Life insurers still licking financial crisis wounds
South Africa’s life insurance industry received a ‘clean bill of health’ from the Association for Savings and Investment SA (ASISIA) recently. The organisation was commenting on the 2009 sales statistics for the long-term insurance industry. These numbers are compiled annually from life companies that were previously members of the Life Offices’ Association (LOA), and are now members of ASISA. Data from investment houses with life licences, who were not previously members of the LOA, is excluded.
ASISA’s assessment of the industry centres on the R62bn in new premium business written for life insurance products through 2009. The new recurring and single premium spend was only 5% down on the R65.5bn achieved in the previous year. Peter Dempsey, deputy CEO of ASISA, says the uncertainty caused by the global financial crisis and the resulting economic woes had slowed consumer uptake of life products, particularly in the single premium space, in the second half of 2008 and during the first half of 2009. Although 2009 results are promising one has to consider the large decline experienced by the industry in the previous year.
Saved by the bell!
The strong performance is thanks to an impressive turnaround. Life insurers experienced a surge of 18% in new recurring and single premium business during the second half of last year, collecting R33.6bn in new premiums in the six months. This is a clear indication that consumer confidence is on the rise. Dempsey says given the economic hardships experienced by the majority of South Africans last year, the initial slowing in single premium business did not come as a surprise. “We believe that many South Africans chose to defer their retirement and therefore did not have lump sum retirement savings to invest in living annuities and compulsory annuities.” Consumers were also less inclined to commit their spare cash to life investments.
Total recurring premiums increased by 9% over the year too. This confirms that policyholders have maintained and increased their recurring premium policies through the year. FAnews wondered how much of this increase could be ascribed to annual premium escalations.
Surviving the storm
“Total income for the industry from existing individual premiums, group insurance premiums, investment income and fees dropped by only 1% in 2009 compared to 2008, from R251.9-billion to R248.8-billion,” says Dempsey. The total assets under management in the industry increased 4% to R1.13trn over the same period. Industry assets now exceed liabilities by more than three times the legal reserve buffer. We get the impression the industry managed its assets extremely conservatively, and – although traditionally favouring cash and bonds – has missed out on the strong equity market recovery since March last year.
Policyholders, beneficiaries and pension fund members received R175.6bn in death and disability claims, maturity payouts, pensions, annuity and other payments last year. Death and disability benefit payments for individual policies recorded significant increases of 16% and 17% respectively!
What about policy surrenders and lapses?
Dempsey says the value of surrendered investment policies dropped by 14% to R33m. “We suspect that the value enhancements of investment policies surrendered after December 2006 may have tempted more people to surrender their policies in 2007 and 2008. This trend appears to have slowed.” Statistics for policy lapses were less impressive. The lapse rate (when policyholders stop paying premiums before the fund value exceeds the un-recovered costs) was 14% higher in 2009. A total of 5.2 million policies were lapsed, including 3 million first year policies and 2.2 million policies in their second year. The value of lapsed policies totalled R6.2bn.
Servicing low income earners
In 2007 life insurers launched the Zimele brand in a bid to make inroads into the previously under-serviced low income market (households earning less than R3 000 per month). Products carrying the Zimele stamp of approval comply with the minimum protection requirements set out in the Financial Sector Charter. The initiative focused on funeral cover before expanding to offer credit life, life and physical impairment covers. At 31 December 2009 there were 1.9 million Zimele approved policies in force, up from 1.7 million at the end 2008. There were also 1.3-million Zimele approved credit life policies in force.
Editor’s thoughts: The life industry numbers for 2009 flatter slightly, coming on the back of a dismal 2008 performance. The real test for the industry through 2010 is whether consumers flock back to risk and investment products given high levels of household debt, declining real disposable incomes and rising unemployment. Do you think a 14% lapse rate is acceptable? Add your comments below, or send them to [email protected]
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