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South Africa Insurance Report Q4 2011
Business Monitor International, Nov 2011, Pages: 65
Business Monitor International's 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.
During September 2011, several of South Africa’s leading insurance companies released their results for H111. The latest results generally confirm the trends and patterns BMI discussed in the Q311 report. In spite of their absolute size, and the overall importance of life insurance products in South Africa’s organised savings system, the major companies reported double-digit growth in most aspects of their businesses.
Encouragingly, the number of life policies outstanding has grown by about 5% and lapse rates have fallen. In part because of lower claims and payments, profitability has improved. In future, company managements are positive about cost reductions, introduction of new products in South Africa and/or expansion into other markets in Sub-Saharan Africa. The main threat would appear to be volatility in global financial markets, but this is a challenge with which South Africa’s insurance giants have lived with for a long time.
Notwithstanding that net non-life premiums in H111 appear to be about 14% higher than those of H110, BMI believes gross written premiums are hardly rising at all. Among the largest non-life companies, Santam and Mutual & Federal reported single digit growth in gross written premiums, while Zurich South Africa’s business contracted by 14% as the company reorganised its portfolio.
Even if the projections for non-life premiums in 2011 as a whole turn out to be pessimistic, BMI sees no catalyst for an unfavourable long-term trend: a steady decline in non-life penetration. Essentially, competitive pressures are driving prices downwards. In order to maintain or grow profitability, the non-life insurers have had to work aggressively to contain claims costs, to reduce operating expenses and to exploit opportunities of scale.
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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