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| Old Mutual Investment Group CEO Diane Radley |
By Phakamisa Ndzamela,
OLD Mutual is likely to spend its remaining R4bn-plus expansion budget on acquiring a short-term insurance business in East Africa and an asset management operation in West Africa.
Old Mutual has ambitions to be an African financial services champion. This year it set aside R5bn for expansion and has already spent about R700m acquiring insurance companies in Ghana, Nigeria, and a deposit taking microfinancier in Kenya.
Including Nedbank’s acquisition of Banco Unico, which is pending regulatory approval, the Old Mutual group would have spent R925m so far this year.
Referring to a short-term insurance capability in East Africa and an asset management business in West Africa, Old Mutual Africa CEO Johannes Gawaxab said on Thursday: "We are aware of these holes that we need to fill. We are exploring options to plug these holes."
The other hole that Old Mutual needs to fill is lending in West Africa. The likelihood is that the insurer will enter the West African region through Nedbank, whose intention is to convert a $285m loan to Ecobank to a 20% equity stake by the end of November next year.
Old Mutual Investment Group CEO Diane Radley said it made sense to build a business aligned with the Old Mutual Life operations in West Africa.
"What we are more likely to do is to follow an inorganic strategy. We would look to acquire an existing business," Ms Radley said, adding that it was difficult to start an asset management business in Nigeria organically.
South African companies have an increasing appetite to build asset management businesses in West Africa. Insurer Liberty is also looking to develop such a capability in West Africa and has deployed one of its executives permanently to Nigeria in a bid to find opportunities.
Old Mutual Emerging Markets CEO Ralph Mupita said the insurer would also bring together its asset management capabilities in West Africa.
Old Mutual has a number of funds invested in infrastructure. He said that it was important for Old Mutual to have an integrated finance model that met clients’ broader financial needs.
Mr Gawaxab said Old Mutual had ambitions to be the number one or number two long-term savings and insurance business in established and core growth markets by 2020.
Mr Gawaxab said the plan was to add to its agency force in Ghana and Kenya. In Ghana, the company has a tied agency force of 115 and plans to triple this number by the end of next year.
He said last week Old Mutual had signed a bancassurance deal with Ecobank in Ghana to roll out insurance products.
Old Mutual Africa chief operating officer Tava Madzinga said in Kenya the company had grown its agency force from 180 to 560 this year. Mr Madzinga said the company had poached widely from competitors and also grew its own talent.
With the investments that Old Mutual is making, Mr Mupita said the company expected to generate returns on equity of between 20% and 25% in the medium to long term. Analysts have warned that while Old Mutual has been making progress on its Africa expansion, running the new businesses is going to have challenges. Analysts said that they believed the returns on investment will occur in the long term.
Commenting on Old Mutual’s plans in Africa, Sanlam Investment Managers analyst Patrice Rassou said: "I think it’s an ambitious plan. It takes time to build the actual footprint on the ground and things like distribution.
"These markets are competitive. There is growth, but it’s competitive," he said.
"In South Africa we know Old Mutual, but if you go to Nigeria and Kenya does the brand have salience?"
Talking about implications of competition, a Cape Town analyst said that in Nigeria there were more than 40 short-term insurers and the risk was to follow competitors and slash pricing.
He also said that the insurance sector had reputation issues due to some insurers who had failed to honour claims.
Old Mutual has life assurance and asset management businesses in Ghana, Nigeria, Namibia, Swaziland, Kenya, Malawi and Zimbabwe.
OLD Mutual on Wednesday said it had spent less than a R1bn of its R5bn budget earmarked for expansion in Africa over a three- to five-year period, and had received regulatory approval for the acquisition of Oceanic’s Nigerian property and casualty business from Ecobank.
During the third quarter of 2013 Old Mutual also completed the acquisition of Ghana’s Provident Life Assurance. In July it acquired a controlling stake in microfinance company Faulu Kenya. This means the insurer has made three acquisitions out of its R5bn expansion budget announced at the beginning of 2013.
In its interim management statement for the third quarter ended September, Old Mutual said it had achieved total gross sales of £6.5bn, an increase of 11% compared with the corresponding period in 2012.
The insurer said funds under management increased 14% to £287.5bn in the third quarter of 2013. Net client cash flows for the third quarter were £2.6bn across the group, the company said.
Funds under management at US Asset Management grew 174% to £150.3bn.
Old Mutual said it had seen signs of recovery in the macroeconomic environment of the US and UK but in South Africa the macro economic environment continued to be challenging, due to strike disruptions and a weak rand.
Old Mutual shares were up 2% at R33.17 on Wednesday afternoon.
Source: BDlive
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