GraceKennedy Limited has launched a $403.71-million takeover bid for the remaining 26.7 per cent of Key Insurance Company Limited as it seeks to take the company private and make possible strategic changes.

The development was announced on Monday when GraceKennedy Financial Group Limited’s (GKFG) takeover bid was published on the Jamaica Stock Exchange (JSE). GKFG currently owns 73.3 per cent of Key Insurance and is seeking to acquire the remaining 149.5 million ordinary shares of the company at a price of $2.70 per share. This offer to the existing Key shareholders will open on March 24 and is set to close on April 22. Key’s other top 10 shareholders own more than 125.7 million shares with two JMMB companies controlling nearly 80 million shares or about 14 per cent of the general insurer.

Key Insurance is a 42-year-old general insurance company founded by Sony Gobin and went public on the JSE’s Junior Market in March 2016 when it raised a net amount of $107.96 million in fresh equity capital at an issue price of $2.27 per share. Key’s primary business is in the motor vehicle insurance space with property and other classes of insurance making up a smaller component of its business.

Following its equity raise, Key improved its gross written premiums by a third to $1.44 billion and reported a net profit of $42.66 million in 2017. The company’s regulatory ratio, which is known as the minimum capital test (MCT) ratio, stood at 294 per cent, which was above the 250 per cent regulatory minimum at the time. That relatively strong performance allowed for the company to pay a $0.029 dividend totalling $10.69 million in July 2018.

However, Key’s business seriously deteriorated over the next two years as it posted a $167.49 million net loss with a MCT ratio of 112.55 per cent in 2018 and a net loss of $267.48 million in 2019 with a MCT ratio of 186.75 per cent. The company was in a dire financial position as it went from having retained earnings to an accumulated deficit and being a serious concern for the regulator.

Key’s board of directors at the time considered a recapitalisation effort in late 2019 and were moving towards recommending a rights issue take place in early 2020. However, that plan was scrapped as its main shareholders signed an agreement with GKFG in December 2019 to sell the majority stake to the financial conglomerate. That acquisition triggered a mandatory takeover bid by GKFG to all of Key Insurance’s shareholders. GKFG offered $2.01 per share for ordinary shares of Key it did not already hold under a previous agreement, giving its then takeover bid a value of $629.52 million and the overall acquisition of Key a value of $740.61 million.

GKFG ended up acquiring 240,363,095 shares or 65.2344 per cent of Key from Sandra Masterton, Natalia Gobin-Gunter and Kala Abraham, Key’s three main shareholders, for $483.13 million. Most of Key’s board members resigned with former managing director Masterton and Gobin-Gunter being the only continuing directors. Former GraceKennedy Chief Executive Officer Donald Wehby assumed the chairman role on the board as Key’s board saw the addition of GK affiliated directors and independent board members. Tammara Glaves-Hucey was installed as the general manager of Key which graduated to the JSE Main Market in April 2020.

GK worked on bringing key out of its regulatory breaches and returning it to profitability. This included restructuring Key’s insurance portfolio to minimise its underwriting risk, restructuring its reinsurance programs, leveraging the operational efficiencies in the GK network and making strategic investments.

The first major step to bring the company back into profitability was terminating its motor quota share agreement in the days after the acquisition with one of its reinsurance companies. While that resulted in a one-time amortisation charge of $323.14 million, it allowed for the company to better streamline its underwriting business to make it more profitable. Key also restructured its insurance portfolio during 2020 as well.

Key executed a renounceable rights issue in January 2021 where it raised a gross amount of $668.02 million at $3.50 per share to bolster its capital base and improve its metrics under the MCT ratio. GKFG spent $435.78 million on the offer to maintain its proportional stake in Key Insurance. However, due to the offer not getting full uptake from the other existing shareholders, GK Capital Management Limited (GKCM), the lead broker for the rights issue, purchased 46,683,897 shares of Key for $163.39 million as per the underwriting agreement. That brought GK’s total investment in Key at that point to $1.08 billion with a stake of 73.5809 per cent.

Key sold 19 Knutsford Boulevard, an investment property, to GK General Insurance Company for $250 million in February 2021. Key also entered into a proportional reinsurance coverage agreement in March 2021 to reduce Key’s net outstanding liabilities. All of these strategies were positive for Key which reported a 34 per cent increase in gross written premiums to $1.91 billion with the business reporting a net profit of $160.39 million, its highest reported profit in its history. The company’s MCT ratio also went to 286.14 per cent which put it back into regulatory compliance.

GKCM also sold 1,933,308 shares of Key between April to June 2021 when the stock was trading between $4.97 to $6.80, bringing it some profits on the deal. GKCM sold its entire stake to GKFG in March 2023 at the $3.50 rights issue price.

Since then, under the new IFRS 17 accounting standard, Key Insurance reported insurance revenue of $3.06 billion in 2024 with $2 billion coming from its motor business. However, the company continues to report an insurance service loss which stood at $19.03 million in 2024. Despite the insurance portfolio still some way to break even, the strong returns from its investment portfolio allowed for Key Insurance to report a 60 per cent rise in net profit to $66.95 million. Key’s asset base also stood at $4.61 billion with $2.18 billion in investment securities. Its capital base/shareholder’s equity also stood at $1.43 billion with its MCT ratio at 197.54 per cent relative to the revised 150 per cent threshold.

Following the retirement of Don Wehby on February 14, Rochelle Cameron was appointed the new chair of Key’s board of directors. While it’s not immediately known what rationale GK has to take the company private, it would be their second acquisition this year after it acquired the remaining 30 per cent of Catherine’s Peak Bottling Company Limited for $504 million. GK also increased its stake in Spur Tree Spices Jamaica Limited, another Junior Market company, to 20.20 per cent in April 2024. GK also acquired a 24.5 per cent associate stake in a Barbadian company called Pick Up Taxi Inc.

“The Offeror has no immediate plans to reduce Key’s workforce. However, to align with its strategic goals, the Company’s structure may undergo changes. Following a successful transaction, Key will be delisted from the Main Market of the JSE and will become a private subsidiary within the GraceKennedy Group,” stated the take-over bid circular.

Key Insurance halted up to $2.49 per share on Tuesday, a sharp improvement to the $2.16 closing price on Monday. The stock had an average price of $2.44 during Tuesday with 174,825 shares changing hands worth $426,771.30.

According to data from the Financial Services Commission, GK General and Key’s combined insurance revenue was $12.13 billion in 2023 or 16 per cent of the general insurance space. GKFG also owns Allied Insurance Brokers Limited and has a 50 per cent stake in Canopy Insurance Limited, a Jamaican life insurance company. GKFG owns four insurance companies in the Eastern Caribbean as well.

GKFG currently owns GK General Insurance, and its acquisition would result in it controlling two out of the 11 registered general insurers in Jamaica. This comes at a time when British Caribbean Insurance Company Limited is set to acquire JN General Insurance Company Limited which will further concentrate the general insurance space.