The South African insurance sector is set for a stable trajectory, despite ongoing economic challenges, Moody’s Ratings said in its latest report released last week. Although life insurance earnings will remain steady, growth prospects for the sector will be constrained by sluggish economic expansion, high unemployment, and affordability pressures on consumers.
According to Moody’s, life insurers’ profitability will hold firm following a post-pandemic recovery.
“We expect life insurers’ profitability to remain steady following a post-pandemic rebound. Interest rates have likely peaked, but we expect them to remain at levels that will support healthy earnings on in-force business,” said Will Keen-Tomlinson, vice-president and senior analyst at Moody’s Ratings.
The report highlights that mortality rates have stabilised post-pandemic, contributing to profitability. However, a key concern remains the persistently high levels of policy surrenders and coverage downgrades. These trends are driven by economic constraints that leave many policyholders unable to maintain their existing levels of coverage.
“Offsetting this are still elevated levels of customers cancelling or downgrading policies, driven by affordability constraints, although these have recently been offset by growth in new customers,” Keen-Tomlinson noted.
South African insurers are highly exposed to the domestic market, which accounts for most of their business. Although economic conditions show signs of improvement, the operating environment remains tough.
Moody’s expects GDP growth to reach 1.7% in 2025 and 2026. The World Bank has adjusted its 2025 growth forecast for South Africa from 1.6% to 1.8%, citing improvements in the country’s energy and logistics sectors.
Despite these positive indicators, structural constraints continue to weigh on the industry. “Weak economic growth, low disposable incomes and high unemployment remain structural constraints to insurers’ growth,” Keen-Tomlinson stated.
Inflation, currently at 3%, remains within the South African Reserve Bank’s target of 3% to 6%.
Although earnings from in-force business remain steady, Moody’s notes that new business growth and profitability are being eroded by economic pressures and competition.
As affordability constraints limit the pool of new policyholders, insurers increasingly rely on capturing market share from competitors. This, however, results in high acquisition costs and pressure on margins. “Companies are struggling to achieve sufficient profitable growth to offset inflation, making them vulnerable to rising costs,” the report warns.
A major regulatory development affecting the sector is the National Health Insurance (NHI) scheme. Moody’s cautions that if implemented in its current form, the NHI Act could significantly impact private health insurers.
“The recently passed NHI Act could in its current form outlaw most South African private health insurance businesses,” Keen-Tomlinson said. However, he noted that the complexity and cost of implementing the legislation mean it is unlikely to have a near-term impact.
Additionally, the two-pot retirement system, which allows policyholders access to a portion of their retirement savings on demand, has had minimal impact since its introduction in September 2024.
