Globus, Jubilee tie up to boost pan-African insurance

While expansion has traditionally focused on the neighbouring countries of Uganda, Rwanda and South Sudan, in the first half of 2014, Kenya’s insurance companies began moving into central Africa.

In February, Britam acquired a 99% shareholding in Real Insurance, which has a presence in Malawi, Tanzania and Mozambique, and a month later, CIC Insurance Group partnered with Malawi’s national cooperatives body to provide general insurance to its micro segment.

Jubilee, however, has indicated a preference for West Africa in its expansion plans, and in an August interview with Kenya’s Business Daily, its Group Chairman, Nizar Juma, spoke of how it will likely use the greenfield option to enter the region. He added that Jubilee intended to harness business ventures that the Aga Khan Development Network, its parent network, had already entered into.

The increased interest in the West African market by Kenyan insurers comes a year after Kenya Reinsurance converted its West African satellite office in Abidjan into a full subsidiary.

Jubilee is also expected to acquire mid-sized companies focused on the medical segment in Burundi, Rwanda and South Sudan, which is where the insurer’s core efficiencies lie.

Investment analyst Genghis Capital says expansion by insurance companies has been characterised by M&A rather than greenfield operations, and that regulatory changes have prompted smaller players to embrace vertical or horizontal integration, making them easy fodder for larger players who are searching for viable acquisition targets.

As such, the last 12 months in Kenya have been characterised by various acquisitions including South Africa’s Sanlam acquiring Pan Africa Insurance and UAP holdings bagging Tanzania’s Century Insurance.

Strong profit margins
Geographical expansion by Kenyan insurers has been complemented by the introduction of new product lines including crop and livestock products, micro insurance and takaful (Shariah-compliant insurance).

Innovation by Liberty Kenya, for instance, whose parent company operates in 11 other countries across Southern, Eastern and Western Africa, has been lauded for its micro-insurance products and effective use of bancassurance as a distribution channel.

Such strategies have enhanced the core business of many local insurance companies, and the result has been a surge in industry premiums.

In August, Jubilee announced a 35.6% increase in its half-year net profit to KSh1.545bn ($17m) in 2014. Other companies announced similar increases in their half-year profits. The industry as a whole grew by 20.4% in 2013 with gross written premiums increasing to KSh130.65bn ($1.47bn), according to AKI in an August report.

The same report, drawing on a study by Swiss Re, underlines how the rise in premiums has earned Kenya the distinction of the highest growth-rate percentage in Africa and the second-highest in the world.

Strong financial results have been mirrored by a favourable performance on the stock exchange where all six listed insurance companies boast attractive share prices. Jubilee had a share price of KSh428 ($5) on 18th September, one of the highest on the bourse, and in 2013, three of the five best-performing stocks came from the insurance sector.

Major investment groups, such as Sterling Capital and Genghis Capital, predict a period of continued strong growth as new insurance products zero in on specific markets, bancassurance platforms are formalised and the value of investment property appreciates.