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About 48% of PPS’s claims in 2021 were Covid-related

PPS Life Insurance paid Covid-19-related claims of R1.4 billion in 2021, which was 36% higher than in 2020, when claims were 45% up from 2019, the mutual insurer said in its annual report for the year to the end of December 2021.

PPS paid out R975 million in Covid death claims and R424m in Covid sickness claims.

It paid a total of 24 151 claims last year, of which 48.7% (11 778) were Covid-related.

Of the total death claims of 500, 38.6% (193) were Covid-related, while 48.9% (11 587) of the total sickness claims of 23 651 were attributable to Covid.

The niche insurer for graduate professionals said it had reason to believe the number of Covid claims was higher, because some members chose not to acknowledge Covid as the underlying reason for their claim.

Most of the impact of the second Covid wave that started towards the end of 2020 was felt in the 2021 financial year. The impact of the third wave, which reached a peak in July/August 2021, came through in its claims experience in the third and fourth quarters, PPS said.

Non-Covid claims were only 4% higher than in 2020 – in line with actuarial expectations – at R2.8bn.

Combined, Covid and non-Covid claims came to R4.26bn, of which R2.2bn were health claims and R2bn were death claims.

R5.5bn allocated to member’s profit-share accounts

Chief executive Izak Smit said 2021 was “a most astonishing year”.

Life insurance claims payments exceeded anything “we have ever witnessed in our 80-year history”. Investment markets, however, had a very good year, and the investment returns distributed to members in the form of special benefit allocations to their profit-share accounts “exceeded those of any previous year”.

Members who have one or more product from a range of qualifying products are eligible to earn a portion of the profits that PPS generates. The greater their contributions to and participation in these products, the greater their part of the annual profit-share, which grows with investment returns and further profit allocations. The accumulated profits vest on retirement or death.

PPS allocated R5.5bn to qualifying members’ profit-share accounts, up from R2.2bn in 2020. Of the R5.5bn, R5.4bn (2020: R1.7bn) was from investment profits and R0.1bn (R0.5bn) was from operating profits.

Last year’s allocation to members’ profit-share accounts brings to R31.5bn the total profit-share allocation since 2012.

Pandemic highlighted the benefits of mutuality

Smit said Covid claims resulted in PPS’s operating profit ending the year “just positive”.

“I would argue that we could not have asked for a better outcome. During a pandemic, and especially given the extraordinary events of the past two years, the focus is – and should be – on claims.

“We continuously adapted our claims protocols so that we could assist our members as much as possible, while trying to ensure fairness between different cohorts of members (for example, between those that have suffered a certain condition and those who have not). As a company that is founded on the ethos of mutuality, we were able to do this, as there are no shareholder interests to protect or serve. As a result, we went further than what our competitors were able to do with their protocols.”

Performance key points from some of the group’s subsidiaries are:

PPS Life Insurance

  • Gross life premium revenue rose 4.5% in 2021, supported by an “acceptable” lapse rate of 5%.
  • New annual premium income grew 23% to R273.7m, despite the lockdown restricting intermediaries’ ability to operate.
  • About 75% of new business flows to PPS were again due to external (independent) financial advisers.
  • The emigration of professionals remains a risk to the group.
  • “Professionals have become more aware of the need to protect themselves and their families against unforeseen life events.”
  • PPS’s brokerage, Financial Solutions 4 Professionals (FS4P), experienced “encouraging” growth. The number of independent financial advisers in FS4P increased from 30 to 42, servicing more than 4 500 clients.

PPS Advisory Services and Enablement

  • The pandemic, a cyber-attack on the group in March 2021, the civil unrest in July 2021, high levels of unemployment and a constrained economy affected performance.
  • Despite this, new risk business sales were up 28% from 2020, gross investment flows grew by 15%, wills written were up by 31%, and new members grew by 22% from last year.
  • Members have “remained cautious about spending” in an uncertain environment, but this has been mitigated by increased awareness of the need for certain key products, particularly life cover, medical cover, sickness and permanent incapacity cover, and business continuity cover.

PPS Short-term Insurance

Personal and commercial lines

  • The introduction of the profit-share and the profit-share cross-holding booster for personal and commercial products was having a positive impact on the cross-sell to members, with new premiums written increasing by 11%, to R14.2m, although this was behind the target of R28.5m.
  • The reduction in vehicle use, because of the lockdown and remote working, and mild weather led to a better-than-expected claims performance.
  • The net loss ratio was 55% compared to 51% in 2020.
  • “The claims experience over the past few years, irrespective of the Covid-19 impact, supports our view that the professional market segment is a benign risk pool. This is due to certain behavioural traits common to professionals, such as embracing certain personal risk management principles and a general professional ethos.”
  • Lapses were slightly higher than projected, driven mainly by economic conditions. However, the trend shows a decrease in lapses from the previous year.

Health professions indemnity

  • The business “continues to be on an aggressive growth path” and is on its way to breaking even in the next year or two and on track to becoming sustainable in five years.
  • The migration of Pharmaceutical Society of South Africa scheme members brought the total number of insured health professionals to 4 309.
  • Gross written premiums increased by 67% from the previous year.

PPS Investments

  • Total assets under management increased by 25% to R54bn.
  • Gross new business inflows were R7.1bn, which was lower than the R7.5bn in 2020.

Overall financial picture

As the table below shows, the 119% increase in net investment income was the main driver of the 48% increase in revenue to R13.1bn.

Gross insurance benefit and claims payments, which include profit-share pay-outs, rose 26.9% to R6.1bn.

PPS said the additional expenditure related to recovering from the cyber-attack last year was the main reason for the 17.8% increase in the group’s operating expenses.

The group ended the year with a comprehensive loss of R36m, after allocations to members’ profit-share accounts, tax and the revaluation of owner-occupied property.

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