Mergers & Acquisitions

Foreign insurers scramble to meet ownership cap or face wrath of Malaysia authorities

PUBLISHED : Thursday, 22 February, 2018, 12:05pm
UPDATED : Friday, 23 February, 2018, 9:00am

International insurance companies are seeking out local partners in Malaysia ahead of a midyear deadline that will impose caps on foreigner ownership, forcing large insurers such as AIA and Prudential to restructure their local units, according to two insurance sources.

Foreign insurance companies must sell 30 per cent stakes in their Malaysian insurance arms to local partners or list the stakes on the Malaysian stock exchange by the end of the second quarter, according to a former Malaysia-based insurance executive who declined to be named.

Bank Negara Malaysia, the central bank and regulator of the nation’s insurance industry, last year sent out a directive telling Malaysian insurance units that their overseas parents would need to observe a 70 per cent ownership cap by the end of June, the executive said. 

Employees Provident Fund of Malaysia last week confirmed it was in talks to buy a stake in the Malaysian insurance arm of Singapore-based insurer Great Eastern Holdings. The deal, estimated to be worth about US$1 billion, is seen to be a result of the company’s efforts to meet the new ownership cap.

Malaysia unveiled the 70 per cent foreign ownership cap in 2009, but the rule has not been rigorously enforced.

“The central bank of Malaysia now wants to enforce the foreign ownership cap due to pressure from local Malaysian insurance companies. The foreign ownership cap will help local firms to compete,” the executive told the South China Morning Post.

The executives said most foreign companies will be able to meet the deadline.

Bank Negara Malaysia did not responded to questions sent by the Post. The central bank’s website makes no mention of the pending ownership-cap deadline.

Another source said some insurance firms are talking to bankers to arrange local partners, while others are in talks to create a listed entity. 

“It would be disappointing to see Malaysia tighten controls on foreign ownership. Mainland China is now doing the opposite as it announced in November a plan to remove the cap on foreign ownership in five years,” the source said.

Malaysia is an attractive growth market for financial services, with a young population and an insurance penetration rate of just 55 per cent. 

“Prudential has a successful and long-established business in Malaysia for 94 years, and we are firmly committed to serving the long-term protection and savings needs of the Malaysian people. As a good corporate citizen, Prudential abides by the local rules in the markets where we operate,” a spokesman said.

German insurance giant Allianz said it has complied with the ownership cap through a listing on the Bursa Malaysia, the local stock exchange, since 2007. The company said it now owns around 66.4 per cent of its Malaysian arm Allianz Malaysia Berhad.

“As a global financial services leader, Allianz complies and fulfils regulations set by local authorities in the markets we operate in,” a spokesperson said.

“We continue to be positive about the growth potential in Malaysia and remain fully committed to serving our customers and stakeholders in this key market.”

Meanwhile, Hong Kong-listed AIA did not spell out what steps it was taking to comply with the foreign ownership limit.

“We own 100 per cent of our life insurance operation in Malaysia. We are not in discussion with any parties to reduce our stake in Malaysia,” a company spokesman said.