Business Maverick


Life insurer earnings for 2022 buoyant, but policy lapse rates a potential concern

Life insurer earnings for 2022 buoyant, but policy lapse rates a potential concern

Although the SA life insurance industry’s combined earnings have improved since 2020 when the industry suffered a loss of R3bn, policy lapse rates may increase as consumers face a continued barrage of financial pressure.

A recent PwC report analysed the performance of Discovery, Liberty, Momentum Metropolitan, Old Mutual and Sanlam to the end of December 2022. The combined earnings for 2022 were R26-billion, and although this is an improvement, it is still not close to 2018’s bumper combined earnings of R69-billion.

PwC Africa’s insurance leader, Alsue du Preez, says some of the issues insurers have had to contend with over the past three years include volatile economic markets, pressure on existing business as consumers face increasing financial constraints, and high mortality rates. 

The report notes that policy lapses remain an area to watch. Although all insurers have released the mass lapse provisions held during the period of Covid-19, many have strengthened persistency assumptions to address existing or expected persistency issues.

Momentum Metropolitan recently reported that it is normal to see an increase in uncollected debit orders in the first part of the year, usually after the holiday season. However, the insurer believes that the increase in policy lapses is also partly due to the tough economic environment that the country and consumers are enduring. 

Rival PPS life insurance, which was not included in the PwC survey, says lapses remained low on the back of a business model where all insurance premiums paid by members with qualifying products are ultimately returned to clients through claims paid or investment growth allocations to their notional PPS profit-share accounts after the business’s running costs have been accounted for.

PPS group chief executive Izak Smit says the insurer’s bias to growth assets, which generate maximum long-term benefit, is due to its low lapse rates, where members’ policies stay on the books for a generation or more on average.

“This allows us to take a long-term approach to investing, which we would argue is a unique competitive advantage, helping us to ride out short-term market volatility and corrections such as in 2022,” he says. 

A recent BankservAfrica Take-home Pay Index report shows that the average nominal salary in SA grew by 22.8% between February 2018 and February 2023. The problem is that inflation grew by 26.6% over the same period, meaning that consumers have actually seen their income and buying power significantly decline. And researchers are sceptical that the situation will improve any time soon.

The RemChannel bi-annual Salary and Wage Movement Survey shows that South African employers expect to award wage increases of 4% to 6% over the next year, while inflation is currently running at more than 7%. 

New reporting standard

As a new reporting standard era approaches, PwC says insurers are investing significant effort in IFRS 17 compliance. 

Dewald van den Berg, PwC partner and insurance accounting expert, says insurers should start by looking for opportunities to eliminate, streamline and automate processes that are manual, heavily spreadsheet-based and repetitive. 

“Insurers who prioritise quick wins and deliver benefits will often find that this provides the confidence to drive some of the more strategic changes across the business,” he says.

The International Accounting Standards Board has introduced IFRS 17 to increase the transparency of insurer results and make it easier for analysts and even consumers to compare different insurers’ financial results. The effective date for IFRS 17 implementation was 1 January 2023, so the last IFRS 4 reporting in the South African life insurance industry will be when Discovery and Momentum post their full-year results for the year ended 30 June 2023.

Liberty has already emerged as a pioneer in the space, disclosing more information on the solvency assessment management of its own funds and also new business values. DM


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