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South Africa’s insurance industry giants brace for billions in Covid-related death claims

Sanlam offices in Cape Town, South Africa. (Photo: Gallo Images/Misha Jordaan) | The offices of Old Mutual in Johannesburg, South Africa. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | Momentum Metropolitan in Centurion, South Africa. (Photo: Gallo Images / Luba Lesolle)

The insurance industry is preparing for the worst in terms of death claims linked to Covid-19. Old Mutual has set aside another R2bn to cover potential death claims. Momentum has set aside an additional R1.6bn and Liberty is budgeting at least R1.2bn.

South Africa’s biggest life insurers have kicked off the latest earnings season by reporting profits in the first half of 2021, indicating that the industry is staging a recovery from the devastating effects of the Covid-19 pandemic. 

Old Mutual has become the second insurer to swing back into a profit, even though it has set aside more money to pay out mortality claims arising from the third wave of Covid-19. It has even resumed dividend payments to shareholders.

Old Mutual, SA’s second-largest life insurer, saw its after-tax profit increase by nearly R3-billion for the six months to June 2021, compared with a R5.6-billion loss during the same period in 2020. 

So far, Old Mutual’s earnings are industry-leading, surpassing the profits recently posted by its competitor, Liberty, which also returned to a profit-making position. Liberty reported a profit after tax of R551-million in the six months to June 2021, compared with a loss of R3.4-billion the previous year.

On the results calendar, Sanlam is the next insurer to report its interim financial results on 9 September. For the first four months of 2021, Sanlam has forecasted improved profits and recovery in new business volumes (or new consumers taking up insurance cover). 

Old Mutual and Liberty attribute their profitability in 2021 to a much-improved economic outlook (even though the SA economy is still in the doldrums) and consumer financial state, which has pushed more people to sign up for insurance products. 

Investors on the JSE have rewarded insurers for their demonstrable recovery, as Old Mutual’s share price is up 25% so far this year, Liberty is up 27%, Momentum Metropolitan 27% and Sanlam 11%.

The year 2020 was horrible in many ways for insurers. Strict lockdown measures restricted the ability of insurance agents to move around in search of new consumer business. This has been eased by a relaxation of lockdown rules. The pandemic also led to an increase in life insurance mortality claims, or greater payouts to clients who succumbed to Covid-19. 

Underscoring the impact of the pandemic on the insurance industry are figures released on Tuesday by the Association for Savings and Investment SA (Asisa), whose members look after about R6-trillion in savings and include some of the country’s largest life insurers.

According to Asisa, just over a million policyholders died in the course of a year — between 1 April 2020 and 31 March 2021 — and “there is no doubt that Covid-19 has caused many of these additional deaths”. This was a 43% increase on the 713,350 deaths recorded over the corresponding period in the previous year.

In recent months, Old Mutual and Liberty were forced to pay out billions in death-related claims linked to, among other things, the third wave of Covid-19. During its interim period, Old Mutual paid out R10-billion in mortality claims, and R8.5-billion was shelled out by Liberty.  

Although SA’s vaccination numbers will likely increase over the next few months to get the country closer to herd immunity, the insurance industry is preparing for the worst in terms of death claims linked to the ongoing third wave and others that might follow it. Old Mutual has set aside another R2-billion to cover potential death claims.

Old Mutual CEO Iain Williamson said in a release accompanying its latest financial results: “We continue to monitor our mortality claims experience closely. Based on current expectations and with the information currently on hand, we expect that our pandemic provisions will be sufficient to cover the expected future costs of the pandemic.”

Momentum has set aside an additional R1.6-billion. Liberty is budgeting for at least R1.2-billion in Covid-related life insurance claims over the next six to nine months. DM/BM

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  • We should be careful not to give the false impression that we will ever reach “herd immunity” with the vaccine rollout. There’s no country in the world that’s ever reached herd immunity for COVID-19 (as of today – 31st August 2021) because there is no vaccine that offers full “immunity” or cure against this virus as it keeps mutating with various variants. Nonetheless, not a bad look at the local insurers.

    It’s ironic how the capital markets have somehow kept a lot of the affected brands abreast from the first 2020 hard lockdown. Hopefully this gives us all an opportunity to review how we see the role of the capital markets in making our overall economy more inclusive going forward. Especially given the rising inequality.
    NM