Listed insurer Britam is likely to invest more in government securities following a Sh3.6 billion deal with a private equity firm AfricInvest, analysts at Dyer and Blair Investment Bank say.
The investment in the gilt-edged instruments will come ahead of investments in life insurance in Uganda, property, technology such as mobile phone based-financial products and asset management.
AfricInvest completed the acquisition of a 14.3 per cent stake on May 18, after shareholders approved the deal last November.
“We anticipate a larger asset book in the short-term on account of investment of the funds in government securities prior to deployment,” said Dyer and Blair.
With the money put in Treasury bonds and bills, the company is likely to see a bump in investment income in the first half of 2018, ahead of its deployment to other areas of business.
Investment income has been one of the major drivers of insurers’ profitability especially in years when they have registered lower underwriting profits or even losses.
The analysts say that the cash received through the acquisition is also expected to increase premiums for the company once it starts flowing out of the government securities as plans for the set-up or escalation of operations, such as that of Uganda life insurance, are completed.
“We anticipate improved revenue from increased earned premiums by non-Kenyan subsidiaries due to increased operational capacity and launching of products and initiatives, such as the life business in Uganda,” the analysts say.
The new AfricInvest financing is also expected to reduce reliance on loans, thereby improving the firm’s capital position.
“We anticipate that Britam will reduce reliance on high interest bank loans going forward as their capital position will improve as a result of this investment.
With the Sh6 billion medium-term note issued in 2014 maturing in August 2019, this transaction puts Britam in a more comfortable capital position to offset the upcoming maturity,” the analysts said.
However, the analysts have advised investors to go slow on investing in the share – a hold recommendation – as they await to see the effect of the management strategy.