Leapfrog to inject additional Sh1.1bn into Resolution by June

Resolution Insurance is set to raise Sh2.5 billion in a series of transactions that will see new investors join private equity firm Leapfrog Investments in the list of the company’s shareholders.

Leapfrog, which acquired a 62 per cent in Resolution for Sh1.6 billion in 2014, is set to make an additional equity investment of Sh1.1 billion in the company by June.

Resolution’s other shareholders — chief executive Peter Nduati and John Mwangi — are expected to participate in subsequent transactions to raise the balance of Sh1.4 billion by December next year.

“The balance is expected in two tranches with Sh700 million by January 2017 and Sh700 million by December 2017. This balance will be a combination of debt and equity,” Resolution said in a statement.

“The second and third tranches will have participation by additional investors.”

The fundraising plan is expected to change Resolution’s shareholding structure, with Leapfrog remaining the major shareholder.

At the time the PE firm first bought into the insurer, Mr Nduati and Mr Mwangi were the only minority investors with a combined stake of nearly 40 per cent.

Leapfrog’s investment of Sh1.6 billion comprised injection of new capital and a buyout of private equity firm African Development Corporation (38.74 per cent) and George Kahira whose ownership was not disclosed.

The transaction came soon after LeapFrog exited insurance holding company Apollo Investments where it sold its 26.9 per cent stake to SwissRe Direct, cashing in on the investment it made in 2011.

READ: PE fund eyes Kenya insurance companies after Sh35bn boost

Resolution says the extra Sh2.5 billion will be used to comply with risk-based capital requirements that take effect in June. The amended Insurance Act will replace the current standard capital levels with a risk-based capital adequacy system that is expected to raise the absolute capital held by some insurers.

This has prompted insurers to raise more capital, with the Insurance Regulatory Authority (IRA) saying it also foresees mergers and acquisitions by underwriters to strengthen their balance sheets.

The upcoming law is meant to bring stability in the sector where previous failure of several firms eroded public confidence, partly contributing to the low insurance penetration at less than five per cent.

At the moment, life insurers must maintain a paid-up capital of at least Sh150 million while those underwriting general business must have a minimum paid-up capital of Sh300 million.

Composite insurers must have Sh450 million as the minimum paid-up capital while reinsurers need Sh800 million comprising Sh300 million for life business and Sh500 million for general business.

Concord Insurance, Blue Shield, and Standard Assurance are some of the firms that have collapsed in the past decade.

Resoltion, which previously relied heavily on medical insurance targeting the middle class and SMEs, has expanded into general insurance in what will raise its capital requirements under the new law.

“Subsequent to LeapFrog Investments acquisition of a majority stake the business has been consolidated to focus on both medical and general insurance with operations in the wider East African region,” Resolution said.

The company says its policies now cover medical, motor, travel, property and liability, with operations in Uganda, Tanzania and South Sudan.

Resolution made a net loss of Sh246 million last year, widening the net loss of Sh140 million in 2014. The company attributed the performance to increased investments in IT systems and personnel besides a one-off payment of excise duty on reinsurance commissions.