Life Insurance Investment Income Earnings Drop

April 17 - The single biggest sector in the South African market, the financial services industry may be heading for hard times if we take into account the latest findings in an Ernst and Young report.

The survey found that insurance investment income earnings turned negative in the first three months of 2008, showing a decline in economic fundamentals and perhaps tolling the bell for tougher times ahead.

"The last few years have been good for the life insurance market largely through rising equity markets, which have resulted in strong and growing levels of investment income," said Tim Rutherford, speaking for Ernst and Young. "But global market turmoil, coupled with our own less favorable economic prospects locally, has brought an end to boom investment income earnings. In fact, investment income earnings turned negative in the quarter, implying contracting investment income earnings."

"We notice the first quarter of 2008 also saw a strong slump in profits growth," he continued, "but unlike the first quarter of 2007, there is a considerable fall-off in investment income growth, which looks likely to hold into the next few quarters, and thereby squeeze profit growths."

Despite these statistics in the field of insurance investment income, life insurance confidence remained strong in the first quarter, according to the report. Confidence in life insurance is now the strongest of all financial services sectors, ahead of investment management confidence at 77 index points and the banking industry with 78 index points. "The other sectors of the financial services industry are reporting significantly weaker confidence on the back of declining economic fundamentals," said Rutherford.