By Jonathan Faurie
One of the biggest concerns which plagued the industry last year was the health of the industry and the sustainability of product providers who had to face significant pay-outs while not generating a steady inflow of new business.
These concerns seem to be unfounded as a report by PriceWaterhouse Coopers shows that South Africa's insurance industry remains healthy despite the challenging environment. The report points out that the financial results of South Africa's major insurers for the year ended 31 December 2013 are a positive reflection of the financial health of the industry.
"The outlook for the insurance industry remains stable despite the continued market uncertainty experienced during the course of the year, and a host of regulatory and reporting changes," says Tom Winterboer, PwC Leader of Financial Services for Africa.
He adds that most insurers are currently working on the compulsory Solvency Assessment and Management (SAM) and Quantitative Impact Study (QIS) 3 submissions, which are due by the end of April 2014 and are also planning for the light SAM parallel run which will commence in the second half of the year. Insurers also need to get their business practices into gear to comply with Treating Customers Fairly regulations.
Overview of the short-term insurance sector
The results of the following five short-term insurance companies were considered in the survey: Absa Insurance, Mutual & Federal, OUTsurance, Santam and Zurich.
Dewald van den Berg, PwC Director, Financial Services Practice, says that South African short-term insurers experienced another tough underwriting year in 2013. "All insurers experienced a further worsening in claims experience. Their loss ratios increased by between 1% and 4% and by a combined 1.8% largely due to adverse weather conditions," says van den Berg.
The bulk of the 2013 catastrophic events took place in November 2013. These include the Western Cape floods in November which cost the industry R400 million, the Gauteng hail storms in November which cost the industry in excess of R2 billion, and the Limpopo floods in January 2013, of which costs are not clear yet.
"It is interesting to note that the increased use of smart device technology, together with weather service alerts and responsible customer behaviour, have assisted in avoiding motor claims. Insures noted that they have started to see a marked difference in the claims outcome for portfolios where predictive technologies are actively used," says van den Berg.
Insurers have also started to become smarter in the way they underwrite risks. Improvements in catastrophe modelling are required to more appropriately assess and price for hail, flood and fire risks. In addition, some insurers are collaborating with local authorities to reduce systemic risks.
Overview of the life insurance sector
The financial results of the top five players in the long-term sector - Discovery, Liberty, MMI, Old Mutual and Sanlam - were included in the survey. These long-term insurers recorded combined group IFRS earnings of R24.4 billion, up 29% on 2012.
Victor Muguto, PwC Long-Term Insurance Leader for Africa, says that local investment markets saw mixed fortunes. "The JSE all share index closed 18% higher than in 2012.This followed on the 23% growth experienced in 2012. As a result of the strong market performance, insurers benefited from the higher average assets under management during 2013."
He adds that insurers had to deal with volatility in interest rates and emerging market currencies. Over the past few years, they have significantly strengthened their capability to manage exposures to market risk within predetermined ranges. The combined group return on average equity increased to 21%, compared to the 17% achieved in 2012, and 20% in 2011, respectively.
Combined group embedded value earnings which were strong in 2013, came in at R39.2 billion. "This result reflects the strong operating performances by their South African operations in 2013, as well as the benefit of strong equity markets," adds Muguto.
The new business volumes which includes insurance and savings products, reflects a good result in challenging times. The 13% year-on-year increase is well in excess of CPI of 5.8%. "Given the impact of higher market discount rates, which reduce this value, new business performance was quite strong," says Muguto.
Life insurance is increasingly taking centre stage
The Association for Savings and Investment South Africa (ASISA) also show that South Africans are wisening up on the importance of life cover. ASISA points out that in 2013 consumers took out 5.3 million new individual risk policies, paying monthly premiums of R10 billion for the year to cover events such as death, disability and dread disease. In 2012 consumers took out five million risk policies worth premiums of R8.8 billion. This represents a 13% increase in risk policy premiums for 2013 and a 6% increase is the number of policies bought.
ASISA Deputy CEO Peter Dempsey points out that the beneficiaries of individual policyholders who had death and disability cover in place in 2013 received benefit payments worth R26.7 billion from the life insurance industry. Group policies paid out death and disability benefits of R13.8 billion in 2013.
He says these benefit payments provided much needed financial assistance to the families of policyholders who either died or became disabled. "Without the financial protection offered by life and disability cover, many more families would have been left destitute last year."
In 2013, the total benefits paid to policyholders, beneficiaries, and pension fund members as a result of death and disability claims, maturity pay-outs and pension, annuity and other payments amounted to R321.3 billion. This is 27% more than in 2012, when total benefit payments amounted to R252.2 billion.
Editor's Thoughts:
This is good news for the industry but a major deterrent factor in the South African economy is growing costs. Consumers can not afford to cover the cost of repairing a vehicle out of their own pocket, nor can they recover the loss of a catastrophic event such as a flood or hail storm without financial assistance. The consumer is also becoming more responsible when it comes to life insurance so that they don't leave their dependents destitute. This means that the future role of the broker and adviser will grow in importance as the insurance industry becomes more prominent in the eyes of the consumer. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughtsjonathan@fanews.co.za.
Source FA news
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