PPS returns exceptional value in a challenging economy

The Professional Provident Society (PPS), the financial services group focused solely on providing customised financial services solutions for graduate professionals in SA and Namibia, returned exceptional value to its members in 2023, as operating performance improved.

The group announced total profits of R4.54bn were added to its members’ notional PPS profit-share accounts in both countries. 

“Our operating performance in 2023 demonstrates the resilience of our mutual model, which has served and added value to graduate professionals in SA for more than 80 years. The Covid-19 era has shown that it is professionals who — through their disciplined training and experience — drive the solutions that society needs for various challenges. They are also key to the country’s tax base and create millions of jobs. By serving them, our business has a very big impact on society,” says Izak Smit, PPS Group CEO.

The group returned R6.12bn in total benefits to its members in SA and Namibia in 2023, compared to R5.04bn in 2022. Of this, R2.12bn was in the form of profit-share payouts to members who have exited their life risk cover phase, mainly due to retirement.

“If we did not operate in a mutual framework, this value would have been paid to outside shareholders,” says Smit. “The beauty of our model is that this value was returned to our members with qualifying products, over and above the cover they enjoyed and claims paid to them.”

Total gross insurance claim payments were R4bn: R165m in short-term insurance claims and R3.84bn in life claims. Total life claims were R3.4bn in 2022. “Though we have seen the number of life claims returning closer to the levels before the Covid-19 pandemic, it is still somewhat higher than our longer-term actuarial expectations, and average claims values were also slightly up. There is still a small Covid-19 impact. However, it is difficult to say what this impact is exactly, because fewer people test these days.” 

The group’s life insurance gross-earned premiums in SA reached R6bn, an increase of 8.7% compared to 2022. This strong growth was supported by the group’s enviable low life insurance lapses, which remained at just under 4.7%. This is despite the challenging economic conditions in the country. These low lapses can largely be attributed to the lifetime value PPS offers its members through its mutual model, which cannot be matched by other insurers because, at PPS, profits are ultimately returned to members. Life new business in SA in 2023 amounted to R254.4m, slightly down from a record performance in 2022.

In the R4.54bn profit that was announced, R1.2bn was operational profits and R3.34bn was investment returns.

“It is good to see operating profit returning to more than R1bn, the level it was before the Covid-19 era. This is of course very much impacted by the claims experience. Paying valid claims always remains our first priority and commitment to our members. Allocating profit share to their PPS profit-share accounts after that is an added benefit that our members enjoy, that no other insurer can match,” says Smit.

The strong investment returns were supported by good returns on overseas equities and rand weakness. The last quarter of 2023 was especially strong in the equity markets, pushing annual returns in balanced portfolios for 2023 to double digits after a flat performance in 2022. 

“Our subsidiary and associate businesses are also starting to make a meaningful contribution to the profits that we are able to allocate to our members,” says Smit. “Here we can especially mention strong growth in PPS Investments, where assets under management have grown to R84bn in 2023, while the investor number grew to more than 66,500. Net inflows were a positive R2.5bn. This in a year when many other bigger asset managers experienced net outflows for the first time in many years due to the challenging economic environment."

He noted that their short-term insurance business, which includes personal and business insurance product lines, as well as PPS Health Professions Indemnity, also returned a profit in 2023.

“We continue to expect strong growth in future. It was a brave move to enter the healthcare indemnity space five years ago, after many requests from our members, as that market was in distress in SA. But we have built this business responsibly and now have a healthy book of insured professionals that grew by 21% in 2023 to more than 12,600. Service is a key differentiator and not only contributes to the low lapse rate but continues to drive the ongoing growth in the number of insured graduate professionals choosing PPS Health Professions Indemnity as their indemnifier of choice.”

PPS Healthcare Administrators’ revenue grew to R358m in 2023. A major achievement in 2023 was securing its first client outside SA with administration services being provided for the Botswana Public Officers Medical Aid Scheme. 

The group’s associate business in Australia, PPS Mutual (Australia), is becoming a SA success story in that country, with already more than 11 ,00 graduate professional members. “We support the operations in Australia from our back-office in Johannesburg and are very proud to have been voted, in a survey by the independent Australian intermediaries, as the life office that provided them with the best service in 2023,” says Smit.

In its reporting guidance to its members, the group cautions against over-enthusiastic future investment return expectations based on the good investment market performance in 2023.

“Financial reporting is a short-term snapshot in a longer-term continuum,” says Smit. “It is the long-term average returns that matter. Yes, good years like 2023 push those long-term averages up, of course we are happy about that and want to participate in those bull-runs. But investment returns of growth assets, which usually deliver the best long-term returns, will always be volatile over shorter periods. Given the long-term nature of our members’ tenure with us, we have a unique competitive advantage that allows us to focus on investing in growth assets. Though those assets will experience shorter-term market volatility at times, it is those good long-term returns that we target.

“We expect conditions to remain challenging in SA over the foreseeable future. But we believe that challenges create excellent opportunities. We are working on some exciting projects. Expect market announcements within the next few months about a development that we believe will impact the insurance landscape in SA,” he says.

“In everything, we remain true to our purpose, to focus on our members, assisting them to hedge against life’s catastrophes and adding value to their lives.”

For more information about becoming a member of PPS, visit the PPS website. To access the PPS 2023 Integrated Report, click here.

This article was sponsored by PPS.