Old Mutual concerned the power crisis, GDP slump will spur policy lapses

South Africa’s second-biggest life insurance firm Old Mutual is bracing for a rise in policy lapses, as consumers take strain under the burden of the country’s battered economy and unrelenting power supply struggles.

Since the end of October last year, South Africa has not seen any load shedding-free days, dampening any prospects that employment levels could see meaningful upturns. The energy crisis has also added pressure on the economy and resulted in the shock GDP contraction of 1.3% in the last quarter of 2022.

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Disposable incomes have been eroded

Disposable incomes have been eroded, affecting consumers’ ability to spend on insurance and savings products.

“It turns into two things for us: new business is harder to come by if people can’t afford it. Secondly – the bigger issue actually – is can people afford to repay their loans; can they afford to pay the premiums on their insurance policies? Those pressures are significant,” says Old Mutual CEO Iain Williamson.

He was speaking to Moneyweb following the release of the group’s results for the year to 31 December 2022 on Tuesday.

Despite reporting a 10% increase in headline earnings to R7.9 billion, the insurer noted that its retail customers continue to be affected by the challenging economic environment.

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And although mortality claims were significantly lower, helped by Covid-19 shifting from a pandemic to an endemic, the group saw significantly worse persistency (the rate at which insurers manage to retain policies) in its Mass and Foundation Cluster.

‘Worrisome’

Williamson noted that while persistency levels had started to improve during the latter half of 2022, South Africa’s GDP picture and the load shedding “curve ball” that progressively became worse is worrisome.

“We’re not thinking it’s suddenly going to get any easier. I think last year was a tough year … A combination of essentially food price inflation, the energy situation, and the potential impact that the energy situation has on employment on a forward-looking basis, I think is the biggest area of concern,” Williamson said.

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During the period, Old Mutual managed to grow gross written premiums by 12% to R22.3 billion, and new life insurance sales by 10% to R12.5 billion.

The company said real income growth was impacted by higher interest rates, inflationary pressures, and a slow recovery in employment following the pandemic, as well as the impacts of the civil unrest in KwaZulu-Natal in July 2021.

“This downward pressure on disposable income growth, combined with depressed confidence made it difficult for customers to maintain or increase their contributions to protection, savings and investment products,” the company said on Tuesday.

Williamson added his voice to those of a host of business leaders who in recent weeks have bemoaned the myriad issues South Africa is contending with.

He said the country needs “real will” to root out the high level of corruption that is entrenched in some of South Africa’s state-owned enterprises, which is impeding economic growth.

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“We’ve scored quite a few own goals from ‘an attractiveness’ of a country perspective. A combination of the Eskom situation, the logistics situation in the country around the likes of Transnet, the greylisting; we need serious attention to fix those three things primarily,” he said.

Shares in Old Mutual closed Tuesday’s trading session 1.63% stronger at R11.87.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.