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Poor macro conditions, weather disruptions weigh on insurers

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Growth while in the insurance information mill undergoing unfavourable macroeconomic conditions and weather-related disruptions, a different survey by KPMG reveals.

The audit firm’s South African Insurance Industry Survey, implies that low GDP growth, coupled with rand weakness and shrinking disposable household income, weighed about the industry in 2015, with water shortages and fire losses adding to for most.

According to Gerdus Dixon, an accomplice and national head of insurance at KPMG, risk rate increases and “lumpy large corporate deals” saw the short-term industry report gross written premiums of R89.1 billion in 2015, up 11.4% from R80 billion in 2014. ?

The short-term industry has become dominated by the four largest insurers, which together underwrite 52.7% of the gross written premiums out there. “There will not be a boost in the general public of insurers – they’re all still fighting in the same pie,” he stated.

Source: The South African Insurance Industry Survey 2016, KPMG?


Of the superior ten companies, only Hollard and Guardrisk, been able to increase market share, with gross written premiums increasing by R2 billion and R1.8 billion respectively. Hollard’s growth comes after the inclusion of Etana, by which it merged in January 2014, within the results for the 2015 financial year, that is one of Guardrisk is due to an increased reported premium, because the company reported financial latest results for the 15-month period after it was actually taken over by MMI.

An improvement in claims ratios from 63.5% in 2014 to 57.2% in 2015, saw the combined ratio improve from 98% to 94.4% across the same period. Regardless of the odd overall improvement, KPMG said protest action lead to State-owned short-term insurer Sasria’s loss ratio increasing by 6.8%, with almost 81% of claims in relation to strikes and labour unrest, plus the remaining 19% to non-political riots.

The long-term insurance industry was largely afflicted with a.3% increase in the ten-year bond yield in December, which had been driven by Nenegate. “The assumed inflation and reductions used by insurers are impacted significantly by bond yields, and also a relatively small improvements on a deduction rate on future cash flows stretching over 30-odd years, provides a pronounced affect on current year profit and loss,” Dixon said. He added the fact that diverse accounting standards utilized by different insurers alter the extent in which liabilities were impacted by the progress.

Still, the long-term industry reported a 5% rise in total assets to R1.958 trillion, while using four largest insurers comprising above 80% with the total assets.

Source: The South African Insurance Industry Survey 2016, KPMG?


However, the complete profit before tax on the insurers polled, fell from R45.8 billion in 2014 to R31.3 billion in 2015. In accordance with Dixon, it really is unfair to mention that industry performed 30% weaker, as lower profitability was driven by fair value movements on strategic shareholder investments.

He said Old Mutual’s life insurance coverage company’s holding inside Nedbank Group was valued R5.2 billion lower year-on-year in 2015, although the carrying property value Sanlam’s purchase of Santam fell by almost R2 billion, depending on share price movements.? “These are unusual events that don’t necessary alter the core economic fundamentals with the life insurance coverage companies,” he stated. ???

He said 2016 has to be a true test of the short- and long-term insurance industries’ resilience as deteriorating economic conditions pose substantial challenges to growth. ??

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