Source: Reuters, 15 Au­gust 2012

Insurance - - COMPANY CORNER -

As ING's sale of its $7 bil­lion Asia busi­ness en­ters the fi­nal stages, reg­u­la­tory risks in Malaysia and Thai­land re­main a headache for po­ten­tial buy­ers and could de­lay the re­gion's big­gest in­surance M&A deal.

The reg­u­la­tory un­cer­tainty is an­other stum­bling block for ING as the Dutch bank and in­surer seeks to dis­pose of its Asia in­surance units to help re­pay a bailout from the Dutch government dur­ing the 2008 fi­nan­cial cri­sis.

Its Ja­pan in­surance unit, which ac­counts for nearly a third of ING's as­sets in Asia by book value, has re­ceived luke­warm of­fers as suit­ors are wary of the 18 bil­lion eu­ros (US$22.2 bil­lion) of vari­able an­nu­ity poli­cies that may turn into huge li­a­bil­i­ties should cap­i­tal mar­kets plum­met. (1.00 EUR = 3.90 MYR)

ING's South­east Asian in­surance op­er­a­tions, ac­count­ing for over a fifth of its Asian book value, have drawn the most in­ter­est due to the re­gion's ro­bust eco­nomic growth. But rules bar­ring for­eign com­pa­nies from own­ing 100% of life in­surance busi­nesses in Malaysia and Thai­land could frus­trate ING's at­tempt to sell the units in the two coun­tries.

Bid­ders such as AIA Group Ltd and Cana­dian in­surer Man­ulife Fi­nan­cial Corp face the risk of be­ing forced to cut their stakes to com­ply with lo­cal laws if they even­tu­ally win the auc­tion.

In 2009, Malaysian reg­u­la­tor Bank Ne­gara is­sued new guide­lines lim­it­ing for­eign own­er­ship in the in­surance sec­tor to 70% to pro­tect the lo­cal in­dus­try. Thai­land re­cently raised the for­eign own­er­ship cap to 49% from 25%.

For­eign in­sur­ers in­clud­ing Sin­ga­pore's Great East­ern Hold­ings, ING and AIA were al­lowed to re­tain their 100% own­er­ship be­cause they be­gan op­er­at­ing in those coun­tries be­fore the reg­u­la­tory changes.

ING owns 100% of its Malaysian and Thai busi­nesses and 60% of its Malaysian taka­ful joint ven­ture, an Is­lamic-com­pli­ant in­surance busi­ness.

Bid­ders may join forces with lo­cal part­ners will­ing to buy stakes in ING's op­er­a­tions, while oth­ers may lobby reg­u­la­tors on the mer­its of 100 per­cent own­er­ship, ac­cord­ing to sources fa­mil­iar with the dis­cus­sions.

Thai in­sur­ers need ap­proval from the fi­nance min­istry to al­low for­eign share­hold­ers to raise their hold­ings over 49%, and such sit­u­a­tions are con­sid­ered on a case-by-case ba­sis, Pravej On­gart­sit­tigul, sec­re­tary gen­eral of the Of­fice of In­surance Com­mis­sion.

Ear­lier this year, the Thai reg­u­la­tors al­lowed Ja­pan's Tokio Marine Hold­ings to in­crease its stake in a Thai af­fil­i­ate to raise funds to cover in­surance claims af­ter last year's dev­as­tat­ing floods.

A spokes­woman for Malaysia's Bank Ne­gara de­clined to com­ment on the ING sale and pointed to the for­eign own­er­ship rules that gov­ern the coun­try's in­surance in­dus­try. ING's Malaysian unit is val­ued at about $1.6 bil­lion, the most valu­able of the Dutch ban­cas­surer's South­east Asian units, ac­cord­ing to some es­ti­mates.

Life in­surance pre­mi­ums in Malaysia are forecast to grow 5.5% next year, and in Thai­land 6%, ac­cord­ing to Swiss Re es­ti­mates. That com­pares with the av­er­age 4.5% ex­pan­sion in Asia.

Among the bid­ders vy­ing for ING's South­east Asian units are Korean Life In­surance Co Ltd and Dai-ichi Life In­surance, Ja­pan's largest listed life in­surer. De­pend­ing on how strict the reg­u­la­tors wish to be, the Ja­panese and Korean com­pa­nies may have an ad­van­tage in the fi­nal bid­ding process.

Man­ulife, which also has ex­ist­ing Malaysian op­er­a­tions, and whom sources say is also eye­ing Aviva Plc's Malaysian busi­ness as part of a broader, Asia ex­pan­sion plan, could run into a sim­i­lar prob­lem of hav­ing a large mar­ket share where reg­u­la­tors may not be com­fort­able with that.

One op­tion for suit­ors would be to agree with the reg­u­la­tor on a time pe­riod over which to sell down their hold­ings to al­low­able lev­els. This so­lu­tion could work for a new player en­ter­ing the Malaysian mar­ket. For for­eign com­pa­nies with ex­ist­ing, 100%-owned op­er­a­tions this strat­egy could be less ap­peal­ing.

Suit­ors are more re­laxed about Thai­land, where JVs are struc­tured so that most of the eco­nomic ben­e­fit from the part­ner­ship goes to the for­eign part­ner while the lo­cal part­ner con­trols the vot­ing rights, ac­cord­ing to the source.

ING is also sell­ing its stakes in in­surance ven­tures in South Korea, In­dia and China, af­ter rais­ing 15.2 bil­lion eu­ros from as­set sales around the world so far.

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