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Life Assurance
Monday, May 1, 1989
Less business

The life assurance industry has experienced unprecedented growth over the last two years to the extent that sonic institutions doubled their total income in this period.
Confidence in the industry has soared since the stock market crash of October 1 987 as it maintained its stability and continued to provide inflation—heating investments. The life assurance industry also boasts particularly low administrative costs in comparison with most other types of professionally managed portfolio trusts. But will 1989 yield the same impressive growth figures (see table)? The dramatic increase in the growth rate over the last two years can clearly be seen. The figures for the whole industry were provided by the Life Offices’ Association (LOA) and includes the statistics of approximately 30 direct writing offices. They are based on end of calendar year results whereas the individual figures are based on end of financial year results. Old Mutual’s figures exclude income from off-balance sheet business. The 1983/84 figure for Southern was excluded as this period was before the merger with Anglo American Life. Percentages were rounded off to the nearest number. Other figures not shown arc not available yet.
“If boom time means a growth rate of 40% or more in total income then it certainly will not continue,” says Desmond Smith, Sanlam’s Senior GM: Pensions. “We still expect a satisfactory growth rate for this financial year hut it is unlikely that we will achieve the phenomenal figures of the last two years.’’ The main reasons given for this expected reduced growth are: the agreement with the LOA not to compete against deposit-taking institutions for investments of less than five years; and, the higher interest rates. Government intervention with regard to investments by local government and parastatal institutions — the so-called prescribed assets - is also a factor, although this imposition is being removed following last month’s budget.
Another factor is mentioned by George Rudman, Sanlam’s Senior GM: Individual Marketing. “Investments from municipalities, Government and parastatal institutions have contributed a considerable percentage of our premium income over the last two years,” he says. “However, the Minister of Finance has forbidden such investments in future, which could mean a potential loss of around R500rn in premium income for the whole life insurance industry this year.
“Although the higher interest rates will also serve to channel funds away from us in 1989 we are not pessimistic and are still looking forward to a comparatively good growth figure. Sanlam’s Universal Life Policy, which we started marketing in 1985, is still proving to be very successful,” says Mr Rudman.

Bobby Jooste, a GM at Old Mutual, agrees that this year’s growth figure won’t be as impressive as the previous two hut lie is not over-concerned. “The various products offered by the life assurance industry spans the gap between the two extreme forms of investment, namely, fixed interest on the one hand and high risk capital on the other. “We expect the higher interest rates to attract funds to deposit-taking institutions but we are still able to offer investors the prospect of beating inflation after tax without having their capital at risk. “Studies have also shown that public confidence in insurance based investments has increased considerably over the last few years, especially amongst people under 30 years of age,” adds Mr Jooste. “The higher interest rates will impact negatively on this year’s performance because of the inevitable bond rate increase which leaves less money in the pocket of the public,” says Graeme Hill, Southern Life’s GM, and Marketing. “But we are sales driven. With the business sector still somewhat positive, the field is open to aggressive marketing.”

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