Casablanca-based Saham Finances is a virtually unknown entity in the Levant and Gulf insurance markets today, but the company is nothing if not ambitious. In June 2012 it acquired 81 percent in LIA, the Beirut-based insurance affiliate of Bank Audi Group, as an entry into the Lebanese market and, strategically, as a base for growing into the Gulf Cooperation Council (GCC).
“Our purpose is to use LIA as a platform to develop our activities in the whole Middle East region,” said Raymond Farhat, the chief executive of Saham Finances. Within the next five years, Saham Finances wants to amplify its premiums base in the GCC and Levant to $1 billion, from less than $100 million at the end of 2012, Farhat told Executive.
The Lebanese insurance market has relatively higher maturity than other Arab markets and is definitely saturated: more than 50 providers share in a premiums pie of less than $1.2 billion per year. With slower premiums growth rates than Gulf markets, Lebanon has not been the top Arab market that foreign companies sought to expand to in recent years.
One exception was the 2010 acquisition of Compagnie Libanaise D’Assurances (CLA) by Zurich Financial Services Group, where the purchasing rationale was that CLA owned several branches in the GCC. While LIA has no GCC units or licenses, selecting it was not a difficult choice, Farhat said. “We knew the Lebanese market and that is why we did not search a lot [for an acquisition target]. We only had a few companies that we looked at, and LIA was one of these companies.”
A partner for life insurance
LIA, which released a gross premiums figure of $80.4 million for 2012, is in the top tier of profitability among Lebanese insurance companies. Such strong profitability has in recent years been common to insurance companies affiliated with leading retail banks such as Blom, Byblos and Audi, because these lenders successfully translated customer demand for their loan products into sales of life insurance policies. Loan takers are required to obtain life insurance to guarantee loan repayments in case of their death or disability, and buying these covers from bank-affiliate insurers is often the path they take or are asked to take.
While many of the life insurance policies sold in this manner do not fall under the exact spirit of bancassurance, which is a low-cost distribution channel for marketing standardized insurance products to bank customers, it is clearly advantageous for an insurance group to collaborate with a bank in the areas of selling loan-accompanying life insurance and in the general marketing of bancassurance products.
The bancassurance knowhow that Saham Finances found in Lebanon was an important factor in the decision to purchase LIA, said Farhat. “The partnership with Bank Audi is the most important element in this deal, and our aim is to continue to develop our relationship with them. That is why Bank Audi still is a participant in the capital, has a seat on the board, and is still the main client [of LIA].”
The Journey from Casablanca
The bancassurance knowhow augments Saham Finances in Morocco, where the group does about 50 percent of its business. “In Morocco, we are the first in non-life, but the life business is not strong because our partnership with banks there is not strong,” said Farhat.
Saham Finances is, in regional terms, a rare case of a conglomerate making its entry into the insurance market before looking at banking. The company is the holding of all of the insurance participations of privately-held Moroccan conglomerate Saham Group. The group entered the insurance field in 2005 with its first acquisition of a Moroccan insurer, CNIA, and in 2006 it acquired a second domestic company, Es Saada. “The two companies were merged in 2010 and listed on the Casablanca Stock Exchange the same year,” explained Mehdi Tazi, chief executive of Cnia Saada, the merged Moroccan insurance entity of Saham Finances. “The year after, Saham Group acquired another company, Colina, which had [a] presence in, at the time, 11 African countries besides Morocco.”
Farhat is a Liberia-born Lebanese insurance veteran with more than 30 years of experience in Africa, who built up Colina before it was acquired by Saham Group and he was appointed chief executive of Saham Finances. Further acquisitions in Africa followed with takeovers of insurers in Angola and Kenya under his leadership.
As result of its multiple acquisitions in the space of a few years, the company has the most extensive network on the African continent. “Except for South Africa, we are the first player in the insurance field in Africa,” Farhat said. Tazi added that, “our strategy is to become even bigger, and we are in the process of looking at other deals.”
Like the group’s massive thrust into Africa, the firm’s LIA acquisition represents the beginning of its aggressive expansion into the GCC. When asked if the group aims to grow LIA’s business into Levant markets such as Iraq and Jordan, Farhat said, “The answer is yes, we are looking at Iraq and Jordan but we are looking mainly at the GCC countries. We want to use LIA as platform to expand activities directly, or through LIA subsidiaries or other companies related to Saham Finances, but the aim is to be present throughout the entire region.”
In order to meet requirements for Sharia compliance in key Gulf markets, the group’s plan is to buy a Takaful insurance company next. In this context, the role intended for LIA becomes elucidated further, as Farhat confirmed, “We want to utilize Lebanon as a platform for human resources. We want to create a complementary platform of knowhow between the human resources that we can find here in Lebanon and an Islamic insurer that we are planning to buy.”
With its rapid growth in Africa and plans for the Middle East, Saham Finances will have to increase its headcount, currently just under 100 LIA staff, by a factor seven or eight in the Gulf and the Levant.
Catering to Expats in Africa
Next to building upon the bancassurance experience of LIA and relying on Lebanon as source of human capital, which is the scarcest of all insurance resources in the Middle East, the group envisions that synergies and cost efficiencies on two levels will be created between LIA and other insurance companies under the Saham Finances umbrella. On the client side, Farhat sees much potential to serve the many Lebanese who made Africa their home and maintain business and family ties to Lebanon. The group wants to take on the task of offering these Lebanese a full range of insurance products in Africa and in Lebanon, from health insurance to retirement plans. “We can develop other synergies between Africa and Lebanon. We have many Lebanese and Moroccan investors in Africa and it makes sense for us to create products for them,” added Tazi.
A second layer of synergies will be in terms of reinsurance buying, where Saham Finances has invested in a Mauritius-based reinsurance unit and will use its size in negotiating with multinational reinsurance providers.
Also in deal flows, the group sees its position of strength in the African market opening opportunities to be a partner for multinational companies and insurers who seek correspondents for their global programs.
One of the barriers that the group will face in its regionalization is the dichotomous character of regulatory environments in the Middle East and North Africa. “We expect that it may improve in the coming years but it is a barrier. But we want to go to the market, and we will not wait until all these barriers are removed,” Farhat said.
Another challenge will be meeting mandates set by the three stockholders in Saham Finances. Besides majority owner Saham Group, there are the World Bank’s International Finance Corporation and Abraaj Group, the Dubai-headquartered investment firm. With IFC and Abraaj each owning 18.75 percent in Saham Finances beside Saham Group’s 62.5 percent, “our biggest challenge is sustaining the rhythm of the growth that is imposed by the management in all these acquisitions,” said Tazi.
Funding the aggressive growth agenda will not be the problem, according to the current perspective, Farhat said. “We don’t think about how much money we will invest in the Middle East but we think about what size we want to reach,” he explained. “We really want to be among the top players of the Middle East. This is our aim in five years and we will put in the money that we need to put.”