Wrap Text
Reviewed Interim Report for the six months ended 30 June 2018
Santam Limited and its subsidiaries
Incorporated in the Republic of South Africa
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 2018
Group gross written premium growth 13%
Conventional insurance gross written premium growth 9%
Conventional insurance underwriting margin 8.4%
Economic capital coverage ratio 158%
Return on shareholders' funds 30.3%
Earnings per share increased 49%
Headline earnings per share increased 72%
Interim dividend of 363 cents per share, up 8%
FINANCIAL REVIEW
The Santam group reported strong gross written premium growth of 13% (9% excluding the impact of the Santam Structured Insurance acquisition in March 2017), and
delivered excellent underwriting results under difficult economic circumstances.
The group's conventional insurance book achieved solid gross written premium growth of 9% and a net underwriting margin of 8.4% (2017: 4.2%), exceeding the
group's target range of 4% to 8%. The Alternative Risk Transfer (ART) insurance segment grew gross written premium by 44% and increased its operating results to
R63 million (2017: R35 million). The Sanlam Emerging Markets (SEM) general insurance businesses delivered improved operating results, with good contributions from
the Saham Finances Group and Shriram General Insurance Company in India.
Investment income attributable to shareholders, inclusive of fair value movements on financial assets and liabilities, of R705 million (2017: R798 million) was
reported. This excludes net investment return allocated to cell owners and policyholders. A positive movement in foreign exchange differences of R230 million was
largely negated by fair value losses on the investment portfolio compared to fair value gains in the comparative period. The 2017 results included the release of
the foreign currency translation reserve of R175 million relating to the unwinding of the Santam International investment.
Cash generated from operations increased to R2 billion (2017: R1.6 billion), positively impacted by the improved claims experience.
The key driver of the 72% increase in headline earnings per share from 593 cps in 2017 to 1 018 cps in 2018 was the significant improvement in the underwriting
result.
A return on capital of 30.3% was achieved.
CONVENTIONAL INSURANCE
The conventional insurance business reported a net underwriting margin of 8.4% compared to the 4.2% reported in 2017. The underwriting results in the current
period benefitted from the absence of significant catastrophe claims in contrast to the severe Knysna fire losses in June 2017. Fewer large commercial fire claims
were also reported during this period.
Gross written premium growth
The intermediated personal and commercial lines business and MiWay experienced pressure on growth given the difficult economic conditions. Excellent growth in the
specialist business and Santam re contributed to the 9% gross written premium growth reported for Conventional Insurance.
Gross written premium growth from the rest of Africa was strained. Santam Namibia reported a contraction in GWP of 3% in a low growth competitive market.
Specialist Business benefitted from a once off construction project in 2017 which did not reoccur in 2018. Santam re, on the other hand, achieved strong growth in
Southeast Asia, India and the Middle East through selective participations in these markets. The net effect was a contraction of 2% on premiums from outside of
South Africa written on the Santam Ltd and Santam Namibia Ltd licences (2018: R1 516 million; 2017: R1 554 million).
The property class reported growth of 14% on the back of strong growth in the corporate property business following lower reinsurance capacity available in the
market.
The motor class grew by 7%, with MiWay reporting 6% growth (gross written premium of R1 218 million; 2017: R1 148 million). MiWay saw a slowdown in growth from
the second half of 2017 due to an increased focus on profitability, as well as the impact of the economic strain on consumers. The commercial and personal lines
intermediated business similarly experienced a slowdown in growth of the motor book.
The liability class continued to experience significant competitive pressure, resulting in no growth reported during the period. The engineering class reported a
gross written premium contraction of 6%, reflecting the impact of fewer large construction projects and the uncertainties impacting the construction sector.
The accident and health class reported growth of 18%, mainly driven by growth in the travel insurance business. The transportation class reported negative gross
written premium growth of 3% following Santam's continued focus on profitability.
Underwriting result
The property class saw a significant turnaround from the R415 million net underwriting loss reported in 2017 to R280 million net underwriting profit in 2018
following the absence of significant catastrophe claims, as well as fewer large commercial fire claims. The underwriting results were positively impacted by the
underwriting actions implemented during the second half of 2017.
The motor class reported strong underwriting performance in both the intermediated and direct distribution channels. MiWay reported acceptable results with a
claims ratio of 55.7% (2017: 55.4%), however negatively impacted by lower premium growth and increased management expenses, contributing an underwriting profit of
R159 million (2017: R179 million).
The engineering class of business achieved excellent underwriting results with limited claims activity during the period, while the guarantee class of business
was negatively impacted by the difficult economic environment. A number of large claims, including net claims of R100 million incurred to date relating to the
listeriosis outbreak, reduced the underwriting results of the liability class. Estimate adjustments on previously reported claims further contributed to a net
underwriting loss of R49 million (2017: net underwriting profit of R93 million).
The crop insurance business reported strong underwriting results, although lower than the excellent results reported in the comparative period. Santam re was
negatively impacted by claims activity on the foreign book of business.
Following the significant losses incurred by the global and South African reinsurance market during 2017, Santam's deductible per catastrophe event increased to
R150 million (2017: R100 million) for the 2018 financial year. It also resulted in increased reinsurance rates.
The net acquisition cost ratio of 29.6% increased from 27.5% in 2017. The management expense ratio increased from 15.1% in 2017 to 17.2% in 2018, mainly due to
an increased incentive cost provision in 2018, timing differences in marketing spend, as well as growth initiatives at MiWay.
Strategic project costs, included as part of management expenses, amounted to 0.8% of net earned premium (2017: 0.8%). These costs mainly relate to the continued
development of a new core underwriting, administration and product management platform for the Santam intermediated business, compliance projects, data
enhancement and future digital solutions. The new core underwriting platform project is progressing according to plan, with most of personal lines policies now
being managed on the new platform, as well as majority of new business quotes for commercial business products. The migration process for commercial business
products is also well underway and is expected to be completed during the first half of 2019. Santam will continue to invest in strategic projects to optimise the
use of technology in the group.
The net commission ratio remained unchanged at 12.4% (2017: 12.4%).
Investment return on insurance funds
The investment return on insurance funds was negatively impacted by lower returns on the investment portfolios backing the insurance funds following lower
interest rates compared to 2017 and limited growth in the insurance funds following the improved claims ratio.
ALTERNATIVE RISK TRANSFER INSURANCE (ART)
The ART business reported growth of 44% with gross written premiums of R2 469 million (2017: R1 710 million). Centriq reported excellent growth of 27%.
Santam Structured Insurance also reported good growth over the comparative period. The 2017 reporting period included the results of Santam Structured
Insurance for three months following the acquisition of the business in March 2017.
The ART business reported solid operating results before tax and minority interests of R63 million (2017: R35 million).
SANLAM EMERGING MARKETS (SEM) GENERAL INSURANCE BUSINESSES (INCLUDING SAHAM FINANCES HELD THROUGH SAN JV)
The emerging markets general insurance business portfolio includes investments in the Saham Finances Group in Morocco (with subsidiaries in 26 countries in Africa
and the Middle East), Pacific & Orient Insurance Co. Berhad (P&O) in Malaysia, Shriram General Insurance Company Ltd (SGI) in India and a further 12 general
insurance businesses throughout Africa which are held in conjunction with SEM, excluding South Africa and Namibia.
Santam's share of the gross written premiums of these businesses decreased by 2% to R1 231 million (2017: R1 257 million) following the dilution of Santam's
effective shareholding in Saham Finances from 7.5% to 7% in May 2017 and the disposal of Enterprise Insurance Company in June 2017.
SGI reported a decrease in gross written premiums following a decision to reduce exposure on the Indian crop business, while P&O's gross written premiums were on
par with 2017 in local currency terms.
Saham Finances delivered in line with its business plan. Organic growth in gross written premium amounted to 10% in constant currency, with net earned premiums
increasing by 13%. All regions contributed satisfactory growth in gross written premiums apart from Lebanon, which reflected the impact of a challenging
operating environment and negatively affected profitability. Currency weakness in Angola resulted in pressure on this region's cost base and underwriting
performance. This was, however, more than offset by overall good performances from the other regions and particularly strong growth in reinsurance profits.
Santam's share of the net insurance result of these businesses increased to R142 million compared to R101 million in 2017, mainly due to improved profitability
from Saham Finances and SGI. The portfolio of businesses achieved a net insurance margin of 16.2% (2017: 11.6%). The SGI results were positively impacted by
reserve releases on third-party claims while P&O reported a marginal improvement in net insurance results at acceptable underwriting margins.
INVESTMENT RESULTS
Listed equities produced a negative return of 3% for the six months ended 30 June 2018, relative to the portfolio's SWIX-related benchmark return of -5.8%.
Over the past quarter, the equity portfolio's benchmark was revised from the SWIX index to 60% SWIX and 40% Capped SWIX index.
The Santam group's fixed income exposure is managed in enhanced cash and active income portfolios. The fixed income portfolios performed close to their
STeFI-related benchmarks.
Exchange rate volatility due to the weakening of the rand in 2018 compared to December 2017 resulted in a foreign exchange gain of R230 million
(2017: foreign currency loss of R70 million), inclusive of the currency movements on Santam's interest in SEM's general insurance businesses in Africa, India and
Southeast Asia.
Positive fair value movements (excluding the impact of currency movements) of R55 million (2017: R104 million) in Santam's interest in SEM's general insurance
businesses also contributed to the improved investment performance.
Net earnings from associated companies of R81 million (2017: R54 million) included R63 million from Saham Finances. The other key contributor to earnings from
associated companies was Western Group Holdings Ltd.
PROSPECTS
Trading conditions remain very competitive in a low-growth South African economic environment, which translates into limited growth of insurable assets for the
insurance industry. GDP contracted in the first quarter of 2018 and the South African Reserve Bank reduced its growth forecast for 2018 to 1.2%. It is expected
that economic activity will in the near term be constrained by weak consumer spending linked to the recent increase in value added tax and by unemployment, which
is at near record levels. Inflation (annual CPI) of 5.1% was reported at the end of July 2018.
The group's focus remains on growing profitably in South Africa and increasing its international diversification through the Santam Specialist Business and
Santam re. International diversification is supported by close collaboration with the SEM general insurance businesses. In South Africa, continued focus is being
placed on the development of Santam's full multichannel capability and refocused MiWay growth initiatives.
The focus will remain on appropriate underwriting actions to manage the risk associated with weak economic conditions, also taking the increased reinsurance
rates into account. Santam continues to work with local municipalities to reduce risk and improve resilience.
The group remains focused on optimising efficiency by balancing management costs and underwriting profitability as well as the use of technology to improve
underwriting results.
The investment market is likely to remain uncertain. The increased exposure to non-rand-denominated business further increases foreign exchange volatility for the
group.
The group continues to prioritise and focus on its transformation priorities. These include the promotion of a diverse workforce, intermediary and supplier base;
access to insurance products by non-traditional markets; and further impactful investment in communities.
The group economic capital requirement at 30 June 2018, based on the Santam internal economic model, amounted to R6.4 billion (2017: R5.9 billion). This resulted
in an economic capital coverage ratio of 158% (2017 normalised: 151%), somewhat above the midpoint of the target range of 130% to 170%. Santam has submitted its
internal model application pack to the Prudential Authority in July 2018 for approval.
We remain committed to efficient capital management.
EVENTS AFTER THE REPORTING PERIOD
The Santam Board announced on 30 August 2018, Santam’s intention to participate in a transaction with Sanlam to increase its effective interest in Saham Finances
to 10% by subscribing for further shares in SAN JV to the extent of R864 million, plus its share of transaction costs. Post implementation of the transaction,
Santam’s effective interest in Saham Finances, held indirectly through SAN JV, will increase from 7% to 10%.
Santam will fund its share of the purchase consideration and transaction costs from available internal resources.
Santam, Sanlam and SEM have in principle reached an agreement for Santam to reduce over time its economic participation in the SEM general insurance businesses in
Africa (excluding Namibia) from 35% to 10% to align with the effective 10% interest that Santam will have in Saham Finances.
The transaction is subject to a number of conditions precedent, including regulatory approvals.
There have been no other material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial position date.
DECLARATION OF ORDINARY DIVIDEND (NUMBER 129)
Notice is hereby given that the board has declared a gross interim dividend of 363.00 cents per share (2017: 336.00 cents per share), 290.40 cents net of dividend
withholding taxation, where applicable, per ordinary share for the six months ended 30 June 2018 to those members registered on the record date, being
Friday, 21 September 2018.
The dividend has been declared from income reserves. A dividend withholding taxation of 20% will be applicable to all shareholders who are not exempt.
Share code: SNT
ISIN: ZAE000093779
Company registration number: 1918/001680/06
Company tax reference number: 9475/144/71/4
Gross cash dividend amount per share: 363.00 cents
Net dividend amount per share: 290.40 cents
Issued shares at 30 August 2018: 115 131 417
Declaration date: 30 August 2018
Last day to trade cum dividend: Tuesday, 18 September 2018
Shares trade ex dividend: Wednesday, 19 September 2018
Record date: Friday, 21 September 2018
Payment date: Tuesday, 25 September 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 19 September 2018 and Friday, 21 September 2018, both days inclusive.
In terms of the dividends tax legislation, the dividends tax amount due will be withheld and paid over to the South African Revenue Service (SARS) by a nominee
company, stockbroker or Central Security Depository Participant (CSDP) (collectively Regulated Intermediary) on behalf of shareholders. Shareholders should seek
their own advice on the tax consequences associated with the dividend and are particularly encouraged to ensure their records are up to date so that the correct
withholding tax is applied to their dividend.
APPRECIATION
The board would like to extend its gratitude to Santam's management, employees, intermediaries and other business partners for their efforts and contributions
during the period.
PREPARATION AND PRESENTATION OF THE INTERIM FINANCIAL STATEMENTS
The preparation of the independently reviewed interim financial statements was supervised by the chief financial officer of Santam Ltd, HD Nel CA(SA).
VP Khanyile L Lambrechts
Chairman Chief executive officer
30 August 2018
INDEPENDENT AUDITOR'S REVIEW REPORT
TO THE SHAREHOLDERS OF SANTAM LIMITED
We have reviewed the condensed consolidated interim financial statements of Santam Limited in the accompanying interim report, which comprise the condensed
consolidated statement of financial position as at 30 June 2018 and the related condensed consolidated statements of comprehensive income, changes in equity and
cash flows for the six-months then ended, and selected explanatory notes.
DIRECTORS' RESPONSIBILITY FOR THE INTERIM FINANCIAL STATEMENTS
The directors are responsible for the preparation and presentation of these interim financial statements in accordance with the International Financial Reporting
Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements
as issued by the Financial Reporting Standards Council and the requirements of the Companies Act of South Africa, and for such internal control as the directors
determine is necessary to enable the preparation of interim financial statements that are free from material misstatement, whether due to fraud or error.
AUDITOR'S RESPONSIBILITY
Our responsibility is to express a conclusion on these interim financial statements. We conducted our review in accordance with International Standard on Review
Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. ISRE 2410 requires us to conclude whether anything
has come to our attention that causes us to believe that the interim financial statements are not prepared in all material respects in accordance with the
applicable financial reporting framework. This standard also requires us to comply with relevant ethical requirements.
A review of interim financial statements in accordance with ISRE 2410 is a limited assurance engagement. We perform procedures, primarily consisting of making
inquiries of management and others within the entity, as appropriate, and applying analytical procedures, and evaluate the evidence obtained.
The procedures in a review are substantially less than and differ in nature from those performed in an audit conducted in accordance with International Standards
on Auditing. Accordingly, we do not express an audit opinion on these interim financial statements.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements of
Santam Limited for the six months ended 30 June 2018 are not prepared, in all material respects, in accordance with the International Financial Reporting
Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements
as issued by the Financial Reporting Standards Council and the requirements of the Companies Act of South Africa.
PricewaterhouseCoopers Inc
Director: Zuhdi Abrahams
Registered Auditor
Cape Town
30 August 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed at Audited at
30 June 2018 31 December 2017
Notes R million R million
ASSETS
Non-current assets
Property and equipment 133 135
Intangible assets 817 841
Deferred income tax 91 91
Investment in associates and joint ventures 2 007 1 789
Financial assets at fair value through income 6 19 959 17 554
Reinsurance assets 7 544 202
Deposit with cell owners 120 129
Total non-current assets 23 671 20 741
Current assets
Cell owners' and policyholders' interest 8 10
Financial assets at fair value through income 6 2 288 2 182
Reinsurance assets 7 5 502 5 622
Deposit with cell owners 42 45
Deferred acquisition costs 519 537
Loans and receivables including insurance receivables 6 5 321 5 253
Income tax assets 26 17
Cash and cash equivalents 3 212 4 321
Total current assets 16 918 17 987
Total assets 40 589 38 728
EQUITY
Capital and reserves attributable to the company's equity holders
Share capital 103 103
Treasury shares (465) (470)
Other reserves (89) (214)
Distributable reserves 8 410 7 999
7 959 7 418
Non-controlling interest 490 506
Total equity 8 449 7 924
LIABILITIES
Non-current liabilities
Deferred income tax 101 87
Financial liabilities at fair value through income
Debt securities 6 2 025 2 031
Investment contracts 6 1 552 1 583
Cell owners' and policyholders' interest 3 208 3 227
Insurance liabilities 7 2 151 1 789
Reinsurance liability relating to cell owners 120 129
Total non-current liabilities 9 157 8 846
Current liabilities
Financial liabilities at fair value through income
Debt securities 6 24 25
Investment contracts 6 61 120
Financial liabilities at amortised cost
Collateral guarantee contracts 6 137 130
Insurance liabilities 7 16 429 16 059
Reinsurance liability relating to cell owners 42 45
Deferred reinsurance acquisition revenue 317 326
Provisions for other liabilities and charges 124 106
Trade and other payables including insurance payables 6 5 585 4 953
Current income tax liabilities 264 194
Total current liabilities 22 983 21 958
Total liabilities 32 140 30 804
Total shareholders' equity and liabilities 40 589 38 728
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Reviewed
Six months ended Six months ended
30 June 2018 30 June 2017
Notes R million R million Change
Gross written premium 15 591 13 795 13%
Less: reinsurance written premium 4 571 3 709
Net written premium 11 020 10 086 9%
Less: change in unearned premium
Gross amount 478 (257)
Reinsurers' share (579) (208)
Net insurance premium revenue 11 121 10 551 5%
Interest income on amortised cost instruments 9 103 63
Interest income on fair value through income instruments 9 620 543
Other investment income/(losses) 9 278 (16)
Income from reinsurance contracts ceded 899 698
Net (losses)/gains on financial assets and liabilities at fair value through income 9 (140) 153
Investment income and fair value losses on financial assets held for sale 9 - 175
Other income 88 64
Net income 12 969 12 231 6%
Insurance claims and loss adjustment expenses 8 906 10 700
Insurance claims and loss adjustment expenses recovered from reinsurers (1 988) (3 448)
Net insurance benefits and claims 6 918 7 252 (5%)
Expenses for the acquisition of insurance contracts 2 191 1 952
Expenses for marketing and administration 2 040 1 674
Expenses for investment-related activities 23 24
Amortisation and impairment of intangible assets 33 37
Impairment of loans 5 -
Investment return allocated to cell owners and structured insurance products 156 120
Total expenses 11 366 11 059 3%
Results of operating activities 1 603 1 172 37%
Finance costs (102) (127)
Net income from associates and joint ventures 81 54
Profit on sale of associates 11 - 5
Gain on dilution of associate 11 - 18
Reclassification of foreign currency translation reserve on dilution of associate 11 - (90)
Income tax recovered from cell owners and structured insurance products 10 44 -
Profit before tax 1 626 1 032
Tax expense allocated to shareholders 10 (400) (224)
Tax expense allocated to cell owners and structured insurance products (44) -
Total tax expense (444) (224)
Profit for the period 1 182 808 46%
Other comprehensive income, net of tax
Items that may subsequently be reclassified to income:
Currency translation differences - (161)
Share of associates' currency translation differences 125 83
Hedging reserve movement - 5
Total comprehensive income for the period 1 307 735 78%
Profit attributable to:
- equity holders of the company 1 124 753 49%
- non-controlling interest 58 55
1 182 808
Total comprehensive income attributable to:
- equity holders of the company 1 249 680 84%
- non-controlling interest 58 55
1 307 735
Earnings attributable to equity shareholders
Earnings per share (cents) 12
Basic earnings per share 1 018 683 49%
Diluted earnings per share 1 009 677 49%
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the company Non-
Share Treasury Other Distributable controlling
capital shares reserves reserves Total interest Total
R million R million R million R million R million R million R million
Balance as at 1 January 2017 103 (472) (41) 7 286 6 876 469 7 345
Profit for the year - - - 1 667 1 667 140 1 807
Other comprehensive income:
Currency translation differences - - (3) - (3) - (3)
Release of translation differences on financial assets held
for sale - - (175) - (175) - (175)
Share of associates' currency translation differences - - (41) - (41) - (41)
Reclassification of foreign currency translation reserve on
dilution of associate - - 90 - 90 - 90
Hedging reserve movement - - 6 - 6 - 6
Total comprehensive income for the year ended 31 December 2017 - - (123) 1 667 1 544 140 1 684
Issue of treasury shares in terms of share option schemes - 78 - (78) - - -
Purchase of treasury shares - (76) - - (76) - (76)
Release of contingency reserve - - (50) 50 - - -
Share-based payment costs - - - 77 77 - 77
Dividends paid - - - (1 003) (1 003) (103) (1 106)
Balance as at 31 December 2017 103 (470) (214) 7 999 7 418 506 7 924
Profit for the period - - - 1 124 1 124 58 1 182
Other comprehensive income:
Share of associates' currency translation differences - - 125 - 125 - 125
Total comprehensive income for the period ended 30 June 2018 - - 125 1 124 1 249 58 1 307
Issue of treasury shares in terms of share option schemes - 69 - (69) - - -
Purchase of treasury shares - (64) - - (64) - (64)
Share-based payment costs - - - 38 38 - 38
Dividends paid - - - (682) (682) (74) (756)
Balance as at 30 June 2018 103 (465) (89) 8 410 7 959 490 8 449
Balance as at 1 January 2017 103 (472) (41) 7 286 6 876 469 7 345
Profit for the period - - - 753 753 55 808
Other comprehensive income:
Currency translation differences - - (161) - (161) - (161)
Share of associates' currency translation differences - - 83 - 83 - 83
Hedging reserve movement - - 5 - 5 - 5
Total comprehensive income for the period ended 30 June 2017 - - (73) 753 680 55 735
Issue of treasury shares in terms of share option schemes - 74 - (74) - - -
Purchase of treasury shares - (65) - (65) - (65)
Transfer to reserves - - 1 (1) - - -
Share-based payment costs - - - 41 41 - 41
Dividends paid - - - (631) (631) (49) (680)
Balance as at 30 June 2017 103 (463) (113) 7 374 6 901 475 7 376
CONSOLIDATED STATEMENT OF CASH FLOWS
Restated(1)
Reviewed Reviewed
Six months ended Six months ended
30 June 2018 30 June 2017
Notes R million R million
Cash flows from operating activities
Cash generated from operations 1 968 1 637
Interest paid (172) (94)
Income tax paid (369) (210)
Acquisition of financial assets (10 804) (7 706)
Proceeds from sale of financial assets 9 137 6 649
Net cash (used in)/from operating activities (240) 276
Cash flows from investing activities
Acquisition of financial assets (536) (68)
Proceeds from sale of financial assets 488 150
Cash acquired through acquisition of business, net of cash paid 11 - 852
Purchases of equipment (24) (20)
Purchases of intangible assets (13) (12)
Proceeds from sale of equipment 1 1
Acquisition of associates and joint ventures 11 - (152)
Capitalisation of associates 11 (11) (14)
Proceeds from sale of associates 11 - 23
Net cash (used in)/from investing activities (95) 760
Cash flows from financing activities
Purchase of treasury shares (64) (65)
Proceeds from issue of unsecured subordinated callable notes - 1 000
Increase in investment contract liabilities(2) - 5
Increase in collateral guarantee contracts(2) - 6
Dividends paid to company's shareholders (682) (631)
Dividends paid to non-controlling interest (74) (49)
Decrease in cell owners' and policyholders' interest(2) - (38)
Net cash (used in)/from financing activities (820) 228
Net (decrease)/increase in cash and cash equivalents (1 155) 1 264
Cash and cash equivalents at beginning of period 4 321 2 887
Exchange gains/(losses) on cash and cash equivalents 46 (33)
Cash and cash equivalents at end of period 3 212 4 118
1 Refer to note 14 for detail.
2 Cash flows relating to investment contract liabilities, collateral guarantee contracts and cell owners' and policyholders' interest have previously been
included as part of financing activities in the statement of cash flows. As a result of the acquisition of SSI, management has reassessed the classification
of these cash flows and determined that these cash flows relate to operating activities. This change in classification has been applied prospectively, as these
cash flows were previously considered immaterial.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards, IAS 34 Interim
Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council and the requirements of the Companies Act of South Africa.
In line with the minimum requirements of IAS 34 Interim Financial Reporting, and in order to align with Sanlam, the comparative period information presented
has been limited to:
- the statement of financial position information as at the end of the full financial year (31 December 2017); and
- the statement of comprehensive income and the statement of cash flows with comparative information for the equivalent period in the previous financial year
(30 June 2017).
With the acquisition of SSI in the 2017 financial year, the tax on cell owners and structured insurance products is more significant. As a result, the tax on
cell owners and structured insurance products in the current period has been separately disclosed in the statement of comprehensive income. In the prior periods,
this tax was disclosed as part of tax expense (refer to note 10 for detail).
2. Accounting policies
The accounting policies applied in the preparation of the condensed consolidated interim financial statements are in terms of IFRS and are consistent with
those accounting policies applied in the preparation of the previous consolidated annual financial statements, except for:
The following new IFRSs and/or IFRICs were effective for the first time from 1 January 2018:
- Amendment to IFRS 2 - Classification and measurement of share-based payment transactions
- Amendments to IFRS 4 - Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts
- IFRS 9 - Financial Instruments
- IFRS 15 - Revenue from contracts with customers
- Amendment to IAS 40 - Transfers of Investment Property
- Annual improvements 2014-16 cycle
- IFRIC 22 - Foreign currency transactions and advance consideration
There was no material impact on the condensed consolidated interim financial statements identified. Specifically regarding IFRS 9, the assessment of the
impact of implementation included the following:
Classification and measurement - Financial assets
- Debt instruments, previously measured at FVPL (fair value through profit and loss), are also measured at FVPL under IFRS 9. A key input in the assessment
of the classification of debt instruments held was the business model applied to manage the financial assets. Financial assets that are held to sell and
those that are managed and whose performance is evaluated on a fair value basis will be measured at FVPL because they are neither held to collect
contractual cash flows nor held to collect contractual cash flows and to sell.
- Loans and receivables, previously measured at amortised cost, continue to be measured at amortised cost under IFRS 9 as the business model is hold to
collect and their cash flows represent solely payments of principal and interest.
- Equity instruments, previously measured at FVPL, are also measured as FVPL under IFRS 9. Management has not taken the irrevocable election to present
changes through FVOCI (fair value through other comprehensive income) for equities not held for trading.
Classification - Financial liabilities
- Debt securities issued by Santam are measured at FVPL under IFRS 9 as these instruments are managed at fair value in terms of the related business model.
The amount of changes in fair value attributable to changes in own credit risk of these liabilities were considered immaterial.
- Investment contract liabilities predominantly consist of unit-linked contracts where the value of the liability is directly derived from the performance of
the related assets. Based on the principle of eliminating an accounting mismatch in the financial statements, investment contracts are designated to be
measured at FVPL.
Impairment of financial assets
The majority of financial assets in the Santam group are measured at FVPL. All insurance and reinsurance receivables are recognised and measured in terms of
IFRS 4 Insurance contracts and the group has not amended its policies for the measurement of IFRS 4. The insurance and reinsurance receivables are therefore
excluded from the scope of IFRS 9's expected credit loss (ECL) impairment. The most significant class of financial asset subject to an ECL impairment is loans
and receivables. Applying the expected credit loss model to loans and receivables at amortised costs, did not result in material additional provisions for
impairment.
IFRS 15 Revenue from Contracts with Customers introduces a single, principles-based five-step model to be applied to all contracts with customers. IFRS 15
does not apply to insurance contracts within the scope of IFRS 4 Insurance Contracts. Based on management's assessment, the impact on the net results was not
material.
Of the standards that are not yet effective, management expects IFRS 17 Insurance contracts to have an impact on the group. IFRS 17 establishes the principles
for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. IFRS 17 was issued in May 2017 and
applies to annual reporting periods beginning on or after 1 January 2021. The group is currently facilitating a programme to review the impact of the
implementation and ensure a seamless transition.
3. Estimates
The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the group's accounting
policies and the key sources of estimation uncertainty are the same as those that applied to the consolidated annual financial statements for the year ended
31 December 2017.
4. Risk management
The group's activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk, foreign currency risk and derivatives
risk), credit risk and liquidity risk. Insurance activities expose the group to insurance risk (including pricing risk, reserving risk, accumulation risk and
reinsurance risk). The group is also exposed to operational risk and legal risk.
The capital risk management philosophy is to maximise the return on shareholders' capital within an appropriate risk framework.
The condensed consolidated interim financial statements do not include all risk management information and disclosures required in the annual financial
statements and should be read in conjunction with the group's annual financial statements for the year ended 31 December 2017.
There have been no material changes to the risk management policies since 31 December 2017.
5. Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the chief
executive officer, supported by the group executive committee.
The group conducts mainly insurance and investment activities.
Insurance activities:
The group presents its insurance results in the following segments:
- Conventional insurance business written on insurance licences controlled by the group, consisting of Santam Commercial and Personal, Santam Specialist
(niche business and agriculture), credit insurance written by Santam Structured Insurance (SSI), Santam re and MiWay;
- Alternative risk transfer insurance business written on the insurance licences of Centriq and SSI; and
- Santam's share of the insurance results of the Sanlam Emerging Markets (SEM) general insurance businesses, including SAN JV (Saham Finances).
Conventional insurance is further analysed by insurance class. Operating segments are aggregated based on quantitative and/or qualitative significance.
The performance of insurance activities is based on gross written premium as a measure of growth, with operating result as measure of profitability.
Growth is measured for SEM GI businesses based on the gross written premium generated by the underlying businesses. With regard to the SEM and SAN JV
(Saham Finances) insurance business, this information is considered to be a reallocation of fair value movements recognised on the SEM target shares as well
as equity-accounted earnings on the investments in associates and joint ventures. It is also included as reconciling items in order to reconcile to the
consolidated statement of comprehensive income. Overall profitability is measured based on net investment income and fair value movements from SEM target
share investments and net income from associates for the investment in SAN JV.
Insurance business denominated in foreign currencies is covered by foreign denominated bank accounts and investment portfolios. Foreign exchange movements on
underwriting activities are therefore offset against the foreign exchange movements recognised on the bank accounts and investment portfolios.
Investment activities:
Investment activities are all investment-related activities undertaken by the group. Due to the nature of the activities conducted, investment activities are
considered to be one operating segment. Investment activities are measured based on net investment income.
Given the nature of the operations, there is no single external client that provides 10% or more of the group's revenues.
The investment return on insurance funds is calculated based on the day-weighted effective return realised by the group on the assets held to cover the
group's net insurance working capital requirements.
The Santam BEE transaction costs are unrelated to the core underwriting and investment performance of the group. Therefore, these costs are disclosed as
unallocated activities.
Santam Ltd is domiciled in South Africa. Geographical analysis of the gross written premium and non-current assets and liabilities is based on the countries
in which the business is underwritten or managed. Non-current assets comprise goodwill and intangible assets, property and equipment, investments in
associates and joint ventures and SEM target shares (included in financial assets).
5.1 For the six months ended 30 June 2018 (reviewed)
Insurance
Reconciling
Business activity Alternative Santam's and IFRS
Conventional risk share of SEM Total Investment Total unallocated Total
R million R million R million R million R million R million R million R million
Revenue 13 122 2 469 1 231 16 822 301 17 123 (1 532) 15 591
Net earned premium 10 947 174 877 11 998 - 11 998 (877) 11 121
Net claims incurred 6 795 123 591 7 509 - 7 509 (591) 6 918
Net commission 1 361 (69) 71 1 363 - 1 363 (71) 1 292
Management expenses (excluding BEE costs)(1) 1 875 95 193 2 163 - 2 163 (193) 1 970
Net underwriting result 916 25 22 963 - 963 (22) 941
Investment return on insurance funds 263 38 120 421 - 421 (120) 301
Net insurance result 1 179 63 142 1 384 - 1 384 (142) 1 242
Other income(2) 41 20 - 61 - 61 - 61
Other expenses(2) (41) (20) - (61) - (61) - (61)
Operating result before non-controlling interest
and tax 1 179 63 142 1 384 - 1 384 (142) 1 242
Reallocation of operating result(3) - - (142) (142) - (142) 142 -
Investment income net of investment-related fees - 156 121 277 260 537 - 537
Investment return allocated to cell owners and
structured insurance products - (156) - (156) - (156) - (156)
Finance costs - - - - (102) (102) - (102)
Income from associates and joint ventures - - 63 63 18 81 - 81
Santam BEE costs - - - - - - (2) (2)
Amortisation and impairment of intangible assets(1) (12) (1) - (13) - (13) - (13)
Impairment of loans (5) - - (5) - (5) - (5)
Profit before tax attributable to shareholders 1 162 62 184 1 408 176 1 584 (2) 1 582
1 Amortisation of computer software included as part of management expenses. Santam's share of the costs to manage the SEM portfolio of R15.3 million has
been included in management expenses.
2 Includes other operating income and expenses not related to underwriting activities.
3 Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
For the six months ended 30 June 2017 (reviewed)
Insurance
Reconciling
Business activity Alternative Santam's and IFRS
Conventional risk share of SEM Total Investment Total unallocated Total
R million R million R million R million R million R million R million R million
Revenue 12 085 1 710 1 257 15 052 404 15 456 (1 661) 13 795
Net earned premium 10 250 301 870 11 421 - 11 421 (870) 10 551
Net claims incurred 7 003 249 640 7 892 - 7 892 (640) 7 252
Net commission 1 273 (18) 59 1 314 - 1 314 (59) 1 255
Management expenses (excluding BEE costs)(1,4) 1 546 76 219 1 841 - 1 841 (219) 1 622
Net underwriting result 428 (6) (48) 374 - 374 48 422
Investment return on insurance funds(4) 296 42 149 487 - 487 (149) 338
Net insurance result 724 36 101 861 - 861 (101) 760
Other income(2) 41 22 - 63 - 63 - 63
Other expenses(2) (42) (23) - (65) - (65) - (65)
Operating result before non-controlling interest
and tax 723 35 101 859 - 859 (101) 758
Reallocation of operating result(3) - - (101) (101) - (101) 101 -
Investment income net of investment-related fees - 120 88 208 347 555 - 555
Investment return allocated to cell owners and
structured insurance products - (120) - (120) - (120) - (120)
Finance costs - - - - (127) (127) - (127)
Income from associates and joint ventures including
profit on sale and impairment - - 26 26 33 59 - 59
Gain on dilution of associate - - 18 18 - 18 - 18
Reclassification of foreign currency translation
reserve on dilution of associate - - (90) (90) - (90) (90)
Santam BEE costs - - - - - - (3) (3)
Amortisation and impairment of intangible assets(1) (18) - - (18) - (18) - (18)
Profit before tax 705 35 42 782 253 1 035 (3) 1 032
1 Amortisation of computer software included as part of management expenses. Santam's share of the costs to manage the SEM portfolio of R17.3 million has
been included in management expenses.
2 Includes other operating income and expenses not related to underwriting activities.
3 Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
4 A reclassification of R26 million between management expenses and investment return on insurance funds was made as a result of alignment with Sanlam.
5.2 Additional information on insurance activities
The group's conventional insurance activities are spread over various classes of general insurance.
30 June 2018 (reviewed) 30 June 2017 (reviewed)
Gross written Underwriting Gross written Underwriting
premium result premium result
R million R million R million R million
Accident and health 273 40 232 35
Crop 87 61 72 131
Engineering 608 127 645 114
Guarantee 124 (32) 77 (3)
Liability 563 (49) 566 93
Miscellaneous 8 (8) 5 2
Motor 6 349 513 5 944 459
Property 4 763 280 4 188 (415)
Transportation 347 (16) 356 12
Total 13 122 916 12 085 428
Comprising:
Commercial insurance 7 207 407 6 542 247
Personal insurance 5 915 509 5 543 181
Total 13 122 916 12 085 428
5.3 Additional information on investment activities
30 June 2018 30 June 2017
Reviewed Reviewed
R million R million
The group's return on investment-related activities can be analysed as follows:
Investment income 359 308
Net (losses)/gains on financial assets and liabilities at fair value through income (76) 63
Income from associates and joint ventures 18 33
Investment-related revenue 301 404
Expenses for investment-related activities (23) (24)
Finance costs (102) (127)
Net total investment-related transactions 176 253
For detailed analysis of investment activities, refer to notes 6 and 9.
5.4 Additional information on Santam's share of SEM
The group's return on Santam's share of SEM activities can be analysed as follows:
For the six months ended 30 June 2018 (reviewed)
SAN JV
(Saham
SEM Finances)(3) Total
R million R million R million
Revenue 625 606 1 231
Net earned premium 430 447 877
Net claims incurred 318 273 591
Net commission 24 47 71
Management expenses (excluding BEE costs) 111 82 193
Net underwriting result (23) 45 22
Investment return on insurance funds 85 35 120
Net insurance result/operating result before non-controlling interest and tax(2) 62 80 142
Reallocation of operating result(1) (62) (80) (142)
Investment income net of investment-related fees 121 - 121
Income from associates and joint ventures - 63 63
Profit before tax 121 63 184
1 Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
2 Santam's share of SAN JV's non-controlling interest and tax of R36 million resulted in net results of R44 million.
3 Santam held an effective interest of 7%.
For the six months ended 30 June 2017 (reviewed)
SAN JV
(Saham
SEM Finances)(4) Total
R million R million R million
Revenue 672 585 1 257
Net earned premium 434 436 870
Net claims incurred 359 281 640
Net commission 14 45 59
Management expenses (excluding BEE costs)(2) 118 101 219
Net underwriting result (57) 9 (48)
Investment return on insurance funds(2) 96 53 149
Net insurance result/operating result before non-controlling interest and tax(3) 39 62 101
Reallocation of operating result(1) (39) (62) (101)
Investment loss net of investment-related fees 88 - 88
Income from associates including profit on sale - 26 26
Gain on dilution of associate - 18 18
Reclassification of foreign currency translation reserve on dilution of associate - (90) (90)
Profit before tax 88 (46) 42
1 Reconciling items consist of the reallocation of net insurance results relating to the underlying investments SEM and SAN JV (Saham Finances) for
management reporting purposes.
2 A reclassification of R26 million between management expenses and investment return on insurance funds was made as a result of alignment with Sanlam.
3 Santam's share of SAN JV's non-controlling interest and tax of R30 million resulted in net results of R32 million.
4 Santam held an effective interest of 7.3%.
5.5 Geographical analysis
Gross written premium Non-current assets
30 Jun 2018 30 Jun 2017 30 Jun 2018 31 Dec 2017
Reviewed Reviewed Reviewed Audited
R million R million R million R million
South Africa 14 075 12 241 1 111 1 125
Rest of Africa(1) 1 650 1 960 2 101 1 967
Southeast Asia, India, Middle East 1 000 737 955 886
Other 97 115 - -
16 882 15 053 4 167 3 978
Reconciling items(2) (1 231) (1 258) - -
Group total 15 591 13 795 4 167 3 978
1 Includes gross written premium relating to Namibia of R544 million (Jun 2017: R560 million).
2 Reconciling items relate to the underlying investments included in SEM and Saham activities for management reporting purposes.
5.6 Geographical analysis of SAN JV (Saham)'s results (reviewed)
Analysis of Santam's average effective interest of 7% (2017: 7.3%)
Life insurance General insurance Reinsurance Total
Analysis of Santam's share of gross written 30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017
premium R million R million R million R million R million R million R million R million
Morocco 58 54 224 230 - - 282 284
Lebanon 24 25 22 25 - - 46 50
Mauritius (Saham Re) - - - - 47 38 47 38
Ivory Coast 19 18 59 54 - - 78 72
Angola 2 3 51 49 - - 53 52
Other 14 11 92 87 41 41 147 139
Consolidation adjustment (1) (7) (5) (2) (41) (41) (47) (50)
116 104 443 443 47 38 606 585
Life insurance General insurance Reinsurance Total
Analysis of Santam's share of net 30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017
underwriting results R million R million R million R million R million R million R million R million
Morocco 5 - 18 9 - - 23 9
Lebanon - - - - - - - -
Mauritius (Saham Re) - - - - 20 19 20 19
Ivory Coast (2) (5) 5 4 - - 3 (1)
Angola - - - (1) - - - (1)
Other (3) (3) 5 (3) (3) (11) (1) (17)
- (8) 28 9 17 8 45 9
Analysis of SAN JV (Saham)'s results (100%)
Life insurance General insurance Reinsurance Total
30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017
Analysis of SAN JV (Saham)'s gross written Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed
premium R million R million R million R million R million R million R million R million
Morocco 831 742 3 213 3 162 - - 4 044 3 904
Lebanon 337 341 311 341 - - 648 682
Mauritius - - - - 674 527 674 527
Ivory Coast 274 244 839 739 - - 1 113 983
Angola 30 35 730 667 - - 760 702
Other 196 150 1 319 1 193 589 567 2 104 1 910
Consolidation (16) (99) (75) (32) (586) (567) (677) (698)
Gross written premium 1 652 1 413 6 337 6 070 677 527 8 666 8 010
Life insurance General insurance Reinsurance Total
Analysis of SAN JV (Saham)'s underwriting 30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017 30 June 2018 30 June 2017
result R million R million R million R million R million R million R million R million
Morocco 62 5 254 126 - - 316 131
Lebanon 2 (1) 2 (1) - - 4 (2)
Mauritius - - - - 290 256 290 256
Ivory Coast (26) (68) 61 48 - - 35 (20)
Angola - (1) 7 (10) - - 7 (11)
Other (43) (38) 72 (39) (36) (155) (7) (232)
Underwriting result (5) (103) 396 124 254 101 645 122
Reviewed at Audited at
30 June 2018 31 December 2017
R million R million
6. Financial assets and liabilities
The group's financial assets are summarised below by measurement category.
Financial assets
Financial assets at fair value through income 22 247 19 736
Loans and receivables
Receivables arising from insurance and reinsurance contracts 4 315 4 279
Loans and receivables excluding insurance receivables 1 006 974
27 568 24 989
Financial liabilities
Financial liabilities at fair value through income 3 662 3 759
Financial liabilities at amortised cost 137 130
Trade and other payables 5 585 4 953
9 384 8 842
Financial instruments measured at fair value on a recurring basis
The table below analyses financial instruments, carried at fair value through income, by valuation method. There were no significant changes in the valuation
methods applied since 31 December 2017. The different levels have been defined as follows:
- Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: Input other than quoted prices included within level 1 that is observable for the asset or liability, either directly (that is, by prices) or
indirectly (that is, derived from prices). The fair value of level 2 instruments are determined as follows:
- Quoted equity securities are valued using quoted prices with the main assumption that quoted prices might require adjustments due to an inactive market.
- Unquoted equity securities are valued using the discounted cash flow (DCF) or net asset value method based on market input.
- Quoted debt securities are valued using yield of benchmark bond, DCF benchmarked against similar instruments with the same issuer, price quotations of JSE
interest rate market or issue price of external valuations based on market input.
- Unquoted debt securities are valued using DCF, real interest rates, benchmark yield plus fixed spread or deposit rates based on market input.
- Quoted unitised investments with underlying equity securities are valued using quoted prices with the main assumption that quoted prices might require
adjustments due to an inactive market.
- Quoted unitised investments with underlying debt securities are valued using DCF, external valuations and published price quotations on the JSE equity and
interest rate market or external valuations that are based on published market input with the main assumptions being market input, uplifted with inflation.
- Derivatives are valued using the Black-Scholes model, net present value of estimated floating costs less the performance of the underlying index over
contract term, DCF (using fixed contract rates and market related variable rates adjusted for credit risk, credit default swap premiums, offset between
strike price and market projected forward value, yield curve of similar market-traded instruments) with the main assumptions being market input, credit
spreads and contract inputs.
- Level 3: Input for the asset or liability that is not based on observable data (that is, unobservable input).
There were no significant transfers between level 1 and level 2 during the current period.
Reviewed at 30 June 2018 Level 1 Level 2 Level 3 Total
Financial assets at fair value through income R million R million R million R million
Equity securities
Quoted
Listed 2 112 18 - 2 130
Irredeemable preference shares 1 - - 1
Unquoted - 34 1 266 1 300
Total equity securities 2 113 52 1 266 3 431
Debt securities
Quoted
Government and other bonds - 4 051 - 4 051
Collateralised securities - 531 - 531
Money market instruments more than one year - 3 252 - 3 252
Unquoted
Government and other bonds - 634 - 634
Money market instruments more than one year - 4 589 - 4 589
Redeemable preference shares - 118 25 143
Total debt securities - 13 175 25 13 200
Unitised investments
Quoted
Underlying equity securities - 1 972 - 1 972
Underlying debt securities - 1 355 - 1 355
Total unitised investments - 3 327 - 3 327
Derivative instruments
Exchange traded futures(1) - - - -
Interest rate swaps - 1 - 1
Total derivative instruments - 1 - 1
Short-term money market instruments - 2 288 - 2 288
Total financial assets at fair value through income 2 113 18 843 1 291 22 247
1 Carrying value as at 30 June 2018 is less than R1 million.
Financial liabilities at fair value through income
Debt securities - 2 049 - 2 049
Investment contracts - 1 613 - 1 613
Total financial liabilities at fair value through income - 3 662 - 3 662
Audited at 31 December 2017 Level 1 Level 2 Level 3 Total
Financial assets at fair value through income R million R million R million R million
Equity securities
Quoted
Listed 2 086 9 - 2 095
Irredeemable preference shares 2 - - 2
Unquoted - 36 1 143 1 179
Total equity securities 2 088 45 1 143 3 276
Debt securities
Quoted
Government and other bonds - 3 776 - 3 776
Collateralised securities - 541 - 541
Money market instruments more than one year - 4 094 - 4 094
Unquoted
Government and other bonds - 184 - 184
Money market instruments more than one year - 3 367 - 3 367
Redeemable preference shares - 157 25 182
Total debt securities - 12 119 25 12 144
Unitised investments
Quoted
Underlying equity securities - 1 765 - 1 765
Underlying debt securities - 369 - 369
Total unitised investments - 2 134 - 2 134
Derivative instruments
Exchange traded futures - 8 - 8
Interest rate swaps(1) - - - -
Total derivative instruments - 8 - 8
Short-term money market instruments - 2 174 - 2 174
Total financial assets at fair value through income 2 088 16 480 1 168 19 736
1 Carrying value as at 31 December 2017 is less than R1 million.
Financial liabilities at fair value through income
Debt securities - 2 056 - 2 056
Investment contracts - 1 703 - 1 703
Total financial liabilities at fair value through income - 3 759 - 3 759
The following table presents the changes in level 3 instruments:
Equity Debt
securities securities Derivatives Total
30 June 2018 (reviewed) R million R million R million R million
Opening balance 1 143 25 - 1 168
Gains recognised in profit or loss 123 - - 123
Closing balance 1 266 25 - 1 291
31 December 2017 (audited)
Opening balance 1 181 29 - 1 210
Acquisitions 2 - - 2
Business combination - (4) - (4)
Disposals (106) - - (106)
Settlements - - 58 58
Gains/(losses) recognised in profit or loss 66 - (58) 8
Closing balance 1 143 25 - 1 168
The unquoted equity instruments recognised as level 3 instruments consist mainly of the participation target shares issued by Sanlam Emerging Markets (Pty) Ltd
(SEM). The Sanlam group entered into agreements in June 2017 to dispose of its various interests in the Enterprise Group in Ghana. In terms of the
co-investment arrangement with SEM, Santam, which had an economic interest of 14% in Enterprise Insurance Company Ltd (EIC), disposed of its interest in EIC
for R105 million.
Of the R123 million gain (Dec 2017: R66 million gain) recognised on equity securities, a R121 million gain (Dec 2017: R65 million gain) relates to the SEM
target shares, of which R66 million (Dec 2017: R57 million loss) relates to foreign exchange gains, and R55 million to an increase (Dec 2017: R122 million)
in fair value in local currency terms. Key drivers of the fair value movements of Santam's share of the SEM investment portfolio were:
- An increase in the value of Shriram General Insurance Company Ltd of R47 million, in local currency terms, was mainly attributed to good performance
achieved in the Indian insurance market.
The fair value of the SEM target shares is determined using predominantly discounted cash flow (DCF) models, with the remainder valued at or within close
proximity of the latest available net asset value of the underlying company. The most significant assumptions used in these DCF models are the discount rate,
exchange rate and net insurance margin expectations. Should the discount rates increase or decrease by 10%, the cumulative value of the most significant
target shares valued by way of DCF models would decrease by R159 million (Dec 2017: R140 million) or increase by R239 million (Dec 2017: R211 million),
respectively. If the relative foreign exchange rates increase or decrease by 10%, the cumulative fair values will increase or decrease by R95 million
(Dec 2017: R86 million). Should the net insurance margin profile (projected over a period of 10 years) increase or decrease by 10%, the cumulative fair values
will increase by R79 million (Dec 2017: R93 million) or decrease by R79 million (Dec 2017: R93 million), respectively. The remaining target shares are mostly
impacted by changes in exchange rates.
At 30 June 2018, the group had exchange traded futures with an exposure value of R0.07 million (Dec 2017: R235 million). The group also had interest rate
derivative assets as part of the international bond portfolio with a gross exposure asset and liability at 30 June 2018 of R37 million (Dec 2017: R33 million)
and R36 million (Dec 2017: R33 million) respectively.
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 tranche 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 was
15 September 2017. Between the optional redemption date and final maturity date of 15 September 2022, a variable interest rate (JIBAR-based plus additional
margin) would have applied. Both tranches were, however, redeemed on 15 September 2017, resulting in the realisation of the initial discount of R45 million.
During April 2016, the company issued additional unsecured subordinated callable notes to the value of R1 billion in two equal tranches of fixed and floating
rate notes. The effective rate for the floating rate notes represents the three-month JIBAR plus 245 basis points, while the rate for the fixed rate notes
amounted to 11.77%. The floating rate notes have an optional redemption date of 12 April 2021 with a final maturity date of 12 April 2026, and the fixed rate
notes an optional redemption date of 12 April 2023 with a final maturity date of 12 April 2028.
During June 2017, the company issued additional unsecured subordinated callable floating rate notes to the value of R1 billion in anticipation of the
redemption of the R1 billion subordinated debt issued in 2007. The effective interest rate for the floating rate notes represents the three-month JIBAR plus
210 basis points. The notes have an optional redemption date of 27 June 2022 with a final maturity date of 27 June 2027.
Per the conditions set by the Prudential Authority, 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 volatility in the statement of comprehensive income. The fair value of the fixed
rate notes is calculated using the yield provided by BESA and adding accrued interest. The fair value of the floating rate notes is calculated using the price
provided by BESA and adding accrued interest.
On 31 July 2017, a zero cost collar structure on equities to the value of R1.2 billion was entered into based on the SWIX 40, providing full downside
protection from the implementation level of 10 972, with upside participation (excluding dividends) of 2.2%. The structure matured on 21 December 2017
(resulting in a realised loss of R58 million) and was not renewed.
Reviewed at Audited at
30 June 2018 31 December 2017
R million R million
7. Insurance liabilities and reinsurance assets
Gross insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 88 75
- claims incurred but not reported 60 62
General insurance contracts
- claims reported and loss adjustment expenses 8 219 8 273
- claims incurred but not reported 2 507 2 310
- unearned premiums 7 706 7 128
Total gross insurance liabilities 18 580 17 848
Non-current liabilities 2 151 1 789
Current liabilities 16 429 16 059
Recoverable from reinsurers
Long-term insurance contracts
- claims reported and loss adjustment expenses 14 18
- claims incurred but not reported 14 15
General insurance contracts
- claims reported and loss adjustment expenses 3 850 3 918
- claims incurred but not reported 602 496
- unearned premiums 1 566 1 377
Total reinsurers' share of insurance liabilities 6 046 5 824
Non-current assets 544 202
Current assets 5 502 5 622
Net insurance liabilities
Long-term insurance contracts
- claims reported and loss adjustment expenses 74 57
- claims incurred but not reported 46 47
General insurance contracts
- claims reported and loss adjustment expenses 4 369 4 355
- claims incurred but not reported 1 905 1 814
- unearned premiums 6 140 5 751
Total net insurance liabilities 12 534 12 024
Reviewed at Audited at
30 June 2018 31 December 2017
R million R million
8. Non-current assets held for sale
Non-current assets held for sale relates to the winding up of the Santam International group. The winding up also resulted in the release of the foreign
currency translation reserve relating to the investment of R175 million (refer to note 9).
Assets that are classified as held for sale
Financial assets at fair value through income
Opening balance - 8
Settlements - (8)
Closing balance - -
Reviewed Reviewed
Six months ended Six months ended
30 June 2018 30 June 2017
R million R million
9. Investment income and net (losses)/gains on financial assets and liabilities
Investment income 1 001 590
Interest income derived from assets measured at 723 606
Amortised cost 103 63
Fair value through income 620 543
Other investment income/(losses) 278 (16)
Dividend income 85 37
Foreign exchange differences 193 (53)
Net (losses)/gains on financial assets and liabilities at fair value through income (140) 153
Net realised gains on financial assets 65 21
Net fair value (losses)/gains on financial assets designated as at fair value through income (204) 143
Net realised/fair value (losses)/gains on derivative instruments (3) 5
Net fair value losses on short-term money market instruments - (2)
Net fair value losses on financial liabilities designated as at fair value through income 2 (14)
Net fair value gains/(losses) on debt securities 6 (14)
Net realised losses on investment contracts (6) -
Net realised gains on debt securities 2 -
Investment income and net losses on financial assets held for sale(1) - 175
Foreign exchange differences - 175
861 918
1 The release of the foreign currency translation reserve of R175 million for the group related to Santam International.
10. Income tax
Normal taxation
Current period 393 118
Recovered from cell owners(1) - (41)
Other taxes 1 -
Foreign taxation - current period 33 28
Total income taxation for the period 427 105
Deferred taxation
Current period 17 121
Prior period - (2)
Total deferred taxation for the period 17 119
Total taxation as per statement of comprehensive income 444 224
Income tax recovered from cell owners and structured insurance products(1) (44) -
Total tax expense attributable to shareholders 400 224
Profit before taxation per statement of comprehensive income 1 626 1 032
Adjustment for income tax recovered from cell owners and structured insurance products(1) (44) -
Total profit before tax atttributable to shareholders 1 582 1 032
1 As part of the alternative risk transfer business, the Santam Group incurs taxation on behalf of cell owners and policyholders of certain structured
insurance products which are fully recovered from these parties. With the acquisition of SSI in the 2017 financial year, the tax on cell owners and
structured insurance products is more significant. As a result, the tax on cell owners and structured insurance products in the current period has been
separately disclosed in the financial statements. In the prior periods, this tax was disclosed as part of tax expense.
Reviewed Reviewed
Six months ended Six months ended
30 June 2018 30 June 2017
R million R million
Reconciliation of taxation rate (%)
Normal South African taxation rate 28.0 28.0
Adjusted for:
Disallowable expenses 0.1 0.2
Foreign tax differential 0.2 0.4
Exempt income (1.3) (1.3)
Investment results - (1.3)
Income from associates and joint ventures (1.4) (1.9)
Exempt foreign currency translation - (2.3)
Other permanent differences (0.3) (0.2)
Other taxes - 0.1
Net reduction (2.7) (6.3)
Effective rate attributable to shareholders (%) 25.3 21.7
11. Corporate transactions
2018
Acquisitions
Professional Provident Society Short-term Insurance Company Ltd (PST)
During March and June 2018, pro rata recapitalisations took place in terms of which Santam injected a further total of R11 million into the company.
2017
Acquisitions
Santam Structured Insurance (Pty) Ltd
During March 2017, the Santam group acquired a shareholding of 100% in RMB-SI Investments (Pty) Ltd (now Santam Structured Insurance (Pty) Ltd (SSI)) for
R193 million in cash. Key SSI management obtained a 10% economic participation interest in SSI at the acquisition date for R20 million. The 10% participatory
interest is included as a liability under provisions.
R million
Details of the assets and liabilities acquired (based on provisional purchase price allocation) are as follows:
Property and equipment 15
Investment in associates and joint ventures 17
Financial assets at fair value through income 4 341
Reinsurance assets 391
Deferred acquisition costs 9
Loans and receivables including insurance receivables 519
Cash and cash equivalents 1 045
Deferred income tax (86)
Cell owners' and policyholders' interest (1 849)
Financial liabilities at fair value through income (1 551)
Insurance liabilities (2 242)
Deferred reinsurance acquisition revenue (2)
Provisions for other liabilities and charges (30)
Trade and other payables including insurance payables (350)
Current income tax liabilities (14)
Net asset value acquired 213
Long-term incentive provision (20)
Purchase consideration paid 193
SAN JV (RF) (Pty) Ltd
Effective 10 May 2017, SEM and Santam, through its investment in SAN JV (RF) (Pty) Ltd (SAN JV), acquired a further 16.6% interest in Saham Finances via a
subscription for new shares for US$351 million (R4.8 billion). Santam's share of the purchase price, including transaction costs, was US$11 million
(R152 million). Santam's interest in SAN JV therefore diluted to 15% (previously 25%). As a result of the dilution, R90 million of the foreign currency
translation reserve relating to SAN JV was released to profit or loss. An R18 million gain on dilution was also recognised.
Professional Provident Society Short-term Insurance Company Ltd (PST)
During March, June, September and December 2017, pro rata recapitalisations took place in terms of which Santam injected a further total of R23 million into
the company.
Disposals
Paladin Underwriting Managers (Pty) Ltd
During January 2017, the group sold its 40% shareholding in Paladin Underwriting Managers (Pty) Ltd for R23 million. The net profit realised was R5 million
and capital gains tax of R2 million was recognised.
Reviewed Reviewed
Six months ended Six months ended
30 June 2018 30 June 2017
12. Earnings per share
Basic earnings per share
Profit attributable to the company's equity holders (R million) 1 124 753
Weighted average number of ordinary shares in issue (million) 110.38 110.26
Earnings per share (cents) 1 018 683
Diluted earnings per share
Profit attributable to the company's equity holders (R million) 1 124 753
Weighted average number of ordinary shares in issue (million) 110.38 110.26
Adjusted for share options 1.07 1.02
Weighted average number of ordinary shares for diluted earnings per share (million) 111.45 111.28
Diluted basic earnings per share (cents) 1 009 677
Headline earnings per share
Profit attributable to the company's equity holders (R million) 1 124 753
Adjusted for:
Impairment of goodwill and other intangible assets - 7
Reclassification of foreign currency translation reserve on dilution of associate - 90
Gain on dilution of associate - (18)
Profit on sale of associates - (5)
Tax charge on profit on sale of associates - 2
Foreign currency translation reserve reclassified to profit and loss - (175)
Headline earnings (R million) 1 124 654
Weighted average number of ordinary shares in issue (million) 110.38 110.26
Headline earnings per share (cents) 1 018 593
Diluted headline earnings per share
Headline earnings (R million) 1 124 654
Weighted average number of ordinary shares for diluted headline earnings per share (million) 111.45 111.28
Diluted headline earnings per share (cents) 1 009 588
13. Dividend per share
Dividend per share (cents) 363 336
14. Restatement of statement of cash flows
As part of management's consideration of the impact of IFRS 9 on the classification and measurement of financial assets, the way in which the investment
portfolios are managed and how actively they are traded was assessed. As a result of this assessment it was concluded that it is more appropriate to classify
the cash flows relating to the investment portfolios as part of operating activities rather than investing activities. The acquisition of and proceeds from
sales relating to strategic investments, equity portfolios and portfolios backing subordinated debt will remain as part of investing activities as these
portfolios are not considered part of the operations of the business. Comparative numbers have been restated.
The table below shows the impact of the change:
Previously reported Restated
Six months ended Restatement Six months ended
30 June 2017 30 June 2017 30 June 2017
R million R million R million
Net cash (used in)/from operating activities
- Acquisition of financial assets - (7 706) (7 706)
- Proceeds from sale of financial assets - 6 649 6 649
Net cash (used in)/from investing activities
- Acquisition of financial assets (7 774) 7 706 (68)
- Proceeds from sale of financial assets 6 799 (6 649) 150
Net impact (975) - (975)
15. Events after the reporting period
The Santam Board announced on 30 August 2018, Santam’s intention to participate in a transaction with Sanlam to increase its effective interest in Saham Finances
to 10% by subscribing for further shares in SAN JV to the extent of R864 million, plus its share of transaction costs. Post implementation of the transaction,
Santam’s effective interest in Saham Finances, held indirectly through SAN JV, will increase from 7% to 10%.
Santam will fund its share of the purchase consideration and transaction costs from available internal resources.
Santam, Sanlam and SEM have in principle reached an agreement for Santam to reduce over time its economic participation in the SEM general insurance businesses
in Africa (excluding Namibia) from 35% to 10% to align with the effective 10% interest that Santam will have in Saham Finances.
The transaction is subject to a number of conditions precedent, including regulatory approvals.
There have been no other material changes in the affairs or financial position of the company and its subsidiaries since the statement of financial position date.
ADMINISTRATION
NON-EXECUTIVE DIRECTORS
B Campbell, BTPKM Gamedze, VP Khanyile (chairman), IM Kirk, MLD Marole, NV Mtetwa, JJ Ngulube, MJ Reyneke, PE Speckmann, HC Werth
EXECUTIVE DIRECTORS
L Lambrechts (chief executive officer), HD Nel (chief financial officer)
COMPANY SECRETARY
M Allie
TRANSFER SECRETARIES
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue, Rosebank 2196
PO Box 61051, Marshalltown 2107
Tel: 011 370 5000
Fax: 011 688 7721
www.computershare.com
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
Registration number 1918/001680/06
ISIN ZAE000093779
JSE share code: SNT
NSX share code: SNM
SPONSOR
Investec Bank Ltd
Santam is an authorised financial services provider (licence number 3416).
Date: 30/08/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
