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FIFI PETERS: We are looking at what’s happening in the short-term insurance space. The country’s largest short-term insurer, Santam, says it had to pay a record R29.8 billion in claims in its 2022 financial year. This is even more than it had to pay out in the Covid-19 period, with all the related lockdowns there.

On the positive side, Santam reported an increase in new business coming into the group, with gross written premiums jumping 18% in the year to December. It also paid a dividend, which looks like it was higher than the dividend it paid the same time a year ago.

We’ve Tavaziva Madzinga, the CEO at Santam, for more on the numbers. Tavaziva, thanks so much for your time. Just give us a breakdown of the record claims that you paid and what you were paying them mostly for.

TAVAZIVA MADZINGA: Good afternoon, Fifi, and good afternoon listeners. I think 2022 was certainly a very difficult operating environment for our business.

We had what we call a perfect storm – adverse weather, we saw the losses that came from the KZN floods, and the impact of inflation claims.

We then also had an increase in power-surge claims, as well as crime-related motor theft claims. Combined with a very turbulent investment market it proved to be a very difficult environment.

But despite the challenges that we saw in 2022, we paid a record R29.8 billion worth of claims in that year, and from our perspective a lot of those claims went to alleviate some of the adverse impact on customers and consumers – and particularly in Durban where we estimated our cost there to have come out about R4.4 billion.

FIFI PETERS: Which you say is the most Santam has paid in the past 104 years or so for a single related claim event. I think you used the description of the ‘perfect storm’ as it relates to climate-related claims and weather-related claims. In this environment where we are hearing that climate risks are growing by the day, what does that mean for how you look at covering that [type of] risk going forward?

TAVAZIVA MADZINGA: Fifi, it is the biggest natural-catastrophe claim that our company has paid in its history. But I think if you stand back from what we’ve seen in KZN, it is that at a global level we have seen an increase in the frequency of natural catastrophes. In fact, the 2020 year proved to be the fifth most costly year globally, with losses totalling just over $300 billion. We’ve seen hurricane Ian [in Florida], the floods in Australia, and drought and earthquakes coming in across the board, so to some extent there is a climate play that is influencing the frequency at which we are seeing natural catastrophe claims coming through.

But from our perspective we do rely quite heavily on reinsurance from the international market to help us cover such catastrophic claims. So for the foreseeable future we believe that this is to a large extent manageable.

FIFI PETERS: Okay. Load shedding. You are one of the insurers that announced that you’d be pulling your load shedding cover; it was a story by one of the Moneyweb journalists, Ntando Thukwana, and a really interesting read.

So just talk to us a bit more about this, and how your customers have responded to your position.

TAVAZIVA MADZINGA: On load shedding, we have seen an increase in power-surge claims in 2022. I think what I must say is that, as the Santam Group, we continue to provide coverage for power surges. And so we still believe that this is an insurable risk when we look at the frequency of claims, the average cost of claims. But certainly we do expect that the cost of coverage will be going up.

What we are fundamentally concerned about is the systemic losses that could arise from grid-wide failure of the grid. It’s in that context that you are finding that we, alongside many insurers, are very concerned about that particular risk. But it’s also reported that the international support we receive from our reinsurers is that they are not keen to address or cover systemic losses from grid failure.

FIFI PETERS: Just on a point of clarity, you say you will still continue to provide coverage?

TAVAZIVA MADZINGA: Yes, Fifi. So as a company, we do provide coverage for power surges. What we are concerned about is widespread systemic failure of the grid. But should customers’ appliances suffer a power surge outside of a national grid failure, that’s something we still are very comfortable to cover.

FIFI PETERS: I just needed that point of clarity. Thanks for your patience.

A last question – the positives in terms of what you reported to the market today? You do have significant new business coming in. Talk to us about that and whether you expect it to continue in the period ahead.

TAVAZIVA MADZINGA: I think from the positives, our business did grow 8% in 2022, and that’s reflective of the diversity that we have in our business, where our businesses performed very well; and in some cases we saw muted growth. We are very mindful of the pressures that our customers are facing, and so the average growth in the business is reflective of the challenges that our customers are facing.

Then I think on a positive note we have been able to pay a progressive dividend to our shareholders, which I think is reflective of the confidence we have in achieving our long-run and long-term margins for this business. And so we are fairly comfortable that a lot of the perils that we saw in the year 2022 are manageable, and the underwriting actions that we’ve put in place to address this, to manage the risks a lot better, should see us perform better in 2023.

FIFI PETERS: We’ll catch up when we have the picture of your report card then. But we’ll leave it there for now. Tavaziva, thanks so much for your time. Tavaziva Madzinga is the CEO at Sanlam.

Source: Moneyweb