South Africa Insurance Report Q4 2012

This South Africa Insurance Report considers the prospects for both life and non-life insurers in thecountry. The latest results published by South Africa’s life companies relate to 2011 and H112 andhighlight their strengths and competitive advantages in a global context. Most have benefited from at leastsome of the following factors: rising demand for long-term savings products from ‘retail mass’customers; development of new products; realisation of benefits of long-standing programs to boost theprofitability of the products that are sold, and synergies from combinations of businesses. Unlike theircounterparts in other countries, they appear to have suffered relatively little from the volatility in globalfinancial markets, which intensified through H211. In general, they are upbeat about the prospects of(much) smaller new businesses in other countries throughout Sub-Saharan Africa (SSA).

Because of the peculiar history of South Africa, the life companies have enormous tolerance of emergingmarkets risk and particularly political risk. Compared with their counterparts in broadly comparablecountries such as Taiwan (especially) or Israel, they have generally had to work with much smaller poolsof organised savings. To a greater extent than their Taiwanese or Israeli peers, they have developed verysubstantial businesses in developed countries. In short, the combination of absolute size, financialstrength, world-class corporate governance and orientation towards emerging and embryonic markets hasserved South African companies very well.

Longer-term trends in the non-life segment are less inspiring. The leading players’ comments in relationto H112 suggest that premiums will grow at single-digit rates over the year as a whole. We see no reasonfor non-life penetration to stop falling over the medium term. The non-life companies are workingassiduously to control claims costs, boost productivity, develop new products, exploit economies of scaleand, if possible, grow by acquisition. Like their counterparts in the life segment, they are looking atopportunities outside South Africa. However, for the medium term, they will likely continue to facedownwards pressures on prices.

Overall, the strengths of both segments mean we are optimistic about the medium- to long-term prospectsof South Africa’s dynamic insurance sector. The Financial Services Board (FSB)’s solvency assessmentand management (SAM) regime may require some players to strengthen their capital bases over thecoming years. However, it is very difficult to imagine the problems will be insurmountable. We remain ofthe view that more high-profile deals, following the merger that produced MMI Holdings, could welloccur.

Over the last quarter, BMI has made the following changes:

The analysis incorporates BMI’s latest forecasts for South Africa’s economy, including detailsin relation to auto sales and trends in the healthcare sector.

The analysis incorporates the latest comments on developments of leading local insurers.