Posted on Oct 03, 2011 by Sergio Ulloa
Global insurance power Zurich Insurance Co Ltd (Zurich) announced last week that they had closed the acquisition of the entire share capital of Malaysian composite insurer Malaysian Assurance Alliance Berhad (MAAB). From October 1, 2011 onwards the Malaysian insurer will become part of the Zurich Financial Services Group and will combining their strengths with the goal of eventually becoming the best insurance company in Malaysia.
The transaction, first announced on June 20 2011, is an integral part of Zurich's emerging market strategy and will enable the insurer to diversify its distribution platform overseas to offset stagnant growth forecasts in mature Western markets. MAAB is an attractive asset and had been subject to international bids for sometime. The Malaysian composite insurer was founded in 1968 and is based out of Kuala Lumpur. MAAB has a well established presence in Malaysia with over 2.8 million policyholders. The insurer features a strong management team and a robust distribution platform with over 7,800 multi-tied agents distributing life and general insurance products throughout the country. According to the latest figures, by the end of 2010 MAAB had reported gross written premiums of approximately US$ 476 million, of which the insurer's core life insurance business lines contributed US$320 million. Through the acquisition of MAAB, Zurich thus gains a valued presence in one of the most lucrative insurance markets in the Asia Pacific region
, one that could help position the Group for sustained premium growth in the future.
Martin Senn, Chief Executive Officer of Zurich, commented on the Group's prospective purchase back in June: "The acquisition of MAAB is another milestone in our emerging-market strategy. It expands our presence in the Asia-Pacific region and positions us for further profitable growth. Malaysia is a highly attractive market
with considerable economic potential and a young and dynamic population."
The acquisition of MAAB will cost Zurich a reported MYR 3 44 million (US$ 115 million) in cash up front. After completion of the transaction Zurich expect to inject an additional US$ 172 million of fresh capital into MAAB to ensure the company complies with Malaysia's capital requirements for insurers. Thus Zurich's total cash outlay on this acquisition could exceed US$ 287 million. Pre-existing MAAB customers will not be subject to any premium or benefits fluctuation or any other changes to their policies as a result of this deal. The Malaysian insurance company will undergo a gradual integration into Zurich's international brand throughout 2012. MCIS-Zurich Insurance Sdn Bhd, the Swiss insurer's other Malaysian venture, will remain a separate entity for the time being.
Zurich is acquiring MAAB from MAA Holdings Berhad, a listed Malaysian holding company whose primary activity has been the development and sale of a wide array of insurance products through MAAB. MAA reported MYR 16.23 million in net profits for the first quarter ended March 31, 2011. MAA Holding Chairman Tunku Datuk Ya'acob Tunku Sri Abdullah explained last month that shareholders would be willing to part with their entire stake in MAA's core business due to the high capital adequacy requirement now set out by the Malaysian Central Bank (BNM) for insurance business. Malaysia's updated risk-based capital framework requires that insurance companies maintain a capital adequacy level that matches their risk profile. This would've necessitated substantial reinvestment on behalf of MAAB stakeholders and thus they ultimately decided to dispose of their shares despite the relatively low sale price. The agreed upon MYR 344 million (US$ 115 million) purchase price equates to roughly 1.36 times MAAB's book value. "Although the price offered is low, our shareholders have decided to proceed with the sale in view of the high capital adequacy Bank Negara requires for insurance business," the MAA Chairman said.
While MAAB has been a large revenue contributor towards MAA's bottom-line, the sale to Zurich will enable the company to recapitalize and invest in diversified business lines in line with its plan to ultimately become a comprehensive financial services group. MAA Holdings will use the MYR 344 million (US$ 115 million) in proceeds to first pay off bonds and obligations before allocating remaining funds towards working capital. MAA then intend to spend an initial MYR 38 million (US$ 11.9 million) on new branches for its existing takaful business, MAA Takaful Bhd, and its asset management business, MAAKL Mutual Bhd. MAA's Takaful operation is the largest Shariah-compliant Islamic insurer
in the country in terms of new business premium, while MAAKL Mutual ranks eighth with over MYR 2 billion (US$ 630 million) in assets under management. However because the margins of these ventures remain small in comparison to the profit derived from MAAB prior to its disposal, MAA will also look to buy and flip companies to sustain profitability. The MAA Chairman noted that they could also potentially become an investment house"Merger and acquisitions will be part of our growth strategy. We want to buy companies cheaply and sell them at a premium."
Insurance Companies Mentioned
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries and offices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world's largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.
Malaysia Assurance Alliance Berhad
Malaysia Assurance Alliance Berhad (MAA) was incorporate in 1968, MAA is a subsidiary of MAA Holdings Berhad. MAA is one of the leading insurance and financial services companies in South Asia, providing services mainly within Malaysia, as well as in Indonesia and the Philippines.