Survey shows challenges for short-term insurance firms, resilience of long-term

The latest insurance survey shows the short-term insurance industry faced challenges due to the Kwa-Zulu Natal floods in April 2022 and the July 2021 unrest.

The survey also revealed the long-term insurance industry enjoyed some benefits, thanks to the easing of mortality levels after the Covid-19 pandemic.

The KPMG insurance Industry Survey for 2023 included 31 non-life insurers, 17 life insurers and four reinsurers. The non-life insurance industry results mainly focused on the impact of the Kwa-Zulu Natal floods, the July 2021 civil unrest and a hardened global and local reinsurance market.

Life insurers benefited from the normalisation of mortality levels and a number of successful corporate transactions. The industry continued to demonstrate its resilience against a gross domestic product (GDP) growth of only 2%, high levels of unemployment, interest rate hikes and local infrastructure challenges.

“For non-life insurers, 2022 was marked by the significant extent of losses experienced from the Kwa-Zulu Natal floods, one of the deadliest and costliest flood events on record in South Africa and the R33 billion in losses experienced by Sasria from the July 2021 riots,” says Mark Danckwerts, partner and Africa insurance practice leader at KPMG.

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Non-life insurance industry faced more natural disasters

The non-life insurance industry reported gross written premiums of R140.1 billion in 2022, an increase of 9.6% compared to 2021.

Danckwerts says this is a top-line performance given the inflation, slowed economic growth environments and market competition.

Excluding Sasria’s results, which are considered to be an outlier for 2022, profit after tax for the industry was R4.6 billion less than the year before, reflecting insurers’ exposure to more natural hazards and increased reinsurance costs.

However, Danckwerts says: “Insurers are managing their risks and the premiums they charge by incorporating stricter underwriting processes. To an extent this means that they are reducing their risk tolerances, for example, by reassessing the extent of insurance cover they will provide on homes situated in flood-prone areas or vehicles situated where there are more accidents or incidences of theft.”

While the industry coped well in managing its exposure to increased natural catastrophe losses, insurers are encouraged to continue making comparisons using real-world events in their catastrophe modelling and taking steps to remediate any material gaps.

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Life insurance industry showed resilience

Life insurers showed their resilience in 2022 with remarkable improvements in their results, Danckwerts says.

“This was especially pronounced following the two-year disruption triggered by the Covid-19 pandemic and a volatile global market.”

Gross written premiums for life insurers surveyed increased 4% from R275.2 billion in 2021 to R287.5 billion in 2022. In addition, their profit after tax increased over the period, from R17 billion in 2021 to R26.1 billion in 2022.

“While the South African life insurance industry has proven to be exceptional in dealing with the challenges of the last few years, there is still an opportunity for insurers to continue to create value for both shareholders and consumers,” Danckwerts says.

“Insurers will have to engage customers with tailored messages using data and technology and as competition intensifies, there will probably be several strategic partnerships to improve the sector’s digital reach into niche markets.”

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Reinsurance industry results

The 2022 financial year strategy for reinsurers was one of growth, recovery, and refocus. The continued constrained economic environment, lagging remnants of Covid-19, unreliable power supply and unpredictable levels of natural catastrophes influenced the 2022 results of reinsurers surveyed.