Extract from KPMG’s Insurance M&A report for Africa, including country by country analysis
Key trends impacting the insurance sector in Africa
Overview
■ We expect to see an increasing level of M&A activity as new investors are attracted to the continent and there is an uptick of inter regional activity, particularly from South Africa
■ Macro economic and demographic trends continue to support the underlying investment thesis, combined with low insurance penetration levels and a developing sector
■ High growth potential exists in a number of markets but we expect sub-Saharan Africa to be particularly attractive over the next 5-10 years, with an active M&A environment as insurers look to capitalize on the opportunities.
Development of the industry
■ Many markets in Africa are experiencing a step forward in terms of the sophistication of the insurance market. However, in comparison to other global high growth markets, there are still significant areas requiring development
■ We believe positive influencers for the industry are:
– an active regulatory agenda and reform (leveraging the IAIS Insurance Core Principles)
– increasing collaboration between regulators to show best practice and agree common framework for future reform (e.g. CIMA and EAC)
– development of bancassurance model in some countries which will encourage growth of the life insurance market – innovation, in terms of new products and developing direct capability, leveraging mobile technology (opportunity to leapfrog more mature markets)
– strong approach taken in many markets to improve poor market practice (e.g. payment of premiums by agents) which will help reduce fraud and improve compliance standards
– commercial insurers will benefit from the continued development of the oil sector and growth of related and other infrastructure
– continued focus on micro insurance which will help improve education and awareness (currently a major barrier, with insurance lagging behind the banking sector).
Challenges in undertaking transactions
■ We highlight that the challenges in undertaking transactions should not be underestimated and potential investors should expect to face lengthy and delayed processes with potentially unexpected developments
■ Investing in the relationship and building a consensus view of the transaction structure and perimeter, valuation expectations and need for detailed due diligence is recommended.
Key trends impacting business models in Africa
Products and markets■ Non life products tend to dominate given the savings market is still in its infancy in many countries
■ Overall penetration remain very low, highlighting the opportunity
■ Livestockandagribusinessgainingtractionin rural areas
■ Significant opportunities remain in commercial lines (oil, real estate, infrastructure, shipping, etc) driven by GDP growth and regional/ global expansion of corporates
Distribution and operations
■ Distribution varies across countries:
– brokers and agents are typically an important channel;
– bancassurance is at an early stage of development (and will be key in increasing penetration in both the non life and life markets); and
– direct is important and growing (particularly leveraging mobile technology and associating insurance with local “trusted” brands)
Governance and people
■ High incidences of fraud provide opportunities to improve claims management.
■ WeakITenvironmentandpoordata quality
■ Shortage of talent with deep insurance experience.
■ Governance and transparency is being improved in some markets, particularly around agency management
■ JVs are difficult to operationalise – few players operate truly jointly.
Regulation and capital management
■ Evolving regulatory environment with modernization of regulatory framework, such as ICPs, RBC, IFRS.
■ Customer protection is of increasing importance.
■ Immature local capital markets provide limited “local” investment opportunities for insurers.
Snapshot of Africa premium volume, penetration rate and growth outlook
