|
Related Topics |
|
We take a look at South Africa's insurance industry in more detail, based on reports from the Prudential Authority (a arm of the South African Reserve Bank).
What do insurance companies invest your premiums in? What percentage of premiums received are paid out again towards claims? Why try and answer some of these questions below. |
|
So what do insurance companies invest in?
So what do insurance companies invest in? They cant just keep your monthly insurance premium you pay them under their mattress or pillows. Insurance companies receive premiums to ensure your assets, they then invest the premiums received, and pay out when claims are made. So what do they invest in? Well according the report published by the prudential authority insurance companies invest in various asset classes. The image below shows the various assets insurers invest in.
As the image above indicates, roughly 25% of premiums received are invested in shares, around 20% in government and semi-government (this we assume are government and semi government bonds). Around 32% of premiums received are held in cash and deposits. A very small percentage are held in fixed assets, no real surprise there as insurers need liquid assets so that claims can be paid relatively quickly. Speaking of claims. Just what percentage are insurers paying out based in premiums received by clients. The image below provide details on the claims ratio (ratio of payouts over premiums received) by various classes per year.
The property claims ratio for 2016 and 2017 was in the mid to high 50's, while for the first half of 2018 it is sitting at 43%. One can only assume that this spikes markedly towards the end of the year as people go on holiday and properties are broken into more regularly etc. Claims ratio for motor vehicles seems pretty consistent over the years, with it hovering the low 60% mark.
Accident and health class seems to be a good business to be in, as the claims ratio is in the low 30%. So almost 70% of premiums received are kept and invested by insurance companies for their own profits. So what is the total amount of premiums received by the insurance sector? Total premiums received are referred to as gross premiums. The image below shows total gross premiums received, reinsurance paid by insurance companies (to offset some of their risk), and then net premiums broken down by class.
Accident and health class seems to be a good business to be in, as the claims ratio is in the low 30%. So almost 70% of premiums received are kept and invested by insurance companies for their own profits. So what is the total amount of premiums received by the insurance sector? Total premiums received are referred to as gross premiums. The image below shows total gross premiums received, reinsurance paid by insurance companies (to offset some of their risk), and then net premiums broken down by class.
Total insurance premiums received for the first 6 months of 2018 amounted to R68 442 000 000 (that's right R68.4 billion) was paid in insurance premiums to insurance companies during the first 6 months of South Africa. Of the premiums received, 43.2% of net premiums received were made up by the 'Motor' class. By far the biggest contributor to net premiums received. The second biggest contributor to net premiums received was 'Property' which made up 31.7% of net premiums received during the first 6 months of 2018. The image below shows the operating income (investment income plus underwriting income) and underwriting income (difference between premiums collected and expenses incurred and claims paid out) as a percentage of net premiums.
The above shows the insurance industry in South Africa is in good nick, with it achieving the highest underwriting and operating income in the last 14 years. While the end of 2018 will hurt underwriting and operating income for insurers as more claims are made due to theft etc, insurers do look on track for a bumper year in 2018. If you don't own insurance company shares yet, perhaps its time to start adding a few of them to your investment portfolio, as the operating and underwriting income trends seems to be in a strong uptrend and we are sure insurance companies are looking to cash in on this.