Businesses & Financial News

Why insurance mergers are on the rise

More mergers and acquisitions are expected in the insurance industry this year following new accounting standards and unpredictable operating environment posed by the Coronavirus pandemic.

Analysts predict the above will spur mergers and acquisitions in 2021 and 2022 judging by similar industry trends seen last year.

Kenya’s insurance industry has posted more Mergers & Acquisitions (M&A) activities in the last three years but that is expected to be heightened due to the uncertainty from COVID-19’s health, economic with risks of premium growth contraction and earnings further expected to strain the local market because of pre-existing pressures.

“We expect 2021 to be a positive year for insurance M&A. Companies are powering through the pandemic-driven disruption to pursue growth opportunities that are likely to emerge,” reads in part a Deloitte survey conducted prior to the pandemic which also found that more than half expect to complete an M&A transaction in the next two years.

Further the report predicts an increased appetite for InsurTech acquisitions to meet customers’ digital engagement demands and support employees’ new work-from-home needs.

Closer home, the recently concluded deal between the UK global insurance solutions provider Linkham Group and the Resolution Insurance Kenya confirms those predictions. The two companies are, however, yet to disclose the cost of the deal.

The majority buyout of the general insurance firm, follows a regulatory nod with a promise by Linkham to inject resources to “revamp and refuel” the insurer’s growth.

The deal also saw Peter Nduati appointed the new Resolution Insurance Kenya Chief executive and will be expected to facilitate rapid recovery of the Resolution Insurance Kenya business thanks to his professional and business management experience, having previously served as the firm’s Founding Chief Executive Officer.

Linkham Group Chief Executive Officer Mr Michael Cranfield said the acquisition is part of the Mauritius headquartered firm’s Africa expansion plans.

Life insurance is expected to be affected more than general insurance. Globally life insurance is larger than general insurance but in Kenya, life insurance is smaller than general insurance, but analysts say it will continue to grow as the market matures.

Some of the notable mergers and acquisitions in Kenya’s Insurance Industry are ICEA and Lion Assurance Company to form the ICEA LION group, Apollo Insurance Company and Pan Africa Insurance Company to form APA Insurance, Old Mutual acquired UAP Insurance, LeapFrog Investments LeapFrog Investments, a private equity firm, acquired Resolution Insurance, Saham Group of Morocco acquired Mercantile Insurance Company, Prudential Plc. of UK acquired Shield Assurance Company Ltd and Britam Investment Group acquiring Real Insurance Company among others.

A merger is a combination of two or more companies in which the resulting firm maintains the identity of the firms, usually the larger.

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