Insurers show resilience amid Covid-19 challenges
WHILE major life insurers lost billions in profit due to the Covid-19 pandemic and the challenging macroeconomic uncertainty, they have remained resilient and delivered credible results, according to Pricewaterhouse-Coopers (PwC).
A report issued yesterday by PwC, titled Humanity and innovation: the new tomorrow for insurers, analysed the major life insurers’ results for the year to December 31, 2020.
Alsue du Preez, insurance leader for PwC Africa, said life insurers were both bearers and expert managers of these risks, and their results for 2020 demonstrated how they had performed during an unprecedented and extremely challenging year.
PwC’s analysis of South Africa’s major life insurers presented the combined results of Discovery Holdings, Liberty Holdings, Momentum Metropolitan Holdings, Old Mutual and Sanlam.
The insurers posted a total comprehensive loss of R870 million compared with a profit of R22.1 billion reported in 2019, which reflected the higher levels of mortality claims and the challenging macroeconomic environment of last year.
In the first half of 2020, the industry was said to have reacted to the Covid-19 pandemic by modifying its assumptions about mortality claims and lapses in the short-to-medium term, due to the disease and the impact of the lockdowns on consumers, respectively.
The Covid-19 pandemic and the current economic climate resulted in the top five insurers losing R8bn of value last year, compared with R32bn created in 2019. The combined group embedded value/equity value (EV) of the insurers fell by 9 percent last year.
The decline in EV was said to be driven largely by the assumption changes made to allow for the expected adverse claims and persistency experience (Covid-19 reserves), as well as the poor investment experience and changes to interest rates over the year.
It was also notable that the value created from selling new business last year was only 63 percent of that achieved in 2019, as a result of the lockdowns.
Earlier this month, the Association for Savings and Investment South Africa said life insurers paid more than R500bn to policyholders and beneficiaries last year. This represented an increase of R31.7bn from the R491bn injected into the economy in 2019 through payments made to policyholders and beneficiaries.
In response to the impact of Covid19, the companies raised significant reserves. By far the biggest contributor to the R15bn increase in reserves related to expected mortality claims over the near term.
Insurers also impaired non-financial assets to the value of R17.1bn.
The industry expected a recovery to pre-Covid-19 profitability levels in the next 18 to 24 months by accelerating digital investment such as direct-tocustomer engagements, automated advice, digital underwriting and cloud and cybersecurity coverage capabilities.
Du Preez said this was similar to the findings of PwC’s Annual Global CEO Survey 2021 in which 62 percent of the insurers’ chief executives said that they planned significantly to increase investment in digital transformation in the short term.
Other areas of increasing investment by insurers were cybersecurity and data privacy, at 40 percent, initiatives to realise cost efficiencies (33 percent), leadership and talent development (31 percent), and sustainability and environmental, social and governance initiatives (21 percent).
PwC Africa said the industry was also clearly focused on how to come back stronger after the crisis while carefully monitoring the development of mortality claims experience in the near term.