Remaining profitable despite challenges
There has been some concern within the South African insurance industry that the level of business generated by the industry is not at the level that the industry wants it to be. Of course, insurers want an endless flow of business, but there is a certain target that needs to be achieved in order for them to remain sustainable.
This remains challenging in a market where the public are still finding their feet after recovering from the global financial crisis. According to a recent poll done by the pioneers of insurance Lloyds of London, South Africa is classified as moderately insured. There is a lot of room for improvement in the market.
Increased efficiency
While this is largely a problem within the life industry, there is a risk that clients within the short-term industry may feel the same way if they do not receive a level of service which is nothing short of exceptional. Themba Gamedze, Chairman of the South African Insurance Association (SAIA), says that the challenge for short-term insurers is to increase their internal capacities in order to cater for this.
In the poll results short-term players suggest that the industry is making serious efforts to increase their efficiency.
For the period ended 30 June, the country’s largest short-term insurer, Santam, reported a 10% increase in gross written premiums, excluding cell captive insurance business, despite difficult market conditions. The company also recorded a net underwriting margin of 7.4%, which is above the long-term target range of 4% to 6%.
Santam Chief Executive Officer (CEO) Ian Kirk said the increase was driven largely by a substantial improvement in underwriting results compared to the comparative period in 2013, as well as an improvement in investment results.
“Santam’s improvement in underwriting results was influenced by a strong turnaround in the crop insurance business, from a loss of R112 million for the six months to June 2013 to a profit of R187 million in the corresponding 2014 period. The company’s specialist division also delivered strong underwriting results,” said Kirk.
“The Santam Re underwriting results improved following lower retrocession costs and corrective action on the South African portfolio. The Santam commercial and personal intermediated business benefited from the impact of corrective actions and segmented premium increases implemented since the first quarter of 2013,” continued Kirk.
Diversification lifeline
South African insurers have cottoned on to the diversified business model and the benefits that it can offer a company. A number of short-term insurers are now spreading their wings into other business area’s in order to sustain their business. This was a major contributor to MMI Holding’s strong performance for the year ended 30 June.
According to their results, MMI’s divisions increased their profits by 22%, demonstrating strong operational performance and the positive impact of the merger synergies between Metropolitan and Momentum. This performance resulted in a 19% return on embedded value.
Nicolaas Kruger, Group Chief Executive Officer (CEO) of MMI, says that while the performance is strong, there are some concerns in the market. “As a financial services group we are concerned about the growing financial pressures faced by our current and prospective clients.”
MMI recorded an increase of 18% in new business volumes measured on a present value of premiums basis, to R42 billion. The value of new business increased by 14% to R779 million, compared to the previous year.
Claims season approaches
Over the last three years there has been a significant increase in claims during the October to February period.
This has largely been driven by weather related claims after significant thunderstorms, and flooding, which has taken a significant toll on the industry. Kirk feels that the industry needs to prepare itself for another year of weather related claims.
“Weather-related claims continue to have an impact on both insurers and policyholders. Severe flooding impacted the northern parts of the country in the first quarter. The total claims for the short-term insurance industry from the 5.5 magnitude earthquake that hit the area of Orkney in the North West on the 5th of August are anticipated to amount to around R100 million with Santam anticipating a cost of R20 million. The total cost for Santam to date from all the catastrophic events in 2014 is approaching to R200 million. By comparison, catastrophic events during 2013 – including floods in Limpopo and the Western Cape, and two severe hailstorms in Gauteng – cost the industry an estimated R2.5 billion and Santam almost R600 million, R300 million net of reinsurance,” says Kirk.
Editor’s Thoughts:
While there is an increase in profitability within the short-term industry, there are still challenges which threaten this. If these are not resolved, it could have a detrimental long-term effect of insurers facing the possibility if losses. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
