NCBA and AIG Kenya, a match made in heaven?

After announcing their plans to acquire the remainder of the company last year in late September, having been a minority shareholder for nearly 2 decades, NCBA have finally completed their acquisition. This acquisition had to be ratified by some regulatory bodies and both firms had to do their own due diligence. The news hasn't moved the market (at least not yet) but is however great news for all NCBA investors.

AIG Kenya's legacy

AIG Kenya was established in 1972 by the AIG Group and has been serving the East African insurance market for more than half a century. Their experience and legacy in the business having been early onto the scene is highly valued by both investors and customers, being a subsidiary of AIG Group they've been able to tap into their network for decades. Their understanding of the market through data they've collected over the years places them in a good position, since the insurance business is a data business.

Bancassurance

A new phenomenon 'bancassurance' is making waves as commercial banks race to get into the insurance business either through acquisition or starting their own insurance firm. This came about when banks realized that the insurance sector is primed for growth since they(insurance firms) had very low market penetration. As consumers become more educated on insurance and start to see the value in purchasing insurance policies, players in the space have no where to go but up and commercial banks are betting on this.

Banks like NCBA have huge customer bases and clearly not all of them purchase insurance, the trust they've built with their customer base through the years makes up-selling them on insurance so much easier. AIG Ke. should ideally see extraordinary growth in coming years as NCBA introduces their customer base to AIG's insurance offerings, however nothing's ever clear-cut so we have to wait and see.

The synergy formed can push NCBA to new heights, this match seems perfect considering NCBA had been on the AIG board as a minority shareholder for nearly 2 decades and should've gained some understanding of how AIG Kenya runs and what value their expertise can add.

Excitement on both sides

Both John Gachora, NCBA Group MD and Stella Njunge AIG Kenya CEO have been looking forward to the acquisition. With John saying "With insurance increasingly becoming a basic financial need for the type of customers we serve. An ecosystem of NCBA’s physical and digital distribution platforms and AIG Kenya’s insurance capabilities will unlock opportunities to catalyze deeper insurance market penetration in Kenya and the East Africa region".

His counterpart had this to say "The acquisition marks a significant milestone in our company’s evolution. NCBA’s resources, expertise, and expansive network will enhance our capabilities, allowing us to offer a broader range of products and services, improve our operational efficiencies, and provide greater value to our customers and partners".

Future

The past is usually a pretty good indicator of the future and if the past is anything to go by, then the future looks bright for NCBA Group. They grew their profitability by 56% in the full year 2023, all important numbers were up from assets and customer deposits to digital loans, with the team they've assembled the best is yet to come.

Conclusion

As banks consolidate and continue to create shareholder value through different avenues, investors will continue to cheer them on. This purchase bears testament to the group's commitment to creating shareholder value and will pay bountiful dividends to NCBA's investors.

A wise man once said that whatever got you to a certain level isn't guaranteed to take you to the next, I subscribe to this and believe that the group faces new challenges that will require a dynamic team to tackle. AIG Kenya's half a century experience in the insurance business and capable team will definitely aid the group as they tread unchartered waters.

The leadership is solid with an experienced group MD, John Gachora, an alumni of Wharton Business school and MIT. His counterpart, David Abwoga, has vast experience in the business as well, having held various executive positions at Citibank E.Africa. As we head into the digital era, this leadership has what it takes to drive innovation at the bank and position the bank as a leader in the digital space just like they did with their partnerships with safaricom's mpesa.

With opportunities in new, high growth categories the group's future looks promising and investors should keep an eye on this stock.

Resources

NCBA group , Press release full year 2023 , AIG Kenya