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Short-term
August 11, 2020

Elite Risk Acceptances shines in lacklustre market

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<p><strong>By: Old Mutual Insure</strong></p>

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<h2>South African wealth segment resilient in face of adversity </h2>

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<p><em>New World Wealth’s</em> 2020 <strong>SA Wealth Report</strong> records that there are approximately 38 400 millionaires or high net worth individuals (HNWIs) living in South Africa, each with net assets of US$ 1 million or more. While down from a high of 48 600 HNWIs in 2010, this figure still makes South Africa the largest wealth market in Africa and the 32nd largest worldwide in terms of total wealth held. Within this group 2 030 are multi-millionaires, each with net assets of US$ 10 million or more. There are also 92 centi-millionaires, with net assets in excess of US$ 100 million. There are five billionaires living in South Africa, each with net assets exceeding US$1 billion.  </p>

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<p>The large number of wealthy people living in South Africa was a significant motivator of Old Mutual Insure’s decision to launch Elite Risk Acceptances in 2018. Elite is a specialist underwriter in the high net worth (HNW) insurance market, providing individually tailored short-term insurance and personal risk solutions to wealthy individuals. </p>

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<p>Key drivers of wealth creation are; strong safety and security, media freedom and neutrality, secure ownership rights, good economic growth, a well-developed banking system and stock market, low levels of government intervention, low taxation, ease of investment, and wealth migration into the country. While South Africa has performed poorly on most of these indicators over the last decade and the number and net asset value of HNWIs has decreased, the country remains the largest wealth management centre in Africa and one of the 20 largest worldwide. </p>

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<p><em>Johannesburg is home to the largest segment of South African HNW wealth. Of the US$ 636 billion in assets held by HNWIs in South Africa in 2019, a full US$ 243 billion is largely accumulated in Hyde Park, Sandhurst, Westcliff, Houghton, Bryanston, Saxonwold, Park Town, Atholl and Inanda. Cape Town follows with a combined HNWI asset total of US$ 131 billion, concentrated in Clifton, Bantry Bay, Fresnaye, Llandudno, Camps Bay, Bishopscourt and Constantia. Durban, Umhlanga, La Lucia and Ballito are home to US$ 56 billion of HNWI’s assets. </em></p>

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<p>Looking back on Elite’s performance over the two short years since its launch, a definite highlight was, “achieving over R 100 million in gross written premium in our first full financial year of operation,” says Christelle Colman, Managing Director of Elite. This year, despite Covid-19, “we are already ahead of budget and expect to easily exceed our R250 million premium target for 2020,” added Colman.  </p>

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<p>Elite’s three-to-five year stretch target of R 1 billion in gross written premium also looks likely to be reached sooner rather than later. The upshot is that Elite plays a pivotal role in Old Mutual Insure’s 2020 personal lines growth strategy and is already insuring assets, “for a number of South Africa’s prominent HNWIs,” she adds. </p>

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<p>Over the last decade South African HNWIs have been moving away from investing in real estate towards equities and alternatives. Today, equities is the most popular asset class for HNWIs in South Africa, accounting for approximately 29% HNWI’s assets. Real estate is now second at 25%, followed by business interests at 20%, cash and bonds at 16%, alternatives at 8% and collectables at 2%. New World Wealth reports US$ 84 billion of local South African assets under management as of Dec 2019.  </p>

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<p>The South African luxury sector generates revenue of approximately US$ 2 billion a year, making it the largest luxury market in Africa. Popular assets amongst this segment include; luxury cars, luxury clothing and accessories, luxury watches and luxury hotels. </p>

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<p>Colman attributes the phenomenal growth in South African HNWIs seeking to secure their assets to, “strong high-end asset accumulation amongst this segment despite the lacklustre economy, as well as heightened security concerns.” Also, the fact that <em>New World Wealth’s</em> figures only record HNWIs with a net worth of US$ 1 million or more, there are, “many more HNWIs in South Africa who have acquired substantial fixed and movable private assets on credit,” explains Colman.  </p>

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<p>These wealthy individuals, whilst clearly not included in <em>New World Wealth’s</em> numbers, “still need to secure these assets as they remain responsible for financing them in the event of loss,” she adds. The average South African HNWI currently holds around 20% of their wealth offshore, up 6% from a decade ago. Popular foreign investments for South African HNWIs include United States ETFs, US$ cash and second homes in the United Kingdom.   </p>

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<p>Despite the trend to offshore, Umhlanga and Ballito have been two of the fastest growing areas of South African HNW asset accumulation over the past decade. Paarl, Franschhoek and Stellenbosch have also recorded large increases in the number of HNWIs over the same period. Another HNW hot spot is Plettenberg Bay. According to <em>New World Wealth</em>, the small town has over 100 homes valued in excess of R20 million. Knysna, George, Oudbaai, Hermanus, Wilderness, St.Francis Bay and Natures Valley are all also home to significant numbers of HNWIs and assets.   </p>

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<p>Garth Napier, Managing Director of Old Mutual Insure, believes that Elite has benefitted from its association with Old Mutual’s 175-year-old brand as well as its history and reputation for successfully managing and preserving wealth through generations.  </p>

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<p>Old Mutual Insure’s, “large and developed balance sheet is also an important consideration for people with high value assets during this period of Covid-19 epidemic-driven insecurity,” says Napier. In addition to, “Elite having maintained a healthy loss ratio for a start-up business,” Napier believes that since so many South African HNWIs already hold Old Mutual and Old Mutual Insure products, their experience with the group to date has been a significant factor in Elite’s phenomenal growth despite tough market conditions.  </p>

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<p>Looking ahead, South African HNWI’s key short to medium term concerns include the impact of COVID-19 on employment and wealth creation. Load shedding and Eskom also feature prominently as concerns likely to negatively impact growth and wealth creation. There is also heightened concern around potential nationalisation of health care leading to wealth and skills flight. A key long-term risk for South African HNWIs remains personal and asset safety.  </p>

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<p>Managing risk in today’s increasingly complex local and global environments requires a manager with an ability to develop and support integrated risk management strategies for HNWIs. Colman believes Elites’ ability to inform and manage the often very unique risks that HNW clients face within, “the larger risk and opportunity landscape presented by Old Mutual Insure’s broad financial services universe accounts for much of Elite’s early success and rapid  growth as an aspirational brand amongst South African NWIs,” she concludes.</p>

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