MAA mulling options to improve capital structure

by Alfean Hardy
MAA Holdings Bhd, which is in the midst of hiving off its general insurance business, is mulling over various options up to and including a rights issue as it seeks to raise funds to improve its capital structure, its chief executive officer/group managing director, Muhamad Umar Swift said.
As of its fiscal year ended Dec 31, 2008, the insurance firm's cash and cash equivalents fell 7.79% to RM51.35 million. The company expects to complete a RM254.8 million sale of its general insurance to AMG Insurance Bhd by year-end.
The exercise also includes an additional RM16.2 million deal to sell a 4.9% stake in MAA Takaful Bhd to AMG. Speaking to reporters after MAA's AGM in Kuala Lumpur last Friday [May 29, 2009], Muhamad Umar said one of the options being looked at aside from the disposal of MAA's general insurance business was a rights issue.
"The sale recapitalises our business and the rights issue (can) allow us to address the cash flow needs of the group," he said. "While that process is ongoing, we will also be disposing of our non-core businesses and activities and freeing up that cash as well.
These are activities like Wira Guards and our stake in Mithril Bhd (it holds a 33% stake as of end FY08).
These are non-core activities. Our focus is protection," he added. Muhamad Umar said it was MAA's long term vision to be an un-geared holding company. "There might be overdraft lines but the main will be equity-funded with investmentable business, life insurance business, and our funds management and mutual funds business," he added.
MAA has subsidiaries and associate firms overseas.
Asked what the company was going to do with those companies, Muhamad Umar said at the end of the day, MAA was a Malaysia-centric business.
"We're a Malaysian brand serving Malaysians," he said. "We expect our Philippines operations to be profitable this year and we're seeing a lot of consolidation in that market.
And, while we like our assets in the Philippines, should someone like it more we'd be more than willing to sell it.
While there's been some discussions, with the current recession, this is probably not the best time to market this asset," he added.
Muhamad Umar said Indonesia was another matter. "It's a more interesting issue for us with 250 million people, a large market force and we've invested time and effort there. It's wait-and-see. It's a profitable asset for us now but, again, how much capital do we need to take it to the next level. We're looking for a strategic partner to help us take it to the next level," he said.
"For (Australian associate) Columbus Capital Australia, the asset was profitable this year and it has an interesting business model but is it a core asset for us? No, so we're looking to dispose of that asset as well," he added.
MAA executive chairman Tunku Datuk Ya'acob Tunku Abdullah said, while it was nice to play overseas, changing central bank capital requirements meant that the firm required money for its Malaysian businesses.
"If there's an offer, we will sell. I don't think there's any offer (at this moment).
For now the businesses run as is," he said. "We're not expanding those overseas operations. We're reserving all our money for our Malaysian operations. If there's a need to increase capital requirements (set by governments there), we will then look for strategic partners to put in the difference," he added.
Asked about the rights issue, Tunku Ya'acob said, for now, it was only an option for MAA as it seeks to raise capital. "We're still deliberating what would be the ideal structure to finance MAA's financial requirements. Other options include to issue new notes and discontinue rolling our RM200 million medium-term notes facility," he added.

(This story appeared in The Malaysian Reserve on June 1, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, appearing on alternate Wednesdays)

Another insurance player shuns 3rd party coverage

by Habhajan Singh
Pacific & Orient Insurance Co Bhd (P&O Insurance), one of the local top guns in motor insurance, is set to pull out completely from the third party motor insurance segment, following the trend of other insurance providers in Malaysia who have stayed clear of this sector due to the high claims ratio.
The general insurer, a subsidary of listed Pacific & Orient Bhd (P&O), was second only to Kurnia Insurans (M) Bhd for underwriting third party motor insurance covers in 2008.
"We have dropped writing third party at the head office," P&O managing director and chief executive officer Chan Thyse Seng told The Malaysian Reserve, adding that the insurer is still active in other motor related insurance business.
Industry sources estimate that the motor 'Act' insurance, which is the portion compulsory for all motorists, has generated gross premiums of close to RM600 million last year, with Kurnia Insurans and P&O Insurance conducting close to half of the industry's total.
The motor 'Act' insurance policy provides protection against death and injury to third parties. The third party motor insurance also provides protection against other legal liabilities such as damage to the property of a third party (usually somebody else's car or motorcycle or a neighbour's gate) and certain specified legal costs.
Under the third party cover, a policyholder may opt to include protection for loss or damage to his own vehicle due to fire or theft only.
On May 27, The Malaysian Reserve reported that insurance companies are no longer willing to provide third party motor insurance under their banner, and are instead sending their customers to a high-risk insurance pool run collectively by the industry under orders from the regulators.
The report also noted that a recent decision by two local insurers to completely stop providing third party cover to commercial vehicles is set to see a higher volume of premium going towards the high-risk insurance pool called the Malaysian Motor Insurance Pool (MMIP), which had already seen a big jump last year.
Even before the two local insurers made the decision, the motor insurance pool had collectively underwritten total gross premiums of RM13.33 million, which is four times more than the RM3.11 million in premiums in 2007.
"The third party aspect is just wrongly priced. Therefore, we will not be able to (underwrite) it. "Under the new rules, it's a question of what you want to write and what you are comfortable with. This is part and parcel of the RBC. I don't think its anything extraordinary," P&O's Chan said.
The Risk-Based Capital Framework for Insurers (RBC), is the new insurance regulatory regime that was implemented on Jan 1, 2009. Loss-making P&O Insurance was one of the few insurers still providing third party insurance cover, though the segment had seen a high claim ratio, thus making it an unprofitable segment of the motor insurance segment.
For the financial year ended Sept 30, 2008, P&O posted a net loss of RMRM32.62 million on a turnover of RM337.21 million. In the first quarter ended Dec 31, 2008, it posted a net loss of RM8.65 million on a turnover of RM85.39 million. Chan said that P&O is still very much a player in the motor insurance sector as some segments are still profitable.
In a press release early this year, General Insurance Association of Malaysia (PIAM) said general insurance companies are bracing for a rough 2009 as average motor premium continues to fall while insurers suffer from higherthan-expected claims ratio. It also noted that motor insurance comprises 44.3% of overall general insurance business in Malaysia.

(This story appeared in The Malaysian Reserve on June 1, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER)

Great Eastern aims for RM800m in new premiums: BT

By Rupinder SinghGREAT Eastern Life Assurance (Malaysia) Bhd, the Malaysian unit of Singapore based Great Eastern Life Assurance Co Ltd, aims to rake in new business premiums of RM800 million this year, on product innovation and the help of its agency force.
New business premiums stood at RM629 million in 2008.
"Our sales target for 2009 is to achieve RM800 million in total weighted new business premiums," said its chief executive officer Koh Yaw Hui, who is also director of Great Eastern Malaysia.
Koh said the insurance industry in Malaysia is showing positive signs, following a sluggish 2008 as a result of the global financial crisis.
This was reflected in its first quarter result, where it posted a 59 per cent growth in weighted new business premiums of RM170 million compared with RM107 million a year ago.
"This sterling performance is encouraging especially in this challenging and trying times," he told reporters after the company's Life Planning Advisory (LPA) programme graduation ceremony in Kuala Lumpur yesterday [May 20, 2009].
To meet its 2009 target, Great Eastern Malaysia is repositioning its investment-linked plans to meet specific needs namely in protection, investment, education and retirement.
"We plan to roll out these investment-linked products in June or July this year," he said.
It also plans to enhance its current stand-alone medical products.
Koh added that the core strategy will be to enhance the quality and professionalism of its agents through its agent transformation project.
Ninety five per cent of Great Eastern Malaysia's weighted premiums come from its 17,000 agents nationwide, servicing 2.25 million policyholders.
To expand its market reach, the company plans to open more branches nationwide now that the government has lifted restrictions for foreign insurers.
"We have identified a site in Petaling Jaya and on mainland Penang for a new branch. We plan to open the new branches in the next two to three years," he said. It currently has 24 branches nationwide.
Also in line with the recently announced liberalisation measures, the company plans to establish a bancassurance partnership, its first, with Overseas-Chinese Banking Corp Ltd (OCBC) in the next two to three months.
OCBC is the ultimate holding company of Great Eastern Malaysia.
Koh said the company will initially launch as many as three bancassurance products.
On its LPA programme, Koh said the company hopes to have up to 3,000 graduates by end of 2010.
Since the launch of the programme in December 2006, Great Eastern Malaysia has seen 600 graduating from LPA.

[Business Times, May 21, 2009]

Insurance firms shun 3rd party motor coverage

by Habhajan Singh
Insurance companies are no longer willing to provide third party motor insurance under their banner, and instead are sending customers to a high-risk insurance pool run collectively by the industry under orders from the regulators.
A recent decision by two local insurers to completely stop providing third party cover to commercial vehicles is set to see a higher volume of premium going towards the high-risk insurance pool called the Malaysian Motor Insurance Pool (MMIP), which had already seen a big jump last year.
Even before the two local insurers made the decision, the motor insurance pool had collectively underwritten total gross premiums of RM13.33 million, which is four times more than the RM3.11 million in premiums in 2007.
"That's a huge spike in the pool. It simply means that there is that much more insurance business that insurers do not want to touch.
"This also means that general insurers will have to fork out more for the pool," an industry executive told The Malaysian Reserve.
And the latest decision by the two insurers to completely shut out commercial vehicles is set to compound the situation. After the recent annual meeting of MMIP, executives believe premiums underwritten by the pool could more than double, with one source estimating that, moving forward, the pool could conduct as much as RM3 million of business in a month.
"What no insurer wants to do, all must do. Hence, since no single insurer is willing to underwrite third party motor risk, it goes to the pool which is collectively underwritten by all 33 general insurance players in the country," said the executive.
Major players in the motor insurance sector include Kurnia Insurance (M) Bhd, Allianz General Insurance Company (Malaysia) Bhd, AmG Insurance Bhd, Tokio Marine Insurans (M) Bhd, Pacific & Orient Insurance Co Bhd, Berjaya Sompo Insurance Bhd and Uni.Asia General Insurance Bhd. The high claims ratio has seen insurers steering clear from underwriting third party liability coverage, the minumum insurance cover mandated by the Road Transport Act 1987.
Besides providing insurance protection against death and injury to third parties (which is provided under the 'Act Only' motor insurance policy), third party motor insurance also provides protection against other legal liabilities such as damage to the property of a third party (usually somebody else's car or motorcycle or a neighbour's gate) and certain specified legal costs.
Under the third party cover, a policyholder may opt to include protection for loss or damage to his own vehicle due to fire or theft only. Over the years, Bank Negara Malaysia (BNM) and the Ministry of Finance have formed a pool established by insurance companies registered under the Insurance Act 1996 to provide motor insurance to vehicle owners who are unable to obtain insurance protection for their vehicles. It is also commonly referred to as the insurer of the last resort.
This pool is managed by MMIP Services Sdn Bhd (MSSB), a subsidiary of MNRB Holdings Bhd (MNRB) incorporated in 2006. Among others, MSSB handles the administration, accounts, investment of the funds of the pool as well as the claims negotiations and settlements.

(This story appeared in The Malaysian Reserve on May 27, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, appearing on alternate Wednesdays)

Nod for Mitsui, Hong Leong talks

Hong Leong Financial Group Berhad (HLFG) announced yesterday [May 22, 2009] that Bank Negara has “no objection in principle” for HLFG and its wholly-owned subsidiary, Hong Leong Assurance Bhd to commence negotiation with Mitsui Sumitomo Insurance Company of Japan towards a potential strategic partnership in relation to the insurance business, reports The Star (May 23, 2009).
"The prior approval of the Minister of Finance, based on the recommendation of Bank Negara, is required before the relevant parties enter into any agreement to effect the proposed Partnership," it said. "A detailed announcement will be made in the event definitive agreements relating to the proposed partnership are signed."

Maybank growing insurance asset base

Malayan Banking Bhd's (Maybank) insurance asset base which represent funds in management, currently at RM20 billion, is set to grow under the group’s aspiration to rival those managed by Great Eastern Life Assurance (Malaysia) Bhd, Prudential Assurance Malaysia Bhd and American International Assurance Bhd, reports The Star (May 23, 2009).
It aims to be the national insurance champion and is currently the leader in new business premium for the combined conventional and takaful sector as well as gross premiums for general insurance, it added.
This were the insurance-related nuggets from a recent interview by the daily newspaper with Maybank president and CEO 'of barely a year' Datuk Seri Abdul Wahid Omar.
The article started such: The tiger that had roared with so much power at Malayan Banking Bhd (Maybank) over the last decade has been pretty muted since it shocked the market with its overpriced and ill-timed purchase of Bank Internasional Indonesia (BII).
For the third quarter ended March 31, the Maybank group recorded a drop of 34% in its net profit to RM503mil compared with the previous corresponding period while for the nine months, it registered a decline of 18% to RM1.8 bil, due to lower contributions from investment banking, insurance and takaful, higher provisions and interest expense, impairment cost for MCB Bank and forex losses.

Putting customers in the driver’s seat on motor insurance

Motor insurance is not something that usually generates massive amounts of news in the local papers. They are, thanks to mandatory laws, a necessity for vehicle owners to bear and not often thought of beyond that.
That all changed last week when news broke about a proposal by the General Insurance Association of Malaysia (PIAM) to introduce rebates of up to 10% to motor insurance policy holders who deal directly with insurance companies instead of going through an independent insurance agent.
The initiative, apparently, was the result of correspondence and meetings between PIAM and Bank Negara Malaysia to promote self-regulation within the motor insurance sector as well as to promote alternative channels of distribution that would spur industry growth and reduce the number of part-time agents.
When contacted by The Malaysian Reserve, Allianz Malaysia Bhd chief executive officer Alexander Ankel praised what his company saw as a move that could eventually lead to a more de-regulated market that is on par with what can be found in developed countries.
"Our experience shows that the culture of open dialogue as being promoted by (Bank Negara Malaysia) has always helped to smoothen the transition of the industry into a more deregulated market.
"We believe that our clients should be able to obtain our products through the distribution channel of their choice," he added. The European market, which is the Allianz Group home market, is an extremely open one that allows for innovative and multi-structured products and Ankel said the group's experience with its home markets indicated that a move towards deregulation was not a bad one.
"A career as a professional insurance agent creates thousands of job opportunities and delivers best customer-centric solutions to consumers," he added.
Some industry observers have indicated that PIAM's move is a welcomed and long overdue one that could help eliminate problems which have hindered the motor insurance sector, including unscrupulous independent agents.
However, there are also those who are against it. These critics have condemned the move, stating that such an initiative did not take into consideration the views of about 40,000 independent agents nationwide and the impact this would have on their livelihood.
The Proton Dealers Association Malaysia (Peda) went so far as to say that the move would destroy the automotive eco-system. According to various reports, Peda said PIAM's initiative could see independent agents lose more than 20% of their income as many new and second-hand car dealers do become agents for the general insurance agents.
At stake, it added, was that annual motor insurance premiums generated by these agents for the insurance firms on average hit the RM1 million per agency mark. The General Insurance Representatives Association Malaysia (Perwakim) has also voiced its criticism on the plan, stating that the industry, which was already feeling the impact of the global financial crisis, could see retrenchments taking place as the staff of up to 20,000 agents are let go.

When contacted, a Bank Negara Malaysia spokesperson said the central bank was not making any statements on the matter and to refer to a statement issued by PIAM last Saturday (May 23).
In that statement, the association said agents would remain a vital part of the sector even with the introduction of mandatory rebates for direct motor insurance purchases. It said agents would continue to be used as long as car owners were comfortable with and appreciative of an agent's services.
"The concern of some agents that there will be a mass exodus of their customers to purchase directly is highly speculative and unwarranted," it added.
PIAM said agents accounted for 60% of all business generated and that its move was intended to benefit consumers who wished to deal directly with companies; who wanted more choices in terms of how they purchased their policies; who wanted the savings generated by dealing directly and who were more mobile and IT savvy.
Allianz Malaysia's Ankel said his company catered to the needs of motor insurance customers via three dominant distribution channels, namely, agency, a bancassurance partnership with CIMB Bank and through motor franchises.
"We are committed to the strong agency workforce of Allianz Malaysia who play a very important role in our distribution capabilities and we are not considering shifting our business model to direct distribution (and) we also entertain walk-in customers who come to our branches to purchase direct insurance. — by Alfean Hardy

(This story appeared in The Malaysian Reserve on May 27, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER)