The insurance sector in Africa is relatively undeveloped, but a new London-headquartered reinsurance company is set to underpin the continent’s industry by covering some of the risk insured by African institutions. Stephen Williams reports.
When two South African-born brothers, Andrew and Robert Lewis, sold their African insurance business, Global Alliance, to the Barclays Group in Mozambique, they might have taken early retirement, bought a couple of yachts and a desert island and settled into a life of ease. Instead, they each invested $25m and set up a reinsurance company to serve local and international clients, bringing together global capacity and African knowledge.
Although they are sixth-generation South Africans, the brothers opted to place the headquarters of their new business, OneRe, in London. The pull of the global hub for the international insurance industry was stronger than to familiar Johannesburg, or Mauritius with its easy tax regime.
Meeting with OneRe’s chief executive, Andrew Lewis, New African learnt more about the beginnings of the new company which, at the beginning of the year, acquired regulatory approval from both the Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority, the first reinsurer approved under Britain’s new system of financial regulation.
OneRe is based on the experience of an antecedent company, Global Alliance. As Lewis explained, they “had three insurance licences for Global Alliance, one each in Ghana, Angola and Mozambique. The business wrote all classes of insurance including life insurance but our main focus was cover for global investor companies in Africa, many of the very large brands that have invested in a range of sectors from the energy side, right the way through to the brewers, to the construction companies and various others.”
Perhaps predictably, Lewis preferred not to be drawn on naming the brands and the companies that Global Alliance was writing insurance for, but gave every indication that it was focused on the top tier of corporates.
“I would say, of the top 100 companies operating in those territories, we did business with about 80% of them. The business was very good for us and we became one of the biggest insurance companies in Mozambique and certainly the largest private insurance company in Angola. We were constrained in Angola because the country’s oil companies’ business was always controlled by state insurance companies.
“However, I would say that both markets are very fast-growing, and we did exceptionally well. Then, in 2010, we were approached by Barclays. They were looking to expand their bank insurance offerings, and they made an offer which we accepted.
“We took the view that we were in our mid-40s and had a bit of money and Africa was the place to be. We certainly saw Africa as a fast-growing environment and unchartered territory for any decent insurance grouping and so we formed OneRe, decided to base ourselves in London, one of the prime gateways into Africa, and started the regulatory process to establish a reinsurance business.”
You might describe reinsurance as a business that hedges the business of insurance companies, taking over some of their risk. OneRe’s business model is to choose one company to do business with in any one country, and they have identified 38 African markets that they want to enter. In fact, Lewis was travelling just a few days after we met for talks in East Africa.
But going back to successfully establishing OneRe, Lewis said that it took some time. “We had to convince the regulators that we really knew what was going on in Africa. Remember, they never really had any exposure to Africa’s insurance business. They finally approved us. We were the first in the UK.”
Regulatory approval was a giant stride as, Lewis says, the UK insurance regulatory standards are probably the highest in the world. So much so that it gave OneRe a certain amount of credibility with a lot of African regulators who could see that OneRe had passed the due diligence tests of the UK authorities – and they are consequently happy to see them set up business in their countries.
“Africa was sort of neglected by the world for a long time. All of a sudden as the mining and resource boom took place, a lot of large multinationals poured in there, and as a result many of the global carriers of all those risks had to make a plan to also get in there. In some cases, not all, it was just thought it would be adequate to just put them within some global programme, thinking that the risk will be obscured, nobody would ever know.
“As a result of that, regulators have noticed what we did, we have not seen insurance companies grow at the same level as the mining houses or African banks. The money has just disappeared abroad. We are now convincing the local regulators that, if anything, we want to support the local markets to make sure there is a lot more insurance business retained locally.
“In addition to that, we want to be the eyes and ears internationally for Africa that ensures that if you place business internationally, allow it to be placed through a system that is the legal and moral way of doing things.”
In simple terms, OneRe is providing local insurance with the capacity to insure large risk. As Lewis explained it: “If we typically take a large oil refinery, the risks involved run into almost billions of dollars. Generally in Africa, the local markets are worth $200m to $300m – that is generally what the markets are worth.
“But the risk of exposure just in one oil platform runs into billions of dollars, so it’s just a lot of money to take, so we take on some of that risk and if anything does go wrong, we are in a situation to make sure that the local markets are able to meet their obligations. That is, essentially, what reinsurance is all about.”
In this way, Lewis says, local insurance companies in Africa can write any amount of business without exceeding what would be a responsible amount of exposure as the risk is “reinsured” with OneRe. And OneRe in turn can take that risk and reinsure on international markets to ensure adequate cover is provided.
“A lot of the big international brokers here in London now know us, and now the plan is in the next six to eight months to visit 38 countries and meet and present to the local players, and we’ll interview and enter partnerships with one company, or what we call cedant, in each market. You know, on paper they may look perfect, but insurance and reinsurance is a very personal thing; it is always best to meet face-to-face.
“I should also mention that we will assist our cedant partners with credit ratings. A lot of African insurance companies have never gone through the process of obtaining a credit rating, and it’s quite intimidating as the agency will go through every aspect of your business, asking very difficult questions,” Lewis adds.
Lewis says the rationale for only selecting one cedant company in each country is about “locking in” that company, offering computer systems, a lot of the expertise that OneRe built up over the years; assistance with processing claims if a calamity should befall one of the insured parties; and a full-time training officer able to visit each company in rotation on a regular basis.