Staying afloat in the Covid storm

B7: What has been the immediate impact of the Covid-19 pandemic on the local industry?

MC: The World Bank’s June baseline forecast envisions a 5.2% contraction in global GDP in 2020. Namibia as an emerging economy is no different, and GDP is expected to contract by some predictions with as much as 9.9% in 2020 before a recovery can be expected towards the end of 2021.

The contraction estimated for 2020 is a severe deterioration from a 1.5% growth that was projected in the February 2020 Bank of Namibia report.

The impact of Covid-19 and the lockdown measures implemented is felt in all sectors of the economy. The informal sector seems incredibly hard hit as significant strains are emanating from the daily loss of income. The travel bans and closure of the boarders, ports and airports, in the formal space; have badly affected the tourism and transport sector. Construction is also among those severely affected by the lockdown and the ripple effects from a limited supply of construction materials.

There are, however, some sectors that might emerge as winners during this period, and these are communication and technology, e-commerce. Therefore, we must not miss the opportunity to enhance them both at the consumer level as well as policy support.

B7: Going forward, how do you expect the industry will be affected?

MC: The insurance industry is no different from any other sector in an economy. Insurers and bankers alike rely on a robust economy for sustainable operations.

However, the insurance industry is generally well prepared for major loss events, including pandemics. The financial impacts will take time to play out and will impact each insurer and re-insurer in different ways depending on the classes and mix of business they underwrite, their pricing and reserving methodologies, policy terms of trade and reinsurance coverage.

The speed at which Covid-19 is impacting the economy is unprecedented. Like many businesses, insurance companies are facing unique challenges in this rapidly evolving situation. How insurers approach and respond to these challenges will influence their resilience and ultimately, how they will fare.

Falling equity markets and lower interest rates could result in balance sheet pressure for the industry as a whole. Insurance companies rely on their investment portfolios to generate returns. Markets have been in turmoil and, as a result, insurers' investment portfolios are reacting unfavourably. Additionally, interest income revenue streams may quickly dry up as interest rates continue to drop.

B7: To which extent has Liberty Life been involved in providing Covid-19 relief in Namibia?

MC: As Liberty, we have always aimed for a personalised relationship with our customers and partners. And therefore, have treated all our customers with dignity and respect.

Customers have requested for various solutions to their current financial situation, and we have afforded them a suitable answer to that. From a solutions point of view, our products have always been designed with a clear need in mind - hence most of our products allow for a break if a customer cannot afford their product for whatever reason. Also, customers can lower or increase their cover as they wish, resulting in affordable premiums as well.

As an industry, we've generally responded well to customer needs and appeals during this time. Our peers have also offered their clients a multitude of solutions and relief - ensuring a continuation of our economy and peace of mind to the customer.

We do expect an increase in claims overall, but with some time-lag to be notified to insurers, assessed and paid, which could also put pressure on claims reserves and solvency positions. Most insurers have already commenced the process of reassessing their claims reserves in light of the current circumstances, but we expect this to be on-going as fact patterns emerge.

B7: Asset managers are required to invest a significant portion of their assets in Namibia. Please elaborate on Liberty Life's local investments.

MC: Liberty Life has an obligation to invest a minimum of 45% of our assets in Namibia and we have complied.

Further to this, Liberty invested in a local pension administration company in 2019 by purchasing the full shareholding in this entity with the intention to grow this business, which further demonstrates our commitment to growing the Namibian financial services industry.

All other holdings in listed or unlisted investments in Namibia are held through regulated products in the Namibian market.

B7: Namibia is facing a record deficit and government will rely heavily on the domestic market to fund it. Are such investments competitive and are the returns on par with investments elsewhere?

MC: At the time of implementation of this piece of legislation, industry was not completely open to unlisted investments and was not prepared for it, really. This was a foreign concept for Namibia and it took a bit of time for the change management to happen.

There are challenges of compliance since compliance is measured differently for different non-banking financial institutions, and these are still impacting the industry.

We have seen some challenges with the generation of investment returns in the unlisted space for certain managers while others have managed to harness the opportunity and generate reasonable investment returns that has lifted investment returns passed onto customers which is remarkable, particularly with the volatile markets that we’ve seen recently.

B7: Speculation is rife that government will expect even more assets to be invested in Namibia. Are there enough suitable and solid investment opportunities in the country?

MC: Namibia has so much opportunity for growth and this growth will require the support of government and private sector.

For now there is quite a bit of investment in established local companies and ensuring that they become profitable to generate an investment return, however, there is a bigger picture that we need to take into account. The opportunities are available in this larger landscape and I believe that the intention of this legislation was to achieve exactly that.

B7: The consumer is under increasing pressure with eroding disposable income. Has Liberty Life experienced the effect of this?

MC: Of course, all industries feel the adverse effects of a constrained consumer in one way or another. And the financial services industry - especially us in insurance, feel the worst impact.

Claims go up when things change erratically; we tend to experience higher lapses when it comes to policy premium payments, and customers tend to cut back on their policies when their immediate future is uncertain. Moreover, going through a health pandemic such as Covid-19, health-related claims do go up and the number of costly 'false alarms' means our administrators are working more to ensure our customer's peace of mind.

B7: Savings seem to be one of the first things consumers cut back on when the going gets tough. How important is it that Namibians keep on saving?

MC: Never has it been more important to assess your financial position and ensure that your financial future and retirement strategies are in place. The panic and fear are unprecedented in our lifetime and has resulted in an array of chaos. At times like these, it becomes more important than ever to stay focused.

Nevertheless, people tend to react by cancelling savings or retirement plans to ease the pressure on disposable income, thinking they can push it out to later in their lives. This has proven to be a disaster as research shows that only about 6% of retirees can retire comfortably. More recently, research has shown that with the structural changes that we've seen in the investment environment, individuals should now be saving closer to 20% of salary monthly to achieve the same outcome.

We, therefore, urge all investors and savers to stay calm in these times. When the economy is unpredictable, we are tempted to make brash emotional decisions where often the best strategy is to remain invested and stick to your long-term strategy. It is critical to think carefully and seek advice from your financial advisor or reputable financial services provider before making any decisions on your current savings.

B7: Any closing thoughts?

MC: The effects of Covid are going to be felt well into 2021 and we all need to be prepared.

Take the time to relook at your finances, understand what your necessities are and be deliberate about reducing your luxuries, which in my mind is anything that you can do without or control. We are going to experience turmoil for a while yet and let’s not be caught unaware.