Why Capitec applied for its own life insurance licence

The Prudential Authority (PA) has granted Capitec a licence to conduct life insurance business in South Africa, Capitec announced this week.

A subsidiary of Capitec Bank Holdings, Capitec Ins. Pty Ltd, has been offering long-term insurance products to the bank’s retail clients through cell captive arrangements:

• Credit insurance, underwritten by Guardrisk Life; and
• The Capitec funeral plan, underwritten by Centriq.

The cell captives were transferred to Capitec Ins. during the 2022 financial year, according to Capitec’s results for the six months to the end of August this year.

Capitec said proposed changes to the third-party cell captive regulations and strong growth in the number of insured clients prompted it to apply for its own life insurance licence.

The PA approved Capitec’s application for a licence to conduct life insurance business in South Africa on 3 October. The licence has been granted to Capitec Life, a wholly owned subsidiary of Capitec.

Capitec Life will, in due course, replace the current cell captive insurers as underwriter of Capitec’s credit life and funeral policies.

In the six months to the end of August, Capitec’s insurance segment was the second largest in terms of profit for the bank, generating R1.541 billion of Capitec’s total profit of R4.668bn.

Net insurance income from credit life policies increased by 60% to R912 million (August 2021: R571m). Premium income grew based on an increase of 14% in the average active book, which reflected the increase in loan sales and disbursements.

Claims reduced by 28% from the comparative period to R375m (August 2021: R519m).

Of the claims paid, R174m related to retrenchment (August 2021: R285m), R152m to death (August 2021: R208m) and R49m to disability (August 2021: R26m).

The Capitec funeral plan’s income increased by 72% to R629m (August 2021: R366m). The increase was driven by growth in the active book, increased average premiums per policy and improved claims experience.

Active policies increased to two million (August 2021: 1.5 million). At the end of August 2022, 8.9 million South Africans were covered by a Capitec funeral plan.

Persistency at the end of August was 61% (August 2021: 57%).