Insurers need new customers
FOR insurers to sustain profitable growth, they needed to find new customers and address unmet, new and evolving needs, while retaining ample margin, says PwC Actuarial, Risk and Quants partner Renasha Govender.
She said while in the past they had been able to generate value from their investment strategies, regulatory costs and constraints had meant that innovation with regard to products, integrated services and partnerships had proven to be key necessary drivers for continued financial success within the industry globally.
Key indicators for the past decade demonstrated that growth in profitability was muted even before the pandemic. Combined IFRS (International Financial Reporting Standards) earnings grew in line with inflation and Value of New Business (VNB) margins trended slightly downwards.
The industry had achieved VNB margins of between 2.7 percent and 3.1 percent over the period 2011 to 2015 as highlighted in previous PwC publications on the life insurer’s results. However, these had already decreased to 2.4 percent in 2018 and 2019. The VNB margin achieved last year was lower still at 1.9 percent, but an improvement from the result in 2020 of 1.49 percent.
Last year the five insurers achieved a VNB worth R6.9 billion, significantly more than the R4.7bn gained in 2020, but still below the VNB results for 2018 and 2019.
The present value of new business premiums increased by 13 percent from 2019, but was not sufficient to offset the fall in margins compared with pre-pandemic levels.
PwC said local life insurers were tested last year by the economic consequences and accompanying financial market volatility caused by the Covid19 pandemic.
Under the theme “Sustaining Impact: Reflecting on past resilience and future challenges of life insurers in South Africa”, PwC South Africa’s analysis of major life insurers found that the local insurance industry was able to meet its escalating obligations to policyholders, and maintain required capital and liquidity positions, while dealing with business interruption.
Results for the year ending December 31, 2021 were analysed for five major insurers which included Discovery, Liberty Holdings, Momentum Metropolitan Holdings, Old Mutual and Sanlam.
PwC Africa insurance leader Alsue du Preez said macro-economic factors constrained profitable growth, which was also compounded by Russia’s invasion of Ukraine that had led to further supply chain disruptions and a sharp rise in various resource prices globally.
“Given the consequent higher inflation, weaker external demand and an unreliable power supply (the country’s largest growth inhibitor), we now forecast a real GDP growth rate of 2.0 percent this year, from 2.3 percent previously.”