King Price chief executive Gideon Galloway said yesterday that he was confident the insurer would emerge victorious, despite expecting fierce competition.
“The industry is not growing and logic dictates that most insurers will be interested in getting their hands on Alexander Forbes' insurance portfolio - so we expected a crowded field of bidders. But I believe we are better positioned to emerge as the preferred bidders,” Galloway said.
“We know that Alexander Forbes' insurance business had some technology challenges, and that is an area we are strong in. We do not have legacy issues, and we believe we can use our technology to unlock further value in the Alexander Forbes insurance unit.”
King Price burst onto the insurance market in 2012 as a disruptor offering decreasing monthly insurance premiums. The company said it sells about 12000 policies a month and expects to report annual premiums of R1.8bn for the year to end-June.
Galloway said it would be an anomaly if Alexander Forbes put a price tag in excess of R2bn for the asset.
Alexander Forbes in March confirmed it had put a “for sale” sign on its insurance businesses, with insiders saying Sanlam was in pole position to acquire the assets.
The firm, which revealed its new strategy in an update to shareholders last month, said its “advice-led and capital-light” model would see it selling its insurance businesses, which comprise group risk, retail life and short-term insurance.
Alexander Forbes at the time committed that the disposal of the businesses would be based on a value proposition that balances appropriate solutions for its clients, protects employees’ interests and realises fair value for its shareholders.
Alexander Forbes’ share price has surged more than 14percent since it announced its new growth strategy.
“The Alexander Forbes short-term insurance business has great people, a highly desirable client set and a solid branch infrastructure. We will not retrench staff if we manage to buy the business,” Galloway said.
Business Report last month exclusively reported that Alexander Forbes was planning to dispose of its short-term insurance business to Sanlam, with Alexander Forbes’ second-biggest shareholder, African Rainbow Capital (ARC), said to be front and centre of the deal. ARC is a wholly owned subsidiary of Sanlam’s biggest shareholder, Ubuntu-Botho.
A source said the sale of the Alexander Forbes short-term insurance business to Sanlam’s subsidiary Santam would cost in the region of R1.5bn to R2bn and would be concluded by June.
Sanlam has previously denied the reports.
A source with intimate knowledge of the deal said it was a stroke of genius by King Price to make its offer for Alexander Forbes’ insurance business public, as this would force Alexander Forbes to consider such a “rich offer”.
“Given that there is an already agreed deal in place with Sanlam, and the ‘auction’ was de facto a smokescreen, Sanlam will still prevail, with Alexander Forbes likely to cite other strategic benefits in broadening the relationship with Sanlam - ie the swop of the insurance business for the pensions/employee benefits business of Alexander Forbes,” the source said.
Alexander Forbes said yesterday it had no comment on King Price’s bid, except to confirm it was “running an open-market process with regard to the disposal of the short-term insurance business”.