This article first appeared in The Edge Financial Daily on August 1, 2019

KUALA LUMPUR: A merger between the insurance arm of RHB Bank Bhd and Tokio Marine Insurans (M) Bhd is set to create the second largest general insurer in the country, with a combined gross written premiums of approximately RM1.71 billion and a market share of nearly a tenth.

RHB Bank also intends to form a long-term exclusive general bancassurance partnership with the proposed enlarged entity as it believes it would be mutually beneficial to both parties, the bank’s management said in an internal email to staff seen by The Edge Financial Daily yesterday.

“[The partnership] will enable us to offer a wide range of bancassurance products and services that suits our customers’ lifestyle needs.

“As you are aware, RHB Bank has a strong and long-standing business relationship with Tokio Marine Life Insurance Malaysia Bhd since 2010, through our existing life insurance distribution partnership. The proposed new general bancassurance partnership will further strengthen the relationship between RHB Bank and Tokio Marine Group, reflecting the long-term commitment and confidence that both parties have in the partnership.”

In a bourse filing yesterday, RHB Bank said Bank Negara Malaysia (BNM) had given the nod for it to commence negotiations with Tokio Marine Asia Pte Ltd for the sale of up to 94.7% of its stake in RHB Insurance. The central bank approval is valid for six months from the date of its letter.

RHB Bank owns 94.7% of RHB Insurance, and the remaining 5.3% is held by Kumpulan Syed Kechik Sdn Bhd.

As part of the proposed transaction, RHB Insurance would be merged with Tokio Marine Insurans — the general insurance arm of Tokio Marine Asia — the seventh largest non-life insurer in Malaysia with a gross written premiums of RM920 million and a 5.1% market share as at end-2018.

Tokio Marine Asia and Tokio Marine Insurans are indirect wholly-owned subsidiaries of Tokio Marine Holdings Inc.

“The proposed merger of RHB Insurance and Tokio Marine Insurans would, if it materialises, create the second largest general insurer in Malaysia, with a combined gross written premiums of approximately RM1.71 billion and a market share of 9.5%,” the management said, adding it would leverage on the strengths of Tokio Marine Insurans in product development and underwriting whilst Tokio Marine Insurans would leverage on RHB’s extensive sales and distribution network.

RHB also assured employees the merger would enhance their career development, and provide greater regional and international exposure.

In a note to investors yesterday, Hong Leong Investment Bank Research analyst Chan Jit Hoong estimated that the divestment, if materialised, would see the banking group register a disposal gain of up to RM800 million.

Chan said the divestment did not come as a surprise as insurance is a non-core asset for RHB Bank and talks of a sale had surfaced since 2015. “Overall, we welcome the potential sale effort considering RHB would then be able to focus more on growing its core banking businesses. That said, details of the deal are limited for now.

“If we were to assume [the] management is capable of fetching 2.35 times price-to-book [ratio] for its insurance unit [in line with the historical average merger and acquisition transaction involving Malaysian insurers], RHB is poised to book in disposal gains of RM700 to RM800 million [using December 2018’s data],” said Chan who does not expect the divestment to have a material impact on RHB Bank’s earnings as RHB Insurance only contributes up to 3% to the group’s bottom line.

KAF-Seagroatt & Campbell Securities analyst Rachel Huang said the divestment would improve RHB Bank’s common equity tier 1 by about 55 basis points, based on the book value of RHB Insurance of RM574 million as at end-2018. “In simplistic terms, the book value of RM574 million works out to [be] 14 sen per RHB share. The 14 sen/RHB share is therefore indicative of the one-off dividend that may be released.”

She cautioned: “Overall, any potential sale of the insurance unit is marginally positive for RHB. Nevertheless, we remain guarded about RHB Bank, mainly because of increasing concerns about the property overhang standstill situation, and RHB Bank’s disproportionally huge proportion of newer property loans compared with the industry.”

RHB Bank’s share price closed six sen or 1.1% higher at RM5.50 yesterday, valuing the company at RM22.06 billion.