Africa’s largest insurer, Sanlam, has agreed to form a joint venture (JV) with Europe’s largest insurer, Allianz, that will pool most of their businesses on the continent and create a financial services partnership worth more than R33bn.
The JV, a partnership where operations are combined but companies retain their identities, will operate in 29 countries, excluding SA, for at least a decade. The resulting platform is expected to be ranked in the top three insurers in most of the markets where it will operate, Sanlam said.
The deal comes as the insurance industry scrambles to adapt to the disruption caused by the rapid advance of fintech that has enabled the likes of mobile operators to gain a foothold in sector.
According to management consultant firm McKinsey & Co. investment in insurance technology firms reached $14.6bn (R231bn) in 2021 from $1bn in 2004, a trend that is forcing traditional insurers to make huge investments or form partnerships to keep up with competitors who may be offering a digitally-enhanced and cheaper alternative.
The combination of Sanlam’s expertise in Africa with Munich-based Allianz’s global capabilities and insurance offerings will will provide greater economies of scale, broader geographic presence and diversification, a bigger combined market share and a more diversified product offering, CEO Paul Hanratty said during a call with analysts on Wednesday.
The JV would encompass “half of Africa”, a continent which is poised for rapid economic growth, including estimates of 4% growth in 2022, with urbanisation expected to rise 45% by 2025, said Hanratty.
“We believe the African insurance market is poised to grow twice as fast as North America and three times faster than Europe over the next five years,” he said.
Sanlam said the tie-up would give the group financial “firepower,” for acquisitions, and for entry to markets where regulators have considerable capitalisation requirements.
Another benefit was that Sanlam’s credit rating can't exceed that of SA's sovereign grading, and the partnership would now have the best rating possible, Hanratty said.
Sanlam was established in 1918 as a life insurance company but has since become a diversified financial services provider. It revised its strategy in 2020, seeking to strengthen its operations in SA and the rest of Africa. It will hold 60% of the joint venture initially, with Allianz being given the option to up its stake to as much as 49%.
Benguela Global Fund Managers head of research Rella Suskin said the most positive outcome of the JV would be scale, a key factor for success in African markets, with insurers needing to reach millions of people in a cost-effective manner.
“In addition to knowledge and expertise sharing, the overlap in country presence could result in synergies or cost savings — perhaps through distribution platforms or combining offices,” she said.
“We believe this can be one of the key factors to unlocking Sanlam’s desired returns in their African business in line with their positive long-term view of the region,” said Suskin.
Sanlam has life and general insurance, as well as investment management operations in more than 30 countries, including Morocco, Ivory Coast, Nigeria and Botswana. Allianz’s insurance portfolio spans 11 countries, excluding SA, but including operations in Egypt, Kenya, Cameroon and Uganda.
Sanlam Emerging Markets, which includes its rest-of-Africa operations, contributed almost a quarter of the group’s operating earnings of R9.47bn for its year to end-December.
The chair of the joint venture partnership will rotate every two years between Sanlam and Allianz.
Allianz operates in more than 70 countries and manages about €809bn (R13.5-trillion) on behalf of its insurance customers.
It has 155,000 employees, about 2,600 of whom are in Africa, where it has operated since 1912, which accounts for 1.6% of its 126-million customers.
Sanlam’s shares closed at R64.46 on Wednesday, down 0.06% on the day. The stock has gained 8.5% in the year to date, and a similar amount over the past two years. Over the same periods the JSE’s life insurance index has risen 1.7% and 14.5% respectively.
Update: May 4 2022
This article has been updated with additional information.
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