Santam Ltd (SNT) Earnings Call Transcript & Summary

Good morning, and welcome to Santam Group Interim Results. My name is Thabiso Rulashe, the Head of Strategy and Investor Relations. Thank you for joining us this morning. With us joined as well on the call, we have our executive members and Board members and our investors as well. Today, I'm joined by our Group Chief Executive -- Chief Executive, Tavaziva Madzinga; and as well as our CFO, Wikus Olivier. The order of events today, our group CEO, Tava Madzinga will take us through the operating context and as well we'll do a recap of our strategy. And thereafter, Wikus Olivier, our CFO, will come and give some further details on the numbers. Then Tava will come back to close the session. After that, we'll have an opportunity for Q&A, which I'll come back to facilitate that session. I will now hand over to Tava to take us through the operating context and the strategy. Thank you so much.

Good morning, everyone, and welcome to our interim financial results for the first half of the year. It's a real pleasure to be with you this morning. I'm joined by our new CFO, Wikus Olivier and Thabiso Rulashe, our Head of Strategy and Investor Relations. Let me take this opportunity right upfront to thank our outgoing CFO, Hennie Nel, who joined the Santam Group on the 1st of July. So a very big thank you for Hennie for all your support over the years. And so ladies and gentlemen, we will take you through the operating environment, give you some context to what's driving our results for the first half of the year, touch a little bit on the strategic outlook and the strategic shifts that we are making for the foreseeable horizon. And so maybe just jumping straight into it and giving you some of the high-level key messages. The underwriting performance improved over the first half of the year, and we've also seen a significant improvement in the investment result. And so that's meant that our earnings are significantly up on the first half of the year. And so we're quite pleased about that. But I think it's also important to say that we've also seen a significant improvement in the underwriting result, a good turnaround in the motor book and the load shedding or rather the power surge claims have become quite negligible in this reporting period. We are still seeing the impact of weather creating drag on our result. But I think for the first half of the year, significant turnaround in the underwriting performance compared to the first half of the year last year. Despite a very difficult macro environment, we are responding both at a tactical level and also at a strategic level. And so at the beginning of this year, we refreshed our strategy and we're starting to see the early benefits of that strategy refresh. We've also strengthened our management team. We've also embedded our new operating model and that's really in response to ensuring that the group remains relevant into the foreseeable future, responding to our customer needs and changes in technology. And then I think looking briefly for the rest of the year is that it is clear that the macro environment will remain challenged for quite some time, but we do believe that underwriting actions that we are taking do allow us to remain profitable and to be able to maintain our margin within the underwriting range into the second half of the year. On the growth side, we have launched our new campaign within my way, and we believe that, that should start to take root in the second half of the year. We also expect the SAN JV Allianz transaction to close imminently. And we expect this to create discretionary excess capital on our balance sheet and this is our intention to distribute this to shareholders as soon as it's practically possible. So then just moving on to the environment and just to give some context around that, I think it is fair to say that the environment remains challenged. We are certainly not in the eye of the perfect storm that we saw last year but we are seeing increased global uncertainty. And to highlight 2 factors is that we see increased interest rates, which is a double-edged sword. It does create pressure on our customers and clients and affordability does become an issue, but it does create increased investment performance, particularly on our insurance funds and shareholder funds. The SA environment certainly does remain very, very difficult with a very weak SA economic growth outlook. And we're also seeing challenges within the infrastructure environment. But I think for us, as the Santam business, we do believe that we are able to navigate this difficult macroeconomic environment. We believe that we have the scale to allow us to manage this environment. We have superior underwriting and the use of data and technology should allow us to navigate a much, much more difficult macro environment in South Africa. At the global level, I think the effect of weather-related events and the NatCat events that we are seeing globally is certainly not letting up. We are into another year where we're seeing at a global level economic losses at the half year that already exceed USD 100 billion. And so what it does mean for us is that we can expect that the hard market will continue for some time. We expect the reinsurance rates to remain elevated but not at the same levels as we saw at the beginning of last year. And I think for us, it does mean we can expect to see tightening of terms, increase in terms of retention cover. And so for us, this again is a double-edged sword, so the hardening market is certainly good for reinsurance or the reinsurance part of our business, but it does make reinsurance a little bit more expensive and needing to having to manage that into the future. And I think this for us remains an area of concern, and we do believe that we should be able to manage this by managing our property portfolio a little bit more acutely. And then I think just talking a little bit about our strategy. We have said that it is important for us in a very difficult macro to respond in the short term, tactically, as you've seen with our underwriting actions and we've seen the success and the early fruit of the turnaround in the motor book and the power surge claims significantly curtailing in this first half of the year. But at a strategic perspective, we have refreshed our strategy from the beginning of the year. And the real intention here is to keep the Santam business successful and relevant into the future. We are seeing a shift in the environment around us, the use of technology, the use of AI. We're also seeing a shift in how customers and consumers do want us to reach them and the nature and the type of products that they would like. And so our first priority around driving growth is ensuring that we remain dominant and strong in our core home market here in South Africa. And so it is every intention to strengthen our leadership position, and we've shifted to a multichannel model, which really gives life and strengthens our leadership position in South Africa. We do expect our broker channel to remain dominant for the foreseeable future. But given the evolving needs of our customers, we move to our multichannel in order to scale up on our non-intermediated channels of our business. Our second priority is really around continuing with our international expansion and diversification. We plan and continue to leverage the SPA Allianz relationship into the rest of Africa, and there are early indications that, that is showing signs of success. We are also in an increasingly hard market, so our specialist capability and reinsurance capability does give us diversified growth outside of South Africa with the tailwind of our hardening insurance and commercial market in the global space. The third priority for us from a growth perspective is to use our network of partnerships such as the Santam Group, the MTN to acquire and to access customers that we traditionally have not served at a much lower price point with lower acquisition cost. And we believe that this play allows us to expand our capabilities into adjacencies using our scale to reach these particular customers. And so we're quite excited about what we can do in the partnerships space. And similarly, again, our partnership with MTN is a good example of being able to use alternative distribution to reach new types of customers. All of this clearly needs to be underpinned by the use of data, modernizing our IT capabilities in order to enhance our customer offering to our clients. And so at the beginning of the year, we restructured our business into 6 client-facing segments. At the top of it, what is important for us is to ensure that our client experience is superior and above the industry standard. And so we set ourselves very ambitious targets around the quality of servicing that we deliver from the Santam business. Our 6 operating segments ensure diversity across channel and allows us to reach different customer segments. As I've mentioned, the Broker Solutions still remains the dominant part of our business, and we see this continuing to remain a critical part of driving our business forward into the future. We have, however, created 2 critical segments, which is our Client Solutions business, which offers an end-to-end omnichannel experience for customers that want to engage with us directly; our Partner Solutions business, which encompasses our ART businesses allows us to use our licenses with alternative partners, as I've mentioned, to reach different types of customers at slightly different price points using technology. Our Santam's International business and Specialist Solutions business remain critical to our international expansions. And as I've mentioned, we have tailwinds with the hardening market, and we believe that these 2 business units provide good diversification to the rest of our business. We remain committed to our MiWay business, which really allows us to tap into first-time buyers and emerging market within South Africa. We are quite excited about the changes that we've made within our MiWay business starting from the 1st of July, where we have introduced an inbound and commercial approach to attracting customers within that business. And so we expect greater visibility of our MiWay business going head to head with some of the other competitors in this particular space. And across our businesses, we are quite clear that it is important for us to continue to run our business a lot better, a lot more efficiently. And so we brought all our shared services, our procurement, our IT environment, our people services into a single consolidated shared services environment. And the intention behind that is to allow our business to run at a much more higher level of cost efficiency going to the foreseeable future. And so we believe that this gives some momentum and some life to our strategy moving forward. In terms of just our long-term targets, we believe that both the tactical actions we've taken and the strategic shift that we've made in our business allows us to continue to meet our publicly stated targets into the future around growth. We believe that over time, the new strategy should allow us to shift up and operate towards the upper end of our underwriting margin. We're quite keen on ensuring diversification both locally and internationally. And so we do watch the amount of business that we write outside of South Africa, and we are also looking at the quantum of business that is non-intermediated and so it is our intention to grow that and to diversify our dominant broker channel business. We are also keeping an eye on nonfinancial metrics that we believe allow us to add value to the business with an acute and clear focus around customer experience, setting ourselves very ambitious targets above the industry average in terms of how we service and deal with our customers. We believe that the business must continue to grow. Our new partnerships model allows us to acquire new customers. And so we are quite focused on growing the business and adding customers to the Santam Group. And then I think for us, ESG remains important. The environment is a clear priority for us. The social context within South Africa remains very important for us. And then we intend to keep our dominance because we believe that scale does give us a significant competitive advantage within our market. And then just coming back briefly to the performance for the first half of the year. I think growth is acceptable at 7% in a very difficult macroeconomic environment. We've been very clear that we are focused on profitable growth. And so we have taken measures to prune nonprofitable parts of our portfolios, particularly in the international Santam Re business, where we saw loss-making business coming through within our Santam Re business. Our earnings are, in our view, acceptable with a 3.8% underwriting margin on an IFRS 17 basis, up from the 2022 base of 3%, disappointing the outside of our target range but we do know that there is cyclicality within our business. And so we do expect the second half of the year certainly to be better than the first half of the year. The ART business is performing very well and strong within this environment and very pleased about our return on capital significantly up at 24%. The financial strength of the group remains slightly above the midpoint range and so that does give us comfort to declare a dividend of ZAR 4.95, a progressive dividend up on last year. We continue to watch, and as I've mentioned, key value drivers for us, the non-intermediated size of our groceries and premiums. We do expect some volatility in this over the course of the next few years. But it is our intention that this should, over time, increase both in the international space and the non-intermediate measure of gross written premiums. So our results overall on the positives, strong turnaround in the motor book of very clear specific underwriting actions, meticulous attention to detail, working with our brokers and underwriters, addressing motor thefts, increasing the tracking devices within high risk and in high-risk vehicles that were subject to a lot of theft last year this time. Power surge is largely under control, and we do believe that Power surge is insurable. It's a systemic loss from wide grid failure that we are fundamentally concerned about. The diversification from our specialist business has given a good boost to our underwriting performance for the first half of the year. And then the investment performance has certainly given us a good uplift. On the downside, we've seen, as I've said, weather losses and large fire losses coming through in our book. But I think we do fundamentally believe that those are manageable, and we will be paying closer attention to the property book of our business in the second half of the year. And so that's a little bit of a summary of our performance for the first half of the year. I'll now hand over to Wikus to give us a lot more detail underlying the results.

Thank you very much, Tava and a warm welcome from me as well. It's a pleasure to present our 2023 interim results to you this morning. So starting off with a change in accounting treatment during the period where we introduced a new IFRS 17 accounting standard for the first time. But as expected, not a significant impact on our results with the first half of this year, benefiting from a 0.5% uplift in our underwriting margin, with a similar impact on the comparable period in 2022. The biggest part of the financial impact comes from the treatment of the reinsurance costs relating to risk attaching reinsurance contracts. But otherwise, it essentially just a shift of items within the different components of the underwriting margin. Our ART businesses, similarly, no material impact on the earnings for the period. Looking at the results overall, I think in the context of a difficult economic environment and also facing a number of natural events in the first half of this year, really a soft performance with good top line growth, but then also an improvement in all of our key performance indicators. Underwriting margin, increasing from 3% to 3.8%, with a net insurance margin almost doubling to 6%. And the return on capital, which is also a key performance indicator for us, essentially doubling from the first half of last year. So just going into some detail from business volumes, our top line perspective. For the first half of this year, growth of 6.7% in our GWP with a welcome turnaround from a number of periods where we didn't outperform the normal economic growth. So we're sitting at, as I just mentioned, the 6.7% compared to a 5.6% growth in GDP plus inflation. As Tava also mentioned, if we strip out the impact of the canceled business, we did achieve growth of 12% with a very strong contribution from the Specialist Solutions businesses across engineering, marine and as well as the property class. Also quite pleasing is that where we had to put through segmented premium increases. These are holding up with our persistency also remaining within expectations. One of the areas where we are seeing some pressure is within the MiWay business, where the impact on the consumer is reflecting in quite muted growth from MiWay. Looking at from an insurance class perspective, very strong growth from all of the major lines of business, with the motor book growing by 2%. But again, if I eliminate the impact of the canceled business, the motor book also grew by 8%. The property class with growth of 7%, reflecting really strong growth from the Specialist Solutions businesses, MiWay and Broker Solutions, but to some extent, offset by a reduction in exposure within the Santam Re portfolio. The engineering line grew by 20%, with most of that growth actually coming from outside of South Africa, which talks to our diversification strategy and the benefits of that coming through within our results. Looking at the business that we're writing outside of South Africa, in total, increasing by 2% with the decline of 10% in other international solely coming from the cancellation of the unprofitable business. Very pleasing is actually the Rest of Africa results, up 38% with the growth from our partnership with Saham across the continent, up by almost 50% with that being a key focus area for us also going forward. Looking at the reinsurance costs. We have seen a substantial increase in our reinsurance cost, up by 78% since 2019 to more than ZAR 700 million, and this is really the result of a number of catastrophe losses that we've experienced over the last number of years. And this is despite our retention actually increasing from ZAR 150 million to just more than ZAR 500 million for the SA book with Santam Re still being protected against claims about [ ZAR 150 million ] level. The growth in our overall book did however allow us to manage this increase in the cost with reinsurance still being maintained at around the 20% level. Moving over to earnings, more than doubling in the net income for the period with really strong growth coming through across all of the major lines of business. I'll go into a little bit more detail on the net insurance result in ART in later slides. Maybe just 2 comments on the investment return on capital, which is up from ZAR 129 million to more than ZAR 700 million in the current period. Included in the credit period, is the benefits from the weaker rand with some ZAR 300 million of ForEx gains included in that number and also almost ZAR 300 million benefit from the revaluation of our investment in Shriram General Insurance in India. From a conventional insurance perspective, as I mentioned, underwriting result, up from 3% to 3.8% margin in the current period. Some improvement coming through on the claims incurred lines with the comparable period, including the case that [indiscernible] referred to. But at the 66% level still higher than what we would expect over the longer term. From a acquisition cost perspective, the increase in management expenses from 13.8% to 15.8% in the current period. It's essentially a result of a low base last year, where we had to reverse some of the variable remuneration cost, which reduced the comparable margin by about 1.4%. If I add that back and also take account some investment in strategic initiatives that we started in the current year, the management expense ratio are more or less in line with last year. Investment return on insurance funds also showing a substantial improvement from 0.2% to 2.2% in the current period, essentially driven by an improvement in investment performance but then also an increase in our average float balance of about 9.5% compared to the first 6 months of last year. Looking at the history of our insurance result. The 3.8%, unfortunately, still below our target range of 5% to 10%, with both the current period and June last year being impacted by large losses. In the current period, we've seen losses from ZAR 150 million from the earthquakes in Turkey, another ZAR 150 million impact from the Western Cape floods and also some large fire claims. That was partly offset by a release of ZAR 155 million in CBI reserves. Compared to that in the first half of last year, we've also seen some fire claims. The [indiscernible] floods that I've referred to, but that, to some extent, offset by an almost ZAR 400 million release of CBI reserves, and the reversal of remuneration that I've already referred to. If I adjust for all of these big items, on an adjusted basis, we've achieved underwriting margin of 7.5% this year compared to 5.6% for the first half of last year. And that increase really reflects the turnaround in our motor book and also the reduction in losses from power surge claims. Looking at it from an insurance class perspective, maybe just to highlight 2 or 3 items here. The property book evidence still making a loss being significantly impacted by the weather-related claims this year and also the fire claims. And as Tava also mentioned, we need to still look at improving the risk management at the client level, but also look at the sustainability of our premium rates within that book. The motor book at ZAR 130 million lower profits than last year, but effectively a result of reserve strengthening that we had to do within Santam Re for about ZAR 180 million, relating to the unprofitable business in Israel. If I exclude that, a very welcome turnaround in the profits from the motor book from ZAR 244 million to more than ZAR 300 million in the current period. The one line of business that's also showing a decline is engineering. But that's essentially due to some positive reserve adjustments that we've seen in the comparable period. Just looking at MiWay, as I mentioned, overall muted growth of 3.6% in the top line. But if you look at the different lines of business, very strong growth coming through from the commercial lines, up by 22%, with really the personal lines impacting the overall growth with the personal lines only up marginally on last year. Some of the initiatives that MiWay was focusing on, the new inbound strategy will yield some positive results on that business line growth over the next year. Similarly, MiWay from a claims experience perspective, also impacted by kind of the adverse weather conditions with the claims ratio of 58.8%, also about the target over the medium to longer term. Looking at the ART businesses, also doing really well in the first half of this year, with the operating result increasing by 61%, with very good growth across all of the profit lines and essentially reflecting growth in the level of assets under management. With the positive investment results also coming through in the investment margin line as well as in the investment income line. Just looking at the investment results. We haven't made any significant changes to the asset mix within the portfolios, with the sub debt, ART and insurance funds portfolios still being backed by essentially cash and interest-bearing instruments from an asset liability matching perspective with the shareholders' fund portfolio having more exposure to more volatile asset classes such as the listed equities and of course, also the investment in the same businesses. Looking overall investment return, both investment return on insurance funds or the float return as we also referred to it and also the shareholder investment return up well on last year across both the conventional and the ART businesses. From a capital management perspective, as I mentioned, return on capital is a key value driver for us that we focus on. More than doubling from the first half of last year with more or less a 50-50 split between the insurance results and investment results, which if you look at it over the longer term, over a 10-year period, on average, we run at about that 50-50 split between investment and insurance contribution. From a capital management perspective, as Tava also mentioned earlier, the group had a very strong solvency position of 159%, which is well within our target range of 145% to 165%. And this enabled the Board to declare a 7% increase in our interim dividend for the period. And as Tava also mentioned is that once the disposal of SAN JV becomes effective, it will generate discretionary capital that we will use as to declare a special dividend to our shareholder base. And I'll now hand back to Tava for some closing remarks.

Thank you very much, Wikus. So maybe just a few closing remarks. As I mentioned, ESG remains very pivotal to the way we run our group. I would like to highlight 2 aspects of it. We do continue to work with 95 municipalities across South Africa. And I think for us, this is important that we are able to show support and use some of our risk management capabilities to ensure resilience of these communities from climactic shocks and also to an aid firefighting capabilities, which has a direct transmission in terms of how we run our business. We're also quite pleased with issuing our core statement in April this year, which gives our position on the use of fossil fuels and the role of insurance in our role, particularly in any economy and any environment such as South Africa, where it does remain important for energy into the foreseeable future. And then I think just in terms of our priorities for the second half of the year. It is important for us that we remain resolute and focused on our underwriting actions to ensure profitability and improvement in the property portfolio. We continue to use geocoding and we have seen some success from the use of data in managing our closures, particularly 2 properties that are exposed in flood areas. And we've seen that with the Western Cape floods, we were able to reduce those losses by close to 30%. And so again, we will continue rolling out that initiative, 50% of our property book is already coded here in South Africa, and it's our intention to continue to roll that out and get closer to 100% by the end of the year. We are seeing the tangible benefits of being able to understand our property exposures a lot more. And then within the MiWay business, we have had historic subdued growth, but we are excited about the launch of our inbound strategy. You will see a lot more prominence of the MiWay brand with the move to value campaign that takes effect from the 1st of July, and so that's really an inbound strategy, and that allows us to compete a lot more aggressively with some of the other competitors in this space. The MTN device book will -- we expect to transfer later on this year or early next year. And again, this gives us tremendous potential in an untapped market. Early signs of the new business that we have seen is very, very encouraging, and we are seeing a significant uptake, particularly in the device book. But there is significant potential to widen the product range that we are able to distribute through our partnership with MTN. And then with our parent company, the Santam Group, we're quite excited with some of the fintech initiatives, and we do intend to tap into the large customer base within Santam. It does allow us to allow for a lower cost of customer acquisition and to increase the cross-sell and stickiness of customers within our own business here at Santam. And then as I've mentioned, ESG remains important for us. We are in the process of completing our climate risk assessments in line with the standards set by IASB. And so again, quite excited about the developments in this space. And so I think in total, quite a mixed bag for the first half of the year, but I think for us, in a very difficult operating environment a result that we believe is solid. And again, coming off the back of much better underwriting, superior investment performance in the first half of the year. Again, very pleased about strengthening our management team and then rolling out our new strategy and in particular, our multichannel approach to the market that we believe stands us in good stead in the years to come to access new customers and to also diversify our channel strategy. And then last but not least, again, with the closure of the SAN JV-Allianz transaction, which we believe is imminent. We do expect that to create discretionary capital, and it is our intention, as I've mentioned, to distribute that back to shareholders as soon as it's practically possible, hopefully, this side of Christmas. And so I think on that note, we will open up shortly now for questions. Thank you very much.

Thank you, Tava, and thank you, Wikus. We have now opened a session for Q&A, and I have already some number of questions for you. I'll start maybe with a difficult question for you, Tava. The first one is from Michael. Given the losses in Israel, can you please provide more details on Santam Re? How big is this business now? What the larger exposures are?

Thanks, Thabiso , and good morning, Michael. And thank you very much for that question. So maybe just a little bit of context on our Santam Re strategy. So our Santam Re strategy is focused on writing very small follow lines in what is a very syndicated international business. And our strategy is really diversification by class, contracts, clients type and so really allowing us to really take some more follow lines in a very diversified way. And so we currently write business in just under 60 countries. And the size of that business is of the international business that we do write is slightly over half of all the international business that we write, and that's really outside of the Africa portfolio, mainly into the Middle East and into Asia. As far as the losses that we've seen coming through in the first half of the year, that really relates to motor business that has been historically written pre-COVID. And so what we found is that of that proportion of business, we did find losses starting to come through. And we were very uncomfortable with the nature of the losses. And so we've taken steps to really prune that portfolio and to reduce our exposure to those motor proportional losses. And so we believe that we should be writing that proportion of motor business on a niche basis. We also believe that the nonproportional part of the book is highly profitable. And so we are skewing our focus on to that side of the business. But fundamentally, we believe that it is a dollar business, we are into a hard market, and we do believe that we can continue to grow this business. It has contributed quite significantly historically, providing double-digit growth to the Santam Group of businesses. And so on a go-forward business into our hardening market, we would like to take advantage of that, but with a very conservative approach to exposures, particularly in the proportional space.

Just one more question from [ Asif Mohammed ]. Can you please give us an indication of Santam's market share trends of major business segments over the last few years? The other MTN device book arrangement restrict Santam from similar deals with MTN's competitors. I suppose this is 2 questions. The first part really is around market share trends in major segments of our business.

So I think in aggregate, we do command a leading market share within the South African business. And so that's something we're very proud of and it gives us significant competitive advantage and scale. If you look at our main broker business, we have the largest footprint of over 3,000 brokers across South Africa. And so that business, again, provides us with a significant moat, particularly in the commercial and personal line space in terms of accessing and reach into South Africa. And so that business has been growing again in line with our targets close to 7% over the last couple of years, but we have seen pressure on the underwriting margin, and that's largely being driven by a lot of the weather losses that we've seen in recent times. I think there's been volatility in that underwriting result. But I think a lot of the challenges there on motor, power load shedding, we've been able to address quite a few of those. And I think that's evidence coming through in the results. I think if you look at our Specialist business, again, stellar performance out of our specialist business, good growth coming out of that over the last couple of years. If you look at the underwriting margins across those different portfolios within that business, again, providing us with double-digit underwriting margin and return on capital in excess of the 24%. So again, providing good diversification to the other parts of the business. But I think across the board, what we are finding is that while we've had good historic performance, the margins have come under pressure. The macroeconomic environment is difficult. And so we start to talk about a multichannel approach to our business to allow us to diversify from those 2 big businesses. So both internationally with Santam Re specialists and then with the Client Solutions segment and the Partner Solutions segment. Then I think maybe just touching on the second part of the question. Yes, we're very excited about our partnership with MTN and we do believe that the use of the mobile, the use of technology allows us to reach new customer segments. And as I said, I think a very promising uptake that we have seen from the more than 300 stores across MTN, particularly around device insurance. But I think it provides us with a channel into the future to take new different types of products so that we can increase the average premium that we can expect to see from that channel into the future. Wikus I don't know if you want to add anything to that?

I think maybe just to add a comment on the market share question. I think it's important that we focus on profitable growth. So it's not just about driving higher market share. So we are prepared actually to forsake market share if it means that we can improve the profitability of the portfolio. Of course, over the long term, we want to grow our market share, but not at the expense of profitability in the short term.

And I think in an environment where margins are challenged, inflation is up. I think we've seen just with the remedial actions we've taken. I think if you saw that chart and the bars that you can see that our premium or per unit premium increases are starting to move ahead of inflation. And so that does give us a level of comfort that a lot of the actions that we've taken are now we're addressing what was a major issue for us last year this time, particularly around the spike on inflation.

Maybe at this moment in time, I'd like to open up some for questions from the conference call. Operator, do you have any questions from there?

Yes, sir. This question comes from Warwick Bam of RMB Morgan Stanley.

Three questions, if I may. You talk about being willing to reduce your market share to improve profitability and really want to bring that into the context of your property portfolio and the challenges that you faced in terms of profitability over several years in that segment. Can you just give us a sense of I guess, the competitive dynamics? And what it might mean if you do choose to improve the profitability in that segment as to how much market share you could effectively lose, that would be helpful. And second question is really just on the success that you're experiencing with the JV in Africa with SBA. Just give us a sense of how repeatable it is, some of the reasons for the success and what's the average duration of the contracts that you're writing? Is it just -- is it 12 months? Or are the contractual sense are a little bit longer than that? And then lastly, just on your -- sorry, lastly, just on your business interruption liabilities and provision. I think from what I could pick up, your gross liability is still ZAR 535 million. Just give us a sense of what you settled in the current half.

So thank you very much for those questions. Let me start with the first 2 and then let Wikus pick up the last one. So I think what we are finding is that in a very difficult macro environment, I think we're seeing a very challenged infrastructure environment. And so I think we are seeing the impact of losses, particularly from large fires. We've seen the impact of weather on the property portfolio and quite rightly that it has been a challenge for quite some time. It's not unique to South Africa. I think you can see the international reinsurance rates going up in response to what has been traditionally a very weak property base. But I think for us, and we've seen that as we sort of driven the improvement in the motor book and the power surge is that I think 2 things are important. So I think timing is important and then I think the picking and risk selection, the underwriting of specific risk. So when we look at our property portfolio is that it is largely bundled in terms of how we sell and how we distribute. And so largely it's been subsidized by the other class of business. But I think we're at a point where we are seeing that the property rates are largely unsustainable for us into the future, given the pressure that we are seeing on the underwriting margin. And so I think for us, we are in a process where we are looking at our property book. We need to understand our exposures a lot more. I've talked about the geocoding exercise as a classic example to allow us to understand the lay of our land of our property portfolio. But it is more nuance, we need to understand proximity of properties to fire stations, proximity of properties to flood lines, and we also need to understand, particularly in the commercial space, where those properties operate in terms of the sector of business. And so quite a myriad of factors that we are working on unpacking and just making sure that the pricing reflects adequately the risk. And I think one also has to take into account the fact that with a rising reinsurance market is that it is difficult, particularly with the larger commercial properties to simply pass loss-making business into the reinsurance space. And so I think we are coming to a head in terms of the overall market but we do need to work very closely with our underwriters, also theirs, work very closely with our broker market in terms of how we address this particular property challenge. And so I think just coming back to the comment from Wikus is that you've seen in the first half of the year that we've been very measured around ensuring that we are writing profitable business and trying to manage that underwriting margin back up to the midrange. And I think it is pleasing because if you strip all the one-offs, you still get that margin back up to that [ 7.5% ] mid-range , but the property portfolio is creating some drag on the overall underwriting result. And so Warwick, I think it's quite a nuanced exercise. But I think as we progress with this, obviously, we'll share with investors and analysts and what we expect the impact of that. But I think from our perspective, we are looking for profitable growth, but we don't foresee a massive pruning of that portfolio in totality. And so I think from a market share perspective, I think the impact, to some extent, will be significantly muted. And by a large extent, offset where the pricing is correct for our underlying properties. And then I think just turning to the CBI exposure, I think we're pretty much at the tail end, I think 99% of the 3,000 claims largely dealt with, I think, a couple of tens of...

It's about 24 claims. So it's really the claims has got a longer covered period that's remaining or we're waiting for financial statements from clients but we're essentially there. So in total, we've settled close to ZAR 4.7 billion on a gross basis. And we had to be largely done by the end of this year.

And then obviously, significant recoveries as well from the reinsurers. I think just the certainty that we've also had from the reinsurers just around the recoverability of some of those claims has been also equally important for us and so huge recoverability. And then I think just to mention, obviously, that we've been very comfortable to release some reserves in terms of the CBI exposure given just the progress we've made with some of those estimates.

Maybe Wikus just one question. We can pick up that [indiscernible] asked, is around our growth from the rest of the African business. That's something we expect to continue moving forward?

Yes, definitely. So I think if you look at the relationship, the working relationship between Santam and Santam Pan Africa has really improved over the last number of years, and we're seeing the benefit of that coming through in the volumes. The lines of business that we're writing is really mixed focus more on the specialty lines, of course, writing a lot of marine business and also engineering business. With the engineering business, in particular, being multiyear type of business that we write. And of course, the SAN-Allianz JV will open up even further opportunities for us from a growth perspective with that JV, adding countries like Egypt to the portfolio. And with Allianz also having a much larger exposure in the East Africa countries than what Santam traditionally has got. So I think there's really good growth prospects still within that relationship with Santam.

Thank you. Just maybe from the operator on the conference call -- conference line. Is there any more questions from that side?

Yes, sir. The next question comes from [indiscernible] Stockbrokers.

Can you hear me?

Yes.

I've got 3 question on your IFRS 17 net insurance service result. The shareholder impact was plus ZAR 425 million. That's halved relative to the base period. Can you explain why that number, especially in the base period doesn't correspond reasonably to, for example, underwriting profits. Maybe you can help us reconcile in that regard. Should we ignore IFRS 17 and just focus on your preferred disclosure management split of profits? That's the first one. I maybe quickly ask the other 2 questions I've got as well. You mentioned you target international gross written premium expansion and that you want that to be more than 20% of your total business. Simultaneously, you're exiting the Santam Pan Africa arrangement. And I just want to maybe get some more color on where you expect that growth to come from? Are you going to target acquisitions? In other words, what's going to be the vehicle for the growth but also regionally, do you think a lot of that will come from Africa? Are there specific countries that you think you'll be targeting for that? That's the second question, so just a bit of color on your international expansion drive. And then yes, third question, if we can get a bit more color around the investment return on net asset value. In this period, obviously, that was elevated because of the Saham revaluation, but yes, if you can maybe give us a picture of what that would look like in a normal period. You've got a tangible net asset value of ZAR 10 billion, is it? And I think about 15% of that is in equities, another 15%, 20% is in the Santam participations, but what sort of normalized return on the financial net asset value, which you expect long term? Those are my 3 questions, please.

Okay. Thank you very much. Maybe I'll start with the international expansion and SPA growth and allow you to ponder on the next questions. So I think just to -- just maybe provide some clarity of that, is that with the arrangement we have in place with SPA Allianz JV is that even as we have disinvested and that does create as we mentioned, a level of discretionary capital within the business, is that we have a framework agreement in place with the SPA Allianz JV that now continues our relationship, particularly on the distribution side. And so that continues to give us access and right of first refusal on all specialist business up to 50%, that the JV continues to write in the future. And so I think just for clarity that we do remain with that framework and in place. And so that continues to give us exposure. And I think because as mentioned, with the expanding portfolio of the countries that come into the fold with the Allianz portfolio, that gives us further scope for growth and for expansion within that particular business. And I think what you're already seeing coming through in the results is that a significant uptick in the business that we are currently writing already with the SPA industry, and we expect that to continue to grow with the expanded JV between Santam and Allianz. I think the nature of those contracts, particularly in marine, engineering, property classes, annually renewable contracts. And I think that puts us in a really good space, particularly as the infrastructure build-out continues to take place in the rest of Africa. So I think what we have here is the best of both worlds, access to distribution and access to that business in a growing footprint in a hardening market and an expanding and growing Africa infrastructure environment, but also with a very capital-light solution that allows us to release discretionary capital. So I think we -- I think that's what we probably will have the best of both worlds. And so that gives us some continued optimism that we should be able to continue to write more specialist business across the African continent.

Okay. On your first question, [ Francois ], from an IFRS 17 perspective, we do provide reconciliations within the segment from notes within -- in our interim financial statements, so we can go through that in detail. But essentially, the bottom line is our management view of the earnings is fully aligned with the IFRS 17 result. All that we do is we just repackage some of the line items from our IFRS income statement perspective to reflect our management view. And then, of course, we stripped out the ART businesses also to show those separately. So definitely not a case of ignoring IFRS 17, maybe just to make the comment that the impact that we have seen in the first half of this year and last year, that 0.5% increase in the margin. That's, to a large extent, linked to kind of a trans-seasonal impact still coming through. So we do expect that also to normalize over time. I think the key point is that from a discounting perspective, really very small impact on us even that most of our book is short duration business. And then your question on the normalized investment return. We do show the mix of the portfolio within the results. The component that's invested in cash and fixed interest, I think if you assume a money market type of return on that, that would be broadly in line with kind of the medium to long-term view. And then the equities component is invested in a balanced listed portfolio. So there you can use your equity assumption. And then, of course, the investments within the same businesses, which is now after the SAN JV disposal would essentially be Shriram General insurance and the P&O business in Malaysia. There, of course, we target to at least meet our return on capital hurdle over the long term. But personally, I'm very bullish on India. So I hope we can certainly outperform that target.

Thanks, Wikus, Operator, any more questions?

There are no further questions in the queue.

Thank you. Just one more question, and this is for you, Tava. This is from Jeremy from Stonehage Fleming. You talk about underwriting margins being acceptable excluding the one-offs. Does this mean that the target range of 5% to 10% is actually a target excluding large loss events or is the target 5% to 10% through the cycle, including large loss events?

Good morning, and thank you very much, Jeremy, for that question, and I'll expand a little bit beyond your question. So I think from our perspective, we fundamentally believe that the 5% to 10% target is right for our business given the volatility that we expect from cats, weather-related events, large ones or fires. And so we look at that target inclusive of these one-offs. We have mentioned the underwriting actions that we are taking that we are implementing. And so to a large extent, we do believe that a lot of the attritional weather losses, the life cats, the impact on our property portfolio book is manageable through the cycle. And so we do intend to keep that range in that 5% to 10%. I think the success we've seen on the motor book, the power surge and other classes of business, particularly as the market starts to harden, does give us some level of confidence that, that range does remain relevant. Although we are outside of that range, I did mention that there is also an element of cyclicality that we do see in the business. So if you remember, that last year, in the first half of the year, even with the KZN floods and the reserve releases from CBI, we were talking of a margin of 2.3%. And in the second half of the year, that margin went above 7%. And I think even on a normalized basis in the second half of the year, the margin was within the range. And so we do remain confident that the margin is right. I think it's the acceptable range for us to continue to meet the return on capital hurdles that we continue to set ourselves into the future.

Thanks Tava. One more question from Arun Kumar, JPMorgan. I'll start with you, Tava, maybe you can give over to Wikus later on. Can you discuss the new strategic initiatives at MiWay? And how you expect them to improve growth and margins moving forward?

Thank you very much, Arun, for that question. So within the MiWay business, the structure of the distribution that we have within that business has largely been an outbound focused business. And that typically means that we're working with databases, we are quoting clients. And what we found is that over time, the quality of the leads coming through on those data bases and the conversion of leads to sales has gradually come down. And so what we've now started within the MiWay business is really an increased focus and started our inbound strategy. And so effectively, you will see a lot more above the line presence from the MiWay business. We've launched our move for value campaign, which is a really aggressive marketing campaign. And if you look at the management expense line ratio for MiWay, you are starting to see that tick up, right? And so that's indicating the increased spend as we continue to drive that inbound strategy. And then linked to that, we are seeing early traction with the focus on the SMEs. And so it's slightly away from our big corporates, that way we typically play and again, we've seen encouraging growth over low base that's grown 20%, 22%. And so we do expect that the combination of that inbound strategy together with our focus on SMEs should provide a much needed stimulation of growth within the MiWay business. And then I think a more nuanced detail is that we do find that the characteristics of the client profile coming through the inbound strategy versus an outbound strategy is different. And so we see marketable -- marked difference in the loss ratios of clients that are coming through in inbound channel versus an outbound channel. And so we do fundamentally believe that it will not only stimulate growth, but will also improve the margin over time. But it does mean that in the short run, we expect the management expense ratio to tick up as we spend a lot more in terms of just increasing the brand visibility and presence of the MiWay business.

I think maybe just to emphasize the important point that the new inbound strategy does require investment from us. And of course, your benefits won't come through immediately. So you will go through a period of a small J curve within MiWay.

And then I think lastly on MiWay. I think as we came out of the COVID environment, I think you remember, we gave away a lot of freebies, work from home discounts. And so as we came out of COVID, obviously, the frequency has jumped up. We've also done a lot, particularly just around managing the claims a lot better, fixing the pricing within the MiWay book. And so I think we are fairly confident that with a fixed claims base that the push on the top line will now filter through to the bottom. But I think it is right that we do expect an increased spend to come through within that book. And I think an interesting statistic, Arun, just to share with you is that we have seen a turnaround in the net inception of policies within the MiWay business. So 2022, 2021, we were seeing loss of policies. And so you saw that policy book coming down as we came out of COVID. But I think for the first half of the year, we are starting to see that net policy inception go positive. And so that's a lead indicator and a very encouraging sign in terms of just starting to see a slow turnaround within the MiWay business. But from a customer perspective, MiWay does address a client segment, a lot of first-time insurance buyers coming through on MiWay business and so we do believe that with this refreshed approach with the inbound strategy, it shouldn't give more drive within the growth in the MiWay business.

Well, thank you, Tava. Thank you, Wikus. That's all we have on the questions. Maybe just to give you a moment just to close the session that we have.

Thanks very much, Thabiso. Thanks very much, Wikus. And maybe just in closing, just to wrap up, again, just to say, earnings significantly up, good turnaround in particularly a few loss drivers around motor, a significant uptick in our underwriting result also buoyed by the improved investment performance. We have obviously launched our refresh strategy really with an acute focus on driving profitable growth and giving us sustainability into the future. Again, very focused on ESG with our new call statement coming out, very pleased about that. And then with the imminent closure of the SAN JV-Allianz transaction, we do expect that to create discretionary capital within our business and is now every intention to return that to shareholders, as I've mentioned, as soon as it's practically possible. And so let me also take the opportunity to thank our executive committee, to also thank our Board of Directors, our staff, and more importantly, our clients and our brokers across the South African market that have really stood behind this stellar result. And thank you very much to all our investors for your support of the Santam business. Thank you very much for joining us. We look forward to engaging with you over the next couple of days.