South Africa’s Old Mutual Ltd, Africa’s oldest insurance company, is planning to expand its business into China. In this article, we discuss how and why Old Mutual is expanding its business into the China insurance market.
According to Hasan Askari, head of Old Mutual Asia Pacific, “the Chinese life insurance market has increased by about 30% each year over the last decade.” Demand for Old Mutual’s products in China, which is the world’s second-largest insurance market, has increased, even as the coronavirus pandemic has hit most of their other units.
Old Mutual In The Chinese Insurance Market
Since 2004, Old Mutual has had a small presence in China. The China Insurance Regulatory Commission, in 2006, cleared the Beijing state-owned Assets Management Co. Ltd. to transfer its 50% stake in Skandia-BSAM Life Insurance Co. Ltd. to a capital holding limited company under China Guodian Corp. With this equity transfer, Sweden-based Skandia Insurance Co. Ltd., which is now a member of UK-based Old Mutual Group, holds a 50% stake in Skandia-BSAM Life Insurance.
Established in 2004, Skandia-BSAM Life Insurance is headquartered in Beijing. It is a 50-50 joint venture between Skandia Insurance and Beijing State-owned Assets Management. The business sells unit-linked products and has branches in Shanghai, Jiangsu, Guangzhou, and Zhejiang. It has been the second fastest growing Seino-foreign life insurer in the market. At the end of 2009, Skandia-BSAM had a total premium income of US$104 million.
This move comes after Old Mutual made efforts to reverse its 20-year long global expansion. Ending in 2018, Old Mutual dismantled operations from the US, UK, India, and Latin America to narrow their focus on sub-Saharan Africa.
The African Life Insurance Market With Old Mutual
Established in 1845 in Cape Town, South Africa, Old Mutual was South Africa’s first mutual life insurance company. Currently, the firm now employs more than 30,000 people and operates in 14 counties across Africa and Asia. This includes South Africa, Namibia, Botswana, Zimbabwe, Kenya, Malawi, Tanzania, Nigeria, Ghana, Uganda, Rwanda, South Sudan, eSwatini, and China. Old Mutual provides financial solutions to individuals, businesses, and institutions, including savings, investments, lending, and banking.
The value of Old Mutual revenue generated in South Africa is 80%. This year, the South African lockdown, set to prevent the spread of the coronavirus, boosted sales by causing more business-interruptions and funeral claims.
According to Clement Chinaka, managing director of Old Mutual’s rest of Africa unit, other African countries seem to be lagging “two to three months” behind South Africa, in terms of economic recovery. Thus, Old Mutual is putting in efforts in East and West Africa, expecting additional growth to progress.
For comparison purposes, Africa’s insurance market reached a value of US$61.1 billion in 2019.
Why Expand Into China
This move to expand into China’s insurance market is not solely unique to Old Mutual. According to Pacific Prime China, a Chinese insurance company, China has positioned itself to cater to foreign expansion.
Starting January 1, 2020, foreign investors can now own 100% of the stakes in local life insurers. This is a big shift from the previous 51%. Additionally, the People’s Bank of China now allows foreign insurance companies with less than 30 years of operations to apply to enter the China market. These new regulations give foreign investors an equal competitive position with local rivals and expand their access to the market.
Additionally, China is the second-largest insurance market in the world. As of now, in terms of foreign insurers, Germany’s Allianz and France’s AXA are the first to fully own their business in China. The competition and opportunities are rising at all angles.
In conclusion, Old Mutual’s move to expand into China seems like a smart plan. The Chinese insurance market is open to foreign investment and competition on equal footing. Old Mutual’s expansion into the Chinese insurance market helps diversify its revenue, which is primarily generated within South Africa. As a possibility, the success of this expansion could further balance the efforts Old Mutual is making in East and West Africa.
What do you think? Should African firms and individuals look to China for sophisticated investment opportunities? Let us know in the comments.
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