DataDot

Santam's derivative fence pays off

Most things went right for short-term insurer Santam in the six months to June – notably derivative hedging that added R90 million to investment income.

CEO Ian Kirk said the hedge helped to offset a 4% to 5% decline in the value of Santam's investment portfolio. Thanks to IFRS, rises and falls in the portfolio affect the income statement directly.

It was not just good luck that led to a lower incidence of fire-related claims. The corporate property portfolio yielded a R300 million underwriting turnaround. Santam has been proactive. It has insisted that clients in this area have proper risk management in place.

Kirk said the industry could no longer merely increase premiums in line with claims.

"That is not sustainable."

Unlike rival M&F, which last year laid off a quarter of its admin staff, Santam's headcount has remained stable. Kirk says the same staff handled a bigger volume of business, so productivity rose.

Santam has just won the Deloitte award as SA's Best Employer. The M&F approach would have ripped the guts out of morale.

The motor portfolio benefited from more cost-effective claims management approach, also a stronger rand that limited component inflation. Motor will receive further proactive attention. First comes micro-dot technology, which enables quick vehicle – and part – identification. It is hoped that the micro-dot could be the end of the chop shop, not to mention lower theft of cars generally. The motor industry has been slow to introduce it – some say because a high incidence of car theft suits motor manufacturers.

Kirk says theft claims were down in the six months but the longer term overall trend is not down.

Second will be a tracker on your car that monitors your driving style and could lead to repudiations of claims.

Competition remains cut-throat, particularly from the direct insurance companies. Kirk says this part of the industry is growing at double-digit rates. But it is confined to personal lines he says and most people will eventually find they need an intermediary.

Because of the comfortable capital position (a solvency margin of 44%), Santam is paying a special dividend of 250c on top of an 11% higher interim of 185c.

Santam has just bought Indwe Broker Holdings (Indwe) for R263 million to become the 100% shareholder of Indwe. The transaction is still subject to conclusion of legal agreements and regulatory approval.

I asked Kirk why not retain more profit and acquire other short term companies.

He said that because Santam's market share in SA is 23%, competition rules would prevent further acquisitions. Santam is interested in expanding into Africa and India.

Kirk is not wildly sanguine on prospects, observing that clients in all territories are under disposable income pressure.