When a mutual life assurance company, in a full page advertisement, starts talking about profit as the giant Sanlam did last week, its policy-holders must start wondering.
Sanlam, after all, is owned by its four million policy-holders and there should theoretically be no profits.
In the days of early life assurance companies, when nearly all were mutuals, the profits were distributed to policy-holders every year. This was not to say they physically received the cash the value of any profits were added to the investment value of their policies.
Then a new trend started, driven mainly by the development of the industry away from the selling of pure life assurance into investment (endowment) policies.
This trend saw the increasing entry into the field of non-mutual life assurance companies owned by private investors, which were driven purely by a profit motive.
But they could not make a profit unless they were offering something better and something new.
It was people like Donny Gordon of Liberty Life who saw this gap and built his remarkable empire.
The investment policies became more and more creative as competition stepped up. And as the type of product became more creative so risk increased.
The investment products sold to individuals by the life companies can be divided into two rough categories market-linked and smoothed bonus policies.
Market-linked essentially means the investor, and not the life company, takes the investment risk. If the value of the investments on say the stock exchange moves up, so does the value of the policy - similarly, let the market shrink and your value reduces.
For risk-averse investors the companies introduced smoothed policies, which to a greater or lesser degree offer the security of stable growth. In other words, they smooth out the bumps of the market. In the good years money is held back and in the bad years the bonuses are topped up.
The declaration of bonuses (annual earnings on a policy), however, do not remove all risk from investors as bonuses are divided into what are termed vesting and non-vesting bonuses.
If there are particularly bad times non-vesting bonuses can be cancelled.
George Rudman, senior general manager at Sanlam, says this policy allowed for more competitive bonuses to be declared.
Policy-holders were in effect providing the required capital of life companies and mutuals via the cancelleable bonuses.
In the early 90s a re-think was sparked by the collapse of some foreign life offices when interest rates dropped along with the value of some of their assets.
In South Africa companies had always kept hidden reserves but, in some, these had become run down in the competition.
Regulators in many countries, including South Africa, started to force life offices to keep "capital adequacy reserves" to ensure major risk to policy-holders was covered.
The reserves are the difference between liabilities (mainly what is due or could become due to policy-holders) and the assets managed by the company.
There was no obligation until 1994 for companies to disclose either the required or the voluntary reserve figures.
However, international trends, demands of shareholders in the non-mutuals, the opening of South Africa to the world and the pressures of consumerism have combined to force the life offices to start providing real information to policy-holders and to shareholders.
When the figures came out there were enormous variations and different interpretations. Sanlam had been voluntarily reporting the surpluses (or contributions to reserves) since 1987 with the figures based on conservative calculations.
The big shock came when Old Mutual published its reserves for the first time in 1984. They stood at R17 billion against Sanlam's comparatively low R3,2 billion.
This immediately gave rise to competitors speculating that Sanlam could be forced to de-mutualise to raise extra capital on the stock market.
Against this Old Mutual faced criticisms that it was withholding too much from its policy-holders.
Sanlam said it did not need the level of reserves required by Old Mutual because most of the investment policies it sold were in market-related business.
The bulk of Old Mutual's individual business was in smoothed policies.
However, Sanlam, with its trumpeted announcement of "focusing on profit", has now clearly decided to increase its level of capital reserves to bring it more into line with its competitors.