FIND­ING BUY­ERS FOR IN­SUR­ERS’ STAKES HARD IN MALAYSIA

The Gulf Today - Business - - SPECIAL REPORT -

HONG KONG/SIN­GA­PORE: Malaysia is likely to re­view a di­rec­tive to for­eign in­sur­ers to re­duce own­er­ship of their lo­cal units by nearly a third as find­ing do­mes­tic buy­ers for the equity stakes is prov­ing hard, three peo­ple fa­mil­iar with the mat­ter said.

The re­view may re­sult in the Malaysian reg­u­la­tor putting the re­quire­ment in abeyance, the peo­ple said.

That would pro­vide respite to for­eign firms in­clud­ing Great Eastern Hold­ings, Pru­den­tial, Tokio Ma­rine Hold­ings and Zurich In­sur­ance by putting off deals worth more than $2 bil­lion that were be­ing thrust upon them.

For­eign in­sur­ers have been ex­pand­ing in Malaysia and other South­east Asian coun­tries in re­cent years, lured by strong eco­nomic growth, ris­ing mid­dle­class in­come and lower in­sur­ance pen­e­tra­tion.

But they were caught of­f­guard last year when Malaysia’s cen­tral bank, which also reg­u­lates in­sur­ers, said it would en­force its 2009 rule set­ting a 70 per cent cap on for­eign own­er­ship of lo­cal in­sur­ance busi­nesses.

The di­rec­tive had sent for­eign in­sur­ers in Malaysia, many of whom op­er­ate wholly-owned units, scram­bling to seal deals to sell 30 per cent stakes to lo­cal state-linked funds or list the lo­cal arms.

The po­ten­tial re­view of the di­rec­tive comes against the back­drop of Ma­hathir Mo­hamad be­com­ing Malaysia’s prime min­is­ter last month and Muhammad Ibrahim re­sign­ing as the cen­tral bank gov­er­nor.

Two se­nior of­fi­cials who were re­spon­si­ble for is­sues re­lat­ing to the in­sur­ance sec­tor at Bank Ne­gara Malaysia, the cen­tral bank, have also re­signed in re­cent months, two of the peo­ple said.

One of the sources said stake sale val­u­a­tions were be­low ex­pec­ta­tions of some in­sur­ers and they had in­di­cated this to the cen­tral bank.

The Malaysian reg­u­la­tor, how­ever, is yet to for­mally in­form in­sur­ers about the pos­si­ble re­view and could still go ahead with the plan by re­lax­ing some con­di­tions, the two other peo­ple said, de­clin­ing to elab­o­rate.

Bank Ne­gara did not im­me­di­ately re­spond to a re­quest for com­ment. The peo­ple de­clined to be named as the plans were not pub­lic yet.

The cen­tral bank had said in March mea­sures by some for­eign in­sur­ers to cut stakes in their lo­cal units are “in re­la­tion to spe­cific com­mit­ments” that these firms made when they ap­plied for en­try into the coun­try.

LO­CAL FUNDS

Cit­ing sources, Reuters re­ported in March that Pru­den­tial and Great Eastern were in talks with pen­sion funds Kumpu­lan Wang Per­saraan (KWAP) and Em­ploy­ees Prov­i­dent Fund, re­spec­tively, to cut their stakes in their whol­ly­owned lo­cal units.

“We can­not com­ment on it as we are still ne­go­ti­at­ing on the deal, and as far as we are con­cerned the dead­line has not changed,” KWAP CEO Wan Ka­maruza­man Wan Ah­mad told Reuters.

Rep­re­sen­ta­tives at Great Eastern, Pru­den­tial, Tokio Ma­rine and Zurich de­clined to com­ment.

An EPF spokes­woman said the fund’s dis­cus­sions were still on­go­ing.

The reg­u­la­tor is ex­pected to stick to its end-june dead­line of get­ting firms to sub­mit plans to re­duce stakes by 30 per cent, and a de­ci­sion on the re­view is likely to be an­nounced af­ter that, the peo­ple said. Most for­eign in­sur­ers are strug­gling to find lo­cal in­vestors who could add value to their units and don’t have much ap­petite to do list­ings in the near-term in dour equity mar­kets, they said.

A small num­ber of large lo­cal funds in Malaysia had stoked con­cern among for­eign in­sur­ers about com­pet­ing for the same pool of in­sti­tu­tional in­vestors.

Ex­pected man­age­ment changes at Malaysian state-linked funds af­ter the elec­tion are also likely to re­sult in muted re­sponses on their part, es­pe­cially for deals that don’t give them ma­jor­ity con­trol, the peo­ple said.

Five for­eign in­sur­ance com­pa­nies have been granted new li­cences by Bank Ne­gara Malaysia in re­la­tion to the do­mes­ti­ca­tion of their for­eign branches in Malaysia in com­pli­ance with the re­quire­ment of the In­sur­ance Act 1996.

Bank Ne­gara Malaysia’s Gov­er­nor Tan Sri Ali Abul Has­san Su­laiman, who is also the Di­rec­tor-gen­eral of In­sur­ance, pre­sented the li­cences to the CEOS of the five com­pa­nies at a cer­e­mony held at the cen­tral bank to­day.

The five for­eign in­sur­ance com­pa­nies are The Great Eastern Life As­sur­ance Com­pany Lim­ited, The Over­seas As­sur­ance Cor­po­ra­tion Lim­ited, The Asia Life As­sur­ance So­ci­ety Lim­ited, The Asia In­sur­ance Co. Ltd. and The Wing On Fire & Ma­rine In­sur­ance Com­pany Lim­ited.

Prior to the com­ing into force of the In­sur­ance Act 1996, a to­tal of 44 for­eign-in­cor­po­rated in­sur­ers have re­struc­tured their op­er­a­tions in Malaysia into 34 Malaysian-in­cor­po­rated in­sur­ers.

The five for­eign in­sur­ance com­pa­nies had ear­lier ob­tained the ap­proval of the cen­tral bank and the High Court to trans­fer all the ex­ist­ing as­sets, li­a­bil­i­ties and in­sur­ance busi­ness of their for­eign branches to a locally in­cor­po­rated en­tity. The new en­ti­ties will still hon­our, sat­isfy, dis­charge and ful­fil all the debts of the old en­ti­ties in re­la­tion to the Malaysian in­sur­ance busi­ness af­ter their lo­cal in­cor­po­ra­tion.

In his ad­dress, Tan Sri Ali Abul Has­san com­mended the five for­eign branches for their fine ef­fort in en­sur­ing the com­ple­tion of the do­mes­ti­ca­tion ex­er­cise. “With the com­ple­tion of the do­mes­ti­ca­tion ex­er­cise, we look for­ward to the newly in­cor­po­rated en­ti­ties to progress into the next phase of the equity re­struc­tur­ing ex­er­cise with equity par­tic­i­pa­tion by Malaysians in line with Malaysia’s na­tional as­pi­ra­tion,” said Tan Sri Ali Abul Has­san.

On the prospect of the in­sur­ance in­dus­try and the role of the in­di­vid­ual play­ers, the Gov­er­nor com­mented that there are tremen­dous rooms for ex­pan­sion in the in­sur­ance in­dus­try. “In 1997, the com­bined pre­mium in­come for the life and gen­eral in­dus­try ac­counted for only 4.3 per cent of the Gross Na­tional Prod­uct and the in­sur­ance pen­e­tra­tion rate for life busi­ness was only 27 per cent. These re­mained low com­pared with other ad­vanced mar­kets”.

“As such, the in­sur­ers should strive to fast track the growth of the in­dus­try by com­ing out with in­no­va­tive and bold plans to in­crease the mar­ket pen­e­tra­tion and the promi­nence of the in­sur­ance in­dus­try in the fi­nan­cial sec­tor with greater fi­nan­cial dis­ci­pline and more ef­fec­tive cor­po­rate gov­er­nance,” said Tan Sri Ali Abul Has­san.

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