PwC’s Insurance Industry Analysis unpacks industry figures
Proposed regulatory and reporting changes are a huge challenge to the insurance industry and the costs of implementing Social Security reforms, Treating Customers Fairly (TCF) and Solvency Assessment and Management (SAM) will not be insignificant.
As we know, SAM is being adapted for the South African market, and the second South African Quantitative Impact Study (SA QIS2) marked a milestone in its development. It was the last voluntary quantitative impact study – the third one, SA QIS3, will be compulsory. PwC’s recently released second edition of its Insurance Industry Analysis looks at the implications SAM will have on the future of insurance financial reporting. It takes into consideration what insurers will have to deal with and how SAM will affect external reporting.
Some good news emerging from PwC’s publication is that the financial results of South Africa’s major insurers for the year ended 31 December 2012 shows that the industry is stable and in good financial health.
The long-term insurance picture
The financial results of Discovery, Liberty, MMI, Old Mutual and Sanlam have been included in the publication.
Long-term insurers recorded combined group IFRS earnings of R20.4 billion, up 2% from 2011. The present value of new business premiums (PVNBP), which includes insurance and investment contracts, shows an increase of 7.4% for the financial year, up from 6.6% in 2011. There is a growing demand for life insurance products, which ASISA has also noted. Although consumers are struggling financially, they are still purchasing these products, and new business written is always good news for the industry (long-term insurers grew the value of new business by 27%, against 24% in 2011).
Acquisition costs incurred by the businesses of the long-term insurers increased by 8.9% to R12.8 billion in 2012. This is lower than the increase in Annual Premium Equivalent growth of 7.7% over the same period. Acquisition costs have not increased to the same extent as new business premiums. This could be because of a changing product mix, with more investment products being sold, and these tend to attract relatively lower commissions than risk products.
The short-term insurance picture
The results of the following five short-term insurance companies have been included in the publication: Absa Insurance Company, Mutual & Federal, Outsurance Holdings, Santam and Zurich Insurance Company South Africa.
Gross written premiums (GWP) increased by 10% during 2012 to R44.8 billion for the year. The growth is ahead of the CPI index of 5.6% for 2012. This is an improvement over flat 2011 figures. The 2012 industry results also benefitted from strong growth achieved in Outsurance’s Australian business. This business doubled in size during 2012 and even if this result is eliminated the industry still grew GWP by a decent 7.6%.
In South Africa, the industry followed the global underwriting trend for 2012, where the first three quarters of the year were no great shakes in terms of performance. The fourth quarter was obviously affected by the claims for the multi-million Rand hailstorms in Gauteng and the St Francis Bay fires. Internationally, Hurricane Sandy also affected the reinsurance market in this quarter.
The underwriting margin achieved in 2011 of 9.3% was nearly halved to 4.6% in 2012, largely due to the catastrophic losses suffered during the year. Panel beaters had to contend with the increased volume in motor vehicle repairs because of bad weather, for example.
The industry’s overall claims ratio increased to 66% (2011: 62%). Insurers said the weaker Rand in the second half of 2012 played a role, together with an increase in crime-related claims. Although insurers are showing a tendency to shift their focus to cost savings, this does increase exposure to risk, which means they should step up their underwriting. This could be the difference between insurers who maintain good margins and those who do not. A number of the local players have indicated that they will be re-pricing some of their business on a selective basis in 2013.
Editor’s thoughts: Tom Winterboer, PwC Leader of Financial Service for Africa, says that an area of growth to watch is technology, with the use of big data and cloud. Insurers are likely to expand on the African continent and the African market will be attractive to global insurers, which is another trend to watch. Which trends have you flagged as being important to the industry in the future? Comment below or email [email protected].
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