Private equity fund buys stake in APA for Sh1.2 billion
Private equity fund LeapFrog has bought a stake in APA Insurance in a deal that will see it inject capital and expertise to help the company offer diversified micro-insurance products.
The deal is worth Sh1.2 billion and will give LeapFrog one seat in APA’s board.
The number of shares created for the deal was not disclosed although company officials termed the stake as “a significant minority.”
“We plan to diversify our micro-insurance offering by end of the year and LeapFrog will offer the capital and expertise required,” said the APA chief executive, Mr Ashok Shah.
APA already offers weather-indexed micro-insurance packages.
The firm commands the second largest market share in the general insurance business.
In 2009, it controlled market share of 8.43 per cent compared Jubilee’s 8.56 per cent.
The company’s general business grew 21 per cent in 2009, according to the Association of Kenya Insurers (AKI).
The company is strong in medical and personal accident businesses.
APA created new shares to accommodate LeapFrog that plans to stay in the investment for four to seven years.
Officials said the exit options include selling shares to another strategic investor, an initial public offer or share buy-back by APA.
The acquisition makes APA a major deal-maker in the insurance industry.
Besides the recent acquisition of CFC holdings—which owned CFC and Heritage Insurance—by South Africa’s Standard Bank in 2008, the industry has not witnessed any dealings since 2003 when Apollo Insurance and Panafric Insurance merged their general insurance business of to form APA Insurance.
A fortnight ago, Pan African Insurance subsidiary PA Securities Limited said it was in the process of selling off 39.97 per cent of its stake in APA to Apollo Investments Ltd.
LeapFrog is a micro insurance investment fund formed last year by the Soros Funds Management, Flagstone Reinsurance, sovereign fund KfW of Germany and FMO of Netherlands and is worth Sh8.4 billion.
The intention is to invest in insurance firms that have products targeting the low income population.
In South Africa, the company has invested in All Life Insurance which only gives insurance to HIV positive people.
When it was formed last year, it announced it will invest at least Sh2 billion—ranging between Sh380 million and Sh1.1 billion shillings per company—in Kenya, meaning that it is still eyeing other companies although it did not disclose which ones.
CIC Insurance and Britak and UAP Insurance are some of the other players in the micro-insurance sector.
The deal effectively gives the PE foothold in Tanzania and Uganda where APA has subsidiaries.
The new deal will result in product development leaning towards long-term life micro insurance, long-term savings through pension and asset protection.
Long-term life micro insurance could be a game changer in a market where most of the life and medical micro-insurance products are short-term and cannot be used as savings year or their validity is tied to the loan repayment cycle.
The deal comes amidst sharp warnings that fraud has hit the micro-insurance industry in a big way but Mr Ashok said the deal will enable the company invest in new anti-fraud systems with heavy use of information technology for product distribution and claims processing.
The deal points to the potential of micro insurance in driving insurance penetration and being the cash-cow of premium income for insurers whose annual income is dwarfed by that of their counterparts in banking and pension sectors.
Offering cover for the low income segment is seen as an opportunity to increase revenue because of the huge pool of uninsured low income earners and is also leverage against poverty because it breaks the poverty cycle every time people are faced with an immediate huge financial need or lose the family breadwinner.
Micro-insurance offers risk cover to the poor. It targets about 7.9million informal sector workers expected to spend Sh1,000 per year.
