KUALA LUMPUR: Will AIA, Great Eastern and Prudential mull listing on Bursa Malaysia following Bank Negara Malaysia’s requirement that foreign insurers must have local shareholding of at least 30%, to be met by June 2018?
CIMB Equities Research said on Wednesday the enforcement of this requirement could lead to a spate of M&A activities in the insurance sector.
“Apart from selling stakes to local strategic shareholders to meet the requirement, we think foreign insurers may pursue the IPO option. Positive for investors but negative for existing insurance stocks,” it said.
CIMB Research pointed out that for the sector as a whole, it is positive on the listing of any foreign insurers, especially the three big players, on Bursa Malaysia as this would significantly expand the size of insurance sector.
“However, we think this would be negative for existing insurance stocks as their liquidity could be drained as a result,” it said.
CIMB Research qualified that the report was purely a scenario analysis to explore the idea of major foreign life insurers’ listing on the Malaysian equity market. So far, there has been no indication that any of these companies intend to go public.
Nonetheless, it believes certain foreign insurers may consider listing on the Malaysian equity market to meet the minimum local shareholding requirement of 30%.
It notes that there are 23 general insurers and 14 life insurers in Malaysia.
Market share is more evenly distributed in the general insurance segment in terms of 2016 annualised gross earned premium, with local players comprising 52.1% and foreign players accounting for 47.9%.
However, foreign names dominate the life insurance sector, with total market share of 81.7% in 2016 vs. the 18.3% of local insurers.
AIA, Great Eastern and Prudential have a combined market share of 66.7% (in terms of gross earned premium).
For this reason, CIMB Research thinks these companies would attract keen interest from investors if they list on the Malaysian equity market (at reasonable valuations).
“We use the average price-to-book value (P/BV) of 2.3 times for past acquisitions of insurance firms in Malaysia to value the foreign insurers (based on latest book values).
“Based on this, we estimate the three big foreign life insurers in Malaysia would have total market capitalisation of RM19.1bil, of which RM10.9bil would be for AIA, RM4.1bil for GE Life (GEL) and RM4.1bil for Prudential.
“If their major shareholders sell a 30% stake in each, total proceeds raised would be RM5.7bil.
“We retain our Overweight call on the Malaysian insurance sector in view of the positive growth prospects for the Takaful segment and for Tune Protect’s overseas business.
“Tune Protect is our top pick for the sector. Key downside risks to our call are a slowdown in premium growth and a spike in claims ratio,” it said.