SA life insurers paid out more than half-a-trillion rand in benefit claims in 2020, exceeding the amount set aside for social grants in the 2021 budget, as the effects of Covid-19 took a heavy toll on the country’s population as well as the insurance industry.
Claims and benefit payments to life cover policyholders rose 6.5% to R522.7bn in 2020, up from the previous year’s R491bn and 56% more than the R335.2bn set aside by the government for its 2021 social development budget, according to long-term insurance statistics released by the Association for Savings & Investment SA (Asisa) on Monday. The total claims and benefit payments include retirement annuity and endowment policy benefits as well as claims against life, disability, critical illness and income protection policies.
“There was over half-a-trillion rand that the industry contributed to consumers last year, so you can just imagine if that didn’t happen what would’ve been the impact on the financial stability of consumers,” Hennie de Villiers, deputy chair of Asisa’s life and risk board committee, told journalists during a virtual media conference.
Asisa’s statistics show the life industry recorded 434,216 death claims in 2020, an almost 37% increase from the 317,442 claims received in 2019. More than half of the death claims in 2020 were for funeral policies (266,321) while the rest were for life policies, credit life policies and other policies that provide life cover.ADVERTISING
“[The increase in death claims] is not only related to Covid-19, it’s just a general increase,” De Villiers said. “There’s some Covid elements in it but it’s not only that.”
The effect of the Covid-19 pandemic has seen insurers ranging from Momentum Metropolitan to Old Mutual increase their provisions for claims related to the virus. Momentum Metropolitan last week set aside an additional R655m in provisions when it announced its results for the six months to end-December, adding to the R983m announced in its results for the year to end-June 2020.
Old Mutual said on Monday it expects profit to drop as much as 60% in the year to end-December after it had to set aside almost R4bn to cover Covid-19-related claims.
Even so, Asisa says the life insurance industry remains healthy as it has more than double the legally required capital buffer in place.
The life industry as a whole held assets worth R3.23-trillion at the end of 2020, while liabilities amounted to R2.89-trillion. That leaves the industry with free assets of R333.5bn, which, though moderately down from the R373.5bn capital buffer it enjoyed in 2019, is still more than double the amount required by the solvency capital requirements (SCR).
“Our industry remains well capitalised,” said De Villiers. “The fact that the ratio of free assets to the SCR only reduced marginally from 2019 to 2020 is further evidence of the ability of the industry to withstand challenging circumstances.”
Asisa’s data also showed that the local collective investment schemes (CIS) industry attracted net annual inflows of R213bn in 2020, the highest in the industry’s 55-year history. Assets under management by the local unit trust industry rose to R2.73-trillion in the year to end-December 2020, meaning the sector has tripled its assets under management since December 2010 when assets totalled R927bn.
SA’s CIS sector attracted R23bn of net inflows in the first quarter of 2020, followed by a record-breaking R88bn in the second quarter, R57bn in the third quarter, and R44bn in the final three months of 2020. However, despite the record-breaking inflows the majority of investors continued to favour more risk-averse portfolios.
Sunette Mulder, senior policy adviser at Asisa, said 46% of all assets in SA were held in multi-asset class portfolios, while 35% were in interest-bearing portfolios, 2% in real estate and 35% in low-risk interest-bearing portfolios. That compares to international data, which shows 43% of CIS assets are in equity portfolios, which offer higher growth but come with more risk.
Business Day
