Property props up the short term sector

Some highlights from the FSB short term insurance annual report (2004).

Rob Barrow, in his capacity as the registrar of short term insurance in 2004, says in his most recent annual report that the Road Accident Fund is technically bankrupt and the deficit increased by 20% to R18 557m in the 2004 period.

His comment is that it will remain so unless drastic changes are made.

In his overview of the industry in 2004 he says that gross premiums of the primary insurers in the short-term insurance industry grew by 12.1%, compared to a 13.4% increase in 2003 and an increase of 18.5% in 2002.

The increase in 2004 is attributable to normal inflationary increases in premiums coupled with another period of sharp increase in the value of residential property, which is the second largest class of business underwritten by the short-term insurance industry.

Meanwhile the underwriting results for the primary short-term insurance industry during 2004 showed a further substantial improvement from 6% (where underwriting profit is expressed as a percentage of net premiums) in 2003 to 12% in 2004, with all classes of business showing underwriting profits, except miscellaneous business.

Again, no major catastrophes or natural disasters occurred during the 2004 calendar year, which contributed to an improvement in the underwriting results.

Interestingly investment income contributed to a 24% operating profit expressed as a percentage of net premiums for 2004, 17% in 2003.

The increase in the operating profit is evidence of the improvement in underwriting results and the increase in the investment returns earned by the short-term insurers and a shift towards investment in stock is reflected.

Surplus assets as a percentage of net premiums of primary insurers have increased from 74% in 2003 to 76% in 2004. In the low interest rate and inflation environment short-term insurers are focusing their attention on optimising the allocation of capital across business activities.

Editor's thoughts:

* I still wonder why these figures are more than 12 months old, when those listed entities that fall into this sector are forced to release their results to the market within three months of the end of the reporting period.
* The registrar's comment that the RAF is bankrupt is not news. One wonders who is going to fix it?
* The fact that the registrar reports on the investment returns made by the insurers is also interesting. Consider for a minute the drive by the Council for Medical Schemes to have investment returns generated by the medical schemes excluded from their results.
* The comment that the property sector was a big contributor to the premium increases masks an underlying issue. Especially as we move into a cooling off period in the property sector in 2006.