Santam has joined the companies forgoing the declaration of dividends in the six months to June to preserve cash as it waits for court ruling which will determine how much it will eventually pay for Covid-19-related claims.
The insurer which was in the Western Cape High Court on Tuesday to defend its decision to decline business interruption claims related to the lockdown released its interim financial results of Thursday. The Court is expected to hand down its judgment before 15 November.
Because of the virus, Santam has put aside a claims provision of R1.3 billion given its business interruption insurance exposure. This includes the R1 billion Santam announced it has set aside in July to provide relief to some of its clients while waiting for the legal process to complete. It has already paid out R950 million of that.
"Given the current uncertainty around the eventual outcome of COVID-19-related claims, the board has deemed it prudent not to declare an interim dividend," wrote Santam in the results announcement.
However, the possibility of paying multi-billions rands out in claims is only one part of Santam's headache. In the period, Santam grew its written premiums by 7% which was slower than in the past year as consumers asked for premium relief.
Santam CFO Hennie Nel said the motor insurance book came under pressure as people drove less leading to a slight reduction. Other insurance classes like engineering and liability over also came under pressure.
"I think in the economy currently, that is a very, very respectable number," said Santam CEO Lizé Lambrechts during the results presentation in Thursday morning.
The insurer said its conventional insurance book achieved gross written premium growth of 4% compared to 8% in the first half of 2019. Excluding premium relief, this growth would have been 6%.
Santam's net underwriting margin for conventional insurance book – remaining premiums after paying expenses and losses – fell to 4.3% compared to 5.3% in 2019. As a result, Santam's headline earnings per share – the measure of profits that focuses only on operations – fell by a third. Earnings per share which include the impact of al costs, including once-off items plummeted 98%.