Insurance group Liberty braces for a bumpy 2020

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Liberty, through its property division, also owns Sandton City which has struggled to attract foot traffic during the lockdown. Photo: Liberty Two Degrees
Liberty, through its property division, also owns Sandton City which has struggled to attract foot traffic during the lockdown. Photo: Liberty Two Degrees

Insurance group Liberty says it expects tough times ahead, as buying insurance and investments may not be a priority for consumers while many are trying to make ends meet with lower salaries and millions are expected to lose their jobs this year.

The insurer, which is partly owned by Standard Bank, said its sales agents – the financial advisers and brokers – continue to work during the lockdown period. But time will tell whether they will be able to convince struggling consumers to keep their investments and insurance policies, let alone sell new products, in a country where insurance is largely considered a grudge purchase. Already the insurer will be losing millions of rands as it has given its customers premium reduction and holiday options on certain products up until the end of September. 

"Investment market volatility will continue to have a material impact on the returns from the Shareholder Investment Portfolio," said the insurer in a statement published on the Stock Exchange News Service on Thursday.

Even though Liberty's focus on middle- and high-income earners who are less susceptible to job losses may put in a lightly better position than insurers who predominantly serve low-income earners, stock market volatility is of great concern because the company generates a sizable chunk of its profits from investment returns on its shareholder capital.

In the financial year ended December 2019, the insurer's profits largely benefited from a generous R1 billion return from this shareholder capital.

"We also expect increased pressure on new business volumes and margins given the extended lockdown period," added Liberty.

Going into lockdown, some of the insurer's business units were already feeling the impact of Covid-19.

While its SA retail insurance operations grew new sales by 4.2% in the three months to March, the division that provides retirement and group insurance benefits at workplaces, called Liberty Corporate, recorded only half of new business it wrote in the first three months of 2019. It also recorded R401 million in net cash outflow – meaning there were more people withdrawing their investments.

Liberty said this was in line with SA's economic environment, as more people have been losing their jobs, and therefore withdrawing from their retirement schemes.

Assets under management in Liberty's asset management business, Stanlib decreased following the market bloodbath that started early in March. 

Liberty, through its property division, Liberty Two Degrees, also owns shopping centres like Sandton City and Melrose Arch which has struggled to attract foot traffic during the lockdown. Liberty Two Degrees warned its shareholders at the end of March that Covid-19 will affect its rental income.

"The Covid-19 pandemic has generated an unprecedented health, economic and financial crisis causing high levels of anxiety and uncertainty for our clients, advisers and staff. This crisis is creating significant uncertainty for Liberty’s financial performance for the 2020 financial year," said Liberty.

More insurers may publish voluntary trading updates in the wake of disruptions caused by the lockdown. Old Mutual said on Wednesday it will be publishing its update on 28 May.

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