South African insurance companies are not seeing a lot of growth in their home market. The weak economic environment and restrained household spending mean that there’s not a great deal to get excited about.
All of the big South African players do however remain fairly cash generative, with strong balance sheets. It therefore makes sense for them to look for higher growth areas in which to deploy that capital.
Most of them have shown an appetite for expansion into the rest of Africa. Nigeria, Ghana and Kenya in particular have markets with very low penetration and high growth that are rapidly becoming more sophisticated.
What this illustrates is that the operating environment in many countries on the continent remains tricky. While the potential is unquestionable, returns can be unpredictable.
MMI Holdings has decided to scale back on its African operations.
“It’s not to say we are no longer keen to be a player across Africa, but we are being far more selective,” says CEO Nicolaas Kruger. “In some areas where there is great potential, we are still keen to be a long-term player.”
The company’s focus has instead turned to India. In November last year it announced a joint venture with the Aditya Birla Financial Services Group through which it would be selling health insurance.
“While the rest of Africa is still a focus, we decided that we should look outside and came to the conclusion that from a size of population and size of opportunity point of view, it’s either India or China,” Kruger says. “We decided to focus on India first. It’s easier from a language point of view, but the population size is still very big, economic growth rates are very good, and financial services penetration is very low. Looking at those together, we saw massive potential over time.”
This potential is already being realised. In just a few months, Kruger says that the size of the Indian joint venture has already grown larger than MMI’s healthcare business in South Africa.
“The numbers in India are mind-boggling,” he says. “The total population is more than a billion, so it’s just a totally different scale. In a couple of months we’ve achieved more scale there than we have in South Africa on Momentum Health.”
India’s growing healthcare market
Any healthcare insurance business is dependent on the robustness of the underlying healthcare market. A report by the India Brand Equity Foundation (IBEF) in January this year found that private healthcare already accounts for 74% of India’s total healthcare expenditure.
The report also quoted estimates that this market will grow at a compound annual growth rate of 22.87% between 2015 and 2020. The expected value of the market at that date is $280 billion.
“The demand for healthcare is going to grow in line with economic growth rates, and as the populating becomes more affluent,” says Kruger. “We think the growth potential is going to be enormous.”
The IBEF report also found that large private sector investments will drive infrastructure development in the country’s healthcare sector. All of this supports the market for insurance products.
“The Indian market is far less developed than in SA, and healthcare insurance penetration is still extremely low,” says Kruger. “There is a lot more work to be done to develop the need and obviously the infrastructure in the country has to be developed as well, with more hospitals and so on, but just from a size of the population point of view it’s very exciting.”
MMI was formed from the merger of Metropolitan and Momentum, sizable insurance-based financial services players in South Africa. With market capitalisation of R26.7bn and an embedded value of some R31.1bn, MMI was already the third largest life insurer in South Africa when it listed on the JSE Stock Exchange on 1 December 2010.
The core businesses of MMI are long and short-term insurance, asset management, savings, investment, healthcare administration, health risk management, employee benefits, and rewards programmes. MMI conducts its business through operating brands Metropolitan, Momentum, Guardrisk, and Eris Properties.