Monday, April 27, 2009

Bigger foreign equity in insurance?

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz met with insurance and takaful officials last week to inform them of some of the upcoming liberalisation measures. She did not disclose details of the plan, but hinted that new licences, namely for takaful operation, may be on the cards, an industry source said, reports Business Times (April 24).
Prime Minister Datuk Seri Najib Razak will announce the much-anticipated liberalisation measures for the financial sector today.
"Bank Negara will relax ownership rules for foreign financial firms and may grant new licences to operate here.
"The overall move is to help move the local economy because Bank Negara believes that the services and financial sector have always been the prime mover of the economy," the unnamed source told the newspaper.
The newspaper report goes on:
Currently, existing foreign shareholders can increase their stake in a local insurance company up to a maximum of 49 per cent - the maximum allowable under Malaysia's foreign investment rules.
New foreign insurance companies can also enter the industry but they can only buy up to 30 per cent of a locally incorporated insurance company.
The source said the lifting of the foreign equity barrier applies to both conventional and takaful operations.
The move will enable existing foreign players, mainly in the conventional insurance segment to increase their stake as well. It will also see new financial institutions making an entry into the Malaysian Islamic insurance.
But there's a catch. The new player will have to help facilitate the Malaysian entity to expand overseas.
"They must come with that added value, only then will Bank Negara be supportive of their venture," the source added.
It was learnt that local insurance companies, namely smaller non-life companies, will be pressured to merge with larger foreign firms as the implementation of the risk-based capital adequacy (RBC) framework deadline draws closer.
"These smaller companies are in dire need of capital injection to survive," the source said.
Business Times recently reported that at least seven non-life companies were unable to meet the minimum capital required come January 1 2009.
The RBC framework requires each insurer to maintain a capital level that commensurate with its risk.
According to the General Insurance Association of Malaysia (PIAM), as at April 1 this year, there were 39 general insurance companies operating in Malaysia comprising 23 general insurers, 10 composite insurers and six general reinsurers.

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