While Botswana’s money-spinning insurance sector is already dominated by foreign investors, the government has made commitments to the Southern African Development Community (SDAC) and the African Union (AU) to liberalise the insurance industry and open doors for more foreign insurance companies. Staff Writer KEABETSWE NEWEL reports
According to the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), only 30 percent of the population in Botswana has insurance cover while around 70 percent is uninsured. NBFIRA says this is because of the reality of financial exclusion for most Batswana.
Headed by interim Chief Executive Officer (CEO) Srarim Gade, NBFIRA says in consideration of Botswana’s small population, the government has adopted a strategic objective of premising the industry on a global platform, allowing foreign players’ participation in the domestic market for economies of scale. “Botswana is open to foreign direct investments underpinned by factors such as no exchange controls and thus free capital movement (FDI),” the NBFIRA says.
Further, the regulator says the insurance company shareholding by foreigners is not restricted and continental and inter-continental trade in services negotiations are under way. “Consequently, the government has made trade in services commitments with SADC in February 2018 and is expected to make similar commitments with the AU in July 2020 to liberalise, inter alia, the insurance sector and other financial services,” NBFIRA says, adding that it is envisaged that this will promote export of knowledge to intensive business services and also attract foreign direct investment into Botswana.
But while government wants more foreign insurance players to come to Botswana, the sector is already foreign controlled. In both the life insurance and general insurance, almost all the market share is held by foreign companies.
COMPANIES CONTROLLING LIFE
Botswana Life Insurance Limited (BLIL)
This is by far the largest life insurance firm in Botswana by means of insurance premiums, profitability and market share.
Botswana Life is a Botswana incorporated company which initially had most of its shares controlled here in Botswana.
Botswana Life is a 100 percent subsidiary of the diversified financial services company, the Botswana Insurance Holdings Limited (BIHL). Over the years, South Africa’s top insurance firm, Sanlam Emerging Markets, bought shares in BIHL to eventually control around 60 percent of BIHL, which made sure that Sanlam indirectly owns Botswana Life, at least in majority.
Since inception, Botswana Life has dominated the life insurance market of gross written premiums. Over the past five years ending 31 December 2018, data availed by NBFIRA shows that its market share ranged between 59 percent and 74 percent with the lowest market share recorded in 2018 as competition in the sector increased. In 2018, Gross Written Premiums (GWP) of the life insurance sector amounted to just above P4 billion with the bulk accounted for by Botswana Life. Over the three-year period ending 31 December 2018, profits before tax fell by 34 percent from P701 million in 2016 to P464 million in 2018 for the life sector. Over half of that is accounted for by Botswana Life.
Metropolitan has over the review period recorded a market share of GWP in the range of 13 percent in 2014 and 18 percent in 2016. The company has over the first three years increased its market share of Gross Written Premiums on an annual basis and reached a peak in 2016, reporting a 15 percent market share over the past two years. However, it maintained its second place as the largest life insurer over the entire review period. Metropolitan is a franchise of Metropolitan in South Africa.
Bona Life has been insolvent for a while now and does not meet the Prescribed Capital Target (PCT) which requires that the amount of minimum assets that an insurance company should hold be one and-a-half times larger than its liabilities. According to the Insurance Industry Act, if Bona Life remains insolvent, it shall be liquidated.
The penetration of Bona Life into the insurance industry meant that for the first time ever, a 100 percent Botswana owned company was competing in the sector dominated by South African insurance companies. In 2018, the value of the Bona Life annuity portfolio grew to exceed P800 million, with approximately 740 actual annuitants most of whom were retired members of the Botswana Public Officers Pension Fund (BPOPF) and retirees from government parastatals. The individual life portfolio had over 6000 policies and approximately 40 group life policies. Bona Life has signed up intermediary contracts with 27 intermediaries with close to 200 agents.
By so doing, Bona Life became a number one rival to Botswana Life Insurance Limited as well as Metropolitan, companies whose ultimate control is in South Africa. Over the years, Botswana Life’s market share fell from as high as 74 percent to around 56 percent. Bona Life played a major role in the decline of Botswana Life market share. With Bona Life now facing collapse, industry players believe that Botswana Life’s market share will rise again, and so will other South African insurance firms operating in Botswana.
During the 2018/19 financial year, the insurance industry comprised 23 insurers/reinsurers, of which eight (8) were life insurers, according to the NBFIRA 2019 annual report. Only Bona Life was an indigenous company. Bona Life entered the Botswana life insurance market in 2014/15 by acquiring Brammer Life and worked its way to being the third largest life insurer in 2017. Its market share over the past two years ranged between 9 percent in 2017 and 13 percent in 2018. Bona Life was placed under statutory management to address issues of key personnel and capital injection.
Further, Hollard Life, another unit of South Africa’s Hollard Insurance, accounts for 4.8 percent of the GWP in the life insurance industry while ABSA Life (formerly Barclays Life) is owned by ABSA Bank Botswana, a unit of ABSA in South Africa. Other minority players are Old Mutual Life and Liberty Life, also from South Africa.
COMPANIES CONTROLLING THE LIFE INSURANCE SECTOR
Further, there are about 12 general insurers in Botswana, namely Botswana Insurance Company, BIHL Insurance Company t/a Legal Guard, Alpha Direct, Liberty General Insurance, Old Mutual, Phoenix of Botswana, Sesiro Insurance Company, Western Insurance, Holland, Sunshine Insurance and Bryte Risk Services. Most, if not all, of these are South African companies.
During the period ending December 2017, the Botswana general insurance market was competitive with the top three companies’ market share of GWP remaining between 54 percent in 2014 and 56 percent in 2017 over the past five years.
However, in 2018 Hollard acquired Regent and surpassed Botswana Insurance Company (BIC) in market share for the first time over the past five years, and this resulted in a market concentration of 70 percent market share of the top three insurers. Hollard General Insurance, a South African controlled firm, controls 33 percent of the market share in GWP, while 23.8 percent is controlled by Botswana Insurance Company (BIC). BIC is owned by Botswana Life, which is indirectly controlled by Sanlam. Old Mutual is the third largest at 13.2 percent.