(Editor's Note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).)
This report does not constitute a rating action.
In this Credit FAQ, S&P Global Ratings answers questions from investors, issuers, and advisors about our views on the key risks in the South African insurance industry. We outline our thoughts on the macroeconomic environment, U.S. import tariffs, and climate change.
Frequently Asked Questions
How does S&P Global Ratings view the impact of the macroeconomic environment on the South African insurance industry?
Macroeconomic conditions in South Africa are challenging but improving. The South African economy has been recovering after a period of weak growth and high inflation, unemployment, and interest rates between 2022 and 2024. We forecast real GDP growth of between 1.3% and 1.6% over 2025-2027, up from our estimate of 0.58% growth in 2024, as load-shedding--intentional electricity blackouts to manage demand--has eased. That said, ongoing logistical bottlenecks will continue to constrain economic activity. We also expect inflation to fall from its peak of about 7.0% in 2022 to close to 4.0%-4.2% in 2025-2026.
Despite these challenges, South African life and non-life insurers' premium growth outpaced real GDP growth in 2023 and 2024. We continue to see claims inflation, particularly in the motor line of business. Insurers are reacting by increasing premiums accordingly. We expect that growth in non-life insurance premiums will continue to outpace GDP growth, at 7%, while growth in life insurance premiums will be relatively flat.
The unemployment rate of approximately 30% is a particular challenge for the South African insurance industry as it may suppress demand for insurance products. However, we expect the cost-of-living crisis to ease somewhat thanks to economic tailwinds. This may boost persistency and reduce lapses in the life insurance sector, especially in the mass market, where the cost-of-living crisis has the greatest impact.
What effect will U.S. import tariffs have on the South African insurance industry?
U.S. import tariffs may worsen the overall macroeconomic environment, with lower GDP growth and high inflation and interest rates reducing disposable income. This may lower insurers' premium growth, increase their claims and operating costs, and, ultimately, weaken their profits. Additionally, potential volatility in the capital markets could reduce the returns on insurers' investments. This could weaken insurers' balance sheets, particularly for life insurers, which have more exposure to market risk.
However, we view rated South African insurers as being well-capitalized, based on both our internal capital model and the regulatory solvency assessment. Capital adequacy is a key rating strength for South African insurers, and it provides some protection against investment-related risks. We don't see the tariffs affecting our ratings and outlooks on South African insurers in the short-to-medium term, although this would be the case if capital market volatility persists or if the economic effects exceed our current expectations.
How is the South African insurance industry coping with climate change and the increase in weather-related events?
The South African insurance industry has been resilient to increasingly frequent weather-related events in recent years. The last major event was in April 2022, when KwaZulu-Natal saw severe flooding. The floods caused estimated economic losses of South African rand (ZAR) 65 billion, with only about 18% of these being insured losses. Subsequently, there were floods in the Western Cape in June and September 2023; a hailstorm in Gauteng in November 2023; and tornadoes in KwaZulu-Natal and the Eastern Cape in June 2024.
While climate change remains a significant concern, the industry is taking proactive steps to mitigate its impact. By incorporating advanced climate modeling into their underwriting practices, insurers are ensuring that product pricing remains both competitive and reflects the evolving risks. In addition, the integration of technology such as geo-mapping and geo-coding is helping insurers to accurately identify flood-prone areas, enhancing their underwriting capabilities. Reinsurers have also reacted by increasing reinsurance costs and reducing capacity.
The non-life insurance sector has pushed through price increases to reflect the rising reinsurance costs. We project that this sector will maintain its profitability, with a net combined ratio of around 95% and a return on equity of approximately 15% in 2025-2026. On the other hand, the life insurance sector has started offering environmental, social, and governance-specific investment products. As awareness of climate change rises, these sustainable products are appealing increasingly to investors and offering them opportunities to support environmentally friendly initiatives.
| Primary Contact: | Sylvia Mhlanga, Johannesburg 27-11-214-4825; sylvia.mhlanga@spglobal.com |
| Secondary Contact: | Tatiana Grineva, London 44-20-7176-7061; tatiana.grineva@spglobal.com |
| Research Contributor: | Anisha H Tole, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai ; |
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