The South African insurance sector is poised for a stable trajectory as economic conditions begin to show signs of gradual improvement.
According to Moody’s Ratings latest report released Wednesday, life insurance earnings will hold steady as still high interest rates and stable mortality support in force business.
However, Moody’s said life insurers' new business growth and profitability will remain constrained by muted economic growth, high unemployment and squeezed household incomes.
Policy surrenders and coverage downgrades are also likely to remain elevated.
Moody’s said South African insurers are highly exposed to their domestic operating environment, with the local market accounting for the vast majority of their business.
Inflation is easing and Moody’s expects growth to improve, in part because of reduced energy sector constraints, but the operating environment remains challenging.
“We expect GDP growth to accelerate to 1.7% in 2025 and 2026, well below the South African Reserve Bank’s 3%-6% target. Weak economic growth, low disposable incomes and high unemployment remain structural constraints to insurers’ growth,” said Will Keen-Tomlinson, VP-senior analyst at Moody’s Ratings.
Moody’s also expect life insurance earnings to hold steady.
“We expect life insurers' profitability to remain steady following a post-pandemic rebound. Interest rates have likely peaked, but we expect them to remain at levels that will support healthy earnings on in-force business,” Keen-Tomlinson said.
“Mortality has also stabilized following the pandemic, which will support profitability. Offsetting this are still elevated levels of customers cancelling or downgrading policies, driven by affordability constraints, although these have recently been offset by growth in new customers.”
However, Moody’s said that competition and economic pressures hampered new business margins. It said low economic growth and high unemployment were structural constraints on insurance demand.
As the pool of potential policyholders remains stagnant and affordability constraints drive policy lapses and cover reductions, Moody’s said growth comes mainly from taking market share.
It said this resulted in high acquisition costs and pressures margins as companies are also struggling to achieve sufficient profitable growth to offset inflation, making them vulnerable to rising costs.
Additionally, Moody’s said the proposed National Health Insurance (NHI) scheme could be highly negative to health insurers.
“The recently passed National Health Insurance Act could in its current form outlaw most South African private health insurance businesses,” Keen-Tomlinson said.
“However, we consider it unlikely that the legislation will have an impact over the outlook period, or even the medium term, given the complexity and cost of implementation for the South African government.
“The impact of the “two-pot” retirement rules, giving policyholders access to a portion of their retirement savings on demand, has been limited since they were introduced in September 2024.“