Absa Life sets sights on Africa

Banks might feel terribly unloved at the moment, but those with bancassurance operations are starting to look a lot perkier.

Take Absa, for example. Despite a poor rap by analysts, it came out with surprising growth of 19% as it managed to clamp down on runaway costs and weaker borrowers.

While Absa Retail delivered a sterling 75% growth in profits to R1.7-billion, one of the strong performers for Absa came from an unlikely source - the life business, Absa Life.

This type of growth is surprising because it is normal for people to take fewer insurance products when economic situations become tougher. With net premiums growing at this rate (from 26%) a year ago, the business will double in three years.

This division grew gross and net premiums by 22% each and product development, service levels, rolling out of digital channels and improved lead management improved penetration.

This performance also comes after Liberty (another example of an insurance operation controlled by a bank) lifted its headline earnings by 17%, and Nedbank (now competing harder in the retail space that Absa previously dominated) lifted its interim headline earnings by a stellar 29%.

So while banks are getting their non-performing loans in order, they are struggling to raise interest income due to the ratty global markets. Nedbank Capital is a case in point, where they held back their holding company's results. But this is also why fee income, cost control and strategies to enhance revenue streams is becoming so important.

Izak Smit, CEO of Absa Life, says his unit managed to grow despite R150-million going into a new electronic administration platform. This is where being part of a big parent can help as unit costs per policy are lower than standalone insurers that can't piggyback off the reach of a big retail parent.

Also important is that migration to digital will keep staff costs under control - so despite the charge now, the downstream bottom line benefits could be pronounced. Smit only needs 250 staff to roll out R460-million of new business - the need would be more like 1000 were he not able to rely on the benefits of scale.

Smit acknowledges his unit is now starting to compete in areas it hasn't in the past-like standalone underwritten life cover.

A particularly exciting avenue is the African footprint, where Smit hopes to be operating in three African countries by the end of the year. At the moment, he is only in Botswana after launching a branch there in February.

"African expansion is very high on our agenda," says Smit.

He admits that he will be looking to also distribute through branches of Barclays (Absa's parent), which has operations in 10 African countries, while Absa banks in Tanzania and Mozambique.