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PPS EXPERIENCES POSITIVE YEAR AS PANDEMIC EBBS

The Professional Provident Society (PPS), the financial services group focused solely on providing a diverse range of financial solutions for graduate

professionals in South Africa, Namibia, and Australia, experienced a positive 2022 supporting members and returning value to them.

The company’s operating performance in the current reporting period exhibited significant differences compared to 2021. The upswing in the life insurance business’s profitability was a notable development, primarily attributed to the decrease in life claims as the COVID-19 pandemic started to subside. However, the investment markets faced turbulence and headwinds in 2022 after a robust performance in 2021.

“In 2022, total benefits paid to members by the Group was R5.0 billion, lower than the R6.1 billion in 2021,” says Izak Smit, PPS Group CEO.

Life claims reduced meaningfully, especially in the latter part of 2022. Sickness and life claims paid totalled R3.4 billion in 2022 compared to R4.3 billion in 2021. Sickness (health) claims increased by 6%. The number of COVID-19-related sickness claims remained stubbornly high, although reducing by 34% to around 7 700 in 2022 compared to 10 900 in 2021. The total value of COVID-19-related claims in 2022 was R264 million (2021: R1.4 billion). COVID-19-related death claims dropped significantly to only R39 million in 2022 from R975 million in 2021. This reduced total death claims by 52% to R957 million in 2022 from R2 billion in 2021.

“It is in our DNA to come through for our members when times are challenging. New business flows – where most new business is from independent intermediaries – is a barometer of the health of a financial services business. On both the life insurance side and in our investments business, new inflows were strong in what was essentially a flat market. In fact, PPS’s new life insurance business written in South Africa was up by 10%. Gross new investment flows increased by almost 9% year on year,” says Smit.

A robust five-year business strategy served the business well, enabling it to navigate the most unexpected and unusual circumstances during the pandemic years. It identified opportunities to adapt claims procedures to assist members as much as possible and to launch additional Profit-Share allocations to reward cross-solutioning among existing members.

“The 2022 reporting period was challenging, with the war in Ukraine impacting local and global inflation and supply chains. The energy challenges in South Africa further impacted productivity and household budgets, also in the professional market segment. Yet, the strength of our balance sheet and our unique mutual model allowed us to look for growth opportunities in the constrained market,” Smit says.

Lapses remained low, supported by a model which ensures that all insurance premiums paid by members who hold qualifying products are ultimately returned to them through claims paid or investment growth allocations to their notional PPS Profit-Share Accounts™* after business running costs. No premiums are charged for the PPS Profit-Share Account™ which embodies PPS’s ethos of mutuality – sharing success with members.

Although claims attributable to COVID-19 declined, which supported underwriting profit, the investment markets substantially impacted Profit-Share. Therefore, in 2022, PPS allocated R619 million to members with qualifying products’ PPS Profit-Share Accounts™* compared to the R5.5 billion in 2021*.

Commenting on the performance, Smit says: “2021 was a very strong year in the investment markets and our funds performed exceptionally well. But we cautioned our members last year against exuberant future expectations. Brilliant years such as 2021, when markets might get a little bit ahead of themselves, are usually followed by a year or two of mediocre and even negative performance. Especially overseas equities and bonds had a tough time in 2022.”

“Our bias to growth assets, which generate maximum long-term benefit for our members, is due to our world-leading low lapse rates, where our members’ policies stay on our books for a generation or more on average. This allows us to take a long-term approach to investing, which we would argue is a unique competitive advantage, helping us to ride out short-term market volatility and corrections such as in 2022.”

For good diversification and long-term growth reasons, PPS holds significant portions of overseas assets that are invested on behalf of members. As a result, the core balanced portfolio ended the year slightly negative. July, October and November were good investment return months, enabling this more-or-less flat performance on the investment side for 2022.

The Group’s insurance gross earned premiums in South Africa reached R6.0 billion, an increase of 7.6% on 2021. Annual premium income of new business written in 2022 in South Africa was R280.4 million, up from R253.7 million in 2021.

Most business subsidiaries achieved solid growth. PPS Investments exceeded many peer benchmarks, more than doubling both assets under management and the number of investors it serves during the five years from 2017 to 2022. Gross new investment flows to PPS Investments were R7.7 billion, and net flows came in at R3.3 billion, up 21%. Profit before tax increased to R121 million, up from R98 million in 2021. The strong performance was further supported by the continued transition of the investment portfolio to the in-house multi-manager, enabling members to benefit from economies of scale. This decision was taken after the business established a 15-year track record. This enabled the Group and members to benefit from economies of scale.

PPS Short-Term Insurance continued to deliver value to members. In 2022, severe flooding in KwaZulu-Natal reflected an increase in short-term insurance claims with the homes and businesses of many members being affected. Nevertheless, the total loss ratio of the personal and commercial lines ended the year at 66%. “We continue to believe that the professional market segment is a good risk pool, given the professional ethics and risk management that is core to many professions. This behaviour is also reflected in low lapse rates on the short-term insurance side,“ Smit says.

The PPS Health Professions Indemnity business also recorded strong performance in its fourth year of operations, serving a niche member base providing professional indemnity protection to medical professionals. Total premium revenue increased to R89.6 million and this business line is now at scale to contribute to profits for members in future.

“As we shape our strategic agenda towards 2027, we will continue to challenge ourselves on living our purpose, protecting the lives and livelihoods of our members and assisting them to live the lives they aspire to. We remain cautiously optimistic but alive to the continued impact to our business due to low economic growth and investment market pressures worldwide. Our objective is to ensure that the business is future-proofed for local and international growth through diversifying revenue streams for the benefit of our members as we view new market segments and geographies. Our focus remains steadfast on our unique exclusive member value proposition and innovating solutions, advancing our digitalisation journey, and addressing the sustainability agenda as part of PPS’s purpose. Leadership and culture remain the cornerstone of our strategic agenda,” concludes Smit.

ABOUT PPS

The Professional Provident Society (PPS) is the largest South African company of its kind that provides financial services exclusively for graduate professionals. PPS operates under the ethos of mutuality, which means that it exists solely for the benefit of its members.

PPS membership provides access to a comprehensive suite of financial and healthcare solutions that are specifically tailored to meet the needs of graduate professionals, including life insurance, short-term insurance, health professions indemnity, specialist support services, financial advisory, wealth advisory, investments and administers the Profmed Medical Scheme.

Members with qualifying products from PPS Insurance, PPS Investments, PPS Short-Term Insurance and Profmed share in the profits and losses of PPS Insurance annually through PPS’s unique Profit-Share* Account. After we have honoured all valid claims and covered the expenses of doing business, and set up reserves for future possible claims, we distribute what is left to our members with qualifying products, together with investment growth, either as claims or as allocations to their PPS Profit-Share Accounts™. So, the greater their contributions in these products, the greater is their part of the annual Profit-Share.

Visit www.pps.co.za for more information. PPS is a licensed insurer conducting life insurance business, a licensed controlling company and an authorised FSP.

 * Allocated to members with qualifying products. Past performance is not indicative of future performance.