good performance achieved in the Indian insurance market.
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 R140 million (Dec 2016: R140 million) or increase by R211 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 R86 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 R93 million (Dec 2016: R91 million)
or decrease by R93 million (Dec 2016: R90 million), respectively.
At 31 December 2017, the group had exchange traded futures with an exposure value of R235 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 31 December 2017 of R33 million (Dec 2016: R27 million)
and R33 million (Dec 2016: R27 million) respectively.
As at 31 December 2016, the interest rate derivative liabilities represented the fair value of interest rate swaps effected on a total of 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 31 December 2016 amounted to R3 million and 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 was 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) would have applied. Both tranches were,
however, redeemed on 15 September 2017, resulting in the realisation of the initial discount of R45 million.
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 Financial Services Board, 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 collar 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 matured on 21 December 2017 (resulting in a realised loss
of R58 million) and was not renewed.
Audited Audited
As at As at
31 December 2017 31 December 2016
R million R million
7. Insurance liabilities and reinsurance assets
Gross insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 75 25
- claims incurred but not reported 62 42
General insurance contracts
- claims reported and loss adjustment expenses 8 273 6 789
- claims incurred but not reported 2 310 1 873
- unearned premiums 7 128 4 867
Total gross insurance liabilities 17 848 13 596
Non-current liabilities 1 789 1 312
Current liabilities 16 059 12 284
Recoverable from reinsurers
Long-term insurance contracts
- claims reported and loss adjustment expenses 18 6
- claims incurred but not reported 15 12
General insurance contracts
- claims reported and loss adjustment expenses 3 918 2 835
- claims incurred but not reported 496 329
- unearned premiums 1 377 1 307
Total reinsurers' share of insurance liabilities 5 824 4 489
Non-current assets 202 140
Current assets 5 622 4 349
Net insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 57 19
- claims incurred but not reported 47 30
General insurance contracts
- claims reported and loss adjustment expenses 4 355 3 954
- claims incurred but not reported 1 814 1 544
- unearned premiums 5 751 3 560
Total net insurance liabilities 12 024 9 107
8. Non-current assets held for sale
Santam Ltd initially set up the Santam International group in 2002 to facilitate its 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).
Audited Audited
As at As at
31 December 2017 31 December 2016
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 - 8
- 8
Opening balance 8 541
Settlements (8) (509)
Dividend income - 394
Foreign exchange losses - (37)
Net fair value losses - (381)
Closing balance - 8
Audited Audited
Year ended Year ended
31 December 2017 31 December 2016
R million R million
9. Investment income and net gains/(losses) on financial assets and liabilities
Investment income 1 335 777
Dividend income 131 64
Interest income 1 320 941
Foreign exchange differences (116) (228)
Net gains on financial assets and liabilities at fair value through income 427 42
Net realised gains on financial assets 121 284
Net fair value gains/(losses) on financial assets designated as at fair value through income 286 (300)
Net realised/fair value (losses)/gains on derivative instruments (34) 75
Net fair value (losses)/gains on short-term money market instruments (3) 14
Net fair value gains/(losses) on financial liabilities designated as at fair value through income 57 (31)
Net fair value gains/(losses) on debt securities 19 (31)
Net realised losses on debt securities (45) -
Net realised gains on investment contracts 83 -
Investment income and net losses on financial assets held for sale (1) 175 13
Dividend income - 394
Net fair value losses - (381)
Foreign exchange differences 175 -
1 937 832
1 The release of the foreign currency translation reserve of R175 million for the group relates 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.
Audited Audited
Year ended Year ended
31 December 2017 31 December 2016
R million R million
10. Income tax
Normal taxation
Current year 535 553
Prior year 32 (8)
Recovered from cell owners (80) (89)
Foreign taxation - current year 88 56
Total income taxation for the year 575 512
Deferred taxation
Current year (34) 12
Prior year (52) -
Total deferred taxation for the year (86) 12
Total taxation as per statement of comprehensive income 489 524
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0
Adjusted for:
Disallowable expenses 0.3 0.6
Foreign tax differential 0.4 0.4
Exempt income (2.4) (1.4)
Investment results (1.1) (0.5)
Change in CGT inclusion rate (1) - 2.4
Income from associates and joint ventures (1.5) (1.1)
Exempt foreign currency translation differences (1.0) -
Previous years' overprovision (0.8) (0.4)
Non-current assets held for sale and discontinued operations (0.4) -
Other permanent differences (0.4) 0.1
Other taxes 0.2 0.1
Net (reduction)/increase (6.7) 0.2
Effective rate (%) 21.3 28.2
1 The increase in the CGT inclusion rate resulted in an increase in the deferred tax provision on fair value movements of R45 million in the prior year.
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 the 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' and policyholders' 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 provision (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, June, September and December 2017, pro rata recapitalisations took place in terms of which Santam injected a further total of R23 million 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 period ended 31 December 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 received 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.
Audited Audited
Year ended Year ended
31 December 2017 31 December 2016
R million R million
Goodwill reconciliation
Opening balance 595 598
Impairment (9) (3)
Closing balance 586 595
Audited Audited
Year ended Year ended
31 December 2017 31 December 2016
12. Earnings per share
Basic earnings per share
Profit attributable to the company's equity holders (R million) 1 667 1 212
Weighted average number of ordinary shares in issue (million) 110.30 110.21
Earnings per share (cents) 1 511 1 100
Diluted earnings per share
Profit attributable to the company's equity holders (R million) 1 667 1 212
Weighted average number of ordinary shares in issue (million) 110.30 110.21
Adjusted for share options 1.13 1.16
Weighted average number of ordinary shares for diluted earnings per share (million) 111.43 111.37
Diluted basic earnings per share (cents) 1 496 1 088
Headline earnings per share
Profit attributable to the company's equity holders (R million) 1 667 1 212
Adjusted for:
Impairment of goodwill and other intangible assets 8 3
Impairment of associate 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) 1 572 1 197
Weighted average number of ordinary shares in issue (million) 110.30 110.21
Headline earnings per share (cents) 1 425 1 086
Diluted headline earnings per share
Headline earnings (R million) 1 572 1 197
Weighted average number of ordinary shares for diluted headline earnings per share (million) 111.43 111.37
Diluted headline earnings per share (cents) 1 411 1 075
13. Dividend per share
Dividend per share (cents) 952 881
Special dividend per share (cents) - 800
14. Events after the reporting period
There have been no material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial position date.
ADMINISTRATION
NON-EXECUTIVE DIRECTORS
B Campbell, BTPKM Gamedze, GG Gelink(chairman), IM Kirk, MLD Marole, NV Mtetwa, 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).
Date: 01/03/2018 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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