The credit crisis has resulted in lower confidence in the South African life insurance market as investment yields continue to decline, expenses increase and policies lapse, said Ernst & Young in a report on Monday.

"It is clear there is pressure and strain," director of Assurance at Ernst & Young, Emilio Pera, said during a briefing in Johannesburg.

He noted that while net premium increases had not fallen, risks remained in line with where the local economy was headed i.e. if there was a recession or not.

South Africa's economy is expected to have receded 1.3 percent in the fourth quarter, according to a survey by I-Net Bridge, from only a 0.2 percent increase in the third quarter.

Pera noted that increased regulations were resulting in higher compliance costs, while the introduction of commission payment thresholds became effective in January 2009.

Changes in leadership and in executive positions are also expected, while there will be increasing competition from other financial services providers, and particularly collective investment schemes.

He also refers to erratic employee benefits growth, hampered by static employment levels.

The Ernst & Young credit crisis report saw the credit crunch as a "critical" risk concern for the insurance industry locally and globally, while banking was at a high risk locally, but critical globally.

The researchers say that as a result of the crisis a risk management culture will have to be integrated into the normal business activities across organisations, but that interviews of many executives shows a belief that survivors of the crisis should emerge as much stronger institutions.

I-Net Bridge