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Financial Services
Tuesday, September 22, 2015 - 02:16
Mixed bag

1] The short term insurance industry

The 2015 edition of the annual KPMG Insurance Survey has revealed that the short-term insurance industry’s performance remains under pressure continuing the trend for the third consecutive year. The saturated markets have forced insurers to seek alternative avenues to improve results.
These included improving efficiencies in claims handling processes, rate increases in excess of consumer price index inflation, offloading of unprofitable business and a renewed focus on commercial lines of business. These corrective actions have improved profitability in the second part of 2014 calendar year, which has continued into 2015.
“It was expected that, with the absence of natural catastrophes to the extent experienced in 2012 and 2013, underwriting profitability would improve,” says Antoinette Malherbe, KPMG’s Financial Services Director.
“Disappointingly, the improvement amounted to only 0.87% to a combined ratio level of 98.56% on average for the industry. The improved loss ratios were offset by an increase in expense ratios for the industry. The impact of the improved weather conditions were largely offset by the weakening rand, which had a significant impact on claims expenditure. Between 65% and 70% of motor repair costs relate to parts, of which a significant component is imported.”
The 10 largest short-term insurance companies, measured on gross written premiums, participated in this edition of the survey together with a good representation of niche and cell captive insurers. The net written premiums of these companies accounted for about 87.4% of the total industry, so the survey results should be a fair representation of the results of the sector as a whole.
The survey also includes industry-related, investigative articles on a range of topics, such as market conduct, retail and distribution review, conglomerate supervision and the impact of the revised BEE scorecards on the industry.

2] The life industry

When it comes to the long-term insurance industry, the survey revealed that 2014 was a successful year. Gerdus Dixon, KPMG Director and National Head of Insurance explains: “When it is considered that 2014 represents the third year of continued growth of local equity markets, which then produces a compounding effect on assets under management, it is not surprising that larger predominantly asset generator insurers reported very healthy results.”
Total assets of all insurers covered by this survey increased from R1.71 trillion in 2013 to R1.87 trillion and total profit before tax of R47.36 billion, up from the R38.23 billion reported last year. These profit numbers were also helped by underwriters of risk products, especially in the entry-level markets, that reported meaningful mortality profits. Actual deaths caused by the human immunodeficiency virus (HIV) has proved less than expected in terms of the original pricing. So the mortality profits helped soften the blow from continuing high lapses following on from an economy that remains under pressure.
The survey found that the margin between the total assets by industry, life assurance when compared to collective investment schemes, narrowed, with insurers achieving growth of 9.9% as opposed to the 13.1% achieved by the Collective Investment Scheme (CIS) industry during 2014. This bears out in the relatively muted net client cash flows reported by the life insurance industry during 2014. The landscape of the savings industry continues to change as life assurers innovate their product offerings to keep pace with regulatory and new competitive challenges. Many companies have launched keenly priced tax-free savings products during 2015 to compete with the offerings of an ever-increasing list of financial services providers.
As discussed elsewhere in the survey, it is important to note that there are major regulatory changes on the horizon including the implementation of Twin Peaks and Solvency Assessment and Management in the early part of 2016. Tax changes include the introduction of the fifth tax fund, Risk Policyholder Fund, for all new risk business sold after 1st January 2016 and the proposal of moving towards a new valuation method for the policyholder liabilities of life insurers based on an adjusted International Financial Reporting Standards method of valuation.

Copyright © Insurance Times and Investments® Vol:28.9 1st September, 2015
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