Malaysia Mulls Enforcing Cap on Foreign Insurer OwnershipBy
Central bank weighs applying 70% ownership limit more strictly
AIA, Great Eastern, Tokio Marine currently hold higher stakes
Malaysia is weighing tougher enforcement of a cap on foreign ownership of insurers as it seeks to boost local participation in the industry, people with knowledge of the matter said.
The central bank is considering more strictly applying an existing policy that foreign companies owning 100 percent of local insurance firms must pare their stakes to no more than 70 percent, according to the people. It could make an announcement on the matter as soon as this month, the people said, asking not to be identified because the information is private.
Bank Negara Malaysia, which has routinely granted extensions to firms that didn’t comply, may be less lenient in the future and require such companies to show they have the country’s best interests at heart, the people said. While details are still being discussed, criteria that may be used include hiring more Malaysian workers for highly skilled jobs and creating products fulfilling the needs of niche local market segments, according to the people.
Central bank governor Muhammad Ibrahim warned last year that foreign insurers “need to contribute more to justify their presence” in the Malaysian market. Some participants’ undue focus on short-term profits had come at the expense of serving their customers, Muhammad said in a speech in October at an insurance summit in Kuala Lumpur.
The Southeast Asian nation’s life insurance penetration has remained stagnant at 55 percent in the past three years, after jumping from 33 percent in 2001 to 51 percent in 2010, Muhammad said at the time. Bank Negara Malaysia didn’t immediately reply to emailed questions.
The insurance penetration rate, measured by the ratio of total number of life insurance and family takaful policies in force to the total population in Malaysia, has remained fairly static within the range of 54 percent to 56 percent over the last five years, according to a report released by Bank Negara Malaysia.
Affordability and access required to service policies in under-served market segments remained key barriers to higher level of penetration, the central bank said. Initiatives taken in recent years to improve transparency, encourage product innovation and expand channels of distribution are expected to improve prospects of achieving the 75 percent penetration target set out in a 10-year blueprint that aims to transform the nation into an industrialized country by 2020, it said.
AIA Group Ltd., Great Eastern Holdings Ltd. and Tokio Marine Holdings Inc. are among foreign companies that have wholly owned general insurance and life insurance operations in Malaysia, according to their latest annual reports. They compete with local participants including Malayan Banking Bhd.’s Etiqa Insurance Bhd. unit and Tune Insurance Malaysia Bhd., backed by tycoon Tony Fernandes.
Combined assets in Malaysia’s insurance and takaful industry expanded 5 percent last year to 277 billion ringgit ($62.7 billion), according to a central bank report released in March. Total premiums and contributions increased 4.4 percent to 61.3 billion ringgit.
Malaysia liberalized foreign ownership rules in 2009, allowing overseas insurance companies to hold as much as 70 percent of local firms. Higher ownership levels could be allowed on a case-by-case basis for companies that can facilitate consolidation and rationalization of the insurance industry, according to a statement at the time.
— With assistance by Komaki Ito