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Despite negativity, Japanese insurer piles into Hollard

Acquires 22.5% of the business for R5 billion.

Japanese insurance group Tokio Marine, one of the largest insurance companies in the world, is to acquire a 22.5% stake in the Hollard Insurance Group for R5 billion, one of the largest single inward investments in the country in years.

The deal covers Hollard’s South African operation as well as its international business which operates in China, India and Indonesia, and 10 African countries, excluding SA.

“We see this as a milestone in the development of the group,” CEO Saks Ntombela told Moneyweb. “Our brief is to build an emerging markets insurance and financial services business. While we are expanding our footprint, about 18 months ago we started looking for an international partner that can provide us with the capital and access to global best practice necessary to accelerate that international expansion.”

Tokio Marine is listed on the Japanese Stock Exchange and has a market cap of $35.9 billion, or R549 billion, which is equivalent to the likes of BHP Billiton. It operates across 38 countries and is listed at #190 in the Forbes list of top companies, turning over R720 billion in its last financial year.

This somewhat dwarfs Hollard, which is no slouch in its own markets. Hollard South Africa and Hollard International wrote a combined premium income in excess of R25 billion in the year to June 2018 across short-term and life insurance operations in South Africa, Botswana, Ghana, Lesotho, Mozambique, Namibia, Zambia, Indonesia, and China.

Hollard SA houses the second-largest short-term insurer in South Africa (after Santam), and Hollard International includes the largest short-term insurer in Botswana and the second-largest in Namibia. 

The deal satisfies needs for both companies. Ntombela says he is eyeing Tokio for its skills in predictive analytics, robotics, risk management, underwriting, and Insurtech innovations, among others. “This partnership will sharpen the competitive edge of our existing South African and international operations,” he says.

Hollard is a strong brand in South Africa, but it doesn’t have a strong distribution channel in life insurance and no big direct insurance business in short-term. “This means it is behind its peers from that perspective,” says Rahima Cassim, fund manager at Ashburton Investments. “Given the access to technology and best practices that the deal promises, it makes sense.”

From a financial industry perspective, the deal is not that unusual. Earlier this year Sompo Japan Nipponkoa Insurance (SJNK) extended its partnership with Sanlam Emerging Markets, Santam and Morocco-based Saham Finances (which Sanlam has recently acquired) to provide life and general insurance support to its corporate clients across Africa. SJNK is the second largest insurer in Japan.

Beyond that, in 2016 Swiss-based insurer Zurich announced that its operations in South Africa and Botswana (now called Bryte) had been acquired by Canada-based Fairfax.

“It is the size of this deal that sets it apart,” says Cassim. “This is a big FDI [foreign direct investment] deal and it is unusual for an international insurer to take such a large stake in an SA company.” In addition, she says, the Hollard business (like the Discovery business) is built around partnerships. While Hollard has had a relationship with Tokio Marine before, this is an outright sale of the Enthovens’ stake [the controlling shareholder]. So from that perspective, it really is a very interesting deal.”

According to a report from Sanlam the size of the insurance market in Africa in 2017 was $20 billion, with only 1% of the total global market. This means that despite a compound annual growth rate of 3.2%, there remains considerable scope for the development of what is still a small and young market

“Africa has become an interesting opportunity,” adds Adrian Cloete, a portfolio manager at PSG. “While other opportunities will no doubt be explored by the two companies, a starting point is for Tokio Marine to support the African operations of its Japanese customers. Hopefully, this is not just a passive investment on the part of Tokio, because these partnerships can be very fruitful.”

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COMMENTS   8

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Please?? What a crock. The world watches what is happening here and you write articles that contradict what is really happening. In America they call it fake news

Finfit, you just see what you want to see. You now criticise Moneyweb because you don’t want to take off your blindfold. Yes, there are problems in SA, but maybe you should appreciate the fact that international firms are willing to invest in South Africa.

judging by how many upvotes you’ve received, I think SA’ns are desperate for good news like this.

Yes Sasha, shame on you for reporting anything positive about South Africa. Especially news that is based on facts showing objective third parties making well considered and researched decisions about investing in South African companies.

You are upsetting the naysayers that build their bubble of negativity on bad news.

You are hereby sentenced to attend a braai in Perth/Toronto/London/Auckland (pick one) where conversations will reset your reporting-about-South-Africa-compass from objective and fact based to subjective and myopic.

They do see the value and they also need to deploy super-profits before tax.

A foreign insurance company sees a nation filled with anxiety and financially illiterate people. Of course they see value.

” …its international business which operates in China, India and Indonesia, and 10 African countries” – that’s what they are buying and they are paying for that international book in ZAR, that’s why the deal was done. The SA book would have been discounted to zero, for that particular sum (and most others sadly)

Nothing depresses a South African like a good South African story.

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