World Economy

African Insurers in Vogue as Incomes Rise

African Insurers in Vogue as Incomes RiseAfrican Insurers in Vogue as Incomes Rise

A growing middle class in sub-Saharan Africa is enticing European and South African insurers to buy local firms focusing mainly on life insurance and pensions, in the face of mature markets and strong competition at home.

Rapid economic growth in countries such as Ghana, Kenya and Nigeria has increased the number of people with money to spend on insurance to protect their wealth, while regulatory changes are encouraging the growth of domestic savings and pensions, Reuters reported.

Several major companies, including Swiss Re, Prudential and Sanlam, are buying insurers in Africa, with the focus on life and pension products in the more economically advanced sub-Saharan countries.

Notwithstanding the challenges, the race is definitely on. David Hodnett, Barclays Africa’s deputy CEO, told a banking conference in Johannesburg in November: “Every insurer that you look at has probably about five or six suitors.”

A Standard Bank report published in August said while the size of the “middle class” in sub-Saharan Africa may have been overstated in some studies, growth rates were nevertheless dramatic.

Its study of 11 sub-Saharan economies concluded the “middle class” had risen from 4.6 million to 15 million since 2000 and would be over 40 million by 2030, with Africa’s biggest economy Nigeria leading the way.

Insurance penetration, or premiums written as a percentage of gross domestic product, was 11.5 percent in Britain in 2013 but just 0.6 percent in Nigeria. For life insurance, penetration was 8.8 percent versus 0.2 percent, according to Swiss Re data.

Life insurance premium volume in dollar terms rose 18.6 percent last year in Kenya, 13.8 in Angola and 13.5 in Nigeria, compared with a 3.9 percent rise in Britain, the data showed.

“The level of life products and penetration is very low,” said Davinder Sikand, head of Africa at private equity firm Abraaj. “There are a lot of opportunities to develop products to fit the needs of the people.”

  Latest Deals

One of the latest deals was French insurer AXA’s $250 million purchase last month of a majority stake in Nigeria’s Mansard Insurance, which offers life and general insurance.

South Africa-focused companies such as Old Mutual and Liberty are also eager to expand in the life market in sub-Saharan Africa.

LeapFrog Investments, which invests in financial services in emerging markets, launched its second Africa and Asia fund in September while British insurer Prudential has bought life insurers in Kenya and Ghana this year.

Insurance specialists say middle-class and lower middle-class customers in Africa are not as affluent as developed-world middle classes, tend to be harder to reach and can require a larger use of face-to-face agents.

The numbers in the Standard Bank survey are based on households that consume more than $15 a day.