Insurance in Africa, an attractive market

In fact, Africa has come under the spotlights since the end of the 2008 financial crisis. The mergers and acquisitions that timidly started in insurance in the early 2000s suddenly picked up in 2012, with all indications that 2015 will see an acceleration of this trend. The African market is currently undergoing substantial mutations. This is confirmed by the entry into the market in late February 2015 of Axa, one of the world’s insurance leaders in the capital of Africa Re, the first African reinsurer.

Africa, the hunting ground of historical actors (Axa, Swiss Re, Allianz, AIG), of regional groups (Saham, Old Mutual, Sanlam, NSIA, SUNU), and also of investors on all sides is now standing as a strategic goal for large and small players.

Africa, huge growth potential

This growing interest in Africa may be accounted for by:

• regulatory reforms undertaken since 2011 by various insurance regulatory authorities that have contributed to the improvement of the business climate. According to A.M. Best, between June 2011 and June 2012, 28 of the 46 governments in sub-Saharan Africa implemented at least one reform,
• the strong economic activity,
• the growth potential of key markets such as Nigeria, Kenya, Ghana, Egypt, Morocco, Ethiopia, Angola,
• the low rate of insurance penetration in all African countries with the exception of South Africa. This rate stands at less than 1% in sub-Saharan Africa while on average it is set at 6.8% in Europe and at 5.4% in Asia,
• an expected increase in demand for insurance due to the rapid development of the middle class and to the improvement of purchasing power,
• a significant under insurance of corporate risks,
• GDP growth which often ranges between 5 and 10%. By way of comparison, in 2014 GDP growth was of 2.3% in Germany, 1.1% in France, 1.1% in Italy and 0.20% in Switzerland.

The status of merger and acquisition transactions on the continent

The novelty is that investment in Africa is no longer originating from only economically developed countries but most importantly from within the continent with South Africa and Morocco in the lead. There are therefore two types of investments: those achieved by regional actors and those involving foreign groups to Africa.

Transactions involving non-African foreign insurers

These are essentially operations realized by investors from mature insurance countries in Europe and the United States. In search of new sources of growth, these actors are increasingly attracted by Africa.

Port Louis, Mauritius © Thierry [6], CC BY-SA 3.0 [7]

Based on targeted investments, their strategy favors “portal” countries, that is to say, the countries from which they can successfully start and then embark on other operations. Abidjan, Nairobi, Lagos, Casablanca and Mauritius marketplaces may be considered as launching sites for this type of investors.

Among the major global insurers and reinsurers that have recently made acquisitions on the continent, we can mention Axa, AIG, Swiss Re and Prudential.

After retiring, in the 90s from several countries, considered back then as non-strategic, Axa is making an outstanding comeback in Africa.

Currently present in seven French-speaking countries including Algeria and Morocco, Axa has resumed its expansion strategy. In late February 2015, with a 7.15% stake, the French insurer entered the capital of Africa Re, based in Lagos. Another recent transaction: Axa acquired, in December 2014, a majority stake in Nigerian Mansard for an amount of 270 million USD.

Focused in recent years on Asia and Latin America, the French group is no longer hiding its African ambitions, exhibiting interest even in Kenyan and Ghanaian markets.

AIG is also changing course with the recent opening of a representation office in Morocco. It is from this new entity that the American giant intends to pursue its growth in North and West Africa.

Already present in Egypt, Kenya, South Africa and Uganda, AIG has also invested in LeapFrog, one of the largest investment funds in insurance, based in Mauritius.

Swiss Re has, on its part, acquired equity shares previously held by the same fund LeapFrog in the Kenyan insurer Apollo. With this acquisition, the Swiss reinsurer is now present in three countries of East Africa: Kenya, Uganda and Tanzania.

Finally, regarding Prudential, it takes control of the Ghanaian life insurer Express Life. In September 2014, it was the turn of the Kenyan Shield Assurance to be taken over by the British group which recently announced its intention to replicate its Asian success story in Africa.

The BRICS

The interest of Indian investors in Africa dates back to decades. With their British counterparts, Indian insurers have actively participated in the establishment of the East African markets, especially in Kenya with Kenindia and Jubilee, in Tanzania and in Uganda.

Today, India continues its operations on the African continent through General Insurance Corporation of India (GIC Re) which owns equity capital in new companies including East Africa Re, based in Nairobi, Kenya. Broker J.B. Boda, headquartered in Mumbai, and operating in 28 African countries, has, on its part, opened an office in Nairobi.

Alongside this historic Indian presence, we note the recent arrival of Brazil with an 8% stake invested by IBR-Brasil Re in the capital of Africa Re.

Very active in the field of construction and infrastructure, Chinese investors do not detain, for the time being, any stakes in an insurance entity in Africa. Chinese manufacturers are settling with fronting operations designed to repatriate back home insurance premiums generated by their activities.

Investment funds

Together with the International Finance Corporation (IFC), a subsidiary of the World Bank, traditionally present in Africa, new players have entered the market: investment funds.

In search of growth opportunities, these funds are currently very active in Africa where many insurance companies call on their services to undertake either an upgrade or a consolidation of their shareholder’s equity or for the development of their activities.

Wendel, French equity fund, present in telecommunications and insurance, plans to invest 3 billion USD over a four-year period in Africa.
As a reminder, Wendel holds a 13.33% stake in Saham (Morocco).

LeapFrog, another fund based in Mauritius, is willing to invest up to 100 million USD in East Africa, South Africa, Ghana and Nigeria. In November 2014, the fund injected 18.7 million USD in Resolution Insurance, Kenya.

Other investment funds are also present on the continent especially in Morocco and Tunisia such as Emerging Capital Partners (ECP) and AfricInvest.

Cross-border transactions

It is mainly from Morocco and South Africa that most cross-border merger and acquisition operations take place.

Faced with competition from foreign investors on the continent, African insurers are trying, on their part, to make their way in this race for size. In search of external growth, they are trying to take advantage of opportunities available in Africa.

South African Sanlam, Old Mutual, Ivorian NSIA, and Moroccan Saham are among the most active continental groups.

Heading south for Morocco

With the acquisition of former group Colina in 2010, Saham has paved the way for Moroccan insurers in Africa. The group currently has a network of life and non life insurance subsidiaries in 20 African countries.

Thanks to the dynamism of their banking network, companies like RMA Watanya and Wafa Assurance get settled, in their turn, outside their borders with the creation of companies or acquisition of stakes in Tunisia, Senegal, Côte d’Ivoire, Cameroon and Togo.

Heading north for South Africans

Having been established for more than a decade in neighboring countries (Namibia, Botswana, Zimbabwe,...) South African insurers are also relying on the emerging markets of East and West Africa to continue their growth with Nigeria, Kenya, Ghana, and Angola being considered as key markets.

The Sanlam/Santam group currently detains equity shares in insurance companies in Namibia, Botswana, Zambia, Malawi, Tanzania, Mozambique, Nigeria and Kenya.

Old Mutual has set aside 386 million USD to its African expansion. The company has recently been established in Ghana and Nigeria, where it has made several acquisitions. These are to be added to the large stakes taken in Namibia, Zimbabwe, Kenya and Malawi.

Main mergers and acquisitions carried out in Africa: from 2013 to February 2015