KWAP and EPF lead battle for insurers

Prudential and Great Eastern are among the targets

PETALING JAYA: The battle for stakes in Malaysia’s three largest life insurance companies has picked up pace.

Sources said Retirement Fund Inc (KWAP) has submitted its bid to buy a stake in foreign-owned Prudential Assurance Malaysia Bhd, while the Employees Provident Fund (EPF) is eyeing a block in Great Eastern Life Assurance (M) Bhd.

Between the two, KWAP is at an advanced stage of negotiation and hopes to see some positive development soon.

“They are hoping to see some concrete outcome from negotiations by the end of this month. The talks are between KWAP and the principals in London,” said the sources.

Last week, Bank Negara reminded insurance companies to “honour their commitments” with regard to rationalising their shareholding equity.

Under the Financial Services Act (FSA) foreign insurance companies are allowed to hold up to 70% equity interest in local insurance companies.

Foreign insurers have until June 2018 to meet a 30% local shareholding ruling set by the central bank as part of an initiative to lift domestic participation in the industry.

Leading life insurers – AIA Bhd, Great Eastern and Prudential – are wholly owned by foreign companies.

According to CIMB Research, the three life insurance companies had an 81.7% market share in 2016.

According to sources, KWAP is in talks with two insurance companies, namely, Prudential Assurance and Great Eastern.

“However, Prudential has so far been more receptive to KWAP’s offer,” a source said.

As for Great Eastern, it is learnt that the Singapore-based insurer has wanted an investor like the EPF should it be required to reduce its shareholding.

“The foreign ownership threshold was set at 70% in 2009 when the FSA came into force,” said an industry official.

The official said that at the time, the view was that any higher threshold of foreign shareholding would be reviewed by Bank Negara on a case-by-case basis.

It has been reported that Prudential PLC is looking to sell a 30% stake in Prudential Assurance to KWAP for US$435mil (RM1.69bil). If this report were true, it would value Prudential Assurance at RM5.63bil.

Last November, CIMB Research ascribed a 2.3 times price-to-book value (P/BV) for Prudential Assurance and valued it at RM4.1bil.

The research house said the P/BV of 2.3 times was based on past acquisitions of insurance firms in Malaysia. CIMB also estimated that AIA would have a market capitalisation of RM10.9bil and RM4.1bil for Great Eastern.

There are four listed local insurance companies on Bursa Malaysia, namely, LPI Capital Bhd with a market capitalisation of RM6.4bil, Allianz Malaysia Bhd valued at RM2.2bil, and Syarikat Takaful Malaysia Bhd and Tune Protect Group Bhd with market capitalisations of RM2.88bil and RM628mil, respectively.

The talks are between KWAP and the principals in London. Sources

This article first appeared in StarBiz Premium.