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Articles: Record growth for life assurance industry

Posted by admin on Tuesday, April 04, 2006 - 10:58 PM

DESPITE experiencing downward pressure on margins and negative publicity surrounding high penalties and charges for some of its products, the life industry managed to record strong growth last year, recording a collective rise of 16% in income during the year to R189bn from R163,6bn a year earlier, statistics show.
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At the same time, total benefits paid by life insurers last year rose by 17% to R145,6bn from R124,8bn in 2004, according to Gerhard Joubert, CEO of the Life Offices’ Association (LOA). The past year represented a watershed for the life industry, bringing about the start of new business practices and products supported by anticipated redefined legislation and regulation. Commenting on the life industry’s performance last year, Joubert remarked that life companies had broke through the R100bn income mark for the first time ever at the end of December. "The fact that the industry’s new record level of half yearly income was mainly derived from individual policy premiums shows that consumers still have faith in life companies and their products," said Joubert. He pointed out that even retirement annuity (RA) funds attracted a remarkably high amount of business last year, despite the bad publicity these products had received following the rulings by the Pensions Fund Adjudicator throughout 2005. Total recurring premiums for RA funds increased by 6% to R9,9bn for the year, while new RA recurring premium business increased by 4% to R1,6bn. Joubert noted that thanks to the rallying equity market, total assets under management by the life industry exceeded R1.0 trillion for the first time ever last year, an increase of 18% to R1.02 trillion from 2004 levels. Individual recurring premium business increased by 10% to R24,1bn for the half year ended December 31, compared to the same period in 2004. And new individual recurring income increased by 15% to R4,7bn over the same period. Single premiums showed a comparable jump - up by 11% to R19,2bn against the second half of 2004. In comparison, individual surrenders increased by only 7% in the second half of 2005 versus the year-earlier period. The rand value of surrenders increased significantly last year as a result of the booming equity market, although fewer policies had actually been surrendered, the LOA head noted. He said the most spectacular growth was recorded by group business (ie. employee benefits). Total premiums increased by 38% to R34,9bn in the second half of last year from the R25,3bn level in at the end of December 2004. In addition, group business premiums increased by 31% against the first half of last year. This, said Joubert, meant most of the growth in this space happened in the latter part of 2005. Industry statistics show a very high percentage of 39% for group business surrenders in the second half of last year compared to the first, but Joubert explained that most of this figure represented pension fund schemes moving from one company to another, rather than out of the industry completely. Regarding benefits paid, life companies recorded a significant increase in individual death and disability payouts in 2005 - a 16% increase to R8,5bn in death benefits and an 11% increase to R1,4bn in disability benefits - compared to 2004. Joubert said that this could be attributable to several factors, including the possibility of an aging policyholder base, an increase in accident related deaths, as well as the impact of HIV/Aids. Group business disability benefit payouts increased by 21% last year compared to 2004. The number of policies being lapsed remained "unacceptably high", commented Joubert, rising by 22% last year compared to the previous year. Statistics showed that more policies were being lapsed in their second year than in their first year. Of concern was the fact that typically a higher proportion of low-premium policies lapse, indicating that affordability of policies remained an issue. He said this would hopefully be addressed soon when the industry introduces its new so-called "CAT" standard products, which aim to provide the lower income market with life products that offer fair Charges, easy Access and decent Terms, a commitment that the members of the LOA made by way of the Financial Sector Charter. This, he felt, should help bring down the lapse rate substantially, as these products also aim to provide for grace periods where policyholders are unable to pay their premiums for a short period of time. "It is important to remember that the lapse statistics include risk business, where there is no prejudice to policyholders who lapse their policies as they have received cover for the premium paying period and typically change to another provider," he observed. Finally, regarding life companies’ expenses, Joubert said total sales remuneration (commission, branch costs, and broker consultant fees) increased by 6% for individual and group business during the year. Statistics also proved that the life industry’s vigorous cost cutting efforts had started to pay off last year, he contended, with companies managing to limit an increase in administration and marketing expenses to a mere 2% in the second half of 2005 versus 2004.

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