GraceKennedy increases stake in Key InsuranceWednesday, May 12, 2021
BY DAVID ROSE
AS part of expanding its insurance business scope, GraceKennedy Limited (GK) has acquired an additional 8.35 per cent of the now-profitable Key Insurance Limited which reported its third-consecutive quarter of profits since being acquired in March 2020.
The insurance company, which was a perennial loss-maker, executed a successful rights issue in January which saw Key raise $668 million in fresh equity capital. This move was executed through GK Capital Management Limited which acted as lead broker in the underwritten offer and spent $163.39 million to acquire the 8.35 per cent stake in Key.
GraceKennedy Financial Group Limited acquired an additional 124.5 million shares at a cost of $435.8 million to maintain their 65 per cent stake. GK owned 73.5809 per cent of Key at the end of March, which means the conglomerate has spent $1.08 billion on its Key stake over the last year.
“Since the acquisition of Key by GraceKennedy in March 2020 the company has recorded profits of $58.4 million. Also of note, as at December 2020 the company recorded two consecutive quarters of profitability notwithstanding the challenging economic climate associated with the [coronavirus] pandemic. We are extremely proud of this achievement and attribute it to the excellent contribution of the Key Insurance team and the remarkable support of our continuously expanding customer base,” stated chairman of Key and chief executive officer of GK Don Wehby in an interview with the Jamaica Observer.
GK has been expanding its insurance reach over the last 5 years including a 50 per cent joint venture with the Musson Group to create Canopy Insurance, reporting a net loss of $2.61 million in only its second year of operation. GK announced in March that it would be acquiring 100 per cent of Scotia Insurance Eastern Caribbean Limited. GK recently raised $3 billion through a bond to fund this acquisition along with the 876 Blue Mountain Spring Water brand.
Although the company only reported a net profit of $770,000 for the first quarter, Key improved its underwriting ability as gross written premiums grew by 54 per cent to $414.77 million. Net premiums improved by 22 per cent while claims dropped by 47 per cent to $146.73 million. However, the company reported an underwriting loss of $37.11 million as commissions on reinsurance ceded only improved by 62 per cent to $20.56 million – which was far from the $104.74-million haul in the fourth quarter.
Key sold its investment property in New Kingston, valued at $226.73 million during the quarter, which resulted in a gain on sale of $22.6 million. This sale, along with the rights issue, allowed Key's minimum capital test ratio to surpass the required 250 per cent and close the quarter at 257 per cent. Key also engaged in a loss portfolio transfer (LPT) during the quarter to reduce its outstanding claims liabilities.
Wehby explained the LPT as, “A loss portfolio transfer (LPT) is a reinsurance contract or agreement in which an insurer cedes policies – often ones that have already incurred losses – to a reinsurer. In a loss portfolio transfer, a reinsurer assumes and accepts an insurer's existing open and future claim liabilities through the transfer of the insurer's loss reserves.”
As Key's fortunes begin to look up, Wehby noted that the company will be more focused on its investment portfolio, which should contribute substantially to profitability in the future. Key ended the quarter with $1.72 billion in cash and cash equivalents.
“With a highly engaged team, the future outlook of Key is extremely positive and we expect the trend of improved financial results to continue. The LPT arrangement will allow Key Insurance to comfortably expand in the marketplace, increase its gross and net written premiums, and achieve improved levels of profitability and return on equity. Key is focused on becoming the local insurer of choice by offering world-class customer service.
We expect that executing on this goal will result in notable growth in our motor insurance policies, and as such we have sufficiently strengthened the balance sheet to support the anticipated increased levels of policy underwriting. Key has developed a strong track record of settling claims under GraceKennedy's stewardship and will continue to do so as it places customer satisfaction and digital expansion at the centre of its strategic plans,“ Wehby said.
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