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December 2014

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December 2014 Non-executive directors Santam head office and registered address B Campbell, MD Dunn, MP Fandeso, T Fubu, 1 Sportica Crescent BTPKM Gamedze, GG Gelink (Chairman), Tyger Valley IM Kirk, MLD Marole, MJ Reyneke, Bellville 7530 JP Möller, J van Zyl PO Box 3881, Tyger Valley 7536 Tel: 021 915 7000 Executive directors Fax: 021 914 0700 L Lambrechts (Chief Executive Officer), www.santam.co.za HD Nel (Chief Financial Officer), Y Ramiah Registration number 1918/001680/06 ISIN ZAE000093779 Company secretary JSE share code: SNT M Allie NSX share code: SNM Transfer secretaries Sponsor Computershare Investor Services (Pty) Ltd Investec Bank Ltd 70 Marshall Street, Johannesburg 2001 PO Box 61051, Marshalltown 2107 Tel: 011 370 5000 Fax: 011 688 7721 www.computershare.com Table of contents 4 Market context 8 Financial results 32 Capital management 38 Group strategy and priorities 43 Audited summary report for Santam Ltd and its subsidiaries for the year ended 31 December 2014 PRESENTATION TO ANALYSTS SANTAM LTD AND ITS SUBSIDIARIES Audited summary report for the year ended 31 December 2014 1 ANALYST PRESENTATION FINANCIAL RESULTS FOR THE YEAR ENDED 31 December 2014 Presented by Lizé Lambrechts and Hennie Nel 03 March 2015 CONTENT • Market context • Financial results • Capital management • Group strategy and priorities GENE 2 3 MARKET CONTEXT MARKET CONTEXT: KEY THEMES 2014 STRATEGY PROCESSES • Profitable growth remains a major challenge in more developed markets • Emerging markets continue to show positive prospects Outside • Persistently low level of trust – client centricity is key South Africa • Regulatory advancement is here to stay • Technological advancement presenting new risks and opportunities oUSI • Subdued outlook for economic growth, coupled with socio-economic challenges • Intense competition - continued competitive rates, pressure on profitability • Several fundamental changes in regulations South Africa • Real impact of increasing risks on the ground • Skills and transformation challenge • System and process efficiency remains an imperative 4 5 MARKET CONTEXT: KEY THEMES • Profitable growth remains a major challenge in more developed markets • Emerging markets continue to show positive prospects Outside Persistently low level of trust – client centricity is key South Africa • • Regulatory advancement is here to stay • Technological advancement presenting new risks and opportunities oU • Subdued outlook for economic growth, coupled with socio-economic challenges • Intense competition - continued competitive rates, pressure on profitability • Several fundamental changes in regulations South Africa • Real impact of increasing risks on the ground • Skills and transformation challenge • System and process efficiency remains an imperative RELATIVE PERFORMANCE NET WRITTEN PREMIUM GROWTH 25 20 15 GENE Santam: 10 12% 7.6% 7% 5 Industry* (typical insurers): 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1H FY2014 2014 *Typical insurers NWP GDP + CPI Santam NWP (excl. cells & ART QS) *Source: FSB – latest report = 1H 2014 * Industry figure adjusted to include the ART Quota Share 6 7 SANTAM 2014 – KEY FACTS • Gross written premium growth: – 10% including cell insurance – 12% excluding cell insurance • Underwriting margin of 8.7% • Headline earnings increased by 40% • Solvency ratio of 46% • Return on shareholders funds of 24.7% • Positive contribution from international strategic diversification • Dividends of 742 cents per share, up 9.9% FINANCIAL RESULTS 8 9 MAIN VARIANCES 2014 vs. 2013 2 700 2 327 2 200 1 651 1 700 1 579 1 494 1 473 GENE1 200 1 120 1 178 million R 710 700 477 543 425 374 200 U/Writing result Investment Investment Income before Tax Earnings Headline -300 return on income tax Earnings insurance funds (300) 2014 2013 -800 (660) Non-headline impairment: Indwe – R69 million NET INSURANCE RESULT 2014 % of 2013 % of 2014/ 5Y 10Y R'm NEP R'm NEP 2013 ave % ave % Gross written premium 22 710 20 631 10% 9 8 Net earned premium 17 222 100.0 16 750 100.0 3% 100.0 100.0 Claims incurred 10 878 63.1 11 607 69.3 (6%) 65.9 67.1 Acquisition costs 4 850 28.2 4 666 27.9 4% 27.7 26.6 Underwriting surplus 1 494 8.7 477 2.8 214% 6.4 6.3 Investment return on 425 2.5 374 2.2 14% 2.6 2.9 insurance funds Net insurance result 1 919 11.2 851 5.0 126% 9.0 9.2 Combined ratio 91.3 97.2 93.6 93.7 10 11 NORMALISED UNDERWRITING MARGIN 2014 2013 Underwriting margin achieved 8.7% 2.8% ImpactGENE of ART Quota Share reinsurance arrangement (0.5%) N/A Impact of crop results normalisation (1.3%) 1.0% Adjusted margin 6.9% 3.8% 2014 ANALYSIS: FIRST VERSUS SECOND HALF FIRST HALF SECOND HALF FULL YEAR 2014 Net earned premium 100.0 100.0 100.0 Claims incurred 64.4 61.9 63.1 Acquisition cost 28.2 28.1 28.2 Underwriting margin 7.4 10.0 8.7 Investment return on insurance funds 2.6 2.3 2.5 Net insurance margin 10.1 12.3 11.2 Adjusted underwriting margin normalised for crop underwriting 5.1 8.8 6.9 and ART QS 12 13 2014 PERFORMANCE: FIRST VERSUS SECOND HALF NET UNDERWRITING RESULT 1 494 GENE 866 R million 628 477 375 102 First half Second half Full year 2014 2013 GROSS WRITTEN PREMIUM PER INSURANCE CLASS (R MILLION) Guarantee 22 43 2014 2103 Miscellaneous 53 47 Investment contract premium 350 Accident and Health 316 Transportation 734 540 Crop 1 044 831 Engineering 1 127 1 010 Liability 1 246 1 194 284 ART 1 953 1 931 422 6 552 Property 5 832 Motor 9 629 8 887 0 2 000 4 000 6 000 8 000 10 000 14 15 NET UNDERWRITING SURPLUS PER INSURANCE CLASS (R MILLION) Guarantee 0 11 2014 2013 Miscellaneous 5 2 49 Accident and Health 50 Transportation 40 28 Crop 251 (142) Engineering 169 210 Liability 220 119 ART 15 2 221 Property (2) Motor 524 199 -200 -100 0 100 200 300 400 500 600 UNDERWRITING SURPLUS: FIRST VERSUS SECOND HALF PER INSURANCE CLASS (R MILLION) Guarantee 2 (2) 1H 2014 2H 2014 Miscellaneous 1 4 (3) Accident and Health 52 GENE Transportation 31 9 Crop 187 64 Engineering 69 100 Liability 119 101 (13) ART 28 36 Property 185 Motor 199 325 -100 0 100 200 300 16 17 SEGMENTAL ANALYSIS GROSS WRITTEN PREMIUM ― PERSONAL, COMMERCIAL AND ART 14 000 12 298 12 000 10 697 10 000 8 459 8 003 GENE 8 000 6 000 R millionR 4 000 284 422 2 000 1 953 1 931 0 Personal Commercial ART 2014 2013 Investment contract premium SEGMENTAL ANALYSIS NET UNDERWRITING RESULT ― PERSONAL, COMMERCIAL AND ART 1 400 1 177 1 200 1 000 GENE 800 million 600 R 520 400 302 200 66 51 15 2 0 Personal Commercial ART ART profit before tax (45) -200 2014 2103 Included in the results are strategic project costs of: Personal R69m (2013: R97m) and Commercial R104m (2013: R132m) 18 19 ACQUISITION COST RATIO AS % OF NET EARNED PREMIUM 30 28.5 27.3 28.1 27.7 27.9 28.2 25.8 0.8 1.0 1.0 25.2 0.9 1.2 1.4 25 0.8 0.9 11.1 13.6 20 13.5 15.4 10.1 10.0 13.8 16.3 15 Percentage 10 14.9 15.3 14.3 13.7 13.0 12.7 12.1 5 10.9 0 2008 2009 2010 2011 2012 2013 2014 2014 excl ART QS Commission Management expenses Strategic projects LEVEL OF REINSURANCE EARNED PREMIUM AS % OF GROSS EARNED PREMIUM 22.2 18.0 18.3 17.8 Percentage 17.4 16.8 16.0 14.8 14.9 13.7 11.0 11.8 8.6 9.0 5.9 5.2 2008 2009 2010 2011 2012 2013 2014 2014 excl ART QS Group Excl. cells 20 21 NET INSURANCE RESULT AS % OF NET EARNED PREMIUM 20 18 16 14 11.5 GENE12 11.0 11.2 10.3 10.5 10 2.9 2.5 Percentage 2.6 2.3 4.6 8 6.9 6.6 6 5.0 3.3 2.6 8.6 8.7 4 7.7 2.2 8.2 6.4 2 3.6 4.0 2.8 0 2008 2009 2010 2011 2012 2013 2014 2014 excl ART QS Underwriting Float income SIZE OF INSURANCE FUNDS 8 000 7 000 6 774 6 449 6 266 6 000 5 515 5 483 5 000 4 634 GENE 3 994 million 4 000 R 3 000 2 000 1 000 0 2008 2009 2010 2011 2012 2013 2014 Group float excl. Centriq 22 23 INSURANCE FUNDS AS % OF GROSS EARNED PREMIUM 40.0 37.1 35.6 35.9 35.4 32.7 33.5 Percentage 2008 2009 2010 2011 2012 2013 2014 INVESTMENT RETURN 1 350 1 036 968 92 1 150 51 71 950 114 654 750 286 GENEmillion 550 R 350 591 443 150 -50 (93) (204) -250 2014 2013 Net Interest and dividends MV movements SEM MV movements and dividends Fence Forex gains 24 25 ASSET / LIABILITY MATCHING GROUP CONSOLIDATED ASSETS AT 31 DECEMBER 2014 100% 2.7 6.0 14.9 90% 4.5 80% 11.4 17.5 49.9 54.8 70% GENE60% 43.5 50% 97.3 100.0 44.8 40% 30% 50.1 45.2 20% 18.0 27.2 10% 12.2 0% - Insurance funds Centriq float Cell owners Sub debt SH funds Total Cash and money market Interest bearing instruments Equities SEM Other assets ASSET ALLOCATION GROUP CONSOLIDATED INVESTMENTS AT 31 DECEMBER 2014 (IFRS VIEW) SANTAM SA CENTRIQ INTERNATIONAL GROUP TOTAL Equities ― unhedged 22% 1% - 18% SEM 6% - - 5% Interest bearing 41% 70% - 44% instruments Cash and money 24% 28% 75% 27% market Other assets 7% 1% 25% 6% Total 100% 100% 100% 100% NOTE: In February 2015 a zero cost fence structure was entered into over listed equities of R1.3 billion based on the SWIX40 providing 10% downside protection from the implementation level of 10 443, with a capped return (excluding dividends) of 110.9% and maturity date of 17 December 2015.
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