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South Africa Insurance Report Q3 2011
Business Monitor International, July 2011, Pages: 65
The South Africa Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Africa's insurance industry.
- South Africa’s insurance segment stands out for its absolute size, sophistication and, in the life segment at least, potential for further growth.
- The competitive pressure is such that non-life penetration is unlikely to rise over the forecast period.
- Further consolidation of the industry appears likely.
In many ways, South Africa’s life insurance companies are in an enviable position. Partly because of the country’s unique economic and political history, they enjoy the advantages of absolute size and scale, committed shareholders and pricing power. South Africa is, par excellence, an example of a life insurance market where the competitive position of the local players represents a barrier to entry from outside the countries –even if there is no legal reason why foreigners should not enter the market. Despite the longSouth term challenges facing the country, life insurers have demonstrated that they can engage first-time users of life insurance and sell more products to existing customers. Life insurance products are at the centre of the country’s organised savings industry. Life insurers have also shown they can seek opportunities in other countries in Sub-Saharan Africa (SSA) and in the developed world as well. Life insurance in South Africa will grow even if the economy does not.
The same does not appear to be true of the non-life insurance segment. Like the life segment, it is open to foreign competition and dominated by well regulated, well capitalised, well managed and commercially proactive firms, many of which would be considered (very) substantial compared to their peers in other countries. However, the competitive pressure, which is alluded to in comments from the largest non-life insurers, is of sufficient magnitude that it overwhelms all the positive growth drivers. South Africa is a rare middle-income country in which non-life penetration has fallen over the last half decade. We see no reason why this trend should change. Nevertheless, the absolute growth in nominal GDP is such that nonlife premiums should rise in absolute terms.
The latest figures confirm that whether they are operating in the non-life or the life segments, South Africa’s insurers fully understand the challenges. Even if premiums are stagnant or falling, profits are generally growing. Companies have successfully contained costs relative to revenue in early 2011. The Financial Services Board (FSB)’s Solvency Assessment and Management (SAM) regime may require that some players strengthen their capital bases over the coming years. However, it is very difficult to imagine that the problems will be insoluble. More high profile deals, in the wake of the merger that produced MMI Holdings, are a distinct possibility.
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