MMI buys Guardrisk to ”˜diversify business’
MMI Holdings acquires Guardrisk from unlisted Alexander Forbes so it can offer specialist insurance products to its large corporate clients
INSURER MMI said on Monday it had bought Guardrisk for R1.6bn from Alexander Forbes, a deal that would help bolster MMI’s short-term insurance exposure and potentially further strengthen its employee benefits business.
Guardrisk operates in what is called the cell captive insurance market. The firm works with companies in sectors such as retail and telecoms and provides them with opportunities to sell long-and short-term insurance products.
This model allows retail groups to sell branded insurance products to their clients.
Guardrisk does not have a retail footprint.
Instead, the company uses the infrastructure of companies as a distribution platform.
It also provides risk financing solutions to corporate clients. Its clients include municipalities and medium-sized to large companies. “If you look at Guardrisk, it’s clearly the leader in its field as a specialist insurer and cell captive, especially in short-term insurance. It gives MMI an ideal diversification opportunity,” MMI CEO Nicolaas Kruger said.
“We did a very thorough due diligence exercise and liked the synergies and cross-selling opportunities. We are comfortable we can extract good returns.”
In the year ended March Guardrisk contributed R348m to group net revenue at Alexander Forbes. Its normalised trading profit was R141m.
In this period Guardrisk recorded premium growth of 16%. It had gross written premium of R9bn and assets under management of R11.5bn.
Guardrisk, which has a presence in Namibia, South Africa, Mauritius and Gibraltar, will be merged with MMI’s small cell captive business Momentum Ability.
Mr Kruger said the 20-year-old Guardrisk and its management would be kept intact. This means Guardrisk MD Herman Schoeman will remain in charge.
“We are hoping to keep Guardrisk as a separate entity. We think it’s got quite a strong brand and we are keen to continue with that,” Mr Kruger said.
“We don’t actually have to change their way of doing business and we don’t have to rationalise or cut staff.”
Mr Kruger hopes to close the deal by the end of the first quarter of next year.
The Guardrisk deal is subject to regulatory approval from the Competition Commission, the registrars of long-term insurance and short-term insurance and consent from the material financiers of Alexander Forbes.
A Johannesburg-based analyst said that at R1.6bn Guardrisk was not a cheap buy but it probably made strategic sense to foster cross-selling opportunities with the employee benefits business within MMI.
Alexander Forbes said it had received expressions of interest from several potential investors. It said net proceeds of R1.5bn would be used to reduce its debt. MMI had excess capital of about R4bn and would use some of that to buy Guardrisk.
MMI has assigned R500m for expansion in Africa. Mr Kruger said it was targeting growth in west, east and southern Africa and had identified “one or two ... opportunities” in East Africa.
MMI, which is behind Metropolitan and Momentum, has operations in 12 African countries outside of South Africa. MMI shares ended down 0.32% to R24.62.