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INSURANCE: Pan-African players

By Marcia Klein in Cape Town
Posted on Tuesday, 17 July 2018 13:07

Two large South African insurers have their eyes on the continental market: giant Sanlam is making moves in francophone and North African markets, while Old Mutual is splitting up its operations so that its emerging-markets entity can focus on growth opportunities in South Africa and the rest of the continent. South Africa is the continent’s strongest insurance market, and thus offers a strong base for African expansion, especially as the economy looks somewhat brighter under a new leadership.

Sanlam has a major head start in the race against Old Mutual. It now operates in 33 other African countries, and its rest-of-Africa operations accounted for 13% of the group’s profits in 2017. For its part, Old Mutual has been slower to grow on the continent, with some investors arguing that its US and UK operations do not fit well with its emerging-markets portfolio. Old Mutual has a presence in 13 other African countries and its rest-of-Africa units represented just 3% of its profits in 2017.

Both firms are now making major moves to strengthen their positions in the highly competitive South African market and to get footholds in economies that are set to grow quickly.

The split of the London-listed insurance group Old Mutual into its African and other interests, which is due to be completed in June with a listing on the Johannesburg Stock Exchange, comes at a good time. Old Mutual moved its primary listing from Johannesburg to London in 1999 in the hope of attracting more investment. After winding down some international investments that did not complement its portfolio well, Old Mutual is looking at Africa with a new perspective.

Big talk, cautious action

Not quite the prodigal son, Old Mutual “is looking forward to its homecoming to Africa,” Jonas Mushosho, chief executive for Old Mutual Rest of Africa, tells The Africa Report. Its strategy is to become “the premium African financial services group in 17 countries”, which currently include South Africa, Botswana, Malawi, Namibia, South Sudan, Tanzania, Zimbabwe, Ghana, Kenya, Nigeria, Rwanda, Swaziland and Uganda. It offers savings, investment, insurance, banking and wealth management services.

But its strategy, currently, appears to be cautious consolidation without much talk of aggressive organic or acquisitive growth: “As a stand-alone public company headquartered in Africa, we will be focused on Africa and are well positioned in key sub-Saharan African geographies across multiple lines of business to make the most of the continent’s growth potential,” says Mushosho, pointing to the reach of the group compared to South African peers.

Old Mutual has a long way to go to catch up with rival Sanlam after the latter’s recent $1bn deal to take over Moroccan insurance group Saham. Junior Ngulube, the chief executive of Sanlam Emerging Markets, tells The Africa Report that Saham “has a pan-African vision similar to ours, but started in the north.” Its footprint in Maghreb should give Old Mutual pause for thought: Morocco is the second-largest insurance market in Africa after South Africa. The combination of Sanlam and Saham “gives us a unique position to operate in all language regions on the continent,” says Ngulube. Sanlam mainly offers life and general insurance, as well as retail credit and asset management, while Saham is also strong in health and third-party administration.

Sanlam operates in Africa through partners in almost every country. “We know about financial services, but our partners know about specific countries,” Ngulube says. This has enabled it to be among the top three market leaders for life insurance in eight African countries and for general insurance in 11 African countries.

Multinational partners

Sanlam’s geographic footprint is large, with the biggest gaps in parts of North, East and Central Africa. Ngulube says Sanlam Emerging Markets is still interested in Egypt and Ethiopia, though regulations currently prevent it from pursuing the latter. “Our geographic footprint is pretty much complete,” Ngulube says. “The next phase is to ensure we have strong, leading businesses in every country. Secondly, at this point, we don’t have all our products in every country. We need to make sure we expand our product offering and coverage over the continent.”

A key strategy is to be a partner to multinationals, several of which are already signed up. “If you are a multinational in 20 countries and we are in 33, you would be covered in all the countries you operate in by talking to Sanlam,” he says. “We are looking at the needs of their employees on the ground […]specific employee benefit needs like travel, health, emergency evacuation and corporate solutions.”

Sanlam Emerging Markets also provides solutions for other international insurers who have clients in Africa but are not in Africa themselves. Sanlam started to grow its Africa footprint with the 2005 acquisition of African Life, and notable expansion activities since then include a partnership with Nigerian bank FBN, banc­assurance deals in Morocco with Banque du Maroc and asset management in Kenya following the acquisition of PineBridge East Africa in 2017. It also has the leading life insurance market share in Tanzania and Rwanda. In addition, in 2016, Old Mutual and the Nigeria Sovereign Investment Authority laid the groundwork for two joint funds that seek to raise a combined $700m to invest in agriculture and real-estate projects.

Performances range across its various investments, but currently Botswana, Namibia and Morocco are doing quite well. “Per capita incomes and disposable incomes are quite decent, and this reflects in the [insurance] penetration. Looking at our portfolio, they contribute quite significantly. Other economies may not be growing fast or may not have high levels of income per capita, but if we have appropriate product for these markets, we see strong growth, like in the life business in Nigeria.” Sanlam also signed a deal with Tanzanian firm Maxcom Africa in May to accept payments via mobile-money platforms for insurance premiums.

At the recent African CEO Forum in Abidjan, Sanlam won African company of the year, while the boss of Saham, Nadia Fettah, was named the chief executive of the year. These are testament to Sanlam’s successes on the continent, Ngulube concludes.

Old Mutual’s strategy, similarly, is to build a pan-African, regionally differentiated brand. Rest-of-Africa chief executive Mushosho says the company is the market leader in the Southern African Development Community (SADC). In East Africa, it is focusing on its existing businesses while its approach in West Africa “is to grow the business by leveraging relationships with strategic partners, such as bancassurance.”

East african growth

Mushosho says the group continues “to see a great deal of opportunity, especially considering the underdeveloped insurance sector in Africa.” Among the group’s priorities is getting East Africa right. It is spending “much time and energy optimising” its 2015, $155.5m investment in UAP, an insurance company headquartered in Kenya. The UAP deal represented about half of the funds Old Mutual had set aside for big African investments several years ago.

In West Africa, it is concentrating on growing its operations in Nigeria and Ghana “in a way that optimises the use of capital, leveraging our bancassurance partnerships” in a difficult economic environment. Mushosho says Old Mutual’s strategy for SADC countries is to “exploit pockets of growth as and when they arise, and we will continue to maintain the strength of our leading businesses through service excellence and product relevance.”

Peter Moyo, the chief executive of Old Mutual Emerging Markets, said little about Africa during the group’s financial results presen­tation in mid-March other than that its operations delivered an impressive pre-tax adjusted operating profit that was 33% above the prior year, with the SADC region driving the growth.

Private equity

As of August 2017, Old Mutual Emerging Markets had 11.6 million customers, up from 10.9 million at the end of 2016, with six million in South Africa and 4.9 million in the rest of Africa – something it will no doubt build on as it homes in on Africa with its separate listing.

But the group’s activity in Africa is not limited to insurance. Through Old Mutual Investment Group the firm has more than R61bn ($4.7bn) in investment across the continent, split between infrastructure, private equity and impact funds, listed equity through the Old Mutual African Frontiers Fund, and agricultural investments. In May, Old Mutual Private Equity acquired a 50% stake in Medhold Group, a prominent supplier of medical devices across Southern Africa.

Paul Boynton, chief executive of Old Mutual Alternative Investments, told media that the outlook for investment in Africa in 2018 is good: “Infrastructure is Africa’s most urgent developmental necessity and thus most promising investment opportunity for those prepared to take a longer-term position,” he said, continuing: “African infrastructure needs around $100bn in investment annually for the next decade, 600 million people in sub-­Saharan Africa still lack access to power, three quarters of roads are still unpaved, whilst moving goods through African ports is three to four times more expensive than in Europe. Large well-structured, well-managed African infrastructure projects provide steady, reliable returns over the longer term and will continue to attract the attention of investors.”

Randolph Oosthuizen, an analyst for the Old Mutual African Frontiers Fund, said there is an interesting pipeline of companies coming to the market in Egypt, where the government is also planning to sell down some of its ownership.

The South African government, in its new budget announced in February, increased the allowable investment limit for pension funds to the rest of Africa from 5% to 10%. While investors have not rushed to fill their allocations, this should lead to increased investment on the continent, and Sanlam and Old Mutual stand to benefit from it.

From the June 2018 print edition

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