Strength In Unity
by Ronnie Teo, firstname.lastname@example.org. Posted on September 16, 2012, Sunday
Major takeovers in the insurance industry
As another major segment of the financial industry, the insurance sector is seeing a resurgence in mergers and acquisitions as the industry is still very much fragmented.
HwangIM’s Gan observed a pick-up of M&A activities in the general insurance industry, which was currently very fragmented with smaller insurers looking for strategic partner while the bigger foreign companies were eyeing to expand their footprints into Southeast Asia.
In the case of Malaysia, the low penetration rate of about 40 per cent in the life insurance market, the ease of foreign equity holdings of up to 70 per cent, and growing income of the local middle class population add to the motivation of the foreign insurance giants to look at Malaysia as one of the attractive market to expand their market share.
One such example is the case of Zurich International Group (Zurich) buying over Malaysia Assurance Alliance Bhd (MAA) in October last year as it aims to better position itself within the industry here.
According to Zurich Malaysia chief executive officer (CEO), Chee Cheong in an interview with BizHive Weekly previously, with this acquisition, the new Malaysian entity could now leverage on the many years of Zurich’s expertise in the global industry.
Following the new brand launching on June 23 this year, Zurich Malaysia focused on enhancing the key areas of its distribution model, product offerings and agency development to ‘drive sustainable and profitable growth of the business model’.
When asked on his industry outlook in the short term, Chee opined that it was a challenging time for many industries, and the insurance sector was no exception.
“In Malaysia, the insurance landscape has become increasingly competitive.
In general, insurers in the country have performed considerably well in managing and responding to the challenges of either lower investment returns or lower interest rates.
“The Malaysian insurance industry has on the whole remained resilient.
However, corporate governance and risk management practice will need to evolve in the medium term to keep up with the pace of the fast-changing environment,” Chee elaborated.
Meanwhile, HwangIM’s Gan highlighted other M&A activities in the insurance industry here would be the AmG Insurance’s acquisition of Kurnia Insurans (M) Bhd earlier this year and other work-in-progress deals such as CIMB Aviva Assurance and ING Insurance.
Looking ahead, Ernst & Young’s partner for Assurance Services in Malaysia, Brandon Bruce, believed that M&A opportunities will continue to rise in the insurance industry.
“Malaysia continues to be an attractive market for foreign players, primarily due to its relatively low insurance and takaful penetration rates, compared with other developing and matured markets within the Asia Pacific region,” Bruce expressed.
“This provides opportunity for the industry to grow in the coming years, given improvements in consumer awareness, rising per capita income, emergence of a large middle income class and an ageing population that will require insurance solutions.”
He affirmed that Malaysia’s insurance and takaful sector continued to develop strongly in terms of regulatory maturity and transparency “Our regulatory framework is robust and is underpinned by stringent capital adequacy requirements.
The Financial Sector Blueprint introduces certain industry specific recommendations that are expected to further encourage M&As, particularly the splitting of composite insurance licenses and the establishment of specialised life / general insurance and family / general takaful companies.
“We also expect that the takaful industry may see more M&A activity happening in the coming years, with the implementation of the Riskbased Capital Framework for takaful operators, which will drive up regulatory capital requirements in line with developments under Solvency II for insurers.”