Life assurers likely to show strong growth

But some analysts are concerned that the volatile market which has resulted in a pullback in emerging markets could affect the investment income of assurers. SA's listed life assurers are scheduled to post interim and full-year results from next month.

EY said in its survey on Monday (15 July)‚ which polled 12 South African companies‚ that premium growth among life assurers remained strong‚ which should boost profits.

Tim Rutherford‚ insurance sector leader at EY‚ said life assurers had built up their sales forces in the recent past and that this had helped the companies obtain new business and boosted premium income.

He said marketing costs had remained relatively high which was a sign that assurers were actively marketing their products.

Although there was an expectation of solid profits‚ EY said life assurers were less confident than they were in the past with the life assurance index falling to 83 points in the second quarter of 2013 compared with 90 points in the first quarter.

Rutherford said there were concerns the economy would remain subdued.

Volatile market

One Johannesburg based analyst‚ who did not want to be named‚ said even though the underlying assurance businesses would post some growth the markets had been volatile‚ something that could undermine investment income.

The analyst said some assurers would post solid results but this would not be reflected across the board. He said some would have modest profit increases.

Apart from premium income assurers also generate some of their income through investments in the stock and bond markets.

Rutherford said the value of assets that life assurers held remained high allowing the companies to earn good returns. His research showed that the rally in the market had lasted until the end of May‚ bolstering investment income.

EY indicated in its survey that the quality of business that had been written in the past was good and policyholders continued to pay their premiums.

Investors have shown some confidence in the shares of SA's listed major insurers.

Unlike the major banks which are showing declines in their share prices some of the assurers are showing double-digit increases in their share prices.

In May assurance shares hit all-time highs. For the year to date‚ Discovery shares have risen about 40%. Old Mutual is up about 20%‚ while Liberty shares have gained just over 10%. Sanlam shares are up 6% for the year to date and MMI was slightly in negative territory‚ about 1% down.

Source: Business Day via I-Net Bridge