One of the focus areas in this year’s survey is a call for the insurance industry to be more vocal about its achievements in order to improve its image with the public, as well as with government. The evolution of the industry during the past 10 years in becoming more client-centric is often taken for granted, as are contributions made through ‘pothole brigades and traffic pointsmen’. Another example of the value of short-term insurance is that the industry absorbed R2.1 billion hail and fire catastrophe claims in the last quarter of 2012. The prompt settlement of these claims allowed the wheels of the economy affected by these loss events to keep turning.
The survey also highlights some of the lessons learnt through the failure of some insurers in the local market during the past 10 years. More often than not, the failure of an insurance company is not due to inadequate capital but rather poor risk management. It is the responsibility of each insurer’s board to manage risks through the appropriate delegation of responsibility for the risk identification, mitigation and reaction. Thus, a strong, suitably skilled and independent-thinking risk management and compliance function is no longer optional.
The hailstorms and floods in the last quarter of 2012 dented the short-term insurance industry’s financial results. The survey reports that, whilst the aggregated gross premiums of insurers participating in the survey grew by 7.9 percent, their loss ratios also increased by 1.9 percent to 60.8 percent. The poorer loss experience in the last quarter of 2012 spilled into 2013, with insurers motor books continuing to be problematic as a result of increased incidents of claims as well as higher claim values. The recent weakening of the Rand against other currencies will further challenge the profitability of the motor books in 2013, as the prices of parts used in vehicle repairs will increase. This is not good news for the consumer who may have to accept higher premiums.
The long-term insurance industry reported a strong profit performance in 2012 on the back of growth in the investment markets, as reflected by the JSE All Share Index 23 percent increase during 2012. The higher investment values contributed additional fees to insurers and reduced liabilities held to cover investment guarantees embedded in insurance policies. On the new business side, insurers were often able to increase their Present Value of New Business (PVNB) margins, especially in the entry level markets. Generally lapse experience was favourable. However, KPMG noticed some deterioration in persistency in the second part of 2012 that reflects the economy experiencing strain and rising unemployment.
South African insurers continue to expand into the rest of Africa and Asia, with a number of transactions having been concluded during the past year through joint ventures and acquisitions in countries such as Ghana, Kenya, Nigeria and Mozambique, to name just a few. The 2013 survey also has an Africa flavour, this time profiling the Angola and Nigeria insurance markets. For both countries, penetration levels are low, indicating that there are significant growth opportunities to be explored.