Santam

Santam is a great business which has been a long-term holding in our Financial Fund. Over the last year, the short-term insurance industry delivered record-high underwriting margins in their personal lines businesses. This came on the back of strong premium increases coinciding with a period of lower-than-anticipated claims, a function of benign weather, lower car accident frequency, reduced car theft and less load shedding. While we continue to see a strong premium growth cycle, some of the factors supporting the claims environment (e.g., benign weather) will normalise and put some pressure on industry margins. If the current high underwriting margins persist, new capital will be attracted to the sector, ultimately diluting returns. After delivering very strong returns, the current valuation now offers a small margin of safety, and we took the opportunity to reduce the fund holding in Santam.