General

Old Mutual’s sale and the future of Nigeria’s investment industry


Nigeria’s economy boasts one of the largest in Africa, but its insurance penetration rate remains rather low at under one percent.

Public awareness of insurance benefits is limited, and Nigeria’s recent economic happenings such as FX instability, subsidy removal, galloping inflation, rising cost of living, under-employment, unemployment, insecurity, and poor healthcare, among others, add further pressure.

Despite this, a growing middle class and rising disposable incomes suggest a potential future boom for the sector. Nigeria’s insurance industry has sustained an uptick trend of positive market performance at the close of 2023, recording a milestone growth to close at N1.003 trillion at the end of the fourth quarter, according to the National Insurance Commission (NAICOM).

This interplay of challenges and opportunities defines the terrain for insurance companies operating in Nigeria, including recent strategic moves by Old Mutual Nigeria. Old Mutual recently decided to sell its life and general insurance businesses in Nigeria. They’re changing their approach to focus on new investment opportunities.

The life and general insurance businesses were sold to Emple Group, a Nigerian investment company with a good track record. This will ensure a smooth transition for these businesses. The current Nigerian leadership team will even stay on, which means things will be familiar to customers.

The life segment contributed 38.7 percent to the insurance market performance, valued at N388.1 billion. The market also recorded retention of about 87.7 percent for the life business, according to data from NAICOM.

Also, the Nigerian insurance sector, despite its low returns on investment, has always been attractive to foreign investors and local buyouts too.

Sanlam, a South African insurance company acquired full ownership of FBN Insurance from FBN Holdings. This follows another acquisition, where Ensure Insurance was bought by the Allianz group, demonstrating a trend of foreign companies entering the Nigerian market. This interest also extends to NSIA, another insurance company, acquired by ADIC Insurance, previously owned by Diamond Bank.

Similarly, Mutual & Federal bought Oceanic Insurance Company, which used to belong to Oceanic Bank. Old Mutual Nigeria also joined the trend, acquiring a majority stake in Oceanic Life Assurance, a subsidiary of Oceanic Bank.

These show that the insurance sector has seen and will continue to see buyouts and foreign investors as in Old Mutual’s present endeavour to sell all of its stake to Emple Group.

Birth of Old Mutual Nigeria

Over a decade ago, Old Mutual plc, a South Africa-based insurance firm, bought Oceanic Life Insurance Limited when it acquired the majority shareholding (70%) of the company.

It branched into the Nigerian market in 2013 and this year marks about eleven years of its operations. Right at the start, its objectives were ambitious but purposeful. As a Pan-African brand, it aimed to build the most valuable business in the industry, which is ambitious but completely aligned with its group strategy

Along the way, it made strategic investments to ensure that the businesses remained on the right footing and were able to successfully compete.

One such move was the simplification of property acquisition in Nigeria. In 2019 Old Mutual General Insurance Company Nigeria Limited entered into a strategic partnership with Afreal Limited to launch an innovative property solution known as Newhomes.ng.

With the partnership, Old Mutual through the newhomes.ng platform provided premium home insurance packages to existing and potential property owners. The insurance benefits include building fire and peril, household goods and personal belongings, burglary, fire insurance, alternative accommodation cost in the event of home loss, personal accident cover and personal liability cover.

In the heat of the COVID-19 pandemic in Nigeria, Old Mutual Nigeria launched an electronic channel to ensure unbroken and convenient access to insurance benefits for its customers. Also, it injected fresh funds in 2021 to meet the industry recapitalisation requirements set by the National Insurance Commission (NAICOM) in 2019 though it was later cancelled.

Another strategic decision of its operation was the launch of its online platform for brokers in 2022, to enable Nigerians access insurance products with ease. Last year, it decided to sell its 100 percent stake to Emple Group hence, taking over its Life and General Insurance businesses, pending regulatory approval.

Old Mutual and strategic shift

Old Mutual’s recent decision to sell its Life and General Insurance businesses in Nigeria is a noteworthy development.

Having entered the market in 2013 with ambitious goals, a review concluded that the short-to-medium-term returns on the Life and General Insurance businesses wouldn’t meet expectations.

Old Mutual Nigeria, at the time of the sale, was contributing profits to the portfolio of the Old Mutual Africa regions.

Old Mutual Ltd, the group company saw an increase in profit by 45 percent in 2023, according to Africa’s biggest insurer by assets the “exceptional growth” in new business drove these gains.

Profit after tax increased to 7.59 billion rand ($406 million) in the 12 months ended December 31 from 5.23 billion rand a year earlier, the company said in a voluntary trading statement.

Following a thorough strategic review of the businesses, and despite its profitability in 2023, they no longer believe that the company can deliver an acceptable return on capital in the short-to-medium-term from its operations in Nigeria.

This, along with a desire to optimise capital allocation, led them to seek new avenues.

The sale to Emple Group, a Nigerian investment firm, ensures a smooth transition and continued growth potential for the divested businesses.

The Emple Group is an investment company managed by experienced Nigerian investors with a proven track record of delivering best-in-class transaction execution across Sub-Saharan Africa as well as growing its investment in the Nigerian market. This is pending regulatory approval.

Importantly, the management mentioned that the current Nigerian leadership team will be retained, fostering stability for employees and customers. Old Mutual had to have assurances of a clear transition plan that would create opportunities for all employees.

In the last year, Olalekan Oyinlade, managing director of the General Insurance business and Olusegun Omosehin, managing director of the Life Assurance business, (who was recently appointed as the Commissioner for Insurance at NAICOM), have worked to turn these businesses into profitable and strong entities, primed for further growth. They will be working closely with the Emple Group team to ensure a smooth transition.

Customers transition

Old Mutual does not foresee any direct impacts on customers as a result of this transaction

The teams that have always served our customers will continue to remain in place, steadfast in their commitment to their financial prosperity and available to address any queries you may have during this transition.

Old Mutual doubles down on infrastructure investment

While exiting the Life and General Insurance space, Old Mutual is not leaving Nigeria. Their wholly owned subsidiary, Africa Infrastructure Investment Managers (AIIM), will continue operations.

AIIM has carved out a niche in infrastructure investment, particularly in renewable energy, midstream gas, and digital infrastructure.

“Old Mutual sees great potential in the infrastructure investment space, and its view is long-term. The company currently has significant investment interests in renewable energy, midstream gas, and the digital infrastructure sector through our various AIIM funds,” the management said.

This targeted approach aligns with Nigeria’s economic priorities and positions Old Mutual to benefit from long-term growth.

According to the International Renewable Energy Agency (IRENA), Nigeria possesses an abundant and untapped source of renewable resources that, if harnessed, can provide up to 60 per cent of the required energy demand by 2050.

The Old Mutual Alternative Investments is one of the largest private alternative investment managers in Africa, with over $ 4.2 billion under management in infrastructure assets, private equity and impact funding, according to its website.

With the conclusion of the takeover of Seven Energy assets in 2019, it owns a piece of a grid-length, natural gas pipeline in Nigeria.

As part of the transaction completion, AIM acquired 20 percent interests in Seven Uquo Gas Limited (SUGL) which in turn holds a 40 percent participating interest in the Uquo field located in Southeast Nigeria and Accugas, a midstream business, comprising the 200MMscf/d Uquo gas processing facility, and a 260kilometre gas pipeline network.

AlIM promptly paid $54m as cash consideration to Savannah for that 20 per cent share.

Old Mutual’s decision to exit insurance for infrastructure investment reflects a potential future trend in Nigeria’s investment environment.

Their focus on sectors like renewable energy aligns with the country’s economic priorities, and other investors might follow suit, seeking higher returns in alternative asset classes.

As Nigeria’s economy continues to grow, so does its energy demand. Research reveals that approximately 71 percent of Nigeria’s population lacks access to energy.

Be known by your own web domain (en)

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *