SA life insurers inject R345bn into economy

(Shutterstock)
(Shutterstock)

Cape Town - The life insurance industry held assets of R2.2trn at the end of 2014, a healthy increase of 12% from the R2trn held at the end of 2013.

This means that in 2014, long-term insurance industry assets exceeded liabilities by two times the legal reserve buffer required.

The Association for Savings and Investment South Africa (Asisa) announced these results in its 2014 long-term insurance industry statistics on Tuesday.

"South African life insurance companies remain financially healthy and well positioned to honour future benefit payments to policyholders," the association said in a statement.

Peter Dempsey, deputy CEO of Asisa, said the financial stability of the country’s long-term insurance industry is of critical importance, considering that the provision of risk cover to consumers is its core business. The life industry is also recognised as the custodian of a significant portion of the country’s long-term savings pool.

In 2014, the total benefits paid to policyholders, beneficiaries, and pension fund members as a result of death and disability claims, maturity pay-outs and pension, annuity and other payments amounted to R345bn. This is 9% more than in 2013, when total benefit payments amounted to R317bn.

Dempsey highlights that of these benefits paid in 2014, more than R29.4bn was paid to individuals who had experienced either death or disability in their family circle.

Life insurance seen as a grudge purchase

“The reality is that without the financial protection offered by life and disability cover, many more families would have been left destitute last year," he said. "Yet, consumers continue to see long-term risk cover for eventualities like death, permanent disability, temporary disability and dread diseases as a grudge purchase forced on them by advisers.”

In 2014, consumers took out five million new individual risk policies to cover events such as death, disability and dread disease. In 2013 consumers took out 5.3 million risk policies. This represents a 6% decrease in the number of policies bought in 2014 when compared to 2013.

“A decrease in the growth of risk policies is of grave concern to the industry, especially since the insurance gap, which is the difference between existing life and disability cover and the actual insurance need of South African earners, had widened to a staggering R24trn by 2013. This translates to an average life cover shortfall of R700 000 per average income earner and a disability cover shortfall of R1.1m.”

Asisa measures the life and disability insurance gap every three years.

New premium inflows

In 2014, the life industry attracted total new premium income (recurring and single premiums) of R121.4bn, an increase of 14% over the R106.4bn collected in 2013.

Dempsey pointed out that once again single premium investments made up the bulk of new premium income in 2014.

Single premium policies (investment policies, living annuities, compulsory annuities, retirement annuities) delivered strong growth of 18% in 2014 with premium income of R103.1bn.

Recurring premium income on the other hand showed a slight drop of 3% down to R18.3bn. Recurring premiums into retirement annuities for 2014 grew by 8%, but risk policies, endowment policies and credit life attracted fewer recurring premiums.

Dempsey said while the growth in single premium business has outstripped growth in recurring premium for a number of years now, the introduction of tax free savings and investment accounts could boost recurring premium savings business.

Surrenders and lapses

The surrender value of individual savings policies increased by 9% in 2014 to R57.9bn. A policy is surrendered when the policyholder stops paying premiums and withdraws the fund value before maturity.

Dempsey said that considering the JSE All Share Index (ALSI) in 2014 returned 10.9% in 2014, the 9% increase in surrender values for 2014 can be partly attributed to higher investment returns.

He added that the statistics for surrendered policies must be viewed in the context of the total value of in force policies - a large portion of the life industry’s R2.2trn assets - and not just the new investment business written in 2014.

A positive development is the 14% decrease in policies lapsed within the first year of being written. A lapse occurs when the policyholder stops paying premiums for a policy.

Dempsey said while new recurring premiums for the 12 months ended 31 December 2014 amounted to R18.3bn, first year premiums worth R3.7bn were lapsed.

“Despite the decrease in first year policy lapses, it is concerning that risk policies continue to show the highest lapse rate. Around one in three of all new risk policies lapsed during the first year. The trend for savings policies is better, with only around one in seven new savings policies lapsing in the first year.”

                      
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