Over the last two years, M&As in the insurance sector have mainly involved conventional insurers, and analysts foresee some consolidation taking shape in the takaful sector in view of the Financial Services Act (FSA) and the Islamic Financial Services Act.
Under the FSA and IFSA, which came into force on July 1 last year, composite insurers and takaful players will, among others, be required to split their life and general insurance businesses under separate licences.
Under these Acts, insurers and takaful players have been given until 2018 to comply with the requirement. The need to have separate licences could result in M&As due to the cost factor. M&As would strengthen the capital base and capabilities of the merged entities and lower the cost of operations, moving forward.
President and CEO of , in responding to similar queries, said, “An M&A is a strategic decision that requires detailed level of planning and assessment. A taskforce has been formed at the group level to look at IFSA compliance overall, including the separate entities requirement.”
Industry observers feel that those affected by the FSA and IFSA would have started scouting around for M&As rather than waiting for the remaining four years to split their insurance businesses.
analyst feels that the IFSA may prompt MNRB to sell its stake in Takaful Ikhlas to a strategic partner, as further internal capital injections could be complicated. MNRB’s high gearing and leverage situation implied that options for capital injections for potential internal restructuring exercises might be limited, he added.
MNRB’s leverage position has deteriorated mainly as a result of debt-funded equity investments in its subsidiaries and its increased gearing level, which is more than 50% currently from 32% in 2012/2011. MNRB had previously undertaken a revolving RM120mil credit facility to inject RM100mil into Takaful Ikhlas and RM10mil into Malaysian Re, its reinsurance subsidiary.
head of insurance ratings said the FSA and IFSA could spur some consolidation or M&A activity in the next few years, in particular, among takaful operators with small general insurance businesses whose scale would not be able to justify the additional capital investment required for separate licences.
The size of the Malaysian takaful industry, she added, was currently about a fifth of conventional insurance. partner (assurance) said that in the next few years, the main thrust for M&As would be on the general insurance and general takaful industry. The life insurance sector seemed to have consolidated somewhat for the time being, he noted.
There were three M&As involving foreign insurers. Sanlam Emerging Markets, a unit of , bought a 51% stake in for about US$118.4mil (RM385mil), and disposed of its stake in its life insurance and takaful units to for RM812mil. The third was the acquisition of by of America and for RM518mil.
Analysts view these acquisitions as part of the financial sector liberalisation initiatives started in 2009, among which foreign shareholding limits were eased to 70% from 49%. Considerations to allow beyond the 70% limit would be on a case-by-case basis. The risk-based capital framework introduced in January 2009 opened the floodgates for M&As, as under-capitalised companies were acquired by larger ones to boost their capital base.
source: The Star