Nompumelelo Magwaza

The insurance industry remains on the right path despite challenges, according to PwC’s latest insurance industry survey, released yesterday.

The challenges stem from slow economic growth and regulatory changes in the industry’s operating environment.

Local investment markets experienced mixed fortunes last year, with the JSE all share index closing 18 percent higher than at the end of 2012. This was on top of the 23 percent growth experienced in 2012.

The survey analysed the results of major long-term and short-term insurers for the year to December last year.

“The outlook for the insurance industry remains stable, despite the continued market uncertainty experienced during the course of the year, and a host of regulatory and reporting changes,” Tom Winterboer, the PwC leader of financial services for Africa, said.

The survey identifies common trends, issues and challenges shaping the industry.

Winterboer said insurance companies were working on the compulsory solvency, assessment and management (SAM) quantitative impact study submissions, which are due by the end of next month.

Insurers were also planning for the light SAM parallel run that would begin in the second half of the year, among other new programmes.

The report found long-term insurers recorded combined group earnings under international financial reporting standards (IFRS) of R24.4 billion, which was an increase of 29 percent on 2012’s results.

As a result of strong market performance, insurers benefited from higher average assets under management during 2013. Sanlam and Old Mutual reported IFRS earnings growth of more than 40 percent.

Combined group embedded value earnings were strong in 2013 at R39.2bn.

Victor Muguto, the long-term insurance leader for Africa at PwC, said: “This result reflects the strong operating performances by their South African operations in 2013, as well as the benefit of strong equity markets.”

He added that insurers had to deal with volatility in interest rates and the currencies of emerging markets.

“Over the years they have significantly strengthened their capability to manage exposures to market risk within predetermined ranges.”

Short-term insurers experienced another tough underwriting year in 2013.

Dewald van den Berg, the PwC director in financial services practice, said all insurers had experienced a further worsening in claims ratios.

The industry’s overall claims ratio increased for the third year running to 68 percent, up from 62 percent in 2011 and 66 percent in 2012.

He said: “Their loss ratio increased by between 1 percentage point and 4 percentage points for a combined 1.8 percentage point [rise] due to adverse weather conditions.”

The report noted that on the demand side, consumers would continue to feel pressure on disposable income.

“Increasing interest rates, energy costs and the introduction of urban tolls in Gauteng add to these pressures,” the survey said.

The survey reflects the financial results of the top five players in the long-term insurance sector: Discovery Holdings, Liberty Holdings, MMI Holdings, Old Mutual and Sanlam.

The short-term insurers considered were Absa Insurance Company, Outsurance Holdings, Santam, Mutual & Federal and Zurich Insurance Company South Africa.