Top investors Sh10bn richer after wave of insurance buyouts

Insurance industry’s top investors have earned more than Sh10 billion in the wake of a recent wave of big-ticket acquisitions that have stirred Kenya’s usually quiet underwriting sector.

Former Vice-President Musalia Mudavadi, businessman Chris Kirubi, former KenGen chief executive Eddy Njoroge, the family of the late John Michuki, successors of the late Godfrey Karuri, and the family of Inderjit Talwar make the list of top beneficiaries who earned hundreds of millions from the recent takeovers.

The investors have sold their interests in the insurance companies to local and international buyers in a deal-making spree that is driven by growth opportunities in the domestic underwriting business as the Kenyan economy expands.

Mr Mudavadi, who alongside other investors is selling a combined 63.3 per cent stake in First Assurance to Johannesburg-based Barclays Africa for Sh2.2 billion, is the latest beneficiary of the insurance industry windfall.

Mr Mudavadi has been the major shareholder of the general insurance firm but it was not immediately clear whether he sold his entire interest or retained a minority stake after the acquisition.

Lamu Governor Issa Timamy, who is a director of First Assurance, is also said to have an interest in the company.

READ: Barclays Africa buys stake in First Assurance for Sh2.9bn

Continuing minority shareholders are expected to benefit from an additional Sh700 million that Barclays is investing in First Assurance to grow the business. The money is part of the total Sh2.9 billion that Barclays is paying for the deal.

Mr Njoroge is part of a group of individual investors, including Sam Kimani, who sold a combined 99 per cent stake in Real Insurance to investment group Britam last year for Sh1.3 billion.

The deal comprised Sh825.3 million in cash and 46.9 million units of Britam stock worth Sh550.21 million.

The cash-and-stock transaction has seen the individuals book an extra Sh423 million in the form of capital gains on the Britam stock that has left Mr Kimani as the single-largest beneficiary going by the 20 per cent stake he held in Real before the acquisition.

READ: Real Insurance owners gain from Britam share rally

Meanwhile, Pan Africa Holdings’ Sh561 million acquisition of a 51 per cent stake in Gateway Insurance left Mr Karuri’s family as the top beneficiaries of the transaction.

The Karuris owned 53.7 per cent stake in the company, which Pan Africa bought to re-enter the general insurance market it had exited in 2011 to focus on underwriting life policies.

The Karuris sold part of their stake in the acquisition, retaining a significant minority interest in Gateway.

Pan Africa has promised to buy more shares from the Karuris in the near term to keep their interest at 25 per cent or less. That deal will enable the Karuris to comply with individual shareholding caps as specified in the Insurance Act.

Besides the Karuris, the list of beneficiaries of the Pan Africa acquisition includes the family of former minister John Michuki, which held a one per cent stake in Gateway.

Businessman Inderjit Talwar’s family was the top beneficiary when Cannon Assurance sold a combined 75 per cent stake to South Africa’s Metropolitan & Momentum International (MMI Holdings) for Sh2.3 billion.

Cannon shareholders also got an undisclosed minority stake in Metropolitan Life Kenya, the other local subsidiary of MMI, completing the cash-and-stock transaction.

The biggest insurance industry takeover windfall, however, went to Mr Kirubi, who earned Sh3.6 billion after selling his 9.5 per cent equity in UAP Holdings to investment firm Old Mutual.

Interest has been growing in Kenya’s insurance market with a total of nine acquisition and merger deals in the past one year, including four that mainly featured transactions between institutional investors.

Old Mutual has, for instance, also bought significant stakes in UAP from Centum and a consortium of private equity (PE) firms, including Africinvest, raising its total stake in the company to 60.7 per cent. Old Mutual spent a total of Sh24.5 billion in the transactions.

The PE firm Leapfrog also spent Sh1.6 billion to acquire a 60 per cent stake in Resolution Insurance, buying out Frankfurt-based PE firm African Development Corporation and other investors.

Analysts attribute the acquisitions wave to institutional investors’ search for growth besides higher capital requirements that are expected to cause even more consolidation in the near term.

The uptake of insurance in Kenya stands at about four per cent, indicating significant growth prospects from overall economic expansion that is increasing the ranks of the middle class.

Investors are also looking at mergers and equity sales to boost their financial strength in the wake of higher capital requirements that have been set for the industry.

New regulations published by Treasury secretary Henry Rotich will require insurers to more than double their capital levels by June 2018. General underwriters will, for instance, be required to raise their capitalisation from Sh300 million to Sh600 million.

Life insurers will be required to have Sh400 million, up from the current Sh150 million, while those in the life reinsurance business will see their capitalisation jump to Sh500 million from Sh300 million. General reinsurers will need Sh1 billion in capital, up from the current Sh500 million.

Composite insurers will need to hold the capital required for the respective lines of business, significantly raising the total.

Mr Rotich also introduced a hybrid system of determining an institution’s requisite capital, being the higher of the stated amount, a fraction of premiums collected the previous year or the risk profile.

Mr Rotich said the move is part of the government’s policy of ensuring financial services firms are adequately capitalised to withstand crises.