KWAP to close stake deal in a foreign insurance unit

Foreign insurers have to cut their stake in their Malaysian units by end of June

By MARK RAO / Pic By MUHD AMIN NAHARUL

Retirement Fund Inc (KWAP) expects to wrap up one deal for a stake in a foreign insurance company as the deadline for these insurers to shave off 30% of their total interest draws near.

Foreign insurers with a 100% stake in their Malaysian units are scurrying to meet the regulator’s deadline of end-June 2018 to reduce their interests to 70%.

The foreign insurers have few options to pare down their interest — a direct 30% stake disposal to local investors or seek an initial public offering, with the latter being the more tedious process and time is running out.

The Employees Provident Fund (EPF) and KWAP, as the two of the biggest local funds with deep pockets, are keen to add the stakes of these foreign insurers into their investment portfolios.

KWAP CEO Datuk Wan Kamaruzaman Wan Ahmad (picture) confirmed that the second-largest pension fund had submitted “a firm bid” to one of the insurers, but the offer is going “through a back-and-forth” process.

“We are talking to two insurers at the moment, but are looking at closing one deal,” he told The Malaysian Reserve.

Despite the ruling for foreign insurers’ stakes to be capped at 70%, he said it is hard to pin down a date as the deal remains “tricky”.

Wan Kamaruzaman, who heads the pension fund with about RM125 billion in assets under management, had earlier stated the intention to broaden its investments into the insurance sector.

While foreign ownership of Malaysian insurers was set at 70% in 2009, some foreign insurers were allowed to be fully owned by the foreign parent under the proviso that they were able to “facilitate consolidation and rationalisation of the insurance industry”.

However, Bank Negara Malaysia (BNM) last year enforced the 70% foreign ownership ceiling and requested that the overseas insurers increase local shareholder participation to at least 30%.

The overseas firms have until June 2018 to comply with the ruling. Insurers which fail to meet the deadline could face punitive action.

Prudential plc, Great Eastern Holdings Ltd and Japan’s Tokio Marine Holdings Inc are the three insurers which have been reported to be talking to investors, pension funds and bankers on the stake reduction.

KWAP is believed to be looking at Prudential Assurance Malaysia Bhd and talking to Singapore’s Great Eastern for the stake acquisitions.

The Wall Street Journal had reported that Great Eastern was in exclusive talks with the EPF to sell a stake in its unit, Great Eastern Life Assurance (M) Bhd. The EPF, which as at end of last year has a total contribution of RM768.51 billion, has confirmed its interest in Great Eastern Life Assurance.

Foreign insurers’ Malaysian units have a strong asset base, business model and infrastructure, giving stake buyers an entry into a lucrative business despite the general insurance industry remaining flat.

The insurance penetration rate for the 32-million populated Malaysia has remained stagnant at around 55% since 2010. The authorities had hoped to achieve a national insurance penetration rate of 75% by 2020.

The total assets for life and general insurance, as well as family and general takaful, stood at RM249.2 billion as at the third quarter of 2017, according to BNM’s official figure.