Life insurers report solid premium growth for 2010

08 March 2011 ASISA
Peter Dempsey

Peter Dempsey

South African life insurers attracted R66.4-billion in new individual premiums last year, which represents a 7% increase from 2009 when South Africans bought life insurance products worth R62-billion.

Reporting back on the 2010 sales statistics for the South African long-term insurance industry, Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA), says in addition to purchasing new life and disability insurance and savings policies last year, policyholders also maintained and increased their in force recurring premiums. Total recurring premiums for existing business increased by 9% last year from R66.8-billion in 2009 to R72.8-billion in 2010.

Dempsey points out that retirement annuity (RA) funds had a particularly good 2010. RA funds experienced a surge in new recurring and single premium business, with consumers having committed R1.1-billion in recurring premiums last year (7% more than in 2009) and R7.5-billion in single premiums (29% more than in 2009).

Dempsey says compulsory annuities, which are bought with retirement fund proceeds and offer guaranteed pension payments, were the only products to experience reduced inflows last year. He attributes this to lower interest rates, which resulted in lower annuity rates. As a result, says Dempsey, more people opted to invest their retirement savings in investment linked living annuities (ILLAs).

New compulsory annuity single premiums decreased by 7% from R5-billion in 2009 to R4.7–billion last year. ILLAs on the other hand experienced an increase of 8% from R15-billion in 2009 to R16.2-billion last year.

Health of the industry

According to Dempsey, the life industry remains stable and in good health.

“The life industry managed to grow new individual and group business by an inflation beating percentage last year. Considering that the operating environment remained challenging in 2010 with more than one million jobs lost, these are solid results achieved under tough operating conditions.”

Since life companies are key contributors to the savings and investment industry, which is the custodian of the bulk of the country’s savings, it is imperative that the long-term insurance industry remains well positioned to meet the needs of policyholders, investors and shareholders.

Dempsey points out that the life insurance industry’s total assets increased by 13% to R1.3-trillion at the end of December last year from R1.13-trillion at the end of 2009. “This means that industry assets now exceed the pre-crisis asset levels of R1.15-trillion held at the end of 2007.”

Dempsey says long-term insurance industry assets continue to exceed liabilities by more than double the legal reserve buffer required. This means that life companies remain well positioned to honour benefit payments due to policyholders.

Benefit payments

The life industry paid out benefits of more than R190-billion in 2010 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 9% more than in 2009, when total benefit payments amounted to R175.6-billion.

Dempsey says of these benefit payments, R15.5-billion was paid to the beneficiaries of deceased individual policyholders and R8-billion to beneficiaries of Group death cover. A total of R6.5-billion was paid in disability cover, both from individual policies and Group cover.

“Benefit payments highlight the real value add of the life industry. The Life and Disability Insurance Shortfall Study commissioned by ASISA last year has shown that South Africans are underinsured by R18.4-trillion. This means that much work remains to be done by our industry to close this very wide insurance gap and to ensure that more people get to benefit from the financial protection offered by life and disability cover.”

Surrenders and lapses

The value of surrendered investment policies increased by 11% from R33-billion in 2009 to R36.7-billion in 2010.

A policy is surrendered when the policyholder stops paying premiums and withdraws the fund value before maturity. Dempsey says surrendering a policy almost always impacts negatively on a long-term savings plan.

“The life industry remains concerned about surrenders and the impact on policyholders and continues to focus on their retention initiatives and the writing of quality business. However, the increase in the value of surrenders has also been affected by the increase in market values last year.”

He points out that 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 R1.3-trillion assets - and not just the new business written in 2010

Lapses represent another area of concern for life companies. In 2010, however, the number of lapses came down by 2%, which Dempsey describes as encouraging.

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 2010, a total of 5.1-million policies were lapsed, 2.7-million first year policies and 2.4-million policies in their second year. The value of the policies lapsed in their first year was R2.7-billion and policies lapsed in their second year R2.9-billion. The average monthly premium of policies lapsed was R90.34.

Dempsey says a significant portion of lapses are due to credit life policies being cancelled when debt is repaid or when the debtor defaults.

He adds that the lapse rate must also be compared to new recurring premium business written over the same period. While new recurring premiums for 2010 amounted to R13.6-billion, only R2.7-billion of first year premiums was lapsed. “Because new business and lapses never tie up exactly for the period measured, actual new business lapsed last year was probably even lower.”

Measuring Zimele

At the end of December 2010, there were 3.5-million Zimele approved policies in force, which represents a 13% increase over the 3.2-million policies in force at the end of 2009.

Dempsey says the majority of Zimele policies were sold in Gauteng, followed by KwaZulu Natal, and then the Eastern Cape. In all provinces more women own Zimele policies than men.

Zimele approved funeral cover was introduced in 2007, and in 2008 some life companies also introduced credit life insurance, life cover, and physical impairment cover under the Zimele brand. The Zimele brand aims to help South Africa’s low income earners, those earning R3 000 a month or less, to easily identify those life insurance products that meet the minimum protection requirements of the Financial Sector Charter (FSC).

Dempsey says with the gazetting of the FSC on the cards for the first half of this year, ASISA introduced new reporting guidelines for Zimele products at the beginning of this year. In future Zimele statistics will therefore be reported on separately.

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