After Old Mutual entry, what next for UAP?

It has been a busy month for UAP Holdings.

In just three weeks, the insurance firm has seen the exit of four of its anchor private equity investors and a multi-billion-shilling buyout that resonated in the country’s insurance industry.

All these developments come on the back of UAP executing a massive expansion drive into the region, as well as plans to list on the Nairobi’s Securities Exchange (NSE), while still undertaking one of the largest real estate projects in the city.

Mr Dominic Kiarie sits at the helm of the financial services provider and in an exclusive interview, the group managing director shares the company’s journey so far and its planned direction after acquisition.

How did the acquisition and strategic partnership between UAP Holdings and Old Mutual Holdings come about?

Old Mutual are our strategic investors and also our shareholders. When we started off, we had four key anchor shareholders, plus the PE [private equity] investors who came in 2012.

The anchor investors included Dr Joe Wanjui, Centum Investment Group and Dr Chris Kirubi. Centum and Dr Kirubi had invested in UAP for 13 years — since 2001.

Centum has big projects it is doing and in light of realigning its portfolio and investing in new sectors, it took a decision to exit its investment in UAP Holdings, which it considered mature.

Over the course of the past year, it worked hard to identify who would be the ideal investor to take on its 23.3 per cent block stake, and after weighing the options, it settled on Old Mutual.

What does Old Mutual bring to the table?

There was a lot of strong interest, including from international investors, and the decision to settle on Old Mutual was based on the fact that UAP and Old Mutual had a lot in common insofar as growing the insurance business into the rest of Africa is concerned.

Old Mutual brings in strong technical expertise because it has been in the business for a long time, and understands the Kenyan market after increasing its portfolio in the country in recent years.

At the same time, it brings in the financial muscle that will be instrumental in pushing UAP’s expansion agenda in the near to long term future.

What we had before were PE investors, and their specialty is providing seed capital. When it comes to growing a business, it is essential to have a strategic partner who has both technical know-how and capital.

What does UAP get out of this?

Old Mutual is a strong brand in the insurance business in Africa and the first benefit we are getting, of course, is leveraging on the Old Mutual brand.

Our intention has always been to extend our footprint into key markets in East and Central Africa and selected markets in other parts of Africa. The extra capital and expertise from Old Mutual will facilitate this.

At the same time, we are keen on developing revolutionary financial services for our clients in a rapidly changing regional financial sector, so this could not have come at a better time for our clients. What it means is that in businesses where we don’t have services, we will be able to offer clients Old Mutual services, and vice versa.

We also have plans to list on the NSE and the idea was to do that through an introductory offer in the near term. Of course now we have to take into context the acquisition so that we get the timing right.

What next for both companies?

The next step is to integrate the common businesses of the two in Kenya, including the life, general and investment businesses.

We are currently ranked eighth in the country in terms of market share, but bringing the two businesses together elevates us to fourth position and second-largest in terms of asset management.

This means we are a bigger business, which gives us critical mass, and the intention is to be the market leader in life, general and all our businesses within a very short time.

There has been a lot of activity in the country’s insurance sector and yours is just the latest in a long list of mergers and acquisitions in the sector. What does this say about the insurance industry?

The first thing we are getting from this is that there are very good opportunities and prospects in this market, hence the attention from global players like Old Mutual.

At the same time, we are getting a feel that the Kenyan insurance market is ripe for consolidation. We have had a large number of players — around 42 — and having big international players in the market helps us to consolidate.

Consolidation will create stronger players with a stronger capital base to offer better products and take more risks on behalf of clients. The business of insurance is the business of risks, and for you as the service provider to take the risk on behalf of your client, you need to be backed by capital.

Having a strong balance sheet will ensure we are able to provide our clients with insurance services across their entire spectrum of needs.

What does all of this mean for insurance penetration in the country, which remains quite low compared to more mature markets?

The first thing we will see is the emergence of strong regional players with strong balance sheets, which is good for the market because it enhances competition.

When competition is enhanced, service providers will have to engineer their products better and give their clients more value for money to remain profitable.

In mature markets, you find seven to 10 players, of which six are fairly strong and controlling up to 75-80 per cent of the market. The balance of the market is served by niche players who are smaller but focused on growing within specific areas.

fsunday@standardmedia.co.ke