By: S&P

Insurance companies that we rate in South Africa should remain profitable in 2018, despite continuing headwinds in the domestic economy. For the first time since 2013, outlooks are stable on all 13 companies. This follows a period of deteriorating economic conditions and accompanying rating downgrades, reflecting the greater sovereign risk caused by rising economic and political risks. The sovereign downgrades have directly weakened the credit quality of the investments of insurers that hold most of their assets in South Africa. Consequently, their balance sheets are more vulnerable. Despite all these pressures, insurers have managed to navigate weak growth and low investor and household confidence in South Africa.

In general, profitability is softer than historical levels for the insurance sector. Although signs of improved optimism are emerging, we still believe profitability will remain below historical levels in 2018 and 2019. This is due to the erosion to broader levels of wealth and struggling investor and consumer confidence.

Over view

• Insurers remain susceptible to the broader operating environment. We expect financial performance to remain sound despite the benign growth environment. However, we are unlikely to see historic profitability highs.
• We believe companies are well prepared for forthcoming regulatory changes that will provide more business certainty over time.
• International merger and acquisition expansion to be more selective this year than in recent years, with a focus on the domestic market and post-merger integrations.
• Our ratings on all insurers in South Africa are stable, and most entities have indicative stand-alone credit profiles that either match or exceed that on the sovereign.

Read the full report: SA-Insurers-Face-A-Tougher-Path-to-Profits_22.02.2018