The SA life industry is a mature, low-growth industry, as the Life Offices Association (LOA) figures show. In the six months to December 2003, there was a 12% decline in total income to R80,1bn compared with the second half of 2002. Individual life premiums fell by 12% to R34,3bn. Most alarmingly of all, single-premium income fell by 27% to R14,5bn.
Sanlam CE Johan van Zyl says an important component of single-premium business is the guaranteed bond . Until a few months ago, interest rates on cash were higher than on five- and 10-year government bonds, so these policies were unattractive.
The other big driver of single-premium inflow is equity-based products, and this should start to pick up, thanks to the recovery on the JSE.
But investors have been wary about coming back into the market, and, in any case, over the past 12 months unit trusts have gained a higher share of equity-based business at the expense of life offices.
Old Mutual reports that in the first quarter of the year, its retail single-premium sales were up just 1% from the depressed levels prevailing in the same period last year.
The LOA takes some comfort from the 3% increase in new recurring-premium business, with ordinary life policy business up 4% and retirement annuities (RAs) just 1%. The annual tax-free threshold for RAs has remained at R1 750 for more than 20 years, so the incentive to invest in RAs diminishes every year.
The big worry for the life industry must be the continued increase in lapses - policies that are discontinued before they have accrued any value to the policyholder. There has been a 15% increase in premiums lost as a result of lapses. The number of lapsed policies increased by 23%.
The main cause of lapses and surrenders is a change in personal circumstances, leading to temporary financial problems.