This article first appeared in The Edge Malaysia Weekly on May 15, 2017 - May 21, 2017

JAPANESE insurer Tokio Marine Holdings Inc has hired international banking group BNP Paribas as advisers to help it come up with a solution to pare down its shareholding in its life insurance business in Malaysia, say sources familiar with the matter.

“This is to comply with Bank Negara Malaysia’s ruling for foreign insurers to pare down their stake to 70% in local life insurers in Malaysia. The regulator recently reminded foreign insurers again on this and set a deadline of June 2018 for them to comply. As such, Tokio Marine is working towards that deadline,” a source says.

According to the source, Tokio Marine is looking at three options.

The first is to divest the 30% stake in the life insurance business to local parties, and the second is to create a holding company in Malaysia that will house both its life and general insurance businesses and sell 30% of that holding company. These two options will mean selling the stake to various local institutions and high-net-worth individuals.

The third option is to list the new holding company on Bursa Malaysia, thereby giving the Malaysian public in general a chance to own shares in the company.

Allianz Malaysia Bhd and Manulife Holdings Bhd are among the foreign insurance companies that are currently listed on Bursa.

Allianz Malaysia’s major shareholder is Allianz SE of Germany with a 66.4% stake, while Manulife Holdings is controlled by Manulife Century Holdings (Netherlands) BV with a 59.5% stake.

Malaysia liberalised foreign ownership rules in 2009 to allow foreign equity participation in insurance companies and takaful operators to increase from a limit of 49% to 70%. At that time, Bank Negara said that a higher foreign equity limit beyond 70% for insurance companies will be considered on a case-by-case basis for players who can facilitate consolidation and rationalisation of the insurance industry.

In the past, extensions have been granted to firms that did not comply with the foreign ownership limit but with the latest reminder, it appears that the central bank is taking a tougher stance on foreign insurer holding.

Tokio Marine together with two of the largest insurance companies in Malaysia — AIA Group Ltd and Great Eastern Holdings Ltd — are among the foreign companies that have ­wholly-owned general insurance and life insurance operations in Malaysia.

According to Tokio Marine’s latest financial statement, its life insurance operations had about RM490.5 million gross earned premium revenue in the first half of 2016, generating a net ­profit of RM3.6 million. In 2015, the gross earned premium revenue was about RM1.07 billion and it had a net profit of RM92.7 million.

Bank Negara’s report shows that the total life insurance net ­premium ­collected in 2015 was about ­RM30 billion, indicating that Tokio ­Marine’s market share in 2015 was about 3.6%. That it is quite small is no surprise given that Tokio Marine only entered into the life insurance business in Malaysia 10 years ago when it acquired Asia Insurance (M) Bhd.

Tokio Marine started out its general underwriting business in Malaysia in 1957 and established its Malaysian branch operations in 1974. Its general insurance business earned premium of RM544.5 million and a net profit of RM50.5 million in the first half of 2016. In FY2015, it recorded gross earned premium of RM1.1 billion that resulted in a net profit of RM100 million.

With Tokio Marine taking steps to comply with Bank Negara’s ruling, it remains to be seen if the larger foreign players in the life insurance business will follow suit and what are the strategies that will be taken to meet the foreign equity ownership of 70%.

Life Insurance Association of Malaysia’s (LIAM) 2016 annual report states that insurance coverage has seen a growth of 5% to RM1.30 trillion in sum assured for all policies combined in 2016 as compared with RM1.24 trillion recorded in 2015.

LIAM adds that the life insurance industry provided insurance ­protection to 12.6 million lives (with each ­policy being considered as a separate life) in 2016, an increase of 105,199 when compared with 2015. The per capita sum assured also increased from RM39,685 in 2015 to RM41,055 in 2016.

Despite this, the central bank’s ­report has highlighted that the ­insurance penetration rate has ­remained fairly static within the range of 54% to 56% over the last five years. It adds that affordability and access required to service policies in underserved ­market segments remain key barriers to higher levels of penetration.

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