LOA: Steady growth for life insurers, but at a slower pace as consumers suffer

The South African life insurance industry grew by 14% during the first half of this year compared to the same period last year, with total premium and investment income increasing to more than R124-billion from R108.4-billion. When compared to the second half of last year, total income increased by 1% from R122.2-billion.

A healthy net inflow of R17.1-billion was recorded, an increase of 95% from the first half of last year when the net inflow stood at a modest R8.8-billion.

The 2008 half-yearly statistics for the long-term insurance industry released by the Life Offices’ Association (LOA) this week show that life insurers also continued to attract new premiums during the first half of this year, despite consumers grappling with high interest rates and substantial increases in the overall cost of living.

Gerhard Joubert (pictured), CEO of the LOA, says new premiums grew by 5% to R31.9-billion in the period from 1 January to 30 June this year, compared to R30.2-billion in the second half of last year. Compared to the first half of last year, new premiums were up by 22% from R26.2-billion.

Joubert says the statistics do confirm, however, that South Africans are feeling the pinch. While consumers bought 13% more recurring premium policies during the first half of this year compared to the same period last year, there was a slight decline in recurring premiums for individual business of 7% from R4.9-billion in the second half of last year to R4.6-billion in the first half of this year. These statistics measure life, disability and endowment policies, but exclude retirement annuity and credit life policies.

This decline, says Joubert, is likely to increase even further the significant life and disability insurance shortfall in South Africa. An independent study commissioned by the LOA last year into the life and disability insurance shortfall for South African households showed that South African families are grossly underinsured by an estimated R10-trillion.

Retirement savings

The statistics also indicate that South Africans continue to take saving for their retirement seriously.

Joubert notes that sales in new recurring premium retirement annuity (RA) fund policies increased by 3% to R749-million in the first half of this year compared to R725.3-million in the second half of last year. However, sales in the first half of this year were at the same level as the sales during the first half of last year.

Sales in new single premium RA fund policies increased more significantly – an 11% increase pushed premiums from R3.5-billion in the second half of last year to R3.9-billion in the first half of this year. The increase was even more significant if compared to the first half of last year - new single premiums went up by 26% from R3.1-billion.

Living annuities still in vogue

The half-yearly statistics show that the shift from the conventional annuity to the investment linked living annuity (ILLA) continues. While living annuities attracted a whopping R8.4-billion in new single premiums (a growth of 51% compared to the second half of last year), conventional annuities managed a growth of only 15% to R3-billion over the same period.

Joubert explains that this trend indicates that investors prefer the flexibility provided by living annuities.

Not only do living annuities enable investors to change the rate of income withdrawal as needs change, but they also allow for active participation in the choice of the underlying market linked investments. With a conventional annuity the annuity rate, or monthly pension, is determined by the life insurer and is dependent on the current interest rate.

Benefit payments

Life companies put close to R90-billion back in the hands of beneficiaries, policyholders and pension fund members as a result of death and disability claims as well as maturity pay-outs and pension and annuity payments during the first six months of this year.

Joubert says this represents an increase of 13% over the first half of last year and a 5% increase over the second half of last year.

Surrenders and lapses

The value of individual policies surrendered during the first half of this year is up by 8% over the second half of last year, from R17.2-billion to R18.6-billion. The value of policies surrendered in the second half of last year was up by 17%, compared to the first half. A policy is surrendered when the policyholder stops paying premiums and withdraws the reduced fund value before maturity.

Joubert says this figure is not surprising given the fact that consumers have less disposable income and are therefore more likely to dip into their savings. He adds, however, that the higher early termination values applicable to savings policies also play a role in pushing up the actual surrender values. “Considering that the early termination charges will reduce even further as from January next year, surrender values are likely to continue increasing.”

Joubert says the value of policies lapsed during the first six months of this year increased by 11% compared to the same period last year, from R1.8-billion to R2-billion. Compared to the second half of last year the value of policies lapsed increased by 23% from R1.6-billion. The average monthly premium per policy lapsed in the first half of this year amounted to R81.84.

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 risk policies, however, a lapse has no impact on the policyholder as there was no policy value.