Fair deal for foreign insurers, please
FocusM team | 11 May 2018 00:30
By June 30, foreign insurance companies must comply with a Bank Negara Malay-sia ruling to sell at least 30% of their stake to local parties.
By the looks of it, that’s not going to happen soon. Only one insurer, Prudential Assurance Malaysia Bhd, is “at an advanced stage” of talks to sell down its stake to 70%. Other big foreign players such as Great Eastern Life Assurance (M) Bhd and AIA Bhd have not indicated they are going to divest anytime soon although Great Eastern had been in negotiations earlier this year.
Bank Negara is annoyed with their inaction. In response to a foreign news report in March, it stressed the ruling was not new nor was it a recent directive as they had been told since 2009 to comply. In fact, the divestment was a commitment given by foreign insurers when they applied to enter the Malaysian market.
Foreign insurers control 80% of the local life insurance market. It’s a lucrative industry with plenty of room to grow as only 56% of Malaysians have some form of life insurance and almost 80% are underinsured.
Interestingly, foreign insurers in the country repatriated RM16.5 bil or 70% of their total profits between 2008 and 2017 to their foreign shareholders.
With the deadline looming, it was reported that these insurers were proposing to set up a healthcare trust as an alternative to paring down their stake. However, the central bank shot it down.
Bank Negara has good reason to tick off foreign insurers for not taking steps to divest given that they had nearly nine years to do so. But will their licences be revoked after the June 30 deadline?
It’s not easy for the bigger foreign insurers, in particular, to find buyers for their 30% stakes. It was reported that Prudential Malaysia’s 30% stake alone was valued at US$435 mil (RM1.7 bil).
Malaysian investors may be reluctant to part with that kind of money, especially if it’s not for a controlling stake. That may the one reason why foreign insurers have failed to find a buyer.
But they should not be coerced into selling their stakes at a discount. Bank Negara should step in and arbitrate to ensure both parties get a fair deal.
While foreign insurers may be at fault for non-compliance, it will send a wrong signal to other foreign investors if the pricing is not right in a hurried sale.
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