Insurers reluctant to merge under new law

The separation of the two business lines is to put to an end to the current scenario where the entities are said to be subsidising each other in terms of claim settlement.

General insurance has higher claims than life business which tend to be long term.

For instance, in 2008 claims from general insurance amounted to Sh15.9 billion while those under life insurance were Sh10.6 billion.

There are 15 companies offering both general and life insurance categories.

The latest player to opt to separate the two businesses is Blue Shield, which has created Shield Assurance to handle life and Blue Shield retaining general assignments.

“By separating the two business lines, we expect to eliminate subsidies between the entities and consequently the inefficiencies associated with running the two business lines together”, said Patrick Wanjala, the managing director in a previous interview.

Due diligence

Mr Wanjala indicated that the splitting of the two classes of business will allow each entity to refocus on their core points by aligning them to be profit making centres.

“This has necessitated restructuring by de-merging so as to grow both Life and General insurance as separate entities, thus allowing each to effectively focus on its operation, boosting specialisation in respect to their specific individual products.”

Contractual obligations

With neither sector consolidation nor entry of new strategic investors confirmed, analysts see time running out for the drawn-out pre-acquisition phase that involves due diligence, an audit of businesses records to determine a firm’s financial health.

“Due diligence exercise involves looking at a firm’s liabilities, contractual obligations and its assets in real value terms,” said Ashwini Bhandari a partner at Daly & Figgis Advocates.

Depending on the size of an existing business, Ms Bhandari says that due diligence can take about three months depending on how well the records have been kept.