Kenya has experienced a string of mergers and acquisitions in the insurance sector as growth in premiums continues to outpace growth in equity by almost 10 per cent margin. 

In the last five months there were three big-ticket acquisitions with Mauritius Insurance Company buying Morocco-based Saham Insurance as Leapfrog investments bet on 24 per cent stake in ICEA.

Analysts say Kenya’s insurance penetration estimated at 2 per cent is way below global average of 6 per cent making it attractive to fast growing global insurance firms. 

“In their eyes, the Kenyan market has a compelling long-term growth story given the low penetration,” said George Bodo, the CEO of Call Street Capital.

At two per cent penetration, Kenya has a huge room for growth given South Africa’s 12 per cent penetration.

So are Uganda and Rwanda where Allianz now controls the largest insurers through the Jubilee deal.

German insurer Allianz which is tucked away on 96 Riverside drive has remained largely invisible even on the market share pie chart, since opening its Kenya office in 2016.

But the second largest non-bank insurer in the world was never here for organic growth, it had come to shop.

In a 56 member market, there were a lot of potential targets for acquisition. 

Its acquisition of a controlling stake in Jubilee Insurance in a Sh10 billion deal that would make it a contender for top insurer slot was not an isolated event as seen on its global activity radar screen.

Allianz is also in talks to acquire a leading insurer in France Aviva, and is now the second largest insurer in the UK after two acquisitions last year.

It acquired a leading Nigerian insurer last year and has completed a Brazilian acquisition this year.

For Kenya, the expansion of economic activities in the county governments is a major boost in the growth of insurance penetration buoyed by an average gross domestic product expansion of 5 per cent.

Experience growth

“The insurance sector is expected to experience growth in gross written premiums in line with historically observed growths,” Consulting firm Deloitte said in its latest industry analysis.

The players will also need additional capital to spread their wings around the country thanks to devolutions hence the need for partnerships.

The consolidation is, however, expected to increase as insurers continue to book diminishing returns on equity due to heavy competition. 

Returns on equity have plunged from 20 per cent in 2013 to 6 per cent.“M&A activities have started to boom as companies look for ways to protect their market share,” notes Deloitte.

The introduction of insuretech is seen as a major catalyst in unlocking the potential of the market especially in the interior of Kenya and the race towards the bottom of the pyramid.

Mergers and acquisitions are also happening at a time when the regulator has given players a December 2020 deadline of meeting the International Financial Reporting Standards (IFRS17) which require increased capital. 

The IFRS17 standards team however set 2021 to be the global deadline for meeting the new standards.

With less than 500 days to implementation date of IFRS, insurers should start to formally assess the impacts and gaps in their processes and systems.

The new rules are meant to ensure the stability of the insurance industry and bolster their ability to pay claims.

For instance the new capital requirements will increase by Sh300 million for general insurance  to 600 million or by 20 per cent of the previous year’s net premiums. 

These latest acquisitions mirror a spate of M&A deals that started off nearly 10 years ago with the most recent ones being Barclays Group’s acquisition of First Assurance in a Sh3 billion deal. 

Kenya Plum Holdings also acquired an additional 23 per cent in Britam in which Swiss Re also bought 18 percent in 2018.

Amaco, troubled insurer linked to Deputy President William Ruto had also been scouting for an acquirer to inject liquidity.