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The South African Insurance Industry Survey 2016 | 119
industry reduced over the year from bases (mostly mortality) reported by some
R42.5 billion to R39.5 billion. The main insurers. The prospects for 2016 are not
contributor to the lower capital was rosy though. During the first half of 2016
Old Mutual (R2.9 billion) who aligned investment markets were lower and volatile
the regulatory basis for its investment with concerns about pedestrian economic
contracts with its IFRS valuation basis growth, a downgrade for South Africa in
and in turn reduced the lapse risk capital its international sovereign rating to below
requirement. investment grade and a general global
fallout from the UK’s Euro referendum.
The aggregate return on equity (net profit Insurers that derive substantial fees from
after tax as a percentage of shareholder the management of assets will bear the
funds) of insurers covered in the survey brunt of this uncertainty. Also, towards the
decreased from 22% in 2014 to 14% in last quarter of 2015 insurers started seeing
2015. The return is impacted negatively more strain on its persistency of its risk
by the valuation losses on strategic business.
shareholder assets discussed above.
Dividends paid to shareholders also These economic conditions offer
reduced to R13.1 billion, compared to substantial obstacles to grow new business
R14.6 billion declared during 2014 with volumes which is much needed to replace
Sanlam Life not declaring a dividend (2014: the industry’s high margin legacy business
R3.9 billion) in 2015. that continues to mature. Having said all
this, 2016 will not be the industry’s first
In summary, when external factors are rodeo and they have prepared themselves
excluded, such as the higher policyholder for tough trading conditions through the
discount rate and downward valuation diversification of their business models
movements on strategic shareholder and investing in new distribution areas.
investments, the industry results for The year 2016 will therefore be a true
2015 was relatively strong. The financial test of the industry’s resilience and how
result was underscored by positive client successful insurers have been in morphing
cash flows, persistency that was under into financial services groups that have
strain but largely held tight and favourable assorted and non-correlated income
changes in the policyholder valuation streams.
