Illustration: Colin Daniel

CAPE TOWN - LIFE assurers injected R469 billion into the economy last year through benefit payments to policyholders and beneficiaries. Total benefit payments increased by 10% from 2016, statistics released by the Association for Savings & Investment South Africa (Asisa) show.

The life assurance industry held assets of R2.84 trillion at the end of last year, an increase of 6% from the R2.67 trillion held at the end of 2016.

Hennie de Villiers, the deputy chairperson of Asisa’s life and risk board committee, says that industry assets exceed liabilities by R231.1bn, which is more than four-and-a-half times the legal reserve buffer required. The legal reserve buffer, referred to as the industry’s capital adequacy requirement, was R41.5bn at the end of December last year.

De Villiers says this indicates that South African life assurers remain well positioned to honour their long-term promises to policyholders. “This is critically important given that a significant portion of the country’s long-term savings pool has been entrusted to the life industry.

“While, for many consumers, these benefit payments would have come at a time of a planned event such as retirement, others received the benefit payments following a traumatic event such as death or disability,” says De Villiers.

He says the significance of the R469bn in benefit payments last year becomes evident when compared with the R528.4bn in social grants committed by the government over the next three years.

Of the total benefit payments to policyholders last year, more than R60bn was paid to individuals who had experienced death or disability in their family circle.  This marked an increase of almost R5bn from 2016, De Villiers says.

Surrenders decline

There was a 9% decrease in surrenders compared with 2016, when assurers reported a “worrying” 16% increase in surrenders from 2015, he says.

A surrender occurs when a policyholder stops paying the premiums and withdraws the fund value before the policy matures.

Policyholders accessed R72.6bn in benefits last year by surrendering their savings policies. De Villiers says surrenders are, in many cases, prompted by policyholders desperate to access their savings because of financial hardship.

“While surrendering a policy should always be considered carefully, as the policyholder will miss out on the benefit of further compound growth, at least policyholders who had to resort to surrendering their policies had a financial back-up when they most needed it,” he says.

Risk protection grows

Last year’s economic woes impacted heavily on new income for recurring- and single-premium business, which overall showed no growth from 2016 to 2017.

De Villiers says it is encouraging, however, that more consumers were prepared to commit monthly premiums to risk protection policies and savings policies in 2017 compared with 2016. As a result, both achieved growth in policy numbers.

Recurring-premium risk policies showed growth of 8% and recurring-premium savings policy business increased by 3%.

De Villiers believes that the increase in the number of recurring-premium savings policies sold continues to be driven by the demand for tax-free savings and investment products. This may, however, have contributed to the lower sales of recurring-premium retirement annuities (RAs), which dropped by 17%.

All single-premium business categories recorded a significant drop in new policies sold.

There was a decrease of 5% in the number of single-premium living annuities sold and a 6% drop in RAs last year, De Villiers says.

Sales of compulsory annuities decreased by 32%, largely driven by the introduction of the “de minimis rule”, which increased the level below which the proceeds of an RA may be taken as a lump sum.

In terms of the “de minimis rule” retirement fund members may take in full proceeds that fall below the threshold of R247 500. The threshold increased from R75 000 in March 2016.

Rise in lapses

De Villiers says the fact that consumers are under financial pressure was also evidenced by the high increase in the first-year lapse rate for risk policies of 34%. In 2017, he says, some 2.7 million policies less than 12 months old were lapsed, compared with two million in 2016.

A lapse occurs when the policyholder stops paying the premiums.

De Villiers says lapsing a risk policy should be a last resort. “While it may seem like a good way of freeing up extra cash in times of financial difficulties, lapsing a policy removes the risk-protection buffer, leaving the policyholder and beneficiaries financially vulnerable in case of a life-changing event such as disability.”

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