Higher returns, oil and gas fuel insurance mergers and acquisitions

From left: Metropolitan Canon Insurance CEO Andrew Greenwood presents the Group Life Best Practice Award to Jubilee Insurance Life Agency Administrator Peter Njiru, Life Unit Manager Joyce Nderu and General Manager Life Aggrey Mulumbi at the AKI Agent of the Year Award recently. The sector is one of the best performing in Africa.[PHOTO:COURTESY/STANDARD]

Higher returns in the insurance sector and growing middle class are attracting more foreign companies into Kenya, ready to deepen their entry into the local market.

This is happening at a time when the multi-billion shilling industry is undergoing realignments in capital injection and technology - setting new operating standards. The repositioning has seen local companies expand their horizons across the region to increase their growth prospects and diversify risks.

The last two years have seen increased mergers and acquisitions between local and foreign companies. “A number of factors are into play as to why the local insurance is experiencing higher developments. Foreign companies are interested in investing in the local market, owing to sound economic growth the country has been registering,” said Association of Kenya Insurers Executive Director Tom Gichuhi.

“The insurance industry has been rated as one of the fast growing market in Africa with level of awareness to customers equally going up.” Insurance Regulatory Authority (IRA) Chief Executive Sammy Makove concurs that the industry’s attractiveness has been linked to increased acquisitions of the local insurance by multinationals and mergers.

“Some factors contributing to this desirability include the increasing ease of doing business in Kenya and the discovery of oil and gas in the country,” said Makove. “Going forward, premium growth is likely to accelerate as well as capitalisation, supported by the capital inflows from multinational insurance corporations.” MMI Holdings Ltd, a South African based financial services group early last year acquired a majority stake in Cannon Assurance. Pandit family also recently sold their controlling stake in Mercantile Insurance to a Morocco-based Saham Finances in 2013. Prudential Plc acquired Shield Assurance Company while Pan African Insurance has acquired substantial stake in Gateway Insurance Company.

In the recent past, large insurance firms have been fast-tracking strategies to exploit opportunities in the region. “The expansion of the market by Kenya insurers is purely based on the need to exploit the existing opportunities in the regional market. The shift by companies demonstrate the maturity of the local industry,” observed  Britam Director in charge of Marketing and Corporate Affairs Muthoga Ngera.

New products

He said the local insurance companies have also been developing new products targeting new segments, agriculture, oil and gas, terrorism among others.

Some local firms that have either incorporated companies or partnered with existing ones into parts of Eastern and Southern Africa include Britam, Jubilee Insurance, CIC Group, and UAP.

The companies have operations in Tanzania, Mozambique, Burundi, Rwanda, South Sudan, DRC Congo and Uganda. Mid last year, Britam acquired Real Insurance Company which had operations in Tanzania, Malawi, and Mozambique.

Group Managing Director Benson Wairegi says Britam now has the largest geographical presence in the region after the acquisition.

Wairegi observed that the acquisition has enhanced its rating to position two on gross premium basis in the local market. “Our market share has grown considerably following the acquisition and the synergies between two companies,” said Britam boss.

Data from IRA shows the merged entities Britam and Real controlled a market share of 11.2 per cent as at June 2014, behind Jubilee’s 12.6 per cent, while ICEA Lion came third controlling eight per cent. Wairegi said the acquisition will result in the creation of one of the largest insurance groups in the region, with operations in Kenya, Uganda, Tanzania, Rwanda, South Sudan, Malawi and Mozambique.

Market leader Jubilee Insurance plans to increase its footprints in east, central, and West Africa in the current financial year. “Our balance sheet is strong and we have adequate reserves to enable us actualise the mission,” said company Chairman Nizar Juma. “Currently, we are at different levels of negotiations to acquire two companies in target market. Our intention is to expand our market share in Africa and thus benefit from the untapped potential.”

Gichuhi said foreign companies will help to set up new operating standards which the local insurers can benchmark their investment on. But industry players fear the entry of  foreign companies will see the market characterised by buyouts as small companies fail to endure the cutthroat competition.

The market has 49 insurance companies as at the end of December 2015 while penetration in the insurance industry stands at 3.4 per cent. Despite low penetration, Kenya is ranked fourth in Africa after South Africa, Mauritius and Botswana.

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