Life Insurance confidence levels remain solid in 2012
In a quarterly survey released today, Ernst & Young reports that life insurance confidence remained robust in the first quarter of 2012, at 93 index points. This follows a strong 2011, when confidence of life insurers remained at or above the 90 mark. This indicates that nine out of ten life insurers were satisfied with business conditions through 2011, and into the first quarter of 2012.
Tim Rutherford, Life Insurance spokesperson at Ernst & Young points out that life insurance confidence levels continue to be the strongest in the financial services sector, despite a strong revival in banking confidence in the first quarter. He points out that bank confidence is now much closer to life insurance confidence than it has been for a while.
Life Insurance confidence remains robust
This is the 35th quarterly survey measuring confidence in the life insurance industry. The research is conducted by the Bureau for Economic Research in Stellenbosch.
Tim Rutherford continues; ‘the strong confidence is in line with the largely impressive financial reporting season, where all the major insurers reported generally strong financials. An analysis of the results indicates that it was a combination of strong equity markets, supporting investment gains, coupled with stable investment income, on the one hand, and reasonably solid growth in premium income on the other.’
He adds, ‘this has largely carried over into 2012, with life insurers indicating that premium income growth remains solid, and with particularly strong investment income growth. Investment income is largely correlated with strong equity markets, which have also seen considerable gains into the first quarter.’
‘In addition,’ he notes, ‘a lot of emphasis has been placed on retaining premiums that might otherwise be paid out. Life insurers have not only been more selective in the new business that they write (which helps reduce lapse rates), but are also keeping a tight lid on surrenders. There has long been a focus on minimising policy surrenders, since this has historically been a considerable drain on company assets. The last few quarters have seen a noticeable slowdown in the rate of growth in policy surrenders, and this is no doubt as a result of strong client retention efforts, which most of the major life offices are focusing on.’
Other survey findings include:
- A slowdown in investment product growth, albeit after a very strong fourth quarter.
- Sustained profitability of risk-based products, which improved through 2011.
- A sharp slowdown in administration expenses growth, after strong growth in 2011.
- A reduction in headcount for the second consecutive quarter.
- Considerably slower profits growth in the first quarter, despite sharply lower administration cost growth.
Rutherford comments, ‘Through the recent reporting season, all life offices focused on the need to improve efficiencies, in line with improving their new business margins. The last two quarters have seen reductions in the headcount to support this need. Most life companies reported an improvement in their margins through 2011, and continued efficiency improvement drives have resulted in an improved administration ratio in the first quarter of 2012 too.’
Rutherford concludes; ‘the fundamentals for life insurers remain solid. Although profit growth slowed in the first quarter, investment income remains strongly positive, and continues to compliment premium income growth. With life insurers focused on extracting earnings from improved efficiencies, they expect to see continued profits growth into the next quarter, with sustained strong growth in all categories of income.’
Download survey (pdf, 529.5kb) .
About the Ernst & Young Financial Services Index
The Ernst & Young Financial Services Index Survey measures the performance of the banking; investment management and life assurance sectors on a quarterly and consistent basis and releases the information timeously. The survey is designed to assist in analysing trends in the life insurance sector over the short run. Results reveal current and expected changes in banks' income, expenses, profitability, credit standards and investment.
This is the 35th survey of life insurers conducted in South Africa. The Bureau for Economic Research (BER) at Stellenbosch University conducts the research and analysis. For a more detailed discussion of the first quarter survey results, click here.