According to a recently released Ernst & Young report, the fundamentals for life insurers operating in South Africa are not as strong as they have been over the last few years.
Investment income is a primary driver of industry profits, and with the outlook for investment income looking subdued, coupled with increasing pressure on consumers, policy surrenders are on the increase. Life insurers are therefore finding both premium and investment income sources more pressured.
Added to which cost growth remains high, with employee numbers on the increase, and benefit payouts growth also continue to be strong. The strong fall in profits growth in the first quarter of 2008 may well continue into the quarter ahead, given the general economic outlook for 2008.
It appears from the EY research that investors are increasingly switching their investments out of contractual savings into collective investment schemes (CIS). Tim Rutherford at E&Y says that it now appears that general economic pressures on consumers are leading to premiums being squeezed once again.’
Graham Thompson, financial services analyst at Ernst & Young, says that while this survey doesn’t track actual inflows into CIS, their investment management index, which is scheduled for release next week, does track those flows.