Insurance giant is withdrawing from India to focus on its African assets as Sanlam and MMI pile in.
Old Mutual CEO Bruce Hemphill wasn’t kidding when he said the emerging markets business was going to refocus on Africa.
This was a radical change of strategy from a pan-emerging markets business with operations in India, China, Mexico and Colombia. But less than two months after the announcement, Old Mutual has sold its 26% holding in India’s Kotak Life Insurance.
On the face of it, it is an honourable retreat bringing in £141m. This is a large premium on the carrying value in Old Mutual’s balance sheet of £45m. Of course, these carrying values are often highly conservative.
But Old Mutual spokesman William Baldwin-Charles says it was a good deal at 3.5 times the book value. There was a ready buyer in Old Mutual’s partner, the Kotak Mahindra group, which is one of India’s largest private-sector banking and financial services groups, and a large car and tractor manufacturer.
As the stake was somewhat illogically owned by Old Mutual Plc in London and not by Old Mutual Emerging Markets (OMEM), none of this cash will go to SA.
The rest of the emerging markets suite is firmly in the OMEM stable, so it will be up to the incoming team of former finance minister Trevor Manuel and the new CEO, former Alexander Forbes boss Peter Moyo, to determine the strategy. They won’t feel compelled to spend much management time to find buyers for the remaining non-African businesses. The businesses in Mexico and Colombia are wholly owned and decently profitable, with their contribution up 29% to R474m in 2016.
Most speculation has centred on the Old Mutual-Guodian business in China, which produced a £2m loss. It has a carrying value of £36m and Old Mutual would probably have to sell its stake in the loss-maker at a discount.
But Guodian might not be as keen to take up the slack as Kotak was and buy Old Mutual out. It has no other interests or experience in financial services, as it is one of the five largest power-generating companies in China. Old Mutual-Guodian is so small in its life that it could probably simply be housed in the bowels of its personnel department — the biggest chunk of clients is Guodian’s 110,000-strong employee base, though it also sells low-margin investment products to bank customers.
Sanlam was never in China, but it has a substantial and growing business in India through its joint ventures with the Shriram Group.
When legislation changed, it increased its holding in Shriram from 26% to 49%. Sanlam CEO Ian Kirk says it was always part of the initial agreement that the company would increase its holding to 49% as soon as it could.
The sales from the Shriram businesses increased by 55%, to R1.34bn; about two-thirds of this is in short-term insurance. And its earnings were R534m, about three times what Kotak Life earned.
Kirk says it is important to take a multibusiness approach to succeed in India. Old Mutual’s relationship with Kotak was confined to life insurance — but, then, Old Mutual is hardly a world beater in short-term insurance. However, Sanlam’s Santam subsidiary is strong enough to be a valuable partner for Shriram General. And Sanlam has also taken a 49% stake in Shriram Transport Finance, a truck and bus insurer.
Kirk says India is a large enough market that it isn’t necessary to be the first or second player. Shriram certainly isn’t as glamorous and high-profile as Kotak Mahindra, yet it has forged an enduring partnership with Sanlam that’s now 13 years old.
A new relationship in India is between MMI and Aditya Birla in health.
Aditya Birla makes Shriram seem like a second-division outfit. It is huge in cement, insurance, asset management and fashion, and it recently swallowed up cellphone giant Vodafone India. Health insurance is one of the few industries in which it hasn’t operated. This gave MMI the opportunity to enter the Indian market for the first time.
Asokan Naidu, head of the MMI Indian liaison office, says the business began trading in November.
There is a separate subsidiary, Aditya Birla Wellness, which drives the Indian equivalent of the Momentum Multiply loyalty programme (which itself has more than a few similarities to Discovery Vitality.) It will take time to build the components that exist in Multiply and Vitality. There is no national gym chain along the lines of Virgin Active in India, for example.
The wellness programme won’t just be about cheap flights and quality leisure time, though, as the programme will also include chronic care management programmes for five lifestyle conditions.
Fortunately for MMI, Discovery has shown no interest in the Indian market.
There is low-hanging fruit in the shape of 9m existing customers of Aditya Birla Financial Services.
Naidu says it will not offer the full Multiply programme at first, but at least enough for a wellness focus to be embedded in the product. He says it will more closely reflect the comprehensive nature of medical aid than the top-up products, such as Bupa or Vitality Health in the UK. But there will be different price options.
“We do not want to be seen as purely a high-net-worth product,” says Naidu.
Unlike SA medical aids, though, Aditya Birla Health is not just an administrator; it can also earn underwriting profits.
The business will focus on the seven tier-one Indian cities that are home to most high-net-worth clients: Mumbai, New Delhi, Pune, Chennai, Bangalore, Kolkata and Hyderabad.
Naidu says health insurance is growing fast in India: there are 27 health insurers and industry revenue increased by 30% last year.
It is late in the day to enter the Indian market, but MMI can still launch a differentiated offering into a market growing much faster
Old Mutual’s decision to leave India isn’t a reflection on the Indian economy or Kotak Life itself. It’s part of the process of returning to Africa and drawing in the wagons.
And Sanlam, which has a much stronger balance sheet than Old Mutual, can stay in India, as it has less to lose and less to prove.