Every year when I read these statistics, I wonder whether there is enough appreciation in government circles for the contribution made by the industry to alleviate the burden on the state.
The 2017 long-term insurance industry statistics released on 14 March 2018 by the Association for Savings and Investment South Africa (ASISA) show that despite the healthy increase in benefit payments, South African life insurers remained strongly capitalized.
South African life insurers injected R469 billion into the economy last year through benefit payments to policyholders and beneficiaries. Total benefit payments increased by an inflation beating 10% from 2016.
The significance of the R469 billion in benefit payments for 2017 becomes evident when compared to the R528.4 billion in social grants committed by Government over the next three years.
Of the total benefit payments to policyholders in 2017, more than R60 billion was paid to individuals who had experienced either death or disability in their family circle. This marks an increase of almost R5 billion from 2016.
The life insurance industry held assets of R2.84 trillion at the end of 2017, an increase of 6% from the R2.67 trillion held at the end of 2016. (Thank goodness state capture was uncovered before certain individuals could see these figures.)
Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee, reports that that industry assets exceed liabilities by R231.1 billion, which is more than five-and-a-half times the legal reserve buffer required. The legal reserve buffer, referred to as the industry’s capital adequacy requirement (CAR), was R41.5 billion at the end of December 2017.
De Villiers says this indicates that South African life insurers remain well positioned to honour long-term promises to policyholders. “This is critically important given that a significant portion of the country’s long-term savings pool has been entrusted to the life industry.”
Surrenders and lapses
Policyholders accessed R72.6 billion in benefits in 2017 by surrendering their savings policies. De Villiers says while surrenders are always of concern, it is encouraging that the life industry reported a 9% decrease in surrenders from 2016. In 2016 life insurers had seen a very worrying 16% increase in surrenders from 2015.
De Villiers says the fact that consumers are under financial pressure was also evidenced by the high increase in the first-year lapse rate for risk policies of 34%. In 2017, some 2.7 million policies less than 12 months old were lapsed compared to 2 million in 2016.
Risk protection shows strong growth
Last year’s economic woes impacted heavily on new premium income for recurring and single premium business, which overall showed no growth from 2016 to 2017.
De Villiers says it is encouraging, however, that more consumers were prepared to commit monthly premiums to risk protection policies and savings policies in 2017 when compared to 2016. As a result, both achieved growth in policy numbers. Recurring premium risk policies showed growth of 8% and recurring premium savings policy business increased by 3%.
De Villiers believes that the increase in the number of recurring premium savings policies sold continues to be driven by consumer demand for the tax-free savings and investment products. This may, however, have contributed to the lower recurring premium retirement annuity sales, which dropped by 17%.
All single premium business categories recorded a significant drop in new policies sold.
In the 12 months to the end of December 2017 there was a decrease of 5% in the number of single premium living annuities sold and a 6% drop in retirement annuities. Sales of compulsory annuities decreased by 32%, largely driven by the introduction of the “de minimis rule”, which increased the level below which the proceeds of a retirement annuity may be taken as a lump sum.
In terms of the “de minimis rule” retirement fund members may take in full proceeds that fall below the threshold of R247 500. The threshold increased from R75 000 in March 2016.
Impact of increased tax incentive
We asked ASISA about the drop in sales of RAs, to which they responded:
“It is difficult to say exactly why RA sales dropped despite the increase in tax deductibility, but the economic pressures on consumers probably played a part. An RA is a long-term commitment, which may have caused consumers to rather opt for savings vehicles like a tax-free savings plans, where they can have access to their funds if needed.”
Perhaps a re-focus from product houses and advisers on the benefits of RAs, coupled with the post-retirement benefits of these instruments will address the challenge?