Breaking News
Investing Pro 0
New Year’s SALE: Up to 40% OFF InvestingPro+ CLAIM OFFER

African insurers in vogue as incomes rise

Stock Markets Dec 07, 2014 09:10
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
African insurers in vogue as incomes rise
 
BARC
+0.40%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
OMU
+2.56%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
PRU
0.00%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
SRENH
-1.04%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AXAF
-0.03%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AIG
-1.02%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Carolyn Cohn and Helen Nyambura-Mwaura

LONDON/JOHANNESBURG (Reuters) - A growing middle class in sub-Saharan Africa is enticing European and South African insurers to buy local firms focussing mainly on life insurance and pensions, in the face of mature markets and strong competition at home.

Rapid economic growth in countries such as Ghana, Kenya and Nigeria has increased the number of people with money to spend on insurance to protect their wealth, while regulatory changes are encouraging the growth of domestic savings and pensions.

Several major companies, including Swiss Re (VX:SRENH), Prudential (L:PRU) and Sanlam (J:SLMJ), are buying insurers in Africa, with the focus on life and pensions products in the more economically advanced sub-Saharan countries.

Notwithstanding the challenges, the race is definitely on. David Hodnett, Barclays Africa's deputy CEO, told a banking conference in Johannesburg in November: "Every insurer that you look at has probably about five or six suitors."

A Standard Bank report published in August said while the size of the "middle class" in sub-Saharan Africa may have been overstated in some studies, growth rates were nevertheless dramatic.

Its study of 11 sub-Saharan economies concluded the "middle class" had risen from 4.6 million to 15 million since 2000 and would be over 40 million by 2030, with Africa's biggest economy Nigeria leading the way.

Insurance penetration, or premiums written as a percentage of gross domestic product, was 11.5 percent in Britain in 2013 but just 0.6 percent in Nigeria. For life insurance, penetration was 8.8 percent versus 0.2 percent, according to Swiss Re data.

Life insurance premium volume in dollar terms rose 18.6 percent last year in Kenya, 13.8 in Angola and 13.5 in Nigeria, compared with a 3.9 percent rise in Britain, the data showed.

"The level of life products and penetration is very low," said Davinder Sikand, head of Africa at private equity firm Abraaj. "There are a lot of opportunities to develop products to fit the needs of the people."

One of the latest deals was French insurer AXA's (PA:AXAF) $250 million purchase last month of a majority stake in Nigeria's Mansard Insurance, which offers life and general insurance.

South Africa-focused companies such as Old Mutual (L:OML) and Liberty (J:LBHJ) are also eager to expand in the life market in sub-Saharan Africa.

LeapFrog Investments, which invests in financial services in emerging markets, launched its second Africa and Asia fund in September while British insurer Prudential (L:PRU) has bought life insurers in Kenya and Ghana this year.

HARD TO REACH

Insurance specialists say middle-class and lower middle-class customers in Africa are not as affluent as developed-world middle classes, tend to be harder to reach and can require a larger use of face-to-face agents.

The numbers in the Standard Bank survey are based on households that consume more than $15 a day.

A shortage of skilled insurance staff, fragmentation of the market across a large number of countries with many small insurance firms and regulatory hurdles present more obstacles.

"It's quite challenging, a lot of work is required," said Frank O'Neill, head of Middle East and Africa at Swiss Re. "It's not as straightforward as if you look at Brazil: one single country."

Getting regulatory approval can take more than a year for each new company bought, and frameworks differ from country to country, industry specialists say.

"Wherever you go there are new regulations to learn and comply with," said Victor Muguto, head of insurance for consultancy PwC in Africa.

"There are shortages of staff in some of the countries, experienced staff are not always easy to come by," he said.

Would-be insurance buyers will also need to do their homework to work out which of the many local insurers offer the most value. Profits across the board in Kenya's insurance sector, for example, rose 24 percent last year, but that covers nearly 50 companies.

Insurers are more likely to do well if they partner with banks, said Dudu Tembo, portfolio manager at wealth manager Citadel Investment Services, as "the challenge has been issues around distribution".

Reinsurance, or sharing the burden of insurance risk, is another growth area, for instance for energy projects in countries such as Angola or Mozambique. An Africa-focused reinsurance company, One Re, launched last month.

(Graphic by Vincent Flasseur; editing by David Clarke)

African insurers in vogue as incomes rise
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email