By Gugulakhe Lourie
JOHANNESBURG (Reuters) - South Africa's No.2 insurer Liberty Holdings Ltd said it expected to swing to a first-half loss, hit by rising policy lapses at its life unit, sending shares down.
Liberty said in a trading update on Thursday that it expected a loss of between 1.1 billion and 1.3 billion rand or a loss per share of 434 to 521 cents, after a profit of 883.3 cents in the year-earlier period.
Shares in Liberty Holdings, majority-owned by Africa's biggest bank by assets, Standard Bank, had dropped 4.60 percent to 6010 rand by 1016 GMT, lagging a slightly firmer JSE Top-40 index.
"The trading update is quite negative. I think everyone is quite surprised by the losses. The increase in policy lapses is a biggest concern. It's a lot higher than expected," said Grant Davids, an insurance analyst at Nedcor Securities.
South African insurers' profits have taken a hit from the global slide in equity markets as well as a reduction in consumer demand due to relatively high interest rates, inflation and rising personal debt.
On Tuesday, insurer Mutual & Federal posted a 17 percent fall in first-half headline earnings per share and did not pay an interim dividend, but said underwriting improved in the second quarter. M&F is majority-owned by South Africa's largest insurer Old Mutual Plc.
"We think that the adverse trading environment will last longer than we previously thought, and we therefore provision for this," Liberty Holdings CEO Bruce Hemphill told Reuters.
The company said the capital adequacy level at its main life licence remained strong at 2.5 times the required cover.
It added that the deterioration in economic conditions has been worse than anticipated and had contributed to life operations experiencing higher policy lapses.
"I think policy lapses is also negative for the industry as a whole. I think is an indication of what's happening in the real economy, people can't afford to pay their policies and they are cancelling," Nedcor's Davids said.
"I think 2009 is going to be quite a tough year for all the insurers. I think policy lapses are unlikely to improve any times soon, especially seeing a lot of retrenchments coming through in the economy."
South Africa's official jobless rate ticked up slightly in the second quarter, a labour report showed on Tuesday, but the number of people who gave up looking for work jumped, signalling the impact of recession.
Hemphill said Liberty Holdings' business was operationally strong, costs remained under control and new business was on track.
The health unit of Liberty Holdings Ltd aims to reach 1.5 million customers over the next three years as it expands in Africa. It plans to have its products in Botswana, the Democratic Republic of Congo, Ghana, Lesotho and Zimbabwe by the end of 2009.
"We still aim to be Africa's leading wealth manger, and that programme is still on track," said Hemphill. "The implementation of the group healthcare strategy in Africa is starting to gain some traction."