Santam Limited

Analyst presentation

Presented by: Steffen Gilbert

20 October 2004

Contents

• Overview of short-term industry

• Financial overview

• Strategy and focus

Overview of short-term industry

Trends

• Underwriting cycle

• Excellent underwriting

• Natural disasters

Industry underwriting cycle

2.3 2.6 2.0 2.6

7.8

16.1

-2-1

12

7

13

10.7

-4

-2

0

2

4

6

8

10

12

14

16

18

1999 2000 2001 2002 Dec-03 Jun-04

Pe

rce

nta

ge

Santam Industry M&F

Underwriting margin as % of net earned premiums

Regulations

• To benefit the consumer/client

• FAIS/FICA/PPA

• Discrimination/Privacy…….

• Deregulation of commercial commission– Net vs. Gross rating

• Financial Sector Charter– Targets

– Council

– Procurement

Broker v Direct• Generation gap• Client choice• Broker vs. Banker• Technology• Client service

– Call Centre• Empowerment• Efficiency• Reward Structures

– SMS– Multi SOS

Sustainable Differentiator

Santam Multi-SOS• Standard with all PL products

• 24/7 Emergency Help line

• Motor/Household/General

• 0860 505 911

• Return to TV – Prior to holiday season

• Don’t leave home without it

• Great for Brokers

• Great for Clients

• Great for Santam!

Financial overview

Salient features

777

843

735

530

7,022

9,513

Dec 2003 Rm

11%3,3253,690Net written premium

91%333635Earnings based in LTRR

188%206593Headline earnings

137%281667Net insurance result

232%174578Underwriting surplus

1%4,3874,414Gross written premium

% change

June 2003 Rm

June 2004 Rm

Segmentation: Local & International

96%

4%

RSA

International

94%

6%

RSA

International

Gross written premium

Dec 2003

June 2004

Segmentation: Local & International

98%

2%

RSA

International

88%

12%

RSA

International

June 2004

Dec 2003

Underwriting result

Gross Written Premium per Insurance Class (R million)

44%

31%

7%

1%1%4%

5%3% 3%1% Motor Property

Liability Crop

Miscellaneous Engineering

ART Transportation

Accident & Health Guarantee

39%

28%

6%

7%

4%

4%4%

3%3% 2%

June 2004

Dec 2003

Underwriting Surplus per Insurance Class (R million)

45%

29%

11%

4%

1%

6%0%

1%2% 1%

Motor Property

Liability Crop

Miscellaneous Engineering

ART Transportation

Accident & Health Guarantee

34%

25%

6%

9%

12%

4%2%

2%1% 5%

Dec 2003

June 2004

Net Insurance Result

735

205

530

1,850

4,375

6,755

Dec 2003 Rm

174578Underwriting surplus

281667Net insurance result

10789Interest on insurance funds

8631,021Acquisition costs

2,1731,997Claims incurred

3,2103,596Net earned premium

June 2003 Rm

June 2004 Rm

Net Insurance Resultmargin analysis

92.2

10.8

3.0

7.8

27.4

64.8

100.0

Dec 2003 %

5.416.1Underwriting surplus

94.683.9Combined ratio

8.718.5Net insurance result

3.32.4Interest on insurance funds

26.928.4Acquisition costs

67.755.5Claims incurred

100.0100.0Net earned premium

Jun 2003 %

Jun 2004 %

Investment Income

117 101209

42

-48

289

-100

0

100

200

300

400

500

600

Jun-04 Jun-03 Jan-Dec 03

R m

illio

n

Interest & dividends MV movements

15953

498

Earnings per share

490

173

718

518

184

751

554

297

692

0

100

200

300

400

500

600

700

800

Jun-04 Jun-03 Jan-Dec 03

Ce

nts

pe

r s

ha

re

Earnings Headline LTRR

So where to from here?Ja

n ‘0

3

Ju

n ‘0

3

Jan

‘04

Ju

n ‘0

4

Jan

‘05

U/W

Mar

gin

2-3%

5-7%

9-11%

13-17% •Economy•Markets•Capacity•9/11•GW

Solvency

%

Rm

cps

Rm

7,0227,391Net written premium*

5659Solvency

3,4823,790NAV per share

3,9564,353Net asset value (NAV)

Dec 2003

Jun 2004

Santam RSA solvency = 53%

* Rolling 12 months

Return on CapitalAnnualised net income expressed as % of average

shareholders’ funds

19

9.2

22

27

14.8 15.6

21

28

0

5

10

15

20

25

30

2001 2002 2003 Jun-04

Per

cen

tag

e

Net income

LTRR

Cash flow generated by operations

940

598

1,510

0

300

600

900

1,200

1,500

Jun-04 Jun-03 Jan-Dec 03

R m

illi

on

Level of Reinsurance(as % of Gross Written Premium)

31.3

24.226.2

16.3

Dec '02 Jun '03 Dec '03 Jun '04

Per

cen

tag

e

Acquisition costs ratioas % of net earned premium

12.1

13.7 13.7

2.0

11.713.0

13.0

0.92.6

0

5

10

15

20

25

30

35

June '04 June '03 Dec '03

Pe

rce

nta

ge

Commission Management expenses Abnormal

27.426.928.4

25.8 26.0 25.4

Strategy and Focus

Long term strategy

• Sustainable delivery of cost of capital plus value

creating premium

• Optimise capital allocation

• Maximise revenue & growth potential

Capital Efficiency

Capital Efficiency• Underwriting risk ∓ 25%

• Current Investment Philosophy ∓ 10%

• Business/Market Opportunity/Risk ∓ 10%

∓ 45%

• Reinsurance/Investment Philosophy

change/Internationalisation + ??%

Exercise completed by announcement of 2004

Financial results

Long term strategy• Revenue growth strategy

– Profitable growth of RSA market share

– Further optimise reinsurance programme

– Expand Santam’s international operations

– Make selected strategic investments

• Continued focus on profitability drivers

– Profitable underwriting and reinsurance

– Cash and working capital management

– Decrease/Efficiency in management expenses

– Procurement initiatives and claims management

– Optimal investment return at acceptable risk levels

Reinsurance• History• Modelling

– Through cycle– Peak top/bottom– 1/100, 1/250– Probability of ruin

• “Newco”– Old dogs and new tricks– Facultative inneficiency and leakage– Central/Internal

• Resilient – Average result must increase significantly more

than the volatility (tested at 1 and 2 SD’s)

Internationalisation

• Not globalisation

• Beazley syndicate

• WMIA (Hire for reward motor Motor)

• Bluesure (Multiplex = One policy/Full service)

• Santam Europe (UK/Ireland Other Eurozone?)

• Future……

Focus/Action areas: 2005/6

• Capital Efficiency

• Planning (Process/Discipline)

• Growth (Gross/Net/Local/International/LSM’s)

• People/Environment/Equity/Performance/Reward

• Innovation (Products/Distribution/Service)

• Partnerships (Intermediaries/Clients)

• Service (Client centricity)

• Detailed project work (P.Comm, “Cost of Direct”, Address slowing growth, Investment philosophy, Cost control and discipline

2010• Started off as cost project

• Muir’s law

Muir’s LawIf you try and treat something in

isolation you very quickly find that it is tied to everything in the

universe

2010• Started off as cost project• Muir’s law

• All encompassing redefinition project• Systems, customer interface, sales/service offering,

claims process/experience, human/other resources, technology,……..

• Staffing (Internal / External)• Scope• Methodology