Monday, January 24

Covid-19-related death claims continue to hit life insurers

Major insurance companies Old Mutual and Momentum Metropolitan reported the continued impact of Covid-19-related death claims on earnings in operating updates Tuesday.

Momentum marked a 63% decrease in operating profit, from R915 million to R338 million, over the three-month period to the end of September 2021. Meanwhile, its largest peer, Old Mutual, which is listed on JSE, estimates that Covid-19 related death claims cut some R6s. .6 billion of your earnings.

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Momentum has already paid 4.6 billion rand in mortality claims through its life insurance business in South Africa in the first three months of its year 2022.

This is about 82% of the average mortality claim payment that the insurer would pay on average annually, before the pandemic, he noted.

Momentum also noted that claims in Botswana and Namibia were more than double the averages recorded during the full year 2021 period.

“At Momentum Life, the total claim amount was double the comparative period, which already rose during the first wave of the pandemic to more than double the pre-pandemic average,” the group said.

Old Mutual reported similar trends for the period ending September 30. The insurer said it had to increase its provisions in June 2021 to keep up with demand.

“However, the rate of vaccine vacillation seen in South Africa has been higher than anticipated in half a year, resulting in higher levels of claims,” ​​Old Mutual said.

The group noted that it only has around R1 billion left in pandemic provisions to address the expected excess of Covid-19 related mortality claims remaining.

“Our life businesses had a worse-than-anticipated death claims experience, which has resulted in an excess fatality impact on earnings of approximately R6.6 billion for the year to date,” Old Mutual said.

“In order to partially offset the excessive impact of deaths on earnings for the year to date, R4.9 billion was released from the pandemic provision,” the group added.

Impact on business health

Old Mutual said the business remains in a healthy position, despite high claims within the period. The group also reported that it has exceeded its target solvency ratio of between 175% and 210%, reaching a solvency ratio of 225% for the nine months ended September 30.

“The increase in our solvency ratio from 206% as of June 30, 2021, was due in large part to the impact of the issuance of subordinated debt of 1.5 billion rand and the introduction of a collar structure in the majority of the stake. withheld from Nedbank, “he added. .

However, the group noted that continued difficult economic conditions have continued to put pressure on its issued sales in other South African retail segments, which still remain below 2019 levels.

Meanwhile, Momentum took a small hit despite seeing a 28% increase in the current value of new business premiums for the first quarter to R17.2 billion, driven by an exceptional performance from Momentum Metropolitan Africa, Momentum Investments , Metropolitan Life and Metropolitan Corporate. .

“The value of the group’s new businesses increased by 48% to R157 million, reflecting strong new business volumes, an improved mix towards higher margin products and good expense management. This resulted in new trade margins of 0.9%, compared to 0.8% in the comparative period, ”said Momentum.

“Operating profit at Momentum Investments, Metropolitan Life and Momentum Corporate was further affected by negative investment variations that include the impact of changes in the real yield curve due to increased expected inflation and the impact of higher implicit volatilities in the shares in the amount of investment guarantee reserves held, ”added the group.

Looking to the future

With the fourth wave of coronavirus infections seemingly imminent, both insurers said they plan to navigate the rest of the year cautiously, but will not abandon their pre-set goals.

Momentum said it wants to see its overall profit normalized at no less than R4.6 billion by 2024 and a return on equity of between 18% and 20%.

Read: SA virus cases start to rise as fourth wave predicted

“While earnings could remain volatile, we continue to estimate that in the absence of unusual shocks, the underlying level of normalized overall earnings for the group is around R800 million to R900 million per quarter,” he said.

Competitor Old Mutual said it remains on track to meet its cost savings targets by the end of 2022, which will usher in growth.

“We remain on track to meet our cost savings target of R750 million by the end of 2022 through our insurance and savings businesses in South Africa, allowing us to continue our investment in innovation and other initiatives,” the group stated .

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