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How ill-timed steps brought Resolution to its knees

lue Shield Insurance, United Insurance Company, Standard Assurance Company, Concord Insurance Company, Access Insurance Company, Stallion Insurance Company Ltd and Lakestar Insurance Company all went under with policyholders’ claims. - PCF was established in 2005 to provide compensation to policyholders of an insurer that has been put under Statutory Management and for the secondary purpose of increasing the general public’s confidence in the insurance sector.

By Steve Umidha

The story of Resolution Insurance depicts a company that reached dramatic heights only to face a dizzying fall.

At its peak, industry experts predicted a bounty decade for the insurer when in 2014, it raised new capital as part of its four-year strategy to move it to the top tier of the industry to compete with the likes of AAR insurance and UAP Old Mutual group regarded as ‘big cheese’ in the market.

At the helm was Peter Nduati – who founded Resolution Insurance in 2002 as medical insurance provider – a man in November 2014 guided the firm in securing a Sh 1.67 billion (US$18.7million) deal for a majority stake by LeapFrog Investments, through its holding company, Resolution Health East Africa ltd.

LeapFrog Investments would then inject Sh 1.1 billion new capital with the intention to support diversification strategy as a fully-fledged general insurance business.  The financing was part of a Sh 2.5 billion investment the firm was seeking for its expansion bid.

It was a decision the deal’s crafters believed would propel the company as a key player in the EAC region – a market that was estimated to be worth more than Sh 180 billion (US$2 billion) at the time the transaction was met.

“There is a major opportunity to extend access to health and diversified insurance to millions of low-income emerging consumers across East Africa, leveraging Kenya’s strategic position as a regional leader and gateway in,” reads a 2014 statement by Leapfrog..

Indeed, those steps would pay off as Resolution Insurance announced a 21 percent increase in its total income for the full year 2015, recording an increased gross written premiums from Sh 2.5 billion in 2014 to Sh 2.9 billion in 2015 attributing the growth to increases on SME and retail portfolios.

In fact, the firm’s total assets went up 37 percent to stand at Sh 6.3 billion from Sh 4.6 billion in the previous year.

New buyer

But that marriage would only last 7 years when the two parted ways in 2021, paving the way for the UK-based Insurance firm, Linkham Group, which fully acquired 100 per cent interest held in Resolution Insurance by LeapFrog Investments for an undisclosed amount.

It was a deal the Competition Authority approved and given the green light by industry regulator, Insurance Regulatory Authority (IRA).

The deal had experienced significant delays owing to macroeconomic challenges from the Coronavirus pandemic thereby exposing the company to heavy working capital restraints.

The firm had hoped to finalize on capital raising and take immediate measures to normalise operations, but the acquisition process of a majority stake in the firm hit the company’s capital, as a number of hospitals shun its health covers.

In March 2018 for instance, the High Court dismissed Resolution’s application to challenge Sh1.5 million awarded to a HIV positive woman, after High Court Judge Roslyn Aburili dismissed the case filed to fight the award given by the HIV and Aids Tribunal (HAT). The tribunal blamed the firm and Nairobi Women’s Hospital for exposing the HIV status of the woman in what was becoming a recurring leitmotif for the insurer.

The firm also had a spat with the Embassy of Chile in Nairobi which recently wrote to the firm seeking a refund of services not rendered.

As a result, the IRA was on Tuesday compelled to put the firm under statutory management to safeguard policyholders.

“PCF has forthwith taken over the operations of the company and has deployed necessary resources to ensure that the company assets and records are preserved for the benefit of policyholders, claimants and other stakeholders,” IRA said in a statement.

The Policyholders Compensation Fund (PCF) was appointed Resolution’s statutory manager for a period of 12 months effective Tuesday.

This comes barely a week after Resolution Insurance suspended issuance of non-medical covers for 90 days, pointing to the deepening cash flow challenges with the insurer’s acting managing director, Bernard Githinji said delays in clinching a deal for capital injection had exposed the company to a cash flow crisis.

“The company is not able to settle claims to the detriment of claimants, policyholders and other creditors.

The insurer is also not able to comply with statutory requirements relating to capital adequacy, submission of returns and governance structures,” IRA noted while making the announcement.

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