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SNT
SNT
SNT - Santam Limited - Reviewed Interim Report for the six months ended 30
June 2009
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 2009
- 220% increase in headline earnings
- Underwriting returns under pressure due to increased claims
- Significant increase in return on insurance funds
- Good recovery of investment returns
- Strong cash flows generated
- Solvency ratio of 42%
- Interim dividend of 166 cents per share
Consolidated statement of financial position
Reviewed Reviewed Audited
At 30 June At 30 June At 31 Dec
2009 2008 2008
Notes R million R million R million
Assets
Non-current assets
Property and equipment 51 54 42
Intangible assets 171 130 155
Deferred income tax 57 44 81
Investments in associates 173 226 195
Financial assets - at fair
value through income
Equity securities 4 3 181 3 669 3 111
Debt securities 4 2 726 2 464 2 688
Derivatives 4 - - 1
Reinsurance assets 672 870 700
Current assets
Financial assets - at fair
value through income
Derivatives 4 32 9 135
Reinsurance assets 1 733 1 702 1 281
Deferred acquisition costs 224 209 271
Loans and receivables including 4 2 225 2 137 2 688
insurance receivables
Income tax assets 39 11 73
Short-term money market 3 530 2 113 3 089
instruments
Cash and cash equivalents 1 857 2 054 1 938
Assets held for sale - 2 239 -
Total assets 16 671 17 931 16 448
Equity
Capital and reserves
attributable to the company`s
equity holders
Share capital 107 107 107
Treasury shares (658) (691) (680)
Other reserves 1 259 1 204 1 251
Distributable reserves 3 558 3 205 3 586
Amounts recognised directly in - 145 -
equity relating to assets and
liabilities held for sale
4 266 3 970 4 264
Minority interest 140 133 138
Total equity 4 406 4 103 4 402
Liabilities
Non-current liabilities
Deferred income tax 12 3 12
Financial liabilities - at fair
value through income
Debt securities 6 835 788 972
Investment contracts - 132 142
Derivatives 4 - 122 -
Financial liabilities - at
amortised cost
Cell owners` interest 475 422 447
Collateral guarantee contracts - 87 93
Insurance liabilities 2 049 2 048 2 068
Current liabilities
Financial liabilities - at fair
value through income
Investment contracts 267 244 251
Derivatives 4 10 - -
Financial liabilities - at
amortised cost
Collateral guarantee contracts 97 - -
Insurance liabilities 6 588 6 306 6 088
Deferred reinsurance 33 50 82
acquisition revenue
Provisions for other 26 87 25
liabilities and charges
Trade and other payables 1 787 1 689 1 828
Current income tax liabilities 86 69 38
Liabilities held for sale - 1 781 -
Total liabilities 12 265 13 828 12 046
Total shareholders` equity and 16 671 17 931 16 448
liabilities
Consolidated statement of comprehensive income
Reviewed Reviewed Audited
Six Six Year ended
months months
ended ended
30 June 30 June Change 31 Dec 2008
2009 2008
Notes R million R million % R million
Continuing operations
Gross written premium 7 291 6 801 7% 14 179
Less: Reinsurance premium 1 416 1 282 2 306
Net premium 5 875 5 519 6% 11 873
Less: Change in unearned
premium
Gross amount (370) (229) 94
Reinsurers` share 67 54 63
Net insurance premium 6 178 5 694 9% 11 716
revenue
Investment income 7 365 372 (2%) 949
Income from reinsurance 127 180 340
contracts ceded
Net gains/(losses) on 56 (480) (112%) (721)
financial assets and
liabilities at fair value
through income
Net income 6 726 5 766 17% 12 284
Insurance claims and loss 5 784 5 096 9 422
adjustment expenses
Insurance claims and loss (1 281) (1 160) (1 415)
adjustment expenses
recovered from reinsurers
Net insurance benefits 4 503 3 936 14% 8 007
and claims
Expenses for the 1 067 999 2 014
acquisition of insurance
contracts
Expenses for marketing 647 613 1 296
and administration
Expenses for asset 12 12 26
management services
rendered
Amortisation of 6 6 7
intangible assets
Expenses 6 235 5 566 12% 11 350
Results of operating 491 200 146% 934
activities
Finance costs (50) (45) (152)
Share of (loss)/profit of (1) 11 (8)
associates
Impairment charge on net (4) - -
investment of associate
Profit before tax 436 166 163% 774
Income tax expense 8 (104) 7 (54)
Profit for the period 332 173 92% 720
from continuing
operations
Discontinued operations
(Loss)/profit for the 5 - (63) 25
period from discontinued
operations
Profit for the period 332 110 202% 745
Other comprehensive
income
Currency translation (28) 99 5
differences
Total comprehensive 304 209 750
income for the period
Profit attributable to:
- equity holders of the 316 100 216% 724
company
- minority interest 16 10 21
332 110 745
Total comprehensive
income attributable to:
- equity holders of the 288 199 45% 729
company
- minority interest 16 10 21
304 209 750
Earnings attributable to
equity shareholders
Earnings per share 10
(cents)
Basic earnings per share 280 89 215% 644
Diluted earnings per 276 88 214% 640
share
Weighted average number 112.75 112.40 112.50
of shares - millions
Weighted average number 114.48 113.01 113.10
of ordinary shares for
diluted earnings per
share - millions
Consolidated statement of changes in equity
Attributable to equity holders of the
company
Share Treasur Other Distri- Amounts Minority Total
capital y reserve butable recognis interest R
R shares s R reserve ed R millio
million R million s R directly million n
million million in
equity
relating
to
assets
and
liabil-
ities
held for
sale
Balance as at 105 (726) 1 147 3 448 71 133 4 178
1 January
2008
Profit for - - - 724 - 21 745
the period
Other -
comprehensive
income:
Currency - - 5 - - - 5
translation
differences
- - 5 724 - 21 750
Total
comprehensive
income for
the period
ended 31
December 2008
Proceeds from 2 - - - - - 2
shares issued
Purchase of - (29) - - - - (29)
treasury
shares
Sale of - 75 - - - - 75
treasury
shares
Loss on sale - - - (66) - - (66)
of treasury
shares
Transfer to - - 99 (99) - - -
reserves
Share-based - - - 39 - - 39
payments
Dividends - - - (460) - (16) (476)
paid
Amounts - - - - (71) - (71)
recognised
directly in
equity
relating to
assets and
liabilities
held for sale
Balance as at 107 (680) 1 251 3 586 - 138 4 402
31 December
2008
Profit for - - - 316 - 16 332
the period
Other -
comprehensive
income:
Currency - - (28) - - - (28)
translation
differences
Total - - (28) 316 - 16 304
comprehensive
income for
the period
ended
30 June 2009
Purchase of - (17) - - - - (17)
treasury
shares
Sale of - 39 - - - - 39
treasury
shares
Loss on sale - - - (31) - - (31)
of treasury
shares
Transfer to - - 36 (36) - - -
reserves
Share-based - - - 21 - - 21
payments
Dividends - - - (298) - (14) (312)
paid
Balance as at 107 (658) 1 259 3 558 - 140 4 406
30 June 2009
Balance as at 105 (726) 1 147 3 448 71 133 4 178
1 January
2008
Profit for - - - 100 - 10 110
the period
Other
comprehensive
income:
Currency - - 99 - - - 99
translation
differences
Total - - 99 100 - 10 209
comprehensive
income for
the period
ended
30 June 2008
Proceeds from 2 - - - - - 2
shares issued
Purchase of - (21) - - - - (21)
treasury
shares
Sale of - 56 - - - - 56
treasury
shares
Loss on sale - - - (52) - - (52)
of treasury
shares
Transfer to - - 32 (32) - - -
reserves
Share-based - - - 14 - - 14
payments
Dividends - - - (273) - (10) (283)
paid
Amounts - - (74) - 74 - -
recognised
directly in
equity
relating to
assets and
liabilities
held for sale
Balance as at 107 (691) 1 204 3 205 145 133 4 103
30 June 2008
Consolidated statement of cash flows
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2009 2008 2008
Notes R million R million R million
Cash generated from 958 981 1 527
operations
Interest paid (50) (45) (152)
Income tax paid 2 (493) (669)
Net cash from operating 910 443 706
activities
Cash flows from investing
activities
Cash (utilised)/generated in (515) 952 921
investment activities
Acquisition of subsidiary 9 (11) (3) (3)
Cash acquired through 2 - (1 139)
acquisition of subsidiary
Purchases of equipment (18) (30) (48)
Purchases of software (17)
Proceeds from sale of - - 1
equipment
Acquisition of associated - (55) (55)
companies
Acquisition of book of (2) - (10)
business
Proceeds from sale of - 57 61
business operations
Net cash from investing (561) 921 (272)
activities
Cash flows from financing
activities
Proceeds from issuance of - 2 2
ordinary shares
Purchase of treasury shares (17) (21) (29)
Proceeds on sale of treasury 8 3 10
shares
Decrease in investment (136) (177) (138)
contract liabilities
Dividends paid to company`s (298) (273) (460)
shareholders
Dividends paid to minorities (14) (10) (16)
Increase in cell owners` 28 86 111
interest
Net cash used in financing (429) (390) (520)
activities
Net (decrease)/increase in (80) 974 (86)
cash and cash equivalents
Cash and cash equivalents at 1 938 1 983 1 983
beginning of period
Exchange gains on cash and (1) 152 41
cash equivalents
Cash and cash equivalents at 1 857 3 109 1 938
end of period
Assets held for sale - (1 055) -
Cash and cash equivalents at 1 857 2 054 1 938
end of period - Continuing
operations
Cash flows relating to
discontinued operations
Included in the above are the
following cash flows from
discontinued operations:
Operating cash flows - (214) (453)
Investing cash flows - 318 (400)
Financing cash flows - - (1)
Net increase in cash and cash - 104 (854)
equivalents
Cash and cash equivalents at - 812 812
beginning of period
Translation gains on cash and - 139 42
cash equivalents
Cash and cash equivalents at - 1 055 -
end of period
Notes to the interim financial information
1.Basis of presentation
This condensed consolidated interim financial information for the six months
ended 30 June 2009 has been prepared in accordance with IAS 34 - Interim
Financial Reporting and in compliance with the Listing Requirements of the JSE
Limited. The condensed consolidated interim financial information does not
include all of the information required by IFRS for full annual financial
statements and should be read in conjunction with the annual financial
statements for the year ended 31 December 2008, which have been prepared in
accordance with IFRS.
Short-term money market instruments are instruments with a maturity of less
than 12 months. Movements in these instruments have been included under
investing activities on the statement of cash flows. Comparatives have been
restated.
In the 2008 statement of financial position and statement of comprehensive
income, the European insurance operations are presented in terms of IFRS 5 -
Non-current Assets Held for Sale and Discontinued Operations.
2.Accounting policies
The principal accounting policies applied in preparing the reviewed results
for the six months ended 30 June 2009 are consistent with those of the annual
financial statements for the year ended 31 December 2008, as described in
those annual financial statements.
The following new standards and amendments to standards are mandatory for the
first time for the financial year beginning 1 January 2009.
-IAS 1 (revised) - Presentation of Financial Statements
The revised standard prohibits the presentation of items of income and
expenses (that is `non-owner changes in equity`) in the statement of changes
in equity, requiring `non-owner changes in equity` to be presented separately
from owner changes in equity. All `non-owner changes in equity` are required
to be shown in a performance statement.
Entities can choose whether to present one performance statement (the
statement of comprehensive income) or two statements (the income statement and
statement of comprehensive income).
The group has elected to present one performance statement: a statement of
comprehensive income and to rename the balance sheet to the statement of
financial position. The interim financial statements have been prepared under
the revised disclosure requirements.
IFRS 8 - Operating segments
This standard requires a `management approach` under which segment information
is presented on the same basis as that used for internal reporting purposes.
Segments have been identified by business activity, i.e. insurance activities
and investment activities. The insurance activities comprise commercial
insurance, personal insurance and alternative risks.
Segments are reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker. The chief operating decision-
maker has been identified as the group Executive committee (Exco) that is
responsible for strategic decisions.
3.Segment information
Exco reviews the group`s internal reporting in order to assess performance and
allocate resources. The operating segments identified are representative of
the internal structure of the group.
Exco reviews the two core activities of the group, i.e. insurance activities,
and investment activities, on a monthly basis. Insurance activities are all
insurance underwriting activities undertaken by the group and comprise
commercial insurance, personal insurance and alternative risks. Insurance
activities are also further analysed by insurance class. Investment activities
are all investment-related activities undertaken by the group.
Exco considers the performance of insurance activities based on gross written
premium as a measure of growth as well as underwriting result and net
insurance result as a measure of profitability.
Investment activities are measured based on net investment income and income
from associated companies.
Other information provided to Exco is measured in a manner consistent with
that in the financial statements.
3.1 For the six months ended 30 June 2009
Insurance Investment
activities activities Total
Business activity R million R million R million
Revenue 7 291 146 7 437
Gross written premium 7 291 7 291
Net written premium 5 875 5 875
Net earned premium 6 178 6 178
Claims incurred 4 503 4 503
Net commission 940 940
Management expenses 641 6 647
Underwriting result 94 (6) 88
Investment return on insurance 218 218
funds
Net insurance result 312 (6) 306
Investment income net of 141 141
management fee
Income from associates net of (5) (5)
impairment
Amortisation of intangible assets (6) (6)
Income before taxation 306 130 436
Total assets 10 559 6 112 16 671
Total liabilities 11 396 869 12 265
Gross Under-
written writing Total
premium result Total assets liabilities
Insurance class R million R million R million R million
Accident and health 188 5 28 137
Alternative risk 1 025 9 386 1 865
Crop 67 103 2 5
Engineering 278 55 97 285
Guarantee 6 4 13 27
Liability 503 244 659 2 022
Miscellaneous 9 (6) 7 24
Motor 2 956 (4) 68 1 422
Property 2 064 (339) 1 281 2 580
Transportation 195 17 87 303
Unallocated - - 14 043 3 595
Total 7 291 88 16 671 12 265
Comprising:
Commercial insurance 3 453 161 2 175 5 691
Personal insurance 2 813 (82) 67 1 114
Alternative risk 1 025 9 386 1 865
Unallocated - - 14 043 3 595
Total 7 291 88 16 671 12 265
3.2 For the six months ended 30 June 2008
Insurance Investment
activities activities Total
Business activity R million R million R million
Revenue 6 801 (271) 6 530
Gross written premium 6 801 6 801
Net written premium 5 519 5 519
Net earned premium 5 694 5 694
Claims incurred 3 936 3 936
Net commission 819 819
Management expenses 613 613
Underwriting result 326 - 326
Investment return on insurance 129 129
funds
Net insurance result 455 - 455
Investment income net of (294) (294)
management fee
Income from associates 11 11
Amortisation of intangible assets (6) (6)
Income before taxation 449 (283) 166
Total assets 9 324 6 368 15 692
Total liabilities 11 113 934 12 047
Gross Under-
written writing Total
premium result Total assets liabilities
Insurance class R million R million R million R million
Accident and health 184 20 32 134
Alternative risk 968 3 440 1 881
Crop 82 66 6 13
Engineering 244 69 85 266
Guarantee 7 4 21 36
Liability 516 231 849 2 012
Miscellaneous 10 3 6 23
Motor 2 719 185 90 1 235
Property 1 896 (253) 1 173 2 525
Transportation 175 4 79 279
Unallocated - (6) 12 911 3 643
Total 6 801 326 15 692 12 047
Comprising:
Commercial insurance 3 256 246 2 318 6 126
Personal insurance 2 577 83 23 397
Alternative risk 968 3 440 1 881
Unallocated - (6) 12 911 3 643
Total 6 801 326 15 692 12 047
3.3 For the year ended 31 December 2008
Insurance Investment
activities activities Total
Business activity R million R million R million
Revenue 14 179 (472) 13 707
Gross written premium 14 179 14 179
Net written premium 11 873 11 873
Net earned premium 11 716 11 716
Claims incurred 8 007 8 007
Net commission 1 674 1 674
Management expenses 1 283 13 1 296
Underwriting result 752 (13) 739
Investment return on insurance 540 540
funds
Net insurance result 1 292 (13) 1 279
Investment income net of (490) (490)
management fee
Income from associates (8) (8)
Amortisation of intangible asset (7) - (7)
Income before taxation 1 285 (511) 774
Total assets 10 318 6 130 16 448
Total liabilities 11 050 996 12 046
Gross Under-
written writing Total
premium result Total assets liabilities
Insurance class R million R million R million R million
Accident and health 378 37 30 135
Alternative risk 1 726 (31) 549 2 014
Crop 575 74 151 321
Engineering 539 121 76 288
Guarantee 20 13 16 30
Liability 1 130 410 684 2 038
Miscellaneous 23 8 5 20
Motor 5 535 275 50 1 217
Property 3 859 (172) 606 1 864
Transportation 394 17 86 313
Unallocated - (13) 14 195 3 806
Total 14 179 739 16 448 12 046
Comprising:
Commercial insurance 7 176 649 1 684 5 289
Personal insurance 5 277 134 20 937
Alternative risk 1 726 (31) 549 2 014
Unallocated - (13) 14 195 3 806
Total 14 179 739 16 448 12 046
Reviewed Reviewed Audited
At 30 June At 30 June At 31 Dec
2009 2008 2008
R million R million R million
4. Financial assets
The group`s financial assets are
summarised below by measurement
category.
Financial assets at fair value 5 929 6 020 5 935
through income
Loans and receivables 2 225 2 137 2 688
Total financial assets 8 154 8 157 8 623
Financial assets at fair value
through income
Equity securities:
- quoted 2 849 3 651 2 764
- unquoted 332 18 347
3 181 3 669 3 111
Derivatives (net) 22 (113) 136
Debt securities
- quoted
government and other bonds 1 626 1 121 1 369
long-term money market instruments 815 805 776
- unquoted
redeemable preference shares 285 538 543
2 726 2 464 2 688
Total financial assets at fair 5 929 6 020 5 935
value through income
5. Assets held for sale and discontinued operations
Santam Europe Limited and Westminster Motor Insurance Association were
disposed of on 15 September 2008 and 22 December 2008, respectively. The
following are the results for these companies until the date of disposal
included as "Discontinued operations" on the statement of comprehensive
income.
Analysis of the result of discontinued operations
Gross written premium - 210 250
Net premium - 30 26
Net insurance premium revenue - 392 447
Net investment and reinsurance - 12 56
income
Release of translation reserve 71
Net profit on sale of business - 17 13
operations
Net insurance benefits and claims - 381 425
Expenses - 92 113
(Loss)/Profit before tax - (52) 49
Income tax - (11) (24)
(Loss)/Profit for the period from - (63) 25
discontinued operations
Reviewed Reviewed Audited
At 30 June At 30 June At 31 Dec
2009 2008 2008
R million R million R million
6. Debt securities - at fair value
through income
At the beginning of the year 972 908 908
Fair value adjustment (137) (120) 64
835 788 972
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 tranch 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 the final maturity date of 15 September 2022, a
variable interest rate (JIBAR-based) plus additional margin will apply.
Per 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
income statement volatility.
7. Investment income
Dividend income 141 173 342
Interest income 300 182 466
Foreign exchange differences (76) 17 141
365 372 949
8. Tax
South African normal taxation
Current year 76 72 153
Charge for the year 55 63 127
STC 21 9 26
Prior year (4) 2 3
Foreign taxation 10 9 16
Income taxation for the year 82 83 172
Deferred taxation 22 (90) (118)
Current year 16 (96) (114)
STC 6 6 (1)
Prior year - (3)
104 (7) 54
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0 28.0
Adjust for
- Exempt income (6.1) (20.6) (9.7)
- Investment results (3.0) (26.4) (15.1)
- STC 2.6 11.8 3.3
- Other 2.4 3.0 0.5
Net reduction (4.1) (32.2) (21.0)
Effective rate (%) 23.9 (4.2) 7.0
Reviewed Reviewed Reviewed
Six months Six months Year
ended ended ended
30 June 2009 30 June 2008 31 Dec 2008
9. Business combinations
On 26 July 2009 the group increased its investment in Isure Services (Pty)
Ltd from 25% to 100%, effective 1 January 2009. During 2008 an additional
amount of R3 million was paid as part of the purchase agreement to acquire
Admiral Professional Underwriting Agency (Pty) Ltd.
Purchase consideration paid 11 3 3
Net asset value acquired (3) - -
Less: Investment in associated 1 - -
share previously acquired
Goodwill 9 3 3
10. Earnings per share
Basic earnings per share
Profit attributable to the 316 100 724
company`s equity holders (R
million)
Weighted average number of 112.75 112.40 112.50
ordinary shares in issue (million)
Earnings per share (cents) 280 89 644
Earnings per share - Continuing 280 145 621
operations (cents)
Earnings per share - Discontinued - (56) 23
operations (cents)
Diluted earnings per share
Profit attributable to the 316 100 724
company`s equity holders (R
million)
Weighted average number of 112.75 112.40 112.50
ordinary shares in issue (million)
Adjusted for share options 1.73 0.61 0.60
Weighted average number of 114.48 113.01 113.10
ordinary shares for diluted
earnings per share (million)
Diluted basic earnings per share 276 88 640
(cents)
Diluted basic earnings per share - 276 143 618
Continuing operations (cents)
Diluted basic earnings per share - - (55) 22
Discontinued operations (cents)
Headline earnings per share
Profit attributable to the 316 100 724
company`s equity holders
Adjust for:
Impairment charge on net 4 - -
investment of associates
Profit on sale of subsidiaries and - - 8
associates
Profit on sale of business - - (2)
operations
Translation reserve released on - - (71)
sale of European operations
Headline earnings (R million) 320 100 659
Weighted average number of 112.75 112.40 112.50
ordinary shares in issue (million)
Headline earnings per share 284 89 586
(cents)
Headline earnings per share - 284 145 621
Continuing operations (cents)
Headline earnings per share - - (56) (35)
Discontinued operations (cents)
Diluted headline earnings per share
Headline earnings (R million) 320 100 659
Weighted average number of 114.48 113.01 113.10
ordinary shares for diluted
earnings per share (million)
Diluted headline earnings per 280 88 582
share (cents)
Diluted headline earnings per 280 143 618
share - Continuing operations
(cents)
Diluted headline earnings per - (55) (36)
share - Discontinued operations
(cents)
11. Dividends per share
Dividend per share (cents) 166 166 430
Comments
The six months under review have been challenging from an underwriting
perspective. While Santam`s underwriting margin was under pressure, in line
with the experience of the industry overall, investment returns improved on
the back of firmer equity markets, especially when viewed against the losses
suffered on the company`s equity portfolio during the first half of 2008.
Overall earnings for the group showed a significant improvement with headline
earnings of R320 million being 220% higher than the same period in 2008,
equating to a headline earnings per share of 284 cents compared to 89 cents in
2008.
Growth of 7% in gross written premiums was a credible achievement in the
current economic conditions, comparing favourably with industry experience.
Positive growth was achieved across most classes of business; however,
achieving an appropriate rate for the risk insured is a challenge.
The net underwriting result declined significantly to R88 million during the
first half of the year, compared to the R326 million earned during the first
six months of 2008. The overall net underwriting margin of 1.4% was adversely
impacted by negative margins in the property and motor classes. Underwriting
performance of the personal and non-specialist commercial business came under
significant pressure as there was a marked increase in both claims frequency
and cost. Although margins in commercial motor remained satisfactory, personal
lines motor experienced negative underwriting margins, in particular the
component sourced through the portfolio management business unit. The company
did not escape the number of large industrial accident and fire-related claims
experienced in the industry which adversely affected underwriting margins as
evidenced by the negative return of the property class. Of the specialist
classes, the liability and crop businesses continued to perform particularly
well. The net acquisition cost ratio of 25.7% increased slightly from the
25.1% for the same period in 2008, mainly due to a higher net commission ratio
as a result of reduced reinsurance commission earned.
The investment return on insurance funds of R218 million was higher than the
R129 million for the comparable period in 2008. The increased returns were
mainly as a result of higher float balances, good returns from interest-
bearing instruments and the float balance no longer containing any listed
equity component. The group`s operating activities generated healthy cash
flows of R958 million during the reporting period.
The combined effect of the insurance activities resulted in a net insurance
margin of 5% for the past six months compared to 8% for the comparable period
in 2008.
Performance of the investment portfolio improved significantly during the
reporting period in line with the strengthening of equity markets. This was in
contrast to the negative fair value returns on equities during the first half
of 2008 when the investment markets were severely depressed. The company
continues with its strategy of proactive hedging of its equity investments to
minimise capital losses in the event of lower market levels. Despite a
reduction in interest rates during the period, interest earnings were higher
in comparison to the first six months of 2008 due to higher levels of interest-
bearing instruments.
Net earnings from associated companies were negative for the period mainly due
to lower earnings from key associates and start-up losses in new ventures.
The group solvency ratio was a healthy 42% as at 30 June 2009 and remains
within our long-term target range of between 35% and 45%.
Further allocations were made to black staff in terms of Santam`s Broad Based
Black Economic Empowerment (BBBEE) scheme.
The board would like to extend its gratitude to Santam`s management, staff,
brokers and other business partners for their efforts and contributions during
the past six months.
Prospects
Underwriting margins are expected to remain under pressure during the second
half of the year, although the likelihood of a repeat of the high value
property fire claims during the first half of the year is considered to be
low. It is anticipated that the market will remain soft for both commercial
and personal lines business as the recovery of the domestic economy is not
expected before 2010. Economic growth is expected to remain low, impacting
adversely on industry growth. Of particular concern is the low level of
disposable income of individuals and earnings pressure on businesses which
make achievement of an appropriate rate for the risk insured difficult. The
company will continue its efforts to optimise profitability in all aspects of
the business with a strong focus on risk management and improving
effectiveness. Having the benefit of diversification, Santam is well
positioned to face these challenges.
Although general consensus is that financial markets are stabilising, short-
term volatility of financial markets can still impact on our investment
portfolio during 2009. The company has taken additional proactive steps to
reduce its downside exposure to equity markets, while retaining meaningful
upside potential. This was done using appropriate derivative structures. At
the current capital levels it is considered appropriate to maintain sufficient
exposure to the various asset classes, including equities, in order to achieve
acceptable long-term returns on shareholder funds. In line with general
consensus we expect interest rates to remain at current or lower levels for
the foreseeable future, limiting major growth in returns on cash-related
investments.
The company has made an offer to purchase the entire shareholding of Emerald
Insurance Company and Emerald Underwriting Managers. These transactions are
subject to Regulatory and shareholder approval, expected by the end of the
third quarter.
After a successful partnership spanning 10 years with South Africa`s first
black-owned short-term insurance company, Santam sold its effective 35%
interest in Lion of Africa Insurance Company to its existing co-shareholders,
subject to Regulatory approval.
Declaration of dividend (Number 111)
Notice is hereby given that the board has declared an interim dividend of 166
cents per share (2008: 166 cents). Shareholders are advised that the last day
to trade "cum dividend" will be Friday, 11 September 2009. The shares will
trade "ex dividend" from the commencement of business on Monday, 14 September
2009. The record date will be Friday, 18 September 2009, and the payment date
will be Monday, 21 September 2009. Certificated shareholders may not
dematerialise or rematerialise their shares between Monday, 14 September 2009,
and Friday, 18 September 2009, both dates inclusive.
Auditors` Report
The company`s external auditors, Pricewaterhouse-Coopers Inc, have reviewed
the condensed financial report. A copy of their unqualified review opinion is
available on request at the company`s registered office.
On behalf of the board
DK Smith IM Kirk
Chairman Chief Executive Officer
26 August 2009
Non-executive directors
BTPKM Gamedze, DCM Gihwala, JG le Roux, NM Magau, JP Moller, P de V Rademeyer,
J Rowse, GE Rudman, DK Smith (Chairman), J van Zyl, BP Vundla
Executive directors
IM Kirk (Chief Executive Officer),
MJ Reyneke (Financial Officer)
Company secretary
Sana-Ullah Bray
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
Transfer secretaries
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown, 2107
Tel: 011 370 5000Fax: 011 688 7721 www.computershare.com
Sponsor
Investec Bank Limited
Date: 26/08/2009 14:00:02 Produced by the JSE SENS Department.
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