ASISA: Healthy life industry attracts strong new premium income

14 March 2012 Association for Savings and Investment South Africa (ASISA)
Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA)

Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA)

The South African life insurance industry held record assets of R1.45-trillion at the end of 2011, an increase of 13% from the R1.28-trillion held at the end of 2010. Releasing the 2011 sales statistics for the South African long-term insurance indus

“The life industry remains strong and healthy and well positioned to honour future benefit payments to policyholders. As custodian of a significant portion of the country’s long-term savings pool, this is critically important.”

Dempsey also points out that the 2011 long-term insurance industry statistics are the most representative ever, with the majority of non-traditional life licence holders (life companies that do not provide risk benefits) having submitted their figures for inclusion. Until 2010, sales statistics for the long-term insurance industry were based only on data received from life companies that were previously members of the Life Offices’ Association (LOA).

Solid new premium growth

Life insurers experienced a surge in demand for life insurance products in 2011. Dempsey reports that the industry attracted R82-billion in new individual premiums last year, compared to R66-billion in 2010.

“If we exclude the contributions from the linked insurers that submitted figures for the first time in 2011, the industry recorded an inflation beating 9% growth in new individual premiums last year.”

In addition to taking out new policies, policyholders also maintained and increased recurring premiums for individual in-force policies. Total recurring premiums for existing business increased by 8% from R72.8-billion in 2010 to R78.8-billion in 2011.

Individual business typically consists of endowments, retirement annuity funds, living annuities and compulsory annuities, as well as life, disability, dread disease and income protection policies.

Recurring premium retirement annuities (RAs) proved most popular last year. According to Dempsey, consumers committed new monthly premiums worth R1.5-billion to RAs, compared to R1.1-bilion in 2010 – a 31% increase.

He says surprisingly, new lump sum investments into RAs dropped sharply by 33% from R7.5-billion in 2010 down to R5-billion in 2011.

“It would appear that consumer confidence in RAs requiring monthly premiums has returned since the industry implemented a number of significant reforms aimed at providing RA fund members with greater value. In 2011 we noticed a strong shift away from single premium RA fund policies towards recurring premium RAs.”

Dempsey comments that it is encouraging to see consumers opting for disciplined saving vehicles like RAs when putting aside money for their retirement.

Greater risk cover

Dempsey says further good news is the healthy increase in uptake of risk policies. Risk policies provide cover for events such as death, disability, and dread diseases.

Independent research conducted for ASISA in 2010 showed that the average South African income earner was underinsured by R600 000 in the event of death and by R900 000 in the event of disability. In total, South Africans were underinsured by R18.4-trillion in 2010.

In the second half of 2011, the industry attracted new recurring risk policy premiums of R4.5-billion. This represents an increase of 21% over the first half of last year (R3.7-billion), although only a 6% increase over the second half of 2010 (R4.3-billion).

Dempsey explains that ASISA started separating new recurring premiums into risk business and savings business for the first time in the second half of 2010, allowing for more meaningful analysis. Previously the premium inflow statistics for risk policies and savings policies were lumped together. The first full year comparison will therefore be possible only at the end of 2012.

Benefit payments

In 2011, the life industry paid out more than R216.7-billion in benefits to policyholders, beneficiaries, and pension fund members as a result of death and disability claims, maturity pay-outs and pension, annuity and other payments. This is 14% more than in 2010, when total benefit payments amounted to R190.7-billion.

Of these benefit payments, R17.3-billion was paid to the beneficiaries of deceased individual policyholders and R10.7-billion to beneficiaries of Group death cover. A total of R8-billion was paid in disability cover from individual policies and Group cover.

Dempsey says without these benefit payments South African families would have been R216.7-billion poorer. “The reality is that these benefit payments represent the real value add of the life industry. Without the financial protection offered by life and disability cover, many families would have been left destitute last year.”

Surrenders and lapses

The value of surrendered investment policies increased by a slight 2% from R36.7-billion in 2010 to R37.5-billion in 2011.A policy is surrendered when the policyholder stops paying premiums and withdraws the fund value before maturity.

“Considering the financial strain that many South African consumers continued to experience last year, the low increase in surrendered policies is very good news.”

According to Dempsey, the statistics for surrendered policies need to be seen in the context of the total value of in force policies – estimated to be a large portion of the life industry’s R1.45-trillion assets - and not just the new business written in 2011.

The number of lapsed policies increased by 13% in 2011.

A lapse occurs when the policyholder stops paying premiums before the fund value exceeds the unrecovered costs meaning that the paid-up (or surrender) value is zero. In the case of pure risk policies, a lapse causes no immediate financial loss for the policyholder, as there was no policy value. The policyholder does, however, lose valuable life or disability cover, which might not be available at the same premium again.

In 2011, a total of 5.9-million policies were lapsed, 3.3-million first year policies and 2.6-million policies in their second year. The average monthly premium of policies lapsed was R89.75.

The lapse rate should be compared to new recurring premium business written over the same period. While new recurring premiums for 2011 amounted to R15.6-billion, only R2.8-billion of first year premiums was lapsed.

Quick Polls


How confident are you that insurers treat policyholders fairly, according to the Treating Customers Fairly (TCF) principles?


Very confident, insurers prioritise fair treatment
Somewhat confident, but improvements are needed
Not confident, there are significant issues with fair treatment
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now