Mother Nature vs. Santam

Welcome back to work after a weekend of celebrating all that we love about being South African.

There are a number of results and other announcements that I’m catching up on from last week. This morning, I’m focusing on Santam, as the short-term insurance industry is something that we are all familiar with as consumers. I’ve also touched on updates from the property, mining and industrial sector.

Enjoy learning about how underwriting margins work!

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Feeling overwhelmed? You’re in good company.

And if you aren’t careful, decision fatigue will be the death of your long-term retirement saving goals.

Satrix CFO Colleen Wagner really brings this message home in the latest Ghost Stories podcast, including a section with some worrying statistics about women taking the backseat on retirement savings as they carry a disproportionate day-to-day load in households.

Listen to it here.

Santam’s numbers for the six months to June 2026 give us a lovely excuse to talk about the net underwriting margin in short-term insurance.

South Africa is a market where risk is part of our daily lives, including in our approach to flying planes over stadiums. The reason we take out insurance as consumers is that we aren’t prepared to carry the risks of terrible things happening in our lives, like car accidents or floods destroying our homes.

But that risk has to sit somewhere, with the insurance companies having to carefully manage their books in such a way that they earn a profit net of claims.

This slide from Santam’s earnings presentation is light on aviation risks and heavy on flood damage, as you’ll see in the chart in the bottom right corner of the page:

The universe really was angry with us in 2020. Not only did we have COVID to deal with, but there were clearly large pieces of ice falling out of the sky as well.

We’ve been through an apocalypse or two in South Africa, but 2025 was a relatively benign period. This helped Santam achieve an excellent underwriting margin in the comparable period, with the tenfold jump in catastrophe and other large losses in 2026 bringing the net underwriting margin back down to earth.

This slide shows you how the margin has changed over several years:

Take note of how steady the investment return on insurance funds is in the above chart. It’s easier to manage market risk than it is to manage Mother Nature, that’s for sure!

You might be wondering how the net underwriting margin is actually calculated.

As the slide below demonstrates, the major driver of the move from 11.3% to 8.1% was an increase in net claims incurred, which ties in with the previous charts. But the net acquisition cost is also a factor, representing commissions and management expenses:

The eagle-eyed readers among you may have noticed the reference to Syndicate 1918 in the commentary on that slide.

This is the Lloyd’s syndicate, which is core to the diversification strategy at Santam. The international businesses currently contribute 17% of gross written premium at Santam, but the plan is to increase this to 30% by 2030.

It doesn’t come without pain though, as the revenue from that initiative will only start coming through in 2027 and 2028 due to the delayed revenue recognition profile. There are no such delays in costs unfortunately, with the startup costs at the syndicate hitting the income statement immediately. This is why Santam expects the operating loss in the syndicate to be between R450 million and R550 million in FY26.

Despite the significant contraction in margin in the underlying business and the syndicate startup losses, Santam’s net income increased by 7% and the dividend per share was up by 10%. This was primarily due to a jump in the investment return on capital from R35 million to R727 million, including some major forex moves. The Alternative Risk Transfer business was also a positive move, with a 12% increase in profit before tax.

The group numbers in insurance companies can be hard to reconcile to the underlying results. I mainly wanted to show you how volatile the underlying net underwriting margins can be, giving us a great reminder of why it’s so important for us to all have short-term insurance! You do not want to be carrying that volatility on your personal balance sheet.

Moving on, Bell Equipment must wish that they could insure their earnings.

Alas, no such product exists, with the numbers for the six months to June 2026 being rather awful. It feels like the world is against them at the moment, with a horrible combination of US tariffs and a stronger rand making things very tough for the export business.

Despite a commodity cycle that investors may have hoped would make up for these issues, Bell’s revenue fell by a nasty 12%. Most of the pressure was felt in the manufacturing side of the business, which is where the lack of volumes hurts the most as you work down the income statement. With HEPS down dramatically by 74%, it’s a period that Bell (and its investors) will want to forget.

In the property sector, Fortress Real Estate has been enjoying excellent growth. In the year ended June 2026, distributable earnings increased by 14.2%. The total dividend per share for the year was up by 10.1%, while the NAV per share increased by 9.2% to R27.46 (using SA REIT best practice methodology).

Like-for-like growth in net operating income looks solid, sitting at 7.3% in the SA retail portfolio and 8.4% for SA logistics. Keep in mind that Fortress also has significant exposure to Central and Eastern Europe, both through directly-held logistics properties and via a 14.4% stake in NEPI Rockcastle.

Guidance for FY27 has been updated to growth in distributable earnings of 10.1%. The per-share number is more important, with guided growth of 7.5%.

In mining, Impala Platinum’s numbers for the year ended June 2026 are a lovely example of what happens when commodity prices cooperate. Measured in rand terms, revenue per 6E ounce was up by 51%. Things get a little crazy from there, with HEPS of R25.48 per share being 31x higher than the prior period! Free cash flow of nearly R22 billion was over 9x higher than the prior year.

Despite these incredible numbers, the share price is up by “only” 32% over 12 months.

The share price rarely moves by a similar percentage to underlying earnings, as the market is smart enough not to extrapolate standout periods (whether good or bad). Still, the underlying volatility is much more significant than the 12-month move would suggest, as Friday’s closing price of R242 is a long way off the 52-week high of R379.

Looking ahead, guidance for FY27 is for refined and saleable production of 3.3 million to 3.5 million 6E ounces. That’s a decline from the 3.56 million ounces in FY26. Implats attributes this to planned maintenance and a safety reset at Impala Rustenburg.

Another metric to be aware of is the guidance for group unit costs per 6E ounce, with an expected rise of between 4% and 8%. Inflationary pressures on mining costs are present regardless of how the underlying commodity behaves.

Do your own research and speak to your financial advisor. Nothing you read or listen to in Ghost Mail should be interpreted as financial advice. This is not a complete review of SENS and does not replace the need for you to refer to company announcements and reports yourself. Every effort is made to avoid errors in Ghost Bites and related podcasts, but I am only human.

US markets closed lower on Friday, while Treasury yields and the dollar rose after nonfarm payrolls surged by 162,000 in August, well above the 53,000 forecast and the strongest reading in five months. The data reinforced expectations that the Federal Reserve will raise interest rates at its meeting next week, with attention now turning to this week's CPI report as the final input before that decision.

Markets are also digesting a sharp escalation between the US and Iran over the weekend. US forces struck three Iranian oil tankers on Saturday, permanently disabling two and destroying a third, after Iran's Islamic Revolutionary Guard Corps launched ballistic missiles at a US aircraft carrier and destroyer patrolling the region. Neither ship was hit and no personnel were injured, but the exchange has kept oil prices elevated near recent highs.

The US celebrates its Labour Day holiday today.

Asian markets are mixed this morning. Japan's Nikkei is sharply higher, adding close to 2% as chip and AI-linked stocks extend Friday's rally, while the Hang Seng is lower by around 1% as investors weigh the stronger US jobs data and its implications for Fed policy. China's Shanghai Composite is little changed on the day.

A firmer dollar is weighing modestly on metals, which trade slightly lower in early trade.

The rand is a touch weaker against the greenback, and we expect a lower open for the JSE All Share this morning.

This update is provided by Shaun Murison, Senior Market Analyst at randswiss.com. Connect with him on LinkedIn here and follow him on X here.

Key Indicators: 

USD/ZAR R15.95/$ | US 10yr 4.78% | Gold $4,404/oz | Platinum $1,813/oz | Brent Crude $97.59