Insurance: Global downgrading is good news for Africa

 

By Thekiso Anthony Lefifi

  

The vastly underinsured African markets – Ghana and Nigeria in particular – have become an urgent growth area for insurance companies suffering from the negative global outlook.
The troubled global reinsurance sector may be heading to levels last seen 13 years ago – before the fall of the US's twin towers.
Rating agencies Standard & Poor's, Moody's and Fitch have recently downgraded the sector's outlook from stable to a grim negative.

The current soft market shows many of the traits of the late 1990s 

"The current soft market shows many of the traits of the late 1990s – an over-abundance of capital, double-digit annual price declines, a substantial rise in buyers' bargaining power, and predictions of industry consolidation," said Moody's outlook report of 18 June.
This puts Africa in a unique position. Its insurance sector remains a market in construction, with huge potential: it is estimated that nine in 10 Nigerians do not have any form of insurance cover, according to NOIPolls.
In Ghana, the insurance market is expanding at 30%, according to the country's commissioner of insurance, Lydia Lariba Bawa. International insurers are well aware of this trend.
UK-based insurance giant Prudential, whose Ivorian CEO Tidjane Thiam worked in Robert Guei's government in the 1990s, has started selling insurance in Ghana, a first for the company.
It has acquired Express Life, an insurer which focuses on people earning less than $2.50 a day.
Prudential's entry into the Africa is significant, even if the continent represents just 0.2% of the global insurance industry total.
The sector is slowly coming to the boil. South African insurers view opportunities in East Africa and West Africa as key, partly because they are at the forefront of supporting-technology drivers, such as mobile-supported insurance.
While practitioners are confident that education about the use and benefits of insurance will allow them to reap the rewards over time, there remain many hurdles.
Blum Khan, the CEO of South African insurer Metropolitan Health Group, said insurers offering retail products in Africa need to ensure robust premium collection mechanisms are in place to drive their businesses' growth.
The Nigerian market remains a gem. The South African insurer Liberty Holdings is mulling over the most effective way to enter.
In general, the sector represents a real opportunity for fast growth, partly because foreign investors are allowed to purchase 100% of local companies, avoiding the costs associated with setting up greenfield operations.
The reinsurer Swiss Re believes the Nigerian insurance market, which was worth $1.6bn in 2012, will grow to $6.5bn by 2025. A recent report by Fitch predicts that consolidation in the Nigerian market will be the next big trend.
That might well be driven by mar- ket leader Leadway Group. Its asset base hit the N100bn ($617m) mark at the end of 2013, a 47% growth on the previous year.
Bridging continents
In December 2013 Sanlam Emerging Markets (SEM) acquired a 49% stake in NICO Holdings' general insurance businesses in Malawi, Zambia, Uganda and Tanzania.
They are having to deal with the recent trend of healthcare providers entering the health insurance market.
SEM has recently concluded a number of acquisitions, including the Soras Group of Rwanda and MCIS Insurance Berhad of Malaysia.
SEM has also recently acquired a stake in the leading global micro-insurance specialists, MicroEnsure Holdings, which is based in the UK and has a footprint across Africa and India, serving more than 10 million enrolled clients.
Regulators have been driving some of the changes.
In Uganda, the insurance act of 2011, which took effect in December 2013, forced insurance companies to split their life and non-life products into two separate companies.
In 2005 and 2007 Nigerian regulators helped consolidate the sector by demanding new capital requirements for insurers, bringing the number of insurers down from 97 to 49.
The Nigerian regulator NAICOM has also has pushed its Market Development and Restructuring Initiative, which has focused on re-orienting Nigerian insurers towards the retail market.
This is happening in Africa's francophone markets, too.
This is partly down to the growth in selling of insurance through banks – known as 'bancassurance' – with accords mushrooming between insurers and banks in places like Cote d'Ivoire. ●

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