More insurance mergers expected as separation of business deadline nears

L-R: Insurance Institute of Uganda (IIU) CEO Elvis Khisa, governing council chairman Geoffrey Kihuguru, and Insurance Regulatory Authority CEO Ibrahim Kadunabi Lubega with Finance Minister Maria Kiwanuka at an international conference in Kampala recently. IRA says it increased minimum paid-up capital requirements to create a strong industry. FILE PHOTO

As the deadline for the separation of general and life insurance business nears, more mergers and acquisitions have been predicted as companies that are unable to run them as separate business, opt to let them go.

Speaking on the sidelines of an SSP (insurance underwriters’ software) conference in Kampala last week, the Lion Assurance managing director, Mr Newton Jazire, said although some companies with composite insurers have started separating the businesses, small ones that are unable to run them as separate entities will have no choice but to merge or be acquired.

“There is no point for a company to struggle to raise the required Shs4 billion minimum capital to underwrite Shs500 million,” he said.

The Insurance Regulatory Authority (IRA) requires all insurance companies that offer both life and non-life insurance as a composite business to separate and run them as independent entities by October 1, 2014.

It should be noted that Sanlam Emerging Markets (pty) Limited acquired 50.3 per cent stake in Niko Insurance Uganda about two weeks ago. This followed the sale of 49 per cent stake of Nico Group’s General Insurance Business in Uganda, Malawi, Tanzania and Zambia to Sanlam Emerging Markets (pty) Limited, a subsidiary of South African-based Sanlam Group, according to a press statement issued last week.

The transaction also saw Sanlam acquire a 51 per cent stake in Nico General Insurance Company Malawi, 51 per cent shareholding in Nico Insurance Zambia and 34 per cent stake in Niko Insurance Tanzania at an undisclosed amount. Niko Insurance Uganda offers both life and non-life insurance while Sanlam only provides life insurance covers in the Uganda market.

IRA chief executive officer Ibrahim Kaddunabbi Lubega also said recently that more acquisitions are expected, going forward as stronger companies take over small ones to prepare bigger business.

minimum paid-up capital requirements
With increased minimum paid-up capital requirements of Shs4 billion for non-life insurance and Shs3 billion for life insurance business, it is likely that some small companies will not be able to raise such money and shoulder the high costs involved in running two separate entities, leaving them with no option but to either merge or to be acquired by larger companies to boost their financial muscle.

Insurance Regulatory Authority (IRA) boss Kaddunabbi Lubega had said no new firm will be licensed if it does not meet the requirements, except Uganda Re, which will be required to attain a capital of Shs5 billion to be licensed and should have raised Shs10 billion capital within three years.

IRA says it increased the minimum paid-up capital requirements for insurance players in order to create a strong industry that is capable of insuring all kinds of risks.