19th February 2020

S&P Global reviews South African insurance scenario

Over the past few years, macroeconomic risks have chipped away at South African insurers' creditworthiness. In a report published this week, S&P Global Ratings said that insurers' operating environment could suffer if the South African economy deteriorated further. This could occur because of the sustained soft economic conditions, low disposable incomes, risk of rising lapse rates and high unemployment rates(29%).
The rating agency expect South African insurers' growth prospects to remain muted. Large players, which benefit from economies of scale and business portfolios diversified by product and geography, are better positioned to navigate the weak economic conditions. Overall, they forecast that the P/C and life sectors will both grow broadly in line with nominal GDP of 6.5% in 2020 and 6.6% in 2021.
Real investment yields remain low, with the risk of volatility increasing pressure on earnings. They therefore forecast that the life sector's return on equity(ROE) will be 13%-15% in 2020 and 2021. For the P/C sector, they forecast combined ratios of about 93%.
S&P Global's rating actions over the past three years have aligned our views on the sector so that they broadly reflect the difficult operating environment, bearing in mind that South African insurers write a significant proportion of their business domestically, and hold most of their assets locally. Further deterioration in macroeconomic conditions could trigger negative rating actions.

S&P Global Trends(315 articles)