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NCBA records Sh266m gain from buyout of insurer AIG
John Gachora, NCBA Group Managing Director and CEO, gives remarks during the release of the first half of the 2024 financial results at Fairmont Norfolk Hotel Nairobi on August 22, 2024.
NCBA Group has booked a gain of Sh266.8 million from its acquisition of insurance firm AIG Kenya, with the amount indicating that the new subsidiary will perform better as an integrated part of the banking group than when it was a standalone business.
The Nairobi Securities Exchange-listed firm, which already owned a 33.33 percent stake in AIG, spent Sh1.07 billion last July to buy the remaining stake. The 33.33 percent stake was acquired in 2006 at a cost of Sh332.5 million.
NCBA says in its 2024 annual report that the latest transaction resulted in assessment of the insurer’s net assets at Sh2.01 billion against their fair value of Sh670 million, producing the Sh266.8 million gain.
“The gain on acquisition resulted from the negotiated purchase price being lower than the fair value of the identifiable net assets acquired,” the company said in the report.
“This favourable price is partially driven by synergies identified during the valuation process, where the integration of the insurance agency with the bank’s operations is anticipated to generate substantial operational efficiencies.”
Wealth management
NCBA earlier said it would leverage the banking operation’s distribution network and customers to help grow the insurance business as part of its strategy to offer its clients comprehensive financial services, including wealth management.
AIG is expected to make a significant contribution to the group’s earnings going forward.
“The acquired business [AIG] contributed revenues of Sh1.5 billion and net profit of Sh137.1 million to the group for the period from July 1 to December 31, 2024,” NCBA said.
“If the acquisition had occurred on January 1, 2024, consolidated pro-forma revenue and profit for the year ended December 31, 2024, would have been Sh3.4 billion and Sh186.7 million, respectively.”
NCBA, Equity Group and BK Group are expanding their presence in the insurance sector with fully fledged subsidiaries, armed with excess capital from their banking operations in which they have developed relationships with millions of customers.
Rwanda’s BK Group, which is cross-listed on the NSE, is in the process of acquiring the Sonarwa life and general insurance units to add to its existing presence in the insurance market through its subsidiary BK General Insurance.
Most of the other banks have limited their participation through bancassurance—a partnership with underwriters to sell insurance products in their banking halls and digital platforms.
Co-operative Bank of Kenya has a bancassurance business and an exposure in the underwriting sector through its associate CIC Insurance Group.
Banks are seeking to generate better returns in insurance than has been recorded by the established operators. Uptake of insurance in Kenya is less than three percent, with most of the premiums generated from the formal sector.
A substantial number of the insurance providers generate weak profits amid intense competition in a sector with more than 50 players.
