JOHANNESBURG - Financial services group Momentum Metropolitan on Thursday entered into an agreement to acquire the Alexander Forbes short-term insurance (AFI) business for a total purchase consideration for R1.94 billion.
Momentum Metropolitan was formed from the merger of Metropolitan and Momentum, sizable insurance-based financial services companies in South Africa and listed on the Johannesburg Stock Exchange on 1 December 2010.
With a market capitalisation of R28 billion and an embedded value of R39.6 billion, Momentum Metropolitan conducts its business through operating brands Metropolitan, Momentum, Guardrisk and Eris Properties.
The group said it has identified short-term insurance as an industry segment into which the group will invest capital to support its growth aspirations.
It said this transaction accelerates and broadens the sustainable growth plans for this market segment.
"AFI is a well-run insurance business with a stable and experienced management team. We believe that there is a strong cultural fit with the broader Momentum Metropolitan business," it said.
"The group's targeted end-state is an integrated retail short-term insurance unit, combining Momentum short-term insurance (MSTI) and AFI. The integrated business will trade under the Momentum brand, using one insurance license."
AFI reported a profit after taxation for the year ended 31 March 2019 of R135 million. The net asset value of AFI as at 31 March 2019 was R322 million.
AFI and MSTI are complementary businesses in many respects, including their target markets, product sets and customer value propositions.
Herman Schoeman, the chief executive of Momentum Metropolitan’s non-life insurance portfolio, said in a lower growth market, size and scale was imperative for sustainable profitability.
"An acquisition of this nature and quality rarely occurs in the South African short-term insurance market and we are excited by the opportunities it presents," Schoeman said.
"The integrated business will trade under the Momentum brand, using one insurance license”. He confirms that this transaction has no impact on the Guardrisk business, which will continue to operate as a specialist insurance group."
The group plans a phased integration of AFI into MSTI and expect the process to be relatively smooth – in the same manner as when Guardrisk was acquired five years ago.
This process will start after obtaining final approval from all relevant regulatory bodies.