Thursday, 2 February 2012
South African insurance market ‘strong’ despite economic pressures—Fitch
Fitch Ratings said in a special report published late last week that, although the operating environment in South Africa remains ‘challenging’, the performance of non-life insurers has been ‘resilient’.
"Despite pricing remaining under pressure, and the volatility in the investment markets, profitability in the South African non-life insurance industry strengthened in H111 [the first half of 2011]," said Nicole Gibb, Associate Director in Fitch's Insurance team in South Africa.
"This was reflective of improved underwriting performances, strong solvency positions and the maintenance of market share by major players," she added.
Fitch expects premium income to remain under pressure because of the industry's high level of competitiveness and the continued financial constraints on consumers in South Africa.
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In some cases, Fitch believes that insurers may continue to find it difficult to charge an ‘appropriate’ premium for the risks they insure.
As a result, Fitch said that it expects the performance of non-life insurers in the second half of 2011 to have been in line with or only slightly up on the first half results.
Fitch also said that the South African life insurance industry performed well in the first half of last year despite the tough economic conditions.
"Profitability in the South African life insurance industry strengthened in H111, which was reflective of the gradual recovery in the local economy, improved persistency experience and improved sales," said Ms Gibb.
"Despite this, investment markets continued to demonstrate volatility and consumers' disposable income remained strained," she added.
South African life insurers are also preparing for a number of reforms that will transform how they are regulated, noted Fitch.
Solvency Assessment and Management (SAM, the new solvency regime for the South African insurance industry), National Social Security Reform (a compulsory retirement savings initiative) and the National Health Insurance (a compulsory national healthcare system) will have an impact on the way in which life insurers operate, it stated.
The rating agency, however, expects major insurers to adapt successfully to the proposed reforms.
Fitch considers the major life insurance companies to be well prepared to meet the industry's challenges. In addition, the agency expects the performances of life insurers to remain constrained as a result of the tough operating environment.
And this week Fitch affirmed South Africa-based Liberty Group Limited's (LGL) national Insurer Financial Strength (IFS) rating at 'AA(zaf)' and national long-term rating at 'AA-(zaf)'. The outlooks are stable.
Fitch said that the rating affirmation reflects LGL's ‘strong’ capitalisation, its resilient and improved operating performance, well-established business position in South Africa and enhanced risk management.
In addition, the rating agency said that LGL's strong and diversified distribution network and success in a bancassurance joint venture with the Standard Bank group are key positive rating factors.
Offsetting these key rating drivers are earnings volatility that stems from the group's exposure to investment markets and the continued ‘challenging’ South African economic environment, said Fitch.
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