Clean bill of health for SA life industry

8 October 2013

Assets held by South African life insurers grew to R1.8-trillion in the first half of this year, representing a 5% increase from the R1.7-trillion held at the end of 2012, the Association for Savings and Investment South Africa (Asisa) announced on Monday.

Releasing the half-year statistics for the country’s long-term insurance industry, Asisa deputy CEO Peter Dempsey said the industry’s assets continued to exceed its liabilities by more than triple the legal reserve buffer required by the Financial Fervices Board.

Considered against the International Financial Reporting Standards (IFRS), the life industry’s assets exceeded its liabilities by more than four times – a clear sign that the industry remained “healthy and well positioned to honour future benefit payments to policyholders,” Dempsey said in a statement.

Premium growth

In the first half of the year, South Africa’s life industry paid R155-billion in benefits to policyholders, beneficiaries, and pension fund members as a result of death and disability claims, maturity pay-outs and pension, annuity and other payments – 27% more than the R121-billion paid out in the second half of last year.

At the same time, according to the association, total new premiums for the first six months of 2013 amounted to R47.5-billion, a healthy 10% increase over the R44.7-billion collected in the previous half-year ended December 2012.

In the first six months of the year, South African consumers took out just over 5-million new individual risk and savings policies, paying monthly premiums of R8.6-billion, the association said.

Individual recurring (monthly premium) business typically consists of endowments and retirement annuity funds, as well as life, disability, dread disease and income protection policies.

Dempsey noted that recurring premium income for the period grew by 3% for risk policies, retirement annuities and endowment policies. Credit life policies, however, experienced a 23% decline in premium income in the first half of 2013, resulting in an overall 2% decline for total recurring premiums.

Single premium policies (investment policies, living annuities, compulsory annuities, retirement annuities), on the other hand, showed strong growth in the first half of the year, with consumers buying just over 95 000 single premium policies between January and June worth premiums of R39-billion – a 13% growth in new single premiums.

Surrenders and lapses

According to Isasa, the value of surrendered policies increased by 18% from R22.4-billion in the second half of 2012 to R26.4-billion in the first half of 2013.

A policy is surrendered when a policyholder stops paying premiums and withdraws the fund’s value before maturity. Only savings and investment policies can be surrendered, and the policyholder is then paid the fund value less any unrecovered costs.

Dempsey said the value of surrendered policies should seen in the context of the total value of in-force policies – a large portion of the life industry’s R1.8-trillion assets – and not just the new investment business written.

He said the increase in surrender values did not come as a surprise, given the state of the economy, the relentless increases in the fuel price and subsequently consumer goods, and job losses.

“While it is understandable that consumers will tap into their investments when they are no longer able to make ends meet, we need to caution policyholders against cashing in their policies unless this is a last resort, since it is almost impossible to make up the value lost in later years.”

Changing face of the industry

Dempsey noted that the half-yearly statistics showed a definite trend towards new-generation linked policies.

The values of linked policies are linked to the market value of their underlying investments, and do not offer guarantees. As a result, their cost structures are different from those of old-generation policies.

“Over the last seven half-yearly reporting periods there has been a consistent shift towards linked policies, to the point where these policies now make up 47% of all policies,” he said.

“At the current rate of growth, we expect linked policies to exceed non-linked policies within the next year.”

SAinfo reporter