Pan Africa’s profit drops 32.4pc on Gateway buyout

Pan Africa Insurance has announced a 32.4 per cent drop in half-year net profit weighed down by its newly-acquired subsidiary Gateway Insurance, which reported a loss during the period.

The insurer’s net profit for the six months to June stood at Sh264 million compared to Sh390.8 million in 2014, with management attributing this drop to Gateway’s loss.

Pan Africa completed the buyout of a 51 per cent stake in Gateway for Sh600 million in March, gaining a foothold in the general insurance business.

READ: Gateway investors sell 51pc stake for Sh600m

“There are several things which were put on hold during the transition period to necessitate the transfer of the business without impacting the valuation that had been agreed upon,” Pan Africa Insurance managing director Mugo Kibati said in an interview.

“For instance, Gateway management was given thresholds on the level of decisions their could make independently, limitations which could indirectly impact business.”

Pan Africa did not disclose the loss attributable to Gateway, which had consistently reported positive earnings over the five years prior to the acquisition.

The latest available records show that Gateway made Sh150 million net profit in 2013.

“Gateway has posted a loss in the period under review mainly due to low production in the transition period,” the company said in a statement to the Nairobi Securities Exchange.

“We expect the performance to improve in the second half of the year as focus shifts to production.”

Until the Gateway takeover, Pan Africa used to offer life insurance cover and invest the premiums in real estate, equities and fixed income securities to boost returns.

The integration of Gateway into its business gave it a presence in the general insurance segment with covers including fire, motor vehicle and personal accident, a move that was expected to boost earnings.

These projections were based on the fact that Gateway has remained profitable for an extended period of time with a peak in net profit of Sh550 million in 2011.

“This acquisition (of Gateway) is in line with our strategic goals of providing a one-stop-shop for our customers,” said Pan Africa in its half year accounts release.

Pan Africa’s half year revenues were further hit by a Sh548 million drop in fair value of investments (mostly from equities), resulting in an 11.8 per cent drop in total income to Sh3.56 billion.

Its gross written premiums dropped seven per cent to Sh2.6 billion, and this was further depressed by higher re-insurance payments of Sh209 million compared to Sh152.9 million paid out last year.

The firm said its life business premium income declined seven per cent due to lower volumes of bulk annuities while policy benefits grew 13 per cent on higher claims on the group life and credit life business.

Pan Africa also said its corporate business recorded a drop in performance due to competitive market pricing and “exacerbated” lending rates.

It anticipates that the high interest rates regime will continue to affect its credit life business in the second half of the year.

The insurance company’s performance was however boosted by a jump in other income, which increased from Sh168 million last year to Sh641.9 million on account of property sales.

“Property sales have contributed considerably to our operating surplus, a significant contrast to the previous year. We envisage generating additional income from property sales in the second half of the year,” the firm noted.