Capitec paid R1 billion in retrenchment claims – but still made a huge profit from insurance

Business Insider SA
If only the king's men had had some bandages.
  • Capitec paid out more than R1 billion in retrenchment claims in a year of coronavirus pandemic job losses – double its claims the year before.
  • But its insurance profit was as steady as a rock.
  • It could not reach a reinsurance deal it liked in May, and ended up covering the risk of retrenchment itself.
  • Between the drop in reinsurance costs and premium increases, it reported a R1.34 billion underwriting profit on credit life insurance, down only 3% compared to the previous (pre-pandemic) year.
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Capitec on Tuesday reported a huge spike in retrenchment insurance payouts during the pandemic – but it turned a normal, pre-pandemic profit on credit life insurance anyway.

In the year to the end of February 2021, its underwriting profit on credit life insurance was R1.34 billion before profit, Capitec told shareholders, down just 3% compared to the year before.

Its new financial year was a week old when the first coronavirus case was reported in South Africa.

During that year of lockdown, Capitec paid 33,254 claims from those who had insured credit balances with it – compared to 16,580 the year before. The average value of the claims – around R30,000 each – was also up, which made for total payments of a little over R1 billion, compared to slightly under R500 million the year before.

But at the same time the premium income it received jumped by 18%, and reinsurance costs were down 55%, so that the profit needle hardly moved.

In a somewhat peculiar turn of events, Capitec had the pandemic, and timing of its contracts, to thank for the reduction in its costs.

Last year the bank revealed it had failed to "satisfactorily negotiate renewals before the expiry of the reinsurance agreements" that covered its retrenchment insurance. By the time its existing reinsurance ended, at the end of April 2020, South Africa was a lot riskier in terms of insurance.

Because it could not reach a deal, its overall payments for reinsurance on its credit life insurance dropped from R918 million the year before to R416 million in its latest financial year. And, while initial claims were high, they started to plateau towards the middle of 2020, with the economic impact lower than some forecasters – perhaps including reinsurance companies – had feared.

In May 2020 the bank pushed up its credit life insurance premiums on new loans, and in July 2020 it increased the premiums for its existing loan customers.

As of August, Capitec again has reinsurance cover for death claims against credit life insurance, but it has maintained self-insurance on retrenchments – something it has never done before.

"Going forward, we will assess the relative benefits of self-insurance versus reinsurance," Capitec said on Tuesday.

(Compiled by Phillip de Wet)

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