Liz Boothnews@commercialriskafrica.com

[london]—Following the news that MMi is to buy guardrisk from Alexander Forbes, Fitch Ratings has maintained south Africa-based guardrisk insurance Company limited and guardrisk life limited’s AA(zaf) insurer Financial strength (iFs) rating on Rating watch evolving (Rwe).

Fitch has also maintained guardrisk insurance’s Mauritius-based subsidiary guardrisk international limited PCC’s (gil) international iFs rating of ‘BBB’ on Rwe.

COMPETITION HURDLEthis follows the announcement of the MMi group’s intention to acquire guardrisk for ZAR1.6bn, (Us$156.8m) subject to

regulatory approval by the competition authorities and the relevant regulators. Fitch views guardrisk insurance, guardrisk life and gil as ‘Core’ to the guardrisk group.

Fitch placed guardrisk’s ratings on Rwe on 25 July, 2013, reflecting the uncertainty of future ownership at the time following Alexander Forbes announcing its intentions to invite expressions of interest in guardrisk.

the Rwe will be resolved upon completion of the acquisition by MMi as expected. on acquisition, Fitch would consider guardrisk to be strategically ‘important’ to the MMi group. Fitch believes

guardrisk would benefit from being part of the larger MMi group, including potential cross-selling opportunities. Also, MMi is likely to draw benefits from guardrisk’s strong relationships with corporates and contributing to its overall strategic objective of diversifying its business profile.

Fitch believes that there is limited integration risk given the nature and scale of the acquisition. the MMi group reported total equity of ZAR23.9bn and net earnings of ZAR2.7bn for the year ended 30 June, 2013. the acquisition will be funded from MMi’s existing capital buffer.

Financial services groups, Alexander Forbes and MMi holdings limited (MMi) announced the sale on 4 november and said the conclusion of the transaction is subject to, inter alia, regulatory approvals by the Financial services Board and the competition authorities.

SUCCESSFUL BIDMMi, a Jse-listed financial services group, is the successful bidder from a list of several investors who expressed an interest in acquiring guardrisk, a wholly-owned subsidiary of Alexander Forbes. edward Kieswetter, group Chief executive, Alexander Forbes ltd, said: “the sale of guardrisk was considered in the context of positioning the Alexander Forbes group for growth in its employee benefits, investment

Commercial Risk AFRICAINTERNATIONAL INSURANCE & RISK MANAGEMENT NEWS

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GUARDRISK: Turn To page 2

NOVEMBER 2013www.commercialriskafrica.com

OPINION—LUKAS MÜLLER: having a physical presence in Africa and understanding its differences will help corporates build successful operations ..........................21

BROKERS—RFIB:John Hoggard, of RFIB, talks to CRA about its plans ............................11

Guardrisk purchase by MMI could solve its rating risk

Steve Mbogonews@commercialriskafrica.com

[nairobi]—In east afrIca, beIng Insured Is the new risk. employees in senior management positions in the financial and real estate sectors are stealing company money and assets motivated by the fact that the insurance will repay.

this is one of the findings by deloitte forensic services in a report titled Financial Crimes Survey 2013, Where is the Exposure? released early november.

robert nyamu, director for deloitte forensic services in east africa, said much theft in the two sectors is through

cash. “theft is perpetuated because those involved know that the cash is insured hence giving them the leeway to perpetuate the theft,” said Mr nyamu.

the report found east african banks, insurance companies, the capital markets and real estate companies lost a massive us$30m to fraudsters between October 2012 and October 2013.

Kenya accounted for 45 per cent of this loss. Other focus countries were uganda and tanzania.

the report revealed that top management, which includes chief executive officers, chief operating officers, financial chiefs and heads of departments, are the most responsible

parties in committing economic crimes compared to mid-level management and low-cadre employees.

“they have a more sophisticated way of committing crimes and they can ably cover them up,” said Mr nyamu.

christopher Mulwenga, of continental Insurance brokers in uganda, said the findings that senior management is most responsible for facilitating fraud is worrying.

“these are the people who can undertake the most serious fraud in a company because they have the mandate and the secrets compared to mid-level or junior employees.

Top managers in east Africa responsible for fraud increase

FRAUD: Turn To page 2

NEWS2 Continued from page one

and risk benefits institutional businesses, as well as leveraging off that established client base into three key growth markets: retail (individuals), the public sector and sub saharan Africa. this transaction will further enable us to deliver on our promise of securing the financial wellbeing of our clients—now and into the future.”

nicolaas Kruger, group Ceo of MMi, added: “the acquisition of guardrisk is an important milestone to support our strategic intent to diversify our business to enable further growth. the guardrisk transaction enables MMi to provide a comprehensive and exciting suite of specialist insurance solutions in the alternative risk transfer space to our large corporate clients and brokers. this enhanced product offering will be complementary to the innovative product offering of Momentum employee Benefits.”

herman schoeman, guardrisk Managing Director, who will continue to lead the company along with his current management team, said he is excited about the future prospects of guardrisk under the MMi umbrella. “we have been a leader in the specialised insurance industry since our inception and we look forward to unlocking synergies and providing value enhancing products and services to our current and future clients. our highly experienced employees will also have the opportunity to contribute their unique skill set to MMi.

“we are comfortable that we will extract revenue synergies from the guardrisk transaction, which are expected to enhance MMi’s earnings and grow embedded value over time,” concluded Mr Kruger.n For more on the South African market,

see p22

GUARDRISK:ConTInueD FroM page one

Pan African growth continues as Liberty searches for its life partnerBillie McTernannews@commercialriskafrica.com

[lagos]—It Is cOMpetItIOn time in nigeria as south african financial services group, Liberty holdings, searches for a life insurance partner in the country.

according to thabo dloti, [pictured, right], head of strategy at Liberty holdings and chief executive Officer of Liberty subsidiary stanlib, the group is planning to secure a partnership by the end of the year and is in discussions with two companies having already held talks with six.

the company hopes to find a fitting partner for the group and its parent company, standard bank, by the end of the year but said it will put a special dividend on hold if it does not—preferring instead to use the cash for other areas of growth.

Liberty holdings first entered nigeria in 2009 when it went

into partnership with health maintenance organisation total health trust.

ahead of making any firm acquisitions the group sent nigerian-born samuel Ogbu, who previously led Liberty properties, to lay the groundwork and better understand the nigerian market.

chief executive of the group, bruce hemphill, said that the company could spend r1-2bn (us$98-196m) on its west african expansions, adding that if the cost went up it would have to raise the finance to fund its acquisitions.

OPEN FOR BUSINESSMr hemphill said the group is interested in benefiting from the opportunities available on the continent and is in a good position to provide services to small and medium-sized companies.

In ghana the group has plans to expand its asset management activities through stanlib.

In the last seven years Liberty

has expanded its operations to 14 countries in africa from previously only being present in south africa.

at the same time south african financial services provider Old Mutual has revealed plans to invest us$600mn in expanding its presence in nigeria, ghana and Kenya. the company was recently given the go ahead to acquire Oceanic general insurance business from ecobank in nigeria.

according to the nigerian Insurance commission (naIcOM) insurance in nigeria contributes less than 1% to the country’s gdp, while in south africa it contributes 12%. naIcOM says it is committed to reducing the insurance gap between the two countries.n Meanwhile, first bank nigeria Life assurance (fbn Life) hopes to double its customer base to 200,000 by the second quarter in 2014.

the company said so far it has issued more than 100,000 policies.

fbn Life is the country’s newest life insurance firm and the only one to be newly registered in the last 20 years. according to Valentine Ojumah, head of fbn Life, life insurance penetration in nigeria is 0.5% compared to 2% five years ago.

NEW PRODUCTSIn October the company launched its first family shield cover, a policy for families.

telecoms company Mtn nigeria is now offering its subscribers life insurance from n15 per day. the policy will provide n350,000 worth of insurance. babatunde Osho, chief enterprise solutions Officer, said the new product will help the company reach a larger proportion of the country’s uninsured population as well as provide users with a convenient way to pay for the policy.

this therefore means the risk profile of fraud in corporates in the region just got higher,” he said.

It remains to be seen how insurance companies in east africa will respond to these findings, especially regarding the cost of indemnity cover for senior management.

the deloitte findings have also been corroborated by Kenya’s banking fraud Investigations department (bfId), which revealed companies, and especially banks, are afraid to report fraud perpetuated by their own senior employees because of reputation risk.

the assessment in the financial sector, said Mr nyamu, is that reporting such cases and letting them filter to the public will mean a negative reputation, which will slow winning new customers and withdraw of existing ones.

“the losses arising from negative reputation are in some instances seen as higher than

reporting the crime by the affected banks,” he said.

this lack of reporting has also been cited as a motivator to crime as the perpetuators know they will not be exposed to the public and lack of a legal process to recover the money means they can keep whatever they take.

deloitte noted that the lost money is likely to be significantly understated given that the majority of financial institutions opt not to report financial crimes, which may have a bearing on the perception of their prevalence and impact on the industry.

the report found that about 70 per cent of the financial crimes committed in east africa last year were through cash theft, followed by cheque fraud.

despite these losses, the report found 67 per cent of banks and insurance companies do not have automated systems to monitor and report suspicious transactions, the worst being in the insurance industry where no company was found to have systems to monitor suspicious transactions.

FRAUD:ConTInueD FroM page one

Liz Boothnews@commercialriskafrica.com

[london]—only 4 PeRCent oF it professionals say their enterprises are very prepared to ensure effective governance and privacy of Big Data, according to a global survey conducted by professional association isACA. yet information is currency and enterprises must not only protect and manage it, but also use it to drive business value.

to help enterprises meet this challenge, isACA

has released a new guide based on the CoBit 5 business framework, which helps enterprises govern and manage their information. CoBit 5: enabling information provides readers with three key benefits:1. A comprehensive information model that

includes all aspects of information, including stakeholders, goals and good practices

2. guidance on how to use CoBit 5 to address common information governance issues, such as Big Data and privacy concerns

3. A deep understanding of why information

needs to be governed and managed, along with clear guidance on how to accomplish that “Companies in all industries and all

geographies are struggling with massive volumes of data and increasingly complex compliance requirements,” said steven De haes,

Chair of the publication’s Development team. “when governance structures and processes are in place, enterprises are much more equipped to handle these challenges.”

CoBit 5: enabling information also helps

enterprises deal with three key aspects of Big Data: fraud detection, it predictive analytics and marketing situational awareness.

“At many enterprises, information is spread across multiple isolated silos, repeated in redundant copies scattered throughout the company, and underutilized,” said Mr De haes. “isACA’s goal is to help companies simplify information governance so that they are not only able to handle the information pouring in from a vast number of channels, but also derive value from it.”

Companies must do more to protect big data claims ISACA

3NEWS Emerging markets | Award | In brief

Warning for emerging markets on urban development and natcat riskLiz Boothnews@commercialriskafrica.com

[london]—The rapid growTh in the number of people living in cities and urban landscapes is increasing the world’s susceptibility to natural disasters, according to a report by the institution of Mechanical engineers: Natural disasters: saving lives today, building resilience for tomorrow.

The report has warned the unprecedented influx of people to urban areas across the developing world is leading to a large increase in people living in locations susceptible to natural disasters and the situation is exacerbated by the explosive expansion of informal settlements or ‘slums’. about 180,000 people move to urban areas every day, with 18% of all urban housing being non-permanent or ‘slums’. Urban land development is leading to the degradation or even total destruction of natural barriers like swamps, wetlands and mangroves.

The report called for a much greater focus on preparing people for the possibility of an extreme natural event occurring and building

disaster resilience into communities—as opposed to concentrating largely on reactive relief initiatives in response to disasters after they have occurred. in addition to fewer people being killed or injured, it is estimated every $1 spent on building preparedness and resilience can save as much as $4 in relief, recovery and reconstruction later. This action could also help avoid the consequences of these disasters extending to international markets and supply chains.

ENGINEER LEADERSdr Tim Fox, head of energy and environment at the institution of Mechanical engineers and lead author of the report, said: “There is also the need for engineers to be more involved in the short-term response to natural disasters that have occurred, to help ensure effective decisions are made for the longer term. expensive engineering and architecture isn’t the only solution—significant benefits could be achieved just by ensuring engineers are available to help locate temporary infrastructure such as camps and supplies of water, sanitation and energy, as

well as transfer knowledge about resilience to local populations.”

The institution of Mechanical engineers has made three key recommendations to help the world become more resilient to the effects of natural events like earthquakes, floods and storms:1. To focus more international development

funding on building future resilience.2. Build local capacity through knowledge

transfer. 3. embed the long-term engineering view

in the short-term response. Meanwhile, measured in terms of their

economic output, emerging countries are excessively affected by losses from natural catastrophes, according to Munich re. at the same time, insurance against natural catastrophes makes particular economic sense in these countries. This statement is backed strongly by evidence from a Munich re survey and a scientific study conducted by the University of würzburg on the basis of loss data from Munich re’s natCatSerViCe database.

globally, natural catastrophe losses have

increased substantially since 1980, due chiefly to rising economic values. Besides the urbanisation of exposed river and coastal regions, the greater frequency of loss-relevant natural events in some regions also plays a role in this context.

HARDER HITSThere is clear evidence that emerging countries are hit particularly hard by natural catastrophe losses. For example, a survey by Munich re’s economic research department found that in emerging countries direct losses from natural catastrophes total an average of approximately 2.9% of the gross domestic product each year. in industrialised countries, this figure was 0.8%; in developing countries 1.3%.

Michael Menhart, Chief economist at Munich re, said: “while emerging countries already have a relatively substantial capital base, they often lack the resources or necessary effectiveness in their administration to protect themselves better against the consequences of natural catastrophes—for example, by means of structural measures.”

NEWS IN BRIEFNew east African visa[nairobi]—Kenya, Uganda and rwanda are joining forces to launch an across-border visa which will allow visitors to travel to all three countries on a single visa. The new visa will cost US$100 and will be launched on 1 January, 2014. The new visa aims to aid regional travel.

Broker network expands[luanda]—BroKerSLinK haS added SeVen new broker and specialised resources members as the independent network gears up its geographical reach and resources in preparation for transformation into an incorporated global broker in early 2014. The new members include MdS angola—an insurance broker based in Luanda, angola, providing global insurance, reinsurance and risk management consulting services across africa. The network announced it was changing its constitution from a not-for-profit association to a for-profit

global broking company to accelerate growth and invest in enhanced multinational client support capabilities. in addition to creating a platform for multinational client-focused revenue generation and growth, the new company structure will enable BrokersLink to invest in dedicated and centralised management resource, marketing and branding.

More piracy attacks on west coast[lagos]—The reCenT Kidnapping oF Two american citizens from an offshore resupply vessel 15 miles off the coast of nigeria highlights the risks that seafarers and oil workers face in the gulf of guinea. The attack on the C-retriever off the coast of nigeria did not follow the typical model where refined oil products are targets, but appeared to share similarities with the hostage-taking model common off the horn of africa. Jon huggins, director of oceans Beyond piracy, commented: “it is too early to tell whether the trend of taking hostages will

continue, but this latest attack, and its apparent targeting of americans, is raising already heightened concerns about the growing danger to shipping there.” There have also been unconfirmed reports of a Joint Task Force nigeria security boat being attacked by militants—all personnel were reported dead and their weapons stolen.

African port upgrade[brussels]—The aFriCan porT MoniToring site www.portoverview.com, which collects status reports on africa’s 50 most important container terminals and related logistics infrastructure, marked its first year in operation by adding an email alert function for each port when it changes status. By setting their mail parameters to accept these alerts, users can receive updates on their mobile devices and tablets as well as in the office. The portal has been designed to empower importers, exporters, traders and forwarders with information in order for them to take proactive decisions on how to move their cargo to and from africa for their customers.

African agriculture initiative wins award[london]—The SyngenTa FoUndaTion For Sustainable agriculture is the recipient of the first aon Client innovation award, which aims to showcase innovation and creative thinking in risk management. aon presented the first award at its recent aon risk Symposium in London.

“our new award recognises all forms of innovation, from incremental changes through to entirely new ways of managing risk,” said Stephen Cross, Chairman, aon Centre of innovation & analytics. “The Syngenta Foundation has achieved a major innovation in support of

sustainable agriculture. its index insurance protects east african smallholders against the effects of bad weather.”

The weather index insurance is called Kilimo Salama, which means ‘safe farming’ in Swahili. Led by rose goslinga, the Kilimo Salama team now offers a range of insurance products to smallholders in Kenya and rwanda. “By shielding these farmers against problems such as drought, we want to encourage them to invest in their crops and improve their livelihoods. This protection also makes it easier for the farmers to acquire credit from banks,” said Ms goslinga. ”our use of automated weather stations and mobile phone technology keeps costs down and makes the insurance affordable for smallholders.”

olga Speckhardt, the Syngenta Foundation’s Strategic advisor on reinsurance, added: “we are very honoured to

receive this award. Climate change is an increasing issue in Sub Saharan africa, with rainfall becoming noticeably more erratic. i am delighted that aon has recognised Kilimo Salama as a true innovation in a very important area of risk management.”

Stephen Cross said: “at aon, it is our core belief that risk management can multiply economic and human possibilities. Kilimo Salama is a fine example. we congratulate the Syngenta Foundation on a well-deserved award for great innovation.”

The annual aon risk Symposium looks at the latest trends in risk management. The aon Client innovation awards will now form part of this event. aon clients can submit innovation entries to a jury of senior risk management professionals. —Liz Booth

COMMENT4 Employability & skills

F inding the right staff for

your business is never just about

having the right qualifications.

Having evidence of a certain level of attainment

is always good but sometimes businesses

need a little more, as we explore on p6.

Across Africa the rules on the use of

expatriate versus local workers varies

enormously and can be quite a challenge to any

business setting up shop. As I discovered on a

recent trip to Ghana, it is a complex situation.

Governments quite rightly want indigenous

people to have the first option of available

jobs. Through rules on expatriate use, they

will encourage overseas companies not only to

employ locally but also invest in training and

general education.

However, most African governments also

face enormous difficulties in educating their

children. Access to basic equipment can be

challenging and as for computers, many African

children have to make do with a drawing on a

blackboard.

The story does not stop there. As people’s

lives improve, thanks to the increasing stability

and economic success across the region, more

children are getting a chance of education.

And once educated few choose to stay at home

eking out a meagre living from the land. They

want to benefit from the massive expansion and

opportunities on offer in Africa’s cities.

As, however, the Institution of Mechanical

Engineers and Munich Re both warn, this rush

to the cities is not without risk implications

both in terms of urban development and

in terms of the increased impact of natural

catastrophes.

Further, in their rush to the cities, many of

these eager students are making it to university,

believing it is their best route to a wealthy life

thereafter. However, again as my trip to Ghana

highlighted, having a degree is no guarantee

of a job—in fact in Ghana 75% of graduates

are unemployed—not because they are

under-qualified but because too many of them

have similar degrees and there simply are not

enough jobs for all those with MBAs.

The risk is that these well-educated students,

now unemployed, could become dissatisfied

with life—and access to the internet in the

cities has fuelled unrest, as the Arab Spring has

shown. No one is suggesting that Sub Saharan

Africa faces these political risks but it is an

issue worrying the politicians who are trying

to find solutions.

So back to the issue of the use of local

workers. Clearly any business operating in the

region needs to consider its employment issues

carefully and be aware of the local laws. Any

business also needs to consider the training

costs at the outset and factor these into the

overall cost of doing business in the region.

It may also face an enormous challenge in

finding people with the right qualifications and

experience.

But all of this starts with the need to educate

Africa’s children in the right way. So, here is an

unashamed plug for a charity which is trying

to do just that. With the help of various global

corporates, Tutudesks aims to supply portable

desks to twenty million African children by the

end of 2020. Launched recently by Archbishop

Desmond Tutu, the campaign can be accessed

at www.tutudesk.org

Liz BoothEditor

Commercial Risk Africalizbooth@commercialriskafrica.com

Skills shortage is corporate risk

Commercial Risk AFRICA

REPORTERS: Antony Ireland, Steve Mbogo, Billie McTernan,

Stuart Collins, Tony Dowding, Nicholas Pratt, Rodrigo Amaral

Editor

Liz Booth

+44 (0) 1263 861676 [w]lizbooth@commercialriskafrica.com

Editorial dirEctor

Adrian Ladbury

+44 (0)7818 451 882 [m]aladbury@commercialriskafrica.com

Publishing dirEctor

Hugo Foster

+44 (0)7894 718 724 [m]hfoster@commercialriskafrica.com

art dirEctor

Alan Booth

www.calixa.biz

+44 (0)7817 671 973[m]abooth@commercialriskafrica.com

For commercial opportunities email hfoster@commercialriskafrica.com

To subscribe email subs@commercialriskafrica.com

Commercial Risk Africa is published ten times a year, by Rubicon Media Ltd.—

Registered office 7 Granard Business Centre, Bunns Lane, Mill Hill, London NW7 2DQ

RuBiCoN MeDia LtD. © 2013All rights reserved. Reproduction or transmission

of any content is prohibited without prior written agreement from the publisher

Whilst every care has been taken in publishing Commercial Risk Africa, neither the publisher nor any of the contributors accept responsibility

for any errors it may contain or for any losses howsoever arising from or in reliance upon its contents.

5NEWS East Africa | Agenda

AM Best takes view on east AfricaLiz Booth news@commercialriskafrica.com

[london]—DemanD for terrorism cover is likely to increase in east african countries after the recent terrorist attack in nairobi, according to a new report on east african insurers from am Best.

it said businesses in Kenya and other countries of the east african Community were likely to seek further cover, given the proximity of the attacks and the heightened fear this may trigger for corporations operating in the region. any rise in demand, however, will ultimately benefit the international reinsurance market, as african reinsurers generally do not have sufficient capacity or a strong enough credit profile to underwrite and retain a significant amount of these risks.

am Best showed, of its rated african reinsurers, retention ratios vary considerably, from 51.3% for société tunisienne de réassurance to 96.7% for General reinsurance africa (reflecting the financial support provided by the group’s ultimate parent company). in general, african reinsurers tend to retain more

risk for certain lines of business, including motor, accident, medical expenses and life.

meanwhile, political and terrorism risks are not commonly underwritten. Kenya has the largest insurance market in east africa. total insurance premiums reached $1.3bn in 2012, with insurance penetration of 3.1%. in common with other emerging insurance markets, there are compulsory cessions for reinsurance risks in Kenya involving Kenya reinsurance Corp, ZeP-re (also known as Pta reinsurance) and africa re.

Given the limited appetite, the low retention ratios for this line of business and the absence of a terrorism reinsurance pool in Kenya, it is thought that Lloyd’s insurers are likely to assume the majority of the risk for the nairobi attack. am Best said it was highly unlikely this loss will require Lloyd’s insurers to adjust their 2013 performance expectations, and the event is not expected to affect current ratings.

Before the nairobi attack, demand for political and terrorism cover had been declining in view of the increased stability surrounding elections across africa. nevertheless, as Lloyd’s insurers tend to buy excess-of-loss protection for

terrorism insurance in the short term, am Best expects international reinsurers to attempt to increase rates on these covers to recoup their losses. this will force african reinsurers to lift their pricing on the most affected classes.

african reinsurers will likely offset some of these rate increases on their outward reinsurance programmes by increasing their retention levels on certain lines of business.n meanwhile am Best has affirmed the financial strength rating of B (fair) and the issuer credit rating of bb+ of east africa reinsurance Company Limited (east africa re) (Kenya). the outlook for both ratings remains stable.

the ratings of east africa re continue to reflect its modest competitive position in the Kenyan market, as well as its supportive risk-adjusted capitalisation and solid operating performance. the ratings also consider east africa re’s exposure to Kenya’s socio-economic difficulties.

east africa re’s competitive position continues to be limited by the compulsory legal cessions enjoyed by its larger competitors in the local and regional

markets. these legal cessions require cedants to place a portion of their business with some of east africa re’s competitors before ceding business to the open market. additionally, the company operates in a competitive environment, with larger reinsurers that benefit from better economies of scale.

risk-adjusted capitalisation remains supportive of the company’s business plans, which forecast an annual rise in gross written premium (GWP) of approximately 20% in the near term. Growth in premium volume is expected to be supported by retained earnings and capital contributions from shareholders.

east africa re’s operating performance remains solid, with a five-year average return on capital and combined ratio of 12% and 94%, respectively.

the company’s results in recent years have been affected by the deteriorating performance of the motor and medical lines of business, which combined account for approximately 30% of GWP. east africa re has taken steps to improve the performance of these classes by non-renewing a number of loss-making treaties.

AGENDA201318-19 November JohaNNesburg, south africa: n The Institute of Risk Management South Africa will be holding an Intro to Risk Management Training. For information, see http://www.irmsa.org.za/events/event_details.asp?id=360609

26-27 November JohaNNesburg, south africa: n Institute of Risk Management

South Africa, annual conference. For details: http://www.irmsa.org.za/?page=Conferences

2-3 December aDDis ababa: n The Africa High Growth Markets Summit has the theme The emergence of an aspirational African consumer. For more information: http://cemea.economistconferences.com

5 December Lagos, Nigeria: n Nigerian Risk Awards ‘Recognising Risk Management Efforts in Emerging Markets’. For details: www.conradclark.com

201429-31 JaNuary marrakech, morocco: n The African Insurance Organisation, World African Centre for Catastrophe Risks and Societe Centrale de Reassurance will be hosting a Congress on agricultural risks across Africa. Details at: www.agrinsurance2014.com

24-25 march, Lagos, Nigeria: n The Economist will be holding a Nigeria summit. For details: http://cemea.economistconferences.com/event/nigeria-

summit-2014#.UkQUrclwaPI

7-9 may, abuJa, Nigeria: The World Economic Forum on Africa will have the theme: Forging Inclusive Growth, Creating Jobs. For details: http://www. weforum.org/events/world-economic-forum-africa-0

1-4 JuNe, kigaLi, rwaNDa: n The 41st Conference and Annual General Assembly of the

African Insurance Organisation will be held in Rwanda. For more information: http://www.african-insurance.org/newsevents- eventitem.php?intID=211

27-30 JuLy suN city, south africa: n The Insurance Institute of South Africa will be holding its annual event, The Insurance Conference Southern Africa— Rendezvous 2014

n If you would like to promote your insurance event in CommerCial risk afriCa, please email details to news@commercialriskafrica.com

hether you are a mining company in Johannesburg or a mobile technology firm from Frankfurt, Africa is likely to

feature in your plans for the next five to 10 years and for many companies this will involve putting managerial or specialist talent

on the ground in the African continent. For companies sending staff into African territories, employee

risk is the top consideration. The most high profile employee risk is that of personal safety—particularly if they

are being posted to unstable environments. British Mining company Anglo American

has operations in Botswana, Zimbabwe and Mozambique, but sends expats and subcontractors on exploratory projects throughout the African continent. According to Head of Integrated Risk Management Services, Neels Kornelius, Anglo American relies heavily on local intelligence provided by consulting firms.

“We send exploration personnel into what might be very remote parts of the country they are in, so we conduct an extensive country risk evaluation process,” said Mr Kornelius. “We use as much local

intelligence as possible so we don’t send people into hotspots and, if we do,

we take the necessary precautions.” This includes real time monitoring of employees’

locations and an evacuation response plan in case of emergency, all arranged via the firm’s insurers.

On one occasion, an Anglo American employee was sent into an area where tactical training and bodyguards were required, but Mr Kornelius said that if the threat of violence exists in a particular location, this would usually be a sign to avoid the area altogether.

If an employee is being sent to an unstable location, the employer has a duty of care to fully brief the employee before they accept the position, or it risks opening itself up to legal issues if the employee finds themselves in trouble, said employment lawyer Rod Harper, Senior Partner at South Africa-based Cowan-Harper Attorneys.

“Employers should always prepare evacuation plans beforehand,” said Mr Harper. “A situation could arise where what seems to be a low level of civil insurrection becomes a revolutionary movement—revolutions can take place very quickly and are sometimes not anticipated.”

Mr Harper added that strikes can also put employees at risk if they turn violent. “The employer must ensure it has security which can take control of situation,” he said, noting that this could mean working with local police, or even the local equivalent of the riot squad. “These measures need to be made absolutely clear in strike management plans, long before a strike arises.”

‘Mundane’ perilsHowever, Smita Malik, Assistant Vice President of Programmes and Special Risks at Clements Worldwide—who estimates that as much of 40% of her business is Africa-focused—noted that road accidents are the most frequent cause of expat-related claim, and that employers often overlook simple but important issues such as providing proper

6 SECTOR FOCUSEmployment

An unprecedented amount of foreign manpower is being sent to Africa as corporations from South Africa, Europe and beyond attempt to capitalise on the continent’s industrial and consumer booms. Sending expatriate staff into African territories carries many risks, demanding careful planning, ongoing monitoring and tailored insurance solutions, as Antony IrelAnd reports

7SECTOR FOCUS Employment

advice on food, water, transport and vaccinations. “The first and most talked about risks, like kidnapping, are in fact low frequency in nature. It’s much more important for organisations to appropriately cover the mundane day-to-day risks that result in frequent losses,” she said.

According to Ms Malik, the volatile and diverse nature of risks across the African continent require companies to pay closer attention to getting risk assessment right than in more predictable high risk countries like Iraq or Afghanistan. “Insurance for Africa is not one size fits all. Medical risks, for example, vary greatly between South Africa or Kenya and Ivory Coast or DRC,” she said. “Riots one day could lead to civil war the next, and coverage should be provided for both. Or there could be an outbreak of polio, and medical evacuation may be necessary. The infrastructure, medical response and culture are also different in each country—this is often overlooked.”

Given the broad range of personal perils that could befall an expat, it is vital that both headquarters and field officers or local representatives are made fully aware of which numbers to call in certain scenarios—after all employers will often have numerous insurance products in place for medical and security evacuations, kidnap, healthcare and accident, all handled by different insurance providers.

It is also vital that all expats are given appropriate information on the location, response times and capabilities of the nearest medical facilities and emergency services. Indeed, training and briefing expats is essential—whether it is how to respond to a kidnap situation, where to seek medical help or simply how to work safely in the local environment.

“Employers have a duty of care to their employees in law. They must comply with local health and safety legislation, they must translate legislation so it can be understood by the employee and employees must be put through comprehensive induction and training in order to prepare them for entry into a new territory,” says Mr Harper.

Daryn Brown, Risk Manager for gold mining firm Gold Fields, which has two operations in Ghana, said companies must ensure the working conditions are as foreigner-friendly as possible. “Mines are highly mechanised. Technical and mechanical training forms a significant part of operators’ training and development. Our mines have very strict water and sanitation standards, while we also have to provide excellent facilities for our expat staff,” he said.

However, in certain industries expats will often be housed in temporary accommodation or in remote areas where they may be vulnerable to diseases such as malaria, or even wild animals, snakes and insects.

Ms Malik warned that even when hiring employees who have been deployed to a location before, employers need to train them for expatriation as if they had never been relocated. “Don’t assume that just because an employee has worked in a location they understand all the risks and have been properly trained to face them,” she said.

According to Mr Kornelius, Anglo American provides its expats with detailed briefings prior to deployment. “An employee going into a new country will receive a briefing pack on current conditions in the country, which would include anything from precautions to take in certain parts of town to precautions over food and drink,” he said.

local rulesIt is also vital for both the employer and employee to fully understand local laws, as becoming entangled in legal disputes in remote territories can be costly and confusing, said Mr Harper, who suggests having a criminal lawyer familiar with local laws and policing on board in case an employee gets arrested or incarcerated. He also advised having competent industrial or employee relations management in place in-country so that any potential disputes between the employer and employees can be resolved as early as possible and misunderstandings can be avoided.

According to Mr Kornelius, Anglo American has an ethics code that strictly forbids accepting or offering bribes and working within this framework can sometimes present issues in Africa. “In many of these countries it’s a real issue for our exploration guys to legally, easily and quickly attain the necessary permissions they require to do their work, particularly at local official level,” he explained.

Local rules may also pose business risks. Quota limits on expatriate workers in Ghana, for example, puts pressure on Gold Fields to retain essential talent and ensure expats pass their skills on to Ghanaian employees. “The quotas are a major risk for the company as we are concerned the time given to transfer the skills is fairly short and we may not have enough expertise to run the mines,” said Mr Brown.

Talent retention usually falls under the remit of human resources departments who provide attractive benefits packages to expat staff, but risk managers also have a role to play. Gold Fields, for example, has a formalised succession plan system whereby each member of managerial staff must identify their potential successor and the situation is regularly reviewed.

Indeed, there is no asset more valuable to a company than its human capital. Sending these precious commodities into unpredictable territory is part and parcel of modern business, but in order to keep them happy and safe, no stone can be left unturned.

Insurance solutionsInsurers have a vital role to play in protecting both employees and their employers. Usually expats will be covered by comprehensive health, accident and workers’ compensation covers, with additional tailored coverage and emergency response services depending on specific local risks. The insurance market has come a long way in terms of offering solid policies for these locations, especially from an employee perspective, but these locations don’t come cheap, particularly if they include risks like terrorism or war. Clements’ Ms Malik said it is crucial employers are fully aware of exactly what their policies cover, and what is excluded. Life insurance, for instance, may only cover death by natural causes and may need to be supplemented by personal accident cover.

“The challenge is knowing what you’re getting, and the price of course has to be cost effective,” Ms Malik explained, adding that it is preferable to choose an insurer that is both comfortable and experienced in writing risks and handling claims in the territory of choice. She also suggested doing due diligence on the assistance companies’ insurers work with to understand their ability to react immediately and effectively in the case of a serious emergency in particular locations.

n For more on this see p13

WILLIS & GRAS SAVOYE RAMP UP AFRICA push

Willis and Gras Savoye are becoming ever closer as they use their combined presence in Africa to good effect, as Commercial Risk Africa Editorial Director AdriAn LAdbury reports

Willis owns 31% of French broker Gras Savoye and has an option to buy the rest of the company in 2016. Gras Savoye is one of the world’s leading ‘independent’ brokers. It is based in France but has a long history in international reinsurance and in French-speaking Africa in particular where it has 38 offices.

As part of the two brokers’ ever closer partnership they have decided to focus their efforts on Africa to build on Gras Savoye’s history and contacts in the region and Willis’ global capabilities.

This new effort was marketed heavily at the Ferma Forum in Maastricht at the beginning of October to showcase the broker’s wares to European risk managers. William White, [pictured, right] Group Ambassador to Gras Savoye, explained the plan to Commercial Risk Africa during the event.

He said that an African advisory board has been created under the leadership of Sarah Turvill, Chair of Willis International, with the aim of driving growth across the continent and tapping into the ‘huge opportunities’, particularly in Sub Saharan Africa.

Mr White said that the partners have created a hub management structure to make sure that African and international customers enjoy the local service they need that is backed up by the international capabilities and specialities in London and Paris.

These hubs are based in South Africa, Kenya, Egypt, Ivory Coast and Nigeria.

The ‘glocal’ approach is absolutely central to the strategy, stressed Mr White. “Ask brokers and risk managers what the most critical thing is when expanding into a new market and you will find it is not simply price, it is when the losses arise. Customers want to know that they are compliant to international standards...CEOs of companies expanding in Africa want to be ultimately sure that they can get a global and consistent service because of the uncertainties involved. We know that some brokers have overstretched their reach but we are available because our unique selling point for Africa is that we are the

single largest owned network with more than 40 years’ experience in the continent,” he explained.

The fact that certainty and consistency of service is actually more important than price and even possibly compliance (off the record at least) was confirmed during this year’s Risk Frontiers survey of leading European risk managers that CRA’s sister publication Commercial Risk Europe carries out each year.

Mr White stressed that Willis and Gras Savoye really understand this and have systems in place to ensure customers receive the service that they demand on the ground as well as the international expertise.

As with any network or partnership, the key is to make sure that the local and global experts work together effectively to deliver the services to customers and don’t spend their time squabbling about shared commissions or ownership.

“One of the biggest challenges is building trust,” said Mr White. “The CEOs of our regional hubs know how to manage their businesses and we are integrating Willis and Gras Savoye business and capabilities via Global Client Advocates who provide customers with a single point of contact across the group. The critical thing is trust. The North American customer needs absolute confidence that he or she receives the same service in Africa that they receive at home,” he continued.

Benoit Fisse, Product Development Director at Gras Savoye, added: “For both local SMEs and multinational clients we do local business. We are able to create and service a medical plan for local staff in each country where we operate or where a multinational operates. And we are able to do global reporting of local lines. Health insurance is of real interest in this respect, especially for multinationals with local operations.”

The key for Willis and Gras Savoye is therefore to strike the right balance between the local service and global capability and this is exactly the same challenge faced by their broking rivals and the big international insurers, which are equally keen to tap into the

W ILLIS AND GRAS SAvOyE HAvE stepped up their strategic partnership in Africa in a move that they hope will

firmly entrench them as the number one corporate insurance broker on the continent.

8 ROUND-UPBrokers: Willis

opportunities offered by Africa.Mr White is fully aware of this challenge. “This is

why when the advisory board is developing strategy it is crucial to have the right people at the centre and locally who understand the local culture and often complex history,” he said.

The risk and insurance business remains very much a people business whether it be Europe, North America or Africa.

9ROUND-UP Brokers: Aon

Commercial Risk Africa’s Editorial Director Adrian Ladbury met Joe Onsando, Chief Executive Officer of Aon Africa, and Darlington Munhuwani, Head of Aon Global Client Network in Africa, during the recent Ferma Forum in Maastricht. The Kenya and South Africa-based pair were at Ferma to discuss the needs of

Europe’s risk managers as their companies eye opportunities in the fast-growing African market. Mr Onsando and Mr Munhuwani explained Aon’s strategy

for Africa outside of South Africa

A ON DOES NOT INTEND TO BE ‘ALL things to all men’ as it grows in Africa but will rather focus on key areas of expertise and growth,

according to Joe Onsando, Chief Executive Officer of Aon in Africa. He sees growth in three key areas for the business; infrastructure develop-ment, intra African trade and the emergence of the African middle class.

The infrastructure growth is largely fuelled by demand for natural resources from the emerging markets of Asia. “There is huge infrastructure development occurring across the continent, predominantly in areas like road, rail and energy which is supplying the construction industry. This is because of the high demand for natural resources which are finding good prices in India and China to feed their economies,” he said.

But, perhaps more positively for Africa, there is also a fast growing trade between African nations themselves within and between the four regions of north, east, west and south.

“There has been a huge investment made by South African companies as they expand into west Africa and also big investment from west to east Africa and from the east to other regions. Only three weeks ago seven private jets landed at Nairobi airport carrying Nigerian business people keen to invest in Kenya because it has the highest rate of return in the world,” explained Mr Onsando [pictured, left].

New oil and gas fields in countries such as Mozambique and off the coast of Kenya and in Uganda mean pipelines need to be built and road and rail transport created or upgraded. This has led to big opportunities for local suppliers with imagination and skills. “We had a small family-owned freight forwarding company in Uganda, for example, which to be honest was a bit of a difficult client. But there was a recent oil fire disaster in Uganda and this company won a contract to distribute oil as a result. It suddenly grew from a firm with a fleet of 30–40 lorries to one with a fleet of 300 and is doing very well. This is happening all across the continent,” said Mr Onsando.

The emergence of an educated and forward thinking middle class is another big opportunity, said Mr Onsando. “Obviously there are still pockets of poverty all over Africa but there is a massive opportunity for whoever does it right. Europe has been caught napping in this respect whereas China, India and the Japanese have set up assembly plants to sell technology products in particular and this is creating employment and sparking growth in local economies. We are working with multinational companies and holding the hands of their local companies as they move out of their comfort zones. Our network of local offices and partners really helps in this regard,” he explained.

A focus on areas of expertise

CONTINUED ON NEXT PAGE

10 ROUND-UPBrokers: Aon

Aon does not have an office in every African country and so, like all the leading international brokers and insurers, relies on a network of partner companies to help deliver the goods for such customers. The effective management of such networks which represent the global brand is a key role for managers such as Mr Onsando.

He said Aon has a ‘very robust’ network. It currently owns companies across 15 countries and 16 correspondent offices. Some markets have become so important that the broker has no choice but to expand. The group is currently considering acquisitions in Nigeria and Ghana for example, two of the biggest and most vibrant markets on the continent.

The broker is also segmenting the business to ensure customers receive the right type of service for their needs. It has, for example, imported the Aon Worldwide affinity model for the growing middle class customer base and has created a specialist unit across the continent for larger, multinational accounts.

This operation is under the leadership of Darlington Munhuwani, Head of Aon Global Client Network in Africa, who is based in Johannesburg.

Not surprisingly given the high level of interest in Africa currently, this is a fast-growing business. Mr Munhuwani and his team are closely exploring, for example, how to use the rich resources offered by Aon Benfield, the group reinsurance and capital markets operation, to deliver fresh capacity for large corporate African risks.

LOCAL FOCUSAnother area of growth is human resources and employee benefits. The investment in Africa needs to be backed up by skilled and knowledgeable people which means companies need to bring skilled expatriates in to nurture and train local staff.

To help manage this, Aon is working closely with Aon Hewitt, its human resources and employee benefits arm, on a global basis. “Companies with cross-border activity want one uniform HR activity across countries and so this is proving successful,” said Mr Onsando.

Mr Munhuwani pointed out another key role of the management is to ensure skills and services are effectively ‘cross-pollinated’ to the benefit of customers all over the continent. “We are tapping into the Aon global system and have a fast track training process to help ensure we can deliver what is needed, when it is needed,” he said.

So what are the big risks that Aon’s large corporate customers face when they set up shop in Africa?

Mr Munhuwani said clearly there is still a perception that it is difficult to do business in Africa and this is not helped by events such as the tragic terror attacks in Nairobi and Nigeria recently and industrial action and riots at mines in South Africa.

But he argues the perception, fuelled by news headlines, can be inaccurate. “When you break down

the real situation by countries and individual risks then the scenario is better than many imagine,” he said.

One of the trickiest risks faced by multinational companies when they do business across Africa is insurance regulation, said Mr Munhuwani. “Insurance placement can be difficult,” he said. “If a company wants to use a master policy they will find that there are local regulations in each country that specify that risks need to be insured locally at least up to a certain level before they are insured internationally. Most clients are not aware of this and think they can simply place all the risk with the master policy,” he explained.

Political risk and areas like kidnap and ransom are also often sensitive when dealing with multinational customers because, as noted above, the perception drawn from international press reports can often magnify the risk beyond reality. “At the end of the day risks are risks and you should be able to deploy the same risk analysis and management skill sets in Africa as you do in Europe to help you transfer them,” said Mr Munhuwani.

Mr Onsando added the recent terror attack in Nairobi was the first in Kenya for some time, since the US embassy attack in the 1980s. He pointed to the similarity with the attacks in Mumbai recently and said this simply underlines that it could happen anywhere.

“Such attacks are very hard to police and prevent. Kenya is a big country and is next door to the failed state of Somalia. But it’s not as unstable as six to seven years ago. Arguably this attack is the last death throw of a dying organisation, it is hopefully on its last legs. Many Kenyans did not support the move into Somalia to hunt down terrorists two months ago but now they support such activity,” he said.

A third challenge is credit risk, explained the broker. “Some markets are not well regulated and there can be issues involved with payment for transactions, for example. Most markets are cash-based and there is not a good database of the rules,” he said.

Mr Onsando also pointed out insurance buyers and their brokers have to consider the security of local insurance markets and this is where local knowledge and contacts really come into play.

“The customer expects their local adviser to tell them who to place the business with and how much. The broker needs to have an intelligent connection with the regulators so they can sit around a table and discuss things. The importance of this often only really becomes apparent after a major loss,” he explained.

Mr Munhuwani said, because of all these ‘soft’ factors customers have to expect, the cost of creating policies that may fit into a global policy can be higher than expected. “When you are fronting a policy in the Democratic Republic of Congo, for example, there is only one local insurer to which you have to pay 30%–35% of the premium and this is not cheap,” he said. “It’s exploitation, make no bones about it!” added Mr Onsando.

This is why the choice of local broker is so important, added Mr Onsando. “We have been in

Africa for a long time in one form or another. Because of this experience and local knowledge it is possible to cut costs by pushing back. Sometimes you need to play hard ball,” he explained.

There is rising frustration among insurance managers globally about the patchwork quilt of local insurance regulations and protectionist policies adopted in many emerging markets. Multinationals argue protectionism simply inhibits the growth of trade and the local economy. Locals argue immature markets need to be protected from international business that wish to export all the premiums, profit and therefore value.

Some insurance experts have argued it is time for the rest of Africa to join the French-speaking CIMA countries and create a basic set of principles for national insurance regulators to abide by that protect local insurance markets but also make it easier for international businesses to manage their risks.

Mr Munhuwani does not believe such an initiative will happen in the near future. But he did say the creation of regional economic blocks across the continent is fuelling a form of competition for international investment that could have positive effects.

ANTI-HOSTILE“This could influence changes in regulations to capture foreign investment. If a market is seen as hostile then investors will not come so there could be efforts to present a more positive image,” said Mr Munhuwani.

Despite the regulatory barriers to international insurance and reinsurance capacity in many African territories there is still excess capacity available for traditional risks, said Mr Onsando.

This is largely because of the relative lack of catastrophic exposure and also because insurance markets, such as the vibrant South African market, are investing throughout the continent. Mr Onsando also said the big international reinsurers are also now back in Africa after a quiet period.

Another positive factor is the existence of regional insurance pools such as the west African Insurance Pool (Africa Re) and others in eastern and southern Africa. These pools were set up in the 1970s to foster more local involvement and are showing positive signs of growth currently.

This emerging local capacity, the re-emergence of reinsurance capacity and hunger for fresh premiums from the leading international insurers means Aon and its rival brokers have plenty of options for the fast growing pool of corporate risks in Africa.

There are still plenty of obstacles to overcome as local markets, politicians and regulators work out the best ways to work with the international markets. But the insurance market is moving in a positive direction in most African territories and this can only be good news for local and international companies keen to tap into the wealth of opportunities currently on offer in a risk-managed way.

CONTINUED FROM PREVIOUS PAGE

“Insurance placement can be difficult, If a company wants to use a master

policy they will find that there are local regulations in each country that

specify that risks need to be insured locally at least up to a certain level

before they are insured internationally. Most clients are not aware of this

and think they can simply place all the risk with the master policy...”

Darlington Munhuwani Head of Aon Global Client Network, Africa

FACILITATING THEJohn Hoggard, of RFIB, talks to Commercial Risk

Africa about its plans

The broker has had a presence in Africa for many years, while Mr Hoggard himself has more than four decades of experience in the market. Zimbabwean-born Mr Hoggard explained RFIB decided to open an office to show the market it had its ‘feet on the ground’ in Africa. But he stressed that the firm is not in competition with local markets. Instead RFIB’s role is to provide a trusted route into London (Lloyd’s) and international markets.

He explained the new office is here to emphasise to its clients that RFIB is a presence that is here to stay and to become the facilitator of choice for specialist risk management solutions in Sub Saharan Africa. “Africa is all about a physical presence and personal contacts,” he said. “RFIB have built up relationships over many years and the new office will help us cement those relationships still further.”

RFIB started out in South Africa and does a lot of important work in that area. RFIB also has a strong influence in Tanzania and with Mr Hoggard’s connections, the firm will expand its expertise into Zimbabwe, Zambia and Mozambique in the near future.

“As an African,” he said, “ I know that the people across the region are highly qualified and knowledgeable. However, we can help facilitate deals and give people easy access into Lloyd’s or other international markets, providing an alternative route that is backed up by decades of experience.”

It is a long-term process, he believes, and the key to his success will be in gaining people’s confidence and trust. “RFIB’s goal is to work with the local markets, to assist where certain specialist expertise can add value and where reinsurance placements need to be placed externally,” he stressed. “We want long-term relationships that benefit all parties.”

“Africa is maturing as a continent,” he continued, “and companies need to think of new ways of doing business to succeed.”

He gave the example of Zimbabwe and the tobacco industry. After the expropriation of the larger farms, the tobacco companies have started to lease land from the new owners. By funding the small-scale farmers, loaning them funds to cover agronomy costs, for example, the tobacco firms are assured of a steady harvest. The loans are repaid when the tobacco is sold to the company.

Added to this, the tobacco companies are able to offer the farmers access to insurance. As the farmers become more profitable, they want insurance not just for the crop but for their consumer goods and property. So a new middle class is evolving, with insurance very much part of the equation. Mr Hoggard explained: “As insurers it is good news because it gives them access to new clients but also provides them with the necessary security as it is the tobacco companies actually paying premiums upfront.

“This gets over one of the biggest hurdles for insurers in Africa—the non-payment of premiums. In Zimbabwe and in other African countries there is an extremely large percentage of premiums that go unpaid to insurers so any scheme which helps with this benefits the insurance industry hugely.”

RFIB does not just deal with agriculture but also has a huge book of marine cargo business, as well as construction and property/casualty. It has clients from the energy sector, as well as telecommunications and the mining industries.

The commonality between all these sectors is that they are growing across Sub Saharan Africa. While business may be more competitive in South Africa itself, according to Mr Hoggard, Sub Saharan African as a whole is an area of massive opportunity.

“We are not focusing on business from any one country,” he said. “But we can provide expertise and access to specialist risks where there is limited capacity in Africa. We want to facilitate development and be part of the future. Our goal is to become the facilitator of choice in Sub Saharan Africa.”

nT He key TO SucceSS WILL Be In deMOnSTRATIng TO the market that RFIB is here to help, according to John Hoggard, director of RFIB’s new representative office in South Africa

11FOCUS Brokers: RFIB

LOcAL HEROn John hoggard [pictured] has more than four decades’ experience in the South african and Zimbabwean insurance markets. he began his career at the royal Insurance Company Zimbabwe and has held senior positions at david Katzen Insurance Brokers Johannesburg and CT Bowring in South africa. Prior to his appointment at rFIB, John established and managed South africa-based hIB insurance brokers, specialising in commercial property insurance, and spent more than 20 years as a client of rFIB, before taking up his new role. John is also a qualified commercial property surveyor.

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Too often risk managers wanted to talk about political risk cover, expropriation, civil commotion or terrorism when the greater risks actually lie closer to home. “I’m not saying these should not be covered,” Ms Malik said. “But there are some things that risk managers sometimes forget which are likely to result in a constant stream of claims.

“Political risk events are much rarer and will be extremely costly when they happen but the day-to-day risks must not be ignored.”She has four main areas of concern:

n Road accidents: “We see a lot of claims relating to road accidents,” she said. The risks vary from country to country but areas where the law is not strong are a particular threat. Drivers will not be qualified and their vehicles may not be roadworthy, both adding to the risks for companies operating in these countries. Road accidents are extremely common across Africa and, particularly in remote areas, access to emergency help can be difficult.

n cRiMe: A lot of operations are headquartered in either Kenya or South Africa, both of which have problems with crime. Companies must ensure their operations are protected sufficiently against a constant threat of theft. Stock is at risk but so are company computers and vehicles, for example.

n eMPLoYee BeneFits: “When you have an employee working in these areas, there is always the possibility of that person being caught up in an event—whether that is a road accident, crime or, more likely in north Africa, a riot or civil commotion,” Ms Malik warned. “There is always a risk of your employee being caught up in something as an innocent bystander and you must make sure they are properly covered—and that the firm is too.”

n MedicaL: Most of Africa has fairly basic health facilities, Ms Malik warned, saying that in many cases, employees would need to be expatriated to either Kenya or South Africa as a minimum. She suggested risk managers need to be aware of exactly where employees are operating and where the nearest access to medical facilities would be. Risk managers need a protocol in place to evacuate sick or injured employees.

Overall, she said, risk managers must go that extra mile to protect operations in Africa. “Too many people,” she said, “rely on their insurance policy alone. Having a policy is a good start but when operating in Africa, there must be a protocol in place that will react when there is a road accident or medical emergency.”

Generally speaking, she said, the larger the firm, the more likely it is to have a good system in place but there is often more that could be done. Sometimes, for example, insureds will have a range of policies with different insurers and they need to be confident of knowing which policy would be triggered in different situations. Often there will be arguments between insurers of political risk and of property about an event.

“A couple of years ago when the Ivory Coast was holding elections, there was a lot of violence and looting. It was hard for insureds to access their sites and it has taken 18 months of

hard work to settle the resulting claims. The different insurers needed evidence of what had happened but because the sites were inaccessible, it was extremely difficult for insureds to evidence their claims and almost impossible to prove whether their stock was lost in the initial wave of violence or from theft later on.”

Another example, Ms Malik said, relates to medical claims. “Malaria is endemic and many employees will suffer from it. A couple of years ago there was a wave of malaria resulting in many people falling ill. The problem for the insured was that people were attending different hospitals in different areas and, although they needed evacuation, it was extremely hard to know exactly where they were and what treatment they needed. Again, the right protocol in place would have helped enormously.”

Risk managers also need to be aware of when local companies are using their party services. “For example,” she said, “if an operation buses employees to work, have you checked that bus operator’s insurance. Your firm may well have a vicarious liability should an accident happen. Risk managers need to be alive to these third party risks.”

Generally, she said, “Private companies are more cognisant of the risks than the not-for-profit organisations that proliferate across the continent. The reality is that they understand that every loss has a direct effect on the bottom line. They will often bring global standards into play from the get-go.

“However, many smaller companies may understand some of the risks but simply not have the resources or knowledge to manage these risks. We find some clients simply do not know that insurance exists to cover these risks. Sometimes we have to guide them through the different insurances and explain how the cover works.”

However, she stressed, the trick is to remember, an insurance policy last, risk management first.

DON’T FORGET THE BASICS

CRA met Smita Malik, of Clements Worldwide, who warned that risk managers must remember the essentials when designing risk management policies for Sub Saharan Africa

A FRICA IS An exCITInG PlACe TO DO BuSIneSS AnD brings with it some unusual risks. But Smita Malik, Assistant Vice President of Programmes and Special Risks at specialist

expatriate insurer Clements Worldwide, warns risk managers must not get carried away with the ‘sexy’ risks and forget the basics.

13FOCUS Risk management

Clements WorldwideClements Worldwide is the leading provider of insurance solutions for expatriates and international organizations. Clements of fers worldwide car, property, life and health, and specialty and high risk insurance to clients in more than 170 countries.

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COUNTRY FOCUS

Ghana

Black gold fuels Ghana’s futureThere is a mood of optimism across Ghana fuelled by the discovery of oil in 2011 but,

as Liz Booth discovered on a visit to Accra, the country has plenty of challenges ahead

huge informal economy, the discovery of oil, high levels of graduate unemployment, a high fiscal deficit—all issues facing the Ghanaian government in 2013 and all carrying significant

implications for risk managers with interests in this key west African state.Vice-President Kwesi Amissah-Arthur told delegates at a recent Economist Ghana Summit

that the government is aware of its challenges and is determined to bring down the fiscal deficit and improve standards of living for everyone.

CONTINUED ON PAGE 16

than US$300m. And Clements Osuwu, MD of Waico Re, says non-payment of premiums adds to the problem—around 35% of premiums are never paid. Mr Agbenyadzie agreed, saying it is too easy for insureds not to pay a premium and then simply to move to another insurer at renewal time. He blamed low entry barriers for insurers and

is urging the government to forge ahead with its plans to raise the minimum capital requirement from US$1m to US$5m.

There is a Bill on the table but he is not confident it will come into law anytime soon. The insurers are hoping the government will also impose tougher regulations around non-payment of premiums—as the Nigerians have already done successfully. Likewise the government has been considering a risk-based model for solvency but again the timetable is far from certain. The uncertainty is an issue for the market, said Mr Agbenyadzie, who would like to hear more from the new government.

The private sector and insurance industry held a joint press conference recently encouraging the government to complete the membership process for the Africa Trade Insurance Agency (ATI), which began in 2009 and which would help provide much-needed insurance capacity. The Director General of the Private Enterprise Foundation, Nana Osei-Bonsu, led participants noting that Ghana stands to benefit from US$100m in added capacity from the ATI that with reinsurance could support trade and investment

transactions valued at hundreds of millions of dollars. The event was part of an outreach initiative that

was capped by a high-level dialogue with the business community and government officials. During the workshop participants discussed the gaps that ATI could help fill in the current market. These include challenges such as lack of access to credit, lack of affordable financing for small and medium-sized enterprises, a strained manufacturing base and an insurance industry in need of added capacity.

“Ghana is one of the most important economies in Africa. Since the membership process began, we’ve received enquiries valued at more than US$1bn for transactions directed at the Ghana market so we know there is demand. The next major step now is for Ghana to complete the membership process it started back in 2009 so they can start benefiting from some of this business,” remarked George Otieno, ATI’s Chief Executive Officer.

The African Trade Insurance is a pan-African organisation founded in 2001 by African governments to help them attract more investments and increase trade. With the support of international financial partners, the World Bank and the African Development Bank, ATI offers insurance products that mitigate the risks faced by investors and others doing business in Africa.

Ghana’s membership was scheduled for completion in 2012 but was slowed by its national election. Demand from international and local Ghanaian companies prompted the renewed negotiations with the government that ATI hopes will lead to complete membership by the end of the year.

Mr Agbenyadzie believes that ATI would provide more confidence in Ghana for outside investors, although he was quick to stress that Ghana has a relatively low political risk profile thanks to its open democracy and the optimism around its oil.

COUNTRY FOCUS16 Ghana

As one of the African countries to have enjoyed a sustained democracy, the government has still had to tackle extreme poverty. The vice-president said the government has been driving down the levels of poverty and per capita income is on the rise.

However, he admitted, “We have a government which controls about 30% of the economy and about

US$5bn of reserves which translates into three months of import cover. That is a problem for the rating agencies.” The plan, he said, is to build reserves up to five months, “which will provide better cover against external shocks”.

There has been a period of low investment in infrastructure that, he said, is leading to problems, which the government is committed to address. The

key, he said, will be to properly sequence and finance projects so they have the greatest impact. This includes an emphasis on power and road infrastructure.

Although the government controls just 30% of the economy, a large proportion of that relates to civil service employees—some 600,000 of the 25 million population are employed by government. Corruption has been an issue, particularly among government departments, and in a drive to eradicate the problem the government has equalised pay levels across all departments. The aim is to end the argument that someone in one department is taking bribes simply to match the wages of his counterpart elsewhere.

However to achieve this, the government has increased all wages to the highest levels—in that way ensuring the support of all. Vice-President Amissah-Arthur argued the move had helped reduce poverty and increased stability. He did admit the wage bills are unsustainable and there would have to be job cuts across all government departments.

UnemploymentUnemployment is already a major factor and graduate unemployment is around 75%. However for foreign businesses, one of the challenges is matching their skills requirements to the existing talent pool. Foreign firms are limited in terms of expatriate employment—numbers vary by sector but are usually linked to training for Ghanaian staff and the development of local talent.

The vice-president said it was of great concern to the president and cabinet and they were looking at ways to grow new jobs, particularly in the technology sectors. He added that, for him, the answer lay in improved education.

the insUrance marketAs with several other African economies, the insurance sector has a relatively high number of players compared to the market size, leading to issues of severe competition and downward spiralling premium rates.

Kwame-Gazo Agbenyadzie, President of the Ghana Insurance Association, said the fortunes of the insurance market are largely mirroring those of the wider economy. A drop in the price of cocoa and in the price of other commodities including Ghana’s other main export gold has impacted in terms of the claims experience. The manufacturing sector, too, is having a tough time with some large local businesses closing their doors in recent times.

However, the discovery of oil and its potential for the future is keeping the markets buoyant. At the same time, over-supply of insurance is making it hard for insurers to remain profitable. Mr Agbenyadzie said Ghana is home to some 26 non-life insurers and 18 life providers—all for a market of less

CONTINUED FROM PAGE 15

Top tips for risk managersn Have a strong local

partner or have someone on the ground

n Consider the required skills and be prepared to have to train local recruits

n Foreign exchange is often a high risk because of the state of the wider economy

n Power supplies can be erratic and costly

n Be mindful of local regulations and tax compliance issues

The move by Fitch Ratings to downgrade Ghana’s long-term foreign and local currency IDRs and its senior unsecured ratings to ‘B’ from ‘B+’ has some immediate ramifications for risk managers monitoring risk to their businesses in west Africa.

Fitch explained the outlook is stable. The country ceiling has also been downgraded to ‘B’ from ‘B+’. The agency has affirmed the short-term foreign currency IDR at ‘B’.

It said Ghana’s creditworthiness has been further weakened by the government’s failure to fully implement its fiscal consolidation plan in 2013. This follows a sharp widening in the budget deficit to 11.8% of GDP from 4% in 2011 and rising debt levels, which as a percentage of GDP have risen to 48.8% between 2011 and 2012 from 38.3%. The authorities continued to overrun on wages, interest costs and arrears, leading Fitch to expect the government will fail to meet the 9% of GDP fiscal deficit target for this year. However, the decision to sharply increase utility tariffs and scrap the fuel subsidy reduces the risk of an overrun in the coming fiscal years.

Ghana’s external vulnerability has increased since the rating was last reviewed in February 2013. Fitch forecasts lower gold prices and still strong import demand will put further pressure on external balances. Fitch expects the current account deficit to widen to 13.1% of GDP in 2013, from 12% in 2012. The agency does not expect capital inflows to keep pace with the widening current account deficit, keeping foreign reserves under pressure. Import cover is forecast to remain at 2.9 months, leaving Ghana exposed to exogenous shocks.

Policy credibility has been significantly weakened, following two

years of larger-than-expected budget deficits. This has exerted pressure on the exchange rate through the large current account deficit. Monetary policy adjustment has not been successful in curbing inflation, with inflation rising above the upper limit of the Bank of Ghana’s inflation target. Domestic debt represents 48% of total government debt. The potential withdrawal of foreign participants, which hold 26% of domestic debt (56% of foreign reserves), increases Ghana’s vulnerability.

The ratings are supported by Ghana’s strong governance track record and democratic history, highlighted by peaceful power transfers and respect for judicial due process.

Ghana’s business environment compares favourably with even ‘BB’ median countries. This is reflected in Ghana’s ability to attract foreign direct investment, which at 7% of GDP is well above that of Nigeria, Gabon, Zambia, Kenya and Angola.

A decade of growth in excess of 7% has resulted in an improvement in social indicators, but relative to ‘B’ peers per capita income and measures of human development are still weak by comparison. Per capita income of US$1,754 in 2013 is 60% of the ‘B’ median, while Ghana’s UN Human Development Index ranking improved to the 28th percentile from the 17th (2010), it is still below the ‘B’ median of 41st.

Ghana’s GDP growth will remain robust, averaging between 6% and 7% in the medium term, however Fitch said growth prospects depend on oil production coming on stream as expected, increasing to 200,000 barrels per year by 2016/17; the continued development of the gold sector; and further investment in infrastructure.

What Fitch did

Kwame-Gazo Agbenyadzie

Vice-President KwesiAmissah-Arthur

Ghana is one of the most important economies

in Africa. Since the membership process began,

we’ve received enquiries valued at more than

US$1 billion for transactions directed at the

Ghana market so we know there is demand...”

17COUNTRY FOCUS Ghana

Things to think about

Any risk manager thinking of business opportunities in the west African state of

Ghana will face quite a list of considerations, as Liz Booth reports

he list of considerations for any risk manager with operations, or potential operations, in Ghana is long and varied—

the economy is far from settled, despite the recent oil finds; the infrastructure has been neglected for years; available skills are

limited; and the power cuts out several times a day.That’s the bad news—the good news is that the mood of optimism

is tangible, the oil revenue is starting to appear and politically this is one of the most stable countries in the region with little hint anything will change.

Ekwunife Okoli, Managing Director African Regional Markets, Diageo, is ebullient about the country’s prospects. “There are huge opportunities,” he said. Citing the example of agriculture, he said: “There is a real opportunity to improve yields and if we could commercially farm, think what impact we could have.” He explained how his company looked at the crops being produced in Ghana and then at possible products. Taking the root crop cassava, the company has developed a root lager beer, 51% of which is made up of cassava from local farms.

Working with government to make the crop commercially viable through tax incentives, the company has not only employed local people but empowered them to send their children to school.

Mr Okoli admitted that the scheme is not as profitable as making ‘normal’ beer and the company has to explain this carefully to its shareholders but he believes the risks have been outweighed by the benefits.

Taking risks such as this in terms of product innovation has been far from the end of the story. Mr Okoli explained how the local roads were so poor that two-thirds of the cost of the crop was in the transport to bring it off the farms. Despite these difficulties, Mr Okoli said: “What we found was that to the farmers the important thing was to have a guaranteed marketplace for their crops and having people with a commercial mind set up a supply chain made the difference.”

Insurance and agriculture go hand in hand across Africa as commercial schemes allow farmers to improve their yields and guarantee their income. Mr Okoli said that while many people were looking at the oil and gas developments as good vehicles for foreign direct investment, he believes there are real opportunities in agriculture. While Ghana may not be suited to large-scale agriculture, working with small farmers in a cooperative approach could pay dividends.

“It is all about risk and reward,” he said, “and there is a real opportunity to bring it up to the next level by bringing in the global players.”

Transport networks are not only essential for agricultural development. Dr Ben Adoo, Managing Director of Keegan Resources (Ghana), said improvements in infrastructure are urgently needed. For example, access to one bauxite mine is via a single train track—any

problems and the only way to transport all the materials is by poor roads which cannot cope with the large lorries. It simply brings the systems to its knees, he said.

For Maria Tropgstam, Vice President and Head of Corporate Responsibility Group Communication at Saab, one of the key challenges remains the power supply. She said future development must take power needs into consideration—Accra has been dogged by power cuts for the past year after a ship snagged its anchor on the main gas line serving the city. And in another move, the government has recently allowed the utility companies to impose enormous price hikes—78.9% up for electricity costs.

cUltUral challengesAnother major risk for investors and firms coming into the country is interpreting the culture correctly. As Bright Simons, Chief Executive Officer of mPedigree explained at the recent Economist summit held in Accra, identifying your markets can be tricky as there are so many different opinions to listen to. For example, the experts putting numbers on the size of the emerging African middle class vary hugely in their opinions—from the African Development Bank who claim

there are 300 million middle class Africans to David Cowan at Citi who says there are none.

Officially he said the definition of a middle class person is someone who earns between $2 and $20 a day—but as he says the idea that a middle class person may need two days’ wages to buy a can of Coke is hardly most people’s idea of middle class.

Nor, he says, can you make a judgment placed on the number of mobile phones. Most Africans have a phone as a status symbol but drill down and he claimed very few have apps on the phones and very few will be using it to its maximum potential.

Another top tip about identifying the potential market: he explained that in east Africa, people will dress in western clothes as they climb the social ladder but in west Africa, the well-to-do will revert to African dress. Likewise on food—to the east, European food

CONTINUED ON PAGE 18

COUNTRY FOCUS18 Ghana

CONTINUED FROM PAGE 17

Foreign exchange tops my list—

The political situation is very calm so that

is not a risk but if you have to move money in and

out of the country, exchange rates are a risk...

is revered as a status symbol but to the west people want to eat the traditional fare.

“An MBA is great,” he said, “but to really understand your market you really need an anthropologist.”

For Herman Chinery-Hesse, Chairman of SOFTtribe, Ghana’s leading software developer, the key to success is in finding the solution to meet the needs of the market and not to try to make the market fit the product. For example, he said pay as you go models are more attractive than monthly contracts.

Another tip is to find ways to work across borders without involving regulators in each and every country. An example of his innovative approach centres around home security. Mr Chinery-Hesse said that many people cannot afford home security on an individual basis but he has developed a scheme that appeals to the African psyche of helping neighbours.

For a few dollars a month, a policyholder gets a sign for their gate warning home security is in place. If a robbery occurs, the company alerts a security firm that attends the scene. But meanwhile, 10 neighbours also in the scheme get a call—and they will all go out to chase the would-be robbers off. Further than that, the news is broadcast on the local radio stations, again calling on neighbours to help.

It doesn’t sound like a scheme that could work anywhere but in Africa. Mr Chinery-Hesse says it works through a combination of spreading the risk and the African conditioning to help one another. As a final part of the puzzle, home owners are able to buy home insurance at a lower cost because the risk has been reduced.

Kwadwo Asomaning, a former financial and risk consultant and now with Med-X Health Systems, sums up Ghana’s risks into four main categories:

n Foreign exchangen Recruitmentn Energyn Compliance & taxation“Foreign exchange tops my list,” he said. “The political

situation is very calm so that is not a risk but if you have to move money in and out of the country, exchange rates are a risk.” Second on his list was a lack of human resources, with a large proportion of the population undereducated. Of those who have greater qualifications, he said, firms will need to incentivise the good ones who will be in high demand, while sifting through those with qualifications but not necessarily the right skills for the job in hand.

Energy also makes his top risk list, particularly in the wake of the recent supply problems and significant hike in prices. Finally he listed compliance and tax, within which he included the problems of corruption and dealing with government departments.

Eric Adane, of Professional Orientation and formerly with Ghana Re, stressed, however, that it is not a totally bleak picture. While Ghana has some tough issues to tackle, the country is safe and there is a liberal environment in which to invest. He also believes Ghana is a good place from which to develop a greater presence across west Africa.

For risk managers, he said: “The key is to remember that risk management can be likened to the World Health Organisation’s definition of good health: Health is a state of complete physical, mental and social wellbeing and not merely the absence of disease or infirmity. We should all look at risk management in the same way, it is not merely the absence of a crisis but that sense of complete wellbeing. We have some issues in Ghana but we are talking about them and dealing with them, we are not dealing with crises.”

Herman Chinery-Hesse

Kwadwo Asomaning

Eric Adane

19COUNTRY FOCUS Ghana

n the 1990s, it was asia, in the noughties it was the Bric countries and now it is Africa’s time.”

That was the firm belief of Jim Judson, Managing Director of PZ Cussons Ghana, who said he has seen a sea change in attitude of

business towards Africa and a new positive approach, combined with a belief that business can succeed.

Speaking at The Economist’ Ghana Summit in Accra, Mr Judson said, however, any business moving into Africa should not underestimate the challenges and risks of doing business in the region. “Most people underestimate how difficult it is to reach the end consumers,” he warned. “In the UK, for example, you visit five supermarket buyers and reach most of the population. But in Sub Saharan Africa the road to market is much harder. Getting the product on the shelf at the right time is the thing that most people get wrong.”

DistriBUtion DecisionsIf the distribution model is wrong, the business risks its investment in the region. Mr Judson explained that, in Ghana alone, PZ Cussons has some 30,000 outlets in Accra and a further 10,000 across the country. Many of these will be tiny stores, particularly in rural areas and these small shops need to be accessed. “There is no central distribution,” he added. The model of depots from which goods could be distributed is an old one

that no longer works, said Mr Judson. Instead they use an active distribution model, servicing a nationwide network of distributors, providing vehicles from which they can reach the smaller shops.

Abdallah Khamis, Managing Director Philips West Africa Hub, said his firm has transformed itself in recent years but still reflects the fact that it remains a family-owned business, with a desire to benefit the community. He added: “We make decisions based on deep consumer insights.”

It is so important to adapt products to fit the African markets, he explained. “For example, we have had to develop a slightly different light bulb for Africa,” he said. “Because of the continual power cuts, the light bulbs have to cope with surges and drops in power. Normal light bulbs would pack up very quickly so we

had to develop a product that would cope with those difficult conditions. Our R&D teams have to work very closely with our African business.”

Another example, he said, was wood stoves. “These have been developed because our consumers are used to cooking on fires. They like to do that so we have developed a stove which is more efficient and smokeless but which produces the same effect in the cooking.”

The heads of two international consumer product groups outlined some of the major

difficulties faced by any business operating in Sub Saharan Africa but told Commercial Risk Africa the rewards are still out there

Jim Judson

CONTINUED ON PAGE 20

Abdallah Khamis

Reaching the consumer is not the end of the challenges, both men agreed. Financing purchases has been changing too. Mr Judson said: “Turning the clock back, in the UK, people used to buy products on HP and a man would knock on the door once a week to collect the payments. Now many of those products are bought on a credit card. It is the same in Africa, you have to enable your consumers to buy your products.”

He said Africa has two key dynamics at play. Firstly there is a large proportion of young people in virtually

every country and secondly they are technology-savvy. This adds up to a consumer who has seen what he or she wants to improve their quality of life. “Helping them achieve that through finance is a major growth opportunity,” he said.

However, with credit comes risk. Mr Judson argued that, although credit is enormously expensive and although the banks are often unwilling to lend, it is worth offering consumers HP-type loans. “Saving is much harder than paying off debt for most

consumers,” he said, confident that the opportunity is worth the risk.

He added that the development of visa and switch cards was helping to free up credit and reducing the risk for businesses. Although charges on such cards are high, he said, the risk-reward ratio was so much better and so, when factored in, reduced the overall cost to the business to acceptable levels.

Another key to success is making sure consumers are happy with the products. Various African countries have consumer protection laws in place but for some consumer goods producers, there are some very real challenges in terms of guarantees. Mr Judson said the power surges that inspire a new approach to product innovation also create headaches in terms of customer satisfaction.

“We have more demands on our products,” he admitted, “and we have to make sure consumers are happy. So we do things like offer extended warranties or servicing packages. Mr Khamis said Philips had chosen to offer guarantees rather than warranties.

But another challenge for producers comes from the counterfeiters. Mr Khamis admitted it is a challenge to mitigate the risk of fakes, particularly in a region such as west Africa where the borders are porous and the criminals can easily evade prosecution. Philips, he said, had taken the decision to invest in consumer education, hoping to convince consumers that buying a fake product was not in their long-term best interests.

For most businesses, operating in Africa is all about

access to cities rather than to countryside. The large conurbations house the majority of the population with spending power. As Mr Khamis admitted: “At the end of the day it is all about resources so for us we have a major city approach. We want to resource effectively and make sure we invest in the major cities.”

However Mr Khamis said that in Ghana about 75% of the population is based in rural areas and, as a company offering health products, there was a real need to reach these markets too. Innovation is helping organisations access these people, he said, but often the rural consumer is not exposed to much in the way of education and is often fairly unsophisticated. Technology and digital developments are making a massive difference to those consumers however.

Mobile telephones and the internet are allowing consumers to feed back opinions on products which companies are then able to translate into more appropriate product offering, explained Mr Khamis. The trick, he said, is to ensure the right people receive the information in a timely fashion to make informed decisions.

Digital strategyMr Judson agreed. “The digital world is fascinating and is a major part of our strategy. Both give us a very interesting route to market. It works particularly well in Africa because of the high concentration of young people who are open to new ideas.

“The saying is that every African will have two telephones—and if they are Nigerian they will have three. The development of mobile money is even more exciting and, for sure, a major part of future growth will come from digital solutions.”

One of the criticisms levelled at big business is that Africa can be the dumping ground for sub-standard products but both men refuted that. Mr Khamis stressed that his firm has global standards for products and everything must conform to that, regardless of end destination. He admitted that sometimes there are insufficient governing bodies in Africa to ensure standards are maintained but he said it is up to individual international organisations to ensure they maintain their own standards regardless.

Mr Judson agreed, adding that PZ Cussons invests heavily in working with all stakeholders to ensure standards are maintained along the whole supply chain. The firm invests in local suppliers to help them improve standards to the required level.

“In Africa I would always be an advocate of collaboration. Working with third parties helps for all sorts of reasons, including access to market. The cake is big enough for everyone—we need to share it. We don’t need to dominate to succeed—we can work together and bring success to all.”

CONTINUED FROM PAGE 19

COUNTRY FOCUS20 Ghana

Turning the clock back, in the UK, people USED to buy products on HIRE PURCHASE and

a man would knock on the door once a week

to collect the payments. Now many of

those products are bought on a credit card.

It is the same in Africa, you have to enable

your consumers to buy your products...”

KEEPING YOUR FEET pping the levels of knowledge will be key to AfricA’s continued success, along with increased understanding of the insurance markets and the ability to cope with regulation.

lukas Müller, director europe Middle east & Africa for swiss re, warned too much insurance business is flowing out of Africa because of a lack of local know-how and a lack of the appetite to retain business within individual countries.

he said there are some clusters where there is a greater understanding, such as that found in east Africa. that he believed is helped by a greater communication between regulators across the region. likewise the ciMA agreement between francophone countries helps provide a solid regulatory foundation across the 14 french-speaking countries in sub saharan Africa.

there is no easy answer, he said, or short-cut, as such know-how can only be built over time. however, Mr Müller stressed, he did not want to give any

impression that companies were anything other than professional. “it is just that some countries are lagging behind and it may well take them five to 10 years to reach a common standard,” he said.

south Africa is quite different, he added. “the south African market is mature and highly competitive. we are seeing many south African companies moving into sub saharan Africa simply because the grass is a bit greener. terms and conditions are often more attractive than in south Africa.

“in return a lot of business has flowed out of other countries back into south Africa which does not really help the market as a whole.”

At swiss re, he said, it was important that there are strong insurance companies in the market, with a good appetite for risk and ready to retain business so they can develop the local market. he said international reinsurers are uniquely placed to open dialogue with local regulators and the insurance sector, bringing expertise and experience to the table. “we are in close collaboration with many of the regulators and i think this can help fertilise the markets—we can help a client in one market and take that experience to another.”

As others have said before, Africa must not be considered some kind of second class world citizen—it leads the way in some things and the rest of the world would do well not to forget that, said Mr Müller.

“look at the way the kenyans have spread insurance around the country thanks to mobile technology. they have embraced agricultural schemes too, taking insurance to the smallholders and enabling them to operate much more profitably. A real middle class is emerging as a result and they are operating models that can be used equally as effectively in other countries across the continent.”

Mr Müller acknowledged that there is a danger of making everything sound very straightforward. he admitted there are plenty of problems that do need to be addressed. “it certainly helps if you have a government which is supporting the insurance industry to such an extent that innovative products are able to flourish,” he added.

for the future, like others he believes the recent oil and gas discoveries along the east coast could make a huge difference. And he also believes the opportunities in Africa could be as great or even better than in the Middle east.

“it is different to the Middle east where the economies are all about oil with no diversity. in Africa they have already built up in other areas and have opportunities beyond oil and gas. that lack of dependency on one sector alone should make a big difference.”

Again, he believes international operations—whether insurers or any other business—will have a key role to play. “corporations can think global and act local,” Mr Müller said. “there is and will always be dust in Africa. if someone comes along with a european mindset and thinks only of imposing european standards, for example, then it will not work. you have to bring those standards and apply them to the local market. be flexible and creative. one has to acknowledge things are slightly different and embrace it—there is not always the same transparency as elsewhere but it is worth facing up to the challenges.”

key to that is being on the ground—and that is where swiss re plans to stay. in the past critics have said swiss re has moved in and out of the region far too quickly, but Mr Müller is promising greater commitment.

“reading all those books is all very well,” said Mr Müller, “but without your feet touching the ground, it will be impossible to feel and smell what is happening.”

And it is no good relying on old news, he warned. “Africa has really changed and it will change even more in the next five to 10 years. it is important to jointly develop industry and countries through sustainable investment by helping but not imposing.”

Lukas MüllerSwiss Re

Having a physical presence in the region

and understanding the differences will

help corporates build successful operations

in Africa, according to Swiss Re’s Lukas Müller

21OPINION Lukas Müller

ON THE GROUND

planning to invest R4trn in infrastructure development, including new power stations, wind/solar alternative energy farms, hospitals and roads.

There are 18 strategic projects identified over the next 10 years to create employment and improve growth. In its first year this plan has seen some R800m invested. “So there is delivery,” said Mr Matthew.

Furthermore, a growing black middle class is boosting the purchasing powers of the country’s citizens.

So the picture looks rosy for investors. However, there are downsides to the current outlook and many hurdles facing risk managers hoping to help their companies exploit this land of undoubted opportunity.

Growth has stalled in the South African economy. It is expected to fall just short of 3% in 2013, marking a substantial slow down. A CAGR growth rate of around 3.4% is expected over the next four years.

“The overall economic outlook is positive in the long term, but as well as short-term growth issues there are a number of worries in terms of risk and insurance that are challenging from a South African point of view,”

It is the only African nation in the G20 and in 2011, joined Brazil, Russia, India and China as the 5th member of the Brics countries distinguished as fast growing and emerging economies around the world.

It is therefore an attractive option for both overseas and indigenous investors searching for growth.

According to Quinten Matthew, Executive Head of Specialist Business at leading South African insurer Santam Group, which is also an AXA Corporate Solutions Network Partner, the country is set up to ‘look after investors’. It certainly performs well on a number of related financial metrics.

The World Economic Forum’s (WEF) Global Competitiveness Report 2012/13 ranked South Africa

10th out of 142 countries for strength of investor protection. The same report places it top in terms of auditing and reporting practices.

The World Bank’s Doing Business Report 2012/13 ranked it 2nd of 183 countries globally for good practice in protecting borrowers and lenders obtaining and supplying credit.

According to the Open Budget Index, South Africa has the second most transparent budget in the world.

Beyond such attractions, business opportunities for investors have been boosted by government plans to create 5 million jobs in the South African economy in the next 10 years.

According to Mr Matthew, the government is

BIGGER

BROTHER

With the outlook for investors in South Africa somewhat mixed, risk managers charged with helping their companies exploit what remains a land of opportunity will note that one leading insurer has called for improved risk management standards and increased premium rates in the country, as Ben norris reports

S OuTH AFRICA IS THE lARGEST ECONOMy in Africa and accounts for around 20% of the continent’s GDP. It produced GDP of uS$592bn

in 2012, ranking 26th on the world stage, according to the uS Central Intelligence Agency’s (CIA) 2013 World Factbook.

CONTINUED ON PAGE 23

COUNTRY FOCUS22 South Africa

23COUNTRY FOCUS South Africa

CONTINUED FROM PAGE 22

said Mr Matthew during a presentation in london.

Mining unrest, industrial action, crime and corruption, lack of infrastructure, the retention of skilled employees and an increased frequency of catastrophic events will likely keep risk managers and their CEOs awake at night, he said.

“In some areas, particularly rural, there have been some issues with a lack of investment in infrastructure. South Africa also has issues around fire fighting capability, crime is an issue and we have had strikes. If the potholes don’t get you the hailstones that are the size of cricket balls might,” warned Mr Matthew.

Readers of Commercial Risk Africa will take note that Mr Matthew believes South African insurers need to drive risk management standards and increase premium rates to reflect new competitive and risk landscapes.

“We have little influence on storm occurrence, hail events, population density, wind intensity and temperature, but do need to exercise influence on urban development and planning, regulations, building standards, risk management practices and drive appropriate rate increases to better reflect the risk on the ground,” said Mr Matthew.

Insurance marketThe short-term South African insurance industry recorded market-wide gross written premium of R88bn or uS$8.8bn last year, according to the Financial Services Board Report 2013.

Although average net premium growth rates for insurers have fallen from around 20% in 2003 to around 5% today, profitability remains consistent with an underwriting margin of around 6% generally reported by leading insurers in the first half of 2013.

Insurers typically reported net premium growth of 6% at half year, a claims ratio of 63% and an expense ratio of 31%, according to figures by Mr Matthew.

Worryingly for all involved in the South African risk game, 11 out of 32 leading insurers reported an

underwriting loss in the first six months of this year.

However, according to Mr Matthew the South African commercial insurance market remains extremely competitive and therefore attractive to buyers.

Competition for corporate risk transfer has risen in the last decade with a huge influx of insurers into the market since 1999, including a return of some of the big international players. Prior to 1999 there were just 5 insurers operating in the country.

Global big hitters such as Allianz, AIG and ACE have returned to a market from which they withdrew in the 1980s due to sanctions.

Santam is the largest insurer with a market share of 23.1%, according to latest figures from The South African Insurance Industry Survey August 2013 by KPMG. It is followed by Mutual and Federal (10.5%), OuTsurance 9.8%, Hollard (7.8%), Guardrisk (6.5%) and Zurich (5.5%).

appealIng to buyers With all this competition for business the market

remains enticingly soft.Risk managers with South African property risks

have benefited from particularly appealing market conditions. “It has been one of the most competitive lines in terms of capacity and pricing,” said Mr Matthew.

However, it was hit by ‘significant losses’ in 2012 as hailstorms in Gauteng and a devastating fire at St Francis Bay contributed to worse than expected corporate property results across the market, he said.

“Emerald, our property unit, expects that the market will therefore apply stricter underwriting criteria and offer more resistance to unsubstantiated rate reductions next year,” said Mr Matthew.

The South African liability market is, in general, experiencing a protracted soft cycle. It has been ‘pretty suppressed in terms of market cycle and profitability’, said Mr Matthew.

One reason for the ongoing soft conditions is the influx of new insurers into this business. “The financial institutions sector is relatively stable, but there appear to be more new entrants in the professional indemnity and general liability sectors that have borne the brunt of the soft cycle,” said Mr Matthew.

One line bucking this trend is medical malpractice from which insurers have withdrawn in numbers due to a lack of profitability. However, Mr Matthew said an end to the seemingly relentless soft market conditions

may be in sight. “The South African liability market is now entering a mature phase of the soft cycle with a number of local insurers having reported underwriting losses,” he said by way of explanation.

Mr Matthew also noted the engineering market is under pressure. It continues to soften with rates still declining by as much as 50%. Such reductions are on the back of prior year rate reductions of 20%–50%.

The strong competition for engineering risk is driven by new capacity supported by reinsurance markets that have noted the sector’s high profitability in recent years, explained the insurer. He expects this market to soften again next year, with concomitant increases in overall loss ratios.

The marine market has also seen pressure on pricing as insurers battle for new business, rather than bottom line performance, said Mr Matthew.

The South African insurance industry is also coming under increased regulatory pressure, he added. “Regulatory change is a key theme in South Africa. The regulatory burden will continue to escalate and will focus on changes in market structure—this represents both a threat and opportunity. We need to implement governance measures in a cost-efficient way and promote trusted and affordable financial services,” he explained.

Insurers in South Africa have already struggled to meet requirements soon to be mandated under Solvency II. The country is joining a transitional tier of countries seeking equivalence under the European capital adequacy regime for a specified period while their own solvency rules move towards Solvency II.

However, 14 of South Africa’s non-life insurers did not meet capital requirements under the directive’s 2nd Quantitative Impact Study (QIS2) exercise.

Other insurance regulations set for implementation in South Africa include new binder rules, FAIS regulatory exams, changes to the Consumer Protection Act, new laws governing the protection of personal information and changes relating to intermediary services and remuneration.

It is also interesting to note that South African general insurers are tending to rely less on intermediated business and more on direct channels of distribution, although this trend is less pronounced in commercial lines, said Mr Matthew.

At the top 10 South African insurers by GWP, intermediated risk transfer has fallen to 59.1% of business in 2011 from 70.7% in 2007. Moving in the other direction, direct business has grown to 22.3% from 17.1% in 2007 and cell captive use up to 12.5% from 6.6%.

SANTAM95-year-old Santam iS the largest P&C insurer in South africa with a market share of approximately 23% and more than 70 offices in the country.

it is also operates in wider african markets and even further afield. it holds interests in businesses in namibia, malawi, Zimbabwe, Uganda, Zambia, tanzania, Botswana and india. it generally holds a minority interest in operations outside of South africa.

it also operates as a fronting insurer for aXa in South africa, acting as a conduit for global programmes and supplying local policies in line with regulatory requirements.

Frederik Strydom, Manager of Crisis Sub-Sahara Africa at Aon South Africa, explains:

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Aon South Africa (Pty) Ltd is an Authorised Financial Services Provider (FSP #20555).Aon is the Principal Sponsor of Manchester United.

Contact Aon today on 0860 453 672 or visit aon.co.za for more information on World Aware and other tailor-made business solutions.

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Commercial Risk Ad new.indd 1 2013/05/21 12:21 PM