JOHANNESBURG – Global insurance companies are flocking to Africa, where millions of people have started earning enough to afford business cover and protection for their families, said private equity firm LeapFrog Investments.
“We’re at an immense inflection point in history where millions of people in Africa are starting to be able to manage risk, and insurers are providing the tools,” Andrew Kuper, founder of LeapFrog, which specialises in insurance and related financial services for emerging consumers, said by phone from Sydney on October 29.
“We’re seeing increasing commitment from major insurers in terms of check size and sheer numbers.”
American International, the largest commercial insurer in the US, Swiss Re and France’s Axa have all invested in LeapFrog funds.
The firm sold a minority stake in Kenya’s Apollo Investments to Swiss Re on October 8 and last year sold Ghana’s Express Life to Prudential.
LeapFrog generated an internal rate of return of about 80 percent on Express Life, according to Private Equity International.
“Financial services is growing at about 19 percent a year in sub-Saharan Africa, and in Ghana, Kenya and Nigeria it’s even faster,” Kuper said.
“It’s about finding the sweet spot within the sweet spot within the sweet spot. The potential for returns is remarkable.”
Old Mutual, the insurer that originated in South Africa and is based in London, set aside 5 billion rand to expand in Africa after annual figures consistently showed that the company’s best growth was coming from emerging markets.
Old Mutual bought a stake in a Kenyan company last year.
Sanlam and units of the US’s Marsh & McLennan have also bought stakes in companies on the continent.
LeapFrog’s investors are using the firm both to generate returns and to gain insight into markets and companies, according to Kuper.
As LeapFrog has started exiting investments from its maiden Fund I, investors are able to evaluate an insurer’s risk-adjusted returns while knowing that any risks to their own reputations is low.
For that, they pay a LeapFrog premium, Kuper said.
Among LeapFrog’s longest-held and “most exciting” portfolio investments in Africa are AllLife in South Africa, ARMLife in Nigeria and Bima, which offers insurance that can be bought on a mobile phone, he said.
Having raised Fund II in August, which is oversubscribed at $400 million (R4.4 billion), LeapFrog plans to start buying more stakes for amounts between $10 million and $50 million.
The company has invested about $30 million in India’s IFMR Capital, with $370 million earmarked for Africa and Asia.
LeapFrog will spend as much as $100 million on investments in South Africa, Kuper said.
The level of insurance penetration for Africa, measured as a percentage of premiums to gross domestic product, is 3.5 percent, according to a PricewaterhouseCoopers report released in South Africa on October 21.
While this exceeds the emerging markets’ average of 2.7 percent, it’s lower than the average for advanced markets of 8.3 percent, and the global average of 6.3 percent.
In Africa “insurers are attracted by projections of strong GDP growth, low penetration rates and the expected growth in demand for insurance as affluence increases,” PwC said.
“Nigeria is potentially the largest growth market in Africa. Kenya is clearly also another market with significant growth potential.” – Bloomberg News