This article first appeared in The Edge Malaysia Weekly on April 16, 2018 - April 22, 2018

FOREIGN insurance companies are believed to have submitted a proposal to Bank Negara Malaysia to contribute 30% of their 10-year forecast profit to the setting up of a healthcare trust in the country.

However, Bank Negara seems to be firm on its stance that the foreign wholly owned insurers have to keep their promise to pare down their stakes.

The proposal, according to sources, is an alternative route for insurance companies that are wholly owned by foreigners to fulfil their commitment to pare down their shareholding by 30% before a June 30 deadline.

Given the proposal, the insurance companies will not dispose of their stakes as required by Bank Negara, but will contribute 30% of their 10-year forecast net profit to the setting up of a healthcare trust to provide basic health insurance for the low-income group, namely the bottom 40% of the population (B40). Currently, most of the B40 cannot afford to have healthcare insurance as they are living from hand to mouth.

The healthcare trust is expected to help reduce the burden on the government, which is bearing the growing cost of public healthcare services. In recent years, due to smaller allocations, government hospitals have been charging the public for certain medicines.

In a reply to The Edge, Bank Negara says, “The bank welcomes any initiative by insurers that would benefit the Malaysian economy and the general public, as expected of any ordinary responsible corporate citizen that operates in the country. Despite a long presence in Malaysia, the contribution of the foreign insurers to the overall development of the domestic insurance industry has not been at the level expected. For example, there has been minimal improvement in insurance penetration, compounded by the lack of breadth in products (especially for the lower-income segments) and concentration of high-cost distribution models.

The bank would like to stress that the agreed foreign shareholding level was a commitment provided by the foreign shareholders in being granted a licence to operate in the country. The foreign insurers were given the licence to operate in the domestic market on the basis of the specific commitments and assurances given. A licence would not have been given if the commitments had not been made. Over the years, ample opportunities and flexibilities have already been conceded to accommodate actions that should have been taken by shareholders to deliver on their commitments. The bank therefore fully expects shareholders to honour an explicit promise made, and to operate in Malaysia in a manner that benefits the development of the domestic insurance market and the economy generally. This should be commensurate with the significant returns accruing to foreign insurers from the Malaysian market.

Shareholders of foreign insurers have benefited enormously from their presence in the Malaysian market. Bank Negara estimates that a total of RM16.5 billion or 70% of total profits attributable to foreign shareholders of insurers were repatriated over the period of 2008 to 2017 in the form of dividends. In addition, foreign insurers repatriated an estimated RM1.3 billion in management fees and outsourcing arrangements to foreign affiliates between 2014 and 2016.”

At this juncture, the mechanics of the trust is unclear. If the proposal gets the nod, the insurers are likely to appoint a manager to ensure that the pool of profit grows.

It is learnt that the foreign insurance companies are rather reluctant to part with their equity interest although they are said to be in talks with government-linked institutional funds such as the Employees Provident Fund and Kumpulan Wang Persaraan (Diperbadankan).

To recap, Malaysia liberalised the foreign ownership rules in 2009 under the Financial Sector Master Plan and the limit on foreign equity participation in insurance companies and takaful operators was increased to 70% from 49%.

On top of that, Bank Negara allowed higher foreign equity participation to foreign insurers that are able to facilitate the consolidation and rationalisation of the insurance industry.

Eleven insurers — including Great Eastern, AIA and Tokio Marine — are wholly owned by foreign firms.

Two foreign insurance companies, namely Allianz Malaysia Bhd and Manulife Holdings Bhd, are listed on Bursa Malaysia. Allianz Malaysia’s major shareholder is Allianz SE of Germany with a 65.62% stake, while Manulife Holdings is controlled by Manulife Century Holdings (Netherlands) BV with a 59.45% stake.

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