Prudential’s M’sia unit in stake sale talks with KWAP

HONG KONG: Prudential PLC’s Malaysian unit is in talks with the country’s No. 2 pension fund to sell a 30% stake, valued at about US$435mil (RM1.69bil), said people with knowledge of the matter, as overseas insurers race to comply with new foreign ownership rules.

The discussions between Prudential Assurance Malaysia Bhd, a wholly-owned unit of the British insurer, and the Retirement Fund Inc (KWAP) are not exclusive, and details of a possible deal could be finalised as early as this month, said the people.

Foreign insurers are required to cut their stakes in their local units by 30% to abide by a directive announced by Bank Negara last year, under an initiative to lift domestic par- ticipation in the industry.

That has prompted a rush from the likes of Prudential, Great Eastern Holdings, Tokio Marine Holdings, and Zurich Insurance in Malaysia to find ways of divesting stakes and submit plans to the regulator before a June deadline.

The Malaysian unit of Britain’s largest insurer by assets is one of the leading foreign life insurers in the country.

KWAP CEO Datuk Wan Kamaruzaman Wan Ahmad told Reuters the fund had submitted an offer for the Prudential unit’s stake, but declined to give details. Prudential did not comment on the discussions, but said it was committed to its local business.

There is no certainty that Prudential’s talks with KWAP would result in a deal, and the former could also weigh a listing on the Malaysian bourse to divest the stake, said the people, who declined to be identified because the talks were not public.

The regulator’s new rule had stoked some concern among foreign insurers as a small number of large local funds in the country meant they will be competing for the same pool of institutional investors.

Prudential’s Malaysian unit, whose net premium earnings rose 3.3% to RM3.1bil in the six-month period ended June 2017, has an embedded value of about RM5.5bil, one of the people said. That values a 30% stake in the unit at RM1.7bil. Embedded value is the net asset value of an insurer plus the present value of potential future profits from existing life and health insurance contracts.

Foreign insurers have been expanding in Malaysia and other South-East Asian countries in recent years, lured by strong economic growth, rising middle-class income and lower insurance penetration.

Besides Prudential, other foreign insurers in Malaysia are also busy finalising options for reducing their stakes.

Singapore-listed Great Eastern is in talks with the Employees Provident Fund (EPF) to sell a 30% stake in its wholly-owned Malaysian unit, said the people familiar with the matter.

Great Eastern Life Assurance Malaysia Bhd is the market leader in Malaysia’s insurance sector.