Original Research

Financial analysis of the South African life insurance sector - An empirical decomposition of economic value added

Paul Alagidede, Takalani Mangenge
Journal of Economic and Financial Sciences | Vol 9, No 3 | a76 | DOI: https://doi.org/10.4102/jef.v9i3.76 | © 2016 Paul Alagidede, Takalani Mangenge | This work is licensed under CC Attribution 4.0
Submitted: 19 December 2017 | Published: 03 December 2016

About the author(s)

Paul Alagidede, Wits Business School, University of the Witwatersrand, South Africa
Takalani Mangenge, Wits Business School, University of the Witwatersrand, South Africa

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Abstract

This article examines the determinants of economic value added (EVA) in insurance industries. It addresses the key components of EVA, the value drivers that are more important in managing economic value and the combination of these value drivers that best explain EVA as a group. The study covers the life insurance sector in South Africa, specifically focusing on the big five companies: Discovery Holdings, Liberty Holdings, MMI Holdings, Old Mutual plc, and Sanlam Ltd for the period 2004-2014. Variance and principal component analyses are used to identify the main drivers of EVA. Five main drivers were prominent, namely: underwriting, asset management, costs, opportunity cost and strategic investments. The implications of the results for best practice in the insurance industry are discussed.

Keywords

Economic Value Added; Performance Metrics; Life Insurance; Principal Components Analysis; South Africa.

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