Africa-Press – South-Africa. South Africa’s largest short-term insurer, Santam, has warned that general inflation in the country will likely rise amidst global political tensions and a weaker rand exchange rate.
In a recent update, Santam provided shareholders with an overview of its operational performance for the three months ending 31 March 2025.
This update revealed that Santam is set to continue its winning streak, with the insurance giant set to deliver another strong set of results.
Santam reported that it exceeded its longer-term targets for all key financial performance indicators in three months.
The company saw double-digit growth in gross written premiums, an underwriting margin above the upper end of the 5% to 10% target range and annualised return on capital in excess of 30%.
However, the company also noted that these results came despite South Africa’s challenging trading environment.
Santam reported that low economic growth and pressure on personal disposable income continued to dampen its growth prospects in the country.
This was aggravated by the persistent deployment of insurance capacity in specific lines of specialist business at unsustainable rates.
In addition, the insurer said emerging global geopolitical tensions suppressed business and consumer confidence.
Santam explained that global markets were gripped by a sharp increase in geopolitical and economic risk since the end of the first quarter.
These risks were fuelled by the United States’ substantial increase in import tariffs, which was met by reciprocal responses.
“Volatility indices rose as markets tried to price in the potential second-order effects on global trade, economic growth and inflation,” Santam explained.
While the insurer’s balance sheet remains resilient and weathered the investment market volatility during April very well, it warned that the current global political tensions enhance the risk of supply chain disruptions.
This, together with a weaker rand exchange rate, can contribute to higher claims inflation and a commensurate negative impact on underwriting results.
“Under these conditions, general inflation will likely rise in South Africa, eroding consumer disposable income and growth conditions,” the insurer said.
Santam set to weather the storm
Amidst these difficult conditions and prospects, Santam said it would monitor conditions as they unfold but take proactive measures to mitigate against the potential headwinds.
“These include increased focus on diligent expense management and accelerating strategic growth initiatives through our direct and partnership channels in South Africa and our international growth pillar,” it said.
In addition, the insurer said the recent finalisation of its transaction with MultiChoice, which saw Santam acquire MultiChoice’s insurance business, has added a substantial customer base, further enhancing its growth potential.
Positively, Santam reported that it did not experience any notable claims from the recent wildfires in Cape Town.
However, it warned that its conventional insurance underwriting performance for the remainder of the year remains susceptible to adverse weather-related and other significant loss experience.
The company’s investment business is also set for a rocky year, as the investment market is expected to remain volatile and uncertain.
Santam warned that this could impact the investment return earned on insurance funds and the shareholder capital portfolio.
In addition, it said the company’s strong financial performance in the second half of the 2024 financial year furthermore sets a high comparative base.
“These, together with the potential second-order effects of geopolitical tension on inflation and disposable income, may impact earnings growth for the full year,” the insurer warned.
However, Santam reassured shareholders that the strength of its client and intermediary relationships and its superior distribution footprint positions the company well to maintain a solid financial performance amidst this uncertain operational environment.
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