Cap On Foreign Ownership Life Insurer

 Malaysia is weighing tougher enforcement of a cap on foreign ownership of insurers as it seeks to boost local participation in the industry, people with knowledge of the matter said.

The central bank is considering more strictly applying an existing policy that foreign companies owning 100% of local insurance firms must pare their stakes to no more than 70%.

It could make an announcement on the matter as soon as this month, the sources said, asking not to be identified because the information is private.

Bank Negara Malaysia, which has routinely granted extensions to firms that didn’t comply, may be less lenient in the future and require such companies to show they have the country’s best interests at heart, the people said.

While details are still being discussed, criteria that may be used include hiring more Malaysian workers for highly-skilled jobs and creating products fulfilling the needs of niche local market segments, according to the people.

Central bank governor Muhammad Ibrahim warned last year that foreign insurers “need to contribute more to justify their presence” in the Malaysian market.

Some participants’ undue focus on short-term profits had come at the expense of serving their customers, Muhammad said in a speech in October at an insurance summit in Kuala Lumpur.

Stagnant penetration

The Southeast Asian nation’s life insurance penetration has remained stagnant at 55% in the past three years, after jumping from 33% in 2001 to 51% in 2010, Muhammad said at the time. Bank Negara Malaysia didn’t immediately reply to emailed questions.

AIA Group Ltd, Great Eastern Holdings Ltd and Tokio Marine Holdings Inc are among foreign companies that have wholly-owned general insurance and life insurance operations in Malaysia, according to their latest annual reports.

They compete with local participants, including Malayan Banking Bhd’s Etiqa Insurance Bhd unit and Tune Insurance Malaysia Bhd, backed by tycoon Tony Fernandes.

Combined assets in Malaysia’s insurance and takaful industry expanded 5% last year to RM277 billion, according to a central bank report released in March. Total premiums and contributions increased 4.4% to RM61.3 billion.

Malaysia liberalised foreign ownership rules in 2009, allowing overseas insurance companies to hold as much as 70% of local firms.

Higher ownership levels could be allowed on a case-by-case basis for companies that can facilitate consolidation and rationalisation of the insurance industry, according to a statement at the time.