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Life Industry
Monday, May 1, 1989
Bumper year

Benefits paid by life assurers climbed to R7,3 billion in 1988. This is 37,5% more than the 1987 figure. Benefit payments have increased by an average 36% over the past five years.
According to Pierre Steyn, LOA chairman and MD of Sanlam, “The benefits flowing back to the public have now reached an average amount of approximately R30m each working day. “Bearing in mind that most people are normally insured for relatively small amounts, this indicates that hundreds of thousands of South Africans each year receive some form of financial assistance for their own care through our industry.” Investments held on behalf of the public increased more than 26% last year to R83,3 billion. Income earned on this money climbed by 32,8% to R6,5m.
Premium income from group schemes and pension funds climbed by 21% while the equivalent figure for individuals saw an increase of 13,8%. On the other side a normal increase in taxed business and the 75% rise in life offices’ tax rate saw tax paid by the life industry soar by almost 125% to R575m. The year before it had risen 93%.
Given this trend, Mr Steyn notes, “When one compares the rate at which policy- owners were effectively taxed with the rates applicable to other savings, it is evident they have been called upon to carry an unfair tax burden.”
Mr Steyn believes that, against the background of our economy’s dire need for capital, long-term savings through life assurance should be encouraged. The need to prompt people to provide for themselves, which will relieve the State of this burden, is also being hampered by the high tax structure. On a more positive note, Mr Steyn notes that the new tax structure announced in this year’s budget is a positive step.
It was accepted in principle that life assurers should be taxed on behalf of their policy-owners and that the normal tax rate applicable to policyholders should be an important determinant of the tax rate for life assurers.
But there is a drawback. According to Mr Steyn, “It is unfortunate that, owing to fiscal restraints, the Minister of Finance was obliged to take into account the maximum marginal rate applicable to individuals instead of their average rate.”
Coupled with the large tax hike, operating expenses climbed by 31,5% to R2 650m so that increased costs resulted in a comparatively low 17,8% boost in net income toR19 078m
However, despite significantly higher tax and expense bills, policyholders will find consolation in the fact that the figure for provision of future benefit payments jumped by over 26% to R83 255m. Benefits paid during the year clocked in at R7 327 in 1988.
On the other hand, the industry’s total assets were revalued up by R5 660 a massive jump on the year before when total assets were actually revised downwards. Figures for last year indicate that policy-owners will continue to enjoy an inflation-beating return on their life assurance investments.
The abolition of compulsory investments in government and semi-government stock, which offer comparatively low returns, will also help to ensure returns remain high.

Copyright © Insurance Times and Investments® Vol:2.5 1st May, 1989
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