Pan Africa Insurance profit falls 97pc on Gateway acquisition

Pan Africa Insurance Holdings has taken a Sh564 million hit from its acquisition of Gateway Insurance last year, contributing to a 97 per cent fall in the Nairobi Securities Exchange-listed firm’s profit in the year ended December.

The company bought a 51 per cent stake in the general insurer last year for Sh561 million, projecting increased earnings from the subsidiary.

Gateway’s performance has however disappointed, a move that has seen the excess value anticipated by Pan Africa surpass the net worth of the subsidiary by Sh564 million.

This means Pan Africa paid a hefty premium in the acquisition whose payback is likely to take longer than initially expected. The accounting loss contributed to the 97 per cent drop in the listed firm’s net profit to Sh27.3 million in the review period, down from Sh871.1 million the year before.

“The profit was also adversely impacted by the goodwill impairment of ShSh564 million recorded in the year,” Pan Africa said in a statement. “This relates to goodwill recognised in respect of the acquisition of Gateway in February 2015.”

The company said the write-down of the goodwill was brought by an increase in provisioning for claims and adoption of a more conservative business valuation process.

Gateway made a net loss of Sh171.7 million in the year ended December, narrowing the restated net loss of Sh688.3 million a year earlier.

The subsidiary had reported net profits in previous years when it was in the hands of some 20 shareholders, including the family of the late Godfrey Karuri.

Pan Africa said it would raise its equity in Gateway from the initial 51 per cent by buying additional shares from some of the founder shareholders.

READ: Pan Africa insurer completes Gateway acquisition deal

It was not immediately clear, by the time of going to press, whether it has made the additional share purchases.

Acquisition of Gateway marked a change in strategy at Pan Africa which in 2011 exited the general insurance business to focus on life policies by selling its 39.9 stake in APA Insurance for Sh855 million.

The company later said it needed to re-enter the general insurance business if it was to get a share of economic growth driven by sectors such as construction.

This prompted the Gateway acquisition whose completion coincided with increased competition in Pan Africa’s mainstay life insurance business where it previously was among the largest players.

Pan Africa’s gross premiums from life insurance dropped 12 per cent to Sh4.6 billion in the year ended December.

“This point sto increased competition in the life business where Pan Africa has lost market share in both group life and ordinary life,” Standard Investment Bank (SIB) said in a statement.

SIB estimated that the company’s market share in group life had fallen from 31.4 per cent in 2012 to 19.7 per cent in 2014 while that of ordinary life had shrunk from 14.5 per cent to 14.4 per cent over a similar period.

Besides the weak performance of Gateway, Pan Africa’s profit fall was also driven by rising interest rates and a bear run at the Nairobi bourse that marked down the value of its investment securities.