Insurance through challenging times Insurance industry analysis - Analysis of major South African insurers' results for the year ended 31 December ...
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Insurance through challenging times
Insurance industry analysis
Analysis of major South African
insurers’ results for the year ended
31 December 2015
April 2016
www.pwc.co.za/insurance
About this publication We are pleased to present the fifth edition of PwC’s analysis of major insurers’ results, covering the year ended 31 December 2015. The results are a reflection of the financial performance of the South African insurance industry in a challenging economic environment. Insurance groups analysed in this publication Long-term insurers • Discovery Holdings Limited (Discovery) • Liberty Holdings Limited (Liberty) • MMI Holdings Limited (MMI) • Old Mutual plc (Old Mutual) • Sanlam Limited (Sanlam) Short-term insurers • Mutual & Federal Limited (M&F) • OUTsurance Holdings Limited (OUTsurance) • Santam Limited (Santam) Due to some differences in reporting periods and changes in presentation and accounting policies, the information is not always comparable across insurers. Areas where there are differences are highlighted in Section 10. Insurance Industry Analysis – April 2016
Content
1. Industry overview 2. Long-term insurance 3. Short-term insurance 4. Investment performance
3 8 19 24
5. Capital and solvency 6. Growth ambitions beyond 7. Looking ahead 8. Navigation tools: PwC
South African borders thought leadership
29 32 35 38
9. Key industry 10. Basis of information 11. Contacts
statistics provided
42 46 48 PwC
2 Insurance Industry Analysis – April 2016
1. Industry overview
Long-term insurance
Key indicators – combined
The year 2015 marked the end of The South African economy continued
‘business as usual’ for South African its decline in 2015 as a result of factors
Group IFRS earnings up 18% long-term insurers. Global economic ranging from rising interest rates, severe
growth prospects continued to drought in most parts of the country that
experience significant challenges. started impacting food prices, subdued
Group return on average equity of 21% R
China’s slowing growth, declining global growth in equity markets and continuing
commodity prices and the strengthening pressure on disposable household
of the US dollar against emerging market incomes. Furthermore, the deterioration
Group embedded value profits down 16% currencies are threatening the growth of the rand, particularly in December;
prospects of economies like South continuing energy constraints and costs;
Africa’s. and the possibility of further downgrades
Value of new business remains flat to the country’s sovereign ratings are
The International Monetary Fund (IMF) negatively impacting investor confidence
noted that sub-Saharan Africa’s growth in South Africa.
Margin on new business decreases to 2.7% has also started to weaken after over
a decade of solid numbers. Declining The JSE all-share index closed off slightly
global commodity prices have already better at the end of December after
had significant negative impacts on significant volatility during the year. The
economies such as Nigeria, Angola and mining industry sector was negatively
Namibia. Nevertheless, the IMF is still impacted by falling commodity prices.
predicting a combined growth rate of The telecoms sector also showed a
around 4.5% for sub-Saharan Africa in decline, compounded by issues such
2016. as MTN’s $3.9 billion fine in Nigeria.
PwC 3
In addition, the all-bond index yield The regulatory environment continues Short-term insurance
increased following successive interest to disrupt the ‘business as usual’
rate hikes of 25 basis points each, approach in the industry. The Solvency Key indicators – combined
resulting in market value losses on fixed Assessment and Management (SAM)
bond instruments. implementation date has been postponed
to 1 January 2017. Insurers have begun Group IFRS earnings up 32% (excluding M&F)
All insurers’ embedded value has been their journey to change their capital
hit hard by the rise in interest rates, structures to align with SAM principles.
which negatively impacted their risk Where surpluses might result, some Group return on average equity up 49% (excluding M&F)
R
discount rate and their cost of capital. insurers have set aside the additional
Those insurers with globally diversified capital for strategic acquisitions. Some
Group written premiums up 12%
portfolios enjoyed some relief from insurers have also launched a number
exchange gains as the rand depreciated. of new investment products in response
Insurers’ IFRS earnings and return on to the tax-free savings thresholds Claims ratio improvement to 59%
equity remained stable from 2014 to introduced in 2015.
2015.
Insurers continue to build capacity to Underwriting margin increase to 10.8%
Despite the pressures on disposal deal with other significant evolving
household incomes, insurers had an regulations in the South African
International solvency margin increase to 42%
overall positive experience variance on market. These include binder and
(excluding M&F)
lapses. Some insurers strengthened their outsourcing arrangements; SAM, whose
lapse assumptions, though, in view of the comprehensive parallel runs with
deteriorating economic outlook. existing requirements are currently
underway; treating customers fairly Insurance companies showed significant plant crops. This resulted in premiums
(TCF); and the retail distribution review improvements in 2015 in their IFRS being refunded and fewer claims being
(RDR). In addition, long-term insurers earnings and key ratios, continuing the incurred on this line of business during
have to contend with changes to the trend from 2014. The results as analysed the current year.
manner in which business will be taxed in this document continue to show that
as from 1 January 2016. these companies are moving in the right With the much discussed possible
direction. They are actively managing downgrading of South Africa’s credit
to reduce their claims handling costs as rating to ‘below investment grade’ and
well as to improve the quality of their the ever-increasing inflationary pressure
policyholder books. in the economy resulting in increasing
living costs, insurance can be considered
There were again no major catastrophic a luxury good. An estimated 65% of
events during the year, except for the the country’s vehicles and household
severe drought which affected the items are not insured, and consumers
majority of South Africa’s farmers. This are not expected to purchase new assets
line of business’ gross underwritten as a result of economic difficulties. This
premiums decreased significantly due to will affect the growth in gross written
the risks not attaching as farmers did not premiums going forward.
4 Insurance Industry Analysis – April 2016
The effect of this is that it is likely an intermediated model to become An area where insurance companies have All of the above have resulted in the
that policyholders will rethink taking more efficient may also be paying off. been generating a lot of growth is the industry experiencing a very good
out insurance and rather spend their Competition in the personal lines space commercial lines within the industry. combined ratio this year, decreasing
disposable income on other items they remains very high. Santam alone has already grown its from 90.8% to 89.2%. This is indicative
deem necessary. Alternatively, they will commercial lines by 15% in the current of players in the industry improving
seek more affordable insurance solutions, Another factor playing a role in year. It is expected that a lot more focus their efficiency and selectively repricing
which is likely to have an effect on the delivering the good industry results is will be placed on generating growth in their policyholder books. The challenge
larger insurers within the industry if the contribution made by OUTsurance’s this line of business in the coming years, remains for them to continue stimulating
they are not able to make their offerings Australian business, Youi. The company as almost all of the companies analysed local growth in a difficult economy, with
more efficient. This is due to the fact that contributed 47% of the group’s gross have seen the growth in their personal insurance companies’ day-to-day costs
they have been actively increasing their written premium during this year, which lines stagnate at a level only marginally and claims costs expected to rise due to
premiums in order to appropriately price can be ascribed to continued growth above the consumer price index (CPI) of inflation and the weakened rand.
or rid their books of high-risk policies. within Australia and the declining rand. 4.5%, due to intense competition.
In addition to the above, some of the M&F showed an improvement in its
smaller insurers, such as ABSA and claims ratio over the past three years. Figure 1.1 Industry combined ratio
Zurich, have been rationalising their This is as a result of its gross written
businesses. This has had the effect of premiums increasing by 17% and its
increasing policyholder churn, which claims expense decreasing by 7%. The %
would have contributed to the growth in company implemented plans in the prior 94
combined GWP. year whereby it reduced claims-handling
costs and eradicated from its book of 93
It is thus of the utmost importance that business those policyholders that were
insurers continue to place emphasis considered high risk – a move that clearly 92
on their pricing models to ensure that had a very good effect on underwriting
they remain competitive and do not lose profits. 91
policyholders who are considered to
be good business due to the premiums The same can be said of Santam, which 90
becoming unaffordable. showed similar improvements during the
year – albeit not to the same extent. 89
When we consider OUTsurance’s
underwriting margin trend, for instance, OUTsurance has been less successful 88
which has decreased from 17.8% in 2014 in decreasing its claims ratio, but it
to 15.9% in 2015, it is clear to see that remains excellent at 54.6% after it was 87
52.3% in 2014. The slight decrease in 2013 2014 2015
this is already beginning to take effect.
The company may well have started OUTsurance’s claims ratio is due to
feeling the pressure of competitors who catastrophe claims experienced by Youi Source: PwC analysis
have similar direct distribution models to the value of R405 million after taking
but offer more affordable premiums. reinsurance recoveries into account.
Concerted efforts by insurers with
PwC 5
Judging from the current economic Santam has indicated that it intends to Whilst this pessimistic outlook does not more granular level. This could assist
environment in South Africa, we can expand its direct insurance distribution bode well for the year ahead, it is still with the underwriting and pricing
expect 2016 to be a challenging year for channel, adding to its subsidiary Miway, evident from the 2015 results that a well- process, especially in terms of how to
short-term insurers. which underwrites according to the implemented diversification strategy is identify good and poor risks. Insurers
direct insurance model. They will start important for the financial wellbeing of that adapt to these changes in an
It will be important to strike the right selling more direct insurance themselves an insurer. efficient and effective manner will in all
balance between the retention of – a step which is indicative of the likelihood place themselves in a better
policyholders and the repricing of industry moving towards this model. This The effects of technology also need to position than the rest of the industry, as
premiums. Insurers can expect the cost of brings the future of brokers of smaller be considered in that it could disrupt they will be able to make better decisions
claims to rise in the coming year, which policies in the personal line space into the age-old pooling of risks. New and create savings to a certain extent.
will have a negative impact on their question, as they will be utilised less to technological advances will allow
claims ratios. A lot of focus will have to underwrite personal risks. insurers to analyse policyholders on a
be placed on pricing risks effectively in
order to provide value to customers.
6 Insurance Industry Analysis – April 2016
PwC 7
2. Long-term insurance
Group IFRS earnings
Combined results Long-term insurers continue to manage set in the prior year. Overall positive
shareholder market risk exposures operating experience variances and
2015 2014 2013 2015 2014 conservatively and within predetermined assumption changes created R2.8 billion
Rm Rm Rm vs 2014 vs 2013
ranges. Shareholder investment and R189 million in embedded value
Total comprehensive income 33 427 28 347 24 267 18% 17% allocations were largely consistent with earnings respectively. These profits are
Return on average equity 21% 21% 20% those in the prior year. This is evident mostly driven by positive mortality and
in the consistency of earnings over the morbidity experience.
last three years. Shareholder investment
portfolios remain invested in low-risk, Sanlam posted a 26% return on
Combined IFRS earnings of R33.4 billion Insurers had to deal with a year of diversified mandates, helping to reduce average equity, partly due to its strong
were up 18% on 2014. The all-share ongoing instability in the equity markets, volatility. Insurers continue to focus on performance and its overall geographic
index closed only 1.9% higher than in rising interest rates and a volatile yet strategic growth opportunities, core diversification, thus capitalising on the
2014. Despite the increased volatility consistently depreciating South African operations and writing good quality depreciating rand. Sanlam was followed
and depressed equity market sentiment, rand. Market volatility was more insurance business. Long-term insurers closely by Discovery at 23%. Old Mutual
insurers were able to consolidate prevalent in the second half of the year, are managing their underwriting and Liberty were at 19%, while MMI
consistent returns year on year. The and due to the sharp rise in interest rates risks well in line with assumptions came in at 14%.
resilience that insurers have shown is in at year end, the risk discount rate for
part due to their product, industry and insurers increased on average by 200 bps.
geographical diversification and their
ability to link economic factors to product
design, thereby matching price to risk.
8 Insurance Industry Analysis – April 2016Group embedded value Embedded value of SA new business
Embedded value Value of new business
Combined results Combined results
2015 2014 2013 2015 2014 2015 2014 2013 2015 2014
Rm Rm Rm vs 2014 vs 2013 Rm Rm Rm vs 2014 vs 2013
Embedded value 298 153 277 111 249 118 8% 11% Present value of new business 218 853 206 447 172 650 6% 20%
Embedded value earnings 33 097 39 427 39 207 -16% 1% premiums (PVNBP)
Return on embedded value 12% 16% 18% -25% -11% Embedded value of new 5 921 5 933 5 318 -0.2% 11.6%
business (VNB)
Value of new business margin 2.7% 2.9% 3.1% -7% -6%
Combined group embedded value the expected return on value of in- Average payback period 6.1 6.4 6.3
earnings were 16% lower than in 2014. force business as well as exchange rate (years)
Return on embedded value is lower fluctuations, which had a net positive
for all companies except Old Mutual impact of R3 billion.
Emerging Markets. Combined present values of new business reduced by 6% compared to 2014,
On a combined basis the long-term premiums (PVNBP) written by the following the previous 7% decline in
The most significant drivers of covered insurers continue to manage their long-term insurers reflect fair results 2014. The PVNBP is marginally up and
EV earnings for 2015 were expected mortality and morbidity risks very in a challenging environment. The 6% the VNB is flat on the prior year. The
return on value of in-force business, well, with total experience variance year- on-year increase is in line with CPI VNB margin has thus declined. This VNB
value of new business, economic and assumption changes creating an for the period. margin decrease is partly due to changes
assumption changes and exchange rate additional R2.9 billion in EV earnings. in product mix and pressure on risk
movements. The impact of economic The declining economic environment The continued competitive environment premium pricing.
assumption changes (including the and increasing costs had a negative effect and the economic pressure on consumers
effect of higher risk discount rates) on expenses, resulting in a reduction in took their toll on the embedded value The combined average payback period
reduced EV earnings by R7 billion and embedded value of R1 billion. Despite profit margins achieved on new business decreased to 6.1 years due to the impact
was the predominant reason for the these pressures, insurers did not suffer written. The VNB margin of 2.7% of increased discount rates on PVNBP.
decline in covered EV earnings. EV losses from lapses and surrenders.
earnings benefited from an increase in PwC 9This is a calculated crude measure to determine the period over which the majority of Growth in both recurring and single premiums was noted for the majority of insurers
the VNB will be earned (PVNBP divided by annual premium equivalent). except Liberty, which declined 14% on its single premium business.
Figure 2.1 Industry value of new business (VNB) and VNB margin Figure 2.2 Value of new business (VNB) and VNB margin
% %
7 000 3,3 2 500 7
Value of new business (R millions)
Value of new business (R millions)
6 000 3,2 6
2 000
3,1
5 000 5
3,0
VNB margin
VNB margin
1 500
4 000 4
2,9
3 000 1 000 3
2,8
2 000 2,7 2
500
1 000 2,6 1
0 2,5 0 0
2013 2014 2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
Discovery Liberty MMI Old Mutual Sanlam
Discovery VNB Liberty VNB MMI VNB
Old Mutual VNB Sanlam VNB VNB margin Value of new business VNB margin
Source: PwC Analysis Source: PwC Analysis
10 Insurance Industry Analysis – April 2016Discovery Liberty attributed the decline in its 1.8% VNB decreased by 36% and its VNB experienced by the market, the VNB
new business margin to a change in margin reduced to 2.8% (six months margin on Retail Affluent and Mass
Discovery grew its PVNBP by 4.8% product mix as well as the increase in the to December 2014: 4.0%). Momentum Foundation increased by 30% to 2.6%
to R21.1 billion. The VNB margin discount rate by 200bps. Retail’s VNB margin reduced to 1.0% in and 12% to 10.3%, respectively. The
decreased to 5.6% from 6.2%. This can the latter half of 2015, with improved Corporate VNB margin remained static
be attributed to the decrease in the VNB Overall, the group embedded value of PVNBP growth of 7%; however, the VNB at 1.2%.
margin on the higher-yielding Discovery new business decreased by 25.2% to decreased by 1%.
Life risk business, which reduced from R684 million. Liberty’s expected payback Old Mutual’s expected payback period is
9.5% to 9.1% in the period. period is 5.4 years, compared to the MMI’s expected payback period is 7.9 6.7 years, which is consistent with 2014.
industry average of 6.1 years. years, slightly up from the 7.7 years in
Discovery’s VNB margin continues to
reflect the impact of a change in product
2014. MMI was the only insurer to see Sanlam
mix brought about by writing lower-
MMI this figure increase in 2015. Its payback
Sanlam’s PVNBP declined by 8.2% to
period is above the combined average of
margin investment business. The growth MMI’s PVNBP grew by a noteworthy 6.1 years. R42.9 billion in 2015. In 2015, the VNB
in investment new business continues 19% to R51.5 billion. The Momentum margin reduced from 2.7% to 2.4%. The
to outperform the growth in risk new Corporate and Public Sector segment net result was a VNB decrease of 19% to
business. The investment new business continued the strong new business
Old Mutual R1.04 billion.
margins are improving through product growth that was seen in 2014 and Old Mutual increased its PVNBP by
innovation. supported the bulk of the group’s growth 24.7%, to R64.4 billion. This accounts Sanlam Sky, the business unit that
in PVNBP. The acquisition of Guardrisk for more than a quarter of the combined targets the lower end of the market,
Discovery’s expected payback period has made a strong positive contribution to PVNBP of all the insurers included in which struggled in 2014 due to the
decreased to 8.1 years from 8.6 years, the growth in the corporate and public this analysis. Its VNB margin remained labour disputes in the Rustenburg area,
compared to the industry average of 6.1 sector segment. The combined growth of resilient and increased slightly to 3.4%. showed a recovery with an 8% growth
years. PVNBP for Momentum and Metropolitan As expected, the value of new business in PVNBP. However, the VNB margin
retail was only 4%; however, this low increased substantially by 28.7% to R2.1 declined sharply from 9.5% to 6%, thus
Liberty growth was in favour of higher-quality billion in 2015. resulting in a 33% decline in VNB. The
business. Sanlam Individual Life cluster showed
Liberty’s PVNBP declined by 13% Old Mutual reported strong growth strong guaranteed product sales as well
to R38.9 billion as a result of being MMI’s VNB margin declined from 1.8% across its South African product range. as market-linked product sales, thus also
impacted by reduced single premium to 1.6%. The embedded value of new In particular, the Corporate Cluster, affecting the mix of product sales and
business in Liberty Corporate. This was business written increased by 6.5% to which comprises 44% of total PVNBP, putting pressure on the VNB margin. It
off the back of a record single premium R825 million. grew new business single premiums by also experienced various once-off events
sales figure in 2014. The group’s Evolve 82%, resulting in total PVNBP growth which had a negative effect on new
product and linked-life annuities Metropolitan Retail, which focuses on of 43% for this cluster. Mass Foundation business volumes.
continued to deliver good sales growth. the lower- to middle-income market and Retail Affluent contributed growth
Recurring-premium-risk product sales segment, continues to struggle. For of 19% and 3% respectively towards Sanlam’s expected payback period is
were consistent with 2014. the six months to December 2015, total PVNBP. Despite the pressures 4.4 years, the lowest in the analysis,
declining from 5.3 years in 2014.
PwC 11Operating experience variances and assumption changes
Experience variances Expenses Lapses and surrenders Mortality and morbidity
2015 2014 2013 2015 2014 2013 2015 2014 2013
Rm Rm Rm Rm Rm Rm Rm Rm Rm
Discovery 46 12 3 14 108 328 76 149 94
Liberty 0 0 0 143 119 195 130 185 155
MMI -82 100 87 -178 -10 129 267 469 302
Old Mutual -196 -302 -257 59 -198 -136 472 761 604
Sanlam -16 22 165 174 -64 211 816 842 645
Combined -248 -168 -2 212 -45 727 1 761 2 406 1 800
The majority of the industry struggled to Except for MMI, the insurers reported Continuing the recent trend, all insurers
manage actual expenses within the range better-than-expected results on their profited from better-than-expected
of the projected actuarial assumptions set lapse and surrender assumptions. The mortality and morbidity experience,
at the end of 2014. Liberty and Sanlam tough economic environment would which contributed approximately 5.3%
were very close to expectations again have been expected to impact on the to embedded value earnings for 2015.
this year. Old Mutual continues to incur persistency for insurers. The actuarial Old Mutual and Sanlam benefited the
unexpected expenses. The negative assumptions appear to have adequately most from these experience variances.
experience variances for MMI and Old provided for this as, overall, a positive For the six months ended 31 December
Mutual have affected the future expense experience variance has been recorded. 2015, MMI had significantly reduced
assumptions, an indication that these MMI includes policy alterations in positive experience variances for its
higher levels are expected to persist. its lapses and surrenders data. It retail business, but it expected this not to
experienced higher-than-expected loyalty repeat itself going forward.
reward discounts and clients choosing
lower-fee products.
12 Insurance Industry Analysis – April 2016Assumption changes Expenses Lapses and surrenders Mortality and morbidity
2015 2014 2013 2015 2014 2013 2015 2014 2013
Rm Rm Rm Rm Rm Rm Rm Rm Rm
Discovery 0 -54 -34 0 -78 -312 17 0 0
Liberty 0 0 -217 -111 -62 0 0 0 60
MMI -285 469 276 24 4 126 249 158 245
Old Mutual -474 -4 143 8 -593 -376 52 1,489 47
Sanlam -3 32 26 -60 88 13 810 167 655
Combined -762 443 194 -139 -641 -549 1,128 1,814 1,007
MMI and Old Mutual have strengthened Liberty and Sanlam strengthened their
their expense assumptions on the back lapse assumptions to reflect uncertainty
of operating expense variances. The around future persistency. Sanlam
inflationary pressures and increased relaxed its persistency assumption
cost of product development and similar slightly in 2015 after it had been
internal costs are coming through for constant for the previous five years.
MMI and Old Mutual. Discovery, Liberty Liberty strengthened assumptions due
and Sanlam are expecting assumptions to policyholder behaviour on investment
set in 2014 to remain appropriate. MMI products.
has targeted expense savings of R750m
Following the significant mortality and
by FY 2019. This may assist in improving
morbidity experience profits of the past
the operating expense variance going
three years, the combined industry
forward.
continued to capitalise expected profits,
being R1.1 billion, in 2015 (R1.8 billion
in 2014). Old Mutual recognised its
mortality and morbidity assumption
change in 2014. Sanlam and MMI have
followed suit in 2015.
PwC 13Sensitivity of value of in-force and value of new business written
Figure 2.3 Value of in-force (VIF) sensitivity Discovery’s embedded value of in- significantly in 2015, which makes sense
force business continues to be the most given the current economic conditions
sensitive to changes in discount rate. in South Africa. This has also caused a
%
Discovery’s business is also the most slight decrease in the sensitivity of their
12 sensitive to lapse risk. The reason for lapse risk.
these sensitivities could be the effect
9 of writing more age-rated, increasing- MMI has the VIF most sensitive to
6 premium business with the consequence mortality risk in the industry and has
that more profit is expected to be realised had a less positive experience variance
VIF sensitivity
3 at later durations compared to the more in this area compared to the prior years.
immediate future. Discovery manages MMI was comfortable, however, that the
0
Discovery Liberty MMI Old Mutual Sanlam this risk in part through its successful worsened lapse experience was not due
-3 Vitality programme, which aims to to high fraud risk or any operational risk,
keep policyholders actively engaged to in most instances finding the mortality to
-6
mitigate the lapse risk. be driven by natural death.
-9
Discovery’s VIF is least sensitive to Old Mutual’s VIF continues to be the
-12
expense risk and it has recorded positive most sensitive with regard to expenses.
Risk discount rate +1% Expenses -10%
Interest rate environment -1% Mortality -5% experience variances in this regard. While expense efficiencies are expected
Lapses -10% Discovery has not changed its related after the planned unbundling of the
assumptions, and this could be primarily Old Mutual Group post-2018, there has
due to expected benefits of economies of been a significant strengthening of the
Note: Old Mutual does not provide a comparable sensitivity to change in risk discount rates as part of its market scale in the future. expense assumption in 2015.
consistent embedded value (MCEV) information.
Liberty’s VIF continues to be highly Sanlam has continued to be the insurer
Source: PwC analysis sensitive to lapse risk, following closely least sensitive to mortality risk and
behind Discovery’s. Liberty has, however, continues to experience strong positive
strengthened its lapse assumption gains in this area.
14 Insurance Industry Analysis – April 2016Figure 2.4 Value of new business (VNB) sensitivity Liberty continues to experience MMI has experienced significant growth
strong growth in its single premium in the recurring-premium business in its
investments, in particular the Evolve Corporate and Retail sector.
investment product. The sensitivity of
% Liberty’s new business to risk discount Old Mutual’s new business is less
25 rate has also increased from the prior sensitive to lapses in the current year
year, which is likely due to the impact of than it was in the prior year. Old Mutual’s
20
selling more guaranteed products such as increasing profits in new business
15 can largely be attributed to continued
Liberty Agile.
10 profitable risk business in the Mass
VNB sensitivity
5 MMI’s new business continues to be Foundation cluster.
0 dominated by single premium business
Discovery Liberty MMI Old Mutual Sanlam growth with decreasing margins. In Sanlam and Discovery’s new business
-5
contrast to VIF sensitivity, MMI’s new sensitivities remain largely comparable to
-10 business is more sensitive to lapse risk. those of 2014.
-15
-20
-25
Risk discount rate +1% Expenses -10%
Interest rate environment -1% Mortality -5%
Lapses -10%
Source: PwC analysis
Old Mutual does not provide a comparable sensitivity to the change in risk discount rates as part of its market
consistent embedded value (MCEV) information.
PwC 15Costs
Combined results Figure 2.5 Acquisition cost and acquisition cost to annual premium
2015 2014 2013 2015 2014 equivalent (APE) ratio
Rm Rm Rm vs 2014 vs 2013 %
Acquisition costs 18 199 16 917 14 482 8% 17% 5 000 120
General marketing and 4 500
40 349 37 248 32 913 8% 13%
Acquisition cost to APE ratio
administration costs*
Acquisition cost (R millions)
4 000 100
Annual premium equivalent (APE) 35 634 32 086 27 479 11% 17%
3 500
80
*The reported segments disclosed in the Liberty Group Financial Statements for 2015 include a portion of the 3 000
health and short-term insurance business. The comparative information for 2014 has been restated to align with 2 500 60
this new disclosure, as the long-term insurance business could not be isolated.
2 000
1 500 40
The growth in the annual premium MMI alluded to its strategic focus on 1 000
20
equivalent of the industry was less than achieving savings of R750 million by 500
last year, impacted by the economic FY 2019. Action plans that are already 0 0
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
environment in South Africa. in motion to optimise its client-centric
business model are starting to reflect
General marketing and administration in reduced general marketing and Discovery Liberty MMI Old Mutual Sanlam
costs increased slightly above inflation, administration costs. Acquisition cost Acquisition cost to APE ratio
as insurers increased their spending on
IT infrastructure and big data projects.
Source: PwC analysis
Most insurers’ acquisition cost to APE Discovery’s acquisition costs to APE
ratio is reducing, with a slight increase ratio continues to be the highest in the
for Sanlam. Insurers like Old Mutual industry, although it has been gradually
continue to optimise their distribution decreasing since 2013.
channels through the use of tied
Liberty’s acquisition costs had the lowest
advisers and other mechanisms to
increase in the industry. The primary
build efficient distribution capabilities
driver of this is the reduction in the level
ahead of the implementation of the
of new business written.
South African retail distribution review.
These measures are yielding improved MMI’s acquisition costs are starting
efficiencies in limiting the increase in to normalise following the Guardrisk
acquisition costs relative to the increase acquisition in 2014. MMI has embarked
in annual premium equivalent. on a project to optimise its agency
productivity by reducing the size of
its agency force and sizing it up again,
16 Insurance Industry Analysis – April 2016 together with a restructure of the
remuneration model.Rest of Africa’s contribution
Figure 2.6 Rest of Africa VNB vs South African VNB Figure 2.7 Rest of Africa VNB margin vs South Africa VNB margin
% %
3 000 30
12
2 500 25
10
African VNB as a percentage
2 000 20
8
VNB margin
R millions
of SA VNB
1 500 15
6
1 000 10
4
500 5
2
0 0
0
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015
Liberty MMI Old Mutual Sanlam Liberty MMI Old Mutual Sanlam
Embedded value of new business (VNB) SA
Embedded value of new business (VNB) Rest of Africa
Rest of Africa VNB Margin SA VNB Margin
Rest of Africa VNB as a % of SA VNB
Source: PwC analysis Source: PwC analysis
The VNB in the Rest of Africa grew from 2014 to 2015 for each insurer except Sanlam. The value of new business margins for the Rest of Africa remains higher than that
Sanlam achieved strong annuity sales in Botswana, coupled with growth in per policy of South Africa for all insurers. The margins in the Rest of Africa have decreased for
premium size in Namibia and positive investment business inflows within the Rest of Sanlam and Old Mutual.
Africa. This growth was partly offset by declines in the unit trust inflows in Namibia
and other declines in new business sales experienced in Zambia. The value of new business margins for the insurers’ South African business has
decreased from last year, except for Old Mutual. This is because Old Mutual’s South
African new business margins grew in both the Retail Affluent and Mass Foundation
clusters.
While Sanlam’s new business margin for its Personal Finance segment has been
declining since 2013, the margin for its Employee Benefits segment increased from
2014 to 2015.
PwC 1718 Insurance Industry Analysis – April 2016
3. Short-term insurance
Gross written premiums
Combined results Figure 3.1 Industry gross written premiums (GWP) vs underwriting
2015 2014 2013 2015 2014 margin
Rm Rm Rm vs. 2014 vs 2013
Gross written premiums 52 165 46 486 41 198 12% 13%
%
Net earned premiums 41 207 37 029 33 704 11% 10% 60 000 12
IFRS earnings (excluding M&F) 4 140 3 131 2 767 32% 13%
50 000 10
The combined IFRS earnings for the The industry posted a strong 40 000 8
year of R4.1 billion (excluding M&F) underwriting result due to M&F’s
increased by 32% on 2014. This is due considerably improved ratio from 1.5% 30 000 6
to the improved underwriting margin in 2014 to 7.4% in 2015, Santam’s
experienced in the market during the last steadily growing ratio from 8.3% to 9.4% 20 000 4
calendar year, which increased from 9% in 2015 and the fact that OUTsurance
in 2014 to 11% in 2015. has maintained a strong underwriting 10 000 2
margin despite it decreasing slightly from
17.8% to 15.9%. The lack of noteworthy 0 0
catastrophic events combined with 2013 2014 2015
the benefit from improved investment
returns further contributed to this strong Outsurance Santam M&F Underwriting margin
result. GWP GWP GWP
Source: PwC analysis
PwC 19The combined gross written premiums Figure 3.2 Gross written premiums (GWP) vs underwriting margin Mutual & Federal (M&F)
have increased by 12% to R52.2 billion
in 2015. This increase has again been The company’s gross written premiums
in excess of the consumer price index
% increased from R12.2 billion in 2014 to
30 000 30 R14.3 billion in 2015. This increase of
(CPI) , which is consistent with the prior
year’s analysis. This is mainly due to 25 17% is above the industry average of 12%
25 000 as well as the CPI.
insurers continuing to increase rates in 20
order to mitigate rising insurance costs
as well as to ensure that the quality of the
20 000
15 OUTsurance
policyholder books is maintained. With 10 OUTsurance has continued to show good
15 000
companies like Zurich being in decline, growth in its gross written premiums
these insurers have taken up additional 5 during 2015 with an increase from R11.6
10 000
policyholders, which contributed to the billion in 2014 to R13.5 billion in 2015.
0
increase in gross written premiums. This growth is largely attributable to Youi
5 000 -5 increasing its gross written premiums
OUTsurance’s Australia-based business, by 28% in 2015. The increase should
0 -10
Youi, continues to show significant 2013 2014 2015 2013 2014 2015 2013 2014 2015 continue for the foreseeable future,
growth in its gross written premiums, considering the success of the company
M&F Outsurance Santam
contributing nearly 50% of the group’s in Australia as well as the weakening
GWP. Youi experienced growth of 28% rand.
in its gross written premium for the Gross written premiums Underwriting margin
calendar year ended 31 December 2015. The company’s South African business
This contributed 2% of the 12% growth Source: PwC analysis
grew by 9% which is in excess of inflation
in GWP. and the growth was from R6.6 billion in
2014 to R7.2 billion in 2015.
20 Insurance Industry Analysis – April 2016Santam Key insurance ratios
Santam has shown growth of 7% in its
gross written premiums to R24.3 billion Key ratios M&F
in 2015. Major factors contributing Combined results M&F’s key ratios have remained
to the increase are the growth of the consistent when compared to the prior
2015 2014 2013
commercial lines as well as the strong year, except for its claims ratio and, as
contribution by MiWay and Centriq to Claims ratio 58.7% 61.5% 66.6%
a result, its underwriting margin. The
the gross written premium. Acquisition cost ratio 9.1% 9.3% 10.3% strategic pricing changes implemented in
Expense ratio 21.4% 20.0% 16.5% 2014 are paying dividends, with a strong
This growth was somewhat muted, turnaround in underwriting margins.
Combined ratio 89.2% 90.8% 93.4%
however, by the crop insurance segment. The company has significantly improved
Gross written premiums have decreased Underwriting margin 10.8% 9.2% 6.6%
this from 1.5% in 2014 to 7.4% in 2015.
by 19% on this line. The decline in the Total 100.0% 100.0% 100.0% This is mainly due to the fact that the
crop line of business is as a result of company has continued to increase its
the severe drought experienced in the rates during the year and to the strategy
country over the past year. Santam had The past year was a very successful one There were no major catastrophic events
for the short-term insurance industry, during the year, compared to prior years. of reducing its claims cost implemented
to refund certain policies due to the risk in prior years proving to be successful
never attaching on these policies. building on the good results from the
prior year. The majority of the companies The severe drought suffered in the – claims decreased from R6.5 billion in
under review have improved their claims country also did not affect insurers, due 2014 to R6.1 billion in 2015. This has
ratios, largely due to the lack of severe to farmers not being able to plant and directly resulted in the underwriting
catastrophes during the year. The major insure their crops. margin improvement from 2014 to 2015.
players in the market continue to improve
the quality of their books of business. The improved scale in growth ventures OUTsurance
such as Miway and Youi has assisted in The company had a good year in which
The combined claims ratio for the the strong showing of the industry as a it managed to grow the premiums of the
industry decreased from 61.5% in 2014 whole. South African business by 9% compared
to 58.7% in 2015. This can be ascribed to to 6% in the prior year. This is mainly
the following factors, amongst others. Efficiencies measures such as savings due to the commercial book of business
on claims handling costs and re-ratings showing good growth, with an 11%
to improve the quality of the books of increase in the gross written premiums.
business proved to be successful and
came through in the current year’s Youi’s gross written premiums increased
results. by 28% in rand terms, mainly as a result
of good growth being experienced within
The above has also resulted in the the Australian market and the declining
market’s underwriting margin improving rand. The company continues to be the
from 9.2% in 2014 to 10.8% in 2015. group’s main source of growth in gross
written premiums.
PwC 21The group’s claims ratio has increased slightly from 52.3% to 54.6%. This can be ascribed to the cost of claims rising and Youi incurring catastrophe claims of R405 million after taking reinsurance recoveries into account. Santam Santam again had a good year despite its gross written premiums increasing by only 7% compared to 10% in the previous year. After implementing procedures to reduce the handling cost of claims in 2014, they achieved a claims ratio of 62.1% in 2015 compared to 63.2% in the prior year. This is a good result for an intermediary-dominated distribution model insurer. The claims expense decreased from R14.3 billion in 2014 to R14.0 billion in 2015, which further illustrates the success that the company has had in reducing these costs by investing in enhanced claims processing systems. The droughts experienced in the country during 2015 did have a negative impact on Santam’s underwriting results, but this has been offset by a strong performance in the motor and property segments. 22 Insurance Industry Analysis – April 2016
PwC 23
4. Investment performance
Market performance
The level of investment returns continued mining and telecom sectors. While Figure 4.1 JSE all-share index
to decline during most of 2015, primarily the depreciating rand may have had a
driven by growth uncertainties in large positive effect on export proceeds for the
economies such as China, declining mining sector, this was largely offset by 55 000
commodity prices and political concerns declining global commodity prices.
in Europe, where the UK is considering 53 000
exiting from the European Community. The all-bond yield index closed higher in
South Africa continued to experience 2015 compared to 2014, mainly due to 51 000
a difficult environment. This was increases in prime interest rates totalling
compounded by rising interest rates, 50 basis points. The significant increase 49 000
fears of possible further sovereign rating in the yield curve in December 2015 was
downgrades and declining GDP growth driven by political uncertainty caused 47 000
rates. by the changes to the country’s finance
minister. The increases negatively 45 000
When analysing the performance of the impacted the balance sheets of insurers.
investment markets and their impact on 43 000
31-Mar-15
29-May-15
30-Nov-15
30-Apr-15
31-Dec-13
29-Aug-14
30-Sep-14
31-Dec-14
31-Aug-15
30-Sep-15
30-May-14
30-Jun-15
31-Dec-15
31-Jul-15
The decline in the JSE all-share index
28-Nov-14
30-Jan-15
27-Feb-15
30-Jun-14
28-Feb-14
30-Apr-14
31-Mar-14
31-Jul-14
31-Jan-14
30-Oct-15
31-Oct-14
insurers, it is important to consider the
JSE all-share index and all-bond index. continued to the end of February 2016,
The performance of the JSE all-share after which it recovered slightly in March
index was rather subdued, largely as 2016 following a partial recovery of the
a result of poor performance in the rand. JSE ALSI JSE ALSI average
Source: McGregor BFA
24 Insurance Industry Analysis – April 2016Figure 4.2 All-bond index yield Industry investment performance
Long-term insurers
9.5
Combined results
9.3
2015 2014 2013 2015
9.1 Rm Rm Rm vs 2014
8.9
Total invested assets1 2 144 613 1 955 528 1 771 643 8%
8.7
Income on invested assets 154 559 186 761 244 293 -17%
Yield
8.5
Return on average invested assets 7.5% 10.0% 14.9%
8.3
8.1 Source: PwC analysis
7.9
7.7 Short-term insurers
7.5 Combined results
31-Jul-14
31-Jan-14
28-Feb-14
31-Mar-14
30-Apr-14
31-May-14
30-Jun-14
31-Aug-14
30-Sep-14
31-Oct-14
30-Nov-14
31-Dec-14
31-Jan-15
28-Feb-15
31-Mar-15
30-Apr-15
31-May-15
30-Jun-15
31-Jul-15
31-Aug-15
30-Sep-15
31-Oct-15
30-Nov-15
31-Dec-15
2015 2014 2013 2015 vs
Rm Rm Rm 2014
Total invested assets2 27 601 23 682 21 145 17%
ALBI total return index yield ALBI total return index yield average Income on invested assets 1 797 1 403 1 573 28%
Return on average invested assets 7.0% 5.1% 6.3%
Source: McGregor BFA
Source: PwC analysis
¹
Invested assets comprise the group financial assets as well as the cash and cash equivalents of the insurers (for
Old Mutual the emerging market segment information was used, which for 2014 and 2015 includes M&F). This
includes all policyholder and shareholder assets.
2
Invested assets comprise the group financial assets as well as the cash and cash equivalents of the insurers. It
excludes M&F for all years presented, as separate segment information is no longer available.
Income from invested assets of long- investments such as equities, particularly
term insurers declined, while the income domestic equities, which performed
from the invested assets of short-term poorly relative to previous years. The JSE
insurers increased. Long-term insurers all-share index closed 2% higher in 2015
invest predominantly in longer-term than in 2014.
PwC 25Figure 4.3 Return on invested assets: Long-term insurers Discovery grew its invested assets Old Mutual Emerging Markets’
by 30%, from R49 billion in 2014 to invested assets increased by 9.7%, from
R63 billion in 2015. Investment returns R595 billion in 2014 to R652 billion
16
decreased marginally from 8% to 7.4%. in 2015. The decrease in investment
return was attributable to poor market
14 Liberty’s invested assets grew by 11% performance in local equities, partially
from R365 billion in 2014 to R407 offset by positive returns on certain
12
billion in 2015. Liberty’s shareholder equity instruments that were not severely
10 investment portfolio includes a 24% impacted by the negative trend of the
exposure to equities (local and foreign) JSE all-share index in the second half of
8
and exposures of 25% to other assets and 2015.
6 23% to bonds. Liberty’s shareholder asset
allocation remained comparable to 2014, Sanlam’s invested assets grew by 10%
4
with only marginal increases in the other from R543 billion in 2014 to R595 billion
2 assets and decreases in equities. in 2015. During 2015, Sanlam made
major strategic changes to its asset
0 MMI’s invested assets grew by 6% from allocations from unhedged to hedged
Discovery Liberty MMI Old Mutual Sanlam
R404 billion in 2014 to R427 billion in equity securities, resulting in improved
2015. MMI’s most significant change in investment returns. The timing of the
2013 2014 2015 invested assets was an increase in foreign change in the allocation was favourable
listed equities. The lack of investment to Sanlam, coming before the significant
performance was as a result of the poorly reversal of the equity gains which had
Source: PwC analysis
performing equity markets, particularly been achieved in the first half of 2015.
in the second half of 2015. Sanlam also achieved positive investment
returns in its international assets, partly
due to the depreciation of the rand.
These positive investment returns were
in large part offset by declines in the fair
values of bond instruments.
26 Insurance Industry Analysis – April 2016Figure 4.4 Return on invested assets: short-term insurers
9
8
7
6
5
4
3
2
1
0
OUTsurance Santam
2013 2014 2015
Source: PwC analysis
Santam’s invested assets increased from and converted these to US dollars ahead
R16 billion in 2014 to R18 billion in 2015. of the acquisition of SAHAM, based in
Investment returns also increased from Morocco.
7% to 8.4%. The investment returns
benefited from the gains in its offshore OUTsurance’s invested assets increased
investments as the rand weakened. from R7.5 billion in 2014 to R9.5 billion
Santam holds dollar assets for possible to 2015. Returns on investments reduced
dollar-based claims. Santam has also marginally from 4.6% in 2014 to 4.1%
tactically reduced its equity instruments 2015.
PwC 2728 Insurance Industry Analysis – April 2016
5. Capital and solvency R
Long-term insurance
Capital adequacy requirement cover Liberty’s CAR cover decreased by 2% Sanlam’s CAR cover increased by 29%
from 3.1 times in 2014 to 3 times in from 4.5 times in 2014 to 5.8 times in
2015 2014 2013 2015
2015. Liberty expects to be able to 2015. The single largest contributor to
vs. 2014
exceed the SAM capital requirements the growth in Sanlam’s CAR cover was
Discovery 3.9 3.5 3.9 11% when these are introduced as expected the inclusion of up to R2.5 billion of its
Liberty 3.0 3.1 2.6 -2% in 2017. investment in Santam to form part of its
MMI 2.8 2.7 2.6 4% CAR cover. Sanlam previously followed
MMI’s CAR cover increased by 4% from a conservative approach of excluding
Old Mutual South Africa 3.2 3.1 3.3 3%
2.7 times in 2014 to 2.8 times in 2015. this investment from its CAR cover
Sanlam 5.8 4.5 4.5 29% While MMI has set aside R2.7 billion for due to lack of clarity on whether the
strategic initiatives, it still has R4 billion inclusion would be allowed under SAM.
Discovery Life’s capital adequacy Plc loan facility to fund operations in in capital for further deployment. Following SAM clarification in 2015,
requirement (CAR) cover increased Vitality Life in the UK. Discovery Group Sanlam has now included the Santam
by 11%, from 3.5 times in 2014 to also borrowed short-term bridging Old Mutual South Africa’s CAR cover investment as part of its CAR cover for
3.9 times in 2015. Discovery raised finance of R2.6 billion from RMB marginally increased from 3.1 times in Sanlam Life, resulting in the increased
R5 billion additional capital in 2015 Limited to fund subscription of the 2014 to 3.2 times in 2015. Excess assets CAR cover. Sanlam has also earmarked
through a rights issue. Discovery FirstRand Bank Limited redeemable of Old Mutual Emerging Markets were R4.2 billion of its discretionary capital
Group’s borrowings increased during preference shares in order to increase partly used to fund the acquisition of for the acquisition of SAHAM Finances.
the year following the drawdown of Discovery’s profit share in the UAP in Kenya.
£73.6 million (R1.6 billion) on an HSBC DiscoveryCard business.
PwC 29Short-term insurance
International solvency margin
2015 2014 2013
OUTsurance 42% 40% 43%
Santam 48% 45% 42%
OUTsurance’s solvency margin Santam’s solvency margin increased
increased from 40% in 2014 to 42% from 45% in 2014 to 48% in 2015. While
in 2015. The increase in gross written the growth in Santam’s net premiums
premiums from 2014 to 2015 was was only 7%, total comprehensive
approximately 10% less than the income grew by 45%. Ordinary
increase achieved from 2013 to 2014. shareholder’s equity grew by over 15%
The increase in its solvency margin was after taking into account the share
largely due to foreign exchange gains buyback in 2015.
achieved in 2015 on the Australian
business.
30 Insurance Industry Analysis – April 2016PwC 31
6. Growth ambitions beyond South
African borders
The IMF expects the South African economy by 0.2%. Advanced economies Discovery
GDP growth rate to be less than 1% are expected to grow at 2.1% in 2016
in 2016. This dampened expected while sub-Saharan Africa is expected Discovery’s approach of diversifying This extended partnership is part of
growth rate and the highly penetrated to grow by 4.3% in 2016. The US dollar its business and entering into other Discovery’s growth initiatives for 2016.
insurance market in South Africa are performance against the currencies of developed insurance markets does not
strong incentives for insurance industry developing markets will continue to be entail starting insurance businesses in Discovery also announced its intension
players to continue to look for growth impacted by the US monetary policy. these markets; rather, it aims to partner to extend its model and venture into
beyond the South African boundaries. with established insurers to offer the retail banking. It has an existing joint
Against this backdrop, South African Vitality programme. These insurers venture with FirstRand in respect of the
Insurers are expected to be cautious insurers are adopting different benefit from this partnership by being DiscoveryCard business. Discovery has
as they continue to look for growth strategies to diversify their businesses able to use the Vitality programme to recently acquired an additional 54.99%
outside South Africa. The IMF’s outlook in order to mitigate the impact of the change their policyholders’ behaviour. share in this business.
on the global economy also indicates expected slow growth in the country.
an expected contraction of the global Discovery’s partnership with one of the In the UK, Discovery has been granted
largest insurers in the US, John Hancock, its own life insurance licence. Discovery
has led to positive results for 2015. previously ran its life and health
Discovery has announced an extension insurance businesses in the UK using the
of this partnership through a new Prudential license through a partnership
partnership with Manulife in Canada, between the two.
John Hancock’s holding company.
32 Insurance Industry Analysis – April 2016Liberty Old Mutual Sanlam
Liberty acquired a 51% equity stake Old Mutual has announced its intention The Sanlam Group and Santam Sanlam’s operating businesses to 60.
in East Africa Underwriters Limited, to separate its four large business completed the acquisition of a 30% Sanlam expects to enhance the product
a short-term insurer in Uganda, for segments into separate businesses to interest in Saham Insurance in Morocco offerings in these markets.
R45 million in January 2016. Liberty extract greater value for its shareholders in March 2016. This is Sanlam’s largest
remains committed to exploring further and to allow greater access to capital for acquisition yet. This acquisition is aimed Sanlam also increased its interest in
opportunities for growth in sub-Saharan each separate business. Old Mutual’s at providing Sanlam with access to Shiram General Insurance in India by
Africa, including West Africa, but is distinct businesses include the Old Saham’s existing market share in Côte 23%. Domestically, MiWay Life insurance
primarily focused on pursuing the right Mutual Emerging Markets (covered d’Ivoire, Gabon, Senegal, and Cameroon was launched and will be written on the
opportunity. in this publication), Nedbank, Old in West Africa, as well as Morrocco, Sanlam Life insurance licence.
Mutual Wealth and Old Mutual Asset Lebanon, Angola and the Middle
Liberty launched a real estate investment Management business segments. East. The Saham acquisition increases
trust (REIT), the Stanlib Fahari I-REIT,
in Kenya in October 2015. This REIT was Old Mutual Emerging Markets also
the first in Kenya, coinciding with the completed its 60.7% acquisition of
Nairobi Stock Exchange’s launch of the UAP in East Africa in June 2015.
REIT market. The integration of this business with
Old Mutual’s business in Kenya has
MMI progressed above expectations, and
Old Mutual will be looking to list the
MMI acquired CareCross, a health integrated business on the Nairobi Stock
administrator, for R300 million in Exchange.
order to further diversify its revenue.
MMI’s performance in India was below Old Mutual has experienced fast
expectations in 2015, but it remains growth in Nigeria and Ghana through
optimistic about achieving growth the Ecobank distribution channel. Old
above 8%. MMI will also strategically be Mutual also increased its distribution
increasing its presence in the UK while force in West Africa to 670 advisors by
focusing on growth in sub-Saharan December 2015.
Africa, in particular in the non-life sector
in Kenya, Nigeria and Ghana. Domestically, Old Mutual entered into
a new partnership with Telkom. This
gives Old Mutual access to Telkom
subscribers to offer them funeral cover.
This partnership has allowed the Mass
Foundation Cluster to increase its base to
three million customers.
PwC 3334 Insurance Industry Analysis – April 2016
7. Looking ahead
Given the difficult environment described billion in 2014 to R12.2 billion in 2015. According to the IMF World Economic Scientists predict that average
above, it has become clear that insurers Cutting-edge FinTech companies are Outlook for 2015, the GDPs of the E7 temperatures will increase by well over
have to quickly break away from ‘business redrawing the competitive landscape, countries grew at an average of 6% per 2 degrees Celsius in the twenty first
as usual’ and find new ways to achieve blurring the lines that define players in annum between 1994 and 2014, while the century. Yields from rain-fed agriculture
growth. Our PwC 19th Annual Global CEO the FS sector. Insurers participating in G7 average was 2%. We expect emerging will drop by 50% in sub-tropical regions
survey also confirmed other medium- to our 19th PwC Global CEO survey see up markets to continue to grow strongly, by 2020. The sea level is expected to rise
long-term trends that will disrupt the to 22% of insurance business being lost to buoyed by a growing and more skilled by 23 inches by the end of the century,
insurance industry by 2020, more so than FinTech companies by 2020. workforce and increasing inflows of capital with a four-inch rise swamping large
most other industries. Chief among these and technologies. By 2030, seven of the parts of South East Asia. Total property
UN population estimates suggest that
longer-term trends are developments world’s top 12 economies will come from and infrastructure exposure will rise to
another 1.15 billion people will be added
such as FinTech, changing demographics, emerging markets, compared to 5 in 2011. $35 trillion by 2070 – an increase of 9%.
to the world’s population by 2030,
regulation, the rising significance of The majority view in our analyses suggests By 2050, 15% of the world’s population
bringing the total to 8.5 billion people. Of
emerging-market economies in the that insurers will grow their local presence would have had to move because of
this growth, 97% will come from emerging
longer term, and changing climate and in emerging markets to meet the growing climate change. Already, globally insured
markets, including those in Africa. In
sustainability issues. demand from emerging urban middle natural catastrophe losses have increased
addition, there will be 390 million more
classes. from $3.4 billion per year in 1970 to $32.7
FinTech is a dynamic new segment at the people over 65 by 2030, compared to 2015.
billion a year in 2010.
intersection of the financial services and This age group will grow by 67% in Africa Unfortunately, 94% of insurance CEOs
technology sectors, where technology- alone, compared to the 49% increase in surveyed see over-regulation as a threat While FinTech, demographic changes and
focused start-ups and new market entrants the 15–64 age group. The increasing- to their growth prospects, more than the increasing significance of emerging
innovate the products and services longevity trend will bring new challenges any other sector. The majority view markets are seen as potentially driving up
currently provided by the traditional or opportunities for insurers to adapt and was that regulators are becoming more the growth and profitability of insurers,
financial services industry. FinTech is create tailored retirement solutions. It intrusive, demanding detailed insight the increased burden of regulation and the
gaining significant momentum globally, could also split the industry between those into operational processes and customer unpredictability of catastrophic events are
using digital technologies to cause focused on serving young consumers and propositions. This could force traditional seen as potentially negative. Insurers who
significant disruption to traditional value those serving the older ones. Either way, insurers to exit selected industry can adapt to use sophisticated analytics
chains in financial services, including insurers will need to adapt their digital segments deemed too risky or complex. and accurately predict their exposure to
insurance. Funding of FinTech start-ups and data analysis capabilities in order New entrants with alternative insurance the increasing frequency and severity of
more than doubled in 2015, from R5.6 to respond quickly to the need for new solutions and customer-centric models catastrophic events will be better able to
outcome-based products across the new could fill this gap. manage the negative effects thereof.
demographic spectrum.
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