Global insurance companies are flocking to Africa, where millions of persons have began earning enough to afford business cover and protection for their families, said private equity firm LeapFrog Investments.
“We’re at an immense inflection score in history where millions of persons in Africa are starting to be able to manage risk, and insurers are providing the tools,” Andrew Kuper, founder of LeapFrog, which specializes in insurance and related financial services for emerging buyers , said by phone from Sydney on Oct. 29. “We’re seeing increasing commitment from major insurers in terms of check size and sheer numbers.”
American International Group Inc. (AIG), the biggest commercial insurer in the U.S., Swiss Re AG and France’s Axa SA have all invested in LeapFrog funds. The firm sold a minority stake in Kenya’s Apollo Investments Ltd. to Swiss Re on Oct. 8 and last year sold Ghana’s Express Life Co. to Prudential Plc. (PRU) LeapFrog generated an internal rate of return of about 80 percent on Express Life, according to Private Equity International.
“Financial services is growing at about 19 percent a year in sub-Saharan Africa, and in Ghana, Kenya and Nigeria it’s even faster,” Kuper said . “It’s about finding the sweet spot within the sweet spot within the sweet spot. The potential for returns is remarkable.”
Old Mutual Plc (OML), the insurer that emerged in South Africa and is based in London, set aside 5 billion rand ($460 million) to escalate in Africa after annual figures consistently showed that the company’s best expansion was coming from emerging markets.
‘Most Exciting’
Old Mutual bought a stake in a Kenyan company last year. Sanlam Ltd. (SLM) and units of the U.S.’s Marsh & McLennan Cos. (MMC) have also bought stakes in companies on the continent.
LeapFrog’s investors are using the firm both to generate returns and to gain insight into markets and companies, according to Kuper. As LeapFrog has began exiting investments from its maiden Fund I, investors are able to evaluate an insurer’s risk-adjusted returns while knowing that any risks to their own reputations is low. For that, they pay a LeapFrog premium, Kuper said .
Among LeapFrog’s longest-held and “most exciting” portfolio investments in Africa are AllLife Ltd. in South Africa, ARMLife Plc in Nigeria and Bima, which offers insurance that can be bought on a mobile phone, he said . Having raised Fund II in August, which is oversubscribed at $400 million, LeapFrog plans to begin buying more stakes for amounts among $10 million and $50 million.
African Attraction
The company has invested about $30 million in India’s IFMR Capital, with $370 million earmarked for Africa and Asia. LeapFrog will spend as much as $100 million on investments in South Africa, Kuper said .
The level of insurance penetration for Africa, measured as a percentage of premiums to gross domestic commodity , is 3.5 percent, according to a PricewaterhouseCoopers LLP report released in South Africa on Oct. 21. While this exceeds the emerging markets’ average of 2.7 percent, it’s lower than the average for advanced markets of 8.3 percent, and the global average of 6.3 percent.
In Africa “insurers are intrigued by projections of powerful GDP expansion , low penetration rates and the expected expansion in demand for insurance as affluence increases,” PwC said . “Nigeria is potentially the biggest expansion market in Africa. Kenya is clearly also another market with significant expansion potential.”
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Source: Bloomberg Internet Publication
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