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 and trends in the South African insurance industry.
Frequently Asked Questions
How is the rise of digital technology changing the South African insurance industry?
By catering to the demands of tech-savvy consumers, South African insurers are embracing innovative approaches to business generation. For example, insurers are using online platforms and mobile applications to make it easier for customers to access insurance products and services.
Additionally, technological evolution enables insurance companies to customize policies to meet individual needs, which may, in turn, boost customer satisfaction and loyalty. For instance, insurers are creating on-demand insurance products that provide more flexibility and control by allowing customers to purchase coverage for specific events or time periods. These insurance models charge premiums based on actual usage rather than estimates and are gaining in popularity, particularly in the automotive sector. Examples include Santam's SmartPark, Old Mutual's UBI chatbot, and OUTsurance's SmartDrive.
We expect widespread digitalization and the adoption of AI will improve operational efficiencies and reduce costs for insurers over the long term. Similar to other industries, reinsurers and insurers (re/insurers) are, however, exposed to operational cyber risks, including interruptions to IT systems, outages of dependent third-party IT services, data breaches, defense costs, liability for security events, and ransomware attacks.
In our view, insurers may become more vulnerable to cyberattacks due to increased digitalization and the wider adoption and concentration of shared network infrastructure and service providers. A significant cyberattack could cost re/insurers a considerable portion of their average annual earnings. So far, cyber incidents have had minimal effects on the creditworthiness of global re/insurers. However, that could change rapidly.
What benefits and challenges arise from the collaboration of insurance companies and banks in South Africa?
Insurers and banks are moving toward integrating financial services under one umbrella, which is reshaping the financial landscape in South Africa. The four major banks in South Africa--Standard Bank Group Ltd., ABSA Bank Ltd., Nedbank Ltd., and First National Bank--all have insurance subsidiaries. Some insurers and banks have entered into bancassurance agreements, allowing banks to sell insurance products directly to their customers.
The bancassurance model benefits insurers because it expands their distribution channels, and banks because it diversifies their revenue streams. Additionally, the collaboration of banks and insurance companies enhances the overall customer experience. However, we have seen more banks with insurance operations than insurance companies with bank subsidiaries.
By diversifying their product offerings, banks and insurers will likely mitigate the risks associated with economic fluctuations and thereby stabilize their financial results. At the same time, the increased competition from integrated financial services can put pressure on traditional insurers to innovate and adapt. Insurers that rely on independent distribution channels may need to rethink their strategies to remain competitive in a market where banks are becoming significant players in insurance distribution.
While the integration of insurance and banking provides numerous benefits, it also raises regulatory challenges. The South African financial sector is subject to strict regulations that aim to protect consumers and ensure market stability. Insurers and banks navigate these regulations carefully to comply with the Financial Sector Conduct Authority and the Prudential Authority.
How do you view the South African insurance industry's solvency?
The South African insurance industry operates under a robust regulatory framework that is known as the Solvency Assessment and Management (SAM) framework. SAM is similar to Solvency II. It requires insurers to maintain sufficient capital to cover their liabilities and withstand adverse economic conditions. This framework aligns with international best practices, including the principles set out by the International Association of Insurance Supervisors.
Under SAM, insurers must calculate their solvency capital requirement (SCR), which is the amount of capital they need to absorb potential losses. The framework also considers risk management and requires insurers to adopt a comprehensive approach to identifying and mitigating risks.
The South African insurance industry's overall solvency remains relatively strong. The SCR for both the life and non-life insurance sectors averaged 1.8x in 2024 (1.9x for life and 1.7x for non-life in 2023). Most insurers have successfully navigated economic fluctuations, including the impact of the COVID-19 pandemic. That said, non-life insurers, particularly those exposed to natural catastrophes and economic volatility, may experience capitalization challenges if these conditions persist.
In general, the South African insurance industry has demonstrated resilience, with many insurers reporting solvency ratios well above the minimum regulatory requirements. However, the ratios vary across the different sectors. Life insurers generally exhibit higher solvency than non-life insurers, reflecting the long-term nature of their liabilities and investment strategies.
We expect the South African insurance industry's solvency will remain stable if insurers continue to adopt sound risk management practices and maintain adequate capital reserves. We will continue to use our risk-based insurance capital model as our main tool to assess insurers' capital adequacy for rating purposes. Our capital model is risk-based, with the lowest confidence interval at 99.5%, which is comparable with the Solvency II level.
| 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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