Strong profitability for South African life insurers

Chantelle Benjamin

Fitch Ratings expects South African life insurers to have improved over 2013, but warned they are at risk regardless due to the slow economy.

Life insurance companies are expected to have done well over the past year. (Oupa Nikosi, M&G)

Fitch Ratings says in a new report that most South African life insurers are expected to report improved net profits in 2013, driven in part by good returns on equity markets. But insurers' high exposure to equities represents a significant risk to insurers' profitability in the event of a significant downturn in equity markets.

The five largest life insurance companies' gross written premiums have shown robust growth over the past two years, reflecting sales growth combined with healthy persistency rates.

But Fitch expects sales and retention rates to gradually come under pressure as disposable incomes and employment growth remain constrained, resulting in a drag on premium growth rates.

South African life insurers' capitalisation continued to demonstrate resilience in 2013. The median capital adequacy requirement cover ratio for typical life insurers was 3x at 30 June 2013 (end-2012: 2.7x), compared with the minimum regulatory requirement of 1x.

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