Professional Provident Society (PPS), which provides insurance and investment products to graduate professionals, reported a “disappointing” decline in new life and risk insurance business in its 2023 financial year.
PPS, which last week announced its results for the year to the end of December, said the decline should be seen in the context of the “significant surge in new sales” in 2022. Performance was also hampered by the difficult economic climate.
On the upside, the total profits added to members’ Profit-Share Accounts in South Africa and Namibia soared by 630%, from R619.9 million to R4.54 billion. Of the R4.54bn, R1.2bn was from operational profit and R3.34bn came from investment returns.
PPS automatically opens a Profit-Share Account for members who take out a qualifying life-risk product. PPS invests profits and investment returns in the account. When members retire, at or after the age of 60, the allocations accumulated in their accounts become available. Members can choose to keep these assets invested to generate further returns and supplement their retirement income.
The allocation to members’ Profit-Share Accounts – “one of the strongest ever” – could be largely attributed to the particularly good performance by financial markets in the first and last quarters of 2023.
Writing in the group’s annual report, PPS chief executive Izak Smit (pictured) reminded members that long-term average returns matter, not a single year’s performance.
Members’ Profit-Share assets often remain on the group’s books for a generation or more, which meant it can take a long-term investment approach and focus on investing in growth assets, enabling PPS to ride out short-term market volatility and corrections.
“A significant part of our members’ Profit-Share portfolio is invested in overseas assets, where the local currency’s weakness boosted returns in 2023. Years such as 2023 assist longer-term average returns. We do not want to miss out on these years. But, like a good personal financial adviser, I must again caution against exuberant future expectations. Financial reporting cut-offs are somewhat artificial snapshots in a continuous cycle, and the 2023 year-end was again a good cut-off in terms of financial reporting,” Smit said.
Risk claims rise
The group returned R6.12bn in total benefits to its members in South Africa and Namibia in 2023, compared to R5.04bn in 2022. Of this, R2.12bn was in the form of Profit-Share payouts to members who exited their life-risk cover, mainly because of retirement.
Total gross risk claims came in at R3.72bn for 2023, up by 15% from R3.25bn in 2022. PPS said this was about 5% higher than its longer-term actuarial expectation, although significantly lower compared to the Covid-19 period.
“There is still a small Covid-19 impact. However, it is difficult to say what this impact is exactly because fewer people test these days,” Smit said.
PPS Life Solutions recorded a 12% decline in annual premium income from new business in South Africa and Namibia, from R297.3m in 2022 to R262.9m.
About 74% of new business in South Africa in 2023 was written by independent advisers.
Gross life premium revenue in South Africa reached R6bn in 2023, up 8.7% on 2022.
Members with PPS life products in South Africa and Namibia increased from 131 073 at the end of 2022 to 132 934 at the end of 2023. Members with a product across the group increased to 161 054 at the end of 2023, from 157 440 a year earlier.
Smit said many members continued to find their businesses under stress because of the constrained economic conditions. As a result, there was a slight uptick in lapses, from 4.07% in 2022 to 4.7% in 2023.
“From a business development perspective, it is fair to say that 2023 was as difficult as the previous three periods, with our advisers having to work hard to recruit new members and provide cross-solutioning to existing members. After very good new business numbers in 2022 – bucking industry trends at the time – new life business slipped somewhat in 2023. It was influenced to some extent by a channel restructuring, which we believe is very necessary for future growth and cross-solutioning. This has been completed, and we look forward to good new business growth in 2024,” Smit wrote in the annual report.
In a separate statement, he said PPS will be making an announcement within the next few months about a development “that we believe will impact the insurance landscape in South Africa”.
Assets under management up 32%
The asset management business, PPS Investments, saw assets under management increase by 32% to R84bn from R66.67bn a year earlier.
The strong investment returns were supported by good returns on overseas equities and rand weakness. The last quarter of 2023 was particularly strong in the equity markets, pushing annual returns in balanced portfolios for 2023 to double digits after a flat performance in 2022, Smit said.
Annual gross inflows from individual investors reached R7.6bn, which was 2% lower than the previous year’s record of R7.7bn, while net flows reached R2.5bn.
The number of investors rose by 8%, from 61 460 to 66 546.
Profit before interest and tax increased from R121m to R153m, surpassing anticipated profit levels.
Weather-related short-term claims
As in the previous period, PPS Short-Term Insurance experienced a surge in weather-related claims, including claims resulting from the KwaZulu-Natal tornado in June, the Western Cape floods in September, and the heavy hailstorm in Gauteng during November. In addition, an earthquake struck Johannesburg in June.
PPS said loadshedding continues to impact its members, and claims for equipment affected by power outages remain high.
Motor and household claim payouts rose by 7% to R165.1m.
The gross written premium rose by 14% to R229.8m, “even though new business volumes were under pressure throughout the period”.
The lapse rate was 12.2%, which, PPS said, is well below the 15% for which short-term insurers traditionally plan.
The business performed ahead of projections, recording a loss of R10.78m against the business plan of R16.5m. “We are, therefore, pleased, that after five years of operation, we are very near to reaching the break-even point for this business,” Smit said.
PPS Health Professions Indemnity offers indemnity insurance for healthcare professionals registered with the Health Professions Council of South Africa and working in clinical practice.
In 2023, it extended its offering to members in Namibia.
There was a 21% increase in the number of insured professionals, to 12 609. This led to an increase of R112.7m in gross written premiums in 2023, up by 26% compared to 2022.
The business recorded an operational profit of R14.2m, up by 236% from the R4.2m in 2022.
Australian operations
PPS Mutual, an affiliate company established in Australia eight years ago, now has more than 11 000 members and has attained an annual in-force premium of more than A$70m.
Smit told News24 that PPS has disbursed more than R500m to the Australian business, although this may swell closer to R1bn before the Sydney-based affiliate is profitable. He expects the business to break even in about 2026.
Apart from the repayment of the loan financing, PPS earns a royalty from the intellectual property provided to set up the Australian business, as well as fees for doing its back-office work from South Africa, News24 reported.
It quoted Smit as saying: “The service fee will be very lucrative for our local members in the long term. If eventually that business grows as we expect, it will add significant profit for our members in South Africa.”
Based on the success of PPS Mutual, PPS is preparing to enter the New Zealand market and is on track to open an office in that country in 2024.
First non-South African scheme
PPS Healthcare Administrators provides administration and managed healthcare services to KeyHealth, an open medical scheme, and several restricted schemes, including Profmed.
Last year, it secured its first non-South African client when it signed up the Botswana Public Officers Medical Aid Scheme. PPS said the business will pursue other opportunities in neighbouring countries.
