(Bloomberg) -- CIC Insurance Group Ltd., Kenya’s second-biggest insurer by premium income, plans to buy a pension-fund business to compete with the growing number of foreign entrants to the market, Chief Executive Officer Tom Gitogo said.
The company expects to make the acquisition within the next two years, Gitogo said on March 17 at the company’s head office in the capital, Nairobi. CIC, which has asset management, general and life insurance businesses, will also target other purchases in areas where it doesn’t have “economies of scale,” he said, without being specific.
“We will consider acquiring someone who has a stake in the pension business,” Gitogo said. “We cannot take for granted the fact that a big player such as Prudential Plc has entered the local market.”
Fewer than 4 percent of Kenyans have bought some form of insurance, partly because of a “poor savings culture with low appetite for long-term savings” in East Africa’s biggest economy, according to Sterling Capital Ltd. The insurance penetration rate was 3.7 percent of the country’s population last year, compared with 3.4 percent in 2013, the Nairobi-based company said in a report in January.
That compares with 15.4 percent in South Africa, the continent’s biggest insurance market, and a global average of 6.3 percent, according to an report published by PricewaterhouseCoopers LLP in October.
Demand for insurance products in Kenya is constrained by the fact that most Kenyans still live in poverty, “which would explain the slower uptake of both life and non-life insurance products,” it said.
Foreign Entrants
Prudential was among at least three foreign insurers that have announced their entry into Kenya since the beginning of 2014. The U.K.’s biggest insurer by market value bought life insurer Shield Assurance Co. in September. Swiss Re AG, the world’s second-largest reinsurer, in October acquired a stake in Kenya’s Apollo Investments Ltd., while Old Mutual Plc in January almost doubled its stake in UAP Holdings Ltd. to 60.7 percent.
“What is attracting them is the fact there is potential,” Gitogo said. “The fact that penetration is so low means that if they do the right thing there is enormous potential for revenue in this sector.”
Domestic insurers are also expanding. On March 16, Pan African Insurance Holdings Ltd. announced the acquisition of a controlling stake in Gateway Insurance Co. In November, British-American Investments Co. the country’s largest insurance company, bought Real Insurance Ltd.
Regional Expansion
CIC last year sold 5 billion shillings ($54 million) of bonds, attracting bids of more than double the 3 billion shillings it initially offered. The funds will be used to finance the company’s expansion.
“This was proof that the market was ready to participate in the expansion of CIC,” Gitogo said. The company has no plans to raise more money, he said.
In addition to Kenya, CIC also operates in Malawi, South Sudan and Uganda. The company will expand further in the region after it has “settled” in those three countries, Gitogo said.
CIC last week reported a 16 percent drop in annual profit to 1.09 billion shillings, even after premium income surged 34 percent to 12.3 billion shillings. The decline in net income came after “claims in our business lines deteriorated,” he said. The company’s medical-insurance division lost 600 million shillings.
“The losses that we have made in our medical business in the past two to three years have been significant and this is an area of our business that I need to focus on,” he said.
Shares in CIC have dropped 7.3 percent so far this year, underperforming a 6.5 percent increase in the Nairobi Securities Exchange All Share Index.
To contact the reporter on this story: Charles Wachira in Nairobi at cwachira@bloomberg.net
To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Paul Richardson, Michael Gunn
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