Singapore's Great Eastern Holdings and three other wholly foreign- owned insurance companies that dominate the multi-billion-dollar sector in Malaysia are facing a strict set of deadlines to pare down their holdings to local partners to conform with the country's strict ownership laws.
Based on a directive issued in April by the central bank, Bank Negara, the four companies have until the end of this month to submit the identity of the prospective parties that will take over the minimum 30 per cent shareholding in their respective operations, said senior industry executives and government officials.
The directive stipulated that the negotiations for the divestment with the targeted parties must be completed before the end of the year, and should those talks fail to materialise, the foreign insurance companies must opt for the listing of their businesses on the local stock exchange.
Plans for initial public offerings must be submitted to the Securities Commission, the country's capital markets watchdog agency, before the end of January next year.
Bank Negara, the country's top financial regulator that supervises the insurance sector, also notified the financial institutions that failure to meet all conditions by the middle of next year would result in punitive action which industry executives said would not preclude the suspension of their operating licences.
The move on foreign insurers to comply with the minimum 30 per cent local participation in their businesses was first mooted in the late 1980s under the government's financial sector rationalisation plan.
AIA, Great Eastern, Prudential and Tokio Marine had sought deferments because of the difficulty in finding suitable partners.
But the four big players - AIA, Great Eastern, Prudential and Tokio Marine - had sought deferments because of the difficulty in finding suitable partners.
In some instances, Bank Negara handed down special dispensations to foreign insurance companies that stepped in to take over troubled domestic operators.
Malaysia's insurance sector represents a key segment in the country's financial system, with fund assets accounting for roughly 5.2 per cent of the financial system.
According to Bank Negara, combined assets in the insurance and the syariah-compliant takaful industry hit RM277 billion (S$88 billion) last year, up 5 per cent from the preceding year, while total premiums and contributions rose by 4.4 per cent to RM61.3 billion during the same period.
Industry executives noted that Bank Negara's determined push to force foreign insurance companies to meet the minimum local shareholding spread of 30 per cent this time around is aimed at consolidating the fragmented sector filled with local and foreign players in the life and general segments of the business.
Bankers also noted that the plan could also inject some much- needed excitement to Malaysia's listless stock market should the foreign companies opt for the listing route to meet the central bank's demands.
Industry executives estimate that the combined value of the four main insurance players could be as much as RM130 billion.
Tokio Marine and Great Eastern have already appointed investment banks to advise them on the divestment of their 30 per cent interest to local parties.
BNP Paribas has been engaged by Tokio Marine, while Great Eastern is said to have tapped the services of Malaysia's CIMB to handle its divestment plans.