This article first appeared in The Edge Financial Daily on November 16, 2017

Insurance sector
Retain overweight: In June, Bank Negara Malaysia reinforced the requirement that foreign insurers must have local shareholding of at least 30%. The enforcement of this requirement could lead to a spate of merger-and-acquisition activities in the insurance sector. Apart from selling stakes to local strategic shareholders to meet the requirement, we think foreign insurers may pursue the initial public offering option.

For the sector as a whole, we are positive about the listing of any foreign insurers, especially the three big players, on Bursa Malaysia as this would significantly expand the size of the insurance sector. However, we think this would be negative for existing insurance stocks as their liquidity could be drained as a result. (This report is purely a scenario analysis to explore the idea of major foreign life insurers’ listing on the Malaysian equity market. So far, there has been no indication that any of these companies intends to go public.)

There are a total of 23 general insurers and 14 life insurers in Malaysia. Market share is more evenly distributed in the general insurance segment in terms of 2016 annualised gross earned premium, with local players comprising 52.1% and foreign players accounting for 47.9%. However, foreign names dominate the life insurance sector, with total market share of 81.7% in 2016 versus the 18.3% of local insurers.

The Malaysian life insurance sector is dominated by three major foreign players — AIA Bhd, Great Eastern Malaysia and Prudential Malaysia, which have a combined market share of 66.7% (in terms of gross earned premium). For this reason, we think these companies would attract keen interest from investors if they list on the Malaysian equity market (at reasonable valuations). — CIMB Research, Nov 14