Johannesburg-based Barclays Africa is set to acquire a controlling stake in Kenya’s First Assurance for Sh2.9 billion in a transaction that opens the door for the bank’s Kenyan subsidiary to gain a foothold in the insurance market.
Barclays Africa on Wednesday announced that it is buying a 63.3 per cent stake in the insurance firm and will pay Sh2.2 billion to First Assurance shareholders besides injecting an additional Sh700 million as capital to grow the business.
The deal, which the parties expect to be concluded by September subject to regulatory approvals, is an indicator of Barclays Kenya’s intent to expand its revenue streams away from the traditional corporate and retail lending market.
Barclays Life Assurance Kenya (BLAK), a firm that Barclays Africa formed with businessmen Ayisi Makatiani and Darshan Chandaria in April, will run First Assurance’s life business.
The new outfit is to spearhead Barclays’ entry into an insurance market that is currently dominated by giants such as Jubilee Holdings, Pan Africa Holdings and Britam Group.
“The deal will enable us to significantly scale up First Assurance’s life insurance business using the synergies we both enjoy including branch reach and technical expertise,” said Lanz Zulu, Barclays Africa’s Wealth, Investment Management and Insurance managing executive.
“We shopped around but First Assurance’s capitalisation, its strong board and good reputation stood out,” he said.
First Assurance, which started off in Kenya as Prudential Assurance Company in 1930, has 132 employees serving 50,000 customers in group life, medical and general insurance.
The company’s shareholding structure has remained a well-guarded secret, the only information available being that it is owned by two investment vehicles - First Assurance Investment and Syndicate Nominees.
The first outfit is owned by the company’s directors who are currently six) while the second one is made up of several individuals including a former vice president.
First Assurance has five branches in Kenya – two in Nairobi and one each in, Nakuru, Mombasa and Kisumu – besides the foreign branch in Dar-es-Salaam, Tanzania.
Its 2014 financial statements indicate that it posted a net profit of Sh517.7 million, having grown 37.3 per cent from the Sh376.9 million posted a year earlier.
Last year, First Assurance wrote gross premiums worth Sh4.4 billion (a 15.7 per cent jump from the 2013’s Sh3.8 billion) while its net assets grew 25.6 per cent to Sh2.16 billion.
These figures, and the willingness of the shareholders to be diluted, are what seem to have convinced Barclays Africa that the First Assurance was a good catch.
“This acquisition is the culmination of a strategic plan which I have focused on since joining and which was based on three things; growing SME banking, investment banking and bancassurance,” Jeremy Awori, Barclays Kenya’s managing director, said while announcing the buyout deal on Wednesday.
“Most of our competitors have been participating in the insurance sector for a number of years but we have not been able to do so. This deal allows us to do so and to help drive insurance penetration in the country.”
Barclays’ main competitors Equity, for instance, has an underwriting subsidiary named Equity Insurance Agency Ltd while Kenya Commercial Bank has KCB Insurance Agency, and NIC Bank has NIC Insurance Agents.Total premiums for group life segment stood at Sh162 billion last year -- equivalent to 3.5 per cent of Kenya’s GDP.
This signals a significant growth opportunity in the coming years, with the growth of the middle class and increasing awareness of the role of insurance in hedging risks.
The stage for Barclays Kenya’s acquisition of First Assurance was set about three years ago when South Africa’s Absa took control of Barclays PLC’s Africa’s operations.
Barclays Africa at the time highlighted bancassurance -- where the bank sells insurance products through its banking halls – as one of the products its subsidiaries would offer.
Barclays has set up life insurance businesses in including South Africa, Botswana, Mozambique and Zambia.
“The consolidation offers opportunities for Barclays in Kenya to go big in offering new products like investment banking, bancassurance, and project finance,” the bank said in 2012 when asked about the consequences of the Absa takeover.
Barclays Kenya was recently awarded a bancassurance licence by the Insurance Regulatory Authority, a move that saw it open Barclays Insurance Agency in February.
Two months later it announced the joint venture deal with Mr Makatiani and Mr Chandaria to BLAK in which Barclays owns a two-thirds stake.
The fledgling BLAK is now set to be controlling First Assurance’s life business, essentially making its debut in the Kenyan insurance sector that has in recent years experienced several mergers and acquisitions.
“Once the transaction is concluded, we shall do an internal audit of the insurance business to determine whether there is need to rebrand their branches,” said Mr Zulu.
“It is at this point that we shall also determine the board’s composition. We shall most likely have a board of seven members, with our representation reflecting the new shareholding structure.”