Picture: 123RF/ALEXEY ROMANENKO
Picture: 123RF/ALEXEY ROMANENKO

SA's life insurance industry has more than double the legally required reserve buffers in place and is well positioned to deal with the Covid-19 fallout over the coming months, according to the Association for Savings and Investment SA (Asisa).

The lobby group, which has about 130 members across SA’s asset management and insurance sectors, said SA’s life insurance industry had free assets of R373bn — more than double the reserve buffer required by Solvency and Capital Requirement regulations.

These requirements refer to the amount of funds insurance companies are required to hold in order to have 99.5% confidence they could survive the most extreme expected losses over the course of a year — a one in 200 year event.

Asisa life and risk board committee deputy chair Hennie de Villiers said SA life insurers had measures in place to ensure exposure to listed equities, and while those would have declined due to concerns regarding the coronavirus, liabilities would have declined as well.

“We are therefore confident that our industry remains well capitalised despite the current turmoil,” De Villiers said.

About half of the R2.7-trillion in liabilities of SA's life insurance industry were in linked products, said Asisa CEO Leon Campher, implying that market volatility that reduced the value of assets would also reduce liabilities.

Linked products refer to a policy in which clients pay a premium that is both a life insurance product and an investment product.

The R373bn in free assets were also very conservatively managed, with limited exposure to equity markets, said Campher, adding that the sector was also conservative in estimating its liabilities.

“By world standards, we are — in terms of sophistication of our financial system — in the top five or six,” Campher said. “We have been planning for this eventuality.” Systems were in place to ensure there was no disruption to benefit payments or trust transactions, he said.

The ability of the life industry to pay claims and benefits will be of critical importance to the SA economy in months ahead as the Covid-19 pandemic reduces the income stream of citizens, Asisa said.

Various life insurers were looking at ways to assist policyholders who may be struggling financially as a result of Covid-19 measures, but that it would be done on a case-by-case basis.

According to S&P Global Ratings, the capital strength that is typical of the insurance sector will help stave off widespread downgrades across the global industry as it faces the Covid-19 pandemic.

As of March 25, there had been nearly 425,000 confirmed cases globally, and nearly 19,000 deaths, but S&P said that most insurers would be able to withstand the resulting losses

“We consider that life insurance companies are more at risk of negative rating actions as a result of the pandemic than non-life players, because they have larger exposure to financial market risk,” said S&P primary credit analyst Dennis Sugrue in a report.

Global markets have been battered by the viral outbreak, with the JSE all share having lost 21.36% so far in 2020. The JSE's life insurance index has lost a third of its value over the same period of time.

Update: March 26 2020
This article has been updated with additional information and comment.

gernetzkyk@businesslive.co.za