S&P sees restricted growth for non-life insurers
RATINGS agency Standard & Poor’s (S&P) said yesterday in a report that SA’s non-life insurance industry faced constrained growth, although it would maintain its profitability.
A competitive non-life insurance sector and lower than expected economic growth made it a bit harder for non-life insurers to excel, as weaker job growth also made it difficult for people to buy assets that could be insured, S&P said.
This meant insurers had to maintain strong underwriting discipline and manage their claims expenses.
“The good historical levels of profitability arise from good underwriting discipline and the absence of large, catastrophic claims,” S&P said. “We do not expect gross premiums written to grow or decline significantly, relative to GDP (gross domestic product).… We consider premium penetration to be high, relative to other emerging markets and on a par with many developed markets,” the agency said.
S&P’s report said non-life premiums in SA represented 2,7% of GDP, on par with Denmark and Australia, whose non-life premiums represented 2,9% and 2,8%, respectively. The global average was 2,9%.
“It’s a very competitive market and the economy is not growing that fast,” OUTsurance CEO Willem Roos said.
S&P said new regulations were likely to be costly, making it hard for new players to enter the industry. It said a handful of firms accounted for half of all premiums written in SA.
A few notable players in SA’s nonlife insurance market include Santam, Mutual and Federal, OUTsurance, Auto & General, Discovery Insure and Budget.
The value of non-life
gross written premiums written in the country amounted to more than R72bn in 2010.
“We consider that the barriers are moderate, but are likely to rise because of forthcoming changes in regulation. SA has a highly developed and highly competitive non-life insurance market, which is viewed as technically sophisticated,” S&P said. It said that the minimum capital for an insurance company to operate was R10m.
The agency said the implementation of the solvency assessment and management (SAM) programme would increase the barriers to entry because of a probable increase in capital, system and reporting requirements.
“We agree that regulation has become costly and has increased the cost of entry for new players,” Mr Roos said.
SAM is being developed by the Financial Services Board to protect consumers. The board wants to align capital requirements with the underlying risks of an insurer and provide incentives to insurers to adopt more sophisticated risk monitoring.
The other challenge for the industry is the shortage of skills.