In its 2021 outlook report, Deloitte, an audit firm, projected that this year will be a positive year for insurance mergers and acquisitions.

This, as companies are powering through the pandemic-driven disruption to pursue growth opportunities that are emerging alongside an improving and likely transformed economy and industry landscape.

The report notes that as company leaders look beyond COVID-19 and strategise on how to thrive in the next normal, they are considering how acquisitions, mergers, alliances, disposals and investments that can help them enhance their portfolios, enter more profitable market segments and accelerate the shift to digital operating models.

This seems to have started to take shape in Uganda, following the transfer of the International Air Ambulance’s (IAA) Health Insurance business to Prudential Uganda in May this year.

According to industry experts, the deal creates a stronger company that will not only ably take on any health insurance risks, but also propel industry growth.

With the COVID-19 pandemic continuing to disrupt many business operations and affecting cash flows, experts indicate that the industry could witness more acquisitions and mergers going forward.

A physician takes care of an elderly patient

The chief executive officer of the Insurance Regulatory Authority (IRA), Ibrahim Kaddunabbi Lubega, said mergers and acquisitions breed healthy competition and bring about customer-centric innovations and improved service delivery, which in turn results in greater insurance penetration.

He added that it is a global practice that businesses come together to forge synergies and partnerships that lead to better and more beneficial output for their businesses.

NEED TO FOCUS

The IAA Healthcare general manager, Andre Tait, said the decision to transfer the health insurance business was reached following a review of their operations and the need to refocus and repurpose their business while ensuring continued value to their customers and all stakeholders.

Launched in 2001, IAA Healthcare is part of the International Medical Group (IMG) that includes International Hospital Kampala (IHK), International Medical Centre (IMC), IMG Pharmaceuticals (IMGP) and the International Medical Foundation (IMF).

The IMG chief executive officer, Sukhmeet Sandhu, said while IAA has been a commercially gainful business over the years, they decided to transfer it so that they can focus on their core business of healthcare provision and in line with their vision of providing quality and affordable healthcare service of international standards in Uganda.

IAA Healthcare was previously the largest health membership organisation in Uganda with a portfolio of sh31.7b at the end of 2020.

However, IRA figures show that IAA Healthcare made a sh1.5b loss in 2019, an increase from the 2018 sh130.5m loss.

NOT AS PROFITABLE

In March this year, the Uganda Healthcare Federation executive director, Grace Ssali Kiwanuka, asked IRA to extend the timelines for the shoring up of health membership organisations (HMOs) minimum capital requirement by at last five years, to give them room to mobilise funds to meet the new targets.

IRA revised the minimum capital requirements for sector players in 2019. Under the targets, HMOs were to beef up their capital requirements from sh500m to sh1b.

Capital requirements for general insurance companies were to increase from sh4b to sh6b while that for life companies surged from sh3b to sh4.5b.

The reinsurance business, which had been operating as a composite business with sh10b as the minimum capital requirement was to be split into life and general, with the former’s requirements being sh6b and the later sh9b.

Kiwanuka noted that initially, the 2022 deadline made sense given that they had growth projections; the one-year-and-a-half the country has spent in utter disarray due to the COVID-19 pandemic that has greatly affected the health sector as was the case for the entire economy.

“The capital requirements are a bit aggressive for HMOs, especially that the COVID-19 pandemic took a big hit on them. This meant that some of the financing that we were projecting to be able to meet those requirements has not been realised and it is now in negatives.”

She noted that health business in Uganda is not as profitable as people think; more so the health insurance business.

“There is a small margin between the premiums collected and the claims paid and this is evidenced by the industry figures.”

“HMOs have only one line of credit unlike mainstream insurers with other lines that can cushion the entire business. That is why they are able to offset some of their overheads and other direct and indirect costs,” Kiwanuka said.

The 2019 industry performance report indicates that while HMOs underwrote sh76.1b in 2019, the largest percentage was paid out in claims.

The acquisition of IAA, now sees Prudential jump from the fourth-largest life insurance company, with sh55b portfolio in 2020 to the largest life insurer with a portfolio of over sh80b in gross written premiums.

As at end of 2020, according to provisional gross written premium figures published by the IRA, the four largest life insurance companies in order of size were UAP Old Mutual Life Assurance (sh60b), Jubilee (sh59.3b), ICEA Life (sh58.2b) and Prudential (sh55b).

Prudential started its business in Africa in 2014 and expanded into Uganda in June 2015, after acquiring the life business of Goldstar Insurance.

It has since grown to become one of the largest life and health insurers in the country, providing health, savings and protection solutions.