FINDING BUYERS FOR INSURERS’ STAKES HARD IN MALAYSIA
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.
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.