Survey shows positive growth and stability for insurance industry

A survey for 2023 shows positive growth and stability for the insurance industry after a few years when insurers were affected by increasing claims for natural disasters and deaths due to Covid-19.

The results of KPMG South Africa’s annual South African Insurance Industry Survey reflect a strong recovery for the industry compared to 2022, reflecting the stabilisation of the insurance market after muted natural catastrophe events and the positive effects of strategic initiatives insurers implemented over the past few years to moderate risk exposure, such as premium rate increases and underwriting limitations.

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Non-life insurance grew by 16.6%

The non-life insurance industry grew by 16.6% in IFRS 4 gross written premium and 7.9% in IFRS 17, but this sector was significantly affected by rising claims costs during 2023, largely driven by systemic load shedding, an increasing number of motor vehicle accident claims and rising motor vehicle repair costs, compounded by disposable income pressures on consumers and high crime levels.

“Insurers had to respond swiftly with adjustments to policies, premiums and risk management strategies to maintain their financial stability, with the outcomes of these initiatives clearly reflected in the 2023 results,” Mark Danckwerts, partner and Africa insurance practice leader at KPMG.

 “It is great to see that despite these challenges the non-life insurance industry went from a loss of R16.7 billion in 2022, driven significantly by the political unrest and flooding in Kwa-Zulu Natal, to a profit of R13.7 billion in 2023.

“While reinsurance rates hardened over the period and inflationary and interest rate pressures persisted, exposure to natural catastrophe events was muted compared to previous reporting periods. This improved results dramatically.”

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Life insurance grew by 10.4% and 3.9%

As in the past two years, the results for the life insurance industry for 2023 highlight the underlying resilience of the global and local economies. This year’s results indicate double-digit growth improvements in profitability and a higher-than-expected return for shareholders than predicted, he says.

The largest insurance groups in the country all showed significant growth over the past financial year. The life insurance industry continued to generate profitable results, with an increase in profits from R27.3 billion in 2022 to R37.4 billion in 2023.

“These results reflect the return to normal mortality levels after the Covid-19 pandemic and the relatively robust performance of investment markets,” Danckwerts says. Life insurers experienced growth of 10.4% in IFRS 4 net premium income and 3.9% growth in IFRS 17 revenue.”

IFRS 4 and 17 refer to how insurance companies report insurance contract revenue.

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The secret to success for the insurance industry

KPMG attributes this success to these key trends:

• continued focus on the personalisation of insurance products
• risk mitigation measures particularly in the non-life insurance industry
• mergers and acquisition activity within multinational groups
• investments in certain countries in East Africa and Asia
• attention to capital management and balance sheet optimisation
• strongly capitalised businesses with sufficient liquidity, improving cash generation and
• cost containment measures with a deliberate focus on capital deployment for project spend.

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Reinsurance declined slightly by 2%

Reinsurance revenue on the other hand declined slightly by 2% during 2023, with varied results across all reinsurers surveyed. However, we are beginning to see a restoration of profitability and balance sheet strength through price increases and the implementation of stricter underwriting principles, Danckwerts says.

“We noted mixed performance results across all reinsurers surveyed, reflecting the complexity and nuances of market dynamics on each reinsurer’s business operations. Munich Re and Hannover Re continue to lead the reinsurance market with a combined market share of 80% measured by insurance revenue.”

He points out that in the split of insurance revenue between the life and non-life insurance results, Munich Re and Hannover Re are leading the life insurance market with a combined market share of 88%, with Munich Re and Africa Re leading the non-life insurance market with a combined market

“While hardened reinsurance renewals rates continued into 2024, South African reinsurers can be expected to continue with a cautious approach as they move into the 2025 underwriting cycle. Employing agile operating models, continuous assessment of the risk landscape and innovative product offerings are key imperatives for reinsurers to be able to maintain and gain a competitive edge, whilst at the at the same time protecting their balance sheets.”

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Constrained macroeconomic environment

Danckwerts says the constrained macroeconomic environment, uncertainty around the frequency and severity of natural disasters as a result of climate risk and ongoing geopolitical conflicts have continued to influence the results of the insurance industry.

“This resulted in changes to the demand for insurance products, costs of insuring risks and enhanced risk management initiatives employed in responding to the dynamic risk environment. However, despite these factors, the insurance sector at large reflected positive results for 2023.

“As the industry looks forward, insurers are expected to continue applying a cautious approach to risk management. We can also expect to see an increased use of new and emerging technologies including artificial intelligence and the reassessment of risk management strategies and operating models.”