In the media

Sanlam - the most active insurer in M&A?

03 October 2014
Offers SA investors exposure to 11 different African countries.

Sanlam has taken centre stage this week with the announcement of two transactions; one at home in South Africa with AfroCentric Investment and the other in Kenya, through its emerging markets arm.

The acquisition of a 28.7% stake in the issued share capital of AfroCentric Healthcare Assets, a wholly-owned subsidiary of AfroCentric Investment, will result in Sanlam holding an effective 27% in Medscheme. Medscheme is South Africa’s largest health risk management services provider and the country’s third largest medical scheme administrator.

Sanlam is currently a medical aid administrator for two closed schemes, CAMAF and Malcor. The thinking behind the R594 million deal is that Sanlam and AfroCentric will leverage their combined expertise which will provide further opportunities in the administration and managed healthcare business locally and in the rest of Africa.

According to Sanlam Group CE Dr Johan van Zyl (pictured), “this is a good investment opportunity for Sanlam as Medscheme has the necessary scale and management expertise to bring a medical aid solution to our clients”.

The acquisition by Sanlam Emerging Markets (SEM) of a 40% stake in Ghanaian-listed Enterprise Group (EG) (one of its subsidiaries being Enterprise Insurance) for R240 million, will give the group exposure to an insurance market with a growth rate of 26% pa over the next five years and an insurance penetration rate of just 1.1% (premiums as a percentage of GDP).

EG has four operating companies focused on general insurance, life insurance, pension fund administration and property development. Over the past ten years, Sanlam has built up a strong relationship with EG and already has stakes in Enterprise Life (49%) and Enterprise Trustees (40%). SEM CE Heinie Werth says that this latest “investment diversifies our financial services interests in Ghana to also include general insurance lines like motor and household insurance”.
Taking the lead
Of the JSE-listed insurance companies, Sanlam has arguably been the most active in the M&A arena. It has been taking advantage of the low penetration rates in Africa by buying into existing local insurance companies and then scaling up operations. So far this year Sanlam has closed six deals valued at R2.49 billion, three of which have increased the group’s exposure in Botswana, Rwanda and Ghana at a cost of R589 million. The company now offers South African investors exposure to no fewer than 11 different African countries, providing a range of financial products and services.

For the six months to June 30, Sanlam grew normalised headline earnings 27% to R4.4 billion. Its new business volumes grew 7% to R89 billion. Emerging markets contributed 18% to Sanlam’s operation profit, 11% sourced from Africa (excluding SA) and 7% from India and Malaysia. Sanlam earmarked R3.3 billion for additional acquisitions.

According to an insurance industry analysis released by PwC in March, regulatory change continues to be a significant challenge facing insurers. However what is encouraging is that while insurers in SA are preparing for the implementation of Solvency, Assessment and Management (SAM) in 2016, there is similar regulatory change in other parts of Africa. For example in Kenya, according to the report, the Insurance Regulatory Authority has introduced far-reaching proposals which will affect insurers in the areas of risk management, governance and reporting as well as new capital requirements.

There is evidence that other African countries are adopting similar risk-based regulatory changes and this will assist in aligning the regulatory environment and practices across the continent, resulting in a more stable regional financial services sector.

Source: Money Web