Life insurers up income and benefit payments in 2005

04 April 2006 Lucienne Fild

The life industry managed to attract strong growth last year, recording an increase in total income to more than R100.7-billion for the half year ended 31 December 2005.

All this despite having faced a watershed year likely to bring about new business practices and products supported by redefined legislation and regulation.

The industrys income of R100.7-billion in the second half of last year shows an increase of 18% from the R85-billion income achieved in the same period in 2004.

Good news for policyholders is that while the life industry was experiencing good growth, the total benefits paid by life insurers last year increased by a similar percentage of 17% to R145.6-billion from R124.8-billlion in 2004.

Gerhard Joubert, CEO of the Life Offices Association, says life companies broke through the R100-billion income mark for the first time ever at the end of December last year.

The fact that the industrys new record level of half yearly income was mainly derived from individual policy premiums shows that consumers still have faith in life companies and their products, says Joubert.

He points out that even retirement annuity (RA) funds attracted a remarkably high amount of business last year, despite the bad publicity these products had received following the rulings by the Pensions Fund Adjudicator throughout 2005.  Total recurring premiums for RA funds increased by 6% to R9.9-billion last year compared to 2004. And new RA recurring premium business increased by 4% to R1.6-billion last year compared to 2004. 

Joubert notes that thanks to the rallying equity market, total assets under management by the life industry exceeded R1 000-billion for the first time ever last year, an increase of 18% to R1 019-billion from 2004.

Industry Income for 2005
Looking at year on year figures, total income increased by 16% last year to a total R189-billion, compared to R163.6-billion in 2004.

Individual recurring premium business increased by 10% to R24.1-billion for the half year ended 31 December 2005, compared to the same period in 2004. And new individual recurring income increased by 15% to R4.7-billion over the same period.

Single premiums showed a comparable jump - up by 11% to R19.2-billion, against the second half of 2004.

In comparison, individual surrenders increased by only 7% in the second half last year, seen against the same period in 2004. Joubert comments that the Rand value of surrenders had increased significantly last year as a result of the booming equity market, although fewer policies had actually been surrendered.

Joubert says the most spectacular growth was recorded by group (i.e. employee benefits) business. He says total premiums increased by 38% to R34.9-billion in the second half of last year from the R25.3-billion level in at the end of December 2004. In addition, group business premiums increased by 31% against the first half of last year. This, says Joubert, means most of the growth in this space happened in the latter part of 2005.

Industry statistics show a very high percentage of 39% for group business surrenders in the second half of last year compared to the first, but Joubert explains that most of this figure represents pension fund schemes moving from one company to another, rather than out of the industry completely.

Benefits paid
Life companies recorded a significant increase in individual death and disability payouts last year a 16% increase to R8.5-billion in death benefits and an 11% increase to R1.4-billion in disability benefits - compared to 2004. Joubert says that this could be attributable to several reasons, including the possibility of an aging policyholder base, an increase in accident related deaths, as well as the impact of HIV/Aids.

Group business disability benefit payouts increased by 21% last year compared to 2004.

Joubert says unfortunately the number of policies being lapsed remains unacceptably high, and increased by 22% last year compared to the previous year. He says statistics show that more policies were being lapsed in their second year than in their first year.

Joubert says of concern is the fact that typically a higher proportion of low premium policies lapse, indicating that affordability of policies remains an issue.

He says this will hopefully be addressed soon when the industry introduces its new CAT standard products, which aim to provide the lower income market with life products that offer fair Charges, easy Access and decent Terms, a commitment that the members of the LOA made by way of the Financial Sector Charter. This, he says, should help bring down the lapse rate substantially, as these products also aim to provide for grace periods where policyholders are unable to pay their premiums for a short period of time.
It is important to remember that the lapse statistics include risk business, where there is no prejudice to policyholders who lapse their policies as they have received cover for the premium paying period and typically change to another provider.
Joubert says total sales remuneration (commission, branch costs, and broker consultant fees) increased by 6% for individual and group business last year.
Statistics also prove that the life industrys vigorous cost cutting efforts started to pay off last year. Joubert says companies managed to limit an increase in administration and marketing expenses to a mere 2% in the second half of last year, compared to the same period in 2004.




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