The big insurance story for the week ending 6 May 2022 was the joint venture (JV) announced by two major insurance brands, Allianz and Sanlam. In a media release celebrating the news, the firms declared that their JV would create a premier pan-African non-banking financial services entity operating in 29 countries across the continent. They added that the JV company that would be established to house the affected Africa-focused assets would rank among the top three players in the majority of these countries, with an estimated group equity value (GEV) to exceed ZAR33bn.
Although announced with much fanfare, it will be some time before the various suspensive conditions to the transaction are fulfilled, and finalisation is only expected to occur 12-15 months after the 4 May announcement. We expect the announcement to illicit a few surprised exclamations from our Africa Ahead: the Sustainability Challenge readers, as industry stakeholders consider the impact of a Germany-domiciled multinational insurer expanding its influence in Africa at a time when European reinsurers are drawing criticism for their tough stance on fossil fuels as they transition to net-zero carbon emissions. This zero-tolerance approach makes it difficult for African economies that are heavily dependent on commodities, gas and oil to design and implement a just transition.
The recent headline of an article published on insurancejournal.com, penned by Simon Jessop and Carolyn Cohn, is telling: “Allianz plans to take harder line on insurer fossil fuel industry to meet climate goals“. The article leads with: “Europe’s largest insurer, Allianz, plans to take a harder line on [providing insurance cover to] the oil and gas industry as part of efforts to align its underwriting policies with the world’s climate goal…” How, one wonders, will commodity- and oil-rich countries across Africa achieve their commodity beneficiation and extraction goals if private sector firms are unable to raise finance for their projects and/or place their business risks on cover? We find it unlikely that Allianz will soften its fossil fuels position just because it is a junior partner in a JV, raising questions over how Sanlam – and its non-life insurance subsidiary Santam Limited – will respond.
On a lighter note, this writer is always intrigued by the ownership relationships that are brought to attention during such transactions, given that we seldom think about the corporate shareholders of the leading Africa-based insurance brands we interact with. We will offer some more insights as we unpack the details of the transaction, which is still referred to as a proposed transaction pending the necessary approvals. Let us begin with the nuts and bolts around the two parties to this JV, and the assets they bring to the transaction.
Sanlam is a South African financial services group headquartered in Bellville, Western Cape and recognised as the largest insurance company in Africa. Its listing on the Johannesburg Stock Exchange (JSE) requires that it keeps shareholders updated on any transactions that might affect its share price and / or returns. As such, we can turn to its JSE SENS announcement, published 4 May 2022 under the headline “Creation of a pan-African joint venture between Sanlam and Allianz SE”, for more information. Here, the JV was described as a “definitive agreement in respect of a long-term strategic JV arrangement regarding Sanlam’s operations on the African continent, outside of South Africa”.
As an aside, Africa Ahead wonders when, if ever, South Africa will be considered by leading firms on the continent as being part of Africa, rather than a special case or separate market alongside rest of Africa.
In terms of the JV, Allianz and Sanlam will contribute their respective African operations into a newly incorporated JV company to create a leading pan-African financial services group with an extensive footprint across the African continent. The firms will remain invested in the JV for a period of ten years.
The announcement contained the usual marketing fluff, with Allianz proclaiming its more than 100-year African heritage since 1912. Their comment: “Allianz prides itself in delivering leading international insurance programmes across Africa and is committed to building pan-African leadership in all relevant markets.” Except for gas and oil of course. Sanlam, through its wholly owned subsidiary Sanlam Emerging Markets (SEM) and its associated entities, had life and general insurance and investment management operations in more than 30 countries whereas Allianz’s insurance portfolio spans 11 countries outside of South Africa.
The SENS summarised the assets that each of the firms will contribute to the new structure. The JV company will hold the African assets held by SEM (excluding South Africa, Continental Re and SEM’s Namibian subsidiaries, but including its 90% shareholding in SAN JV) plus all of Allianz’s African assets, including its minority stake in African Reinsurance Corporation (ARC) and its shareholding in Jubilee’s general insurance businesses in Kenya, Uganda and Burundi.
Incidentally, the other 10% shareholding in SAN JV (previously held by Santam) was acquired by Allianz and tossed into the JV pot too. Sanlam will hold a controlling interest in the JV, with an initial shareholding split of 60:40 in its favour, and Allianz will have the option to increase its shareholding to a maximum of 49% in time.
Sanlam also offered some insights into why the transaction mattered, writing: “The proposed transaction will enable [us] to enhance [our] capabilities in existing markets and expand [our] footprint and market leading positions in certain key jurisdictions on the African continent.” Other strategic benefits listed in the SENS are:
- Enabling a strategic partnership with one of the largest financial services groups and insurers in the world, leveraging Allianz’s broad expertise and capabilities
- Accelerating Sanlam’s expansion into high priority countries, further strengthening Sanlam’s position in markets core to Sanlam’s African strategy and optimising the existing pan-African portfolio
- Developing Sanlam’s innovative existing strategic partnerships and enhancing Sanlam’s digitally enabled distribution network across a best-in-class product offering
- Maintaining disciplined capital allocation, maximising value creation for both Sanlam and Allianz and their respective stakeholders
- Jointly with Allianz, benefiting from knowledge sharing, economies of scale, a combined platform as well as potential synergies for the JV and Sanlam.
The executives at the respective firms were (not surprisingly) upbeat. Sanlam Group CEO Paul Hanratty said the proposed JV was “in line with Sanlam’s stated ambition to be a leading pan-African financial services group [and would] enable Sanlam to take a significant step towards realising that ambition”, adding: “The transaction will also strengthen our leadership position in multiple key markets that are core to our Africa strategy, building quality and scale where it matters.”
Member of the board of management of Allianz SE, Christopher Townsend, said: “In accordance with our enterprise strategy to expand our leadership position through scale and new partnership models, Allianz is pleased to accelerate its growth in this important region through a partnership with the undisputed market leader. Sanlam’s capabilities extend our local reach and market penetration, and the joint venture allows us to establish leading positions in key growth markets.”