A survey of life insurers in South Africa
shows that confidence in the sector has dropped by 12.9 % from 93
index points in Q1 2012 to 81 in the second quarter.
This fall follows strong confidence levels in
2011 and into Q1 2012, when the confidence of life insurers
remained at or above the 90 mark.
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In spite of this drop, Tim Rutherford, a life
insurance spokesperson at Ernst & Young, said life insurance
confidence levels continue to be the strongest in the financial
services sector.
Rutherford noted that Q2 2012 was a volatile
one for financial services companies across the globe.
Eurozone crisis impact
“The lack of resolution to the Eurozone crisis
continues to wreak havoc on global equity and bond markets, and
this has a direct impact on investment income earnings for life
insurers. South African life companies were not immune from the
consequential impact, and as a result investment income earnings
slowed through the quarter.”
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By GlobalDataRutherford said: “Life insurers have generally experienced
strong uplift from a combination of strong investment income
(stemming from rising equity markets), and reasonably strong
premium income growth since the beginning of 2011. This changed in
the second quarter, with both income streams slowing noticeably,
whilst at the same time, outflows rose considerably.”
He added that premium income “slowed to a trickle” during Q2
2012 and coupled with this, life companies also faced very sharp
rises in benefit payments.
This slowdown in premium growth came about despite solid new
business growth, said the survey.
Rutherford said: “Surrenders were sharply up, and that would
have hurt overall premiums, which appears to be the experience for
many life offices. Lapses on the other hand, appear to remain under
control, rising only minimally through the quarter.”
Other findings from the survey findings included:
- An expectation that slowing investment income will prove to be
a temporary phenomena, with a strong rebound expected in Q3
2012
- Continued improvements in efficiencies, largely driven by
ongoing declines in employee numbers
- A large difference in inflows and outflows, with the total
asset book shrinking as a result of a sharp rise in outflows,
coupled with significantly slower inflows
Commenting on the state of the life insurance
industry in South Africa during Q2 2012, Rutherford said conditions
have “undoubtedly toughened”.
However, he said more recently, global economic circumstances
appear far more favourable, which at the very least, should provide
support for investment income streams.
Outlook ahead
“Initiatives under way to streamline operations are also likely
to positively benefit profits into the second half of 2012.
However, life insurers have no control of GDP and employment
growth, which remain critical for future premium growth. But the
outlook for premiums appears weak, in line with slow GDP growth
expectations,” noted Rutherford.
This is the 36th survey of life insurers
conducted in South Africa. It was conducted by the Bureau for
Economic Research in Stellenbosch.
