Foreign Life Insurers Parring Down

Bank Negara wants foreign insurance companies to honor their commitment to rationalize their stakes in their local units. The central bank stressed that this was not a new directive or new foreign ownership rule. In a statement posted on its website, it noted that the rationalization of the stake related to specific commitments given by the foreign insurers concerned when they applied for entry into the Malaysian insurance market.

They should, therefore, honor these commitments, the central bank said. It made its firm stand when clarifying a Reuters’ article yesterday entitled “Prudential Malaysia unit in talks with KWAP to sell 30% stake”.

“It is not a recent directive by the bank or a new foreign ownership rule as implied in the article,” it said.

The Reuters report, with a London dateline, said that Prudential PLC was in advanced talks with Malaysian pension fund Kumpulan Wang Persaraan (KWAP) to sell a minority stake in its Malaysian subsidiary in order to comply with foreign ownership rules.

The report also stated that the FTSE 100-listed insurer and asset manager was looking to sell a 30% stake in its wholly-owned Prudential Assurance Malaysia Bhd unit to KWAP for around US$435mil (RM1.69bil), Reuters reported citing sources familiar with the matter.

It reported that the talks were not exclusive between KWAP and Prudential. KWAP CEO Wan Kamaruzaman Wan Ahmad, declining to give details, told the wire agency the fund had submitted an offer for the Prudential unit’s stake.

Foreign insurers are required to pare down their stakes by June this year to encourage local participation in the competitive insurance market.

Meanwhile, it is learnt that the percentage of foreign shareholding that should be sold to local parties depends on the foreign insurance companies’ individual commitments to the central bank at the time of entry into the local shores.

Suffice to say that foreign insurers can retain a majority stake in their units operating in Malaysia. The foreign ownership limit for Malaysian insurers was at 70% back in 2009 with the financial liberalization policy. Higher foreign shareholdings were accorded on a case-by-case basis.

Various reports, however, had stated that foreign insurers were required to sell at least 30% of their stake to local parties. Malaysia’s life insurance sector is currently dominated by foreign players with a total market share of 81.7% in 2016. AIA, Great Eastern and Prudential are among the key players in the industry.

With the June deadline looming closer, analysts contacted by StarBiz said local funds that had deep pockets like the Employees Provident Fund (EPF), KWAP, Permodalan Nasional Bhd (PNB) and Khazanah Nasional Bhd would most likely snap up their buying of foreign insurance stakes due to higher valuations.

The sale they said would likely be an outright sale or via an initial public offering. With this scenario taking shape, analysts and industry observers foresee that this could also lead to further mergers and acquisitions in a bid to sell their stakes.

Analysts agreed that the possible listings of foreign insurers like AIA, Great Eastern and Prudential would also increase the size of the insurance market.

It was reported that the EPF last month was in talks to buy a stake in the Malaysian unit of Singapore’s Great Eastern Holdings Ltd. The EPF could not be reached for comment as at press time.

Great Eastern Holdings reiterated that it was at the moment still assessing the possible options on its minority stake in its Malaysian unit in compliance with the central bank’s rulings to pare down foreign insurer shareholdings in local units.

A source said Japan’s Tokio Marine Holdings Inc is also assessing the minority stake sale for its local unit and has hired a banker to look into it.

AIA Malaysia declined to comment on the status of its foreign shareholding sale. In October last year, at its media day event in Hong Kong, AIA Group chief executive and president Ng Keng Hooi said it was not in discussions to reduce its stake in AIA Malaysia.

With a low penetration rate of insurance, for example 54% for life insurance,  and a healthy economic growth coupled with a relatively young population, the prospect for the insurance industry looks promising. 

RAM Rating Services Bhd recently noted that there are 11 Malaysia-incorporated conventional insurers that are fully owned by foreign firms. Japan’s Tokio Marine Holdings Inc, together with AIA Group and Great Eastern Holdings – are among the foreign companies that have wholly-owned general insurance and life insurance operations locally.