JSE be damned: So where to now for battling life insurers?
Poor investment returns can be blamed on local markets, so protecting capital reserves is essential
Last year was tough for SA’s life insurers. While most managed to increase the premiums they collected despite constrained consumer spending in a low-growth economic environment, their profits decreased because of poor investment returns.
Liberty managed to turn around its fortunes and recorded a 42% increase in its operational profits, but net profits were down 17%. Sanlam and Old Mutual also grew operating profits, but their net earnings were down 8% and 4% respectively. The only long-term insurer to post an increase in net profit was MMI, thanks to less equity exposure on its invested reserves.
What these profit declines show is that insurers need to do more to protect the downside when investing the capital they have to hold as their reserves. Of course, had the JSE all share index (Alsi) climbed in 2018 as opposed to falling 11.4%, insurers that reported profit declines would have been in a much better position and MMI would have paled in comparison.
Although the JSE Life Insurance index lost 1.6% in 2018, it outperformed the JSE Banks index, which shed 4.75%. Fast forward to 2019, all banks that have reported their results for 2018 so far increased their net profits year on year.
With the latest results from insurers and the fact that analysts expect them to struggle further given weak consumer spending, it will be interesting to see if life insurance companies’ shares will outperform banks in 2019.
So far the life insurance index is down 6.2% this year, while the banks index is up 1.4%. The Alsi is up 5.6%.