Did you cancel a life insurance policy in the past year?
Lots of people did – summing up the major problem faced by South Africa’s life companies: it’s not unique to this country and in many cases far worse overseas.
But what the life companies call “persistency” – in real speak, lapsed or surrendered policies – is the iceberg tearing a hole in the large industry that dominates financial markets.
Market conditions might be getting better for some.
Must-have
Everybody needs life insurance and the banks, for example, cash in on it whenever somebody wants to buy a house.
But the outlook for the industry – maybe stable – isn’t shining as it was a decade ago.
One way to look at it is by the market capitalisation of the listed life companies.
Our table is a little dated, but readers will see – with the exception of Liberty Holdings (the listed survivor after Standard Bank’s expensive takeout of minority shareholders) – all the market capitalisation numbers have declined.
It’s a bit of an anomaly and largely related to the performance of equities on the JSE and offshore, but a closer look shows share prices for many of the life companies have increased substantially over the past year.
Green gallop
Old Mutual – the Big Green that still dominates our table in terms of total assets – saw its share price increase by a whopping 108% at the time of writing.
But there are some weird reasons for that.
Over the year Sanlam was up 50%, Clientele 43%, Discovery 32% and Metropolitan 21%.
No investor would be unhappy with those performance figures.
But let’s step back a year.
The market cap numbers for our 2008 report show three of the six (Clientele, Metropolitan, Old Mutual) down, with the others only up marginally in some cases.
Overall, it hasn’t been a good year for SA’s life companies.
Earnings for the life insurance business itself becomes distorted because most of those groups have expanded into what they label themselves as wealth management companies, incorporating asset management and in some cases private client business too.
So it can be a little difficult getting a handle on just how well the life insurance business is doing.
Liberty
Take Liberty as an example.
It was doing terribly – financially – until a credible recovery in second half 2009. But that was mainly related to the improved performance of shares on the JSE: lapsed policies shredded profits and there’s no sign that’s going to get any better.
Apart from lapsed policies, the other obstacle the life companies’ face is trying to write new business.
Much as life insurance is essential, debt-depressed consumers aren’t rushing out to buy new policies.
And the old hard sell tactics of the life companies isn’t working any more.
Really, is anybody going to open their doors to a life insurance salesman in the current economic climate? Or respond to the email offers that flood the internet?
But distribution of insurance products is far more advanced than that, based on ramped up technology and not always working.
Metropolitan, still the credible market leader in the lower income market (where all the other life companies want to be), had what seemed like a cost-effective, phone-based system of signing new business. However, it all seems to have gone awry.
At least Metropolitan tied to be innovative.
Discovery is looking good on the life side and, apart from a recent initiative, is still largely at the top end of the market.
That’s profitable and based on the simple principle of eat healthy food and do gym to keep your life insurance premiums down: but it will need to expand.
Old Mutual lumbers on and performance is fine in SA and apparently improving in Europe.
Offshore exposure
But the US market remains a problem.
That’s where all the problems started for Old Mutual.
CEO Julian Roberts says it’s looking at selling interests in the US.
One wonders why some were bought in the first place (executive management egos could have been the reason).
Earlier management at the time of its demutualisation still have a lot to answer for.
The sanest life company here seems to be Sanlam.
Johan van Zyl, tight on the budget and with a phobia about overpaying, runs a good operation that’s expanded sensibly offshore.
But the past tough years have seen a better life industry emerge.
Products are cheaper, more transparent and user-friendly.
- Finweek
Lots of people did – summing up the major problem faced by South Africa’s life companies: it’s not unique to this country and in many cases far worse overseas.
But what the life companies call “persistency” – in real speak, lapsed or surrendered policies – is the iceberg tearing a hole in the large industry that dominates financial markets.
Market conditions might be getting better for some.
Must-have
Everybody needs life insurance and the banks, for example, cash in on it whenever somebody wants to buy a house.
But the outlook for the industry – maybe stable – isn’t shining as it was a decade ago.
One way to look at it is by the market capitalisation of the listed life companies.
Our table is a little dated, but readers will see – with the exception of Liberty Holdings (the listed survivor after Standard Bank’s expensive takeout of minority shareholders) – all the market capitalisation numbers have declined.
It’s a bit of an anomaly and largely related to the performance of equities on the JSE and offshore, but a closer look shows share prices for many of the life companies have increased substantially over the past year.
Green gallop
Old Mutual – the Big Green that still dominates our table in terms of total assets – saw its share price increase by a whopping 108% at the time of writing.
But there are some weird reasons for that.
Over the year Sanlam was up 50%, Clientele 43%, Discovery 32% and Metropolitan 21%.
No investor would be unhappy with those performance figures.
But let’s step back a year.
The market cap numbers for our 2008 report show three of the six (Clientele, Metropolitan, Old Mutual) down, with the others only up marginally in some cases.
Overall, it hasn’t been a good year for SA’s life companies.
Earnings for the life insurance business itself becomes distorted because most of those groups have expanded into what they label themselves as wealth management companies, incorporating asset management and in some cases private client business too.
So it can be a little difficult getting a handle on just how well the life insurance business is doing.
Liberty
Take Liberty as an example.
It was doing terribly – financially – until a credible recovery in second half 2009. But that was mainly related to the improved performance of shares on the JSE: lapsed policies shredded profits and there’s no sign that’s going to get any better.
Apart from lapsed policies, the other obstacle the life companies’ face is trying to write new business.
Much as life insurance is essential, debt-depressed consumers aren’t rushing out to buy new policies.
And the old hard sell tactics of the life companies isn’t working any more.
Really, is anybody going to open their doors to a life insurance salesman in the current economic climate? Or respond to the email offers that flood the internet?
But distribution of insurance products is far more advanced than that, based on ramped up technology and not always working.
Metropolitan, still the credible market leader in the lower income market (where all the other life companies want to be), had what seemed like a cost-effective, phone-based system of signing new business. However, it all seems to have gone awry.
At least Metropolitan tied to be innovative.
Discovery is looking good on the life side and, apart from a recent initiative, is still largely at the top end of the market.
That’s profitable and based on the simple principle of eat healthy food and do gym to keep your life insurance premiums down: but it will need to expand.
Old Mutual lumbers on and performance is fine in SA and apparently improving in Europe.
Offshore exposure
But the US market remains a problem.
That’s where all the problems started for Old Mutual.
CEO Julian Roberts says it’s looking at selling interests in the US.
One wonders why some were bought in the first place (executive management egos could have been the reason).
Earlier management at the time of its demutualisation still have a lot to answer for.
The sanest life company here seems to be Sanlam.
Johan van Zyl, tight on the budget and with a phobia about overpaying, runs a good operation that’s expanded sensibly offshore.
But the past tough years have seen a better life industry emerge.
Products are cheaper, more transparent and user-friendly.
- Finweek