Why insurance firms’ earnings are down

Insurance companies have felt the brunt of Covid-19, which squeezed the country’s production capabilities and resulted in South Africa’s gross domestic product contracting by 16.4% in the second quarter of 2020. The lacklustre economy has affected the big insurance companies, according to financial results statements for the six months ended June 2020, which indicate an increase in claims and a decline in business.

According to statistics by the Association for Savings and Investment South Africa (Asisa) released this week — showing the half-yearly long-term insurance numbers — there has been a slight decrease in individuals holding insurance products. 

At the end of June 2020, there were 41.3-million individual recurring premium policies in force, compared to 42.5-million at the end of December 2019 — a marginal decline of 2.85%. 

While the fall is slight, Asisa said there was a 3.59% drop in individual recurring premium savings policies, which include endowments and retirement annuities, from 6.5-million to 6.3-million in the same period. 

Discovery said that its profit for the year to June 30 decreased by 97% to R176-million, due to policy claims and lapses because of Covid-19. 

Sanlam’s financial statements showed that its net earnings from financial services decreased by 22%, to R3.9-billion, and its net operating earnings decreased by 39%, to R3.51‑billion. Sanlam said life insurance was hard hit, with monthly sales volumes falling by between 50% and 90% in April, May and June. 

The chief financial officer of Sanlam, Paul Hanratty, described the trading environment as “probably the most challenging in the group’s more than 100-year history, [due to] adjusting to a very difficult social and working environment”. Sanlam said that Covid-19 impacted on investment market returns, credit spreads, doubtful debt provisions and relief offered to clients and intermediaries.

Hennie de Villiers, deputy chair of the Asisa life and risk board committee, said that while 282 467 new policies were sold during the six month studied, 364 887 policies were surrendered. This happens when the policyholder stops paying premiums and withdraws the fund value before maturity.

“While this is concerning, it did not come as a surprise, given the impact of the Covid-19 lockdown on the earning ability of thousands of South Africans,” he said.

“When times are tough consumers are less likely to take out new savings policies. At the same time, more policyholders surrender their savings policies to access their savings due to financial hardship.”

Last month, Liberty Insurance said that the first six months of 2020 were “unprecedented in Liberty’s 62-year history”. The company incurred a normalised operating loss for the six-month period ended 30 June of R1‌.5-billion compared to normalised operating earnings of R1.09-billion for the same period last year. 

Old Mutual’s headline earnings plummeted by 67% to R1.7-billion compared to R5.2-billion in the same period the previous year. The loss was attributed to Covid-19 claims.

Lee Bromfield, chief executive of FNB Life, said for a life company, a pandemic is the biggest shock it can get. The introduction of the lockdown by the government to save lives has resulted in a “severe” impact on jobs while other employees experienced salary cuts. 

“Most life companies had to face a big drop in their investments, big increase in mortality and retrenchment claims and potentially massive numbers of customers dropping products,” he said.  

Bromfield added that companies with mostly face-to-face sales saw a significant drop while insurers with a digital presence saw great sales out of their digital platforms.  

Conversely, he said many customers realised why they need life cover — especially comprehensive cover that also covers retrenchments. 

Mmapula Mokoena, head of marketing at Yalu, a credit life insurance and debt protection company, said though the adverse economic climate has highlighted the importance of  insurance cover, whether consumers will be able to afford it was questionable, considering that many people may be unemployed and unable to pay insurance premiums. 

Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Tshegofatso Mathe
Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian.

Related stories


Subscribers only

How lottery execs received dubious payments through a private company

The National Lottery Commission is being investigated by the SIU for alleged corruption and maladministration, including suspicious payments made to senior NLC employees between 2016 and 2017

Pandemic hobbles learners’ futures

South African schools have yet to open for the 2021 academic year and experts are sounding the alarm over lost learning time, especially in the crucial grades one and 12

More top stories

Egypt, Seychelles get first jabs

The two countries have rolled out China’s Sinopharm vaccine, but data issues are likely to keep some countries from doing the same

Fashion’s future is bricks and clicks

Lockdown forced reluctant South African clothing retail stores online: although foot traffic in brick-and-mortar stores remains important in a mall culture like ours, the secret to success is innovation

What the Biden presidency may mean for Africa

The new US administration has an interest and much expertise in Africa. But given the scale of the priorities the administration faces, Africa must not expect to feature too prominently

Zuma, Zondo play the waiting game

The former president says he will talk once the courts have ruled, but the head of the state capture inquiry appears resigned to letting the clock run out as the commission's deadline nears

press releases

Loading latest Press Releases…