Resolution Health CEO marks bulk of shares for sale

The chief executive of Resolution Health, Peter Nduati, plans to sell up to 32 per cent of his stake in the company to three local private equity funds for more than Sh200 million.

The share sale is intended to bring the company into compliance with the provisions of the Insurance Act as the firm seeks to convert into a fully-fledged insurer from a medical insurance provider (MIP).

Mr Nduati holds 52 per cent shareholding, which is set to drop to 20 per cent, but which will allow him to stay on as CEO.

“I will have to reduce my stake because of regulations governing insurance companies,” Mr Nduati told the Business Daily on Wednesday.

The Insurance Act caps individual ownership of insurance companies at 25 per cent. The same threshold applies to executives.

African Development Corporation (ADC), a Frankfurt-based private equity firm, is the other major shareholder with a 25.1 per cent stake while John Mwangi, a former CEO of Equity Bank, and Heartwood Services have a combined stake of 22.2 per cent.

All insurance companies are expected to meet the ownership requirements this year, after it was extended from December 2010.
This means that licences for MIPs will be revoked and they will be required to either convert into insurers, insurance brokers, or medical service providers under the Ministry of Health.

MIPs have been running as insurers and insurance brokers, taking premiums for the less risky outpatient services and reinsuring the risky in-patient business with local insurers.

The change to an insurer means that Resolution Health will take premiums and assume the risks from its medical insurance services. This will raise competition in the medical insurance market.

Resolution Health has lined up Sh300 million to meet the capital requirements of a medical insurer. Last year, the company raised Sh76 million from a rights issue and another Sh184 million from ADC.

The two fund-raising activities increased its core capital from Sh40 million to the current Sh300 million, giving it the strength to underwrite medical insurance products.

Private equity firms have stepped up their activities in the local market, seeking to buy out individual owners with excess stakes in fast-growing insurance firms.

AAR Health Services is another MIP expected to convert into an insurance firm with financing from a private equity firm. Investment Fund for Health in Africa (IFHA) is expected to pump about Sh1.5 billion this year to acquire 60 per cent of the company by 2013. The fund already owns 20 per cent of AAR after injecting Sh750 million last year.

AAR will also spend about Sh150 million to increase the number of clinics it owns from the current 25 to 55 across Kenya, Uganda, and Tanzania.

The recent purchase of stakes by three more private firms in Resolution Health signals confidence among investors in the company.
Mr Nduati said the company’s premiums grew by 42 per cent last year but he declined to give absolute figures.