Insurance & Actuarial News South Africa

Expanding insurers face tough fight

South African insurers looking for growth in the rest of Africa need to move fast as they can expect strong competition from large European insurers chasing the same markets.
Expanding insurers face tough fight
© tang90246 – za.fotolia.com

South African insurers looking for growth in the rest of Africa need to move fast as they can expect strong competition from large European insurers chasing the same markets.

Victor Mugoto, PwC long-term insurance leader for Africa, said on Monday, 30 March, that large European insurers like AXA and Prudential have substantial balance sheets, sophisticated models and are experienced in pricing risk.

This gives them an advantage over local insurers who have tended to shy away from insuring infrastructure projects and rather let the business be written outside of Africa.

"There is a lot of development that needs to happen and we need to run very quickly because the European insurers, like AXA and Prudential, have very sophisticated models and are very experienced at underwriting more sophisticated risk, and they are very quick to get to those new risk areas."

Sanlam, Old Mutual, Liberty and MMI are all expanding their operations on the rest of the continent, in search of growth as SA's economy expands at a sluggish 1.5% to 2%.

Yet the rest of Africa's contribution to the value of new business for the insurers decreased by 7% in 2014, said Dewald van den Berg, PwC director of the financial services division. This was partly due to currency fluctuations while competition also played a role, he added. Margins also reduced in the rest of Africa.

Only Sanlam was able to maintain its new business margins at the same level as the prior year, Mr van den Berg said.

Sanlam was also "ahead of the pack" with 22% of the value of new business coming from its rest of Africa operations.

The insurer has the largest operations in the rest of Africa, with businesses in 14 countries, excluding SA.

Sanlam has R2.5bn to spend on acquisitions in the rest of Africa or other emerging markets as it aims to earn 30% of net operating profit from outside SA by the end of 2015.

Old Mutual's rest of Africa businesses made up 14% of the value of new business last year, said Mr van den Berg.

The insurer, listed in both Johannesburg and London, operates in seven African countries besides SA and has R1.4bn to spend on expansion across the rest of the continent.

MMI's rest of Africa operations accounted for 6% of the value of its new business and Liberty's 3%.

MMI has operations in 12 African countries and R1bn for potential acquisitions in SA and on the rest of the continent.

Liberty is found in 15 African countries.

The short-term insurance industry in the rest of Africa has more potential for growth than long-term insurance, said Mr Mugoto. Life insurance premiums in Africa totalled $50bn in 2013, making up 1.9% global market share. This had not grown from 2012, according to Swiss Re.

Nonlife insurance stood at 22bn in 2013, accounting for 1.1% of the world's market share. This was also flat compared to the year before.

SA's insurance penetration is among the highest in the world, with premiums at 15.4% of gross domestic product in 2013.

Nigeria, on the other hand, has the biggest economy, but insurance premiums make up only 0.6% of GDP. This makes it an attractive market for insurers seeking growth.

Source: Business Day

Source: I-Net Bridge

For more than two decades, I-Net Bridge has been one of South Africa’s preferred electronic providers of innovative solutions, data of the highest calibre, reliable platforms and excellent supporting systems. Our products include workstations, web applications and data feeds packaged with in-depth news and powerful analytical tools empowering clients to make meaningful decisions.

We pride ourselves on our wide variety of in-house skills, encompassing multiple platforms and applications. These skills enable us to not only function as a first class facility, but also design, implement and support all our client needs at a level that confirms I-Net Bridge a leader in its field.

Go to: http://www.inet.co.za
Let's do Biz