It seems you can’t keep a good life insurer down. Having taken a beating from the two-year disruption triggered by the Covid-19 pandemic and a volatile global market, life insurance companies have shown remarkable improvements in their 2022 results.
According to KPMG’s South African Insurance Industry Survey 2023 released in September, gross written premium (GWP) for the life insurers surveyed increased by 4% from R275.2 billion in 2021 to R287.5bn in 2022. Total shareholder funds increased by 2% from R169.2bn to R172.8bn, and profits after tax increased by 54% from R17bn to R26.1bn.
The Association for Savings and Investment South Africa (Asisa), in its March 2023 communiqué confirmed 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 R347bn at the end of December 2022, almost double the capital required.
Nishen Bikhani, partner: insurance at KPMG, says the rebound of the sector is notable given the context of the economic growth of 2%, which was less than half the 4.9% achieved in 2021.
“Across the board, insurers reflected on how they have had to navigate one of the most difficult periods in history: the challenges of Covid-19, business interruption, the war in Ukraine.”
Bikhani adds that these obstacles – and their concomitant impacts, such as inflation, interest rate risks, and stock market corrections – made it difficult to understand the results when performing simple comparisons year on year (for example, 2021 to 2022).
“As a result, a number of insurers, when presenting their results, opted to compare pre-pandemic performance to their 2022 results (for example, 2019 to 2022),” Bikhani says.
In the survey, KPMG provided commentary on the results of six of the largest life insurance providers representing more than 90% of the net premium income for this industry group:
Sanlam
With comparisons against 2019, Sanlam reported an 11% improvement in its net result from financial services and business volume improvements of 28%.
“These buoyant results enabled it to declare a 20% increase in dividends to shareholders,” Bikhani says.
The survey found that Sanlam’s life insurance results reflected strong performance in its retail affluent and corporate segments, partially countered by the impacts of persistency in the mass market portfolio.
“This was highlighted as a deliberate point of management action in the year to come.”
Sanlam reported new business volume growth of 28% ahead of the 19% industry average, including its JSE-listed insurance peers on a comparable basis.
“VNB growth on a constant economic basis was at 20% which countered many of its peers in the industry that reported declines in VNB,” he adds.
The impact of excess mortality claims of R4.6bn on earnings and dividends was countered through releases of discretionary margins.
“Consistent with many of its peers, the mortality basis was strengthened to allow for the likely future impact of pandemics.”
Old Mutual
Old Mutual contrasted its robust South African results against the challenges that it faced, and the drag on earnings in a number of regions, including Kenya, Malawi, and Ghana. The group’s results from operations increased to R8.7bn on the back of strong sales and core operational performance.
“VNB improved from 2021 by 16%, driven primarily by uplifts in its Mass and Foundation Cluster (48%) and Corporate segments (14%). Personal Finance and Wealth Management and Africa regions experienced drops in VNB, reflecting the sentiment of challenges seen in the broader market in these segments,” Bikhani says.
Old Mutual’s life business profits benefited from a refinement in hedging methodology, which enabled a material release of excess discretionary margins.
“We have seen that this approach is fairly consistent with other global insurers that have refined their reserving approach on the path towards IFRS 17 Insurance Contracts (IFRS 17) implementation,” he says.
The survey states that all Old Mutual’s remaining Covid-19 provisions were released, “but the impact was mostly offset by the strengthening of its mortality basis to allow for endemic Covid-19 claims and worsened persistency, as the challenging economic conditions continue to impact the retail book”.
Discovery
Discovery’s unique exposure to the Chinese market through Ping An, a Chinese holding conglomerate whose subsidiaries provide insurance, banking, asset management, financial, and healthcare services, highlighted that although the effects of Covid-19 were all but passed in most parts of the world, in China the impact of the resurgence in that region was reflected in Ping An’s results.
Bikhani says the group benefited from its exposure to a number of stronger currencies, including the US dollar and British pound, “which remained strong despite the impacts of increased inflation and cost of living on policyholders in those jurisdictions”.
Normalised operating profit in the South African life insurance company increased by 30% to R2.5bn and new business grew by 17%.
“Management reflected on the favourable persistency and mortality experience but cautioned on the trends observed in morbidity experience and a lower new business margin,” he says.
Momentum Metropolitan
Momentum Metropolitan continued the trend of reflecting on the difficult macro environment, which impacted its sales more than earnings. By December 2022 (its half year), it reported R2.2bn in earnings.
Bikhani says VNB continued to be below targeted levels (a drop of 19% from the prior year) because of lower sales volumes. In addition, management saw a shift of new business towards lower-margin products, which further contributed to a lower VNB.
“This will continue to be an area of pointed focus for the group.”
Liberty
Liberty posted profits of R1.2bn, reflecting a post-Covid-19 recovery.
“Notably, the group also experienced marked growth in premiums from R43bn to R48bn over the year. These improved sales, in South Africa, were in portfolios with traditionally higher margins.”
Persistency in the retail complex risk portfolio improved, with the corporate segment also returning to profitability.
“Operations in Africa, in particular the health businesses, created a drag on earnings. The group’s result was also impacted by reduced returns in specialist investment manager Stanlib, which reflected the weaker investment market,” he says.
Hollard Life
Hollard Life saw its investment income halve from R389 million to R204m in the year. “Fortunately, the reduced claim experience of circa R700m relative to the prior year helped to drive the prior year’s loss before tax of R457m to a profit of R254m,” Bikhani says.
Personalisation is key
Bikhani says the life insurance industry has proved to be exceptional in dealing with the challenges of the past few years, and it is evident there is an opportunity for the industry to continue to create value for both shareholders and policyholders.
“Like in the rest of the world, the answer lies in connecting with the policyholder through personalisation enabled by technology and creating trust in a world where people are becoming more disenfranchised. In South Africa, this comes from helping millions of people – especially younger generations – to understand and embrace life insurance.”
In summary, he adds, insurers will need to engage customers with tailored messages using just the right channels at just the right moments and in the right tech-enabled way.
