SOUTH AFRICA - Retirement fund settlement pay outs will cost the local life insurance industry up to R3bn (US$470m) with one firm, Sanlam, burdening a R600m bill.
The joint solution agreed between the National Treasury and Life Offices Association (LOA) on the minimum standards set for early termination values of retirement annuities and endowments was broadly welcomed by the industry.
The minimum standards will be retrospective to 01 January 2001 and the estimated cost of compliance with the standards to the industry will be between R2.5 – R3bn. This cost would be carried by the life companies themselves from shareholders' funds and reserves and would not be subsidised by policyholders in any way.
In a statement released today, Sanlam said the cost on its existing business was estimated to amount to R600m, or a R500m after tax cost. he money would be taken as a once-off direct charge through the income statement for the year ending 31 December 2005 and would reduce Headline Earnings by 20 cps.
Sanlam's embedded value would be reduced by 21 cps which is less than 1.5% of total Embedded Value.
Liberty Life estimated it would have to pay between R550m and R600m - post tax - to enhance policy values for its policyholders.
“Existing net cash flows, future profitability and regular dividends should not be negatively impacted by this proposed resolution,” Liberty Life added in a statement.
Old Mutual said it expected the net impact to be in the region of R290m – R410m for its business, following an earlier payment at the half year.
Life Offices' Association (LOA) chairman Mike Jackson said the minimum standards were needed to respond to a changing employment and savings landscape where consumers required greater flexibility in their options on long-term contractual savings policies.
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