Johannesburg - With damage of close to R3bn, the Knysna fires and Cape storm earlier this year have probably been the worst disasters ever to hit South Africa’s insurance industry. This is according to insurer Santam, which released its half-year financial results on Friday. The two disasters ate away at Santam’s bottom line, which saw its net underwriting margin shrink to 4.2%. If not for the storm and fires, the insurer estimated its net underwriting margin would have remained unchanged at 6.4%.
In June this year, a severe storm hit the Western Cape which resulted in extensive property damage in Cape Town and its surroundings. This was followed by a devastating firestorm in the southern Cape that included large parts of Knysna, Brenton-on-Sea and parts of Plettenberg Bay. The fire destroyed a large number of properties in its wake. Almost 10 000 people were evacuated and there were seven deaths.
“This was by far the worst catastrophe event in South African insurance history, with Santam client claims totalling around R800m, of which R72m related to the Cape Town property damage,” Santam said.
It said the resulting impact on the group’s net underwriting results, including reinsurance reinstatement premiums, was R234m.
The lower underwriting profit compared to 2016 was the key driver of the 6% drop in headline earnings per share, Santam said. But profit still increased by 6% to R808m.
Despite the calamities, Santam still reported 14% growth, attributing its survival in a tough climate to the resilience it had built up due to good business principles.
Santam described the Knysna fires as the most severe wildfire in South African history since the so-called Great Fire of 1869 which, incidentally, burnt down a similar region of the southern Cape. It said experts have concluded that the extreme wind and severe drought conditions, coupled with extremely hot ambient conditions, conspired to create this extraordinary event. The insurer set up a temporary fit-for-purpose office in Knysna, which sent out mobile assessment vehicles and was available on the ground to help clients through the myriad of practical challenges that arise after such a devastating event.
“It is our view that it was the same weather system that caused the strong winds and damage in Cape Town that caused the rapid spreading and development of the extreme bush fires along the Knysna coast,” Santam stated, adding that the original cause of the fires, which ignited into vast bush fires as a result of the weather system, is still the subject of various investigations.
In addition to the catastrophe events, the underwriting performance of the commercial and corporate property class came under pressure after an increase in large property claims this year.
“During tough economic times claims often arise as maintenance and safety standards are compromised, public service delivery falters, and fraud and arson, which are often difficult to prove, increase,” Santam stated.
It said while the drivers may not necessarily be the same, it is notable that Santam's property results also suffered when South Africa went through tough economic times from 2008 to 2009.Santam’s motor class reported strong underwriting performance in both the intermediate and direct distribution channels. MiWay reported "excellent" results following an improvement in the claims ratio to 55.4%, as it was positively impacted by disciplined underwriting.
Looking ahead, the insurer anticipates competitive trading conditions in a low-growth economic environment. It said the decrease in the repo rate would marginally impact interest income for the group.
Its focus would remain on growing profitably in South Africa and increasing its international diversification through the Santam Specialist Business and Santam Re, said the group.