Old Mutual deepens African growth plan with R1bn stake

BDlive

JOHANNESBURG and London-listed insurer Old Mutual says it has paid just more than R1bn for a 23.3% stake in East and Central African financial services company UAP.

The deal deepens Old Mutual’s presence in East Africa, but analysts have raised questions about the price of the stake, and whether or not the insurer will be able to take the strategic decisions needed for it to grow in the region.

Following this acquisition, Old Mutual should have about R3bn left to invest in the rest of Africa. In 2013, the company earmarked R5bn for investments in Africa over a three-to-five-year period.

The acquisition of UAP, which Old Mutual says is the third-largest general insurer in Kenya and the second-largest health insurance business, comes after the acquisition of a controlling stake in deposit-taking micro-financing company Faulu in 2013.

Commenting on the acquisition of UAP, which is also the second-largest general insurance and health business in Uganda, one analyst said: "It is a big deal. At R1bn, that’s a reasonably chunky business. I am kind of pleased that they are actually doing something." However, the analyst, who did not want to be named, cautioned that with a 23% holding it could be difficult for Old Mutual to make strategic decisions as this was a noncontrolling stake.

Another analyst said: "It is all very well that this is a high-growth business. But if I look at the market share of the business, life insurance is generally small. From a market point of view, in Kenya it’s got under 5% market share, which is small." The analyst said buying a 23% stake of a business for R1bn showed there was a lot more appetite from international players for African insurance assets, and this had led to an increase in prices.

With Old Mutual having about R3bn left to invest in Africa, one of the analysts said the insurer might need to keep a closer eye on price and demand for insurance companies on the continent. The financial services group now serves more than 500,000 customers in Kenya, offering them life insurance, asset management and microfinance.

Old Mutual’s plans are for its rest-of-Africa operations to produce 15% of the equivalent profit from SA. In terms of diversity of earnings, Old Mutual said at the release of its 2014 half-year results that of the £424m it posted as adjusted operating profit, 65% came from SA, 21% from the UK, 9% the US and 4% from rest-of-Africa operations.

Old Mutual shares were down 1.66% to R33.17 on Friday.