South Africa Insurance Report Q1 2012

The latest results published by South Africa’s leading insurance companies in late 2011, in relation to the first nine months of the year, generally confirmed the trends that we highlighted in our Q411 report. Despite their absolute size and the central role played by life insurance products in South Africa’s organised savings system, the major companies generally reported strong growth in demand for long-term savings products. Encouragingly, persistency rates are continuing to hold up. Profitability remains robust, partly because of lower lapse rates and partly because of initiatives undertaken by company managements. The major players continue to pursue opportunities in other markets of Sub-Saharan Africa (SSA). They have the overall strength and the appreciation of the risks involved to take a long view. For the time being, though, the other markets for life insurance in the region are very much smaller than South Africa.
It is not impossible that 2011 comes to be seen as the year in which the strengths of South Africa’s life insurers in a global context came to the fore. Because of the peculiar history of South Africa, they have enormous tolerance of emerging markets risk and particularly political risk. Compared to their counterparts in broadly comparable countries such as Taiwan (especially) or Israel, they have generally had to work with much smaller pools of organised savings. To a greater extent than their Taiwanese or Israeli peers, they have developed very substantial businesses in developed countries. Nevertheless, in contrast to many, often much larger, groups in Europe, they appear to have suffered little from the volatility in global financial markets in 2011. In short, the combination of absolute size, financial strength, world-class corporate governance and orientation towards emerging and embryonic markets has served South African companies very well.
The latest news from South Africa’s non-life insurers is less inspiring. Although net premiums, as reported by the regulator, achieved 14% year-on-year (y-o-y) growth in H111, the reports from the companies themselves tell a different story. Among the largest non-life companies, Santam and Mutual & Federal reported single-digit growth in gross written premiums through mid- and late 2011, while Zurich South Africa’s business shrunk as a result of a deliberate contraction of the portfolio. Even if our estimates for non-life premiums in 2011 as a whole turn out to be pessimistic, we see no catalyst for an unfavourable long-term trend: a steady decline in non-life penetration. Essentially, competitive pressure is driving prices downwards. In order to maintain or grow profitability, non-life insurers have had to work aggressively to contain claims costs, reduce operating expenses and exploit opportunities of scale.
The Financial Services Board (FSB)’s solvency assessment and management (SAM) regime may require that some players strengthen their capital bases over the coming years. However, it is very difficult to imagine the problems will be insurmountable. More high-profile deals, following the merger that produced MMI Holdings, are a distinct possibility.

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Executive Summary 5
Table: Total Premiums, 2008-2016 5
Key Insights And Key Risks 5
SWOT Analysis 7
South Africa Insurance Industry SWOT 7
South Africa Political SWOT 8
South Africa Economic SWOT 8
South Africa Business Environment SWOT 9
Life Sector 10
Africa Life Sector Overview 10
Table: Middle East And Africa Life Premiums, 2008-2016 (US$mn) 10
South Africa Life Sector 11
Life Insurance Industry Forecast Scenario 13
Table: Life Premiums, 2008-2016 13
Growth Drivers And Risk Management Projections 14
Population 14
Table: Insurance Sector Key Drivers – Demographics, 2008-2016 14
Non-Life Sector 16
Africa Non-Life Sector Overview 16
Table: Middle East And Africa Non-Life Premiums, 2008-2016 (US$mn) 16
South Africa Non-Life Sector 17
Non-Life Insurance Industry Forecast Scenario 18
Table: Non-Life Premiums, 2008-2016 18
Growth Drivers And Risk Management Projections 19
Macroeconomic Outlook 19
Table: South Africa Economic Activity, 2011-2016 21
Political Stability Outlook 21
Table: Middle East And Africa Defence And Security Ratings 23
Healthcare 23
National Health Insurance Scheme (NHI) 24
Health Insurance 25
Government Health Insurance 26
Epidemiology 27
Table: Insurance Key Drivers – DALYs, 2008-2016 28
Motor 30
Table: Insurance Key Drivers – Autos, 2008-2015 31
Islamic Finance 32
Insurance Risk/Reward Ratings 33
Table: Middle East And Africa Insurance Risk/Reward Ratings 33
Competitive Landscape 34
Major Players In South Africa’s Insurance Sector 34
Table: Breakdown Of Gross Written Premiums For Non-Life Insurers, 2008-2009 (ZARmn) 35
Table: Leading Non-Life Insurers By Gross Written Premiums, 2008-2009 (ZARmn) 36
Table: Leading Life Insurers By Net Written Premiums, 2008-2009 (ZARmn) 36
Table: Leading Reinsurers By Gross Written Premiums, 2008-2009 (ZARmn) 37
Company Profiles 38
Chartis 38
Global Alliance 40
Guardrisk 41
HDI-Gerling 42
Hollard 44
Liberty Life 45
MMI Holdings 46
Munich Re 47
Mutual & Federal 48
Nedgroup Life 49
Old Mutual 50
OUTsurance 51
Sanlam 52
Santam 53
Zurich SA 54
BMI Methodology 55
Insurance Risk/Reward Ratings 57
Table: Insurance Risk/Reward Indicators And Rationale 58
Table: Weighting Of Indicators 59
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