Siseko Njobeni
S&P Global has warned that the South African property and casualty insurance sector would experience constrained real premium growth in the next two years because of weak economic growth prospects.
The agency said near stagnant economic growth had dimmed the property and casualty markets’ growth prospects.
“South Africa is one of the largest economies in sub-Saharan Africa and has a well-developed insurance market. That said, the country’s GDP per capita has deteriorated over recent years, which is likely to affect the insurance market’s growth prospects,” said S&P.
“We estimate nominal GDP per capita to be around $5 759 (R81 927).”
“Although real GDP per capita on average expanded by 1 percent per year over the past five years, it contracted by 0.5 percent last year. We expect GDP per capita to decline further to $4 900 (this year), which is in part due to the depreciation of the exchange rate.
“This is largely attributed to restrained household spending, amid rising inflation and interest rates, and the low business confidence of South African corporates.”
Rising inflation
The warning comes as a combination of rising interest rates and inflation as well as low business confidence slows down household spending.
Neil Gosrani, S&P lead African specialist, said yesterday that lower household spending could prompt consumers to take fewer insurance products, thus heightening their risk exposure.
Gosrani said the sector’s profitability could weaken and over the medium term, the property and casualty market’s aggregate return on equity could be excepted to remain at more than 10 percent.
Gosrani said the volatile foreign exchange recently had affected repair costs in the auto insurance segment.
S&P said the rand’s weakness and rising inflation would continue to put pressure on the local industry’s expenses.
On South Africa’s political risks, the agency was complimentary of South Africa’s public institutions.
It said it believed the country would continue to maintain strong institutions such as the public protector and the judiciary to provide checks and balances.
IOL
