Life Insurance confidence rises sharply in the fourth quarter of 2014
In a quarterly survey released today, EY reports that life insurance confidence rose sharply from third quarter levels. Confidence rose a considerable 14 index points from previous readings, up from 67 to 81 index points. This makes life insurers amongst the most confident across the financial services sector.
This is the 46th 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 stronger life insurance confidence readings, asset management confidence plummeted again. Overall, though, the financial services index rose in the last quarter of the year.
The long term 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 rebound therefore places insurers’ confidence back in line with its long term average levels.
Malcolm Rapson, EY Africa Insurance Sector Leader comments that the stronger confidence levels of life insurers is probably attributable to revived premium inflows. “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 positive turnaround from first half premiums, which have accelerated further into the fourth quarter increasing confidence levels, in spite of a reduction in growth of risk business premiums. A further positive development was a noticeable reduction in lapses meaning more policies are being retained on life insurer’s books despite a small increase in surrenders. “
He adds, “There is no certainty as to how well premiums will hold up going into 2015, although respondents expect premium income growth to continue positively in the first quarter of 2015. We suspect the stronger premiums may be the result of base-effects following the initial mining strikes that started in the third quarter of 2013, from which business volumes recovered in the third and fourth quarters of 2014. At this point, investment income has been strongly favourable for life insurers. Over the longer term, however, they will need stronger economic growth to help lift premiums. In this aspect, life insurers are no different to their banking peers, who are grappling with trying to grow advances in a very weak growth environment.”
Other survey findings include:
• New business premium confidence grew in the fourth quarter 2014 to the highest level since the second quarter of 2013.
• Investment income grew less rapidly than second quarter levels, but remains nevertheless positive.
• Some relief in cost growth trends, after a sharp uptick in the previous quarter.
• Profits growth slowed once again during the quarter, despite stronger premium flows, and perhaps due to weaker investment income growth.
• A noticeable contraction in the profitability of risk business.
Rapson comments on the relatively slowing profits growth, pointing out that “profits growth remains strongly positive, albeit weaker than third quarter levels. Confidence in Life insurer profits growth is the strongest in the financial services sector.”
Rapson concludes that the weak economy has yet to really hurt life insurers. “They have continued to attract new business and largely retain their in-force books and have been cushioned by generally favourable equity markets. However, equity markets were volatile in the fourth quarter, which resulted in slowing investment surpluses. He cautions that ‘consistently weak GDP growth may result in slower premium growth at some point. But for now life insurers remain far more confident than banks and asset managers.”
To read the full report click here.
