Operational update to securityholders following the Santam Board meeting held on 1 June 2022

SANTAM LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1918/001680/06
JSE Share Code: SNT & ISIN: ZAE000093779
A2X Share Code: SNT
NSX Share Code: SNM
Bond company code: BISAN
(‘Santam’ or the ‘Company’ or the ‘Santam Group’)


OPERATIONAL UPDATE TO SECURITYHOLDERS FOLLOWING THE SANTAM
BOARD MEETING HELD ON 1 JUNE 2022


This is a general communication to Santam shareholders and noteholders
(‘Securityholders’) on the business performance of the Santam Group for the four-
month-period ended 30 April 2022 (the ‘period’).

Conventional Insurance business

The Conventional Insurance business achieved strong gross written premium growth
of 7% in a challenging economic environment.

The underwriting results for the period were significantly impacted by adverse
weather conditions in the first three months and the devastating floods in the
KwaZulu-Natal province (‘KZN floods’) during early April 2022. The extent of the
damage and insurance exposures are still being assessed. The current best
estimate of Santam’s gross exposure to the KZN floods is R3.2 billion. Santam’s
reinsurance program provided effective protection against this natural catastrophe,
limiting the net impact to approximately R500 million, including reinsurance
reinstatement premiums. Based on our internal modelling, this is a 1 in 25-year event
and by far the largest natural catastrophe in Santam’s history. Santam provided on
the ground support to its clients during this trying time, with the deployment of our
claims team in KwaZulu-Natal immediately after the event.

Due to the KZN floods, the Conventional Insurance business reported a negative net
underwriting margin. Given the short reporting period of only four months, a
significant catastrophe event like the KZN floods has a disproportional impact on the
underwriting results reported.

Santam has made good progress in finalising the remaining contingent business
interruption (‘CBI’) claims relating to the COVID-19 lockdown and associated
reinsurance recoveries. No adjustments have been made to the CBI claims provision
estimates recorded at 31 December 2021. The outstanding CBI claims provisions
will be reviewed at the end of June 2022.

The Santam Commercial and Personal intermediated business reported improved
growth in gross written premiums compared to 2021, with various growth initiatives
showing positive results. The underwriting results were negatively impacted by
several weather-related claim events and a number of large commercial fires during
the first quarter of 2022 and the KZN floods in April 2022. Claim trends have also
normalised with an increase in vehicle accidents compared to the experience during
the various levels of lockdown in 2021. Underwriting actions to address the increase
in claims frequency and claims inflation have been implemented since the start of
2022.

The Santam Specialist business reported strong growth in the travel insurance and
liability businesses. Negative growth in the engineering business, due to a slowdown
in business flows from outside South Africa, and delayed renewals in the corporate
property business, contributed to the overall negative growth in gross written
premiums. Excellent underwriting results were achieved by the liability, engineering,
crop and travel insurance businesses, partly offset by weaker results from the
corporate property business, the latter also affected by the KZN floods.

MiWay achieved subdued gross written premium growth in a challenging operating
environment. Continued adverse weather conditions and the KZN floods negatively
impacted the underwriting performance during the reporting period. The MiWay
management team is actively implementing the necessary underwriting actions to
improve the loss ratio in addition to a strong focus on growth initiatives.

Santam Re continued to report excellent gross written premium growth. Underwriting
results were impacted by cautious reserving for the most recent underwriting years.

Local and global bond market volatility negatively impacted the investment return on
insurance funds. In addition, the higher US dollar component of the investments
backing the insurance reserves earned lower interest and has been affected by
rising international bond yields.

Alternative Risk Transfer (‘ART’) business

The ART business segment reported strong operating results with excellent growth
in fee income, partially offset by lower underwriting results.

Sanlam Emerging Market (‘SEM’) partner businesses

The Sanlam Pan Africa General Insurance (‘SPA GI’) business achieved net earned
premium growth of 7% (10% in constant currency) due to good growth in motor
business which was partly offset by lower volumes in the health and assistance
businesses. The net insurance result of SPA GI was negatively impacted by lower
investment return on insurance funds due to the decline in Moroccan equity markets
over the period. SPA GI recorded an underwriting margin at the lower end of the 5%
to 9% target range, while the investment return on insurance funds was slightly
below the target range of 6% to 9%. Higher claims experience on motor and health
business in some businesses and weaker performance from certain of the Eastern
African businesses detracted from the results.

Shriram General Insurance (‘SGI’) was impacted by lower sales through the Shriram
channels. Prescribed third-party premium increases in India have been approved
from 1 June 2022. Although the increase is lower than the historical average, it will
bring some relief to SGI’s third-party portfolio. The net insurance result from SGI
increased significantly compared to the comparative period, mainly due to an
improved claims experience and investment returns.
Investment performance

The Santam Group’s investment portfolio was negatively impacted by the local and
global bond and equity market volatility.

Capital

Corporate activity

In April 2022, KKR, a leading global investment fund acquired a 9.99% stake in SGI
from the Shriram Group. KKR’s investment will position SGI for continued growth in
India’s fast-growing general insurance industry. Prior to the transaction, Santam held
a 15% economic participatory interest in SGI by way of a target share issued by
SEM, and which target share references SEM’s effective shareholding in SGI. The
transaction diluted SEM’s effective shareholding in SGI, resulting in a dilution
of Santam’s economic interest in SGI from 15% to 14%. The enterprise value
attributed to SGI for purposes of the transaction exceeded Santam’s internal
valuation of SGI as at 31 December 2021. Pursuant to the transaction, Santam
received a distribution in respect of the SGI target share at the end of May 2022
amounting to R217 million.

Also in April 2022, Santam increased its stake in Indwe Broker Holdings (Pty) Ltd by
acquiring the additional 76% shareholding for R125 million, making it a wholly-owned
subsidiary of Santam.

On 4 May 2022, Santam announced that it entered into an agreement with Allianz
Europe BV (‘Allianz’), in terms of which Santam will dispose of its 10% interest in
SAN JV (RF) Proprietary Limited to Allianz. On the same day Santam entered into a
12-month zero-cost collar to the amount of EUR125 million to protect the sale
proceeds from the Rand strengthening against the Euro. The structure provides full
downside protection below a EUR / ZAR exchange rate of R16.66 and entitles
Santam to share in Rand weakness against the Euro up to a cap of R19.16.

Capital and subordinated debt

On 16 May 2022, Santam issued additional unsecured subordinated callable floating
rate notes to the value of R1 billion. The effective interest rate for the floating rate
notes is equivalent to the three-month JIBAR plus a spread of 159 basis points. The
notes have an optional redemption date of 16 May 2027 with a final maturity date of
16 May 2032.

The issuance proceeds will be used for the redemption of subordinated debt issued
in June 2017 to the value of R1 billion (with an interest rate equal to the three-month
JIBAR plus a spread of 210 bps) which becomes callable in June 2022. Santam’s
issued subordinated notes will therefore remain at the current target level of R2.5
billion.

The Santam Group’s economic and regulatory capital position remained at an
acceptable level during the reporting period despite the impact of the poor
underwriting and investment results. The economic capital coverage ratio as at 30
April 2022 was closer to the lower end of the 145% to 165% capital target band.

Financial results

This update is based on the four-month period up to April 2022. The results for the
remainder of the year remain susceptible to the inherent volatility of underwriting and
investment activities.

The financial information included in this announcement has not been reviewed nor
reported on by Santam’s external auditors.

The next set of Santam results will be for the six months to 30 June 2022, which are
expected to be released on SENS on or about 1 September 2022.


Investor Conference call

A conference call for analysts and investors will take place at 16h30 (South African
time) today (1 June 2022). Investors and analysts who wish to participate in the
conference call should register as indicated below:

Please register at: https://www.diamondpass.net/1358186 for the call.

Registered participants will receive their dial-in number upon registration. We advise
participants to register and dial in 5-10 minutes prior to the commencement of the
conference call at 16h30. For assistance, please contact Gloria Tapon Njamo:
Santam Investor Relations at +27 21 915 8228.


1 June 2022

Equity Sponsor: Investec Bank Limited
Debt Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Date: 01-06-2022 02:00:00
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