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Covid-19 related death claims continue to hammer life insurers

Pandemic provisions under pressure as SA faces fourth wave.
Image: Saul Martinez/Bloomberg

Major insurance companies Old Mutual and Momentum Metropolitan both reported on the continuing impact of Covid-19-related death claims on profit in operational updates on Tuesday.

Momentum flagged a 63% decline in operating profit, from R915 million to R338 million, for the three-month period to the end of September 2021. Its larger JSE-listed peer Old Mutual meanwhile estimates that Covid-19-related death claims slashed some R6.6 billion off its profits.

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Momentum has already paid out R4.6 billion in mortality claims through its South African life insurance business in the first three months of its 2022 year.

This is about 82% of the average mortality claims the insurer would pay out annually pre-pandemic, it noted.

Momentum also pointed out that claims in Botswana and Namibia more than doubled the averages recorded during the 2021 full-year period.

“In Momentum Life, the total claim amount was double the comparative period, which was already elevated 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 ended September 30. The insurer said it had to increase its provisions in June 2021 to keep up with demand.

“The rate of vaccine hesitancy observed in South Africa has, however, been higher than anticipated at the half year resulting in higher levels of claims,” Old Mutual said.

The group noted that it has just about R1 billion left in pandemic provisions to cater for remaining expected excess Covid-19-related mortality claims.

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

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

Impact on business health

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

“The increase in our solvency ratio from 206% as at 30 June 2021, was largely driven by the impact of the issuance of R1.5bn subordinated debt and the introduction of a collar structure on the majority of the retained Nedbank stake,” it added.

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

Meanwhile, Momentum took a bit of a knock despite seeing a 28% hike in present value of new business premiums for the first quarter to R17.2 billion, boosted by exceptional performance from Momentum Metropolitan Africa, Momentum Investments, Metropolitan Life and Metropolitan Corporate.

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

“Operating profit in Momentum Investments, Metropolitan Life, and Momentum Corporate was further impacted by negative investment variances which include the impact of changes in the real yield curve due to the increase in expected inflation, and the impact of higher implied volatilities on equities on the quantum of investment guarantee reserves held,” the group added.

Looking ahead

With the fourth wave of coronavirus infections seeming 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 normalised headline earnings at no less than R4.6 billion by 2024 and a return on equity of between 18% and 20%.

Read: SA virus cases begin to climb as fourth wave predicted

“While earnings could remain volatile, we continue to estimate that in the absence of extraneous shocks, the underlying level of normalised headline earnings for the group is around R800 million to R900 million per quarter,” it said.

Competitor Old Mutual said it remains on track to deliver on its cost saving targets for the end of 2022, which will make way for growth.

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

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