The Kenyan insurance industry experienced a wave of mergers and acquisitions in 2014 as local insurance firms and financial services firms flexed their acquisition muscle in order to grow their revenues, consolidate their market share and expand regionally. Foreign insurance multinationals and international investors have been attracted to the Kenyan insurance market due to increased investor confidence arising from greater growth potential and stability in the sector.
The Association of Kenya Insurers (AKI) states that the Kenyan insurance industry is among the top insurance markets in Africa in terms of attractiveness and growth potential. This has led to foreign investors to enter the market by buying stake in the existing local insurance companies as the fundamentals for future growth remain apparent.
Some of the mergers and acquisitions were as a result of the legal requirement that no one individual should own more than 25 percent of the share capital of an insurance company. In some cases, mergers and acquisitions resulted from foreign insurance multinationals establishing a foothold in Kenya with the aim of expanding to the rest of the East and Central African regions.
In 2014, the following mergers were completed;
- Saham Group of Morocco acquired a majority stake of 66.7 percent in Mercantile Insurance Company Ltd in April 2014.
- Union Insurance of Mauritius acquired a controlling stake of 66.0 percent in Phoenix of East Africa Company Ltd in May 2014.
- Prudential Plc, UK made a return to Kenya by wholly acquiring Shield Assurance Company Ltd in September 2014.
- Metropolitan Insurance Group of South Africa acquired a majority stake in Cannon Assurance Ltd in November 2014.
- Private equity firm Leap Frog Investments acquired a 60 percent stake in Resolution Insurance Company Ltd in November 2014.
- Britam Investment Group acquired 99 percent of Real Insurance Company Ltd in December 2014.
This year, more mergers are expected
- Old Mutual Plc of South Africa acquired a majority stake of 60.7 percent in UAP Holdings Ltd in January 2015.
- Pan Africa Insurance Holdings, a subsidiary of Sanlam Group of South Africa, acquired a 51 percent stake in Gateway Insurance Company Ltd in 2015.
- Barclay Plc, Africa is set to acquire a controlling stake of 63.3 percent in First Assurance Company Ltd. The deal is yet to be completed.
Going forward, the Association of Kenya Insurers (AKI) predicts that more mergers and acquisitions are to be expected particularly in view of the proposed increase in minimum capital (Finance Bill, 2015). In the 2015/16 budget, the government has proposed to increase the minimum capital requirement for insurance companies to sh600 million for companies underwriting general insurance and sh400 million for long term insurance business by June 2018. This is likely to accelerate M&A in the coming years.