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JM | Oct 26, 2020

Key Insurance Rights Issue gets green light from shareholders

/ Our Today

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Don Wehby, GraceKennedy Group CEO. (Photo: Twitter)

 By Durrant Pate

Shareholders in the financially strapped Jamaican insurance company, Key Insurance have voted in favour of a rights issue to raise much needed capital to boost its liquidity base, which has taken a battering over the last year and a half.

During that period the company has chalked up massive losses. At its annual general meeting last week, shareholders approved two resolutions, approving the proposed rights issue as well as increasing the company’s share capital.

The rights issue will provide a much needed life line for the financially ailing insurance company, which was taken over by the Jamaican conglomerate, GraceKennedy Group in March this year. The rights issue and increase in share capital will result in a jump in the number of authorised ordinary shares issued by the company.

Rights Issue

The rights issue will offer shareholders in the insurance company the right but not the obligation to buy the newly issued shares, in direct proportion to their existing shares. This will allow shareholders to avoid any dilution of their existing share value caused by the proposed increase in shares.

The rights issue will be renounceable, meaning that Key’s shareholders can choose to sell their rights to other existing shareholders. Cash-strapped companies turn to rights issues to raise money when they really need it.

A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. Given GraceKennedy’s majority shares in Key Insurance it is anticipated that Grace will be making a sizable capital injection into the company via the rights issue.

Key attracted more shareholders since take-over

In March this year, the Dob Wehby-led GraceKennedy, through its wholly owned subsidiary, GraceKennedy Financial Group Limited, acquired 65 per cent of the share capital of Key. Since GraceKennedy’s acquisition of the company, Key has attracted 330 new shareholders to a total of 501 shareholders as of October 21, 2020.

The combined impact of strategic and operational changes implemented by Key’s new management resulted in a reduction in the second quarter net loss from $144.5 million in 2019 to $25.4 million in June 2020. The results reflect a significant improvement in performance over the first quarter ended March 2020.

Key has also seen a 357 per cent increase in market capitalisation since GK’s acquisition, from $774 million to $3.5 billion, which is reflected in the increase in the company’s share price, from J$2.10 pre-acquisition in March 2020 to J$9.60 on October 21, 2020.

Financial Performance

The combined impact of strategic and operational changes implemented by Key’s new management resulted in a reduction in the second quarter net loss from $144.5 million in 2019 to $25.4 million in June 2020. The results reflect a significant improvement in performance over the first quarter ended March 2020.

The reduction in gross premiums written reflects Key Insurance’s strategy to refocus the portfolio into more profitable segments. For the three months ended June 30, 2020, the company was able to grow net premiums written from $79.1 million to $206.3 million, an increase of 161 per cent, when compared to the corresponding period in 2019.

Similarly, there was a 157 per cent increase in the net premiums written for the six months ended June 30, 2020, when compared to the six months ended June 30, 2019. During the reporting period Key Insurance adopted IFRS 9 Financial Instruments in conformity with GraceKennedy Group’s accounting policy, resulting in a restatement of the prior period’s accumulated losses and additional charges for expected credit losses for the period.

Administration and other expenses increased by $14 million or 6.9 per cent compared to prior period due to redundancy costs as well as unanticipated legal and professional costs. As reported in the first quarter, the effects of the termination of the Motor Quota Share Reinsurance Agreement resulted in a one-time charge of $323 million to the Statement of Comprehensive Income. 

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