Santam Ltd (SNT) Earnings Call Transcript & Summary

[Presentation] Good morning and welcome to our results presentation for the year ended December 2024. I'm joined this morning by our Group Finance Director, Wikus Olivier; and our Head of Strategy and Investor Relations, Thabiso Rulashe. And together, we will be taking you through the context for our operating environment, give you a sense of the numbers and also some sense of the outlook for 2025. Starting at a very high level. We are pleased that the group has shown operational resilience in what was a very difficult year. We see the underwriting margin back at the midpoint. And we also see that the group has shown steady growth in 2024. Overall, we've continued to focus on profitable growth. Turning now to the operating environment. 2024, as we've said, was an incredibly difficult year at a global level. We saw multiple elections, increased in geopolitical tensions and certainly another year where we saw weather events as a key theme for global P&C and reinsurance. It is also clear that we are seeing the average daily temperatures are increasing. Although the correlation between climate change, increase in temperature to the multiple perils, where the primary or secondary perils may not be so clear, we do enter another year in 2024 where we saw insured losses in excess of another $100 billion. It is a number that is becoming a trend in the recent last couple of years. And so the $154 billion that we saw in 2024 refers to the insured losses. The economic losses are certainly much, much higher than the $154 billion we saw in 2024. And I think that shows to a large extent the protection gap that we see between the economic losses and the insured losses presenting an opportunity for growth in insurance and also for innovation. 2024 was a year where we continued to see elevated property catastrophe rates. Although we have seen some easing at the last renewals, reinsurance rates do remain elevated compared to previous rates. And so I think this will be a continued theme that we can expect to see into the future. The recent L.A. fires will to some extent provide some resistance potentially to the easing of reinsurance rates into the 2025, 2026 renewal season. Coming back to the local SA market, I think what we see is a huge amount of optimism within the economy in -- particularly in 2024, where we saw very little load shedding. We saw inflation coming down. We do remain, however, concerned with the average cost of repair where the inflation does tend to be much higher than CPI. The consumer does remain under pressure. We've seen again interest rates starting to come down, a double-edged sword: good for investment income at elevated levels, creating pressure obviously for consumers. The vehicle motor value chain does remain under pressure. It's a space where we've seen the average cost of repair remain elevated. It's constituents, labor, paint, the cost of motor body repair; and the actual cost of parts themselves, does remain elevated. We've also seen vehicle sales themselves remain moderately flat over the last year, in 2024. The imminent reduction in the production of steel in the local market does provide further pressure within this value chain, although the full extent of this does still remain to be seen in 2025. So by and large, a very difficult 2024. I think both tailwinds and constraints to the economy, with the economy still growing at about that 1.1% in 2024. Turning now to our operating highlights. I think 2024 year, as we've said, was a difficult year, but what we found is that the group fared very well staying focused on profitable growth. And so we've seen growth coming through at 10.5%; in terms of the top line net earned premiums, at 9.7%. And so we are comfortable with that level of growth producing an underwriting margin at the midpoint at 7.6%, demonstrating a huge turnaround from the underwriting margin we saw in 2023; and so to a large extent, the underwriting actions that we've been implementing and carrying out over the last 18 months, starting to bear fruits into 2024 with a margin comfortably at the midpoint. The ART businesses had a stellar year in 2024, earnings significantly up at ZAR 781 million. And we've seen the net income for the group 13% up on 2023, returning a return on capital of 31.9%. And so while earnings are up, the shape of the earnings, the split between underwriting and investment income, is certainly in a better place than we've had in previous years. We've seen the underwriting part of the business starting to contribute a lot more to the overall earnings of the group, and so the shape is certainly in a better space. The group remains well capitalized. And you've seen that the economic capital coverage is at the upper end of the range. And so the Board is pleased to declare a dividend, final dividend, for the year of ZAR 9.85 per share, up 8.8%. And so the total cumulative dividend for the year is up 8.6%, and so a result that the Board is pleased to put out to the market. Our international business and our direct remain key pillars within our strategy and will remain an area of focus. It is important to say, though, that the result is underpinned by significant weather-related losses. We have seen flooding, windstorm coming through the year, floods and tornado in KZN, benign hail season last year in Gauteng but flooding, all the same, in the Eastern Cape and in parts of the Western Cape, together with some large fire losses. The good news, though, is that the aggregate property portfolio has turned positive. And as I've said, that is a result of the various underwriting actions that we have been implementing over the 18 months. There is, however, still room for improvement within the property portfolio; and that will remain a continued area of focus into 2025. Sticking with the theme of weather-related losses. 2024 demonstrates that the weather-related losses came in at about ZAR 450 million for the year, very similar to the numbers we saw in 2023. And so although 2024 was on average a drier year than we saw in 2023, it is the intensity and period with which that rain is falling that is of critical importance. And that's creating severity in terms of the claims that we are seeing. In some areas, we've seen as much as 200 millimeters of rain falling in several days. And in other parts of the country, the same amount of rain is falling within a few hours. And so that is leading to flash floods, fluvial floods as they are known to a large extent, and largely unpredictable. We've also seen the impact of windstorm, again, where there has not been so much rain, but that windstorm is causing severe damage, and to some extent followed on by fires in some regions. And so the average of weather-related, or catastrophe, claims, as we call them, is much higher over the last decade than we've had over the previous 10 years. From our perspective at Santam, we do believe that these weather-related and even the fire-related losses can be managed. And so through quite a few of our underwriting actions, the geocoding initiatives, that allows us to be able to price, identify risks; understand floodplains, flood lines to a large extent. Our exposures to thatch does allow us to price these risks a lot better than we have been able to do historically. And so the cumulative effect of this together with optimization on our reinsurance program effectively does leave us in a better place, as far as the property portfolio, again with a significant turnaround in the property portfolio coming through in 2024 curtailing the losses that we've seen in historic years. We do expect further improvement in the property portfolio, but this may require ongoing actions in this particular space. Turning to our MiWay business, which forms an important pillar of transitioning our business to a multichannel space. We have seen double-digit growth starting to come through in the last couple of months as we came through to the end of 2024: and so the growth within this business achieving 8% for the 2024 year, up on 2023 at a decent underwriting margin of 8.3%, again up on the prior year of 2023, again demonstrating our commitment to profitable growth. We have seen the policy count start to notch up on previous quarters. And so I think this demonstrates progress within the underlying MiWay business. We continue to spend in the MiWay business to drive the inbound capability as well as the tied agency force in this space, and so this is starting to yield benefits. We've also recently launched our [ MiCash ] benefits from a retention perspective. And so we do expect further positive progression within the performance of the underlying MiWay business. Turning to strategy. Over the last year, we believe we've made progress in implementing our strategy. We remain consistent with our strategic objectives to the year 2030. Our strategy is underpinned by 3 critical vectors, which is maintaining our dominance and strength within our South African business. We have been largely a broker-dominant business, and we maintain our dominance within the broker space. Our business starts to shift towards our multichannel business. And we are making good traction in the scaling up of our direct and tied agency. We continue to drive our international expansion off the back of a tested competency that has been successful here in South Africa, which is our specialty capability. And we leverage that into the rest of Africa, working much closer with SanlamAllianz. And we continue to scale our reinsurance business across the world. And the combination of these efforts in the international part of our business has led to growth; or the contribution from premiums in the international space, up to 18% from 16%, in terms of contributing to the gross written premiums of the entire group. We also continue to focus on our partnerships because we believe this fundamentally allows us to access new customer segments at a lower cost of acquisition. And so we work with our Sanlam colleagues towards cross-selling, working with our partnerships at MTN. And our recently announced partnership with MultiChoice continues to provide momentum in this particular space. So all in all, strategic consistency, from our perspective, as we continue to drive our FutureFit strategy to 2030, a lot of this underpinned by modernization of IT, improvement within our procurement space, which should continue to provide momentum to our business into the foreseeable future. And so turning to our long-term targets that underpin the strategy. Both financial and nonfinancial targets, we believe, are achievable in terms of growth, underwriting margin. With the underwriting margin now at the midpoint, we do expect continued profitable growth into the future. The nonfinancial targets talk to how we run our business; how we make sure that our business remains future ready, future fit in terms of sustainability of our business into the future. And so on both financial and nonfinancial targets, we do believe that, despite a difficult and uncertain operating environment, this remains achievable in terms of our targets for 2030. We will now turn to the financial results. And I'll ask Wikus to give you more context and color and detail in terms of the performance of the group. Thank you very much.

Good morning, everyone. It's my pleasure to take you through the financial results for the 2024 financial year, starting off with an overall picture. We've achieved a very strong performance across all of our key performance indicators. From a top line growth perspective, our growth was muted in 2023, following the cancellation of a number of blocks of business that didn't deliver the performance that we found acceptable. Net earned premium growth, however, expanded to 9.7% in 2024, which is our highest level of growth that we've achieved in the last 10 years. So quite a pleasing outcome. From an underwriting margin perspective, the margin more than doubled from 3.5% to 7.6%, with the margin also expanding from 6.5% in the first half of the year to about 8.6% in the second half. Favorable investment returns continued, since 2023, into the current year, supporting a 2.6% return on our float portfolio's as a percentage of net earned premium. The strong financial performance also enabled us to achieve a return-on-capital number of close to 32%, which is well in excess of our target return of 24%. Just turning to business volumes. As Tava has indicated, our long-term target for top line growth is nominal economic growth plus 1% to 2%, which implies a target range of 6.5% to 7.5% for 2024. GWP expanded by 10.5%, which is well in excess of this target range. All of the businesses contributed very strongly to this result. The exception was our specialist solution business, which continued to be impacted by the deployment of international capital -- capacity, in particular within corporate property and casualty lines, at rates that's in our view not sustainable over the long term. So in line with our philosophy to focus on profitable growth, we are very much prepared to forsake top line growth in the short term to enable us to protect the long-term profitability of our in-force book. Tava also mentioned the pleasing acceleration of growth at MiWay, achieving double-digit growth in the last quarter of the year, lifting MiWay's overall growth from 5% in '23 to 8% in the current year. Other factors that supported the growth this year was an excellent result from Santam Re despite further cancellation of some business, especially within the UMA space; and then Partner Solutions also benefiting from the transfer of the MTN in-force book in the first half of the year. From an insurance class perspective, property and motor remains our biggest insurance classes, with the motor book growing by 7%. This is a combined effect of very good growth across our Broker Solutions and Client Solutions business as well as MiWay business insurance, partly offset by more muted growth within Specialist Solutions. The property book expanded double digits, by 10%, benefiting from the MTN in-force book transfer that I mentioned but also reflecting a continued strengthening in the underlying insurance rates across the book. Liability, engineering, also growing very strongly, supported by Santam Re, which in the case of the liability business more than offset a lower volumes within Specialist Solutions. Within the crop class, we did see a decline of 12%, which is effectively the result of unfavorable planting conditions in the first half of the year, which did limit our growth potential. Business written outside of South Africa, growing by 27%, with very strong performance in Namibia, especially on the back of niche classes. Within the other territories, we did see some shift in business from rest of Africa into other international, with Santam Re's excellent performance also supporting the other international component. So this picture is very much aligned with our focus on diversifying the overall book and contributed to a increase in the overall portion of the book coming from outside of South Africa from 16% in '23 to 18% in 2024. So we are getting closer to our target of 20% for business outside of South Africa. It's also important to note that we did get our own A international rating from AM Best at the end of last year. So this will be very much supportive for our international growth strategy in 2025, as we are no longer reliant on using partners' A-rating solutions to write business in international markets. From a reinsurance perspective, I mentioned during the interim results presentation that we did achieve single-digit rate increases in the January 2024 renewal, which together with optimization of the overall reinsurance program contributed to a decline in the reinsurance cost as percentage of gross earned premium from 20.9% to 19.2% for 2024. And it was also very pleasing to see that we did achieve a reduction in some of the rates during the 2025 program, where we are receiving recognition from reinsurance for all of the work that we've done from a risk management perspective. Turning to earnings. Net income after tax and minorities increased by 13%. It actually increased by 45% if I strip out the one-off gain of ZAR 705 million that we realized in 2023 when we sold our stake in the SAN JV investment. The growth came from all of the important earnings lines: net insurance result up 82%, with a more than doubling in the underwriting profit and also supported by very strong float returns, as I mentioned. The favorable investment market performance also supported the investment return on capital, which -- together with a ZAR 19 million increase in our return on our investments in India and Malaysia, contributing to 20% increase in return on shareholders' capital. The ART businesses also continued with its -- their strong performance, growing by more than 50%. It was also pleasing to see that, that growth came from all of the revenue lines, from a float return perspective, admin fees and also from the underwriting profits where they do participate in some of the underwriting in their partner sales. From a conventional result perspective, I mentioned the underwriting result improving to 7.6%. That was on the back of the claims incurred ratio that declined from 66.2% to just more than 61% in the current year. And that is a combination of the benefits of all of the underwriting actions that we've implemented over the past 2 years coming through; and then also favorable attritional loss experience, in particular in the second half of the year. Management expenses did increase from 16.5% to 18.1%. And that's attributable to investments that we've been making into strategic initiatives in MiWay but also within Client Solutions business and also some IT investments at a group level. And then we also did see a increase in variable remuneration in the current year based on the strong results that we've achieved. From an insurance class perspective, most of the classes contributed strong growth. The exception was within our marine and crop business, where we did see some large claims coming through this year which resulted in a decline in profit contribution from these 2 lines, but that is typical of these 2 lines of business where you do see periods of volatility. Just looking at the history. As Tava also mentioned, we're well within our 5% to 10% target range. And this is despite a continuous of -- large losses from extreme weather events; and also other losses, mostly fire related, which amounted to close to ZAR 1 billion in the current year. This is in line with 2023 if I take into account the CBI reserve releases in the comparable period, so it again points to the significant improvement in the underlying profitability of our in-force book. From a personal and commercial lines perspective, we did see the improvement coming through across both categories of business, so it wasn't a one-sided affair; personal lines in particular reversing from a net loss position last year to close to -- reading close to ZAR 1 billion this year, supported by the favorable attritional loss experience that I mentioned and also a nonrecurrence of the runoff losses from canceled business in the prior year. And from a MiWay perspective, I mentioned very pleasing top line growth, with business insurance in particular benefiting from both the new inbound and tied agency strategies; underwriting result up 80% to more than ZAR 300 million, also on the back of improvement in the claims ratio, similar to the experience that we've seen in the other businesses. MiWay's acquisition cost ratio also increased just more than 2% (sic) [ 2 percentage points ] on last year. And that's a factor of a base effect from the strategic initiatives which we only launched towards the end of the first half of this year. So it's comparing a 6-month investment with a full year investment in those initiatives. Underwriting margin at 8.3%, MiWay did actually achieve double-digit margins excluding the investment in the new initiatives. From an investment perspective, we didn't make any significant change to the asset mix of our investment portfolios. We continue to apply our strict asset-liability matching approach for our insurance funds ART and sub debt portfolios, with the majority of the shareholder funds also invested in less-volatile, fixed-interest and cash investments, with some equity exposure at 10%; and then investment in the target shares related to India and Malaysia, comprising about 19% of the total shareholders' fund. And from an investment return perspective, I mentioned that we benefited from a continuance of favorable investment returns across all of our portfolios. Our asset managers also did well and in general exceeded all of the benchmarks, contributing to double-digit growth across conventional and ART businesses and also across the float portfolios as well as the shareholder capital portfolio. Just turning to capital management. Return on capital, it's quite pleasing to see that, for 2024, about 2/3 of the total 32% return coming from insurance activities, which is where we would like it to be, that the majority of the returns should come from the underlying operating activities, to ensure that we're not reliant only on investment returns to drive our shareholder returns. The group remains well capitalized at a economic capital coverage ratio of 166% at the end of December. This is just more than our target range of 145% to 165%. And considering this capital position, we are declaring a final dividend of ZAR 9.85 per share, which is up 8.8% on 2023, with the total ordinary dividends in respect of 2024 amounting to ZAR 15.20, which is up 8.6% on the prior year. So healthy growth in dividend also well in excess of inflationary levels. I'll now hand back to Tava for some closing remarks.

Thank you very much, Wikus. So I'll make a few closing remarks. We measure both financial and nonfinancial metrics. We fundamentally believe that these are important in terms of how we run our business. We believe we have a positive role. We have a role to play in impacting society and nature. And we also plan to continue with our flagship programs that support community resilience. We also fundamentally believe that culture and our people are a key ingredient to our customer experience. We believe that these commitments allow us to continue to run our business sustainably and also make economic sense. I'll now turn to our priorities for 2025, which are in support of the broader strategy that we are driving to 2030. So we will continue to scale our direct business. We do believe we must get our proportionate share of the business that largely is going direct, particularly with the younger consumer segment. We are pleased with the turnaround in the profitability of the property portfolio, but this will remain a key area of focus to get the profitability up to our hurdle return on capital. Cross-sell and our partnerships continue to allow us to acquire customers at a lower cost of acquisition, and this remains very critical for us in terms of accessing new customer segments. We are pleased with the progress we are making in our international space through Santam Re and the specialist business, and this continues to be a focus area for 2025. And then across the business, ensuring that we remain dominant within our broker space; continue to drive procurement efficiencies, the rollout of our IT capabilities and digital capabilities towards improving efficiencies with our -- within our business remains important. And then lastly but not least, our client and employee experience are a key ingredient to how we run our business, as well as maintaining relevance and brand visibility with our customers and key stakeholders. And so we do believe that, in 2025, these short-term priorities will continue to allow us to see profitable growth coming through in the business. We expect continued progression in the underwriting margin in 2025 outside of extreme weather-related events. And so on that note, we will pause. And we'll be happy to take some questions from you. Thank you very much.

Good morning. Thanks, Tava and Wikus, for taking us through the results. I'll now get into the questions that have come through from our -- online.

We've got quite a number of questions from Michael, but I suppose there are 2 topics that I want to get into. One is around underwriting profits for motor, so are you able to provide, Wikus, some details around what were the underwriting profits for motor and property in 2024?

Thanks for the question. So we're not providing a split of the actual numbers and -- in the interest of not giving away competitive information to the peer group, but I can say that the motor portfolio has delivered acceptable returns. So we were quite happy with the profits from the motor book. And then from a property perspective, we did note it was particularly pleasing that, that book has now also turned profitable, but it's definitely not at an acceptable level yet, as it's not yielding our required 24% return on capital. So some more work to do on the property side.

And maybe, [ Thabis ], just to add to that question is that we haven't seen any deterioration in the performance of the motor book. And a lot of the underwriting actions that we've been implementing over the last 18 months, whether it be increased use of tracker vehicles within the cars -- we've seen a reduction in motor thefts or rather an increase in recovery rates. And so a lot of that is still continuing, but I think what is also clear is that continued premium increases are certainly not sustainable into the future. And so we speak a lot about working with the value chain on the motor side to reduce the average cost of claims. And that becomes a more sustainable approach to maintain that underwriting margin and the return on capital within the motor book, but I think, again, good news on motor and certainly very good news on the property portfolio that we've started to see -- starting to turn around.

Yes. Just maybe to stay on the -- property because, I've got 2 questions, partly some of them have been answered, from [ Simphiwe Ngcobo ] and Baron Nkomo. Maybe from [ Simphiwe ], the question is what actions remain to get the property book further into positive underwriting profitability. And what is the underwriting margin target for that segment in the short to medium term? Linked to that, Baron's question as well is around how confident are we around the turnaround will be sustained, especially on the property book, going forward.

Thank you very much, [ Simphiwe ] and Baron. On -- so a starting point is that the underwriting actions which stem from increased surveying; relooking at our deductibles; again, optimizing reinsurance, coupled together with the use of geocoding and understanding the risks, particularly where our thatch exposure is, flood lines, again working with municipalities around fire prevention or early detection of fires, the whole host of actions that we've been driving over the last 12 to 18 months, are yielding positive results in terms of the property portfolio, but this will remain a key focus for -- area we identified as a key priority for 2025. And so we do expect further margin progression in this space, outside of extreme KZN-type flooding that we saw several years back, but in terms of sustainability of this, I think we do see that reinsurance cat rates do remain elevated. There may be some easing coming through, but as we've said, let's see what happens with the L.A. fires, whether that momentum continues on. Because I think that's a key component in terms of our ability to share risks with our reinsurers. But I think, from our perspective, we do expect to see further improvement in this space as we continue to drive these much tighter underwriting actions, whether it be also exclusions where we think that those risks are unsustainable, but I think it does need to be tapered or measured, I mean, given the competitive pressures that we do see particularly in this space. And so what we can say is that the margin, while it has gone positive and so the underwriting margin in this space is positive, it is not at the level that we would like it to be. And so we will continue to drive this moving forward. Wikus, anything to add there?

Yes, maybe just to add on the underwriting margin. So the way that we look at it is more from a return on capital perspective, where we would want to earn our 24% target rate on each of the individual insurance classes, but for property, it does imply that ideally we want to be within the 5% to 10% target range to achieve that hurdle.

Yes. And I think it's also important to say that, I think, historically, at a national level, the property portfolio, particularly in commercial and both even in personal lines, has been challenged. And I think, historically because of where reinsurance rates were, you could pass some of that risk into the international space and take advantage of that difference in the cost of capital, but I think, where we are now with reinsurance rates having significantly increased over the last couple of years, that avenue as a mitigant becomes very different. And I think we've shared with the market that we did increase our retention within that space. And so all the flooding activities that we've seen in 2024 and to a large extent in 2023 were below that retention. And so we are absorbing that, but even on the old reinsurance program, that -- those cat events would have gone under. And so we do believe that the approach we are taking to optimizing reinsurance is certainly progressive. And it does speak to our belief in the underwriting actions that we are taking in this space and hence that turnaround in the profitability of the property portfolio.

Okay, good. Thanks, Tava and Wikus. I think -- the follow-up question that Baron had, I think, Wikus, you've partly answered it, but for everyone who has a question around how far are we from current -- from a return on capital on the -- for the propriety book. I think you have responded to that, but [ Simphiwe ] has a follow-up question. On geocoding initiatives: Has this resulted in cancellations of businesses within the propriety book?

Our overall objective of the geocoding initiatives is to, firstly, better understand the underlying quality of the risks that we are bringing on our books; and so we are pleased that the geocoding initiatives now covers more than 80% of our property portfolio. And so that gives us tremendous insights into the underlying risks, proximity to floodways, proximity to rivers, proximity to fire stations; and to a large extent, our exposure to thatch, as a way of mitigating fire -- or fire exposure. And so what we are seeing is that it also allows us to ensure that those risks are adequately priced or excluded from the property portfolio. And what we've seen over the last year are significant savings that come from being able to adequately price and detect where those risks are insufficiently priced. And so by and large, the geocoding initiative is not simply about excluding properties but rather ensuring that properties are adequately priced; and going further, to ensuring that -- the property portfolio as a whole, that we work together with property owners towards risk-mitigating initiatives, making sure that sprinklers are within buildings, electrical compliance is sufficient. And so it's a much wider approach to managing the entire portfolio, also looking at occupations within that property portfolio.

[ Very good ]. Warwick Bam, I just want to acknowledge you. Your question has been answered, regarding risk mitigation strategies on the property portfolio. Just getting back to Michael's question on ART performance. How sustainable is this performance given that investment income is much higher in the H2, during H2, versus H1?

Thank you, Michael. I'll let Wikus give some context on that, but I think, if you look at the aggregate performance of the ART businesses and the contributors to that performance: You have some one-off items which we believe are not material from a go-forward perspective; then of course, your different lines, whether it be risk underwriting, fee income, again, all those lines significantly up. And so it is fair enough to say that, yes, investment income could be a variable in that space, but we do believe these businesses are sustainable in the future. We are seeing increased demand for the services of this -- of these businesses. Wikus?

Yes. I think maybe just to add to that. So from an investment return perspective, the returns that we've seen both this year and last year across our portfolios have been higher than kind of long-term expectations. So I do expect some moderation in the return on float both within the conventional business and ART, but markets will, in the end, tell. And then on the kind of the one-off items that Tava has mentioned is -- we did mention before and everybody is aware that the Capitec arrangement is coming to an end over the next 12 to 18 months. So that, in the short term, will have some impact on the ART results, but it won't be material from a Santam group perspective.

But I think we do see continued momentum in that business, particularly in terms of bringing in the big mining rehabilitation deals. So I think that remains an area of demand within this space.

The focus of management is definitely on bringing in new deals to compensate for the Capitec arrangement.

Okay, thanks, Wikus. Michael has quite a number of questions this morning. The other question he's got: Can you give some more color on the Malaysians' operations? They seem to perform poorly again. Can this be turned out?

Sorry. The...

[indiscernible]

The Malaysian operations.

Yes, Malaysia has, unfortunately, been a struggle for quite a period, effectively contributing close to 0 return to our earnings, but I think it's important to look at it from a context of materiality as well, where both the investment that we hold and the earnings is not material for the group. So it is an investment that we are considering together with Sanlam because we've got an indirect stake in the business, so it's not something that we manage on our own.

Okay, another question, from Michael as well. "Can you please explain the reason for the fall in SanlamAllianz specialty business?

Wikus, do you want to pick that one?

Yes. If you look at the business that we write in partnership with SanlamAllianz across the continent: It's very much focused on the likes of engineering and marine business. Engineering is very much dependent on large projects and how many of those projects are available and where you do win the business, so volatility in your top line is expected. And that's something that happened this year, where we simply wrote less business than last year, but it's more -- I see it more as something that's sort of seasonal in nature, but the long-term growth prospects in respect of that partnership is very much intact.

I think -- typically within your specialty business, particularly when you're in a hard market, I think you see a lot of the global players expanding their capacity into some of the smaller geographies. And so I think we -- it's not an inconsistent trend. We've seen that also within our South African business, but again, it is cyclical.

Okay, maybe before I continue with the questions that I have here online, I just want to maybe try the Chorus Call. I do acknowledge that the calls did drop earlier on, but maybe let's try again. Chorus Call, do you have any questions?

We have no questions on the line.

Thank you so much. Let's get back to the online questions, [ Simphiwe Ngcobo ] once more. "Can you give a detail around what drove growth within the transportation segment?" Wikus?

Yes. So within transportation, it's mostly related to marine and -- where we did see quite healthy increases. Heavy haulage did record more muted growth this year from a top line perspective, which is to some extent linked to economic activity as well. It's how much transport actually occurs, but from a profitability perspective, heavy haulage continued to deliver in line with expectations. I did mention marine was one of the areas where we did incur some large losses. And so marine did contribute less profits this year.

Yes. Thank you, Wikus. Question from Warwick Bam: How are you thinking about your solvency ratio and the flexibility to diversify the shareholder portfolio?

Yes. So when we look at the composition of our shareholder portfolio, we do look at it from a risk and return perspective, effectively optimizing the asset class exposure compared to what's impact on the level of capital that we need to keep. So it's effectively finding that efficient frontier, so we are very much comfortable with the exposure that we've got at the moment. We did rerun the modeling this year again and confirmed that our current approach is relevant for us going forward.

Good. For -- I have one more question here, from Asief Mohamed from Aeon Investment Management. Santam is known for paying regular special dividends. What is Board's view on returning excess capital via special dividend to shareholders? Do you expect -- maybe let's start with that. Because the second question is not related...

Okay, all right. So I think -- Asief, thank you for the question. I think it is important to say that our capital management policy remains consistent, as you have clearly stated; that, I think, where we have excess capital where we find absolutely no use in terms of achieving our own return on capital, it is consistent that we would look to return that to shareholders. And so you do notice that the capital coverage ratio is at the upper end of the ratio, but I think -- with the payment of the dividend, I think that comes back well within the range. Wikus, I don't know if you want to add to that.

Maybe just to add to that is, when we look at special dividends as well, the approach, of course, is to declare meaningful dividends, so we won't declare special dividends every year of small amounts. You rather wait until the sufficient surplus is accumulated that you can declare a meaningful dividend.

Okay, good. The 2 follow-up questions from Asief are largely around the market, how we see the market. One, do we expect new competitors to enter the markets in South Africa? And a follow-up question to that is around who you expect it from. And maybe we can discuss some market share trends. Tava?

So starting just with the competitive environments. I think the competitive environment will remain as such. We particularly see it in the motor space, but I think that's also coupled with the pressures that the whole motor value chain is facing. And so we have said that the average cost of repairs in the motor value chain does remain elevated above CPI. And the imminent contraction within the steel industry, I think, can only add pressures within that space. We've been at pains to work with the industry towards managing that cost of repair to sustainable levels. I think continued premium increases from the whole industry are largely unsustainable. I think the consumer continues to face significant pressure; and so I think we must look at efficiencies, the use of technology. We've taken a perspective that we will democratize our motor body repair chain in an effort to drive down the cost of repair within that space; the use of tracker vehicle, tracker devices; again, reducing the impact of motor theft, but I think, by and large, we do expect to see competitive pressures. But I think Santam enjoys significant scale, particularly in the procurement space; and I think that plays to our advantage, by and large. We've maintained our overall market share above 20%, but I think it's been important for us and -- during this period, that we ensure profitable growth. And I think for us that's been the underlying theme with which we've been driving our strategy forward, that we must achieve the right balance between profitable -- between growth and profitability in line with our underlying return on capital objectives.

Good, thanks, Tava. So we have 2 more questions, just popped up, 1 from Jarred from All Weather. "Do you expect the current level of motor underwriting margin to be sustained?"

Jarred, thank you very much. I think it lies -- it ties very closely to the comments on the previous question around sustainability of the average repair costs within the motor industry, that bland premium increases, as we've always said, are unsustainable given where consumers currently find themselves. And so we do believe that there is scope, particularly within the value chain and given our scale leveraging our procurement capabilities, to continue to drive sustainability of that motor margin. I think -- if we look at just the MiWay business or rather the improvement within the margin: I think that gives a window in terms of what we are seeing within the motor pricing space, that we've been able to drive both top line and drive profitability. I think, in the last couple of quarters, we've seen that growth start to go double digit, which again is encouraging for us.

Okay. [ Marius Strydom ], you have quite a number of questions which I think addresses the one concern around the broad-market [ special ] personal lines industry growth. "Can you please provide some insights on personal lines overall industry policy count over the recent years? Is it fair to assume that the size of the industry has been under pressure from count perspective and the recent rating actions may have limited potential growth?" The last bit of the question is around what's the outlook of the industry in the coming years. "And do you see a pickup [ line ] in the economic growth, lower interest rate, lower inflation? Especially, premium increases start to stabilize." So essentially, one is around broader personal lines market; and as well, economic outlook.

So there are several factors to take into account when thinking through the personal lines industry, so a good starting point is that it is true that the consumers do remain under significant pressure. And I think you see that coming through, for example, in motor vehicle sales, the numbers we've showed you earlier. That industry remains largely flat, if not slightly negative. And then I think, if you look at the aggregate policy count -- and I think here is where the distinction becomes very important. The existing policy count, again, that remains under pressure over the last couple of years. We've seen a huge part of that start to go direct, hence our focus on ongoing direct, but within that policy count, it does remain under pressure. We also see, for example, another important data point that, of all the cars on the road, a good proportion of those cars are not actually insured, right? And so we talk largely about bringing in new customers, new customer segments; cross-selling via our new partnerships with MTN, with MultiChoice; working much closer with Sanlam towards bringing in new customers that traditionally may not have been covered. And I think just the proportion of cars on the road that are uninsured presents huge opportunities. I think the industry, by and large, just focused on the smaller proportion of cars. And so you've seen a huge amount of churn, pressure on pricing, different strategies coming through in the market. I think targeting very high growth, poor profitability. And I think we've come through very nicely with both growth and profitability. And so our focus has to be on the uninsured part of that segment. And so we believe that our alternative channels provide access to those customer segments, in addition to our focus on both direct and within the tied agency. And so while the traditional market itself does remain constrained, I think vehicle sales in the last month or 2 have shown some encouraging signals, but I think there is a huge amount of cars on the road that are uninsured. And so that's where we focus our attention in terms of driving growth, and so we will not compromise on quality and profitability simply to chase market share within the segment.

Okay. Maybe, Wikus, the second part of that question, around the economic outlook, how do you see that?

We do expect some improvement in growth. So for this year, at the end of the third quarter, we were still sitting at 0.3%. We do expect 2024 will be a bit higher than that; and then going into 2025, probably looking at 1.5% to 1.7%, which together with at least some easing of general inflation and also interest rates, it should provide some relief to the consumer. I think, what Tava has mentioned from a kind of early indications of new vehicle sales, that -- maybe some of that feeding into that as well.

Good. Before we maybe close up, I just want to try Chorus Call once more again, if any question. Chorus Call? Okay...

We have no questions on the line.

Thank you so much. Before I hand over to Tava to wrap up, I just want to thank you all for joining us today. And to some of our investors and analysts, we look forward to engaging with you over the next couple of days. Tava, maybe some closing remarks?

Thanks, Thabiso. Thanks, Wikus. I'd just like to maybe close again thanking you all for joining us this morning. I think the group has shown incredible resilience in a tough operating environment. We remain focused on driving profitable growth consistency within our strategy, with return on capital as a key underpin for us, moving forward. And so let me extend a special word of thanks to my colleagues on the executive team, our Board, the rest of the Santam staff and in particular the brokers and the customers that continue to support our business. Thank you very much. And to the investors and analysts, again thank you for your support. And as Thabiso said, we look forward to engaging with you, in the next days and weeks to come, on the performance of our business and the strategy into the future. Thank you again for joining us this morning. Have a great day further. [Presentation]