The latest statistics from the Association for Savings and Investment South Africa (Asisa) show that life insurers held assets of R3.7-trillion at the end of 2022 while liabilities amounted to R3.4-trillion, both the same as at the end of 2021. This left the industry with free assets of R347-billion at the end of December 2022, almost double the capital they are legally required to hold as per solvency capital requirements.  

Old Mutual’s results for the year to the end of December 2022 reflect that it ended the year with almost R63-billion in cash and cash equivalents. Chief executive Iain Williamson said the company had sufficient excess liquidity and capital to be able to benefit shareholders with a share buyback scheme worth around R1.5-billion.

Rival insurer Sanlam was not far behind, with cash and cash equivalents of almost R54-billion at the end of the 2022 financial year. The insurer finished the year with discretionary capital of R5.3-billion, and in the year ahead, the AfroCentric, Capital Legacy and BrightRock acquisitions are expected to use about R2.3-billion of that discretionary capital.

Victor Mpunga, the head of research at Old Mutual Wealth Private Client Securities, says Sanlam is an attractively priced African insurer with the largest foothold in growth markets such as Morocco, Nigeria and Kenya.

“The joint venture with Allianz will, in our view, increase scale in certain markets, such as Egypt, which will drive growth for the group. We expect the rest-of-Africa segment to be the fastest-growing segment within the group,” he says, adding that Sanlam appears well capitalised, as evidenced by its solvency ratios and strong balance sheet. 

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“Despite the challenging macro environment, management sees opportunities in scaling and improving the efficiencies of their recent acquisitions. Over the medium term, the group expects consumers to review their life and general insurance cover to adjust to higher nominal price levels, which is supportive of volume growth. 

“Overall, our investment case for Sanlam remains intact, with the share price trading below our assessment of fair value and at a discount to group equity value,” says Mpunga. 

Momentum Metropolitan was a bit of an outlier, finishing the 2022 financial year with cash and cash equivalents of R28.7-billion, 22% down from the previous year’s R37-billion. However, during the six months to the end of December 2022, the company repurchased R750-million of its own shares trading at a discount to embedded value (EV). 

EV is an estimate of the value of an insurance company’s existing policies, taking into account the future premiums to be paid, expected claims to be paid out, and expenses to be incurred. 

The share buyback created an EV uplift of R583-million, and the board has agreed to a further R500-million repurchase while the shares trade at a discount of more than 25% to EV. 

Hennie de Villiers, deputy chair of the Asisa Life and Risk Board Committee, points out that the assets held by SA’s life insurers at the end of 2022 were significantly higher than at the end of 2019 before the Covid pandemic. 

“While liabilities also increased substantially, there was only a slight downward adjustment in the average solvency ratio over the same period, from 2.14 in 2019 to 1.96 in 2022, demonstrating the industry’s resilience during the pandemic.”

Claims and benefits paid

Policyholders and beneficiaries received claims and benefit payments worth R578-billion from South African life insurers in 2022, down from the R608-billion paid in 2021, when death claims were at their highest. The payments included claims against life, disability, critical illness and income protection policies, and retirement annuity and endowment policy benefits. Over the last year, life insurers paid 501,785 death claims, 26% lower than in 2021, but still 24% higher than in 2019.

Lapses and surrenders

The bad news is that industry statistics paint a sad picture of consumers’ financial struggles. As many as 689,888 recurring and single premium savings policies were surrendered in 2022. This means the policyholders withdrew the fund value before their savings policy could mature. While the surrender rate is lower than in 2021, when 938,148 savings policies were surrendered, this is still too high and therefore concerning, says De Villiers.

The Asisa statistics also show 8.4 million recurring premium policies lapsed last year — a million more than in 2021. A lapse occurs when the policyholder stops paying premiums for a risk policy (such as life insurance) with no fund value. DM/BM