Life sector bounces back

3/8/2010 12:40:02 PM

EDWARD WEST

Finance Editor

LIFE assurance products worth R62bn in new premiums were bought by South Africans last year, 5% less than was spent on new recurring and single premiums in 2008, according to the Association for Savings and Investment (Asisa).

Asisa deputy CEO Peter Dempsey said last week uncertainty caused by the global financial crisis and the resulting economic woes had slowed consumer uptake of life products, particularly in the single-premium space, in the second half of 2008 and the first half of last year.

However, there was a “sudden surge” of 18% in new recurring and single premium business in the second half of last year resulting in R33,6bn of new premiums for the period, meaning more than half of last year’s new premiums were collected in that time, when consumer confidence started improving.

The initial slowing in premiums was no surprise.

“We believe many people who chose to defer their retirement did not have lump sum retirement savings to invest in living annuities and compulsory annuities. A lower number of consumers would have been inclined to commit spare cash to their retirement annuities and other life-linked investments,” Dempsey said.

New recurring premiums increased 11% in the second half of last year to R7,6bn, bringing the total half-yearly increase for new recurring and single-premium business to 18%.

Policyholders also maintained and increased recurring premiums for existing business. Recurring premiums rose 9% from R61,3bn in 2008 to R66,8bn last year. Dempsey said the effect of the tough economic conditions on the life insurance industry had not been as severe as expected. The increase in the 2009 lapse rate was also not too steep, at 14%.

A lapse occurs when a policyholder stops paying premiums before the fund value exceeds the unrecovered costs, and the paid up value is zero.

Total income from existing individual premiums, group insurance premiums, investment income and fees dropped only 1% last year over 2008, from R251,9bn to R248,8bn.

The life industry paid more than R175,6bn to policyholders, beneficiaries and pension fund members last year as a result of death and disability claims, maturity payouts and pension, annuity and other payments.

Dempsey said the industry’s total assets increased 4% to R1,13 trillion at the end of December from R1,08-trillion a year earlier. This brought the industry close to the pre-crisis asset levels of R1,15 trillion held at the end of 2007.

“Long-term insurance industry assets continue to exceed liabilities by more than three times the legal reserve buffer required. Life companies remain well positioned to honour payments due to clients,” he said.

Statistics are based on data received from companies that were members of the Life Offices Association and now belong to Asisa. Not yet included are data from investment houses with life licences who were not previously members of the association.

weste@bdfm.co.za