Life Insurance confidence holds steady
In a quarterly survey released today, EY reports that life insurance confidence was moderately above second quarter readings. Confidence rose three points from the previous level, reaching 67 index points. Although this is below long-term average levels, life insurers are the most confident across the financial services sector.
This is the 45th quarterly survey measuring confidence in the life insurance industry. The research is conducted by the Bureau for Economic Research in Stellenbosch.
The survey, which covers a broad range of financial services companies, found that over and above the moderate life insurance confidence readings, asset management and investment banking confidence continued to fall, pushing the overall financial services index down again.
The average confidence reading for life insurers is 82 index points. Anything below that level indicates relatively weaker confidence levels. Similarly, readings above that mark are indicative of stronger than usual confidence. This was the second consecutive quarter where confidence was somewhat below its average level.
Malcolm Rapson, EY Africa Insurance Sector Leader comments that the steady confidence levels of life insurers is probably attributable to revived premiums. “The first half of 2014 saw considerably slower premium growth, in line with very slow economic growth and labour strife that resulted in rising unemployment. The third quarter saw a strong positive turnaround from first half premiums, which is no doubt contributing to confidence levels holding steady.”
‘Of course’, he adds, “there is no certainty as to how well premiums will hold up through the remainder of 2014. Over the longer term, insurers will need stronger economic growth to drive premiums.”
Other survey findings include:
• In addition to positive premium growth, investment income was also considerably stronger than the second quarter’s
• Strong cost management experienced in the first half of 2014 may be more difficult to maintain in the second half of the year
• Steady surrenders and lapses levels
• Profits rose sharply during the quarter, supported by the stronger revenue flows (both premium and investment income)
• Higher profits were recorded despite squeezed risk based profits
Rapson comments on the strong profits growth, pointing out that, “Over the last few years, life insurers have recorded much stronger profits growth than what banks have. Whilst this was to some extent driven by strong stock market gains, there has also nevertheless been a consistently strong rise in premiums. This is quite remarkable given the very weak environment in which the sector operates. Whilst banks have seen a very noticeable slowing in advances growth over the last few years, life companies have not had the same experience in terms of premiums. This has been very supportive for bottom line earnings.”
Rapson concludes that despite the weak economy, there is no visible impact yet on life insurers. However, he cautions, “at some point, slow GDP growth must translate into slower premium growth. At the same time, equity markets appear to be cooling off, after strong tailwinds have supported them over the last few years. The combination of these two factors could negatively squeeze life company earnings over the medium term. For now, though, life insurers are more confident than what banks and asset managers are.”
