South Africa Insurance Report Q2 2009

On the back of a deteriorating external and domestic economic outlook, combined with weak Q408 real GDP growth data, we now forecast that the South African economy will contract by 0.3% in 2009, followed by recovery to growth of 2.9% in 2010.

Our latest research trip to South Africa in mid-February confirmed our increasingly bearish outlook on the country's economy. Before our visit, we had lowered our South African real GDP growth to just 0.2% in 2009. While acknowledging the importance of private investment in the run-up to the 2010 FIFA World Cup, we highlighted that slumping real private consumption and contracting real export growth will weigh heavily on economic activity over the coming year.

Thanks to a relatively stable banking sector and a lower domestic private debt burden than western economies, South Africa is unlikely to see the same levels of economic contraction as currently experienced in the US, Euroland or Asia. That said, aside from analysts sharing their concerns about South Africa's economy, during our trip we distinctly got the impression that deteriorating external conditions and ailing domestic demand present severe challenges for South African businesses, regardless of whether they are banks, mining companies or manufacturing firms. In fact, combined with the latest real GDP figures, we now believe that the economy is most likely to experience a full-year recession in 2009, with our new real GDP growth forecast standing at -0.3%.

In sub-Saharan Africa, we profile 19 companies. These are AIG, AGF, Allianz, Cardif, Global Alliance, Guardrisk, HDI-Gerling, Hollard, Liberty Group, Metropolitan, Momentum Group, Munich Re, Mutual & Federal, Nedgroup, Old Mutual, OUTsurance, Sanlam, Santam, and Zurich South Africa.

Over the course of 2008, estimated total premiums in South Africa rose by 13% to ZAR259,087mn. Nonlife premiums rose by 15% to ZAR61,612mn while life premiums rose by 13% to ZAR197,475mn.

Between now and the end of the forecast period, we expect that annual non-life premiums will grow by ZAR58,340mn, while annual life premiums should grow by ZAR43,437mn.

Growth in non-life premiums should be driven by the general growth of nominal GDP plus a rise in nonlife penetration from the current level of 2.36% to 3.50%.

Growth in life premiums should be driven by the change in the overall population and a rise in life density, from US$549.25 to US$630.00 per capita.

BMI's Insurance Business Environment Rating for South Africa is 67.1.