Eighth Annual Report of the Registrar of Long-term Insurance 2005 ISBN 0-620-37139-0 0002 0012 0015 0020 0023 1 2 3 4 TABLE PAGE TABLE Transfers of business Transfers Name changes of long-term insurers Report by the Registrar of Long-term Insurance Report by the Registrar Policies for which long-term insurers were registered were for which long-term insurers Policies Names and addresses of registered long-term insurers of registered Names and addresses Physical address Telefax Rigel Park 012 347 0221 446 Rigel Avenue South Erasmusrand E-mail Pretoria [email protected] Postal address Internet P O Box 35655 www.fsb.co.za Menlo Park 0102 Telephone 012 428 8000 Eighth Annual Report of the Registrar of Long-term Insurance Toll-free numbers 0800 202 087 and 0800 110 443 2005 03208 FSB [Long-term Insurance] Re:design creative communications Individual ranking of long-term insurers 5 0027 Individual market share of long-term insurers 6 0028 Net premiums received and outstanding 7 0029 Net benefits paid and provided for 8 0030 Movement in policyholder funds 9 0031 Movement in shareholder funds 10 0032 Movement in the number of policies/schemes in force 11 0033 Assets 12 0034 Liabilities under unmatured policies 13 0035 Other insurance liabilities 14 0036 CONTENTS Summary of key figures 15 0037 Summary of key ratios 16 0038 REPORT BY THE REGISTRAR OF LONG-TERM INSURANCE TO THE MINISTER OF FINANCE 0002 I, the Registrar of Long-term Insurance, hereby submit • Minimum early termination benefits of policies the eighth annual report in terms of section 5 of the i.e. implementation of the Statement of Intent signed by the Long-term Insurance Act, 1998 (the Act). The text of Minister of Finance and the major players in the long-term the report, as well as the information contained in insurance industry tables 1 to 4, relate to the period 1 January 2005 to • Rebuilding public confidence 31 December 2005. Tables 5 to 16 contain figures for long- • Dealing with issues emanating from the determinations by term insurance companies with financial years ending the Pension Funds Adjudicator (PFA) during 20051. • Consumerism 1. INDUSTRY OVERVIEW The effective management of capital remains important to all insurers, this was evidenced from the number of applications for the issuing of subordinated debt instruments received from some of the major 1.1 GENERAL players in the long-term insurance industry. Net premium income for primary insurers increased by 8.2% during 2005 compared to a decrease of 7.0% during 2004. The increase in 1 The financial years of long-term insurers do not end on the same date and may cover premium income is attributable to the high levels of credit growth periods other than 12 months. in the household sector where credit life policies are taken out as protection against credit arrangements. Benefit payments decreased by 2.8% compared to a 5.6% increase for 2004. The excess of income over expenditure for primary insurers increased from R2.8 billion in 2004 to R26.3 billion in 2005. Assets showed an increase of 16.5%. The increase in the assets of primary insurers was mainly due to the strengthening of equity markets. The 2005-year reflected an increase in equity, debentures and loan stock investment by long-term insurers. The ratio of assets to liabilities for primary insurers remained at 1.10. The following challenges continue to face the long-term insurance industry: • Compliance with regulatory requirements • Increased competition • Financial Sector Charter • International Financial Reporting Standards (IFRS) • Addressing the needs of the low income market for appropriate products • Technology REGISTRAR OF LONG-TERM INSURANCE 0003 1.2 FINANCIAL SUMMARY Summary of the long-term business of primary insurers: 2003 2004 2005 %Change %Change Primary insurers R’m R’m R’m ‘03 to ‘04 ‘04 to ‘05 Income Net premiums 162 807 151 401 163 751 (7.0) 8.2 Investment income 43 283 42 057 46 828 (2.8) 11.3 Other income 519 (709) 2 539 (236.6) 458.1 Total 206 609 192 749 213 118 (6.7) 10.6 Expenditure Benefits 156 436 165 232 160 532 5.6 (2.8) Management expenses 11 379 12 156 13 848 6.8 13.9 Commission 7 173 7 967 9 918 11.1 24.5 Other expenditure 6 820 4 581 2 532 (32.8) (44.7) Total 181 808 189 936 186 830 4.5 (1.6) Excess of income over expenditure 24 801 2 813 26 288 (88.7) 834.5 Assets 813 306 908 517 1 058 438 11.7 16.5 Liabilities 733 876 820 043 966 166 11.7 17.8 Summary of the long-term business of reinsurers: 2003 2004 2005 % Change % Change Reinsurers R’m R’m R’m ’03 to ‘04 ‘04 to ‘05 Income Net premiums 1 889 2 693 2 717 42.6 0.9 Investment income 489 535 608 9.4 13.6 Other income 198 (15) 41 (107.6) 373.3 Total 2 576 3 213 3 366 24.7 4.8 Expenditure Benefits 1 326 1 674 1 975 26.2 18.0 Management expenses 126 166 162 31.7 (2.4) Commission 349 460 250 31.8 (45.7) Other expenditure 114 86 142 (24.6) 65.1 Total 1 915 2 386 2 529 24.6 6.0 Excess of income over expenditure 6 671 827 837 (87.6) 1.2 Assets 6 760 7 454 7 824 10.3 5.0 Liabilities 5 581 6 199 6 311 11.1 1.8 REGISTRAR OF LONG-TERM INSURANCE 0004 1.3 INVESTMENT SPREAD The spread and categories of assets for primary insurers and reinsurers for the long-term insurance industry were as follows: Kinds of assets 2003 2004 2005 R’m % R’m % R’m % In RSA: Cash and deposits 53 553 7 62 534 7 82 108 8 Fixed interest investments 122 250 15 141 812 15 114 468 11 Equities and collective investment schemes 344 239 42 421 198 46 542 614 51 Debentures and loan stock 53 121 6 54 835 6 100 762 9 Immovable properties 24 742 3 30 176 3 31 389 3 Fixed assets 1 148 0 1 176 0 3 102 0* Current assets 104 362 13 88 200 10 103 147 10 Foreign (covering domestic liabilities) 98 448 12 109 715 12 80 715 7 Foreign (covering foreign liabilities) 18 203 2 6 326 1 7 958 1 Total 820 066 100 915 972 100 1 066 263 100 * Result is less than 1% but not necessarily 0%. 1.4 FREE ASSETS TO CAPITAL ADEQUACY REQUIREMENT The number of times the Capital Adequacy Requirement (CAR) is covered by free assets gives an indication of the financial strength of a long-term insurer. The median for long-term insurers with a 2005 financial year-end, for which data was available at the time of writing, was 2.93 (2004: 2.90). The minimum requirement is one. All insurers with a CAR cover below one have been investigated and corrective measures have been implemented. The following table gives a breakdown, based on available unaudited data, of the free assets to CAR for long-term insurers with financial periods ending during 2003, 2004 and 2005: Number of insurers Free assets to CAR 2003 2004 2005 Covered 0 – 1 times 3 6 1 Covered 1 – 2 times 10 13 20 Covered 2 – 5 times 34 37 36 Covered 5 – 10 times 6 8 11 Covered 10 + times 14 3 3 Total 67 67 71 REGISTRAR OF LONG-TERM INSURANCE 0005 1.5 PRIMARY INSURANCE PREMIUMS 1.5.1 CLASSES OF POLICIES 1.5.2 TYPES OF BUSINESS IN THE RSA This diagram shows the net premiums according to the classes of This diagram shows the net premiums according to the types of policies of primary insurers, in and outside the Republic of South business in the Republic of South Africa of primary insurers during Africa (RSA) during 2005: 2005: TOTAL R163 751 million TOTAL R163 432 million 1.5% 1.0% 46.1% 20.1% 49.9% 43.5% 15.3% 12.7% 2.5% 1.6% 3.5% 2.3% 1.0% Health business 1.5% Disability business 2.3% With-profit annuity 3.5% Without-profit annuity 1.6% Assistance business 2.5% Sinking fund business 12.7% With-profit business 15.3% Other 43.5% Fund business 49.9% Life business 20.1% Market related 46.1% Linked REGISTRAR OF LONG-TERM INSURANCE 0006 1.6 SURRENDERS 1.7 LAPSES The chart below reflects the number of policies and the annualised The chart below shows the number of policies and the annualised premiums for surrenders for life business over the past five years. premiums for lapses for life business over the past five years. The The figures exclude pension fund and group life business: figures exclude pension fund and group life business: 1 400 2 500 1 800 2 500 2 238 2 154 2 152 2 095 1 600 1 200 1 979 2 019 1 866 2 000 1 400 1 847 2 000 1 000 1 684 1 200 1 514 1 500 1 500 800 1 000 800 1 647 1 688 600 1 221 1 495 1 000 1 433 1 377 1 000 R’million (Y2) R’million (Y2) Thousand (Y1) 886 881 859 884 Thousand (Y1) 600 400 500 400 500 200 200 0 0 0 0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Policies (Y1) Annualised premiums (Y2)* Policies (Y1) Annualised premiums (Y2)* * Annualised premiums refers to the amount of premium which must be paid annually * Annualised premiums refers to the amount of premium which must be paid annually to meet the contractual requirements of a policy.