EPF Buying Up Life Insurers

The Retirement Fund Inc (KWAP) is in final negotiations to acquire two foreign-owned insurers in the country, in a combined deal that could reach up to RM2.5 billion.

The fund is currently ironing out details of potential share sale with Singapore’s Great Eastern Holdings Ltd and the UK-based Prudential plc, a source close to the development told The Malaysian Reserve (TMR).

“KWAP is currently in negotiations with the two approved insurance companies — Prudential Assurance Malaysia Bhd and Great Eastern Life Assurance (M) Bhd. Valuations remain a key component, where KWAP is only interested for the stakes at the right pricing,” said the source, who spoke under the condition of anonymity.

KWAP, which manages a fund of RM125 billion, has received Bank Negara Malaysia’s (BNM) nod to embark on the acquisition drive.

Media reports quoted KWAP CEO Datuk Wan Kamaruzaman Wan Ahmad in August as saying that the fund was considering investing in foreign-owned insurers based in the Malaysia and had asked banks for pitches.

Malaysia’s central bank has given foreign insurers until the end of June 2018 to trim their holdings in local firms to 70% at most.

In 2009, Malaysia raised the foreign ownership cap for insurers to 70% from 49% previously.

At the time, the central bank said a higher cap of more than 70% would be considered on a case-by-case basis for players who could facilitate the consolidation and rationalization of the insurance industry. In the past, it had granted extensions to insurers that did not comply with the foreign ownership.

According to Bloomberg, there are 11 insurers in Malaysia that are wholly owned by foreign firms.

Meanwhile, an analyst told TMR that if KWAP would purchase 30% stake each in Prudential and Great Eastern, the combined value could fetch over RM2.5 billion.

“However, KWAP might not opt for a maximum 30% share-holding or could enter with a partner, because the Employees Provident Fund have also expressed interest for the same insurers.”

Media reports had quoted CIMB Research stating that the three major foreign-owned companies that dominate life insurance are the AIA Group, Great Eastern and Prudential, which have a combined market share of 66.7% in terms of gross earned premiums

In the general insurance segment, the market share of local and foreign players, in terms of annualized gross earned premium last year with local players, accounting for 52.1% and foreign players, 47.9%.

However, foreign companies dominate the life insurance segment with their market share at 81.7%, compared to local insurers at just 18.3%.

Currently, there are 23 general insurers and 14 life insurers in Malaysia.