A joint venture between two colossal insurance firms, German outfit Allianz and the Cape Town headquartered Sanlam, will create Africa’s largest insurance juggernaut.
But there is a catch: because of its wide regional footprint, technical supremacy and financial prowess, the JV will eliminate regional growth opportunities for its smaller associates and subsidiaries, especially the Botswana Insurance Holdings Limited (BIHL) Group.
On Wednesday lastweek, the CEO of Botswana Stock Exchange Limited (BSE) Thapelo Tsheole and his team suspended shares of Botswana Insurance Holdings Limited (BIHL) for failure to disclose material information that may affect the BIHL share price on the bourse.
The material information was that a major transaction is happening at Sanlam which directly affects BIHL, and the group omitted to inform its shareholders as obligated to do so by Listings Requirements of the BSE. Sanlam, the largest non-banking financial services company in Africa, and Allianz, one of the world’s leading insurers and asset managers with a century of history in Africa, have agreed to combine their current and future operations across Africa to create the largest pan-African non-banking financial services entity on the continent.
According to a joint announcement by the companies this week, this combination means that customers across Africa will benefit from the expertise and financial strength of two respected and well-known brands. Further, according to the announcement, the joint venture will house the business units of both Sanlam and Allianz in the African countries where one or both companies have a presence. Namibia will be included at a later stage but South Africa is excluded from the agreement.
The combined operations of Sanlam and Allianz will create a premier pan-African non-banking financial services entity operating in 29 countries across the continent. The joint venture will be the largest pan-African insurance player and is expected to be ranked in the top three in most markets where the entity will operate. The entity is expected to have a combined total group equity value (GEV) in excess of R33 billion (approximately 2 billion euros).
Combining Sanlam’s expertise in Africa with Allianz’s global capabilities and insurance solutions, particularly for multinational businesses, the partnership aims to increase life and general insurance penetration, accelerate product innovation and drive financial inclusion in high-growth African markets. For Sanlam and Allianz, it is a great growth opportunity, but not for the BIHL Group here in Botswana. In terms of diversified non-bank financial services in Botswana, the BIHL Group is Botswana’s shining star. Its subsidiaries are market leaders in life insurance, short-term insurance, asset management, as well as legal insurance.
However, the BIHL Group has not been able to multiply this growth regionally and become the pan-African insurance giant it aspires to. Infact, BIHL has the financial resources and technical expertise to launch a successful regional expansion and grow shareholder value, but it just won’t do that because it would step on the toes of its largest shareholder which in other markets is its competitor.
At 58.4 percent, Sanlam is the controlling shareholder in the BIHL Group. The second largest shareholder is the Botswana Public Officers Pension Fund (BPOPF) at 18.4 percent. Sanlam’s acquisition of the controlling stake has always been strategic to tame BIHL which had the potential to expand into Africa and compete with Sanlam directly. What Sanlam wants, according to its strategic direction, is an uncontaminated market.
Immediately after Sanlam’s transaction was announced, The Business Weekly & Review sent questions to Tebogo Keepetsoe, PR & Communications Manager at BIHL to establish what implications the Sanlam transaction could have on BIHL. Further, the inquiry sought to establish BIHL African growth ambitions and whether such ambitions will be achieved or not. Unfortunately, the inquiry had not been responded to by press-time. However, the Sanlam – BIHL marriage has always sparked curiosity at The Business Weekly & Review for years now.
On several occasions, in financial results presentations, The Business Weekly & Review has always expressed curiosity about BIHL’s relationship with Sanlam in a quest to establish whether such a marriage hinders the BIHL Group from exploring regional growth. “Eish! I have to say, the relationship with Sanlam is difficult,” said BIHL Group CEO, Catherine Lesetedi, responding to a question three years ago. She was sitting on the edge of her seat, looking a bit unsettled as she fielded a volley of questions at the Group’s financial results presentation at the time. That she responded thus years ago, bears testimony to the fact that BIHL has been suffocating under the control of Sanlam for years.
At that time, Lesetedi said they have to negotiate whenever they wish to expand into a market where Sanlam operates, despite an existing opportunity to make cash. “When we acquired Nico Holdings (Malawi), we negotiated with Sanlam and the company exited the market but continued to be shareholder in the holding company,” she explained the quandary. “Honestly, we cannot give an impression that we can go into a territory where Sanlam operates.”
This was clearly an uncomfortable question for her but she had to give an honest answer to investors and market analysts, in the process pointing a figure at her Sanlam superiors fully aware that it could unsettle them. Sanlam has been jumping at every opportunity that could see it enlarge its stake in BIHL, looking at the profitability of Botswana’s most diversified financial services firm and its prospects, market analyst have pointed out. It is interesting that both Sanlam and BIHL aspire to remain leading regional financial services providers when one owns the other.
What is not in any doubt is that Sanlam is blocking the growth of BIHL because it does not want direct competition with it. Market watchers believe that the decision is beneficial to Sanlam, South Africa’s most diversified financial services firm, which is the largest shareholder in BIHL, but it hits hard on Botswana shareholders who are unable to see increased dividends because BIHL cannot grow into certain markets.
According to market watchers, in this arrangement, BPOPF and Botswana’s retail investors (who hold 25 percent of BIHL shares as a collective) suffer the most, because while BIHL has the technical expertise and the money to expand to the rest of Africa, it cannot do so because it fears stepping on Sanlam’s toes. The Sanlam Group has a direct presence in more than 11 African countries, as well as in India and Malaysia and niche businesses in certain developed markets. For BIHL to go anywhere close to these markets, it needs Sanlam’s permission, otherwise it cannot even if the smaller shareholders want it to because Sanlam ultimately has the controlling stake.
Yet Sanlam’s new partnership with Allianz will make matters worse for the BIHL Group, according to a number of analysts who spoke to this publication. Allianz’s strategic direction seems to be similar to that of Sanlam. Around 2020, the German insurer concluded a large and strategic partnership with Jubilee Holdings Limited, the largest insurance group in East Africa, which targeted the five African countries where Jubilee Insurance operated. The agreement covered Jubilee’s non-life operations in Kenya, Tanzania and Uganda and its short-term insurance segment in Burundi and Mauritius. Allianz is also muscling its way into North Africa and West Africa, targeting countries like Morocco, Algeria, Egypt, Senegal, Côte d’Ivoire, Nigeria, Cameroon and Gabon.
According to The Africa Report, the chief executive of Allianz Africa, which is part of Allianz Group, Delphine Traoré, is bullish about the region’s prospects. The Africa Report quotes her as saying that with its youthful population, expanding middle class, rampant smartphone adoption and a bigger Diaspora migrating back home, Africa’s insurance market has newly emerging power. One reason for her optimism is the continent’s relatively low insurance penetration rate: it stood at under 3 percent in 2019, compared with the global average penetration rate of above 7 percent. However, Traore has confidence that the prospects for growth are immense, especially for digital insurance platforms, given recent political upheavals, natural disasters and the economic dislocation caused by the fallout from the coronavirus pandemic.
Allianz has more than a century of history in Africa where it has built and is continually expanding its footprint. It is currently present in 12 countries across the continent. Its Joint Venture with Sanlam, according to a number of analysts, will share the same vision, and that is to grow together rather than compete with each other. Both companies seem to be ready to undertake acquisitions, wherever possible, to ensure that they increase market share and eliminate competition. With their Joint Venture operating in more than 29 African countries, and with an appetite and a fat cheque-book, growth prospects for the BIHL Group in Africa and its ambitions to be a leading regional insurer are growing slimmer because the JV will now be BIHL’s new shareholder. As with Sanlam, BIHL will never step on its new shareholder’s toes.