Standard Bank’s hidden insurance giant

Standard Bank is starting to see the benefits of fully integrating Liberty into its business, with it saving billions from more efficient use of its capital and seeing good traction from offering insurance products to its banking clients. 

The bank has had a long relationship with Liberty, with Standard Bank South Africa taking control of Liberty Life in 1999. 

Liberty’s relationship with Standard Bank has been extremely close at times and distant at others. 

In recent years, the bank’s leadership looked to bring this to an end by buying out the minority shareholders in Liberty and making the insurer a wholly-owned subsidiary of Standard Bank.

This was completed in 2022, with the institutions solidifying their strategic relationship and creating a fully integrated financial services provider.

“We are creating a more united group that will bring our banking, insurance and asset management businesses much closer together to create something really special,” Standard Bank CEO Sim Tshbalala said at the time. 

“This will be a whole that will be much greater than the sum of its parts.”

The deal had obvious benefits for both parties. The bank can reduce its reliance on lending for its earnings and thus its sensitivity to interest rates, while the insurer has access to Standard Bank’s substantial distribution channels.

Deputy CEO and head of the bank’s South African business, Kenny Fihla, explained that phase one of the integration has been completed, resulting in significant savings for the unified company. 

“It was about optimising the capital base because we were sitting on too much capital as a result of having two listed entities with separate requirements,” Fihla said. 

“With Liberty now integrated into Standard Bank, that has helped us to release capital and optimise our capital stack.”

The results of this can already be seen, with the bank receiving R13 billion from Liberty since the integration in the form of distributions from capital optimisation and normal business activities. 

In effect, Liberty’s purchase price has recovered in cash in the three years since the transaction concluded. 

Furthermore, the bank estimates that the integration generates R620 million per year in pre-tax synergies from increased efficiencies across staff and IT costs. 

The other side of the equation is the increased sales of investment products and funeral insurance sales in South Africa, which can now be offered through Standard Bank’s banking app. 

An overlooked part of the transaction is the integration of Stanlib into Standard Bank, giving it an extra R600 billion in assets under management and the ability to cross-sell unit trust and other investment products to its banking clients. 

This is a key part of Standard Bank’s aim to become the number one private bank in South Africa and in Africa. 

Fihla explained that all of this is part of the second phase of Liberty’s integration into the bank. 

“We want to bring an amazing product set that sits in Liberty to the distribution network that sits within the bank. That work has been undertaken in the past two years.” 

“We are not where we want to be yet, but we have made strong progress in ensuring that we can align the product credibility to the distribution network that sits in the bank.”

Part of driving this is upskilling the bank’s existing private bankers to sell insurance products to clients and enable Liberty’s financial advisors to offer banking products. 

Apart from Liberty’s insurance offering, asset management is a particularly attractive and lucrative part of being a full-service financial institution. It is capital-light and offers high-quality earnings with a higher return on equity than traditional banking activities. 

Furthermore, the earnings volatility in the asset management business is relatively low compared to banking and is thus deemed higher quality.

Liberty’s head of South Africa Retail Life and Savings, David Jewell, explained to Daily Investor that the aim is to make the banking app a one-stop-shop for all a client’s financial needs. 

“If you are a Standard Bank client, then you can obviously access all the banking solutions on a single platform. What we are driving now is enabling you to access insurance products on that platform,” Jewell said. 

At the same time, Liberty has enabled its advisors to offer insurance clients access to Standard Bank’s banking products. 

“I think we are starting to see some really interesting green shoots in progress regarding that greater cohesion and integrated strategy,” he said.

However, Fihla said it is difficult to fully integrate some more complex insurance products into the app and will conducted largely through Standard Bank’s branch network. 

This is also a challenge when the bank wants to replicate this throughout its African operations, which have different regulations, minimal insurance penetration, and varying client needs. 

“The Africa Regions business has vastly different countries and geographies, each one of them has slightly different dynamics in terms of the size of the pie and what the product offering will look like,” Fihla said. 

“The team has done an assessment of where they think there are opportunities for growth and where they think we should wait for the environment to mature and regulations to stabilise.” 

“We have made it clear that we are not going to roll out our offering willy-nilly across all of our markets but will rather target a few key countries.”