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Challenging the thought of exclusive insurers

05 July 2017 Jonathan Faurie
Willem Smith, CEO, Regent

Willem Smith, CEO, Regent

After two years of solidifying the terms of one of the biggest acquisitions in the South African financial services industry, Hollard has completed the purchase of Regent for an estimated R1.8 billion.

The acquisition makes Hollard the second largest insurer in the country and gives it access to markets in Africa that it previously didn’t have access to. Also, it adds value to the insurer by allowing it to build capacity in the life insurance space.

But this deal means a lot more than numbers and value for Hollard. It also adds significant value to Regent. FAnews spoke with Regent CEO Willem Smith to find out what the deal means for Regent.

Playing in the financial arena

Regent was sold after Imperial Holdings expressed its desire to focus on servicing the motor and logistics sector. Smith said that while this sale made sense, it was also beneficial to Regent because it allows them to participate in the greater financial services sector.

“Being part of Hollard adds significant value to Regent. We are now part of a larger insurance business where our clients will have access to products and services that they could not access in the past. We are very excited about being part of the greater financial services sector,” said Smith.

There has been a lot of speculation as to what will become of Regent after the sale has been completed. Will it remain independent or will it be fully incorporated into the Hollard group?

“The intention is that Regent will be incorporated into the Hollard Group and that the incorporation will be rapid (18 to 24 months). Mari Janzen  who was the former CEO of Regent has now become the Integration Director and will oversee this process. Regent’s licences will stay the same and will remain so until Hollard decides to change this,” said Smith.

Additional value

Smith said that the transaction offers significant value to advisers who will now have access to Hollard’s products and services should they wish to become intermediaries.

“Furthermore, the transaction gives advisers access to a known brand in the industry that will help build trust. Hollard has systems and processes that deal with brokers and advisers in a specific way. This allows advisers to trust the brand,” said Smith.

This is important given that David Kop, Head of Advocacy and Consumer Affairs at the Financial Planning Institute of Southern Africa, has openly stated that there is a trust deficit in the market. “Clients need to trust their advisers and trust that the products and services being offered to them are the best solution. Being affiliated with the second largest insurer in the country adds a trust element,” said Smith.

Increased activity

Following the Global Economic Crisis in 2008, we have seen increased activity in the mergers and acquisitions (M&A) market as companies look to build capacity in order to survive in the market.

When asked if it is difficult for smaller insurers to survive in this market, Smit feels that M&A activity will continue going forward, “Given the way that the economy is going at the moment, and the promised impact of regulatory reform, subscale businesses run the risk of not reaching desired levels of profitability and will look for M&A options,” said Smith.

When Smith refers to a subscale business he is referring to an insurer that writes a single line of business in the short term space. This has also been the case with underwriting management agencies who have also become desirable in the eyes of insurers who want to build capacity in a new area.

Besides the economic environment and regulatory reform, technology is another key discussion point in the industry with some insurers and brokers saying that it will be a driver of M&A activity.

“I disagree with people who say technology is a significant challenge. I see technology as an enabler. Yes, there is a significant cost associated with investing into fintech, but those who do it will be desirable in the long terms because they are able to find ways to manage costs by streamlining certain processes,” said Smith. 

Editor’s Thoughts:
The transaction will add significant value to both Hollard and Regent. It is an example of how companies are looking to expand their horizons into Africa, but it is also an example of how much insurer’s value diversification. Perhaps the business model of an exclusively short term insurer or an exclusively life insurer is being challenged? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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