Africa’s insurance industry is on the move...

Africa’s insurance industry is on the move, its premium income between 2001 and 2010, excluding SA, growing at 13,8%/year, almost double the global average. But it is off a low base and most of the continent’s 1bn people do not have insurance cover, says Doug Lacey, CEO of LeapFrog, an SA-based life insurance-focused private equity firm.

“Africa has a vast market of low- income people willing to pay for affordable insurance,” says Lacey. “We want attractive financial returns and to bring life insurance to the uninsured. ”

Launched in 2008, LeapFrog has just closed the latest of four investments in African insurers. “We bought a majority stake in Express Life in Ghana for US$5,5m,” says Lacey. “It’s a good market to get into. Ghana’s GDP grew at 13,5% last year and its life insurance market has grown at 40% annually for the past five years.”

Ghana has also been a winner for Sanlam, which has a 49% stake in the country’s largest private insurer, Enterprise Life. “Ghana is a star performer,” says Sanlam Developing Markets (SDM) CE Hein Werth.

Sanlam, adds Werth, views Africa as a key part of its growth strategy. In addition to Ghana, SDM has joint ventures in Botswana, Kenya, Tanzania, Nigeria, Malawi, Uganda and Zambia. “We always partner with local players, even in greenfields businesses,” he says.

Merrick Oeschger, head of Africa operations at short-term insurer Santam, which is allied with Sanlam in seven of its African ventures, says: “It is vital to have a strong local partner. There is a lot of merit in Sanlam and Santam working together.” Not least is that short-term is the largest insurance segment in Africa — data from Swiss Re shows that, excluding SA, it accounted for $9,4bn in premium income in 2010 compared to $4,1bn from life insurance.

But the short-term market is spread across 55 countries, which means scale is lacking in most of them. “In Africa’s 40 smallest short-term markets, premium income averages a mere R260m/year,” says Oeschger. Premium income in SA’s short-term market was R74bn in 2010.

In larger markets, fragmentation poses a big problem, says Oeschger. In Kenya, for example, $595m in short- term premium income is split among 30 insurers. In Nigeria, $1bn in premium income is spread between 42 insurers.

The life segment is similar and, in Nigeria, 27 life insurers share annual premium income of around $190m while in Kenya, 23 compete for about $300m. In SA’s life insurance market, premium income totalled $43bn in 2010.

Despite Africa’s challenges it is a market with huge potential, believes Grant Pote, COO of Old Mutual Africa. “A growing middle class and low insurance penetration is a potent growth mixture,” he says.

Old Mutual has a long history in Zimbabwe and Kenya, but has been slow off the mark in expanding further and lags behind Sanlam and MMI Holdings. MMI has life and health insurance operations in nine African countries, excluding traditional markets for SA insurers, such as Namibia.

In its first step into other countries, Old Mutual is in the process of buying small Nigerian insurer Oceanic Life from Nigerian bank Oceanic Bank. “We are open to other acquisitions in West and East Africa,” says Pote.

Old Mutual could face a tough task. “The easy pickings in Africa are gone,” says Werth. This may also deter big global insurers from encroaching on the African market in which SA insurers, as foreign players in their own right, have gained the upper hand.

“There’s not been much more than talk by big global insurers of expanding into Africa,” says Oeschger.

Stafford Thomas
22-May-2012