Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on March 6 - 12, 2017.

 

THERE is growing speculation in the insurance industry that Bank Negara Malaysia may soon revise or provide clearer guidance on the level of foreign participation allowed in local insurers.

“Bank Negara is reviewing the insurance market and may revise the restrictions on foreign participation in due course,” Anna Tipping, a Singapore-based partner at law firm Norton Rose Fulbright, notes in a recent report on insurance regulation in Asia-Pacific.

Talk in the industry is that it may come as soon as this month.

There is currently a 70% cap on foreign equity ownership in local insurers. However, industry sources say in recent years, foreign insurers have been struggling to get the central bank’s nod to take up as much as a 70% stake in local targets despite there being willing buyer-willing seller situations.

“Because of that, several deals are just not moving. The official limit is 70% but in practice, what has been allowed in recent years seems to suggest that there’s been a change in thinking. So, there’s a bit of confusion. We’re seeing proposals getting ‘stuck’ at Bank Negara level. Sometimes, after submitting an application to the central bank for permission to commence negotiations, nothing comes of it,” remarks a source, who declined to give details about the proposals, citing client confidentiality.

Brian Chia, head of corporate and commercial practice at Wong & Partners, says any move by Bank Negara to chart a clearer direction on foreign shareholding would be welcomed by the industry. The 70% limit is the regulator’s prevailing policy and is not set in law, he points out.

“We have [foreign] clients who want to come in, who want to buy local targets, but the signal they’re getting [from Bank Negara] is that they will not be allowed to take shareholding of up to 70%. They want as much as they can and they want control, which means at least 50% plus one share, right? If you tell them [they can’t], it’s a dampener and it changes the whole investment proposition for them,” he tells The Edge.

“So, if any new policy is announced, it will hopefully create very clear parameters and set some direction as to what can and cannot be done. The problem now is that buyers have little clarity on the application of the prevailing policy.”

Anticipation of the revision comes amid growing mergers and acquisitions in the insurance space. Analysts note that foreign insurers, in particular, continue to show keen interest in entering or increasing their participation in Malaysia’s insurance market, given its growth potential.

Meanwhile, a number of local banks are looking to sell their insurance companies — preferring instead to focus on the business of distribution — to avoid being saddled by heavier capital requirements in the future. “This creates M&A opportunities,” an analyst remarks.

Last October, Bank Negara gave Allianz Malaysia Bhd the nod to begin talks on acquiring HSBC Amanah Takaful (M) Bhd. It has six months to conclude the negotiations.

Last November, Hong Leong Financial Group called off talks to sell stakes in its insurance units as it “could not reach an acceptable commercial agreement” with the potential buyers. This came four months after the group got the central bank’s approval to negotiate a deal with certain unnamed parties to sell a stake in life insurer Hong Leong Assurance and Islamic insurer Hong leong MSIG Takaful.

Bank Negara governor Datuk Muhammad Ibrahim, in his keynote speech at the Malaysian Insurance Summit last October, noted that the growth potential in the insurance and takaful industry is “significant” with estimates placing the life and medical insurance protection gap alone at between RM550,000 and RM723,000 per household.

 

 

The following is Bank Negara Malaysia’s response to The Edge’s queries on issues raised in this story:

 

•    Acquisitions of interest in shares in the insurance industry will be assessed under the prudential and best interest of Malaysia criteria under the Financial Services Act 2013.

•    The best interest of Malaysia criteria includes the degree and significance of participation of Malaysians in the financial sector with the underlying objective of supporting growth in high value-added economic activities, fulfilling the needs of niche segments in the domestic market and providing high-skilled employment opportunities in Malaysia.

•    In Malaysia, the insurance industry has a high level of foreign participation. Companies with foreign shareholders account for 75% of market share. Despite the significant foreign participation in the market, the country’s insurance penetration rate remains low at 55%. All industry players are expected to play a greater role in raising the penetration rate and enhance the insurance coverage of the general public.

•    In this regard, Bank Negara has been engaging with applicants and existing shareholders to provide clarity on its expectations of the role of shareholders. This is necessary to ensure that the intentions of the best interest of Malaysia criteria, as set out in the Malaysian law, are met.

 

 

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