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Rwandan business pulls down Santam

SANTAM’s search for profits outside SA, driven by stagnant growth at home and a weak rand, has led it straight into fraud in Rwanda, resulting in the Rwandan company’s CEO being replaced.

It has also resulted in considerable downward adjustments to Santam’s investment portfolio, negatively affecting its results for the half-year to June.

The short-term insurer disclosed a R46m reduction in the value of its investment in Soras Assurance Generales, a Kigali-based insurer, along with other downward adjustments totalling R76m as one of the factors that saw its investment income fall to R555m, from R767m in the six months to June.

Santam adjusted the value of the Soras investment which it bought in 2014 for $24.3m, together with parent Sanlam’s emerging markets unit after uncovering financial irregularities relating to prior years. "We experienced deliberate misrepresentation of financial results in the business," Santam CEO Lizé Lambrechts said.

"We are taking appropriate actions."

She said the company could not comment further as it was still investigating.

The Soras group conducted a "major restructure" earlier this year and appointed a new CEO, essentially kicking out the previous incumbent.

"These are generally small businesses, so for it to be mentioned as a problem large enough to impact results, it does sound like it is a severe issue," an insurance analyst, who cannot be named due to company policy, said.

Santam reported a 29% decline to 633c in headline earnings per share.

"Most of the damage to earnings seems to have arisen in investment income of which the [Soras] issue … is a part, but the higher quality part of the income statement, underwriting, was perhaps not as bad as feared, which is good," said the analyst.

Other adjustments to Santam’s investment portfolio include R37m for low premium growth at Malaysia’s Pacific and Orient Insurance Co, which Santam said was expanding its current product offering.

"It is really up to the company itself to decide which products they want to offer to the market," said Lambrechts. "We will assist them with our technical expertise where it can add value."


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