Less than two years after independence, South Sudan is attracting the attention of insurance companies in east Africa. And it’s not the region’s only new frontier. CIC Insurance Group of Kenya is ready to expand in the country and into neighbouring Uganda.
Next year, CIC has its sights on Tanzania and Malawi, Joel Gatune, the insurer’s finance and investments manager, tells beyondbrics. “For us, we believe sustained growth is in micro-insurance,” he says. “We’ve come up with a micro-insurance blueprint.”
In Kenya, insurance penetration rates are low, at just 3.1 per cent at the end of 2012 – still the highest rate in east Africa, though less than South Africa where 11 out of every 100 people have insurance cover.
CIC has tapped into that market by selling micro-insurance products designed for people on low incomes. Its current offerings in this sector are a simple savings account with basic life cover using mobile money, life and injury cover for security guards, theft, fraud and liability cover for shops using the M-Pesa payments system, business cover for small enterprises, sold through micro-finance institutions, and property and life cover for low-income families.
CIC began life in 1968 as an insurance agency within the Kenya National Federation of Co-operatives and was spun of as Co-operative Insurance Services Limited in 1978, serving the cooperative movement. In 2010 it became CIC Insurance Group Limited and split its business into three subsidiaries, CIC Life Assurance, CIC General Insurance and CIC Asset Management. It is still close to the cooperative movement and the Cooperative Bank of Kenya retains a 26.5 per cent stake.
It listed on the Nairobi Securities Exchange last October 1 when it began trading at 3.90 shillings (4.65 US cents); it has since risen to about 5.45 shillings. Last month, CIC reported a 110 per cent rise in pre-tax profit to 1.65bn shillings for 2012, from Sh787m the previous year. It said profits rose on the back of a 34 per cent increase in gross premiums to 9bn shillings, which it attributed to acquisition of new business, and a 169 per cent climb in investment income to 1.4bn shillings.
Analysts say premium growth has also come by way of referrals from the Cooperative Bank, which reduces CIC’s reliance on introductions through brokers and gives it a corresponding lower cost of commissions to intermediaries. According to NIC Securities, CIC has the second lowest distribution costs among Kenya’s listed insurers.
CIC is seeking to duplicate this business model in South Sudan and Uganda. For the South Sudanese market, it plans to create a subsidiary that would acquire 69 per cent of issued capital in a new local entity, with the Cooperative Bank of South Sudan taking the remaining 31 per cent. In Uganda, CIC aims to enter partnership with the Uganda Cooperatives Savings and Credit Union to establish an insurance company in which CIC would have a 40 per cent holding.
“The cooperative model provides a competitive advantage for us. The majority of South Sudan’s population has low disposable income,” says Gatune.
“We’ll concentrate on products with high uptake level,” he says. In South Sudan, CIC will sell unbundled fire, motor, construction risk, theft, and money insurance. “Separately, we’ll sell bundled life insurance: medical, personal, accident, and life.”
The landlocked country in east-central Africa is “a blue ocean with a lot of potential” for CIC’s strategy, says Augustine Misoka, a research analyst at Nairobi-based Sterling Capital who has a buy rating on the insurer. “There will be a big play in that market with the relationship they’re creating with cooperatives, meaning they’re better placed to fight off the competition.”
In South Sudan, CIC would be well-placed to gain initial exposure through the loan market, says Brenda Kithingi, an insurance sector analyst at Standard Investment Bank in Nairobi; every loan has insurance embedded in the case of borrower default.
The world’s newest country doesn’t yet have mature insurance structures; but then, 10 years ago Kenya had no insurance regulator and the market was “very messy,” says Kithingi. “Micro-insurance will be big in South Sudan.”
But micro-insurance claims can be high and CIC’s claims are above the sector average – they rose 47 per cent to 4.6bn shillings in 2012. Gatune attributes the scale of CIC’s claims expenses to “huge claims in life insurance and our experience from medical insurance has also not been good.” He says the company has begun to resolve these issues.
The insurer has also sought to diversify its investments, putting over 1bn shillings into real estate over the last two years as it seeks to boost revenue from one of Kenya’s fastest growing sectors.
Despite her positive view of CIC’s prospects, Kithingi says its shares are overpriced. The insurer is trading at a price equal to 13 times projected earnings, rather more than its peers British-American Investments Company (Kenya), trading at 10.8 times projected earnings, and Pan Africa Insurance Holdings, at 5 times.
Nor is CIC alone in its overseas expansion. UAP, another Nairobi-headquartered peer, is the second largest insurer in Uganda and was the first foreign insurer in southern Sudan, according to its website. BritAm last March also announced its move to South Sudan, as did CFC Bank and Cooperative Bank, less than a year after the world’s newest country gained independence.
Kithingi says CIC’s premium growth doesn’t justify its rich price. Moreover, she says, if CIC is to maintain growth at the same rate, “they will have to increase their capital base. They will have to come to the market to ask for equity, and that will lower return on equity.”
CIC must hope that its ties with the cooperative movement and its micro-insurance strategy will win it strong footing. As for CIC’s further expansion plans, Tanzania will establish a Cooperative Bank this July and Malawi has a Union of Savings and Credit Cooperatives that’s been in place since 1980.
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