Guardrisk CEO Herman Schoeman says this is despite murmurs in the market that R1.6 billion was a “top-end” price MMI paid last year to buy Guardrisk from Alexander Forbes. “As management, we are confident it was a reasonable price for exiting and incoming shareholders and we are quite confident we are able to grow embedded value and achieve targets,” he says.
Strict targets for embedded value, which is a metric used by life insurers to measure the current value of future profits among other things, were set from day one.
Its contribution to MMI’s 2013/2014 financial results will be limited to a few months, since regulators only approved the acquisition on March 3 this year. But Schoeman is confident that it will eventually become a substantial contributor.
Guardrisk will retain relative autonomy in its new home, forming the third segment – alongside Momentum Retail and Metropolitan Retail – of the restructured MMI Group, namely, Corporate and Public Sector.
With a cell captive insurer in its stable, MMI can now offer corporate clients the opportunity to sell branded insurance products to their clients and employees, without having to own their own insurance company.
The cell structure also allows corporates to benefit from profit earned on premiums and access to international risk financing facilities and other means of alternative risk transfer. These benefits will likely be enhanced, since Guardrisk now profits from a bigger balance sheet and a company that inherently has a larger appetite for risk. This gives Guardrisk the opportunity to enhance its risk taking and grow underwriting exposure.
“Up to 96% of our total revenue internationally is fee based, so this is a good opportunity to diversify our revenue through, for instance, underwriting profits,” Schoeman explains. This would mean relying less on reinsurers (insurers of insurers) and carrying more risk, but also a greater share of the profits.
Schoeman says that while Guardrisk has been “reasonably successful” in accessing the rest of Africa through its subsidiary in Mauritius, building presence and intellectual property within individual countries is necessary to achieve greater success. MMI’s Africa footprint will be leveraged and Schoeman says it’s likely Guardrisk will be exported to two African countries in the next six to nine months, including Mozambique.
He notes that investment in Africa is largely focused on telecoms and petrochemicals, which “cry out for structured risk finance and risk management”.
Introducing the cell captive structure to the short-term insurance market on the continent would be done in association with a local partner or alongside the MMI brand.
Guardrisk could very well buy its commercial business in Namibia from Alexander Forbes, Schoeman says.