Life insurers and brokers upbeat over New Year prospects
Economists, financial analysts and market commentators rely heavily on indices, surveys and statistics to inform their economic discourse. The data generated by Statistics SA and other corporate-sponsored initiatives is invaluable in determining whether S
The financial services sector publishes a number of surveys too. In today’s newsletter we’ll take a look at a couple of insurance sector releases. First, we look at the 34th quarterly survey of confidence in the life insurance industry. The Q4 2011 Ernst & Young life insurance confidence index, conducted by the Bureau for Economic Research in Stellenbosch, came in at 93 index points! It suggests that more than nine out of ten life insurers were satisfied with the business outlook at the time the survey was conducted. Tim Rutherford, life insurance spokesperson at Ernst & Young, notes that life insurance confidence levels continue to be the strongest in the financial services sector, ahead of asset managers, where only six out of ten were satisfied with prevailing business conditions, and banks, where five out of ten were.
Ignoring the Euro-zone crisis
Life insurers seem less concerned with the ongoing Euro-zone crisis than their financial sector peers. “Other financial services markets are feeling the impact of the continued global uncertainty stemming from the Euro [sovereign] debt crisis more acutely than what life insurers are,” observes Rutherford. “Banks did not [have time to] fully recover from the global financial crisis [before they] were knocked by the Euro crisis. This kept funding very tight for bankers, while asset managers felt an immediate impact in terms of weakening inflow trends and tighter margins.”
Even so, the improved confidence is surprising. Life companies rely on GDP growth and market returns for performance. South Africa was uninspiring through 2011 with full-year GDP growth pegged near 3% and total returns from equities (as measured by the JSE All Share index) of just 2.6%. Equity returns should improve through 2012, but GDP growth forecasts have been downgraded to a miserly 2.7%. Has the life sector emerged unscathed despite the disappointing returns on offer? Rutherford believes so. He says that the sector generated strong premium growth and steady investment income last year. But the country’s large life insurers had help from an unexpected development.
It seems Q4 2011 was rather mild where benefit payments were concerned. Life companies paid out a great deal less than expected with the result their asset bases grew considerably. “Life insurers had a strong 2011, and as a result, their confidence levels are well ahead of long-term average levels,” says Rutherford. There are a number of other factors contributing to the sector’s strong performance and growing confidence. Top among these is a noticeable increase in the life insurer agent force. More attention to product distribution kept new business rolling in. At the same time the insurers seem to have reduced administrative headcounts in an ongoing effort to secure operating efficiencies going forward.
The survey also revealed strong rises in new business income, sturdy profitability of risk-based products, moderate growth in surrenders and rising administration expenses through 2011. The first quarter of 2012 will be critical given that survey respondents expected a poorer business performance. Industry stakeholders are concerned by the gloomy global economic outlook. “Whilst weak GDP growth has not hindered premium growth up till now, the combination of slower premiums, coupled with potential investment income knocks, could change the scenario for life insurers,” concludes Rutherford. “But if speedy resolution to the Euro crisis can be found life insurers’ prospects will remain favourable.”
Intermediaries dial up their enthusiasm too
The second insurance survey is courtesy CIB Insurance Administrators. The group’s Q4 2011 CIB Broker Confidence Index, which measures the confidence levels of short-term insurance brokers, showed a marked improvement in broker confidence, based on their expectations for the economy through 2012. The index jumped from 56% in Q3 to 62%. Brokers are confident that business conditions for the local insurance industry will improve over the next 12 months too, registering a 63% confidence versus 59% previously. But the most important survey result deals with customer retention, with 80% of respondents indicating they were confident of retaining their customer book through 2012.
The increased confidence levels are consistent with other recently released surveys and economic data. “The South African Chamber of Commerce and Industry (Sacci) business confidence index jumped 1.7 points to 99.1 in December 2011 – which is the highest level since June,” says Jonjon Smit, Divisional Director at CIB. Brokers flagged compliance as their most significant New Year challenge. “Despite new regulations, increasing competitiveness in the insurance industry and a number of concerns around both the local and global economy, respondents are confident that 2012 will be an improvement over the previous year. This is a very encouraging sign for the South African economy and the growth of the insurance sector,” concludes Smit.
Editor’s thoughts: Results from the life insurer and broker confidence surveys suggest these financial services stakeholders have emerged relatively unscathed from the ongoing global economic turmoil. But the real test of business confidence is at the coal face… Has your business confidence improved? Do you expect ‘plain sailing’ through 2012 – or will new business be tough to come by? Add your comment below, or send it to [email protected]
