Centriq

COMPANY PROFILE

2015

Centriq Insurance Company

+ 27 11 268 6490 | www.centriq.co.za

company profile

Expert insurance solutions Editorial: Ajuanne Payne

Gareth Beaver, CEO of Centriq Insurance Company, said on taking up the leadership of the company in 2012: “I am not one for squeezing out marginal growth, but rather to pursue and find some magic that will see Centriq transform itself.” Fast-forward to today and we find out from Beaver just how successful he and his team have been in growing the business…

Centriq Insurance Company is a leader in the niche insurance field with a strong track record for growth and the ability to provide specialised insurance solutions to many different industries while retaining the financial clout of a larger institution.

The company was established in 2007 when two companies with cell captive insurance licenses, Santam Risk Finance and Nova Risk Partners, merged to form Centriq.

Santam, the largest short-term insurance group on the African continent, subsequently became a 100% shareholder in Centriq, which is still the case today.” Beaver elaborates:

THREE AREAS OF OPERATION The independent insurance provider focuses on

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three main areas of business - customised risk financing and alternative risk finance solutions, underwriting management agencies (UMA’s), and brand affinity solutions.

“We are represented in the conventional insurance space,” explains Beaver, “but exclusively through our UMA’s.” The UMA’s are responsible for the marketing, underwriting and administration of its specific insurance policy portfolios, whilst Centriq provides them with access to its insurance license, including all the governance and regulatory compliance tools, risk sharing mechanisms via a cell captive structure, reinsurance capacity and administration services they need to successfully operate in the marketplace.

Typically, the UMA’s that partner with Centriq represent a particular niche or specialisation, be it through product or service or both.

Centriq Insurance Company

CEO | Gareth Beaver Through this business model the company is able to access and provide insurance solutions to a number of different industry sectors ranging from aviation, marine, professional indemnity, medical aid gap-cover, life insurance for individuals living with HIV or diabetes, to the entire spectrum of motor insurance cover available in the market today, to name but a few.

“We expect to exceed R1.3 billion of gross written premium for 2015 in this space,” says Beaver.

The company’s risk finance and alternative risk transfer solutions business segment, where it provides a range of self-insurance financing solutions for the conventional and nonconventional type of risks that a company faces, is also niche-based.

“Our clients here range from very large organisations, i.e. corporates, parastatals,

non-governmental organisations (NGO’s) etc. to mid-sized commercials and associations in the agricultural sector for example. They use our licence in different ways to self-insure stuff that’s uninsurable by, or expensive for the conventional insurance market to insure.”

The third area of Centriq’s business is its Brand Affinity Insurance Solutions where it partners with non-insurance entities who want to attach, market and sell an add-on insurance product to a core product they offer.

“Our brand affinity solutions also target non-financial services companies who wish to provide an insurance option alongside the other products they offer.” Examples include cell phone companies who wish to link phone handset insurance to the sale of an air-time package; motor warranty protection for new or used vehicles; and retailers selling household

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goods (e.g. TV’s, washing machines etc.) for which they need to protect either the asset purchased against accidental damages, or the ability of the consumer to pay their instalments (e.g. retrenchment, disability, death).

In addition to the obvious add-on insurance products mentioned above, brand affinity insurance solutions have evolved to include other insurance products that are considered to be of value to consumers of the representative brand, e.g. funeral benefits or education pay-out policies that are linked to death or disability.

2014 HIGHS AND LOWS The short-term insurance industry has experienced difficult conditions in recent years; conditions which have been felt in some way by all companies operating within the sector.

Due to the fact that the industry is oversupplied with risk capital, that premiums are under-priced relative to the risk insured (particularly in the motor market), and that

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an increase in incidents of large losses (due to isolated events or weather related catastrophes) has occurred, insurance companies and reinsurers nationally have produced some poor results over the last 24 months.

As such, both Centriq and some of its UMA’s has had its fair share of pain. “I am, however, glad to say that we have managed to stem a lot of that during the course of 2014 by de-risking in selected under-priced market segments.” But the insurance industry as a whole is still under pressure.

On the plus side of things, a number of positive changes took place within Centriq itself over the last 12 months or so. New prospects for growth have helped the company to entrench its position as a niche-insurance leader in the market place. “We have also added new skills to our specialist risk financing team from the accounting and banking sectors,” says Beaver.

A recently cemented partnership with one of the big global reinsurance brokers, Willis Re,

Centriq Insurance Company also helped Centriq to secure a number of new UMA’s that will partner with them during the course of 2015. “So we’re expecting to see quite a big step-up in terms of our growth and income in the UMA business segment.”

NEW PRODUCT OFFERING Another milestone is that they have just secured significant capacity in the mining rehabilitation guarantee space. “We have secured specialist skills via a new UMA in which we will be the majority shareholders. So we are really excited about being able to provide guarantees for environmental impairment liabilities as required by mine owners in SA’s mining industry.”

By embarking on the above, Centriq is yet again providing a niche funding solution that not many others can compete with in South Africa. With these types of guarantees, the insurer effectively takes a credit risk on the client by offering it a funding mechanism that, in turn, enables it to meet the financial obligations associated with the environmental clean-up requirements at the end of a mine’s life-time.

“The mining industry in South Africa is obviously a big industry across most of the major commodity classes. Evidently, as they mine, they damage the environment and are legally liable to clean up the site when they stop mining. To meet this liability, they need to make financial provision for it, and that’s where Centriq comes in,” explains Beaver.

Two commonly used options to provide for this liability (and the required guarantee from

“One of our continuing goals is to ensure that we are considered to be the best company to work for by our people”

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WEBSITE

www.saunderwriters.com

www.sauonline.co.za

POLICY ADMINISTRATION

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the Department of Minerals) are: to set up a specialist trust into which contributions are made according to the underlying environmental liability, or to get an acceptable banking institution to provide a financial guarantee, for which the miner would typically need to cede certain assets to the bank. A third alternative is to turn to one of only a handful of DMR approved insurers like Centriq to provide such guarantees.

“It was necessary for us to secure R500 million capacity from international reinsurers [to provide mining guarantees]. We also had to demonstrate that we had the expertise on board, which we now have, following the expiry of market restraints since the people we employed left a competitor in the market a year ago.”

At this stage, there are only two other insurers in the above-mentioned field that Beaver knows

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of that are participating in a meaningful way.

“There’s not a massive amount of competition from the others because it requires specific expertise to secure the reinsurance capacity, which is fairly scarce in the market.”

This enhanced product offering for Centriq not only enables it to capture a share of this specialist product class, but also provides a much needed funding solution to a market that makes up a significant chunk of South African gross domestic product (GDP) – 8.3% to be exact, according to Chamber of Mines figures.

It is this diversity that has enabled the company to grow in a somewhat difficult climate: “The conventional insurance space is a very competitive market space because there are lots of players in the market. But, our two specialist focused business units, our alternative risk finance and our brand affinity,

Centriq Insurance Company

is fairly specialist and niche, and so with limited competitors that really claim the space, we’ve done okay in holding our share of market and growing,” elaborates Beaver.

“I think growth prospects for financial services groups like us have to be based on an African growth story” Beaver explains that due to stagnant conditions in some global markets, the international insurers and reinsurers, particularly the big European ones, have been looking for yield and see Africa as a growth area.

This has also added to making the local industry very competitive - with companies traditionally using South Africa as somewhat of a springboard into the rest of the continent.

“Global insurers and reinsurers have typically been well-represented in South Africa for many years – we’ve got much higher insurance penetration rates than the rest of Africa,” explains Beaver.

LOOKING AHEAD After the exciting developments of the past year, Centriq is looking forward to seeing how its new partnerships and mining product offering shape up this year and in to 2016. “Following these developments, the company understands

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the need to continue to adapt to the market and look for new areas of growth.”

When asked what’s next for Centriq, Beaver says “what is now on the radar screen is to be looking fairly closely at what opportunities in Africa there might be for Centriq. Our parent company, Santam, and our ultimate parent company, Sanlam, have been very active in expanding quite a bit throughout the continent.”

As those markets grow and become more sophisticated, insurance is obviously becoming more and more of a requirement.

Commenting on how he thinks Centriq should service the above, Beaver says: “I think growth prospects for financial services groups like us have to be based on an African growth story. Being South African, I believe we’ve got a slightly better advantage or idea about how things work in Africa, compared to some of the international groups.”

Aside from the prospects to grow geographically, Centriq could potentially make

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the best of the difficulties in South Africa’s insurance space. One natural result of the tightening market conditions is that some smaller operators are looking to consolidate as a way forward. As such, there are opportunities for a company like Centriq to make some strategic acquisitions that could bolster its service offering.

Beaver explains that “they see themselves as being well-positioned to expand and grow via specific acquisitions. I think the tough, difficult market conditions have put a lot of smaller operators in to a difficult space, so we predict, in fact - we can see already, that consolidation is taking shape in the industry.

“We have in our sights the desire or understanding that we probably need to look at picking up opportunities via acquisition whether that’s just buying people or buying books of business, or even businesses outright.”

The future really does look bright for this diverse insurance company. Not only is there

Centriq Insurance Company

real potential for further commercial and geographic growth, but there is organic growth potential in the mining guarantee product framework that Centriq have just finalised.

Due to the surge in alternative energy projects in South Africa, there is scope for a similar product to the mining rehabilitation guarantee to be set up to service new solar and wind projects. Although currently not a legislative requirement in South Africa, Beaver predicts that this will change in the near future and that prior to that, companies will want to participate from a good corporate citizen perspective.

Overall, and when it comes to the key to Centriq’s success, Beaver cannot stress enough how important relationships with its clients, business partners and employees, are to the insurer.

“At the end of the day, it all boils down to having good people who are passionate about their jobs and the company’s success. And it

is good skills, and a good culture in terms of how we do things internally, which attracts and retains good people.”

“We’re also fortunate that, because of our business model where we partner a lot with other organisations, we have a fairly small headcount in relative terms, and can keep the above-mentioned culture – and that’s number one.”

The company achieved a top three rating in its industry category in Deloitte’s Best Company to Work for survey last year. “And this is an ongoing goal; to ensure that our people consider us the best company to work for,” says Beaver.

“Second to that we’ve very much had a quality shareholder in the form of Santam Insurance Group, which has given us access to the right opportunities. Also, being the largest shortterm insurance company in South Africa and the African continent, they demand a very high standard of discipline and quality within the business,” he concludes

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