Capitec’s next big move

The Competition Commission of South Africa has recommended that the Competition Tribunal approve Capitec’s acquisition of the credit life insurance business underwritten in the cell structure of Guardrisk Life.

This marks the finance group’s next big step toward starting to underwrite its own insurance products and making a significant play in the insurance market.

The Capitec Group already provides banking and insurance services. However, its insurance products are currently limited to life insurance, which it provides under its own licence.

Capitec obtained its own long-term insurance licence in the 2023 financial year and began issuing credit life insurance policies in May 2023. Before then, all insurance products were underwritten by Guardrisk.

Guardrisk Life is a wholly-owned subsidiary of Momentum Metropolitan Holdings.

Guardrisk provided credit life insurance products to Capitec Group’s banking clients through a cell captive arrangement.

In April, Capitec CEO Gerrie Fourie said that the group was transferring roughly 550,000 Guardrisk insurance policies to its own insurance business and that the process would be completed around August.

The commission has recommended that the tribunal approve the deal with conditions.

The condition is that Capitec addresses public interest concerns by committing to provide funding to firms owned by historically disadvantaged persons.

Future insurance play

Capitec launched its first full insurance product in June, with Capitec Life Cover made available on the Capitec App or via a branch to its 22 million customers.

The next step for the group in the insurance sector is to write funeral policies on its own insurance licence after cancelling a deal with Sanlam.

In October 2023, Capitec and Sanlam announced that a seven-year funeral product cooperation arrangement would end on 31 October 2024.

Capitec is now expected to start issuing its own funeral policies from 1 November.

In much the same vein as the Guardrisk process, all policies in force at the time of the cancellation of the deal will remain with Sanlam in the captive arrangement cell until Capitec transfers them over—regulatory approvals pending.

For the last financial year, Capitec’s total profit after tax for its insurance business grew by 12% to R3.1 billion.

In terms of funeral coverage, Capitec covered 12 million people and had a 35% market share of new customers.

Big business

Insurances is a big money spinner in South Africa, and Capitec, with a third of South Africa’s total population on its books, stands to make significant gains by leveraging its reach.

Insurance companies make their money from the premiums that they charge in exchange for coverage.

These premiums are used to pay out claims, cover the cost of attracting new clients, pay for the cost of having people tested as part of the underwriting process, and for their expenses like paying their staff’s salaries and office rentals. The leftover amounts are the cover.

Insurers rely on the fact that not all of their clients will claim, so they try to sell as many policies as possible. The money from the clients who do not claim is then used to pay for the clients who do.

The biggest life insurers in South Africa have posted multi-billion rand profits in their latest results: