Premium review, USD to drive life insurance
The life insurance sector says premium reviews and growth in US dollar business will continue to drive the industry’s performance and margins, which would offset any inflationary pressures that may arise.
According to the Insurance and Pensions Commission (Ipec)’s second-quarter life assurance report for June 2023, gross premium written (GPW) grew 575 percent to $120 billion, compared to $18 billion recorded in the same period in 2022.
In real terms, GPW increased by 145 percent. “The positive real growth is attributable to premium adjustments in response to the inflationary environment as opposed to new business,” said the IPEC’s report.
The report also states that premiums attributable to new business are only 7 percent of the total written premiums.
Furthermore, in nominal terms, recurring premiums and new business written increased by 558 percent and 463 percent, respectively, from the figures reported in the second quarter of 2022.
“The two main products driving the growth of GPW were the Funeral Assurance and Group Life Assurance businesses, which constituted 84 percent of the total premiums,” reads the report.
During the half-year period, the life insurance sector wrote foreign currency business amounting to US$23,39 million, an increase of 532 percent from the US$3,7 million reported in the same period in 2022.
The sector’s forex business generated as of June 2023 of US$23,39 million represented an increase of 123 percent from the level of US$10,5 million attained in the first quarter of 2023.
“Growth in the forex business is being driven by the uptake of US dollar products, which are stable in terms of pricing as they are not subject to frequent premium reviews,” Ipec said.
In terms of business composition, 68.1 percent of the total GPW was generated from funeral assurance premiums, which have become the backbone of the life insurance business.
Traditional life insurance products, which include term assurance, endowment policies, pure endowment, and whole life, accounted for only 8.2 percent of business written by life insurers, the majority of which are legacy products.
Ipec said that legacy products are dying in the market as policyholders are reluctant to take up more products of this nature.
“The commission is working closely with the industry through the Life Offices Association and the government to find ways of reviving the sector. In addition, the Commission has a draft guideline on product relevance, which is currently receiving input from the industry,” the commission said.
Ipec noted that long-term business remains key in mobilizing funds for long-term investments, which is critical for financing national projects, including infrastructure development in the country.
The Ipec report noted that uptake of insurance products continues to be depressed, as noted by the distribution of business, with recurring businesses contributing about 93 percent of the GPW for the life assurance sector, with only 7 percent attributable to new business.
During the period under review, the composition of new business declined from 8 percent to 7 percent between June 2022 and June 2023.
“This reflects the challenges facing the industry due to the tough operating environment that prevailed during the period under review. Policyholders are rather maintaining their policies,” reads the report.
During the interim period, Nyaradzo Life Assurance Company continued to dominate the sector with a market share of 45,5 percent in terms of GPW.
The report said entities whose main business portfolio is funeral assurance continued to dominate the market, reflecting the dominance of the funeral assurance business in the life assurance sector.
“Funeral business has become the cash cow of most life assurance companies ahead of other products,” said Ipec.
As of June 2023, the life assurance sector total assets amounted to $2,3 trillion in nominal terms, representing an increase of 401,2 percent from $451 billion as of March 2023.
-herald
